Mbd oct 15 by Business Daily

MOP 6.00 Vitor Quintã Deputy editor-in-chief Editor-in-chief Tiago Azevedo Number 392 Tuesday October 15, 2013

Rule change cuts Golden Week ferry trippers

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Capital outflow as investors sell property O

utside investors holding Macau property took advantage of high prices and strong local demand by selling off their stock in the first half. In the first half of this year non-residents liquidated real estate worth 8.88 billion patacas (US$1.11 billion), the Monetary Authority of Macau said in a report. In contrast outsiders only bought 2.26 billion patacas worth of property, according to

a report on cross-border capital flows released last week. That means that in the JanuaryJune period the territory saw a capital outflow of 6.6 billion patacas from its real estate market, almost as much as in the whole of last year. The sell-off was due to foreign investors making a profit from Macau’s red-hot market, Noelle Cheung, Centaline (Macau) Property Agency Ltd sales director, told Business Daily. More on page 3

Amend concessions to bar non-resident dealers: legislator

Brought to you by Zung Fu Motors (Macau) Limited

Hang Seng Index

A legislator suggests amending the concession and sub-concession contracts of the casino operators to include a clause barring non-residents from being dealers. Cheang Chi Keong says it would be a simpler and quicker way of giving the guarantee currently sought by the city’s labour unions than drafting new legislation. Mr Cheang said enshrining discrimination in a separate law might encourage workers from other industries to ask for similar treatment.

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Year II

April guides 19, 2013demanding Tour Cotai scheme basic pay after boosts SJM’s new rules introduced target price

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HSI - Movers Name

Dynam ties to software firm for Macau ‘pachinko’

Twenty-storey Patane towers starting soon

Pachinko hall operator Dynam Japan Holdings Co Ltd, already a US$35 million (280 million patacas) investor in Macau casino services firm Macau Legend Development Ltd, is to make an additional US$15 million bet on a Singapore-based online games developer. The target firm, I Got Games Inc, is likely to develop software for new pachinko-style games. Dynam will operate them at Macau Legend’s Fisherman’s Wharf.

Construction of apartment towers on two plots at Patane that have lain idle since 2008 could begin before the end of the year. Influential businessman Liu Chak Wan said concessionaire Tin Wai Investment Co Ltd had gained control of the land after five years of wrangling with the government. Tin Wai had asked the administration to consolidate the two sites into one plot.

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%Day

TENCENT HOLDINGS

2.24

CNOOC LTD

1.93

CHINA RES ENTERP

1.80

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 15, 2013

Macau

Ignore a law but restrict casinos from hiring abroad Suggestion from pro-business leader fails to meet workers’ demand for a law to safeguard jobs Tony Lai

tony.lai@macaubusinessdaily.com

Tour guides want guaranteed pay

T A legal ban on croupiers might lead to accusations of unfair discrimination, says Cheang

ny ban on foreign dealers from the city’s casinos should be enforced in the operators’ concession contracts and not as a law – a politician has proposed – in a new twist in the debate to protect croupiers’ jobs. Legislative Assembly member Cheang Chi Keong said any ban enshrined in law would hurt the city’s international image. Limitations on hiring croupiers could be written into individual contracts with the casino operators, rather than in a law. It would be a “more reasonable and effective” solution, he said. Mr Cheang is a representative from the business sector. His proposal was not welcomed by the labour groups that have insisted on a solution at the highest level. Mr Cheang is worried there could be “side-effects” from writing a law to discriminate between croupiers on the basis of nationality. “As an international city adopting capitalism and free economy, Macau would be accused of discriminating against foreigners by not allowing them to work in certain industries,” the Chinese-language newspaper Macao Daily News reported. A law banning foreign croupiers would also “deepen the distrust” in the government and “undermine the city’s governance”. Mr Cheang said a law would also set a bad example, encouraging workers from other industries to seek similar protectionist benefits from the government. Chief Executive Fernando Chui Sai On has spoken publicly three times in the past fortnight to assure casino workers that only residents would be casino croupiers on his watch. But the groups representing workers were still angry enough to take to the street twice this month. They want a law, not a pledge.

Time to move Lobby groups representing casino workers see a law as providing the ultimate solution. “The government have said they will only review the terms of the gaming concessions in 2015, which is still a long time away,” said Macau Gaming Industry

Workers Association vice-president Leong Sun Iok. Mr Leong said non-resident workers have not been allowed to work as casino dealers “in the past 10 years”. “If there is a discrimination problem, and I don’t think there is, then it is not happening only now,” Mr Leong told Business Daily. There is currently no law preventing workers with work permits from being employed at the city’s gaming tables but the Human Resources Office would not approve such request. Secretary for Economy and Finance Francis Tam Pak Yuen said the government would review the city’s six gaming concessions in two years. The contracts will expire in 2020 or 2022. “It is necessary to ban nonresidents via law because whenever there are rumours they will cause panic among the workers,” said Mr Leong. “The government can resolve the matter in many ways through legislative means, for instance a dispatch which the administration can do it promptly.” Rumours of a change to the government’s position began after comments last month by Las Vegas Sands Corp president Michael Leven. He told an audience in Las Vegas the “locals-only policy” was “going to put some limit on the availability of people unless the government rules are changed”. Mr Leong’s group and its parent association, the Macau Federation of Trade Unions, have started a petition in support of a legal ban. Mr Chui said last week the government was studying if it was possible to draft the law but warned that it could take time. Forefront of Macau Gaming, an association that mobilised about 3,000 people to a protest last Thursday, has already voiced its disappointment with Mr Cheang’s proposal. The group said a legislative ban would “bring enormous sideeffects to the businesspeople”. SJM Holdings Ltd executive director Angela Leong On Kei, a directly elected politician, said last week the government should work on studying the problem and if a law could pacify the workers’ worries.

our guides are demanding a basic daily wage of 1,200 patacas (US$150) to offset the negative effect of a new mainland China tourism law that has reduced their shopping tours commissions. Angelina Wu Wai Fong, president of the Macau Tourist Guide Association, said the earnings of half of the city’s 600 full-time tour guides were hit during the National Day golden week earlier this month. “There were significant declines in the number of package tour visitors and some of the guides led no tours during the golden week, which is unprecedented,” she told media over the weekend. Ms Wu declined to provide estimates on the impact. She stressed that the guides of shopping tours only rely on tips and commissions for their earnings while other guides

usually have a basic monthly salary. Her association had recently discussed with the representatives of travel agencies the possibility of offering the shopping tour guides a wage of 1,200 patacas a day. But no deal was reached, she said. The new tourism law, which came into force on October 1 in the mainland and applies to tours coming here, bans the industry from forcing the visitors to shop in designated venues. Lao Nga Fong, president of Macau Travel Agency Association, said at the same occasion they would “explore different ways” to develop the industry, including the salaries of guides. The agencies need a few more months because the law had only been in force for a few days, he said. T.L.

business as usual

Obstructing croupiers is nonsense

João Francisco Pinto newsdesk@macaubusinessdaily.com

n wrestling with the idea of employing non-residents in the gaming industry as croupiers or pit managers, the city is wound up in a mass panic attack. Casino management loves the idea of hiring a plentiful and possibly cheaper source of manpower from abroad. Casino workers are afraid for their livelihoods and have demanded the government create a law that will guarantee their jobs. The government has adopted, as usual, a populist approach to solving the problem. I would like to pose two questions: why should these jobs be reserved for residents, and what are the long-term consequences of maintaining the situation as it is. The answer to the second question is simple. In the longer term, an increasing number of residents will become dependent on a single industry. The city will have to find more qualified workers to make up for a shortfall between the increasing demand for the city’s casinos and the size of the workforce. Most of the people here that could fill the gap will be working behind a gaming table, giving out cards and moving chips. One long-term consequence of the policy to save dealers’ jobs for residents is a population with a lower standard of education. That is some consequence! How many would-be nurses, teachers, managers and engineers have already given up a course of higher education to take up employment in the gaming sector? How many of Macau’s young have taken the short-term approach of finding a relatively well-paid job at the expense of continuing their education and making a substantive contribution to the city’s development? A government’s mission is to lead, not to be led. It should have a long-term vision for the city and its people, rather than acting in a populist and short sighted way. It is my opinion that by keeping the current situation in the gaming industry the government is jeopardising the long-term prosperity of its people. The answer to the other question is more straightforward. The government should immediately allow casinos to hire migrant workers to fill jobs on the gaming room floor and, in the longer term, such positions should be mainly filled by non-residents.

October 2013 April 19,15, 2013

Macau

There were more foreign investors selling than buying homes in the first half of this year (Photo: Manuel Cardoso)

Foreign real estate investors are selling up and cashing in High prices have seen a net outflow of 6.6 billion patacas from real estate market Vítor Quintã vitorquinta@macaubusinessdaily.com

oreign investors sold properties in the first half of this year, cashing in on May’s record peak in home prices, a real estate agent told Business Daily. Non-residents sold property worth 8.88 billion patacas (US$1.11 billion) in the first half of this year, the Monetary Authority of Macau says. The report on cross-border capital flows released last week says inward investments in property reached 2.26 billion patacas in the same period. Between January and June, the territory saw 6.6 billion patacas drain from its property market, almost as much as throughout the whole of last year.

