Perfect Shape to sell shares
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6
Reality check
Closing editor: Sara Farr
MOP 6.00
Eternity dumps gaming business |
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Publisher: Paulo A. Azevedo
acau casinos took in 32.4 billion patacas in gross revenue last month. That was a 9.3 percent increase over the same period last year. But May registered the slowest growth rate in four months. The underperforming VIP segment is blamed. Which didn’t stop Sands China and SJM slugging it out for market share supremacyw
Year III
Number 553 Wednesday June 4, 2014
Page 3
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Name
Premium office pantomime
%Day
China Resources Po
4.91
COSCO Pacific Ltd
4.49
Lenovo Group Ltd
3.13
Henderson Land Dev
2.28
Kunlun Energy Co Lt
2.22
Li & Fung Ltd
-1.07
Want Want China Ho
-1.29
Sands China Ltd
1.42
China Overseas Land
-1.68
Galaxy Entertainme
-3.07
Source: Bloomberg
Rents for premium offices in Macau are skyrocketing. The first quarter of the year was a real eye-opener. Rents grew twenty times faster than the median of 20 provinces in Central and Eastern China plus Hong Kong and Taiwan Page
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Rollercoaster ride It was a bumpy session yesterday for gaming shares in Hong Kong. A bullish morning ended in a bearish mood in the afternoon. May gaming revenues in Macau failed to meet market expectations. “It’s a little disappointing,” said Aaron Fischer, head of consumer research at CLSA, who said it indicated a sharp drop at the end of the month Page 2
Data raid PMI data from China, Taiwan and other regions were released yesterday. Official figures surpass the HSBC/ Market results Page 9
Social net strengthened State pension and disability living allowance have increased 6 percent to 3,180 patacas per month. Retroactive from January 1, the government says this reflects the decrease in quality of life for pensioners. Economic change is the villain Page 7
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June 4, 2014
Macau
May revenues spoil gaming stocks party Casino shares went from a bullish morning with positive economic data on China to a monthly record loss following disappointing gaming revenues in May. Galaxy and SJM dropped more than 3 percent in Hong Kong Alex Lee
Alex.lee@macaubusinessdaily.com
I
t was a bumpy session yesterday for gaming shares in Hong Kong. It started with a bullish morning, with investors optimistic about China’s recovery with better than expected industrial and services data but ended in a bearish mood in the afternoon following disappointing May gaming revenues in Macau which failed to meet market expectations. Galaxy Entertainment was one of the hardest hit, with shares dropping 3.1 percent to HK$60.05, the biggest decline in a month, followed by SJM Holdings, Macau’s largest casino operator by revenue, who slumped in the morning trading session, then extended the decline to 3.2 percent after the revenue figures were announced to close at HK$21.55. Sands China also saw its stock lose 1.2 percent of its value and Wynn Macau 0.9 percent. Despite a positive last week, gaming shares underperformed again yesterday. The Hong Kong’s benchmark Hang Seng Index rose 0.9 percent. In May, Macau casino revenue grew by its slowest in four months, jumping 9.3 percent, almost 50 percent behind
the market consensus of 14 percent growth. “It’s a little disappointing,” Aaron Fischer, head of consumer research at CLSA told Bloomberg after the revenue report. “It indicated there’s a sharp drop at the end of the month.”
Bipolar day Yesterday morning, the mood was anything but gloomy. Hong Kong
stocks were increasing after China’s official Purchasing Managers’ Index rose to 50.8 in May, the highest since December, topping analysts’ estimates. A final PMI reading from HSBC Holdings Plc and Markit Economics published yesterday came in at 49.4, trailing projections. Fifty is the dividing line between expansion and contraction in the industry. A separate government report today on the services industry showed faster
growth. The signs of a recovery in China combined with a mini-stimulus from Beijing and more credit allowed by the central authorities sustained gaming shares in the morning. “China’s growth is still moderating but the pace of deceleration is slowing,” Teresa Chow, a fund manager who helps oversee about $1.7 billion at RBC Investment Management, told Bloomberg. “Certainly, if you see better macro data and there’s easing from China officials, sentiment will improve but that may be short-lived unless fundamentals change.” China’s economy expanded 7.4 percent in the first three months of this year, the slowest since 2012. The slowdown has affected stocks and revenues in Macau, especially the VIP segment, more exposed to economic cycles and credit restrictions by Beijing. With positive signs coming from mainland’s industrial and services sectors and an economic stimulus on the way, the Macau gaming industry and stocks could hope for some breathing space in the second half of the year. With Bloomberg
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June 4, 2014
Macau Dragon boat weekend visitors increase 18pct The number of visitor arrivals to Macau over the Dragon Boat weekend increased by 17.9 percent to 419,120 over that of the same period last year. Official figures released yesterday by the Public Security Police show that a total of 1.29 million border crossings were recorded between May 31 and June 2, with 632,488 arrivals and 654,092 departures. The border gate remained the most popular border checkpoint for both departures and arrivals, followed by the Outer Harbour ferry terminal. The Taipa temporary ferry terminal came in third with more movements recorded than at Macau International Airport.
Gaming revenue hits MOP32.4 bln in May May registered the slowest growth in the last four months. According to Union Gaming Research Macau that can be explained by the VIP segment performing below expectations. As for market share, Sands China overtook SJM and is back on top Alex Lee
alex.lee@macaubusinessdaily.com
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acau casinos took in 32.4 billion patacas as gross revenue from games of fortune last month, the official figures released by the Gaming Inspection and Coordination Bureau reveal. This amount means an increase of 9.3 percent in comparison with May of last year, when the monthly gross revenue reached 29.6 billion patacas. However, the slowest growth was in the last four months of the year. Since the beginning of the current year, total casino gross gaming revenue climbed 15.8 percent from a year earlier to 165.9 billion patacas. Last year, by May, casino gross gaming
revenue hit 143.1 billion patacas. This was the second month of the year when the monthly gross revenue increase stayed below twodigit numbers in comparison with the same month in 2013. The other month was January, when monthly gross revenue increased 7.0 percent, from 26.9 billion patacas to 28.7 billion patacas.
Sands China back on top According to Portuguese news agency Lusa, Sheldon Adelson’s Sands China is back in first place in the market share race. Sands China has a
market share of 23 percent, similar to former leader Sociedade de Jogos de Macau (23 percent). Galaxy Resorts placed third with a market share of 21 percent, leading Melco Crown (12.5 percent), Wynn Resorts (10 percent) and MGM Macau (9 percent). Union Gaming Research Macau explained in a note that the results are due to a likely trend of the VIP market performing above expectations. ‘We believe that the VIP segment is likely tracking below expectations, with any deceleration in growth attributable to a confluence of factors, including: less risk-taking due to ongoing junket M&A, concerns over the broader anti-
corruption crackdowns occurring throughout China (but not specifically targeting Macau), and some impact from China macro-economic issues,’ it posited. The performance of the massgaming market, however, is expected to remain strong. ‘The mass market appears to remain very strong, which is why we believe all management teams took the time to highlight during 1Q14 results that 70+ percent of cash flows come from non-VIP – in other words, suggesting that there is less risk to the Macau cash flow story this year than headline GGR numbers would suggest,’ the company highlighted.
Market Share Per Operator (2013-2014)
May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
SJM
23% 25% 24% 24% 25% 26% 23% 24% 23% 22% 24% 25% 23%
Sands China 21% 21% 23% 23% 22% 20% 22% 23% 22% 25% 22% 22% 23% Galaxy
19% 19% 20% 17% 19% 21% 19% 18% 20% 21% 20% 19% 21%
Wynn
12% 10% 10% 12% 11% 10% 11% 11% 9% 11% 12% 11% 10%
MPEL
114% 15% 13% 14% 14% 13% 14% 14% 14% 12% 13% 14% 12.5%
MGM
11% 11% 10% 10% 10% 9% 11% 10% 11% 9% 9% 10% 9%
Total
100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
* Figures are rounded to nearest unit, therefore they may not add exactly to the rounded total
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June 4, 2014
Macau
AirAsia expanding routes between Macau, Southeast Asia Political uncertainty in Thailand and recent kidnap incidents in Malaysia has slowed AirAsia’s plans to launch new routes from here Stephanie Lai
sw.lai@macaubusinessdaily.com
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ow-cost carrier AirAsia is delaying its plan to launch more routes between Macau and Thailand as well as Malaysia to next year. The recent episodes of Thailand’s on-going political conflict and the kidnapping of Chinese nationals in Sabah in Malaysia have slowed their expansion plans. In an interview with Business Daily, AirAsia’s general manager of airport and network planning for Greater China Celia Lao Sio Wun confirmed that the carrier is planning to launch scheduled flights between here and the new destinations of Krabi in southwestern Thailand and Sabah in Malaysia within the first half of next year. This latest development is a delay in AirAsia’s original intention to launch flights between Macau and Phuket in Thailand as well as Sabah in the second half of this year. “We did previously consider Phuket as a new destination, but the
airport there has not undergone any expansion and there were no [time] slots available to land our flights,” said Ms. Lao, “Krabi, on the other hand, can serve as a new base for us as their flight time slots are not as full as Phuket’s.” AirAsia is even considering launching scheduled flights between Macau’s neighbour Hong Kong and Krabi, known for its beaches. “We have no problem with our flight capacity for this expansion of the Thai route,” she noted. “But the current political situation in Thailand does affect our expansion pace to launch more flights between here and the country.” Thailand has been under seven months of political standoff between former Prime Minister Yingluck Shinawatra and her opponents led by Suthep Thaugsuban, which prompted the military to take over and set up its governing body on May 22. The airport and network planning
Agile in the rough X inhua News Agency reported yesterday that Agile Property is one of five mainland firms that have illegally acquired sites to develop golf courses. The company bought a 52.8 hectare site in Tengchong, in Yunnan province, to build an ecopark but part of it was later turned into a golf course by Agile, according to the Ministry of Land and Resources. Agile Property allegedly committed similar violations in 2012, when it started building golf courses at its projects in Hainan and in Huizhou,
Guangdong, without permission. Li Jianqin, director of the enforcement supervision department of the Ministry, has already criticized developers who have built illegal golf courses as a selling point for their high-end residential projects, Xinhua reported. The report stated that many developers and even provincial governments had used ‘the cover’ of launching an ecopark, entertainment or tourist resort to build a golf course, after Beijing banned new golf course construction in 2004.
