I SSN 2226-8294
Wednesday, October 25 2017 Year VI Nr. 1409 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm
www.macaubusiness.com
2 Business Daily Wednesday, October 25 2017
Macau
Poll shows Mainland growing 6.8 pct in 2017 Private survey Page 11
Wednesday, October 25 2017 Year VI Nr. 1409 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm Data
Gaming
Henginq posts RMB750.6 bln in registered capital in September Page 4
Analysts pronounce The 13 cannot be ‘economically viable’ without casino Page 9
www.macaubusiness.com
Apprehended
Markets
Judiciary Police arrest 31 Mainlanders for suspected loansharking Page 4
HK third board plan close to being dropped Page 11
Goodbye To All That Restructure
The MSAR’s Civic and Municipal Affairs Bureau is set to be dissolved. In its place: the Municipal Institute. Same functions, no ‘political power’, and two seats on the 400-member Chief Executive Electoral Committee. Keeping the ‘majority’ of current employees, and dismantling in 2019. Page 6
Row, row, row your boat
Dividing up the 85 square kilometres of territorial waters into six monitoring areas. Three operations centres to be established, cutting response time to incidents on the sea down to less than 30 mins. Meanwhile, legislation for Civil Protection and Contingency Co-ordination Bureau to be concluded in November, say security officials.
Fast and furious
MGP On schedule, repairs to be concluded on time, and Macau Grand Prix to take place without a hitch, say officials. Budget for repair works on facilities damaged during Typhoon Hato hits MOP60 mln. Total investment for this year’s MGP is MOP200 mln, with WTCC to make a reappearance. Page 8
Thoughts of President Xi
Territorial waters Page 7
HK Hang Seng Index October 24, 2017
28,154.97 -150.91 (-0.53%)
China Resources Land Ltd
Worst Performers
CK Infrastructure Holdings
+0.51%
AAC Technologies Holdings
-2.70%
CK Asset Holdings Ltd
-1.82%
China Resources Power
+0.86%
China Overseas Land &
+0.39%
China Mengniu Dairy Co Ltd
-2.57%
Henderson Land Develop-
-1.64%
Galaxy Entertainment Group
+0.66%
Swire Pacific Ltd
+0.39%
China Merchants Port Hold-
-2.57%
Kunlun Energy Co Ltd
-1.50%
Wharf Holdings Ltd/The Inc
+0.63%
Hong Kong Exchanges &
+0.36%
Geely Automobile Holdings
-2.52%
WH Group Ltd
-1.43%
China Unicom Hong Kong
+0.53%
Sands China Ltd
+0.27%
Want Want China Holdings
-2.26%
China Life Insurance Co Ltd
-1.38%
+1.47%
22° 26° 21° 27° 21° 27° 20° 26° 20° 25° Today
Source: Bloomberg
Best Performers
THU
FRI
I SSN 2226-8294
SAT
SUN
Source: AccuWeather
CPC Congress Yesterday, the Communist Party approved a sweeping charter revision. Elevating President Xi to the status of Mao Zedong and Deng Xiaoping. The Belt and Road strategy has also been included in the constitution. Page 10
4 Business Daily Wednesday, October 25 2017
Macau
Urban renewal
Recruiting chairman outside of government The gov’t is not ruling out hiring a chairman who is not related to any government departments for the wholly-owned urban renewal company Cecilia U cecilia.u@macaubusinessdaily.com
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he s ec on d tas kforce of the Urban Renewal Committee moved one step closer in its proposed plan to set up a company wholly-owned by the government and tasked with tackling the city’s urban renewal issues. The proposed company would be similar in framework to the Transport Infrastructure Office (GIT), a wholly-owned company set up by the government to handle the Light Rail Transit system. According to Wong Seng Fat, assistant co-ordinator of the second taskforce of the Urban Renewal Committee, hiring a chairman without links to any
public departments would be recommendable. “We wish to find someone who has good marketing skills,” said Wong. “But obviously the chairman of the company would not necessarily need to be the one who makes decisions.” Wong clarified that these decisions would be placed in the hands of the company’s board of directors. During yesterday’s meeting, the committee finalised the draft proposal of administrative regulations and charter for the company and proposed its establishment under an administrative public corporation, to be run as a non-profit entity. Wong further revealed that the role of shareholders, which should not be
fewer than three, should be filled by the government and public funding institutions such as the Macao Foundation. “The transfer of shares [of the company] must be done internally,” said Wong, while adding that the proportion of shares would be decided prior to the establishment of the company. Regarding the registered capital of the company, Wong said the exact amount had yet to be announced. “We have initial suggestions on the registered capital, but we will announce it once the draft is approved, such as the first amount that the government would invest,” said the assistant co-ordinator. Wong added that the estimate is based upon the
suggested charter drafted for the company, containing information such as the number of employees predicted to be employed. When asked by the press about the monitoring of the company, Wong replied that the committee’s role will be to provide suggestions while the company will execute these plans and suggestions.
Not within this year
Wong affirmed that the company cannot be set up before this year-end. “The draft was agreed upon among the members of the committee. After we revise the details we will finalise it and send the proposal to the government department,” said Wong. “We can only proceed to the setup procedure once
the proposal is approved by the government.” Although perceiving that the setup of the company would not be done by yearend, Wong added that setup procedures would not be drawn out given that the draft has already been approved by the committee. Asked by the press what project will be initiated when the company is set up, the assistant co-ordinator said there was no concrete idea of the project to be first handled by the company, but he noted that the committee would be in favour of initiating tasks in old districts such as Iao Hon. “We hope to start first on the old districts, but it would still be the decision to be made by the company,” said Wong.
Crime
Mainlanders arrested for alleged loan sharking Judiciary Police (PJ) have arrested two groups for allegedly running illegal loan sharking businesses. Thirty-one Mainlanders were arrested from two residential flat units located in Taipa. Nineteen of the arrested are male and 12 are female, while one of the arrested
for every MOP10,000 loan. During the arrest, receipts, promotional cards and a Chinese passport were found. The PJ is still investigating the case; in particular, the exact amount loaned, as well as whether the two groups were related.
men admitted to being in the MSAR illegally. The PJ suspects that the group had been conducting loan sharking near gaming venues in Taipa, as well as seeking potential clients inside casinos. Each of the workers was given MOP2,000 (US$248)
Hengqin
Island’s registered capital reaches RMB750.6 bln Latest data shows the registered capital in Hengqin reached RMB750.6 billion (MOP909.81 billion/ US$39.36 billion) as at the end of September, with a total of 6,063 financial corporations residing in Hengqin. Of these, 5,995 were emerging financial companies, with 4,459 investment-related companies,
1,034 asset management enterprises, 243 financial leasing companies and 112 companies providing financial services. The official data gathered by the Asset Management Association of China further revealed that 115 of the companies established in Hengqin are from Hong Kong and Macau, with a
total of RMB58.29 billion in capital. In addition, 24 institutions were engaged in banking and payment systems, 11 in securities and financial futures institutions, and 33 were insurance companies. In September, 202 financial enterprises set up shop in Hengqin, 153 of which were engaged in investment.
Business Daily Wednesday, October 25 2017    5
Macau
Privacy
Improved online privacy awareness The results of a global evaluation show improvements in the city’s awareness of privacy protection, in particular with regard to online forums, the Office for Personal Data Protection (GPDP) has revealed. The evaluation was made during the fifth edition of a joint enforcement action - Privacy Sweep - with 24 other related institutions around the world participating. The GPDP re-examined
seven online forums previously examined in the third edition of the evaluation. The latest results revealed that the majority of the examined forums did not request the collection of too much personal information to attract subscribers, and some of the examined forums provide clear and detailed privacy policies to users. No conditions were found in which forum operators would allow data to
be managed automatically by systems that might result in negative impact upon registered users, according to the Office. However, the GPDP flagged areas that could be improved; namely, a means for users to permanently delete user accounts in order to prevent history or personal data being permanently stored or viewed. The GPDP added that forums should also
provide adequate information to users in understanding how forums handle personal data. The joint enforcement action is initiated by the Global Privacy Enforcement Network, with 60 related institutions joining the group. The fifth edition of Privacy Sweep examined 455 websites and mobile applications by the 24 privacy-protection related institutions. c.U.
Cultural
Ten-year plan to mitigate catastrophes Chief Executive (CE) Fernando Chui Sai On said the government will start laying out a 10-year plan next year to prevent and mitigate disasters in the city. The plan would take into account advice proffered by experts from the National Commission for Disaster Reduction.
