MOP 6.00
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Home appliance retailer on a sure bet with lotteries
Page 8
Year III
Number 565 Friday June 20, 2014
Publisher: Paulo A. Azevedo
Closing editor: Sara Farr
Hang Seng to jump on casino rebound Page
Roaring economy M
acau is on track to be one of the Top 5 world economies by 2015. And the fastest growing in Asia. Decelerating gaming revenues and a slowdown in China persist but Macau is weathering the storm. All things being equal, Macau’s economy will grow three times the pace of the world average in the next two years Page 3
www.macaubusinessdaily.com
Home from home
IPO fever
New approved bank loans for residential mortgages hit 3.5 billion patacas in April. Residents accounted for the overwhelming majority. Meanwhile, the value of loans taken out by non-residents increased by half Page
Investors hungry for IPO biz drove up borrowing costs nearly four-fold for the week Page 9
2
HSI - Movers June 19
Junket jitters
Name
Six VIP rooms have been vacated by junkets in two major casinos. Larger junket operators are stepping in and absorbing remaining capacity. The market is jumpy and bad news travels fast Page
Phoenix rising
4
%Day
Cheung Kong Holdin
2.60
Belle International
1.83
Lenovo Group Ltd
1.81
New World Develop
1.45
Sino Land Co Ltd
1.27
Ping An Insurance G
-1.13
China Life Insurance
-1.65
China Overseas Land
-2.64
China Resources Lan
-3.00
Bank of China Ltd
-6.45
Source: Bloomberg
I SSN 2226-8294
Brought to you by
Lai Sun Group is investing HK$3.8 billion in the first phase of its Hengqin Island venture. The Creative Culture City project is alive and well. The company just awaits the green light from authorities Page 2
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June 20, 2014
Macau
Lai Sun confirms Hengqin budget The property conglomerate says it will invest HK$3.8 billion in the first phase of the gaming-themed Creative Culture City project in Hengqin Stephanie Lai
sw.lai@macaubusinessdaily.com
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ong Kong-based property conglomerate Lai Sun Group says it will invest HK$3.8 billion (US$490 million, or 3.05 billion yuan) in the first phase of its cultural-cum-commercial Creative Culture City project in Macau’s neighbouring Hengqin Island. Chew Fook Aun, chairman of Lai Fung Holdings Ltd, told Hong Kong media following an extraordinary general meeting of shareholders on Wednesday that the construction of the first phase of the Creative Culture City project was still pending approval and is expected to begin this year, noting that HK$3.8 billion would be invested in the first phase of the 140,000 square foot (13,006 square metre) site. Lai Fung Holdings Ltd and eSun Holdings Ltd, both part of the Lai Sun Group, jointly informed the
140,000
Creative Culture City phase 1 area in square feet
Hong Kong Stock Exchange in late April of their plan to cooperate with the U.S. company Major League Gaming (MLG) to build an e-sports gaming arena in the ‘V-Zone,’ a video game
destination that is part of the first phase of the group’s 18 billion yuan Creative and Culture City project on Hengqin. The entire first phase of the project is slated for completion by 2017. The ‘V-Zone’ project would include not only the video game arena but an exposition area for gaming developers to feature new and upcoming games, creative workspaces, gaming-themed restaurants and retail shops, Lai Fung and eSun noted in its April filing. Back in September 2011, Lai Fung and eSun announced an agreement reached with the Hengqin administration to pursue the Creative Culture City project, which includes but is not limited to film and television entertainment, music, new media, creative designs, cultural art workshops, live performances and cultural
art product exhibitions and trade fairs. Mr. Chew, also an executive director of eSun, noted on Wednesday that the project comprises four phases, and that his group would continue to bid for land parcels to develop the second to fourth phases of its Hengqin project.
Ready for bid Another Hong Kong-listed company, restaurant operator Future Bright Holdings Ltd, whose managing director is Macau legislator Chan Chak Mo, said in a voluntary announcement filed with the Hong Kong Stock Exchange on Monday that the group has already agreed with Hengqin authorities that it would bid for a land parcel on the island at public auction to build a ‘food plaza.’ The land occupies a
site area of about 19,940 square metres with a total buildable gross floor area of about 50,000 square metres. The estimated base bidding price of the land is about 210 million yuan, but the date for when the land bid is to be held has yet to be announced by the Hengqin administration, Future Bright said in the announcement. Future Bright’s project is one of the 33 projects that the Macau Government has recommended to the Hengqin authorities for establishing business in the 4.5 square kilometres known as the Guangdong-Macau Cooperation Industrial Park – a collection of different zones scattered across the island designated for the tourism and leisure sector, cultural and creative sector, information technology and other trade services.
Non-resident home mortgage loans increase by half While the majority of residential mortgage loans, at 97 percent, were extended to Macau residents, the value of these have decreased considerably compared to the value of loans granted to non-residents
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he value of mortgage loans taken out in April dropped slightly by 0.3 percent versus those granted in the previous month, figures released yesterday by the Monetary Authority show. Fewer bank loans were also forthcoming for commercial real estate, with the total granted reaching 7 billion patacas. New approved bank loans for residential mortgages totalled 3.5 billion patacas. Of these, the majority, at 97.1 percent, was extended to residents of Macau. While this number decreased by 1.4 percent, that of non-residents taking out residential mortgage loans increased by 52.2 percent in the same month. Compared to the same period a year prior, new approved residential mortgage loans increased by 7.5 percent. New residential mortgage loans collateralised by uncompleted units increased by 218.3 percent monthon-month to 368.7 million patacas. The equitable mortgage extended to residents, which accounted for 98 percent of the total, increased 211.9 percent. When compared with the same period last year, these loans expanded 180.5 percent. New commercial real estate loans, however, witnessed a sharper drop of 26 percent to 7 billion patacas in April compared with those of a month earlier. According to the Monetary Authority, in terms of value, bank-granted new loans to residents increased slightly by 0.4 percent, while those to non-residents
decreased 95.1 percent. However, compared to the period 12 months earlier, new approved commercial real estate loans increased by 246.8 percent. At the end of April, the outstanding value of residential mortgage loans increased by 1.5 percent from a month earlier to 126.9 billion patacas. This figure was also a 24.1 percent increase over that of the same period a year earlier. Similarly to loans for residential mortgages, the majority of outstanding balances were from residents at 95.2 percent. Compared with the same figures in March, outstanding residential mortgage loans to residents grew by 1.3 percent, while those to non-residents increased by 4.6 percent. In addition, the outstanding value of commercial real estate loans increased by 4.4 percent to 99.8 billion patacas at the end of April over that of the previous month. This figure was also up by 32.6 percent compared with that of the same period 12 months prior. Residents accounted for 91.8 percent of the loans. Compared with a month earlier, outstanding commercial real estate loans to residents grew 4.8 percent whereas those to non-residents slid 0.7 percent. Meanwhile, the delinquency ratio for residential mortgage loans remained unchanged at 0.07 percent. The ratio for commercial real estate loans increased to 0.07 percent at the end of April. S.F.
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June 20, 2014
Macau
Macau: The fastest growing economy in Asia until 2015
With a revised upward growth of 11 percent for the next two years by the Economist Intelligence Unit this week, Macau’s economic expansion will be the highest in Asia Pacific and in the world Top 5, according to IMF and World Bank data Alex Lee
Alex.lee@macaubusinessdaily.com
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acau is ready to be the fastest growing economy in Asia and a world Top 5 until 2015. The mushrooming multi-billion dollar gaming industry and a flow of investment in new properties is pushing GDP growth above 10 percent for five straight years, a unique scenario anywhere in the world. Even with casino revenues decelerating at a fast pace this year and a longer than expected China recovery – the two major risks for the economy here – Macau appears impervious to shocks. This week, the Economist Intelligence Unit (EIU), one of the few institutions that make regular economic forecasts for the territory, upwardly revised its estimations for Macau even if the gaming year is set to be choppy and below expectations. The EIU now forecasts GDP growth of 11.3 percent this year and 10.6 percent in 2015. In the next two years, Macau’s economy will expand at an average rate of 11 percent, 1 percentage point more than what the EIU had previously estimated. But EIU was not alone. Last month, Fitch forecasted economic growth of 10 percent for this year and next, affirming Macau’s credit rating status as high quality due to the soundness of the gaming industry. Moody’s was even more optimistic, upgrading Macau’s rating to its third highest level - above Japan and China and only one notch behind Hong Kong. Since 2002, Macau’s
ratings have gone up four levels. Today, the territory is one of the safest places in the world to invest in, according to the two rating agencies.
