MOP 6.00 Closing editor: Sara Farr Publisher: Paulo A. Azevedo Number 550 Friday May 30, 2014 Year III www.macaubusinessdaily.com
Calm after the storm T
he government has announced it will withdraw the proposed bill on the generous welfare package for outgoing top officials. The decision follows unprecedented scenes. Up to 20,000 demonstrators took to the streets in one day, while a sit-in followed on another. But the bill will not be scrapped in its entirety. It will merely be postponed, assessed, revised, resubmitted and put up for public consultation before Act II Pages
2&3
Pack to the future
Diversify thyself The international heavy-hitters are adamant. Leading institutions and rating agencies have made at least four calls for Macau to diversify its economy beyond gaming. But where to from here?
More people visited Macau on package tours last month than in April 2012. As many as 957,000 flocked to the territory in April, 23 percent more than last year, with mainlanders accounting for the majority
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Yen for a decision The rise of a Japanese gaming industry has suffered a setback. The much-anticipated bill to legalise casinos in the country failed to get on parliament’s agenda this week. Making it almost impossible to approve the new law this year: Macau’s big operators are drumming their fingers Page 8
HK welcomes Yuan decline
Driving policy There’s a great demand for imported commercial drivers here. In response, the government has commissioned a first study to assess the city’s needs. Initial results are expected in August, and are expected to shape future policy Page
6
The loans market is getting stronger in Hong Kong as the RMB continues on its down slope trend. The mainland experiments with new offshore banking measures Page 10
HSI - Movers May 29
Name
%Day
Cheung Kong Holdin
2.16
Hang Lung Propertie
1.88
Hutchison Whampoa
1.66
Belle International
1.15
China Life Insurance
0.95
COSCO Pacific Ltd
-2.44
Cathay Pacific Airwa
-2.45
China Merchants Ho
-2.73
Galaxy Entertainme
-2.95
Tencent Holdings Ltd
-3.09
Source: Bloomberg I SSN 2226-8294
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2014-5-31
2014-6-1
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May 30, 2014
Macau opinion
Perks bill withdrawn: Chui
Hubris
The Chief Executive has finally succumbed to demonstrators’ demands to withdraw the one-off compensation bill, but adds that a consultation on it will follow Stephanie Lai
sw.lai@macaubusinessdaily.com
José I. Duarte Economist
I
t is almost impossible, this week, to ignore the events of the last few days. I mean, naturally, the discussion at the Legislative Assembly of the proposed regime for the so-called ‘guarantees’ applicable to the Chief Executive and top officials, the demonstrations against its approval and the reactions they generated. Those facts, abundantly reported by the media, raise three fundamental questions. One: why did the government feel the need to approve such outstanding privileges for its own members and collaborators? Two: why attempt to rush them so late through the legislature? Three: how come apparently no-one in the Executive Council or among the political elite could anticipate how unpopular and shocking the proposal might prove? There is no easy answer to these questions. But it is possibly in the nature of the system to generate this kind of situation. Several features of the political system, mostly inter-related, are likely to have concurred for that outcome. First of all, there is a certain sense of entitlement at the top. This is not a personal judgment, it is something written into the DNA, so to speak, of the political system. Power is highly concentrated. The only real point of decision is the CE, assisted by the Executive Council, which he appoints himself. In fact, a government, in the usual understanding of the word, does not exist. The secretaries can be completely sidelined and are actually more like super-departmental directors than ‘ministers’. The legislative power is, by design, weak. One third of the legislators have no voice of their own; one third is coopted among a select few; the last third will always include a few safe pairs of hands. The judiciary staff is in some cases insufficiently trained, part of it lacks experience and collectively has not distinguished itself as decisively committed to asserting its own independence. The public departments seem at times more concerned with convenience and hierarchical deference than with compliance with the laws. If something, anything, is really wanted, which mechanisms are there to prevent it from happening, why should restraint be exercised? Secondly, there is a strong element of self-interest at work. Changes are expected at the top echelons of the administration as the CE mandate comes to an end. So, if certain privileges are desirable and can be attained, why should they not be? There is no space in the system for matters of conflict of interest; it is almost a taboo topic. Somehow, we are to presume that those things simply do not happen here. The distribution of power in the local political system is so biased and unbalanced that those in power must feel a great deal of aloofness most of the time, as far as public opinion is concerned. It is something that one can pretend to care about if the issue at stake is not terribly important, but it can be safely ignored whenever necessary. And if the issue may, in some way, generate some polemic, then the faster it is blasted through the formal approval mechanisms the better! Finally, such a system is bound to give rise, over time, to a certain dose of hubris, that sense of pride and over-confidence that so often takes over those with power or fortune. How can anyone disagree with their aims, or object to something that they doubtless believe to be much deserved? Should one read the Greek classics, one would conclude that there is nothing new here; these issues are as old as the world. I’m sure a similar piece of wisdom is to be found in the Chinese classics – it’s human nature. That’s exactly why there is a need to build solid institutions and set up effective mechanisms for the division of power. A final and brief note for the most puzzling matter, really: the issue of immunity for the Chief Executive. It is so wide and unprecedented that it was bound to raise questions. The CE already benefits from extensive immunity. Why the need to further extend its scope to unprecedented levels, almost surreptitiously, in a document dealing most visibly with financial benefits for officials at the end of their public careers? No matter how unfair that may seem at the top, this is the type of action that is bound to raise misgivings and arouse cynical comments. Neither the CE himself nor any of his advisers realised how politically inadvisable such a provision would be?
T
he bill offering a generous welfare package to outgoing top officials is to be withdrawn but the government is planning to launch a public consultation on an appropriate pay system for departing officials, Chief Executive Fernando Chui Sai On told an ad-hoc press conference at the Government Headquarters yesterday morning. On Tuesday, Legislative Assembly members voted to cancel the final reading of a controversial bill featuring a raft of subsidy terms for outgoing principal officials, including an article that grants immunity to the Chief Executive from criminal charges during his term of office. Responding on the bill to media for the first time, Mr Chui announced that, following a discussion with the Executive Council, the government will scrap the bill and conduct a public consultation to collect more opinions on the welfare system for outgoing principal officials – which in the bill includes the Chief Executive, the secretaries, the Commissioner Against Corruption, the Commissioner of Audit, the chief of the Unitary Police Service and the chief of Macau Customs. Mr Chui made the remarks after the city experienced two unprecedented protests on Sunday and Tuesday: on Sunday, thousands of people 20,000 people, organiser Macau Conscience claimed versus the official figure of 7,000 - demonstrated on the streets demanding that the bill be withdrawn; in addition, some 7,000 protesters surrounded the Legislative Assembly building on Tuesday afternoon for the same cause. “In conclusion of the inadequacies we saw, one is that for policy explanation and proposing a bill we’ll have to seek more channels to express it; we also have to widen channels to listen to public opinion,”
We will collect the opinions we have heard so far for analysis, which the Secretary for Public Administration and Justice Florinda Chan will use to arrange a new consultation text Chui Sai On, Chief Executive
said Mr Chui. “We cannot gain unanimous approval [from the public] on the bill, but at least we have to try to gain more consensus on the issue after listening to more opinions,” the Chief Executive added. But Mr Chui did not offer a clear timeframe for when the public consultation for the welfare system for the city’s principal officials will be conducted. “Now, our first step is that we are delivering a request to the Legislative Assembly to withdraw the bill,” said Mr Chui. “Second, we will collect the opinions we have heard so far for analysis, which the Secretary for Public Administration and Justice Florinda Chan will use to arrange a new consultation text . . . Our urgent task now is to listen to public opinion from both the people that joined the [demonstration] activities
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May 30, 2014
Macau donate it all . . .” Mr Chui said. “I’ve actually contacted about six charity organisations and charity units, and if I’m to take the payout I will contribute it all in my lifetime. I’m fat but I’m not using [the payout] to fatten myself.”
Not overriding Beiijing
and legislators.” The Chief Executive did not directly respond to why no public consultation had been held before for the welfare bill for the principal officials, but just added that the government would “pay more attention to the timing of raising the bill and the respective consultation”.
Start from zero “Many opinions reckon that the timing of raising this bill was not appropriate . . . But frankly speaking, we are about to finish three terms of offices [for secretaries and Chief Executive], and should we still go on without a [welfare] system?” Mr Chui asked. “This is still a legal blank to be filled.” Mr Chui noted that one of the objectives of the upcoming consultation on the welfare system for the city’s principal officials will be to create conditions to attract social talent to work in the government’s
top positions. Secretary for Economy and Finance Francis Tam Pak Yuen, who has been in his post for nearly 15 years and is not from a civil service background, remarked to reporters at the Legislative Assembly on the sidelines yesterday that it is “more reasonable” to establish a welfare system for the principal officials. Mr Tam added that he does not have any central provident fund contribution and pension at the moment. The incumbent Chief Executive said yesterday that if he was to receive the one-off compensation as suggested in the bill, he would donate it all to charity organisations and education units. The latest version of the bill awards a monthly payout to a Chief Executive that has served for five years or more the equivalent of 70 percent of his salary until finding a new paid job. “As a participant in building up the [welfare] system, I won’t take any money from it but will
The bill that offers a welfare package to outgoing principal officials also proposes the granting of immunity to the Chief Executive from criminal charges during his term of office. Mr Chui stressed that the immunity term is not meant to give the Chief Executive “overriding” power that even the central government in Beijing does not have. “Secretary for Public Administration Ms Chan has fully communicated with the central government on the issue and expressed that this [the bill] is not offering a means to override Beijing’s authority, nor the fact that the bill is to offer me a protection [against criminal charges],” said Mr Chui. He stressed that the bill is not giving any exemption to the Chief Executive from criminal charges, and said that the issue of criminal immunity during office can still be discussed by the public. According to item seven of Article 71 of Macau’s Basic Law, upon the motion exercised by one-third of the legislators, the Legislative Assembly can decide to appoint the president of the Court of Final Appeal to establish an independent investigation commission to probe any illegal acts or dereliction of duty by the Chief Executive. Upon the approval of two-thirds
I’ve actually contacted about six charity organisations and charity units, and if I’m to take the payout I will contribute it all in my lifetime. I’m fat but I’m not using [the payout] to fatten myself Chui Sai On, Chief Executive
of the Assembly members, the Chief Executive can be impeached if the investigation commission can present sufficient evidence in support of accusations that the city’s top leader is guilty of a crime. Secretary of Public Administration and Justice Florinda Chan, as well as Policy Research Office personnel, attended yesterday’s press briefing. The Office’s director Lau Pun Lap told Business Daily that his team has not received any orders yet from the Secretary for Public Administration regarding the preparation of the consultation on the top officials’ welfare system.
