Macau Business Daily, April 3rd, 2014 by Business Daily

Year II

Number 510 Thursday April 3, 2014

Publisher: Paulo A. Azevedo

MOP 6.00

Not so new talent The government wants to develop more talent to cope with the city’s needs. But the talent to bring a clear direction to the project seems difficult to achieve. So far, the scheme-by-committee revisits the good old subsidy formula

gas Leak

Page 5

The regulator says it will not budge and fires back at the territory’s sole natural gas importer. The proposal on gas price and long-term supply is “unreasonable” and will affect the public interest, says the government

www.macaubusinessdaily.com

Page 5

MGTO promises to fight ‘zero-fare’ tours

Shop ‘til you drop

Page 6

High-end handbag maker MCM plans to open 72 more outlets in the Greater China region, including Macau where the brand already has two shops. In addition to the expansion in Macau, the South Korean fashion retailer wants to go public in the next three years

Macau Golf Open returns in October Page 4

Brought to you by

Page 2

HSI - Movers

Heaven and hell

April 2

Midland Realty (Macau) is far from being in the deep water its parent firm in Hong Kong is. Here, CEO Ronald Cheung tells Business Daily that Midland is “cautiously” consolidating its business with an expansion plan less aggressive then major rival Centaline Page 3

Offshore borrowers Hong Kong sees 41percent lending rising thanks to the Chinese trend of borrowing abroad due to higher interest rates. China banks record a 45 percent shrinkage Pages 10 & 11

Name

%Day

Hong Kong Exchang

5.44

China Resources Lan

4.67

Wharf Holdings Ltd

4.34

Sun Hung Kai Proper

4.07

Hang Lung Propertie

3.75

Industrial & Comme

-1.47

China Shenhua Ener

-1.56

Bank of Communica

-1.57

China Resources Po

-1.96

Bank of China Ltd

-2.03

Source: Bloomberg

I SSN 2226-8294

Brought to you by

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April 3, 2014

Macau

MCM plans Macau expansion Luxury brand, eyeing IPO, to open 30-plus shops in Macau and the mainland

igh-end handbag maker MCM Holdings AG is weighing up an initial public offering within the next three years as it prepares to triple its sales. The company sells its brightly coloured products at Rainbow in the One Central shopping centre and at King Power Duty Free at the Macau International Airport. MCM chairman Sung-Joo Kim said there were plans to have 72 outlets throughout Greater China by the end of the year. There are currently 40 shops in the region, contributing about one-quarter of the brand’s global sales last year. MCM was founded in Munich in 1976 before it was sold to the Sungjoo Group in 2005. The South Korean fashion retailer was founded by Ms Kim and she has since rebuilt the MCM brand to cater to a young Asian audience. “Consumers who buy luxury goods in Asia are very different from Europe,” she told Bloomberg. “In Europe, the consumers tend to be more mature, while in Asia, young consumers are the movers and shakers.” MCM may also sell a share of the company to investors considered complementary, such as property companies, ahead of the public offering. “We are open to talk to decent investors who have a mid-to longterm view,” Ms Kim said. “We don’t want to be one of the

MCM’s flagship store in Seoul

We don’t want to be one of the 100 brands of wwa giant luxury group Sung-Joo Kim, Sungjoo Group CEO

100 brands of a giant luxury group.” The size of the listing has not been disclosed. Ms Kim said MCM’s products are competing with the highest-level offerings in the market, such as Louis Vuitton or Prada SpA. MCM expects its sales to rise to US$650 million (MOP5.2 billion) this year from more than US$500 million in 2013. Sales could reach US$1.5 billion in three to four years, with China, Korea and Japan each contributing about a third of the group revenue, she said on the sidelines of the Credit Suisse Asian Investment Conference in Hong Kong. In Japan, MCM plans to open two stores in Tokyo’s Ginza, a trendy, upscale shopping district, as well as 10 more sales counters at major department stores, Ms Kim said.

“Unreasonable” proposal The government criticises Sinosky Energy for failing to submit a reasonable long-term gas supply plan, harming public interests Tony Lai

tony.lai@macaubusinessdaily.com

he government reaffirms the accusation against the territory’s exclusive natural gas importer Sinosky Energy (Holdings) Co Ltd that the latter’s proposal on gas price and long-term supply was “unreasonable”. If the administration succumbs to the request of Sinosky Energy, it will affect the public interests, the Office for the Development of the Energy Sector warned yesterday. Sinosky Energy posted this week a loss of 27.71 million patacas (US$3.47 million) for 2013, bringing its total loss since establishment in 2006 to 147.22 million patacas. “The main reason for the loss is that the MSAR government has not reviewed the selling price of the natural gas every three years as contractually required,” Sinosky Energy wrote in a note published in Chineselanguage newspaper Macao Daily News this week. The energy office

responded in a press statement yesterday that the government could only review the price if the company submits a longterm gas supply plan. Requested since 2010, the company only submitted such plan in April 2013 which, however, consists of “many unreasonable points”, namely no measures to ensure the supply security and penalty for gas disruption, the office slammed. “If [the government] follows the latest price suggested by Sinosky Energy, the selling price of gas will rise by almost 60 percent from the previous [amount],” the statement criticised. “If the government accepts such proposal, the cost of electricity generation by natural gas will double, affecting the public’s livelihood.” Currently the government only allows Sinosky Energy to sell natural gas at a price of 2.7357 patacas per cubic metre – a price approved

in 2006 - lower than its purchase cost of last year at 3.09 yuan (4.11 patacas), the company claimed. Putting the 60-percent rise in calculation, the company asks for a selling price of gas of as much as 4.38 patacas a cubic metre. The office continued to criticise Sinosky Energy in yesterday’s statement that it “has not fulfilled its promise” to re-submit a revised proposal by the end of last month. The statement urges the firm to meet its obligations but the office did not specify whether it would revoke the concession in the worst scenario. Sinosky Energy only resumed last year limited gas supply to Macau - namely the Hengqin campus of University of Macau, the Seac Pai Van public housing site and a few local buses after service disruption since June 2011 over ongoing constructions on nearby Hengqin. The gas supply to the electricity company here has not been resumed.

OG with Bloomberg

April 3, 2014

Macau

Midland Macau cautiously consolidates The real estate agency says it’s cautious with its expansion plan, unlike its major rival, despite staggering prospects of property market Tony Lai tony.lai@macaubusinessdaily.com

It’s right to say it’s like heaven and hell for the results [of Midland group] in Macau and Hong Kong Ronald Cheung Yat Fai, chief executive of Midland Macau

roperty agent Midland Realty (Macau) Ltd registered “doubledigit growth” in profits last year despite the lacklustre performance of its Hong Kong-listed parent Midland Holdings Ltd. Ronald Cheung Yat Fai, chief executive of Midland Macau, said that the company is cautious about expanding their presence further here, unlike its rivals, despite the staggering prospects held out by the property sector. “It’s right to say it’s like heaven and hell for the results [of Midland group] in Macau and Hong Kong,” Mr Cheung simply said. “Apart from the losses recorded in the first one or two years when we first tapped the Macau market, we have always had growing revenues and profits since then.” He declined to provide details of the Macau performance owing to company policy but did reveal that “the profit here last year grew by double digits [over the previous year].” Midland Holdings, the agent’s parent firm, however, reported last week a loss of HK$204 million (US$26.2 million) in 2013, against profits of HK$249.8 million in 2012. Revenue from Macau and Hong Kong plunged 23.2 percent year-on-year to HK$2.68 billion last year, the firm said in a filing to the Hong Kong Stock Exchange. “The downturn in the Hong Kong property market, increased competition in the sector and upward pressure on costs have posed major challenges” for the firm, the filing noted. Midland Macau’s Mr Cheung stressed that the revenue in the Macau segment alone grew last year, adding: “The positive performance in the eight branches here cannot cover the loss registered by the hundreds of stores in Hong Kong.” The growing profit here last year, despite fewer home transactions, contributed to “the effective costcontrol measures” and their focus on big-ticket property transactions, namely deals worth over 5 million patacas, he said.

Cautious plan Official figures show the number of homes sold last year was 12,046, or 28.8 percent fewer than in 2012 and the fewest since 2009, when just over 11,300 were sold. In the first two

months of this year only 1,215 flats were sold, declining by 38 percent from the same period in 2012, data from the Financial Services Bureau show. Real estate agents blame lower home sales volumes on the stamp duty and lack of home supply following the introduction of a new law in June regulating the pre-sales of unfinished homes. But home prices remain at high levels, they say. Official figures show flats exchanged hands for an average 90,407 patacas a square metre in February, up 28.4 percent year-on-year. Amid a bleaker outlook in terms of home transactions in the coming year, Midland Macau’s chief was “cautious” in terms of opening more branches here. “Our focus is to maintain profits,” he said. “As the number of home transactions is foreseen to continue hovering at a low level, it is not really an appropriate time to open more branches.” He added that the labour shortage is also one of the hurdles to opening more branches, saying that the operation here suffered a 20-percent turnover rate last year for its employee size of less than 100. Midland Macau’s approach vividly contrasts that of its rival Centaline (Macau) Property Agency Ltd, the local subsidiary of another Hong Kong agent Centaline Property Agency Ltd. Centaline Macau opened three more branches here last week.

offer of Hong Kong properties as buyers have more confidence in us, as a subsidiary of a Hong Kong agent.” Mr Cheung said that the recent disputes of shareholders in Midland Holdings will not affect operations here, adding “Whoever is the boss, what they want is to still make profits here.”

