Macau Business Daily, April 7, 2014 by Business Daily

MOP 6.00 Publisher: Paulo A. Azevedo Number 512 Monday April 7, 2014 Year II

Time Bomb Escalating competition for employees is putting small and medium enterprises on the ropes. An SME association thinks hiring directly from the mainland and Taiwan could keep businesses afloat. Last year, 60 of the Association’s 500 members called it a day and closed their doors. If nothing changes, up to 30 percent of those left might follow suit this year, warns vice-president Daniel Iong Page

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Junket duress Sands China Ltd is increasing scrutiny of junket operations. The objective, a source tells Bloomberg, is to bolster safeguards against money laundering. The American news agency reports that the move might lead to a shakeout among the middlemen who channel twothirds of the betting into Macau. Not worried, it seems, is China Star Entertainment. The owner of Lan Kwai Fong hotel and casino is increasing its presence in the market after offering HK$200 million in loans to a junket operation involved in Sands China’s VIP rooms

Power to the people The mass market continues to shine. According to brokerage firm Wells Fargo, mass gaming revenue is up almost 40 percent in the first quarter of the year. VIP business grew “only” 12.5 percent

James Packer wants Australia to change visa model for Chinese tourists Page 3

Page 5

Desert island discs: malls or logistics? Page 16

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HSI - Movers April 4

Pages 4 & 5

Name

A family affair Apparently incapable of diversifying its offers to tourists, Macau will not be able to attract a different type of visitor says the president of the Macau Travel Industry Council. Andy Wu Keng Kuong tells Business Daily he does not think family hostels are a good solution for low budget visitors

%Day

Hong Kong Exchang

2.92

China Unicom Hong

2.58

Li & Fung Ltd

1.72

CNOOC Ltd

1.69

Tingyi Cayman Islan

1.61

Cheung Kong Holdin

-1.26

Belle International

-1.49

China Merchants Ho

-2.53

China Resources Po

-3.01

Tencent Holdings Lt

-3.93

Source: Bloomberg

I SSN 2226-8294

Chinese banks will have to face stress tests as authorities have noticed too many bad loans being granted lately

A government-owned TV company created to solve the big historical mess of the antenna companies will have a 10 million-pataca start-up fund to dip into in its first year of operations. Almost 50 basic channels will be on the programme menu. CTM will provide equipment and maintenance for 70 percent of the fat cheque

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Pages 6 & 7

Under stress

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April 7, 2014

Macau Airport adds two new restaurants Future Bright Group has opened two new restaurants at Macau International Airport, taking the total number of food & beverage outlets at the airport to six. Good Fortune Kitchen is a quick service restaurant offering Chinese and Asian food, while Food Paradise serves international cuisine with a take-away service.

Macau residents’ deposits down Macau’s resident deposits in February decreased 0.7 percent from the previous month to 447.2 billion patacas (US$55.99 billion), according to the latest figures. Of the resident deposits, pataca deposits and HKD deposits decreased at respective rates of 0.2 percent and 2.5 percent, while other foreign currency deposits grew 2.7 percent, the figures indicated. As for non-resident deposits, the value grew by 3 percent month- to-month to 194.8 billion patacas (US$24.39 billion) in the period, of which public sector deposits in the local banking sector increased by 1.4 percent to 84.6 billion patacas (US$10.59 billion), according to the Statistics and Census Bureau. As a result, total deposits in the banking sector increased by 0.5 percent from the previous month to 726.6 billion patacas (US$90.97 billion) in February, with the shares of pataca and HKD in total deposits standing at 18.8 percent and 41.6 percent, respectively. Xinhua

“Macau affairs” bureau established in Hengqin A bureau specifically engaged in the handling of trade and investment projects from Macau companies in Hengqin, as well as customs and immigration policies between the two territories, was established on Friday, state-run Xinhua Agency reported. The vice-director for the bureau will also be supported by a MSAR appointee, although the director-general of the Administrative Committee of Hengqin Mr Niu Jing said that the choice of personnel had yet to be decided. The concept for the bureau, however, is not particularly novel as Hengqin used to have a body specialised in handling cooperation policies between the island, Macau and Hong Kong.

crime

Caught in the act

udiciary Police announced the arrest of a mainland woman for theft and blackmail. A mainland businessman reported that he was the victim of blackmail and larceny. The accused, a female nightclub “accompanist”, stole the victim’s handbag containing immigration and investment materials, bank credit cards and ID as well as HK$20,000 in cash. She then used the credit cards to withdraw HK$105,000 and continuously texted messages to the victim demanding a ransom of HK$200,000 for the return of the handbag. As she was about to collect the money, Judiciary Police arrested her and retrieved the bag. She claimed that she had gambled and lost all the stolen money. The case is under further investigation.

Govt to resolve mixed TV signals At least 20 million patacas is to be set aside for the operation of a govt-owned company to sustain free-to-air broadcasts Stephanie Lai

sw.lai@macaubusinessdaily.com

government-owned company called “Macau Basic Television Channels, Limited” - is about to be set up to lead the relay of freeto-air broadcasts to local households with most copyright issues already settled, deputy director of the Bureau of Telecommunications Regulations Hoi Chi Leong told media. The company, established with a start-up capital of 10 million patacas (US$1.25 million), is responsible for the negotiation of copyrights for 49 “basic television channels” aired to local households – most being freeto-air broadcasts that they have been receiving via the network of cables from the city’s 14 antenna companies at the moment, as well as paying for signal reception and relaying equipment costs, Mr Hoi said. The bureau’s director stressed that most of the copyright issues related to the basic television channels have already been cleared through government negotiation with various television broadcasters but he was unwilling to disclose the expenses involved regarding the purchase of copyright. Under an agreement signed in August with Macau’s sole pay television service provider, Macau Cable TV Co Ltd, the antenna companies relay Macau Cable TV transmissions to households and the government pays the firm 980,000 patacas a month in return. The agreement will expire on April 21, the same day Macau Cable TV’s 15-year concession to run pay TV service ends. The special agreement signed with the pay television service provider and the antenna companies follows a court judgement in June last year that ordered the government to stop the antenna companies from illegally relaying cable television signals via their hanging cables over residential buildings. According to Mr Hoi on Friday, telecommunications service provider Companhia de Telecomunicações de Macau SARL (CTM) is also to take up the installation for the signal reception equipment and its respective maintenance, costing the government-owned company about 7 million patacas. The 14 antenna

companies, on the other hand, will still maintain their current role of delivering television signals to inside residential buildings via their 34 signal access points. “Now, we have these signal access points all laid underground, although in the short-term the households will still have to rely on the antenna companies’ network of cables,” said Mr Hoi. “The next step is to have these transmission cables all go underground via the use of our fixedline [telecommunication] networks.” “This is the solution that we’ve studied a lot previously and it should be the optimal plan to adopt,” Mr Hoi said on the establishment of Macau Basic Television Channels, Ltd, which has yet to be gazetted. “The major consideration is that we need to ensure that the continuity of the basic television service will not be interrupted after April 22,” the telecom regulator emphasised. “Secondly, this solution also benefits the planning for the triple play service of TV, telecom and internet in future when we can gradually clear up the antenna companies’ [hanging] cables problem.” Mr Hoi further noted that the government would like to see local market conditions mature for the launching of triple play service within 2 to 3 years, while stressing that the basic television channels to be broadcast will not enter into any conflict with pay television service.

Non-profit company According to the bureau head, the budget for the first year of operation for Macau Basic Television Channels, Ltd is 10 million patacas, including the approximately 7 million patacas that goes to CTM for signal reception equipment setting and maintenance costs. That would mean that the government would have to pay at least 20 million patacas to maintain the “basic television service” that local households have been enjoying. Macau Basic Television Channels, Ltd, is slated for only two years operation as it will mainly serve as a transitional arrangement to stabilise

KEY POINTS Govt-owned Macau Basic Television Channels, Ltd set up to maintain current free TV service Market conditions to mature for triple play service “within two to three years” CTM to receive 7 million patacas upon installation and maintenance for signal reception equipment “Basic television channels” not in conflict with pay TV service: govt

the local television market, Legal Affairs Bureau’s director André Cheong Weng Chon stressed to media. “There is a question why we cannot licence the antenna companies to lead the signal reception and relaying job,” said Mr Cheong. “It is because, firstly, a MSAR government-owned company can communicate more effectively than private companies with the broadcasters [over copyright issues] when we have to ensure that the basic television service is not interrupted.” Mr Hoi Chi Leong noted that it is only through government negotiations with broadcasters over the TV channels’ content that the current low cost for residents’ watching of basic television channels can be maintained. Most households are now paying a monthly charge of only about 30 patacas as cable maintenance cost to antenna companies for the freeto-air broadcasts. The MSAR government owns over 70 percent of the company’s shares, while its second major shareholder is public broadcaster TDM. The board members governing the company will be announced later, said Mr Cheong.

April 7, 2014

Macau

Labour: the big threat An SME Association is trying to lure recruits directly from Taiwan and the mainland in the face of escalating hiring competition with casinos. Lack of labour might force the closure of up to 30 percent of the companies Stephanie Lai

sw.lai@macaubusinessdaily.com

ierce competition for human resources and high staff turnover is expected to exacerbate the closure of the city’s small and medium firms, Macau Small and Medium Enterprises Association told Business Daily. About 12 percent of the Association’s 500 member companies – engaged in food and beverage, retail and engineering, or roughly 60 companies of the whole – closed last year primarily because of the twin pressure of insufficient staff to maintain operations and escalating rentals, Association vice-president Daniel Iong said. His Association has calculated the informal estimate updating its members’ status. “Of the remaining members, we expect that 20 percent to 30 percent of them are also facing possible closures this year if they still cannot successfully recruit or overcome the issue of frequent job hopping by staff,” said Mr Iong. “The great pressure on human resources still remains the biggest challenge, and will last from the middle of this year to next year as gaming companies are also snatching employees,” he added. “We’ll strive to enhance our remuneration terms for recruits but still it’s hard for us to compete with the gaming companies, especially when they have started to promise more bonuses or issuance of shares.” Melco Crown Entertainment Ltd (MPEL) plans to lure 8,000 people to work in Studio City and will begin hiring by the end of this year, offering competitive pay and management scholarships. This third casino resort of Melco Crown Entertainment in Macau is scheduled to open in mid-

The government had yet to deliver any effective measures to ease the severe labour shortage issue faced by small and medium companies Daniel Iong, Macau Small and Medium Enterprises Association Vice President

2015, Bloomberg reports. Given the record low unemployment rate, some 1.7 percent in February according to the Statistics and Census Service, Melco Crown faces competition from fellow operators including Galaxy Entertainment Group Ltd and Sands China Ltd in hiring people to fill positions as they expand resorts in Cotai to attract more gamblers. Jobs at Melco Crown Entertainment, controlled by Lawrence Ho and billionaire James Packer, and its rivals may rise 38 percent to 117,000 by 2017 amid a shortfall of workers, according to Morgan Stanley. Meanwhile, to retain workers Wynn Macau recently announced that it will issue shares to its employees and plans to distribute a two-month bonus in July. MGM,

