Page 1

London restaurants’ HR to suffer in 2017 Brexit impact Page 16

Friday, February 17 2017 Year V  Nr. 1236  MOP 6.00  Publisher Paulo A. Azevedo Closing Editor Oscar Guijarro   Insurance

Measures implemented to prevent medical errors Page 4

Kim Jong-Nam

Beijing further from Pyongyang following murder Page 11

Wine trade

Local wine commerce under microscope Page 6

www.macaubusinessdaily.com Real estate

Lilau Square property beats all price records Page 5

Science

Domestic economic support for research unveiled Page 7

Real Estate Rocketing Property

Real estate in the MSAR continues its upward trajectory. With total transactions increasing dramatically in January. Despite an astounding 60 per cent rise, however, the sector has started to moderate its performance compared to a hectic end to 2016. Page 3

Steady as she goes

Melco Crown and MGM have announced their latest results. Melco spiked in its yearly and quarterly results primarily because of the opening of Studio City, while MGM awaits the push of its new property. Overall, the sector performed in stable fashion.

No longer shipshape

Shipyards Coloane shipyards appear doomed to disappear. Particularly after the gov’t announced intentions to demolition 11 of them. Former indus­ try workers are fighting to preserve their memory, while others demand their legacy be treasured. The demolition decision is in response to the dilapi­ dated state of the structures. Page 8

Beijing curbs impact direct investment

Casinos results Page 2

HK Hang Seng Index February 16, 2017 

24,107.70 +112.83 (+0.47%) Worst Performers

China Construction Bank

+2.87%

China Resources Power

Lenovo Group Ltd

-6.69%

Cheung Kong Property

-1.52%

Tencent Holdings Ltd

+2.61%

Li & Fung Ltd

+0.86%

Hengan International Group

-3.34%

Cheung Kong Infrastructure

-1.33%

Wharf Holdings Ltd/The

+1.88%

Want Want China Holdings

+0.72%

China Resources Land Ltd

-1.62%

AAC Technologies Holdings

-1.13%

Bank of Communications

+1.62%

Industrial & Commercial

+0.59%

China Merchants Port Hold-

-1.57%

CLP Holdings Ltd

-0.70%

Bank of China Ltd

+1.51%

BOC Hong Kong Holdings

+0.48%

Belle International Holdings

-1.56%

China Overseas Land &

-0.41%

+1.26%

28°  31° 28°  31° 28°  32° 28°  32° 28°  32° Today

Source: Bloomberg

Best Performers

Sat

Sun

I SSN 2226-8294

Mon

TUE

Source: AccuWeather

ODI/FDI China’s direct overseas investment plummeted in January. After officials rolled out rules to curb a record-setting spree of foreign acquisitions by Chinese firms. The country’s firms invested less abroad, while foreign direct investment into China also fell. Page 10


2    Business Daily Friday, February 17 2017

Macau Results

MGM China’s annual data affected by change of model EBITDA margin increased 290 basis points to 30.1 per cent

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he company has announced that MGM China recorded total revenues of HK$14.9 billion in 2016, compared to HK$17.2 billion in 2015. The Group recorded adjusted EBITDA of HK$4.5 billion, while in 2015 it registered HK$4.7 billion. Net profit was HK$3.0 billion, from HK$3.1 billion the previous year. Basic earnings per share were HK$0.80, posting a decrease compared to HK$0.82 in 2015. MGM China said the local market had stabilised during the year. ‘While total gaming revenue in Macau declined by 3 per cent from the previous year, mass gaming revenue grew by an estimated 6 per cent year on year, but still grew less that the increase in market supply,’ said the company in a press release. They also announced that ‘adjusted EBITDA margin increased 290 basis points from a year ago to 30.1 per cent, while net profit margin

grew 230 basis points to 20.4 per cent.’ MGM China said the ‘contribution from main floor business continued to grow and reached approximately 80 per cent of profit for the year.’

‘MGM MACAU occupancy rate was 95.4 per cent for the year’ The statement also revealed that the ‘MGM MACAU occupancy rate was 95.4 per cent for the year. The Group believes the property remains a popular and premium destination for high quality customers and while gaming occupancy has reduced, we have been successful in attracting new non-gaming customers.’

Results

M&A

Studio City fuels Melco Crown figures

Melco completes share acquisition from Crown

Mass table games revenues continue expanding Melco Crown ‘net revenue for the fourth quarter of 2016 was US$1,192.9 million, representing an increase of approximately 13 per cent from US$1,058.0 million for the comparable period in 2015,’ the company said in a press release.

“Our flagship property in Macau, City of Dreams, generated adjusted property EBITDA of approximately US$190 million” Lawrence Ho, Chairman and Chief Executive Officer of Melco Crown Entertainment The firm attributes the results to the ‘net revenue generated by a fullyoperating Studio City, which started operations in October 2015, and the increase in casino revenues at City

Studio City opening ceremony

of Dreams Manila.’ However, City of Dreams and Altira did not accompany the good results. Melco Crown said ‘adjusted property EBITDA was US$304.3 million for the fourth quarter of 2016,’ as compared to US$236.4 million in the fourth quarter of 2015, representing an increase of 29 per cent. Lawrence Ho, Chairman and Chief Executive Officer of Melco Crown Entertainment, expressed satisfaction with the quarterly results, saying, “highlighted by record mass table gross gaming revenues in Macau and a 29 per cent year-on-year increase in group-wide Adjusted property EBITDA . . . Our flagship property in Macau, City of Dreams, generated adjusted property EBITDA of approximately US$190 million, an increase of over 10 per cent compared to the prior quarter.” He added that, “Studio City’s m a s s t a b l e g a m e s r ev e n u e s continued to expand, increasing almost 10 per cent from the prior quarter which, combined with the rolling chip operations that began in November 2016, delivered a strong improvement in underlying earnings.”

Melco International Development Ltd., chaired by local gaming mogul Lawrence Ho Yau Lung, announced yesterday that it had completed the purchase of 13.4 per cent of the issued share capital of Melco Crown Entertainment Ltd. from joint venture partner Crown Resorts. According to a company filing with Hong Kong Stock Exchange, Melco International’s interests in the local gaming corporation has increased to around 51.3 per cent from the previous 37.9 per cent following the share acquisition. The aggregate purchase price for the purchase totalled US$1.1 billion (HK$8.53 billion). A separate announcement by the Melco International reads it has obtained a credit facility of up to US$1 billion for the acquisition from

Industrial and Commercial Bank of China (Macau) Ltd and Industrial and Commercial Bank of China (Asia) Ltd., comprising a US$700 million term loan facility fund and US$300 million revolving credit facility. Having paid US$100 million deposit upon the signing of the share acquisition agreement, the company said it had settled the remaining amount of the closing payments by its internal resources. In December last year, Australianbased Crown Resorts announced the sale of its 13.4 per cent stake in Melco Crown. The company later said it would further reduce its stake in the consortium to 11.2 per cent. Crown and Melco International each held 34.3 per cent stake in Melco Crown last May.

Mr. Lawrence Ho, Group Chairman and CEO of Melco International Development Limited (Right), and Mr. Zhu Xiaoping, Chairman of ICBC (Macau) Limited


Business Daily Friday, February 17 2017    3

Macau

Property

Home transactions surge 60 pct in January The over 20 per cent increase in average home prices last month did not affect purchase sentiment in the residential property market Kam Leong kamleong@macaubusinessdaily.com

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otal housing transactions soared by 60.4 per cent year-on-year for the first month of the year while average housing prices recorded an increase of 22.8 per cent, the latest official data released by the Financial Services Bureau (DSF) reveals. In January, a total of 645 home transactions were recorded, up 243 cases vis-a-vis the same month of 2016. Nevertheless, the number represents a notable decrease of 46.7 per cent from the 1,211 transactions of December 2016. According to official data, the month-on-month slump in housing transactions was due to a high

comparison base in December, the 1,211 sales of which were boosted by off-plan purchases in the month, accounting for 528 of the total. Of the total transactions during the month of January, those for residential units on the Macau Peninsula accounted for 514, surging 70.8 per cent year-onyear, while those for Taipa property increased 66.7 per cent year-onyear to 115. Nevertheless, compared to the numbers for December, both the Peninsula and Taipa saw housing transactions drop - by 15.9 per cent and 80.3 per cent, respectively. The city, in fact, saw the opening of sales of a new residential development of Hong Kong-listed conglomerate Shun Tak Group, Nova Grand, in December, with its first batch of some

400 two-room and three-room units sold out in three days. Total off-plan sales for January thus plunged 88.6 per cent monthon-month to 60. Yet the number, compared to 48 one year ago, went up by 25 per cent. Meanwhile, transactions on completed units, amounting to 585, increased by 65.2 per cent year-onyear although declining 14.3 per cent month-on-month.

Home prices up

Average home prices in Macau amounted to MOP89,727 (US$11,216) per square metre compared to MOP73,066 per square metre one year ago. The amount, compared to the average cost of MOP103,805 per square metre one month ago, dropped by some 13.6 per cent. By area, residential units in Coloane were the most expensive, costing MOP123,294 per square metre, a growth of 19.1 per cent year-on-year from MOP92,747 per square metre. The amount also rose by 1.2 per cent

month-on-month as compared to MOP106,143 per square metre. Average prices for home units in Taipa rose by 29.9 per cent year-onyear to MOP102,062 per square metre during the month, representing a decrease of 12.1 per cent as compared to MOP116,110 per square metre in December. In addition, average housing prices for units on the Peninsula saw an increase on an annual basis yet a decrease on a monthly basis, up 21.2 per cent year-on-year and down 2.13 per cent month-on-month, amounting to MOP83,126 per square metre on average. In terms of unit type, average prices for completed housing units reached MOP82,799 per square metre, an increase of 19.1 per cent year-onyear and a growth of 1.2 per cent month-on-month. For off-plan sales, the cost per square metre amounted to some MOP133,173 last month, soaring 39.7 per cent year-on-year or 7.6 per cent month-on-month.


