Macau Business Daily, Jan 10, 2014

MOP 6.00 Closing editor: Alex Lee Publisher: Paulo A. Azevedo Number 557 Tuesday June 10, 2014 Year III

New market leader E

nter Macau New Era. Existing bus operator TCM holds a majority stake in the company taking over Reolian’s assets and operation. TCM now controls two-thirds of the bus network in Macau, managing 44 routes out of 67. The contract expires within 4 years, following which the government promises an open bid

www.macaubusinessdaily.com

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Unlucky 13 Casino profits in Macau could fall in the second quarter of 2014.

For the first time in four years. Analysts are downgrading the gaming sector to hold, citing 13 reasons why PAGE 4

Keep it cool

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The government may introduce further measures to cool the property market. At the moment, it’s ‘wait and see’. But if rampant speculation becomes evident the gloves come off

HSI - Movers June 9

Name

PAGE 5

Lucrative offshore Caixa Geral de Depósitos offshore in Macau has clocked up eleven months of operation. Now it’s achieved a profit of 11.6 million patacas since February of last year

Traders are placing bets on the four main Banks of China. The latest export and current surplus trade results indicate an improving economy Page 9

COSCO Pacific Ltd

2.44

Tencent Holdings Ltd

2.22

Bank of China Ltd

1.93

Hutchison Whampoa

1.93

Swire Pacific Ltd

1.52

Kunlun Energy Co LtD

-0.32

Hong Kong & China Ga

-0.47

China Resources Land

-0.78

Galaxy Entertainment

-2.41

Sands China Ltd

-2.67

Source: Bloomberg

PAGE 6

Banking on China

%Day

I SSN 2226-8294

Red-flagging risk

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Fitch warns of a growing risk. Banks in Macau are exposed to Mainland financial increases of 50 percent every year. More than 20 percent of Macau’s banking assets are China-related. A US$240 billion headache if the tide turns PAGE 3

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2

June 10, 2014

Macau

TCM-owned company to run Reolian Macau New Era, in which existing bus operator TCM holds a majority stake, is to take over Reolian’s assets and operation Stephanie Lai

sw.lai@macaubusinessdaily.com

M

acau New Era Public Bus Company Ltd, a new operator in which existing bus company Sociedade de Transportes Colectivos de Macau SARL (TCM) holds the majority stake, is to take over the bankrupted Reolian Public Transport Co Ltd’s assets and operation, the government confirmed yesterday.

Business Daily first reported on March 28 that TCM was the investor ready to take over Reolian’s operation, a time when the government also requested another extension of three months from the courts to exercise its caretaker role over Reolian and find a resolution to its bankruptcy case.

As announced by the Official Gazette yesterday, the Secretary for Transport and Public Works Lau Si Io was authorised to sign a new public concession contract with Macau New Era Public Bus Company Ltd to take over the operation of the routes ‘Section 2’ and ‘Section 5’ - the sections currently run by bus operator Reolian that altogether covers 27 bus routes, or around two-fifths of the city’s network.

The majority shareholder of the

newly established Macau New Era is TCM, but the new company will operate totally independently from its major shareholder TCM with staff and

buses taken over from Reolian, which declared bankruptcy in October.

The government leased its assets in a temporary takeover from then to June 30 this year.

Business Daily has approached both the Transport Bureau and Macau New Era on the detailed shareholding structure of the new bus operator, but both stressed that they can only reveal more information during today’s press briefing on the Reolian takeover issue.

Daniel Fang Li Qun, general manager at Macau New Era formerly held the same position in TCM; he also declined to reveal the takeover cost of the Reolian deal to us.

TCM is a locally founded company as is fellow bus operator Transportes Urbanos de Macau SARL(Transmac), but TCM was acquired by the state-owned conglomerate Nam Kwong (Group) Company Ltd via its subsidiary China Travel Service (Macao) Ltd in January 2012.

Local prominent businessman Ng Fok, who formerly headed TCM, now also assumes the vice-president’s post of the newly established Macau New Era, the company’s registration data shows.

TCM is the bus operator that currently has the lowest share of bus routes compared to Transmac or Reolian: now TCM only operates 17 of the city’s 67 bus routes.

Urgent choice When asked whether the Reolian takeover deal would enable TCM to monopolise the bus operation here, Mr. Lau answered that he understood the public concern and only noted that there will be a supervisory mechanism introduced to assess new operator Macau New Era’s performance.

Mr. Lau reiterated that the bus operation experience of Macau New Era is the reason that the government picked it as the entity to take over the bankrupted Reolian.

The secretary also noted another reason for picking Macau New Era. He said that it accepts the public concession mode as required by the government, whereby a new payment plan that follows will have the bus operator receive subsidies from the government for their daily operation

as well as keeping bus fares that passengers pay.

Under the current bus operation system and the payment mechanism, implemented since 2011 under a public service contract, bus companies do not keep the bus fare but get a regular service charge from the government.

But this system was severely criticised by a Commission Against Corruption report in November last year, calling it ‘illegal’ and a ‘poor use of public money.’

Legal Affairs Bureau director André Cheong Weng Chon told media last Wednesday that the government had insufficient time to launch an open bid to find a new operator to take over Reolian’s routes.

“The court only announced Reolian’s bankruptcy in December, and it’s only in March this year that the debts declaration process – the confirmation of the bankruptcy trustees name list and the assets count - was completed,” said Mr. Cheong at the time. “It’s only then that we can confirm the [Reolian] takeover content, including the bus routes, frequency of bus runs, the buses and equipment owned.”

“But for an open bid to take place, including the process for appeal from the bidders, at least nine months to a year is required,” said Mr. Cheong, noting that there was not enough time to launch an open bidding for Reolian’s operation while trying to maintain an uninterrupted bus service.

The new public concession contract to be signed with Macau New Era is to last for less than four years; when the concession terms end the government will launch an open bid for the operator’s routes, Mr. Lau announced yesterday.

“We have about four years left with the [service] contract signed with Reolian,” said Mr. Lau, adding that the new entity taking over Reolian’s operation, Macau New Era, will have a concession term of less than four years.

“What the government is doing now is a special arrangement [with Macau New Era], and during this period we’ll have sufficient time to prepare for a new open bid [for the bus routes],” the secretary added.

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June 10, 2014

Macau

Local banks increasingly exposed to China Fitch warns of a growing risk for banks in Macau as their exposure to the Mainland increases 50 percent every year and faster than Hong Kong’s.

More than 20 percent of Macau’s banking assets are China-related Alex Lee

Alex.lee@macaubusinessdaily.com

M

acau’s banking system is the second most exposed to a downturn in China’s economy in the Asia Pacific region, with the Mainland risk almost double that of Singapore’s, one of the major financial centres in the region.

According to Fitch, the world’s third largest rating agency, Macau’s banking system exposure to China has quadrupled since 2009. By the end of 2013, 20 percent of the territory’s financial system assets were linked to Mainland China, four times more than five years ago.

In 2009, less than 5 percent of banking assets here were linked to Mainland companies and individuals.

That figure has been doubling in some years since then, data from Fitch reveals. In 2010, it reached the 10 percent mark, hiking to 15 percent the next year. Last year, more than US$240 billion-worth of assets from Mainland clients

US$240 billion Macau banks’ total exposure to Mainland clients

were parked in Macau banks.

Fitch says China risk is spreading all over the Asia Pacific region, especially in Hong Kong and Macau, who together amount for more than 54 percent of Mainland assets in the region.

US$1.3 trillion market In total, Asia Pacific banks accumulated US$1.2 trillion in Chinese assets by the end of 2013. Hong Kong is by far the most exposed, with its banks sitting on US$798 billion-worth of Chinese

loans, deposits and other financial products in their portfolios. That’s a 35 percent share, almost double that of Macau (20 percent).

Singapore, one of the major Asian financial centres in the region, follows third in the China risk ranking, with 12 percent of total banking assets owned by Mainlanders.

The rating agency says that most of the exposure is trade related, with banks financing foreign companies operations in China and Mainland firms’

outbound expansion, namely state-owned companies or large Chinese corporations.

The credit for SME’s and retail is mainly conducted through the banks with the most developed onshore subsidiary operations like HSBC, Standard Chartered, Bank of East Asia, DBS and ANZ. Even if today Hong Kong’s exposure to China is double that of Macau’s, Fitch figures show that the risk is growing faster here than in HK.

The rating agency says that a hard landing for China is a low probability event, but if it happens one day the impact on Macau’s financial system will be high as banks rely more and more on Mainland clients.

Fitch says it is keeping the ratings impact neutral – meaning no upgrade or downgrade is likely within the next three months – but expects regulators to take a closer look at emerging China concentrations.

4

June 10, 2014

Macau

Casino profits post first fall in 4 years in 2Q Casino earnings before taxes could fall in the second quarter of 2014.