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May 30, 2014
Macau
Economic diversification moving up the agenda
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HOSPITALITY Sliding expenses Overall trends in average spending of Macau visitors, gambling excluded, are strongly influenced by the behaviour of Mainland visitors. The vast majority of Macau visitors come from there and they are also the biggest spenders of them all. As a result, the plots for overall spending and Mainland visitors’ spending are almost parallel, one following closely the ups and downs of the other. Mainlanders make, obviously, an even bigger proportion of Asian visitors. Therefore, the same can be said about the Asian visitors’ spending patterns. Over the last four years, expenditure levels have been rising steadily, neat seasonal ups and downs notwithstanding. Average expenditure in the first quarter of the current year was up by 46 percent when compared with the same quarter in 2010. For visitors coming from other regions of the world, the rise was much smaller. The corresponding figures for visitors from the Americas, Europe and Oceania were 10 percent, 5 percent and 14 percent, respectively. But if we take away the effects of inflation, measured roughly, in this case, by the Tourist Price Index, another picture arises.
The IMF, the European Union and the world’s two biggest rating agencies - Fitch and Moody’s - recently pled the case for an economic diversification in Macau beyond gaming. Economists say the only option available are industries linked to casinos like MICE, entertainment and tourism, adding that that’s not a real diversification Alex Lee
Alex.lee@macaubusinessdaily.com
I
Once that correction is made, growth in overall spending virtually disappears. The difference between the last quarterly figures – that is, 1,440 ‘deflated’ patacas - and the corresponding value four years earlier – 1,438 patacas - comes down to almost nil. Even the Mainlanders’ spending has declined in the period, by about 6 percent. And in the case of the other, non-Asian, regions shown above, we can spot even sharper declines in ‘real’ spending. They went down by a quarter in all of them, give or take a couple of percentage points. J.I.D.
5.6%
Q1 drop in overall spending by visitors, after price correction, on previous year
n the space of a single month, Macau has received at least four calls from the world’s most important institutions and rating agencies to diversify its economy beyond gaming. Not only to preserve and invest the wealth accumulated over the years but especially to build a long-term economic model that’s capable of surviving an economic tide turn or a casino crisis. A singleresource economy has been Macau’s fortune but could be its downfall, if rolling chips start to go the wrong way or gamers move elsewhere. “It’s not technically possible to diversify Macau’s economy beyond the gaming cluster”, economist Albano Martins told Business Daily. “The only route is to invest in casino fringes like tourism, entertainment or MICE segments but that’s not a real diversification as these industries are still dependent upon gaming”, he said. The calls for diversification were a constant this month as some of the world’s major institutions paid closer attention to Macau, given that its economy has expanded at a double digit rate and trade has increased with the West. The International Monetary Fund (IMF) sent its first mission to Macau in 15 years – the first since the handover – in late April, while the European Union – China’s major trade partner – spoke openly about the need for more economic diversification and tax transparency in Macau.
Murtaza Syed, the mission’s chief to Macau and IMF’s resident representative in China, told Business Daily that one of the major goals was to evaluate the sustainability of the recent and impressive growth based on gaming and tourism. The last time IMF was in Macau, in 1998, the economy was in recession – GDP was dropping 3.5 percent – and public accounts had run up a deficit. The EU also encouraged Macau to transcend gaming as the trade between the two regions grew 28 percent in 2013 and has been rising annually at 20 percent rate, said EU Commissioner Algirdas Semeta before meetings with the SAR Government this month, in which he asked for greater tax transparency.
No alternative With gross gaming revenues representing 85 percent of Macau’s GDP and 75 percent of government revenues, if it’s difficult to search for an alternative to casinos, it’s almost impossible to find a segment with the same potential. “There’s no real alternative but the industries close to gaming like tourism and conventions could work as a starting point”, José Sales Marques, President of the Institute of European Studies of Macau, told Business Daily. The gaming industry has enabled Macau to become a world leader, pushing the economy to double-digit
growth in the last 5 years, a growth that is expected to continue into the future with new openings in Cotai, for example. Fitch, the world’s third biggest ratings agency, estimates that GDP will accelerate 9.8 percent this year and next, while the World Bank confirmed this month that the Macau Government is sitting on the second biggest surplus in the world, behind Kuwait, another single-resource economy, that survives on oil. With an economic performance like that, the political will to go beyond gaming is minimal. “Macau’s government doesn’t have any global diversification strategy, it’s all short term vision”, says Mr. Martins. The economist sees problems ahead for construction, engineering and architecture when the flow of new casinos are topped off in 2018. He says that the lack of human resources will be an issue of paramount importance as the government places limitations on foreign workers, leaving casinos with no option but to suck up all of the available workforce in the economy, leaving the other industries with no workers, impeding diversification. Mr. Sales Marques also pointed out that the post-2018 hangover with investment dropping will affect the robust growth of the previous decade. Apart from IMF and EU, investors are asking for more than casinos. Fitch maintained Macau’s notation (AA+) and decided not to upgrade like Moody’s did this month, citing high concentration risks regarding gaming and the territory’s ‘limited range of macroeconomic policy levers . . . As a small, open economy with a high degree of concentration risk, Macau is characterised by above-average volatility with respect to growth, inflation and government revenues’, wrote the agency. Moody’s was more optimistic, upgrading Macau’s credit rating to the third highest level, above China and Japan. The agency underlined, however, that a new rating upgrade is unlikely given the excessive dependency upon the gambling industry. In Moody’s analysis, issues like industry regulation, the softening VIP segment, junket volatility and the looming labour crisis for new resorts on Cotai amid strong union opposition to increasing foreign labour were noticeably absent.
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May 30, 2014
Macau ICBC Macau profits up in 2013 Sun Hung Kai The bank recorded MOP1.35 billion after tax in the twelve months ended December 31, 2013 Sara Farr
sarafarr@macaubusinessdaily.com
T
he Industrial and Commercial Bank of China (Macau) Ltd’s profits increased for the whole of 2013 over that of the previous year to 1.35 billion
patacas after tax. According to the banking institution’s 2013 annual report, the return on equity was 14.9 percent while the return on assets
was 1.1 percent. After all necessary adjustments, the bank’s profit amounted to 1.2 billion patacas. ICBC Macau’s total net assets were 140.5 billion patacas in 2013, a 20.4 percent increase over that of the previous year, representing 23.8 billion patacas more than in 2012. Liabilities were 130.7 billion patacas for the whole of last year, an increase of 22.7 billion patacas or just under 21 percent over that of the previous 12 months. Deposits also recorded a 17.8 percent increase to 117 billion patacas between January and December 2013, some 17.6 billion patacas more than in 2012. The value of all credit granted by ICBC Macau during 2013 totalled 88.1 billion patacas, an increase of around 28 percent or 19.3 billion patacas more than the previous year. In addition, the credit ratio of bad loans remained at a low level, while provisions remained sufficient, the bank said in its annual report. This allowed for the strengthening of the banking institution’s ability to face any risk, the president of the bank’s administrative council, Zhu Xiaoping, said.
profits hit 4.28 million patacas
T
he Macau branch of Sun Hung Kai Investment Services Ltd recorded a profit of 4.28 million patacas last year, an increase of 147 percent year-on-year, the Hong-Kong based real estate company announced. Sun Hung Kai explained that the results reflect an increase in revenue from its activities of around 18.71 million patacas. The company justifies the results by the stagnation of the operating costs that reached 13.90 million patacas. In its annual report, Sun Hung Kai also says that ‘the investment market is gradually recovering after the international crisis’ and that ‘investor trust is growing as well’. For 2014, the Macau branch states that it plans to hire more financial experts in addition to training graduates.
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May 30, 2014
Macau Brands
Trends
Mechanical Swatch Raquel Dias newsdesk@macaubusinessdaily.com
C
ontrary to what you may think, Baselworld is not all about über expensive timepieces. The world-renowned watch fair has more to do with innovation than price. To prove this, you need only look at the interesting piece introduced by Swatch: the SISTEM51 - a mechanical watch with an impressive 90hour reserve made entirely on an assembly line. Yes, you read that correctly, the first mechanical watch not made by hand. The 3Hz movement delivers precise, longlasting, maintenance-free performance. Within its five modules there are only 51 parts where the visible surfaces offer up a new canvas for creative design work. SISTEM51’s dial side also reveals six of the movement’s 19 rubies while its transparent back enables you to see the heart of its mechanism for yourself. This fine example of craftsmanship comes in four colours and three different designs. The SISTEM White, Black, Red and Blue are all Swiss made and come with a price tag of HK$1,200. All come with the brand’s signature silicone strap, in quite eye-catching designs. The company that wanted you to have a Second Watch - ergo Swatch - quickly became a phenomenon with a lot of collectors worldwide. This latest innovation has once again put the brand ahead of the game. Do remember that Swatch made the impossible; they brought back analogue quartz watches in the midst of the 1980’s love affair with digital.
