Macau Business Daily, Jan 13, 2014 by Business Daily

MOP 6.00 Closing editor: Alex Lee Publisher: Paulo A. Azevedo Number 560 Friday June 13, 2014 Year III

Fast Lane

he Taiwan Government has revised its residency criteria for students from Macau and Hong Kong. SAR graduates from Taiwan universities are now in demand. Five years working on the ‘Beautiful Island’ and regular residency qualifies. But the regulations are tightening up for family members. And ‘investment immigrants’ have to cough up another NT$1 million Page 2

Turning on the taps

www.macaubusinessdaily.com

Consumer catch-up The government wants the public’s opinion again. This time, the consultation concerns a new Consumer Protection Law. Macau has changed considerably since the original legislation, particularly with the rise of e-commerce. The objective is to save consumers’ cash PAGE 3

Lavish re-branding

Bank lending increased unexpectedly fast last month. Stimulating measures accelerating the pace of the economy are making money flow. Page 10

Brought to you by

HSI - Movers June 12

Name

Westin Resort Macau in Coloane will be renamed. The Grand Coloane Beach Resort will officially be announced on June 22. The ‘hotel’s distinctive signature as a lavish boutique resort’ in Coloane remains its strongest suit PAGE 6

%Day

Belle International

1.68

China Overseas Land

1.14

Lenovo Group Ltd

1.04

CNOOC Ltd

0.89

Galaxy Entertainm

0.78

BOC Hong Kong Hold

-1.26

China Life Insurance

-1.39

Hang Lung Properties

-1.69

China Mengniu Dairy

-2.93

Industrial & Commerc

-7.06

Source: Bloomberg

Abiogen in Macau

I SSN 2226-8294

Abiogen Pharmaceutical have signed a licensing, distribution and supply deal with an Italian company. Sufferers of debilitating diseases in Greater China will now have access to world-class medicines PAGE 4

Bus business

Brought to you by

Embryonic bus operator Macau New Era has inherited 360 Reolian drivers. But it needs 40 more to keep the green buses rolling. Some 400 full-time drivers will pilot its 27 routes, with both competitors willing to lend a hand PAGE 4

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June 13, 2014

Macau

Taiwan relaxes residency rules for SAR students Taiwan introduces new rules relaxing residency criteria for students from Macau and Hong Kong studying on the island Aries Un

newsdesk@macaubusinessdaily.com

he Taiwan Government now welcomes students from Macau and Hong Kong who seek residency on the island after school having scrapped a compulsory two-year period of returning home before applying for residency on the island. The fresh revision, which came into force yesterday, permits Macau and Hong Kong students graduating from universities in Taiwan to apply for residency once

they fulfil a period of 5 consecutive years of legally working in Taiwan with a record of living in Taiwan for over 183 days each year. The agency believes that the amended immigration rule will attract Hong Kong and Macau talent to work in Taiwan. Relatively low salary levels in Taiwan, however, have always been a major concern of many Macau graduates when considering whether or not to pursue their

careers there despite Taiwan enjoying a more diverse economy than Macau. The new revision also states that potential applicants’ average monthly salary must be at least double the minimum wage of NT$19,273 (5,132.6 patacas). Mr. Chan, an engineer who has graduated from university in Taiwan, told Business Daily that he did not find the new revision attractive. “The development of

Macau provides more working opportunities than Taiwan in terms of engineering. Beside, Taiwan’s economy is doing badly and it is hard to look for jobs there [given the] intense competition with other fresh graduate jobseekers,” he said. Some interviewees who spoke to Business Daily, however, shared their positive opinions on the amended rules. Sally Ieong, who is currently working for the

government, said she would consider the proposition as Taiwan has a greener environment, and better road transport and infrastructure. Another civil servant, Lillian Hong, believes that Taiwan’s economic diversity enables the young generation to develop their interests in pursuit of their careers, whilst Macau’s economy depends solely on gaming and tourism. Two other students, who are currently studying in Taiwan, expressed their willingness to stay on the island for work after graduating. Bryan Tou, a medical student studying in Taiwan, said the prospect of being a doctor in Taiwan is better compared to Macau’s medical profession in terms of internships and learning opportunities. Another Macau student, Mr. Ng Hoi Tek, plans to pursue his postgraduate studies in engineering in Taiwan, saying Taiwan’s quality of life in general is superior to Macau’s. The amended immigration rule on residency for relatives has, however, been tightened. Macau and Hong Kong residents can no longer apply on the basis that their spouse has a sibling or parent with Taiwanese residency. Another amendment in the immigration rule stipulates that people from Hong Kong and Macau can invest to qualify for ‘investment immigrant’ status. The new figure climbs to NT$6 million, up from the NT$5 million or more saved in a Taiwanese bank for a year. With S.L.

Macau GP Committee gearing up for improvements

he Macau Grand Prix Committee is studying the possibility of improving the facilities and arrangements of the event but not before 2015, a spokesperson for the Committee told Business Daily. “Due to the space limitation of the number of stands, [we] will not consider increasing the number of stands this year, but the Committee will continue to study the viability of improving all sorts of facilities and arrangements for the future of the Macau Grand Prix.” Last weekend, Ma Qing Hua became the first Chinese driver to win a World Touring Car Championship racing in Moscow. The series will visit Macau in November and this victory

is expected to attract more visitors and sponsors from Mainland China. However, the Committee is not yet sure about the effects of Ma Qing Hua’s first place. “In the past experience, around 2/3 of the sponsors are from Macau companies, while the remaining are from outside Macau. The more finely selected sponsors that the Committee can have for the Macau Grand Prix the better, as the sponsorship is part of the revenue for the Macau Grand Prix event. It’s too soon to mentioned who the sponsors are; the information will be available in time,” it was announced. The event is budgeting 190 million patacas and will run from 13 to 16 November.A.L.

June 13, 2014

Macau

Consumer protection shake-up on way Government will launch a public consultation on a new Consumer Protection Law to assure more competition in goods market and regulate new businesses like e-commerce

he new law will update means to address anti-competitive behaviour such as abuse of a dominant position and regulate new business models such as e-commerce. “The legislation that protects consumers’ rights was introduced in 1988 and 1995. Since then, a lot has changed in Macau and in commercial relationships. In order to keep the legislation up to date and to ensure that the consumers’ rights are protected it has been decided that a new law should be introduced,” Legal Affairs Bureau director André Cheong Weng Chon said yesterday at the launch of a public consultation for the new Consumer Protection Law, in the Legal Affairs Bureau. The public consultation took effect yesterday and will run for two months, until 12 August. “This law is designed to improve the protection of consumers and to bring more transparency

to the market. We hope that the new law can be presented to the Legislative Assembly by next year,” Cheong added. The work presented to the public yesterday is the result of a workgroup created in 2012 to draft the new consumer protection act. The conclusions of the workgroup suggest that anti-competitive behaviour such as abuse of a dominant position will be considered a crime. The document produced by the workgroup also proposes changes to the law related to price-fixing, concerted prices and monopolies, Mr. Cheong said. “This law will address problems that everybody faces as a consumer and from which they should be protected. This law will promote bigger competition in the market.” The workgroup proposes, as well, the reinforcement of the powers of the Consumer Council, so that it may access

information such as the original price of a product and the profit margin of the seller. In addition, the Council will have the power to make such data public. The Legal Affairs Bureau director explained that other changes include measures to simplify the process by which the Consumer Arbitration Centre takes decisions as well as legislation aspects related to electronic commerce and other business models that have emerged since 1995. “When the current law was made, practices such as electronic commerce were not as developed as they are today. Door-to-door selling has also changed and the new legislation will address problems related to this new business model.” Mr. Cheong highlighted that the changes to be introduced by the new law will be a step in the creation of conditions to diminish prices for the consumer.

June 13, 2014

Macau

Macau New Era seeks 400 full-time drivers As well as inheriting 360 Reolian drivers, Macau New Era needs 40 more drivers to keep the green buses rolling Stephanie Lai

sw.lai@macaubusinessdaily.com

hile new bus operator Macau New Era Public Bus Company Ltd is about to start serving passengers on July 1, the company said it needs 400 full-time drivers to support the operation of running 27 bus routes – a labour supply target that if not met might mean the company having to rely on help from the two other existing bus operators to share the operation of the bus routes. As stipulated in the public concession contract signed with the government on Tuesday, Macau New Era, which has taken over the assets and operation of the bankrupted Reolian Public Transport Co Ltd, has to complete the signing of the new employment contract with the Reolian drivers by June 30 as part of the takeover process. Macau New Era says that about 360 Reolian drivers’ basic salary will be increased by 5 percent, with a special bonus awarded that equates

to half of their monthly salary once the operation starts. The new company also pledged to compensate for the missed contributions to the central provident fund for Reolian drivers which went unpaid due to Reolian’s bankruptcy. “From the reactions of the [Reolian] drivers, I think a majority of them are willing to work for the new company,” Macau New Era’s general manager Daniel Fang Li Qun told Business Daily yesterday following a two-day meeting with the Reolian drivers over recruitment terms. The 50 percent shareholder of Macau New Era, fellow bus operator Sociedade de Transportes Colectivos de Macau SARL (TCM), told Business Daily that it was ready to help Macau New Era share the running of the routes whenever required by the government if the new company did not have sufficient staff. TCM currently has 17 routes to run, the

fewest among the three bus companies. The other bus operator, Transportes Urbanos de Macau SARL (Transmac), also expressed a similar willingness to help run the routes for Macau New Era if it needed urgent help, but they cited another human resource concern.

