Macau Business Daily, June 30, 2014 by Business Daily

MOP 6.00 Closing editor: Alex Lee Publisher: Paulo A. Azevedo Number 571 Monday June 30, 2014 Year III

Ticked off I

t’s voting time again. Final official results of the indirect election for the MSAR electoral college members for the Chief Executive vote will be announced today. But not all lawmakers agree with the current system. Pro-democrat legislators Antonio Ng Kuok Cheong and Au Kam San abstained in protest. 344 electoral college members – the only organ responsible for nominating and electing the Chief Executive – were to be picked from yesterday’s voting process PAGE 2

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Macau, a strategic piece for OCBC

Distribution matters

Oversea-Chinese Banking Corp (OCBC) is all set to enter Hong Kong and Macau. Both jurisdictions have okayed the acquisition of Wing Hang and Weng Hang banks by Singapore’s longest established financial group. CEO Samuel Tsien tells Business Daily the move is of fundamental importance. OCBC will adhere to its core businesses: but spots excellent opportunities in the Greater China region PAGE 8 & 9

Picking up speed Three new routes have been proposed for the LRT. Budgeted on a pay-per-kilometre basis, one kilometre will cost as much as half a million patacas. The budget continues to grow at a runaway pace PAGE 3

Trade deficit widens Macau’s merchandise trade deficit increased 16 percent to 32.38 billion patacas in the first five months of the year. Imports of gold and jewellery continue to pressure the deficit PAGE 2

The richest man in Asia is deeply concerned about increasing rent inequality. According to Li Ka-Shing, the government should treat this as its main task. Page

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HSI - Movers

Galaxy to grow 50 percent

June 27

Name

Things are looking up for Galaxy. The chairman of Galaxy Entertainment is confident that Phase II of Galaxy Macau will open in mid-2015. This will boost company revenues by up to 50 percent, he says. Lui Che Woo also went on record to say that group strategy calls for an increase in GEG’s non-gaming activities PAGE

Interview: Paul Kwok

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Want Want China H

2.44

China Resources Powe

1.84

China Mengniu Dairy

1.68

AIA Group Ltd

1.42

Sun Hung Kai Propert

1.14

Ping An Insurance Gr

-0.75

Kunlun Energy Co Ltd

-0.78

HSBC Holdings PLC

-0.82

Hengan International

-1.09

China Overseas Land

-1.38

Source: Bloomberg

“40 percent of our MICE guests come back” The GM of Grand Hyatt Macau believes that major infrastructure is key to the hotel’s success. The HKZhuhai-Macau Bridge and the LRT will bring more day-trippers here, he says. The Meetings, Incentives, Conferences, and Exhibitions (MICE) segment should also benefit. Paul Kwok says the biggest challenge, however, remains attracting qualified people. The lack of human resources is taking its toll PAGE

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June 30, 2014

Macau

Pro-democrats slam CE electoral college voting Legislators Antonio Ng Kuok Cheong and Au Kam San have abstained from the vote yesterday in protest at the current Chief Executive election system Stephanie Lai

sw.lai@macaubusinessdaily.com

he final official result of the indirect election for the MSAR’s electoral college members for Chief Executive will only be announced today, after the city saw a silent voting process yesterday that encountered a minor protest by pro-democrat legislators and youth activists. A total of 344 electoral college members – the only organ responsible for nominating and electing the Chief Executive in late August or early September – were to be picked from yesterday’s voting process, which would represent the commercial, industrial and finance sector (120 members), the cultural sector (26 members), the education sector (29 members), the professional sector (43 members), the sports sector (17 members), the labour sector (59 members) and the social service sector (50 members). The 50 representatives of the city’s political sector, namely the Legislative Assembly and local delegates for Beijing’s parliaments, are also part of the electoral college. Legislators Antonio Ng Kuok Cheong and Au Kam San walked out half-way through the Legislative Assembly’s election of the 22 delegates attending the electoral college members’ role, having been

castigated by Assembly president Ho Iat Seng for expressing their views on the Chief Executive election by initiating a motion. “Beijing has promised Hong Kong it can run universal suffrage to elect their Chief Executive by 2017,” Mr. Au said. “For Macau, we should realise the goal that we can also achieve by 2019, and now is the optimum time to have a public review of how our political system works and discuss it, as this year is the time for the Chief Executive’s election.” The pro-democrats believe that the electoral college members for

the city’s Chief Executive should be voted in by a direct election by the different professionals belonging to their respective sectors, instead of through the 5,400 or so representatives picked by their associations as practicised now. “Many residents have no idea who these 400 [electoral college members] are and where they are from,” said Mr Au. “So is this college really broadly representative enough?” Pro-democratic youth groups, including New Macau Association and Youth Dynamics, posted banners and distributed leaflets over the weekend

Merchandise trade deficit widens to MOP32.3 bln In May, the value of merchandise imports increased by 12 percent year-on-year while exports increased by 18 percent over that of 2013

acau’s merchandise trade deficit increased 16 percent to 32.38 billion patacas in the first five months of the year, the Statistics and Census Service announced. In May, the total value of merchandise imported accounted for 7.452 billion patacas, an increase of 12 percent year-on-year. As for exports, it accounted for 927.7 million patacas, an increase of 18 percent year-on-year. However, domestic exports declined 12 percent to 187 million patacas in

MOP4.36 billion imported gold jewellery value

labelling the current Chief Executive election system a ‘shame.’

More voters Political reform in 2012 increased the number of electoral college members from 300 to 400, none of whom are directly elected by Macau residents. Also, under the changes, a candidate for Chief Executive now needs to be nominated by 66 college members, up from 50 previously. As the city’s 22 Legislative Assembly representatives, 12 National People’s Congress delegates, 16 members of the Chinese People’s Political Consultative Conference and 6 religious representatives are automatically the Chief Executive’s electoral college members, there are only 344 electoral college members that need be elected, the electoral rules state. “Now we’ve already got a broadly representative organ [to elect the Chief Executive],” China Chamber of Commerce president Mr. Ma Iao Lai remarked to Business Daily after voting yesterday, “The system we have now has gone through a detailed public consultation before [in 2012]. Each person has his own opinion on universal suffrage, but I think the system we have suits Macau’s conditions.” Mr. Ma was a voter representing his pro-Beijing chamber from the commercial, industrial and financial sector, the sector of biggest influence and proportion in the electoral college. Louisa Ho Mei Va, also an eligible voter for electoral conference members, reckoned there was still room for adjusting the current Chief Executive electoral laws. Ms. Ho is president of the Macau Society of Certified Practising Accountants and a voter for the professional bloc. “No matter if it’s the professional sector or others, I think a certain proportion of the sector election [for the electoral college] can be opened for public votes,” Ms. Ho told us yesterday. “This would be a fairer system.”

May over the same period last year, while re-exports increased 29 percent to 741 million patacas. Imports from mainland China (11.63 billion patacas) and the European Union (9.37 billion patacas) increased by 11 percent and 26 percent in the first five months of the year, respectively, year-on-year. Imports of consumer goods rose by 19 percent to 23.62 billion patacas, with imports of gold jewellery (4.63 billion patacas) and watches (3.59 billion patacas) increasing by 51 percent and 75 percent, respectively. Imports of construction materials (1.43 billion patacas) grew by 35 percent. Merchandising exports to mainland China (546 million patacas) and the United States (134 million patacas) decreased by 11 percent and 14 percent. As for the destination of exported goods, Hong Kong and the EU increased 23 percent to 2.65 billion patacas and 6 percent to 127 million patacas, respectively. Exports of non-textiles (3.93 billion patacas) increased by 13 percent year-on-year, of which exports of machines, apparatus and parts (805 million patacas) rose by 47 percent, while exports of clocks and watches (521 million patacas) doubled. Exports of textiles and garments (311 million patacas) decreased by 18 percent, of which exports of knitted or crocheted garments (100 million patacas) declined by 21 percent.

June 30, 2014

Macau

LRT budget continues to balloon Three new proposed routes for the LRT will be budgeted on pay-per-kilometre basis, with one kilometre costing as much as half a million patacas Kam Leong

hree new proposals to adjust the route of the northern part of the Light Rapid Transit (LRT) system are under consideration, for which the cost of each kilometre of construction will work out at a minimum of 500 million patacas. This is regardless of which proposal is eventually selected, the Transportation

Infrastructure Office (GIT) announced on Friday. The three plans, all to be elevated sections, are located at Avenida Leste do Hipódromo, Avenida 1º de Maio and along the shore. Their lengths are 4 kilometres, 3.5 kilometres and 3.6 kilometres, respectively, suggesting a minimum of 1.75 billion patacas will be spent

on the northern segment of the LRT alone. “Five hundred million patacas per kilometre is a rough estimation. We have not reached the stage of detailed design. We can only have some rather precise figures when we are at that stage,” said Andre Sales Ritchie, deputy director of GIT. However, the estimated cost only includes civil works. Other expenses such as software, facilities and the pedestrian bridge connecting the station’s gates are excluded. The costs were calculated in the second quarter of this year based on the price index of the last quarter of 2013. Legislators say they are not satisfied with the government’s rough estimates. They claim that the government should have made a more accurate cost estimate based on more updated information, according to legislator Ho Iong San, who spoke to reporters following a sub-committee meeting with Secretary for Transport and Public Works Lao Si Io. Mr. Lao said after the meeting that the government will do its best to open tenders for some segments of the Macau routes by the end of this year as soon as they have finished their design stages, after which construction will start as soon as possible. The public consultation on the northern segments of the LRT will start from tomorrow and run until August 14. When first announced in 2007, the LRT project was costed at 4.2 billion patacas but by 2011 it had jumped to 11 billion patacas. Major delays have put back its initial schedule. Currently, the Taipa route is slated to open in 2016, while the Macau routes will open sometime between 2018 and 2019.

