Page 1

Legend Palace allocated 15 new tables Gaming Page 3

Thursday, February 16 2017 Year V  Nr. 1235  MOP 6.00  Publisher Paulo A. Azevedo Closing Editor Kam Leong  Portugal hotels


Hospitality industry facing stiff competition from funds holding bad debt Page 16

Macao Water anticipates profit of MOP65 mln Page 2

Ho Chio Meng trial

Court hears spouse of Ho’s cousin Page 6


HK law enforcement officials try to stop increasing brokerage hackings Page 10

U-turn on Smoking Lounges Gaming

Smoking lounges can be maintained in casinos. Following implementation of the full-smoking ban bill. Despite the fact that the original bill features zero rooms. Changes reflect gaming operators’ proposed ‘high-standard’ cubicles. With a survey claiming 60 pct of casino workers acquiesce. Page 3

At risk from Mainland policies

Climbing the rankings

The city is ranked 32nd in terms of economic freedom in the world. This, according to the latest Index of Economic Freedom published by The Heritage Foundation. Seen as ‘mostly free,’ the MSAR saw its ranking jump five places higher than last year.

Economy Mainland China’s slowdown could put the MSAR’s development at risk. So says the International Monetary Fund in its latest report. Identifying infrastructure as key to the city’s diversification; in particular, from VIP to mass. Page 4

Cleaning laundering

HK companies Hong Kong authorities are preparing new legislation to fight money-laundering practices. The law will implement corporate disclosure measures to prevent shell companies with obscure ownership from operating in the city. Page 8

Keeping mum on the brother

Economy Page 5

HK Hang Seng Index February 15, 2017 

23,994.87 +291.86 (+1.23%) Worst Performers

China Construction Bank


AAC Technologies Holdings


Belle International Holdings


Sands China Ltd


Bank of China Ltd


Bank of East Asia Ltd/The


Cathay Pacific Airways Ltd




China Shenhua Energy Co


Hong Kong Exchanges &


China Mengniu Dairy Co Ltd


China Petroleum & Chemical


Bank of Communications




Galaxy Entertainment Group


China Mobile Ltd


Industrial & Commercial


Li & Fung Ltd


PetroChina Co Ltd


Power Assets Holdings Ltd


17°  20° 17°  22° 17°  22° 18°  20° 19°  21° Today

Source: Bloomberg

Best Performers



I SSN 2226-8294



Source: AccuWeather

Jong-Nam murder Families of the murdered elder brother of S. Korean leader Kim Jong Un were reportedly living in the MSAR. But the Secretary for Security said it has no comment to make. The Chinese Foreign Ministry was also tightlipped. While both jurisdictions claim they will pay close attention to developments. Page 7

2    Business Daily Thursday, February 16 2017

Macau Forex reserves

Forex reserves up a tad

The city’s foreign exchange reserves amounted to MOP156.8 billion (US$19.62 billion) as at the end of last month, up 0.7 per cent from one month ago, the latest official figures released yesterday by the Monetary Authority of Macau reveal. As at the end of the month, total foreign exchange reserves represented 12 times the currency in circulation or 96.2 per

cent of Pataca M2 at end-December 2016. The trade-weighted effective exchange rate index for the Pataca dropped 0.60 points month-to-month and rose 1.96 points year-on-year to 109.6 in January 2017. The increase suggests the exchange rate of the city’s official currency generally declined against those of Macau’s major trading partners on a monthly basis but increased on an annual basis.


Plans washed away Macao Water hopes to begin construction on the Seac Pai Van plant in H2, anticipates MOP65 mln profit Kelsey Wilhelm


reduction in the size of the Seac Pai Van water plant has caused further delays in the construction of the plant, pushing back estimates for the completion of the plant to end-2019, with construction expected to begin in the second half of this year. The plant, originally estimated to cost around MOP1 billion (US$125 million) to MOP1.5 billion and proposed in 2014, saw its total size reduced by 10,000 square metres, according to the Executive Director of the Macao Water Supply Company Limited (Macao Water), Nacky Kuan. “According to our original planning the land size was 27,000 metres,” said Ms. Kuan. “Now it’s reduced to 17,000 square metres.” The Executive Director points out that the reduction has also nearly halved the overall output of the plant, which was originally estimated at 200 million litres per day (MLD) or 200,000 cubic metres of daily water supply, as well as switching from two-100MLD phases to a single phase. “We have to reduce the capacity of the water treatment plant from 200MLD to 130MLD and combine

into one phase only,” says Ms. Kuan. The news came on the sidelines of a Spring Festival lunch held by the group. Regarding the progress, Ms. Kuan commented that the land reduction sent the group back to the drawing board, observing “our land size was reduced a little bit and we have to change the water treatment plant layout and submit again for the detailed design.” This follows an October submission of the land application for the use of the property, which was passed by the city planning committee before the government decided to use part of the land for a ‘recreational facilities’ project, announced in the government’s Policy Address. According to the Address, the government aims to ‘complete the construction of the Seac Pai Van Public Housing Community Activity Centre’ this year, while the city’s cadastral information site shows the area directly next to the Seac Pai Van reservoir as reserved for ‘water supply facilities.’

in what Ms. Kuan calls “Cotai City”. The 12 per cent growth rate in the region last year is expected to halve in 2017, to 6 per cent, closer to the growth rate seen for the collective areas of Taipa, Coloane and Cotai, which experienced 7 per cent growth during the year. “This year, they already have some planning for the completion of another two large-scale infrastructures, so we expect that there will be some growth in Cotai City,” said Ms. Kuan, pointing out that “this growth will not affect the prices” of water. The growth rate of water demand on the Macau Peninsula is around 2 per cent, according to Ms. Kuan, which she predicts will remain flat in the near future. With regard to the completion of Seac Pai Van plant, slated for 2019, the Executive Director expects “water demand at that time will go up, so that will have some impact upon water revenue.”

Pipes and profits

Overall, the group saw a 6 per cent reduction in its profits, according to the preliminary financial results divulged by Ms. Kuan, amounting to some MOP65 million.

“The major reason for that is due to water demands not meeting our original target,” explains Ms. Kuan, noting that a 2 per cent growth, as opposed to a predicted 3 per cent growth, was experienced in the year. Also contributing to the profit reduction was a decrease in income from the “construction activity income” or the construction of pipe networks, which Ms. Kuan explains contributed to about 15 per cent of the group’s profit, among other non-water projects. The group’s core business contributed between “80 to 85 per cent” of the profit for 2016, noted Ms. Kuan. Plans for using recycled water have not yet been implemented by the company, although it tells Business Daily that it’s ‘ready’ to pending a proposal by the government, which has yet to materialise. The Executive Director notes that environmental protection is “also the core value of the company, so if there is a very good environmental protection policy then we will follow it . . . [although] . . . for the time being there is no recycled water supplied to customers now.” There are no plans to increase the water tariff “for the time being,” said Ms. Kuan, adding “we have to see the results for 2017.”

Cotai City

The opening up of new infrastructure in the Cotai region, including Wynn Palace and The Parisian, has contributed to a double-digit increase in the growth rate of water demand


Leung Hio Meng named new cultural head The current deputy head of the Cultural Affairs Bureau, Leung Hio Meng, has been officially named the new president of the government department, effective tomorrow, as announced in yesterday’s Official Gazette. The promotion of Mr. Leung follows the departure of incumbent president of the Bureau Guilherme Ung Vai Meng who announced his resignation last month. According to the dispatch, Mr. Leung’s tenure for the new position will last two years. Mr. Leung, has a doctoral degree

in music from the University of Kansas in the U.S., has been serving the cultural bureau since 1995 and been a vice head of the body since September 2012. The Gazette also announced the promotion of the current head of the Bureau’s Cultural Activities Department, Kent Ieong Chi Kin, to vice head of the Bureau, effective from tomorrow as well. In January, Mr. Ung told reporters that he was stepping down from the position as he wanted to return to “the world of arts,” claiming his resignation had been long been planned. K.L.


Gov’t grants 15 new tables to Legend Palace The MSAR Government has granted 15 new mass market gaming tables and 91 slot machines to the third hotel in the Macau Fisherman’s Wharf complex, Legend Palace Hotel, the Secretary for Economy and Finance, Lionel Leong Vai Tac, said yesterday. The official added that SJM Holdings Ltd., the holder of the gaming licence that property

owner Macau Legend Development Ltd. uses for its gaming business, will transfer 55 other mass and VIP gaming tables from its other properties to the new hotel. The Secretary said SJM has not requested new gaming tables for Jai Alai, which is expected to run the business based upon its previous model after re-opening. K.L.

Business Daily Thursday, February 16 2017    3

Macau Smoking Lounges

Now a good idea The MSAR Government has made a U-turn on its full-smoking bill, suggesting maintaining smoking lounges in gaming venues as long as they meet new “high-quality” standards Sheyla Zandonai


esterday, the MSAR Government announced it is to alter the drafted bill proposing a full smoking ban in casinos to allow the establishment of smoking lounges. In a press briefing held yesterday, the Health Bureau explained that the amendment to the bill aligns with the latest survey results conducted by the University of Macau (UM) commissioned by the six local gaming operators. The study, which was submitted to the Macau SAR Government in December and presented to the public last Tuesday, concludes that 60 per cent of the 14,301 gaming and non-gaming employees interviewed agree with ‘solutions that allow smoking lounges’ in casinos. The Bureau’s vice-Director, Cheang Seng Ip, said yesterday that the proposed guidelines for improving smoking lounges presented by the casino operators – prepared by PolyU Technology and Consultancy Co. Limited (PTeC), a professional service branch of the Hong Kong Polytechnic University – “offer high standards, which are viable and feasible.” While acknowledging that the UM study presents important suggestions for high standards to be integrated into smoking lounges, the Tobacco Prevention and Control Office of the Bureau also had a say in the matter. Tang Chi Hou, the Office Director, presented a series of recommendations, comprising eleven standards and measures (see box) for the management of smoking lounges based upon international experiences gleaned from places such as Italy and Mexico. Questioned about the position of Secretary for Social Affairs and Culture Alexis Tam Chong Weng on the Bureau’s recommendations, Cheang explained that they have already submitted the proposal for the Secretary’s evaluation, with discussions occurring between the latter and the Health Bureau. It is now pending approval from the Secretary. Nothing lasts forever Questioned on whether he expects the bill amending the Tobacco Prevention and Control law would be approved at the Legislative Assembly, Mr. Cheang said he trusts his colleagues working on the task, adding, however, that it is not within the scope of the Health Bureau to say if the new law, which passed its first reading in 2015, will be approved by the end of the legislative term. “The government highlights the fact that the application of a full-smoking ban in indoor public spaces constitutes a final working goal on tobacco-smoking control, which should be