“We’re always recruiting drivers, and now we have 400 full-time drivers to run 24 bus routes,” said Transmac’s deputy general manager Kuan Weng Kai. “But actually, to keep a normal operation, we are now having some drivers cutting their weekly holidays or volunteering for overtime

work, which is not sustainable in the long term,” Mr. Kuan said, “So we’re now looking to recruit 50 more full-time drivers.” The constant turnover of bus drivers and their ageing profile will remain a challenge for the local bus operators at large, Mr. Kuan added.

Abiogen inks distribution deal with Macau, HK

biogen Pharma S.p.A of Pisa, Italy and Lee’s Pharmaceutical Holdings Ltd of Hong Kong have signed a licensing, distribution and supply deal, under which the Italian pharmaceutical company will market neridronic acid in mainland China, Hong Kong, Macau and Taiwan. Neridronic acid is generally used in Italy to treat osteogenesis imperfecta, otherwise known as ‘brittle bone disease’ and Paget’s disease. The latter is also a bone-related disease that results in abnormal growth and destruction and usually results in deformities. Dr. Massimo Di Martino, president and CEO of Abiogen Pharma, said the partnership with Lee’s Pharmaceutical

“will help patients in China and Taiwan fight critical rare diseases for which there are no other treatment options available.”

Attila(R), the medication containing neridronic acid, is registered in Italy and used by patients in 32 European countries under the trade

name of Nerixia(R). According to a statement by the pharmaceutical companies, Neridronate is the only therapeutic agent approved in the world for the treatment of such diseases. Neridronate has demonstrated a superior safety profile in long-term use and is highly tolerated by adults and the paediatric population. It is the only bisphosphonate indicated for use in neonates and children, the statement reads. Dr. Benjamin Li, Lee’s Pharmaceutical’s chief executive officer, said “this is the fourth orphan drug we have licensed-in and it again demonstrates our commitment to rare diseases.”

June 13, 2014

Macau 2018: Tourism revenue to hit regional high Macau’s tourism revenue could surpass that of the United States with a possible US$269.9 billion in total visitor spending in the next four years

ith the growing visitor spending registered in Macau in the last few years, Macau could surpass the United States in terms of overall tourism revenue in four years, according to the Pacific Asia Travel Association. PATA has just released a report on visitor forecasts for 2014-2018 commissioned by the tourism forecast unit of Hong Kong Polytechnic University. According to the report, the current leader in terms of tourism revenue is the United States. However, this could change to see Macau top the chart, putting the United States in second place, followed by mainland China. Macau could take the lead by 2018 with tourism revenues expected to hit US$269.9 billion (2.2 trillion patacas), a figure five times that of 2012. As for next year, the report forecasts tourism revenues will jump 150 percent to US$109.5 billion. In 2012, Macau ranked in the top three in terms of visitor spending, at US$43.7 billion. Meanwhile, a separate report by the World Tourism Organisation says the region is making the most of the increase in the number of visitor arrivals and their spending. In the Asia Pacific region alone, there are destinations where visitor spending on shopping outweighs that of other travel expenses.

US$109.5 billion tourism revenue forecast for 2015

PATA figures from 2012 suggest that visitors to Hong Kong spent around 49 percent of their total travel budget on shopping, while visitors to Macau spent 43 percent and visitors to South Korea spent as much as 60 percent of their total budget on shopping. The same report forecasts that the increase in the number of visitors around the whole of the Asia Pacific region will continue

at an annual rate of 6.2 percent between 2014 and 2018. This figure could reach 660 million in four years. In terms of visitor arrivals, Hong Kong could become the second most visited place in the region by 2017, taking the current place of the United States. Mainland China will remain the preferred travel destination. According to the report, mainland China could

welcome as many as 146 million visitors in 2018. This growth can be explained by the growth of the Asian middle class, as well as their interest in international travel, which has seen a steady 7.7 percent annual growth in the last five years. According to the PATAcommissioned forecast report, the five destinations that will register the biggest growth in tourism include Thailand, which could jump to second place in 2018 from 11th in 2012. Myanmar and Laos as well as Cambodia and Bhutan also head the list. The forecast report looks at the number of visitors in 32 countries in the Asia Pacific region and tourism revenues. *Exclusive JTM/Business Daily

June 13, 2014

Macau Brought to you by

Westin Resort Re-brands

HOSPITALITY Tight labour Twice a year, the Statistical and Census Department (DSEC) conducts surveys for most of the local economy sectors. Hotels, restaurants and manufacturing, are among those surveyed every first and third quarter. The chart below shows the number of people employed and the number of existing vacancies reported in the last five surveys, between the first quarter of 2012 and the same quarter of the current year. As we might expect, total employment in hotels and restaurants rose over the period. It went up by 8.5 percent in hotels, and 19 percent in restaurants. Taken together, the two activities added more than 7,700 workers to their payrolls. Note, however, that hotels had very slight losses, over 300 staff, during the last year ending in March. Manufacturing figures went down. With the exception of a slight increase in early 2013, manufacturing has continuously lost its allure, with the total loss amounting to 7.6 percent in the full period.

The evolution in the number of vacancies, however, has followed somewhat different paths for these economic sectors. Compared with early 2012, the number of vacancies in hotels had risen by 21 percent. That rise was especially dramatic in the last semester, as vacancies rose by more than 42 percent. That indicates that the sector is facing increasing difficulty in replacing staff and filling new jobs. However, for the full period shown, total vacancies decreased by 10 percent in restaurants, while in manufacturing they went down by 21 percent. But both in absolute numbers and taken as a percentage of total employment, in the last semester, vacancies have increased in all sectors, suggesting that the labour market is becoming tight for them all.

11.45%

number of vacancies in restaurants, relative to employment in the sector, Q1

estin Resort Macau in Coloane will be renamed Grand Coloane Beach Resort, Sociedade de Turismo e Desenvolvimento Insular SARL (STDI) revealed in a statement yesterday. STDI is a joint venture by STDM, the majority shareholder, Shun Tak and Hong Kong’s Harilela Group. Shun Tak has a stake in the Westin Resort Macau and the Macau Golf and Country Club

on Coloane, held through STDI. The Westin Resort Macau is managed as part of Starwood Hotels & Resorts Worldwide Inc’s Westin chain but the management contract is nearing expiry. The re-branding will take place on June 22, and ‘highlights the hotel’s distinctive signature as a lavish boutique resort’ in Coloane. Westin Resort, soon to be Grand Coloane, has 208 rooms and an 18hole golf course and country club.

Less rain and fewer typhoons forecast T his year could see Macau get less rain and be hit by fewer typhoons, the first of which is expected at the end of the month. According to Fong Soi Kun, the director of the weather bureau here, 2014 could be a year of lower precipitation levels, with up to six tropical storms worthy of hoisting a signal 8. Mr. Fong was quoted by local media as saying that last year was “very special” in terms of rain and typhoons, with the territory being hard hit between the months of May and September. “Having seven typhoons [last year] was also abnormal [for Macau],” Mr. Fong said. Because of the strong storms and high precipitation levels, the weather bureau has increased the number of flood monitoring and warning stations this year. “Currently, we have 17 [flood warning stations]. The new ones will not only measure flood water level but are also equipped with a webcam to live-stream images

New flood monitoring station

and can also record the precipitation levels, temperature, wind and gusts,” the bureau director was quoted as saying. In addition, these images will be available on the bureau’s website, which will undergo renovation by the end of the year.

‘Following the expiration of its existing hotel licence agreement, the resort under its new name ‘Grand Coloane Beach Resort’ will continue to provide the highest standards of hospitality and consistency in services and quality,’ the statement reads. In January, a source told Business Daily that the Westin would likely be renamed and that STDI would manage the property itself. No decision on this is yet forthcoming.

Five bids submitted for broadband service

total of five bids have been submitted to provide additional wireless broadband services in Macau, the Bureau of Telecommunications Regulation announced yesterday. Of the five bids received by yesterday afternoon, two – by Acel Engineering Co Ltd and Sociedade Technologia Dak Lei Ltd – were rejected. One – by China Telecom (Macau) Ltd – was conditionally accepted, while the two remaining – Companhia de Telecomunicações de Macau SARL (CTM) and Companhia de Telecomunicações de MTEL – were accepted. When opening the bid in early May, the government declared that the objective was to have the winning bidder help acquire and install a new wireless broadband system and equipment necessary for around 20 new hotspot areas throughout the city. Under the new contract, the winning bidder will also be responsible for the maintenance of these cables in order to ensure good quality service.

