MOP 6.00 Closing editor: Alex Lee Number 567 Tuesday June 24, 2014
Publisher: Paulo A. Azevedo
First Bitcoin ‘ATM’ arrives at Sands
B
Year III
itcoin is here. Hong Kong-based vending machine distributor Bitcoinnect installed the first ‘Bitcoin vending kiosk’ in Macau in a pawnshop over the weekend. The store is situated on the ground floor of Sands Macau casino. Whether it remains there is debateable but Bitcoinnect plans to install four of the kiosks in Macau by early July
www.macaubusinessdaily.com
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Just a blip?
Visitors up 8 percent in May
Chinese factories are back in expansive mode. Six months of mild results spooked foreign investors. But the PMI index has surpassed the all-important 50 benchmark
Visitor arrivals hit 2.5 million last month. Mainland tourists travelling under the Individual Visit Scheme increased 21 percent to 727,000, say the Statistics and Census Service (DSEC)
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HSI - Movers
Jockey Club simplified The Macau Jockey Club has been cut some slack. For its 2013 annual balance sheet it need only reveal net income, total assets, total liabilities and equity PAGE 5
June 23
Name
Cotai to save VIPs Morgan Stanley expects 35 percent of tables in new Cotai casinos to cater to VIPs. Additional capacity should boost revenues for the largest gaming segment. It is hoped greater revenues will reverse recent declines PAGE 3
UnionPay ban starts July 1 The Monetary Authority has confirmed it. UnionPay China terminals will be removed from casino jewellery stores by the beginning of next month PAGE 4
%Day
Belle International
0.36
Hutchison Whampoa Lt
0.10
Swire Pacific Ltd
0.05
Hang Lung Properties
-0.42
CITIC Pacific Ltd
-0.74
Want Want China H
-2.85
China Life Insurance
-3.10
COSCO Pacific Ltd
-3.17
China Petroleum & Ch
-3.34
Sino Land Co Ltd
-3.86
Source: Bloomberg
I SSN 2226-8294
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2014-6-24
2014-6-25
2014-6-26
26˚ 31˚
27˚ 32˚
27˚ 33˚
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June 24, 2014
Macau
First Bitcoin vending kiosk plugs into Sands casino Hong Kong-based distributor Bitcoinnect, changing from its former name Coinnect, is planning to install four Bitcoin exchange kiosks here Stephanie Lai
sw.lai@macaubusinessdaily.com
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ong Kong-based Bitcoin vending machine distributor Bitcoinnect - formerly known as Coinnect - installed its first ‘Bitcoin vending kiosk’ in a Sands Macao casino over the weekend but is now moving the machine elsewhere, Business Daily has learned. The Bitcoin vending kiosk, which may not promote itself as ‘ATM’ or ‘Bitcoin ATM’ as required by the Monetary Authority of Macau, was installed in a pawnshop on the ground floor of Sands Macao casino over the weekend. But by noontime yesterday, the Bitcoin vending kiosk was already set to be relocated elsewhere, Business Daily learned from a site check. “We’re moving the kiosk because it has to be placed in a spot with a more stable wi-fi reception,” chief executive officer of Bitcoinnect Mr. Jase Leung Wing Hei told Business Daily on the phone yesterday, but he declined to reveal whether the kiosk would be relocated within the Sands Macao casino property or elsewhere. With the Bitcoin vending kiosks – commonly referred to as Bitcoin ATM machines - users can actually sell Bitcoins or other altcoins by activating their personal e-wallet installed in their smartphone applications, and obtain fiat money in front of the machine. The Bitcoinnect machines enable users to top up their Bitcoin balance by using cash or vice versa, the company explained. “We’re not installing the Bitcoin machines adjacent to gaming floors, but we did consider installing them at nearby pawn shops or jewellery [stores] inside casinos,” Leung said. “Sands [Macao casino] is a nice place to start out. Although we will not be targeting Bitcoin kiosks to be installed in only casinos but in other shopping
will take over all the bitcoin vending machine business following a company restructuring process.
Traceable records
places as well – basically spots that can help us to popularise the use of Bitcoin transactions.” The Bitcoinnect kiosk installed in Sands Macao casino, manufactured by U.S.-based Genesis Coin Inc., can accept 2,200 bank notes and dispenses 6,800 bank notes in a go; but this particular kiosk, which has been dealing in Macau patacas, will be configured to deal in Hong Kong dollars, Mr. Leung said. “For the time being, we’ll have these Bitcoin kiosks installed here to deal in Hong Kong dollars first, but they could be further configured to accept transactions in other currencies when required by the site owner,” Leung said. He added that the Bitcoin exchange
Chinese speculators turn to IPOs C hen Yifeng, a 36-yearold accountant in Shanghai, says he’s found China’s last sure bet. It’s not the property market, where prices have started falling from record highs, or gold, which left him nursing two years of losses. Returns from trust products are too low, he says, and Bitcoin is too risky after the virtual currency tumbled 48 percent from its December high through last week. For Chen’s 50,000 yuan ($8,033) of investable cash, only initial public offerings will do. Chinese IPOs jumped an average 43 percent in their trading debuts this year, the most worldwide, and have since extended those gains to 85 percent. Regulators are restarting the market following a four-month hiatus in new deals, with at least nine companies marketing their
shares to investors last week. IPOs have become a bastion for Chinese speculators who watched many of their favourite wagers turn sour this year amid slowing credit growth, a Communist Party campaign against lavish spending and forecasts for the weakest economic expansion since 1990. Chinese home prices fell for the first time in almost two years in May, gold has tumbled 31 percent from its 2011 high through last week and the yuan slumped 2.8 percent versus the dollar this year. New loans by Chinese trusts, which get funding from individual investors, sank to a two-year low last month. IPOs avoided the downturn in part because China’s securities regulator has pressured companies to price the offerings at below-
kiosk can be operated with the use of popular Bitcoin e-wallets including the Mycelium Bitcoin Wallet, Coin Pocket and Blockchain. The Bitcoinnect CEO noted that the company would like to install four Bitcoin vending kiosks in Macau from now to early July. In a late April press conference, when the Hong Kong-based Bitcoin vending machine distributor operated under the name of Coinnect, the company had already declared its intention to launch 20 bitcoin vending machines in Hong Kong and Macau. As of yesterday, the Coinnect official website and the company were still operational - but Mr Leung said that the Coinnect trademark and operation would soon dissolve while Bitcoinnect
average valuations in an effort to protect small investors. The benchmark Shanghai Composite Index (SHCOMP) dropped 4.2 percent this year through last week, extending its five-year retreat to 30 percent, as trading volumes slumped. The gauge added less than 0.1 percent at 10:01 a.m. today. About 100 Chinese companies will sell shares in mainland IPOs by year-end, China Securities Regulatory Commission Chairman Xiao Gang said on May 19. The rally in Chinese IPOs in January and February is almost double the 26 percent advance for companies that listed globally outside of China, according to data compiled by Bloomberg. All 48 Chinese offerings rose on their first day, and all but two are still sitting on gains.
Bitcoin vending kiosks to be placed here are installed with ‘know your customer’ functions, including fingerprint scanner, identification card reader and high-definition camera, Mr. Jase Leung said. “Every transactions that takes place in the vending kiosk is on our record, so if any suspicious transactions are observed, we can trace them or deliver the related information whenever required by the police of Macau or Hong Kong,” Mr Leung said. In a press release issued last week, the Monetary Authority noted that Bitcoin is only a type of virtual commodity rather than legal tender or a financial instrument subject to supervision, accompanying a cautionary note to the public that trading Bitcoins involves ‘considerable risks,’ including but not limited to those relating to money laundering and the financing of terrorism. There have been speculative reports from Chinese-language Hong Kong media recently that suggested Bitcoin transactions enabled by the vending kiosks here could become a new conduit to aid outbound mainland Chinese visitors evade the rule of taking only 20,000 yuan across the border per trip. Mr. Leung disagreed with this suggestion. “A Bitcoin transaction can never replace a UnionPay terminal swipe – it involves the users having to establish their own Bitcoin account, and a user identification process,” Leung remarked. With Aries Un
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June 24, 2014
Macau
Cotai to resuscitate VIP growth, says US bank A report from US bank expects 35 percent of tables from new casinos in Cotai to be VIP. The additional capacity is likely to boost revenues for the largest gaming segment in terms of revenues and reverse the recent downward trend Alex Lee
Alex.lee@macaubusinessdaily.com
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he next flow of casino resorts in Cotai could be the answer for the ongoing VIP crisis in Macau, a report from Morgan Stanley claimed last week. High rollers are the biggest contributors to gaming revenues in Macau, accounting for 60 percent of the total. As operators shift tables from VIP rooms to higher margin
and the more profitable mass market, the revenues coming from VIP tables have started to decelerate since last year, slowing down gaming revenues and government taxes. Market consensus for the expected gaming revenue growth in Macau this year plunged from 15 percent in March to 11 percent increase in June.
