Macau Business Daily, October 4, 2013 by Business Daily

MOP 6.00 Vitor Quintã Deputy editor-in-chief Editor-in-chief Tiago Azevedo Number 385 Friday October 4, 2013 Year II

Shop values to leap ‘30 pct’

April 19, 2013

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Typhoon Usagi crimps Sept gaming revenue

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he appetite for investment in city centre shops could raise their value by 30 percent this year, Savills (Macau) Ltd says. Macau has just one main tourist area – around Senado Square and the Ruins of St Paul’s – unlike Hong Kong, which has several tourist spots. This is an incentive for investors here, Savills Macau says. Savills Macau managing director Franco Liu Pui Lam said yesterday that five city centre shop premises had been sold for 300 million patacas (US$37.5 million) to 400 million patacas each in the past six months. “There are fewer and fewer shops available in the city centre,” Mr Liu said. “So when a new shop comes onto the market, outside and local investors or end-users will all vie for it.”

Customer protection law in need of revision Page 5

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October 3

SJM renews call for casino smoking ban www.macaubusinessdaily.com

Rivals are ready 1 to help troubled Reolian

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Ambrose So Shu Fai, chief executive of SJM Holdings Ltd, yesterday renewed the company’s call for a total ban on smoking in the city’s casinos. SJM-licensed venues were among the 16 casinos where the smoking zones failed a second round of air quality tests. Separately, Angela Leong On Kei, an SJM executive director, said the government should encourage casino operators to promote residents to more senior roles. Page 2

%Day

CHINA UNICOM HON

8.42

GALAXY ENTERTAIN

5.10

WANT WANT CHINA

4.00

SANDS CHINA LTD

3.90

CHINA MERCHANT

3.16

BANK EAST ASIA

-0.30

HENDERSON LAND D

-0.30

HONG KG CHINA GS

-0.32

POWER ASSETS HOL

-0.51

CHINA MOBILE

-0.68

Source: Bloomberg

Home supply tight but demand buoys prices Fourth quarter homes sales will be as low as in the third quarter as new laws and bearish developers ensure that stock supply remains scarce, estate agencies say. Jane Liu Zee Ka, managing director of Ricacorp (Macau) Properties Ltd, expects the number of residential transactions to be only a quarter of those in the second quarter. But prices will continue to grow this year, agencies noted. Page 6

Scholar argues govt wrong to spend more The government got it all wrong when it decided to spend more and increase welfare subsidies because it fuelled inflation and did little to help the economy, according to an article in the latest edition of the magazine Public Administration. The author of the article, Chua Yee Hong, is a doctoral student of public administration at the University of Macau. Page 7

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Macau Grand Waldo sale puts Get Nice in black Get Nice Holdings Ltd has issued a positive profit warning for the six months to September 30 compared to a loss for the equivalent period in 2012. It’s thanks to its sale – confirmed in July – of the Grand Waldo casino resort on Cotai to Macau casino developer Galaxy Entertainment Group Ltd. Get Nice said in a filing to the Hong Kong Stock Exchange on June 11 it had agreed in principle to sell its controlling stake to Galaxy, the concessionaire that provides the gaming licence for the property, for up to HK$3.25 billion (US$ 419.1 million).

SJM CEO, Ambrose So

SJM renews call for total casino smoking ban CEO says some venues at disadvantage in govt tests because of old equipment for air extraction Michael Grimes

michael.grimes@macaubusinessdaily.com

mbrose So Shu Fai, chief executive of Macau casino developer SJM Holdings Ltd, yesterday renewed the company’s call for a total ban on smoking in the city’s casinos. “We [SJM] also support that we should have a total [casino smoking] ban. In any case after three years all properties – inside the casinos – are [to

Promote locals, Leong says T he government should encourage casino operators to promote residents to more senior roles and improve vocational training for staff, said Angela Leong On Kei, an executive director of casino developer SJM Holdings and also a local legislator. Her comments were published yesterday in Chinese-language newspaper Macao Daily News. The government should: “… emphasise encouraging the gaming operators to improve their promotion

be] smoke free,” stated Mr So. His comments came on the sidelines of an event for SJM staff to mark China’s National Day. Mr So confirmed that SJM-licensed venues were among the 16 casinos where the smoking zones failed a second round of air quality tests held in April and May. Some of the venues have appealed against that decision

mechanism and provide enough resources for vocational training (…) as to create more opportunities for the promotion of local employees,” she wrote. It echoes comments in August by the city’s Chief Executive Fernando Chui Sai On. He stated it was: “…important to have residents in the management of the [gaming] companies.” Ms Leong was re-elected on September 15 for a third term as a Macau legislator. She added yesterday that with more locals going into tertiary education there would be opportunities for them to work first as casino dealers – easing the labour squeeze in the gaming industry – before using their academic skills to move up the promotion ladder. M.G./T.L.

by the Health Bureau. For anti-smoking campaigners, the idea that smoking zones could ever contain ‘good’ air may seem bizarre. But the system of measuring air quality in the smoking zones of the city’s casinos came about because of a compromise between the government – concerned to improve public health – and the casino industry, concerned not to depress gaming revenue, that led to avoidance of an outright ban.

Earnings drag Morgan Stanley, an investment bank, said in a report issued by its Hong Kong office last December, that when total smoking bans were imposed in casinos in parts of the United States and in Australia, gaming revenue fell by between four percent and 20 percent in the 12 months afterwards. Against this background, Macau opted for its gradualist approach. It has already banned smoking in all other public spaces, but won’t totally ban smoking in casinos until January 2016. In the meantime the government is taking regular samples of air in the smoking zones, ostensibly to ensure passive smokers – casino staff and non-smokers that happen to be walking by – won’t be exposed to too much harm. But the air tests have led to

controversy. Some casinos are near new, and have modern air extraction systems, while others – mostly licensed by SJM – are decades old, and have less efficient air circulation systems. This has led the older venues to appeal against the test findings. The grounds of the various appeals – whether a dispute of the scientific validity of the findings or a need to take into consideration the age of the venues being tested and the equipment they have available for extracting smoke – have not been revealed by the government. But Mr So hinted yesterday that in the case of SJM venues it is the latter. He stated: “Because all these properties were quite old and so they were not designed for that purpose [smoke free gaming]. Now they have used [old] equipment in order to dilute or purify the air. I think there are some different opinions on that [the way forward].” Cheong U, Secretary for Social Affairs and Culture, asserted last month that the size of smoking areas in 16 gaming establishments would be reduced after they failed a second series of tests in April and May. The names of the venues concerned were due to be published before June 30. But this week Mr Cheong said the government would wait for the outcome of the appeals before doing so.

Casinos’ smoking zones failed a second round of air quality tests

October 2013 April 19,4,2013

Macau

Demand building up for city centre shops An estate agent thinks shop prices and rents could rise by up to 30 percent in the main tourist area Tony Lai

tony.lai@macaubusinessdaily.com

There are fewer and fewer shops available in the city centre … so when a new shop comes onto the market, outside and local investors or end-users will all vie for it Franco Liu, Savills Macau managing director

declining for the first time in those prime areas since 2008.

Shoppers galore

Five city centre shops were each sold for 300 million patacas or more in the past six months (Photo: Luís Almoster)

he ravenous appetite of investors here and abroad for shops in the city centre could raise their value by 30 percent this year, Savills (Macau) Ltd says. Macau has just one main tourist area – around Senado Square and the Ruins of St Paul’s – unlike Hong Kong, which has several tourist spots. This is an incentive for investors here, Savills Macau says. Savills Macau managing director Franco Liu Pui Lam said in a written statement on Wednesday that five city centre shops had been sold for 300 million patacas (US$37.5 million)

to 400 million patacas each in the past six months. “There are fewer and fewer shops available in the city centre,” Mr Liu said. “So when a new shop comes onto the market, outside and local investors or end-users will all vie for it.” Mr Liu believes shop prices and rents could rise by between 20 percent and 30 percent this year, basing his estimate on the steady rises in gaming revenue and visitor figures. He said shop rents in the city centre ranged from 500 patacas to 600 patacas a square foot.

Macau had 19.6 million visitors in the first eight months of this year, 4.7 percent more than a year earlier. Gross gaming revenue in the first three quarters was 260.6 billion patacas, 16.7 percent more than a year earlier. The prospects for Hong Kong’s commercial property market have been bleak because retailing there is slowing. United States estate agency Cushman & Wakefield predicted in July that rents for shops would decline this year by 4 percent in Causeway Bay and 3.5 percent in Central –

Shop rents averaged HK$1,950 (US$251) a square foot in Causeway Bay and HK$1,480 a square foot in Central in the first half, the company said. Savills Macau told Business Daily that Macau was different from Hong Kong because retail sales here remained strong, leaving room for further growth in rents and prices. Retail sales here in the first six months amounted to 31.5 billion patacas, 21 percent more than a year earlier, official data show. “Another difference is that there are several tourist spots in Hong Kong, while most tourists are concentrated in the middle of the city centre here, so commercial properties in the area are still red hot,” the company said. The Macau Government Tourist Office opened last week four walking trails, which are meant to divert tourists away from the city centre. The director of the office, Maria Helena de Senna Fernandes, has said it will “take time” for the trails to serve their purpose. Savills Macau is taking bids for a three-storey commercial building in the city centre, opposite the Portuguese bookshop. The company said the property had a floor area of 3,822 square feet and could fetch as much as 280 million patacas, or 73,260 patacas a square foot. The company is expecting high bids for the property which, it said, could be turned into shops. “The reaction has been enthusiastic so far, several companies abroad having made inquiries about the development,” Savills Macau said. All bids must be in by October 23, and the result of the bidding will be disclosed immediately. With Bloomberg News

Bus rivals ready to help bankrupt Reolian

he other two public bus operators are ready to run some of the routes granted to the troubled Reolian Public Transport Co, after the government started managing Reolian’s operations on Wednesday. Lo Seng Chi, head of the Transport Bureau’s traffic management department, said yesterday: “The first day of operations went

smoothly, reaching the basic required standards.” The government announced on Wednesday it was taking over Reolian’s operations for six months after the firm filed for bankruptcy late Tuesday. “It is expected there will be some flaws in the operations of some routes in the beginning so [the other two bus companies] will provide support [when

needed],” Mr Lo told media. Sociedade de Transportes Colectivos de Macau SARL (TCM) and Transportes Urbanos de Macau SARL (Transmac) have agreed to provide buses and drivers to support six of Reolian’s 27 routes, he said. The government will pay TCM and Transmac for those potential additional services based on the unit price set on their contracts,

not on Reolian’s contract, said Mr Lo. He added the bureau will ask Reolian, which has accumulated losses of over 120 million patacas (US$15 million), to pay back any difference in costs. The cabinet of Secretary for Transport and Public Works Lau Si Io stressed in a press statement yesterday the government took over Reolian’s operations but not

its assets. The operational structure of the company remains unchanged for now. Some Reolian workers expressed concern over their wages in two seminars held yesterday. Transport Bureau deputy director Chiang Ngoc Vai promised after the first seminar that the workers’ salaries and bonuses would “remain unchanged”. T.L.