June 13, 2014

Macau

Marina Bay Sands casino stops serving shark’s fin

he US-owned Marina Bay Sands casino in Singapore has announced it will stop serving shark’s fin in its restaurants. The latest boycott of the contentious delicacy was welcomed Thursday by animal rights activists. The casino, part of Las Vegas gaming magnate Sheldon Adelson’s portfolio, said the removal of shark fin dishes from its menus is a “bold testament to our commitment to reducing our environmental impact”. Its huge expo and convention centre, which hosted more than 70 trade shows last year, will also cease serving the dish. The casino is the latest in a string of Singapore-based companies to boycott shark’s fin consumption following years of lobbying by animal rights activists. Singapore is the world’s second largest shark’s fin trading territory after Hong Kong, according to the Food and Agriculture Organisation of the United Nations. Shark’s fin is seen by many East Asians as a delicacy and is often served as soup at expensive Chinese banquets. More than 70 million sharks are killed worldwide every year, with a majority of fins consumed in Chinese markets, according to environmental group WWF.

Jennifer Lee, founder of Project Fin, a local group campaigning against shark’s fin consumption, said the casino’s decision is another milestone for animal rights activists. “Hopefully, this will put pressure on other companies to jump on the bandwagon as well to do their part to save our marine ecosystem,” she told AFP. Elaine Tan, chief executive of WWF Singapore, commended the casino for its “foresight and leadership in corporate sustainability”. “Sharks are a crucial part of marine ecosystems and their populations have a direct impact on fish stocks, which in turn affects many things, including our food security in the future,” she said. Singapore’s largest supermarket chains stopped selling shark’s fin products in 2012, while major hotels, including Shangri-La and Swissotel the Stamford, have also stopped serving them. Singapore’s other casino operated by Malaysia’s Genting Group does not serve shark’s fin, according to its website. Hong Kong’s government last year said it would stop serving shark’s fin at official functions to set a “good example.” AFP

Tokyo governor expresses misgivings about casino economy

okyo Governor Yoichi Masuzoe said that developing a casino was “not a priority for the city” and asked for more debate about potential problems like money laundering that could arise should casinos be legalised in Japan, Intergame reports. “This is not at the top of my agenda,” Masuzoe told reporters, adding that “I don’t believe that you must have casinos to improve the

economy.” The governor has said little about the issue and investors, lobbyists and global casino operators have been waiting for him to clarify his stance as Japanese lawmakers prepare to consider a bill to open up the country to casino gambling. “There hasn’t been enough debate, including about money laundering and other things,” he said. Tokyo’s position regarding gaming contrasts with that of officials in the western city of Osaka, who are openly lobbying to host a casino resort and aggressively courting operators. Japan’s capital will host the Summer Olympics in 2020. According to brokerage CLSA, the Japanese gaming industry could generate US$40 billion per year and is attracting proposals by major operators like Las Vegas Sands, Melco Crown Entertainment and Wynn.

June 13, 2014

Greater China

Goldman, Bain to pay US$121 mln in LBO collusion settlement Lawsuit also involves Harrah’s Entertainment (now Caesars Entertainment) sale in 2007 for US$17.1 billion to private equity firms Apollo and TPG, the largest deal in casino history at the time.

oldman Sachs Group Inc will pay US$67 million and Bain Capital Partners LLC will pay US$54 million to settle their portions of a lawsuit accusing several big private equity firms of conspiring not to outbid each other in takeovers. The preliminary settlement with former shareholders of companies acquired in leveraged buyouts from 2003 to 2007 was disclosed in papers filed on Wednesday in Boston federal court, and requires approval by U.S. District Judge William Young. In agreeing to settle, Goldman and Bain did not admit wrongdoing. Five defendants remain: Blackstone Group, Carlyle Group, KKR & Co, Silver Lake Partners and TPG Capital Management. A trial is set for November 3. The December 2007 lawsuit, which has shone a light on how Wall Street operates behind the scenes, accused private equity firms of running an ‘overarching’ conspiracy not to outbid, or ‘jump,’ each other once transactions were announced. Goldman was a defendant because of buyouts involving its private equity arm. Eight buyouts totalling more than $100 billion were part of the case, involving movie theatre chain AMC Entertainment Inc, food service company Aramark Corp, chipmaker Freescale Semiconductor Inc, casino operator Harrah’s Entertainment Inc, hospital chain HCA Inc, pipeline operator Kinder Morgan Inc, software maker SunGard Data Systems Inc and power company TXU Corp. The case involving Harrah’s Entertainment (Caesars Entertainment since 2010) dates from 2007 when the casino operator accepted a US$17.1 billion buyout offer from private equity groups Apollo Management Group and Texas Pacific Group. The sale was at the time the largest deal ever to take a publicly held casino company

private and Harrah’s was also the world’s largest casino operator in the world. The price paid represented a premium of about 36 percent. “The plaintiffs saw an LBO market that was not working competitively, and shareholders were not receiving competitive prices,” said Christopher Burke, a partner at Scott & Scott, representing the plaintiffs, in an interview. He added: “It’s harder to settle multi-defendant lawsuits in one fell swoop, and this may portend breaking the logjam.” Goldman spokeswoman Andrea Raphael said the bank is pleased to settle. Bain spokesman Ernesto Anguilla in a statement said it was best to “put this matter behind us in light of the costs and distraction of six years of litigation.” Blackstone and Carlyle declined to comment. A KKR spokeswoman said the lawsuit lacks merit. A TPG spokesman said that the firm disputes the allegations and expects to prevail at trial. Silver Lake did not respond to a request for comment. The lawsuit originally accused the defendants and other firms of conspiring to deflate prices in 27 buyouts worth about a quartertrillion dollars. Another federal judge in March 2013 found a lack of evidence for that claim, and narrowed the focus to ‘jumping.’ Much of the case has been built on emails. In one, Blackstone President Hamilton ‘Tony’ James emailed KKR co-founder George Roberts that he would “much rather work with you guys than against you,” and that “in opposition, we can cost each other a lot of money.” The plaintiffs’ lawyers may seek fees of up to 27.5 percent of the settlement funds plus up to $10 million for costs. Goldman and Bain agreed to help the plaintiffs authenticate documents that could be used at trial. AFP and AP

June 13, 2014

Greater China

Bigger, greener efforts Beijing and neighbours plan to establish an expert committee to analyse root causes of air pollution and launch research into air-cleaning technologies

eijing is working with its surrounding areas to forge stronger cooperation to clean up the air in the region, which is notorious for choking smog. China’s capital city and neighbouring Tianjin and Hebei, along with Shanxi, Inner Mongolia and Shandong, plan to establish an expert committee to analyse root causes of air pollution and launch research in air-cleaning technologies. The announcement was made by Li Lixin, an official with the Beijing Municipal Environmental Protection Bureau, on the side-lines of an international exhibition promoting the green economy. The 8th China (Beijing) International Energy Conservation and Environmental Protection Exhibition, which was held from Sunday to Wednesday, coincided with a week-long government-backed campaign for green living. Beijing, Tianjin and Hebei will also work together to tackle nitrogen oxide, a harmful pollutant plaguing the region, said Li, who heads regional coordination in combating air pollution with the bureau. They will enhance cooperation

in law enforcement to prevent those who break regulations on emissions and coal use from fleeing to other areas to avoid punishment, she said. Beijing, Tianjin and Hebei decided to form an alliance after a national action plan was issued in September

We won’t transfer polluting and highemission companies and industries to other places, but will eliminate them here Liu Bozheng Beijing Municipal Commission of Development and Reform official

by the central government to tackle air pollution. As required by the document, the Beijing-Tianjin-Hebei region should cut PM2.5, a key indicator of air pollution, by 25 percent from 2012 levels by 2017. The plan said all vehicles in major cities of the region should use fuels, including gasoline and diesel, in line with China’s leading Guo-V standard by 2015 and remove heavy-polluting “yellow-label” vehicles registered before 2005 from roads by the same year. The region has also been told to achieve negative growth in coal consumption and replace coal-fired boilers, kilns and power plants with natural-gas-fired ones by 2017. The careers of local officials will be linked with their performance in implementing the plan, according to a detailed regulation released in May. Provincial governments will be assessed annually by 2017. Beijing, Tianjin and Hebei have also rolled out their own schedules to address pollution. But concerns have been raised that the capital may shift its sources of pollution to neighbouring areas. Beijing has promised this will not

happen. “We won’t transfer polluting and high-emission companies and industries to other places, but will eliminate them here,” said Liu Bozheng, an official with the Beijing Municipal Commission of Development and Reform, at the forum. Li said the Ministry of Environmental Protection and the Ministry of Industry and Information Technology are expected to unveil 10 policies later this year, including a development plan on promoting cleanenergy vehicles, to help fight pollution in the Beijing-Tianjin-Hebei region. The joint efforts will boost the development of a low-carbon economy, as high-carbon energy resources are a major cause of air pollution, Yu Jianhua, another official with the Beijing Municipal Environmental Protection Bureau, said at the forum. However, China fell behind its energy saving targets set by its 12th Five-Year Plan (2011-2015) and work is needed to keep up with the schedule, said Xie Zhenhua, vice minister in charge of the National Development and Reform Commission, on Monday. Xinhua

