Business Daily #1386 September 19, 2017

Mainland preparing plans to reform financial sector Central bank Page 9

Tuesday, September 19 2017 Year VI Nr. 1386 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Revenue

Analysts predict 10-12 pct uptick in September gross gaming revenue Page 7

Politics

Hato and increased social issue awareness “blew voters into the voting ballots”, says expert Page 2

www.macaubusiness.com

Transportation

Population

Portas do Cerco bus terminal revamp only ready in Q4 2019, after damage caused by typhoon Page 3

India set to lead growth in Asia Page 11

Quiet after the storm Housing

Damage caused by Typhoon Hato and the recent Legislative Assembly elections have caused a lull in the real estate market, with total transactions falling 22 pct m-o-m and 20 pct y-o-y.

Sales of on-plan and off-plan units fell, with the market for off-plan to remain slow until November, says expert.

Meanwhile, average prices rose y-o-y. Page 5

Opinions on opening up of Sino-Luso offshores divided

Offshores related to trade and services between Portuguese-speaking countries and the Mainland are now allowed, due to an initiative led by IPIM. But whether it’s still advantageous to open an offshore in the MSAR is unclear, states one expert.

Other ways to support businesses engaging across the Sino-Luso world could also be explored.

Online room bookings dominate digital revenue Hospitality Online bookings of rooms made up 98 pct of the MOP1.18 bln in total online-generated revenue last year, while the sector saw a 9.3 pct increase in overall revenue, reaching MOP28.47 bln. Sector spending was also up 13.5 pct, to MOP26.6 bln, primarily due to rises in employee compensation and operating expenses. Page 3

Housing cools down in China Offshores Page 6

HK Hang Seng Index September 18, 2017

28,159.77 +352.18 (+1.27%) Worst Performers

Geely Automobile Holdings

+7.71%

China Merchants Port Hold-

+3.71%

Lenovo Group Ltd

-0.71%

Sun Hung Kai Properties Ltd

-0.37%

China Resources Land Ltd

+7.54%

New World Development

+2.32%

China Shenhua Energy Co

-0.53%

Swire Pacific Ltd

-0.31%

China Overseas Land &

+4.85%

AIA Group Ltd

+2.29%

China Mobile Ltd

-0.49%

CK Infrastructure Holdings

-0.07%

AAC Technologies Holdings

+4.51%

Tencent Holdings Ltd

+2.13%

CLP Holdings Ltd

-0.43%

Hengan International Group

+0.20%

Hong Kong Exchanges &

+4.30%

Henderson Land Develop-

+2.12%

Hong Kong & China Gas Co

-0.40%

BOC Hong Kong Holdings

+0.37%

27° 31° 27° 31° 27° 31° 27° 32° 27° 31° Today

Source: Bloomberg

Best Performers

WED

THU

I SSN 2226-8294

FRI

SAT

Source: AccuWeather

Real estate Home prices rose in fewer cities according to the latest official data. New-home prices, excluding government-subsidized housing, gained in 46 of 70 cities tracked by the government in August, compared with 56 in July. Page 8

2 Business Daily Tuesday, September 19 2017

Macau

Elections 2017

Moved by discontent More awareness of social issues by young residents and discontent created by the government’s response to Typhoon Hato, could have led to a higher turnout in voters at this year’s Legislative Assembly elections and to larger support of pan-democratic candidates Nelson Moura nelson.moura@macaubusinessdaily.com

S

ocietal discontent over the government’s lack of preparation for and handling of Typhoon Hato likely led to a higher turnout at this year’s Legislative Assembly elections, providing a backlash against pro-establishment candidates and strengthening the pro-democratic camp, political analysts told Business Daily.

“The wind blew voters into the voting ballots, so to say […] The pro-establishment camp didn’t get that many votes since a large number of the community were angry at the way the government handled [the typhoon],” political analyst and researcher Larry So told Business Daily.

According to Mr. So, social discontent over mishandling of funds and lack of affordable housing, also led voters to cast their votes for candidates who were more engaged in social issues and more connected to the pan-democratic camp.

This year’s Legislative Assembly (AL) elections saw the participation of approximately 57.22 per cent of the 305,615 registered voters, up 2.2 percentage points, or 22,992 voters, when compared to the last election held in 2013.

“Although the percentage of voters is not much higher, you can see that there was a better distribution of voters in the different electoral lists, with the last election not being so evenly distributed […] This is also, I think, because the younger generation, moved by the typhoon, went largely to the pan-democratic camp,” So added.

Winners and losers

On the pro-democratic camp, long-serving legislators Ng Kuok Cheong and Au Kam San both confirmed their continuation in the AL, while Sulu Sou Ka Hou (also from the democratic camp) became the youngest elected legislator, at 26 years old.

According to Mr. So “many people were saying that Mr. Au would have trouble getting votes,” after comments made by the legislator questioning the government’s decision to request the assistance of the People’s Liberation Army to help clean up the city after the passage of Typhoon Hato, but he “ended up having no

problem”, getting a total of 11,380 votes, more than in the 2013 elections.

“Of course the largest surprise was Mr. [Sulu] Sou who got elected […]

The pan-democratic camp will have some more members in the upcoming AL and I predict the government will have more challenges and more questions from the new legislators,” Mr. So considered.

Meanwhile, legislator José Pereira Coutinho was also re-elected with 14,383 votes, but his New Hope electoral list failed to gather enough votes to re-elect legislator Leong Veng Chai.

The two electoral lists connected to outgoing legislator and businessman Chan Meng Kam – aligned with Fujian associations and more pro-establishment - managed to elect legislators Si Ka Lon and Song Pek Kei, but lost one seat in the AL. The two lists together received less votes than the list led by Mr. Chan in the 2013 elections, which at the time gathered 26,385 votes - the highest vote amount received in MSAR elections - and gained the candidate group three seats in the AL. “Mr. Chan tried very hard to include his people, but he himself was not running. Splitting the team in two electoral lists was done to try to elect

at least three legislators, but it didn’t happen,” Mr. So told Business Daily.

Awareness and awakening

“People suffered a lot of hardship after the typhoon and they reflected more on ‘who can we put there that can better represent us’ and looked at the issues of infrastructure and housing,” Associate professor in International Integrated Resort Management at the University of Macau, Glenn McCartney, told Business Daily.

According to Mr. McCartney, apart from the recent impetus created by Typhoon Hato, the higher turn out and the outcome of the election was more associated with young educated Macau residents having more awareness of issues such as “inflation, health care, welfare and education” and being active in voicing their complaints.

The increased number of candidate lists linked to the gaming industry could also have impacted the choices of younger voters in particular, who seemed to focus on issues affecting the MSAR as a whole.

“I wouldn’t be surprised if it is revealed that a lot of the voters were young residents or young middle executives working in the gaming and hospitality industry. The gaming

sector is important and that’s not going away, but these voters also want to see how their money is being spent,” he added.

In this year’s elections, SJM’s executive director, Angela Leong On Kei, secured another four-year term, but failed to obtain a seat for her partner, local businessman William Kuan Wai Lam. Meanwhile, Melinda Chan - wife of the head of casino operator Macau Legend Development Ltd, local businessman David Chow Kam Fai - failed to be re-elected as a legislator.

On the other hand, the Casino Frontline Workers - an electoral list comprised of gaming sector workers and involved in several recent workers’ protests - although failing to elect a legislator, managed to gather 3,129 votes in its first time running.

With a new Chief Executive to be elected in 2019, and with gaming concessions to expire in 2020 and 2022, the newly elected legislators will have an opportunity to discuss the tender process for the new gaming licenses, with Mr. McCartney saying there was a concern that a more “fractured” AL could give an image of “political instability” in the MSAR and create “negative investor confidence in Macau”.

Business Daily Tuesday, September 19 2017 3

Macau Hospitality statistics

Hotel and the city Sheyla Zandonai sheyla.zandonai@macaubusiness.com

T

he hotel sector posted a 9.3 per cent increase in revenue year-on-year in 2016, amounting to MOP28.47 billion, according to the results of the survey conducted by the Statistics and Census Services (DSEC) released yesterday.

The DSEC attributed the sector’s improved business performance to a rise of overnight visitors – up 13.9 per cent from 2015 – and the opening of three new hotels in the city – one five-star hotel and two three-star hotels.

The sector spending was also up 13.5 per cent yearon-year to MOP26.60 billion, with compensation of employees, operating expenses, and purchases of goods and commissions paid rising 14.2 per cent, 13.8 per cent, and 9.3 per cent, respectively.

Expenditure of the 77 hotels surveyed was mainly attributed to the compensation of employees, amounting to MOP11.91 billion, and operating expenses of MOP11.76 billion, up 14.2 per cent and 13.9 per cent, respectively, year-on-year.

According to DSEC, a higher rate of spending than revenue was due to the fact that the new hotels only started their

operations in the second half of 2016.

The total number of people employed in the sector also grew 9.6 per cent to 49,628 during the year.

In particular, more than half, or 27,204 people, were employed in the eight hotels with 1,500 workers or more, marking an increase of 19.8 per cent year-on-year.

Hotels rated 4-stars posted the highest increase in revenue, up 51.2 per cent year-on-year to MOP4.12 billion, with revenue from room sales up 28 per cent to MOP2.09 billion, while revenue growth for 5-star hotels was up only 2.2 per cent to MOP21.92 billion,

with room sales up 1 per cent to MOP9.85 billion.

Revenue generated by online business, including bookings of hotels and tickets (of which room bookings were 98.3 per cent of the

total), amounted to MOP1.18 billion in 2016, with revenue ensuing from 5-star hotels totalling some MOP775 million, MOP253 million for 4-star and MOP108 million for 3-star establishments.

Infrastructure

Border Gate Bus Terminal revamp project slated for completion in Q4 2019 GDI head says the budget for the big revamp will only be confirmed when the tender is decided Cecilia U cecilia.u@macaubusinessdaily.com

In the wake of the extensive damage resulting from Typhoon Hato, the revamp and upgrade project of the Border Gate’s underground bus terminal is expected to only be fully reopened for public use by the fourth quarter of 2019.

However, the bus terminal will have its central part reopened by the second quarter of 2019.

The reason for the timetable, explained Chau Vai Man, the Coordinator of the Infrastructure Development Office (GDI), is that the original

draft of the revamp project was based on conditions before the super storm, while in the wake of the incident it has had to be redrawn.

“We completed the original

plan [for the bus terminal] in the third quarter this year,” said Chau during the press conference yesterday at the Transportation Bureau (DSAT). “But the plan had

only considered the destruction level that was made by Typhoon Hagupit (the second strongest tropical storm in 2014).”

Before Typhoon Hato hit, discussions had widely revolved around improving the poor ventilation system of the bus terminal, and the MSAR Government had pledged to resolve the situation.

Meanwhile, when asked by the press about the budget for the project, Chau said the price will only be confirmed when the tender is granted.

Chau reported that the project would start by repairing the power supply and drainage system. For

later phases of the project, construction will focus on: the movement of the power supply machine from underground to the Border Gate Plaza; improvements to the ventilation system; and the addition and optimisation of waiting lounges, mechanical emission systems as well as the lighting system.