If they do, it will be the first time in four years. In addition, analysts are downgrading the Macau sector to hold, citing 13 reasons why Sara Farr

sarafarr@macaubusinessdaily.com

D

ecelerating VIP growth is the likely cause of analysts’ expectations of an EBIDTA decline in the second quarter of this year. Based on the last two months’ data, Morgan Stanley analysts expect Macau casinos to rake in around 93.9 billion patacas (US$11.7 billion) in the second quarter of the year.

While this may be an 8 percent increase over that of the same period last year, 93.9 billion patacas in the second quarter it nevertheless represents a 9 percent drop over that of the previous quarter. The reason for this drop, according to analysts at Morgan Stanley, is a growth slowdown in the VIP segment. The mass market, however, is expected to do much better and grow more than 35 percent in the second quarter year-on-year.

‘We expect June VIP revenue to decline by 7 percent [in the second quarter and second half of 2014] year-on-year due to fewer weekend days and potential distraction by the World Cup starting June 12,’ Morgan Stanley analysts said in an investors’ note.

Analysts at Union Gaming Research Macau Ltd have also revised their estimates and lowered the VIP segment growth for the second quarter this year from 10 percent. In addition, analysts are also lowering their full-year total market gross gaming revenue estimate to 13 percent from 14 percent, with the VIP segment expected to grow 9 percent year-on-year, and the mass market 21 percent.

For the second quarter, Morgan Stanley analysts expect earnings before interest, taxes, depreciation, and amortization (EBITDA) to range around US$2.64 billion (21.12 billion patacas). This ‘will mark the first quarter since the fourth quarter in 2009 to see sequential decline,’ analysts said. In addition, EBITDA is expected to drop by 4 percent quarter-on-quarter.

Nonetheless, overall EBIDTA will increase 21 percent in the second quarter over that of the same period last year.

The gaming operators likely to fare best are Melco Crown Entertainment Ltd and Sociedade de Jogos de Macau (SJM), which according to analysts are expected to show better sequential EBIDTA growth than Wynn Macau Ltd and Sands China Ltd. However, the latter two are expected to show a faster year-on-year growth.

13 reasons The full smoking ban that comes into effect on October 6 and the elimination of hand-held swipe

[We] are unwavering believers in the longterm story. However, we don’t see any upside catalysts over the near-term Union Gaming

card devices used to provide cash to premium mass players could reflect in the third quarter and also the second half of the year.

Analysts at Morgan Stanley say that the full smoking ban could ‘potentially force customers to move from premium mass to VIP.’ This segment registered negative 2 percent growth in May, while revenue dropped between 1.4 percent and 1.8 percent year-on-year. This could spell trouble for June, analysts warn, with a possible 7 percent decline also attributable to a ‘weaker macro and liquidity environment and exacerbated by the news of one junket [operator] vanishing after owing up to HK$8 billion to HK$10 billion,’ according to Morgan Stanley analysts.

Union Gaming has also downgraded the territory’s sector to hold given expectations of bad press gaming operators could face over the coming months that ‘will keep pressure on shares,’ with a ‘greater risk to the downside than the upside,’ analysts said. ‘[We] are unwavering believers in

the long-term story. However, we don’t see any upside catalysts over the nearterm,’ the group said in an investors’ note. While the market rating has been lowered, analysts at Union Gaming said Macau names would continue to be significant dividend payers, claiming, ‘there is significant growth to be had through the end of the decade and beyond (albeit primarily secular growth and not unit growth).’

But it could still take months before sentiment improves.

There are 13 reasons for this: primarily, stocks aren’t going to work due to continued ‘softness’ in consensus expectations for the second quarter of this year, a slow

down of the VIP segment, continued negative macro-economic data in sectors such as real estate and banking from mainland China that impacts investor sentiment, a potential decline in mainland Chinese visitor numbers once measures are implemented to target abuses in the transit visa scheme, the ban on hand-held swipe card devices from casino floors, possible bad press ahead of the full smoking ban and also links between a slower gross gaming revenue and the World Cup, more bad press related to junket operations and delays in infrastructure projects such as the light rail, and fluctuations in gross gaming revenue.

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June 10, 2014

Macau

Gov’t mulls further intervention in property sector

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he Secretary for Transport and Public Works, Lau Si Io, said the government will introduce further measures to cool the property market if it considers that further action is required in order to avoid speculation.

“We will not exclude introducing new measures if necessary,” Lau Si Io said after being asked to comment that the government was intervening in the private market. “The government has introduced some measures to help the private market develop healthily. We’re keeping a close eye on the impact of the measures,” he said, as quoted by the TDM

Casino stocks slide, rating downgrade

M

acau casino stocks slid yesterday after a number of different analyst firms lowered their estimated gross gaming revenue to the low teens.

SJM Holdings Ltd. dropped 2.4 percent to HK$20.25, while Galaxy Entertainment Group Ltd. fell 2.4 percent to HK$56.80.

Analysts at Deutsche Bank AG lowered its 2014 gaming revenue growth estimate to 12 percent from 15 percent. At Morgan Stanley and Union Gaming Research Macau Ltd, analysts revised estimates for the second quarter of 2014 for each of the gaming companies. Overall, estimates were lowered, with Morgan Stanley

revising EBIDTA predictions to decline 4 percent in the second quarter of the year, while Union Gaming puts that number at 4.6 percent.

This led casino stocks to slide in sharp contrast to how well the rest of Asian stocks have performed, with the regional benchmark index extending a seven-month high, after data on

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Portuguese-speaking channel, on the sidelines of the 20th anniversary of the Macau Property Agents and Realty Developers Association.

The Secretary for Transport and Public Works also said that regarding property market concerns the government is constantly seeking to develop a healthy and sustainable market. As for the possible measures to be introduced, Mr. Lau declined to comment further.

The President of the Macau Property Agents and Realty Developers Association said on Sunday that he expects that prices will not drop until the end of this year. Ung Choi Kun said that house transactions in Macau are likely to continue to drop.

Ung also mentioned to the TDM Portuguese-speaking channel that some 90 percent of buyers of property currently under construction are local.

U.S. employment and Chinese exports bolstered the outlook on the global economy.

“Fundamentally, the global economy is improving,” Keith Poore, who helps manage US$131 billion [16.4 billion patacas] as Wellingtonbased head of investment strategy at AMP Capital Investors Ltd., is quoted as saying by Bloomberg. “The backdrop is really positive for equities.

As long as we see low inflation and supportive central bank policies, the rally looks sustainable.”

S.F.

There are men and women who give human kind their perseverance, their genius, their generosity and, in some cases, their own life.

Those people and their actions are our inspiration.

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June 10, 2014

Macau Brands

Trends

The legendary Leica Raquel Dias newsdesk@macaubusinessdaily.com

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emember that famous kiss in the victory parade? Or Che Guevara’s face that decorated teenager t-shirts for decades?

How about the terror of children running away from napalm bombing in Vietnam? History is not only written, it is photographed as well - and Leica seems to have been present in all those moments.

It all started in 1914 when Oscar Barnack created the first prototype, the Ur‑Leica. The camera was a breakthrough because for the first time film mobility and shutter technology were combined in one camera – thus eliminating double exposures. Leica was the first practical 35 mm camera to use standard cinema 35 mm film. The Leica transported the film horizontally, extending the frame size to 24×36 mm. It was the perfectly portable camera for capturing landscapes during his hiking trips, Barnack’s favourite hobby. Because the Leica produced a small negative, the lens had to be especially sharp, so that photos had enough quality to be augmented.

To celebrate a century of high quality images, Leica has organised a number of exhibitions around the world. The German company has also launched commemorative products that will surely get collectors running to the shops. One hundred years after the Ur-Leica, you can celebrate by purchasing the Leica S ‘Edition 100’.

The set includes the Leica S medium-format system camera and two of the most popular S lenses: the Leica Summarit-S 2.5/70mm ASPH (CS) and the Leica Elmarit-S 2.8/30mm ASPH (CS). All are adorned with the anniversary logo.

The cherry on top has to be the Rimowa’s Topas Multiwheel Trolley made entirely of aluminium, just to give it that special professional touch.

CGD Macau’s offshore posts MOP11.6 million profits

C

aixa Geral de Depósitos (CGD) offshore in Macau has achieved a profit of 11.6 million patacas since February of last year, when the branch of the Portuguese bank began to operate in Macau, and December.

According to data published in the Official Gazette in this eleven months period, the deposits of clients accounted for 8.84 billion patacas, an increase of one percent in eleven months.

Last year, the bank decided to

convert its subsidiary in Macau into a branch. The subsidiary Caixa Geral de Depósitos-Subsidiária Offshore de Macau had been operating in the former Portuguese enclave since 2005. All its assets were incorporated in Caixa Geral de Depósitos Sucursal Offshore.

During this period of time, operating costs accounted for 4.7 million patacas, staff costs 2.5 million patacas and administrative costs 2.2 million patacas.

Do’s and don’ts of voting

C

hief Executive Electoral Management Committee president Song Man Lei has laid down the law on what constitutes a ‘valid vote’ for this year’s election of the members of the Chief Executive Election Commission.