Real Estate fund Apex Benchmark, the second-largest shareholder of Midland, slammed the poor performance of the realtor last year, as a result of poor management. The fund had previously appointed a former Midland executive as its current residential consultant. With Stephanie Lai

Overseas exploration “The expansion is based on our need and our plan for the long term,” Jacky Shek Po Tak, director of Centaline Macau, said earlier this week. “Our market share in the city is still quite low, and we think that there’s still space for us to grow via more branch expansion.” Facing the intense competition for home deals here, Midland Macau will continue to “deepen” the opportunities of offering overseas properties to local buyers this year. “I’d not say the response for local buyers here is crazy for overseas projects like in Portugal and Hong Kong,” said Mr Cheung, “but the response is quite good and we have recorded two or three deals of Macau residents buying properties in Portugal”. “We also have an edge over the

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April 3, 2014

Macau Brands

Trends

Back to the greens Macau Golf Open tees off in October

Michael Kors

All that glitters Raquel Dias newsdesk@macaubusinessdaily.com

wo years ago, the iconic American designer opened his first shop in Asia. Macau was the trial run, and as we celebrated the opening of Sands Cotai Central, there was a MK shop right at the entrance. Michael Kors has marketing smarts. With good exposure on ‘Project Runway’ — a reality show in which amateur designers showcase their work and are eliminated every week ‘survivor fashion’— and as one of the main judges, Kors quickly attracted international attention. The brand’s most strategically successful move, however, was its ability to put their signature totes—arguably inspired by Louis Vuitton’s Never Full design— on celebrity arms. The arm candy was immediately recognisable thanks to the sizable golden MK charm that comes with the goods. A comfortable partnership with the Apple store adapting the handbags to carry the MacBook and iPad in did the rest. Starting at just over MOP3,000, the new totes won’t break the bank and will certainly lend you a certain chic. Pair a tote with the brand’s signature flats, and the coming summer will be a breeze. While you’re at it, do have a look at their more pricey line of handbags and pay special attention to the allmetal watches.

ne of the prominent annual sports events here, the Macau Golf Open, has confirmed that it will be held again in October, the Macau Sport Development Board told Business Daily. A spokeswoman for the board confirmed that “it is recently settled” that the golf tournament will be hosted by the Macau Golf and Country Club in Coloane from October 23 to October 26. The board and the Golf Association of Macau will continue to organise the event sanctioned by the Asian Tour, the principal professional golf tour for men in Asia, except for Japan. The spokeswoman could not confirm details at the moment, however, of the prize and sponsors for this event, adding: “As the date has only just been confirmed the details are still [subject to] talks.” Vong Iao Lek, president of the board at the time, last year described the event as “one of the city’s top sporting highlights” and “over the past 15 years it has successfully showcased to the world how Macau can play host to a top class international golf tournament.” The Macau Golf Open 2013 attracted dozens of golfers to compete for the US$800,000 prize (6.4 million patacas), up 6.25 percent on 2012. Gaming resort Venetian

Macau, controlled by Sands China Ltd, was the title sponsor for the tournament in 2012 and 2013. The event, inaugurated in 1998,

was first broadcast live in 2011 to 850 million households in over 200 countries across the globe. T.L.

Trade up China and Portuguese-language countries trade up 13.5 percent. Brazil, Angola still dominate

rade between China and Portuguese-language countries in the first two months of this year was up 13.5% at US$19.68 billion, according to figures from China’s customs authorities released by the Fórum Macau, the body charged with coordinating such relations. In January and February, China imported goods worth US$12.86 billion from member states of the

Community of Portuguese-Language Countries (CPLP), up almost 17 percent. It exported goods worth US$6.92 billion, up 7.5 percent. Brazil remained China’s largest trading partner among CPLP members, with overall bilateral trade jumping 11 percent. China’s imports from Brazil rose 14 percent to US$6.42 billion and its exports rose 8 percent to US$5.58 billion. As for Angola, overall trade soared

17 percent, as China imported $6.13 billion, up more than one fifth, and exported US$613 million, down 3 percent. With Portugal, trade jumped almost 14 percent to US$628 million, with China still enjoying a large surplus. It sold goods worth US$428 million to Portugal, up 16 percent, and bought US$200 million worth, up just under 9 percent. Lusa

Philip Morris cigarette brands more expensive

he prices of cigarette packs of all brands under Philip Morris International such as Marlboro, Chesterfield and Next increased by 2 patacas on 1st April. “This is a commercial decision, due to living standards going up, says a local tobacco importer. “We hope that this will not depress the business although we’re not sure at the moment what will be the impact of this increase, but… we don’t have a choice”. Retailers believe that smokers are faithful to their brands and that this slight increase will not prod them into the arms of cheaper brands or make them kick the habit. In Macau, importers regulate cigarette prices, not the government. Each cigarette is taxed 50 avos and the retail price is as merchants see fit. P.F.M.

April 3, 2014

Macau

Govt to shower trainee talent with subsidies The government is pushing for a special programme that offers residents apprenticeships abroad, along with a possible subsidy Stephanie Lai

sw.lai@macaubusinessdaily.com

The programme is not only a subsidy scheme…we will talk with international organisations and enterprises to create opportunities for Macau people to do apprenticeship there. So probably it will not involve a lot of government budget Sou Chio Fai, Director of Tertiary Education Services Office

he government is working on an incentive scheme that may partly subsidise local residents, including professionals working in the management strata, to pursue studies abroad or undertake professional training, Talent Development Committee told media after a closeddoor meeting yesterday. The incentive scheme, under the Chinese title of “elite cultivating programme”, will not involve a large amount of government budget, secretary-general of the committee and director of Tertiary Education Services Office Sou Chio Fai said. “This programme will provide support to academics and researchers, as well as for students here to take master courses in renowned

universities abroad,” said Mr Sou, “For professionals engaged in management in all sectors here, they can also undertake further training through this programme to reinforce their professional skills.” The official further explained that the government is tying up with “international enterprises” and other international organisations to provide apprenticeships or practicum for local residents through the programme. “The programme is not only a subsidy scheme…we will talk with international organisations and enterprises to create opportunities for Macau people to do apprenticeship there,” said Mr Sou, “So probably it will not involve a lot of government budget.”

He noted that the government may subsidise expenses for transportation or accommodation for successful programme applicants undertaking practicum in companies or organisations abroad. “This is still what our working group has to decide [regarding subsidy coverage],” said Mr Sou, “The working group will take a look at this programme and think about it.” The committee has not yet decided upon a clear definition of which targeted sectors will be covered by the “elite cultivating programme” to provide further training for staff, and has yet to discuss how residents can qualify to apply for the programme. “It seems to me that this programme is somewhere between

a typical subsidy programme and a social engineering programme,” commented economist José I. Duarte. With limited information on the programme, Mr Duarte added that he could offer little further comment. But he noted that the government has yet to offer a clear diagnosis of the human resource issues that the city is experiencing, an example being insufficient labour to fill blue-collar positions like a driver’s job. The 35-member Talent Development Committee, led by Chief Executive Fernando Chui Sai On, is an organ responsible for researching demands for local human resources and formulating policy to help train locals to complement the city’s economic development.

April 3, 2014

Macau

Battle against ‘zero-fare’ intensifies Tourism official promises better cooperation with mainland to prevent damaging the city’s image Tony Lai tony.lai@macaubusinessdaily.com

ourism officials have offered a fresh commitment to work closely with mainland officials following reports that cut-price package tours are making a comeback. Macau Government Tourist Office director Maria

Helena de Senna Fernandes said the return of “zero-fare tours” that charge low upfront costs but have hefty hidden charges could harm the city’s appeal. Ms Senna Fernandes was responding to a report broadcast on China Central

[we will also] particularly maintain good communications with Shenzhen, as many tours groups to here come from Shenzhen via Hong Kong,” Ms Senna Fernandes said. The number of tour groups to Macau from the mainland had rebounded to pre-October levels after declining late last year, she said. Ms Senna Fernandes did not say if the rebound was due to the return of “zerofare tours”. Package tourists to Macau fell by 6.2 percent to about 3.1 million visitors in the period between October and January, according to calculations based on official data. The year-on-year fall was about 11.5 percent in October and just 2.1 percent in January. The city’s tourism industry had predicted a decrease of between 10 percent and 20 percent when the law was introduced.

Govt particularly encourages small-and-medium-sized food establishments to upgrade to entice tourists

Macau hotels register top occupancy rate ever in February

yuan, tourists had to shop at designated shops in the two cities, CCTV reported. “Any disputes or negative reports are not good for the image of Macau or other places,” Ms Senna Fernandes said yesterday. “So that’s why we have to continue overseeing the matter.” The mainland outlawed free or excessively cheap package tours run by travel agencies that recoup their costs by forcing tourists to shops to earn commissions. Ms Senna Fernandes said the tourism office was following up on the CCTV report. The tourist office had seen several cases involving the use of coupons in the past few months. The Consumer Council had been asked to follow up the matter with its mainland counterparts. “Apart from strengthening exchanges with China National Tourism Administration,

Awards to raise service quality

Lunar New Year powers hotel data ebruary broke the record by registering the biggest occupancy rate for that particular month. An average 91.5 percent hotel occupancy rate was registered, according to the latest figures published by the local Statistics and Census bureau. During the Lunar New Year holidays the average occupancy rate of hotels and inns reached 92 percent, a 15 percentage points increase in annual terms. The 5-star occupancy average peaked at 93 percent, with almost 834,000 tourists staying in hotels and guesthouses, a 7 percent increase year-onyear. Five star hotels have reason to celebrate as 57 percent of tourists stayed in them. The average stay of guests was 1.5 nights, 0.1 nights more than the same month in 2013. In the first two months of this year, 1,706,000 guests checked

Television last weekend that claimed some mainland tourists paid about 200 yuan (257 patacas) for a three-day tour to Macau and Hong Kong after reimbursing discount coupons. To recoup the full cost of the tour, worth about 4,000

into hotels, whose combined average occupancy rate was 86 percent.