general manager added that AirAsia is eyeing three weekly flights between Krabi and Macau next year, stressing that the company would gauge flight frequency adjustment and the political status in Thailand by that time. Another new destination that AirAsia is eyeing to connect to Macau is Sabah within the first half of next year: Ms. Lao said the carrier also plans three weekly flights on the new route. “The incident of the missing Malaysia Airlines jet and the two kidnappings [of Chinese nationals in April and May] in Sabah did have some impact on us,” said Ms. Lao. “After these incidents took place, though we have not seen really many flight cancellations we did receive more clients calling to delay their flight schedules.” “Under these circumstances, we really cannot launch our route there [Sabah] at a rapid pace because we do not only rely on the local resident passengers here but a good proportion
of mainland visitors from the [Pearl River] Delta region, as well,” she added.
More frequent flights Led by AirAsia Berhad’s regional head of strategy, airport and planning Ashok Kumar, a group of the budget carrier’s delegates met with the local airport operator Macau International Airport Co Ltd on May 28, announcing that the carrier would like to increase flight frequencies between Macau and existing Southeast Asian destinations within this year. “In November or December, we’re planning to increase from four flights a day currently to five flights a day to Bangkok,” Ms. Lao explained, “For Manila, we’d also like to change from the current four weekly flights to a daily flight starting in August.” “We’ve always wanted to add the flight frequencies for these destinations as there is really a growing leisure and business travelling demand supporting it,” she said.
Gov’t under budget on Reolian rescue
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he government of Macau is only spending one-third of the initial projections of its Reolian rescue plan. The Executive predicted last October, when the company filled for bankruptcy, that it would spend 19 million patacas per month on the company, which would result in 114 million patacas every
six months. However, according to local Portuguese-language newspaper Ponto Final the government has only spent 7 million per month and 35 million during the original rescue process. Last March, the government announced that it had approved a three-month extension to run Reolian Public Transport Co.
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June 4, 2014
Macau
‘A’ for alarm: Premium office prices skyrocketing The limited supply and strong demand from government, gaming and retail companies are driving the premium office market in Macau, where rents increased 25 percent in the first quarter, 20 times more than China’s average, Jones Lang La Salle reveals. In six months, Macau could become the third most expensive city to rent an office in China Alex Lee
Alex.lee@macaubusinessdaily.com
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ents for premium offices in Macau skyrocketed in the first quarter of the year. They grew twenty times faster than the median of the 20 provinces of Central and Eastern China plus Hong Kong and Taiwan, data from Jones Lang LaSalle (JLL) reveals. Strong demand from companies and government combined with a lack of supply were the main drivers, with JLL predicting that “in the near future” Macau could surpass Shanghai as the third most expensive city in China to rent an office in. As more companies move to the territory and industries like gaming, hotels and real estate invest in larger and better offices, the prices for the premium segment are increasing at a double-digit rate. A lot of firms in Macau are already opting to buy property in order to skip the rising rents, official statistics showed last month. According to JLL, the rents for ‘A’ grade offices increased 24.3 percent in the first quarter of the year compared to the previous quarter, being by far the best performance in all Central and Eastern China, where the cost to rent a luxury office went up less than 1 percent in most regions.
It is expected that Macau office rental values will reach Shanghai city levels in the near future Alvin Macau, JLL Macau associate director
Bubble growth “With strong demand and limited supply, the Macau office market has experienced strong growth in both capital and rental values in the last two years,” Alvin Mak of JLL Macau told Business Daily. “It was attributed to strong demand by the gaming, government, retail and insurance sectors,” added the associate director. The range of JLL’s analysis embraced 20 provinces from Central and Eastern China plus Macau, Hong Kong and Taiwan. Macau’s premium office rents are growing twenty times faster than the major powerhouses of China. ‘A’ grade offices are known as the premium segment and represent the highest quality buildings on the market, in the best location, with convenient access and are professionally managed. In the first three months of the year, the market for ‘A’ grade offices stayed flat in most of China, with Hong Kong rents climbing only 0.6 percent quarter-on-quarter and Beijing a mere 0.2 percent. The second biggest hike in the quarter occurred in Shenzen
with premium rents going up 2.9 percent, followed by Taipei with a 1.9 percent increase. The rent per square metre in Macau’s premium office market reached RMB2,117 in the first quarter, behind Shanghai (RMB 3,382), Beijing (RMB4,273) and Hong Kong
(RMB6,874), the most expensive city in China where an office costs three times more to rent than in Macau.
Chasing Shanghai But given Macau’s double-digit growth every quarter it will only be
a matter of time before it surpasses Shanghai as the third costliest city for a company to lease an office in. “It is expected that Macau office rental values will reach Shanghai city levels in near future,” Mak said. If the first quarter rates are maintained in the future (Shanghai staying flat and Macau growing 24 percent), it will take between six to nine months to see Macau surpass ‘The Paris of the East’. The average rent in Central and Eastern China is RMB1,900 per square metre. The supply in Macau for premium offices isn’t capable of coping with an increasingly large number of companies being created in the territory pushing prices up. In the first quarter of 2014, some 1,126 companies were created in Macau, 14 percent more than a year ago (926 newly incorporated companies in the first quarter of 2013) the statistics bureau said. Last year, the number of new firms in Macau increased 24 percent compared to 2012. With rising rents, a lot of companies in Macau are already opting to buy property instead of leasing in order to protect themselves against rent hikes and also the landlord’s freedom to change the rules every two years. In the first quarter, the loans given by banks to companies to buy property increased at a monthly rate of 30 percent, meaning that they are doubling every quarter, the Monetary Authority of Macau reported last month.
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June 4, 2014
Macau
Eternity dumps gaming business
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sarafarr@macaubusinessdaily.com
HOSPITALITY Sticky figures Macau’s statistics break down the number of visitors into two major categories: sameday visitors and those who stay overnight. As a rule, the majority of visitors fall into the first category of same-day visitors. That is in great measure a feature associated with the closeness of the two biggest sources of visitors, the province of Guangdong and Hong Kong. It would be desirable, in principle, to change the visitor composition. That would mean increasing the number of overnighters, who spend significantly more than same-day visitors and put less stress on local infrastructure. The first months of this year, however, have moved in the opposite direction. Overall, the total number of visitors increased by 9 percent; but the number of same-day visitors rose by almost 13 percent. As a result, the proportion of same-day visitors in the total for the first four months of the year posted two percentage points above the figure recorded last year. That rise was fuelled by the evolution of the two main markets: that proportion rose in both.
E
ternity Investment Ltd, a Hong Kong-listed real estate developer, is discontinuing its Macau gaming-related business by disposing of its entire equity interest in Rich Daily Group Ltd. Rich Daily manages the services of Ocho, a gaming promoter appointed by a casino here. According to a company filing with the Hong Kong Stock Exchange, the purchaser, Ng Cheuk Fai, is a ‘third party independent of the company.’ The shares will be sold for a total of HK$2 million, an amount which the company describes in the filing
as ‘fair and reasonable.’ Once the sale of shares has been completed, Eternity will no longer be engaged in Macau gaming-related business. In addition, Rich Daily will also no longer be an indirect wholly-owned subsidiary of Eternity, and both companies’ financial results will no longer be consolidated. At the end of last year, Ocho adopted a tightening credit policy towards its mainland Chinese VIP customers in response to the slowdown in mainland China’s economy. ‘With worries over the mainland’s
Crown Resorts bullish on Macau In the case of China, the rise in same-day visitors reached almost 20 percent in those four months. The case of Hong Kong is less straightforward. In the first quarter, the numbers were actually decreasing; in every single month the growth rate was negative. April was the source of the rise as the number of same-day visitors went up then by more than 16 percent. Such a figure was probably associated with the public holidays in that month, which allowed many to enjoy ‘longer’ weekends. In the case of Taiwan, there is a slight downward trend, reflecting the loss of relevance of Macau as a stopover on the way to the mainland. J.I.D.
