Macau Business Daily, May 14, 2014 by Business Daily

MOP 6.00 Closing editor: Sara Farr Year III

Number 538 Wednesday May 14, 2014

Publisher: Paulo A. Azevedo

Discount bonanza

Once casino merchandise and inexpensive meals were the norm. Today, come-on packages have gone upscale with everything from luxury hotel rooms to fine dining to free gaming play. Promotional budgets are skyrocketing, with some resorts increasing spend by 50 percent last quarter Page

www.macaubusinessdaily.com

Credit where Getting stronger credit’s due More credit cards entered into circulation at the end of March. Cash advances in Q1 hit MOP192.3 million. Dual-currency credit cards are the main driver behind an increase in yuan credit cards; whilst official figures show that most people used credit cards denominated in patacas

Bloomberry Resorts Corp expects at least 10 percent annual growth in gaming volume as its Solaire Resort & Casino in Manila brings in more high rollers from Asia Page

Brought to you by

HSI - Movers May 13

Page

Name

%Day

China Resources Lan

5.29

China Overseas Land

3.81

Sino Land Co Ltd

3.36

PetroChina Co Ltd

2.78

Cathay Pacific Airwa

2.18

China Life Insurance

-0.74

Tingyi Cayman Islan

-0.90

China Unicom Hong K

-0.97

Li & Fung Ltd

-1.10

Want Want China Ho

-1.31

Source: Bloomberg

I SSN 2226-8294

No to the compensation Show me the money: buyers More legislators speak out against the bill which advocates a generous welfare package for outgoing principal officials but political scientists expect the bill will get through regardless Page

Some buyers from the corruption-tainted luxury home project La Scala may still press for legal proceedings to demand compensation from the developer despite the offered refund Page

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May 14, 2014

Macau

Dynamic diversification key to programming progress TDM wants further cooperation with Portuguese-speaking countries and to diversify its content

ublic broadcaster TDM, who this year celebrates its 30th anniversary, wants to further firmer cooperation with Portuguesespeaking countries and diversify its content. “One of the aims already implemented is to strengthen and broaden cooperation projects with television stations in Portuguesespeaking countries,” the company’s president Manuel Pires is quoted as saying by Portuguese news agency Lusa. This aim has gone beyond just being an intention into a “concrete action and project” within the company, which makes TDM “a platform for the exchange of programming between CCTV and other television stations in mainland China and television stations in Portuguese-speaking countries,” Mr Pires said, adding that the same is true for agreements between news agencies in Portuguesespeaking countries. Other than being just a platform, TDM, which has six television channels and two radio stations, wants to diversify its content in order to meet the government’s aim of transforming Macau into an

“international tourist destination.” “It’s very important that we play a dynamic role,” Mr Pires said, adding that “the gaming sector has great preponderance and is the biggest contributor to the money in the public coffers. We all agree with that. However, we all also agree that other sectors need to grow, to gain strength, and TDM can play a role.” As such, the company has to “think of making room for new cultural and entertainment content,” he said. This could open up the doors to young locals who wish to pursue a career in cinema or television, Mr Pires said as an example, emphasising that there will be more effort put into documentaries. In addition, he said the public television broadcaster should have a “more active” role and increase its own production. One of the problems TDM faces is the lack of space, having requested the government to grant it a 40,000 square metre plot of land about two years ago. This would include a ‘campus’ housing all departments under one roof because currently the television and radio station are in different parts of the city. TDM’s budget for this year is 230

million patacas (US$28.8 million) and it employs 680 staff. Of these, 60 work on the Portuguese channel at both the television and radio stations. This number does not include cameramen, technicians and administrative staff. “There have been big changes in the company,” Portuguese-channel director Joao Francisco Pinto said, adding that there has been “a great evolution” within the company to meet current changes in society. Concurrently, TDM was the first in Macau to offer a regular media service in English in May 2003, during the SARS outbreak. The aim of the service was to inform residents who could not speak either of the two official languages of the current situation. “We recognise that as a public broadcaster we need to be able to reach everyone, including the dozens of thousands of migrant workers and expats who live in Macau,” Mr Francisco Pinto said. Currently, the English department at TDM produces the daily news, a weekly talk show, and will soon start producing more of its own production targeting migrant communities, he added.

More yuan credit cards Dual-currency credit cards are the main driver for an increase in yuan credit cards

ore credit cards entered into circulation at the end of March, representing a 1.8 percent increase from the previous quarter to 767,939. Official figures released yesterday by the Monetary Authority show that the majority of cards in circulation were in patacas, accounting for 543,715 of the total and representing a growth of 1.7 percent, followed by yuan at 143,924, a growth of 2.8 percent. Hong Kong dollar credit cards totalled 80,300, registering a growth of 0.8 percent.

MOP192.3 million cash advance turnover in Q1

Government surplus hits 46.2 billion in Q1 Macau recorded a surplus increase of 16.6pct over the first three months of 2013

he government has recorded a surplus of 46.2 billion patacas in the first quarter of the year, up 16.6 percent over the same period last year. According to official data released by the Finance Services Bureau, the amount corresponds to 72.6 percent of the total forecast for this year. Total revenue until April

amounted to 57.1 billion patacas, up 17 percent year-on-year. According to the figures, the execution rate of the total budget authorised for this year was 40.4 percent, with government spending totalling 10.9 billion patacas. Direct taxes totalled 49.7 billion patacas, of which direct taxes from gaming comprised 48.4 billion,

an increase of 19.2 percent more than that recorded in the first three months of the year. The government’s current public investment plan - known by its Portuguese acronym PIDDA – calls for 194.4 million patacas, with an execution rate of 1.3 percent, a 54.1 percent drop compared to that of the first quarter in 2013.

According to the figures, the number of pataca-credit cards increased by 12.4 percent, while Hong Kong dollar cards increased by 10.8 percent. Yuan-currency credit cards, however, registered the biggest increase at 27.9 percent, ‘mainly driven by a 27.9 percent growth of pataca-yuan [credit] currency cards,’ the Monetary Authority said. At the end of the first quarter this year the limit on credit cards granted by banks here reached 14.6 billion patacas, up 4.8 percent over that of the previous quarter. Credit card receivables amounted to 1.7 billion patacas, while the rollover amount totalled 540.2 million patacas, accounting for 31.6 percent of credit card receivables. In the first quarter of the year, credit card turnover decreased 4.9 percent quarter-on-quarter to 3.8 billion patacas. Cash advance turnover was 192.3 million patacas, accounting for 5 percent of the total credit card turnover. Credit card repayments, in which payments for interest and fees are included, increased 7.9 percent from the previous quarter to 4.1 billion patacas.

May 14, 2014

Macau

Footing the bill still contentious Political scientists expect the bill on the welfare package for outgoing principal officials to be approved despite the opposition of several legislators Tony Lai

tony.lai@macaubusinessdaily.com

ore legislators weighed in against part or all of the bill for the welfare package of outgoing principal officials but political scientists expect it will still be approved by a Legislative Assembly packed with government supporters. The controversial bill - which is now undergoing discussion by an Assembly standing committee can only realistically be derailed if enough public pressure mounts on the administration, says one analyst. Legislators Kwan Tsui Hang and Ella Lei Cheng I voiced their opposition in a letter to the committee yesterday on the raising of one-off compensation for outgoing officials without a civil service background to 30 percent of their monthly salaries from 14 percent. ‘The government has not revealed any reference or scientific data for this adjustment and the extent of this raise is also unacceptable,’ they wrote. The bill has caused a local controversy in the past few weeks. The original version said that all outgoing major officials such as secretaries and the Chief Executive were entitled to a one-off compensation based on 30 percent of their monthly salary. This arrangement, however, sparked criticisms from the public and even Chief Executive-appointed legislators. The administration took a step back on April 29 – two days before the annual Labour Day protests by grassroots activists and residents on May 1 - saying that the raise to 30 percent only applies to officials without a civil service background in order to attract more professionals to the public sector. The ratio for officials serving as civil servants in the past remained at 14 percent, the government added at the time in a statement.

Guinea-Bissau minister’s body expected to arrive home tomorrow

he body of Guinea-Bissau’s infrastructure minister Rui de Araújo Gomes is expected to arrive in the country’s capital tomorrow, according to Portuguese news agency Lusa. “We have contacted the funeral home and the body should be sent on Wednesday [to-day],” Malam Becker Camara, a delegate of the Forum for Economic and Trade Cooperation between China and Portuguese-speaking countries, is quoted as saying. The Guinea-Bissau minister was in the territory to attend the 5th

However, the amended bill still does not satisfy the pan-democratic duo – legislators Ng Kuok Cheong and Au Kam San – or Assembly members José Pereira Coutinho and Leong Veng Chai from the Macau Civil Servants Association. All asked the government to conduct a public consultation before pressing on with the bill, failing which they said it should be scrapped.

“But the bills were still able to be approved.” “The government probably considers it has enough votes on hand [for the welfare bill],” he added, referring to the fact that a bill in general can be approved by getting more than half of the nods from the legislators. Less than half of the legislators, or

CE election But Eilo Yu Wing Yat, programme coordinator of government and public administration at the University of Macau, and Lou Shenghua, coordinator of a similar programme at the Macau Polytechnic Institute, believe the bill can still get approval in the Assembly, controlled by indirectlyelected and Chief Executive-appointed legislators. “There were cases in the past where legislators from the so-called ‘opposition party’ [like Mr Ng and Mr Au] and a few from the proestablishment camp voiced [concerns] against certain bills,” said Mr Yu.

The government probably considers it has enough votes on hand [for the welfare bill] Eilo Yu Wing Yat, UM programme coordinator of government and public administration

14 members, of the 33-seat Assembly are directly-elected, while the rest are either indirectly elected or government appointed, and often regarded as listening for government orders. “Whether the government will take another step back [on the welfare bill] depends on any strong reaction from the public,” said Mr Lou. “This year is relatively more politically sensitive as the Chief Executive election will be held.” Chief Executive Fernando Chui Sai On has already expressed his wish to run for another five years for the territory’s top job once his five-year tenure ends on December 19. “But I don’t think the public sentiment [against the bill] is that strong at the moment as not many people voiced this out during the May 1 protest,” Mr Lou added. Chan Chak Mo, an indirectlyelected legislator who heads the Assembly committee discussing the bill, said earlier this month that most committee members accept the amended bill and would strive to put the bill up for final reading this month.