SJM and Sands have also said that they will pay bigger bonuses. Mr Daniel Iong told Business Daily that the government had yet to deliver any effective measures to ease the severe labour shortage issue faced by small and medium companies, which was intensified by the competition with gaming companies. Mr Iong’s Association is heading to Taiwan before the end of this month to conduct a recruitment fair targeting local residents about to graduate from universities there. “What we can do now is to attract as many students as possible to alleviate the human resources problem,” said Mr Iong. “We’ll tell the students the career prospects, the pros and cons, of working in smaller companies and also the casino-resorts. After all, it’s the students that have the bigger

negotiating power now.” Currently, some 4,480 Macau residents study in Taiwan universities, mostly majoring in subjects such as humanities, business administration, engineering and medical studies, statistics from the island’s Ministry of Education reveal. The Association’s vice-president said that around 10 to 20 member companies will join the recruitment drive in Taiwan, offering mostly administrative positions, retail jobs and entry-level positions with smallscale engineering companies and Delta Asia Bank. “The next step for us is that we’ll try a similar outreach as the Taiwan recruitment fair on local students about to graduate from mainland [China],” said Mr Iong. With Bloomberg

Packer advocates new visa model for Chinese tourists City of Dreams co-owner says Chinese tourist conditions should replicate other nationalities’ when visiting Australia

s Chinese tourists become the top income source for his Melbourne and Perth resorts, casino tycoon James Packer would like to see changes in Australia’s visa policy for them. The owner of Crown company and Melco Crown Entertainment’s coproprietor indicated in an exclusive interview with the Herald Sun that Chinese customers are fuelling Australian tourism business and that the Government should act accordingly. Packer indicated that visa requirements, which are far more difficult for the Chinese than those applied to other nationals, are “stupid’’. He also said that 70 nationalities can apply for a visa online,

but not China. A paradox, he complains, since Chinese are the top income source in the tourism sector. “I don’t think we’re in a Cold War anymore,’’ Packer told the Herald Sun, adding that “the dollar’s at 91 cents because of China, not because of America, and we all benefit from that, so let’s not be hypocrites. The visa processing system for Chinese tourists has recently improved but there’s more work to do in this area and each day we waste costs Australia a great amount of tourism dollars. The fact that visas are done in English, not Mandarin, that’s stupid. The fact that they’re not done online, that’s stupid,” he said in the same interview.

jobs. He also suggests Australian authorities put more effort into attracting Chinese tourists.

Government tour

Melbourne Crown casino attracts hordes of Chinese visitors

For the Melco Crown partner, the Chinese middle class is growing at a very fast pace and he sees them as an important part of Australia’s future economy.

He thinks that Australia’s government should make it easier for wealthy Chinese tourists to get travel documents, thus helping generate more Australian

This week, Packer is joining Australian Prime Minister Tony Abbott on his trip to China and Japan, where he expects to deepen the relationship with both countries. Both are the biggest business partners for Australia and the trip is trying to enlarge commercial links and achieve further mutual knowledge. According to the newspaper, Packer will “help as a strategic partner doing business in Macau.” O.G.

April 7, 2014

Macau of junket operators in Macau. Lax rules allow criminals to transform ill-gotten cash into legitimate-looking gambling proceeds from casinos. A Congressional report in October said US$202 billion is laundered each year through Macau. Junkets are more involved in the gambling business in Macau than other parts of the world and aren’t subject to the same regulatory scrutiny as casinos, according to a report from the U.S.-China Economic Security Review Commission, a Congressionally chartered investigative body.

Underground banking

Target: junkets Sands stepping up scrutiny of casino junkets Christopher Palmeri and Vinicy Chan

ands China Ltd is increasing scrutiny of Macau junket operators in a move that may lead to a shakeout among the middlemen who account for two- thirds of the betting, a person familiar with the matter said. Junket operators, who bring wealthy gamblers from mainland China, are being asked to provide more information about their businesses to Sands as the company seeks to bolster its safeguards against money laundering and other wrongdoing, said the person, who asked not to be named because the moves aren’t public. The changes are likely to reduce the number of junket operators working with Sands, the person said. Sands is seeking to meet demands by U.S. regulators and prosecutors. Doing so risks alienating high rollers. At the same time, Sands and other casinos in Macau have stepped up efforts to attract mass-market players on their own, reducing their dependence on the lower-margin junket business. “It is political, it is also financial,” said I. Nelson Rose, a professor at Whittier Law School in Costa Mesa, California, who studies the casino industry. Over the past two years, Las Vegas-based Sands has beefed up the teams that monitor players, employing former Federal Bureau of Investigation agents, regulators

and attorneys experienced in antimoney laundering law.

Nevada oversight Shares of Sands China Ltd. fell 1.1 percent, the biggest drop in a week, to close at HK$63.35 in Hong Kong trading. Parent Las Vegas Sands dropped 2.7 percent to $79.26 in New York. In August, Sands reached an agreement with the U.S. Justice Department to forfeit US$47 million in proceeds from a high-stakes gambler in Las Vegas who was later linked to international drug trafficking, according to a statement at the time. The Nevada Gaming Control Board is also boosting oversight of U.S. casinos’ Macau operations, sending teams more often to monitor Sands, MGM Resorts International and Wynn Resorts Ltd. Each of the three U.S. companies have publicly traded subsidiaries listed in Hong Kong. Sands China is the biggest operator in the market with a 23 percent share in the first quarter, according to Barclays PLC’s investment-banking unit.

More robust Rules in Nevada and other local jurisdictions require regulators to monitor licensees’ activities elsewhere to guard against cross-border violations and damage to the market’s reputation. “Controls are getting more

robust,” Nevada Gaming Control Board Chairman A.G. Burnett said in a telephone interview. “Things are getting much better.” Sands no longer allows international transfers of funds by customers and limits the use of checks or money transfers from business accounts, according to another person familiar with the matter. Sands also restricts the amount of cash customers can withdraw from their casino accounts in a given day, the person said. MGM Resorts said in a statement it limits the use of junket operators to a small number of the total licensed. “Our compliance program is robust and comprehensive,” said Alan Feldman, a spokesman for Las Vegas-based MGM Resorts. Wynn Resorts, also based in Las Vegas, didn’t immediately respond to a request for comment.

Finding gamblers Macau’s casinos have relied on junket operators for years to locate gamblers on the mainland. The middlemen serve a critical role by lending to Chinese players who face curbs on how much money they can bring from home. They also collect gambling debts. The conviction last month of Carson Yeung, an investor in gambling syndicate Neptune VIP Club, for money laundering last month has also shined a light on the activities

Parliamo Italiano Expo? The main topic will revolve around the 2015 World Expo in Milan themed “Feeding the Planet. Energy of life”

he Institute of European Studies of Macau (IEEM) and the Alberque Holy House of Mercy of Macau are organising the 7th edition of Architecture, Culture and Environment (ACE), The

main topic will be about the 2015 World Expo in Milan themed “Feeding the Planet. Energy of life”. In this year’s edition, ACE 7 will be a joint venture between the Politecnico di Milano (Italy), the Universitá

di Palermo (Italy) and University of Saint Joseph Macau. The event will be held 11th April in the Handover Gifts Museum of Macau and is open to registration to all those who want to debate the main topic.

“The main channel for money laundering is in the gaming sector through under-regulated junket operators and their affiliates, which include the underground banking system that supports their operations,” the panel said in the report. Jennifer Shasky Calvery, who leads the U.S. Treasury Department’s Financial Crimes Enforcement Network, said in a September speech at a casino industry trade show operators need to improve their compliance with anti-moneylaundering laws. “There may be a culture within some pockets of the industry of reluctant compliance with the bare minimum, if not less,” Calvery said. “I hope together we can make a cultural change.” On April 2, Geoff Freeman, president of the American Gaming Association trade group, sent Shasky Calvery a letter asking if potential rule making from the regulator would require casino operators to probe customers’ sources of funds. Recent changes in strategy have lessened the role of intermediaries in Macau. Casinos have stepped up efforts to attract mass-market gamblers, who are more profitable, in part because they don’t lead to commissions for the junket operators.

Success Universe Sands said in a January earnings presentation that VIPs, or high rollers, generate two-thirds of Macau’s US$45 billion in gambling revenue and onethird of profit. The company reduced the number of tables devoted to VIPs to 439 in the fourth quarter from 525 in the second. “Casino operators have been building direct connections with their customers and boosting the high-limit mass business in hopes to reduce reliance on junkets,” said Hoffman Ma, deputy chairman of Success Universe Group Ltd., which manages a casino resort in Macau and operates a casino ship. “Junkets are unlikely to be pushed out entirely because casinos rely on them for customer intelligence.”

José Sales Marques, president of IEEM, told Business daily that ACE’s objectives are to exchange points of view and enter into a cultural dialogue with people from different parts of the world, bringing academic and post scholar students together and discussing architecture, as well as finding solutions to how to build sustainable urban structures. “Besides the 2015 Milan World Expo, other topics will concern the sustainability and preservation of buildings with modern, energy saving and eco-friendly materials, and how to build a city and new areas”, said Mr

Bloomberg

Marques. “In this years’ ACE 7 edition, there will be forty to fifty scholars from Italy coming a few days to Macau to exchange their points of view”. The ACE project has become a regular event throughout the years. Initially created for Macau, it has taken the path of internationalisation. ACE1, ACE2 and ACE4 were held in Oct. 2006, May 2008 and September 2010 in Macau, respectively. ACE3 and ACE5, however, took place in Varenna/Lecco, Italy and in Vila Viçosa, Portugal in 2009 and 2011, respectively.

April 7, 2014

Macau

China Star laser shines on VIP junket The firm offers HK$200 million in loans to a junket operation involved in Sands China’s VIP rooms before deciding to buy out the junket Tony Lai

tony.lai@macaubusinessdaily.com

wner of Lan Kwai Fong hotel-casino China Star Entertainment Ltd is increasing its presence in the local casino junket market by offering a HK$200 million (US$25.6 million) loan to a junket to have a better grasp of the operation. China Star said in a filing to the Hong Kong Stock Exchange that its indirect wholly-owned subsidiary, Classic Champion Holdings Ltd, would offer the money to an unidentified junket company that has 23 tables in VIP rooms in Four Seasons Hotel Macao and Venetian Macao. The entertainment firm, chaired by veteran Hong Kong film producer Charles Heung Wah Keung, “is optimistic about the future prospects of the VIP rooms gaming promotion services business in Macau”, the filing said on Friday. The HK$200 million loan can “enable [China Star] to conduct a thorough evaluation of the business performance of the Junket Company for a long period of time before making any decision to acquire the Junket Company,” the filing continued. VIP revenues account for about two-thirds of the

