Macau Business Daily, October 14, 2013 by Business Daily

Deputy editor-in-chief Editor-in-chief Tiago Azevedo Number 391 Monday October 14, 2013 Year II

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Vitor Quintã

MOP 6.00

Govt denies role in child sex tourism

April 19, 2013

Wynn Macau raises funds in the U.S. Page 4

Operators turn down electric buses

Chief Exec heeds dealers’ demands T he government has already begun studying the possibility of creating a law that would ban non-residents from working as casino dealers – a key demand of a street demonstration last week. Chief Executive Fernando Chui Sai On said he’s also pledged to offer additional training opportunities to dealers and encourage casino operators to offer from next year more promotion opportunities to locals. Those two measures will

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be included in his policy address next month. But the organisers of last week’s protest – that got more than 3,000 people out on the streets – are not satisfied. Macau’s dealers might strike if the government did not meet their demands before the elections for chief executive next year, warns Lei Kuok Keong of labour group Forefront of Macau Gaming.

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Record surplus makes La Scala flat buyers mockery of budget out of land appeal

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The government took just three quarters of 2013 to acquire a surplus – net of operational and capital spending – equal to the entire public surplus last year, official data show. But an economist says it makes sense for the administration to be conservative in its forecasting, given that most of its revenue from tax on the VIP gaming, where demand can fluctuate considerably.

The Court of Second Instance has closed the door on buyers of La Scala flats suing the government for taking back the land where the high-end residential project was being built. But the judges are yet to make a final ruling on the right to title appeal filed by the corruption-hit developer of the land located next to the airport.

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Interview

Macau’s lure will grow amid Asian casino boom The opening of new casinos in several Asian countries could actually bring new visitors to Macau, rather than diverting existing players away, Las Vegas-based gaming consultant Dean Macomber told Business Daily. Players could become curious about sampling Macau’s venues after trying casinos nearer to home, said the president of Macomber International Inc. Ventures announced recently include a resort at Primorye in the Russian Far East. Pages 6 & 7

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TENCENT HOLDINGS

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CNOOC LTD

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CHINA RES ENTERP

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SANDS CHINA LTD

1.78

PING AN INSURA-H

1.75

BELLE INTERNATIO

CITIC PACIFIC

CHINA UNICOM HON

-0.32

CHINA MERCHANT

-0.34

COSCO PAC LTD

-1.02

Source: Bloomberg

I SSN 2226-8294

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October 14, 2013

Macau

Chui bends to pacify panicked croupiers Chief Executive pledges better training for early school-leavers, more promotions, as govt studies law banning migrant dealers Tony Lai tony.lai@macaubusinessdaily.com

he government will offer additional training opportunities to croupiers and encourage casino operators to offer more promotions from next year, Chief Executive Fernando Chui Sai On said on Friday. The pledges came one day after thousands of people took to the streets to protest the possibility of non-residents working as casino dealers. It was Macau’s biggest protest in recent years. “I want to reiterate that the government policy [on casino croupiers] has not changed,” said Mr Chui. “I have listened to their [the protestors’] wishes and also received their letter.” Police estimated that more than 3,000 people joined the rally. The organiser, Forefront of Macau Gaming, claimed about 10,000 people took part. In his response, Mr Chui said the government wanted to ensure that casino operators made promoting residents a priority and that croupiers were encouraged to undertake training. The policy address for next year, to be delivered next month, would include measures to reach those goals, beginning next year. Mr Chui did not offer details on the extent of the government’s support or what it expected from the casino companies. He said one aim would be to offer casino dealers who did not finish high school a chance to resume their studies. “For those who have finished non-tertiary education, [we are mulling] how to let them have professional training… and be promoted to management positions,” said Mr Chui. He repeated the government had already begun studying if it could create a law that would ban migrants working as casino dealers. The law was a key demand of last week’s protest. There is currently no law preventing imported labour from working at the city’s gaming tables. The government has said the Human Resources Office would not approve work permits for outside staff earmarked to work as dealers.

Strike threat It was the third time in two weeks that Mr Chui had reiterated that only

The government is studying if it can legally ban migrants from being croupiers, said Chui Sai On

Macau residents would be employed as casino dealers as long as he was in office. Secretary for Economy and Finance Francis Tam Pak Yuen has also repeated the government’s pledge. The government’s pledge has not appeased everyone. The first protest on October 1 drew 1,400 people. Forefront of Macau Gaming president Ieong Man Teng said the high turnout at last week’s rally showed people had “little confidence in the government”. The lobby group’s vice-president, Lei Kuok Keong, said dealers might strike if the government did not met their demands before the elections for the chief executive election next year. Mr Chui did not say when the government might be able to decide if a law to ban non-resident dealers could go ahead. It would take time

KEY POINTS Renewed priority on promoting resident staff Additional studies for high-school leavers Dealers’ lobby group threatens strike action

to study the possibility and create any legislation. Macau Polytechnic Institute public administration associate

professor Li Lue said last month’s Legislative Assembly election results might have affected residents’ confidence in the government. The new assembly will have more members with ties to the business community and casinos than the outgoing group. The new assembly is scheduled to sit for the first time on Wednesday. “But I don’t think the newly‑elected legislators will allow for any opening for non-residents as many of them will want to run for re-election in four years,” Mr Li told Business Daily. The academic said the protests would not snowball into a real challenge to the government. Protests would calm down “after some time” and realise the government was not attempting to open the door to more migrants, he said.

Government rejects complicity in child sex tourism T he government has rejected allegations that public officials’ complicity is making life easier for child traffickers linked to sexual tourism. The Human Trafficking Deterrent Measures Concern Committee told media there is no evidence of involvement or complicity of officials in human trafficking. The United Nations’ Committee on the Rights of the Child said in a report released last month corrup-

tion was a factor in “the increased prevalence of child trafficking and exploitation” here. The Macau anti-trafficking body said it was surprised by the report, based on information gathered among non-governmental organisations. Those organisations have never filed any complaint over corruption tied to human trafficking, the committee stressed. The city helped 34 underage

victims of trafficking for sexual exploitation since 2008, the committee revealed. “It seems this problem is linked to the casinos,” said United Nations committee president Kirsten Sandberg, quoted by the Portuguese news agency Lusa. No human trafficking case was detected in gaming venues, the Macau body said in its statement. The number of human trafficking cases reported is growing

because the security forces have become better at tackling it, the committee added. Macau “is not immune to human trafficking, which is a worldwide scourge” and its position as a tourism destination only makes it more attractive, the committee said. The agency said all cases of human trafficking reported here, including those involving minors, were linked to sexual exploitation. V.Q.

October 2013 April 19,14, 2013

Macau

Surplus swells to twice annual forecast With surplus over MOP77.4 billion, economist says fickle VIP gaming revenue forces conservative estimates

michael.grimes@macaubusinessdaily.com

tony.lai@macaubusinessdaily.com

“...there are few boroughs where the common sort of people do not think they have as much right to sell themselves and their votes, as they have to sell their corn and their cattle.”

Macau Association of Economic Sciences vice-president Jack Chang Chak Io expressed his sympathy for the government’s inability to create accurate forecasts. “There are a lot of unforeseeable factors [impacting] the gaming market, in particular the VIP sector which accounts for over two-thirds” of the gaming revenue, he said. “It is easier to predict the trend in visitors’ arrivals but VIP gamblers are not normal visitors who are prone to the influence of many more outside forces.” “I think it makes sense for the government to adopt a more conservative stance in preparing the budget, given there are so many uncertainties.”The government is also taking in far more from sales of capital assets than last year, including returns on financial investments and sales of public property. The government booked 3.54 billion patacas up to September 30, compared with just 56.2 million patacas in the same period last year. This class of revenue is about 27 percent higher than the

government’s annual forecast for sales of capital assets. Government expenditure has also slowed this year, reaching 35.69 billion patacas to the end of last month, 10.3 percent higher than the same period last year. It has spent far less than half of the 74.63 billion patacas it had budgeted for the whole year. The government has so far spent 2.06 billion patacas on public investment projects, or 11.5 percent of the ambitious budget for the entire year. The administration said it would spend 17.91 billion patacas on works for the Hong Kong-Zhuhai-Macau Bridge and the Light Rapid Transit elevated railway. The construction of the railway depot and transportation hub in Taipa has been held up by delays after the government and contractor fo u g h t p u b l i cl y a b o u t b u d g e t overruns in August. Current spending rose by nearly one-third in year-on-year terms to 33 billion patacas in the first nine months. This category includes the pay and benefits for civil servants.

The government is spending more on civil servants after approving May’s pay rise

La Scala flat buyer out of court case Vítor Quintã

vitorquinta@macaubusinessdaily.com

he Macau courts have closed the door on buyers of La Scala flats suing the government for taking back the land where the high‑end residential project was to be built. The Court of Second Instance said on Friday it had rejected an appeal against the government’s decision from Lei Hio In, who bought a unit in La Scala. The judges agreed with the lawyer representing Chief Executive Fernando Chui Sai On, who argued that the buyer “had no direct, personal or legitimate interest” in

People are people Michael Grimes

Tony Lai

t took just three quarters for the government to pocket almost twice the surplus it had forecast for the whole of the year. The Financial Services Bureau said the government had a surplus of 77.41 billion patacas (US$9.69 billion) at the end of last month and had already surpassed last year’s 72.8-billion-pataca record surplus. The tax on gaming revenues has swelled the surplus. Gaming tax revenues accounted for 82 percent of all revenue by the end of last month. Government revenue in the first three quarters of this year was up by one-fifth from the same period last year to 113.11 billion patacas. The revenue from the direct gaming tax was up by 16.3 percent in year-on-year terms to 92.73 billion patacas. This figure is also close to the government’s forecast for the entire year of 94.62 billion patacas. The government pockets 35 percent of takings from gaming directly. It collects another four percent indirectly.

opinion

the outcome of the court case. La Scala developer Chinese Estates Holdings Ltd said in May that its subsidiary and land concessionaire Moon Ocean Ltd had lodged a joint appeal with two purchasers of La Scala flats. It is not known whether the second buyer backtracked before last week’s court session. The judges also rejected Moon Ocean’s request to name the Macau SAR as a party in the appeal. The Public Prosecutions’ Office had argued that, even though the government was a shareholder in

the companies that owned the land before the 2005 tender, it did not have “contrasting and opposing interests” to Moon Ocean and Lei Hio In. The court is yet to make a final decision on Moon Ocean’s appeal. The government declared the 2005 land grant invalid last year after the Court of Final Appeal said Ao Man Long, then secretary for transport and public works, took bribes of HK$20 million (US$2.6 million) from Chinese Estates boss Joseph Lau Luen Hung and another Hong Kong businessman, BMA Investment Ltd chairman Steven Lo Kit Sing.

