Debt of Alibaba's financial arm skyrockets E-commerce Page 12
Wednesday, October 18 2017 Year VI Nr. 1404 MOP 6.00 Publisher Paulo A. Azevedo Closing Editor Kelsey Wilhelm M&A
MICE
Former legislator Chan Meng Kam snaps up Hotel Lan Kwai Fong for HK$2 bln Page 6
MIF and PLPEX kick off Page 2
www.macaubusiness.com
Labour force
Survey
Banking and insurance sectors require more talent in coming years to support growth Page 4
China’s GDP forecast slowing down Page 8
Taming Tourism Tourism
Demand for tourism professionals already exceeds supply. With a gap of “more than 90 pct in institutions and market demand,” claims UNWTO Secretary-General. And the industry is blighted by a high turnover rate. Exceeding 63 pct, averaging five years in the field. Prepare, he says, as market share and prospects for Asia tourism “far better” than the rest of the world. Page 5
Prevention is a process
No database for exchange of employee information between casino properties, says DICJ Director. Inspections and thirdparty reports currently track infractions. Three new proposed changes in public consultation - but main focus is on preventing frontline workers from entering gaming floor when off-duty.
Off-plan units surge
Real estate Real estate An increase of 130 pct in offplan sales transactions in September. Driven by a new development in Taipa. With average prices of MOP154,469 per sq. m. And overall prices up 23 pct y-o-y. Peninsula units see 37 pct drop in sales y-o-y. Page 3
Private poll: Industry impacted by yuan
Gaming Page 6
HK Hang Seng Index October 17, 2017
28,697.49 +4.69 (+0.02%) Worst Performers
Want Want China Holdings
+3.34%
New World Development
+0.81%
Hong Kong Exchanges &
-1.60%
Industrial & Commercial
-0.94%
AAC Technologies Holdings
+2.59%
Geely Automobile Holdings
+0.75%
China Mengniu Dairy Co Ltd
-1.37%
Hengan International Group
-0.79%
CK Asset Holdings Ltd
+1.28%
Henderson Land Develop-
+0.66%
China Resources Power
-1.27%
Bank of East Asia Ltd/The
-0.71%
-1.03%
Cathay Pacific Airways Ltd
-0.62%
Hang Seng Bank Ltd
+0.05%
CNOOC Ltd
+0.99%
Link REIT
+0.63%
China Shenhua Energy Co
AIA Group Ltd
+0.98%
China Mobile Ltd
+0.57%
Galaxy Entertainment Group
-0.94%
23° 29° 23° 29° 23° 29° 23° 29° 21° 28° Today
Source: Bloomberg
Best Performers
THU
FRI
I SSN 2226-8294
SAT
SUN
Source: AccuWeather
Canton Fair A survey undertaken during the Canton Trade Fair is revealing. Suggesting the Mainland’s industrial sector is facing rough times. Increasing costs and product prices are cited. A crackdown on pollution is also quoted as worrying for industrial sector. Page 8
2 Business Daily Wednesday, October 18 2017
Macau
Conferences
MIF a catalyst for disparate businesses With the country of Angola and the Chinese province of Guangdong its main partners the 22nd Macau International Fair (MIF) kicks off today in conjunction with the 2017 PLPEX (Exhibition of Products and Services from Portuguese-speaking Countries) Nelson Moura nelson.moura@macaubusinessdaily.com
T
he 22nd Macau International Fair (MIF) kicks off today, with the 2017 PLPEX (Exhibition of Products and Services from Portuguese-speaking Countries) to be held concurrently at The Venetian Macao from October 19 to 21. This year’s MIF will occupy 27,000 square metres, feature 1,500 stands and welcome over 1,000 enterprises from over 50 countries and regions, with the 2017 PLPEX to have 220 booths - 60 per cent more than the last edition - spread over 3,000 square metres. “Both exhibitions will be more innovative and richer in content than ever before, aiming to attract customers and bringing in more business opportunities for enterprises and investors from home and abroad,” Macau Trade and Investment Promotion Institute (IPIM) President Jackson Chang said yesterday. The Executive Director of IPIM, Irene Lau, stated that this year’s budget was expected to be the same as last year’s, at MOP33 million (US$4.1 million), but with the department
considering it could be increased by 10 or 15 per cent in the case of unexpected damages - such as the those caused by the passage of a typhoon. Last year’s MIF was affected by Typhoon Haima, which led to the suspension of one of the event’s days. Last year’s edition saw the signing of 50 business protocols - two of them with Brazil - for tourism, Internet and cross-border commerce; IPIM representatives said this year would also see ‘plenty’ of agreements signed, with Ms. Lau stating the percentage of agreements signed at MIF that lead to actual investment “close to 85 per cent”. “There have been some problems with the implementation of certain agreements but projects with concrete objectives, such as the development of factories, have led to something. We always follow up on the projects and deals made and are available to help if issues are raised,” the IPIM Executive Director added.
Angola in the spotlight
This year’s MIF has selected the Portuguese-speaking country of Angola as its partner country, a role filled by Portugal last year, while neighbouring Guangdong
acts as the partner province, bringing a delegation of 250 people. Angolan representation includes a delegation of 50 companies and over 800 entrepreneurs, with the African country’s representative at the Forum for Economic and Trade Co-operation between China and
require investments in agriculture, fishing and tourism,” Mr. Barbosa said yesterday. The Angolan representative also stated that after one year of negotiations the Angolan bank BIC will make a formal request to the MSAR authorities to open a branch in the city.
Centre inaugurated IPIM Executive Director Gloria Batalha Ung told Business Daily that the Youth Innovation and Entrepreneurship Centre of China and Portuguese-speaking Countries would be inaugurated today. The Centre is one of the measures announced by Chinese Premier Li Keqiang at the 5th Conference Ministerial Forum Macau held in October of last year.
Portuguese-speaking Countries (Forum Macao), Belarmino Barbosa, stating yesterday that the delegation expects to sign several agreements for infrastructure development. “With [Angola] having passed through a long period of civil war that destroyed the country from north to south, the country is still in its development phase and needs almost everything. It’s why we appealed to Mainland China for financing. Now, to diversify the economy we also
Mr. Barbosa annoinced that the country’s new president - João Manuel Gonçalves, elected in August - will seek to improve the economic relations between Angola and Mainland China via measures such as increasing the speed of work visa procedures. “Chinese businessman have complained that acquiring a visa to the country takes many months, so the new president requested the process be revised,” he added.
Travel
Tourism
AirAsia to fly direct to Phuket
Tight-knit travel neighbours
Malaysian budget carrier AirAsia has announced the launch of a new direct route from Macau to Phuket, a popular tourist destination in Thailand, according to a press release. In response to Business Daily enquiries, a spokesperson for the company confirmed that the route opened for ticket sales on October 16, and will be ‘flying daily’ from Macau to Phuket ‘with no stopover in Bangkok’ starting January 8, 2018. It is the first time AirAsia has launched a direct route connecting the two destinations. ‘Coupled with AirAsia’s many other direct flights to Macau, the new route promises to bring in more tourists to [the city],’ AirAsia said
Tourism deals website Travelzoo identifies Macau as the destination that attracted more online clicks from Hong Kong users for travel deals in the first half of this year, claims a company release. Through its weekly newsletter, Travelzoo published 521 tourism deals in the first six months of this year, reaching some 500,000 Hong Kong members, with destinations in Asia Pacific comprising nine of the top10 most-clicked destinations. After Macau, deals for Bangkok and Taipei were the most popular, with General Manager of Travelzoo in Hong Kong Kevin Shui stating: “Undoubtedly, short-haul travel deals are most well received by [Travelzoo]
in its reply. The airline currently operates eight routes from Macau, linking the city to three cities in Thailand - Bangkok, Chiang Mai and Pattaya – and to Jakarta in Indonesia, to Manila in the Philippines, and to Kuala Lumpur and Johor Bahru, the latter starting 28 November, in Malaysia. S.Z.
members”. According to the release, in terms of clicks and conversion rates Hong Kong’s travellers preferred deals for Macau - especially involving hotel and spas, with hotel packages for the city provided by Travelzoo having performed the best in the first half of 2017. “It’s not uncommon to see a new Macau hotel in our Top 20 [list] attract almost 20,000 views and hundreds of enquiries in less than 72 hours,” added Shui. Four Japanese regions - Osaka, Tokyo, Okinawa and Nagoya - were included in the top 10 listing, with deals for Hong Kong itself ranking eighth.
Business Daily Wednesday, October 18 2017    3
Macau
Real Estate
Off-plan unit sales surged in September New residential project in Taipa see extensive growth in off-plan unit sales Cecilia U cecilia.u@macaubusinessdaily.com
A
total of 145 transactions for off-plan sales were registered in the MSAR during the month of September, indicating a surge of 130.2 per cent compared to the previous month, according to the latest official data released by the Financial Services Bureau (DSF). When compared to the same month last year, transactions grew by 45 per cent from the 100 off-plan units sold. The sharp growth was
influenced by the launch of new development project YOHO Twins in Taipa next to the Macau Roosevelt Hotel, overlooking the Macau Jockey Club. The average cost of buying off-plan units last month was MOP154,469 (US$19,208) per square metre, up 12.2 per cent month-on-month and 37.5 per cent year-on-year. Meanwhile, some 522 completed housing units were sold during the month, a slight decline of 1.7 per cent compared to August and a more prominent drop of 37.4 per cent from one year ago. Buyers paid MOP87,331 per square metre on average for
already completed units last month, down 1.9 per cent month-on-month but up 11.6 per cent year-on-year. The city recorded 667 housing transactions last month, an increase of 12.3 per cent compared to 594 transactions in August, yet representing a year-onyear drop of 28.6 per cent. Regarding prices, the city experienced both monthon-month and year-onyear increases, up 6 per cent to MOP100,487 (US$12,496) per square metre from MOP94,822 in August and an increase of 22.9 per cent compared to MOP81,769 per square metre a year ago.
Transactions in Taipa pick up
Of the total number of housing transactions, 194 were made for residential units in Taipa, registering growth of 120.5 per cent last month, compared to the 88 transactions made in August. Year-on-year, the number of transactions grew by 4.9 per cent. The average housing price in Taipa was MOP117,805 per square metre, an increase of 23.4 per cent month-on-month, and up from the MOP89,963 per square metre registered in the same month last year, a rise of 30.9 per cent.