October 4, 2013

Macau

September gaming revenue up 21 pct y-o-y

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Could have been even better but for Typhoon Usagi

Netting the travel bug The travel agency business has grown in the wake of the surge in gaming and tourism. The number of travel agencies and the number of people they employ have increased considerably. The combined revenue of travel agencies has followed a similar upward trend. Almost all the growth happened after 2009. The financial crisis meant revenue rose only slightly in 2008 and virtually stagnated in 2009. Revenue picked up afterwards and has since risen at an average rate of 18.7 percent a year. Last year the combined revenue of travel agencies was 1.7 times bigger than it was in 2009.

A high proportion of costs incurred by travel agencies are purchases of goods and services, a small fraction being commissions. This means growth in the travel agency business spurs other sectors of the economy. Between 2007 and last year purchases of goods and services as a proportion of costs oscillated around 80 percent. The biggest increases were in operating expenses, which last year were 2.5 times what they were in 2007, most of the growth having happened since 2010. The available data do not include a detailed breakdown of operating expenses. But the rise probably reflects the rise in rents. All this means gross value added in the travel agency business is relatively low. Average gross value added as a proportion of sales never exceeded 15 percent in the period under review. Salaries absorbed most of the value added – about two-thirds of it in most years. The value added left for investment and profit was about 4 percent of sales in the past five calendar years.

Michael Grimes

michael.grimes@macaubusinessdaily.com

aming revenue for September showed the second-highest year-on-year growth of any month so far in 2013 – despite the two-day disruption to transport and tourism caused by Typhoon Usagi. According to data released by the Gaming Inspection and Coordination Bureau yesterday, September generated slightly more than 28.96 billion patacas (US$3.63 billion) in gambling revenue – a 21.4 percent improvement on a year earlier. “We believe this was slightly below consensus expectations, but not unexpected given the negative impact of Typhoon Usagi at the end of the month,” said analyst Grant Govertsen of Union Gaming Macau in a note. Nonetheless, it makes September the second-best yearon-year expansion in 2013 after March, which saw a 25.4 percent improvement from a year earlier. Growth for the year to September 30 now stands at 16.7 percent, close to 261 billion patacas. The September numbers could have been closer to analysts’ expectations had it not been for Typhoon Usagi that passed by on Sunday, September 22. Signal Number 8, in this region a warning for all public transport and government services to be suspended, was never actually Gaming Gross Revenue (2012-2013) Mop million

32000 30300 28600 26900 25200 23500

Come rain, come shine – gambling revenue keeps growing

raised. But the issuance of signal Number 3 at 11am that day soon led to flight cancellations at Macau International Airport and then to ferry services being suspended later that afternoon. The travel disruption continued through until Monday, reducing tourists’ access to the city. The ability of Macau to absorb greater numbers of mainland tourists and thus expand gaming revenue has been called into question recently by some legislators, given that the domestic infrastructure – in terms of roads, buses, taxis and a light railway system – is lagging somewhat behind the mainland’s infrastructure used to bring visitors to Macau’s doorstep. In July, the most recent figures available, Macau had 97 hotels and guesthouses with 27,759 guest rooms, up by 14.5 percent yearon-year according to the Statistics and Census Service. Guest rooms of five-star hotels accounted for 66.2 percent of the total. Hotel room prices have also been

rising. The cheapest five-star deluxe hotel room listed for Cotai during the Golden Week holiday was 5,888 patacas (US$737) according to Macau Government Tourist Office. Aaron Fischer, head of Asian Consumer and Gaming Research for CLSA Asia-Pacific Markets in Hong Kong, said Macau’s ability to serve visitors once they arrive was improving all the time. “Visitor growth in Macau historically has underperformed that of Hong Kong due to the infrastructure bottleneck and the lack of hotel rooms,” he stated. “Those constraints are likely to be alleviated in the next few years with the various infrastructure improvements, which should drive a recovery in Macau’s tourist arrival growth,” added Mr Fischer. The six licensed concessionaires and sub-concessionaires are all building new resorts on Cotai that will provide the market with nearly 13,000 extra hotel rooms by 2018. With Reuters

J.I.D.

Market Share Per Operator (2012-2013) Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep SJM

27% 27% 28% 26% 26% 26% 27% 26% 23% 25% 24% 24% 25%

Sands China 18% 21% 21% 21% 20% 21% 21% 22% 21% 21% 23% 23% 22%

147 %

Rise in operating expenses of travel agencies in the past three years

Galaxy

18% 19% 16% 18% 19% 19% 18% 18% 19% 19% 20% 17% 19%

Wynn

13% 10% 12% 10% 11% 12% 11% 9% 12% 10% 10% 12% 11%

MPEL

14% 14% 14% 14% 14% 13% 14% 16% 14% 15% 13% 14% 14%

MGM

10% 9% 10% 11% 9% 10% 9% 9% 11% 11% 10% 10% 10%

Total

100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

* Figures are rounded to the nearest unit, therefore they may not add exactly to the rounded total

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October 4, 2013

Macau

Customer protection law needs revision Consumer Council received more complaints in the first half of 2013 Vítor Quintã

vitorquinta@macaubusinessdaily.com

acau’s consumer protection law is outdated and must undergo a full revision, the Consumer Council said in its newsletter released yesterday. In the first half of this year the council received 843 complaints, up 10.9 percent from the same period of 2012, the bulletin says. The council doesn’t have enforcement powers, but can examine consumer grievances, and encourage customers and merchants to resolve their differences without the use of the courts. The council also awards certification for shops and suppliers with a track record of best practice in handling consumer disputes. The council acknowledges however that sometimes talking doesn’t work and the law needs to intervene. It’s at that point that Macau’s legal framework needs strengthening it suggests. The body believes new

laws could help “avoid negligence when carrying out activities that may injure the rights and interests of consumers”. Consumer disputes that in the past “have been riddled with doubts and grey areas” could then be solved quickly, the council added. The city’s consumer rights legislation came into effect 25 years ago but since then commerce has been transformed and globalised the council said. The city “is facing fast economic development” and because of that “we believe … it is necessary to proceed to a global revision,” the newsletter added. The council says it “has kept a keen eye” on suggestions coming from different sectors, which will help to improve laws that impact consumer rights. The body, led by Wong Hon Neng, hinted however the prerogative lay with the Legislative Assembly and not

Consumers filed 34 complaints over milk powder in first half of 2013

the council, although the idea of giving the council powers of enforcement has been mooted on and off since at least 2008. In April, Chief Executive Fernando Chui Sai On told the Legislative Assembly that the consumer rights protection law, enacted in 1988, would be reviewed soon. He did not elaborate. In the first half of this year several laws that protect consumer rights came into effect, namely on home

pre-sales, food safety and estate agents, the Consumer Council said. That proves that the government is committed to “expand the safety ‘net’ to protect consumers,” its bulletin added. Of the complaints it handled in the first six months this year, 206 (one in four) involved telecommunication devices or services. Most of those concerned smartphone malfunction, repair services

or tariff disputes. Complaints over food and drinks soared by 40 percent year-on-year to 78, mostly due to more cases involving infant formula, the council said. There were 34 complaints linked to milk powder, 16 of which were filed by consumers accusing retailers of making it difficult for them to buy infant formula. “Suspicions were raised” that retailers were trying to profiteer from higher demand for infant formula, the newsletter says. The government launched in January a scheme granting Macau parents of babies under 12 months priority access to imported infant formula, after supply shortages were reported. Mainland Chinese routinely stock up on imported milk powder while visiting Macau, particularly since the 2008 melaminetainted infant formula scandal on the other side of the border.

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October 4, 2013 April 19, 2013

Macau AERL changes name to Iao Kun Nasdaq-listed Macau junket room investor Asia Entertainment & Resources Ltd has changed its name to Iao Kun Group Holding Co Ltd with effect from October 2, according to a press release. The firm didn’t explain the reason for the change. Late last month the business said in another statement filed in New York it “may” have to delay its planned listing by introduction in Hong Kong. AERL recorded a net loss for the second quarter ending June 30 of US$3.0 million (23.96 million patacas), compared to net income of US$22.0 million in the same period of 2012.

Estate agencies see few Q4 home sales They predict that the price of housing will rise as supply remains limited Tony Lai

tony.lai@macaubusinessdaily.com

he number of homes sold will be as low in the fourth quarter as in the third as new laws and canny developers keep the supply scarce, estate agents say. They say housing prices will continue to rise this year, particularly prices of smaller flats. The managing director of Ricacorp (Macau) Properties Ltd, Jane Liu Zee Ka, expects the number of homes sold in the third quarter of this year to have reached 1,682 – fewer than half the 4,059 sold in the second. Midland Realty (Macau) Ltd chief executive Ronald Cheung Yat Fai expects a figure of between 500 and 600 home sales per month for the third quarter, compared with 1,500 to 1,800 in the second. Financial Services Bureau data show 1,182 homes were sold in July and August. The plunge in sales has been attributed to a lowering of supply caused by the law on pre-sales of unfinished flats coming into force in June and the law on estate agents coming into force in July. Mr Cheung said: “I cannot see there being a large number of homes eligible for pre-sales in the near future, so transactions will remain low this quarter – still far from a reasonable level of 800 to 1,000 transactions a month.” Since June 1 sales of flats off the plan have been legal only if the foundations of the development that will contain them are complete and each flat is registered with the government. The Land, Public Works and Transport Bureau’s website says the bureau has approved pre-sales of

Home sales have plunged since the law on pre-sales came into force in June

space in 22 housing developments that will contain thousands of flats. Estate agencies say many of the flats were sold before the pre-sales law came into force. “Some developers are also in no rush to launch sales and they have kept some flats in stock, as the price will get higher as the whole market now lacks supply,” Mr Cheung said. “There are just restless buyers who will further push up home prices.” The president of the Macau Association of Building Contractors

and Developers, Tommy Lau Veng Seng, said last month that the supply of housing would be scarce in the following six months. Mr Cheung expects housing prices to rise for the rest of this year, but he declined to give an estimate of the size of the increase. He said the prices of smaller flats would rise most steeply. Official data show the average price of housing was 67,414 patacas (US$8,441) a square metre in August. “Hong Kong has been working on increasing the supply but I do not see any action by the government here. Home prices may drop in Hong Kong, but not in Macau,” Mr Cheung said.