oes that sound familiar in the context of Macau’s recent election? Well it was written 273 years ago about British electors. Yes, the same Britain that now likes to go around lecturing other people about how to behave. And in January this year construction workers from across Western Europe protested in Brussels – one of the European Union’s three administrative seats. (There’s another parallel with Macau when it comes to allegations of public sector inefficiency). The Brussels demonstrators claimed the EU was allowing thousands to come from Eastern Europe to work on Western European building sites, undercutting the wages of local workers. If these two stories – the buying and selling of votes in 18th century Britain and the modern European protests against foreign workers – teach us anything, it’s that nearly everyone likes something for nothing, and that few are terribly keen on foreigners, especially if they appear to be competing for jobs. Deciding what one is against is however a lot easier than deciding what one is actually for. The latter requires a raising of collective consciousness away from passive clientelism – receiving goods and services for political support – toward active engagement in public policy and the direction of society. It’s not for me as an outsider to lecture Macau permanent residents on what they should or should not do or think. They can parade an effigy of legislator Chan Meng Kam through the streets and declare it emperor should they so choose. But it will in likelihood take time, effort, and possibly some kind of hardship such as an economic downturn, to concentrate people’s minds on what they actively want out of the modern Macau that is currently being raised around them. What does it say about the current relationship between the governors and the governed in Macau when the personal pledge of the city’s Chief Executive is not trusted by some of the residents? That essentially was the message from the Macau Federation of Trade Unions last week when it said it wanted enshrined in statute the present policy of the current CE Fernando Chui Sai On regarding the banning of nonresidents from being casino dealers. Mr Chui – being in essence a politician, however corporate and bland the term ‘chief executive’ may sound – had chosen his words carefully when he repeated his pledge to bar non-locals as dealers “during my term”. Mr Chui will have understood that it is not generally wise to bind your successors to any policy in perpetuity – no matter how popular the policy may be at that particular moment. I do not envy him his task of steering the shipof-state-that-is-not-really-a-state through the choppy waters of China’s national needs on one side and the needs of local people on the other.

Deciding what one is against is a lot easier than deciding what one is actually for

October 14, 2013

Macau Portuguese consul gets Macau Forum position The Portuguese consul-general in Macau, Vítor Sereno, will represent Portugal in the Forum for Economic and Trade Cooperation between China and Portuguese-speaking countries – known as Macau Forum. Mr Sereno has confirmed the appointment, which has not been made public yet. Portugal had been represented by the local delegate of its investment promotion agency during the Macau Forum’s first 10 years. Mr Sereno’s appointment comes just weeks before the city hosts the Macau Forum’s fourth ministerial conference on November 5 and 6. Chinese premier Li Keqiang is expected to preside at the conference.

Wynn Palace construction site, Cotai (Photo: Manuel Cardoso)

Wynn Macau goes direct to U.S. bond market US$600 million raised for ‘working capital’ offers coupon nearly three percent above U.S. Treasuries Michael Grimes

michael.grimes@macaubusinessdaily.com

ynn Macau Ltd has raised US$600 million (4.79 billion patacas) from eight‑year bonds at 5.25 percent interest – a yield 288 basis points over United States Treasury bonds. The Macau casino developer said it would use the money for “working capital requirements and general corporate purposes”. In July Steve Wynn, chairman of the firm and its parent Wynn Resorts Ltd, said Wynn Palace, the

new project on Cotai, would have a maximum price of US$4 billion. The bonds drew sufficient interest from U.S. investors – apparently cheered by the possibility of an end to the stalemate on the U.S. federal debt ceiling – that Wynn Macau didn’t need to extend its offer into market hours in Asia. Wynn Macau’s move into the bond market comes at a time when investors are hungry for capital growth via quality corporate bonds

as an alternative to sovereigns. Business Daily reported last month that Pacific Investment Management Co LLC – one of the world’s largest money managers – says it favours bonds linked to Macau gaming operators as a reliable way of gaining exposure to the growing Chinese consumer market. Prior to the completion of the Wynn Macau bond exercise Fitch Ratings assigned a ‘BB’ issuer default rating to Wynn Macau, and

a ‘BB’ to the notes. The bonds are unsecured and subordinate to other Wynn Macau credit facilities. But Fitch said the fact there were no restrictive conditions attached to them was good news for investors. “There will also be no debt incurrence covenants at Wynn Macau Ltd level, which would allow Wynn Macau Ltd to incur additional debt in the future and dilute the recovery prospects for the note holders,” stated Fitch. The ratings house also referred to the parent Wynn Resorts Ltd’s plans for casino venues in the northeastern U.S. and to the ongoing dispute and litigation between Wynn Resorts and the Japanese pachinko entrepreneur Kazuo Okada, a former shareholder in and director of the parent company. Fitch said: “Wynn may choose to issue additional debt out of Wynn Macau Ltd to possibly fund its U.S. project pipeline, pay any settlements potentially arising from the Okada dispute and/or ramp up shareholder friendly activity at Wynn Resorts Ltd and Wynn Macau Ltd.”

Macau Poker Cup 20 soon January’s edition has HK$8 mln prize pool for Red Dragon main event

okerStars Macau has announced that PokerStars LIVE at the City of Dreams will host the 20th instalment of the Macau Poker Cup in January. The schedule will include an HK$8 million (US$1.03 million) guaranteed prize pool for the Red Dragon main event. The tournament will run from January 10 to 21 at Melco Crown Entertainment Ltd’s City of Dreams resort on Cotai. The buy-in for the Red Dragon event is set at HK$11,000. That,

combined with the size of the guaranteed prize pool, means 800 players will be needed to cover the prize money. In April PokerStars Macau hosted a recordbreaking field of 891 players in the Macau Poker Cup. “After six years and 19 Red Dragon events, the Macau Poker Cup has changed the landscape of poker in Macau and throughout Asia,” said Danny McDonagh, PokerStars director of Live Poker Operations in the Asia-Pacific. “The MPC is Asia’s biggest regional poker series and

MPC 20 is set to shatter all previous records,” he added. Along with the Red Dragon, the January 2014 Macau Poker Cup schedule will feature a new event called the ‘Baby Dragon’. Set to run on the first weekend of the

tournament schedule, the event is a HK$6,000 buy-in and features a HK$1 million guaranteed prize pool. The full Macau Poker Cup January 2014 schedule is available online at www.pokerstarsmacau.com. M.G.

October 14, 2013

Macau

Electric bus trial finds financials don’t tally Heavy congestion, limited range and high set-up costs limit green buses’ worth to city outskirts, says TCM Tony Lai

tony.lai@macaubusinessdaily.com

ublic bus operators will continue to ignore government pressure to switch to electric-powered buses because they say heavy traffic and poor range erases any savings made on fuel costs. A three-month, governmentfunded trial of an electric bus on a route controlled by Sociedade de Transportes Colectivos de Macau SARL ended last month. TCM says it would save money on fuel costs if it made the switch but would lose money in higher maintenance and purchase costs. Compared to a diesel bus, an electric bus is cheaper to run by 392 patacas (US$49) for every 100 km travelled – a saving of about 1,200 patacas a day – TCM maintenance technical director Chiang Cheok Sang told a seminar on electric vehicles held on Friday. Mr Chiang said the savings did not offset higher costs. An electric bus cost 3 million patacas to buy, three times more than a diesel bus

An electric bus costs three times more than a diesel model, says TCM’s Chiang Cheok Sang

and companies had to spend more to employ maintenance staff. The biggest weaknesses for electric buses were the battery and the city’s traffic jams, he said. “The battery can only enable a vehicle to make about 200 kilometres

a day but a bus here has to run slightly over 300 kilometres,” he said. “When the vehicle is stuck in congestion, the electricity is then wasted in air-conditioning.” Mr Chiang said electric-powered buses could not be used in the city

centre’s tight, busy streets, but might be useful on some routes in the city outskirts. Asked if the government should provide financial support for bus companies to buy electric buses, Mr Chiang said: “The government is the boss now”. Since the revamp of the public bus system in 2011, the government has run the system and retains fare revenue, paying a subsidy to the three operators to manage the routes. Mr Chiang said the government and monopoly electricity supplier Companhia de Electricidade de Macau – CEM, SA should do more to promote electric vehicles. The city currently lacked enough electric charging stations, among other infrastructure. There are currently two charging stations in public car parks and another two at CEM facilities. Environmental Protection Bureau deputy director Vai Hoi Ieong told Friday’s seminar the government was in the process of setting up two more stations on the Macau peninsula and Taipa. Meanwhile, Mr Vai defended the decision to award a new 10-year solid waste management contract to existing operator Macau Waste Systems Co Ltd, known as CSR. The new contract has been delayed while the court hears a legal challenge filed by a losing bidder. Mr Vai said the bureau took all factors into consideration during the tender process. The existing contract expires at the end of the month and the bureau would announce a solution that might involve a fourth extension of CSR’s original contract, Mr Vai said.

October 14, 2013 April 19, 2013

Macau

Casino industry growth not zero sum game

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HOSPITALITY Shocked troops Continuing with an analysis of the city’s travel agencies, today we look at staff remuneration. There were almost 200 agencies, employing almost 3,700 people in Macau last year. The average company had about 18 workers but, as with all averages, there were big differences in staff sizes. The big picture over the past six years is one of steady growth, with a setback during the financial crisis. However, the shock of the financial crisis seems to have been absorbed by a reduction in employee compensation. Average salaries fell during the crisis and their recovery has been slow. In 2010, salaries were below their 2007 levels.

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In a phone interview with Business Daily, Las Vegasbased gaming consultant Dean Macomber said that some new Asian casino destinations could actually bring new visitors to Macau, rather than drawing existing Macau customers elsewhere. The president of Macomber International Inc explained that more venues might increase consumer interest in casino gambling. New players might start at a new resort close to home and then become curious about sampling Macau’s venues. Mr Macomber said that could be the case with the proposed new gaming resort near Vladivostok in the Russian Far East. Luciana Leitão

leitao.luciana@macaubusiness.com

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There are distinct differences between the 200 agencies ranked by gross value added, or GVA, a measure of the value of goods and services they produced. Excluding the smallest agencies that generate less than 100,000 patacas (US$12,521) in GVA annually, small companies paid an average monthly salary of between 6,000 patacas and about 7,000 patacas. Salaries at agencies with an annual gross value added between 100,000 patacas and 500,000 patacas have changed little between 2007 and last year. In the three highest categories of GVA, average annual salaries grew by more than three-quarters between 2010 and last year. Salaries paid by the biggest agencies have swayed the average. Compensation at travel agencies with an annual GVA of more than 5 million patacas has traditionally been high and more than doubled in the last two years of this analysis. There may be problems with the reliability of the data for the smallest agencies: average annual salaries were on par with the biggest companies and fell by almost two-thirds during 2008 and 2009.