Morgan Stanley, however, says that the next phase of Cotai could revive the fortunes of VIP market growth. The US bank gives the example of 2010-2012, a period when additional VIP capacity in Macau with new openings led to a revenue increase in the segment at an average rate of 20 percent. ‘Over the next few years,
New overstay fines from July 7
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he new regulation of increasing fines for overstayers promulgated yesterday by the Administrative Regulation on the Entry, Stay and Residence Permit comes into effect on Monday, July 7. Visitors who overstay for less than 30 days will face a 500-pataca fine (US$62.63) per day, some 300 patacas (US$37.58) more before the amendment. The regulation also extends the entry ban from 180 days to one year for re-offenders. More than 42,000 overstaying cases were recorded in the territory last year, based on official figures released by the Public Security Police. It is predicted that the severity of the fines will help tackle the rising cases of overstayers.
we expect at least 35 percent of all additional tables to be in the VIP rooms. This should help drive growth higher,’ wrote Morgan Stanley in a note to clients last week. The next phase of the Cotai strip – supporting a half-dozen multi-billion dollar casino integrated resorts - will add around 4,000 new gaming tables in Macau, according to data from market analysts.
Smoking ban Since the beginning of the year, VIP revenues have been slowing down and in May they even decreased 1.4 percent year-on-year, the first drop since May 2013. The shrinking gains coming from high rollers have been one of the major causes of the softness of gaming revenues this year in Macau. Morgan Stanley revised by half its estimation for VIP market performance this year and next. In 2014, revenues should go up 4 percent (13 percent previously) and 5 percent in 2015 (10 percent before). ‘While we agree that the current slowdown is
4pct 2014 gaming revenue estimate
primarily driven by cyclical macro weakness, slowing retail and property sales, we are also seeing signs of saturation in the market based on our analysis of VIP revenue/China GDP ratio,’ Morgan Stanley said. Besides the additional capacity of the new Cotai resorts, the US bank also points out that the smoking ban in the mass premium area could benefit the VIP segment by capturing clients from there. Another positive effect is the improvement of China’s economic situation, namely the easing of monetary policy by Beijing permitting banks to issue more credit and the increasing number of wealthy gamblers from the mainland.
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June 24, 2014
Macau
Monetary Authority: UnionPay Till keeps ringing for Bauhaus in terminals out by July 1 Hong Kong, Macau The Monetary Authority has ordered the removal of UnionPay China terminals from casino jewellery stores by the start of next month
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ewellery shops inside casinos will have to remove all UnionPay China terminals and cancel means of withdrawing cash from there by Tuesday of next week. According to Portuguese news agency Lusa, banking institutions in Macau received a letter from the Monetary Authority dated May 14 in which the regulator set July 1 as the deadline to cancel such services. The letter, the news agency says, follows a ‘high level’ meeting that took place on May 9. Other than deeming such UnionPay China transactions illegal as of next week, the Monetary Authority said in the letter to banking institutions that cash withdrawal from jewellery shops would no longer be permitted due to it being deemed ‘high risk’ by UnionPay itself, according to Lusa. Lusa quotes the Monetary Authority letter as saying that the regulator will continue to keep an eye on this ‘in order to promote the sustainable development’ of UnionPay China transactions here. Illegal transactions using portable UnionPay terminals in Macau totalled
The Monetary Authority will continue to keep an eye on this ‘in order to promote the sustainable development’ of UnionPay China transactions here
180 million patacas (US$22.5 million) and as many as 41 suspects had been identified as at the start of last week. The transactions detected between
January and mid-May are illegal because they are made in Macau through UnionPay terminals from China or supplied by third parties, which prevents UnionPay from getting the percentage they are entitled to as the operations are registered as outside Macau. The scheme – which occurred ‘not only in casinos but also in restaurants and stores located on adjacent streets’ – allows people to exceed the withdrawal limit of 20,000 yuan per day. Although individuals may not carry cash, there are reports that this ceiling is surpassed with the use of debit cards in stores or entertainment venues for the exchange of capital rather than paying for goods or services. According to the Penal Code, it is considered ‘high value’ if the amount exceeds 30,000 patacas and ‘considerably high value’ if it exceeds 150,000 patacas. These irregularities fall under the crime of computer fraud. ‘Given that this crime is considered semi-public, the PJ will closely watch with International UnionPay in order to have better knowledge of the situation of these irregularities.’
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ashion retailer Bauhaus International (Holdings) Ltd saw its net profit climb about 26 percent for the year ended March 31, 2014 with robust sales registered in Hong Kong and Macau, the company said in its annual results filed with the Hong Kong Stock Exchange yesterday. Bauhaus’ net profit for the financial year reached about HK$125.1 million (US$16 million), up 26 percent from HK$99.3 million in the previous year. The company said it had also registered a record-high annual turnover at HK$1.427 billion. Sales from retail in Hong Kong and Macau, which accounted for about 70 percent of Bauhaus’ turnover, topped HK$1 billion, which mainly resulted from strong same store sales growth of about 21 percent during the financial year. Bauhaus cited high rentals, surging production costs and labour expenses as well as the Hong Kong Government’s possible placing of restrictions on mainland China entering Hong Kong as challenging factors. The fashion retailer noted that it would alter its product mix and ‘focus more on accessories’ to face the retail challenge, engaging in more crossover projects with other renowned brands.
MPO joins FTSE All-Share and Small Cap indices
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acau Opportunities Ltd (MPO) was included yesterday in the FTSE AllShare and FTSE Small Cap indices. The inclusions follow continued growth for Macau Property Opportunities with ‘adjusted NAV per share increasing 5.9 percent in the three months to 31 March 2014, driven by continued buoyancy in Macau’s property market,’ the company explained in a press release.
According to the company, MPO’s property has also made significant gains quarter-on-quarter with 6.7 percent increase, being valued now at 4.1 billion patacas. The FTSE All-share Index is a capitalisation-weighted index that comprises around 1,000 of the companies traded on the London Stock Exchange. The FTSE Small Cap Index focuses on small market capitalisation companies.
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June 24, 2014
Macau
Jockey Club Macau lost one of its two giant pandas, gifts from the Central Government, two days ago when the female passed away from balance sheet kidney failure simplified ‘Sum Sum’ passes away in Macau Aries Un
newsdesk@macaubusinessdaily.com
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acau’s first giant female panda - ‘Sum Sum’ - succumbed to kidney failure at 8:18pm two days ago; an autopsy was conducted yesterday to identify the cause of the panda’s death. Alex Wong, President of the Civic and Municipal Affairs Bureau, informed media in a press conference two days ago that the panda’s regular health checkup last month indicated that the female panda was suffering from kidney problems although no clinical signs of the panda’s fragile kidney had been detected in its previous monthly health checkups. The head of the panda hospital in Chengdu’s panda base in Sichuan, Lan Jingchao, who also attended the press conference, said such a demise was particularly rare when no former health warnings had become evident in the panda’s monthly checkups. IACM Administrative Committee member Leong Kun Fong said in a follow-up press conference yesterday that earlier this month panda experts from Chengdu had arrived in the territory in response to the panda’s deteriorating kidney condition and
lack of appetite that had revealed itself in late May. The giant panda still refused to eat and drink in spite of measures adopted by the experts to encourage her to eat. Their medical efforts also failed to save the panda’s life. The Committee member also said that the panda’s lack of appetite stemmed from the estrus that the deceased panda had experienced since last year. The panda’s death also triggered concerns over whether or not the living environment in the giant panda pavilion is suitable for pandas. However, the Committee member countered that the facilities inside the pavilion are commensurate with
the required standard. The other panda – a male called ‘Hoi Hoi’ - is in a healthy condition living in the same environment. Mr. Leong dismissed accusations that authorities meant to conceal the panda’s condition. He reiterated that the authorities had no intention of hiding the situation from the public and pledged to make the health report public if similar ailing issues happened to the male panda ‘Hoi Hoi’ in the future. The autopsy is expected to take at least two weeks before preliminary results revealing the exact cause of death are released. The giant panda pavilion, which cost 90 million patacas to build, has been closed until further notice. ‘Hoi Hoi’ and ‘Sum Sum’ were presented by the Central Government to Macau in December 2012 as a gift to mark the 10th anniversary of the territory’s return to China, and made their public debut in January 2011. The pandas’ names, combined, literally means ‘happiness’ in Chinese, and was decided by public vote in June 2010.
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he Macau Jockey Club Co Ltd will be allowed to have its 2013 annual balance sheet published in a more simplified way, under a government dispatch published yesterday in the Official Gazette. According to the announcement in the Official Gazette, the Jockey Club will only need to state its net income, total assets, total liabilities and equity. In April, it was reported that the club’s financial performance had improved last year although it still lost more than 40 million patacas (US$5 million), chief executive Thomas Li Chu Kwan said at the time. The Jockey Club last made a profit in 2004, and by 2012 had accumulated losses of about 3.78 billion patacas. The Macau Jockey Club is in Taipa, close to the site of what will become a transport interchange. The club is part of gaming mogul Stanley Ho Hung Sun’s sprawling empire.
