Macau Business Daily, September 4, 2013 by Business Daily

EU rescue plan for local bank’s parent

Vitor Quintã

MOP 6.00

April 19, 2013

Page 2

Editor-in-chief Tiago Azevedo

Deputy editor-in-chief

Academic likely head of civil servant pay body Page 6

Former China nukes boss wants openness Page 7

SJM market share slipping on room drought says CEO

The latest government data show SJM, which tycoon Stanley Ho Hung Sun founded, is still Macau’s biggest casino operator by revenue. But its share of the market in August fell to 24 percent from 26 percent a year earlier. Separately Mr So said the gaming industry and the government should promote electric vehicles to cut pollution. More on page 3

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Year II

Number 363 Wednesday September 4, 2013

Zung Fu Motors (Macau) Limited

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Hang Seng Index 22450

22424

Banks offer higher rates for yuan

AERL’s HK listing by intro ‘in weeks’

Banks here are raising interest rates for yuan deposits in order to lend the mainland currency back to China firms says a Macau bank executive. In the People’s Republic, companies – especially small- and medium-sized ones – are facing a shortage of domestic credit and are seeking loans outside their immediate borders. Lenders in Hong Kong have also started to offer higher deposit rates to retain yuan funds. Page 2

Macau junket investor Asia Entertainment & Resources Ltd is likely to list on the Hong Kong Stock Exchange within weeks suggests a report from David Bain of independent brokerage Sterne Agee in the United States. AERL – already on Nasdaq – will probably join the Hong Kong bourse by ‘introduction’ without issuing new shares. The firm recorded a second quarter net loss of US$3.0 million (24 million patacas). Page 4

David Sisk leaves Sands China Ltd David Sisk, chief operating officer of Sands China Ltd, has left the company, it confirmed yesterday. “Mr David Sisk has resigned and is no longer with the company. The company does not comment on personnel movement,” said Sands China in a statement. A person familiar with the situation told Business Daily: “I understand he went to Las Vegas last week and was released from his obligations shortly afterwards. It is not a surprise as he was always the most controversial of the senior executives in Macau in terms of his personal relationship with senior management. Some people saw him as being a little bit aggressive.” Page 5

22398

22372

22346

22320

September 3

HSI - Movers Name

%Day

CHINA COAL ENE-H

4.71

CHINA PETROLEU-H

3.83

CITIC PACIFIC

3.11

CHINA LIFE INS-H

2.61

CHINA RES ENTERP

2.45

SANDS CHINA LTD

-0.22

POWER ASSETS HOL

-0.22

TINGYI HLDG CO

-0.41

WANT WANT CHINA

-1.04

CHINA MERCHANT

-1.13

Source: Bloomberg

I SSN 2226-8294

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September 4, 2013

Macau

Banks offer higher rates for yuan deposits Want the mainland currency for growing cross-border lending to China firms Tony Lai

tony.lai@macaubusinessdaily.com

Tempting offer – local banks want more yuan

anks here are raising interest rates for yuan deposits in order to lend the mainland currency back to China firms says a Macau bank executive. The reason is that in the People’s Republic, companies

– especially small- and mediumsized ones – are facing a shortage of domestic credit and are seeking loans outside their immediate borders. Lenders in Hong Kong have also started to offer higher deposit rates to

retain yuan funds – ahead of a likely cash squeeze on the mainland in the run-up to the National Day holiday in early October. Bank of China Hong Kong said yesterday it had raised its preferential interest rate for one-month new yuan deposits above 20,000 yuan (26,100 patacas) by 0.2 percentage points to two percent. An executive at the Macau branch of a mainland bank, who asked not to be identified due to company policy, told Business Daily the situation is similar here. “The banks here are also quite competitive – like the Hong Kong banks – in absorbing yuan funds particularly since the mainland credit crunch earlier this year,” said the person. China faced an abrupt if temporary reduction of interbank capital liquidity in June – and by extension retail credit availability. On June 20 the Shanghai interbank offered rate (SHIBOR), an average of the rate at which big banks say

they will lend, rose sharply after the country’s central bank declined to rubber stamp fresh liquidity for the system, sending a signal it was serious about tackling the mainland economy’s aggressive credit issuance and rising bad debt. Commenting on the opportunity for Macau banks, the executive added: “Banks, usually local branches of mainland lenders, may require more deposits as they have more aggressive positioning in yuan business.” The website of the Macau branch of Bank of China Ltd advertises a 0.6 percent rate for six-month yuan deposits. China Construction Bank (Macau) Corp Ltd has the highest rate at one percent. Banks here are more cautious when setting deposits rates because they “do not have as many channels” for yuan investment as their Hong Kong counterparts, said the bank executive. The offshore Renminbi Qualified Foreign Institutional Investor programme allows Hong Kong financial institutions to invest in the mainland securities markets using yuan. Lenders in Macau would in likelihood also raise deposit rates for other currencies as the year comes to an end, the executive said. “Banks usually try to draw in more funds by year-end if they have a high loan-to-deposit ratio as they want to present a ‘more good-looking’ balance sheet for stakeholders,” he said. The possibility of the United States reducing its money-printing programme could also fuel this move, the executive added. With Reuters

BCP revamp green light clears the air in Macau The European Commission approves the Portuguese bank’s restructuring plan Vítor Quintã

vitorquinta@macaubusinessdaily.com

he future of the Macau branch of Banco Comercial Português SA (BCP) seems clearer now that the European Commission has approved the bank’s restructuring plan. The plan, approved on Monday, requires the Portuguese bank to sell its Romanian operation and Greek assets, but lets it keep its profitable Polish arm. The managing director of BCP Macau, João Pãosinho, said the plan left the Macau branch untouched. “The sale plan will only involve BCP’s subsidiaries, not branches. And we are a branch,” Mr Pãosinho told Macau Business. He said the restructuring had “so far had no impact” on the branch here and that he believed it would have no future impact. But he said approval of the restructuring plan could bring greater stability by allowing BCP to continue to reduce its debt. “Anything that brings more clarity obviously helps us, as well,” he said. BCP must sell assets and cut costs in exchange for 3 billion euros (US$4 billion) in convertible bonds drawn last year from a recapitalisation line, part of Portugal’s 78 billion euro bailout by the European Union and the International Monetary Fund. BCP, the country’s largest

listed bank, said the approval of its restructuring plan showed that its business was viable without continued state support. The plan includes the sale of BCP’s Romanian subsidiary and of BCP’s stake in Greece’s Piraeus Bank. In June BCP sold Greek Millennium Bank to Piraeus Bank for 1 million euros, having put 413 million euros into the subsidiary to keep it afloat. In return, BCP got the right to buy shares worth 400 million euros in Piraeus Bank.

Best possible The restructuring plan envisages BCP’s Polish subsidiary, Bank Millennium MILP.WA, as a “core operation” in future. “There is no commitment to sell it unless the amount of convertible bonds to be paid (by BCP) in December 2016 exceeds 700 million euros,” BCP said. The plan also treats BCP’s operations in Angola and Mozambique as essential. The bank is expected to continue its debt reduction efforts, selling noncore assets with the aim of achieving a minimum return on equity of 10 percent from 2016 and a reduction of 25 percent in staffing-related costs

BCP Macau, as a branch, will remain in its parent bank’s hands

between 2012 and 2015. “It was the best possible deal for all parties involved, allowing the bank to keep its core assets and continue to undertake its activity in its main lines of business, with lower execution risk,” BCP chief executive Nuno Amado said. Mr Pãosinho said Portugal’s banks were still in a difficult situation. “We are all in the same boat. Banks cannot fully overcome the difficulties until the country leaves

the crisis behind,” he said. State-owned Caixa Geral de Depósitos SA, (CGD), one of Portugal’s biggest financial services conglomerates, is also restructuring its operations. CGD made a loss of 181.6 million euros in the first half of this year, although its Macau subsidiary, Banco Nacional Ultramarino SA, made a profit of 18.7 million euros (198.4 million patacas). With Reuters

September 4, 2013 April 19, 2013

Macau

SJM’s share of the gaming market has shrunk in the past year

SJM’s edge is blunted in mass-market fight The company’s shortage of hotel rooms makes it hard to compete, says its chief executive Tony Lai

tony.lai@macaubusinessdaily.com

shortage of hotel rooms is preventing SJM Holdings Ltd from drawing more middle-class gamblers from the mainland into its casinos, so eroding the company’s pre-eminence in the gaming market, chief executive Ambrose So Shu Fai says. Mr So, speaking on the sidelines of a clean energy forum yesterday, blamed the recent decline in SJM’s share of the market on the company’s failure to exploit the growth in massmarket gaming. The latest government data show SJM, which tycoon Stanley Ho Hung Sun founded, is still Macau’s biggest casino operator by revenue. But its share of the market in August fell to 24 percent from 26 percent a year earlier.

The market share of Sands China Ltd, a subsidiary of billionaire Sheldon Adelson’s Las Vegas Sands Corp, was 23 percent in August, having been 19 percent a year earlier. “We are limited by the fact that we do not have enough hotel rooms,” Mr So said. “The mass market is driven by accommodation,” he said. “Because of the lack of hotel rooms […] it is a little bit difficult for us to grow the mass market.” Mass-market gaming revenue made up under one-third of gaming revenue in the first half of this year, but it has been growing faster than VIP gaming revenue. First-half mass-market revenue was 55.6 billion patacas (US$6.96 billion), 26.7 percent more than a year earlier. First-half revenue in general by rose 15.3 percent, official data show.

Musical tables

‘We are now building in Cotai and hopefully in two or three years’ time we will be able to compete’ over mass market Ambrose So Shu Fai, chief executive of SJM Holdings Ltd

SJM’s mass-market revenue rose by 4 percent to HK$12.2 billion, its interim report says. Mr So said SJM did not place great emphasis on its market share figure. “In the meantime, what we can do is relocate and reconfigure our tables,” he said. This means moving tables from low-yielding casinos and gaming rooms into higher-yielding venues. He believes this will increase SJM’s efficiency and profitability. “We are now building in Cotai and hopefully in two or three years’ time we will be able to compete,” Mr So said of the mass market. Mr So said SJM’s casino resort in Cotai would ready in 2016 or 2017.

SJM’s gaming concessionaire subsidiary Sociedade de Jogos de Macau SA will sign tomorrow a deal for Italian fashion house Gianni Versace SpA to build a Versacebrand hotel in the resort. Mr So said the gaming industry’s prospects were bright because of the development of Cotai and the construction of the Hong KongZhuhai-Macau Bridge, due to finish in 2016. He said the current trend indicated that gaming revenue growth could reach 15 percent or 16 percent this year. In July, Secretary for the Economy and Finance Francis Tam Pak Yuen forecast that gaming revenue would grow by about 10 percent this year.