4    Business Daily Friday, February 17 2017

Macau Opinion

Pedro Cortés*

Health

Stricter control of medical error implemented The Commission on Medical Error expertise will comprise seven professionals

Backtrack The decision of the Government to backtrack on the casino smoking ban should be loudly applauded. Whenever we consider that a decision is not the correct one, we should measure the consequences and, if necessary, make a U-turn and try to overcome the initial bad decision. I don’t consider it a concession to the concessionaires and sub-concessionaires; rather, a situation in which the public interest has been put above the fundamentalism of some areas of society. It may be used as an example for other areas which are even more important than the vice of the gamblers fuelling our economy. For instance, the lives of persons who every day have dirty air to breathe in the streets of Macau. Yes, I’ve been told of studies which concluded that the air in the smoking areas of the casinos is much healthier than the air we all breathe in Macau. A green policy for all should be rolled out for everyone. This U-turn proves that there are people who can still think in the cabinet which is fresh air for all of us. Some of the bureaucrats of Macau - and in other places in the world - are seldom people who have worked in the real economy, with the problems of the enterprises and of those who fight for a better tomorrow. They have been excellent in the universities, then hired by the public entities and after some time they lose connection with what is going on out there. What really matters in terms of the future of the families who try to make their lives better. Who must take packed public buses driven by unprepared drivers. Who need to spend long periods of time waiting for a taxi in the remote areas of the city. Not quite often, these bureaucrats are alienated from reality and therefore there should be programmes having them work in companies over which they rule or take decisions. Yes, I am talking about an integrated plan which would put together everyone with the goal of making a better, peaceful and harmonious society. Impossible? Well, as the slogan of a famous sports brand reminds us: impossible is nothing. Not even permitting smoking lounges within the confines of our economic engine. *lawyer and frequent contributor to this newspaper.

Sheyla Zandonai sheyla.zandonai@macaubusiness.com

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t is compulsory. Local medical service providers will have to comply with an insurance scheme for civil liability from 26 February, following the conclusions of the Administrative Regulation project presented yesterday by the Macau SAR Government’s Executive Council. In addition to the “compulsory insurance scheme for civil liability” government spokesperson Leung Hing Teng also presented the conclusions for two other Administrative Regulation projects - the “commission on medical error expertise,” and “Centre for Arbitration of Medical Litigation” - during a press conference held at Government Headquarters yesterday.

The three Administrative Regulations will be enacted on 26 February. Th e m a i n e l e m e n t s o f th e compulsory insurance scheme for civil liability consist of liability for damages to the physical or mental health of users, when caused by a medical act practiced by the health care provider; liability for damages arising from emergency medical care provided by the health care provider; and the payment of legal costs, attorney’s fees, and other expenses in connection with compensation for claims in accordance with the terms of the insurance contract. The regulation also determines a minimum safe capital threshold. For individual healthcare providers, the minimum safe capital threshold is MOP500,000 (e.g.) traditional

Chinese medical practice; MOP1 million (e.g.) “Western” medical practice; and MOP2 million, said Leung. For legal healthcare providers, the minimum safe capital threshold ranges from between MOP1 million to MOP20 million. The length of the insurance contract is established at one year. Replying to press queries, Leung Hing Teng explained that there are seven insurance providers capable of providing such services in Macau today.

Litigation

The Commission on Medical Error expertise will comprise seven professionals, with five from the medical field and two from the legal field, with at least ten years of experience each. One of the seven appointed members - by Executive Dispatch - will be nominated Commission President. The request for the conducting of medial expertise will require health providers, users, or, in some cases, family members of users, to pay a fee, the amount of which will be published in the Official Dispatch following the enactment of the regulation, according to Leung. As for the practice of arbitration on litigation cases ensuing from medical error, the new regulation mandates it will be established on a voluntary basis and free of charge. Arbitration procedures should take no longer than 120 days. The participation of lawyers is not compulsory. But no right of appeal on the decision is included in the regulation’s text.

Sino-Luso Complex

Public tender announced for Sino-Luso Complex The Sino-Luso Complex of Commerce and Trade Co-operation Platform called for public procurement yesterday. According to Chinese newspaper Macao Daily News, the project received 12 tenders, with a large number of documents sent to the Land, Public Works and Transport Bureau. The complex – which will be built on plots C15 and C16 in Zone C near Nam Van Lake, occupying an area of

approximately 14,200 square metres, seeks to serve as the meeting venue for Forum Macao. According to local broadcaster TDM Radio News, the planning conditions allow for a height of approximately 14 metres on plot C15 and 21.9 metres for plot 16. The complex may also include a two-storey underground car park. In addition, the complex will house an exhibition centre for food products

from Portuguese-speaking countries; a business service centre for enterprises from Forum countries; a training centre; an information centre; an exhibition hall showcasing Luso-Sino relations and the cultures of those places; and a room to stage exhibitions related to Macau’s urban development. The longest construction period considered by the Office, according to its website, is 600 working days. C.U.

Courts

LRT contractor loses appeal to extend construction time The Court of Final Appeal has ruled against the consortium responsible for the Phase One works of the Light Rail Transit (LRT) in Cotai that had requested the MSAR government to extend its construction period for the project. The consortium – comprising Continental Engineering Corporation, Top Builders Internacional Ltd. and Companhia de Construção Ng Kam Kee - was granted the project contract in December 2012 for some MOP815 million (US$101.9 million) according to the Official Gazette. The consortium was mandated to complete the project within 1,021 days. Having filed a request with the Secretary for Transport and Public Works for extending the period of the works in February and March 2015, the company was rejected by the Secretary in a dispatch on June 3 the same year. The consortium later filed an appeal with the Court of Second Instance, which also declined the request saying the reason was because the appeal was only filed after the deadline of the

consortium’s appeal period against the dispatch had expired. The top court retains the second court’s ruling, indicating the appealer should have known the start of its appeal period was the following day it received the notice from the

authorities informing of the dispatch on June 23. It stressed that the starting date would not be changed even though the appeal period of 30 days was once paused due to the consortium’s missing documents for the appeal. K.L.


Business Daily Friday, February 17 2017    5

Macau Heritage property

Not just any old house A HK$250 million residential property in World Heritage-protected Lilau Square is very likely the most expensive one on sale in town. Vigers, from Hong Kong, which appraised the mansion, says there is no comparison to date in the Macau market Sheyla Zandonai sheyla.zandonai@macaubusiness.com

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house located in Lilau Square is on the market for HK$250 million, according to a report published by Tribuna de Macau (JTM) yesterday. Occupying 435 square metres, the three-storey house hosts two galleries - the ‘37’ and ‘49’ - which will be closed down owing to high maintenance costs that haveled the owner to put the property on sale, reported JTM. The mansion, owned by Isabel Chiang, was valued at HK$240 million in early 2016 by Vigers International Property Consultants, a property management firm established in Hong Kong, and a wholly-owned subsidiary of Lafe Corporation Limited, a global conglomerate listed on the main board of Singapore Exchange Limited. Information about the Hong Kong property management company was provided to Business Daily by Simon Lam, owner of the Iaohin Gallery, established in 2011 (Rua da Tercena), which is organising an “open-house heritage event” on 26 February in order to showcase the Lilau property for sale. According to Lam, the Vigers’

Cultural Affairs Bureau

IC has confirmed to Business Daily that the Bureau has no acquisition plans for the property being sold in Lilau Square. Lilau Square is located in the First Core Zone of Macau’s World Heritage-listed Historic Centre. Because it is a protected zone any requests for new constructions

estimate was produced in April 2016. Contacted by Business Daily, Vigers spokesperson Kris CY Leung confirmed that they have indeed appraised the Lilau property but declined to provide details about the specific criteria used to assess the proposed sale price. “We cannot disclose the grounds unless we seek the owner’s consent at this moment. We have tried to contact the owner; however, we failed.” As for the general criteria employed to assess the value of the Lilau property Leung said they “have adopted the direct comparison method of valuation based upon actual sales transactions and/or offerings of comparable properties with similar character, location, size, and so on.” Questioned about the comparisons they sought to produce the Lilau property market price, Leung replied that their team was not able to provide such information “as it is extremely rare to have such a similar property in the Macau market, and because we don’t compare Macau properties to Hong Kong ones.”

Lavish home

Speaking to Business Daily, Simon Lam explained that he had concluded that the property is “the most expensive townhouse ever for sale

or revamping works ought to be run by the Macau Cultural Affairs Bureau (IC), the opinion of which is compulsory and binding, and should be emitted within 30 days of request according to Article 31 of the Cultural Heritage Preservation Law (Law no. 11/2013).

in Macau” based upon online research and enquiries with real estate agencies. “Of course, there were buildings or properties (like hotels or blocks of flats) sold at higher prices but there was no information of any ‘townhouse’ or ‘mansion’ that would be more expensive,” he told Business Daily. Juliet Risdon, a local real estate agent, was surprised to learn that a house would command such a market value in Macau. Speaking with Business Daily over the phone, she said she believed it is likely indeed that the property is the most expensive on sale. “I’ve heard of commercial properties [asking] such a market price before, and residential properties that were put on sale or sold for some MOP100 million in town; but I cannot recall a residential building of such value,” she commented. On the website of a local real estate agency which deals with ‘premium’

According to previous reports from Business Daily, Isabel Chiang is also the organiser and owner of several retail shops in the ‘creative

residential properties the most expensive apartment listed in its sale offers is a three-bedroom unit at One Central, next to MGM Resorts on the Macau Peninsula, worth HK$22.5 million. The Property Register Office informed Business Daily that because it does not have a search engine to locate residential property by acquisition value it cannot confirm which residential property in Macau has the highest value on record to date. The average price for acquisition of housing units was estimated at MOP85,554 per square metre in the third quarter of 2016 – and 78,532 in the second quarter of that same year – according to the latest data provided by the Statistics and Census Bureau (DSEC). Based upon that average price estimate, the price for the Lilau house currently on sale would amount to MOP37,21 million; that is, almost seven times lower than the current market price.

district’ located at Rua de Nossa Senhora do Amparo and Patio de Chon Sau, next to the Ruins of St. Paul’s.

Subsidy

IPIM revises schemes for exhibitions Macao Trade and Investment Promotion Institute (IPIM) has revised two support schemes to stimulate the development of the local exhibition and fair sector. The two amended schemes – the Exhibition Encouragement Scheme and the International Conference and Professional Exhibition Support Scheme – will provide financial assistance to organisers, with the changes effective February 21. The main changes to the content involve a 20-day increase for the presentation of the candidacy for the programme, from 90 days prior to the event to 70 days, introduction

of subsidies for the management expenses and in that of local convention organisers, and the introduction of a transportation subsidy to ‘incentivise more visiting fair professionals to get in contact with the local community and various neighbourhoods.’ An explanatory session by IPIM held on Wednesday attracted some 90 participants from the local and international exhibition industry. IPIM also provides support to the industry through the Support Programme for Professional Training and Education in the Convention and Exhibition Sector, which was launched together with the aforementioned

schemes on the first day of 2016 to promote and assist with the development of the exhibition and conference sector in the city. According to official data released by the Statistics and Census Services (DSEC), some 905 MICE (meetings,

incentives, conferences and exhibitions) events were held in the first three quarters of last year. Of the total, 843 were meetings and conferences, 39 were exhibitions and 23 incentive events. The DSEC data also reveals that some 1.23 million participants and attendees of MICE events were recorded in the first three quarters of 2016. C.U.


