Macau business daily, December 27th by Business Daily

Year II

Number 443 Friday December 27, 2013

Editor-in-chief Tiago Azevedo

Deputy editor-in-chief

Vitor Quintã

MOP 6.00

April 19, 2013

Shops go on alert over fake bank notes M

acau businesses are on the lookout after the recent discovery of “high quality” fake banknotes, with some retailers refusing to accept HK$1,000 banknotes. In the past week Macau and Hong Kong authorities found dozens of banknote counterfeits, while asking businesses and individuals

to keep an eye out for more. Businessmen have downplayed the issue, saying many customers use credit cards instead, but warned that many small businesses lack the necessary equipment to check banknotes. The government should provide more information on how to spot the fake notes, restaurants,

jewellery and gold retailers a nd m o n e yc h a n g e r s t old Business Daily. The Monetary Authority did not say whether it would give out additional instructions on automated cash deposit machines, which have already been tweaked in Hong Kong. More on page 3

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Free trade zone pros offset retail hit: NPC deputy

Name

he plan to tie Guangdong, Hong Kong and Macau into a free trade zone has more pros than cons to the city, said Lao Ngai Leong, a Macau deputy in the National People’s Congress (NPC). Plans for duty-free shops in the zone could lure the mainland Chinese visitors now driving up Macau’s booming retail business, he said. But the overall benefits will surely outweigh the negative impact, said the Gongbei border customs post supervisor. The plan would simplify cross-border customs procedures for both passengers and cargo, which will boost visitor arrivals and the logistics business, he said. A mainland newspaper said the free trade zone plan – with fewer restrictions on outside investment than Shanghai rival – was sent to Beijing in mid-December.

%Day

WANT WANT CHINA

2.82

GALAXY ENTERTAIN

2.58

TINGYI HLDG CO

1.78

PING AN INSURA-H

1.71

LENOVO GROUP LTD

1.43

CITIC PACIFIC

-0.84

CHINA RES LAND

-1.14

CHINA RES ENTERP

-1.17

CHINA OVERSEAS

-1.35

HENGAN INTL

-1.57

Source: Bloomberg

I SSN 2226-8294

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Page 2

Gaming reliance is economy’s ‘Achilles heel’

Imports set new monthly record on gold, watches

San Ma Lou cultural club kicked out

Macau’s “overdependence on the gaming industry makes its economy a bit fragile,” rating agency Dagong Global Credit Rating Co Ltd warned. Still, China’s domestic rating agency decided to maintain the credit rating of Macau at ‘AA+’ – the second highest value – with a stable outlook. Dagong said Macau’s economic growth rate would reach 10.5 percent in 2014, rising to 11.4 percent the following year.

Macau’s imports have hit a new record high for a second month as the city spent twice as much on outside luxury goods as on food and beverages. The increase was led by sky-high purchases of gold jewellery and watches to feed the city’s growing retail business. On the other hand the territory’s exports continue to rebound with a third year of growth.

The soaring property market has made another victim after the award-winning Cultural Club failed to reach a deal with the landlord to remain open at a historic San Ma Lou building beyond next month. The creative industries venture will close after a decade in operation at the old Tak Seng On Pawnshop and an investment of over 20 million patacas (US$2.5 million).

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December 27, 2013

Macau opinion

Free riders

Delta free trade zone’s pros outweigh cons, deputy says But NPC member Lao Ngai Leong acknowledges that the zone could deal a blow to Macau retailers Stephanie Lai

sw.lai@macaubusinessdaily.com

José I. Duarte Economist

conomists will often tell you there is no such thing as a free lunch. Their meaning is often misunderstood, but the purpose here is not to get into the details of an economist’s reasoning. Suffice it to say that whether this or that person supports the costs is not the point. We have all had had free lunches of some sort at one time or another. The point is that whenever something is done that entails costs, someone will bear them. In the general arrangement of our economic lives nothing comes out of nothing, without some kind of sacrifice. That is, nothing comes free of charge and seldom comes even cheap. And we know it. Government handouts do not come free, inexpensive healthcare does not come free, public places with general access do not come free. The list could go on forever. That is the reason I fail to feel much sympathy for tourists that got used to coming to Macau on free or almost free package tours, and then complained that they had been taken from shop to shop, held captive until they had bought enough to generate sufficient commission to cover the tour operator’s costs and the tour guide’s fee. I do not appreciate much the business model: it is bound to cause conflict, and that sort of tourism puts me off. But nor do I have much against it. In the end, with a certain level of pretence by both parties, it is up to them if that is the way the operator wishes to do business and the tourists wish to travel. As long as there are no public disturbances, it should be seen, in the end, as mainly a matter of personal choice.

Mainland action A different issue is whether this sort of tourism is in the best interests of or should be encouraged in a place as congested and overcrowded as Macau. It could be reasonably argued that the city would gain by restricting the number of visitors. This sort of free-of-charge tourism would be an obvious candidate for some sort of targeted trimming, as it were. It could even be argued that such a measure might even have a negligible impact, if any, on the revenue of enterprises catering to visitors. Perhaps it would even prove unnecessary to ban the practice. A ban is a popular and favoured approach. It always gives a whiff of determination wrapped in moral justification to forbid something presented as wrong or bad. However, leaving other legal and ethical issues aside, such interdiction would be difficult to monitor and enforce, as many of the operators lie beyond the legal reach of the authorities here. It may suffice to impose charges on certain sorts of activity and to monitor more closely the shops such tourists are compelled to shop in, to make the activity uneconomical and to limit if not eliminate it. As is so often the case, the solution to the problem – or the attempt to minimise its effects – came from across the border, in the form a law that forbids the sale of package tours for “unreasonably low prices”. And, as is so often the case, that criterion seems broad enough to allow the authorities a lot of discretion, which may mean that over time its effect will turn out either to be close to nil or actually to nip the practice in the bud. But an assessment of the law or its likely long-term impact is beyond our scope here.

Macau inaction The enactment of the law and the uncertainty about how strongly it would be enforced was enough to reduce significantly the number of package tourists visiting Macau in October, the month it came into effect. Time will tell how strictly the law will be enforced, how tour operators will adapt to it, and how creative they will be, if demand persists, in ultimately sidestepping it. The law may be a boon to Macau. It may reduce the amount of short-stay visitors, who add little to the city’s income but add plenty to its congestion and infrastructure costs. It may even make the city more enjoyable for other kinds of tourists who are willing to stay longer and spend more. Unfortunately, none of this will be the result of our own initiative. It is beyond our power to enforce the law, or to adapt it to suit our own circumstances or our own general interest. Regrettably, such policy failures are not a singular occurrence.

Whether Guangzhou airport will be in the Pearl River Delta free trade zone has yet to be decided

utting Macau, Hong Kong and parts of Guangdong together in a free trade zone will be more of a help to Macau than a hindrance, according to a Macau deputy in the National People’s Congress (NPC), Lao Ngai Leong. But Mr Lao says allowing dutyfree shopping in the free trade zone could make it unnecessary for mainland shoppers to visit Macau, where their money is fuelling the boom in retailing. The Chinese-language Shanghai Securities News reported on Tuesday that the proposal to set up the free trade zone had been submitted this month to the State Council, or cabinet, for its consideration. The newspaper quoted unidentified sources as saying the free trade zone would expand service industries and spur financial reform. The zone would have fewer restrictions on outside investment than the Shanghai Free Trade Zone, the newspaper said. The zone would experiment with refunding on departure the tax that outsiders, including people from Hong Kong, Macau and Taiwan, paid on consumer goods they bought in the zone. This measure would be similar to an arrangement in effect in the island province of Hainan. “If this measure is taken, it may disrupt the shopping patterns we are used to see among tourists that come here from the mainland,” Mr Lao said.

If this measure is taken, it may disrupt the shopping patterns we are used to see among tourists that come here from the mainland Lao Ngai Leong, National People’s Congress Macau deputy

“But I believe the overall benefits will outweigh the competition,” he said. Mr Lao is also a businessman and Gongbei border customs post supervisor.

Airport wait He said the free trade zone would make crossing borders simpler for people and goods, which could stimulate the flow of tourists and

merchandise into Macau from the mainland. “Macau’s free port status will always be there. We don’t have foreign exchange controls and there are few restrictions on capital flows,” he said. “So we would still have a competitive edge under this free trade zone plan.” The Shanghai Securities News said the free trade zone would make it as simple to get goods transported overland through customs as it was to get goods transported by air or sea through customs. The newspaper said ships registered in Hong Kong or Macau that called in other ports in the zone would incur lower tax and costs. It said Macau and Hong Kong and Macau banks would be encouraged to lend in yuan to Hong Kong, Macau or Taiwan companies operating in the free trade zone. Guangdong already has three special economic zones: Qianhai near Shenzhen, Nansha in Guangzhou and Hengqin Island. The Pearl River Delta free trade zone would bundle these zones together with the Guangzhou Baiyun Airport economic development zone, mainland media have reported. A spokesperson for the Guangdong Provincial Development and Reform Commission told Business Daily that it had yet to be decided whether Baiyun Airport would be part of the zone. The spokesperson declined to comment on the Shanghai Security News report.

December 27, 2013 April 19, 2013

Macau Govt raises income limit for social housing The government has raised the limits on the income and assets owned by social housing applicants by an average of 7.7 percent from the level set in February, according to yesterday’s Official Gazette. The raise, coming into effect on January 1, was based on changes in average home rent and the minimum subsistence index – an estimated income amount that sustains a minimum standard of living, the Housing Bureau said in a statement. The government will also reduce the social housing rent by up to 2,000 patacas (US$250.4) a month next year.

