Macau Business Daily, August 22, 2013 by Business Daily

Deputy editor-in-chief

Vitor Quintã

MOP 6.00

Assembly needs power on budget

April 19, 2013

Number 354 Thursday August 22, 2013

Editor-in-chief Tiago Azevedo

he Legislative Assembly must be given more power to oversee the government’s budget, in order to prevent cost overruns in major infrastructure projects, said its president Lau Cheok Va yesterday. It was his final press conference before he steps down after the September elections. He also used the occasion to fire a parting shot at the government for poor standards in the drafting of many laws and regulations sent to the assembly. “We should have a standard regulating every part of the legislation procedure: the drafting of the bill and the deliberation, so that we can regulate how the government legislates and avoid the messiness as we see now, and enhance the legislative quality,” said Mr Lau.

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New city walking routes for Golden Week tourists

‘No concrete data’ on LRT budget overrun

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UK’s Tesco ponders local supermarkets’ stake

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Patane plot plan quickens on gazetting

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Two idle land plots in Patane are a step closer to being developed, more than five years after the government permitted a political heavyweight the right to develop them. A dispatch published in the Official Gazette yesterday shows Tin Wai Investment Co Ltd, a company linked to businessman and Executive Council member Liu Chak Wan, was on Friday awarded the land – with a combined area of 4,670 square metres. Page 2

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4.86

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GALAXY ENTERTAIN

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0.58

LENOVO GROUP LTD

0.41

HENGAN INTL

-2.14

SINO LAND CO

-2.25

MTR CORP

-2.57

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Housing and dining new inflation drivers With housing costs climbing and restaurant meals more expensive, Macau’s inflation has reached a five month-high, official data show. The Statistics and Census Service said the annual inflation rate increased for a third consecutive month to 5.38 percent last month. It said a leading reason was “higher rentals for dwellings”. Rents have increased by 15.2 percent since July last year. Page 3

Shun Tak profits tumble in first half Profits at the shipping and property firm Shun Tak Holdings Ltd nearly halved in the six months to June 30. But the Hong Kong-listed company has a large roster of upcoming projects in Macau and Hengqin Island. Unaudited profit attributable to owners of Shun Tak was HK$672 million (US$ 86.66 million), compared to just over HK$1 billion for the same period last year. Page 6

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August 22, 2013

Macau

Work on idle Patane land one step closer Macau political heavyweight is set to take control of land, after more than five years of clashes Tony Lai tony.lai@macaubusinessdaily.com

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Tin Wai’s bid in January 2008 for two pieces of land

Liu Chak Wan wants to build luxury flats in 90-metre-high towers on a site in Patane

wo pieces of land laying idle in Patane are a step closer to being developed, more than five years after the government permitted a political heavyweight the right to develop them. A dispatch published in the Official Gazette yesterday shows Tin Wai Investment Co Ltd, a company linked to businessman Liu Chak Wan, was awarded on Friday the land with a combined area of 4,670 square metres. Mr Liu is a member of the Executive Council and standing committee member of the Chinese People’s Political Consultative Conference. The land grant was made official

Electricity fare could drop by 1 cent: CEM Big hotels, casinos could start paying more by the end of this year

he city’s sole electricity distributor expects the electricity tariff to go down in the fourth quarter of this year as the fuel price begins to stabilise. The price of one kilowatt-hour of electricity could drop by one cent, said Iun Iok Meng, advisor to the Executive Committee of Companhia de Electricidade de Macau SA (CEM).

more than five years after Tin Wai won a public bid in January 2008 for the blocks with an offer of 1.42 billion patacas (US$177.5 million). The dispatch in the Official Gazette was signed by Secretary for Transport and Public Works Lau Si Io and confirms the delay was due to disputes over whether the two blocks could be combined for development. Mr Liu’s office did not return phone calls from Business Daily for this report. In March, Mr Liu told reporters that any development on the site would have “flats of a high quality” across 30 storeys in 90-metre-high towers. Any construction would begin only after the government had cleared

abandoned vehicles strewn on the site, he said. Tin Wai and the government have squabbled over who should remove the cars, with the government eventually giving in. “All the wrecks on the two land plots are basically removed and the government will hand over the land to the developer as quickly as possible,” a spokesperson for the transport and public works bureau told Business Daily. The spokesman said there was no date set for the handover. Yesterday’s dispatch also reveals that Mr Liu got his way in extending the development period to four years. The development window was originally three years, according to

Mr Liu. The clock will start ticking once the government hands over the site. Tin Wai gave up on attempts to merge the two plots to create a bigger block in December of last year, the dispatch says. The company first proposed the idea in May 2008, a few months after winning the tender. It took the bureau almost two years – until April 2010 – to reject the idea on the grounds it would “alter the requirements set up in the tendering documents”. Tin Wai will pay rent of 47,472 patacas annually during the development period. The company owes the government 853.8 million patacas from the land premium.

The fare for a unit of electricity is currently set at 0.45 cents of pataca (US$6 cents). But Macau households and smalland medium-sized enterprises only pay 0.36 cents of patacas per unit now as the government subsidises the remaining 9 cents. Mr Iun told the Chinese media on Tuesday that the lack of natural gas would not impose much pressure on the company this year, as the fuel price in the international market has remained constant. The Office for the Development of the Energy Sector confirmed last week there would not be sufficient supply of natural gas to CEM for electricity generation. This is despite the recent reopening of the natural gas pipeline from Hengqin Island after two years of suspension. Most of the electricity consumed in Macau in the second quarter was imported from mainland China, accounting for 92.8 percent of the total, government data reveal. Only 7.2 percent was

produced by CEM here, most of it by diesel generators. Mr Iun hopes the government will approve before the end of the year a new electricity tariff scheme, under which big users such as hotels and

casino resorts pay more. He expects this year’s electricity consumption to grow by just 2 percent to 3 percent this year, much slower than last year’s 9 percent. T.L.

August 22, 2013 April 19, 2013

Macau

Dining and housing are new drivers of inflation Low-income households hit hardest by price hikes on basic necessities Vítor Quintã vitorquinta@macaubusinessdaily.com

ith housing costs climbing and a meal at a restaurant becoming more expensive, Macau’s inflation rate has reached a five month-high, official data show. The Statistics and Census Service said the annual inflation rate increased for a third consecutive month to 5.38 percent last month. The city’s statistics bureau said a leading reason for the increase in the inflation rate was “higher rentals for dwellings”. Rents have increased by 15.2 percent since July last year. Housing costs include mortgage instalments paid by homeowners. Since most Macau families own their homes, about 70.8 percent according to the 2011 census, the impact of housing on the consumer price index has intensified. Housing costs are already the second biggest expense for households but have increased by 14.4 percent since July last year – accounting for one-third of the increase in the inflation rate. One-quarter of the increase in the rate of inflation was “attributable to dearer charges for eating out,” the statistics service said. Restaurant meals are the biggest single outlay for households and this expense increased by 6.9 percent in year-on-year terms. The cost of beverages grew by 7.8 percent.

Housing costs rose 14.4 percent in the 12-month period ended last month

The combined inflation rate for food and non-alcoholic drinks remains high at 6.4 percent but the most recent increase was the smallest increase in the past nine months.

Summertime specials Sluggish economic growth in the mainland, Macau’s biggest trading partner and supplier of food, is likely to have impacted food and beverage prices. Food price inflation in the

mainland stood at 5 percent last month. From a longer term perspective, inflation in Macau continues to decelerate. The price index rose by 5.47 percent in the 12-month period ended July, the smallest increase in the past nine months. Increases in food prices and housing costs meant low-income households – those spending between 6,000 patacas (US$751) and 19,000 patacas a month – suffered the worst of inflation’s effects. Since May last year, price inflation

for goods and services typically bought by lower-income households was 6.5 percent, 10 percent higher than for other families. That was because low-income households spend a greater proportion of their budgets on basic necessities and their prices rose most rapidly. Seeing a medical professional has also become much more expensive with the cost of medical services rising by 10.7 percent since July last year. With the summer holidays in full swing, charges for outbound package tours increased by 20.6 percent from the same month last year. In contrast, seasonal sales of summer fashions last month meant it was a good time to go shopping for clothes and footwear. The price index fell by 2.2 percent.

20.6%

Year-on-year growth in the price index of outbound package tours

Tourist walking trails ready for Golden Week Tourism chief says paths will divert tourism’s economic benefits throughout the city Tony Lai

tony.lai@macaubusinessdaily.com

he Macau Government Tourist Office will launch four walking routes to divert tourists from the central business district in time for the next wave of visitors in early October. The tourist bureau’s director Maria Helena de Senna Fernandes said yesterday the scheme could “enrich tourists’ choices” and “drive prosperity to other districts”. The four routes cover the Macau peninsula and will be promoted before the mainland’s seven-day National Day “Golden Week” vacation, starting on October 1. The mainland is the dominant source market for tourists, accounting for more than 60 percent of all visitors. The city welcomed more than 8.9 million mainland tourists in the first half of this year, 9.8 percent more than the same time last year, official data show. “One route will connect central downtown to Ponte Horta [in Barra district] and the other one will be along the coast, from the Macau

Fisherman’s Wharf to Macau Tower or even Barra,” she said. The third is located in the northern district and the other route is across Tap Seac Square, she said, adding that the details had not been finalised. Ms Senna Fernandes said northern district was a “relatively new area” for tourists with “less history and cultural characteristics”. But there were food delicacies on offer, unique small businesses and tourist destinations such as the Kun Iam Temple and Our Lady of Fatima Church. The tourist office would also work to improve road signs to help visitors find their way through the city. The government wants to divert tourists from the city’s busiest areas, particularly in the wake of the Chinese New Year holidays, when there were angry incidents at the Gongbei border gate. “There are opinions from some neighbourhoods… that are afraid of too many people and of spikes in shop rents but overall we will still divert the tourists,” Chief Executive

Most tourists venture no further than the city’s most crowded spots, such as the ruins of St Paul’s

Fernando Chui Sai On told the Legislative Assembly last week. Ms Senna Fernandes said the bureau was also following up on

a request by Mr Chui last week to review the city’s border facilities to identify better ways to accommodate visitors during severe weather.