Alexis Tam: Awaiting operators’ response

Speaking on the sidelines of the plenary session at the Legislative Assembly, the Secretary for Social Affairs and Culture, Alexis Tam Chong Weng, said he still does not know if casino operators will agree with the suggestions of the Health Bureau on the smoking lounges. “We have still not taken a decision concerning [the changes sparked by the] study presented by the casino operators. The Health Bureau presented a suggestion to the concessionaires requesting them to raise standards even

progressively fulfilled,” said Cheang Seng Ip. But he added that progress would not be so fast. “The setting up of smoking lounges with high air quality standards corresponds to the politics of progressive control of tobacco-smoking,” he claimed. This means that smoking will very likely continue to be partially allowed in casino facilities albeit under stricter control, more frequent inspection, and tighter criteria for improvement in technical design. Both health officers expressed that the government agrees changes and implementation of the amendments to the current law should be conducted “in phases.” “We have to consider several viewpoints, and not ignore that the changes introduced [since 2014] have already produced improvements,” said Mr. Tang. In fact, according to the UM study, 87 per cent of survey respondents stated that “the air quality in their work environment has improved since the introduction of smoking lounges in mass gaming areas in October 2014.” For smokers only According to the new proposed amendments to the drafted bill, smoking activities in VIP rooms would be restricted to assigned zones. “VIP rooms will only have smoking lounges. They will no longer be [full] smoking areas,” confirmed Cheang. Smoking is currently prohibited on the mass gaming floors of local casinos, and is only permitted in smoking lounges and VIP rooms. Having passed its first reading in 2015, the government-backed bill initially proposed banning smoking in all indoor areas of gaming venues, in addition to eliminating current smoking lounges. Questioned whether there would be limitations on the number of smoking lounges permitted in casinos, Mr. Cheang said there is currently no cap on the number, with the number dependent upon the ratio between size of gaming floor and smoking area rather than on the operator’s own preference. The health official also stressed that “the only activity allowed in smoking lounges is smoking. No gambling devices will be allowed in those areas.” The Paradox In fact, local gaming operators has been awaiting the government’s reaction to the survey presented in December 2016, hoping the administration acknowledges that a full smoking ban may be financially disadvantageous. “A full ban without careful consideration of the city’s long-term sustainable development would hamper the regional competitiveness of the Macau

higher. We are now awaiting a response on the part of the concessionaires,” the official said. Asked about whether the proposal of the Health Bureau contradicts the law amendment’s original intention, Mr. Tam replied: “As I said in the past, if the six casino concessionaires [are] able to present a better suggestion, establishing smoking lounges that fulfil the requirements, we would consider that possibility, which we are doing now.”  Meanwhile, the Secretary believes there is still enough time to work on the latest proposal before the end of this legislative term in August.

gaming industry,” said Ambrose So, CEO and Executive Director of Sociedade de Jogos de Macau (SJM), on behalf of the six casino operators in a press conference held earlier this week. Speaking to the press yesterday, the Vice-Director of the Health Bureau said that the next step in the free-smoke society bill may not entail “a total prohibition of smoking,” since it will be a progressive process. In another sign that the government may indeed not be considering

implementing the full smoking ban in casinos during this legislative term, Mr. Cheang said that the grace period requested from casino operators to proceed with improvements in smoking lounges of between 12 to 18 moths “may be too long.” The President of the Legislative Assembly, Ho Iat Seng, commented on Tuesday that the government-backed bill proposing a full smoking ban on casinos would not be abandoned, even if the establishment of smoking lounges was allowed, “only revised.”

The eleven commandments 1 2

Smoking inside casinos is only allowed in designated smoking areas Casino operators can request authorisation from the Health Bureau to establish smoking lounges in their casinos.


The establishment of smoking lounges should comply with the existing Security Regulation Against Fire and the General Regulation of Urban Construction.


Smoking lounges should be located in separate areas within casino facilities, with coating over the ceiling, walls, and floor capable of hindering smoke outflow.


In smoking rooms, the principle of ‘Low-level entry and high-level exit’ must apply, according to which the smoke should be expelled via independent conduit directly to the outside of the building.




Entrance doors to smoking lounges should be sliding doors with an automatic opening and closing device. With regard to adjacent gaming areas, smoking lounges should be kept under negative pressure, according to the following: - When the smoking lounge door is open, the inflow of air should be higher than 0.1m/s. - When the smoking lounge door is closed, the negative pressure should be higher than -5 Pascal. In addition to an alarm device, smoking lounge doors should display visual signage displaying the room’s normal operation, according to the following: - When the smoking lounge door is closed, negative pressure should be higher than -5 Pascal. - The smoking lounge door cannot remain open for more than 1 minute.


No gambling devices, electrical or mechanical machines, including slot machines, can be placed in smoking lounges, nor any activity other than the act of smoking can be practiced in such areas.


It is forbidden to post or place any kind of text in smoking lounges that promotes the consumption of tobacco and the act of smoking; namely, advertising campaigns for tobacco and tobacco products.


In the door in front of the smoking lounge an area should be targeted for the display of information about tobacco-induced ill effects, and the cessation of smoking provided by the Health Bureau.


4    Business Daily Thursday, February 16 2017

Macau Opinion

Ashley Sutherland-Winch*

Protecting minors from the sex trade In any international city filled with tourism, the spectre of child prostitution is high. We are a transit and destination for gaming and with that human trafficking and the sex trade follow. People travel from all over the globe in search of children to exploit; and we must remove Macau from their itinerary. The sexual exploitation of children should be a serious crime because it is a shocking violation of the rights of a child. The third standing committee of the Legislative Assembly is currently discussing revisions to the Macau Penal Law this week. Under the current law, only exploitation of prostitution services (organising and promoting such activities) is considered a crime, and until now the law only penalised the exploitation of underage prostitution but not the solicitation of services. The amendments will now make soliciting minors under the age of 18 for prostitution and any use or production of child pornography a crime. The third standing committee intends to eliminate the grey area for the protection of minors from 14-18 years old. Sexual acts with minors under the age of 14 was already considered a crime but no statute applied to those aged 14 to 18. Macau legislators agree that child prostitution and pornography production and distribution should be considered a public crime and investigated by the Public Prosecutor’s Office. The major issue is that the sex trade business is highly lucrative and it is difficult to apprehend violators since often the crimes are committed in private and offenders quickly travel in and out of Macau. This week, the committee president, Legislator Cheang Chi Keong, said: “The client will now have to assume his responsibility, in situations not involving threat but a service transaction (…) in which child prostitution exists and according to recommendations from international organisations criminalising solicitation is a way to prevent the issue.” We should support revisions to protect minors with the law but also work towards consciously removing the practice from our city. It would also be a huge benefit to all of us if nations could work together to create a database of child sex offenders that could be accessed globally and when these individuals travel, immigration officials could be alerted. Of course, this is a dream and one that is not easily achieved but at the very least the government is revising our laws. I encourage discussions that continue today within the Legislative Assembly to protect minors within our community, but also to work towards eradicating human trafficking completely here in Macau.

*Marketing and Public Relations Consultant and frequent contributor to this newspaper.


IMF: Mainland slowdown a risk to MSAR The Fund’s latest report on Macau says both the quality and quantity of the city’s infrastructure will be key to its mass tourism and non-gaming transitions Kam Leong


he International Monetary Fund (IMF) believes that the MSAR’s outlook is reliant upon external developments, in particular those related to Mainland China, according to its latest report on Macau. The Fund notes in its 53-page tome that Mainland China’s sharp slowdown would be the biggest risk to the city if it is ‘accompanied by a material depreciation in the Renminbi against the dollar, which would directly affect external competitiveness.’ ‘Macau SAR was depreciating against the RMB as a result of the peg, indirectly, to the U.S. dollar,’ the Fund wrote. ‘With China now accounting for two-thirds of tourists and balance of payments pressures raising the potential for depreciation, external competitiveness may be more of an issue.’ The report also says Macau remains at risk to policy changes related to developments on the Mainland; in particular, measures controlling capital outflows. In addition, it believes a large contraction in China’s output would further affect local gaming revenue, given the majority of the city’s visitors are from the Mainland. ‘While the recent shock could be absorbed via a reduction in the gaming sector’s extraordinary profits, a further adjustment from current reduced revenue levels could be more consequential for employment and the broader economy,’ the Fund added.

To the mass

Declaring that volatility may undermine increasing macroeconomic uncertainty, the Fund notes that the MSAR Government’s

strategy to diversify to mass market gaming, non-gaming tourism and financial services is important. Apropos mass market tourism, the Fund points out that the critical parameter for this development would be whether the city could offer adequate infrastructure – in terms of quality and quantity. ‘The move from VIP to mass market tourism likely requires a larger physical footprint to achieve the same amount of growth due to lower per capita tourist spending and there are already material infrastructure bottlenecks,’ the report found. ‘[The bottlenecks] may constrain Macau SAR’s ability to accommodate the needed additional tourists. For this reason, execution of current infrastructure plans is likely the single most important part of the growth strategy going forward,’ it pointed out. Meanwhile, the International Monetary Fund believes the city’s mass market gaming ‘still has significant scope for growth,’ despite it noting that the effective management of the money-laundering risks is the key to sustainable growth for the industry. For non-gaming development, however, the Fund says it is still premature to access Macau’s potential in the area, given that it is ‘only recently that gaming operators have invested in the necessary supply.’ Nevertheless, it added a further relaxation in China’s visa policy for visits to the MSAR could be a positive factor for the city’s outlook.

Financial development

O n th e o th e r ha n d, th e I M F commented that the city’s intention of developing financial services such as RMB settlement of external trade, financial leasing, and global wealth management, is ‘logical.’ ‘China’s recent and high-level official support for Macau SAR’s

diversification into financial services is important. Nonetheless, further work would be useful to establish both Macau SAR’s comparative advantage in these areas and the potential cost-benefit of seeking this business,’ the report reads. The Fund adds that the city may need to provide larger cuts in its income tax in order ‘to attract the necessary nonresident investors and professionals, with potentially limited spill-over benefits to local employment,’ especially for becoming a form of offshore financial centre for leasing and wealth management. ‘It will be important that Macau SAR ensures a high standard for transparency of legal persons and trusts in line with international standards, in particular on the issue of beneficial ownership,’ it added.

Fiscal loosening unnecessary

Meanwhile, the body pointed out that there is no need for the MSAR Government to further loosen fiscal discretion in order to avoid ‘overstimulating the economy.’ It added that the authorities should also establish a medium-term framework to anchor fiscal policy and ensure long-run solvency. ‘Although there is not an urgent concern, the authorities should establish long-run projections to better understand how much of the fiscal resources are accounted for, particularly with respect to future pension obligations,’ it wrote in the report. For the local property market, the Fund perceives “no clear need” for the government to loosen its current macro-prudent regulations for the market as well. ‘Current information - including healthy bank balance sheets and recovering prices - suggests this threshold has not been met,’ it said. The report was released yesterday following the Executive Board of the Fund’s 2016 Article IV Consultation with the MSAR. The consultation, required by Article IV of the Fund’s Articles of Agreement, took place last November with a team of IFM economists visiting the city, meeting local government officials.

Business Daily Thursday, February 16 2017    5

Macau Economy

MSAR ranked 32nd in terms of economic freedom Lowest ranking seen in Government Integrity category Kelsey Wilhelm


acau has gained five places on the Index of Economic Freedom from last year, according to a report published by The Heritage Foundation.

Achieving an overall score of 70.7, the same achieved by Macedonia who placed 31, the MSAR is seen as ‘mostly free.’ The territory also rose one place in the regional rankings, to 8th. Macau saw its lowest score of the 12 segments under review in ‘Government Integrity,’ where it ranked

just 37.1 out of 100 possible points, the lowest score in the category seen in the top 65 spots in the ranking, and below that achieved by overall lower ranking countries like Kazakhstan and Peru. It’s also the exact same score achieved by El Salvador in the category. A perfect 100 score in ‘Fiscal Health’ helps pull the MSAR up to 8th in the regional Asia Pacific rankings, which are led by Hong Kong and Singapore.