Fast and furious With a predicted average economic growth of 11 percent for the next two years, Macau will be the fastest growing economy in Asia Pacific until 2015, according to World Bank and International Monetary Fund (IMF) data. Even if these two institutions don’t regularly conduct forecasts for Macau – IMF will release its first this summer since 2011 – they conduct the most extensive economic coverage, with IMF forecasting almost 200 countries every semester. After Macau, only Mongolia comes close to the territory’s performance, with economic growth reaching 10 percent. Even on the global stage, Macau leads, only to be surpassed by countries recently recovering from war (Libya) or going through the early stages of development like Turkmenistan and Sierra Leone, IMF data reveals. Between 2014 and 2015, if EIU and Fitch estimates are confirmed, Macau will grow three times faster than the world economy (average growth of 3.7 percent in these two years), four times more than advanced economies – Japan, US and the Eurozone – (2.3 percent) and twice that of emerging economies, according to the IMF. Even when compared to Asia Pacific, the fastest growing
economic region in the world with 6.8 percent expansion, Macau will surpass it by 50 percent. Even Fitch underlined in its analysis that Macau is the world’s fastest growing economy until 2015 compared to its AA (Fitch’s rating level) peers, with the economy expanding four times faster than the median of AA countries in 2014 (2.4 percent). Come 2015, the territory is set to complete a cycle of five years of economic growth exceeding 10 percent, unique in the world.
First quarter In the first quarter, according to official data, the GDP accelerated even more than 2014 estimates. It grew 12.4 percent yearon-year supported by an increase of 12.4 percent from gaming and tourist revenues and a 30 percent hike in investment, mainly in the new integrated casino resorts in Cotai. This was also the fifth quarter in a row in which Macau’s economy exceeded 10 percent growth. Time will tell how
recent events like China’s slowdown, soft gaming revenues, visa restrictions on mainland tourists, and crackdowns on UnionPay and junkets will impact the economy here. But even if the tide turns, Macau still has a lot of margin to cope with external shocks. The government is sitting on a 350 billion-pataca fiscal reserve, has massive property investments until 2018 that can fuel GDP growth and a credit rating level that makes borrowing easy and cheap for Macau, if necessity dictates.
Economic Growth in % (IMF) 2014 2015 World 3.6 3.9 Macau Economic Forecasts (GDP Growth in % ) Economist Intelligenc Unit Fitch Ratings
2014 11.3 9.8
Advanced Economies 2015 Emerging Economies 10.6 Emerging Asia 9.8
2.2 4.9 6.7
2.3 5.3 6.8
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June 20, 2014
Macau
Junkets forced to exit flagship casinos Three VIP rooms in City of Dreams and another three in Wynn Macau have been vacated by junket operators, Japanese investment bank Daiwa has revealed. According to this source, larger junkets are absorbing remaining capacity Alex Lee
alex.lee@macaubusinessdaily.com
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id and small-sized junket operators are facing difficulties here, Daiwa Securities Group has announced in its report on the Macau gaming industry for June. This fact has prompted the decision of some smaller junket operators to abandon three VIP rooms in Wynn Macau and three VIP rooms in City of Dreams. ‘By the end of May, a number of junkets had been forced to exit a number of Macau’s flagship casinos. Some mid-sized junkets have shrunk their operations, while other smallsized junkets closed down.’ Two main factors have contributed to the difficulties faced by smallersized junket operators, according to the Japanese investment bank. First, some of the companies have to deal with an increasingly insufficient liquidity. Second, some junkets are unable to support the required minimum rolling guarantees. According to Daiwa, the Kimren incident, in which a stakeholder of the company, named Huang Shan, disappeared on April 19 with a sum ranging between 8.2 and 10.2
billion patacas, has also contributed to the difficulties. ‘The contagion on VIP and sidebetting liquidity from the Kimren incident was a driving factor behind this. We expect this to be reflected in a year-on-year drop in VIP gross gaming revenue [GGR] for June.’ Even if the Japanese believe that VIP liquidity is a problem, the situation has improved since May. However, this improvement should not be expected to have a positive impact in the short-term. ‘While still weak, VIP liquidity has improved slightly since the end of May with some credit loosening. However, a number of the key junket principals have not redeployed the capital they withdrew from junkets/sub-junkets towards the end of May.’
Revenue to rise by 3-5pct in June Daiwa expects that Macau’s gross gaming revenue will increase between three and five percent this month year-on-year. Despite a year-on-year
drop in VIP gross gaming revenue, this view is justified by a strong mass gross gaming revenue with some seasonal softness explained by the FIFA World Cup playing in Brazil until July 14. Effective July 1, UnionPay terminals must be removed from jewellery shops and pawnshops [in casinos] due to an order by the Monetary Authority of Macao
(AMCM). However, the crackdown on UnionPay transactions is not seen by the investment bank as a factor that will deeply impact gross gaming revenues. ‘We continue to hold the view that this will not have a significant adverse effect on industry gross gaming revenue, as jewellery shops located within casino complexes, but off the gaming floors, are still permitted.’
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June 20, 2014
Macau
Melco Crown increases Philippine investment by 30pct Melco Crown announced yesterday that it is increasing the budget for its Manila casino by about a third to 37 billion pesos (US$840 million) and its Philippine unit is seeking to raise as much as US$129 million selling shares
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he gaming operator is offering up to 485.2 million shares at 11.30 pesos to 11.70 pesos each, according to terms for the deal obtained by Bloomberg News. The budget for City of Dreams Manila, one of four casinos being built in the Philippine capital’s gaming district, was raised from 28 billion pesos, the company said in a stock exchange filing today. Trading of Melco Crown Philippines (MCP) shares were suspended from 9:00 a.m. yesterday at the company’s request. The price range represents a 3.9 percent to 7.2 percent discount on its closing price of 12.18 pesos yesterday. The company said it seeks to resume trading in the shares today. Last October, the Hong Kongbased company said it would increase the budget for the Manila casino it’s building with Filipino billionaire Henry Sy by 10 percent to US$680 million. Melco’s casino will be the second of four casino resorts to open in Manila’s Pagcor City, a gaming district being built along Manila Bay as the Philippines pushes to increase its share of Asia’s casino revenue. Earlier this month, Melco Crown announced that the development of the Studio City project in Macau is
on track for a mid-2015 opening. The company has increased the construction budget (including construction and fit-out costs, design and consultancy fees) for the integrated resort casino in Cotai by US$300 million, from almost US$2.0 billion to US$2.3 billion. Lawrence Ho, Chief Executive Officer of Melco Crown Entertainment, said “We are extremely excited about our newest integrated resort in Macau, which remains firmly on track to open in mid-2015. The property’s cinematic theme and vast array of entertainment and attractions aims to boost Macau’s appeal as a leading tourist destination in Asia. “Studio City’s prime location directly adjacent to the Lotus Bridge immigration border and proposed light rail stop is one of the property’s key competitive advantages given the anticipated growth and widespread development plan for Hengqin Island,” Mr. Ho said. “We look forward to working closely with the Macau Government to bring this unique property to realisation.” To finance the budget increase, Melco Crown have agreed to make available additional funds to partially fund such budget increase. It is anticipated that the remaining
amount of the budget hike will be paid for from previously funded equity commitments from such shareholders. The total development cost of the
project will continue to be funded by a combination of equity contributions from shareholders, proceeds from Studio City senior notes and project loan.
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June 20, 2014
Macau
Grand Emperor Hotel drives parent profits
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Gaming in the Grand Emperor Hotel raked in revenues of 2.1 billion patacas as Emperor International’s Macau subsidiary accounted for 76.8 percent of total revenue
HOSPITALITY
Alex Lee
alex.lee@macaubusinessdaily.com
Sticky trends The number of visitors coming to Macau can be broken down according to several criteria. When we think about the length of their stay, one major distinction is made between those who stay overnight and those who come and go in the same day. If we bear in mind how their trips are organised, a major distinction is made between those that travel individually and those who arrive on packaged tours. These distinctions are relevant in the sense that different types of visitor will, in general, look for different types of goods and services, and will spend noticeably different amounts of money and time in town. They also put different levels of demand on the city’s infrastructure. The figures for the first four months of the year seem to confirm some earlier concerns.
Combined figures for the period up to the end of April show that the total number of visitors has increased by 9 percent, relative to the same period last year. Mainland tourists primarily drove this rise, as their total figure increased by 16 percent, in that period. Conversely, the next two major sources of visitor - Hong Kong and Taiwan - declined by about 5 percent each. These figures imply an increasing reliance on a single market. The increase in the number of visitors from the rest of the world is of little comfort here as they typically represent less than 10 percent of total visitor numbers. On the other hand, the number of visitors arriving on packaged tours increased by 14 percent, again driven by the mainland. The most dynamic segment is, therefore, also the most likely to lead to shorter staying periods and to higher congestion levels at the most popular tourist attractions. J.I.D.