Cnooc expands oil output The Weizhou rigs produce the equivalent of 45.700 barrels of oil a day

hina’s biggest offshore energy explorer, is expanding oil production in waters off its southern coast to reach a target missed since 2011. Cnooc is developing new projects based on findings near the island of Weizhou, 80 nautical miles east of the border with Vietnam, said Liao Hongyue, director of the Weizhou Island Terminal. It’s also enhancing current projects, he said. “I’m positive more production should be possible out of this site once some of the programs underway begin to produce results,” Liao told

reporters visiting the Weizhou Island Terminal on June 10. The Weizhou rigs produce 45,700 barrels of oil equivalent a day, about 4 percent of the Beijing-based company’s global output. Cnooc produced 412 million barrels of oil equivalent in 2013, including 61 million barrels that came from Canadian unit Nexen Inc. Weizhou is Cnooc’s biggest oil producer in the western part of the South China Sea, one of four major oil and gas producing areas off the shores of China. Cnooc started a new project in the Weizhou area last year, increasing

the number of operational oilfields to four. Rigs WZ11-4, WZ111, WZ12-1 and WZ6-12 produce mostly crude oil. Cnooc, which started WZ612 last year, has announced a new finding in an area called Weizhou 12-11. Cnooc’s state-owned parent China National Offshore Oil Corp. last month placed an oilrig near the disputed Paracel Islands off the coast of Vietnam, leading to confrontations between Vietnamese and Chinese boats. The move set off violent anti-China protests in Vietnam and prompted China to evacuate thousands

of its citizens. The dispute comes amid rising tensions between China and its Asian neighbours, who are pushing back against Chinese efforts to exploit resources in disputed

maritime areas. While the Weizhou projects border Vietnam, they are well within China’s territory and have never caused any sovereignty disputes in the past, Liao said. Bloomberg News

June 13, 2014

Greater China

New bank loans higher than expected The central bank has pledged to keep credit and money supply growth at a reasonable level to meet the needs of the real economy

hina’s new bank lending and money supply rose faster than expected in May, as the government ramps up policy stimulus measures to energise the slowing economy. Chinese banks made 870.8 billion yuan (US$140.08 billion) worth of new yuan loans in May, higher than a forecast of 750 billion yuan and above the previous month’s 774.7 billion yuan, central bank data showed yesterday. Broad M2 money supply rose 13.4 percent last month from a year earlier, the People’s Bank of China said in a statement on its website, www.pbc. gov.cn, slightly above the forecast in a Reuters poll of a 13.1 percent rise. The central bank has pledged to keep credit and money supply growth at a reasonable level to meet the needs of the real economy. It aims for a 13 percent annual rise in M2 this year. Outstanding yuan loans grew 13.9 percent from a year earlier versus forecasts for growth of 13.7 percent. “Both lending figures and total social financing data are better than market expectations, which offers fresh evidence that the economy is gaining momentum,” said Yao Xuekang, an analyst at Essence Securities in Beijing. “However, it is still too early to confirm a broad-based stabilisation in the economy, and we will have to wait for more financing data to help prove this trend.” The People’s Bank of China (PBOC) said on Monday it would lower the reserve requirement ratio the level of reserves banks must hold - for those banks that have sizeable loans to the farming sector and small and medium-sized firms. This is the second reduction following a cut in April aimed at rural banks. More targeted policy steps are

The PBOC said it would lower the reserve requirement ratio for those banks that have sizeable loans to the farming sector and small and medium-sized firms. This is the second reduction following a cut in April aimed at rural banks

KEY POINTS May new loans 870.8 bln yuan, vs f’cast 750 billion yuan May M2 up 13.4 pct yr/yr, vs f’cast 13.1 pct TSF at 1.4 trln yuan in May, vs 1.55 trln yuan in April

expected as the government tries to cope with a cooling property sector, even as exports get some relief from the global economic recovery. Central bank data showed that China’s total social financing aggregate, a broad measure of liquidity in the economy, was 1.4 trillion yuan in May versus 1.55 trillion yuan the month before. Data earlier in the week showed total fiscal spending by the central and local governments rose to 1.3 trillion yuan (US$208.75 billion) in May, quickening sharply from a 9.6

percent rise in the first four months of the year. The higher spending comes after the economy got off to a soft start to the year, growing at its slowest pace in 18 months in the first quarter. Buoyed by government “ministimulus” measures, the economy has recently shown some signs that it is pulling out of its soft patch, but the recovery appears patchy. Analysts do not rule out further stimulus measures, especially if the property market starts to deteriorate rapidly Reuters

Rapid FX reserves create policy difficulties Premier Li Keqiang said in May that China’s war chest of foreign exchange reserves had become a headache

hina’s rapid accumulation of foreign-currency reserves creates difficulties for steering economic policy, officials with the nation’s foreign exchange regulator said yesterday. China will keep its foreign exchange reserves at a reasonable level, officials of the State Administration of Foreign Exchange (SAFE) said in a webcast. “The excessively large foreign exchange reserves increase domestic money supply and create potential domestic inflation pressures,” said Huang Guobo, chief economist of the SAFE. “They also put more pressure on the central bank to raise reserve requirement ratios and sterilise (inflows),” he said. Foreign currency reserves account for more than 80 percent of the central bank’s assets, leading to a mismatch between its assets and liabilities, fuelling foreign exchange risks, Huang said. China’s foreign exchange reserves, the world’s largest, grew by US$130 billion in the first quarter, reaching a record US$3.95 trillion.

KEY POINTS Reserves can spur inflation pressures, economist says Regulator reiterates some reserves will be for outbound investment Reserves hit record US$3.95 trillion in Q1

Premier Li Keqiang said in May that China’s war chest of foreign exchange reserves had become a headache as its continued rise could stoke inflation in the long term. Large foreign currency purchases by the People’s Bank of China, which regularly intervenes to cap rises in

the yuan, amount to creation of base money and can fuel inflation unless the central bank soaks up the excess yuan injected into the system. Yesterday, the foreign exchange regulator reiterated its plans to use some of the reserves for outbound investment and to improve the way

it manages the reserves. China will step up efforts to ward off economic risks to two-way capital flows, while improving the yuan regime to make it more responsive to market forces, SAFE said. Yi Gang, vice central bank governor, said in November that the cost of holding the reserves would surpass earnings from them when reserves exceed a certain level. Reuters

June 13, 2014

Greater China Venezuela to open Chinese bus factory Venezuelan government officials and representatives of Chinese firm Yutong held a meeting Wednesday to discuss the creation of a joint venture to build and operate a bus factory. According to Venezuelan Land Transportation Minister Haiman El Troudi, the factory will be built in the western state of Yaracuy and will have an assembly capacity of 3,500 buses a year. The plant will produce three models of buses for urban, suburban and rural use, El Troudi announced via Twitter, attaching images of the 25to 54-seat diesel and gas buses to be manufactured.

Yangtze River plan boosts Ningbo Marine Shares of Ningbo Marine surged by 10 percent, the maximum allowed, to a 7-week high yesterday after the State Council announced plans to develop an economic zone along the Yangtze River. Chinese Premier Li Keqiang said yesterday the government should develop an economic zone along the Yangtze River through the construction of a comprehensive transport network, according to the government website. Other Chinese port groups also outperformed, with Jiangsu Lianyungang Port climbing 4.9 percent, Ningbo Port up 3.5 percent, and Wuhu Port Storage & Transportation 2.8 percent.

China and Italy design three-year cooperation plan The 2014-2016 plan was issued after talks between Chinese Premier Li Keqiang and Italian Prime Minister Matteo Renzi

hina and Italy on Wednesday issued a three-year action plan covering cooperation in areas of trade, industries and investment, finance, business, tourism and visits, and technological innovation. The 2014-2016 plan was issued after talks between Chinese Premier Li Keqiang and Italian Prime Minister Matteo Renzi, who is here for a threeday official visit to China from June 10 to 12. “We want not only the issuing of the action plan, but also results,” Li said during a joint press briefing with Renzi. The premier said the two sides will hold the sixth meeting of the bilateral governmental committee in the second half of the year in Beijing, which will discuss the action plan. The plan will help economic and social development and benefit the two peoples. According to the plan, the two countries will promote growth of bilateral goods and service trade and realize trade balance through an increase of Italian exports to China.

