Macau Business Daily, July 2nd, 2014 by Business Daily

MOP 6.00 Closing editor: Sara Farr Publisher: Paulo A. Azevedo Number 573 Wednesday July 2, 2014

Park ‘n stop F

Year III

rom here to Zhuhai with investment. Some local real estate agents are encouraging people to invest as much in parking lots in Zhuhai as they do here. Realtors say the dearth of spaces in Zhuhai means big business. Hengqin’s development, and the completion of major transport infrastructure will also ramp up demand, they told Business Daily Page

www.macaubusinessdaily.com

Kicking figures around

HSI - Movers July 1

Name

Gaming revenues have declined for the first time in five years. Casinos raked in 27.2 billion patacas in June. But that’s 3.7 percent down y-o-y. Blame the World Cup tournament, say analysts, who originally predicted a 5 percent haircut

%Day

Galaxy Entertainme

3.59

Lenovo Group Ltd

2.12

China Resources Lan

2.01

Want Want China Ho

2.01

Sands China Ltd

1.56

Hang Seng Bank Ltd

-1.09

AIA Group Ltd

-1.14

Hutchison Whampoa

-1.30

China Mengniu Dairy

-1.38

Henderson Land Dev

-1.41

Source: Bloomberg

New kid on the block

I SSN 2226-8294

A collective sigh of relief. Day one for New Era bus company went without a hitch. Most commuters were oblivious to the change. But the peak season is just around the corner. More buses are on the way

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Premium office prices surge Hold fast What price a premium office in Macau? Quite a lot, actually. In 2009, the average price was four times the average of Asia Pacific. Now it’s eightfold. The gaming and tourism industry have squeezed demand for premium workspace Page 5

The Purchasing Managers’ Index has returned a smile to Chinese authorities. Following some bumpy months, light government measures seem to have stabilised the economy’s growth

Legislators approve MOP30 minimum wage

Non-resident workers proliferating Page 4

Page 4

Page 10

Jet Asia selling last private jet Page 6

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July 2, 2014

Macau

Casino revenues decline for first time in five years The gross gaming revenue of Macau casinos dropped by 3.7 percent year-on-year during June as gamblers focused on the World Cup

Adelson’s company dropped from 23 percent to 22 percent, while Galaxy Entertainment occupies third position with 21 percent. Melco Crown is in fourth with a 12 percent stake, ahead of MGM China with a 10 percent share. The last place, in terms of market share, is occupied by Wynn Macau with 10 percent share.

Following June crash, World Cup to penalise July

Alex Lee

Despite being the first drop in five years in Macau’s gaming sector, the gross revenue decrease in June was less than originally expected by market analysts in the last two weeks. Analysts’ consensus pointed to a fall of 5 percent arising from the World acau casino revenue fell in decreased by 12.6 percent to 193 Tam Pak Yuen said he reckoned Cup effect. June for the first time in five billion patacas. By June last year, that the drop was influenced by the The last note from Sterne Agee years as gamblers’ attention casino gross gaming revenues had World Cup. predicted a drop of 6 percent in June’s was diverted from casinos to the FIFA hit 171.4 billion patacas. Mr. Tam said he is still bullish revenues to 26.5 billion patacas, while The results, as analysts had on the outlook of Macau’s economy Wells Fargo predicted a range of World Cup football tournament. The total gross gaming revenue of predicted, have been influenced by following the closer economic between 4 and 6 percent decrease. casinos in June dropped 3.7 percent to the World Cup now taking place partnership with its neighbouring Deutsche Bank anticipated a 2 to 27.2 billion patacas (US$3.4 billion) in Brazil since June 12. Instead of districts, when the city will have 5 percent fall. But, if the football having posted 28.3 billion patacas in heading to the 35 casinos’ tables, a more mature external transport tournament in Brazil spoiled June’s June last year, the Gaming Inspection bettors have preferred to watch the network by the time the Hong Kong- performance in Macau, July will more and Coordination Bureau announced World Cup matches in bars and bet Macau-Zhuhai bridge is completed or less be the same story. yesterday. The last time that there on tournament matches. in 2016. ‘World Cup headwinds should was a drop in gross gaming revenues On June 18, Judiciary Police (PJ) continue until the conclusion of was five years ago in June 2009 when arrested 22 people involved in an SJM back on top the competition on July 13, in our GGR decreased 17.4 percent from illegal football betting ring. According view. This once-in-every-four-years 10.1 billion patacas to 8.3 billion to the PJ the betting network had As for casino market share, disruption of gross gaming revenue patacas. taken in bets of around 5.1 billion Sociedade de Jogos de Macau (SJM) does not change our positive long-term Until June, the casinos’ gaming patacas, a daily average of more than is back on top, having been briefly secular outlook for Macau names,’ revenue had been increasing by 15.8 720 million patacas. overtaken by Sands China in May. said Sterne Agee, in its most recent When asked for a comment on The company, owned by Stanley note to clients. “Given weaker June percent, from 143.1 billion patacas in the first five months of 2013 to the yearly fall of 3.7 percent in Ho, gained a market share of 25 growth, we expect mid-single digit 165.9 billion patacas. After June, June gaming revenues, Secretary percent, while in the previous month downward revisions in the second however, the casinos’ growth rate for Economy and Finance Francis it held a 23 percent share. Sheldon quarter,’ added Wells Fargo. The US bank also underlines that the World Cup effect will continue to slow down revenues in July, namely in Market Share Per Operator (2013-2014) the VIP segment, an opinion shared by Stern Agee who says the tournament continues to be a drag on Macau Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun revenues, which were down 1 percent SJM 23% 25% 24% 24% 25% 26% 23% 24% 23% 22% 24% 25% 25% week-on-week. Sands China 21% 21% 23% 23% 22% 20% 22% 23% 22% 25% 22% 22% 22% For the whole year, Sterne Agee maintained its estimation with a jump Galaxy 19% 19% 20% 17% 19% 21% 19% 18% 20% 21% 20% 19% 21% in revenues of 11 percent compared Wynn 12% 10% 10% 12% 11% 10% 11% 11% 9% 11% 12% 11% 10% to 2013, with Well Fargo saying that 2014 will be choppy due to a MPEL 114% 15% 13% 14% 14% 13% 14% 14% 14% 12% 13% 14% 12% slowdown in the VIP segment driven MGM 11% 11% 10% 10% 10% 9% 11% 10% 11% 9% 9% 10% 10% by decelerating credit growth and a Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% softer macro environment. alex.lee@macaubusinessdaily.com

* Figures are rounded to nearest unit, therefore they may not add exactly to the rounded total

with Stephanie Lai

July 2, 2014

Macau

Agents driving parking lot investment craze in Zhuhai Dearth of parking lots in downtown Zhuhai makes way for parking lot ‘investment’ from local buyers Stephanie Lai

sw.lai@macaubusinessdaily.com

ome local agents are seeking to spread the investment craze for car parking lots here to Zhuhai, as the mainland city’s authorities recently announced that the number of parking lots was falling short of the growth of private vehicles cruising the streets. CarparKing Co. Ltd, a Macaubased agent specialising in the letting and selling of parking spaces, told Business Daily that the company has also been engaged in attracting buyers to purchase car parking lots in the neighbouring city of Zhuhai in order to capitalize on a growing population and number of vehicles overwhelming public infrastructure. “Zhuhai is definitely seeing more commercial activity as Hengqin is now in a development phase, and the infrastructure of the GuangzhouZhuhai Intercity Railway and the Hong Kong-Zhuhai-Macau Bridge completion will all bring more traffic,” said CarparKing’s general manager Eric Chan Lik Ki. “Meanwhile, the infrastructure in Zhuhai now is actually very similar to what Macau was like a few years ago: Unlike Guangzhou and Hong Kong, there is not a well-developed underground metro system within the city of Zhuhai . . . And people there, just like Macau, park their cars anywhere on the streets when they can find [a space].”

… a few buyers have opted to buy a car and a parking space in Zhuhai Lee Choi Hong, Sun City Property agent

The average monthly car park rental in Zhuhai is now 300 yuan (US$48) to 500 yuan, local property agents say. The average selling price of a parking lot in Zhuhai, on the other hand, increased from about 100,000 yuan in 2012 to 200,000 yuan now, Chan noted. As revealed by the Zhuhai transport authorities to mainland media in late June, there are 81 car parks in the city, which are all located in downtown Zhuhai on the eastern side of the Qianshan River. These car parks provide only 89,000 car parking lots, a figure that falls far short of the current parking demand for about 190,000 parking lots in downtown Zhuhai, the Zhuhai transport authorities said. However, this official figure does not include the private car parks that are illegally operating without the Zhuhai authorities’ permission. The Zhuhai authorities also failed to

300-500 yuan Zhuhai average monthly car park rental

provide how many of these ‘illegal’ parking lots were operational in the city.