19.6%
annual rise in mainland visitors arriving on packaged tours, Jan-April
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mperor International Holdings Limited recorded 2.45 billion patacas gross profit during the year 2013/14. However, the amount achieved by the Hong Kong-based group is smaller than in the year before when it achieved 3.81 billion patacas. The results of the group were mainly driven by the revenue growth from its subsidiary Emperor Entertainment Hotel, which includes the Grand Emperor Hotel in Macau. The hospitality segment achieved 11.6 percent growth to 2.38 billion patacas in 2014 from 2.13 billion patacas in 2013. The Grand Emperor Hotel accounted for 76.8 percent of the total revenue of the group. While in the previous year it accounted for just 36.4 percent. Emperor International reported revenue of 3.1 billion patacas while in the previous year it achieved revenue of 5.86 billion patacas. The other major source of revenue of the group was rental income from investment properties. It increased only 2 percent (657 million patacas) compared to last year (644 million patacas) but accounted for 21.2 percent of total revenue, while in 2013 it only accounted for 11 percent. During the 12 months ended March 31, Emperor Entertainment Hotel posted revenues of 2.33 billion patacas. Gaming, which is permitted
in Grand Emperor Hotel, accounted for 90.5 percent of the total value (2.11 billion patacas). Rooms revenue accounted for 221 million patacas (9.5 percent). Yesterday, during a press conference to reveal Emperor International results, Vanessa Fan Man Seung, an executive director of the group, spoke about the new policies in Macau such as the decision to reduce to five days from seven the length of stay that Chinese mainland visitors could enjoy under the new transit visa permit rules. “The impact of Macau shortening mainland tourists’ stay could be
Amax sues Greek Mythology again over missing accounts M acau junket investor Amax International Holdings Ltd says it filed a litigation suit against its associate Greek Mythology (Macau) Entertainment Group Corporation Ltd in a local court on Wednesday in relation to its failure to provide its annual accounts to shareholders, Amax International told the Hong Kong Stock Exchange after trading hours on the same day. According to the filing, Amax International is seeking to have its associate provide its management accounts for the year ended December 31, 2013 within 60 days. The associate, of which Amax International claims to have 24.8 percent of equity interest,
is operating the Greek Mythology Casino in Taipa. Greek Mythology Casino, which operates under the gaming concession of Stanley Ho Hung Sun’s Sociedade de Jogos de Macau SA, is located in the Imperial Palace hotel, formerly known as the New Century Hotel. The re-branding of the hotel followed a court-ordered seizure in December last year of the property in lieu of an undisclosed debt owed to Hoi Cheng Nga, head of Macau-based Energy Travel Agency Ltd. Mr. Hoi sued Empresa Hoteleira de Macau Ltd, the Macau-registered operator of New Century, via Macau’s Court of First Instance.
digested within a short time,” she said. She also said that in the long term tourist visits and spending will continue to increase in Macau. In her opinion, the smoking ban on casino policy will only trigger a short-term impact. During the year, the Emperor Entertainment Hotel acquired the Best Western Hotel in Taipa for around 926 million patacas. Ms. Fan revealed that the hotel will receive 23 extra rooms, to be added to the existing 569. “We are improving the facilities and adding the rooms. We expect it to be operating at the soonest by next quarter.” with Stephanie Lai
Amax International said in a filing with the Hong Kong Stock Exchange on June 5 that the financial information of Greek Mythology (Macau) Entertainment Group Corporation Ltd would not be available to the company before the release of the annual results for the year ended March 31, 2014. Amax International, chaired by veteran junket operator Ng Man Sun, has exercised continuous attempts to chase down the financial information of its associate. Following litigation filed by Amax International on February 20 this year, the Court of First Instance ruled on May 19 that the administrator of Greek Mythology (Macau) Entertainment Group shall provide its management accounts for 2012 within 60 days. A request to allow the auditors appointed by the court to audit the Greek Mythology management accounts, however, was denied. S.L.
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June 20, 2014
Macau
Hang Seng Index to jump 10pct as casinos rebound Analysts at Julius Baer believe gaming companies in Macau will outperform the benchmark equity measure
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ong Kong’s Hang Seng Index will climb as much as 10 percent by year-end as a rout for casino operators reverses, said Bank Julius Baer & Co. Macau gaming companies will outperform the benchmark equity measure as mass-market spending grows steadily, said Kelvin Wong, senior Hong Kong and China equity analyst at Julius Baer, which has about US$295 billion (36.9 billion patacas) under management. Sands China Ltd and Galaxy Entertainment Group Ltd are the gauge’s worst performers over the past three months. Funds will also favour Internet and newenergy companies in the second half, Wong said. The Hang Seng Index slipped 0.5 percent this year through Wednesday, buffeted by reports signaling a deepening economic slowdown in China and concern that stricter regulations will curb casino spending in Macau. A 10 percent rally would take the stock gauge to levels unseen since mid-2008. “China is not as bad as people think,” said Wong in an interview in Hong Kong on June 17, pointing to targeted stimulus and government measures to open state-owned enterprises to private investment. On casinos, “you can see that top-line growth is slowing down but the mass market is still very strong.” Casino companies posted among the biggest annual gains on the Hang Seng Index from 2010 through last year. They’ve struggled to maintain momentum in 2014 as China’s slowdown curbed high-roller spending and Macau tightened the use of UnionPay Co. debit cards and reduced the transit-stay limit for Chinese travellers. Galaxy Entertainment, Sands China, Wynn Macau Ltd. and SJM Holdings Ltd. dropped an average 21 percent this year through yesterday.
New economy Concern about tighter transit restrictions is overblown, with changes to the limit in 2008 failing to dent spending, Wong said. Julius Baer is maintaining a preference for so-called new economy companies in Internet, health care and alternative energy, over industries dominated by state-owned businesses.
You can see that top-line growth is slowing down but the mass market is still very strong Kelvin Wong, Julius Baer senior analyst
“The growth outlook is more solid,” Wong said. While valuations are high, they’re not too expensive given the expansion prospects, he said. Tencent Holdings Ltd. which extended record highs until March before dropping 8.5 percent through yesterday, is valued at 37.7 times estimated profits as of the last close. Medical products maker Shandong Weigao Group Medical Polymer Co. trades at 22.9 times, even after slumping 36 percent from its recent peak in December. That compares with 10.7 times for the Hang Seng Index and 7.3 times for the Hang Seng China Enterprises Index.
Economic outlook While recent data from China including manufacturing and new credit signaled Asia’s biggest economy is stabilizing, analysts project 7.3 percent growth this year, the weakest pace since 1990. The government has rolled out a series of measures this year including reserve-ratio cuts for regional lenders and directives to accelerate home-loan approvals to help meet its official 7.5 percent expansion target. “The market may trend down in the third quarter before going up again because confidence in China’s economic recovery is still very fragile,” said Wong. “I’m cautiously positive because what government is doing is on the right track.” Bloomberg
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June 20, 2014
Macau
HK Financial Council mulls specialised listing
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he Financial Services Development Council in Hong Kong wants new listing boards. It is meant as a way to ‘enhance Hong Kong’s competitiveness’ and capture companies that have IPOs in the neighbouring SAR. According to a report in the city’s English-language newspaper South China Morning Post, the suggestion was made in a report yet to be published after the stock market there lost e-commerce giant Alibaba Group to the stock exchange in New York. The Hong Kong Stock Exchange rebuffed e-commerce giant Alibaba Group’s request for listing with a share structure that might allow its founder and top management to nominate most board members in spite of holding a minority stake. The Hangzhou-based group then turned to New York for its listing. The new suggestion would enable ‘better matching between different types of issuers and investors and ‘accommodate innovations in shareholding and management structure’ by introducing specialised listing boards. This could also help develop Hong Kong into a hub catering to firms in specific industries such as mining and natural resources, Bonnie Chan, the policy research committee member
of the Council, is quoted by the newspaper as saying. It is expected that a board for special shareholder structure would be favourable to London-listed Jardine Matheson and US-listed English football club Manchester United which all have unique shareholding structures. The Council also proposed that Hong Kong follow London’s lead to host several markets appealing to various companies and investors, according to the report in the South China Morning Post. The report also explored how the IPO period could be shortened, the requirements of cornerstone investors, and the establishment of a mechanism to allocate shares between institutional and retail investors. The convenor of the Council’s policy research committee, Laurence Li, dismissed the speculation that such recommended changes are custom-made for any individual firm, adding that hopefully the markets are ready by the time Shanghai and Hong Kong stockvia-train scheme is enforced later this year, as more companies are believed to list in the city. Alibaba’s rejected request for listing in Hong Kong in October last year was a violation of the oneshare-one vote principle, given that sort of structure.