More from the mainland The data provided shows changes in the composition of the visitor’s place-oforigin ‘pie’, with 851,000 visitors arriving in Macau via tours organised by travel agencies. That translates into a 5 percent yearly rise. The number of visitors arriving from the mainland was 645,000, representing a 7 percent increase, almost half of whom were from Guangdong province. However, the number of visitors from Taiwan (59,000), the Republic of Korea (38,000) and Hong Kong (36,000) decreased year-on-year. In the first two months of 2014 the number of tours organised by travel agencies totalled 1,634,000, a 4 percent increase. O.G.

Tony Lai

tony.lai@macaubusinessdaily.com

he government hopes that by giving out awards this year to food and beverage merchants – namely, small-sized establishments – service standards will be boosted. The Quality Tourism Service Accreditation Scheme, launched by the Macau Government Tourist Office yesterday, will give out at most 100 service awards this year to local food and beverage businesses. “The aim [of this scheme] is to encourage and support the industry to raise service quality, by acknowledging merchants that provide outstanding services,” Maria Helena de Senna Fernandes, director of the Office, said in a press conference. “What we look at is not about how beautiful the decorations of the establishments are, but the level of services provided,” she said. The merchants do

not have to “make huge investments” to vye for the awards but what they have to do is to remind frontline staff to be more amicable, she added. The latest tourist satisfaction index compiled by the Institute for Tourism Studies tourism research centre reveals that the score fell to 69.4 points out of 100 in the third quarter of last year from 71.5 in the second quarter. The third quarter’s results were also slightly below the long-term average of 70.0 since the index was first compiled in 2009. The accreditation awards, inviting applications from April 4 to April 30, will measure the merchants in different areas from operational process and food hygiene to corporate management. The awards will be divided into four categories based on the nature of the establishment:

deluxe restaurants, first-class restaurants, second-class restaurants, and food and beverage establishments. Ms Senna Fernandes said they particularly encourage small-and-medium-sized establishments to compete for the awards, as 40 out of the 100 awards will be granted to the category of food and beverage establishments. “After getting the awards, the merchants will be one of the major focuses in our future promotional activities to the outside world,” she confided, as an incentive for restaurants to sign up. The food and beverage sector is the pilot area for the scheme, which will later extend to other tourism service aspects, she added. Inspection and evaluation for the award candidates will be conducted from May to October, the director said, hoping that there could be results by the end of this year.

April 3, 2014

Macau

Labour wars or just a big pain? With the new projects soon to be launched, gaming operators get anxious about labour shortages and bring more to the table to attract employees Vinicy Chan

elco Crown Entertainment Ltd. plans to lure 8,000 people to work at its third casino resort in Macau by offering competitive pay and management scholarships amid record-low unemployment rates in the city. The company will begin hiring for Studio City by the end of this year, about six months before the scheduled opening in mid-2015, Chief Executive Officer Lawrence Ho said in an interview in Macau. “We’re willing to grow our people and pay them well,” he said, declining to provide figures. Melco Crown faces competition from operators including Galaxy Entertainment Group Ltd. and Sands China Ltd. in hiring people to fill positions as they expand resorts to attract more gamblers. Jobs at the company, controlled by Ho and James Packer, and its rivals may rise 38 percent to 117,000 by 2017 amid a shortfall of workers, according to Morgan Stanley. Studio City, a US$2.9 billion Hollywood studio-themed resort, is Melco’s third project in Macau after Altira and City of Dreams. Melco plans to equip the resort with 500 gaming tables and more than 1,500 slot machines. It will also have a fivestar hotel, shopping mall and multipurpose entertainment studio. “Six months should be sufficient lead time for them to hire a decent number of people,” said D.S. Kim, an analyst at BNP Paribas Securities Asia Ltd. in Hong Kong. “The casino operator is unlikely to get the additional 500 gaming tables in one go, so that gives them some extra time.” Galaxy will open the second phase of the Galaxy Macau early next year.

crime

Thief handed maximum rap Defendant sentenced to one year in prison and fined 10,300 patacas for theft crime.

he accus ed, a C hin ese national, has been sentenced to one year in prison and fined 10,300 patacas for a theft

That will be followed by projects from Melco and Sands China Ltd. Wynn Macau Ltd., MGM China Holdings Ltd. and SJM Holdings Ltd. are also expanding their resorts. The unemployment rate in Macau, the world’s biggest gambling hub with US$45 billion in casino revenue last year, fell to 1.7 percent as of February, the lowest level since the government began providing data in 1996. The U.S. had a jobless rate of 6.7 percent and Portugal 15.3 percent. “Macau gaming industry is confronting a severe labor shortage,” Praveen Choudhary, an analyst at Morgan Stanley in Hong Kong, wrote in a Jan. 21 note. The worker crunch and new casino openings will “put upward pressure on wages,” he wrote.

Fatter bonuses To retain workers, Wynn Macau issued shares to its employees and plans to give a two-month bonus in July. MGM, SJM and Sands have also said they will pay bigger bonuses. Melco’s general and administrative costs, which include salaries, rose 13 percent to US$255.8 million in 2013. Ho declined to give an estimate for expenses this year. While Melco pays salaries competitive with other operators’, what makes the company stand out is the career path it can offer, Ho said in the interview on March 28. MGM also plans to develop local management employees and has introduced a leadership program to enrich their career prospects, the company said recently. Bloomberg

dating back to October 2011. He is accused of profiting from the victim’s unawareness by stealing her handbag, containing ID card, cash and casino chips valued at 77,000 patacas. Upon his arrest, police managed to retrieve all robbed items except for a HK$10,000 casino chip. The accused challenged the judge’s decision, asked for probation and claimed that his theft was a minor infringement and that he needed the money to care for his wife and daughter, who were both mentally ill. He also said that the sentence was too harsh compared to the crime. In answer, the judge told the accused that even though it was his first time to be caught a responsible person would have stayed in China to take care of his family. Moreover, why did he give a false address, thus complicating judiciary procedures? In addition, the judge said that too many nonMacau residents have been involved in theft crimes over the past years and due to his irresponsible profile, his one year prison sentence will be an example to all those harbouring the same intentions. P.F.M.

April 3, 2014

Stocks

Cooperation pays off Hong Kong Exchange shares jump on mainland stock-buying report

ong Kong Exchanges and Clearing Ltd shares jumped nearly 6 percent yesterday, their biggest gain in over a year, on a report that HKEx may cooperate with Shanghai’s bourse to allow investors to buy mainland-listed stocks directly via the exchange. The stock rose as much as 5.8 percent and hit its highest level since Jan. 23 this year before trading was halted in the afternoon. The benchmark Hang Seng Index rose 0.3 percent. The Hong Kong and Shanghai exchanges are close to reaching an agreement on integrating their networks, allowing the Shanghai bourse to collect buy and sell orders in China under a QDII2 scheme, with the Hong Kong bourse executing the orders and vice versa, according to a report by 21st Century Business Herald. The investment quota had yet to be finalised, it added. A HKEx spokesman declined to comment on the report. In January last year, the People’s Bank of China said it was preparing a trial that will allow individuals in China to invest in overseas markets. The program, dubbed “QDII2” would be an extension of the Qualified Domestic Institutional Investor that permits some institutions to invest in global markets. Hong Kong’s stock exchange is hoping that a slate of new initiatives

will give it a much-needed boost after it reported worse-than-expected annual earnings in February.

Good report Hong Kong property got a further boost after local media reported on Tuesday that Hong Kong Chief Executive Leung Chun-ying would put on hold a scheme to restrict the purchase of certain new flats to Hong Kong residents. China Resources Land Ltd rose 4.7 percent, Sun Hung Kai Properties Ltd climbed 4.1 percent and Country Garden Holdings Co Ltd jumped 8.4 percent. Property gains were offset by declines in mainland banking stocks, dragging the China Enterprises Index into negative territory as fund managers locked in recent gains from the sector. Bank of China Ltd slid 2 percent, while Bank of Communications Co Ltd and Industrial and Commercial Bank of China Ltd dropped 1.6 and 1.5 percent, respectively.

Asian stocks rise for sixth day Asian stocks rose, with the regional benchmark index heading for its longest winning streak in seven weeks, after an increase in U.S. manufacturing boosted optimism about growth in the world’s biggest economy.