Gongbei trade “Since Guangdong ended the granting of dual licence plates with the purchase of a home in Zhuhai by Macau residents [in 2012] it’s true that a few buyers have opted to buy a car and a parking space in Zhuhai,” said local estate agent Sun City Property Co Ltd’s executive director Ms. Lee Choi Hong. “But since then there have been many more cases where the Macau buyers only purchased a home there because they don’t really need a car park lot as they are spending their time in their Zhuhai home only for vacation.” Prior to 2012, many Zhuhai developers offered Macau residents dual licence plate numbers with the purchase of a residential property in Zhuhai. The policy in Zhuhai allowing local buyers to obtain dual license plate with a home purchase dates back to the 1980s, but a minor tweak of the rules came in 2004 when the city allowed developers to offer dual licence plates to Macau buyers when purchasing a home of more than 1 million yuan. “While not many buyers are purchasing a home in Zhuhai along with a parking lot, the proportion of the local buyers purchasing parking lots near the Gongbei border is bigger,” said Ms. Lee. CarparKing, which established a branch in Zhuhai in mid-2013, said they managed to register a ‘double-digit’ number of transactions for parking lots per month since starting operations there. Around 60 percent of their clients are from Macau, claims Mr. Chan. “Many local buyers have bought parking lots near the Gongbei border, and also in Qianshan district, which is not far from Hengqin,” said Mr. Chan. The Zhuhai transport authorities say the current number of private vehicles registered in the city exceeds 220,000. Due to the dearth of parking

spaces in Zhuhai, the city’s transport authorities say they will build as more as many as 114 car parks in

the future, but they did not announce the intended parking lots to be put to public use.

July 2, 2014

Macau

Legislators approve MOP30 minimum wage

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HOSPITALITY Mixed results The three most coveted Asian sources for tourists outside of greater China are Japan, South Korea and India. Comparatively wealthy travellers and big populations have justified significant promotional efforts over time in these markets. The main objective of these efforts has been to persuade visitors to come and stay for longer periods. The patterns associated with the flow of visitors from these countries, however, differ noticeably. The table below shows a smoothed series for the monthly number of visitors coming from these countries, for both overnight and same-day visitors. The figures show the twelve-month moving average for each variable.

The most notable change refers to Japan. Until mid-2012 it was clearly the leader among these three countries. A significant decline since then brought average figures for overnighters down by more than 25 percent, from over 20,000 visitors per month to around 15,000 visitors. A similar pattern, even more pronounced in relative terms, is visible with same-day visitors, which went down from about 15,000 monthly visitors to less than 10,000. Values seem to be stabilising and maybe even picking up a little in the latter part of the period observed. Nevertheless, Japan has dropped to the last position among these three countries. The figures for South Korea, on the other hand, keep rising in both categories of visitor. In absolute terms, its performance is the reverse of Japan’s performance, albeit over a longer period. The Indian case is one of remarkable stability, suggesting that the current attraction power limit has been reached. Same-day visitors, in particular, have been stuck around the 2,500 visitors threshold. This is also the country where, in relative terms, this type of visitor is less significant. J.I.D.

t a general meeting of the Legislative Assembly yesterday, the body passed the first reading of the city’s firstever minimum wage – covering only cleaners and security workers – at 30 patacas (US$3.8) per hour, or a daily 240 patacas. According to the minimum wage bill, the government is stipulating that the minimum wage amount should not include overtime pay or bonuses, and that the minimum wage level should be reviewed on an annual basis. The discussion on the minimum wage in the general assembly, over two sessions on Monday and yesterday, finally concluded with the unanimous approval of the 30 attending legislators. Legislator from the business sector Tsui Wai Kwan registered his support for the minimum wage bill on Monday, saying that the government could not always subsidise low income groups with public money. He also added at the time that whether the minimum wage should be set at 30 patacas per hour should be further discussed. The minimum wage bill is now pending further deliberation in permanent committee meetings later on. Secretary for Economy and Finance Francis Tam reiterated to legislators yesterday that the introduction of a minimum wage for security workers and cleaners is a preparation for roolling out this policy on a citywide basis in future, but did not elaborate on an exact timeframe. Mr. Tam did add, however, that the government would consider providing a subsidy to small and medium businesses whilst enforcing a citywide minimum wage.

Non-resident workers proliferating T

he number of non-resident workers in Macau hit a new high during the month of May and now exceeds 150,000. According to official data provided by the Public Security Police (PSP), quoted by Portuguese news agency Lusa, at the end of May some 152,299 foreign workers made up part of the Macau labour force. This represents an increase of 3,091 in comparison with April and an increase of 33,699 year-on-year.

Legislators Kwan Tsui Hang and Ella Lei Cheng I, both from the Federation of Trade Unions, yesterday requested a speedier enactment of the minimum wage for low-paid security

Over the last year, there was on average an increase of 92 non-resident workers per day. Thus, non-residents represent roughly one quarter of the population of Macau, estimated to be 614,500 at the end of the first quarter of this year. Mainland China is the main provider of non-resident workers, accounting for 64.1 percent of the total with 97,550. Mainland Chinese are primarily hired to work in hotels, restaurants, construction and retail. The Philippines provided the second largest pool of foreign workers with 20,019, followed by Vietnam with 12,689. The number of non-resident workers first reached the 100,000 mark in the Special Administrative Region of Macau in 2008. In 2012, that mark was reached again, and the trend for the number of non-resident workers to increase has never been reversed since.

workers and cleaners, adding that they were opposed to the suggestion that the minimum wage bill should only come into effect 180 days after the gazetting of the bill.

Correction In yesterday’s edition (Tuesday, July 1) Business Daily incorrectly reported that the Legislative Assembly had passed an amendment allowing real estate agents in Macau with an operation venue registered for residential or industrial use to apply for a provisional licence of operation that extended its operation until June 30, 2015. In fact, the bill permits agents to use this provisional licence until June 30, 2019, a five-year period in which they can find a legitimate space to operate from.

July 2, 2014

Macau

Premium office prices jump eight-fold since 2009 The demand for high-end workspace in Macau is pushing prices to record levels. Office prices here grew four times faster than the Asia Pacific average in the last five years, according to Jones Lang LaSalle. A HK$10 million office in 2009 is worth HK$80 million today Alex Lee

Alex.lee@macaubusinessdaily.com

n the last five years, the price of buying a premium office in Macau has increased eight-fold. The gaming and tourism industry has boosted the demand for property by companies from the retail and casino sectors, pushing up prices due to the lack of supply. The price hike for luxury and high-end offices here since 2009 was four times higher than the Asia Pacific average and well above the rent increase in the same period. Property is probably a more lucrative business than gaming in Macau. The Macau office index compiled by Jones Lang LaSalle climbed from 100 points in 2009 to 800 points in the first quarter of this year, meaning that the value of the offices here increased eight times in five years (see chart). A company that bought a workspace for HK$10 million five years ago has an asset worth more than HK$80 million today. The jump in capital value – the price that would have been paid for the property if it was sold today – of the offices in Macau only started five years ago, following a more or less flat performance since 2004.

Single case As the flow of multi-billion dollar integrated casino resorts started to open doors from 2006, putting Macau on the map as the world’s biggest gaming centre, the number of companies arriving here to profit from the boom has skyrocketed. As the supply of these premium offices started to dry up, prices since 2009 have gone through the roof. What’s happening in Macau has no precedent in the Asia Pacific region during the last decade in the premium segment. According to JLL data, the price of buying a Grade A office has doubled since 2004 and grown 60 percent since 2009, way behind Macau (see chart). Grade A

30pct increase in Macau office prices every quarter

rose 30 percent quarter-on-quarter, while average growth in Asia Pacific nudged a conservative 1.6 percent, JLL data reveals. Taipei, the city where office prices rose the most in all Asia (except here), saw the value of workspaces increase 5.5 percent in the first quarter of 2014, five times less than in Macau. In 2013, the value of offices in Macau jumped 68.4 percent, and in 2012 more than 63 percent.

Rents behind offices, also known as the premium segment, represent the highest quality buildings on the market, with the best location, access and professional management. In the first quarter of 2014, premium office values in Macau

Another trend revealed by JLL’s figures is the disparity of growth rates between the value of property and rents paid by companies here. While workspace prices increased eight times in the last five years, rents ‘only’ tripled since 2009 (the

rents index climbed from 100 to 300 points). In the first quarter, rents paid by companies in Macau jumped 22.7 percent compared to the last three months of 2013. Last year, premium office rents hiked 20 percent, three times less than office capital values increased. Macau is already the fourth most expensive place to rent a workspace in all of China, Taiwan and Hong Kong, only lagging Hong Kong, Beijing and Shanghai. The lack of supply is one of the main drivers of the huge price increases in the territory. The vacancy rate (the percentage of offices available to rent or buy in the total market) in Macau continues to drop. In 2013, the rate fell to 11 percent from 13 percent in 2012.

Cotai effect With the new investments for the gaming industry projected until 2017 with at least six new resorts in Cotai, and the bridge linking Hong Kong, China and Macau, the number of companies with plans to come to Macau is set to increase, adding pressure to the market and fuelling the real estate bubble. This trend is already underway. In the first quarter of 2014, some 1,126 companies were created in Macau, 14 percent more than a year ago (926 newly incorporated companies in the first quarter of 2013), data from the statistics bureau reveals. Last year, the number of new firms in Macau increased 24 percent compared to 2012. In the first quarter, loans awarded by banks to companies to buy property increased at a monthly rate of 30 percent, meaning that they are doubling every quarter, the Monetary Authority of Macau said last month.