Ms. Song met with members of the Management Committee to discuss some of the do’s and don’ts both outside and inside the voting booth expected for election day. These include the forbidden use of electronic devices such as mobile phones and cameras.

The boxes need to be clearly marked in order for a vote to be deemed valid.

In addition, training will commence for around 500 staff who will be posted at the voting stations. And if the candidates of the various sectors and sub-sectors consider it necessary

Caixa Geral de Depósitos mentions in its report that bank assets account for 8.99 million patacas. This value is justified by the bank due to customer deposits rather than credit extended.

The report also mentions that the economic and financial context of 2013 was more ‘favourable’ than in previous years due to the recovery of the European economy. The bank also expects the American economy to grow faster this year.

Subsistence index up 1pct in January

A to host election-related activities, the Management Committee will look into it, Ms. Song confirmed.

Ms. Song also said that publishing the names of the people who sign the ballot is merely for members of that sector and such measures conform to current legislation. These remarks came after a radio listener called in to the local station last week to query the decision.

ccording to a dispatch from Chief Executive Fernado Chui Sai On in today’s Official Gazette, the government’s minimum subsistence index will increase by 1.04%, effective July. The new adjustment states that the index for an individual is 3,800 patacas (US$348.76) while a household of eight or more reaches 17,730 patacas.

Poverty allowances are distributed based on the minimum subsistence index, which serves as an indicator of amount of total income to maintain the minimum standard of living. The last adjustment was made in July last year.

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June 10, 2014

Macau

Le Saunda sales dive in SARs Manufacturing and shoe sales company achieves a growth of 6.6 percent in revenues during the first quarter of the 2014/15 financial year with increasing sales in Mainland China

L

e Saunda Holdings recorded a sales decrease of 7.5 percent in Macau and Hong Kong during the first quarter of the financial year 2014/15 (finished in May 31) in comparison to the same period last year. This trend was verified despite the May Golden Week.

For same stores sales it achieved a growth of 2.5 percent when compared with figures from the first three months of 2013/2014 financial year. This value accounts for same stores sales, which means that only stores that have been operating for longer than a year were taken into account.

In spite of the negative trend in the former Portuguese and British enclaves, the manufacturing and shoe sales group recorded a total sales growth of 6.6 percent and a same store sales growth of 15.4 percent, during the first quarter of the financial year, in comparison with the same period of the company’s last financial year.

There was a negative trend in Macau and Hong Kong, but Mainland China sales continued to increase at a good pace, which made it possible for Le Saunda to continue in the black, despite poor

results in the Special Administrative Regions. Total sales grew 8.6 percent in Mainland China. The same stores sales growth of retail business results jumped 17.5 percent.

As for the results announced yesterday by the Chinese company, the data related to online sales, known as e-commerce business, was not revealed.

Reduction in outlets Compared to the first quarter of the last financial year, Le Sauna Group reduced the number of outlets in Mainland China, Hong Kong and Macau by 135. The group now has a total retail network of 856 outlets, while in the past year it had 991 outlets selling shoes.

In the results of the first quarter of 2014/15 the group also announced that at 31 May it had 709 self-owned outlets in Mainland China, Hong Kong and Macau.

There are 147 franchised outlets in Mainland China but none in the Chinese Special Administrative Regions of Macau and Hong Kong.

The company, founded in 1977

by Lee Tze Bun Marces, operates in two segments: retail and export.

8

June 10, 2014

Macau

100,000 expected to march for democracy

O

ne hundred thousand people are expected to participate in this year’s demonstration in support of democracy on 1st July in Hong Kong, according to the Civil Human Rights Front organisation.

Pro-democracy rallies are held every 1st July as it was on this day in 1997 that the United Kingdom transferred sovereignty to the Hong Kong Special Administrative Region (HKSAR) of the People’s Republic of China.

The Civil Human Rights Front says this is a critical year for Hong Kong because of political reform. In their opinion, only a high turnout can ensure that the people’s desire for true democracy registers with the government in Beijing, Radio Television Hong Kong has reported.

This demonstration is considered so important for the democratic

movement in Hong Kong that they have called on supporters of democracy to put their differences aside and unite in order to fight for the implementation of universal suffrage in the region.

The goal of the democratic movement in Hong Kong is to guarantee that the candidates for the position of Chief Executive of the SAR are chosen through universal suffrage by 2017.

This year’s demonstration will also demand that candidates for the position of Chief Executive of the SAR are chosen by universal suffrage in order to avoid direct nomination to the post by the Election Committee. Direct elections for the Legislative Council of Hong Kong by 2020 are also one of the declared goals of the pro-democracy movement.

Okay to sell real estate online A new business model based on online operation has made it possible for a small real estate agency to more than triple year-onyear revenue in the first quarter of

the year, South China Morning Post reports.

As an online property agency, Okay is able to save money on rental expenses and consequently offer

higher commissions to its staff, even in a time when the market is cooling.

“We run the firm differently. We use technology to change the cost structure of what it means to be an agency,” Okay Chief Executive Joshua Han Miller told South China Morning Post.

Okay shares the office with real estate Asia Pacific Properties but has no other retail outlets. In order for clients to communicate with its agents, the company offers the latter tablet computers.

“It’s a more efficient way to cut costs. We don’t need attractive retail stores to attract customers,” Miller claims.

The Chief Executive Officer of Okay also conceded that by saving money from rentals it can be invested in attracting better agents as their commissions start at 50 percent. In 2013, the Hong Kong-based company achieved a 120 percent growth in comparison to the year before.

M&S seeking partner to storm Mainland China

M

arks and Spencer (M&S) is seeking a partner in China with excellent local experience and expertise in a concerted bid to help accelerate its growth across the country. Following the successful joint venture the British supermarket chain Tesco enjoys in China, M&S might consider closing up to five stores in second or third-tier cities in order to focus on opening in major metropolises like Guangzhou.

Managing director of the UK-based retailer Stephen Rayfield notes that Hong Kong and Shanghai returned an excellent sales performance last year. In addition, M&S will soon open its first store in the territory to expand its food store business in Hong Kong and Macau.

9

June 10, 2014

Greater China

Traders bet on banks amid economic revival Hong Kong-traded shares of the largest state-controlled banks climbed an average of 7.6 percent in May

O

ptions traders are turning bullish on China’s biggest lenders, betting that a revival in Asia’s largest economy and government growth measures will lift the shares from near record-low valuations.

Calls with an exercise price 10 percent above Industrial & Commercial Bank of China Ltd., the nation’s biggest lender, cost 3.7 points more than puts betting on a 10 percent slide at the end of last week, according to three-month options data compiled by Bloomberg. The

ratio jumped to 4.3 on June 5, the highest since March 2012. The measure for China Construction Bank Corp., the second-largest lender, climbed to 3.7 on June 4, the highest since April 2011.

Hong Kong-traded shares of the largest state-controlled banks, known as the Big Four, climbed an average of 7.6 percent in May as policy makers said they would cut reserve ratios for some lenders and the central bank ordered mortgage loans to be expedited after housing prices slumped.

Even after the rally, ICBC,

China Construction Bank, Agricultural Bank of China Ltd. and Bank of China Ltd. are trading at an average of 5.3 times trailing earnings, compared with a multiple of 11.5 for the 167- member Bloomberg World Banks Index.

“There’s unjustified extreme pessimism on Chinese banks,” Nader Naeimi, Sydney-based head of dynamic asset allocation at AMP Capital Investors Ltd., which manages US$131 billion, said by phone on June 3. “All the bad news for Chinese banks has already

been baked into the price.

While non-performing loans have been rising as a result of the slowdown, the economy is stabilizing and will likely pick up in the second half.”

Chinese manufacturing expanded at the fastest pace in five months in May, adding to signs of recovery in the world’s second-largest economy. Exports rose more last month than economists had estimated, a report showed on Sunday.

Lending boost The China Banking Regulatory Commission on June 6 vowed to expand loans and cap borrowing costs, seeking to boost liquidity to the real economy by giving banks more capacity to lend.

Reserve-ratio cuts for some rural lenders were announced in April. The cabinet has also pledged to speed spending for infrastructure projects, including railways.

“For long-term investors, it may be a good proposition

to start nibbling at Chinese banks,” Pauline Dan, who helps manage US$153 billion as the Hong Kong-based head of greater China equities at Pictet Asset Management Ltd., said by phone on June 3. “Should the government decide to trim the reserve ratio requirements for Chinese banks in a wider scale, that would be a good catalyst.”

The stimulus measures come as Premier Li Keqiang seeks to meet an official expansion target of about 7.5 percent this year. China’s economy is projected to grow 7.3 percent this year, which would be the weakest pace since 1990, according to a survey of analysts in May.

Housing slump Mainland home prices in May posted their first monthly drop since June 2012, according to SouFun Holdings Ltd., a real estate website operator. A slump in the sector threatens to limit any economic rebound and pressure policy makers to do more, with the People’s Bank of China last month ordering the nation’s biggest lenders to speed mortgage approvals.

