Macau Business Daily, June 17, 2014

MOP 6.00 Closing editor: Sara Farr Publisher: Paulo A. Azevedo Number 562 Tuesday June 17, 2014 Year III

Tougher transit rules M

acau authorities are to restrict the number of days mainland Chinese visitors can transit in Macau. Formerly seven days, the new rule imposes a five-day limit, effective July 1.

Infringements within 60 days will be penalised by a transit stay of one day only. Break the rules again within that period and a territory ban awaits PAGE

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www.macaubusinessdaily.com

Forget me Macau representatives are in South Korea for this year’s 41st Asia Pacific Privacy Authorities forum.

And along with 16 other jurisdictions are seeking the ‘right to be forgotten.’ Internet search giant Google has already set the ball rolling in Europe. Now Asians want dated and invasive posts deleted from cyberspace Page

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Limited ownership The Chinese Government says foreign investors will be able to only hold up to 10 percent of a mainland listed company Page

More power

11

HSI - Movers

There’s a growing demand for electrical power.

Consumption will increase exponentially in the coming years. By 2016, Macau will have a third power supply cable to meet its demands. But it means 95% of the territory’s power will be generated by China Page 2

June 16

Name

%Day

China Overseas Land

2.22

Hang Lung Propertie

1.49

Lenovo Group Ltd

1.01

PetroChina Co Ltd

0.95

Sino Land Co Ltd

0.95

Want Want China Ho

-1.14

Tingyi Cayman Islan

-1.16

Galaxy Entertainme

-1.37

Kunlun Energy Co Lt

-1.39

Hengan Internation

-1.92

Source: Bloomberg

I SSN 2226-8294

Sharing the pain

Virtual vending Bitcoin ATM machines are coming to Macau. The Hong Kong-based distributor of Coinnect plans to install two bitcoin ATM machines in Macau this month. With more planned for both SARs Page

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Wells Fargo says shares of Las Vegas Sands and Wynn Resorts will be hard hit in the coming months. As Macau’s performance slows and negative investor sentiment continues, local problems may come home to roost in the States Page 5

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June 17, 2014

Macau

Macau in Seoul for Google talks Together with Hong Kong, Australia and New Zealand, the territory wants the ‘right to be forgotten’

M

acau representatives are in Seoul, South Korea for talks with Internet search giant Google for the ‘right to be forgotten’ alongside Hong Kong, the US, Canada, Australia, New Zealand and 15 other jurisdictions.

The ruling is already in place in Europe, and now other countries will follow suit during this year’s 41st Asia Pacific Privacy Authorities forum that takes place today.

Hong Kong’s privacy commissioner Allan Chiang Yam-wang is quoted by neighbouring SAR newspaper South China Morning Post as saying that he and his regional counterparts will press Google to extend the same safeguards here.

Last month, the European Court of Justice ruled that people have the right to request that personal information about them be deleted from the Internet in cases that are ‘inadequate, irrelevant, no longer relevant or excessive.’

Mr. Chiang said Google should do the same here. “As a responsible enterprise, Google should also entertain removal requests from other parts of the world to meet their privacy expectations,” he is quoted as saying. “We are not exercising a legal right but requesting a service that is available to EU citizens,” he added.

According to the newspaper report, Mr. Chiang said there needs to be a balance between an individual’s right to be forgotten and the public’s right to know. He cited as examples that served convictions, old debts,

Flip the switch A number of properties around the territory flipped their switch for one hour in support of the Macau Energy Conservation Week 2014 “Lights Off” Campaign organized by the Office for the Development of Energy Sector of Macau. One of the properties taking part in the annual initiative was MGM China (pictured).

old bankruptcy records and false allegations have been erased.

Since last month’s ruling, Google has received 41,000 requests, of which 12,000 were made the day after the court decision.

Macau and Philippines hold air talks today

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ir talks between the Philippines Civil Aeronautics Board (CAB) and Macau authorities take place today and tomorrow. The meeting is seen by the Philippines authorities as an opportunity to increase traffic rights and expand air carrier services.

The current air service agreement between Macau and the Philippines was signed in 1997. The last negotiation took place in June 2013 and increased seat entitlement from 3,500 seats a week to 4,500.

Philippines executive director of the Civil Aeronautics Board Carmelo A. Arclilla was quoted by Business World Online as saying there is no target number for new seat entitlement.

“The meeting will be held on June 17-18 in Macau. We don’t have a target number yet. We’ll just allow the negotiations to take their course,” he is quoted as saying.

However Mr. Arcilla has said before that the country’s seat entitlement is not considered that high.

Third cable to import electricity from mainland B

y 2017, Macau will see its third power supply cable to meet the city’s growing demand for power consumption for the next decade, the head of Office for the Development of the Energy Sector Arnaldo Santos said.

The two existing networks for power supplied from state-owned China Southern Power Grid, situated in Gongbei Port and Lotus Port, respectively, account for 95 percent of local power consumption.

With the building of the new power supply cable in 2017, the total capacity of power supply will reach 3,150 megawatts, sufficient to feed the city’s electricity needs for another decade, Mr Santos told media on Sunday.

The existing power generation facilities at the CEM plant in Areia Preta will be gradually disassembled in 2016, with the site slated for use as a public housing project, the government announced earlier.

However, previous discussions with the Customer Liaison Committee of the city’s sole power supplier Companhia de Electricidade de Macau SA (CEM) had concluded that the over-reliance on power imported from mainland China may impose certain risks regarding Macau’s stability of power supply.

During a discussion on May 27, Committee vice president Mr. Iun Iok Meng said that the local government should discuss the viability with the central government of opening the market to upstream power suppliers, so that Macau can purchase electricity from other suppliers and reduce its reliance on China Southern Power Grid.

The approximately five percent of power generated locally comes from three power stations – one on Macau Peninsula and two in Coloane – which in total can generate 472 megawatts (MW).

A.U.

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June 17, 2014

Macau

Transit stays shortened for mainland visitors from July 1 The Public Security Police have announced further restrictions on the maximum length of stay for transiting mainland visitors Stephanie Lai

sw.lai@macaubusinessdaily.com

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rom July 1, mainland Chinese passport holders transiting in Macau to and from another country or territory will be granted a maximum stay of five days instead of the current seven days here, according to an announcement by Public Security Police yesterday evening.

Under current immigration rules, mainland passport holders can stay in the territory up to seven days if they use Macau as a transit to other destinations, and another 2 days following a second entry within 30 days.

In a press statement released yesterday evening, the police announced that this seven-day maximum stay for transiting mainland visitors would be shortened to five days.

Mainland passport holders violating the amended transit visit rule and not having departed for an overseas destination will be granted only one day of stay in the city upon a second entry within 60 days, the police said.

‘If the mainland passport holder is found violating the transit visit rule again, and he or she is entering Macau for a third time within 60 days, this passport holder will be rejected entry into the territory,’ the police added.

The new measure, as the police wrote in the press statement, is to ‘prevent Chinese passport holders from faking an overseas journey while their real purpose is to stay in Macau.’

In 2013, the Cabinet of the

Secretary for Security recorded a total of nearly 2.64 million Chinese visitors entering Macau from the mainland using visas for an overseas journey.

However, only 547,836 of these visitors – or 20.8 percent – exited Macau through the city’s airport or ferry terminals in ZAPE or Taipa, according to figures released by the Cabinet in answer to an enquiry filed by local legislator Antonio Ng Kuok Cheong.

From 2010 to 2012, the Cabinet said, the proportion of the millions of mainland visitors exiting Macau’s airport and ferry terminals after entering the city using a visa for overseas journey only ranged from 16 percent to 18 percent, Cabinet figures reveal. The number of mainland visitors entering the city using the visa for overseas journeys grew from 1.79 million in 2010 to 2.28 million in 2012.

The security units here already spoke of a transit visit rule change in early May this year, when state-run broadcaster China Central Television (CCTV) screened an exposé report showing the loopholes mainlanders employed to bypass normal visa procedures to visit Macau.

At the time, CCTV reported that travel agencies and even grocery stores in mainland cities like Zhuhai, bordering Macau, and Shenzhen, next to Hong Kong, helped mainlanders obtain visas for other destinations like Guinea and Cambodia.

The last amendment to the transit visit rule targeting mainland visitors came into effect on August 1, 2008, when local police lowered the maximum length of stay for a mainland passport holder transiting Macau from 14 days to seven days.

