Macau Business Daily, Aug,1st, 2014 by Business Daily

MOP 6.00

Home alone

Year III

Number 595 Friday August 1, 2014

Publisher: Paulo A. Azevedo

Closing editor: Sara Farr

Home prices rocket across the territory Page 2 | Merchandise trade deficit widens by 15 pct Page 3

roperty in Zhuhai is four times cheaper than here. So say realtors pitching homes to locals and expats in Macau. Hengqin is attracting speculators, they say, while Zhuhai is owner-occupier driven. Hengqin development, round-the-clock border crossing and The Bridge should seal the deal. And yes, prices are expected to take off there, too Page

www.macaubusinessdaily.com

Aging population time-bomb

Braking warning

IMF recommends China set a conservative growth target for 2015. Reduce economic stimuli in order to undertake structural reform, it advises

They put in 5 billion patacas. The government injection into the Social Security Fund was timely. Without it, the SSF would only have posted a 32 percent revenue increase. Or four times less than the 2013 figures. By 2030, Macau will have an over-65 population of 172,000 - fourfold more than today

Page

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HSI - Movers July 31

Exports to China halve

Name

Trade between Macau and mainland China dropped some 7 percent in the first half. That’s US$1.7 billion compared to a year ago. Ministry of Commerce of China data shows exports from Macau dropped by half year-on-year Page

Page

%Day

China Overseas Lan

4.62

China Resources Lan

3.64

China Life Insurance

1.74

Sun Hung Kai Proper

1.73

Hong Kong Exchang

1.34

MTR Corp Ltd

-0.97

Kunlun Energy Co Lt

-1.63

Hang Lung Propertie

-1.64

China Resources Ent

-2.07

PetroChina Co Ltd

-2.49

Source: Bloomberg

I SSN 2226-8294

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Macau a possible investor for Russia

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August 1, 2014

Macau

Homebuyers zero in on Zhuhai Costing only one quarter of the average price of a new house in Macau, properties in Zhuhai are attracting more and more Macau people to purchase homes there, the property industry says Kam Leong

kamleong@macaubusinessdaily.com

Home prices rocket across the territory The overall number of transactions dropped by 17.6 percent during June 2014 in comparison to June 2013. However, this drop is not affecting Coloane where transaction numbers went up 115.4 percent in the same month that prices for the area increased 52.2 percent João Santos Filipe

jsfilipe@macaubusinessdaily.com

he Zhuhai property market is booming, with demand increasing by both locals and expats residing here in Macau. Property agents believe that the tendency to move to Zhuhai is escalating, especially ahead of commercial constructions in Hengqin slated to be completed in 2016 and the 24-hour crossing border policy around the corner. Director of Centaline (Macau) Property Agency Ltd Jacky Shek Po Tak said that a large proportion of Macau’s imported workers currently live in Zhuhai. The agency believes that more will choose to rent a flat in the mainland city once the the 24-hour border crossing policy is implemented. This, in turn, will push up rents there, with the price of sales and transactions following suit, Mr. Shek said on the sidelines of a press conference marketing new Zhuhai property yesterday. He declined to reveal the estimated percentage of increase as he said that would promote speculation in the property market there. However, he said that more Macau locals were choosing to purchase homes in Zhuhai to live in rather than for investment purposes. “The investment intention for the properties in Zhuhai is not as high as in Hengqin. However, the price of such properties will increase once most of the construction in Hengqin gets settled in between 2016 and 2017, when I believe a significant increase in prices in the Zhuhai

property market will be seen,” he said. “On the other hand, people buying real estate in Hengqin are [doing so] mainly for investment. It is because people who bought properties there a few years before are getting good returns. As a result, many [who invest in Hengqin homes] are wondering if they could get the same good returns in the future,” Mr. Shek said.

Lower prices attracting Macau people Mr. Shek believes that the tendency for Macau people to move to Zhuhai is not only because of the shortage of new houses here but because prices here are four times more than those in Zhuhai. Hence, many new build high-end luxury houses in Zhuhai are targeting Macau citizens. “Currently, the base of Zhuhai’s property price is still very low, similar to that of Macau of 10 years ago . . . which is that the prices of the houses are much lower than their actual value,” he said. “In addition, the supply [of high-end houses] in Zhuhai was very low before. Many [Macau] people purchasing homes in Zhuhai [also] got a [local] driver’s licence. However, recently, more people are buying houses [in Zhuhai] to live there.” Convenient conditions, such as location and being close to the border, the future 24-hour border crossing, as well as the future Hong KongZhuhai-Macao Bridge are believed to be increasing the attraction, and

is also expected to stabilise prices in the Macau property market thus resolving the shortage of land here, according to Mr. Shek. “As like before, people did not like living in Taipa, which they thought was very far away [from the Macau Peninsula]. However, once the three bridges were constructed people started preferring to live in Taipa or even in Coloane, where they think the environment is better,” he said.

High-end Zhuhai housing confidence In addition, the deputy general manager of Zhuhai Yanlord Industrial Limited, James Situ, said that his company believes that there is a high potential for Macau or Hong Kong customers purchasing property in Zhuhai. Mr. Situ’s company is the one that yesterday released sales for their new property project located in Zhuhai with Centaline. He admitted that the luxury property project by the company targets mainly Macau customers, and believes that the 25 units to be sold in Macau this week will sell out. According to Mr. Shek, the transactions of Macau people buying Hong Kong or Zhuhai properties actually increased by around 3 percent last quarter, year-on-year. Investors usually buy commercial shops in Hong Kong and residential flats in Zhuhai.

n one year, the average price of a home per square metre in Macau has increased from 75,448 patacas to 97,406 patacas. This reflects an increase of 21,958 patacas in June, which means a growth of 29.1 percent year-on-year in the price per square metre, the Financial Services Bureau announced yesterday. While prices went up, the number of residential transactions went down by 17.6 percent in comparison to June 2013. Home transactions went down from 739 to 609 in the month of June 2014. The largest increase in the price per square metre in residencies was in Coloane, which increased 52.2 percent from June 2013 to this June. In the Coloane area, a square metre costs an average of 118,936 patacas, while last year it would have cost 77,980 patacas. However, the prices are not considered too high, as the number of home transactions in Coloane grew 115.4 percent from 13 in June 2013 to 28 in June 2014. Overall, the majority of home purchases occurred on the Macau Peninsula with a total of 472 transactions out of 609 (77.5 percent). The region is also the cheapest in the former Portuguese enclave. The average price of a square metre was 94,264 patacas in June although there was a year-on-year increase of 28 percent from 73,601 patacas in June 2013. In addition, the rise in the price led the transaction volume to fall 22.9 percent year-on-year from 612 last year. In Taipa, the prices of homes went up to an average of 100,402 patacas per square metre, from 81,265 patacas in June 2013, representing a 23.5 percent increase. The number of transactions, however, dropped by 5.6 percent to 109 from 114 in June 2013.

August 1, 2014

Macau

Merchandise trade deficit widens by 15 pct In the first half of the year, Macau imported 43.46 billion patacas-worth of goods and exported 5.04 billion patacas-worth. The export of clocks and watches increased during the first six months of the year by 86 percent João Santos Filipe

jsfilipe@macaubusinessdaily.com

he merchandise trade deficit increased by 15 percent year-on-year to 38.42 billion patacas during the first half of the year, the Statistics and Census Service (DSEC) announced yesterday. During this period, exports accounted for 5.04 billion patacas, an increase of 10 percent year-on-year, while imports accounted for 43.46 billion patacas, a growth of 14 percent over that of last year. One of the factors that contributed to the widening of the trade deficit was a 4 percent reduction of domestic exports to 972 million patacas. The amount of re-exports grew by 14

38.42 billion

trade deficit 14H1

percent to 43.46 billion patacas. Machines, apparatus and parts were the goods that were most exported during the first six months of the year. In comparison to the same period last year, the sales of such products to destinations outside Macau increased 37 percent to 943.7 million patacas. Clocks and watches were the second most exported type of merchandise, accounting for 589.7 million patacas and achieving an increase of 86 percent in comparison to the year prior. Nevertheless, other merchandise registered steep drops. The export of electronic components fell by 31 percent to 308.9 million patacas year-on-year in the first half of the year. The export of textiles and garments decreased 16 percent to 362.2 milllion patacas and the export of diamonds and diamond jewellery dropped by 8 percent to 329.1 million patacas. The largest export destinations of Macau merchandise were Hong Kong accounting for 61 percent of the total value, followed by mainland

Macau exports to mainland plummet Kam Leong

kamleong@macaubusinessdaily.com

rade between Macau and mainland China registered a decline of 7.2 percent yearon-year during the first half of this year, to US$1.66 billion (13.28 billion patacas), according to the latest data from the Ministry of Commerce of China. The report reveals that Macau’s exports to the mainland dropped significantly - by 50.6 percent year-on-year - to US$110 million, while exports from mainland China to Macau decreased slightly by 1 percent from that of a year ago to US$1.55 billion in the first half of 2014. A total of 161 investment projects by Macau merchants were given the green light during the first

six months of the year, according to the report. Such projects’ actual capital used from Macau totalled US$330 million, an increase of 26.2 percent year-on-year. Meanwhile, at the end of June, mainland China approved an accumulative total of 13,613 investments projects by Macau merchants. The actual capital used for these projects from Macau reached some US$11.7 billion, accounting for 0.8 percent of total overseas investments in the mainland, measured by overseas investments in actual use. In addition, mainland businesses worked on seven construction contracts in Macau in the first half of the year, the values of which totalled US$1.49 billion while a revenue of US$ 240 million was registered during this period, according to the report, which also states that a total revenue of US$10.3 billion was recorded from mainland businesses in Macau. In June, trade between the two sides registered an increase of 6.9 percent from May, of which the actual capital used from Macau on approved investment projects jumped largely by 113.6 percent, to US$90 million although the numbers of projects decreased by 20.6 percent.