August 22, 2013

Macau

No data on LRT budget overrun Govt promised to use public money wisely, respect the law when reviewing contractors’ requests Tony Lai

tony.lai@macaubusinessdaily.com

here is currently “no concrete data” on how much further the budget of the Light Rapid Transit elevated railway will increase, Transportation Infrastructure Office deputy director André Sales Ritchie said yesterday. The office will “adopt the principle of using public money wisely” to review the applications for additional works filed by the railway contractors. “We will also assess the need” for these works, he told media during a railway site inspection. The Commission of Audit last July criticised the office for allowing the railway cost to increase above 11 billion patacas (US$1.38 billion), almost three times its initial forecast. Asked about how big was the current budget, Mr Ritchie only said: “We have set up a provision in the contracts stating that the rise could not be above 5 percent if the changes are due to the inflation.” Top Builders International Co Ltd, one of the railway contractors, said last week the Taipa section of the project will be delayed by up to three years. The contractor argued they

could not start building the railway depot in Cotai as the soil in the site was reclaimed and required consolidation works. Mr Ritchie said yesterday: “There is a lot of information on the land in the tendering documents for the railway depot (…) The contractor was clearly aware of the soil structure.”

Transportation Infrastructure Office officials visited the LRT works yesterday

“We will review any questions raised by the contractors based on the tender documents and contracts and [Macau’s] laws,” he stressed. When asked if he believe the soil issue was the responsibility of Top Builders, the official did not answer. Top Builders senior commercial manager Calvin Pang said yesterday the tendering documents indicate “the soil has to be improved before any construction work”. “It was clearly the government’s obligation to improve the land first,” he added. Mr Ritchie said he instructed Top Builders to increase manpower and equipment to get back on schedule for the contractor’s other project, the transportation hub near Macau Jockey Club. The office later said in a press statement: “If the project progress is affected due to the contractor not fulfilling its contractual obligations, [we] will handle it in accordance with the contract.” The government has already fined Top Builders 180,000 patacas. The company has appealed.

Decision on Macau route this year The Transportation Infrastructure Office pledged to finalise the Macau route of the Light Rapid Transit (LRT) this year, including the controversial NAPE district section. Deputy director André Sales Ritchie said: “We are now at the final stage of evaluation and there will be a result within this year.” The Commission Against Corruption suggested in July 2012 that the railway should run along the coast rather than through the inner streets of NAPE amid opposition from residents. At the time the government promised it would review the plan by the end of 2012.

Corporate IFT hostel tops TripAdvisor ranking The Institute for Tourism Studies’ (IFT) training hostel is the best place to stay at in the city, according to Daodao. com, TripAdvisor’s official website in mainland China. Pousada de Mong Há topped the website’s ranking, which includes 83 guesthouses and hotels in Macau, and was again awarded a “Certificate Of Excellence Award”. Daodao’s ranking was set up in 2008 and the hostel has been included on the list since 2011. The hostel was not the only IFT training unit to be praised. The institute’s Educational Restaurant was also awarded a “Certificate Of Excellence Award”. According to Daodao.com, the restaurant was among the top three in Macau, in a list made up of 278 food venues. In Pousada de Mong Há and Educational Restaurant it is mostly students that get the job done – with the help of teachers – while acquiring hands-on experience.

Canada Life Insurance posts loss last year The Canada Life Assurance Co has posted a loss of 326,826 patacas (US$40,918) last year, according to the insurer’s results published in yesterday’s Official Gazette. The loss here comes after two years in which the company was able to break even, albeit only thanks to sundry income – revenue generated from sources other than a company’s normal business operations. In the insurance sector that income usually comes from financial investments. Canada Life Assurance got more money from life policies in 2012. Gross premiums increased by a 0.8 percent to less than 2.7 million patacas. In contrast the company had to pay more money life-policy holders. Gross claims rose 4.3 percent from the previous year to 1.95 million patacas. The insurer changed its name from Crown Life Insurance Co to Canada Life Assurance in April last year. Toronto-based Canada Life Assurance bought the Macau operations of Crown Life in 1999.

August 22, 2013

Macau Economic official to decide on youth start-up bids

Tesco may join China Resources’ ParknShop bid

he deputy director of Macau Economic Services, Tai Kin Ip, will preside over the committee that will evaluate the applications for the youth start-up fund, according to yesterday’s Official Gazette. The committee includes six other members, namely Alan Wong Yeuk Lai, managing director of Choi Heong Yuen Bakery, Lee Koi Ian, member of Macau Goldsmith’s Guild, and Iun Ioc Va, chairman of Industry and Commerce Federation of Islands of Macao. Pang Chuan, deputy dean of University of Science and Technology’s Faculty of Management and Administration, Lok Tan Cheng, chairwoman of the general assembly of Macau Society of Registered Accountants, Vong Sin Man, technical advisor of the Office of the Secretary for Economy and Finance, were the other members appointed yesterday. The committee will take “about two to three weeks” to decide on each application, Macau Economic Services director Sou Tim Peng said earlier this year. Any permanent resident aged between 21 and 44 can apply for loans of up to 300,000 patacas (US$37,500) to start his or her first business.

Move could give state-owned retailer a bigger slice of the Macau market

V.Q.

With Bloomberg News/Reuters

Vítor Quintã

vitorquinta@macaubusinessdaily.com

hina Resources Enterprise Ltd, the state-backed retail and beer conglomerate, said it may partner with Tesco Plc to bid for supermarket chain ParknShop. The potential move would give China Resources a bigger role in the Macau market as well. China Resources may raise debt and does not rule out selling “noncore” assets to fund a purchase of the ParknShop chain, Frank Lai, chief financial officer for the Chinese company, said at an earnings press briefing in Hong Kong yesterday. Hutchison Whampoa Ltd, controlled by billionaire Li Ka Shing, is considering a sale of ParknShop, one of the two largest chains in Hong Kong’s supermarket industry. ParknShop attracted at least eight offers from suitors including China Resources, people with knowledge of the process said this month. Mr Lai confirmed yesterday that China Resources has bid for the chain. ParknShop is a “quality asset” that is well operated by Hutchison Whampoa, he added. ParknShop, which had revenue of

Hong Kong-based supermarket chain ParknShop had 11 outlets here

HK$21.7 billion last year, currently has 11 of its 345 outlets in Macau. China Resources had 8 eight shops here at the end of last year. China Resources this month announced a joint venture with Tesco that will see the British firm merge its 131 stores in China with the Hong Kong-listed company. The joint venture will run supermarkets, convenience stores, and other outlets in Macau and Hong Kong as well as on the mainland. China Resources will hold an 80 percent stake in that tie-up with the

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United Kingdom retailer owning the rest, the companies have said. China Resources Enterprise yesterday reported a 54 percent drop to HK$1.02 billion (US$131 million) in first-half profit as weaker economic growth and a government push to curb public expenditures hurt demand. Profit in the retail division, which includes supermarkets and coffee shops and accounts for more than half of the company’s earnings in the period, dropped 64 percent to HK$637 million.

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August 22, 2013 April 19, 2013

Macau Win but not much cash for Poker Cup Brit Tom Alner (pictured) – British winner of the Macau Poker Cup’s latest edition – didn’t walk away with the most cash. Of the tournament’s final four – the higher their remaining chip stack, the greater percentage they took of the HK$6.33 million (US$816,274) prize pool. That reflects the player’s skill tournament-long. Fourth-place Victor Sheerman had 2,955,000 chips, so took the most cash – HK$853,000. Tom Alner had 1,820,000 chips and raked HK$723,000. “When the blinds [forced bets] go very high, the players are more interested in doing a deal,” explained tournament boss Danny McDonagh, PokerStars’ director of live operations for Asia Pacific.

Shun Tak profits tumble in first half But property and shipping firm has large roster of projects in Macau and Hengqin Island Michael Grimes

michael.grimes@macaubusinessdaily.com

rofits at the shipping and property firm Shun Tak Holdings Ltd nearly halved in the six months to June 30 the company said in a filing yesterday. Unaudited profit attributable to owners of the company for the period amounted to HK$672 million (US$86.66 million), compared to just over HK$1 billion for the same period last year. The firm said the latest profits would have been even lower were it not for a favourable revaluation on some company assets amounting to HK$508 million net of deferred tax. Significant changes on the balance sheet year-on-year in the first half included unspecified comprehensive

William Hill Online pulls out of China B

losses of HK$48.97 million – a more than threefold increase on the year earlier period. Fair value changes to investment properties booked as income more than halved to HK$213.30 million from HK$505.874 million a year earlier. Finance costs rose by 48 percent, to HK$103.299 million. Shun Tak also registered loans from non-controlling shareholders amounting to nearly HK$1.18 billion in the first half this year, compared to zero such liabilities the year before. Bank borrowings rose by nearly 19 percent, to almost HK$3.38 billion. The company additionally recorded HK$3.13 billion in medium-term notes under its non-current liabilities. Shun Tak, managed by Pansy Ho Chiu King, has extensive investments in Macau and plans even more in the city and on neighbouring Hengqin Island on the mainland. That should see Shun Tak’s earnings potential increase significantly in coming years, say analysts. In February Hong Kong-listed Shun Tak said in a filing it planned to issue up to US$1 billion (7.9 billion patacas) in U.S. dollar denominated bonds. At the time it stated it wanted the money for

“general corporate purpose”.  Shun Tak’s current Macau assets include retention of a 51 percent stake in One Central – a shopping and residential project connected to the MGM Macau casino resort that it helped to build in partnership with Hongkong Land Ltd. Shun Tak also controls Far East Hidrofoil Co Ltda, a passenger ferry concessionaire that operates under the TurboJET brand, and is the dominant provider of ferry services between Macau and Hong Kong. Shun Tak’s basic earnings per share for the first half were 22.5 HK cents, compared to 36 HK cents a year earlier. As in 2012, the firm decided not to issue an interim dividend for the period. But Shun Tak’s cash balances and deposits rose 15 percent in the six months from December 31, 2012, amounting to HK$8.85 billion as of June 30 this year.

Hengqin scheme Its development plan includes an as-yet-undisclosed project for 23,834 square metres (256,547 sq. feet) of land on Hengqin. It will pay 721 million yuan (US$116.7 million) for

ritish bookmaker William Hill PLC has withdrawn its online service for customers in China says the gaming industry news website calvinayre.com, quoting a message sent to the bookmaker’s affiliates. The firm cited “regulatory reasons beyond our control”. The decision was also said to apply to customers in Hong Kong and Macau, although industry sources told Business Daily that William Hill stopped taking bets from Hong Kong players several years ago at the request of the government there. In Macau, Macauslot – Sociedade de Lotarias e Apostas Mútuas de Macau Lda – a monopoly founded by Stanley Ho Hung Sun, is the only company legally authorised domestically to operate an online portal for betting on football and basketball. William Hill’s decision on China coincides with its expansion in the United States. There it is currently awaiting a Third Circuit Court of Appeals’ decision on whether to allow – beyond Nevada’s borders – cash wagering by U.S. citizens on U.S. sports events. M.G.