Sa Sa sales up 18pct in Macau and HK Both SARs remained the primary contributor to the group’s turnover and profits Sara Farr

sarafarr@macaubusinessdaily.com

acau and Hong Kong continued to be Sa Sa International Holdings Ltd’s primary source of turnover and profits in the 12 months ended March 31, 2014, the company said in its annual report filed with the Hong Kong Stock Exchange. Both SARs accounted for a 16.7 percent increase in the group’s overall turnover to HK$7.1 billion, while same store sales rose 12.8 percent. Retail sales both in Macau and Hong Kong increased by 17.8 percent to HK$7.03 billion, while the group’s overall turnover increased by 14.2 percent to HK$8.76 billion. Profit for the year reached HK$935.2 million, an increase of 13.3 percent from

HK$825.6 million last year. ‘To place these figures in context, the number of transactions of mainland China tourists increased by 26.9 percent while average sales value per ticket decreased 2.8 percent,’ the company said, adding that local customers in both Macau and Hong Kong had increased transaction numbers slightly by 2.7 percent and their average spending had also increased by 2.5 percent. Cosmetics remained the primary product sold. ‘It has been our strategy to introduce more lower-priced items to cater to the needs of the tourist and local consumer market,’ the annual report reads. As for the second half of the year, the company is planning on conducting more ‘aggressive promotions to enhance price competitiveness.’ This will be mainly in low to mid-priced products. ‘We have been able to drive a 14.3 percent growth rate in [such] transactions during this period, and ended the year with a healthy growth rate of 13.1 percent of the same,’ the company added. Sa Sa said it continued to broaden its house brand product range, which resulted in a 22.1 percent increase in

sales ‘due to the success of our product development and marketing strategies and initiatives,’ the company’s annual report reads.

Bus operators scrape a pass T

he three bus operators – Reolian, TCM and Transmac – all passed their service evaluation last year. Transport Bureau director Wong Wan was quoted by local media as saying that detailed results will be announced ‘as soon as possible.’ He did, however, say that all three passed with an average 60 percent mark. The government reduces the subsidy amount it gives bus companies should they not pass their service evaluation. According to the government, the assessment covers driving behaviour plus management and passenger satisfaction. Representatives of new bus operator New Era were at last week’s Traffic Consultative Council meeting. The company commences services tomorrow. Wong Wan was quoted as saying he believes everything will run smoothly on July 1, although back-up plans are in place should anything ‘unexpected arise.’

Simpler procedures L

egislators want the government to simplify procedures for nonresident workers who need to be compensated by their employer for any number of reasons including the late payment of salaries, sickness and work accidents. Upon the end of the work contract, non-resident workers are only allowed to stay in Macau for up to 10 days. But under the proposed bill on compensation payments, this period could last up to 120 days. However, Cheang Chi Keong of the Legislative Assembly and who heads the committee reviewing the proposed bill, was quoted by the Portuguese radio station as saying that many foreign workers will not be able to get the money owed during this period. As such, he and his committee suggest the government simplify procedures in order to allow non-resident workers to get up to 50 percent of the money. Since 1990, Macau’s Social Security Fund has managed 4,872 compensation requests totalling 97 million patacas.

June 30, 2014

Macau

Galaxy founder predicts 50pct jump in profits in 2015 Lui Che Woo is confident that the opening of the second phase of Galaxy Macau in mid-2015 will boost company revenues. The magnate also admitted that the group strategy is to increase its non-gaming offers Alex Lee

Alex.lee@macaubusinessdaily.com

ounder and chairman of Galaxy Entertainment Group Lui Che Woo expects company profits to grow between 40 and 50 percent in 2015. The 84-yearold billionaire told American broadcaster CNBC that he expects Galaxy Phase II to increase its casino revenues. “We have been seeing increases over the years in our profits. Next year, with the opening of Galaxy Phase II, I think the number may grow even more. Not only 36 percent, perhaps 40 percent. Compared to this year, 40 perhaps even 50 percent because Phase II will make everything bigger,” Lui is quoted as saying by CNBC. “For sure, I expect next year to be definitely better than this year,” he said. In 2013, Galaxy Entertainment Group achieved a profit of 10.4 billion patacas, which represented an increase of 36 percent compared to the results of the previous year. According to the group’s presentation of Phase II of the project, the property is slated to be complete by mid-2015 and is going to cost around 16.5 billion patacas. The original plan of this phase was expected to increase the gaming capacity up to 500 tables and over 1,000 slot machines. The new resort space will also create an additional 3,600 hotel rooms. One of the goals of the second phase of Galaxy is to diversify the offers of the resort, as the magnate said. “After Phase II of our development is completed, 95

percent will be non-gaming components such as cultural performances, shopping and exhibitions. We will go in all directions so that Galaxy Macau will be more of a hub for relaxation and tourism and not so much gaming,” Lui added. “Moving forward, we’ll also focus on attracting massmarket customers.” Lui Che Woo also expressed confidence about Macau’s gaming industry, despite the introduction of some restraints such as government limits on gaming tables, a clampdown

on the installation of new swipe card devices inside casinos, a smoking ban on casino floors and restrictions on transit visas. “I think there’s no need to worry about a potential slowdown from China because we’re fulfilling the policy requirements of mainland China,” he said.

Experience to help Macau In 2002, Lui decided to break into the casino business. At the beginning, together with chairman and CEO of Las Vegas

Chinese and we had our way of doing things,” he said. With a fortune valued at 167.7 billion patacas, Lui Che Woo was named the second richest man in Hong Kong by Forbes magazine. But for him money is not everything. “If I make money, I’m happy. Even if I lose money, I’m happy,” Lui said. “There’s a Chinese saying: ‘If there’s no one sick at home and no creditors outside your home, that’s when you’ll have peace of mind.’ Numbers will only trouble your mind,” he added.

C Y Foundation in red for e-gaming management

Kohei Sato appointed Dynam executive director J

apanese pachinko hall operator Dynam Japan Holdings Co Ltd has appointed Kohei Sato as the company’s executive director. He will join chairman Yoji Sato, who also holds the title of executive director. According to a filing with the Hong Kong Stock Exchange, Mr. Sato joined Dynam in June 1995 and has been a chief executive with the company since January 2013. He has also been the representative director and president of Dynam since June 2000. ‘He is primarily responsible for overseeing the operation of the pachinko halls and the overall management and development of the Dynam brand as a leading chain operation of pachinko halls in Japan,’ the filing reads. Last October, Dynam Japan announced it would invest US$15 million

Sands Corp Sheldon Adelson, the octogenarian won one of three gaming licences distributed by the government. “If you don’t take risks, you won’t be able to do anything,” he said. “I was confident I could use my experience to change and improve the way Macau worked.” However, a year later the partners decided to take different paths to run their businesses. “They had their own direction and they looked down on us, thinking we didn’t have what it took to help them. From my end, I felt that we were

(119.8 million patacas) in the Singaporebased online games provider IGG to help it develop software for ‘next generation pachinko machines’ to be operated in Macau. The company is still waiting for the government here to approve an application to operate ‘next generation pachinko machines’. The plan is to place up to 100 of these new machines in a new hotel that is scheduled to open in September. While no property has been named, Dynam said previously that it belongs to Macau Legend Development Ltd and is slated to open in September. The Macau Legend’s Prague Harbourview hotel in Fisherman’s Wharf is their only property slated to commence operations in the third quarter of this year. S.F.

ong Kong-listed C Y Foundation Group Ltd has registered its first revenue from the business of managing electronic gaming machines in Macau at about HK$9.6 million (US$1.2 million) for the year ended on March 31, 2014, the company noted over its annual results in a latest filing. The result in the electronic gaming segment is in red since the company acquired CY Management Ltd (or formerly known as Weike (G) Management Macau Ltd) in September last year as the revenue has been outweighed by startup operation costs. The acquisition was conducted

by the issuance of convertible notes with an aggregrate nominal value of HK$69 million, the company’s filing noted. Currently CY Management offers electronic gaming terminals management service to Casino VIP Legend, Casino Casa Real and Casino Grandview. The company said it also offered “information technology” services to another two casinos in Macau. C Y Foundation said it has plan to operate 3,000 or more slot and multi terminal machines throughout Asia in the coming 3 years to make the electronic gaming segment the company’s core business.

June 30, 2014

Macau

Baby patrol Macau’s first batch of baby caretakers should be ready to swing into action by August, in support of the one-year trial community caretaker service programme. The government will invest MOP 3 million, while caretakers will earn 24 patacas an hour Aries Un

newsdesk@macaubusinessdaily

he Social Welfare Bureau of the MSAR Government will start recruiting caretakers in July for its ‘pilot community caretaker service programme,’ which, given the few nurseries schools in the territory, is designed as an alternative for families seeking childcare. In response to the city’s growing demand for childcare services, the one-year pilot programme will enlist only females with at least primary school education level. The scheme is budgeted to cost the government 3 million patacas and is expected to commence in August. The cost is calculated based on the preparatory works prior to the launch of the

programme, equipment needed for the entire programme and the human resources required, which accounts for 2.4 million patacas of the total, said Choi Sio Un, Head of the Department of Social Solidarity. During the first phase of the nanny programme, at least

75 of what the authorities call ‘volunteers’ are needed despite the maximum number of caretakers expected for the initial stage being 100. Each ‘volunteer’ caretaker will receive 24 patacas per hour for what the authorities call an ‘award’ for each baby assigned

to them during the programme, which only permits caretakers to simultaneously take care of at most 3 children including their own. Only two children are allowed each time if aged below one year. The caretaker programme also includes medical insurance for both caretakers and babies, ranging from 5,000 to 100,000 patacas. Three organisations – namely, Caritas Macau, the General Union of Neighbourhood Associations of Macau and the Women’s General Association of Macau - are responsible for the caretaker programme, with different service charges ranging from 18 patacas to 24 patacas per hour. The monthly total income of eligible families for the caretaking programme, after housing expenses, should be equal to or lower than double the minimum subsistence index, which will take effect on July 1. The nanny programme only serves babies less than four years old, who have yet to attend school. Single parent families, families with physicallychallenged parents and families with parents suffering from chronic disease are entitled to priority. The Social Solidarity Department head reassured the media that the expected initial number of caretakers would be met given that 40 percent of women in the city are not full-time workers.

Seeking quality tourism A

uthorities here want to raise the quality of tourism after meeting with their Beijing counterparts for talks on how to improve the Individual Visit Scheme for mainland Chinese tourists. Secretary for Social Affairs and Culture Cheong U said the objective of the talks was to further develop the tourism industry focusing on quality, but without it affecting the lives of those living here. Last year alone, more than 8 million mainland Chinese tourists entered Macau under the individual visit scheme. Meanwhile, tourism officials from Macau, Hong Kong and nine Chinese provinces signed a framework agreement during the 10th Pan River Delta Cooperation and Development Forum, the aim of which is to boost tourism in the region.

