Macau Business Daily, Jan 8, 2014 by Business Daily

Vitor Quintã

MOP 6.00

April 19, 2013

Deputy editor-in-chief

Fears OCBC may overpay for Wing Hang Page 5

www.macaubusinessdaily.com

Year II

Number 450 Wednesday January 8, 2014

Editor-in-chief Tiago Azevedo

Govt to have say in basic TV service, Lau Si Io says Page 6

IACM defends café licensing system Page 6

Bank of China Macau stops charging dormant accounts B

ank of China Ltd Macau branch has lifted charges for inactive accounts. The city’s largest bank said in an online statement dated January 6, “the dormant account fee will be cancelled effective January 2014”. BoC Macau had charged 50 patacas (US$6.26) every half-year for inactive accounts until such time as the balance was depleted or the account holder reactivated the account. Yao Jingyuan, chief economist and spokesman of

China’s National Bureau of Statistics until 2011, recently criticised China’s banking sector for being “like a highway toll system” charging every time money moved but doing little in return to help the economy. Here, Legislative Assembly member Kwan Tsui Hang said removing the fee on inactive accounts would “bring fairness to account holders with different economic backgrounds”. More on pages 2 & 3

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QFII quota can aid fiscal reserve returns

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The government’s application to invest in exchange-traded securities on the mainland is “a good small step” to diversify the investment from the fiscal reserve and boost its returns, say academics specialising in economics. The Qualified Foreign Institutional Investor programme allows licensed foreign investors to trade in the two stock markets of Shanghai and Shenzhen. Investment in these markets from outside the mainland is limited by quota.

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Pages 2 & 3

Unstable ground delays housing work at Ilha Verde

Macau travel agencies eye Chimelong park opportunities

The first building in the biggest public housing complex planned for the peninsula will be finished only later this year, two years behind schedule, the government has acknowledged. The head of the Land, Public Works and Transport Bureau’s urban planning department, Lao Iong, said in May 2012 that the Ching Yi building in Ilha Verde would be finished by the end of 2012.

The city’s travel agencies are not yet offering packages to the Chimelong International Ocean Resort on Hengqin Island, but they are willing to do so. A Hong Kong travel agency has already begun promoting tours to the theme park neighbouring Macau. Hong Thai Travel Services Ltd started promoting two-day packages to the Chimelong theme park on Monday. They cost between HK$939 (US$121) and HK$1,829 per person.

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%Day

LI & FUNG LTD

9.55

GALAXY ENTERTAIN

5.66

BELLE INTERNATIO

5.38

SANDS CHINA LTD

3.48

CHINA COAL ENE-H

2.71

POWER ASSETS HOL

-1.34

CHINA SHENHUA-H

-1.34

LENOVO GROUP LTD

-1.64

CITIC PACIFIC

-2.00

CHINA OVERSEAS

-2.63

Source: Bloomberg

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January 8, 2014

Macau Public transport boosted before car curbs The Transport Bureau will only lay out proposals for controlling the rise in the number of motor vehicles after improving public transport. Wong Wan, the bureau’s director, said yesterday in a Legislative Assembly session that the government would first work on tasks such as completing the Light Rapid Transit railway and improving the car parking environment here, as well as eliminating highly-polluting vehicles. The government aims to limit the annual growth of motor vehicle numbers to four percent by 2020 against the current rate of 5.6-to 5.7 percent, Mr Wong added.

BoC Macau scraps fee for dormant The banking association hopes other lenders will follow Bank of China’s lead Tony Lai

tony.lai@macaubusinessdaily.com

ank of China Ltd’s Macau branch (BoC Macau) has announced that it has stopped charging any fee for bank accounts that are inactive. In a statement posted online, BoC Macau says: “The dormant account fee will be cancelled effective January 2014.” The bank says it used to charge a fee for “any savings or current accounts being inactive for over one year and with a balance of less than 1,000 patacas [US$125] or the equivalent of HK$1,000”. It was not immediately clear whether other banks here will follow BoC Macau’s lead in abolishing fees for inactive accounts. Generally, an account without deposits or withdrawals for more than a year is liable to be regarded as inactive. The fee charged for dormant accounts varies from bank to bank. Tai Fung Bank Ltd charges 50 patacas every six months until a dormant account is drained or reactivated – the same as BoC Macau used to charge. Tai Fung Bank declined to say

The dormant account fee will be cancelled effective January 2014 Bank of China Macau

whether it would abolish its fee. It said only that it would “make an announcement when there is new information”. Banco Nacional Ultramarino SA (BNU) charges 200 patacas every six months if the balance is under 2,000 patacas or the equivalent in other currencies. Business Daily invited BNU to comment, but the bank had failed to reply by the time we went to press. We also asked Industrial and Commercial Bank of China (Macau)

Bank of China used to charge 50 patacas every six months for inactive accounts

QFII quota good for diverse investment, say Investment in mainland stocks would increase the fiscal reserve’s returns, although not Tony Lai

tony.lai@macaubusinessdaily.com

he government’s application to invest in shares traded in the mainland stock market is small step towards diversifying the ways the fiscal reserve is invested and increasing the reserve’s returns on its investments, academics say. “It is quite a good investment direction, to trade in mainland shares, as the returns in the market have not been bad in recent years, with an annual yield of 5 percent to 6 percent,” said University of Macau professor of finance and business Jenny Huang Bihong. The vice-president of the Macau Association of Economic Sciences, Jack Chang Chak Io, also praised the government’s move. “This means the government has confidence in growth in the mainland market and there is, perhaps, also support from the central government,” Mr Chang said. Secretary for Economy and

Finance Francis Tam Pak Yuen told the Legislative Assembly on Monday that the government had begun the process of applying for Qualified Foreign Institutional Investor (QFII) status with a view to diversifying the investments made by the fiscal reserve. The QFII programme allows licensed foreign investors to trade in shares listed at the Shanghai and Shenzhen stock exchanges. Outside investment in the mainland stock market is limited by quotas. By last December 25 the State Administration of Foreign Exchange had licensed 228 foreign institutions to use the QFII programme to invest in mainland stocks, and had granted quotas amounting to US$49.7 billion (397.6 billion patacas). The Hong Kong Monetary Authority has accumulated quotas amounting to US$1.5 billion since 2011.

The Macau government wishes to trade shares listed in the mainland

January 2014 April 19,8,2013

Macau Chow Tai Fook Q3 revenue up 26 pct Hong Kong-listed Chow Tai Fook Jewellery Group Ltd, the world’s most valuable jewellery retailer, said yesterday its revenue grew 26 percent in the third quarter of fiscal 2014, driven by sales of both gold and gem-encrusted pieces. Sales in mainland China rose 34 percent and sales in Hong Kong and Macau rose 18 percent in the three months ended December 31, Chow Tai Fook said in a statement to the Hong Kong Stock Exchange. Gold products remained its best-sellers, accounting for 57 percent of total revenue. Third quarter results are not audited and based on internal records.

accounts

academics by much

Business Daily asked the Monetary Authority of Macau how big a quota it was applying for and when it expected the mainland regulators to respond, but the authority had failed to reply by the time we went to press.

Controlled risk Mr Chang said the size of the quota would depend on the central government. He said the Macau government should aim to get as big a quota as possible. Ms Huang said Hong Kong’s initial quota had been only US$300 million. She said that if Macau’s initial quota was similar it would do little to improve the yield of the fiscal reserve. “US$300 million would account for only a small part of a fiscal

Ltd to comment, with the same result. The Macau Association of Banks is optimistic that other banks will follow BoC Macau’s lead. The Chinese-language Macao Daily News quoted the chairman of the association, Ip Sio Kai, as saying the association had suggested last year that banks abolish or reduce fees for dormant accounts. “The suggestion has got active responses from the banks,” Mr Ip said. Mr Ip is also the deputy general manager of BoC Macau. BoC Macau is the largest of Macau’s banks, measured by their assets. He said other banks charged “an appropriate administrative fee” to cover costs, but that new technology had improved the way such costs were managed. Business Daily asked the Monetary Authority of Macau whether it would press banks to abolish fees for dormant accounts, but we got no answer. Legislative Assembly member Kwan Tsui Hang said abolishing such fees would “bring fairness to account holders with different economic backgrounds”. Ms Kwan said in a written inquiry she submitted to the government on Friday that the Monetary Authority should urge the banks to abolish such fees. In October the Hong Kong Monetary Authority goaded 22 banks in Hong Kong into signing a pledge to treat their customers fairly. At least five banks have since abolished fees for dormant accounts. Banks in Hong Kong normally charge HK$100 every six months until a dormant account is drained.

reserve worth hundreds of billions [of patacas], but it would still represent a good small step for the government toward diversifying its investment channels to boost the returns,” she said. Mr Tam said on Monday that the fiscal reserve had been worth 168.2 billion patacas (US$21 billion) on December 30. He said the value would increase by 70 billion patacas once the budget surplus from 2012 was added. Ms Huang said the risk of investing in the mainland stock market could be kept under control, even though indications that the United States Federal Reserve is beginning to wind down its ultraeasy monetary policy had made stock markets volatile. “It is foreseeable, some fluctuation, but as long as the investment portfolio is diversified, it is no big problem,” she said. Mr Tam said the fiscal reserve’s yield was 2.9 percent last year, less th a n th e a n n u a l r a te o f consumer price inflation for most of last year. The annual rate of consumer price inflation averaged 5.51 percent in the 12 months ended November 30. In November Beijing increased the Macau government’s quota for investment in the mainland interbank bond market to 20 billion yuan (26.2 billion patacas) from 10 billion yuan.

Weak ground delays work on housing in Ilha Verde The first block of flats in the public housing complex there will be finished at least two years late Vítor Quintã

vitorquinta@macaubusinessdaily.com

he first building in the biggest public housing complex planned for the peninsula will be finished only later this year, two years behind schedule, the government has acknowledged. The head of the Land, Public Works and Transport Bureau’s urban planning department, Lao Iong, said In May 2012 that the Ching Yi building in Ilha Verde would be finished by the end of 2012. But the government told Business Daily last month that the building would be completed in the fourth quarter of this year at the earliest. The building is the first in a public housing complex that will eventually contain 3,000 homes. The government extended last month two contracts for work on the project. One contract, with the construction consortium that is putting up the Ching Yi building, is worth 600 million patacas (US$75.1 million). The other, with the architect of the building, Chan Hou Kuan, is worth almost 10 million patacas. The Infrastructure Development Office told Business Daily in writing that the contractors had built the foundations of the building but suspended further work. The office said the suspension was due to the discovery of “a deviation between the plot’s geological elements”. The contractors were now reinforcing the ground to solve the problem, the office said. It said the contractors could resume construction of the building’s underground car park and superstructure only once the reinforcement work was done. The Infrastructure Development Office did not say when the work would be finished. Business Daily asked the office if the government would punish the

contractors for the delay, but the office had failed to reply by the time we went to press. We also asked the office whether problems similar to those that had delayed the Ching Yi building would hinder the rest of the project, but the office again failed to reply.