July 2, 2014

Macau

Perfect Shape revenues up 6pct

erfect Shape (PRC) Holdings Ltd’s revenue increased by 6.1 percent to HK$470.2 million from HK$443 million in the 12 months ended March 31 over that of the previous year. In a company filing with the Hong Kong Stock Exchange after hours on Monday, Perfect Shape announced that the group’s overall net profit for the year had increased by 6.4 percent to HK$83 million from HK$78 million. In addition, cash generated by operations for the year ended March 31, 2014 increased by 63.8 percent to HK$111.9 million from HK$68.3 million. The Macau and Hong Kong market recorded a 30.4 percent growth to HK$188.1 million from HK$144.2 million in the full year 2013. ‘With respect to the Macau market . . . our business has continued to enjoy satisfactory results,’ the filing reads. Perfect Shape and its subsidiaries are primarily engaged in slimming and beauty services as well as the selling of such products in Macau, Hong Kong and mainland China. According to the company’s annual report, Perfect Shape targets the middle class, and ‘medical beauty services include non-invasive anti-aging and beauty treatments that deliver high profit margins . . . Apart from the traditional slimming services which the group has offered since inception, it began to tap the medical beauty market segment in Hong Kong shortly after listing in 2012.’ The company added that ‘this business has started to bear fruit during the year under review.’ S.F.

Jet Asia selling last private jet J

et Asia Ltd is selling its last airplane from a group of six private jet aircraft. SJM Holdings Ltd said in a filing with the Hong Kong Stock Exchange that one of its subsidiaries (Sky Reach) is paying Credit Suisse AG US$4.5 million (36 million patacas) to exercise an early buy option in order to place Jet Asia in a position to sell the airplane. Jet Asia is owned by Stanley Ho Hung Sun’s Sociedade de Turismo e Diversões de Macau (STDM) SA, one of the controlling shareholders of SJM. The sales began in 2013 with the deal involving the first two airplanes to be completed by August that year. In September 2013, the company sold another two aircraft. In the first month of this year another plane was sold. Now, the private aviation operation is about to complete the sale of the sixth aircraft.

July 2, 2014

Macau

Green shoots for green buses New Era is in its second day of operating local bus services. The first day of operation ran smoothly with passengers hardly noticing the difference, commuters told Business Daily Kam Leong

newsdesk@macaubusinessdaily.com

he new ‘green bus’ operator, New Era Public Bus Company Ltd, enjoyed a smooth start on its first day of plying the roads of Macau. Everything remained essentially the same except for the change in company name and logo added to the buses. Many passengers said that they were not aware of the new company taking over as New Era had not changed the original livery of the green buses. Business Daily talked to 10 passengers at different bus stops, mainly in Mong-Há, the Red Market and Praça de Ferreira do Amaral. Only one passenger said he had known about the new operation starting yesterday. “I always had to spend a lot of time waiting for green buses, especially in the evenings. I hope that the new company will improve this problem, such as extending the frequency of the buses,” said Mr. Fong. Mrs. Ma, a housewife, said she had not realised that a new company was managing the green buses. “I took one green bus this morning, route 10, but I didn’t feel any difference,” she said. Ms. Im, a student who claims that she is a frequent commuter on the green buses, said that although she had heard that New Era was taking over the green buses she had not known the exact date. She said that she expects the new company to cut down on the frequency of bus breakdowns. The director of the Transport Bureau (DSAT), Wong Wan, said that New Era’s takeover went smoothly whilst assessing operations at Praça de Ferreira do Amaral yesterday morning. He predicts that the travel peak, which will be the real challenge for New Era, will only start from September 1, when the new academic year for schools begins.

New bus service hits the ground running T

he new bus service operator will increase its bus fleet by 26 by the end of this year. These new buses will be 12 metres long, according to Daniel Fong, chief administrator of Macau New Era Public Bus Company Ltd. While inspecting the vehicles ahead of their first day out yesterday, Mr. Fong revealed that the bus operation would cost him between 20 million

A green bus driver, who asked not to be named, said that there was no obvious difference in terms of working hours or bus frequency. “We’re working as usual so far,” the driver said.

Salary gap for green bus drivers narrowed A bus driver also revealed that unequal pay was a factor under Reolian’s prior management: “We don’t understand why drivers who drive the same type of bus and have the same working hours would receive different salaries. The difference is up to a few thousand; so I hope the new company will solve this.” The director of the labour union for Reolian bus drivers, Cheang Wa Cheong, told Business Daily that there was a big salary gap of more than

and 30 million patacas. The buses will retain their distinctive green livery although the logo and name have been changed both on the buses and at bus stops. Mobile phone and web applications have also been updated. While these chores were being conducted on the night of June 30, the director of the Transport Bureau, Wong Wan, said that the government would ‘keep an eye’ on the operations of the new bus company. New Era has taken over former Reolian’s 27 bus routes and authorities are urging the public to leave home earlier in order to accommodate the new bus services, at least during its ‘adaptation period.’ Under the terms of its contract with the government, New Era is required to present an annual report of its service and operations from the previous year. In addition, the company is subject to a 1 percent reduction in government subsidy should its service quality be deemed ‘less positive,’ according to authorities.

I took one green bus this morning, route 10, but I didn’t feel any difference Mrs Ma, housewife

1,000 patacas (US$125) for drivers under Reolian’s management. “It’s because when Reolian started to operate [in 2011], they had offered 100,000 patacas as a special bonus to try to poach drivers with more than 10 years of seniority in the business, on top of their 15,000 patacas of basic monthly salary,” Mr. Cheang said. According to Cheang, the gap has been narrowing until now under New Era. The salary gap is now about 300 patacas between the most senior drivers and medium senior ones. Abel Kwok, the deputy general manager of Macau New Era who formerly held the same position at Reolian, stated that one of their main tasks this month is to resolve the issue of how to grade the seniority of their bus drivers and their staff. with Stephanie Lai

July 2, 2014

Greater China Toyota says auto sales down The firm and its two Chinese joint ventures sold about 71,000 vehicles in China in June, down 7.6 percent from a year earlier, the Japanese automaker said yesterday. That followed a 2.7 percent year-on-year rise in May and a 12.4 percent increase in April. In the first six months of the year, Toyota sold about 465,900 vehicles, up 11.7 percent from a year earlier. This year they aim to sell more than 1.1 million vehicles in China. If accomplished, this would see the carmaker surpass annual sales of 1 million vehicles in China for the first time.

Billions to subsidize ecological zones China’s Ministry of Finance announced yesterday it has allocated 48 billion yuan (US$7.8 billion) from the central budget to subsidize ecological functional zones to improve their public services. The zones are defined as areas that play a central role in water and soil conservation, wind shielding as well as the protection of biological diversity. As commercial development is not allowed for fear of damaging the environment, 200.4 billion yuan has been channelled to those regions since 2008 to guarantee public services in the zones. So far, 512 towns and cities have benefited from subsidies.

China-Russia expo highlights high-tech exchanges

Beijing shoos away insider trading “rats” More than 100 asset managers have quit their jobs so far this year, almost twice as many as in the same period last year

crackdown by Chinese regulators on insider trading in the country’s US$1.2 trillion mutual fund industry has sparked an exodus of fund managers from the industry. The investigation is part of efforts to rebuild investor confidence in the country’s lagging stock markets. More than 100 asset managers have quit their jobs so far this year, almost twice as many as in the same period last year, according to Chinese data provider iFund. Industry sources reckoned a good many of the departures were due to fears of being caught up in the investigation. A focus of the investigation is so-called “rat trading”. This involves fund employees using illegally obtained inside order information to front-run client orders, that is building positions in advance of a buy or sell instruction in order to take a risk-free profit when the transaction is executed. Regulators are also investigating tip-offs by fund employees to relatives or friends on what stocks the fund plans to buy or sell, allowing them to take positions in advance. The China Securities Regulatory Commission (CSRC) said in May that it was investigating more than 30 such cases, having concluded investigations into employees at Everbright

Alibaba faces mobile commer

But Alibaba’s shift to wireless commerce is a double-edged sword: m revenue than traditional e-commerce Bilateral cooperation and exchanges in high technology and related industries have been the focus during the on-going China-Russia Exposition in Harbin, capital of northeast China’s Heilongjiang Province. On the side-lines of the event, the two countries’ governments have signed a memorandum of understanding agreeing to cooperate in satellite navigation and promote the integration of China’s Beidou Navigation Satellite System and Russia’s Global Navigation Satellite System. Chinese Vice Premier Wang Yang said he hopes the two countries will take this opportunity to establish a working mechanism, make clear the cooperation direction, select good cooperative programs and create working plans.

El Nino could hit China’s agricultural yields China’s agricultural yields could be hit by El Nino, a weather pattern that can bring drought in some parts while causing flooding in others, the agricultural ministry warned yesterday. El Nino of medium to strong magnitude could be experienced, which could trigger low temperatures and rainfall in south China and drought in the north in autumn, and bring earlier frosts to the country’s northeast, the ministry cited China Meteorological Administration as saying. The weather pattern would negatively affect the yields of rice in south China and grains in the north, the ministry said.

hinese e-commerce giant Alibaba Group Holding Ltd may have dominated online retail on personal computers, but is some way from replicating that leadership in shopping by smartphone and other mobile devices. Alibaba, which is heading towards a bumper New York IPO later this year, is throwing billions of dollars at figuring out how to thrive as half a billion people, 80 percent of China’s 618 million internet users, go online via mobile.