46,229
daily average for same-day visitors, January-April
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rown Resorts executive vice-president, strategy and development, Todd Nisbet said that the government reforms and the broader slowdown in the Chinese economy would not affect Macau’s ongoing performance. “People talk about a slowdown, but we’ve been
looking at 15 percent growth. So when you talk about that kind of compound growth, the base of it is so large that you just can’t sustain that. So all of a sudden 15 goes to 12, 12 goes to 10, and there seems to be a general panic. But the reality is that’s still one of the
China credit crunch unlikely A
new credit crunch in China similar to the one in June of last year is unlikely to occur again in 2014 as there is enough liquidity, the People’s Daily reported yesterday. “The State Council stressed at a regular meeting that policymakers will lower the reserve requirement ratio
for banks that extend loans to rural borrowers and small firms instead of a general RRR cut. Also, the interbank borrowing rate has been kept at a low level. Both indicate sufficient money supply,” the state-run newspaper quoted an analyst as saying. Last month, China’s central bank
Chinese economic growth and excessive growth in the mainland China’s so-called shadow banking sector, Ocho has unveiled to [Eternity] that a tightening credit policy towards its mainland Chinese VIP customers is likely to remain in place for 2014,’ the filing reads. As such, Eternity said its management of business engaged by Rich Daily is ‘uncertain and is determined to discontinue the provision of management services business in order to concentrate on the group’s resources in its existing businesses,’ the filing adds.
highest-growth markets in the world in terms of what has been done on a GDP basis, investment per capita, earnings per capita. So anything you look at, by any metric, it’s still an outperformer,’’ he was quoted by the Australian newspaper as saying. “There’s like 88 cranes running in Macau right now and about $10 billion-worth of investment. So, you know, for whatever the noise there is, the reality is capital is being deployed,” he added.
injected 174 billion yuan to deter a credit crunch similar to that of last year. “If local governments are not allowed to go bankrupt and the central government is always backing them, then moral hazard will always exist and the debts may grow higher to a very bad level,” the daily quoted Yan Hong, deputy dean of China Academy of Financial Research at Shanghai Jiaotong University, as saying.
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June 4, 2014
Macau
State pensions, disability living allowance increased 6pct
S
tate pension and disability living allowance increased 6 percent from 3,000 patacas per month to 3,180 patacas, it was published yesterday in the Official Gazette. The measure takes immediate effect and is retroactive from the first day of the year. President of the Social Security Fund Ip Peng Kun had already announced these changes in February. The decision was justified by the decline in the quality of life of pensioners, caused by the economic changes. The unemployment allowance was increased by 5.8 percent from 120 patacas per day to 127 patacas a day. The allowance for sickness that covers hospitalisation cases will
see the same recommended lift, from 120 patacas to 127 patacas per day. The biggest increase in terms of percentage for Macau’s residents will be in the allowance for sickness without hospitalisation. Prior to yesterday, people received 90 patacas per day. Form now on, they will receive 96 patacas, a 6.6 percent increase. Regarding the allowances for birth and marriage there was an increase of 5.9 percent, which now stands at 1,800 patacas, formally 1,700 patacas. Funeral payments were also raised from 2,200 patacas to 2,300, a rise of 4.5 percent by the government of Macau.
Gov’t transfers MOP636 mln to tourism fund
T
he government has decided to transfer 636 million patacas from the Special Administrative Region’s budget to the Tourism Fund that is under the scope of the Macau Government Tourist Office (MGTO), it was announced in the Official Gazette. The Tourism Fund is applied in
order to promote Macau as a quality destination for tourists. In order to boost the number of tourists visiting Macau, MGTO has set up 18 public relations representatives in countries such as mainland China, Japan, South Korea, the Philippines, United States, Australia, United Kingdom, France and Portugal.
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June 4, 2014
Macau
More affordable housing The government has specially tweaked the income and asset ceiling for subsidised homes to assist the settlement of two ex-squatter households Stephanie Lai
sw.lai@macaubusinessdaily.com
T
he government announced yesterday a special adjustment in the income and asset limit for the city’s subsidised housing application, a move that the Housing Bureau employed to facilitate the settlement of two households of residents previously living in the Ilha Verde squatter area. While the application for subsidised housing has not yet become a regular mechanism for Macau’s residents, the local government has enforced the rule that the income and assets held by resident applicants will be adjusted whenever a subscription for the sale of subsidised housing units is to be launched. According to the Official Gazette announcement yesterday, the lower monthly income limit for a household applicant seeking to purchase subsidised housing has been lifted by 8.2 percent from the previous 12,210 patacas (US$1,529) to 13,210 patacas; the upper monthly income limit for a subsidised housing application has been increased by 7 percent from 59,300 patacas to 63,500 patacas. The median monthly income level of residents in Macau was 13,000 patacas by the first quarter of this year, the Statistics and Census Service’s records show. Also, the asset limit for a household applicant for subsidised housing unit has been lifted by seven percent from 1.79 million patacas to 1.9 million patacas, the gazette noted. The last time that the income and asset requirement for subsidised housing application was adjusted was December 12, the period when the government was to launch the subscription for 1,900 subsidised homes located in Ilha Verde, Fai Chi Kei, Taipa and Seac Pai Van. However, upon enquiry by Business Daily, the Housing Bureau confirmed that the fresh adjustment in the income and asset limit is not due to any imminent launch of subsidised housing subscription for the general
public. The Bureau explained that it was about to launch the application for subsidised homes for two households previously located in the Ilha Verde squatter area, a zone of wooden sheds that the government cleared from 2009 to 2012. The zone has been reserved as a site for public housing.
Special aid According to article 15 and 19 of the subsidised housing law, in effect since October 1 2012, residents ‘that have to move away from their original place of inhabitation due to public interest’ can purchase subsidised housing reserved by the government under a special application. ‘When adjusting the applicant’s income ceiling, we have to consider the public expenses, including the part on housing, as well as their savings,’ the Bureau informed Business Daily, “In particular, we’ll consider the average home transaction cost, annual interest rate and mortgage ratio of the last four quarters [prior to the subscription].’ The adjustment in income and asset requirement gazetted yesterday has also taken reference from social housing – a type of public home built for lower-income groups, the Bureau explained. The latest monthly income ceiling for a social housing unit, in effect since January 1 this year, is 13,210 patacas for a two-person household. The city’s subsidised housing law stipulates that the lower monthly income limit for a subsidised home applicant should not be higher than the income ceiling imposed on a social housing unit beneficiary. The Housing Bureau has yet to announce when it will launch a new round of subsidised housing applications, but it noted to Business Daily that by then it will have introduced an update on the income and asset ceiling requirements for applicants.
9
June 4, 2014
Greater China
Official PMI says expansion; HSBC says contraction The official PMI hit a five-month high of 50.8 in May from April’s 50.4. Taiwan’s HSBC PMI grew to 52.4. HSBC headquarters in Hong Kong
C
hina’s factory sector turned in its best performance in four months in May as export orders improved although activity still contracted, a private survey showed yesterday, adding to signs the economy may be stabilising. The final reading of the HSBC/ Markit purchasing managers’ index (PMI) for May rose to 49.4, lower than a preliminary reading of 49.7 but up from 48.1 in April. The final PMI was weaker than the flash reading due to an upward revision of the stocks of finished goods, HSBC said. The new export orders sub-index rose to four-year high of 53.2 in May from April’s 48.9, but the new orders sub-index barely stopped contracting, suggesting domestic demand remains sluggish despite the improving global demand. The HSBC/Markit PMI has been below the 50 level that separates growth from contraction since the start of 2014. “The final PMI reading for May confirmed that the economy is stabilising, but it is too early to say that it has bottomed out, particularly in light of a weaker property sector,” said Qu Hongbin, chief economist for China at HSBC. “The lack of a sustainable growth momentum warrants stronger policy support. We expect both monetary and fiscal policy to be loosened gradually over the coming months.” The HSBC/Markit survey also pointed to weaker employment in the manufacturing sector in May. China has attributed its relatively stable jobs market to the services sector. The government has unveiled a slew of targeted policy measures,
including faster investment in railways and public housing, in recent weeks to underpin the slowing economy. Last week, China’s cabinet announced fresh supportive measures, including cutting reserve requirement ratios (RRR) for more commercial banks, expanding re-lending and bond financing to support small firms. The central bank has already cut RRR for rural banks. On the fiscal front, the finance ministry has urged local governments and state agencies to quicken budget spending. Chinese leaders have ruled out the possibility of any big fiscal stimulus as they focus on reforms to try to put the economy on a more sustainable footing over the long term. The world’s second-largest economy faces headwinds from a downturn in the property sector, which would spill-over into widerange of industries, analysts say.