For houses sold on the M a c a u P e n i n s u l a, 4 5 7 u n i t s w e r e p u rc h a s e d, registering a month-onm o n th d r o p o f 5 . 2 p e r c e n t . C o m p a r e d t o 728 transactions in September last year, the number of houses sold fell 37.2 per cent. T h e av e r a g e c o s t o f buying a property on the Macau Peninsula rose b y 3 p e r c e n t m o n t hon-month to MOP91,339 p e r s q u a r e m e t r e . Th e price also showed an increase when compared to MOP77,432 per square metre registered a year ago, up 18 per cent. advertisement
4 Business Daily Wednesday, October 18 2017
Macau Opinion
José I. Duarte* Housing questions The recently published government report on the future needs of public housing indicates both demand (in 2026) and supply (in the “medium and long-term” – the time precision is somewhat looser here) will stand in the neighbourhood of 40,000 housing units. Implicitly at least, these figures appear to suggest that sometime in the future - ten years, maybe longer - residents’ housing problems will be overcome. These figures raise some questions. Before jumping into that, however, let us underline the fact that the report makes a significant effort to explain the methodologies used and the foundations of the forecasts. In that, praise it deserves, and we can only wish that more studies follow the example. Everybody who has ever been involved in analysing trends and making forecasts that will be used as a basis for a public policy will recognise the difficulties of the task, its strengths, and its limitations. Social and political realities seldom comply with models and their predictions. Therefore, more often than not, the most critical aspect is not the precision of the forecast, the ‘truth’ of what the model anticipates at a particular point in time. It is the quality and reliability of the frame of reference that underpins the projections, and its principal merit lies – or should lie – in its usefulness as a guide for policy monitoring and future adjustments. The report offers an abundance of useful figures that provide a basis for serious discussion, but both the figures and the conclusions the report reaches also raise several questions. Remember at the end of 2016 there were about 47,700 public housing units More than half were built before the handover - over a period of 20 years - when the population was noticeably smaller and also, lest we forget, noticeably less affluent. And to be eligible for public housing a candidate must be a resident, cannot already own a property, and must have an income below a certain threshold. Under such restrictions, and without changes in the current legal thresholds, the study expects up to more than 40,000 families will be looking for public housing in less than ten years from now. How does that fit in with, namely, the aging and slower growth of the resident population, the high existing homeownership rate and the high-income per capita level? They do not fit smoothly; some assumptions may need a re-assessment. *economist and permanent contributor to this newspaper.
Labour
Demand buoyant for e-banking and private banking specialists Survey results reveal that majority of practitioners in banking and insurance sectors obtain no internationally recognised qualifications Cecilia U cecilia.u@macaubusinessdialy.com
T
he demand for specialists in e-banking and private banking is set to experience extensive growth as the financial sector in the city develops, according to the results of a survey conducted by the Talent Development Committee (CDT). The CDT report details future demand for specialists in the financial and insurance sectors for the coming three to six years. Taking into account recent advances in technology, the Committee has advocated developing e-banking, promoting its useage amongst all local operators to match demand. The report details estimates that 749 bankers will be needed in the sector within three years. In the next six years the number of banking specialists needed will reach 1,488, while currently 231 specialists are needed in the sector. Specifically, the positions that would experience highest demand in the coming years are for tellers, staff in the credit business, customers services, programmers and accountants. The report also disclosed a 13.52 per cent labour turnover rate in 2016. Major reasons for leaving the jobs indicated by 22 bank survey respondents were leaving for another bank – 77.27 per cent indicated employees had done so, leaving for a public service job; 72.72 per cent of respondents indicated employees had done so, due to unsatisfactory remuneration; 50 per cent responded that employees had given this indication. Although vacancies can be filled by hiring blue-card holders, banks often choose not to opt for this route due to slow approval procedures. The CDT suggested training workers
in order to achieve higher work productivity, laying out plans to attract younger employees to the industry and loosening requirements for banks to hire foreign workers. Also, training can be performed for certain specific positions, such as local legal personnel and more talks and training courses can be held by the Monetary Authority of Macau (AMCM) or other related institutions. The government should also put more effort into promoting the positive future of the industry, both locally and internationally, the group opines. The city has great potential in the banking industry, notes the CDT, but development is still in its preliminary stage, adding that the majority of practitioners in the industry do not obtain internationally recognised qualifications. As such, the Committee advised the city to make use of its role in the Belt and Road Initiative as well as serving as a platform between the Mainland and Portuguese-speaking countries.
Insurance sector
According to the report, the city will need 32 practitioners in the coming three years for selling life insurance, and 35 for the non-life insurance business. In the coming six years, the industry will require 41 life insurance practitioners and 54 other insurance service personnel. Currently, there are 502 local and 53 non-local practitioners, among whom 198 of the practitioners are involved in life insurance and 357 in non-life insurance businesses. For the life insurance segment clerks, business representatives and salespersons and human resources and training directors will be most highly in demand. Managers in marketing, customer service, insurance services and
compensation, underwriters, business representatives and salespersons will be the most needed positions in the non-life insurance segment. The report revealed that the turnover rate was 10.15 per cent in 2016, with 68.75 per cent of the 16 insurance companies which responded to the survey indicating their employees left the company for jobs in other industries. Similarly, insurance companies suffer from challenges in getting approval for hiring blue-card holders, although the report notes that often applications are not approved due to a lack of convincing reasons regarding the necessity of employing foreign workers. The CDT advised that the responsible department relax requirements for approving blue-card holders, as well as strengthening the training of local insurance practitioners. The government should offer funding for related courses and create co-operational plans with insurers to attract practitioners in order to further upgrade their specialties, it notes. Promotion about future development is also necessary for the insurance industry. According to the report, currently 75 per cent of insurers consist of fewer than 30 full-time practitioners, since the majority of practitioners work part-time. Like the banking industry, most practitioners do not have internationally recognised qualifications. The CDT concluded that it is necessary to introduce specialists from overseas to stimulate the development of the financial leasing industry due to a shortage in the city. The Committee advised laying out plans for introducing overseas related specialists as well as training courses for local practitioners.
Business Daily Wednesday, October 18 2017 5
Macau Tourism
Worldwide lack of tourism professionals Secretary-General of UNWTO says tourism industry in Asia has promising prospects Cecilia U cecilia.u@macaubusinessdaily.com
T
he fast growing worldwide demand for tourism professionals is exceeding supply, with only 0.08 per cent of high school graduates choosing to study the field at university, according to Secretary-General of the World Tourism Organisation (UNWTO) Dr. Taleb Rifai. His statements were made during a public seminar held yesterday at the Institute for Tourism Studies (IFT). “There is a gap of more than 90 per cent in those who are properly trained in institutions [...] and market demands,” said Dr. Rifai. Although tourism is one of the industries that attracts workers not specifically trained in the field and has a lower barrier to entry, the UNWTO official said the tourism industry also suffers the highest percentage of turnover, as employees work on average five years in the field before moving on to higher paying jobs. “Actually, more than 63 per cent of those who enter the labour market end up leaving the travel and tourism industry for another job, which is a
serious challenge for us,” confided Dr. Rifai. He further said that UNWTO has been discussing the provision of better working conditions in the industry with governments, noting that in other parts of the world it is seen as unattractive due to long working hours and limited observance of international labour standards.
Growing industry
Citing UNWTO data, he revealed that the Asian tourism market has a large yearly growth, at around 9 per cent, compared to an average in other regions of 5 to 6 per cent. “Market share and prospects for Asia are by far much more than the rest of the world,” remarked Dr. Rifai.
Globally, some 1.24 billion international border crossing tourists were registered last year, he said, noting that six out of ten people travelled, compared to only 20 million yearly travellers some 70 years ago. Dr. Rifai also pointed out that tourism is facing rapid change due to two revolutions: technology and travel itself. The revolution brought about by advancing technology, together with the improvements in transportation as well as new inventions and innovations, said Rifai, means “the world is becoming more connected to each other, even physically”.
Sustainability
The Secretary-General opined that
sustainability, or preserving the environment, should not be limited by the growth of the industry, advocating “sustaining life on earth”. “The challenge is how to manage growth in such a way that we can take out of the energy that is emanating from this growth, [and use] the resources, the funding [as a contribution to sustainability],” he said. Aware of the negative impact arising from growing tourism, such as tourist-phobia experienced by residents in popular cities such as Venice, is a matter of management, claimed the doctor, saying the key is to “turn the numbers [of growth] to my advantage to fight pollution, to fight congestion and to make life better for people.” advertisement
Sino-Luso
Positive turnaround in Sino-Luso trade In the first eight months of this year Sino-Luso trade increased by 30.2 per cent yearly, reaching US$78.42 billion Nelson Moura nelson.moura@macaubusinessdaily.com
Merchandise trade between Mainland China and Portuguese-speaking countries reached US$78.42 billion from January to August of this year, representing a 30.2 per cent increase year-on-year, according to China Customs data. The information, provided by the Forum for Economic and Trade Co-operation between China and Portuguese-speaking Countries (Forum Macao), reveals that goods exported by Lusophone countries to Mainland China in the first eight months of the year were valued at US$55.11 billion, up 32.21 per cent year-on-year from the same period of last year. The value of Mainland China’s merchandise exports to Lusophone countries reached US$23.31 billion in the same period, up 25.68 per cent yearly.
Trading away
Between January and August of this year, trade between China and its largest Portuguese-speaking trading partner - Brazil - grew 29.12 per cent yearly to US$58.31 billion. The total trade between Brazil and China represented 74 per cent of all Sino-Luso trade during the period in question. Exports from the South American country rose by 27.27 per cent yearon-year to US$39.84 billion while exports from the Mainland to Brazil
went up 33.28 per cent yearly to US$18.4 billion. China’s second largest Lusophone trading partner, Angola, registered the largest yearly increase in trade in the first eight months of this year, a 47.77 per cent rise to US$15.06 billion. The increase resulted from a 49.1 per cent year-on-year rise in China imports from the Portuguese-speaking African country, reaching US$13.62 billion, with imports from China representing 90 per cent of the total trade volume between the two countries. Exports from China to Angola between January and August of this year also went up, by 36.25 per cent year-on-year to US$1.44 billion. The third largest trading partner, Portugal, registered a light increase in trade in the first eight months of 2017, with a 3.18 per cent yearly increase to US$3.69 billion. The annual increase occurred despite an 8.09 per cent year-on-year drop in exports from China to the European country, to US$1.29 billion, offset by Portugal’s exports to China increasing considerably in the first eight months of 2017, up 33.6 per cent yearly to US$2.39 billion.
6 Business Daily Wednesday, October 18 2017
Macau
Gaming addiction
Counting on good will and cameras The head of the gaming watchdog has not yet outlined a clear surveillance plan to prevent frontline casino employees from gaming, but pledged that his Bureau will not share employees’ personal information among different casino properties Sheyla Zandonai sheyla.zandonai@macaubusiness.com
“C
urrently, we have no plans to set up a database for sharing employee information between [casino] properties,” said the head of the Gaming Inspection and Co-ordination Bureau (DICJ), Paulo Martins Chan, yesterday. Director Chan spoke to the press on the sidelines of the third public consultation linked to a proposed law change recommending dealers be banned from entering gaming areas outside of working hours. The DICJ head added that the Bureau will work in close collaboration with the Office for Personal Data Protection (GPDP). “For the time being, we plan to employ inspections and reports by third parties,” said Mr. Chan regarding surveillance methods the Bureau intends to use to fulfil the proposed
programme. The DICJ initiative draws on the proposal for revision of the 2012 law regulating the entry, work and act of gaming in casinos. One of the main measures of the law, enacted in 2012, was raising the minimum age limit for entering and working in casinos to 21 from 18 years of age. According to Chan, who opened the public consultation yesterday, the current proposal entails three main changes: banning frontline gaming workers from entering gaming areas in casinos when they are off-duty; streamlining sanction procedures for people under 21 years of age found in gaming areas; and introducing a precautionary and temporary measure for apprehending casino chips found in the possession of individuals caught in the act of infringing the law. Infractions under the new law would result in fines ranging from MOP1,000 (US$124) to MOP10,000.