Bossini issues positive profit alert C
Home appliance retailer on a sure bet with lotteries C
lothing retailer Bossini International Holdings Ltd – which has stores in major tourist locations here including Rua de São Domingos just off Senado Square and The Venetian Macao – has announced a positive profit alert for the year ending June 30, 2014, the company said in a notice filed with the Hong Kong Stock Exchange yesterday. Due to ‘significant improvement in segment results of mainland China and Taiwan operations,’ the retailer said it was expecting a significant increase in profit attributable to shareholders for the said financial year. For the six months ended December 31 last year, Bossini’s profit attributable to owners was HK$75 million (US$9.67 million), a leap of 119 percent compared to a year ago, the retailer said in its interim report. The group-wide revenue for the six months ended December was HK$1.273 billion, down 5 percent compared to a year ago. The closure of the non-performing stores in mainland China and Taiwan, as well as double-digit increases in same store sales growth for Hong Kong retail operations, contributed to the better profit recorded, Bossini noted in its interim report. The group also said that it has observed improvements in same store sales and gross margin for its mainland business segment.
hinese home appliance retailer Huiyin Household Appliances Holdings Co Ltd will sell lottery tickets through its existing 2,700 points of sales distribution network in the mainland, said the company’s chairman Cao Kuanping, who considers “buy home appliances, enter a lottery” a viable promotional strategy for the company. This came after announcements related to expanding into the lottery agency sales business late last month. Earlier this month, the retailer obtained authorisation from Yangzhou City to sell sports lotteries in the city prior to signing a sales agreement with Jiangsu province regarding agent service welfare lotteries. According to the Chinese Ministry of Finance, the nationwide sale of lotteries in the first five months hit 142.4 million yuan. The retail chairman did not disclose exactly when the lottery business will start but said that such a business is “way easier” than running the home appliance service. The retailer suffered a low margin of 11 to 12 percent last year.
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June 20, 2014
Greater China
Chinese investors push “pledged” repo rates The rise in pledged rates, however, has not trickled into the much larger interbank market Pete Sweeney
KEY POINTS Stock market investors bid up rates to raise cash Little impact on wider money market seen Investors like IPOs for outperformance over indexes Regulators set to approve around 100 listings this year
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hinese investors hungry for cash to buy into upcoming initial public offerings have turned to little-known overnight pledged bond repurchase (repo) agreements for funds - driving up the cost of borrowing nearly four-fold for the week, with the cost of borrowing for 24 hours as high as 16 percent yesterday. “The main reason behind the performance of pledged repo rates in the Shanghai Stock Exchange is the restarting of IPOs, with both retail and institutional investors showing great enthusiasm for participation,” said a trader from a state-owned bank in Beijing. Other commonly-traded instruments such as seven- and 14day pledged repo contracts have posted similar rises over recent days. Pledged repos are a derivative
fundraising tool used in China’s stock exchanges to raise funds for quick transactions, and the market has received scant attention until recently. A pledged repo transaction involves a customer pledging bond assets they own as collateral to the repo issuer, which advances cash at a certain interest rate for short periods. Historically the pledged repo market has proven far more volatile than the primary interbank money markets.
Narrow impact seen The rise in pledged rates, however, has not trickled into the much larger interbank market, where benchmark instruments have yet to show signs of pressure, and traders do not expect them to do so in the future. The weighted average of the
benchmark seven-day repo rate stood at 3.12 percent yesterday, up slightly from Wednesday but well within accommodative territory. The interbank bond market, dominated by banks and big institutional investors, dwarfs those on the Shanghai and Shenzhen exchanges which are more focused on retail investors. Beijing allowed IPOs to resume in early 2014 after over a year-long hiatus, letting nearly 50 previouslyapproved companies list. Those new issues performed strongly, up by an average of 70 percent from their IPO prices since listing in January and February, according to Reuters calculations. In comparison, the CSI300 index, which tracks the largest firms trading in Shanghai and Shenzhen, is down nearly 6 percent in the year to date.
Four companies have priced their IPOs so far, aiming to raise up to 1.7 billion yuan (US$274 million), with listings expected soon. But the total amount of funds raised looks set to fall short of original expectations. The China Securities Regulatory Commission (CSC) has said it intends to allow 100 companies to list, about half of the number projected by analysts. While that is bad news for underwriters and investment banks, it is positive for liquidity sentiment. Massive IPO surges can put pressure on money markets, and in China they also tend to dilute the net valuation of shares in the market as investors close out positions in already-listed companies in order to buy new listings. Reuters
CIC vows to better investment management The fund has drafted plans to rectify issues identified by the National Audit Office
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hina Investment Corp., the nation’s US$575 billion sovereign wealth fund, said it is improving how it manages overseas investments after state auditors said mismanagement led to losses. The fund has drafted plans to rectify issues identified by the National Audit Office, analysed the causes, and is amending related mechanisms and procedures, Beijing-based CIC said in an e-mailed statement. CIC, as it’s known, will also strengthen due diligence for overseas deals and enhance postinvestment management, and standardize the selection of external managers, according to the statement. An audit last year found dereliction of duty by managers, and inadequate due diligence and management in 12 investments made abroad by CIC between 2008 and
2013, leading to losses, according to results published yesterday. CIC, set up in 2007 to manage part of China’s foreign reserves, is the world’s fourth- largest state wealth fund, according to the Las Vegas-based Sovereign Wealth Fund Institute. The fund’s financial and information management is weak, accounting policies for overseas investments are “not prudent enough,” and it wasn’t strict in enforcing its personnel management and accountability measures, according to the audit report. Auditors also said CIC’s selection of external managers for some overseas investments was “not very standard,” according to the report, which didn’t elaborate.
investments, the fund said today without being specific. The audit office said yesterday it transferred cases of suspected legal or disciplinary violations to the authorities for investigation. The company has amended its accounting practices in private equity investments, it said, after auditors found that
US$10 million in payments received from some such deals were kept out of its formal accounts at the end of 2012. Auditors also found irregularities at CIC’s domestic units. Among them, Central Huijin Investment Ltd. forgo 1.26 billion yuan (US$202 million) in potential investment gains in 2011
‘Dealt with’ CIC “has dealt with” employees responsible for issues regarding the overseas
CIC’s overseas portfolio includes shares in Wall Street firms, such as Morgan Stanley and GCL-Poly Energy Holdings Ltd.
by selling a stake in a local securities company at the cost price, and not conducting an asset appraisal as required, according to the report. CIC has ordered Central Huijin and other units to enhance management of asset transfers and strictly follow appraisal rules, the fund said today. A domestic subsidiary that invested 8.3 billion yuan in property development in violation of its mandate “is quickening the disposal” of such assets, it added. CIC’s overseas portfolio includes shares in Wall Street firms, such as Morgan Stanley, GCL-Poly Energy Holdings Ltd., the world’s biggest polysilicon maker, and Sunshine Oilsands Ltd., a Canadian energy producer. Founding Chairman and Chief Executive Officer Lou Jiwei, replaced last year by Ding Xuedong, is China’s finance minister. Bloomberg News
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June 20, 2014
Greater China State firms’ profits improve China’s state-owned enterprises (SOEs) saw faster growth in profits in the first five months of 2014 than in the January-April period, adding to signs of a stabilizing economy, according to the Ministry of Finance (MOF). The combined profits of China’s SOEs rose 6.9 percent year on year to 942.6 billion yuan (US$153.2 billion) in the first five months, accelerating moderately from 6.5 percent for the January-April period. However, business revenues for state firms continued to slow, while operating costs still outpaced the growth in revenues, thus further weighing on future profits.
Nuke reactors overwhelm Chinese builders are entering the final construction stages for two (Pictured) European Pressurized Reactor construction
World 3D printing technology expo opens in Qingdao
C The 2014 World 3D Printing Technology Industry Exhibition opened on Thursday in east China’s costal city of Qingdao, attracting 110 3D printing companies at home and from abroad. Firms from more than ten countries or regions are attending, including the United States and Germany. About 1,000 printing professionals will be in attendance, said Luo Jun, secretary-general of the World 3D Printing Technology Industry Alliance. The four-day event, the largest of its kind, will showcase latest 3D printing equipment, technologies and products, said Luo, also executive chairman of China 3D Printing Technology Industry Alliance.
New air route links Chengdu, Japan’s Naha China Eastern Airlines is set to launch a new international route linking west China’s Chengdu City with Naha, capital of Japan’s Okinawa Prefecture. The airline said yesterday that the route to be opened in the middle of July will be the third direct air link after Beijing and Shanghai in China to connect with Naha. The airline plans to operate three two-way flights a week. Boasting subtropical island resorts, Okinawa is one of Japan’s major tourist destinations. Chengdu, capital of southwest China’s Sichuan Province, has become an air transport hub in China’s mid-west. It offers 74 international air routes.