Corporate Business Awards deadline extended Given the high volume of requests, the deadline for applications for this year’s Business Awards of Macau has been extended to August. Event organisers say that all nominations, along with supporting material, should be submitted by August 20. Now in their second year, the Business Awards of Macau is established as the first recognition programme for Macau’s business sector, and has become an annual business event. “Our aim is to promote the recognition of the best of what companies, institutions and professionals have been doing for Macau’s development,” Margarida Luz, Business Awards director, said. A team of judges is currently preparing to undertake the task of working through the applicants to select the shortlisted entries and winners of this year’s awards. The winners will be announced and awarded at a celebration dinner on November 21 in the Grand Lisboa’s Grand Ballroom. “The main objective is to make this a Macau event, and that is why we’ve been inviting not only other media, but also around 30 well-known people from the business and academic sectors of Macau to be part of it,” Ms. Luz added. Up for grabs will be some 40 Excellence Awards and 10 Grand Awards, judged by an independent panel of jury members invited from different sectors of Macau. Event organisers say they are being advised by an honour commission and advisory board whose membership will be announced publicly in July. Meanwhile, Business Awards has announced that the Macau Foundation is a platinum sponsor for the second consecutive year.
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June 24, 2014
Macau Brands
Trends
Saluting the Sentryman Raquel Dias newsdesk@macaubusinessdaily.com
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good quality pen can say a lot about a person. You may purchase one because you are a collector, or aspire to be one, or merely to have something pleasantly tactile to look at whenever you sign those all-important documents. Like a watch, a pen is an object you can pass down and retain good memories from. Also, like treasured timepieces, one generally associates highend pens with materials like gold, silver and even precious stones. Alfred Dunhill, however, has just launched an entirely new concept in the pen world: a rollerball made of carbon fibre. Granted, it’s not yet a fountain pen - if you are at all interested in these objects you will know connoisseurs look down on anything that does not have a fountain nib - but it is a practical piece by a major player in the field. The Dunhill Sentryman Rollerball is masculine yet light enough to be a good woman’s pen. The classic design of the Sentryman’s collection has a twist, with this new material lending it a ‘modern spirit’. The black pen will certainly stand out if you’re tired of the ubiquitous polished Montblanc and are not about to buy a brightly coloured Pelikan. The fact that it is a rollerball also means it is good for firsttime buyers as getting used to a fountain pen is not as easy as it seems. If you are left-handed it is a godsend as - from experience - I can tell you that is not always easy to wield a classic pen without smudging the paper.
Visitor arrivals jump 8 percent in May
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isitor arrivals to Macau hit 2.5 million in May 2014. Last month, the number of mainland tourists travelling under the Individual Visit Scheme increased 21 percent, at around 727,000, compared to May 2013, say the Statistics and Census Service (DSEC). Total visitor arrivals rose by 8%. Two thirds were from the mainland, with the majority from Guangdong
Province, from where some 714,000 people visited the city last month. Other mainland visitors primarily came from Fujian Province and Hunan Province, which accounted for around 73,000 and 60,000 visitors to Macau, respectively. International visitors from Taiwan, South Korea and Japan increased by 23%, 20% and 18%, respectively. Long-haul visitors from the United States and France
also registered a rise. Visitors from Hong Kong, however, declined by 8%, at around 497,000. The number of visitors from Australia, Canada and the United Kingdom also decreased. The length of stay of tourists is, on average, one day. Same-day visitors accounted for more than half, at 54%, of the total. They usually stayed for 0.2 days, while overnight visitors stayed for 2 days in general.
Fidelidade to explore aircraft damage insurance
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he insurance company Fidelidade has been authorised to explore products for aircraft damage coverage, the Official Gazette revealed yesterday. This notwithstanding, the conditions to explore such insurance products have
yet to be approved by the Monetary Authority of Macau (AMCM). The dispatch published in the Official Gazette was signed by the Secretary for Economy and Finance, Francis Tam Pak Yuen. Fidelidade Mundial Insurance was
founded in 1835 in Portugal. It has been operating in the Special Administrative Region of Macau SAR since 1999. The Portuguese-based company is authorised to undertake insurance activities through two branches, for life and non-life insurance businesses.
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June 24, 2014
Macau
Food bank feeding over 4,000 families
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he food bank in Macau has helped more than 4,000 families, comprising around 7,000 persons, since September 2011, the general-secretary of Catholic charity Caritas Macau, Paul Pun, told Portuguese news agency Lusa. The management of the Food Bank, created by the Executive Government of Macau in 2009, has been run by Caritas since the bank was inaugurated. Last year the Social Welfare Bureau prolonged the licence for Caritas to manage the services of assistance until the end of 2014. In order to help families deal with the rising inflation – it increased 5.89 percent in May – the Social Welfare Bureau extended the deadline for receiving food parcels by 10 weeks and raised the subsidy per food parcel from 32 to 36 patacas per capita. In the government’s guidelines for 2014, Chief Executive Chui Sai On announced an increase in minimum income for the receipt of assistance
in order to expand the number of people who can request it. From July 1, financial assistance will be raised from 3,670 to 3,800 patacas for a family of one individual. In cases when families comprise eight or more people, assistance will be increased from 17,160 to 17,730 patacas. Apart from running the Food Bank, Caritas is involved in other assistance programmes for those in need. Today, the Catholic charity runs eight nursing homes for the elderly and homeless, whom Caritas has rescued from the streets. The charity also assists the young and disabled, offering a 24-hour hotline called Life Hope. Last year, the hotline received more than 16,460 calls. Collecting funds has been the main challenge faced by Caritas in recent years. In 2013, Caritas received 1 million patacas in donations. Founded in 1951, Caritas Macau employs 700 people and has around 500 volunteers.
Near-term downside risk for Wynn, LVS
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merican banking firm Wells Fargo says that while this may continue to be a ‘choppy’ year for casinos, their revenues and stocks, there could still be around 10 percent near-term downside risk for companies, particularly Wynn Resorts Ltd and Las Vegas Sands Corp. ‘We remain bullish on the medium to long-term secular growth story as we believe Macau is still significantly under-penetrated, and we can see Macau reaching US$115 billion (920 billion patacas) of revenue by 2018,’ Wells Fargo said in a note to clients. For the summer months, however, the banking institution says volatility will continue, primarily due to some of the downgrades and estimate revisions by analysts in the past couple of weeks. In addition, negative sentiment suggests stocks are bottoming, according to the company. However, Hong Kong stocks rose Friday, with the city’s
benchmark index heading for its first advance last week, as casino shares led gains and gold producers climbed. Macau gaming companies Sands China Ltd and Galaxy Entertainment Group each added at least 2.9 percent. ‘We estimate June Macau gaming revenue growth of -2 percent to zero percent versus our prior +1.5 percent year-on-year,’ Wells Fargo’s note reads. According to the American firm, last week, casinos’ average daily revenue was down by 15 percent to 867 million patacas from the previous week’s 1.02 billion patacas. The World Cup, analysts believe, will have a negative impact on this month’s gross gaming revenue. ‘We expect levels of play for the rest of June to trend at [or] below this week’s normalised result [of 930 million patacas],’ Wells Fargo added in its note.
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June 24, 2014
Macau
Unlikely bedfellows bid for Brisbane casino venture Chow Tai Fook Enterprises, owner of the world’s largest listed jeweller, and property developer Far East Consortium International will bid with Echo Entertainment Group (EGP) to develop a new Brisbane casino
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he two Hong Kong-based companies will each take 25 percent stake in the project, Brisbane-based Echo said in a regulatory statement yesterday. The government of the city’s Queensland state last month shortlisted Echo, Chow Tai Fook, and two other companies to develop a casino and tourism resort at the riverside Queen’s Wharf site in the heart of Australia’s third-largest city. Teaming up with a property developer and luxury retail group will lend Echo more expertise and funding as it competes with billionaire James Packer’s Crown Resorts Ltd. and an affiliate of Chinese property developer Greenland Holding Group Co. for a government contract on the site. Chow Tai Fook, which owns about 89 percent of Chow Tai Fook Jewellery Group, was shortlisted in its own right in the government tender. The partnership “will deliver major investment in tourism infrastructure,” Matt Bekier, Echo’s chief executive officer, said in the statement. The project “presents a once-in-a-lifetime opportunity.” Competition from Asian gaming resorts and gambling websites is a challenge to Australia’s casino industry, according to a November report by researcher Ibisworld Inc. Revenue growth will slow to 2.9 percent a year over the five years to June 2019, from 3.6 percent over the previous five, Ibisworld estimates. With A$4.8 billion spent by Chinese tourists in 2013, Australia is currently capturing less than 4 percent of China’s tourism exports. Casino revenues of A$3.5 billion accounts for just 18 percent of a gambling sector dominated by slot machines in pubs, sports betting and lotteries, according to a 2010 government report.