“The current law does not invest casino inspectors with the authority to seize gaming chips in cases of infraction, and this needs to be corrected,” stated Chan. During his talk, he further highlighted that the DICJ’s main focus is in stopping frontline workers from entering gaming areas when not on the job. Reiterating previous comments, the DICJ head also said the proposed changes follow the consideration of data released by the Social Welfare Bureau (IAS), signalling an increase in cases of gaming addiction by casino dealers. Also speaking at the public hearing yesterday a spokesperson for IAS President Vong Yim Mui claimed that the number of casino workers with reported gaming habits, and potential addiction to gambling, is higher than the number of residents reported gambling who do not work in gaming areas.
Public participation
At the forefront
Representatives from several gaming and non-gaming associations were present at the public hearing yesterday. According to information provided to Business Daily by the DICJ, these included:
The law under revision defines a frontline gaming worker as someone who ‘has close contact with gaming on a daily basis.’ Overall, this identifies staff in charge of gaming tables, gaming machines, cages and vaults, as well as those linked to public relations and marketing, and attendant supervisors. In particular, these include casino employees working directly in casino gaming areas, such as dealers, cage managers, cage inspectors, and cashiers. The law excludes casino employees involved in management, security or food and beverage operations.
› Macau Responsible Gaming Association › Macau Association of Young Employees in the Gaming Industry › Macao New Chinese Youth Association › New Macau Association › General Association of Chinese Students of Macau › General Union of Neighbourhood Associations of Macau › Sheng Kung Hui Macau Social Services Coordinating Office
Casinos
Getting ahead China Star Entertainment Ltd. agrees to sell Hotel Lan Kwai Fong Macau to former legislator Chan Meng Kam for HK$2 billion 10 days after an exclusivity period to sell the property to Paradise Entertainment Limited ended Nelson Moura nelson.moura@macaubusinessdaily.com
Former MSAR legislator and local businessman Chan Meng Kam will personally purchase the Hotel Lan Kwai Fong Macau from China Star Entertainment Ltd. for HK$2 billion (US$248.71 million), a filing with the Hong Kong Stock Exchange has revealed. According to the filing, China Star Entertainment (BVI) Limited - a wholly owned subsidiary of China Star Limited - agreed to enter a sale and purchase agreement on 10 October 2017 to sell all of its shares and shareholder loans in a group of companies that owns and operates Hotel Lan Kwai Fong Macau and 18 residential units in Macau used as staff quarters. The agreement will allow Chan Meng Kam to take control of the three controlling companies - Charming Era, Exceptional Gain, and Most
Famous – as well as their subsidiaries. The purchase announcement comes only 10 days after a four-month exclusivity period between China Star Entertainment and Hong Kong listed gaming company Paradise Entertainment Limited ended on September 30. The company, led by businessman Jay Chun, had entered into a letter of intent to purchase the hotel for around HK$2.38 billion. China Star Entertainment stated that to its ‘best knowledge, information and belief of the directors’ the former Macau legislator has no relationship with Paradise Entertainment or its controlling associates. Local businessman Chan Meng Kam is the owner of Golden Dragon Co. Ltd., a company that operates three casinos in the MSAR: Casino Taipa Square - under a licence of Melco Resorts and Entertainment Ltd. - and
Casino Golden Dragon and Casino Royal Dragon – under SJM.
Selling to build
Currently, Hotel Lan Kwai Fong includes 209 guestrooms, restaurants, a flower shop, retail shop and spa centre plus gaming areas on the ground, first and 18th floor of the hotel. Casino operations in the hotel are operated by gaming operator Sociedade de Jogos de Macau, S.A., with the main areas including 84 gaming tables for VIP and mass market gaming, together with 65 slot machines. According to its most recent interim report, in the first half of this year China Star Entertainment hotel and gaming service operations registered an 8 per cent yearly decrease in shared revenue to around HK$334.27 million, with its hotel and gaming sector seeing a sector profit of only HK$674,000.
China Star Entertainment considered that the sale would ‘bring a strong inflow of cash’ to the group, with gains on the disposal estimated at HK$648 million. The filing also stated that since the group’s operations in Macau had recorded losses in the last financial year the group should focus its resources upon property development and investment. The group maintained its intent to continue developing three land plots it owns in the ZAPE district of Macau
near the hotel into a ‘luxury residential and commercial complex of two towers with spacious apartment units’, with construction expected to finish in 2019 and with proper sale of the complex starting in the second half of that year. The group also purchased half of the equity interest in a 4,669 square metre land plot on Avenida Doutor Stanley Ho, and plans to use the hotel sale gains to complete the development of the plot into a building for residential and parking purposes.
Business Daily Wednesday, October 18 2017 7
Macau HZMB
Superbridge countdown
T
he Zhuhai segment of the artificial island of the Zhuhai & Macau Boundary Crossing Facilities island - known as ‘Zhuhai Port’ – is slated to be handed over on December 30, according to information released by the Zhuhai Government yesterday. The artificial island joins ‘Macau Port’ on the artificial island, each housing their respective Customs inspections facilities. The Zhuhai Port connects to Zhuhai’s
link road, with access to the Main Bridge Section on the east side, and accommodates inspection areas, transport centre, and traffic corridor, in addition to a cargo inspection area plus municipal
engineering and support facilities. Construction of the port began in December 2013. Development of the landfill where it sits, in Gongbei Bay, commenced in 2009. The total cost of
construction is estimated at RMB2.4 billion (US$362.59 million/MOP2.91 billion) according to official information. The superbridge will extend to a total length of some 55 kilometres, including a 6.7 kilometre underwater tunnel and a 23 kilometre bridge over the sea, making it the longest cross-sea bridge in the world. Construction commenced in December 2009 in Zhuhai. Authorities claim the bridge will be completed by the end of 2017. s.z.
Security
MSAR plans 'simulated attacks' in security ramp-up after Vegas shooting Other measures included setting up a special action team with protective equipment and additional physical training for frontline staff Farah Master
Authorities in the MSAR have ramped up security measures following the deadly Las Vegas shooting this month and unveiled plans for a series of mock attacks and crisis training to safeguard the world's largest gambling hub. The new recommendations were laid out in a government statement following a meeting on Monday between Macau's gaming regulator, the Judiciary Police and representatives from the
six licensed casino operators which include Wynn Macau and Sands China. The former Portuguese colony of Macau had seen heady gang violence and bombings until China took control in 1999. Since the handover, booming casino revenues have propelled the tiny enclave of 600,000 people to one of the world's richest cities. Macau had a relatively lower risk of attack, said Chau Wai Kuong, director of Macau's Judiciary Police, although he cautioned the
special administrative region must be vigilant. The Las Vegas attack on October 1 was the deadliest mass shooting in modern U.S. history after gunman Stephen Paddock opened fire from his hotel room on more than 20,000 concertgoers at an outdoor venue. A total of 59 people were killed, including Paddock who shot himself. "A simulation of attacks should be conducted in the short term ... so that the frontline workers of casinos are more skilled in handling
emergency incidents," the statement from Macau authorities said. Other measures included setting up a special action team with protective equipment and additional physical training for frontline staff to help reduce any casualties in any potential situations before police arrive. Casinos will also install metal detectors at all entrances and place a ban on luggage on the casino floors. Operators also need to train their employees to identify suspicious people and
increase overall security procedures. Paulo Martins Chan, the head of Macau's gaming regulator, said all operators had purchased permanent metal detectors which would help to reduce and dispel criminals. Macau's casino operators Wynn Macau, Sands China, MGM China, Melco Crown, SJM and Galaxy Entertainment had already been on alert following an attack in June at a Manila casino where a lone gunman started a blaze that killed more than 30 people. Reuters advertisement
8    Business Daily Wednesday, October 18 2017
Greater china Forecast
GDP growth to slow on housing curbs, debt clampdown The economy is on track to hit the government's full-year growth target of around 6.5 per cent Samuel Shen and John Ruwitch
C
hina's economic growth is expected to ease to 6.8 per cent in the third quarter from 6.9 per cent in the previous quarter due to a cooling property sector and the government's battle against debt risks, a Reuters poll showed. Analysts' projected slowdown was at odds with central bank governor Zhou Xiaochuan's forecast suggesting an upside surprise as the economy could grow 7 per cent in the second half of the year, versus 6.9 per cent in the first six months. The poll of 54 analysts, conducted before Zhou's forecast, showed a modest cooling in GDP growth but within Beijing's comfort zone, as President Xi Jinping is set to strengthen his grip on power at a Communist Party Congress this week. Zhang Yiping, an economist at Merchants Securities, said Zhou's forecast may have raised upside risks for his prediction of 6.8 per cent growth for the third quarter, although he still expected a gradual cooling in the economy. "The economy is likely to slow steadily given that property investment and infrastructure investment could slow, although the impact from rising borrowing costs on the economy could be limited," Zhang said. Analysts have pencilled in a
gradual GDP slowdown due to an expected softening in property investment and construction as more cities try to cool surging housing prices, while a government campaign against riskier lending pushes up borrowing costs. China will release third-quarter GDP on Oct. 19 - a day after the open-
Key Points China economy seen growing 6.8 pct in Q3 y/y, vs Q2's 6.9 pct Cooling property, steps to curb debt risks may weigh on growth Sept factory, retail sales and investment seen largely steady Q3 GDP data, Sept activity data due Oct 19 at 0200 GMT ing of the Party Congress - along with September industrial output, retail sales and fixed asset investment. A surprisingly upbeat gross domestic product reading would likely lift stocks and global commodity prices, and boost bullish sentiment on the yuan, which has gained about 5.6 per cent against the dollar so far this year. Economists in the poll estimated GDP grew 1.7 per cent quarter-on-quarter, unchanged from the second-quarter, though only 18 analysts gave sequential forecasts.
Reform hopes
At the opening of the Party Congress, President Xi is likely to shed light on China's long-term economic development plans beyond 2020, amid market hopes that he may deepen economic reforms to help the economy overcome the "middle income trap". Investors are waiting to see if sustained economic growth this year will give China's leaders the confidence to quicken reforms, though many policy insiders believe Beijing will tread cautiously in implementing painful changes due to resistance and worries about the impact on economic stability. Few specific policy changes are expected from the Party Congress and analysts are looking to the annual Central Economic Work Conference, which is usually held in December, for signals on the 2018 growth target and policy initiatives. The Chinese authorities are trying to walk a fine line by containing riskier types of financing and slowing an explosive build-up in debt without stunting economic growth. The PBOC in late September cut the amount of cash that some banks must hold as reserves (RRR) for the first time since February 2016. The move, effective in January, offers an earnings boost to banks if they lend more to struggling smaller firms and the private sector.