Slot spot search Casino gross gaming revenue was 231.67 billion patacas the first eight months of this year, 16.2 percent more than in the equivalent period of last year, official data show. Casino gross gaming revenue was 30.74 billion patacas last month, the second-highest amount in any month ever. Mr So played down the significance of monthly figures, saying luck made them fluctuate in tandem with the win rates of casinos. He said SJM was still looking for “appropriate” new places to put its two slot machine parlours. The law requires slot machine parlours to be removed from residential areas by November. Mr So said the company would close its parlours temporarily if it had failed to find new places to put

them by November. This would do negligible damage to SJM’s business, he said. Union Gaming Research Macau said last November that the closure of SJM’s slot parlours would cut the company’s earnings by under 1 percent. Mr So said SJM had yet to receive the results of the second round of checks of the air quality in the smoking areas in its casinos. But he admitted that the atmosphere in some older casinos was “not ideal”. Asked if SJM would ban smoking in its casinos altogether if the air quality in their smoking areas again failed the government’s tests, Mr So replied that it would “depend on the government’s instructions”.

Make casino buses run on electricity, So says The gaming industry and the government should promote the use of electric vehicles to cut pollution, SJM Holdings Ltd chief executive Ambrose So Shu Fai says. Mr So, who is also director-general of the International Forum for Clean Energy, suggests that casino shuttle buses could be powered by electricity, which would protect the environment and help Macau’s development. Mr So, speaking on the sidelines of a clean energy forum yesterday, said the city’s carbon emissions were lower than in many places in the mainland because its economy was based on services, not manufacturing. The United Nations Development Programme’s deputy country director for China, Patrick Haverman, said on the sidelines of the forum that more public transport and greater use of bicycles could help Macau. Mr Haverman said cities like Macau should do more to promote renewable energy. He said China was increasingly thinking along green lines to make its economic growth sustainable.

September 4, 2013

Macau

AERL’s HK listing by intro ‘in weeks’

Brought to you by

HOSPITALITY Tourists day and night The figures for July suggest that more tourists than ever before will visit this year. By the end of July Macau had had nearly 60 percent of the number of visitors it had during the course of last year, and just over 62.5 percent of the number of visitors from the mainland it had last year. And the figures for the two peak months for tourism, August and December, have yet to come. It makes a big difference to the economy whether tourists are day-trippers or overnight visitors. Day-trippers tend to spend less. In particular, they do not use hotels. Macau’s main sources of tourists are the mainland, Hong Kong and Taiwan. Day-trippers and overnight visitors make up different proportions of the tourists from each of the main sources.

Visitors from main sources, by duration of stay Million 10 9 8 7 6 5 4 3 2 1 0

Mainland Hong Kong overnighters overnighters

Taiwan overnighters

Mainland Hong Kong day-trippers day-trippers

Taiwan day-trippers

Since 2008 the numbers of day-trippers from the mainland and Hong Kong have been consistently higher than the numbers of overnight visitors. The proportions of these tourists that are day-trippers have been fairly constant, too. Between 51 percent and 54 percent of tourists from the mainland are day-trippers, and between 52 percent and 55 percent of tourists from Hong Kong are day-trippers. Among tourists from the mainland, the preponderance of people from just across the border in Guangdong may explain the uncanny similarity of these proportions. Tourists from Taiwan are different. The number of overnight visitors from Taiwan has been rising slowly but steadily, but not by enough to make up for the fall in the number of day-trippers. Last year, the number of daytrippers from Taiwan was under two-thirds of the number in 2008. J.I.D.

26,000

Daily average number of day-trippers from the mainland in the first seven months

Nasdaq-quoted investor in Macau junkets dropped initial plans for local IPO Michael Grimes

michael.grimes@macaubusinessdaily.com

acau junket investor Asia Entertainment & Resources Ltd is likely to list on the Hong Kong Stock Exchange within weeks suggests a report from David Bain of independent brokerage Sterne Agee in the United States. AERL has been quoted on the Nasdaq in New York since 2008. But the firm’s management has reportedly been frustrated by what it sees as the undervaluation of the business by U.S. investors given its presence in the high-growth Macau casino market. Its current yield is six percent. The company’s forward price to earnings ratio (the last sale price divided by forecast earnings per share) stood at 4.73 as of Monday New York time. The firm’s Nasdaq market capitalisation was approximately US$241.12 million (1.93 billion patacas). The shares were up 0.5 percent on the day, to US$4.02 each. AERL had an initial public offering on August 15, 2008, with a launch priced at US$6.00 per share. AERL’s Hong Kong listing is likely to be by ‘introduction’ said Mr Bain. That’s the same method used by Nasdaq-listed Macau casino developer Melco Crown Entertainment Ltd when it made a dual listing in Hong Kong in December 2011.

Dual listing In a listing by introduction, a company that has shares issued on another exchange can – subject to local regulatory approval – list its shares in Hong Kong without raising new funds or issuing new shares. On the AERL’s second quarter earnings call recently, James Preissler, a director, told analysts the application for Hong Kong listing was imminent. “…we anticipate in the next two to three weeks to be putting the application in…and then it’s more of a review process; very typical to an SEC [U.S. Securities and Exchange Commission] review process. So probably about, on average, three months of back and forth on comments,” stated Mr Preissler. Asia Entertainment & Resources – chaired by Macau junket room veteran Lam Man Pou – said in a Nasdaq filing on June 21 it was withdrawing its original application for a public offering in Hong Kong. Business Daily reported in July that in preparation for the Hong Kong listing the firm had offered subscription rights in order to raise

L’Arc Macau – latest venue for AERL

US$63 million. That – it said at the time – was in order to “comply with Hong Kong listing requirements relating to the financial independence of the company,” by paying off existing shareholder loans.  On July 1 AERL announced in a Nasdaq press release it had raised US$63.5 million gross. But it conceded that the offering had been undersubscribed, and “standby” purchasers had bought nearly half the 19.5 million shares. It added some of these were in fact existing shareholders of the company.  In the second quarter to June 30, AERL’s rolling chip turnover (a measure of overall volume of VIP gaming room business) was US$4.5 billion, a decrease of 4.9 percent compared to US$4.7 billion for the three months ended June 30, 2012 it said in a Nasdaq filing. The firm recorded a net loss for the period of US$3.0 million, or six US cents per share (fully diluted), compared to net income of US$22.0

KEY POINTS AERL quoted on Nasdaq since 2008 Firm’s management ‘frustrated’ by undervaluation Hong Kong listing likely by ‘introduction’

million, or 48 US cents per share (fully diluted), in the same period of 2012. On June 26 AERL completed a deal to acquire the rights to 100 percent of the profit from the Level 1 VIP room at L’Arc Macau’s casino. AERL now works with VIP room gaming promoters in a total of five high roller rooms in Macau.

September 4, 2013

Macau

David Sisk leaves Sands China Move reportedly followed trip to Las Vegas last week Michael Grimes

michael.grimes@macaubusinessdaily.com

avid Sisk, chief operating officer of Sands China Ltd, has left the company, it confirmed yesterday. “Mr David Sisk has resigned and is no longer with the company. The company does not comment on personnel movement,” said Sands China in a statement. A person familiar with the situation told Business Daily: “I understand he went to Las Vegas last week and was released from his obligations shortly afterwards. It is not a surprise as he was always the most controversial of the senior executives in Macau in terms of his personal relationship with senior management. Some people saw him as being a little bit aggressive.” There were industry rumours a year ago that Mr Sisk was about to leave the company. Business Daily attempted to contact Mr Sisk yesterday for comment, but was unable to reach him by press time. According to a previous press release by the parent firm Las Vegas Sands Corp, Mr Sisk joined Sands China on July 27, 2010 – initially as executive vice president and chief casino officer. The same day Edward Tracy was announced as president and chief operating officer. The appointments followed the sacking days earlier of Steve Jacobs as Sands China president and chief executive. But Michael Leven, president and COO of LVS, initially filled the Macau chief executive role in an acting capacity. The septuagenarian shuttled back and forth from Las Vegas to Macau in the top Macau job until Mr Tracy’s promotion to the role of Sands China chief executive in July 2011. Prior to joining Sands China, Mr Sisk was executive vice president and chief financial officer of Wynn Las Vegas and Encore. He joined

Moving on – David Sisk

Wynn Resorts Ltd 18 months before the opening of Wynn Las Vegas and played a key role in establishing the management and financial structure of the US$2.7 billion (21.57 billion patacas) resort hotel and casino. Before that, Mr Sisk – a certified public accountant in the United States – worked for Caesars Palace in Las Vegas for 12 years where he was the senior vice president and chief financial officer.

Changing guard Mr Sisk’s departure from Sands China overlaps with the arrival last month of Grant Chum – previously managing director, head of Hong Kong Equity Research at UBS

Investment Bank. LVS said Mr Chum would work on corporate strategy, gaming operations optimisation, shareholder and financial relations, and new development. The Wall Street Journal reported on Tuesday that Hugh Fraser, a vice president of casino operations for Sands China’s four properties, resigned the previous Friday to take a new post in Australia. In June, Andrew Billany, formerly senior vice president of Sands China’s Plaza Casino at the Four Seasons Macao and of the firm’s high roller Paiza operations, left for a job with SJM Cotai, a new 20 billion-pataca resort planned by Sands’ market rival SJM Holdings Ltd. Mr Jacobs’ departure in July

2010 followed 16 months in charge of Macau operations. Mr Jacobs guided the local business through the dramatic cost-cutting required in early 2009 following the global financial crisis of late 2008 – when the very existence of a then heavily leveraged LVS was called into question by its own auditors – and through Sands China’s US$2.5 billion initial public offering in Hong Kong in November 2009. The company said Mr Jacobs was eventually sacked for “cause” citing unauthorised deal making and statements about non-Macau projects. Mr Jacobs says he was “wrongfully terminated” and is attempting to sue Sands China via a court in Nevada.

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September 4, 2013 April 19, 2013

Macau Brought to you by

Financial Monitor Single-note tune In the first half of this year the economy was just over 10 percent bigger than a year earlier. As far as we can tell from the halfyearly figures for gross domestic product, the various sorts of expenditure are following different paths. The chart shows the real changes in the components of domestic expenditure – private consumption, government expenditure and investment – and the balance of external trade, goods and services being computed separately. The chart highlights the heavy reliance of the economy on exports of services. The net balance of trade in services exceeds the combined value of consumption, government and investment outlays – and the relationship is becoming ever more one-sided. The ratio of net exports of services to domestic expenditure has risen almost continuously from 1.5 to one in 2008 to 2.6 to one in the first half of this year.