KEY POINTS China factory activity improves but still contracts New export orders at 4-yr high but domestic demand weak Adds to signs of stabilisation in economy, headwinds linger
Modest growth
Official figures China’s services sector grew at its fastest pace in six months in May as new orders rebounded, an official survey showed, reinforcing hopes that the Chinese economy may be steadying after a tumultuous few months. The official non-manufacturing purchasing managers’ index (PMI) climbed to 55.5 from April’s 54.8, the National Bureau of Statistics said. That is well above the 50-point level that separates an expansion from a contraction in activity. In a sign of buoyancy in the sector, new orders rebounded to an eightmonth high of 52.7, compared to April’s 50.8. Business expectations
with a majority of economic indicator releases underwhelming investors. Worried that unemployment may spike if growth slackens too far, thereby threatening China’s social stability, the Chinese government has loosened policy in incremental moves in recent months. The latest measure was taken on Friday when the government said it would lower reserve requirements, or the level of cash that commercial banks have to deposit at the central bank, for more banks to spur lending -and economic growth. Growth in the world’s secondlargest economy slipped to an 18-month low of 7.4 percent between January and March, and is forecast to fall to a 24-year low of 7.3 percent for the year.
also held their ground at a solid 60.7, compared to April’s 61.5. The pick-up in the services PMI echoes a rebound in China’s factory sector, and augurs well for a spate of monthly economic data from the country due later this month. Official data on Sunday showed China’s manufacturing industry grew at its fastest pace in five months in May due to rising new orders, as a PMI for the sector touched a high of 50.8 in May. Hurt by volatile export growth and sluggish domestic demand and investment, China’s economy has had a disappointing showing this year,
Taiwan’s May PMI rose to 52.4 from 52.3 In April. Taiwanese manufacturers signalled a further improvement in overall business conditions during May, though the pace of improvement was modest and little changed from April. Output growth edged up slightly from the previous month and was solid overall, supported by a further rise in total new work. After adjusting for seasonality, the rate of new export order growth edged up fractionally to the strongest in three months. However, the rate of expansion was weaker than that seen at the beginning of the year. Anecdotal evidence suggested that increased demand in a number of key export markets had boosted new orders from overseas. Reuters
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June 4, 2014
Greater China Less anti-dumping duties on chemical China has begun levying an anti-dumping tax on a chemical imported from the European Union and the United States, the Commerce Ministry said yesterday, the latest in a string of issues that could fuel rising trade tensions. Trade ties have been strained by a series of dumping disputes, including a major one involving solar materials between China and the European Union. The ministry said China would impose duties of 27.6 percent on European exports of perchlorethylene, a chemical used in insect repellent and refrigerants, according to a statement on its website.
Toyota’s sales growth slows Japan’s company and its two local joint-venture partners sold a total of 81,136 automobiles in China in May on a preliminary estimated basis, up roughly 3 percent from a year earlier, according to three sources with direct knowledge of the matter. That compares to 79,000 vehicles it sold in May 2013. Toyota’s sales in China rose 12.4 percent in April and 19 percent in March. During the first five months of the year, Japan’s biggest automaker sold a total of 394,902 vehicles, up 16 percent from a year earlier, the sources said.
Tianhe Chemicals to go public China’s Tianhe Chemicals Group Ltd is seeking to raise between US$636 million and US$818 million in an Hong Kong initial public offering, according to a term sheet of the deal seen by Reuters yesterday. Tianhe Chemicals is offering shares between HK$1.75 and HK$2.25 each, with 72.5 percent of the offer consisting of new shares and the rest being sold by existing shareholders. The company, which makes lubricating oil additives and special fluorides, had planned to list in London in 2011 but changed its plans as it believes Hong Kong has a bigger pool of investors.
Record railway trips made in holiday The number of trips made via China’s railway network hit a record high during the three-day Dragon Boat Festival holiday ending Monday, the China Railway Corporation said yesterday. With the holiday a popular time to visit attractions or return home, some 32.23 million railway trips were made from the pre-holiday May 30 to June 2, up 15.6 percent year on year. Over one third of the trips were completed by bullet trains, with the figure up 37 percent from a year ago.
Corruption crackdown reaches state company Zhang Zheying, deputy chief engineer of Metallurgical Corporation of China Limited, has been expelled from the Communist Party of China (CPC) and public office for “serious disciplinary and legal violations.” The disciplinary inspection department of the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council conducted investigation of Zhang’s suspected violations and found that Zhang took advantages of his post to seek huge amount of benefits for himself, according to a statement posted on the website of the CPC Central Commission for Discipline Inspection yesterday.
New dawn in Hong Kong for brokers Under the so-called Shanghai-Hong Kong stock connect scheme foreign investors will place buy or sell orders on Shanghai’s A-share market through brokers located in Hong Kong
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s brokers in Hong Kong and Shanghai prepare for the introduction in October of mutual trading of securities between their cities’ bourses, the big Chinese players stand to benefit more, posing a threat to smaller Hong Kong-based brokerages. Under the so-called ShanghaiHong Kong stock connect scheme foreign investors will place buy or sell orders on Shanghai’s A-share market through brokers located in Hong Kong, while Chinese who want to invest in Hong Kong’s H-share market will be able to use brokers in the mainland. Currently, foreigners only have very limited access to the A-share market under pilot programmes, that allocate quotas, such as QFII (Qualified Foreign Institutional Investor) and renminbi QFII as China is only gradually loosening controls over its capital account. The new scheme will also involve quotas, but opens doors for retail investors. The upcoming change provides a golden opportunity for Chinese names that have long had a presence
in the former British colony without becoming big hitters there. The rise of the Chinese brokers, thanks to lower operating costs, more extensive research coverage, a full suite of capital market services and cheaper brokerage costs will result in a wave of consolidation among Hong
Kong’s mom and pop brokers, and lower tier foreign investment banks. “The through train scheme may lead to some industry consolidation among the smaller players in Hong Kong,” said Chris Lai, Hong Kong and China banks analyst at Bank of America Merrill Lynch in Hong
Absolute CO2 cap from 2016 The statement comes the day after the United States, the world’s second-biggest emitter, for the first time announced plans to rein in carbon emissions from its power sector Kathy Chen and Stian Reklev
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hina, the world’s biggest emitter of climate-changing greenhouse gases, will set an absolute cap on its CO2 emissions from 2016, a top government adviser said yesterday. The target will be written into China’s next five-year plan, which comes into force in 2016, He Jiankun, chairman of China’s Advisory Committee on Climate Change, told a conference in Beijing. There had been local media speculation last year that the country would introduce absolute caps, considered more stringent than its current system of pegging CO2 emissions, which have soared 50 percent since 2005, to the size of the economy. “The government will use two ways to control CO2 emissions in the next five-year plan, by intensity and an absolute cap,” He said. The statement comes the day after the United States, the world’s secondbiggest emitter, for the first time announced plans to rein in carbon emissions from its power sector, a move the Obama administration hopes can inject ambition into slow-moving international climate negotiations. Climate negotiators from over 190
nations are currently flying in to Bonn, Germany to start a new 10-day round of climate talks. China, often blamed by rich countries for holding back progress in U.N. talks on emissions due to its reluctance to take on a binding target, is stepping up efforts to clean up or shut down carbon-emitting sources such as coal-fired power plants, factories and vehicles, because they have also created a much-publicised pollution crisis that ends hundreds of thousands lives prematurely every year. Despite the absolute cap on CO2, He said China’s greenhouse gas emissions would only peak in 2030, at around 11 billion tonnes of CO2equivalent. Its emissions currently stand at around 7-9.5 billion tonnes. But the adviser said that would depend on China achieving a real reduction in coal consumption from sometime around 2020 or 2025, and on the nation meeting its target of having 150-200 gigawatts of nuclear power capacity by 2030. The share of non-fossil fuels in China’s energy mix would reach 20 to 25 percent in 2030, He said. Meanwhile, Sun Cuihua, a high-level climate change official at the National development and
KEY POINTS Adviser says China to introduce absolute cap from 2016 Would be seen as more stringent than current cap U.S. has announced plans to rein in emissions from its power sector Climate negotiators heading to Germany for climate talks
Reform Commission (NDRC), told the conference China was planning to introduce its national emissions trading scheme in 2016 or 2017, but that it would only be fully functional in 2020. Reuters
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The through train scheme may lead to some industry consolidation among the smaller players in Hong Kong Chris Lai, Hong Kong and China banks analyst, Bank of America Merrill Lynch in Hong Kong
Kong, referring to the stock connect scheme. Only bigger brokers will be able to easily afford the investment needed to build trading systems for the stock scheme, and adapt to the different trading hours and settlement dates in Hong Kong and Shanghai. By industry standards Hong Kong is a fragmented market with many small brokers, some of which operate out of single-room offices and employ only a few workers. More than 500 brokerages compete for business in the city’s open market, with the top 14 accounting for more than half of turnover, according to data from the Hong Kong Stock Exchange. In comparison, mainland China has 114 brokers with none of the top tier brokerage firms having a market share of more than 10 percent. The stock connect scheme will be a boon to brokers who have seen turnover and equity offerings shrink on the world’s 6th and 7th biggest stock markets due to a dimmer economic outlook. While turnover on the Hong Kong market has steadily declined in recent years, its army of brokers have fought over a shrinking pie, leaving them vulnerable to the onslaught from Chinese brokers. Average daily average turnover on the main bourse has steadily declined to 56 billion Hong Kong dollars in the first quarter of 2014 from 72 billion Hong Kong dollars in the whole of 2008, according to the Hong Kong stock exchange. Compared to their Hong Kong counterparts, Chinese brokers have far greater A-share research coverage, years of operating experience in the onshore markets and a lower fee structure. Reuters
Japan’s business lobby claims better China ties Relations with China and South Korea have been badly strained over emotional territorial disputes and bitter memories of Japanese soldiers’ violence in Asia before and during World War II
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he incoming head of Japan’s top business lobby wants to play a greater role in helping Tokyo to improve its badly-frayed ties with China, according to interviews published Tuesday. Sadayuki Sakakibara, who became the chairman of Keidanren -the Japan Business Federation yesterday- said the business sector could share environmental technologies to help foster better Japan-China relations. The 71-year-old chairman of synthetic materials maker Toray said Japan Inc’s environmental technologies could help smooth over tense diplomatic ties with its biggest trade partner. “China really wants (Japanese environmental technologies),” he said, according to the Yomiuri Shimbun newspaper. “Efforts to improve ties with China and South Korea are among our top priorities,” he said, according to the Yomiuri. Japan’s relations with China and South Korea have been badly strained over emotional territorial disputes and bitter memories of Japanese soldiers’ violence in Asia before and during World War II.