Nissan Motor Co., a Japanese carmaker that gets 34 percent of revenue in North America, added 1.5 percent. Renesas Electronics Corp. surged 6 percent in Tokyo on a report Apple Inc. is seeking to buy a stake in a unit that designs

chips for liquid-crystal displays used in smartphones. Noble Group Ltd. advanced 4.6 percent in Singapore after Cofco Corp. agreed to buy 51 percent of Noble’s agricultural trading unit. Agencies

April 3, 2014

Greater China

Central bank teases yuan upwards The People’s Bank of China (PBOC) is mastering yuan evolution with latest control actions

hina’s yuan edged up against the dollar yesterday for the second day after the central bank again fixed a slightly higher official midpoint, a move that traders said may be sending the first signal that Beijing wants to keep the yuan stable for now. The People’s Bank of China (PBOC) engineered steep yuan depreciation in February and March, making use of the country’s traditionally weak foreign trade in the first quarter of the year to strike at speculators betting on non-stop yuan appreciation. However, traders widely expect China’s foreign trade will recover in the second quarter, creating a large trade surplus. With dollars plentiful in the domestic market, the PBOC will have to pay heavily to force yuan depreciation by intervening to buy dollars. “Market conditions will favour a stronger yuan starting in the second quarter,” said a trader at a major European bank in Shanghai. “While we still see volatility from time to time, the yuan is expected to generally remain stable in the second quarter, possibly appreciate slightly.” The spot yuan stood at 6.2040 per dollar at midday, up 0.05 percent from Tuesday’s close, after the PBOC fixed its mid-point at 6.1493, up 0.02

percent from the previous trading day. In addition to dollar supply and demand, China has posted a slew of weaker than expected economic data for the first quarter of this year, sparking worries over the health of the world’s second-largest economy. Traders said the PBOC will also not let the yuan depreciate to levels that would harm China’s economy. The yuan depreciated a combined 2.54 percent against the dollar in February and March, its biggest bimonthly loss since China established the domestic foreign exchange market in 1994, as the central bank launched its latest campaign against speculators who are long yuan. Despite a few cases of PBOCmanipulated yuan depreciation, the currency has generally staged oneway appreciation and has risen more than 33 percent since its landmark revaluation in 2005, supported by factors such as strong capital flows into China, including those derived from trade surpluses. The market now speculates the PBOC may let the yuan fall to 6.25 versus the dollar in coming weeks, but it expects the currency to rebound starting the second quarter and likely end 2014 with a mild appreciation of around 1 percent to 6.0. Reuters

The onshore spot yuan market at a glance Item

Current

Change

PBOC midpoint

6.1493

6.1503

0.02%

Spot yuan

6.2040

6.2069

0.05%

Divergence from midpoint*

0.89%

Spot change ytd

-2.42%

Spot change since 2005 revaluation

33.41%

* Divergence of the dollar/yuan exchange rate. Negative number indicates that spot yuan is trading stronger than the midpoint. The People’s Bank of China (PBOC) allows the exchange rate to rise or fall 2 percent from official midpoint rate it sets each morning.

OFFSHORE CNH MARKET The offshore yuan market at a glance Instrument

Current

Difference from onshore

Offshore spot yuan*

6.1992

0.08%

Offshore non-deliverable forwards**

6.2180

-1.10%

*Premium for offshore spot over onshore **Figure reflects difference from PBOC’s official midpoint, since non-deliverable forwards are settled against the midpoint.

April 3, 2014

Greater China Property restrictions relaxed The Shanghai securities journal reported that local governments in Hangzhou and Changsha are planning to relax restrictions on the number of houses homeowners can purchase, citing anonymous sources. China’s red-hot property market has lost some steam since late 2013 as local governments tightened controls on speculative buying, and as banks made it harder for homebuyers and small developers to get loans. Prices of new homes in 288 major cities rose 8.1 percent in March from a year earlier, easing from February’s annual rise of 9.1 percent, a poll by real estate services firm E-House China EJ.N showed.

Tencent drops 20% Asia’s biggest Internet company that just capped its steepest monthly loss in 2 1/2 years, is poised to retreat 20 percent after completing a bearish head-and-shoulders trading pattern. Tencent has lost 13 percent from a intraday record of HK$646 on March 7, which formed the head in the pattern. Shares fell below the level known as the neckline on March 27, when Tencent sank 5.9 percent on the highest trading volume in a year. The Shenzhen, China-based company is set to drop to HK$450 in the next six weeks.

Steel seen by S&P as yuan ruins The Chinese steel industry’s ability to survive 1 billion yuan (US$161 million) of losses per month without more defaults is under threat as a slump in iron ore and the yuan undermines a key source of financing. The currency has weakened 2.5 percent this year and a measure of exchange-rate swings reached a record, prompting Goldman Sachs Group Inc. to predict funding that uses the steelmaking ingredient as collateral will drop over the next two years due to foreign-exchange hedging costs.

Xi urges more EU trade Chinese President Xi Jinping urged more market access between China and the European Union to make them “the twin engines for global economic growth.” For China and the EU, which have recently settled several trade disputes, “the potential has not been fully tapped,” Xi said during a speech at the College of Europe in Bruges, Belgium. Xi reiterated China’s goal to reach US$1 trillion in annual bilateral trade with the EU by 2020. That target represents a 52 percent increase from 477 billion euros (US$658 billion) last year, according to data from the EU statistics office.

China considers electric-car incentives China is considering exempting electric-car buyers from paying purchase taxes as part of expanded government measures to bolster sales of such vehicles, Vice Premier Ma Kai said. The government may cut or waive the 10 percent purchase tax for new-energy vehicles -China’s categorization for electric cars, plugin hybrids and fuel-cell vehicles- and slow down the reduction of government subsidies beyond 2015, according to comments Vice Premier Ma Kai made at a March 26 working conference in Shenzhen posted on the Chinaev.org website.

Hong Kong follows the loan Syndicated loan market enjoyed a record first quarter as Chinese local financing in favour of cheaper offshore funds

ending in the city surged 41 percent to US$20.8 billion in the first three months compared with a year earlier, the busiest start since Bloomberg starting tracking the data in 1999. Volumes in China shrank 45 percent to US$5.8 billion, the worst first quarter in four years. Onshore borrowing costs for the nation’s top-rated companies jumped 30 basis points to 5.89 percent in March, the biggest monthly rise since November, ChinaBond data show. Hong Kong is luring Chinese companies as interest rates surge in the world’s second-largest economy amid lending curbs and its first onshore bond default. In the three months through March, borrowers led by Cnooc Ltd. and Dongfeng Motor Group Co. agreed offshore loan margins that averaged 227 basis points more than benchmark rates, down from 254 a year earlier. “The trend for offshore borrowing in Hong Kong is likely to continue this year,” said Pedro Cheung, the head of corporate finance at Bank of China Ltd. (Hong Kong). “China’s onshore borrowing costs have increased and liquidity is relatively tight.” Average interest margins in China for dollar-denominated loans were at 276 basis points in the first quarter, 49 basis points higher than the Hong Kong equivalent, data compiled by Bloomberg show. The rate increased from an average 246 basis points in the fourth quarter of 2013. Ten mainland borrowers are

Central Hong Kong banks enjoys sweet days

currently syndicating US$3.6 billion of facilities in Hong Kong. They include China Hongqiao Group Ltd., the nation’s largest nonstate aluminium producer, which is marketing a US$700 million three-year amortizing loan. Legend Holdings Corp. is syndicating a

US$300 million-equivalent threeyear bullet facility via offshore unit Right Lane Ltd. Premier Li Keqiang said in March that financial leverage is making the economy’s outlook more complex as the government reins in excessive borrowing to achieve this year’s 7.5

Key commodities scary stockpiles Cotton and rubber have struggled this year in Asia as the market frets over the high stockpiles

otton and natural rubber appear to have little in common, other than being agricultural commodities, but both are currently hostage to developments in China. Both commodities have struggled this year in Asia as the market frets over the high stockpiles of cotton and rubber in China, and questions the strength of the world’s second-largest economy. Benchmark rubber futures in Tokyo closed on Tuesday at 234.3 yen (US$2.26) a kilogram, down almost 15 percent since the start of the year. Cotton futures on China’s Zhengzhou Commodity Exchange ended Tuesday’s session at 18,245 yuan (US$2,939) a tonne, down 9 percent from the peak so far this year of 20,060 yuan on February 24. The weakness in China-traded cotton futures hasn’t yet been matched by the global benchmark ICE contract, which ended on Tuesday at 92.07 U.S. cents a pound, up 8.7 percent since the start of the year. However, the U.S. cotton futures are down 2.2 percent since the closing high of 94.11 cents a pound on March 25. Part of the reason global cotton prices are starting to struggle is that

the outlook for imports by China is dimming as authorities ramp up sales from domestic stockpiles. China’s imports of cotton slumped 35.5 percent in the first two months of 2014 compared with the same period last year, dropping to 538,542 tonnes. Arrivals from number two supplier, the United States, were particularly hard hit, plunging by 47 percent. China, the world’s top consumer of cotton, will offer 200,000 tonnes a week of higher-quality, imported fibre from state stockpiles as part of moves to cut the state reserves. China is shifting from a buying scheme to a subsidy support system as part of efforts to cut a stockpile that the International Cotton Advisory Committee estimated at 12.8 million tonnes, more than half of the global total of 20.04 million tonnes. With China offering some of its stockpiles of imported fibre for sale, which is preferred by spinners as it’s of a higher quality than domestic cotton, the chances are China’s imports will continue to slump. While imports may not drop to zero as the stockpile sale price is still likely to be higher than the cost of buying from overseas, the huge quantities being offered will

Rubber plantations profits worries many southeast

April 3, 2014

Greater China

trail companies shunned

to 4.84 percent on March 27 in Shanghai, the biggest daily rise since Jan. 20, according to a weighted average compiled by the National Interbank Funding Center. A higher rate indicates tightening liquidity.