Meanwhile, given the temporary closure of the bus terminal after the typhoon, DSAT has coordinated with the Public Security Police Force (PSP) and the three bus service operators to re-arrange 24 routes of buses to 10 temporary bus stations spread across the city.

Crime

Not written law Legislator and lawyer Leonel Alves stated there is no written law establishing specifically that those holding high-level public positions that are judged by the Court of Final Appeal can’t appeal the court’s decisions Nelson Moura with Lusa nelson.moura@macaubusinessdaily.com

Legislator Leonel Alves stated that he was worried about the insistence by the Court of Final Appeal to deny an appeal to defendants holding high-level political offices, stating that this rule is “not written anywhere”.

Since the handover of Macau to mainland China in 1999, two high level officials have been charged in the Court of Final Appeal: the former Secretary for Transport and Public Works, Ao Man Long, in 2007, and former Prosecutor-general Ho Chio Meng this year. Both were not allowed to appeal the court’s decisions.

After Mr. Ho requested an appeal, the court reaffirmed last week the impossibility of defendants who formerly held public office appealing the court’s decisions, stating “one cannot deduct that there is a legal gap”.

Leonel Alves - who will step down as a legislator in

the Legislative Assembly after 33 years of service rejected this interpretation by the Court of Final Appeal, arguing that “there is no institutional impediment” to deny the right of appeal to citizens “nominated for an important position and that enjoy the presumption of innocence”.

A question of manpower

Mr. Alves recalled that before 1999, he was involved in drafting the Basic Law of Judicial Organization and that this “initial version included the right to an appeal”.

“However there was someone that opposed [this right], stating defendants should be immediately judged by the Court of Final Appeal, since they were directly appointed by the Chinese central government,” the lawyer said.

“I respect the court’s decision, but since I took part in the initial draft of the law, I can say that the non-existence of the right of appeal wasn’t due to any

philosophical or political belief, but due to the small number of legislators in our top legal court,” he added.

The Court of Final Appeal is composed of three judges and, given that it’s the top legal court, there is no higher body in which to re-evaluate cases that have been judged there.

“There is no constitutional impediment, it is not written

anywhere, neither in the Constitution of the People’s Republic of China nor in the Basic Law of Macau, that the citizen who happened to hold a public top position can’t appeal,” he said.

Human flaws

Mr. Alves admitted that “the right to appeal is also not written anywhere” but underlined that in a state under

a differing rule of law, it is necessary to “recognise that humans make mistakes and no one can guarantee that three judges have the gift of absolute truth and certainty”.

“It’s a citizen’s right. Personally, as a lawyer and as a citizen, I am worried and I think this has to be solved,” Mr. Alves added.

For the lawyer, by not changing the rule under which high-ranking officials are only judged in the top court, it is necessary to provide the Court of Final Appeal with “sufficient human resources to be able to receive the appeals to its decisions”.

However, he argued that only the Chief Executive should be judged directly in the top court since “the CE is the maximum representative, the others are collaborators of the maximum representative”.

“Why does an employee have to have the same judicial treatment as the Chief Executive? It doesn’t make sense,” he added.

4 Business Daily Tuesday, September 19 2017

Macau Opinion

Albano Martins*

The meaning of a free economy Once upon a time there was a city that saw it’s pockets begin to fill and burst at the seams with all the money raised by an ingenious idea of the top herald of the town, coming from a time in which purse strings were tight, with not even enough money to make a rooster sing.

The liberalization of the gaming industry filled its coffers and breathed new life into the real estate market, plunged deep into the abyss since ‘96, when its neighbor, now the Motherland, decided to close the faucet to the flows of the moneys diverted from its provinces, a money laundering problem that continues to persist, now more private than public.

As the city could scarcely afford to pay its civil servants, the top herald arranged a skillful way of filling his coffers.

What is strange is that it already existed, was not invented, but officially wellsqueezed it was not capable of accomplishing the miracle of the multiplication of patacas.

That is, the herald’s coffers had no pennies!

Weird is it not?

Well, the truth is that the new, smarter, professionally-minded top herald has come up with another more skillful formula for producing money far more effectively.

And it worked.

He liberalized the gaming industry.

The problem with so much money falling from the sky almost suddenly and continuously, is that he started to buy almost everything.

And economic science teaches that prices have to rise when goods are scarce for so much demand, especially if the economy was to be left to run freely.

From the second quarter of 2003 until the second quarter of this year, we witnessed the miracle of the multiplication of real estate prices, facilitated by another magic formula, the so-called free economy; that is, one can steal at will as there is always someone with money at the door.

By the so-called exact method used in financial mathematics, real estate prices grew on average annually by 21.46 per cent during the last 14 years!

That is really good business!

No ceiling on the rents could have endured so much exponential growth.

Hence our lawmakers, pragmatic as usual, have voted against that ceiling in the name of Adam Smith’s so-called free economy, although I doubt if they ever read a page of “The Wealth of Nations”!

Who came out better off from this fairy tale?

And who did not? * an economist and contributor to this newspaper

Gaming finance

UnionPay retail merchants on the line Control over the use of mainland China-issued UnionPay cards might increase, and it won’t be over ATMs, suggests analyst Sheyla Zandonai sheyla.zandonai@macaubusiness.com

T

he use of UnionPay retail merchant facilities, rather than ATMs, can explain a rise in demand for cash from mainland Chinese UnionPay (CUP) cardholders betting on premium mass tables in Macau, according to comments provided to Business Daily by iGamix managing director Ben Li. ‘ATMs are being used predominantly by the grind mass and lower-end of the premium […] whereas UP [UnionPay] merchant transactions are dominated by the higher premium mass whose average buy-ins range from HK$150,000 to HK$500,000,’ Li said.

Last week, a note released by investment bank Morgan Stanley revealed that dependence on CUP cards for cash on hand remained ‘high’ for the premium mass gaming segment during the year ended August 2017.

The institution outlined that as much as 70 per cent of gambling funds have been sourced through CUP for customers gambling higher sums – an increase when compared to 66 per

cent in 2016 and 60 per cent in 2015.

Morgan Stanley’s report was published nearly three months after the Monetary Authority of Macau (AMCM) enacted the Know Your Customer (KYC) technology with facial recognition in local ATMs targeting CUP cardholders.

According to the Authority, more than 1,000 of a total of 1,250 local ATMs are currently KYC-run machines.

‘I believe the introduction of KYC into the ATMs has resulted in both a shift in volume to Hong Kong ATMs, but again more likely it pushed the volume towards the UP retail merchants, both legal and illegal,’ said Li. Based on his ‘personal experience,’ the consultant added that the number of ‘illegal touts wandering around casinos promoting their portable merchant devices is at an all time high.’

Tightening controls on UnionPay

Li concurs with suggestions outlined in Morgan Stanley’s report that the likelihood of new or further tightening of UnionPay regulations ‘will undoubtedly affect the premium mass and mass’ business in Macau.

The institution noted that measures

such as facial recognition, transaction limits, and rising scrutiny linked to ‘any potential clampdown on the usage of debit/credit cards in future’ remain a risk to the premium mass segment.

The iGamix managing partner explained that premium mass players ‘are not as well heeled nor connected’ to the extent that ‘a significant portion of the UP transactions are actually facilitated by the casinos’ premium hosts via their preferred UP merchant.’

For those reasons, he said it is possible that ‘we may yet see either the introduction of KYC cameras for those retail outlets devices or more likely further restrictions on the placement of those outlets in proximity to the casinos.’

Stanford C. Bernstein, a brokerage, also released a note towards the end of last week claiming that the recent increase in anti-corruption actions by the central Chinese government observed over the last eight months could impact both VIP and premium mass markets, due to Chinese credit restrictions, the slowing down of growth in supply, and the softening of real estate prices.

Smart city

FDCT: cloud computing centre construction complete by June 2019 The first phase of construction of the cloud computing centre, set to kick off the MSAR’s Smart City project, should be completed by June of 2019, according to the head of the Science and Technology Development Fund (FDCT) Fred Ma Chi Nga. The comments came during a talk

focused on informing the sectors related to the project about the city’s cooperation with Alibaba Group, which attracted over a hundred participants from 70 associations and groups.

Last month, the MSAR Government signed a Framework Agreement for

Strategic Cooperation in the Area of Building an Intelligent City with the Alibaba Group, with a deadline being set to fulfill the project in two phases by 2021.

Fred Ma reported during the talk that the team was currently in the process of planning and finding a suitable location for the setup of the cloud computing centre.

Once the construction of the centre is completed, the project will gradually proceed to develop in the tourism area, training of specialists, traffic management, medical services, overall city management and other areas that are applicable with the use of Big Data.

During the talk, participants expressed hopes that the cooperation would provide more opportunities for interested entrepreneurs to set up businesses. Others also pointed out that local industries could participate more in contracts granted by the government. C.U.

Business Daily Tuesday, September 19 2017 5

Macau

Source: DSF Property

Real estate brokerage: market remains quiet after typhoon and during election Latest DSF data also shows a significant drop in August property transactions Cecilia U cecilia.u@macaubusinessdaily.com

A

fter the damage caused

by Typhoon Hato and the recent Legislative Election, the real estate market has been quiet since the end of August, points out Jane Liu, managing director of Ricacorp (Macau) Properties Limited.

Ms. Liu noted that the passage of Typhoon Hato increased owners’ expenses for repairing damage to stores, despite the Macao Economic Services providing support by offering interest-free loans to store owners.

“It is a loan, borrowers still need to repay,” said the real estate representative. “As such, people at the moment have no desire to buy or rent properties,” she opines.

With the campaigning period for the Legislative Assembly elections taking place over the past two weeks, Ms. Liu also pointed out that residents had their attention on the election rather than the property market.

Plummeting August transactions

Official data released by the Financial Services Bureau (DSF) shows that the total number of transactions dropped from 764 in July to 594 in August, down 22.3 per cent month-on-month.

The number of transactions in August also experienced a drop of 20.3 per cent when compared to the same month a year ago.

Furthermore, the significant drop was also influenced by the changes

made to the mortgage ratio, introduced in May. DSF data shows that 531 completed properties were transacted in August, a decline of 23.8 per cent month-onmonth, while off-plan properties only dropped by four transactions, to 63 units.

Ms Liu told Business Daily that no notable new projects had been rolled out in the past two months, resulting in the small amount of transactions in off-plan units when compared to previous months, such as the 535 offplan transactions recorded in May. When asked about whether the new property located next to the public housing of Mong Ha at Edificio Mong Sin - Trust Legend - would cause an uptick in the number of transactions in the coming months, Ms. Liu said changes would only be seen “perhaps in November”.

Prices dropping

The average prices of flats in August stood at MOP94,822 per square metre, a slight drop of 2.7 per cent monthon-month, DSF data indicated.

However, the average price increased by 14.5 per cent when compared to the figure of MOP82,800 in August of 2016.

Looking at specific areas, Coloane was the zone that experienced particular growth in the price of residential units when compared to the previous month, up 5.7 per cent, from MOP131,808 in July, to MOP139,300 in August.

Safety comes first

Given the significant flooding and

the many broken windows caused by the impact of Typhoon Hato, Ms. Liu said clients nowadays are more concerned about safety rather than convenience when looking for flats.