Those already-chilly diplomatic relationships got colder after the nationalist Shinzo Abe came to power in 2012. Big business has generally welcomed Abe, with his domestic emphasis on trying to kick-start Japan’s slumbering economy. Keidanren has been a traditional supporter of his long-ruling Liberal Democratic Party. But relations hit a snag after the organisation’s outgoing chief Hiromasa Yonekura criticised Abe’s unconventional and aggressive monetary policies as “reckless,” shortly before the LDP leader took office in late 2012. Abe’s economic programmes remain controversial, not least because they have added yet more debt onto Japan’s staggering pile of IOUs. However, they have markedly perked up corporate confidence and consumption, driven up Japanese shares and lowered the value of the yen, giving a boost to exporters. A package of reforms to areas such as employment law and aimed at making life easier for the business community is also expected. AFP
Auditors in SEC settlement talks The Securities and Exchange Commission yesterday granted the requested 90-day extension
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hinese affiliates of the four largest accounting companies and U.S. regulators have been discussing a settlement in a dispute over access to audit documents belonging to the firms’ clients. The Securities and Exchange Commission granted yesterday a 90-day extension requested by the four firms and the SEC’s enforcement division for an appeal briefing, according to an order filed by the regulator. Deloitte Touche Tohmatsu CPA Ltd., Ernst & Young Hua Ming LLP, KPMG Huazhen and PricewaterhouseCoopers Zhong Tian CPAs Ltd. are appealing an administrative judge’s January decision to bar them from leading audits of companies traded in the U.S. after failing to provide documents at the heart of a series of accounting fraud probes. The parties stated that the 90day extension would help “continued settlement efforts,” the SEC said. “Continuing these talks while briefing the appeal would present challenges, given the breadth, complexity, and sensitivity of the issues involved,” according to the order. Sherine Ong, a PricewaterhouseCoopers spokeswoman in Hong Kong, declined to comment in an e-mail, as did Nina Mehra, a KPMG spokeswoman. Deloitte and Ernst & Young spokesmen didn’t immediately respond to phone and e-mail requests for comment.
The U.S. Securities and Exchange Commission headquarters
The SEC filed an administrative action against the auditors in 2012 after struggling for years to obtain information for dozens of accounting fraud probes at China-based companies. The four firms’ Chinese affiliates refused to cooperate with accounting investigations into nine companies whose securities are publicly traded in the U.S., the SEC said in an order dated December 3. The auditors are caught between U.S. law, which requires them to turn over all documents requested by regulators, and Chinese law, which prohibits transferring data to foreign parties that might contain state secrets. While a May 2013 accord between the two countries opened the door for some cooperation, it didn’t allow for inspections, a key requirement for audit firms doing work for U.S.-listed companies. Bloomberg News
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Next monetary easing in Japan
Japan’s pension fund to help nation’s economy CB showed confidence that Japan is on track to meet the bank’s 2 Japan’s public pension fund, the world’s biggest, could raise its investment in domestic stocks to 20 percent of its portfolio from the current 12 percent, a top official with the fund was quoted as saying yesterday. Yasuhiro Yonezawa, the recently appointed head of the investment committee of the US$1.26 trillion Government Pension Investment Fund, said: “Twenty percent would not necessarily be too high a hurdle” for the GPIF’s weighting of Japanese stocks, the Nikkei financial daily reported. Global financial markets are keenly watching the GPIF’s investment strategy.
Australian government spending falls Public sector consumption and investment spending fell 0.8 percent in the first quarter to an inflation-adjusted A$85.88 billion (US$79.35 billion), the Australian Bureau of Statistics reported yesterday. Government spending for consumption rose 0.3 percent in the first quarter to A$68.42 billion in real terms. However, investment spending by the government and public enterprises fell by 5 percent to A$17.46 billion. This series has been volatile due to accounting for the transfer of assets between the public and private sectors. The data will feed into the GDP report for the first quarter due today.
S.Korea inflation at 19-mth high South Korea’s annual inflation rose in May to a 19-month high, data showed yesterday, underscoring a steady economic recovery and supporting market expectations of an interest rate increase as soon as later this year. The consumer price index rose 1.7 percent in May from a year earlier, Statistics Korea data showed, up from a 1.5 percent annual gain in April and the fastest rise since a 2.1 percent increase in October 2012. The result was just above a median 1.6 percent rise tipped in a Reuters survey.
Lowy’s mall split turmoil raises Westfield risk Billionaire Frank Lowy’s struggle to restructure Westfield Group has taken the relative cost of insuring the company’s debt against non-payment to the highest in six months. The gap between credit-default swaps of Australia’s biggest shopping mall operator and the higher-priced benchmark Markit iTraxx Australia index narrowed to nine basis points last week, the smallest advantage for Westfield since November. Westfield’s bond risk was 35.3 basis points higher than Indianapolis-based rival Simon Property Group Inc. on Monday, versus a 2014 low of 13.5 in January.
Kaori Kaneko
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he Bank of Japan will expand its asset purchase programme later this year although its bullish views on the economy and inflation have reduced the likelihood of such a move next month, a Reuters poll showed yesterday. Central bank governor Haruhiko Kuroda recently voiced confidence that Japan is on track to meet the bank’s 2 percent inflation target and he also said the BOJ’s quantitative easing policy “is exerting the intended effects.” But a strong majority of economists polled over the last week, 30 of 35, said the BOJ’s next move would be a further easing in policy. Only four said it would move in July, down sharply from 11 in a smaller sample in a poll a month ago. Fourteen said the next easing would be in either of the two BOJ meetings in October, while two analysts said it would move as early as August. Seven said the BOJ would not ease policy again this year, up from just one in the last poll. “We expect the pace of price rises will slow down as the effect from yen depreciation falls off,” said Shuji Tonouchi, senior market economist at Mitsubishi UFJ Morgan Stanley Securities.