June 30, 2014

Macau Brought to you by

HOSPITALITY Three tales Most visitors come to Macau from the Greater China region – the mainland, Hong Kong and Taiwan – and almost all of them come from Asia. Japan, South Korea and India occupy a special place among the latter. Although their combined numbers represent just about 3.2 percent of all visitors and just below 5 percent of hotel guests, the visitors from those countries are among the most sought after. Both for their numbers and their relative affluence, they constitute a valuable slice of income for the local tourism sector. Much effort has been made in those markets, over the years, to attract increasing numbers of tourists. Their recent visitor profiles show noticeably different features.

More day-trippers will bri

nce the bridge connecting Hong Kong, Zhuhai and Macau, and the Light Railway Transit (LRT) are completed more daytrippers will journey to the territory, bringing more Meetings, Incentives, Conferences and Exhibitions (MICE). In an interview with Business Daily, the general manager of Grand Hyatt Macau, Paul Kwok Sai Kit, says that in the coming years the new Cotai developments, and Macau in general, will be better served by improved transportation connecting the region and bringing more tourists to the territory. Mr. Kwok, who also talked about the challenges of managing a well-known brand hotel here, said that finding people was definitely the biggest challenge, as human resources is an issue in Macau. Luciana Leitão Leitao.luciana@macaubusiness.com

Are you satisfied with the overall results of the Grand Hyatt? Overall, we’re very happy with what we’ve achieved. We’re currently running at high occupancy; we have a good mix of clients and a good average rate for non-gaming guests (retail) so it couldn’t be better.

India is possibly the biggest potential market and the less developed of the three. Visitor flows show high variability over the course of the year with sharp peaks around the May-June period. Compared to the rest of the year, figures usually more than double in these months. But real take-off in this market seems persistently adjourned. The case of Japan falls into another category. Visitors’ numbers have declined somewhat, possibly as a result of political tensions in the region. Earlier in the period, figures would usually stand above 30,000 visitors per month, with the occasional peaks reaching or even exceeding 40,000. Since the last quarter of 2012, they have fallen, as a rule, below that threshold, with some troughs set around 20,000 visitors. South Korea is the shiniest case among the three big nonChinese sources of visitors. The upward trend is clear. Average monthly visitors last year were 43 percent higher than in 2010. The monthly average this year to May is 14 percent above last year’s average.

45,193

monthly average for South Korean visitors this year to May

Still, competition in the market is fierce. What is your strategy to overcome it? We have to refresh our products from time to time. Let’s say, with theme parties: every year, we have something new to launch on the market. And we’ll continue to develop some new things. At the end of this year, we’ll have Kid’s City. Also, we’re further enhancing our spa by the end of this year. We’re looking at our rooms - to refurbish them, as well. The Grand Club has existed for more than a year — it’s a one of a kind club. The hotel has become more mature and service is very important, although there’s a lot of competition. Can you name three establishments that provide outstanding service? It’s tough. We’re adjusting according to our guests’ needs and there are expectations, so from time to time we need to enhance our service. All in all, there’s room for improvement — the service needs to improve from time to time. In the end, after a few years, you’re more mature.It’s like Vegas, even far better than Vegas, more advances. So, how are we going to attract the guests to come back again and again, especially hotel and casino guests? Loyalty is very important. So far, City of Dreams is doing very well. We’re also part

of that achievement. What kind of guests do you have? [In the] Weekends its more families; summer holidays also. We have some MICE guests. We have around 1,400 rooms, so we optimise rather than [go for] the volume, a little more upmarket. It means people stay more, entertain more, wine and dine more. The majority of the guests come from Mainland China. Plus here you have a lot of entertainment and the other complexes don’t. We’re now coordinating with COD and we’re exploring the China market. That’s the reason why we’ve conducted a road show in 30 cities. What is your occupancy rate? Over 90 percent, mid-90 percent, average. There are a lot of hotel developments in Cotai. How will that impact Hyatt? Every hotel is unique and then Hyatt’s brand is slightly different. The brand is very important. We have identity. We provide more entertainment and more, for example, theme parties. I don’t think any hotel has that. Of course they can make a party, but I don’t think they’re willing to spend the time to develop to that extent. You have to set up your identity. We establish our core product and our branding and good service. To sustain this, we have to do a lot of soft touches — service becomes important. We have this interactive Events App — only one hotel is doing it so far, to my knowledge. The competition never ends. We need to have a vision and how to work around it and see what we have as a brand, what is available

in the market and then we capture the best and further develop. Do you have any specific strategy to face the increase of hotels, expected to start in 2017? All these hotels concentrate on gaming. You don’t hear much about entertainment and you don’t have any other elements that can sustain on a different level. Macau is basically all gaming, but the trend will change. In the market, people now come here expecting more. You have other hotels here [in Cotai]. You

June 30, 2014

Macau

ng more MICE

nterview

they also stay here. As a chain hotel, we need to be consistent. People expect the same. We have this standard, plus we have a corporate contract and people seem to be loyal, 30/40 percent this year was repeat business. A lot of the organisers don’t want to be hassled. If you go to another hotel, it can be a nightmare. Once the bridge opens, the LRT can connect to China. From here to Guangzhou in one hour; it will be that convenient. So, transportation will not be a big hassle anymore. We will have more day-trippers and it will help our retail business, restaurants as well as the attractions.

In our company, our banquet is big already. Focusing on that part, it’s easier than it is for them [competition]. In terms of size, Macau is not ready for mass business. Luckily, we’re not the biggest, so in terms of intimacy and also control we can still manage at the moment. We will not expand our banqueting [services].

Another competitor [for the wedding business] is Chimelong; it’s three times bigger than us, and has cheaper prices because the food is cheaper in China

The weddings

For the MICE sector you have one big competitor, which is The Venetian. Has it affected your position in the market? They do volume, big volume. Some MICE business needs a one-on-one meeting room, so we can use some of our guest rooms. Competition in terms of size is to our disadvantage, but in terms of creativity, capability and service level we’re still on the guests’ top lists. There are things that we can do that they cannot. Let’s say banquet - here you set up a table for 12, so you need to have enough food. Our food is always a portion for 12 people and the food is hot and fast, that’s why we have 50 percent of the weddings from the hotel [brand] side.

Service

Once the bridge opens, the LRT can connect to China and you will be able to go from here to Guangzhou in one hour; it will be that convenient. So, transportation will not be a big hassle anymore

have more variety, the more the better. Let’s say you stay in City of Dreams; across the road is Sands and then there’s The Venetian. MGM will build a bridge to cross to the City of Dreams, and then you have Wynn Palace, and in front of that you have a big fountain. In fact, we have the best location to see the fountain, from the guest rooms. Over the last five years, competition has never ceased. All in all, we’re doing fine; all the other hotels are doing fine and it depends on the brand and on the service and what kind of amenities you can offer. The strategy is to keep refreshing our product and service, and the brand is very important too.

MICE How about the MICE sector, has it been growing per your expectations? Stable. We had about 40 percent coming back in the last three, four years. If the guests happen to be in Tokyo, Shanghai, Beijing,

You mentioned the need to have consistent quality in all your properties. What are the biggest challenges in Macau? The people. In other parts of the world, like in Hong Kong, there are professional casual waiters — they make more money and sometimes don’t need to pay tax. But here you don’t have that many people, so we get students and middle-aged helpers. In Hong Kong, in a Chinese banquet, they serve the dish for you. Here, never, you take your own dish. In order to keep the standards, even when they’re holding the tray, they’re elderly and unstable but that’s what you have in the market. Will that change? I don’t think it’ll change unless they allow overseas workers. The quality is not like anywhere else in the world. To overcome that, we use our own staff to supervise them and direct them; we do some training, also, on how to get the dish out. With these new hotels coming here, won’t the hotels battle for staff? Then you come back to size. Compared to them, we’re small.

So, at this point your size is an advantage? Yes. We prefer quality than having a big one - 150 to 350 we can easily handle, for a banquet. That’s our maximum space. Over there, you can have 500 tables; how can you serve? For banquets from September onwards everywhere is packed, every restaurant and hotel is looking for staff, that’s all we have. Sometimes we mix with our own employee. We like to use our internal employees, plus casual.

The wedding business has been quite a bet for you. Does it have the potential to grow? Very stable, and one third of our business is banquets. It’s a social event. First of all, the food must be very good, and the service. We have our own sales team to take care of guests. Yes, potential to grow. In some hotels, you have to go through the casino, go to the elevator and you’re lost, so the advantage for us is the second floor. When you step into our hotel, you feel the warmth and we also provide free parking. These weddings are for the locals? More locals — also mixed with brides coming from Hong Kong, or the other way around. Are you also aiming at destination weddings? We’ve done Singapore, we’ve done Hong Kong, but because of transportation — can you imagine dinner here and you still have to take a ferry to Hong Kong? When the bridge starts, it’s easier, that will grow, and Macau can do a lot. Another competitor is Chimelong; it’s three times bigger than us, and has cheaper prices because the food is cheaper in China. Will locals start going to Chimelong for weddings? It depends on where the bride and groom come from. If they’re from here, they will still like to be here. If the majority is from there, they will entertain there. But the limitation is, you go to Chimelong, and the bridge is closed. It depends on when the border gate is closed. We want to establish more theme weddings. What we can do, like we have a package, if you have a wedding here, you can select a destination and we can give you a complimentary room for the honeymoon.