Personal data collection trumps privacy concerns BNU has closed “dozens” of accounts of clients who refused to agree to the sharing of their banking information with Caixa Geral de Depósitos, the group’s parent company in Portugal Banco Nacional Ultramarino (BNU) has frozen “dozens of client accounts,” the holders of which refused to authorise the transfer of personal data for supervision purposes to the bank’s parent company, Caixa Geral de Depósitos (CGD), according to the company’s CEO Pedro Cardoso. “There are dozens of the 225,000 clients that BNU has in Macau, so whatever the calculation you make, be it 1 or 99, it will still be a small percentage,” said the bank’s CEO without specifying the exact number of frozen accounts. With BNU’s profits reaching MOP560.55 million (US$70.14 million) in 2016, a 9.8 per cent increase from the previous year, the bank’s CEO said the business volume of the frozen accounts was “insignificant.” Started in August 2015 for supervisory purposes, the personal data transfer involves requesting BNU clients in Macau to authorise the bank to provide “really simplified information regarding their relationship with the bank” to CGD. “Almost 90 per cent of all our business volume has been covered [by the scheme] so far and there is still one and a half years left from the initial projected time of three years until the third quarter of 2018,” Cardoso stated. Mr. Cardoso said the form sent to clients “is a supervision requirement” that the parent company “has to comply with.” “As is known, CGD is under the supervision of the Bank of Portugal and the European Central Bank, and after we consulted the Monetary Authority of Macau (AMCM) and the Office for Personal Data Protection (GPDP) and received their agreement for the process we requested our clients to give us their consent in order to provide the information quickly,” he explained.

No means no

The information referred includes personal identification data (name, residence and date of birth among others) and information about the value of deposits and credits that clients own in BNU in Macau. For Mr. Cardoso, the process was a “notable success,” claming the bank has had a “very patient and pedagogic” approach to its clients. “However, we had some clients refuse, saying they wouldn’t provide the information in any way. We called their attention – [they] were relatively few - to the consequences of that decision, which will result in the termination of their relationship with the bank,” he added. The CEO of BNU said that the majority of the refusing clients “changed their position and decided to give their consent” for the personal data transfer after being contacted. “However, we had some dozens of clients who maintained their position and didn’t provide their consent to BNU therefore the bank has initiated the process of closing the commercial relationship of those clients,” he said, adding that the account closing only started at the end of 2016.

Restricting movement

Mr. Cardoso didn’t provide the exact number of clients that could have their accounts frozen, saying the “closing process is quite swift” in cases where clients only have a deposit account. “But for those who are using other products or services of the bank, such as credit cards, mortgages or personal credit, the closing won’t be immediate due to our obligations. In those cases we will have to wait to the end of the contracts,’ he said Lusa

The overall ranking for the MSAR is above the world average of 60.9, as well as the regional average of 60.4, according to the data. ‘The overall regulatory environment is relatively transparent and efficient,’ notes the report. ‘The economy lacks a dynamic and broad-based labour market […] Monetary stability has been relatively well maintained, but the government funds generous subsidies to households, the elderly, and students,’ it states. Labour freedom scored 50, while business freedom for the MSAR reached 60, with monetary freedom scoring 70.8. With regard to open markets, trade freedom scored 95, with investment freedom 85 and financial freedom 70. ‘Trade is extremely important to Macau’s economy,’ notes the report as ‘there are few nontariff barriers to trade and Macau is relatively open to foreign investment . . . the small financial system functions without undue government influence.’

Growing activism

The group noted the MSAR’s growing political activism, stating that

‘Although the population was politically quiescent in the past, the frequency of public protests against a range of issues such as corruption, favouritism and nepotism has increased in recent years.’

“Although the population was politically quiescent in the past, the frequency of public protests against a range of issues such as corruption, favouritism and nepotism has increased in recent years” Index of Economic Freedom, published by The Heritage Foundation

Government spending was ranked at 92.8, with the tax burden scoring 72.3. Property rights and judicial effectiveness were both awarded a score of 60. The group notes that ‘two ongoing structural problems are a lack of attractions for non-gambling tourists and high travel expenses.’ The last ranked on the list was North Korea, with an overall score of 4.9.

6    Business Daily Thursday, February 16 2017

Macau Legislative Assembly

The house of dancing books Legislators questioned yesterday the location of the proposed new central library Nelson Moura


ecretary for Social Affairs and Culture Alexis Tam Chon Weng said yesterday in the Legislative Assembly (AL) that public tenders for the architectural plans and construction of the new central library will respectively start in 2018 and 2019, predicting the construction will be completed in 2022. Speaking on the sidelines of yesterday’s AL plenary session, the Secretary claimed that the some MOP900 million (US$112.5 million) construction budget estimated previously by the Cultural Affairs Bureau (IC) for the project was not “a precise number”. He claimed a more precise estimation could only be made once public tenders start. “We’re not building a luxury library… the budget is a prediction and the exact amount could end up being below or above MOP900 million,” said the Secretary. The initial budget proposed by the IC last year was based on the average cost of large scale construction works in 2015 and an inflation rate of five per cent.

It is planned that the new library will occupy the former headquarters of the Judiciary Police (PJ) and the Old Court Building on the Praia Grande on the Peninsula. “The essential [consideration] is not only about the MOP900 million

budget but the urban planning and traffic issues in the area that should be studied,” said legislator Ma Chi Seng. Legislators suggested the development be relocated to Zone A of the new reclamation area, or to an area closer to the Macau Science Museum. In his response, the Secretary said that the authorities would make sure that the Old Court Building be

preserved for the project, in addition to introducing new functions for the library such as the storage of valuable historical documents. “Macau has the largest collection of historical documents in Portuguese [outside of Portugal] - almost 260,000 books and documents are currently stored in industrial buildings and are in need of being preserved,” the Secretary said.

preceded Chan as IMT head, had never provided any quotation for her to draft a proposal.

by a company for payments and then the IMT head ordered her to make the payment without Roque Chan’s signature. She added that the former IMT head had ceased to request Roque Chan’s signatures following the incident.

Not only a library

During the AL debate session on the location for the new library, several legislators opposed the location of the planned library, believing the proposal could increase traffic and costs since it involved an historical building.

Ho Chio Meng Trial

Recommendations required One former technician from the Prosecutor’s Office revealed a “high-ranking” official in the department had once recommended a company for a renovation bid Cecilia U

A witness in the trial of former Prosecutor-general Ho Chio Meng revealed yesterday that a high-ranking official in the Prosecutor’s Office had “highly recommended” a company for the refurbishment project on the 16th floor of Hotline Building which cost MOP7 million (US$875,481). Tang Wai Man, a former technician in the Integrated Management Team (IMT) of the Office, was called to the stand yesterday as the trial continued. According to the witness, she is the spouse of a cousin of the former official. Regarding the outsourcing of the refurbishment project, Ms. Tang revealed that the Office had requested quotations from three companies, of which two had served the Office previously, while the other “was highly recommended” by the high-ranking official. The witness did not disclose which company had won the bid in the end. According to Ms. Tang, it was

Sonia Chan’s sister in court

Chan Hoi Yin, one of the three witnesses called to yesterday’s trial, is the elder sister of incumbent Secretary for Administration and Justice Sonia Chan Hoi Fan, according to Chinese language newspaper Macao Daily. The Secretary

always the head of her department, Chan Ka Fai, who selected awardees for projects related to renovation or construction, adding she would make proposals based upon the quotations provided by Chan. Ms. Tang said Chan explained that that was due to security concerns as the Prosecutor’s Office is a sensitive department that should not be exposed frequently and thus it abandoned the procedure of asking three suppliers to tender. Mr. Chan had also told her that the Office could directly re-hire the same company if the company performed well in the past without the need for going through the evaluation procedure, she claimed. For procurement contracts such as the purchase of computers and scanning services, Ms. Tang said she had gone through the procedure of requesting quotations from three different suppliers for each purchase. In response to presiding judge Justice Song Man Lei’s enquiry, Ms. Tang said that Ho Kam Meng, who

allegedly recommended one of her family members to work in the Office as previously disclosed by Ho Chio Meng during one of the hearings. The suspected practice of nepotism by the Secretary is still currently under investigation by the Commission Against Corruption (CCAC).

Prohibited zone

Another witness, Chan Hoi In, who had also participated in the procurement procedures of the Office, testified yesterday that the IMT staff was prohibited from visiting the 16th floor of the Hotline Building for confidential reasons. Ms. Chan claimed she had been beware it was the same group of people for different contracted companies that are involved in this bribery case, saying that she contacted these companies with the same people answering the phone. Meanwhile, Ms. Chan disclosed an incident involving IMT head Chan Ka Fai and Roque Chan Lok Kei, the brother of former Secretary for Administration and Justice Florinda da Rosa Silva Chan. According to the witness, Roque Chan had once refused to sign the confirmation of a service completion

Coffee beans

Tsang Wai Shan, head of the Assistance Department, also confirmed that Chan Ka Fai would provide quotations for her to make proposals during her position in the IMT. Ms. Tsang claimed that proposals made by her subordinates would not be handed to her even after she took over as department head, saying the proposals would be submitted directly to Chan Ka Fai. Meanwhile, the defence lawyer questioned Ms. Tsang whether the MP continues purchasing coffee. The department head replied that the Office still needs to outsource the procurement of coffee bean since the beans that the Office always consumes can only be found in Hong Kong.

Business Daily Thursday, February 16 2017    7

Macau Murder

Kim Jong Nam pleaded for his life: Seoul MPs An intelligence committee member of South Korea said Jong Nam’s children are currently living in Macau Jung Ha-Won


he half-brother of North Korean leader Kim Jong Un, who has been murdered in Malaysia, pleaded for his life after a failed assassination bid in 2012, lawmakers briefed by South Korea’s spy chief said

Wednesday. Kim Jong Nam died after reportedly being attacked by two women believed to be North Korean agents at Kuala Lumpur International Airport on Monday. “According to (Lee)... there was one bid in 2012, and Jong Nam in April 2012 sent a letter to Jong Un saying ‘Please

spare me and my family’,” Kim Byung-Kee, a member of the parliamentary intelligence committee, told reporters. “It also said ‘We have nowhere to go... we know that the only way to escape is suicide’,” he said, adding Jong Nam had little political support in the North and posed little threat to Jong Un. The assassination, if confirmed to have been the North’s work, is more an indication of Jong Un’s “paranoid personality” than a calculated

move to remove a political threat, the legislator quoted the spy chief as saying. Jong Nam was the eldest son of Kim Jong Il with his first wife, and in the deeply patriarchal North the first son is seen as the official heir of the family. The country’s founding father Kim Il-Sung passed on the helm to his first son, Kim Jong Il, on his death in 1994. But the succession instead went to Jong Un, who was born to Jong Il’s third wife - a potential taint in his legitimacy as leader. Jong Nam’s family - his former and current wives and three children - are currently living in Beijing and Macau, said another intelligence committee member, Lee Cheol-Woo. “They are under the protection of the Chinese authorities,” he said, adding Jong Nam had entered Malaysia on February 6, a week before his death. Jong Nam’s murder was the highest-profile death under Kim Jong Un’s regime since the execution of the leader’s uncle Jang Song-Thaek for treason in December 2013. Jang, known to be close to China and an advocate of economic reform, played a key role in Jong Un’s rise to power

MSAR Gov’t declines to comment

A picture taken in August 1981 at an unknown location shows Kim Jong-nam (R, front row), the half brother of North Korean leader Kim Jong-un, together with his father late North Korean leader Kim Jong-il (L, front row). A press statement released by the Malaysian police on 14 February 2017, said a 46-year-old North Korean named Kim Chol died the previous day on his way to a hospital from a Malaysia International Airport service counter where he sought initial medical treatment. Reports said Kim Chol, an alias used by Kim Jong-nam, was attacked by two unidentified women with chemical sprays. The suspects fled immediately in a taxi, and Malaysian police suspect North Korea was behind the killing. LUSA

The Office of the Secretary for Security said yesterday it would not comment on the murder of Kim Jong Nam, or disclose any information. In a press release yesterday, the security body said the MSAR Government is paying close attention to developments in the murder case of Kim Jong Nam. It added that the authorities strive to protect the safety and legal benefits of local residents, visitors in the MSAR and other individuals. Meanwhile, Chinese Foreign

but his power was believed to have irritated the young ruler. Jong Nam - believed to have ties with Beijing’s elite - was a relatively outspoken figure, publicly criticising Pyongyang’s political system on a few occasions. Jong Nam is the latest member of the elite to have been murdered or faced such a threat, after falling out of favour with the regime that has ruled the country with an iron fist and pervasive personality cult since its founding in 1948. Yi Han-Yong, a nephew of Jong Nam’s mother Sung Hye-Rim, was one of them. Yi publicly criticised the ruling Kim family in his memoir and numerous media interviews after defecting to Seoul in 1982. But he was fatally shot outside his home in 1997 in what Seoul’s spy agency described as an assassination by North Korean agents. Yi reportedly muttered “spies” before dying. His attackers were never found. In 2010, two North Koreans posing as defectors were arrested for a failed bid to kill Hwang Jang-Yop, the North’s former top idealogue who defected to the South in 1997. Hwang died of a heart attack at his home months later. AFP

Ministry Spokesperson Geng Shuang said the central government does not have related information on whether the wife and children of Kim Jong Nam are currently in Macau, according to Chinese language newspaper Macao Daily. At the Ministry’s regular press briefing yesterday the spokesperson was asked whether China has discussed the murder with the Malaysian Government. Mr. Geng said only that China is also paying close attention to developments in the case.