Central bank governor Haruhiko Kuroda (pictured) said the BOJ’s quantitative easing policy “is exerting the intended effects”
Barclays to start cutting Asian jobs The reductions represent about 5 percent of the London-based firm’s investment bank workforce in the region
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he U.K.’s second biggest bank by assets will start eliminating 100 jobs across its Asia-Pacific investment-banking and markets businesses this week, a person with knowledge of the matter said. The reductions represent about 5 percent of the London-based firm’s investment bank workforce in the region, said the person, who asked not to be named because the cuts aren’t public. Barclays will also name Vanessa Koo to replace Edward King as Asia-Pacific head of mergers and acquisitions, the person said. The dismissals come after a series of senior departures from the bank including Robert Morrice, AsiaPacific chairman and chief executive officer, who said last month he was retiring. CEO Antony Jenkins revealed plans on May 8 to pare 7,000 investment-banking jobs worldwide by 2016 as revenue from
19,000 Jobs to be cut by Barclays over three years
trading fixed income, currencies and commodities shrinks. “We are not exiting any of the 11 countries we currently operate in throughout the region,” Timothy Cuffe, a spokesman for the bank in Hong Kong, said. “We will target
growth in key areas of strength and scale for the bank.” Wu Sheng will be appointed to lead Barclays’s Greater China coverage, the person said. Koo and Wu both declined to comment. The firm plans to cut 19,000 jobs over three years, including the 7,000 positions in investment banking announced last month and 12,000 that the lender said in February it would eliminate this year. Besides Morrice, senior departures in recent weeks from Barclays include Johan Leven, the Asia-Pacific head of corporate finance, people with knowledge of the matter said last week. Helge Weiner-Trapness, head of the Asia-Pacific financial institutions group, is also leaving, two people with knowledge of the matter said. Matthew Ginsburg is stepping down as head of investment banking for the region, the bank said May 15. Bloomberg News
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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postponed percent inflation target
KEY POINTS Only a handful of economists see BOJ easing in July Majority of analysts still expect the BOJ to ease further this year Some also say monetary base target may be extended into next year
Tonouchi said markets would get clarification in the August inflation data released around the end of September. “This will likely prompt the BOJ to ease in October,” he said. Analysts predicted the BOJ would boost its annual purchases of long-term Japanese government bonds (JGBs) to 60 trillion yen from the current 50 trillion yen.
They expect the central bank will increase its annual purchases of exchange-traded funds (ETFs) to 2 trillion yen from 1 trillion yen. A little over a year ago, the BOJ deployed an intense burst of stimulus, announcing it would increase its monetary base at an annual pace of 60-70 trillion yen (US$589-US$688 billion) until the end of 2014. Some economists expect the bank to extend this target period. Growth is picking up a little. The world’s third-largest economy will grow 1.0 percent for this fiscal year started April, the poll showed, up from 0.6 percent in the last poll. That follows its fastest pace of growth in more than two years in the January-March period. In fiscal 2015, the economy will expand 1.3 percent, the poll showed, in line with the previous consensus. There are also signs that Japan is finally pulling away from years of deflation. Core inflation hit its highest in nearly a quarter century in April because of a rise in the national sales tax. But the data, reported late last week, was accompanied by news that household spending fell at its fastest rate in three years. Both the government and the BOJ view this spending dip as temporary. There is little reason for tightening any time soon, however, certainly based on the inflation outlook. Excluding the effects of the sales tax hike, inflation is expected to average 1.1 percent over this fiscal year and next, the poll found. Reuters
Samsung Everland IPO to push restructure
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outh Korean firm said yesterday it would seek an initial public offering, a widely anticipated move seen as the next step in Samsung Group’s restructuring and the transfer of control to the next generation of the owner Lee family. Samsung Everland in a statement said it would name managers for the IPO this month and then decide the specifics of the offering, which will be on South Korea’s main bourse. The firm did not provide further details, though a spokesman said the listing would likely be completed by the first quarter of 2015. An IPO for Samsung Everland, which has business interests in areas including fashion and resorts, was widely seen by analysts as the next step in the transfer of control from Lee Kun-hee, the Lee family’s patriarch and chairman of flagship company Samsung Electronics Co Ltd, to his children. Questions about the group’s future have intensified in recent months following the hospitalisation of Lee Kun-hee, who is recovering from a cardiac procedure in May. Jay Y. Lee, the unofficial heirapparent to Samsung Electronics, is the biggest individual shareholder of Samsung Everland with a 25.1 percent stake at the end of March. The Lee family as a whole controls about 46 percent of Samsung Everland, according to a recent regulatory filing.
India to keep rates on hold Central bank governor is already showing some success in bringing down consumer price inflation Suvashree Dey Choudhury and Rafael Nam
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eserve Bank of India Governor Raghuram Rajan is expected to keep the country’s key lending rate unchanged and temper his tough rhetoric on inflation in a conciliatory gesture to a new government elected on a platform of reviving economic growth. All but three of the 52 economists polled last month predicted the RBI would keep India’s policy repo rate on hold at 8 percent on yesterday, after last raising interest rates by a quarter percentage point in January. Rajan is already showing some success in bringing down consumer price inflation (CPI) after raising interest rates by a total of 75 basis points since September, and analysts widely expect price pressures to keep moderating by early 2015 as the government battles market inefficiencies that raise costs. The governor will now have to sell his agenda - which puts priority on the fight against inflation - to India’s new Prime Minister, Narendra Modi, who many count on to push up the growth rate.
There is a realisation in the new government that high inflation is politically costly, and so they will be willing to walk the extra mile to bring down inflation
2013 Samsung Everland revenue
While the roadmap for the succession process remains unclear, some analysts have speculated that some of the Samsung Group companies could sell their minority stakes in Samsung Everland, then use the proceeds to strengthen the group’s control in various affiliates or expand into new lines of business and seek growth opportunities. Samsung Everland reported revenue of 3.23 trillion won (US$3.15 billion) and an operating profit of 111.1 billion won for 2013. The firm said it would use proceeds from the IPO to grow its businesses, including the pursuit of overseas expansion for its fashion operations. Reuters
“There is a realisation in the new government that high inflation is politically costly, and so they will be willing to walk the extra mile to bring down inflation,” said A. Prasanna, economist at ICICI Securities Primary Dealership in Mumbai. Rajan started toning down some of his anti-inflation rhetoric on expectations of easing retail inflation, which except for an increase in April to 8.59 percent, has been cooling in 2014. It was nearly 10 percent throughout the two previous years.
Working hand-in-hand? Last week, after meeting new Finance Minister Arun Jaitley, the central bank governor told reporters of the importance of balancing growth and inflation. He later told a Tokyo audience he would work hand-in-hand with the government. The RBI is targeting to bring down CPI inflation to 8 percent by January 2015 and 6 percent the following year, in line with recommendations from a central bank panel in January. Most analysts expect the RBI to keep interest rates on hold through 2014 unless India experiences a sudden spurt in inflation, which could happen if there are reduced rains during the monsoon season. Yet to bring down inflation, the RBI will need the new government to also take steps to bring down food inflation as well as contain its elevated fiscal deficit.
A. Prasanna, economist, ICICI Securities Primary Dealership
Investors are hopeful the new government will respond to Rajan by tackling the supplyside factors that drive up food inflation in India, thus easing the burden on the poor and restoring investors’ confidence.
US$3.15 billion
Bank of India Governor Raghuram Rajan
Reuters
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International S&P failed at French credit-rating Standard & Poor’s was censured by its European Union regulator for a mistake in 2011 that led to it incorrectly announcing a cut in its rating for France’s sovereign debt. The European Securities and Markets Authority said today that the “incident was the result of a failure by S&P to meet certain organizational requirements” of EU law. The announcement marks the first time that ESMA has officially named and shamed a credit-ratings company since it became the industry’s watchdog in 2011.
May’s inflation triggers alarms in Eurozone
South African platinum union seeks solution
The ECB has prepared investors for the prospect of stimulus when it announces the rate decisions on June 5
The three producers are considering increasing their wage offer Paul Burkhardt
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U.K. construction decelerates
U.K. construction growth unexpectedly slowed to a seven-month low in May as commercial and house building moderated in tandem with a cooling property market. A Purchasing Managers’ Index declined to 60 from 60.8 in April, Markit Economics said yesterday in London. The median forecast of 17 economists in a Bloomberg News survey was for an increase to 61. While the pace of expansion is falling, the gauge has been above the 50 level that signifies growth for more than a year.
Spanish jobless queue shrinks in May Spain’s jobless queue shrank dramatically in May, the government said yesterday, encouraging news for an economy gingerly recovering from a long, job-wrecking downturn. The number of people registered as unemployed fell by 111,916 from the previous month to 4.57 million. Once corrected to smooth out seasonal blips, the unemployment queue eased by a more modest 26,604 people, it said. Spain’s overall unemployment rate actually rose to 25.93 percent in the first quarter of 2014 from 25.73 percent in the previous three months, according to a broader, household survey released last month.
Apple allows ‘approved’ virtual currencies The firm will let software developers include virtual-currency transactions in their applications, paving the way for new forms of money to appear on iPhones and iPads. Apple did not provide details on the approved virtual currencies. Virtual currencies are not backed by any government or central bank and are bought and sold on a peer-to-peer network independent of central control. Several U.S. state regulators are looking to toughen rules on the use of the controversial crypto currency and have over the last few months warned investors to consider the risks associated before trading.