More cross-Strait communication expected Taiwan’ s legislative head Wang Jin-pyng expressed his expectation that Zhang Zhijun, mainland Taiwan affairs chief, will visit the island and communicate with local people at grassroots level. “It’ s a courtesy to exchange visits, and we are glad to have him come,” Wang JinPyng told Xinhua. Zhang, director of the State Council Taiwan Affairs Office, is scheduled to meet his Taiwan counterpart Wang Yu-chi, director of Taiwan’s Mainland Affairs Council, and exchange views about cross-Strait relations this month. In February, Wang Yu-chi visited the eastern mainland city of Nanjing, and invited Zhang to visit Taiwan.
hina is moving quickly to become the first country to operate the world’s most powerful atomic reactor even as France’s nuclear regulator says communication and cooperation on safety measures with its Chinese counterparts are lacking. In the coastal city of Taishan, 160 kilometres from the financial hub of Hong Kong, Chinese builders are entering the final construction stages for two state-of-the-art
European Pressurized Reactors. Each will produce about twice as much electricity as the average reactor worldwide. France has a lot riding on a smooth roll out of China’s EPRs. The country is home to Areva SA, which developed the next- generation reactor, and utility Electricite de France SA, which oversees the project. The two companies, controlled by the French state, need a safe, trouble-free debut in China to ensure a future for their
biggest new product in a generation. And French authorities have not hidden their concerns. “It’s not always easy to know what is happening at the Taishan site,” Stephane Pailler, head of international relations at France’s Autorite de Surete Nucleaire regulator, said in an interview. “We don’t have a regular relationship with the Chinese on EPR control like we have with the Finnish,” said Pailler referring to another EPR plant under construction in Finland.
Premier Li highlights China’s Li made the remarks when addressing a gathering co-hosted by
V
isiting Chinese Premier Li Keqiang said that China, with a population of 1.3 billion, will foster the largest inclusive development in human history by achieving modernization step by step. Li made the remarks when addressing a gathering co-hosted by Chatham House and the International Institute for Strategic Studies (IISS), two prestigious British think tanks. He pledged that China will promote urbanization, integration of urban and rural areas and regional harmonious development. China will boost sustainable economic development by following a new path of industrialization, pursuing low-carbon and green growth, achieving endogenous growth through innovation and upgrading the economy by improving its quality and efficiency, he said at the event which took place at Mansion House in the City of London. China will also push for reforms to give the market a decisive role in resource allocation and give better play to the role of the government, so as to tap private investment potential and stimulate the initiative and creativity of the market as well as the people, he said. China will advance a new round of opening-up to create a better environment for domestic and foreign investment, better integrate itself with the rest of the world and make important contributions to the inclusive development of the world as a whole.
Chinese Premier Li Keqiang speaks during a press conference at the Foreign Office in London
As for China’s foreign policy, the premier said the Chinese people love peace and China will firmly pursue a path of peaceful development, upholding an open strategy of mutual benefit and win-win results as well
as a policy of “building friendship and partnership with neighbouring countries.” China is ready to join efforts with other countries to create an international environment of lasting
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June 20, 2014
Greater China
regulators
China develops revolution-era tourism
state-of-the-art European Pressurized Reactors
“R
28
nuclear reactors under construction in China
Calls and faxes to China’s National Nuclear Safety Administration regulator seeking comment went unanswered. China General Nuclear Power Corp., the atomic operator that is building the reactor with the French, didn’t responded to queries. Some 28 reactors of various models are currently under construction in China. That’s more building than any other nation on the planet, and the country hasn’t reported a serious nuclear accident in the 22 years it
has operated nuclear plants for commercial use. And in a rare public comment about safety concerns, China’s own State Council Research Office three years ago warned that the development of the country’s power plants may be accelerating too quickly. China General, the country’s biggest atomic operator is forging ahead with EDF. It will begin critical tests on the most advanced of the 1,650-megawatt Taishan EPRs before start-up in 2015, Machenaud said last month. Fuel will be loaded and the plant will “undoubtedly” start up before the European models, he said in the interview, the first time an executive has publicly described the plan. The Chinese regulator’s website contains relatively little information about safety issues. Bloomberg News
development
ed tourism” is gaining popularity in China as the government pumps money into developing sites related to the Chinese revolution. North China’s Shanxi Province in particular is trying to accentuate the historical credentials of revolutionera bases so it can attract tourists and enjoy faster growth. Wuxiang County in Shanxi hosted the headquarters of China’s Eighth Route Army and accommodated many of the country’s older generation of revolutionaries, such as Zhu De, Peng Dehuai and Deng Xiaoping. The Eighth Route Army was an armed force led by the Communist Party of China during the AntiJapanese War (1937-45). Since 2008, the Wuxiang government has set up a themed cultural park, put on stage shows telling war stories and come up with travel itineraries that let tourists sample life as a guerrilla. In 2013, two million visitors flocked there, attracted by the red tourism program, which has generated more than 2 billion yuan (around US$300 million), according to the county government. “At present, there are unprecedented opportunities for
red tourism in China,” said Wang Shumao, a member of the country’s coordinating group for this subsector of tourism. In 2013, the central government allocated 487 million yuan to back up red tourism. Civil affairs department also invested 2.8 billion yuan on constructing memorial sites. And China’s transport departments have dedicated 1.5 billion yuan to improving road links to revolutionary sites. There seems to be a public appetite for commemorating revolutionaries. During the three days of this year’s Tomb-Sweeping Day holiday, over 30 million people paid their respects at red tourism attractions, according to Wang. “We should also make use of the educational function of red tourism,” said Dong Jiang’ai, a professor with Shanxi University. “It could help reduce corruption when we appreciate the efforts of these soldiers, and learn from them,” he said. It is estimated that, by 2015, red tourism sites around China will welcome 800 million tourists per year and earn revenue of 200 billion yuan. Xinhua
Offshore wind power generators to get paid
Chatham House
peace, he said. However, China will adopt forceful measures against any provocation or move that harms peace, to safeguard world peace and stability, he said. Noting that developing and
North China’s Shanxi Province in particular is trying to accentuate the historical credentials of revolution-era bases
developed countries are the “double engines” of world economic development, Li said fostering the inclusive development of mutual benefit and win-win results between them is the common task and responsibility of all countries in reconstructing the global economic order after the financial crisis. He urged all countries to pursue reforms and innovation, strengthen the coordination of macro policies, remove the barrier of protectionism, promote the establishment of a market order of fair competition, constantly expand mutual interests and share the fruitful results of globalization. In conclusion, Li called on China and Britain, East and West, developing and developed countries to seize all opportunities to enhance strategic cooperation, advance common growth, share experience in innovation and work together to create a fine world of inclusive development. Michael Bear, former lord mayor of London, and John Chipman, directorgeneral of IISS, in their addresses referred to Britain as China’s reliable partner as well as a long-term and stable investment destination. They added that British think tanks pay high attention to China’s reform and development, appreciate the country’s efforts in safeguarding world peace and promoting common development, and expect China to play a bigger role in world affairs. Xinhua
Prices for projects launched after 2017 will be adjusted in accordance with technological improvements and changes in costs
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ower grids will pay 0.75-0.85 yuan (US$0.12-0.14) per kilowatt-hour for electricity produced by offshore wind turbines, the country’s state planning agency said in a bid to encourage more investment in the sector. The National Development and Reform Commission (NDRC) said in a notice on its website the on-grid tariff would be paid to wind farms completed and put into operation before 2017. Prices for projects launched after 2017 will be adjusted in accordance with technological improvements and changes in costs, the NDRC said. China has used variable tariffs to encourage cleaner power generation. Last year, it set a benchmark tariff of 0.43 yuan per kilowatt hour for nuclear power, and also raised tariffs for coal-fired power plants that had installed clean technologies. A n a l y s ts wi th C h i n a ’ s C I Consulting, an industrial research firm, said in a note that while the new price would not completely cover the current costs of offshore wind installation, it would ease worries that electricity generated by offshore wind power would be refused by the grid.
82.27
China’s total installed wind capacity in gigawatts
The NDRC notice said the policy was designed to encourage the development of China’s rich offshore wind resources. Offshore capacity stands at just 400 megawatts at present, amounting to less than 0.5 percent of China’s total wind capacity. China’s total installed wind capacity stood at 82.27 gigawatts by the end of May, up 23.1 percent on the year and amounting to 6.6 percent of the national total. Reuters
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June 20, 2014
Asia S.Korea rejects supplementary budget South Korea’s economy shows some signs of softening mainly due to falling confidence among consumers and companies but is not weak enough to warrant a supplementary budget, its finance minister said yesterday. “I think the current situation does not satisfy conditions (for the government) to draw up a supplementary budget,” Minister Hyun Oh-seok said in response to a question during a parliamentary session. Hyun is due to step down soon as part of a cabinet reshuffle announced recently.
Philippine balance of payments posts surplus The Philippines’ balance of payments (BOP) registered a surplus of US$373 million in May, the local central bank said yesterday. Figures from the Philippine central bank showed that the BOP surplus in May was a reversal of the US$19 million deficit posted in April and was higher than the US$75 million surplus registered in the same period last year. The BOP position of the Philippines improved in May after the country saw foreign portfolio investments, or “hot money,” register a net inflow of US$545.08 million last month.