MOP8.88 bln property sold by non‑residents in the first half

The sell-off was sparked by Macau’s red-hot market, with foreign investors selling up to realise profits, said Centaline (Macau) Property Agency Ltd sales director Noelle Cheung. “These investors were holding the

property for a couple of years and they decided to sell because there was the possibility of a good return on their investment,” Ms Cheung said. Investors could not resist the lure of skyrocketing home prices, which hit a peak of almost 100,000 patacas a square metre in May. Investors mostly offloaded flats, with sales reaching 6.6 billion patacas in the first half. They bought 1 billion patacas worth of flats, less than one-fifth of the investment recorded in the second half of last year.

Fortunes reversed Rather than gamble on property values increasing further, investors took the money “while looking for other good opportunities to invest, not only in Macau but also in other places,” Ms Cheung said. The report from the city’s defacto central bank warned that emerging-market economies faced the risk of “asset-price bubbles and swift reversal” of investment inflows. “Close surveillance and prudence are merited” due to the “fast growth in asset prices and credit in Macau”. Ms Cheung said the reversal of capital flows was a global trend that was drawing foreign investments from the regions with “not very favourable conditions, like in Hong Kong”. Both Macau and Hong Kong have implemented policies to curb the property market that have reduced the number of transactions. A law was introduced in June to regulate the sale of unfinished flats but the rot had begun much

earlier, when the special stamp duty was introduced in June 2011, said Ms Cheong. In the following year, nonresidents pulled 7 billion patacas out of Macau’s real estate market, a huge U-turn from an inflow of 6.6 billion patacas in 2011. The last time the city recorded a negative flow in property investment was in 2009, spurred by the effects if the financial crisis. Outside investors sold 5.4 billion patacas worth of property that year.

Supplies drained Capital outflows are usually bad news for the economy but Macau has maintained a surplus in its financial dealings with the rest of the world, thanks to tourist spending. In fact, Ms Cheung said the exodus of investors has “helped local buyers have more choice” when looking to buy a home. That has made little difference to the average price across the market because demand remains high and “we don’t have new property coming into the market”, she said. Just 534 flats were sold in August, the fewest in any month since February last year. “If the home supply is not going to increase, then prices will not fall much,” Ms Cheung said. Prospective homebuyers could become restless and try their luck renting a flat instead of buying, forcing up rents, she said. Transaction records from Jones Lang LaSalle Macau show the average rents for high-end flats increased by 9.6 percent in year-on-year terms in

KEY POINTS Good returns are fuelling sales Capital outflows far exceed inflows Govt curbs are suppressing sales Supply shortages may drive rent hikes

the first half of this year. Rents for cheaper flats rose by 10.3 percent. Delta Asia Financial Group chairman Stanley Au Chong Kit said last week he expects home prices to plunge by as much as 30 percent by early next year. A few days later, Centaline director Jacky Shek Po Tak acknowledged that “no one can ignore any more the risk for the home price[s] to go down”. Ms Cheung says the property market in Macau was far from experiencing an asset bubble. The economy would continue to grow, with more infrastructure and casino-resorts set to open in 2015. She said a “huge number” of expatriates would work at the new resorts in Cotai and they will need a home.

October 15, 2013

Macau

Dynam ties to software firm for Macau-style pachinko Japanese company will place resulting products at David Chow’s Fisherman’s Wharf, says Hong Kong filing Michael Grimes

michael.grimes@macaubusinessdaily.com

achinko hall operator Dynam Japan Holdings Co Ltd – already a US$35 million (280 million patacas) investor in Macau casino services firm Macau Legend Development Ltd – is to make an additional US$15 million bet on a Singapore-based online games developer. The target firm, I Got Games Inc, is likely to develop software for new pachinko-style games. Dynam will operate them at Macau Legend’s waterside entertainment complex Macau Fisherman’s Wharf on the city’s peninsula, Dynam said in a Hong Kong filing. “The capability to develop software is important for the development of these Next Generation pachinko machines,” stated Dynam. It added: “The company appreciate IGG’s capability to develop computer graphic and 3D computer graphic software and expect much of IGG.” Neither Dynam nor Macau Legend – which in July raised about HK$2.04 billion (US$263.1 million) net from a share sale in Hong Kong and is co-chaired by former Macau legislator David Chow Kam Fai – have yet revealed under what regulatory system these ‘Next Generation’ pachinko machines will operate in Macau. Pachinko as operated in Japan is technically not a gambling game under that country’s law. In traditional pachinko machines, customers feed the machines manually with steel balls issued by the

Macau Fisherman’s Wharf under reconstruction (Photo: Manuel Cardoso)

pachinko hall operator. This allows the game to be defined as a leisure activity under Japanese regulations. The parlour operators there make a margin on the difference between the cost of selling the balls and of buying back winning ones. In Japan when players win, they are given flimsy prizes some of which they can then swap for cash at booths known as “kankin” usually around the corner from the pachinko parlours.

Previous attempts Pachinko-style games have been tried previously in Macau but without commercial success. Our

sister publication Macau Business magazine reported in November 2005 that pachinko was to be given a trial at the Ponte 16 casino resort near Macau’s Inner Harbour, following a deal that gave Maruhan Corp – one of Japan’s biggest pachinko parlour owners – a stake in the Ponte 16 operation. Maruhan sold out of the Ponte 16 operation earlier this year. Given the business background of I Got Games, it seems possible that Dynam’s Macau games will use a platform more like a casino slot machine than a platform based on traditional pachinko. Business Daily approached Dynam for more information but

it declined to comment. IGG’s current list of games covers free-to-player titles – including some casino games – delivered to smartphone and tablet users. Its main online platform partner is Facebook. Currently IGG says it generates most of its revenue by “selling virtual items to players, which can enhance their game-playing experience”. Most of its game development work is done in mainland China. I Got Games is to issue shares on Hong Kong’s alternative investment index – the Growth Enterprise Market – on Thursday, with trading commencing the following day. IGG says in its share prospectus that in 2012 it derived more than 70 percent of its nearly US$43.2 million annual revenue from its three most popular games. They were Galaxy Online II (a strategy game); Godswar (a role play game); and Texas HoldEm Poker Deluxe. The company states its current consumers are “players who usually spend not less than one hour per day for game playing”. IGG is due to place 327,434,000 shares on GEM, made up of 262,651,459 new shares and 64,782,541 sale shares, the latter subject to an over-allotment option. The indicative price range for the shares is HK$2.40 to HK$2.91 per placing share, plus a one percent brokerage fee and additional commission payable to Hong Kong’s Securities & Futures Commission and to Hong Kong Stock Exchange.

Dah Sing insurance units get ‘A-‘ rating They benefit from association with group affiliate BCM Bank, says report

wo Macau-based insurance firms controlled by Hong Kong financial conglomerate Dah Sing Financial Holdings Ltd have been given financial strength ratings of ‘A-’ (‘excellent’) and issuer credit ratings of ‘a-’. Ratings house A.M. Best Asia-Pacific Ltd, based in Hong Kong, assigns the scores to Macau Insurance Co Ltd (MIC) and Macau Life Insurance Co Ltd (MLIC). The outlook for all ratings is stable it says. Macau Insurance Company was established in 1983 and Macau Life Insurance Company in 1997. The businesses between them offer life insurance, non-life insurance and pension fund management. Non-life services include products covering employees’ compensation, medical expenses, personal accident, property, transportation, liability and construction work. “The affirmation of the ratings for MIC reflects its sound risk-adjusted

capitalisation on a consolidated basis,” states the ratings issuer, adding, “the company’s capital adequacy remains supportive of its current ratings”. Macau Insurance also maintains a conservative level of net premium leverage, says A.M. Best. It adds some reservations. “These positive rating factors are partially offset by the quality of MIC’s earnings. Despite the continuous improvements in its net profits since 2008, these increases were driven predominantly by gains outside of its underwriting operations,” says the ratings firm. “MLIC enjoys economies of scale through sharing of operating costs and reduction in duplication of resources in product development with other DSFH subsidiaries,” adds the ratings issuer. Macau lender BCM bank is also a unit of Dah Sing Financial and has 14 branches in the city. M.G.

October 15, 2013

Macau

Work may begin on Patane sites this year Tin Wai has submitted its development proposals for the government’s approval Tony Lai tony.lai@macaubusinessdaily.com

ork to build 20-storey towers on land in Patane that has lain idle since 2008 could begin before the end of the year. Influential businessman Liu Chak Wan said concessionaire Tin Wai Investment Co Ltd had gained control of the land after five years of wrangling with the government. “We are now [preparing] to submit the construction proposal to the government and the construction can start immediately after the administration’s approval,” Mr Liu said on Sunday. Mr Liu, Tin Wai’s former owner, said there was no starting date for construction but was hopeful that work might begin on the twin sites this year. Mr Liu sits on the Executive Council and is a member of the standing committee of the Chinese People’s Political Consultative Conference.