China with 14 percent and others at 18 percent. As for imports, the biggest share of the money spent was on food and beverages at 5.51 billion patacas, an increase of 21 percent year-onyear. Gold jewellery ranked second in imports with an increase of 35 percent to 5.21 billion patacas. Notwithstanding, the largest increase

in goods imported was registered in watches with a growth of 65 percent to 4.29 billion patacas. As for fuel and lubricants, imports decreased by 4 percent to 3.8 billion patacas. The largest share of imported goods came from mainland China at 32 percent, followed by other countries and regions at 21 percent and Hong Kong at 11 percent.

August 1, 2014

Macau Brought to you by

HOSPITALITY Setting records Close to 15.3 million visitors crossed the border into Macau in the first half of 2014. The figure is worth noting for two reasons. First, it is only the second time that the 15 million threshold has been reached in a full semester. In that sense, this result consolidates the record established in the second semester of last year when, for the first time, such a figure was attained. Secondly, that value actually exceeds the one registered in 2013H2 by more than 100,000 visitors. This fact broke the usual pattern; as a rule, there has been a decrease in overall numbers of visitors between the second half of one year and the first half of the next. These features suggest that the 30 million visitors threshold will be reached in the course of this year.

The growth in the last semester was strongly driven by visitors from the mainland, even more than used to be the case. In previous periods, mainland Chinese visitors alone would account for somewhere around 45 percent of the growth in absolute numbers. In the last semester, relative to the previous one, they accounted for more than 80 percent. It was also the first time that the number of mainland visitors exceeded 10 million, representing a growth of 14.7 percent relative to the same period in 2013. Guangdong Province continues to be, by far, the primary source of visitors with roughly ten times more visitors than the closest province, Fujian. The number of Guangdong visitors alone is usually bigger than all the other 22 regions and cities, for which individual figures are published, combined. The share of the province, however, has lately been declining, with its growth rate well below the mainland average.

8.1%

total visitors growth, 2014H1, on previous year

Commission on Civil Referendum hangs in balance The pending decision of the Court of Final Appeal on whether to allow the Open Macau Society to have polling booths or stations on the street is leaving organisers of a civil referendum pessimistic

he Commission on Civil Referendum spearheaded by Jason Chao Teng Hei is ‘not optimistic’ about its chances of obtaining legal approval to place polling stations throughout the city on August 24 and 30, which coincides with the Chief Executive election campaign period. Speaking to media yesterday, Mr. Chao said that as of today they will hold “promotional activities for the Civil Referendum on the streets without any object occupying public places.” Because these are not deemed ‘assemblies’ organisers will go ahead with their initial plan. “The court showed no approval to the government’s stance on the civil referendum but only categorised it as an ‘opinion poll,’” Mr. Chao said, adding that since the establishment of the Commission, it has explained “numerous times that a civil referendum is an event for citizens to express their opinions through voting – a simulated referendum without legal effect – and is different from a survey from a particular sample.” The major issue erupted a few weeks ago when three local pro-democracy groups – Macau Conscience, Macao Youth Dynamics

and Open Macau Society – announced their intention to launch an unofficial referendum between August 24 to 30 via online voting and physical polling stations to gauge citizens’ demands for democracy here, an action that a Macau Government spokesperson and China Liaison Office branded “unlawful”. At the time, incumbent Chief Executive Fernando Chui Sai On said his administration “opposes this referendum”, and added that the government would continue to observe the planned actions of the activists. Soon after, government spokesman Alexis Tam Chon Weng reiterated the stance that the planned unofficial referendum was a “challenge” to the Chief Executive electoral system, while stressing that any amendment to the system was subject to the authority of the Standing Committee of the National People’s Congress as opposed to a “civil referendum”. Mr. Tam’s remarks echoed the statements of the China Liaison Office of Macau at the time, which stressed that there was “no legal basis” in China’s Constitution or Macau’s Basic Law supporting the civil referendum, and that the regional jurisdiction of the MSAR

was not authorised to invent or initiate a “civil referendum” system. While the Open Macau Society filed an appeal with the Court of Final Appeal, the civil referendum organisers have yet to receive a response from the judges. “The Commission now requests help from the residents who have private places accessible by the public to let the Commission use those venues as polling stations on 24 and 30 August 2014,” the group said. Because holding an unofficial ‘civil referendum’ is deemed ‘illegal’ by the administration and courts here, the Open Macau Society had considered renaming it. But, according to Mr. Chao, “the [court’s] judgment suggests that a change [in name] will not be helpful in securing public places because the promotional activity of the ‘survey’ also does not constitute an ‘assembly.”’ He also compared what the referendum organisers are trying to do with that of the Public Opinion Programme of the University of Hong Kong, which in 1993 organised a ‘People’s Referendum Scheme’ and today remains one of the methods employed by the university to research public opinion.

August 1, 2014

Macau

MOP5 billion injection saves Social Security Fund year The government injected 5 billion patacas to save the performance of the Macau Social Security Fund last year and plans to repeat the formula again in 2014. Spending on pensions and benefits is growing two times faster than revenues, even with increasing transfers from casinos Luís Gonçalves

luis.goncalves@macaubusinessdaily.com

he most recent warning came just last week. The International Monetary Fund said that the government is tackling the sustainability of the Social Security net in Macau with one-off measures and has no longterm strategy to address the problem. With the population over the age of 65 set to double in the next decade - growing more than fourfold by 2030 - spending on pensioners will skyrocket. Revenues are already increasing at a much lower pace, even with the booming casino industry, whose revenues finance the majority of the system. Probably not anymore. The government is putting its hands and money to finance the Social Security Fund and the amount is likely to increase in the coming years. Last year, the government injected 5 billion patacas into the Social Security Fund, lifting total revenues for 2013 a record 12.7 billion patacas.

Too good to be true The performance was outstanding: revenues more than doubled compared to 2012 (an increase of 118 percent) and outperformed by a large margin the spending side, a dream scenario for any pension fund, as total expenses went up 63.6 percent (to 2.3 billion patacas). Revenues were growing officially almost two times faster than spending. The reality, however, was the opposite. Without the one-off injection of 5 billion patacas made by the government, Social Security revenues only climbed 32 percent to 7.6 billion patacas in 2013, half of the spending growth rate. The contribution from gaming revenues, the biggest component of the fund’s financing, grew 50 percent last year compared to 2012. Once again, behind the expenses increase of more than 60 percent, the annual report showed. With the ageing population in Macau rising fast and with the enlargement in the number and value of benefits and pensions, the

spending burden of social security accounts is starting to weigh heavily, prompting the government to inject money. In 2013, old age pension costs increased 68 percent from 2012 to 1.9 billion patacas, and since 2009 has almost quadrupled. Spending on the disability living allowance has followed the same path: it doubled in 2013, growing fivefold since 2009. The old age pension and the disability living allowance accounted for 85 percent of all Social Security expenses in 2013. The government decided to inject

money in order to ‘calibrate’ Social Security against the increasing spending on pensioners. Last year, it invested 5 billion patacas, and according to a consultancy study published on the Social Security Fund’s website is going to repeat the dose and inject 5 billion patacas more this year. No information was given for the strategy beyond 2015. It was this lack of long-term strategy regarding the challenges of an aging population for the public accounts that IMF noticed in Macau. ‘Spending pressures will mount due to population aging —

Social Security Revenues 2012 2013 YoY Var. Gaming Contribution Government injection Others Total Total (w/injection)

3,832 0 1,957 5,789 5,789

5,732 5,000 1,926 12,658 7,658

49.6% -1.6% 118.7% 32.3%

Social Security Spending Old Age Pension

Year Value YoY Var. 2009 2010 2011 2012 2013

559 644 973 1,141 1,917

15.2% 51.1% 17.3% 68.0%

Disability Benefit

Year Value YoY Var. 2009 2010 2011 2012 2013

22 23 34 45 88

4.5% 47.8% 32.4% 95.6%

with the old-age dependency ratio forecast to rise from 10 to 30 percent by 2030,’ warned the institution after its first mission to Macau since the handover in 1999. ‘These are addressed through ad-hoc measures, such as cash transfers to citizens and public injections into the pension fund,’ concluded the IMF officials who visited Macau.

A country for old men Macau has one of the fastest growing ageing populations in Asia (see chart). An increase of threefold in the old age dependency ratio in the next 15 years means the number of working aged people available to finance the old age population is dropping drastically. Today, people over the age of 65 in Macau account for 10 percent of the working age population (between the ages of 15 and 65). In 2030, elders will comprise 30 percent of the total working age population. In 50 years, half of Macau’s population will be above the age of 65, an unsustainable burden for any social security fund, official data shows. The problem, as the IMF noted, is that the aging population is much more likely to continue in the coming decades than the growth of gaming revenues here. The latter is set to slow down after 2018 when the flow of casinos in Cotai is completed. IMF advised the Macau Government to use its ‘healthy fiscal position’ to protect the territory against these pressures over the longer term, namely by establishing a sovereign fund with its ‘significant fiscal reserves’. Macau had a fiscal reserve of 250 billion patacas at the end of 2013 and is likely to increase it to 350 billion patacas by the end of this year.