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June 17, 2014

Macau

Coinnect to install bitcoin ATMs in Macau Macau will see the first two-way bitcoin exchange kiosks this month, Hong Kong-based Coinnect says Stephanie Lai

sw.lai@macaubusinessdaily.com

M

acau will see its first bitcoin ATM machines that enable users to top up their bitcoin balance by using cash or vice versa before the end of June, Hong Kongbased distributor of the bitcoin ATM machines Coinnect has confirmed to Business Daily.

The Hong Kong distributor plans to install two bitcoin ATM machines in Macau this month, branded under the name of ‘Coinnect’ and manufactured

by U.S.-based bitcoin ATM software development company Genesis Coin Inc., although the distributor declines to disclose where these machines will be installed.

With the bitcoin ATM machines, users can actually sell bitcoins and other altcoins by activating their personal e-wallet installed as a mobile phone application, and obtain flat money directly in front of the machine.

Business Daily asked the Monetary Authority whether there are any special limitations on bitcoin trade in the city, and special customer identification functions that the machines should be installed with, but did not get a reply by the time the story went to press.

As Coinnect announced in late April, the distributor is planning to launch a total of twenty bitcoin exchange kiosks in Hong Kong and Macau.

China saw its first bitcoin ATM machine installed by one of the country’s leading digital currency exchanges - BTC China - in a mall cafe in Shanghai’s Zhangjiang technology park area in April, Reuters reports. The ATM machine enables people to buy bitcoins directly from the exchange of yuan inserted into the machine, but users cannot withdraw cash from it.

BTC China has also launched a web app that permits bitcoin transactions on a direct peer-to-peer basis, as opposed to selling them on an open exchange.

However, China is strictly scrutinising bitcoin activity. Chinese financial news agency Caixin reported last Thursday that the Payments and Clearing Association of China, a national non-profit organisation

operating under the business guidance and oversight of the People’s Bank of China, is recommending stricter enforcement of exchange funding rules, under which banks are advised to conduct a periodical search of account names, and comment sections in money transfers in order to prevent bitcoin users from using their bank accounts to deposit funds in bitcoin exchanges.

Corporate Macau Sailing Association tacks to sponsors Representatives of Galaxy Entertainment, the Miramar Restaurant and Macau Anglican College visited Macau Sailing Association’s (AVM) facilities last Saturday. The three sponsors made cash donations so that the AVM could purchase new youth training dinghies for the Association.

The newly acquired dinghies – which will replace the old ones that were more than 20 years old and difficult to maintain – will include a Gennaker sail that facilitates higher performance training.

Representatives present on the visit were Buddy Lam and Catherine Lu for Galaxy Entertainment, Antonio Peralta, the owner of Miramar Restaurant, and Robert Alexander, vice principal of Macau Anglican College. William Kuan, president of the Macau Sailing Association, welcomed the representatives of the long-time supporters of Macau sailing.

Galaxy is a regular sponsor of the Macau Team in the Hebe 24-hour Dinghy Race; Miramar Restaurant on Hac Sa Beach permitted dinghies to be parked in the restaurant prior to their removal to the Government Sailing Centre; and Macau Anglican College has provided the bulk of young sailors.

AVM is now focused on the Macau International Dinghy Regatta 2014 scheduled to take place off Hac Sa Beach on June 21 & 22, in which more than fifty boats and 90 sailors will compete.

Environmental Protection Bureau director reassigned T he incumbent director of Environmental Protection Bureau, Cheong Sio Kei, is to step down from his post, and is to be assigned the position of director for the Cartography and Cadastre Bureau on June 29, the cabinet of the Secretary for Transport and Public Works announced in a press release yesterday afternoon.

The cabinet did not elaborate much on the sudden personnel change. The Environmental Protection Bureau is an organ created in June 2009 to take charge of the city’s environmental policy and pollution control.

‘On May 27 this year, Mr. Chan Hon Peng retired from his position as the director of the Cartography and Cadastre Bureau after [working for] the civil service for over 36 years,’ the cabinet explained in the press release.

‘From then on, the chief of the Department [of Cartography] has assumed the [position of] acting director for the [Cartography and Cadastre] Bureau, but there is a need to quickly assign the director post,’ the cabinet wrote. ‘After much consideration, the director of Environmental Protection Bureau Cheong Sio Kei is to take up the post.’

Prior to serving as the director for the Environmental Protection Bureau

Cheong Sio Kei

since its inception, Mr. Cheong had served as the acting director of the Cartography and Cadastre Bureau.

Following Mr. Cheong’s reassignment, the incumbent deputy director of the Environmental Protection Bureau, Mr. Vai Hoi Ieong, is to assume the acting director post for the Bureau, the cabinet announced.

S.L.

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June 17, 2014

Macau

Sands, Wynn stocks wobble; may underperform market by 10pct The US shares of two operators are likely to suffer most in the coming months as negative investor sentiment continues and the slowdown of Macau’s performance carries the gaming volatility crisis to the US Alex Lee

Alex.lee@macaubusinessdaily.com

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he deceleration of Macau’s gaming revenues - plus the increasingly negative short term sentiment of investors regarding casino stocks - will hit Las Vegas Sands and Wynn hard, as their shares are set to underperform the overall market by at least 10 percent in the coming months.

According to Wells Fargo, Las Vegas Sands and Wynn stocks could dive by around 10 percent below the US market median in the near term as their companies in Macau – Sands

China and Wynn Macau, respectively – suffer from slowing revenues here and a wave of pessimism by investors.

If the expected ‘choppy’ 2014 in Macau has already put casino stocks on the downside this quarter on the Hong Kong Stock Exchange, volatility is now spreading to the US gaming operators’ shares. ‘There could be a 10 percent downsize risk for LVS and Wynn,’ says Wells Fargo. The 10 percent underperformance is compared to the evolution of the S&P 500, the index listing the biggest

The market hasn’t bottomed out yet Wells Fargo

companies in the US. The expected fall in share values for Wynn and LVS is due to the fact that VIP revenues in Macau ‘have only started decelerating as competition gets tougher,’ meaning less potential gains for both operators in the future here.

Wells Fargo points out that credit growth, an essential driver for VIP segment, is still negative, while the latest economic data from China remains ‘weak,’ signalling that a mainland rebound is uncertain.

Unlike the mass market, VIP revenues have a high and positive correlation to credit and economic tides in China.

The US bank analysts added that the consensus for second quarter revenues performance in Macau ‘is still high.’ The majority of research companies evaluating the casino industry expect revenue growth of 7 percent, while Wells Fargo estimates a hike of between 1 and 5 percent this quarter.

‘Sentiment is clearly more negative and short interest has increased,’

warns Wells Fargo. ‘We see recent downgrades and cuts to market growth consensus as a sign that short term valuations are bottoming out but, based on our valuation analysis, we don’t yet believe we’re at shortterm bottom,’ added the US bank in a note to clients.

Following a record peak on April 3, Las Vegas Sands shares since then have lost 10 percent of their value from US$88 to US$76, with the same happening to Wynn Resorts dropping from US$245 to US$205 in the same period.

For Melco Crown, the other casino operator listed in the US with Macau operations, Wells Fargo believes the drop in shares will be ‘more limited’ than the other two competitors. In Hong Kong, the gaming shares have already lost around 20 percent in the last three months with investors fearful of the implications of several events in Macau - from crackdowns on illegal money transfers to junket arrests to visa restrictions to slowing VIP revenues.

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June 17, 2014

Macau Brands

Trends

Next season’s Resort Wear Raquel Dias newsdesk@macaubusinessdaily.com

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ven if you have no clue what resort wear means you’ve probably noticed that some shops tend to cater for a specific season. With travelling becoming evermore accessible and the longing for warmer weather a definite trend, the fashion industry rapidly understood that there was a whole new market to cater to.

The higher prices of these products are easy to understand as they’re specially created for customers who can afford to travel in the winter months to tropical climes.

Resort wear is generally made from easy to pack, lightweight, breathable, fabrics. The goal is to have a clean, casual yet fashionable look.

The universal Hawaiian shirt is a must, complete with nautical theme in light shades.

However, resort wear (or cruise wear) doesn’t necessarily mean khaki shorts and flip-flops.

Although the trend started with brands like Banana Republic, luxury brands like Chanel and Oscar de la Renta quickly followed suit.

If your pocket doesn’t allow you to splurge too much on holiday essentials, but you still like quality, do have a look at the latest items from Michael Kors for 2015 that have just been showcased.

The contrasting feminine colours and strong parkas make a strong, bold statement.

Sniper picks off Taipa properties

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ith ten properties in Taipa, real estate fund manager Sniper Capital aims to turn the area into one of the major food and shopping centres in Macau in the next decade in anticipation of capitalising on the growing numbers of tourists and greater demand for hotels and shops.