Opportunity window

percent growth target. The People’s Bank of China, which engineered a cash crunch in June to spur deleveraging, withdrew more funds from the banking system last month. The seven-day repurchase rate, a gauge of interbank funding availability, jumped 95 basis points

35.5 percent China’s imports slump Jan-Feb year to year

Asia countries

“Offshore loan pricing is still attractive,” said Kim Jin, a Shanghaibased vice president of syndications at Westpac Banking Corp. “Many Chinese companies are aiming to lock in low prices for medium- and long-term funds while there’s still a window of opportunity.” Cnooc, China’s biggest offshore oil and natural gas explorer inked the quarter’s largest offshore borrowing in February with a US$2 billion oneyear term loan. The facility paid 75 basis points more than the London interbank offered rate, two people familiar with the matter said, or less than a third of China’s average loan margin in the first quarter. China Resources Power Holdings Co., a unit of conglomerate China Resources National Corp., last month completed a HK$7.8 billion (US$1.1 billion) five-year term loan that priced at 153 basis points above the benchmark rate. Loans to mainland companies by Hong Kong banks surged 33 percent to HK$3.6 trillion, or 19.7 percent of lenders’ assets, at the end of 2013, according to Hong Kong Monetary Authority data. That compares with HK$2.7 trillion, or 16.2 percent of their assets, a year earlier, the data show. “The expansion of the sector’s credit exposure to mainland Chinarelated business remains a challenge, and banks should continue to manage conservatively the credit risks,” the regulator said in its Financial Stability report last month. Bloomberg News

serve to put downward pressure on global prices. Similar to cotton, the market for natural rubber is concerned about high levels of Chinese inventories. Chinese natural rubber imports have grown sharply in the first two months of 2014, rising almost 35 percent from the same period last year to 534,065 tonnes. However, this is most likely a result of buyers taking advantage of lower prices, as it seems that the bulk of additional imports have served only to boost stockpiles. Inventories at the port of Qingdao are currently around 340,000 tonnes, up from around 290,000 tonnes in January, according to traders. Warehouses monitored by the Shanghai Futures Exchange saw inventories drop to 181,134 tonnes on the week to March 28, but this is still close to the 2014 peak of 207,658 tonnes for the period ending February 7. Inventories have been trending higher since May 2011, when they stood at just 10,291 tonnes. Additionally, there are reports of Chinese rubber importers defaulting on cargoes as prices for tyre-grade rubber dropped to multi-year lows, although quantities have yet to be established. The drop in rubber prices has prompted the top three producers, Indonesia, Thailand and Malaysia, to consider action to limit supplies in a bid to drive up prices. The three, which account for 70 percent of global natural rubber output, last tried this in the 201213 season, but were only successful in lifting prices for a short period. Reuters

Tough year for copper firms Copper companies will face another hard year due to dampen demand and pressure prices of the metal

ey copper firms in China are expected to face another tough year as a sluggish global economy and tapering growth at home dampen demand and pressure prices of the metal. Jiangxi Copper Co Ltd and Yunnan Copper Co Ltd, China’s No.1 and No.4 producers, as well as Shenzhen Zhongjin Lingnan Nonfemet Co Ltd - a major lead and zinc producer that also makes copper - posted either profit falls or losses in 2013. China’s production of refined copper rose 13.6 percent to 6.84 million tonnes in 2013, faster than the 11 percent rise in 2012, according to official data, with excess capacities pushing prices down. The company, based in the ore-rich south-western province of Yunnan, swung into the red with a net loss of 1.5 billion yuan (US$241 million), blaming the dismal performance on huge falls in copper prices. LME copper prices, which lost around 7 percent last year, fell about 5 percent in March, logging the biggest fall since June due to weak demand from China. China’s consumption of copper, used for making products such as electrical wires and roofing, is seen slowing to 6.7 percent in 2014 after exceeding 10 percent last year due to an inventory pile-up, brokerage Kim Eng Securities said. “We find that the tight credit conditions will weed out low value

6.84 million tonnes

2013 refined copper production activities leading to more sustainable and less volatile copper consumption growth ahead,” Kim Eng Securities said in a note after Jiangxi Copper’s results. Last week, Jiangxi Copper said that its first-quarter net profit was expected to drop by at least half from the yearago period. Three-month copper prices in London and Shanghai hover at current levels or continue to fall. The profit warning came as its net profit fell by almost a third to 3.57 billion yuan in 2013, logging the second straight year of profit falls. China’s second-largest copper producer Tongling Nonferrous Metals Group Co Ltd has delayed the release of its annual results to April 30 from March 8 due to the massive workload of auditing and preparing the report, it said in February. Reuters

COFCO adds up another acquisition The move follows COFCO’s purchase of a 51 percent stake in Dutch peer Nidera in late February to gain direct access to South American grain

he company will pay an initial US$1.5 billion to buy a 51 percent stake in Noble Group Ltd’s agribusiness, its second acquisition in less than two months as China’s largest grain trader seeks to strengthen its position in global markets. The two companies plan to form a joint venture, in which Noble will retain a 49 percent stake, that will link COFCO’s grain processing and distribution business with Noble Agri’s grain origination and trading business, Noble said yesterday. The move follows COFCO’s purchase of a 51 percent stake in Dutch peer Nidera in late February to gain direct access to South American grain and oilseed supplies in a deal that valued Nidera at US$4 billion including debt. It also comes after a wave of consolidation in the world agribusiness sector has shrunk the number of potential acquisitions for COFCO to bulk up enough to compete globally with larger rivals ADM, Bunge Ltd, Cargill Inc and Louis Dreyfus Corp, known as the ABCDs. Noble shares jumped as much as 5 percent in early trading in Singapore, outpacing a 0.3 percent gain in the

benchmark Straits Times Index. The stock is up 11.7 percent so far in 2014, compared with a 1.3 percent rise in the index. Reuters reported in early March that the deal, which will help China develop a powerful agricultural trading house, was under discussion.. “Noble Agri’s supply chain management system and origination capabilities complement COFCO’s logistics, processing, and distribution network in China,” COFCO chairman Frank Ning said in a statement. A consortium led by China-focused private equity firm Hopu will join COFCO as minority investors in the acquisition and will hold a third of the investment vehicle that is making the purchase. Noble’s agricultural division generated US$15.5 billion revenue last fiscal year, accounting for about 16 percent of the company’s total. COFCO and Noble still need to obtain regulatory and shareholder approval for the deal and the final price will be adjusted so that when completed the payment will be equivalent to 1.15 times 51 percent of the audited book value of Noble Agri for the 2014 financial year. Reuters

April 3, 2014

Asia Australia’s QBE faces class action Australia’s QBE Insurance Group Ltd is facing a class action lawsuit from shareholders over its profit downgrade made late last year, which will weigh on the insurer’s annual general meeting due yesterday. Law firm Maurice Blackburn said yesterday it intended to file a class action against QBE over its profit downgrade for the fiscal year 2013, asking shareholders to join in the lawsuit. QBE said on December 9 it expected to post a US$250 million net loss for the year due to write-downs and unexpectedly large claims after weak crop prices hit its U.S. operations.

NZ commodity prices lower Prices for New Zealand’s main commodities eased fractionally in March, the first fall in four months, as a decline in some dairy prices offset gains in meat prices, ANZ Bank’s commodity price index showed yesterday. The index fell 0.1 percent compared with a 0.9 percent rise in February, which was a record high. It was 13.8 percent higher than a year ago. In New Zealand dollar terms, the index fell 2.6 percent for the month, the first drop in five months, to be 11.6 percent higher than a year earlier.

Australia job vacancies rise Job vacancies in Australia rebounded last quarter as expanded openings in the private sector offset continued weakness in government employment and added to signs that hiring is stabilising. Yesterday’s data from the Australian Bureau of Statistics showed total job vacancies rose 2.6 percent in the three months to February in seasonally adjusted terms. Vacancies of 142,700 were still down 4.4 percent on the same period of 2013, but that compared to a fall of 16 percent in the November quarter. Vacancies in the private sector rose 2.7 percent in the February quarter.

VW could erect factory in Thailand Europe’s largest automaker, has applied to set up its first car plant in Thailand. The Wolfsburg, Germany-based manufacturer is seeking to participate in a government program offering tax exemptions for automakers investing at least 6.5 billion Thai baht (US$200 million) in local manufacturing, said the people, who asked not to be identified because a final decision has not been made. Annual production must reach at least 100,000 cars in the fourth year after starting operations, and manufacturing must begin by 2019, in order to receive the incentives.