6    Business Daily Friday, February 17 2017

Macau

Exports

Half empty or half full MSAR’s wine imports from Hong Kong greatly outweigh exports Kelsey Wilhelm kelsey.wilhelm@macaubusinessdaily.com

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he MSAR exported a total of MOP3 million-worth of red and white wine to the neighbouring HKSAR during the course of last year, according to data from the Statistics and Census Bureau. This was equivalent to about 559,598 bottles less than two litres in size. While the amount of exported wines to the MSAR was not significant, the import figures of wine from Hong Kong coming into the MSAR hit MOP1.06 billion - some 5.81 million units - just of the red and white variety. To understand the reasons for wine inflow and outflow, Business Daily talked to various distributors in the sector to comprehend the advantages and disadvantages of sending wine back and forth between the SARs.

Zero tax

“Given that in Hong Kong and Macau the import tax of wine is 0 per cent, there isn’t a tax imposed; there’s a huge growth in companies which are in the sector and that transfer wines back and forth,” commented Luis Herédia, Director of Vinomac Fine Wines. This is especially common for locally-based companies wishing to participate in events in Hong Kong, including “promotional events, restaurant events, tastings, and wine clubs in Hong Kong.” For wine exported to Hong Kong

from Macau, albeit much lower in amount and value than that imported, downturns in purchasing could lead to their movement, opines Michael Keen, Director of Sales and Marketing at Fine Beverages Ltd. Keen points to “a lot of Grand Cru wines that have been left here which aren’t moving, so a lot of them have been taken over and [for] auction [in Hong Kong].” In addition, local companies hoping to make the big move to Hong Kong have contributed to the cross-flow over the years, notes Keen. The types of wine are also a large factor, says Herédia. “Hong Kong most likely has a much higher volume, in particular of French, Italian, Spanish, Australian and Chilean wines, among others,” he remarked. “Here in Macau we have more French, Australian, Portuguese and then a little bit of the others,” declared the wine distributor.

Both ways

One company that exports to Macau from Hong Kong is Langton’s, an auction house which started in Australia and linked to wine c o m p a n i e s S u m m e rga t e a n d Pudao locally. Their representative explains that “we import the wines from overseas to Hong Kong first because we have a large warehouse here.” Stock is then sent to Macau by request - “when they sell most of the wines and they want to replenish” and are transferred to the local office.

Warehousing can be an expensive affair, and options including bonded warehousing can often be a more attractive offer than either sending wines back and forth between Macau and Hong Kong for storage. “If you’re just bringing palettes of wine over, a palette will cost you about MOP4-5 per bottle to ship, so shipping it both ways is close to MOP10 [ …] it wouldn’t be cost effective; it’d be cheaper going up to the economic zone, or actually taking it to a bonded warehouse in China.” The warehouses, explains Keen, can house the products “without having the back labels in Chinese,” enabling you to “decide if you want to take it into China by declaring it or you can pull it back out and take it to Macau.” For those who prefer to sidestep warehousing - such as Carla Fonseca da Costa, head of Three Continents other options are available. “I only import what I’ve already sold,” says da Costa. “We have examples of the products here, but only after the confirmed sale do we import the products,” she states, limiting the business to Macau so far due to scale and avoiding Hong Kong even for meetings, mainly because the group focuses more on the “intellectual” side, providing consulting as their core business to countries like Cape Verde and Angola.

Export

While companies like Langton’s contribute mostly to the import figures Macau sees for wine, those such as Topwines, headed by João Bruxo, do the opposite, basing themselves in Macau but

exporting both to Hong Kong and the Mainland, through partnerships. “The market in Hong Kong is larger than that of Macau despite there also being more people working in the wine industry. But in strategic terms it’s quite pleasant,” notes Bruxo. In fact, Bruxo points out that the company does not import any wine from Hong Kong, focusing instead upon direct imports from Portugal. Bruxo notes that the group takes advantage of the Free Trade Zone located near Hengqin for storage of their products in a bonded warehouse. While the group eventually wants to expand to Hong Kong “indirectly, not directly” its current activities on the Mainland are focused in Guangzhou, having an advantage of importing only Portuguese wines. “The tax on importing wines to China is about 40 per cent, it’s fixed. In that aspect, Portugal has an advantage because there are wines [from Portugal] that can be imported to China at zero-tax,” explains Bruxo, without naming specific wines. Importing to China, aside from the high tax, explains Herédia, also involves many steps. “The wines have to all have a destination, they have to carry a stamp that proves they’re authorised and approved by the authorities,” he says. Not only that, but “then you have to have an import company and so on, and then you have to prove who’s selling – distribution channels, points of sale, etc.,” states the wine distributor. While differences in classification type make comparisons between export figures from Macau and registered import figures in Hong Kong of wines, the scale is certainly tipped in one direction, and unlikely to balance in the near future.


Business Daily Friday, February 17 2017    7

Macau Politics

New head of Research Government’s Liaison Department for Liaison Office in Macau, according to a press release from Office appointed The Liaison Office in Macau has announced that Gao Qixin has been officially appointed as the new director of the Research Department of the Central People’s

the Office. Gao was the inspector of the Research Department and the ministerial assistant of the Co-ordination Department prior to his appointment as departmental head. C.U.

Funding

FDCT disbursed MOP310 mln for Science development in 2016 Research projects related to life science and medicine received the largest amount of funding last year Cecilia U cecilia.u@macaubusinessdaily.com

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han Wan Hei, a member of the Administrative Committee of the Science and Technology Development Fund (FDCT), disclosed during yesterday’s press conference that a total of MOP310 million (US$38.8 million) was allocated to support science research projects last year, indicating a slight increase of 2.19 per cent compared to MOP303 million disbursed in 2015. Of the total, FDCT head Ma Chi Ngai reported that the Fund had subsidised 76 general research projects, disbursing some MOP101 million last year. Within the granted research projects, those related to life science and medicine received the largest amount of funding. Natural science, information and telecommunication science related projects received the second most funding. For popular science, FDCT allocated MOP21 million to 231 projects in 2016, covering mathematics, physics, chemistry, biology, geography, computers, engineering and robotics.

The Fund also granted seven projects in its first joint research funding with the National Natural Science Foundation of China (NSFC), giving out MOP11.9 million. Cheang Kun Wai, another member of FDCT, indicated that the approval rate will be further adjusted to make general research projects more difficult to obtain subsidies. “We are now trying to make our

approval rate parallel with those by international institutions,” explained Mr. Cheang. “The fact is that for now we have received more applications.” The FDCT head added that applications for the Fund were not as many as currently they are, and that the higher approval rate encourages application.

Research funding for enterprises

The FDCT is currently conducting research on establishing research funding to enterprises. “This funding is mainly for enterprises but not research institutions,” Mr. Ma said. “The funding

programme aims to apply technology to industry.” He said that the new programme will encourage research co-operation between research institutions and enterprises. Enterprises which have research topics they would like to pursue may also apply for the new funding, according to Mr. Ma. In the wake of the proposal to introduce the development of a Smart City in Macau the committee in charge of Smart City development research has already met related government departments, with seminars and talks conducted in the past year. The FDCT director claimed that related research will be completed by the end of this year.

Getting in touch with others

The FDCT head revealed that the FDCT has created several joint funding programmes with the National Ministry of Science and Technology, and NSFC, as well as the setting up of Horizon 2020 with the European Commission – an EU Research and Innovation programme with nearly EURO80 billion (MOP679 billion/ US$85 billion) of funding available over seven years - in the past two years. Mr. Ma revealed that the Fund will ink an agreement with Technology Funding in Portugal for the creation of another joint research funding programme.

Telecommunications

SmarTone interim losses in MSAR increase Hong Kong-based telecom operator SmarTone Telecommunications Holdings Ltd. saw its operating losses in the city expand 42.9 per cent yearon-year for the first half of its fiscal year ended December 31 as revenue generated from the local market decreased by nearly half. According to its filing with Hong Kong Stock Exchange yesterday, it posted some HK$16.8 million (US$2.1 million) in operating losses in the MSAR for the six months, which increased by some HK$5 million from

the same period of last year. The operator’s segmental revenue in the city plunged by 44.6 per cent to HK$217.5 million as compared to HK$392.7 million one year ago. Meanwhile, the total interim net profit of the company amounted to HK$393.4 million, a decrease of 2.3 per cent year-on-year, while total revenue halved from HK$10.2 billion to HK$5.4 billion year-on-year. In particular, that derived from handset and accessory sales plunged 63.8 per cent year-on-year to HK$2.7

billion. In addition, service revenue dropped 3.7 per cent year-on-year to HK$2.67 billion. The telecom operator explained in the filing that the decline in service revenue was ‘due to customers continuing to migrate to SIM Only plans,

weakness in the prepaid segment and the increasing use of [over-thetop] services affecting voice roaming revenues.’ However, it claimed the slump in accessory sales had only limited impact upon the company’s profitability as margin improved. The company declared an interim dividend of 27 HK cents per share for the six months. K.L.


8    Business Daily Friday, February 17 2017

Macau Heritage

Coloane shipyards condemned to oblivion When the government announced the demolition of 11 shipyards in Lai Chi Vun Village several experts and a former shipyard owner said the decision had been taken without taking into consideration the preservation of the area’s shipbuilding heritage Nelson Moura nelson.moura@macaubusinessdaily.com

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s the government prepares to demolish 11 shipyards in Lai Chi Vun Village in Coloane, experts involved with the area development told Business Daily that very little has been done to preserve the historic structures since the government first presented a development plan for the area in 2012. However, they hope the future renovation preserves some of the historical importance of the remaining shipyards. At the beginning of this year the Marine and Water Bureau (DSAMA) and the Land, Public Works and Transport Bureau (DSSOPT) announced that the shipyards located in 11 of the 18 land plots in the Lai Chi Vun area would be demolished due to the risk of collapse created by their advanced deterioration, with the two structures in worst condition to be demolished in March.