Speaking on Monday at a banquet held by the Macau Journalists Association to celebrate Chinese National Day, which also included an award ceremony for members, the Chief Executive indicated that the government is determined to improve its ability and standards in preventing and handling
disasters, stressing that residents' lives and property are the top priorities. The CE added that more resources will be allocated for the plan, with the creation of short and medium-term measures to build a long-term mechanism of disaster prevention and mitigation. advertisement
6 Business Daily Wednesday, October 25 2017
Macau Opinion
José I. Duarte* Typhoon tail Last week, the Commission Against Corruption (CCAC) published a report on the weather services. It raises interesting questions that go beyond the specific conclusions reached therein. The first notable aspect is that the report concerns both the events associated with Typhoon Nida (August 1, 2016) and Typhoon Hato (August 23, 2017). The nature of both enquiries and their conclusions are similar, so they were conflated into a single report. The preliminary question we might ask is: if it was possible to investigate and report on the issues raised by Hato in two months, why did it take 14 months to report on similar questions posed by Nida? If there were intrinsic failures of procedure or technical judgment that could put our collective security in jeopardy, why didn’t the Nida findings see the light earlier, presumably avoiding subsequent troubles? Isn’t the delay in publishing the conclusions a neglect that should also be addressed? There were two critical things this report was set to determine. One was a technical one: did the services fail in their technical assessments and decisions? The other was a political one: did external pressures or considerations influence the timing of the typhoon signal changes, in ways designed to benefit some at the expense of the broader community? CCAC states it found no evidence that could support those suspicions and, therefore exonerates the services on both counts. It should have stopped at that point. However, those critical conclusions are mostly lost in the report. While recognising it is not competent on meteorological matters, it occupies most of the report discussing (and pillorying) the internal procedures and management style in a sharp (and preferably avoided) ad hominem tone. Management procedures and style were only relevant for the report insofar as they might affect the technical quality and timeliness of the decisions. If no evidence of the latter was found and a connection could not be established, they are immaterial; they do not fit within the scope of the CCAC enquiry. Furthermore, the CCAC recognises it lacks the competence to judge on the technical matters at stake. How can it then presume to rule on the adequacy or otherwise of the related internal procedures? In the end, the main concerns - those about the breakdown of the civil protection services, of which the weather services are but a part - remain unanswered. Unfortunately, silence on those issues dents our trust in the fairness of the conclusions and weakens the corruption watchdog’s standing. *economist and permanent contributor to this newspaper.
Government
Sights on Spring cleaning The Civic and Municipal Affairs Bureau will be dissolved and replaced by a new municipal department at the beginning of 2019, with its managing members appointed by the Chief Executive while also having powers to elect two representatives for the Electoral Committee that will elect the new Chief Executive in 2019 Nelson Moura nelson.moura@macaubusinessdaily.com
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he Macau Government is planning to dissolve the Civic and Municipal Affairs Bureau (IACM) and replace the functions under its wing with a new department without effective political power. The measure was announced yesterday as the local government disclosed documents for a public consultation to be held until November 23 regarding the decision to create a municipal body ‘without political power’. The department would be considered autonomous from the general administration departments in its activities but with public service functions mandated by the Macau Government. This new department - to be named the Municipal Institute - is expected to be created at the beginning of 2019 and will be in charge of most of IACM functions in providing cultural services, recreational activities and public hygiene, while also providing reports and opinions on municipal issues. According to the Chief of Office of the Secretary for Administration and Justice, Iao Man Leng, the “majority”
of IACM employees will be transferred to the new department with a “small percentage transferred to other departments . . . The MSAR Government will assure IACM workers’ rights are not affected.” The operations of the new municipal department will be managed by two councils, a Council for Municipal Administration comprising no more than eight members and responsible for municipal services; and by the Municipal Consultation Council, which will comprise no more than 25 members. The members of the two councils will be directly appointed by the Chief Executive.
Power to elect electors
The members of the future Municipal Institute’s two councils will also be able to elect two members for the 400-member Electoral Committee that elects the MSAR Chief Executive. These two representatives will be appointed to the fourth sector of the Chief Executive’s Electoral Committee, with the number of Macau representatives at the Chinese People's Political Consultative Conference reduced from 16 to 14. The fourth sector of the CE Electoral Committee is currently composed
of 50 members which include 22 representatives of the Legislative Assembly, 12 representatives from the National People’s Congress of China and 16 representatives of Macau at the Chinese People’s Political Consultative Conference. The next MSAR Chief Executive elections are slated for 2019.
Changing times
According to public consultation documents, in the previous Portuguese Government there were ‘two levels of government’ divided into administration and municipal departments. After the handover to Mainland China in 1999 it was decided that under the ‘One Country, Two Systems’ policy there could only be one level of government, with the previous municipal departments discontinued in 2002 and their functions transferred to IACM. However, since IACM did not fulfil the definition of a municipal body as defined by the Macau Basic Law without autonomy or ‘political power’ - and did not contribute members to the CE Electoral Committee, a study was announced in the Government Action Lines (LAG’s) of 2015 to create a new municipal body, with the now announced public consultation coming only two years after.
Cultural
Macau Design Centre recruiting new companies Local art and design cultivator Macau Design Centre (MDC) has yet again extended an invite to local design companies to establish or continue business in two of its design studios, a press release from the Centre has announced. T h e f o u r- s t o r e y rent-controlled building located in the Areia Preta district currently
has 25 studios providing working space for many of the MSAR ‘s young entrepreneurs. Initially opening with 12 studios in 2014, MDC provides low rental working space with basic support as well as other supporting facilities and services such as venues for holding exhibitions, product launches, classes, workshops, talks, performances or
exchange sessions. In addition, MDC provides promotional services for stationed companies to expand business via more exposure, such as the recent China Beijing International Fair for Trade in Services. According to the press release, interested local design companies should apply for the studios from today until November 10
this year. S e l ec t e d c o m p a n i es are subject to a management fee of MOP11.59 per square foot of the rented studio every month, with the maximum rental period for each company set at three years. Business performance and development are reviewed for evaluation on renewing rental contracts, the MDC stated.
Business Daily Wednesday, October 25 2017 7
Macau
Security
Permanent safety high on security agenda The Secretary for Security announced yesterday he expected pertinent legislation for establishing a permanent Civil Protection and Contingency Co-ordination Bureau to respond to natural disasters and security emergencies to be concluded in November Nelson Moura nelson.moura@macaubusinessdaily.com
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ecretary for Security Wong Sio Chak has announced he expects legislation defining the structure and functioning of the future Civil Protection and Contingency Co-ordination Bureau (DPCCC) to be concluded in November. The DPCCC is part of the overall revision of co-ordination for civil protection and rescue operations announced by the MSAR Government in the wake of Typhoon Hato, which caused 10 deaths, left almost 200 injured and incurred financial losses of around MOP11.47 billion (US$1.47 billion). The information was provided at a seminar held yesterday at the Security Forces School in Coloane that brought together maritime security officials from Mainland China, Macau and Hong Kong to discuss co-operation on maritime security issues.
Here to stay
The new bureau will operate continuously and will oversee the Civil Protection Operations Centre, which is activated automatically by the Unitary Police Service (SPU) when a Typhoon Signal 8 or above is hoisted. The Centre co-ordinates the civil
protection operations of 11 public departments, seven private companies and nine security departments. “The current civil protection structure involves 27 departments such as the Civic and Municipal Affairs Bureau (IACM) and Public Security Police Force (PSP). The new bureau will enhance co-operation between them by making communication more efficient,” the Secretary stated. According to Secretary Wong, the board of the new bureau is to comprise members of different security departments but due to the lack of available human resources will remain under the Office of the Secretary for Security in its formative stages. “The Chief Executive has yet to define how many or which people will be part of this bureau,” added the Secretary. The DPCCC structure is currently “passing through legislative work”, while consultation is currently ongoing to collect the opinions of the services under the control of the Secretary. “We hope this legislative process will clearly define the competences of the elements of the civil protection structure in order to reinforce the work of co-ordinating the various services involved and create a disciplinary regime,” said Wong.
Quick reaction
The Director-general of the Macau SAR Customs, Vong Iao Lek, announced yesterday that his department will divide the city’s current 85 square kilometres of Macau’s territorial waters into six monitoring areas. The department will then establish three operations centres to assure the response time for incidents in the Macau maritime territory is no longer than 30 minutes. In 2015, the Chinese central government expanded to 85 square kilometres the territorial waters under MSAR legislation and control. The Macau Government does not have ownership of the territorial waters but handles the security and monitoring of maritime activities. The city also requires approval from the central government for reclamation projects, the construction of ferry terminals or other infrastructure projects.