Kim Jong Nam

Malaysia arrests female suspect in assassination Kanga Kong and Anisah Shukry

Malaysian police arrested a woman carrying Vietnamese travel documents who is suspected of involvement in the murder of North Korean dictator Kim Jong Un’s half-brother. Doan Thi Huong, 28, was arrested on Wednesday morning at Kuala Lumpur

The ‘Little General’ who fell from grace

They used to call him the “Little General” but Kim Jong Nam - once heir-apparent to his father and North Korea’s then-leader Kim Jong Il - fell from grace in 2001 after a spectacular blunder. Born from his father’s relationship with actress Sung Hae-rim, Jong Nam is known to have been a computer enthusiast, a fluent Japanese speaker and a student in both Russia and Switzerland. He lived in Pyongyang after finishing his overseas studies and was put in charge of overseeing North Korea’s information technology policy. But the chubby eldest son of the supreme leader was already seen

International Airport 2, according to a statement by Malaysian police Inspector General Khalid Bin Abu Bakar. The suspect was positively identified from closed-circuit television footage and was alone at the time, he said. The murder has triggered questions about the stability of Kim’s regime as he accelerates plans to build nuclear

weapons that threaten the U.S., South Korea and Japan. South Korean analysts and government officials have speculated that Kim was behind the killing of his half-brother, a critic of his leadership who lived outside the country for years. South Korea believes the deceased man was Kim Jong Nam based on

by Seoul experts as something of a political lightweight when in 2001 he fell out of favour. He was embarrassingly detained at a Tokyo airport, trying to enter Japan to visit Disneyland on a false Dominican Republic passport, accompanied by two women and a child. Jong Nam and his family afterwards lived in virtual exile in Macau, Singapore and China. Jong Nam’s half-brother Jong Un took over as North Korean leader when their father died in December 2011. In an email exchange with a Japanese journalist published in 2012, Jong Nam spoke disparagingly of Jong Un, saying he lacked “any sense of

duty or seriousness” and warned that bribery and corruption would lead to North Korea’s eventual collapse. In another exchange with the same reporter in 2012, Jong Nam said: “Anyone with normal thinking would find it difficult to tolerate three generations of hereditary succession.” In October 2012 South Korean prosecutors said a North Korean detained as a spy had admitted involvement in a plot to stage a hitand-run car accident in China in 2010 targeting Jong Nam. In 2014 Jong Nam was reported to be in Indonesia - sighted at an Italian restaurant run by a Japanese businessman in Jakarta - and was said to be shuttling back and forth between Singapore, Indonesia,

closed-circuit television footage and the photo on his North Korean passport, Lee said. Malaysian authorities released a statement identifying him as Kim Chol, 46, who was born in Pyongyang. Abdul Samah Mat, the police chief of Selangor state which takes in the airport, said earlier that an autopsy is underway at Kuala Lumpur Hospital. He declined to give further details. Bloomberg

Malaysia and France. In 2012 a Moscow newspaper reported that Jong Nam was having financial problems after being cut off by the Stalinist state for doubting its succession policy. The Argumenty i Fakty weekly said he was kicked out of a luxury hotel in Macau over a US$15,000 debt. Jong Nam’s son Kim Han-Sol studied at university in Paris. Back in 2012, when at school in Bosnia, he labelled his uncle Kim Jong Un a “dictator” in an interview. “My dad (Jong Nam) was not really interested in politics,” Kim told the interviewer when asked why his father was passed over for the dynastic succession in favour of his younger brother. AFP

8    Business Daily Thursday, February 16 2017

Greater china In Brief Manufacturing

Beijing moves to boost foreign investment China’s top economic planner yesterday pledged to take measures to attract more foreign investment to the country’s manufacturing sector. China will specify policies that will grant foreign investors the same treatment with domestic companies regarding the delivery of the “Made in China 2025” plan, according to the National Development and Reform Commission. The agency said that wider open-ups would be pushed to allow foreign entry, and local governments would be asked to lend more support to manufacturing projects when attracting foreign investment. Auto industry

Approvals for green car subsidies slow China’s industry ministry released a second batch of green energy vehicles slated to be eligible for subsidies this year, although the pace of approvals has slowed amid increased oversight on the sector. The Ministry of Industry and Information Technology’s list, if approved after a public comment period ending Feb. 20, would bring the number of battery electric and plug-in hybrid vehicles eligible for subsidies this year to 392, compared with 713 in the first two months of 2016. Previous lists have been published without calling for public comment. e-Commerce

Online sales of farm produce grow in 2016 Online sales of China’s farm produce continued to grow in 2016 as more farmers take to e-commerce. Online produce sales are estimated at over RMB220 billion (US$32 billion) last year, the Ministry of Commerce (MOC) said in a Tuesday statement. Agricultural e-commerce has been developing fast with structural reform in the agricultural sector. Online produce sales reached 150 billion yuan in 2015, more than triple that of 2013. The government started a pilot program in 2014 to digitize agriculture and aims for Internet access in almost all villages by 2020. Controls

Salt price stable after monopoly ended China’s table-salt price will remain stable and keep within a low price range due to large stockpiles and overcapacity, the top economic planner said yesterday. Zhao Chenxin, a spokesman for the National Development and Reform Commission, said that China could ensure the table-salt supply even in extreme scenarios, after salt system reforms. Starting from 2017, China scraped table-salt price controls and ended a state monopoly on the production and sale of table salt, dismantling a 2,000-year-old system. China’s table salt reserve stood at 1.55 million tonnes by the end of 2016, according to Zhao.

The leaked documents from Panama law firm Mossack Fonseca, which contained information on 214,000 offshore companies, showed that its Hong Kong offices were its busiest globally Money laundering

Hong Kong takes aim at middlemen in wake of Panama Papers scandal Private companies would be required to obtain and hold up-to-date information on their true owners and controlling parties Michelle Price


ong Kong is beefing up its anti-money laundering and corporate disclosure laws in a move that some financial crime specialists say could lead to the exodus of billions of dollars in assets from the territory as people seek to avoid increased scrutiny. The Chinese territory’s government has been rattled by last year’s Panama Papers scandal, which showed that Hong Kong was the most active centre in the world for the creation of shell companies. They have many legitimate purposes but can also be used to hide assets and evade taxes. Some of these entities were linked to powerful Chinese politicians, creating a potential embarrassment for Chinese President Xi Jinping, who has been conducting an anti-corruption crusade in the past few years. The Chinese central government’s Hong Kong and Macao Affairs Office in Beijing did not respond to a request for comment. Through legislative proposals published without any fanfare last month, Hong Kong’s Financial Services and Treasury Bureau (FSTB) seeks to impose anti-money laundering laws on non-financial businesses and to require private companies to disclose who their true owners are. The new rules would introduce a direct licensing regime for agents that set up and manage the paperwork for thousands of trusts and “letter box” shell companies that have no real business operations. The FSTB says it is concerned that the system may be used by criminals to conceal and launder illicit proceeds. The trust and company agents, as well as lawyers, accountants, and real estate agents, will have a statutory obligation to perform a range of checks on clients and their source of funds under the proposals. They will have to report any suspicious transactions or face the threat of prosecution, and be required to keep records for six years. Hong Kong financial firms have been subject to strict anti-money laundering laws introduced in 2012 but the service sector has until now been operating under self-regulatory regimes without the force of law.

Criminal offence

Private Hong Kong companies would be required for the first time to obtain and hold up-to-date information on their true owners and controlling parties, and provide this information to the authorities upon request. Failure to keep accurate records would be a criminal offence.

The changes should be implemented “as a matter of priority” to meet requirements outlined by the Financial Action Task Force (FATF), the global body that sets standards for combating money laundering, ahead of its review of Hong Kong next year, the FSTB said in the proposals. They also come as China, the largest source of the money channelled into offshore centres, according to the Panama Papers documents leaked to the International Consortium of Investigative Journalists, battles to stem capital outflows. Nearly US$1.4 trillion of illicit money, derived largely from corruption, tax evasion, and money laundering, flowed out of China between 2004 and 2013, according to think tank Global Financial Integrity. Much of that went through Hong Kong, say the financial crime experts.

Key Points HK non-financial firms to face anti-money laundering laws Territory set to introduce beneficial ownership disclosures Government says rules would help satisfy FATF requirements Proposals could see push back from business community Government in race to get rules in place by 2018 FATF review The nation’s central bank, the People’s Bank of China, which regulates money flows inside China and into and out of the country, did not respond to a request for comment. The leaked documents from Panama law firm Mossack Fonseca, which contained information on 214,000 offshore companies, showed that its Hong Kong offices were its busiest globally. It worked with more than 2,200 banks, accountants, law firms and other middlemen in the city to funnel money from China and elsewhere into nearly 37,700 entities registered in secretive locations such as the British Virgin Islands (BVI).

Dirty money claim

The scandal also exposed the widespread practice among Hong Kong companies of creating offshore entities to act as shareholders, shielding the identity of real owners. Companies principally based in the BVI were the largest source of direct investment in Hong Kong resident enterprises and the largest source of annual investment inflows between 2013 and 2015 the latest government data shows. “If you were afraid of Xi’s corruption

clampdown these measures may make you think twice about parking your assets in Hong Kong,” and they will probably be moved elsewhere, said Jane Moir, director at Princedale Advisory, a Hong Kong corporate investigations firm. Mossack Fonseca’s Hong Kong office did not respond to a request for comment, but the company has said it complies with a range of regulations and conducts due diligence on clients. Data from Hong Kong’s Joint Financial Intelligence Unit (JFIU) suggests dirty money is slipping through the net, say financial crime specialists. Last year, real-estate agents, accountants and trust and company service providers combined reported just 88 of the 76,590 suspicious transactions reports submitted to the JFIU, with lawyers submitting 969. Banks, brokers and other financial firms submitted 93 per cent of all reports. Industry bodies representing lawyers, accountants, agents that set up trusts and companies, and real estate agents, said their members already operate under strict professional codes of conduct that include anti-money laundering procedures. The Hong Kong Institute of Certified Public Accountants’ CEO Raphael Ding said in a statement that the government’s proposals on customer due diligence and record keeping will help it “to enhance its regulation of the profession” regarding anti-money laundering. Still, he said there were many legitimate reasons why companies and individuals wish to make use of offshore structures to hold assets. The Estate Agents Authority, which is responsible for regulating real estate professionals in Hong Kong, said that it “attaches great importance” to anti-money laundering measures by those with real estate sales licenses. And the Hong Kong Law Society said in a statement that there is no evidence that solicitors have failed in their obligation to make suspicious transaction reports.