Shops fret over fake banknotes Shopkeepers are demanding more information about detecting the forgeries Tony Lai

tony.lai@macaubusinessdaily.com

The Macau Judiciary Police has confiscated 78 well-counterfeited HK$1,000 notes

acau businesses are on the alert after the discovery of well-made fake banknotes, and some retailers are refusing to accept any HK$1,000 notes. Businesspeople told Business Daily that the government ought to give them more information to prevent panic. In the past week the Macau and Hong Kong authorities have found dozens of fake HK$1,000 notes purporting to have been issued by Bank of China (Hong Kong) Ltd in 2008. The Macau Judiciary Police said yesterday they had confiscated 78 “high quality” forgeries from several casinos and a bank in the past seven days. The police also reported they found 13 fake HK$1,000 banknotes issued by HSBC Hong Kong Ltd in three casinos run by gaming operator Sands China Ltd this week. The technologies used in counterfeiting notes from the two banks are “very similar” and the police said they do not rule out the possibility of one gang being behind both batches. The police said they have already notified their Hong Kong counterparts over the HSBC banknote case. The president of the Industry and Commerce Federation of Macau Central and Southern Districts, Lei Cheok Kuan, said: “Some shops in the city centre are declining to accept any HK$1,000 notes as they are worried about being unable to detect the forgeries.” Mr Lei told Business Daily that some small and medium businesses

such as restaurants in his area lacked devices for checking the authenticity of banknotes. “We have urged our members to be more careful when handling cash – in particular to use their hands and eyes to give notes longer inspections,” Mr Lei said. The Macau Goldsmiths Guild has advised the 90 or more retailers of jewellery and gold that it counts among its members to be cautious. “I have sent messages to remind them to be alert,” guild president Lei Chi Fong said.

Panic warning “What they do about it is up to them, as I don’t have the authority to ask them to stop accepting HK$1,000 notes,” Lei Chi Fong told Business Daily. He said fewer customers paid with cash these days, preferring to pay with credit cards or debit cards. The manager of a money changer in the city centre said he had urged his staff to be more careful when dealing in Hong Kong banknotes. “We are not particularly worried, as our employees are trained in handling currencies,” the manager, who declined to give his full name, told Business Daily. Lei Cheok Kuan of the southern and central commerce federation is demanding that the authorities give instructions on the quickest way to detect the counterfeit banknotes. “We cannot simply decline to accept any HK$1,000 notes. If we all did that, it would cause a sort of panic in the

city,” he said. The commerce federation and the goldsmiths guild said the authorities had yet to contact them. The money changer manager said the Judiciary Police had advised him to be on the alert. The Monetary Authority of Macau told Business Daily in writing that it was “highly concerned” about the circulation of fake banknotes, and that it was in close contact with the Judiciary Police and the financial industry. “The authority also wants to urge the public to be alert when accepting or using the concerned series of banknotes,” it said.

Joint investigation The authority said it had “always demanded that financial institutions strictly carry out preventive measures against counterfeit banknotes”. It did not say whether it would give extra instructions for programming machines that take cash deposits so they can detect the forgeries. Bank of China Hong Kong and Standard Chartered Bank (Hong Kong) Ltd have programmed their machines that take cash deposits to detect the forgeries. The Hong Kong government has issued public notices on five ways to detect whether banknotes are fake by using the barcodes and watermarks that all banknotes should have. The chief of the Macau Judiciary Police information technology crimes division, Sou Sio Keong, told reporters that the police believed the fake

Some shops in the city centre are declining to accept any HK$1,000 notes as they are worried about being unable to detect the forgeries Lei Cheok Kuan, Industry and Commerce Federation of Macau Central and Southern Districts president

banknotes found here belonged to the same batch as the ones found in Hong Kong. Mr Sou said the two cities would investigate jointly. No arrests had been made so far, he said. The Hong Kong Monetary Authority estimates that Bank of China Hong Kong issued about 35 million banknotes in the 2003 series. The authority has urged banks to speed up the withdrawal of these banknotes from circulation. Macau’s Secretary for Security says the city had 216 cases of counterfeit banknotes in the first nine months of this year, 44 percent more than a year earlier.

December 27, 2013

Macau

Gaming addiction makes economy ‘a bit fragile’: Dagong Chinese rating agency sees Macau growing at 10.5 percent next year Vítor Quintã

vitorquinta@macaubusinessdaily.com

acau’s “overdependence on the gaming industry makes its economy a bit fragile,” rating agency Dagong Global Credit Rating Co Ltd warned. Still, China’s domestic rating agency decided to maintain the credit rating of Macau at ‘AA+’ – the second highest value – with a stable outlook. In a review released last week, Dagong praised the government’s “highly consistent policy” and “sound finance and prudent fiscal management”. The city has “promising prospects for economic development,” the agency said, thanks to strong domestic demand and strong growth of service exports. Dagong estimates Macau’s economic growth rate will reach 10.5 percent in 2014, rising to 11.4 percent the following year. That would be higher than economists’ forecasts. A fortnight ago Felicity Pang Veng I, a researcher and executive from the Bank of China

Macau Youth Association, predicted economic growth of about 9.43 percent for next year. And gross domestic product will continue to increase at high singledigit rates until at least 2016, Macau Economic Development Promotion Association president Ieong Tou Hong said. The territory’s economy has grown by 10.5 percent year-on-year in real terms during the first three quarters of 2013, official data show. Driven by fast economic growth, Macau has achieved sustained large

surpluses, Dagong said. The government’s budget surplus reached 96.96 billion patacas (US$12.14 billion) in the first 11 months of 2013, rising by 27.5 percent from a year earlier, official data show. The surplus will be added to the fiscal reserve, established in February last year. The reserve held 168.07 billion patacas in October, official data show. The fiscal reserve accounted for about 63.4 percent of Macau’s gross domestic product – wealth

creation –, according to Dagong. The city’s “abundant fiscal and foreign exchange reserves are still adequate to underpin the government’s solvency,” the agency wrote. Dagong believes Macau will continue to accumulate surpluses and remain free of debt, thus ensuring the territory’s strong fiscal strength in the future. The city’s rating remained below neighbouring Hong Kong, which reached the highest value, AAA, with a stable outlook. With Xinhua

Nansha to pilot yuan trade settlement

ansha New Area is looking to pilot yuan trade settlement for institutions or individuals from Hong Kong, Macau and Taiwan next year, mainland media reported on Wednesday. The news was released as the Standing Committee of National People’s Congress in Guangzhou was reviewing the Nansha regulations. The special economic zone is applying to have more direct administrative rights over land use and financial reforms. In addition, the administration

is proposing to allow residents from the two SARs and Taiwan to deposit yuan in Nansha banks to buy yuandenominated financial products and trust products. The Nansha administration also intends to make the district a venue for precious metal exchange in cooperation with Hong Kong and Macau, mainland media reported. These measures must be approved by the central government before they are enforced. There is no timeframe for when that might happen. S.L.

Fresh lamb supply back after seven years

resh lamb meat could hit the supermarket shelves of the city’s market today for the first time in seven years. The city’s major fresh meat importer Nam Yue Food Stuff & Aquatics Co Ltd said the decision would give residents more choices. The wholesale price of the fresh lamb meat will be close to 100 patacas (US$12.5) per catty (605 grams) while the retail price will range between 130 patacas and 140 patacas, according to the major wholesaler Macau Fresh

Meat Merchants Association, known as Iong Hap Tong in Cantonese. Iong Hap Tong president Che Su Peng told media yesterday they are “optimistic” on the sales because lamb meat is highly sought for hot pot during winter time. The first batch of 110 lambs come from Yunnan province, a “stable” supply source matching the city’s health requirements, said Tony Chen Wei, Nam Yue executive deputy general manager. T.L.

December 27, 2013 April 19, 2013

Macau Adelson is 2013’s biggest winner: Forbes

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Las Vegas Sands Corp chief executive Sheldon Adelson saw its net worth soar by US$15 billion (119.8 billion patacas), or 68 percent, through December 20, according to Forbes magazine. He is now worth just over US$37 billion, the magazine reported. Mr Adelson added more to his fortune than any other person, thanks largely to the success of Macaubased Sands China Ltd and his casinos in Singapore, which led to stellar financial results. Sands China’s stock was worth HK$62.45 as of yesterday, up 83.9 percent from HK$33.95 at the end of 2013. The value of LVS’s shares increased from US$46.16 to US$77.65 during the same period.

HOSPITALITY Loads of money The transport and storage industry is a big employer. In total, the industry’s workforce numbered almost 15,000 people last year, making up just under 5 percent of Macau’s employed labour force. Compared with the two leading sectors, hotels and restaurants, the transport and storage employed the equivalent to roughly one third and two thirds, respectively, of those two sectors. Transport and storage has benefitted from the economic growth of the past few years. The average size, as measured by the number of workers, has risen slowly but steadily since 2008, exception made for a very slight retraction in 2009.

Imports higher than ever as luxury sales skyrocket Macau exports remain on the comeback trail thanks to re-exports Vítor Quintã

vitorquinta@macaubusinessdaily.com

From 2008 to last year the revenue per company in the transport and storage industry rose by about 37 percent, a bit faster than the industry’s combined revenue. It fell by about 12 percent, however, at the height of the international crisis in 2009. It rebounded by 26 percent the following year. A similar pattern was registered in the revenue per worker. In 2009 average annual revenue per employee fell by 11 percent, but in 2010 it bounced back by 24.5 percent. In the total period observed here, revenue per worker rose by 20 percent. Gross value added per company and gross value added per employee increased faster. Gross value added per company increased by 91 percent, while the second increased by 68 percent. Both proved immune to the drop in revenue in 2009, rising consistently every single year between 2008 and last year. Average pay per employee rose more slowly. It rose by 17 percent in the period under review and even registered a very slight contraction in 2010.

6.7 %

Rise in transport industry GVA per worker, 2012

acau’s imports have hit a new record high for a second month as the city spent twice as much on gold jewellery and watches as on food and beverages, official data show. On the other hand the territory’s exports continue to rebound with a third year of growth, the Statistics and Census Service announced yesterday. Imports grew by 17 percent yearon-year in November to 7.5 billion patacas (US$939 million), a monthly record high since the trade statistics were first compiled in 2000. The increase was led by sky-high purchases of outside luxury goods to feed the city’s growing retail business. Gold jewellery imports were worth 1 billion patacas in November, up by almost a third from the same month of last year. The value of watches imported soared by almost half to 710.3 million patacas. Imports of these two goods alone were worth twice as much as purchases of food and beverages, which rose by 6 percent to 841.1 million patacas.

The import record helped Macau’s trade deficit hit a new monthly alltime high of 6.75 billion patacas in November. But that does not mean exports are slumping. The value of exports rebounded to 746 million patacas, 8 percent more than a year earlier, and a sixmonth high. However, the territory is increasingly playing the role of trade middleman and not primary producer.