Financial sector third best rewarded in Macau Wages in financial companies recorded the biggest increase in all of the Macau economy in the first quarter, jumping 34 percent. Restaurants were the segment that hired the most, but also the one which still faces the largest shortage of workers, official statistics reveal Alex Lee
Alex.lee@macaubusinessdaily.com
T
he financial sector became the third best paid in Macau, after its average earnings (wages excluding bonuses and allowances) climbed a record 34 percent in the first quarter from a year ago, surpassing the wages of hotel personnel. According to data published yesterday by the Statistics and Census Service (DSEC), earnings in financial intermediation activities - namely banking and other financial services - reached a monthly 17,700 patacas in March, a 34 percent increase compared to the same month last year (13,200 patacas). This was by far the biggest jump in wages in Macau’s economy, growing three times faster than the median of other sectors. In manufacturing, earnings went up 13.6 percent, insurance 9.8 percent and hotels 9.7 percent, the three biggest wage
increases, respectively, after the financial segment. The figures made financial workers the third most rewarded group in Macau’s workforce, beating hotel employees. The larger wages are paid in the electricity, gas and water supply sector (25,900) and insurance (23,700), the statistics office revealed.
Shortages At the end of the first quarter of 2014, hotels and restaurants had 67,400 full-time employees, an increase of 4.3 percent from a year ago, accounting for some 90 percent of the total workforce of Macau. Restaurant employee wages rose the most, climbing 14.1 percent from a year ago and three times more than in the hotel segment (a 3.4
percent rise year-on-year). Despite being the sector that hired the most in the first three months of the year, restaurants continue to suffer a shortage of human resources. The number of vacancies in restaurants rose 50 percent in one year, staying in March at 3,000 positions to fill versus 2,000 in March 2013. The sector also had the highest vacancy rate of 11.7 percent, up 2.2 percentage points year-on-year, and employee turnover rate (7.5 percent). In terms of recruitment prerequisites, 82.6 percent of the vacancies in financial companies required knowledge of Mandarin, while 95.5 per cent of those in Insurance required English. Some 82.6 percent and 58.5 percent of the vacancies in hotels required knowledge of Mandarin and English, respectively.
Local drivers study to be basis of policy: Tam W hile the initial study on the demand and supply of local commercial drivers is due in August, the city is preserving the status quo of not importing any labour to work as drivers here, Secretary for Economy and Finance Francis Tam Pak Yuen told legislators in a general session in the Legislative Assembly yesterday. The possibility of migrant labour working as drivers in Macau was first mentioned by Chief Executive Fernando Chui Sai On in his Policy Address delivered on November 13 last year, when he announced that a study would be conducted to assess
the city’s needs for drivers in response to complaints by local businessmen about the lack of commercial drivers, in particular truck drivers. Answering legislators’ queries, Mr Tam said yesterday that the appointed research unit - Polytechnic Institute of Macau - will release initial study results on the city’s number of commercial drivers, their types and respective demands by August, and that bottom-line results will be released by October. The findings of the study will be the basis for the government’s manpower policy, Mr Tam confided.
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May 30, 2014
Macau
Package tours increase 23pct in April The Easter long-weekend brought the total number of visitors on package tours to 957,000 last month
A
total of 957,000 tourists visited Macau on package tours last month, a 23 percent increase over the same period last year, due mainly to the Easter long-weekend. Official data from the Statistics and Census Service released yesterday shows that 80.5 percent of visitors were from mainland China. This figure was up by 31 percent from the same month last year, bringing the total number of package tour visitors from mainland China to 771,000. Macau increased its popularity with an increase in package tours from Taiwan, bringing in 58,000 visitors, followed by Hong Kong with 37,000 and Japan with 10,000. The number of package tours from South Korea and Thailand, however, decreased with these two countries bringing in 32,000 and 14,000 visitors, respectively. In the first four months of the year, the total number of visitor arrivals on package tours was slightly over 3.5 million, up by 14 percent compared with that of the first quarter last year. Meanwhile, more Macau residents travelled on outbound package tours and via travel agency arrangements. The total number of outbound visitors on package tours was 49,000, while those making their bookings through travel agencies totalled 118,000, a 6 percent increase over that of
3.5 mln
total number of visitor arrivals on package tours last year. Mainland China was the preferred choice for Macau residents, accounting for 79 percent of the total, followed by Taiwan accounting for 7 percent and South Korea at 5 Â percent. Between January and April, as many as 472,000 Macau residents travelled outbound, a slight increase of 1 percent.
In addition, there were 99 hotels and guesthouses operating at the end of April, offering as many as 28,000 guest rooms. This number was down by 1 percent compared with the same period last year. However, 5-star hotels accounted for the majority at 66 percent, providing up to 18,000Â rooms. While the number of visitors from
Hong Kong, Taiwan and South Korea declined in the first quarter, this did not overly affect the number of guests checking into hotels and guesthouses, with numbers decreasing by 1 percent year-on-year. The majority of these, at around 58 percent, chose to stay at 5-star hotels, with the average length of stay 1.4 nights. S.F.
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May 30, 2014
Macau Uncertainty surrounding Japan’s gaming market Despite a queue of suitors, a bill proposing the legalization of casinos in Japan failed to get a reading in parliament this week. It will probably not be ready until next year, threatening the opening of gaming resorts prior to the coveted 2020 Summer Olympics in Tokyo
T
he rise of a Japanese gaming industry – anticipated to be the world’s third biggest – suffered a setback as the bill to legalize casinos in the country failed to get on parliament’s agenda this week, making it almost impossible to approve the new law this year. This, in turn, threatens the opening by the 2020 Olympics of what is calculated to be a US$40 billion industry. Even with delays and an uncertain future, companies are queuing to explore the next big gaming destination. The most recent was Konami, the Japanese maker of casino gaming machines and Sands supplier, that yesterday said is already in talks with some major gaming operators to invest in the Japanese market, even without the confirmation that Tokyo will open up the country’s market. The big question mark now is not only if, but when Japan decides to legalise casinos. The Wall Street Journal
reported yesterday that the bill necessary to legalise casino gambling failed to get on parliament’s agenda this week, with lawmakers and lobbyists stating that it will be nearly impossible for the bill to get passed during the current parliamentary session, which ends June 22. Several analysts have warned that if the bill failed the June 22 deadline, it will not be on the agenda until next year. Friday was the only realistic date to discuss the casino bill to get it passed during the current parliamentary session, Sakihito Ozawa, a senior official in the bipartisan group pushing the legislation told WSJ. Casinos are currently banned in Japan, whilst a flutter on the horses, boats and bicycle races is allowed. International casino operators have said they are ready to invest billions of dollars to build resorts in the country should the government legalise casinos. Major
Poultry T import ban could end next month
he ban on imported live poultry could end next month as authorities in Macau and Zhuhai negotiate how best to resume imports and sales. According to local media, Ung Sau Hong from the Civic and Municipal Affairs Bureau said talks between the two sides are “going well” but so far no date has been decided upon for lifting the ban. The aim is to reduce the number of times authorities here impose a ban on the import of live poultry from
Macau operators like Sands, MGM, Wynn, Melco Crown - and Caesars – have already publicly declared their interest in investing in Japan. The potential market value is
Friday [today] was the only realistic date to discuss the casino bill to get it passed during the current parliamentary session Sakihito Ozawa senior official in the bipartisan group pushing the legislation
around US$40 billion. Konami, the Japanese maker of casino gaming machines, says it’s in talks with possible partners to invest in gambling projects
in Japan. “We have met several companies” to discuss potential casino projects, Satoshi Sakamoto, chief executive officer of Konami’s gaming unit, said in an interview in Tokyo yesterday, without giving names. There is a “possibility” that the company would team up with clients such as Las Vegas Sands Corp., MGM Resorts International or Caesars Entertainment Corp., Sakamoto said. Konami makes and sells gambling equipment such as slot machines to Sands and other casino operators, although it doesn’t break out how much revenue it derives from each customer. Konami will set up a subsidiary to invest in casino projects once the Japanese parliament passes the bill to legalise casinos, it said in a statement posted on its website yesterday. Japan is projected to be Asia’s second biggest casino gambling market after Macau, according to CLSA Ltd. A.L. with WSJ and Bloomberg
mainland China. Local quarantine authority Civic and Municipal Affairs Bureau pledged in early April that it would draw more samples for inspection of the H5-type and H7-type virus when resuming live poultry imports. Last month’s volume of resumed imports were less than the daily average of 7,000 to 8,000 live poultry imported prior to the ban; authorities are also limiting the supply from Zhuhai to only two breeding farms, the Bureau disclosed.
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May 30, 2014
Greater China
Accelerated spending perceived as sign of concern The move to accelerate, but not increase, spending follows other steps to underpin the economy growth to slow to 7.3 percent in the second quarter from an 18-month low of 7.4 percent in the first quarter. They expect full-year growth of 7.3 percent in 2014, the weakest in 24 years.
RRR cut?
Permier Li with South Korean President Park Geun-hye
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hinese authorities are stepping up efforts to ward off a sharper economic slowdown, analysts said after Beijing called on local governments to speed up their spending over the next month to boost activity. The finance ministry said on Wednesday that local governments risked losing 2014 budget funds not allocated by the end of June and that spending on some projects could be front loaded to help boost the economy. The move to accelerate, but not increase, spending follows other steps to underpin the economy after a run of weaker-than-expected data
this year raised concerns growth could miss the official forecast for the first time in 15 years. “There is increasing evidence that Premier Li Keqiang is probably more serious about the 7.5 percent growth target than hoped by those who have wanted the government to tolerate lower growth,” analysts at Barclays Capital said in a research note. Premier Li has said it did not matter if growth was a little below that target. Last week, he said there were relatively big pressures on growth and policy needed to be fine-tuned. The ministry reiterated
that money for key projects must be paid in a timely manner. Some of pressures on the economy stem from sluggish budget spending this year, analysts say. “We must also realise that the current situation we are facing at home and abroad is still complicated and the downward pressure on the economic growth still exists, so we must not underestimate certain difficulties,” the finance ministry said. China’s leaders have ruled out any big fiscal stimulus, saying they are committed to structural reforms intended to shift the economy to slower, more sustainable growth.