MOP12,968 Average monthly salary for travel agency employees last year

Macau’s revenues keep increasing, even if at a slower pace than in earlier years. Is the expansion sustainable? Yes, with some conditions. You may have heard about the Pricewaterhouse[Coopers] report that was done in 2011 that forecast worldwide gaming revenue basically by sector and country. Although a lot of people state a lot of opinions about the decrease of the rate of growth, if you take 12.5 percent [in Macau] that seems to be tracking the last 12 months, that’s about US$4.75 billion [37.9 billion patacas] in increase of gaming revenue per year. Back in 2005, Macau generated about US$6 billion in gaming revenue, so that would have been an 80 percent increase. Now, we look at the same increase, and we say it’s only 12.5 percent. It’s not as high as 46 percent [year-on-year] and people start saying that Macau is slowing down. It’s really not slowing down in one sense, its slowing down because of the statistics being divided by annual gaming revenue that is five times what it was only eight years ago. You’ve got other experts saying the market can grow to around US$60 billion, you’ve got a market growing at about 12.5 percent, which is about US$4.75 billion a year, you’ve got the largest country feet away, which is the People’s Republic of China. They have been growing a double-digit growth in recent history, but have slowed – which is almost laughable because the rest of the world would love to have it – to about 7.5 percent to 8 percent. Still, based on the huge size of that economy, if Macau only grew 7.5

percent [annually] that still produces huge increases in revenues, and so far Macau’s gaming revenue [yearon-year expansion] has exceeded the GDP growth of China. Each of the concessionaires and subconcessionaires has projects planned for Cotai. If you lump those together plus the Louis XIV project, it’s probably about US$16 billion in investment over the next three to five years.

The greatest advantage Macau has is the border it shares with Guangdong province

For each billion US dollar of investment, you need about US$640 million in additional annual gaming revenue to provide a 20 percent return on investment. That means for the US$16 billion you need about – at the current rate growth of 12.5 percent – two years to absorb the increased construction. And that’s about how long it is going to take to build properties – three to four years. Even if it [gaming growth] is 7.5 percent – the forecast GDP growth of mainland China, which

dominates the revenue from Macau – then it, would take three years, which is still within the construction cycle. It looks like the individual companies have justification for building. Just as a statistic, if you take the PRC [People’s Republic of China] and you divide all of Macau’s gaming revenues by the population of the PRC, which is 1.3 billion people – let’s just use it as a rough benchmark – that comes out as US$30 per person of all ages. But if you applied [multiplied] the per capita gaming revenue in the U.S. of US$200 per person to the 1.3 billion people in China, it [the total theoretical] revenue turns out to be a huge number of US$250 billion. It is going to take time for China to get to the GDP per capita number that the U.S. is [at], which is US$50,000 GDP per person. China is US$9,000 [GDP per capita]. It has got to grow seven or eight times. Over the next 20 years, you can pretty much make the case that Macau or the gaming revenue from the PRC could easily be over US$100 billion and you can probably make a case for US$150 billion, and that’s using a real crude overly simplistic analysis. There are many properties to open in Cotai, but only starting from 2015. Is this two- to three-year pause in the opening of new casinos a good thing? We should look at it from the multiple stakeholders involved. Let’s take the companies that are there now, because there are no new licences to be issued in the foreseeable future. The private companies are just continuing to do as well as they have been doing,

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October 2013 April 19,14, 2013

Macau probably better, during this kind of suspension period where capacity is not added to any large degree, so there is no reason for the private companies not to be happy with this. The government has already taken more money than they can spend, it is wealthy by most government standards, and is funding infrastructure projects, like the [Hong Kong–Zhuhai–Macau] bridge and the light rail. And probably it is a good thing to pause because some of those [schemes] are taking longer than expected to develop. The government is not desperate for money like some countries, and the people in Macau are fully employed – if you want to work, you can work –, there is no desperation. For things to improve, it would be nice if these properties to come on line [could] accommodate more people and attract more people with varied entertainment and gaming options; that more people would come and spend more, so the health of the economy both in absolute terms as well as in per capita terms would increase.

At some point in time, I think you will trace some of the biggest casino companies back to junket origins

What will be the impact of Cotai’s new developments? If Cotai opens and the market perceives new properties as a better experience for the same price, then the people are going to go to Cotai. On the other hand, that doesn’t leave the rest of Macau defenceless – you have [an] immigration point close there, you have an infrastructure that doesn’t exist on Cotai, you have a history and familiarity with going to casinos there. There’s a little bit more concentration – frankly you can walk from casino to casino –, which sometimes is easier in the peninsula than in Cotai. Are some of the properties ageing? Yes, they are, but that doesn’t mean business will be drawn away. Let’s just say that Macau businesses decide there is a collective benefit to making Macau [peninsula] more

appealing. If you look at the rest of Macau compared to Cotai, that may mean new paint, new carpets, new buildings, new landscaping, new businesses, and it may mean keeping the freshness of the historic part but making it attractive, helping create transportation in and among the peninsula, making it friendly when it’s raining and humid. Considering the slowing of China’ economic growth, should Macau change strategy regarding its casino growth? The greatest advantage Macau has is the border it shares with Guangdong province. You would be foolish to do anything that did not take advantage of that. Should Macau do things that cater to other countries? Mid- to long-term the answer is ‘yes’, but in the shortterm it is certainly wise to focus on the mainland and Hong Kong. Over the longer term…Macau is attractive and could do it [broaden its appeal], and…there is still risk in being too dependent on the mainland. We don’t know how stable PRC policy will be towards Macau. Maybe if you had a 20- to 50-year plan, at the end of it you would probably want Macau to be positioned as an Asian destination and not a PRC destination. Analysts have pointed out Macau’s junket based system for VIP credit has played a major role in driving revenue growth. Some see the continuation of the junket system as a market risk. Should there be changes? The junket system isn’t the root cause [of] why Macau is successful. The root cause is Macau has 1.3 billion people living nearby in an economy that over the last 10 years has just accelerated exponentially. The junket system is merely an extremely clever system that adapted to the requirements to get that potential to Macau, in the sense it opened the pipe [movement of gamblers and money] that otherwise would be very narrowly constrictive. The junkets were able to get exit visas [for players]; they were able to move money from mainland China to Macau; they were able to take away the fear and concern of language and unfamiliar areas and provide a safe landing in Macau. They took advantage of the whole guangxi system, which is based on relationships, and moved it into gaming, both as [a] marketing tool as well as a player development tool. I’d say by the end of this century Chinese citizens will probably be able to move from the PRC [to] anywhere around the world with a great deal more freedom than now. But to the

extent you can travel, take money [out] and go to new destinations, learn languages and so on, the need for the junkets will [probably] diminish. It will never evaporate, because they [junkets] issue credit and they do a lot of other wonderful things for the players, so it’s not going to evaporate. But on the other side pushing against the junkets are the casino owners that would love nothing more than to pay the money that is now given to the junkets and do two things with it: give those dollars to the customers and keep the additional money as profit. There could also be a time, whether 10, 20, 50 years [from now], where junket and VIP owners start owning casinos and they themselves become publicly traded companies and they may be part of the future of the gaming industry. They will be more visible players in the gaming industry. At some point in time, I think you will trace some of the biggest casino companies back to junket origins.

The junket system is merely an extremely clever system…to get that potential [revenue] to Macau

Many countries in Asia are moving towards casinos. Is this a good strategy? I don’t think you can stop it. Gaming is a relatively new industry and it needs [state] permission to operate. If the government and the people of that government don’t want casino gaming and they don’t pass legislation to allow gaming, then it doesn’t exist. But gaming does exist in multiple Asian countries and is being considered by other Asian countries, so probably government permission will not be an overwhelming constraint over time. In current days, if you bring a casino to an adult population, some percentage will enjoy gambling. We know Asians tend to have the highest percentage of interest in gaming than any group and so one can argue there is this blatant demand throughout Asia and it is just now a combination of will and permission, infrastructure, exit visas, safety, ability to get regulatory

environment. But as those things combine it seems Asia is well [very] under supplied and [has] got great growth potential – unless all of a sudden the growth in Asia stops or is reversed, which is unimaginable. It [industry expansion] seems inevitable to me. Do you see any real competitors in Asia to Macau? We know by looking at player databases that distance matters. No matter what you do, if you double the distance from [a] casino site the demand diminishes by one quarter. If you triple the distance, it reduces by one ninth. It’s a reverse power curve. Macau would have a difficulty in drawing people beyond a certain travel time and then you add travel cost, convenience, weather and exit visas. Macau has a finite market. It doesn’t really have to worry about gaming being passed in Mongolia, but it does need to worry about a 200-mile range. What we found is that if you have a compelling gaming destination and gaming increases in destinations away from you, those new venues will develop new casino players that you [the incumbent] would not be able to. And if you have a compelling destination, they [players] will always want to make at least one trip – maybe two or three or four – to the compelling destination, depending upon what are the reasons. This helped Las Vegas, because it made [numbers of] new casino players around the U.S., and Las Vegas grow quicker. Macau, given its size and its growth, will probably benefit the same way. That’s an upside. Also, it [market appeal] allows Macau to eventually become more diverse over the next 20-50 years. In the meantime, Vladivostok is now a likelihood as a casino destination. Could it be a real competitor to Macau? Only in the minor sense. Visitors from Beijing and up that area are less than one percent [of Macau’s visitors]. That’s the distance factor taking hold. It’s just too far to commute or to travel. My guess is the Beijing district plus the three provinces north or NorthEast of Beijing will be the primary market for Vladivostok. Does that mean visitors from Harbin or Beijing will not visit Macau? No, they will probably come, they will take one or two trips, but they will probably take six, seven trips to Vladivostok, just because the travel time is less and it’s more convenient. It’s one of those cases that will probably increase the number of Chinese players from the PRC and those players will eventually want to make a trip to Macau.

Over the next 20 years…Macau or the gaming revenue from the PRC could easily be over US$100 bln

October 14, 2013 April 19, 2013

Greater China Regulator to shut 2,000 coal mines China says it plans to shut about 2,000 small coal mines by the end of 2015 to improve safety in a sector notorious for its deadly accidents. Coal mines with an annual production capacity of less than 90,000 tons, as well as those that do not meet safety standards, would be asked to leave the business, the government said in a statement. The government said it would offer financial incentives and encourage big miners to take over smaller peers.

Chinese-led group bids for German KHD A Chinese-led consortium has offered to buy KHD Humboldt Wedag International AG in a deal valuing the German cement plant services firm at about US$433 million. State-owned Chinese aerospace and defence company AVIC International said it would, together with Singaporebased takeover lawyer Yap Lian Seng, bid 6.45 euros a share for KHD, a premium of nearly 27 percent over the stock’s closing price on Thursday.