MOP7.5 bln

Value of November imports

The November improvement came from re-exports – goods shipped in only to be shipped out, with no value added to them here –, which grew by 15 percent to 592 million patacas. The increase was mostly due to a 37.1 percent jump to 136 million patacas in sales of telecommunications equipment such as mobile phones. In contrast exports of ‘made-inMacau’ goods fell by 13 percent to just 154 million patacas. In the first 11 months of 2013 exports have increased by 9 percent year-on-year to 8.18 billion patacas, already more than in all of last year. Exports are on the comeback after four years of decline, growing for a third consecutive year. It is the strongest positive trend since 2004, when World Trade Organisation trade quotas that supported the city’s textile manufacturing industry were quashed. Despite the recent rebound, exports are still far from the peak of 22.56 billion patacas set in 2004.

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December 27, 2013 April 19, 2013

Macau

Award-winning cultural club to close over rents Loss-making San Ma Lou venture to close down next month Tony Lai

tony.lai@macaubusinessdaily.com

The Cultural Club will close on January 15 after a decade in operation (Photo: Manuel Cardoso)

he soaring property market has made another victim after the award-winning Cultural Club failed to reach a deal with the landlord to remain open at a historic San Ma Lou building beyond next month. The association behind the club, which claims to have invested over 20 million patacas (US$2.5 million) in the building, says the situation is “frustrating” and puts an end to their idealism. The pawnshop museum, located at the ground floor of the same premise, the old Tak Seng On Pawnshop, will remain in operation, the government claimed, but it is unknown until when. The club and the museum are located in a privately-owned threestorey building located in Avenida de

Almeida Ribeiro – better known as San Ma Lou – since 1917. Tony Lam Chong In, one of the stakeholders of the museum project, said the owner only notified them the rental contract would be terminated “two or three months ago”. They had originally agreed to double the monthly rent to 180,000 patacas from the current level, said Mr Lam, who is also president of the Macau Fair and Trade Association, which planned the project. “But the owner would only give us a two-year contract instead of three years,” said Mr Lam. “It is a valuable heritage premise and we had to put in a lot [of money] for maintenance… particularly because it is located in a low-lying area where

It is a valuable heritage premise and we had to put in a lot [of money] for maintenance Tony Lam, Macau Fair and Trade Association president

there will be severe flooding during heavy rainfalls,” he said. “We have to invest something like 1-2 million patacas in the future and we cannot do so with only a two-year renewal,” Mr Lam said. The club – including a cultural exhibition hall, a teahouse, an art gift store and a library for works of popular contemporary Chinese novelist Jin Yong – will close on January 15. The association is still looking for a venue to relocate the club which opened in March 2003, said Mr Lam. “There have been changes to the way we [and the owner] think,” he said. “In the past we were very romantic and wanted to do something for the cultural creative industries but with the robust growth in the property market perhaps the owner is looking into the profit side,” Mr Lam said. The association said it invested over 20 million patacas in the project but it was still a loss-making venture, he added. The pawnshop museum run by the government in the same building will remain open, the Cultural Affairs Bureau said. Bureau director Guilherme Ung Vai Meng told reporters on Wednesday the government was still paying the rent and hoped to cooperate with the new tenant on conserving the premise. The bureau did not reveal how much the government pays for the venue and when the rental contract will end. The administration and Mr Lam declined to reveal the identity of the property owner. The project won a Honourable Mention in the 2004 Asia-Pacific Awards for the Conservation of Cultural Heritage by the United Nations Educational, Scientific and Cultural Organisation. It is not the first time this year a cultural creative project with the government’s involvement has been hit by rental issues. The Macau Government Tourist Office will leave a building near the Ruins of St Paul – commonly known as ‘yellow house’ – by year-end with the owner, Future Bright Holdings Ltd, seeking to more than triple the annual rents to HK$48 million. A display centre for ‘made in Macau’ products and a Portuguese-style café will have to leave the venue. “We should not just focus on the money side,” Mr Lam said. “We should see what we can do for the city.”

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December 27, 2013 April 19, 2013

Greater China

China 2013 growth to hit 7.6 pct: N Planning chief warns of downward pressure on the economy

he central government estimates that growth slowed to 7.6 percent this year, with mounting challenges putting pressure on the nation’s traditional growth model of investment-led spending, according to the official Xinhua news agency. The calculation for the gain in gross domestic product for 2013 was included in a report by the State Council to the legislature, and compares with a government target of 7.5 percent, Xinhua reported yesterday. A 7.6 percent pace would mark a third straight annual drop in the expansion rate. “We cannot deny a downward pressure on economic growth,” Xu Shaoshi, minister in charge of the National Development and Reform Commission, told legislators in a briefing on the report, Xinhua said. The State Council document listed among the looming challenges a worsening in pollution and social conflicts. Mr Xu said the nation’s traditional growth pattern is challenged by rising labour and environmental costs, according to Xinhua. Twenty-seven Chinese provinces and cities raised the minimum wage in 2013 by an average of 17 percent, Xinhua reported yesterday, citing Yin Weimin, minister of human resources and social security. The GDP release came as China’s central bank sought to ease a liquidity crunch in the market for loans between banks, as financial markets were roiled by the second spike in borrowing costs this year. A report by the Chinese Academy

Many infrastructure projects face years of low financial returns

of Social Sciences said the central bank shouldn’t overly tighten monetary policy for 2014 and suggested that money supply grow at 14 percent for 2014 from the target of 13 percent in 2013, according to a story in Shanghai Securities News yesterday.

Growth slowing President Xi Jinping’s government is attempting to strengthen the role

of the private sector and domestic demand in an economy that’s been propelled by debt-fuelled public investment in recent years. Xinhua reported that the service sector contributed 44.6 percent of GDP in 2012, up from 43.2 percent in 2010 and compared with a 2015 target of 47 percent. China’s education budget in 2012 accounted for more than 4 percent of GDP for the first time,

Xinhua also reported. The estimate for 2013 growth was given in a mid-term evaluation report on the implementation of the 12th five-year plan, Xinhua said. China’s GDP reversed a twoquarter growth slowdown in the July-September period, as Premier Li Keqiang spurred factory output and investment in the world’s second-largest economy to meet the expansion target.

Calm returns to money markets Central bank skips open market operations after injection earlier in the week

hinese banks must better manage liquidity risks as funding costs climb amid a government drive to liberalise interest rates, Wang Yongli, a vice president at the Bank of China Ltd, one of the country’s biggest lenders, said. China’s interbank cash crunch eased further as corporate tax refunds deposited to commercial banks helped ease liquidity conditions, following central bank cash injections. “Chinese banks are in urgent need of improving their ability of liquidity management, which is particularly more complicated than handling other risks. But for a long time, Chinese banks have been weak in this,” Mr Wang told a briefing. Chinese banks lack sound liquidity management as they have been focusing on boosting market share and profits, he said. The inefficient use of credit in China and a maturity mismatch in banks’ assets and liabilities has also exacerbated short-term liquidity pressure in the money market, Mr Wang said. The central bank has urged commercial banks to improve their asset and liability structure as lenders raise more short-term funds via

shadow banking channels for making long-term loans. The central bank should not rush to inject cash as long as banks’ liquidity conditions do not threaten the financial sector, Mr Wang said, adding that money market rates would become more volatile as the country embraces market-driven interest rates. “So far, there is no liquidity problem in the banking system, we must accept that the borrowing cost indeed becomes higher and higher,” Cao Yuanzheng, chief economist at Bank of China, said at the same briefing.

US$4.8 bln

The PBOC pumped into the financial system on Tuesday

Central bank governor Zhou Xiaochuan has said that China’s borrowing costs would have a tendency to go upwards as the country moves towards a market-based interest rate regime and due to strong demand for funds. China’s central bank has pumped 29 billion yuan (US$4.8 billion) into the banking system earlier this week to ease concerns over a credit squeeze that has caused rising interest rates. The People’s Bank of China did not explain its actions, but over the last few days there has been growing concern over the availability of credit. That has been reflected in the interest rates banks charge each other. On Monday one important benchmark rate rose to its highest level since June, the height of China’s credit crunch. The seven day bond repurchase rate hit 8.93 percent but fell back to 6.56 percent after the central bank added funds to the banking system. Analysts are blaming China’s current cash crunch on a number of factors. In a process known as “window dressing” banks typically conserve cash at the end of the year to keep their balance sheets looking healthy. Reuters

Wang Yongli urges better liquidity management

December 27, 2013 April 19, 2013

Greater China

NDRC Analysts surveyed by Bloomberg News this month see growth slowing to a 24-year low of 7.4 percent next year from 7.6 percent in 2013, based on median estimates, as leaders seek to de-emphasise expansion at any cost. There are uncertainties in the global economic recovery and the international market has failed to produce strong demand, Mr Xu said, according to Xinhua. Challenges also include increasing risks in local government debt and overcapacity, Xinhua reported. China will further enhance interest-rate flexibility and coordinate fiscal, monetary, industrial, land-use and environmental policies to avoid big economic fluctuations, Xinhua said, citing the State Council report. Officials set the growth target for 2014 at about 7.5 percent, Caixin reported on December 16, citing a conclusion reached at the annual central economic work conference that ended December 13.

Govt names new Beijing tightens infant state assets formula rules regulator chief New regulation C to be introduced next year in food safety drive

Bloomberg News

New rules will see more stringent inspection

We cannot deny a downward pressure on economic growth Xu Shaoshi, head of the NDRC

hina will further toughen milk powder regulation next year as it moves to boost confidence in domestic producers and allay long-standing fears around food safety in its US$12.4 billion infant formula market. Milk powder firms will need to apply for a new permit under the toughened rules by the end of May next year, the China Food and Drug Administration said in a statement on its website, which was carried by state media yesterday. The food regulator will then release a list of approved producers. “The new rules harden the conditions for milk powder makers to obtain a permit. Importantly this will raise safety and quality control in the sector, raw material quality, production processes and traceability,” it said. Food safety has long dragged on China’s domestic milk powder makers, boosting international brands in an infant formula market set to double to US$25 billion by 2017, according to data from Euromonitor. China has announced moves to consolidate the sector, supporting domestic “champions” who will be able to compete more strongly with global rivals. Milk powder is a sensitive topic since a 2008 scandal involving milk tainted with the industrial chemical melamine killed at least six infants and left thousands more ill. That damaged the reputation of Chinese firms and boosted the market share of foreign brands such as Danone SA, Nestle SA, Mead Johnson Nutrition Co and Abbott Laboratories. Imported brands account for close to 80 percent of the infant formula market in major cities. The new regulations will see more stringent inspection and testing of milk powder products, with specialised teams working with producers to enforce the rules. China’s biggest milk powder makers include Inner Mongolia Yili Industrial Group Co Ltd, China Mengniu Dairy Co Ltd, Feihe International Inc and Heilongjiang Wondersun Dairy Co Ltd. Reuters

hina’s state assets regulator has named a new chief, more than three months after the previous chairman was removed under suspicion of graft. The State-owned Assets Supervision and Administration Commission (SASAC) said that Zhang Yi had been appointed, replacing Jiang Jiemin. Mr Zhang was previously SASAC’s deputy head, and prior to that had worked as secretary-general for the ruling Communist Party’s anticorruption watchdog. SASAC is a ministerial-level body run by China’s cabinet and is directly responsible for more than 100 stateowned companies, including China Petroleum and Chemical Corp, Asia’s top oil refiner, and China Mobile Ltd, which runs the world’s biggest network of mobile phone users.

