Macau Business Daily, May 23, 2014 by Business Daily

MOP 6.00 Closing editor: Sara Farr Publisher: Paulo A. Azevedo Number 545 Friday May 23, 2014

Raining cheques

Year III

More people are benefiting from the government’s annual cash-handout scheme than there is total population in Macau. Some 607,500 people lived here in November, when the government announced its policy address, of which 137,838 are blue-card holders, thus no cash-handout. When announcing the scheme yesterday, however, the government managed to count 650,000 residents who would benefit this year Page

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Dollars and sense A subsidiary of Industrial and Commercial Bank of China Ltd and one of the joint sponsors and bookrunners in Powerlong’s listing have been wrapped over the knuckles. The SFC has fined them HK$12.5 million apiece for placement failings falling short of the Commission’s standards

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Fitch, the world’s third biggest rating agency, has decided to retain Macau’s AArating. This fourth highest level defines Macau as a high rate investment destination, just two notches behind the top-drawer AAA rating of economic powerhouses like the US and Germany Page 5

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HSI - Movers May 22

Name

%Day

Kunlun Energy C LTD

3.93

Li & Fung Ltd

2.96

Wharf Holdings Ltd

2.31

Ping An Insurance G

2.29

Galaxy Entertainm

2.04

China Resources Land

-0.67

CITIC Pacific Ltd

-0.74

China Petroleum & Ch

-0.98

Sino Land Co Ltd

-1.00

Hutchison Whampoa

-1.75

Source: Bloomberg

More than gaming Current negative market sentiment about stocks is “disconnected” from the solid fundamentals of the Macau gaming industry. Tim Craighead, senior gaming analyst at Bloomberg, tells Business Daily about the issues behind the issues Page 6

There’s gas China and Russia gas deal opens a wide range of possibilities for both countries. China will be able to get better prices in other markets, while Russia can reduce dependency on Europe Pages 8 & 9

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Carbon footprint fading Macau International Airport has been awarded Airport Carbon Accreditation at level 2 reduction. Only seven airports in Asia Pacific are carbon accredited, three in Australia. It’s all part of MIA’s five-year environmental plan Page 2

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May 23, 2014

Macau

Retail sales dip to MOP18.31 billion in Q1 The sales of motor vehicles and communication equipment were the most affected as the value of sales decreased compared to the last quarter of 2013

he value of retail sales amounted to 18.31 billion patacas in the first quarter of this year, according to official data from the Statistics and Census Service released yesterday. This represents a decrease of 29 million patacas when compared to the 18.33 billion patacas rung up in the fourth quarter of last year. Sales of watches, clocks and jewellery accounted for 5.38 billion patacas, which represented 29 percent of the total. Department stores goods came in second at 17 percent, followed by leather goods at 10 percent and adults’ clothing, also at 10 percent. Supermarket goods accounted for 6 percent and motor vehicles another 6 percent. However, the value of retail sales for the first three months of the year increased 15 percent year-on-

year, with increased sales stronger for electrical goods (47 percent), supermarket goods (25 percent), department store goods (22 percent) and adults’ clothing (19 percent). As for the volume of retail sales, numbers from the Statistics and Census Service show this held stable compared to the last three months of 2013. However, the sales of electrical goods (30 percent), supermarket goods (12 percent) and dried seafood (11 percent) showed a strong increase. The sales of motor vehicles and communication equipment dropped 15 percent and 10 percent, respectively.

Price stability anticipated According to the Statistics and Census Service, 59 percent of retailers report that the sales volume in the

first quarter of 2014 increased or at least held stable in comparison to the last quarter of 2013. However, this is a drop of 9 percentage points when compared to the opinions stated in the previous quarter. Some 41 percent reported a decrease in sales volume. In terms of retail prices, about 64 percent reported stable prices, 24 percent stated an increase and 12 percent registered a decrease. As for stock levels, 14 percent of retailers said that they were low. Regarding projections for the second quarter of the year, 71 percent of retailers expect prices to stabilise, while 19 expect prices to increase and 10 percent think they will diminish. This scenario is also predicted for sales volume: 42 percent think it will remain stable, 30 percent predict that sales volume will increase and 29 foresee it dropping.

59 pct retailers say sales remained unchanged in Q1

Macau-bound ferry collision probe underway M

aritime authorities and police in Hong Kong are investigating the cause of a Macau-bound ferry collision with a Chinese cargo ship off Hong Kong’s Cheung Chau Island, injuring more than 30 people. The ferry, operated by Shun TakChina Travel Ship Management Ltd, collided with the cargo ship at 10:55pm Wednesday after leaving Tsim Sha Tsui, a police spokeswoman said, asking not to be identified, citing policy. The ferry

had 162 people aboard and the cargo ship was carrying seven. Shun Tak-China Travel Ship Management is owned by Hong Kong-listed Shun Tak Holdings Ltd and China Travel International Investment Hong Kong Ltd, according to the company’s website. Hong Kong media report that the ferry was carrying 102 passengers from mainland China travelling as part of a tour, as well as 55 Hong Kong and Macau residents and

five foreigners. No casualties were reported on the mainland ship. There have been a number of ferry accidents in recent years, mainly involving collisions with other ships, buoys or docks. In 2012, 38 people were killed and 92 injured when a Hongkong Electric boat collided with a vessel carrying Chinese New Year revellers off Lamma Island. It was Hong Kong’s worst maritime disaster in 40 years. with Bloomberg

MIA now carbon accredited The international airport has become accredited at level 2 reduction Sara Farr

sarafarr@macaubusinessdaily.com

he aim was to get accredited by 2018 but recognition came sooner than expected for Macau International Airport, which has received Airport Carbon Accreditation. Last month, Macau International Airport Co Ltd (CAM) announced a string of measures as part of its fiveyear environmental plan. In addition to cutting carbon emission levels by 20 percent and increasing recycling and treatment by 180 percent come 2018, the authorities wanted the airport ranked highly amongst others in the region and the world. The Airport Carbon Accreditation website welcomes the Macau International Airport for being accredited at level 2 reduction. ‘This is a clear signal that the airport is actively engaged in reducing its carbon footprint,’ the organisation says. Only seven airports in the Asia Pacific region are carbon accredited. Three of these are in Australia. Abu Dhabi in Dubai and Singapore are two other cities boasting Airport Carbon Accreditation. The plan, announced at the end of April, is divided into three stages between 2014 and 2018. The first stage runs throughout the rest of this year and comprises mainly detail planning and preparation works. Stage two is the implementation of works, and starts next year through 2016. In the third and final stage, which runs from 2017 and 2018, an assessment will be conducted on the efficiency of the airport’s environmental enhancement. Currently, all lighting at the terminals and runway has been changed to LED, the air-conditioning system retrofitted, and the baggage handling system upgraded. According to the plan, the airport will also develop an intelligent metering and monitoring system in the passenger terminal building, upgrade its integrated broadband mobile system and optimise control and energy consumption. Once all measures are in place, the airport could save as much as 3.7 million patacas each year by reducing power consumption to an annual 2.8 million kWh.

May 23, 2014

Macau

Wealth-sharing cheques on way to 650,000 residents The number of resident beneficiaries far exceeds the population count released by the census, Executive Council data shows Stephanie Lai

sw.lai@macaubusinessdaily.com

tarting from the first week of July, about 650,000 local permanent and non-permanent residents – a number that far exceeds the city’s latest population count – will begin receiving the MSAR Government’s wealth-sharing cheques issued under the annual cash handout scheme first implemented in 2008. From July 2 to September 12, over 590,000 permanent residents will receive 9,000 patacas (US$1,126) each under the government’s cash-handout scheme for this year, Executive Council spokesperson Mr. Leong Heng Teng announced in a press briefing yesterday; nonpermanent residents in the city, who total over 61,000 people, can each receive 5,400 patacas during the period. The latest amount offered by the cash-handout scheme

is also the biggest ever since the scheme began, a measure that the MSAR Government has long called an act of wealth-sharing of the city’s economic growth, although it has never confirmed if the scheme is of a permanent or provisional nature. The number of resident beneficiaries that the Executive Council announced yesterday - over 650,000

people - is a figure that far exceeds the city’s population of 614,500 counted by the Statistics and Census Services as at the end of March. The figure counted by the census service, which gathers the information from Macau’s hospitals, Civil Affairs Registry and Public Security Police, basically covers the people that were living and working in the city at the time

the census was conducted, including the number of nonresident workers. As at the end of March, the census revealed that there were altogether 614,500 population living in the city, including 145,692 nonresident workers, suggesting that there is a total of 468,808 permanent and nonpermanent residents. The over 650,000 permanent and nonpermanent beneficiaries of the cash-handout – as announced by the Executive Council using data from the Macau Identification Bureau – is at least 181,000 people more than the count of the census service. Questions were raised in yesterday’s briefing about how many of Macau’s residents are most of the time out of the city and not paying any taxation contributions but benefiting

from the cash-handout scheme, while non-resident workers have not been able to benefit from the scheme. “Different people have various opinions on this social policy [the wealthsharing scheme],” Mr Leong briefly pronounced to media yesterday, “The MSAR fully acknowledges the huge contribution by the non-resident workers for the city and will strive to improve the [labour] policy for them...Whether or not non-resident workers should also benefit from the scheme, we’ll continue to listen to their opinions on the issue.” For this year’s wealthsharing scheme, the MSAR Government is spending 5.65 billion patacas, accounting for 7.3 percent of the total public expenditure budget at about 78 billion patacas for the fiscal year 2014/15.

May 23, 2014

Macau Brought to you by

HOSPITALITY

SFC fines ICBC subsidiaries for faulty IPO shares subscription Two ICBC subsidiaries did not ensure placees’ independence for the listing of Powerlong, a realty firm controlled by Macau businessman Hoi Kin Hong Stephanie Lai

sw.lai@macaubusinessdaily.com

Border bedlam Macau streets are becoming increasingly congested. The total number of new registrations for vehicles in all categories - light vehicles, heavy vehicles and motorcycles - keeps rising. The number of vehicles crossing the borders every day, including trucks, tourism buses and casino shuttles, does not stop growing either, compounding those congestion problems. They are especially evident in the northern part of the city for most of the daytime. But the three border crossings are showing different patterns of change.