Tin Wai won the tender to develop the two blocks with a combined area of more than 4,670 square metres with a bid of 1.42 billion patacas (US$177.5 million). The grant was finalised only in August after lengthy disputes over combining the blocks into one bigger area as Tin Wai had wanted. Abandoned car wrecks disposed of illegally on the site also held up construction. The government and company were at loggerheads over who should clear the site. The government cleared the wrecks during the summer months. Mr Liu said the site would include mixed-used towers of “some 20 storeys”, dedicated mostly to housing, but he would not say if the flats would be finished to a luxury standard. In March, there were reports that high-quality flats would be built in both of the 90‑metre‑high towers.

Tin Wai had wanted to combine two blocks of land before developing them

Tin Wai was granted four years to complete construction, one more than in the original proposal, according to a dispatch published in the Official Gazette in August. The flats should be ready by the end of 2017.

Meanwhile, Mr Liu said he had confidence in the city’s legal system. Hong Kong developer Joseph Lau Luen Hung, on trial for allegedly paying a HK$20-million bribe (US$2.6 million) to former secretary for transport and

public works Ao Man Long, said he was being “persecuted by influential people”. Mr Liu said: “He can say what he wants… but his remarks are ridiculous.” The trial into Mr Lau’s involvement in the failed La Scala development continues.

Slow progress in battle against squatters

he government has seized the equivalent of 30 standard soccer pitches of illegally occupied land since March in 2009. The Land, Public Works and Transport Bureau said yesterday it had recovered 53 pieces of land with an area of more than 220,000 square metres. The government set up a team to review the city’s land usage, including blocks of land that were not being developed or illegally occupied. “Many seized land plots have been handed over to different public departments to be used for the city’s urban planning or added to the government’s land reserve,” the bureau said yesterday. Some land has been used for

public facilities and some for housing, including the TN27 project in Taipa with 2,703 flats. The bureau did not provide details on how the land would be zoned, if it could be used for housing or if more illegally occupied land would be taken back. Politicians and social groups have asked the government to put more effort into reclaiming idle land. The General Union for Neighbourhood Associations, a pro‑establishment grassroots group, said there were 375 illegally occupied blocks of land at the end of last year. In 2009, the government said it would review the ownership and development of 130 pieces of land.

Land seized in Taipa was used to build more public housing

T.L.

October 15, 2013 April 19, 2013

Macau

SJM Cotai boosts share price target Morgan Stanley says new casino resort planned by Stanley Ho’s firm worth HK$5.40 per share to base case Michael Grimes

michael.grimes@macaubusinessdaily.com

JM Holdings Ltd’s Cotai casino project is worth up to HK$5.40 (70 US cents) per share when assessing a price target for the company’s stock, says a new report by Morgan Stanley in Hong Kong. The paper raises the bank’s overall price target for the Macau gaming firm to HK$28.00 per share. The bank also upgrades SJM shares to ‘overweight’ from ‘equal weight’ “reflecting our EBITDA/EPS [earnings before interest, taxation, depreciation and amortisation/ earnings per share] estimate increases and adding HK$5.40 per share for the Cotai project for the first time in our base case,” writes Morgan Stanley managing director Praveen K Choudhary. He highlights the fact that SJM has the highest free cash flow yield and dividend yield of all the Macau gaming names. The report points out however that “some concerns” remain. “SJM is the last to build a casino in Cotai; thus its market share could erode further in the interim,” it states, pointing out that limited hotel room inventory on Macau peninsula caps the potential for earnings growth there via overnight visitors. “Margin

SJM’s Cotai site is near Macao Dome (Photo: Manuel Cardoso)

felt pressure for Grand Lisboa in the first half 2013 as staff costs rose,” the report says. But the document also lists a number of catalysts to support its target price. They include strong massmarket revenue growth in the third quarter of “18 percent quarter-onquarter and 16 percent year-on-year”. Official numbers from the Gaming Inspection and Coordination Bureau for the third quarter are expected this week. Other catalysts says Morgan

Stanley, are: expected approval for construction on Cotai; a potential deal to include non-gaming facilities adjacent to the existing Cotai land parcel (a reference to a Cotai plot controlled by SJM executive director Angela Leong On Kei which is bigger than SJM’s but not zoned for gaming); the opening of the under renovation Casino Jai Alai in 2014; the addition of more mass tables at Grand Lisboa; the improvement of ‘premium mass’ operations at Casino Lisboa and a possible 12

percent year-on-year increase in share dividend to HK$1.01 per share in 2013. At a press conference in early September to announce a hotel partnership with Italian fashion house Gianni Versace SpA on the SJM Cotai project, Ambrose So Shu Fai, chief executive of SJM, mentioned the entire scheme was likely to cost HK$25 billion. SJM Cotai is likely to have 2,000 hotel rooms in total, SJM has said. Mr So repeated at the press conference that the firm has asked the government for 700 gaming tables. SJM only received its Cotai land concession from the government in May this year, but is hoping to open a facility by 2018 at the latest – two years before its current concession expires. Its Cotai plot is only 70,500 square metres (759,000 sq. feet), while local legislator Ms Leong – fourth consort of SJM’s founder Stanley Ho Hung Sun – has a plot next door of 180,000 sq. m. Ms Leong and the casino firm announced in May that they were likely to cooperate in developing the two sites, but an official deal is yet to be announced.

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Corporate MGTO supports Business Awards

Facelift time for Westin Macau

Macau Government Tourist Office has confirmed its support to the Business Awards 2013, in another sign that government institutions understand the role this event can play in the city. While boosting local businesses’ awareness the event plans also to promote the city as a destination ready to welcome businesspeople from different sectors, the organisers said. The marketing strategy of Business Awards “is aimed at promoting Macau as a major player on the MICE sector in Asia,” they said. As the Tourist Office highlights on its website: “Macau is one of Asia’s newest and most exciting business tourism destinations, after a period of rapid and unprecedented infrastructure development. It is a city of great contrasts being only 29.7 square km in size yet the home to Asia’s largest fully integrated convention and exhibition centre; a city of world heritage stature that also boasts one of the world’s most spectacular and modern skylines; a city that blends the rich traditions of Chinese and Portuguese cultures which is reflected in its lifestyle, food, restaurants, architecture and festivities”. The organisers of the Business Awards 2013 say they are proud to see the Macau Government Tourist Office joining the project. The organising committee “also appreciates such support, especially in helping promote Macau’s MICE industry abroad in order to help the city diversify its economy”. AIA Group, one of the largest brands in the life insurance market in Macau, is also supporting the Business Awards 2013. The company believes the event will benefit the image of local businesses and decided it was important to be part of this first edition, said the organisers. Melco Crown Entertainment Ltd recently decided to support the Business Awards project as a sponsor. Melco is an owner and developer of casino gaming and entertainment resort facilities that are focused on the rapidly expanding gaming market in Asia.

The Westin Resort Macau has launched a revitalisation programme for all its 208 guestrooms and suites on October 8, aiming to lift up the overall guest experience. The programme was put together by The Westin Resort Macau design team with in-room feature design supported by the internationally interior design company HBA Design Consultants. The revamp includes installing LED television sets ranging from 40 to 46 inches in all rooms, with surround sound quality. Business and leisure travellers would especially appreciate this new feature, the resort says in a statement. The rooms will also be decorated with brand new carpets and armoire designed by HBA Design Consultants, and accent wallpaper. The changes will “bring more light” into the guestrooms, the resort says. In addition the armoire will allow guests to put away “all room amenities” in order to create a “clutter-free” living environment with a more spacious settling, says Westin Macau. The new Westin Macau will be ready by the end of this year, the resort said in a press statement. Until then visitors can explore the new guestroom mock set up at the hotel’s lobby to preview the new features.