Tear them all down

According to José Sales Marques, President of the Institute of European Studies of Macau (IEEM), since the government presented its Coloane Old Urban Area Lai Chi Vun Planning Research in 2012 “many years passed” with no developments, with the government “suddenly” deciding to demolish the majority of the historical structures. “After all these years we reached the conclusion that nothing has been done and that they have to be demolished. Luckily, they decided some shipyards won’t be destroyed (…) We can’t forget the shipyards are in the Lai Chi Vun area, which has its own residents’ association who many times requested their preservation; so the decision to demolish most of the shipyards comes to me as something hard to understand. Many observations were conducted in the past by the DSSOPT and architects from the IC, which said it wouldn’t be that hard to recover the shipyards,” Mr. Marques told Business Daily. In 2013, the IEEM President conducted a competition with the Polytechnic Institute of Milan to create a

proposal of renovation for the area, with Mr. Marques suggesting any future projects in the area focus on history preservation, such as a shipyards museum. “It’s not a good end for this issue but since that’s how it is at least let’s make it so that future projects help remember the area’s history. There are people still alive that made the last boats constructed in Macau, naval experts that could help. We should also involve the residents and make it a cultural project that serves a purpose of cultural tourism, not make some kind of Disneyland for tourists calling it preservation. A knowledgeable tourist will always come to see attractions with authenticity,” he added

Decaying history

The land plots are part of 18 government units, the right of use of which were leased to different owners in the 1980’s and 1990’s, mainly to the shipbuilding industry. According to a response sent by DSAMA to Business Daily, the licence owners were responsible for the maintenance and recovery of the shipyards while keeping the purpose of the lease, namely ‘ship building construction and repair, activities that were gradually abandoned.’ According to DSAMA ‘from 2013 to 2015, the department requested at least five times that the 11 temporary licence holders repair the shipyards as soon as possible.’ DSAMA claims that the occupants

Long ago

The Coloane Old Urban Area Lai Chi Vun Planning Research 2012 plan was developed in co-operation between the DSSOPT, the IC and DSAMA and suggested a 5,000 square metre area in Lai Chi Vun Village could be revamped through the revitalisation of the ship construction industry heritage. This would involve creating four zones: Zone A with a transit square for access in the village with an exhibition gallery of the

Mr. Tam has resorted to building replica wooden boats in the shipyard

did not fulfil the responsibility to do so, causing the lack of long-term maintenance of the shipyards and risk of collapse. Thus, the renewal of exploration licence for those 11 shipyards was cancelled on December 31, 2015. Following the collapse of a shipyard in April 2016 the government enclosed and reclaimed the shipyards area in risk of collapse and, of the seven remaining shipyards, four were considered to have the appropriate maintenance, with DSAMA saying their licence renewals were being considered. Three of the these four shipyards are currently under the management of the Macau Cultural Affairs Bureau (IC), which told Business Daily it intends to consult the building owners in order to use them ‘as an interface to display the history of the shipyard area in Lai Chi Vun Village, to publicise the art and technique of the shipbuilding industry in Macau’ while retaining ‘parts of facilities remembering the history of the shipbuilding industry.’ Former IC Director Ung Vai Meng previously told TDM Radio that he “wasn’t consulted by the DSSOPT” with regard to the shipyards’ demolition and rejected the remaining shipyards to be preserved would be used for “commercial purposes” suggested in the 2012 study. Secretary for Transport and Public Works Raimundo Arrais do Rosário also told TDM Radio that he had no knowledge if the 2012 study was to be maintained and that he hadn’t received any information regarding the study in the last two years.

Changing to smaller boats

Working in the shipbuilding industry since the 1970’s, Mr. Tam bought the rights of exploration of the Victory Shipyard in 1996, building fishing

shipyard; Zone B for a leisure area and gallery of lime factory exhibition; Zone C for a recreation area with exhibition areas of shipyards and locksmith factory, together with a cultural and creative area; and Zone D, to present the Chinese junk building industry. According to DSSOPT’s recent response, following public consultation in 2013 the study was approved and will be used as a reference for future development of the area.

boats until he decided to cease activities in 2004. “Before the 90’s there was a good market for it and in the past 80 per cent of the fishing boats in Hong Kong were made here. Then the fishing industry started declining mainly due to the opening of the Chinese market which increased competition and the overexploitation of fisheries in the region,” Mr. Tam told Business Daily. With the fishing industry decaying, the shipbuilding industry where Mr. Tam worked followed suit and in 2006 the last ship was built in Lai Chi Vun. After ceasing the work in his shipyard the building expert turned the space into a workshop for wooden boat replicas “in order to preserve the old Chinese junk building techniques.” According to Mr. Tam, when he ceased shipbuilding activities he suggested to the government that the land be used to develop various projects, which the government did not agree to. Since the shipyard no longer fulfilled its function for shipbuilding, the government declined to renew its licence and foreclosed it, with Mr. Tam now crafting his boat replicas in a neighbouring shipyard. “I’ve been working in this area for many years so I wanted to redevelop my business here. Now the government says they just want to demolish [the yards] instead of helping the previous owners develop the buildings. I think the government should have a more precise plan before demolishing the shipyards. I think they’ll develop the area for different uses such as housing units while not keeping the shipyards,” he told Business Daily.

As good as new

For Carlos Marreiros, architect and President of the Architect Association of Macau, the Lai Chi Vun shipyards are part of Macau’s “invaluable” architectural and cultural history; he believes an “in-depth study” should be conducted for their revamp. “I don’t know the government’s plan in detail but this area deserves to be preserved and the structures need to be consolidated (…) I can understand the government having valid reasons for not preserving some of the shipyards - some are in worse conditions than others - but the area deserves a rigorous study,” he told Business Daily. The architect stated that although these structures are not made of “refined materials” they have their “own value” and could be reinforced with “possibly a minimalistic metallic structure” that would not distract from the shipyards’ “ambiance.” Mr. Marreiros also suggested the creation of a museum itinerary enabling visitors to access different levels of the shipyards and access multimedia information of the region’s history and its past industry. “I can’t imagine public housing or residences being built there; it should be cultural [facilities], a museum and other recreational [facilities] such as restaurants. If Macau wants to be a World Centre of Tourism we have to offer them more interesting attractions,” he said. The architect also believes creating a marina could help the area become more dynamic by allowing access to recreational boats under the Free Yacht Travel Scheme or from other areas of the MSAR. In a response to Business Daily, DSAMA stated it currently had no plans to develop the area for such purposes.


Business Daily Friday, February 17 2017    9

Gaming

Gamble down under

Star casino to slash Chinese VIP numbers Australian casinos sell gambling holidays to Mainland’s VIPs via junket operators based in Asia Byron Kaye

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ustralia’s Star Entertainment Group Ltd said it will reduce its reliance on Chinese gamblers, previously the backbone of its business, after a “freakishly good” win rate masked a sharp downturn in income from Chinese high-rollers. The arrest in October of 18 employees of the world’s biggest-listed casino operator outside China, Crown Resorts Ltd, has up-ended the China-focused business model of Australian betting houses. “At this time we’re not taking any risks by calling on customers we don’t know. We don’t respond to

customers we don’t know,” Star Chief Executive Officer Matt Bekier said on an analyst call yesterday. In the first earnings update of an Australian casino company since the arrests, Star posted a surprise record half-yearly profit of A$141.8 million (US$109.3 million), up 135 per cent thanks to a near doubling of its win rate. But turnover from overseas visitors on gambling junkets, mainly wealthy Chinese, slumped 27 per cent in the two months after the arrests and the decline was continuing, it said. Adjusting the win rate to average levels, “normalised” net profit dipped 18 per cent to A$107.1 million. “We obviously want to be cautious

because we just don’t have all of the facts on the table right now,” Bekier said of the fallout from the Crown arrests. Star, which has its flagship casino on the Sydney waterfront, planned to cut the portion of Chinese gamblers among its so-called VIP visitors to 50 per cent from 80 per cent, he said. The company hoped gamblers from elsewhere in Asia would make up the other half of its international VIP revenue. Like their counterparts across the Asia-Pacific, Australian casinos sell gambling holidays to Chinese VIPs via junket operators based in Asia. China has been cracking down on gambling on the mainland but is yet to explain the Crown arrests, except to say they were for suspected “gambling crimes”. It is also yet to charge the Crown

employees, which include the company’s head of international VIP sales.

Key Points Star H1 net profit A$141.8 mln vs A$118 mln analysts “Normalised” H1 profit down 17.7 pct to A$107 mln International VIP turnover down 11.9 pct to A$20.8 bln Star shares were flat yesterday, in line with the broader Australian market. Since the China arrests, Star shares have fallen 17 per cent, while the broader market has risen 6 per cent. Crown shares, which have lost about 10 per cent since last October, were up 0.7 per cent yesterday. Reuters


10    Business Daily Friday, February 17 2017

Greater china In Brief Central bank official

Beijing to keep monetary policy neutral China should keep its monetary policy stable and neutral, a Chinese central bank official said Wednesday. Yi Gang, deputy governor of the People’s Bank of China, made the remarks at the annual meeting of Chinese Economists 50 Forum (CE50) when responding to questions on China’s monetary policy. Top officials have set China’s monetary policy in 2017 as “prudent and neutral” to keep appropriate liquidity levels and avoid large injections, as the government tries to maintain stable growth while avoiding risks. Yi said that keeping monetary policy neutral meant not being too tight or loose. Antitrust probe

Consultancy files complaints over McDonalds sale A Chinese consultancy that has previously helped to win antitrust battles against Coca-Cola and Apple has taken aim at McDonald’s Corp, arguing in a complaint to regulators that the American fast food giant’s China sale may hurt workers and consumers. McDonald’s said last month it had agreed to sell the bulk of its China and Hong Kong business to state-backed conglomerate CITIC Ltd and U.S. private equity firm Carlyle Group LP for up to US$2.1 billion, in a deal that will see the consortium act as the master franchisee for a 20-year period. Sustainable development

Xiamen Airlines signs agreement with UN

China’s Xiamen Airlines on Wednesday signed a cooperation agreement with the United Nations to promote a set of global goals for sustainable development. The goals, known as Sustainable Development Goals (SDGs), were adopted by UN member states in 2015 to enhance the global efforts to eliminate poverty, promote equality and combat climate change. At the signing ceremony, Xiamen Airlines promised to help carry the message of SDGs around the global through sound systems on board and in lounges, printed magazines and painting one of its planes with “Sustainable Development Goals.” Work safety

Coal mines suspended after blast in Hunan All small collieries were suspended and two officials dismissed in central China’s Hunan Province after a coal mine blast Tuesday killed nine and injured three. Starting Wednesday, coal mines with annual capacity of less than 300,000 tonnes will suspend operation for two weeks for safety inspections, according to Yang Guangrong, deputy governor, during an urgent video conference on safety production Wednesday. Both the Party chief and head of Doulishan Township, where the accident occurred, have been dismissed.