While non-performing loans at Chinese banks have increased for 10 straight quarters to the most since September 2008, they accounted for only 1 percent of total loans at the end of March, compared with an average of 4.8 percent in the previous decade, China Banking Regulatory Commission data show.

Bloomberg News

Non-performing loans have been rising as a result of the slowdown, the economy is stabilizing and will likely pick up in the second half Beijing’s financial street hosts almost every main bank’s headquarters in the country

Huawei contract deepens relations with Russia Russian companies have boosted ties with China after the U.S. and European Union imposed sanctions on the country to punish it for annexing the Crimean peninsula

O

AO MegaFon, Russia’s secondlargest wireless operator, agreed to buy at least US$600 million of equipment from Huawei Technologies Co. at a time when ties between Russian and Chinese companies are strengthening.

MegaFon chose China’s largest maker of network products for a seven-year contract to speed mobile networks in several Russian territories, Chief Strategy Officer Alexander Bashmakov said in a phone interview.

The deal, including software and maintenance, is worth “dozens of billion rubles,” he said.

Russia companies have boosted ties to China after the U.S. and European Union imposed sanctions on the

country to punish it for annexing the Crimean peninsula from Ukraine.

OAO Gazprom, Russia’s biggest company, signed a US$400 billion deal last month to ship gas to China.

“Huawei is one of the technological leaders in 4G equipment,” Bashmakov said. “They are leading in the number of signed contracts with operators. The Russian market is very competitive in equipment prices, unlike the U.S. where supplies of Chinese equipment are limited.”

MegaFon based its choice of Shenzen, China-based Huawei on financial and technological factors rather than politics, Bashmakov said.

MegaFon, controlled by Russia’s richest man Alisher Usmanov and part-owned

by TeliaSonera AB, will use a credit line from China Development Bank to fund the purchases.

President Vladimir Putin is turning eastward as the U.S. and EU sanctions batter the Russian economy. Putin visited China last month to strengthen ties with the country, Russia’s largest trading partner, after two-way trade surged sevenfold in the past decade to about US$94 billion last year.

On May 20, a unit of Usmanov’s mining company Metalloinvest Holding Co. announced a strategic cooperation agreement with China’s Hopu Investment Management Co., saying they plan a joint development of a copper deposit.

Bloomberg News

US$600 million contract value between Huawei and MegaFon

10

June 10, 2014

Greater China Home prices to fall China home prices will fall this year as developers cut prices to meet sales targets amid a cooling property market, Standard & Poor’s said. Home prices will fall 5 percent this year compared with an 11.5 percent gain in 2013, the New York-based ratings company said in an e-mailed report today. Sales volume will improve in the second half of the year and rise 10 percent for the full year, boosted by price cuts, according to the report.

India and China closer than The past year has witnessed the most frequent high-level exchanges and India in nearly 60 years

Investment talks with U.S. The 13th round of negotiations over an investment treaty between China and the United States began in Beijing yesterday, China’s Ministry of Commerce said. The two sides will step up discussions about “core issues of the texts” during the five-day negotiations, the ministry said in a short statement on its website. The statement did not give details. Talks over the treaty began in 2008. The two sides held the 12th round of talks in Washington between March 4 and 8 this year.

Better cooperation with Central, Eastern Europe China will beef up cooperation with countries in Central and Eastern Europe (CEE), according to a ministerial meeting that concluded yesterday in east China.

China will boost exchanges with the 16 CEE countries in a variety of fields, including human resources, infrastructure and investment, Gao Hucheng, China’s Minister of Commerce, said at the meeting that focused on economic and trade promotion in the city of Ningbo, east China’s Zhejiang Province. In a step toward more mutual understanding and higher levels of economic cooperation, Gao said that the country will have more exchanges with the CEE countries.

Top COSCO executive expelled for graft Communist Party has expelled a former COSCO Holdings executive for taking advantage of his position and claiming expenses for personal items, the party’s anti-graft watchdog said yesterday. The expulsion of Xu Minjie, who up to last November was an executive director at China’s largest bulk shipping company, comes as China intensifies its efforts to crack down on graft in a government widely regarded as rife with corruption. The party said it had now referred the matter to the relevant judicial bodies.

Indian Minister for External Affairs Sushma Swaraj (R), shakes hand with Chinese Foreign Affairs Minister Wang Yi (L), during a meeting in New Delhi, India, 08 June 2014

I

ndian President Pranab Mukherjee said yesterday that India will continue to develop relations of strategic partnership with China.

In his address to the joint sitting of Parliament, the Indian president first named China as the country that India will develop close ties with. He also said India will further develop ties with Japan, Russia and the United States.

More than one year ago, Chinese Premier Li Keqiang chose India as his first overseas destination since taking office.

Now, less than two weeks after a new government takes office in New Delhi, China sent Foreign Minister Wang Yi as special envoy to India where he held “productive and substantive” talks with Indian officials.

In fact, the past year has witnessed the most frequent high-level exchanges between China and India in nearly 60 years because they clear know

that mutual benefits and common development can only be achieved through building a strategic cooperative partnership, instead of rivalry.

China and India are two important forces that are on the ascendancy in the process of global multi-polarization.

Their ties are a bilateral relationship with great dynamics and potentials in the 21st century.

Politically, the two countries pledged to maintain the momentum of exchange of high-level visits, strengthen strategic coordination on bilateral relations and work out strategic plans, in order to give guidelines to the development of bilateral relations.

Wang’s trip, with aims to cement the existing friendship and explore further cooperation between China and India, is expected to pave the way for a visit by Chinese President Xi Jinping to India later this year.

Wang, who visited India after the

PetroChina plant revamp delay slows imports Once the revamp at the Guangxi plant is completed, the refinery will be able to take 100,000 barrels of Saudi oil a day

Egypt calls for more Chinese investment Newly inaugurated Egyptian President Abdel-Fattah el-Sisi said that his country welcomes more investment and continued assistance from China. The Egyptian leader made the remarks while meeting with China’s Industry and Information Technology Minister Miao Wei, who was sent to attend Sisi’s inauguration ceremony as the envoy of Chinese President Xi Jinping. Both Egypt and China are ancient civilizations, and enjoy sincere friendship, said the president, adding that the two countries also have huge potential for cooperation. He also welcomes more Chinese companies to invest in Egypt, and hopes China can continue to support his country.

Indian new government was sworn in, said the China-India relations are facing a new start and new opportunities, adding that he came to India to emphasize that China welcomes, supports and wishes for India’s development.

“Being ancient Eastern civilizations at similar development stages, China and India are both pursuing the great dream of national renewal, dreams that are interconnected and mutually compatible,” Wang told Indian paper The Hindu.

Based on such similarity, for China and India, with a combined population that accounts for nearly 40 percent of the world’s total, much is to be expected from their pragmatic cooperation.

The mutual complementarity of the two economies provides great potential for China and India, one being a global manufacturer and the other a major service provider, to jointly

The landmark of Dongzhimen. The headquarters of PetroChina in Beijing

R

evamping a PetroChina subsidiary refinery to process sour crude is taking months longer than expected, cutting the

firm’s crude oil purchases from Saudi Arabia, two industry sources said.

PetroChina Guangxi Petrochemical, which operates

a 200,000-bpd refinery in the southern coastal city of Qinzhou, was earlier expected to finish a retooling programme by around April to start processing highsulphur Saudi oil, but that is being delayed until August at the earliest, the sources said.

That, together with another PetroChina plant which switched to Russian from Saudi oil from January this year, contributed to a surprise 13-percent fall in China’s Saudi crude oil imports for the JanuaryApril period.

Traders had in early 2014 expected Saudi Arabia, China’s top crude supplier, to ship in steady volumes of oil to Chinese buyers this year, as they did last year.

Once the revamp at the Guangxi plant is completed, the refinery will

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June 10, 2014

Greater China

ever

Reforms favour stock pickers over index trackers

www between China boost cooperation in bilateral trade, investment, financial services and new and high technologies.

Besides, both being members of the BRICS (namely, Brazil, Russia, India, China and South Africa) and emerging economies, China and India can cooperate and coordinate closely within regional and global frameworks.

The two countries are also expected to grasp the opportunity of celebrating the 60th anniversary of the declaration of the Five Principles of Peaceful Co-existence and the Year of Friendly Exchanges to deepen bilatera exchanges.

Therefore, at such good momentum of bilateral relations, it is widely believed that China and India can put aside their differences on such thorny issues as border disputes to make sure they will not hinder the partnership and friendship between the two countries, which will be conducive to world and regional peace and stability.

Xinhua

Being ancient Eastern civilizations at similar development stages, China and India are both pursuing the great dream of national renewal, dreams that are interconnected and mutually compatible Wang Yi China’s Foreign Minister

be able to take 100,000 barrels of Saudi oil a day, said one trading official with direct knowledge of the supply situation. He declined to be named as he is not authorised to speak with media.