Race against time

The consultation on the proposed law closes on March 5 and the government hopes to table a bill in the legislature in the second quarter. Kenneth Leung, a lawmaker representing accountants, said the proposals may be opposed by some business interests but that the Legislative Council would likely be supportive. The government will have to move fast if it wants to implement and enforce the new rules by the time FATF visits Hong Kong next year, said Leung. FATF can put a jurisdiction on a blacklist if it is uncooperative in the battle against money laundering. While that doesn’t trigger any formal sanctions, it can make banks, companies and other entities very wary about doing business with that place. Reuters

Business Daily Thursday, February 16 2017    9

Greater China M&A

Fosun’s tourism unit eyes fundraising for overseas expansion Tourism is key to China’s shift toward a more consumer-driven economic growth Julie Zhu and Elzio Barreto

China’s Fosun is in talks with investors to raise funds for its tourism unit’s planned overseas acquisitions, looking to build up the business even as regulators closely scrutinize outbound transactions, the unit’s president said. Fosun Tourism & Culture Group, a key profit growth business for China’s largest private conglomerate, is in discussions with domestic and international investors for its first round of capital raising to boost overseas investments ahead of a public listing, said Qian Jiannong.

Key Points Fosun Tourism in talks with investors on first capital raising

pressure on the yuan currency, which fell to eight-year lows in December. That won’t present a hurdle to Fosun’s growth ambitions, according to Qian. “Fosun, as a global enterprise, won’t be affected by such restrictions because we have enough offshore capital to conduct M&A deals overseas,” he said. “If it’s an overseas target, we will definitely use our offshore platform to acquire it. We have units incorporated abroad and at home.” Asked about a timeline for a listing, Qian said none had been set for Fosun Tourism. But Fosun, controlled by billionaire co-founder Guo Guangchang, encourages its different units “to go public at an appropriate time”, he said.

Tourism is key to China’s shift toward a more consumer-driven economic growth, with companies including Fosun, Dalian Wanda Group Co and HNA Group increasing their bets on the sector. The domestic tourism industry raked in RMB3.9 trillion (US$567.3 billion) in 2016, which Beijing wants to rise to RMB7 trillion by 2020, official news agency Xinhua has said. China will account for 14 per cent of total global outbound travel by 2020 from 10 per cent now, brokerage CLSA has forecast, with the number of Chinese overseas trips rising to 200 million a year at the end of the period from 125 million in 2015. For Fosun, the tourism unit is part of its “happiness” segment, which saw profits for the six months ended June 2016 soar 76 per cent to RMB365.4 million, surpassing the 25.5 per cent increase in the conglomerate’s health segment and the 13.7 per cent gain

in the wealth management segment over the same period. Only the investment and property development segments, which saw profits double and rise more than 600 per cent, respectively, experienced faster growth. Club Med, which Fosun bought in 2015, plans to open at least 20 new resorts in China over the next few years, Qian said without specifying the timeline for the build-up. The tourism unit has an in-house investment team of 26 people scouring the world for leisure tourism targets including hotel brands, travel agencies and theme parks, he said. “Definitely we still have the investment teams in our new group and they’re still searching some new targets to buy and also find some companies that maybe we won’t merge with or acquire them, but we can have very good cooperation with them,” Qian said. Reuters

Fosun unit targets hotels, travel agencies, theme parks Unit would go public “at an appropriate time”president The unit includes resort operator Club Med, a Chinese joint venture with tour operator Thomas Cook Group and the ultra-luxury Atlantis Resort Hotel in the southern Chinese seaside city of Sanya. “We will increase (overseas) investment in the next few years and the area or regions that are most important for us are really not only where Chinese people have an interest in, but also the global regions where the tourism business is attractive,” Qian told Reuters in an interview. “We have been in talks with many companies since 2010. Currently, we are also talking to a few companies, but I can’t comment on any potential deals and projects at this stage.” After a record year for outbound mergers and acquisitions by Chinese companies in 2016, Beijing has placed curbs on capital outflows to reduce

Billionaire co-founder Guo Guangchang controls Fosun

Environmental police

Beijing to target heavy air polluters After a long stretch of polluted days at the start of the year, heavy smog returned to Beijing on Tuesday As the latest wave of smog enveloped the Chinese capital, Beijing announced the formation of a new police unit to crack down on polluters. About 50 officers will work with environmental, land and water authorities to combat pollution, illegal mining and illegal agriculture land use, Pei Xudong, head of the group, said in a statement Tuesday on the Beijing Municipal Environmental

Protection Bureau website. The introduction of “environmental police,” along with coal-burning reductions and vehicle controls, are part of Beijing’s efforts to address recurrent air pollution that has been a persistent problem despite a three-year government campaign to control it. Air quality in the city failed to meet government standards on 46 per cent of days last year, even

as average pollutant concentrations fell, according to the bureau. After a long stretch of polluted days at the start of the year, heavy smog returned to Beijing on Tuesday, with the city’s environmental bureau issuing a yellow alert, the thirdhighest on its four-tier warning scale, until Thursday. The city warned children and the elderly to stay indoors during the period of heavy air pollution. The concentration of PM2.5 -small particles that pose the greatest risk to human health -- rose to 264

micrograms per cubic meter in Beijing as of noon local time, according to a pollution monitor at the U.S. Embassy. The reading is more than 10 times the World Health Organization’s recommended maximum day-long exposure limit of 25.

‘The city will also cut coal use by 30 per cent to 7 million metric tons this year from a year earlier’ Public security sub-bureaus in each district will also set up their own teams to help investigate environmental violations, according to the website statement. In other measures, Beijing will ban some high-emission vehicles from its urban areas starting Wednesday, Xinhua News Agency reported, citing authorities. The city will also cut coal use by 30 per cent to 7 million metric tons this year from a year earlier, Beijing News reported Jan. 14, citing Beijing environmental Protection Bureau head Fang Li. Bloomberg News

10    Business Daily Thursday, February 16 2017

Greater China


Hong Kong police struggle to stop brokerage hacking spree The territory has fallen behind other financial centres in defending against cyber fraud Michelle Price


ong Kong police are struggling to deal with di gi ta l p u m p -a n ddump schemes targeting brokerages - a littleknown type of computer-generated fraud that surged in the Chinese territory last year. Although the money involved was small - only about US$20 million worth of shares - there were 81 such incidents reported in 2016, more than triple the number in 2015, according to police. In the scheme, criminals invest in thinly traded penny stocks and then manipulate their share prices by ordering trades from hacked brokerage accounts. They earn profits by selling before the fraudulent trades are reported. After last year’s cyber-heist of US$81 million at Bangladesh’s central bank and a series of hacks of ATM’s around the world, authorities fear such pump-and-dump schemes could be increasingly used for electronic theft. Hong Kong is a favoured place for such attacks because of the number of thinly-traded penny stocks in the territory and because its securities industry has fallen behind other financial centres in defending against cyber fraud. At least seven brokers and eight banks have been targeted in Hong Kong, including HSBC Holdings Plc and Bank of China International (BOCI) Securities, according to regulators and people familiar with confidential investigations. A spokesman for HSBC declined to comment. A spokeswoman for BOCI Securities

said he could not comment on its case but the brokerage would continue to invest in IT security. “If you ask regulators in the industry what is the number one threat, not surprisingly it’s all about cyber attacks,” Ashley Alder, CEO of the Hong Kong Securities and Futures Commission (SFC) and chairman of the International Organization of Securities Commissions, said in a speech to the local legislature last week. “We’ve seen that happen not only in banking but also at brokers in Hong Kong, in particular recent attacks to do with basically hijacking share trading accounts.”

Key Points Hong Kong stocks pumped and dumped by cyber hackers Hackers targeting thinly-traded penny stocks in city Criminals exploiting lax cyber security at brokers, banks Such schemes surfaced more than a decade ago in the United States. Charles Schwab Corp, E*Trade Financial Corp and JP Morgan Chase & Co. were identified as victims of these schemes in a 2006 complaint filed by the Securities and Exchange Commission. The pace of attacks reported in the United States has slowed in recent years after big brokerages implemented a variety of strategies to thwart the hacks, said John Reed Stark, a former chief of the Securities and Exchange Commission’s (SEC) Office of Internet Enforcement. Some use algorithms to identify and halt unusual trading activity, others

scrutinise Internet traffic for orders coming from suspicious servers and one stopped permitting customers to use its online trading platform from buying penny stocks, said Stark, who now runs cyber-security consulting firm John Reed Stark Consulting LLC. But such protections are rare in Hong Kong, where the government has only recently started suggesting security improvements to banks and brokerages which have traditionally considered stock trading to be low-risk.

Two-factor authentication

The Hong Kong SFC last year told firms to increase surveillance of client transactions and data protection. Authorities believe that hackers accessed brokerage accounts using stolen or guessed passwords, according to investigators. This might have been thwarted if they were protected with two-factor authentication, the Hong Kong Monetary Authority has said. Two-factor authentication typically includes a password and a piece of information only the user has, for instance an electronic token with changing numbers. “Hong Kong is being targeted because they have not instituted the same cyber protections that we see in the U.S. and certain parts of Europe,” said Jeff Cramer, a former U.S. prosecutor. Cramer, who is managing director with cyber-security investigations firm Berkeley Research Group, said he expects to see more attacks in Hong Kong and perhaps other Asian nations, including China, Japan and South Korea that are also behind in cyber security.

Fighting back

Such pump and dump cases have proven tough to crack in the United States because the masterminds

are typically overseas, using surrogates and pseudonyms to make investments. Brokerages are typically not required to go public when they are hacked, so cases often only surface when the government files a complaint against suspected cyber criminals, or the hack results in litigation. Th e attac k i n v o l vi n g B O C I Securities year became public after it was sued by a customer that claimed its account was breached. Trading firm Fast Track Holdings Limited alleged in court documents that somebody hacked into its brokerage account on the afternoon of September 23 using a valid user ID and password. Within 18 minutes, the intruder had emptied the account by spending HK$38 million to buy 49 million shares of thinly traded Pa Shun Pharmaceutical, according to Fast Track. The stock soared more than 30 per cent after the purchase, which was made at a 36 per cent premium to the previous day’s closing price, Reuters data shows. BOCI alerted Fast Track of the suspicious activity an hour later, but it has said in court documents it should not be held financially responsible, saying it found no evidence its systems had been compromised. Peter Pang, Pa Shun’s CFO, told Reuters the management “would keep an eye to the incident and report to the regulators and the public when necessary”. One person familiar with the case said Fast Track’s management believes the incident was a pump and dump scam and that Pa Shun was targeted because it is thinly-traded, but it remained unclear who was responsible. Fast Track’s directors did not respond to requests for comment. Reuters