August 1, 2014

Macau

Suez Environnement eyes purchases as Macau sale doubles profit Europe’s second-biggest water company is weighing acquisitions as a financial flexibility

uez Environnement (SEV), Europe’s second-biggest water company, is targeting asset purchases this year, buoyed by profit that more than doubled in the first half because of a one-time gain from a stake sale. Acquisitions are “on its radar” as “financial flexibility” was preserved even after an increase in Suez’s stake in a Spanish unit, chief executive officer Jean-Louis Chaussade said on a conference call to discuss earnings released yesterday. The Paris-based utility is looking to expand in Italy and develop its businesses, including industrial water treatment, in India and other markets outside Europe, he said. Net income climbed to 280 million euros (US$375 million, 3 billion patacas) from 132 million euros a year earlier after the sale of an indirect stake in the city’s sole power supplier Companhia de Electricidade de Macau (CEM), Suez said in a statement. The 1.326 billion euros earned before interest, taxes, depreciation and amortization beat the 1.32 billion euro average estimate of six analysts surveyed by Bloomberg. Suez has a “wish list” of possible acquisition targets and the financial flexibility to complete the deals, chief financial officer Jean-Marc Boursier

The company this month agreed to buy the 24 percent stake in Barcelona water company Sociedad General de Aguas de Barcelona it doesn’t own for stock and 299 million euros in cash.

Financial Maneuvering

said in an interview in February. Suez and larger rival Veolia Environnement SA (VIE) have reported signs of a revival in waste-handling in Europe this year after a protracted slump when factories reduced output amid the region’s economic crisis.

‘Growing strongly’ “Waste Europe activities are steady with very uneven industrial production country by country,” Chaussade said in yesterday’s statement. “The water Europe division is growing strongly, benefiting from very significant increases in prices and volumes.”

Suez shares, up 12 percent this year, gained as much as 4.3 percent to 14.65 euros. Treated waste volumes rose 1.2 percent in Europe and the utility reaffirmed financial targets for the year. Net financial debt was 7.295 billion euros at the end of June, an increase of 109 million euros from the end of 2013. Suez has set a target for Ebitda growth from current assets this year of at least 2 percent, debt-to-Ebitda of about three times and free cash flow of about 1 billion euros. Ebitda in 2013 was 2.52 billion euros, falling short of a goal of 2.55 billion euros.

The utility’s room for financial maneuvering won’t be affected by the Agbar deal, Chaussade said on today’s call. Suez wants to grow in countries where it is already present as well as in areas like “intelligent” water systems. In Italy, the French utility wants to be a partner with a company that can “consolidate” the market, he said. Suez is “satisfied” with its shareholding and influence in Acea SpA, which manages water and power for Rome and in which Suez increased its stake earlier this year. Suez and Veolia compete in France for municipal waste and water services and worldwide for large treatment installations including desalination plants. Both companies have adopted similar strategies to expand in faster-growing locations such as China, India and North Africa and provide services for world-spanning industrial companies and industries such as oil and gas. Bloomberg

August 1, 2014

Macau

Macau a possible investor for Russia Executives of a small Russian bank have met with investors in Macau, Hong Kong and Singapore as it looks to issue Chinese-denominated bonds

acau could be a possible solution for Russian banks and companies shut out of Western funding markets due to new sanctions imposed by Washington and Europe over the Ukraine crisis. Bank representatives from Russia have met with possible investors here in Macau, Hong Kong and Singapore as they consider the issuance of Chinese-denominates bonds now that Russian banks do not have much debt maturing. However, Russian banks and companies shut out of Western funding markets are unlikely to be greeted with open arms and ready wallets in Asia, international bankers and industry experts say. New sanctions imposed by Washington and Europe over the Ukraine crisis have prompted firms such as VTB - Russia’s second-largest bank by assets - and Gazprombank to look east for new sources of funding. Banks and investors in Asia, however, are reluctant to get involved. This leaves the Russian central bank as the only obvious alternative, apart from Chinese currency bonds where borrowing costs are rising and the market is too small to plug the gap left by Western capital markets. The Islamic bond market is also problematic. The European Union and United States announced the sweeping sanctions against Russia on Tuesday, targeting its energy, banking and defence sectors in the strongest international action yet over Moscow’s support for rebels in eastern Ukraine. Wealthy Russians looking to park their money outside Europe and the United States also face a cautious welcome in Singapore, Asia’s private banking hub, where wealth managers are increasingly picky about whose cash they handle. “A lot of Russian money wants to come to Singapore but a lot of it is not clean, so banks have tightened up all their rules,” said Satish Bakhda, chief operating officer for Singapore at Rikvin, which helps people and businesses set up companies. “A lot have tried to incorporate companies, but when they open the bank account it becomes very difficult because the bank wants them to be resident in Singapore or know where the source of funds comes from – and that’s where they get stuck.” On the corporate side, the possibility of blacklisted firms raising

loans in any currency from syndicates of banks is close to zero, even in Asia, because lenders with U.S. branches and subsidiaries will not want to upset Washington. The United States is already lobbying Asian governments to join the sanctions regime. Banks around the globe have also been cowed by a US$9 billion (72 billion patacas) fine imposed by a New York court on France’s BNP Paribas for doing business in Sudan, Iran and Cuba – countries which are also subject to U.S. sanctions. Lenders are now taking a uniform stand, regardless of their base, on Russia. “Right now, all banks are acting the same, no group is any more or less cautious or sanctions-aware. It’s all too important – Asian banks are the same as European or U.S. banks in this respect,” said a London-based banker at an Asian lender. Even Russian firms that have not been sanctioned are suffering as lenders reduce their exposure to the country. Chinese banks might be willing to consider a syndicated loan to such companies, bankers said, but only on a case-by-case basis.

Dim sum Russian banks on the U.S. and EU blacklists do not have much debt maturing this year and the central bank, which has international reserves of US$472.5 billion, has said it will support any domestic bank hit by sanctions. However, Russian banks and companies are looking at issuing debt in the “dim sum” market from bonds denominated in yuan that are sold outside China. Dim sum bonds are bonds issued outside of China but denominated in Chinese yuan, rather than the local currency. JSC Bank Rosinterbank, a small Russian bank, is looking at issuing a 500 million dim sum bond and its executives have already met investors in Singapore, Hong Kong and Macau. ICDI, a corporate finance house, which has been advising JSC Bank Rosinterbank on the bond, said the bank expected good demand despite the new sanctions because it is privately-owned. “Rosinterbank deposit income grew three times after the first wave of sanctions because clients choose private banks instead of state-owned ones,” said Elena

Trofimova, CEO of ICDI. Trofimova said investors from Hong Kong, mainland China and even London were interested in the deal and, after due diligence, ready to take part. “They said that politics is politics and business is business,” she said. But the fresh sanctions are spooking sentiment, making it more expensive for Russian companies to access such funding. Yields on Russian companies’ outstanding yuan bonds jumped on Wednesday with those on one Gazprombank issue soaring 100 basis points since July 16, when it was hit with an earlier round of U.S. sanctions. Executives from Gazprombank were in Seoul last week to meet fixed income investors in a so-called nondeal roadshow. The dim sum market is also too small to replace Russians’ external financing needs. The entire market is worth around US$110 billion, less than half of what Russian companies have borrowed in euro- and dollar bond markets in the past decade. The Islamic bond market, around the same size as the dim sum market, is in theory an alternative option for Russian banks and companies but in practice its use would be limited. Around two thirds of the Islamic bond market comes from ringgit deals out of Malaysia, a country that could be reluctant to do business with Russian firms. The latest round of sanctions was prompted by Western suspicions that

KEY POINTS Russian firms frozen out of international syndicated loan market Banks cowed by BNP Paribas sanctions fine Companies look at yuan bonds but market is small JSC Bank Rosinterbank executives already met investors in Macau, HK Flows of Russian wealth to Singapore rising

the pro-Moscow rebels shot down a Malaysian airliner over eastern Ukraine with a Russian-supplied missile. Moscow denied responsibility, blaming the Ukrainian military for the disaster in which 298 people died earlier this month. The remaining third of the Islamic bond market is in dollars.

A neutral line EU and U.S. sanctions on individuals have been restricted to a narrow group linked to President Vladimir Putin. Notwithstanding the difficulties in opening accounts in Singapore, private bankers there say that inflows from wealthy Russians are up this year, attracted by the island’s political stability, low taxes and its tendency to keep its head down when international conflict flares. “Singapore treads a neutral line,” said Sean Coughlan, managing director of wealth planner Asiaciti Trust Singapore. “That’s attractive to clients who come from that part of the world [Russia] – what they don’t want is to park their assets in a jurisdiction where tomorrow they find all their assets are confiscated or frozen, or they can’t get access to them.” There is no official data pointing to a rise in flows from Russia but the latest available central bank figures show a 17 percent increase in assets under management from Europe in 2013. Cyprus, the former destination of choice for Russian cash, imposed capital controls and losses on large depositors last year to save itself from bankruptcy. Russians wishing to move their cash to Singapore have to go to great lengths to prove that they are tax compliant. Singapore, anxious to avoid U.S. tax inquiries that have hit other financial hubs such as Switzerland, has brought in tougher rules around vetting new clients. Bankers in Singapore say Russians looking for a new Cyprus have come to the wrong place. “It takes around one to two months to open an account for a client from say Russia, especially if they’re using a complicated structure,” said the head of the Eastern Europe team at a private bank in Europe. “By comparison for a client from a developed country opening a straightforward individual account it takes around one to two weeks.”

August 1, 2014

Greater China

IMF recommends lower GDP target Cultural Revolution ‘hero’ to make US$30 mln from IPO

China should set an economic growth target of 6.5-7 percent for 2015, below its goal for 2014, and refrain from stimulus measures unless the economy threatens to slow sharply

A former Cultural Revolution role model who shot to fame in 1970s China for submitting a nearly blank exam paper is poised to enjoy the fruits of capitalism as his company lists on the stock market. Zhang Tiesheng’s stake in Liaoning Wellhope Agri-Tech Joint Stock will be worth more than 189 million yuan (US$30 million) after it lists on the Shanghai exchange, according to company filings. Zhang is known for handing in an incomplete test paper to a university admissions committee in 1973, saying he was too busy working the land to devote time to academic learning, according to accounts.