8 Business Daily Wednesday, October 25 2017
MACAU
Motor racing
Grand Prix organisers put pedal to the metal All arrangements for the Grand Prix are on schedule, with post-Typhoon Hato repair works nearing completion Sheyla Zandonai sheyla.zandonai@macaubusiness.com
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verything is on schedule and facilities are being finalised to run the 64th edition of the Macau Grand Prix (GP) despite Typhoon Hato damaging some of the event amenities, principally the GP Tower and paddock area, according to authorities. “Currently, some 98 per cent of the works are concluded,” said the President of the Sports Bureau, Pun Weng Ku, on the sidelines of a press conference held yesterday to announce the final details before the Macau GP kicks off, running from November 16 to 19. Mr. Pun said the amount spent so far
on “all facilities requiring repairing” amounted to some MOP60 million. The Sports Bureau head also said that because of the works conducted by the Grand Prix Organizing Committee, along with other governmental entities, have been conducted “in an efficient manner, there will be no obstacles to the development of this year’s Grand Prix.” The total investment by the Macau SAR Government in organising the 64th edition of the racing event amounts to MOP200 million, a budget very close to the one spent last year according to official information. Revenue collected during the fourday event last year reached MOP50 million, with receipts collected via the sale of tickets alone amounting to
MOP12 million, according to information confirmed during the yesterday’s press conference. The President of the Sports Bureau added that they expect the amount of participants to remain stable when compared to last year, estimated at nearly 81,000 people.
Grand Prix highlights
The main development unfolding in this year’s Grand Prix is the return of the World Touring Car Championship (WTCC), which was officially confirmed on July 20. The status of the race generated doubts in May when a press conference was held to announce that junket operator Suncity Group had been appointed as event title sponsor
for the fourth consecutive year. While on both the WTCC website and the website of the International Federation of Automobile (FIA) the touring car race appeared as scheduled to take place in Macau in November, the President of the Sports Bureau claimed at the time that they had “not committed to anyone in addition to the World Cup GT [Cup] and the [FIA] F3 [World Cup].” The 2016 edition of the GP hosted the FIA F3 World Cup and FIA GT World Cup for the first time. During the event yesterday, BMW Concessionaires (Macau) Ltd. was announced as the sponsor of the safety, medical, rescue and official vehicles for both the 64th and 65th editions of the Grand Prix.
Construction
Jackhammers go quiet Company contracted for work on Wynn Palace, The Parisian Macao and Morpheus sees 45 pct drop in fiscal year revenue due to completion of construction projects in MSAR Sheyla Zandonai sheyla.zandonai@macaubusiness.com
The completion of projects in Cotai is driving a significant drop in revenue for construction companies operating in the area, as seen in the recent financial annual report for construction company FSE Engineering Holdings Limited, published with the Hong Kong Stock Exchange. The company saw a 45.6 per cent year-on-year drop in revenue for its full financial year, ended June 30, reaching HK$380.26 million. ‘The decline mainly resulted from the reduction in the revenue contribution from two major projects, namely Wynn Palace and The Parisian which had been substantially completed in full year 2016,’ notes the filing. The group notes that over
the past two years ‘the construction and electrical and mechanical engineering sectors in Macau performed very well […] however, with several sizable casino projects completed in 2017 and the flagging tourism and the gaming industry, the construction and engineering sectors in Macau are expected to go through a stage of consolidation’. Despite this, the group notes that ‘there is constant demand for renovation and improvement works for hotels and casinos’, while other emerging business opportunities for the group are ‘the robust demand for public and private residential housing, the development of Galaxy Macau Phase 3 and 4 (about a HK$43 billion investment), and the construction of the Islands District Medical Complex’. Apart from its construction
arm, the group operates the Yau Fai Building Materials shop in the MSAR, which sells ceramic tiles imported from Europe. The shop was opened in May of this year. New contracts awarded to the group during the fiscal year amounted to HK$3.03 billion, with eight of the projects awarded each saw a net contract sum ‘equal to or more than HK$100 million’. One such project was the electrical installation for Morpheus Hotel at City of Dreams. Six of the other contracts were based in Hong Kong, including two for Hong Kong International Airport, while one was on the Mainland. During the fiscal year the group also completed the heating, ventilation and air conditioning installation for the Hotel Tower of The Parisian Macao.
Overall, revenue generated by Macau during the fiscal year amounted to 10.3 per cent of the group’s overall revenue during the period, a significant drop from the 20.1 per cent it had contributed in the previous fiscal year. Revenue generated in Hong Kong during the year increased 20.1 per cent during
the year, reaching HK$2.84 billion, ‘mainly attributable to the substantial revenue contribution from a number of sizeable installation projects,’ notes the filing. Revenue generated on the Mainland posted a 17.7 per cent year-on-year increase during the year, reaching HK$476.8 million.
Business Daily Wednesday, October 25 2017 9
gaming
Casinos
Roll of the dice to decide The 13’s future If The 13 fails to obtain authorisation for gaming operations, Bernstein analysts believe the property will not be “economically viable” Nelson Moura nelson.moura@macaubusinessdaily.com
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nalysts from brokerage firm Sanford C. Bernstein said in a note yesterday that a standalone hotel property ‘such as The 13’ would not be “economically viable” if it is not allowed to house a casino on its premises. In a recent filing The 13 stated it had recently entered into a memorandum of understanding (MoU) with an affiliate of one of the holders of ‘a gaming concession or sub-concession’ in Macau in relation to the management and operation of a casino proposed to be opened in the property. The Gaming Inspection and Co-ordination Bureau (DICJ) confirmed to Business Daily, however, that it has
not yet received a request from any one of the gaming concessionaires to open a new casino in The 13 Hotel venue. The 13 Holdings Limited also announced it is planning to open the hotel on or before March 31 of next year, a goal pending the accrual of nearly HK$2 billion (US$256.32 million/MOP2.06 billion) through a combination of funds, debt and loans.
No news is good news
The firm’s analysts also stated in the note that the 19th Communist Party Congress in Beijing failed to see Chinese President Xi Jinping announce any policies that could impact Macau’s gaming industry. ‘President Xi made a three-hour long speech during the opening ceremony […] proclaiming his intention to
allow Macau and Hong Kong a “high degree of autonomy” in the future, but said China will exercise its “overall jurisdiction” over the two Special Administrative Regions including achieving full reunification,’ reads the note. ‘It is likely that China will continue to exercise strong influence over Macau and the gaming industry’.
A good month
Bernstein considered it a positive trend that overnight visitor numbers to Macau increased by 5 per cent year-on-year to 1.38 million in September, while same-day visitation fell yearly by 1 per cent to 1.1 million. ‘We see the trend remaining positive and helping with mass gross gaming revenue growth as overnight visitors are more valuable than day trippers,’ read the note.
The firm estimates the average daily revenues between October 1 and 23 increased by 19 per cent year-onyear to around MOP854 million, with total gross gaming revenues reaching around MOP18.8 billion. The Bernstein note said the firm’s channel checks revealed a VIP win rate ‘above normal for the month,’ 20 per cent higher than the same period of last year, while mass market results increased by ‘mid-single digits’ year-on-year. Bernstein analysts believe that if average daily venues for the remaining days of October see results of MOP650 million to MOP700 million the month will end with total gross gaming revenues of between MOP24.6 billion and MOP25.1 billion, a 13 per cent to 15 per cent yearly rise.
Pacific gaming
No competition for Saipan on the horizon Tou ri s m au th oriti es i n Guam have stated that they are not keen on developing casinos as one of the island’s main tourist attractions, fearing a further decline of the Japanese tourist market, the Guam Post Daily has reported. Guam is an island located in the Commonwealth of the Northern Mariana Islands (CNMI) north of Saipan. The Guam Visitors Bureau (GVB) strategy to enhance the islands’ attraction as a tourist destination would exclude gaming, based upon a report issued by the CNMI stating that a decline
Imperial Pacific’s Saipan resort
of Japanese tourists to the casino-hosting island of Saipan has been noticeable. “Japanese are not into casino[s],” the chairman
of GVB, Milton Morinaga, was quoted by the Guam Post as saying. Although the report claims Saipan ‘has seen a
vast improvement to its economy as a result of legalising the casino industry’ since 2014, the same report points out that the number of visitor arrivals from Japan has declined 16 per cent – although visitor arrivals from China and South Korea have steadily climbed. Saipan is home to an Integrated Resort operated by Imperial Pacific International Holdings. The Hong Kong-listed company has been paying an annual fee of US$15 million (MOP1.20 billion) to the CNMI Treasury for holding a casino licence
since it began operations. Considering that Japan is working on legislation to open Integrated Resorts, the chairman of the tourist authority in Guam further claimed that the island could not support such endeavours, referencing the size of the island as unable to support such an industry. Moreover, he claimed that the tourism industry in Saipan was a “fragile one” due to its reliance upon Chinese visitors, arguing that if something was to happen that reduced visitor arrivals from that country it would “greatly” affect its casino industry. S.Z.