The Hangzhou-based firm said last month that mobile has become an increasing source of transactions, now accounting for more than a quarter of the value of goods sold across its online marketplaces. But Alibaba’s shift to wireless commerce is a doubleedged sword: mobile commerce brings in significantly less revenue than traditional e-commerce. Making life tougher, rival Tencent Holdings Ltd has already planted its flag on smartphone screens with WeChat, the nearly ubiquitous app that has gone from a mobile messaging Alibaba headquarters in Hangzhou

KEY POINTS Alibaba the king of online retail for personal computers in China E-commerce giant now trying to boost transactions on mobile devices But purchases on mobiles generate less money for Alibaba Rival Tencent already making inroads on mobile transactions Alibaba headed for big IPO in New York this year

tool to a digital Swiss Army knife. Alibaba has spent more than US$3 billion this year on mobilefocused investments. In its latest initial public offering prospectus, filed in the United States last month, “mobile” was mentioned 304 times - well ahead of “online” (264) and “internet” (144), while “computer” figured just 36 times. Alibaba has also invested in Tango, a U.S. messaging app company, and spent more than US$1 billion apiece for full ownership of mobile browser UCWeb Inc and digital mapping firm

July 2, 2014

Greater China Pramerica, China International Fund Management Co and Harvest Fund and Ping An Asset Management. Three former managers at these fund firms, including one who worked for more of the firms, have been found guilty of “rat trading” and have been handed over to the police, the CSRC said. China has the world’s 10th biggest mutual fund industry, with official Chinese data showing it is home to

91 mutual fund companies, with 680 funds managing 7.25 trillion yuan (US$1.2 trillion) worth of assets as of the end of May, 2014. The industry also boasts one of China’s highest average annual salaries of over 1 million yuan (US$160,300) per year, though fund managers have struggled to justify their earnings given the poor performance of equities in recent years. More than US$1.4 trillion equivalent to 16 percent of China’s gross domestic product in 2013 has been wiped off the value of the Shanghai and Shenzhen exchanges since the Shanghai composite index peaked at 6,124 points in October 2007. The index has declined over 60 percent from that peak, a performance completely at odds with China’s rapid economic growth over that time, and contrasting with rallies seen in other Asian stock markets. One reason domestic investors avoid the stock market in general is the widespread suspicion that the exchanges are platforms for insiders to fleece ordinary investors. It also follows the CSRC’s prosecution of fund managers at Everbright Securities in the aftermath of the stock market “flash crash” in September, during which Everbright employees hedged against the impact of their own trading error at the expense of retail investors. Institutional investors, mainly mutual funds and brokerages, hold just 10.87 percent of listed Chinese stocks, CSRC data shows, whereas they hold the majority of shares in most developed markets. If investor confidence in China’s stock markets is restored, the prize would be substantial. Reuters

rce challenge

mobile commerce brings in significantly less AutoNavi Holdings Ltd. Alibaba has also driven the mobile percentage of gross merchandise volume (GMV) - the value of goods transacted through its businesses to 27.4 percent of the group’s total GMV in January-March, up from 10.7 percent a year earlier. Alibaba’s mobile monetisation rate - mobile revenue as a percentage of GMV - jumped in January-March to 0.98 percent from 0.47 percent a year earlier, but still less than half of the overall e-commerce monetisation rate. While Alibaba is making progress in

its transition to mobile, Tencent’s WeChat holds the aces. Tencent, though, isn’t just in communications. In March, the Shenzhen-based social networking and gaming company bought a 15 percent stake in JD.com, China’s No.2 e-commerce firm and Alibaba’s main online shopping rival. By tying JD.com’s online shopping into WeChat, Tencent has begun funnelling its hundreds of millions of users directly to Alibaba’s competitor. Reuters

Shanghai trade zone shortens FDI restriction The change is mostly the result of eliminating repeated rules rather than eliminating major barriers to foreign investment in the zone

he Shanghai government has shortened its list of sectors where foreign investment is be banned or restricted within the new Shanghai free trade zone (FTZ), but the changes show only slight relaxation for foreign entrance into the Chinese markets. A comparative study of the lists shows that the Shanghai municipal government cut the length of the 2014 “negative list” by 26.8 percent, to 139 items from 190 items in the 2013. But the change was mostly the result of eliminating rules repeated throughout the document rather than eliminating major barriers to foreign investment in the zone, which was launched with too much fanfare last year. The “negative list” approach was originally touted as a major reform in itself, as previous lists had been full of grey areas that gave the government wide latitude to encourage or block investments on a case-by-case basis, seen as highly risky for foreign investors. But the first version of the negative list was so long and comprehensive

that the actually liberalisations it offered were seen as minimal, and most major multinational investors have held back from substantive investments in the zone, even as commercial property prices there have seen heavy speculative inflows. Even state media has publicly criticised the Shanghai government for being too conservative in its approach. The latest rules do offer some modest relaxations on foreign investment in real estate, financing and service sectors. For instance, a provision that restricts foreign investment in the secondary property market and in real estate brokerages was revised to allow investment in these areas by foreign companies that also have other lines of business. A provision restricting foreign investment in investment banks, financing firms, trust firms and money brokers in the zone was removed, but it was replaced by a statement that “all investment in banking-style financial institutions must abide by existing regulations.” Reuters

HK Chief calls for treasuring economic success Leung said Hong Kong’s economic growth over the past 17 years has underpinned its social development

ong Kong Chief Executive CY Leung said in a speech yesterday that Hong Kong should treasure its economic success which has not come easily and the Hong Kong Special Administrative Region (SAR) government will strive to advance constitutional reform. Leung made the remarks at the reception in celebration of the 17th anniversary of the establishment of the Hong Kong SAR at the Hong Kong Convention & Exhibition Centre. Leung said Hong Kong’s economic growth over the past 17 years has underpinned its social development, adding if there had been no rise in corporate, personal, and government incomes, people’s livelihood could not have been improved. Total government expenditure in the current financial year is 111.5 percent more than that in 1997/98. The SAR government will continue to promote Hong Kong’s economic development vigorously with a view of improving the lives of the people. Another major task of the current-term government, Leung said, is to advance constitutional reform. It is the common aspiration of the central government, the SAR government and the general public of Hong Kong to successfully implement universal suffrage for the chief executive election in 2017.

Leung stressed that Hong Kong’s constitutional development must comply with the Basic Law and the relevant Interpretation and Decisions of the Standing Committee of the National People’s Congress. The Basic Law is the constitutional basis for Hong Kong. Before it was adopted and promulgated 24 years ago, extensive and in-depth consultation had been conducted in Hong Kong for as long as five years on the various issues involved, including Hong Kong’ s political structure and universal suffrage. The third major task of the government is to promote constructive interaction and co-development between Hong Kong and the Chinese mainland. The mainland is the largest source of inward direct investment for Hong Kong, which in turn is the mainland’s largest source of foreign direct investment. Xinhua

July 2, 2014

Greater China

Factory activity fulfils government wishes Analysts believe the worst for the economy is over as recent “mini-stimulus” measures kick in

hina’s factory activity hit multimonth highs in June, official and private surveys showed, reinforcing signs that the world’s second-largest economy is steadying as the government steps up policy support. The official Purchasing Managers’ Index (PMI), published by the National Bureau of Statistics, hit a six-month high of 51 in June, in line with market expectations and up from May’s 50.8. The final HSBC/Markit purchasing managers’ index (PMI) for June rose to 50.7 from May’s 49.4, surging past the 50-point level that separates growth in activity from contraction for the first time since December. “The economy has turned the corner, but it will take time for the recovery to become more broadbased. Infrastructure investment needs to pick up more strongly in the coming months to lift demand,” said Julia R Wang, an economist at HSBC in Hong Kong. “Meanwhile, the slowdown in the property market continues to pose downside risks to growth in the second half of the year. We expect both fiscal and monetary policies to remain accommodative until the recovery is sustained.” The government has unveiled a series of modest stimulus measures in recent months to give a lift to economic growth, which dipped to a 18-month low in the first quarter. Such measures have included targeted reserve requirement cuts for some banks to encourage more lending, quicker fiscal disbursements and hastening construction of railways and public housing projects. On Monday, China’s banking regulator announced changes in the way it calculate banks’ loan-todeposit ratio (LDR) to help channel

Chinese Premier Li Keqiang (C) said that 7.5 percent growth was a minimum requirement that would be met

more credit into the real economy. The economy has started showing signs of stabilisation since May as such supportive steps kicked in. Growth in

KEY POINTS Official manufacturing PMI hits six-month high in June June HSBC PMI shows first expansion in 6 months Adds to signs of stabilisation in economy on policy support Both surveys show factory jobs shed in June

factory output, retail sales and fixed asset investment all either met or beat market expectations last month, with retail sales notching its best showing in five months. As one of the earliest pieces of Chinese data released each month, the improved PMI will bolster market expectations that the economy is regaining some traction, after growth hit an 18-month low of 7.4 percent between January and March. The official survey showed a broadbased recovery in manufacturing activity in June, with nine out of the 12 sub-indices pointing to improvement from the previous month. Still, both surveys showed manufacturing-sector jobs were still being shed in June - another indication that more policy steps are needed to keep economic growth on track. Both surveys also showed a marked

slowdown in growth in export orders, though domestic demand appeared to pick up. The official PMI is weighted more towards bigger and state-owned enterprises and tends to paint a rosier picture than the HSBC/Markit survey, which focuses more on smaller private firms. Although authorities said earlier this year that it was alright if annual economic growth for 2014 slightly missed the government’s target of 7.5 percent, Premier Li Keqiang said earlier this month that 7.5 percent was a minimum requirement that would be met. Yet, leaders are reluctant to unveil massive aid like the 4 trillion yuan (US$640 billion) stimulus implemented during the global crisis in 2008-09, which took local governments deep into debt. Reuters