Capital controls

Overseas investment, property purchases slump Regulators have warned they will pay close attention to “irrational” overseas investment in property, entertainment, sports and other sectors Yawen Chen and Elias Glenn

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hina’s non-financial outbound direct investment (ODI) slumped in January and its offshore property purchases plunged after authorities tightened restrictions on capital outflows to support the ailing yuan currency and ease pressure on the country’s foreign exchange reserves. China’s non-financial ODI slid 35.7 per cent in January to RMB53.27 billion (US$7.77 billion) -- the weakest in 16 months -- compared with the same period a year earlier, the Ministry of Commerce said yesterday. Chinese investment in offshore property - which has helped fuel sharp and often contentious home price rises from Vancouver to London - fell by an even sharper 84.3 per cent. Data earlier this month showed China’s foreign exchange reserves unexpectedly fell below the closely watched US$3 trillion level in January for the first time in nearly six years. But the drop was less than expected, suggesting tighter regulatory controls are making some progress in slowing capital flight. Following China’s moves to close loopholes on money leaving the country and step up checks on the types of overseas investment, ODI in December fell to US$8.41 billion, down 39.4 per cent on-year and the lowest monthly tally for 2016. “Risk warnings from regulators and short-term controls have achieved results. Based on their own situation, domestic firms have been more orderly and rational in undertaking overseas direct investment,” China’s State Administration of Foreign Exchange (SAFE) said in a statement to Reuters last week. Regulators have warned they will pay close attention to “irrational” overseas investment in property,

entertainment, sports and other sectors. “Although ODI dropped in January, the overall structure is improving,” said ministry of commerce spokesman Sun Jiwen. In addition to the decline in property, investment in culture, sports, and entertainment industries fell 93.3 per cent in January. Showing authorities were indeed being more selective, investment in overseas manufacturing and information technology sectors bucked the trend, rising 79.4 per cent and 33.1 per cent, respectively. No absolute value figures were released by sector.

Key Points Jan overseas investment falls 36 pct on tighter capital controls China’s overseas property investment slumped 84 pct Overseas investment structure improving - commerce ministry Jan Foreign Direct Investment down 9.2 pct y/y The government says it supports legitimate overseas investment, and that policies to support outbound investment will not change, though some officials have expressed concern about the rapid increase in overseas investment last year. “(Regulators are also paying close attention to) hidden risks in overseas investments... Related firms should be prudent,” the SAFE statement said. At least three regulators in the last month have strengthened oversight of outbound investment or warned against reckless foreign investment. Large companies such as Fosun, China’s largest private conglomerate, say that new restrictions will not impact their investment plans because they already have sufficient

funds overseas. But several overseas deals by Chinese firms have been cancelled or delayed in recent months after being unable to get approval from Chinese regulators. A Chinese investment group’s deal to purchase Italian soccer club AC Milan has been postponed to March 3 after struggling to get approval and funding, and copper-processing firm Anhui Xinke New Materials in December withdrew its bid to buy a controlling stake in a Hollywood studio. Outbound investment rose to US$170.1 billion in 2016, up 44.1 per cent from 2015, and a commerce industry spokesman said in December that it was likely to increase again in 2017. Economists expect more forceful policing of existing regulatory controls after the latest slide in FX reserves, though China’s financial system is notoriously porous, with speculators quickly able to find new channels to get funds out of the country. “I think the impact (of capital controls) is probably limited. It will probably stem outflows for a few months but over the long-term with the Chinese economic fundamentals still poor there is still a great desire for people to try to bring their money out,” said Chua Han Teng, senior analyst at Fitch’s BMI Research in Singapore. “Therefore in the long term it seems like outflows are likely to persist.”

Foreign investment in China also falls

Foreign direct investment (FDI) into China also fell in January, dropping 9.2 per cent on-year to RMB80.1 billion (US$11.68 billion), the ministry said. Commerce ministry spokesman Sun Jiwen said the decline in FDI was mainly due to a high base last year and the long Lunar New Year holiday falling earlier this year. Last year, FDI into China increased 4.1 per cent to RMB813.22 billion, while December FDI rose 5.7 per cent to RMB81.42 billion. Reuters


Business Daily Friday, February 17 2017    11

Greater China Kim Jong Nam

Beijing loses a friend with North Korean murder Trade data show that relations have cooled The mysterious death of Kim Jong Un’s half-brother removed a potential avenue for China to press the North Korean leader to rein in his nuclear ambitions. Kim Jong Nam, 45, lived out of North Korea for many years and had close links to China. He started families in both Beijing and Macau, and had the protection of Chinese authorities, according to a South Korean lawmaker who was briefed on intelligence reports. His murder at an airport in Malaysia this week in circumstances akin to a spy novel adds to concern that Pyongyang’s actions risk a major geopolitical miscalculation. Kim Jong Un’s repeated nuclear and missile tests -- most recently on Sunday -- have caused unease both in the U.S. and China, and put Beijing in a difficult spot as North Korea’s prime benefactor and ally. While Kim Jong Nam was out of favour in Pyongyang for years before he was murdered -- his brother reportedly had a standing order for his execution -- he would have been a potential replacement for Kim Jong Un, and was an implicit point of leverage for China while he was alive. “Kim Jong Un has been testing China’s patience,” said Deng Yuwen, a public affairs commentator in Beijing and a former deputy editor of a journal of the Communist Party. “If Beijing wouldn’t want to see the total collapse of the Kim regime, it would hope for the replacement of Kim Jong Un. This is why Kim was increasingly

worried about his half-brother.” Beijing provides most of North Korea’s food and fuel. The nations had solid relations from the 1950s, when they fought together in the Korean War. Leaders from both countries often say they have a bond built with blood. Still, ties became strained after Kim’s ascension in 2011, a year before President Xi Jinping took power in China. The two have never met as leaders. High-level dialogue was also cut back after the 2013 execution of Kim’s uncle Jang Song Thaek, who was an advocate for Chinese-style economic reform in North Korea and had been the major go-to person for leaders in Beijing. Kim Jong Nam was raised by Jang’s wife.

“Beijing won’t be happy with the death of Kim Jong Nam, but it will not overreact either” Yang Xiyu, former director of the China Foreign Ministry’s Office for Korean Peninsula Issues China has watched North Korea’s nuclear development with concern. Its leaders released a new list of items banned for export to North Korea in January, to comply with a new round of United Nations sanctions

An undated picture taken in an unknown location and made available on 15 February 2017 shows Kim Jong-nam. Lusa

and address international criticism -including from U.S. President Donald Trump -- that it isn’t doing enough to rein Kim in.

Trade pressure

Trade data show that relations have cooled. Total commerce has fallen for two straight years to US$5.4 billion in 2016, according to numbers released by China’s Ministry of Commerce. While China imported 14.5 percent more North Korean coal last year despite the sanctions, Yonhap News Agency reported this week that Beijing had rejected a US$1 million shipment a day after North Korea’s latest missile test. Even so, it would be hard for China to totally abandon North Korea, which it has long seen as a geopolitical

buffer to U.S. forces, said Yang Xiyu, former director of the China Foreign Ministry’s Office for Korean Peninsula Issues. China is wary that the U.S. and South Korea will view the murder as a sign of internal instability in North Korea and seek to challenge Kim further, he said. “It becomes even harder for China to restrain North Korea with a delicate bilateral relation like this,” Yang said. “Beijing won’t be happy with the death of Kim Jong Nam, but it will not overact either.” Kim Jong Nam was seen in Beijing as an elite who envied the success of China’s economic reforms, Yang said. The eldest son of former dictator Kim Jong Il reportedly travelled with his father in 2001 to Shanghai, a coastal city that spearheaded China’s market reforms, and met with senior officials in information technology.

Missile defense

Part of China’s concern with North Korea’s behaviour is a U.S. plan to deploy a high-altitude missile defence platform known as Thaad in South Korea later this year. China opposes the system, which it says could be used to counter its own weapons. China would be more willing to prod North Korea if Trump addresses its worries about Thaad and reduces military drills with South Korea, according to Shi Yongming, an associate research fellow at the Foreign Ministry-run China Institute of International Studies in Beijing. “The Kim regime is a real security risk for China, and the Chinese interests will be better served by divesting from it than by continuing to enable it,” Shi said. “If the U.S. side really treats the Korea peninsula as one of its top international priorities, there is a lot of room for the Chinese-U.S. cooperation.” Bloomberg News

Export momentum

Taiwan raises 2017 outlook to 3-year high For 2017, exports were forecast to grow a much faster 8.5 per cent Faith Hung and Jeanny Kao

Taiwan raised its 2017 economic growth target to a three-year high on Wednesday, on expectations it will benefit from stronger global demand for tech gadgets though growing signs of U.S. trade protectionism remain a downside risk. Gross domestic product was estimated to expand 1.92 per cent in 2017, higher than the 1.87 per cent forecast in November and 1.88 per cent projected in August, the Directorate General of Budget, Accounting and Statistics said. Solid demand expected for Apple Inc’s new iPhone 8 and Chinese smartphone brands will bolster the island’s export-driven economy, building on the strengthening momentum in the fourth quarter ahead

of the festive season. “Export momentum is expected to get a boost from the manufacturing process advantage of the local semiconductor industry, as well as increasing demand for vehicle electronics, Internet of Things and high-efficiency computing,” the statistics agency said in a statement. Taiwan’s chip companies play a major role in the global manufacturing supply chain and the island’s export orders rose for a fifth straight month in December. Exports from South Korea, a close rival of Taiwan, rose in January at the fastest pace in nearly five years, preliminary data has shown. Taiwan’s statistics agency also revised up fourth quarter economic growth to 2.88 per cent, its strongest pace since the first quarter of 2015.

Its preliminary figure showed the economy grew 2.58 per cent from a year earlier. For 2017, exports were forecast to grow a much faster 8.5 per cent, higher than the 4.95 per cent anticipated in November.

Key Points 2017 GDP raised to 1.92 pct (vs 1.87 pct f’cast in Nov) Q4 GDP growth revised to 2.88 pct y/y (vs preliminary 2.58 pct) “The outlook for exports is more optimistic this year, with demand from the U.S. and China both looking

strong. The outlook for domestic consumption is relatively conservative,” said Chen Chin-chi, an analyst at Cathay Financial Holding. “The key things to watch are the economic growth rates of the U.S. and China,” Chen added. Taiwan’s exports are widely expected to take a hit if U.S. President Donald Trump implements more protectionist trade and economic policies later this year. “...some limiting factors for growth are the increasing competition of global industries, rising global trade protectionism, and increasing pressure from the Chinese supply chain’s localization,” the statistics agency said. Imports, mainly from investments in the semiconductor sector, are forecast to grow 9.77 per cent this year, versus the previous forecast of 5.79 per cent. Reuters


12    Business Daily Friday, February 17 2017

Asia

Consumers

On the frontline of spending revolution: small loans, big data For now, mobile phone loans are the industry’s big mover Matthew Miller

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n a mobile phone shop in Tianjin, northeast China, Jiao Zhiwen sells about RMB220,000 (US$32,000) in small loans each month, one of hundreds of thousands of loans agents helping to fund the country’s unprecedented consumer spending spree. Though seven in 10 customers have never financed a purchase before, most loans are processed in 25 minutes, with a basic ID check and proof of a bank account. Jiao’s store on a busy commercial road, among furniture and enamel factories, is on the frontline of a consumer finance revolution in a country with a fast-growing borrowing culture, a government keen to boost spending, but still no provision for personal bankruptcy. “They are factory workers, construction labourers and shop assistants,” Jiao says of her clients. “They need to feel they should only dig a little money out of their pockets each month and not too much at one time.” Jiao works for Home Credit China, among the handful of small-loans firms to receive national licences over the last three years to offer modest, mostly high-interest, loans to bring China’s roughly 300 million underbanked adults into its US$3.9 trillion consumer finance market. Beijing wants its high-saving population to have greater access to credit, so personal consumption

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can take over from industry and infrastructure spending as the key driver of growth. Zhang Xiao, 22, a student at Shanghai University, embodies the change in attitudes, taking a RMB500 loan to buy clothes over the Lunar New Year holiday. “If, before, the price was quite high, I might just have chosen not to buy something. Now with this sort of loan I can buy first and only then have to think about paying the money back slowly.” But in a country where credit records are scattered, most adults don’t have a borrowing history and collecting delinquent loans can be slow, the transition could usher in a wave of personal defaults.