10 Business Daily Wednesday, October 25 2017
Greater China
Delegates raise their hands as they take a vote during the closing ceremony of the 19th National Congress of the Communist Party of China (CPC) at the Great Hall of the People (GHOP) in Beijing, yesterday. Source: Lusa CPC
Congress enshrines 'Xi Jinping Thought', key Xi ally to step down Unexpectedly, Xi's "Belt and Road" initiative was also included in the party constitution Michael Martina and Philip Wen
C
hina's ruling Communist Party enshrined President Xi Jinping's political thought into its constitution yesterday, putting him in the same company as the founder of modern China, Mao Zedong, and cementing his power ahead of a second fiveyear term. A key Xi ally, top corruption fighter Wang Qishan, will not be on the new Politburo Standing Committee, the apex of power in China, to be revealed today as he was not among those named yesterday to the 204-member Central Committee. Whether or not the powerful Wang would remain on the Standing Committee, which currently has seven members, despite being beyond the customary retirement age of 69, had been among the key questions to be answered at the week-long party congress, which ended yesterday. Wang could still assume another senior role over the next few months. As expected, the party unanimously passed an amendment to include "Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era" as one of its guiding principles. The party will announce its new Standing Committee, headed by Xi, at around midday (0400 GMT) today, culminating a twice-a-decade leadership reshuffle. As expected, the amended constitution affirmed that Xi's signature fight against corruption, which has ensnared more than 1.3 million
officials, will continue. Unexpectedly, Xi's "Belt and Road" initiative, an ambitious programme to build infrastructure linking China with its neighbours and beyond, was also included in the party constitution. Also included was a commitment to supply-side industrial reforms, and giving play to the "decisive role" of market forces in resource allocation, a commitment Xi had made early in
‘The party will announce its new Standing Committee, headed by Xi, at around midday today’ his first terms that many investors say he has failed to deliver on. "The party exercises overall leadership over all areas of endeavour in every part of the country," the party said in a statement reflecting Xi's on-going efforts to strengthen the party and its place in contemporary Chinese society. If no clear successor to Xi is named to the new Politburo Standing Committee, it will further fuel speculation that Xi may look to retain power beyond the customary second five-year term. "This is about further erasing any distinction between Xi Jinping and the party," said Jude Blanchette, who
studies the party at The Conference Board's China Centre for Economics and Business in Beijing, referring to Xi's thought getting into the constitution. "Add on to this having supply-side structural reform and One Belt One Road written into this, which were Xi's signature policies, this makes questioning or non-compliance with those tantamount to betrayal of the party."
The market and the party
Xu Hongcai, deputy chief economist at the China Centre for International Economic Exchanges, a Beijing thinktank, said party control was needed to push through the market reforms key to restructuring the world's second-largest economy. "To build a market economic system in such a big country, it's impossible without the leadership of the party," he said. Others have argued that the two are contradictory. "When you put 'supply-side reform' and 'market playing a decisive role' in the same document, then that just shows they have to almost choose one," said Alex Wolf, Senior Emerging Markets Economist with Aberdeen Standard Investments in Hong Kong. China's blue-chip shares climbed to a 26-month high yesterday, led by infrastructure and property stocks, as Xi wrapped up a congress that began with his three-and-a half hour speech envisioning a more prosperous, confident China. The yuan strengthened against the dollar.
Crowning glory?
Xi rapidly consolidated power after assuming party leadership in late 2012 and then the presidency the next year. The party gave Xi the title of "core" leader a year ago, a significant strengthening of his position. Whether Xi was able to have his name "crowned" in the party constitution had been seen as a key measure of his power, elevating him to a level of previous leaders exemplified by Mao Zedong Thought and Deng Xiaoping Theory. No other leader since Mao has had an eponymous ideology included in the document while in office. Deng's name was added after his death in 1997. A list of 133 committee members for the Central Commission for Discipline Inspection released yesterday included Zhao Leji, who heads the party's Organisation Department, a strong sign that he will take over from Wang as anti-corruption chief. China's top banking regulator, Guo Shuqing, and veteran banker Jiang Chaoliang, front runners to succeed Zhou Xiaochuan as central bank governor, both made it to the Central Committee. The constitutional amendment, along with Xi's work report and a work report of the graft watchdog to the congress, were passed by a show of hands. When Xi next asked for any "no" votes or abstentions for the amendment or two work reports, the sound of "none" echoed throughout the chamber, as officials shouted out from different sides of the hall. Reuters
Business Daily Wednesday, October 25 2017    11
Greater China Markets
Hong Kong signals may drop plan for third board for new economy firms Public consultation for the new board ended in August, with financial industry professionals still divided over the matter Donny Kwok
A
cloud of uncertainty hangs over Hong Kong's plan to float a new listing board to lure technology start-ups, with the government asking regulators to review their plans and put in place "adequate safeguards" for investors first. Hong Kong Exchanges and Clearing Ltd (HKEX) unveiled a proposal in June for the board that would allow
Renewing those concerns, Hong Kong Financial Secretary Paul Chan has asked regulators the Securities and Futures Commission (SFC) and the HKEX to take another look at proposed safeguards for the new board to protect investors. "As to if these companies are allowed to be listed on the stock exchange, whether it would be a new board or to be put in the existing board under a separate chapter, this is a
board ended in August, with financial industry professionals still divided over the matter. In response to Chan's comments, HKEx Chief Executive Charles Li said yesterday the consultation had come up with consensus on the broad direction and the exchange was working on the conclusions as well as proposals for a second consultation. "The consultation is aimed to ad-
HKEX CEO says working on proposals for second consultation
secondary consideration, this should not be too difficult," he said. "So under different sets of circumstances now, we do believe, if we can have a proper safeguard design and have them put in place, allowing companies with weighted corporate structures to be listed is not impossible," Chan said. The financial secretary made the comments on the side-lines of a conference on Monday, the transcript of which was provided by the government later in the day. Public consultation for the new
dress a question whether we should do it," Li said, according to a stock exchange transcript of remarks made to the media in mandarin. "The questions now are how to do it, where to do it (new board or main board) and what kind of investor protection should be introduced." Li said the regulators should move quickly to "welcome more new listings" by the new economy companies as soon as possible, and that the bourse operator would continue to discuss the issue with the government and the SFC. Reuters
Private poll
Economy seen growing 6.8 pct in 2017 and 6.4 pct in 2018 Analysts are looking to the annual Central Economic Work Conference for signals on the 2018 growth target and policy initiatives China's economy will likely grow 6.8 per cent in 2017, topping the state target and accelerating for the first time in seven years, a Reuters poll showed, as Beijing walks a tightrope by containing debt and property risks without stunting economic growth. Still, growth in the world's second-largest economy is projected to slow to 6.4 per cent in 2018, the Reuters poll of more than 65 economists showed, as the property curbs and efforts to deal with debt risks are expected to gain more traction. China's property investment and construction are seen slowing as
Anti-graft watchdog says campaign has 'built into a crushing tide' China's top anti-graft watchdog has said that a multi-year campaign against corruption is consolidating and would continue to develop, according to a work report released at a key leadership summit. The Central Commission of Discipline Inspection said in the report given to reporters on Monday as part of the closing ceremony of the 19th National Party Congress that the campaign has been "built into a crushing tide". President Xi Jinping's has vowed to battle deep-seated graft in the Party saying that a failure to stop corruption could damage the Party's future.
Coal imports from Russia in Sept rise
Financial secretary pitches for safeguards for investors first
Kevin Yao
Corruption
Commodities
Key Points
companies with share structures providing special voting rights, and let firms that have not yet made a profit get listed. The move was prompted by the bourse operator's aim to boost exposure to high-growth sectors that might typically choose a U.S listing due to less stringent rules on profitability and share structures, as Alibaba Group Holding and Baidu Inc have done in the past. The proposal, however, has been opposed by some experts on worries that corporate governance in the Asian financial hub would take a further hit in the absence of enough shareholder protection measures.
In Brief
more cities try to curb surging housing prices, while a government campaign against riskier lending pushes up borrowing costs and a crackdown on pollution hurts some factories. Chinese economic growth in the fourth quarter of 2017 is expected to cool to 6.7 per cent from a year earlier, but the full-year growth is expected at 6.8 per cent, according to the poll. In 2016, China's economic growth slowed to a 26-year low of 6.7 per cent. The growth pace has inched down every year since 2011. China's annual economic growth rate eased to 6.8 per cent in July-September from 6.9 per cent in
the second quarter as the property sector cooled while a government campaign against riskier lending pushes up borrowing costs. "As overall GDP growth still remains above the government's target of 'around 6.5 per cent', we expect policy makers to maintain a tightening bias," analysts at Bank of America Merrill Lynch said in a note. "Looking ahead, we expect to see weaker growth, mainly on the investment front, as the impact of tighter financial conditions start to emerge." The forecasts for this year and in 2018 were both more optimistic than the polling results in July. Reuters
September coal imports from Russia soared 83 per cent from a year ago while arrivals from Australia rose 33.6 per cent amid restocking demand from utilities in the northeast of the country ahead of winter. Shipments from Russia reached 2.35 million tonnes last month, just below the imports of 2.47 million tonnes in August, according to the data from the General Administration of Customs released yesterday. The high level of imports came after some operators of coal-fired power plants in Heilongjiang province issued a plea to the National Development and Reform Commission (NDRC) asking for help with securing coal supplies. HR
Airbnb's Mainland head exits The head of Airbnb Inc's China business has resigned four months after taking the role, the company confirmed yesterday, the latest leadership change for the unit which operates in an country where residency and movement are regulated. Hong Ge, who previously worked for Google Inc and Facebook Inc, left to pursue another role and the firm is yet to name a successor, said Airbnb in a short statement yesterday. Reuters was unable to reach Ge for comment yesterday morning. Kum Hong Siew, the firm's current regional director for the Asia Pacific region, will take over the role in an interim capacity. Chairman
Sinochem to re-evaluate oil exploration business China's Sinochem Group is reviewing its struggling oil exploration business and plans expansions into material and life sciences over the next decade in major strategy shift, the chairman of the state-run conglomerate said. Last week, Reuters reported that Sinochem had retained three banks to work on a possible listing of its oil refining, fuel marketing, and trading and storage assets while the upstream oil business might be sold to the government. "Based on current market conditions, we are re-evaluating our strategy in the upstream oil and gas business," Ning said.