Policy unknowns

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People in the real estate business in Hong Kong have said curbs on the property market there imposed in February will rein in housing prices. Mr Cheung thinks Macau’s market will be different. “Home prices can cool when interest rates begin to climb but, given the latest move in the United States, it seems it will still be some time before that happens,” he said. The United States Federal Reserve surprised markets last month by refraining from tapering off its bond buying, thus indicating that its ultraeasy monetary policy will persist, keeping interest rates low. Ms Liu of Ricacorp expects home sales in the fourth quarter to be the same as or slightly higher

than in the third. “It also depends on whether the government comes out with any new measures or policy for the real estate market in the Policy Address in November,” she said. Chief Executive Fernando Chu Sai On said in February that the government was ready to take new measures to cool the property market. Secretary for Transport and Public Works Lau Si Io said the same thing in March. The government has yet to announce any such measures. Franco Liu Pui Lam, Savills (Macau) Ltd managing director, said in a Hong Kong press conference yesterday the home price will rise by an annual rate of 15-20 percent, media reported.

I cannot see there being a large number of homes eligible for pre-sales in the near future, so transactions will remain low this quarter Ronald Cheung, Midland Realty (Macau) chief executive

October 2013 April 19,4,2013

Macau

Essay argues govt wrong to spend more An article says cash handouts are partly to blame for higher inflation Vítor Quintã

vitorquinta@macaubusinessdaily.com

he government got it all wrong when it decided to spend more and increase welfare subsidies because it fuelled inflation and did little to help the economy, according to an article in the latest edition of the magazine Public Administration. The Public Administration and Civil Service Bureau publishes the magazine. Government spending has soared, particularly since 2008, when the wealth-sharing scheme began as a temporary measure to help people deal with inflation. The scheme continues. This year the government handed out 8,000 patacas (US$1,000) each to permanent residents and 4,800 patacas each to temporary residents. The author of the article is a doctoral student of public administration at the University of Macau, Chua Yee Hong. In the article Mr Chua says cash handouts have failed to solve the inflation problem. “Instead, to expand public spending works in the opposite direction,” he says. Official data show the average annual rate of consumer price

inflation in the 12 months ended August was 5.39 percent, the slowest for almost two years. Mr Chua says pumping more money into the economy has worsened inflation, particularly as Macau is a small market where there is not much to buy. He says many people used their cash handouts to travel abroad or import goods. The cash handout “has been one of the guilty parties for the worsening inflation in the past few years”, he adds. Mr Chua says increasing people’s incomes has relieved the effects of inflation “slightly”. But the cash handouts have also had harmful social effects, causing dependency on welfare among certain kinds of people, he adds. He expresses particular concern that the money could “worsen” the desire among young people to buy luxuries.

Unsustainable policy Mr Chua believes the purpose of the cash handout scheme is mainly political.

Political considerations “far exceeded the economic effects”, he says. He describes the scheme as “a political compromise that is convenient in the short term but is not a sustainable solution in the long term” because the economic problems remain unsolved. Mr Chua says the government’s fiscal and economic policies have “room for improvement” because the government “rarely uses scientific financial and economic theories” in dealing with real issues. He argues that public finances “have always suffered from a lack of transparency” and that the government should correct this. The government must “insist on accountability and sustainable businesses for the wellbeing of society as a whole” instead of protecting “specific interest groups”, he says. “When the economy is overheated, there should be a restrictive monetary policy to reduce the impact of growing inflation,” Mr Chua adds. This means increasing taxes and cutting public spending. The government did just the opposite, he says.

Corporate BNU launches first EMV debit card MasterCard Inc and Banco Nacional Ultramarino (BNU) SA unveiled on Wednesday MasterCard’s first EMV-standard certified debit card in the territory. EMV, which stands for Europay, MasterCard and Visa, is a global standard for credit and debit card transactions. The new debit card is linked to cardholders’ bank accounts, where funds are directly deducted from their accounts instead of a credit line. Cardholders can pay with their cards directly while enjoying the same convenience and security of their credit cards. The card allows cardholders to pay online or directly at 35.9 million acceptance locations worldwide. “We are confident that this new card will open up new opportunities in the debit market in Macau,” said Pedro Cardoso, chief executive of BNU. The new card provides “a secure and convenient way to spend apart from traditional credit cards,” said Kevin Goldmintz, head of Hong Kong and Macau at MasterCard Worldwide.

Martell Pure Gourmet at Macau airport Distilled beverage maker Pernod Ricard SA has launched the Martell gourmet experience at the Macau, Hong Kong and Singapore airports. The programme, developed by cellar master Benoît Fil and the chefs of the Château de Chanteloup in France, focused on food pairings for Martel’s cognac products. The programme will run until 31 October. Martell teamed up with La Maison du Chocolat, led by master chef Nicolas Cloiseau, to select four ganache pastries to complement four of its cognacs: Martell Chanteloup Perspective, Martell Création, Martell Millésime 1968 and L’Or de Jean Martell. Customers who purchase Martell will receive a box of chocolates. “We are delighted to offer these unique experiences to Martell shoppers and cognac connoisseurs,” said Pernod Ricard Asia travel retail marketing manager Sandrine Tesniere. Martell will continue to “partner with brands which share our own ideals of luxury expertise and excellence,” she added.

The economic benefits of what the government did were underwhelming because it failed to provide a good environment for business, highlights the article. Mr Chua says high inflation has increased operating costs in the past few years, deterring many investors, who went elsewhere. If the government were to take the cash handout money and put it in a fund to improve the business environment, the economic benefits would be much greater, he argues. The government could spend almost 4.86 billion patacas on cash handouts this year.

KEY POINTS Cash handouts fuel consumption Wealth-sharing mainly political Govt finances lack transparency Overheated economy needs curbs

October 4, 2013 April 19, 2013

Greater China The rising service PMI suggests that the recovery in 3Q13 was quite broad based Lu Ting, Bank of America’s economist

Increase in tourist numbers points to robust consumption

China services index up in sign of sustained rebound Non-manufacturing PMI rose to 55.4 in September

Chinese services-industry index rose to a six-month high, adding to signs that the world’s secondbiggest economy will sustain a rebound after a two-quarter slowdown. The non-manufacturing purchasing managers’ index rose to 55.4 in September from 53.9 in August, the Beijing-based National Bureau of Statistics and Federation of Logistics and Purchasing said yesterday. A number more than 50 indicates an expansion. An increase in tourist numbers for a current week-long Chinese holiday points to robust consumption, Lu

Ting, Bank of America’s Hong Kongbased economist, wrote in a research note yesterday. Gains in non-manufacturing industries help Premier Li Keqiang shift the economy away from dependence on exports and investment, with the next phase of that strategy to be mapped out at a Communist Party meeting in November. “The rising service PMI suggests that the recovery in 3Q13 was quite broad based even if the recovery was led by fixed asset investment in transport and urban infrastructure,” Mr Lu said in an e-mail. The

“robust” service sector indicates the low probability of a hard landing, according to the economist. Fiscal support measures including spending on railways, urban infrastructure and shanty-town redevelopments are helping Mr Li to protect a goal of a 7.5 percent economic expansion this year.

‘Economy stabilising’ “China’s economy is stabilising in a good trend and the nation has the confidence, conditions and ability to realise its main economic targets this

Forgame surges in HK trading debut Stock surges as much as 36.5 pct in trading debut

hares of Forgame Holdings Ltd, China’s largest developer of Web games, soared more than a third in their Hong Kong trading debut yesterday, underscoring investor optimism for technology companies that have fuelled rallies on the Nasdaq this year. Foregone’s offer generated strong interest from small investors and was priced near the top of a marketing range, raising about US$206 million. Investors who missed out on the shares chased the stock yesterday, sending the stock’s value up as much as 36.5 percent, compared with a 0.8 percent rise the technology sub-index on the Hong Kong stock market. The debut comes on the heels of a 25 percent rally in the technology heavy Nasdaq Composite index this year and an even stronger gain in Hong Kong listed technology stocks. Chinese technology stocks are particularly in favour because of the growth outlook for the country’s Internet companies, traders said. “People are over-optimistic on this sector,” said Alvin Cheung, associate

director at Prudential Brokerage. “Their thinking and prediction is heavily dependent on the market. When the market is okay, they have an automatic positive opinion on the stock, but they can change their minds very, very quickly.” The stock opened at HK$61.75 and traded as high as HK$69.60, compared with the initial public offering price of HK$51.00 each. The stock closed at HK$67.50. Hong Kong shares had their biggest gain in two weeks yesterday, lifted by the Macau casino and Chinese consumer sectors. The Hang Seng Index ended up 1 percent at 23,214.4 points, its biggest daily gain since September 19. The China Enterprises Index of the top Chinese listings in Hong Kong climbed 1.8 percent.

The company’s offer was swamped by orders from small investors, with the retail portion generating more than 300 times demand than the shares on offer, a company filing said on Wednesday. The institutional tranche of the IPO was “very significantly over-subscribed”.

year,” Li Keqiang said in a speech earlier this week. China’s economy may have expanded 7.9 percent in the third quarter and growth may slow to 7.7 percent in the current three- month period due to a high comparison base, according to Mr Lu. The statistics bureau reports thirdquarter gross domestic product on October 18. The economy probably grew 7.7 percent from a year earlier, according to a Bloomberg News survey of analysts, up from the second quarter’s 7.5 percent pace. Visitors to the nation’s top 125 tourist attractions rose 19 percent from a year earlier to 8.4 million people during the first two days of the National Day break after adjusting for changes to the number of surveyed attractions, according to the Bank of America report. The federation said a gauge of new orders jumped, retail spending grew strongly and a logistics industry index rose. Yesterday’s report followed smaller-than-forecast gains in manufacturing indexes for September. China on Sunday inaugurated an 11-square-mile experimental area in Shanghai, where it will allow trials of yuan convertibility in capital flows, establish an international energy centre and allow overseas parents of companies established in the zone to sell yuan-denominated debt in China. Bloomberg News

Foregone’s strong show is a bright spot in an otherwise grim IPO market in Asia-Pacific, where deal volumes are down 34.4 percent for the first nine months of this year, according to Thomson Reuters data. The company plans to use about 60 percent of the IPO funds to buy game licences and for takeovers of other game publishers and developers inside and outside China. Another 20 percent of the proceeds will be used on expand its online and mobile game business, with the remainder used to open offices abroad and on working capital.

Technology gains The technology sub-index of Hong Kong-listed companies has surged 51 percent so far this year, compared with a 2.4 percent gain in the benchmark Hang Seng index.