S.Korea may ease mortgage regulations National top financial market regulator said yesterday he would review the current mortgage lending regulations in response to signs of a halting economic recovery, suggesting lending restrictions could be eased. “(I) will look into it to find out if there are ways to support the real economic activity without hurting the financial stability,” Shin Je-yoon, chairman of the Financial Services Commission, told lawmakers when asked if his agency was willing to loosen some of the lending restrictions.
Sony not to split off entertainment business Sony Corp Chief Executive Kazuo Hirai said yesterday that the Japanese consumer electronics company was not thinking of splitting off or listing its entertainment business. Hirai was responding to a question at an annual shareholders meeting. Sony rebuffed a proposal last year by investor Daniel Loeb, chief of hedge fund Third Point, to partially spin off its entertainment business to unlock shareholder value. Hirai has repeatedly said since then that retaining full ownership of the entertainment unit is important for synergy across Sony.
India plans more transparent Under the proposed new arrangement, the Reserve Bank of India currency dealers Nidhi Verma
I
ndia plans to clear some pending oil payments to Iran through the United Arab Emirates central bank, three sources with knowledge of the matter said, under an interim nuclear deal that has allowed Tehran access to US$4.2 billion in blocked funds globally. The mechanism reflects a U.S. insistence that the transfers can be closely tracked. Payments would reward Tehran for cooperating in nuclear talks that, if successful, would return Iran to the international fold after decades of isolation. Despite some signs of improving relations between Washington and Tehran, a full deal over Iran’s nuclear activity remains elusive. Iran and six world powers relaunched talks on Tuesday to try to salvage a deal on Tehran’s nuclear activity by a July 20 deadline. Iran’s earlier request to repatriate US$1.65 billion in Omani Rials through Bank Muscat proved not to be workable. It was not known why that channel was not utilized. Under the proposed new arrangement, the Reserve Bank of
India would buy the dollars from authorised currency dealers, instead of the Indian oil buyers tapping the currency market, the sources said. The UAE central bank would then remit the funds to Iran in dirhams, the sources said. The UAE central bank and the U.S. Treasury department’s Office of Foreign Assets Control did not immediately respond to requests for comment. No comment was available from the RBI. The sanctions slapped on Iran in 2012 closed banking channels for the transfer of oil payments to the OPEC member country, choking off its revenues, crippling the economy and ultimately bringing it to the negotiating table.
Transparency
U.S. Department of the Treasury
The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury has informed India that Iran would like to receive US$1.65 billion in three equal instalments through the UAE central bank, the sources said.
“It is indeed a complex mechanism but it has been devised to bring in transparency in the money transfer to Iran,” said one of the sources, all of which declined to be identified as they were not authorised to speak to media.
Viet dong drops against dollar The central bank has kept the mid-point rate unchanged at 21,036 since June 28 last year
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ietnam lowered a mid-point rate for trading its currency on the interbank market by 1 percent yesterday to support exports, the key driver of the economy, the central bank said. The move will lower the dong to 21,246 per dollar. “In the context inflation is being kept at a low level, in order to support exports in the last six months, the State Bank proactively adjusts the exchange rate,” the central bank said. Dollar/dong transactions can move in a band of plus or minus 1 percent around a midpoint rate set daily by the central bank. With the new midpoint taking effect yesterday, that means within a range of 21,034 to 21,458 dong per dollar. The central bank has kept the mid-point rate unchanged at 21,036 since June 28 last year. The biggest devaluation in recent years came when the value of the inconvertible dong was lowered on February 11, 2011 by 8.5 percent against the dollar, to counter a widening gap between official and black market rates.
In the first months of 2014, Vietnam’s monetary and foreign exchange markets remained stable, with a trade surplus of US$1.6 billion recorded in the first five months and a surplus of more than US$10 billion in the country’s balance of payments, the central bank said in the statement. In recent weeks, banks have been quoting the dong against the dollar near its floor of 21,246 on the interbank market. The dollar has also been rising on the black market. In early June, Governor Nguyen Van Binh had to reassure the market that the dong’s weakening was for psychological reasons alone, partly because of tension with neighbouring China, with which Vietnam recorded two-way trade of US$50 billion last year. The two countries have been embroiled in a bitter dispute since early May, when China moved a US$1 billion oil rig into a stretch of the South China Sea claimed by both communist nations. Talks between senior Chinese and Vietnamese officials made little progress on Wednesday.
In the context inflation is being kept at a low level, in order to support exports in the last six months, the State Bank proactively adjusts the exchange rate Vietnam State Bank
SBV Governor Binh reiterated a policy mentioned at the start of 2014 that the central bank would keep any exchange rate adjustment within 2 percent this year. Reuters
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June 20, 2014
Asia
Iran oil payments
NZ posts fastest annual growth
would buy the dollars from authorised
The economy grew a seasonally adjusted 3.8 percent in January-March from a year ago Naomi Tajitsu
In a first step, India’s petroleum ministry would instruct oil refiners to remit funds in rupees to the account of an Iranian bank with India’s state-run UCO Bank. UCO would then transfer the
sum to the RBI for crediting to a new rupee account held by the UAE central bank. Once this step is completed, the UAE central bank would make a payment in dhirams to the Iranian central bank. On receipt of payment confirmation, the RBI would credit the UAE account with an equivalent sum in dollars. The RBI would then settle its dollar purchases with the funds on the UAE rupee account. Indian refiners Essar Oil, Mangalore Refinery and Petrochemicals Ltd, Hindustan Petroleum Corp and HPCL-Mittal Energy Ltd. together owe about US$4 billion to National Iranian Oil Co, an MRPL executive said last month. In the first two instalments, Mangalore Refinery and Petrochemicals would pay about US$238 million, Essar Oil US$232 million, Indian Oil Corp US$57 million, Hindustan Petroleum about US$8 and HPCL Mittal about US$15 million. Reuters
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ew Zealand’s economy expanded at its fastest annual rate in more than six years during the first quarter driven by a surge in construction, bolstering the case for another interest rate rise next month to curb growing price risks. The economy grew a seasonally adjusted 3.8 percent in January-March from a year ago, Statistics New Zealand figures showed on Thursday, its best pace since the September 2007 quarter and slightly exceeding economists’ forecasts for a 3.7 percent rise. Driving the NZ$226 billion (US$195.7 billion) economy at the start of the year was a 12.5 percent pick-up in construction activity, the biggest quarter rise since March 2000. This helped spur a 1.0 percent expansion for the quarter, unchanged from the December quarter, but below an expected 1.2 percent rise. The figures indicated the small South Pacific nation’s economy outperforming most developed economies, and will keep pressure on the Reserve Bank of New Zealand to raise rates to 3.5
percent next month. “They pretty much hinted if events keep on track they’ll be hiking in July, and this suggests things are in track with their view, so we expect a hike in July and pause until December,” said ASB Bank chief economist Nick Tuffley. The New Zealand dollar softened in response to the weaker-thanexpected quarterly rise, easing to a low of US$0.8310 from US$0.8324 before the data. New Zealand’s economy has continued to pick up the pace in recent quarters thanks to the ongoing Canterbury earthquake rebuild projects. Record-high exports of dairy products, the country’s biggest export earner, has also boosted terms of trade to their highest in around 40 years. To quell rising inflation pressure stemming from an outperforming economy, the RBNZ in March became the first developed central bank to raise interest rates in the current cycle, and is expected to raise rates gradually through late 2015. Reuters
Japan business mood defies economic headwinds The BOJ may face renewed pressure for additional stimulus if the weakness in exports persist Tetsushi Kajimoto and Leika Kihara
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onfidence of Japanese manufacturers held steady in June while the service-sector mood rebounded from the prior month, an encouraging sign for the economy as it tries to hold its ground in the face of soft exports and weakening consumption. The readings in yesterday’s Reuters Tankan poll - which strongly correlates with the Bank of Japan’s key tankan
Industrial zone in Japan
quarterly survey - reinforce policymakers’ confidence that the world’s third-largest economy can weather the pain of a recent national sales tax increase. Still, the BOJ may face renewed pressure for additional stimulus if the weakness in exports persist, threatening to derail a recovery which kicked in last year following near two decades of economic stagnation.
In a speech yesterday that underscored some of the uncertainties ahead, BOJ board member Yoshihisa Morimoto warned of risks to the export outlook as demand in emerging Asian markets fail to gather momentum. He said there were “both downside and upside risks” to the BOJ’s projection that exports will rebound, depending on how overseas economies perform.
“We must continue to scrutinise the outlook for emerging economies, as well as developments in Europe’s debt problem and the U.S. economy,” Morimoto told business leaders in Akita, northeastern Japan. His comments follow data on Wednesday that showed Japan’s exports fell for the first time in more than a year, hit by a drop in shipments to Asia and the United States.