HK$126 billion Rolling chip turnover of past 15 months of China Star junket target

territory’s gaming revenue, which is seven times as much as those of Las Vegas. Latest official data show that gaming raked in a gross revenue here of 102.2 billion patacas in the first quarter of this year, up 19.8 percent from twelve months ago. It is not the first time China Star has expressed an interest in local junket operations. The entertainment firm said in a separate filing on February that it will pay HK$800 million to buy all

shares of Eight Elements Entertainment Ltd, thus controlling VIP business on the premises of Lan Kwai Fong. The conditions of this HK$200 million loan – which has to be repaid in two years at an annual interest rate of 10 percent - forbid the junket company from selling its share to a third party, Friday’s filing noted. According to China Star, the rolling chip turnover of the junket totalled HK$126

billion for the past 15 months into March 2014 in the VIP rooms of the premises controlled by gaming operator Sands China Ltd. The news of China Star’s intensifying interest in the junket comes at a time when Bloomberg reports that Sands China, the local unit of Las Vegas Sands Corp, is increasing scrutiny of Macau junket operators. Sands has requested that junkets provide more information about their

businesses as the company seeks to bolster its safeguards against money laundering and other misdemeanours, Bloomberg quoted a source as saying. The changes are likely to reduce the number of junket operators working with Sands, the person said, while casinos here step up efforts to attract mass-market players on their own, reducing their dependence on the lowermargin junket business. Sands China reduced the number of tables devoted to VIPs to 439 in the fourth quarter of last year from 525 in the second. With Bloomberg News

Mass-market growth triples VIP increase Brokerage Wells Fargo says Macau’s mass gaming revenue grew 39 pct in 1Q while VIPs expanded by only 12.5 pct Tony Lai

tony.lai@macaubusinessdaily.com

he growth of mass-market gaming revenue here more than tripled the pace of the VIP market in the first quarter due to the arrival of more high-spending northern Chinese, claims brokerage Wells Fargo Ltd. The brokerage’s analysts, led by Cameron McKnight, wrote in a client note on Friday that mass gaming revenue here surged 39 percent from the previous year in the first three months compared with a 12.5-percent growth in the VIP market. Mass floors in the territory’s casinos raked in 32.38 billion patacas (US$4.05 billion) in the first quarter, accounting for about 31.7 percent of the 102.2 billion patacas the city garnered from gross gaming revenue, the brokerage’s figures show. Overall gaming revenue expanded by 19.8 percent year-on-year, the Gaming Inspection and Coordination Bureau said.

The continuous growth of mainland Chinese visitors and the improved technology used for the gaming tables is fuelling mass market growth, the brokerage said. “More importantly, we believe that the visitor mix in Macau is improving with an increasing share of higher spending, longer staying, northern Chinese,” Mr McKnight wrote, referring to such visitors as those from Beijing and Shanghai. “We view this positively as it suggests improved transportation infrastructure is finally allowing greater numbers of Chinese from the outer provinces to visit Macau,” he remarked. Official data show the number of mainlander visitors rose by 14.1 percent in the first two months of this year to over 3.4 million, against a growth of only 10.2 percent in the same period of last year. Visitors from nearby Guangdong

…the visitor mix in Macau is improving with an increasing share of higher spending, longer staying, northern Chinese Brokerage Wells Fargo Ltd

province, the city’s largest mainland tourist source, grew by 8.4 percent year-on-year in the first two months of this year, while the Beijing and Shanghai markets expanded by 16.3 percent and 6.1 percent, respectively. Guangdong accounted for 44 percent of mainland visitors in this year’s January-February period, compared with 47 percent a year earlier. In the remainder of the year, Wells Fargo expects the mass market will continue to stay strong, growing at least 29 percent for the whole year while the VIP market will dwindle to a 7 percent increase because of the credit crunch in mainland China. “Based on current China credit growth trends, we expect VIP revenue growth to decelerate to 8 percent in 2Q14 and 3 percent in 2H14,” the brokerage said, adding there was usually a 6-12 month lag between the mainland’s credit situation and Macau VIP results.

April 7, 2014

Macau Brought to you by

HOSPITALITY Mixed trends The number of visitors from the mainland weighs heavily in the figures for packaged tours. If we look at the numbers for this kind of visitor since 2011, the proportion of mainlanders in the total is close to three-quarters, for the full period. China aside, the five major sources of visitors using these travel agencies’ services were Taiwan, Hong Kong, South Korea, Japan and Thailand. The next most important region of origin for visitors on packaged tours is Taiwan, which accounted in the same period for less than 7 percent of the total. Those five regions combined represented less than 20 percent of the total figure. That is, on average, there were 3.7 Chinese visitors for each traveller coming from any of those five places. Contrasting the steady behaviour of flows from the mainland, the plots for the other five countries observed here are noticeably more irregular.

“Family hostels not a good Creating family hostels in Macau is not a good solution for low budget visitors, the president of the Macau Travel Industry Council tells Business Daily. Andy Wu Keng Kuong explains that family hostels will never really offer budget accommodation, as this is almost impossible in Macau considering labour and rental costs. Moreover, he believes if such hostels are operated in a family apartment, they may create serious social problems similar to illegal inns, as the buildings in the territory are very densely packed. In an extensive interview about the tourism situation in the territory, Mr Wu contends it is hard to cater to a different type of visitor, as Macau still only offers gaming and does not offer other types of attraction. Besides, he believes longer-haul destination visitors will only start to come to Macau when the bridge connecting Macau, Hong Kong and Zhuhai is operational, in 2016 Luciana Leitão leitao.luciana@mcaubusiness.com

Photo by Manuel Cardoso

Why are visitors to the territory increasing at such an astonishing rate? It’s because Macau is really becoming attractive to tourists, so they really want to come to visit. Do we have the necessary infrastructure to accommodate these tourists? Macau is getting really big and such an increase in visitors is also due to the transportation in Guangdong that is now getting really convenient for visitors to come to Macau. It’s also the reason why there’s a boost in the number of visitors.

The leader of this pack – Taiwan - registers strong growth for over half of the period, up to the third quarter of 2012; and then figures drop fast for the next three quarters. Since the summer of last year, the number of visitors seems to have stabilised around 60,000 per month. For most of the period shown, Hong Kong figures have been stable around roughly 35,000 visitors. Korea is, in relative terms, the star of the group. Its contribution rose from around 20,000 visitors at the beginning of the period to more than 35,000 visitors in five of the last six months. Conversely, the decline of Japan in this indicator seems to be consolidating; and, for most of the last five quarters it has trailed Thailand, which appears to be consolidating its fourth position in the ranking.

rise in number of Thai visitors on packaged tours in February over previous year

However, as you just mentioned, the majority of our tourists still come from the Mainland, particularly from Guangdong province. Or are we now starting to attract tourists from other destinations? Apart from tourists from Mainland China, there’s an increase in tourists from Korea, Southeast Asia and also Japan. But because of the situation in Thailand, the number of tourists from there has decreased. How about tourists from farther afield, like Europe or the USA? Visitors from the USA and Europe only occupy a small percentage, so if there’s a sudden increase in the number of tourists from Europe and the USA the only reason will be an event held in Macau that they’re attracted to. How can we attract more visitors from these places? We don’t have direct flights from the USA or other countries to Macau, so it’s a barrier to those visitors coming to Macau. They have to stay in Hong Kong first and then travel to Macau, and the cost of the ferry ticket is prohibitive. That’s the reason they’re not attracted to visit Macau. So, to solve this problem,

we have to wait for 2016, when the bridge connecting Hong Kong, Macau and Zhuhai is completed. I believe the number of tourists coming from different places like the USA or European countries will then increase.

We have to wait for 2016, until the bridge connecting Hong Kong, Macau and Zhuhai is completed. I believe that the number of tourists coming from other places like the USA or European countries will then increase

The number of Mainland visitors is increasing but they’re still only staying for one day. What’s lacking in Macau to prolong their stay? Macau is really small and the hotels only provide 28,000 rooms. Still, 80 percent of the rooms are occupied, even if those Guangdong visitors are not staying overnight. So, if they’re enticed to stay more than one day in Macau, it will show we really have a shortage of rooms for tourists. Apart from an insufficient supply of hotel rooms, we also lack venues like theme parks or really large-scale entertainment centres. Macau only concentrates on the

gaming industry and we’re lacking diversity. For example, audiences spend two hours watching the House of Dancing Water show, which prolongs the time they have to spend in Macau. In the future, a few theme parks will open as the hotels develop. By then, the number of tourists will have increased. The number of tourists will increase but will they come from other places and not only from Mainland China? Sure. People from other countries will definitely come to Macau because of the theme parks and the diversions. They won’t just be attracted to the gaming industry; but there are other sites, other reasons to come to Macau, so I believe there’ll be an increase in the number of tourists coming to Macau from other places apart from Guangdong province. The government is currently studying the possibility of creating family hostels to cater to the needs of another kind of visitor. Will this help in some way to address the shortage of rooms? These cannot really help because family hostels can only provide 20-30 rooms - the maximum will be 2,000 and it cannot help. But if more hotels are being built in Cotai they will provide 20,000 rooms for tourists, and these can help. Still, these hotels will only serve a certain type of visitor, mostly high-end. Are the family hostels a solution for catering to the needs of other types of tourist? Family hostels only offer one option for tourists, similar to 3 to 4-star hotels, like some that are in Senado Square that cost MOP500 - MOP600 a night during weekdays; it’s almost the same price as the 3 or 4-star hotels that offer MOP700 a night. Only for

April 7, 2014

Macau

solution” Saturday or Sunday can the family hostel offer a lower price than the 3 or 4-star hotels. The reason that prices in family hostels cannot be lower is that the operating costs are really expensive for Macau. There’s a famous hostel in China called 7 Days Inn that offers tourists RMB100 per night but Macau cannot match that. When you refer to operating costs, are you talking about labour and rental costs? Ten years ago, the attractiveness of Macau was its prices, as these were very low. Macau has developed into a really expensive international city. Rental and labour [high costs] are two problems facing family hostels. If we have something like a bed & breakfast or home stays run by private families, it won’t incur too many operating costs. Wouldn’t that lower prices? Unlike the US, the buildings in Macau are really densely packed, so if people are renting their apartment to tourists, the neighbours will be affected and really serious social problems will arise. It’s not a good solution? No. There are problems with illegal family inns and it’s the same. During Chinese New Year, there was a serious problem of overcrowding in Macau. Does that prove that Macau is not able to cater to many people? I don’t think during CNY the number of Chinese tourists coming to Macau overloaded Macau in a way that it could not handle Macau still had the capability. But, thinking of January and February, the eight percent increase in tourists coming to Macau was still below overload. In Hong Kong, this is a very hot topic of discussion, as the increase in the number of tourists is 20 to 30 percent, which is three times more than in Macau. But is it fair to compare Macau to Hong Kong, considering the neighbouring region has a much bigger area? A two-digit increase in the number of visitors to Hong Kong is really unexpected because it’s not just related to the tourism problem. Transportation, the border gate capacity and other different problems will arise. In Macau, it’s just a singledigit increase but before 2014 I expected there would be only an increase of four to five percent in the number of tourists coming to Macau, so eight percent it is out of my expectations. Why did the number of visitors to Macau increase so much more than what you expected? The increase in number is because Macau is becoming more attractive. During that period of time, many Guangdong residents came to Macau. The roads and streets were really crowded. The government should launch some policies concerning the arrangements of the streets. Transportation was also one of the major problems during that time. What must improve? The most crowded area in the city was actually around Senado

Andy Wu Keng Kuong

Macau is really small and the hotels only provide 28,000 rooms. But 80 percent of the rooms are being occupied, even if those Guangdong visitors are not staying overnight. So, if they’re attracted to stay more than one day in Macau, it will show we really have a shortage of rooms for tourists

Square. The problem can be solved. The whole of San Ma Lo is 100 metres long but the most popular part is only 40 metres, between BNU and Tai Fung Bank. This occurs because taxi and bus

stations are also sited there. To solve this problem, the stations should be moved backwards, so that tourists can use the whole 100 metres. Also, citizens complain that the buses are really crowded and it’s hard to get on them. As for the queues lining up for taxis, seven out of 10 people are heading to the Border Gate. So, if the government can set up shuttle buses from Senado Square to the Border Gate or the ferry terminal directly, it can help alleviate public transportation and taxi station [problems]. You mean a shuttle bus operated by the government? A shuttle bus would be a special number bus, with only a few stops, so tourists and residents can go on different buses. The government can offer the shuttle bus during weekends but not weekdays, or during special holidays, when there’s a large number of tourists coming to Macau. Why do tourists concentrate on Senado Square instead of heading to other points of interest? Senado Square is the centre of Macau and many heritage sites surround it. Also, the government arrangements for transportation are a problem because there are taxi stations located there. The government created a difficult situation and is now trying to arrange a better transportation system to resolve this problem.