HK shares had their biggest gain in two weeks yesterday

Reuters

October 2013 April 19,4,2013

Greater China

Xi sidesteps pressure over sea disputes

CLSA plans Asean platforms CLSA Ltd’s broker-dealer unit plans offexchange electronic equity trading systems in Southeast Asian countries and hopes its new owner, Citic Securities Co, will help it offer clients access to Chinese markets. The firm is examining the Philippines, Thailand, Indonesia and Singapore for crossing networks, Andy Maynard, CLSA’s global head of trading and execution, said in an interview in Hong Kong. The acquisition by Beijing-based Citic may allow CLSA to give its clients access to China through the qualified foreign institutional investor programme, he said. “I think people look at CLSA purely for events like” last week’s CLSA Investor Forum, which hosted soccer star David Beckham as a keynote speaker, Mr Maynard said. “Which, epic as it is, I’d like us to be known as a broker, and a broker-dealer and a very good broker-dealer, rather than a research house, which we’ve been known as for a long long time.” CLSA has captured 9 percent of off-exchange stock trading in Hong Kong since winning permission for the platform in July, he said. Citic, China’s largest broker by market value, completed its purchase of Credit Agricole SA’s CLSA unit, minus its Taiwan business, for US$1.15 billion in August. Mr Maynard said he hopes Citic’s backing will help CLSA enter the prime brokerage business, supplying cash management and securities lending to large investors including hedge funds. “We’d be completely left in the dark” in China without Citic, he said. “Now we’re part of the Citic family and there is a lot of cooperation we can offer Citic onshore in Shanghai and Beijing.”

Chinese president avoids South China Sea issue while in Indonesia Kanupriya Kapoor

hinese President Xi Jinping showed no sign of bending to Southeast Asian pressure to resolve increasingly irascible territorial disputes over the South China Sea yesterday, simply repeating calls for dialogue. Mr Xi, in the first address by a foreign leader to Indonesian MPs, made no reference to regional demands, echoed in Washington, that Beijing deal with the rival claims through multilateral talks rather than with individual negotiations. The issue is certain to overshadow two regional summits next week that Mr Xi will attend. But while Mr Xi is touring Southeast Asia, including signing off on multibillion dollar deals with Indonesia, U.S. President Barack Obama has had to cancel trips to the Philippines and Malaysia because of the U.S. government shutdown. The U.S. crisis has also put into doubt Mr Obama’s attendance at the two regional summits at a time when Washington has been promoting its strategy of putting more emphasis on its ties with Asia. “As for the disagreements and disputes between China and certain Southeast Asian nations on territorial sovereignty and maritime rights, both sides must always uphold the use of peaceful methods ...to maintain the broad picture of bilateral relations and regional stability,” Mr Xi told MPs on the second and last day of his visit to

Southeast Asia’s largest country. “China’s development is a force for peace and friendship in the world, bringing development opportunities for Asia and the world and not threats.” Last month, the Philippines accused China of violating an informal code of conduct in the South China Sea, home to some of the world’s most vital trade routes, by planning new structures on a disputed shoals.

Eyes on trade The disputes have centred on concerns that China’s use of its growing naval might to back claims to much of the oil- and gas-rich sea could spark a military clash. Four of the 10 members of the Association of Southeast Asian Nations (ASEAN), including Vietnam and the Philippines but not Indonesia, have overlapping claims with China. Indonesia has offered to mediate but has in the past criticised China for not showing more restraint over the disputes. Next Tuesday sees the Asia-Pacific Economic Cooperation (APEC) summit in the Indonesian resort island of Bali. After that, Mr Xi and several other leaders will head to Brunei for the East Asia summit. “What we wanted to hear from President Xi Jinping was whether China has the goodwill to resolve the South China Sea issue ... But he

Xi was the first foreign leader to address Indonesian MPs

didn’t address the issue at all, so I’m disappointed,” legislator Tantowi Yahya told Reuters. Mr Xi has used his visit try to lift relations in the region, saying China hoped trade with ASEAN would reach US$1 trillion by 2020. He flies later in the day to Malaysia. China is already Indonesia’s biggest trading partner after Japan. The two were expected to finalise a raft of deals, mainly in the mining sector, worth more than US$30 billion during China’s president visit. Reuters

Henderson Land buys assets from founder H

enderson Land Development Co, the Hong Kong builder controlled by billionaire Lee Shau Kee, agreed to buy HK$2.96 billion (US$382 million) of shares from the founder and his family to broaden its income stream as property sales slow. The property developer will buy shares in the city’s largest gas supplier Hong Kong & China Gas Co, known as Towngas, Hong Kong Ferry Holdings Co, Henderson Investment Ltd and a hotel company, according to a filing to the city’s stock exchange yesterday. Mr Lee joins fellow billionaire Li Ka Shing in selling Hong Kong assets as China’s economy slows and property prices hover near record highs. Henderson,

Record diamond to lead Sotheby’s Hong Kong auction The largest diamond of its type offered at auction, Haut-Brion wines and a Chenghua-era porcelain bowl will lead Sotheby’s Hong Kong autumn sales estimated to raise as much as HK$3.8 billion (US$493 million). The oval D-color Flawless Type IIa, 118.28-carat diamond was mined in South Africa in 2011 and is estimated to sell for as much as HK$280 million, the New York-based company said. Sotheby’s said the five-day, 3,571-lot marathon starting today, celebrating 40 years of Asia events, is the largest and most expensive sale series it has staged in Hong Kong. “They have outdone themselves and they have really pulled out all the stops to get great material,” said James Hennessy, a Hong Kongbased dealer. “A lot of presale estimates will get thrashed.” Many records will probably be set during the auction. Hong Kong-based dealer Pascal de Sarthe said that a triptych by Chinese abstract painter Zao Wou-ki (1920-2013) will break his artist record of HK$69 million set in 2011. A 2001 oil painting, “The Last Supper” by Chinese artist Zeng Fanzhi, is estimated to sell for more than HK$80 million, surpassing Zhang Xiaogang’s record of HK$79 million for a contemporary work by a Chinese artist. Both works come from the Swiss couple Myriam and Guy Ullens de Schooten, who are selling off parts of what’s considered one of the best private collections of contemporary Chinese art. Other auction highlights include the Chenghua period (1465- 87) blue-and-white porcelain bowl that may fetch as much as HK$80 million. The sales start with two days of wine auctions, including vintages from the cellars of Chateau Haut-Brion. Bloomberg News

which already owns 42 percent of Towngas, said the purchase was an attractive investment opportunity to increase its share of a company with stable income. “This may be a sign Lee is seeing limited opportunities in Hong Kong real estate for Henderson Land,” said Lee Wee Liat, a property analyst at BNP Paribas SA who advises investors to buy Henderson Land’s shares. “Hong Kong is now at the peak of the property cycle so he’s trying to help the company redeploy its investment.” Henderson Land will buy 155.3 million shares, or a 1.6 percent stake, in Towngas for HK$18.57 each, or HK$2.88 billion, according to the filing. Towngas “currently provides

a substantial stable income to the group,” Henderson said in yesterday’s statement. “It allows an attractive investment opportunity to the group at a reasonable cost to increase its stake.” Henderson agreed to buy 7 million shares in Hong Kong Ferry Holdings Co for HK$53.7 million, or HK$7.67 each, and 40.4 million shares in Henderson Investment Ltd for HK$23.1 million, or 57.2 cents each, according to the statement. The transactions are to simplify the structure of his companies, said BNP’s Mr Lee. The billionaire may increase his stake in Henderson Land if the price is right, Radio Television Hong Kong said, citing Henderson’s Mr Lee. Bloomberg News

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Greater China

Tesco has 134 outlets and shopping-malls in the mainland

China deals to go through new retail venture: Tesco Deal expected to be completed in the first half of 2014

esco Plc, the U.K.’s largest retailer, said any deals in China will be funded through its new joint venture with state-backed China Resources Enterprise Ltd. The largest U.K. retailer on Wednesday said it will pay HK$4.33 billion (US$558 million) to gain 20 percent of a venture with China Resources to extend its reach in the

world’s most populous nation. “Any retail business that starts in China, that’s either acquired or developed, will be part of the joint venture,” Tesco chief financial officer Laurie McIlwee, who will join the board of the tie-up, said in London. “The acquisition, if there was an acquisition, will be financed through the debt of the business because

the two businesses will be brought together both cash-and debt-free so there is huge debt capacity in the combined joint venture.” China Resources, the Hong Kong listed retail and beer conglomerate, in August said that it may partner with Tesco to bid for billionaire Li Ka Shing’s ParknShop, one of the two largest grocer chains in Hong

Kong’s US$6.6 billion supermarket industry. The Chinese company’s chief financial officer Frank Lai yesterday declined to comment on the progress for a bid for ParknShop “because there is a process going on”. Hutchison is seeking US$3 billion to US$4 billion for the unit, a person familiar with the sale said earlier this year. Tesco will combine 134 outlets and shopping-mall business in China with the almost 3,000 stores owned by the state-backed conglomerate in China and Hong Kong in a tie-up announced in August. The two companies plan to run supermarkets, convenience stores and liquor shops in the Greater China region. China Resources will hold 80 percent of the venture. The deal would allow Tesco to expand in China’s US$574 billion hypermarket industry while ending almost a decade of independent operations as sales fall amid competition from rivals such as Sun Art Retail Group Ltd. China Resources, which runs the country’s second-largest hypermarket business, would gain from Tesco’s expertise in areas including private labels, e-commerce and international sourcing, the companies said. Tesco will have two out of a maximum of 10 seats on the board of the venture, whose annual sales are estimated at 10 billion pounds (US$16 billion), the England-based company said. Completion of the deal is expected in the first half of 2014, subject to regulatory and shareholder approval. In addition to hypermarkets, Tesco owns 11 Lifespace shopping malls in China and eight in 50-50 joint ventures with local partners. Bloomberg News

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October 2013 April 19,4,2013

Asia Danone asks compensation from Fonterra Danone SA says it is seeking full compensation from New Zealand dairy exporter Fonterra Cooperative Group Ltd over a contamination scare involving an ingredient used in milk formula produced by the French food manufacturer. Danone confirmed it had sent a notice of dispute to Fonterra on September 24, after Fonterra said on Wednesday the two companies were in talks to resolve issues stemming from a recall of Danone products in August. “Danone is determined that it should be fully compensated for damages caused by the recall on eight markets,” the company said in a statement.