To expand bilateral trade, the two sides will enhance cooperation in environmental protection and energy, agricultural products and processing, food security, urbanization, medicine, health and aviation. “We both agree that the scale of our bilateral trade and investment should have a large increase for our economic scale and development potential,” Li said. The two sides will further strengthen cooperation in customs, health and plant quarantine. They also pledged to open their domestic markets more effectively and reduce barriers for trade and investment. For industrial and investment cooperation, the two sides will cooperate in areas including waste material salvage, renewable energy, architecture and design, health service, aviation, engine technology, machinery, communication technology, nanotechnology, biopharmacy, shipbuilding, and oil and gas exploration, the action plan said.

The two sides agreed to allow Chinese capital to invest in Italy’s public facilities, logistics, infrastructure, services, and the protection of Italy’s arts and cultural heritage. The two sides will strengthen cooperation in intellectual property protection to fight against fake goods. With regard to financial cooperation, the action plan said China and Italy agreed to provide assistance for the integration of financial operators and trade, investment and credit institutions, and to provide facilities for each other to set up bank branches. Renzi told the press that Italy will cut down the visa processing time for Chinese tourists to 36 hours. Li said China will support and participate in Italy’s Milan Expo in 2015. The two sides also agreed to promote technological and innovation cooperation through various governmental mechanisms and organizations. Xinhua

PBOC drains 40 billion yuan China’s central bank will drain 40 billion yuan (US$6.42 billion) from the money markets through 28-day bond repurchase agreements on Thursday, traders said, meaning it will inject a net 104 billion yuan into the market this week. The People’s Bank of China (PBOC) conducted a net injection of 73 billion yuan into the market last week.

Thrust to financial support for trade China’s central bank on Wednesday called for more financing channels for the country’s import and export businesses, in efforts to stabilize foreign trade. Commercial banks are urged to innovate their products and services, such as expanding borrowing to companies on export credit insurance, and more flexibility in lending to enterprises’ short and medium-term capital needs, said the People’s Bank of China (PBoC), the central bank. Qualified enterprises will be encouraged to issue bonds, with small and medium-sized firms also having the option to issue collective bonds, according to a PBoC statement.

Think-tanks to cut administrative interference The Chinese Academy of Engineering (CAE), has redrafted its charter to cut administrative interference in its operations, with a similar move expected to be made by the Chinese Academy of Sciences (CAS). The amended charter of the CAE, also vying to rectify a tendency to chase profits, has been ratified during the biennial conference of China’s top two think tanks, which started on Monday. The CAE’s new charter has modified the previous edition on aspects including nomination and exit mechanisms of academics by depriving governments, universities and enterprises of their nominating rights.

Italian Prime Minister Matteo Renzi (C) talks with Chinese Premier Li Keqiang (2-R) as Alibaba CEO Ma Yun (2-L) attends a signing ceremony at the Great Hall of the People in Beijing, China, 11 June 2014

Dianping to appoint advisers for U.S. IPO The IPO may raise about US$500 million to US$1 billion

ianping Holdings Ltd., the operator of a Yelp Inc.-like website in China, is working with Goldman Sachs Group Inc., Morgan Stanley and Deutsche Bank AG on an initial public offering in the U.S., said people with knowledge of the matter. The IPO may raise about US$500 million to US$1 billion, said two of the people, who asked not to be identified because the discussions are confidential. China Renaissance Securities is also working on the deal, according to the people. Dianping’s share sale would follow Chinese Internet retailer JD.com Inc.’s US$1.8 billion offering and online marketplace Alibaba Group Holding Ltd.’s proposed listing that may raise about US$20 billion. The companies are seeking to take advantage of soaring online spending in China, where e-commerce sales jumped 52

percent in the first four months of 2014 from a year earlier, according to the statistics bureau. Dianping had more than 100 million active users in the first quarter for its reviews and discounts for food and entertainment, according to its website. Shenzhen, Chinabased Tencent Holdings Ltd. in February acquired a 20 percent stake

US$4.71 billion

Yelp’s market value

in Dianping to gain access to the site’s location-based shopping and entertainment services. Zhang Tao, Dianping’s founder and chief executive officer, said in October that the company may be worth more than US$10 billion, and he would prefer a U.S. listing. Dianping could turn a profit as soon as this year, Zhang said at the time. Dianping, backed by Sequoia Capital and Lightspeed Venture Partners, was founded in 2003 in Shanghai and offers local businesssearch services that include consumergenerated reviews. Users can also buy coupons and enjoy group discounts in the same way as on Groupon Inc. Yelp has a market value of US$4.71 billion and Groupon is worth US$4.14 billion. JD.com has soared 53 percent since its IPO last month, taking its market value to $36 billion. Bloomberg News

June 13, 2014

Asia

Manila orders banks to adjust capital Stress tests will be conducted under the new prudential guideline to determine whether banks’ capital is sufficient to absorb credit risk

Philippines central bank headquarters

hilippine lenders can have greater real estate exposure as long as they have enough capital buffers to stem risks identified in an industry stress test, the central bank said, as it issued new rules aimed at reducing risks arising from a growing property market. The new regulation, which came ahead of a rate policy review on June 19,

is a “pre-emptive macro-prudential policy measure” to ensure that banks’ real estate exposure remains healthy, the central bank said in a statement late on Wednesday night. But it said the new measure “does not reflect any imminent vulnerability among banks with exposure to the real estate sector.” Stress tests will be conducted

under the new prudential guideline to determine whether banks’ capital is sufficient to absorb credit risk related to real estate lending and investments. At present, Philippine banks are required to meet a capital adequacy ratio of 10 percent, higher than a Basel II requirement of 8 percent. Under the new rules, banks must meet the same capital adequacy

ratio of 10 percent after adjusting for the stress test results, the central bank said. Also factoring in the stress test, universal and commercial banks and their thrift lending units must have 6 percent of their qualified capital classified as common equity tier 1 (CET1), or the safest and highest quality capital that can absorb shocks excluding preferred shares or noncontrolling interests. The CET1 requirement is also higher than a minimum set under the Basel III framework. Stand-alone thrift banks must maintain a 6 percent total tier 1 capital of their qualified capital. Prior to the new rule, banks’ real estate lending was capped at only up to 20 percent of their total outstanding loans. “These stress tests are ... preferred over absolute limits because they do not prejudice the development of the real estate industry. Instead, banks can have greater exposures to real estate for as long as they manifest their increased ability to absorb these risks vis-à-vis their capital position,” the central bank statement said. Banks which do not meet the new requirements will be required to explain why they breached the limit. If authorities are not satisfied with the explanation, the lenders will need to submit an action plan to

Aussie employment unexpectedly slips All the loss came in part-time positions with full-time jobs behaving well Wayne Cole

ustralian employment unexpectedly fell for the first time in five months in May, though any disappointment was tempered by a surprisingly steady jobless rate and a solid increase in full-time hiring. Yesterday’s data from the Australian Bureau of Statistics showed a net 4,800 jobs were lost in May, short of market forecasts of a 10,000 rise. However, all the loss came in part-time positions with full-time jobs up a healthy 22,200. The unemployment rate also held steady at 5.8 percent when analysts had looked for an increase to 5.9

percent. That was the third straight month of unchanged outcomes and kept alive hopes the jobless rate was near its peak for this cycle. Just a few months ago the consensus had been that unemployment would rise to the 6.25-6.5 percent zone this year. “The overall tone is one of a labour market that’s mirroring to some degree the economy, which was strong late last year, early this year and momentum has eased a little in Q2,” said Su-Lin Ong, a senior economist at RBC Capital Markets. “So there’s no real urgency to do anything on the rate front, and that

Australia’s government has faced harsh criticism lately due to its budget policy and environmental measures. Employment news is not helping, either employment

remains very much the message - a Reserve Bank that stays on the sidelines for the foreseeable future.” That view was pretty much the judgement of markets as the local dollar dipped just a whisker on the

data to US$0.9378 while interest rate futures implied the cash rate would remain at 2.5 percent out to the end of the year. The Reserve Bank of Australia (RBA) has already kept rates steady

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June 13, 2014

Asia reach the proper thresholds within a “reasonable time frame”, the central bank also said. Last month, Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco said banks will be asked to submit stress test reports that include an assessment of how interest rate changes affect their balance sheets in relation to their real estate exposure. The central bank is also firming up plans to introduce a real property price index to better monitor the sector. Banks’ exposure to the real estate sector as of end-December 2013 climbed 7.1 percent against the previous quarter to 1.006 trillion pesos (US$23.06 billion), central bank data released last month showed. Property-related loans made up slightly more than a quarter of banks’ total loan portfolio. Reuters

These stress tests are ... preferred over absolute limits because they do not prejudice the development of the real estate industry Philippines central bank statement