Associate director Karen Lau says that after buying ten properties in Taipa, it will start investing and redeveloping them one by one as restaurants and shops. Four are already in the pipeline. Sniper has

invested HK$6.5 million already in Casa de Tapas restaurant, excluding real estate costs, while António is another restaurant ready to shine in the area. Mrs. Lau added that they have closed a deal with famous Portuguese steak house and seafood chain Portugália to open its first restaurant here.

Sniper is financed by two private closed-end funds, Macau Sniper Fund and Macau Leisure Income Fund. Besides Taipa, Sniper is seeking out opportunities in Macau and Zhuhai. “We want

to have a very comprehensive portfolio,” the associate director told Macau Business.

With a wave of new casinos set to open up to 2017 in Cotai, Sniper Capital expects a flood of tourists and potential buyers in the territory. With more customers buying and eating in Macau, Sniper has already asked the government to allow the company’s residential building in Senado Square to become a luxury shopping mall.

If the project is approved, the mall will offer seven storeys and 70,000 square feet of space in one of the most touristic parts of the territory. Sniper hopes that the green light from the government happens in the second half of the year.

The full story can be read in this month’s issue of Macau Business magazine, available at newsstands or online at www.magzter.com.

Local air quality worsening

T

he quality of air in Macau has worsened over the years, with the Meteorological and Geophysical Bureau saying that between September and February the most dangerous pollutants to human health reach high levels.

Last year, there were 18 days of bad air quality in the territory, with six of very bad air quality. That is a day more than in 2012.

The chief of the climate and atmospheric environmental centre of the Bureau, Ivan Leong Weng Kun, says it is worst between September and February because of the direction of the winds blowing into Macau, bringing pollutants from nearby

Chinese cities. Of all these pollutants, the most harmful to human health is PM10 and, especially, PM2.5.

“Particulate matter is very small, less than 2.5 micrometres. If you breathe them, when you suck it into your body, the PM10 might just go to the head, whilst the PM2.5 goes directly to the lungs,” says Mr. Leong.

The Bureau calculates the level of pollutants in the air and, depending on the concentration, divides the quality of air into five categories: good, moderate, bad, very bad, severe and harmful. According to Mr. Leong, most of the year Macau’s air condition is good to moderate, having also reached bad and very

bad levels but having never reached severe and harmful levels.

He also explained that pollutants like sulphur dioxide and carbon monoxide may irritate the “nose, throat and bronchus,” while small particulates such as PM10 and PM2.5 cause inflammation of the heart, lungs and blood vessels.

The Environmental Protection Bureau says that in its 10-year plan, taking it to 2020, one of the goals is to alleviate Macau’s atmospheric pollution, making the city easier to live in and suitable for tourism.

The full story can be read in this month’s issue of Macau Business magazine, available at newsstands or online at www.magzter.com.

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June 17, 2014

Macau

GTECH, Perelman vie for IGT Both companies have made preliminary takeover offers for slot machine maker IGT and are preparing to submit binding bids in the next few weeks

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ottery operator GTECH SpA and billionaire Ron Perelman’s MacAndrews & Forbes Holdings are competing to buy Las Vegas slot machine maker International Game Technology (IGT), people familiar with the matter said.

Shares of IGT jumped nearly 11 percent to US$15.84 in midday trading on news of the bidders, giving it a market value of close to US$4 billion (32 billion patacas).

Private equity firm Apollo Global Management LLC, a seasoned investor in the U.S. gaming sector and a co-owner of Caesars Entertainment Corp, is also pursuing a bid, as is buyout firm Carlyle Group LP, the people said.

The parties made preliminary takeover offers for IGT and are preparing to submit binding bids in the next few weeks, the people said, asking not to be named because the matter is not public.

On Monday, Reuters reported that IGT has hired Morgan Stanley to explore a sale and has received interest from gaming companies and private equity firms.

IGT yesterday admitted in a statement that it is open to changes in its structure that would maximize shareholder value. However, IGT denied that in relations to its future any decision has already been made.

“IGT regularly considers, and on occasion explores, a broad range of strategic alternatives, including but not limited to business combinations, changes to our capital structure and adjustments to our portfolio of businesses, with the goal of maximizing shareholder value,” the statement reads, adding that the company’s board of directors “are currently engaged in such an exploration, but no decisions have been made by the Board regarding any particular alternative available to the company and there can be no assurances that any transaction or other strategic change will be entered into as a result of the current exploration of alternatives.”

GTECH, Apollo and Carlyle declined to comment. A MacAndrews & Forbes representative did not respond to requests for comment.

IGT makes popular slot machines bearing a variety of brands such as that of television show “Wheel of Fortune”

and science fiction film “Avatar.” The company branched out into social gaming with the 2012 acquisition of Double Down Interactive LLC, developer of the DoubleDown Casino on Facebook Inc. The company had US$2.2 billion of debt at the end of March, suggesting the deal’s enterprise value could approach US$6 billion.

Italian gaming company GTECH, known as Lottomatica Group until a year ago, is the world’s largest operator of lotteries. It operates Italy’s Lotto game and several U.S. state lotteries. It has a market capitalization of around US$4.6 billion.

MacAndrews & Forbes Holdings Inc is a diversified holding company wholly owned by billionaire investor Ron Perelman. With interests in public and private companies, it serves as Perelman’s primary investment vehicle.

Among other investments, MacAndrews has a nearly 40 percent stake in Scientific Games Corp, a New York-based lottery operator at which Perelman is chairman.

GTECH is roughly 60 percent owned by Italy’s De Agostini Group, which expanded its Lottomatica empire with the 2006 acquisition of U.S. gaming company GTECH. The company expects strong synergies from a potential combination with IGT, and may also team up with a private equity firm to help with the purchase, two people said.

Despite serious bid attempts by both GTECH and MacAndrews & Forbes, it is not clear if they would be preferred buyers. IGT management has indicated it would prefer a sale to private equity, according to several people familiar with the situation.

Any private equity buyer would require the necessary gaming licensing to own IGT. Carlyle may be pursuing a strategic partnership for that reason, some of the people said. Apollo is an investor in Caesars alongside TPG Capital LP. A potential sale of IGT would follow several deals involving slot machine makers in the past year.

Last year, Bally Technologies purchased gaming equipment provider SHFL entertainment for US$1.3 billion, while Scientific Games purchased slot machine maker WMS Industries for US$1.5 billion.

Reuters with A.L.

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June 17, 2014

Macau

Possible delay on Japanese casino bill Political wrangling threatens to delay a casino bill as gaming operators Las Vegas Sands and Melco Crown vie to win the first licences

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Japanese opposition politician has submitted a set of demands to ruling party lawmakers proposing a bill to legalise casino gambling, pushing back muchanticipated parliamentary debate to tomorrow at the earliest.

The delay raises the risk of the bill failing to pass parliament this year, which would dampen the hopes of global casino firms keen to unlock a gaming market expected to be worth up to US$40 billion (160 billion patacas) a year in time for the 2020 Tokyo Olympics.

Pro-casino lawmakers had aimed to begin debate in the lower house this week – before the end of the regular parliament session on June 22 – and carry the bill over into an expected session in the Autumn when they would aim for its passage.

But Yosuke Kondo, a Democratic Party lawmaker who is one of two senior directors in the lower house committee handling the bill, said he made demands of the ruling party that should be met before he will agree to allow debate to start.

Kondo said his demands were aimed at ensuring the bill receives sufficient discussion, such as requiring the chief cabinet secretary and other key officials to be made available for debate.

“This is a very important piece of legislation. It needs to be discussed thoroughly,” Kondo, who as the leading opposition director in the cabinet committee can in principle block the debate of a bill, told Reuters in an interview.

Kondo left open the possibility that he would allow debate to start next Wednesday when the cabinet committee is due to meet again, just four days before the current session of parliament closes.

“It will be impossible to pass the bill this session,” Kondo said, adding that he was not necessarily against the idea of allowing casinos in Japan and could see a chance of the bill passing in the Autumn session.

The bill submitted to parliament sets the basic legal framework for allowing casinos. If the bill passes, debate will move to a second bill concerning concrete regulations, which proponents hope to pass next year.

Global companies, including Las Vegas Sands Corp and Melco Crown Entertainment Ltd, are vying to win the first licences to operate casinos in Japan, a market brokerage CLSA estimates could generate annual revenues of US$40 billion.