300000 250000 200000 150000 100000 50000 0 -50000 -100000

The chart illustrates the trend. Private consumption and government expenditure have risen by about one-third in the five full years represented. Investment has oscillated, but last year it was almost one-quarter lower than it was at its peak in 2008. The net balance of trade in goods has been continuously negative, the deficit increasing by 50 percent. The only really outstanding performer has been trade in services, the surplus being 2.3 times higher last year than in 2008. On current trends the surplus may be between 5 percent and 10 percent higher at the end of this year. None of the other components of GDP is likely to come near trade in services, and government expenditure and investment may even be lower this year than last year.

Enlarged pay committee provokes points of order But the civil service pay committee chairman will no longer be an official Stephanie Lai

sw.lai@macaubusinessdaily.com

he government has said it will put an expert or an academic in charge of an expanded advisory committee on civil service pay, instead of an official. University of Macau professor of public finance Chan Kin Sun thinks replacing the chairman is a bold move, but that giving the committee four more members does not necessarily mean new voices will be heard at its meetings. Monday’s Official Gazette says the director of the Public Administration and Civil Service Bureau will no longer chair the committee, and that an expert or an academic will chair it instead. “This is a good and bold measure,” Mr Chan told Business Daily. “Experience tells us that other advisory committees headed by highranking officials are not always very efficient in reaching decisions,” he said. The government says three more representatives of the Macau Chamber of Commerce and one more representative of the Macau Federation of Trade Unions will join the committee. This will give the committee four members from the chamber of commerce, two from the union federation and three from civil service associations.

The changes should come into effect in January, when the mandate of the sitting members ends. Chinese-language news media quoted the sitting representative of the Macau Federation of Trade Unions, Ella Lei Cheng I, as saying the committee needed more voices, but not more voices from the chamber of commerce. Mr Chan is also doubtful about the new make-up of the committee. “First of all, we are not sure if all these representatives from the employers’ side are from diverse backgrounds,” he said. “Say if, eventually, they are all from the gaming sector, then the opinions they deliver to the committee will be pretty lopsided.”

Two-year rotation Mr Chan’s doubts extend to giving another seat to the union federation. The Macau Federation of Trade Unions “mainly speaks for the rights of workers from the middle or the lower-income strata”, he said. “So if you are tackling issues like competition for human resources between private companies and government departments seeking high-level workers, the union’s voice may have limited impact.”

J.I.D. The content of this column is the work of Business Daily’s journalists.

8.96 %

Year-on-year rise in H1 investment

The advisory committee on civil service pay will have more members

The government will rotate membership of the committee among the various civil service associations every two years. Macau Civil Servants Association president José Pereira Coutinho said the rotation arrangement should be extended to other committees. “Many people continue to take up posts for many years,” Mr Coutinho complained. The secretary-general of Chinese Civil Servants Association, Lei Kong Weng, said of the rotation arrangement: “It is a fairer rule, as it can ensure that most civil service associations can take part in evaluating civil service pay.” But Mr Lei said some new associations might be left out of the arrangement. “There are quite a number of new civil service associations that have emerged in the past two years, and they are still not recognised,” he said. The Macau Civil Servants Association, the Professional Civil Servants Association of Macau and the Chinese Civil Servants Association each have one seat on the committee. Business Daily asked the Public Administration and Civil Service Bureau to comment but we had received no reply by the time we went to press.

September 4, 2013 April 19, 2013

Macau

Be open about nuclear plants, says ex-official A former official of China National Nuclear Corp says the public needs reassurance Tony Lai

tony.lai@macaubusinessdaily.com

Thousands of people protested in July against plans for a nuclear plant in Jiangmen

former senior official in China’s nuclear power industry says the central government should be more open about its plans for nuclear power plants to ease anxiety in Macau over a uranium plant due to open across the border in Guangdong next year. The ex-official, Li Yulun, formerly a vice-president of China National Nuclear Corp, said on yesterday that China’s nuclear power stations were as safe as any other country’s. But Mr Li told reporters on the sidelines of a clean energy forum that public anxiety about nuclear energy was understandable, in view of the troubles of the Fukushima nuclear power plant in Japan since March 2011. “The nuclear industry and the regulator should disclose to the public all information about the plants and the safety measures taken, and dispel their worries,” Mr Li said. China National Nuclear Corp

oversees all civilian and military nuclear programmes in the mainland. Mr Li was talking to reporters about a new uranium plant in Taishan, about 100 km from Macau. Chinese-language news media reported last week that the plant will open next year. A Greenpeace report in January last year and reports in the news media have spoken of recurring defects in the plant’s construction, and of radioactivity there 1.4 times higher than around the Daya Bay nuclear power station, which is about 250 km from Macau. The Guangdong provincial government shelved plans for a nuclear plant in Jiangmen costing 37 billion yuan (46.25 billion patacas) after they provoked protests by thousands of people in July. “There are two extremely important bits of information the government should release: the environmental impact assessment of the plant and the safety evaluation of the plant,” Mr Li said. He said equivalent information on nuclear plants “can be found in public libraries in Western countries like Germany, but our country still has room to improve on this”. He said Guangdong could make use of more nuclear power stations in view of the size of its population, and accommodate more in view of the improbability of natural disasters such as earthquakes. Mr Li said the nuclear power industry should base its assessments of the safety of its plants on information it gathers on-site rather than on the odds against any mishaps.

Corporate G2E’s Mike Johnson promoted by Reed Reed Exhibitions has promoted Mike Johnson to oversee sales, conference organisation and show management for Global Gaming Expo events – two trade shows and conferences held annually for the casino industry in partnership with the American Gaming Association. Mr Johnson was previously director of sales and industry development for G2E held in Las Vegas and event director and general manager for G2E Asia, which since its inception in 2007 has been held in Macau. In his new role – designated industry vice president of G2E and G2E Asia – he will report to Courtney Muller, a senior vice president at Reed. “Mike has been instrumental to the growth of the G2E portfolio, and we look forward to the value he will continue to bring,” said Ms Muller. This year’s G2E to be held from September 23 to 24 in Las Vegas. Reed says it will be the largest since 2008 – i.e., prior to the global financial crisis.

Australian travel agent holding shindig here Flight Centre Ltd – Australia’s biggest travel agent by sales turnover – is to hold its annual ball in Macau next year reports eTravel Business News. More than 3,000 managers and high achievers are expected to attend the event. Flight Centre has 1,500 outlets and units in nine jurisdictions. According to filings with the Australian Securities Exchange the company has 33 businesses in ‘Greater China’ – understood to be principally Hong Kong. That part of the operation generated A$158 million (1.14 billion patacas) in total transaction value in financial year ended June 30, the firm said last week. The figure was up 33 percent year-on-year. Flight Centre’s other markets are Singapore, India, Dubai, New Zealand, the United Kingdom, Canada, the United States and South Africa. Last Friday Ben Zaubzer, marketing manager of Macau Government Tourist Office (Australia and New Zealand), gave a presentation on Macau to Flight Centre staff at a social event in Sydney, Australia.

September 4, 2013 April 19, 2013

Greater China

Li confident C meet economic

Prime minister says market expectatio

We are able to and have conditions to meet China’s major economic and social development tasks this year

hinese Premier Li Keqiang said he’s confident that the nation will achieve the year’s economic goals, adding to signs that China will meet 7.5 percent growth target. Recent data show employment and prices are stable and market expectations have “apparently” improved, Mr Li said in a speech yesterday at the China-ASEAN Expo in Nanning, China, that was broadcast on state television. The economy has “maintained stable development” since the first half and “confidence is increasing,” he said. The comments build on data this week showing manufacturing strengthened last month, while trade and industrial production topped analysts’ estimates in July. Goldman Sachs Group Inc researchers yesterday boosted their

Li Keqiang, China’s prime minister

Services sector grows steadily As government measures kick in to prevent growth from sliding too far Langi Chiang and Jonathan Standing

The services sector contributed to 45 pct of China’s GDP in 2012

hina’s services sector grew steadily in August as domestic demand picked up, official data showed yesterday, adding to signs that government measures have started to steer the world’s second-largest economy out of its longest slowdown. The non-manufacturing purchasing managers’ index (PMI) dipped slightly to 53.9 last month from July’s 54.1

to be at the same level as in June, the National Bureau of Statistics said. A reading above 50 indicates activity in the sector is accelerating, while one below 50 points to a slowdown. The survey followed a pair of manufacturing PMIs which showed factory activity accelerated in August. “The non-manufacturing sector grew steadily in

August. The rise in new orders set a good foundation for growth in the next few months,” said Cai Jin, a vice head of the China Federation of Logistics and Purchasing (CFLP), which compiles the index on behalf of the NBS, said in a statement.

New orders China’s economy has slowed in 12 of the past

14 quarters. In recent months, Beijing has rolled out measures to prevent growth from sliding too far, allowing it to set a base for pressing ahead with longawaited structural reforms to move the economy off a dependence on investment, credit and exports. These have included measures to support small businesses, which employ a large number of people, such as scrapping some taxes and making financing more easily available for them. The NBS said a subindex of small business activities has risen for two months, without providing a specific number. “The policies have shown their initial effects,” the CFLP said, adding that “with the upcoming holidays and implementation of policies to boost the telecommunications and health sectors, the services industry will turn better in the next few months.” The sub-index measuring new orders, from both home and abroad, rose to 50.9 in August from July’s 50.3, while input prices and service charges fell, easing cost pressures.

2013 growth estimate to 7.6 percent from 7.4 percent, joining Credit Suisse Group AG, Deutsche Bank AG and JPMorgan Chase & Co in raising projections. “We are able to and have conditions to meet China’s major economic and social development tasks this year,” Mr Li said. “We are also determined to lay a sound foundation for next year, for the future and for longterm sustainable and healthy economic development.” The government signalled in July that it will defend

7.5 %

China’s growth target for 2013

But new export orders contracted, with the subindex down to 49.6 from 53.1 in July, indicating demand remains soft despite signs of recovery in the United States and Europe. The survey, which covers 1,200 firms in 27 industries, pointed to an improving job market with the employment sub-index rising to 52.5 from July’s 51.3. The services sector contributed to 45 percent of China’s gross domestic output in 2012, and it overtook manufacturing as the country’s biggest employer in 2011. A separate PMI survey of the services industry by Markit Economics and HSBC will be released on Wednesday. That survey covers more smaller, private firms than the official PMI. Reuters

KEY POINTS Official services PMI at 53.9 in Aug Domestic orders and job market improve Sub-indexes of new export orders and prices fall Data show policies starting to stabilise growth

September 4, 2013 April 19, 2013

Greater China

China will c goals

Stocks rise to 10-week high

ons have improved its economic-growth target for the year after expansion slowed for a second quarter. China, the world’s second-largest economy, has announced what Bank of America Corp called a “small stimulus” consisting of measures including tax breaks for small companies and accelerated railway construction.