Proposed developments in Cairns, Brisbane and the Gold Coast could bring the same benefits that Genting Singapore Plc (GENS)’s Resorts World Sentosa and Las Vegas Sands Corp. (LVS)’s Marina Bay Sands brought to Singapore, Queensland Premier Campbell Newman said last October. The hotels helped fuel a 20 percent jump in tourist numbers to the city-state after opening in 2010, he said. Queensland may struggle to digest such a sharp increase in gambling tourism, said Killian Murphy, an analyst at CIMB Group Holdings. “I just think three new integrated resorts is stretching it,” he said. “Trying to convince a gambler to come here can be difficult. You’re talking a nine or ten-hour flight” from cities in China. The entire Tropical North Queensland region, including the city, only offered 3,892 hotel rooms in June 2013, according to government data. Those hotels had occupancy rates of 68 percent in the year and average room rates of A$143 a night, about 25 percent below the national average, separate data shows. “Everyone’s seen the success of Singapore, which is just being used as a blueprint elsewhere,” Killian Murphy said by phone from Sydney. “Potentially, Australia as a whole becomes a better sell into the Chinese market” if it has more resorts for tourists to choose from. “We’re on the doorstep of Macau and we’ve seen the incredible growth of that market. We’re close to Singapore and we’ve seen what just two properties there are capable of doing. There is that aspect of ‘If you build it, they will come’.” Bloomberg
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June 24, 2014
Greater China
PMI shows first expansion in 6 months Despite a general pick-up in the manufacturing sector, new export orders grew at a markedly slower pace in June
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ctivity in China’s factory sector expanded in June for the first time in six months as new orders surged, a preliminary HSBC survey showed yesterday, offering new signs the is stabilising thanks to Beijing’s measures to shore up growth. The HSBC/Markit Flash China Manufacturing Purchasing Managers’ Index rose to 50.8 in June from May’s final reading of 49.4, beating a Reuters poll forecast of 49.7 and creeping above the 50-point level that separates growth in activity from contraction. It was the first time since December that the PMI was in growth territory, and the highest reading since November, when it was also 50.8. “This month’s improvement is consistent with data suggesting that the authorities’ mini-stimulus are filtering through to the real economy,” said Qu Hongbin, chief economist for China at HSBC, referring to a series of measures announced by the government in recent months to spur activity.
KEY POINTS
Hong Kong headquarters of HSBC. This month’s report shows an energetic China after some hesitant months
China June factory activity quickens New orders surge but new export orders soften Adds to new signs of stabilisation in economy
“We expect policymakers to continue their current path of accommodative policy stance until the recovery is sustained,” he added. Asian stock markets and the Australian dollar firmed on the news.
The sub-index for new orders, a proxy to measure domestic and foreign demand, rose to 51.8, the fastest pace in 15 months. The survey showed an across-the-board improvement in the vast
factory sector, with most of the 11 sub-indices, ranging from output to new orders and stocks of purchases, accelerating from previous months. The flash PMI data is the earliest indicator in a month
to help gauge the economic momentum and thus is closely watched by investors. Beijing has unveiled a series of modest policy measures in recent months to give a lift to economic growth, which dipped to a 18-month low in the first quarter. Such measures include targeted reserve requirement cuts for some banks, quicker fiscal disbursements and hastening construction of railways and public housing projects. But the recovery has been patchy. Despite a general pick-up in the manufacturing sector, new export orders grew at a markedly slower pace in June, as recoveries in the United States and the European Union do not appear to be giving their usual robust boost to export-reliant Asian economies. Moreover, the survey’s sub-index for employment pointed to jobs still being shed, though the pace of contraction eased from May. China has set an annual target for the economy to grow about 7.5 percent in 2014 and a Reuters poll found that economists expected growth of 7.3 percent for this year. Chinese leaders have ruled out the possibility of any big stimulus to pump prim the economy as they tolerate a slower growth rate while pushing ahead with structural reforms. Premier Li Keqiang said last week that China’s economy would not suffer a hard landing and would continue to grow at a medium to high pace in the long term without strong stimulus. The final Markit/HSBC manufacturing PMI for June is due on July 1. Reuters
Warehouse sector under scrutiny The probe at Qingdao port centres around a private metals trading firm suspected of duplicating warehouse certificates in order to use a metal cargo multiple times to raise financing
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haken by a fraud investigation into metal financing in the world’s seventh-busiest port, banks and trading houses have been made painfully aware of the risks they face storing commodities in China’s sprawling warehouse sector. The probe at Qingdao port centres around a private metals trading firm suspected of duplicating warehouse certificates in order to use a metal cargo multiple times to raise financing. Some banks have asked
clients to shift metal, used as collateral for loans, to more regulated London Metal Exchange (LME) warehouses outside China or those owned and operated by a single warehouse firm to limit their exposure. “The banks still haven’t looked under the hood,” said an executive at a bank involved in commodity financing in China, referring to China’s warehousing sector. At the heart of the issue is China’s roaring commodity financing business, which has helped drive up stockpiles of
commodities at ports to record levels, stored in warehouses not always regulated to the same extent as elsewhere. Though many global firms are involved in the warehouse industry in China, there has been outsourcing to local firms to cut overheads and avoid dealing with complex local regulations. Using commodities as collateral in financing in China is common practice and not illegal, but issuing receipts to repeatedly mortgage an asset is fraud
London Metal Exchange headquarters pictured. Some banks recommended clients to work with the British institution
and could leave more than one creditor holding claims to the same collateral. Illustrating how difficult it may be to unravel competing claims, China’s CITIC Resources Holding Ltd said that a court had been unable to secure more than 100,000 tonnes of alumina stored at
Qingdao port. Traders said there was a risk the metal could have been already claimed before part of Qingdao Port was sealed off, adding that at least two trading houses had moved metal out as soon as news of the scandal broke. Reuters
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June 24, 2014
Greater China
Banks seek profit through their bad debts It may mark the end of a buyer’s market for a distressed debt pile
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ajor Chinese banks want to manage their own bad debts, attracted by the outsize profits being earned by recovery firms, in a sign of confidence that investments in internal risk assessment teams are set to pay off. If they are right, it may mark the end of a buyer’s market for a distressed debt pile that has topped US$100 billion, benefiting bank shareholders at the expense of asset-management companies such as China Cinda Asset Management Co. But the phenomenon also poses a challenge for regulators as they push banks to lend more to stimulate growth; in retaining non-performing loans (NPLs) on their books in search of profit, the banks effectively limit their ability to make fresh loans. “There are so many NPLs in China, there’s a lot of room for information asymmetry, where assets get written off that actually have some value,” said Benjamin Fanger, founder of Shoreline Capital, a Guangdongbased firm specialising in distressed debt investment in China since 2004. It is a lucrative business at the moment. State-owned Cinda reported a 26 percent rise in net profit to 9.1 billion yuan (US$1.5 billion) last year and China Huarong Asset Management’s net profit jumped 44 percent to 10.1 billion yuan.
Buyer’s market “There are four major AMCs and they’ve been doing very well,” said Stephen Long, managing director for financial institutions, Asia Pacific for Moody’s Investor Service.
“It’s been somewhat of a buyer’s market so I can see how the banks would want to retain some of that profit for themselves.” At a recent analyst briefing, Industrial and Commercial Bank of China (ICBC) executives said they could recover NPLs at 50 to 60 cents on the dollar, around double what asset management companies would pay for them, said May Yan, Head of China bank research at Barclays, who attended the briefing. And Bank of China chairman Tian Guoli told an analysts in March the bank would use its investment banking subsidiary to dispose of distressed assets, according to analysts who attended that briefing. ICBC is China’s largest listed bank, and Bank of China is the fourth biggest. Neither bank responded to calls from Reuters requesting comment. The banks’ drive to maximise profits is a positive for economic reform in the long run; policy-driven lending helped produce China’s bad-debt headache, and a focus of managing bad debts is sign of a more market-attuned corporate culture. But it carries risks. There is no guarantee the banks will be able to better the returns they get by selling NPLs at a discount, which also has the advantage of removing the debt from balance sheets. “Taking into consideration the time value of money, the return from self-recovery may not be higher than selling the NPLs to AMCs,” said Qiang Liao, banking analyst with Standard & Poor’s. A loan and compliance officer at a listed Chinese bank in Shanghai,
Iran crude imports up China is Tehran’s biggest oil client
Iran oil industry facilities
9.1 bln yuan Cinda’s 3013 net profit
ICBC headquarters in Shanghai
speaking on condition of anonymity because he was not authorised to speak to media, said banks did not
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want to be seen giving away money by selling bad debts too cheaply.
hina’s Iranian crude oil imports expanded 36 percent in May from a year ago to the second highest on record, customs data showed on Monday, and imports in the first five months of 2014 gained nearly 50 percent over the same year-ago period. China, Tehran’s largest oil client, has since late 2013 been stepping up purchases from the OPEC country after a landmark November nuclear deal eased some sanctions on Iran, making up the main portion of Asia’s higher imports since then. Asian buyers are expected to import about 1.25 million-1.3 million barrels per day (bpd) of Iranian oil in the six months through June, mostly owing to China’s increases, industry and government sources have said. Iran and six world powers met last week in Vienna to narrow differences and keep alive hopes of reaching a final nuclear deal by late July. China’s May imports at 3.22 million tonnes, or 757,900 bpd, eased from a record high of nearly 800,000 bpd in the previous month. Top refiner Sinopec Corp has since last November been lifting full contract volumes or more of Iranian oil deemed cheaper versus similar grades from Saudi Arabia, industry officials have told Reuters. The increases were both a
Reuters
result of the state refiner’s new push to cut crude procurement costs and the easing sanctions environment, they said. Also contributing to strong import figures were imports started around last August by an independently-run petrochemicals company in southeast China of condensate, a very light crude oil from Iran’s South Pars gas project. China counts condensate as crude oil. The supplies have until now been on spot or semiterm basis. But from around August, they would be under a one-year term deal that was reached between state-run trader Zhuhai Zhenrong Corp and National Iranian Oil Company (NIOC). Reuters
KEY POINTS May imports at 757,900 bpd, +36.4 pct on yr, -5.2 pct on mth Jan-May imports up nearly 50 pct on yr Top refiner Sinopec stepped up imports; new condensate deal
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June 24, 2014
Greater China Taiwan smiles before figures The Ministry of Economic Affairs released Taiwan’s industrial output for May yesterday. The industrial output index reached a single-month high in May, coming in at 109.56. The Directorate General of Budget, Accounting and Statistics released jobless rate for May yesterday. Unemployment rate for May was 3.99 from a total labour force 11.526 million.