Competition [for MICE] in terms of size is to our disadvantage, but in terms of creativity, capability and service level we’re still on the guests’ top lists

June 30, 2014

Macau

Mission Greater China Oversea-Chinese Banking Corp (OCBC), Singapore’s longest established bank, is all set to enter Hong Kong and Macau now that authorities have agreed to the acquisition of Wing Hang and Weng Hang banks. The move is considered of fundamental importance by the financial group’s CEO as it seeks to strengthen its position in the Greater China region Paulo A. Azevedo in Singapore

omfortable in his role as Group Chief Executive Officer of Singapore’s second largest lender, and overseeing a total of S$343.6 billion in assets (US$275 billion), Samuel Tsien makes a point of stressing a point every time he thinks he is sharing information too good to be missed with journalists. This time, he is talking softly but assuredly in the 50th floor penthouse of the once tallest building in Asia, the Oversea-Chinese Banking Corp Ltd (OCBC) headquarters, designed in the 70’s by a Pritzkler award winner now feted as the master of modern architecture, I. M. Pei. Soon, the Chinese-American architect will not be the only one to have a foothold in Singapore and Macau, where his atelier designed the Science Centre. Hours later, after the meeting with Business Daily, OCBC released the authorities’ agreement, from Hong Kong and Macau, on the pre-conditions for buying Hong Kong’s US$4.95 billion (see Authorities give green light) Wing Hang Bank Ltd, represented in Macau as Banco Weng Hang, S.A. Established in 1941, Banco Weng Hang had acquired total assets of 31.5 billion by December last year, 13 branches and over 400 employees. A drop in the ocean compared with its parent company in Hong Kong and especially for OCBC but important in the quest of Singapore’s longest established bank (1932), from the merger of three local banks, to reinforce its presence in one of its four main markets: Greater China. If Greater China is now the fourth contributor to OCBC’s overall revenue, with 6 percent, the Wing Heng Bank deal will automatically lift the numbers to a more solid 16 percent. Not forgetting a 33 percent stake in Hong Kong Life Insurance Ltd, a plus for Great Eastern Holdings Limited, the oldest insurance group in Singapore and Malaysia, where OCBC has a dominant 87 percent. This, according to Samuel Tsien, when last Friday he received a group of journalists from Hong Kong and Macau’s Business Daily. In English, Cantonese and Shanghainese, the CEO follows explanations and comments on one of the largest banking groups of Southeast Asia, the fourth by market capitalisation and the second by assets. The numbers and the media charm operation has an objective, needless to say: to project the image of the group to both Special Administrative Regions as OCBC prepares to advance a deal fundamental to its objectives to validate its presence in a country that has a trade flow of over US$600 billion with South East Asian countries. “In which we are present,” Mr. Tsien says. Correction: “Only very few banks are in those markets and we stand out from them. Chinese, Korean, and Japanese banks are not as well

positioned as we are,” he repeats. In the first quarter of 2014, Greater China has already returned the best results to the group in terms of profit before tax: a staggering growth of 196 percent year on year (see graph). With a presence in 17 markets, OCDC’s corporate strategy continues to focus on four in particular: Singapore, Malaysia, Indonesia and Greater China. And to maintain its core business without much deviation, explains the group’s CEO: retail and commercial banking; wealth management and insurance. “Macau will provide us with a good client base through a long existing institution and with

renminbi (RMB),” he tells Business Daily. The exponential growth in the internationalisation of RMB in global trade and finance is considered one of the global mega trends. Besides that, “upon completion of the Zhuhai-Macau-HK bridge I believe more business opportunities will arise,” Mr. Tsien says. “If you have an economic region in the making, we think Macau will be driven less by gaming.” The bank expects to launch “more products, particularly investment related ones” and to “increase our presence in the market” Paulo A. Azevedo travelled to Singapore by invitation of Oversea-Chinese Banking Corp Ltd

Samuel Tsien

KEY POINTS Singapore’s longest established bank, formed in 1932 by the merger of three local banks, the oldest of which was founded in 1912 One of the highest credit ratings among Asian banks, rated Aa1/AA-/AA- (Moody’s/ S&P/Fitch) Ranked ‘World’s Strongest Bank’ by Bloomberg Markets in 2011 and 2012, taking 2nd spot in 2013 & 4th in 2014 International network of over 460 branches and representative offices in 17 countries and territories, with extensive presence in Asia Pacific

Authorities give green light Singapore’s OCBC says the pre-conditions of the Wing Hang deal have been met. Yesterday, shareholders were offered HK$125 per share

versea-Chinese Banking Corp Ltd (OCBC) said that all the pre-conditions for an agreement to buy Hong Kong’s Wing Hang Bank Ltd have been satisfied, as various regulators have given their blessing to the US$4.95 billion (close to 40 billion patacas) deal. OCBC, Singapore’s second-largest lender, said that the parties had received approvals from the Hong Kong Monetary Authority (HKMA), Monetary Authority of Singapore, Hong Kong’s Securities and Futures

Commission, Insurance Authority and Mandatory Provident Fund Schemes Authority, as well as the Monetary Authority of Macau. OCBC offered US$4.95 billion for Wing Hang, one of Hong Kong’s last remaining family-owned banks, betting on China’s continuous economic growth in what would be the bank’s biggest-ever acquisition. The transaction has yet to be finalised, pending satisfaction of a number of conditions. Yesterday, OCBC offered HK$125

per share to Wing Hang’s shareholders with the aim of buying at least 48.23 percent of the latter’s capital, since OCBC had already acquired a stake of 2.5 percent last April. The offer is valid until July 29th. The share offer, if completed successfully, will give OCBC 50.73 percent of Wing Hang capital. The HK$125 offer represents a premium of approximately 49 percent over the closing price of HK$83.30 per WHB share on September 2013, the last trading date prior to the announcement of the intended acquisition by OCBC and the same price as the highest value of the stocks transacted on May 2nd. Moody’s Investors Service has maintained its review for downgrade of OCBC’s long-term debt, deposit and standalone ratings, and the review for upgrade of Wing Hang’s deposit and junior subordinate debt ratings. P.A.A. with Reuters

June 30, 2014

Macau Financial Highlights Total assets as at 31 Mar 2014: S$343.6 billion Total core income for 1Q 2014: S$1.89 billion Core net profit for 1Q 2014: S$900 million Total employees: More than 25,000

Key subsidiaries OCBC Bank (Malaysia) Berhad 100% owned by OCBC Bank Among the largest foreign banks in Malaysia by loans and deposits Wholly-owned Islamic Banking subsidiary, OCBC Al-Amin Bank Berhad, was launched in December 2008 One of the largest branch networks in the country among foreign banks, with 31 conventional branches and 10 Islamic banking branches Long-term financial institution rating of AAA from RAM Rating Services Berhad Assets of MYR86b (US$26b), loans of MYR59b (US$18b) and deposits of MYR67b (US$21b) PT Bank OCBC NISP (Indonesia) 85% owned by OCBC Bank Among the top seven private sector banks in Indonesia by assets Network of 338 branches and offices SME and consumer-focused business Assets of IDR95t (US$8b), loans of IDR64t (US$6b) and deposits of IDR 63t (US$6b) Bank of Singapore Ltd 100% owned by OCBC Bank Resulted from the merger of OCBC Private Bank and ING Asia Private Bank, acquired by OCBC in Jan 2010 AUM assets under management of US$49b Ranked ‘Best Private Bank in Singapore’ by Finance Asia and ‘Best Private Wealth Management Bank in Singapore and SEA’ by Alpha Southeast Asia Great Eastern Holdings Ltd 87% owned by OCBC Bank Oldest insurance group in Singapore and Malaysia Assets of S$62b (US$49b) Approximately 4.7 million policyholders Lion Global Investors Ltd 30% owned by OCBC Bank and 70% owned by Great Eastern Holdings One of the largest private sector asset management companies in Southeast Asia AUM of S$31b (US$25b) OCBC Bank also owns a 15.3% stake in Bank of Ningbo (China). Ownership in Bank of Ningbo is expected to increase to 20% upon completion of the share subscription announced on 14 Jan 2014.

Be prepared for a rainy day Singapore to require banks to hold liquid assets for crises Sanat Vallikappen

anks in Singapore will soon be required to keep certain amounts of easy-to-sell assets on hand in the country to support themselves in times of stress. The new liquidity framework applies to lenders with a “significant retail presence” in the country and covers all currencies, Lim Hng Kiang, the deputy chairman of the Monetary Authority of Singapore, or MAS, said in a speech last week. Banks will also need to hold liquid Singapore dollar assets separately to manage their liabilities in the local currency. The so-called liquidity coverage ratio is part of an overhaul of banking standards by the Group of 20 nations in response to the financial crisis that followed Lehman Brothers Holdings Inc.’s 2008 collapse. MAS’s proposal comes six months after it warned that rising global interest rates could weigh on household and corporate debt and

pose risks for banks. The requirement for overseas currency exposures “is going to be a huge challenge for banks in Singapore, which is a major foreignexchange centre and where the local economy is not the lion’s share of the business,” Jim Antos, a Hong Kongbased analyst at Mizuho Securities Asia Ltd., said by phone. “It may be fine for banks in Ohio because there’s no foreign exposure, but not in Singapore.” Under the global rules formulated by the Basel Committee on Banking Supervision, banks must have enough assets on their books that they can sell to survive a 30-day funding squeeze. The regulations, which allow assets ranging from cash and central bank reserves to government bonds and some corporate debt, are set to be phased in from next year. Foreign banks will need a Singapore

dollar liquidity coverage ratio of 100 percent, Lim said, meaning that they would have to hold enough highquality, liquid assets to match net cash outflows during a month of stress. He didn’t specify a deadline for meeting the requirement. The coverage for other currencies will be 50 percent as their head offices are probably subject to similar ratios, he said. Citigroup Inc., HSBC Holdings Plc and Standard Chartered Plc are among foreign banks operating in the country. Standard Chartered is “well-placed to comply with the enhanced liquidity requirements” and supports the final ratio framework, Neeraj Swaroop, the U.K. lender’s Singapore chief executive officer, said in an e-mailed response to questions. HSBC seeks to abide by rules and requirements of the countries in which it operates, Gareth Hewett, a Hong Kong-based

spokesman at the London-based bank, said in an e-mail.

Across borders For foreign banks, “while MAS recognises that there may be cost efficiencies in managing liquidity centrally at the group level, there can be significant obstacles to the free movement of liquidity across borders during a stress scenario,” said Lim, who is also the minister for trade and industry. MAS will consider a bank as having a significant retail presence if its share of resident customer deposits exceeds 3 percent, and if it has more than 150,000 depositors with balances of as much as S$250,000 (US$200,000). For the country’s three local banks -- DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. (OCBC) and United Overseas Bank Ltd. -- the requirement for a 100 percent Singapore dollar liquidity coverage ratio will be set for the start of 2015, Lim said. Coverage for other currencies is set at 60 percent from 2015, increasing to 100 percent by 2019, he said. OCBC already complies with the liquidity framework for 2015 and DBS is “comfortable” with the requirements as they’re in line with Basel III rules, the banks said in separate statements. Bloomberg

June 30, 2014

Greater China

Building materials sector weakens China’s building materials sector continued to show weakness in May as the property market cools, according to the latest statistics from the country’s top economic planner. Cement output rose 3.2 percent year on year in May, slowing 5.3 percentage points from the expansion seen during the same period last year, the National Development and Reform Commission (NDRC) said on its website. Output of flat glass rose 6.4 percent, down 9.1 percentage points from a year earlier. Compared with a month earlier, the factory gate prices of cement and flat glasses went down 0.9 percent and 3.4 percent, respectively.

