Macau Business Daily, July 11, 2014 by Business Daily

MOP 6.00 Closing editor: Alex Lee Year III

Number 580 Friday July 11, 2014

Publisher: Paulo A. Azevedo

Into single digits

rom 14 percent in February. To 11 percent in May. To 8 percent this month. 2014 gaming revenue growth estimates suffered another body blow yesterday. The investor downgrade stalks the VIP segment’s downward spiral with revenues set to tumble 9 percent in the second half. Single digit territory beckons in what is shaping up to be the worst annual performance for five years

www.macaubusinessdaily.com

Page

Zone A to add 10,000 more flats

But when? Why stop at security guards and cleaners? Legislators may consider extending the minimum wage to sectors territory-wide. A good idea but third permanent committee president Cheang Chi Keong anticipates an uphill battle

The government will increase the number of public housing units in Zone A. 28,000 flats will represent an increase of 64 percent. Applications will be invited in 2019, with the first units delivered in 2022. If reclamation stays on schedule PAGE 2

PAGE 3

Out of the market

HSI - Movers

In one year, office rents shot up 60 percent. Jones Lang LaSalle blames the lack of supply and the appearance of many new companies. Smaller companies get the message. They’re already lining up for industrial buildings to cut costs

Name

July 10

Page 4

Tangled web The Commission Against Corruption is now involved. CCAC is investigating the Wynn Resorts deal which involved 400 million patacas paid to an enterprise in Beijing. For development rights in Cotai. DSSOPT denies all knowledge

%Day

China Resources PoW

3.15

Cheung Kong Holdin

2.01

PetroChina Co Ltd

1.55

Hengan Internation

1.28

China Life Insurance

1.21

Swire Pacific Ltd

-0.47

Tingyi Cayman Islan

-0.69

China Mengniu Dairy

-0.83

Bank of China Ltd

-0.86

Ping An Insurance Gr

-1.58

Source: Bloomberg

I SSN 2226-8294

PAGE 4

Statistics meet reality Figures show that China’s trade improved in June. However, numbers deceived analysts’ forecasts. The odds are that PBOC will inject even more stimuli Page 10

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July 11, 2014

Macau Brought to you by

HOSPITALITY Rising tour tide

Additional 10,000 public housing units for Zone A Zone A, originally slated for the construction of 18,000 public housing flats, has been enlarged to accommodate 28,000 flats – a 64 percent increase - which will be available in 2022, assuming reclamation is finished on time Kam Leong

newsdesk@macaubusinessdaily.com

The number of inbound visitors arriving on package tours has increased noticeably in the last few years. Their total number has increased from less than 5.8 million in 2010 to almost 9.8 million in 2013, a rise representing a 70.2 percent growth in just that period. That is equivalent to an average annual growth figure close to 20 percent. In the same period, the number of those coming from China rose at the slightly higher rate of 22 percent. China provides the biggest contingent of tourists arriving on tours, with a share of more then three quarters of the total in 2013. Taiwan and Hong Kong took distant second and third places, with shares of 8.9 percent and 4.4 percent, respectively. Their average growth rates in the period were, however, much above the average. They stood at almost 34 percent and 15.3 percent, respectively. Non-Asian countries weigh very little in these accounts, accounting for a combined share of less than 1 percent in the last three full calendar years. As a result, the plot for all Asian countries together is virtually indistinguishable from the plot for the total number of visitors on package tours.

The results recorded in the first five months of the year point to sustained growth this year. A simple extrapolation from the available figures suggests overall growth will be close to 5 percent, with China possibly growing at a higher rate, closer to 8.5 percent. Non-Asian countries, in the same period, with about 24,000 visitors, accounted for less than 0.6 percent of the total. Visitors from Asia, except China, seemed to be stabilising at around 200,000 for most of the last 3 years, but have declined visibly in recent months.

4.269 million

number of inbound visitors on tours, Jan-May 2013

he government is planning to increase the amount of public housing in Zone A of the new urban area to 28,000 flats from its original 18,000 flats. It is believed that applications to purchase the flats will be open in 2019 while the construction of the first of the public residential buildings will be completed between 2022 and 2023, assuming the reclaimed zone can be finished as scheduled, in 2016, Executive Council spokesman Leong Heng Teng announced yesterday. Each of the 28,000 flats will occupy 800 square feet while the unit types will be subject to demand based on previous applications for public housing. A total of 32,000 flats will be built in the reclaimed zone with 12 percent allocated to private housing, amounting to some 4,000 units The related construction of public housing in the zone will be open to tender in 2019, in tandem with purchase application. Mr. Leong said that the government has realised that the most serious problem the city is facing currently is the shortage of land in the territory, with the high price of housing affecting citizens’ confidence in buying private flats. The government confirms it will increase the supply of land in addition to increasing the amount of public housing in the short term. An increase in the numbers of

flats suggests an increase in floor area ratio as well. According to architect Eddie Wong Yue Kai, an Executive Council member, the new ratio has been enlarged to 8 times the gross floor area from 6 times previously. Mr. Wong said that the ratio is still lower than luxury private housing, the ratio of which is usually around 13 times gross floor area. Asked whether the increase will affect the original objective of the zones – to improve the quality of life - Mr. Wong claimed the size of Zone A equals the total size of Iao Han, Tai Shang, Areia Preta and its reclaimed area with more than 160,000 people living there. Hence, he thinks that some 120,000 population in Zone A represents an improvement in the quality of life. The adjustment was decided upon by Chief Executive Fernando Chui Sai On after several meetings with the Executive Council, Mr. Leong said. Mr. Leong said the government owns the whole of the new urban area at the moment and has not awarded any to any companies. All five zones of the reclaimed area can offer a total of 56,000 public housing units for some 170,000 people, he said. According to the new design of Zone A, the size of green area remains the same, while public facilities, such as medical, educational and sporting facilities would be increased. In addition to Zone A, more than

twenty idle parcels of land will be used to build public housing once they are returned to the government. However, Mr. Wong claimed that the return of some idle parcels of land may lead to litigation; as a result, it is more difficult to set a timeframe for construction on plots. Currently, about 4,400 public flats are being built on four parcels of land, two of which are located in the Patane area (Shá Lei Tau), while the other two are located in Taipa. It is believed that this parcel of flats can only be released after 2017. Mr. Leong also mentioned that the government may ‘borrow’ more parcels of land from Hengqin, which has already leased land to the University of Macau for its new campus. However, he said the government has not yet considered the function for the land to be ‘borrowed’. The reclamation of Zone A of the new urban area was originally scheduled to be finished by the end of 2015; however, legislators recently questioned if the construction would be completed in time, given the serious delay in construction. The government has postponed the date of the completion to the beginning of 2016. Zone A is also where the Macau part of the Hong KongZhuhai-Macau Bridge makes landfall. Legislators suspect that the delay has also affected the construction of this area.

July 11, 2014

Macau

Legislators may consider minimum wage equality Even before the minimum wage is to come into effect for the city’s security workers and cleaners there are still lobbies for the wage subsidy to remain Stephanie Lai

sw.lai@macaubusinessdaily.com

egis lat or s should consider extending the minimum wage to sectors beyond security and cleaning workers as stipulated by the current bill, third permanent committee president Cheang Chi Keong announced to media yesterday following the deliberation of the bill with legal consultants. Legislators on the committee were reminded by legal consultants that the government should consider

the principle of equality. The question was whether the minimum wage policy should be extended territory-wide as opposed to only applying it to security and cleaning workers employed by property management companies, as stipulated by the current minimum wage bill, Mr. Cheang said. There is still no known time line for when a territorywide minimum wage policy can be enacted, however,

even though Secretary for Economy and Finance Francis Tam Pak Yuen confirmed it as a direction to pursue on June 30. This was the day the Legislative Assembly unanimously approved the minimum wage be introduced for security and cleaning workers. “As I’ve expressed before at the general approval of the bill, we [the Federation of Trade Unions] do hope that the minimum wage can be

extended to other sectors as well; for instance, the cleaners working for restaurants should also be protected by the minimum wage policy because their pay is quite low now,” legislator Ella Lei Cheng I remarked to Business Daily. The road for a minimum wage on a territory-wide basis will not be an easy one, Mr. Cheang mentioned to media yesterday, as some legislators still advocated that the current wage subsidy scheme remain

and replace the minimum wage policy. The wage subsidy scheme, implemented since 2008, gives low-earning permanent residents aged 40 or above a cash allowance to top up their monthly salary. According to the latest administrative regulation on the scheme, employees currently earning less than 15,000 patacas a quarter (or 5,000 patacas a month) can apply for the wage subsidy. The bill says that the minimum wage level should be no less than 30 patacas (US$3.8) per hour, or 240 patacas a day, or 6,240 patacas a month. No less than 83 percent of the minimum wage amount should be the basic salary paid to cleaners and security workers. The basic salary as mentioned does not include overtime pay or bonuses. The bill also states that the minimum wage level should be reviewed on an annual basis. In the later sessions for the bill deliberation, committee legislators have to discuss whether the equation for setting the minimum wage includes wages derived from paid holidays, Mr. Cheang said.