Japan awaits Abe’s third arrow Government urges companies to invest

apanese Prime Minister Shinzo Abe’s reflation campaign shifted to structural domestic reforms after he unveiled a stimulus package offering a short-term cushion for the first sales-tax rise since 1997. Mr Abe’s administration is honing legislation for its “growth strategy” for the year’s final parliamentary session, an initiative companies will scrutinise for fresh reasons to invest in a domestic market burdened by a shrinking and aging population. For now, they get a slew of tax breaks unveiled with Tuesday’s 5 trillion yen (US$51 billion) programme. Getting businesses to start distributing their rising profits and near-record cash through higher wages and new projects at home will be key to sustaining a rebound in

the world’s third-largest economy. Without pay rises, households will be hit by both higher taxes and living costs – as energy bills climb after the yen slid 21 percent the past year. “What is needed is for the government to provide a long-term vision – 10 years from now for example,” said Nobuyasu Atago, a senior official at the Japan Centre for Economic Research in Tokyo who has worked at the central bank. “Unless the potential growth rate is raised, there is no guarantee that companies will really raise wages and boost capital investment just because of tax incentives.” The stimulus package that Mr Abe said would be prepared for December will include measures to boost capital investment by smaller

companies; spending for the 2020 Olympics; payments to low-income earners; and tax incentives for home purchases. As well as 1 trillion yen in annual tax cuts, including 730 billion yen in investment tax reductions, policymakers will decide in December on any early end to a levy on companies for earthquake reconstruction, the government said. Without the support measures, the economy would face “an extremely high risk of stalling,” Mr Abe said. A bigger challenge awaits with reforms that would threaten vested interests, such as reducing labour regulations dating from the 1960s that offered lifetime employment for workers at larger enterprises – rules that reduce the attractiveness of

hiring. The prime minister has also identified agriculture, health care and tourism as sectors to be targeted in his so-called third arrow. The administration is also engaged in trade-liberalisation talks with the U.S.-led Trans Pacific Partnership group of nations. Millions of small farmers have opposed the move, seeking to maintain protection for meats, wheat, sugar, dairy and other goods like rice, which has a tariff of 778 percent.

First arrows Abenomics has so far relied on the first two arrows – of government spending and BOJ Governor Haruhiko Kuroda’s unprecedented commitment to achieve 2 percent inflation by increasing the supply of money – to end two decades of Japanese malaise. The first two components have done little to change companies’ reluctance to unleash their improving earnings, which left some 220 trillion yen in cash on their balance sheets at the end of June, according to data compiled by the BOJ. Regular wages excluding overtime and bonuses fell 0.4 percent in August from a year earlier, a 15th straight drop, government data showed yesterday. More than 40 percent of the working-age population is neither employed nor looking for a position, with the absence of women on the job holding down Japan’s potential growth. Mr Abe has highlighted the female job growth as a potential dynamo for the nation. Tapping the resource would require greater access to childcare for mothers. Meantime, households are girding for a 3 percentage point increase in the consumption levy, to 8 percent starting April 1. Consumer confidence fell in August for a third consecutive month, and sentiment among merchants declined for a fifth straight month. Bloomberg News

Higher wages key to sustain rebound in economy

BOJ on hold until at least Q2, Mizuno says T

he Bank of Japan will wait at least until the second quarter of 2014 before deciding whether to add more stimulus, as it gauges the impact of an April salestax increase, said Atsushi Mizuno, a former BOJ board member. “It is too early to judge whether additional monetary easing will be necessary” when the levy is raised in April, Mizuno, vice chairman at Credit Suisse AG in Tokyo and

a member of the central bank’s board from 2004 to 2009, said. “The BOJ has said they have done enough, and will do more if necessary, but collecting evidence supporting the need to do more will take a lot of time.” Most economists forecast the central bank will loosen its policy further by June to support Japan’s economy in the wake of the first sales-tax increase since 1997. While a US$51 billion fiscal package that Prime Minister Shinzo Abe announced this week will help cushion the blow – and led SMBC Nikko Securities Inc to raise its economic forecast – a setback to growth would complicate the central bank’s effort to reach a 2 percent inflation target. Thirty-five of 36 economists surveyed by Bloomberg News forecast no change in policy when

the BOJ wraps up a two-day meeting today, with one predicting the central bank will boost its purchases of Japanese real-estate investment trusts. Twenty-six said they expect it to add to unprecedented stimulus in the first half of 2014, the poll showed. Governor Haruhiko Kuroda in April ramped up purchases of Japanese government bonds and other assets, aiming to generate 2 percent inflation within about two years. It may be harder next year for the central bank to keep increasing the monetary base at the current pace, Mr Mizuno said. Bonds that the BOJ buys outright through market operations come from financial institutions, which may become less inclined to give up their JGBs in return for central bank deposits, which yield 0.1 percent, he said. Bloomberg News

Unless the potential growth rate is raised, there is no guarantee that companies will really raise wages and boost capital investment just because of tax incentives Nobuyasu Atago, Japan Centre for Economic Research

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Asia Indonesia judge arrested for bribery Indonesian anti-corruption investigators have arrested the constitutional court’s top judge for allegedly accepting a bribe of more than US$250,000 in a case linked to a disputed election, an official said yesterday. Akil Mochtar was detained late Wednesday at his Jakarta home shortly after a businessman and a lawmaker allegedly handed him around three billion rupiah, said Corruption Eradication Commission (KPK) spokesman Johan Budi. It is just the latest high-profile corruption case in Indonesia, one of the most graft-ridden countries in the world. “The bribery was allegedly linked to a disputed election in Gunung Mas district on Borneo island,” said Mr Budi. The election happened on September 4. One of the constitutional court’s main roles is to decide on electoral disputes. The lawmaker, from the Golkar party of former dictator Suharto, and businessman were also detained at Mr Mochtar’s house, he said.

Li’s firms face Australian tax fight The Australian Tax Office is pursuing unpaid taxes from companies controlled by Asia’s richest man, Li Ka Shing, that relate to profits made in the country’s power, gas and water industries. The Federal Court recently ruled against two companies related to Mr Li’s Cheung Kong (Holdings) Ltd, ordering they pay A$776 million (US$726.92 million) in unpaid tax and penalties. The two companies, Cheung Kong Infrastructure Holdings Ltd, the largest listed infrastructure company in Hong Kong, and energy subsidiary Power Asset Holdings Ltd, have made hundreds of millions of dollars from their Australian investments. Wendy Tong Barnes, chief corporate affairs officer at Cheung Kong Infrastructure Holdings, told Reuters the company has obtained legal advice and intends to “vigorously challenge” the ruling. Many of the group’s Australian investments were privatised state government utilities, including a 50 percent stake in South Australia Power Networks. Other investments include a 19 percent holding in Envestra Ltd, Australia’s biggest distributor of natural gas.

Gnanalingam emerges as billionaire after IPO Westports Holdings Bhd executive chairman G. Gnanalingam (pictured) has become a billionaire as the main operator at one of Malaysia’s biggest ports sells shares in the country’s largest initial public offering this year. Mr Gnanalingam, 69, and his family will reduce their stake in Westports to 46.8 percent from 60 percent previously, according to the company’s prospectus. Their stake in the company after the share sale is valued at about US$1.2 billion, according to the Bloomberg Billionaires Index. He and his family are also getting about US$350 million from selling some stock. Shares will start trading in Kuala Lumpur on October 18. Westports raised 2.03 billion ringgit (US$635 million) in the IPO. The port operator priced its shares at 2.50 ringgit apiece, at the top end of a range offered to investors, after getting excess demand from investors.

Tetangco sees Philippine GDP growth topping 7 pct

Moody’s gives Philippines Investment grade rating Rating agency cites country’s structural shifts in growth, fiscal metrics

he Philippines earned its third investment-grade upgrade in about five months yesterday after Moody’s raised the country’s sovereign debt rating by a notch to Baa3, a widely expected move that will further boost the country’s allure among foreign investors. Moody’s said the decision to lift the country’s credit rating and revise the outlook to positive from stable was based on the sustainability of the country’s robust economic performance, fiscal and debt consolidation, as well as political stability and improved governance. “Clearly, Moody’s has acknowledged the strong upside potentials and the constructive dynamics of the economy that should enable it to ride out the volatilities in global financial markets,” central bank Governor Amando Tetangco told reporters yesterday. “This development should bode well for more investments, both local and foreign in the country,” Mr Tetangco added. The Southeast Asian economy has been growing at a solid pace in the past few quarters, keeping pace with China, with the two becoming the region’s fastest growing nations this year. Moody’s said the prospect of the U.S. Federal Reserve’s tapering of its bond-buying stimulus had a muted effect on the country’s financing conditions. “An underlying shift in the government’s funding profile has contributed to the country’s resilience to such external financial shocks,” the rating agency said in a statement. “The government’s improved ability to fund itself onshore reflects both the country’s healthy external payments position and the ample

liquidity in its banking system, which is also the only system worldwide deemed by Moody’s to have a positive outlook,” Moody’s added. Moody’s rating move, coming about two months after it placed Philippine ratings on review for an upgrade, brings it in line with Fitch Ratings’ and Standard and Poor’s, which raised the Philippines’ credit rating to investment grade in March and in May, respectively.

Higher growth The Philippines will withstand pressure stemming from the impending reduction of the Federal Reserve’s stimulus with growth exceeding 7 percent this year, Mr Tetangco said. “The economy hasn’t been affected much. Domestic demand is the real driver. We’re less dependent on the performance of other

KEY POINTS Philippine investment-grade climb complete Growth outpacing the rest of Southeast Asia Moody’s cites ‘robust economic performance’ Growth to exceed 7 pct this year – Tetangco

countries or the rest of the world, unlike our neighbours.” Bangko Sentral ng Pilipinas will probably keep interest rates steady this year and next, “barring any unforeseen shocks,” he said in an interview with Bloomberg. Inflation will fall within the central bank’s target range for a fifth year this year, he said. Before the rating upgrades, Philippine officials had complained that rating agencies were slower than financial markets to acknowledge the country’s improved fundamentals. The country’s first investment grade upgrade from Fitch came in March, or months after that of its regional neighbour Indonesia, which has yet to get an investment grade rating from all three major debt watchers unlike the Philippines. Philippines bonds were trading about half a point to a point higher although there was some profit-taking on upticks, with the Moody’s announcement not entirely unexpected. “The timing may have surprised some people given that they just downgraded Brazil’s outlook this morning, a reflection of the current environment,” said a Hong-Kong based trader with a U.S. bank. “That they got to a clear IG ahead of Indonesia was long factored by the market,” he said referring to the widening gap between the credit spreads of the two sovereign borrowers. The Philippines was the only country in East and Southeast Asia whose growth forecast was revised up by the Asian Development Bank on Wednesday. It is expected to grow 7 percent this year against an April forecast of 6 percent. Reuters/Bloomberg News

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

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October 2013 April 19,4,2013

Asia

Goldman to Nomura warn on India’s finances Data show highest debt to reserves ratio in more than a decade Jeanette Rodrigues

eserve Bank of India data showed the highest ratio of short-term external debt to currency reserves in more than a decade, raising alarm bells at Goldman Sachs Group Inc and Nomura Holdings Inc. The US$97 billion maturing in less than a year amounted to 34.3 percent of reserves as of June 30, the highest since at least March 2001, RBI figures released on Monday show. The ratio was 146.5 percent during a balance-of-payments crisis in March 1991, according to the report’s partial data for the 1990s.