In the case of light vehicles, the main increase, in relative terms, was recorded at the Trans-Border Industrial Park. Last quarter, their number was up by almost 25 percent, compared with the figure one year earlier. If we add TBIP and Cotai figures, from 2010 to 2013, their combined total went up by 85 percent. That was a growth rate of about 7 times bigger than the rate registered at the main crossing point, the Border Gate. In the case of heavy vehicles, however, the flow at TBIP decreased, by slightly less than 4 percent, in the last year ending in the first quarter. Note that this border (not plotted on the chart) has no traffic of heavy passenger vehicles and other total figures are comparatively small. In both Cotai and Border Gate crossings the number of trucks bringing cargo to the city has increased in the same period. That reverted the declining trend that had characterised those flows since 2010. Finally, the latest figures suggest the consolidation of another trend noted earlier: the number of heavy passenger vehicles crossing at Cotai keeps decreasing, while the corresponding numbers at the Border Gate keep rising.

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number of heavy passenger vehicles crossing the Border Gate, rise in Q1 on previous year

he Securities and Futures Commission (SFC) of Hong Kong has fined ICBC International Capital Ltd and ICBC International Securities Ltd HK$12.5 million (US$1.61 million) each in relation to their role in the initial public offering of Powerlong Real Estate Holdings Ltd in 2009, a Hong Kong-listed firm controlled by Macau businessman Hoi Kin Hong. ICBC International Captial Ltd (ICBCI Capital), a subsidiary of Industrial and Commercial Bank of China Ltd and one of the joint sponsors and bookrunners in Powerlong’s listing, was reprimanded and fined HK$12.5 million for its failure ‘to conduct customer due diligence’ and ‘perform ongoing scrutiny of accounts of certain placees referred by Powerlong’, the financial watchdog announced in its investigation result on Wednesday. ICBC International Capital also ‘turned a blind eye’ to the lack of independence of placees for the subscription of Powerlong’s shares allotted through its listing on the Hong Kong Stock Exchange in 2009, SFC pointed out in its announcement. The executive chairman and major shareholder of Powerlong Real Estate is Macau businessman Hoi Kin Hong, who is also a member of the Chinese People’s Political Consultative Conference and of the plenary meeting of the Selection Committee of MSAR to China. Mr Hoi’s Hong Kong-listed firm is primarily focused on the development of commercial realty projects in mainland China. The offer shares of Powerlong have

been re-priced due to insufficient demand. As requested by Powerlong, ICBCI Capital informed ICBC International Securities Ltd – at the time one of the joint lead managers for Powerlong’s listing - that extensive margin financing would have to be extended to particular placees so that subscriptions under their accounts could be increased to prevent the listing from falling through, SFC noted. The Commission’s investigation result wrote that the subscriptions of these placees suddenly increased by as much as tenfold. On the unusual and substantial increase in the subscription size of these placees, an anonymous staff member of ICBCI Capital has voiced his suspicion that the orders of these placees belonged to Powerlong. The financial watchdog stated that the subscriptions of some of these placees far exceeded their declared net worth but ICBCI Capital nevertheless allocated the offer shares to them. ‘As a result, massive debit balances were triggered after the offer shares were booked into their accounts,’ SFC noted in its investigation result. ‘Margin financing of as much as 50 percent, which was not generally granted in international primary placings, was then extended by ICBC International Securities to certain placees.’ In addition, the commission also pointed out that when some placees raised questions on the third-party settlement of their subscriptions, ICBC International Securities did not question the placees’ reasons but advised them to settle their allotment

Margin financing of as much as 50 percent, which was not generally granted in international primary placings, was then extended by ICBC International Securities to certain placees Securities and Futures Commission

by various methods which ensured that the identity of the third-party depositors could not be traced. “These failings go to the heart of the sponsor’s obligation to help ensure the integrity of the initial public offering market,” SFC’s Executive Director of Enforcement Mark Steward was quoted as saying in the Commission’s announcement. “The sponsor is the principal responsible for the management of the listing process and these failings cannot be placed at the foot of any other person,” Mr Steward remarked.

Macau bill to target bribing of foreign officials

acau’s Legislative Assembly will process a bill that extends its anti-corruption prevention and sanctioning scope to foreign public officials and officials of public international organisations, in compliance with the United Nation’s Convention Against Corruption, Executive Council spokesperson Leong Heng Teng announced in a press briefing yesterday. As the bill states, the city’s Commission Against Corruption will be the authorised unit to investigate

any corrupt acts related to external trade when public officials and officials of public international organisations outside Macau are the bribed party. The bill suggests the adoption of the penalty as listed in article 339 of Macau’s Penal Code against the briber that offers interests to civil servants, a maximum three-year imprisonment term. The United Nations Convention Against Corruption took effect in China in February 2006, and also applies to Hong Kong and Macau. “With this law we’re filling in the

legal blank [of bribing foreign public officials] and better achieving our compliance with the United Nation Convention,” Mr. Leong said in yesterday’s briefing, adding that the bill will target sanctioning the bribing party from Macau. The bill has already been discussed by the Executive Council, and will be passed to the Legislative Assembly for further deliberation, Mr. Leong said, noting that as yet a timeframe for the bill has to be approved. S.L.

May 23, 2014

Macau

Fitch upbeat on Macau economy The world’s third biggest rating agency has maintained Macau’s notation (AA-) and decided not to upgrade, much like Moody’s did this month on concerns that the territory’s vulnerability to China‘s slowdown and high concentration risks regarding gaming leave it exposed Alex Lee

Alex.lee@macaubusinessdaily.com

ven with an impressive economic performance and public accounts that put the economies of most developed countries in the world to shame Macau is not yet a safe haven. At least for Fitch, the world’s third biggest rating agency (after Standard & Poor’s and Moody’s) who think that China’s economic slowdown could have a ‘serious’ impact on Macau, especially for an economy with ‘serious concentration risks’ in the gaming sector. Nevertheless, the agency decided yesterday to maintain Macau’s rating at AA-, its fourth highest level, with a stable outlook. This means that investors see Macau as a high rated investment, only two notches behind premium investment (AAA), where big economies like the US and Germany sit. The stable outlook also means that an upgrade or downgrade is unlikely in the next three to six months, according to Fitch rules.

Macau will grow four times faster than the median of AA countries in 2014… [but its] limited range of macroeconomic policy levers is a weakness relative to rating peers Fitch

China and casinos are the drivers of Macau’s success but also its potential Achilles heel. Fitch showed more prudency than Moody’s, who recently upgraded the territory’s rating to its third highest level (Aa2) - just one notch behind Hong Kong and above China and Japan. The agency warned that concentration risks weigh on Macau: ‘Macao’s small, open and gaming-dominated economy is vulnerable to economic developments in mainland China - its dominant source of demand. A hard landing for China’s economy is a low probability but high-impact downside risk to Macao’s gaming industry’, wrote Fitch yesterday in a press release. Even if Fitch recognises that being part of China is a major advantage for Macau, its dependency on casinos could turn dangerous if the tide turns. Gross gaming revenues represent

85 percent of Macau’s GDP and 75 percent of government revenues.

Shocks With a stable outlook, Macau could face a downgrade by Fitch if a severe economic shock from China occurs given its close economic and financial links or if the banking sector stability ends with risks spilling from rising house prices and exposure to mainlanders. The agency stressed that even if a largely ‘foreign-owned’ banking system (70 percent of assets are owned by Chinese parent banks) limits the global sovereign risk, it also means Macau would be more exposed to any shock emanating from China. Despite the warnings, the Fitch tone is optimistic about Macau’s future, even if less so than Moody’s. The main risks are unlikely to become a reality, like a hard landing or a shift in China’s policy towards gaming and tourism. That leaves Macau with impressive numbers. The GDP per capita is twice the median of other Fitch AA countries, including France and Belgium, for example. Macau’s domestic savings (74.8 percent of GDP) is also double that of the majority of countries holding Fitch AA accreditation (36.8 percent of GDP). Fitch stresses that public finances are a ‘clear stand-out’ for Macau. The territory has no public debt, domestic or external. The central government has a fiscal surplus of 20.5 percent of GDP, the world’s second biggest in 2013, only behind Kuwait, according to Fitch’s calculations. The cumulative surplus generated a fiscal reserve of US$42.9 billion at the end of last year, equivalent to 83.9 percent of GDP, a fiscal strength decisive in the stable rating.

AA leading growth Fitch forecasts that Macau’s economy will grow at an average rate of 9.8 percent this year and next. This will make the territory the world’s fastest growing economy in this period among its AA peers, said the agency. Macau will grow four times faster than the median of AA countries in 2014 (2.4 percent). ‘However, Macao’s limited range of

macroeconomic policy levers is a weakness relative to rating peers’, reminded Fitch. The agency underscored the fact that ‘as a small, open economy with a high degree of concentration risk,

Macau is characterised by aboveaverage volatility with respect to growth, inflation and government revenues. Macao’s governance indicators also fall short of both ‘AA’ and ‘A’ rated peers’. This month, Moody’s, another top 3 rating agency, upgraded Macau’s rating to Aa2 with a stable outlook, due to it being ‘high quality and subject to very low credit risk’. The upgrade ‘was supported by Macau’s continued rapid economic growth, the continued large fiscal surpluses and increasing fiscal reserves of its government, and its very strong balance of payments and external financial position’, the agency said. And like Fitch, Moody’s also offered some warnings, namely that the close ties with China could put Macau in line for a future downgrade if there’s pressure on Beijing’s ratings. If the casino revenues were vital for the economic boom and subsequent rating upgrade, excessive dependency on the gambling industry is also a barrier for future upgrades.