Price index chokes BoJ Japan’s fragile business sentiment barely improves in the three

orporate Japan expects the consumer price index to be just 1.5 percent higher in a year from now, a Bank of Japan tankan survey found yesterday -a sign of how difficult the central bank could find meeting its 2 percent inflation goal by the April 2015 target date. The survey outcome overlays Tuesday’s tankan findings that Japan’s fragile business sentiment barely improved in the three months ending March, and the corporate outlook is now considerably weaker than when Japan raised its sales tax in 1997, the last hike before Tuesday’s increase to 8 percent from 5 percent. The findings stem from a BOJ decision to poll companies’ inflation expectations, starting with its March tankan survey, to give central bankers more information to guide monetary policy. Besides a forecast for just 1.5 percent consumer price inflation in a year, the survey also showed that firms expect consumer prices to be rising by a modest 1.7 percent three years and also five years from now, suggesting the BOJ’s two-year plan for guiding consumer prices to 2 percent is overly ambitious and may require additional measures. The BOJ has kept monetary policy steady since deploying an intense burst of stimulus in April last year, when it pledged to double base money via

All eyes on Bank of Japan due to inflation evolution

aggressive asset purchases to accelerate consumer inflation to 2 percent in two years, but speculation could increase that the BOJ will have to ease policy further. “It is a little painful for the BOJ that the numbers did not come closer to 2 percent,” said Shuji Tonouchi, senior

fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities. “The BOJ may have to be more flexible with the time element of its price target. We expect the BOJ to ease policy again in the second half of the year.” The new data on corporate price

Basel III delays benefits for Bank of India Governor extends Basel III capital requirements

eserve Bank of India Governor Raghuram Rajan gave lenders more time to implement Basel III capital requirements, cutting this year’s financing needs by more than 50 percent amid a surge in bad loans. The RBI on March 27 extended the transition period for meeting the tougher global banking regulations by a year to March 31, 2019, as lenders’ ability to tap capital markets is impacted by deteriorating asset quality. Yields on top-rated 10- year bonds of Indian banks have averaged 9.56 percent since December 31 versus 9 percent in 2013. That compares with 2.55 percent on financial debt globally, Bank of America Merrill Lynch indexes show. Rajan is tolerating weaker bank finances just as bad debt is ballooning in Asia’s third-largest economy. Almost 1 trillion rupees (US$16.7 billion) of bank loans are at risk of turning sour in India, Fitch Ratings Ltd. said in January, and state-owned lenders face the most pressure to raise fresh funds, considering private sector

lenders are relatively well capitalized. “The extra year not only gives banks an opportunity to plan better to conform to Basel III capital norms but also helps investors get accustomed to these new instruments,” N.S. Venkatesh, the head of treasury at IDBI Bank Ltd. said “It also aligns India closer to the internationally agreed date for full implementation.”

Capital injection The government on February 17 pledged to inject 112 billion rupees of common equity into state-run banks this fiscal year to bolster risk buffers after bad loans climbed to a six-year high. The capital infusion will help lenders boost credit as more borrowers default in an economy forecast by the government to grow 4.9 percent in the year ended March 31, compared with the previous decade’s 8.3 percent annual average rate. “The RBI’s deferral of Basel III implementation has significantly diminished the need for Tier 1 capital

Swiss city of Basel, cradle of the agreements that

by government banks for the 20142015 financial year,” said Ananda Bhoumik, a Mumbai-based senior director at India Ratings & Research Pvt., Fitch’s local unit. “They now only need 144 billion rupees as against 356 billion rupees prior to the extension.” The money from the government should also help lenders make up

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April 3, 2014

Asia

predictions

Second nuke powerless

months ending March

expectations showed that retail prices are expected to rise gradually, which could be discouraging for some central bankers. The survey also showed that companies expect the prices the will charge for their goods will be rising an average 1.1 percent one year from

now, 1.8 percent three years from now, and 2.1 percent five years from now. The survey showed that large manufacturers expect the prices for their goods to be only 0.2 percent higher a year from now, while small manufacturers expect these prices to be 1.2 percent higher one year from now. The difference is because many large manufacturers expect prices overseas will remain flat, while small manufacturers’ expectations are based more on the outlook for domestic demand, fixed-income strategist Tonouchi said. Growth in the world’s thirdlargest economy slowed in the final quarter of last year as the effect of the government’s reflationary policies began to fade. Analysts expect the economy to contract in April-June due to a pullback in consumption after the tax hike, before returning to moderate growth in following quarters. Bank of Japan Governor Haruhiko Kuroda has played down the need for additional quantitative easing, but many economists forecast the central bank will ease policy later this year as it will be difficult to reach the BOJ’s price stability target in fiscal 2015. A Reuters poll showed analysts expect the BOJ to ease again by July, despite reassurances by the bank the economy can withstand the tax hike without further stimulus. Reuters

Indian lenders

Kyushu Electric in talks with state-owned Development Bank of Japan for financial backing

apan’s Kyushu Electric Power Co has become the second nuclear generator to seek state support this week as reactors across the country remain idled and industry losses mount three years after the Fukushima nuclear disaster. Kyushu Electric, a regional monopoly that supplies power in southern Japan, said yesterday it was in talks with state-owned Development Bank of Japan for financial backing. On Tuesday, a source said Hokkaido Electric Power Co, which supplies Japan’s northernmost island, had asked the same bank for financial assistance. All of Japan’s 48 nuclear reactors have been shut down, pending stringent safety checks, since a massive earthquake and 13-metrehigh (43-feet-high) tsunami smashed into the Fukushima nuclear complex in March 2011, triggering a meltdown in the world’s worst nuclear crisis since the 1986 Chernobyl disaster. With no schedule for nuclear restarts, utilities have been forced to burn expensive fossil fuels for power generation. They are set to report a third year of annual losses. “We are in consultations with the Development Bank of Japan about receiving capital support, but since

nothing has been decided I am unable to comment further,” said Kyushu spokesman Yuki Hirano. Kyushu Electric is asking the bank to buy 100 billion yen (US$965.5 million) of preferred stock in the company, a source said. The lender is considering the request, which was reported earlier by the Nikkei business newspaper. If both Kyushu Electric and Hokkaido Electric get the aid, they would join the stricken Fukushima plant’s operator, Tokyo Electric Power Co (Tepco), in receiving government bailouts. Other nuclear operators may be forced to turn to the government, the Nikkei said on Tuesday. In 2012, the government took a controlling stake in Tepco. The company still relies on constant taxpayer handouts to pay compensation to those affected by the nuclear disaster, which forced 160,000 people from their homes. Shares in Kyushu Electric were down 4.6 percent in mid-morning trade, after falling as much as 6.5 percent, versus a 1.1 percent rise in the benchmark Nikkei 225. Kyushu Electric has estimated a net loss of 125 billion yen for the year ended March 31. Reuters

Japanese chipmaker in deals with Apple The company could sell its display control chips unit to the US brand

worries Indian authorities

for any shortfall in Tier 1 capital requirements and reduce the need for hybrid-security sales, Bhoumik said.

Higher coupons The average cost of insuring the bonds of five Indian banks against default for five-years has fallen 146 basis points to 235 basis points on March 31 from a more than one-year high in September, CMA data show. The Basel Committee on Banking Supervision unveiled rules in December 2010 aimed at boosting the capital of lenders after the 2008 global financial crisis exposed inadequate buffers. Tier 1 capital can absorb balance sheet losses without resulting in the bankruptcy of a company and consists of common stock as well as securities with equity-like characteristics, such as perpetual notes.

The RBI is targeting a minimum ratio of Tier 1 capital to risk-weighted assets of 7 percent by the end of March 2019, and a total capital ratio of 9 percent. Stricter loss-absorption provisions also announced by the RBI on March 27 may mean investors will now demand higher coupons on banks’ non-equity instruments, making them a more expensive way to raise money, Crisil Ltd., the Indian arm of Standard & Poor’s, said. Higher premiums will be sought partly to compensate for the risk coupons won’t be paid, considering banks can now only pay interest out of current year profits and not retained earnings, and partly to compensate for the risk principal may be lost, due to a new provision which prohibits banks from opting for a temporary write-down in the event of a breach. Bloomberg News

enesas Electronics Corp said it was considering selling a unit that designs display control chips, and media reports said Apple Inc is in talks to buy it for about 50 billion yen (US$483 million). The unit, Renesas SP Drivers, designs chips for Apple’s iPhone, according to industry sources. Renesas, which has been restructuring to focus on automotive chips, owns 55 percent, Sharp Corp owns 25 percent and Taiwan’s Powerchip owns the remainder. The reports sparked a surge of as much as 19 percent in Renesas shares to their highest in more than three years. Japanese companies are key suppliers of screens and related components for Apple’s iPhone and iPad, and will be among the producers of larger screens for the new iPhone 6 that is widely expected to be released this autumn, supply chain sources said. Renesas, formed from struggling chip divisions of three Japanese electronics conglomerates, has launched a drastic restructuring to focus on its core business supplying chips for the automotive sector after racking up nearly 650 billion yen in net losses during eight years in the red. The company received a 150 billion yen bailout from a government-led fund and its major customers in

KEY POINTS Renesas restructuring to focus on auto business Apple interested, could pay 500 bln yen -Nikkei Renesas shares jump nearly 20 pct to 3-year high

September to counter an earlier bid by U.S. private equity firm KKR & Co LP . The Nikkei said a transaction for the unit was expected to be completed by summer and that Sharp was also likely to sell its stake if Apple requested it. The U.S. company “apparently wants to meld” the design of core display components into its overall product development as image quality becomes a crucial selling point for smartphones, the Nikkei said. Reuters

April 3, 2014

International Solid U.S. job growth expected U.S. job growth likely accelerated in March as the winter’s gloom started to lift, providing the strongest signal yet that economic growth was shifting into higher gear. Nonfarm payrolls probably increased by 200,000, the largest gain in four months, according to a Reuters poll of economists. Hiring advanced by 175,000 jobs in February. The unemployment rate is expected to have dropped one-tenth of a percentage point to 6.6 percent. The anticipated gain in employment would take job growth back near the 204,000 monthly average that prevailed through the first 11 months of 2013.