BMW eyes record sales, recalls cars The mainland’s consumer quality watchdog said in a statement BMW AG would recall 25,254 cars in China, the world’s biggest automobile market, from February 17 next year due to a faulty power brake system. The plan to recall the cars came after BMW said its China sales rose more than 20 percent in the first nine months of this year. “The stable growth ... laid a solid foundation for achieving another sales record for the year of 2013,” Karsten Engel, chief executive of BMW Group China said.

Volkswagen sales up 18pct in Jan-Sept Volkswagen AG and its China joint ventures sold 2.36 million vehicles in mainland China, Hong Kong and Macau during the first nine months of the year, up 18 percent from a year earlier, the German automaker said in a statement. Volkswagen’s growth outpaced China’s passenger car market, which grew 16.4 percent during the period.

Developer takes 70pct in NY’s Atlantic Yards Chinese state-owned property developer Greenland Holdings Group signed a preliminary deal to take a majority stake in Brooklyn’s Atlantic Yards, a 22-acre residential and commercial project being developed by a unit of Forest City Enterprises. Greenland will buy a 70 percent stake from Forest City Ratner Companies, which began the project and would continue to manage the development. The purchase price was not disclosed.

Overseas shipments dropped 0.3 percent from a year earlier

September export growth in surprise slide Signals constraints from global demand

hina’s export growth fizzled in September to post a surprise fall as sales to Southeast Asia tumbled, data showed, a disappointing break to a recent run of indicators that had signalled its economy gaining strength. China’s exports dropped 0.3 percent in September from a year earlier, the Customs Administration said, sharply confounding market expectations for a rise of 6 percent, and marking the worst performance in three months. Imports fared better, rising 7.4 percent in September from a year ago, better than forecasts for a 7 percent increase, shrinking China’s monthly trade surplus to US$15.2 billion . Analysts said weak exports underscored worries about flagging global demand, which may crumble further in coming months – especially in emerging markets – when tighter U.S. monetary policy pushes investors away from developing economies. Indeed, the data showed Chinese exports to Southeast Asia, China’s fastest-growing export market in the past year, dived to a 17-month low in September. Capital outflows from the region on bets that the U.S. central bank will cut its bond purchases had hit demand, said Louis Kuijs, chief China economist at Royal Bank of Scotland Plc in Hong Kong. “Looking ahead, export data may be quite weak in the coming months,” Mr Kuijs said, adding that financial turmoil in several emerging markets had dragged on global demand. The dismal exports performance comes after the world’s No. 2 economy showed encouraging signs

of stabilisation, having fought a slowdown that lasted in 12 of 14 quarters. Trade, factory production and the services sector all picked up in the past two months.

Strong yuan Attention now turns to China’s third-quarter gross domestic product data and other figures for September due this week. The median forecast of 21 economists in a Reuters poll showed economic growth is expected to quicken to 7.8 percent in the third quarter from a year ago, up from 7.5 percent in the previous three months. “Developed economies have shown signs of recovery but they are still unstable. The global economic situation is still complicated,” Zheng Yuesheng, a spokesman for the customs office, told a media briefing on Saturday. Albeit patchy, the rebound in the global economy helped lift China’s total trade growth to 6 percent in the third quarter, from 4.3 percent the previous three months, Mr Zheng said. A breakdown of the data showed exports to Europe, the secondbiggest buyer of Chinese goods after the United States, South Korea, Taiwan, and Australia all fell last month. Shipments to Taiwan struck a 17-month low while those to Australia posted their worst growth in three months. Japan was the lone bright spot, registering growth for Chinese exporters for the first time in eight months. Sales to the United States cooled, even though the monthly

value of exports were at their highest in over a year. Liu Li-Gang and Zhou Hao, economists at ANZ Bank, said China’s sliding export sales were also a result of a rising yuan. They said activity was further hurt by the Mid-Autumn festival, which fell in the middle of September this year, reducing the number of working days in the month compared with 2012. “The strong renminbi has eroded China’s export competitiveness,” ANZ Bank said in a note. It said there were risks that China’s economic growth may miss market forecasts this year, but predicted 2013 growth would hit 7.6 percent. In the face of China’s unsteady economic recovery, Beijing has repeatedly expressed confidence that the country can still achieve its 2013 growth target of 7.5 percent. Central Bank Deputy Governor Yi Gang was quoted as saying last week in Washington that China’s annual economic growth this year could hit about 7.6 percent. Analaysts have long warned that a recovery in China’s economy may be fragile and brief, especially if Chinese leaders stick to plans for financial reforms, including curbing extravagant investment, which would hurt growth in the near term. “Despite the subdued export outlook, we expect the government to maintain its current policy stance,” said Mr Kuijs from RBS. “We expect it to hold on to the firmer monetary stance that it is trying to pursue in order to rein in overall credit growth.” Reuters

Regulator to ease rules on banks’ liquidity ratios C hina’s banking regulator p l a n s to s l i g h tl y l o o s en some requirements on lenders’ liquidity levels as it looks to reflect new changes in the Basel III guidelines, it said in a statement. The China Banking Regulatory Commission said the deadline for banks to meet the required minimum liquidity coverage ratio (LCR) would be extended to the end of 2018 from 2013. Banks could first meet a more lenient LCR level of 60 percent by

the end of 2014 and then make equal rises of 10 percent each year within the grace period between 2014 to 2018. The liquidity coverage ratio is a regulatory barometer to help gauge banks’ short-term resilience to highstress scenarios, and is part of the set of reforms introduced by Basel III to help deliver a more stable and healthy banking system. Under the draft rules, the regulator will also allow banks to appropriately lower LCR ratios under some extreme scenarios to cushion

any possible negative impact on the entire financial system. The draft rules also scrap an earlier regulation on net stable funding ratios, according to the statement published on the CBRC’s website. The CBRC said it is seeking public opinion on the draft regulations. It had earlier issued a new set of rules governing banks’ capital adequacy ratios as part of China’s efforts to implement Basel III guidelines. Reuters

October 2013 April 19,14, 2013

Greater China

China dashes Thai hopes of cutting rice stockpile Chinese state-owned company denies signing contract

eijing threw cold water on Thailand’s claims of selling rice to cut its huge stocks, saying it will buy one million tonnes but over the next five years and making no mention of government deals. The Thai government is under enormous pressure to shift record stockpiles of rice built up in a populist programme to support farmers. It has announced a series of sales to numerous countries, many of which deny taking Thai rice. Chinese premier Li Keqiang said purchases over the next five years will be from private firms, making no mention of 1.2 million tonnes that had been flagged by the Thai government last month as sold in a government-to-government deal. His comments came in an article published by Thai media, according to the Chinese central government website which published the article in full. “Thailand is famous for rice production among other farm products and China is willing to support domestic firms to import 1 million tonnes of Thai rice in five years, in addition to other agricultural products,” Mr Li wrote in the article.

The scheme has cost Thailand its title as the world’s biggest rice exporter

Thailand’s controversial intervention scheme, in operation since October 2011, buys rice from farmers at prices way above the market level. This has made the country’s rice exports uncompetitive and led to a build-up of government stockpiles. Opponents of the scheme say it is riddled with corruption, and Moody’s rating agency has warned about the damage it has done to the state budget. Thailand now sits on rice

Britain to sign Foxconn admits nuclear plant labour violation deal with China at factory

ritish finance minister George Osborne will sign a deal in China next week allowing a Chinese state-run nuclear power company to help build a new plant in Britain, the Financial Times reported on Saturday. The paper, citing unnamed sources familiar with the matter, said Mr Osborne would sign a memorandum of understanding to back the Chinese General Nuclear Power Group (CGNPG) entering a deal with France’s EDF for a planned new nuclear plant at Hinkley Point in southwest England. The deal would also see Britain back plans for CGNPG to build and help operate a reactor in Britain, while also giving its support to Chinese nuclear technology receiving approval from British regulators, according to the report. The agreement would also involve CGNPG’s rival state-run nuclear company, China National Nuclear Corp, sources told the paper. However, the FT said allowing Chinese firms to play such a prominent role in Britain’s nuclear programme would raise security and safety concerns. On Thursday, EDF and the British government said talks over financial terms for the new plant at Hinkley, which would be Britain’s first new nuclear plant for decades, were continuing.

oxconn, the world’s biggest contract electronics maker, has admitted student interns worked shifts at a factory in China that were in violation of its company policies. The firm, which makes products for some the world’s biggest brands, has been under scrutiny for labour practices. It had admitted to hiring underage interns at the same unit last year. Foxconn said actions had been taken to bring the factory “into full compliance with our code and policies”. “There have been a few instances where our policies pertaining to overtime and night shift work were not enforced,” the company said in a statement. The manufacturing giant is owned by Taiwanese group Hon Hai Precision Industry Co Ltd and employs about 800,000 workers around the globe. Foxconn, while not a household name in itself for many consumers, is used by most of the big technology giants around the world, including Apple Inc, Sony Corp and Microsoft Corp. It first came under scrutiny for its labour practices when 13 employees committed suicide at its Chinese plants in 2010. The incidents raised concerns over working conditions at its units in China and drew attention to growing labour strikes. For its part, Foxconn responded by raising wages, shortening working hours and employing counsellors on site.

Reuters

AFP

stockpiles of 16 million tonnes, more than double last year’s exports and around 40 percent of the annual global trade of 38 million tonnes.

Ghost deals Thai Commerce Minister Niwatthamrong Bunsongphaisan has said government’s stocks will fall to 10 million tonnes by the end of the year after 5 million tonnes has been shipped out.

But the Chinese state-owned agrifirm named by Mr Niwatthamrong to have bought 1.2 million tonnes of Thai rice has denied signing any contract. “We have never imported Thai rice and we only source rice locally,” said an official with the Heilongjiang Beidahuang Rice Industry Group Co Ltd. Indonesia and the Philippines, the other importers mentioned by Mr Niwatthamrong as buyers, also said no such business has taken place. “We have bought a total of 205,000 tonnes this year, all from Vietnam,” said Rex Estoperez, spokesman of the Philippines’ National Food Authority. In Jakarta, Sutarto Alimoeso, chief executive of state procurement body Bulog, said there was no deal with Thailand. Thailand’s claims of selling rice and denials from the purported buyers mirror the situation last year when Boonsong Teriyapirom, the country’s previous commerce minister, made similar statements. Mr Boonsong had said Thailand sold 7.3 million tonnes of rice but it was promptly denied by buyers listed by him. China’s state-owned trading house, COFCO Co Ltd, signed a memorandum of understanding with Thai private firms on Friday. “The deals would be done later case-by-case between COFCO and Thai firms ... at market prices,” Cookiat Ophaswongse, a honorary president of the Thai Rice Exporters Association, told Reuters. Reuters

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Greater China

ZTE expects return to profit this year Seeks global top three handset company by 2016

TE Corp, the third-largest smartphone vendor in China, plans to be in world’s top three handset companies in three years as it increases investment in products, branding and distribution channels, executive vice president He Shiyou said. ZTE, which became one of the world’s top 10 smartphone vendors by selling handsets for less than US$100, is looking to costlier devices for sales growth. The company plans to get 60 percent of total income from mid-and high-end phones, priced at more than 1,500 yuan (US$245), within three years, Mr He said in an interview in Taipei yesterday. In its China home base, the company is set to benefit as the introduction of fourth-generation wireless service in the world’s biggest smartphone market lifts sales of top-end handsets. In the U.S., ZTE this month became a sponsor of basketball’s Houston Rockets to boost the Chinese business’s profile as it sells two new high-end devices there. “The Rockets partnership is expected to raise ZTE’s U.S. and global brand awareness,” Mr He said ahead of a media event scheduled to coincide with a Taipei exhibition game between the Rockets and Indiana Pacers yesterday. “The U.S. market is top priority and expected to be biggest market for

ZTE targets 30 percent growth in global handset sales next year

ZTE cellphones in two years.” Sixty-five percent of ZTE’s cellphone revenue comes from overseas markets, according to Mr He. The Shenzhen-based company targets 30 percent growth in global handset sales and shipments next year, with the U.S. outperforming, Mr He said.