May 23, 2014

Macau

“The mass market is not Macau’s life insurance, it’s its core” In an interview with Business Daily during G2E 2014, Tim Craighead, Director of Asian Research & Senior Gaming Analyst, Bloomberg Industries, said current negative market sentiment about stocks is “disconnected” from the solid fundamentals of the Macau gaming industry. If UnionPay or junket scandals had happened in 2013, investors would have dismissed them, he believes Alex Lee

Alex.lee@macaubusinessdaily.com

Tim Craighead

Most major casino operators said in G2E 2014 that UnionPay and junket scandals are minor events and will not affect Macau’s success story. Do you agree? In general, yes. We see the regulatory environment being consistently controlled and is very transparent in most ways, both in Macau as well in a broader China business perspective. We see a lot of positive dynamics of change going on. These news headlines are relatively minor issues in the grand scheme of growth opportunity that can be Macau and Hengquin Island and beyond. But casino shares have already lost 25 percent since the beginning of the year, and this month stocks fell to a record 2-year low in a single session. Minor events, with big impacts? We happen to be in a period of very negative market psychology that continues to magnify news headlines as opposed to last year when everything was very enthusiastic. If these same headlines had appeared at that time they would have been largely dismissed. But analysts say investors are “anxious” and calling everyday Markets tend to go through rotational cycles. Last year, growth accelerated into momentum. This year, from my perspective, has always been a bit of a pause. Growth was going to

slow because we have very difficult year-on-yearly comparisons, have a lack of new resort capacity and a lack of new transport infrastructure, all of which accelerated growth last year. If you have investors moving in momentum mode and you start to see this momentum slow, that investor base quite often will exit. And it seems that’s what these casinos stocks are suffering this year.

We happen to be in a period of very negative market psychology that continues to magnify news headlines

Can we expect a surge in casino stocks this year? I think the market got overheated late last year, early 2014 and it started to slow after. We put out an outlook last year titled ‘Drought and Flood’. The drought being the drought of capacity this year, and the flood being the expansion of capacity in 2015 and 2016. Next year, all else being equal, growth will start to accelerate over the years. When investors will go from selling momentum to becoming more interested in acceleration and growth we shall see.

There’s definitely a bottleneck in Macau in terms of gamblers

term story and that’s what the analyst community is thinking about. That’s a different dynamic to short term volatility and market sentiment. It’s not only gaming stocks that are suffering; technology has rolled over, biotech, some of the areas that were oriented towards high growth and momentum. On a short term basis quite often that can be a tough combination with slowing growth, and that creates where we currently are, which may well change at some point later this year. Is the mass market Macau’s life insurance?

Isn’t it a contradiction when you see investors increasing price targets and casino bonds improving at the same time shares are falling? Investors fall into different camps. We have growth investors, value investors, momentum investors, global and local investors. This is an intriguing period of time. The underlying fundamentals for Macau casinos and the integrated resort industry really haven’t changed. But you go through periods of market turmoil that disconnect from fundamentals. The sell-side community of investors like to take a longer term view quite often and that’s maybe what’s driving target prices. First quarter results were robust, even if slower than last year. But it’s supportive of the long

The mass market is not Macau’s life insurance, it’s its core. It’s much more important than a life insurance. I think the VIP business will always be there, it’s a sort of foundation but it’s volatile with economic cycles in

Market got overheated in late 2013 This is an intriguing period of time

China, power transitions, policies from Beijing. The mass market is the story about the emerging Chinese consumer class. That is a very small penetration coming to Macau and that’s a huge, very long-term story. If only 1 percent of Chinese are coming to Macau, how can the territory absorb millions of new clients if 3 or 4 percent start coming in the future? That goes to the capacity expansion of Macau from 2015 to 2017 that will double hotel capacity. Not all Chinese are going to come to Macau but today there’s definitely a bottleneck. If you want to come to Macau, quite often you can’t. You can’t find a hotel room. It’s one thing to be a day-tripper gambler from Guangdong province, it’s another thing if they live in Beijing or other province in China and want to stay three or four days. In the next ten years, you’ll have the current hotel capacity expansion, Hengquin Island, and the transportation network will be much better with a connection to the airport that helps support international and business travel. There’re a lot of reasons to think of in terms of supply expansion perspective that a lot of demand will be able to be backed. In the long term, there’s a lot to be built, a lot of demand just sited across the border that doesn’t have the ability to come to Macau right now.

May 23, 2014

Macau

Riding the Macau wave The city’s juggernaut growth and new resorts are seen as fundamental to Bally Technologies quest to maintain its leading position as gaming supplier Alex Lee

alex.lee@macaubusinessdaily.com

he US$1.3 billion acquisition of Shuffle Entertainment by fellow giant gaming manufacturer Bally Technologies has given the company the ability to become an ‘end to end’ gaming supplier. With game development studios for slot games in China, Macau and Australia, Bally is topping up its investment in order to create new games specifically for different Asian markets in which its products are available, tailored to local players, Mike Trask, the company’s manager for Corporate Communications told Business Daily yesterday on the sidelines of G2E Asia. The major acquisition brought Bally different table games, table game systems, shufflers, utilities and igaming equipment, enabling the American company to put down a larger footprint in the Asian region. “There’s not a different approach [between the Asian market and Western market] but it’s a different style of game”, says Mike Trask. “Having local people on the ground developing these games in China definitely provides a heads-up”,

Having local people on the ground developing these games in China definitely provides a heads-up Mike Trask, Bally Technologies manager for corporate communications

he explains. “We have 20 studios in the United States developing games for that market; there’s a crossover - games go to both places, especially in a place like Las Vegas, where there is such a large Asian tourism market, so the strategy is always to provide the best product, although sometimes the market is going to be

slightly different”, he said on the last day of the Macau event that showcased dozens of manufacturers of casino equipment and hundreds of different kinds of slot machines. Macau, says Mr Trask, continues to be the place to pay attention to, with different new mega-properties opening until the end of the decade. With 30 offices spread around

the world, from Las Vegas, Sydney and Macau to the Netherlands and India, Trask says the goal is to maintain its current position as “world’s number 1 supplier”, while delivering new record revenues like the company presented last year. “We will continue to expand in Macau, where we gave a great leadership”, he says.

May 23, 2014

Greater China

Russia-China gas deal to impact reduci

China’s gas consumption will double by 2018 as seeks to replace dirty coal-burn

hina’s deal to buy natural gas from Russia after a decade of talks risks making tanker shipments of the fuel less competitive as new projects target Asian markets. The accord for supplies from eastern Siberia means liquefied natural gas export projects are less likely to be built as the additional Russian pipeline gas pressures prices, according to Societe Generale SA and Sanford C. Bernstein & Co. The agreement gives China greater leverage when negotiating LNG contracts, said Trevor Sikorski, head of natural gas, coal and carbon at Energy Aspects Ltd. in London, a consultant. “It could potentially have an impact on the volume of LNG that China needs to import and impact on the level of the spot price for LNG in Asia,” David Ledesma, an independent consultant who has been working in the LNG sector for more than 20 years, said yesterday in an interview in Amsterdam. China’s appetite for gas will double by 2018 as the world’s biggest energy user seeks to replace dirty coal-burning power plants, according to the International Energy Agency. LNG market tightness will start to disappear from 2015 with new supply, according to the Parisbased adviser to developed nations,

after spot prices rose to a record in February. Spot LNG in northeast Asia fell to US$13.50 a million British thermal units, their lowest since October 2012, in the week to May 19, according to World Gas Intelligence assessments of cargoes for delivery in four to eight weeks published yesterday. They reached US$19.70 in February.

proposed and 94 million is under construction, according to data compiled by Bloomberg Industries. The plants from Australia to the U.S. would add to the existing 296 million tons of operational capacity.

Gazprom prices “Higher cost LNG projects will be less likely to be developed,” Neil

Chinese prices China paid from US$3.25 per million Btu for LNG from Australia last month to US$19.97 for a shipment from Algeria in November, according to data compiled by Bloomberg. Its imports rose 27 percent last year to 18.6 million metric tons, overtaking Spain to become the biggest importer after Japan and South Korea, according to the International Group of LNG Importers, a lobby group in Paris. Companies from Cheniere Energy Inc. in the U.S. to Woodside Petroleum Corp. in Australia plan to add LNG capacity from next year, mainly aimed at Asia, which uses 75 percent of the gas, which is chilled to minus 162 degrees Celsius (260 Fahrenheit) for shipment. There has been 312 million metric tons of gas liquefaction capacity

It could potentially have an impact on the volume of LNG that China needs to import and impact on the level of the spot price for LNG in Asia David Ledesma independent consultant

Bloomberg News

IT products will need to pass Government probe Companies that don’t pass the checks will no longer be allowed to supply their products and services in China

hina will investigate providers of important IT products and services to protect “national security” and “economic and social development”, the official Xinhua news agency said yesterday, amid a row over cyber spying with the United States. Companies that don’t pass the checks will no longer be allowed to supply their products and services in China, Xinhua cited the State Internet Information Office as saying. Products that don’t meet security requirements will be banned. The likely consequences of the ruling were not immediately clear but it comes amid a heated dispute with the United States which Chinese media labelled a “high-level hooligan” on Wednesday in response to Washington charging five Chinese military officers with hacking U.S. companies to steal trade secrets. China has also banned new central government computers from using Windows 8, Microsoft Corp’s latest operating system. This was done because of security concerns around Windows 8, which exposes computers to monitoring and the risk of being controlled remotely, People’s Daily newspaper reported yesterday, citing a U.S. National Security Agency programme called Prism. Windows 8 was also not userfriendly, the People’s Daily added. Xinhua said the investigations would check product security and seek to prevent suppliers from illegally gathering, storing or processing user data. “For a long time, governments