Tianjin launches China’s latest carbon market T

he Chinese city of Tianjin yesterday launched the country’s fifth emissions trading scheme as the world’s biggest-emitting nation took another step towards reining in its impact on the environment. The newest of China’s carbon markets caps CO2 emissions from iron and steel producers, chemical facilities, power and heat generators, and oil and gas exploitation. Five initial trades at 26 yuan (US$4.28) and 28 yuan for a total of 45,000 permits were announced by the government at yesterday’s opening ceremony. Power companies Hanergy Holding Group Ltd and Huaneng Carbon Assets Management, oil and gas firm PetroChina Co Ltd and trading house Citic Securities were among the buyers in the first transactions, according to the local government. The opening trades put Tianjin’s initial carbon price at the low-end of other Chinese markets. The central government aims to cut greenhouse gas emissions per unit

Mr Zhang will be expected to take a major role in reforming China’s sprawling state sector as the Communist Party seeks to allow private investment into important sectors of the economy, such as energy, transport and finance, over the next five years. In September, the party’s antigraft watchdog announced it was investigating Jiang for “serious discipline violations”, the party’s general term for corruption. President Xi Jinping has declared war on corruption, vowing to go after powerful “tigers” as well as lowly “flies”. Mr Jiang had been promoted to head the regulator only in March, after serving as chairman of energy giant China National Petroleum Company (CNPC). The Jiang probe came after four of CNPC’s top executives were placed under investigation for alleged wrongdoing in late August. Earlier this month, authorities put Zhou Yongkang, one of China’s most powerful politicians of the last decade and CNPC’s general manager from 1996-1998, under house arrest while they probe graft allegations against him, sources told Reuters. Reuters

of GDP to 40-45 percent below 2005 levels by the end of this decade, and has said it wants to use carbon trading as its key tool to achieve that market. The Tianjin scheme, launched hot on the heels of similar markets in Shenzhen, Shanghai, Beijing and Guangdong province, will make 114 of the city’s top emitters pay for each tonne of CO2 they emit beyond a cap they have been given by the government. Sun Zhenqing at the Tianjin University of Science and Technology, one of the chief designers of the scheme, told Reuters that 160 million permits would be issued each year, with 15 percent of those set aside for new entrants or in reserves in case the government wants to adjust supply. Normally in emissions markets, one permit equals 1 tonne of carbon dioxide. But in Tianjin, Mr Sun said, in cases where a supplier and a consumer of a tonne of CO2 are both covered by the scheme they would both have to hand over permits to the government for it, leaving the amount of emissions covered by the Tianjin market unclear. The city’s Development and Reform Commission (DRC) would not comment on the size of the cap or how it was calculated. However, the sectors brought into the scheme emit around 41 million tonnes of CO2 per year, suggesting that there could be a surplus of permits available.

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Greater China Development Bank to debut bonds on exchange China Development Bank Corp plans to sell 12 billion yuan (US$1.98 billion) of bonds on the Shanghai Stock Exchange today, in the first offering by a policy lender on the nation’s exchanges. China Development Bank will issue no more than 8 billion yuan of 2-year, fixed-rate notes and as much as 4 billion yuan in 5-year securities, according to a statement on the Shanghai bourse’s website. The nation’s biggest policy bank won regulatory approval this month to be the first such lender to expand debt sales to the exchanges from the interbank market, as the government seeks to integrate the two segments of the nation’s bond market.

Shanghai issues air pollution warning Authorities warn children to stay indoors on haze, PM2.5 surge

hanghai warned children and the elderly to stay indoors as smog enveloped China’s commercial hub, sending levels of the worst pollutants surging to more than 15 times World Health Organisation guidelines. The level of PM2.5 pollutants climbed since around midnight, reaching 382.1 micrograms per cubic metre at 11 am, the city’s environmental monitoring centre said. The WHO recommends exposure of no more than 25 over a 24-hour period for particles smaller than 2.5 microns in diameter that are more dangerous than other particulate matter. “Pollutants are likely to move from the north to

the Yangtze Delta region because of atmospheric circulation,” Li Shuo, a Beijing-based policy officer at Greenpeace, said by phone yesterday. The Yangtze Delta comprises Shanghai and the neighbouring provinces of Jiangsu and Zhejiang. China’s State Council listed worsening pollution as among the looming challenges the country faces in a report to the legislature, the official Xinhua news agency reported yesterday. Heavy smog may undermine plans for Shanghai, often considered to be cleaner than other Chinese cities, to attract foreign investment and multinational firms, as the city implements a free-trade zone as part of a broader goal to become a

global financial and logistics center by 2020. Shanghai issued a “yellow” alert for haze at 7 am, the third lowest of a four-tier warning system, urging drivers to be cautious and people with respiratory illnesses to wear masks when going outside, the Shanghai government’s microblog said. The air quality index was 216, signalling “heavy pollution,” the second worst of six levels, the centre said.

Worst polluters Shanghai saw record levels of smog earlier this month, forcing flight cancellations and prompting the government to issue warnings to keep children indoors and order vehicles

off the road. The pollution index surged to a record 482 on December 6, reaching the highest “severe” level, according to the China Daily. The ten worst polluting cities in the third quarter were in northern China, the nation’s environmental protection ministry said. The Yangtze Delta region has heavy industry and coal consumption, Greenpeace’s Mr Li said. Jiangsu and Zhejiang are among the top ten coal consuming provinces, he said, citing Greenpeace data. In October, the Shanghai government announced a plan to cut 2012 PM2.5 readings by 20 percent by

Bloomberg News

China struggling to meet environment goals Government may introduce new policies to rein in polluting industries

Shanghai was severely polluted yesterday as cold air brought smog from North China

2017. Outdoor air pollution can cause lung cancer, the International Agency for Research on Cancer, a WHO agency said in October, ranking it as a carcinogen for the first time. About 26 percent of Shanghai’s PM 2.5 levels comes from industry, 26 percent from motor vehicles and ships, and 7.3 percent from power generation, an official at the city’s environmental bureau said at a meeting of the standing committee of the municipal People’s Congress yesterday. The meeting was webcast on the government’s web portal.

hina is struggling to meet its 2011-2015 targets to reduce pollution, cut greenhouse gas growth and introduce cleaner sources of energy, a report submitted to the country’s parliament said on Wednesday. The report, which covers the 2011-2012 period, said faster-than-expected economic growth was to blame for China’s failure to meet environmental targets ranging from energy use to nitrogen oxide emissions. The state of China’s environment has come into particular focus in 2013, with most major cities engulfed by hazardous smog during the course of the year, including Beijing in January and Shanghai this month. Desperate to head off growing public anger about the state of the country’s air, water and soil, Beijing has promised to put an end to its “growth at all costs” economic model. It has already introduced new policies aimed at reining in polluting industries, cutting coal use and thinning traffic. But the government report said China was already playing catch-up, the official Xinhua news agency reported. China wants energy intensity – the amount of energy consumed per unit of gross domestic product – to

fall by 16 percent over 20112015, but it had dropped by just 5.54 percent by the end of last year. Efforts to reduce the amount of carbon emissions per unit of GDP by 17 percent over the same period were also behind schedule, with the actual decline over 2011-2012 standing at just 6.6 percent. China also aims to raise the share of non-fossil fuels in its total primary energy mix to 11.4 percent over the 2011-2015 period, but it had reached just 9.4 percent by the end of last year, up only 0.8 percentage points since 2010. The slow progress made over 2011-2012 could put additional pressure on local governments to implement tougher measures against polluters, and even shut down energy-intensive industries like steel or cement. At the end of 2010, northern China’s Hebei and several other provinces ordered dozens of steel mills to close down in a last-ditch attempt to meet a binding 2006-2010 energy intensity target. This month, several steel production facilities have already been temporarily closed in Hebei in order to cut pollution, and more closures are expected next year. Reuters

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Asia

Kuroda: Price rises to break ‘deflation equilibrium’ BOJ chief says higher inflation will give policymakers room to cut rates Leika Kihara

ank of Japan governor Haruhiko Kuroda said consumer inflation will exceed 1 percent in the first half of next year and help the central bank achieve its goal of changing the public’s perception that deflation will persist. In the past 15 years, Japan has been in a state of “deflation equilibrium” in which companies and households held off on investment and consumption on the assumption that prices will not rise, Mr Kuroda said. The BOJ is aiming to break that equilibrium through its aggressive monetary stimulus, so that companies and households will spend more now

on expectations that prices will rise ahead, he said. “The BOJ’s monetary policy differs from that of other central banks in that it focuses on changing public expectations [on prices],” Mr Kuroda said in a speech at a meeting of the business lobby Keidanren. “We’re seeing broad improvements in the economy, markets, public sentiment. This is the best opportunity to end deflation,” he said, stressing the bank’s resolve to maintain its ultraloose policy until 2 percent inflation is achieved. The BOJ stunned markets by delivering an intense burst of