But they have called for fine-tuning of policy and taken targeted support measures, such as tax cuts for smaller firms and quickening spending on railways and public housing. “It reinforces our view that policy easing has started to pick up in the second quarter, the size of easing is becoming significant from a macro perspective, and there will likely be more easing measures in the second half if property investment growth slows further,” Nomura’s China chief economist Zhiwei Zhang said. A Reuters poll shows analysts expect annual GDP
The ministry reiterated that money for key projects must be paid in a timely manner. Some of pressures on the economy stem from sluggish budget spending this year, analysts say. “In our view, though the Ministry of Finance is not calling for increasing fiscal spending, merely speeding up delayed fiscal spending will be positive to growth and should be welcomed by the markets,” Ting Lu, China economist at Bank of America-Merrill Lynch in Hong Kong. Fiscal revenues of 4.8 trillion yuan (US$767.3 billion) in the first four months of 2014 exceeded expenditures of 4.0 trillion yuan, finance ministry data shows. The government is aiming for a fiscal deficit equivalent to 2.1 percent of GDP this year. Peng Wensheng, chief economist at CICC, said in a research note that the ministry’s action reduced the chance of a near-term cut in banks’ reserve requirement ratios (RRR), as the central bank was cautious about using the “high-profile” tool. In contrast, Xu Gao, chief economist at Everbright Securities, said chances were quite high for a cut in the RRR to help bring down elevated borrowing costs for corporates. Reuters
Yangtze River customs clearance to be speeded up The Yangtze River belt is dotted by 70 customs checkpoints with regulatory privilege to engage in export-oriented manufacturing and processing
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easures enabling speedier customs clearance in the China (Shanghai) Pilot Free Trade Zone (FTZ) look set to be rolled out to other customs points along the Yangtze River. The General Administration of Customs (GAC) announced on Monday that it is mulling how to apply this streamlining, first piloted in the new FTZ, to other customs points along the Yangtze. The Yangtze River belt is dotted by 70 customs checkpoints with regulatory privilege to engage in export-oriented manufacturing and processing. Custom authorities hope to improve coordination among them to ensure smooth movement of cargoes and promote high-end manufacturing. While cities like Shanghai, Nanjing and Suzhou located at the downstream of the river are China’s manufacturing bases and financial hub, provinces
A merchant ship sailing Yangtze River close to Nanjing
on the Yangtze’s upper reach are centres of industrial production and agriculture. Cargoes that enter China through customs at the Shanghai FTZ -a 29-square-km area consisting of four former bond areas- may now be stored before they are declared to customs authorities, a move that has reversed the practice at other
checkpoints in China but one that has proved efficient for trade. A number of initiatives to improve customs clearance have been proposed and are being piloted in the Shanghai zone in the hope that they may be introduced to other customs checks to unify regulation and enable faster movement of goods between Shanghai and other checkpoints.
Speedier customs clearances and an improved logistics network will also ease delivery of agriculture products and natural resources and thus benefit commodity trading. Authorities are mulling commodity trading platforms at the Shanghai trade zone to attract international investors to participate in commodity trading and seek a greater say in pricing. Chinese Premier Li Keqiang in late April called for the creation of an “economic belt” along the Yangtze to promote better coordination in industrial development and more efficient allocation of resources among up to 11 provincial regions traversed by the river. These regions on the so-called “economic belt” are home to more than 40 percent of China’s population and contribute 40 percent of the nation’s economic output. Xinhua
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Greater China Inner Mongolia official stands trial for bribery Wang Suyi, former senior official of north China’s Inner Mongolia Autonomous Region, stood trial in Beijing on Thursday on charges of taking bribes. Wang was accused of taking bribes worth more than 10.73 million yuan (US$1.71 million), according to the Beijing No.1 Intermediate People’s Court. Wang was a member of the Standing Committee of the CPC Committee of Inner Mongolia Autonomous Region and head of the United Front Work Department of the regional Party committee. The trial was open to the public. The court said the verdict will be announced at a later date.
FTAAP good for international trade The Free Trade Agreement of the Asia-Pacific (FTAAP) does not contradict existing bilateral FTAs in the region and can help facilitate global trade and investment, said Tom Seymour, tax leader of PwC Asia Pacific, on Wednesday. The FTAAP was proposed in 2006 but enormous challenges lie ahead for its establishment. Seymour told Xinhua that the biggest difficulty is that the FTAAP involves the negotiations of a large number of countries and complex political factors. The numerous existing FTAs could lay a foundation for the much bigger FTAAP and the models could be copied, said Seymour from Australia.
Better GMO surveillance
Yuan loans to pick up The dramatic fall of the Chinese currency this year will likely inject fresh life into the loan market Michelle Chen
H
ong Kong’s yuan loans market is set to revive with the Chinese currency trapped in its longest downtrend since its 2005 revaluation and as the mainland rolls out pilot schemes to boost cross-border lending activities. Corporates have long avoided yuan loans as the “redback” had steadily appreciated for years, making repayment of yuan debt more expensive when these loans came to maturity. “The sustained weakness of the yuan and policy easing recently is providing a golden opportunity for the offshore yuan loan market to take off,” said Wang Ju, a senior strategist at HSBC. Hong Kong’s yuan loans market took off after the territory’s yuan clearing agreement was modified four years ago. Outstanding yuan loans stood at 123 billion yuan (US$19.7 billion) at endFebruary, according to statistics from the Hong Kong Monetary Authority (HKMA). The market seems especially dwarfed compared with the dim sum bond market, which reached 704 billion yuan at the end of April, including certificates of deposits (CD). However, the dramatic fall of the Chinese currency this year will likely
inject fresh life into the loan market. The yuan has entered a weakening cycle since the beginning of the year as China’s central bank took action to squeeze out hot money betting on one-way appreciation in its currency. It has lost 3.2 percent since the start of the year after appreciating more than 30 percent since its 2005 landmark revaluation, wiping out all its gains recorded last year. It is one of 2014’s worst performers among its emerging market peers. Details to get business in the Shanghai free trade zone moving were recently unveiled by Beijing while regulators also announced easing of constraints on cross-border guarantees. Institutions and individuals in the Shanghai free trade zone will be allowed to set up specially tagged bank accounts, effective immediately, to create a closely managed opening in the country’s capital account for the zone. Foreign direct investments and repayment of self-owned yuan loans with duration longer than six months borrowed from Shanghai financial institutions are allowed between a resident’s free trade account and the same name domestic settlement accounts. Previously, mainland companies who faced hurdles raising funds onshore
and wanted to capitalise on cheaper yuan funding offshore could not easily channel monies back to China due to Beijing’s tight controls on the capital account The State Administration of Foreign Exchange also streamlined the process for cross-border guarantees and deleted the quantitative limits for financial institutions issuing such guarantees. This will greatly activate the demand for offshore yuan loans which are much cheaper than those in the mainland. Bankers say the cost of a one-year loan denominated in yuan is around 4 percent in Hong Kong, while in China it is more than 6 percent. Adding to the momentum will be the Hong Kong-Shanghai stock connect scheme that is poised to be launched in October. With investors in Hong Kong to be permitted to carry out A-share margin financing, there will be demand for yuan loans, said Andrew Fung, executive director of Hang Seng Bank. A well-developed yuan loan market helps improve the CNH Hibor curve, which offers a benchmark to structure more complicated yuan products that can be used by global investors to participant in the market and hedge risks. Reuters
Mercedes bows to Chinese market China will strengthen oversight of genetically modified organisms (GMOs) in the agricultural sector to ensure biosafety, the Ministry of Agriculture said in a circular on Wednesday. Regulatory oversight of such products is important to grain safety, food safety and ecological safety, the ministry said. It vowed to crack down on illegal spread of GMO seeds and other malpractice. China has placed importance on the development of modern biotechnology while keeping a wary eye on possible risks that may result from the technology.
Alibaba to disclose shareholders’ names The firm will name the 28 people who will control the world’s biggest e-commerce firm in an update to its initial public offering filing, the Wall Street Journal said, quoting people familiar with the plans. Alibaba also plans to name its full board in a future filing, the newspaper said, adding that the current board of four members would be expanded to nine. The company could not be immediately reached for comment. Former English schoolteacher and lead founder Jack Ma owns 8.9 percent of Alibaba. Joseph Tsai, co-founder and executive vice-chairman, is the only other individual with a disclosed stake - of 3.6 percent. Yahoo Inc and SoftBank Corp own 22.6 percent and 34.4 percent of Alibaba, respectively, on a fully diluted basis.
To get permission to build cars locally the company needs to undergo tests that can take up to a year Edward Taylor
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attling to catch up with German rivals in China, luxury carmaker Daimler is shifting gears, giving local authorities unprecedented access to new Mercedes models and even tailoring engines destined for its home market to Chinese regulations. For years, Daimler has lagged Audi and BMW in the world’s biggest car market. Last year, Mercedes-Benz, the company’s premier luxury brand, sold 228,000 cars there, compared to nearly 492,000 for Audi and over 362,000 for BMW. The reasons for this are varied. For years, Daimler harboured doubts over the sustainability of growth in China. German labour union resistance to shifting production out of Daimler’s main factory in Sindelfingen also played a role. Another key factor has been Daimler’s more cautious approach to sharing technological know-how due to fears of piracy. This prevented the company from deepening its footprint in China, where foreign automakers are required to work with local companies, at a time when its rivals were going all-in. Now this is changing -in part
because the Chinese have taken steps to crack down on copyright violations, but also because Daimler executives have realised there is no alternative to closer cooperation if they are to make up lost ground in a market that continues to post impressive growth rates.