Red-hot market driving property fund’s NAV T international forum on investment and infrastructure construction. According to an autopsy report, the Guinean minister died of liver fibrosis. The Macau Government said it would cover the costs of flying the body home to Guinea-Bissau. An adviser to the late minister told Lusa news agency last week that the government official “did not show any signs of illness” when he left the country en route to Macau. His death had come as “a big surprise”, said the adviser. A civil engineer by training, with a degree from the former Czechoslovakia Republic, the 61year old minister was a cousin of the former Prime Minister Carlos Gomes, whose government was deposed by a military coup in April 1972.

he solid growth in the local property market has driven the adjusted net asset value (NAV) per share of Macau Property Opportunities Fund Ltd by nearly half in the first three months. The value of rental lease of a luxury home project, an asset of the fund, is nearly 15 percent higher than last year, the company said in a press statement yesterday. The fund - listed on the Alternative Investment Market on the London Stock Exchange - managed by Sniper Capital, said its adjusted NAV per share stood at US$5.25 (42 patacas) in this year’s first quarter. The figure represents a rise of 45 percent from the same period a year earlier and an increase of 5.9 percent from the end of last year. Its adjusted NAV stood at US$434 million in the January-March period versus US$339.1 million a year ago, the fund added.

This result was achieved based on ‘continued buoyancy in Macau’s property market and ongoing share repurchases’, it added. New rental leases of the luxury project in the territory’s centre, The Waterside, reached on average HK$24.4 per square foot in the January-March period, up 15 percent from a year earlier, the statement added. The fund added the plan for a commercial project - on the land plot it acquired in 2007 - in Senado Square could get a government response in the second half of this year. The fund also runs luxury housing project The Fountainside here. Average home transacted prices here reached 89,617 patacas (US$11,202.1) a square metre in March, up 1.7 percent from a year earlier, figures from the Financial Services Bureau show. T.L.

May 14, 2014

Macau

SJM sinks to 8-month low SJM Holdings Ltd., Asia’s largest casino operator by revenue, dropped to its lowest level in eight months after posting first-quarter earnings that missed analysts’ estimates

JM fell 2.39 percent to HK$20.40 in Hong Kong trading. Almost all other gaming operators listed in Hong Kong also lost yesterday but less than one percent. The only exception was Wynn Macau, which climbed 2.53 percent to HK$30.40 per share. MGM Resorts International rose as well but only in the United States. Its Macau unit is not listed in Hong Kong. Its shares are now trading at US$24.59 after gaining 1.03 percent yesterday. Adjusted earnings before interest, taxes, depreciation and amortization rose 3 percent to HK$2.2 billion (US$284 million) in the three months ended March, SJM said in a Hong Kong

Stock Exchange statement on Monday. Competition is intensifying for the owner of the Grand Lisboa casino in Macau’s city centre as operators including Sands China Ltd. and Galaxy Entertainment Group Ltd. lure gamblers with shopping, dining and theatre shows to their resorts on the Cotai Strip, where SJM isn’t scheduled to have a property until 2017. ‘We expect better growth at SJM in the remaining quarters of the year,’ Phoebe Tse, a Hong Kongbased analyst at Barclays Plc, wrote yesterday, as the company is expected to expand a new gambling salon to cater to so-called premium-mass players, who place bigger stakes than mass-market bettors and incur

lower costs than VIPs introduced by middlemen. SJM’s performance in the second half should be helped by a move to dedicate more tables to premiummass gamblers, Tse and Barclays analyst Vineet Sharma said. They bet in cash, unlike the high rollers who gamble with credit provided by middlemen agents, who charge casino operators a commission.

Cotai market ‘It’s becoming more common to see certain months in which Cotai has 50 percent or more market share in the mass table segment, particularly so in the busier seasons,’ Tse and

Sharm at Barclays, wrote in a report last month. ‘We expect the shift of revenue share to Cotai to continue going forward, particularly in the mass segment.’ Barclays favours the Cotai operators because of the expected stronger growth this and next year, the analysts said. The former casino monopoly in February broke ground on its first resort in Cotai Strip, Asia’s version of the Las Vegas Strip. SJM, the last of the Chinese city’s six casino operators to receive government approval to develop a resort in Cotai, is scheduled to open its HK$30 billion Lisboa Palace in 2017. Bloomberg

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Letters to the Editor

SMOKING IN PUBLIC

e are all very grateful to the Government for creating a much healthier environment inside buildings and restaurants by banning smoking two years ago. Now is the time to extend the ban to smoking in public places. There are already a few recreational areas where

a ban is in force, thankfully, but the population remains at risk in other public places. Smoking is still allowed in external eating areas of some restaurants or cafes. This should be banned also. Some cafes have a no-smoking policy in their external areas but this action

is largely negated by the pollution exported from adjacent cafes which do not. In addition to a ban a 50-metre exclusion zone should also be created. Now let us look at something more dangerous. By this I mean what I refer to as “mobile smoking”. As we walk around the city we are constantly being assaulted, yes assaulted, by clouds of smoke indiscriminately and wantonly exhaled by careless smokers. I say assaulted because second-hand smoke is invasive, and in some countries it does count as an assault and receives appropriate punishment. We have more and more visitors in Macau now and the vast majority smoke. Hence it is virtually impossible

to avoid walking into that pollution. A lighted cigarette is dangerous, especially in careless hands. I received a minor burn on the hand from a carelessly handled cigarette just recently. Not a particular problem to me, as it was an accident, but my hand was at the same height as the eye of a child. A burn in the eye would have been a major problem. So, let us make it an offence to move around whilst smoking. Special areas can be established where static smoking is allowed, similar to the areas provided for dogs to deposit their pollution. Let us move forward and make Macau an even better place to live!. Roy Goss

May 14, 2014

Macau Brokers see May gaming revenue grow 12-19 pct Nomura Securities expects annual growth in Macau’s gross gaming revenue to be between 15 percent and 19 percent this month, Barron’s reports. The magazine quotes the stockbroker as saying average daily revenue was MOP 1.03 billion (US$129 million) in the week ended May 11. Sterne Agee also forecasts that annual growth in revenue this month will be between 12 percent and 17 percent. The stockbroker says table-only revenue was MOP12.8 billion in the first 11 days of the month.

Discount bonanza fuelling profits In the ultra-competitive Macau market, casino operators are increasing their investment in promotional budgets to attract more gamblers with 50 percent rise in some resorts last quarter. Academics estimate that each dollar spent in discounts, offers and gifts grow gross revenues 4.5 dollars and profit by 30 percent Alex Lee

Alex.lee@macaubusinessdaily.com

Luxury hotel rooms, concerts, expensive meals, free gaming play and shopping discounts are today’s most common offers from casinos

aming operators in Macau are expanding their budgets for discounts and offers to consumers in order to attract new clients to their tables and resorts and reinforce the loyalty of current patrons. In most of the major casinos here, the amount allocated to promotional budgets is growing faster than revenues and is becoming a strategic trump to improve gains in the world’s most competitive gaming market. If in the past casino merchandise or inexpensive meals were the norm today promotional packages have gone upscale with luxury hotel rooms, concerts, expensive meals, free gaming play, shopping discounts and more enticing customers. Sands China leads the discount frenzy. In the first quarter of 2014, the gaming operator increased spending on promotions by 36 percent to US$211 million, swamping the 22 percent increase in revenues. In the US market, parent company Las Vegas Sands saw promotional budgets remain flat in the quarter. In its Macau’s Venetian resort, complimentaries increased 50 percent year-on-year in the first quarter, and in Sands Cotai they jumped 79

percent. The offers and gifts in Sands are growing today at double the pace of revenues that soared 35 percent in The Venetian and 40 percent in Sands Cotai, according to the company’s first quarter results.

Growing in Macau, flat in the US Not all gaming operators disclose the money they spend on promotional offers, especially for quarterly results (Sands and Melco Crown are exceptions). Others aggregate complementaries with marketing expenses (Wynn Macau). In the first quarter, Melco Crown’s expenses in this category went up 14.8 percent from a year ago to US$50 million in line with revenues that increased 18 percent. But, since 2011, the investment in promotion doubled at Melco’s, a sign of an increased investment in attracting gamblers. Wynn Macau is another example of promotional budgets growing two times faster than revenues. In 2013, the operator invested US$269 million in offers and discounts, an increase of 20 percent from 2012 and above the 10 percent jump in gross revenues that year. MGM China also increased its promotional budget by 21.7 percent

in the first quarter with revenues climbing 25 percent, while in the US market complementaries stayed flat from a year ago. SJM improved promotions by 10 percent in 2013. Galaxy declined to reveal any figures on the subject.

Multiplier effect Promotional allowances work in gaming the same way loyalty programmes do in other industries like airlines and retail chains. Companies use them to attract new clients and reward their loyal ones as an incentive to spend more. In an ultra-competitive market like Macau it is no surprise that the promotional trend is on the up. Academics believe promotional allowances are a vital tool for boosting revenues in the casino industry. Toni Repetti, an expert in gaming at the University of Nevada, Las Vegas estimates that for each dollar invested in promotional allowances there’s a significant increase of US$4.53 in gross revenues, US$3.53 in net revenues and US$1.29 in gross profit. Not all operators use the concept of net revenues (gross revenues minus complementaries) in their

Each dollar spent in promotional allowances generates: US$1.3 dollar increase in profit US$4.53 percent in gross revenues US$3.53 percent in net revenues

accounts and it is an issue of debate inside the gaming industry. ‘Even though many gaming operators show complementaries in gross revenue, others argue that because no specified revenue or cash is generated they should not be included in the income statement but listed as a footnote’, writes John Mills, also from the University of Nevada, in an academic paper. Mr. Mills says that operators hold as much as 25 percent of their hotel rooms open for their special gamblers and at least 15 percent of total revenues derive from high rollers are non-cash promotions for rooms and other services.