We’re seeing broad improvements in the economy, markets, public sentiment. This is the best opportunity to end deflation Haruhiko Kuroda, BOJ governor

monetary stimulus in April, pledging to accelerate inflation to 2 percent in roughly two years via aggressive asset purchases in a country mired in prolonged deflation. While core consumer inflation has approached 1 percent mainly due to rising import costs, many investors and analysts doubt prices will rise quickly enough for the BOJ to meet its price target in the two-year timeframe it has pledged. Some experts and former BOJ officials have even voiced doubts on whether it was feasible for Japan to aim for 2 percent inflation, a level it has not seen even when the economy experienced an asset-price bubble in the late 1980s. “Achieving 2 percent inflation in the long run is desirable and not impossible. But I wonder whether the two-year timeframe is so important,” said Hideo Hayakawa, a former BOJ executive and now senior executive fellow of private think tank Fujitsu Research Institute in Tokyo. “Even if 2 percent inflation is difficult, Japan may be able to sustain inflation around 1 percent. That should be enough,” he told Reuters. Mr Kuroda, however, countered such scepticism, stressing that actual rises in prices will gradually heighten inflation expectations and encourage companies to raise wages and prices. Higher inflation will also push up nominal interest rates and give the BOJ more flexibility to respond to economic deterioration with interest rate cuts, unlike now when that option is not available with rates virtually stuck at zero, he said. “If many companies raise prices and wages simultaneously, it would

Slowdown a concern for some policymakers Bank of Japan policymakers broadly agreed the economic recovery will remain on track as an improving job market fuels consumer spending, but some expressed worry about the pace of growth, the minutes of the central bank’s November meeting showed. According to the minutes released yesterday, two policy board members voiced concern about a large contribution from inventories and a fall in wages in Japan’s latest gross domestic product data. “This may be indicative of a downward shift in growth, instead of merely a temporary slowdown,” one member said, referring to the third-quarter GDP data. Differing views over the pace of growth could make it difficult for the BOJ to present a united front next year, when GDP could dip sharply in the second quarter after a planned increase in the national sales tax.

have a positive effect on the economy as a whole,” Mr Kuroda said. “As policymakers, we have to come up with bold measures to change people’s mind-set in such a way.” Reuters

Bangladesh deploys army before poll B

angladesh deployed tens of thousands of troops yesterday in a bid to contain deadly political violence ahead of elections next month which are being boycotted by the opposition. With Prime Minister Sheikh Hasina determined that the January 5 general election goes ahead despite claims that it will be a farce, troops are being sent to nearly every corner of the country at the end of its deadliest year for political violence since independence. The deployments are expected to further infuriate the main opposition Bangladesh Nationalist Party which

called for a mass march on the capital Dhaka beginning on December 29 in a bid to scupper the polls. Election Commission spokesman S.M. Asaduzzaman said that troops would be deployed in at least 59 of the country’s 64 districts. “They’ll be used as a striking force if there is any violence and they will patrol important areas, streets and highways,” he told AFP. While a small number of soldiers had begun taking up positions earlier this week, military spokesman Muhammad Reza-ul Karim said the mass deployment begun yesterday

and will continue through until January 9. “The troops have been deployed at the request of the Election Commission… in an effort to ensure free, fair and peaceful elections,” Mr Karim said in a statement. The soldiers would initially be deployed to the main towns and cities in the districts before then moving into more rural areas. He did not say how many troops were being deployed but local media put the number at around 50,000. The BNP and its leader Khaleda Zia has condemned the military

deployment, saying it would pit the armed forces against the people. The BNP is at the head of an 18-party opposition alliance which has refused to take part in the polls after Mr Hasina blocked their demands to stand down and let a neutral caretaker government oversee the contest. Two other left-wing parties have also pulled out of the election as has a faction led by former dictator Hussain Muhammad Ershad, who had been an ally of Mr Hasina’s ruling Awami League. AFP

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Asia S.Korea sees higher 2014 inflation South Korea’s central bank said yesterday that weakened demand is not to blame for the country’s current low inflation, and it expects price pressures to rise next year as the domestic economy improves. The Bank of Korea said in its guidelines for 2014 monetary policy that eased price pressures at present are only due to temporary supply factors as well as changed policies, and inflation would increase in 2014. It added that the central bank would seek countermeasures to curb bond yield from rapidly steepening due to external factors, and pledged to boost monitoring of policy changes inside and outside the country that could affect markets. In light of rapid fluctuations in global markets, the central bank said it would seek steps to lessen market volatility as well as enhance the Korean won’s ability to absorb shocks. The Bank of Korea said the global economy is expected to improve next year, although the U.S. Federal Reserve’s decision to start reducing its stimulus poses downside risks.

Opponents have dismissed Yingluck Shinawatra’s proposal

Mizuho to suspend some operations Japan’s banking regulator ordered Mizuho Financial Group Inc to suspend part of its operations for a month as an additional penalty over its loans to organised crime syndicate members, sources familiar with the matter told Reuters. The Financial Services Agency (FSA) plans to impose a month-long suspension of Mizuho’s core banking unit’s loan business with consumer credit companies, where the problem transactions took place, said the sources, who declined to be identified as they are not authorised to discuss the matter. Banking examiners have been conducting a second round of investigation into Mizuho after Japan’s second-largest bank said it had provided authorities false information about how it handled the loan problem. The 230 small transactions totalling about US$2 million, mostly made up of car loans, were made by Mizuho consumer-finance affiliate Orient Corp and were among bulk loans the bank later bought from Orient.

Japan to introduce shareholder code Japan is likely to unveil a set of recommendations for institutional investors designed to boost returns, transparency and corporate governance, sources familiar with the situation said yesterday. The voluntary guidelines call on investors to disclose how they vote at shareholder meetings and to engage more actively with companies to help raise medium- to long-term investment returns. Billed the ‘Japanese Stewardship Code’, the recommendations apply to both non-Japanese and domestic institutions. The latter include life insurers and the GPIF national pension fund, which controls US$1.2 trillion of assets, said the sources, who were not authorised to discuss the matter publicly. The code was drawn up by a panel of experts set up as part of Prime Minister Shinzo Abe’s drive to stoke economic growth, and was inspired by a similar set of guidelines introduced in Britain in 2010. The U.K. Stewardship Code was conceived in the wake of the global financial crisis in 2008, when many institutional investors were criticised for not monitoring more closely the management of companies they owned.

Thai PM proposes political reform council Police clash with protesters at poll venue in Bangkok

acing unrelenting street protests against her rule, Thailand’s caretaker Prime Minister Yingluck Shinawatra proposed the formation of a council to study ways to reform the country’s political system. Under the proposal, a committee of 11 members including a commander from one branch of the military would recruit 2,000 people from various professions to select 499 members of the National Reform Council, Ms Yingluck said in a nationally televised address. Ms Yingluck has faced months of demonstrations aimed at toppling her government. The protesters have refused to accept her call for fresh elections on February 2, saying the government must first be replaced by an unelected council of “good people” that would rewrite the political rules to make sure no one from Ms Yingluck’s family could ever be elected again. “I fully agree that it is now time to develop a mechanism to push forward and mobilise national reform,” Ms Yingluck said in a translation of her speech released to the press. She said reform would be “for the sake of all Thai citizens’ happiness, benefits, peacefulness, reconciliation, unity, and prosperity, as well as for our future posterity”. Unlike the council proposed by the protesters, Ms Yingluck’s would not have the power to implement its proposals. Instead, the council would present its recommendations for consideration by the new government, according to the plan Ms Yingluck outlined. The protesters say Ms Yingluck’s government is illegitimate and run from abroad by her brother, former

prime minister Thaksin Shinawatra, who was ousted in a 2006 coup and faces a two-year jail term for corruption if he returns. Any vote held under the existing rules would return to power a party aligned with MR Thaksin, according to protest leader Suthep Thaugsuban.

No election “We will expel Yingluck from everywhere she goes,” Mr Suthep said in a speech to supporters. “If Yingluck remains in power after New Year, we will have a people’s revolution and seize back the people’s power.” Parties linked to Mr Thaksin have won the past five elections on support from voters in Thailand’s rural north and northeastern provinces. Antigovernment groups say Mr Thaksin’s electoral dominance is based on the pursuit of populist policies that

I fully agree that it is now time to develop a mechanism to push forward and mobilise national reform Yingluck Shinawatra, Thailand prime minister

damage the nation’s economy. “We will continue to put pressure on Yingluck to resign,” Thaworn Senneam, another protest leader, said in an interview broadcast yesterday on the Blue Sky television network, which is affiliated with the opposition Democrat party. “This will allow us to have a neutral prime minister set up a people’s council to reform the country. Yingluck’s proposal will lead to confrontation between the government and people, which could lead to chaos.” The protesters have repeatedly said they will not allow the election to take place, and this week they attempted to physically block candidates from registering for the polls. Thai police fired tear gas yesterday as violent clashes broke out with opposition protesters who stormed a sports stadium in the capital to try to prevent political parties registering for elections. “Protesters are not peaceful and unarmed as they claimed,” deputy prime minister Surapong Tovichakchaikul said in a televised address. “They are intimidating officials and trespassing in government buildings.” The Cabinet approved the use of the Internal Security Act in Bangkok and surrounding districts until March 1, Deputy Defence Minister Yuthasak Sasiprapha said. The demonstrators have defied the security law in recent weeks without provoking a response from the police. At least 34 parties have applied to take part in the February 2 election, including all of the major parties except the opposition Democrat party. Bloomberg News/AFP

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, José Carlos Matias, 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

Japan to put Tibor under tighter oversight Bank regulator seeks authority over benchmark rate

apan’s banking regulator will seek to introduce penalties for manipulation of financial benchmarks, joining market watchdogs around the globe in pushing for broader authority and tougher supervision. The Financial Services Agency should get formal authority to supervise organisations that set benchmarks such as the Tokyo Interbank Offered Rate, or Tibor, and to conduct investigations, an advisory committee to the regulator said in a statement yesterday. The FSA plans to submit a bill including the changes to parliament next year, a FSA official said at a news briefing, asking not to be identified, citing agency policy. The recommendations sum up the work of the committee, formed last month to revamp the regulatory framework for Tibor and other benchmarks in line with international

trends. Global fines on companies including Deutsche Bank AG and Royal Bank of Scotland Group Plc reached US$6 billion this month, and other firms are under investigation around the world. “Given the international trend, we fully understand that Japan needs to introduce a regulatory framework,” Kyosuke Hattori, a spokesman for the Japanese Bankers Association, which compiles the benchmark, said by phone. The planned change “can boost the market’s confidence in Tibor,” he said. The FSA, which has already investigated some manipulation of rates under its mandate to police markets, should create a framework to inspect and supervise organisations that set rates, while introducing penalties against financial firms that manipulate data submissions, according to the statement. In Japan, banks are responsible for

submitting interbank offered rates to the Bankers Association. The lobby group then compiles the data and sets the benchmark, according to the group’s website. The association pledged in July to step up oversight of Tibor, drawing up a code of conduct and possibly reducing the number of rates it calculates. Market regulators are urging nations to comply with guidelines for financial-benchmark setting by July 2014 to prevent any repeat of manipulation that distorted the London interbank offered rate, known as Libor. In response to the worldwide rigging probes, the International Organisation of Securities Commissions has proposed a set of principles to “ensure the quality, integrity, continuity and reliability” of benchmarks, the Madrid-based group said in October. Bloomberg News