12 Business Daily Wednesday, October 25 2017
Asia Fitch
Abe's election win to boost his hand on pro-growth policies Abe's win means a twice-delayed sales tax hike to 10 per cent from 8 per cent now looks more likely to be implemented in 2019 The victory of premier Shinzo Abe's ruling bloc in a weekend election should strengthen his hand in adopting pro-growth economic policies and his pledge to proceed with a scheduled sales tax will help reduce debt, Fitch Ratings said yesterday. But prospects for structural reform remain limited, as there is still "little sign" Abe is making a breakthrough necessary to boost Japan's long-term growth, the rating agency said. Abe's ruling coalition scored a landslide victory at a general election on Sunday, boosted by his campaign promises to invest more heavily on education and childcare. "(The victory) gives Abe a mandate to continue the ' Ab e n o m i cs ' ec o n o m i c strategy launched in early 2013 that aims to revive growth and end deflation through the three "arrows" of loose monetary policy,
fiscal flexibility and structural reforms," Fitch said in a report. "Importantly, Abe will now be able to re-appoint Haruhiko Kuroda as Bank of Japan governor when Kuroda's term ends in April 2018, or choose a successor supportive of accommodative policies." Ab e ' s w i n m e a n s a twice-delayed sales tax hike to 10 per cent from 8 per cent now looks more likely to be implemented in 2019, which could have a positive effect in reining in Japan's huge public debt, Fitch said. The ratings agency said it had previously calculated that the sales tax hike could reduce Japan's fiscal deficit by around 0.8 per centage point per year in the medium term, if the proceeds were used predominantly for debt consolidation. But Abe has said 2 trillion yen (US$17.6 billion) of the projected 5 trillion yen raised from the tax
hike would be spent on education and childcare. This would dampen but not eliminate the positive effect of the hike on debt dynamics, it said. "The government was due to review its fiscal strategy during the fiscal year ending 2019, and we expect more
clarity once the review is complete," it said. Abe had earlier said his plan to divert some proceeds from the tax hike away from debt payment meant it would be impossible to meet the government's pledge to balance the primary budget -- excluding
debt-servicing and new bond sales -- by the year ending in March 2021. Fitch revised its outlook for Japan's single A sovereign debt rating to stable from negative in April, citing an improved economic outlook that would drive up tax revenues. Reuters
Politics
Najib will aim to win over voters in last budget before elections Most economists expect the new budget's fiscal deficit target will be slightly below 3.0 per cent to fund "goodies" for Malaysia's 1.6 million civil servants - a key vote bank for his Barisan Nasional (BN) ruling coalition - to mitigate the strain from pricier goods and services. Civil servants saw a salary hike between 7 and 13 per cent in 2012, ahead of the 2013 polls. But the recent sharp price increases may be eroding support among them.
Joseph Sipalan
Malaysian Prime Minister Najib Razak will aim to reduce unhappiness over rising costs of living when he unveils his 2018 budget on Friday, ahead of an election that must be held within 10 months. Prices rose sharply in Malaysia where household debt is among the highest in Asia - after Najib cut subsidies and in 2015 imposed a broadbased consumption tax, denting his popularity. The leader also faces a political challenge from his mentor-turnedfoe, former Prime Minister Mahathir Mohamad, who called Najib a thief in connection with a scandal at state fund 1Malaysia Development Berhad (1MDB). Najib has denied any wrongdoing. Najib will bank on the new budget to shore up support before his fiveyear tenure ends in June. Given the coming election, "it will be more surprising if he announces something not people friendly," said Brian Tan, a Singapore-based economist with Nomura. Stronger global commodity prices have aided the oil-dependent economy and given Najib some room to boost spending. But progress in narrowing the fiscal deficit - expected at 3 per cent this year compared with 6 per cent in 2009 - would plateau next year if the government focuses on pre-election spending, said Moody's analyst Anushka Shah. "It depends on what they do... whether they spend it on handouts and be seen as more populist
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'Goodies' are expected
Malaysian Prime Minister Najib Razak
or whether they save it, in which case we should see a reduction in the deficit," Shah said.
Change in GST?
Most economists expect the new budget's fiscal deficit target will be slightly below 3.0 per cent. Any widening of the deficit would disappoint foreign investors. They have gradually returned to Southeast Asia's third largest economy as the ringgit currency, after a tumultuous period, strengthened 6 per cent against the dollar this year. Najib, who has pushed a pro-business stance since becoming premier in 2009, dismantled decades-old fuel subsidies after narrowly winning the 2013 elections, to stave off the threat of a sovereign rating downgrade.
‘To bolster government revenue in 2018, Najib will likely broaden the scope of the goods and services tax imposed in 2015’ To bolster government revenue in 2018, Najib will likely broaden the scope of the goods and services tax imposed in 2015 to include e-commerce transactions, though he is unlikely to change the 6 per cent rate. The extra revenue is expected
The opposition naturally anticipates that the coming budget will have hand-outs to help the BN win votes in the election. "Malaysians can expect many goodies... budgets are one of the political tools for Barisan Nasional to prepare them for general election," said Kerk Chee Yee of the opposition Democratic Action Party (DAP). Najib, who is also finance minister, has already rolled out billions of ringgit worth of hand-outs for palm plantation settlers and armed forces veterans, and affordable housing projects, new schools and hospitals across the country. "We have to ensure quality of life of Malaysians (by) introducing more affordable housing, steady level of income growth, managing cost of living and certain initiatives that can supplement income," Najib said on the government's official budget website. He is likely to maintain cash handouts to low income earners, provide tax breaks for middle income earners and expand policies to provide affordable housing. Reuters
Founder & Publisher Paulo A. Azevedo, pazevedo@macaubusinessdaily.com Editorial Council Paulo A. Azevedo; José I. Duarte; Mandy Kuok Newsdesk Mike Armstrong; Óscar Guijarro; Nelson Moura; Kelsey Wilhelm; Matthew Potger; Cecilia U; Sheyla Zandonai Group Senior Analyst José I. Duarte Design Aivi N. Remulla Photography Cheong Kam Ka, Ruka Borges, Gonçalo Lobo Pinheiro, António Mil-Homens, Carmo Correia Contributors Albano Martins; James Chu; João Francisco Pinto; José Carlos Matias; Larry So; Pedro Cortés; Ricardo Siu; Rose N. Lai; Zen Udani Assistant to the Publisher Lu Yang, lu.yang@projectasiacorp.com Office Manager Elsa Vong, elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd. Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong, Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 E-mail newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com Online www.macaubusinessdaily.com
Business Daily Wednesday, October 25 2017 13
Asia Monetary policy
In Brief
Incoming New Zealand govt to review central bank objectives
Legislation
Australia publishes draft laws for fintech regulation
Labour and New Zealand First share similar policies designed to cut immigration and ban foreigners from buying existing property Jonathan Barrett and Ana Nicolaci da Costa
New Zealand prime minister-designate Jacinda Ardern said yesterday her new Labour-led government plans to review and reform the Central Bank Act to possibly include employment, alongside inflation, as a dual target. New Zealand First, the junior partner in the new coalition government, also wants to broaden
Key Points Employment may be added to inflation as bank target NZ First leader tipped to become deputy PM and formin the central bank's focus to include greater management of the local dollar's value against other currencies. "We have been looking at changing the objectives set out in the Reserve Bank Act," Ardern told reporters in Wellington. "The objectives of the Act to possibly include employment is certainly part of our plans." Rather than just focussing on
New Zealand prime ministerdesignate Jacinda Ardern. Source: Lusa
inflation, Labour wants the Reserve Bank to have a full employment goal when devising policy settings,
bringing it into line with the United States and Australia. While unemployment in New Zealand is at near decade lows of below 5 per cent, job growth was a hot political issue during the recent election. The unlikely alliance between the centre-left Labour and populist New Zealand First was brokered after a Sept. 23 election failed to deliver a majority to the governing National or opposition Labour. Peters has been offered the role of deputy prime minister, which he is likely to accept, and Ardern indicated on Tuesday that Peters would also become foreign minister, putting a protectionist at the forefront of New Zealand's international relations. Peters was foreign minister in a Labour-led government in 2005, during which time he became among a handful of Western politicians to visit North Korea. Labour and New Zealand First share similar policies designed to cut immigration and ban foreigners from buying existing property. While a "confidence and supply" agreement with the Greens is delivering policies across the political spectrum, such as a push to legalise cannabis for personal use. Reuters
Monarchy
Tears in rain as Thais gather for late king's funeral Even though the funeral had yet to begin, many of the people gathering had tears in their eyes and were visibly emotional Stanley White
Sombre crowds began gathering to pay final respects to Thailand's late King Bhumibol Adulyadej, braving a tropical downpour to camp out along the funeral procession route
advance, and a national holiday has been declared for Oct. 26, the day of the cremation. Although he was a constitutional monarch, King Bhumibol Adulyadej has been credited with reviving the prestige of the monarchy.