October 2013 April 19,15, 2013

Macau

Budget package trippers – numbers down y-o-y (Photo: Carmo Correia)

Tour rule change cuts ferry port holiday traffic But total tourist numbers still up nearly 6 pct year-on-year says tourist office Michael Grimes

michael.grimes@macaubusinessdaily.com

isitor arrivals at Macau Maritime Ferry Terminal at the Outer Harbour fell 11.8 percent year-on-year during Golden Week holiday. But traffic at most other entry points rose, helping to create a 5.7 percent net expansion in tourist numbers compared to the equivalent period a year earlier, said Macau Government Tourist Office. Mainland visitors disembarking via the peninsula’s ferry facility in the period October 1 to 7 inclusive, tumbled 33.1 percent. Numbers of mainland tourists arriving at Taipa Temporary Ferry Terminal declined by approximately 27.6 percent

year-on-year. The tourist office indicated the decline seen at the peninsula’s ferry port was due to the banning by the mainland authorities of so-called ‘zero fare’ tours – that depend on shopping trips. “…most mainland tour-group visitors departed from mainland China through Shenzhen and arrived at Macau via Hong Kong. As the Tourism Law of the People’s Republic of China officially took effect on 1st October this year, mainland visitor arrivals via Macau Ferry Terminal during 1st October Golden Week dropped drastically by 11.8 percent compared to the same

period of last year,” said MGTO. The office added however that the numbers using the Gongbei Gate, the Zhuhai-Macau Cross-border Industrial Park entry, the Lotus Bridge crossing point at Cotai and Macau International Airport were all up on the equivalent period a year earlier. According to data from the Public Security Police, total visitor arrivals between October 1 and 7 inclusive, amounted to 896,847 people, a year-on-year rise of 5.7 percent. The cohort of mainland visitors in the tally accounted for 722,746 people – or 80.6 percent of all arrivals. That was a 12.1 percent

increase in mainland travellers compared to Golden Week in 2012, said the tourist office. MGTO added that average occupancy rates for three-star and four-star hotels actually fell slightly – by 0.8 percent and 0.43 percent respectively to approximately 87.7 percent and 85.2 percent. Occupancy for five-star accommodation rose one percent to 93.2 percent. Room rates averaged across the three- to five-star range rose 11.0 percent year-on-year to nearly 1,934 patacas (US$242). The average two-star room price rose 20.0 percent to 1,101 patacas. Part of the tourist office’s job is to monitor visitor satisfaction and ensure standards are maintained at hotels and inns and also at tourist sites. The office said it carried out 75 inspections at “various ports and sightseeing spots” during Golden Week. It also did 32 inspections of premises, and sealed three venues allegedly operating as unlicensed, and therefore illegal, inns. The airport’s operator Macau International Airport Co Ltd (CAM) said the facility handled more than 90,000 passengers, a 10 percent increase over the same period last year. It had 934 aircraft movements; a 9.8 percent expansion on the same period a year ago, added the company.

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October 15, 2013 April 19, 2013

Greater China Stocks climb as railway shares surge China’s benchmark stock index rose to a onemonth high as railway companies surged on speculation they may help build Thailand’s highspeed train system, offsetting data showing lower exports and faster inflation. CSR Corp and China CNR Corp, the nation’s biggest train makers, jumped by the 10 percent daily limit. China Vanke Co and Poly Real Estate Group Co slid at least 2.5 percent after the China Securities Journal said the government may accelerate the establishment of long-term controls on the property market. The Shanghai Composite Index advanced 0.4 percent to 2,237.77 at the close, the highest level since September 12. Thailand’s prime minister said China showed interest in developing the Southeast Asian country’s highspeed train system. “It’s an event-driven sentiment on the railway stocks,” said Wu Kan, a Shanghai-based money manager at Dragon Life Insurance Co, which oversees US$3.3 billion. “The government is now also adopting a ‘going out’ strategy for the railway industry to boost competitiveness.”

Food prices fuel inflation China’s CPI for September was 3.1 percent up on last year Kevin Yao and Xiaoyi Shao

Rising food prices have been a concern for policymakers in recent past

Huawei rules out large acquisitions Huawei Technology Co Ltd, one of the world’s largest telecoms network infrastructure providers, is not planning any large takeovers because it would be unable to integrate them, deputy chairman Guo Ping was reported as saying in German paper Welt am Sonntag. Mr Ping, one of three deputy chairmen who take turns acting as chief executive, was responding to the paper’s question on whether he could imagine buying one of Europe’s big players in the sector, such as Nokia OYJ or Alcatel-Lucent. Huawei, which is also one of the world’s leading handset manufacturers, last month ruled out the possibility of buying another mobile phone maker. However, Mr Ping said that it would be open to cooperation with another handset company, the paper reported.

Beijing suspends land auction over price concerns Authorities in Beijing suspended the auction of a plot of land over concerns it could fetch a record high price, amid signs of sustained heat in the property market despite a near four-year long official campaign to keep prices in check. Rising land prices would fuel market expectations of rising home prices, adding to the risk of a property bubble in the world’s second-largest economy. The Beijing Municipal Bureau of land and Resources cancelled the auction without giving a reason, according to a statement posted on the bureau’s website. But the official China News Service quoted officials from the bureau as saying the move was aimed at stabilising market expectations as the capital city’s property market has shown signs of overheating. The move follows a series of recent deals that saw land prices hit record highs in large cities, including Beijing, even as the central government has been renewing its push to rein in the frothy housing market. China’s developers have posted strong contract sales in the first nine months of 2013, and some of them have already hit their fullyear sales targets.

hina’s annual consumer inflation rate rose to a sevenmonth high of 3.1 percent in September as poor weather drove up food prices, limiting the scope for the central bank to manoeuvre to support the economy even as exports showed a surprise decline. But few analysts expect a further sharp rise in inflation or policy tightening in coming months as the world’s second-largest economy still faces a weak global environment and Beijing tries to tap the brake on credit-fuelled investment. The inflation rate was higher than a median forecast of 2.9 percent in a Reuters poll and August’s 2.6 percent, but was still below the official target of 3.5 percent for 2013. “We expect CPI inflation to rise further in Q4 and see rising risks that it may rise above 3.5 percent for some months in 2014,” said Zhiwei Zhang, China economist at Nomura Holdings Inc in Hong Kong. “The rise of CPI inflation leaves little room for policy easing as benchmark deposit rate is only 3 percent.” At the same time, analysts see little risk of a tightening given inflation was below the full-year target. Month-on-month, consumer prices rose 0.8 percent, the National Bureau of Statistics said yesterday, bigger than a rise of 0.5 percent expected by economists. Food prices gained 1.5 percent in September from August due to droughts and floods in some areas, pushing up the CPI by 0.51 percentage points, Yu Qiumei, a senior statistician at the bureau, said

in a statement. In annual terms, food prices jumped 6.1 percent. “September CPI inflation gained more momentum on seasonal factors and a low base effect from last year,” said Li Huiyong, an economist at Shenyin & Wanguo Securities Co Ltd in Shanghai. “But we think the inflation situation is still under well control and will not be a concern this year, especially when the economy is struggling with over-capacity problems.” China’s exports dropped 0.3 percent in September from a year earlier, against expectations of a 6 percent rise, data showed on Saturday.

Producer prices Factory-gate deflation eased further in September, although in annual terms prices still recoded

KEY POINTS Higher prices follow surprise export drop Food prices jump 6.1 pct on-year Inflation leaves little room for policy easing Analysts see little risk of a tightening

a 19th consecutive fall. Producer prices fell 1.3 percent from a year earlier, a smaller fall than the 1.4 percent expected by the market and the 1.6 percent drop in August. However, there was some relief to manufacturers struggling to cope with profit-eating price declines, as producer prices rose 0.2 percent from August. After slowing in nine of the past 10 quarters, the economy looks to have stabilised since mid-year after Beijing acted to head off a sharper downturn with increased spending on public housing construction, railways and tax cuts for smaller firms. Annual economic growth is forecast to have accelerated to 7.8 percent in the third quarter from 7.5 percent in the second quarter, but the recovery could fizzle towards the year-end, the Reuters poll showed. Third-quarter GDP growth data, along with industrial output, fixedasset investment and retail sales, is due on Friday. Beijing has a growth target of 7.5 percent for 2013, which would be the weakest rate in more than 20 years, and has repeatedly said it would accept slower growth as it tries to wean the economy off dependence on investment and exports in favour of domestic consumption. “The economy faces some downward pressures, especially by looking at the export data. Full-year GDP growth could be 7.6 percent,” said Zhou Hao, China economist at Australia & New Zealand Banking Group Ltd in Shanghai. Reuters

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October 2013 April 19,15, 2013

Greater China

U.K. to relax visa rules for Chinese Easing entry for high-spending travellers sign of better relations

isa applications for Chinese visitors entering the United Kingdom will be simplified, Chancellor George Osborne has announced during his trade trip to China. Mr Osborne is leading a delegation including Bank of England deputy governor Charlie Bean, London mayor Boris Johnson and representatives of U.K. technology companies, that arrived in Beijing on Sunday. “I don’t want us to try to resist your economic progress, I want Britain to share in it,” Mr Osborne said in a speech yesterday at Peking University. “There is no country in the West that is more open to investment, especially investment from China, than the U.K. is.” U.K. officials are pushing to place the British economy on a firmer footing by rebalancing activity toward exports and business investment. Low demand from the euro area, Britain’s biggest export partner, is spurring interest in other markets such as China. “We are two great trading nations, with a shared interest in keeping the trade routes of the world open and free,” he said. During the trip, Mr Osborne will co-host the fifth China-U.K. economic and financial dialogue with Chinese Vice Premier Ma Kai to discuss the economy, trade, investment and financial management. The talks will include “big steps” in making London

a home for Chinese banks, bonds and finance, Mr Osborne said before meeting governor Zhou Xiaochuan of the People’s Bank of China. “It is my personal mission that as you develop an international role for the renminbi, you develop that role through the international centre of finance – London,” he said at Peking University.