Local difficulty The government said in June 2012 that the Ilha Verde public housing complex would have six buildings in all, together accommodating over 10,000 people. Construction of the Ching Yi building began in September 2011. It will be the smallest block in the complex, occupying a plot of 4,608 square metres. The building will contain 770 flats. They are among the 19,000 homes in public housing that Edmund Ho Hau Wah, as chief executive, promised would be built by the end of 2012. Almost two-thirds of the 770 flats will have two bedrooms and one-sixth will have one bedroom. The lower floors of the 34-storey building will have common facilities including a public health centre and a garden. This is not the first time that weak ground has delayed the construction of buildings in Ilha Verde, most of which is reclaimed land. The need to build a retaining wall delayed construction of the University of St Joseph’s 500 million pataca campus there for over a year. University rector Peter Stilwell said last June that classes would begin on the campus only in September 2015. The government and one of the companies in the consortium putting up the Ching Yi building, Top Builders International Ltda, had a dispute last August over the construction of the Light Rapid Transit railway.

January 8, 2014

Macau

Macau travel agents keen on Chimelong resort tours But a Hong Kong travel agency’s package tours have a head start Tony Lai

tony.lai@macaubusinessdaily.com

“We have not yet discussed the matter with Chimelong, so for the time being we cannot offer any tours to the theme park.” Mr Cheong said: “The theme park will only be having trials this month, and as yet there is no date for operations to start in earnest.” But he said Macau travel agents were eager to arrange tours once they had more information.

Visitors aplenty

The Chimelong resort’s ocean theme park will reportedly begin trial operations this month

acau travel agencies have yet to offer package tours to the Chimelong International Ocean Resort on Hengqin Island, but they are willing to. A Hong Kong travel agency, Hong Thai Travel Services Ltd, began advertising two-day package tours to the resort on Monday. The tours cost between HK$939 (US$121) and HK$1,829 per

person, the prices including the cost of admission to the resort’s ocean theme park, which is 380 yuan (497 patacas) for an adult. The main elements of the Chimelong resort are due to open before the Lunar New Year at the end of this month. The Chimelong hotel will have 1,888 rooms and should begin operating this week. Hong Kong’s

Ming Pao Daily News has reported that the ocean theme park will probably begin trial operations on January 18. Three Macau travel agencies, including Hong Thai Travel Services (Macau) Ltd, told Business Daily that they were not yet offering package tours to the Chimelong resort. Macau Travel Agency Association vice-president Cheong Chi Man said:

Macau Travel Industry Council president Andy Wu Keng Kuong said: “If Hong Kong has already started, I believe it will be just a matter of time before Macau’s turn comes, once more information is available.” Mr Wu said the opening of the Chimelong resort could bring more visitors from Hong Kong to Macau as some might stay in hotels here after visiting the resort. But the opening might not bring more visitors from the mainland to Macau because mainlanders needed visas to enter the city, he said. Nearly 6.2 million Hong Kong people visited Macau in the first 11 months of last year, 4.2 percent fewer than in the equivalent period of 2012. Union Gaming Research Macau says the Chimelong resort “represents the first major Hengqin-related driver of visitation to Macau”. A note issued by the research house last week says: “We estimate the first full year of visitation to the theme park has the potential to range between 1 million to 2 million visitors. “Of these visitors, we would assume that roughly 70 percent would be adults (700,000 to 1.4 million) and therefore could be targeted as potential gaming visitors to Macau.”

Estuary bridge border post work keeping to schedule The Hong Kong-Zhuhai-Macau Bridge is due to be completed at the end of 2016, but the opening date is uncertain Stephanie Lai

sw.lai@macaubusinessdaily.com

onstruction of the border facilities at the Zhuhai end of the Hong Kong-Zhuhai-Macau Bridge will reportedly be completed by the end of 2016. The Chinese-language Macao Daily News said yesterday that work on the new border post would finish at the same time as work on the bridge. The newspaper said the Zhuhai border post would occupy 107 hectares of land. The border facilities, including offices and car parking, would cost about 4.88 billion yuan (6.38 billion patacas), the newspaper reported. The Infrastructure Development Office told Business Daily in writing that it expected the Macau border post to be completed “on the same schedule as the opening of the Hong Kong-ZhuhaiMacau Bridge”. But the office has yet to announce when construction of the Macau border post will begin.

The Macau border facilities will occupy 72 hectares of land on the southern side of an artificial island. The government has estimated that the cost of reclaiming the land for the border post will be 800 million yuan. Business Daily tried to find out from the Hong Kong-Zhuhai-Macau Bridge Authority whether the completion date for the Zhuhai border post implied that the bridge would be opened after the end of 2016, but we got no answer. The Hong Kong-ZhuhaiMacau Bridge Authority is the joint body that manages the construction of the bridge and related infrastructure. Hong Kong’s Highways Department told Business Daily in writing that work on the Hong Kong border post “is currently progressing on schedule”, so the post would be completed by the time the bridge was commissioned at the end of 2016.

January 8, 2014

Macau

Fears OCBC may overpay for Wing Hang But UBS says deal could boost Singapore bank’s Greater China exposure to 25 pct of loan book

versea-Chinese Banking Corp, Southeast Asia’s second-biggest lender, fell to an almost four-week low in early Singapore stock trading yesterday amid concern it may pay too much to take over Hong Kong’s Wing Hang Bank Ltd. Banco Weng Hang SA, a unit of Wing Hang, has 12 outlets in Macau. The biggest shareholders of Wing Hang agreed to “engage exclusively” with Singapore-based OCBC through to January 31 to complete terms of a possible offer, the Hong Kong-based family- run lender said in a statement to the city’s exchange on Monday. No financial details were disclosed. Wing Hang, which has 70 branches in Hong Kong, Macau and mainland China, has a market value of HK$36.2 billion (US$4.7 billion). The Hong Kong bank’s shares slumped as much as 6.1 percent on Monday after people familiar with the matter said on Friday that OCBC had offered under the two times book value that Wing Hang was seeking. The lender is currently valued at 1.8

Wing Hang has 12 branches in Macau

times book, suggest data compiled by Bloomberg. Analysts with Swiss bank UBS AG noted that a deal for Wing Hang would boost OCBC’s Greater China exposure to 25 percent of its loan

Cosmetics chain Bonjour to acquire shop it rents HK retail spaces world’s most expensive by ‘substantial margin’, says CBRE

osmetics retailer Bonjour Holdings Ltd has signed a memorandum of understanding to acquire a shop in Tsuen Wan, in Hong Kong’s New Territories that it currently rents. The proposed deal is in exchange for Bonjour paying off a HK$160.64 million (US$20.7 million) loan owed by Hong Kong-incorporated Wealthy Train Ltd to Million Worldwide Investment Ltd, a British Virgin Islands firm and a non-wholly owned subsidiary of Town Health International Investments Ltd, which in turn is an offshore vehicle incorporated in Cayman. “The company intends to hold the property through the target company [Wealthy Train] for investment purposes as well as providing a retail shop for Bonjour Cosmetic under a stable monthly fee should market rent continue to rise in the future,”

said Bonjour in a filing to the Hong Kong Stock Exchange. In December, property consultancy CBRE Group Inc said Hong Kong remained the world’s most expensive market for retail premises “by a substantial margin” with rental costs averaging the equivalent of US$4,333 (34,607 patacas) per square foot per annum. “With a healthy tourist market and a lack of available space, finding an adequate unit in prime retail locations is a major challenge for new and existing retailers,” said CBRE. Bonjour opened its second shop in Macau’s historic old town in 2012, boosting its local non-current assets – property and equipment – to just short of HK$4 million. Its Macau outlets are at Rua de São Paulo and Rua de São Domingos. M.G.

book versus 15 percent currently and to around 13 percent to 14 percent of its profit after tax versus five percent now. Wing Hang said in September that its biggest shareholders had received

preliminary offers from unnamed independent third parties, putting the bank in play. The Fung family and BNY International Financing Corp are the biggest shareholders with a combined 45 percent stake. The sale process had attracted interest from suitors including Agricultural Bank of China Ltd, Australia and New Zealand Banking Group Ltd and Singapore’s United Overseas Bank Ltd, but Wing Hang’s high price expectations prompted many to drop out of the auction. One banking source said that if the deal with OCBC were to fall through, mainland China suitors could re-emerge. In October, the trading arm of China’s Guangzhou city government agreed to buy three quarters of Chong Hing Bank for about US$1.5 billion (12 billion patacas), the first takeover of a Hong Kong bank since the US$4.7 billion deal for Wing Lung Bank by China Merchants Bank in 2008. OCBC fell 1.01 percent to S$9.77, at the close of Singapore trading yesterday. Wing Hang shares closed up 1.47 percent to HK$117.3 in Hong Kong. Both stocks had resumed trading after suspensions on Monday. OCBC, founded in 1933, made its last big acquisition in 2009 when it paid US$1.5 billion for then struggling ING Group’s Asian private bank. Wing Hang Bank was founded as a money changing business in 1937 but has grown into a mainstream retail bank. It is one of four remaining family-owned banks in Hong Kong. M.G. with Bloomberg News/Reuters

January 8, 2014 April 19, 2013

Macau Brought to you by

Govt to have say in basic TV service: Lau ‘Non-profit organisation’ to take over Macau Cable TV’s relay role from April

HOSPITALITY

Tony Lai

tony.lai@macaubusinessdaily.com

Book me a room – or not Travel agencies are an important source of business for hotels. In Macau, travel agents typically make the reservations for almost half the guests that stay in the city’s hotels. However, the proportion seems to be shrinking, and varies considerably among the classes of hotel. Let us look at the figures for the first 10 months of each year from 2009 to last year. In 2009 and 2010 the proportion of hotel guests booked in by travel agents oscillated around 47 percent. In 2012 it suddenly fell to about 42 percent and last year it fell to 37 percent. Travel agencies seem to have missed many of the opportunities presented by the opening of more hotels and the rise in the number of rooms available. The amount of custom travel agents had rose more slowly than the amount of custom hotels had.