“Many of the buyers cancelled buying flats in the Inner Harbour Area after the typhoon,” disclosed the

real estate agent. “They [the buyers] are more concerned with practical matters and ask questions like ‘how thick is the glass’ when seeing flats.”

As such, clients are looking in particular at which district the flat is in and are trying to avoid low-lying areas, said Ms. Liu. advertisement

6 Business Daily Tuesday, September 19 2017

Macau Offshore

Sino-Luso offshore allowed Starting from today, the MSAR will allow the establishment of offshore operations related to trade and services between Portuguese-speaking countries and mainland China Nelson Moura nelson.moura@macaubusinessdaily.com

T

he MSAR will now allow the opening of offshores related to trade and services between Portuguese-speaking countries and mainland China starting from today, according to a release in the Official Gazette yesterday.

According to the release, the addition to the list was requested by the Macau Trade and Investment Promotion Institute (IPIM), bringing the number of authorised commercial activities eligible for the Macau offshore regime to nine.

However, the President of the International Lusophone Markets Business Association (ACIML), Eduardo Ambrósio, told Business Daily the measure wouldn’t offer any “advantages or benefits” to local or outside companies engaged in Sino-Luso business.

“Maybe before it was advantageous to open an offshore in Macau, but nowadays I don’t see a lot of advantages to it,” Mr. Ambrósio said.

According to the businessman, the cost of performing yearly audits of offshore operations in Macau is higher than for a class A company (a company with more than MOP1 million in capital).

“A class A company can have an accountant make the audit and then present it to the [Monetary Authority of Macau], while an offshore needs to hire a professional auditor, which is more expensive,” he added.

These disadvantages, together with the low number of activities allowed for

offshore operations to engage in, have reduced the number of offshores in the MSAR. According to Macau Business magazine, as of the end of 2016, only two new offshores were registered in Macau, while 28 chose to close operations.

IPIM told Business Daily that the measure was set up to encourage investment from businesses related to Sino-Luso trade and services in Macau.

‘Fiscal incentive can further strengthen the development of positioning and objectives. With this preferential treatment, more investors would expect to choose Macau as a stepping stone for the products and services between Lusophone countries and the Mainland market, which could accelerate the moderate diversification of Macau’s economy,’ IPIM told Business Daily.

Good intentions

For former deputy secretary-general of the permanent secretariat of Forum Macau, Rita Santos, the

change was a “welcome measure” that could “improve” and “boost” the level of trade and business between Lusophone countries and mainland China through Macau.

However, Ms. Santos - who worked at Forum Macao for 12 years – stated that there has been a “lack of specific measures” by the MSAR Government to help local SME’s to take a larger role in Sino-Luso trade.

One of the issues that “has been discussed since Forum Macao was created 14 years ago” was the creation of an export credit insurance scheme that could reduce the risk for local companies making deals abroad.

“It is very hard for local companies to compete in

Restricted club

In 2005, the Macau offshore legislation was amended, reducing the number of active eligible operations for the offshore regime from 20 to eight.

Sino-Luso trade with the large state-owned Chinese companies, so there is a need for more measures to reduce their risk,” she told Business Daily.

In November of last year, the Secretary for Economy and Finance, Lionel Leong Vai Tac, announced that there were plans to create an export credit insurance system and that insurance firms would be contacted, however to date, no specific timeline for establishing the scheme has been provided.

Ms. Santos also believes the MSAR Government could provide more subsidies to support business trips and operations of local companies to Lusophone countries.

“So far only one local company [Charlestrong

Engineering Technology] has managed to secure a construction development in Mozambique, which shows how much can still be done in helping local companies,” Ms. Santos added.

In 2014, local construction company Charlestrong signed a contract with the country’s government housing bureau for the second phase of construction of the Olympic Village, a 240-apartment complex in Maputo for middle and lower-income Mozambique residents.

In the first seven months of this year, Sino-Luso trade increased around 31.3 per cent yearly to reach US$67.61 billion (MOP544.35 billion), according to data provided

by Forum Macao.

Before today, those activities were: information equipment consultancy; information and programming consultancy; data processing; data bank services; administration

and filing support services; R&D activities; technical research and analytical activities; and sailing vessels and aviation equipment administration activities.

Column

Clever timing and a whiff of history in Excelsior deal Mandarin is tapping into the renewed buzz around Hong Kong office space since May Nisha Gopalan Bloomberg Gadfly columnist

A piece of Hong Kong’s history won’t come cheap.

That’s why Mandarin Oriental International Ltd.’s US$3.8 billion disposal of the Excelsior Hotel, featured in the Pink Panther movies and linked to the Noon Day Gun immortalized by Noel Coward, is smart.

By selling the only four-star hotel in its five-star portfolio, Mandarin takes advantage of record prices while reducing its reliance on the city’s competitive market.

Unlike its parent Jardine Matheson Holdings Ltd., the British trading house associated with Hong Kong’s founding more than 150 years ago, Mandarin Oriental is a mainly local play. While Jardine profits from its ownership of Hongkong Land Holdings Ltd., the biggest landlord in the Central business district, it’s also a major player in Southeast Asia.

Mandarin Oriental has its name on

luxury hotels and residences worldwide, yet it still makes 54 per cent of EBITDA (earnings before interest, taxation, depreciation and amortization) from Hong Kong and Macau.

That has been bad news. Fewer big-spending Mainland tourists, the hotel group’s bread and butter, are coming to Hong Kong -- they now prefer London, Paris or Tokyo.

Until it announced plans for a sale of Excelsior in June, Mandarin Oriental’s Singapore-listed shares were underperforming those even of its parent.

The disposal of the 848-room property, with a gross total floor area of 684,000 square feet, turns a burden into a bonus. The hotel, built in 1973, is run down and would have needed an expensive refit. Easier to sell it for office redevelopment, for which permission has been granted, at the top of the market. Mandarin is tapping into the renewed buzz around Hong Kong office space since May, when Henderson Land Development

Co. paid a record US$3 billion for a former car park in the city.

‘Mandarin Oriental has its name on luxury hotels and residences worldwide, yet it still makes 54 per cent of EBITDA from Hong Kong and Macau’ The one challenge Mandarin faces is a smaller pool of buyers, as capital controls prevent Mainland investors from taking a lead role. Chinese investment in Hong Kong’s office sector fell to 8 per cent of total investment

volumes in the first half, compared with 31 per cent last year, according to JLL. The site was the first British purchase in 1841.

Interest in the site is testament to the Excelsior’s location: It’s in the retail paradise of Causeway Bay, three subway stops from Central, with sea views and history, as the first plot of land acquired by the British in 1841. The sale has attracted at least five bidders, according to reports, including a Chinese-backed consortium of Sun Hung Kai Properties Ltd. and Hysan Development Co. and a tie-up between Hong Kong’s Chinese Estates Holdings Ltd. and longstanding Mainland ally China Evergrande Group.

When it abandoned a Hong Kong listing for Singapore in the early 1990s, before the territory’s 1997 handover to China, Jardine Matheson was accused of being short-sighted. With this deal, it’s anything but. Bloomberg Gadfly

Business Daily Tuesday, September 19 2017 7

Macau Results

September gross gaming revenue up 10-12 pct: analysts

E

stimates for September’s gross gaming revenue, despite the city still recovering from the impacts of the typhoon and the hype around the Legislative Assembly elections, should still see a 10 per cent to 12 per cent year-on-year uptick, according to analysts at Bernstein. The figure assumes average daily revenue from the sector of MOP660 million to MOP690 million, from yesterday until the end

of the month, amounting to a total of MOP20.4 billion to MOP20.7 billion in total gross gaming revenue for the month.

Two local properties are still shut following Typhoon Hato – Macau Legend’s Legend Palace as well as Galaxy’s Broadway Macau - and ‘neither of them have confirmed the dates for resumption of operations,’ note the analysts.

The group also points out a small fire at MGM Cotai’s construction site,

which was ‘contained very quickly’, while the Macau Government Tourism Office (MGTO) has announced it’s ready to license the newest addition to the Cotai Strip, despite it still lacking a casino license, The 13 hotel.

The analysts continue to point to mass as the driving force in the coming years, noting that ‘in the longer run, the VIP model will continue to face structural headwinds from a tightening regulatory environment in Macau and continued focus on

capital outflows in China,’ however the ‘improvements in transportation infrastructure’ are helping. In particular the analysts note that for the property in Cotai most beleaguered by the transportation infrastructure construction, Wynn Palace is, for mass market, now ‘strongly positioned in the market over the longer run’ as it continues to ‘ramp up over the next few quarters as marketing efforts are enhanced and the connectivity of the property improves’.

VIP liability

Imperial Pacific’s default accounts on the rise However the Hong Kong-listed company announced current impairment on trade receivables is ‘in line with global industry standards’ Sheyla Zandonai sheyla.zandonai@macaubusiness.com

Casino operator Imperial Pacific International (IPI) Holdings Limited announced some HK$1.27 billion (US$162.87 million/MOP1.31 billion) in impairment of trade receivables due from its ten largest customers for the six months ended June 30, 2017, according to a filing by the company with the Hong Kong Stock Exchange last Friday after trading hours.

The amount represents a 72.82 per cent increase from the HK$346 million due from IPI’s ten largest clients registered for the year ended

December 31, 2016.

Total impairment of the group’s trade receivables amounted to HK$2.08 billion over the period, up 59.27 per cent from HK$847 million last year.

The company noted that it considered the current impairment ‘to be comparable’ to the one announced last year and ‘in line with global industry standards for customers sourced through own marketing avenue instead of junket operators.’

The operator of the Imperial Pacific Resort in Saipan, an island in the Commonwealth of the Northern

Marianas, a U.S. jurisdiction, noted further in the Friday filing that it has ‘prudently benchmarked against its industry peers on provision of bad debt on trade receivables.’

Among the measures it announced to recover the trade receivables are credit terms extended by the group of generally 30 days for gaming operations, and the issuance of demand letters for immediate payments to 6-month default customers, along with their guarantors when applicable, before moving to take legal action against debtors.

IPI’s casino is primarily a VIP-run

operation, with a total of 16 VIP gaming tables.

The company noted in its interim results that its VIP customers consist ‘primarily of credit players,’ who are mainly sourced from mainland China, Macau, Hong Kong, Korea and Saipan, adding that it did ‘not rule out the possibility … [to] carry out further debt and/or equity fund raising plan(s) to further strengthen the financial position of the Group.’

The company has also announced along with its interim results that it has plans to open more VIP rooms by the end of 2017. advertisement

8 Business Daily Tuesday, September 19 2017

Greater China Property

Home price growth cools further in August as curbs bear down Nearly a third of Chinese households believe housing prices will keep rising in the coming quarter Yawen Chen and Clare Jim

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hina’s new home prices rose in August at the slowest pace in seven months and fell or levelled off in more cities as government cooling measures dampened speculation, though there were no signs of a sharper correction that could damage the economy.

Signs of a more stable and less frothy housing market, which is a key driver of economic growth, will be good news for the Communist Party as it prepares for a key meeting next month.

Average new home prices in China’s 70 major cities rose 0.2 per cent in August, half the pace of the previous month, National Bureau of Statistics (NBS) data showed yesterday.