Growth streak The economy expanded 7.5 percent in the second quarter from a year earlier, extending the longest streak of sub-8 percent growth in at least two decades. China is concerned about the challenges of capital outflows, currency depreciation and rising inflation that some Asian countries face amid expectations that developed nations will stop monetary-easing policies,

Mr Li said yesterday. The U.S. Federal Reserve this month will probably reduce its bond buying, according to 65 percent of economists surveyed by Bloomberg. Goldman Sachs, in a report yesterday, cited a pickup in industrial growth and other indicators over the past few months, along with “improving global demand and the tighter but still accommodative policy stance”. The investment bank left its 2014 growth forecast unchanged at 7.7 percent. An official Purchasing Managers’ Index for manufacturing rose to a 16-month high in August, while a similar index from HSBC Holdings Plc and Markit Economics showed the biggest gain in three years, according to data released earlier this week.

China’s stocks rose to a 10-week high after Premier Li Keqiang said he’s confident the country will achieve this year’s economic goals and Goldman Sachs Group Inc boosted its forecast for the nation’s expansion in 2013. Industrial Bank Co. and Poly Real Estate Group Co. surged more than 4 percent to lead a rally for lenders and developers. The Shanghai Composite Index rose 1.2 percent to 2,123.11 at the close, with a gauge of 30-day volatility falling to the lowest level since June 7. The Shanghai index rallied 5.3 percent last month, the biggest gain among benchmark indexes in Asia, on signs the economy is stabilising. “August economic data has been great so there’s optimism such a trend will continue in the coming months,” Zhou Lin, an analyst at Huatai Securities Co, said by phone from Nanjing. “There are also expectations there will be more reforms that will boost the economy.”

Bloomberg News

Beijing sacks former energy chief Jiang removed due to ‘suspected serious disciplinary violations’

hina removed Jiang Jiemin as head of the StateOwned Assets Supervision and Administration Commission, with the agency pledging support for President Xi Jinping and a Communist Party probe into its former director. Mr Jiang, 57, was removed on suspicion of “serious disciplinary violations,” the official Xinhua News Agency reported yesterday, citing the Communist Party’s Organisation Department. That follows Sunday’s announcement that Mr Jiang, a former chairman of China National Petroleum Corp, was under investigation amid a government probe of executives at the country’s biggest oil companies. In a statement dated September 2 and posted on its website, SASAC’s party committee said it “firmly supports” the probe into Mr Jiang. SASAC will “unswervingly carry out anti-corruption work,” the committee said in the statement after meeting with officials from the party’s Organisation Department on the afternoon of Sunday. “It will continue to promote the reform and adjustment of central enterprises.” The statement underscores how China’s government is falling into line behind Mr

Jiang Jiemin has not commented publicly on the allegations

Xi’s anti-corruption drive. SASAC oversees trillions of yuan of the state’s stake in more than 100 companies, including CNPC, the parent company of PetroChina Co, and China Mobile Communications Corp, the parent of China Mobile Ltd. Those are the type of companies that Mr Xi and Premier Li Keqiang need to exert control over to help implement policies they seek to adopt at a November party conclave, and the probe into Mr Jiang as well as several CNPC executives indicates Mr Xi is amassing power, Beijingbased economic consulting firm GK Dragonomics wrote in a report. “Xi should have the ability to push through a strong agenda, judging

from the scale of the anticorruption probes he is overseeing,” the note said. Mr Jiang, who took over as SASAC director earlier this year, is under investigation for alleged “serious disciplinary violations,” the Ministry of Supervision said on Sunday. Hong Kong-listed Wison Engineering Services Co, whose shares fell as much as 18 percent on Monday before being suspended, said in a statement that its controlling shareholder, Hua Bangsong, was assisting Chinese authorities with their investigations, without giving specifics. Wison provides consulting, engineering and construction services to chemical factories and oil refineries. Bloomberg News

analysis

China PMI may not signal rising commodity demand

Clyde Russell Reuters market analyst

ommodity producers and traders have no doubt been cheered by the recent recovery in China’s key manufacturing sector, but the boost may be more to sentiment than actual demand. This is because there is a fairly weak correlation between movements in China’s official Purchasing Managers’ Index (PMI) and imports of key commodities such as crude oil, iron ore and copper. There is a far better correlation between China’s imports and the price of these commodities. This suggests that while stronger, or weaker, industrial growth helps set the direction for imports, the actual size of the movement in imports is more related to price. The official PMI rose to a 16-month high of 51.0 in August, beating market expectations for a reading of 50.6, with the breakdown showing better conditions across the factory sector, including the key export orders category. The rise in the official PMI was supported by a similarly positive reading in the HSBC PMI survey, which rose above the 50-line that separates expansion from contraction for the first time in four months, hitting 50.1 in August. The HSBC index is more biased toward smaller and medium enterprises, while the official PMI concentrates on larger, statecontrolled companies. Both PMIs appear to be saying that the Chinese economy has turned the corner from a weaker start to 2013 and is once again expanding on the back of increased infrastructure spending and better global economic conditions. It seems logical that this is good news for commodity producers, as a stronger China generally means the world’s biggest commodity consumer imports more. But the logic doesn’t really stand the scrutiny of the data. Take iron ore for example. From the end of the 2008 global recession until the end of 2010 the official PMI was consistently above the 50-mark, with the lowest reading being 51.2 in July 2010. However, iron ore imports flatlined for much of that period once the initial rally after the 2008 recession was over. In fact for most of 2010 the trend in iron ore imports was down and they only started accelerating toward the end of the year and the start of 2011, just as the PMI was starting to weaken. More recently, the official PMI has been meandering in a narrow range near the 50-level, but iron ore imports have been surging, reaching a record high in July of 73.1 million tonnes. However, if you compare iron ore imports to the Asian spot price, it becomes clearer that Chinese buying accelerated after last year’s sharp price decline. It also shows that the weakest month for iron ore imports this year, namely February, came after the price had rallied almost 80 percent between September last year and January this year.

Prices more important It’s much the same story with crude oil imports, which rose along with the

PMI post the 2008 financial crisis. However, after that oil imports were weak at the end of 2010, while the PMI was strengthening, although they both rose in tandem toward the end of 2011. In 2013, crude imports have been trending higher, reaching a record in July, while the PMI has been tracking sideways. Looking at crude imports compared to the price of Brent and it seems that higher oil costs lead to lower imports and vice versa. Oil imports trended higher until September 2010 before moving sideways for about a year, at a time when Brent prices were elevated above US$100 a barrel. Last year, crude imports dropped around September, just as Brent was rallying, and this year the lower oil price that prevailed until recently has led to accelerating imports. With copper, imports were trending higher in 2011 at a time the PMI was trending lower. So far this year, imports of the industrial metal have been declining while the PMI has been steady. Comparing copper imports to London benchmark prices shows that imports were weaker when prices were strong between July 2010 and July 2011, but imports rose later in 2011 as prices weakened. More recently, weaker prices since April this year have resulted in gains in imports. What the data show is that China’s commodity buying is more leveraged to price movements than industrial output growth, as the Chinese appear willing to use inventories and higher domestic output when prices for imports rise. A better indicator of likely import demand growth than the PMI may come from watching inventory cycles, the cost of domestic production for commodities with significant local output, and movements in international prices.

What the data show is that China’s commodity buying is more leveraged to price movements than industrial output growth

10 10

September 4, 2013 April 19, 2013

Greater China

Foreign firms beef up compliance Antitrust investigations gathering pace in recent months Michael Martina and Kazunori Takada

oreign companies in China are getting increasingly jumpy about a spate of antitrust and corruption investigations by Chinese authorities and are hiring lawyers to make sure their operations comply with the law. The investigations represent one of the most significant risks to doing business in China in years. Antitrust regulators have looked into sectors such as pharmaceuticals, milk powder and jewellery in recent months and suggested that autos, telecommunications, banks and oil firms could be next. Corruption probes have targeted the pharmaceutical industry while authorities have also launched a major investigation into China’s leading oil and gas company. One executive from a foreignlisted medical device maker told Reuters he cancelled his summer vacations plans and instead spent the past month criss-crossing China to make sure the company’s operations were not violating any Chinese laws. Lawyers in China say client enquiries related to a five-year old anti-monopoly law – suddenly being enforced with zeal – have jumped, including requests for antitrust audits. Reuters spoke to two dozen foreign executives, business consultants and lawyers. All the company executives declined to be identified for fear of attracting scrutiny from regulators. Overall, they said they were still optimistic about doing business in China, where hundreds of millions of more consumers will join the middle class even as the economy looks set to grow in 2013 at its slowest pace in 23 years. While corruption investigations periodically make the headlines, the latest campaign appears to have more teeth than usual with President Xi Jinping, who took office in March, using the crackdown as a totem for his administration. The biggest foreign firm in the spotlight is British drugmaker GlaxoSmithKline Plc, which Chinese police have accused of funnelling up to 3 billion yuan (US$489.92 million) to travel agencies to facilitate bribes to doctors to boost the sale of its medicines. GSK has said some of its senior Chinese executives appeared to have broken the law.

‘Grey zone’ The medical devices executive said he went to all his company’s offices in China and reviewed third-party sales agents to ensure no “grey zone” business was being done. “Doing business in China comes with risks, such as bribery. We have to juggle this against our business target and that has become increasingly difficult after GSK,” he said, declining to be identified because of the sensitivity of the issue. A veteran healthcare industry executive said his firm had increased the frequency of its internal audits. “We have to make sure we see what’s underneath,” he said. Seung Chong, a Hong Kongbased partner and regulatory expert at Orrick law firm, said enquiries from clients to get their codes of conduct up to U.S. and EU standards were growing, especially with anticorruption policies.

Six milk powder makers were fined US$110 mln in August

It is the antitrust investigations, however, that have really accelerated. Reuters reported on August 21 that an official from the National Development and Reform Commission (NDRC), which regulates prices, put pressure on some 30 foreign firms at a meeting in late July to confess to any antitrust violations. In particular, authorities are paying attention to whether manufacturers are forcing retailers to set minimum prices for products, which would contravene the antimonopoly law.