he administration must have a major say in the proposed “basic television service” to ensure that residents can access it, the Secretary for Transport and Public Works Lau Si Io said yesterday. The government also hinted it would still subsidise whichever entity is tasked from April onwards with relaying across the city the signals from free-to-air television channels. That month Macau Cable TV Co Ltd’s concession is due to end. The pay television firm has since August been relaying free-to-air signals to 14 public antenna firms which then redistribute them to all homes. Previously the antenna companies had been offering a mix of free and pay-TV channels direct to consumers without paying royalties to the content providers. Mr Lau told the Legislative

Assembly yesterday: “It is not the government’s wish to lead the service but the technical and historical issues of Macau – limited land with many people in high-rise buildings – make the residents unable… to receive the signals [by themselves], unlike in other places.” The government has to participate in the service to “take care of the residents’ basic rights of watching TV”, he added. The administration has said the future television market would be divided into basic and paid‑for services. A written opinion submitted by Macau Cable TV Co Ltd last month claimed the government’s involvement would create “unfair competition”. On Monday Mr Lau said a “nonprofit organisation” would be set up to take over Macau Cable TV’s

relay role to provide basic television channels to the antenna firms. The secretary declined yesterday to give more details due to what he described as “commercial deliberation”. The administration currently pays 980,000 patacas (US$122,700) a month to Macau Cable TV to relay the free-to-air signals to most residents. Hoi Chi Leong, acting director of the Bureau of Telecommunications Bureau, stressed yesterday the government had to do so in order for the residents to have cheap access to basic television services. The ‘free-to-air’ channels aren’t completely free because householders must still pay the antenna firms a small fee. “The future basic TV service will follow the same concept,” added Mr Hoi.

IACM defends café licensing system Govt takes 83 days to explain publicly to legislator why the system is not too slow Stephanie Lai

sw.lai@macaubusinessdaily.com

If we disregard guesthouses, the proportion of five-star hotel guests booked in by travel agents was consistently the smallest. Yet fivestar hotels have the most rooms and guests. The proportion peaked at just over 38 percent in 2011, but had fallen to under 30 percent by the end of last year. The proportion of fourstar hotel guests booked in by travel agents was 54.6 percent last year, over 10 percentage points less than the percentages in 2009 to 2011. The proportions of three-star and twostar hotels guests booked in by travel agents shrank in a similar manner. In contrast, the proportion of guesthouse guests booked in by travel agents expanded by about 10 percentage points in the past five calendar years, albeit from a low base below 5 percent.

29.6 %

Proportion of fivestar hotel guests booked in by travel agents, Jan-Oct 2013

THERE ARE THINGS WE DON’T DO

overnment officials have rebutted criticism from a legislator that obtaining a licence for a cafe or tea restaurant can take from six months to one year. Businessman Chan Meng Kam – who won the largest single share of the popular vote in September’s election for seats in the Legislative Assembly – had made the complaint in a written question to the administration filed on October 15 last year. He said a ‘onestop service’ for licensing promised by the Civic and Municipal Affairs Bureau was nothing of the kind. The reply to him from officials was only published by the government yesterday – 83 days later. “In general cases, the average time for approving the eatery licence is 44 working days,” wrote Lo Veng Tak, deputy chairman of the bureau’s administration committee. He added that any additional time taken by applicants in renovating their premises was the applicant’s responsibility.

The reply acknowledged however that more than half (590) of 1,104 applications – filed between 2003 and the present – for operating such food outlets in the city, had experienced delays in the licensing procedure. But the bureau said that was mainly due to the venue operators’ failure to fulfil fire safety and hygiene requirements. “These applicants fail to meet the fire safety requirement or hygiene standards, or they [may] have changed their plans” during the licensing

BUT WE DO•••

procedure,” Mr Lo explained. The official added that in the event of delays, applicants could apply for a temporary six-month permit, provided they had met most of the fire safety and hygiene requirements. Since 2003, the bureau has launched a “one-stop licensing service for food and beverage establishments” added the official. The approval for this one-stop service should not take more than 60 working days, claims a bureau website dedicated to the licensing service.

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January 2014 April 19,8,2013

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January 8, 2014 April 19, 2013

Greater China

China to create new private Regulator approves pilot plan to create up to five private lenders

hina has approved a pilot scheme allowing the setting up of three to five private banks, the regulator said, in a step to boost financial support for cash-starved smaller firms. The China Banking Regulatory Commission (CBRC) would maintain “prudential regulatory standards” in approving private banks, it said in a statement following a meeting on banking supervision. “The first-batch of three to five private banks will be set up under a pilot scheme,” it said, adding that a private bank would be established only when conditions are mature. It did not elaborate. Chinese leaders have pledged to open up the banking sector, now dominated by big state-owned lenders, to private investors to help boost competition and increase lending to small firms, who are often neglected by the big banks. China Minsheng Banking Corp is the only private bank among the country’s 10 largest commercial lenders. Small- and medium-sized enterprises (SMEs) account for 60 percent of China’s gross domestic product and some 75 percent of new jobs, but they are struggling to cope with weaker global demand and tight credit.

Suning, Tencent China will guide private investment to participate in the restructuring of existing banks and explore lowering the threshold for foreign banks to enter the industry, the banking regulator said. The commission will step up its support of the Shanghai free trade zone, according to the statement.

The first-batch of three to five private banks will be set up under a pilot scheme China Banking Regulatory Commission

Retailer Suning Commerce Group and the Internet giant Tencent Holdings Ltd are among firms keen to establish private banks. The banking regulator also said it would take steps to rein in banking risks in 2014, and reiterated that it would take measures to resolve risks linked to local government financing vehicles and tighten rules on wealth management products. Foreign lenders are struggling to expand their market share of less than 2 percent in the world’s second-largest economy, where banking assets more than doubled since 2008 to 147 trillion yuan (US$24 trillion) as of September 30. Global banks face government restrictions on adding branches and offering products as local rivals churn out record profits. HSBC Holdings Plc and Bank of America Corp are among foreign banks that expect to benefit from China’s expansion of financial freedoms even as regulatory challenges persist,

HK property sales fall to 17-year low

according to Ernst & Young LLP. In December, China’s central bank said it would allow banks to trade deposits with each other, using a financial product called certificates of deposit. The interest rate on the certificates will be determined by the market, unlike ordinary deposits, which are

subject to rate caps in China. Separately, banking industry sources told Reuters that Chinese banks made 8.9 trillion yuan (US$1.5 trillion) in new loans in 2013, which implied around 500 billion yuan in new loans in December alone. China’s central bank is scheduled to release December’s loan data

State Grid electric goal signals Australia deal

Tax hike slows transactions but prices still going up he number of properties sold in Hong Kong fell by more than a third last year to a 17-year low as a drastic increase in tax on home sales, introduced to tackle rising prices, easily outweighed discounts offered by the city’s property developers. The total number of sale and purchase agreements concluded in 2013 was 70,503, down 39 percent from 2012’s level, according to the Hong Kong Land Registry. The value of deals dropped 30 percent from a year earlier to HK$456 billion (US$59 billion). Forecasters expect the downturn to continue this year. With tycoons like Li Ka Shing warning of the impact on his property business, in November Deutsche Bank AG said Hong Kong home prices could drop up to 50 percent over the following 12 months. Designed to burst the city’s long-term property price bubble, last February’s doubling of stamp duty on residential transactions to as much as 8.5 percent of the sale

Minsheng Banking is the only private bank in the mainland

value has yet to stop the price of homes creeping up. According to property service firm Centaline Property Agency Ltd, overall home prices edged up 3 percent for the year, and have jumped 120 percent since 2008. But in a reflection on the scale of last year’s slowdown, last November Mr Li, who owns property company Cheung Kong (Holdings) Ltd, said his business had suffered its worst year in more than a decade. Major rival Sun Hung Kais Properties Ltd in September posted a 14 percent fall in full-year underlying profit for 2013, trailing forecasts and marking its first drop in annual earnings due to slow sales in Hong Kong. Prices in Hong Kong are among the highest in the world. While Hong Kong first began taking steps to cool property prices in October 2009, no real impact had been seen until the February increase in stamp duty on residential transactions. Reuters

tate Grid Corp of China’s search for as much as US$50 billion of international power assets may reveal that Duet Group and Spark Infrastructure Group are among Australia’s most attractive takeover targets. China’s biggest power distributor last month won regulatory approval to buy Australian assets including almost 20 percent of electricity and gas company SP AusNet. Duet, with a market value of US$2.2 billion, and the US$1.9 billion Spark may be the next targets because of their regulated, long-term cash flows from gas and electricity assets across Victoria, South Australia and Western Australia, said Morgans Financial Ltd and Royal Bank of Canada. Crimped by price caps in China, State Grid is turning overseas, where it says returns from investments can be five times higher than at home. The state-owned company’s 2012 return on invested capital of 3.8 percent trails all but one major listed utility in Asia, according to data compiled by Bloomberg. To boost its returns, State Grid could look for acquisitions in Australia because it’s a relatively safe place to invest, said

PricewaterhouseCoopers LLP. “China has a well-stated ambition to globalize its large enterprises,” said Andrew Parker, a Sydney-based partner at PwC specialising in Asian deals. “There’s a lot of positive attraction about Australia, with a stable economic and political environment and a regulatory regime which is generally understandable and reliable.” Beijing-based State Grid says it’s the world’s largest utility and that it has a workforce exceeding 1.5 million. At the end of 2012, it had US$16.4 billion of cash and cash equivalents and that year generated US$40.4 billion in cash from operations, according to the most recently available data compiled by Bloomberg. State Grid President Liu Zhenya is seeking as much as US$50 billion in international assets by 2020, a goal that’s in line with Premier Li Keqiang’s “going out” policy of acquiring overseas resources. Mr Liu said in November 2012 that overseas assets totalled only US$5 billion and that returns on State Grid’s overseas investments have been three times to five times more than from domestic holdings. Bloomberg News

January 2014 April 19,8,2013

Greater China

banks

Beijing backs role of shadow banking Regulations aimed at containing risks in the burgeoning sector

hina’s cabinet has published guidelines strengthening regulation of risky offbalance-sheet lending in a new effort to address growing financial risks from an explosion in debt. The State Council’s guidelines call for tighter regulation of banks’ off-balance-sheet lending and say that trust companies – the biggest non-bank players in what’s called “shadow banking” – should return to their original purpose as asset managers and not engage in “credittype” business. A copy of the council’s Document 107, dated December 11, was obtained by Reuters. There’s been no official confirmation of the document, which was addressed to government agencies at the central and local level. China’s policymakers are concerned that the country’s economy has become overly reliant on borrowing to fuel growth and that debt-fuelled investment has created massive overcapacity in many industries. If strictly implemented, the

KEY POINTS New rules signal fresh push for deleveraging between January 10 and 15. For all of 2013, Chinese banks’ outstanding loan growth was 14.2 percent while banks’ non-performing loan ratio stood at 1.05 percent as of December, the sources said, citing a speech made on Monday by Shang Fulin, the head of CBRC. Reuters

Chinese cabinet says shadow banking positive But new rules needed to plug regulatory loopholes Trust companies shouldn’t engage in ‘credit-like’ business

deleveraging push could put China’s economy on a more sustainable longterm path by reducing the risk of a bad-debt crisis. But short-term growth would likely fall as a reduction in credit growth spurs a fall in spending.