It’s the first time in three years that prices in the 15 hottest markets singled out by the NBS - mostly mega-cities and provincial capitals have all stopped rising on a monthly basis after nearly six months of intensified controls, analysts noted.

“The turning point for Tier-1 and Tier-2 cities has emerged,” Zhang Dawei, a Beijing-based senior analyst at property agency Centaline, wrote in a note.

The Hong Kong-listed shares of Chinese property developers jumped after the news.

“The data made investors a little more comfortable,” said Conita Hung, investment strategy director of Gransing Securities Co Ltd. “The market was worried that China might step up tightening if home prices continued to rise … Now it was showed that the policies in place are effective and there’s less worry over further tightening.”

Over the last year, more than 45 major cities have imposed restrictive policies of varying severity to curb fast-rising prices, with some forced into several rounds of tightening measures.

The steps have started to take some heat out of the market as sales growth has slowed from peak levels seen at the start of the year, but buyer demand appeared to be more resilient than expected.

The majority of the 70 cities surveyed by the NBS still reported a monthly price increase for new homes, although the number dropped to 52 in August from 61 in July.

Southern boomtown Shenzhen, which borders Hong Kong, saw prices fall 1.9 per cent from a year earlier, the first annual fall since March 2015,

while its monthly decline further deepened to 0.4 per cent from July’s 0.2 per cent.

Prices in Shanghai and Beijing rose 2.8 per cent and 5.2 per cent, respectively, from a year earlier, but were unchanged on a monthly basis.

Key Points Aug home prices continue to moderate but no signs of sharp drop Strong demand still underpinning prices and economic growth New home prices +0.2 pct m/m vs July +0.4 pct-Reuters calculation Prices +8.3 pct y/y vs July +9.7 pct “Turning point” for hottest big markets has emerged - analyst Smaller cities still face short-term upward price pressure However, the latest data showed that speculators are continuing to move into smaller cities with fewer controls.

Guilin, a smaller Tier-3 city in southern China’s Guangxi Zhuang

Autonomous Region, was the top price performer in August, rising 1.1 per cent.

New home prices in Tier-3 cities rose a faster-than-average 0.4 per cent in August, but slowed from the 0.6 gain per cent in July, the NBS said in a note accompanying the data.

Analysts say China’s property market may become even more polarised in the next few months as falling inventories of finished homes could drive up prices in smaller cities, especially when the market enters the “Golden September, Silver October” peak sales season.

Nearly a third of Chinese households believe housing prices will keep rising in the coming quarter, despite state moves to cool down the market, a survey by China’s central bank showed on Friday.

Analysts polled by Reuters expect China’s home prices to rise faster in 2017 than previously estimated despite the flurry of new government curbs introduced this year.

Compared with a year earlier, August new home prices rose 8.3 per cent nationwide, decelerating from July’s 9.7 per cent gain, according to Reuters calculations based on the NBS survey. Reuters

HR

Baidu hires Weibo CFO Herman Yu as finance chief amid AI push The firm has been forced to revamp its business model and focus to keep pace with its main local tech rivals Chinese search engine giant Baidu Inc said yesterday it had hired the finance chief of Weibo Corp as its chief financial officer, marking a leadership change for the firm as its hones its focus onto artificial intelligence.

The appointment of Herman Yu, Weibo’s CFO since 2015, sees Baidu stalwart Jennifer Li step down as CFO after almost a decade in the role to become a senior adviser to Baidu’s top management, the company said in a statement.

Key Points Herman Yu moves to Baidu from China tech rival Weibo Jennifer Li steps down as CFO after nearly a decade Baidu looking to shift focus towards mobile, AI Baidu is trying to drive a recovery in its fortunes after a string of regulatory investigations last year hit profit. A sharper focus on mobile and artificial intelligence (AI) helped boost the firm in the latest quarter.

“I look forward to working with Herman in his new capacity, as Baidu enters the next stage of growth in the AI era,” Baidu Chairman Robin Li said in a statement, citing Yu’s long financial experience with U.S.-listed firms.

Baidu has been forced to revamp its business model and focus to keep pace with its main local tech rivals

- Tencent Holdings Ltd and Alibaba Group Holding Ltd - which are spending billions of dollars expanding into new markets.

Li, one of China’s most powerful female tech figures, will remain chief executive of Baidu’s private

equity unit Baidu Capital, which focuses on investment opportunities in AI. Yu, who studied in California, has previously worked at Adobe Systems Inc and VeriFone Systems Inc, and sits of the boards of a number

Chinese tech-related firms including 58.com Inc and ZTO Express Inc. Weibo, backed by Chinese e-commerce giant Alibaba and which operates one of China’s most popular microblog platforms, was not immediately available for comment. Reuters

Business Daily Tuesday, September 19 2017 9

Greater China Reforms

In Brief

PBOC is said to draft package for financial market opening Last month, China’s cabinet said the country will continue to open up various industries China’s central bank is drafting a package of reforms which would give foreign investors greater access to the nation’s financial services industry, according to people familiar with the matter.

The People’s Bank of China will convene an internal meeting today to discuss its proposals and get feedback from Chinese institutions, said the people, who asked not to be identified as the matter is private. The meeting will also discuss the timetable for opening up the financial sector and the lessons learned from previous cooperation with foreign firms, the people added.

‘The plan may include permission for foreign institutions to control their local financesector joint ventures’ While the details of the plan have yet to be finalized, it may include permission for foreign institutions to control their local finance-sector joint ventures, as well as raising the current 25 per cent ceiling on foreign ownership in Chinese banks, the people said.

It may also allow foreign firms to provide yuan-denominated bank card clearing services, one of the people said. The China Banking Regulatory Commission is also involved in the proposal, the person added.

The PBOC couldn’t immediately comment on the matter. The CBRC

August cross-border capital flows more balanced China’s cross-border capital flows became more balanced in August, the country’s foreign exchange regulator said yesterday, adding that cross-border capital flows are expected to become more stable, orderly and balanced in the future.

The comments came after the State Administration of Foreign Exchange released foreign exchange sales data, showing that commercial banks sold a net US$3.8 billion of foreign exchange in August, compared with a net sale of US$15.5 billion in July.

M&A

Spain’s Villar Mir in talks to sell OHL to China State People’s Bank of China headquarters

didn’t immediately respond to a fax seeking comment.

China sent a signal it plans to press ahead with opening up the financial sector when central bank Governor Zhou Xiaochuan said in June that too much protection for domestic institutions weakens the industry and can lead to financial instability.

Last month, China’s cabinet said the country will continue to open up various industries, including banking, securities, insurance as well as electric cars.

Currently, overseas investment banks can only hold minority stakes in their local securities joint ventures, and have been largely excluded from lucrative businesses such as secondary-market trading in Chinese debt and equities, as well as from managing money for wealthy clients.

JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon, who last year decided to exit a minority-owned Chinese investment-banking joint venture, said in June that the U.S. bank is patiently negotiating with

Chinese regulators to find a new structure that would eventually allow full control.

Insurance opening

China will open up its insurance market further, mainly by encouraging foreign insurers already operating locally to enter the health, pension and catastrophe insurance sectors, China Insurance Regulatory Commission Vice Chairman Chen Wenhui said earlier this month.

Chinese regulators last year decided to open up the nation’s fund market, allowing investment firms in China to be 100 per cent owned by foreign managers. At least a dozen global money managers such as Man Group Plc, Bridgewater Associates and Fidelity International have announced plans since then to start private securities funds. Before the rule change, foreign firms were restricted from running such private funds in China but could take stakes in mutual fund companies and provide advice to onshore funds. Bloomberg News

Auto industry

GM to recall 2.5 mn vehicles in Mainland over Takata airbags The bankruptcy of Takata may frustrate the legal challenges by victims harmed by the company’s exploding airbags Joanna Chiu

General Motors will recall more than 2.5 million vehicles in China over concerns about airbags made by troubled Japanese giant Takata, Chinese authorities said, dealing a blow to the U.S. automaker in the world’s largest car market.

GM and its joint venture partner Shanghai GM will start withdrawing vehicles fitted with the potentially faulty airbags beginning next month and will include Chevrolet and Buick cars, China’s top consumer watchdog said.

They will replace the faulty airbags for free.

Takata has recalled about 100 million airbags produced for some of the world’s largest automakers, including about 70 million in the U.S., because of the risk that they could improperly inflate and rupture, potentially firing deadly shrapnel at the occupants.

The defect has been linked to 16 deaths and scores of injuries globally, and the issue has led to the biggest car recall in history.

In China, the recalls involve 37 manufacturers and more than 20 million vehicles, of which 24 carmakers had recalled 10.59 million units by the end of June, the General Administration of Quality Supervision, Inspection

Forex

and Quarantine said Friday.

Last week, the watchdog announced that German carmaker Volkswagen and its joint ventures will recall 4.86 million vehicles in China over the airbag issue.

Of the vehicles being recalled, the vast majority were made in Chinese factories.

China is a crucial market for leading international carmakers, where they must operate as joint ventures with local partners.

GM has a long-standing presence in the country, where last year it sold 3.87 million vehicles making it the second-largest foreign manufacturer in the country, behind Volkswagen.

Suing a dead company

Japanese auto parts giant Takata in

February pleaded guilty to fraud for hiding the defect, and paid a US$1 billion fine.

The company filed for bankruptcy in June.

Earlier this month, Takata’s largest client, Honda, reached a US$605 million settlement in a lawsuit over defective airbags in millions of cars on American roads.

Honda joined Nissan, Toyota, BMW, Mazda and Subaru in agreeing a deal to settle a lawsuit, replace the defective airbags from now-bankrupt Takata, and to compensate car owners.

The latest agreement was filed in the U.S. District Court in Miami.

The bankruptcy of Takata may frustrate the legal challenges by victims harmed by the company’s exploding airbags, which were part of the largest auto safety recall ever.

For those injured and the families of those killed, the major question is what happens to their legal cases while a bankruptcy court sorts through competing claims from Takata creditors.

The bankruptcy could mean the major automakers may find the airbag producer will not reimburse them for their costs, despite an US$875 million fund created by Takata in January. AFP

The Villar Mir family, which holds a 51 per cent stake in Spanish builder OHL, is in advanced talks to sell the company to China State Construction Engineering, online newspaper El Confidencial said yesterday.

The potential deal comes as creditors increase pressure on the family over mounting debts, the report said, citing unidentified sources close to the talks. Credit Agricole, Santander, HSBC and Deutsche Bank have warned Grupo Villar Mir that the company has short-term debt obligations worth some 500 million euros (US$597 million), it said. OHL, Grupo Villar Mir and China State Construction Engineering were not immediately available for comment.

Markets

Taiwan’s exchange index rises to the most in 27 years Taiwan stocks closed yesterday at their highest in 27 years, according to data from the Taiwan Stock Exchange.

The Taiwan SE Weighted Index rose 0.48 per cent to 10,631.57, the data showed.

Yesterday’s close was the highest since it hit 10,907.09 points on April 4, 1990, the data showed.

IP

Beijing plans crackdown to protect foreign investors’ rights China’s commerce ministry on Monday unveiled a fourmonth crackdown, running from September until the end of 2017, to protect the intellectual property rights of companies with foreign investors. In a statement on its website, the ministry said China would target theft of business secrets, knockoffs of well-known brands, the trade of goods in violation of intellectual property rights and take steps to protect copyrighted material.