Business Daily Thursday, February 16 2017    11

Asia Private poll

Singapore GDP to be revised higher on manufacturing boost The outlook for growth this year, however, is clouded by several factors


ingapore’s fourth-quarter economic growth is expected to be revised higher due to a surge in factory output, although the outlook is clouded by concerns about a rise in trade protectionism under U.S. President Donald Trump. The median forecast in a Reuters poll predicted that gross domestic product expanded 12.6 per cent on an annualised basis in the October-December quarter from the previous quarter. The government’s advance estimate of fourth-quarter GDP, released on Jan. 3 and based on economic data for October and November, put economic growth at 9.1 per cent, getting a lift from a rebound in manufacturing. Analysts expect fourth-quarter growth to be revised higher, after December industrial production expanded at its fastest pace in five years. Such an upward revision is likely to reinforce the prevailing view among analysts that the Monetary Authority of Singapore will stand pat at its next scheduled policy decision in April and hold off from a further easing of its exchange-rate based policy. “In terms of monetary policy, I think the chances for exchange rate easing is much lower right now, at

least for April,” said Michael Wan, an economist for Credit Suisse. The outlook for growth this year, however, is clouded by factors including uncertainty over the Trump administration’s economic and trade

policies, risks from elections in Europe, and the outlook for China’s economy, analysts said. “That’s the biggest unknown, what the Trump administration will do in 2017,” Wan said. Even after the pick-up in growth late last year, economists say the MAS is unlikely to be in a hurry to tighten policy, especially given weakness in

the labour market, which suggests that demand-driven inflationary pressures are subdued. “Inflation is going to pick up in Singapore, but this pick up in inflation is largely on administrative prices changes like car park fees... rather than a genuine demand-pull pressure,” said Weiwen Ng, an economist for ANZ. Year-on-year growth in the fourth quarter is seen likely to be revised up to 2.5 per cent, from the government’s advance estimate of 1.8 per cent, according to the Reuters poll of 12 economists. Reuters


SoftBank to buy Fortress Investment for US$3.3 bln New York-listed asset manager Fortress’s investments span real estate, hedge funds and private equity Thomas Wilson


apan’s SoftBank Group Corp on Wednesday said it has agreed to buy Fortress Investment Group LLC for about US$3.3 billion, looking to add investment expertise as it prepares to launch the world’s largest private equity fund. The all-cash deal is SoftBank’s first major cash injection in an investment fund and represents another unpredictable gambit for a group that has to date focused on telecoms and technology. It comes after founder Masayashi Son made the surprise announcement in October that SoftBank is teaming up with Saudi Arabia to set up a US$100 billion technology fund. The Fortress deal will likely help SoftBank in its move to financing investments with private equity cash instead of debt, said Gerhard Fasol of Eurotechnology Japan, a Tokyobased consultancy. “Son’s strategy appears to be to use Fortress’s know-how to move from debt financing to private equity. It’s a logical progression for the company,” he said. SoftBank hired one of Fortress’s senior executives, Rajeev Misra, in

2014. Misra now runs the SoftBankSaudi Arabia fund. New York-listed asset manager Fortress’s investments span real estate, hedge funds and private equity. It had US$70 billion in investments under management at the end of September 2016, and is one of few global foreign investors with funds that are targeted at Japanese assets. In the wake of the global financial crisis, Fortress bought bad loans in Italy and has a track record in

Japan, where it bought hotels held by Lehman Brothers after the bank collapsed in 2008.

“Disciplined investment”

SoftBank’s Son said in a statement that the deal would “accelerate our SoftBank 2.0 transformation strategy of bold, disciplined investment and world-class execution to drive sustainable long-term growth.” SoftBank executives were not available to comment further on the deal. Though Fortress’ performance in Japan may have impressed SoftBank, its broader growth has been lacklustre. The first among the major U.S. alternative asset managers to go public 10 years ago, Fortress was then valued at US$14 billion.

Despite its diversification into a range of hedge fund strategies, from bitcoin to timber, Fortress failed to keep up with the growth in assets under management of bigger peers such as Blackstone. The companies said Fortress principals would continue to lead the investment manager, which will operate within SoftBank as an independent business, based in New York. Senior fund managers would also remain with the group, it said.

Key Points SoftBank’s PE play a break from telecoms and technology New York-listed asset manager has Japan focus SoftBank hired Fortress exec in 2014 Fortress shareholders to receive US$8.08 per share Fortress shareholders will receive US$8.08 per share, a premium of 38.6 per cent to the closing price on Feb. 13. Fortress plans to maintain its current base dividend of 9 cents per share for the fourth quarter of 2016, the company said in a statement. JP Morgan Securities and Morgan Stanley & Co acted as financial advisers for SoftBank and Fortress respectively. Reuters

12    Business Daily Thursday, February 16 2017

Asia In Brief S.Korea

Household debts post biggest growth in the year South Korea’s household debts posted the biggest growth in 2016 on eased regulation on mortgage financing and record-low borrowing costs, central bank report showed yesterday. The Bank of Korea (BOK), said in a report to the National Assembly that household debts reached 1,154.6 trillion won (US$1.01 trillion) as of end-2016, up 124 trillion won from a year earlier. It was the biggest yearly expansion, surpassing the previous high of a 110.1 trillion-won increase tallied in 2015. Debts owed by households to banks grew at a slower pace, while those from non-bank institutions grew faster. Consumption

Singapore retail sales rise Singapore’s retail sales in December rose from a year earlier, helped by a surge in sales of medical goods and toiletries, data showed yesterday. Total retail sales rose 0.4 per cent from a year earlier, after increasing by a revised 0.7 per cent in November, according to data from the Singapore Department of Statistics. On a month-on-month and seasonally adjusted basis, total retail sales fell 1.9 per cent in December after a revised flat growth in November. Auto industry

Australia’s new vehicle sales rise Australian sales of new vehicles rose for a second month in January as consumers continued their long love affair with sport utilities. Yesterday’s data from the Australian Bureau of Statistics showed sales rose 0.6 per cent in January, from December when they edged up 0.1 per cent. Sales of 97,636 were still down 0.9 per cent on January last year. All the strength was again in SUVs where sales jumped 6.3 per cent from December to the highest in three months. Sales for all of 2016 had reached an all-time high of 1.18 million, with SUVs taking a record share of 37 per cent of the market. Trade

S. Korean official expects exports to beat Jan data South Korea’s deputy finance minister said yesterday he expects export figures to improve in February from last month on a number of factors, including the low base a year earlier. In a news briefing held in Sejong, south of Seoul, Lee Chan-woo said “although there are fewer working days in February (this year) from a year earlier, it will still be better than January exports.” February 2016 had 18 working days but January 2017 had 20 working days because of the timing of the Lunar New Year. The February export data is due on March 1.

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Tourism Board

Singapore still sees Formula One allure Boosted by visitors from China, India and Indonesia, tourism has been a bright spot in an economy hit by a global trade slump Melissa Cheok


ingapore is still interested in hosting the Formula One race if the terms are right, and discussions on keeping the event in the Southeast Asian nation are under way, according to the Singapore Tourism Board. “I think the event is still a good one and I think it’s something we’re interested to look at provided the terms and conditions are right,” Lionel Yeo, chief executive officer at Singapore Tourism Board, told Bloomberg Television’s Haslinda Amin Tuesday, when asked if hosting the event makes sense. “The discussions are still ongoing.” Then-Formula One head honcho Bernie Ecclestone suggested the Singapore Grand Prix wouldn’t be extended when the five-year deal expires this year, Today newspaper reported in November, citing an interview with German magazine Auto Motor Und Sport. The F1 has since been taken over by Liberty Media Corp. “We should move away from the mind-set that the F1 should be here just so we can bring in a certain number of tourists every year,” said Irvin Seah, a senior economist at DBS Group Holdings Ltd. “You must look beyond the numbers. It’s about the branding, overall image of Singapore in the global tourism landscape.”

After a record year which saw 16.4 million visitors spend S$24.8 billion (US$17.4 billion) in the city-state, Singapore is now forecasting slower growth in tourist arrivals this year due to economic and political uncertainty as well as stiffer regional competition.

“You must look beyond the numbers. It’s about the branding, overall image of Singapore in the global tourism landscape” Irvin Seah, a senior economist at DBS Group Holdings

“We want to temper our expectations because we are fully cognizant of the fact that there are political and economic uncertainties which may have an impact on outbound travel,” Yeo said at a briefing Tuesday. The tourism board said it relies on extensive marketing campaigns and special events to lure visitors from

abroad. Besides partnerships with media portals like Tencent and Youku in China, the introduction of the Michelin Guide Singapore as well as events such as the inaugural HSBC World Rugby Sevens Series have also burnished the city-state’s allure as a travel destination. Like fellow F1 host countries Bahrain, Russia and Azerbaijan, Singapore has turned the race into a branding opportunity by drawing millions of television viewers around the world. The city is the first to host a night-time Grand Prix and the sporting event also draws entertainers such as Beyonce and Mariah Carey to perform at its side-lines.

Shopping, gambling

With visitor arrivals expected to grow between zero and two per cent this year after 2016’s 7.7 per cent expansion, the tourism board says it is planning to revamp Singapore’s main shopping belt Orchard Road and add more family-friendly attractions to tourist offerings. Boosted by visitors from China, India and Indonesia, tourism has been a bright spot in an economy hit by a global trade slump. Tourism makes up about four per cent of Singapore’s gross domestic product and has grown since the opening of two casino resorts in 2010. Genting Singapore, which runs one of the two casinos, saw its shares rise to their highest in two months yesterday on news of the country’s record tourism receipts last year. Tourism receipts are expected to rise one to four per cent this year to as much as S$25.8 billion. Bloomberg News

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Business Daily Thursday, February 16 2017    13

Asia Mood survey

Australian consumer confidence bounces The measure of family finances compared to a year ago bounced 4 per cent after a sharp drop the previous month Australia’s consumer sentiment rebounded in February as the mood brightened modestly on family finances and the economic outlook, a survey showed yesterday. Yesterday’s survey of 1,200 people by Melbourne Institute and Westpac Bank found consumer sentiment rose 2.3 per cent in February, from January when it rose just 0.1 per cent. That left the index at 99.6, just below the level where optimists match pessimists.

The sub-indices in the survey were broadly firmer. The measure of family finances compared to a year ago bounced 4 per cent after a sharp drop the previous month, while that for family finances over the next 12 months rose 1.1 per cent. Expectations for the economic outlook over the next 12 months gained 2.8 per cent, and the assessment of economic conditions for the next five years rose 1.6 per cent.

A bright spot for retailers was the measure of whether this was a good time to buy major household items which increased 2.2 per cent for a second month of gains. “The rebound is a hopeful sign that the soft patch in retail sales late last year has not extended into 2017,” said Westpac Senior Economist Matthew Hassan. Opinion was more cautious on housing, however. The index that tracks whether this was a good time to buy a dwelling slid 7.8 per cent to the lowest since May 2010.