Japan PM visits Yasukuni shrine S

hinzo Abe became the first sitting Japanese prime minister to visit Yasukuni Shrine since 2006, risking an escalation in tensions with China because the site memorialises war-dead including World War II criminals. Mr Abe made the visit more than seven years after Junichiro Koizumi’s last of several appearances at the location when prime minister – actions that spurred criticism by Asian neighbours from China to South Korea. The trip is a contrast from Mr Abe’s first administration in 20062007, when he stayed away from the shine and oversaw an improvement in China relations. The move came on the one-year anniversary of Mr Abe’s second ascension to power, and coincides with the 120th birthday of Mao Zedong, with Chinese leaders including President Xi Jinping honouring the founder of the communist state. China’s Foreign Ministry urged Japan yesterday to keep its promises to reflect on its past wartime aggression. “We solemnly urge Japan to abide by its commitment to reflect on its history of aggression, take measures to correct its error, eliminate the adverse effects and take concrete actions to win the trust of its Asian neighbours and the international community,” Foreign Ministry spokesman Qin Gang said in a statement. Tensions have escalated since mid-2012, when Japan’s government purchased islands in the East China Sea from a private Japanese owner, which China claims as its own territory. Mr Abe called earlier this month for a summit with Xi to address outstanding issues, flagging how in 2006 he had visited China and met with then-Chinese President Hu Jintao.

Regulator to oversee how reference banks set benchmark rate

Reuters

SoftBank in talks to acquire T-Mobile Media reports put deal at US$20 billion

apan’s SoftBank Corp is in talks to acquire U.S. wireless carrier T-Mobile US Inc and is discussing funding for a deal with financial institutions, sources close to the matter said yesterday. SoftBank is looking to have its recently acquired U.S. unit Sprint Corp take a majority stake in T-Mobile from the latter’s parent Deutsche Telekom AG in the financial year starting April, one of the sources added. The deal, which media reports have said would be valued at about US$20 billion – in line with the US$21.6 billion SoftBank paid for Sprint this summer – would help the Tokyo-based company leapfrog U.S. rivals Verizon and AT&T Inc to become the world’s No.2 mobile carrier by revenue. It would also bring SoftBank chief executive Masayoshi Son closer to his ambition of building the world’s biggest mobile Internet company – if he can overcome U.S. regulators’ expected concerns about competition issues.

as cooperation in infrastructure and equipment orders would create a stronger rival against the two biggest players.

Competition concerns

Masayoshi Son

“More than the financial and funding aspects, there are likely concerns in the United States about how much Son, head of a foreign company, can really open up mobile infrastructure there, and whether the deal would obstruct healthy competition,” a banking source in Tokyo said. Sprint has been interested in combining with T-Mobile for years and top executives from both companies have said that consolidation was necessary in the U.S. wireless market,

Both the U.S. Federal Communications Commission, which turned down AT&T’s application to acquire T-Mobile in 2011 due to competition concerns, and the Justice Department chiefs have signalled they will take a hard line in scrutinising consolidation bids. SoftBank may also face its second bidding war in barely a year with U.S. satellite TV provider Dish Network Corp, which is also looking at T-Mobile, sources told Reuters last week. Dish dropped out of the race to acquire Sprint this year after forcing SoftBank to sweeten its offer. SoftBank is in the final stages of talks with Deutsche Telekom, the Nikkei business daily reported on Wednesday, but sources told Reuters that talks were still in an early stage.

While the German company would prefer a cash deal, SoftBank has considered a stock swap and may have also added a tender offer and other kinds of deals to its options, the Nikkei report said. Mr Son has met with at least five banks to discuss financing, Bloomberg News reported over the weekend, including Credit Suisse Group AG, Mizuho Bank Ltd, Goldman Sachs Group Inc and Deutsche Bank AG. Steering SoftBank through the acquisition would be a test for the finance team, one banking source said, following the death in October of Kazuhiko Kasai, a former banker who was the company’s CFO and considered Mr Son’s right-hand man. Reuters

KEY POINTS SoftBank talking to Deutsche Telekom U.S. regulators may raise competition concerns SoftBank unit Sprint would buy stake

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Markets Gaming Stocks - Daily Performance (Hong Kong Stock Exchange) 68.5

100.0

31.5

67.9

99.7

31.3

67.3 66.7

30.9 99.1

66.1 Max 68.20

average 67.414

Min 65.55

Last 67.65

65.5

31.1

99.4

Max 99.9

average 99.081

Min 98.8

98.8

Last 99.1

62.3

25.2

61.6

25.0

60.9

24.8

30.7 Max 31.45

average 31.275

Min 30.80

Last 31.30

30.5

34.8 34.6 34.4 34.2 34.0

Max 62.30

average 61.591

Min 60.25

Last 61.40

60.2

Max 25.20

average 25.031

Commodities PRICE

DAY %

99.01

WTI CRUDE FUTURE Feb14

YTD %

-0.312122433

6.439475382

(H) 52W 106.2200012

(L) 52W 85.56999969

BRENT CRUDE FUTR Feb14

111.6

-0.152098059

7.225211376

112.5

GASOLINE RBOB FUT Jan14

277.41

-0.323380403

9.414688018

287.259984

243.1999922

GAS OIL FUT (ICE) Jan14

946.5

0.132240148

5.166666667

968

838.75

NATURAL GAS FUTR Jan14

4.514

2.172928927

11.45679012

4.825000286

3.464999914

NY Harb ULSD Fut Jan14 METALS

Gold Spot $/Oz

307.1

-0.230661772

3.015665358

320.0099945

278.0799866

1197.78

-0.4538

-28.0379

1696.2

1180.57

19.408

-0.0103

-35.543

32.46

18.2208

Platinum Spot $/Oz

1336.74

0.2708

-11.9262

1742.8

1294.18

Palladium Spot $/Oz

Silver Spot $/Oz

701.23

0.3549

0.2244

786.5

629.75

LME ALUMINUM 3MO ($)

1785

0.676818951

-13.89290883

2184

1736.25

LME COPPER 3MO ($)

7238

0.520797167

-8.737864078

8346

6602

LME ZINC

2040

2.538326213

-1.923076923

2230

1811.75

14420

1.62085976

-15.47479484

18770

13205

15.38

-0.388601036

#N/A N/A

16.77000046

15.12000084

433

-0.057703405

-28.95816243

618

418.5

613

-0.081499593

-26.29996994

845

607.25

SOYBEAN FUTURE Mar14

1335.5

0.33809166

1.578246815

1377.75

1174

COFFEE 'C' FUTURE Mar14

115.55

0.216825672

-27.93888369

172.25

104.1499939

16.38

-0.425531915

-20.40816327

20.71999931

15.85999966

3MO ($)

LME NICKEL 3MO ($) AGRICULTURE ROUGH RICE (CBOT) Mar14 CORN FUTURE

Mar14

WHEAT FUTURE(CBT) Mar14

SUGAR #11 (WORLD) Mar14 COTTON NO.2 FUTR Mar14

81.87

-1.539386651

3.097846619

90.61000061

76.65000153

World Stock Markets - Indices NAME

Last 25.00

24.6

Max 34.75

average 34.472

Min 33.80

Last 34.60

33.8

Currency Exchange Rates

NAME ENERGY

Min 24.65

COUNTRY MAJOR

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

ASIA PACIFIC

CROSSES

PRICE

DAY %

YTD %

(H) 52W

(L) 52W

0.8931 1.6357 0.8961 1.3681 103.96 7.9866 7.7538 6.0708 61.8575 32.677 1.2656 29.98 44.34 12195 92.85 1.226 0.83645 8.305 10.9267 142.23 1.03

0.0897 0.1286 0.0112 0.0585 0.1347 0.0063 0.009 -0.0033 0.295 -0.205 0.0395 -0.1034 0.3608 0.1558 -0.0054 -0.0587 0.0478 -0.3588 -0.1574 0.0633 0

-13.943 1.1189 2.1538 3.7225 -17.1797 -0.0426 -0.0413 2.6323 -11.094 -6.4174 -3.4924 -3.1588 -7.5214 -19.6966 -3.7943 -1.5106 -2.5142 -1.0536 -3.6269 -20.1505 -0.0097

1.0599 1.6484 0.9839 1.3832 104.64 8.0111 7.7664 6.2492 68.845 32.773 1.2862 30.228 44.82 12260 105.433 1.265 0.88151 8.4957 11.0434 142.9 1.032

0.8821 1.4814 0.8833 1.2746 84.22 7.9818 7.75 6.0681 52.89 28.56 1.2195 28.913 40.54 9603 86.41 1.2064 0.80817 7.8281 10.195 110.94 1.0289