Steve Ballmer, former Microsoft CEO, at Windows 8 presentation. Windows 8 has been banned in China’s public administration for allegedly bad safety reasons

and enterprises of a few countries have gathered sensitive information on a large scale, taking advantage of their monopoly in the market and technological edge,” Xinhua quoted Jiang Jun, spokesman for the State Council Information Office, as saying. “They not only seriously undermine interests of their clients but also threaten cyber security of other countries.” Documents leaked by former U.S. security contractor Edward Snowden “rang alarm bells” over cyber security,

Beveridge, an analyst at Sanford Bernstein in Hong Kong, said yesterday in an e-mailed report. “Likely beneficiaries are OAO Gazprom, Chinese gas distributors and related oilfield services companies.” The agreement with Gazprom, Russia’s pipeline gas export monopoly, to provide 38 billion cubic meters of gas annually over 30 years via a yet-to-be-built pipeline increases the diversity of supplies available to China. The country currently imports gas via a pipeline from Turkmenistan as well as LNG. Gazprom’s average price in Europe, its main market, was US$380.50 per thousand cubic meters (US$10.65 per million Btu) last year. The price in yesterday’s contract is more than US$350, Interfax reported, citing a person it didn’t identify. Gazprom Chief Executive Officer Alexey Miller didn’t disclose the price, saying the 30-year accord has a value of about US$400 billion. Qatar, the world’s biggest LNG producer, has been in negotiations with China National Offshore Oil Corp. and PetroChina Co. to supply of 7 million tons a year. China has long-term contracts for 5 million tons of Qatari supply.

Jiang added. Xinhua did not give details of which governments or businesses it was referring to but U.S. security standards for information technology were not transparent or clear-cut, Xinhua added. China has also targeted other foreign tech firms in recent months, including Qualcomm Inc.. The antimonopoly regulator accused the U.S. chip giant of overcharging and abusing its market position. Reuters

May 23, 2014

ing LNG prices

ning power plants

Greater China Gazprom CEO Alexei Miller (front L) and CNPC (China National Petroleum Corporation) Chairman Zhou Jiping (front R) sign documents as Russian President Vladimir Putin (back L) and Chinese President Xi Jinping (back R) attend the signing ceremony in Shanghai, China, 21 May 2014

May 23, 2014

Greater China Weibo lose on rising costs Net loss more than doubled in the first quarter as the Chinese microblogging service controlled by Sina Corp. spent more to attract users. The first-quarter net loss was US$47.4 million, compared with a loss of US$19.2 million a year earlier, the Beijing-based company said in a statement yesterday. The loss matched the preliminary estimate provided in its listing prospectus. Weibo, also backed by Alibaba Group Holding Ltd., boosted daily active customers by 37 percent in the first three months of the year as China’s 618 million Internet users migrate toward content on their smartphones and tablet computers.

PMI at five-month high The data is a touch below the 50-point level that separates a monthly growth in activity from a contraction

Bright Food to buy largest Israeli food firm Bright Food Group Co Ltd said yesterday it has signed a preliminary agreement to buy 56 percent of Israel’s largest food company Tnuva from private equity firm Apax, extending a string of overseas acquisitions. A spokesman for Bright Food did not disclose how much it has agreed to pay, but Israeli news websites reported late on Wednesday the deal valued all of Tnuva, a specialist dairy produce supplier, at 8.6 billion shekels (US$2.5 billion). When Apax and Mivtach Shamir acquired control of Tnuva in 2008, the company was valued at US$989 million in total.

Former top JPMorgan executive arrested

A Chinese ex-JPMorgan Chase executive has been arrested in Hong Kong, according to reports, after he resigned in March as US regulators probe whether the bank broke anti-bribery laws by hiring friends and family of top officials to win contracts. Fang Fang, the former vice chairman of investment banking for Asia, was held by the Independent Commission Against Corruption, Dow Jones Newswires and the respected Chinese financial news outlet Caixin said. The 48-year-old stepped down this year as the firm faces an investigation by the US Department of Justice and Securities and Exchange Commission.

PBOC injects 120 Bln yuan for week China’s central bank will drain 30 billion yuan (US$4.81 billion) from the money markets through 28-day forward bond repurchase agreements yesterday, traders said, meaning it will inject a net 120 billion yuan into the markets this week. That would be the largest weekly injection by the central bank in four months. The People’s Bank of China (PBOC) conducted a net injection of 44 billion yuan into the market last week.

Hanyang Guodingshan Waste to Energy Plant, Wuhan

hina’s factory sector turned in its best performance in five months in May, a preliminary HSBC survey showed yesterday, though overall manufacturing growth still contracted slightly in a suggestion that the outlook remains murky. The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) recovered to 49.7 in May from April’s final reading of 48.1, beating a Reuters’ poll forecast of 48.1. But the data is a touch below the 50-point level that separates a monthly growth in activity from a contraction, indicating that manufacturers actually experienced a slight drop in business. Still, those hoping for any sign of stabilisation in China’s wobbly economy may find some welcome relief in yesterday’s report. Asian stocks and emerging Asian

currencies extended early gains after the report, while the Australian dollar edged higher. A breakdown of the survey results showed the handful of closelyfollowed indices that measure output, domestic and foreign demand all improved substantially in May to rise above the 50-point mark, from sub-50 levels in April. New export orders, a proxy for foreign demand, showed the biggest turnaround. The index climbed a hefty 3.4 points to 52.7, a level not seen in nearly 3-1/2-years. “The improvement was broadbased with both new orders and new export orders back in expansionary territory. Disinflationary pressures also eased over the month and output prices increased for the first time since November 2013,” said Qu Hongbin, chief economist for China at HSBC.

“Some tentative signs of stabilisation are emerging, partly as a result of the recent mini-stimulus measures and lower borrowing costs. But downside risks to growth remain, particularly as the property market continues to cool. We think more policy easing is needed to put a floor under growth in the coming months.” He also noted the employment index fell further to 47.3, which implies that this month’s uptick in sentiment has not yet filtered through to the labour market. Of the 11 sub-indices in the survey, all but those for employment and stocks of finished goods rose compared to April. In the case of employment, the index fell over a point to stand well under 50, the 13th consecutive month that jobs have been lost in the manufacturing sector.

EU and China drive steel output rise China is the world’s top producer and consumer of steel Maytaal Angel

lobal crude steel output rose at its second-fastest level this year in April, responding to an uptick in demand in Europe and the Middle East, though higher output in China added to oversupply and kept prices depressed. Output of the alloy rose by an annual 1.7 percent globally in the month to 137 million tonnes, with production in China rising 2.1 percent to 68.8 million tonnes, data from steel producers association Worldsteel showed. China is the world’s top producer and consumer of steel. “Steel prices are near the lowest they’ve been in recent times,” said Jeremy Platts, analyst at steel consultancy MEPS. “There are some encouraging signs

that demand is increasing and output growth isn’t just coming from China, as in recent years, but at the same time the price would benefit from some production cuts in Europe,” Platts added. In percentage terms, the biggest growth in output came from the Middle East -up an annual 9.6 percent- and from Europe, where it rose an annual 4 percent to 14.61 million tonnes as economic growth in the region takes hold. Industry lobby Eurofer has said it expects EU demand for steel to grow almost 3.5 percent this year, the first growth in two years, while top steelmakers such as ArcelorMittal SA and Tata Steel Ltd recently boasted upbeat earnings thanks in large part to Europe and the United States.

Still, global steel prices have not much recovered from the 3-1/2 year lows they plunged to last June, thanks in large part to a structural oversupply and to falling raw material prices such as iron ore. Iron ore prices are down some 25 percent this year, hitting 2-1/2 year lows earlier this week on slowing growth in China. Economists say Beijing may need more stimulus measures to achieve its 7.5 percent growth target this year. Worldsteel said output in Ukraine fell 4.5 percent in April, while in nearby Russia production rose just 0.7 percent, as the threat of more Western sanctions against Moscow for its actions in Ukraine continued to hurt the country’s economy. Reuters

May 23, 2014

Greater China Any marked weakening in the labour market would raise alarm bells for China’s government, which regards healthy employment levels as a top policy priority and an important condition for social stability. Premier Li Keqiang said in March that it is all right if economic growth comes in slightly below the government’s 7.5 percent target, as long as the job market holds up. Hit by unsteady global demand, slowing domestic investment growth and a cooling property market, China’s economic growth fell to an 18-month low in the first three months of this year. Economists polled by Reuters believe growth in the world’s secondlargest economy will dip to a 24-yearlow of 7.3 percent this year -- just ahead of the 7.2 percent expansion that Premier Li has said is necessary for a robust labour market.