Reuters

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June 17, 2014

Greater China

Fine-tuning adds up to stimulus by stealth PBOC has relied on four low-key adjustments that have added a total of 550 billion yuan into the banking system

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hina’s piecemeal approach to loosening monetary policy this year may be discreet, but the cumulative effect is proving just as powerful as an outright cut in bank reserves.

Wary of being criticised for not doing enough to wean the world’s second-largest economy off its reliance on easy credit and heavy investment, authorities have ruled out major stimulus even as growth slowed to an 18-month low in the first quarter.

Instead, the People’s Bank of China (PBOC) has relied on four low-key adjustments that have added a total of 550 billion yuan (US$88 billion) into the banking system, a calculation based on a Reuters poll and information from sources shows.

That is equivalent to an economywide 50 basis point cut in the reserve requirement ratio (RRR), the level of reserves that banks must hold, a splashier move which would also have released 550 billion yuan in one stroke.

The four moves -two reductions in the RRR for selected banks and two big loans to commercial banks- are designed to direct cash to where its needed in the economy, and thwart speculative investment.

Characterising these changes as a “fine-tuning”, the central bank has been adamant that overall monetary policy has not changed and remains prudent.

We need to take a holistic view about monetary easing. The approach is called ‘fine‑tuning’ because they did it bit by bit, but the accumulated impact is not small Wei Yao, economist at Societe Generale

“We need to take a holistic view about monetary easing,” said Wei Yao, an economist at Societe Generale in Hong Kong. “The approach is called ‘fine-tuning’ because they did it bit by bit, but the accumulated impact is not small.”

More than meets the eye Falls in the exchange rate and short-term interest rates have further

loosened monetary conditions.

The rolling monthly average for the benchmark short-term interest rate, the seven-day bond repurchase rate, has fallen 110 points since April, when the stimulus steps began, to 3.7 percent. And the yuan has fallen 2.5 percent this year.

Investment bank JPMorgan compiles a monetary conditions indicator that tracks the impact of changes in China’s credit growth, excess reserves, real exchange rate and one-year interest rates.

Liquidity has become more ample, said Zhu Haibin, an economist at the bank, with the indicator suggesting monetary conditions eased by about 20 percent in April from March.

Pump-priming?

The government has also made a number of fiscal policy announcements, including faster spending of budget

funds, tax cuts for some industries, and infrastructure projects, but their immediate impact is harder to quantify.

On April 2, the government began its stimulus by saying that it would speed up construction of rail lines and build 18 percent more railway tracks this year compared to 2013.

In May, authorities sent out an urgent instruction to local governments to ramp up spending and finalise 2014 budget allocations by the end of June or risk losing the funding.

The threat looks to be working.

Government spending in May leapt 25 percent from a year earlier, with infrastructure investment jumping 16 percent.

Money spent on unspecified public works such as parks, the third-biggest expenditure item at 451 billion yuan in the first five months of the year, bounded up by 22 percent.

Reuters

10

June 17, 2014

Greater China Service outsourcing industry booms Service outsourcing has become a major growth industry in China, with its value reaching 1.7 trillion yuan (about US$272 billion) in 2013, said a report released yesterday. The figure represented about 2.97 percent of the country’s gross domestic product last year and contributed 0.8 percent of China’s economic growth, said the “2014 Development Report of China’s Outsourcing Brand Development.” It was released by the Chinese Academy of International Trade and Economic Cooperation at the Global Service Trade and Outsourcing Summit, which runs from Saturday to Monday in Qingdao of east China’s Shandong Province.

Guideline to accelerate household registration A new central government guideline is set to step up reform of China’s household registration system and mark a new step in its urbanization drive, Shanghai Securities News reported yesterday. The State Council, China’s Cabinet, will issue the guideline soon, said Chen Xiwen, deputy director of the Central Agricultural Work Leading Team, a top decision-making body for agriculture-related work.

Having been approved by the central leading team for “comprehensively deepening reform,” the guideline is awaiting deliberation by the Political Bureau of the Communist Party of China Central Committee, Chen said, without disclosing any of its details.

Ping An Bank to list ABS on stock exchange Ping An Bank will become the first Chinese company to issue asset-backed securities on a mainland exchange, a major step forward in official efforts to make bank assets more liquid so that loans can be made without increasing money supply. Market sources have told Reuters that regulators plan to grant quotas totalling 300 to 400 billion yuan for firms to sell asset-backed securities (ABS) in coming years as a tool to shift risk away from the banking system, reducing the chances of a financial crisis as economic growth slows and bad loans increase.

China’s Li flies into UK to Andrew Osborn and Ben Blanchard

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hinese Premier Li Keqiang arrived to Britain yesterday for the first time since taking office on a visit focused on moving the relationship beyond the political differences of the past and signing more than US$30 billion of deals.

Britain’s relations with China took a nosedive in 2012 after Prime Minister David Cameron met the Dalai Lama, the Tibetan spiritual leader whom Beijing says is a separatist.

Ties have recovered somewhat since, and Cameron visited China last year.

Tensions remain, however. Beijing warned London on the eve of Li’s visit not to lecture it on the subject if it wanted good economic ties, after Britain angered China in April when it criticised its human rights record in a report.

Britain is expected to take the opportunity to announce it is easing some visa restrictions on Chinese citizens, a long-standing request from Beijing which has complained current arrangements are overly lengthy, bureaucratic and opaque.

Li will hold talks with Cameron and will also meet the Queen. China’s ambassador to Britain on Friday robustly rejected local media reports that Beijing had threatened to cancel the trip if Li was not granted an audience.

In speeches to Chinese and British business people, as well as think tanks,

Li is expected to make reassuring comments about slowing growth in China to try to shore up confidence in the world’s second biggest economy.

Deals Boosting business between Britain and China is one of the visit’s main aims. China views Britain as Europe’s most open economy and is keen for its firms to invest in nuclear and high-speed rail projects.

It also wants the government to ensure London’s Heathrow airport is expanded. Two large Chinese investment funds are expected to announce plans to plough new money into Britain during the trip.

London wants to develop as an offshore yuan trading hub and there may also be deals related to that. China has said the visit should yield business deals worth a total value of over US$30 billion.

Ahead of the trip, Vice Commerce Minister Gao Yan said China’s in-

More iron ore mines to shut Sharp drop in iron ore prices could force firms to close

Guangdong to auction carbon permits Guangdong will put an extra 1.87 million permits up for sale in an auction on June 25, marking the last chance for laggard firms to buy ahead of a compliance deadline set for next month. Guangdong’s carbon market, one of China’s seven pilot exchanges and covering a total of 635 enterprises in the province, already postponed the compliance deadline to July 15, from the original date of June 20, after 64 firms refused to participate in previous auctions. The permits will be available to those 64 companies following a re-evaluation of their emission levels.

Rio Tinto (owner of the pictured mine) will supposedly benefit from China’s mine closures

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June 17, 2014

Greater China

talk trade

Ownership limits on HK-SHG cross-border stock market A single foreign investor will not be able to hold more than 10 percent of a company listed on a mainland exchange

KEY POINTS

C

Li’s first visit to Britain since he took office Focus of trip is business and investment China warned Britain on eve not to lecture it on rights Li is to visit Greece later in the week

has pursued an extremely busy agenda for the last few months

vestment in Britain had jumped from US$840 million in 2008 to US$12.4 billion in 2013.

“China is willing to import even more high-tech goods, services and products from Britain,” Gao said.

She said she hoped Britain would push Europe to lift curbs on exports of high-tech goods to China and said Beijing wanted British help to explore a EU-China free trade deal.

Li’s main schedule is on Tuesday and Wednesday, after which he is due

to fly to Greece for a June 19-21 visit.

In Greece, Li is expected to focus on the debt-ridden country’s privatisation programme and the opportunities it offers Chinese firms.

He is likely to visit Piraeus port, which is being privatised and where China’s Cosco has been short-listed to buy a majority stake, and Crete, where Greece is seeking investment in a new major airport estimated to cost 1.5 billion euros.

Reuters

T

his year’s sharp drop in iron ore prices could force China to close up to 80 million tonnes of domestic mine production, more than a fifth of its total annual output, consultancy Wood Mackenzie said yesterday.

The ability of mines in China to weather a sustained fall in prices for the steel-making ingredient has been debated since fixed annual pricing was scrapped five years ago for shortterm indexing.

China’s domestic industry is highly fragmented, with producers in coastal areas believed to be facing some of the highest costs in the country - well above the price of imported ore.

Wood Mackenzie analyst Andrew Hodge said that further mine closures would likely benefit Rio Tinto, BHP Billiton and Fortescue Metals Group, which mine the Australian Pilbara iron ore belt on much higher profit margins. Brazil’s Vale would also gain, he said.