First e-commerce express to debut China’s couriers have joined with the rail network to launch special express trains for e-commerce logistics. The trains linking Shanghai and Shenzhen, jointly launched by the China Express Association (CEA) and the China Railway Corporation (CRC), will make its debut on July 1, the association said Saturday. Based on a survey of courier companies, CRC has laid on six trains connecting the four first-tier cities of Beijing, Guangzhou, Shanghai and Shenzhen. China’s courier industry has become the world’s second largest delivering 9.2 billion packages in 2013, up more than 60 percent year on year.

Output in steel industry keeps rising

China’s steel industry has continued to rise and prices continue to fall, as the government struggles to reduce capacity in the sector. Crude steel production gained 2.7 percent year on year to reach 343 million tonnes in the first five months of the year, although the growth was down 5.3 percentage points from the rate during the same period last year, the National Development and Reform Commission (NDRC) said in an online report. During the January-May period, the steel price index came in at 95.09, down 0.66 from a month earlier, according to the NDRC.

Drones keep eye on polluters China has mobilized drones to gather air pollution data in key northern areas to assist an inspection on how well environmental laws are enforced, according to the Ministry of Environmental Protection. “Images sent from these drones have a 0.04-meter resolution. In other words, we can recognize a matchbox from 1,000 meters above,” said a statement released late Saturday by the ministry, citing an unnamed designer of the flying machine. A total of 11 medium- and small-sized drones were engaged in collecting air pollution data in the provinces of Hebei and Shanxi.

Pension gets lower investment return China’s National Social Security Fund (NSSF) earned 68.6 billion yuan (US$11 billion) from its investments in 2013, implying a 6.2 percent return on investment, the Xinhua news agency said on Saturday. The rate of return was lower than 7 percent recorded in 2012, which was the highest in three years. The NSSF, which manages the country’s biggest pension fund, had total assets of 1.24 trillion yuan by the end of last year, with an average investment return of 8.1 percent since the inception of the fund in 2000.

Li Ka-Shing calls on Asia governments to promote equality The government must introduce fresh impetus to enable dynamic and flexible redistribution policies

he widening wealth gap is keeping Hong Kong billionaire Li Ka-shing up at night and Asia’s richest man warns it could become “the new normal” if left unaddressed. The government must introduce fresh impetus to enable dynamic and flexible redistribution policies, Cheung Kong Holdings Ltd. Chairman Li said when addressing students at China’s Shantou University, according to a speech titled “Sleepless in Hong Kong” posted on the website of the Li Ka Shing Foundation on June 27. The growing scarcity of resources and waning trust are also reasons he’s being deprived of sleep, he said. “The howl of rage from polarization and the crippling cost of welfare dependence is a toxic cocktail commingled to stall growth and foster discontent,” said Li, who turns 86 next month. “Trust enables us to live in harmony, without which more and more people will lose faith in this system, breeding scepticism towards what is fair and just, doubting everything and believing all has turned sour and rancid.” Li’s comments come as the debate

The howl of rage from polarization and the crippling cost of welfare dependence is a toxic cocktail commingled to stall growth and foster discontent Li Ka-Shing Cheung Kong Holdings Chairman

over how to elect Hong Kong’s next leader in 2017 divides the city, with more than 750,000 people voting in an unofficial democracy poll. Lawyers in the territory on June 27 marched through the central business district in silence, in protest against a Chinese policy paper they said jeopardizes judicial independence, the South China Morning Post reported on Saturday.

School founder Li ranks 17th among the world’s richest individuals with a net worth of US$32.5 billion, according to the Bloomberg Billionaire Index. The businessman, who also controls Hutchison Whampoa Ltd., wakes up at around 5 A.M. to listen to the news on the radio and spends 90 minutes every day playing golf and swimming. Shantou University, founded in 1981 by Li, is the only privately funded public university in China, according to its website. The Li Ka Shing Foundation has donated HK$6 billion (US$774 million) to the university, the website says. Technology and innovation can increase options as resources are becoming scarce, Li said in the speech. Government needs to lead change and inject a “strong dose of liberating elixir” into the education system, he said. The failure to invest in education “is tantamount to a crime against the future,” Li said.

Planned protests Organizers of Occupy Central with Love and Peace, who oppose China’s plans to vet candidates for elections in Hong Kong, say they intend to hold a sit-in in the city’s

A future full of holes for golf courses Developers had built 639 golf courses across China up to the end of last year

ll that remains of the long fairways and manicured greens at the 18-hole golf course on the outskirts of Beijing are bits of rubble and mounds of mud. In March, Chinese authorities sent in workers to dig up the course and tear down the clubhouse. Two others across China were also demolished while another was turned into an eco-friendly park and a fifth converted into a tea plantation, suggesting the government could finally be cracking down on developers who have long ignored a 2004 ban on building new golf courses. The government, which announced the demolitions last month, said its actions served as a warning and an attempt to educate “would-be” violators. A few weeks later, the national auditor joined in, publicly shaming two big state-run enterprises for building golf courses. Nevertheless, developers interviewed by Reuters expressed little concern, saying golf courses were in demand by local authorities that wanted the revenue from selling land while attracting well-heeled visitors to their regions. The ban was imposed to protect China’s shrinking land and water resources in a country home to a fifth of the world’s population but which has just 7 percent of its water. The

Mission Hills Haikou in Hainan. It will become the world’s largest golf course. Hainan is the only place in China where golf course development is allowed

only place exempt is the southern resort island of Hainan. Developers had built 639 golf courses across China up to the end of last year, tripling the total since 2004, according to the website of Forward Management Group, a company based in the southern city of Shenzhen that offers a range of golf services in China. To skirt the ban, developers and

local officials designate land for anything other than a golf course in building applications, developers and lawyers said, calling the projects sports training centres or tourist resorts. Many come complete with high-end villas. Because of the large tracts of land needed for such projects, China’s cabinet must give approval, said lawyer Zhu Maoyuan, who has seen

June 30, 2014

Greater China

Xi Jinping claims win-win cooperation He calles on countries to help each other out in times of difficulty and assume both rights and responsibilities

Li Ka-Shing, the richest man in Asia

financial district if electoral reforms don’t meet demands. The planned protest has drawn opposition from groups including the world’s four-biggest accounting companies, foreign commerce chambers and brokers, who say it may lead to an exodus of businesses from the city and hurt the economy. The Hong Kong Association of Banks is concerned the planned

protests could get out of control and have a negative impact on the city’s status as a global financial centre, the Hong Kong Economic Times reported on Saturday, citing association chairman He Guangbei. “What is most unsettling for me is that trust, the bedrock of an enlightened society, is crumbling before our eyes,” Li said. Bloomberg News

hinese President Xi Jinping on Saturday called on countries to promote win-win cooperation, and reject the obsolete notion of zerosum game or winner taking all. Xi made the remarks in a keynote speech at a commemoration marking the 60th anniversary of the Five Principles of Peaceful Coexistence at the Great Hall of the People in downtown Beijing. “Cooperation generates strength while isolation only leads to weakness,” Xi told a 700-strong audience. “Winwin cooperation should be the basis policy goal of all countries in handling international affairs.” It is a universal principle that applies to not only the economic field, but political, security, cultural and other areas as well, he said. Countries should align their own interests with those of other countries and expand areas of converging interests, he said, adding that instead of undercutting each other’s efforts, countries should reinforce each other’s endeavour and make greater common progress. “We should champion a new vision of win-win outcomes for all and reject the obsolete notion of zero-sum game or winner taking all. Countries should respect others’

interests while pursuing their own and advance common interests of all,” he said. He called on countries to help each other out in times of difficulty and assume both rights and responsibilities, and work together to address growing global issues such as climate change, energy and resources security, cyber security and major natural disasters, in a common endeavour to protect out planet which is so crucial to our survival. Myanmar President U Thein Sein and Indian Vice President Mohammad Hamid Ansari participated in the commemoration and delivered speeches. Also present at the commemoration were Chinese Premier Li Keqiang, top legislator Zhang Dejiang and top political advisor Yu Zhengsheng. In 1954, leaders of China, India and Myanmar initiated the Five Principles of Peaceful Coexistence, which stand for mutual respect for sovereignty and territorial integrity, mutual non-aggression, non-interference in each other’s internal affairs, equality and mutual benefit, and peaceful coexistence. Xinhua

Myanmar meeting to turn into cooperation I have never seen developers and local governments use ‘golf course’ as a project name or for land use purposes when seeking approval Zhu Maoyuan Zhong Lun law firm partner

disguised applications. “I have never seen developers and local governments use ‘golf course’ as a project name or for land use purposes when seeking approval,” said Zhu, a partner at the Zhong Lun law firm in Beijing. Many applications simply get the go ahead from local authorities, said the Chinese developer. The central government has promised to clamp down on illegal golf course construction before but the demolition order against the five mainly little-known developers by the National Development and Reform Commission (NDRC), China’s top economic planning body, has been the first real sign of enforcement. Reuters

Li said China is ready to consolidate the political mutual trust with Myanmar, make closer high-level engagement, and expand bilateral cooperation

hina and Myanmar have pledged to well implement the cooperation agreements the two sides reached and expand cooperation in trade, energy and infrastructure construction. The pledge came out of a meeting between Chinese Premier Li Keqiang and visiting Myanmar President U Thein Sein, who visited China from June 27 till yesterday, at the invitation of Chinese President Xi Jinping. Li said China is ready to consolidate the political mutual trust with Myanmar, make closer high-level engagement, and expand bilateral cooperation. The two countries should make sure that their major cooperation programs in oil and gas pipeline, mining and port construction will be smoothly implemented and safely operated, he added. China will work with all relevant countries to promote the construction of an economic corridor among China, Bangladesh, Myanmar and India, and to strengthen regional interconnection under the framework of “One Belt and One Road”. The “One Belt and One Road” refers to the “Silk Road Economic Belt” and “21st Century Maritime Silk Road”, concepts put forward