ZTE ranks as the fourth-largest smartphone manufacturer in the U.S., he added. China Mobile Ltd, the world’s largest phone company by users, is conducting a trial of 4G service this year that will reach 100 cities covering a population of 500 million people, the carrier said in February. Licences for

commercial 4G service may be issued by the end of this year, the Beijingbased company said in March. The start of 4G service will boost smartphone shipments in China 25 percent to 450 million devices next year, from 360 million this year, International Data Corp. forecast last month. China smartphone shipments next year will include 120 million 4G units, according to IDC. ZTE last month said its Grand Memo handset was approved by the Ministry of Industry and Information Technology to run on 4G, the first to receive such regulatory approval in China. Fourth-generation will account for 20 percent of ZTE’s global smartphone sales this year, growing to as much as 40 percent in 2014, Mr He said. In China, 70 percent of cellphones will still use 3G in 2014 as it takes time to develop the service, he said. ZTE forecasts a return to profit in the third quarter, compared with a loss of 1.95 billion yuan a year earlier, as it is on track to sell 45 million to 50 million smartphones this year, Mr He said. In the U.S. market, handset revenue will climb to US$1.6 billion this year from US$1 billion in 2012, the company said last month. ZTE will release the Grand S and Nubia smartphones in the U.S. this month priced at about US$450. Bloomberg News

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October 2013 April 19,14, 2013

Asia

South Korea shut more nuclear reactors over fake certificates

South Korea to scale back nuclear reliance Government promises tighter regulation following scandal Heesu Lee

outh Korea intends to scale back plans to increase the country’s reliance on nuclear energy amid growing public opposition to atomic power after the Fukushima disaster and a domestic scandal over faked safety documents. Nuclear energy should account for between 22 percent and 29 percent of power generation capacity by 2035, compared with a 41 percent goal introduced in the previous longterm plan in 2008, South Korea’s energy ministry said yesterday, citing the findings of a working group of academics and state officials. Reducing the proportion of energy coming from nuclear power

will force South Korea, which imports almost all of its energy, to increase use of other fuel sources to cope with surging demand. Yesterday’s proposal also illustrates the extent to which public opinion has shifted from a technology that’s been a mainstay of the nation’s energy policy since the first reactor was built in Kori, southeast of Seoul, in 1978. “The implementation of energy policy doesn’t just involve the government now, it’s become an increasingly important and extremely sensitive issue for each and every citizen,” Kim Chang-seob, head of the energy ministry’s 60-member

policy panel, said at a briefing. The government earlier this week promised tighter regulation over the nuclear industry after indicting 100 officials on corruption and bribery charges, following an investigation into the use of components with faked quality control certificates. The scandal cost Kim Kyun-seop his job as head of state-run Korea Hydro & Nuclear Power Co, operator of the country’s reactors. The probe found 277 faked certificates for parts used in 20 operating reactors as well as 2,010 false documents at eight plants that are offline or under construction, according to the government.

“Almost all” of the components have been replaced.Surveys show nuclear power is becoming increasingly unpopular in Korea. Sixty-three percent of respondents to a March survey by Hangil Research said they consider domestic reactors unsafe. That compared with 54 percent in a year ago poll by the non-profit Korean Federation for Environmental Movement. “We should minimise social conflicts regarding atomic energy’s role,” the panel said. Growing support for South Korea’s anti-nuclear lobby has deepened the dilemma facing President Park Geun-hye’s government, with power demand expected to surge almost 60 percent by 2027. In July, Ms Park called for tighter government regulation and monitoring of the nuclear industry. The government wants to resume operations at the shutdown reactors by the end of November, the Chosun Ilbo newspaper reported on October 1, citing Energy Minister Yoon Sang Jick. The energy ministry’s longterm plan will be finalised this year pending public feedback and cabinet approval. Nuclear energy accounted for 26.4 percent of power generation capacity as of the end of 2012, according to the energy ministry. The plan maintains the government’s target for renewable energy at 11 percent of supply, according to the statement. The contribution of coal and natural gas would be decided later depending on a plan for greenhouse gas emissions. Ms Park’s predecessor Lee Myung-bak introduced a target, which remains in effect, to reduce greenhouse gas emissions by 30 percent by 2020. South Korea’s carbon emissions rose 3.4 percent to 610 million tons in 2011, according to a report by the European Commission’s Joint Research Centre last year. The draft also calls for changes to taxes on fuel as the government seeks a shift toward managing demand for energy from a system that focuses on supply, according to yesterday’s statement. The working group proposed taxing soft coal to help curb power demand, while reducing duties on liquefied natural gas and heating oil. Bloomberg News

Analysts scrap record Sensex forecasts As rupee depreciation raises cost of capital

ndia’s equity strategists are abandoning predictions for a record high in the S&P BSE Sensex Index as rising interest rates curb earnings growth. The benchmark stock gauge will slip 5.5 percent to 19,409 by year-end, according to the average of 11 estimates in a Bloomberg News survey. Just three months ago, forecasters said the Sensex would climb to an all-time high of 21,150. The measure has rallied 15 percent from this year’s low on August 21, versus a 11 percent gain in the MSCI Emerging Markets Index. BNP Paribas Securities (Asia) Ltd, Macquarie Capital Securities (India) Pvt and

Ambit Capital Pvt cut their Sensex targets as the Reserve Bank of India unexpectedly increased its benchmark interest rate to stem a record decline in the rupee and curb consumer prices. “What we had not anticipated was the extent and pace of rupee depreciation, which has not only raised the cost of capital but also portends sharper earnings cuts than we had foreseen,” Manishi Raychaudhuri, the head of Indian equity research at BNP, said. He cut his Sensex target to 17,000 from 21,300 on September 4. Some of this year’s best-performing stocks in the Sensex have climbed to record valuations. Sun

Pharmaceutical Industries Ltd, India’s largest drugmaker by market value, surged 70 percent to 27 times estimated profit for the next 12 months, according to data compiled by Bloomberg. Hindustan Unilever Ltd, a Mumbaibased maker of consumer products, is valued at 35 times after a 15 percent gain. The Sensex is the secondmost expensive benchmark equity gauge among the four-largest emerging markets, trading at 14 times estimated earnings. That compares with 19 for Brazil’s Ibovespa, 8.8 for China’s Shanghai Composite Index and 4.5 for the Micex Index in Russia, data compiled by Bloomberg show.

India’s Sensex has rallied 15 percent from this year’s low

“The market has run up quite sharply,” said Mahesh Nandurkar, a Mumbai-based analyst at CLSA Asia-Pacific Markets, which predicts the Sensex will fall to 19,500

by year-end. “You will see more earnings downgrades as we go ahead and that will cause some downside on the markets.” Bloomberg News

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Asia S.Korea, Indonesia agree on currency swap South Korea said yesterday it has agreed with Indonesia to sign a bilateral, three-year currency swap deal worth up to US$10 billion, which could help Jakarta better defend the rupiah hit by capital flight. This would bring the total value of currency swaps that Indonesia has secured with foreign countries this year to boost its defence at an equivalent of US$37 billion, including a US$15 billion deal with China and a US$12 billion deal with Japan. “The two sides agree that such arrangement will contribute positively to the stabilisation of the regional financial market and strengthen bilateral economic and financial cooperation to counter against the growing uncertainties in the global economy,” Seoul’s finance ministry said in a statement. Either of the two Asian countries can swap 10.7 trillion won for 115 trillion rupiah or vice versa under the deal, which South Korea’s finance ministry said was agreed on Saturday between finance ministers and central bank chiefs in Washington.

Currencies advance as default concern eases Asian currencies rose for a second week as optimism U.S. lawmakers will raise the debt limit to avoid a default spurred demand for riskier assets. Indonesia’s rupiah led the advance as the Bloomberg-JPMorgan Asia Dollar Index increased 0.2 percent from October 4, after House Republicans proposed last week a shortterm increase in the debt ceiling that would push the lapse of U.S. borrowing authority to November 22 from October 17. “Markets are pricing in some kind of resolution in the U.S., therefore there is some modest positioning for Asian currencies,” said Nizam Idris, head of strategy for fixed income and currencies at Macquarie Bank Ltd. in Singapore. “When it happens, Asian currencies will bump up quite aggressively. The week started with some concern.” Indonesia’s rupiah climbed 1.4 percent from a week ago to 11,365 per US dollar in Jakarta, according to prices from local banks compiled by Bloomberg. India’s rupee appreciated 0.6 percent to 61.08, while Malaysia’s ringgit gained 0.1 percent to 3.1788. China’s yuan fell 0.03 percent to 6.1220 and Taiwan’s dollar added 0.04 percent to NT$29.490.

UMW Oil & Gas prices share sale at top end Malaysia’s UMW Oil & Gas Corp Bhd, an offshore and drilling services firm, has raised about 2.36 billion ringgit (US$740 million) in its IPO, pricing it at the top of expectations, two sources with direct knowledge of the deal said yesterday. The strong demand for the country’s largest IPO this year, signalled a boost for Malaysia’s capital market on pent-up demand for emerging market stocks. This month, port operator Westports Holdings Bhd priced its US$680 million IPO at the top of its projected range. UMW Oil & Gas, a unit of state conglomerate UMW Holdings Bhd, priced the offering at 2.80 ringgit per share versus a tight indicative range of 2.70-2.80 ringgit, said the sources, who were not authorised to speak publicly on the matter “It was oversubscribed by more than 50 times,” one of the sources said, adding that the offer to institutional investors was closed on Thursday, well ahead of the originally scheduled for October 17.