The benchmark iron ore price dropped to a 21-month low of US$91.50 a tonne late last week, as a supply glut smothered a market faced with slower steel demand. The price has plunged a third so far this year.

Hodge estimated at least 40-50 million tonnes of higher cost Chinese mine production, mostly in coastal areas where iron ore is typically of lower quality, was already earmarked for closure.

He said that could rise to as much as 80 million tonnes given the price outlook for the rest of 2014.

“The bulk of private production in the coastal region will be in distress at current levels,” Hodge told a media briefing, putting China’s total domestic production at around 350 million tonnes a year.

When iron ore prices plummeted as low as US$60 a tonne in 2009, China saw “huge closures” in the

hina has specified ownership limits for overseas investors buying shares in companies listed in China via the recently announced Hong Kong-Shanghai cross-border stock investment pilot programme.

According to rules published by the China Securities Regulatory Commission (CSRC) over the weekend, a single foreign investor cannot hold more than 10 percent of a company listed on a mainland exchange. The programme is set to launch in October.

The maximum combined holdings of all foreign investors in a single Chinese listed firm will be 30 percent, the CSRC announced, but added that these limits do not include stakes held by strategic investors.

The regulations did not define what it meant by “strategic investors” but in China the term is ordinarily used to describing long-term investors, many of whom typically have their shares subject to a lock-up period extending several years.

The CSRC published a draft of the regulations in May to seek public opinion. The announcement over the weekend means that rules have now been finalised.

China announced in April that it would allow cross-border stock investment between Shanghai and Hong Kong in a step towards opening China’s capital account and also letting Chinese individuals buy foreign equities overseas.

The programme will allow foreign individuals to buy Chinese stocks directly for the first time, although the selection is restricted mostly to dual-listed shares and index heavyweights.

Currently, only selected foreign institutions are permitted to trade Chinese equities through mutual funds operating under the Qualified Foreign Institutional Investor (QFII) programme or the similar, yuandenominated RQFII scheme (the R stands for renminbi, the official name of China’s currency).

Among other restrictions, the CSRC said in the rules that crossborder trading can only be conducted in the exchanges.

“Any securities service firms, houses and brokers must not privately provide matching for such transactions,” the regulator said in the new rules published in its website.

Reuters

PBOC expands reserve-ratio cuts Chinese officials are trying to shore up an economy set for the weakest growth since 1990

80 mln C tonnes domestic mine production could be closed

domestic sector as local miners were unable to operate at a profit, he said.

Hodge said there had already been some mine closures, but these were not yet widespread.

Rio Tinto breaks even at around US$43 a tonne, while BHP needs a US$45 iron ore price to stay in the black.

Vale’s is higher at US$75 a tonne due to the greater distance from Brazil to China.

Fortescue, whose costs are steeper due to its lower grade ore, said yesterday it would spend US$275 million building four iron ore vessels of its own to help reduce reliance on outside shippers.

Hodge expects iron ore exports by Australia to rise by more than 100 million tonnes this year.

Reuters

hina’s central bank extended a reserve-requirement cut to Industrial Bank Co. and China Minsheng Banking Corp. as officials try to support economic growth without unleashing broader stimulus.

The People’s Bank of China approved a half percentage-point cut for Industrial Bank and Minsheng Bank also got a reduction, spokesmen said in separate telephone interviews.

China Merchants Bank Co. was also included, according to analysts at China International Capital Corp.

Chinese officials are trying to shore up an economy set for the weakest growth since 1990 without worsening credit risks fueled by an explosion in lending during and after the global financial crisis. The PBOC is widening the group of lenders covered by a reserve-ratio move that was announced on June 9 and is intended to help boost funding for small and micro businesses and agriculture.

“It further confirms that China’s neutral monetary policy is leaning towards relaxation,” said Ding Shuang, senior China economist with Citigroup in Hong Kong. “At the same time, it also shows that the central bank is still not willing to send a strong signal of policy easing,” by taking more aggressive measures, he said.

The three national lenders had about 7 trillion yuan (US$1.1 trillion) of combined deposits by the end of

It further confirms that China’s neutral monetary policy is leaning towards relaxation Ding Shuang, senior China economist, Citigroup in Hong Kong

last year, according to their annual reports. That suggests that a halfpoint cut for all three would free up about 35 billion yuan.

On June 9, the central bank said the cut, effective yesterday, applied to most city commercial banks, noncounty level rural commercial banks and non-county level rural cooperative banks. The criteria for the reduction included banks’ levels of lending to “small and tiny businesses.”

Bloomberg News

12

June 17, 2014

Asia Better mining and hydropower for Laos The World Bank will extend its support to the Laotian government aiming at strengthening its capacity and management of the hydropower and mining sectors, according to staterun daily Vientiane Time yesterday.

The support will come in the form of an US$8.9 million grant and US$8.9 million of credit from the International Development Association. According to the World Bankm, the funds will bolster Laotian’s Technical Assistance for Capacity Building in the Hydropower and Mining Sectors Project.

Aussie & NZ dollars run into light profit-taking The Australia and New Zealand dollars drifted off multi-week highs against the U.S. dollar and euro yesterday, partly on light profit-taking following a recent rally. The Australian dollar paused at US$0.9395, from a high of US$0.9427 on Friday and a two-month peak of US$0.9438 also touched last week. It was unable to hold gains above US$0.9400 as geo-political tensions in Iraq weighed somewhat on risky assets, including stocks.

The euro trimmed recent losses to A$1.4408, but remained close to a seven-month trough of A$1.4353 touched last week.

Cambodian 2nd IPO after 2-year operation Nascent securities market got the 2nd listed company yesterday after operating with only one listed firm for more than two years, officials said.

Grand Twins International (GTI), a garment maker for American athletic brands, listed and commenced trading on the Cambodian Securities Exchange (CSX) yesterday, CSX’s chairman Hean Sahib said. China’s Taiwanese-owned GTI became the 2nd listed firm after state-run Phnom Penh Water Supply Authority made its market debut in April 2012, he said. “It’s a new development of the CSX,” he said at the GTI’s official listing ceremony.

Malaysia paves the sukuk way Societe Generale SA’s plan to sell ringgit sukuk shows Malaysia’s advantage in luring debut sales as Islamic finance expands beyond its traditional strongholds. France’s thirdlargest banking group by assets, has set up a 1 billion ringgit (US$310 million) multicurrency Shariah debt program, according to a June 12 statement from RAM Rating Services Bhd., which assigns the notes its highest investment grade. That follows Bank of Tokyo-Mitsubishi UFJ’s announcement last week that it was planning a debut sukuk in Malaysia.

Modi to take unpopular steps India’s President faces the challenge of cutting fuel subsidies, allowing more foreign investment and pushing through projects that had been stalled Kartik Goyal

I

ndian Prime Minister Narendra Modi said he’s ready to take unpopular steps to improve the nation’s economy and fiscal health as his three-weekold government prepares to unveil its first federal budget next month.

“It’s necessary to take steps to improve financial discipline and improve the economic health of the country,” Modi said on June 14 in a speech in Goa that was posted on his website. “I know my popularity might go down due to these hard decisions, people might be annoyed with me, but they will appreciate it later.”

Modi faces the challenge of reviving Asia’s third-largest economy after his party became the first in 30 years to win a parliamentary majority in India.

Growth is holding near a decade low and retail inflation has averaged about 10 percent in the past two years, eroding the purchasing power of more than 800 million people who live on less than US$2 a day.

“Modi’s comments suggest the seriousness the government is attaching to the fiscal correction,” N.R. Bhanumurthy, an economist at the National Institute of Public Finance and Policy, a government-backed

research institute in New Delhi, said by phone. “Fiscal indiscipline has been one of the main reasons behind India’s economic woes.”

Budget deficit Finance Minister Arun Jaitley said on Sunday that high inflation and slower growth had hurt tax revenues.

Modi’s comments suggest the seriousness the government is attaching to the fiscal correction N.R. Bhanumurthy, National Institute of Public Finance and Policy, economist

The previous government estimated that India’s budget deficit will fall to 4.1 percent of gross domestic product in the year through March 2015 from 4.6 percent the previous year.

“Any kind of fiscal indiscipline at this stage will put us in further doldrums,” Press Trust of India quoted Jaitley as telling reporters yesterday in Kashmir.

India’s consumer price index jumped 8.28 percent from a year earlier in May, a three-month low, Central Statistics Office data showed last week. Wholesale price inflation is forecast to accelerate 5.34 percent, according to the median estimate of 37 analysts in a Bloomberg News survey.