May 14, 2014

Macau Brought to you by

HOSPITALITY

Refund may not hit right note for all La Scala buyers Some La Scala buyers may still initiate legal proceedings to get compensation for their investments despite a full refund with 7.25 pct interest rate, a legislator says Tony Lai

tony.lai@macaubusinessdaily.com

Mixed port picture Visitors coming to Macau by sea arrive at three different ports. They all receive vessels originating from either Hong Kong or the mainland. The Outer Harbour is, by far, the one where the largest number of trips ends. More than two-thirds of all arrivals occur there. But the total number of arrivals has been decreasing slowly. From 2010 to 2013, the total number of trips went from just over 50,000 to less than 46,300, corresponding to a loss of about 7.5 percent in that period. The number of trips decreased every single year, setting a neat downward trend. A similar decline, albeit even steeper, happened in the case of the Taipa terminal. In the same period, the total number of arrivals there dropped by almost 15 percent. That is the result of a reduction of 7 daily trips, bringing them down from an average of 50 trips in 2010 to 43 trips last year. The Inner Harbour bucked this trend. Arrivals there were up by 20 percent in 2013 relative to 2010. But the nature of visitor flows crossing there is not fully comparable to the other two ports. The Inner Harbour is more an alternative to the landing crossings and is convenient mainly for local visitors.

The results for the first quarter suggest, however, that the Outer Harbour figures may be picking up. For the first time since 2011 the number of arrivals there has increased. Their total was up by 1.7 percent, compared to the same period in the last year. Conversely, the figures for the Taipa terminal and Inner Harbour both fell. First quarter arrivals were down by more than 5 percent in both cases, compared to the previous year.

17,320

number of vessel arrivals to Macau ports, Q1

ome buyers from the corruptiontainted luxury home project La Scala may still press for legal proceedings to demand compensation from the developer despite the offered refund, says a legislator familiar with the matter. Legislative Assembly member Au Kam San’s comment came after developer Chinese Estates Holdings Ltd announced on Monday night that it will fork out HK$440 million (US$56.76 million) in refunds to pre-sales buyers of the unfinished project opposite Macau Airport. Fewer than two months since its former chairman Joseph Lau Luen Hung was convicted of bribery and money laundering related to the La Scala land deal, Chinese Estates said it will revoke the pre-sales agreements and return all deposits to buyers in full plus interest of 7.25 percent per annum ‘without admission of any liability’. “Personally, I’d say it is quite an appropriate arrangement as the buyers do not incur any loss in the figures,” said Mr Au. “But it is not ruled out that some buyers may still pursue Chinese Estates as they feel a loss in the investments as the local property market has skyrocketed in the past two years.” Indeed Mr Au received a call from a Hong Kong La Scala buyer two weeks ago asking for opinions for filing legal proceedings against Moon Ocean Ltd – a subsidiary of Chinese Estates controlling the project – for compensation. “That buyer claimed to represent a number of buyers in Hong Kong… and they want to ask Chinese Estates to compensate them for the loss of the potential value on investments,” said

Mr Au. “Buyers for La Scala must have a certain level of consuming power and they can afford to explore the legal means.” But Mr Au added he has not been in contact with that buyer since the Monday announcement, and was not aware of their latest decision. Attempts by Business Daily to reach La Scala buyers yesterday for comment were unsuccessful. Average home prices nearly doubled to 81,811 patacas a square metre here by the end of last year against 41,433 patacas by end-2011, figures from the Statistics and Census Service show.

Ongoing appeals The La Scala project was forced to cease pre-sales and construction in the summer of 2012 after it was revealed that the land deal was tainted by the corruption charges against former disgraced government official Ao Man Long. Mr Ao was sentenced to prison for 29 years. The Macau Government subsequently revoked two land grants – made in 2006 and 2011 – regarding the project. Chinese Estates said in the previous filings to the Hong Kong Stock Exchange that it has appealed the two voiding decisions but no hearing has been scheduled yet. The tycoon, Mr Joseph Lau, holding a majority stake in the developer, and businessman Steven Lo Kit Sing, were sentenced by Macau’s Court of First Instance in March for five years and three months for bribing Mr Ao on the project. Both Hong Kong residents appealed the verdict. Chinese Estates said previously that the La Scala project had pre-sold 304

It is not ruled out that some buyers may still pursue Chinese Estates as they feel a loss in the investments as the local property market has skyrocketed in the past two years Au Kam San, Legislator

units, receiving HK$384 million in deposits as at June 2012. Calculating the annual interest of 7.25 percent, and almost two years since the last sales, the developer has to return HK$55.7 million in addition to the buyers’ deposits. The company said in its annual report for 2013 that it will sue the government and related parties for compensation on the land and construction costs if their appeals against the voiding decisions are unsuccessful. The land cost of the project totalled HK$1.33 billion with construction costs of HK$558 million. Chinese Estates’ profit declined 36 percent from the previous year to HK$6.5 billion last year. Its shares went down by 0.5 percent yesterday, while Hong Kong’s benchmark Hang Seng Index climbed 0.41 percent.

May 14, 2014

Macau

Hub-to-hub destination on the radar for MIA The Civil Aviation Authority is also unfazed about Macau International Airport’s competitiveness in the Delta region, given the increasing trips by aviation passengers Stephanie Lai

sw.lai@macaubusinessdaily.com

hile long-haul flight is still a remote target for Macau’s aviation development, the city is sticking to its strategy of encouraging flight companies to link up to a hub-to-hub connection to the airport here, and seeks to cope with the development for budget carriers and business aviation, the director of Civil Aviation Authority of Macau Simon Chan Weng Hong told Business Daily in an interview. The Authority head is unfazed about Macau International Airport’s competitiveness when compared to the other airports in the Pearl River Delta, where only Guangzhou Baiyun International Airport and Hong Kong International Airport in the region can accommodate long-haul flights, in addition to the Shenzhen Bao’an International Airport. “The airport here will mainly develop short-haul flights. For airlines to operate long-haul routes to here, flight frequencies and the heavy cost are major points to consider,” said Mr Chan. “It will not be surprising if Macau eventually sees the market mature for the operation of long-haul flights but now we’ll stick to encouraging companies to do a ‘hub-to-hub’ connection to here.” Bangkok has been a major hubto-hub connection with Macau, with travellers from Europe and the Middle East, Mr Chan noted. “I dare not say the hub-to-hub strategy for here is going to last another decade but it’s true that this strategy has been a practical development mode for us,” he said. Currently, MIA is connected to 24 destinations in mainland China and Taiwan, as well as 13 other destinations across South Korea, Japan and the Southeast Asia – including Malaysia, Singapore, Thailand, the Philippines, and Vietnam. “For the Pearl River Delta at large, there’s nearly a 15 million population living within the one-hour traffic zone of Macau and neighbouring Zhuhai, Jiangmen and Zhongshan,” he said. “The population, the improved economy and increasing trip frequency can really support all the airports in the whole Delta.”

Simon Chan Weng Hong

He continued: “I remember back in 1993 and 1994 there were criticisms from aviation experts that questioned whether we had too many airports in the Delta competing for passengers, at a time when Hong Kong was planning to move to a bigger airport, and Shenzhen, Zhuhai and Macau were building their own.” Neighbouring Zhuhai saw a record passenger volume reached last year at 2.9 million people using the city’s Jinwan Airport – which now only runs domestic flights to the mainland. Zhuhai Airlines Co Ltd, a subsidiary of China Southern Airlines Co Ltd, mentioned in January this year that it will attempt to connect the route between the airport and Korea by the end of this year or early next, which will be an attempt by the Zhuhai airport to open up international routes. “But when we looked at the statistics, it showed that all of these airports managed to register positive [passenger] growth because the market has got bigger with increasing population and trip frequency,” he said, adding that he was optimistic about Macau Airport’s competitiveness as the city will be even more closely connected to its neighbouring cities once the Hong Kong-Zhuhai-Macau Bridge is completed in 2016.

“Macau is positioned as a tourism and leisure centre, and for that leisure travellers, who are usually more pricesensitive, actually favour low-cost carriers, or regional [legacy] carriers that can launch frequent flights,” declared Mr Chan. “Meanwhile, we also have more high-end travellers coming here as we have all this major tourism infrastructure in the city, so business aviation is another major direction that we should work on.”

More space Although the Civil Aviation Authority has no special incentive programme to further encourage budget carriers to operate routes to here, the Authority’s urgent task to attend to at the moment is to lead the design and implementation of a master plan for the expansion of Macau International Airport to accommodate more private jets and small planes to park for the long term. The master plan, first brought to public attention by the Authority in 2011, is set to double the size of Macau International Airport by four phases stretching from 2015 to 2039. The plan was drawn up by architecture and engineering firm Airport de Paris Ingenieurie.

A forecast for the master plan made at the time suggested that the aircraft parking spots should be increased from 24 to 43 by the third development phase, which would be in year 2039 when the projected annual passenger volume was 15 million, local media reported. By that time, the parking lots for private jets would also be increased to 38. Little information was available to the public regarding the master plan details and budget other than its outline as the Authority has yet to gain final approval for the plan by the Executive Council, Business Daily has learned. In the first phase, commencing 2015, the airport will have an expanded parking apron for private jets, and transport facilities linked to the light rapid transit (LRT) system as well as to the Taipa Ferry Terminal, Mr Chan told Business Daily. “Actually, the master plan is set to be implemented when the annual passenger volume has already reached 80 percent of our forecast,” said Mr Chan. The initial forecast announced in 2011 for the annual passenger volume the local airport receives by 2015 is 5.6 million; but by the end of 2013, the aviation passenger traffic here had already reached 5.027 million, way over the forecasted percentage. However, the Civil Aviation Authority noted that it is still finalising the details of the first phase of the expansion plan, stressing that it will only announce the information once it is all approved. Currently, CAM is planning to expand the north side of the passenger terminal by 4,000 square metres within this year – an action that is outside the master plan. The existing passenger terminal occupies 16,000 square metres, of which the maximum passenger capacity it can hold is 6 million. CAM intends to expand its southern area by another 4,000 square metres. Once the whole expansion of the terminal is completed, it can receive 9 million passengers at maximum capacity, CAM told Business Daily. The airport operator also expects to see the completion of a new hangar for private jets by June, which will be at least 36 metres high to accommodate the most common private jets.