High and low patent boom
The congested roads of China (Beijing pictured) are going to face an increasing number of cars when buyers start using credit
Cars drive consumers to credit Young people are willing to buy big-ticket items like a car on credit, encouraging carmakers to boost their financing units
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n a country where owning a car has long been a symbol of luxury and success, around 85 percent of Chinese car buyers still buy cars with cash. But people in their 20s and 30s are changing the car financing game and are the ones catching the attention of global carmakers looking to boost revenue and defend margins in an increasingly competitive market. These young people are willing to buy big-ticket items like a car on credit - a behaviour unheard of some 15 years ago in China - and have led carmakers to boost their financing units in the mainland. The push by automakers to steer more people to buy on credit comes as part of their broader efforts to make up for sliding margins on new-car sales in China where more companies are cutting prices to entice buyers. Other key revenue sources include maintenance and repairs, vehicle leasing and sales of accessories and parts. China’s central bank gave the sector a boost in early June when it cut
the amount of money auto financing firms need to set aside as reserves in a bid to stimulate the economy which is showing signs of slowing. Global carmakers have been funding their financial units’ expansion by selling off their loans in the form of asset-backed securities to beef up their operations in China. That frees up money they can use to lend to Chinese consumers. The country’s automobile association forecast the auto financing industry to
US$84.55 billion auto financing industry by 2025
more than double to 525 billion yuan (US$84.55 billion) by 2025. In an email to Reuters, GMACSAIC Automotive Finance Co Ltd, the financing joint venture of General Motors Co in China, said auto financing will be “integral in facilitating sales” in the world’s biggest auto market. Bankers and analysts say the chances of car loan defaults are limited in China because the country requires a large down payment 20 percent for new cars. Consumers here also have a higher savings rate compared with other countries like the United States. Such a rapid expansion in auto financing does have risks, coming at a time when worries are mounting over the country’s corporate and government debt. These include the fact that, relatively, Chinese consumers have a short credit history. Toyota has further beefed up its loan assessment process and on occasions turn to the old-style approach of home visits, they added. Reuters
Harsher food safety penalties on the way According to the bill, consumers can demand reparation worth three times the loss they suffered from substandard food
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revision to China’s Food Safety Law had its first reading yesterday and pledges tough sanctions for offenders, promising the strictest food safety supervision system. The current law has been somewhat effective in improving food safety, but the situation remains severe, said Zhang Yong, head of the food and drug administration, when briefing the lawmakers. The existing system is not effective, penalties are comparatively light and it does not deter offenders, Zhang said. This is the first revision attempt since the law took effect in 2009. According to the bill, consumers can demand reparation worth of
three times of loss they suffer from substandard food. Current law only allows compensation of ten times of the price of food. As substandard food can be very cheap and can cause serious health problems and great financial losses, consumers expect to get higher compensation if the revision is adopted. Bigger fines for offenders are also on the menu. Producers can face fines of up to 30 times of the value of their products, up from ten times in the current law. If the products are worth less than 10,000 yuan (US$1,600), those involved can be fined a maximum of 150,000 yuan, up from 50,000 yuan in the current law. The bill adds provisions to punish
landlords of production sites whom know that illegal activities are being undertaken on their property, and suppliers who sell unlawful substances to producers, knowing that they will be added to foods. Their illegal income will be seized and they can be fined up to 200,000 yuan. Administrative penalties, such as demotion and dismissal, will be imposed on officials who fail to respond to food safety emergencies and remove loopholes. They will also be held responsible for food safety cover-ups. Similar punishments will be dished out to officials with the food and drug regulatory agencies, health and agriculture departments. Xinhua
China’s patent business is booming in terms of the number of applications, but the quality of patents is still poor, according to a yesterday report to the top legislature. Royalties amounted to 67 billion yuan (about US$11) in 2013, nine percent of the total technology market, according to a report on implementation of the Patent Law to the Standing Committee of the National People’s Congress (NPC). Nearly 2.38 million patent applications were accepted and over 1.31 million authorized in 2013. There were only 8,950 patent agents at 1,019 agencies in China as of the end of 2013.
Great Wall Motor replaces senior executives China’s largest SUV maker, replaced three of its executives amid a sales slump. The company replaced Kang Guowang, previously in charge of domestic sales; Xing Wenlin, who oversaw international sales; and Liang Xinlu, previously in charge of components procurement, according to the Baoding, China-based automaker, which didn’t specify what positions they were moved to. The changes were part of a normal rotation of management and weren’t related to sales results, the company said. The reshuffle comes after the company posted sales declines in five of the past six months.
Guangdong sells bonds China’s Guangdong provincial government auctioned a total of 14.8 billion yuan (US$2.38 billion) of five-, sevenand 10-year bonds at yields of 3.84, 3.97 and 4.05 percent, respectively, traders said yesterday, in line with market expectations. Market forecasts centred around 3.87 percent (ranging from 3.83 to 3.95 percent) for five-year bonds, 3.99 percent (ranging from 3.93 to 4.08 percent) for seven-year bonds, and 4.07 percent (ranging from 4.02 to 4.14 percent) for 10-year bonds. This marks the first time a local Chinese government has issued bonds directly to the primary market without the central Ministry of Finance acting as a proxy.
BMW to extend Chinese partnership Bayerische Motoren Werke AG said it will extend its partnership with its Chinese partner until 2028 as it seeks to challenge Volkswagen AG’s Audi in the world’s biggest auto market. The Munich-based manufacturer will renew its partnership with Brilliance China Automotive Holdings Ltd. for another 10 years, according to Karsten Engel, head of BMW’s China business. Its current 15-year joint-venture agreement is set to expire in 2018. The extension would pave the way for BMW to discuss longer- term expansion plans with Brilliance in China.
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June 24, 2014
Asia
Aussie’s growth foils RBA The central bank is more focused on boosting labour-intensive industries from housing to manufacturing as mining investment cools
Reserve Bank of Australia headquarters
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ustralia is forecast to be among the three fastest-growing economies in the developed world this year, making it harder for the central bank
to convince currency investors it isn’t about to raise interest rates. The Reserve Bank of Australia must differentiate itself from its
counterparts in New Zealand and the U.K., which have signalled their economies may need higher borrowing costs, according to Westpac Banking Corp. Australia’s recordlow benchmark rate hasn’t stopped foreign-exchange markets driving its dollar up 2.2 percent in the past month, the best performing Groupof-10 currency ahead of the kiwi, the Canadian dollar and the pound. While growth in Australia has been bolstered for now by a rebound in commodity-export volumes, the central bank is more focused on boosting labour-intensive industries from housing to manufacturing as mining investment cools. Gross domestic product will expand 3.1 percent in 2014, according to economists surveyed by Bloomberg News from June 12 to June 17, up from a previous forecast for 2.8 percent. New Zealand is predicted to grow 3.3 percent and the U.K. 3 percent. “There’s a huge amount of investment that’s going to fall away in the second half of this year, something that the U.K. and New Zealand don’t really share with Australia,” said Michael Turner, a debt and currency strategist at Royal Bank of Canada in Sydney. “If they want to be credible on any kind of jawboning on the currency, they’re going to have to shift back toward an easing bias,” he said, referring to the RBA. Economists increased their GDP forecasts this month following a June 4 report that showed a first-quarter expansion of 1.1 percent, the fastest pace in two years. Exports surged 4.8 percent from the previous three
S.Korea to split Woori Bank sale Woori Bank is the crown jewel in Woori Finance Holdings, accounting for 70 percent of its assets Joyce Lee
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months, to be the biggest contributor to growth, the data showed. Forecasts for exports rose, while projections for household consumption were cut, according to this month’s Bloomberg survey. “If domestic demand slows and exports pick up, headline GDP looks the same but the demand for labor is probably weaker than it was and that’s the more important part for policy,” RBC’s Turner said. RBA minutes released last week “probably opened risks up a little more” of the central bank moving to an easing bias, he said. The Aussie rose to its highest level since April 10 today after a Chinese manufacturing gauge rose to a seven-month high in June, indicating stronger economic momentum in Australia’s largest trading partner. Bloomberg News
There’s a huge amount of investment that’s going to fall away in the second half of this year, something that the U.K. and New Zealand don’t really share with Australia Michael Turner debt and currency strategist Royal Bank of Canada in Sydney
US$3 billion, analysts have said. So far, only Kyobo Life Insurance, the country’s third biggest life insurer, has publicly flagged interest for a controlling stake. The remaining 27 percent will be sold off in a Dutch auction where bidders will bid for preferred stake sizes of between 0.5 percent and 10 percent. Reuters
outh Korea will split the sale of its 57 percent stake in Woori Bank, country’s secondlargest bank, into two tranches, with the largest portion - an offering of 30 percent - seen worth roughly US$3 billion. Woori Bank is the crown jewel in Woori Finance Holdings, accounting for 70 percent of its assets. Its sale is the last and most important leg of the government’s attempt to privatise the financial group as it tries to recoup as much as possible of more than US$12 billion in bailout money.