10 Business Daily Tuesday, September 19 2017

Greater China Markets

ZhongAn to offer life insurance after Hong Kong IPO The company plans to use the new funds to bolster its capital base and cope with a 70 per cent surge in gross written premiums in the three months ended March 2017 Elzio Barreto

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hina’s ZhongAn Online Property and Casualty Insurance Co Ltd, the nation’s first internet-only insurer, said it plans to add life insurance and other healthcare products to its range of policies after going public in Hong Kong.

ZhongAn, founded by Alibaba Executive Chairman Jack Ma, Tencent Chairman Pony Ma and Ping An Insurance Group Chairman Ma Mingzhe

also plans to offer its technology to insurers inside and outside of China, it said on Sunday.

The company is offering 199.3 million new shares in an indicative range of HK$53.70 to HK$59.70 each, putting its initial public offering at up to HK$11.9 billion (US$1.5 billion).

At the top end of the range, ZhongAn would have a market value of around US$11 billion, it said in its prospectus.

Final pricing will be decided on Thursday, with its

debut on the Hong Kong stock exchange slated for Sept. 28, the company said.

Japan’s SoftBank Group Corp agreed to buy a stake of just below 5 per cent in ZhongAn as a cornerstone investor in the IPO, investing about US$550 million.

“This is a good marriage for the company in the sense that this is a very strategic, visionary investor and they’ve done a lot of study into the company. SoftBank is definitely a very strong stamp of approval,” ZhongAn’s Chief

Financial Officer Francis Tang said at a news conference.

SoftBank could make the investment through SoftBank Vision Fund, the world’s largest private equity fund, or other affiliates, ZhongAn said.

The company plans to use the new funds to bolster its capital base and cope with a 70 per cent surge in gross written premiums in the three months ended March 2017, compared with the same period last year.

“We are at a fast-pace growth stage, so we want to make sure that we have the sufficient capital because as an insurance company we have to have a strong capital base to do more business,” Tang said. “So when we see more business coming in, we want to make sure this won’t become a bottleneck.”

The company has sold more than 8.2 billion policies to some 543 million people since its inception in 2013 in five areas: travel, health, consumer finance, auto and lifestyle consumption, where it started by insuring shipping returns at e-commerce giant Alibaba’s online marketplace.

ZhongAn is applying for a license to offer life insurance products, Tang said, without giving an expected timeline for approval. It already offers 262 different types of insurance products and wants to add more within the five core areas.

Key Points IPO opened yesterday, final pricing on Thursday Indicative pricing range of HK$53.70 to HK$59.70/ share “We can further develop the depth and breadth in each of them,” Tang said.

“We’re looking more at the pain points when you conduct your daily activities on the Internet ... what kind of protections do people need?

We want to address those.”

ZhongAn also plans to earn more in coming years from the sale of its technology to other insurers and partners within China and abroad.

“This is how we want to see our expansion, not just outside China, but also inside China,” Tang said. Reuters

Expansion

Fosun Pharma to buy smaller stake in Indian firm The new deal will cap Fosun’s investment at US$1.09 billion Dominique Patton and Zeba Siddiqui

Shanghai Fosun Pharmaceutical Group has agreed to cut the size of the stake it will buy in India’s Gland Pharma to 74 per cent, it said on Sunday, paying about US$1.1 billion for what is still set to be China’s biggest acquisition in India.

‘Gland Pharma’s founding family wanted to retain a bigger holding in the Indian company because of its good performance’ Fosun had previously sought an 86 per cent stake valued at about US$1.26 billion, but the deal had raised concerns among some in New Delhi, a source told Reuters.

Rules issued in June stipulate that

foreign investors can buy equity stakes of up to 74 per cent in India’s pharmaceutical companies without requiring government approval.

Fosun did not mention regulatory hurdles in its statement to the stock exchange, noting only that Gland Pharma’s founding family wanted to retain a bigger holding in the Indian company because of its good performance.

But Gland managing director Ravi Penmetsa told Reuters that the companies had applied for antitrust approval in the United States and certain other approvals in China that were at risk of expiring.

“Now with this new agreement, we won’t have to reapply for those,” he said, adding that he expects the deal to be completed in two weeks.

The new deal will cap Fosun’s investment at US$1.09 billion. Fosun Pharma also said it would spend no more than US$25 million to market the Indian company’s enoxaparin blood-thinning drug in the United States, when it obtains approval there, cutting the previously proposed marketing spend by half.

Gland added that the deal would see

it manufacture some of Fosun’s biosimilar drugs for the Indian market.

These are cheaper copies of complex biotech drugs that require specialised manufacturing capabilities and command much higher prices than regular generics.

Sunday’s statement said that Gland would be able to make the biosimilars at Fosun’s site and sell them in India.

“It won’t happen overnight, but

we have started working on it,” Penmetsa said.

The deal will also give Gland better access to markets such as Africa, where it currently sells through third parties, Penmetsa said.

Penmetsa and his father, P.V.N. Raju, will remain on the Gland board and the current management team will continue to run the company.

Reuters

Business Daily Tuesday, September 19 2017 11

Asia Demography

Superpower India set to replace China as growth engine of Asia Indonesia and the Philippines also have relatively young populations, suggesting they’ll experience similar growth Michael Heath

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ndia is poised to emerge as an economic superpower, driven in part by its young population, while China and the Asian Tigers age rapidly, according to Deloitte LLP. The number of people aged 65 and over in Asia will climb from 365 million today to more than half a billion in 2027, accounting for 60 per cent of that age group globally by 2030, Deloitte said in a report yesterday.

In contrast, India will drive the third great wave of Asia’s growth – following Japan and China -- with a potential workforce set to climb from 885 million to 1.08 billion people in the next 20 years and hold above that for half a century.

“India will account for more than half of the increase in Asia’s workforce in the coming decade, but this isn’t just a story of more workers: these new workers will be much better trained and educated than the existing Indian workforce,” said Anis Chakravarty, economist at Deloitte India. “There will be rising economic potential coming alongside that, thanks to an increased share of women in the workforce, as well as an increased ability and interest in working for longer. The consequences for businesses are huge.”

While the looming ‘Indian summer’ will last decades, it isn’t the

only Asian economy set to surge.

Indonesia and the Philippines also have relatively young populations, suggesting they’ll experience similar growth, says Deloitte. But the rise of India isn’t set in stone: if the right frameworks are not in place to sustain and promote growth, the burgeoning population could be faced with unemployment and become ripe for social unrest.

Deloitte names the countries that face the biggest challenges from the impact of ageing on growth as China, Hong Kong, Taiwan, Korea, Singapore, Thailand and New Zealand. For

Australia, the report says the impact will likely outstrip that of Japan, which has already been through decades of the challenges of getting older. But there are some advantages Down Under.

“Rare among rich nations, Australia has a track record of welcoming migrants to our shores,” said Ian Thatcher, deputy managing partner at Deloitte Asia Pacific. “That leaves us less at risk of an ageing-related slowdown in the decades ahead.’’

Japan’s experience shows there are opportunities from ageing, too.

Demand has risen in sectors such

as nursing, consumer goods for the elderly, age-appropriate housing and social infrastructure, as well as asset management and insurance.

‘A potential workforce in India is set to climb from 885 million to 1.08 billion people in the next 20 years’ But Asia will need to adjust to cope with a forecast 1 billion people aged 65 and over by 2050. This will require: * Raising retirement ages: Encouraging this could help growth in nations at the forefront of ageing impacts. * More women in the workforce: A direct lever that ageing nations can pull to boost their growth potential. * Taking in migrants: Accepting young, high-skilled migrants can help ward off ageing impacts on growth. * Boosting productivity: Education and re-training to bolster growth opportunities offered by new technologies. Bloomberg News

Trade

Singapore non-oil exports strong on electronics Shipments to China soared 43.2 per cent from a year earlier Fathin Ungku

Singapore’s non-oil domestic exports (NODX) surged in August from a year earlier at the strongest pace in six months, led by solid shipments of electronics and robust sales to China.

Exports increased 17.0 per cent in August from a year earlier, data from the trade agency International Enterprise Singapore showed yesterday.

This was the largest year-on-year increase since February.

It was also more than the 11.8 per cent increase predicted in a Reuters survey.

On a seasonally adjusted monthon-month basis, exports rose 4.5 per cent, exceeding the median forecast in the Reuters survey of a 3.1 per cent expansion.

“Electronics once again proved to be the one of the most important drivers, which might raise concerns about the narrowness of the export story,” Key Points Robert Carnell, head of Asia-Pacific research for ING said in a note.

Non-oil domestic exports to China The latest export data will help the jump 43 pct from year earlier Monetary Authority of Singapore NODX +17.0 pct y/y, +4.5 pct m/m justify keeping the policy band of the Singapore’s dollar’s nominal efElectronics continue to dominate fective exchange rate unchanged at export growth its policy decision due in October, rather than provide any cause for Singapore monetary policy seen tightening, he added. to be unchanged in October “If the good news continues, and is matched by some stronger consumer Electronics exports, a major driver spending data, this should become of shipments in recent months, rose a possibility for 2018,” Carnell said 21.3 per cent in August from a year regarding possible policy tightening by the MAS. earlier.

Shipments to China soared 43.2 per cent from a year earlier.

Singapore and other Asian economies that are highly dependent on trade have gained a big boost this year from an improvement in global demand, particularly for electronics products and components such as semiconductors.

While there were worries that Singapore was overly dependent on electronic exports, the economy grew faster than initially estimated in the second quarter thanks to a rebound in services, suggesting a broader and more balanced recovery after a stumble early in 2017.

Stronger global trade in general this year has also benefited Singapore, which boasts one of the world’s largest container ports and a global air cargo hub. Reuters

A panoramic view of Sinapore’s port

12 Business Daily Tuesday, September 19 2017

Asia Real estate

Singapore property analysts turn bullish Foreign purchases are expected to pick up despite the 15 per cent additional buyer stamp duty levied on them Pooja Thakur

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fter years of declining home prices in Singapore, analysts are expecting a turnaround as early as this year even as most of the government’s property cooling measures remain in place.

“We foresee the nascent recovery spreading to the mid-range and high-end segments in the next wave”

spreading to the mid-range and highend segments in the next wave, driven by replacement demand from redevelopment of old housing projects and a pick-up in home buying interest from foreigners,” Pandey said in a note yesterday.

Redevelopment deals, which involve homeowners selling apartments in older buildings to developers, have crossed S$3 billion (US$2.2 billion) this year, exceeding the combined transaction value in the previous four years. Flush with cash

from these redevelopment sales, such buyers will fuel demand for mid- to high-end homes, Pandey said.

Foreign purchases are expected to pick up despite the 15 per cent additional buyer stamp duty levied on them, as other popular overseas destinations have imposed their own restrictions to cool international demand. The levelling of taxation costs overseas is building up the relative appeal of Singapore real estate to foreign investors, he said.