Some market players worry that the hit from the April 1 tax increase to 8 percent from 5 percent and weak shipments could prove bigger than expected, squandering the progress made over the last year thanks to Tokyo’s massive fiscal and monetary stimulus. Still, Morimoto stuck to the central bank’s upbeat view on the economy, saying it is likely to continue recovering moderately with the pain from the tax hike on household spending seen receding around summer. The Reuters Tankan backs Morimoto’s confidence, with manufacturers’ morale seen improving in September, while the service-sector mood is expected to worsen but hover at relatively high levels. The monthly poll of 400 major manufacturers and service-sector firms, of which 260 replied during the June 2-16 period, suggests that the BOJ’s tankan due July 1 may show the impact of the April tax hike is limited. That would be encouraging to the central bank, which has indicated it is willing to look through short term dips in growth without the need for additional stimulus. Reuters
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June 20, 2014
International
Norges Bank says rate cut needed The economy of western Europe’s largest oil exporter is slowing as offshore investment abates
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orway’s central bank kept its main interest rate unchanged and said it may even need to ease policy as Scandinavia’s richest nation grapples with slowing petroleum investments. The krone fell as much as 1.9 percent against the euro after the decision. The deposit rate was kept at 1.5 percent for a 14th consecutive meeting, Oslo-based Norges Bank said yesterday. The decision was predicted by all 22 economists in a Bloomberg survey. “The analyses imply that the key policy rate be held lower longer than previously projected,” Governor Oeystein Olsen said in a statement. “There are prospects that the key policy rate will remain at about today’s level to the end of 2015, followed by a gradual rise. A further weakening of the outlook for the Norwegian economy may warrant a reduction in the key policy rate.” The economy of western Europe’s largest oil exporter is slowing as offshore investment
abates and record household debt weighs on consumers. A key survey by Norway’s statistics agency showed last week that oil companies predict investments will drop by as much as 21 percent next year as the industry grapples with high costs.
‘Some slack’ “We are in for a period with growth below trend,” Erik Bruce, senior economist at Nordea Bank AB, said before the rate decision. Capacity utilization below normal levels points to “some slack” in the economy, he said. Central banks across Europe have returned to easing mode. The European Central Bank this month cut its deposit rate below zero for the first time, while policy makers in Sweden have signaled they’re ready to lower rates next month to keep deflation from taking hold in the largest Nordic economy. Olsen warned a year
ago that he stands ready to cut rates should krone strength hamper the bank’s policy goals. Before today’s announcement, the currency had weakened about 6 percent against the euro during the past 12 months, pushing underlying inflation to 2.6 percent in March this year, as price growth exceeded the bank’s 2.5 percent target for the first time since 2009.
Growth forecasts The bank sees its rate at 1.43 percent in both the fourth quarter of this year and the first quarter of 2015, it said. In its previous monetary policy report, Norges Bank saw rates at 1.51 percent in the fourth quarter and 1.6 percent in the first quarter of 2015. The bank predicts a rate of 1.49 percent by the end of 2015 and 1.75 percent at the end of 2016. Norges Bank estimates underlying inflation will be 2.25 percent this year and 2 percent at the end of 2015. Faster inflation is
Norges Bank headquarters
accompanying a slowdown in growth in the $500 billion economy. Mainland gross domestic product, which excludes oil and gas production, will expand 2 percent this year, after
growing 2 percent in 2013, the bank forecast today. It cut its projection for 2015 to 2.25 percent. In March, the bank saw output by that measure growing 2.5 percent in 2015. Bloomberg News
Rolls-Royce to spend 1 billion pounds rebuying shares The company said it was on track to return to earnings growth next year Sarah Young
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olls-Royce shares jumped 7 percent yesterday after the British aero-engine maker decided to buy back shares worth 1 billion pounds (US$1.69 billion) instead of making any major acquisitions. The company said it was on track to return to earnings growth next year, reassuring investors whose confidence was shaken by a cut in profit guidance in February and an engine order cancellation this month. Rolls-Royce shares climbed to 1,076 pence, their highest in over two months, leading Britain’s benchmark FTSE 100 index. The stock had lost 17 percent of its value over the past six months. The buyback, equivalent to about 5 percent of the RollsRoyce’s 19-billion-pound market capitalisation, will be funded partly by proceeds from the 785-millionpound disposal of its gas turbine unit to German conglomerate Siemens AG, agreed in May. “As no material acquisitions are planned, and reflecting the strength of our balance sheet, we will return the proceeds of the energy sale to our shareholders,” Chief Executive John Rishton said ahead of an investor day event yesterday. Rolls-Royce had last year considered a bid for Finnish ship and
power plant engine maker Wartsila and analysts had said such a deal could re-emerge. Shares in that company, currently worth about 8 billion euros, traded down 3 percent. Rolls-Royce had looked at buying Wartsila as a way to strengthen its Marine engine business, but the idea left some investors wondering whether the company was spending indiscriminately in the pursuit of growth. The share buyback “shows they ‘get’ how much the Wartsila story frightened investors”, said Edison analyst Sash Tusa. In further evidence of a more rigorous approach to spending, RollsRoyce said it would reduce group capital expenditure to 4 percent of underlying revenue over the next three to five years from 4.9 percent at the end of 2013. Reuters
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June 20, 2014
Opinion Business
wires
Leading reports from Asia’s best business newspapers
China’s Arab march Minghao Zhao
Research fellow at the Charhar Institute, a Chinese foreign-policy think tank
THE STAR True to speculation, YTL Power International Bhd has announced its withdrawal from the controversial project to build a power plant in Johor called Project 4A, throwing the project into limbo. Malaysia’s first independent power producer (IPP) instead is supporting the growing call for Project 4A, which entails the construction and operation of a combined-cycle gas turbine (CCGT) power plant with a capacity of between 1,000 and 1,400 MW in Pasir Gudang, Johor, to be awarded on a competitive tender basis instead of the direct negotiation approach that the Government had taken.
THANH NIEN NEWS The US-owned Intel Corporation will expand its production of desktop central processing units (CPUs) in Ho Chi Minh City, where it has operated a factory since 2006. The expansion is part of the semiconductor chip giant’s plan to invest US$1 billion into its factory in the Saigon Hi-Tech Park, Le Manh Ha, vice chairman of the city People’s Committee, said on the sidelines of his meeting with US Consul General Rena Bitter. Intel would announce its plan this month, Ha was quoted as saying by news website Thoi Bao Kinh Te Sai Gon (Saigon Times).
THE NEW ZEALAND HERALD In the summer of 2003, Viacom executive Mel Karmazin managed to sum up old media’s horror of the Internet with one of business lore’s greatest vulgar one-liners. Karmazin, a swaggering former ad salesman and onetime CBS Corporation president, had made an expedition to check out Silicon Valley’s hottest young upstart: Google. Sitting in the future search giant’s offices, he listened in dismay as its founders, Larry Page and Sergey Brin, and its CEO, Eric Schmidt, detailed the many ways their company could track and analyse the effectiveness of online advertising.
THE AGE The past ten years may have been a great time to be invested in the equity market but residential property delivered better, more steady returns over the longer run, according to a new report. Comparing the total returns - after fees and including income payments - over the past 10 years to December 2013, Australian shares unsurprisingly led at 9.2 per cent, even after the crash associated with the GFC, according to the latest Russell Investments Long-term Investing Report. It was closely followed by hedged global shares, which delivered an 8.2 per cent return.