“Looks like the Guangxi plant will only be able to start loading Saudi oil towards the late part of the third quarter,” said the trading source.

“It’s hoped that (Saudi) supplies will catch up in the later months of the year.”

The Guangxi plant delay could still result in an overall fall in China’s Saudi crude imports for the whole of 2014, despite small incremental requirements from a separate Chinese refinery, the newly-started Quanzhou plant in south-eastern Fujian province run by state-run Sinochem, said the source.

From this January, PetroChina’s Dalian Petrochemical Corp, a subsidiary refinery in the northeast port city Dalian, started to take more Russian crude, pumped in via the East Siberia-Pacific Ocean (ESPO) pipeline, replacing some 100,000 bpd of Saudi supplies, officials said.

Reuters

ETFs have grown to manage over US$2 trillion as a majority of actively managed funds in the mature Western markets are failing to beat their benchmarks

C

ontrary to trends in the West, actively managed stock funds in China are set to become more popular with foreign investors, as moves to open up Chinese markets should give stock pickers an edge over poor performing index trackers.

Looking for a way into the world’s second biggest economy, but intimidated by capital controls and strict investment quotas, investors have been piling billions of dollars into index trackers like synthetic exchange traded funds (ETF) that use derivatives to bet on mainland shares.

As access becomes easier thanks to reforms, including higher investment quotas and initiatives taken between the Shanghai and Hong Kong bourses to ease investment on each other’s exchanges, that is about to change.

“As Chinese onshore equity markets open up to foreign investors, index tracking funds or ETFs on onshore Chinese equities may lose some favour,” said Jackie Choy, ETF strategist for fund tracker Morningstar Asia.

Globally, ETFs have grown to manage over US$2 trillion as a majority of actively managed funds in the mature Western markets are failing to beat their benchmarks. Seven of every ten equity funds investing in the U.S. equities have lagged the total gains in the S&P 500 index over the last five years, Lipper data shows.

China, however, because of the constraints on foreign investment, is the only ‘big four’ emerging market, or BRIC, that has an index tracker as its biggest equity fund.

About US$30 billion or 40 percent of the money managed by China offshore equity funds is invested in index trackers. By comparison, only about 17 percent of assets under management of offshore

Hong Kong Stock Exchange

There are more investment landmines and frauds (in China), which you don’t see as much in developed markets Anthony Tse Pangu Capital, chief executive

Yet, many investors lost money using China index trackers despite years of economic boom producing some of the world’s fastest growing companies.

While the MSCI China Index has fallen 40 percent since its launch in 1992, China’s nominal GDP has surged 19 times during the period, according to Datastream.

“Stock picking in China is important,” said Anthony Tse, chief executive of Hong Kong-based hedge fund Pangu Capital.

“There are more investment landmines and frauds (in China), which you don’t see as much in developed markets,” said Tse, whose hedge fund has gained 19 percent since its launch on March 1 last year. During the same period the MSCI China Index rose a measly 0.9 percent.

Reuters

Green cars component makers compete for market The country will also take six million high-emission cars off the road this year

G

lobal companies that specialise in making vehicle emissions cleaner are rushing to take advantage of Beijing’s war on pollution, as Chinese automakers look to comply with tougher regulations in the world’s biggest auto market.

Firms from Bill Gates-backed startup EcoMotors Inc to Faurecia SA, a parts supplier controlled by French giant Peugeot SA, are jostling to help automakers meet new diesel emission rules taking effect in January, despite concerns the standards may not be strictly enforced.

“Generally speaking, we will benefit from higher emission standards in China as they will further spur our business growth,” said Liu Xiaoxing, China vice president of Cummins Inc., a U.S. diesel engine maker that partners with Faurecia and counts China as its biggest and fastest-growing market.

Pollution has reached crisis levels in China after decades of growth-atall-costs, contributing to hundreds of

An electric car charging batteries

thousands of deaths a year and sowing the seeds of social unrest. Automobiles are chiefly responsible for China’s foul air, according to the country’s environment watchdog.

Among other measures to tackle the problem, from next year China will adopt a new set of diesel emissions regulations aimed at eliminating mainly trucks and lorries that produce high levels of harmful substances such as

nitrogen oxides, carbon monoxide and particulate matter.

The country will also take six million high-emission cars off the road this year, and is drafting regulations aimed at slashing fuel consumption by passenger vehicles.

“Foreign component makers will benefit most from the stricter emissions standards over the long term, as they have more advanced technology than Chinese suppliers,” said Li Jia, an analyst at consultancy IHS Automotive.

Leading component suppliers that can help Chinese automakers cut emissions include Continental AG, Robert Bosch GmbH, Denso Corp, Tenneco Inc and Faurecia, Swiss private bank Bank J. Safra Sarasin Ltd said in a report on June 3.

The technologies they bring to the table include exhaust treatment systems, turbo chargers, direct injection mechanisms and powertrain controls.

Reuters

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June 10, 2014

Asia

Hyundai to sell stake in logistics unit The firm has raised 1.91 trillion won from selling assets, including the sale of its liquefied natural gas shipping operations

T

he South Korean conglomerate is planning to raise 3.3 trillion won (US$3.2 billion) from asset sales to ease a cash crunch.

Hyundai is in talks to sell a stake in its logistics unit to Orix Corp. in Japan.

The details, the price and how the stake will be sold are still under discussion, group spokesman Lee Jun Ki said. Hyundai Group, one of South Korea’s so-called chaebols, will sell part of its stake in Hyundai Logistics for 650 billion won to a specialpurpose company that will be formed

by Hyundai Merchant Marine Co. and Orix, Seoul Economic Daily said, citing unidentified industry officials.

Prime Minister Abe holds a press conference after the G7 Summit last week

Japan’s growth beats forecasts Economy grew an annualised 6.7 percent in the first quarter

F

irst quarter growth handily beat initial estimates on an unexpected surge in capital spending, fresh signs the world’s thirdbiggest economy is in better shape to weather a hit to consumption from a sales tax hike. Adding to the optimism, current account data showed foreign visitors spent more money than Japanese travelling abroad for the first time in 44 years, boding well for Japanese companies in the retail and tourism industry.

The positive figures underscore the Bank of Japan’s view the economy will recover moderately led by domestic demand, with growing evidence of an uptick in business investment a particularly pleasing result for policy makers.

“Companies don’t tend to ramp up spending ahead of the sales tax hike, so the increase likely reflects improvements in corporate profits and diminishing slack,” said Mitsumaru Kumagai, chief economist at Daiwa Institute of Research.

Japan’s economy grew an annualised 6.7 percent in the first quarter, data showed yesterday, up sharply from an initial reading of a 5.9 percent rise, and confirmed the fastest pace of growth since JulySeptember 2011. The data beat the median market forecast for GDP to rise 5.6 percent.

The upward revision was largely due to a recalculation in capital expenditure that took into account

finance ministry data showing a solid increase in spending.

Corporate capital spending raised 7.6 percent, up from a preliminary 4.9 percent increase, an encouraging sign for Prime Minister Shinzo Abe who is keen for companies to spend more of their cash piles to drive a sustainable economic recovery. On a quarterly basis, the economy grew 1.6 percent in January-March, up from a preliminary 1.5 percent expansion.

It compared with a median market forecast for a 1.4 percent rise.

KEY POINTS Q1 GDP revised annualised +6.7 pct vs initial +5.9 pct Capex revised up to +7.6 pct vs preliminary +4.9 pct Travel balance turns to surplus, 1st time since 1970

US$3.2 billion expected assets sales value

Some analysts warn of uncertainty ahead as companies start to feel the pinch from an increase in the sales tax to 8 percent from 5 percent in April.

“A surge in domestic demand helped Japan achieve high growth in January-March. But a reactionary slump is inevitable, which means the economy will contract in April-June,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

Moreover, analysts say weak factory output and household spending falling at the fastest pace in three years in April point to the tax hike’s chilling effect on consumer spending.

Still, there are signs the economy will overcome the temporary dips in growth.

Under its “qualitative and quantitative easing” programme launched in April last year, the BOJ has been aggressively pumping money into markets on hope that banks will lend more to companies, which will then boost wages and capital spending.

Bank lending rose 2.3 percent in May from a year earlier, increasing for the 31st straight month and growing at a faster pace than 2.1 percent in April, BOJ data showed yesterday.

There was little market reaction to the GDP data. “The market is more focused on data pertaining to inflation and its possible impact on the Bank of Japan’s monetary policy,” said Shinichiro Kadota, chief Japan FX strategist at Barclays in Tokyo.

The group is selling its entire stake in Hyundai Securities Co., properties and businesses as a slump in the global shipping industry has caused its main Hyundai Merchant Marine unit to struggle to repay maturing debt. The shipping line made losses for a third straight year in 2013.