One Central – 51 percent owned by Shun Tak

the plot, the firm said last month. It signed a contract with Zhuhai officials on August 2. It is also planning the long awaited Harbour Mile scheme – on a waterside plot on Macau peninsula linking its part-owned One Central development to its Macau Tower complex. Previous filings referred to it as for “residential/commercial/ hotel” with a total gross floor area of 401,166 square metres.  “The Macau SAR Government is continuing to review the master plan of Nam Van area, and is anticipated to need more time to finalise the master plan,” Shun Tak said in yesterday’s filing. The document added – with reference to Cotai, the new highgrowth casino zone away from the traditional downtown area: “The group has made application for land grant and is in discussion with the Macau SAR Government on its plan to develop five-star hotels on the site.” In mid-July Shun Tak announced it had set up a hotel management unit called Artyzen Hospitality Group Ltd, led by Rogier Verhoeven, an executive director of Shun Tak and hotelier, who has worked for the group since 2000.

August 22, 2013 April 19, 2013

Macau

Assembly needs power on budget overruns: Lau Soon-to-retire Legislative Assembly president also fires parting shot at government over ‘messily’ written laws Stephanie Lai

sw.lai@macaubusinessdaily.com

he Legislative Assembly must be given more power to oversee the government’s budget, in order to prevent cost overruns in major infrastructure projects, said president Lau Cheok Va yesterday. It was his final press

conference before he steps down after the September elections. He also used the occasion to fire a parting shot at the government for poor standards in the drafting of many laws and regulations sent to the assembly.

“We should have a standard regulating every part of the legislation procedure: the drafting of the bill and the deliberation, so that we can regulate how the government legislates and avoid the messiness as we see now, and enhance the legislative quality,” said the president. On project costs, Mr Lau said the territory’s Basic Law “allows the Legislative Assembly to examine and approve” the city’s budget but that power had never been properly exercised. His comments came during a review of the current legislative term yesterday. “We are seeing some prominent problems, like budget overruns for major infrastructure projects such as the Pac On terminal project’s problem,” said Mr Lau. “Unlike Hong Kong, Macau’s Legislative Assembly does not have the power for fiscal allotment, but we are still authorised by the Basic Law to examine and approve the budget plan,” he added. The president called on the government to revise the budget framework law “as soon as possible”. The changes would allow assembly members to better oversee the overall budget for major infrastructure projects and the impact on the economy. The government will start informing the Legislative Assembly of any “important budget changes” this year, Secretary for Economy and Finance Francis Tam Pak Yuen said in early August.

Centralised laws Government still sending legislators ‘messy’ laws, says Lau Cheok Va. right

Mr Lau also urged the government to form a centralised body to draft

bills and oversee the legislative procedure, which “could enhance the quality of legislation”. “The bills that we have are drafted by different government departments, which lead to a lack of standards in legislative technique and even legislative terms [wording],” the chairman explained. “For instance, in dealing with compensation to a land owner, the urban planning law mentioned negotiation and judicial procedure,” Mr Lau said. On the other hand the cultural heritage protection law also mentions arbitration, he stressed. The chairman also complained of a lack of coordination between the government and the assembly, insufficient public consultation before laws are drafted and a failure to balance public interest with the government’s operational needs. “There should be a standard procedure to regulate the drafting, deliberation, debate and modifications of a law,” said Mr Lau. Such a move would correct the “messy” law drafting procedures now in place and achieve higherquality laws, he added. “We should set up a special coordination unit to centralise the law drafting, with the power to examine and modify all kinds of bills,” he added.

‘No regrets’ Mr Lau said he had “no regrets” over the past four years as the assembly chairman, and confirmed that he would be retiring because of his age and some health problems. The chairman refused to draw comparisons with the performance of his predecessor, Susana Chou Kei Jan, in leading the assembly. “You cannot say we are leading the assembly as if we were the executive of an administration,” Mr Lau said. “I am performing my duty as I should, as prescribed by the Legislative Assembly statutes; I am not leading,” he added. “It is totally different from how a chief executive leads his subordinates.”

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August 22, 2013 April 19, 2013

Greater China

Banks cutting loans in small cities Cities cited as focal points for the country’s property risks

Ghost towns – few residents for a growing number of houses

hina’s banks have reduced lending to property projects in smaller Chinese cities due to concerns about an excess supply of homes in those areas, the chief economist at a state think-tank said yesterday. Fan Jianping of the State Information Centre said third- and fourth-tier Chinese cities are sitting on a large inventory of unsold

commercial homes following big land sales by local authorities in recent years. Small Chinese cities have been cited by analysts as focal points for the country’s property risks because their oversupply of homes is exacerbated by falling demand, as residents migrate to large towns in search of a better living. “For many banks, when they hear

that a developer wants new loans, their first concern is which city it is in,” Mr Fan told reporters. “If they hear that you are in a third- or fourth-tier city, even if you are Country Garden, China Vanke, Wanda Group or other big firms, banks are still very cautious and will be reluctant to give you the money,” he said. When asked if China’s government would intervene to raise demand for homes in small cities, Mr Fan said authorities are loath to do so even though the glut of unsold houses have created “ghost towns” that have few residents. There’s no data on how many “ghost towns” exist, but several have gotten media and public attention, particularly Ordos in Inner Mongolia. The Chinese government has intervened heavily in the country’s frothy real estate market for nearly four years in an attempt to cool prices. It has restricted the number of homes families can buy and tightened funding for developers. But despite the controls, China’s property prices are still hitting record levels. Data last week showed new home prices rose 7.5 percent in July on an annual basis, the sharpest rise this year. China’s official property data does not have comprehensive

price information on small cities, though three cities recently cited by data provider China Real Estate Information Corp as danger zones saw annual price gains of 7 percent in July. The three were Ganzhou in the eastern province of Jiangxi, Nanchong in Jiangsu, another eastern province, and Zunyi in Guizhou in southwestern China. Reuters

For many banks, when they hear that a developer wants new loans, their first concern is which city it is in Fan Jianping, State Information Centre

New China Trust pulls out of AIG unit bid Consortium has missed three deadlines to make payment Cathy Chan and Zijing Wu

ew China Trust, which led a Chinese investor group in a US$4.2 billion bid for American International Group Inc’s aircraft-leasing unit, pulled out of the deal on concern its ties with a Chinese regulator would prompt added scrutiny, said three people with knowledge of the matter. New China Trust Co Ltd left the investor group in late May, said one of the people, who asked not to be identified as the process is private. The consortium has missed three deadlines to complete the purchase of International Lease Finance Corp and AIG retains an option to terminate the deal, a person with knowledge of the matter said this month. New China Trust’s withdrawal has made it more difficult for the bidding group to finance the purchase because it prompted other Chinese investors to pull out as well, one of the people said. The consortium, now led by Hong Kong-based P3 Investments Ltd, has raised about $2.6 billion from five investors in Hong Kong and two in Taiwan, the person said. The National Development and Reform Commission, China’s top economic planning agency, owned a stake in New China Trust’s majority shareholder until last year, company filings show. The NDRC had signalled to the bidding group that New China Trust’s presence might give the impression of a conflict of interest

because the regulator approves all major overseas acquisitions, two of the people said. Tim Payne, an external spokesman for the bidding group, declined to comment, as did AIG’s Jon Diat. Two calls to the NDRC’s press office went unanswered. A call made to New China Trust’s office in Chongqing wasn’t picked up.

Delayed deposit New China Trust’s withdrawal came about two months after China’s Communist Party appointed Xu Shaoshi as chairman of the NDRC. The party expelled former NDRC vice chairman Liu Tienan this month on bribery charges, as President Xi Jinping has vowed to crack down on official corruption. AIG said in June that it received a delayed deposit for the ILFC purchase. Its December agreement with the Chinese group for an 80 percent stake in ILFC required a 10 percent deposit. The unit owned or operated a fleet of about 1,000 aircraft as of March 31, according to a regulatory filing. New China Trust is 71.9 percent owned by New Industries Investments, its 2012 annual report shows. The NDRC held a 7.3 percent stake in New Industries in 1998, according to a filing with the government of Shenzhen, where New Industries is based. The regulator

US$4.2 bln

Value of the bid for AIG’s aircraft leasing unit

sold its remaining shares in July 2012, a separate filing by New Industries shows. Weng Xianding, New China Trust’s chairman, was the deputy head of the finance department of the NDRC’s predecessor in the late 1980s, according a biography posted on a Chinese forum he attended last year. In 1993, the agency asked him to start New Industries, the biography shows. Mr Weng is also chairman

of New Industries, according to a Shenzhen government database. ILFC has been one of the hardest assets to sell since 2008 when AIG began divesting units to repay a U.S. bailout. The insurer said in 2011 that it could cut its stake through an initial public offering, and chief executive Robert Benmosche said on June 4 that an IPO was an option if the China deal collapsed. Bloomberg News

August 22, 2013 April 19, 2013

Greater China

China’s growth target seen in reach: poll

hina will achieve the government’s 7.5 percent growth target this year as the world’s second-biggest economy stabilises after a two-quarter slowdown, a Bloomberg News survey of economists indicates. The poll of 52 analysts, conducted from August 15 to August 20, points to China maintaining that pace of expansion in 2014. The survey also suggested that the central bank will widen the yuan’s trading band before year end. A strengthening U.S. economy and Europe’s nascent recovery are improving the outlook for demand for goods from China, the world’s biggest exporter, as Premier Li Keqiang grapples with containing financial risks. The survey results contrast with expressions of concern including

Barclays Plc economists saying last month that quarterly growth could drop briefly to as low as 3 percent at some point in the next three years. “The main support for the economy is that exports should start to pick up later in the year as the global economy regains some speed,” said Louis Kuijs, Royal Bank of Scotland Group Plc chief China economist in Hong Kong. “The key risks to the relatively benign outlook are a weakening of growth in emerging markets and if China doesn’t do enough fiscally to offset a firmer monetary stance.” Weakness in China’s economy and the prospect of the Fed cutting stimulus have prompted capital to flow out of emerging markets. The Shanghai Composite Index is up about 6 percent from this year’s low

Everbright proprietary trading head suspended E

verbright Securities Co Ltd suspended its head of proprietary trading after an error sparked the wildest Chinese stock swings in four years and prompted a regulatory probe. The stock slumped to a six-week low. Yang Jianbo, who oversees trading of Everbright’s own money as head of global markets, said yesterday he is assisting a probe into the August 16 incident. He was the only one of about 20 proprietary traders who was suspended, Mr Yang said five days after the strategic investment unit he ran made 23.4 billion yuan (US$3.82 billion) of erroneous buy orders. It was a “management decision” to suspend Mr Yang, Everbright Securities Board cecretary Mei Jian wrote in a text message. “After all, the business that had problems was