Taiwan to regulate stock research reports Taiwan’s financial regulators will soon ban foreign and local brokerages from giving target prices for individual stocks to the media, an official said yesterday, a step aimed at preventing market manipulation. The ban will be among a new set of rules by the Financial Supervisory Commission which will also require the media to clearly attribute research reports, said Chang Li-chen, deputy director of the regulator’s Securities Futures Bureau. If brokerages need to clarify media reports, they must do so via the stock exchange website, the official added.

IMF headquarters in Washington

ost of IFM directors hold that view, though some feel that an even-lower growth target is appropriate, the IMF said. In the conclusion of its annual Article IV economic consultation with China, the IMF repeated its projection that the economic growth would dip to 7.4 percent this year, and decelerate

further to 7.1 percent next year. The IMF cut its 2014 and 2015 economic growth forecasts for China last week. It had projected in April that the world’s second-largest economy would grow 7.5 percent this year, and 7.3 percent next year. Weakness in China’s real estate sector posed near-term risks for China’s

economy despite signs of steadying, Markus Rodlauer, deputy director of the IMF’s Asia Pacific Department and the fund’s mission chief for China, told reporters. Near-term risks in China’s economy remained manageable due to the government’s policy buffers, but Beijing must push reforms as the current path

New apartments in Suzhou

Great potential in trade cooperation with Malaysia In a recent interview with Xinhua, Malaysian Minister of International Trade and Industry Mustapa Mohamed said that the Malaysian side is supportive of the incentive to build the Maritime Silk Road and the Silk Road Economic Belt, and has been keeping an open mind on it. The minister said they are very supportive of this proposal, and will come out with complete program to promote it between the ports in China and Malaysia. Moreover, he revealed that as the trade volume between China and Malaysia is very huge, Malaysian Prime Minister Najib Razak has decided to set up a high level committee chaired by him, to monitor closely the ties between the two countries.

Higher choking chance for small developers

Medical profession loses appeal in China

The pressure on smaller developers is significant because they make up the major chunk of the sector

China’s medical workers are frustrated with their jobs, and they even discourage their children from joining the profession, according to a new survey. DXY.CN, an online medical science community, conducted a survey among 3,860 medical workers and found that 90 percent of the participants would not choose the profession if given a second chance. Some 58 percent of the participants said they would strongly discourage their children or friends’ and relatives’ children from applying to medical school. Only three percent of the total said they recommend medical studies and another 36 percent remained neutral, saying they respect their children’s will.

number of small developers the kind that by sheer weight of numbers dominate China’s vast property sector - are set to report big drops in earnings or even losses as the industry grapples with tight credit, sluggish sales and excess supply. The first-half results are likely to stand in contrast to the performances of larger players, which have weathered the downturn relatively better thanks to their greater exposure to top-tier cities, pricing power and easier access to credit. The pressure on smaller developers is significant because they make up the major chunk of a sector that

accounts for more than 15 percent of China’s gross domestic product. The top ten players account for less than 20 percent of the market by sales. “Big players have good execution, so their profit will be better. Small players offer more price cuts,” said Raymond Ngai, head of Greater China Property Research at Bank of America Merrill Lynch. China Overseas Grand Oceans (COGO) will be among the first of the country’s smaller developers to report earnings when it releases firsthalf results yesterday. COGO, which is about 40 percentowned by major developer China

Overseas Land & Investment Ltd (COLI), this month flagged a 30 percent dip in net profit, citing unspecified “structural economic adjustments” and a big fall in market value of investment properties.

Restrictions eased While many small Chinese property companies are feeling the heat, some of the larger developers are expected to post healthy revenue growth for the first half, lifted by record 2013 sales and less spending on land purchases due to a market slowdown.

August 1, 2014

Greater China A key uncertainty remains in the real estate sector, some further weakness could be building and because of the very large direct and indirect importance of this sector, this still poses a risk to the near‑term outlook Markus Rodlauer, deputy director, IMF’s Asia Pacific Department

of growth is unsustainable, he added. Beijing is not expected to announce its 2015 target until early next year, though some government economists have suggested a level of around 7 percent to help create more room to pursue structural changes. China fixed its annual economic growth target for this year at around 7.5 percent, suggesting for the first time in years that there is room for growth to come in slightly under the desired level. But after a weak start to the year, the government announced a flurry of stimulus measures to offset the drag from weak exports and a cooling property market.

The economy grew 7.7 percent in 2013, above the target of 7.5 percent and again underpinned by government stimulus early in the year. Some analysts have criticised the 2014 target as one that is still too high to give China enough room to overhaul its economy to produce slower but better-quality growth. To that end, the IMF repeated an earlier recommendation that China should not deploy any economic stimulus unless GDP growth is in danger of falling “significantly” below the target level. This is because risks in China in the form of off-budget spending and quick growth in credit and investment have “risen to the point that containing them is a priority”, it said. Any stimulus that was dispensed should be carried out through fiscal policy and accounted for in government budgets, the IMF added. In line with the modest cooldown, the IMF estimated that annual inflation in China may ease to 2 percent this year, a good way under the government’s 3.5 percent target. Price pressures are expected to pick up slightly next year to boost inflation to 2.5 percent. The fund also repeated its assessment that the yuan is “moderately undervalued”, and said it supported China’s attempt to move towards a more flexible exchange rate that is not subjected to “sustained, large and asymmetric intervention”. The IMF stuck with its assessment that the yuan is between 5 and 10 percent undervalued, based on China’s current account surplus relative to gross domestic product, Rodlauer said. Reuters

Taiwan economic growth as strong as 18 months ago April-June GDP growth quickened to 3.84 percent on-year from 3.14

conomy had its best annual growth in 1-1/2 years in the second quarter, thanks to robust demand for the island’s electronic products from markets in China and the United States. April-June GDP growth quickened to 3.84 percent on-year from 3.14 percent in the first quarter, the statistics agency said yesterday. It handily topped the median forecast of 3.27 percent growth in a Reuters poll. The latest figure bodes well for Taiwan to achieve its 2014 target of 2.98 percent, which would be the fastest rate since 2011. With inflation accelerating in the last few months, the growth spurt could put pressure on the central bank to raise interest rates before the year is out, some analysts said. Annual inflation at 1.64 percent in June is still below the central bank’s target of 2 percent, but higher costs of food and fuel imports have driven prices up recently. In the second quarter, exports of information and telecommunications, mining and optical products declined, though electronics and basic metals increased, the agency said. Taiwan is one of the world’s leading exporters of electronic goods and boasts a number of suppliers for foreign hardware heavyweights such

2.98 pct 2014 Taiwan growth target as Apple Inc. Its GDP data is often seen as a barometer of global demand. But intensifying competition from regional rivals in South Korea and China points to challenging times for the economy, especially as global players become more discriminating in a rapidly changing technological landscape. Exports, which rely on Taiwan’s two biggest markets of China and the U.S., slightly lagged forecasts in June with a 1.2 percent growth. Shipments to the United States, though, jumped nearly 12 percent in a positive sign that the island’s tech firms were reaping the benefits of the season’s new line-up of smartphones. Hon Hai Precision, the world’s No.1 electronics parts maker and a major assembler of iPhone 6, said in June it expects 2014 profit growth to be no less than 10 percent. Reuters

Funds raise suggested equity allocations Many fund managers said the loosening of monetary policy and government mini-stimulus programs would bring equity investment opportunities in the next three months

C Many industry watchers expect the market to bottom out in the second half thanks to further government stimulus and easier credit, although margins will continue to be squeezed across the board as developers offer discounts to boost sales. Local governments have already started to ease restrictions on property purchases that were put in place at Beijing’s behest when housing prices were soaring, while some banks in top-tier cities such as Shanghai and Shenzhen are reportedly offering mortgage rate discounts to first-time homebuyers. Last month, China’s home sales surged 32.5 percent from May. However, sales by value fell 5.4 percent, reflecting price cuts and other incentives developers have been offering to entice buyers and offload unsold homes. China’s newly appointed housing minister, Chen Zhenggao, told developers at a forum earlier this month that clearing inventories is a priority for the second-half. Reuters

hinese fund managers said they would raise the proportion of their portfolios invested in stocks over the next three months, following June’s upward trend, amid hopes that China’s economy is stabilising, according to a Reuters poll. “This week, rules governing the purchase of real estate have been relaxed, the performance of the property market at the end of the third quarter will determine whether the economy has stabilised,” said a Shanghai-based fund manager, who declined to be identified because he cannot speak to the media. Chinese fund managers increased their suggested equity allocation for the next three months to 81.9 percent from 79.4 percent a month earlier, the highest weighting since January, according to a poll of eight Chinabased fund managers conducted this week. Indeed, Chinese stocks have rallied sharply in recent weeks after a raft of data showed the economy was regaining traction. The economy grew slightly faster than expected in the second quarter at 7.5 percent as a burst of government stimulus kicked in, but analysts said Beijing will likely need to offer further support to meet its growth target for 2014, especially if the already cooling property market starts to deteriorate more sharply.