July 11, 2014

Macau

Office rentals up 60 percent Y-O-Y in 2Q The limited supply of office rentals will continue to drive prices up, as more companies seek to expand their operations due to the expansion of casino resorts in Cotai. Many small companies are already looking for cheaper sites like factory buildings to avoid price hikes Alex Lee

Alex.lee@macaubusinessdaily.com

verall rentals rose nearly 60 percent year-on-year during the second quarter of the year, according to the Macau Mid-year Property Review produced by Jones Lang LaSalle (JLL). Comparing the second quarter of 2014 with the previous quarter, the increase was 20 percent. Grade A office rentals in the Nam Van district recorded the strongest growth, with offices leased at 31 patacas per square foot. As for the sales market, office capital values increased 51.7 percent in the first half of 2014. NAPE was the hottest spot for the market as prices of office space reached values close to 10,300 patacas per square foot. Despite such increases, Macau’s office sector registered its biggest expansion with a total of 1,165 new incorporations in the first quarter of 2014, which represents a year-onyear rise of 21.4 percent. As for offices, the current vacancy rate stood at about 5 percent by the

end of June. Last year, the same month posted a vacancy rate of about 10 percent. Given such a limited supply, the nearby township of Hengqin, in Mainland China, is seen as an alternative for offices that can bring in more supply.

Offices opt for factory buildings Increasing office prices have left many small companies looking for cheaper places to set up office. Factory buildings are now starting to be occupied as they are seen as a viable alternative. “The development in Cotai prompted some companies to expand their businesses and, at the same time, open their back offices and operation centres, leading to a stronger office leasing demand. Recently, some companies moved out from office buildings and leased spaces in factory buildings at monthly rentals of about 8-10 patacas per square foot to save costs,” Alison Yip, Associate Director of JLL Macau explained

yesterday during the presentation of the company’s Macau Mid-year Property Review. “This is just the beginning of a new trend. But if it persists it may lead to the increase of rental prices in factory buildings,” she reasoned. As for prices in the office market, Ms. Yip said that they are expected to remain on an uptrend for the remainder of the year.

Residential rentals to ‘boom’ Since the beginning of the year, residential rentals have increased by 7.1 percent for high-end properties and 12.3 percent for mass and medium housing. This trend is expected to continue mainly driven by the arrival of non-resident workers in Macau. “According to our in-house statistics, on average there will be about 2,700 new units completed each year from 2014 to 2016. It is believed that the new supply is inadequate to meet the strong leasing demand by expatriate workers,” Head of Residential at JLL Macau,

Jeff Wong, explained. “With the new gaming facilities in Cotai completed next year, we expect to see a more active residential market. There is still a gap for residential rental growth,” he said. “The new facilities in Cotai will bring many non-resident workers. As the residential supply is very limited, one can expect rentals to boom. There will be double-digit growth in rentals for the following years and really small places will be rented by an amount close to 8,240 patacas per month,” he told Business Daily. As for the capital value of the residential market, high-end housing has increased 25.1 percent since the beginning of 2014. The increase was similar in the mass and medium markets with a rise of 23.4 percent. In the retail property market, the high street shop rental index climbed 4.7 percent, while value increased 1.4 percent in the first six months of the year. “Retail rentals remained broadly stable in 1H14 and grew at a relatively moderate pace as compared to the past few years,” Ms. Yip said.

Commission investigates Wynns Macau’s Cotai land deal

he deal in which Wynn Resorts paid 400 million patacas for development rights in Cotai in order to build Wynn Palace is being investigated by the Commission Against Corruption (CCAC). The Commissioner of CCAC, Fong Man Chon, revealed yesterday to TDM that he had received information about the deal that is now being analysed. Steve Wynn explained to Macau Business, in May 2012, that to build Wynn Palace in Cotai, the American company had to pay around 400 million patacas to obtain development rights as the land had already been committed to individuals from Beijing. The group from Beijing involved

is Tien Chiao Entertainment and Investment Company. However, the Land, Public Works and Transport Bureau (DSSOPT) denied in a press release the existence of any information related to Tien Chiao Entertainment and Investment Company in the process that granted Wynn Resort development rights in Cotai. Last Monday, the International Union of Operating Engineers (IUOE) submitted a public request to the Chief Executive of Macau, Chui Sai On, and to the Secretary of Transport and Public Works, Lau Si Io, asking for information regarding the initial commitment of land rights in Cotai to individuals from Beijing.

July 11, 2014

Macau

Gaming market growth revised to 8pct Analysts at US bank Wells Fargo say if the mass market trend remains robust it could pace around 30pct in the second half of the year Sara Farr

sarafarr@macaubusinessdaily.com

asino mass market revenue growth could range around 30 percent in the second half of the year. Analysts at Wells Fargo Securities, LLC are reviewing estimates for 2014 based on a weaker VIP segment growth. As such, estimates were lowered to 8 percent year-on-year growth over the previous estimate of 11 percent. ‘While it is difficult to extrapolate a normalised VIP run-rate post-July, we are cautiously reducing our second half of 2014 VIP market year-on-year revenue growth estimate from -1 percent to -9 percent,’ the brokerage firm wrote in a note to clients, adding that while estimates for the second half of the year remain at 30 percent year-on-year growth, the market estimate for the territory was reduced from 11 percent to 8 percent. The main reasons for the lowering of the estimate are a softening of VIP market results since April and May due to a ‘generally soft macroenvironment driven by contracting Chinese credit growth and slower home price growth,’ the note reads. Analysts admit that while these factors had been predicted earlier, the ‘magnitude of the deceleration was greater than expected.’ All analysts unanimously agree that the month-long World Cup championship being held in Brazil and due to end July 14 has had an impact on the VIP trend here. Nonetheless, the mass market trend remains ‘robust,’ although it could have its own ‘potential risks,’ analysts at Wells Fargo said. The mass market here is driven primarily by the growing number of infrastructure projects – mainly that of the new hotels – and the growing number of visitors from mainland China despite the restriction on the

number of days a tourist can stay in Macau when travelling on a transit visa. Another driver is the shift of tables from VIP to mass.

Potential risk There are potential risks in the mass outlook for the second half of the year. A possible low -20 percent growth in July results due to the World Cup could ‘unnerve’ investors until August results, analysts said. In addition, there’s also the possibility of disruption due to the full smoking ban coming into effect on October 6. ‘We currently model 30 percent growth in the second half of 2014,’ analysts at Wells Fargo said in the note to clients. These figures are based on an estimated mass win average daily rate of HK$410 million in the second half of 2014, up 15 percent from HK$355 million in the first half of the year. Meanwhile, second quarter estimates for the four casino operators in Macau listed on the Stock Exchange in the U.S. were lowered by between 1 percent and 8 percent.

Property earnings before interest, taxes, depreciation, and amortization (EBITDA) for Las Vegas Sands Corp (LVS) was lowered by 6 percent to US$330 million for the second quarter of the year, around 5 percent lower than the consensus. While the company’s mass revenue growth increased by 36 percent yearon-year, shares have dropped quarteron-quarter. ‘We expect LVS to regain share in the third and fourth quarters as it ramps its new premium mass offerings at Sands Cotai Central,’ analysts said. Property EBIDTA for Wynn Macau Ltd was also lowered by 6 percent to US$330 million, around 5 percent

Current 2014 Macau Estimates

Emperor Int’l borrows HK$1.65 bln Sara Farr

sarafarr@macaubusinessdaily.com

mperor International Holdings Ltd is set to issue denominated notes due in 2017. These notes have a per annum fixed rate of 5 percent and an aggregate amount of HK$1.65 billion, the company said in a filing with the Hong Kong Stock Exchange. The subscription agreement was entered into with Emperor Securities Ltd, Guotai Junan Securities (Hong Kong) Ltd, Industrial and Commercial Bank of China (Asia) Ltd and Bank SinoPac, Hong Kong Branch. According to the company’s filing, the notes will be issued on July 15 and ‘will be offered or sold outside the United States of America in accordance with Regulation S under the U.S. Securities Act of 1933.’ Proceeds of the notes will go towards the group’s ‘general working capital purposes,’ the filing adds.

Emperor International recorded a gross profit of 2.45 billion patacas during the year 2013/14. However, the amount achieved by the Hong Kong-based group is less than that of a year prior when it posted profits of 3.81 billion patacas. The results of the group were mainly driven by the revenue growth from its subsidiary Emperor Entertainment Hotel, which includes the Grand Emperor Hotel in Macau. The hospitality segment achieved 11.6 percent growth to 2.38 billion patacas in 2014 from 2.13 billion patacas in 2013. The Grand Emperor Hotel accounted for 76.8 percent of the total revenue of the group, while in the previous year it accounted for just 36.4 percent. Emperor International reported revenue of 3.1 billion patacas, while in the previous year it achieved revenue of 5.86 billion patacas.

lower than the consensus. But analysts forecast that Wynn will continue to focus on the premium mass segment, which could help improve company results at the end of the year. Melco Crown Entertainment (MPEL) also had its property EBIDTA lowered by 8 percent to US$343 million, around 10 percent below consensus. Analysts say the company will continue to benefit from its street proximity to Sands Cotai Central. And MGM China Holdings Ltd has had its second quarter EBITDA lowered by 1 percent to US$212 million, 9 percent lower than the consensus. Analysts at Wells Fargo, however, remain positive about MGM’s operations in Macau and forecast the company could distribute US$500 million or more in dividends each year to its parent company MGM Resorts International, or around US$4 billion over the next 10 years, thus ‘reducing MGM’s U.S. net leverage considerably.’ While street estimates assume a net revenue growth of around 16 percent for Macau casinos, the American brokerage firm has lowered its estimate to 13 percent. ‘Our estimates imply strong mass growth and market share gains [from Galaxy and SJM] for our coverage, implying minimal [low-single digit] downside to consensus EBIDTA estimates,’ analysts added.