‘Inevitable’ consequence The State Council document says shadow banking is a “beneficial” and “inevitable” consequence of financial development and provides an official definition of the term. But the guidelines also call for closer monitoring and tighter regulation of banks’ off-balance-sheet lending, which is often conducted through intermediaries such as trust companies and securities brokerages. Shadow banking has grown rapidly in China since 2010, when banks began running up against limits on expanding loans through traditional channels. With credit demand still strong but banks increasingly constrained by regulations such as capital adequacy and loan-to-deposit ratios, institutions devised complex structures designed to keep lending to customers. “One can predict that growth of total social financing will slow and fixed-asset investment will also slow,” said Liu Yuhui, director of the financial focal point laboratory at the Chinese Academy of Social Sciences, a government think tank, referring to the central bank’s measure of total credit from all sources. “If this isn’t accompanied by various forms of debt restructuring, some sectors may see their funding chains broken and there could be defaults,” he said. An official audit released last week showed that China’s local

government debt reached 17.9 trillion yuan (US$2.95 trillion) at end-June 2013, up from 10.7 trillion at end2010. Local governments are among the largest recipients of shadow bank loans. China’s ratio of total debt-to-GDP, including government, corporate and household debt, was set to reach 218 percent of GDP by the end of 2013, up 87 percentage points since 2008, rating agency Fitch Ratings estimates. Banks raise funds for shadow bank loans largely by selling socalled wealth management products (WMPs), which they market to savers as a higher-yielding alternative to traditional bank deposits. Regulators are concerned that banks are using short-term interbank borrowing to fund payouts on maturing WMPs, even when the underlying assets - including loans, bonds, and bank acceptance bills – haven’t yet matured. Reuters

First companies lead IPO resumption Regulator expects about 50 companies to list this month

wo Chinese companies plan to raise a combined 1.02 billion yuan (US$167.7 million) in their initial public offerings this week, leading off the resumption of new listings in mainland stock markets after a hiatus of more than a year. The two companies are the first to publish fundraising targets from a list of 29 companies that have posted IPO announcements on the Shenzhen and Shanghai exchange websites, which in turn are part of a pool of more than 750 companies queued to list. Ernst & Young LLP estimated that new listings could raise as much as 200 billion yuan in 2014. However, Chinese stocks have slid steadily since China’s securities regulator signalled in December it would permit the resumption of IPOs after freezing new listings in November 2012. Many analysts fear the flood of new issues will put further downward pressure on major

The IPO market has been frozen since October 2012

mainland stock indexes unless confidence in stocks in general is restored. The securities regulator said in November it expects about 50 companies to list this month. The IPO market has been frozen since authorities suspended listings in

October 2012 to stamp out equity market fraud and restore confidence in domestic markets. Chinese leaders have said new IPOs will be more investor-driven as part of wider economic reforms to open up the sector. According to statements

posted on the Shenzhen stock exchange website late on Monday, Guangdong Xinbao Electrical Appliances Holdings Co Ltd plans to issue 76 million shares priced at 10.5 yuan apiece, which would result in a total of approximately 798 million yuan raised. Xinbao

shares will trade under the ticker number. Zhejiang Wolwo BioPharmaceutical Co Ltd, to be traded under the ticker, hopes to raise 217.21 million yuan by issuing 11 million new shares priced at 20.5 yuan per share. Both companies will take subscriptions from retail and institutional investors today and announce the results on January 9. The firms are pricing their shares at relatively high valuations compared to larger listed Chinese companies, at projected price-to-earnings ratios of 30.08 times for Guangdong Xinbao and 39.31 times for Zhejiang Wolwo. This is not unusual for smaller-cap Chinese tickers, which have widely outperformed their larger peers in 2013. For example, larger appliance maker Gree Electric Appliances is currently trading at a P/E ratio of only 7.7, according to data from Thomson Reuters Starmine. Reuters

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Greater China

BYD cars headed for U.S. in 2015 Executive says automaker better prepared to fend off competition

YD Co, the Chinese automaker backed by Warren Buffett’s Berskshire Hathaway Inc, said Chinese cars are poised to begin hitting U.S. showrooms by next year. BYD plans to introduce about four models for its U.S. debut at the end of 2015, said Stella Li, the senior vice president in charge of the company’s U.S. business, in an interview in Shenzhen. Though BYD wasn’t ready when it earlier sought to enter the U.S. car market in 2010, the company is more prepared this time, she said. BYD’s ambitions, echoed by companies from Geely Automobile Holdings Ltd. to Great Wall Motor Co, show how the Chinese are seeking to shake up the U.S. car market as the Japanese and South Koreans did decades earlier. Geely and Chery Automobile Co have made such predictions as far back as 2005, though they’ve yet to sell their first car in America. “Entering the U.S. market carries more symbolic meaning to brand building than actually boosting its bottom line,” said Han Weiqi, an analyst with CSC International Holdings Ltd in Shanghai. “They really need to make sure cars they deliver there have sound quality in order to avoid adverse impact.” Still, BYD has a track record of planning bigger than what they can actually deliver, Mr Han said. BYD is returning its sights to the U.S. after billionaire founder and chairman Wang Chuanfu completed a three-year reorganisation 2013, during which he cut the number of dealerships and narrowed losses at its solar business thanks to state incentives.

Restructuring plan Investors have been receptive to BYD’s turnaround. The company, which focuses on electric cars, saw its shares surge 63 percent to HK$38 in Hong Kong trading last year. During the restructuring, profit tumbled 97 percent because of losses at its photovoltaic business, a decline in global battery demand and a slump in auto deliveries. Even with last year’s gains, BYD’s share price remains less than half the level of the record HK$85.50 reached in October 2009. That’s still profitable for MidAmerican Energy Holdings Co, a unit of Buffett’s Berkshire Hathaway, which bought 9.9 percent of BYD in 2009 for HK$8 a share.

We don’t want to compete on price anymore, but on quality and innovation Stella Li, vice president for BYD’s U.S. business

BYD – returning its sights to the U.S. market

Technically BYD is already in the U.S. vehicle market, though it sells electric buses to fleet operators, instead of cars to consumers. The company is preparing to begin U.S. production of electric buses in March at its factory in Lancaster, California, according to Ms Li. The company had previously planned to sell its e6 electric hatchbacks in the country by the end of 2010, though that got postponed. “Back then, we had passion, but we had no brand, no history, no capital and no competitive advantage,” said Ms Li. “BYD has become more fashionable and we have improved our design and safety. We don’t want to compete on price anymore, but on quality and innovation.” Ms Li said the BYD’s new Qin plug-in hybrid will likely be the flagship among models introduced in the U.S. The sedan, named after the dynasty founded by the emperor who unified China, went on sale in Beijing on December 17. At a starting price of 189,800 yuan (US$31,400) – before government subsidies – the car features headlights inspired by a Chinese calligraphy brushstroke and goes from zero to 100 kilometres (62 miles) an hour in 5.9 seconds, and can travel 70 kilometres on a single charge in electric-only mode, according to the company.

Local interests Separately, Ms Li said BYD has found it easier to sell its batterypowered K9 bus and e6 car overseas than in Beijing and Shanghai, even though the Chinese company has offered free trials.

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The company failed to qualify for local incentives in the two cities because it’s based in Shenzhen in southern Guangdong province and the local governments have their own automakers to protect, she said. “It’s disheartening as a Chinese to see how local interests are holding back the adoption of electric vehicles,” Ms Li said. “It’s easier to sell our buses and cars to São Paulo, California or Israel

than in Beijing and Shanghai. Those places have better air than China.” Despite the roadblocks, Ms Li said she expects electric-vehicle sales to finally take off this year for BYD after sluggish demand in the past few years. “The public has moved from doubt to recognition to adoption,” she said. “2014 will be the year we start to harvest the fruits of our labour.” Bloomberg News

Heavy smog prompts warnings to stay indoors

hina’s government warned people in north and central parts of the country to stay indoors yesterday as heavy smog blanketed the region. The level of PM2.5, fine air particulates that pose the greatest health risk, was as much as 539 micrograms per cubic metre at 11am in Shijiazhuang in the northern province of Hebei, neighbouring Beijing, according to data from the China National Environmental Monitoring Centre. That level of smog, the highest on a government scale from one to six, triggers warnings for people to avoid outdoor activities. The smog levels yesterday step up pressure on the government to make good on pledges to reduce coal consumption, shut steel plants and control the number of cars on the road to ease pollution. A growing number of Chinese cities have announced emergency measures to fight smog amid rising social unrest over the health effects of a spoiled environment. Levels of PM2.5 hit 612 in Jinan and 332 in Wuhan yesterday, according to the government. The World Health

Organisation recommends 24-hour exposure to PM2.5 concentrations no higher than 25 micrograms per cubic metre. The southern Chinese city of Guangzhou said it will take emergency measures at times of high pollution, including cutting factory emissions and pulling 20 percent of government vehicles off the road, the state-run China Daily reported yesterday, citing unidentified people with the local environmental protection authority. The city has suffered from prolonged smog since January 1, the newspaper said. As of 11am yesterday, the PM2.5 level in Guangzhou was 117 micrograms per cubic metre and the air quality index was 123, signalling light pollution, according to the China National Environmental Monitoring Centre. The concentration of PM2.5 was 117 micrograms per cubic metre at 11am near Tiananmen Square in Beijing, compared with an average of 169 over the past 24 hours, the Beijing Municipal Environmental Monitoring Centre said on its website. AFP

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January 2014 April 19,8,2013

Asia Philippine c.bank may enter market if needed The Philippine central bank is prepared to intervene in the foreign exchange market to smoothen excessive swings, its governor said yesterday, as the peso hovered near four-month lows. The weakness in the peso was mainly due to the looming tapering of the U.S. Federal Reserve’s stimulus programme, market uncertainty, and rebalancing of investors’ portfolios, Amando Tetangco told reporters, adding authorities were watching markets to see if policy adjustments were necessary. “We follow a flexible exchange rate policy. We have the option to participate to prevent excessive sharp movements in the rate,” Mr Tetangco said.