Hong Kong officials, for instance, rolled out additional taxes last year targeting all but first-time buyers who are permanent residents, doubling its stamp duties on overseas property buyers to 30 per cent to eclipse Singapore’s rate. In Taipei, a punitive divestment-gains tax of as high as 45 per cent was unveiled in January last year, dwarfing Singapore’s Sellers Stamp Duty of 12 per cent. Australia and Canada have also raised the transaction costs for foreigners to own property. Bloomberg News

Vikrant Pandey, analyst at UOB Kay Hian Pte

Singapore property prices will rise between 5 per cent and 10 per cent next year after bottoming out in 2017, analyst Vikrant Pandey at UOB Kay Hian Pte said. Morgan Stanley earlier this month said home prices will climb 2 per cent this year and 10 per cent by the end of 2018, turning around earlier and rising faster than people expect.

“We foresee the nascent recovery

Residential zone in Singapore

GDP forecast

New Zealand seen posting stronger Q2 growth The GDP outcome will, however, be seized upon by political parties as polls show the two main parties neck-and-neck before the Sept. 23 vote Charlotte Greenfield

New Zealand was expected to post improved economic growth in its second-quarter GDP report on Thursday, just days before voting starts in a hotly contested general election in which the economy has been a dominant issue.

Ten economists polled by Reuters expected quarterly gross domestic product growth of 0.8 per cent on average in the three months to the end of June, up from a tepid 0.5 per cent in the previous quarter.

The ruling National Party has been trumpeting its management of New Zealand’s economy, which has been the envy of the developed world in recent years, but encountered headwinds towards the end of 2016.

The 0.8 per cent estimate would slightly undershoot the 0.9 per cent the Reserve Bank of New Zealand (RBNZ) forecast in August.

The economists polled by Reuters predicted annual growth of 2.5 per cent, unchanged from the previous quarter.

“This week’s Q2 GDP data will likely show that while the economy performed better than over the prior six months, it is still ho-hum,” ANZ economists said in a research note.

Nonetheless, such a result was unlikely to divert the RBNZ from its

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firm path of keeping rates on hold at record lows of 1.75 per cent for years to stoke inflation.

The GDP outcome will, however, be seized upon by political parties as polls show the two main parties neckand-neck before the Sept. 23 vote.

“Thursday’s June quarter GDP report will have more eyes on it than usual, given it comes out two days before New Zealand’s down-to-the wire General Election,” said BNZ economist Craig Ebert.

The National Party has accused the centre-left Labour Party of stalling growth by trying to renegotiate New Zealand’s trade pacts and slash migration.

Labour, meanwhile, has claimed the country’s headline economic figures cover up the growing inequality in the small Pacific nation.

New Zealand’s growth was amongst the fastest in the developed world in recent years, underpinned by a flood of tourists, strong net migration and a building boom.

But cracks are now showing, with the construction sector dragging on growth as firms struggle to find enough labour and to cope with spiralling costs.

Growth slowed markedly to an annual 2.5 per cent late in 2016 from above 3 per cent where it had been for much of the year.

More recently there were some bright spots in the second quarter with a rise in production of dairy - the country’s top goods export earner - and a jump in retail spending as high-profile international sporting events attracted a flood

of tourists.

“Assuming...construction activity perks-up post-election, we see the NZ economy posting respectable rates of growth over the coming six months,” said Zoe Wallis, chief economist at Kiwibank. Reuters advertisement

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Business Daily Tuesday, September 19 2017 13

Asia Vote

In Brief

Abe says he’ll decide on snap Japan election after U.S. trip Prime minister intends to dissolve parliament on Sept. 28 to pave way for an election on Oct. 22, Yomiuri newspaper reported yesterday Kevin Buckland and Finbarr Flynn

Japanese Prime Minister Shinzo Abe said he’ll decide on calling a snap election after he returns from a trip to the U.S., confirming media reports that he was considering calling a vote more than a year early.

“I’ll refrain from answering each and every question about a dissolution of parliament, but I’d like to decide when I return to Japan,” Abe told reporters at Haneda airport before boarding a plane to New York, in comments broadcast by NHK. He’s scheduled to attend meetings at the United Nations before returning to Japan on Sept. 22.

Abe intends to dissolve parliament on Sept. 28 to pave way for an election on Oct. 22, Yomiuri newspaper reported yesterday, without saying where it got the information. Sankei newspaper reported on Sunday that the vote is probable on Oct. 29.

Calling an election before one is due at the end of 2018 would allow Abe to seize on opposition disarray and growing support for his handling of the North Korea crisis. His approval ratings have recovered following a series of scandals, with an NHK poll last week showing that approval for his ruling coalition exceeded disapproval for the first time in three months.

North Korea’s recent spate of missile tests has unnerved Japanese voters, and more than two-thirds of respondents to the NHK poll approve of Abe’s strong line on the isolated nation. The main opposition Democratic Party appears to be unravelling with the resignation of several members since a new leader was voted in earlier this month.

‘No opposition’

highlighting the weakness of existing opposition facing Abe. Seiji Maehara, head of the Democratic Party, said that an election at a time when North Korea is threatening Japan risks creating a political vacuum and that Abe was seeking to escape questioning in parliament surrounding scandals, Kyodo reported.

Akimasa Ishikawa, an LDP backbencher, said if Abe decides to call an election at the re-opening of parliament on Sept. 28 it could be “good timing.”

“Crises such as that on the Korean Peninsula are generally good for incumbents.

You can look like you’re in charge” Robert Dujarric, director of the Institute of Contemporary Asian Studies at Temple University’s Japan campus in Tokyo

“With North Korea continuing to launch missiles, Japan’s peace and security are being threatened,” Ishikawa said. “If parliament intends to continue with vacuous scandal attacks, rather than discussing security, we must draw a line under that.”

Party sceptics

Even so, some members of Abe’s party are more sceptical. One senior official, who asked not to be identified because the discussions are private, said a snap election may be a gamble

“The Democratic Party is in terrible shape, so there is no opposition to Abe,” Robert Dujarric, director of the Institute of Contemporary Asian Studies at Temple University’s Japan campus in Tokyo, said by email.

“Crises such as that on the Korean Peninsula are generally good for incumbents. You can look like you’re in charge.”

A September poll showed Abe’s LDP had 37.7 per cent of support, up from 30.7 per cent in July. Support for the Democratic Party was 6.7 per cent, and no other national opposition political party had a higher rating,

because the ruling coalition could lose its two-thirds majority. This could slow the debate on changing the pacifist constitution to make clear the legitimacy of the nation’s armed forces, the official said.

“There is also a real chance that a snap election would lead to his undoing,” said Koichi Nakano, a professor of political science at Sophia University in Tokyo. “Calling a premature election more than a year ahead of the end of the term is purely on the basis of self-interested political calculation.”

A snap election may speed up the formation of a new national political party linked to Tokyo Governor Yuriko Koike to face Abe’s LDP, according to NHK, citing comments by lawmaker Masaru Wakasa.

Historic defeat

Abe suffered a heavy defeat in an election for the local Tokyo assembly in July at the hands of a new party formed by Koike. This was blamed on cronyism scandals that tarnished Abe’s image. Koike’s Tomin First (Tokyo Residents First) party has yet to create a strong national base.

Koike spoke at an event organized

by Wakasa in Tokyo Saturday, and said Japan needs “a new perspective rather than depending on politics constrained by many ties,” according to a Jiji report. Wakasa said his grouping is preparing for an election and would be able to stand some candidates in a general election.

Abe’s consideration of a snap election may in part be influenced by discussion of a new national party associated with Koike, according to NHK. Temple University’s Dujarric said that Koike wouldn’t have time to prepare a challenge to Abe. Bloomberg News

Japan’s Prime Minister Shinzo Abe

M&A

Australian moguls lose court challenge to CBS’s planned buyout of Ten Network Ten’s national reach and strong brand recognition in the world’s 12th-largest economy have made it an attractive buyout target Tom Westbrook

Two Australian media moguls have lost a court challenge to CBS Corp’s planned buyout of bankrupt television broadcaster Ten Network Holdings Ltd, allowing the CBS deal to be put to a creditor vote today.

CBS surprised the Australian media establishment when it offered as much as A$201.1 million (US$160.96 million) for Ten, which went into administration three months ago after a long-term decline - an offer that was quickly accepted by Ten’s administrator.

Media scion Lachlan Murdoch and business partner Bruce Gordon had been widely expected to acquire Ten but their bid had been held up as they waited for reforms to laws on

the ownership of multiple types of media assets - reforms that were only voted through by the Australian Senate on Friday.

Lachlan Murdoch, executive chairman at Twenty-First Century Fox and Gordon submitted a revised offer on Friday, although its total value has not been disclosed.

But yesterday, an Australian judge dismissed arguments by lawyers for Gordon and Fox that the administrator, KordaMentha, mishandled the sale because it did not explain to other creditors why it preferred the CBS bid. They had also sought to block CBS, Ten’s biggest creditor, from voting on its own bid at today’s meeting.

“I am not satisfied CBS should be prevented, in advance, from voting

at the meeting,” Justice Ashley Black said in his ruling at the New South Wales Supreme Court, adding he was not satisfied that there had been “any deficiencies” in the administrators’ communication with creditors.

“For these reasons [the case] should be dismissed,” he said.

A spokesman for Kordamentha said that today’s meeting of creditors will also vote on whether to consider the revised bid made by the media moguls.

Spokeswomen for Gordon and Lachlan Murdoch had no immediate comment.

Although a ratings laggard, Ten’s national reach and strong brand recognition in the world’s 12th-largest economy have made it an attractive buyout target. Reuters

Ecommerce

Google launches digital payments service in India Alphabet Inc’s Google yesterday launched a localised payments app for India as it tries to gain a foothold in the country’s rapidly-growing digital payments space. India’s crowded digital payments market, expected to grow tenfold to US$500 billion by 2020, received a shot in the arm after Prime Minister Narendra Modi banned old high-value notes last year, forcing people to use e-wallets and card payments. A state-backed payments system, Unified Payment Interface (UPI), has also helped banks enter the fray, forcing wallet players to actively partner with lenders or adopt the platform in the world’s fastest growing internet services market.

Currency

Thai c.bank chief says it acted on baht speculation Thailand’s central bank said yesterday it had taken action against what it said was “periodic speculation” in the baht as the currency hovered at more than 28-month highs against the U.S. dollar.

The central bank has resolved problems with a number of financial institutions which had irregular transactions, Bank of Thailand Governor Veerathai Santiprabhob told reporters. He did not elaborate.

The baht’s rise was driven by Thailand’s current account surplus, investor confidence in the economy, and receding concerns over political risk, he said.

Holiday

Forget about trading South Korea at the start of October If Kim Jong-Un were to test another missile the weekend after next, investors would have to wait another six trading days to gauge the full reaction in South Korea’s financial markets. President Moon Jae-In has designated what is effectively an extension of the country’s Chuseok holiday period, with markets to be shuttered during the Sept. 30 to Oct. 9 break, South Korea’s longest in more than three decades. Tensions with their northern neighbour may be near boiling point, but that’s not going to stop South Koreans from some “rest and comfort” -- as Moon put it in his official statement -- as well as a bit of shopping.

Auto industry

Ford, Mahindra reunite to ally for new generation vehicles Ford Motor Co., seeking to increase its foothold in India, teamed up with local SUV maker Mahindra & Mahindra Ltd. to explore a partnership for electric vehicles and other models. Ford and Mahindra will aim to cooperate in areas including mobility programs, connected vehicle projects, electrification and distribution within India, improving Ford’s reach within the country, Mumbai-based Mahindra said in a stock exchange statement.