Visa programme Mr Osborne said Britain will start a pilot programme to allow some Chinese travel agents to apply for visas by submitting the same form they use for a visit to the European Union’s Schengen Zone. Other visa measures include creating a “super priority” service that will start about the middle of next year. A “VIP mobile visa” service now operating in Beijing and Shanghai, which reduces the collection process to about five minutes, will be expanded to other parts of China. Some 210,000 visas were issued to Chinese nationals in 2012, adding about US$480 million to the British economy. “These changes will streamline and simplify the visa application process for Chinese visitors, while ensuring the system is strong and secure,” he said in an e-mailed statement. The visit of the Bank of England’s Mr Bean and London mayor Johnson comes as London

China, Vietnam agree to deepen partnership Two-way trade was US$41.2 billion in 2012

ietnam pledged to boost “political trust” with China during Premier Li Keqiang’s visit, as the two Communist countries focus on building economic ties and calming territorial tensions. Mr Li, who arrived in Vietnam on Sunday, and Prime Minister Nguyen Tan Dung pledged to cooperate in all fields, including growth and trade, according to a posting on the Vietnam government’s website, even as they remain in dispute over waters in the South China Sea rich in fish, gas and oil. The two signed a memorandum of understanding for a cross- border economic cooperation zone and agreed to open trade promotion offices, the posting said, as the countries aim to boost two-way trade to US$60 billion by 2015. Mr Dung also accepted an invitation to visit China. Mr Li’s visit, the first since China’s leadership change, “has great significance in boosting and

We are two great trading nations, with a shared interest in keeping the trade routes of the world open and free

strengthening political trust and comprehensive strategic partnership between the two countries,” the Vietnam government said on its website. “Since the relationship was normalised in 1991, friendship and cooperation between Vietnam and China has developed fast, deeply and widely in all fields.”

Trade flows A race for resources in the South China Sea, and a broader push for influence in the region, has the bigger powers looking to shore up relationships with smaller countries, with Chinese President Xi Jinping visiting Indonesia and Malaysia earlier this month. Mr Dung warned at a forum in Singapore in late May that miscalculations over territorial spats in the waters could disrupt “huge” trade flows and have global consequences. Two-way trade between Vietnam and China was US$41.2 billion in 2012,

U.K.’s Chancellor George Osborne

is vying with Frankfurt, Paris and Zurich to become a trading hub for the Chinese currency. The Bank of England became the first European central bank to establish swap facilities with China, announcing a three-year 200 billion-yuan (US$33 billion) currency swap line in June to promote financial stability and trade. Mr Osborne will be in China through Friday, and will visit Shenzhen, Guangzhou and Hong Kong. Britain is already the most popular destination in Europe for Chinese investment, which last year jumped 95 percent, according to

according to a separate posting yesterday on the Vietnam government’s website. Vietnam’s exports to China were valued at US$12.4 billion and imports at US$28.8 billion last year, it said, while in the first eight months of this year two-way trade was US$31.8 billion. The leaders agreed to establish a working group to explore joint sea projects, according to the posting, which did not elaborate on the location of possible development. The Philippines and Vietnam have rejected China’s map of the sea, first published in the 1940s, as a basis for joint exploration of oil and gas. The talks between China and Vietnam will help “maintain sound, sustainable development of bilateral relations conducive to peace and regional stability,” Chinese Foreign Ministry spokeswoman Hua Chunying said at a briefing in Beijing yesterday. The new joint working group on maritime development is “an important breakthrough,” Ms Hua said. Vietnam and China will expand financial and monetary cooperation, encourage financial institutions on both sides to support trade and investment projects and enhance both nations’ ability to prevent financial and monetary risks, according to the Vietnamese government. Bloomberg News

U.K. government data. The delegation’s arrival came as a Chinese investment in Manchester Airport, Britain’s busiest hub outside London, used by more than 20 million passengers a year, was announced. Beijing Construction Engineering Group Co formed a venture with Manchester Airports Group and other partners to build an international business district in Manchester, the U.K.’s second-biggest city, the companies said on Sunday. The airport plans to operate a direct airline service to China. Bloomberg News/AFP

Dalian Exchange may start iron ore futures D alian Commodity Exchange may start trading the first iron ore futures contracts for physical delivery this week as China seeks greater control of price setting for the steelmaking material. Trading will begin “as soon as possible” and October 18 is among the dates being considered after the securities regulator approved the listing of contracts last week, Wang Weijun, a spokesman for the bourse in the northeastern port city, said by telephone yesterday. Chinese steelmakers, the world’s biggest iron ore buyers, earlier this year questioned the reliability of a price index provided by Platts that became a benchmark after producers including Vale SA and Rio Tinto Group scrapped annual contract price talks in 2010. China started its own spot trading platform last year, introducing a weighted average daily price in March. “Trading iron ore futures may take off quickly because investors are already familiar with steel-related products including rebar contracts on the Shanghai Futures

Exchange,” said Wang Yongliang, an analyst at Beijing CIFCO Futures Co. The contracts will be for 100 metric tons, have a daily trading band of 4 percent and be denominated in yuan, the exchange said in a separate e-mailed statement yesterday. Iron ore futures already offered by Singapore Exchange Ltd, CME Group Inc and Intercontinental Exchange Inc are based on indexes rather than the physical commodity, according to the statement. The Dalian bourse, China’s third-largest futures exchange by volume, will provide an “objective and fair” pricing mechanism, it said. Imports by China rose to a record 74.6 million tons in September, according to data released Saturday by the customs agency. The seaborne trade is the biggest global commodity cargo after oil. Iron ore for immediate delivery at Tianjin port traded at US$133.10 a dry ton on Friday, according to a price index compiled by The Steel Index Ltd. The spot contract has declined 8.1 percent this year. Bloomberg News

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October 15, 2013 April 19, 2013

Greater China week that investors should not get too carried away by consensus earnings estimates for Chinese smallcaps topping 20 percent for 2014.

Narrowly invested

Investors seek to make a quicker buck off smaller caps

Bubble trouble brewing for shiny penny stocks Concerns growing that stock valuations too far ahead of earnings Clement Tan

hen it comes to mainland Chinese stocks this year, small is hot. Up nearly 80 percent in 2013, Shenzhen-listed penny stocks have outperformed a moribund broader market in a big way. But fears are growing that the market is looking ripe for a correction. Retail investors chasing outsized returns have aggressively pushed small-cap stocks higher, which is much harder to do on largecap stocks. There are signs that institutional investors are also in the game, prodding penny stocks to record highs. However, concerns are growing that stock valuations have gone too far ahead of earnings. Investors would also be disappointed if their high expectations of major economic reforms are not met when the ruling Communist Party holds its key policy meeting in November. The Nasdaq-styled ChiNext Composite Index of mainly high growth, high tech counters listed in Shenzhen and only came into being in 2010, is now trading at 55 times its price-to-earnings (PE) ratio. This is almost four times the 14.8 times PE ratio that the CSI300 of

KEY POINTS Shenzhen-listed penny stocks up nearly 80 pct ChiNext’s market capitalisation at 650 bln yuan Index trading at 55 times price-to-earnings ratio Possible correction ‘won’t be major’ – analyst

the biggest Shanghai and Shenzhen A-share listings, which is down about 3 percent on the year. Midcap counters have also similarly outperformed. “It’s definitely a bubble for some of these small-caps, but not true for all of them,” Heather Hsu, CLSAFortune Securities A-share strategist, told an investment conference in Hong Kong late last month. She added that any correction “won’t be major” because private enterprises form the bulk of small caps, which make them more dynamic and more efficient in allocating capital. But given such strong gains on the year, Ms Hsu said stock picking among listings on Shenzhen’s Growth Enterprise Board will become more important from here on.

Market capitalisation Still, such “high and persistent valuation premiums [small-caps have over large-caps] are rare in other world markets,” strategists at influential investment bank China International Capital Corp (CICC) said in a note dated October 2. Despite the surge this year, the ChiNext board still only has a total market capitalisation of nearly 650 billion yuan (US$106.19 billion) a far cry from the CSI300’s 14.4 trillion yuan (US$2.35 trillion). CICC expected Chinese penny stocks to lose some of their gains, narrowing the big valuation difference with large-cap counters. Usually, CICC said, sectors that outperform in the first three quarters of a year underperform in the next three quarters and expensive valuations make this “even more probable”. Mainland media reported in late-September that block trades in small-cap stocks hit a record high in the third quarter, a sign that that institutional investors have joined the rally. And there are signs that

offshore markets are catching onto this onshore exuberance for smaller, but high-growth counters. The MSCI China Overseas smallcap index has risen more than 50 percent in 2013, compared to a 2 percent loss for the large-cap dominated MSCI China. While analysts have generally slashed 2013 earnings expectations after first half reporting season, Credit Suisse analysts warned last

PBOC sets record high yuan midpoint C

hina’s central bank set the yuan’s official guidance rate at a record high yesterday, shrugging off a weakerthan-expected monthly exports in September. The People’s Bank of China (PBOC) fixed the yuan midpoint – the rate from which the traded rate is allowed to diverge by 1 percent in either direction – at 6.1406 per dollar at the market open, the highest it has been since China created its domestic foreign exchange market in 1994. China’s exports dropped 0.3 percent in September from a year earlier, data showed on Saturday, sharply confounding market expectations for a rise of 6 percent, and marking the worst performance in three months. A similar surprise dip occurred