RBS unit sentenced in Libor probe RBS Securities Japan pleaded guilty to wire fraud

Temasek’s assets rose to US$169 bln in the year ended March

oyal Bank of Scotland Group Plc was ordered to pay US$50 million by a federal judge in Connecticut as part of a settlement for rigging the London interbank offered rate. RBS Securities Japan Ltd, a unit of the bank, in April pleaded guilty to wire fraud as part of a settlement of more than US$600 million with U.S and U.K. regulators over Libor manipulation and agreed to pay the fine, according to court filings. U.S. District Judge Michael P. Shea in New Haven yesterday sentenced the Tokyo-based unit of RBS, Britain’s biggest publicly owned lender, to pay the agreed-upon fine, according to a Justice Department statement.

RBS, based in Edinburgh, agreed in February to pay US$325 million to the U.S. Commodity Futures Trading Commission, US$150 million to the Justice Department and 87.5 million pounds (US$137 million) to the U.K.’s Financial Services Authority for manipulating benchmark interest rates. “Today’s sentencing of RBS is an important reminder of the significant consequences facing banks that deliberately manipulate financial benchmark rates,” Acting Assistant U.S. Attorney General Mythili Raman said in a statement. Libor is calculated by a poll carried out daily on behalf of the British Bankers’ Association that asks firms to estimate how much it would cost to

US$50 mln

RBS Securities Japan was sentenced to pay

borrow from each other for different periods and in different currencies. The top and bottom quartiles of quotes are excluded, and those left are

averaged and published for individual currencies before noon in London. As part of the plea agreement, RBS Securities Japan accepted responsibility for the misconduct of certain derivatives traders who tried to influence published yen Libor rates by seeking adjustments to the bank’s submissions from as early as 2006 through at least 2010, according to a joint sentencing memorandum filed in the case last month. The misconduct involved about 20 RBS traders, about four of whom worked for RBS Securities Japan, according to the sentencing memo. The head of the unit, Ryusuke Otani, left the firm on the same day its plea agreement was filed. Bloomberg News

Temasek may sell bonds to individual investors Investment firm seen as less risky than other corporate issuers

emasek Holdings Pte, Singapore’s state-owned investment firm, is looking at ways to offer bonds to individual investors in the city- state. Issuing fixed-income products will provide an “alternative investment opportunity” for investors seeking stable returns with lower risks, Stephen Forshaw, a spokesman for the company, said in a statement on its website. Temasek could join companies including Singapore Airlines Ltd, Genting Singapore Plc and Fraser & Neave Ltd, which have sold bonds to

individual investors. The investment firm has a US$10 billion medium-term note programme where the securities are typically offered to institutions. The bonds have received top ratings from Standard & Poor’s Ratings Services and Moody’s Investors Service since 2004, according to Temasek’s annual report published in July. “Temasek is less risky than other corporate issuers,” Marie-Anne Garcia, a credit analyst at OverseaChinese Banking Corp in Singapore, said by phone. “They will offer to retail investors a broader range of

means to invest in.” Temasek’s assets rose to a record S$215 billion (US$169 billion) in the year ended March as surging stock markets drove an almost sixfold increase in returns, it said in the annual report released in July. The value of Temasek’s holdings increased by 8.6 percent in the fiscal year from S$198 billion, while total shareholder return, which includes dividends, widened to 8.9 percent from 1.5 percent in the previous year. The investment company’s total shareholder return averaged 16 percent since its inception in 1974. The

average return was 4.9 percent over a three-year period, and 13 percent over 10 years, it said in the annual report. Temasek is mostly invested in stocks, according to the statement yesterday. The market value of its holdings may rise or fall by more than 30 percent during volatile periods such as the global financial crisis, Mr Forshaw said in the statement. “We are mindful that past opportunities and conditions are not likely to repeat in the coming decades,” Mr Forshaw said. “Furthermore, global structural risks remain.” Bloomberg News

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January 8, 2014 April 19, 2013

Asia

Vietnam raises foreign bank ownership Limit so-called strategic investors will be increased to 20 percent

ietnam will allow foreign investors to take bigger stakes in the nation’s lenders in a bid to bolster the ailing banking system. The limit for foreign socalled strategic investors will be increased to 20 percent from 15 percent, while the cap for total foreign holdings at any local bank remains at 30 percent, according to a statement posted on the government website yesterday. The prime minister can lift the limits in special cases to help weak banks “restructure and ensure their safety,” according to the decree, which takes effect on February 20. Bank shares rose yesterday on speculation that the steps will help Prime Minister Nguyen Tan Dung’s government reshape the financial system, which is burdened with the highest rate of bad debt in Southeast Asia. Vietnam’s undercapitalised banks are grappling with structural weaknesses that urgently need fixing, according to the International Monetary Fund. “This is a very important decision and a great step

This decision will allow foreign investors to come and help local banks to recapitalise and restructure themselves Alan Pham, VinaCapital Group

forward,” Alan Pham, Ho Chi Minh City-based chief economist at VinaCapital Group, the nation’s largest fund manager, said by phone. “This decision will allow foreign investors to come and help local banks to recapitalise and restructure themselves.” The benchmark VN Index of stocks climbed 0.2 percent

Most of Vietnam’s banks are undercapitalised

yesterday. Vietnam JointStock Commercial Bank for Industry and Trade gained 1.9 percent, and Joint-Stock Commercial

Bank for Foreign Trade of Vietnam, or Vietcombank, rose 2.2 percent. The stake limit for a nonstrategic foreign institutional

Forecasters assess baht risk as investors flee Analysts see risk of currency weakening amid political crisis

he top Thai baht forecasters said anti-government protests that are driving away foreign investors may force them to review predictions that the currency will rally from a three-year low. Australia & New Zealand Banking Group Ltd, which had the most accurate estimates for the last four quarters as measured by Bloomberg Rankings, said its current prediction of a 3.1 percent rebound this quarter to 31.80 per dollar doesn’t reflect the unrest threatening next month’s elections. Citigroup Inc, ranked third, yesterday said it’s reviewing its end-March forecast of a rise to 32 from 33.11. The political situation “is something that is weighing on the baht significantly in the near term,” Khoon Goh, a Singapore-based strategist at ANZ, said in a telephone interview yesterday. “If we don’t get a resolution from the election then the risk is the baht will continue to weaken further, in which case we

will be forced to revise our forecast.” Global funds pulled a net US$4 billion from Thai bonds and stocks since November 1 as demonstrators seeking to oust Prime Minister Yingluck Shinawatra forced her to dissolve parliament and call a snap poll scheduled for February 2. The nation’s Army Chief Prayuth Chan-ocha refused to rule out the possibility of a coup last month and protesters led by former opposition lawmaker Suthep Thaugsuban have said they will block traffic in Bangkok and surround government ministries on January 13.

Political influence Ms Yingluck’s administration has endured more than two months of street demonstrations that protest leaders say are aimed at erasing her family’s corrupting political influence. Allies of the prime minister’s brother, Thaksin Shinawatra, who was ousted in a 2006 coup, have won the past five elections. Eight

people have been killed in clashes between rival political groups in the past month. The demonstrators want Ms Yingluck to step down and allow an unelected council to reform the electoral system before holding fresh elections. The main opposition

investor will be increased to 15 percent from the current 10 percent, according to the decree. A foreign strategic investor needs to

Democrat Party will boycott next month’s vote, its leader and former Prime Minister Abhisit Vejjajiva said on December 21. The baht has lost 5.8 percent since October 31 when the protest began, the second-worst performer among 10 major emerging Asian currencies. The yield on the 3.625 percent sovereign debt due June 2023 rose two basis points to 3.96 percent in the period. The Bank of Thailand cut its benchmark interest rate to 2.25 percent from 2.5 percent on November 27 and lowered its economic growth forecasts, saying the political situation will delay government investment and hurt business confidence. The central bank cut its 2013 growth estimate to about 3 percent from 3.7 percent earlier, and its 2014 projection to about 4 percent from 4.8 percent. “We continue to see risk of the baht weakening beyond our basecase forecast of 32” per dollar in the first quarter, Jun Trinidad, a Manila-based economist at Citigroup, said. “Political drift, if it persists, bodes ill for public investments. Lack of a functional government and parliament would also hamper fiscal disbursements that are sorely needed as private investments sputter amid slack exports.” Bloomberg News

editorial council Paulo A. Azevedo, Tiago Azevedo, José I. Duarte, Emanuel Graça, Mandy Kuok Founder & Publisher Paulo A. Azevedo | pazevedo@macaubusinessdaily.com Editor-in-Chief Tiago Azevedo DEputy Editor-in-Chief Vitor Quintã Associate editor Michael Grimes GROUP SENIOR ANALYST José I. Duarte Newsdesk Luciana Leitão, Stephanie Lai, Tony Lai EDITOR AT LARGE Alex Lee Creative Director José Manuel Cardoso WEB & IT Janne Louhikari Contributors James Chu, João Francisco Pinto, 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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January 2014 April 19,8,2013

Asia

caps

make certain commitments including establishing a long-term partnership with a local bank, according to the decree.