Source: Wells Fargo Securities, LLC

July 11, 2014

Gaming

$10 million Yale poker champion shows the way

anessa Selbst spent part of her opening day at the World Series of Poker’s main event fighting for social justice which, along with an aggressive playing style, has come to define her career. “First break: constant flow of men in women’s bathroom, and they don’t even have the decency to close the stall doors,” Selbst said two days ago on Twitter, prompting the Las Vegas tournament’s organizers to quickly add security. Selbst, just 30, honed her poker skills while attending Yale University, eventually playing full time after graduating in 2005 with a political science degree. Worried about wasting her potential, she returned to the New Haven, Connecticut, school and earned a law degree in 2012. Since then she’s focused some of her time on a foundation to fund projects that challenge social inequality. She’s also returned to poker, becoming the most successful female in history with more than $10.5 million in documented tournament earnings. “I tried to not be a poker player,” Selbst said in a telephone interview from Las Vegas, where last month she tied Barbara Enright as the only women to win three World Series championship bracelets. “I thought that I was just going to be a lawyer and then I went on to win a couple of tournaments and figured maybe I can make this work.”

Top Rank She has. Selbst spent four weeks atop the Global Poker Index, a ranking of the game’s top players, before falling to No. 2 behind Germany’s Ole Schemion. She was the first woman to head the list, while the next highestranked female is Samantha Cohen, at 103rd. Selbst was eliminated on the second day of the WSOP’s $10,000 buy-in No-Limit Hold’em World Championship, otherwise known as the Main Event, which pays the winner $10 million. Selbst started with 30,000 in chips, fell to about 3,000 and finished July 7 at 38,000. Selbst’s success is due to an

aggression that “constantly puts you in a difficult position,” according to Norman Chad, an ESPN poker analyst. “Nobody wants to see Vanessa at their table,” Chad said in an e-mail. “It’s as if her cards don’t matter; she forces her opponent to make tough decisions for big chunks of their chips. And you never know what she has.”

Selbst spent four weeks atop the Global Poker Index, a ranking of the game’s top players. She was the first woman to head the list, while the next highest-ranked female is Samantha Cohen, at 103rd

Selbst lived in Brooklyn, New York, before moving to Montclair, New Jersey, when she was 10. She began playing poker with friends in high school after seeing the Matt Damon movie “Rounders.”

College Poker After following in the footsteps of her mother, Ronnie, by attending Massachusetts Institute of Technology for a year, Selbst transferred to Yale, where she played poker in home games and on the Internet, and spent her free time discussing strategy on online forums. Out of boredom, Selbst said she

July 11, 2014

Gaming

ended up playing about 40 percent of poker hands when the norm was to play about 20 percent. The decision helped her learn how to manoeuvre out of tricky situations by knowing how to exert more pressure than her opponents could stand. “When you’re playing really bad cards, your own cards don’t matter,” she said. It’s a style that many young players used in 2010-11, though few still do, said Daniel Negreanu, the defending WSOP Player of the Year and poker’s all-time money leader, according to the Hendon Mob database. “They’ve gone back to being a little more careful,” Negreanu said in a telephone interview. “It’s just her that’s stayed aggressive.”

Foolish Move The style made Selbst look foolish during her national television debut on ESPN at the 2006 WSOP, where an ill-timed bluff wiped out her stack of chips at the final table of a $2,000 no-limit event. “I’m sure I made fun of her; that’s probably the last time I criticized her play,” said ESPN’s Chad. “How can I evaluate or criticize her? She plays at another level - I can’t even understand what she’s doing most of the time.” Selbst’s latest World Series bracelet, along with an $871,148 payday, came in a $25,000 buy-in No Limit Hold ’em event in May. In addition to poker, Selbst plans to use her Yale Law background to challenge social injustice. A new Urban Justice Centre board member, Selbst in 2010 founded Venture Justice, a non-profit initiative that provides seed money for projects to fight for racial and economic equality. The foundation’s first effort is a database that allows people to upload videos showing police misconduct.

LGBT Advocate At Yale, Selbst was president of the Outlaws, which calls itself ‘an organization of lesbian, gay, bisexual, transgender and queer members in

the law school community.’ She said she was once arrested for questioning a police officer who broke up an Outlaws party during the Yale-Harvard University weekend, as it was the only party halted. The sense of powerlessness she felt that day has driven her to fight back, she said. “I was thinking this is one of the worst feelings in the world and just to have that realization in one day of my very privileged existence, to know that there are people for whom that’s a daily reality, is just mind boggling,” Selbst said. Selbst’s mother was an options trader on the American Stock Exchange for 11 years before entering law school. Ronnie Selbst was working as a judicial clerk in Essex County, New Jersey, criminal court when she died in 2005. Selbst said she has no interest in a Wall Street job like the one her mother had, although she’ll continue to supplement her poker career with outside interests. “It’s a waste of a lot of potential, intelligence and enthusiasm to just play a zero-sum game your whole life and not do anything else,” she said.

Vanessa Selbst honed her poker skills while attending Yale University, eventually playing full time after graduating in 2005 with a political-science degree

July 11, 2014

Greater China

Money chooses Mainland Hong Kong’s high prices lead investors to Mainland markets

march in a decade this month and weak corporate earnings, HSBC, the bank founded in Hong Kong in 1865, wrote in a research report this week. The firm has an underweight rating on Hong Kong shares and is overweight on China.

Mainland stimulus

ome of the world’s biggest stock investors are shifting their China bets to mainland companies from Hong Kong after the city’s shares climbed to the most expensive levels in 12 years. The MSCI Hong Kong Index traded at 16 times reported earnings at the end of June, versus a multiple of 9.8 for the MSCI China index, the widest gap since 2002. Hong Kong’s gauge has outperformed the China measure for four straight years, rallying 160 percent from its low amid the global credit freeze. Amundi Asset Management, Credit Suisse Group AG and Sumitomo Mitsui Trust Bank Ltd., which oversee almost US$3 trillion, say Hong Kong stocks will struggle as reduced Federal Reserve stimulus weighs on developers and banks

that make up more than 35 percent of the index. The investors have joined BlackRock Inc., the world’s largest money manager, in favouring Chinese shares amid signs Premier Li Keqiang is succeeding in efforts to keep economic growth from falling below 7.5 percent. “We are positive on China and believe the market is too cheap,” said Ayaz Ebrahim, the Hong Kongbased chief investment officer of Asia ex-Japan equities at Amundi, which oversees about US$1 trillion worldwide. “We’ve been gradually taking Hong Kong stocks off the table.” Strategists from at least five of the world’s biggest banks are also retreating from equities in the former British colony. HSBC Holdings Plc, UBS AG, Standard Chartered Plc, BNP

Paribas SA and Citigroup Inc. have all downgraded their recommendations on Hong Kong shares since the end of May.

On the mainland, policy makers have lowered reserve requirements for some lenders, sped up spending of state funds and announced plans to build railways, helping the nation’s manufacturing industries expand in June at the fastest pace this year. Premier Li said in a speech in London last month that the government is “adjusting its economic operations to ensure the minimum growth rate is 7.5 percent.” “China will perform better than Hong Kong in the third quarter,” Fan Cheuk Wan, the chief investment officer for Asia- Pacific at Credit Suisse’s private banking and wealth management unit, said at a press briefing on July 7. “The China equity market is well-positioned to see a tactical rebound on the back of growth stabilization.” Bloomberg News

U.S. link Hong Kong has a closer link to America’s monetary policy than does China because the Hong Kong dollar is pegged to the greenback and its economy is more open to international capital flows. Hong Kong’s residential real estate prices have more than doubled since the end of 2008, when the Fed cut its benchmark lending rate to a record-low near zero. Higher borrowing costs may weigh on a Hong Kong market that’s already grappling with falling retail sales, a pro-democracy movement that spurred the city’s biggest protest

We are positive on China and believe the market is too cheap

More flexible and free yuan Bank Governor Zhou Xiaochuan explains currency strategy

hina will reduce its intervention in the currency market, Central Bank Governor Zhou Xiaochuan said on Wednesday, striking a conciliatory note in public about the yuan’s value as he promised to free the interest rate market as planned. Speaking on the sidelines of annual high-level talks between China and the United States, Zhou said China will also increase the yuan’s flexibility - a standard phrase used by Beijing to say that the yuan will have greater room to fluctuate in value. “On the foreign-exchange market, the direction of our reforms is clear: we hope that the exchange rate could be kept basically stable on a reasonable and balanced level through reforms,” Zhou told reporters at a briefing. “At the same time, we will allow market supply-anddemand to play a bigger role in determining the exchange rate, expand the floating range of the exchange rate, and increase the exchange