About diversifying the source of market, you’ve mentioned the bridge as a way of bringing in different tourists. How about flight connections; should we have more and different ones? In 2016, travelling from Hong Kong International Airport will only take 20 minutes. The bridge can really help to get more foreign tourists. Macau has to equip itself, as it will get more people coming. I don’t think getting more direct flights from foreign countries to Macau can work; for example, if we establish a flight from London to Macau, there will only be one flight. Apart from Hong Kong International Airport, there’s Shenzhen International Airport and Guangzhou Airport. There’s already an LRT from Guangzhou to Zhuhai, and it takes an hour, so from Hong Kong International to Macau, in 2016, it will take only 20 minutes. By then, in order to be more competitive we just have to improve our customer services, and be well equipped for those foreign visitors. You’ve mentioned no more direct flights for long haul destinations are needed. How about for shorter destinations? The existing flights from Southeast Asia are already enough. However, we have to improve the number of connections from Chinese developed cities within the different provinces, like Beijing, Guangzhou and Chengdu.

April 7, 2014

Greater China Temporary restrictions on US pork imports China, the world’s No. 1 pork consumer, has slapped “temporary restrictions” on imports of U.S. pigs to prevent a deadly virus from spreading to its herd, according to a report by Bloomberg citing the Livestock Exporters Association of the USA. The news will probably raise concerns among U.S. farmers who are battling the lethal disease, which has crimped hog supplies and sent prices to record highs. China will not issue more import permits for U.S. pigs until the two countries agree on testing protocol for the Porcine Epidemic Diarrhea virus.

About 2.000 small coalmines to close China will close 1,725 small-scale mines with a total capacity of 117.48 million tonnes in 2014 as part of its programme to phase out low-quality coal production. Smog-hit China has been desperate to reduce coal consumption, a major source of pollutants, including hazardous airborne particulate matter in the country’s cities. Beijing hopes to close old and depleting mines in the east and consolidate output in a series of “coal energy bases” in remote parts of the country, including the vast north-western regions of Inner Mongolia and Xinjiang.

US arrests Chinese trading nuclear devices with Iran A Chinese national and two Iranian firms were charged in the U.S. with conspiring to export devices that can be used in uranium enrichment, the second case revealed this week in a Justice Department crackdown on the proliferation of restricted technology. Sihai Cheng was arrested February 7 while traveling in the U.K., the U.S. said today in a statement. He is being held there pending a June hearing on extradition to face charges in Boston. Iran is among countries including Pakistan and China being aided by networks of people to evade U.S. trade embargoes.

Back to the console game

Stress tests

The end of prohibition on consoles market triggers first TCL console

The large number of bad

CL Multimedia Technology Holdings Ltd. will make a game console in China after the nation lifted a 14-year ban on the devices, challenging competitors including Microsoft Corp. and ZTE Corp. TCL Multimedia’s T2 game player features a joystick that’s compatible with mobile games for Google Inc.’s Android system so they can be played on any TV, the Hong Kong-based company said in a statement. The video-game industry in China will generate about US$10 billion in 2015 revenue, according to PricewaterhouseCoopers LLP estimates. Chinese authorities reversed course in January on a nationwide ban on video-game consoles that was implemented in 2000 to protect youths from perceived corrupting influence. Microsoft and the potential China market entry of devices from Sony Corp. or Nintendo Co. will pose a challenge for TCL, said Christopher Tse, a Hong Kong-based analyst at RHB Research Institute. “It does not have the content base to draw gamers from the Xbox and

Playstation crowd,” Tse said of TCL’s device. “Even though it has secured exclusive titles from Gameloft, I think stronger titles are needed to kick start the platform.” TCL Multimedia shares rose 2.6 percent to close at HK$3.16 in Hong Kong trading today. They have lost 12 percent so far this year, compared with a 3.4 percent drop in the benchmark Hang Seng Index.

he China Banking Regulatory Commission (CBRC) has said it will conduct regional and national stress tests after banks saw a spike in bad loans last year, the Shanghai Securities News reported, reflecting growing

Microsoft, ZTE ZTE, China’s second-biggest maker of phone-network equipment, announced a venture last month with online game developer The9 Ltd. to make a gaming console called the Fun Box. In preparation for the lifting of China’s console ban, Microsoft and BesTV New Media Co., a subsidiary of Shanghai Media Group, formed a US$79 million gaming venture in September. Microsoft didn’t say whether the venture would offer its Xbox console or a new device. TCL Multimedia is one of three listed subsidiaries of TCL Corp., China’s largest maker of liquid-crystal displays, which was founded in 1981. TCL will make the console hardware, to be sold exclusively through JD.com Inc. Gameloft SE will provide games, while China Unicom Ltd. will help develop and operate a dual-screen platform. TCL also announced a series of TCL “Game TVs”. Bloomberg News

[Caption] Beijing financial street has to get ready for

Weibo fights for IPO The company plans to offer 20 million shares for US$17 to US$19 apiece

Zhang Xiaogang sets artist auction record Chinese contemporary artist Zhang Xiaogang’s oil painting titled “Bloodline: Big Family No.3” sold for HK$94.2 million (US$12.1 million), including fees, at Sotheby’s in Hong Kong on Saturday, setting an auction record for the artist. The work, painted in 1995, was last sold at auction in 2008 by Sotheby’s Hong Kong when it fetched HK$47 million. The previous record for Zhang was a work titled “Forever Love,” which sold for HK$79 million at Sotheby’s Hong Kong in April 2011, according to artnet. Zeng Fanzhi’s painting the ’’Last Supper’’ set the record for the most expensive Chinese contemporary.

Pollution limits bolster BHP-Vale venture Samarco Mineracao SA, a joint venture between BHP Billiton Ltd. and Vale SA, sees China’s environmental restrictions and the U.S. shale-gas boom lifting demand for pellets, a less-polluting form of processed iron ore. Steelmakers are demanding a greater share of pellets because of its higher iron content, Samarco Chief Financial Officer Eduardo Bahia said. The premium customer’s pay for pellets over fines is expected to stay at more than US$40 a metric ton. “Iron-ore pellets is a market that is on the upside,” Bahia added.

hina’s biggest microblogging outlet, is seeking as much as US$380 million in an initial public offering, joining a slew of Chinese Internet companies looking to list newly issued shares in the U.S. At the top of the offering range the company would have a market value of about US$3.9 billion, the filing shows. Weibo, based in Beijing, plans to use some of the proceeds from the offering to repay loans to parent Sina Corp. In the first quarter, China-based companies announced more than US$2.5 billion of U.S. IPOs, data compiled by Bloomberg show. JD.com Inc., the Chinese retailing website that just received an investment from Asia’s largest Internet company Tencent Holdings Ltd., has filed to raise US$1.5 billion and Leju Holdings Ltd., an online real-estate company, said yesterday that it is seeking as much as US$212 million in an IPO.

US$3.9 billion

Weibo’s market value forecast

Alibaba Group Holding Ltd., China’s biggest e-commerce company, agreed in April to buy an 18 percent stake in Weibo for US$586 million, and plans to exercise an option to raise that stake to 30 percent, according to the filing. Alibaba is also preparing to go public in the U.S., the company has said.

Weibo’s proceeds from the IPO and Alibaba’s investment will be US$377.2 million, according to the filing. Sina will have 80 percent of the voting power after the sale, while Alibaba will have 15 percent. At US$3.9 billion Weibo is asking for a value of about 21 times 2013 sales of US$188.3 million. Revenue surged to that amount, from US$65.9 million last year, the filing shows. Twitter Inc., the San Francisco-based microblogging service with more than 200 million users, has a market value of US$24.5 billion, or about 30 times sales. Twitter has gained 66 percent since its November debut. Goldman Sachs Group Inc. and Credit Suisse Group AG are managing the offering. Weibo plans to list its shares on the Nasdaq Stock Market under the symbol WB. Bloomberg News

April 7, 2014

Greater China

for banks loom loans push banking authorities to implement stress tests

concerns over credit risk. “All (CBRC) offices, supervisory departments, must organise stress tests of banking institutions in a timely manner so as to analyse the impact of unfavourable situations in individual banks and the banking

system and urge banking financial institutions to make emergency plans,” the regulator was quoted as saying in guidelines sent to banks in March. Chinese banks’ non-performing loan (NPL) ratio rose to 1.0 percent

being stressed

at the end of December, its highest level in two years, the CBRC reported in February. It was unclear, however, to what extent the latest guidelines are a departure from previous practice. “Commercial banks all have to submit stress test results to the local CBRC branch every quarter. The Big Five banks reporting a rise in their NPL ratios probably caused CBRC to put more stress on this issue,” said an executive at a mid-sized bank in Shanghai who is involved in preparing reports for regulators. “Until now I haven’t received a notice from CBRC asking for anything special,” he said. Unlike the stress tests that the U.S. and European central banks conducted in the aftermath of the financial crisis, which were intended to restore investor confidence in western banks, industry observers say the Chinese regulators are unlikely to publicly release results of their tests. A corporate bond default last month and the near-collapse of two high-profile shadow-banking investment products earlier this year were further evidence of growing financial strains afflicting the economy. “Banks should study the risk situation in key regions, focus on certain industries and on important clients,” the paper quoted from the CBRC document. Chinese banks are now dealing with the aftermath of the huge

lending binge those policymakers unleashed to soften the impact of the global financial crisis in 2008. The regulator’s 2014 guidelines also urged banks to curb lending to local government financial vehicles and industries facing overcapacity, including property and steel-trading firms. “In particular, it is necessary to tighten supervision and control of spill over of risk between businesses in and off balance sheets and between the banking and other systems,” the guidelines were quoted saying. The guidelines also warn banks against disguising the true scale of their bad loans by offering distressed borrowers new loans to repay maturing ones. The report did not provide details on how the tests will be conducted, or even whether the CBRC will conduct tests of individual lenders or only of the industry as a whole at the regional and national levels. The CBRC likely lacks the resources to conduct stress tests itself, said May Yan, China banks analyst at Barclays Capital in Hong Kong. Yan expects the agency will continue to rely on banks to conduct their own tests. “It depends on the details and what exactly they test. They’ve been testing on the property market for years, and the banks all come back and say even if property prices drop by 30 percent, it would have a very small impact on asset quality and earnings,” she said. “But that’s not necessarily true because there are second-order effects.” An index of Hong Kong-listed mainland financial shares closed up 0.3 percent on Friday, in line with a 0.2 percent rise in a broader index of all Hong Kong-listed mainland firms. Reuters

Lenovo-IBM agreement observed The Chinese group must convince US that IBM server unit won’t give China back-door access to U.S. secrets and infrastructure

he wrinkle is that the Pentagon, the FBI and the nation’s biggest telecommunications companies buy the IBM servers, according to people familiar with the matter and an analysis by Bloomberg Industries. Use of the servers by the government, telephone networks and other potentially sensitive customers will spark close scrutiny from the interagency group known as the Committee on Foreign Investment in the U.S., which investigates national- security risks of foreign acquisitions of domestic companies. “It’s kind of the perfect storm of issues,” said Anne Salladin, a former Treasury Department official who worked on CFIUS reviews and is now at Stroock & Stroock & Lavan LLP in Washington. “Any foreign acquirer with this kind of asset purchase is very likely to be something that CFIUS would want to take a look at.” Beijing-based Lenovo, which announced the US$2.3 billion IBM purchase January 23, has formally sought approval for the deal from

Any foreign acquirer with this kind of asset purchase is very likely to be something that the Committee on Foreign Investment in the U.S. would want to take a look at

CFIUS, according to a person with knowledge of the matter. Acquisitions of U.S. businesses by Chinese buyers are rising, increasing tension in Washington over Chinese access to U.S. technology. CFIUS reviews can take as many as 75 days.

