Macau Business-November2019

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By Tony Lai tonylai@macaubusiness.com

business

Future Bright to sell Hengqin food plaza

Future Bright Holdings Limited announced it has entered into an agreement to sell the property it owned in Hengqin and previously destined for an international food plaza project, for RMB300 million (MOP343.1 million) to Zhou Luohong, a Macau resident. The property is located within the Guangdong-Macao Cooperation Industrial Park in Hengqin New Area, has a total buildable gross floor area of approximately 49,849 square meters, and was last valued by JLL at HK$450.2 million. The area was bought in 2015 by the company headed by legislator and businessman Chan Chak Mo, with an intent that most of the units would be rented out on completion of its development, while a small portion of the units would be retained for self-use.

DFS introduces WeChat facial recognition payments

Luxury retailer DFS Group has stated that it now allows WeChat facial recognition payments in Macau, adding that this decision made the group the first international merchant to introduce the platform outside Mainland China.

Previously, Chinese customers wanting to use WeChat Pay would need to provide a QR code on their telephone and go through a manual scanning process. However, this year the Chinese payment platform under Tencent introduced technology that allows customers to make a purchase simply by posing in front of point-of-sale (POS) machines equipped with cameras, after linking an image of their face to a digital payment system or bank account.

Bus contracts to be extended

The Secretary for Transport and Public Works, Raimundo do Rosário, has admitted that the government will renew the concession contracts with the city’s two bus operators for another 14 months after an agreement could not be reached. The current contracts expired on October 31 with the secretary indicating that during the 15-month negotiating period no agreement was reached to extend the new contract beyond 14 months and declined to explain the reasons given by both sides. The new contract is expected to be similar to the current one with only the duration changed and the annual subsidy of MOP1 billion (US$124 million) granted to bus operators to remain.

South Shore selling 40pct in The 13

South Shore Holdings Limited has announced that it has entered an agreement for the disposal of a 40 per cent interest in a subsidiary that beneficially owns luxury property The 13 Hotel for a total consideration of up to HK$750 million (US$95.6 million). This subsidiary was said to have a liability for bank borrowings of approximately HK$2.9 billion and interest accrued thereon, with South Shore having entered into a non-binding memorandum of understanding in January of this year with an associate of a substantial shareholder for the disposal. South Shore also expects to enter into another agreement relating to the disposal of a further 10 per cent interest.

18 hotel projects under construction

There are currently 18 hotel projects under construction with 6,935 new rooms to be added to the city upon completion, revealed Land, Public Works and Transport Bureau (DSSOPT). Some other 24 hotel developments representing 4,067 rooms are still under the project phase. Until last August there were 119 hotels and guesthouses in operation, three more than the same month last year, with the number of available guest rooms having dropped slightly by 100, year-on-year, to 39,000, of which 64 per cent are from 4-star and 5-star hotels.

Export credit insurance for lusophone countries launched IKEA to open first store

Swedish furniture group IKEA has announced that its first store here should open in the first quarter of next year. The 8,361 square meter store will be located in Taipa and aside from the shopping area will offer an IKEA cafe and Swedish Food Market. Until now only an IKEA pick-up location at the Macau Tower was available to Macau residents.

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The Monetary Authority of Macau (AMCM) announced the launch of an export credit insurance system aimed at reducing trade risks with Lusophone countries. Although insurers are already providing such services in Macau, they generally “only cover the export activities of Portugal and Brazil, based on political risk considerations,” explained the AMCM president, quoted in an official statement. With the creation of this bank policy, Macau companies can purchase insurance on the debt receivable from their export activities from the insurance company and participating banks to protect the company’s collection risk.

Shortly near you

José I. Duarte

Economist, Macau Business Senior Analyst

jid@macaubusiness.com

ometimes really surprising news pops up. That was the case, I dare to say, of the recently announced bid by Macau to create a Nasdaq style, yuan-denominated stock exchange. According to the news, and quoting Guangdong province official sources, Macau may have just submitted such a proposal to the central government. (The reasons for this cautious statement will be apparent below.)

To be fair, the matter is not entirely new. Earlier in the year, a reference to the issue appeared in the development plan for the Greater Bay area. But other than a vague request to carry out a feasibility study, little was discussed on the topic. It is not a minor issue. The making a new stock exchange in China is not an obvious need or proposition, and doing it in a city mainly known worldwide for its gambling prowess can always raise a few eyebrows.