Ayaz Ebrahim Amundi

economy and abnormal capital inflows. In the past, China has said that it has stopped interfering with the yuan’s value, though foreign exchange traders subsequently said they could still see the central bank buying or selling the yuan in sizable quantities in the market. Reuters

Chinese and Americans held several meetings on the economy over the last two days. Pictured Vice Prime Minister Wang Yang (R) listens to US Secretary of Commerce Penny Pritzker during a meeting of the USChina Strategic and Economic Dialogue

rate’s flexibility.” “This means that as the goals are being achieved and when conditions are ready, the central bank will significantly reduce its intervention in the foreign-exchange market.” The yuan is closely managed by Chinese authorities, who are fearful of any sharp gyrations in the

currency, having seen a sharp rise in the yen hobble Japan’s economy in the 1980s. U.S. officials have long alleged that China deliberately holds down its currency to boost its exports, an accusation which China has always denied. Chinese Finance Minister Lou Jiwei addressed U.S.

concerns about the yuan’s value on Wednesday, saying that Washington constantly raises the issue of whether Beijing can halt its interference in the foreignexchange market. Lou said it is difficult for China to take a hands-off approach when it comes to the yuan, given an unsteady

On the foreignexchange market, the direction of our reforms is clear: we hope that the exchange rate could be kept basically stable on a reasonable and balanced level through reforms Zhou Xiaochuan PBOC Governor

July 11, 2014

Greater China

Tianjin firms extend extended deadline Companies try to comply with the trading scheme

hina’s Tianjin has extended the deadline for its biggest carbon producers to comply with the city’s emissions trading scheme a second time, giving companies two more weeks to hand over permits to the government. The delay is the latest in a string of hiccups as governments and company officials in seven regions running emissions schemes gather experience in carbon trading, Beijing’s favoured approach for reducing greenhouse gases. The 114 energy and industrial firms covered by the Tianjin market, were supposed to hand over permits to cover for their 2013 emissions yesterday. But the deadline has been extended to July 25, the Tianjin Climate Exchange announced, as the government needs more time to make final adjustments to permit allocations to companies whose 2013 emissions varied significantly from what had been expected. Power and heat facilities were given 90 percent of their allocated lots last year. How much of the final 10 percent they will actually receive will be decided by their verified emission reports for 2013.

The permits will be issued next week, and could increase overall market supply. Trading in the Tianjin market has increased slightly in recent weeks, but the total volume traded since the market began last December has only reached around 250,000 permits, of around 160 million permits that could be offered, indicating that demand is low. The price rose to its highest level in March, when permits traded at 50 yuan (US$8.07), but has since fallen to around half that. “Tianjin gave out permits to manufacturers based on historical emission levels,” said one expert involved in the allocation process

114

energy and industrial firms covered by the Tianjin market

who wished to remain anonymous. “The government has no plan to take back surplus permits unless they have closed down their business,” the expert added. Observers have proposed the government tightens the cap for 2014 to incentivise emission cuts, but the government has yet to announce how many permits will be handed out for this year. Trading of 2014 permits will start on July 28, the Tianjin Climate Exchange said yesterday.

Latest delay The extension follows delays elsewhere in the country. The compliance date for the Beijing scheme was June 27, but the municipal government has yet to release any data. However, market sources say some 50 companies have yet to hand over permits to the authorities. In Shenzhen, four companies missed a July 1 deadline, but according to news provider Crystal Carbon, three of those have now bought the permits they needed to meet their targets. Reuters

Pictured Tianjin Railway Station reflects enormous recent economic growth in the city

Taiwan’s tourism hits record Revenue hit an all-time high of US$12.32 billion last year, boosted by a growing number of Chinese visitors, the government said yesterday, as relations between the two continue to improve. Last year, a record 2.87 million Chinese nationals visited the island, up 11 percent from 2012 and generating an estimated US$5.53 billion in revenue, Taiwan’s tourism bureau said. The number of tourists visiting Taiwan from the mainland has shot up since 2008, when Taipei lifted a ban on Chinese tourists as part of a series of measures aimed at boosting ties between the two rivals.

White paper lauds economic aid China has actively helped other developing countries in infrastructure construction, and assisted their efforts in strengthening capacity building and trade development, said a white paper on China’s foreign aid released yesterday. China has also increased the amount of foreign assistance in environmental protection, helping the recipient countries realize economic and social development, according to the white paper released by the Information Office of the State Council. From 2010 to 2012, China helped them build 156 economic infrastructure projects, and effectively cut down investment costs for these projects while ensuring quality.

College teachers struggling for higher income

No gas, no tax Green vehicles will benefit from tax exemption

hina will exempt electric cars and other types of “new energy” vehicles from purchase tax, the government said, as it seeks to reduce pollution and conserve resources. The State Council, or cabinet, said that buyers of new energy vehicles -fully electric, hybrid and fuel cell cars- would not have to pay the levy from September to the end of 2017, according to a statement. The tax is 10 percent of the net value of the vehicle, according to state media. “For achieving industrial development and environmental protection, this is a win-win,” the State Council said in the statement on Wednesday. The exemption applies to imported vehicles as well as domestically produced ones, the statement said, adding the government would compile a catalogue of eligible models. China has sought to increase ownership of electric and hybrid vehicles to ease chronic pollution

For achieving industrial development and environmental protection, this is a win-win State Council statement

and reduce reliance on oil imports, but high prices, lack of infrastructure and consumer reluctance have been obstacles. The government has set a target of having five million new energy vehicles on the streets by 2020. But China has only 70,000 currently in use, the China Daily newspaper reported yesterday. The central government also offers outright subsidies for electric passenger car buyers, which were set at US$5,700 to US$9,800 last year, while local incentives can bring the price down further. Lack of charging stations and the desires of Chinese consumers -many first time owners- for big, flashy vehicles have hurt electric car sales. Policymakers are seeking to move away from state spending to domestic consumption as a key driver of the economy, which has been slowing. Several foreign automakers have announced plans to develop environmentally-friendly vehicles in China, despite the currently small market. US electric car maker Tesla Motors has also caused a stir with aggressive marketing and by pitching its imported vehicles to luxury buyers in China, although analysts say they might only find a niche market. AFP

Teachers at Chinese colleges and universities are struggling to make ends meet, according to a survey conducted by China’s higher education association. The survey, cited by yesterday’s China Youth Daily, said about half of Chinese college and university teachers earn less than 100,000 yuan (about US$16,000) a year, and only 14.1 percent earn more than 150,000 yuan. Many said they could barely make ends meet, with less than a third of those surveyed saying they could keep their bank accounts in the black, showed the research, which covered 130,000 people from 84 institutions across China.

Samsung to probe child labour charges The firm said yesterday it was “urgently” investigating allegations that one of its suppliers in China employed children and underage students. China Labour Watch (CLW) said the supplier, Shinyang Electronics, was believed to have hired at least five workers under the age of 16. The New York-based watchdog cited other violations, including unpaid overtime wages, excessive overtime and a lack of social insurance and training.

July 11, 2014

Greater China

Don’t bet on forecasts Chinese trade previsions mismatch June results

hina’s trade performance improved in June but still missed market forecasts, reinforcing expectations that Beijing will have to unveil more stimulus measures to stabilise the economy and meet its 2014 growth target. Exports rose 7.2 percent in June from a year earlier, the best pace in five months, but well below a median forecast in a Reuters poll for a rise of 10.6 percent. Imports also missed expectations, growing by 5.5 percent versus forecasts of 5.8 percent, although they returned to positive territory after a small drop in May. China’s combined exports and imports edged up just 1.2 percent in first six months of the year, data showed yesterday. “For the economy to rebound in the second half of this year, we believe more policy support is necessary due to the unsteady recovery base,” said Wang Jun, economist at the China Centre for International Economic Exchanges, a think-tank in Beijing. Premier Li Keqiang said on Monday that economic growth quickened in the second quarter from the previous three months, but added that further modest government support measures will still be needed. Beijing has set an annual growth target of around 7.5 percent. Since April, China has steadily loosened policy by reducing the amount of cash that some banks

be too late. “We think China could miss its target ...We expect combined exports and imports to rise 5 percent in 2014 from a year ago,” said Li Huiyong, an economist at Shenyin & Wanguo Securities in Shanghai. Exports to the United States, China’s top export destination, rose 7.5 percent in June, quickening from a rise of 6.3 percent in May, while those to the European Union, the second most important market, grew 13.1 percent, compared with 13.4 percent in May. China posted a trade surplus of US$31.6 billion in June, down from US$35.9 billion in May. Reuters

have to hold as reserves, instructing regional governments to quicken their spending, and hastening the construction of railways and public housing. Evidence has mounted in recent weeks that those measures are beginning to have some effect, arresting a cool down in activity which saw growth slide to an 18-month low of 7.4 percent in the first quarter. The latest Reuters poll showed the economy probably steadied in the second quarter, with annual growth holding firm at 7.4 percent as the policy measures kicked in. But economists say the recovery still appears patchy, and more stimulus may be needed to offset the

downdraft from a cooling property market on the broader economy. Data on Wednesday showed consumer inflation cooled slightly more than expected in June while producers’ prices fell for the 28th straight month, signalling domestic demand remained lukewarm.