The partnership is for three years and future plans will be decided at the end of that term, it said. Ford re-entered India in 1990s by partnering with Mahindra.

14 Business Daily Tuesday, September 19 2017

International In Brief ECB

Inflation slump to hit in early 2018 Inflation in the eurozone will slump in early 2018, the European Central Bank forecast yesterday, but return to an upward path towards its target later in the year. Price growth could fall as low as 0.9 per cent in the first quarter, the ECB said in its regular economic bulletin, far short of governors’ target of just below 2.0 per cent.

Prices in the 19-nation single currency area rose rapidly in early 2017, driven by sharp changes in the cost of food and oil, it said. That means inflation in early 2018 will be much lower.

Audit

South Africa tax service to take legal action against KPMG South Africa’s Revenue Service (SARS) will launch legal proceedings against KPMG due to reputational damage caused by the auditor releasing details of a confidential report it produced for the tax agency, commissioner Tom Moyane said yesterday. Moyane told a televised news conference that SARS would report KPMG to Finance Minister Malusi Gigaba with a view to blacklisting the auditor for its “unethical” and “unlawful” behaviour. KPMG cleared out its South African leadership en masse on Friday after damning findings from an internal investigation into work done for businessmen friends of President Jacob Zuma.

Environment

France plans new incentives to phase out polluting vehicles The French government is planning a series of new incentives and taxes to phase out polluting vehicles and to boost energy-saving insulation in houses, the environment minister said

E

nvironment and Energy Minister Nicolas Hulot told French daily Liberation the 2018 government budget presented next week would include a series of measures to limit climate change, reduce pollution and help low-income families.

Hulot said he would propose that a 500 to 1,000 euro incentive to switch to a less polluting vehicle, so far only available to low-income families, should be available from 2018 to all citizens who own cars with petrol engines registered before 1997 and cars with diesel engines registered before 2001.

The sum will not only be for buying new cars but also relatively new second-hand vehicles with low carbon dioxide emissions.

Hulot also said that for low-income households the incentive would be doubled to 2,000 euros. He added that for a low-income family buying a small second-hand car, the incentive could add up to more than half of the vehicle’s value.

Some three million old cars are eligible for the conversion incentive and the ministry hopes around 100,000 of these will be replaced next year.

All car owners who switch to an electric vehicle will receive a 2,500 euro switching incentive on top of a 6,000 euro subsidy if the measure is approved.

‘Some three million old cars are eligible for the conversion incentive and the ministry hopes around 100,000 of these will be replaced next year’ Hulot also said he would propose that from 2019 credits for housing insulation should be turned into a premium to be paid immediately after the works are finished, because low-income families do not have the means to finance these works and then wait to receive the tax credits months later.

The government also plans subsidies of up to 3,000 euros for low-income families who switch from old, polluting diesel fuel heating systems to renewable energy heating systems, such as wood-fired heaters or heat pumps.

Hulot denied that President Emmanuel Macron’s plans to reduce red tape in the building industry would lead to lowering insulation requirements for new buildings.

“The president has told me that current environmental requirements will not be affected ... from a social point of view the worst that we could do would be to deliver housing that is not energy efficient,” he said.

Hulot also said the government would push France’s carbon tax to 44.60 euros per tonne in 2018 from the current 30.50 euros per tonne and would continue to increase it to 100 euros per tonne by 2030 as laid out in the 2015 energy transition law.

Asked about major infrastructure projects such as the Lyon-Turin rail link and the Seine-Nord canal to link Paris to the major harbours of northern Europe, Hulot said “there will be a pause, we will take the time to define priorities”. Reuters

Pollution

EU tilts to China in climate fight after Trump exits Paris deal

Forex

U.S. trial set to begin for ex-HSBC exec A former high-ranking HSBC Holdings Plc executive from Britain will become the first person to go to trial on charges stemming from a U.S. probe into foreign exchange rate manipulation. Selection of jurors for the trial of Mark Johnson, a 51-year-old British citizen, is scheduled to begin before U.S. District Judge Nicholas Garaufis in Brooklyn.

Johnson, who was HSBC’s global head of foreign exchange cash trading, has pleaded not guilty to wire fraud and conspiracy charges. HSBC spokesman Robert Sherman said Johnson left the bank earlier this year.

“The case will be against Mark Johnson, not HSBC,” he said.

Infrastructure

Saudi Arabia to seek bidders for Red Sea-Gulf railway Saudi Arabia plans to seek bidders for the construction of a 1,600-kilometre railroad linking the Red Sea with the Persian Gulf as early as the end of this year, signalling the go ahead for a long-delayed project seen as vital to reducing the economy’s dependence on oil. The socalled Land Bridge line will shave around three days off the current five-day journey time for shipping seaborne freight around the Saudi coast, while improving links to Riyadh, and Jeddah, the nation’s two biggest cities.

Contract tenders will be issued at the end of 2017 or early in 2018.

To meet its carbon-reduction targets, set at 20 per cent by 2020 and 40 per cent by 2030, the EU has moved to sustainable energy sources and established the world’s biggest carbon market Ewa Krukowska, Jonathan Stearns and Nikos Chrysoloras

Europe and China are stepping up their coordination in the battle against global warming after the U.S. decided to withdraw from a landmark Paris agreement to cut greenhouse gases, said Frans Timmermans, first vice president of the European Commission.

The 28-nation European Union will press ahead with efforts to protect the environment by shifting to a low-carbon economy and reducing dependency on fossil fuels, Timmermans said in an interview in Brussels.

The EU accounts for about 12 per cent of global emissions and China for around 20 per cent.

“The willingness not just in Europe, but also globally, to not let this fall apart is very strong” Frans Timmermans, first vice president of the European Commission “The Chinese are faced with such a challenge that you can see the sense of urgency prevailing there more and more, and the willingness to cooperate with us is getting stronger and stronger,” Timmermans said. “People are suffocating in the cities in parts of China. They know they need to do something urgently about this.

And in some areas they’re moving at incredible speed.”

To meet its carbon-reduction targets, set at 20 per cent by 2020 and 40 per cent by 2030, the EU has moved to sustainable energy sources and established the world’s biggest carbon market. With China intensifying its fight against air pollution and the EU helping the government in Beijing to design a nationwide cap-andtrade program, investors are awaiting political signals about a future link between the two systems and closer cooperation on clean energy technologies.

The administration of U.S. President Donald Trump, who has called climate change a hoax perpetrated by the Chinese, last month began the formal process of exiting from

the Paris climate accord. Agreed in December 2015, the deal united more than 190 countries in a pledge to work toward limiting fossil-fuel emissions.

“The willingness not just in Europe, but also globally, to not let this fall apart is very strong,” Timmermans said. “Perhaps this summer I was a bit shell-shocked because of the decision of the Trump administration, but also people I think are encouraged by the fact that many, many in the U.S. see it differently.”

Timmermans, who is due to address a World Economic Forum conference in New York these days, said he expected the fight against climate change in the U.S. to be driven by cities and citizens. Bloomberg News

Business Daily Tuesday, September 19 2017 15

Opinion

Why are China’s consumers so confident?

Christopher Balding a Bloomberg View

I

f you only read the headlines -- or, say, my columns -- you might be pessimistic about China’s economy. Recent news has been dominated by a crackdown on capital outflows, worries about rapid debt growth, and efforts to rein in a risky overseas investment binge.

Yet ordinary Chinese are highly optimistic: The China Consumer Confidence Index hit 114.6 in July, a level not seen since 1996. This is a logical reaction to some significant improvements in China’s economic outlook. And for the government, it offers a key opportunity for reform.

By basic welfare measures, Chinese have every reason to be confident. The official unemployment rate has dropped below 4 per cent. Real estate prices are still rising, with broad gains even in so-called tier-2 or tier-3 cities. Stock markets in Shenzhen and Shanghai are both up by about 9 per cent this year.

Foreign-exchange reserves have been rising. The yuan has strengthened so much that the central bank is making it easier for traders to take short positions.

Even non-performing loans are holding steady.

It’s no wonder China’s confidence seems to extend well into the future. The Consumer Expectation Index hit 117.4 in July, the highest reading since 1993, according to the National Bureau of Statistics.

Indexes measuring confidence among stock investors and economists have also surged recently, thanks to a strong labour market, robust growth and rising asset prices.

Although such metrics are often imprecise, they matter enormously -because confidence can be self-reinforcing. As long as China’s investors have confidence in a market or asset, prices c a n d i v e rg e f r o m fundamentals for a long time. Real estate has reached US$858 a square foot in Beijing not because of income fundamentals but because buyers are confident prices will continue rising by 10 per cent a year. Similarly, although China’s banking system is in bad shape, the government has propped up confidence -- and staved off bank runs -- by quashing rumours and reassuring anxious depositors.

Confidence is a fragile thing, however, and there are reasons to think the good times won’t last. One is that many of these gains are the result of a credit binge: With officials keen to ensure steady growth ahead of the Communist Party’s 19th national congress next month, total social financing has risen by 21 per cent this year. The longer the punch bowl is full, the worse the resulting hangover is likely to be.

Meanwhile, China’s fundamental problems haven’t gone away. Surplus capacity is still rampant, with little sign of much-needed layoffs and restructurings.

Efforts to overhaul state-owned firms have largely stalled. Bad loans may have stabilized for now, but there’s no denying that serious risks are still accumulating in China’s economy. With real estate prices in top cities already among the highest in the world, a clampdown on credit is looking more urgent.

Surging consumer confidence gives the government a crucial window to address these problems. Slashing capacity, and thus reducing employment, will be less painful when coal and steel workers are optimistic that they can find new jobs. Scaling back SOEs will be easier if officials have confidence that private enterprise can pick up the slack. Reining in financial risk is less difficult when the public sees opportunities elsewhere. Reducing the credit flowing into real estate -- the most important asset for Chinese households -- will be agonizing no matter what, but the risk of panic or unrest is much diminished when well-being is otherwise rising.

One way or another, China will need to make painful policy changes to slow or reverse the imbalances within its economy. Better to start now, while the public is rightly confident about the possibilities ahead. Bloomberg View

‘Confidence is a fragile thing, however, and there are reasons to think the good times won’t last’

Accountants are the next big thing in renewable energy David Fickling a Bloomberg Gadfly columnist

W

hat’ s t h e most i mportant innovation behind the rise of renewable energy: Taller wind turbines? Smart power grids? Spray-on solar cells?

None of the above. For all the advances made by engineers that cut the cost of solar modules and new wind generation by more than half in five years, the true heroes of the renewables revolution may be a group that’s rarely recognized: accountants.

To see why, consider the headlong growth of corporate power-purchase agreements (PPAs) -- contracts where major consumers strike deals with generators to buy a fixed quantity of electricity over a decade or so.

From humble beginnings around 2008, when the likes of Alphabet Inc., Apple Inc. and Facebook Inc. starting taking out PPAs to power their vast data centres, these agreements grew by leaps and bounds. In the latest, between AnheuserBusch InBev NV and Enel SpA last week, a wind farm in Oklahoma will supply half of the brewer’s U.S. electricity demand, sufficient to produce 20 billion beers a year.