Briefing officials Lenovo fell 1 percent to close at HK$8.91 in Hong

Kong. The stock has lost 5.5 percent this year after advancing 34 percent in 2013. IBM shares fell less than 1 percent to US$191.77 at the close in New York. Lenovo, which bought IBM’s personal computer business in 2005, has been briefing officials on the deal, pointing out that it won’t have access to the servers because IBM will continue maintenance on

Anne Salladin, former Treasury Department official

IBM servers seems to keep some US government secrets

the equipment, according to a person familiar with the matter. That agreement lasts for five years and could be extended, said the person. The service agreement may help ease the security review by CFIUS, which examined more than double the number of transactions by Chinese investors in 2012 than it did the previous year. Bloomberg News

April 7, 2014

Greater China But it has been something of a surprise that it took until this year for China to make its first official moves to acquire or partner with major trading houses that specialize in the food and feed arenas. Now that it has conducted back-to-back deals to acquire a majority stake in Netherlands-based Nidera and the agricultural unit of Singapore-based Noble, however, trader focus is starting to shift to how this new set-up will impact the global agri-trading industry going forward.

China will depend less on US grain production

Global footprint

Agri market shakes COFCO acquisitions might modify world’s balance in food producer’s market

he largest players in the global agriculture trading industry are likely to be cut out of a growing share of world crop trade following the recent move by China’s trading arm COFCO to acquire majority stakes in Nidera and Noble Group Ltd’s agriculture businesses. By beefing up COFCO’s agricultural product origination capabilities, the Chinese government will be able to cut other third-party traders out of the lucrative purchasing and logistics portion of the supply chain.

And given that China is one of the world’s largest importers of nearly all grains, oilseeds and edible oils this development could emerge as a major threat to the core businesses of the traditional ‘Big 4’ giants of agri trading - Archer Daniels Midland Co, Bunge Ltd and Cargill, and Louis Dreyfus Commodities, which are collectively known as the ABCDs.

Long time coming As China emerged as the dominant trader,

consumer and importer of agricultural staples over the past decade, expectations have risen among the trading community that the country would take steps to establish more direct origination and handling capabilities in the grain and oilseed markets. China’s chief agricultural trading arm COFCO has increased its scope and capabilities over the past few years in order to accommodate the steep increases in imported volumes of a slew of agricultural products.

With Nidera’s wellestablished trading acumen in Europe and South America, and Noble’s extensive port and logistics infrastructure throughout the Americas, Asia, the Middle East and Africa, COFCO has made its intentions clear that it will look to source its crop and food products via a diverse global network. And given the scale of China’s food and feed requirements, taking such a broad approach to agriproduct sourcing is not surprising as it lessens dependence on any one supplier country or region. However, China’s resulting improved diversity in the agriculture import field could prove to be bad news for those firms who have lately been heavily reliant on China for steady demand

in grains and oilseeds. And given that each of the ABCD firms have benefited strongly from China’s aggressive demand requirements over the past decade, each looks set to suffer diminished trading revenues going forward as China steers more of its purchase orders through its own businesses. Not only that, but any downturn in trading activity with China will also reduce each firm’s market intelligence on a major global player, and thereby inflict an intellectual penalty that could prove to be more severe than any downturn in trading receipts. While the U.S. will remain the world’s top producer and exporter of corn and a leading supplier of soybeans, wheat and other products, China’s new trading set-up could mean it depends less on North American suppliers for those commodities going forward. Both Nidera and Noble have developed extensive handling and origination capabilities across South America in recent years, where vast tonnages of corn, soybeans and other crops are grown every year. What’s more, Chinese authorities have taken steps in recent years to approve certain seed traits grown in that region that should foster increased domestic demand South American crops over the coming years. Reuters

Bureaucracy jungle buries soy business in Brazil Chinese projects in Brazil face lengthy delays or never get off the ground

o signs identify a barren field in north-eastern Brazil that was meant to be the centre of one of China’s most ambitious agricultural forays into South America. In 2011, Chongqing Grain Group Corp announced plans to build a soy crushing plant, railways and a giant inland storage and transportation hub to export goods back to China. The total price tag: US$2 billion. Yet today, the company has only managed to bulldoze a 100-hectare area on which the crushing plant might one day stand. Even that project is on hold, though, and shrubs are starting to grow back on the cleared terrain. The stalled plans are an example of the difficulties facing once-promising Chinese investments here. Brazil’s notorious bureaucracy, its slowing economy and a deep-seated mistrust of China’s hunger for land and commodities all appear to explain why the field is still empty. A Reuters investigation last year found that after a rush of investment announcements in recent years, as many as two-thirds of Chinese projects in Brazil face lengthy delays or never get off the ground. The government of Bahia state says the Chongqing Group’s plans are still moving forward - slowly. “It’s just in bureaucratic processes,” said Josalto Alves, spokesman for Bahia’s agriculture department. He said the plant needed approval from a municipal government as well as

environmental licenses. It’s unclear whether Chongqing has abandoned the other elements of the project. Representatives for the company in China and at its subsidiary in Bahia, called Universo Verde, declined repeated requests for comment. Alves said the company is still evaluating infrastructure projects, although other local officials told Reuters that Brazilian companies are likely to build a railway and transportation hub. Margaret Myers, program director for China and Latin America at the Inter-American Dialogue, a Washington-based think tank, suspects the delays are about more than red tape. Chongqing Grain Group originally planned to not only build the plant, but also acquire large expanses of surrounding farmland, according to Brazilian media reports. At the time, Brazilian legislators expressed worries that China was interested in securing as many natural resources as it could, with little benefit to Brazil, one of the few countries in the world with new land available for agriculture. Myers said the Chongqing project was widely perceived as a “land grab.” As negotiations for its terms were underway in 2010, the Brazilian government tightened restrictions on foreign land ownership - a move that officials privately said was mostly aimed at China.

Soya crops project not growing well

Brazil’s slowing economy has also prompted many foreign investors to scale back their projects here. In 2010, Brazil’s economy grew 7.5 percent and some believed it was set to join the ranks of developed nations by the end of this decade. But because of poor infrastructure and a stagnant government reform agenda, the economy has averaged just 2 percent growth since then. Hungry to revive growth, other officials have been much more welcoming of the Chinese. Bahia’s state government spent years wooing Chongqing Group and even has an office in China. China buys the bulk of soy shipped from Brazil and neighbouring Argentina and is Brazil’s top trading partner.

Chinese agricultural companies appear to be changing their approach following recent challenges, however. Instead of controlling the entire soybean production chain, as they aimed to do in Bahia, they have focused recently on acquisitions of existing trading houses. On Wednesday, China’s largest grain trader COFCO Corp agreed to pay US$1.5 billion for a majority stake in Singapore-based Noble Group Ltd’s agribusiness. The purchase followed COFCO’s February agreement to buy a 51 percent stake in Dutch grain trader Nidera, in what was the first major purchase in a trading house by a state-owned Chinese agricultural company. Reuters

April 7, 2014

Asia

Apple loses patent-use bid against Samsung The fight exemplifies how bitterly contested the case is, and how aggressively the companies want to check any advantage their opponent might gain

pple Inc., accusing Samsung Electronics Co. of misleading jurors at the start of a US$2 billion trial over smartphone technology, lost its bid to show jurors how it uses three of five patents disputed in the case. U.S. District Judge Lucy H. Koh in San Jose, California, yesterday rejected the Cupertino, Californiabased company’s claim that it deserved the opportunity after Samsung said Apple wasn’t using the intellectual property. The fight at the outset of the second U.S. trial between the world’s top smartphone makers exemplifies how bitterly contested the case is, and how aggressively the companies want to check any advantage their opponent might gain. The jury in the first trial in 2012 awarded US$1.05 billion in damages to Apple. The smartphone market was valued at US$338.2 billion last year, according to data compiled by Bloomberg. Samsung had 31 percent of industry revenue, compared with 15 percent for Apple, whose share of the market has shrunk as the touch-screen interface has become commonplace and Samsung, LG Electronics Inc. and Lenovo Group Ltd. have introduced lower-cost alternatives. Kristin Huguet, an Apple spokeswoman, didn’t immediately respond to an e-mail after regular business hours seeking comment on the ruling. Addressing the jury in opening arguments on April 1, John Quinn, a lawyer for Samsung, called Apple’s case a thinly veiled attack on Google Inc., whose Android operating system is used in Samsung phones, and accused

Which came first, the Samsung or the Apple?

the iPhone maker of exaggerating how much harm it has suffered from alleged copying of patented functions.

‘Valuable enough’ “Apple admits that three of the five patent claims that it is suing on were not in that iPhone and have never been in any iPhone since,” Quinn told jurors, according to a court filing. “Apple doesn’t consider it valuable enough to even use.” Apple asked Koh to let it show jurors how it uses the three patents and asked her to correct Quinn’s “false statements” and explain the misrepresentations to jurors. Samsung, based in Suwon, South Korea, said in a filing that Apple was required to voice any objection to

its argument at the April 1 opening arguments. “This concludes the matter, and the court can rule against Apple’s motion for this reason alone,” Samsung said. Samsung also said that in pre-trial arguments Apple gave up its right to pursue claims that it uses the patents at issue.