This year, Daimler is starting production of its newest C-Class in China as well as Germany, a stepchange for a manufacturer that had previously delayed local Chinese production of new models by months. Beijing Benz Automotive Co. (BBAC), the joint venture company
A Mercedes-Benz SLS AMG Black Series model pictured. AMG models need to make changes in order to adapt to the Chinese market
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Greater China
China and Malaysia empower maritime Silk Road The Qinzhou Industrial Park in south China’s Guangxi Zhuang Autonomous Region is the first such project between China and Malaysia
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Two International Finance Centre, in Central, Hong Kong, hosts Hong Kong Monetary Authority headquarters that announced outstanding yuan loans stood at 123 billion yuan up to February
KEY POINTS Daimler caution in China has left it trailing BMW, Audi German carmaker in local production push to regain ground Chinese granted unprecedented access to new models Daimler hoping China growth can help it reclaim luxury crown
Daimler runs with Chinese partner Beijing Automotive Group Co., is also constructing a new production line for the compact GLA model.
Transferring know-how To get permission to build both cars locally, they need to undergo a 160,000 km emission durability test and a regulation test with Chinese authorities. These can take up to a year. As part of this process, Mercedes is allowing Chinese officials to take samples of components and make detailed measurements of its newest cars. “To put it bluntly, we are transferring know-how,” said Rene Reif, head of engineering and manufacturing at Beijing Benz. Today, Mercedes-Benz GLA prototypes are parked at a brand new research and development centre
built for BBAC. And a new C-Class, code named V205 is propped up on vibrating pillars to undergo final “bust squeeze and rattle” testing before its looming launch in China. Frank Deiss, president and CEO of the joint venture, says the Chinesemade cars will have the same build quality as a Mercedes assembled in Bremen or Rastatt. To tap China’s potential more effectively, Daimler recently moved its Mercedes-Benz Advanced Design Centre from Japan to Beijing. Its main research and development activities for Mercedes remain in Germany, but China’s influence is increasing, even on Daimler’s home turf. The AMG GT for example, a sports coupe being developed in Affalterbach, Germany, is having its engine size reduced to avoid China’s progressive taxation thresholds. “The GT was developed in part with the new tax in mind,” AMG Chief Executive Tobias Moers said, explaining that the car will have an 8 cylinder engine with a capacity of just below four litres because of the Chinese tax. Daimler only started making Mercedes-Benz cars in China in 2006, reaching production capacity of 120,000 vehicles last year. Audi, which has been making cars there since 1988, surpassed that level in 2007. If demand continues to rise, Daimler says the capacity of its Beijing factory can be ramped up to make 350,000 cars. Asia remains the key battleground in Daimler’s fight to reclaim the crown of the top-selling maker of luxury cars in the world. The last time Mercedes held the title was in 2004. Reuters
ore than 6.2 billion yuan (US$1 billion) has been pumped into the construction of an industrial park jointly built by China and Malaysia as part of an ambitious plan to rejuvenate the ancient maritime Silk Road. The China-Malaysia Qinzhou Industrial Park in south China’s Guangxi Zhuang Autonomous Region has invested over 1.2 billion yuan on roads, sewage disposal plants, water and power supply as well as housing projects for workers since construction started in April 2012. Another 5 billion yuan was added this year to the 55-square-km park, the first such project between China and Malaysia. Considered a new platform for China-ASEAN cooperation, the park will be dedicated to developing modern logistics, finance, insurance, trade and exhibitions as well as serving as a regional headquarters for transnational companies. Six industries, including equipment manufacturing, information technologies, food processing, new materials, biotechnologies and modern services, will become pillar
industries for the park, said Fan Li, deputy chief of the park’s managing committee. The park is expected to be operational in the last quarter of this year, Fan added. Since ancient times, Southeast Asia has been an important hub along the historical maritime Silk Road, a commercial route on which China sold silk, ceramics and tea to overseas markets. Chinese President Xi Jinping proposed a 21st century maritime Silk Road during his visit to Indonesia last October. The park is regarded as an innovative experiment by China and Malaysia in rebuilding the maritime Silk Road. In Kuantan, a port city in Malaysia, China and Malaysia are also working on an industrial park as a sister park to the one in China. Construction of an iron and steel project, the first in the Malaysian park led by China’s Guangxi Beibu Gulf International Port Group, will kick off next month with a total investment of 8 billion yuan. Xinhua
Acer shifts its business to software The firm aims to start making software and offering online computing services under the heading Build Your Own Cloud Michael Gold
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aiwan’s Acer Inc. detailed its long-touted push into cloud computing yesterday, as the struggling computer maker responds to a shrinking PC market by pitting itself against cloud leaders Amazon. com Inc. and Google Inc. The world’s fourth-biggest producer of personal computers (PC) aims to start making software and offering online computing services under the heading Build Your Own Cloud (BYOC). Acer announced BYOC with few details at the end of 2013 when the company booked a third straight loss after the global PC market shrank 10 percent. PCs have been losing out to tablet computers and sidestepped by the cloud, where users store files remotely and run applications over the Internet. “The computer is still our foundation, but BYOC is a new platform for integration, crosscompatibility and convenience,” company founder and chairman Stan Shih said at a news conference. Acer is promoting BYOC as the future of cloud computing by focusing on the so-called Internet of Things, which allows for remote connectivity across a range of devices. In a promotional video,
Acer detailed how BYOC will allow users to operate home appliances or automobiles, for example, using smartphones. But with BYOC, Acer will enter a fledgling market already so competitive that in March Amazon and Google dropped their prices. Either side of their announcements, both Cisco Systems Inc. and Hewlett-Packard Co revealed cloud investment of US$1 billion. The company may benefit from its strength in manufacturing and hardware cost management, said analyst James Lin of KGI Securities. Acer has been one of the more notable casualties of a decline in the global PC market. ç, showed data from researcher IDC. That led to a January-March net profit of only T$1 million (US$33,200), continuing Acer’s trend of booking a meagre profit or loss in every quarter since early 2011. Over that time frame, Acer has fallen to the world’s No.4 PC vendor from No.2, according to researcher Gartner. The company has also had three chief executives, and has had to contend with two employees being investigated for insider trading. Reuters
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Asia Australia April new home sales Sales of new homes in Australia rose for a fourth straight month in April, underscoring a pick-up in the housing sector and a positive sign for broader economic activity, an industry survey showed yesterday. The Housing Industry Association (HIA) said its survey of large builders showed sales of private sector new homes rose 2.9 percent in April from March. Sales were up 6.0 percent over the three months to April. Multiunit sales climbed 9.3 percent in April, while detached house sales rose 1.8 percent to post its sixth consecutive monthly increase.
Philippine GDP rises slower The Philippine economy grew an annual 5.7 percent in the first quarter, slower than market expectations of 6.4 percent growth, as the impact of last year’s super typhoon on farm output offset strength in the services and industry sectors. Compared with the previous quarter, gross domestic product grew a seasonally adjusted 1.2 percent in the first three months of the year, the government said on Wednesday. Analysts polled by Reuters had forecast the economy would expand by a seasonally adjusted 1.9 percent in the first quarter, after revised 1.7 percent growth in the December quarter.
Hyundai unveils two sedans The firm unveiled two new sedans built for its home South Korean market on Wednesday, an unusual step designed to fend off surging imports from the likes of BMW and Audi. The move on the eve of the Busan Motor Show reveals Hyundai’s jitters about imports from Europe and the United States, which have soared in popularity since free trade deals cut tariffs on foreign-made vehicles in recent years. Foreign carmakers expect to more than double their South Korean market share to 20 percent by 2016, compared with 2012 when tariffs on U.S.-made imports started to unwind.
Mantra Hotels tries IPO second attempt The A$500 million (US$460.93 million) IPO of Australia’s No. 2 hotel operator will proceed after investors who rebuffed it two months ago changed their minds in light of strong performances from other floats, a source close to the deal said on Wednesday. The Mantra Group flotation not only gives its owners, Hong Kong private equity firm CVC Asia Pacific Ltd and UBS AG, an exit from an asset they have wanted to sell for years - it is also the strongest marker of the change in IPO sentiment since their March attempt to float the company failed.
S.Korea current account surplus hits record Nevertheless, the slowdown in China has largely cooled investor sentiment Christine Kim
S
outh Korea’s current account surplus in April surged to a record as exports rose sharply, central bank data showed yesterday, but a fall in imports in the latest month reinforces a worrying erosion of domestic consumption. Asia’s fourth-largest economy posted a current account surplus of US$9.81 billion in April on a seasonally adjusted basis, much bigger than a revised surplus of US$6.60 billion for March, data from the Bank of Korea showed. Exports in April climbed by a seasonally adjusted 5.9 percent to US$55.38 billion from the previous month on shipments of cars, petroleum and steel products, while imports fell 3.7 percent to US$43.46 billion, bringing the goods account surplus to a record US$11.92 billion. The sluggish imports underscored depressed domestic consumption and investment, and continued weakness in global prices of energy and raw materials. Highlighting soft demand at home, a recent survey on consumer
sentiment by the central bank fell to an 8-month low as views over the status of the economy by South Koreans worsened. The slowdown in China, South Korea’s biggest export market, and an uneven recovery in the global economy have largely cooled investor sentiment. The economy is expected to grow 4.0 percent this year, from 3.0 percent last year, helped by improving exports though the weak domestic picture could slow the recovery. The robust current account surplus is expected to lend further support to the Korean won, which is up 3.3 percent against the dollar this year. Authorities intervened in the market earlier this month as the won’s gains accelerated thanks to the record run of current account surpluses and a rush of foreign investment into local stocks and bonds. According to the central bank data, foreign net portfolio investment jumped to US$5.85 billion in April from US$0.15 billion in March. Park said government authorities
KEY POINTS Current account and goods surpluses reach record as exports jump Fall in imports highlights soft domestic consumption Economic recovery could be crimped by weak domestic demand are expected to keep the won near the 1,020 level and maintain their stance of intervening in the market to smooth out sharp moves in the currency. In the financial account, South Korea saw a net outflow of US$6.24 billion in April without seasonal adjustment, compared to a revised net outflow of US$5.78 billion in March. Reuters
Japan April retail sales tumble Data suggest consumer spending will pick up in May in line with the Bank of Japan’s scenario Stanley White
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apanese retail sales fell in April at their fastest pace in three years due to declining sales of cars and electronics, offering the first indication of how much consumers are trimming their purchases after a sales tax hike took effect on April 1. The 4.4 percent annual decrease in retail sales was more than the median estimate for a 3.3 percent decline, and marked the biggest drop since a devastating earthquake and tsunami in March 2011. In one encouraging sign, declines in sales of apparel and toiletries were limited, which suggests consumer spending will pick up in May in line with the Bank of Japan’s scenario, but there are worries that a recovery in durable goods could take more time.