Key Points Vast untapped market fuelling boom in small loans Consumer credit information still underdeveloped National licences for consumer finance firms started 2014 Mobile phones, motor bikes, appliance loans drive industry Mao Wanyuan, who helps supervise non-bank financial institutions at China’s banking regulator, told reporters in December that inclusive finance firms still lacked adequate experience to manage risk. For Home Credit and other nationally licensed consumer finance firms like Suning Consumer Finance Co, big data, as employed by Jiao on her tablet, is the answer - determining how much they can lend, to whom,

and when. “The banks wouldn’t touch a lot of our clients,” said Ondrej Frydrych, chief executive of Home Credit China, which is backed by Czech billionaire Petr Kellner’s investment firm PPF Group and has 145,000 point-of-sales (POS) operations in 312 cities. “Our choice is either we can play it safe, have low risk, and approve only people with a good record or people we think can repay - or be more inclusive.” His bet is that as customers become wealthier, loans will become bigger and more profitable. For now, mobile phone loans are the industry’s big mover - Home Credit finances 8 percent of all Apple iPhones sold in China.

Managing risk

Judging by developments in emerging markets like Brazil and India, there are big risks in small loans. John Chen, China managing director for credit rating services firm FICO, says lenders need to use “alternative data”, from mobile phone charges to travel bookings, to compensate for the lack of credit bureau coverage. Home Credit uses a scoring engine based on items from the predictable disposable income and age of the borrower, to the shop’s own history of bad credit to determine risk levels. It also checks with the central bank’s own credit database to ensure applicants haven’t previously defaulted. Home Credit chases delinquent borrowers through three call centres employing 5,000 people, before handing them over to collection agencies. It also maintains a

20-person anti-fraud unit. At Suning Consumer Finance Co backed by home appliances retailer Suning Commerce Group, Bank of Nanjing Co and BNP Paribas Personal Finance - a spate of frauds when the firm launched 21 months ago led to a tighter customer verification system, said general manager Chen Ming. Suning’s system now uses facial recognition, real-name and bank-card authentication software, alongside online consumer information from its shopping website to verify applicant identities and then track loans after they’re issued. So far, the volume of bad loans has been limited, averaging 4.1 percent at the end of September for licensed firms. Home Credit says its “loss of sales” fell below 4 percent in November for POS loans, and slightly higher for cash loans. But industry executives expect the figures to deteriorate at all firms as portfolios mature and coverage widens. Consumer finance firms started receiving China Banking Regulatory Commission (CBRC) licences only in 2010 and still account for less than 1 percent of the total personal lending offered by commercial banks, petty loan companies, and online platforms. Nationwide, total outstanding consumer lending in 2016 reached RMB26.76 trillion (US$3.9 trillion), up 282.5 percent on 2011, according to Euromonitor International, which is forecasting it could reach RMB35 trillion by 2021. “People’s ideas about borrowing are changing,” says Jiao in Tianjin. “A customer borrowing a few thousand yuan today may return later for a bigger cash loan.” Reuters

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Business Daily Friday, February 17 2017    13

Asia Employment

Australian jobless rate dips, masks slump in full-time work Australia has seen a gradual decline in unemployment but underemployment -- in which people want more work but can’t get it -- has risen to historic highs Swati Pandey

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ustralia’s unemployment rate eased back unexpectedly in January but that masked a disappointing slump in fulltime jobs that augured badly for a much-needed revival in wage growth and inflation. Data from the Australian Bureau of Statistics yesterday showed employment rose 13,500 in January, topping forecasts of an increase of 10,000. But all of the increase was in part-time work, as full-time jobs fell 44,800 after three months of gains. Since January last year, full-time employment has fallen by 56,100 while part-time employment has

climbed by 159,400. The unemployment rate did dip to 5.7 per cent but remained within a tight 5.6-5.8 per cent range that has held for the past year, largely because the participation rate has fallen as fewer people looked for work. “The now-familiar problem of new jobs being mostly part-time ones rather than full-time ones reared its ugly head again,” said Paul Dales, chief economist at Capital Economics. “The high rate of part-time employment and associated rise in underemployment will keep a lid on wage growth and the underlying rate of inflation,” he added. “The labour market won’t generate any major inflationary pressure for a couple of years yet.”

The Reserve Bank of Australia (RBA) has highlighted uncertainty over the labour market as a key risk for 2017. A slowdown in hiring might just be one of the few developments alarming enough to justify another cut in interest rates.

Outlook brighter

Over the past year, Australia has seen a gradual decline in unemployment but underemployment -- in which people want more work but can’t get it -- has risen to historic highs. Wages growth is already at record lows while inflation is likely to remain below the central bank’s target band of 2-3 per cent until next year at least. Still, futures markets have all but priced out the chance of another policy easing and instead imply a one-in-four chance that rates might be hiked at the end of the year. Meanwhile, leading indicators of labour demand have generally been positive. Job advertisements are at a fiveyear peak while a survey of business conditions in Australia hit a neardecade high in January, with a healthy 5 point rise in employment, pointing to some pick up in the labour market. Yesterday’s report also showed an unusually sharp pick up in hours worked which took annual growth in hours to a strong 1.2 per cent, and that was despite the drop in full-time jobs. “So while the total employment was soft in Jan, the lift in hours worked suggests that underlying labour demand remains quite robust,” said Justin Smirk, an economist at Westpac. “As such we expect to see total employment gains to gather some momentum over the next few months.” Reuters

GDP

Malaysian growth picks up thanks to exports and domestic demand The central bank said the ringgit, which has taken a beating over the past two years, began to stabilise towards the end of the fourth quarter Malaysia’s economy grew 4.5 percent in the fourth quarter from a year earlier, ending a year of tepid growth on a stronger note helped by solid exports and resilient domestic demand. Fourth-quarter growth was driven by private sector spending and manufacturing and services sectors, the central bank said yesterday. Growth matched the median forecast of 4.5 percent in a Reuters poll, and topped the third quarter’s 4.3 percent. But full-year 2016 growth slowed to 4.2 percent, compared to 5.0 percent in 2015 and the lowest annual figure since the economy contracted in 2009. Malaysia “continued to gain momentum” in the final quarter, Capital Economics said, “but against a backdrop of lacklustre external demand, high household debt and limited scope for additional policy support, we doubt growth will pick up further.” Bank Negara Malaysia (BNM) said domestic demand will remain the key driver of growth.

was more than offset by the decline in public expenditure,” the central bank said. BNM said that Malaysia’s current account surplus widened to 12.2 billion ringgit (US$2.74 billion) in the fourth quarter, from 6 billion ringgit in the third quarter. Prime Minister Najib Razak is looking to reverse Malaysia’s weak economy, hit over the last two years by slumping global oil and gas prices. The leader, whose popularity has been hurt by a scandal involving

state-owned fund 1MDB, is preparing for a tough election that needs to be held by August 2018. The central bank said the currency ringgit, which has taken a beating over the past two years, began to stabilise towards the end of the fourth quarter amid higher stability in the global financial markets. “The depreciation was driven mainly by portfolio investment outflows from emerging economies amid uncertainties arising from the outcome of the US presidential elections,” the bank said. In 2016, the ringgit weakened 2.7 percent against the dollar. This year, it has strengthened 0.8 percent. DBS, in a note ahead of Thursday’s GDP data, said domestic growth is likely to remain resilient and external demand improve, so “there will be less room for further monetary easing” by BNM and its overnight policy rate is expected to remain 3.0 percent for the rest of 2017. Reuters

Improved consumption

In October-December, domestic demand “expanded at a more moderate pace, as the improvement in private consumption and investment activity

Prime Minister Najib Razak is looking to reverse Malaysia’s weak economy

In Brief Forex

S. Korean deposits rise as exporters lift dollar holdings South Korea’s foreign exchange bank deposits in January inched up to their highest level in four months as exporters increased their dollar deposits from trade settlements, the central bank said yesterday. Foreign exchange bank deposits were at US$64.65 billion as of end-January, up US$5.74 billion from a month earlier and marking the highest level of deposits since September 2016, according to the Bank of Korea. Dollar deposits rose US$5.57 billion to US$55.23 billion for the month, which accounted for 85.4 per cent of the total foreign exchange deposits. Trade

Indonesian exports surge most in over 5 years Indonesia’s exports rose at the fastest pace in more than five years in January, with shipments of its main commodities rising both by value and volume, giving the economy a solid start to the year after a sluggish 2016. Exports rose 27.71 per cent in January from a year earlier to US$13.38 billion, the strongest pace since September 2011 and even faster than the 21.73 per cent median forecast in a Reuters poll, data from the statistics bureau showed yesterday. Shipments of Indonesia’s main products palm oil, coal and rubber also rose in January. Investors

Japan Post Bank returning to U.S. bonds Japan Post Bank is slowly returning to the U.S. bond market after yields spiked following the U.S. election, although the bank sees yields rising further later this year, its chief investment officer said yesterday. The Japanese bank is starting to rebuild its exposure to U.S. bonds, which it had been reducing most of last year, as yields have risen sharply since November, Katsunori Sago, the bank’s CIO told Reuters. Japan Post Bank, with total assets of 210 trillion yen (US$1.85 trillion), has been an outlier among Japanese investors who had been gobbling up U.S. and other foreign bonds last year as an alternative to low-yielding domestic bonds. Arrest warrant

Samsung chief questioned behind closed doors A South Korean judge questioned Samsung Group leader Jay Y. Lee and another executive behind closed doors yesterday to decide whether they should be arrested over their roles in a corruption scandal that has engulfed President Park Geun-hye. Dozens of protesters surrounded by riot police met Lee, 48, who was wearing a dark coat and navy tie as he arrived at the Seoul Central District Court to attend the hearing. South Korea’s special prosecutor’s office has focused its investigations on Samsung Group’s relationship with Park.