Including longer-term debt, repayments due by June 2014 total US$170 billion, or 60 percent of reserves. Indonesia’s comparable ratio is 55.8 percent. Asia’s third-largest economy faces significant risk as banks and companies seek to refinance global borrowings, even as the government acts to trim the current-account deficit, Goldman wrote in a research note. Nomura said the slowest economic growth in a decade and a budget deadlock in the U.S. will damp inflows, further straining India’s finances.

“We expect the focus to turn to India’s external vulnerability amid a worsening global backdrop,” Sonal Varma, an economist at Nomura in Mumbai, said in an interview. “The worst in terms of the quarterly current-account deficit is likely behind us.” The deficit in the broadest measure of trade was US$21.8 billion in April through June, compared with US$18.1 billion in the previous quarter, the RBI said in a September 30 statement. The median of 26 estimates in a Bloomberg News survey was for a US$23 billion gap.

Deficit outlook

Fuel and food subsidies threaten goal of curbing budget deficit

Nomura predicts the widest shortfall among the largest emerging markets will narrow to 3 percent of gross domestic product in the fiscal year through March 2014 from a record 4.8 percent the previous period. Goldman analysts Tushar Poddar in Mumbai and Vishal Vaibhaw in Bangalore forecast a 3.5 percent gap as tariff increases curb gold imports and slower growth limits domestic demand. GDP increased 5 percent in the year ended March 31, official data show, the least in a decade. The current-account deficit will drop to 4 percent of GDP this fiscal year, according to the median of 14

estimates in a Bloomberg survey of economists. However, the shortfall in the government’s budget will widen to 5.05 percent of GDP in the same period, from 4.9 percent the prior year, according to the median estimates in a separate survey, as Prime Minister Manmohan Singh boosts spending ahead of elections due by May. Global funds have cut holdings of Indian debt by US$11.5 billion to US$26.9 billion since May 22, when Federal Reserve chairman Ben S. Bernanke first flagged a potential paring of bond purchases. Since the Fed unexpectedly maintained its buying on September 18, the figure is down US$891.5 million. Foreign reserves fell to US$277 billion in the week through September 20 from US$297 billion at the end of 2012, official data show. “India is one of the countries with the most challenging macro imbalances,” Goldman analysts including London-based Thomas Stolper, wrote in a note to clients. “High-frequency data on Indian capital flows indicate that, even after the dovish Fed surprise, the funding of the large Indian external deficit remains a challenge.” Bloomberg News

India is one of the countries with the most challenging macro imbalances Goldman Sachs analysts

Leighton drops on allegations of corruption Australian builder ‘not aware of any new allegations’

hares of Leighton Holdings Ltd plunged the most in more than two years in Sydney after the Age newspaper said former executives knew of alleged corruption at the company. Australia’s biggest builder said the revelations weren’t new. Leighton allegedly paid bribes to win orders and former chief executive officers Wal King and David Stewart were aware of the conduct, according to the report, which was also published in other Fairfax Media Ltd newspapers. Mr King denied the allegation and a spokeswoman for Mr Stewart declined to comment. Leighton has been under investigation by the Australian Federal Police since at least February 2012 after the company reported potentially illegal activity at its subsidiary Leighton Offshore Pte in Iraq. The alleged activity involved payments the subsidiary may have made “in connection with work to expand offshore loading facilities for Iraq’s crude oil exports,” the company said at the time. “Leighton takes these accusations seriously and is deeply concerned about the suggestions of impropriety,” the Sydney-based company said in a regulatory statement yesterday. “We are not aware of any new allegations

or instances of breach of our ethics.” The stock dropped 10.42 percent, its biggest slump in more than two years, to A$17.54 in Sydney.

Hochtief slump “Being in a negative news story is likely to impact sentiment towards the stock. The extent of that depends on how long the story stays around,” Heath Andrews, an analyst at Royal Bank of Canada in Melbourne, said by phone. “It tempts retail investors to sell out and could spook institutional shareholders as well.” Hochtief AG, which has a controlling 56 percent stake in the Australian company, fell 7.9 percent, the most in almost two years, in Frankfurt trading overnight after the report was published on websites. The reports quote from an alleged memo from Mr Stewart dated November 23, 2010. Former Leighton International managing director David Savage said he and Mr King knew of an alleged A$42 million bribe paid in relation to work in Iraq, the newspaper quoted the memo as saying. Mr Stewart was chief executive designate at the time, after Mr King announced his retirement after 13 years in the company’s top job on

Leighton shares drop more than 10 pct

September 13, 2010. Mr King said by phone that he had no prior knowledge of any wrongdoing at the company, that the Australian Federal Police hadn’t contacted him about the case, and that the memo quoted didn’t exist. “We had compliance committees, ethics committees, oversight committees. Every effort was supplied to make sure the company was compliant,” he said. Mr Stewart was

acting chief executive officer from November 2010 onwards, he said. Fiona Tyndall, a spokeswoman for Leighton, also declined to comment on the allegations about former executives, citing the ongoing police investigation. “Over recent years the management structure of the business has been substantially changed,” the company said in its statement yesterday. Bloomberg News

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

Max 58.75

average 57.406

Min 56.55

58.8

86.5

27.20

58.2

85.8

26.95

57.6

85.1

26.70

57.0

84.4

26.45

56.4

Last 58.7

Max 86.5

average 85.929

Min 83.75

83.7

Last 85.6

Max 27.15

average 26.506

Min 26.35

Last 26.6

22.3

50.6 50.3

28.5 28.2

22.2

50.0

27.9 22.1

49.7

Max 50.6

average 50.206

Min 49.5

49.4

Last 50.6

Max 22.3

average 22.204

Commodities PRICE

DAY %

YTD %

(H) 52W

103.73

-0.355427474

10.96491228

111.3399963

85.79000092

BRENT CRUDE FUTR Nov13

109.13

-0.054950087

3.696313189

115.7599945

96.19999695

GASOLINE RBOB FUT Nov13

263.58

0.270095484

2.648181323

293.6000109

243.3699846

925

0.379815518

2.32300885

980.25

837

3.558

0.451722191

-4.993324433

4.59400034

3.281000137

299.59

0.106926855

0.264390897

322.3500013

276.8100023

NATURAL GAS FUTR Nov13 NY Harb ULSD Fut Nov13 Gold Spot $/Oz

1310.39

1.2784

-21.2724

1796.08

1180.57

Silver Spot $/Oz

21.625

2.0557

-28.18

35.11

18.2208

1385.15

0.0072

-8.7366

1742.8

1294.18

Platinum Spot $/Oz Palladium Spot $/Oz

717

0.0628

2.4783

786.5

587.4

LME ALUMINUM 3MO ($)

1838

0.602079912

-11.33622769

2184

1758

LME COPPER 3MO ($)

7279

1.111265454

-8.220905308

8355

6602 1811.75

LME ZINC

3MO ($)

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

Last 22.25

(L) 52W

WTI CRUDE FUTURE Nov13

GAS OIL FUT (ICE) Nov13

METALS

Min 22.1

1890

0.638977636

-9.134615385

2230

13750

-19.4021102

18813

13205

15.025

0.333889816

-2.530003244

16.65000153

14.77000046

Dec13

COUNTRY MAJOR

ASIA PACIFIC

CROSSES

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

Max 28.4

average 27.943

Min 27.35

Last 28.4

27.3

0.227790433

-26.63609837

647

435

689.25

0.473760933

-16.02193116

913

635.5

SOYBEAN FUTURE Nov13

1280.75

0.549558391

-1.688735367

1409.5

1162.5

115

0.480559196

-26.49408757

200

113.1999969

NAME

18.44

-0.37817396

-10.39844509

22.14999962

16.69999886

ARISTOCRAT LEISU

0.149648901

10.49022098

93.72000122

74.34999847

CROWN LTD

COFFEE 'C' FUTURE Dec13 SUGAR #11 (WORLD) Mar14 COTTON NO.2 FUTR Dec13

World Stock Markets - Indices

YTD %

(H) 52W

(L) 52W

0.9389 1.6229 0.9014 1.3614 97.81 7.9871 7.7546 6.1207 61.825 31.232 1.2486 29.386 43.105 11530 91.831 1.2272 0.83887 8.3235 10.8735 133.15 1.03

0.4816 0.1666 0.3994 0.7027 -0.4396 -0.0025 -0.0039 0.0082 1.0352 0.2337 0.2723 0.5683 0.6728 -1.5004 -0.9223 -0.3007 -0.5269 -0.4662 -0.6943 -1.1265 0

-9.5298 0.3276 1.5531 3.2146 -11.9722 -0.0488 -0.0516 1.7955 -11.0473 -2.0876 -2.1784 -1.2013 -4.8718 -15.065 -2.7267 -1.6069 -2.7954 -1.2735 -3.1554 -14.7052 -0.0097

1.0599 1.6381 0.9839 1.3711 103.74 8.0111 7.7664 6.3005 68.845 32.48 1.2862 30.228 44.82 11730 105.433 1.265 0.88151 8.4957 10.9254 134.95 1.032

0.8848 1.4814 0.8993 1.2662 77.95 7.9818 7.7498 6.1064 51.3863 28.56 1.2152 28.913 40.54 9577 79.408 1.20302 0.79607 7.8281 10.1113 100.16 1.0289