Hyundai Group has raised 1.91 trillion won from selling assets, including the sale of its liquefied natural gas shipping operations. Orix expressed interest in buying Hyundai Securities and its two financial units, Yonhap News Agency reported on May 30.

Hyundai Group may raise about 300 billion won from selling the Hyundai Logistics stake, and the group will have managerial rights to the unit after the sale, the Seoul Economic Daily reported.

Hyundai Merchant owned 47.7 percent of Hyundai Logistics at the end of March and Hyundai Global Co. 24.4 percent, according to its financial statement. Group Chairwoman Hyun Jeong Eun has 12 percent of the logistics unit.

Hyundai Group was founded in 1947

by Chung Ju Yung. Hyundai Motor Group was spun off in 2000 amid efforts to reduce the power of the chaebol business groups. Hyundai Heavy Industries Group separated in 2002 while a department store unit left in 1999.

Reuters

Bloomberg News

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June 10, 2014

Asia Rajan’s rupee backed by exporters Indian exporters say the rupee’s world-beating rally from a record low is positive because the currency has stabilized at a relatively weak level.

Rajesh Exports Ltd., India’s largest maker of gold jewellery, estimates only an advance past 50 per dollar, a level last seen in March 2012, will hurt shipments. The rupee at 59.0325 per dollar today traded 5 percent weaker than its three-year average.

It surged almost 17 percent from an unprecedented 68.845 on Aug. 28 after the central bank raised interest rates and curbed gold imports.

Japan consumer mood rises in May Consumer confidence rose for the first time in six months in May, a Cabinet Office survey showed yesterday, suggesting the impact on sentiment from the April sales tax hike could be short-lived. The survey’s sentiment index for general households, which includes views on incomes and jobs, was 39.3 in May, up from 37.0 in April.

The survey began in 1982. “General households” are those with two or more people.

Indonesian rupiah rally reversed The fading political fortunes of Indonesia’s leading pro-reform presidential candidate have turned the rupiah from a world-beater into a laggard on speculation the nation will struggle to achieve lasting improvements to its trade balance.

After soaring 7.1 percent in the first quarter, the currency has slumped 3.7 percent against the dollar, the worst performance among 31 major peers.

While surveys of strategists point to gains by year-end, bears are emerging, with banks from ABN Amro Bank NV to Morgan Stanley predicting a decline to levels beyond 12,000 per dollar.

N.Z. wholesale trade sales drop New Zealand’s wholesale trade sales slipped by 0.4 percent in the quarter to the end of March following a rise of 2.3 percent the previous quarter, the government statistics agency announced yesterday. The two largest sales movements saw machinery and equipment wholesaling drop by 217 million NZ dollars (US$184.71 million), or 4.8 percent, and basic materials wholesaling rise by 231 million NZ dollars (US$196.63 million), or 4.8 percent. The trend for total wholesale trade sales had generally been increasing since the September 2009 quarter.

JPMorgan names M&A head JPMorgan Chase & Co. named Rohit Chatterji to lead mergers and acquisitions for Asia excluding Japan as Rob Sivitilli resigned from the post after 18 years at the biggest U.S. bank. Sivitilli will leave the industry and relocate to Florida to be closer with his family, according to a memo obtained

by Bloomberg News. Chatterji, who was most recently co-head of banking in India, will move to Singapore to take up his new role, the document showed.

Marie Cheung, a spokeswoman for JPMorgan in Hong Kong, confirmed the contents of the memo.

Malaysia to ease economic rules Foreign firms will be allowed, effective immediately, to fully own unit-trust management companies in Malaysia

P

rime Minister Najib Razak announced steps to liberalize the country’s financial sector yesterday, removing barriers faced by foreign-owned fund managers and easing ratings requirements for the corporate bond market.

Najib, speaking at an investment conference in Kuala Lumpur, said the moves were aimed at boosting investment and encouraging a “stable and inclusive” financial system as the country aims to reach developed nation status by 2020.

He said foreign firms will be allowed, effective immediately, to fully own unit-trust management companies in Malaysia - a move market players said would give foreign fund managers much broader access to the country’s retail investors.

“There will be no barrier to entry for new foreign unit-trust management companies coming into Malaysia,” Najib said.

He also announced that beginning in 2017, it will no longer be mandatory for Malaysian companies to get credit ratings on corporate bonds they issue.

“This will broaden the corporate bond market, and enable investors to further diversify their portfolios,” Najib said.

In addition, Najib said that international credit rating agencies with full foreign ownership would be allowed to operate in the Malaysian market from January 2017.

Removal of the mandatory requirement for corporate bond credit ratings is expected to stimulate more issuance in the bond market, said Yeah Kim Leng, dean of the business school at Malaysia University of Science and Technology.

“The move is a signal that the capital market in Malaysia has reached a maturity stage where bond investors are sophisticated enough to make their own investment assessment and decisions (rather) than relying on the corporate rating agencies,” he said.

Malaysia’s Prime Minister Najib Razak

The removal of restrictions on foreign-owned fund managers means they will now be able to market funds to retail investors in the Southeast Asian nation of 29 million people, said Gerald Ambrose, a fund manager at Aberdeen Asset Management in Kuala Lumpur.

Until now, they have only been able to sell wholesale funds to Malaysians with a net worth of more than 3 million ringgit (US$935,000) “Foreign fund managers can manage conventional unit trusts now, which is a massive step. We’ve been pushing for that for a long time,” Ambrose said.

Najib said the new steps were integral to Malaysia’s goal of developing its economy to achieve developed-world status by 2020, with a projected income per head of US$15,000.

KEY POINTS Foreign fund managers get broad access to retail investors Requirement for corporatebond ratings to end in 2017 Foreign rating agencies to be allowed to operate Najib says liberalization steps in line with development goals

Reuters

Kim Dotcom offers US$5m ‘bounty’ in piracy case He told tech news website TorrentFreak.com that the multi-million dollar offer was aimed at helping him prove allegation

I

nternet mogul Kim Dotcom said yesterday he was offering a US$5 million “bounty” to whistle-blowers for information to help fight an online piracy case brought by the United States.

The Megaupload founder, who is resisting extradition from New Zealand, said he had to resort to offering the money because the deck was stacked against him in one of the largest copyright infringement cases ever brought.

“My case is unfair,” the German national tweeted. “I was declined discovery, I didn’t get my own data back, I need whistle-blowers I am offering US$5M.” Dotcom, whose Megaupload empire was shut down in January 2012, has long argued that US authorities, aided by close ally Wellington, illegally targeted him at the behest of Hollywood studios.

He told tech news website TorrentFreak.com that the multimillion dollar offer was aimed at

helping him prove that allegation.

“We are asking for information that proves unlawful or corrupt conduct by the US government, the New Zealand government, spy agencies, law enforcement and Hollywood,” he said.

“It is the opinion of my legal team that disclosure of such information would be lawful. I would also

I was declined discovery, I didn’t get my own data back, I need whistle-blowers I am offering US$5M Kim Dotcom Megaupload founder

guarantee any whistle-blower coming forward would have the best legal representation at zero cost.”

Dotcom’s extradition hearing is scheduled to begin in Auckland on July 7, although it has already been delayed several times amid legal wrangling over evidence disclosure.

If the 40-year-old and his three coaccused are sent to the United States they will face charges of racketeering, money laundering and copyright theft carrying potential jail terms of 20 years. Dotcom has launched a new venture called Mega while on bail.

The US Justice Department and FBI claim Megaupload and related sites netted more than US$175 million in criminal proceeds, and cost copyright owners more than US$500 million by offering pirated copies of movies, TV shows and other content.

Major music labels and the film industry in the US have also filed lawsuits against the file-sharing site.

AFP

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June 10, 2014

International Eurozone Sentix index unexpectedly falls Sentiment in the euro zone unexpectedly fell in June with investors unimpressed by the European Central Bank’s package of measures to kick-start growth, the Sentix index survey showed yesterday.

Sentix research group said its index tracking morale among investors in the euro zone indicated investors were more pessimistic than a month ago about the economic situation now and for the next six months. The index fell for a second consecutive month to 8.5 in June, its lowest since December 2013.

Recession risk rising in South Africa The 20-week strike is hammering the economy at a time when global growth is set to reach its strongest level in three years

Bulgaria has not given up on gas pipeline Bulgaria has not given up plans to build the South Stream pipeline delivering Russian natural gas to Europe and sees the Gazprom-led project as irreversible, Energy Minister Dragomir Stoynev said yesterday. Bulgaria said on Sunday it had halted work on the pipeline after the European Union and United States expressed concerns about the project. Designed to bypass Ukraine, the pipeline has inflamed tensions between the EU and Russia after Brussels asked Sofia last week to suspend work pending a decision on whether it complies with EU law.

Lloyds prices TSB below value Britain’s Lloyds Banking Group has priced the stock market listing of its TSB business at below book value, aiming to attract investors amid a flurry of new issues and make progress on a muchdelayed, costly sale. Lloyds, 25 percentowned by the government, is obliged

by European competition regulators to sell the 631 branches which now form TSB as a condition for their approval of state aid received by the bank during the financial crisis five years ago.