Steady Sept data expected
Analysts expected September industrial growth to accelerate to 6.2 per cent from a year earlier, against August's 6 per cent, while retail sales growth is seen edging up to 10.2 per cent. Fixed-asset investment is predicted to have increased 7.7 per cent in the first three quarters on-year, only slightly softer than a 7.8 per cent rise in January-August. The economy grew 6.9 per cent in the second quarter - the same as the first quarter, defying expectations for a slowdown due to firmer exports and a resilient property sector, despite a government pledge to crack down on rising risks. The economy is on track to hit the government's full-year growth target of around 6.5 per cent. Economic activity showed visible signs of slowing in July and August, as the property sector finally cooled in response to government measures, while lending costs rose - the result of a government crackdown on riskier types of lending. But some data for September pointed to a slight improvement, with imports and bank lending growing more than expected, while exports picked up. On Monday, data showed producer prices in September jumped 6.9 per cent from a year earlier, confounding views that producer inflation had peaked. Reuters
Canton Fair
Survey shows factories grappling with soaring prices Forty-four per cent of firms polled said the yuan's 5 per cent rise against the dollar this year had hurt their business "significantly" James Pomfret and Venus Wu
Chinese exporters at the country's biggest trade fair are more optimistic about global demand now than six months ago but Beijing's crackdown on pollution is ramping up costs and product prices, hurting smaller factories and foreign buyers. At the Canton Fair where some 25,000 manufacturers are showcasing products from industrial engines to egg-cracking machines, the mood is sanguine. The world's second-largest economy has defied expectations for a slowdown this year and import and export growth in September suggests factory activity remains in high gear. In a survey of 102 exporters at the Guangzhou-based trade fair, 77 per cent of the mostly small- to medium-sized Chinese manufacturers expect orders to increase next year, compared with 70 per cent during the previous event in April. But many manufacturers, especially smaller ones, complained about currency fluctuations and China's stepped up anti-pollution drive pushing costs up as firms scramble to invest in new equipment or costly processes to meet more stringent emissions standards. "The environmental regulations are hitting everyone. I'd say thirty per cent of factories are affected," said Lynn Chen, a director of Masda, a Pearl River Delta manufacturer of antennas with around RMB20 million (US$3 million) in sales annually. Larger factories were weathering the anti-pollution blitz better but many small factories were being forced out of business including small aluminium tube makers in eastern Zhejiang province, Chen said, noting that the
costs of sourcing such components for antennas had risen 20 per cent. Price rallies across the commodities complex have accelerated in recent months as the government has ramped up environmental inspections and factories prepare for the most stringent ever smog-busting measures across the north this winter. Some 28 cities have been ordered to slash output of heavy industry from aluminium and steel to cement for four months from Nov. 15.
Price of clean air
David Li of Guangzhou Light Holdings that makes karaoke speakers with pulsing disco lights said plants with metal plating, dyeing, or spray painting processes had been badly hit, raising production costs by 5 to 10 per cent. A virtual ban on waste paper imports on environmental grounds, was also creating a shortage of generic cardboard packaging, driving paper prices up more than 60 per cent in some cases, four exporters said.
"The changes are good, but they're being pushed through too fast," said Li. Of the 102 exporters polled by Reuters, production cost was the biggest concern. While online sourcing has partially supplanted marquee trade events such as the Canton Fair, which began in 1957, the event continues to draw tens of thousands of Chinese factories and foreign buyers, making it a useful barometer of China trade. Some foreign businessmen said they were shocked by the jump in prices for some products. "It's really scary. How could the price change so much?" said Lagos-based Maxwell Akabuogu who has cut the number of containers he sends monthly to Nigeria from 12 to 3, with prices of lead batteries, his staple product, having surged 30 per cent over the past four months. "I'm starting to buy from South Korea now. It's more reliable and the price is steady," he said. Venee Wen, a regional sales
manager for the Guangzhou Tiger Head Battery Group, that makes the popular "555" brand, said lead battery prices had jumped 20 to 30 per cent since April given a surge in costs for the base metal. "China's long-term policies on the environment are good but there is a short-term impact ... the bad (polluting) companies have died," she told Reuters. "The buyers will have to get used to these prices. They won't go back to the previous levels." During the summer, zinc and lead prices in Shanghai rallied with scores of local mines shutting down for long stints during anti-pollution inspections. Winter production curbs have also stoked record buying of raw materials from abroad.
Currency pain
Forty-four per cent of firms surveyed said the yuan's 5 per cent rise against the dollar this year had hurt their business "significantly", while nearly 50 per cent said it was hurting them "slightly". Forty-three per cent see a further appreciation of the yuan by 2-5 per cent in the coming 12 months. Concerns about a trade war between China and the United States under President Donald Trump have also eased, with 30 per cent seeing such a possibility in the current poll, compared with 40 per cent in April. "Trump is a businessman," said Liu Linxia, a LED TV maker. "He'll make some noise, but not fight." Many shrugged off geo-political tensions in North Korea escalating into a possible conflict, with only one in five exporters polled concerned about this risk. Reuters
Business Daily Wednesday, October 18 2017 9
Greater China Financing
In Brief
Banks sell most short-term debt ever even amid curbs China’s banks are still bingeing on short-term financing, defying analyst predictions that they would wean themselves off such debt as regulators intensify a crackdown on leverage Julie Zhu and Guillermo Parra-Bernal
Sales of negotiable certificates of deposit (NCD) -- a key funding source for medium and smaller banks -- surged 49 per cent from a year ago in the third quarter to a record RMB5.4 trillion (US$819 billion), according to data compiled by Bloomberg. While strategists had predicted in June that the NCD market would shrink, it turned out to be one of the few funding channels left as officials drained cash from the interbank market and asked lenders to strengthen risk controls. China’s deleveraging looms large in debt-market dynamics these days, with government bond yields at two-year highs and the one-week Shanghai Interbank Offered Rate not far from the most expensive since 2015. Still, officials are also trying to keep the economy humming: they’ve tweaked the rules governing NCD issuance, but haven’t shut off the taps as credit growth accelerates. “The short-term debt is an indispensable fundraising channel for smaller banks,” said Shen Bifan, head of research at First Capital Securities Co.’s fixed-income department in Shenzhen. “As other channels get squeezed, and lenders’ books continue to expand, as is the case now amid solid economic growth, it’d be difficult to see the NCD market size shrink.” Net financing -- sales minus maturities -- through such securities was at RMB333 billion in the third quarter, versus a total of RMB1.7 trillion in the first
‘The certificates came under regulatory scrutiny last year, when they started to serve as a source of leveraged bond investments for some institutions’ half, data compiled by Bloomberg show. With more than RMB8 trillion of contracts outstanding, it’s now the fourth-largest type of bond in China, after sovereign, local government and policy bank debt. While 15 of 26 traders and analysts surveyed in June said the market size will shrink, only 10 of
22 respondents polled last month said see that happening. The certificates -- which have b e e n u s e d b y l e n d e rs t o f i nance purchases of each other’s wealth-management products -came under regulatory scrutiny last year, when they started to serve as a source of leveraged bond investments for some institutions. In August, the People’s Bank of China asked lenders with more than RMB500 billion of assets to classify the debt as interbank liabilities from next year. This is seen effectively capping sales. “The central bank’s rules indicate the smallest lenders aren’t affected, so they can continue to issue the debt,” said Qin Han, chief bond analyst at Guotai Junan Securities Co. in Shanghai. If the NCD market expansion can go back to a more reasonable pace, it’s acceptable to the regulations, he said. Reuters
Any deal will add to the US$123.8 billion of consumer acquisitions in Asia this year
buyout firm Leonard Green & Partners and businessman Bruce Rockowitz, are working with an investment bank to find a buyer for a controlling stake in the Hong Kong-based company, according to the people. It has drawn interest from Chinese private equity firms, the people said, asking not to be identified as the information is private. Many of Pure Group’s fitness
China's HNA Group Co Ltd plans to invest RMB50 billion (US$7.6 billion) in tourism and digital transformation, a company executive said yesterday. Eric Tong, an HNA Group board member and Chairman of HNA Technology Group, told Reuters on the sidelines of a media event the firm will primarily focus on tourism-related investment over the long term. He did not elaborate further on the investment plans.
Outbound investment slumps nearly 42 per cent
Hong Kong finance elites’ gym of choice seeking sale
Owners of Pure Group, the billionaire-backed gym chain catering to Hong Kong’s financial elite, are seeking a sale that could value the company at as much as US$500 million, people with knowledge of the matter said. Pure Group investors, including
HNA Group to invest US$7.6 billion in tourism
ODI
M&A
Vinicy Chan and Jonathan Browning
Strategy
centres occupy prime Hong Kong real estate like IFC Mall, a stone’s throw away from the local headquarters of UBS Group AG and the stock exchange. Earlier this year, it opened a 10,000-square-foot (930-square-meter) yoga facility in the upscale Pacific Place mall, just downstairs from the offices of Carlyle Group LP, in a spot where a Burberry
Group Plc outlet used to stand. “A buyer would care about the China expansion. The market is at a relatively early development stage -- people are trying to work out more and get a healthy lifestyle,” Jacqueline Ko, an analyst at Kim Eng Securities (HK) Ltd., said by phone yesterday. “They can charge a premium for a famous Hong Kong brand.”
Rooftop bar
Pure Group also operates the rooftop RED Bar + Restaurant, which offers views of Hong Kong’s Victoria Harbour, and sells its own brands of activewear and organic food. The company has more than 70,000 clients and employs 1,400 staff, Pure Group’s website shows. Hong Kong’s Pure Group isn’t related to the U.K.-based chain PureGym Group. Rockowitz, the chief executive officer of Global Brands Group Holding Ltd. and husband to Chinese pop singer Coco Lee, owns around half of Pure Group, according to the people. He is expected to divest a significant portion of his holding in any sale, the people said. Fung Group, the private holding company of Hong Kong billionaire brothers Victor and William Fung, is also seeking to offload its stake of about 10 per cent, said the people. Pure Group management may keep a minority interest in the company, according to two of the people. No final decisions have been made, and there’s no certainty the deliberations will lead to a transaction, the people said. Representatives for Pure Group and Fung Group said they couldn’t immediately comment. A representative for Leonard Green didn’t respond to emailed queries, while Rockowitz didn’t respond to requests for comment. Bloomberg News
China's non-financial outbound direct investment (ODI) fell 41.9 per cent in January-September from a year earlier to UD$78.03 billion, the Ministry of Commerce said yesterday. For September alone, ODI plummeted 42.5 per cent on-year to US$9.31 billion, according to Reuters calculations. That pointed to a further worsening from August, when it sank 24.8 pct decline. The commerce ministry did not give out a September figure. China says it continues to encourage genuine overseas deals but has vowed to limit overseas investment in property, hotels, entertainment, sports clubs and film industries. S&P
Beijing has only taken baby steps to cut leverage China has taken “baby steps” toward cutting leverage as lending from banks slows, but progress has been uneven as borrowing by households and the government has risen, according to S&P Global Ratings. Authorities are adopting both tight and loose policies to try to reduce the country’s dependency on debt without causing a hard landing, analysts led by Christopher Lee wrote in a note dated Oct. 16. S&P last month cut China’s sovereign rating for the first time since 1999, saying it didn’t believe enough was being done to contain credit growth. Ratings lowered
Wanda purportedly talking with lenders A unit of Dalian Wanda Group Co. is negotiating with lenders about rescheduling some debt after its credit ratings were cut to junk, triggering a clause requiring early payment of some offshore loans, according to people familiar with the matter. Covenants requiring mandatory prepayments at Wanda Commercial Properties were triggered on loans totalling more than US$1 billion, according to people, who aren’t authorized to speak publicly and asked not to be identified. Moody’s Investors Service and S&P Global Ratings late last month downgraded the credit ratings of the company.