Myanmar President U Thein Sein ( L) and Chinese President Xi Jinping (R) applaud as they attend a signing ceremony at the Great Hall of the People in Beijing, China, on 27 June 2014

by Chinese President Xi during his visit to Central Asia and Southeast Asia respectively in 2013. U Thein Sein said China’s development has brought opportunities for Myanmar and Asia as a whole. Myanmar is ready to join hands with China to inherit and carry forward the spirit of the Five Principles of Peaceful Coexistence, to well implement their cooperation agreements and to expand cooperation in such areas as trade, energy and

infrastructure construction. Myanmar will actively participate and promote the construction of the economic corridor, he said. With regard to the relations between China and the Association of Southeast Asian Nations (ASEAN), Li said ASEAN is a priority of China’s diplomacy. The premier also called on Myanmar to play a positive role in the sound and stable development of China-ASEAN ties. Xinhua

June 30, 2014

Asia

Western powers court Modi Modi intends to build up India’s military capabilities and gradually turn the world’s largest arms importer into a heavyweight manufacturer

estern governments are rushing to visit India’s new Prime Minister Narendra Modi, drawn by the prospect of multibillion-dollar deals as the government prepares to open the nascent defence industry to foreign investment. Senior politicians from France, the United States and Britain arrive in quick succession over the next 9 days as Modi prepares to accelerate the modernisation of the country’s mostly Soviet-era weaponry. Modi intends to build up India’s military capabilities and gradually turn the world’s largest arms importer into a heavyweight manufacturer a goal that has eluded every prime minister since independence in 1947. On the table is a proposal circulated within the new government to raise caps on foreign investment - with one option to allow complete foreign ownership of some defence projects. “All the countries are trying to make their case, especially as there is the sense that the Indian market will undergo a shift,” said Harsh Pant, professor of international relations at King’s College London. “They get a sense from their dealings that something dramatic is going to happen and they want first-mover advantage,” said Pant, who specialises in Indian defence. First to arrive in New Delhi will be French Foreign Minister Laurent Fabius, whose top priority is to close a stalled deal to sell India 126 Rafale fighter jets, built by Dassault Aviation, for an estimated US$15 billion. U.S. Senator John McCain is also due in India this week. In the second week of July, Britain is likely to send in Foreign Secretary William Hague and finance minister George Osborne, a British government source said on Friday.

Russia, for years India’s top weapons supplier, piped all three countries to the post, sending Deputy Prime Minister Dmitry Rogozin to visit the new government in Delhi two weeks ago. Washington last year replaced Moscow as India’s top defence supplier, according to IHS Jane’s.

All the countries are trying to make their case, especially as there is the sense that the Indian market will undergo a shift Harsh Pant professor of international relations King’s College London

India’s president Modi during election campaign

India spent some US$6 billion last year on weapons imports. It makes few of its own weapons, beyond ballistic missiles and assembly lines for foreign jets. On Thursday, the government signalled it was in the mood for liberalisation by allowing manufacturers to build more defence components without licences, making it easier for Indian firms to partner foreigners. At present foreign companies

can only invest 26 percent in Indian defence projects without committing to technology transfer, which has put off many investors. Before the election, sources in Modi’s Bharatiya Janata Party said there was a plan to increase the cap to 49 percent. “For higher-tech intellectual property we would want to go over 50 percent to be in a position to share technology that we have significant investments in,” said Phil Shaw, chief

executive of Lockheed Martin India Pvt Ltd. “An uplift from 26 to 49 percent maintains the status quo and may not be sufficient incentive to make an investment here.” Lockheed Martin already has a 26 percent investment in an Indian joint venture with Tata Advanced Systems that manufactures airframe components for the C-130J Super Hercules cargo lifter. Reuter\

Rajan succeeding as bad loans fall Non-performing debt as a proportion of total advances fell to 4 percent as of March 31 from 4.2 percent in September

ad loans in India are falling from an eight-year high in an early sign of success for central bank Governor Raghuram Rajan’s push to strengthen the nation’s financial system. Non-performing debt as a proportion of total advances fell to 4 percent as of March 31 from 4.2 percent in September, which was the highest since 2005-2006, the Reserve Bank of India said in a report. Loan recoveries at State Bank of India, the biggest lender, more than doubled in the first quarter and tripled at Bank

of Baroda, ranked second by assets. Rajan, who highlighted curbing soured credit as among his priorities when he took charge in September, has spurred banks to intensify efforts to improve the recovery of loans and rein in non-performing assets. The average cost of credit-default swaps insuring the bonds of five Indian banks slid 119 basis points this year to 194, according to data provider CMA. Contracts on Bank of China Ltd. climbed 14 basis points to 128. “The RBI’s measures together with directed efforts of the banking

sector have brought us to a point where we can say we will be out of the difficult situation,” Vijayalakshmi Iyer, Mumbai-based chairman and managing director at state-owned Bank of India, said in a phone interview on June 25. “Banks have more control over the bad debt situation now and we think things are going to look up in the coming quarters.” Prime Minister Narendra Modi’s landslide victory in elections held over April and May has boosted confidence he will be able to take politically sensitive decisions to improve Asia’s

India’s prestigious central bank Governor Raghuram Rajan

third-largest economy. ICRA Ltd., the local unit of Moody’s Investors Service, sees more improvement in Indian banks’ asset quality should the new government deliver on a pledge to revive growth from near the slowest pace in a decade. Bloomberg News

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 30, 2014

Asia

Thai Social Security to invest abroad The pension fund is seeking higher returns abroad after valuations of local shares rose to a one-year high

Thai Buddhist monks collect food from the public during a merit making ceremony at the Victory Monument in Bangkok surrounded by military forces. Military junta leader revealed a schedule of reforms

hailand’s Social Security Office, the nation’s biggest money manager, plans to double its investment staff as it adds international stocks for the first time to boost returns. The SSO, which manages about 1.1 trillion baht (US$34 billion) of pension contributions for local workers, aims to increase holdings of international stocks to 12 percent of assets in five years, Win Phromphaet, the head of investment, said in an interview. SSO will double the number of staff in its investment division to about 100 by 2015 and may open offices in global financial centres, he said. The pension fund is seeking higher

returns abroad after valuations of local shares rose to a one-year high, government bond yields fell below their 10-year average and projections showed the number of pensioners receiving benefits will jump about 80-fold in the next 10 years. SSO also plans to double its holdings of real estate, commodities and alternative investments to boost annual returns to about 5.5 percent from 4.5 percent. “Our current assets generate such low returns that it exposes us to major survival risk,” Win, 37, said in an interview at his office in Bangkok. “The benefits for retiring pensioners will surge to such a level that we have

an urgent need to boost income from some other risky assets.”

Relative value Prices for Thai stocks and bonds have climbed this year even as the economy contracted in the first quarter and the nation’s army took power in the 12th military coup since 1932. The rally pushed down yields on 10-year government notes to 3.82 percent, versus an average 4.17 percent during the past decade, according to data compiled by Bloomberg. SSO, which was established in 1990 to provide health-care benefits and expanded into pension welfare eight years later, currently invests 85 percent of its assets in local bonds. The planned increase in overseas shareholdings will lift the fund’s total equity exposure to about 23 percent of assets from 10 percent, Win said. The allocation to real estate, commodities and alternative investments may rise to 10 percent, while total assets will probably climb to around 2 trillion baht by 2018, he said. Thai pensioners eligible for monthly benefits will jump to about 800,000 in 10 years from 9,900 as of last month, Win said. The SSO will seek changes from the military government so that it can invest directly in overseas stocks, bonds and other assets, Win said. Bloomberg News

Our current assets generate such low returns that it exposes us to major survival risk Win Phromphaet head of SSO investment

Japan need to fight money laundering Japan has not done enough to combat money laundering, an international watchdog said, urging the government to adopt measures including legislation to criminalise what it called “terrorist financing”. The Paris-based Financial Action Task Force (FATF) referred to its 2008 report on Japan, which highlighted deficiencies such as a lack of internal controls among financial institutions to prevent and detect illicit money transfers. The FATF, also said one of Japan’s biggest deficiencies was an “incomplete criminalisation of terrorist financing.” The move may be an embarrassment for the country’s regulators and financial sector.

Foreign banks to operate in Myanmar The central bank of Myanmar will allow foreign banks to conduct business in the country in September, local media reported Saturday. At least five to 10 out of over 40 foreign banks having representative offices in the country will be chosen in line with rules and regulations for the sake of domestic banks and local entrepreneurs, the Union Daily quoted U Set Aung, vice-governor of Myanmar’s central bank, as saying. The permitted foreign banks must bring at least US$75 million in capital, of which US$40 million will be kept under the supervision of the central bank.

Over new 6,000 new Viet companies A total of 6,087 companies were established in Vietnam in June, with registered capital amounting to US$57.3 trillion Vietnamese dong (US$2.71 billion), up 10.7 percent and 89.6 percent, respectively, against the previous month, an official said here Friday. Nguyen Thi Ngoc Van, director of the Integral Statistics Department under Vietnam’s General Statistics Office, told a press conference that 966 Vietnamese companies paused operation in June while 849 others dissolved. In the first half of 2014, Vietnam witnessed the establishment of 37,315 companies with a total registered capital of 230.9 trillion Vietnamese dong (US$10.94 billion), down 4.1 percent and up 19.3 percent year-on-year, respectively.

Sri Lanka introduces charter flight tourism

Indonesian forecast inflation seen rising But the June figure remained below the month’s average seasonal figure of 0.56 percent

ndonesia’s consumer price index in June was forecast at 0.3 to 0.4 percent, rising from 0.16 percent in May, Mirza Adityaswara, senior deputy governor of the central bank, disclosed on Friday. But the June figure remained below the month’s average of seasonal figure of 0.56 percent, he said. Muslims in Indonesia, the world biggest Muslim country, are to start performing fasting on June 28, and the demand for foods commonly soars before the Islamic holy month of Ramadan. Most of Indonesia’s 238 million population are Muslims. “Our forecast (inflation) in June is between 0.3 percent to a little bit below 0.4 percent. It means that the inflation in June is good,” the deputy governor said at the central bank headquarters. The banker revealed that the June inflation forecast is still in line with the central bank’s inflation target of 4.5 to 5.5 percent at year end. That may lead the central bank to keep its benchmark interest rate unchanged at 7.5 percent and its tight monetary policy this year. The tight policy aims at guarding the

Sri Lanka’s blue chip conglomerate Aitken Spence will invest US$100 million in a five star hotel that will be managed by Spanish hotel chain RIU Hotels in its first Asia Pacific venture, the company said in a statement on Friday. This will be RIU’s first venture in the Asia Pacific and follows on large-scale investment projects by Shangri-la, Sheraton and Hyatt. The project will also be unique in its concept, since it will introduce charter flights to Sri Lanka. RIU Hotels is an all-inclusive model that manages 107 properties in 16 countries.