As small-cap stocks surge, the risks rise for investors who are too narrowly invested in them, as seen when liquor stocks crashed late last year after the incoming party leadership launched an anticorruption drive. Policymakers talk of increasing the institutional investor presence. But China’s markets, according to analysts, are still largely driven by retail investors, who tend to pile into stocks with a common investment theme, leading to outsized gains. The speed with which this cash moves as investors hunt for pockets of growth in an economy that is slowing, has not only added to the volatility. It has also magnified the contrasting fortunes of sectors in or out of favour. Sector-wise, technology and pharmaceutical counters have outperformed “old economy” sectors such as resources and industrials struggling with chronic overcapacity issues. But these outperforming sectors – which dominate ChiNext listings – also saw the highest percentage of companies missing earnings expectations in 2012, according to Thomson Reuters StarMine. Not much has changed so far in 2013 and with third-quarter corporate results due in the next few weeks, any earnings disappointment could trim the outperformance in these fast growth counters. “Thematically, the sectors that dominate the ChiNext shares will form the Chinese economy in future,” said Hong Hao, chief strategist at Bank of Communication International Securities. But, Mr Hong said, there was a more compelling reason for investing in these stock than hopes of future growth. “It’s just much easier to make a quicker buck off smaller caps.” Reuters

in June, and economists suggested that the yuan’s strength was in part to blame, especially given the massive declines posted by currencies of most other Asian countries, most notably the Japanese yen. The yuan’s nominal exchange rate is up 1.85 percent so far this year; the currency has also risen in trade-weighted terms every month since September 2012 until it finally declined slightly in August, according to date from the Bank for International Settlements. The PBOC’s policy toward the exchange rate has become increasingly controversial this year as it has pitted the short-term interests of Chinese exporters, who credit themselves with driving much of China’s real economic growth, against the wider longterm national interest in economic restructuring. “Practically speaking, domestic businesses don’t hope for more rises to the yuan, because exports are still really weak, and if it keeps rising the results could be really ugly,” said a forex trader at a European bank in Shanghai. “But in terms of the internationalisation of the yuan, you can’t devalue it either,” he added. Reuters

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Asia

India’s inflation at 7-month high Increase in prices adding to rate-rise case

ndia’s headline inflation unexpectedly hit a seven-month high in September, mainly driven by higher food prices, increasing the odds for yet another interest rate hike by the central bank at its policy review later this month. The wholesale price index (WPI), India’s main inflation measure, rose an annual 6.46 percent last month, the fastest pace since February 2013. The reading compared with a 6 percent rise estimated by analysts in a Reuters poll. Wholesale prices had risen 6.1 percent in August. The rise was mainly driven by higher prices of onions and vegetables. Onion prices were up an annual 322.94 percent in September, while prices of vegetables rose 89.37 percent year-on-year. Worries over high inflation led new Reserve Bank of India (RBI) chief Raghuram Rajan to surprise markets in his policy review last month with an interest rate hike. Economists are split over whether Mr Rajan will hike rates again at the next review on Oct. 29. However, yesterday’s WPI data has increased the odds for more tightening at that meeting. “There was anyway a case for a rate hike based on the previous inflation prints, including the

Cost of living is jumping stoked by food prices

CPI [consumer price index]. This number has reinforced the case for a 25 basis points repo rate hike by the RBI,” said A. Prasanna, economist at ICICI Securities, Primary Dealership Ltd, in Mumbai. Indian bonds slumped and the rupee weakened after the WPI data raised expectations for a rate hike.

The inflation data provides further evidence of high inflation and weak growth in Asia’s third-largest economy, which some analysts define as akin to stagflation. For the past three quarters economic growth has been stuck below 5 percent and prices are rising at a fast clip. Even though India is stumbling

through its worst economic crisis since 1991, Mr Rajan has clearly signalled he would focus on price stability, which he sees as a necessary condition for lifting economic growth from a decade low. Inflation is expected to come down in coming months as a slowing economy is likely to keep demanddriven price pressures in check and as this summer’s strong monsoon rains may eventually cool food prices. Yet, price risks persist. Adjustments in domestic prices of subsidised fuel and other imported items following a sharp depreciation of the rupee are still incomplete. Although the rupee gained 5 percent last month, it is still down around 10 percent this year against the dollar, meaning higher import costs for items such as oil, fertilizer, pulses and edible oil in rupee terms. Adding to the central bank’s worries, core inflation quickened to 2.1 percent in September. “Rising input costs have again pushed up core inflation on a monthon-month basis,” said Rupa Rege Nitsure, chief economist at Bank of Baroda in Mumbai. “While CAD [current account deficit] worries have faded, inflation continues to remain the major macro risk”. Reuters

Najib sees Malaysia escaping rating cut Government to meet to decide on goods and services tax

rime Minister Najib Razak said he believes that Malaysia can avoid a cut to its credit rating while the government will try its “level best” to prevent a breach of its self-imposed sovereign debt ceiling. “We will manage it,” Mr Najib said in an interview. “We’re very closely monitoring how we manage our macro position as well as our fiscal and debt to make sure that we will not be downgraded.” Mr Najib raised subsidised fuel prices for the first time since 2010 and said he’d delay some public projects after Fitch Ratings cut Malaysia’s credit outlook to negative in July, citing rising debt levels and a lack of budgetary reform. The country, which has a long-term foreigncurrency denominated rating of A- at Fitch, has run annual budget deficits every year starting in 1998. At 53.3 percent, Malaysia’s debtto-gross domestic product ratio is the highest among 12 emerging Asian markets after Sri Lanka, according to data compiled by Bloomberg. Moody’s Investors Service said last month the budget gap may exceed Mr Najib’s target of 4 percent of GDP this year and warned fiscal targets will become “increasingly out of reach” unless further measures are taken. Moody’s rates Malaysia government bonds A3 with a stable outlook. The government will further cut state subsidies, broaden its tax base and manage spending “prudently,” said Mr Najib, who is also finance minister, without elaborating. Cabinet will meet before the 2014 budget is released on October 25 to decide if there’s enough public support to introduce a goods and

We are one of the very, very few countries in the world which doesn’t have a GST Najib Razak, Malaysia’s prime minister

services tax, he said. “We are quite positive on Malaysia,” Enrico Tanuwidjaja, a Singapore-based economist at Nomura Holdings Inc, said. “They are on a fiscal consolidation path and they will boost the revenue base if the government can push through the GST [goods and services tax] in the coming budget. A sub-3 percent fiscal deficit could happen in 2016, if not in 2015 as per the official aim.” The ringgit has fallen 4 percent this year, the fifth worst performer

among 11 most traded Asian currencies tracked by Bloomberg. The currency could gain over time if the nation’s fundamentals remain strong, central bank Governor Zeti Akhtar Aziz said in an interview. The government earlier planned to introduce a 4 percent GST by 2011. It hasn’t said what the rate may be if it now goes ahead. “We are one of the very, very few countries in the world which doesn’t have a GST,” said Mr Najib, who was returned to power in a general election in May with a reduced

majority as his coalition lost the popular vote for the first time. “But there are challenges. Anything to do with any new form of tax, like consumption tax in Japan, carbon tax in Australia, these are big issues that cannot be easily decided.” The government will “try our level best” not to go beyond its debt ceiling of 55 percent of GDP, said Mr Najib. If Malaysia can achieve 5 percent to 6 percent GDP growth “we should be able to manage the debt ceiling,” he added. Bloomberg News

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Asia S.Korea signs currency swap deal with UAE South Korea’s central bank said yesterday it signed a bilateral, three-year currency swap deal with the United Arab Emirates worth up to US$5.4 billion in a bid to strengthen trade and financial ties between the two countries. The arrangement lets either country swap 5.8 trillion Korean won for 20 billion dirham, or vice versa. The Bank of Korea said the agreement expires in three years but can be extended if needed. The currency swap agreement is the second announced in two days, after the Bank of Korea said it would soon sign a won-rupiah swap pact with the Indonesian central bank valued up to US$10 billion. The central bank has been discussing a potential currency swap with the UAE since June, a Bank of Korea official told Reuters on Sunday. The BOK is also open to signing similar currency swap deals with other countries, he added, but declined to say if any additional deals would be announced in the near future.

GS Caltex drops Brazil refinery project South Korea’s second-largest oil refiner GS Caltex Corp said it has dropped plans to build a refining plant with GS Energy and Brazil’s state-run oil firm Petroleo Brasileiro SA due to uncertainty over profitability. “We decided not to go for the project. We dropped it completely and so has GS Energy as we are not sure whether it is a profitable project,” GS Caltex chairman Hur Dong-soo told reporters on the sidelines of the World Energy Congress. GS Caltex is equally owned by Chevron Corp, the second-largest U.S. oil company, and South Korea’s GS Energy, owned by GS Holding. In June, Petrobras signed an accord looking at a possible partnership to build a 300,000 barrel-per-day low-sulphur diesel refinery starting in late 2017 near Fortaleza on Brazil’s northeastern coast.