Home prices moderate After a strong performance in 2013, China’s real estate market has softened

hina’s home prices eased further in June, two private surveys showed yesterday, adding to signs of a cooling housing market which is posing a growing risk to the broader economy. Prices of new homes in 288 cities fell 0.06 percent in June from May, the third monthon-month drop in a row, a poll by real estate services firm E-House China Holdings Ltd showed. Compared to the same period a year ago, home prices rose 5.3 percent in June, easing from a rise of 5.8 percent in May and marking the eighth consecutive month of slowing annual property inflation. A separate survey by China Real Estate Index System(CREIS) showed average prices in the 100 biggest cities fell 0.5 percent in June from May, the second consecutive monthly drop. Meanwhile, home prices still rose 6.5 percent in June

0.06 pct decline in prices of new homes in 288 cities in June

from a year ago, moderating from a 7.8 percent gain in May, CREIS said. “After nearly two years of continuously rising, China’s home prices have entered a period of adjustment,” said CREIS, a consultancy linked to

China’s largest online property information firm, Soufun Holdings. Sales have slowed, new construction has dropped off sharply and banks have become increasingly cautious about lending to developers

and home-buyers. Accounting for about 15 percent of China’s economy, the real estate sector is the country’s biggest wild card this year in terms of growth, some analysts said. Concerned about a sharp

downturn in the property sector, the central bank recently ordered commercial banks to quicken mortgage lending and some local governments also started to act to lift home purchase restrictions. Official figures showed home prices fell for the first time in two years in May. The statistical bureau is due to publish official home price data for 70 major cities for June on July 18. Reuters

July 2, 2014

Asia

KEY POINTS Budget carrier AirAsia Japan to start flying in about a year Carrier, with US$69 mln initial capital, to start with 5 Airbus A320

New low-cost carrier to take off

Return of AirAsia to Japan to stir up competition in budget sector Rakuten to boost its online travel services via venture

AirAsia and Rakuten team up for Japan budget airline

irAsia Bhd said yesterday it would set up a low-cost airline with Japan’s biggest online retailer Rakuten Inc and other firms, marking the budget carrier’s second attempt to tap one of Asia’s lucrative air travel markets. The new carrier, AirAsia Japan, will have an initial capitalisation of 7 billion yen (US$69 million) and will start flying in about a year with a fleet of five Airbus A320 aircraft, the carrier’s CEO, Yoshinori Odagiri, told reporters. The airline will fly to both domestic and international destinations, but has yet to decide which airport it will be its base, he added. For Malaysian-based AirAsia, the venture with businesses not involved in the airline industry is another attempt to expand to Japan after it pulled out of a partnership with the country’s biggest carrier ANA

Holdings Inc last year. That venture, launched in 2011, failed to woo travellers and ANA blamed poor marketing and a userunfriendly website. The airline has since been rebranded into Vanilla Air, and is now wholly owned by ANA and based out of Tokyo’s Narita airport. “For AirAsia, the rationale is that if they can bring down the costs and they can undercut the competitors, they can make a lot of money because there is still a lot of room to grow,” said Tan Kee Hoong, an analyst at Alliance DBS Research in Kuala Lumpur. “Now that their partners are nonairline companies, the joint venture partners will leave more of their strategy as well as the operational decision to AirAsia.” Rakuten, controlled by Japan’s fourth-richest man Hiroshi Mikitani, aims to boost its online travel site

through the partnership and create new business to fend off increased competition from the likes of Amazon. com Inc. Rakuten’s travel site is already one of the largest in Japan. Two decades ago, travel company H.I.S pioneered the trend, setting up Skymark Airlines, which is now Japan’s leading discount carrier. Mikitani said he saw great potential in the budget travel market in Japan. “In America, discount carriers account for 30 percent of travel. In Southeast Asia, it’s 50 percent. In Japan, it’s only 3 percent,” he told the same news conference. Rakuten will own an 18 percent stake in the new airline, while Noevir Holdings Co Ltd, a diversified conglomerate that owns an aircraft leasing business, will own 9 percent. Octave Japan Infrastructure Fund will own 19

percent and sports firm Alpen Co Ltd will own 5 percent.

Challenges AirAsia’s return would intensify competition among Japan’s discount carriers, which have struggled to wrest travellers away in a domestic market dominated by from ANA and Japan Airlines . “This is AirAsia part two and I hope there is no part three,” Tony Fernandes, the owner and CEO of AirAsia, told reporters in Tokyo. A lack of landing rights at major hubs in Tokyo and other big cities mean discount airlines struggle to win access to the most lucrative destinations, and when they do, they are vulnerable to price competition from the big carriers that are better able to absorb losses on a few routes.

Vietnam’s PMI keeps rising Manufacturing new orders rose for the seventh consecutive month in June

he Vietnamese manufacturing sector continued to see improvements in business conditions in June, although rates of growth in output and new orders eased during the month, according to the Hong Kong and Shanghai Banking Corporation (HSBC). In a report released here yesterday, the bank said the Purchasing Managers’ Index (PMI), a composite indicator designed to provide a singlefigure snapshot of operating conditions in the manufacturing sector, posted 52.3 in June, down slightly from 52.5 in May and signalling a further improvement in business conditions in the sector. Manufacturing new orders rose for the seventh consecutive month in June. The rate of expansion was solid, but slowed for the second month running. The enforcement of weight restrictions on trucks added to cost burdens in June. Input prices increased sharply again, albeit at a slightly weaker pace than in May. The tonnage limits also impacted on delivery times, with vendor performance deteriorating sharply again during the month. Panellists responded to sharp

rises in input costs by raising their output prices in June. The increase was modest, but the first since January and the strongest in 15 months. The rate of job creation in the Vietnamese manufacturing sector remained marginal. Purchasing activity continued to increase, however, the rate of growth eased to the weakest since September 2013. Finally, stocks of finished goods decreased as firms delivered products to clients. Commenting on the Vietnam Manufacturing PMI survey, Trinh Nguyen, Asia Economist at HSBC said: “The manufacturing sector continues to expand at a solid pace, albeit with a slight slowdown. Stronger demand is the main reason.” “External demand decelerated but we expect this to be temporary. Given low inventories and robust new orders, we expect the sector to continue to perform well, especially as the impact from recent tensions fade,” said Nguyen. The HSBC Vietnam Manufacturing PMI is based on data from monthly questionnaires sent to 400 purchasing executives. Xinhua

HSBC headquarters in London. The bank accomplishes the monthly PMI index almost worldwide

Reuters

July 2, 2014

Asia Indonesia’s PMI rises to record high Manufacturing activity rose to a record high for the second consecutive month in June, as a rise in new orders led firms to boost production, an HSBC Markit purchasing managers’ index (PMI) survey showed yesterday. The index rose to 52.7 in June from 52.4 in May, the highest reading since the survey began in April 2011. A reading above 50.0 signals expansion. Strong domestic demand for new orders offset a moderate drop in export orders, the first in six months.

Australia manufacturing index dips A measure of Australian manufacturing activity stayed subdued in June as firms complained that a strong local currency was making imports more competitive, though there was some tentative improvement in exports and employment in the month. The Australian Industry Group’s performance of manufacturing index (PMI) dipped 0.3 points to 48.9 in June, from May when it had risen by 4.4 points. That left the index just below the 50 level that is supposed to mark the threshold between contraction and expansion. Measures of sales, new orders and production eased back in June, but exports bounced.

Mitsubishi to supply to Mexico’s Chrysler

South Korea data reflects weak Shipments in June grew 2.5 percent over a year earlier, rebounding

xports, inflation and manufacturing activity for June all showed Asia’s fourth-largest economy was losing momentum, lending support to a vocal minority view that the central bank may be forced to cut interest rates to spur growth. After a strong start to the year, the export-reliant economy has been hobbled in recent months by a drum beat of negative data, promoting markets to reassess the outlook for monetary policy and gross domestic product. Shipments in June grew 2.5 percent over a year earlier, trade ministry data showed yesterday, rebounding after a 1.0 percent fall in May. Growth, however, fell well short of a median 5.1 percent rise tipped in a Reuters survey of analysts, hurt by a decline in exports to China and Europe. “Today’s trade and inflation data will lend more strength to the rate cut view for sure. In our case, we see a rate cut as soon as August,” said yesterday Jun Min-kyoo, an economist at Korea Investment & Securities. He was one of a few economists who had expected a rate cut even before the June data was released. Domestic money market rates are pricing in an increasing possibility of a cut in the policy interest rate in coming months, although the

dominant market view is that the Bank of Korea will hold steady for an extended period before hiking next year. The policy rate has been kept unchanged at 2.50 percent since a cut by a quarter of a percentage point in May last year. China’s economic slowdown and Europe’s uneven recovery offset much of the boost to South Korean exports from sustained U.S. growth

at a time when domestic demand remains shaky in the aftermath of a deadly ferry disaster. Seoul’s financial markets showed a muted reaction to the batch of weak indicators. The won was almost flat against the dollar on the day while the front-end futures on three-year treasury bonds rose a slight 0.04 point to 106.47. Exports to China, South Korea’s largest market, fell 1.1 percent in June

Asian oil refiners see operating rates reduced Mitsubishi Motors Corp said yesterday that it had agreed to supply its Attrage compact sedan to Chrysler for sale in Mexico. The supply contract with Chrysler de Mexico, a unit of Fiat Chrysler Automobiles, covers a fiveyear period starting in November, Mitsubishi Motors said in a statement. A source with knowledge of the matter said last week that the vehicle will be rebadged. The segment in which the sedan will be competing represents around 23 percent of Mexico’s annual vehicle sales, with more than 250,000 cars sold in 2013, the statement said.