The actual status of the matter is, however, not entirely clear.

Guangdong sources seemed to imply that the feasibility study was carried out under the auspices of the Monetary Authority of Macau, and an actual submission was made. Which would, in turn, indicate that the feasibility study had concluded that the scheme was indeed feasible, and the conclusions were detailed enough to sustain an actual application. If that were the case, it would be an achievement in such a tight timeframe. This is a complex mater on several levels -technical, financial, and legal, to state the more obvious ones.

However, the recent statement by the Monetary Authority, conveyed through the press office of the government, only acknowledges it commanded a study to “international consulting companies,” and the process is “ongoing orderly.” The Monetary Authority goes no further than stating that it will take into account the other existing exchanges and the needs (not detailed) of the country.

That does not help much in clarifying what exactly the

authorities have in mind. Doing the same others are already doing would not look plausible, and doing it against the stated or perceived interests of the country would be downright nonsensical. No press release available at the Authorities’ website refers to the subject. No reference seems to exist there, no matter how one searches for clues.

There was hope, apparently expressed to the press by the Guangdong sources, that the central government would give the green light to the scheme in time for the 20th-anniversary celebration – a kind of birthday gift. But the specifics are still scarce.

That is regretful, as the rationale for such an exchange is less than straightforward, and the feasibility assessment in short order fundamentally implausible.

One may consider that an offshore exchange denominated in yuan, may be attractive to Chinese companies. Let us assume that is the case without further argument. But a stock exchange in a city where millions flow daily through casinos is bound to be problematic, both in political and regulatory terms.

Then, the elements that make a location attractive for a stock exchange cannot spring up overnight. They involve a wide pool of technical skills, reliable infrastructure, a robust regulatory framework, and predictability of the judicial process, to name a few.

These requirements form the basis for business confidence without which such an endeavor is problematic. Such trust may take decades to build.

In sum, it is not just that the rationale for the initiative is unclear. The confusion about the actual state of affairs, the conflicting statements by authorities on both sides of the border, and the uncertainty about the proposal contents and timeframe are unhelpful. It is not a good start, admitting that this is actually the start of something. november 2019

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business

Insurance: the most investigated sector for data privacy breach complaints

The insurance sector in the SAR was the target of the largest number of investigations conducted by the Office for Personal Data Protection (GPDP) over data privacy infractions. A total of 330 investigations under the Data Protection Law were conducted by the GPDP in 2018, with 221 cases transferred from the previous year and only 109 investigations initiated last year. About 60 percent of the cases initiated in 2018 pertained to complaints of lack of legitimacy by the entity to deal with certain personal data, with 23 percent of the cases involving complaints that the entity was not following necessary data protection procedures. A total of 108 investigations were concluded last year with sanctions handed out by the privacy watchdog in only 10.6 percent of the cases.

Non ending story

US authorities have rejected an appeal by local bank Delta Asia Financial Group (Banco Delta Asia or BDA) to remove sanctions imposed to the banking entity and its subsidiaries 12 years ago, newspaper Tribuna de Macau reported.

On September 2005 the U.S. Department of Treasury designated BDA as a primary money laundering concern under the USA Patriot Act due to possible involvement with North Korean corrupt financial activities. Then on March 2007 the US Treasury Department Financial Crimes Enforcement Network (FinCEN) officially sanctioned BDA and blocked it from the country’s financial system.

Recession cause by underperforming economy

The International Monetary Fund (IMF) has adjusted its predictions concerning the Macau SAR economy, now estimating that the local Gross Domestic Product (GDP) will decrease by 1.3 per cent this year and by 1.1 per cent in 2020. In April the IMF had forecasted that Macau’s economy would grow 4.3 per cent this year and 4.2 per cent by 2020. After a 3.2 per cent downturn in the first quarter, it was revealed local Gross Domestic Product (GDP) contracted 1.8 per cent in the second quarter of this year, with Macau entering into a technical recession.

The International Monetary Fund (IMF) justifies its recession forecasts with the negative performance of the local economy in the first half of the year, plus declining investment and exports resulting from “gambling tourism”.