China Telecom posts second straight profit gain

hina Telecom Corp, the country’s third-biggest mobile phone operator by users, posted its second-straight gain in quarterly profit as subscribers with Apple Inc’s iPhone helped boost data usage. Net income rose 21 percent to 5.52 billion yuan (US$902 million) in the second quarter, from 4.55 billion yuan a year earlier, the Beijing-based company said in a statement yesterday. Chairman Wang Xiaochu is benefiting from an increase in users of third-generation mobile services and rising sales of data packages to download games and movies after introducing the iPhone last year. With 50 percent of its subscribers on 3G, China Telecom has surpassed both its larger rivals, China Mobile Ltd and China Unicom (Hong Kong) Ltd, by that measure.

in the department he managed.” The mistake, described by the China Securities Regulatory Commission as the first of its kind in the nation, preceded a programming error at Goldman Sachs Group Inc that caused unintended stock-option orders to flood American exchanges

HKEx offers LME CEO job to Pratt

in June, when an inter-bank lending squeeze jolted the nation’s banks. China’s policy makers are wrestling with a credit boom that has fuelled property prices and added to banks’ bad-loan risks. The State Council last month ordered the first nationwide audit of government debt in two years. A majority of the analysts polled said that the People’s Bank of China will widen the yuan’s trading band before the end of this year, with most of that group saying that the change will take place in the fourth quarter. The survey indicated that the central bank will limit monetary stimulus. Median estimates show the one-year lending and deposit rates and reserve requirements for the nation’s largest banks unchanged through the first quarter of 2015. Bloomberg News

on Tuesday. Everbright drew a threemonth ban on proprietary trading ban from the CSRC and announced a loss of 194 million yuan for its order misstep. “It is hard to determine the bottom for Everbright’s stock because we can’t really ascertain in the immediate term the actual impact of the incident on its earnings,” Song Jian, Beijing-based analyst of China Minzu Securities Co, said by phone yesterday. She’s intending to cut her add recommendation on the stock in coming days. The company’s shares slumped 5.87 percent to 10.27 yuan in Shanghai trading, the lowest close since July 9, after plunging by the 10 percent daily limit on Tuesday. The firm’s market value has fallen by 6 billion yuan in the past two days, data compiled by Bloomberg show. Everbright’s mark-to-market loss of 194 million yuan was based on August 16 closing prices and may change, it said on Sunday. The final trading loss could reach 400 million yuan, Paddy Ran, a Citigroup Inc analyst, wrote in a note. Bloomberg News

“Profits are slightly higher than we expected,” Anand Ramachandran, a Hong Kong-based analyst at Barclays Plc, wrote in a report to clients yesterday. Sales are boosted “as the proportion of higher average revenue per user 3G subscriber rises”. Sales in the second quarter rose 14 percent to 79.7 billion yuan, the company said. China Telecom last year said the iPhone would help it achieve long-term sustainable growth even as it caused “short-term pressure” on profitability. The company reported three straight declines in net income until last quarter, when it resumed growth. In the second quarter, the company’s mobile unit added 9.26 million 3G users, bringing it to 87.3 million. That represents half of its total wireless subscriber base of 174.5 million. China Telecom ranks behind China Mobile and China Unicom in wireless users. “As the 3G subscribers offer higher average revenue per user, the quality of customers is better for China Telecom,” Ricky Lai, an analyst at Guotai Junan International Holdings Ltd in Hong Kong, said. Bloomberg News

Hong Kong Exchanges and Clearing Ltd (HKEx) has offered the job of London Metal Exchange chief executive to Martin Pratt, two sources familiar with the matter said, picking a veteran broker to lead the bourse through the most tumultuous period in its 136-year history. The 42-year-old Mr Pratt, now chief operating office at Triland Metals Ltd, a non-ferrous metals futures broker owned by Japan’s Mitsubishi Corp, was chosen over the LME’s own chief operating officer, Diarmuid O’Hegarty, and Garry Jones, a former CEO of NYSE Liffe, the sources said. In Mr Pratt, the HKEx is tapping an experienced metals trader who has both knowledge of the LME’s complex trading structure and sufficient distance from the crisis over warehousing that has engulfed the exchange. The LME and owner HKEx declined to comment. Industry sources said Mr Pratt’s experience in soft commodities would help HKEx extend its reach outside of metals, while his high profile in the industry also worked to his advantage. “They’ve got load of exchange experience at HKEx. What they don’t have is metals experience,” said one senior industry source in Singapore.

Soho China sees oversupply in second-tier cities China’s second-tier cities have an oversupply of offices as companies halt expansion amid a slowdown in the world’s second-biggest economy, according to one of the country’s biggest commercial builders. “There are a lot of empty buildings,” Zhang Xin (pictured), chief executive officer of Soho China Ltd, said in an interview with Bloomberg Television yesterday. “Concentrating in cities like Beijing and Shanghai is less risky, but when we go to second and third cities the demand instantly reduces.” China’s economic expansion slowed to 7.5 percent in the second quarter, extending the longest streak of sub-8 percent growth in at least two decades. Soho China is the biggest developer in Beijing’s central business district, where office rents fell in the second quarter, the first decline in almost four years, according to property broker Knight Frank LLP. “Companies are not paying as much to rent to expand,” said Zhang, who co-founded the company with husband and chairman Pan Shiyi. “The slowdown is inevitable and is already happening.”

China Resources profit falls

US$902 mln China Telecom’s net income in Q2

China Resources Enterprise Lt. reported a 54 percent drop in first-half profit as weaker economic growth and a government push to curb public expenditures hurt demand at the state-backed retail and beer conglomerate. Net income dropped to HK$1.02 billion (US$131 million) for the six months ended June from HK$2.24 billion a year earlier, the company said in a statement to the Hong Kong Stock Exchange yesterday. Profit to shareholders excluding asset revaluations and major disposals dropped 11 percent to HK$1.01 billion. This compares with an average HK$1.07 billion estimate by seven analysts compiled by Bloomberg. China Resources, which also runs beer, beverage and food businesses, has said sales of pricey items such as liquor and high-end cigarettes were hurt by a government campaign to stamp out gifting and extravagant official spending. China’s economy expanded 7.5 percent in the second quarter from a year earlier, the second straight deceleration. “Looking forward to the second half of 2013, the short- term operating environment and consumer sentiment are both likely to be affected by the volatile global economy,” the company said.

10 10

August 22, 2013 April 19, 2013

Greater China /Asia

Asia’s great investor rotation flows to North Flows have lifted stock markets in China, South Korea and Taiwan Vidya Ranganathan and Vikram Subhedar

South Korea received US$853 mln into equities in July

longside the great rotation from bonds to equities and from emerging to developed markets that has been 2013’s overriding investment theme, Asia is seeing its own migration in portfolio flows: from the South to North. Foreign investment flows have lifted stock markets in China, South Korea and Taiwan since July, the first and tentative signs that investors still see pockets of value at a time the outlook for emerging markets is glum. The appeal of these markets comes from several factors. While the consensus calls are still for an outperformance of equity markets in Japan, the United States and the rest of the developed world, a growing number of investors believe there is scope for Asia’s trade-driven, open economies to do well as U.S. growth recovers. To add to the mix, stock prices have been hammered in China and South Korea, based on what some analysts believe are exaggerated perceptions of a collapse in Chinese growth, and these countries are buffered by huge trade surpluses. South Korea received foreign portfolio flows totalling US$853 million into equities in July, reversing part of the heavy outflows in previous months, data collated by BNP

KEY POINTS More money flowing into China, Taiwan and South Korea Coming tapering by the Fed driving decisions Equity funds received US$9.6b in the week to Aug 7 China looking better to some investors

Paribas SA showed. South Korea’s bond market has received more than US$12 billion this year. Foreigners also bought US$2.75 billion of Taiwan equities last month, offsetting sales in June. They sold US$253 million of Indonesian equities and heavy amounts of bonds and stocks in India. Data on flows into Chinese shares and bonds is scarce, but the China Enterprises Index of the top Chinese listings in Hong Kong has jumped about 9.5 percent since the end of June.

‘Sharp unwind’ “The whole story in Asia is one of rotation,” said John Woods, head of Asia fixed income at Citi Investment Management. “What we are seeing in terms of flows is a sharp unwind of Southeast Asia and capital inflows into North Asia, particularly Korea and Taiwan.” For a majority of investors, partic u l a r l y th o s e wh o a r en ’ t dedicated to emerging markets, the biggest factor driving decisions is the coming monetary tapering by the U.S. Federal Reserve. Looming is a reduction in the four-year quantitative easing (QE) that flooded markets with cash and sent investors scurrying for yield. The big picture asset allocation theme, therefore, remains one of switching from bonds to equities. Citi data shows bond funds globally saw outflows of US$2.2 billion in the week that ended August 7, while equity funds received US$9.6 billion. Thus, barring some allocation at the margin, few fund managers want to risk exposure to Asia’s slowing economies in an environment of rising yields and better U.S. growth. “The QE unwind is a big issue,” said Mark Wills, senior portfolio manager at State Street Global Advisors’ asset allocation team in Sydney. “Once tapering was on the table and the hunt for yield ended, investors wanted the best quality risk they could lay their hands on and that’s U.S. equities at the moment.” But equities in the most soughtafter developed markets – Japan and

the U.S. – are expensive and that’s one reason investors are still quite discerning about putting all their money in dollar or yen assets. “Revenue for companies in the S&P 500 is still pretty poor and they’re finding it hard to increase margins,” said Mr Wills.

Value in Asia Based on Thomson Reuters StarMine data on analysts’ earning forecasts in the next year, U.S. equities are trading at an average price-to-earnings (P/E) ratio of 14.7. Japan trades at a P/E of 14.5. That compares with 10 for emerging Asia, and an even cheaper 8.5 for China and 8 for Korea.