World Bank to help poorest countries The World Bank plans to increase its funds for development by around 40 percent per year over the next decade.

European ministers take sobering look at social impact of crisis The economic crisis in Europe has put 6 million people out of work and driven others into poverty, according to a think-tank study looking into the social impact of the slump that was examined by EU finance ministers for the first time on Tuesday. As host, Greece, the first euro zone state to be bailed out during the crisis, put the study on the agenda of a regular meeting of EU finance ministers that has more usually focused on appeasing financial markets with tough spending reforms.

US investors accuse 12 banks Twelve large banks have been sued in a consolidated antitrust lawsuit by investors who claim they conspired to rig prices in the roughly US$5.3 trillion-a-day foreign exchange market. Investors, including the city of Philadelphia and a variety of pension funds and hedge funds, accused the banks of conspiring since January 2003 in chat room discussions, instant messages and by email to manipulate the WM/Reuters Closing Spot Rates. The private litigation was filed on Monday night in U.S. District Court in Manhattan; it combines several lawsuits that have been filed since November.

Bouygues maintains Vivendi’s offer Bouygues SA, which is competing with billionaire Patrick Drahi to acquire Vivendi SA’s SFR unit, said an earlier version of its proposal remains valid along with a subsequently revised offer. In a statement today, Bouygues said its March 12 bid, made up of 11.3 billion euros (US$15.6 billion) in cash and a 43 percent stake in the entity created from a merger of SFR with Bouygues Telecom, as well as a revised proposal giving Vivendi 13.15 billion euros in cash and a 21.5 percent stake in the new company, are both valid through April 25.

SEC against high-speed trading The U.S. Securities and Exchange Commission has active investigations into high-frequency trading, the head of the agency said on Tuesday. “We currently have a number of on-going investigations regarding various market integrity and structure issues including high frequency trading and automated trading,” SEC Chair Mary Jo White said before a Congressional hearing. The disclosure comes a day after the Federal Bureau of Investigation confirmed it has been conducting a wide-ranging probe into high-speed trading for months, an outgrowth from the yearslong crackdown on insider-trading.

Jim Young Kim explained further plans for World Bank

im Yong Kim, World Bank Group president, said the development lender will focus on 10 countries -including India, China, Bangladesh and Democratic Republic of Congothat are home to 80 percent of the world’s extreme poor. These residents live on less than 1.25 a day. The bank’s commitments should grow to more than US$70 billion a year in the next decade, from about US$45 to US$50 billion now, Kim said. Reuters first reported part of the funding boost in February. “The world’s development needs, of course, far outstrip the World Bank Group’s abilities to address them,” Kim told the Council on Foreign Relations. “But we can do much, much more.” Kim spoke ahead of next week’s meetings of the World Bank and the International Monetary Fund, where the bank will formally present its increased financial capabilities. The growth in the bank’s lending and investment guarantees, alongside

planned staff and budget cuts, are part of a massive reorganization Kim launched after he assumed his post nearly two years ago. He hopes the reforms will make the institution more relevant, especially to middleincome countries. Middle-income countries, including the bank’s five-biggest borrowers -China, Brazil, Turkey, India and Indonesia- can rely more on private funding and bilateral loans as they grow. But the bank is betting these countries, which still have deep pockets of poverty, will want access to its experience in areas like the environment and infrastructure. It also offers lower loan rates than the private sector.

Not just textbooks Kim said the planned lending increase was partly aimed at meeting greater demand from its biggest borrowers. The bank raised its loan limits to allow each of those countries to borrow an extra US$2.5 billion in total. “This is an extremely positive sign for us, in the sense that even the largest middle-income countries, China, India, Brazil, continue to want to do business with us,” Kim told reporters. The bank said there will be expansions in all of its major branches, including a US$100 billion boost in the fund for middle-income countries, known as the International Bank for Reconstruction and Development. The bank’s private sector arm, the International Finance Corporation, will boost annual commitments to US$26 billion a year. And the Multilateral Investment Guarantee

Agency, which provides political risk insurance, aims to increase its guarantees by 50 percent over four years. “If we are going to help developing countries end extreme poverty and boost shared prosperity, we have to provide them with more financial resources, more solutions-based knowledge, and help leverage more private sector investment,” Kim told reporters ahead of his speech.

Lending quality Nicolas Mombrial, head of the Washington branch of Oxfam, said the bank should also focus on improving the quality of its lending rather than just pushing money out the door. “This will be bad news for poor people if World Bank social and environmental standards are not improved,” he said in a statement. Only 40 percent of World Bank employees believe the institution prioritizes development results over the number and volume of transactions, according to a survey obtained by Reuters. A year ago, Kim committed the bank to the twin goals of eliminating extreme poverty by 2030 and boosting the incomes of the poorest 40 percent of the population in each country. He has also said the bank should be more selective, focusing on “bold” projects and technical solutions where it can make the biggest difference. The World Bank must meet its goals amid greater competition for development funds and a tight budget. The World Bank in October announced it was cutting US$400 million from its budget over three years. Reuters

US bank fraud laws relax The U.S. Supreme Court appeared poised to limit the scope of a federal criminal law that targets people who defraud banks.

ruling along those lines could prevent federal prosecutors from using the law to crack down on routine fraud, such as the use of altered checks to purchase merchandise. In the future, prosecutors might have to show the defendant intended to defraud a bank in order to win a conviction using the law. Cases of fraud that do not include intent to defraud could still be prosecuted under state laws or potentially via another federal law that imposes shorter sentences. The case will not affect the ability of prosecutors to use the law to go after direct schemes to defraud financial institutions. The nine justices heard a onehour oral argument on Tuesday in an appeal brought by Kevin Loughrin, who was convicted in Salt Lake City, Utah, of six counts of bank fraud for stealing checks he then altered so he could purchase merchandise at Target

Corp stores. Loughrin told police he intended to buy items using the checks, then return them for cash refunds. He was charged with using altered checks totalling US$1,184. During the argument a majority of the justices appeared to agree with Loughrin’s lawyer that the federal government’s interpretation of the law was too broad but it was unclear exactly what limits the court would set. The court’s conservative members, in particular, are often concerned about expansive federal power at the expense of states. “This is a sweeping interpretation you’re offering us,” Justice Anthony Kennedy told Anthony Yang, assistant to the U.S. Solicitor General. Under the government’s approach, federal prosecutors could pursue cases involving “every fraudulent transaction in the economy, whenever a check is involved,” Kennedy added. Between 2006 and 2010 the

Supreme Court will take a decision by the end of June

government sought to prosecute nearly 3,000 cases using the statute, according to court papers. In Loughrin’s case, the Denverbased 10th U.S. Circuit Court of Appeals upheld his conviction in a March 2013 ruling. Loughrin did not appeal his related convictions for identity theft and possession of stolen mail. A decision is expected by the end of June. Reuters

April 3, 2014

Opinion

A healthy path to Chinese wires consumption growth Business

Leading reports from Asia’s best business newspapers

The Asahi Shimbun

Martin Feldstein

Professor of Economics at Harvard University and President Emeritus of the National Bureau of Economic Research.

Despite the ancient capital’s draw as a popular sightseeing spot, foreign tourists have had few options for luxurious places to stay in the central part of the city, outside of Japanese hotels. Catering to this growing market, high-class foreign hotels are starting to dot the distinctive Kyoto landscape. In February, RitzCarlton Kyoto, operated by U.S. hotel chain operator Marriott International Inc., opened in a location on the banks of the Kamogawa river. The site is also close to Kyoto’s traditional entertainment area of Gion.

The New Zealand Herald The Commerce Commission has deferred its call on whether to lay proceedings against three banks involved in its interest rate swaps investigation as it is assessing new information in the cases. The regulator said in December that it anticipated filing legal action against ANZ, ASB and Westpac by March this year over their sales of interest rate swap contracts to rural customers. These swaps, according to the commission, are a financial derivative product that allows a borrower to manage the interest rate exposure on their borrowing.

Inquirer Business Rizal Commercial Banking Corp. plans to beef up its capital by over US$200 million to support future growth through a mix of equity and debt offerings this year. In a disclosure to the Philippine Stock Exchange on Tuesday, RCBC said it would issue peso-denominated debt notes that would qualify as tier 2, or supplementary capital, under the Basel 3 capital adequacy ratio (CAR) framework. The bank is looking to raise P5 billion, or about US$111 million, from the offering of subordinated notes, RCBC executive vice president John Thomas Deveras said in a text message.

The Strait Times The Ascott, CapitaLand’s serviced residence business unit, has acquired a Hong Kong serviced residence for HK$545 million (S$88.8 million). The 55-unit property will be rebranded as Citadines Mercer Hong Kong in the third quarter of 2014, the company said in a statement on April 2. The serviced residence in Sheung Wan on Hong Kong Island, is next to the Central Business District. It is also close to the bustling Soho area, and near well-known Lan Kwai Fong Street.