2012 verdict Apple presented mostly the same arguments and evidence on April 1 that the company used in 2012 to persuade the jury to find that Samsung infringed six out of seven patents at issue. Damages were later knocked down to US$930 million after a retrial. This time, Apple claims that 10 Samsung products, including the

Galaxy S3, infringe five different patents. Samsung alleges that nine Apple products, including the iPhone 5 and versions of the iPad and iPod, infringe two patents. Samsung seeks about US$7 million in damages, according to a court filing. Harold McElhinny, a lawyer for Apple, told jurors in his April 1 opening statement that Samsung, not Google, made the decision to use the infringing features to sell more than 37 million smartphones and tablets that violate Apple’s patents. Testimony is scheduled to continue today with Samsung’s crossexamination of Philip Schiller, Apple’s senior vice president of product marketing and a confidant of founder Steve Jobs. Bloomberg News

Vietnam to foster property market Central bank fund will try to help Vietnam’s economy take off

iet nam ’s c entral bank and five staterun lenders are drawing up a loan package to bolster the struggling property market and help spur economic growth. Real estate stocks rose. The program, worth about 70 trillion dong (US$3.3 billion), will “connect investors, contractors and suppliers in construction projects and create conditions for them to cut costs and lower prices, in order to spur sales,” Nguyen Viet Manh, head of the lending department at the central bank, said in a phone interview. The package will be put in place “soon,” he said. The government is trying to bolster an economy that grew 4.96 percent in the first three months of the year, slowing from 6.04 percent in the fourth quarter of 2013. The central bank last month cut its policy rates and said it is stepping up efforts to help businesses and resolve bad

debt, of which a third were tied to soured property loans at the end of 2012. “This will support the market since it can help developers and their contractors to get sufficient

funds to finish their construction projects at lower costs,” said Nguyen Tri Hieu, an economist at Ocean Commercial JointStock Bank in Hanoi. “Banks’ lending to properties was not

so efficient before, which caused losses for lenders, so this loan package could be better,” and liquidity in the market will increase, he said. Beton 6 Corp. led realestate stock gainers today,

surging 6.9 percent, while Pacific Property & Infrastructure Development JSC rose 6.8 percent and Sonadezi Long Thanh Shareholding Co. climbed 5.1 percent compared to a 0.6 percent gain for the benchmark VN Index at close. The dong was little changed at 21,093 against the U.S. dollar.

Bank lending The loan program will allow companies that already have non-performing loans to get new funding in order to finish their projects and eventually pay back lenders, the central bank said in a statement e-mailed today. The program also aims to reduce unsold stockpiles of construction materials and the numbers of unfinished projects, it said. The loans could be expanded to include infrastructure projects, it said. Vietnam’s incipient modern economy will need stimuli to overcome its jammed situation

Bloomberg News

April 7, 2014

Asia US-Japan enter into talks U.S. Trade Representative Michael Froman will travel to Japan for high-level talks in a bid to break a stalemate over market access for American farm groups and autos, his office said on Saturday. Talks about a 12-nation Pacific Rim trade pact have been bogged down as the United States tried to persuade Japan to lower trade barriers. Froman said on Thursday it was time for Japan “to step up to the plate” and open its markets, which will then pave the way for an agreement on the Trans-Pacific Partnership.

Japan taxes passed on to consumer Supermarkets raised prices on top of a new sales tax this week, data showed, in the first sign that retailers feel they have the pricing power to withstand the levy. Prices at 300 supermarkets nationwide were up 0.9 percent from year-earlier levels excluding the tax-hike effect on Tuesday, the day the tax hike took effect, and up 1.5 percent on Wednesday, according to the UTokyo Daily Price Index, a gauge maintained by University of Tokyo. The rise over the first two days shows that the tax increase “is steadily being passed along” to consumers.

Singapore diversifies through The economic planning agency is hoping more firms will follow and Procter & Gamble to take advantage of new technologies

ingapore is hoping that building expertise in high-tech niches such as 3D printing and robotics will let it sustain a large manufacturing sector despite the exit of many labourintensive industries to cheaper bases elsewhere in Asia. In line with government efforts to lift productivity and cut reliance on foreign workers - whose big numbers have made citizens unhappy - Singapore’s Economic Development Board (EDB) no longer courts multinational companies that want to employ many low-cost employees. But it keenly wants to pull in more companies for cutting-edge production.

“The future of manufacturing for us is about disruptive technologies, areas like 3D printing, automation and robotics,” EDB Managing Director Yeoh Keat Chuan told Reuters. The economic planning agency is hoping more firms will follow RollsRoyce and Procter & Gamble to take advantage of new technologies it’s trying to promote, as well as Singapore’s low tax rates and other incentives. Last week, P&G opened a S$250 million (US$198 million) research centre in the city-state and has signed an agreement with Singapore’s science and technology agency giving it access to Singapore’s universities

Secure data

Although many electronics assembling companies moved from Singapore, they still generate 20% of GDP

India changes inflation benchmark The Reserve Bank of India will start using consumer prices instead of wholesale prices as the inflation benchmark for valuing the rupee against other currencies, a move that could make it less tolerant of appreciation by the rupee. The rupee’s value is set by the market, but the central bank tracks its relative value, known as the real effective exchange rate (REER), as a guidepost. Although the bank does not have a target exchange rate, it does intervene in the market to ease volatility.

Mitsubishi recalls Outlander again The company it is recalling over 6,000 Outlander SUV plug-in hybrids in Japan because of three software programming glitches, in the model’s third recall since going on sale in January last year. The 6,517 cars were built between January and November at the company’s Okazaki plant in central Japan. The vehicles may fail to start because of a software bug in the cell monitoring unit which could leave parked cars consuming lithium-ion battery power, Mitsubishi said. Of the recalled vehicles, 4,621 may also stall because of a flaw in software.

and hospital research facilities. Rolls Royce signed a S$75 million deal with one university last year to do research into computational engineering and other areas. The EDB, which has helped drive the island’s transformation from a trading outpost to an economic powerhouse, lured technology companies in the late 1960s and 1970s with incentives and low-cost labour. Operations to assemble televisions and components have gone to Asian countries with much lower wages. However, manufacturing still accounts for about 20 percent of Singapore’s gross domestic product, and the government wants the level to remain 20-25 percent. In rival financial centre Hong Kong, manufacturing makes up about 2 percent of the economy. Singapore is focused on developing a regional manufacturing supply chain, where companies can base labour-intensive work in nearby countries, while engineering and design work is done at home.

And it hosts sophisticated manufacturing. About one-third of the world’s hearing aids are made in Singapore, many by German engineering conglomerate Siemens AG. But for manufacturing in general, “it’s not possible for us to do everything in Singapore,” said Yeoh. “Activities which are much more labour intensive

Australia and Japan rush for free trade pact Australia’s Prime Minister identifies Japan free trade deal as his top priority

ustralian Trade Minister Andrew Robb said substantive issues remained in trade negotiations with Japan as the two nations rushed to conclude a free trade agreement before their prime ministers meeting. “We made progress. There are still a couple of substantial issues we are negotiating and we will meet again tomorrow,” Robb said after a five-hour session with Japanese Agriculture, Forestry and Fisheries Minister Yoshimasu Hayashi in Tokyo on Saturday. Robb described the meeting as exhausting. Hayashi said afterwards that there had been a “frank exchange of opinion.” He said he would report on the progress to Prime Minister Shinzo Abe, who is expected to meet Australian Prime Minister Tony Abbot

in Tokyo on April 7th. Abbott has set the Japan free trade deal as his top priority, promising to drop tariffs on manufactured imports, including Japanese cars, while pushing Tokyo to cut tariffs on agricultural goods, particularly beef. In doing so, say analysts, he risks alienating China and South Korea. Japan is already Australia’s biggest beef export market both in volume and value terms, taking almost a third of all beef exported in 2012, according to Meat & Livestock Australia. Failure by Japan and Australia to secure a pact could help ease U.S. concern that a separate trade deal with Australia before an agreement on the 12-nation Trans-Pacific Partnership will giving Australian exporters better access to Japan than their U.S. counterparts.

“In the short term, Australia gets preferential treatment over the U.S. and America will be under pressure to strike a TPP deal short-term that puts it on a level playing field with Australia,” said Aurelia George Mulgan, a professor of Japanese politics at the University of New South Wales. The United States urged Japan on Thursday to open up its farm and auto markets to overseas competition, with Trade Representative Michael Froman saying Tokyo’s reluctance to lower trade barriers was holding up the TPP. President Barack Obama, who had hoped to complete the TPP by the end of last year, is expected to press the case for an ambitious TPP deal with Abe during a visit to Japan later this month. Reuters

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April 7, 2014

Asia

India kicks off the swerve elections

tech

Voting will take place in nine stages over five weeks

Rolls-Royce

and can’t be sustained in Singapore will need to move out.” He is hoping higher-paid work in sectors such as 3D printing and biologics - making drugs from proteins in cell cultures rather than synthetically - can expand. In the service sector, Singapore wants to develop technologies for e-commerce and big data. The city-state has a target of 2,500 data analytics professionals by 2017. Already, about half of Southeast Asia’s data centre capacity is in Singapore. “That’s not because we have lowcost energy, we don’t, or because our weather is cool, it’s not, but because companies feel very confident about the security of the data residing in Singapore,” said Yeoh, who has led the EDB since 2012. Singapore’s shipyards industry is one that may have to shrink as part of the government’s productivity drive. While it currently employs 120,000 of the city-state’s 5.3 million people, the number of foreign workers versus local is 5-to-1, a ratio the government wants at 3.5-to-1 by 2018. One set of foreigners the government is keen to maintain is top-level executives, as it tries to get more multinationals to set up regional or international headquarters. Last year, the city-state received a boost when General Motors said it would shift a unit that oversees much of its international operations to Singapore from Shanghai, a decade after the company left the island. Reuters

he biggest election the world has ever seen begins today April 7th in a remote backwater of tea gardens and rice paddies, with India looking increasingly likely to embrace a coalition led by a Hindu nationalist to jumpstart a flagging economy. India’s 815 million voters are set to inflict a resounding defeat on the ruling Congress party, led by the Nehru-Gandhi dynasty, surveys show, after the longest economic slowdown since the 1980s put the brakes on development and job creation in a country where half of the population is under 25 years old. Despite misgivings among many Indians about his handling of religious riots in 2002, Narendra Modi, the prime ministerial candidate of the main opposition Bharatiya Janata Party (BJP), has dominated a lengthy, frenetic campaign where parliamentary candidates range from a tech billionaire to a magician. Voting will take place in nine stages over five weeks, kicking off in two small north-eastern states close to Myanmar, then spreading to the frozen Himalayan plateaus, western deserts and the tropical south before ending on May 12 in India’s densely populated northern plains. Results are due on May 16. Assam, one of the lush but underdeveloped states where the election begins, is a rare bastion of support for Congress. But even here some villagers are impatient for change, saying they want highways to replace potholed country lanes so they can sell their crops and fish to markets across India.

Modi seems to be the heading the polls

“We have had some development but the pace is not fast enough. We need the next step ahead,” said Manaspratim Buragohain in the village of Lezai, on the banks of a tributary of the huge Brahmaputra River and surrounded by paddy fields.

“Very savvy” campaign Modi, three-times chief minister of the western state of Gujarat, has run a high-octane campaign, with many rallies even in the south and northeast where the BJP is traditionally weak. Across India, Modi - who will run for the holy Hindu city of Varanasi has vowed to revive a US$1 trillion infrastructure programme, create jobs and help an ambitious, growing middle class whose economic success has sputtered in recent years. “The Modi message has been very savvy,” said Milan Vaishnav of the Carnegie Endowment for International Peace.