made of cloth and string, Chalermporn Paebutr, a 72-year-old woman from northern Thailand, described her determination to bid farewell to a much-loved monarch. "I travelled here two days ago so that I could be the first to get a good spot," she told Reuters. "We only have to brave the rain for a few days. This is worth it if we can be near him one last time." Around 1,000 people had camped overnight in the downpour, police said yesterday. Some only had their plastic raincoats for protection. Thailand has suffered floods since Oct. 10. Nine people have died, and 19 of the country's 77 provinces have been hit affected. "The floods will not affect the cre-
“The floods will not affect the cremation ceremony in any way” Thai mourners hold the portrait of the late Thai King Bhumibol Adulyadej as they line up for wait to take part in close of the Royal Cremation ceremony. Source: Lusa
for a monarch who died last year and was revered by some as a demi-god. The five-day Buddhist ceremony, which begins today, has taken nearly a year to prepare and 3 billion baht (US$90 million) has been set aside to pay for the funeral. Arriving a day early to guarantee their place for a funeral that is expected to draw 250,000 people, mourners pitched flimsy tents in the middle of Bangkok's old quarter to provide some protection from the torrential rain. Hotels in the old town neighbourhood have been booked up weeks in
Aged 88 when he died, the king was viewed by many people a pillar of stability in the politically turbulent Southeast Asian country, where a military junta currently holds power. The king's cremation site, which features gold-tipped pavilions built for the occasion, is a stone's throw from the Grand Palace, popular with foreign tourists. Even though the funeral had yet to begin, many of the people gathering had tears in their eyes and were visibly emotional. Hunched beneath a makeshift tent
Anupong Paochinda, Thailand Interior Minister mation ceremony in any way," interior minister Anupong Paochinda told reporters. New King Maha Vajiralongkorn, the late king's only son, will lead the cremation ceremony. Thailand has a harsh law, known as Article 112, against insulting the monarchy, and prosecutions have skyrocketed since the junta came to power following a coup in 2014. The United Nations has voiced concern over the use of the law to clamp down on free speech and has repeatedly called on Thailand to amend it. Reuters
The Australian government published draft laws yesterday that would let financial technology companies operate without a full licence, a measure it said would encourage innovation without compromising existing levels of consumer protection. The draft laws would let companies test "a broad scope of activities...without the need to meet all the existing licensing requirements of the Australian Securities and Investments Commission," Treasurer Scott Morrison said in a statement, referring to the corporate regulator. Financial technology companies would be able to test products involving non-cash payments, crowdfunding, consumer credit and provide financial advice on pension funds, life insurance and domestic and international securities. Environment
Philippine panel recommends lifting ban on open pit mining A Philippine government panel yesterday recommended lifting the ban on open pit mining, a policy implemented this year by the previous environment minister and supported by President Rodrigo Duterte. The Mining Industry Coordinating Council, after a meeting, said in a statement that a majority of the members of the panel voted to recommend that the Department of Environment and Natural Resources "lift the ban on open pit mining provided that mining laws, rules and regulations are strictly enforced." Energy
South Korea to resume building two new nuclear reactors South Korea will resume the suspended construction of two new nuclear reactors from midnight, its energy ministry said yesterday, but has torn up plans to build six more reactors as Seoul seeks to meet pledges to cut reliance on nuclear power. The move will restart work on the two reactors that was frozen after President Moon Jae-in came to power in May on a ticket calling for scaling back nuclear power. It comes after results of a survey unveiled last week found a majority of South Koreans actually backed the projects. M&A
Toshiba considering measures in case sale not completed by March Japan's embattled Toshiba Corp said yesterday it is considering various measures in case it cannot complete the US$18 billion sale of its prized flash memory chip unit by the end of March. The sale needs to close by the end of the financial year in March or Toshiba will likely report negative net worth - where liabilities exceed assets - for a second year running - which may trigger an automatic delisting from the Tokyo Stock Exchange. "We must think about various measures in accordance with changes in circumstances," Toshiba CEO Satoshi Tsunakawa said.
14 Business Daily Wednesday, October 25 2017
International In Brief PMI
Eurozone job creation hits decade high: survey Business activity across the eurozone slowed in October, a key survey showed yesterday, but job creation hit the fastest pace in a decade as the economic recovery in Europe stayed on track. Analysts said that while the slip in the headline readings of the survey by data monitoring company IHS Markit was disappointing, the economy remained on its best run since the eurozone debt crisis. A purchasing managers' index (PMI) compiled by Markit dipped to 55.9 in October after 56.7 in September, the group said in a statement. M&A
Essilor confident on Luxottica deal despite EU probe French eyewear group Essilor said yesterday it was confident of securing European Union approval for its US$54 billion merger with Italian peer Luxottica after the EU launched a fullscale probe into its impact on competition. The world's biggest optical lenses manufacturer, also confirmed its 2017 outlook after posting stronger third quarter revenues that were broadly in line with expectations. The company had cut its annual revenue growth target in July, citing snags in China and Brazil, but its shares rose yesterday in response to higher sales and the general outlook.
Negotiations
EU's Tusk says 'up to London' how Brexit ends As well as the financial settlement, the EU wants progress on the rights of three million European citizens living in Britain and the issue of the Irish border Cédric Simon
E
U President Donald Tusk said yesterday that the outcome of fraught Brexit talks was "up to London" and that abandoning the EU divorce remained an option for the UK. Brussels has stressed that Britain needs to offer more detailed proposals, particularly on the thorny issue of its divorce bill, if it wants to move talks on to the next phase, on Britain's future relationship with the bloc. Tusk told the European Parliament that the European Union must stay united in talks or face "defeat", as British Prime Minister Theresa May struggles to contain divisions within her government and businesses grow increasingly worried about a so-called "hard Brexit" -- in which the UK crashes out of the bloc in March 2019 with no trade deal in place. "The EU will be able to rise to every scenario as long as we are not divided," Tusk told MEPs in the eastern French city of Strasbourg. "It is in fact up to London how this will end: with a good deal, no deal or no Brexit," he said, reiterating the controversial idea that the EU was open to Britain backtracking on its decision to leave the bloc. European leaders gave the embattled May a helping hand at a summit on Friday by agreeing to start preparations for the next round of talks while stressing that not enough progress had been made on three key initial areas
to move on just yet. EU officials say May's offer in a speech in Florence last month to maintain Britain's contributions for two years after Brexit to complete the current EU budget period, totalling around 20 billion euros (US$24 billion) was not enough. Fearing that Britain's departure in 2019 will leave a gaping hole in the EU
“It is in fact up to London how this will end: with a good deal, no deal or no Brexit” Donald Tusk, EU President
budget, European capitals are demanding detailed commitments -- rather than just rhetorical gestures -- before agreeing to start trade talks. French President Emmanuel Macron warned London on Friday that agreement on the financial settlement was still "a long way off". As well as the financial settlement, the EU wants progress on the rights of three million European citizens living in Britain and the issue of the Irish border.