PRICE

DAY %

YTD %

(H) 52W

(L) 52W

4.97

1.844262

15.96

3.234153

VOLUME CRNCY

57.77777

5.02

2.56

5493544

49.57826

16.27

9.18

1876058

AMAX HOLDINGS LT

1.29

-0.7692308

-7.857141

1.72

0.75

1265230

24.75

-0.2016129

2.697094

22.85

6533033

CENTURY LEGEND

1643000

0.425

60.37737

0.56

0.23

CHEUK NANG HLDGS

6.65

1.217656

11.01837

6.74

3.82

292687

CHINA OVERSEAS

23.1

1.094092

25.6

17.7

15624423

CHINESE ESTATES

18.22

2.359551

62.01967

18.38

9.337

190505

CHOW TAI FOOK JE

11.38

3.266788

-8.520897

13.4

7.44

9762400 2468150

PRICE

DAY %

YTD %

(H) 52W

(L) 52W

DOW JONES INDUS. AVG

15133.14

-0.3854736

15.48366

15709.58

12471.49

NASDAQ COMPOSITE INDEX

3815.019

-0.07760644

26.34548

3819.275

2810.8

FTSE 100 INDEX

6450.38

0.2000777

9.369068

6875.62

5605.589844

DAX INDEX

8624.06

-0.0621131

13.28977

8770.1

6950.53

HOPEWELL HLDGS

NIKKEI 225

14157.25

-0.09343361

36.19053

15942.6

8488.14

HSBC HLDGS PLC

HANG SENG INDEX

23214.4

1.000327

2.460531

23944.74

19426.35938

CSI 300 INDEX

2409.037

0.587314

-4.51514

2791.303

2023.171

TAIWAN TAIEX INDEX

8359.02

1.734311

8.565744

8439.15

KOSPI INDEX

1999.47

0.03001696

0.1211748

2042.48

JAKARTA COMPOSITE INDEX

DAY %

BOC HONG KONG HO

COUNTRY

S&P/ASX 200 INDEX

PRICE

Macau Related Stocks

440

WHEAT FUTURE(CBT) Dec13

NAME

22.0

27.6

Currency Exchange Rates

NAME ENERGY

26.20

EMPEROR ENTERTAI

3.75

0.536193

98.4127

3.8

1.43

FUTURE BRIGHT

2.53

-0.3937008

108.7414

2.76

1.103

528000

GALAXY ENTERTAIN

58.7

5.102954

93.41021

58.8

24.1

12581807

127.3

-0.07849294

7.245159

132.8

110.6

922665

26.1

0.1919386

-21.50376

35.3

23.2

732000

84.35

0.2376708

3.751534

90.7

72.3

8933993

HUTCHISON TELE H

3.31

-2.359882

-7.02247

4.66

2.98

10381200

LUK FOOK HLDGS I

25.15

3.71134

3.073772

30.05

16.88

3385000

MELCO INTL DEVEL

21.8

1.160093

141.9534

6.55

3759316

7050.05

MGM CHINA HOLDIN

26.6

-0.1876173

100.3272

27.2

12.236

6132250

1770.53

MIDLAND HOLDINGS

3.07

-0.9677419

-17.02703

2.68

1056000

NEPTUNE GROUP

0.177

-2.209945

16.44737

0.23

0.131

35900000

NEW WORLD DEV

11.86

0.3384095

-1.331119

15.12

9.98

8133243

SANDS CHINA LTD

50.6

3.901437

49.04271

50.65

26.35

16069181

5234.887

0.3706412

12.60364

5314.3

4334.3

4418.643

0.7074248

2.361905

5251.296

3837.735

HANG SENG BK

FTSE Bursa Malaysia KLCI

1771.37

0.05761573

4.879958

1826.22

1590.67

SHUN HO RESOURCE

1.71

22.14286

1.92

1.19

NZX ALL INDEX

1002.452

0.01346879

13.64987

1005.231

845.953

SHUN TAK HOLDING

4.49

1.354402

7.159903

4.65

2.97

10316114

PHILIPPINES ALL SHARE IX

3842.32

0.1438699

3.875125

4571.4

3440.12

SJM HOLDINGS LTD

22.25

1.136364

25.36866

22.5

15.835

8789531

SMARTONE TELECOM

10.14

-0.5882353

-27.98295

16.22

9.97

7367500

28.4

2.158273

35.56085

28.5

14585680

Euromoney Dragon 300 Index Sin

610.11

-0.77

-1.77

WYNN MACAU LTD

STOCK EXCH OF THAI INDEX

1426.12

1.215764

2.456297

1649.77

1260.08

HO CHI MINH STOCK INDEX

492.3

-0.4227432

18.99064

533.15

372.39

ASIA ENTERTAINME

3.96

69409

BALLY TECHNOLOGI

72.02

-2.026935

61.08254

76.3

43.16

406972

Laos Composite Index

1309.38

1.819624

7.788304

1455.82

1038.79

BOC HONG KONG HO

3.23

5.211729

3.6

2.99

8200

GALAXY ENTERTAIN

7.23

1.974612

82.11587

7.23

3.11

3990

INTL GAME TECH

19.15

-0.7772021

35.14467

21.2

12.37

6243782

JONES LANG LASAL

88.35

-1.052749

5.25375

101.46

72.56

376430

LAS VEGAS SANDS

66.61

-0.5375541

44.30243

67.351

37.8353

3162730

MELCO CROWN-ADR

32.88

0.982801

95.2494

32.95

12.74

2950663

MGM CHINA HOLDIN

3.22

83.96937

3.29

1.5895

13800

MGM RESORTS INTE

20.7

-0.192864

77.83505

20.82

9.15

5332248

SHFL ENTERTAINME

23.07

-0.6031883

59.10345

23.21

12.35

2808528

SJM HOLDINGS LTD

2.84

0.4953999

24.69178

2.9481

2.0508

1150000

161.35

0.7996502

43.43497

161.62

103.0933

940596

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

WYNN RESORTS LTD

AUD HKD

USD

Hang Seng Index NAME AIA GROUP LTD ALUMINUM CORP-H BANK OF CHINA-H

PRICE

DAY %

VOLUME

37.15

42177948

2.83

-0.3521127

6382000

NAME

PRICE

DAY %

VOLUME

13.12

8.429752

95067454

10.2

1.796407

7940422

CLP HLDGS LTD

63.15

-0.2369668

2178168

CNOOC LTD

15.98

2.173913

29162457

COSCO PAC LTD

12.22

0.9917355

1949536

SWIRE PACIFIC-A

ESPRIT HLDGS

12.3

-0.3241491

5631402

26.1

0.1919386

4489416

CHINA UNICOM HON CITIC PACIFIC

3.6

1.694915

259121846

BANK OF COMMUN-H

5.78

1.403509

11279562

BANK EAST ASIA

32.9

-0.3030303

3266313

BELLE INTERNATIO

11.48

1.413428

10203642

BOC HONG KONG HO

24.75

-0.2016129

6533033

HANG LUNG PROPER

CATHAY PAC AIR

15.38

-0.1298701

3266995

HANG SENG BK

127.3 -0.07849294

CHEUNG KONG

125

1.957586

7092945

HENDERSON LAND D

48.45

-0.308642

1661149

CHINA COAL ENE-H

4.7

1.952278

22117537

2.678571

1381006

CHINA CONST BA-H

6.06

1.337793

158333818

HONG KG CHINA GS

18.66

-0.3205128

8749813

CHINA LIFE INS-H

20.6

2.743142

21370479

HONG KONG EXCHNG

126.1

1.775626

2772310

CHINA MERCHANT

29.35

3.163445

3789404

HSBC HLDGS PLC

84.35

0.2376708

8933993

CHINA MOBILE

86.5

-0.6888634

20648996

HUTCHISON WHAMPO

96.85

0.9379885

10440193

CHINA OVERSEAS

23.1

1.094092

15624423

IND & COMM BK-H

5.5

0.7326007

162271613

CHINA PETROLEU-H

6.22

1.302932

59646604

LI & FUNG LTD

11.4

1.06383

13066296

CHINA RES ENTERP

25.05

0.2

1588331

MTR CORP

31.1

1.138211

CHINA RES LAND

HENGAN INTL

922665

NAME

PRICE

DAY %

68.05

-0.5116959

1907347

50.6

3.901437

16069181

SINO LAND CO

11.56

0.3472222

5345810

SUN HUNG KAI PRO

105.7 -0.09451796

4760926

POWER ASSETS HOL SANDS CHINA LTD

92.8

0.4872767

TENCENT HOLDINGS

419.8

1.156627

2289466

TINGYI HLDG CO

20.05

-0.2487562

12644867

WANT WANT CHINA

12.36

4.040404

8481933

67.9

0.6671609

3564377

WHARF HLDG

MOVERS

23222.98

1924044

LOW

22859.86

52W (H) 23944.74

22.2

0.4524887

5106346

NEW WORLD DEV

11.86

0.3384095

8133243

18.48

-0.1081081

5730248

PETROCHINA CO-H

8.64

1.408451

46220547

CHINA SHENHUA-H

23.8

1.709402

18391737

PING AN INSURA-H

58.85

1.728608

7950716

1099904

1 23225

INDEX 23214.4 HIGH

CHINA RES POWER

VOLUME

(L) 19426.35938

22855

30-September

03-October

15 15

October 2013 April 19,4,2013

Opinion

Italian lesson for Washington’s wires Republican minority Business

Leading reports from Asia’s best business newspapers

Economic Times

Clive Crook

India’s Finance Minister P Chidambaram sees the Indian economy doing better in the second half of the fiscal year than in the first six months, perhaps well enough to mark a revival after the slump in the year to March buoyed by core sector growth, higher exports and credit expansion to some sectors. “I think it is fair to say that growth will pick up in the second half and, let’s see, anything higher than 5 percent and closer to 5.5 percent should be considered very satisfactory,” he said.

Thanh Nien Daily Vietnam’s economy has survived global financial volatility but slow restructuring in the banking sector and state owned enterprises (SOEs) continue to weigh down the country’s mediumterm economic prospects, says Fitch Ratings. The rating agency remains doubtful whether Vietnam’s GDP growth rate can pick up sharply and revert to a 7 percent level – as was the case in the last decade. “First, the banking sector remains encumbered by substantial bad loans. Second, SOE reforms have progressed slowly at best,” it said.

Jakarta Globe Indonesia’s exports of timber and timber products to the European Union could double next year after signing the partnership agreement on Monday, a government official said. “This agreement will allow timber and timber products, which had been certified in Indonesia, to enter the European Union,” Deputy Trade Minister Bayu Khrisnamurti told reporters. “As the only country with such an agreement with the EU, we are optimistic that exports can reach US$1.8 billion to US$2 billion next year,” Mr Bayu said.

Inquirer Business The Philippines stands out in the region as the only country still expected to grow at a healthy pace this year and the next despite weak global economic conditions. Local policymakers, however, still need to solve the puzzle of how to translate this economic growth into more jobs for Filipinos to reduce poverty across the country, the Asian Development Bank (ADB) said. “The challenge is how to establish the link between strong economic growth and poverty reduction,” ADB senior economist for the Philippines Norio Usui said at a press conference.