Interest rate cut

The Macau Monetary Authority (AMCM) is lowering the base rate of the discount window by 25 basis points to 2.0 per cent, making it the third time policy rates were cut this year.

This follows a US Federal Reserve decision on October 30 to lower the Fed funds rate target range by 25 basis points, with its Hong Kong and Macau counterparts following suit.

The decision comes as the International Monetary Fund (IMF) announced estimates that Macau’s economy will see a recession of 1.3 per cent this year, while Hong Kong – which with was gripped by almost five months of protests – is expected to see its GDP grow by only 0.3 per cent GDP, after a 3 per cent growth was previously expected.

No time to spend all the money?

The government has used only 72 per cent of its MOP22.9 billion (US$2.8 billion) budget for investments (PIDDA) in 2018, according to last year’s budget execution report. In total, the Government had an authorised expenditure budget of MOP105.1 billion, but finished 2018 with MOP83 billion in expenses – up 2.1 per cent year-on-year – with investments representing only 20 per cent of expenses. The Office of Secretary for Social Affairs and Culture, Alexis Tam, had the second-largest authorised PIDDA budget, but only used 43.6 per cent of the MOP3.7 billion provided for departments under his authority, the lowest execution rate recorded by the five Secretaries.

Secretary for Economy and Finance, Lionel Leong Vai Tac, had the lowest allocated PIDDA budget, some MOP491.7 million, but the highest execution rate, some 87.1 per cent.

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How a Weaponized Dollar Could Backfire he language of international monetary policy has turned militaristic. The phrase “currency war” has now been popular for a decade, and the United States government’s more recent “weaponization” of the dollar is generating controversy. But ironically, a martial approach could end up threatening the US currency’s global dominance.

This is a good time to gauge the relative strengths of the dollar and rival international currencies (meaning currencies that are used outside their home countries). In September, the Bank for International Settlements released its triennial survey of turnover in global foreign-exchange markets. The International Monetary Fund’s statistics on central-bank holdings of foreign-exchange reserves have become much more reliable since China began reporting its holdings. And the SWIFT payments system issues monthly data on the use of major currencies in international transactions.

The bottom line is that the US dollar remains in first place by a wide margin, followed by the euro, the yen, and the pound sterling. Some 47% of global payments currently are in dollars, compared to 31% in euros. Furthermore, 88% of foreign-exchange trading involves the dollar, almost three times the euro’s share (32%). And central banks hold 62% of their reserves in dollars, compared to just 20% in euros. The dollar also dominates on other measures of currency use in trade and finance.

As for China, the renminbi is still in eighth place in terms of foreign-exchange market turnover. But it rose in August to fifth place in SWIFT payments, and, after leapfrogging the Canadian and Australian dollars, ranks fifth in central banks’ foreign-exchange reserves.

Predictions early in this decade that the renminbi might challenge the dollar for the number one spot by 2020 clearly will not be borne out. True, China’s currency fulfills two of the three necessary conditions to be a leading international currency, namely economic size and the ability to keep its value. But it still has not met the third: deep, open, and liquid financial markets.

Although the dollar’s share of foreign-exchange reserves and trading has trended downward, particularly since the turn of the century, the decline has been slow and gradual. Moreover, the euro’s share of reserves has fallen more rapidly (since 2007) than that of the dollar. Despite years of US fiscal and current-account deficits, and the country’s rising debt-to-GDP ratio, the dollar remains ensconced as the number one global currency – presumably owing to the lack of a good alternative.

Descriptions of exchange-rate policies have become increasingly extreme. If we took the three militaristic terms in vogue at face value, we might infer that a country with sufficient financial power first weaponizes its own currency, and then launches a speculative attack against that of a rival. If that elicits retaliation, a currency war has broken out.

However, such an interpretation would be nonsense, because these three military terms are inconsistent with each other in a currency context. To see why, let’s consider them in reverse order: first currency wars, then attacks, and weaponization last.

When Brazilian government ministers popularized the phrase

Jeffrey Frankel

Professor of Capital Formation and Growth at Harvard University

“currency war” in 2010-2011, they were accusing the US and other countries of pursuing competitive depreciation. G7 finance ministers and central-bank governors subsequently pledged in 2013 not to target exchange rates, which was understood to include officials either “talking down their currencies” or pursuing monetary stimulus in a deliberate or explicit effort to depreciate them.