The recent level of enforcement is certainly making companies sit up and take notice Francois Renard, antitrust expert, Allen & Overy

In some cases, legal teams had been hired to interview employees to ensure their behaviour when talking to clients and competitors does not violate Chinese law, lawyers said. “The recent level of enforcement is certainly making companies sit up and take notice,” said Francois Renard, a Beijing-based antitrust expert with law firm Allen & Overy.

Driving investigations Officials have said little to explain the motivation behind the antitrust investigations. China’s three regulators – the NDRC, the State Administration for Industry and Commerce (SAIC) and the Commerce

Ministry – did not respond to faxed questions for comment. SAIC handles non-price related anti-competition issues and commercial bribery while the Commerce Ministry reviews mergers and acquisitions. Official media have said the probes are part of efforts to toughen enforcement of the anti-monopoly law and are not just directed at foreign firms. But various reports have also noted that Chinese pay more for some foreign products than in other countries. According to a study by Dutchbased Health Action International, a non-profit group, prices charged for Western drugs in northwestern Shaanxi province last year were about 11 times an international reference price. A Xinhua news agency commentary in late July said some imported cars were twice as expensive in China than overseas. Tariffs and other duties do push up the price of foreign goods in China. Nevertheless, some executives said they believed multinational companies were being singled out. The NDRC has launched nearly 20 pricing-related probes into domestic and foreign firms in the last three years, according to official media reports and research published by law firms. But antitrust experts say that few involving Chinese firms were major cases or resulted in stiff punishment. Of six milk powder makers fined a record US$110 million in August for anti-competitive behaviour, five were foreign including Mead Johnson Nutrition Co and Danone SA. “MNCs are understandably obvious targets for this expanded enforcement on competition issues because of their size, market share and vulnerability,” said Scott Kennedy, director of the Research Centre for Chinese Politics & Business at Indiana University. Antitrust experts believe bureaucratic rivalry may also be a factor behind the investigations.

When the anti-monopoly law was being drafted, a single entity was supposed to handle enforcement, they said, which set the stage for the three agencies to work out distinct roles after considerable wrangling. “The only thing the three could agree on was that they didn’t want the other agencies – or even worse, a new agency, to get it. So a deal was made to carve up enforcement responsibilities,” said Mark Williams, an antitrust expert and a law professor at Hong Kong Polytechnic University. Five years later, many experts see the increased enforcement as an attempt by each agency to prove its worth. Regardless of which leaders or agencies are setting the agenda, there is scepticism among scholars and lawyers that regulators have the mandate or the political clout to go after top Chinese state firms. An exception appears to be energy giant China National Petroleum Corp. In the past week, authorities have announced that four senior executives and a former chairman are being investigated for “serious discipline violations”, shorthand generally used to describe corruption. Reuters

KEY POINTS Requests for antitrust audits increasing – lawyers Concerns that foreign firms being targeted Agency rivalry may be helping to drive antitrust investigations Executives still optimistic about doing business in China

11 11

September 4, 2013 April 19, 2013

Asia

Japan to proceed with sales tax hike Government may compile extra budget, finance minister says

apan will tell G20 nations at a summit this week that it will proceed with a planned twostage sales tax hike, and consider compiling an extra budget for fiscal spending to ease the pain on the economy, Finance Minister Taro Aso said yesterday. Mr Aso, who will accompany Prime Minister Shinzo Abe to the Group of 20 summit in Russia, also said Japan is unlikely to face criticism from other countries this time about the yen’s weakness that boosts the competitive advantage of its exports. “Japan has launched fiscal and monetary stimulus to pull out of deflation. The yen’s weakness was only a side-effect of that ultimate goal of beating deflation,” Mr Aso told a news conference after a regular cabinet meeting. Japan has pledged at previous G20 gatherings that it will make efforts to rein in its ballooning public debt which, at double the size of its US$5 trillion economy is the biggest among major industrialised nations. Mr Abe will decide by early October whether to proceed with a planned two-stage increase in the sales tax from next year, a move considered as crucial in fixing Japan’s tattered finances. Critics of the tax hike plan have called for delaying or watering down the tax hike, for fear of threatening Japan’s budding economic recovery. “Japan’s basic stance is to raise the tax,” said Mr Aso who, as finance minister, has consistently called for the need to raise the sales tax given Japan’s dire fiscal state. Unless there is a change in the plan, Japan’s sales tax will be raised to 8 percent from 5 percent in April and to 10 percent in October 2015. If the sales tax is increased as planned, the government will consider compiling an extra budget for fiscal spending to cushion the

KEY POINTS Govt to mull extra budget to ease pain from tax hike Timing of extra budget seen early next year G20 unlikely to criticise Japan on weak yen – Aso

Japan’s basic stance ‘is to raise the tax’, says Taro Aso

damage to the economy and submit relevant bills to parliament early next year, Mr Aso said. He added that he did not have any idea of the size of the spending yet.

Fukushima budget Meanwhile, Japan pledged nearly US$500 million to contain leaks and decontaminate radioactive water from the tsunami-crippled Fukushima nuclear plant, stepping up government efforts to cope with the legacy of the worst atomic disaster in a quarter of a century. The announcement comes just days befo r e th e I n ter n a ti o n a l Olympic Committee decides

whether Tokyo will host the 2020 Olympic Games and the government is keen to show the crisis is under control. Madrid and Istanbul are the rival candidates. “The world is watching to see if we can carry out the decommissioning of the Fukushima nuclear power plant, including addressing the contaminated water issues,” the prime minister told cabinet ministers, who met to approve the plan. The measures do not address the full problem of water management at the plant or the bigger issue of decommissioning. The sensitive job of removing spent fuel rods is to start in the coming months. The ultimate fate of the plant’s operator, Tokyo Electric

Power Co Inc (Tepco), also remains unclear, as does the question of who will eventually foot the bill – Japanese taxpayers, or the embattled Tepco. Chief Cabinet Secretary Yoshihide Suga told a separate news conference that the government would spend a total of 47 billion yen (US$473.05 million), including 21 billion yen in emergency reserve funds from this year’s budget. Of that, 32 billion yen will fund the building of a massive underground wall of frozen earth around the damaged reactors to contain groundwater flows, and 15 billion yen to improve a water treatment system meant to drastically reduce radiation levels in the contaminated water. Reuters

Australia keeps rates at record low Subdued economic data point to further easing

ustralia’s central bank kept its cash rate at a record low of 2.5 percent yesterday, a widely expected decision given it was just a month since the last easing and only days before national elections, while subdued data kept alive the chance of further cuts. The Australian dollar rose as the market had expected a more dovish tone from the Reserve Bank of Australia (RBA) after its monthly policy meeting. Instead, the central bank was less than forthcoming on the prospects of further action. “The Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target,” was the boilerplate statement from RBA Governor Glenn Stevens. The central bank cut rates in May and August in large part because a long boom in mining investment has peaked and spending by other sectors has yet to step up and fill the gap. Another move this month always looked unlikely so soon after the last

Disappointing retail sales point to easing bias

easing and with a Federal election just four days away. The Labor government of Prime Minister Kevin Rudd is trailing badly in the polls and seems likely to lose to the conservative opposition led by Tony Abbott. All 23 analysts in a Reuters poll expected no change in policy this week, though many still favoured a further easing in coming months. Financial markets imply around a

two-in-three chance of a cut to 2.25 percent by Christmas, and there is scant hint of a tightening priced in for at least the next year. The RBA’s Mr Stevens also reiterated his wish to see a lower local currency. The Australian dollar has dropped 15 percent since April, bringing a much-needed boost to export earnings while lessening competitive pressure on

manufacturing. Since many of Australia’s resource exports are priced in U.S. dollars, a lower currency delivers a big windfall to miners’ earnings and profits. The case for a continued easing bias by the RBA should be underlined by figures on gross domestic product (GDP) due today. Analysts expect only another modest increase of 0.6 percent in the second quarter, while annual growth of 2.5 percent would again be short of the 3.25-3.5 percent they consider normal. Ever since the global financial crisis, consumers have become more careful with their money choosing to save more and borrow less, a painful sea change for housing and retailing. There are signs low mortgage rates are working to revive the housing market. Retailers, however, have yet to feel the benefit. Retail sales disappointed for the fifth month running in July, edging up a bare 0.1 percent, data showed yesterday. Reuters

12 12

September 4, 2013 April 19, 2013

Asia

India slowdown adds urgency to boost reserves

Manila accuses China of sea violation

Rating agency reiterated negative outlook as country’s deficit grows Unni Krishnan

ndia’s weakest economic growth since 2009 escalates pressure on the government to increase the smallest foreignexchange reserves among BRIC nations, as policy makers struggle to contain a sliding rupee. The reserves have dropped about 13 percent to US$278 billion since a 2011 peak and are equivalent to less than seven months of imports. Bank of America Merrill Lynch estimates India needs as much as 10 months of import cover for currency stability, a figure still about half the average in Brazil, Russia and China. Prime minister Manmohan Singh’s potential options to shore up confidence in the rupee include issuing India’s first dollar sovereign bonds, a deposit program to tap the country’s diaspora and bilateral currency-swap agreements. Boosting reserves could avoid the need to support the currency with further interestrate increases that risk damaging efforts to revive investment. “India needs to explore all possible funding options,” said Sonal Varma, an economist at Nomura Holdings Inc in Mumbai. Rate increases may deter some capital inflows by worsening India’s slowdown, she said. The rupee has slumped 18 percent versus the dollar in 2013 as India’s record current-account deficit made it vulnerable to an outflow of capital from emerging markets, spurred by the prospect of reduced American monetary stimulus. Bank of America estimates a deposit program for India’s diaspora could raise as much as US$20 billion, and sovereign dollar debt about US$5 billion a year. India’s other funding options include exploring currency-swap

The rupee has slumped 18 percent versus the dollar in 2013

agreements with economies such as the United States, China and the European Union, to add to the US$15 billion arrangement with Japan, according to Nomura.