Targets in doubt The customs office expects exports to pick up in the second half of the year in line with improving global demand, but spokesperson Zheng Yuesheng said China will need to “invest arduous efforts” if it wants to meet its 7.5 percent trade growth target. Analysts think it may already

KEY POINTS Trade picture improves but not as much as hoped June exports +7.2 pct y/y vs 10.6 pct forecast June imports +5.5 pct y/y vs +5.8 pct forecast Trade surplus US$31.6 bln vs US$35 bln forecast Customs office sees export growth picking up in Q3

Matchmaker Moody praises FTA’s good intentions Rating firm says China and South Korea bonds would deepen investment flow The 12th round of negotiations will be held for five days from July 14 in South Korea’s south-eastern city of Daegu. Moody’s said that the free trade pact would especially benefit South Korea from an economic and a geopolitical perspective, noting the deal would provide Seoul with FTAs with its three largest export destinations, including the United States, the European Union (EU) and China. South Korea already signed the free trade deal with the U.S. and the EU, and those pacts have come into force. Moody’s said concluding the pact will not be smooth sailing as negotiators will have to resolve contentious issues such as China’s access to South Korea’s agricultural market and South Korea’s access to China’s auto market. Xinhua

Chinese President Xi Jinping (R) and South Korean President Park Geun-Hye (L) greet South Korean children during a welcoming ceremony at the presidential Blue House in Seoul

free trade agreement (FTA) between China and South Korea will be positive for both countries as the deal will strengthen the already-strong economic ties between the two countries, a global credit rating company Moody’s said yesterday. “Last Thursday, the leaders of China and Korea pledged to conclude the FTA by the end of this year. A deal would be credit positive for both countries

because it would deepen investment flows and provide a boost to GDP,” Tom Byrne, senior vice president at Moody’s, said in a report. Chinese President Xi Jinping and his South Korean counterpart Park Geun-hye vowed during a summit meeting in Seoul last week to endeavour to finish the FTA talks before the end of 2014, pledging to expand bilateral trade volume to

US$300 billion in 2015. Trade between the two countries surpassed US$270 billion in 2013, equalling to South Korea’s trade volume with the United States and Japan combined. China and South Korea launched the FTA negotiations in May 2012, and had completed the first stage of talks in September last year with a total of seven rounds of negotiations.

US$270 billion

2013 China-South Korea trade volume

July 11, 2014

Asia

Modi’s budget changes nothing India will keep same deficit target to shake up economy

rime Minister Narendra Modi’s two-month-old government kept India’s budget deficit target unchanged despite concerns that oil and food prices will rise in a push to bolster the finances of Asia’s third-biggest economy. The gap will narrow to 4.1 percent of gross domestic product in the year through March 2015, as projected by the previous administration, Finance Minister Arun Jaitley said while presenting Modi’s first budget in New Delhi. The target is a sevenyear low from the previous year’s 4.5 percent. “Difficult as it may appear, I have decided to accept this target as a challenge,” Jaitley said, adding that the fiscal deficit would be brought down to 3 percent of GDP by 2017. “We cannot leave behind a legacy of debt for our future generations.” Modi faces pressure to bolster economic growth from near a decade low while narrowing one of Asia’s widest fiscal deficits after winning the biggest Indian mandate in 30 years. The central bank has sought to curb a subsidy bill that has grown fivefold over the past decade while keeping interest rates high as a weak monsoon risks stoking Asia’s fastest inflation. “A number of 4.1 percent conveys that they are getting the fiscal house in order,” Samiran Chakraborty, an economist at Standard Chartered Plc. in Mumbai, said of the budget deficit target before Jaitley’s speech. “The quality of fiscal consolidation and road map for how we will continue with this will be closely watched by the markets.”

Foreign investment India will raise the caps on the automatic approval for foreign direct investment in the defence sector to 49

percent, from 26 percent now, with anything more than that requiring special approval, Jaitley said. The FDI limit in the insurance sector would also be raised to 49 percent, he said. Modi last month vowed to take unpopular steps to restore India’s fiscal health days before his government announced the country’s biggest rail fare increase in 18 months. Jaitley sought to downplay expectations for big changes. “It would not be wise to expect anything that can be done or must be done in the first budget presented within 45 days of the formation of the government,” he said.

Monsoon worries The prospect of the worst monsoon since 2009 combined with higher oil prices due to tensions in the Middle East threaten to reignite inflation. Seasonal rains, which account for more than 70 percent of the nation’s annual total, have been 43 percent lower than a 50-year average since

We cannot leave behind a legacy of debt for our future generations Arun Jitley India Finance Minister

June 1, according to the India Meteorological Department. India has adequate food stocks to cope with a drop in output from a weak monsoon, Jaitley said yesterday. He proposed setting up a price stabilization fund of five billion rupees (US$83 million) for farm produce while undertaking a “Second Green Revolution” to boost agriculture output. “The impending deficient monsoon complicates the backdrop for the government,” Radhika Rao, an economist at DBS Bank Ltd. in Singapore, said in a note yesterday. She expects a road map to gradually reduce subsidy allocations, and said that “the questionable quality” of fiscal consolidation last year had limited Modi’s options to narrow the deficit.

Ports, statue Jaitley announced plans to revive special economic zones while building more highways, coal-fired power plants, airports and ports. India will also spend 2 billion rupees (US$33 million) to build the world’s largest statue of independence hero Sardar Vallabhai Patel, while allocating about 3 billion rupees on programs to ensure women’s rights and safety, Jaitley said. He also called for a stable tax regime and review of cases where levies were applied retrospectively, including a US$2.4 billion claim on Vodafone Group Plc over a 2007 acquisition. Jaitley also said he hoped to reach a final solution on a goods and services tax by the end of the year. India needs to better target subsidies and move toward direct cash transfers, the finance ministry said in a report published yesterday. It recommended replacing several

levies with a GST, a move that Crisil Ltd., the local unit of Standard & Poor’s, sees boosting GDP growth by 2 percentage points by 2017.

Subsidy bill Jaitley had criticized former Finance Minister Palaniappan Chidambaram after the interim budget in February, saying he narrowed the deficit by cutting planned spending on roads, bridges and power plants, while underestimating and deferring subsidy payments. Chidambaram also assumed GDP growth for the fiscal year at 6.5 percent, higher than the central bank’s best-case scenario of a 6 percent expansion. The finance ministry said on Wednesday it expects the economy to expand as much as 5.9 percent. Spending on fuel, food, fertilizer and other subsidies rose to 16 percent of India’s total budget in the year ended March 2014 from 9 percent in 2004, while plan spending climbed to 30 percent from 26 percent, according to budget documents. Two thirds of India’s 1.2 billion people live on less than US$2 per day, according to the World Bank. Rajan kept the repurchase rate unchanged last month and signalled he would ease policy if inflation slows faster than anticipated. Risks to the central forecast of 8 percent consumer-price inflation by January 2015 “remain broadly balanced,” the RBI said. India’s economy grew 4.7 percent in the year ended March 31, compared with the previous period’s decadelow 4.5 percent. Consumer prices accelerated 8.28 percent in May, the fastest pace among 18 Asia-Pacific economies tracked by Bloomberg. Bloomberg News

Indian finance minister Arun Jaitley (C) and Minister of State for Finance Corporate Affairs Nirmala Sitharaman (R) with other team members and secretaries is pictured before he leaves the Ministry of Finance to present the general budget for 2014 in the Indian parliament, in New Delhi yesterday

July 11, 2014

Asia

The long Australian jobless queue Despite of employment increasing Wayne Cole

ustralian employment posted a solid rise in June, beating forecasts, but that did not prevent the unemployment rate from matching a decade peak of 6.0 percent as more people went looking for work. A net 15,900 jobs were created in June, topping market estimates of 12,000, data from the Australian Bureau of Statistics showed yesterday. Full-time jobs dipped 3,800, but that followed a hefty gain in May. The unemployment rate of 6.0 percent was a tick above forecasts and matched the January reading, which had been the highest in a decade. That soured hopes that the jobless rate had peaked for this cycle.