Indonesian Muslims pray at the Istiqlal mosque during the first night of the fasting month of Ramadan, in Jakarta

Indonesian bank secures loan to expand trade

Southeast Asia’s largest economy from possible risks of the global economy amid efforts to narrow the current account gap, Agus Martowardojo, governor of the bank has said. The bank has aggressively raised its benchmark interest rate by 1.75 percentage points to 7.50 percent from last June to November, which has been successful in putting Indonesia

Indonesian export financier, Indonesia Eximbank, secured a three-year service tenure loan worth US$45 million from Islamic Development Bank (IDB), aimed at expanding the nation’s trade to IDB member countries, a statement said on Friday. “The loan would be used to directly and indirectly support exports on goods and services in infrastructure, agriculture and manufacture sectors,” the statement issued by the bank said, adding that it would also be used to finance imports on machinery, equipment and raw materials from countries joined the IDB.

on a right course to fare better among the emerging economies battered by capital outflows. The Indonesia economy is forecast to expand by 5.5 percent this year after chalking up a 5.78 percent growth last year. The national statistics bureau is to announce the inflation figure on Tuesday. Xinhua

June 30, 2014

International HP to settle suits over Autonomy deal Hewlett-Packard Co and attorneys representing shareholders have agreed to settle litigation over its troubled US$11.1 billion acquisition of British software company Autonomy Corp, according to a source familiar with the negotiations. Under the terms of the settlement, involving three lawsuits, the attorneys for the shareholders have agreed to drop all claims against HP’s current and former executives, including CEO Meg Whitman, board members and advisers to the company, the source said. The exception to that will be former officials at Autonomy.

ECB monitors impact of anti-deflationary measures

Argentine vice president charged Argentina’s Vice President Amado Boudou was charged on Friday with corruption in his dealings with a company that printed the country’s currency while he was economy minister in 2010. The vice president will remain free while awaiting trial in the case along with five other defendants, according to a statement from Argentina’s federal court system. Boudou is accused of secretly buying Ciccone Calcografica, a company contracted to print Argentina’s peso currency, while serving as the country’s top economic policymaker. He denies the charge along with any wrongdoing.

Panama’s growth slows Panama’s economy grew at its slowest pace in more than four years in the first quarter, the government said on Friday, as work delays at an expansion of the Panama canal and the end of other public work projects weighed. Panama’s economy grew 5.8 percent during the first quarter compared to the same period last year, when the economy grew 7.6 percent, the government said in a statement. The economy grew at an 11.4 percent annual rate in the fourth quarter. The first quarter’s growth was the slowest rate recorded since 2009.

Brazil to cut short currency swap rollover Brazil’s central bank did not announce so far on Friday a usual auction to roll over currency swaps that are set to expire early next month, a sign it wants to slow recent gains in the real. The bank has so far rolled over slightly more than 85 percent of the US$10.1 billion worth of expiring currency swaps, derivatives it has been regularly selling to investors who demand protection against currency losses. The regular sale of swaps has been part of a successful central bank program of intervention in the foreign exchange market.

BNP CEO tells employees bank about U.S. penalties BNP Paribas Chief Executive Officer Jean-Laurent Bonnafe in a message to employees seen by Reuters has warned that the French bank is facing heavy penalties following a U.S. investigation into breaking sanctions that should end “very soon”. BNP Paribas declined to comment but sources have said the French bank is expected to plead guilty to a federal criminal charge and pay nearly US$9 billion as part of a larger settlement with multiple enforcement authorities. An announcement by U.S. authorities on the settlement is expected today, a source familiar with the matter said on Friday.

At its June meeting, the ECB entered uncharted waters, taking one of its key interest rates into negative territory for the first time

he European Central Bank is unlikely to make new policy moves at its monthly meeting this week, focusing instead on monitoring the impact of last month’s unprecedented package of measures. After cutting rates last time round and pre-announcing new liquidity measures in its battle to prevent the single currency area from slipping into deflation, the ECB will “sit tight” at its meeting on Thursday, central bank watchers predicted. “The ECB is clearly going to sit tight for now at least while the interest rates and liquidity measures it announced at its June meeting increasingly kick in,” said Howard Archer at IHS Global Insight. “Indeed, a number of senior ECB policymakers have indicated that the bank is unlikely to act again in the near term at least, as it will take time for its recent announced package of measures to take full effect,” the expert continued. At its June meeting, the ECB entered uncharted waters, taking one of its key interest rates into negative territory for the first time. It lowered its benchmark

refinancing rate to 0.15 percent and cut the deposit rate, the rate at which the central bank pays commercial banks for depositing their unused cash, to minus 0.10 percent. This means that banks will be charged for parking funds at the ECB, in the hope they might lend it on to businesses and consumers instead. ECB chief Mario Draghi also unveiled plans to pump more liquidity into the financial system later this year via the Targeted Long-Term Refinancing Operation (TLRTO). These are different to the liquidity measures it took at the end of 2011 and the beginning of 2012. At that time, banks did not lend the cash on to the small and medium-sized companies that form the backbone of the Eurozone economy and so this time, the ECB is targeting the loans to encourage banks to lend to households and non-financial corporations.

Other measures up sleeve With regard to further follow-up action, Draghi promised in early June that the ECB would “if required ... act swiftly with further monetary

A graffitti entitled ‘Money kills Morals’ adorns the construction site fence at the new headquarters of the European Central Bank (ECB) in Frankfurt

policy easing.” But he admitted that in terms of interest rate cuts alone, there was no further room for action. “For all the practical purposes we have reached the lower bound,” he said. Analysts therefore believe the ECB has other possible measures up its sleeve, even so-called quantitative easing (QE) - wide scale purchase of sovereign debt practised by other central banks, but which the European bank has steered clear from imitating so far. “The ECB has indicated that it is prepared to take further action if the risk of prolonged too low inflation morphing into deflation persists,” Archer at IHS Global Insight said. “And the ECB will likely want the market to keep thinking that further policy action is a very real possibility so as to keep downward pressure on the euro and market interest rates.” Capital Economics economist Jennifer McKeown also believed that the ECB “is very unlikely to unveil additional policy support at its policy meeting on July 3 as it waits to judge the effect of the raft of measures announced in June.” AFP

Cuba enacts new foreign investment law The law is among some 300 political and economic reforms spearheaded by leader Raul Castro to modernize economy

uba’s new Foreign Investment Law went into effect on Saturday in a bid to attract more foreign capital for development. The law, approved the island’s parliament in March, is among some 300 political and economic reforms spearheaded by Cuban leader Raul Castro to modernize the island’s aging socialist system, and boost efficiency and productivity. The new legislation, which replaces an earlier one enacted in September 1995 by then government of retired leader Fidel Castro, allows foreign participation in such economic sectors as tourism, and alleviates the economic crisis that hit Cuba following the collapse of the Soviet

Union, Havana’s main political and economic ally, in the 1990s. The law offers investors better tax breaks, including a 50-percent cut of income tax. It also offers foreign investors more legal protections, such as nonexpropriation guarantees, except in the case of public utilities or social interest with due compensation. “The Foreign Investment Law is a necessity for Cuba if we want to start talking about development, and not just economic growth,” Cuban Vice President Marino Murillo told the parliament in March. According to Murillo, Cuba spends most of its revenues on meeting domestic consumption needs, leaving

little left for investment and making foreign investment a necessity. The new law goes hand in hand with Cuba’s new economic development zone of Mariel, where a deep-water port and container terminal, partially inaugurated in January, are poised to attract more foreign firms to Cuba. General Director of the zone’s regulatory office, Maria Teresa Igarza, said in March that her agency had received 72 applications for direct investment, mainly from Spain, Italy, Russia, Brazil and China. The investment is mainly focused on such sectors as light industry, packaging, chemicals, iron and steel, building materials, logistics and pharmaceuticals. Xinhua

June 30, 2014

Opinion

wires Rethinking Business

Leading reports from Asia’s best business newspapers

the Sino-American relationship

THE ASAHI SHIMBUN The government plans to require cell phone carriers to make their mobile phones usable on other companies’ networks by removing SIM locks, which could result in an outpouring of inexpensive wireless services and lower rates. … . The new requirement could take effect in the next fiscal year at the earliest. Japanese carriers restrict users from using their cell phones on other companies’ networks by selling mobile phone handsets locked to the company’s subscriber identity module cards. This renders the handset inoperable on other carriers’ network systems.

Stephen S. Roach

Author of the new book Unbalanced: The Co-dependency of America and China and a senior lecturer at Yale’s School of Management

PHILSTAR The government will sell 10year bonds for the first time in a year as part of its P135 billion domestic borrowing program for the third quarter. The Bureau of Treasury has kept its domestic borrowing ceiling at P135 billion given its strong liquidity position. Under the plan, the government will sell P20 billion worth of 91-, 182- and 364-day Treasury bills per month from July to September. The Treasury bill auctions will be held on July 9, August 6 and September 3.

THE NEW ZEALAND HERALD Everyone now knows borrowing too much is a bad thing for any household or economy. If borrowing rises faster than income, eventually the bubble of debt will burst. That is exactly what happened in the US economy and the global financial system in 2008 and 2009. American households consumed more than they earned for decades, using debt to bridge the gap. Eventually, they could not service the debt, triggering defaults that almost destroyed the global banking system in a cascading, ricocheting series of defaults, credit market freezes and bank collapses.

THE JAKARTA GLOBE Indonesia’s top taxman says slowing exports, regulatory hurdles and insufficient staff mean collections are falling short of this year’s ambitious Rp 1,000 trillion-plus (US$83 billion) tax income target. “I [see] tax revenue being dragged down. The majority of our revenue is from the tradable sector — those commodities and manufacturing goods that we ship abroad. And that sector is suffering now,” Fuad Rahmany, director general of tax at the Finance Ministry told reporters. Tax officers managed to collect Rp 442.6 trillion this year through June 2014.