Melco Crown pumps another 70 percent into 2014 projects

“W

e do have some serious investment this year”, announced Lawrence Ho to investors in a conference call last week. Melco Crown Entertainment’s CEO added that 2014 will be “our heaviest capital expenditure year”. This year is set to be a record one for the gaming operator in terms of investment as the company prepares to start its new pipeline of projects. City of Dreams will open its doors in Manila later this year, Studio City will be ready in mid-2015 and the final

tower in City of Dreams is scheduled to open for business in 2017, Lawrence Ho reassured investors. These three projects will lead to Melco Crown investing the most it ever has in a given year. According to Geoffrey Davies, Melco Crown’s CFO, the capital expenditure will hit US$1.577 billion. That’s 70 percent more than the company invested in 2013 (US$912 million), already a record year. In 2012, the capital expenditure sum was US$283 million and US$785 million

the previous exercise. Following an investment of US$254 million in the first quarter, Melco Crown Entertainment intends to spend an additional US$375 million in this quarter and US$475 million in the third and fourth quarter, the company’s CFO has informed investors. The sum is predominantly related to Studio City and City of Dreams Manila, as well as various projects at City of Dreams in Macau. Studio City, for example, will receive

more than half of the share of 2014’s investment with an estimated US$720 million between the second and fourth quarters, Geoffrey Davies said. The US$2.9 billion Hollywood studiothemed resort is Melco’s third project in Macau after Altira and City of Dreams. It will provide 500 gaming tables and 1,500 slot machines. It will also have a 5-star hotel, shopping mall and multipurpose entertainment studio. The fifth hotel tower in City of Dreams will cost US$120 million. A.L.

May 14, 2014

Macau

Strengthening ties The Portuguese minister for economy advocates strong Luso-Chinese ties

ires de Lima, the Portuguese minister for economy, said in Shanghai that ties between China and Portugal should be strengthened, given China is a market with “enormous potential” for Portuguese exports. “There is an agenda for Portuguese exports that has great potential here in China,” Mr Lima said while in Shanghai as part of the delegation led by Portuguese President Cavaco Silva. This is the first presidential visit from Portugal to China since 2005, and includes a delegation of 100 businessmen. “This is a very business-focused trip,” Mr Lima said, adding that there is no doubt about the potential this visit could have. “In the last few years, when many questioned out credibility, [China] was one of the key investors in Portugal,” Mr Lima noted, adding that China experiences great growth. “It’s in our interest to strengthen ties with China. It’s very important that China sees in Portugal a feasible investment partner in Europe,” the minister for economy added. Speaking to journalists outside the hotel where the presidential delegation is staying in Shanghai, Mr Lima also identified China as a market

that Portugal has been “discovering” gradually. According to the minister for economy, Portuguese exports to China totalled 650 million euros (7.1 billion patacas) last year, while in the first two months of the year exports from Portugal increased 45 percent. Official figures from the China Customs Office reveal that Portuguese exports to China surpassed one billion euros (11 billion patacas) in 2012. These statistics value exports based on the country of origin as opposed to the country or region through which goods transit.

45%

Portuguese exports to China growth in the first two months of 2014

Official Chinese figures show that exports from Portugal dropped 1 percent last year, mainly due to the sale of Autoeuropa, but these increased 4.75 percent in the first quarter of this year to US$337.8 million (2.7 billion patacas). This is Mr Lima’s first visit to China, which he said would also be a reference for Cavaco Silva as to what Portugal will do in terms of privatisation, mainly in the transport sector. In 2012, two major Chinese firms – China Three Gorges and China State Grid – paid the Portuguese Government more than three billion euros as investment capital for EDP and REN, respectively. Today, the Portuguese President arrives in Beijing, where he is scheduled to meet with official Chinese leaders, followed by a visit to Macau before returning to Lisbon next week. In an interview with Chinese stateowned Xinhua news agency, Cavaco Silva said “China can rest assured that Portugal will act as a friend within the European Union.” “We’re a constructive partner and a friend of China, and we know how beneficial it is for the European Union to strengthen trade and investment ties with China,” he was quoted as saying.

Portuguese President presents economic credentials Cavaco Silva wants to strengthen the recovery of the Portuguese economy

ortuguese President Cavaco Silva said he hopes his visit to China will help strengthen the recovery of his country’s economy and lower unemployment, emphasising that exports, tourism and investment are pillars of the Portuguese economy. “Everybody knows exports, tourism and investment are the pillars of economic growth in Portugal, and creates jobs. I aim, with this visit, to contribute to strengthening the recovery of the Portuguese economy and lower the unemployment rate,” Mr Cavaco Silva said in a message on the president’s website, which was distributed amongst the journalists accompanying the delegation of more than 100 people to China. In his message, Cavaco Silva, in mainland China for a week at the invitation of his Chinese counterpart, emphasised that Portugal and China celebrate 35 years of diplomatic ties. “I return to China having visited here as Prime Minister in 1987 and 1994 to resolve the issue of Macau which history left to both countries [to deal with],” the Portuguese

President said. Mr Cavaco spoke highly of his meetings with the Chinese premier, as well as with the president of the Congressional People and the governor of Shanghai. He also emphasised the importance of the delegation accompanying him. “China presents itself as a market with great expansion potential for

Cavaco Silva

António Pires de Lima

May 14, 2014

Macau

Direct flights a possibility T he Portuguese President’s visit to China will promote “even more” bilateral trade and cooperation between the two countries, the ambassador to China in Portugal Huang Songfu said yesterday. After a breakfast meeting with businessmen from China and Portugal, led by Portuguese President Cavaco Silva, the ambassador said the meeting was a “good opportunity” for businessmen of the two countries to exchange ideas. “The [Portuguese] President presented good opportunities for bilateral cooperation between China and Portugal and the Chinese businessmen also showed an interest and strong willingness to promote cooperation,” Mr Huang said, adding that one of the biggest worries is direct links between the two countries. Nonetheless, he said, “there are already three companies wanting to study the possibility of direct flights between China and Portugal.” This, Mr Huang said, reassures him that Cavaco Silva’s visit to China will “promote even more” bilateral trade and ensured that Portugal “offered a good opportunity for cooperation in terms of the future privatisation of Portuguese companies” that are fairly familiar to Chinese companies and are willing to study as an investment possibility. “It’s a very important platform. Macau promoted a mutual cultural understanding between the two for many years. I think this mutual cultural understanding is a fundamental base for all other cooperation. Without this

Portuguese products,” Mr Cavaco Silva said. While in China, the Portuguese president will attend two economic seminars and meet with Chinese businessmen. “I want them to know Portugal is located competitively for foreign investment,” he said. According to Cavaco Silva, also to be talked about during his visit is cooperation in the fields of science and the teaching of the Portuguese language. “With this visit of mine, I want China to get to know Portugal better; its economic and scientific potential that the Chinese can get to know better the quality of Portuguese products, the richness of culture, and that more Chinese visit Portugal. We want to welcome more Chinese tourists,” he said.

China presents itself as a market with great expansion potential for Portuguese products Cavaco Silva, Portuguese President

mutual cultural cooperation between the two countries, there would be no cooperation in the various fields,” he said, adding that Macau, too, can participate directly in this bilateral cooperation. Aside from investing in privatised sectors - primarily public transport in Lisbon and Oporto - Mr Huang emphasised that there are also other areas of possible investment; for now, however, it’s more important to study the various fields given that Portugal has opened the door.

there are already three companies wanting to study the possibility of direct flights between China and Portugal Huang Songfu, Ambassador to China in Portugal

Portuguese President praises Shanghai’s strategic vision T

he Portuguese President, Aníbal Cavaco Silva, praised the “strategic vision” of the authorities of Shanghai yesterday, acclaiming the Chinese city as “fantastic”. “This city is fantastic and assumes a crucial role in the common goal of intensifying the relationships between Portugal and China”, said Mr. Silva during a lunch hosted by the Mayor of Shanghai, Yang Xiong. Shanghai’s skyline is dominated by skyscrapers and a dense network of highroads that were for the most part constructed in the last twenty years. The city has a population of 24 million inhabitants. In April 1994, Mr. Silva visited Shanghai as Portuguese Prime Minister. Yesterday, the Portuguese leader recalled his previous visit to Shanghai. “Today [yesterday] I can see that the plan for the city shown to me years ago was erected as a great project”, he stated. “Projects of this dimension demand great determination and strategic vision. Shanghai has demonstrated itself to have those abilities”, the Portuguese president added. Mr. Silva was received by the Mayor of Shanghai following a meeting that lasted for one hour with Chinese entrepreneurs. In his speech during the lunch hosted by Mr. Xiong, the Portuguese president highlighted the “growth of the commercial exchanges and

Cavaco Silva and Yang Xiong

of the investment” between the two countries since the opening of the Portuguese General Consulate in Shanghai in 2006. “A better advertisement of modern Portugal has led, without any doubt, to cooperation at different levels” he said. Mr. Silva also mentioned the “growing interest in the Portuguese language and culture” and the

agreement signed in 1995 that twinned the cities of Shanghai and Oporto. Fifteen years ago only two universities offered Portuguese degrees, in Beijing and Shanghai. Now, eighteen universities offer Portuguese degrees. This phenomenon is associated with the rapid development of the relationship between China and other Portuguese-speaking countries, mainly Angola and Mozambique.

May 14, 2014

Greater China RMB bond to list on Luxembourg

Factory output pace deepens The figures signal risks are increasing that China will miss the year’s

Bank of China will list its first offshore RMB “Schengen bond” on the Euro MTF market of the Luxembourg Stock Exchange, according to a press release. “The successful launch of this Schengen bond is a further step towards the internationalization of Renminbi,” declared Ms. Zhou Lihong, General Manager of Bank of China Luxembourg Branch. Robert Scharfe, CEO of the Luxembourg Stock Exchange, said that the choice of Luxembourg as the listing place demonstrated the confidence of the Bank of China Group towards Europe and especially Luxembourg as a prime international financial centre.

Fosun interested in Healthscope China’s Fosun Group is interested in Australia’s Healthscope, hoping to extend the private hospital operator’s model to the growing Chinese market, the Australian Financial Review reported yesterday. Patrick Zhong, head of global investments at Fosun, told the newspaper that the company saw a great opportunity for Healthscope to develop in China. Healthscope’s private equity owners -TPG and Carlyle Groupare currently inviting bidders for a trade sale of the business they bought for A$2.6 billion (US$2.43 billion) in 2010. But they are also considering an initial public offering and the spinoff of the company’s property assets.

Facebook might open office in China The firm said it may consider opening a sales office in China to provide more support to local advertisers who use the website to reach customers overseas. While Vaughan Smith, Facebook’s vice president of corporate development, told Reuters it was exploring ways to provide even more support locally, he did not comment on how soon it plans to be in China. Facebook currently has a Hong Kong sales office with a staff of 30 to 40 people who deal with advertisers locally and in mainland China, where its services are blocked.