BOJ easing ‘dangerous’ without reforms: Shinohara

t would be “dangerous” for the Bank of Japan to increase stimulus beyond what it already planned before Prime Minister Shinzo Abe implements structural reforms in the economy, a top International Monetary Fund official said. “It would be very dangerous to rely on monetary policy alone” to boost growth, Naoyuki Shinohara, deputy managing director at the IMF, said in an interview in Washington yesterday. “Because of Japan’s poor fiscal state, it would be easy for the Bank of Japan to be seen as financing the government’s deficits.”

The Japanese central bank pledged in April to double the monetary base over two years to end deflation. Mr Abe has yet to specify the reforms that he says make up the third and final pillar of his plan to bolster the Japanese economy. Shortterm fiscal stimulus and monetary easing are the two other pillars. Inflation expectations in Japan haven’t rebounded as much as the government has hoped, Mr Shinohara said. The more stimulus the central bank injects, the harder it gets to eventually normalise policy and the greater the risk of accumulating

imbalances in financial markets, which are challenges that the U.S. Federal Reserve is already facing, he said. Mr Shinohara added that the Fed’s attempts to signal an eventual reduction in its US$85 billion in monthly bond purchases have served as a “stress test” for emerging market economies, some of which have proved to be more resilient than others. “The hardest-hit countries had weak fundamentals” such as high inflation and a current account deficit, he said. Bloomberg News

IMF Asia chief bullish on economic reform plans Biggest economies committed to big shifts Paul Eckert

he International Monetary Fund’s top official for Asia gave a thumbs up to reforms on the drawing board in Japan and China, welcoming changes to revitalise Asia’s two biggest economies. Although Japan will not start to unveil structural reforms until later this month and China will not announce its plans until November, IMF Asia-Pacific Department director Anoop Singh voiced confidence that Tokyo and Beijing were clearly committed to big shifts. Japanese Prime Minister Shinzo Abe’s signature “Abenomics” has already been helpful to Japan and the region, based on results of the first two of its three parts – extensive monetary and fiscal stimulus – Mr Singh said in an interview with Reuters. “The arrows that have been fired so far are remarkable,” he said, using Mr Abe’s archery metaphor for his plans. The third arrow is structural reforms in labour, farm and service markets. “Already we are seeing significant steps that go well beyond the historical record, so we have to assume that this will continue in the structural area too,” he said. “Structural reforms for any country cannot happen overnight. They have to have consensus,” he said. “It will take time to build, but there’s no doubt that Abe has the objective.” Mr Singh earlier told a news conference that Abenomics had helped make Japan a “bright spot” in Asia, reigniting the economy to begin pulling Japan’s US$5.9 trillion economy out of two

Japanese arrows fired so far ‘remarkable’, says Singh

decades of deflation. China is expected to unveil concrete plans to retool its economy to rely more on investment-driven growth and less on consumption at a Communist Party Central Committee plenum in November. Mr Singh said Beijing had already signalled strong commitment to changing the way it operates its US$7.2 trillion economy, second in size only to the United States. “The authorities there have accepted the trade-off having lower growth than they had in the past provided it is more sustainable and

qualitatively strong,” he said. Chinese officials have indicated since early this year that one pillar of the reforms is a pilot free-trade zone in the commercial hub of Shanghai that would test more liberal policies for investors and the financial and service sectors. “The Chinese always like to take steps forward in this way,” Mr Singh said of the pilot scheme, details of which have not been released. “They try to implement it in a certain part of the economy, see how it develops and then broaden it,” he said. Reuters

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 19,14, 2013

Asia

Domestic demand to boost growth: Zeti Malaysia’s central bank governor expects higher growth in 2014

alaysia’s central bank Governor Zeti Akhtar Aziz said that the economy is on track for 4.5 percent to 5 percent expansion this year as exports increase and is poised for higher growth in 2014, while the main risk is from issues outside the country. “We saw the latest numbers for exports have turned around to become positive so if that trend continues it will be at the higher end” of the central bank’s forecast in August for 4.5 percent to 5 percent growth, Mrs Zeti, 66, said in a Bloomberg interview in Washington. She said she expects that economic growth next year “would be an improvement from 2013”. Malaysia, Southeast Asia’s thirdlargest economy, has posted average 6 percent growth in the three years through 2012, aided by domestic demand and investment. The country now joins Asian emerging markets such as Indonesia in confronting slower growth, undermining the region’s role as the main driver of global expansion. “The domestic sector has been solid and has been the anchor to drive our growth during this more challenging period,” she said. In 2013, “global trade slowed down very significantly, and of course, that affected us because of the openness of our economy. But had we not

Domestic sector ‘the anchor’ for Malaysia’s growth, says Zeti Akhtar Aziz

rebalanced our economy, we would have had 1 to 2 percent growth.” Malaysia cut its forecast for growth this year to a range of 4.5 percent to 5 percent in August, from a previous prediction of as much as 6 percent. Mrs Zeti said over the next six

months to a year, she is focused “mostly on growth” rather than inflation, because “global growth will remain subdued”. Inflation is stable, she said, as “demand is on a steady growth path and we have significant expansion of capacity.”

Consumer prices rose 1.9 percent in August from a year earlier. Banks, including RHB Capital Bhd, have raised their inflation forecasts for this year and next to reflect higher fuel costs. Mrs Zeti said the U.S. Federal Reserve slowing the pace of its US$85 billion a month in asset purchases will be positive if it’s based on strength in the world’s largest economy, and that better communication by American policy makers will reduce volatility in financial markets when it happens. Tapering the bond buying amid an “economic recovery that is accompanied by job creation” will be “a positive development for the rest of the world,” Mrs Zeti said. “More precise communication would contribute to the orderly implementation of this tapering.” Mrs Zeti said Fed vice chairman Janet Yellen’s nomination to succeed chairman Ben S. Bernanke signals continuity for the central bank’s policies because she was “part of the team” as policymakers undertook unconventional actions to spur growth. “Continuity is very important at this stage in particular because it is at a challenging point of having these kinds of unconventional policies, and she’ll face the challenge of managing the exit,” Zeti said. Bloomberg News

14 14

October 14, 2013 April 19, 2013

Markets Gaming Stocks - Daily Performance (Hong Kong Stock Exchange) 57.60 57.45 57.30 57.15

Max 57.55

average 57.343

Max 51.6

Min 57.05

average 51.347

57.00

Last 57.25

Min 51.2

Last 51.4

Max 85.65

average 85.331

PRICE

85.08

27.4

84.84

27.3

84.60

Max 27.70

average 27.431

Min 27.25

Last 27.35

27.2

51.52

22.66

28.76

51.44

22.62

28.67

51.36

22.58

28.58

51.28

22.54

28.49

51.20

Max 22.65

average 22.583

DAY %

YTD %

(H) 52W

Min 22.50

Last 22.55

(L) 52W

-0.961071741

9.135643988

111.3399963

85.79000092

BRENT CRUDE FUTR Nov13

111.28

-0.465116279

5.739262638

115.7599945

96.19999695

GASOLINE RBOB FUT Nov13

266.81

-1.111893555

3.906067451

293.6000109

243.3699846

GAS OIL FUT (ICE) Nov13

933.5

-1.269169751

3.263274336

980.25

837

NATURAL GAS FUTR Nov13

3.776

1.423583132

0.82777036

4.59400034

3.281000137

303.49

-1.143322476

1.56961178

322.3500013

276.8100023

NY Harb ULSD Fut Nov13 Gold Spot $/Oz

1272.2

-2.276

-23.5668

1754.46

1180.57

Silver Spot $/Oz

21.3375

-2.4906

-29.1348

34.3838

18.2208

Platinum Spot $/Oz

1371.14

-1.0357

-9.6597

1742.8

1294.18

Palladium Spot $/Oz

712.28

1.1043

1.8037

786.5

587.4

LME ALUMINUM 3MO ($)

1881.5

0.026581606

-9.237819585

2184

1758

7200

0.769769069

-9.216996596

8346

6602 1811.75

LME COPPER 3MO ($) 3MO ($)

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

22.50

Dec13

1917

1.160949868

-7.836538462

2230

13920

1.236363636

-18.4056272

18770

13205

15.115

-0.755088641

-1.946156341

16.65000153

14.68999958

COUNTRY MAJOR

CROSSES

Max 28.85

average 28.643

Min 28.50

Last 28.40

28.40

-1.140901312

-27.76156732

647

432.5

692.25

0.984682713

-15.65641182

913

635.5

SOYBEAN FUTURE Nov13

1266.75

-1.64984472

-2.763385147

1409.5

1162.5

116.7

2.01048951

-25.40747843

181.5500031

113.1999969

NAME

PRICE

SUGAR #11 (WORLD) Mar14

18.93

1.121794872

-8.017492711

21.65999985

16.69999886

ARISTOCRAT LEISU

COTTON NO.2 FUTR Dec13

83.37

0.240471324

5.88011176

93.72000122

74.34999847

CROWN LTD

World Stock Markets - Indices

PRICE

DAY %

YTD %

(H) 52W

(L) 52W

0.9468 1.5957 0.9119 1.3544 98.58 7.9868 7.7541 6.1185 61.08 31.29 1.2458 29.448 43.045 11365 93.331 1.23503 0.84899 8.2965 10.8369 133.51 1.03

0.2966 0.1192 -0.1755 0.1257 -0.7405 0.0013 0.0039 -0.0392 0.4584 0.3516 0.4094 -0.1528 0.2509 -1.9094 -1.0318 -0.2955 -0.0459 -0.37 -0.299 -0.8614 0

-8.7685 -1.3539 0.3838 2.6839 -12.6598 -0.0451 -0.0451 1.8321 -9.9623 -2.2691 -1.9586 -1.4093 -4.7392 -13.8319 -4.2901 -2.2307 -3.9541 -0.9522 -2.8283 -14.9352 -0.0097

1.0599 1.6381 0.9839 1.3711 103.74 8.0111 7.7664 6.2755 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 0.8968 1.2662 78.27 7.9818 7.7498 6.1064 52.6763 28.56 1.2152 28.913 40.54 9577 79.965 1.20302 0.79607 7.8281 10.1113 100.33 1.0289