KEY POINTS Employment rises 15,900, beating forecasts Unemployment ticks higher to 6 pct, May revised up to 5.9 pct Adds to case for interest rates to remain at record lows

“It’s a mixed bag. We’re still generating positive jobs numbers and that’s good, but equally we’ve hit the sticker-shock number of 6 percent,” said Michael Blythe, chief economist at Commonwealth Bank. “The bottom line is the economy is strong enough to be generating positive jobs growth, but it does underline the RBA’s point of view that it’s going to be a pretty slow grind before the unemployment rate is back on a downtrend again.” To stop the unemployment rate rising over time, Australia needs monthly jobs gains of at least 15,000 to match its relatively rapid population growth of 1.7 percent a year. That is one reason the Reserve Bank of Australia (RBA) has cautioned that it would likely be many months before the unemployment rate began to fall in a sustained manner. The central bank has committed to keeping rates low for some time to come as the economy struggles with fading mining investment and a stubbornly high currency. The steady outlook is reflected in the futures market which implied the cash rate would remain at 2.5 percent well into next year. It also limited the impact of the mixed data on the local dollar, which eased only

An early 20th century Australian union poster

marginally to US$0.9413. With a decade-long boom in mining investment on the wane, the central bank is wagering that a revival in the housing market would provide a well-spring of new jobs. Recently released data on employment by industry suggests the transition is under way, with jobs in construction up by 43,600 in the year to May, while

those in the rental, hiring and real estate sectors increased by 36,000. Employment in mining held steady over the year to May and, while media reports of mass layoffs in manufacturing are almost a weekly event, total jobs in the sector actually edged up by almost 5,000. Instead, the biggest decline in jobs was in wholesaling, which analysts suspect has

more to technological change than a lack of demand. “Mining is no longer driving job gains across the economy, but rather the construction or purchase of houses and apartments,” said Craig James, chief economist at CommSec. “The fact that the housing market is labour intensive augurs well for job creation, spending and overall economic momentum.” Reuters

Philippines exports rise without help technology Central bank ‘will not hesitate’ to tighten measures

hilippine exports reached their highest value in at least 17 months in May, supporting forecasts of robust growth for one of Southeast Asia’s fastest growing economies and giving the central bank more leeway to tighten policy to dampen inflation. Exports in May rose 6.9 percent from a year earlier, with shipments for the month reaching US$5.48 billion, the highest value since January 2013, the statistics office said yesterday, citing available data. The statistics office revised the trade data series for the whole of 2013, but has yet to release revisions

for years 2012 and earlier. Shipments to Japan, the country’s top export destination, were up 6.1 percent in May from a year earlier, while those to China and United States climbed 51.3 percent and 9.2 percent, respectively. Overall exports grew 5.8 percent in January to May from the same period a year earlier. Analysts said the better-thanexpected export performance bodes well for economic growth in the second quarter, after growth in the first three months of the year missed expectations. Bangko Sentral ng Pilipinas

Governor Amando Tetangco said on Wednesday the central bank will not hesitate to tweak monetary policy to ensure inflation remains within target. It next meets on July 31 to review policy. The BSP has taken several modest steps to tighten liquidity and tamp down price pressures so far this year, but some economists believe its next step will be more forceful: a hike in its policy rate from the current record low of 3.5 percent. Growth in May exports was led by shipments of mineral products, coconut oil, metal components, woodcrafts and furniture, machinery

Central ban governor said he would not hesitate to tweak monetary policy to ensure inflation remains within target

and transport equipment, which helped offset a 1.6 percent annual decline in electronics shipments. The country provides about 10 percent of the world’s semiconductor manufacturing services, including for mobile phone chips and microprocessors. Reuters

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July 11, 2014

Asia

Japan machinery to get rusty As industry orders fall dramatically

New Zealand’s elevated dollar could pose problems for manufacturers, analysts said yesterday after the latest performance of manufacturing index (PMI) showed a fall in new orders. The BNZ-Business New Zealand PMI for June was 53.3, up 0.7 points from May, on a scale where above 50 indicates expansion and below 50 contraction. The PMI showed manufacturing had been in expansion for 21 consecutive months, but the new orders sub-index was down 0.4 points to 50.9, its lowest level since December 2012. Business New Zealand executive director for manufacturing Catherine Beard warned of “a few head winds” for manufacturers.

achinery orders suffered their worst monthly fall on record in May, defying expectations of a bounce and casting doubt on hopes that capital spending was picking up and could drive further economic recovery. Core orders fell 19.5 percent from the previous month in a highly volatile data series that is, however, regarded as an indicator of capital spending in the coming six to nine months. “Even if you discount the fact that this data is volatile, this is a weak figure. It fell short of forecast for two months in a row, so we should think the underlying trend for machinery orders is weak,” said Yasutoshi Nagai, chief economist at Daiwa Securities. “This shows the huge spike in capital spending in January-March was just an aberration. Some people have said capital spending could lead economic growth but unless you have rising demand, you can’t expect capital spending to grow.” Cabinet Office officials said there were no special factors behind the drop in demand for big-ticket items in May, noting they had not heard companies blaming the sales tax increase that took effect on April 1 for a fall in orders. The slump compared with a median estimate of a 0.7 percent gain in a Reuters poll of economists, and followed a 9.1 percent fall in April, Cabinet Office data showed. Compared with a year earlier, core machinery orders, which exclude ships and electric power utilities, fell 14.3 percent in May, against an expected 9.5 percent gain. One explanation for the unforeseen slump may be the effect of tax incentives on capital investment that started in January and companies rushed to

Myanmar to develop employers’ capacity

KEY POINTS May core orders -19.5 pct m/m vs +0.7 pct forecast Decline a bad omen for corporate spending, a weak link in economy Capital spending holds key to sustained economic growth BOJ to keep policy intact, may cut growth forecast next week

Bank merger announces a financial sector revolution CIMB rival Maybank (headquarters pictured) is expected to move in order not to lose the dominant position they were holding until now

take advantage of them before the end of the financial year in March, with a consequent slump in April and May, said Yasuo Yamamoto, senior economist at Mizuho Research Institute. “Looking at the poor readings in April and May, capital spending could weaken in the second and third quarters in reaction to the big jump in January-March,” he said. Still, analysts expect capital spending -long a weak link in the world’s third biggest economy- to resume a moderate recovery later this year supported by strong corporate earnings and the need to refurbish old facilities and equipment, particularly among non-manufacturers. “I still expect capital spending to resume picking up in the latter half of the current fiscal year to March, given ample cash flow at companies,” said Yamamoto. Reuters

A giant is born in Malaysia

IMB Group Holdings Bhd is seeking to acquire two lenders to create the country’s biggest bank, a source familiar with the deal said, a move that is likely to push

Kiwi manufacturing growth slows

larger rival Maybank and others in the region to bulk up too. Shares in CIMB, the nation’s second-largest bank, RHB Capital Bhd and Malaysia Building Society

Bhd were halted pending the release of a material announcement. The proposal comes ahead of a planned partial integration of Southeast Asian economies that is due to begin by the end of next year, with countries in the 10-nation alliance keen to build national champions to bolster their banking systems. CIMB has been the most acquisitive of Malaysia’s banks and a deal would be the last major move by CEO Nazir Razak, brother to the prime minister, before he relinquishes the helm in September after 15 years. While a successful deal would see CIMB’s assets climb to 614 billion ringgit (US$195 billion), 6 percent bigger than Malayan Banking Bhd (Maybank), analysts warned it would likely be paying too much and that there could be too much overlap between CIMB and RHB - the nation’s No. 4 bank. A deal would make it ASEAN’s fourth-largest bank after Singapore’s three biggest lenders. By comparison, the largest DBS Group Holdings has assets of US$334 billion. Maybank is bound to feel pressure to acquire a rival too, analysts said, with some speculating that Public Bank Bhd could fall within its sights. A key player in any acquisition by CIMB of its two smaller rivals will be the Malaysian state pension fund, the Employees Provident Fund. It owns 41.3 percent of RHB and 65 percent of Malaysia Building Society. The fund also owns a 14.5 percent stake in CIMB, according to Thomson Reuters data. Reuters

Country’s biggest business organization and the International Labour Organization (ILO) will launch a project for boosting the capacity of employers’ organizations in Myanmar and promoting work principles and sustainable enterprises, state media reported yesterday. According to a memorandum of understanding (MoU) signed between the Union of Myanmar Federation of Chambers of Commerce an Industry (UMFCCI) and the ILO, the project, aimed at solving disputes between employers and employees and promoting skill of labourers, will be implemented up to April 2016. The ILO Chief Technical Adviser and UMFCCI officers will jointly conduct business training and workshops.

S.Korea holds rates Central bank kept its policy interest rate steady for a 14th consecutive policy meeting yesterday, a widely expected move reflecting its confidence in a sustained recovery, despite recent signs of softening. The decision came in the face of speculation among bond traders that remarks by the finance ministernominee asserting an urgent need to boost domestic consumption was a veiled demand for the Bank of Korea to cut interest rates. The Bank of Korea’s monetary policy committee left its base rate unchanged at 2.50 percent, a media official said without elaborating.

Australian Senate delays carbon tax repeal The institution rejected the legislation yesterday because it did not guarantee savings would be passed onto consumers, but amended legislation could still pass as early as next week. Mining magnate Clive Palmer, which holds the balance of power in the Senate, withdrew support at the last minute. The carbon tax repeal legislation will now be sent back to the lower house of parliament for a fresh vote. The new bill will remove the obligation on 348 of Australia’s biggest companies to pay A$24.15 for each tonne of CO2 they emit.

July 10, 2014

International

Boeing’s perfect skies

New banking rules for Russian state firms Company’s forecasts show a very pleasant future The Russian central bank and the Finance Ministry have agreed that state companies will only be allowed to have accounts at banks with capital of more than 10 billion roubles (US$296 million), a senior finance ministry official said yesterday. The requirement would be lower than an earlier discussed level of 16.5 billion roubles. The companies should also hold accounts at banks directly or indirectly controlled by the state, Deputy Finance Minister Alexei Moiseev told Reuters. He added that some 100 banks would be included.

Eurozone house prices down House prices fell by 0.3 pct in the first quarter of this year both on a quarterly basis and on an annual basis, the EU statistical office Eurostat said yesterday. In the wider 28-nation EU, the Q1 house prices rose 0.2 percent compared with the previous quarter and up 1.0 percent compared with the Q1 of 2013. Among the EU members for which data are available, the largest quarterly falls were recorded in Croatia (-2.7 percent), Luxembourg (-2.3 percent), and Slovenia (-1.7 percent), and the highest increases in Estonia (4.8 percent), Sweden (2.4 percent) and Britain (2.2 percent).