The capacity of renewable PPAs signed to date is more than 20 gigawatts, according to Bloomberg New Energy Finance’s Justin Wu, greater than the generation capacity of Switzerland or the Philippines.

Promising to power your business with 100 per cent renewable electricity certainly produces a warm fuzzy feeling in executives, but the success of PPAs can’t be put down to that alone. Far more important has been the greatest force in financial markets: risk.

Power is one of the largest costs for many enterprises. Among the growing group committed to 100 per cent renewables, Alphabet consumes 5.7 million megawatt hours a year and AnheuserBusch InBev NV uses 14.6 million MWh, with electricity forming the lion’s share.

It’s hard for businesses to control this cost. In the NP15 energy market that serves Silicon Valley, spot day-ahead electricity prices have veered as low as US$20/MWh and as high as US$130/MWh over the past decade.

When many of the initial corporate PPAs were inked in the late 2000s, most of the energy industry believed those costs would jump as a result of robust wholesale gas prices; they slumped, instead, on a shale-induced glut. An agreement with a generator to provide fuel-free electricity at a fixed cost was an attractive alternative.

Paying a premium for certainty in this way is the lifeblood of finance. It’s the reason the US$500 trillion derivatives market exists: While it’s possible

“

that a hotel chain or auto manufacturer could get a leaner interest or exchange rate by buying at spot prices, they’d generally prefer a guaranteed rate, and pay for the privilege.

It’s not so different with energy. By entering a PPA with a renewable company whose generation costs are more or less fixed at the commissioning stage, a consumer can guarantee to meet its energy demands at a set price for years. And the generator wins a major customer whose promised cash flows can reduce the finance costs of building the plant in the first place.

As costs of renewables move to, or below, parity with fossil fuels, those advantages are turbocharged.

When solar or wind can be bought directly from a generator for less than it can be had from a utility, why would a major consumer not go for the lowercost, higher-certainty option?

The next leg of demand is likely to come from emerging markets, where big companies such as Apple are committing to decarbonizing manufacturing supply chains and where, in many cases, sufficient renewables capacity doesn’t yet exist.

In Mexico, about 3.8GW of PPAs have been signed by the likes of ArcelorMittal, WalMart Stores Inc., Coca-Cola Femsa SAB, Nestle SA and General Motors Co. in recent years, according to BNEF and the World Business Council for Sustainable Development.

India, where HSBC Holdings Plc and Delhi Metro Rail Corp. signed solar PPAs in recent years, and 2.3GW are outstanding, is likely to be another growth area.

The rise of the PPA won’t be without stumbles.

Utilities receive fees for transmitting PPA electrons, but are mostly losers in these deals. Given many are state-owned or carry lobbying weight, that could become a roadblock.

In countries that encourage renewables developers with feed-in tariffs above wholesale prices, such as Germany, generators have little incentive to sell into a more competitive corporate market.

And falling costs of renewables could put major consumers off PPAs if they think they’ll get a better deal later. That’s a major problem in India, where state governments have been attempting to renegotiate wind-power agreements at lower prices.

Still, if you’re seeking an explanation for the growth of renewables, don’t save all your praise for the whizz-kid physics Ph.D.s building a better sun trap.

That bean-counter spending her days tweaking cashflow spreadsheets may just be saving the world. Bloomberg Gadfly

The next leg of demand is likely to come from emerging markets, where big companies such as Apple are committing to decarbonizing manufacturing supply chains

”

16 Business Daily Tuesday, September 19 2017

Closing Expansion

Race to make robots for China spurs ABB Plan to double capacity ABB currently employs more than 17,000 people in 139 Chinese cities

A

BB Ltd. is accelerating expansion in China with a plan to double robot production capacity as it moves toward a goal to be the biggest provider of the industrial-automation equipment worldwide, said Chief Executive Officer Ulrich Spiesshofer.

The blueprint includes doubling the number of robotics research employees in China, where a close rival Kuka AG -- backed by Chinese appliances-maker Midea Group Co. -- is seeking to unseat ABB’s lead in the US$11 billion industry in the nation. ABB also plans to seize on a growing industry in China for electric vehicles by supplying more charging facilities, Spiesshofer said.

The push is part of ABB’s broader ambition to surpass Fanuc Corp. as the top global provider in robotics and automation and also take the lead in e-mobility infrastructure in China, which this month unveiled a decision to phase out combustion-engine cars.

The moves come as Spiesshofer prepares to wrap up a four-year restructuring plan under which ABB regrouped operations and resisted investor pressure to break up its businesses to better realize shareholder value.

“ABB is ahead of Kuka globally, we are ahead of Kuka here in the market and our ambition is to stay so,” Spiesshofer said in an interview in Shanghai Sept.

16. Zurich-based ABB also “absolutely” has the ability to be No. 1 in e-mobility infrastructure in China, the CEO said.

Spiesshofer, who said he met with the mayor of Shanghai to discuss the company’s plan to boost robot production, didn’t provide a timeline or figures for the increase in capacity and

research employees. ABB currently employs more than 17,000 people in 139 Chinese cities.

China automation

China is installing more robots than any other nation as its vast manufacturing industry increases automation to move up the value chain. The country added about 90,000 robots last year, a third of the global total, and this will rise to 160,000 in 2019, figures from the International Federation of Robotics show.

The government wants domestic robot makers to have half of the market by 2020, according to Bloomberg Intelligence.

ABB is willing to provide technology and other forms of support to its local partners to help them become strong players in their own right, Spiesshofer said. More than 80 per cent of the robots ABB

sells in China are “developed, produced and shipped” in the nation, he said.

The recent decision by China, the world’s biggest auto market, to determine a timetable to end sales of vehicles powered by fossil fuels in line with a global trend provides another growth opportunity. Spiesshofer said ABB is working with regional governments on pilot projects for charging facilities in places like public carparks, where it’s more common for drivers in China to leave their cars than in private garages.

EV charging

As many as 800,000 charging stations will be built this year alone, according to the official China Daily. ABB has the manufacturing capacity in place to support that pace, Spiesshofer said.

Charging stations are part of ABB’s electrification products

division, which contributed US$9.9 billion in revenue last year, or about 29 per cent of the company’s total. The robotics and motion business, which includes robots as well as motors and drives, accounted for US$7.9 billion, or about 23 per cent.

These are among four new divisions, the other two being industrial automation and power grids, that ABB regrouped into after Spiesshofer resisted a call -- led by its second-largest shareholder, Swedish activist investor Cevian Capital AB -- to break up the company. It also placed the power grids business under review and promised to cut costs to boost profitability.

“That page is turned and we are moving into the future,” the CEO said.

He said organic growth would be the company’s focus, with acquisitions a

ABB Chief Executive Officer Ulrich Spiesshofer. Source: Bloomberg

secondary possibility. In April, it paid US$2 billion for Austrian company Bernecker & Rainer Industrie-Elektronik GmbH to help the company move away from its traditional hardware business and expand in higher-margin software.

“Consolidation in the robotics and automation industry is on-going” Jawahar Hingorani, Bloomberg Intelligence analyst

Spiesshofer declined to comment on whether ABB is bidding for General Electric Co.’s industrial solutions business, which the U.S. company is looking to unload amid a shift in its portfolio.

“Consolidation in the robotics and automation industry is ongoing,” Bloomberg Intelligence analyst Jawahar Hingorani said, referring to ABB’s potential interest in the GE business. “The U.S. is a strategically important market for ABB,” and it “wouldn’t be surprising” to see the company look to shore up market share there, he said.

Spiesshofer said ABB’s restructuring efforts would be completed this year, after the company’s unclear identity led it to move in a “convoluted” direction when he started as CEO four years ago.

“Today we have a crisp, clear identity. We know for what we stand,” Spiesshofer said. “2018 will be the first year of what I call the new normal. It will be then steady-state sailing.”

Bloomberg News

M&A

Renewables

Politics

ANZ swaps buyer in Shanghai bank sale; Baosteel in

China welcomes EU decision on solar panel import prices

Malaysian ex-PM Mahathir slams ‘vindictive’ probe

Australia and New Zealand Banking Corporation said yesterday Baoshan Iron & Steel Co would buy part of its stake in Shanghai Rural Commercial Bank Co, rather than Shanghai Sino-Poland Enterprise Management Development Corp.

ANZ had agreed in January to sell its 20 per cent stake in Shanghai Rural for A$1.8 billion (US$1.44 billion) to China COSCO Shipping Corp and Shanghai Sino-Poland, with each buyer taking 10 per cent.

“There are no material changes to the financial terms of the sale for ANZ,” ANZ Deputy Chief Executive Officer Graham Hodges said in a statement, which did not give a reason for the changes to the deal. An ANZ spokesman declined to elaborate.

COSCO will still buy its share, the statement said, adding the deal remains subject to closing conditions and regulatory approval.

Baoshan Iron & Steel Co. (Baosteel), China’s largest listed steel mill, said in a separate statement to the Shanghai Stock Exchange that it would buy a 10 per cent stake in the Shanghai lender for RMB4.595 billion (US$700.07 million).

The sale of ANZ’s minority stake in Shanghai Rural is part of a broader sell-down of Asian assets by the Antipodean lender, as it cuts its exposure in the region to meet tougher capital requirements at home and concentrate on its core domestic business. Reuters

Ministry of Commerce said yesterday a European Union move to reduce the minimum price imposed on imported Chinese solar panels as a “positive step” and that it hoped that duties would end as soon as possible.

The EU announced on Sept. 16 that it would progressively reduce the minimum prices that Chinese solar panel makers are allowed to sell their products for in Europe. The prices will be cut every three months, first on Oct 1 and finally on July 1 next year.

Chinese companies that sell below these set minimum prices are subject to import duties of up to 64.9 per cent.

EU member states cleared an 18-month extension of import duties on Chinese solar panels in February. The European Commission said at the time that it envisaged a gradual phase-out of the duties over the period.

China’s ministry said that it hoped the EU would terminate all anti-dumping and anti-subsidy tariffs against Chinese solar panel imports as soon as possible.

The European Union faces a delicate balancing act between the interests of EU manufacturers and of reducing the cost of solar power generation. Reuters

Malaysia’s former leader Mahathir Mohamad said yesterday an inquiry into losses by the central bank in the 1990s was a “vindictive” attempt to target him and deflect attention from a scandal embroiling the current government.

Mahathir, who is seeking to oust scandal-plagued Prime Minister Najib Razak, was giving evidence at the inquiry into alleged multi-billion-dollar losses incurred by Bank Negara Malaysia through foreign exchange trading during his time in power.

The government-appointed Royal Commission of Inquiry comes at a time when Najib is battling allegations that billions of dollars were looted from crisis-hit sovereign wealth fund 1MDB. Najib and the fund deny any wrongdoing.

Mahathir, 92, described the probe, which can recommend action against anyone found to have been involved in causing the losses, as “vindictive in nature”.

“The main aim of the government now is purely to put pressure on me... and all the critics of Prime Minister Najib Razak related to our criticisms of the 1MDB scandal and other woes,” he said.

“There are so many other crises now which require an investigation instead of wasting public funds on this,” he added. AFP