‘Bitter pill’ The Reserve Bank of India held the benchmark interest rate at 8 percent on June 3, and said risks to its target of containing consumer-price gains to no more than 8 percent by January 2015 “remain broadly balanced.”

The economy grew 4.7 percent in the year ended March 31, after a decade-low expansion of 4.5 percent

New Zealand growth set to accelerate One of the main drivers of economic growth was the country’s residential construction surge

E

conomic growth is set to accelerate from an estimated 3.1 percent in the year to the end of March this year to 3.8 percent in the following 12 months, according to a quarterly average of economic forecasts from financial and economic agencies published on Sunday.

It would slow to 2.8 percent growth in the March 2016 year and 2.1 percent in the March 2017 year, according to the Consensus Forecasts from the New Zealand Institute of Economic Research (NZIER).

The economic recovery was broad, spreading across household spending, investment and exports, and would translate into more jobs and higher wages, but living costs and interest rates would also rise, said the forecasts.

One of the main drivers of economic growth was the country’s “residential construction surge,” which would continue for five consecutive years largely due to the rebuild of the earthquake- battered

2.4 percent March 2016 expected consumer price inflation

Canterbury region, but also because of the recovery in other areas.

Exports were expected to rebound from a “practically flat” increase of 0.1 percent the March 2014 year to a sustained growth averaging 3.1 percent over the next three years.

However, the New Zealand dollar

was forecast to remain high over the next three years, it said.

Consumer price inflation would rise from an annual average rate of 1.6 percent in the March 2014 year to 2.4 percent by March 2016, putting it towards the top end of the Reserve Bank of New Zealand’s target band of 1 percent to 3 percent.

This would lead to sustained interest rate increases over the next three years, with the 90-day bank bill rate rising from 2.9 in March this year to 5 percent in March 2017, according to the forecasts.

The unemployment rate was forecast to fall from the current historically high level of 5.9 percent, towards the past decade average of 5 percent, and wages would grow at an average 3.1 percent over the next three years.

Wages growth would outpace increases in the cost of living by around 1 percent a year, supporting household spending, it said.

Xinhua

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

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June 17, 2014

Asia

Companies to seek new debt as Asia’s needs grow Debt in the region will overtake the U.S. and Europe combined Katrina Nicholas

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Indian Prime Minister Narenrdra Modi (2-L) and Indian President Pranab Mukherjee (2-R) arrive to address a joint session of Parliament in New Delhi

the previous year.

Modi faces the challenge of cutting fuel subsidies, allowing more foreign investment and pushing through projects that had been stalled due to delays in approvals. He campaigned on his record of delivering economic growth as chief minister of Gujarat

state and promised to stem consumerprice gains.

“To take the country out of its economic ill-health, taking hard decisions and administering a bitter pill when required will be necessary,” Modi said in the Goa speech.

Bloomberg News

orporate issuers globally will seek about US$60 trillion in new debt and refinancing through 2018, with the majority of that growth and its attendant risks concentrated in the Asia-Pacific region, Standard & Poor’s said.

Debt in the region will overtake the U.S. and Europe combined as China and neighbouring countries widen their lead as the world’s largest group of corporate borrowers, the ratings company said in a report published yesterday. Bonds, as opposed to bank loans, will also become a more important source of financing, increasing 3.5 percent, or nearly US$3.1 trillion.

The emergence of Chinese companies as the biggest group of corporate borrowers and “faster debt growth in sectors related to the growing global middle class are likely to drive global corporate debt issuance over the next four years,” Jayan Dhru, S&P’s global head of corporate ratings wrote.

“The U.S. continues on the path to economic recovery while the euro zone struggles with marginal growth, but the bottom line is that this is a China story.

Higher risk for China’s borrowers means higher risk for the world.”

Borrowers from China and Hong Kong have sold US$52.3 billion of dollar-denominated securities this year, some 55 percent of total sales in the region outside Japan, according to data compiled by Bloomberg. China Petrochemical Corp. is Asia’s biggest U.S.-currency note issuer, tapping international investors for US$6 billion of funds since December 31.

China National Offshore Oil Corp., the nation’s largest offshore energy explorer, raised US$4 billion from a sale of three-, 10- and 30- year securities April 23.

Syndicated loans in Asia-Pacific excluding Japan total US$179 billion year-to-date compared with US$168.5 billion the same period of 2013, Bloomberg-compiled data show.

Cash flow and leverage at China’s companies, while better than global peers in 2009, have worsened in subsequent years, according to S&P, which compared corporates in Asia’s biggest economy with more than 8,500 listed companies globally.

Bloomberg News

Protectionism dominates Indonesia presidential debate Some recent opinion polls have suggested the gap is narrowing between rivals

I

ndonesia’s two presidential candidates traded nationalist rhetoric on Sunday in a debate ahead of July’s election, with the front-runner suggesting he would make Southeast Asia’s biggest economy more protectionist.

The tone of the debate, which focused on the economy and was the second ahead of the July 9 vote, is likely to add to concerns among foreign investors over how welcome they are in the resource-rich state whose fast growing, fast consuming, middle class is offering mouth-watering business opportunities. “ E ver y country h as barriers ... (we can) make it a bit more difficult for foreign investors,” front-runner Joko “Jokowi” Widodo said during the televised debate, in response to a question about the proposed opening up of Southeast Asian economies from next year.

“I believe our economy can grow by more than 7 percent (compared with little more than 5 percent estimated this year) with conditions. First, the investment climate has to be more open and let local investors create growth.”

Some recent opinion polls have suggested his lead is narrowing against

Every country has barriers ... (we can) make it a bit more difficult for foreign investors Joko Widodo, presidential candidate

Presidential candidate from the Great Indonesia Movement party, Prabowo Subianto (R) greets and smiles to Presidential candidate from the Indonesia Democratic Party for Struggle, Joko Widodo (L) shortly after the debate.

his rival, ex-general Prabowo Subianto.

“Our sources of wealth are controlled by foreign hands, foreign companies, so the wealth flows out from the country ... Indonesia’s wealth should be controlled by our country,” said a confident looking Prabowo.

Prabowo is the son of one of Indonesia’s best known economists and his brother one of its richest businessmen. Jokowi comes

from a humble background, going on to develop a successful furniture business before moving into regional politics.

Much of the debate focused on the need to raise up Indonesia’s millions of poor, improve education and health care and to spend more on a ramshackle infrastructure that is dragging down productivity and scaring off investors.

Prabowo’s insisted he

was not against foreign investment but the possibility that he might become president has been weighing on both the rupiah and Indonesian share prices.

The latter is in large part due to the country’s massive fuel bill, exacerbated by costly fuel price subsidies that are sapping the state budget.

Perhaps surprisingly, neither candidate made a reference to the fuel subsidies

whose eventual elimination would hit the poor hard but are seen as a priority to get national finances on track.

Both candidates have in the past said they wanted to do away with the subsidies eventually.

It has become a central issue as the outgoing government battles with major foreign mining companies over contracts after it enforced in January a ban of exports of mineral ores, demanding instead they first be processed before shipment abroad.

Reuters

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June 17, 2014

International EU’s energy chief confident about gas talks European Energy Commissioner Guenther Oettinger said yesterday that Ukraine intended to fill its gas transit commitments to the European Union and he was also confident Russia would meet its gas supply pledges to the EU. But, speaking at a news conference in Vienna, he said the EU might have a problem if it did not fill its storage and urged Russia to reconsider a compromise put forward by the EU, perhaps with small adjustments. Gazprom said early yesterday it was reducing shipments of gas to Ukraine, following the breakdown of talks between Kiev and Moscow

French PM stands firm on rail reform Prime Minister Manuel Valls refused yesterday to yield to the demands of striking rail workers seeking to derail a planned reform of the sector as their stoppage entered a sixth day. The strike is one of the longest France has seen in years and has disrupted services since last Tuesday, testing the resolve of President Francois Hollande’s government’s to push through sometimes unpopular reforms.

Hardline unions CGT and SUD are against plans, intended to prepare the sector ahead of EU reforms aimed at bringing more competition to European transport routes.

Airbus and Safran to sign space deal Airbus Group and Safran look set to boost co-operation in the space launch industry with a joint venture, accelerating Europe’s response to competition from U.S. low-cost rival SpaceX, people familiar with the matter said. People familiar with the matter said space would top the agenda, amid growing pressure from industrial groups for a shakeup of Europe’s public-private system of building rockets.