Alwyn Scott

oeing Co made its most bullish 20-year forecast for jetliner demand since 2011, saying yesterday the world will need 36,770 new planes worth US$5.2 trillion by 2033. The company’s annual projection is up 4.2 percent from its 2013 forecast, and it predicted beating rival Airbus Group NV in the lucrative market for twin-aisle planes as the planes are built and delivered over the next two decades. “If Airbus doesn’t do something with their product strategy, they’re headed to 30-35 percent market share” in deliveries of next-generation twin-aisle aircraft, Randy Tinseth, Boeing’s vice president of marketing, told reporters in a briefing. Boeing’s 787 and 777X jets already make up 65 percent of all current orders, with the Airbus A350 accounting for the rest, and that gap will widen unless Airbus develops another jet as a competitor, he said. Planes are delivered years after orders are placed, so the final numbers may change as airlines change their plans.

Airbus has disputed Boeing’s numbers, saying it is already winning most orders in twin-aisle aircraft when looking at recent years.

Small wonders

If Airbus doesn’t do something with their product strategy, they’re headed to 30-35 percent market share Randy Tinseth, Boeing’s vice president of marketing

U.K. trade deficit wider Britain posted its widest trade deficit in May in four months as manufacturers shipped fewer goods to European Union nations and shipments of oil to other countries fell. The gap was 9.20 billion pounds (US$15.8 billion) compared with 8.81 billion pounds in April, the Office for National Statistics said in London yesterday. Economists had forecast a deficit of 8.75 billion pounds, based on the median of 18 estimates. Exports rose 0.6 percent and imports climbed 1.7 percent, largely due to 1.2 billion pounds of aircraft purchases, the ONS said.

Russia to agree on Cuban offshore block A 787 model

Russian state oil companies Rosneft and Zarubezhneft plan to sign an agreement with Cuban state oil company Cubanpetroleo to develop an offshore block 37, a senior Russian official said. Yuri Ushakov, an aide to President Vladimir Putin who plans to visit Cuba on July 11, told reporters the companies were aiming to agree on the deal during his visit. He did not provide any other details. A number of factors are working against Cuba’s oil hopes, among them the political and logistical difficulties imposed by the long-standing U.S. trade embargo against the island.

Burberry revenues up Britain’s luxury fashion group Burberry said yesterday that revenues rose in the first quarter of its financial year, aided by strength in Asia and the Americas. Sales in a comparable basis gained 12 percent to US$633 million in the three months to June 30, compared with a year earlier, the London-listed firm said in a trading update. Burberry enjoyed double-digit sales growth in Asia Pacific, led by mainland China and Hong Kong, and also in the Americas region. On a downbeat note, Burberry warned that adverse foreign exchange rate movements would weigh more heavily than expected.

Airbus is considering embarking on development of such a jet, and may launch the project at the Farnborough Airshow next week. The jet, dubbed the A330neo, would be a revamped version of Airbus’ twin-aisle A330 jetliner with new efficient engines made by RollsRoyce Holdings PLC.

Boeing’s annual forecast, released in conjunction with the airshow, said single-aisle airplanes such as the 737 and A320 will garner the most orders, reflecting booming demand for air travel in Asia and the growth of low-cost carriers there. Last year Boeing predicted a 20year need for 35,280 planes valued at US$4.8 trillion. About 40 percent of single-aisle planes built in the next two decades will go to low-cost carriers, and a large share of will be in China, Tinseth said. He predicted China would overtake the United States as the world’s largest domestic air travel market in the next 20 years. Twin-aisle planes also will attract strong demand. But Boeing notched back its forecast for jumbo jets such as the Boeing 747 and Airbus A380. It expects airlines to need about 620 of those over the next 20 years, down from the 760 it forecast last year. “That’s the market that has really struggled to take hold,” Tinseth said. Boeing expects airlines to buy 25,680 new single-aisle planes over 20 years, and that the global fleet will double to 42,180. About 58 percent of those planes will represent growth at airlines. The rest will replace retired aircraft. Boeing cut its forecast for aircargo growth this year to 4.7 percent from 5 percent in 2013, but said the trend is stable and will continue to support production of the 747-8 freighter and freight versions of its popular 777 jet. Reuters

Workers fear Lafarge and Holcim merger Competition regulators in some fifteen countries, as well as the European Commission, are expected to take a hard look at the deal

nions representing thousands of European workers affected by the sale of assets proposed by merging cement groups Lafarge and Holcim have asked the pair for specific employment guarantees that would be binding for the buyers. In a draft statement seen by Reuters, the European Federation of Building and Woodworkers said the works councils of the two companies had been promised working conditions would be a factor determining the choice of buyer, but that no precise set of conditions had been provided. “The works councils are saying there should be guarantees that no job should be threatened by these divestments,” the statement said. “They are also asking that existing collective bargaining guarantees should be maintained and that

high quality dialogue on working conditions be kept in place for those activities that are sold.” Earlier this week, the companies listed 5 billion euros (US$6.8 billion) worth of assets they would sell in Europe and elsewhere in their efforts to get regulatory approval for the deal to create to the world’s biggest cement maker. The companies said they would seek buyers for operations in Austria, Hungary, Romania, Serbia, Britain, Canada, the Philippines, Mauritius and Brazil, a series of sell-offs that would affect some 10,000 workers out of their global total of 130,000 and account for around 3.5 billion euros of sales. Competition regulators in some fifteen countries, as well as the European Commission, are expected

10,000 workers could be affected

to take a hard look at the deal, which brings together the world’s top two cement makers with a combined stock market value of more than US$55 billion. Europe’s top competition regulator, Joaquin Almunia, has said the merger would be subject to an in-depth review, known as a “phase 2” examination. Reuters

July 10, 2014

Opinion Business

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Leading reports from Asia’s best business newspapers

THE STRAITS TIMES Oilfield service firm Ezra Holdings said it is injecting its offshore support services division, EMAS Marine, into its associated company EOC Ltd in a stockand-cash deal worth US$520 million (S$645.9 million). The enlarged EOC Group will be one the largest offshore support operators in Asia Pacific by asset value, managing an offshore services platform comprising over US$1 billion in assets, Ezra said in a statement.

VIETNAM NEWS Viet Nam’s cluster of super rich individuals has tripled over the past decade, revealed World Bank (WB) senior economist Gabriel Demonbynes at a press conference in Ha Noi. One out of every million Vietnamese qualified as “super-rich”, with the total number of affluent individuals swelling almost fourfold in the last ten years, according to the World Bank’s Talking Stock conference on Tuesday. Additionally, according to global real estate giant Knight Frank, the country had roughly 110 “ultra high net worth individuals” with assets worth more than US$30 million in 2013.

THE JAKARTA GLOBE Indonesia’s ban on ore exports will probably remain in place and speculation that the curb may be relaxed if Joko Widodo becomes the country’s next president is misplaced, said Australia & New Zealand Banking Group. Nickel fell as much as 2 percent in London on Wednesday as unofficial counts showed the Jakarta governor won the most votes in the world’s thirdbiggest democracy, putting him ahead of Suharto-era general Prabowo Subianto. While the market perceives Joko’s market-friendly policies as an indication that the ban will be lifted or at least watered down, that’s unlikely.

THE NEW ZEALAND HERALD Shares in Pumpkin Patch, the third worst performer on the NZX’s All Ordinaries Index this year, fell to an all-time low as investors continue to mull the children wear retailer’s outlook in an increasingly competitive apparel environment. The Auckland-based retailer’s shares fell as low as 38 cents at lunchtime, and were recently down 4.9 percent at 39 cents having shed 54 per cent this year. The company has been looking to revive its performance, appointing Di Humphries as chief executive last August and in March announcing a strategic review including a close look at its IT infrastructure, in a bid to make its distribution and supply chain management more efficient.

American delusions down under

Joseph E. Stiglitz

Nobel laureate in economics and University Professor at Columbia University

EW YORK – For better or worse, economicpolicy debates in the United States are often echoed elsewhere, regardless of whether they are relevant. Australian Prime Minister Tony Abbott’s recently elected government provides a case in point. As in many other countries, conservative governments are arguing for cutbacks in government spending, on the grounds that fiscal deficits imperil their future. In the case of Australia, however, such assertions ring particularly hollow – though that has not stopped Abbott’s government from trafficking in them. Even if one accepts the claim of the Harvard economists Carmen Reinhart and Kenneth Rogoff that very high public debt levels mean lower growth – a view that they never really established and that has subsequently been discredited – Australia is nowhere near that threshold. Its debt/GDP ratio is only a fraction of that of the US, and one of the lowest among the OECD countries. What matters more for longterm growth are investments in the future – including crucial public investments in education, technology, and infrastructure. Such investments ensure that all citizens, no matter how poor their parents, can live up to their potential. There is something deeply ironic about Abbott’s reverence for the American model in defending many of his government’s proposed “reforms.” After all, America’s economic model has not been working for most Americans. Median income in the US is lower today than it was a quarter-century ago – not because productivity has been stagnating, but because wages have. The Australian model has performed far better. Indeed,

Australia is one of the few commodity-based economies that has not suffered from the natural-resource curse. Prosperity has been relatively widely shared. Median household income has grown at an average annual rate above 3% in the last decades – almost twice the OECD average. To be sure, given its abundance of natural resources, Australia should have far greater equality than it does. After all, a country’s natural resources should belong to all of its people, and the “rents” that they generate provide a source of revenue that could be used to reduce inequality. And taxing natural-resource rents at high rates does not cause the adverse consequences that follow from taxing savings or work (reserves of iron ore and natural gas cannot move to another country to avoid taxation). But Australia’s Gini coefficient, a standard measure of inequality, is one-third higher than that of Norway, a resourcerich country that has done a particularly good job of managing its wealth for the benefit of all citizens. One wonders whether Abbott and his government really understand what has happened in the US? Does he realize that since the era of deregulation and liberalization began in the late 1970s, GDP growth has slowed markedly, and that what growth has occurred has primarily benefited those at the top? Does he know that prior to these “reforms,” the US had not had a financial crisis – now a regular occurrence around the world – for a half-century, and that deregulation led to a bloated financial sector that attracted many talented young people who otherwise might have devoted their careers to more productive activities?