Macau Related Stocks NAME

PRICE

ARISTOCRAT LEISU CROWN RESORTS LT

DAY %

YTD %

(H) 52W

(L) 52W

VOLUME CRNCY

4.58

1.327434

45.39682

5.12

3.05

1375373

16.66

0.8474576

56.13871

17.38

10.45

843135

AMAX INTERNATION

1.59

8.90411

13.57143

2.12

0.75

11394700

BOC HONG KONG HO

24.55

0.2040816

1.867218

22.85

4309645

CENTURY LEGEND

0.435

3.571429

64.15095

0.68

0.26

868000

7.07

0.7122507

18.03005

7.28

4.95

10219

21.85

-1.354402

-5.411257

25.6

17.7

15387276

CHEUK NANG HLDGS CHINA OVERSEAS CHINESE ESTATES

23.2

1.310044

106.3039

23.8

10.334

57000

CHOW TAI FOOK JE

11.24

0.7168459

-9.646299

13.4

7.44

8128194

COUNTRY

PRICE

DAY %

YTD %

(H) 52W

(L) 52W

DOW JONES INDUS. AVG

16221.14

0.2599653

23.78638

16287.83984

12883.89

NASDAQ COMPOSITE INDEX

4104.741

1.148459

35.94048

4111.926

2951.036

FTSE 100 INDEX

6632.93

0.3988448

12.46429

6875.62

5873.43

HANG SENG BK

DAX INDEX

9435.37

0.3743545

23.94754

9439.62

7418.36

NIKKEI 225

15870.42

0.07062138

52.67096

15942.6

9924.42

HANG SENG INDEX

22921.56

0.4794807

1.168034

24111.55078

19426.35938

CSI 300 INDEX

2284.602

0.2838285

-9.447261

2791.303

2023.171

TAIWAN TAIEX INDEX

8456.46

0.5700164

9.831287

8501.769531

KOSPI INDEX

1996.89

0.6826833

-0.008013529

2063.28

EMPEROR ENTERTAI

3.359173

111.6402

4.66

1.79

2671000

3.96

4.761905

226.7256

4.13

1.172

4008000

67.65

2.57771

122.8995

70.4

29.5

8917048

125

0.08006405

5.307501

132.8

110.6

470287

HOPEWELL HLDGS

25.85

0.5836576

-22.25564

35.3

23.2

786200

HSBC HLDGS PLC

82.55

0.6707317

1.537512

90.7

77.85

7001334

FUTURE BRIGHT GALAXY ENTERTAIN

HUTCHISON TELE H

2.89

2.120141

-18.82022

4.66

2.5

19929000

LUK FOOK HLDGS I

28.8

-0.5181347

18.03279

31.5

16.88

1197000

MELCO INTL DEVEL

27.4

3.201507

204.1065

29.15

8.9

2287954

7520.62

MGM CHINA HOLDIN

31.3

2.791461

135.7233

33.3

13.146

3088900

1770.53

MIDLAND HOLDINGS

3.7

1.092896

4.29

2.68

9460000

NEPTUNE GROUP

0.3

1.694915

97.36843

0.4

0.131

34382000

NEW WORLD DEV

9.7

-0.6147541

-19.30117

15.12

9.67

10184218

SANDS CHINA LTD

61.4

1.153213

80.85419

65.9

33.5

9576340

S&P/ASX 200 INDEX

5291.949

0.5077094

13.83106

5457.3

4611.2

JAKARTA COMPOSITE INDEX

4189.608

-0.1417691

-2.943904

5251.296

3837.735

FTSE Bursa Malaysia KLCI

1832.86

-0.2812794

8.52068

1851.94

1597

SHUN HO RESOURCE

1.57

12.14286

1.92

1.33

NZX ALL INDEX

995.368

0.8322933

12.84673

1048.998

875.665

SHUN TAK HOLDING

4.56

-0.2188184

8.830547

4.8

3.27

2364786

PHILIPPINES ALL SHARE IX

3592.96

0.08551794

-2.866196

4571.4

3440.12

SJM HOLDINGS LTD

5566482

1.832994

40.86366

17.04

SMARTONE TELECOM

8.89

0.908059

-36.8608

14.46

7.38

9128536

WYNN MACAU LTD

34.6

2.215657

65.15513

36.9

4489418

Euromoney Dragon 300 Index Sin

595.56

0.8

-4.11

STOCK EXCH OF THAI INDEX

1325.51

-1.281727

-4.771795

1649.77

1260.08

ASIA ENTERTAINME

#N/A N/A

HO CHI MINH STOCK INDEX

508.68

0.838537

22.94975

533.15

394.27

BALLY TECHNOLOGI

76.01

2.260191

70.00671

78.03

43.57

726018

Laos Composite Index

1261.58

0.1619639

3.853399

1455.82

1199.5

BOC HONG KONG HO

3.18

1.597444

3.583064

3.6

2.99

159093

GALAXY ENTERTAIN

8.538

-2.977273

115.063

9.15

3.8

9022

INTL GAME TECH

17.44

1.101449

23.07692

21.2

13.58

4222359

JONES LANG LASAL

100.2

0.3806852

19.37098

102.14

80.86

407082

LAS VEGAS SANDS

76.57

-0.6745363

65.87955

78.13

44.444

4923879

MELCO CROWN-ADR

37.85

-1.174935

124.7625

39.42

16.13

5314011

MGM CHINA HOLDIN

3.97

-1.732673

126.8194

4.2

1.7651

16000

MGM RESORTS INTE

22.72

0.4865104

95.189

22.82

11.32

11529372

SHFL ENTERTAINME

23.19

#N/A N/A

59.93103

23.25

13.64

344231

SJM HOLDINGS LTD

3.16

-1.557632

38.74156

3.6

2.2

157800

185.35

0.1296526

67.79554

187.35

106.966

1534641

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

AIA GROUP LTD

38.2

1.058201

13258077

ALUMINUM CORP-H

2.69

5654733

3.5

245608123

BANK OF COMMUN-H

5.34

-0.1869159

14363952

BANK EAST ASIA

32.5

0.4636785

633193

BELLE INTERNATIO

8.86

0.3397508

12613411

BANK OF CHINA-H

NAME

PRICE

DAY %

VOLUME

11.5

0.3490401

12223433

11.78

-0.8417508

5107390

SANDS CHINA LTD

60.6

0.4142502

2021416

CNOOC LTD

14.24

0.7072136

45063192

COSCO PAC LTD

10.52

0.1904762

ESPRIT HLDGS

15.1

CHINA UNICOM HON CITIC PACIFIC CLP HLDGS LTD

PRICE

DAY %

VOLUME

61.15

0.2459016

2745414

61.4

1.153213

9576340

SINO LAND CO

10.48

2901955

SUN HUNG KAI PRO

97.05

1926904

4082078

SWIRE PACIFIC-A

90.35

-0.2759382

909952

-0.3957784

2592183

TENCENT HOLDINGS

467.2

0.7765315

2937185

TINGYI HLDG CO

3263473

BOC HONG KONG HO

24.55

0.2040816

4309645

HANG LUNG PROPER

23.8

-0.8333333

3349769

CATHAY PAC AIR

16.12

0.8760951

3308625

HANG SENG BK

125

0.08006405

470287

CHEUNG KONG

120.4

-0.4958678

1211604

HENDERSON LAND D

43.9

0.4576659

1976524

CHINA COAL ENE-H

4.43

0.2262443

24453955

CHINA CONST BA-H

5.82

-0.1715266

187112934

HENGAN INTL

90.7

-1.573521

2687389

HONG KG CHINA GS

17.5

0.3440367

6624311

HONG KONG EXCHNG

128.8

0.233463

1703983

HSBC HLDGS PLC

82.55

0.6707317

7001334

14377589

HUTCHISON WHAMPO

103.4

1.174168

3637365

15387276

IND & COMM BK-H

5.19

199544214

LI & FUNG LTD

9.98

0.9100101

17133361

29.05

0.8680556

921540

CHINA LIFE INS-H

23.55

0.4264392

25882466

CHINA MERCHANT

27.85

0.9057971

1632365

CHINA MOBILE

80.55

0.8135169

CHINA OVERSEAS

21.85

-1.354402

CHINA PETROLEU-H

6.21

0.3231018

48849584

CHINA RES ENTERP

25.35

-1.169591

2627066

MTR CORP

NAME POWER ASSETS HOL

WANT WANT CHINA WHARF HLDG

MOVERS

22.9

1.777778

10.92

2.824859

9389452

59.5

-0.7506255

2397808

5 23405

INDEX 22921.56 HIGH

23404.45

LOW

22728.15

CHINA RES LAND

19.02

-1.143451

4774404

NEW WORLD DEV

9.7

-0.6147541

10184218

52W (H) 24111.55078

CHINA RES POWER

17.74

-0.4489338

2576069

PETROCHINA CO-H

8.45

0.1184834

39870453

(L) 19426.35938

CHINA SHENHUA-H

23.8

0.4219409

8151543

PING AN INSURA-H

68.25

1.71386

18086859

22728

19-December

23-December

15 15

December 27, 2013 April 19, 2013

Opinion Business

wires

Xi’s recipe

Leading reports from Asia’s best business newspapers

Korea Herald South Korea’s logistics sector is estimated to have posted operating losses of about 6 billion won (US$5.7 million) over the past weeks in the wake of the railway union’s ongoing strike launched early this month, according to the state-run Korea Railroad Corp. KORAIL officials said the number of available freight trains fell by 2,546 (or about 170 trains a day) nationwide between December 9 and December 23. The situation is expected to become more serious as KORAIL plans to lower the train operation ratio from the current 39 percent to below 30 percent due to a shortage of manpower.

Inquirer Business The Philippine government has significantly increased its infrastructure budget for 2014 to help meet the reconstruction needs in areas devastated by Super Typhoon Haiyan. Data from the Department of Budget and Management showed that under the 2014 national budget, the state would spend 431.65 billion pesos (US$9.7 billion) for capital outlays, up by 32.6 percent from this year’s budget for the same. The infrastructure budget for next year was also higher than the 420 billion pesos proposed earlier.

China Daily Beijing has pledged to deepen rural reforms and step up agricultural modernisation, according to a statement issued after a central rural work conference. “When defining a moderately prosperous society, the key is to observe the condition of farmers,” the statement said. Agriculture is still the weakest among the four pursuits of industrialisation, informatisation, urbanisation and agricultural modernisation. The countryside still lags behind, the statement acknowledged. Tackling problems in the countryside should be at the core of work of the central authorities, the statement said.

Taipei Times The business climate gauge for Taiwan’s manufacturing sector fell for the third straight month last month as a result of tepid demand from Asian markets, according to a survey released by the Taiwan Institute of Economic Research. The manufacturing sector’s gauge dropped 0.34 points to 95.86 last month from October’s 96.2, indicating that the sector would be in the doldrums before likely rebounding in the second quarter next year, the survey showed. The survey indicated that 34.5 percent of respondents were bearish about their business outlook last month. In October, the figure stood at 26.8 percent.