Unity or 'defeat'
Ahead of last week's summit May
engaged in a frantic campaign of diplomacy to try to win over key EU leaders away from the official negotiating structure, which Brussels is running through the European Commission. Former Polish PM Tusk told MEPs that any flaw in the bloc's united front would end in disaster. "We have managed to build and maintain unity among the 27 (remaining EU members), but ahead of us is still the toughest stress test," he said. "If we fail it, the negotiations will end in our defeat." With May under intense pressure at home, the atmosphere around the talks is becoming increasingly fraught, a fact highlighted by a German press report Sunday saying she had "begged" commission chief Jean-Claude Juncker for help during a pre-summit dinner last week. Juncker hotly denied the report and yesterday he strongly underlined that the commission, which handles the talks for the EU, was approaching the negotiations in good faith. "The commission is not negotiating in a hostile mood," he told the European Parliament. "We want a deal. Those who don't want a deal, the no dealers, they have no friends in the commission," said Juncker. On Monday Dutch electronics giant Philips became the latest major business to warn over the effects of Brexit, with chief executive Frans van Houten telling AFP demand was falling in the UK. AFP
Infrastructure
Saudi Arabia to build new mega city Crown Prince Mohammed bin Salman announced plans to build an entirely new city on Saudi Arabia’s Red Sea coast, the latest mega-project in his drive to remake the kingdom in a time of dwindling resources. Prince Mohammed, the kingdom’s unrivalled leader, is spearheading a drive to prepare Saudi Arabia for the postoil era. In the course of his meteoric rise to power since 2015, he’s revealed plans to sell a stake in oil giant Saudi Aramco, create the world’s largest sovereign wealth fund and lift the long-standing ban on female drivers. Oil industry
NNPC says access is "not limitless" for fuel swaps Nigerian energy company NNPC is relying heavily on swapping its crude for products such as gasoline as its refineries struggle to run, but an official at the state firm said its access to oil is limited. While other importers also supply the nation with fuel, Nigeria caps its gasoline prices, preventing private importers from bringing the product in when international prices exceed local ones. The swap programme has accounted for as much as 90 per cent of gasoline imports, industry sources told Reuters. "The entire NNPC organisation is focused on ensuring that there are no queues and that the country stays wet," said group executive director.
Results
Caixabank profit weathers Catalan storm, boosted by Portugal's BPI Spain has cut its 2018 economic growth forecast from 2.6 per cent to 2.3 per cent due to the political turmoil Jesús Aguado
B a rc e l o n a-ba s e d C a i xaba n k, Spain's third largest lender, beat third-quarter profit forecasts despite uncertainty about the future of Catalonia, thanks largely to its integration of Portugal's BPI. Catalonia's independence drive and its potential fallout on financial markets were expected to overshadow Caixabank's results, although the bank did not provide any detail on Tuesday about the consequences for its balance sheet. Caixabank decided to move its legal headquarters out of Catalonia, where it is based, early in October in an attempt to calm investors and deposit holders. Spain's economic environment remained positive despite the uncertainty surrounding the domestic political situation, Caixabank said yesterday. However, brokers expect the on-going Catalan uncertainty,
with the government in Madrid enforcing direct rule on the region, to result in client losses and deposit outflows for Caixabank in the fourth quarter.
649
million euros Caixabank net profit in 2017 third quarter
Madrid has urged Catalans to accept its decision to dismiss their secessionist leadership and to take control of the region, which accounts for a fifth of Spain's economy, as the nation's biggest political crisis in decades enters a decisive week. Spain has cut its 2018 economic growth forecast from 2.6 per cent to 2.3 per cent due to the political turmoil and has delayed approving next year's budget.
Banco Sabadell, Caixabank and BBVA are the most exposed to Catalonia among Spanish lenders, with around one-third of their total deposits coming from the region, and their shares have underperformed their Spanish and European peers. The bank lifted its net profit in the third quarter to a record 649 million euros, an almost 49 per cent rise on a quarter ago, thanks to a contribution of 103 million euros from BPI, whose acquisition was successfully completed in February. Ultra-low interest rates and competition for a lacklustre loan market have pressured bank margins in Spain, steadily trimming income from lending and forcing them to focus on other revenue sources and new markets. Net interest income, a measure of earnings on loans minus deposit costs, was 1.2 billion euros in the third quarter, up 15.6 per cent from a year ago but just 0.4 per cent higher against the previous quarter. Reuters
Business Daily Wednesday, October 25 2017 15
Opinion
Of Minsky moments and creaky financing vehicles in China
Will shrinking Chinese steel exports disarm Trump's trade guns?
Shuli Ren a Bloomberg Gadfly columnist
S
peaking of Minsky Moments, People's Bank of China Governor Zhou Xiaochuan is engaged in a tug of war with investors on how to price off-balance-sheet bonds issued by local governments. Offshore dollar bonds are on fire this year. Chinese issuers have already raised a record US$122 billion, and the Ministry of Finance will soon price its first offering in the currency since 2004. Curiously, local-government funding vehicles are missing. Chinese entities seeking to raise debt outside the 27x country need Median net t h e a p p r o va l debt-to-Editda of the National ratio of investable D ev e l o p m e n t LGFVs and Reform Commission. Beijing is currently trying to choke off funding for the local-government vehicles, aimed at developing projects for which municipalities have insufficient budget. Zhou says they're used "to disguise debts or break quotas." The shortage has turned LGFV dollar bonds into collectors' items. Over the last three months, the 80 such issues saw spreads narrow to an average of only 2.2 percentage points above U.S. Treasuries, placing them solidly in the investment grade category. In July, Yinchuan Tonglian Capital Investment Operation Co. raised a US$300 million three-year dollar issue at a 3.5 per cent coupon, even though it bled US$438 million cash last year building infrastructure projects in Ningxia, a north-western province. There's a similar picture at Changchun Urban Development & Investment Holdings Group Co. Both are rated investment grade. The big rating companies are going with the flow. According to Moody's Investors Service, Yinchuan Tonglian deserves a Baa3 mark because Beijing will support "the development and stabilization of the north-western part of China, including Ningxia with its substantial Muslim population." A sort of rice-or-riots equation. By no means all the securities merit such ratings. The 4,040 onshore and offshore bonds for which Bloomberg has financial data generated US$9.7 billion in earnings before interest, taxes, depreciation and amortization in 2016 -- while issuing US$168 billion of notes. The median of these securities was backed by a financing vehicle with a net debt-to-Ebitda ratio of 27 times. Onshore investors perceive LGFVs as simply too big to fail. In October 2014, China published a document, Regulation 43, that aimed to remove local governments' guarantees for LGFV bonds. To date, there has been no default. But the chickens are coming home to roost. LGFVs started issuing large quantities of bonds in 2015, and most are due in three to six years. They'll start maturing in 2018, with repayments reaching a peak in 2021. Perhaps Zhou is eager to retire before the time of reckoning. Bloomberg gadfly
Andy Home a Reuters columnist
S
o what's become of the United States' national security investigation into steel imports? Launched in April of this year, the so-called "Section 232" investigation has since gone very quiet. "Under the final stages of review," a Trump administration official told Reuters two months ago. Delays may be to fine-tune any sanctions to minimise collateral damage to "friendly" trading partners while focusing on China. Exports from the world's largest producer had risen, according to Commerce Secretary Wilbur Ross, "despite repeated Chinese claims that they were going to reduce their steel capacity". But what if they now have done so? Chinese exports of steel products were 5.1 million tonnes in September, the lowest monthly total since February 2014. Exports over the first nine months of the year slumped by almost 30 per cent to 60 million tonnes. The 25 million tonne drop year on year is equivalent to closing every steel mill in Italy, Europe's second-largest producer behind Germany. This sharp shift in trade flows may have taken some of the sting out the global political heat generated by Chinese steel "dumping". But Beijing's steel policy isn't only about good politics. It's also about good economics, transforming an unruly monster of a sector into a sustainable, profitable industry. Policymakers are using both demand and supply levers to tame the country's excess steel capacity. If Beijing succeeds, it could herald a new global steel age, because what's good for the world's largest producer has to be good for everyone else, too. Even the United States.
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of the June deadline. Some 110 million tonnes of such capacity has been closed, according to Chris Houlden, research manager at commodities research house CRU. Closures of blast and electric arc furnace (EAF) operators are on-going. They totalled 68 million tonnes of capacity in 2015 and 2016, and this year's 50 million tonne target "is likely to be achieved". CRU also thinks that the 2020 target for 170 million tonnes of blast and EAF closures will "largely be met", citing stepped-up inspections, harsher enforcement and public engagement. At which stage China will have cut nearly 300 million tonnes of capacity. Don't expect these cuts to show up in official production figures, by the way. Much of what is being closed was "unofficial" and never counted in the first place. China's steel production was up almost 6 per cent in the first eight months of 2017, but much of that increase will have simply replaced the so-called dark production that has now been closed. As excess supply is pushed out of the market, utilisation rates are rising. CRU estimates that capacity utilisation in China will jump 8.4 percentage points this year to 84.7 per cent, on the brink of the 85 percentage point threshold of sustainable profitability. To put that in perspective, the World Steel Association assessed capacity utilisation across its 67 members, including China, at 72.2 per cent in August. If a demand boost generated a much-needed cash injection for China's steel sector, reforms on the supply side seem to be reshaping its future profitability potential.