Their financial innovations made them extremely rich but brought America and the global economy to the brink of ruin. Australia’s public services are the envy of the world. Its health-care system delivers better outcomes than the US, at a fraction of the cost. It has an income-contingent education-loan program that permits borrowers to spread their repayments over more years if necessary, and in which, if their income turns out to be particularly low (perhaps because they chose important but low-paying jobs, say, in education or religion), the government forgives some of the debt.

There is something deeply ironic about Abbott’s reverence for the American model in defending many of his government’s proposed “reforms.” After all, America’s economic model has not been working for most Americans

The contrast with the US is striking. In the US, student debt, now in excess of US$1.2 trillion (more than all creditcard debt), is becoming a burden for graduates and the economy. America’s failed financial model for higher education is one of the reasons that, among the advanced countries, America now has the least equality of opportunity, with the life prospects of a young American more dependent on his or her parents’ income and education than in other advanced countries. Abbott’s notions about higher education also suggest that he clearly does not understand why America’s best universities succeed. It is not price competition or the drive for profit that has made Harvard, Yale, or Stanford great. None of America’s great universities are forprofit-institutions. They are all not-for-profit institutions, either public or supported by large endowments, contributed largely by alumni and foundations. There is competition, but of a different sort. They strive for inclusiveness and diversity. They compete for government research grants. America’s under-regulated for-profit universities excel in two dimensions: the ability to exploit young people from poor backgrounds, charging them high fees without delivering anything of value, and the ability to lobby for government money without regulation and to continue their exploitative practices. Australia should be proud of its successes, from which the rest of the world can learn a great deal. It would be a shame if a misunderstanding of what has happened in the US, combined with a strong dose of ideology, caused its leaders to fix what is not broken. The Project Syndicate 2014

July 11, 2014

Closing Chinese airlines in good health

HKMA intervenes to defend HK dollar peg

Passengers traveling with Chinese airlines made 186 million trips in the first half of 2014, up 10.7 percent year on year, figures from the Civil Aviation Administration of China (CAAC) showed yesterday. Meanwhile, the aviation sector witnessed a surge in freight transport volume, with the period’s air cargo volume up 6 percent year on year to 2.79 million tonnes. Li Jiaxiang, head of the CAAC, stressed aviation safety at a work meeting held here on Thursday and urged greater efforts to reform the sector to unleash market potential.

The Hong Kong Monetary Authority (HKMA) stepped into the currency market and sold HK$2.325 billion (US$300 million) in Hong Kong dollars on Thursday as the local currency hit the strong end of its trading range. According to the HKMA, the latest intervention will lift the aggregate balance -the sum of balances on clearing accounts maintained by banks with the HKMAto HK$186.994 billion on July 14. The Hong Kong dollar is pegged at 7.8 to the U.S. dollar, but can trade between 7.75 and 7.85. Under the currency peg, the HKMA is obliged to intervene when the Hong Kong dollar hits 7.75 or 7.85 to keep the band intact.

Malaysia raises rate after three years Experts say they will raise it again before 2014 ends

alaysia’s central bank raised its key interest rate for the first time in more than three years yesterday, as widely expected, to help temper inflation and rising consumer debt. Strong domestic consumption has helped underpin growth in the Southeast Asian economy, but rising household debt levels are posing an increasing risk when global interest rates rise. Bank Negara Malaysia (BNM) hiked its overnight policy rate by 25 basis points to 3.25 percent, after keeping it steady since mid-2011. It had hinted of a monetary policy tightening to counter the “build-up of financial imbalances” at its last meeting in May. On yesterday, it said that the “normalisation” of monetary policy was needed to ward off risks of financial and economic imbalances that undermine growth. It said that its new stance remained supportive of the economy, which it saw showing continued strength in exports and private sector activity. “Going forward, the overall growth momentum

Bank Negara Malaysia hiked its overnight policy rate by 25 basis points

is expected to be sustained,” it said in its statement accompanying the decision. The economy grew at a robust pace of 6.2 percent in the first quarter from a year earlier. The majority of economists polled by Reuters had anticipated a 25-basispoint hike as economic conditions at home and abroad improve and inflation stays high. Many analysts expect

interest rates to rise one more time before the end of the year due to inflationary pressure and robust growth. Industrial output grew at its fastest pace in three months in May, data released earlier yesterday showed. “We expect another hike in September because the momentum is still there,” said Wellian Wiranto, an economist at OCBC Bank in Singapore. “Even after

the hike, there’s a risk that inflation will pick up.” Economists had expected the rate hike following strong growth and the continued increase in housing loan approvals. Property loans form more than half of the country’s household debt, which is now at a lofty 86.8 percent of GDP. Malaysia’s household debt has risen more than 25 percentage points in

just 6 years, as domestic consumption grew on loose credit. “Many are treating the property market as the new deposit box that pays higher returns than what banks are offering,” DBS said in a recent research note. Inflation rose to 3.2 percent in May in contrast to 1.8 percent in June 2013, before the government imposed higher electricity tariffs, reducing fuel subsidies and eliminating the sugar subsidy. “Demand driven inflation remains contained,” the central bank added. Inflation is expected to remain elevated with a possible fuel price increase later this year and the implementation of a goods and services tax in April 2015. “The bigger question from the market is what BNM does next,” said Euben Paracuelles, an economist at Nomura in Singapore. “There are clues from the policy statement, they’ve left the door open for more rate hikes this year. Their assessment in growth is pretty upbeat, but there is still the risk of financial imbalances.”

Home prices not PBOC main priority

44 Taiwanese and Chinese Xi welcomes Obama to visit China arrested for fraud

hina’s central bank pays more attention to inflation and economic growth outlooks than developments in the property market, Central Bank Governor Zhou Xiaochuan said yesterday. Managing China’s housing market has been a challenge for policymakers in the world’s secondbiggest economy this year. While the government would like the market to cool, so as to temper record home prices, it fears a property slowdown may get out of hand and hurt the wider economy. Speaking on the side-lines of high-level talks between the United States and China, Zhou said the People’s Bank of China (PBOC) lacked experience in dealing with the housing market and should therefore exercise caution. “The PBOC takes macroprudential measures to manage demand in the market property and guide financing for property developers,” Zhou told reporters at a briefing. “But the PBOC, as the central bank, pays more attention to the trend in the economy and inflation. “We are not very experienced in dealing with the property market - we haven’t experienced too much cyclical volatility. Reuters

orty-two Taiwanese and two Chinese suspects have been arrested in the Philippines over a sophisticated Internet scam targeting compatriots back home, police said yesterday. The suspects -who posed as police officers, prosecutors, judges and anti-money laundering officials- cheated people from Taiwan and China out of their money by claiming they could safeguard their cash, a police statement said. The scammers would allegedly convince their victims that their bank accounts were being used for money-laundering and that their assets could be protected if they transferred all their money to accounts owned by the fraudsters, police added. “The syndicates... usually go to the Philippines as tourists and rent houses in posh (housing projects)” where they set up their illegal operations, a police statement said. The suspects were arrested in a series of raids in the central city of Iloilo on Wednesday by a police anti-cybercrime unit and immigration bureau agents. The two Chinese suspects were “caught in the act of engaging with their would-be victims abroad,” said Senior Inspector Joanna Fabro. AFP

Reuters

hinese President Xi Jinping said yesterday that he welcomes and expects talks with Barack Obama when the U.S. president visits China to attend the APEC Economic Leaders’ Meeting in November. Xi made the remarks while meeting with two delegations for the sixth China-U.S. Strategic and Economic Dialogue (S&ED) and the fifth ChinaU.S. High-Level Consultation on People-to-People Exchange (CPE) held in Beijing on Wednesday and yesterday. In his opening remarks, Xi praised the positive progress of the annual high-level meeting, urging the working groups of both sides to coordinate to implement the consensus of this round of S&ED and CPE. Xi said the new model of China-U.S. relationship is drawn from the experience of bilateral ties over the past 35 years. Xi said he and President Obama are determined to ensure healthy and stable growth of China-U.S. ties on a correct track. “China is willing to make concerted efforts to this end,” he said. Xinhua