POSCO claims cuts to stainless steel prices South Korean steelmaker POSCO said in a statement yesterday it has slashed its monthly stainless steel prices for July by 200,000 Korean won (US$200) a tonne to reflect easing nickel prices, swinging back to price levels from a month earlier. The world’s fifth-largest steelmaker at the end of May hiked its June prices for 300 stainless steel product lines by 200,000 won a tonne to reflect a nickel price rally. London Metal Exchange nickel prices hit a 27-month peak of US$21,625 a tonne on May 13.

The lack of a rebound in the summer period signals more pain for the region’s refineries

sian refiners are set to miss out on a traditional summer sales boost, as weak demand for oil products coupled with excess regional supply reduce plant operating rates through the third quarter and into the end of the year. The lack of a rebound in the summer period, when more fuel is usually needed to power air conditioners, signals more pain for the region’s refineries, which face competition from new plants in China and India and a sharp rise in crude oil costs. Asia has more than 30 million barrels per day of refining capacity, but slowing economies and subsidy cuts are squeezing consumption of diesel, which accounts for nearly 40 percent of the average plants output. Complex refining margins in Singapore, the amount earned for processing crude oil, have averaged US$4.68 a barrel in the past 15 days, the lowest since last November and well below the high for the year of US$6.51 touched in April. In South Korea, one of the top

KEY POINTS Many refiners to hold run rates at reduced levels in peak summer season regional refining hubs, operating rates have fallen to a five-year low of 85 percent, almost 10 percentage points below a year earlier, consultancy JBC Energy’s Richard Gorry said. Singapore’s refinery run rates have fallen to about 80 percent, a trader said, from 85-90 percent a year earlier. South Korea’s largest refiner SK Energy Co Ltd has cut rates to 82-83 percent at its Ulsan refining complex from 89-90 percent in the first quarter, said a spokeswoman at owner SK Innovation Co. Ltd.. Second-largest refiner GS Caltex is running its crude units at 89-90 percent of capacity this month, a company source said.

Refiners facing poor margins due to excess fuel supply China, India to keep runs at lower rates on maintenance, excess capacity Japanese refiners are also trimming throughput. Oil facilities are expected to process 3 million bpd in July, at 76 percent of capacity from 76.3 percent a year ago, said Osamu Fujisawa, a Japan-based independent oil economist. Rates would rise in August to 81 percent, or 3.2 million bpd, but still down from 82.6 percent a year ago, he said. Reuters

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July 2, 2014

Asia

Singapore’s freefalling home prices

times after a 1.0 percent fall in May

An index tracking private residential prices fell 1.1 percent to 209.3 points in the three months ended June 30

KEY POINTS June exports +2.5 pct y/y (Reuters poll: +5.1 pct) June annual inflation at 1.7 pct (Reuters poll: 1.9 pct) June HSBC/Markit mfg PMI at s/adj 48.4, a 10-mth low Growing view for interest rate cut South Korean President Park Sejong is facing rough times since the tragic shipwreck that, not only shook the nation’s feelings, but also every aspect of it, including the economy

from a year before, declining for a second consecutive month. Shipments to the European Union also dipped 2.2 percent after surging 32 percent in May, while sales to the United States rose 15.8 percent on-year. Inflation data released separately by the statistics agency yesterday underscored a recent pull-back in domestic demand. Annual consumer inflation in June held steady from May at 1.7 percent,

below the bottom of the central bank’s 2.5 percent-3.5 percent target and lower than a median 1.9 percent tipped in the Reuters survey. The Bank of Korea, the nation’s central bank, is now widely expected to lower its annual economic growth forecast of 4.0 percent for this year, when it next publishes revised estimates on July 10. South Korea’s economy, a major exporter in Asia, grew 0.9 percent on-quarter each in the first quarter of this year and the fourth quarter of last year, higher than the average of 0.5 percent for 2012. It expanded 3.0 percent in 2013. Reuters

ome prices slid for a third consecutive quarter, the longest losing streak in five years, as tighter mortgage measures cooled demand in Asia’s second-most expensive housing market. An index tracking private residential prices fell 1.1 percent to 209.3 points in the three months ended June 30, following a 1.3 percent decline in the previous three-month period, according to preliminary data released by the Urban Redevelopment Authority yesterday. Declines may deepen as the government extends a campaign to cool prices that started in 2009, with Chesterton Singapore Pte forecasting they will drop as much as 8 percent this year. Singapore last June capped the amount individuals are able to borrow, adding to measures that included new taxes and higher down-payments. “The price moderation last quarter was lower than expected, which probably means that the measures are here to stay for now,” said Donald Han, managing director of Chesterton Singapore Pte, a real estate consulting company. “It’s a healthy correction

though volumes have dropped by half since the loan measures last year.”

Falling prices Apartment prices fell 1.5 percent in prime districts in the second quarter after sliding 1.1 percent in the previous three months, the URA data showed. Those in the suburbs dropped 1.1 percent, compared with a 0.1 percent decline in the previous quarter, according to the data. Prices in areas near prime districts slipped 0.6 percent, compared with a 3.3 percent decrease in the previous quarter, the data showed. Under the new loan framework, mortgages shouldn’t push a borrower’s total debt-servicing ratio above 60 percent and those that do will be considered imprudent, the Monetary Authority of Singapore said in June 2013. Mortgage loan growth at 7.6 percent in May was the second- slowest pace since June 2007, data compiled by Bloomberg based on MAS figures showed. Bloomberg News

Japanese business mood reaches bottom line Big firms also plan to raise capital expenditure by 7.4 percent in the current fiscal year ending in March 2015

ig Japanese manufacturers’ business sentiment worsened in the three months to June but is poised to improve in the following quarter, a central bank survey showed, adding to signs the economy will shrug off April’s sales tax hike. Big firms also plan to raise capital expenditure by 7.4 percent in the current fiscal year ending in March 2015, more than initially expected, as premier Shinzo Abe’s stimulus policies brighten prospects for the world’s third-largest economy. “Capital expenditure plans are very strong, showing companies do not expect the economy to worsen simply because the sales tax rose,” said Shuji Tonouchi, senior fixed income strategist at Mitsubishi UFG Morgan Stanley Securities. “This shows that the economy is moving in line with the Bank of Japan’s scenario, so it is difficult to argue for additional monetary easing.” The headline index gauging big manufacturers’ sentiment worsened by 5 points from three months ago to plus 12, matching a low hit in September 2013, the BOJ’s tankan quarterly survey showed yesterday. It fell short of a median market forecast of plus 15

KEY POINTS Big manufacturers’ DI worsens to +12 vs f’cast +15 Service-sector sentiment also worsens, cautious of outlook Big firms’ capex +7.4 pct in FY2014/15

Japanese Prime Minister Shinzo Abe gestures during a televised news conference held at the Prime Minister’s official residence in Tokyo

and was the first time in six quarters that the sentiment index worsened, as consumer spending slumped after surging ahead of an increase in the nationwide sales tax on April 1. Service-sector sentiment

also slid, dropping 5 points to plus 19, the first decline in more than a year and matching a median market forecast. Big manufacturers expect business conditions to improve in the following

quarter, underscoring the BOJ’s view that the pain from the higher tax will be temporary. But big non-manufacturers expect conditions to remain flat three months ahead, indicating there was some

uncertainty about the extent of the tax-hike impact on household spending. The central bank has stood pat since deploying an intense burst of monetary stimulus in April last year, when it pledged to double base money via aggressive asset purchases to accelerate inflation to 2 percent in roughly two years. BOJ Governor Haruhiko Kuroda has repeatedly said the nation is steadily moving towards achieving the target, with the effect from the tax hike seen temporary. Weak exports have also been a drag on growth, although the central bank projects a moderate pick-up to underpin the economy later this year. Reuters

July 2, 2014

International Germany’s jobless rate rises again Unemployment unexpectedly increased for a second month amid signs of a slowdown in Europe’s largest economy. The number of people out of work rose a seasonally adjusted 9,000 to 2.916 million in June, the Nuremberg-based Federal Labour Agency said today. Economists forecast a decline of 10,000, according to the median of 24 estimates in a Bloomberg News survey. The adjusted jobless rate was unchanged at 6.7 percent, the lowest level in more than two decades. While Germany has led the euro area’s economic recovery this year, business confidence declined in June to the weakest level this year.

Scotland’s political future unsettles real estate investors The vote on Scottish independence, however, has had little effect on stock and bond markets

Russian gas steadily flowing into Europe Gazprom said yesterday gas flows to Europe via Ukraine remained stable. Russia cut gas supplies to Ukraine on June 16 in a dispute over unpaid bills but has continued to supply gas which Ukraine sends on to Russia’s clients in Europe. Gazprom added that exports via Ukraine stood at around 213.5 million cubic metres over the past 24 hours.