The one major country to have violated this 2013 agreement is not China, but the US. President Donald Trump has repeatedly engaged in “verbal intervention” to talk down the dollar. More worryingly, he has crudely pressured the US Federal Reserve to lower interest rates with the explicit objective of depreciating the currency.

By contrast, international relations specialists typically associate the exercise of geopolitical power with a strong currency. This is why some highlight the danger that China could “attack” America by dumping its vast stockpile of US treasury securities, thereby driving down the dollar and driving up the US government’s borrowing costs. That would work to appreciate the renminbi and thus would be the opposite of competitive depreciation.

More broadly, when a country runs chronic budget and current-account deficits, it undermines its geopolitical power – as the United Kingdom showed in the course of the twentieth century. The US inherited the UK’s “exorbitant privilege”: it can finance its deficits easily because other countries want to hold the world’s leading international currency.

Finally, the “weaponization” of the dollar generally refers to the US government’s exploitation of the currency’s global dominance in order to extend the extraterritorial reach of US law and policy. The most salient example is the Trump administration’s enforcement of economic sanctions against Iran in an attempt to shut the country out of the international banking system, and in particular SWIFT. Even before Iran agreed to halt its nuclear weapons program under the 2015 nuclear deal, Europeans occasionally grumbled about US extraterritoriality, suspecting that the US might be quicker to impose large penalties on European banks than on their American peers for violating sanctions. But, because Trump abrogated a treaty that Iran was not violating, enforcing US sanctions via SWIFT is a real abuse of the exorbitant privilege. Arguably, it can no longer be justified in the name of a global public good.

Faced with US sanctions, Russia shifted its reserves out of dollars in 2018 and is selling its oil in non-dollar currencies.

Likewise, Europe or China may succeed in developing alternative payment mechanisms that would allow Iran to sell some of its oil. That might in turn undermine the dollar’s role in the long run.

More generally, US foreign policy under Trump continues to run counter to America’s traditional post-war objectives. The prospect might seem a distant one, but should the US carelessly relinquish leadership of the global multilateral order, the dollar might eventually lose its own long-standing primacy.

Exclusive Macau Business / Project Syndicate

november 2019

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By José I. Duarte

tonylai@macaubusiness.com

tonylai@macaubusiness.com

“In our view, the bridge has had a very minimal impact on GGR at best” – Grant Goversten

tonylai@macaubusiness.com

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BMW No. Cars: 2 No. FIA GT World Cup Wins: 1 No. Macau GT Cup Wins: 1 2019 Season Highlights: China GT Championship champion

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November Date: 1st - 3rd Event: 2019 Macau Business Aviation Exhibition Venue: Macau International Airport Contact: Nam Kwong (Group) Company Ltd Date: 4th - 8th Event: 2019 IEEE/RSJ International Conference

on Intelligent Robots and Systems (IROS2019)

Venue: Convention and Exhibition Center at The Venetian Macao Contact: Institute of Electrical and Electronics Date: 6th - 8th Event: PCMA Asia Pacific Annual Conference Venue: The Parisian Macao Contact: PCMA Date: 12th - 14th Event: MGS Entertainment Show 2019 Venue: Convention and Exhibition Center at The Venetian Macao Contact: Macau Gaming Equipment Manufacturers Association Date: 29 th - 1st Event: 12th Xmas Shopping Festival Venue: Convention and Exhibition Center at The Venetian Macao Contact: w ww.aplus1996.com

December Date: 6th - 8th Event: Play Hub Expo Venue: Convention and Exhibition Center at The Venetian Macao Contact: MACEXPO Exhibition Co., Ltd Date: 7th - 8th Event: Macao Society of Nuclear Medicine and Molecular

Imaging Inauguration Ceremony and 2019 Macao Scientific Symposium of Nuclear Medicine and Molecular Imaging

Venue: University of Macau Contact: Macao Society of Nuclear Medicine

and Molecular Imaging

Date: 15th - 18th Event: 2019 International Conference on Industrial Engineering

& Engineering Management (IEEM)

Venue: The Parisian Macao Contact: Meeting Matters International

Date: 18th - 21st Event: 2019 International Exposition of Intangible

Cultural Heritage & Ancient Art

Venue: The Venetian Macao Contact: Chinese Culture Promotion Society

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