What we are seeing in terms of flows is a sharp unwind of Southeast Asia and capital inflows into North Asia, particularly Korea and Taiwan John Woods, Citi Investment Management

That gap in P/E valuation between Asia (outside Japan) and the U.S. is at its widest in eight years. While analysts have scrambled to cut profit forecasts in Asia ex-Japan since February, regional earnings growth over the next year is still expected to outpace that in the U.S. Consensus forecasts are for average

earnings-per-share (EPS) increases in the next 12 months of 9.6 percent in the U.S., versus 13.5 percent for emerging Asia, 17.5 for Korea and 18 for Taiwan, according to Thomson Reuters I/B/E/S. Even China, which has often burned investors, is looking better to some. “Our view towards China is twofold in that much of the bad news has been priced in, that valuations are compelling and we’re taking a 1218 month view that equity markets in China will be higher,” said Citi’s Mr Woods. It’s more than just valuations that make North Asia attractive for the discerning investor. These countries offer better direct exposure to the pick-up in technology exports that will accompany a U.S. recovery. Their markets fare better when oil and base metal prices are lower than do Malaysia and Indonesia, whose markets are heavy on commodity producers. The selloff in dollar bonds this year, as markets pre-empted a Fed tapering, has also been milder in South Korea. Asia on the whole has seen yields climb 100 basis points to 5.3 percent since May this year, with only about another 100-150 basis points to go before bond yields are at long-run averages. Before long, the bonds would be attractive from a risk-return perspective, Citi analysts reckon. So far, though, there are enough reasons to keep global investors hesitant about putting money into North Asia. The biggest risk comes from China, over whether authorities there can keep growth from falling too low even while they focus on fixing banks and the labour market. Other risks could come from foreign exchange losses as a rising U.S. dollar drives emerging market currencies down. And finally, there is the question of whether investors are being too optimistic about how strong the U.S. economy will be next year and how much Asia’s export-driven economies will benefit from that recovery. Reuters

11 11

August 22, 2013 April 19, 2013

Asia

Gaming industry more bullish on Vietnam Citizens could soon bet legally on overseas football matches, and a wealthy elite wager in some casinos Michael Grimes

michael.grimes@macaubusinessdaily.com

ietnamese citizens may be allowed to bet legally on overseas football matches under a draft regulation approved by the country’s National Assembly Standing Committee, reports calvinayre.com. At present, Vietnam allows its citizens to make trackside bets on dog and horse races held within the country, but sports wagers on other sports events – whether online or offline or at home or overseas – are banned. The Wall Street Journal reported separately that the government is also considering a pilot project to allow some Vietnamese citizens to visit as-yet-unbuilt casinos planned for the Van Don Economic Zone in Quang Ninh province east of Hanoi. Under the proposal, Vietnamese citizens that have a certain minimum income and no criminal record will be considered for the trial scheme in the zone. One reason cited is to prevent Vietnamese from spending

Another kind of betting – cow racing in Vietnam

gambling dollars overseas. The number of visitors from Vietnam to Macau rose by 28 percent in the first half of the year, according to data from the Statistics and Census Service. But the increase

is from a very low base. Only 8,562 Vietnamese nationals visited Macau in the first six months of 2013, representing just 0.06 percent of the 14.1 million tourists arriving during the period.

Indonesian stocks climb first time in five days As top state fund steps up stock buying after plunge Harry Suhartono and Yudith Ho

ndonesian stocks rose for the first time in five days after valuations sank to a 14-month low and the nation’s biggest pension fund said it’s buying. The Jakarta Composite Index added 1 percent to close at 4,218.45 after swinging between gains and losses at least four times. The gauge closed on Tuesday at 12.26 times projected 12-month profit, the lowest level since June 2012, data compiled by Bloomberg show. The rupiah dropped beyond 10,800 per dollar

yesterday for the first time since April 2009, prices from local banks show. The yield on 10-year government bonds rose to the highest level since March 2011. PT Jamsostek, which oversees about US$13 billion, is increasing purchases of the largest Indonesian stocks, president director Elvyn Masassya said. The Jakarta index has tumbled at the fastest pace worldwide this quarter amid concern the rupiah’s retreat will fuel the quickest inflation in four years and lead to

tighter monetary policy. Speculation that the U.S. Federal Reserve will soon reduce stimulus, making it harder for Indonesia to fund its record current-account deficit, has contributed to the declines. “It definitely helps having Jamsostek,” said Edwin Sebayang, head of research at PT MNC Securities in Jakarta. “If the big ones enter, smaller funds would likely follow.” Trading volumes in Jakarta index companies were 62 percent higher

Jamsostek will enter the stock market with a long-term market horizon Elvyn Masassya, PT Jamsostek president director

The Jakarta index has tumbled at the fastest pace worldwide this quarter

There’s no data to show how many of the visitors are gamblers. Singapore – which has two casino resorts – is closer to Vietnam, has direct scheduled air links (unlike Macau) and attracts more visitors from that country. In the first two months of this year – the most recent data available from the Singapore Tourism Board – a total of 51,838 Vietnamese visited the city-state, although that was down 2.6 percent on the same period a year earlier. Since 2003, Vietnam has allowed foreign investors to operate casinos inside its borders. The Ministry of Finance says there are about 50 across the country. But Vietnamese citizens resident there are not allowed to use them. Exceptions are made for dual citizens among the estimated three million people that left the country during and after the Vietnam War, which ended in 1975. While the government is using a carrot for investors in Van Don, it also appears to be using a stick elsewhere. A decree taking effect from October 1, mandates fines of up to 200 million dong (US$9,500) for a casino operator allowing resident Vietnamese citizens to gamble on its premises and of 100 million dong for individual gamblers. As things stand, The Grand Ho Tram Strip, a beachside casino resort in the south of the country that opened last month, will not be eligible for the pilot scheme possibly allowing some locals gamble. The resort, which was originally to have had MGM branding, is 125 kilometres (78 miles) southeast of Ho Chi Minh City.

than the 30-day average, according to data compiled by Bloomberg. The gauge fell 11 percent during the past four days and is down 12 percent this quarter. “Indonesian asset prices are cheap for those who can withstand this bad economic weather,” Alvin Pattisahusiwa, director of investment at PT Manulife Aset Manajemen Indonesia, the country’s second biggest mutual fund manager. “If they are willing to invest and keep it for at least one year, then this is the time.”

State buying State-owned Jamsostek is buying major companies and will increase its holdings of shares to between 22 percent and 25 percent of assets under management, Mr Masassya said. Around 19 percent of the investment vehicle’s holdings were in stocks, he said on June 19. “Jamsostek will enter the stock market with a long-term market horizon,” Mr Masassya said. “We are buying blue-chip stocks.” Indonesia’s central bank is coordinating with the nation’s securities regulator to stabilise financial markets, Deputy Governor Perry Warjiyo said in a mobile-phone text message yesterday. The Jakarta gauge pared losses toward the end of the day on Tuesday, closing 3.2 percent lower after falling as much as 5.8 percent. Its 14-day relative strength index declined to 26.6, below the 30 threshold that some investors see as an indication a rally rebound is imminent. “This is just a brief technical rebound,” Akbar Syarief, a money manager at MNC Asset Management, which oversees about US$485 million, said. “I still think the downside remains as there is no change to our fundamentals.” Bloomberg News

12 12

August 22, 2013 April 19, 2013

Asia

Japan’s economy on road to recovery

Tepco shares plunge on radiated water leak Shares of Tokyo Electric Power Co Inc fell to the lowest in more than seven weeks as Japan’s nuclear regulator raised the severity level of Tuesday’s leak of radioactive water at the Fukushima plant. The shares fell as much as 13 percent to 537 yen, the steepest decline since June 5. They traded at 557 yen on the Tokyo Stock Exchange at the closing. The leak at a storage tank for radioactive water was raised to three on the seven-level International Nuclear and Radiological Event Scale, Japan’s Nuclear Regulation Authority said. A level three rating denotes a “serious incident”. By way of comparison, the 2011 meltdown of the three reactors at Fukushima is a seven on the INES scale, the same as Chernobyl. Contaminated water with dangerously high levels of radiation is leaking from a storage tank at Fukushima, the plant’s operator said on Tuesday. INES is a means to measure nuclear accidents in terms of their effects on health and the environment, according to the International Atomic Energy Agency, which helped set up the system. Each of its seven steps represents a ten-fold increase in severity. A 7 rating means there has been a “major release of radioactive material with widespread health and environmental effects requiring implementation of planned and extended countermeasures,” according to the INES factsheet. Japan’s regulator raised the INES rating based on radiation levels reported by the utility yesterday and on an evaluation of measures at the plant to prevent such leaks.

Economy may have bottomed out in late 2012, says govt panel

apan may have emerged late last year from its shortest economic contraction in roughly 60 years, findings of a government panel showed, as optimism generated by Prime Minister Shinzo Abe’s reflationary policies led to robust personal consumption. Some members of a government panel, charged with gauging Japan’s economic cycle, though the economy may have hit bottom in November last year judging from trends in the coincident indicators’ index, a measurement of current economic conditions. But the panel decided that more data and evidence would be needed before coming to a conclusion, though GDP data released earlier this month showed the economy expanded 2.6 percent on an annualised basis in the second quarter of this year, slowing from 3.8 percent growth in the first quarter. “If November were to be the bottom, that would make it quite a short period of contraction,” Hiroshi Yoshikawa, the panel’s chairman and a professor of the University of Tokyo’s graduate school, told a news conference after the meeting yesterday. “When you look at GDP since the fourth quarter of 2012, personal consumption has made a big contribution to growth.” Some panel members noted that the current economic recovery was a rare case of personal consumption, rather than exports, driving growth, Mr Yoshikawa added. The panel also agreed that Japan’s economy peaked in April last year to end a three-year expansion that pulled it out from the aftermath of Lehman Brothers’ collapse. During that time the economy also withstood the pain of a devastating earthquake in 2011. Exports and a pick up in personal consumption were at the forefront of the economy’s sixth longest post-war

Sales tax hike won’t hit economy, says Haruhiko Kuroda

expansion as it rebounded sharply from the slump brought about by Lehman’s failure. The panel, consisted of privatesector economists and academics, meets regularly to determine the peak and bottom of Japan’s economic cycle. It takes into account various data such as GDP and the coincident indicators’ index.

Sales tax Meanwhile, Bank of Japan Governor Haruhiko Kuroda reaffirmed his support for a sales-tax increase in an interview published five days before government-named panels start meeting to study the impact on Japan’s economy. The economy won’t lose speed if the sales tax is raised as planned to 8 percent in April from 5 percent now, Mr Kuroda said in an interview with the Mainichi newspaper. If the risk of a slowdown heightens as a result of a tax rise or changing economic

Thailand holds rate as household debt grows T

hailand kept its benchmark interest rate unchanged for a second straight meeting as rising household debt and capital outflows reduce scope for monetary easing to revive an economy in recession. The Bank of Thailand held its one-day bond repurchase rate at 2.5 percent, with policy committee members voting six to one for the decision, it said in Bangkok yesterday. The Thai baht fell to a one-year low this week after a report showed Southeast Asia’s second-largest economy shrank two consecutive quarters for the first time since the

global financial crisis. As the prospect of reduced U.S. monetary stimulus fuels a selloff of emerging-market assets, Malaysia and Thailand may be the most vulnerable after India and Indonesia, Credit Suisse Group AG said. “Household debt levels remain high and we have capital outflows,” Kampon Adireksombat, a senior economist at Tisco Securities Co, said before the decision, adding that those are “bigger issues” than the firsthalf recession. “The central bank is likely to stand pat and avoid doing anything to add more incentives to those risks.”

conditions overseas, the central bank “won’t hesitate” to loosen its unprecedented easing policy, Mr Kuroda said, according to the report. “The government has said it will proceed with its fiscal structural reforms. I urge the government to firmly implement the plans,” Mr Kuroda was quoted as saying. Mr Kuroda has been an advocate of steps to cut Japan’s debt burden, the largest in the world, and has said the central bank will help cushion any blow to growth. Prime Minister Abe will consider the views of a group of 59 academics, economists, business leaders and others that will hold meetings August 26-31 when he decides in the next month or so whether to raise the tax. The BOJ governor will attend the panel meetings, along with Finance Minister Taro Aso and other members of the government’s economic and fiscal policy council, the government said yesterday.