Anne-Marie Slaughter

President and CEO of the New America Foundation

Xi’s moves to strengthen his hand have helped to convince observers that he means business with the reform agenda

hina’s government is cracking down hard on Western journalists, threatening not to renew visas for reporters from the New York Times and Bloomberg in retaliation for their reporting on the corruption of senior Chinese officials. Times columnist Thomas Friedman recently penned an open letter to the Chinese government telling them that, because the top “cause of death of Chinese regimes in history is greed and corruption,” a free press is more likely to help than hurt. Anyone who holds freedom of the press and freedom of expression to be universal human rights will agree with Friedman’s position. But, in China, politics – including the politics of rights – is always intertwined with economics. Last month, President Xi Jinping announced a set of sweeping economic reforms at the Central Committee’s Third Plenum, setting forth his vision of “the great rejuvenation of the Chinese nation”. His 60-point plan included reforms of fiscal policy and the financial sector that would set market interest rates on loans and deposits, permit some private-investor participation in state-owned enterprises, increase the role of small and medium-size enterprises, loosen labour restrictions, and introduce property taxes to boost revenue for local authorities. This renewed embrace of the market, reminiscent of Deng Xiaoping’s original turn to capitalism in 1979, will be hard medicine for China’s entrenched business and government elites to swallow. If Xi’s administration is successful – a big if – its

reforms may enable China to negotiate the necessary transition from an economy driven by exports and government investment to a more sustainable growth model based on domestic consumption. The stakes are high. A country that has lifted hundreds of millions of people out of poverty over the last two decades must now find a way to safeguard and gradually increase those gains while engineering the same miracle for the hundreds of millions still left behind. The world has a significant economic, political, and moral interest in the success of China’s reform agenda.

Chinese cocktail In this context, it is important to understand that Xi’s economic reforms are only one ingredient of a carefully crafted cocktail. The rest of the recipe includes two parts popular social reforms – an end to the one-child policy for many Chinese parents and the abolition of “re-education through labour” – and one part political crackdown. Increased censorship and intimidation of foreign journalists, together with the imprisonment of dissidents and tighter restrictions on dissent, are an effort to ensure that economic disruption does not give rise to political rebellion. To implement his ambitious reform agenda, Xi has taken several steps to consolidate his personal and bureaucratic power. He has reduced the membership of the Politburo from nine to seven, making it easier to obtain agreement in a system designed to

institutionalise collective leadership. He has increased the power of the Central Committee, which he chairs. And he has created a new State Security Council. To understand how the State Security Council could serve Xi’s interest in centralising power, consider the United States. Without the National Security Council and the Domestic Policy Council, the U.S. president would have no routine way to control and coordinate different bureaucracies. White House staff working for the National Security Council call meetings at which officials from the State Department, Defence Department, Treasury, Justice Department, and other key agencies hash out their views on a given policy. But it is the president’s staff who guide the outcome and determines the next steps. Xi’s moves to strengthen his hand have helped to convince observers that he means business with the reform agenda. Since the Third Plenum ended and the scope of Xi’s reforms has become clear, many China watchers have hailed him as the most transformative leader since Deng. Time will tell, but a key difference between 2014 and 1979 is that today the Chinese cocktail is spiked with fear.

Reform agenda Evan Osnos, writing in The New Yorker, reports that two years ago, in the midst of the Arab uprisings, a senior official told a meeting in Beijing that if the Chinese government “waver[ed]” in the midst of social-media-fuelled global

dissidence, “the state could sink into the abyss”. Recently, Osnos writes, a high-level Chinese diplomat explained the threatened expulsion of New York Times and Bloomberg journalists on the grounds that “the Times and Bloomberg were seeking nothing short of removing the Communist Party from power, and that they must not be allowed to continue”. That fear is one of the principal forces driving Xi’s reform agenda. The Communist Party must keep the Chinese economy growing (even if more slowly), while fighting rampant corruption and responding to citizens’ demands. Chinese citizens cannot vote, but they can – and do – make their displeasure known, which places a premium on what Chinese bureaucrats call “stability maintenance”. Will Dobson, author of The Dictator’s Learning Curve, describes the Chinese government as a technocracy whose legitimacy is founded on efficient problemsolving. “When a regime’s legitimacy is derived from its performance,” he argues, “any crisis – and how the party responds to it – can raise existential questions about the regime’s right to rule”. China’s leaders apparently worry that Western-style investigative journalism inside China could trigger just such a crisis. In any case, they are taking no chances. They are placing their faith in their ability to wash their own dirty laundry and drive economic, social, and political change from the top down. And they are less and less willing to play by Western rules. © Project Syndicate

16 16

December 27, 2013 April 19, 2013

Closing Beijing to advance plans for property tax

Batista cedes control of oil explorer

China will speed up legislation for a property tax and advance plans to revise its resource tax next year, Finance Minister Lou Jiwei (pictured) said yesterday. At the same time, China will also enhance the management of its local government debt and contain fiscal risks in 2014, Mr Lou said in comments published on the ministry’s website after a work meeting. China does not have a nationwide property tax but hopes to introduce one to temper record house prices. However, some analysts say a property tax will not be effective in cooling home prices as the tax burden will simply be passed to buyers.

Former Brazilian billionaire Eike Batista (pictured) ceded control of Oleo & Gas Participações SA to creditors in a deal to convert debt of about US$5.8 billion into a 90 percent stake in the oil company, two months after defaulting in Latin America’s biggest-ever corporate debt debacle. The accord, which includes restructuring dollar bonds, may help the Rio de Janeiro-based explorer emerge from bankruptcy. Mr Batista, once Brazil’s richest man and the eighth-wealthiest on earth with a fortune topping US$30 billion, struggled to save an empire that included a shipbuilder and port developer since mid-2012, when his company began missing targets.

Taiwan c.bank holds key rate Taiwan held its benchmark interest rate for a 10th straight meeting after it lowered its forecasts for economic growth and inflation this year and next. The central bank kept the discount rate on 10-day loans to banks at 1.875 percent, it said in a statement in Taipei yesterday. The monetary authority has refrained from adjusting borrowing costs since June 2011, the longest period of inaction, according to its data going back to 1980. Taiwan joins economies from Indonesia to India in holding rates this month to bolster growth. The government last month trimmed the island’s expansion forecast for this year to 1.74 percent from 2.31 percent earlier and said exports may increase at a slower-than-estimated pace of 0.44 percent. It cut the inflation prediction for 2013 to 0.94 percent. “Taiwan’s inflation is still low, so there’s no need to raise the rate,” Raymond Yeung, a Hong Kong-based economist at Australia & New Zealand Banking Group Ltd, said before the release. “With export data softening lately, growth prospects look bumpy. Considering the balance between growth and inflation, maintaining the key rate is the best call.”

Alibaba unit to compete in China’s wireless market China took a step toward opening the world’s largest wireless market by awarding licences to operate to 11 companies, including a unit of Alibaba Group Holding Ltd, the industry regulator said. The regulator will allow the companies to lease wireless capacity from the nation’s three existing carriers in a trial programme intended to boost competition in the US$213 billion market, according to a statement on the website of the Ministry of Industry and Information Technology yesterday. The country’s carriers now, China Mobile Ltd, China Unicom (Hong Kong) Ltd and China Telecom Corp, are all state-run. Opening the market to new operators is aimed at helping to cut prices, bring more choices and improve customer service to the nation’s 1.2 billion wireless users. The new licences have been granted as part of a twoyear trial to try to bring more competition into the market. “Most of the new operators will look for a niche segment to differentiate their offerings from the major carriers,” Sandy Shen, a Gartner Inc analyst in Shanghai, said. The new operators may offer specific products and services at cheaper prices, she said. The new private companies entering China’s telecom market will capture about 10 percent of the nation’s mobile-phone connections by 2018, according to estimates from Nicole McCormick, an analyst at researcher Ovum.

Turkey’s Erdogan replaces 10 ministers Prime minister resignation call chokes lira prop-up plan

Erdogan has described a police investigation as a “dirty game”

urkish central bank governor Erdem Basci’s attempt to buy himself time to boost the lira amid a corruption probe took a beating after a third minister resigned and urged Prime Minister Recep Tayyip Erdogan to do the same. The lira weakened 0.2 percent to an all-time low yesterday, following a 0.7 percent decline on Wednesday after Environment and Urban Works Minister Erdogan Bayraktar stepped down. The Borsa Istanbul 100 Index dropped to the lowest level in almost four months. Mr Erdogan responded to the political turmoil with a cabinet reshuffle, replacing 10 ministers. Governor Basci stepped up efforts to stem the currency’s slide after police arrested the sons of two Turkish ministers and a bank chief on December 17 and the Federal Reserve said the next day it will cut its US$85 billion monthly bond-buying programme by US$10 billion. Police are investigating allegations of illicit money transfers to Iran and bribery for construction projects. Turkey’s central bank said on Tuesday it would sell at least US$6 billion through the end of January and make it more costly for lenders to park foreign currencies in its coffers.

“Minister Bayraktar’s surprise statement has nullified Basci’s efforts,” Haluk Burumcekci, chief economist at Burgan Securities in Istanbul, said. “Prime Minister Erdogan didn’t directly respond to that call for him to quit, but that may change in the following days.”

Political tensions Mr Erdogan replaced Bayraktar, along with Economy Minister Zafer Caglayan and Interior Minister Muammer Guler, after changes to 10 cabinet members were approved by President Abdullah Gul late on Wednesday. Among other ministers who were replaced was Egemen Bagis, the EU affairs minister who has also been implicated in the corruption investigation, according to Hurriyet newspaper. In Istanbul, protesters held a street rally against corruption in the government. There were reports of clashes with riot police late on Wednesday evening. The lira, this month’s worstperformer in emerging Europe and Africa, rallied 1 percent on December 24 after Mr Basci announced the new tightening measures. The gains

initially continued on Wednesday after the resignations of the economy and interior ministers, whose sons were arrested last week as part of the corruption investigation, before reversing. The resignations had raised optimism they would “somewhat lessen the political tensions,” Burcin Metin, head of currency trading at ING Bank AS in Istanbul, wrote in e-mailed comments. Shares, bonds and the currency swung lower after Mr Bayraktar, the environment minister, said in an interview with NTV television that all of his actions had Mr Erdogan’s approval and the prime minister should also resign amid the probe. But Mr Erdogan has described the police investigation as a “dirty game”. He said it was a plot by foreign and Turkish forces to discredit his government ahead of local elections in March. “This latest resignation shows the debate will continue,” Evren Kirikoglu, a strategist at Akbank TAS in Istanbul, said in an e-mail. “Foreign investors view this as an indication that the parties subject to the probes are not in agreement among themselves.” Bloomberg News/Reuters