The deterioration might have reflected expectations of higher interest rates. A question on the outlook for mortgage rates found 60 per cent of respondents expected rates to be higher in 12 months and just 5 per cent looked for a cut. The Reserve Bank of Australia (RBA) left rates unchanged at its February meeting last week and signalled policy would be on hold for some time to come. Yet, 64 per cent of survey respondents still thought house prices would rise further over the coming year. Reuters

Monetary negotiations

Japan, U.S. agreed FX talks best left for finance leaders Nippon finance minister said Japan proposed to Trump the idea of opening the economic dialogue Leika Kihara and Tetsushi Kajimoto

Japanese Prime Minister Shinzo Abe said he and U.S. President Donald Trump agreed to allow their respective finance leaders to discuss currency issues, suggesting Trump may be willing to soften criticism that Japan was manipulating its currency to gain a trade advantage. In a joint statement after a weekend summit in Washington, Abe and Trump said they reaffirmed their commitment to use fiscal, monetary and structural policies to strengthen domestic and global demand. Abe said the statement underscored that the Trump administration recognised the effectiveness of ‘Abenomics’ three-arrow policies - a cocktail of monetary stimulus, fiscal expansion and structural reforms set in motion four years ago to revive the world’s third-largest economy. “It shows the three arrows have gained understanding and of course, the BOJ’s monetary easing is part of this,” he said. But some analysts were sceptical of Abe’s sanguine views, especially after Trump recently assailed both China and Japan as playing “the devaluation market.” The Bank of Japan’s aggressive monetary easing and a subsequent weak yen have been among the few successes of “Abenomics”, providing a cushion for the export-reliant

economy and giving the BOJ some hope of achieving a still-distant 2 per cent inflation target. Any concessions won by Abe from Trump to refrain from making direct, market-moving comments that may trigger a yen spike and hurt Japan’s economy will be a relief to policymakers in Tokyo. “When I was alone with the president at the White House, I told him that it would be inappropriate for us leaders to directly debate exchange-rate issues,” Abe told parliament. “Currency issues are best dealt with by the finance minister and Treasury secretary of both countries,” Abe said, adding that Trump consented to the idea. Key decisions on economic policy will likely be made at a bilateral economic dialogue, to be led by U.S. Vice President Mike Pence and Japanese Deputy Prime Minister Taro Aso. Details on the dialogue remains sketchy but participants of the talks will be decided around April, when Japan is aiming to have Pence visit Tokyo, said a Japanese government official. Japan hopes to use the dialogue to seek ways to avoid trade frictions and ensure Washington is engaged in the Asia-Pacific region, another government official told Reuters. Japan should follow global rules if Tokyo starts bilateral trade talks with

US President Donald J. Trump holds a press conference with Japanese Prime Minister Shinzo Abe in the White House last Friday. Lusa

Abe: Trump shares monetary view

Japanese Prime Minister Shinzo Abe said yesterday U.S. President Donald Trump shared his view at last week’s summit that Japan’s monetary policy was not currency manipulation but was intended to end deflation. “I think Trump shared the view that our monetary policy is not

for currency manipulation but for ending deflation,” Abe said in the upper house of parliament. Abe also said he explained how Japanese automakers with factories in the United States contributed to job creation in the world’s largest economy. Trump did not make any demands for Japan to further open its economy to imports, Abe added.

the United States, but it’s unlikely that they would be acrimonious like the 1990s auto trade talks, a vice minister said.

Currency manipulation

Japanese policymakers were shocked by an accusation by Trump, made before the summit, that countries like China and Japan were manipulating their currencies to give their exports an unfair advantage. However, Trump made no public criticism of Japan’s currency or monetary policies either during or after the weekend summit. A senior

Japanese government spokesman said Abe and Trump did not discuss currency issues. Aso, who is also finance minister, said Japan proposed to Trump the idea of opening the economic dialogue. “It may take some time but it’s important to come up with a good framework” for the economic dialogue, Aso told parliament. Aso said discussions on currencies will be made directly with his new U.S. counterpart Steven Mnuchin, and will not be part of the economic dialogue. Reuters

14    Business Daily Thursday, February 16 2017

International In Brief Commerce

EU Parliament approves Canada trade deal The European Parliament backed a contested EUCanada free trade deal yesterday, facing down protests by activists and Donald Trump-inspired calls for protectionism. MEPs meeting in Strasbourg, France, approved the pact with 408 votes in favour, 254 against and 33 abstentions. Approval by the parliament allows the provisional implementation of the Comprehensive Economic and Trade Agreement as early as next month. Some of the more controversial aspects, including a much-derided investor court system, will require ratification by EU member states, which could take years. Climate change

G20 urged to ditch fossil fuel subsidies by 2020 Investors and insurers with more than US$2.8 trillion in assets under management yesterday called on the Group of 20 economies to phase out fossil fuel subsidies by 2020 despite U.S. doubts about climate change. G20 nations should work “to accelerate green investment and reduce climate risk”, they wrote on the eve of a two-day meeting of G20 foreign ministers in Germany to prepare a summit in Hamburg in July. The summit should set a clear timeline “for the full and equitable phaseout by all G20 members of all fossil fuel subsidies by 2020,” the 16 signatories wrote.


UK wage growth slows in late 2016 Britain’s labour market remained strong in 2016 despite the referendum decision in June to leave the European Union William Schomberg and Alistair Smout


ritish workers saw their pay grow more slowly than expected at the end of last year, official data showed yesterday, ahead of a likely squeeze on their living standards from higher inflation in 2017. At the same time, the employment rate hit a fresh all-time high as the number of people in work rose in the three months to December having fallen in the two previous monthly reports. The unemployment rate in the October-to-December period held at an 11-year low of 4.8 per cent, the Office for National Statistics said. But pay growth remains weak and yesterday’s data showed that, when adjusted for inflation, the rise in earnings was the slowest since the three months to February 2015. “With prices rising faster, real pay growth is now slowing down,” Frances O’Grady, the head of Britain’s

Trades Union Congress umbrella group, said. “This will be worrying for families whose have still not seen their living standards recover following the financial crisis.” Sterling dropped to a one-week low after the release. The data chimes with the Bank of England’s view that despite Britain’s strong economic growth, interest rates should remain at their record low level. British inflation hit its highest level since mid-2014 in January at 1.8 per cent and many economists think it will pass 3 per cent this year. The BoE believes much of the increase is due to the temporary effect of sterling’s fall after the Brexit vote rather than a price-pay spiral.

First slowdown in pay growth since July

The ONS said workers’ total earnings including bonuses rose by an annual 2.6 per cent, slowing from 2.8 per cent in the three months to


EU-U.S. commerce drops for first time since 2013 Trade between the European Union and the United States fell last year for the first time since 2013, estimates of the EU statistics agency showed yesterday, in line with a general drop in global trade. The data come as talks for an ambitious EU-U.S. trade deal have been frozen and calls for protectionist measures are growing louder, especially from the U.S. President Donald Trump. Eurostat said EU exports of goods to the U.S. dropped by 2 per cent in 2016 compared to the previous year. Imports from the U.S. also fell by 1 per cent. Angola

Annual rate of consumer price inflation slows Consumer price inflation in Angola slowed to just under 39.7 per cent in January, according to figures from the National Statistics Institute (INE). According to the INE’s monthly report on inflation, consumer prices rose 2.25 per cent in January from December, in line with the last few months but well below the 4 per cent increase seen in June. In Luanda prices were up 2.29 per cent on the month. Earlier reports from the INE had pointed to prices having risen by 42 per cent over 2016 as a whole.

November. Economists taking part in a Reuters poll had expected wage growth of 2.8 per cent. It was the first time that total pay growth had slowed since the three months to July. A separate survey showed expectations among households about rising living costs over the next year were the strongest in three years. In December alone, the ONS said total wage growth slowed sharply to 1.9 per cent, its weakest pace since February, reflecting fewer bonuses paid than in December 2015. Excluding bonuses, growth in earnings in the fourth quarter also slowed. The number of unemployment benefit claimants fell by 42,400 to 787,400 in January compared with a revised fall of 20,500 in December. Economists had expected the number of claimants to rise by 800. ONS officials said the claimant count series was volatile due to the continued roll-out of a new universal credit benefit system.

EU migrant workers fall

In a possible sign of how the Brexit vote and the subsequent fall in the value of the pound are affecting the attractiveness of Britain as a place to work for migrants, the ONS data showed the first fall in the number of people from other EU countries employed in Britain since the three months to September 2014. In the last three months of 2016, the number of non-UK EU nationals in employment fell by 19,000, compared with a rise of 12,000 in the same period of the previous year. The ONS said the figures were not adjusted for seasonal swings but it was the biggest fourth-quarter fall since records began in 1997. The ONS said the data should be treated with caution and the first overall migration figures to cover the post-referendum period would be published on Feb 23. Many employers say they are struggling to find suitable candidates to fill their vacancies and are worried that a reduction in foreign workers could aggravate the problem. Reuters


Apple, banks push Wall Street to all-time high Trump’s stance sparked a record-setting rally in stocks following his November election Noel Randewich

Major U.S. stock indexes established record highs on Tuesday, led by bank stocks after Federal Reserve Chair Janet Yellen said it would be unwise to wait too long to raise interest rates. Apple racked up a record high close for the second straight session, contributing to gains in the S&P 500, Dow Jones Industrial Average and Nasdaq Composite indexes. Yellen said delaying rate hikes could force the U.S. central bank to tighten monetary policy quicker down the line, which could risk a recession. She also expressed uncertainty over economic policy under the Trump administration. Banks, expected to gain from higher interest rates, led the market higher. Goldman Sachs rose 1.29 per cent and Bank of America added 2.82 per cent. The S&P 500 financial index jumped 1.24 per cent. So far in 2017, the KBW banking index has increased 4.5 per cent. President Donald Trump’s pro-business stance sparked a record-setting rally in stocks following his November election. However, he has given scant detail on his policies, leaving the Fed with limited visibility

about the economy’s future direction. Speaking to the U.S. Senate Banking Committee, Yellen did not indicate whether the Fed still planned to raise rates three times this year, nor did she indicate whether a hike might come in March or in June, as most analysts expect.

Key Points Yellen says Fed to raise interest rates at an upcoming meeting Dollar, Treasury yields, bank stocks gain Bond proxy sectors, utilities and real estate, drop Apple hits record high; top stock on S&P, Nasdaq Indexes up: Dow 0.45 pct, S&P 0.40 pct, Nasdaq 0.32 pct

“With the new president, there is still the uncertainty of the economic policy,” said Jeff Carbone, co-founder of Cornerstone Financial Partners in Charlotte, North Carolina. “How much growth we get out of the market will affect policymaking and how

quickly they need to react.” The Dow Jones Industrial Average climbed 0.45 per cent to end at 20,504.41 points, while the S&P 500 gained 0.40 per cent to 2,337.58. The Nasdaq Composite added 0.32 per cent to 5,782.57. Yellen’s comments lifted the dollar and U.S. Treasury yields. Eight of the 11 major S&P sectors rose, with healthcare adding 0.73 per cent. Apple rose as high as US$135.09, an intraday record high, before ending with a gain of 1.30 per cent at US$135.02, its highest-ever closing price. General Motors added 4.84 per cent after Peugeot owner PSA Group said it is in talks to buy GM’s European Opel business. The prospects of sector consolidation caused Fiat Chrysler to jump 4.39 per cent, while Ford gained 0.72 per cent. Advancing issues outnumbered declining ones on the NYSE by a 1.09to-1 ratio; on Nasdaq, a 1.31-to-1 ratio favored advancers. The S&P 500 posted 60 new 52-week highs and no new lows; the Nasdaq Composite recorded 124 new highs and 22 new lows. About 6.7 billion shares changed hands on U.S. exchanges, in line with its daily average over the last 20 sessions. Reuters

Business Daily Thursday, February 16 2017    15


Asia’s junk heart is at risk of a China cardiac arrest Christopher Langner a Bloomberg Gadfly

As banks surge, will shareholders get their cut?