Japan survey mixed Japanese manufacturing activity also contracted in May but at a slower pace than the previous month, a similar preliminary survey showed, in a sign of tentative recovery after a sales tax hike in April led to a slowdown in consumer spending. The Markit/JMMA flash Japan Manufacturing Purchasing Managers Index (PMI) rose to a seasonally adjusted 49.9 in May from a final reading of 49.4 in April. Unlike China, however, the index for new export orders fell to a preliminary 48.2 from a final reading of 49.1 in April. Reuters

KEY POINTS China factory activity improves but still contracts

JD.Com prices IPO above expectations China’s business to consumer e-commerce sales may pass US$180 billion this year due to rising Internet usage Amrutha Gayathri

hina’s JD.com priced its IPO at US$19 per share, exceeding the expected range and suggesting strong demand for Chinese e-commerce companies as larger rival Alibaba Group Holding Inc prepares its own highly anticipated U.S. debut. The country’s second-largest e-commerce company priced its American Depositary Shares (ADS) a dollar above the higher end of a US$16 to US$18 indicated range, valuing the company at more than US$25 billion, according to its underwriters. Investors are watching JD.com, hoping for clues as to how Wall Street will receive its much larger peer. Alibaba has filed for what some expect could be the largest initial public offering by a technology company to date. JD.com, which has forged a close partnership with Alibaba arch-rival Tencent Holdings, raised US$1.78 billion from the sale of 93.7 million ADS. Its shares are expected to start trading yesterday on the Nasdaq. The 10-year-old company, the

biggest direct seller of online goods in China, will remain tightly controlled by founder and CEO Richard Liu after the IPO through special shares that grant him extra voting rights. Investor appetite for Chinese technology stocks recovered in 2013 after a series of accounting scandals dried up U.S. listings in 2011 from a high of 40 in 2010. This year, investors have driven down valuations of tech stocks, including that of Amazon. com, but many on Wall Street expect a stellar debut from Alibaba, which controls some 80 percent of all online Chinese commerce. China’s business to consumer e-commerce sales may pass US$180 billion this year due to rising Internet usage, expanding middle-class incomes and a better distribution network, according to New Yorkbased market research firm eMarketer. JD.com had an 18.3 percent share of that market as of the third quarter of 2013, according to Beijing-based iResearch. It claims some 30 millionplus active customers and saw net revenue jump 70 percent to US$8

JD.com website screenshot

billion in 2013’s first nine months. Formerly known as 360Buy, it has already raised more than US$2 billion in past years from investors including the Ontario Teachers’ Pension Plan and Saudi billionaire Prince Alwaleed bin Talal’s Kingdom Holding Co. Reuters

Japanese hide brand name in China

New export orders jump but jobs weaken

Companies with products that Chinese consumers don’t immediately identify as being Japanese have fared better

HSBC sees some signs of stabilisation in economy

Kazunori Takada

Japan shows similar trend but export orders weaken

W There are some encouraging signs that demand is increasing and output growth isn’t just coming from China, as in recent years, but at the same time the price would benefit from some production cuts in Europe Jeremy Platts analyst at steel consultancy MEPS

hen a dispute over the East China Sea flared up between China and Japan two years ago, graduate student Wei Hanyu ditched her Shiseido Co Ltd beauty products in protest, joining scores of Chinese consumers in a boycott of Japanese brands. Wei, now 23, said she currently uses a face cream from Aupres, a brand she thought was Chinese or Korean, but which she recently found out is actually Japanese. Aupres is one of Shiseido’s China-specific brands and the packages carry the parent company’s name only in small print. “Its advertisements left an impression on me that it’s a brand designed for young people in cities, similar to some Korean brands,” said Wei. Several executives at Japanese firms operating in China say there is little they can do to counter the geopolitical fallout, but companies with products that Chinese consumers don’t immediately identify as being Japanese have fared better. Shiseido says it does not intentionally hide it name, but the discreet branding of its China-only cosmetics appears to be the way to go for Japanese companies seeking to win over consumers in the world’s second-largest economy. Shiseido spokesman Shotaro Nagai said sales of Aupres and its other China-specific brand Urara have grown faster than its premium

own-brand line. He did not disclose sales figures. “What’s important in the eyes of the consumer is whether the brand image is that of high-quality and trust,” said Toru Furuya, a Tokyobased executive strategy director at brand consultancy Interbrand. Ties between Japan and China have been strained by a territorial row over a group of islands, known as the Senkaku islands in Japan and the Diaoyu islands in China. Every time tensions flare, Japanese manufacturers of everything from cars to electronics see slowing sales in China.

Better quality Another Japanese company that is winning over Chinese customers is Fast Retailing Co Ltd, which is expanding its casual clothing Uniqlo brand in China’s vast interior, a region where nationalist sentiments traditionally run high, but where Uniqlo is not immediately identified as being Japanese. Unlike consumers in big cities like Beijing and Shanghai, residents of China’s less-developed cities tend to be less exposed to global brands and less aware of where they come from. “One of the reasons for our success in China is that with growing recognition for Uniqlo as a high quality brand, we are targeting middle-income consumers in China

and provide identical product mix at Uniqlo China and Japan,” the company said in a statement emailed to Reuters. The company does not disclose sales figure by region, but the statement said it had seen “almost no impact” from the dispute between Japan and China. Other Japanese consumer and car companies were hit hard by the boycott that began after the 2012 protests. Most Japanese retail firms, such as Sony Corp and Panasonic Corp, do not disclose sales figures for China, but some executives say sales have yet to fully recover. Some Japanese automakers saw sales fall by around half. Nissan Motor Co Ltd, the automaker most exposed to the world’s largest car market, also cut its earnings forecast by 20 percent for the year ended March 2013. For many Chinese, the saving grace of Japanese products is their quality. China’s consumer goods sector has been beset with safety scandals ranging from tainted milk to fake parts, while Japanese manufacturing standards are seen as superior. “I don’t boycott Japanese products intentionally because their products are good. You can’t deny this,” said Chen Huizhe, a 51-year-old engineer at a steel company from the eastern city of Hangzhou. “But if two products are equally good, then I prefer the non-Japanese one.” Reuters

May 23, 2014

Asia S.Korea malls and outlet sales fall Sales at South Korea’s top department store and discount store chains fell simultaneously in April from a year earlier, down for a third month in a row, revised data showed yesterday, roughly in line with earlier estimates. It was the first time since August 2012 that sales in both categories of stores suffered annual losses for a third consecutive month, indicating domestic demand in Asia’s fourthlargest economy was softening after a strong start to the year. It was slightly worse than a preliminary 0.1 percent decline in sales estimated by the finance ministry early this month.

Singapore’s SBS transit jumps Shares in Singapore’s public transit operator SBS Transit Ltd soared to a two-year high in early trade yesterday after the government announced plans to overhaul the public bus operating system. SBS shares jumped as much as 12 percent to a two-year high of S$1.59. Shares in ComfortDelGro Corporation Ltd, which owns 75 percent of SBS Transit, edged down 0.4 percent. Under the new model, the government will own the buses and appoint routes and contract the service to operators, Singapore’s Land Transport Authority said on Wednesday.

Kia targets 40,000 minivan sales in Korea South Korean automaker aims to sell 40,000 of its redesigned Carnival minivans in its home market next year, an executive said yesterday, capitalising on the country’s growing demand for minivans. Kia Motors, an affiliate of Hyundai Motor, will start sales of the new Carnival in South Korea next month, said Cho Yongwon, vice president of Kia’s Domestic Marketing Group. The launch is the model’s first major overhaul in nine years. Lee Soon-nam, vice president of Kia’s Overseas Marketing Group, said the Carnival will debut in United States in the second half of this year.

NZ’s Xero posts bitter sweet results New Zealand accounting software developer Xero Ltd said on Thursday that its annual net loss had widened on increased costs related to product development and expanding its market presence, but that revenue had jumped. It said it expected strong growth to continue for the foreseeable future. The company said its annual loss for the year to March 31 was NZ$35.5 million, in line with guidance of about NZ$35 million, and wider than last year’s loss of NZ$14.4 million. Xero reported operating revenues of NZ$70.1 million, up 83 percent on last year, with 2015 annualised subscriptions of NZ$93 million.

Shrinking population spurs for local banks Local lenders’ profit may decline 40 percent over the next five years consolidation in the industry

apan’s financial regulator is considering ways to get regional banks to boost overseas lending as a falling population at home cuts into earnings. Loans outside of Japan by regional firms lag the nation’s biggest banks, with those at Shizuoka Bank Ltd. comprising 6 percent of overall lending, while Chiba Bank Ltd.’s portion was 1.4 percent. That compares with the almost 30 percent ratio at the three largest lenders including Mitsubishi UFJ Financial Group Inc. The nation’s new-loan rate is at a record low 0.808 percent versus an average interest margin on dollar loans in Asia-Pacific excluding Japan of 2.32 percentage points. “It doesn’t make business sense for regional banks to keep sticking to local economies that are structurally shrinking with falling populations,” Toshihide Endo, the deputy director-general of the planning and

It doesn’t make business sense for regional banks to keep sticking to local economies that are structurally shrinking with falling populations Toshihide Endo deputy director-general Financial Services Agency

coordination bureau at the Financial Services Agency, said in an interview on May 15. “We’d like to encourage smaller local lenders to join overseas syndicated loans like top-tier regional banks do.” Local lenders’ profit may decline 40 percent over the next five years unless there’s consolidation in the industry, according to Nomura Holdings Inc. analyst Masahiko Sato. Japan’s population is forecast to decrease 32 percent to 87 million by 2060 barring an increase in the birth rate, causing the economy to start shrinking from 2030, according to forecasts compiled by the Cabinet Office.

Project lending Regional banks are starting to join cross-border syndicated loans arranged by the biggest lenders to fund infrastructure and natural resource projects. Shizuoka Bank, Chiba Bank and Yamaguchi Bank Ltd. joined a US$5 billion loan for Idemitsu Kosan Co.’s oil refinery in Vietnam in June last year. The following month, Gunma Bank Ltd., Hachijuni Bank Ltd. and Hyakugo Bank Ltd. took part in a US$1.5 billion loan for Brazil’s Banco Itau BBA SA, which was led by Mizuho Financial Group Inc., along with Mitsubishi UFJ and Standard Chartered Plc. The FSA has found that the biggest issue regional banks face is a lack of access to dollar funds when they consider making loans abroad, Endo said. Shizuoka Bank raised US$500 million in April 2013, in the first public sale of U.S. currency-denominated convertible bonds by a Japanese company since 2002. Joyo Bank Ltd., Yamagata Bank Ltd., Bank of Iwate Ltd. and Yamaguchi Financial Group

Thailand to clear backlog of foreign investment projects by August Economy shrank 2.1 percent in the first quarter from the prior three-month period

hailand’s political turmoil over the last six months has caused a backlog of roughly 200 foreign investment projects awaiting government approval, the equivalent of about US$12.3 billion, a senior government official said on Wednesday. Ajarin Pattanapanchai, deputy

secretary general of the Thailand Board of Investment, expects the projects, each exceeding 200 million baht (US$6.17 million) in value, will be cleared by August. “It is around 400 billion baht (US$12.3 billion)... It will take about two to three months to clear it,” Ajarin told Reuters in

Inc. followed in issuing similar debt.