European Central Bank headquarters in Frankfurt
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uro-area inflation slowed more than economists forecast in May, cranking up pressure on the European Central Bank to deploy a range of measures to kindle prices and drive growth. The rate fell to 0.5 percent from 0.7 percent in April, the European Union’s statistics office in Luxembourg said today. The median forecast in a Bloomberg News survey of 38 economists was for a decline to 0.6 percent. The rate has been less than half the ECB’s target for eight months. With ECB President Mario Draghi warning about the risk of a negative price spiral, the Governing Council is considering measures from negative interest rates to conditional liquidity for banks. The central bank is also contending with high unemployment, which unexpectedly decreased in April while remaining near a record, a separate Eurostat report showed. “The fact that inflation is so low and so far below target is clearly contributing to the general pressure on the ECB to do more,” said Jonathan Loynes, chief European economist at Capital Economics Ltd. in London. “Draghi, not surprisingly, has played down the threat of deflation, but as inflation has fallen further it’s pretty clear it’s having an influence on their thinking.”
Ready to act Of 50 economists surveyed by Bloomberg News, 44 expect the Frankfurt-based ECB to become the first major central bank to take interest rates into negative territory by cutting its deposit rate. All but 2 of 60 respondents said the benchmark rate would also be reduced. The ECB has prepared investors
for the prospect of stimulus when it announces the rate decisions on June 5. “We are ready to act,” ECB Vice President Vitor Constancio said on May 30. “We are not complacent about the risks from a protracted period of low inflation.” A possible interest rate cut by 0.1 to 0.15 percentage point would have little impact, as the rate tool has been exhausted, former ECB chief economist Juergen Stark wrote in today’s Frankfurter Allgemeine Zeitung. Energy prices stagnated in May, after declining 1.2 percent the previous month, today’s data showed. Prices of alcohol, food and tobacco rose 0.1 percent following a 0.7 percent gain in April. The cost of services increased 1.1 percent.
Debt crisis The core inflation rate, which excludes volatile items such as energy, food, tobacco and alcohol, was 0.7 percent after a 1 percent reading in April, according to Eurostat. Today’s data are estimates. The statistics office will release final figures for May on June 16. Anemic growth in the euro zone has added to the case for ECB stimulus, as policy makers continue to struggle with the legacy of the debt crisis. Unemployment in particular has proven resistant to their interventions. The jobless rate fell to 11.7 percent in April from 11.8 percent a month earlier, according to Eurostat. Across the currency bloc’s 18 countries, rates ranged from 4.9 percent in Austria to 25.1 percent in Spain. Among people under the age of 25, the unemployment rate was 23.5 percent. Bloomberg News
he union whose strike has paralyzed South African platinum mines four months said it has responded to a minister’s proposals to break the deadlock and is waiting for him to call more talks. The companies are studying his plan. The Association of Mineworkers and Construction Union joined the world’s largest platinum companies and a government team led by Mineral Resources Minister Ngoako Ramatlhodi for discussions late last week aimed at ending a strike that risks pushing the second-largest African economy into recession. “We responded to the proposal” made by the team, AMCU President Joseph Mathunjwa said by phone today. “We’re hopeful that the minister will call the meeting and then we’ll take it from there.” More than 70,000 AMCU members have been on strike since Jan. 23 over pay demands at Anglo American Platinum Ltd., Impala Platinum Holdings Ltd. and Lonmin Plc. South Africa’s economy contracted in the first quarter for the first time since a 2009 recession as the walkout caused mining production to plunge by the most in 47 years. Mahlodi Muofhe, the minister’s spokesman, didn’t answer a call or text message seeking comment. The producers are assessing the plan put forward by Ramatlhodi’s group, which the mine operators believe to be “a fair and reasonable compromise considering the companies’ financial circumstances and AMCU demands,” said Charmane Russell, a spokeswoman for the companies at Russell & Associates. “The companies are reviewing the recommendations and undertaking the necessary financial analyses,” she said. The three producers are considering increasing their wage offer, Johannesburg-based Beeld newspaper reported yesterday, without saying how it got the information. They may propose boosting monthly wages by 800 rand (US$78), it said. They’re currently offering increases of as much as 10 percent annually. Mathunjwa said that the latest proposal wasn’t a deal to take back to members. The AMCU wants basic monthly pay excluding benefits for entrylevel underground employees to be more than doubled to 12,500 rand by 2017. South African inflation was 6.1 percent in April. Bloomberg News
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Opinion Business
wires
Leading reports from Asia’s best business newspapers
THE STRAITS TIMES United Nations Development Programme (UNDP) Administrator Helen Clark has called on the private sector to play a greater role in ensuring women have equal opportunities to take on leadership positions. Delivering an inaugural lecture at the UNDP’s Global Centre for Public Service Excellence (in Singapore) yesterday, she said “the corporate sector is the last bastion” standing in the way of gender equality in having women as top leaders. The former prime minister of New Zealand noted that of the top 100 firms in Europe, 38 did not have women at the peak of the corporate structure.
A manifesto for European change Tony Blair
Prime Minister of the United Kingdom from 1997 to 2007 Special Envoy for the Middle East Quartet
TAIPEI TIMES ARM Holdings PLC, which designs chips used in a wide range of devices, including Apple Inc’s iPhones, said it was building a new chip design centre in Taiwan to develop next-generation processors for fast-growing Internet of Things (IoT) and wearable devices. The design centre will be ARM’s first chip design centre in Asia and the fourth of its kind around the globe. In the initial stage, the UK chip designer plans to build a 40 to 50-member design team in Hsinchu by the end of this year.
THANH NIEN NEWS Japan has temporarily suspended official development aid to Vietnam over a bribery case, officials said YESTERDAY, dealing a possible blow to Tokyo’s efforts to shore up its relationship with Hanoi. Fresh yen-loans and funding for an on-going urban railway project have been halted after six Vietnamese railway officials were detained over allegations of corrupt payments, the foreign ministry said in a statement. The scandal emerged in March when Japanese media reported that the national tax agency had flagged up 100 million yen (US$100,000) - worth of payments that could not be properly accounted for.
BANGKOK POST After the army signalled it would curb energy subsidies, the abrupt U-turn by the National Council for Peace and Order (NCPO) surprised some analysts, who suggest price intervention should be a short-term manoeuvre. Manoon Siriwan, an energy analyst and former executive of the majority state-owned Bangchak Petroleum Plc, said price reforms must be the first priority of national energy policies no matter who is in power in order to reflect the real cost of energy and encourage more efficient consumption.
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ONDON – Interpreting election results, especially when turnout is not high, is always a risky business. And, in the case of the recent European Parliament election, the results were not uniform. The most spectacular result was in Italy, where a pro-reform, pro-Europe party led by Prime Minister Matteo Renzi won more than 40% of the vote. Chancellor Angela Merkel’s Christian Democrats won in Germany and there was a strong vote for the Social Democrats there also. In some cases, the vote simply tracked domestic politics. But the victories of the United Kingdom Independence Party (UKIP) and the National Front in France and the success of explicitly anti-status quo parties across the continent cannot be ignored. They point to a deep anxiety, distrust, and alienation from Europe’s institutions and core philosophy. So now the EU must think carefully about where it goes from here, how it reconnects with its citizens’ concerns, and how it can better realize its ideals in a changing world. Complacency about the far right’s showing, on the grounds that there remains a pro-European majority, is dangerous. Even ardent supporters of Europe think there must be change. Many factors have combined to increase the number and complexity of challenges facing Europe, along with uncertainty and unpredictability about Europe’s ability to meet them. There has been the vast ambition of the single currency, with its intrinsic design flaws; the agony of the financial crisis and its aftermath; and the link between the two in the sovereign debt crisis. There has also been the European Union’s enlargement from 15 member states to 28 in a decade – a decade, moreover, of rapid change in technology, trade, and geopolitics.