10 Business Daily Wednesday, October 18 2017
Greater China Finance
Online shoppers turn Jack Ma's Ant into a debt giant Local consultancy IResearch estimated China’s outstanding consumer credit will jump to RMB41 trillion in 2019, from RMB19 trillion in 2015 They’ve made billions of dollars helping sell everything from iPhones to hairdryers on China’s burgeoning online shopping platforms. Now, tech giants led by Alibaba Group Holding Ltd.’s finance affiliate are making money off the loans consumers use to buy those products. Amid surging demand from cashstrapped Chinese millennials, companies such as Ant Financial -- controlled by Alibaba’s billionaire founder Jack Ma -- have been extending more consumer loans. The firms are then packaging the debt into complex financial products that they then sell on to investors, with Ant Financial selling at least RMB149 billion (US$23 billion) of the so-called asset-backed securities this year, according to data compiled by Bloomberg and local research firm China Securitization Analytics. But the new practice is raising red flags for some analysts, who say there needs to be more transparency about how the securities, known as ABS, are created. “For this type of ABS, there are certain questions that need to be addressed,” said Jerome Cheng, a senior vice president in Hong Kong at Moody’s Investors Service. “What are the criteria based on which a lender will decide to grant loans to underlying borrowers? How do the lenders collect information about borrowers? To what extent will the underlying receivable performance deteriorate when the economy faces difficulties?” Oftentimes, the finance firms -which include one run by web retailer JD.com Inc. -- raise funds for such loans by issuing ABS that are tied to lending itself. Few questions were asked when Miuki Wang, a graduate student in Shanghai, got a RMB10,000 loan for a trip to London this summer in a matter of seconds, all through an app on her smartphone. Ant Financial approved her request at 14.6 per cent annual interest through its mobile-based lending service "Jiebei," which means "Just Borrow." Wang paid off the debt in September, and plans to borrow more online. “Money will devalue over time,” she said. “Why not just spend it all now?” Local consultancy IResearch estimated China’s outstanding consumer credit will jump to RMB41 trillion in 2019, from RMB19 trillion in 2015. Securitized products that bundle such obligations are meant to spread the risks among different investors. The tech companies can’t take deposits like banks, so the ABS, which are generally sold in private placements to institutional investors, give them a way to raise funds. The latest ABS from Ant Financial that’s backed by loans through its Jiebei service pays a 5.5 per cent coupon for the senior tranche, according to data compiled by Bloomberg. ABS attracted global regulatory scrutiny after the 2008 financial crisis, when loans to subprime home buyers in the U.S. went bad. Since 2012, China has cautiously revived approvals of
the products. “In the short term, default risks for consumer loan ABS are very low because the underlying assets are composed of a number of loans in small sizes,” said Zuo Fei, an executive director and head of the ABS group in the investment banking division of China Merchants Securities Co. in Shenzhen. “These ABS products will be safe, unless systemic risks emerge in the economy and cause widespread defaults in consumer loans.” Officially named Zhejiang Ant Small & Micro Financial Services Group Co.,
statement. “Ant Financial strictly follows relevant regulatory rules in disclosing information to investors." The China Securities Regulatory Commission, which regulates ABS sold on the nation’s two exchanges, hasn’t responded to questions on the risks and disclosure requirements. According to CSRC regulations, issuers should disclose in a prospectus the asset pool’s overall statistics, screening standards and forecasts on cash flows. For privately placed products, prospectuses generally aren’t disclosed to the public. Internet platforms that sell securities such as ABS do not really have all
Creating Systemic Risk." JD.com, the nation’s second-biggest Internet mall, has sold RMB9.5 billion of consumer-loan ABS this year and Baidu Inc. issued RMB1.3 billion, according to data compiled by Bloomberg and China Securitization Analytics. Beijing-based financial technology firm Pintec Group, which sold ABS backed by instalment payments on online travel platform Qunar in June, plans a second offering. “When more and more companies have ability to build a track record of asset quality, certainly you will see more participants,” said Barry Freeman, Pintec’s co-founder.
the company has built more than 100 risk forecast models and more than 3,000 risk control strategies for lending, it said in response to questions on the products’ potential risks. Moody’s estimated in an August report that the outstanding amount of consumer loans extended by Ant Financial was about RMB200 billion as of March 31. “We comprehensively analyse clients’ credit and effectively manage risks to control non-performing ratios,” the company said in an emailed
necessary risk management protocols, according to Zhu Ning, deputy director of the National Institute of Financial Research at Tsinghua University. “The lack of information disclosure for ABS is a realistic concern as investors are actually investing on the government’s creditworthiness, rather than the fundamentals of any specific security,” said Zhu, author of "China’s Guaranteed Bubble: How Implicit Government Support Has Propelled China’s Economy While
Yan Hong, Shanghai-based professor at Shanghai Advanced Institute of Finance, said information disclosure about the underlying assets of consumer-loan ABS generally isn’t sufficient, even to those who invest in them. “Regulators need to strengthen information disclosure requirements,” said Yan. “It may not be practical to disclose all the details of each loan in the pool, but issuers or underwriters should at least disclose basic statistics of the asset pool.” Bloomberg News
Risk models
Business Daily Wednesday, October 18 2017 11
Asia
Singapore's harbour
Trade
Singapore exports post surprise decline as electronics stumble On a seasonally adjusted month-on-month basis, exports in September fell 11.0 per cent after a 4.5 per cent rise in August Fathin Ungku and Aradhana Aravindan
S
ingapore's exports unexpectedly fell from a year earlier in September, data showed yesterday, their first on-year contraction in five months as electronics shipments posted their first decline in almost a year. Non-oil domestic exports fell 1.1 per cent in September on-year, data from the trade agency International Enterprise Singapore showed, the first fall since April's 0.6 per cent decline. The September contraction was a stark contrast to analysts' forecasts for a 12.7 per cent increase. "We had already been expecting electronics exports to moderate eventually.
It was always going to be very difficult to sustain double-digit electronics growth, both on export and production side. We have always been very cautious on this sector," said Nomura economist Brian Tan. In August, exports grew a revised 16.7 per cent from a year earlier. Electronics exports, a major driver of the city-state's trade in recent months, fell for the first time since October 2016, contracting 7.9 per cent in September from a year earlier. Analysts said it was too early to say whether the data marks a minor blip or a deeper correction in the broader surge in demand for electronics goods. Singapore and other trade-dependent Asian economies have gained a
big boost this year from improved global demand,
Key Points Sept non-oil domestic exports -1.1 pct y/y, -11.0 pct m/m Electronics down 7.9 pct y/y Sept NODX to China up 9.6 pct from year earlier particularly for electronics products and components such as semiconductors. Asia's other tech export powerhouses, South Korea and Taiwan, posted stronger-than-expected shipments in September, boosted by continued strong global demand for memory and processing chips. China's export
growth also picked up in the month. Stronger global trade in general this year has also benefited Singapore, which boasts one of the world's largest container ports and a global air cargo hub. However, ING economist Prakash Sakpal said in a research note the weak September exports raise the prospects of a downward revision in third quarter GDP growth. On a seasonally adjusted month-on-month basis, exports in September fell 11.0 per cent after a 4.5 per cent rise in August, the sharpest decline since June 2016 when exports fell 13.0 per cent. The Reuters poll had predicted a contraction of 0.1 per cent.
In the third quarter, the city-state grew much faster than expected at 6.3 per cent from the previous three months on an annualised basis, driven by demand of its tech products. Analysts say the recovery is too narrow and that growth likely will start to moderate next year. "Overall, we are expecting GDP growth of 2.8 per cent this year, so this is roughly still fitting that picture," Tan said, adding that data over the next couple of months is required to understand "whether this was more permanent or just a one-off". Singapore's central bank held monetary policy steady last week, although analysts say its policy statement suggests a cautious view about growth next year. Reuters
Private poll
Japan manufacturers' mood hits decade high Service sector sentiment fell to 30 from the previous month’s two-year high of 34, dragged down by retailers Tetsushi Kajimoto and Izumi Nakagawa
Confidence among Japanese manufacturers rebounded in October to match a peak last seen in mid-2007, a Reuters poll found, further evidence that the economic recovery is gathering momentum helped by a weak yen and strong overseas demand. The monthly poll followed an Oct. 2 Bank of Japan survey that showed big manufacturers were the most optimistic about the business outlook in a decade. The survey results are an encouraging sign for Prime Minister Shinzo Abe ahead of an Oct. 22 lower house election as he hopes to convince voters his reflationary policies are helping to sustain a private sector-led recovery. The Reuters Tankan service-sector sentiment index slipped from the previous month's two-year high but remained relatively high. "Global car sales have been performing well," a manager of a transport equipment maker wrote in the survey, in which companies respond anonymously. An electrical machinery maker said: "Currency fluctuations have
been small and orders have been steady." The poll of 548 large- and mid-sized companies was conducted Sept. 28 to Oct. 12, in which 254 firms responded. The sentiment index for manufacturers rose six points in October to 31, driven by producers of electrical machinery, metal products and other
machinery, and oil refiners. The index matched a high last seen in June 2007. Service-sector sentiment fell to 30 from the previous month's two yearhigh of 34, dragged down by retailers. That could be a concern for private consumption, which constitutes some 60 per cent of the economy. The manufacturers' and
service-sector indexes were expected to fall to 24 and 28 respectively in January, reflecting concerns about North Korea, the outlook for the Chinese and U.S. economies, and Japan's domestic politics. Business sentiment will be among indicators the BOJ board will scrutinise when it issues fresh long-term
Key Points Oct manufacturers' sentiment index +31 vs +25 in Sept Service-sector index +30 in Oct vs +34 in Sept Business mood seen slumping ahead Reuters Tankan closely tracks BOJ tankan economic and price forecasts at a rate review on Oct. 30-31. BOJ policymakers hope a sustained economic recovery will boost wages and consumer spending, but analysts expect inflation to remain some way off the central bank's 2 per cent target. Reuters
12 Business Daily Wednesday, October 18 2017
Asia Negotiations
U.S., Japan fail to bridge gap on trade in economic talks Governments said they agreed to boost cooperation in areas such as transportation, infrastructure development and finance, without elaborating Leika Kihara
T
he United States and Japan agreed to work together against the rising threat from N o rth K o r ea b u t failed to bridge differences on thorny issues of trade during economic talks on Monday, with Tokyo skirting U.S. demands to negotiate a two-way trade deal. In the second round of bilateral economic dialogues held a month before U.S. President Donald Trump's first trip to Asia, his Vice President Mike Pence and Japanese Deputy Prime Minister Taro Aso emphasised cooperation to deal with Pyongyang's rising nuclear capabilities. "The United States...will continue to bring the full range of American power to bear on the regime in Pyongyang as we hope to achieve through diplomatic and economic means a peaceable solution and the achievement of the longsought goal of a nuclear-free Korean peninsula," Pence told Aso during the talks. Japan agreed to streamline noise and emissions testing procedures for U.S. auto exports, while the two countries lifted trade restrictions on U.S. potatoes and Japanese persimmons. But the United States and Japan remained at logger-heads on how to frame
future trade talks with Tokyo pushing back against U.S. calls, made by Pence, to open up talks for a bilateral free trade agreement (FTA). "The U.S. side expressed strong interest in U.S.-Japan FTA ... They also voiced interest in ways to cut the U.S. trade deficit," said a Japanese government official. Japan explained how its companies were creating U.S. jobs through investment and argued against focusing narrowly on the bilateral trade deficit, the official said. "We will continue to discuss what framework Japan
Key Points U.S. shows "strong interest" in bilateral trade deal Japan says no agreement on trade framework Agree to cooperate vs threats from North Korea No decision on safeguard vs U.S. frozen beef imports No discussions on forex at bilateral econ dialogue and the United States would create on trade," he told reporters, adding that there was no agreement between the two countries on whether to open up talks for a two-way trade deal.