The government has so far recouped 5.8 trillion won (US$5.7 billion) as of May though that figure does not include gains from two units that have been sold. But selling off the assets has been a complicated and drawn out affair as South Korea requires at least two bidders for a government sale by law and as foreign investors are reluctant to enter a market seen as having weak returns and difficult to exit. Woori Finance Holdings will first be merged with Woori Bank so the bank’s value is roughly equivalent to
the 8.2 trillion won (US$8.06 billion) market cap of Woori Finance, a government official said, declining to be identified as he was not authorised to talk to the media. The government will then sell a 30 percent stake, a holding which will give the owner or owners management control, the government’s top financial regulator said. A 30 percent stake would be worth some US$2.4 billion but a winning bid is also expected to include a premium, taking the potential sale amount to around
KEY POINTS Review of foreign ownership of telcos spooks investors 4G auction delay could cause losses of up to $4 bln - analyst AIS seen as top loser, True as winner
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 International editor Óscar Guijarro GROUP SENIOR ANALYST José I. Duarte Brands & Trends Raquel Dias Creative Director José Manuel Cardoso Designer Francisco Cordeiro WEB & IT Janne Louhikari intern Aries Un 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 24, 2014
Asia Tourists return Japan to surplus Japan is poised for a record number of foreign visitors in 2014, attracted by a weaker yen and easing of visa rules, with spending by incoming tourists in April exceeding that by Japanese going abroad for the first time in 44 years. The Chart Of The Day shows Japan recorded a net surplus in tourism revenue, a first since 1970, as the yen weakened about 16 percent against the dollar since Shinzo Abe became prime minister in December 2012. The lower panel shows total foreign tourists to Japan and the combined number from nearby Taiwan, Hong Kong, South Korea and China.
Brunei launches labour market data project Yesterday kicked off a new project that helps build a comprehensive national labour market information system with the International Labour Organization (ILO). The project, entitled “Revision and Enhancement of the Labour Market Data Sources: Towards Setting Up the Labour Market System in Brunei Darussalam”, is also supported by the country’s Department of Economic Planning and Development and the Prime Minister’s Office. This project provides technical assistance in the revision and enhancement of labour statistics of Brunei Darussalam within the framework of the existing statistical programs of the Department of Statistics, JPKE.
Frasers Centrepoint to go public Singapore real estate company Frasers Centrepoint Ltd (FCL), backed by Thai billionaire Charoen Sirivadhanabhakdi, plans to raise S$365 million (US$292 million) by listing its hospitality real estate investment trust (REIT) in Singapore, IFR reported. The listing would mark the first step in merging the property assets of Charoen’s business empire, which includes Singaporelisted FCL and his TCC Group, after the Thai tycoon won control of the drinksand-property conglomerate Fraser and Neave in an US$11 billion deal last year. FHT comprises six serviced residences controlled by FCL and six hotels, such as Singapore’s InterContinental Hotel.
Japan PMI shows first expansion in 3 months Japanese manufacturing activity expanded in June for the first time in three months, a preliminary survey showed yesterday, in a sign that domestic demand has quickly recovered from a sales tax increase at the start of April. The Markit/JMMA flash Japan Manufacturing Purchasing Managers Index (PMI) rose to a seasonally adjusted 51.1 in June from a final reading of 49.9 in May. The index rose above the 50 threshold that separates expansion from contraction for the first time in three months. The output component of the flash PMI index rose to 51.8 from a final 48.9 in April.
Thai army chief and junta head General Prayuth Chan-ocha (L) greets members of the International Chamber of Commerce (R) during a meeting at the Royal Thai Army headquarters in Bangkok
Thai telcos become first casualty of junta The government led by General Prayuth Chan-ocha halted an auction of 4G bandwidth
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hailand’s telecoms sector is fast emerging as the first economic casualty of an interventionist junta in a country that has swung between democratic and military rule more times than any other nation in Southeast Asia. The government led by General Prayuth Chan-ocha halted an auction of 4G bandwidth last week after giving its blessings to the tender in May when it came to power. Telecoms analysts say the suspension could lead to US$4 billion in investment and revenue losses in a sector that accounts for a tenth of Thailand’s GDP. A prolonged delay could also cause mobile service disruptions. The decision U-turn highlights the growing regulatory risk that foreign investors face just as they are desperately being sought to revive a slumping economy. It is also a stark reminder to investors of the economic missteps of Thailand’s previous military governments. General Surayud Chulanont, the leader of the last military coup in 2006, has been lambasted by his critics for his poor oversight of the economy and his resistance to foreign investment, particularly in
the telecoms sector. The latest military government has swiftly moved to dispel such an impression. The investment agency said last week it had approved applications for 18 projects, the biggest of which was a plan by Japan’s Toyota Motor Corp to build capacity to make pickup trucks. Yet at the same time, the industry regulator said it plans to review foreign ownership of telecoms operators, alarming investors. The regulator said the foreign ownership structure of Total Access Communication PCL (TAC) will be examined. Advanced Info Service PCL (AIS), the country’s biggest mobile phone operator, is 23 percent-owned by Singapore Telecommunications Ltd. China Mobile Ltd is in the process of buying an 18 percent stake in True Corp, which runs Thailand’s thirdlargest mobile network. The TAC review came after the telco’s controlling shareholder Telenor ASA disclosed information related to the Facebook blackout in Thailand a few days after the military seized power. The Norwegian company has since issued an apology for saying the regulator asked TAC to block access
to Facebook on May 28. TAC has said it was confident it is “qualified” for the 4G auction. The 4G auction is expected to fetch at least 42.9 billion baht (US$1.33 billion) in state revenue. The sector is estimated to invest at least 100 billion baht after licences are issued. “The review of foreign ownership is normal practice to qualify companies which want to take part in such projects. We are willing to cooperate,” an AIS official told Reuters, declining to be identified because she is not authorised to speak to the media. True’s CFO Noppadol Dej-Udom told Reuters the ownership review is in line with regulations. “We are not worried about the investigation,” he said. After seizing power from a government that had been accused of corruption, the military has been scrutinising state-owned companies and major projects, especially those worth more than 1 billion baht (US$32 million). The telecoms regulator plans to explain to the army how the bidding process works, and that the money raised from the auction will not be kept at the NBTC but sent to the government. Reuters
Rupee confidence eroded E
xpectations for rupee swings are rising from a three-year low as a surge in oil prices threatens India’s progress in improving its trade and budget deficits. The currency’s three-month implied volatility, a gauge of expected swings used to price options, has raised 76 basis points from an August 2011 low on June 13 to 8.28 percent. That’s the biggest increase in Asia after Indonesia’s rupiah. The rupee slumped 1.8 percent this month to 60.1875 per dollar, after May’s 2.1 percent rally that was powered by optimism new Prime Minister Narendra Modi will act to revive the economy. India, which imports almost 80 percent of its oil, is the region’s most vulnerable economy to this month’s
jump in crude prices amid violence in Iraq, according to Barclays Plc. Rising energy costs may spur India’s consumer inflation that’s already more than 8 percent, and cause an increase in fuel subsidies that would hamper efforts to shore up public finances. “The recovery in the rupee could be delayed because we’re in a fairly risky oil situation right now,” Dariusz Kowalczyk, a Hong Kongbased strategist at Credit Agricole CIB, said in an interview on June 19. “We don’t think the optimism during and after the elections will last due to inflation that’s much higher relative to other countries. The higher the price of oil, the more worries there will be about inflation, subsidies, fiscal consolidation and the
external position.” Living costs are also under pressure from the risk of belowaverage monsoon rainfall in India this year, which threatens farm output in an economy that’s already expanding at near the slowest pace in a decade. Showers during the June- September period, crucial for crops from sugar to rice, will be 93 percent of a 50-year average, the state weather forecaster predicted on June 9. Brent crude climbed more than 5 percent this month and reached a nine-month high of US$115.71 per barrel on June 19. Bloomberg News
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June 24, 2014
International Merkel ally criticises Alstom deal
Bonds tie Yellen’s hands The differences between short and long term yields of U.S. government bonds indicate that investors are confident in Fed Chair
A A conservative ally of Chancellor Angela Merkel accused France yesterday of showing “ice-cold” national interests in choosing GE over Siemens for an alliance with Alstom, and also questioned whether Paris had the fiscal leeway to buy a large stake in the French firm. France on Friday rejected an offer from Siemens and Mitsubishi Heavy Industries for Alstom’s energy arm, instead choosing U.S. firm General Electric. In announcing its choice, Paris made additional demands on the U.S. conglomerate and announced it would buy a 20 percent stake in the French maker of turbines and high-speed trains.