Asia-Pacific needs US$11 trln to fuel energy demand Net oil imports in the Asia-Pacific will rise to more than 25 million barrels per day in 2035, or close to the current crude output in the Middle East, as energy demand growth outpaces the rest of the world, the Asian Development Bank said yesterday. Asia-Pacific nations will need cumulative investments of more than US$11 trillion between 2010 and 2035 to fuel energy needs, the bank said in a report on the region’s energy outlook. Primary energy demand growth led by the transport sector is projected to rise at 2.1 percent a year during the period, faster than the world’s average growth at 1.5 percent. “The trend will be slower than the historical one, and energy intensity will be decoupled from the GDP growth through 2035, in view of the assumed steady improvement in energy efficiency and some shifts in economic structure,” the ADB said.

Singapore GDP beats estimates Central bank to allow currency gains as inflation adds pressure Sharon Chen

ingapore’s central bank maintained its commitment to currency appreciation after the economy shrank less than estimated last quarter, forgoing stimulus as labour shortages and record home prices fuel inflation. Gross domestic product fell an annualised 1 percent in the three months through September from the previous quarter, when it expanded a revised 16.9 percent, the trade ministry said in a statement yesterday. The median in a Bloomberg News survey of 13 economists was for a 4 percent contraction. The central bank, which uses the island’s dollar to manage inflation, said it will maintain a modest and gradual appreciation of the currency. Singapore has resisted monetary easing since October 2011 as curbs on foreign workers led to a tight labour market, and car and home prices surged. Inflation risks from China to Indonesia have added to the challenge for Asian nations as they confront slowing growth, with the International Monetary Fund cutting its global outlook for this year and next and the U.S. fiscal policy deadlock threatening the world economy. “Inflation remains a slightly higher priority,” said Enrico Tanuwidjaja, an economist at Nomura Holdings Inc in Singapore. “The current course is pretty much optimal. The MAS may not need to

alter policy unless there is material change in the growth or inflation outlook as structural adjustments in the economy may affect growth in the short term.”

No adjustment The Monetary Authority of Singapore was predicted by 19 out of 21 analysts to keep the current stance of a “modest and gradual” appreciation in the Singapore dollar and refrain from adjusting the trading band yesterday. At its last review in April, it stuck to the policy of allowing gradual gains in its dollar.

KEY POINTS Singapore policy tight as Q3 GDP beats forecast Inflation remains high priority for policymakers Govt forecasts economic growth of up to 3.5 pct Volatility in growth rates ‘likely’ – central bank

The economy expanded 5.1 percent last quarter from a year earlier, after growing a revised 4.2 percent in the previous three months. The median estimate in a Bloomberg survey was for a 3.8 percent gain. The government forecasts economic growth of 2.5 percent to 3.5 percent this year, and the central bank said yesterday the expansion is “unlikely to be significantly different in 2014”. Bank of America Merrill Lynch raised its estimates for Singapore’s GDP growth after yesterday’s report, predicting 2013 expansion of 3.5 percent and 2.8 percent for next year. “This policy stance is assessed to be appropriate, taking into account the balance of risks between external demand uncertainties and rising domestic inflationary pressures,” the central bank said. “The Singapore economy should continue to expand for the rest of 2013 and into 2014, although some volatility in growth rates is likely. There are short-term uncertainties in the external environment.”

Inflation gains Singapore’s inflation accelerated to a five-month high of 2 percent in August on food and housing, after earlier easing from more than 5 percent in mid-2012. Inflation may be at the upper half of the forecast range of 2 percent to 3 percent this year, the central bank said yesterday. “Barring a significant deterioration in global demand conditions, the labor market will remain tight, and exert further upward pressures on MAS core inflation as firms pass on accumulated costs to consumer prices,” the central bank said. International finance chiefs last week warned that failure by U.S. lawmakers to resolve their debt spat would hurt the global recovery. A political stalemate has closed the U.S. government since October 1, raising concern the standoff could end with the world’s largest economy unable to cover its bills and returning to recession. Bloomberg News

Economy expected to expand into 2014, central bank says

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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Asia

Rare pink stones only offered once a year

Rio Tinto pink diamonds fetch record prices Demand growing in Asian emerging markets

he annual sale of Rio Tinto Group’s rare pinkhued diamonds attracted unprecedented interest with at least two of the stones fetching record prices of over US$2 million, the mining giant said yesterday. The 2013 Argyle Pink Diamonds Tender of 64 red, pink and blue stones drew a record number of bids over US$1 million from established

markets such as Japan and Australia as well as emerging markets China and India. The highlight was the Argyle Phoenix, a 1.56 carat gem and one of three Fancy Red diamonds on offer, which sold for more than US$2 million to a Singapore-based jeweller, the highest per-carat price paid for any diamond ever produced from Rio’s Argyle mine

in Western Australia. The exact price was not disclosed due to client confidentiality. Another record was set for the Argyle Dauphine, a 2.51 carat Fancy Deep Pink diamond, which also sold for more than US$2 million, to a U.S.-based dealer. Rio’s Pink Diamonds manager Josephine Johnson said the prices reflected “increasing demand from

the world’s top jewellers, designers, collectors and connoisseurs”. “These fabulous flukes of nature are a good news story in the mining industry at the moment,” she said. “There was a lot of interest from our established markets such as Australia, the United States, Japan and Europe but also China and India, where there is now very strong demand.” A pink diamond is usually worth about 50 times more than a white diamond, although a 118.28-carat white diamond broke a world record earlier this month when it fetched more than US$30 million at a Hong Kong auction. Given the rare pink stones are only offered once a year and demand is high, previews were held in Sydney, New York, Tokyo, Hong Kong and Perth earlier this year to allow clients and experts to see the gems and make offers for individual diamonds. The Argyle mine produces virtually the entire world’s supply of pink diamonds, with the red seen as the pinnacle of the colour scale. It is not known how the diamonds acquire their rose tinge but it is thought to come from a molecular structure distortion as the jewel forms in the earth’s crust or makes its way to the surface. “We are delighted with the results for the 2013 Tender collection which are a reflection of their rarity, provenance, and global reach,” said Rio Diamonds managing director Jean-Marc Lieberherr. “The Argyle ore body is extraordinary and after 30 years of production it continues to produce the world’s most coveted diamonds.” AFP

14 14

October 15, 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 19,15, 2013

Opinion Business

The dollar and the debt ceiling

Leading reports from Asia’s best business newspapers

Barry Eichengreen

wires China Daily

Professor of Economics and Political Science at the University of California, Berkeley

China is considering setting up a yuan clearing bank in Thailand to meet demand for currency settlement between the two countries, Premier Li Keqiang said during a speech to the Thai parliament. The move is to encourage more trade settlement in the yuan between businesses from the two nations, Mr Li added. The bank will help meet the target of annual bilateral trade of US$100 billion between China and Thailand in 2015, a goal mentioned by Mr Li and his Thai counterpart Yingluck Shinawatra during a news conference.

Korea Herald South Korea and Indonesia agreed to conclude a comprehensive economic partnership agreement by the end of this year. “Sharing the view that the CEPA would help the two countries achieve our trade goal, and institutionalize bilateral economic cooperation, our leaders agreed to conclude the negotiations by the end of this year,” South Korean President Park Geun-hye said during a joint press conference after talks with her Indonesian counterpart Susilo Bambang Yudhoyono.

The Age Former union chief Bill Shorten was elected Australia’s new Labor leader on Sunday, with the party pledging to draw a line under years of infighting that saw two prime ministers toppled. Mr Shorten, an ambitious former head of the Australian Workers’ Union, beat ex-deputy prime minister Anthony Albanese in a month-long leadership race which went to a combined vote of Labor MPs and the party’s rankand-file members for the first time in its history.

Myanmar Times The World Bank revised its 2013 economic forecast for Myanmar up to 6.8 percent, from 6.5 percent, following better-than-expected results in gas production, services and construction. The lender warned however that possible risks, including government stability and high inflation driven by high food and property costs, could offset economic gains moving forward. “An emerging challenge is likely to be the capacity of the government to remain focused on the economic reform agenda in the runup to the fast approaching watershed elections in 2015,” it said.

he dollar is the world’s go-to currency. But for how much longer? Will the dollar’s status as the only true global currency be irreparably damaged by the battle in the U.S. Congress over raising the federal government’s debt ceiling? Is the dollar’s “exorbitant privilege” as the world’s main reserve currency truly at risk? To be sure, the purveyors of dollar doom and gloom have cried wolf before. When the subprime-mortgage crisis hit, it was widely predicted that the dollar would suffer. In fact, the greenback strengthened as investors seeking a safe haven rushed into U.S. Treasury bonds. A year later, when Lehman Brothers failed, the dollar benefited from the safe-haven effect yet again. Data from the International Monetary Fund confirm that these shocks caused little (if any) decline in the dominance of the dollar in central banks’ holdings of foreign-currency reserves. Likewise, data gathered by the Bank for International Settlements show that the dollar dominates global foreign-exchange transactions as much as it did in 2007. But a default on U.S. government debt precipitated by failure to raise the debt ceiling would be a very different kind of shock, with very different effects. In response to the subprime disruption and Lehman’s collapse, investors piled into U.S. government bonds, because they offered safety and liquidity – prized attributes in a crisis. These are precisely

the attributes that would be jeopardised by a default.