South Korean exports surge

Bank of Thailand governor Prasarn Trairatvorakul yesterday said the baht was moving in line with fundamentals and the overall economic situation is “still OK”. Rising household debt levels limit the scope for lower interest rates, assistant governor Paiboon Kittisrikangwan said last month. Total loans to households reached 8.97 trillion baht (US$282 billion) at the end of March, or about 77.5 percent of GDP, Mathee Supapongse, a Bank of Thailand senior director, told reporters on Monday. That compares with 55 percent of GDP at the end of 2007, when the central bank began including data on loans from a wider range of financial companies, according to calculations by Bloomberg based on Bank of Thailand data. The growth in Thai household debt may slow in line with the overall economy, he said.

South Korea’s exports surged 15.6 percent annually in the first 20 days of August, while short-term external debt fell to a 6-1/2 year low, data released yesterday showed, helping to explain how its economy has avoided the battering other emerging markets suffered in recent months. Short-term external debt fell to US$119.6 billion at end-June from US$122.2 billion three months earlier. It was the lowest since end-2006, and at 29.1 percent it was the lowest ratio to total external debt since the third quarter of 1999. Speaking after the data was released, Finance Minister Hyun Oh-seok said strong economic fundamentals had shielded South Korean markets from the market turmoil seen elsewhere. Mr Hyun said the authorities would closely monitor external conditions, especially how and when the Fed starts tapering its bond-buying stimulus. “Though the situation remains to be seen, it appears that [South Korean markets] are being treated differently,” Mr Hyun told reporters after a weekly policy meeting. The strong export numbers released by the Korea Customs Service for the first 20 days of August bolstered the Bank of Korea’s forecast that sequential growth in the current quarter will accelerate further from the seasonally adjusted 1.1 percent rise estimated for the April-June period. “Unlike June, when South Korea saw foreign capital outflows along with other emerging economies, foreign capital is flowing into local markets because of the possibility that South Korea will ultimately benefit from a recovery in advanced economies,” Hyundai Securities economist Lee Saang-jae said in a report.

Bloomberg News

Reuters

13 13

August 22, 2013 April 19, 2013

Markets Gaming Stocks - Daily Performance (Hong Kong Stock Exchange) 70.8

43.70

22.4

69.9 22.2 69.0

43.35

22.0

68.1

Max 43.7

average 43.533

Min 43.05

Last 43.5

43.00

Max 70.75

average 69.731

Min 67.3

67.2

Last 70.75

42.6

PRICE

Max 19.46

average 19.325

DAY %

YTD %

(H) 52W

Min 19.12

Last 19.4

(L) 52W

WTI CRUDE FUTURE Oct13

104.64

-0.447150604

11.79487179

107.9499969

86.04000092

BRENT CRUDE FUTR Oct13

109.47

-0.617339991

3.537312021

113.6100006

96.37999725

GASOLINE RBOB FUT Sep13

292.17

-0.187892867

6.713174331

309.1700077

260.2499962

GAS OIL FUT (ICE) Oct13

935.25

-0.452368281

3.2

975.75

835.5

3.438

-0.174216028

-4.446914953

4.517000198

3.128999949

306.21

-0.529495842

2.291631869

319.1699982

275.5500078

Gold Spot $/Oz

1363.82

-0.0747

-18.0623

1796.08

1180.57

Silver Spot $/Oz

22.8752

0.0009

-24.0279

35.365

18.2208

Platinum Spot $/Oz

1512.64

0.1397

-0.3367

1742.8

1294.18

744.3

-0.6341

6.3802

786.5

587.4

1914.5

-0.026109661

-7.645923782

2200.199951

1758

LME COPPER 3MO ($)

7320

0.191623323

-7.703946539

8422

6602

LME ZINC

1989

0.025144581

-4.375

2230

1795

14760

-0.337609723

-13.48182884

18920

13205

NATURAL GAS FUTR Sep13 NY Harb ULSD Fut Sep13

Palladium Spot $/Oz LME ALUMINUM 3MO ($)

3MO ($)

LME NICKEL 3MO ($) AGRICULTURE ROUGH RICE (CBOT) Nov13

AUD GBP CHF EUR JPY MOP HKD CNY INR THB SGD TWD PHP IDR AUDJPY EURCHF EURGBP EURCNY EURMOP EURJPY HKDMOP

ASIA PACIFIC

CROSSES

0.063371356

2.432695427

16.65000153

14.77000046

474.5

-0.210304942

-20.88370154

665

445.75

WHEAT FUTURE(CBT) Dec13

646.75

0.116099071

-21.20012184

913

635.5

SOYBEAN FUTURE Nov13

1290.25

-0.019372336

-0.959508732

1409.75

1162.5

COFFEE 'C' FUTURE Dec13

119.35

0.462962963

-23.71364653

200

118.1499939

NAME

15.92999935

ARISTOCRAT LEISU

74.34999847

CROWN LTD

Dec13

SUGAR #11 (WORLD) Oct13

16.47

COTTON NO.2 FUTR Dec13

87.8

-17.89631107

-1.192887688

21.82999992

11.50622301

93.72000122

World Stock Markets - Indices NAME

19.0

COUNTRY MAJOR

15.79

CORN FUTURE

21.3 21.2 Max 21.45

average 21.239

Min 21.1

Last 21.3

21.1

Currency Exchange Rates

NAME

METALS

21.4

19.1

Commodities ENERGY

21.8

21.5

19.2

42.9

Last 43.05

Last 22.15

19.3

43.2

Min 42.65

Min 21.85

19.4

43.5

average 43.183

average 22.135

19.5

43.8

Max 43.65

Max 22.35

COUNTRY

PRICE

DAY %

YTD %

(H) 52W

(L) 52W

15002.99

-0.0516297

14.49046

15658.42969

12471.49

NASDAQ COMPOSITE INDEX

3613.59

0.6827365

19.67457

3694.188

2810.8

FTSE 100 INDEX

6417.58

-0.5559808

8.812933

6875.62

5605.589844

DAX INDEX

8284.03

-0.1927704

8.822987

8557.86

6871

YTD %

(H) 52W

(L) 52W

-0.5954 0.0128 0.1959 0.0747 -0.154 -0.0038 -0.0013 0.0131 -1.1452 -0.4717 -0.1565 0.2037 -0.0228 -1.9925 0.4394 0.1105 -0.055 -0.256 -0.071 -0.2375 0

-13.1336 -3.1714 -0.3917 1.539 -11.6289 -0.0526 -0.0542 1.7407 -14.0199 -3.8365 -4.4437 -3.0262 -6.5733 -10.4926 1.6929 -1.9019 -4.6348 0.1646 -1.5611 -12.9732 -0.0097

1.0625 1.6381 0.9839 1.3711 103.74 8.0111 7.7664 6.3597 64.12 31.81 1.286 30.228 44.181 11080 105.433 1.265 0.88151 8.4957 10.9254 133.8 1.032

0.8848 1.4814 0.9022 1.2413 77.13 7.9818 7.7498 6.1064 51.3863 28.56 1.2152 28.913 40.54 9448 79.408 1.20066 0.78768 7.8281 9.9176 97.89 1.0289

PRICE

DAY %

YTD %

(H) 52W

(L) 52W

4.31

0.7009346

36.82539

4.63

2.49

2007305

13.86

29.89691

14.03

8.86

964100

VOLUME CRNCY

AMAX HOLDINGS LT

1.06

-5.357143

-24.28571

1.72

0.75

1386750

BOC HONG KONG HO

24.25

-1.221996

0.622405

22.85

9738349

CENTURY LEGEND

0.355

33.96227

0.42

0.22

6.24

4.173627

6.74

3.08

16519

CHINA OVERSEAS

23.15

-1.90678

0.2164486

25.6

17.28

25247344

CHINESE ESTATES

16.02

0.125

42.45637

16.98

7.996

61000

CHOW TAI FOOK JE

9.88

0.1013171

-20.57878

13.4

7.44

1690750

EMPEROR ENTERTAI

2.69

1.12782

42.32804

3.07

1.37

742839

FUTURE BRIGHT

2.38

9.174312

96.36541

2.76

1.053

12756000

GALAXY ENTERTAIN

43.5

1.398601

43.32784

44.95

20.45

11623946

HANG SENG BK

120.1

-1.314708

1.179447

132.8

109

1394982

HOPEWELL HLDGS

24.15

-2.424242

-27.36842

35.3

23.738

2543168

HSBC HLDGS PLC

83.55

-0.3869113

2.767524

90.7

65.85

19626330 6860000

NIKKEI 225

13424.33

0.2086385

29.13995

15942.6

8488.14

HANG SENG INDEX

21817.73

-0.6943923

-3.703899

23944.74

19076.78906

CSI 300 INDEX

2308.589

-0.1676133

-8.496508

2791.303

2023.171

TAIWAN TAIEX INDEX

7832.65

-0.8551671

1.729332

8439.15

7050.05

MGM CHINA HOLDIN

22.15

KOSPI INDEX

1867.46

-1.080065

-6.489076

2042.48

1770.53

MIDLAND HOLDINGS

3.08

S&P/ASX 200 INDEX

5099.991

0.429524

9.701997

5249.6

4261.2

NEPTUNE GROUP

0.169

4232.865

1.386401

-1.941808

5251.296

3978.078

NEW WORLD DEV

FTSE Bursa Malaysia KLCI

1746.36

0.05385523

3.399155

1826.22

1590.67

SANDS CHINA LTD

NZX ALL INDEX

969.574

0.8281944

9.92242

998.487

PHILIPPINES ALL SHARE IX

3974.93

7.460164

4571.4

JAKARTA COMPOSITE INDEX

DAY %

0.9015 1.5663 0.919 1.3393 97.43 7.9874 7.7548 6.124 63.9625 31.8 1.2782 29.939 43.89 10941 87.84 1.23089 0.85505 8.204 10.6974 130.5 1.03