Broaden options “Not all regional banks can issue dollar-convertible bonds to get longterm funds needed for project finance given their credit ratings,” said Endo. “We are seeking ways to broaden their options to secure dollars.” While the FSA could let governmentbacked financial institutions procure the U.S. currency for regional banks, that would risk distorting the market, according to Ryoji Yoshizawa, a director of financial institution ratings at Standard & Poor’s in Tokyo. “I doubt if it’s reasonable that banks that can’t raise foreign currency by themselves get support to lend in foreign currency,” said Yoshizawa. Foreign-currency denominated

an interview while in New York to speak with U.S. investors. Thailand has been without a proper government since December. As a consequence, the BOI board, which approves major investment applications, was not reappointed until last month. Its two-year term expired in October 2013. Protesters took to the streets of the capital Bangkok in November, accusing the government of Prime Minister Yingluck Shinawatra of corruption and nepotism. Yingluck, the younger sister of ousted former premier Thaksin Shinawatra, was herself removed by a court ruling May 7, but her caretaker government remains in place. On Tuesday, Thailand’s army

editorial council Paulo A. Azevedo, José I. Duarte, Mandy Kuok Founder & Publisher Paulo A. Azevedo | pazevedo@macaubusinessdaily.com Newsdesk Alex Lee, Luciana Leitão, Michael Armstrong, Sara Farr, Stephanie Lai, Tony Lai International editor Óscar Guijarro GROUP SENIOR ANALYST José I. Duarte Brands & Trends Raquel Dias Creative Director José Manuel Cardoso WEB & IT Janne Louhikari interns Cynthia Wong, Yvonne Wong Contributors James Chu, João Francisco Pinto, José Carlos Matias, Larry So, Pedro Cortés, Ricardo Siu, Rose N. Lai, Zen Udani Photography Carmo Correia, Manuel Cardoso Assistant to the publisher Laurentina da Silva | ltinas@macaubusinessdaily.com office manager Elsa Vong | elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd.

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May 23, 2014

Asia

s aid

Car imports drive Myanmar oil demand Fuel demand is also being boosted by more factories, as a mining boom lifts demand for diesel for machines and trucks

unless there’s

Chiba Bank headquarters

loans at Shizuoka Bank, the nation’s second-biggest regional lender, averaged 423.9 billion yen (US$4.2 billion) in the year ended March 31, up 71 percent from a year earlier, while overall lending totalled 7 trillion yen, company data showed. At Chiba Bank, the No. 3 local firm, lending abroad made up 115.1 billion yen of a total 8.1 trillion yen in March, according to its earnings statement. Borrowing costs have dropped as the Bank of Japan buys bonds at an unprecedented pace to stimulate the world’s third- largest economy. That has crimped lending income even as loan volumes grow. Net interest margins for the 87 lenders in the Topix Banks Index average 1.25 percent, the least in Asia, according to data compiled by Bloomberg. Bloomberg News

declared martial law in a move to restore order and investor confidence. Nearly 30 have died in sporadic bouts of violence and troops now patrol the streets. Thailand’s economy shrank 2.1 percent in the first quarter from the prior three-month period, with exports remaining weak and domestic activity battered by the months of protests. “Government spending is the problem. The private side of the Thai economy is operating as normal,” Ajarin said, blaming much of the contraction on a slide in government spending given its caretaker status. The state planning agency NESDB said public sector investment fell 19.3 percent in the first quarter from a year before and private investment fell 7.3 percent. Foreign direct investment, as measured by the value of BOI applications, declined in the January-April period to just under 220 million baht from 224 million baht in the same period a year ago, Ajarin said. Despite the turmoil, Thai stocks are up 8 percent year-to-date after sinking 6.7 percent in 2013. However, one measure of foreign investor sentiment has dropped. Reuters

yanmar businessman Lay has doubled the number of cars he owns to six in just three years, as reforms in Southeast Asia’s poorest country unleash a wave of consumer spending. The opening up of the economy, with a loosening of military rule ending decades of isolation, has meant a surge in ownership of secondhand Japanese cars that are replacing rusting, reconditioned British-era vehicles and boosting demand and imports of fuel. Oil demand may have soared by as much as a quarter in the last financial year to March, giving oil traders a new market at a time when Asia is awash with fuel supplies due to a jump in refining capacity and cooling demand in top buyers China and India. Two of Myanmar’s three small refineries barely function, meaning the country relies on imports. Myanmar has attracted a host of new suppliers from small, obscure oil traders to global trading giants such as Trafigura and Vitol, which are nipping at the heels of leading suppliers Chinaoil, PetroChina’s trading arm, and Singapore’s Hin Leong. Fuel demand is also being boosted by more factories and as a mining boom lifts demand for diesel for machines and trucks. The Southeast Asian nation remains, however, a tough market to crack given obstacles ranging from poor infrastructure to buyers being particular about the colour of fuel they receive, traders say. Fuel is often sold in glass bottles next to the road and may be rejected by drivers unless it is clear, irrespective of performance. To cater for higher demand, companies are planning to build new oil storage facilities and invest in petrol stations. Under military rule, businessman Lay had to wait for hours at government-owned fuel stations to

Yangon streets feel the pressure of constantly increasing number of cars

fill up, but now the queues are in the choking traffic snarling Yangon’s pot-holed streets. “Oil used to be rationed so we only have a limited amount allocated to us, but now it is easily available,” said Lay, who did not want to use his full name. Fuel demand rose more than 5 percent to about 40,700 barrels per day in the fiscal year to March, data from Myanmar’s energy ministry showed. But traders say undocumented fuel flows, particularly oil smuggled from nearby Thailand, may have made the rise more like 20-25 percent. Between 10 and 15 trucks, or about 6,000 tonnes (44,700 barrels), of diesel come from Thailand each month, a trader said. The energy ministry declined to comment on smuggled oil.

Reconditioned cars Like businessman Lay, many of his compatriots are also replacing decades-old cars that have limped along after being reconditioned numerous times with imported cars and jeeps, mostly from Japan under a

Lawmakers urge Government to press Brunei on sharia law A

group of lawmakers wants the United States to press Brunei to revoke Islamic criminal laws that they say jeopardize human rights under threat of being kicked out of Pacific free trade talks. Brunei is phasing in Islamic laws that will impose fines or jail terms for offenses such as pregnancy outside marriage and failure to perform Friday prayers in the East Asian nation. The sharia laws will ultimately punish sodomy and adultery with the death penalty, including by stoning. The United States and Brunei are members of a proposed 12-nation trade pact, the Trans-Pacific Partnership (TPP) that seeks to establish common standards on issues from labour to intellectual property and cut tariffs

on traded goods. Democratic Representative Mark Pocan of Wisconsin is circulating a draft letter on Capitol Hill that his office says 20 other lawmakers have pledged to sign, mainly other House Democrats. The letter will be open for signatures until mid-June. “The United States must make it clear that we will not tolerate such abuses,” says the draft, which was seen by Reuters. It is addressed to Secretary of State John Kerry and U.S. Trade Representative Michael Froman and says the United States should use its position as the world’s largest economy to push against discrimination and abuses. “(We) urge you to insist that Brunei address these human rights

trade deal between the two countries. Passenger car imports jumped by a quarter to 331,468 in fiscal 2012/2013 (April-March), while the number of imported trucks rose 10 percent to 74,546, government data shows. Oil imports into Myanmar jumped after local private firms were allowed in after Cyclone Nargis disrupted supplies in 2008, but tough requirements from importers and bad infrastructure have helped Chinaoil and Hin Leong, which have more than half the market between them, entrench their leading position. Other sellers include PTT, Thai Oil and Malaysia’s Petronas, as well as Korea’s Daewoo International, Swiss Singapore, Trafigura and Vitol. Yet, despite the recent surge in oil imports, some caution against rushing into a market which remains small. “Even by 2020-2030, it’s still going to be a very small market in the big scheme of things,” said Alex Yap, analyst at consultancy FGE, contrasting it with Southeast Asia’s top fuel consumer Indonesia, which imported 325,000 bpd of gasoline and 115,000 bpd of diesel last year. Reuters

violations as a condition of the United States participating with them in any further Trans-Pacific Partnership trade negotiations,” the draft letter said. Brunei’s new laws, introduced three weeks ago, have also been attacked by gay rights groups, Hollywood personalities, such as comedian Ellen DeGeneres, and British entrepreneur Richard Branson. “Protecting fundamental human rights is a cornerstone of American values. American trade policy should also promote human rights, not reinforce bad actions by nations like Brunei,” Representative Pocan said. Froman’s office had not seen the letter and a spokesman referred to comments by State Department officials earlier this month. They said the United States has “very serious concerns” about the Brunei laws criminalizing freedom of religion and increasingly threatening human rights and the U.S. ambassador had relayed those concerns privately to the government. Reuters

May 23, 2014

International

Eurozone keeps up solid growth

Platinum strike brings famine

Unemployment across the 18 nations using the euro nudged down in March but stayed near a record high, a sign European households have yet to feel the bloc’s economic recovery Jonathan Cable

he strong pace of growth in the euro zone’s private sector eased very slightly this month, with drastic price cuts preventing any further slowdown, surveys showed yesterday. Slower growth in activity at factories took the shine off an unexpected pickup in the service industry, although the bloc’s recovery appears to be gaining traction. “This doesn’t change the picture of the euro zone having one of its best growth spells in the past three years. It’s broad-based - with the one exception being France,” said Rob Dobson, senior economist at survey compiler Markit. Markit’s Composite Purchasing Managers’ Index, based on surveys of thousands of companies across the region and seen as a good indicator of growth, edged down to 53.9 from April’s near three-year high of 54.0, matching the forecast in a Reuters poll of analysts. Readings above 50 indicate expansion, and Dobson said the index pointed to second-quarter economic growth of 0.5 percent, which would be the strongest in three years and better than the 0.3 percent predicted in a Reuters poll on Wednesday. That would be good news for the European Central Bank. But the ECB will be less happy about the composite output price index, which held steady at April’s eightmonth low of 48.7 as firms discounted prices for the 26th month running. In an attempt to stop inflation, stuck well below half its 2 percent target ceiling, from falling any further the ECB will cut what little it has left of its main interest rate and push the

French President, Francois Hollande, didn’t succeeded in keeping a sustainable growth rate

deposit rate below zero next month, Wednesday’s Reuters poll predicted.