“There are signs that declines in spending on daily necessities is already bottoming out, which supports a gradual recovery in spending,” said Shuji Tonouchi, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities. “The one area of concern is durable goods. Sales of these more expensive items may take more time to recover.” The government raised the nationwide sales tax to 8 percent from 5 percent on April 1. The move is intended to earn extra income for rising welfare costs, but it has also caused some volatility in economic data and concern that the world’s third-largest economy will enter a prolonged contraction if consumers shun higher prices. BOJ officials have repeatedly
said any negative impact from the sales tax hike will be temporary and that the economy can continue to expand above its potential growth rate despite recent signs of slowing. Indeed, most economists are optimistic that mid-year bonus payments will help consumer spending turn around. The government is also bringing forward public works spending to give the economy an extra boost this year so it can quickly bounce back from the tax hit. Nonetheless, some advisers close to Prime Minister Shinzo Abe think the BOJ will need to add to last April’s massive stimulus to ensure consumer prices reach the central bank’s 2 percent inflation target. Reuters
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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Asia
Australian business investment falls
had for a while sounded more hopeful than emphatic.”
Not too bad
The main contributors to higher spending plans came from miners and some other selected industries Ian Chua
A
ustralian business investment fell again in the first quarter but spending plans for 2014/15 were revised higher, a positive for the economic outlook - a fillip for the local dollar. Yesterday’s survey from the Australian Bureau of Statistics showed firms planned to spend A$137 billion (US$126 billion) in the year to June 2015, more than the A$128 billion many analysts had hoped for, and ahead of the previous estimate of A$125 billion. The main contributors to higher spending plans came from miners and some other selected industries, suggesting the shift to non-resources sectors is gaining traction while mining investment is not dropping off a cliff. “The Reserve Bank of Australia (RBA) will likely be encouraged by these data as it suggests that nonmining investment has started to pick up and will assist the economy in transitioning away from mining-led growth,” said Dylan Eades, economist at ANZ in Sydney. The result should support the view that the RBA will keep its cash rate at a record low 2.5 percent for an extended period.
Reserve Bank of Australia building
“RBA officials consistently have communicated that this rotation in investment in the wake of the peak in the mining capex boom was on
track,” JPMorgan chief economist Stephen Walters said. “Now, they have decent evidence to support their contention, which
Investors cheered the data, driving the Australian dollar to a session high of US$0.9273 after initially selling the currency in reaction to the disappointing headline figure. Yesterday’s report showed capital expenditure fell 4.2 percent in the first quarter, worse than the 1.4 percent decline forecast. It also followed a downwardly revised 4.5 percent drop in the fourth quarter. The pullback by miners was evident again as they cut spending on building and structures by 8.7 percent compared to the previous quarter. Spending on equipment, plant and machinery, however, rose 3.3 percent. Annual capital expenditure of the mining sector now accounts for 60 percent of the country’s total private sector capital spending compared with 20 percent just five years ago, so the scale-back by miners was always going to be felt. Encouragingly, manufacturers and other selected industries spent more on equipment, plant and machinery in the first quarter, while other selected industries also lifted spending on buildings and structures. All of which implied private investment will not be too negative for economic growth and suggested to some analysts only a small downside risk to first-quarter gross domestic product data due out on June 4. Analysts had been looking a rise of 0.8 percent to 1.0 percent in GDP over the quarter, following a 0.8 percent increase in fourth-quarter 2013. Reuters
Nomura tries to regain lost ground Japan’s biggest securities firm hasn’t held the top spot since 2011
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omura Holdings Inc., trying to regain its lost dominance in advising on Japanese mergers and acquisitions, is facing tough competition from bigger rivals and some bad luck. Nomura’s largest M&A assignment of the year suddenly became the biggest takeover cancelled in Japan this decade when Yahoo Japan Corp. decided this month to scrap its US$3.2 billion purchase of eAccess Ltd. from SoftBank Corp. That pushed Nomura, which advised SoftBank, to fifth place among Japan M&A advisers from fourth, data compiled by Bloomberg show. Japan’s biggest securities firm hasn’t held the top spot since 2011, missing out on the largest takeovers to banks including Mitsubishi UFJ Financial Group Inc., Morgan Stanley and Goldman Sachs Group Inc. Nomura plans to hire U.S. bankers to bolster its overseas capabilities and recoup its share of the advisory market, an area that builds ties to companies and can lead to business such as stock and bond underwriting. “Japanese lenders and foreign banks will continue to dominate domestic brokerages, and Nomura
can’t just sit still,” said Koji Hirai, head of M&A advisory firm Kachitas Corp. in Tokyo. “Nomura faces pressure to form a joint venture or a flexible alliance with banks overseas, or hire highly capable bankers.” Mitsubishi UFJ Morgan Stanley Securities Co., formed in 2010 by Japan’s biggest bank and the Wall Street firm, worked with Yahoo Japan and remains the No. 1 mergers adviser in the Asian nation, according to the data.
‘Samurai’ bankers The firm held an advantage in Japan’s M&A advisory business when it had “samurai” bankers who could influence company executives and create deals from scratch, according to Hirai. Now, Japanese clients seeking advice on takeovers abroad are either turning to commercial banks that can quickly provide finance for the largest transactions, or to global firms that have contacts with potential targets overseas. “Purchasing a company is getting more competitive, and speed is crucial,” said Nobuyuki Fujimoto, senior market analyst at SBI Securities Co., Japan’s largest
which also include equity and bond underwriting, and 1.4 percent of total revenue.
Biggest termination
Nomura headquarters in Tokyo
online brokerage. “It’s faster for Japanese acquirers to get a bridge loan from lenders and turn to a U.S. bank to ask about a U.S. target than it is to tap Nomura.”
Corporate ties Goldman Sachs advised 210-year-old Japanese food maker Mizkan Group on its US$2.15 billion purchase this month of Unilever’s Ragu and Bertolli pasta sauce business. The deal, announced on May 22, is the second biggest involving a Japanese company this year. M&A rankings are a useful barometer of how close a firm is to its corporate clients, said Shinichi Ina, an
analyst at UBS AG in Tokyo. Winning mergers enables an investment bank to forge strong ties with a company and become familiar with its strategy, giving the firm the inside running on future business such as arranging fundraising, he said. “Even though the fees for advisory roles are small, some other assignments like financing may come along in the future,” Ina said. Nomura’s M&A and financial advisory fee income fell 2.3 percent to 25 billion yen (US$245 million) in the year ended March, figures from the Tokyobased company show. That accounted for 27 percent of investment-banking fees,
The Japanese firm remains the leading manager of the country’s stock sales, and is the No. 3 arranger of debt issuances this year after topping those rankings in 2013, according to data compiled by Bloomberg. Yahoo Japan said on March 27 that it agreed with SoftBank to purchase the mobile carrier’s eAccess stake. The companies cancelled the deal on May 19, with Yahoo Japan saying it could cooperate with eAccess while developing operations separately. A total of 325 takeovers involving Japanese companies have been scrapped in the past 10 years, and the Yahoo Japan transaction was the biggest among those that had agreed to merge, the data show. Nomura, whose global M&A business is led by Shinsuke Tsunoda, wasn’t involved in the largest deals in Japan in each of the past four years -the latest being Suntory Holdings Ltd.’s US$15.9 billion acquisition of U.S. distiller Beam Inc. Bloomberg News
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International Russia forges economic bloc The presidents of Russia, Kazakhstan and Belarus signed a treaty yesterday creating a vast trading bloc which they hope will challenge the economic might of the United States, the European Union and China. The treaty forging the Eurasian Economic Union will come into force on January 1, once it has passed the formality of being approved by the three former Soviet republics’ parliaments. The new union’s three countries have a combined population of more than 170 million people, and a gross domestic product between them of around US$2.7 trillion. Kazakhstan and Russia are both oil producers.
Oil not to be replaced anytime soon: Exxon CEO Alternative fuels will grow but oil will remain the world’s leading source of energy for another quarter century, the CEO of America’s largest oil and gas company Exxon Mobil Corp. said. Oil will account for about one-third of all energy use in 2040, Rex Tillerson said at the company’s annual shareholder meeting. Natural gas is expected to overtake coal as the second-largest energy source by 2025, and global demand for natural gas will rise by about 65 percent from 2010 to 2040, he predicted.