Eurozone activity slips Eurozone business activity slipped for the second month running in June, suggesting a modest recovery could be stalling, a closely watched survey showed yesterday. Markit Economics said its Eurozone Composite Purchasing Managers Index (PMI) for June, a leading indicator of overall economic activity, slipped to 52.8 points from 53.5 in May, coming in at the to the weakest level since December.
S.Africa to purchase S.Korean T-bonds South Africa’s central bank purchased more than US$500 million worth of South Korean treasury bonds in June for the first time ever, an official at Seoul’s financial regulatory agency said yesterday. The official at the Financial Supervisory Service declined to give an exact value of the South African Reserve Bank’s purchase. Two sources with knowledge about foreign investment in the bond market put the value at between US$500 million and US$1 billion. Foreigners have been increasing their holdings of South Korean bonds as they seek higher yields amid safe-haven assets.
s the Federal Reserve works to extricate itself from the bond market, its influence over debt investors is only increasing and boosting the chance of a soft landing for Treasuries. While the Fed scales back the unprecedented stimulus that has inundated the world’s largest economy with more than US$3 trillion of cheap cash, the differences between short- and long- term yields of U.S. government bonds indicate that investors are confident Fed Chair Janet Yellen can keep inflation in check as growth rebounds without having to ratchet up interest rates. The relative calm clashes with forecasters who say investors have grown too complacent over the direction of central bank policy with consumer prices climbing the most in more than a year and signs of labourmarket strength. Bond bulls are instead focusing on the Fed’s reduced estimate for how high rates ultimately need to rise and echoing the view of Pacific Investment Management Co.’s Chief Economist Paul McCulley, who said this month the taming of inflation starting in the 1980s means there’s little risk in keeping borrowing costs low. “The market is giving the Fed the benefit of the doubt that Yellen and crew have everything under control,” Robert Tipp, the chief investment strategist at Prudential Financial Inc.’s fixed-income unit, which oversees about US$335 billion, said in a June 19 telephone interview from Newark, New Jersey. “Inflation is not overheating even with job growth stable and the economy continuing to accelerate.”
Pictured Janet Yellen is leading the Fed bonds-untangling process
The market is giving the Fed the benefit of the doubt that Yellen and crew have everything under control Robert Tipp, investment strategist, Prudential Financial Inc.
Debunked thesis In the past 13 months, the gap between yields of two- and fiveyear Treasuries has doubled to 1.22 percentage points, according to data compiled by Bloomberg. At the same time, the difference between those of five- and 30-year securities has narrowed to the least since 2009 as the long bond rallied.
Because yields on longer-dated debt usually rise more than shorterterm notes when investors see faster inflation spurring rate increases, the moves suggest a more sanguine outlook, according to Priya Misra, the New York-based head of U.S. rates
strategy at Bank of America Corp., one of 22 primary dealers obligated to bid at U.S. debt auctions. Taken together, the relationship now implies that while investors anticipate the Fed will eventually lift its benchmark rate after holding it close to zero for six years, they don’t foresee the central bank’s stimulus measures creating the kind of inflationary pressures that would force its hand, she said. “The bond vigilantes have all been quieted,” Misra said by telephone on June 19. “The idea that just the act of printing money gets you inflation has been debunked.” There’s little concern over a repeat of 1994, one of the worst years for bonds when Treasuries lost more than 4 percent in the first six months as the Fed began to double its benchmark rate to 6 percent, according to the Bank of America Merrill Lynch U.S. Treasury Index. In part because of the Fed’s success as an inflation fighter, Treasuries generated returns in 2004, 2005 and 2006 even though the bank boosted rates to 5.25 percent from 1 percent. Bloomberg News
Santander to buy GE consumer finance business The deal is expected to close in the second half of this year
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pain’s Santander is buying GE Money Bank, GE Capital’s consumer finance business in Sweden, Norway and Denmark, for 700 million euros (US$950 million) in its latest move to diversify away from its struggling domestic market. The deal is expected to close in the second half of this year and will reduce the core capital ratio of the euro zone’s largest bank by 8 basis points, Santander said yesterday. Santander has expanded in Latin America and Europe over the last decade and has said it is looking for pockets of growth in new markets to make up for weaker business at home after a five-year economic downturn. U.S. conglomerate General Electric is seeking to reduce its exposure to the volatile banking sector, which hurt the company during the 2008
financial crisis. It is aiming to increase its earnings mix to at least 70 percent from its industrial manufacturing businesses by 2016, up from about 55 percent last year, which would reduce the profit contribution from its GE Capital business to about 30 percent. Following the transaction, Santander Consumer Finance Nordic will have over 1.2 million customers in the region and will represent around 17 percent of the loan portfolio of the bank’s global consumer finance business, Santander said. Santander Consumer USA Holding Inc., the auto-finance unit of the Spanish lender, debuted on the U.S. stock market in January, booking 740 million euros in net capital gains from the listing of 21.6 percent of the business.
Santander last October said it would pay 140 million euros for a 51 percent stake in Spain’s largest consumer finance business from department store chain El Corte Ingles. The Spanish lender has also said it expects a consumer financing deal with French carmaker PSA Peugeot Citroen to be completed in the second half of 2015. Reuters
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June 24, 2014
Opinion
The World Cup’s wires sickening message Business
Leading reports from Asia’s best business newspapers
MYANMAR TIMES An unnamed Myanmar firm has locally registered security on a cross-border loan from an international lender for the first time in the modern era, according to officials from VDB Loi legal and tax advisory, which assisted in the process. The revamped regulatory framework including the 2012 Foreign Investment Law has encouraged foreign participation in Myanmar’s economy, but the process for locally registering security has so far remained largely untested. In practice, foreign lenders have been able to accept security only on assets the borrower had located overseas, such as shares or money.
Sarah Hawkes
Kent Buse
Chief of Political Affairs and Strategy, UNAIDS
Reader in Global Health and Wellcome Trust Senior Fellow in International Public Engagement at the Institute for Global Health, University College London
THE NEW ZEALAND HERALD New Zealand’s annual migration rose to its highest in more than a decade last month, keeping the net inflow at a pace both the Reserve Bank and the Treasury say will drive up demand in the domestic economy this year. The country gained a net 36,400 migrants in the year through May, the highest since the November 2003 year, Statistics New Zealand said. The Treasury expects net migration to peak at 38,100 in the year through September before returning to the long-run assumption of 12,000 a year by 2017.
THANH NIEN NEWS Deputy Prime Minister Hoang Trung Hai has called on officials at a local level to crack down on fertilizer production after a slew of fake products flooded the market, particularly the Mekong Delta. Local leaders should take responsibility for fake fertilizer found in their localities, he said during a recent national conference on Fertilizer Management and Stable Agriculture Development Strategy. Market management forces seized over 800 tons of fake and low-quality fertilizers last year, mainly in Mekong Delta provinces of An Giang, Long An, Vinh Long, Soc Trang and Ben Tre.
THE KOREA HERALD South Korea’s economy is expected to grow in the coming months, although there are still lingering uncertainties related to domestic demand and the stronger local currency, data showed yesterday. According to the Organization for Economic Cooperation and Development, the composite leading index of economic activity for South Korea stood at 101.01 in April, slightly down from the previous month’s 101.02. This marked the 15th consecutive month that the index holds above the benchmark 100. The CLI is an indicator of how the economy will fare four to six months ahead by measuring industrial output.