14    Business Daily Friday, February 17 2017

International In Brief Portugal

Public employment down 8.8 per cent since 2011 Portugal’s public authorities employed 663,798 people at the end of 2016, up 0.7 per cent from a year earlier but down 8.8 per cent from 2011, according to official figures published on Wednesday. The data show that the 2016 figure was 63,631 smaller than that for 2011. Central government services was the sector in which employment fell most since 2011, by 44,662 or 8.1 per cent. At end-year it accounted for more than 76 per cent of all public employment. Relative to the previous quarter, overall public employment increased by 1.2 per cent, due to an increase at the centre, where the number of jobs was up 1.5 per cent. Lawsuit

Austria sues Airbus over suspected Eurofighter fraud Austria filed a lawsuit yesterday against Airbus and the Eurofighter consortium, alleging wilful deception and fraud linked to a 2 billion euro (US$2.1 billion) order for Eurofighter jets in 2003, the defence ministry said. The ministry said that following an investigation it believed Airbus and Eurofighter had misled Austria about the purchase price, deliverability and equipment of the jets. Damages could amount to 1.1 billion euros, Defence Minister Hans Peter Doskozil said at a news conference in Vienna. Airbus said it was unable to comment as it had only just learnt about the action through the media.

Trade deal

Trudeau says EU must spread trade’s benefits or risk its decline Before the European vote Wednesday, protests against the accord delayed the arrival of lawmakers

T

he trade pact between Canada and the European Union approved this week could be one of the world’s last multilateral trade deals unless policy makers share the benefits more widely, Canadian Prime Minister Justin Trudeau told European lawmakers.

“If we are successful, CETA will become the blueprint for all ambitious, future trade deals. If we are not, this could very well be one of the last” Justin Trudeau, Canadian Prime Minister Trudeau addressed the European Parliament in Strasbourg, France, yesterday after both it and Canada’s House of Commons approved the trade agreement, known as CETA, this week. While mounting a vigorous defence of the push to liberalize global trade, Trudeau insisted that

policy makers have to do more at home to make sure their voters see the benefits of such deals. “This anxiety toward the economy and trade -- the worry that our kids won’t have access to the same jobs and opportunities that we had -- can be addressed only if we ensure that trade is inclusive, so that everyone benefits,” Trudeau said, according to prepared remarks. Trudeau’s trip comes on the heels of a visit earlier this week to Washington, where he sought to preserve trade with the U.S. as President Donald Trump pushes for changes to the North American Free Trade Agreement.

Tackling Trump

Trudeau alluded to protectionist sentiment in North America and Europe throughout his Strasbourg speech, saying concerns among voters are “valid” but urged policy makers not to rip up the trade links that have taken years to negotiate. “It is much, much easier to point out problems than it is to solve them. It is harder work to build than it is to tear things down,” he said. The Comprehensive Economic and Trade Agreement had once been set to pave the way for an EU-U.S. deal but now looks like a rare multilateral success story in a protectionist era. Foreign trade has emerged as a top policy priority for both the Trudeau government and the EU, which held

up CETA’s approval vote Wednesday as a sign the bloc still supports free trade. Trudeau had warned the EU’s legitimacy was at stake if the pact faltered. In visiting Trump, Trudeau pressed to maintain the two countries’ US$540 billion annual trade relationship. Trump said he planned only “tweaks” for Canada’s terms under NAFTA and was instead targeting Mexico. Trump is expected to freeze talks on the Trans-Atlantic Trade and Investment Partnership deal between the U.S. and EU, for which CETA was seen as a precursor. Officials have few deals other than CETA, which was rewritten to address protectionist fears, to point to as success stories.

Brexit

The Canadian Senate and EU national parliaments still have to approve CETA, though Harder expects Canada’s upper chamber to give its endorsement in March or April. The agreement is due to provisionally come into force in the spring, though Britain’s exit from the EU is also complicating its application. Trudeau meets German Chancellor Angela Merkel today in Berlin, with the two -- hailed by former U.S. Vice President Joe Biden as the last icons of liberalism -- due to hold a joint press conference in the early afternoon. “We have just demonstrated to the world: we, collectively, value trade, and the promise of prosperity for all our citizens that comes with it,” Trudeau said. “Now we need to make it work, for your people and ours.” Bloomberg News

Payment systems

Kenyan bankers launch mobile payment platform Kenyan bankers yesterday launched a mobile payment platform that aims to reduce the cost of financial transactions in the country. Kenya Bankers Association CEO Habil Olaka told a media briefing in Nairobi that the PesaLink digital platform will provide bank customers with a competitive person-to-person money transfer platform. “The system will enable users to transact as low as 10 U.S. cents to as much as US$9,999 across the banking system,” Olaka said. According to Olaka, the innovative product will place Kenya’s economy squarely in the digital age and quicken the pace of adoption of e-commerce and mobile commerce. Diplomatic relations

Cuba, Ireland vow to boost ties Cuban President Raul Castro and his Irish counterpart, Michael Higgins, have expressed willingness to boost ties between their countries, according to a government release. During the “cordial” meeting on Wednesday, they also exchanged views on international issues of interest, added the release. Prior to the meeting with Castro, the Irish president laid a wreath to honour Cuban national hero Jose Marti, and toured the museum devoted to Marti’s life and struggle for Cuban independence. This is the first visit by an Irish leader.

Canadian Prime Minister Justin Trudeau waits for his speech at the European Parliament in Strasbourg, France, 16 February 2017. Lusa

Oil industry

Russia to meet output cut deal by April Oil prices are now up to 20 per cent higher than they were three months ago Russia said yesterday it will fully comply with an oil output cut agreement with other oil producing countries by the end of April. Under the deal with OPEC and non-OPEC countries signed last year Russia pledged to reduce its crude output by 300,000 barrels per day as part of a concerted effort to combat a global oil glut. “We can get to 300,000 barrels per day at great speed by the end of April,” Energy Minister Alexander Novak told the Interfax news agency. “This will allow us in May to produce exactly 300,000 less per day than in October.” In December, the Organization of the Petroleum Exporting Countries agreed with 11 non-members, including Russia, to cut output in the first half of this year to push prices higher.

Russia, which has suffered badly from oil price declines, was pumping oil at a record-breaking level of over 11 million barrels per day at the end of last year. Novak said Russian production was currently down by more than 100,000 barrels per day and should be 150,000 barrels per day lower in March. Technical issues affecting Russia’s production were stopping the country from going to the agreed level immediately, Novak said. The OPEC oil cartel, meanwhile, has implemented 92 per cent of its agreed output cuts, Kuwait’s oil minister said on Monday. Non-OPEC producers had delivered on more than half of their pledged production reductions, said the minister, Essam al-Marzouk, who chairs a committee tasked with monitoring the agreement.

Novak said yesterday an oil price recovery since the agreement could boost Russian oil producers’ earnings by 700 billion rubles (US$12.2 billion) this year and add 1.5 trillion rubles to the state’s budget. Brent crude oil stood at US$55.76 per barrel yesterday, up 1 cent on the day, while WTI was up 7 cents at US$53.17.

‘Russia was pumping oil at a recordbreaking level of over 11 million barrels per day at the end of last year’ Oil prices are now up to 20 per cent higher than they were three months ago. AFP


Business Daily Friday, February 17 2017    15

Opinion Business Wires

BANGKOK POST Prime Minister Prayut Chan-o-cha (pictured) called on foreign and Thai investors to rev up investing in its targeted industries, saying the government over the last two years has rectified and amended rules and regulations to promote and streamline private investment. Speaking at a seminar yesterday entitled “Thailand 4.0 Means Opportunity Thailand” presented by the Board of Investment, Gen Prayut said private investment will play a vital role in Thailand’s economic restructuring, meeting its Thailand 4.0 initiative. “Thailand is in dire need of stepping up to a value-based or innovation-driven economy to upgrade its competitiveness,” the premier said.

VIET NAM NEWS More and more Japanese companies are eagerly seeking co-operation opportunities in Việt Nam’s agriculture sector and shifting their investments to the country, said a Japanese official. Hiroshi Chishima, Deputy Chief Representative of the Japan External Trade Organisation in Hà Nội made the statement during a workshop on opportunities in agriculture and investment cooperation between Việt Nam and Japan, held on Wednesday by JETRO and the International Cooperation Department under the Ministry of Agriculture and Rural Development. Most of the enterprises said Vietnamese farming businesses are showing eagerness to develop and co-operate with the Japanese partners.

THE TIMES OF INDIA Jet Airways has launched travel coupon booklets which can be used across its network for both domestic and international flights. Called “global Jet pass”, the booklet of four coupons or tickets can be bought for Rs 50,000 for economy class and for over Rs 1 lakh for business class travel. “This is the first time that pre-paid coupons have been launched for use on an airline’s domestic and international network. The coupons do not have any date change or cancellation fee. Coupons can be used for travel even during peak season when fares are high,” a Jet Airways official said.

THE ASAHI SHIMBUN The US$3.3 billion (2.6 trillion yen) acquisition by SoftBank Group Corp., the Japanese telecommunications, internet and solar energy giant, of Fortress Investment Group marks tycoon Masayoshi Son’s latest step in building an investment empire. Son said the deal, announced by both sides Wednesday, will immediately contribute to his strategy for growth and complement his Softbank Vision Fund plan for investing in leading technologies including artificial intelligence and the “internet of Things,” which links devices through the Internet. “Fortress’ excellent track record speaks for itself, and we look forward to benefiting from its leadership, broad-based expertise and world-class investment platform,” Son said.