There was also no agreement on U.S. complaints about Japan's safeguard mechanism on U.S. frozen beef imports. Sources have told Reuters that Tokyo will propose technical changes to the system to reduce U.S. pressure. "There were some exchanges on the topic today. But discussions are on-going," the official said.
Relationship test
The talks are shaping up to be a test of whether the close U.S.-Japan relationship can withstand Trump's "America First" trade policies. The Trump administration has said it would like to negotiate a two-way trade deal to give U.S. goods more access
to Japanese markets. Tokyo has shown little appetite to meet U.S. calls to open up its highly protected agricultural markets ahead of a general election on Sunday in which Prime Minister Shinzo Abe's ruling coalition is seeking to win votes from farmers and dairy producers. Aso had hoped to defuse calls for a bilateral trade deal by cooperating on infrastructure and energy, for fear a two-way trade agreement would expose it to stronger U.S. pressure to open up its politically sensitive farm produce markets. In Monday's talks, the governments said they agreed to boost cooperation in areas such as transportation, infrastructure development and
finance, without elaborating. No date or venue were set for the next round of dialogue. Ahead of the talks, analysts said it was unclear whether the two sides could narrow their trade differences. "Japan has no plan to open talks for a bilateral free trade agreement (FTA) anytime soon," said a Japanese government official with knowledge of the negotiations. "We may not see much progress as Washington seems to have a lot on their plate," with talks on renewing the North American Free Trade Agreement (NAFTA) also under way, the official said on condition of anonymity as he was not authorised to speak publicly. Reuters
Security
Philippine President declares Marawi liberated as battle goes on The 148-day occupation by Islamic State loyalists marked the country's biggest internal security crisis in years Masayuki Kitano
Philippine President Rodrigo Duterte declared the southern city of Marawi liberated from pro-Islamic State militants yesterday, although a military spokesman said 20-30 rebels were still fighting it out and were holding about 20 hostages. Speaking to soldiers a day after the killing of two leaders of the rebel alliance, Duterte said the fight was over and it was time to heal the wounded and rebuild the city of 200,000 people on the island of Mindanao. "I hereby declare Marawi City liberated from terrorist influence that marks the beginning of rehabilitation," Duterte told soldiers in Marawi. Isnilon Hapilon, Islamic State's "emir" in Southeast Asia, and Omarkhayam Maute, one of two "Khalifas" at the helm of the Dawla Islamiya militant alliance, were killed in a targeted operation on Monday and their bodies had been recovered and identified, authorities said. Experts say the government has for years underestimated the extent to
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which extremism has taken root in impoverished and underdeveloped Muslim areas of the Catholic-majority Philippines. Military spokesman Restituto Padilla said that although the fight was not completely over, the remaining rebels were "stragglers" who no longer posed a threat. "There is no way that they can get out anymore, there is no way for
anyone to get in," Padilla told news channel ANC. "So choking them to death at this point will be very key for our troops to do since the area is very much contained and very much controlled." Padilla said Malaysian operative Mahmud Ahmad had been in Marawi City since the start of the fight and the military believed he was still there. The authorities could not be
Filipino soldiers display the dead bodies of Isnilon Hapilon (C-bottom) and Omar Maute (C-top) in the war-torn city of Marawi. Source: Lusa
‘Military spokesman Restituto Padilla said that although the fight was not completely over, the remaining rebels were "stragglers" who no longer posed a threat’ completely certain, however, but saw him as no threat. "Dr. Mahmud is an academic, he's not a fighter," Padilla said. "We don't feel he is a problem." Some security experts say Mahmud, 39, a skilled recruiter and fundraiser who trained at an al Qaeda camp in Afghanistan, is a candidate to replace Hapilon as Islamic State's point-man in Southeast Asia. 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 18 2017 13
Asia Green policy
In Brief
Australia shuns clean energy target in policy overhaul
Monetary policy
S.Korea c.bank seen holding key rate again
The new policy will allow energy retailers to decide what sources of power to use Sonali Paul
Australia's government yesterday rejected calls to set a clean energy target, instead scrapping aid for renewable projects and adopting a fuel-neutral energy policy that it said could keep the country's lights on and cut power prices. Prime Minister Malcolm Turnbull won support from his Conservative party for a plan to end subsidies for renewable energy after 2020, while requiring energy retailers to guarantee an energy mix that would bring both reliable power and lower carbon emissions. Turnbull set out to overhaul energy policy a year ago to end a decade of political strife over carbon targets - amid rising power prices for domestic consumers - and stabilize the nation's grid after a huge storm blacked out the country's most wind power-dependent state. "These guarantees will ensure there is a place for all power sources in the nation's future energy mix - solar, wind, coal, gas, batteries, pumped hydro," Turnbull said, announcing the plan in a video posted on social media. "Our plan has no subsidies, no certificates and no tax." Turnbull had faced a revolt from right-wing members of his party, led by former prime minister Tony Abbott, who do not believe climate change is a threat, and back coal while opposing subsidies for renewable energy. Australia's energy supply woes have grown as states promoted rooftop solar and wind power over the past 10 years in the absence of a consistent national policy on carbon emissions.
Australian Prime Minister Malcolm Turnbull
At the same time, coal- and gas-fired power plants have been shut, reducing crucial back-up for wind and solar, while costs have risen. Household power prices in eastern Australia have soared 63 per cent over the past nine years, the nation's consumer watchdog said in a report on Monday.
“Our plan has no subsidies, no certificates and no tax” Malcolm Turnbull, Australian Prime Minister Spurning a recommendation for a clean energy target from the country's chief scientist, the new policy will allow energy retailers to decide what sources of power to use. It could result in an extension of the lives of some ageing coal-fired plants if needed to help back up intermittent wind and solar power. Australia's biggest power retailers - Origin Energy, AGL Energy, and
EnergyAustralia,ownedbyHongKong's CLP Holdings - are also the country's biggest generators of electricity. Trading in their shares was mixed, but AGL Chief Executive Andy Vesey welcomed the plan as a first step. "With bipartisan support, it will provide investment certainty," he said on social media. Still, the opposition Labor Party joined wind and solar advocates in saying the decision not to adopt a clean energy target was a mistake. "Labor's position is clear: Australia should have at least 50 per cent of its electricity delivered by renewable energy by 2030," shadow energy minister Mark Butler told reporters. The power industry fears that if Labor does not back the plan and wins the next election - due in late 2018 or early 2019 - policy could be overhauled yet again, leaving no certainty for investors. "The clean energy target was the best opportunity in years to lock in the long-term bipartisan energy policy needed to encourage investment in cleaner energy," Clean Energy Council chief executive Kane Thornton said in a statement. Reuters
New Zealand inflation picks up in Q3 Economists said the central bank was unlikely to waver from its determination to keep interest rates at record lows for years New Zealand's inflation rate jumped in the third quarter to overtake central bank forecasts, but was unlikely to alter the bank's determination to keep rates on hold for years. The consumer price index (CPI) picked up 0.5 per cent in the three months to the end of September, after a flat reading for the previous quarter, Statistics New Zealand data showed yesterday. The CPI grew 1.9 per cent on an annual basis, driven by housing and food costs and beating analysts' expectations for a 1.8 per cent rise. The reading was also well above
Diplomacy
U.S. renews call for Cambodia to release opposition leader The United States renewed a call for Cambodia's government to release the country's main opposition leader Kem Sokha from prison, after parliament voted to change election laws that would re-distribute his party's seats if it was dissolved. The government is seeking to dissolve Kem Sokha's Cambodia National Rescue Party (CNRP), arguing he and his party sought to topple the government, a move which would help Prime Minister Hun Sen extend his 32-year rule at the next election in 2018. The U.S. State Department said Washington was "deeply concerned" by parliament's passage of the amendments. Quality fraud
Kobe Steel faked data for more than 10 years
Prices
Charlotte Greenfield
South Korea's central bank is expected to keep its benchmark interest rate unchanged on Thursday, as policymakers weigh risks stemming from tensions surrounding North Korea and the possible renegotiation of Seoul's trade pact with Washington. All 20 economists polled by Reuters said they expect the Bank of Korea (BOK) to keep its policy rate at a record-low 1.25 per cent, where it has been since June 2016. The economists are unanimous in expecting the BOK will hold its interest rate for the rest of this year, while a small majority of 12 see a hike to 1.50 per cent during the first half of 2018.