France sinks again An earlier PMI from Germany showed Europe’s largest economy was again the driving force - its composite PMI held steady at 56.1. But it was a different story in France, the euro zone’s second largest economy, where the composite PMI slumped back below the 50 mark after just two months in growth territory. “The big thing for France, which is different to Germany, is that the French domestic market is still on a bit of a downturn,” said Dobson. Still, a PMI survey of the bloc’s

dominant service industry jumped to a near three-year high of 53.5 from April’s 53.1, confounding expectations for a dip to 53.0. The manufacturing PMI fell to 52.5 from 53.4, missing the median forecast for a more modest decline to 53.2 in a Reuters poll. The output index, which feeds into the composite PMI, sank to 54.7 from 56.5. Some of that stunted growth was from running down old orders. The backlogs of work index fell below the 50-mark for the first time since July, coming in at 49.4 from 51.7. To meet growing demand for services, firms took on staff at a faster rate this month - the employment sub index rose to 51.1 from 50.5, its highest reading in nearly three years. Unemployment across the 18 nations using the euro nudged down in March but stayed near a record high, a sign European households are yet to feel the bloc’s economic recovery. “For the euro zone as a whole the recovery so far has been fragile and very moderate. What will start to turn this into being a recovery which will be really sustainable will be if it can create more jobs,” said Dobson. Reuters

KEY POINTS PMIs point to 0.5 pct quarterly GDP growth Firms cut prices for 26th month

EU sceptic election surge to rattle leaders at home The European Parliament’s get-out-the-vote effort for this week’s election proclaims: “This time it’s different.”

he balloting, which started yesterday and lasts through Sunday, will probably be different for the wrong reasons. Galvanized by the debt crisis and the European Union’s 10.5 percent unemployment rate, protest parties are set to surge in Greece, France, Italy, the Netherlands, Austria, the U.K. and elsewhere - making it harder to steer the 28-nation bloc. While dangers to the euro have retreated, better economic data have been slow to trickle through, fuelling grievances about budget cuts, joblessness and immigration. The anti-establishment vote will deal a further blow to the German-style fiscal austerity that marked the crisis response and make national leaders warier of concessions at EU level. Fringe parties will “use the EU

stage as a platform to create noise, attract attention and create more tension and pressure for governments back home,” said Mujtaba Rahman, a former EU official who is now director of European analysis at the Eurasia Group in London. “There’s no appetite right now for further European integration.” Election returns, due after 6 p.m. Sunday, will produce a “squeezed middle,” according to Simon Hix and Kevin Cunningham of PollWatch 2014, a non-partisan forecasting group. Parties deemed to be on the “right” of the spectrum will garner 22 percent, up from 16 percent now; support for mainstream parties will ebb to 65 percent from 72 percent, PollWatch said on May 20 in its final pre-election projections. The pro-EU forces will remain

strong enough to control the business of the 751-member assembly, which has growing powers over EU-wide legislation. Banking union was the highlight of the last fiveyear term; energy independence, emission reductions, and broadband networks will be the keynotes of the next five. The biggest impact of the vote -the second-largest democratic exercise on earth after India’s election- will be on leaders of EU national governments, who aren’t on the ballot. What the Parliament actually does is far from the minds of French voters rallying behind Marine Le Pen’s anti-immigration National Front or British voters set to give a fillip to Nigel Farage’s U.K. Independence Party, which wants to pull Britain out of the EU. Bloomberg News

Thousands of people have received food-aid parcels in South Africa’s platinum belt, where a strike has crippled output at mines owned by the three biggest producers for almost 18 weeks and left many starving. About 12,000 people have benefited from packs of corn, rice, beans and bread distributed in the Rustenburg area, where many of the nation’s platinum mines are located, said Imtiaz Sooliman, chairman of Pietermaritzburg, South Africa-based disaster relief organization Gift of the Givers.

Consumers drive U.K. recovery U.K. consumers were the driving force behind Britain’s economic growth at the start of the year, continuing a trend after they led the recovery in 2013. Consumer spending rose 0.8 percent in the first quarter, a 10th straight increase, adding 0.5 percentage point to gross domestic product. The economy grew 0.8 percent in the period, unrevised from an initial estimate, the Office for National Statistics said. Britain’s recovery over the past year has left GDP just 0.6 percent below where it was at its peak in the first quarter of 2008.

Unilever to sell sauce brands to Mizkan Unilever has said ciao to its Ragu and Bertolli pasta sauce business, agreeing to unload it to Japanese food manufacturer Mizkan Group for about US$2.15 billion as the maker of Dove skin creams continues to shed food brands. The deal transfers Ragu, the best-selling U.S. pasta sauce that helped popularize Italian food in America, into the hands of a closely held Asian company founded 210 years ago. Together, the brands have annual sales of more than US$600 million, London and Rotterdam-based Unilever said today in a statement.

Peugeot completes share sale PSA Peugeot Citroen completed the sale of 289 million new shares as part of a 3 billion-euro (US$4.1 billion) capital increase to help Europe’s second-biggest carmaker finance a product revamp and push abroad. Investors bought 1.95 billion euros of stock in the rights offering, Paris-based Peugeot said in a statement late yesterday. Chinese partner Dongfeng Motor Corp. and the French government each acquired shares in the sale to reach targeted stakes of 14.1 percent apiece. Demand exceeded supply by 45 percent, the company said.

Brazil strikes mar run-up to World Cup A bus drivers’ strike stranded more than two million passengers in Sao Paulo on Wednesday, just 22 days before the Brazilian megacity hosts the opening match of the World Cup. Adding to concerns about public safety before the year’s biggest sporting spectacle, police detectives staged a partial walkout in many parts of the country. The drivers’ strike was scheduled to end at midnight, the union told AFP. Reports said 2.5 million people were left stranded by the drivers’ strike in the Brazilian economic capital, only the latest in the build-up to the World Cup and elections scheduled for October.

May 23, 2014

Opinion Business

wires

The road to full investment

Leading reports from Asia’s best business newspapers

TIMES OF INDIA The incoming Narendra Modi government may well corner credit for key anti-corruption and pro-governance bills that UPA-II failed to pass despite a last minute bid to push the legislations through Parliament. The Modi government will take a call on UPA-II’s unfinished agenda with cabinet secretary Ajit Seth asking ministries to compile a list of ordinances, pending and lapsed bills that would put up before the new regime. The bills include anticorruption and public service measures the Manmohan Singh government had, under Congress vice president Rahul Gandhi’s prodding, tried to legislate before dissolution of the 15th Lok Sabha.

PHILSTAR As one of the economically fastest-growing regions in the world, ASEAN is one year away from launching the ASEAN Economic Community, a common market that will comprise 600 million people and have a combined GDP of nearly US$2 trillion. In this context, the 23rd World Economic Forum on East Asia will be held in Metro Manila, Philippines. Writing one of the greatest economic comeback stories in recent years, the Philippines is poised to be the strongest performing South-East Asian economy in 2014.

THE STAR Illegal salvagers have plundered scrap metal from at least five shipwrecks, including two Japanese World War II vessels, off Penang waters since early this year and their activities have gone undetected by the authorities. The unscrupulous salvagers were believed to have “cleared up” at least two wrecks – the Japanese gunboat Chosa Maru, called Kapal Jepun by locals, which sunk in August 1943, and Japanese light cruiser Kuma that went down on January 1944 – and have taken away metal worth millions. More than the value of the metal is the value of the wrecks as artificial reefs where fish thrive.

THE AGE Accountants and tax advisers have blown the whistle on multimillionaire clients exploiting tax concessions in self-managed superannuation funds, urging the federal government to act against “tax leakage”. Analysis by Fairfax Media of Australian Taxation Office statistics shows almost 9200 self-managed super funds have a balance of more than A$5 million, a rise of 76 per cent in the past three years, and the number of funds with over A$10 million has doubled. Tax advisers have raised the alarm on the number of super-wealthy clients able to have incomes taxed at zero to 15 per cent.