Tragic losses The presumption that U.S. Treasury bonds are a safe source of income would be the first casualty of default. Even if the Treasury paid bondholders first – choosing to stiff, say, contractors or Social Security recipients – the idea that the U.S. government always pays its bills would no longer be taken for granted. Holders of U.S. Treasury bonds would begin to think twice. The impact on market liquidity would also be severe. Fedwire, the electronic network operated by the U.S. Federal Reserve to transfer funds between financial institutions, is not set up to settle transactions in defaulted securities. So Fedwire would

Sane governments do not default when they have a choice, especially not when they enjoy the privilege of issuing the only true global currency

immediately freeze. The repo market, in which loans are provided against Treasury bonds, would also seize up. For their part, mutual funds that are prohibited by covenant from holding defaulted securities would have to dump their Treasuries in a selfdestructive fire sale. Money-market mutual funds, virtually without exception, would “break the buck,” allowing their shares to go to a discount. The impact would be many times more severe than when one money-market player, the Reserve Primary Fund, broke the buck in 2008. Indeed, the entire commercial banking sector, which owns nearly US$2 trillion in government-backed securities – would be threatened. Confidence in the banks rests on confidence in the Federal Deposit Insurance Corporation, which insures deposits. But it is not inconceivable that the FDIC would go bust if the value of the banks’ Treasury bonds cratered. The result would be a sharp drop in the dollar and catastrophic losses for U.S. financial institutions. Beyond the immediate financial costs, the dollar’s global safe-haven status would be lost.

Sane government? It is difficult to estimate the cost to the U.S. of losing the dollar’s position as the leading international currency. But 2 percent of GDP, or one year’s worth of economic growth, is not an unreasonable guess. With foreign central banks and international investors shunning dollars, the U.S. Treasury would have to pay more to borrow, even if the debt

ceiling was eventually raised. The U.S. would also lose the insurance value of a currency that automatically strengthens when something goes wrong (whether at home or abroad). The impact on the rest of the world would be even more calamitous. Foreign investors, too, would suffer severe losses on their holdings of U.S. treasuries. In addition, disaffected holders of dollars would rush into other currencies, like the euro, which would appreciate sharply as a result. A significantly stronger euro is, of course, the last thing a moribund Europe needs. Consider the adverse impact on Spain, an ailing economy that is struggling to increase its exports. Likewise, small economies’ currencies – for example, the Canadian dollar and the Norwegian krone – would shoot through the roof. Even emerging-market countries like South Korea and Mexico would experience similar effects, jeopardising their export sectors. They would have no choice but to apply strict capital controls to limit foreign purchases of their securities. It is not inconceivable that advanced countries would do the same, which would mean the end of financial globalisation. Indeed, it could spell the end of all economic globalisation. Sane governments do not default when they have a choice – especially not when they enjoy the “exorbitant privilege” of issuing the only true global currency. We are about to find out whether the U.S. still has a sane government. © Project Syndicate

16 16

October 15, 2013 April 19, 2013

Closing Yuan rises to 20-year high

Peugeot to weigh stake sales

China’s yuan strengthened to a 20year high after the central bank set the currency’s reference rate at a record high and as consumer prices advanced the most in seven months. The People’s Bank of China raised its daily fixing by 0.08 percent to 6.1406 per dollar, the strongest since a peg to the greenback was lifted in July 2005. The yuan gained 0.21 percent, the most since May 8, to close at 6.1079 per dollar in Shanghai, China Foreign Exchange Trade System prices show. It touched 6.1073 earlier, the strongest since the government unified the official and market exchange rates at the end of 1993.

PSA Peugeot Citroen is considering stake sales to Dongfeng Motor Corp and the French government to shore up its finances as car sales in Europe plunge to a 20-year low, people familiar with the matter said. Peugeot’s board will consider a capital increase at a scheduled meeting on October 22, said the people. The stock fell as much as 12 percent, the biggest drop in almost five years, after Reuters first reported details of the possible sale. The French government is monitoring the talks with Dongfeng, and may participate should the Chinese automaker decide in favour of a purchase, two of the people said.

Eurozone industrial output rebounds in August Raising hopes that the sector will contribute to a pick-up in economic growth

ndustrial output in the eurozone grew at the strongest pace for more than two years in August, figures have shown. Eurostat, the EU’s statistics office, said industrial production rose 1 percent. The increase was roughly in line with market expectations and the biggest monthly rise since July 2011. It also recouped July’s equivalent decline – summer figures can be volatile given the holiday season. The increase suggests the sector will contribute to the eurozone economic recovery if September shows a rise. Recent surveys have suggested that the sector continued to grow during September, though not spectacularly given the headwinds facing the eurozone, such as high government debt and near-record unemployment in many countries. The elevated value of the euro may also put a dampener in the months ahead as it potentially makes eurozone exports less competitive in the international marketplace. “The recovery in eurozone manufacturing should gain momentum in the second half of the year,” said Anna Zabrodzka, economist at Moody’s Analytics. “Nevertheless, euro area growth risks

Portugal’s bounce was the highest at 8.2 percent

remain weighted to the downside.” The figures showed that the highest increase was registered in Portugal, where output grew by 8.2 percent. Europe’s economic

powerhouse, Germany, saw output rise 1.8 percent, while French output increased by 0.2 percent following three consecutive months of decline. However, output in Italy fell by 0.3

percent. This was the second decline in a row, as Italy’s economy continued to falter. Germany, France and Italy make up two-thirds of the overall production figure for the eurozone. Chris Williamson, chief economist at the researchers Markit, said that while the figures were encouraging there was still cause for concern over the strength of the bloc’s recovery. While production had rebounded in August, he noted that this “merely brings output back to June’s level, which was still some 12.5 percent below its pre-crisis peak”. However, he added that the upturn is “an encouraging sign that the sector is slowly recovering”. “Policymakers will be encouraged by the ongoing recovery trend, but will be reminded of the huge surplus of capacity that persists compared to before the crisis struck.” In August, the eurozone emerged from an 18-month recession, after reporting growth of 0.3 percent. However, economists have cautioned that growth and manufacturing figures will remain choppy, and that the recovery from recession is far from secure. Reuters

Coal to surpass oil as top global fuel China, India to propel coal past oil by end of decade

oal, propelled by rising use in China and India, will surpass oil as the key fuel for the global economy by 2020 despite government efforts to reduce carbon emissions, energy consultancy firm Wood Mackenzie said yesterday. Global coal consumption is expected to rise by 25 percent by the end of the decade to 4,500 million tonnes of oil equivalent, overtaking oil at 4,400 million tonnes, according to Woodmac in a presentation at the World Energy Congress. The two Asian powerhouses will need the comparatively cheaper fuel to

power their economies, while demand in the United States, Europe and the rest of Asia will hold steady. “China’s demand for coal will almost single-handedly propel the growth of coal as the dominant global fuel,” said William Durbin, president of global markets at Woodmac. “Unlike alternatives, it is plentiful and affordable.” China – already the top consumer – will drive twothirds of the growth in global coal use this decade. Half of China’s power generation capacity to be built between 2012 and 2020 will be coalfired, said Woodmac.

China has no alternative to coal, with its domestic gas output limited and liquefied natural gas (LNG) imports more costly than coal, Mr Durbin said. “Renewables cannot provide base load power. This leaves coal as the primary energy source,” he said. Excess supply and faltering demand growth have depressed global coal prices. European coal futures have tumbled more than 20 percent this year, while Australian coal prices have plummeted from the record US$130 per tonne hit in 2011 to around US$80 per tonne as demand from China

grew slower than expected. “If you take China and India out of the equation, what is more surprising is that under current regulations, coal demand in the rest of the world will remain at current levels,” Mr Durbin said. High fuel import costs and nuclear issues will support coal use throughout Northeast Asia, while in North America coal is still competitive in many locations despite abundant low-cost shale gas. “The struggling economy and low coal prices has rendered the European Union Emissions Trading Scheme ineffective,” Mr

Durbin said. “The carbon price will need to reach 40 euros per tonne to encourage fuel switching, which is unlikely before 2020.” In Southeast Asia, coal will be the biggest winner in the region’s energy mix. Coal will generate nearly half of Southeast Asia’s electricity by 2035, up from less than a third now, the International Energy Agency said in early October. This will contribute to a doubling of the region’s energy-related carbon dioxide emissions to 2.3 gigatonnes by 2035, according to the IEA. Reuters