“He’s pitching at the Indian middle class - people who are on US$4-10 a day, people who were until recently poor but now can afford consumer goods. Even the poorest people, those below that group, want some of that,” said Vaishnav, an India expert. While Modi has cut red tape and overseen a period of high growth in Gujarat, details of his policy plans, or “Modinomics”, on the national scale remain sketchy. The BJP is due to release its delayed manifesto after voting starts on Monday. The BJP and its allies are forecast to win the biggest chunk of the 543 parliamentary seats up for grabs but fall up to 38 seats short of a majority, according to an opinion poll released this week by CSDS, a respected Indian polling group. The debate in New Delhi is focused on whether Modi can secure a stableenough coalition to push through his agenda. However, Indian elections are notoriously hard to call. Opinion polls in 2004 incorrectly predicted victory for a BJP-led alliance campaigning on its economic record. The centre-left Congress instead swept to power to expand welfare schemes. Congress, now dogged by public anger over the economic slowdown and corruption after a decade in power, is forecast to get around half of the BJP’s tally. The Nehru-Gandhi dynasty has in recent months lost much of its traditional ability to rouse voters, with many unimpressed by its scion Rahul Gandhi. Reuters

Japan repositions pension fund structure The change is aimed at generating higher returns to cope with pension pay-outs for Japan’s rapidly ageing population

S$1.26 trillion public pension fund said it has selected 14 new active managers to supervise its domestic equities investment and added more benchmarks to its strategy. The move by the Government Pension Investment Fund (GPIF), whose asset value exceeds the size of Mexico’s economy, is aimed at generating higher returns to cope with pension pay-outs for Japan’s rapidly ageing population. Prime Minister Shinzo Abe’s government has been pressing the public fund to rely less on lowyielding Japanese government bonds. A panel he has appointed has said the GPIF and other public funds should diversify investments and use more active investment strategies to seek higher returns. The GPIF official said the public fund’s new measures, such as adopting the JPX 400 index as a benchmark and using more active investment strategies, are in line with the panel’s recommendations. The JPX 400 focuses on return on equity (ROE) and corporate governance. Out of 14 newly appointed active managers, only four are Japanese, sharply down from eight domestic managers in the previous line-up. “We closely studied their past

KEY POINTS GPIF allocates small amount of funds in JPX Nikkei 400 Active managers largely composed of foreign firms Only four Japanese managers in active investment GPIF starts investment in J-REIT

Japan’s population is aging at Western countries rate

performances, investment philosophy and management structure. Asset management firms which had unique qualifications topped of our list and many were foreign managers,” a GPIF official said. Consultants began the selection process about a year ago. GPIF said it had started investing both in active and passive investments in J-REIT (Japan Real Estate Investment Trust) and adopted a

“Smart Beta” strategy in its active management investment for the first time. Smart beta is half way between active and passive investing. It aims to follow certain benchmark indices passively but allows investors to tilt weightings themselves towards volatility or momentum, seeking to outperform the main index. The public fund will need several traditional active managers whose

GPIF adopts smart beta in active investment

role will be to work with company managers to seek better value for shareholders, the official said. The GPIF also introduced a fee structure based on performance for some active mangers. It declined to name them. The public fund has started allocating funds to the JPX Nikkei index, but only in small amounts so far, the official said. Reuters

April 7, 2014

International Lagarde says US job numbers fall short International Monetary Fund Managing Director Christine Lagarde said job creation in the U.S. is “not at potential,” as regulatory and policy uncertainties deter some companies from hiring. In an interview with Fox News, Lagarde also urged the European Central Bank to address the euro region’s risk of low inflation and said Ukraine’s government must adopt some of the measures it has pledged to take before receiving IMF money to aid its struggling economy. U.S. payrolls rose 192,000 in March, the Labour Department reported April 3.

JPMorgan to join Emaar IPO JPMorgan Chase & Co. will probably join Morgan Stanley as global coordinator on the initial public offering of Emaar Properties PJSC’s shopping malls and retail business, three people with knowledge of the matter said. The banks were informally hired, though no documents have yet been signed, said the people, who asked not to be named because the information is private. Emaar is also appointing lead managers for the sale, the people said. An official at Emaar who didn’t want to be identified said no advisers have been appointed. Spokesmen for JPMorgan and Morgan Stanley declined to comment.

Barclays to sell retail banking The firm agreed to sell its retail banking business in the United Arab Emirates to Abu Dhabi Islamic Bank PJSC as the U.K.’s second-biggest lender by assets shrinks its business. The transaction is valued at 650 million dirhams (US$177 million), Abu Dhabi Islamic Bank said in a statement to the local stock market today. The lender will offer jobs to all of Barclays’ U.A.E. retail staff, while adding 110,000 customers. The London-based bank plans to eliminate 12,000 jobs to curb costs after fourth-quarter profit declined.

Top cement businesses in merger talks The world’s two largest cement makers, France’s Lafarge and Switzerland’s Holcim, are in advanced talks to merge into a company with a stock market value of over US$50 billion in what would be the industry’s biggest ever tie-up. The discussions, which are likely to draw close scrutiny from European competition watchdogs, are “based on principles consistent with a merger of equals”, the two companies said in identical statements on Friday. They said no agreement had yet been reached and that there was no guarantee of a deal, but there was a “strong complementarity” and “cultural proximity”.

Soros puts Teva over Microsoft Teva Pharmaceutical Industries Ltd.’s surge to a three-year high is creating a windfall for billionaire George Soros after he lifted the Israeli drug maker above Microsoft Corp. to become the biggest holding in his fund. American depositary receipts of Teva rose 7.2 percent to US$53 in New York last week after the U.S. Supreme Court agreed to hear an appeal that may delay generic competition to its top- selling multiple-sclerosis drug, Copaxone, until 2015. Teva has generated 1.6 percent of Soros Fund Management LLC’s average 12 return over the past six months, more than double Microsoft’s 0.75 percent contribution.

Europe’s future energy EU Economic and Monetary Affairs Commissioner Olli Rehn analyses Europe’s present and future economy situation

fter dealing with the sovereign debt crisis, the euro zone must now focus on how to win more business for its manufacturing and services industries and make sure its energy supply is secure, the EU’s top economic official said on Saturday. The euro zone economy is set to start growing again this year after four years of crisis that kept policy-makers busy with unprecedented institutional reform of the single currency area. Over the last four years, the euro zone has created a bailout fund - the biggest lender of last resort in the world. It has sharpened rules to control budgets, introduced debt breaks into national laws and set up a banking union with one supervisor, one set of rules to shut down a bank and money to pay for it. But now that the crisis is over, priorities have to change, EU Economic and Monetary Affairs Commissioner Olli Rehn told Reuters in an interview. “In economic jargon - a move from macro to micro,” said Rehn, who starts a leave of absence from the Commission on Monday to run in the European Parliament elections on May 25. “We have done the macro for the moment - we have stabilised the European economy. Now it is time to focus on strengthening economic competitiveness and entrepreneurship for the sake of job creation,” he said. Reducing the unemployment rate is generally regarded as a big challenge for the EU, but the rate has at least stopped rising. Unemployment in the euro zone went down to 11.9 percent from 12 percent in October 2013 and has been stable at 11.9 ever since. Rehn stressed the need for cutting red tape for businesses, better education and completing work to make all 28 countries of the European Union one big market in which all goods and services can be freely traded and its 500 million people can travel or work. “Instead of institutional wrangling, we have to focus on concrete, practical efforts to strengthen the on-going

Ollie Rehn has been involved in some of the most important UE decisions of the last decade

economic recovery and job creation in Europe,” Rehn said. The urgency of this task is underlined by the rise of nationalistic parties across Europe, which gain their support from people tired of the economic crisis, of the record high unemployment and of the need to bail out countries that got cut off from markets because of excessive spending.

Growth and jobs The EU has more ambitious projects up its sleeve like a euro zone finance minister, a euro zone treasury, euro zone budget or even euro zone bonds, but none of them stands a chance of ever being realised without popular support. Such projects will be on the agenda of EU institutions after this year, but practical issues immediately helping growth and job creation were more important for now.

“It will be an important work stream of the next Parliament and next Commission,” Rehn said. “But we have to identify what the most important issues are for the moment. It is the economic reforms that matter more than institutional wrangling,” he said, noting that the internal workings of the euro zone could be improved. While the EU should stay out of the small issues best solved locally, it could help its companies with big issues, Rehn said. “By big things I mean safeguarding peace and security in Europe which is not an out-dated mission as we have seen unfortunately in eastern Europe in recent months,” he said. “In the medium to long-run, challenges in the case of Europe relate mostly to the economic recovery and energy security which is very topical for many reasons,” he said. Reuters

French Telco market faces major changes The acquisition of Vivendi will reshape the market, which has been experiencing turbulent times

ivendi said it had accepted cable company Numericable’s bid for its telecom unit SFR, which would give Vivendi at least 13.5 billion euros (US$18.5 billion) in cash plus a 20-percent stake in the new entity. The plan, which will be presented to unions and regulators for approval, effectively hands victory to Numericable’s Franco-Israeli backer Patrick Drahi after a fierce monthlong bidding war against fellow billionaire Martin Bouygues, whose family company owns France’s No. 3 mobile operator. The agreed sale of SFR also promises to reshape Europe’s thirdbiggest telecoms market after two years of fierce price competition, triggered by the arrival of low-cost player Iliad in the mobile arena. Despite a sweetened, last-ditch

offer from Bouygues - the outsider in the race but favoured by the French government - Vivendi said on Saturday it had picked Numericable as the better bid in terms of business logic, commitment to preserving jobs, chances of regulatory approval and long-term value. Vivendi also said that Numericable’s bid was “the most balanced” in terms of immediate cash payment and equity, even if Bouygues’ latest proposal actually promised more cash upfront. Numericable had offered 13.5 billion euros in cash, a milestone payment of 750 million euros linked to underlying return on capital expenditure - and a 20-percent stake in the new entity. Bouygues, meanwhile, had as of Friday offered 15 billion euros in cash and a 10-percent stake. “(Numericable’s bid) should

represent a total value above 17 billion euros,” Vivendi said in its statement. Bouygues’ bid as of Friday would have valued SFR at 16 billion euros before cost savings, or 16.5 billion including an “earn-out” clause of 500 million euros if certain targets were met. Bouygues said in a statement following Vivendi’s decision that it had in fact made another sweetened offer Saturday morning for 15.5 billion euros in cash and a 5 percent stake in the combined entity. It insisted that its offer had given “more serious” guarantees on preserving jobs. Numericable was already considered the frontrunner after Vivendi’s board chose it on March 14 for three weeks of exclusive talks. Bloomberg News

April 7, 2014

Opinion Business

wires

Leading reports from Asia’s best business newspapers

Marx and the Mechanical Turk

J. Bradford DeLong

Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research.

The Korea Herald South Korea’s tech giant Samsung Electronics Co. took up more than 20 percent of the world’s market in its top four product lines for the second consecutive year in 2013, data showed Sunday. Industry data showed Samsung’s global market share in its colour TVs came to 21.6 percent in 2013, edging up from 21.1 percent from a year earlier by shipping 53.1 million units worldwide. Samsung also accounted for 27.2 percent of the world’s mobile phone market last year, up 2.1 percentage points from 2012.