KEY POINTS Employment dips 4,800 in May, missing forecasts of +10,000 But unemployment steady at 5.8 pct, full-time jobs up healthy 22,200 Mixed report adds to case for long pause on rate moves

for 10 months amid signs past cuts were working to energise the economy. One fly in the ointment has been a marked negative reaction to the Liberal National government’s May budget which contained a mix of higher taxes and charges and spending cutbacks. Surveys of consumers showed a sharp fall in confidence in May and little sign of a pick up so far in June, stirring concerns that spending would also suffer. That could be one reason the RBA has cautioned that it would likely be some time before the unemployment rate started to fall in a sustained manner. “The RBA said they really needed unemployment to decline and, as of yet, it is steady,” said Annette Beacher, head of Asia-Pacific research at TD Securities. “We need to see a meaningful turnaround before they start turning bullish on the labour market. This (data) supports rates on hold for now.” Reuters

Infosys names first external CEO

Japan machinery orders make the grade The data comes days after the first quarter gross domestic figures showed an unexpected surge in capital spending

ore machinery orders fell less than expected in April after a record jump in the previous month, underscoring recent signs of a steady pick up in capital spending seen as vital for a durable economic recovery. The 9.1 percent drop in core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, backs the Bank of Japan’s view the world’s third-largest economy could weather the pain of a recent sales tax hike. The decline compared with economists’ median estimate for a 11.9 percent fall in a Reuters poll. It followed a sizable 19.1 percent increase in March, the biggest monthon-month gain under comparable data by the Cabinet Office available from fiscal year 2005. “Considering a big jump in the prior month, the April figure was not that bad at all. The data showed firmness in capital spending,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

“Looking at economic indicators after the April tax hike, the economy is moving in line with the Bank of Japan’s scenario, although we need to wait to see data in the coming moths before confirming that the economy can ride out the tax hike impact.” The data comes days after the first quarter gross domestic figures showed an unexpected surge in capital spending, which helped the economy grow at its quickest pace in over two years. “Machinery orders have been recovering moderately in the fiscal year to March 2014 reflecting firm domestic demand backed by pentup demand before the April sales tax hike, even though exports were sluggish,” said analysts at SMBC Nikko Securities. As domestic demand slows down in the current fiscal year after the sales tax rose to 8 percent from 5 percent on April 1, exports would need to pick up the pace to help sustain a recovery in machinery orders, they say. Reuters

NZ central bank raises rates N ew Zealand’s central bank raised interest rates to a five-year high yesterday and cooled expectations it may slow the pace of future policy tightening, sending the currency sharply higher. As expected, the Reserve Bank of New Zealand lifted its official rate by 25 basis points to 3.25 percent -the highest level since January 2009 and the third consecutive rise in as many meetings. The central bank said rates would need to go higher as strong economic growth fuels inflation pressures, making it the only central bank among developed economies to be raising rates in the current cycle. “In this environment, it is important that inflation expectations remain contained and that interest rates return to a more neutral level,” RBNZ Governor Graeme Wheeler said in a statement. The hawkish tone of the statement and the governor’s determination to rein in growing price pressures wrongfooted markets which had expected the bank to signal a slightly slower pace of tightening.

The New Zealand dollar, its yield appeal burnished by the RBNZ’s tough talk, soared half a cent to settle around US$0.8635, while interest rate futures edged lower. “It (statement) was a lot more hawkish than the market was expecting. The market had under priced the 90-day track further out and the RBNZ has maintained the same path, so that’s the reason why the kiwi is stronger,” said Tim Kelleher, head of institutional FX sales at ASB. The central bank’s statement and forecasts were little changed from those in March and April, reiterating that inflation pressures are building, particularly in the construction sector, and that terms of trade and migration gains were underpinning growth, although the high exchange rate was offsetting. Annual inflation slowed fractionally to 1.5 percent in the first quarter, and the RBNZ wants to anchor it around 2 percent, the mid-point of its 1-3 percent target band. Reuters

India’s second-largest IT services exporter, named former SAP AG executive board member Vishal Sikka as Chief Executive Officer, the first time the company has not chosen one of its founders for the role. Infosys also said Executive Chairman N.R. Narayana Murthy and Executive Vice Chairman S. Gopalakrishnan would step down on June 14. Murthy will be designated as chairman emeritus from October 11, the company said in a stock market filing yesterday. Sikka will take over from current Chief Executive S.D. Shibulal, one of the seven engineers who founded Infosys in 1981, on August 1, the company said.

Aussie carbon cuts fail Australia will achieve less than a third of the carbon emission cuts it has pledged to make by the end of the decade, analysis firm Reputex said, stoking doubts over the government’s climate policy. Since taking office last September, Prime Minister Tony Abbott’s government has unravelled a number of the policies and institutions put in place by its predecessor that sought to drive cuts in greenhouse gas emissions. When the Senate changes next month, the government plans to repeal the nation’s carbon tax and replace it with a A$2.55 billion (US$2.39 billion) Emissions Reduction Fund that will pay big emitters to cut their carbon levels.

S.Korea holds rates South Korea’s central bank kept interest rates steady at 2.50 percent for a 13th straight month yesterday, as expected. Bank of Korea Governor Lee Ju-yeol at a news conference said “the global economy is forecast to post a steady recovery trend, mostly on the back of improvements in advanced economies.” Regarding domestic economy he commented “exports have shown improvement, while the recovery was slightly slowed down by sluggish domestic consumption which was affected by the sinking of the Sewol ferry.”

Japan advisor Takatoshi Ito urges GPIF reallocation Prominent Japanese economist Takatoshi Ito on Thursday called for the world’s biggest pension fund to quickly shift its portfolio more towards stocks and away from yen bonds. Takatoshi Ito, an outspoken economist and government adviser, told an advisory panel that the US$1.26 trillion Government Pension Investment Fund “should undertake its portfolio reallocation promptly,” said a government official briefing reporters on the meeting. At the time he urged the giant fund to buy more Japanese and foreign stocks and allocate relatively less to lowyielding Japanese government bonds.

Thai central bank rate supports growth Thailand’s central bank chief said yesterday that the current policy rate level was already low and still supporting economic growth. The central bank’s monetary policy committee next reviews monetary policy on June 18 after voting 6-1 to hold the policy rate at 2.0 percent at its last meeting in April. The economy will still grow this year, but not much, Bank of Thailand Governor Prasarn Trairatvorakul told reporters. The central bank has forecast economic growth of 2.7 percent for this year, but it will review that forecast at the rate meeting.

June 13, 2014

International Vodafone’s last buyout heightens debt concern Debt anxieties are stalking Vodafone Group Plc as the company sets about constructing a European fixed-line network after the US$130 billion sale of its Verizon Wireless stake. Vodafone is seeking to become an integrated operator, offering mobile and fixed-line communication services across its core markets. To help achieve that goal, Europe’s largest telecommunications provider is on an acquisition binge, buying fixed-line assets from the U.K. to Germany and Spain. The most recent of these deals was the 7.2 billion-euro (US$9.7 billion) purchase of Spanish cable operator Grupo Corporativo Ono SA in March.

Intel loses court challenge to EU fine

U.S. chipmaker lost yesterday its challenge against a record 1.06-billion-euro (US$1.44 billion) fine handed down by European Union antitrust regulators five years ago for blocking rival Advanced Micro Devices. The European Commission in its 2009 decision said Intel tried to thwart AMD by giving rebates to PC makers Dell, Hewlett-Packard Co, Japan’s NEC and Lenovo for buying most of their computer chips from Intel. The EU competition authority said Intel also paid German retail chain Media Saturn Holding to stock only computers with its chips. Judges at the Luxembourg-based General Court backed the Commission’s decision.

BNP’s CEO to go amid US probe BNP Paribas’ 64-year old Chief Operating Officer is to retire on September 30 and will step down from his duties on June 30 at his own request, the French bank announced yesterday as it wrestles with U.S. authorities over a potential US$10 billion fine. New York’s banking regulator has asked that the long serving COO, Georges Chodron de Courcel, should go as part of a settlement involving sanctions violations, a person familiar with the matter told Reuters on June 5. BNP Paribas did not mention the investigation in its announcement.

Namibia bank plans debut bond sale The Development Bank of Namibia Ltd., which finances companies in the southwest African nation, will raise as much as 200 million Namibian dollars (US$19 million) this year in its maiden sale of debt. The state-owned lender is seeking to lessen its dependence on the National Treasury by raising its own funding, which will be used to provide loans to the bank’s business customers, Chief Executive Officer Martin Inkumbi said in an interview on Wednesday in Windhoek, the capital. Pricing is being finalized and the board hasn’t yet approved the proposal, he said.