Funds reduced their suggested bond allocation to 4.5 percent from 10.4 percent a month ago, while slightly lowering their cash weightings to 13.6 percent from 13.8 percent in June. This month, suggested allocations to financial services, real estate and auto stocks on average rose significantly from last month, but

Shanghai Stock Exchange building

those for the electronic technology sector fell sharply. The average recommended allocation for financial services rose to 18.5 percent from 14.2 percent last month, while recommended weightings for real estate shares increased to 10 percent from 7.8 percent in June. Reuters

August 1, 2014

Asia Subaru maker profit rises Fuji Heavy Industries, the maker of Subaru-brand cars, yesterday posted a 13 percent rise in April-June operating profit on strong sales of its Forester SUV in the United States, cost cuts and a weaker yen. Japan’s smallest passenger carmaker booked 78.7 billion yen (US$765.9 million) in first-quarter operating profit, roughly in line with the 80.6 billion yen mean estimate of 11 analysts polled by Thomson Reuters I/B/E/S. Its operating profit margin was 13.2 percent for the quarter, likely the highest among Japan’s eight passenger carmakers.

Mazda Q1 profit jumps The firm yesterday said April-June operating profit rose 54.4 percent on year to 56.4 billion yen (US$549.1 million), compared with a 49.2 billion yen mean forecast of 11 analysts polled by Thomson Reuters I/B/E/S. Japan’s fifth-biggest automaker by global sales volume said cost cuts and a weaker yen helped AprilJune profit, and kept its full-year profit forecast at 210 billion yen. Mazda’s Japan sales dropped 21 percent, pushed down further by slow sales of the Demio subcompact, known as Mazda2 overseas, ahead of remodelling.

Toshiba quarterly profit jumps Toshiba Corp, the world’s No.2 producer of NAND flash memory chips for smartphones, posted a 57 percent increase in operating profit for the April-June quarter compared to a year ago, boosted by growth in its solar, nuclear and railroad instrument sectors. Toshiba’s operating profit of 39.5 billion yen ($384.35 million) was a record high first-quarter result, but below expectations of 44.9 billion yen, the mean of seven analysts’ estimates according to Thomson Reuters StarMine. The company kept its operating profit target for the year to March 2015 unchanged at a record 330 billion yen.

Japanese OLED joint venture on the way

India seen keeping rate Nearly all the 43 economists surveyed over the past week expect key repo rate on hold at 8 percent Deepti Govind

he Reserve Bank of India is likely to leave its key interest rate unchanged on August 5 and won’t ease policy until early next year on fears food inflation will spike if monsoon rains are below average, according to a Reuters poll. Nearly all the 43 economists surveyed over the past week expect the RBI to leave its key repo rate on hold at 8 percent. Median forecasts show the rate staying unchanged until the end of this year, before being cut to 7.75 percent in the first quarter of 2015. Between now and mid-2016, the RBI is expected to cut rates by 75 basis points. Although both wholesale price inflation (WPI) and consumer price inflation (CPI) eased in June, some forecasters warned inadequate rains could lead to higher food inflation. Concerns that India could face its first drought in five years have abated after rainfall increased in mid-July, but the poor start to the monsoon made farmers postpone summer sowing. “Even though the headline WPI and CPI have eased over the last few months, and the intensity of monsoon rains has picked up after a

Indian finance minister Arun Jaitley arrives at the Parliament house to present the general budget for 2014 in New Delhi, India on 10 July 2014

Asian buyers increase Iran oil use The four top Asian buyers - China, India, Japan and South Korea - imported 1.2 million bpd in the first half of 2014

Sony Corp, Panasonic Corp and Japan Display Inc said yesterday they would form a joint venture to develop organic light-emitting diode (OLED) displays, with the government-backed Innovation Network Corp of Japan (INCJ) taking a majority stake. The venture, bringing together all of Japan’s OLED technology, would make small to mid-size panels for wearables, smartphones and tablets. The new company will be called JOLED Inc. and is scheduled to be launched in January. The INCJ will hold 75 percent of the voting rights in JOLED, Japan Display will hold 15 percent, and Sony and Panasonic will each own 5 percent.

Mitsubishi UFJ profit falls Mitsubishi UFJ Financial Group Inc (MUFG) yesterday said net profit fell 5.8 percent in April-June in part due to expenses after acquiring Thailand’s Bank of Ayudhya PCL. But the first-quarter profit fall at Japan’s largest lender by assets was significantly smaller than rivals as it booked larger stock-related gains than a year-earlier period while others suffered declines. MUFG, which owns about one-fifth of Morgan Stanley, reported net profit of 240.5 billion yen (US$2.3 billion) in April-June from 255.3 billion yen a year earlier.

Tankers at the Iraqi Al Basra Oil Terminal in the Northern Arabian Gulf

ran’s biggest clients took in a quarter more oil in the first six months of 2014 than in the same period of last year, with China and India holding to the higher volumes they started after the agreement that relaxed Western sanctions on Tehran. Iran’s exports to its top four oil buyers - China, India, Japan and South Korea - may keep rising even though a deadline for a final deal on its disputed nuclear programme had to be extended. The lead U.S. nuclear negotiator on Tuesday said participants aim to reach a resolution

on the decade-old dispute by the end of the four-month extension. Iran last week received the final instalment of the US$4.2 billion in oil payments released as part of the earlier agreement, although another US$2.8 billion was released as part of the extension. The four Asian buyers imported 1.2 million bpd in the first half of 2014, versus 961,236 bpd in the same period a year ago, according to official customs data and tanker arrival schedules. China, Iran’s biggest customer,

raised its imports by almost 50 percent in the first half, while India increased its purchases by a third. Purchases by Japan and South Korea fell over the same period. In June, imports by Iran’s buyers in Asia fell nearly a fifth from the previous month to just over 1 million bpd, the lowest daily rate since December. Asia’s imports of Iranian oil in the first five months of 2014 had held steadily above 1.1 million bpd, excluding Iran’s exports to destinations such as Turkey and Syria.

August 1, 2014

Asia

steady the RBI to leave its

KEY POINTS RBI to leave repo rate unchanged at 8.00 pct next week RBI to cut rates by 25 bps to 7.75 pct in Q1 2015

weak start, rainfall-related concerns persist as a source of risk for the inflation outlook,” said Aditi Nayar, senior economist at ICRA. Three economists expected rates to go up before the end of the year, reflecting those fears. However, growth is slowing and has stayed below 5 percent in the past two years, well below levels needed to create enough jobs for India’s young and expanding workforce. Economists trimmed their growth predictions for the current fiscal year

in a Reuters poll last week, despite market expectations that India’s first majority government in three decades will quickly bring in reforms and attract more investment. Lack of crucial government reforms, stubbornly high inflation and elevated borrowing costs have weighed on India’s economic growth over the past two years and the central bank is struggling to support growth while bringing inflation down to its target. Still only two forecasters predicted that a cut in the repo rate next week to boost economic growth. “We believe that reduced monsoon risks, a clear roadmap for fiscal consolidation and moderation in inflation expectations will create a case to begin a rate easing cycle,” said Deven R Choksey at KR Choksey. New Finance Minister Arun Jaitley’s first budget seeked to cap borrowing but left doubts over how the 4.1 percent fiscal deficit target would be met. The budget also left those who were anticipating radical reforms disappointed, putting the spotlight back on the RBI instead. The RBI is targeting retail inflation of 6 percent by January 2016. Inflation, measured by the consumer price index, eased to 7.31 percent year-on-year in June. Some economists say the target is tough and does not give the central bank room to cut rates. “The problem is that they have set themselves a very sharp target for inflation reduction and any leeway on that front will be very difficult,” said Bhupesh Bameta, economist at Quant Capital. Reuters

Zero rate on Bank of Japan’s mind Some BOJ executives, including Deputy Governor Hiroshi Nakaso, have vaguely talked about possible options for when the central bank ends its stimulus programme

ank of Japan board member Takahide Kiuchi said yesterday the central bank should consider shifting the focus of monetary policy to zero interest rates from asset purchases when moving to end its ultra-loose stance. Kiuchi said while the BOJ’s quantitative and qualitative easing (QQE) programme had been effective in boosting the economy, keeping it in place for too long entailed big potential risks, such as creating financial imbalances and making an exit from the stimulus scheme difficult. Some BOJ executives, including Deputy Governor Hiroshi Nakaso, have vaguely talked about possible options for when the central bank ends its stimulus programme, but Kiuchi is the first among the nine board members to directly discuss the best possible way to end QQE. “Under QQE, the BOJ purchases assets on an unprecedented scale. Therefore, it is necessary to be particularly vigilant against various potential risks,” he said in a speech to business leaders in Kobe, western Japan. Kiuchi repeated his view, which is not shared by others on the board, that the BOJ should consider its 2 percent inflation target as a long-term goal

Bank of Japan office building complex

without a deadline, instead of setting a two-year timeframe for achieving it. Under the QQE programme put in place last April, the BOJ has pledged to double base money through aggressive asset purchases to achieve its 2 percent price growth target in two years. While the BOJ now targets base money, not interest rates, its asset purchases have pushed down bond yields across the curve with 10-year borrowing costs now around 0.5 percent. Kiuchi said that unconventional monetary policy, such as the asset purchases under QQE, is effective as a temporary measure to boost the economy but should not be used for too long because its drawbacks are still unknown. Reuters

Sony cut smartphone profit

KEY POINTS Top Asian buyers raise Iran imports to 1.2 mln bpd for Jan-June Asia’s Iran imports rise 31 pct y/y to 1 mln bpd in June June imports from Iran fall 18 pct from May to lowest since Dec 2013 Deadline for deal with West on Iran’s nuclear programme extended

Any further significant increases in output from Iran may put pressure on Saudi Arabia to cut production, Davis said. India’s imports increased by almost 19 percent to 167,300 bpd last month from a year earlier, but were down from 221,600 bpd in May. Imports from Iran to India were up by a third to 281,000 bpd between January and June. South Korea’s imports of Iranian crude rose over 7 percent in June from a year earlier to 145,800 bpd. In the first six months of 2014, they were down by 11 percent at 124,657 bpd. Shipments to Japan, the last of the four to report oil imports, rose by 46.8 percent to 188,685 last month, trade ministry data showed yesterday. For the first half of the year, Japan’s imports from Iran were at 172,154 bpd, down 7.4 percent from a year earlier. Reuters

The company is reviewing mid-term strategy for smartphones

apan’s Sony Corp warned it doesn’t now expect to make money on smartphones this year, citing weak demand, but said restructuring will help it turn a profit in its lossmaking consumer electronics division for the first time in four years. Reporting April-June operating profit doubled, boosted by its games and networks division and a oneoff asset sale, Sony yesterday cut its smartphone sales target this fiscal year by 14 percent. Analysts had said the initial target was too ambitious amid stiff competition from both high-end A variant of the Xperia ZR tailored for the Japanese domestic market, also known as “docomo SO-04E”

rivals like Apple Inc. and cheaper Asian electronics makers. Chief financial officer Kenichiro Yoshida said the company is reviewing mid-term strategy for smartphones after the company said it now expects to just break even in the business this year, down from a previous operating profit forecast of 26 billion yen. “We are also discussing whether to change the number of phones in our line-up and adjust their lifecycle,” Yoshida said, speaking at a news conference after the company released its results yesterday.