the 1.6 per cent predicted in August by the Reserve Bank of New Zealand (RBNZ). "For now, inflation sits comfortably in line with the Reserve Bank's target. However, there is little that suggests a risk of inflation breaking higher, particularly with the New Zealand economy seemingly entering a slower growth phase," said Michael Gordon, senior economist at Westpac Bank. New Zealand's previously robust economic growth slowed in recent quarters as skill shortages led to capacity constraints and red-hot house prices cooled. A d d e d t o that w as i n t e n s e
uncertainty about the direction of the country's next government after an inconclusive election last month left a small, nationalist party holding the balance of power. The third quarter gains in price growth were led as usual by housing related costs, with rents rising an annual 2.2 per cent. New Zealand's booming population, stoked by record net migration, has created strong demand for housing in the past few years, though house prices themselves have eased
Key Points Q3 CPI rises 0.5 pct qtr/qtr, 1.9 pct yr/yr Data beats expectations, NZ dollar rallies RBNZ unlikely to rethink neutral policy stance- analysts this year as central bank restrictions on lending took effect. Food bills rose 1.1 per cent on strong global prices for soft commodities, while new government charges pushed non-tradables inflation, excluding housing, to a three year high of 2.2 per cent. "There are tentative signs that inflation's broadening beyond housing but we’ve been here before that that's petered out," said Philip Borkin, economist at ANZ Bank. Reuters
Kobe Steel Ltd falsified data on product quality and specifications longer than the 10 years that the company had previously stated, a source with knowledge of the matter said. Japan's No.3 steelmaker is still trying to nail down the extent of the tampering, the source told Reuters, requesting anonymity because he was not authorized to speak to the media. The cheating went on for decades with the knowledge of plant and quality control managers, the Nikkei reported earlier, without identifying the source of the information. M&A
ANZ sells pension business to IOOF Australia and New Zealand Banking Group Ltd has sold its pension unit to IOOF Holdings for A$975 million (US$766 million), joining the rush of Australian banks quitting non-core and scandal-hit divisions to boost capital. The deal fell short of a total exit of ANZ's insurance and wealth management operations which the bank had flagged a year earlier, and which had been expected to fetch about A$4 billion. But Atlas Funds Management chief investment officer David Hugh, who owns ANZ shares, said it meant the bank could now focus again on its core lending business.
14 Business Daily Wednesday, October 18 2017
International In Brief Politics
South Africa's Zuma reshuffles cabinet South African President Jacob Zuma appointed a close confidant to be energy minister yesterday as his government tries to push through one of the biggest nuclear deals in decades. Zuma's second Cabinet reshuffle in seven months saw him change six ministers, including those for home affairs, education and communications, and axe a vocal critic of his scandal-plagued presidency. The appointment of David Mahlobo, formerly state security minister, to head the energy ministry will heighten speculation that Zuma is trying to push through the nuclear deal before his second presidential term ends in 2019. Agriculture
Rabobank, UN launch fund to boost sustainable farming Rabobank NA is launching with the United Nations US$1 billion in financing for farmers to transition to more sustainable practices as food companies and consumers are demanding more supply chain transparency. Rabobank and the United Nations are splitting the cost of the program, which is designed to push farmers to consider more sustainable practices despite higher costs and potentially lower yields at the outset, executives for the Dutch bank said yesterday in an interview. With the three-year program, Rabobank plans to offer a mix of grants, loans with lower interest rates and insurance products.
Financing
Qatari banks to reduce dollar sales to foreign lenders Lenders under pressure after Saudi Arabia, the United Arab Emirates, Bahrain and Egypt sever diplomatic and transport links Archana Narayanan and Zainab Fattah
S
ome Qatari banks are becoming less willing to sell dollars to foreign lenders amid a lingering regional standoff with a Saudi-led alliance, according to people familiar with the matter. Foreign exchange activity between local and international banks is almost at a standstill with Qatari lenders increasingly reluctant to provide quotes for dollar sales, the people said, asking not to be identified because the matter is private. The central bank is still providing dollars to local lenders to meet domestic business needs at the pegged rate of 3.64 riyals per dollar, they said. To get dollars needed to fund imports and other commercial activities for local clients, foreign banks are using the offshore market to buy the U.S. currency at a higher rate and may have to pass these costs on to clients, some of whom are in Qatar, the people said. Qatari lenders are coming under pressure after Saudi Arabia, the United Arab Emirates, Bahrain and Egypt severed their diplomatic and transport links with the gas-rich state, accusing it of supporting extremist groups, a charge it denies. Banks from these countries are said to have since pulled deposits from Qatar, refused
to roll over holdings and stopped any new business with Qatari institutions.
‘Legitimate transactions’
State-run Qatar National Bank QPSC, the Middle East’s biggest lender by assets, said in an email the information is “incorrect.” The central bank is providing dollars to local banks “as and when required for
‘Qatari banks are seeking to raise funding after authorities told lenders to tap international investors, sources said’ all legitimate transactions with an underlying commercial basis.” The bank doesn’t support speculation “by others in the dollar/riyal interbank market,” it said. Central bank officials didn’t immediately respond to requests for comment. Qatar is capable of supporting its banks with assets in the country’s vast sovereign wealth fund and foreign
currency reserves, the central bank governor said on Oct. 5. Stress tests routinely conducted by the central bank show the strength and efficiency of Qatari banks in the face of the “arbitrary measures” imposed by boycotting countries, said Governor Abdullah bin Saoud Al Thani. Qatari banks are seeking to raise funding after authorities told lenders to tap international investors, instead of mainly relying on the government, people aware of the matter said in August. QNB, Commercial Bank QSC and Doha Bank QSC are among lenders said to be considering options that include loans, private placements or bonds. The government too is considering raising at least US$9 billion from international bond markets to replenish state coffers, people said earlier this month. Qatar pumped almost US$40 billion to support the economy and financial system in the first two months of the standoff, Moody’s Investors Service said. The Qatar Investment Authority, which has reduced its direct holdings in Credit Suisse Group AG, Rosneft PJSC and Tiffany & Co., is considering selling more of its US$320 billion of assets, which includes stakes in Glencore Plc and Barclays Plc, and channelling the proceeds into its home market, people said this month. Bloomberg News
Environment
Plant more trees to combat climate change Planting forests and other activities that harness the power of nature could play a major role in limiting global warming under the 2015 Paris agreement, an international study showed on Monday. Natural climate solutions, also including protection of carbon-storing peat lands and better management of soils and grasslands, could account for 37 per cent of all actions needed by 2030 under the 195-nation Paris plan, it said. Combined, the suggested "regreening of the planet" would be equivalent to halting all burning of oil worldwide, it said. Investment
Airbus to take majority stake in Bombardier CSeries jet program Airbus SE agreed on Monday to buy a majority stake in Bombardier Inc's CSeries jetliner program, grabbing control of a struggling competitor at the second attempt and giving the Canadian plane-and-train-maker an unexpected boost in its costly trade dispute with Boeing Co. The deal, which would come at no cost for Airbus, would give the European plane maker a 50.01 per cent interest in CSeries Aircraft Limited Partnership (CSALP), which manufactures and sells the jets, the companies said.
Report
No Brexit deal would raise UK household bills by £260 a year British finance minister Philip Hammond said on Monday he did not think there was a rising danger of failure to reach a Brexit deal David Milliken
British households would have to pay an average of £260 (US$345) a year more for food, clothing and transport if their government fails to strike a post-Brexit free trade deal with the European Union, a research paper showed yesterday. Britain's government has said it would levy World Trade Organization tariffs on goods imported from the EU if it leaves the bloc without a settlement, a probability which some economists put at roughly 25 per cent. That would mean tariffs of up to 45 per cent on some dairy imports while some meat would face a 37 per cent levy, researchers from the University of Sussex and the Resolution Foundation, a think tank focused on the low-paid, said. A typical middle-income household would pay an extra £260 a year, even taking into account a partial shift to cheaper and British-produced goods, they said. That was equivalent to an extra 0.9 per cent in household spending. The poorest 10 per cent of households
“A 'no-deal' scenario ... will increase the cost of essential goods, such as food and clothes, which will impact most adversely on those households who already struggle to get food on the table” Ilona Serwicka, Sussex researcher would see their bills rise by 1.0 per cent, and the richest 10 per cent by 0.8 per cent. "A 'no-deal' scenario ... will increase the cost of essential goods, such as food and clothes, which will impact most adversely on those households
who already struggle to get food on the table," Sussex researcher Ilona Serwicka said. The actual cost rise would vary significantly depending on individual spending patterns and some less welloff households could see their costs go up by more than £500 a year. British finance minister Philip Hammond said on Monday he did not think there was a rising danger of failure to reach a Brexit deal before Britain leaves the EU in March 2019, despite concern among many investors. Some Brexit supporters have said Britain would benefit from scrapping all tariffs on goods imports after it leaves the EU, regardless of what the bloc does for UK exports. Yesterday's report said this could save the average household £130 a year, or 0.5 per cent of typical spending. But the researchers said some industries, such as meat processing, and the rural parts of England where they are concentrated would suffer a big hit in the face of cheap imports and scrapping tariffs immediately would make it harder to get tariff-free access for British exports in future. Reuters
Business Daily Wednesday, October 18 2017 15
Opinion Hong Kong stocks need to lose this stamp of authority Shuli Ren a Bloomberg Gadfly columnist
E
ven as Hong Kong's stock market hits records this month, there's a nagging worry among traders: turnover is too low. How solid is the bull run without a pickup in volume? Hong Kong Exchanges & Clearing Ltd. now has a solution. The bourse operator is considering asking the government to remove or reduce a tax on stock transactions, Benjamin Robertson of Bloomberg News reported. Currently, the territory charges a 10-basis-point stamp duty on both sides of a trade. The proposal may sit well with Carrie Lam, Hong Kong's new chief executive, who made promoting financial services part of her policy platform. Shares of HKEx rose as much as 4.5 per cent Monday. The stamp duty should have been removed long ago. Stock exchanges in the U.S. don't impose such levies, while China has a 10-basis-point fee on only one side of a trade. Partly because of this, both the U.S. and Chinese markets are a lot more liquid than Hong Kong. While companies listed in Hong Kong and Shanghai have a comparable total market value, there's more than twice as much trading in Shanghai. This asymmetry helps explain why duallisted stocks remain on average 27 per cent more expensive in Shanghai, three years after the launch of a trading link between the two bourses. Mainland China's institutional investors are spoiled by market liquidity there and may not even want to exploit the valuation arbitrage with Hong Kong. Another drag is penny stocks. While major exchanges in the U.S. delist them, Hong Kong has no such safeguards. About 40 per cent of the 2,000 common shares listed in the city trade at less than HK$1, commanding more than HK$100 billion (US$10.8 billion) of market value. Due to lack of liquidity and analyst coverage, their valuations can remain high for long periods -- until a crash that can wipe out billions in a day. Removing stamp duty might attract shrewd algorithmic traders to resolve Hong Kong's penny stock enigma. While it all looks good on paper, I wouldn't get too carried away: This is the Hong Kong government, after all. "Stamp duty on stock transactions is a matter of the government's fiscal policy. Any change to the tax will not be a decision of HKEx," the exchange owner said in an e-mailed response. Last week, Hong Kong property developers' shares tumbled after Lam made no mention, in her first public speech, of farmland conversion that could have benefited developers such as Henderson Land Development Co. Investors ran up real estate firms' prices in the expectation Lam would announce a plan to zone large farmland plots in the New Territories for private housing. They were disappointed. Meanwhile, HKEx is now trading at a whopping 44 times forward earnings, with estimated earnings growth of 21 per cent this year and just 12 per cent next. So for the time being, chill out. The next move is up to Lam. Bloomberg Gadfly
China crude oil storage splurge is OPEC's best friend Clyde Russell a Reuters columnist
C
hina's crude oil imports surged to the second-highest on record in September, but this isn't a sign of supercharged demand in the world's second-biggest economy. It's rather a shuffling of where oil is being stored around the globe and a couple of factors that caused a temporary boost to Chinese import demand. China's crude imports jumped to 37 million tonnes in September, equivalent to 9 million barrels per day (bpd), according to preliminary customs data released on Oct. 13. This was up from August's 8 million bpd, but it's worth noting that August was an eight-month low. More importantly, China's oil imports are up 12.2 per cent in the first nine months of 2017 from the same period last year. This certainly looks like solid growth in the world's biggest crude importer, and indeed, demand for refined fuels had been higher than expected at the start of the year, mainly on the back of strength in infrastructure and construction. But it also appears that China is buying substantial amounts of crude for its strategic and commercial storages. The September figure was likely boosted by the start-up of China National Offshore Oil Corp's new Huizhou refinery, with plants typically requiring around 21 days of commercial reserves to ensure smooth operations. The return from maintenance of some of the independent refineries also likely boosted crude imports in September. But it also appears that China's on-going buildup of its strategic storage contributed to import demand. China rarely releases data on its Strategic Petroleum Reserve (SPR), but Thomson Reuters Oil Research and Forecasts estimated that at least 1.15 million tonnes, or about 280,000 bpd, flowed into the SPR in September. The International Energy Agency said on Oct. 12 that China has been building its crude stockpiles at a record pace in 2017, contributing to the country's expected demand growth of 540,000 bpd in 2017 from 2016. The IEA does expect China's crude oil demand growth to slow to 325,000 bpd in 2018 as the country closes in on filling its available storage tanks. While China's buying of crude for its SPR isn't a new dynamic, in the global oil market it effectively represents a shift of where oil is being stored.