PanAust reveals bid from Chinese firm Australian copper miner PanAust Ltd said it had received a A$1.1 billion (US$1 billion) takeover offer from China’s state-owned Guangdong Rising Assets Management, but that the bid materially undervalued the company. The offer is the latest in a slew from Chinese resources firms seeking to take stakes in Australian companies. Chinese steel giant Baosteel Resources and an Australian partner offered A$1.1 billion for Australian explorer Aquila Resources Ltd last week. Guangdong, which already holds 23 percent of PanAust, has offered A$2.30 per share, a 46 percent premium to its close on Monday.

hina’s economic slowdown deepened with unexpected decelerations in industrial output, investment and retail sales, testing policy makers’ reluctance to step up monetary stimulus. Factory production rose 8.7 percent in April from a year earlier, the National Bureau of Statistics said yesterday in Beijing, compared with the 8.9 percent median estimate of analysts surveyed by Bloomberg News. Fixed-asset investment increased 17.3 percent in the first four months of the year, and retail sales advanced 11.9 percent in April. The figures signal risks are increasing that China will miss the year’s expansion goal of about 7.5 percent, as the government’s efforts to counter the slowdown, including tax breaks and spending on railways and housing, have yet to gain traction. Leaders are trying to rein in credit boom and curb pollution, and President Xi Jinping last week said the nation needs to adapt to a “new normal” of slower growth. “The economy is still slowing,” Wang Tao, chief China economist at UBS AG in Hong Kong, said in an e-mail. The government’s “ministimulus has not yet turned around the growth momentum,” and the government may ease credit by loosening restrictions on lending to homebuyers and local- government financing vehicles, Wang said.

Factory-production growth compared with an 8.8 percent increase in March. The advance in retail sales compared with the 12.2 percent median projection of analysts, and the same gain in March.

Investment estimate The median estimate for Januaryto-April expansion in fixed-asset investment excluding rural households was 17.7 percent, after a 17.6 percent rise in the first three months of this year. China’s growth fundamentals haven’t changed and the country is still in a “significant period of strategic opportunity,” President Xi said in a Xinhua News Agency report published May 10. At the same time, the government must prevent risks and take “timely countermeasures to reduce potential negative effects,” he said. The government in early April rolled out tax breaks and sped up spending on infrastructure and social housing to sustain growth. Analysts forecast expansion of 7.3 percent in 2014, which would be the slowest in 24 years, based on the median estimate in a Bloomberg survey last month. Premier Li Keqiang said last week in a speech in Nigeria that China has the confidence and capability to achieve this year’s economic growth

Premier Li between President of Nigeria Goodluck Jonathan (R) with World Economic Forum (WEF) chairman Klaus Schwab (L) at Abuja. Premier said from Nigeria that China has the confidence and capability to achieve this year’s economic growth goal.

goal and maintain medium to highspeed expansion in the long run.

Target range “For now, people are concerned about the data in the second quarter,” Chen Yulu, an academic adviser to the People’s Bank of China, said

Green vs. growth dispute escalates in Guangdong Despite strong backing from Beijing, Guangdong has limited power to force participation in its carbon market

hina’s campaign against pollution and greenhouse gases is hitting early resistance in Guangdong province, where more than 60 manufacturers are holding back from a carbon market launched last year, saying the scheme is unfair and too costly. The stand-off between a quarter of the intended participants in the emissions market and the provincial government underlines the difficulty in implementing green policies in China, even after the launch of a national “war against pollution”. China, the world’s biggest emitter of climate-changing gases, has in the past year set up pilot carbon markets in six cities and provinces. It plans to roll out a nationwide scheme by 2020 that would make it home to the world’s top carbon market ahead of current leader, the European Union, where carbon trades last year were worth about 36 billion euros (US$50 billion). But setbacks like the one now underway in Guangdong are likely to become more common as China turns from its “growth at all costs” model and seeks greater control over its dirtiest industries, with companies squeezed by a slowing economy pushing back against rising pollution and emissions costs. “There is no reason for companies to pay millions of yuan a year (for carbon permits) when environment

Guangdong province has a very developed industry and interesting nature spots as pictured (Mount Danxia). Combining both sides is key to meaningful progress.

May 14, 2014

Greater China

economic slowdown Shanghai real estate agents downsize expansion goal of about 7.5 percent

Chinese real estate industry is facing mounting pressure as banks make it harder for developers and homebuyers to borrow

8.7 percent factory production rising

yesterdayy in Beijing before the data release. The first quarter’s 7.4 percent growth was within China’s target range of about 7.5 percent, and “if the second quarter data are also within the target range, then there is no big problem,” Chen said. A property-market slump, including a 22 percent drop in new

and energy regulators already charge us other pollution fees,” said an official at provincial governmentowned iron and steel producer SGIS Songshan, which has not bought any carbon permits. The official, who wanted to remain anonymous because he was not authorized to speak to media, said pollution costs were already weighing heavily on the company as it must also pay fees for sulphur dioxide emissions, waste water and solid waste, and adhere to strict efficiency standards. Despite strong backing from Beijing, Guangdong has limited power to force SGIS or other hold-outs -mostly cement and steel makers- to participate in its carbon market. It can hit them with a fine of 50,000 yuan (US$8,000) per company and a possible reduction in the number of permits allocated to them next year.

KEY POINTS Out of 242 companies covered by scheme, 64 not taking part Non-participants passing up 1.4 bln yuan (US$225 mln) in free permits Last permit auction before deadline for 2013 emissions closed on May 5 About 700,000 permits unclaimed at minimum price of 60 yuan each

building construction in the first four months of the year, threatens to intensify the economic slowdown and add challenges for the government in achieving its expansion goal. The most important figures yesterdayy are the ones showing a “continued decline in property sales and new starts,” UBS’s Wang said. “The latest data are indeed worrisome.” China’s broadest measure of new credit fell in April as authorities extended their campaign to tame financial risks, central bank data showed yesterday. Statistics-bureau data showed last week that consumer inflation moderated to an 18- month low in April and the producer-price index extended the longest stretch of declines since a 31-month slide that began in 1997, giving authorities more room to ease credit if needed. Bloomberg News

That’s measured, though, against an aggregate 42 million yuan the companies need to spend for access to carbon permits with a market value of 1.4 billion yuan.

Last chance auction In Guangdong, the local government hands out for free 97 percent of the permits that companies are expected to need to cover their emissions. To access the permits, they must buy the other 3 percent in auctions at a minimum price of 60 yuan each. Yet, when the last planned auction for the 2013 compliance year ended a week ago, data from the China Emissions Exchange in Guangzhou showed that 64 of the 242 companies covered by the scheme still had not bought any carbon permits. “Some of the companies don’t have the money to pay for the permits. They are unlikely to change their mind and will not engage even if there are more permit auctions,” said a consultant with several steel mills holding back from the Guangdong market among his clients. Some of the province-owned companies have asked for more free permits or removal of the obligation to buy 3 percent in auctions, said the consultant, who wished to remain anonymous. The mostly small- and mediumsized companies that are holding back have until June 20 to hand over permits to the government to cover their 2013 emissions - but their last chance to meet the 3 percent prerequisite and free up the rest of their permits may have ended with the auction on May 5. The government may arrange an extra auction in order to give companies another opportunity to buy permits. Reuters

hanghai’s top real estate agent has been forced to downsize, hurt in part by a delay in commission payments from property developers in a market facing increasing liquidity pressure and a slowdown in sales. Hong Kong-based Centaline Property, which has around 470 branches in Shanghai, told Reuters it has imposed a hiring freeze in the commercial capital and has been reviewing leases at some of its branches since the fourth quarter of last year. “For agents and shops that can’t meet quotas, we would let staff go through natual attrition and stop renting,” said Clement Luk, Centaline’s chief executive of east China. “April’s transactions in Shanghai were around 20 percent lower than March; looking at the momentum now, April may not be the bottom yet, May and June could still be on a downtrend.” Another leading agent in Shanghai, Dooioo Real Estate, said it was also cutting staff, although it still planned to increase its number of branches in the city to 250 by the end of the year from 206 now. Chinese media reported on Monday that the two real estate agents were cutting staff by 5 to 10 percent, citing internal sources. Dooioo said its staff

cuts would be less than that figure, while Centaline said only it was letting staff go. China’s real estate industry is facing mounting pressure as banks make it harder for developers and homebuyers to borrow loans amid government curbs on speculative investments. Price corrections are also spreading to top-tier cities, with the problem of excess supply emerging in Beijing and the southern city of Shenzhen, according to China Real Estate Information Corporation (CRIC), a property data provider. While Shanghai’s inventory level remains healthy, its supply of unsold housing as of the end of April climbed 48 percent from a year ago, and its area of residential property sold last month dropped 18 percent from March and dropped 16 percent from a year ago. Falling property prices and a resulting sharp drop in construction activity threaten what had been one of few bright spots in the world’s second-largest economy, which has been showing signs of losing steam. China’s government has spent more than four years trying to tame record home prices on concerns that they were stoking an asset bubble. Reuters

China’s ‘shadow banking’ sector valued at US$4.4 trillion Shadow banking in China encompasses a huge network of lending outside formal channels and beyond the reach of regulators

hina’s vast “shadow banking” sector is now valued at US$4.4 trillion, according to the government’s premier research group the Chinese Academy of Social Sciences (CASS) as it warned of potential risks to the financial system. Shadow banking in China encompasses a huge network of lending outside formal channels and beyond the reach of regulators, including activities by online finance platforms, credit guarantee companies and microcredit firms. The system is worth 27 trillion yuan (US$4.4 trillion), equivalent to nearly one fifth of the domestic banking sector’s total assets, according to a report by the Institute of Finance and Banking under CASS - China’s highest academic research organisation in the social sciences. The figure is slightly lower than an earlier estimate by ratings agency Moody’s, which put shadow banking activities at US$4.8 trillion in 2012, more than half of the country’s gross domestic product. “What matters most is not the scale of the shadow banking system,” CASS said in a statement for the launch of the report provided to

AFP on Monday. “Once big risks arise from the shadow banking system, they could rapidly spread to the banking segment and the real economy through the monetary and credit markets, posing systemic financial risks,” it said. China’s financial markets were rocked by several debt defaults earlier this year. In one case, a US$160 million investment product structured by Jilin Province Trust and backed by a coal firm failed to make capital and interest payments. Separately, a US$500 million investment product structured by China Credit Trust avoided default in January after an unknown party made good on principal payments to hundreds of investors, though they did not received pledged interest. Chinese authorities have shown tolerance towards individual defaults, calling them unavoidable, but have pledged to keep potential risks in check. Analysts say the defaults could benefit the market in the long term by raising awareness of risk and making investors more selective. AFP

May 14, 2014

Asia S.Korea’s ICT exports hit new high in April Information & communication technology (ICT) exports in South Korea hit a new high last month as solid demand for locally-made chips and handsets offset negative factors such as the strong South Korean currency. Exports in the ICT sector increased 4.5 percent from a year earlier to US14.76 billion in April, the largest in the country’s history, according to the Ministry of Trade, Industry and Energy. Despite the sluggish consumption in emerging economies and the continued fall in the won/dollar exchange rate, demand for locally boosted the record-level exports, the ministry said.