Trump’s anachronistic trade strategy

D

onald T rump’ s ignominious executive order barring entry into the United States for refugees and others from seven predominantly Muslim countries has dominated headlines in recent weeks. But the damage done to America’s image, and to the global economy, will only be further compounded by Trump’s early decisions on trade. In speeches and tweets, Trump has aggressively lashed out against globalization. He has appointed the famously protectionist trade litigator Robert Lighthizer to be US Trade Representative. And the other two members of his trade triumvirate – Commerce Secretary-designate Wilbur Ross and White House trade adviser Peter Navarro – are no less protectionist than Lighthizer. Many working- and middle-class Americans believe that free-trade agreements are why their incomes have stagnated over the past two decades. So Trump intends to provide them with “protection” by putting protectionists in charge. But Trump and his triumvirate hav e m i s di ag n o s e d th e problem. While globalization is an important factor in the hollowing out of the middle class, so, too, is automation. Most of Li ghthizer and Ross’s business experience has been in twentiethcentury industries such as steel production, which has conditioned them to pursue twentieth-century solutions for America’s twenty-firstcentury industrial problems. Unfortunately, old-fashioned protectionism will not boost American industrial competitiveness, even if it saves a few thousand jobs in sunset sectors. Moreover, ripping up trade agreements and raising tariffs will do nothing to create new, high-paying factory jobs. If anything, tariffs will only inflict further harm on workers. Trump and his team are missing a simple point: twenty-first-century globalization is knowledge-led, not trade-led. Radically reduced communication costs have enabled US firms to move production to lower-wage countries. Meanwhile, to keep their production processes synced, firms have also offshored much of their technical, marketing, and managerial knowhow. This “knowledge offshoring” is what has really changed the game for American workers. In 2017, US workers are not competing with lowwage foreign labour, capital, and technology, as they did in the 1970s. Rather, they are competing with a nearly unbeatable combination of lowwage foreign labour and US knowhow. One way to conceptualize this is to think of US products as being made not in the US, but in Factory North America. The goods made in Factory North America must compete with goods made in Factory Asia, Factory Europe, and so forth. This means that if the Trump administration imposes tariffs, it will turn the US into a high-cost

Richard Baldwin Professor of International Economics at the Graduate Institute, Geneva

island for industrial inputs. Firms might be induced to move some production back to the US, if it is strictly aimed at US consumers. But they will be equally encouraged to offshore production that is aimed at export markets, so that they can compete with Japanese, German, and Chinese producers outside of the US. Imposing tariffs on imports, without also stemming the flow of ideas and intellectual property, is like trying to prevent water from flowing through one’s fingers by making a fist. A more rational approach would accept twenty-first-century realities. The information revolution changed the world in ways that tariffs cannot reverse. With US workers already competing against robots at home, and against low-wage workers abroad, disrupting imports will just create more jobs for robots. Trump should be protecting individual workers, not individual jobs. The processes of twenty-firstcentury globalization are too sudden, unpredictable, and uncontrollable to rely on static measures like tariffs. Instead, the US needs to restore its social contract so that its workers have a fair shot at sharing in the gains generated by global openness and automation. Globalization and technological innovation are not painless processes, so there will always be a need for retraining initiatives, lifelong education, mobility and income-support programs, and regional transfers. By pursuing such policies, the Trump administration would stand a much better chance of making America “great again” for the working and middle classes. Globalization has always created more opportunities for the most competitive workers, and more insecurity for others. This is why a strong social contract was established during the post-war period of liberalization in the West. In the 1960s and 1970s institutions such as unions expanded, and governments made new commitments to affordable education, social security, and progressive taxation. These all helped members of the middle class seize new opportunities as they emerged. Over the last two decades, this situation has changed dramatically: globalization has continued, but the social contract has been torn up. Trump’s top priority should be to stitch it back together; but his trade advisers do not understand this. Sadly, they seem intent on imposing tariffs, which will disrupt international supply chains, possibly lead to trade wars, and only hasten US industry’s shift abroad. Project Syndicate

Trump and his team are missing a simple point: twenty-firstcentury globalization is knowledge-led, not trade-led


16    Business Daily Friday, February 17 2017

Closing Stock exchange

Hong Kong to launch renminbi currency options on March 20

annual drop since 1994, boosting interest in yuan derivative products to hedge currency risk. The new product will complement the bourse’s The Hong Kong Exchanges and Clearing Limited (HKEX) said yesterday that it will launch USD/CNH futures and other renminbi currency futures. its renminbi currency options on March 20. The USD/CNH options will be the first currency In 2016, the total trading volume of the HKEX’s USD/CNH futures more than doubled from the options traded at the HKEX, it said in a previous year to an all-time high of 538,594 statement on its website. contracts, according to HKEX statistics. The The eight contract months on the launch day will comprise April, May, June, July, September 2016 notional amount totalled US$54 billion. and December 2017, and March and June 2018. The HKEX accounts for about two-thirds of the open interest for all the world’s exchangeThe yuan, also known as the renminbi, fell 6.6 traded USD/CNH futures. Reuters per cent against the dollar last year, its worst

Brexit impact

London restaurants face a world of pain in 2017 Restaurant owners rely heavily on hosts, waiters, and cooks from Spain, Italy, and France Richard Vines

L

ondon restaurateurs are looking to the future. And many don’t like what they see. “As a restaurant operator, 2017 terrifies me,” said Russell Norman, co-owner of the Polpo, a popular mini-chain of Italian restaurants. “It really could be a perfect storm.” London’s dining scene is arguably more vibrant and successful than it’s ever been, and by one measure, at least, 2016 was a record year for openings. Many chefs think business will still improve this year, but they see strong headwinds. First there was Britain’s vote on June 23 to leave the European Union, which sent chefs into a spin: Restaurant owners rely heavily on hosts, waiters, and cooks from Spain, Italy, and France, and they fear Brexit will mean restrictions on the right to work in the U.K. When the British pound tanked after the vote, restaurants had to pay more for imported food and wine. Some wine prices have increased as much as 10 per cent, Norman says, and certain staples, such as olive oil, are at their highest prices in years in the U.K. Now they will have to swallow another increase: higher property taxes, known as business rates, that kick in in April. The size of the increase varies. The bill for Café Murano in Covent Garden, for example, will jump 46 per cent, to £157,000 (US$196,000). In Hoxton, Merchants Tavern’s bill will advance 27 per cent, to £70,000.

Some restaurants will be passing costs along to diners or squeezing other expenses where they can find pennies to save, said Chris Yates, managing director of Angela Hartnett restaurants, which include Café Murano and Merchants Tavern. “Why do you think we don’t see uniforms, tablecloths, etc., in restaurants any more?” he said. Des Gunewardena, whose D&D London group owns more than 25 London bars and restaurants, said he could be facing a tough year. “The reality of the Brexit deal is going to emerge,” he said. “There is a lot of pressure of costs on all fronts. The impact of the property-rates revaluation and the increasing cost of staff are likely to have as much, if not more, impact than the rising cost of ingredients.”

Gunewardena said that corporate spending still increased last year but was noticeably less than exuberant. “If people are concerned that their business may be badly affected, they are not going to throw swanky parties,” he said. Restaurant managers are most worried about their staffing, though there’s little hard evidence that they’ll have trouble hiring. While it may be too soon to tell, there are some signs: Figures released Wednesday from the Office for National Statistics showed that the number of EU workers in the U.K. fell the most in five years during the final three months of 2016. Galvin at Windows, atop the London Hilton on Park Lane, employs more than 70 people as hosts, waiters, bartenders, and other front-of-house positions. Two are British. At Grain Store, in King’s Cross, it’s eight out of 70. At the Wolseley, on Piccadilly, 62 per cent of employees are from Europe.

“I wonder what will happen,” said Fred Sirieix, the French-born general manager of Galvin at Windows. “I still cannot find any British people. It is not a profession people think of doing. It is seen as subservient.” Jeremy King, whose Corbin & King group owns several of London’s most fashionable restaurants, including the Wolseley, the Delaunay, and Zedel, is just as worried.

“The reality of the Brexit deal is going to emerge” Des Gunewardena, D&D London group

“Brexit has had a terrible effect on the morale of our European staff,” he says. “Many have felt unwelcome in the country and have left. Let there be no misunderstanding: The absence of free movement across Europe will be a disaster for the hospitality industry.” One restaurateur who remains upbeat is Leonid Shutov. He owns the fancy Bob Ricard in Soho, where diners can press a button at their table to order an emergency bottle of Champagne. He’s planning to open a 400-seat restaurant in the City financial district. How does he feel now that JPMorgan Chase & Co., HSBC Holdings Plc, and other banks are starting to outline plans to move staff overseas? Very relaxed, it seems. He’s not even concerned about the employment situation, though he estimates that about 80 per cent of his staffers hold foreign passports. “I’m not worried,” he says. “I’m sure the U.K. and the EU will come up with a fair and equitable agreement that allows migration and is in everyone’s economic interest.” Let’s hope so. Bloomberg News

Olympics

Sectorial data

Profits

French ski resort developer soars on landmark China contract

Mainland’s mechanical industry posts fast growth

Lenovo faces ‘sizeable challenges’ as profits plunge

Montagne & Neige Developpement SACA, a French company that develops ski resorts and cable transport systems, more than doubled in value after winning a 110 million-euro (US$117 million) contract to develop a new site in China that has ambitions to host 2022 Winter Olympics events. The company, which first sold shares to the public in October 2013, said the three-year order is a “game-changer” for its operations in France and China that will boost the number of employees to more than 500 from 350 now. The stock resumed trading after a one-day suspension pending the announcement. The rally takes this year’s gain to 127 per cent and values the company at about US$56 million, though it still leaves MND a long way off its initial public offering price of 6.08 euros. The Chinese site, called Snowland, is 129 kilometers north of Beijing. With a snow season lasting 150 days, it’s expanding as a tourist and leisure destination and plans to participate in the tender to host the 2022 Winter Olympics. Shares in MND rose as high as 5 euros. Bloomberg News

China’s mechanical industry developed rapidly last year, buoyed by the fast-growing auto and electrical appliance segments, China Machinery Industry Federation said yesterday. The auto sub-sector contributed nearly 60 per cent of the industry’s new revenues, while the electrical appliance sub-sector contributed around 20 per cent, Wang Ruixiang, head of the federation, said at a conference. Profits of automakers rose to RMB688.6 billion (around US$100 billion) last year, up RMB66.27 billion from 2015. Auto sales continued rapid growth in 2016 partly due to the government’s tax cut incentives. Sales of domestic brand passenger cars jumped over 20 per cent year on year, accounting for more than 40 per cent of the country’s passenger-car sales. Wang said priority will be given to sectors including high-end numerical control machine tools, basic equipment manufacturing and intelligent equipment this year. He also called for innovation in the mechanical industry. Xinhua

Chinese technology giant Lenovo said it faced “sizeable challenges” yesterday as it saw profits plunge by more than two thirds. The Beijing-based company remains the world’s largest PC maker, but has been trying to broaden its smartphone business as the market for personal computers fizzles. But it has struggled to keep pace with Apple and Android rivals. Net profits fell by 67 per cent year-on-year to US$98 million in the third quarter, the company said in a statement. That came in well short of analysts’ estimates by Bloomberg which on average predicted profits of US$145.9million. Revenues were also down six per cent compared with a year earlier. “Lenovo faced sizeable challenges in its three main lines of business, namely data centre, mobile devices, and PCs and smart devices,” the firm said. The company is battling as consumers opt for smartphones instead of PCs. Rising component prices are also weighing on profits. Sales of the firm’s Moto and Lenovo branded phones slipped 23 per cent year-on-year in the three months to December. AFP

Business Daily #1236 February 17, 2017  

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