KEY POINTS Q1 operating profit doubles on games, asset sale Sony warns will just break even on smartphones this FY Leaves fiscal year financial forecasts unchanged

Sony has vowed to turn a profit on its flagship electronics division this year, come what may. The firm is cutting 5,000 jobs and spinning off its TV division into a separate company, a move chief executive Kazuo Hirai has said will increase accountability at the business. In the fiscal first quarter ended June, Sony’s operating profit climbed to 69.8 billion yen (US$679 million) from 35.5 billion yen a year earlier. That easily beat the 16.6 billion yen average of six analysts’ estimates according to Thomson Reuters Starmine. Sony said a 14.8 billion gain from the sale of a technology centre in Japan inflated the quarterly profit, while its games and networks division - the focus of much of Sony’s corporate strategy going forward - turned in a strong performance. Reuters

August 1, 2014

Asia Cash limit for visiting N.Korea cut South Korea’s government has lifted the limit on the amount of cash its citizens can carry into North Korea, the finance ministry said yesterday, as part of foreign exchange regulatory reforms. The current cash limit of US$1,000 for South Koreans visiting the North will be discontinued due to its “low effectiveness,” as will a ban on credit card and debit card use in the isolated country, the Ministry of Strategy and Finance said in a statement. A finance ministry official said the decision was not a “gesture of peace” towards the North.

Woodside’s buyback close to failing Woodside Petroleum Ltd’s planned US$2.68 billion share buyback from Royal Dutch Shell is on the brink of failing, based on a count of votes mailed in ahead of a shareholder meeting on Friday. Woodside said yesterday about 71.3 percent of votes cast so far were in favour, with the rest against. It needs support from 75 percent of votes cast to go ahead with the buyback, which would cut Shell’s stake in the company to below 5 percent. Shell is selling the bulk of its 23.1 percent stake in Woodside.

Tokyo IPOs face low value trend Investors in initial public offerings have little appetite for frothy valuations with the world’s third-biggest economy

t the New York Stock Exchange last September, buoyed by high hopes for Japan’s economic revival, Prime Minister Shinzo Abe urged Wall Street to “Buy my Abenomics!” Amid sagging growth and Tokyo listing flops, investors are now looking for a discount. The Tokyo bourse’s Nikkei benchmark is down 4 percent this year as euphoria over ‘Abenomics’ - Abe’s radical reflationary policies has given way to more cautious views of Japan Inc.’s recovery. Investors in initial public offerings have little appetite for frothy valuations with the world’s third-biggest economy likely having shrunk in the second quarter after a sales tax hike, and industrial output on the wane. Poor IPO performances earlier this year, most notably the US$3.3 billion offering by Japan Display Inc. in March, mean big offerings expected in Tokyo this autumn will need to be priced keenly, fund managers say. Japan Display, the supplier of screens for Apple Inc.’s iPhone, is now trading 30 percent below its offering price as investors fret about its ability to

Japanese Prime Minister Abe during a speech on Wednesday on his Latin America tour

Japan real wages fall Real wages fell for the 12th straight month in June, government data showed yesterday, and showing that the pace of growth in wages remains slower than that of prices. Real wages, which are adjusted to reflect changes in consumer prices, in June fell 3.8 percent from a year earlier, following the same pace of decline logged in May, data from the labour ministry showed. The decline was the fastest pace since a 4.3 percent fall in December 2009. But the nation’s wage earners’ special payments, which are predominantly summer bonuses, rose 0.3 percent in June.

Nippon to cut corp tax rate Japan’s government will lower the corporate tax rate by 2 percentage points from next fiscal year as part of Prime Minister Shinzo Abe’s drive to encourage domestic business investment, the Yomiuri newspaper reported yesterday. Abe has pledged to lower Japan’s corporate tax rate, among the highest in the world at above 35 percent, to less than 30 percent over several years has part of his economic growth strategy. The tax cuts, which would start from the fiscal year beginning next April, would gradually bring the corporate tax rate down to around 29 percent, the Yomiuri reported without citing sources.

Japan fund managers raise allocations They increased both stocks and bonds in their model portfolio allocations in July, as they bet on a steady recovery in the global economy even as the Federal Reserve keeps reducing stimulus Hideyuki Sano

he survey of eight Japan-based fund managers, polled by Reuters between July 16-23, also showed they increased euro zone stocks after the European Central Bank adopted a series of easing steps in June. The overall allocations to equities rose to 44.8 percent in July from 44.2 percent in June while those to bonds also increased, to 48.5 percent from 47.9 percent the previous month. The fund managers cut all other three small categories - cash, alternative assets and properties. “While the Fed keeps tapering, the ECB and the Bank of Japan maintain an easing stance, leaving favourable conditions for stocks,” said a fund manager at a Japanese asset management firm. Within the equity portfolio, fund managers raised weightings on euro zone shares rose to 14.4 percent -

highest since October 2011 - from 9.1 percent in June. The ECB cut the key interest rates, pledged to keep them low “for an extended period” and offered cheap long-term loans for up to four years.

Instead, the managers cut U.S. stocks to a record low of 27.8 percent from 33.1 percent last month as Wall Street shares rallied to all-time highs. Fed chief Janet Yellen in July voiced concern about stretched valuations in certain corners of the U.S. markets, including small cap, biotechnology and social media stocks. Within bonds, fund managers were attracted to relatively higher yields in the United States compared to Japanese and euro zone bonds. They raised U.S. weightings to 27.6 percent - highest in 10 months - from 25.8 percent while cutting the euro allocation to 22.8 percent from 24.2 percent. The weightings on Japanese bonds were also cut to a 10-month low of 36.2 percent from 37.2 percent as the 10-year Japanese government bond yield stood near 0.5 percent. Reuters

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August 1, 2014

Asia KEY POINTS Fading hopes for Abe reforms dent confidence Weak performance by Japan Display also weighs Line may list in New York, Skylark pricing seen modest

compete with cheaper Asian rivals. Messaging app provider Line Corp, one of the hottest social media firms in the world, may prove an exception. But the company, seen worth more than US$10 billion, isn’t yet certain to list in Japan and could make its debut solely in New York. Makoto Kikuchi, chief executive of Myojo Asset Management, said restaurant operator Skylark Co and staffing agency Recruit Holdings, need to be modest in pricing aspirations. “Their offering prices will need to be set 10 to 20 percent below what are believed to be their eventual share prices, or else they’ll suffer the same fate as Japan Display,” Kikuchi said. Both Skylark and Recruit are expected to list later this year, although neither has announced details. Keiji Kuramoto, executive director

of Nomura’s IPO department, said Tokyo IPO investors have grown picky. “Not every listing is trading above the offering price. Compared to last year, we’re seeing more judgments based on individual companies,” he said.

Skylark focus Skylark, operator of several popular restaurant chains, is expected by market players to return to the Tokyo exchange around October, some three years after it was bought out by private equity firm Bain Capital for US$2.1 billion in equity. The company has recently turned profitable after aggressive restructuring, but some in the market are concerned about the prospects for a business exposed to consumer spending trends amid expectations for more Japan sales tax hikes ahead. The tepid debut of railroad conglomerate Seibu Holdings, which re-listed in April after slashing its offering price from initial estimates, was another sentiment dampener. Seibu’s top shareholder Cerberus Capital postponed its planned exit due to the discounted offering. That left some in the market sceptical about IPOs involving hedge funds looking to sell assets. “The reason I think Skylark might struggle is because it meets all the conditions of an unattractive IPO: a mature business, a re-listing, fundowned, and facing concerns of a worsening business environment,” said Fumio Matsumoto, a fund manager at Dalton Capital. Reuters

Hardships continue for Samsung Profit for the mobile division fell to 4.42 trillion won from 6.28 trillion won a year ago

amsung Electronics Co Ltd. yesterday reported its worst quarterly profit in two years and was downbeat about its second-half prospects, fuelling concerns about its ability to protect its smartphone turf in the face of mounting competition. For April-June, Samsung said operating profit fell 24.6 percent annually to 7.2 trillion won (US$7.03 billion), matching its guidance. This marked the third straight quarter of profit decline and was the weakest result since the second quarter of 2012. Profit for the mobile division fell to 4.42 trillion won from 6.28 trillion won a year ago, also the lowest in two years. Samsung’s mobile division executives returned a quarter of their first-half bonuses and have downgraded to economy seats for shorter flights. Researcher IDC said on Wednesday that Samsung’s second-quarter global smartphone market share slipped to 25.2 percent from 32.3 percent a year ago, underscoring its troubles.