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ONDON – One billion people watched the opening match of the FIFA World Cup in São Paulo, Brazil, and hundreds of millions more will tune in at some point during the month-long tournament. For FIFA’s six major partners and the event’s eight official sponsors, this audience is nothing short of a gold mine. Indeed, they pay tens of millions of dollars in the hope that some of the magic of the “beautiful game” will rub off on their brands – and it very well may. For viewers, however, that is probably not a good thing. The run-up to the kick-off was not without drama for at least one of FIFA’s partners, Budweiser, which was accused of compelling Brazil’s government to overturn a national law banning the sale of alcohol inside football stadiums. Despite widespread opposition to repeal of the law, FIFA was resolute: “Alcoholic drinks are part of the FIFA World Cup, so we’re going to have them.” Sponsorship by companies like Budweiser, McDonald’s, CocaCola, and the convenience food giant Moy Park brings millions of dollars to the game. But what message does it send to the global audience? Promoting alcohol, sugary drinks, and fast food may mean massive profits for corporations. But it also means worse health for individuals and a costly burden on countries’ health-care systems. Instead of focusing exclusively on alcohol’s potential to fuel violence inside stadiums, the media should be emphasizing the damage that alcohol and processed foods are causing to the world’s population every day. Consumption of such products continues to rise – not least because of multi-billion dollar global advertising campaigns. Over the last decade, global soft-
drink sales have doubled; per capita alcohol consumption has risen; and tobacco use has increased. Making matters worse, most of this growth is occurring in low- and middleincome countries, which are the least equipped to handle the coming health crisis. One factor underlying such threats to public health is classification. Health experts have traditionally lumped diseases into two categories: communicable diseases, which are caused predominantly by infection, and noncommunicable diseases (NCDs) – that is, everything else. Among the NCDs, four conditions contribute most to early death or disability: cardiovascular disease, chronic lung conditions, cancer, and diabetes. In 2010, these four conditions caused 47% of all deaths, including nine million deaths in people under 60 years of age. The main risk factors for developing these conditions – smoking tobacco, excessive alcohol consumption, being overweight, and insufficient physical exercise – reflect deeply ingrained unhealthy behaviours. Given that these are precisely the kind of behaviours that companies like the World Cup sponsors are encouraging, a better disease classification would be pestilentia lucro causa (PLC), or “profit-driven disease.” The over-consumption of alcohol, tobacco, and energyrich processed foods are often framed as lifestyle “choices.” But the determinants of such choices are often removed from people’s immediate control. The strong associations between PLCs and, say, poverty or gender suggest that wider social forces exert considerable pressure on individual behaviours affecting health. Addressing the PLCs calls for a new approach to health, and
What message does it send to the global audience? Promoting alcohol, sugary drinks, and fast food may mean massive profits for corporations. But it also means worse health for individuals and a costly burden on countries’ healthcare systems
to the organizations charged with protecting it. The current system does not empower the United Nations and other technical agencies concerned with health governance to confront the determinants of poor health effectively. Large corporations have resources, lobbying power, advertising budgets, networks, and supply chains of which the UN can only dream. And while the World Health Organization skimps by on US$2 billion a year, the tobacco industry rakes in US$35 billion in annual profits. What steps can be taken to level the playing field? As any football pundit will tell you, success depends on
teamwork. First and foremost, consumers must be better informed about the long-term impact of sponsors’ products. After all, the most effective way to compel companies to change is to stop purchasing what they sell. When people raise their voices – say, to ban advertising for breastmilk substitutes or to demand access to life-saving drugs – big corporations often listen. Second, policymakers must be realistic. While there is certainly room for optimism about technological advances that will help to control treatment costs, the fact is that treating a growing share of the world’s population simply is not feasible. Indeed, the World Economic Forum estimates that the four major PLCs cost the global economy US$3.75 trillion in 2010, well over half of which was spent on medical care. In this context, prevention strategies are crucial. Third, businesses have a critical role to play. Beyond being a key aspect of corporate social responsibility, curbing PLCs – and thereby ensuring the health and productivity of current and future generations – is in firms’ interest. Voluntary codes to limit sugar in soft drinks and reduce salt levels in processed foods are a positive step; but they are far from adequate. Finally, every successful team needs a strong manager. In the battle against the PLCs, international and national regulatory authorities must fill this role, setting and enforcing the rules of the game to protect the health of people worldwide. The World Cup has a profound social impact, including on global health. FIFA has a responsibility to ensure that the tournament’s viewers are not receiving a message that could make them sick. The Project Syndicate 2014
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June 24, 2014
Closing China raises retail oil prices
Chemical transport regulations protect Yangtze
Economic planner announced yesterday a rise of the price of gasoline by 165 yuan per tonne (US$26.80) and diesel by 160 yuan from Tuesday. The adjustment will see prices of gasoline increased by 0.12 yuan per litre and that of diesel by 0.14, according to the National Development and Reform Commission (NDRC). Under China’s new pricing regime, which came into effect last year, domestic fuel prices are adjusted when international crude prices reflect a change of more than 50 yuan per tonne over a period of 10 working days.
The State Council yesterday issued a circular on transportationofhazardouschemicalsontheRiver Yangtze. Premier Li Keqiang in April proposed an economic belt along the river and as the riverbanks become home to industries transferred from the coastal east, many chemical plants have been built and the volume of chemicals transported along the river has increased dramatically. The circular demands that the whole process of chemical transportation including production, storage, loading and waste disposal should be put under tight supervision and highlights ecological safety, requiring plants to improve their treatment facilities.
Hong Kong dollar sinking into sunset Former HK central banker publishes a book that tries to shine a light on the future of the local financial market
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he importance of the Hong Kong dollar will gradually decline given China’s growing role in the global economy and financial system, said the city’s former central banker Joseph Yam. For Hong Kong to remain as China’s financial centre, the main currencies used for international trade and finance should be the Chinese yuan, the U.S. dollar and the euro, Yam wrote in a book published this week. The Hong Kong dollar is pegged to the U.S. currency. “For a small economy that’s highly dependent on the mainland, it’s necessary to allow the Chinese currency to function conveniently in Hong Kong in the long term,” wrote Yam, who headed the Hong Kong Monetary Authority for 16 years before leaving in 2009. Yam, who led a US$15 billion defence of the Hong Kong dollar at the height of the Asian financial crisis, in 2012 called on the government to review its currency peg, questioning if it continues to serve the public interest. The city is facing “difficult questions” on how to upgrade its financial capability to serve
China so that it won’t get marginalized from its role as a middleman, Yam wrote in the book. Political developments in Hong Kong are probably eroding China’s confidence, “making them avoid relying too much on Hong Kong for international financing activities,” Yam wrote. The city has been divided on electoral reforms needed to chose its chief executive through universal suffrage in 2017, with China insisting that all candidates must be vetted. More than 700,000 residents have voted in a 10day referendum conducted by civic groups, where all the options include public nomination, drawing a rebuke from the Beijing government.
For a small economy that’s highly dependent on the mainland, it’s necessary to allow the Chinese currency to function conveniently in Hong Kong in the long term Joseph Yam
Dollar peg The Hong Kong dollar was pegged at HK$7.80 in 1983, when negotiations between China and the U.K. over returning the city to Chinese rule triggered capital outflows. In 2005, policy makers committed to limiting the currency’s decline to HK$7.85 per dollar and capping gains at HK$7.75.
Joseph Yam was the First Chief Executive of the HK Monetary Authority and the central banker earning more money than his global peers in 2007
The Hong Kong dollar will remain as the city’s fiat money at least until 2047 in accordance with the Basic Law, its de- facto constitution, Yam wrote.
For the Chinese currency, the nation’s record foreignexchange reserve probably shows the authorities have intervened in the market, causing a drop in the yuan,
Yam wrote. The government should pursue a yuan policy that makes it convertible but not freely exchangeable, which will help protect the nation from financial instability, he wrote.
HK’s inflation remains unchanged
Reverse mortgage programme for seniors
Fosun invests in U.S. Studio 8
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ong Kong’s year-on-year Consumer Price Index (CPI) in May stayed unchanged at 3.5 percent compared to April this year, netting out the effects of all government’s one-off relief measures, the city’s statistic department said here yesterday. Amongst the various CPI components, prices for alcoholic drinks and tobacco rose 8.5 percent in May from a year ago, followed by housing 4.8 percent, electricity, gas and water 3.9 percent, food 3.6 percent and miscellaneous services 2.9 percent. On the other hand, prices for durable goods fell 3.4 percent last month from a year earlier. A government spokesman said the underlying inflation rate in May was lower than that of 3.8 percent in the first quarter, indicating that inflationary pressures were contained. The spokesman expects that the upside risks to inflation should remain limited in the near term, given the modest rise in import prices, easing rental pressures and steady wage growth. Xinhua
hina will allow retirees to take out bank loans against their homes to pay for their living expenses under a pilot programme in four cities, the Chinese insurance regulator said yesterday. The programme is the latest government effort to help Chinese citizens aged 60 and above. The city governments in Beijing, Shanghai, Guangzhou and Wuhan will start a two-year experiment from July 1, the China Insurance Regulatory Commission said in an online statement. Reverse mortgages, which are common in developed countries but new in China, are extended to older citizens who use their homes as collateral to receive regular payments from insurers. They help broaden financial resources for the elderly and expand the types of retirement services offered by insurers, the regulator said. Official figures show that in February, China had more than 200 million people over the age of 60, accounting for 15 percent of the total population. Reuters
Bloomberg News
hanghai conglomerate Fosun International said yesterday that it has agreed to invest in U.S. film producer Studio 8, founded by Jeff Robinov, former president of Warner Bros. Fosun did not reveal the amount of the investment or the size of the stake. This latest move by Chinese capital to enter Hollywood comes after Wanda’s purchase of AMC Entertainment Inc. and Beijing Galloping Horse Media’s acquisition of visual effects company Digital Domain. In a filing to Hong Kong Exchanges and Clearing Ltd, Fosun said “the company is optimistic about the prospects of the Chinese film industry”. China is now the second-largest film market after the United States, with a box office exceeding 21.7 billion yuan (about US$3.5 billion) in 2013. Fosun added that it will exercise significant influence over the distribution arrangements of movies produced by Studio 8 in the Chinese mainland, Hong Kong, Macau and Taiwan. Xinhua