India, Sri Lanka fishermen talks end in stalemate The talks between Indian and Sri Lankan fishermen in Colombo aimed at reaching a solution over a long standing dispute ended without breakthrough, Fisheries Ministry spokesman Narendra Rajapaksa said yesterday. The talks which began on Monday morning continued till late into the night as both sides failed to reach an agreement. Eventually the talks ended without any agreements reached with both sides refusing to budge from their stand. Rajapaksa said that the Sri Lankan fishermen maintained their stand and rejected requests by the Indians to be allowed to fish in Sri Lankan waters.

Mitsubishi Chem to control Taiyo Nippon The company will buy a majority stake in industrial gas provider Taiyo Nippon Sanso for more than 100 billion yen (US$980 million) to tap rising U.S. demand for nitrogen and other gases used in energy production, the Nikkei newspaper reported. The takeover will help consolidate Mitsubishi Chemical’s position in the U.S. petrochemicals sector, which is flourishing thanks to an abundance of cheap gas from shale formations. Japanese chemicals makers are expanding overseas as their domestic market shrinks as the population declines.

Macquarie names Way Asia CEO Macquarie Group Ltd., Australia’s biggest investment bank, named Benjamin Way Asia chief executive officer, replacing Alex Harvey, who will become chairman for the region and global head of principal investments. Way, head of Macquarie Infrastructure and Real Assets for North Asia and Russia, will retain his leadership role at the unit in Asia, the Sydney-based firm said in an internal memo seen by Bloomberg News. As investment chief, Harvey succeeds John Hughes, who is retiring after 17 years at Macquarie. The appointments came after Macquarie reported its biggest full-year profit since 2008, led by fund management.

Taxing pachinko future Dynam and other leading pachinko operators, meanwhile, are vying to open multi-billion dollar casino resorts

oves towards legalising casinos in Japan have reignited a debate over the legal status of pachinko, with a potential new tax mooted for a US$200 billion gaming industry that has existed for decades on the fringes of the law. Pachinko, a slot-cum-pinball form of gambling, is a national obsession, with one in six Japanese playing the game, though that number is declining as younger generations prefer to play games on their mobile phones. With past links to organized crime, pachinko is not classified as gambling, which is illegal in Japan. Instead it’s treated as an amusement activity like arcades and hostess bars, and the operators of pachinko parlours that are found in city streets across Japan pay no gaming tax. As some lawmakers push to allow casinos that would contribute billions of dollars to state coffers, pachinko, too, could come under a new regulatory umbrella. Takeshi Iwaya, a leading proponent for casinos from the ruling Liberal Democratic Party, reckons any move to change pachinko laws should come once casinos are up and running, which could be as early as 2020, when Tokyo will host the Olympic Games.

One law to rule them all In pachinko, players opt to trade the harmless prizes in their winnings

Pachinko parlour in Japan

for “special prizes”, which they then swap for yen at small booths outside. Legally, these booths are separate from the hall operator, skirting antigambling laws. Taxing plan would generate about US$2 billion in annual revenue for the government, according to copies of the proposals seen by Reuters. Yoji Sato, one of Japan’s wealthiest tycoons and chairman of Dynam

Japan Holdings, a pachinko hall operator listed in Hong Kong, backs reforms that bring all the industry’s moving parts -from machine makers to booth operators- under one law. He acknowledged the industry faces close scrutiny. Dynam and other leading pachinko operators, meanwhile, are vying to open multi-billion dollar casino resorts - should regulations permit.

Aussie volatility decline shrinks AAA premium Japanese investors added to Aussie holdings for a third month in March and options traders are the most bullish on the currency since 2009

he lowest volatility in a year for Australia’s dollar is boosting the appeal of the nation’s bond market for global investors, shrinking its yield premium relative to top-rated peers. The yield on 10-year notes was 1.93 percentage points more than the average for seven other nations rated stable AAA by all three major credit assessors yesterday, the least since October. The Australian dollar gained 4.2 percent against the U.S. currency in the past three months, the most among 10 major developed peers. A gauge of expected price swings over a month fell to 6.37 percent on May 9, the least since April 2013. Japanese investors added to Aussie holdings for a third month in March and options traders are the most bullish on the currency

since 2009. Australian government securities are set for their best performance since 2011 as Treasurer Joe Hockey hands down his first budget for a nation with the developed world’s smallest debt burden after Estonia. “The yield spread provided by Australian government bonds for no extra credit risk has to be appealing to investors, especially given stability in the currency,” Sally Auld, a Sydney-based senior strategist for currencies and rates at JPMorgan Chase & Co., said yesterday. “Low volatility encourages flows into Australia.” Japanese finance ministry data published on Monday showed the nation’s investors bought a net 68.7 billion yen (US$672 million) of long-term Australian sovereign notes in March, bringing purchases this year up to 240 billion yen

from net sales of 258.8 billion yen in 2013. “There’s a yield-seeking influence with low volatility” that’s pushing yields down, said Kei Katayama, a money manager in Tokyo at Daiwa SB Investments Ltd., which has the equivalent of US$48.3 billion in assets. Katayama said he holds the same percentage of Australian debt as the benchmark index he uses to gauge performance, attracted by the income he can earn, though he’s considering reducing his holdings as the economy improves. Bond demand is being burnished as Australia takes steps to rein in debt and curb spending. Hockey will announce a A$30 billion (US$28.1 billion) deficit for 201415 after recording a A$46 billion shortfall this fiscal year. Bloomberg News

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May 14, 2014

Asia US$21-US$22 bln Morgan Stanley forecast for Japan’s casino market worth

Galaxy Entertainment and Melco Entertainment. Rival hall operator Maruhan and two of Japan’s biggest pachinko machine makers, Sega Sammy and Konami, have also met casino operators, industry executives say. To gain experience in the resort business, Sega Sammy is building a US$1.7 billion casino in the South Korean coastal city of Incheon with local gaming firm Paradise Co.

At risk

A recent Morgan Stanley report predicted that Japan’s casino market could be worth US$21-US$22 billion -though that’s less than half the size of Macau’s, and well below a consensus view of around US$40 billion, by 2025. Sato said his focus is on that domestic casino opportunity, adding his company has held talks with casino operators including Macau’s

This diversification isn’t just driven by potential pachinko reforms. Pachinko revenues are falling as Japan’s population ages and as younger people turn to mobile devices for entertainment. Gross pay-ins in the pachinko market have dropped to 19 billion yen (US$186 million) from 31 billion yen in the past 20 years, and the number of players halved between 2002 and 2012, according to Morgan Stanley’s research. While pachinko is unlikely to be badly hit in the short term - parlours are informal and widespread, while casinos will be upscale and out-oftown - a recent increase in Japan’s sales tax may squeeze small operators and accelerate consolidation. Kunio Nobuta, a flamboyant billionaire who heads one of Japan’s oldest and largest pachinko hall operators, said his Nobuta Group aims to increase its non-pachinko revenues to 30-40 percent from around a tenth now, and may get into real estate. Haruo Kinoshita, president of pachinko hall operator Kicona, sees smaller operators having to merge as the game’s popularity wanes. Reuters

Chachras to create an Indian fund US$100 billion-worth of distressed corporate loans in India

avi and Vikram Chachra, brothers with backgrounds in distressed investing, plan to start a fund to restructure faltering Indian companies in anticipation that the outcome of the world’s biggest election this week will produce new leadership and bolster business confidence. The fund at Eight Capital LLC, the Mumbai-based firm they founded in 2005, seeks to raise as much as US$500 million and will focus on industrial and infrastructure companies, Chief Operations Officer Vikram Chachra said in a phone interview last week. Chachra said projects have been slowed for years by government corruption under Prime Minister Manmohan Singh. The firm supports likely winner Narendra Modi because his business-friendly policies would help rejuvenate development, he said. Chachra estimates there are about US$100 billion worth of distressed corporate loans in India. The fund will invest in debt and equity and aims to buy and revamp companies in sectors including cement, automotive components, construction, mining equipment, telecommunications towers, domestic hotel chains and regional retail chains.

The Eight Capital India Recovery Fund, which may raise US$100 million by September, will target a net internal rate of return of 25 percent over its three-year investment period, Chachra said. The firm expects a cyclical recovery as it exits investments after multiple years. About 815 million voters, roughly the populations of the U.S. and European Union combined, were eligible to cast ballots in nine rounds of voting over five weeks to pick 543 lawmakers. Results will be announced on May 16 in the nation of 1.2 billion people, where about two-thirds live on US$2 per day, according to World Bank estimates. Eight Capital started its first fund, a similar strategy that had a peak of about US$250 million in assets and co-investments, in 2005 and returned most of the capital to investors by the end of 2011 after opportunities in distressed investments diminished, Chachra said. “We bought bad loans between 2005 and 2008 and then when there was a great financial crisis, a lot of Indian dollar bonds were being dumped in the market, so we backed up the truck and bought at that time,” he said. Bloomberg News

Australian iron ore trade faces unrest Tugboat deckhands at Port Hedland, used by Australia’s second- and third-largest iron ore producers, on Monday approved a plan to go on strike

ugboat workers at Australia’s main iron ore port threaten to hold a strike that could halt a quarter of the world’s iron ore exports and cost miners US$100 million a day, just as the industry battles to slash costs and get more out of its workers. The dispute comes as resource firms say Australia has become far more expensive than other locations as a now maturing project construction boom, driven by Chinese demand, led to fat pay packets and lavish conditions. In some outback mines, for example, workers are flown back and forth from resortlike housing, while cooks and laundry hands at some gas projects can earn as much as A$350,000 (US$327,200) year. Tugboat deckhands at Port Hedland, used by Australia’s second- and thirdlargest iron ore producers, on Monday approved a plan to go on strike for one, two or seven days if they are unable to resolve a dispute over vacation and pay. A disruption in shipments from BHP Billiton and Fortescue Metals Group may help prop up iron ore prices

Shagang Haili at Port Hedland

that have lost 14 percent from April highs, although bigger rivals Rio Tinto and Brazil’s Vale could fill any short-term gap in a well supplied market. The Maritime Union of Australia (MUA), representing deckhands, said it remained in talks with tugboat operator Teekay Shipping Australia to resolve the dispute, and no decision had been made yet on whether to strike. Deckhands, who work four-weeks-on and fourweeks-off for A$135,000 a year, want four weeks of annual leave on top of that.