Under the current law, a foreign strategic investor can hold a 20 percent stake if the prime minister approves it. Separately, Mr Dung is considering raising foreign ownership caps at listed companies. A proposal calls for lifting overseas investors’ holdings of voting shares in some industries to a maximum 60 percent from 49 percent, Nguyen Son, head of market development at the State Securities Commission, said on November 14. There are about 20 companies whose foreign ownership is at the 49 percent limit, according to Ho Chi Minh City-based ACB Securities Co. Vietnam’s government forecasts the economy will grow 5.8 percent this year after a 5.42 percent expansion in 2013. That would be a seventh straight year of growth below 7 percent. In another attempt to boost economic expansion, the central bank cut a policy rate last July, after it devalued the currency in the previous month to improve the balance of payments. Policymakers set up an asset-management company to buy soured loans from banks in July. VAMC, as the entity is known, may purchase as much as 150 trillion dong (US$7.1 billion) by the end of 2014, central bank governor Nguyen Van Binh said in December. Bloomberg News

Samsung undershoots profit expectations

amsung Electronics Co Ltd earned less than even the most conservative analyst forecast in October-December after handing out an estimated US$1 billion in bonuses to mark 20 years since its chairman set it on the road to becoming a global behemoth. The world’s largest smartphone maker has splashed out on its employees from a cash pile of about US$50 billion just two months after increasing its dividend yield far less than many investors had expected. Fourth-quarter operating profit was likely 8.3 trillion won (US$7.79 billion), down 6 percent on year and 18 percent from a record third quarter, Samsung Electronics said yesterday before a final reading on January 24. The figure was pulled down by bonuses given to employees high and low commemorating chairman Lee Kun-hee’s “New Management” strategy which analysts put at 300 billion to 700 billion won. The profit would be less than the most bearish forecast among 23 analysts polled by Reuters of 8.8 trillion won, and would be the lowest since the 8.1 trillion won of JulySeptember 2012.

India to offer at least 56 oil, gas blocks licences Banking on gas price reform for success of next auction Nidhi Verma

ndia plans to offer at least 56 oil and gas exploration blocks in its first auction of licences in nearly two years, based on new gaspricing and revenue-sharing rules, oil secretary Vivek Rae said yesterday. India, the world’s fourthbiggest oil importer, wants to quickly tap domestic reservoirs to curb its ballooning import bill. Foreign participation in previous exploration rounds has been lukewarm because of a lack of transparency, regulatory hurdles and bureaucratic delays in getting clearance. India is banking on a recent gas pricing reform to increase the interest abroad. “Gas pricing is the single most important decision that will encourage and invite more companies to invest in India,” Mr Rae said. The oil ministry has obtained clearance for exploration of 56 blocks, he said, adding

that more could be offered if it can get additional environmental, defence and other permits. The ministry plans to invite bids for the blocks in February, he said. It has already circulated a draft note in the cabinet for comments from the planning commission and finance and law ministries among other agencies. Gas prices in India will rise sharply from April 1 when a new pricing formula linked to global indexes is implemented.

Revenue-sharing Previous exploration rounds were dominated by local firms, mainly Oil and Natural Gas Corp, which submitted aggressive bids to grab acreage. Last year BHP Billiton Ltd said it would relinquish nine blocks following delays in getting exploration permits. Australia’s Santos Ltd wants to exit two blocks due to border dispute.

In the next round, India plans to ask contractors to share revenues from the sale of hydrocarbons with the government, Mr Rae said. Under the current regime, companies recover their costs and then share profits with the government. He said some Indian and overseas companies oppose a shift to revenue-sharing, because exploration risk is very high in deepwater and ultra-deepwater blocks. Analysts are sceptical about the success of India’s next auction of oil and gas blocks. “Such models [revenuesharing] work in the Middle East and other regions that have an abundance of reserves, but India, where there isn’t too much oil, cant afford this model. There are serious questions on this auction round. I doubt if they will get a good response,” said an oil and gas analyst who did not wish to be identified. Reuters

Malaysians to curb spending as living costs surge

“Samsung’s special incentive payments to employees including domestic and overseas units appear to have been much larger than the market expected; marketing costs of its mobile business might have also been larger,” said Shinhan Investment analyst Kim Young-chan. Mr Lee, who took over Samsung Group in 1987 from his founder-father, in 1993 ordered lieutenants to “change everything except your wife and children” to transform Samsung Electronics from a mid-tier television set manufacturer into a global technology leader. It has since overtaken Sony Corp in TVs, Nokia Oyj in mobile phones and Apple Inc in smartphones. Fourth-quarter earnings were also likely affected by Samsung’s flagship Galaxy S and Note smartphones losing out somewhat to Apple Inc in the United States and Japan during the year-end holiday season. It estimated fourth-quarter sales of 59 trillion won, versus the 61 trillion won Thomson Reuters’ Starmine SmartEstimate of 23 analysts, which gives greater weighting to the more accurate analysts. Reuters

illions of middleclass Malaysians are grappling with the biggest increase in state controlled electricity and gasoline costs since 2008, threatening consumer spending growth and reasserting the country’s reliance on exports this year. Since winning a May election, Prime Minister Najib Razak has unleashed a series of price increases to cut subsidies and improve state finances, crimping scope for companies to boost wages while spurring inflation. The moves could slow private consumption growth by 0.9 percentage point in 2014, according to Alliance Financial Group Bhd and Malaysian Rating Corp. Malaysia’s middle class, forged during the economic boom of the early 1990s, is bearing the brunt of the fiscal trimming as they grapple with a cocktail of record-high property prices, elevated household borrowings, and slower pay increases than lower-income earners. Rebounding exports are set to counter the spending squeeze, giving Mr Najib scope to put consumers through the immediate pain of surging living costs as he shifts the

economy toward marketbased prices for commodities and energy. “There will be some pain in moving towards market-based pricing of the currently subsidised-costs of essential food items, fuel and energy,” said Suhaimi Ilias, chief economist at Maybank Investment Bank, part of the country’s largest lender. “Over the long term the economy will gain from a generally more efficient economy.” Underscoring the threat to the domestic demand that held up growth in the past two years as exports faltered, consumer confidence in the third quarter fell to the weakest since 2009, according to a Malaysian Institute of Economic Research measure. An index of consumer stocks

barely rose in the second half of 2013, gaining 0.02 percent compared with the benchmark’s 5.2 percent climb. The “headwinds to domestic demand in the near term” would make Malaysia’s economic growth increasingly dependent on an export recovery, Citigroup Inc said in a November report. The banking group predicts a 5 percent expansion in 2014, at the lower end of the government’s forecast range, as it anticipates more fuel price increases that will cut discretionary incomes by a net 2 billion ringgit (US$608 million), or 0.2 percentage point of nominal gross domestic product. Bloomberg News

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January 8, 2014 April 19, 2013

Markets Gaming Stocks - Daily Performance (Hong Kong Stock Exchange) 75.7

108.2

74.3

106.6

72.9

105.0

35.8 35.6 35.4 35.2 35.0

Max 75.55

average 74.568

Max 66.05

Min 71.50

average 65.339

Last 75.55

Min 64.25

Last 65.50

71.5

Max 108.1

average 106.766

PRICE

26.5

65.798

26.3

65.3

26.1

64.9

25.9

64.5

25.7

64.1

Max 26.45

average 26.133

DAY %

YTD %

(H) 52W

93.71

0.299689607

-4.78561268

106.2200012

BRENT CRUDE FUTR Feb14

107.28

0.515319029

-3.176895307

112.7999954

GASOLINE RBOB FUT Feb14

266.28

0.634920635

-4.41867978

286.9299889

243.68999

GAS OIL FUT (ICE) Feb14

910.75

0.192519252

-3.471118177

960.75

840

4.338

0.743149094

2.553191489

4.770000458

3.476000071

NATURAL GAS FUTR Feb14

85.56999969

295.8

0.653327889

-3.497324808

317.8399801

278.4999847

Gold Spot $/Oz

1238.51

-0.0436

2.974

1696.2

1180.57

Silver Spot $/Oz

NY Harb ULSD Fut Feb14

20.0669

-0.0234

2.6041

32.46

18.2208

Platinum Spot $/Oz

1412.5

0.7942

4.1859

1742.8

1294.18

Palladium Spot $/Oz

734.05

0.8449

3.2419

786.5

629.75

LME ALUMINUM 3MO ($)

1782.5

0.564174894

-0.98597417

2174

1736.25

LME COPPER 3MO ($)

7325

0.1367054

-0.475543478

8346

6602

LME ZINC

2034

0.394866732

-1.02189781

2230

1811.75

3MO ($)

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

13560

-2.058504875

-2.446043165

18770

13205

15.635

2.356792144

16.77000046

15.12000084

427.25

-0.116890707

1.244075829

606.5

417

607

0.206355757

0.28913672

845

595

1267.5

-0.72449579

-1.934235977

1377.75

1174

121

3.996562097

9.304426378

172.25

104.1499939

16.17

0.559701493

-1.462522852

20.61999893

15.85999966

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

84.75

1.339232333

0.129962193

90.61000061

76.65000153

World Stock Markets - Indices NAME

Min 25.50

Last 26.00

(L) 52W

WTI CRUDE FUTURE Feb14

CORN FUTURE

103.4

25.5

Max 35.80

average 35.35

Min 34.85

Last 35.8

34.8

37.9

37.4

36.9

Max 37.85

average 37.525

Min 36.40

Last 37.20

36.4

Currency Exchange Rates

NAME

METALS

Last 107.5

66.1

Commodities ENERGY

Min 103.4

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

0.8928 1.6388 0.9061 1.3618 104.33 7.9868 7.7543 6.0512 62.465 33.088 1.2715 30.079 44.81 12245 93.15 1.23393 0.83097 8.2409 10.877 142.08 1.03

-0.4238 0.0672 -0.2428 0.0073 0.1725 0.0075 0.0064 0.0215 -0.2281 -0.0544 -0.2989 0.0731 -0.2455 -0.5227 0.5947 -0.2472 0.0614 -0.148 -0.0046 0.1619 0

0.0672 -0.6848 -1.6334 -1.0607 0.6326 -0.0025 -0.0052 0.0512 -1.0646 -0.946 -0.582 -0.9043 -0.9261 -0.6043 0.5357 -0.5851 0.3827 1.2147 1.0646 1.7103 0

1.0599 1.6603 0.9839 1.3893 105.44 8.0111 7.7664 6.2492 68.845 33.148 1.2862 30.228 44.86 12281 105.433 1.265 0.88151 8.4957 11.0434 145.69 1.032