Data become time bomb for firms With hackers stealing tens of millions of customer details in recent months, firms across the globe are racketing up IT security and nervously wondering which of them is next. Last week, Reuters revealed a host of big name U.S. Fortune 500 companies were on a hiring spree for board level cyber security experts often offering US$500,000700,000 a year, sometimes more.

Credit Suisse mulls selling unit Switzerland’s second-biggest bank, is considering selling additional stakes in an electronic interest-rates trading unit it set up last year, according to a person briefed on the plan. The electronic platform, Wake USA LLC, is a joint venture with high-frequency trading firm Tower Research Capital LLC for U.S. Treasuries and other fixed-income products, according to a regulatory filing showing that the unit gained approval to operate earlier this year. Credit Suisse is in the process of moving clients over to that unit and may sell part of its majority stake to reduce capital requirements.

a second consecutive quarter of contraction,” Jana le Roux, an economist at ETM Analytics in Johannesburg, said by phone on June 6. “The tone of the Reserve Bank’s communication makes it clear that the bank is worried about the outlook for economic growth.”

Rand slump Forward-rate agreements starting in nine months, used to lock in borrowing costs, have dropped 17 basis points since the beginning of May to 6.73 percent, compared with a 34 basispoint decline in emerging-market peer Turkey, which cut borrowing costs by 50 basis points last month. The rand has weakened 2.6 percent against the dollar since strengthening to its 2014 high on May 14, the biggest loss among 16 major currencies tracked

by Bloomberg.

The Reserve Bank has kept its benchmark interest rate unchanged since raising it by half a percentage point to 5.5 percent in January. Marcus said on May 22 that inflation will probably exceed the 6 percent upper limit of the target until the second quarter of 2015, while the economy will expand 2.1 percent, less than a previous estimate of 2.6 percent.

The world economy is forecast by the International Monetary Fund to grow 3.6 percent this year, up from 3 percent in 2013.

‘Muddle through’ South African President Jacob Zuma, who was admitted to hospital for tests on 07 June 2014, was advised to have a few days off from public appearances

C

oncern is deepening that South Africa’s economy is headed for its second recession in five years as the nation’s longest mining strike upends manufacturing.

A government report due tomorrow will show that output, representing about 15 percent of gross domestic product, fell 3.9 percent in April from a year ago, after expanding 0.7 percent in the previous month, according to the median estimate of 15 economists surveyed by Bloomberg.

Mining probably shrank for a third straight month, declining 7.5 percent, a separate survey showed.

The 20-week strike that has shut the world’s biggest platinum mines is hammering the economy at a time when global growth is set to reach its strongest level in three years, leaving South Africa vulnerable to credit-rating downgrades. The economy contracted an annualized 0.6 percent in the three months through March and a further slump may prompt Reserve Bank Governor Gill Marcus to hold off raising interest rates even as inflation exceeds her 3 percent to 6 percent target range.

“All the factors in the economy indicate the risk is overwhelmingly toward lower growth and possibly

The strike by about 70,000 workers at mines owned by Anglo American Platinum Holdings Ltd., Lonmin Plc and Impala Platinum Holdings Ltd. caused mining output to plunge almost 25 percent in the first quarter. That affected production in manufacturing industries including petroleum, chemicals and iron ore.

“Even though things are getting better for the U.S. and Europe, South Africa continues to muddle through,” Christie Viljoen, an economist at NKC Independent Economists in Paarl, near Cape Town, said by phone on June 6. “Five years ago it was a different case, it was an external thing and it was out of our hands. But what is currently happening is South African workers and a South African union.

It is something we created ourselves.”

Bloomberg News

Nigeria to channel pension into corporate bonds New rules are being considered to encourage more investments in corporate bonds

G

overnment plans to amend investment rules to channel more of the country’s US$26 billion of pension funds into corporate bonds, Nigeria Pension Commission Director- General Chinelo AnohuAmazu said.

Pension administrators, including Stanbic IBTC Pension Managers Ltd. and ARM Pension Managers Ltd., are currently investing only 2 percent of funds in corporate debt, well below a 35 percent limit, according to data released by the commission also known as Pencom. This compares with 65 percent invested in federal and state government bonds and 13 percent in equities.

New rules are being considered to encourage more investments in corporate bonds, thereby making long-term capital available to fund infrastructure projects, Anohu-Amazu said in a June 5 interview in the capital, Abuja. “We have a huge amount

which can go into the development of infrastructure, but what we have now is an under-utilization.”

Africa’s largest economy needs at least US$14 billion annually to bridge its infrastructure gap, according to Finance Minister Ngozi Okonjo-Iweala.

The country of about 170 million people loses at least 2 percent of potential gross domestic product growth annually due the shortfall, mainly in power and transportation, according to the minister. Its economy is estimated to expand 6.75 percent this year.

A major slice of pension assets are now in government bonds, the “safest place,” according to AnohuAmazu. With an average growth rate of 30 percent over the last four years, pension funds are seeking new investment options in equities and other outlets that are safe and offer higher returns.

Nigeria increased the limit for

Nigeria’s Finance Minister Ngozi Okonjo-Iweala

pension funds’ investment in equities to 50 percent from 25 percent of assets in November 2012 to help boost trading in stocks. As an additional investment outlet, infrastructure funds could take as much as 15 percent of pension assets, Pencom said at the time.

Bloomberg News

15

June 10, 2014

Opinion Business

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The 4% non-solution

Leading reports from Asia’s best business newspapers

THE STAR

Kenneth Rogoff

Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003

Local steel millers will seek help from the Government to file trade remedy measures over alleged “unfair trade practices” of some Chinese steel manufacturers. These manufacturers had allegedly exploited the loopholes in the China tax structure to take advantage of an export rebate of 9% to 13% by declaring their exports to Malaysia as alloy instead of steel. According to Malaysia Iron and Steel Federation (Misif) president Datuk Soh Thian Lai, many of the steel wire rods imported by Malaysia from China had only 0.0008% alloy contents and were declared as alloy steel.

THE ASAHI SHIMBUN A joint venture of two utilities is building an advanced coal-fired power plant here that could feasibly reduce carbon dioxide (CO2) emissions by nearly 100 percent. Osaki CoolGen Corp., set up by Chugoku Electric Power Co. and Electric Power Development Co. (J-Power), will use coal gasification and CO2 separation and recovery to cut CO2 emissions by 30 percent compared with emission levels of conventional coal-fired power facilities. If technologies are also used to store the recovered CO2 underground, the CO2 emissions would fall close to zero, the company said.

THE TIMES OF INDIA IBM is the biggest spender on IT contract workforce hiring in India, and the spend is almost double that of the next biggest spenders. The New York-based technology company spends over US$150 million annually to hire contract IT staff, which as per estimates translates to more than 15% of its overall workforce. Accenture, Microsoft and Cisco spend over US$80 million each on maintaining a vast pool of contract workforce, while Cognizant, Oracle and HCL Technologies shell out over US$50 million each to augment their IT staff with contract resources that work as an extended IT team.

THE PHNOM PENH POST The Cambodian Stock Exchange (CSX) has approved Grand Twins International’s (GTI) final submission of IPO documents and issued an official listing date of June 16. “Cambodia Securities Exchange has a great honor to inform the public that Grand Twins International (Cambodia) Plc is approved to be listed on CSX from 16 June, 2014,” it said in a statement. The exchange issued the statement on Friday, nearly a week before GTI had hoped to commence trading on June 12. The new date marks the second time the IPO has been pushed back in as many weeks.

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ARIS – For some time now, there has been concern that central bankers have “run out of bullets.” Having lowered their policy rates to near zero, they have engaged in increasingly extravagant measures such as “quantitative easing” and “forward guidance.” Given the fog cast over real economic activity by the financial crisis, it is difficult to offer a definitive assessment of just how well or badly those measures have worked. But it is clear that there must be a better way to do things.

There is no longer any reason to let the zero bound on nominal interest rates continue to hamper monetary policy. A simple and elegant solution is to phase in a switchover to a fully electronic currency, where paying interest, positive or negative, requires only the push of a button. And with paper money –particularly large-denomination notes– arguably doing more harm than good, currency modernization is long overdue. Using an electronic currency, central banks could continue to stabilize inflation exactly as they do now. (Citigroup’s chief economist, Willem Buiter, has suggested numerous ways to address the constraint of paper currency, but eliminating it is the easiest.)

A second, less elegant idea is to have central banks simply raise their target inflation rates from today’s norm of 2% to a higher but still moderate level of 4%.

The idea of permanently raising inflation targets to 4% was first proposed in an interesting and insightful paper led by IMF chief economist Olivier Blanchard, and has been endorsed by a

number of other academics, including, most recently, Paul Krugman. Unfortunately, the problem of making a smooth and convincing transition to the new target is perhaps insurmountable.