China is exporting less steel because its own producers are making such good money supplying a buoyant domestic market
Pumping the demand engines China's steel exports boomed to more than 100 million tonnes in 2015 and kept up the pace through most of last year. The surge coincided with Chinese policymakers attempting to shift economic growth away from older smoke-stack industries such as steel towards services and higher-margin tech sectors. China's steel sector cut production in the face of falling demand, the first time it had done so in years, but increasing amounts of surplus steel still flooded into the global market. Then, at the start of 2016, Beijing switched policy back to growth mode, refiring the old economic engines of construction and infrastructure. They are still running, albeit a little more slowly in the past couple of months. Steel prices boomed, as did those of iron ore, once again catching that market by surprise. Steel mills ramped up production to capture margins and repair the balance-sheet damage from the previous downturn. They are still doing so. China is exporting less steel because its own producers are making such good money supplying a buoyant domestic market. Shrinking supply That's the producers that are still in business, of course, because the other profitability lever being used by Beijing is supply. Having promised capacity cuts to G20 leaders, China has been axing a lot of capacity. First to go were the induction furnace operations, many operating without official licence and all too often associated with sub-standard construction steel. All these plants were physically dismantled well ahead
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Good news, but winter is coming Lower Chinese exports are good news for the rest of the world's producers, particularly given a benign global steel demand picture. Production outside of China has been rising, up 4.2 per cent in January-August this year, according to WorldSteel. U.S. steel output has risen by 2.4 per cent. Higher Chinese pricing, with construction-grade rebar still hovering near five-year highs, has been transmitted into international prices. Is this a sign of things to come? CRU certainly thinks so. "We expect exports from China to fall to 60-70 million tonnes a year and these exports will be priced higher relative to costs, benefiting steelmakers everywhere," it said in a report. Before we get there, however, comes the third part of Beijing's supply-side package for its steel producers. Dove-tailing with the economic and political rationale of taming its steel sector is the pressing need to curb output on environmental grounds. The new winter heating season directives will force all sorts of industrial producers, including steel, to curb capacity in the area around Beijing between November and March to eliminate the city's notorious smog. Some cities, such as Tangshan, have ordered even earlier closures. There is much uncertainty over how much production will be affected if producers outside of the affected area lift output. Critical will be the impact on profit margins. If they hold up, exports will stay low. If not, we might be hearing more about that Section 232 investigation. But for now it's looking a lot less urgent than it did at the start of this year. Reuters
16 Business Daily Wednesday, October 25 2017
Closing OIV
Global wine output hits 50-year low
Worldwide wine production tumbled 8.2 per cent this year to hit a 50-year low due to unfavourable climate conditions, the International Organisation of Vine and Wine (OIV) said yesterday. The total output of 246.7 million hectolitres was due in large part to steep drops in the top three wine producing countries: Italy, France and Spain. "This drop is consecutive to climate hazards, which affected the main producing countries, particularly in Europe," said the Paris-based OIV,
an intergovernmental organisation that provides scientific and technical advice on vines and wine. In Italy production slumped 23 per cent to 39.3 mhl, while in France the drop was 19 per cent to 36.7 mhl. Production in Spain fell 15 per cent to 33.5 mhl. In the world's fourth-largest producer, the United States, production is forecast to have held up better, with just a slide of 1 per cent to 23.3 mhl. A six-per cent increase in wine production to 13.9 mhl helped Australia to fifth place. It was the nation's third consecutive annual increase in output. AFP
Energy
IEA sees Southeast Asia oil demand growing until at least 2040 Southeast Asia will have to fork out more than US$300 billion in 2040 for net energy imports Florence Tan
S
outheast Asian demand for oil will keep growing until at least 2040 as emerging nations there rely on the fossil fuel to transport their rapidly growing populations, ship goods and make plastics, the International Energy Agency said yesterday. Oil usage in the region will expand to around 6.6 million barrels per day by 2040 from 4.7 million bpd now, with the number of road vehicles increasing by two-thirds to around 62 million, the agency said in a report. It did not make any forecasts beyond 2040. A global push to replace combustion engines in vehicles with electric-powered ones to fight climate change has raised concerns in the oil industry that demand for the commodity could peak in the next 10-20 years. But oil will continue to meet around 90 per cent of transport-related demand in Southeast Asia, especially for trucks and ships, Keisuke Sadamori, the IEA's director of energy markets and security, said at the Singapore International Energy Week. "Unless there are any drastic technological changes that can decarbonise these areas, we do not expect oil demand to fall," he said. Oil demand from the
petrochemicals sector, one of the largest users of the fossil fuel, will also grow fairly substantially, Sadamori said. Oil can be used as a raw material for plastics and textiles. The IEA expects electricity to account for only 1 per cent of transport energy demand in 2040, saying there will be only about 4 million electric
Key Points Sees region's oil demand up 40 pct by 2040, driven by transport That comes despite industry worries over global oil demand peak Expects SE Asia to be a key player in energy demand growth IEA says coal to dominate SE Asia electricity mix Net energy import bill to rise to over US$300 bln in 2040
cars in a total passenger vehicle stock of 62 million. Meanwhile, Southeast Asia's overall energy demand is expected to climb nearly 60 per cent by 2040 from now, led by power generation, as rising incomes in the region spur more people to buy electric appliances including air conditioners, the IEA said. The region will have
universal access to electricity in the early 2030s and is expected to install more than 565 gigawatts (GW) of power-generation capacity in 2040, from 240 GW today, the agency said. Coal and renewables account for almost 70 per cent of new output, it added. Coal alone will account for almost 40 per cent of the growth while renewables will quadruple by 2040
to become the second largest source of electricity after coal, overtaking gas, IEA forecasts showed. Southeast Asia will become a key driver for energy demand globally as its economy triples in size and its total population grows by a fifth, the IEA said. But the region's net energy import bill is also climbing as oil production declines, raising concerns over energy security.
Southeast Asia will have to fork out more than US$300 billion in 2040 for net energy imports, equivalent to about 4 per cent of the region's total gross domestic product, the IEA said. "Apart from the mounting import bill, the region's increasing dependence on imported energy raises significant energy security concerns," the agency said. Reuters
Data privacy
Survey
ECB
Facebook risks EU-wide fights after setback at top court
China shoppers rein in spending on cookies to pop drinks
Banks lending more freely to households
Facebook Inc. could be in the firing line of data privacy regulators across the European Union if the bloc’s top court follows the opinion of an adviser who said the social media giant may be policed by authorities in the country where users are based. Yves Bot, an advocate general of the EU Court of Justice, said yesterday that national watchdogs spread across the 28-nation bloc could in some cases have power to take direct action against Facebook when they suspect illegal data processing has taken place -- even though its EU base is in Ireland. The case, which concerns a German dispute over a “fan page” set up on Facebook by a local user, could end up having wide effects and refute the U.S. company’s longheld view that the Irish privacy regulator is the only watchdog with a say over its data processing in Europe. The German case is one of many clashes between the Menlo Park, California-based and national authorities. Belgium’s privacy regulator told a court this month that the company was engaged in “unprecedented in monitoring the browsing habits” of millions of people. Facebook said in a statement that “we respectfully disagree with the Advocate General and await the European Court’s decision.” Bloomberg News
Growth in sales of consumer goods ranging from biscuits and candies to toothpaste and shampoo has slowed in China to a five-year low, a survey shows, in a major challenge for global firms seeking to attract buyers in the world's most populous nation. Demand for fast-moving consumer goods has waned in the world's No.2 economy, with sales growing 2 per cent in the first half of 2017 versus year-ago levels, a report from consultancies Kantar Worldpanel and Bain & Co shows. That is the weakest half-year growth since 2012, according to the report based on a survey of 40,000 households. While sales rose 3.6 per cent in the third quarter, it is still a far cry from a near 20 per cent growth just over half a decade ago. The data gives a gauge of how China's consumers are spending their money - key as Beijing's leaders, global investors, and brands such as Nestle, Pampers owner Procter & Gamble or Coca-Cola look to tap the spending power of the country's near 1.4 billion potential shoppers. "The type of consumption people enjoy now is very different - travel, lifestyle, entertainment are all growing strongly," said Bruno Lannes, Shanghai-based partner at Bain. Reuters
Eurozone households enjoyed easier access to credit in the third quarter of 2017, the European Central Bank said yesterday, while lending conditions for businesses were broadly unchanged. A loosening of the standards banks use to judge creditworthiness "continued for all loan categories" as banks jostle to attract borrowers at a time of record-low interest rates and easy access to cheap credit. The ECB closely watches lending data to gauge the effectiveness of its ultra-loose monetary policy, which aims to bolster growth and inflation in the single currency area by encouraging spending and investment. A quarterly survey of 141 banks found that lenders eased requirements for businesses by 1.0 per cent, a slight slowdown from the 3.0 per cent loosening seen between April and June. But creditworthiness standards were 11 per cent looser for mortgages, a bigger change from the previous quarter's 4.0 per cent. The ECB said the loosening "was stronger than expected". Credit standards on consumer credit and other lending to households also eased, the ECB added. AFP