While the company guides for a pickup in sales for its mobile business, analysts say it needs to go back to the drawing board and revamp its product line-up to ensure it can make a sustained recovery. Samsung finds itself facing the first annual profit decline in three years. Samsung’s chips business reported a profit of 1.86 trillion won, in line with firm results for rival SK Hynix Inc., as tight supply for DRAM memory chips for personal computers and servers boosted the bottom line. The flat-screen panels business ran a 220 billion won profit during the April-June period, compared with a 1.12 trillion won profit a year earlier. Samsung said it planned 24 trillion won worth of capital expenditures this year, in line with 2013, with 14.4 trillion won worth of that for its chips business. The company also plans to pay an interim dividend of 500 won per share, the same as last year. Reuters

Philippines prepares tightening measures to fight inflation Central bank looks set to tighten monetary policy for the fourth meeting in a row yesterday, raising either its main overnight borrowing rate or the rate on its special deposit accounts (SDAs) to stay on top of inflation

overnor Amando Tetangco reinforced those expectations on Wednesday, when he forecast inflation would be between 4.1 and 4.9 percent in July, pushing up against the top end of the central bank’s 3 to 5 percent target range for this year. The central bank “stands ready to implement policies to keep inflation expectations well anchored,” Tetangco said in a text message to reporters. Bangko Sentral ng Pilipinas, the central bank, has a target of 2 to 4 percent for 2015. “If the central bank wants to get hold of inflation down the line and stifle inflation expectations, they will act sooner rather than later,” said Nicholas Mapa, an economist at Bank of the Philippine Islands (BPI). BPI was one of six respondents in a Reuters poll of economists to forecast a 25 basis point increase in the main overnight borrowing rate to 3.75 percent yesterday. The remaining six forecast no change in the benchmark rate but predicted a quarterpoint increase in the special deposit account (SDA) rate

KEY POINTS C. bank expected to tighten for fourth meeting in a row C. bank may raise either its overnight or SDA rate C. bank says ready to implement policies to dampen inflation July inflation forecast by c. bank between 4.1-4.9 pct

to 2.50 percent. One economist thought the central bank would raise both rates. The SDAs are a facility where banks can park funds for between seven and 32 days. Raising the rate could

Headquarters of the Philipine’s central bank in Manila

make it more attractive for banks to leave money there, thus draining liquidity from the system. An increase in the main overnight borrowing rate would be the first in three years and would make the Philippines the second Southeast Asian country to lift borrowing costs this month to curb price pressures. Malaysia raised rates on July 10. Philippine inflation

averaged 4.2 percent in the first half, up from 3 percent for the whole of 2013, due largely to higher prices for food, including rice, as well as for transport and power, caused by a series of strong typhoons and higher global oil prices. Prices of food and nonalcoholic drinks rose 7.4 percent in June from a year earlier, the biggest increase since April 2009. Food prices alone also saw their

biggest rise in more than five years at 7.8 percent. Food accounts for 39 percent of the consumer price basket. The central bank has already taken several modest steps this year to tighten liquidity and hold down price pressures, raising the rate on the SDAs in June by 25 basis points to 2.25 percent and raising banks’ reserve requirements in May and March. Reuters

August 1, 2014

International

Euro data summon the deflation phantom Carrefour lifts profits

Euro-area inflation unexpectedly slowed in July to the weakest in almost five years, underscoring the European Central Bank’s concerns that the economy is too feeble to drive price growth

International supermarket group Carrefour achieved a sharp profit increase in the first half of the year, it reported on Thursday but the company’s shares fell sharply. Net profit rose 16.7 percent to 274 million euros (US$367 million) and the current operating profit rose by 7.9 percent to 833 million euros. This was achieved on a 1.7-percent fall in sales to 40.3 billion euros. Carrefour said that activity had been particularly encouraging in France despite deflationary pressures and pricecutting in the supermarket sector.

bonds from Europe’s most-indebted nations to a record low, they have not yet boosted prices, growth and lending. The unemployment rate for June fell to 11.5 percent after 11.6 percent in May, Eurostat said yesterday. Economists forecast it would remain unchanged. “What will be key is more of an economic recovery,” said Johannes Gareis, economist at Natixis in Frankfurt. “It’s clear that inflation will stay under 1 percent for this year, because the output gap and the spare capacity in the labour market are so big that they can’t exert much upwards pressure on prices.”

Italian records catastrophic youth unemployed rate Italy’s youth unemployment rate hit a record high in June, raising concerns that Prime Minister Matteo Renzi’s economic and labour reforms are not doing enough to help the country’s young. The rate among 15 to 24-year-olds climbed to a record 43.7 percent from 43.1 percent in May, data from the national statistics institute (ISTAT) showed yesterday. However, unemployment in the adult population defied analysts’ expectations by easing to 12.3 percent, from the 12.6 percent recorded in both April and May.

Adidas cuts targets German sportswear company Adidas said it would scale back plans to expand in Russia and overhaul its golf business, as problems in both areas forced it to cut its 2014 outlook and say targets it had set for 2015 were no longer achievable. The world’s second-biggest sportswear firm, which has been losing ground to rival Nike, said yesterday it would no longer be able to meet targets it set for 2015 and would give further details on August 7, when it reports full quarterly results.

Core inflation European central bank in Frankfurt

nflation was 0.4 percent compared with 0.5 percent in June, the European Union’s statistics office in Luxembourg said yesterday. That is the weakest since October 2009 and below a median forecast of 0.5 percent in a Bloomberg News survey of 42 economists. Having unleashed an unprecedented round of easing measures, the Frankfurt-based European Central Bank is seeking to rekindle price growth and help the 18-country bloc’s battered economy. For the past 10 months the inflation rate has been weaker than 1 percent, less than half the ECB’s goal, while joblessness has remained stubbornly near an all-time high for months. Adding to the risks are the geopolitical tensions between Russia and Ukraine, and conflicts in the Middle East. “This is most likely the trough in inflation, and inflation will move slowly upwards from here,” said Nick

Kounis, head of macro research at ABN Amro in Amsterdam. “It seems unlikely the ECB will take fresh measures to ease policy further - I don’t see this as a trigger for a largescale quantitative easing program, as long as this proves the trough.”

Stimulus effect The ECB’s announcement last month of a negative deposit rate and a program to improve bank lending is its most significant since President Mario Draghi announced two years ago he’d do “whatever it takes” to save the euro. The ECB warned the economy could take some time to respond to the barrage of stimulus and even left open the door for further action. Policy makers are next scheduled to meet on August 7 in Frankfurt. While the ECB’s measures have helped push the average yield on

The ECB predicts economic growth of 1 percent this year, rising to 1.8 percent in 2016. It sees inflation at 0.7 percent for 2014, rising to 1.1 percent in 2015 and 1.4 percent in 2016. For July, the core inflation rate, which excludes volatile items such as energy, food, alcohol and tobacco, clocked in at 0.8 percent, unchanged from the previous month. The cost of services rose 1.3 percent. In a sign growth could pick up, manufacturing and services activity for the region strengthened this month, exceeding economists’ forecasts. Among countries there were divergences: Factory activity strengthened in Germany while contracting at the fastest pace this year in France. Moreover, lending to companies and households, which the ECB has identified as key impediment to the recovery, hasn’t yet improved. Loans shrank 1.7 percent in June from a year earlier, recording the 26th consecutive contraction. Bloomberg News

European court sanctions Russia, too The European Court of Human Rights yesterday ordered Russia to pay former shareholders in defunct oil giant Yukos almost 1.9 billion euros (US$2.5 billion). The ruling comes just days after an international arbitration court in The Hague made a similar order for a record US$50 billion in compensation over Russia’s seizure of the company once owned by Kremlin critic Mikhail Khodorkovsky.

Shell quarterly profit beats forecasts Royal Dutch Shell Plc. reported a 33 percent increase in quarterly earnings yesterday, beating analyst forecasts despite impairments of almost US$2 billion after producing more liquids and selling at higher prices. The Anglo-Dutch oil company also raised its quarterly dividend and said the value of its share buybacks and dividends for 2014 and 2015 would exceed US$30 billion. The stock rose 3 percent in early trade. Shell’s second-quarter earnings on a current cost of supplies basis excluding onetime items were US$6.1 billion, up 33 percent from a year earlier. Analysts had expected earnings of US$5.46 billion.