Macau Related Stocks

433.25

COFFEE 'C' FUTURE Dec13

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

ASIA PACIFIC

WHEAT FUTURE(CBT) Dec13

NAME

27.5

28.85

102.02

CORN FUTURE

85.32

22.70

WTI CRUDE FUTURE Nov13

LME ZINC

27.6

Currency Exchange Rates

NAME

METALS

Last 84.85

27.7

85.56

51.60

Commodities ENERGY

Min 84.601

85.80

DAY %

YTD %

(H) 52W

(L) 52W

4.82

1.260504

15.79

0.5732484

VOLUME CRNCY

53.01587

5.02

2.56

5045910

47.985

16.27

9.3

1975405

AMAX HOLDINGS LT

1.26

-9.999998

1.72

0.75

5018600

BOC HONG KONG HO

25.15

0.3992016

4.356845

22.85

7859154

CENTURY LEGEND

0.44

7.317073

66.03774

0.56

0.232

5683522

CHEUK NANG HLDGS

6.89

1.174743

15.02505

6.9

3.87

214661

CHINA OVERSEAS

24.35

1.037344

5.411254

25.6

17.7

27594194

CHINESE ESTATES

19.76

1.229508

75.71398

9.543

199000

CHOW TAI FOOK JE

11.7

2.631579

-5.94855

13.4

7.44

9963800

EMPEROR ENTERTAI

4.13

3.768844

118.5185

4.16

1.43

4657900

FUTURE BRIGHT

2.47

0.4065041

103.791

2.76

1.103

822000

GALAXY ENTERTAIN

57.25

1.059135

88.63262

58.8

24.2

6365187

HANG SENG BK

1019085

COUNTRY

PRICE

DAY %

YTD %

(H) 52W

(L) 52W

DOW JONES INDUS. AVG

15237.11

0.7340968

16.27707

15709.58

12471.49

NASDAQ COMPOSITE INDEX

3791.873

0.8276547

25.57893

3819.275

2810.8

FTSE 100 INDEX

6487.19

0.8817369

9.993198

6875.62

5605.589844

127.7

0.6304177

7.582143

132.8

110.6

DAX INDEX

8724.83

0.4497011

14.61354

8770.1

6950.53

HOPEWELL HLDGS

26.5

0.56926

-20.30075

35.3

23.2

839086

NIKKEI 225

14404.74

1.479636

38.57134

15942.6

8488.14

HSBC HLDGS PLC

84.5

1.258238

3.936035

90.7

73.55

10506811

HANG SENG INDEX

23218.32

1.16342

2.477832

23944.74

19426.35938

HUTCHISON TELE H

3.55

-0.2808989

-0.2808973

4.66

2.98

9220000

CSI 300 INDEX

2468.508

1.613252

-2.157942

2791.303

2023.171

LUK FOOK HLDGS I

25.35

0.7952286

3.893444

30.05

16.88

1496479

MELCO INTL DEVEL

21.85

1.864802

142.5083

22.2

6.72

3398780

TAIWAN TAIEX INDEX

8349.37

0.05560396

8.44042

8439.15

7050.05

MGM CHINA HOLDIN

27.35

1.672862

105.9755

27.9

12.236

2483870

KOSPI INDEX

2024.9

1.174178

1.394556

2042.48

1770.53

MIDLAND HOLDINGS

3.15

0.6389776

-14.86487

4.8

2.68

1507000

NEPTUNE GROUP

0.201

0.5

32.23685

0.23

0.131

48100000

NEW WORLD DEV

11.22

0.1785714

-6.655578

15.12

9.98

21321229

SANDS CHINA LTD

51.4

1.782178

51.39911

52.1

27.2

9156400

SHUN HO RESOURCE

1.68

1.92

1.19

6.92124

4.65

2.99

4526249

S&P/ASX 200 INDEX

5230.872

1.626728

12.51727

5314.3

4334.3

4519.912

0.7407262

4.707895

5251.296

3837.735

FTSE Bursa Malaysia KLCI

1785.75

0.5535159

5.731375

1826.22

1590.67

NZX ALL INDEX

996.348

0.4390152

12.95784

1005.231

847.89

SHUN TAK HOLDING

4.48

-0.4444444

PHILIPPINES ALL SHARE IX

3925.79

0.8666362

6.131692

4571.4

3440.12

SJM HOLDINGS LTD

22.55

1.348315

27.05902

22.65

16.032

8879163

SMARTONE TELECOM

10.62

3.106796

-24.57386

16.22

9.97

11073519

WYNN MACAU LTD

28.4

1.428571

35.56085

29.05

14340240

ASIA ENTERTAINME

3.96

#N/A N/A

69409

BALLY TECHNOLOGI

69.23

0.08674281

54.84232

76.3

43.16

266602

BOC HONG KONG HO

3.22

-0.617284

4.885996

3.6

2.99

8500

GALAXY ENTERTAIN

7.5

1.488498

88.91688

7.59

3.11

18860

INTL GAME TECH

18.55

-0.2151694

30.91037

21.2

12.37

2440876

JONES LANG LASAL

83.65

-1.425878

-0.3454878

101.46

72.56

490470

LAS VEGAS SANDS

68.33

3.092939

48.0286

68.35

37.8353

4494773

MELCO CROWN-ADR

33.94

3.950995

101.5439

34.0983

13.43

4022099

MGM CHINA HOLDIN

3.59

1.126761

105.1087

3.59

1.6651

1000

MGM RESORTS INTE

20.46

0.5899705

75.77319

20.9

9.15

10386047

SHFL ENTERTAINME

23.17

0.216263

59.7931

23.21

12.35

774639

SJM HOLDINGS LTD

2.9

27.32612

2.9481

2.0607

13100

166.61

2.623961

48.11095

166.78

103.34

1147969

JAKARTA COMPOSITE INDEX

Euromoney Dragon 300 Index Sin

614.98

0.77

-0.98

STOCK EXCH OF THAI INDEX

1457.78

0.404295

4.730839

1649.77

1260.08

HO CHI MINH STOCK INDEX

494.53

-0.05658738

19.52964

533.15

372.39

Laos Composite Index

1308.36

7.704336

1455.82

1039.81

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

PRICE

DAY %

VOLUME

1.740295

25795894

CHINA UNICOM HON

ALUMINUM CORP-H

2.86

0.7042254

11453580

CITIC PACIFIC

BANK OF CHINA-H

3.62

0.8356546

269240260

BANK OF COMMUN-H

5.76

1.052632

27323949

BANK EAST ASIA

33.45

1.363636

2481050

AIA GROUP LTD

NAME

CLP HLDGS LTD

PRICE

DAY %

VOLUME

12.54

-0.317965

38694977

11.1

6322083

62.5

0.4823151

3046000

CNOOC LTD

15.84

1.930502

50903640

COSCO PAC LTD

11.68

-1.016949

5467027

NAME

PRICE

DAY %

POWER ASSETS HOL

68.1

0.8142117

VOLUME 3089282

SANDS CHINA LTD

51.4

1.782178

9156400 4696486

SINO LAND CO

11.34

0.8896797

SUN HUNG KAI PRO

103.9

1.267057

3588725

SWIRE PACIFIC-A

91.25

0.4402862

1274487 3313232

BELLE INTERNATIO

11.42

15672801

ESPRIT HLDGS

12.76

-1.846154

10343216

419

2.244998

BOC HONG KONG HO

25.15

0.3992016

7859154

HANG LUNG PROPER

25.95

0.3868472

4397450

TINGYI HLDG CO

19.72

0.509684

7417312

CATHAY PAC AIR

15.46

1.17801

2953684

HANG SENG BK

127.7

0.6304177

1019085

WANT WANT CHINA

11.84

0.8517888

7306687

CHEUNG KONG

WHARF HLDG

69.15

1.54185

5498510

123.9

1.22549

1992900

CHINA COAL ENE-H

4.7

0.4273504

35166164

CHINA CONST BA-H

6.04

1.003344

221001587

CHINA LIFE INS-H

20.7

1.719902

19261820

CHINA MERCHANT

29.65

-0.3361345

2607307

CHINA MOBILE

1.731602

4093171

HENGAN INTL

HENDERSON LAND D

91.85

1.100715

879207

HONG KG CHINA GS

18.32

0.1092896

18819558

HONG KONG EXCHNG

127.7

0.6304177

2617713

84.5

1.258238

10506811

97.75

0.5658436

5704845

5.52

1.284404

179966717

HSBC HLDGS PLC

85.1

1.309524

18353136

HUTCHISON WHAMPO

24.35

1.037344

27594194

IND & COMM BK-H

CHINA PETROLEU-H

6.2

0.4862237

77131915

LI & FUNG LTD

10.94

1.296296

19584891

CHINA RES ENTERP

25.45

1.8

3098635

MTR CORP

30.35

0.4966887

3759769

CHINA OVERSEAS

CHINA RES LAND

23.35

1.521739

5390154

NEW WORLD DEV

11.22

0.1785714

21321229

CHINA RES POWER

19.56

0.204918

7218334

PETROCHINA CO-H

8.91

1.020408

86447125

CHINA SHENHUA-H

23.5

0.2132196

19217578

PING AN INSURA-H

58.25

1.746725

9991198

TENCENT HOLDINGS

MOVERS

23319

INDEX 23218.32 HIGH

23318.46

LOW

22802.35

52W (H) 23944.74 (L) 19426.35938

22802

09-October

11-October

15 15

October 2013 April 19,14, 2013

Opinion Business

China’s investment addiction

Leading reports from Asia’s best business newspapers

Yu Yongding

wires Economic Times

Former president of the China Society of World Economics and director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences

Gaming is growing in India, as the business of casinos accounts for more than US$107 million in revenues, says Jaydev Mody, chairman of Delta Corp Ltd, the biggest casino operator, with three offshore casinos and two hotels in Goa and a planned casino and hotel in Daman. While Goa, Sikkim and Daman are the only zones where gambling is allowed country wide, Goa accounts for 95 percent of the pie. Overall, the casino market is growing at 40 percent each year for the past five years.

Asahi Shimbun Facing a dearth of qualified applicants at home, Japanese businesses are increasingly hiring science graduates from universities abroad for career-track positions at company headquarters in Japan. One potential stumbling block has been removed; many companies do not require Japanese language ability. In the current fiscal year, 6.1 percent of Japanese companies recruited foreign graduates, according to a survey by job information provider Disco Inc, which surveyed 539 companies. Disco predicts the figure will rise to 9.6 percent in fiscal 2014.

Jakarta Globe Indonesia and India have agreed to expand their strategic partnership as President Susilo Bambang Yudhoyono and visiting Indian Prime Minister Manmohan Singh discussed ways to boost investment and trade while forging deeper cooperation in food and agriculture. The two countries’ strategic partnership agreement will also focus on strengthening cooperation in energy, mining, transportation, tourism, education, creative economy, defence, space exploration and satellite technology. Bilateral trade has grown by almost five times since this partnership, to about US$20 billion currently, and it is targeted to reach US$25 billion by 2015.