Within the Eurozone, the EU suddenly went from being merely important to determining, bluntly and in plain view, countries’ future budgets and other economic policies. Indeed, given the pain of deep expenditure cuts without the flexibility of exchange-rate adjustment, the real surprise is that the outcry has not been greater. Even those of us outside the Eurozone have been profoundly affected as European institutions have become both more visible and more under attack. In an increasingly multipolar world, in which GDP and population will increasingly be correlated, the rationale for Europe is stronger than ever. Together, Europe’s peoples can wield genuine influence. Alone, they will over time decline in relative importance. The twenty-first-century world order will be dramatically different from that of the twentieth century. The rationale for Europe today is not peace; it is power. If we are to realize the EU’s potential, and avoid a retreat by Britain to its side-lines, the balance between the EU and its member states will have to be re-addressed from first principles, with European institutions redesigned to make them truly more accountable and closer to those that they govern. Understandably, fragile national governments struggling against economic malaise – and under intense political pressure to succeed – have no desire at the moment for such a rootand-branch debate. So we must distinguish between longterm and immediate action. The immediate challenge is to obtain the most change possible within the existing framework of European institutions and treaties. Meeting it requires a new approach and a new agenda. The new approach should begin with the European
Selling reform to each EU country will be easier if it is part of a grand bargain in which pain and gain are seen to be fairly balanced. For the Union as a whole, progress on consolidating the single market is needed, especially in the service sector
Council asserting its responsibility to give Europe direction by setting a clear, focused, and convincing platform of change that connects with European citizens’ concerns and transforms the view of what Europe can actively, not reactively, achieve. The Council must match the EU’s policy ambitions with a set of concrete proposals to realize them, and then task the incoming European Commission in specific terms with implementing the platform. The European Parliament will debate the necessary measures and will have to legislate accordingly. Here, the Council and the Commission must work in unison, adopting
a method of engagement with the Parliament that does not leave individual Commissioners swinging in the wind when they come under attack. The agenda for reform should address the overarching issues that the EU’s member states are unable to advance in their interests. Within the Eurozone, this means an explicit arrangement by which, in exchange for member states’ continuation and deepening of structural reform, there will be greater fiscal flexibility and monetary-policy action to allow stronger growth and avoid deflation. Selling reform to each EU country will be easier if it is part of a grand bargain in which pain and gain are seen to be fairly balanced. For the Union as a whole, progress on consolidating the single market is needed, especially in the service sector; and policymakers should make a big push for the Transatlantic Trade and Investment Partnership. Moreover, the best ideas concerning infrastructure and a European jobs program should be incorporated into the agenda for change. Efforts on these fronts should be directed toward showing how the jobs and industry of the future can be created by concerted European action. Likewise, energy policy is now of vital importance, not only for Europe’s competitiveness, but also as a result of events in Eastern Europe and Ukraine. The EU has never pursued a common energy policy with the vigor that it requires; yet its impact would be transformative. A common energy policy and integrated energy markets would benefit businesses and consumers (not least in the UK) and reduce Europe’s dependence on foreign supplies. Finally, if Europe wants to exercise power commensurate with its economic weight, it must have the capacity to play its part both in military operations and in the essential role of security-sector building in potential partners emerging from turmoil or conflict. This is not just about spending. It is also about synergies. Recent experience from North and Sub-Saharan Africa shows how such a capability could be used. Of course, one central part of this agenda would be a program of subsidiarity, along the lines for which the British government and others are agitating. Again, there is a wealth of suggestions on how such a program would work. The mood and timing is right, and action in this area would address an element of European governance that causes anger across the political spectrum. I want to be clear about what I mean about this reform agenda for Europe. I do not mean the normal Council conclusions put together at the last minute of a packed and routine meeting. I mean a proper and precise program – call it a manifesto for change – that tells the Commission exactly what it is supposed to do and gives the Commissioners the support they need to do it. The Project Syndicate 2014
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June 4, 2014
Closing CITIC Pacific say yes to CITIC Group
Thai curfew lifted in three tourist hotspots
Minority shareholders of Hong Kong-listed CITIC Pacific Ltd have approved a landmark deal to acquire US$36 billion of assets from its state-owned parent CITIC Group Corp, China’s biggest and oldest financial conglomerate. The go-ahead clears the way for the purchase of practically all of the conglomerate’s assets. In doing so, shareholders endorsed not just China’s ambition to reform its stateowned enterprises. They also backed a plan to give CITIC Pacific direct exposure to the mainland’s banking sector and the country’s bad loans problems. The purchase was approved by 99 percent of votes at yesterday’s meeting.
Thailand’s junta said yesterday that it was ending a curfew in the major tourist resorts of Pattaya, Koh Samui and Phuket (pictured) imposed after last month’s military coup. The measure will be scrapped “to create a favourable climate for tourism”, the military said in a televised announcement. “The rest of the country remains under curfew,” it added. The curfew was initially introduced after the May 22 coup for the whole country for 10:00 pm until 5:00 am, to the dismay of the owners of bars and other late-night businesses. The junta shortened it to midnight until 4:00 am late last month.
China and Russia to create joint rating agency The big three ratings agencies came under fire for failing to anticipate the financial crisis that began in 2007
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ussia and China have reached an agreement to create a joint credit rating agency and are working on a series of measures to make trade easier, Russia’s finance minister said yesterday, a sign of growing ties between the neighbours. Speaking during a trip to China, Anton Siluanov told journalists that the new rating agency would be modelled on existing rating agencies. “We would like (the agency’s) ratings to be apolitical,” Siluanov said in comments sent by the ministry’s press service. The plan to create an agency in conjunction with China comes at time when Russia has shown signs of dissatisfaction with the three western agencies Standard & Poor’s Moody’s and Fitch that dominate the ratings market. S&P cut Russia’s sovereign rating to a notch above junk in late April, weeks after Moscow annexed Ukraine’s Crimea peninsula. Russian officials criticised what they regarded as a “politically motivated” downgrade - a claim that S&P denied. Russia’s desire for an alternative has led to discussion about creating a national rating agency, but
The presidents of China and Russia China and Russia Presidents at the gas trade deal signing event
some analysts have questioned whether such a body would have credibility. The plan to create a new agency in conjunction with China appears aimed at gradually building a credible alternative to the big three ratings agencies, which came under fire for failing to anticipate the financial crisis that began in 2007. Beijing-based rating firm Dagong said last year it hoped to cash in on that criticism and take 5-10 percent of the European ratings market by 2017.
“In its first phase, the agency will evaluate RussianChinese investment projects with the goal to attract a series of Asian countries, and gradually, based on progress and reputation, we believe that it could reach a level when its opinions will attract other countries,” Siluanov said. No details were given on when the agency would begin work. After being shunned by the West for its involvement in the Ukrainian crisis, Russia has moved swiftly to improve
business relations with China and other countries from the BRICS block that also includes India, Brazil and South Africa. Late last month, Russia’s state-run Gazprom signed a landmark 30-year deal, worth more than US$400 billion, to supply gas to China. While most Western countries condemned President Vladimir Putin for using Ukraine’s vulnerable political situation and taking away the Crimean Black Sea peninsula, BRICS countries have broadly refrained
from criticism. Without providing details, Siluanov also said that his talks with Chinese officials included the possibility of preferential taxes for Chinese companies investing in Russia, currency swaps and trade settlement in national currencies. Answering a question about possible joint management of gold and foreign currency reserves with China, Siluanov said “the issue of lending and monetary policy” will be a part of his talks with China’s central bank officials. Reuters
HK retail sales fall in April
Building materials falter in China
Volkswagen plans yuan ABS
Hong Kong’s Census and Statistics Department announced yesterday that the value of the city’s total retail sales decreased by 9.8 percent year on year to US$38.8 billion in April. After netting out the effect of price changes over the same period, the volume of total retail sales decreased by 9.5 percent in April over a year earlier, the department said. For the first four months of 2014, total retail sales increased by 0.7 percent in value over the same period a year earlier, while sales reported a 1.2-percent increase in volume year on year. The value of sales of wearing apparel increased by 11.3 percent in April from one year earlier. This was followed by sales of commodities in supermarkets; medicines and cosmetics; food, alcoholic drinks and tobacco; other consumer goods. On the other hand, the value of sales of jewellery, watches and clocks, and valuable gifts decreased by 39.9 percent in April compared with a year earlier.
China’s building materials sector recorded slower growth in the first four months of this year as a cooling housing market has dashed hopes for lasting rapid expansion, according to the latest statistics from the country’s top economic planner. Cement output grew a mere 4.3 percent from a year ago to 672 million tonnes in the January-April period, slowing 4.2 percentage points from last year’s growth, according to industrial reports by the National Development and Reform Commission (NDRC) on its website. While China’s housing market, a major consumer of the country’s cement, flat glass and aluminum, showed more signs of cooling, the cement industry managed to lock in a 269-percent upsurge in profits totaling 9.9 billion yuan (US$1.6 billion) in the first four months. Investment in the cement sector followed a weakening real estate market with a year-on-year decline of 2.4 percent to 24.73 billion yuan in the January-April period.
Volkswagen AG plans to issue about 800 million yuan (US$128 million) of asset-backed securities in China as soon as this month, following similar sales by Ford Motor Co. and Toyota Motor Corp., a person familiar with the matter said. The securitised notes, due August 2020, are backed by automotive loan receivables originated by Volkswagen Financial (China) Co., a unit of Volkswagen Financial Services AG, Fitch Ratings Ltd. said in an e-mailed statement today. “This offering opens a door to international investors,” said Helen Wong, a Hong Kong-based senior director on the structured finance team at Fitch. It’s the first securitisation backed by Chinese automotive loan receivables that has international ratings, according to the ratings company. Fitch assigned an expected AA rating to 699 million yuan of Volkswagen’s Class A notes, an expected A- score to 44 million yuan of Class B notes and left 52.7 million yuan of subordinated notes unrated, according to today’s statement.
Xinhua
Xinhua
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