“
Stored oil flows to China
As the global benchmark Brent crude moves into backwardation, where prices for oil for future delivery become cheaper than cargoes for immediate shipping, it becomes unprofitable for producers and traders to store crude. This has resulted in stored oil being released onto the market, and China has shown it's a willing buyer. In particular it appears that crude in floating storage in the Asian region has been moved to China. While it may seem of limited consequence for oil simply to move from one place to another, it does matter for market dynamics. Oil in China's SPR is effectively off the market, insofar as it's unlikely to be used or be available for sale, unless there is a crisis of some description. H o w ev e r, o i l st o r e d i n anchored tankers or in landbased facilities can be traded and shipped. In other words, it is dynamic and part of the global physical oil market. It's these inventories that the Organization of the Petroleum Exporting Countries (OPEC) and its allies have been targeting in their efforts to rebalance the global market and boost the price of crude. The overhang of crude acted as a drag on the price, and as oil moves out of storage it tightens the market, allowing OPEC and other producers to raise prices. In some ways China's demand for oil for its SPR has been OPEC's biggest ally, but it should also be noted that China most likely has boosted oil imports precisely because the price has been relatively cheap. Whether China would ease purchases for its SPR if crude prices rose strongly remains to be seen, but it certainly would be a possibility. With Brent remaining below US$60 a barrel despite the output curbs by OPEC and its allies, it's also likely that China will continue to fill its SPR. This means the country's crude imports will likely remain robust in coming months, even if they slip back somewhat from September's elevated levels. However lower quotas for the export of refined products may also hamper China's demand for imported crude in the fourth quarter, with refiners getting close to having used up their allocations for the year. As usual there are competing dynamics at work in China's crude oil markets, but it is likely that good consumption growth in the domestic market and strong flows into storages will offset any loss of demand from slowing refined product exports. Reuters
The overhang of crude acted as a drag on the price, and as oil moves out of storage it tightens the market, allowing OPEC and other producers to raise prices
”
16 Business Daily Wednesday, October 18 2017
Closing Party spokesman
Mainland's deleveraging will not have negative impact on economy
China's efforts to reduce debt and stable economic growth should not be viewed as being in opposition as the government will ensure its deleveraging campaign will not have a negative impact on the economy, a Communist Party spokesman said yesterday. "In the long term, proactive deleveraging helps to eliminate risks that could impact steady and healthy economic development," said spokesman Tuo Zhen. "Deleveraging has shown some initial results and has not shown any adverse impact on the economy."
Tuo made the remarks at a news briefing a day ahead of the opening of the key, twice-a-decade Party Congress that will see President Xi Jinping map out his ambitions for the country and further tighten his grip on power. The Congress will end on Oct. 24, Tuo said. Tuo also said China would continue to open up to the world as part of reform. "We will persist with our fundamental state policy of opening up, continue to expand openings to the outside, hasten in building an open economic system, further expand market access, and promote a new round of high-quality opening." Reuters
Real estate
Driverless cars bring visions of building boom, suburban sprawl In New York, it won’t be until 2040 that “land use planning is permanently altered” to accommodate self-driving cars Patrick Clark
I
t’s 2027 (or 2037) and the age of the self-driving car. City-dwellers have traded in their car keys for ride hails. Street parking has been replaced by wider sidewalks and bike lanes, while developers are busy converting garages into much-needed housing. That’s one vision of how self-driving cars will affect U.S. real estate, laid out in a report by MIT’s Center for Real Estate. But it’s not the only one. Even as reclaimed parking spaces fuel a downtown building boom, autonomous vehicles will encourage builders to push deeper into the exurban fringe, confident that homebuyers will tolerate longer commutes now that they don’t have to drive, according to the report, sponsored by a unit of Capital One Financial Corp. In the first scenario, cities become more like New York, with walk able streets and fleets of autonomous vehicles for public transit. In the second, they become more like Dallas or Phoenix, which already function as a collection of suburbs. “It’s a polarization,” said Albert Saiz, a co-author of the paper, which also covers subjects such as the future of retail space and strategies for producing more-affordable housing. “I see both things happening at once.”
Long road
It’s far from clear how long it will be before fully autonomous vehicles are ready to rule the road, or how
governments will choose to regulate them. The 25 biggest U.S. cities generated a combined US$5 billion last year from parking tickets, vehicle registrations, and other related revenue, according to data compiled by Governing magazine. Governments will also have to grapple with the likelihood that as the cost of the ve-
Rick Palacios, director of research at John Burns Real Estate Consulting. Palacios also sees the vehicles driving suburban sprawl, though, in his view, builders will start by redeveloping downtown sites, then move to the suburbs after they’re done with the parking garages and other legacy sites.
when driverless trucks are used to transport materials, he said. If it’s hard to predict how or when these changes will take hold, it’s also hard to know how they’ll affect property values. The developable land is likely to temporarily slow price appreciation in cities, Palacios said, adding that values will
Slower home sales
probably rise once the new parcels are used up. In already popular urban areas, driverless cars could spur more gentrification and increase property values further, Saiz said in a follow-up email. On the other hand, the vehicles could drive real estate values down by creating new supply in the suburbs. “Sorry to hedge,” he said, “but it is ambiguous!” Bloomberg News
‘In potential effects on the real estate market, driverless cars would help seniors stay independent longer’ hicles comes down, fleet companies may overburden roads with them. In New York, it won’t be until 2040 that “land use planning is permanently altered” to accommodate self-driving cars, according to a study this month by the Regional Plan Association, an urban research and advocacy group for the metropolitan area. Still, Saiz is optimistic that self-driving cars will unlock buildable space. Developers are already starting to target parking structures, gas stations and auto dealerships, betting that they’ll be able to redevelop the sites as car ownership becomes obsolete, said
In other potential effects on the real estate market, driverless cars would help seniors stay independent longer, slowing home sales but also reducing the demand for assisted-living facilities, Palacios wrote in a September research brief. The remodelling industry may get a boost as older homeowners invest in makeovers to help them age in place. Construction costs will decline
Economists
Health
Poll
Powell likely next Fed chief, though Yellen best suited
China confirms bird flu outbreak in central province
German investor confidence edges up in October
Jerome Powell likely will be the next Federal Reserve chairman, according to a slim majority of economists in a Reuters poll - but most of them said current Fed Chair Janet Yellen would be the best option. Just over half the 40 economists who participated in the survey, taken in the past few days, tipped Fed Governor Powell to be appointed chair by U.S. President Donald Trump when Yellen's current four-year term ends on Feb 1, 2018. Powell, a lawyer and former investment banker, has served as a member of the Fed's Board of Governors since May 2012. "The most continuity between Fed chairs would be Yellen to Powell. Given where we are in the tightening cycle some consistency would be welcomed by financial markets," said Ryan Sweet at Moody's Analytics. "A regime change can be a little more rattling and unnerving for markets." The next most likely choice was Kevin Warsh, who served as a Fed governor during the financial crisis, with 13 forecasts. Yellen received only four. Also on the list of options, alongside being able to suggest someone else, was Trump's top economic adviser Gary Cohn. Reuters
China yesterday confirmed an outbreak of bird flu at broiler chicken farms in a central province, the Ministry of Agriculture said in a statement. Flocks are particularly vulnerable to avian flu during the drier winter months, following which outbreaks usually die down. The outbreak in Hexian, a city of about 500,000 people in the province of Anhui, was caused by the H5N6 strain of virus, and has been brought under control, the ministry said on its website. The local government culled 30,196 fowl after the outbreak, which infected 28,650 broiler chickens and killed 15,066 of the birds, it added. The last bird flu outbreak, also of the H5N6 strain of the virus, killed 9,752 birds on quail farms in the southwestern province of Guizhou, the ministry said in August. South Korea and Japan battled major outbreaks during the winter. The H7N9 strain of the virus has caused at least 281 deaths since October in China, with two cases of human infection last month, authorities said last week. Live poultry markets were shut down in many provinces following the human infections. Reuters
Confidence among investors in Germany inched up in a monthly survey yesterday as the dashboard of Europe's largest economy remained green, but fell short of forecasts for a big leap. The ZEW institute's headline barometer, which measures financial players' expectations for the coming months, added 0.6 points to reach 17.6. That was well short of the 20.0 reading predicted by analysts surveyed by FactSet, but continued the indicator's recovery from an August slump. October's improvement was "decisively influenced by good growth figures in recent months," ZEW president Achim Wambach said in a statement. Industrial production and new orders both beat expectations in August, he noted, while "similarly good growth figures for Europe improve conditions for German exports, which in any case are increasing strongly again." In a poll measuring investors' mood about present economic conditions, the reading slipped slightly, suggesting the complex coalition talks forced on Chancellor Angela Merkel by September's general election are weighing on the money men's minds. AFP