They say that is less than the industry standard of six weeks annual leave for workers who are on a similar roster. “We think this is very reasonable, given our members work 12 hours a day for 28 days straight in very tough conditions,” said Will Tracey, Assistant Western Australia secretary of the MUA. They are also seeking pay rates of 70 percent of the A$220,000 that tugboat masters earn, which they say would match the gap between

deckhands and masters at other Australian ports. Iron ore is Australia’s biggest export earner, with the value of exports forecast to surge 35 percent to A$76.8 billion in the year to June 2014 from a year earlier, according to the Bureau of Resources and Energy Economics. “Given the current wages and conditions, we think it would be irresponsible for the MUA to take industrial action that would put a stop to one of Australia’s most critical national exports,” a

BHP Billiton spokeswoman said. BHP, which holds the licence for the tugboats at Port Hedland, estimated a strike would cost suppliers who use the port around US$100 million a day, based on exports running at around 1.1 million tonnes a day at a price of US$103 a tonne. If the workers decide to go on strike, they must do so within 30 days, and must give Teekay three days’ notice ahead of any strike. Further mediation is due on May 20. Masters and engineers who also work on the tugboats are due to hold similar votes, with the results due on May 30 and June 10, which could escalate potential strike action. BHP said it remained hopeful that Teekay would be able to reach an agreement with the maritime unions. Teekay declined to comment, pointing to further mediation. Australia’s biggest iron ore producer, Rio Tinto, would not be hit by a strike at Port Hedland as it does not use the port. But one analyst, who declined to be named, said the government could intervene in the event of industrial action. Reuters

May 14, 2014

International

North Sea drillers to start paying taxes

E.ON profits down in Q1

Osborne’s change will limit the amount companies can deduct from profit for such lease payments to 7.5 percent of the historical cost of the rig

planned change in the way Britain taxes North Sea drillers exposes the loophole in a system that allowed an industry with annual revenues of 2 billion pounds to pay almost no corporation tax for two decades, prompting accusations that the UK tax authority is falling down on the job. The change, announced by Finance Minister George Osborne in March, caps the amount a UK company can deduct from profit for leasing drilling rigs from an overseas unit in the same group. The rig-leasing units are typically based in countries where their income is taxed lightly or not at all. A Reuters review of company accounts, shipping registers and other company statements, shows that such inter-company transactions - known as transfer pricing - have enabled drilling groups in the North Sea to operate almost tax free for 20 years or more, perfectly legally, and with the agreement of Britain’s tax authority, Her Majesty’s Revenue & Customs (HMRC). Companies that have benefited from the current rules include Ensco Plc., Rowan Companies Plc. and Transocean Ltd, which collectively accounted for over 60 percent of the UK market in 2012. There is no suggestion of wrongdoing by any of these companies, which declined to comment. “HMRC has always been fully aware that companies use this approach,” said Mike Tholen, Economics Director at North Sea industry body, Oil and Gas UK. “The arrangements were appropriate fiscally for the business these companies have.” John Sweetman a former tax inspector and now a tax consultant, said it was unusual that an industry could continue for so long with such a light tax burden. “I suspect the industry was a step ahead. These companies were very well advised (but) it is a long time. It’s odd,” he said. The Treasury said the strong prof-

Airbus says A350 in challenging phase

Chancellor of the Exchequer George Osborne

itability of the sector was part of the reason for acting now, though a broader government drive to tackle tax avoidance was also a factor. “Currently, some companies making significant operating profits in the UK are able to move up to 90 percent of these profits overseas and out of the UK tax net,” a spokeswoman for the UK Treasury said. “In 2012, more than 1.75 billion pounds (US$2.95 billion) was paid by oil and gas operators in the UK to contractors who lease drilling rigs and accommodation vessels. Almost no corporation tax was received on this,” the finance ministry added.

Generous deductions Osborne’s change, which will limit the amount companies can deduct from profit for such lease payments to 7.5 percent of the historical cost of the rig, will replace generous deductions calculated on the market value of rigs, which has been soaring. Andrew Cox, Tax partner at Deloitte,

said HMRC had most recently agreed in 2008 that drillers could take tax deductions of up to 20 percent of the market value of a rig each year. Michael Meacher, MP with the opposition Labour party, which governed from 1997 until 2010, said HMRC’s failure to tackle drillers’ profit-shifting earlier raised questions about its overall effectiveness. “How much money are we losing elsewhere? I suspect that this is quite widespread. What we really need is an investigation by the National Audit Office to see how far this lax attitude to taxing companies applies across other sectors,” he said, adding HMRC should receive more resources to crack down on profit shifting. HMRC declined to comment on how it went about taxing the drilling companies over the past 20 years, noting that the small number of participants in the sector meant any comments it made could identify individual companies and thus breach rules on taxpayer confidentiality. Reuters

Lockhart advocates sharp change Atlanta Fed head asks for a major change in US economy policies

conomic conditions in the United States would have to shift dramatically for the Federal Reserve to change the rate at which it is winding down its moneyprinting programme, a senior official at the central bank said yesterday. “It would take a rather dramatic change” to adjust the tapering of the Fed’s monthly bond purchases, Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said in the Saudi capital. Echoing other recent comments by Fed officials, Lockhart also said the Fed would be likely to use a broader mix of policy tools in future, relying less heavily on the overnight federal funds rate. Lockhart, who said he was speaking in his personal capacity, does not have a vote this year on

Germany’s biggest power supplier, said yesterday that its profits fell again in the first quarter, weighed down by the current difficult business environment. “The E.ON group’s businesses performed as anticipated in the first quarter of 2014,” the group said in a statement. “Owing to a continued difficult business and regulatory environment and in the wake of divestments,” underlying or operating profit declined by 12 percent to 3.2 billion euros (US$4.4 billion) and net profit was down 13 percent at 1.2 billion euros.

the Fed’s policy-setting board but he participates in its discussions and is considered to be near the centre of its policy spectrum. The Fed began scaling back its bond-buying programme -aimed at pushing down borrowing costsin recent months amid signs of an upturn in the jobs market. It is currently buying US$45 billion each month, a figure Lockhart said on Sunday in a speech in Dubai should fall to zero by the central bank’s October or December meeting. The Fed introduced the bond purchases as an extra stimulus on top of ultra-low overnight interest rates, which it has kept near zero since late 2008 to help the U.S. economy recover from a profound recession. The central bank’s primary tool

for conducting monetary policy, the Fed funds rate measures the interest at which commercial banks lend money parked at the Fed to each other. Lockhart told reporters that while the Fed funds rate still had a role in the policy mix, it might not be as dominant in future. “There are some longer-term policy tools like term repos, term reverse repos, and term deposits, so we would neutralise excess reserves by paying a little bit more to a bank to effectively sideline their reserves for a period of time,” he said. Dallas Fed chief Richard Fisher suggested last week that the central bank could replace the Fed funds rate in the years ahead, and other tools had been tested. Reuters

Airbus Group is entering a critical phase in the development of its new A350 passenger jet but flight tests are going well, Finance Director Harald Wilhelm said yesterday. “The A350 is in a critical phase, and challenges and risks remain,” he told reporters after unveiling a narrower-thanexpected drop in quarterly profit. Airbus is taking advantage of the first heavy maintenance overhauls of its A380 superjumbo, after just over six years in service, to incorporate some improvements following recent glitches that include problems with door noise, he said.

U.S. predicts energy production will continue to grow The U.S. Energy Information Administration said yesterday that the country’s shale oil and gas production, which has been a significant contributor to its total energy output in recent years, is expected to soar thanks to a boost in rig efficiency. The federal agency released the new projections on its website on Monday, saying total oil production of the six major shale plays is expected to grow to 4.43 million barrels per day in June, an increase of 75,000 barrels per day over May.

Gazprom not contracting Chinese firms Russian state gas company Gazprom is not looking at inviting Chinese companies to develop its gas fields, Deputy Chief Executive Vitaly Markelov said yesterday. Asked if Gazprom was considering inviting Chinese companies to develop its fields, an offer which could help spur moves to sign a gas contract with Beijing after years of talks, Markelov told a news conference: “We are not looking at such cooperation.” Russian President Vladimir Putin plans to visit China on May 20 and Gazprom hopes to sign a gas contract which would help it diversify its exports away from Europe.

Former Israeli PM sentenced to six years Former Israeli Prime Minister Ehud Olmert was sentenced to 6 years in prison for bribery at the Tel Aviv District Court yesterday. Olmert was found guilty of accepting 560,000 shekels (US$160,000) from contractors while he was the mayor of Jerusalem (between 1993 and 2003) in order to expedite proceedings of construction complexes including the Holyland residential complex in the city.

May 14, 2014

Opinion Business

China is still number two

Leading reports from Asia’s best business newspapers

Jeffrey Frankel

wires

Professor at Harvard University’s Kennedy School of Government

VIETNAM NEWS The health of credit institutions improved significantly in March, with the value of their assets registering a sharp increase over February to more than VND123.4 trillion (US$5.8 billion). The 2.17 per cent increase is a marked improvement after a negative growth in February, according to the latest report from the State Bank of Viet Nam. The report says that total assets of State-owned commercial banks surged to over VND70 trillion ($3.18 billion), and those of joint stock commercial banks rose to VND55.8 trillion ($2.536 billion).

MYANMAR TIMES U Than Lwin, head of Yangon’s Seikkan township General Administration Department, said a proposal has already been sent to parliament, while his department had notified all liquor vendors in the township about the pending change. “I didn’t hear any negative feedback on the proposed change, so we will go ahead,” he said. Current annual fees sit at K100,000 for sellers of locally made alcohol, K500,000 for both imported and locally made varieties, K1.25 million for restaurants, and K2.4 million for local producers to distill, store and distribute products.