When Blanchard first proposed his idea, I was intrigued but sceptical. Mind you, two years previously, at the outset of the financial crisis, I suggested raising inflation to 4% or more for a period of a few years to deflate the debt overhang and accelerate wage adjustment. But there is a world of difference between temporarily raising inflation to address a crisis and unhinging long-term expectations.

After two decades of telling the public that 2% inflation is Nirvana, central bankers would baffle people were they to announce that they had changed their minds –and not in some minor way, but completely. Just recall the market’s “taper tantrums” in May 2013, when thenFed Chairman Ben Bernanke suggested a far more modest turn in monetary policy. People might well ask why, if central bankers can change their longterm target from 2% to 4%, they could not later decide that it should be 5% or 6%?

Given the likelihood of a confused, mistrustful public, it is hard to find any deep rationale for a 4% target. At least the existing 2% inflation target stands for something, because central bankers can portray it as the moral equivalent of zero. (Most experts believe that a true welfare-based price index would show significantly lower inflation than government inflation statistics indicate, because official data fail to capture the benefits of the

constant flow of new goods into the economy.)

There is an analogy to the problems countries faced when they tried to re-establish the gold standard after World War I. Until the war, money was backed by gold and could be redeemed at a fixed rate.

Though the system was highly vulnerable to bank runs and there was little scope for a monetary stabilization policy, people’s confidence in the

After two decades of telling the public that 2% inflation is Nirvana, central bankers would baffle people were they to announce that they had changed their minds –and not in some minor way, but completely

system enabled it to anchor expectations.

Unfortunately, the system completely collapsed after the war broke out in August 1914. Revenue-desperate combatants were forced to turn to inflation finance. They could not simultaneously debase the currency and back it with gold at a fixed rate.

After the war, as things settled down, governments tried to return to gold, partly as a symbol of a return to normalcy.

But the revived inter-war gold standard ultimately fell apart, in no small part because it was impossible to rebuild public trust. A move by central banks to a long-term 4% inflation target risks triggering the same dynamic.

Fortunately, there is a much better way. Moving to an electronic government currency would not require a destabilizing change in the inflation target. Minor technical issues could easily be ironed out. For example, ordinary citizens could be allowed zerointerest-transactions balances (up to a limit). Presumably, nominal interest rates would move into negative territory only in response to a deep deflationary crisis.

But when such a crisis does occur, central banks could power out of it far more quickly than is possible today. And, as I have argued elsewhere, governments have long been penny-wise and pound-foolish to provide large-denomination notes, given that a large share are used in the underground economy and to finance illegal activities. Moving to a twentyfirst-century currency system would make it far simpler to move to a twenty-first-century central-banking regime as well.

The Project Syndicate 2014

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June 10, 2014

Closing China stops issuing permits for U.S. grains

Indonesia retail sales growth slows

Quarantine authorities in China have stopped issuing permits for the import of distillers dried grains (DDGs) from top exporter the United States due to the presence in some shipments of an unapproved genetically-modified organism (GMO), traders said. Authorities have also asked buyers to re-export earlier shipments that contained MIR 162, a GMO strain developed by Syngenta AG that has not been approved for import by China’s agriculture ministry. Qingdao stopped issuing new permits for shipments last month to any buyers who had still not shipped out any cargoes previously denied entry by quarantine authorities.

Annual retail sales growth slowed in April compared to the previous month due to weakening demand for spare parts, accessories, and recreational goods, a Bank Indonesia survey showed yesterday. Retail sales rose 16.2 percent from April last year, after March had shown a 17.0 percent increase from a year ago following a revision of the data. The survey of 650 retailers in 10 major cities showed expectations that sales will accelerate over the next quarter due to religious holidays, which start next month.

China Mobile to buy stake in Thailand’s True Corp If successful, the deal would mark China Mobile’s first transaction outside of China, Hong Kong and Taiwan in seven years Khettiya Jittapong

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tate-owned China Mobile Ltd is poised to buy an 18 percent stake in Thai telecoms group True Corp valued at around US$581 million, people familiar with the matter said, in Thailand’s first major corporate deal since a coup last month.

True Corp, backed by billionaire Dhanin Chearavanont’s Charoen Pokphand Group, also plans to offer new shares via a rights issue on the basis of seven new shares for 10 existing shares, one of the sources said.

The deal is part of the Thai group’s long-term plan to secure a foreign partner, sources familiar with the matter told Reuters, and underscores Dhanin’s strong political connections in mainland China, the people added.

In 2013, Dhanin’s CP Group emerged as a surprise buyer for HSBC plc’c US$9.4 billion stake

in Ping An Insurance Group Co of China Ltd. CP Group was the first multinational to invest in China’s agri-business in 1979 and it was tasked with helping to modernise China’s farm sector. It also operates Lotus super markets in Shanghai, according to the company’s website.

The crisis has weighed on corporate deal making, with volumes slumping 72 percent from a year ago to US$648 million by end May, according to Thomson Reuters data.

“The deal is unusual given the country is having a political situation like this, “ said Mintra Ratayapas, an analyst at KK Trade Securities. “Some foreign investors voice concerns about the situation in Thailand. But for True, it seems like the buyer is confident about the company thanks to strong connections with Dhanin.”

Struggling at home True has been grappling with a rising debt burden as

it invests in the expansion of its mobile networks to compete with market leader Advanced Info Service and second-ranked Total Access Communication.

True is the only Thailand mobile company without a foreign partner and the new investment is expected to help the company with its planned regional expansion, a source with knowledge of the deal said yesterday.

The plans are subject to True Corp’s board approval, one of the sources said. True shares were suspended earlier yesterday pending an announcement.

Like True, China Mobile been struggling in its domestic market. In April, the world’s biggest carrier by subscribers booked its lowest quarterly profit in five years, as it faced a range of headwinds in its home market.

China Mobile, which had US$69.4 billion in cash and

Local govts face biggest Moscow tempts repayment stress in 2014 Chinese investors

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he pressure on China’s local governments to repay their US$3 trillion debt is the greatest this year when a fifth of loans are due, a senior finance ministry official said, warning that stretched public finances may spark a “crisis”.

China’s cooling economy will further heighten the risk of local governments defaulting on their debt, Vice Finance Minister Wang Baoan was quoted as saying in a statement published on the ministry’s website yesterday.

“The problems of industrial over-capacity and local government debt levels that are rising too fast are the two issues that the central government cares about the most,” Wang said. “The two issues also may bring about a financial crisis.”

China’s local governments have borrowed heavily over the years to power the country’s investmentdriven economy, but rising bad loans and bond defaults have rattled confidence.

Some investors see rising debt levels as a major threat to the world’s second-largest economy, which in 2014 might grow at its weakest pace in 24 years.

Reuters

short-term investments at the end of 2013, is fighting a multi-front battle, as China’s government trials new valueadded taxes that will eat into its profits and reduced connection fees China Mobile charges for other carriers to use its networks.

If successful, the deal would mark China Mobile’s first transaction outside of China, Hong Kong and Taiwan in seven years, according to Thomson Reuters data.

China Mobile also faces challengers in the shape of newly-licensed mobile virtual network operators, who lease network capacity from carriers like China Mobile and sell their own packages to subscribers.

China Mobile is being advised by CICC, while Deutsche Bank is advising True Corp, one of the sources said.

Reuters

Taiwan’s exports point to more weakness

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ussia is looking east for Chinese investors amid souring ties with some Western countries.

During a China tour, officials from Moscow expressed their wishes to cooperate with Chinese enterprises as the Russian capital has planned a number of large-scale infrastructure projects.

Leonid Kostroma, strategy deputy CEO of the Moscow City Investment Agency, told Xinhua recently that Chinese enterprises have rich experience in infrastructure construction and Moscow is willing to cooperate with them.

Projects include a traffic hub, hospitals, schools, industrial parks, gymnasiums and recreation facilities.

They are estimated to be worth billions of U.S. dollars.

To facilitate Chinese investment, Kostroma said the city will roll out a string of preferential measures, including favourable tax rates and streamlined approval procedures.

Moscow is the largest city in Russia and home to more than 12 million people. In 2013, the city attracted some US$44.3 billion in fixed assets investment.

Xinhua

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eported sluggish export growth in May and a surprising decline in imports that suggest demand in its key markets and the global tech sector may not be so solid.

The trade-reliant economy is hoping that recovering growth momentum in the United States and Europe will help to partly counter a slowdown in its biggest trading partner, China.

However, imports, most of which are components used for re-exports, shrank 2.3 percent in May from a year earlier, Taiwan’s finance ministry said on Monday. That was far below the 8.9 percent increase estimated in a Reuters poll of 11 economists.

Exports edged up 1.4 percent in May, missing the average forecast of 4 percent in the poll.

Exports to China in May grew 6.4 percent from a year earlier, but those to the United States -Taiwan’s No.2 export market- inched up 1 percent.

Shipments to Europe rose 5.8 percent, while those to Japan grew 2.6 percent.

Reuters