Bangkok Post Corruption threatens to turn Thailand into an investment “black hole” of Asean as it makes doing business in the country far too costly, former Asean secretary-general and Thai foreign minister Surin Pitsuwan has said. Mr Surin said the corruption problem has reached crisis point and must be tackled with urgency. The cost of corruption adds a prohibitive 30-35 percent to any investment, he said. Between 2007 and last year, FDI to Asean surged 30 percent while the amount of FDI to Thailand shrank 24 percent.

hina’s economy slowed unexpectedly in the second quarter of this year. Just as unexpectedly, most data released since July suggest that China’s growth has stabilised. Markets, not surprisingly, have breathed a collective sigh of relief. But should investors still be nervous? Currently, the most severe problem confronting Chinese authorities is overcapacity. For example, China’s annual production capacity for crude steel is one billion tons, but its total output in 2012 was 720 million tons – a capacity utilisation rate of 72 percent. More strikingly, the steel industry’s profitability was just 0.04 percent in 2012. Indeed, the profit on two tons of steel was just about enough to buy a lollipop. So far this year, the average profitability of China’s top 500 companies is 4.34 percent, down 33 basis points from 2012. Some say that today’s overcapacity is a result of China’s past overinvestment. Others attribute it to a lack of effective demand. The government seems to come down in the middle. On one hand, the authorities have ordered thousands of companies to reduce capacity. On the other hand, the government has introduced some “mini-stimulus” measures, ranging from exemptions for “micro firms” from business and sales taxes to pressure on banks to increase loans to exporters. The authorities’ official line is that China’s growth model requires less investment and more consumption. But not all Chinese economists agree. They argue that capital stock is the key factor for growth, and that China’s per capita capital stock is still low relative to developed countries, which implies considerable scope for further investment. To be sure, capital accumulation is a driving

force of economic growth, and catching up with developedcountry income levels implies that China must increase its capital stock in the long run. But what is at issue is not the size of the capital stock, or even the level of investment; the problem is the growth rate of investment, which has been significantly higher than that of GDP for decades.

Capital efficiency According to official statistics, China’s investment rate is approaching 50 percent of GDP. Given absorption constraints, capital efficiency has been falling steadily amid increasing deadweight. If environmental damage caused by breakneck investment growth were taken into account, China’s capital efficiency would be even lower. Human capital and technological progress are as important to economic growth as physical capital and labour, if not more so. If resource allocation is skewed toward physical capital at the expense of accumulating human capital – for which adequate consumption is indispensable – economic growth would be more likely to slow than rise. So China should reduce the growth rate of investment and increase that of consumption, allowing the investment rate to settle at a more sustainable level. Of course, it is not entirely untrue that China’s overcapacity reflects a shortfall of effective demand. But where can effective demand come from? Again, China’s steel industry provides a telling example. Despite China’s lack of a comparative advantage for steel production, it has built approximately one thousand mills, with output accounting for roughly half of the global total. As early as 2004, China’s government tried to clamp down on overinvestment; and yet output increased dramatically, from 300

million tons that year to a billion tons in 2012, owing to strong demand generated by investment in infrastructure and real-estate development. China’s investment consists of mainly three broad categories: manufacturing industry, infrastructure, and real estate. In late 2008 and 2009, at the height of the global financial crisis, stimulus-fuelled infrastructure investment sustained output growth. In 2010, investment in realestate development replaced infrastructure investment as the main driver of growth. Today, both infrastructure and real estate are important drivers of China’s growth.

Cautious steps China does need more infrastructure investment – particularly in power and water utilities, transport, and communications. But the pace of investment must take financial constraints fully into consideration.

China’s economy is being held hostage by real-estate investment

More important, China can and should invest more in social infrastructure such as schools, hospitals, retirement homes, and so on. However, real-estate investment is another story. It is difficult to judge how serious China’s property bubble is and when it might burst. But one thing is certain: China has invested too much

in real-estate development. With per capita income at less than US$6,000, homeownership in China is roughly 90 percent, compared to less than 70 percent in the United States. Average floor space per capita is 32.9 square metres, while median floor space per family in Hong Kong is just 48 square metres. China has 696 five-star hotels, with another 500 on the way. Five of the ten tallest skyscrapers under construction worldwide are in China. In my view, this is madness. China’s economy is being held hostage by real-estate investment. On one hand, China should not try to eliminate overcapacity by maintaining the high growth rate of real-estate investment. While investment in social housing should be welcomed, real-estate investment, currently running at 10-13 percent of GDP, is already far too high. On the other hand, if realestate investment growth falls, overcapacity will be difficult to eliminate. This dilemma highlights the structuraladjustment challenge that China faces – and should give investors reason to hold their breath. That said, there are two caveats. First, unlike other categories of investment, real estate investment does not increase productive capital stock. There is no fundamental difference between a house and an expensive durable consumer good. Second, in China’s statistics, the growth rate of gross fixed-asset investment is much higher than that of gross capital formation. This indicates that data on the growth rate of fixedasset investment may have exaggerated the pace of capital-stock accumulation. Hence, while the Chinese government should be firm on reducing the dependence of growth on investment, it must exercise utmost care when doing so. © Project Syndicate

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October 14, 2013 April 19, 2013

Closing China in US$1.3b Manchester airport deal Alitalia rescued by financing deal Beijing Construction Engineering Group Co formed a venture with Manchester Airports Group and other partners to build an international business district in the U.K.’s second-biggest city. The buildings on the 150-acre (61-hectare) site in the north of England will be worth about 800 million pounds (US$1.3 billion) when they’re completed and fully leased, the partners said in a statement yesterday. Carillion Plc and the Greater Manchester Pension Fund are also part of the project, known as Airport City. Manchester Airport, Britain’s busiest hub outside London, is used by more than 20 million passengers a year.

Italy’s near-bankrupt Alitalia has avoided bankruptcy after the airline’s shareholders agreed to raise fresh funds. The board of Alitalia agreed to a 500 million euros (US$678 million) rescue package. Shareholders will contribute 300 million euros, including 75 million euros from the Italian postal service, and the rest will be financed by banks. Alitalia was facing bankruptcy and its main fuel supplier had threatened to cut off supplies on Saturday if the airline failed to secure new financing. Alitalia has rarely made a profit in its 67-year history, and in the first half of this year it lost 294 million euros.

U.S. shutdown debate shifts to Senate C

to change the lender’s financial model and to cut costs, after he shook up management and overhauled the bank’s structure. Mr Kim said in an interview that he will reduce the lender’s annual budget by US$400 million over three years, including through job cuts. “For too long, the World Bank itself has not followed its own advice,” Mr Kim told finance officials. “We have often postponed tough choices. That’s changing. We are taking our own medicine.”

ongressional negotiations to end a U.S. fiscal crisis gripping Washington and spooking financial markets hung by a thread after bipartisan talks broke down in the House of Representatives and shifted to Senate leaders. Senate Majority Leader Harry Reid, a Democrat, held an initial session with Senate Republican leader Mitch McConnell. But uncertainty remained about their ability to reach an agreement quickly to end a partial government shutdown and increase the nation’s borrowing authority. Thursday is the deadline for raising the debtw ceiling, necessary to avoid a possible government default. The Senate was set to meet yesterday, but the U.S. House of Representatives was not, so Congress will be cutting it close. “Economists say it won’t be long before financial markets react negatively to this continued uncertainty,” Mr Reid said on the Senate floor. “The life savings of ordinary Americans are at risk.” Among the unresolved issues is the duration of the debt ceiling increase. House Republicans were pushing a boost that would last only six weeks, producing another potential showdown in the middle of the holiday season. Democrats want to push the next debt ceiling deadline at least well into the new year. Also at issue were government spending levels and Republican concerns about President Barack Obama’s signature healthcare law, popularly known as Obamacare. Republican demands for defunding Obamacare led to the shutdown on October 1. Mr Reid and other Senate Democratic leaders went to the White House to confer with Mr Obama in the afternoon, but said nothing to reporters as they left after an hour and 15 minutes. “But Democrats’ position remained the same: Democrats are willing to negotiate on anything Republicans want to discuss as soon as we reopen the government and pay our bills,” the aide added. The flurry of action in the Senate came as House Speaker John Boehner informed his fellow Republicans in a private meeting that the White House had rejected its proposals and there likely would be no more ideas delivered to Mr Obama now that attention was shifting to Senate negotiations.

Bloomberg News

Reuters

Ireland to exit bailout ‘this year’ PM Enda Kenny says to officially exit bailout on December 15

reland will become the first eurozone country to exit an international bailout in midDecember and may do so without a financing backstop from its European partners, the ruling party announced at a triumphant rally. Prime Minister Enda Kenny told a gathering of his Fine Gael party that “the economic emergency will be over” when the country exits its 85 billion euro (US$115 billion) bailout on December 15, confirming the official date of the exit for the first time. “There’s still a long way to go. But at last, the era of the bailout will be no more,” Mr Kenny said to loud applause. Earlier, Finance Minister Michael Noonan gave the clearest signal yet the country may exit without the insurance policy of a precautionary credit line and said he expected to comfortably beat EU deficit targets next year.

Refusing to take a precautionary credit line would block Ireland from accessing the European Central Bank’s as-yet-unused Outright Monetary Transactions (OMT) programme of government bond purchases. But it would also reduce the conditions and close monitoring from European officials and bolster the government’s claim to have restored the country’s economic sovereignty lost by the previous government. “Two years ago, I addressed the Irish people and said that I wanted to be the taoiseach who would retrieve our economic sovereignty and independence,” said Mr Kenny, using the Irish term for prime minister. “This goal is now within our grasp,” he said. Left-leaning opposition party Sinn Fein criticised Mr Kenny as celebrating prematurely and said he was out of touch by suggesting that the austerity of the past three years

was working for Ireland. “Try telling families at risk of losing their homes that austerity is working,” Sinn Fein leader Gerry Adams said in a statement. “Try telling the 415,000 people on the live [unemployment] register or the 300,000 that have emigrated in the last four years.” The coalition government of Fine Gael and the left-leaning Labour Party is due to release a budget next week that will cut the budget deficit by a third and contain a 2.5 billion euro package of spending cuts and tax hikes, less than the 3.1 billion euro package originally planned. The budget deficit will fall to 4.8 percent next year from 7.3 percent in 2013, well within targets agreed with the EU, Mr Noonan said. The economy will grow 0.2 percent this year before bouncing back to growth of 1.8 percent in 2014, his department said last week. Reuters

Kim gets nod for cost cutting strategy

he World Bank’s 188 member countries endorsed a strategy that president Jim Yong Kim says should enable the lender to better respond to clients’ needs and reduce poverty while cutting costs. “For the first time in the history of our organisation, we have a strategy that leverages the strengths of our entire organisation,” Mr Kim told reporters in Washington yesterday. “We will make decisions that allow us to be more selective and to choose more transformative projects that help countries and

regions reach their priorities.” The strategy calls for more investment in countries deemed “fragile” because they are emerging from conflicts or are still mired in one, Mr Kim said. The bank will also focus on mitigating climate change and improving health and education, especially for women. Mr Kim, who took over the bank’s helm in July 2012, has pledged to transform an institution he said has grown too fragmented, cautious and self-absorbed to accomplish its mission. The backing of his shareholders now gives him leeway