AMBRIDGE – China’s economic policymakers want to shift the country’s production away from exports and heavy industry, and to increase the share of consumption in GDP. A relatively simple institutional change to encourage healthcare insurance could do much to promote the latter goal. A higher level of consumer spending would raise the average Chinese family’s standard of living, a primary component of what China’s leaders now call the “Chinese Dream.” Faster growth in consumer spending would also reverse the recent slowdown in GDP growth, providing the extra demand needed to create employment for the millions of Chinese who are leaving agriculture and the millions more who are graduating from the country’s universities. Consumer spending in China now accounts for just 36% of GDP, about half the consumption share of GDP in the United States and Western Europe. This remarkably low level reflects both the small share of household income in total GDP and the high rate of household saving. Chinese officials hope that higher household incomes will boost consumer spending, as the tightening labour market causes wages to rise and as urbanization shifts workers from low-productivity farm work to higher-wage employment in the cities. Reducing the share of income that Chinese households save could also raise consumer spending faster and more easily. The high rate of household saving in China reflects many factors, including the risk of job loss and the lack of a reliable

government pension program. But the main reason why Chinese households save so much of their relatively low salaries is to ensure that they have the funds to meet high medical costs if a family member requires surgery or other inpatient care. People save so much because insurance is so inadequate. The government’s universal health-care insurance is very rudimentary, and private health insurance is not widely available. So households accumulate large amounts of cash as a hedge against the possibility that those funds will be needed some day for hospital care. Private health insurance would make such excessive saving unnecessary by pooling relatively small premiums from individuals –or from their employers– and then paying out to those who are hit with large medical bills. Thus, by encouraging the purchase of health insurance by individuals or employers, the Chinese government could reduce significantly the overall household saving rate. Individuals who have such insurance would be better off, because they would not face the risk of large medical bills and would be able to spend more on other forms of consumption. The most direct way to encourage the purchase of health insurance would be to exclude employer payments for such insurance from employees’ taxable income. That has been a very effective incentive for the purchase of private insurance in the United States and Britain. Tax benefits could also be extended to individual purchases of health insurance by allowing individuals to deduct the

The most direct way to encourage the purchase of health insurance would be to exclude employer payments for such insurance from employees’ taxable income

premiums that they pay from their taxable incomes. Tax incentives are now used in China to encourage employer plans for retirement saving. The Chinese government recently modified the tax law to exclude employers’ contributions to employee pension plans from taxable income and to allow the funds in those plans to accumulate tax-free. This taxfavoured employee saving plan is a good substitute for more comprehensive socialsecurity pensions, but it has had the undesirable effect of increasing household saving, rather than increasing consumer spending. By contrast, a similar tax rule to exempt employer payments for health insurance would reduce national saving

by causing employees to substitute health insurance for large personal cash accumulations. If the Chinese government does use this approach to stimulate the purchase of insurance, it should limit the favourable tax treatment to insurance for expensive medical conditions like surgery or the treatment of diabetes. In other words, taxfavoured health-insurance policies should have high deductibles. It is the fear of having to pay for expensive medical conditions that now drives individuals to accumulate substantial cash reserves. And focusing the favourable tax treatment on such major risk insurance would reduce the wasteful distortion to spend more on minor health conditions that do not stimulate household saving and do not need insurance protection. A general expansion of health insurance would also lead to an increase in the provision of hospital services. Private providers will enter the market when they see that insurance has increased demand for such services. And the Chinese government will be able to expand the provision of health services without having to pay for them, because consumers’ insurance will be available to pick up the tab. In short, favourable tax treatment of the purchase of insurance for major medical costs would reduce the national saving rate, increase consumer spending, lower the public’s anxiety about the cost of treatment, and increase the quantity of health care. The sooner the authorities act, the faster the Chinese Dream will be realized. © Project Syndicate, 2014

April 3, 2014

Closing No public tender necessary for TV

Sterne Agee raises junket investor target price

The government does not have to conduct a public tender to source companies to support the transmission of free-to-air television signals, due to time constraints. The news comes from a Chief Executive’s dispatch published in the Official Gazette yesterday, exempting the tendering process “for public interests”. The government previously stated it would set up a wholly-owned company to relay the signals after April 21.

Brokerage Sterne, Agee & Leach, Inc has raised the target price of Nasdaq-listed VIP gaming promoter Iao Kun Group Holding Co Ltd due to its solid rolling chip turnover so far this year. The target price has risen to US$5.5 (44 patacas) from US$5, Sterne Agee said in a note yesterday. Iao Kun, the junket here, registered a rolling chip turnover of US$1.73 billion in February, the best performance since April 2012.

Chile: disaster area Huge earthquake triggers tsunami

major earthquake of magnitude 8.2 struck off the coast of northern Chile late Tuesday, causing five deaths and triggering a tsunami that pounded the shore with 2-metertall waves. Officials said the dead included people who were crushed by collapsing walls or were killed by heart attacks. The government evacuated Chile’s northern coast and President Michelle Bachelet declared the area a disaster zone, promising troops and police reinforcements to maintain public order while damage was

repaired after landslides blocked roads. “We’re leaving with the children and what we can, but everything is clogged up by people fleeing buildings by the beach,” said 32-year old Liliana Arriaza, who was driving away with her three children. The U.S. Geological Survey said the quake was shallow at 12.5 miles (20.1 km) below the seabed and struck about 100 km northwest of the mining port of Iquique near the Peruvian border. Mining in the world’s No. 1 copper producer did

not appear significantly interrupted, but about 300 prisoners took advantage of the emergency and escaped from a female penitentiary in Iquique. About 26 of the women were soon recaptured, authorities said, while security forces fanned out through the area amid reports of power outages and isolated looting. Photos showed Chileans calmly evacuating coastal areas on foot, with policemen helping bundled-up elderly people and some residents loading up vehicles with their belongings. Some schools were being used to shelter people, and

classes were cancelled in most of the country yesterday. LATAM Airlines said it had cancelled some flights to and from Antofagasta, Iquique and Arica in northern Chile. The Pacific Tsunami Warning Center said the quake generated a large tsunami with the biggest wave reported at about 2 meters. The Chilean navy said the first big wave hit the coast within 45 minutes. Early yesterday Chilean authorities cancelled their tsunami warning for most coastal areas.

High alert Iquique is a key port, close to Chile’s main copper mines. The area has been on high alert in recent weeks after an unusual number of tremors, and a series of aftershocks further frayed nerves in the early hours of yesterday. The city is more than 1,500 km north of Chile’s capital Santiago, where the quake was not felt. Seismic Chile has strict tremor-proof construction regulations and most residents stay calm during quakes, which helps to limit harm. Lauding Chile’s initial response to the quake, President Bachelet said in a televised address: “The government will work for as long as necessary to confront this emergency.” The centre-left president, who only returned to power last month, was due to travel to the north yesterday morning. In 2010, at the end of Bachelet’s first term as president, an 8.8-magnitude quake triggered a tsunami that devastated several coastal towns in central-south Chile, a disaster that killed 526 people.

Fishing boats rest on the road after they were removed from the water

Reuters

Prada misses estimate Arts Festival on the way Melco shares jump in HK Prada SpA, known for its luxury handbags, reported a less than 1 percent increase in 2013 full-year profit yesterday, hurt by a continued weakness in European markets. Prada, which also sells Miu Miu, Church’s and Car Shoe branded goods, recorded a profit of 627.8 million euros (US$866.01 million) in the year ended Jan. 31, up 0.3 percent from the previous year. Analysts on average were expecting a profit of 673.58 million euros, according to ThomsonReuters data. Last year’s near-flat earnings are in sharp contrast to 2012, when Prada posted a 44.9 percent increase in earnings. Weak European economies and a crackdown on corruption in China have hurt luxury goods makers, hitting both their traditional markets and their biggest new market. The Hong Kong-listed shares of Prada closed at HK$61.75 on Wednesday, down 10.5 percent so far this year compared with a 3.4 percent dip in the benchmark Hang Seng index.

The 25th Macao Arts Festival (MAF) will set off of May 2. Festival tickets have recorded a high volume of sales and availability is now limited, according to the SAR government. Celebrating its Silver Jubilee this year, the MAF presents a programmed filled with highlights. “MOP - Dance Theatre” is a joint performance by Macau and Poland dancers. The Macau Virtuosi chamber orchestra will present, in Viva Mozart, the complete series of Mozart’s Violin Concerti in three separate sessions, in a salute to the music prodigy. The Macau Chinese Orchestra, under the baton of its Principal Conductor Pang Ka Pang, and with the cooperation of Italian pianist Enrica Ciccarelli and Singaporean violinist Kong Zhaohui, delivers a performance in the concert Reminiscence of the Classics. Led by Macau Orchestra’s Principal Conductor Lu Jia, pipa master Zhang Hongyan and flautist Tang Junqiao cooperate with the Orchestra in Zhou Long’s concert East Meets West.

Melco Crown Entertainment Ltd., the casino venture controlled by James Packer and Lawrence Ho, was the only casino related stock to have a good finish yesterday, 24 hours after data showed better-than-estimated casino revenue in Macau. Melco’s Hong Kong-listed shares rose 1.3 percent to HK$104.20. Macau casino revenue climbed 13.1 percent to 35.5 billion patacas (US$4.4 billion) in March from a year earlier. “Certainly the numbers were decent,” Bryan Maher, an analyst at Craig-Hallum Capital Group LP, said in a phone interview from Minneapolis. “As infrastructure improves, the mass-market players have an easier time getting into Macau.” After a big increased after the data was released on Tuesday, as Business Daily reported yesterday, Sands China Ltd retreated 0.24 percent to HK$63.35 and Galaxy fell 1.24 percent to HK$71.90 a share. All other casino shares in the Hang Seng Index also lost pace. Wynn Macau dropped 1.42 percent to HK$34.70 and SJM Holdings Ltd fell 0.65 percent to HK$22.90.