Macau Related Stocks

CHEUK NANG HLDGS

DOW JONES INDUS. AVG

PRICE

HUTCHISON TELE H

3.56

3.790087

4.66

2.98

LUK FOOK HLDGS I

-0.2079002

-1.639343

30.05

16.88

1947000

MELCO INTL DEVEL

16.8

3.703704

86.45948

18.18

5.91

3791652

-1.336303

66.81378

23.65

11.346

2355600

-0.9646302

-16.75676

2.68

496000

-0.5882353

11.18421

0.23

0.131

11490000

11.04

-1.604278

-8.153082

15.12

9.38

19285929

43.05

0.5841121

26.80412

45.5

26.05

7704851

SHUN HO RESOURCE

1.59

2.580645

13.57143

1.67

1.06

126000

799.651

SHUN TAK HOLDING

3.71

-1.591512

-11.45585

4.65

2.76

5866750

3411.69

SJM HOLDINGS LTD

19.4

1.358412

9.310199

22.382

15.401

4501089

10.86

-1.272727

-22.86932

17.36

10.82

1862682

WYNN MACAU LTD

21.3

1.913876

1.670641

26.5

16.92

3179500

ASIA ENTERTAINME

4.04

1.763224

43.53304

4.7647

2.4835

53269

71.68

0.7590666

60.32208

75.61

43.16

649455 21147

SMARTONE TELECOM

HSBC Dragon 300 Index Singapor

592.13

-1.32

-4.66

STOCK EXCH OF THAI INDEX

1362.26

-0.6273434

-2.131576

1649.77

1207.53

HO CHI MINH STOCK INDEX

502.7

-0.417979

21.50436

533.15

372.39

BALLY TECHNOLOGI

Laos Composite Index

1360.27

-0.7420974

11.97758

1455.82

1003.17

BOC HONG KONG HO

3.2

0.9463722

4.23453

3.6

2.99

GALAXY ENTERTAIN

5.6

-1.060071

41.05793

5.77

2.735

15300

INTL GAME TECH

19.24

2.613333

35.77982

20.25

11.73

1986343

JONES LANG LASAL

85.59

2.515271

1.965687

101.46

70.02

675306

LAS VEGAS SANDS

56.85

0.01759324

23.15858

60.54

37.8353

2433962

MELCO CROWN-ADR

27.13

61.10451

27.57

11.452

1556438

MGM CHINA HOLDIN

2.92

66.82937

2.98

1.5327

1000

MGM RESORTS INTE

17.24

0.2325581

48.10996

17.67

9.15

6321803

SHFL ENTERTAINME

22.72

-0.1318681

56.68966

23.08

12.35

470853

SJM HOLDINGS LTD

2.46

-4.280156

8.00767

2.9481

1.9818

1400

WYNN RESORTS LTD

139.9

0.5173157

24.36661

144.99

93.1279

1243772

Shanghai Shenzhen Composite index is listing the biggest companies by market capitalisation. All data supplied by Bloomberg unless otherwise indicated.

AUD HKD

USD

Hang Seng Index NAME

PRICE

DAY %

VOLUME

AIA GROUP LTD

34.5

38034656

ALUMINUM CORP-H

2.65

2.713178

5160000

BANK OF CHINA-H

3.27

-0.9090909

226898224

BANK OF COMMUN-H

5.26

23048640

BANK EAST ASIA

30.3

-1.623377

2540022

BELLE INTERNATIO

11.02

-2.650177

23866100

BOC HONG KONG HO

24.25

-1.221996

9738349

CATHAY PAC AIR CHEUNG KONG CHINA COAL ENE-H CHINA CONST BA-H

NAME

PRICE

DAY %

VOLUME

CHINA UNICOM HON

11.6

-1.528014

24613101

CITIC PACIFIC

8.98

-1.210121

9527000

69.25

-0.8589835

3058682

SANDS CHINA LTD

43.05

0.5841121

7704851

SINO LAND CO SUN HUNG KAI PRO

10.44

-2.247191

8503391

100.5

-1.470588

89.35

4343628

-1.325235

1778109

-0.8814103

6038046

15.54

4.8583

191917015

COSCO PAC LTD

11.16

-0.1788909

5299454

SWIRE PACIFIC-A

VOLUME

ESPRIT HLDGS

13.52

0.5952381

3514127

TENCENT HOLDINGS

360

-1.098901

3582697

HANG LUNG PROPER

24.45

-2.97619

7947584

TINGYI HLDG CO

18.98

-0.2103049

5790800

120.1

-1.314708

1394982

WANT WANT CHINA

10.28

-1.153846

16247084

46.4

-1.171459

2387669

WHARF HLDG

66.65

-0.8184524

3922209

HENGAN INTL

84.65

-2.138728

2875985

14.1

-0.9831461

3325000

HANG SENG BK

109.9

-1.611459

3449313

HENDERSON LAND D

4.68

-0.4255319

63045850

-1.384083

235142636

HONG KG CHINA GS

19.16

-2.04499

14129693

-0.7284079

30441209

HONG KONG EXCHNG

122.5

-0.8899676

2574985

CHINA MERCHANT

23.15

-2.114165

11233643

HSBC HLDGS PLC

83.55

-0.3869113

19626330

90.15 -0.05543237

CHINA RES ENTERP

POWER ASSETS HOL

61.85

5.7

CHINA PETROLEU-H

DAY %

CLP HLDGS LTD

19.08

CHINA OVERSEAS

PRICE

CNOOC LTD

CHINA LIFE INS-H CHINA MOBILE

NAME

-0.1803969

18544673

HUTCHISON WHAMPO

23.15

-1.90678

25247344

IND & COMM BK-H

5.71

-1.039861

61531000

LI & FUNG LTD

MOVERS

3 22550

INDEX 21817.73

7211446

5.08

-1.359223

238024176

11.66

0.3442341

19697231

23.7

1.498929

4366000

MTR CORP

28.45

-2.568493

4165833

CHINA RES LAND

22.05

-0.6756757

8227700

NEW WORLD DEV

11.04

-1.604278

19285929

CHINA RES POWER

17.74

-1.444444

7760681

PETROCHINA CO-H

8.61

91669927

CHINA SHENHUA-H

23.6

-0.8403361

14517606

PING AN INSURA-H

53.3

0.3766478

7141257

HIGH

22541.48

LOW

21656.38

52W (H) 23944.74 21650

(L) 19076.78906 19-August

21-August

14 14

August 22, 2013 April 19, 2013

Classifieds Mountain Villa For Sale in Koh-Samui Price: HK$ 16 million

3 x King Bed en-Suites, 1 x King Bed basement Suite, 2 x 2 Single Bed, Spacious Living area and fully furnished kitchen, Swimming pool - children / adult, 2 levels Maid’s quarter, Fully Furnished, Balcony, Terrace / Patio, 2 x Outside Salas, Barbecue, 2 x Parking Spaces, 7-seater SUV included. Contact Ms Chan - Sarah@clever-cloggs.com.hk Tel: 2861-3317

FOR SALE - ONE GRANTAI Tower 3; Flat 10K.

Luxury hilltop flat, fully air conditioned, 3 bedrooms, 2 full bathrooms, maid’s room, fully equipped kitchen , living room, dining area, and 2 balconies with stunning Cotai Strip and sea views. Facilities include: health club, swimming pool, tennis, play area, and much more. 2320 sq. ft. selling price: HK$ 7,950/sq. ft. Contact: Steven Kahn (852) 2541 7775 Monday - Friday 11am - 6pm

Bruno Beato Ascenção

Lawyer

Avenida da Praia Grande, no. 409, China Law Building, 11th floor. Tel:28785795 Fax:28785797 Email:bascencao@gmail.com

4 APARTMENTS BUILDING IN LISBON Price: HK$ 17,000,000

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editorial council Paulo A. Azevedo, Tiago Azevedo, José I. Duarte, Emanuel Graça, Mandy Kuok Founder & Publisher Paulo A. Azevedo | pazevedo@macaubusinessdaily.com Editor-in-Chief Tiago Azevedo DEputy Editor-in-Chief Vitor Quintã Associate editor Michael Grimes GROUP SENIOR ANALYST José I. Duarte Newsdesk Luciana Leitão, Stephanie Lai, Tony Lai EDITOR AT LARGE Alex Lee Creative Director José Manuel Cardoso WEB & IT Janne Louhikari Contributors James Chu, João Francisco Pinto, Larry So, Pedro Cortés, Ricardo Siu, Rose N. Lai, Zen Udani Photography Carmo Correia, Manuel Cardoso Assistant to the publisher Laurentina da Silva | ltinas@macaubusinessdaily.com office manager Elsa Vong | elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd.

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15 15

August 22, 2013 April 19, 2013

Opinion Business

wires

End austerity now

Leading reports from Asia’s best business newspapers

Inquirer Business The Civil Aviation Authority of the Philippines (CAAP) lifted the suspension order on Zest Air. “That’s a relief and welcome news as it confirms that cooperation between CAAP and [Zest Air] is more productive,” Joy Caneba, Zest Air director, said in a text message. “This confirms that Zest Air has been operating following the standards required and will continue to do so,” she said. CAAP previously suspended the licence to operate of Zest Air in light of safety consideration of its airplanes. Zest Air said that they would resume operations as soon as possible.

Thanh Nien Daily Foreign investors have expressed interest in buying bad debts after Vietnam launched an asset management firm to buy up banks’ non-performing loans last month. Many foreign companies want to buy Vietnam’s bad debts but they need a clearer policy framework, Karin Finkelston, vice president of the International Finance Corporation for the Asia Pacific region, said. Setting up the Vietnam Asset Management Company is a good thing to rescue lenders, but the country should also develop a market mechanism to quickly resolve the debts, she said.

China Daily Beijing published detailed plans to innovate railway funding and speed up railway construction as the new leadership is devoted to deepening reforms. The State Council said in a statement that railway investment this year is likely to exceed the planned amount. The reform will see railway fundraising methods diversified and encourage private investment in railway construction as the ownership and management rights of intercity, suburban and branch railways, as well as railways for resource development, will be open to local government and social capital.

Taipei Times Taishin Financial Holding Co urged the government to take steps to boost Taiwan’s service sector if it is serious about rebalancing the nation’s export-oriented economy. The conglomerate said this would make the economy less vulnerable to external impacts, as service industries account for an important share of GDP in advanced economies. Taishin Financial made the plea after President Ma Ying-jeou recently pledged to develop modern service industries in Taiwan.