Derivatives risk shifts to investors Rules have succeeded in cutting bank exposure to the opaque derivatives market

ilified for worsening the financial crisis, the credit derivatives market is undergoing a structural shift as money managers take on risk shunned by banks after regulators forced lenders to shrink their dealings. Investors now account for more than 25 percent of the US$19.9 trillion market, up from 20 percent a year ago, according to the Depository Trust & Clearing Corp. They issued a net US$132 billion of contracts insuring against losses on bonds as of June 6, the data show. This time last year they were net buyers of US$15 billion of insurance. While rules introduced after the collapse of Lehman Brothers Holdings Inc. to limit systemic risk have succeeded in cutting bank exposure to the opaque derivatives market, they haven’t reduced risk taking at less regulated institutions. U.S. lawmakers are considering also naming large asset managers systemically important enough for Federal Reserve oversight. “Risk taking has moved away from investment banks to the nonbank market makers, which have full freedom to lose their capital if they get it wrong,” said Frederic Ponzo, managing partner at financial consultancy Greyspark Partners in London, which advises banks. “If that build-up of counterparty risk is not accounted for and managed, you may move the problem out of banks to somewhere just as systemically important.”

Default protection Investors including Pacific Investment Management Co. have sold a collective US$4.5 trillion of default protection to banks and bought US$4.3 trillion of insurance, DTCC data show, as they seek to boost income after six years of interest rate suppression by central banks. With corporate bond yields approaching record lows and the

Lehman Brothers (headquarters in New York City pictured) bankruptcy triggered the financial crisis in 2008

supply of debt issued by sovereign, corporate and other borrowers forecast to fall US$460 billion short of demand this year, the derivative contracts are quicker, easier and cheaper to trade than the debt they’re tied to. “We use credit derivatives instead of buying bonds when they are cheaper than bonds,” said Eve Tournier, London-based head of European credit at Pimco, which manages US$1.9 trillion of assets. “In addition, they offer better liquidity, you can do bigger size and there’s often a tighter bid/offer spread. We collateralize the trade, so we’re taking the same risk, just through credit derivatives instead of bonds.”

Annual premiums Asset-management industry executives told the U.S. Financial Stability Oversight Council that their

firms aren’t systemically important because unlike banks, their funds aren’t backed by government guarantees. Fund companies don’t make large trades with their own assets, and clients direct their investments and can withdraw them at any time. In credit-default swaps, sellers receive annual premiums in return for agreeing to pay the buyer of protection an amount covering losses should a borrower fail to meet its debt obligations. The majority of trading is done on benchmark indexes and there’s a total US$82.7 billion of protection outstanding on the current version of the Markit iTraxx CDX North America Investment-Grade Index of swaps on 125 companies from Alcoa Inc. to Xerox Corp., compared with US$67.4 billion a year ago. Bloomberg News

France renews phone-merger push Bouygues Telecom, the nation’s third-largest carrier, said on Wednesday it plans to cut 17 percent of its workforce

conomy Minister Arnaud Montebourg said France will use all means to push a merger among its phone companies, a day after Bouygues SA said separate talks to merge with two rivals didn’t result in a transaction. Bouygues Telecom, the nation’s third-largest carrier, said on Wednesday it plans to cut 17 percent of its workforce after inconclusive talks over a possible linkup with Orange SA, the No. 1 provider, and Iliad SA, operator of the Free brand. French phone companies should agree on a deal that could soften price wars and make such job cuts unnecessary, Montebourg said. “Orange is one option, but there is also Free - it’s about time these

carriers agreed,” Montebourg said at a conference organized by Les Echos newspaper in Paris. “The state isn’t the decision maker in this matter, but we’ll use all means at hand to consolidate to three carriers in France.” Pierre Louette, Orange’s secretary general, said at the same event that the carrier could be “a player in potential market evolution.” Orange would consider the extent to which antitrust measures could affect the value of a potential deal, he said. Bouygues, the family-run construction and media conglomerate led by Martin Bouygues, plans to reduce annual costs at the phone unit by 300 million euros (US$406 million) by 2016, partly by eliminating

administrative, marketing and information technology positions, and shrinking its array of offers. This year, Bouygues Telecom was outbid by rivals to acquire Vivendi SA’s SFR phone business and Virgin Mobile, even though Montebourg had backed Bouygues’ effort. A 3 billion-euro price gap stood in the way of a combination of Bouygues with Iliad, people familiar with the matter said this week. Bouygues was seeking about 7 billion euros to 8 billion euros for the division, the people said. “After mobile price wars, what’s the point of starting fixed price wars?” Montebourg said yesterday. Bloomberg News

June 13, 2014

Opinion Business

wires

The interest rate enigma

Leading reports from Asia’s best business newspapers Claudio Borio

Head of the monetary and economic department at the Bank for International Settlements

THE JAKARTA GLOBE Rukun Raharja, an energy provider and distributor, has set aside US$120 million to construct three liquefied natural gas production facilities in the country in the next three years as part of its expansion plans. Jakarta-based Rukun Raharja plans to commence the construction of three LNG plants in East Java, Bali, and Balikpapan as soon as September this year. “We will supply LNG and gas to hotels and electricity power plants that still use fuel,” Rukun Raharja president director Budiman Parhusip said.

MYANMAR TIMES The flower farmers in Mandalay Region’s Pyin Oo Lwin township claim the land was confiscated from them in 2005 to build a pharmaceutical factory, but they continued growing flowers on the unused land around the factory in a liveand-let-live arrangement until a meeting last month. On May 23 factory officials met with the farmers, warning them not to cultivate flowers on the land. While negotiations about land use are continuing with the factory owners, the farmers must vacate in August, according to farmer U Phyo Lin Zaw.

THANH NIEN NEWS Vietnam’s real estate market has bottomed out and is showing some encouraging signs of recovery, an expert has said. Neil MacGregor, managing director of property services firm Savills, said the Vietnamese market would continue to see demand from investors from Japan, Singapore, and South Korea. Vietnam now offers an attractive destination for investors given that many other Asian markets, now at the top of their cycles, may begin to cool over the next few years, he said. “We believe Vietnam remains a key destination for real estate investment in the Southeast Asian region,” MacGregor told.

PHILSTAR Dominant carrier Philippine Long Distance Telephone Co. (PLDT) sees better earnings in the second quarter of the year fuelled by the company’s data and broadband businesses as well as fixed line segment. PLDT chairman Manuel V. Pangilinan said in an interview with reporters after the company’s 2014 Annual Stockholders’ Meeting that the country’s largest telecom company expects higher profits in the second quarter compared to the same period last year. PLDT recorded a P10.54-billion net income in the second quarter of 2013 on the back of revenues amounting to P42.14 billion.

Piti Disyatat

Director of research at the Bank of Thailand

ASEL – Today, the United States government can borrow for ten years at a fixed rate of around 2.5%. Adjusted for expected inflation, this translates into a real borrowing cost of under 0.5%. A year ago, real rates were actually negative. And, with low interest rates dominating the developed world, many worry that an era of secular stagnation has begun. How problematic low real rates are depends on the reason for their decline. The prevailing view is that the downward trend largely reflects a fall in equilibrium or “natural” interest rates, driven by changes in saving and investment fundamentals. In other words, a higher propensity to save in emerging economies, together with investors’ growing preference for safe assets, has increased the supply of saving worldwide, even as weak growth prospects and heightened uncertainty in advanced economies have depressed investment demand. This perceived decline in “natural” interest rates is viewed as a key obstacle to economic recovery, because it impedes monetary policy’s capacity to provide sufficient stimulus by pushing real rates below the equilibrium level, owing to the zero lower bound on nominal rates. How to stem the decline in equilibrium rates has thus become the subject of lively debate. Conspicuously absent from the debate, however, is the role of financial factors in explaining the trend decline in real rates. After all, interest rates are not determined by some invisible natural force; they are set by people. Central banks pin down the short end of the yield curve, while financial-market participants price longer-dated yields based on how they expect monetary policy to respond to future inflation and growth, taking into account associated risks. Observed real interest rates are measured by deducting expected inflation from these nominal rates. Thus, at any given point in time, interest rates reflect the interplay between the central bank’s reaction function and private-sector beliefs. By identifying the evolution of real interest rates with saving and investment fundamentals, the implicit assumption is that the central bank and financial markets can roughly track the evolution of the equilibrium real rate over time. But this is by no means straightforward. For central banks, measuring the equilibrium interest rate – an abstract concept that cannot be observed – is a formidable challenge. To steer rates in the right direction, central banks typically rely on estimates

of unobserved variables, including the equilibrium real rate itself, potential output, and trend unemployment. These estimates are highly uncertain, strongly modeldependent, and subject to large revisions.