After all, in a world of solid farmers, useful craftsmen, dissolute aristocrats, and flunkies, demand for manufactured items and flunkies was limited by how much of each aristocrat could use. Thus, a decline in the number of farmers could produce no outcome other than poverty and widespread beggary. Neither Marx nor the physiocrats could imagine the great many well-paid things that we could find to do once we no longer needed to employ 60% of the labour force in agriculture and another 20% in hand spinning, handloom weaving, and land transport via horse and cart. And today, the optimistic view is that those with excess wealth will continue to think of lots of things for everyone else to do to make their lives more convenient and luxurious, and that the ingenuity of the rich will outstrip the supply of labour by the poor and turn the poor into the middle class.

Jakarta Globe Indonesia should step up its efforts in improving access to financing that may help micro, small and medium enterprises, or SMEs, achieve their full potential, according to the Asian Development Bank. In its inaugural Asia SME Finance Monitor, the ADB noted that while some improvements had been made in SMEs’ access to financing, much more could still be done, particularly from the non-banking sector. “Most of Asia’s smaller firms are faced with difficulties in obtaining finance,” said Noritaka Akamatsu, deputy head of ADB’s office of regional economic integration.

The Phnom Penh Post Cambodian fishery exports rose slightly during the first three months of the year, according to a report by the Ministry of Agriculture, Forestry and Fisheries. The report, which was released yesterday, says that fish exports reached 4,800 tonnes in the first quarter, a year-on-year increase of 6.6 per cent. The export total includes 3,100 tonnes of freshly caught fish and 1,700 tonnes of processed catches. Cambodia earned more than US$3.5 million from fish exports during the period. But experts say the number does not reflect the real potential of the Kingdom’s fishery sector.

The Star For every 1,000 shares an investor had bought in Tan Chong Motor Holdings Bhd (TCM) in 1973 and held it for forty years, he would have pocketed some RM3,005 purely in cash dividends. Apart from cash, the investor would have also got free shares in a Hong Kong-listed company and two other local companies during a de-merger in 1999. This is amidst the tough business environment in the automotive industry where companies producing national cars had for long an advantage over non-national car manufacturers. Tan Chong Motor is one of the oldest listed automotive companies in Malaysia.

ERKELEY – The economist Suresh Naidu once remarked to me that there were three big problems with Karl Marx’s economics. First, Marx thought that increased investment and capital accumulation diminished labour’s value to employers and thus diminished workers’ bargaining power. Second, he could not fully grasp that rising real material living standards for the working class might well go hand in hand with a rising rate of exploitation – that is, a smaller income share for labour. And, third, Marx was fixated on the labour-theory of value. The second and third problems remain huge analytical mistakes. But, while Marx’s belief that capital and labour were substitutes, not complements, was a mistake in his own age, and for more than a century to follow, it may not be a mistake today. Think of it this way. Humans have five core competencies as far as the world of work is concerned: · Moving things with large muscles. · Finely manipulating things with small muscles. · Using our hands, mouths, brains, eyes, and ears to ensure that on-going processes and procedures happen the way that they are

supposed to. · Engaging in social reciprocity and negotiation to keep us all pulling in the same direction. · Thinking up new things – activities that produce outcomes that are necessary, convenient, or luxurious – for us to do. The first two options comprise jobs that we typically think of as “blue collar.” Much of the second three options embody jobs that we typically think of as “white collar.” The coming of the Industrial Revolution – the steam engine to generate power and metalworking to build machinery – greatly reduced the need for human muscles and fingers. But it enormously increased the need for human eye-ear-brain-hand-mouth loops in both blue-collar and white-collar occupations. Over time, the real prices of machines continued to fall. But the real prices of the cybernetic control loops needed to keep the machines running properly did not, because every control loop required a human brain, and every human brain required a fifteen-year process of growth, education, and development. But there is no iron law of wages that requires technologies of power and matter manipulation to advance more rapidly than

technologies of governance and control. The direction of technological progress today is toward moving very large parts of both the blue-collar and white-collar components of overseeing on-going processes and procedures from humans to machines. How many of us can be employed in personal services, and how can such jobs be highly paid (in absolute terms)? The optimistic view is that those, like me, who find ourselves fearing the relative wage distribution of the future as a source of mammoth inequality and power imbalance simply suffer from a failure of imagination. Marx did not see how the replacement of textile workers by automatic looms could possibly do anything other than lower workers’ wages. After all, the volume of production could not possibly expand enough to reemploy everyone who lost their job as a handloom weaver as a machine-minder or a carpetseller, could it? It could, but Marx’s mistake was not a new one. A century earlier, the French physiocrats Quesnay, Turgot, and Condorcet did not see how the share of the French labour force employed in agriculture could possibly fall below 50% without producing social ruin.

The direction of technological progress today is toward moving very large parts of both the blue-collar and white-collar components of overseeing on-going processes and procedures from humans to machines.

But, given the rapid development of technologies of governance and control, the pessimistic view deserves attention. In this scenario, pieces of option three remain stubbornly impervious to artificial intelligence and continue to be mind-numbingly boring, while option four – engaging in social reciprocity and negotiation – remains limited. Welcome to the virtual sweatshop economy, in which most of us are chained to desks and screens – so many powerless cogs for Amazon Mechanical Turk, forever. © Project Syndicate, 2014

April 7, 2014

Closing Multi-billion dollar cement merger

Ship runs aground off Hong Kong

The world’s two largest cement makers, France’s Lafarge and Switzerland’s Holcim, have agreed the terms of a merger that would create a company with a stock market value of around US$55 billion, a source close to the situation said on Sunday. The companies are due to communicate officially on the proposal today and have already begun to address possible competition concerns that would arise from the tie-up, the source added.

A German container ship ran aground off the coast of Hong Kong as monsoon winds caused rough sea conditions. The vessel Hansa Constitution run aground off the residential district of Pok Fu Lam on the western side of Hong Kong Island. There were no reports of casualties or water leaking into the ship, and there is no danger of the vessel sinking, according to the Hong Kong police. The extent of damage to the ship is unclear.

A shopping centre too far? Macau businesses debate whether city should adopt Hong Kong’s inclination for shopping malls and hotels on artificial island serving HK-Zhuhai-Macau Bridge Tony Lai

tony.lai@macaubusinessdaily.com

acau businessmen are divided on whether the city should follow in the footsteps of Hong Kong’s inclination to include commercial elements on the artificial island serving the border checkpoints of the delta bridge. Real Estate Association of Macau president Chong Siu Kin suggests that Macau’s administration study whether hotels and shopping malls can be built on the Macau-Zhuhai artificial island abutting the Hong Kong-Zhuhai-Macau Bridge. “If shopping malls are set up on the artificial island, these can help divert tourists from the city’s dense tourist spots and alleviate the operating pressure of the small-and medium-sized enterprises with lower rents on the island,” he said. But the success of the facilities on the island depends on whether they can attract tourists, particularly mainlanders – an area the government should study – Mr Chong said. His comments come following repeated pledges by

Initial reclamation works on the Macau island were completed in November

Hong Kong Chief Executive Leung Chun Ying this year to study the possibilities of building commercial facilities on Hong Kong’s artificial island off the bridge. The HK$83-billion (US$10.64-billion) bridge, slated for opening in 2016, has four artificial islands with one designed for border checkpoints for Hong Kong while the other has border terminals for Macau and Zhuhai. The artificial island for the two places spans more

EU warns France The top conservative candidate for European Commission president and the head of the German Bundesbank have come out against granting France more time to cut its deficit, warning such a move would set a dangerous precedent for other EU states. Jean-Claude Juncker, the former prime minister of Luxembourg and long time head of the Eurogroup forum of euro zone finance ministers, said in Berlin that France should not receive “special treatment” again after it was given two extra years to reach deficit targets only last year. France, whose deficit stood at 4.3 percent of gross domestic product (GDP) in 2013, has signalled it wants to renegotiate the existing deadline of 2015 for bringing it down to 3 percent. French Finance minister Michel Sapin is due to travel to Berlin today to make the case for more leeway. “France must stick to the same rules as Cyprus, as Malta, as all the others,” Juncker, the centreright candidate for the top job at the European Commission after EU parliamentary elections in May, told reporters at a congress of Chancellor Angela Merkel’s Christian Democrats (CDU) in Berlin. Reuters

than 216,000 square metres of the sea to the south of Zhuhai’s Gongbei. But Jack Chan Wai Chi, managing director of Global Logistics Ltd, thinks that shopping malls and hotels might not be the best idea. “Macau’s situation cannot be compared with Hong Kong’s as our artificial island is managed by both parties – Macau and Zhuhai’s governments,” he said. Which sales tax regime to be applied for the facilities can

affect operations there, said Mr Chan, who is also a member of the government’s Logistics Development Committee. Macau charges no sales tax, while mainland China charges vary from item to item. “Whether tourists visit Zhuhai or Macau, they want to sightsee and shop in the city’s centres rather than the outlying islands unless they offer much cheaper goods,” he said. “It’s more urgent for the city to have a logistics centre

on the island to accommodate the development of the sector after the bridge opens in 2016, helping local industry stay competitive.” The reclamation works of the island for the Macau and Zhuhai checkpoints were completed by November and both administrations will start building infrastructure on the site. The Macau administration, however, has yet to reveal details of plans for the island or a budget for the facilities.

Taiwan speaker to postpone trade pact

Everyone wants mobile payment market

Taiwan Speaker Wang Jin-pyng said he will halt a lawmakers’ review of a trade pact with China until an oversight bill passes, in a concession to students who have occupied the legislature for 20 days over the deal. Wang made the remarks, carried on local television yesterday, before visiting the students protesting what they said was the Taiwanese government’s move to push through the deal without proper review. Wang urged the students to end the occupation, according to Taipeibased broadcaster TVBS. “We see and hear Speaker Wang’s goodwill,” student leader Lin Fei-fan said in comments aired on TVBS. “We’ll discuss the Speaker’s call for us to leave the chamber.” The decision to postpone passage of the trade pact could help reduce tensions with the students, whose demonstrations reflect growing scepticism in Taiwan over greater economic integration with China. The cabinet last week passed a bill to monitor agreements with the mainland, including procedures for public consultations and safeguarding national security, which needs to be passed by lawmakers.

Big retailers are muscling in on the likes of Visa, MasterCard and Google in a fiercely competitive and growing mobile payment market that promises to cut transaction costs and increase customer loyalty. Stores such as British supermarket Tesco and France’s Auchan hope their “digital wallets” - apps which allow users to pay with their smartphones rather than cash or cards - will also give them more comprehensive data about customers’ shopping habits than ever before so they can target advertising. They are joining a crowded market - banks, card companies and tech firms like Google and Apple are all entering the mobile payment business, each hoping their app will become the industry standard. eBay’s PayPal, well established in e-commerce, is also experimenting with the technology. The global market for mobile payments is forecast to grow about threefold by 2017 to some US$721 billion worth of transactions, with more than 450 million users, according to research firm Gartner.

Bloomberg

Reuters