Airbus Group and Safran declined comment. In an interview with Reuters last month, Airbus Group Chief Executive Tom Enders called for a major overhaul to cut costs and give companies more say.

No heir for the copper crown Chile produces about a third of the global supply of copper

The largest copper mine in the world, Escondida, in Chile

A

s top copper producer Chile starts to lose market share, players are betting on fledging suppliers to help feed hunger for the red metal, but no single country is likely to replicate the South American nation’s boom of the last century.

Chile produces about a third of the global supply of copper, a key raw material for construction and power that is vital for industrialisation. With consumption rising 4 percent yearly, the country’s output growth is not enough to meet additional demand.

Its market share is being eroded by spiralling costs at ageing deposits, with neighbouring Peru and Africa’s Democratic Republic of Congo (DRC) and Zambia gaining ground.

While those countries are poised to become large suppliers in a more fragmented market, the emergence of a single, giant challenger to Chile is unlikely in the foreseeable future due to geological, political and infrastructure constraints.

“Is there ever going to be another source of supply as good as Chile?

No,” Bernstein Research analyst Paul Gait said.

“Collectively Peru, the DRC and Zambia have half the geological endowment of Chile. They are great

copper locations but they won’t be able to do what Chile did to the copper market in the 20th century.”

Chile accounted for almost 34 percent of global output of the metal in 2010 but its share fell to less than 32 percent in 2013, according to data from Cochilco, a body that advises Santiago on matters concerning copper.

Thomson Reuters GFMS forecasts Chile’s contribution will decline to less than 30 percent in 2016.

Chile endowment Riven along its length by a crack in the Earth’s crust that makes it one of the world’s most seismic zones and creates the perfect conditions for large porphyry copper deposits, Chile became the top copper supplier in the 1980s, after the closure of high-cost mines in previous No.1 the United States.

The discovery in the 1980s of deposits such as Escondida, now the world’s largest copper mine, proved the country was rich in the metal that it could produce cheaply and export quickly.

However, ore grades are falling, mines are getting deeper, water availability is scarce and energy is

expensive.

Even replacing existing supply is extremely costly.

To increase capacity from 2012’s 1.7 million tonnes to 2 million tonnes by 2021, state-owned Codelco, the world’s No.1 copper producer, needs to invest some US$30 billion.

A seawater desalination plant to provide Escondida a steady water supply, necessary to process the metal, will cost global miner BHP Billiton US$3.4 billion.

Some costly expansion projects have been delayed after a 30 percent drop in copper prices in the past three years due to slowing economic growth in top consumer China.

“The outlook for Chilean mining has become much more complicated in recent years. Probably not all the projections for the increases in production will come about,” said Juan Carlos Guajardo, head of Chilean mining think tank CESCO. Scientists at the U.S. Geological Survey think there is plenty of metal still around, with 3.5 billion tonnes of undiscovered copper in 11 regions on six continents. Of that, they estimate 2.5 billion tonnes to be economic under current conditions and technology.

Reuters

Global advertising to expand this year helped by World Cup Internet advertising is growing 16 percent a year compared to 4 percent for television

T

he global advertising market is set to grow 5.4 percent this year to reach US$524 billion helped by a boost in television ads during the soccer World Cup, according to media buyer Zenith Optimedia.

The Publicis-owned forecasting unit shaved 0.1 percent off an earlier prediction for the year after political tumult in Ukraine damaged the local economy.

The world’s largest advertising groups such as Martin Sorrell’s WPP, second-place Omnicom and thirdplaced Publicis often post growth rates correlated with global gross domestic product. They are set to benefit this year as the United States - the largest ad market followed by Japan and China - is expected to grow steadily.

Zenith said the total amount of media spend will reach up to US$524 billion at year end, driven by an improved global economic outlook and the rapid rise of mobile advertising.

US$524 billion

total amount of media spend by end 2014 according to Zenith

“Growth will continue to improve over the next two years, reaching 5.7 percent in 2015 and 6.1 percent in 2016, driven by continued economic recovery, including, at last, the

Eurozone,” said Zenith Optimedia in a statement.

Despite an uptick during the World Cup in June and July, the forecasters also said that television’s share of global advertising spending would peak this year after rising steadily for decades from 29.9 percent in 1980 to 39.6 percent in 2013.

Behind the shift lies the rapid growth of Internet advertising, which is growing 16 percent a year compared to 4 percent for television.

Major companies from automakers to consumer products now see online ads as being suitable for brand building much as television once was.

Television’s share of ad spend will erode to 39.4 percent this year and 38.3 percent by 2016, according to Zenith.

Publicis shares are down 5.1 percent this year, while WPP’s and Omnicom’s are both down 5.6 percent.

Reuters

15

June 17, 2014

Opinion Business

wires

Leading reports from Asia’s best business newspapers

PHILSTAR

Leaners of last resort Barry Eichengreen

Professor of Economics and Political Science at the University of California, Berkeley

More households that depend on remittances from family members working abroad are now saving and investing. This was according to a recent Bangko Sentral ng Pilipinas (BSP) survey, which indicated that in the second quarter of the year, 46.6 percent of remittance-dependent families said they had put a portion of their remittances to grow their savings. This was higher than the 45.4 percent recorded in the first quarter and the highest level recorded since the rate hit 50.4 percent in the first quarter of 2010.

THE STRAITS TIMES Noble Group said yesterday it has fully redeemed US$250 million (S$312.7 million) in zero-coupon convertible bonds due this year. The commodities trader also said it is planning another issue of US-dollar denominated perpetual securities, and has appointed five banks as joint book runners and joint lead managers for the issue.

The banks are Bank of America Merrill Lynch, Citigroup, HSBC, J.P. Morgan and Société Générale Corporate & Investment Banking. Noble will use the proceeds from the new issue to redeem its 8.5 per cent perpetual securities issued on November 1, 2010, as well as for general corporate purposes, it said.

MYANMAR TIMES Much of Myanmar’s official exports currently go to African countries, but with Thai exporters dropping prices in those markets since the May 22 coup, Myanmar exporters are looking to grow market share closer to home. China’s demand for Myanmar rice through the Muse border crossing has increased about 30 percent this year on previous levels, said U Myo Thura Aye, a rice trader and former joint secretary of the Myanmar Rice Federation. China represents “the largest export opportunity” for Myanmar’s rice traders, a June 11 World Bank report titled “Myanmar: Capitalising on Rice Export Opportunities” said.

THE STAR The property slowdown in China and Hong Kong is not a deterrent for China’s property developer Country Garden Holdings Co Ltd. The company, together with Johor’s economic development arm, Kumpulan Prasarana Rakyat Johor (KPRJ), have planned for a development over 5,000 acres (2,023.43ha) of reclaimed land in a project spanning more than 30 years. The project, which will include a man-made island, will be near the second link in Johor and a study on the matter was done more than a year ago.

O

SLO – With Jeremy Stein’s return to his academic post at Harvard at the end of May, the US Federal Reserve Board lost its leading proponent of the view that monetary policy should be used to lean against financial excesses.

Stein’s view, expressed in a speech earlier this spring, is that central banks should be less aggressive in their pursuit of full employment in an environment of heightened financial risk. His position is a refutation of former Fed Chairman Alan Greenspan’s doctrine that the central bank should not adjust policy in response to financial-sector excesses, but instead should concentrate on reacting to any problems that subsequently arise.

The question is whether Stein’s new view is justified.

In principle, the answer is straightforward. If a central bank has two policy targets, then it needs two instruments: monetary policy to influence aggregate demand, and regulatory policy to limit financial risks.

In practice, however, the answer is more complicated, because the question has several components. What should monetary policymakers do when regulators are prone to falling down on the job?

In particular, should they raise interest rates? To what indicators should they look when determining whether regulators have failed to do their part? And is monetary policy a sufficiently subtle instrument to address the resulting risks?

In the wake of the global credit crisis, the answer to the first question is not in doubt. There is a clear victor in the “lean

versus clean” debate. Central banks cannot concentrate only on cleaning up after crises; the costs of financial instability are too high. Rather, as recent events have amply shown, the monetary authority must lean against excesses as they develop.

That leaves the question of how to detect the existence of excesses, and the question of what, exactly, to do about them. Stein proposes focusing on risk premiums in the bond market. When yields on risky bonds decline toward those on safe assets, it is fair to conclude, he argues, that someone is taking on excessive risk. The problem, then, is how to determine exactly when risk premiums are too low.

Some suggest focusing on rapid increases in the volume of bank and nonbank lending to the non-financial private sector as an indicator that lending is growing riskier.