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EIJING – The growing bloodshed in Iraq and Syria is being watched as keenly in China as anywhere else in the world. Indeed, the greater Middle East is becoming an ever greater focus of Chinese foreign policy. At the just-concluded sixth ministerial conference of the China-Arab States Cooperation Forum, held in Beijing, Chinese President Xi Jinping called upon his Arab counterparts to upgrade their strategic relationships with China, by deepening bilateral cooperation in areas ranging from finance and energy to space technology. This reflects China’s broader goal – established partly in response to America’s “pivot” toward Asia – of rebalancing its strategic focus westward, with an emphasis on the Arab world. Of course, economic ties between China and Arab countries have been growing stronger for more than a decade, with the trade volume increasing from US$25.5 billion in 2004 to US$238.9 billion in 2013. China is now the Arab world’s second-largest trading partner, and the largest trading partner for nine Arab countries. Within ten years, the volume of China-Arab trade is expected to reach US$600 billion. Engineering contracts and investment have also enhanced ties. Under Xi’s leadership, China is attempting to reshape its relationships with Arab countries according to its new “march west” strategic framework. The most notable component of this strategy is the “Silk Road economic belt,” which is to run along the ancient Central Asian Silk
Road and the modern maritime Silk Road – an initiative that Xi promoted heavily at the recent meeting in Beijing. This effort highlights China’s goal of establishing hub-andspoke relationships with key developing economies around it. To this end, Prime Minister Li Keqiang has proposed an economic corridor linking China to Pakistan, and has spoken of other corridors running through Bangladesh, India, and Myanmar. Unsurprisingly, energy has been a key factor in economic ties with the Arab world. From 2004 to 2013, China’s crude oil imports from Arab countries grew by more than 12% annually, on average, reaching 133 million tons per year. And China’s “march west” strategy furthers its goal of safeguarding access to these resources. As the director of the State Council’s Development Research Center, Li Wei, pointed out in February, at the current rate, China will be consuming 800 million tons of oil annually, and importing 75% of its petroleum, by 2030. In this sense, China’s trajectory contrasts sharply with that of the United States, where the rapid growth in output of shale oil and gas, together with energy-saving measures, has brought energy independence closer than ever – a point that President Barack Obama emphasized in his most recent State of the Union address. In fact, according to the US Energy Information Administration, China surpassed the US as the world’s largest net oil importer earlier this year. Moreover, the US is gradually disengaging strategically
Of course, economic ties between China and Arab countries have been growing stronger for more than a decade, with the trade volume increasing from US$25.5 billion in 2004 to US$238.9 billion in 2013
from the greater Middle East, creating a vacuum that China seeks to fill. To succeed, China will need to become more attentive to the region’s complex dynamics; find creative ways to participate in conflict-resolution efforts; and respond enthusiastically to Middle Eastern governments’ growing desire to connect to Asia. Doing so would enable China’s leaders to advance their goal of developing the country’s vast inland regions. Specifically, western provinces like Ningxia and Qinghai, which
have substantial Muslim communities, could benefit from deeper links with Arab economies. Enhanced influence in the Arab world would also promote the perception of China as a leader of the developing world – a position that could boost China’s strategic and economic resilience considerably. For starters, it would enable China to capitalize on the demographic heft of the developing world, which will house more than 80% of the world’s population in 2020. Moreover, it would allow China to maximize its gains from burgeoning trade among developing economies, which surged from 8% of global trade in 1990 to 24% in 2011. To be sure, not all Arab governments are welcoming China with open arms. Indeed, many of the Middle East’s most powerful actors – including Turkey and Saudi Arabia – are suspicious of China’s long-term intentions. But China can take steps to gain these countries’ trust. For example, China’s leaders should work to address the unrest in the Muslimdominated province of Xinjiang more effectively. Clearly, China’s rising clout is no longer confined to Asia. China’s “march west” into the Arab world is a bold effort to translate its economic might into enduring regional – and, ultimately, global – influence. This is a daunting task, but it is one that can not only help to secure China’s long-term future, but perhaps bring greater weight to bear in resolving the region’s immense challenges. The Project Syndicate 2014
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June 20, 2014
Closing China, ASEAN to have South China Sea talks
HK’s total goods export volume down
China is willing to work with the Association of Southeast Asian Nations (ASEAN, headquarters pictured) to promote a code of conduct (CoC) in the South China Sea, Foreign Ministry spokeswoman Hua Chunying said yesterday. Hua’s comment came ahead of the 11th joint working group meeting between China and ASEAN on the implementation of the Declaration on the Conduct (DoC) of Parties in the South China Sea. The meeting will be held from next Tuesday to Wednesday in Bali, Indonesia. Maritime cooperation on navigation security and joint search and rescue will be discussed during the meeting, Hua said.
In April 2014, Hong Kong’s volume of total export of goods dropped by 1.9 percent over April 2013, Hong Kong Census and Statistics Department announced yesterday. The volume of Hong Kong’s re-exports of goods in April decreased by 2.1 percent over a year earlier, whereas that of domestic exports increased by 12.4 percent. Taken together, the volume of total exports of goods decreased by 1.9 percent. On the other hand, the volume of imports of goods increased by 1.6 percent. Volume of total exports of goods decreased by 0.7 percent.
China completes pilot carbon market rollout New Chongqing carbon market will allow big local firms to buy and sell permits that cover their carbon emissions Kathy Chen and David Stanway
Chongqing follows the cities of Shenzhen, Shanghai and Beijing and the provinces of Guangdong and Hubei in launching a trading scheme
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he Chinese city of Chongqing launched its pilot carbon scheme yesterday, the seventh and final one planned by the country as it looks for ways to rein in its rapidly growing greenhouse gas emissions, the highest in the world. Chongqing, a sprawling metropolis of 30 million people on the Yangtze river, follows the cities of Shenzhen, Shanghai and Beijing and the provinces of Guangdong and Hubei in launching a trading scheme that allows big local firms to buy and sell permits that cover their carbon emissions. Choking pollution in China has sparked anger at home, with poor air quality blamed for causing half a
million premature deaths a year, while rising carbon emissions have brought international pressure on Beijing to clean up its act. Some participants at the Chongqing launch were sceptical about the effectiveness of the platform, saying that the much-delayed launch was rushed and choreographed. “It is a symbolic launch - all the deals announced today were negotiated at 30-32 yuan, and we bid for the volume at the same level as others, at 10,000 tonnes,” said a buyer with a power company on the sidelines of the launch ceremony. China’s top climate change official, Xie Zhenhua, who was present at the six
prior launches, did not attend the opening ceremony. Only 16 deals were signed, covering 145,000 tonnes of permits at a price of 30-31.5 yuan (US$4.83-US$5.07) per tonne. A manager with one of the selling firms, the Chongqing Iron and Steel Group, said he was not planning to make any more trades. He said his firm had been allocated 6.3 million tonnes in permits for 2013, despite reporting emissions of 6 million tonnes for the period. “No one really needs to buy, and the permits are allocated in accordance with the emissions reported by the company itself so no one will have a shortage,” said the manager, who did not
want to be named because he was not authorised to talk to media.
Differences China has pledged that by 2020 it will reduce its carbon intensity - the amount of CO2 produced per unit of economic growth - by 40-45 percent from 2005 levels. It has also promised to set up market mechanisms, such as the pilot schemes and a national one by 2017, to help meet its targets. As of now, only a fraction of China’s biggest industrial emitters are covered by the seven pilot platforms, while the plans for a national trading scheme also remain uncertain.
It is unclear whether a nationwide platform will be built on the foundations of the existing exchanges or from scratch, with the seven pilots now using different and largely incompatible standards and trading rules. Unlike the other pilots, Chongqing’s programme covers six other greenhouse gases apart from carbon dioxide, including methane, nitrous oxide and man-made fluorinated gases. While the other six have chosen to hold additional permit auctions to give firms a last chance to cover their emissions before the deadline, Chongqing is not planning to add new supplies to the market. Reuters
Philippine moves to cool Oil hits nine-month high U.S., Japan, China lead inflation pressures millionaire population growth B he Philippine central bank tightened policy for the third straight meeting yesterday, surprising markets by raising the rate on special deposits in a bid to contain liquidity growth and curb inflation pressures. The Bangko Sentral ng Pilipinas (BSP) also increased its forecast for this year and 2015 for inflation, which in May hit a two-and-a-half year high of 4.5 percent. It now sees average inflation at 4.4 percent in 2014 from 4.3 percent previously, above the midpoint of the 3-5 percent target. The central bank expects inflation to be 3.7 percent next year, near the top end of a 2-4 percent goal. With mounting inflation risks, the BSP could be the first Southeast Asian central bank to raise its benchmark rate this year. The last regional central bank to raise rates was Indonesia, in November, to support its fragile currency.
rent crude hit a nine-month high near US$115 a barrel on Thursday on concerns heavy fighting in Iraq could limit oil supply from OPEC’s second-biggest producer. Government forces battled Sunni militants for control of Iraq’s biggest refinery as Prime Minister Nuri al-Maliki waited for a U.S. response to an appeal for air strikes to beat back the threat to Baghdad. The sprawling Baiji refinery, 200 km north of the Iraqi capital near Tikrit, was a battlefield as troops loyal to the Shi’ite-led government held off insurgents from the Islamic State of Iraq and the Levant and its allies who had stormed the perimeter, threatening national energy supplies. Brent was poised for a third day of gains following a rise of more than 4 percent last week after Islamist militants seized much of northern Iraq. “There are clear concerns that significant supply disruption is not far off,” said Tamas Varga, oil analyst at London brokerage PVM Oil Associates.
he United States and Japan led the growth in the population of individuals with no less than US$1 million of investable wealth as their equity and real estate markets outperformed, according to a wealth management report released yesterday. The report by consultancy Capgemini and the RBC Wealth Management, a unit of Royal Bank of Canada, also showed that China ‘s number of high net worth individuals (HNWIs), or individuals with investable wealth of US$1 million or above, grew by a strong 17.8 percent, thanks to the stable growth of the Chinese economy. “Chinese gross domestic product (GDP) growth is slowing but the growth rate of China’s high net worth population was 17.8 percent,” Claire Sauvanaud, vice president of Capgemini Financial Services, said. The world’s total population of high net worth individuals grew by 14.7 percent to 13.7 million, of which near 2 million individuals joined the ranks of millionaires.
Reuters
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Xinhua
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