Sarkozy detained for testifying Nicolas Sarkozy yesterday became the first former French president to be taken into formal custody as he was detained for questioning in an influence-peddling probe. He can be held for questioning for a first period of up to 24 hours, with a possible extension of another day. He must then be brought before a judge to be charged or be released. The detention of Sarkozy, a right-winger who led France from 2007 to 2012, comes a day after investigators took his long-time lawyer Thierry Herzog and two magistrates into custody.

BNP not worried over fine payment

BNP Paribas has ample funding to back the fine and penalties it must pay under settlements with U.S. authorities over sanctions busting, the French bank’s top executives told analysts on a conference call yesterday. “Our liquidity situation, we always guided it as being ample,” said Chief Financial Officer Lars Machenil, who also said there was “no rush” to seek the additional tier 1 funding that is seen as a key measure of bank stability as a result of having to pay the fine, set at almost US$9 billion (6.6 billion euros) under a settlement announced late on Monday in the United States.

U.K. manufacturing speeds up British manufacturing activity expanded in June at its fastest rate in seven months, a survey showed yesterday, creating new jobs in the sector at the briskest pace in over three years. The Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) unexpectedly rose to 57.5 in June from 57.0 in May - its highest since November and well above the 50 line that divides growth from contraction. Economists in a Reuters poll had expected the index to fall to 56.8. The survey adds to evidence that Britain’s consumer-led recovery is becoming more balanced and sustainable.

Office prices in Edinburgh have been frozen for five years. Edinburgh Park pictured.

cotland’s commercial property market, already lagging behind the recovery in London following the British economy’s slump, has developed another obstacle for investors: the possibility of the U.K. breaking up. The prospect of voters supporting independence in a referendum scheduled for September 18 is weighing on the market, according to brokers and investment managers. While polls show Scots are more likely to opt for the status quo, in most of them enough are undecided to make the result too close to call. British politics has replaced the economy and the European debt crisis as the biggest concern for commercialproperty investors, according to Ben Stirling, managing director of U.K. and European real estate at Aviva Investors. Yields for the best office buildings in Glasgow and Edinburgh, Scotland’s largest cities, are at 5.75 percent, about the same as five years ago, according to broker Knight Frank LLP. In the City of London financial district, yields dropped to 4.5 percent from 6 percent during that period. Yields for properties in London’s West End, which includes Mayfair and

St James’s, declined to 3.75 percent from 5 percent. Lower yields indicate rising prices.

Like Dublin Scotland’s prime real estate market would become comparable with Dublin’s if there’s a “Yes” vote for independence, said David Hunter, chairman of London-based lender ICG-Longbow. Ireland’s capital is emerging from five years of austerity after the country exited an international bailout program last year. Investors get lower returns for office properties in Dublin than in Edinburgh, Glasgow and Aberdeen. Yields in the Irish capital at the end of the first quarter were 5.25 percent, according to CBRE Group Inc. That’s not to say there’s an absence of activity in the largest Scottish cities. In Edinburgh, the capital and centre of the independence debate, developments range from blocks of student accommodation to the Caltongate retail and office project next to the historic Royal Mile, previously put on hold during the global financial crisis and then granted planning permission by the city this year.

The Scottish government in April announced an 850 million pound revamp of the east end of the city centre with a funding agreement involving TIAA Henderson Real Estate. Property investors are echoing much of what banks and other financial institutions have said about the costs Scotland might face if the country leaves the U.K. A Yes vote would create uncertainty about the country’s future currency and that would be a “nightmare,” Aref Lahham, a founder of private equity firm Orion Capital Managers LLP, said on the side-lines of the British Property Federation’s June 5 conference in London. “What currency will the tenant pay their rent in? I believe there will be a strong devaluation of the currency. It’ll be detrimental.” A survey by ICM Research, published on June 15 in the Scotland on Sunday newspaper, showed 36 percent of respondents in favour of leaving the U.K., an increase of two percentage points from a month ago. Forty-three percent backed the U.K. remaining intact, a drop of three points. Bloomberg News

Eurozone manufacturing growth milder Some of that tepid growth was generated by running down existing orders as new business increased at a slower pace than in May

actories fulfilled existing orders to keep busy, a business survey showed yesterday. A resurgence in the bloc’s periphery countries supported Germany, which was again the driving force, despite slower growth due to extra public holidays. But in France - the bloc’s second-biggest economy - the contraction in activity deepened. Markit’s final Manufacturing Purchasing Managers’ Index (PMI) for the euro zone fell to 51.8 in June from May’s 52.2, its lowest since November. The final figure was just below a preliminary flash reading of 51.9 but has now held above the 50 mark that separates growth from contraction for a full year. A subindex measuring output fell to 52.8 from 54.3, marking a nine-month low. The backlogs of work index fell to a nine-month low of 49.5 from 49.6.

KEY POINTS Euro zone June manufacturing PMI falls to 51.8 Growth led by Germany and periphery but France contracts Factories working down old orders to keep busy Having expanded a feeble 0.2 percent in the first three months of 2014, euro zone quarter-on-quarter growth is expected to be just 0.3-0.4 percent through to the end of next year. “The slowdown will put pressure on policymakers at the ECB to do

more to prevent the recovery from stalling, and we will no doubt see more calls for full-scale quantitative easing to be implemented,” Williamson said. The chance of the European Central Bank launching an asset purchase programme has risen to one-in-three, a Reuters poll taken last week found, ahead of this Thursday’s ECB policy-setting meeting. ECB President Mario Draghi announced a raft of measures last month to counter the threat of deflation and support growth. Inflation held steady at just 0.5 percent last month, well below the ECB’s target of just below 2 percent and firmly in what it calls the “danger zone”. The PMI data showed factories raised prices marginally in June for a second month but not as fast as their input costs rose. Reuters

July 2, 2014

Opinion Business

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Leading reports from Asia’s best business newspapers

The world’s central banker

FINANCIAL REVIEW Supermarket chain Coles has admitted threatening suppliers with sanctions such as refusing to stock new products and blocking access to sales forecasts when they declined to pay extra rebates to participate in a new supply chain program. In its 34-page defence of unconscionable conduct allegations by the Australian Competition and Consumer Commission, Australia’s second largest food and liquor retailer has made more than 98 “admissions.” These admissions include using formalised scripts to sell the benefits of participating in the new supply chain program and ‘escalating’ recalcitrant suppliers up the Coles management chain when they resisted.

J. Bradford DeLong

Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research

THE PHNOM PENH POST Thai government-owned insurance company Dhipaya Insurance has Cambodia in its sights, according to a report in the Nation. According to the report, Dhipaya aims to expand its general insurance offering throughout the region within the next five years, starting with Laos and Cambodia, then Myanmar and Vietnam. Managing director of Dhipaya, Somporn Suebthawilkul was quoted saying in the Nation’s June 30 report that the company is currently undertaking a feasibility study of Cambodia for the expansion. But the Thai insurer has yet to officially apply to the Cambodian government for an insurer’s licence.

VIETNAM NEWS Five Vietnamese companies have been listed among the top 500 retailers in the AsiaPacific region in 2014, Retail Asia Publishing Pte Ltd and Euromonitor (Asia) Pte Ltd have announced. The five retailers include the Sai Gon Union of Trading Cooperatives, the Big C supermarket network, the Nguyen Kim Trading Joint Stock Company, the Sai Gon Jewellery Company Ltd and the Mobile World Joint Stock Company. Last year, they earned revenues of US$1.105 million, US$534 million, US$490 million, US$487 million and US$395 million, respectively.

THE TIMES OF INDIA At a time when the Narendra Modi administration is keen on improving India’s rankings in World Bank’s `Ease of Doing Business’, it has received a setback with the multilateral body finding few instances of “major reforms” undertaken by the government. Sources told TOI that a team from the World Bank has found that there were no major reforms between June 2, 2013 and June 1 this year, raising fears in the government that India may slip further in the rankings. They said that this has been recorded in an internal “data memo”.