Mark Blyth

Professor of International Political Economy at Brown University and the author of Austerity: The History of a Dangerous Idea

n recent weeks, talk about a budding recovery in the euro zone has gained traction, with key indices pointing to expansion in the core countries – data that many are citing as evidence that austerity is finally working. Money-market funds from the United States are returning, albeit cautiously, to resume funding of European bank debt. Even Goldman Sachs is now bullishly piling into European equities. But is a recovery really underway? Cynics recall that a European recovery was supposed to take hold as early as the fourth quarter of 2010, and that every International Monetary Fund projection since then has predicted recovery “by the end of the year”. Instead, GDP has collapsed, with the Spanish and Italian economies expected to contract by close to 2 percent this year. Portugal’s economy is set to shrink by more than 2 percent, and Greece’s output will fall by more than 4 percent. Moreover, unemployment in the euro zone has skyrocketed to an average rate of roughly 12 percent, with more than 50 percent youth unemployment in the periphery countries implying a long-term loss of talent and erosion of the tax base. And, despite the spike in unemployment, productivity growth in the euro zone is decidedly negative. More significant, over the last year, the public debt/GDP ratio rose by seven percentage points in Italy, 11 in Ireland, and 15 in Portugal and Spain. If the sine qua non of recovery via austerity is the stabilisation and reduction of debt, the

cynics’ case appears to have been made. Against this background, the return of U.S. investors to provide short-term dollar funding for European bank debt smacks of a desperate hunt for yield that relies on European Central Bank President Mario Draghi’s promise to do “whatever it takes” to save the euro. As for Goldman’s equity play, as bond-market guru Bill Blain put it, “the words ‘buy cheap, sell a bit dearer on the up, and then dump and run’ spring to mind.” In fact, any talk of recovery is premature until the losses incurred by austerity are recouped. As it stands, every country that has implemented an austerity programme without imposing losses on private creditors has more debt now than when it started. For example, according to official estimates, Spain’s

Until Europe rejects austerity in favour of a growth-oriented approach, all signs of recovery will prove illusory

public debt, which amounted to only about 36 percent of GDP when the crisis began, has almost tripled – and the actual figure may be much higher. More telling, the countries that cut expenditure the most experienced the largest bondyield spikes and the most significant debt growth.

Banking crisis The explanation for this is simple. When a country gives up its monetary sovereignty, its banks are effectively borrowing in a foreign currency, making them exceptionally vulnerable to liquidity shocks, like that which sparked turmoil in Europe’s banking system in 2010-2011. The government, unable to print money to bail out the banks or increase export competitiveness through currency devaluation, is left with only two options: default or deflation (austerity). Austerity’s underlying logic is that budget cuts, by reducing the debt burden and restoring confidence, ultimately enhance stability and support growth. But, when countries pursue austerity simultaneously with their main trading partners, overall demand plummets, causing all of their economies to contract and, in turn, increasing their debt/GDP ratios. But the problem with austerity in the euro zone is more fundamental: policymakers are attempting to address a sovereign-debt crisis, though the real problem is a banking crisis. With Europe’s banking system triple the size and twice as leveraged as its

U.S. counterpart, and the ECB lacking genuine lenderof-last-resort authority, the sudden halt in capital flows to peripheral countries in 2009 created a liquidity-starved system that was too big to bail out. As holders of eurodenominated assets recognised this situation, they turned to the ECB for insurance (which the ECB could not deliver under its previous president, JeanClaude Trichet, whose leadership was defined by his commitment to maintaining price stability). Investors’ subsequent efforts to price in the risk of a euro zone breakup – not the volume of sovereign debt – caused bond yields to spike. But the financial-market turmoil fuelled a panic among euro zone leaders, leading them to misdiagnose the malady and prescribe the wrong medicine, which has served only to generate new symptoms. While Draghi’s promise, embodied by the ECB’s “outright monetary transactions” programme – as well as its long-term refinancing operation and emergency liquidity assistance programme – has bought time and lowered yields, the euro zone’s banking crisis persists. Euro zone leaders must recognise that spending cuts will do nothing to stabilise the balance sheets of core-country banks that are over-exposed to peripheral countries’ sovereign debt. Until Europe rejects austerity in favour of a growthoriented approach, all signs of recovery will prove illusory. © Project Syndicate

August 22, 2013

Closing Kodak agrees to exit bankruptcy

Lloyds sells German life insurer

Eastman Kodak Co has gained court approval to come out of bankruptcy as a much smaller digital imaging company. The company, once the biggest name in photography, had planned to come out of bankruptcy in July. U.S. bankruptcy judge Allan Gropper agreed to the company’s plans, meaning it should be back trading in about two weeks. The company filed for bankruptcy protection last year, pushed out of business by the emergence of digital photography which killed off mass demand for film. Since then, the company has sold off a number of its business and patents. It now plans to specialise in printing.

British lender Lloyds Banking Group Plc has sold German life insurer Heidelberger Leben to private equity group Cinven Ltd and reinsurer Hannover Re for around 300 million euros (US$400 million), raising hopes that the state-rescued bank is moving closer to restoring its dividend. The deal, which will boost Lloyds’ core capital by 400 million pounds, and the separate sale yesterday for 254 million pounds of a portfolio of leveraged loans, helps strengthen the bank’s balance sheet and could accelerate government plans to start selling down its 39 percent stake, analysts said. Lloyds has been aggressively selling non-core assets this year.

ECB in Athens as third-bailout talk heats up The European Central Bank was checking up on how well Greece is meeting its international bailout obligations yesterday, a day after Germany’s finance minister said a third aid programme would be needed to keep Athens afloat. Joerg Asmussen, a member of the ECB’s executive board, was to meet Greece’ prime minister, finance minister and central bank governor, and to have talks with Greek business leaders. His immediate concern is with the next tranche of aid from Greece’s second international bailout, due in October. But his visit was announced the same day that German Finance Minister Wolfgang Schaeuble told an election campaign audience that Greece will need a third bailout on top of rescue loans worth about 240 billion euros (US$321 billion) already obtained for 2010-2014. A Greek finance ministry official speaking to Reuters on condition of anonymity said any further help for Greece would aim to cover its funding shortfall in 2014-2016 and would be much smaller than the previous aid packages, given the country’s limited funding needs for the period. The International Monetary Fund has put Greece’s uncovered funding needs for 20142015 at 10.9 billion euros. At least part of that shortfall stems from national European central banks refusing to roll over part of the Greek bonds they hold. Such estimates are revised frequently and are highly sensitive to budget and economic growth projections, which Greece’s lenders are expected to update in the fall.

Malaysia’s economy grew 4.3 percent from a year earlier in Q2

Malaysia cuts 2013 growth forecast Downgrade the latest sign of stress in Asia’s emerging economies

alaysia cut its forecast for growth this year after second-quarter expansion missed economists’ estimates, adding pressure on policy makers to bolster confidence as the ringgit weakens. The economy may expand 4.5 percent to 5 percent in 2013, from a previous prediction of as much as 6 percent, the central bank said in Kuala Lumpur yesterday. Gross domestic product rose 4.3 percent last quarter from a year earlier, after gaining 4.1 percent in the previous period, it said. Malaysia was swept along in the regional turmoil this week, as the prospect of reduced U.S. monetary stimulus and Asia’s faltering growth outlook fuelled a selloff of emergingmarket stocks and currencies. The current-account surplus fell to 2.6 billion ringgit (US$790 million) last quarter as exports slumped, a decline that could pressure the ringgit. “If the current account continues

to worsen, the authorities may have to respond via tightening, cutting fuel subsidies, or pacing investments at a more sustainable rate to stem further deterioration,” Chua Hak Bin, an economist at Bank of America Corp in Singapore, said before the announcement. “Growth will have to slow as a result.” The expansion last quarter was lower than the 4.7 percent median estimate in a Bloomberg News survey of 22 economists. The current-account surplus was the smallest since at least early 1999, according to data compiled by Bloomberg, and compared with the median estimate of 900 million ringgit in a separate survey.

Ringgit depreciation The ringgit has depreciated about 7 percent this year, the fourth-worst performing currency in a basket of 11 major Asian currencies tracked by Bloomberg. The stock gauge FTSE Bursa Malaysia KLCI Index has fallen 3.6 percent since closing at a record on July 24. The surplus is narrowing on increased overseas investment and property buying, higher imports for infrastructure projects, lower palm oil and rubber export prices

and the acquisition of new aircraft by Malaysian Airline System Bhd, Abdul Wahid Omar, minister in the Prime Minister’s Department in charge of economic planning, said in an interview yesterday. Malaysia and Thailand may be the most vulnerable after India and Indonesia, with the former facing a deteriorating current-account balance and elevated foreign ownership of its debt, Credit Suisse Group AG said. Analysts at Barclays Plc are recommending bond investors hold underweight positions in Malaysia, pointing to weak public finances in Malaysia. Fitch Ratings last month cut Malaysia’s credit outlook to negative from stable, citing rising debt levels and a lack of budgetary reforms. Net exports of goods and services slumped 41.6 percent in the second quarter from a year earlier, after falling 36.4 percent in the first quarter of 2013, yesterday’s report showed. Total consumption rose 8 percent in the April-to-June period from a year ago after climbing 6.1 percent in the earlier quarter. Gross fixed capital formation gained 6 percent, after an increase of 13.1 percent in the previous period. Bloomberg News

Indian rupee at record low The Indian rupee plunged to a record low yesterday on heavy dollar demand by importers and as traders fretted over mixed signals from the central bank over its efforts to prop up the currency without choking off economic growth. The rupee fell nearly 2 percent to a record low of 64.52 to the dollar despite what traders said was sporadic central bank intervention in both the spot and forward markets. Measures by the Reserve Bank of India late on Tuesday to support longer-dated credit sent prices of beaten-down bonds sharply higher but also led traders to question the central bank’s resolve in defending the currency. Since mid-July, the RBI has taken steps to tighten cash conditions, which have failed to support the rupee but sent bond yields surging, posing a fresh threat to the already cooling economy. “Currency market and participants may consider it as a reversal of RBI liquidity tightening measures to prevent currency volatility; thus some pressure on currency may re-emerge,” said Anjali Verma, economist at PhillipCapital. With a record high current account deficit at 4.8 percent of GDP, India is especially vulnerable to funds moving away from emerging markets in anticipation of a winding back of the U.S. Federal Reserve’s stimulus programme. Deutsche Bank AG said in a note yesterday that the rupee could slide to 70 in a month or so, although some revival is expected by the end of the year. Local stocks turned negative, with the benchmark Sensex closing down 1.9 percent. Reuters