THE STRAITS TIMES Barclays has appointed John Chang and Vikesh Kotecha to lead its equities sales and trading business in Asia Pacific, a spokesman for the bank said yesterday. Chang, who was the bank’s country manager for Korea, now heads equities distribution for Barclays in Asia Pacific while Kotecha is head of equities trading. The appointments were effective as of last week, said Allister Fowler, the Hong Kong-based spokesman for the bank. The pair take over from previous equities head for the Asia Pacific region Nick Wright, who left the bank in March.

THE AGE Tony Abbott has flagged a tougher budget than the Howard government’s slashand-burn first budget in 1996, telling his party room the Coalition government faces a ‘’watershed moment’’. In a final rallying cry to colleagues before Treasurer Joe Hockey hands down the budget on Tuesday night, the Prime Minister said the budget would contain ‘’more structural reform than any budget, including the ‘96 budget’’. ‘’The public will respect us for this budget even if there’s parts of it they don’t like,’’ Mr Abbott told a meeting of Liberal and National Party MPs in Canberra.

AMBRIDGE – Headlines around the world this week trumpeted a watershed moment for the global economy. As the Financial Times put it, “China poised to pass US as world’s leading economic power this year.” This is a startling development – or it would be if the claim were not essentially wrong. In fact, the United States remains the world’s largest national economy by a substantial margin. The story was based on the April 29 release of a report from the World Bank’s International Comparison Program. The ICP’s work is extremely valuable. I eagerly await and use their new estimates every six years or so, including to look at China. The ICP data compare countries’ GDP using purchasing-power-parity (PPP) exchange rates, rather than market rates. This is the right thing to do when looking at real (inflation-adjusted) income per capita in order to measure people’s living standards. But it is the wrong thing to do when looking at national income in order to measure the country’s weight in the global economy. The bottom line is that, by either criterion – per capita income (at PPP exchange rates) or aggregate GDP (at market rates) – the day when China surpasses the US remains in the future. This in no way detracts from the country’s impressive growth record, which, at about 10% per year for three decades, constitutes a historical miracle. At market exchange rates, the American economy is still almost double the size of China’s (83% larger, to be precise). If the Chinese economy’s annual growth rate remains five percentage points higher than that of the US, with no significant change in the exchange rate, it will take another 12 years to catch up in total size. If the differential is

eight percentage points – for example, because the renminbi appreciates at 3% a year in real terms – China will surpass the US within eight years. The PPP-versus-marketexchange-rate issue is familiar to international economists. This annoying but unavoidable technical problem arises because China’s output is measured in renminbi, while US income is measured in dollars. How, then, should one translate the numbers so that they are comparable? The obvious solution is to use the contemporaneous exchange rate – that is, multiply China’s renminbi-measured GDP by the dollar-per-renminbi exchange rate, so that the comparison is expressed in dollars. But then someone points out that if you want to measure Chinese citizens’ standard of living, you have to take into account that many goods and services are cheaper there. A renminbi spent in China goes further than a renminbi spent abroad. For this reason, if you want to compare per capita income across countries, you need to measure local purchasing power, as the ICP does. The PPP measure is useful for many purposes, such as knowing which governments have succeeded in raising their citizens’ standard of living. Looking at per capita income, even by the PPP measure, China is still a relatively poor country. Though it has come very far in a short time, its per capita income is now about the same as Albania’s – that is, in the middle of the distribution of 199 countries. But Albania’s economy, unlike China’s, is not often in the headlines. That is not only because China has such a dynamic economy, but also because it has the world’s largest population. Multiplying a middling per capita income by more than 1.3 billion

Multiplying a middling per capita income by more than 1.3 billion “capita” yields a big number. The combination of a large population and a medium income gives it economic power, and also political power

“capita” yields a big number. The combination of a large population and a medium income gives it economic power, and also political power. Similarly, we consider the US the number-one incumbent power not just because it is rich. If per capita income were the criterion by which to judge, Monaco, Qatar, Luxembourg, Brunei, Liechtenstein, Kuwait, Norway, and Singapore would all rank ahead of the US. (For the purposes of this comparison, it does not matter much whether one uses market exchange rates or PPP rates.) If

you are shopping for citizenship, you might want to consider one of those countries. But we do not consider Monaco, Brunei, and Liechtenstein to be among the world’s “leading economic powers,” because they are so small. What makes the US the world’s leading economic power is the combination of its large population and high per capita income. It is this combination that explains the widespread fascination with how China’s economic size or power compares to America’s, and especially with the question of whether the challenger has now displaced the long-reigning champion. But PPP exchange rates are not the best tool to use to answer that question. The reason is that when we talk about an economy’s size or power, we are talking about a broad range of questions – and a broad range of interlocutors. From the viewpoint of multinational corporations, how big is the Chinese market? From the viewpoint of global financial markets, will the RMB challenge the dollar as an international currency? From the viewpoint of the International Monetary Fund and other multilateral agencies, how much money can China contribute, and how much voting power should it get in return? From the viewpoint of countries with rival claims in the South China Sea, how many ships can its military buy? For these questions, and most others involving total economic heft, the indicator to use is GDP at market exchange rates, because what we want to know is how much the renminbi can buy on world markets, not how many haircuts or other local goods it can buy back home. And the answer to that question is that China can buy more than any other country in the world – except the US. The Project Syndicate 2014

May 14, 2014

Closing Alibaba tougher ahead of U.S. IPO

HK Stocks up after China factory output data

Alibaba is taking a tougher line against counterfeit items sold on its online marketplaces as the Chinese e-commerce giant heads towards a U.S. stock listing that could be the world’s biggest technology company IPO. Some security experts say the Chinese group’s stricter standards on piracy and fake goods may even surpass those of Amazon.com and eBay .In its IPO filing last week, Alibaba said the perception that its sites are cluttered with counterfeit items could hurt its ability to win over customers, investors and U.S. retail partners.

Hong Kong stocks rose, with the city’s equity benchmark maintaining gains even after China factory output and retail sales missed estimates. China Overseas Land & Investment Ltd., the largest mainland developer listed there, climbed 3.8 percent on a report China’s government is telling banks to keep offering mortgage loans. PetroChina Co. climbed to its highest close since November after saying it will sell pipeline assets valued at 39 billion yuan ($6.25 billion). Lenovo Group Ltd., a Chinese maker of personal computers, gained 2.1 percent.

Solaire getting stronger Bloomberry sees gaming growth of at least 10 percent on high rollers Ian Sayson

loomberry Resorts Corp., the world’s s e c o n d - b e s t performing casino stock, expects at least 10 percent annual growth in gaming volume as its Solaire Resort & Casino in Manila brings in more high rollers from Asia. “Gaming volumes have grown very nicely,” with both VIP and mass-market gambling showing “doubledigit” gains while operating margins have “strongly” i m p r oved, Bloo mb erry President Thomas Arasi said in an interview, without giving specific figures. “We expect those trends to continue.” Solaire’s international business has increased, boosting VIP operations at the 14-month-old casino, Arasi said. From “substantially” less than half of gambling revenue last year, the share generated by VIP clients has risen to “close to parity” with mass-market gaming, he said. The US$1.2 billion Solaire project is the first of four resorts to open in the 120- hectare (297-

acre) Entertainment City, a Las Vegas-style complex the Philippines is building to compete with Macau and Singapore in Asia’s gambling market. “The more VIPs and high rollers they get, the better for them,” said Noel Reyes, chief investment officer at Security Bank Corp., which had US$823 million in assets under management in 2013. “It would take a longer time to recover those investments if it relies on the local market. It needs foreign players.” Solaire may need an international partner to grow further, Reyes said. Bloomberry’s shares have rallied 38 percent this year, the second-biggest gain among 26 global casino operators tracked by Bloomberg. The stock rose as much as 4.2 percent in Manila yesterday, headed for the biggest gain since April 24.

Junket operators Junket operators have provided Solaire a “stable

business” since the middle of the fourth quarter, said Arasi, who was hired in October after Bloomberry fired Las Vegas-based Global Gaming Asset Management as its casino operator on allegations it didn’t meet obligations in their agreement. Bloomberry, owned by Philippine billionaire Enrique Razon, has signed up 47 junket operators. The operators help fill the VIP area with high rollers, and the casino frequently operates at capacity for premium players, Arasi said. “It now happens fairly often, particularly on weekends,” said Arasi, a former president at Singapore’s Marina Bay Sands. “We could use more space.”

Second quarter Solaire, which has 295 tables and 1,400 slot machines, had 7.1 billion pesos (US$162 million) in gross gaming revenue in the first quarter, 27 percent more than in the fourth quarter.

Bloomberry’s first-quarter profit reached 1.46 billion pesos, compared with a year-earlier 1.06 billionpeso net loss that included pre-operating expenses and only two weeks of casino operations. ’’It’s too early to say that the first quarter is an indication that Solaire is already on solid ground,’’ said James Lago, head of research at PCCI Securities Brokers Corp. “Solaire has to deliver at least a similar performance in the second quarter.” Bloomberry shares fell 35 percent in 2013, trailing a 1.3 percent gain in the nation’s benchmark Philippine Stock Exchange Index, as Solaire’s fledgling operation struggled to ramp up its international VIP business. Solaire’s VIP gaming area will double following its US$500 million expansion, according to Bloomberry. The project, to be completed in the fourth quarter, includes 6,000 square meters (65,000 square feet) of VIP gambling

space with 65 tables, a 300-suite boutique hotel, a 1,700-seat theater and 5,000 square meters of retail shops.

City of Dreams The resort now has 115 tables for high-stakes gamblers, 488 rooms and 15 restaurants and food and beverage outlets. The additional VIP gaming area will target higher-end players from overseas, Arasi said. Solaire’s high rollers come from China, Hong Kong, Macau, Japan, Taiwan, Malaysia, Singapore, Thailand and Indonesia, and the company is starting to tap Vietnam, he said. City of Dreams Manila, a venture of Melco Crown Entertainment Ltd. and Philippine billionaire Henry Sy, is slated to open in the fourth quarter of this year and will be the second integrated resort to open in Entertainment City. While the new casino will bring competition for Solaire, it will expand the nation’s gaming market and help attract more players from the region, Arasi said. Entertainment City’s two remaining licenses are held by Japanese gaming magnate Kazuo Okada and a venture of Genting Hong Kong Ltd. and Philippine billionaire Andrew Tan. The properties are scheduled to open between 2015 and 2017. Bloomberg