Robert Skidelsky

Professor Emeritus of Political Economy at Warwick University and a fellow of the British Academy in history and economics, he is a member of the House of Lords

One should view secular stagnation as an opportunity rather than a threat. The classical economists of the nineteenth century looked forward to what they called a “stationary state,” when, in the words of John Stuart Mill, the life of “struggling to get on…trampling, crushing, elbowing, and treading on each other’s heels” would no longer be needed

Larry Summers, former US President Bill Clinton’s Secretary of the Treasury

ONDON – A spectre is haunting the treasuries and central banks of the West – the spectre of secular stagnation. What if there is no sustainable recovery from the economic slump of 20082013? What if the sources of economic growth have dried up – not temporarily, but permanently? The new pessimism comes not from Marxists, who have always looked for tell-tale signs of capitalism’s collapse, but from the heart of the policymaking establishment: Larry Summers, former US President Bill Clinton’s Secretary of the Treasury, and chief economist of almost everything at one time or another. Summers’s argument, in a nutshell, is that if the expected profitability of investment is falling, interest rates need to fall to the same extent. But interest rates cannot fall below zero (in fact, they may be stuck above zero if there is a strong desire to build up cash balances). This could result in profit expectations falling below the cost of borrowing. Most people agree that this could happen at the depth of a slump. It was to avert this possibility that central banks began pumping money into the economy after 2008. The novelty of Summers’s argument is the claim that “secular stagnation” began 15-20 years before the crash. True enough, interest rates were falling, though not as fast as the fall in expected profit on new investment. So, even in the so-called boom years, most Western economies were kept afloat not by new investment, but by asset bubbles based on increasingly

unsustainable leverage. The generalized version of this proposition is that secular stagnation –the persistent underuse of potential resources– is the fate of all economies that rely on private investment to fill the gap between income and consumption. As capital becomes more abundant, the expected return on new investment, allowing for risk, falls toward zero. But this does not mean that all investment should come to an end. If the risk can be eliminated, the investment engine can be kept going, at least temporarily. This is where public investment comes in. Certain classes of investment may not earn the risk-adjusted returns that private investors demand. But, provided that the returns are positive, such investments are still worth making. Given near-zero interest rates and idle workers, it is time for the state to undertake the rebuilding of infrastructure. Those who know their history will recognize that Summers is reviving an argument advanced by the American economist Alvin Hansen in 1938. Owing to a slowdown in population growth, and thus lower “demand for capital,” the world, Hansen claimed, faced a problem of “secular, or structural, unemployment… in the decades before us.” The prolonged boom that followed World War II falsified Hansen’s projection. But his argument was not foolish; it was the assumptions underlying it that turned out to be wrong. Hansen did not anticipate the war’s huge capital-consuming effect, and

that of many smaller wars, plus the long Cold War, in keeping capital scarce. In the United States, military spending averaged 10% of GDP in the 1950’s and 1960’s. Population growth was boosted by a war-induced baby boom and mass immigration into the US and Western Europe. New export markets and private investment opportunities opened up in developing countries. Most Western governments pursued large-scale civilian investment programs: think of the US interstate highway system built under President Dwight D. Eisenhower in the 1950’s. This mixture of stimulating events and policies enabled Western economies to maintain high investment ratios in the post-WWII years. But it is possible to argue that all of this merely postponed the day when the expected rate of return to capital would fall below the minimum rate of interest acceptable to savers, which would happen as capital became more abundant relative to population. Hansen thought that new inventions would require less capital than in the past. This has now come to pass in what the MIT economists Erik Brynjolfsson and Andrew McAfee call The Second Machine Age. A company like Kodak needed and built vastly more infrastructure than its digital successors Instagram and Facebook – and (of course) employed many more workers. The inventions of the future may well consume even less capital (and labour). What follows from this? The human race has proved very successful in the past at

keeping capital scarce – mainly by engaging in destructive wars. One cannot exclude recourse to this solution in the future. Apart from this, it is surely premature to believe that the West has run out of investment opportunities. Some new inventions, like self-driving car systems, will require heavy capital investment in new kinds of roads. And one can think of many others. It is probable, though, that most of the new investment will have to be carried out with state subsidies. But beyond this, one should view secular stagnation as an opportunity rather than a threat. The classical economists of the nineteenth century looked forward to what they called a “stationary state,” when, in the words of John Stuart Mill, the life of “struggling to get on… trampling, crushing, elbowing, and treading on each other’s heels” would no longer be needed. If a point of true “full investment” – that is, a situation when the supply of capital increased to the point at which it would yield no net return above its replacement cost – were ever reached, it would signify that the human race had solved its economic problem. The challenge then would be to convert capital abundance into more leisure and balanced consumption. Should that happen, we would be at the threshold of a new world – some would say a heaven on earth. We can be tolerably certain of one thing: our leaders will do their best to make sure we never get there. The Project Syndicate 2014

May 23, 2014

Closing ZTE and Huawei get China Mobile’s 4G contracts Military coup in Thailand China Mobile Ltd has awarded its second batch of 4G contracts, with ZTE Corp and rival Huawei Technologies Ltd securing the bulk of the deal, two industry sources with direct knowledge of the situation told Reuters. Foreign companies Ericsson, Alcatel-Lucent SA and Nokia won about a fourth of the licences, which were worth more than one billion yuan (US$160 million) in total, said the sources, who declined to be identified as they were not authorised to speak to the media. The batch represents 40 percent of China Mobile’s quota of 4G contracts to be sold this year, the sources added.

Thailand’s army chief took control of the country in a military coup, after detaining leaders of rival political groups at a meeting meant to find a solution to the nation’s six-month political crisis. Two days after declaring martial law, Army Chief General Prayuth Chan-ocha (2-R) speaking next to Navy Chief Adm Narong Pipattanasai (L), Air Chief Marshall Prachin Chantong and Thai Police Chief Adul Saengsingkaew (R) announced a military coup televised nationwide at the Army Club in Bangkok 22 May 2014. It is the country’s 12th military coup since 1932.

China fuels development bank for shanty town projects In addition to injecting money into the system, the loans constitute another instance of targeted stimulus spending on infrastructure Xiaowen Bi and Pete Sweeney

hina’s central bank has provide 300 billion yuan (US$48.1 billion) to the China Development Bank (CDB) for re-lending to reconstruction projects of shanty towns, sources with knowledge of the situation told Reuters. The People’s Bank of China (PBOC) is channelling funds to the country’s biggest policy bank to boost liquidity in the system and support growth. “China Development Bank started receiving these funds at the end of last month for re-lending to shanty town refurbishment projects,” an industry insider who spoke on condition of anonymity told Reuters, adding that the 300 billion yuan would be disbursed over time. The central bank did not respond to faxed requests for comment. In addition to injecting money into the system, the loans constitute another instance of targeted stimulus spending on infrastructure, following similar investments in railway construction

US$48.1 billion

re-lending amount for reconstruction projects for CDB A shanty town in Hong Kong

announced earlier in 2014. Regulators prefer such forms of investment because they are efficient at delivering cash quickly, help maintain employment and at the same time serve long-term social goals. The PBOC has allowed short-term interest rates to stay accommodative this year in the face of stuttering economic growth and weak demand. The central bank reinforced the message yesterday morning when it allowed 120 billion yuan

Guessing the gas deal bill

he long-awaited gas project between Russia and China will be costly, with some analysts saying it will be this year’s biggest oil and gas investment decision. The 4,000 kilometres “Power of Siberia” pipeline, spanning marshlands, mountains and seismic zones, will mainly take gas from the 1.2 trillion cubic metre East Siberian Chayanda gas field and pump it to China’s main consumption centres near its eastern coast. Russia will begin delivering from 2018, building up gradually to 38 billion cubic metres (bcm) a year. Sources say gas price will be around US$350380 per thousand cubic metre. According to Russian President Vladimir Putin, China will provide US$20 billion for gas development and infrastructure, but Gazprom said the two sides were still in talks over any advance. The overall cost for the upstream development will likely exceed $50 billion. Russia plans to invest $55 billion in exploration and pipeline construction. Reuters

worth of maturing bond repurchase agreements to inject cash into the system during scheduled open market operations. That constituted the largest weekly injection since January, and came even though the benchmark liquidity indicator, the sevenday repo contract has been in accommodative territory near 3 percent. The PBOC has previously used re-lending loans to the CDB as a mechanism to inject controlled amounts into the

system, said Julia Wang, Greater China economist for HSBC in Hong Kong, in a research note. CDB has been central to investment-led growth. The non-commercial bank issues loans for large infrastructure projects and companies’ overseas expansion. “Apart from the need to co-operate with fiscal policies, re-lending implies changes to the monetary base, and is one way to inject longer-term liquidity into the system.” Some are concerned that

the central bank will have trouble maintaining control if it injects too much money that is not easily withdrawn. “Right now the worry is that money intended for vinegar will be spent on soy sauce,” said another industry insider, using a Chinese idiom implying that the money could be diverted from productive investment into unwanted investment. However, traders in China’s money market have said that so far the PBOC has proven adept at employing short-term instruments such as repos and reverse repos to move money in and out of the system for short periods of time. Some economists, however, have argued that reliance on such intermediate tools will be insufficient to keep the economy on track, and have called for Beijing to cut reserve requirement ratios at Chinese banks, which would inject a massive amount of funds into the base money supply for a long period of time. Reuters

China’s passenger and New South Korean premier cargo transportation surges

hina’s transportation sector had stable performance in April, with passenger numbers and cargo volume both increasing from a year earlier, official data showed yesterday. The number of trips by rail, road and water reached 3.37 billion last month, up 5.1 percent from April 2013, said Li Yang, spokesman for the Ministry of Transport. The volume of freight transported by train, road, and water hit 3.83 billion tonnes, up 7.4 percent year on year, Li said at a press conference. Fixed-asset investment in the railway, highway and waterway sectors reached 150.1 billion yuan (US$24.3 billion) in April, down 1.2 percent year on year, which was dragged down by waning railway investment. Fixed-asset investment in railways dropped 16.9 percent year on year to 36.5 billion yuan in April, Li added. However, fixed-asset investment in the railway, highway and waterway sectors rose 6.6 percent from a year ago to 428.3 billion yuan in the first four months of 2014. Xinhua

outh Korean President Park Geun Hye tapped a former Supreme Court justice as the nation’s new prime minister and fired her intelligence chief and top security adviser as the fallout from the Sewol sinking continues to roil her government. Park accepted the resignations of Nam Jae Joon, head of the National Intelligence Service, and Kim Jang Soo, Director of National Security, her spokesman Min Kyung Wook said today. Supreme Court justice Ahn Dai Hee was named to replace Prime Minister Chung Hong Won, who offered his resignation on April 27 over the government’s handling of the Sewol disaster. Park made a televised apology to the nation on May 19 over the April 16 ferry sinking that left more than 300 people dead or missing as she tried to blunt public anger at the government’s handling of the tragedy. Prime Minister designate Ahn Dai Hee will lead a further reshuffle of Park’s cabinet and she announced this week that she planned to disband the coast guard for botching the rescue operation. Bloomberg News