Brazil fines cement firms Antitrust watchdog Cade fined six cement makers a combined 3.1 billion reais (US$1.4 billion) for fixing prices for two decades and ordered the companies to dispose of many assets, in a ruling several of the firms said they would appeal against. Votorantim Cimentos SA, Camargo Correa SA’s Intercement Brasil, Itabira Agro Industrial SA and Cia de Cimentos Itambé SA, as well as Switzerland’s Holcim Ltd and Cimpor Cimentos de Portugal SGPS SA agreed to set prices to force rivals from the market, councillors at Cade said at a hearing that lasted for 10 hours.
Sberbank profits decline Russia’s biggest bank by assets, reported an 18 percent slide in profits yesterday and more than doubled its provisions for bad loans, hit by the Ukraine crisis, a falling rouble and an economy flirting with recession. Net profit dropped to 72.9 billion roubles (US$2.1 billion) from 88.5 billion a year ago, and also fell short of analysts’ consensus forecast in a Reuters poll of 78.2 billion.
IMF cash seen for Ghana The second-best dollar-bond rally in Africa this month is signaling growing speculation that Ghana will seek aid from the International Monetary Fund as the government struggles to close its budget deficit. Dollar debt from the West African exporter of gold, cocoa and oil returned 3.5 percent in May, the most after Morocco among nine countries on the continent tracked by Bloomberg indexes. Emerging markets earned 2.2 percent. The yield on Ghana’s August 2023 bond slid 108 basis points since March 25, when former central bank Deputy Governor and opposition politician Mahamudu Bawumia said a bailout may be needed.
Poisonous legacy for Bank of England Carney, who took over the BOE from Mervyn King in July 2013, has said he plans to serve one five-year term
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ark Carney risks leaving his successor a 375 billion-pound (US$630 billion) conundrum: what to do with the government bonds the Bank of England amassed during its stimulus plan. BOE officials say unwinding quantitative easing is unlikely to begin until the key interest rate has risen materially from its record-low 0.5 percent because they want the option of cutting borrowing costs again if the recovery falters. Derivatives contracts suggest that point may not be reached before Carney leaves in 2018. “They are well advised to leave it on the back-burner for the foreseeable future,” said John Wraith, a fixedincome strategist at Bank of America Corp. in London. “The impact of actively selling gilts is unknowable. Assuming Carney sticks to his intention to leave after one term, it’s highly likely that decision won’t happen while he’s governor.” The asset purchases that began in 2009 to kick-start the economy have left the BOE holding more than a quarter of the value of gilts outstanding. Its commitment to maintain the program has helped gilts return about 4 percent this year and reduced the 10-year yield to below 2.6 percent from 3 percent. “To be able to use bank rate as an active tool in response to adverse shocks to activity, the MPC is likely to defer sales of assets at least until bank rate has reached a level from which it could be cut materially, were more stimulus to be required,” the Monetary Policy Committee said in its quarterly Inflation report this month. The report assumed the stock of purchased assets will remain unchanged for three years.
Carney’s term Carney, who took over the BOE from Mervyn King in July 2013, has said he plans to serve one five-year term. Investors are betting the benchmark rate, which has been at an all-time low
Mark Carney, Bank of England Governor
for more than five years, will rise 25 basis points by next May, according to Sonia contracts. They show the rate reaching 1 percent three months later and 2 percent in early 2017. The implied yield on short-sterling contracts expiring in June 2018, which allow investors to bet on the interbank lending rate, is at 2.87 percent. The BOE needs to start increasing its benchmark “sooner” rather than later if it wants to keep the pace gradual, MPC member Martin Weale said in an interview with the Financial Times published yesterday. “We can wait a bit longer. How long that ‘bit longer’ will be, I’m not sure,” Weale said. It’s “not so urgent it needs doing now,” he said.
U.S. policy The BOE’s dilemma about how to exit emergency stimulus echoes the
debate at the Federal Reserve, with New York Fed President William Dudley saying the U.S. central bank should keep reinvesting money from expiring assets until after it raises interest rates in order to provide more flexibility over borrowing costs. U.K. policy makers will also be mindful of clashing with the Debt Management Office, which has to auction about 100 billion pounds of gilts a year for the next few years, according to Bank of America’s Wraith. Officials could reduce the stock of assets without active gilt sales if they decide to refrain from reinvesting the money from maturing bonds. Government bonds with a face value of about 23.9 billion pounds are set to be redeemed from the BOE in 2015, followed by 19 billion pounds in each of the following two years, according to BOE data. Bloomberg News
New local ownership laws for Zimbabwe Minister Chinamasa said April 23 that the southern African nation will soften regulations that discourage investors
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imbabwe’s cabinet has approved amending laws that compel foreign and white-owned companies to sell or cede control to black Zimbabweans, the country’s finance minister said. Cabinet directed indigenization minister Francis Nhema to “take up the issue” of aligning investment and indigenization laws with the ruling Zimbabwe African National UnionPatriotic Front party’s politburo before taking amendments to parliament, Finance Minister Patrick Chinamasa told lawmakers in the capital, Harare. Under Zimbabwean law, foreign and white-owned companies with assets over US$500,000 must be 51 percent owned by black Zimbabweans or the country’s National Economic Empowerment Board. Chinamasa said April 23 that the southern African nation will soften regulations that discourage investors. “We recognize that investors who
come here are not philanthropists, but we’re also saying as they come to make money from our resources, we want to reap the benefits of exploitation of those assets,” Chinamasa said in parliament on Wednesday. Information Minister Jonathan Moyo told Zimbabwe’s state- controlled Sunday Mail newspaper May 26 that investors will be able to recoup their investments before being asked to implement empowerment programs. Chinamasa’s statement yesterday marks the first official sign that the government will take legal steps to change indigenization laws.
‘Positive move’ “It’s a positive move, providing there won’t be any conflicting statements from fellow politicians, which normally causes a crisis,” Christopher Mugaga, an economist with Harare- based Econometer Global
Capital, said by phone yesterday. The impact of the proposed amendments will be difficult to judge until the detail is published, according to University of Zimbabwe economist Tony Hawkins. Investors are wary of government intervention in any form, he said. “There’s not much difference between telling investors that they must provide locals with 51 percent of a company and telling them they must give locals 51 percent of production; either way it’s still state interference,” he said by phone. Five years after Zimbabwe emerged from recession, ended hyperinflation by abandoning its local currency and spurred farming production, the economy is at risk of contraction again. Foreign currency needed to pay wages and buy imports has dried up and factories are operating at just 40 percent of capacity. Bloomberg News
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Opinion Business
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Leading reports from Asia’s best business newspapers
THE STRAITS TIMES Ten Singapore companies are visiting southern Africa as part of a business mission led by trade agency IE Singapore. The mission, which ends on Friday, aims to help Singapore firms explore business opportunities in e-Government as more African governments adopt such solutions to attract foreign investment and spur privatesector growth. The delegation visited Botswana and South Africa, which are among the leading adopters of e-Gov solutions in Africa, said IE Singapore in a press release yesterday. The companies explored the application of e-Gov systems in southern Africa in different sectors.
THE JAKARTA POST Hang Nadim International Airport authority says that the country’s largest low-cost carriers Lion Air and Citilink, a subsidiary of flag carrier Garuda Indonesia, want the plan to operate Hang Nadim 24 hours a day expedited. “They want the 24-hour operation to be effective immediately, but we have not received proposals from the airlines concerning night flight services,” airport general affairs division head Suwarso said in Batam yesterday as quoted by Antara news agency. Hang Nadim currently operates from 6 a.m. to 9 p.m.
THE STAR The Energy Commission(EC) board has decided to award Project 4A, involving a combined gas turbine plant with a 1,100MW1,400MW capacity, on a direct negotiation basis. According to sources, the decision will be made by the Planning and Implementation Committee for Electricity Supply and Tariff , which is under the purview of the Energy, Green Technology and Water Ministry. In addition, sources said the decision on the direct negotiation basis would help to finalise the contract quickly and speed up the delivery of the power plant to address the capacity shortage, following a recent blackout in several states.
THE PHNOM PENH POST Rice exports to Thailand plummeted in the first four months of the year as a result of that country’s surplus, which reached record levels at the end of 2013. Between January and April, Cambodia exported just 1,550 tonnes of rice to Thailand, down 89 per cent from the 14,250 tonnes shipped in the same period last year, according to the Ministry of Agriculture’s monthly reports. Hun Lak, president of rice export firm Mekong Oryza Trade, said the decline was due to Thailand’s rice stockpiles.