igh-yield bonds have become the world’s hottest commodity as investors try to ride the global rally in stock markets. In Asia, however, that could mean dangerous times ahead. On Monday, Road King Infrastructure Ltd. raised US$300 million selling dollar bonds to yield 7.95 per cent. Preliminary price talk centred around the 8.625 per cent mark but demand was so strong that the Chinese developer managed to knock off almost 70 basis points. Orders exceeded US$5.5 billion, more than 18 times the amount of notes on offer, even though Moody’s rates Road King B1, four notches below investment grade. It may sound surprising, but that’s been the norm this year. According to Goldman Sachs Group Inc., investors have put in for 6.5 times the amount of highyield bonds on offer, more than twice as much f o r i n v est m e n tbillion US$ grade securities. Corporate junk bonds That love of junk outstanding in Asia has pushed the average premium that speculative-grade notes pay over Treasuries to the lowest in at least seven years. In portfolio managers’ defence, global volatility has been relatively subdued. The Chicago Board Options Exchange Volatility Index, or fear index, is only a fraction higher than the 30-month low it touched in January. That may be misguided comfort, considering the chance for things to go wrong is actually quite high, as I have argued before. The biggest driver -- and biggest risk -is China. More than a third of the US$97 billion of corporate junk debt outstanding in Asia, excluding Japan and Australia, comes from the world’s second-largest economy. If Hong Kong is added, that figure increases to almost half. So high-yield bond money managers are buried in high-risk China debt up to their necks. It’s akin to taking a directional bet -- gambling everything on a market moving either up or down. That shouldn’t be a problem until later this year, when the 19th National Congress of the Communist Party of China will be held in Beijing. Prior to that, the nation’s economic and financial markets should be reasonably well behaved. Any substantial change in regulations or other significant outcome could spell pain for international investors. For now, it seems like the global rally in stocks is making people complacent. Such a big binary event should prompt investors to hedge. If they don’t, it’s a recipe for trouble. Bloomberg Gadfly



hat the Trump agenda is good for banks is self-evident; that shareholders will get their cut is a lot less likely. Friday’s news of the resignation of Daniel Tarullo, the Federal Reserve official who served as quarterback of the effort to tame systemic risk in the banking system, touched off another leg in a sustained and powerful rally of U.S. bank shares, which are up nearly 30 per cent since shortly before the election. Coming just after Trump’s order to review and likely gut Dodd-Frank Act legislation, Tarullo’s exit, planned for April, cements the view that U.S. banks will be allowed to carry less capital. A move to delay implementation of the application of the Fiduciary Rule to retirement advisors is a good indicator that highly profitable but low-value (for clients) products will continue to generate revenues. To an investor from Mars more revenue spread across less equity would seem to be a sure thing. Those of us who’ve lived on Earth these past two decades should have our doubts. There is a reason banks, especially the largest and those which operate investment banks, trade at such low multiples of earnings, and it is not because they have a proud track record of rewarding shareholders. Since February 1993 the KBW index of bank shares has returned only about 60 per cent as much as the S&P 500 and done so while treating investors to teeth-rattling sell-offs in 1998, 1999, 2001, 2002, 2007, 2008 and 2009. The winners? Well, bank employees of course, who’ve trousered serial fortunes at the expense of taxpayers and shareholders. A move to relax oversight or put the capital bar lower will set taxpayers up to fund a bailout once again, but probably not before we see a couple of explosive rallies and some just as explosive sell-offs in banking shares over the next three to five years. Complexity will come back into vogue, creating more opportunities for banks to sell clients, and bankers their banks, risks they don’t understand. You can hardly blame them. Opportunities to take the upside when others own the risks are few and far between in this life. Expecting Trump and his appointees to govern otherwise ignores the lessons his own business career teaches. Expecting bankers to police themselves is just silly.

James Saft a Reuters columnist

Short term vs long term

Two elements in the Trump agenda are fundamentally positive for banking profitability: deregulation and reflation. While the former leaves shareholders as likely fall guys for self-interested risk-taking by insiders, the second is legitimately positive. Fiscal stimulus and tax cuts pose a problem down the road but over the short term even their prospect has already driven interest rate expectations higher and increased the gap between short- and longterm interest rates. As the banking business model is predicated on borrowing short and lending long, a flat yield curve is bad news and negative interest rates, as seen in much of the world last year, are poison. A bit of inflation, even more than a bit, is just what banks need; it makes them more profitable and helps whet clients’ appetite for debt. And don’t expect the Fed to spoil the party. With Tarullo’s exit Trump will be able to fill three of the seven governor positions at the Fed. If he does not offer Janet Yellen another term at chair next February he may get another. So why, if they will only get shafted in the end, do investors persist in backing the banking sector follies? An insight from Paul Woolley, of the London School of Economics, about how asset managers are punished and rewarded helps to explain. Most fund managers are asked to beat a stock market index, or one which tracks other funds, without taking too many huge bets. Outperform, or at least stay close to the pack, and you will probably continue to draw a hefty pay packet. Trail the market badly and out the door you go. That forces money managers to buy what is going up strongly, and as we are seeing few sectors can rally as explosively as banks when the going is good. Just as bankers have perverse incentives to make money while times are good, so do fund managers, whose performance is judged quarter to quarter or at best over three-year intervals. We’ve seen this movie before, and though we may like the popcorn we won’t enjoy the ending. Reuters

Expecting bankers to police themselves is just silly

16    Business Daily Thursday, February 16 2017

Closing Hospitality industry

Portugal hotels cry foul as private equity firms cut room rates The sector has to face competition from funds that are still trying to cope with bad debt track Henrique Almeida


t the height of Portugal’s financial crisis in 2013, private-equity firm ECS Capital took over the Herdade dos Salgados resort in Portugal’s southern Algarve region with its Miami-style palm-tree lined golf course surrounded by lakes along the Atlantic ocean. The resort was among 10 hotels, three golf courses and other real estate assets the firm took over from investor Carlos Saraiva after he buckled under his debt load. The transfer was part of an attempt to cap banks’ bad loans and bolster debt recovery, and the hospitality industry expected Lisbon-based ECS to turn around and offload the assets to sector players. Four years on, ECS is still managing most of these hotels. What’s more, rival hotels say the firm that got the assets on the cheap is hurting them by offering steep discounts for rooms. The Vintage Lisboa, a five-star hotel in Lisbon controlled by ECS for instance, charges 122 euros (US$129) for a double room, with breakfast, the

sixth-cheapest rate on a list of 20 such options available in the Portuguese capital on the website. “These firms received the assets under favourable conditions and can now afford to offer lower room rates than most of their competitors,” said Raul Martins, head of Portugal’s Hotel Association, which represents about 600 hotel companies.

Bad loans

When Portugal sought a bailout in 2011 and investors fled, the country’s lenders were left with large portfolios of non-performing loans from hotel groups that had relied heavily on the sale of real estate to repay their debts. To limit losses on the loans, some of these assets were transferred to funds managed by private equity firms, which invested money in the businesses to recover some of their value. Two years after Portugal exited its international bailout program, banks are still trying to trim a high burden of bad loans. Credit at risk as a percentage of total loans has been around 12 per cent for the last two years, according to the Bank of Portugal.

For Banco Comercial Portugues SA, the restructuring funds created by the private-equity firms enabled some highly indebted hotel projects to be completed and allowed units that had shut down to reopen for business. “Many of these today can already take advantage of the good moment that tourism in Portugal is going through, benefiting their clients, employees and, naturally, also their creditors,” said Miguel Maya, a Banco Comercial board member. “The goal is obviously not to keep these hotels for 20 years. The fund managers know this and have the right incentives to sell.”

Managing hotels

The firms show little sign of doing that. Many have set up companies to manage the hotels, rarely transferring management or hiring hotel groups. ECS, Portugal’s biggest private-equity hotel owner, manages them in its Recuperação Turismo Fund through a company it helped create. Explorer Investments SCR SA, another private equity firm, has at least four hotels in its Discovery Fund managed by DHM, its hotel company. Oxy Capital controls several hotels, including two five-star hotels in the Algarve and one in Troia, a finger-shaped

peninsula south of Lisbon. The firms didn’t respond to calls and emails seeking comment. The problem for hotel association president Martins is that most of these private equity firms acquired the assets at below market prices and are even paid a fee for managing these units. “That’s why they can afford to compete aggressively for clients in the market,” said Martins, who is also the chairman of the Altis hotel chain. “Our desire is that they set prices according to the market.” ECS, co-founded by Antonio de Sousa, a former chairman of stateowned bank Caixa Geral de Depositos SA and a former central bank governor, has in less than five years become the 10th-biggest hotel group in Portugal, with 3,699 beds, according to Deloitte’s Portuguese Hospitality Atlas of 2016. ECS took over Saraiva’s hotels, some of which had completely shut down, and currently manages them under the NAU Hotels & Resorts brand. The company’s website is offering 20 per cent discounts for stays until April 10 at its Salgados Dunas Suites hotel in the Algarve.

‘Lost opportunity’

And while some private equity firms have sold or transferred over management of some of these hotels to other hotel groups in Portugal, their “preferred option” has been to manage these units, said Jose Theotonio, chief executive officer of the Pestana Group, Portugal’s biggest hotel operator. Pestana currently manages a hotel that belongs to ECS and two units that belong to banks. “That option, in my opinion, was a lost opportunity,” Theotonio said in an e-mailed response to questions. “The profitability obtained by hotel units that are parked in restructuring funds would be much higher if these units were managed by players with a track record that could take advantage of economies of scale.” Vila Gale SA, Portugal’s second-biggest hotel group with about 20 hotels in the country, is also among those complaining that private-equity firms turned hotel owners have a privileged position in the market. “It would be one thing if these funds had to invest money to buy these hotels like a normal investor,” said Jorge Rebelo de Almeida, owner of the Vila Gale hotels. “The hotels that I own weren’t given to me. It wasn’t my aunt who gave me these hotels.” Bloomberg News

Health alarm

Debt management

Private report

Bird flu fears hit Mainland poultry prices

PBOC paper recommends Huawei catching up deleveraging with prudence on Samsung, Apple

Chinese chicken prices sank to their lowest level in more than a decade yesterday as fears grow about the spread of bird flu, hurting meat producers’ share prices and deepening concerns about demand in the world’s second-largest poultry consumer. The sharp drop came as the government reported as many as 79 people died from H7N9 avian flu in January, four times higher than the same month in past years and bringing the total death toll to 100 people since October. The larger-than-expected number alarmed the market, sending prices in the main producing regions to their lowest since 2005, according to Shanghai-based consultants JC Intelligence Co (JCI) which assesses prices. “Now it’s relatively serious. The impact was underestimated,” said Alice Xuan, JCI analyst. “Lots of places have closed down live poultry markets. That has quite a big impact.” The spread of the deadly virus comes as neighbouring South Korea and Japan also battle major outbreaks among their poultry flocks. Reuters

China should prudently manage its deleveraging process to avoid a liquidity crisis or asset bubbles, according to the central bank. “Although high leverage may lead to systemic financial risks, the crisis thresholds are statistically unstable,” reads a working paper published on the People’s Bank of China (PBOC) website yesterday. The leverage ratio itself is not the problem, which lies in the efficiency of the leverage, the paper said, adding that the right way is to let the market decide which sectors should have higher ratios. In using the market’s role, the government should maintain its prudent and neutral monetary policy to create a moderate liquidity environment, reduce direct allocation of resources, and reform its financial market supervision. Deleveraging is one of China’s major tasks in supply-side structural reform. A disclaimer attached to the working paper says although this sort of research reports are written by PBOC staff members, the views do not represent the central bank’s official opinion. Xinhua

Chinese smartphone maker Huawei managed to gain ground on Samsung and Apple in terms of market share last year, following the problems encountered by the two sector giants, the Gartner consultancy group said yesterday. Over the year as a whole, the Chinese maker saw its sales leap by 26.7 per cent, while the South Korean and US rivals both saw their sales decline by 4.3 per cent, Gartner said in a study. As result, Huawei was able to increase its share of the smartphone sector to 8.9 per cent in 2016 from 7.3 per cent a year earlier, while Samsung saw its market share shrink by two full percentage points to 20.5 per cent and Apple’s contracted to 14.4 per cent from 15.9 per cent. “Chinese makers succeeded in winning market share over last year and Huawei now seems to be the main rival to the two giants, even if the gap remains large,” Gartner analyst Annette Zimmermann told AFP. Among the other Chinese smartphone makers are OPPO, BBK (with its One Plus and Vivo brands), ZTE, Xiaomi and Lenovo. AFP

Business Daily #1235 February 16, 2017  

Macau Business Daily digital version

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