Bloomberg View columnist

his week Silvio Berlusconi, Italy’s former prime minister, convicted tax cheat and survivor of serial scandals, ordered ministers from his People of Liberty party to quit the ruling coalition and thus bring down Italy’s beleaguered five-month-old government. But Prime Minister Enrico Letta survived the confidence vote as even Berlusconi backtracked as his party showed signs of deserting him. But, then again, you might think, who cares? Everybody knows that Italy is ungovernable, that its system of government is a joke at home and abroad, and that the country’s own citizens hold their leaders in contempt. Italy’s political class condemns a potentially vibrant worldclass economy to chronic underperformance as the country lurches from crisis to crisis. What else is new? Only this: Italy appears to be getting some company. I commend it as a case study for the faction of the U.S. Republican Party that seems to see government by crisis as a mark of integrity and a kind of public service. Demanding first the repeal and then a delay in the introduction of the Patient Protection and Affordable Care Act, Republicans shut down the federal government on Tuesday. Next, they threatened to force the U.S. government to default on its debts. The first, if it doesn’t go on too long, is a costly nuisance; the second, should it happen, threatens financial and economic catastrophe.

Heavy obligations The Republicans say they are standing on principle. They apparently see healthcare reform as an existential threat, a peril that justifies

any political countermeasure, however damaging. Berlusconi says much the same about the 1 percentage-point increase in the value-added tax, to which he and his party object. To avoid the damage that he says this tax increase would do, he is willing to wreck his country’s prospects of recovery. How could that possibly make sense? Because it’s a matter of principle.

The U.S. is so confident of its greatness that it can’t imagine ever being reduced to the status of an ordinary country

The framers of the U.S. Constitution designed a system capable of excellent results – and the success of their model over the years has indeed surpassed all plausible expectations. But their design, however ingenious, isn’t fated to succeed. It can be corrupted by a sufficient number of people of bad faith or – as in this case – by an organised departure from the norms of good political conduct. Make no mistake: Something akin to Italian politics is a possible future for the United States. The U.S. can blight

its own prospects and make itself a laughingstock, too. It’s happening right now. One of the many ironies in this situation is that the Republican faction that is willing to plunge the country into crisis after manufactured crisis also sees itself as the guardian of the American constitutional exception. Tea Party Republicans rightly point out that they’re only doing what the Constitution empowers them to do. Its design is avowedly nonmajoritarian. It provides for divided, and hence deliberately indecisive, government. The checks and balances that protect minority viewpoints and restrain the power of the majority aren’t an unintended side effect; they’re the whole point. It’s not good enough to say, as the Democrats did after 2008, that “elections have consequences” – as though that validates anything the winner might choose to do. But a system of structurally indecisive government also puts heavy obligations on the elected representatives who find themselves in the minority. To work at its best, it requires a willingness to strike compromises and strive for consensus – a sentiment that once prevailed in Washington, and which goes far to explain the country’s astonishing success but lately has all but vanished. If consensus is no longer possible, that’s worrying enough. Far worse, though, is a partisanship so bitter – and a standing on principle so implacable – that the country itself is held to ransom to make a point. Let the economy crash: better that than a health-care law not to our liking. This is the mode that the no-compromise wing of the Republican Party has adopted. Look to Italy to see

where it might lead. There’s no quick, easy answer to the two parties’ mutual loathing and the damage it is capable of doing in the U.S. constitutional setting. With luck, however, two partial remedies could emerge from the latest standoff.

Seizing opportunity First, although I’m no cardcarrying Democrat, I hope that independent and moderate Republican voters will turn on the government-by-crisis Republican faction at the next election and make plain that its kind of politics isn’t wanted. All the incentives in the U.S. electoral system are stacked against this outcome, I understand, but one can hope. President Barack Obama and his party can advance this prospect by avoiding equal and offsetting partisan rancour and sparing no effort to present themselves as reasonable, rational and consensus-seeking. Extremist Republicans have given them a remarkable opportunity to seize and hold the centre of the country. Second, I also hope that the country’s broken budget mechanism can be mended. Failing to pass a measure to authorise spending should never have the consequence of shutting down the government; failing to pass a measure that raises the debt ceiling should never lead to default. It’s one thing to give a minority veto power over discretionary legislation – something the framers intended – but quite another to give a minority the power to wreck the economy merely by doing nothing if it doesn’t get its way. The necessary dispensation is simple: Spending and taxes (hence borrowing, too) continue at previously authorised levels unless Congress votes to change them. Perhaps a deal along those lines can be done. If no-compromise Republicans aren’t convinced by the Italian future awaiting the U.S. on present trends, they might at least calculate that their positions will one day be reversed, and Democrats will one day be a minority trying to block them. The U.S. is so confident of its greatness that it can’t imagine ever being reduced to the status of an ordinary country. Despite all its strengths and still-limitless potential, its current trajectory points in a far more ominous direction. The constitution that delivered the country to its present eminence is capable, in the wrong hands, of leading it to ruin. Voters must reflect on that, and then impress it on the people they elect. Bloomberg View

16 16

October 4, 2013 April 19, 2013

Closing U.S. grabs US$3 mln worth of Bitcoins

BP wins reprieve over Gulf payouts

The price of Bitcoins listed on the Bitstamp Ltd exchange plunged as much as 33 percent after charges were unsealed for the operator of an online marketplace for drugs and other illicit goods. Ross William Ulbricht, who runs the “Silk Road Hidden Website”, was charged in federal court for running a “sprawling black-market bazaar” where anonymous users conducted transactions with Bitcoins, a software that’s designed to be untraceable. The FBI said it has also seized approximately US$3.6 million worth of bitcoins. The price for one unit dropped yesterday to about US$85 from US$127 due to speculation that demand for the digital money will shrink.

Oil giant BP Plc’s attempts to limit claims over the 2010 Gulf of Mexico oil spill have been given a boost after a U.S. appeals court halted some payments. A federal appeals court has asked the lower district court to take a fresh look at which claims are legitimate. The higher court said that if businesses that did not suffer losses from the spill were compensated, the whole settlement could be invalid. It is a key win for BP which had said the payment formula was too generous. BP had expected payouts to total US$7.8 billion, but said that the amount was being driven higher by excessive fees and bogus claims.

Europe’s recovery edges South in Sept But Britain and Germany still lead the way

return to growth last month for French and Italian companies buttressed a tentative economic recovery in Europe, where Britain and Germany continued to lead the way, surveys showed yesterday. Order books in eurozone businesses filled at a faster rate and job cuts slowed to a trickle in September, according to purchasing managers indexes (PMIs) that survey thousands of companies worldwide. In Italy, the strength of the services PMI surpassed all expectations from economists polled by Reuters, suggesting the eurozone’s thirdbiggest economy was on course to pull out of its longest recession in six decades. British businesses ranging from huge financial corporations to hairdressers again reported solid growth, rounding off the strongest quarter in more than 16 years. Overall, the surveys painted a slightly brighter picture than the “weak, fragile and uneven” recovery alluded to on Wednesday by European Central Bank president Mario Draghi. The main disappointment in Europe was Spain, where a rise in business activity during August – the first in more than two years – proved short-lived as firms slipped back into decline.

Retail sales in the eurozone rose more than expected in August

Still, the data pointed to a broadening recovery across the eurozone, said Nick Matthews, senior European economist at Nomura Holdings Inc, though that had yet to be borne out in official data. “The hard data so far for the third quarter has perhaps a bit more on the disappointing side – in particular industrial production ...was very weak in July,” said Mr Matthews. “We expect this to bounce back, but this suggests we could see a slightly slower pace of growth in the third quarter relative to the second quarter.” PMI compiler Markit Economics said its surveys suggested the eurozone economy grew around 0.2 percent

from July through September, a touch below the 0.3 percent registered in the second quarter. Nomura’s Mr Matthews said they suggested a slightly stronger rate of growth for the final months of the year.

Not solid ground Markit’s Eurozone Services PMI rose to 52.2 in September from August’s 50.7, little changed from a preliminary reading of 52.1. Readings above 50 signify growth. Businesses in Germany reported rising new orders and staffing levels, while France’s private sector grew

for the first time in a year and a half. The upbeat mood was further bolstered by news that eurozone retail sales jumped 0.7 percent in August, month-on-month, hitting the top end of forecasts. Chris Williamson, Markit’s chief economist, said the surveys pointed to slightly stronger growth towards the end of this year, even if the region was not out of the woods. “The political instability that has reared up in Italy is a reminder that there remains plenty of scope for recoveries to be derailed,” said Mr Williamson. The Italian services PMI topped the 50 growth threshold last month for the first time since May 2011, which could signal a timid recovery towards the end of the year. Italian Prime Minister Enrico Letta won a confidence vote in parliament on Wednesday after Silvio Berlusconi, facing revolt in his own party, backtracked on threats to bring down the government. British business again showed the fastest pace of growth among Europe’s major economies last month. Although the Markit/CIPS UK Services PMI eased to 60.3 from August’s near seven-year high of 60.5, it still showed strong momentum in British business, helped by a recovery in the housing market. Reuters

White House talks fail over shutdown Obama tells congressional leaders he won’t negotiate on shutdown, debt

resident Barack Obama stressed to congressional leaders that he will not negotiate with Republicans over a government shutdown or raising the U.S. debt limit, the White House said. After more than an hour of talks at the White House that did not lead to a breakthrough, the White House issued a statement saying that Mr Obama remains hopeful that “common sense will prevail” in the budget standoff. “The president made clear to the leaders that he is not going to negotiate over the need for Congress to act to reopen the government or to raise the debt limit to pay the bills

Congress has already incurred,” the White House said. Mr Obama held talks in the Oval Office with the top U.S. Republican, House of Representatives Speaker John Boehner, the Senate Republican leader Mitch McConnell, the top Democrat in Congress, Senate Majority Leader Harry Reid, and House Democratic leader Nancy Pelosi. It was their first face-to-face talks since a government shutdown began on Tuesday. Leaders of the Republicancontrolled House of Representatives and the Democratic-led Senate offered token concessions that were quickly dismissed by the other side.

Mr Obama, meanwhile, scaled back a long-planned trip to Asia. House Republicans have been demanding that Mr Obama agree to cut funding or delay implementation of his signature healthcare law in exchange for their agreement to approve spending measures to reopen the government. In addition to the government shutdown, the United States faces a historic debt default on October 17 unless Congress agrees to raise the U.S. borrowing limit. “The House could act today to reopen the government and stop the harm this shutdown is causing to the economy and families across

the country,” the White House said. “The president remains hopeful that common sense will prevail, and that Congress will not only do its job to reopen the government, but also act to pay the bills it has racked up and spare the nation from a devastating default,” it said. The shutdown has raised questions about Washington’s ability to carry out its most essential duties. Though it would do relatively little damage to the world’s largest economy in the short term, global markets could be roiled if Congress also fails to raise the debt limit before borrowing authority runs out in coming weeks. Reuters