Conspicuously absent from the debate, however, is the role of financial factors in explaining the trend decline in real rates. After all, interest rates are not determined by some invisible natural force; they are set by people

Moreover, central banks’ policy frameworks may be incomplete. By focusing largely on short-term inflation and output stabilization, monetary policy may not pay sufficient attention to financial developments. Given that the financial cycle is much more drawn out than the business

cycle, typical policy horizons may not allow the authorities to account adequately for the impact of their decisions on future economic outcomes. The fact that financial booms and busts can occur amid relatively stable inflation does not help. With financial-market participants as much in the dark as central banks, things can go badly wrong. And so they have. Over the last three decades, several credit-induced boom-bust episodes have caused major, sustained damage to the global economy. It is difficult to square this reality with the view that interest rates, which set the price of leverage, have been on an equilibrium path all along. The focus on fundamental saving and investment determinants of interest rates is entirely logical from the perspective of mainstream macroeconomic models, which assume that money and finance are irrelevant (“neutral”) for the output path in the long run. But successive crises have shown that finance can have long-lasting effects. Financial factors, especially leverage, not only can amplify cyclical fluctuations; they can also propel the economy away from a sustainable growth path. Indeed, a growing body of evidence shows that output is permanently lower in the wake of a financial crisis. All of this suggests that the trend decline in real interest rates does not just passively mirror changes in underlying macroeconomic fundamentals. On the contrary, it also helps drive them. Low interest rates can sow the seeds of financial booms and busts. Policies that do not lean against the booms but ease

aggressively and persistently during busts induce a downward bias in interest rates over time, and an upward bias in debt levels. This creates something akin to a debt trap, in which it is difficult to raise rates without damaging the economy. The accumulation of debt and the distortions in production and investment patterns induced by persistently low interest rates hinder the return of those rates to more normal levels. Low rates thus become self-reinforcing. This alternative perspective highlights the tradeoff inherent in ultraaccommodative monetary policy. Monetary policy cannot overcome structural impediments to growth. But the actions that central banks take today can affect real macroeconomic developments in the long term, primarily through their impact on the financial cycle. These mediumto long-term side effects need to be weighed carefully against the benefits of shortterm stimulus. While low interest rates may be a natural response to perceptions of a chronic demand shortfall, such perceptions are not always correct – and can be very costly over time. Laying the foundations of a sustained recovery requires measures to strengthen publicand private-sector balance sheets, together with structural reforms aimed at raising productivity and improving growth potential. More stimulus may boost output in the short run, but it can also exacerbate the problem, thus compelling even larger dosages over time. An unhealthy dependence on painkillers can be avoided, but only if we recognize the risk in time. The Project Syndicate 2014

June 13, 2014

Closing Alibaba and China Post to cooperate on logistics

China arrests 186 for environmental crimes

Alibaba Group and China Post are planning a joint smart logistics network in small cities and rural areas. Alibaba founder and chairman Jack Ma and China Post’s general manager Li Guohua signed a deal yesterday to deliver online purchases anywhere in China within 24 hours. The two companies will share warehouses, processing centres and delivery resources. Alibaba hopes to extend its reach to third and fourth tier cities and even the countryside with the help of China Post’s offices in rural areas. The two parties are also considering international deliveries through China Post’s global logistics network.

China arrested 186 people on charges of environmental pollution in 2013 in a total of 109 cases, environment minister Zhou Shengxian announced yesterday. He did not reveal how many were convicted. Environmental authorities shut down more than 3,500 companies and workshops in a nationwide campaign last year, uncovering 6,499 cases involving environmental problems, he said. A total of 706 cases related to environmental rule violations were transferred to police last year, more than the total of the previous 10 years combined, according to Zhou. The ministry has suspended environmental approvals for that failed the annual evaluation.

Premier Li lines up biz trip to UK Li will meet with British Prime Minister David Cameron in Downing Street on June 17

hina’s Premier Li Keqiang will discuss infrastructure, highspeed rail, nuclear and finance deals during a trip to Britain next week, as well as London’s role as an offshore yuan trading hub, a senior Chinese official said yesterday. Li will meet with British Prime Minister David Cameron at his London residence on June 17, a reciprocal visit following the British leader’s trip to China last year. Li will also go to Greece on the June 16-21 trip. British finance minister George Osborne opened the door to further Chinese investment during a visit to Beijing last year. He announced less stringent rules for Chinese banks operating in London, in a push to make the British capital the main offshore hub for trading in China’s currency and bonds. Osborne also paved the way for Chinese investors to take majority stakes in future British nuclear plants. Speaking to reporters ahead of Li’s visit, deputy Chinese commerce minister Gao Yan signalled further

Chinese Premier Li Keqiang (left) during a meeting in Beijing on Wednesday

agreements would be signed. “London has all along dedicated itself to becoming a renminbi trading centre. Relevant departments in China and Britain have had proactive investigations into this,” she said, using the formal name for China’s currency. “On this visit to Britain by Premier Li I believe that there will be positive developments on this issue, including on financial cooperation,” Gao added. “We will fully make use of London’s position as a financial centre to further

develop China’s finance industry.” China Construction Bank, China’s second-largest lender, has been selected to become the first clearing service for renminbi trading in London, the Financial Times reported this week. The internationalisation of the yuan is one of China’s most ambitious and hotly debated reform projects. From less than 1 percent in 2009, nearly a fifth of China’s trade is now settled in yuan. The objective is to increase the usage of the currency

for trade, investment, and as a reserve currency, while lowering forex risk for Chinese companies and reducing the country’s exposure to U.S. economic policy.

Free trade deal talk There could also be agreements on energy, infrastructure and high speed rail, Gao said, praising Britain’s open attitude towards foreign investment which she said was a “model” for the rest of Europe. “Britain has a sound

legal system, a transparent oversight environment. As long as companies accord with the law and the rules and demands of the regulators generally, then investment and business will have no barriers,” Gao added. She said that both countries should work to push for a multi-billion-dollar free trade deal between Beijing and the European Union. Cameron expressed his support for this when he was in Beijing in December, riling the EU executive that rejected the move as premature. On the Greek leg of Li’s trip, there will also be infrastructure and energy agreements, and China will encourage Chinese companies to participate in Greece’s privatisation programme, Gao said. She declined to provide details on any of the deals that could be signed in Britain or Greece, saying it would be a “surprise”. China’s Cosco Group and four other suitors have been shortlisted as potential buyers of a majority stake in Piraeus Port Authority OLP, Greek privatisation agency HRADF said last week.

Myriad bets on a weaker yuan

China to relax control over QDII, QFII

Chinese boycott Malaysian tourism

etting on a weaker Chinese currency is the best way for investors to protect an equity portfolio as China enters a protracted period of slowing growth, said Carl Huttenlocher, chief investment officer of Myriad Asset Management. A weaker yuan would spark export competitiveness, which has suffered in recent years due to sluggish global demand and a stronger exchange rate, Huttenlocher, the former Asia head of hedge fund Highbridge Capital Management, told the Sohn/Karen Leung Foundation Conference Hong Kong yesterday. A weaker currency would also stoke inflation and reduce China’s debt burden, which since the 2008 financial crisis, has risen to astronomical levels as compared with GDP, he said. It would also be the least painful alternative than a property market collapse or the sudden failure of a large financial institution, such as Lehman Brothers, being the other options for China. To play this trade, Huttenlocher recommended buying U.S. dollar call spreads traded against the offshore renminbi in the Hong Kong market. He expects the offshore yuan to weaken to 7 per U.S. dollar. Reuters

hina has signalled it will relax control over Qualified Domestic Institutional Investors (QDII) and Qualified Foreign Institutional Investors (QFII) in a showcase of its determination to speed up the yuan’s convertibility under the capital account. The People’s Bank of China, the country’s central bank, said Wednesday in its 2013 annual report that it will further expand the group of institutional investors under the QDII and QFII schemes and raise their investment quotas. “When the situation becomes ripe, the country will cancel the approval on qualifications and quotas to let all legitimate institutions at home and abroad enjoy investment opportunities,” the report said. China launched the QFII scheme in 2002 to allow licensed foreign investors to use offshore yuan to invest in China’s capital market. Currently, 229 institutions are included in the program with a combined investment quota of US$150 billion U.S. The QDII scheme was launched in 2006 to allow domestic institutions to invest abroad. More than 100 institutions are qualified at present with a combined quota of US$76.79 billion. Xinhua

Reuters

rrivals this year have been dented by the disappearance of a Malaysian Airline System Bhd. jet three months ago during a flight from Kuala Lumpur to Beijing. Tourists from China, the country’s third-largest source of visitors for Malaysia, cancelled their trips while travel agents there boycotted the airline. Malaysian Air’s bookings from China dropped 50 percent to 60 percent after Flight 370, carrying mostly Chinese passengers, vanished March 8, Hugh Dunleavy, the airline’s director of commercial operations, said last month. The national carrier is speeding up an overhaul of its business as the missing airplane places additional stress on its operations that have lost a total 4.57 billion ringgit since the start of 2011. Malaysian Air will review all routes, it said. Malaysia Airports plans to convert some oil-palm plantations surrounding Kuala Lumpur’s main air terminal into attractions such as theme parks, concert halls and golf courses to lure businesses and visitors. Bloomberg News