Record deficit The shortfall in India’s current account widened to an unprecedented US$87.8 billion or 4.8 percent of gross domestic product in the fiscal year ended March. India also had US$172 billion of debt maturing within 12 months as of March 31, official data show. If the government “tells us how it will finance or roll over the debt of US$172 billion by March,” that might stabilise the rupee, said Manish Sonthalia, a fund manager at Motilal Oswal Asset Management Co in Mumbai. Expansion slowed to 4.4 percent last quarter from a year earlier

Rupiah weakens past 11,000 Corporate dollar demand keeps weighing on Indonesia’s currency

ndonesia’s rupiah weakened past the psychologically important level of 11,000 per dollar yesterday, for the first time in more than four years, as the market fretted after the government reported a record monthly trade deficit. The rupiah’s indicative prices lost 0.7 percent to 11,050 per dollar, its weakest since April 2009. Monday’s announcement that Indonesia’s trade deficit in July soared to US$2.31 billion, nearly triple the June level, was the latest in a series of blows to the currency, which has shed nearly 13 percent against the dollar this year. The July deficit makes some analysts and traders worry that

Indonesia’s current account deficit, which widened sharply in the second quarter, could get bigger this quarter, even though the central bank expects it to narrow. While the rupiah slipped again yesterday, Indonesia’s benchmark stock index rose 1.5 percent, erasing most of Monday’s decline. The latest fall for the rupiah, which shed 0.6 percent on Monday, stemmed from dollar demand from local companies in thin liquidity. Forward markets yesterday pointed to further depreciation in the rupiah, with one-month nondeliverable forwards (NDFs) to the dollar weakening to 11,720. The spread between the spot rate

as investment slid and consumer spending moderated. Indian Finance minister Palaniappan Chidambaram said last month some state financial companies would be allowed to issue “quasi-sovereign” bonds to garner dollars. The government has also eased foreign investment curbs in industries such as aviation and retailing to woo funds, in a drive since 2012 to spur growth and avert a credit-rating cut. Standard & Poor’s reiterated its negative outlook on India’s rating today. There’s a more than one-inthree probability of a downgrade within two years, Kim Eng Tan, a credit analyst at S&P, said at a briefing in Seoul. F i tch R a ti n g s a n d M o o d y ’ s Investors Service have stable outlooks. All three rate India at the lowest investment grade. Bloomberg News

and the NDFs widened to 655 basis points. The one-month offshore/ onshore forward spread increased to 610 bps. Yesterday’s spreads were the highest since August 27, when they reached their widest since the global finance crisis in 2008. Bank of Nova Scotia, in a client note, said the rupiah still faces “significant negative speculative strain”, adding that the currency “is not yet out of the woods by any stretch of the imagination”. According to traders, the rupiah has periodically traded weaker than 11,000 since late August, as banks in Indonesia bought dollars above that for their local corporate clients. However, Bank Indonesia often discouraged dealers from posting on electronic trading platforms price levels weaker than 11,000. On Tuesday, screens showed 11,050 rupiah to the dollar, but the rupiah was traded weaker than that level, according to dealers. Reuters

The Philippines accused China yesterday of violating an informal code of conduct in the South China Sea by planning new structures on a disputed shoal, as China’s Premier Li Keqiang told Southeast Asian leaders Beijing was serious about peace. Friction over the South China Sea, one of the world’s most important waterways, has surged as China uses its growing naval might to assert its vast claims over the oil- and gas-rich sea more forcefully, raising fears of a military clash. Four of the 10 members of the Association of Southeast Asian Nations (ASEAN), including Vietnam and the Philippines, have overlapping claims with China. China and the Philippines accuse each other of violating the Declaration of Conduct (DoC), a non-binding confidence-building agreement on maritime conduct signed by China and ASEAN in 2002. Philippines Defence Secretary Voltaire Gazmin told a congressional budget hearing in Manila that China had violated the DoC by getting ready to build new structures on the disputed Scarborough Shoal. “We have ... sighted concrete blocks inside the shoal which are a prelude to construction,” Mr Gazmin said, displaying air surveillance photos of the rocks. He said the photos were taken on Saturday, describing them as a worrying pattern of construction that would be similar to the building of a garrison on Mischief Reef in the late 1990s. Chinese Foreign Ministry spokesman Hong Lei said he had “no information” about Mr Gazmin’s accusations. “If China starts building at Scarborough, then it is an occupation and, I believe, the most egregious violation yet of the 2002 declaration,” Ian Storey, regional security scholar at Singapore’s Institute of South East Asian Studies, said.

Kingfisher seeks damages from engine vendor Kingfisher Airlines Ltd, the carrier that has halted flights after defaulting on payments to employees and airports, filed a US$234 million lawsuit for damages from International Aero Engines AG citing engine defects. The lawsuit citing deficiency in IAE’s V2500 A5 engine was filed in a court in the Indian city of Bangalore, the carrier said in its annual report for the year ended March 31. About 190 airlines and lessors from about 70 countries operate the V2500 engines, according to the website of IAE, a wholly owned subsidiary of United Technologies Corp’s Pratt & Whitney unit. Engine problems and difficult operating environment were cited by the carrier as reasons for the Bangalore-based company’s financial stress. The airline grounded its fleet in October after employees walked out over delayed salaries. India’s aviation regulator later suspended the airline’s permit because of service disruptions and the permit lapsed December 31. Heather Waldron, communications manager at IAE, said in an e-mailed response that the company can’t comment on pending litigation. The carrier was in talks with one potential investor as of August 14 to fund its restart, chairman Vijay Mallya said in the report. Mr Mallya has been seeking funds for more than two years for the carrier that posted losses for five straight years and had net debt of 86.4 billion rupees (US$1.3 billion) as of March 31.

13 13

September 4, 2013 April 19, 2013

Markets Gaming Stocks - Daily Performance (Hong Kong Stock Exchange) 71.8

50.0

24.2

71.6 49.9

24.1

71.4 24.0

71.2

49.8

23.9

71.0 Max 50

average 49.947

Min 49.7

Last 49.95

49.7

Max 71.7

average 71.460

Min 70.85

70.8

Last 71.5

Last 46.4

19.9

24.22

46.0

PRICE

WTI CRUDE FUTURE Oct13

106.97

23.86 19.7

Max 19.98

average 19.763

BRENT CRUDE FUTR Oct13 GASOLINE RBOB FUT Oct13

DAY %

YTD %

(H) 52W

Min 19.68

Last 19.68

(L) 52W

-0.63167673

14.28418803

112.2399979

86.04000092

114.34

0.008746611

8.143384092

117.3399963

96.37999725

288.33

-0.235285976

10.81517353

298.210001

246.6799974

GAS OIL FUT (ICE) Oct13

959.5

0.130446126

5.875862069

985.5

835.5

NATURAL GAS FUTR Oct13

3.665

2.345713488

0.964187328

4.525000095

3.154000044

314.08

0.133902952

5.011869337

322.8999853

276.1999846

Gold Spot $/Oz

1387.74

-0.2336

-16.6252

1796.08

1180.57

Silver Spot $/Oz

24.1145

0.2369

-19.912

35.365

18.2208

NY Harb ULSD Fut Oct13

Platinum Spot $/Oz

1523

-0.1082

0.3459

1742.8

1294.18

Palladium Spot $/Oz

719.5

-0.5776

2.8357

786.5

587.4

LME ALUMINUM 3MO ($)

1829

0.854700855

-11.77038109

2200.199951

1758

LME COPPER 3MO ($)

7238

1.943661972

-8.737864078

8422

6602

LME ZINC

1907

0.104986877

-8.317307692

2230

1811.75

13750

-0.362318841

-19.4021102

18920

13205

3MO ($)

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

ASIA PACIFIC

CROSSES

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

0.126984127

2.30295167

16.65000153

14.77000046

489

1.452282158

-18.46602751

665

445.75

WHEAT FUTURE(CBT) Dec13

657.75

0.573394495

-19.85988425

913

635.5

SOYBEAN FUTURE Nov13

1397.75

2.965009208

7.29226636

1409.75

1162.5

117

0.60189166

-25.21572387

200

116.0999985

NAME

15.92999935

ARISTOCRAT LEISU

74.34999847

CROWN LTD

Dec13

COFFEE 'C' FUTURE Dec13 SUGAR #11 (WORLD) Oct13

16.47

COTTON NO.2 FUTR Dec13

83.98

0.795593635

-17.89631107

0.586896634

21.82999992

6.65481331

93.72000122

World Stock Markets - Indices NAME

19.6

COUNTRY MAJOR

15.77

CORN FUTURE

24.04

19.8

23.68 Max 24.35

average 23.970

Min 23.55

Last 23.65

23.50

Currency Exchange Rates

NAME

METALS

23.8

47.2

Commodities ENERGY

Last 23.95

24.40

46.3 Min 46.05

Min 23.85

20.0

46.6

average 46.895

average 24.010

47.5

46.9

Max 47.5

Max 24.2

PRICE

DAY %

YTD %

(H) 52W

(L) 52W

0.9028 1.5581 0.9361 1.3177 99.62 7.9878 7.7552 6.1205 67.5775 32.1 1.2755 29.864 44.48 11408 89.938 1.2335 0.84576 8.0651 10.5254 131.27 1.03

0.2888 -0.0128 -0.4487 -0.3253 -0.3714 -0.0113 -0.0052 -0.0082 -2.3122 -0.1713 -0.1803 -0.1976 -0.1349 -0.3243 -0.6682 -0.1338 0.3086 0.2554 0.3116 -0.0533 -0.0097

-13.0083 -3.6783 -2.2113 -0.0986 -13.5716 -0.0576 -0.0593 1.7989 -18.6194 -4.7352 -4.2415 -2.7826 -7.8125 -14.1567 -0.6794 -2.1094 -3.5873 1.8896 0.0475 -13.4837 -0.0097

1.0625 1.6381 0.9839 1.3711 103.74 8.0111 7.7664 6.3544 68.845 32.31 1.2862 30.228 44.82 11451 105.433 1.265 0.88151 8.4957 10.9254 133.8 1.032

0.8848 1.4814 0.9022 1.2502 77.13 7.9818 7.7498 6.1064 51.3863 28.56 1.2152 28.913 40.54 9448 79.408 1.20071 0.78875 7.8281 9.9897 97.99 1.0289