Five reasons why the sky is not falling Gareth Evans
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Chancellor of the Australian National University
UDAPEST – When it comes to geopolitics, there is always a market for gloom. Business has been booming in this respect lately, with The Economist, Foreign Affairs, and many less exalted journals full of claims that the global order is crumbling, America’s ability (and willingness) to save it is in terminal decline, and the prospect of avoiding major conflict in the decade ahead is illusory. Plenty of recent events – along with the ghosts of 1914 and 1939– have boosted the reputations, royalties, and revenues of today’s doomsayers. There is Russia’s adventurism in Ukraine; China’s territorial assertiveness –and Japan’s new push-back nationalism– in East Asia; continuing catastrophe in Syria and disarray in the wider Middle East; the resurgence of atrocity crimes in South Sudan, Nigeria, and elsewhere in Africa; and anxiety about renewed communal strife in India after Hindu nationalist Narendra Modi’s stunning election victory. But, though global political conditions are hardly as good as they could be –they never are– there are plenty of grounds for thinking that they are not nearly as bad as so many are claiming. Here are the five most important reasons not to lose as much sleep as some pundits say you should. First, Cold War II is not at hand. Russia and China dislike the United States’ claim to global leadership, enjoy tweaking its tail whenever they can, want greater regional influence, and (like the US itself) periodically turn their back on cooperative multilateralism. But they are
deeply integrated into the existing global order, and have neither the ideological drive, economic interest, physical capacity, nor allied support to challenge it. They want greater influence in international institutions, not to overturn them. Second, the decline in US power and influence relative to China and other rising powers is natural, inevitable, and not a cause for alarm among those long reliant on America’s protection and support. It is inconceivable that the US could have maintained forever the unipolar dominance of the early post-Cold War years, when it accounted for close to 30% of global GDP and half of the world’s military expenditure. Others were bound to play catch-up. The reality is that, in absolute terms, US economic and military power is still enormous, and that it has – and will have for the foreseeable future – far more allies, friends, and influence than any of its competitors. What matters is how it now chooses to exercise that power. As I heard Bill Clinton say privately, shortly after his presidency, that choice should not be “to try to stay top dog on the global block in perpetuity, but to create a world in which we are comfortable living when we are no longer top dog on the global block.” Third, while rising powers’ ambition for more space and influence is a given, it is not remotely inevitable that this quest must take a military form. Everyone has too much to lose. The world’s major powers are far more interdependent financially and in terms of supply chains
Second, the decline in US power and influence relative to China and other rising powers is natural, inevitable, and not a cause for alarm among those long reliant on America’s protection and support
than they were in 1914 –the year of misguided optimism that pessimists love to cite– and the cumulative horrors of the twentieth century have fundamentally changed the normative environment. Bellicisme –the notion that war is noble, and can be purifying and cleansing– is dead beyond redemption. Fourth, the decline of reliance on military power to solve geopolitical problems is not a sign that wimps are in charge, but that adults are. US credibility is not at risk, for either its allies or foes, when it makes carefully calibrated choices about the balance of risk and return in using such force in particular cases. The recurring criticism directed at President Barack Obama for not following through on his threat to attack Syria if it used
chemical weapons completely misses the point. The object was to stop these weapons from being used by the Assad regime, and diplomacy –backed by the threat of force– appears to have achieved just that (although there have been recent reports, unconfirmed but worrying, of both rebel use and regime backsliding). Of course military force needs to be kept in the toolbox, to respond to states that wage aggressive war, like Iraq in 1991. Military capability is also needed to meet the global responsibility to protect citizens at risk of genocide and other mass-atrocity crimes if no lesser option is available and if intervening will do more good than harm, as would have been the case in Rwanda in 1994. But if the cowboy days of George W. Bush are over, that is to be applauded, not lamented. Fifth, the international system has been responding to geopolitical challenges more effectively than is generally acknowledged. Despite the meltdown in their relationship over Crimea, the US and Russia have continued to work together to negotiate a diplomatic solution to the Iran nuclear issue, and (with China) develop collective Security Council responses to successive crises in Africa. In almost every area of major power rivalry, potentially volatile issues are compartmentalized, while cooperation elsewhere continues. No policymaker can be complacent. There is no end in sight to the Syrian nightmare, the respite in eastern Ukraine may be proving temporary, and in Sino-Japanese relations cool heads remain in short supply. Nor is there any shortage of other issues and systemic improvements, not least nuclear-arms reduction, on which to work. But alarmist pessimism is self-reinforcing, defeatist, and needs to be contested. There is plenty of reason to believe that, where it matters most, we have learned enormously from the mistakes of the past. If we can stay calm and levelheaded, the worst of them will not be repeated. The Project Syndicate 2014
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Closing IMF: Africa needs investment in infrastructure
Malaysian Muslims all for boycott of Cadbury
Africa’s fast growing economies need to spend US$93 billion a year just to bring infrastructure up to speed, the head of the IMF said yesterday, sketching out the daunting challenges still faced by the continent. Opening a major meeting for finance ministers and central bankers in Maputo to plot Africa’s rise, Christine Lagarde said the continent still faced massive challenges. “Only 16 percent of all roads are paved, compared with 85 percent in South Asia. These shortfalls represent huge costs to business - and to people,” she said.
Muslim retail and consumer groups in Malaysia yesterday called for a boycott of products made by Britain-based confectioner Cadbury and its parent Kraft Foods Group Inc. after two chocolate varieties were found to have infringed Islamic rules by containing pork DNA. Cadbury Malaysia, a part of Mondelez International Inc., on Monday recalled the Dairy Milk chocolates after the finding by Malaysian authorities in a random test. Products in the Muslim majority Southeast Asian nation are regularly checked to ensure they are halal, or permissible according to Islamic law.
Firms in Europe fear slowing China growth A survey found that 68 percent of large companies said doing business in China had become harder over the past two years
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uropean businesses fear the “good times are over” in China, a survey showed yesterday, citing the country’s slowing economic growth, rising labour costs, falling profits, regulatory hurdles and pollution. The Business Confidence Survey 2014 report, released by the European Union Chamber of Commerce in China and consultancy Roland Berger, showed firms have become increasingly pessimistic as the growth decelerates. “Business is already tough and it is getting tougher,” the report said. “This is leading many to the conclusion that the good times are over.” The survey comes as China’s once double-digit annual growth rates have eased in recent years, sitting in the mid-seven percent range as its leaders try to pivot the economy away from relying on exports and big-ticket public investments. But while top officials say they welcome the weaker rates as part of the drive to a more sustainable growth model, the report said the slowdown “surpassed rising labour costs as the number one perceived
challenge for future business in China”. Labour unrest and tensions over wages have increasingly bedevilled foreign companies in China in recent years, spurring some to seek cheaper and more welcoming locales. Joerg Wuttke, president of the European Chamber, told reporters: “Of course, it’s no major surprise if you are experiencing growth in the last 10-20 years of 10 percent or more in GDP (gross domestic product) and it will go down to seven percent that you feel that business has become more difficult.” The survey, based on responses from 552 European businesses in China, found that 68 percent of large companies -defined as those with more than 1,000 employees- said doing business had become harder over the past two years.
Air pollution major challenge “A new sober reality is developing,” the survey said, citing steadily declining financial performance, downwardly revised business plans and regulatory obstacles among reasons.
Wuttke said it was the first time in the history of the survey that respondents’ profit margins in China were lower than their global company averages. The survey also said that “market access and regulatory barriers” in China cost European Chamber member companies 21.3 billion euro (US$28.9 billion) in revenue in fiscal year 2013, equal it said to the GDP of Estonia. China’s notoriously bad air quality was cited by 68
percent of respondents as the top challenge in attracting expatriate talent, while 64 percent said it was the biggest difficulty in retaining such personnel. The challenges are pushing companies to consider opportunities elsewhere, “with half the European companies routinely reviewing investment opportunities in other Asian countries”, the survey said. “In the past it was the China growth story and only the China growth story given
how other countries looked,” Wuttke said. “Now... people are looking to the broad picture and see where they can establish themselves best with higher margins”, he added, citing “the improving economic climate in some regions” including the United States. Despite the pessimistic tone of the survey, it also acknowledged that even a challenging Chinese business environment still presented irresistible opportunities. “European companies will continue to regard the Chinese marketplace as strategically important,” the survey found, as its “sheer size... means that they will continue to generate a high proportion of their global revenues” there. Foreign drug companies, including European ones, have come under scrutiny in China, including over alleged bribery, leading to fears they are being targeted due to their national origin. Wuttke stressed that it was important authorities handle such cases “in the most transparent manner” to avoid any sense that foreign firms were being singled out.
Chinese manufacturing improves
Baosteel gets nod for Aquila Prime Minister Modi takeover announces target list
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rowth in China’s manufacturing sector may have quickened slightly in May on an expected improvement in demand, a Reuters poll found, adding to budding hopes that the world’s second-biggest economy may be stabilising. China’s official purchasing managers’ index (PMI) is forecast to edge up to 50.6 in May, the median estimate from 10 economists showed, inching further above the 50-point level separating a monthly expansion in activity from a contraction. Any pick-up in activity -April’s PMI reading was 50.4- would reinforce a recovery trend highlighted in a private PMI survey released earlier this month that showed a surprisingly big turnaround in parts of China’s factory sector. The preliminary HSBC/ Markit survey released last week showed Chinese factories turned in their best performance this year as measures of local and foreign demand improved sharply, though the turnaround was not enough to save the industry from a mild contraction as a whole. But those looking for the upcoming PMI survey to show an equally upbeat improvement may be disappointed, said Julian Evans-Pritchard from Capital Economics in Singapore. Reuters
hinese iron and steel giant Baosteel moved a step closer to securing its Aus$1.4 billion (US$1.3 billion) takeover of Aquila Resources after the Australian government approved the deal yesterday. Baosteel Resources Australia, a subsidiary of the Chinese parent’s overseas development arm, and Australian rail freight operator Aurizon have made a conditional offer of Aus$3.40 per share in cash for the iron ore and coal firm. Aurizon said it and Baosteel had been informed by Australia’s Foreign Investment Review Board (FIRB) that “there is no objection to the acquisition of Aquila” by them under the offer. While there are no Chinese regulatory approvals required, the deal must now be approved by Aquila shareholders before it can go ahead. “We are extremely pleased that the FIRB conditions for this transaction have been fulfilled,” Baosteel Resources International chairman Zhihao Dai said in a statement. “Baosteel believes the transaction, if successful, provides a genuine opportunity for the development of greenfield resources for the benefit of both Australia and China.” AFP
AFP
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he Indian new government under Prime Minister Narendra Modi is due to make an overall reform of government, according to a 10-point priority agenda published by local media yesterday. The local media said in order to build people’s confidence in the country’s government system famous for inefficiency and corruption, the Modi government will put overhaul of the bureaucratic system of the government of India on top of its priority, followed by seeking innovation ideas and promoting education, health and water supplies to people. Meanwhile, the inter-ministerial issues, transparency, economic concerns addressing mechanism, implementing government plans in time-bound manners, reform of infrastructure, and people-oriented government are also among the 10-point agenda. One of the reasons for the government to fail to perform well is that Indian bureaucrats resort to strategic inaction to avoid the risk of being dragged into court cases because of controversial decisions taken by their political masters, said local analysts. Xinhu