ERKELEY – The US Federal Reserve these days is broadly happy with its monetary policy. But, since mid-2007, its policy has been insufficiently expansionary. The policy most likely to succeed right now would be analogous to that implemented by the Fed in 1979 and 1933, Great Britain in 1931, and Shinzo Abe today. Those of us who fear that the Fed’s approach has greatly deepened the US economy’s malaise and is turning America’s cyclical unemployment into permanent long-term structural nonemployment have lost the domestic monetary-policy argument. But there is another policy argument that needs to be joined. The Fed is not just the US central bank; it is the world’s central bank. America’s current exchangerate regime is one of floating rates – or at least of rates that can float. Back in the 1950s and 1960s, economists like Milton Friedman assumed that a global regime of floating exchange rates would be one in which currency values moved slowly and gradually alongside differences in the economy’s inflation and productivity-growth rates. In the 1970s, the economist Rudi Dornbusch (and reality) taught us that that was wrong: a floating-rate regime capitalizes expected future differences in nominal interest rates minus inflation rates into today’s exchange rate. A country that changes its monetary policy vis-à-vis the US changes its current exchange rate by a lot; and, in today’s highly globalized world, that means that it deranges its import and export sectors substantially. Because no government wants to do that, nearly all governments today follow the US in setting monetary policy, diverging from it only tentatively and cautiously. So the US is not just one

So the US is not just one economy in a world of economies following their own monetary policies under a flexible exchange‑rate regime. The US is, rather, a global hegemon: the central bank for the world

economy in a world of economies following their own monetary policies under a flexible exchange-rate regime. The US is, rather, a global hegemon: the central bank for the world, with a responsibility not just to stabilize output, employment, and inflation and ensure financial stability in the US, but also to manage the world economy in its entirety. One area of concern is the health and stability of growth in emerging markets as they attempt to benefit from capital inflows; satisfy North Atlantic demands for open financial markets; and manage the resulting instability created by speculative “hot money,” the carry trade, irrational exuberance, and overshooting. Emerging-market central-

bank governors fear a US that alternates between expansionary policy that fuels huge hot-money inflows and a domestic inflationary spiral, and rapid tightening that chokes off credit and causes a domestic recession. Then there is the main problem facing the global economy today: the crisis of Europe and the Eurozone. The creation of the euro without an appropriate fiscal union meant that transfers from surplus to deficit regions would not eliminate or even cushion demand imbalances. The fact that the Eurozone lacked the labour-market flexibility needed to make it an optimal currency area meant that adjustment via regional reallocation of economic activity would be glacial, while its members’ loss of control over monetary policy ruled out adjustment via nominal depreciation. Moreover, Europe lacks the governance institutions needed to choose the easiest path to manage economic rebalancing: moderate inflation in the north, rather than grinding deflation and universal bankruptcy in the south. The European Union’s institutional design amplifies the voices of those interests pushing for policies that have now set Europe on the deflationary road, thus all but guaranteeing lost decades during which the EU will fail to deliver growth and prosperity. We have an example from the early twentieth century of the political consequences of such a period of economic depression and stagnation. The reaction to what Karl Marx called “parliamentary cretinism” is the rise of movements that seek, instead, a decisive leader – someone to tell people what to do. Such leaders soon learn that their solutions are no better than anybody else’s and decide that the best way to remain in power is by blaming all

problems on foreigners. Thus they exalt the “nation” and focus their policies on zero-sum quarrels with other countries and on scapegoating deviant “aliens” at home. This is not in Europe’s interest, and it is not in America’s interest to have to deal with such a Europe. A democratic, prosperous, and stable Europe implies a much better and safer world for the US. Here is where the Fed comes in. By shifting its monetarypolicy regime to target 4% annual inflation – or 6% annual nominal GDP growth – the US would set in motion rapid rebalancing in the Eurozone. Rather than see the 30% euro appreciation that would follow from the ECB’s current monetary policy, German exporters would scream for measures to prevent America’s “competitive devaluation,” finally bringing about moderate inflation in the north rather than the current grinding depression in the south. A world in which the US has a proven record of honouring the trust that is required of it to play the role of global economic hegemon is a much better world for the US than one in which it is not trusted. Simply put, the US must manage the global economy for the collective common good, or else confront a world in which global macroeconomic management results from race-to-the-bottom national policy struggles. America’s medium- and long-term political, security, and, yes, economic interests require the Fed to recognize that its policy mission is not to focus narrowly on attempting to achieve and maintain internal balance. Rather, it is to embrace and fulfil its role as the world’s central bank, by balancing aggregate demand and potential supply for the global economy as a whole. The Project Syndicate 2014

July 2, 2014

Closing EU Parliament backs Schulz for second term

Russian economic growth too low

The European Parliament elected yesterday to keep Martin Schulz (pictured) as its president for another two and half years, backing a combative social democrat who has fought for more power for the EU legislature. Of 612 valid votes cast in Strasbourg, 409 were in favour of Schulz, said the parliament’s interim president, Gianni Pittella. The extension of the German lawmaker’s term follows the parliament’s success in having its candidate, Jean-Claude Juncker, nominated as European Commission President and shows lawmakers’ determination to have a greater say in Europe. “The Parliament is at the heart of European democracy,” said Schulz.

Economic growth in Russia is too low and is putting the country in a difficult situation, Central Bank Governor Elvira Nabiullina (pictured) said yesterday. “Even 1 percent is very little,” Nabiullina said. “This means that the quality of our economic growth will only just be in positive territory.” The central bank estimates gross domestic product growth at 0.4 percent this year. “We can revise it up if there are (positive) corresponding signs, indicators, but I do not think that growth in 2014 will be significantly higher, in my view it will be within the limit of 1 percent.”

Hundreds of thousands march for democracy in Hong Kong

undreds of thousands of protesters, some waving colonial-era flags and chanting antiBeijing slogans, staged a pro-democracy rally in rainsoaked Hong Kong yesterday that organisers say could be the largest since the city was handed back to China. The march reflects surging discontent over Beijing’s insistence that it vet candidates before a vote in 2017 for the semi-autonomous city’s next leader.

It comes after nearly 800,000 people voted in an informal referendum to demand a free electoral mechanism that allows voters to nominate candidates. The poll irked Beijing, which branded it “illegal and invalid”. Swarms of people poured out of the city’s Victoria Park, the starting point of the march that will culminate in the skyscraper-packed Central business district. By 6pm local, at least 200,000 protesters had joined

the march, Johnson Yeung, a rally organiser told AFP. The streets turned into a sea of umbrellas and banners bearing slogans such as “We want real democracy” and “Civil nominations for all”, with one activist urging police to remove barricades lining the protest route for wider space to accommodate the surging crowds. Flanked by security officials in lime-coloured vests, some protesters also sang the Cantonese version of “Do You

Hear the People Sing?” from the musical “Les Miserables”. “There is a strong desire for genuine democracy that offers choice and competition without [political] vetting,” Anson Chan, a former number two official in Hong Kong who is now a pro-democracy activist, told reporters. The chairman of the Hong Kong post office union, who marched with the protesters in sweltering and muggy weather, said the city’s government was guilty of

kowtowing to Beijing’s diktat. “This march is not for us, it’s for our children. Without universal suffrage there’s no way to monitor the government,” said Ip Kam-fu.

Surging crowds Organisers expected more than half a million people to join the rally, which would be a record high. It was impossible to independently verify early numbers but the rally seemed visibly larger than the June 4 rally to mark the 25th anniversary of the Tiananmen Square crackdown, which police said attracted 99,500 people. Paul Yip, a statistician at Hong Kong University, told AFP he was leading a team of 15 to independently assess Tuesday’s crowd size, a topic of great politically sensitivity. July 1, a traditional day of protest in the former British colony, marks the anniversary of its handover to China in 1997 under a “One country, two systems” agreement. That allows residents liberties not seen on the mainland, including free speech and the right to protest. But there are heightened fears that those freedoms are being eroded. Among other fears, there has been a series of attacks on media workers in recent months – including the stabbing of a liberal former newspaper editor – while pro-democracy media have complained of massive cyber-attacks.

Chinese firm fined for pollution

First banks IPOs since 2010 ready

RMB in full vogue in South Korea

Chinese chemical company in east China’s Zhejiang Province has been fined 20 million yuan (US$3.25 million) for illegally discharging waste water and polluting the environment, local authorities said yesterday. The fine is the largest sum handed down for pollution in the province. Zhejiang Huidelong Dyeing Chemical Co. Ltd. was found guilty of conspiring with another chemical company to discharge more than 5,000 tons of waste water into an urban sewage pipeline without proper treatment in 2012, according to a ruling from the district people’s court of Shangyu, Shaoxing City on Monday. The company was also found guilty of dumping more than 18,000 tons of waste water inside the seawall of Hangzhou Bay between April and September 2013, according to the court. Eleven people involved in the illegal discharge were given jail terms of up to four years, according to the court. Xinhua

leven Chinese banks are planning for initial public offerings, their draft prospectuses showed, the first lenders to push ahead with listing plans since China Everbright Bank Co Ltd debuted in 2010. In the draft documents posted on the China Securities Regulatory Commission website, nine banks said they plan to list on the Shanghai stock exchange while two are seeking to list on the smaller Shenzhen bourse. None of the 11 small and medium-sized lenders disclosed their fundraising target but all said they would use the funds to increase capital. Many smaller Chinese banks are seeing a spike in non-performing loans, and a decline in deposits, as the economy slows and competition from online finance firms increases. IPOs picked up in early June after a four-month hiatus followed a brief flurry of activity in January and February which ended a year-long halt. Analysts said the securities regulator had halted IPOs in late 2012 to allow it to refine listing rules and to avoid draining money from existing stocks. Reuters

hinese tourists no long need to bring a large amount of U.S. dollars when travelling in South Korea, as they can choose to use China UnionPay, or even RMB in cash in some stores. For Chinese tourists, it is more convenient for them to use China UnionPay and cash, or they have to spend much more time on finding currency exchange booths and deciding on a favourable price. China is the first source of tourists for South Korea. The number of Chinese tourists visiting South Korea reached one million in 2008, compared with around 710,000 in 2005. China UnionPay entered South Korea in 2005, and nearly all South Korean stores accept it, said Sheng Jinchun, China UnionPay’s representative to South Korea. South Korean banks have also witnessed a large amount of RMB deposits since the second half of last year, with the total volume reaching 11.3 billion U.S. dollars at the end of May. Xinhua