0.8821 1.4814 0.88 1.2746 86.83 7.9818 7.7507 6.0492 52.89 28.56 1.2223 28.913 40.54 9603 86.41 1.2083 0.81049 7.8281 10.195 113.56 1.0289

Macau Related Stocks NAME

PRICE

ARISTOCRAT LEISU CROWN RESORTS LT

DAY %

YTD %

(H) 52W

(L) 52W VOLUME CRNCY

4.64

-0.2150538

-1.066099

5.12

3.2

424084

16.84

-0.7660577

-0.05934944

17.38

11.01

1278126

AMAX INTERNATION

1.74

6.748466

1.162789

2.12

0.75

6192464

BOC HONG KONG HO

24.1

-0.2070393

-3.01811

22.85

7416551 2020600

CENTURY LEGEND

0.44

4.761905

2.32558

0.68

0.26

CHEUK NANG HLDGS

7.26

1.114206

2.978721

7.28

146300

20.35

-2.631579

-6.651373

25.6

17.7

33403310

CHINESE ESTATES

23.8

0.2105263

-1.244815

24.7

10.334

22000

CHOW TAI FOOK JE

11.7

3.174603

1.211069

13.4

7.44

8233500

CHINA OVERSEAS

COUNTRY

PRICE

DAY %

YTD %

(H) 52W

(L) 52W

DOW JONES INDUS. AVG

16425.1

-0.2725563

-0.9143009

16588.25

13293.13

NASDAQ COMPOSITE INDEX

4113.681

-0.4410797

-1.506221

4177.728

3076.596

GALAXY ENTERTAIN

-0.3696751

6875.62

6023.44

HANG SENG BK

EMPEROR ENTERTAI

4.09

1.995012

2.25

4.66

1.86

3030600

FUTURE BRIGHT

4.57

1.106195

-2.558637

4.9

1.361

5060000

75.55

5.664336

8.626882

75.55

18907010

123.2

-0.242915

-1.98886

132.8

110.6

1112511

FTSE 100 INDEX

6724.14

-0.09790914

DAX INDEX

9432.65

0.04932117

-1.251128

9620.929688

7418.36

HOPEWELL HLDGS

25.9

0.7782101

-1.333333

35.3

23.2

412952

NIKKEI 225

15814.37

-0.5940707

-2.92757

16320.22

10398.61

HSBC HLDGS PLC

83.9

0.9019844

-0.2970903

90.7

77.85

13476694

HANG SENG INDEX

22712.78

0.1262115

-2.546989

24111.55078

19426.35938

HUTCHISON TELE H

2.81

1.079137

-4.421771

4.66

2.5

4590000

LUK FOOK HLDGS I

31.2

5.050505

5.762712

31.5

16.88

3556500

MELCO INTL DEVEL

11128109

CSI 300 INDEX

2238.001

-0.02841014

-3.949522

2791.303

2023.171

29.05

3.197158

1.929825

29.3

10.32

TAIWAN TAIEX INDEX

8512.3

0.1445881

-1.152062

8647.24

7603.27

MGM CHINA HOLDIN

35.8

4.831625

8.157105

13.6

7273064

KOSPI INDEX

1959.44

0.315367

-2.580371

2063.28

1770.53

MIDLAND HOLDINGS

3.52

-0.2832861

-5.630027

4.29

2.68

3500000

S&P/ASX 200 INDEX

5316.987

-0.1481537

-0.6581047

5457.3

4632.3

230902500

JAKARTA COMPOSITE INDEX

4185.396

-0.4143181

-2.077143

5251.296

3837.735

NEPTUNE GROUP

0.345

1.470588

1.470587

0.4

0.131

NEW WORLD DEV

9.39

-1.26183

-4.085801

15.12

9.37

15134863

SANDS CHINA LTD

65.5

3.475513

3.393846

66.45

33.5

13241505

FTSE Bursa Malaysia KLCI

1830.05

0.0475623

-1.977006

1882.2

1597

SHUN HO RESOURCE

1.65

1.92

1.33

40000

NZX ALL INDEX

1004.185

-0.126311

0.529583

1048.998

884.376

SHUN TAK HOLDING

4.45

1.136364

-2.412279

4.8

3.27

3549780

PHILIPPINES ALL SHARE IX

3645.1

-0.6903804

0.8516133

4571.4

3440.12

13234938

Euromoney Dragon 300 Index Sin

600.64

-0.49

-1.78

STOCK EXCH OF THAI INDEX

1249.37

1.505476

-3.799152

1649.77

1205.44

HO CHI MINH STOCK INDEX

510.12

0.2003536

1.087924

533.15

426.86

Laos Composite Index

1258.66

0.4252733

1455.82

1224.94

2.766798

17.04

SMARTONE TELECOM

SJM HOLDINGS LTD

8.68

3.456496

-2.031599

14.46

7.38

2325894

WYNN MACAU LTD

37.2

3.62117

5.832143

38.25

8377028

ASIA ENTERTAINME

N/A

BALLY TECHNOLOGI

78.47

0.1020538

0.02549784

79.42

45.38

311298

BOC HONG KONG HO

3.12

-0.952381

-3.105591

3.6

2.99

7300

GALAXY ENTERTAIN

9.25

0.9825328

2.663704

9.25

3.8975

9387 3590800

INTL GAME TECH

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

17.58

0.5720824

-3.193832

21.2

14.65

JONES LANG LASAL

102.79

-0.2038835

0.3906637

103.75

80.86

254870

LAS VEGAS SANDS

77.27

-1.37843

-2.028658

47.95

4757931 2236397

MELCO CROWN-ADR

40.14

1.286904

2.345739

40.654

17.76

MGM CHINA HOLDIN

4.45

0.9070295

3.248261

4.45

1.7651

28500

MGM RESORTS INTE

23.48

0.1279318

-0.17007

24.1

11.72

15380593

SHFL ENTERTAINME

23.19

#N/A N/A

23.25

13.88

344231

SJM HOLDINGS LTD

3.25

-0.9146341

-2.694608

3.6

2.2

12848

195.86

-0.07142857

0.8495923

199.88

111.3456

1289126

WYNN RESORTS LTD

AUD HKD

USD

Hang Seng Index NAME

PRICE

DAY %

VOLUME

PRICE

DAY %

VOLUME

AIA GROUP LTD

30.2

1.003344

16574881

CHINA UNICOM HON

13.68

1.333333

22775492

ALUMINUM CORP-H

3.61

15433022

CITIC PACIFIC

10.12

0.1980198

6468988

BANK OF CHINA-H

3.15

1.286174

329406866

BANK OF COMMUN-H

5.87

0.8591065

37793438

0.1727116

14.5

BANK EAST ASIA BELLE INTERNATIO

NAME

CLP HLDGS LTD

NAME

PRICE

DAY %

64.4

0.625

2568679

SANDS CHINA LTD

28.75

-0.1736111

6213954

SINO LAND CO

14.28

0.990099

7686664

SUN HUNG KAI PRO

109.1

1.018519

8616634

-0.4815409

2456828

265.6

1.45149

2048509

23.9

2206357

0.8064516

5926157

52.75

1.05364

3208615

POWER ASSETS HOL

65.6

1561243

CNOOC LTD

16.32

0.4926108

46287676

1260442

COSCO PAC LTD

11.76

3138217

SWIRE PACIFIC-A

7192500

ESPRIT HLDGS

12.44

-0.48

4211743

TENCENT HOLDINGS

0.2087683

10140777

HANG LUNG PROPER

26.55

-0.1879699

7812341

TINGYI HLDG CO

CATHAY PAC AIR

13.78

0.2911208

3140232

HANG SENG BK

119.7

0.167364

1690249

WANT WANT CHINA

CHEUNG KONG

114.9

1.23348

3918568

HENDERSON LAND D

2.059087

5880582

WHARF HLDG

75.55

0.1325381

701703

1.112235

6329376

125.6

3.54493

9625332

76.5 -0.06531679

9291476

BOC HONG KONG HO

CHINA COAL ENE-H

7.7

-0.1297017

40174849

CHINA CONST BA-H

5.87

1.206897

202072100

CHINA LIFE INS-H

22.9

0.4385965

30126882

CHINA MERCHANT

25.6

0.3921569

4209584

CHINA MOBILE

HENGAN INTL HONG KG CHINA GS HONG KONG EXCHNG HSBC HLDGS PLC

85.45

1.064459

16569813

HUTCHISON WHAMPO

CHINA OVERSEAS

20.2

-0.2469136

19374736

IND & COMM BK-H

CHINA PETROLEU-H

8.36

0.9661836

101198904

CHINA RES ENTERP

25.2

0.8

77.35

1.243455

6697663

5.17

1.372549

317570965

LI & FUNG LTD

12.84

-0.9259259

17517410

4219717

MTR CORP

29.85

1.530612

4880670

MOVERS

VOLUME

2 23098

INDEX 22712.78 HIGH

23097.98

LOW

22616.7

CHINA RES LAND

17.16

1.179245

6849146

NEW WORLD DEV

12.98

1.564945

12528960

52W (H) 24111.55078

CHINA RES POWER

16.08

-0.618047

7490964

PETROCHINA CO-H

10.94

-1.263538

64234127

(L) 19426.35938

CHINA SHENHUA-H

33.35

-0.1497006

11160228

PING AN INSURA-H

63.35

1.198083

8338502

22616

3-January

7-January

15 15

January 2014 April 19,8,2013

Opinion Business

wires

Leading reports from Asia’s best business newspapers

Taipei Times Taiwan’s inflation rate last year hit its lowest level since 2009, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said. The DGBAS said the national consumer price index increased by 0.79 percent last year, with the headline inflation rate standing at just 0.56 percent during the October-to-December quarter. The DGBAS had expected the index to rise 1.12 percent annually in the fourth quarter of last year following the government’s electricity and fuel price hikes in October last year.

Europe’s lessons for China’s reformers Daniel Gros

Director of the Centre for European Policy Studies

The prohibition of state aid was a game changer for Europe, because it forced SOEs to operate on a level playing field and thus to become as efficient as their domestic or foreign competitors. Once local politicians could no longer use the SOEs for their own goals, most member countries decided that they might as well privatise many of them. Of course, downsizing the SOE sector took time; but the direction of the process was never in doubt, because the SOEs’ foreign and domestic competitors naturally provided strong political support for the European Commission’s vigorous policing of state aid.