EW HAVEN – In early July, senior US and Chinese officials will gather in Beijing for the sixth Strategic and Economic Dialogue. With bilateral frictions mounting on a number of fronts – including cyber security, territorial disputes in the East and South China Seas, and currency policy – the summit offers an opportunity for a serious reconsideration of the relationship between the world’s two most powerful countries. The United States and China are locked in an uncomfortable embrace – the economic counterpart of what psychologists call “codependency.” The flirtation started in the late 1970s, when China was teetering in the aftermath of the Cultural Revolution and the US was mired in a wrenching stagflation. Desperate for economic growth, two needy countries entered into a marriage of convenience. China was quick to benefit from an export-led economic model that was critically dependent on America as its largest source of demand. The US gained by turning to China for low-cost goods that helped income-constrained consumers make ends meet; it also imported surplus savings from China to fill the void of an unprecedented shortfall of domestic saving, with the deficit-prone US drawing freely on China’s voracious appetite for Treasury securities. Over time, this marriage of convenience morphed into a full-blown and inherently unhealthy co-dependency. Both partners took the relationship for granted and pushed unbalanced growth models too far – the US with its asset and credit bubbles that underpinned a record consumption binge,

and China with an export-led resurgence that was ultimately dependent on America’s consumption bubble. The imbalances only worsened. China’s three decades of 10% annual hyper-growth led to unsustainable strains – outsize resource and energy needs, environmental degradation and pollution, and mounting income inequality. Huge Chinese current-account surpluses resulted from too much saving and too little consumption. Mounting imbalances in the US were the mirror image of those in China – a massive shortfall of domestic saving, unprecedented current-account deficits, excess debt, and an asset-dependent economy that was ultimately built on speculative quicksand. Predictably, in keeping with the pathology of co-dependence, the lines distinguishing the two countries became blurred. Over the past decade, Chinese subsidiaries of Western multinationals accounted for more than 60% of the cumulative rise in China’s exports. In other words, the export miracle was sparked not by state-sponsored Chinese companies but by offshore efficiency solutions crafted in the West. This led to the economic equivalent of a personal identity crisis: Who is China – them or us? In personal relationships, denial tends to mask imbalances – but only for so long. Ultimately, the denial cracks and imbalances give rise to frictions and blame – holding a co-dependent partner responsible for problems of one’s own making. Such is the case with the US and China. America blames China for its trade deficits and the pressures they inflict on workers, citing a massive accumulation of foreign-exchange reserves as

evidence of an unconscionable currency manipulation. China counters by underscoring America’s saving shortfall – a gap that must be plugged by surplus saving from abroad, a current-account deficit, and a multilateral trade imbalance with more than 100 countries. China blames the US for fixating on a bilateral imbalance as the source of America’s multilateral problem. The same blame game of codependency is apparent in the cyber-security controversy. The US contends that China steals intellectual property for competitive reasons, inflicting grave damage on companies

The US and China could escape the potentially destructive endgame of a co-dependent relationship by recasting their ties as a more constructive and sustainable interdependency

and workers. China, for its part, claims that the US is guilty of equally egregious violations – widespread cyber spying on international leaders, trade negotiators, and foreign firms. Equally worrisome are the security disputes that have flared up in the East and South China Seas, which, via treaty obligations, directly involve the US. America’s strategic “pivot” to Asia adds more tension. The longer these frictions fester, the greater the risk of an accident or miscalculation leading to a military response – culminating in the ultimate break-up nightmare. The US and China could escape the potentially destructive endgame of a co-dependent relationship by recasting their ties as a more constructive and sustainable interdependency. An interdependent relationship fosters healthy interaction between partners, who satisfy their own needs rather than relying on others to do so, and maintain their own identities while appreciating the relationship’s mutual benefits. The upcoming Strategic and Economic Dialogue provides the US and China a platform of engagement to seize their collective opportunities. Both countries should press ahead with a bilateral investment treaty, which would enhance rules-based market access and eventually foster greater trade liberalization. That would allow the US, the world’s preeminent services economy, to seize the opportunity that is about to be provided by the emergence in China of a services-led consumer society. And it would enable China to draw on America’s expertise and experience to help master its daunting economic rebalancing act. At the same time, the upcoming dialogue should aim to restart the military-to-military exchanges on cyber-security issues that were launched a year ago. These efforts were recently suspended in the aftermath of the US Justice Department’s decision to file criminal charges against five members of the People’s Liberation Army. Here as well, the goal should be a rulesbased system of engagement – especially vital for all modern economies in an era of ITenabled globalization. Progress on these fronts will not be possible if the US and China remain stuck in the quagmire of co-dependency. Only by embracing the opportunities of interdependency can the hegemon and the rising power reduce tensions and focus on the benefits of mutually sustainable prosperity. The Project Syndicate 2014

June 30, 2014

Closing S.K. to implement settlement of interest rate

Honda’s first jet takes off

South Korea’s financial regulator said yesterday that it will implement the mandatory settlement of interest rate derivatives through the central counterparty (CCP) to fulfil the agreement reached after the global financial crisis. The Financial Services Commission (FSC) said it will make it mandatory for traders to settle the interest rate swap (IRS) transactions through the CCP, which will mediate the settlement between investors and prevent the defaults.

First business jet has logged its maiden flight ahead of its expected certification and delivery next year, the Japanese company said in a weekend press release. The 84-minute flight of the first production HondaJet took place near the world headquarters of Honda Aircraft. “With this first flight, the HondaJet programme has entered the next exciting phase as we prepare for delivery,” Honda Aircraft president and CEO Michimasa Fujino said. Priced at $4.5 million, it has received more than 100 orders from businesses and affluent customers, Japanese media said.

Economy guidance needed BIS voiced deep concern over the contrast between the euphoria currently seen in many financial markets and the continued weak investments being made in the real economy Nathalie Olof-Ors

ountries must dramatically rethink strategies for avoiding and dealing with financial crises, the Bank for International Settlements said yesterday, urging far more focus on fighting debt. The Swiss-based BIS -dubbed the central bankers’ central bank- warned in its annual report that while the global economy was showing some encouraging signs of recovery from the crushing 2008 financial crisis, the factors that sparked it were still very much in play. If governments fail to make the necessary policy adjustments to ward off similar crises and crashes, “the global economy may be set on an unsustainable path,” the report said, warning that “at some point, the current open global trade and financial order could be seriously threatened.” BIS voiced deep concern over the stark contrast between the euphoria currently seen in many financial markets and the continued weak investments being made in the real economy, especially at a time when the geopolitical outlook remains “highly uncertain.” “A new compass is badly needed,” Claudio Borio, who heads BIS’s monetary and economic unit, insisted to reporters ahead of the report launch.

Central banks’ bid to help spark growth by among other things slashing interest rates has helped create more appetite for short-term, high-risk investments on stock markets, and froth in property and corporate bond markets, the report found. But at the same time, economies that had been hard-hit by the crisis had not done enough to sanitise balance sheets and root out the debtdependency that got them in trouble, while countries spared last time were showing growing signs of financial vulnerability, the report found.

A new compass is badly needed Claudio Borio BIS’s monetary and economic unit head

Ditch debt as key growth engine This was especially true in emerging markets that have seen their economies boom amid an abundance of cheap credit in recent years, it said, stressing that clear policy shifts were needed “in all major economies, whether or not they were hit by the crisis.” As a clear sign of the troubled road, Borio warned that both private and public sector debt was rising steadily “even as the capacity to pay for it is diminishing.” “It is essential to move away from debt as the main engine of growth,” he insisted. To overcome the legacy of the

Bank for International Settlements headquarters in Basel, Switzerland

global financial crisis, policymakers need to go beyond their traditional narrow focus on business cycles, and take on financial cycles, which are far longer but also cause far more damage when they contract, according to BIS. “Focusing our attention on the shorter-term output fluctuations is akin

to staring at the ripples on the ocean and losing sight of the more threatening underlying waves,” Borio warned. The BSI report called for policies aimed at aggressively warding off financial booms, but also at dishing out fewer growth incentives during busts to avoid inspiring more debt-taking. “The road ahead is long,” Borio acknowledged, saying it was all the more important to “start the journey sooner rather than later.” “The current upturn in the global economy is a precious window of opportunity that should not be wasted,” he said. AFP

AIIB to bridge financing gap

Summer tourism demand to peak

Foreign business in China feels optimistic

he proposed Asian Infrastructure Investment Bank will provide a new financing channel for developing nations in the Asian-Pacific region, an official said yesterday. Funds from the Asian Development Bank and the World Bank are far from satisfying the appetite for new infrastructure, Jin Liqun, head of the bank’s preparatory group under China’s Ministry of Finance, said at a forum. The bank will provide a new financing channel for developing nations, especially low-income ones, Jin said. In October 2013 during a visit to Indonesia, Chinese President Xi Jinping proposed an Asian Infrastructure Investment Bank to promote integration. China has held three rounds of talks with interested Asian countries, and a memo on setting up the bank is due to be signed this autumn. “We have confidence that we can build a bank up to high international standards, and will do our best in project evaluation, environment protection, local culture conservation, promoting continuous economic growth and improving people’s livelihood,” Jin said. Xinhua

ummer tourism will expand quickly over the next few years as more people consider a trip to summer resorts, said a report on Saturday by China Tourism Academy. The demand for summer travel will be huge, said the report. Many travel agencies have new programs and airlines are scheduling more flights to summer resorts. The cities in the report that enjoy cool summer days are mostly located in northeast China or coastal areas such as Harbin, Qingdao and Qinghuangdao. Although the prospects are promising, the report also suggests convenient tourist itineraries and integration of resources. Resorts should not limit their services to sightseeing but expand into exhibitions and health clubs. China is already the world’s second-largest travel and tourism economy, with each Chinese person making an average two and a half trips last year. The World Travel & Tourism Council said in April that Chinese tourism is expected to grow 7 percent annually for the next 10 years. Xinhua

ercedes-Benz looks to be heading for double-digit growth this year in China, the world’s largest auto market. Ni Kai, president and CEO of Beijing MercedesBenz Sales Service Co., Ltd., said that the company is confident of its performance in 2014, after over 23,000 Mercedes were delivered in May, up 30 percent year on year. This optimism is not rare among foreign firms, despite an apparent economic slowdown, or - as President Xi Jinping puts it - a “new normality”: slower growth, structural reform, and no big stimulus. A business confidence survey by the German Chamber of Commerce in China this month showed 90 percent of business planning to keep or expand their business this year, with nearly 60 percent hoping to achieve or exceed their targets. In terms of reform, 70 percent are optimistic, saying domestic consumption, environmental protection, and emphasis on the market will be good for business. Xinhua