Macau Related Stocks PRICE

DAY %

YTD %

(H) 52W

(L) 52W

4.57

-0.867679

45.07936

4.69

2.545

VOLUME CRNCY 6328780

15.12

0.4651163

41.70572

15.4

8.9

3200971

AMAX HOLDINGS LT

1.07

0.9433962

-23.57143

1.72

0.75

848450

BOC HONG KONG HO

24.95

1.217039

3.526969

22.85

16356688

CENTURY LEGEND

0.345

30.18869

0.42

0.22

6.3

-1.098901

5.175296

6.74

3.1

332852 10031634

CHEUK NANG HLDGS CHINA OVERSEAS

23.7

0.4237288

2.597401

25.6

17.34

CHINESE ESTATES

16.94

-0.8196721

50.63739

17.5

8.004

210000

CHOW TAI FOOK JE

10.62

-0.7476636

-14.63022

13.4

7.44

10834000

EMPEROR ENTERTAI

3.13

0.6430868

65.60847

3.18

1.38

3595000

FUTURE BRIGHT

2.35

0.6423983

93.89021

2.76

1.053

1488000

GALAXY ENTERTAIN

49.95

1.62767

64.5799

50.2

20.45

12549838 1664393

COUNTRY

PRICE

DAY %

YTD %

(H) 52W

(L) 52W

DOW JONES INDUS. AVG

14810.31

-0.2064558

13.02008

15658.42969

12471.49

NASDAQ COMPOSITE INDEX

3589.868

-0.8406755

18.88894

3694.188

2810.8

FTSE 100 INDEX

6511.33

0.07900169

10.40251

6875.62

5605.589844

HANG SENG BK

123.8

1.061224

4.296549

132.8

109

DAX INDEX

8234.94

-0.1083229

8.178119

8557.86

6892.86

HOPEWELL HLDGS

24.55

0.2040816

-26.16541

35.3

23.2

1082500

HSBC HLDGS PLC

83.85

0.9025271

3.136527

90.7

65.85

12466717

HUTCHISON TELE H

3.41

2.402402

-4.213482

4.66

2.98

1964383

LUK FOOK HLDGS I

25.8

1.176471

5.737707

30.05

16.88

995000

MELCO INTL DEVEL

18.5

2.209945

105.3274

18.68

5.91

5737000 3276425

NIKKEI 225

13978.44

2.987714

34.47041

15942.6

8488.14

HANG SENG INDEX

22394.58

0.9886658

-1.15788

23944.74

19076.78906

CSI 300 INDEX

2354.502

1.472109

-6.676701

2791.303

2023.171

TAIWAN TAIEX INDEX

8088.37

0.6158833

5.050589

8439.15

7050.05

MGM CHINA HOLDIN

23.95

80.36976

24.2

11.346

KOSPI INDEX

1933.74

0.4639419

-3.170179

2042.48

1770.53

MIDLAND HOLDINGS

0.3344482

-18.91892

2.68

1730000

S&P/ASX 200 INDEX

5196.568

0.1598219

11.77938

5249.6

4261.2

NEPTUNE GROUP

0.167

9.868425

0.23

0.131

11240000

4148.123

1.143315

-3.904938

5251.296

3837.735

NEW WORLD DEV

11.28

0.5347594

-6.15641

15.12

9.38

9778771

SANDS CHINA LTD

46.4

-0.2150538

36.67157

47.55

26.05

10897066

JAKARTA COMPOSITE INDEX FTSE Bursa Malaysia KLCI

1726.1

0.497217

2.199593

1826.22

1590.67

SHUN HO RESOURCE

1.76

25.71429

1.92

1.13

NZX ALL INDEX

980.178

0.2585792

11.12462

998.487

813.412

SHUN TAK HOLDING

4.04

-3.579954

4.65

2.78

4180753

PHILIPPINES ALL SHARE IX

3722.15

0.2726271

0.6263868

4571.4

3423.49

SJM HOLDINGS LTD

19.68

-0.4048583

10.88787

22.382

15.401

9503722

SMARTONE TELECOM

11.26

0.8960573

-20.02841

16.92

10.6

1216000

WYNN MACAU LTD

23.65

-1.663202

12.88782

26.5

16.92

7438111

ASIA ENTERTAINME

4.02

0.5

42.82248

4.7647

2.4835

65599

BALLY TECHNOLOGI

72.13

-0.7294247

61.32857

75.61

43.16

301612

HSBC Dragon 300 Index Singapor

581.06

-6.45

STOCK EXCH OF THAI INDEX

1327.65

0.298406

-4.61805

1649.77

1229.15

HO CHI MINH STOCK INDEX

472.17

-0.1121219

14.12515

533.15

372.39

Laos Composite Index

1300.25

-3.034439

7.036721

1455.82

1003.17

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

BOC HONG KONG HO

3.15

-1.5625

2.605865

3.6

2.99

8353

GALAXY ENTERTAIN

5.99

0.6722689

50.88161

2.735

6633

INTL GAME TECH

18.89

-0.6834911

33.30981

20.25

12.01

980632

JONES LANG LASAL

82.24

-1.931791

-2.025259

101.46

70.9

280566

LAS VEGAS SANDS

56.35

-0.6698396

22.07539

60.54

37.8353

2793409

MELCO CROWN-ADR

27.19

-0.4758419

61.46081

27.75

11.46

1902154

MGM CHINA HOLDIN

2.88

64.54403

2.98

1.5327

4000

MGM RESORTS INTE

17.69

-0.5061867

51.97594

18.54

9.15

6668002

SHFL ENTERTAINME

22.77

57.03448

23.08

12.35

746191

SJM HOLDINGS LTD

2.53

11.08106

2.9481

2.0015

3200

141.04

-0.5850426

25.38004

146.04

93.1279

705189

WYNN RESORTS LTD

AUD HKD

USD

Hang Seng Index NAME AIA GROUP LTD

PRICE

DAY %

VOLUME

NAME

34.9

1.013025

22886608

CHINA UNICOM HON

ALUMINUM CORP-H

2.7

1.886792

14383443

CITIC PACIFIC

BANK OF CHINA-H

3.4

1.796407

416278486

BANK OF COMMUN-H

5.4

1.886792

33392027

BANK EAST ASIA

30.55

0.6589786

1555740

BELLE INTERNATIO

10.84

1.119403

BOC HONG KONG HO

24.95 13.6 113.1

0.5154639

3208089

4.89

4.710921

77594867

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

PRICE

DAY %

VOLUME

12.06

0.166113

20966251

9.28

3.111111

9133104

SINO LAND CO

CLP HLDGS LTD

62.45

0.5636071

1834052

CNOOC LTD

15.94

0.3778338

39289824

COSCO PAC LTD

11.68

1.388889

11404637

ESPRIT HLDGS

13.08

1.395349

1.217039

16356688

HANG LUNG PROPER

25.25

0.4431315

1637105

HANG SENG BK

123.8

5.93

1.890034

308962246

CHINA LIFE INS-H

20.05

2.610031

50155188

CHINA MERCHANT

26.35

-1.125704

3197165

CHINA MOBILE

HENDERSON LAND D HENGAN INTL HONG KG CHINA GS HONG KONG EXCHNG HSBC HLDGS PLC

NAME

PRICE

DAY %

POWER ASSETS HOL

67.7

-0.2210759

2075282

SANDS CHINA LTD

46.4

-0.2150538

10897066

10.7

1.325758

5005053

SUN HUNG KAI PRO

101.7

3166396

4816196

SWIRE PACIFIC-A

91.85

0.3276898

963549

3279620

TENCENT HOLDINGS

379.8

0.9032944

3870876

2.020202

2657851

TINGYI HLDG CO

1.061224

1664393

WANT WANT CHINA WHARF HLDG

-0.1062699

1985037

86.1

0.2328289

1653257

18.44

0.9857612

12583112

123

1.151316

3231244

83.85

0.9025271

12466717

85.75

0.7046389

14342849

HUTCHISON WHAMPO

92.2

0.8752735

5961984

CHINA OVERSEAS

23.7

0.4237288

10031634

IND & COMM BK-H

5.25

0.5747126

328995163

CHINA PETROLEU-H

5.97

3.826087

190988538

LI & FUNG LTD

11.56

1.940035

15605922

MOVERS

19.4

-0.4106776

5616000

11.44

-1.038062

13542281

65.3

1.005414

3617400

2 22450

INDEX 22394.58 HIGH

22446.75 21609.53

2.449889

4565278

MTR CORP

30.05

1.178451

3103097

LOW

CHINA RES LAND

21.9

2.097902

9088000

NEW WORLD DEV

11.28

0.5347594

9778771

52W (H) 23944.74

CHINA RES POWER

17.4

0.6944444

10812991

PETROCHINA CO-H

8.59

0.5854801

123065781

CHINA SHENHUA-H

25.7

1.581028

22924942

PING AN INSURA-H

56.95

1.424755

20903802

CHINA RES ENTERP

VOLUME

21600

(L) 19076.78906 30-August

3-September

14 14

September 4, 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

Unique opportunity The Fountainside

Apt. on Top Floor Approx. 180 square meters HKD 19.9 million

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

2 Apartments T3 (1st and 2 floor), 1 Apartment T2 (3rd floor), 1 Apartment T0 (top floor), garage for 4 cars + laundry and storage area. Location: Close to RPC embassy classifieds@macaubusinessdaily.com Mobile: +351910836655

Year: 2007 30,000 Km Very good condition Price: MOP88,000

classifieds@macaubusinessdaily.com

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

Great opportunity Loft in Downtown 2 + 1 bedrooms, 2 living rooms and garden 140 sq metres with Mezzanine

Translations

Price: HKD 12 million

Inês Dias

classifieds@macaubusinessdaily.com

Languages English, Portuguese and French

Contact now for a quote: inezfernandesdias@gmail.com

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.

Business Daily is a product of De Ficção – Multimedia Projects Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 Email newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com

15 15

September 4, 2013 April 19, 2013

Opinion Business

wires

Leading reports from Asia’s best business newspapers

Taipei Times Taiwan’s Financial Supervisory Commission agreed to give positive consideration to requests by domestic banks to embark on more aggressive lending in the Chinese market. “The commission plans to ease lending regulations in two stages, allowing local banks more room to grow their business in China,” FSC chairman William Tseng told a media briefing. Current rules limit investment in China by Taiwanese banks to 15 percent of their net worth, and the recently installed FSC chairman indicated the commission’s willingness to ditch this constraint.

Korea Herald The two Koreas failed to agree on the reopening date of the joint industrial complex in North Korea’s border town of Kaeseong, but agreed to meet again later this week. South and North Korea have hit a snag on how to ensure the smooth running of the complex and prevent political or other non-economic factors from disrupting future operations, officials said. The two sides agreed to hold the next round of joint committee talks on September 10 with sub-committee talks to be held on Wednesday and Thursday.

China Daily Beijing on Monday unveiled a package of measures to curb vehicle emissions over the next five years as part of the capital’s increasing efforts to improve air quality in the city. The package is part of an action plan released by the municipal government, which has pledged to reduce PM 2.5 density by 25 percent or more by 2017. The municipal government will restrict the number of new cars on the road each year from January 2014. By 2017, the number of vehicles in the city is expected to be no more than six million, while the city had 5.35 million vehicles by the end of July.