Others recommend monitoring the leverage ratio, particularly the ratio of capital to assets in the banking system, on the grounds that banks are the weak link in the financial chain.

These suggestions are all indicative of central bankers’ instinctual desire to reduce complex decision-making to simple rules. But the disagreement among experts shows that the search for simple rules is futile. Here as elsewhere, central bankers have no alternative but to consider the broader context and rely on their judgment.

Finally, there is the question of whether monetary policy is the right instrument to use in response to the risks arising from financial instability and, if so, how aggressively to use it. Inevitably, the answers are

There is the question of whether monetary policy is the right instrument to use in response to the risks arising from financial instability and, if so, how aggressively to use it

colored by the United States’ experience in 1929, when the Fed tightened policy in response to what it perceived as excesses on Wall Street, only to plunge the economy into the Great Depression.

In fact, exactly the same debate raged then. On one side were Fed governors who argued that the only effective way to rein in financial excesses was to raise interest rates. On the other side were

officials, like George Harrison of the Federal Reserve Bank of New York, who worried about the impact on the broader economy and preferred to use other instruments to address financial imbalances. Harrison’s alternative was “direct pressure” – that is, using the Fed’s regulatory powers and moral suasion to persuade member banks to curtail their lending to the stock market.

Of the two views, Harrison’s was the more sophisticated. The problem was that the Fed’s macroprudential instruments were undeveloped. No sooner did the Federal Reserve System’s member banks limit their provision of credit to purchasers of securities than non-member banks, insurance companies, and trust companies ramped up their lending, allowing the stock market to race ahead.

In the wake of this failed experiment, even Harrison was forced to acknowledge that reining in the market required policymakers to make lending more expensive for the financial sector as a whole. The Fed then raised its policy rates in the summer of 1929 – and the rest, as they say, is history.

The implication is clear: Central banks should focus on developing more effective macro-prudential instruments.

They should widen the regulatory perimeter – that is, they should work to bring nonbank financial institutions under their regulatory umbrella.

They should use the resulting instruments and powers preemptively. And they should adjust monetary policy to address potential financial risks as a last resort, not as their first line of defense.

The Project Syndicate 2014

16

June 17, 2014

Closing May forex purchase slows sharply

Russian central bank leaves rates on hold

China’s central bank and financial institutions spent 38.7 billion yuan on foreign exchange purchases in May, a sharp retreat from the 116.9 billion yuan in April, data from the central bank showed yesterday. While the pace has slowed, the figure also marked the 10th consecutive month of net increases.

As of the end of May, Chinese financial institutions’ total yuan funds outstanding for foreign exchange amounted to 29.54 trillion yuan, according to the People’s Bank of China. The central bank has to purchase foreign currencies generated by China’s trade surplus.

Russia’s central bank left its key interest rate on hold as expected at a regular board meeting yesterday, citing concerns about high inflation, and warned that further rate hikes may be possible if inflation remained above target. The decision leaves the bank’s major policy rate unchanged at 7.5 percent, after cumulative rate hikes of 200 basis points in March and April linked to financial instability caused by the crisis in Ukraine. The central bank said cannot afford to relax monetary policy at a time when inflation, which hit 7.6 percent, remains well above the bank’s 5 percent target.

Singapore match-fixers ‘planned to rig World Cup’ Police and anti-corruption agency in September last year rounded up 14 alleged members of a global match-fixing syndicate Bhavan Jaipragas

S

ingapore authorities last year placed leaders of a global match-fixing ring operating from the city-state in indefinite detention after uncovering plans to rig the World Cup, according to a book released yesterday.

Zaihan Mohamed Yusof, a Singaporean investigative journalist who has reported extensively on football match-fixing, details how he learnt of the now-crippled gang’s plans from government officials and a prominent sports corruption investigator.

“When the 2014 World Cup comes, all they will be doing is collecting (their betting earnings),” one senior unnamed Singapore official said of the tournament that kicked off in Brazil last week, according to the book.

Zaihan also quoted Michael Pride, head of operations at Australia-based match-fixing investigators SI Sports Intelligence, as saying “this syndicate allegedly sets up fixes six months ahead of major matches”.

Singapore’s police and anticorruption agency in September last year rounded up 14 alleged members of a global match-fixing syndicate, in

Sport betting is especially intense during World Cup

one of the biggest crackdowns yet on corruption in football.

Authorities subsequently used a special law that allows indefinite detention to hold four key ring leaders of the group, including alleged kingpin Dan Tan, also known as Tan Seet Eng. Officials say the indefinite detention -under a law typically used against gangsters- is necessary because witnesses fear reprisals if

they testify in court.

Speaking at the book’s launch yesterday, Zaihan said the arrests last year had not deterred other Singaporebased fixers from rigging games.

He cited audio recordings he had received recently implicating an unnamed “prominent Singaporean and a known match-fixer in the Indonesian football league”.

Tan, a reclusive Singaporean businessman, first came to prominence

when fixer Wilson Raj Perumal, also a Singaporean, was arrested and jailed in Finland in 2011 for rigging toptier games there.

Perumal told prosecutors in Finland he was a double-crossed associate of Tan, who has also been named in several European matchfixing investigations.

Tan protested his innocence in a rare media interview in 2011 and said he was mystified about why he had been branded as a match-fixer.

In the book, Zaihan said Tan was living a “fairly visible lifestyle” in early 2013, even after he became known in the media as an alleged match-fixing mastermind.

The journalist recalled watching Tan, believed to be 50 years old, play a match for a local amateur side called Oxley City.

Interviews with Tan’s associates revealed he learned the trade in the early 1990s as an understudy to a veteran match-fixer, said Zaihan, a journalist with Singapore’s The New Paper.

Zaihan’s book comes after the April release of a tell-all e-book by Perumal, ghostwritten by Italian investigative journalism website “Invisible Dog”.

Perumal claimed in the book that he influenced football games at the Beijing Olympics in 2008 and the Atlanta Olympics in 1996.

Interpol has said that the ring busted in Singapore was the world’s “largest and most aggressive matchfixing syndicate, with tentacles reaching every continent”.

The Doha-based watchdog International Centre for Sport Security warned in a May report that Asian-dominated criminal groups are laundering more than US$140 billion in illegal sports betting annually.

Think tank warns on energy security

U.S. beats China’s oil demand growth

Indonesia to amend tin export rules

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Chinese government think tank yesterday sounded a warning on China’s energy security, saying it faces adverse impacts from an international natural gas pricing scheme dominated by the United States.

The Chinese Academy of Social Sciences (CASS), a government think tank, said in its “World Energy Development Report 2014” that the shale gas revolution in the United States will change the global energy map and install a new natural gas pricing scheme globally.

As a major energy consumer in the global gas market, China’s energy security is also threatened by shifts in world energy layout following the Ukraine crisis, the CASS report said.

The think tank projected that the United States, helped by its shale gas revolution, will become the world’s largest oil and gas producer and reduce its reliance on crude oil from the Middle East, as well as on maritime navigation channels.

Xinhua

il demand in the United States grew at the fastest pace in the world in 2013, outstripping China for the first time since 1999 as the world’s top economy reaped the benefit of the shale boom, oil major BP said yesterday.

BP also said the United States recorded its largest-ever annual rise in production for a second year in a row at 1.1 million barrels per day (bpd).

In its annual review of energy statistics, first published in 1951 and considered an industry benchmark, BP said U.S. oil consumption in 2013 grew by 400,000 bpd, the sharpest increase in the world, followed by China’s rise of 390,000 bpd, BP said.

The consumption growth was led by an expansion of the U.S. industrial sector as the world’s top economy emerged from the 2008 financial crisis, BP Chief Economist Christof Ruhl said.

At the same time, a Chinese slowdown was driven mainly by lower consumption of diesel and gasoil, which traditionally reflect the rate of economic growth.

Reuters

AFP

he law will force all tin solder exports to trade on a local exchange from January next year, a trade ministry official said, aiming to promote shipments by the world’s biggest exporter of the material.

In a bid to halt illegal mining and give Indonesia greater control over prices, a regulation last August forced all tin ingot shipments to trade via a local platform before being exported. Tin solder was exempted until January 2015.

Tin exports plunged after the rule came into effect and monthly exports of solder spiked as some companies sought to avoid having to trade through a local exchange.

The government had discussed bringing forward the date for tin solder to close the loophole, but has instead decided to exempt it altogether in line with a broader government policy to promote downstream industries.

In May, Indonesia exported 11,540 tonnes of tin ingots, 464 tonnes of solder, and 775 tonnes of refined tin.

Reuters