Jakarta Globe Indonesia posted a narrower budget deficit last year as the government spent less than targeted, giving a break on Southeast Asia’s largest economy amid declining exports and slowing investment. The country recorded for 2013 a budget deficit of 209.5 trillion rupiah (US$17 billion), or 2.2 percent of gross domestic product, compared to 2.4 percent of GDP as targeted in last year’s revised state budget, Finance Minister M. Chatib Basri said. Chatib estimated economic growth to contract by 1.4 percent to 2 percent in the fourth quarter from the previous quarter last year.

Korea Herald The U.S. and emerging economies are expected to become key export markets for South Korean businesses this year, the country’s trade promotion agency said. The predictions by Korea Trade Investment Promotion Agency (KOTRA) follow a government announcement last week that it posted its largest trade surplus of US$44.19 billion last year and expects exports to grow 6.4 percent on-year in 2014. KOTRA said that while the U.S. and emerging economies are expected to become more attractive as export markets, shipments to Japan may decrease due to the weak Japanese yen.

Times of India With investments drying up, India’s state governments are taking a cue from the federal government and are now focusing on reviving heldup infrastructure projects in a fresh bid to spur economic activity and create jobs. At least two states have already set up inter-ministerial bodies to remove bottlenecks for projects. With central agencies clearing close to 125 projects, more states are expected to join the bandwagon of faster clearances for infrastructure projects, such as land allocation or environmental clearances.

State aid

he most important economic-policy decision of 2013 might well have been taken in November at the Third Plenum of the Chinese Communist Party’s Central Committee, which pledged that the market should be given a “decisive” role in guiding China’s economy. Because China is now the world’s largest exporter after the European Union, and accounts for about half of global growth, decisions taken in Beijing could have a more important impact on the world economy than those taken in Berlin, Brussels, or Washington, DC. But, while China’s embrace of the market and opening to the outside world has enabled it to achieve astonishing economic progress over the last three decades, the country might now have reached a level of income at which the problem is no longer “too little market”. On the contrary, some of China’s key problems today require a stronger role for government. Air and water pollution, for example, can be addressed only by more state intervention, at both the central and local levels. The authorities have now made solving the problem a high priority, and there can be little doubt that China has the resources to do so – much as it created the world’s largest manufacturing sector. The fight against smog and water pollution plays to the country’s strength:

the availability of huge domestic savings to finance the necessary investment in pollution-abatement equipment. The dilemma for China’s leaders is that meeting the need for more in pollution control and infrastructure makes it more difficult to achieve their goal of shifting the country’s economicgrowth model from one based on investment and exports to one based on consumption. But more consumption today would further aggravate the pollution problem. As a result, economic rebalancing may be delayed by the more urgent need for environmental investment.

SOEs oversight Other areas of the economy require greater government oversight as well. Network industries like telecoms, gas, electricity, and water tend to become monopolistic or oligopolistic if left to market forces alone. Well-run economies achieve higher levels of welfare not because there is less regulation of these sectors, but because more efficient regulation prevents the emergence of cartels, thereby protecting consumers. Similar reasoning applies to reform of the state-owned-enterprise (SOE) sector. The key problem is less the form of ownership (state or private) than it is the need to ensure that these enterprises operate according

The global economy’s most powerful growth engine … needs a stronger regulatory framework to ensure that its markets maximise efficiency and social welfare

to market principles and within a competitive environment. The European experience confirms this. The Treaty of Rome, which established the common market back in 1957, did not distinguish between state-owned and private enterprises, though vast sectors of the economy (most of the coal and steel industry, and in many countries banking) were in state hands at the time. Instead, the treaty established internal-market rules that barred governments from giving their companies unfair advantages.

In China, too, the key issue today is the rules under which the SOEs’ operate. Instead of large-scale privatisation, it might be better to limit state aid and give competitors legal recourse to seek redress if state aid distorts competition. The area that has attracted the most attention is finance, and for good reason. In most of the advanced world, investment amounts to little more than 15 percent of GDP, compared to close to 45 percent for China. Financial markets are thus even more important for China than for the U.S. or Europe, and there are clear signs that the productivity of investment has been declining rapidly in China. The lynchpin of the China’s planned financial-sector reforms – interest-rate liberalisation – might not address the problem. In principle, higher interest rates on lending should help to reduce over-investment. But, in a system with many – often implicit – government guarantees, it is not always the most efficient enterprises that are willing and able to pay more to borrow. Liberalising lending rates might merely lead those with government guarantees to outbid smaller and more efficient enterprises, resulting in more misallocation of capital. This suggests that financial liberalisation might be dangerous until even SOEs are subject to a hard budget constraint. The global economy’s most powerful growth engine does not need simply “more market”. It needs a stronger regulatory framework to ensure that its markets maximise efficiency and social welfare. © Project Syndicate

16 16

January 8, 2014 April 19, 2013

Closing China lifts ban on foreign game consoles

Indonesia mineral export ban starts to bite

China’s State Council said it has temporarily lifted a ban on selling foreign video game consoles, paving the way for firms like Sony Corp, Microsoft Corp and Nintendo Co Ltd to enter a nearly US$14 billion dollar market. The suspension of the 14-yearold ban permits “foreign-invested enterprises” to make games consoles within Shanghai’s free trade zone and sell them in China after inspection by cultural departments, the government said. China’s video game market grew 38 percent from 2012 to reach 83.17 billion yuan (US$13.74 billion) in 2013, according to data released at the annual China games industry conference.

Indonesia’s planned mineral export ban, a policy designed to force miners to process their ores domestically, is sending shudders through the economy, with a Singapore-owned nickel miner suspending operations ahead of the January 12 ban. Indonesia is the world’s top exporter of nickel ore, thermal coal and refined tin, but also has significant exports of iron ore and bauxite, both of which are likely to be stopped after Sunday. The plan has raised fears that export earnings could be slashed in the short term as miners scramble to meet the new regulation.

Cold snap threatens U.S. east coast The Atlantic seaboard of the U.S. was braced for its coldest weather in decades as the extreme conditions, known as a polar vortex, that have been blighting the Midwest spread east and south. Natural gas rose for a second day in New York. Futures for February delivery climbed as much as 1 percent to US$4.35 per million British thermal units in electronic trading on the New York Mercantile Exchange. The arctic weather is threatening to topple temperature records, as wind chills fell below zero Fahrenheit (minus 18 Celsius) in parts of the upper Midwest. The central U.S. will see the lowest temperatures in almost 20 years as the cold is heading toward the East Coast, according to the National Weather Service. Andrew Cuomo, the governor of New York state, declared a state of emergency in 14 counties, warning of “truly extraordinary” conditions. Millions of travellers have been stranded and the American Red Cross said 117 million people were living under dangerous wind chill warnings and advisories. At least four weatherrelated deaths have been reported.

Inflation rate has moved further away from the ECB’s target

Euro-area inflation slows to 0.8 pct Concerns that eurozone faces deflationary risks

Yellen confirmed as next Fed chair Janet Yellen made history on Monday as the U.S. Senate confirmed her to be the first woman to lead the Federal Reserve in its 100‑year history. Mr Yellen, 67, the central bank’s No. 2 since 2010, will take over as chair of the Fed after Ben Bernanke’s term comes to a close at the end of this month. In doing so, she will take the reins of the world’s largest economy and become the most powerful person in the world of finance. Fifty-six senators voted in favour of Ms Yellen with 26 opposed – many members of the chamber were unable to attend the vote because of bad weather. Ms Yellen served as chair of former U.S. President Bill Clinton’s Council of Economic Advisers and was an economics professor at the University of California, Berkeley. Although most analysts expect Ms Yellen to continue Mr Bernanke’s efforts to boost the US economy by keeping short-term interest rates low, she will eventually face unchartered territory once the central bank begins to ease back on its extraordinary measures.

urozone inflation fell in December after a small increase the previous month, increasing the European Central Bank’s challenge of avoiding deflation as well as supporting the bloc’s recovery. Consumer price inflation in the 17 countries then sharing the euro stood at 0.8 percent year-on-year in the last month of 2013, compared with 0.9 percent in November, data from the EU’s statistics office Eurostat showed yesterday. December’s reading takes inflation back to near a four-year-low of 0.7 percent in October. “Today’s figures show that it’s too early for the ECB to become complacent about deflation risks, especially in peripheral countries,” said Peter Vanden Houte, ING Bank NV’s chief eurozone economist, referring to the bloc’s weaker members. An inflation rate that is well below the ECB’s target of close-to-butbelow 2 percent carries risks in the longer term because it can deflate wages and demand, depressing the economy. Reacting to the data, the euro rose to US$1.3646 from US$1.3618 on speculation the ECB could consider more steps to support the economy. The October drop in inflation was

the first fall below 1 percent since February 2010 and prompted the European Central Bank to cut its key interest rate to a new record low of 0.25 percent in November. Still, the eurozone is far from the deflation that Japan suffered from the early 1990s. ECB President Mario Draghi said last week there were no signs of deflation or an urgent need for another rate cut, but added that it was vital to avoid a scenario where inflation gets stuck permanently below one percent and slips into a danger zone for the economy. “While we believe that for the time being the ECB will keep its monetary policy unchanged, not much is needed to push the central bank into action,” said Mr Vanden Houte.

ECB on hold Analysts see the ECB staying on hold at its rate-setting meeting tomorrow, while watching out for any action the bank may take in reaction to current low inflation environment. “We believe the ECB will most likely enact its Long-Term Refinancing Operation (LTRO) in the next few months, which may very well be tailored specifically towards bank lending,” said IHS Inc chief

European economist Howard Archer. ECB Governing Council members have signalled the bank will provide more money to banks by the time the cheap long-term loans it has already made expire. The ECB injected more than 1 trillion euros into the banking system via threeyear loans in December 2011 and February 2012, which means the first tranche of repayments is due in late 2014. Eurostat’s separate data released yesterday showed eurozone industrial producer prices eased their decline in November to fall by 0.1 percent on the month after a 0.5 percent drop in October, putting the annual rate at -1.2 percent, compared with a nearly four-year low of -1.3 percent seen in October. The monthly drop was led by a 0.2 percent fall in costs of intermediate goods while prices of capital, durable, non-durable goods and energy prices were flat compared with October. Changes in producer prices, unless absorbed by retailers, eventually translate into changes in the consumer price index. Eurostat’s detailed inflation data breakdown for December, country by country, will be published on January 16. Reuters