Asahi Shimbun Japan’s government won backing to raise the national consumption tax in 2014 after influential members of a special advisory panel said the step would not threaten economic recovery or business confidence if it was coupled with other stimulus. “Japan’s economy is steady at the moment and we should raise the tax as planned,” Hiroshi Yoshikawa, a University of Tokyo economist told reporters as he left the last session of a week-long, government hearing that also featured business leaders and consumer advocates.

Abenomics for Asia Yuriko Koike

Japan’s former defence minister and national security adviser and currently is a member of the National Diet

nce again, Japan is Asia’s odd country out. For two decades, as one Asian economy after another boomed, Japan’s economy remained virtually stagnant. Now, with GDP growth in Asia’s two giants, China and India, slowing precipitously – a decline that appears to be contributing to diminishing economic performance in much of the rest of Asia – Japan is recording its strongest growth since its 1980’s boom. But, just as Japan’s post-war economic model became the template for the Asian economic miracles of recent decades, the reforms currently being implemented by Prime Minister Shinzo Abe – Abenomics – may offer Asian economies a path back to strong growth. If the fallout from China’s slowdown is not to hit the entire region and jeopardize the economic integration that has already taken place, Asia’s governments – beginning with China – will need to embrace similar reforms. How did Asia’s boom fade so quickly? Economics is supposedly a cold-blooded subject. Yet successful economies are prone to one of the most dangerous emotions of all: self-satisfaction, that excessive pride that Confucius condemned, which makes governments wary of reforming what has been a winning model, even when stresses begin to appear. Japan has paid a high price for this attitude. Even after its property bubble burst 24 years ago, the authorities continued to believe that the country’s growth model needed no adjustment. The result was two lost decades of deflation and introspection before Japan finally embraced the reforms needed to kick-start a new, more open – and hence more vibrant – economic model.

Blind eye China and India, it seems, have also succumbed to economic hubris. Three decades of success in China, and a decade in which India supposedly overcame the old, slow, “Hindu rate of growth,” are ending with both economies slowing precipitously. And both are slowing for the same reason: stalled reform, which is a direct result of governments being so satisfied with today’s conditions that they fail to address tomorrow’s rising dangers. China’s government continues to turn a blind eye toward banks that lend to the politically well connected, or that tolerate companies – mostly state-owned – with poor financial discipline.

Indeed, total public- and private-sector debt in China is now around 200 percent of GDP, up by more than onethird in five years. Reckless lending is undermining efficient allocation of capital and preventing China from drawing a line under the investmentand export-led growth model of the past three decades and basing future growth more on domestic consumption. Likewise, India’s government, having embraced economic liberalisation, has essentially pulled back from it in recent years. Plans to allow foreign investment in retailing and other key economic sectors have been put on hold.

Asia’s economies need deep, wellregulated capital markets, so that savings can be allocated to where they yield the highest returns

In critical industries – mobile communications and mining are perhaps the two most important examples – privatisation has been corrupted by cronyism. Moreover, India remains an inward-looking economy that attracts relatively little foreign investment and plays a much smaller role in world trade than it should. Notwithstanding its

renowned software industry, India plays little part in the production chains that underpin Asia’s regional trade patterns. The result – as visible as it was predictable – has been a sharp slowdown in economic growth.

Grim lesson To be fair, there is a growing recognition in some countries of the need for change. The need to restore economic dynamism was the focus of South Korea’s presidential election in 2012, which brought the country’s first-ever female president, Park Geunhye, to power. Today, the country is gripped by an important debate about how to reform the chaebol, the mammoth industrial conglomerates that did so much to lift the country out of poverty and into the front ranks of the world’s economies. Park’s status as the daughter of former President Park Chung-hee, who put the chaebol at the centre of South Korea’s economy, could give her the credibility needed to recast their economic role. Elsewhere in Asia, including in China, the debate is only beginning. But progress on reform, particularly in finance, must come quickly, because in most countries – India is the main exception – the demographic window of a growing working-age population is closing, if not already shut. It is not necessarily bad for Asia’s traditionally high savings rates to fall; after all, consumption typically rises with an ageing population. But savings will need to be allocated far more efficiently than in the past. Japan’s lost decades provide a grim lesson of the economic cost of neglecting such reform. Moreover, borrowing in U.S. dollars to finance current

investment spending – as many emerging economies have done in recent years, as the U.S. Federal Reserve’s policy of quantitative easing flooded emerging markets with cheap funds – is no substitute. Indonesia, Thailand, and others are now finding it difficult to service these loans as their exchange rates fall against the dollar in the wake of the Fed’s plans to “taper” its policy. Indeed, the debt build-up is so large that markets now fear a repeat of Asia’s financial crisis. The Japanese precedent matters all the more, given that, 16 years after the Asian financial crisis nearly wiped out decades of hardearned growth, Asia’s banks and capital markets remain inefficient. Asia’s economies need deep, well-regulated capital markets, so that savings can be allocated to where they yield the highest returns. Instead, today’s poorly regulated financial sectors – China is the biggest culprit – misprice capital. Moreover, banks are too dominant: Asia (including Japan) accounts for more than half of the world’s population but barely a quarter of global capital-market capitalisation. Sixteen years ago, the Asian financial crisis erupted, following the Thai government’s decision to float the baht in the face of speculative attacks. The response of governments to that crisis has shaped much of the region’s economic policymaking ever since. I f Asia is to avoid another crisis on a similar scale, or lost decades of growth, its governments will need to embrace the type of all-encompassing reforms that Japan is undertaking. Abenomics, it seems, is for everyone. © Project Syndicate

September 4, 2013

Closing Taiwan in bid to boost stock market

Vodafone investors set for US$84b payout

Taiwan’s financial regulator announced fresh measures yesterday to boost the local stock market. Taiwan’s Financial Supervisory Commission (FSC) said it will allow same-day trading on cash rather than via margins currently. It will also raise the number of stocks that investors can sell short below their previous closing prices and it will allow securities houses to trade stocks at the 7-percent daily limit. Taiwan’s main benchmark share index has tumbled 4 percent from its May highs and the local dollar has slipped as foreign investors pull money out of higher-yielding but riskier markets.

Verizon Communications agreed to pay US$130 billion to buy Vodafone Group out of its U.S. wireless business, signing history’s third largest corporate deal announcement to bring an end to an often tense 14year marriage. The deal in cash and stock will give Verizon full access to the profits from the United States’ largest mobile operator. For the British group, the accord will allow it to return 71 percent of the net proceeds – or US$84 billion including all of the stock – to shareholders while also ramping up investment in its networks to set itself apart from rivals.

Europe joining recovery: OECD Slowing emerging economies seen weighing on global growth Leigh Thomas

ed by firm United States growth, the outlook is gradually improving for advanced economies while even crisis-weary Europe is at last joining the recovery, the Organisation for Economic Cooperation and Development (OECD) said yesterday. Nonetheless, a slowdown in many emerging economies meant that global growth would remain sluggish, OECD said. “The bottom line is that advanced economies are growing more and emerging economies are growing less,” OECD chief economist Pier Carlo Padoan told Reuters. Among major economies, the

United States would lead the recovery with growth this year of 1.7 percent, the think tank said, trimming its estimate from a May forecast of 1.9 percent. Boosted by massive monetary stimulus from the central bank, Japan was seen on course for growth this year of 1.6 percent, unchanged from the OECD’s May forecast. Meanwhile Europe, which has been a drag on growth in recent years as it struggled with its debt crisis, at last offered good news with recoveries underway in France and Germany prompting the OECD to raise its forecasts for them. France was seen on course for growth of 0.3 percent this year, up

from a contraction of 0.3 percent in the OECD’s May forecast, while Germany, Europe’s biggest economy, was set to grow 0.7 percent, up from 0.4 percent previously. Outside the euro zone, Britain was seen growing 1.5 percent, raised sharply from a forecast of 0.8 percent in May. Though major developed economies are picking up, a slowdown in many emerging countries was likely to weigh on broader global growth, the OECD said. China was the exception among emerging economies, with its growth forecast to accelerate over the course of the year and achieve a rate of 7.4 percent this year.

With the United States economy on track to keep growing at steady clip, the OECD said it was appropriate for the Federal Reserve to start slowing bond purchases, the main measure in the central bank’s exceptionally monetary easing policies. The Fed signalled in May that it was contemplating slowing the pace of the purchases, which have been the flagship measure for reviving the world’s biggest economy since the 2008-2009 financial crisis. In the euro area, the OECD said the European Central Bank should keep the possibility of an interest rate cut on the table in case the recovery there peters out. Reuters

Microsoft to buy Nokia phones unit Stephen Elop to return to American group after US$7.2 bln deal

icrosoft Corp agreed to buy Nokia Oyj’s handset business and license its patents for 5.44 billion euros (US$7.2 billion), casting together the lot of two technologies companies trying to stay relevant against more fleetfooted rivals. The devices and services unit, which accounted for half of Nokia’s 2012 revenue, along with 32,000 employees, will transfer to Microsoft, the companies said yesterday. Nokia chief executive Stephen Elop, 49, will return to Microsoft after a threeyear stint running the Finnish manufacturer. The move stoked speculation he may be a potential successor to Microsoft chief executive Steve Ballmer, who said last month he would retire within 12 months. Nokia shares jumped as much as 48 percent in Helsinki as the sale removes a drag from losses in the handset making and turns the company into a network-

Stephen Elop, left, may be a potential successor to Steve Ballmer

equipment supplier. For Microsoft, the purchase marks its biggest foray into hardware as sliding personal-computer sales threaten demand for the Windows operating system that made it the largest software maker.

“The question is whether combining two weak companies will get you a strong new competitor: it’s doubtful,” said Paul Budde, a telecommunications consultant in Sydney. “Both Nokia and Microsoft really missed the boat in

terms of smartphones, and it is extremely difficult to claw your way back from that.” Nokia, based in Finland, racked up losses of more than 5 billion euros over nine quarters as it failed to fully enter the smartphone market.

The stock has slumped more than 80 percent in the past five years, valuing Nokia at 15.4 billion euros. That compares with a US$278 billion market capitalisation for Microsoft. Microsoft will pay 3.79 billion euros for Nokia’s devices division and 1.65 billion euros for patents, according to a statement from the companies. The all-cash transaction, subject to Nokia investors’ approval, is expected to be completed in the first quarter of 2014. Nokia said it will book a gain of 3.2 billion euros, with the sale “significantly” accretive to earnings. It also said it aims to return its debt, which is ranked junk by all three major rating companies, to an investment grade. Microsoft acquired the Lumia brand to use with smartphones, while it will license the Nokia brand to use with low-end phones for 10 years, Mr Elop said at a press briefing yesterday. Bloomberg News