Vultures lead Argentina to default Argentina was in default yesterday for the second time in 13 years after the failure of last-ditch talks with US vulture funds and the blockage of the payment money

fter hours of meetings Wednesday in New York, Economy Minister Axel Kicillof emerged to confirm that no deal had been reached, leaving Latin America’s third largest economy unable to meet repayment obligations by the midnight deadline. “Unfortunately, no agreement was reached and the Republic of Argentina will imminently be in default,” said Daniel Pollack, the lawyer appointed by a US court to oversee the talks. Ratings agency Standard and Poor’s had already placed Argentina in “selective default” before the talks officially ended. Argentine press reports suggested an alternative solution -in which a

coalition of Argentine private banks buy some of the outstanding debt- was being prepared, but until that comes about the country is technically in default. Kicillof complained that the creditors, US hedge funds that bought defaulted Argentine debt at knockdown rates and then went to court to demand full payment, had refused to compromise. “They were trying to impose on us something illegal,” he declared, confirming that he was heading back to Buenos Aires without a deal. Kicillof slammed S&P’s downgrade, arguing that Argentina could not be regarded as being in default since the money for the repayment was in a US bank account but frozen by

US District Judge Thomas Griesa’s court order. “Argentina paid. It has money. It is going to continue to pay. The one who is responsible for this situation is Judge Griesa,” he said. “We are going to pay those who hold bonds that have been defaulted on, but on reasonable terms, not on terms that amount to extortion, created under pressure, under a threat,” he said. Wednesday marked the deadline for Argentina to make a US$539 million payment on debt it had restructured with cooperative “exchange creditors” after its previous 2001 default. AFP

August 1, 2014

Opinion

China’s high-income hopes wires Business

Leading reports from Asia’s best business newspapers

Zhang Jun

Professor of Economics Director of the China Centre for Economic Studies at Fudan University, Shanghai

THE PHNOM PENH POST The National Bank of Cambodia (NBC) yesterday held its inaugural “macroeconomic conference”, an annual event that aims to garner input from economists, researchers and the financial operators into future economic policy formation. Held at Raffles Hotel Le Royal, the theme for this year’s discussion was financial inclusion, capital flows, and credit needs for rural development. “The result from this discussion will be used as components and ideas for the National Bank of Cambodia and policy making bodies for the economies development,” Chea Chanto, the NBC’s governor, said in the opening speech of the seminar on Tuesday.

THE TIMES OF INDIA The number of people employed in the country rose by 34.35% to 12.77 crore [10 million] in eight years to 2013, reveals the Sixth Economic Census-2013. The employment in urban areas increased by 37.46% to 6.14 crore, while in rural India the growth was 31.59% to 6.62 crore between 2005 and 2013. The proportion of women in total workforce increased to 25.56% in 2013 from about 20% in 2005. In urban areas, the proportion of female workers was 19.8% compared to 30.9% in rural areas.

THE NEW ZEALAND HERALD Trade Me Group, New Zealand’s largest auction website, will probably lure back real estate listings from its rival realestate. co.nz after yesterday backing down on a 10-month push to hike fees under a new structure, an analyst says. The Wellingtonbased company’s shares have shed 24 percent since October last year, lagging a 9 percent gain in the benchmark NZX 50 Index over the same period, when the company tried to boost revenue by shifting all real estate agents onto a fixed fee-per-listing structure from a capped monthly subscription plan.

VIETNAM NEWS The ANZ-Roy Morgan Viet Nam Consumer Confidence Index posted another strong gain, increasing by 3.1 points to reach 134.1 in July, to stand well above the 2014 average of 131. ANZ Bank economists announced this in a report dated July 30, adding that easing of political tensions appear to have contributed to the increase in confidence during the month. In terms of personal finances, 34 per cent (up 2 per cent) of the Vietnamese people say that their families are “better off” than a year ago.

HANGHAI – It is widely agreed that economic development means more than GDP growth. As China is now learning, one does not guarantee the other. Unless China’s leaders upgrade the country’s growth strategy to stimulate technological progress and structural transformation, high-income status will continue to elude the world’s secondlargest economy and most populous country. To be sure, China’s growth strategy –powered by investment in infrastructure, a massive increase in low-cost manufacturing exports, and technology transfers– has led to some structural change. As labour and capital moved from low-productivity sectors and regions to high-productivity activities, resource allocation became more efficient, real wages rose, and the economic structure was upgraded. But the growth strategies that lift a poor country to middle-income levels cannot be counted upon to propel it to high-income status. Indeed, there is no shortage of countries whose leaders have failed to recognize their strategies’ constraints and provide enough incentives to encourage the emergence of a new one, causing their economies to stagnate and leaving them stuck in the so-called “middleincome trap.” Perhaps the most notable exceptions to this rule have been in East Asia, where four economies – South Korea, Taiwan, Hong Kong, and Singapore – responded to external crises and challenges by shifting their growth strategies. For China, whose growth model has so far resembled that used by these economies before they attained middle-income status, a similar shift is urgently needed. As the late Yale economist Gustav Ranis observed nearly 20 years ago, the key to successful

and sustainable development is “avoiding the encrustation of ideas.” For Chinese policymakers, this means recognizing the need to abandon some of the fundamental ideas that underpinned the economy’s past growth, before they become so firmly encrusted that they jeopardize the country’s development prospects. The first problem is China’s enduring dependence on exports. In the early stages of economic development, almost all growth strategies boil down to trade strategies. But China’s export-led growth model has limits – and the country is reaching them. Unless change comes soon, the foreign-exchange regime and capital controls on which the model relies will become too deeply entrenched, and the window of opportunity for adjustment will be missed. Another risk is that China’s leaders continue to delay efforts to expand the services sector –including finance, insurance, wholesale and retail trade, and logistics– in the hope that the economy can continue to depend on manufacturing. Given how difficult it can be to gain support for such efforts, especially compared to policies aimed at boosting manufacturing, liberalization and expansion of the services sector will require a strong commitment from China’s government. Here, Japan’s failure in opening up its services sector –which impeded its ability to adapt its economic structure to its declining demographic dividend– can provide muchneeded motivation. The final idea at risk of blocking further progress is that political transformation would undermine social order. One of the East Asian economies’ major lessons for developing countries is that economic development leads to institutional transformation, not the other way around.

In short, the biggest risk to China’s continued development is not a crisis, but the failure of its political leaders and intellectual elites to recognize the need to transform a growth strategy that has proved successful so far

In Taiwan and South Korea, for example, authoritarian governments after World War II compensated for the weakness of the rule of law by creating transitional institutional arrangements to facilitate GDP growth. In this sense, China has a significant advantage. Countries with weak government capacity have rarely managed to achieve high-income status. But, as the description of these arrangements as “transitional” suggests, they cannot last indefinitely. After 35 years of dependence on such arrangements, China must embrace the rule of law and establish a reliable, independent judicial system capable

of facilitating the liberalization of the services sector, protecting intellectual-property rights, and underpinning a competitive market-based system. In short, the biggest risk to China’s continued development is not a crisis, but the failure of its political leaders and intellectual elites to recognize the need to transform a growth strategy that has proved successful so far. In fact, to the extent that a crisis could do more good than harm, warnings that the rapid credit expansion of recent years could trigger a debt crisis, or that the real-estate sector is on the verge of collapse, may not be as worrying as many believe. Ideally, no such crisis would be needed. In this scenario, China’s economic slowdown since 2008, which could be viewed as China’s first modern growth crisis, would be sufficient to force China’s leaders to shift their focus from supporting double-digit annual GDP increases to restructuring the economy. In fact, a consensus already appears to be emerging concerning the need to reduce China’s dependence on exports, expand trade in services, attract more foreign investment to its services sector, and accelerate the liberalization of exchange rates, interest rates, and crossborder capital flows – exemplified in the establishment of the Shanghai Pilot Free-Trade Zone last year. And, following the Third Plenum of the Chinese Communist Party’s 18th Central Committee last November, China’s leaders declared their commitment to allowing the market to play a greater role in shaping economic outcomes. These are undoubtedly steps in the right direction. The question is whether China’s leaders will follow through on their declarations before it is too late. The Project Syndicate 2014

August 1, 2014

Closing Kerry doesn’t convince India

HKMA intervenes to protect HKD peg

The United States raised a row over a worldwide trade reform measure during Secretary of State John Kerry’s talks with India’s finance minister on Thursday, but there was no sign of a breakthrough, a source said. Kerry, accompanied by Commerce Secretary Penny Pritzker, met Arun Jaitley as part of a strategic dialogue that has been overshadowed by New Delhi’s refusal to sign a trade facilitation deal pending progress on a parallel pact on the stockpiling of food subsidies.

The Hong Kong Monetary Authority (HKMA) stepped into the currency market yesterday, selling HK$2.33 billion (US$300.65 million) as the local currency repeatedly hit the strong end of its allowable trading band. The latest intervention will lift the aggregate balance to HK$228,922 billion on August 4, according to Reuters data. 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.

Cheaper (or less expensive) houses from now on A Reuters poll showed they would rise only by a sliver of 0.5 percent in 2014 Xiaoyi Shao and Koh Gui Qing

hinese home prices are likely to rise only by a sliver of 0.5 percent in 2014 as a housing downturn deepens, a Reuters poll showed, though a market collapse is seen to be highly unlikely. The median forecast of 15 analysts showed that market watchers have cut their bets for the once pipinghot sector as sales and prices turned south: Just three months ago, analysts polled had thought home prices will rise 4.3 percent this year. Yet the cool-down, expected to run into next year when prices are forecast to remain flat, should be contained. Looser monetary policy and a relaxation in property controls by regional Chinese governments is likely to put a floor beneath the housing slump. “Recent measures including a relaxation of home purchase restrictions and looser credit conditions will steady home prices in the second-half of the year,” said Liu Yuan, a research head of property consultancy Centaline in Shanghai. A major driver of investment in China, the housing market poses one of the biggest risks to the world’s second-largest economy this year, when growth is seen grinding towards a 24-year low.

inventories of unsold homes, such as Hangzhou and Wenzhou in south China and Hohhot in the Inner Mongolia region in the north, could see average price declines of 10 percent, the poll showed. In terms of what China’s central government was likely to do to support flagging home prices, analysts were evenly split. Half of the 16 respondents thought authorities would act to lift the market, while the rest believed they would not step in. Most analysts also thought China’s home prices were overvalued. On a scale of 1 to 10, with 1 being extremely undervalued and 10 being extremely overvalued, analysts rated Chinese home prices a “7”. To shield the economy from further headwinds, at least 20 regional Chinese governments in small- to mid-sized cities have openly or quietly relaxed home purchase restrictions this year to boost the property market. Banks have also revved up lending to the industry. New loans issued to the real estate sector jumped 18 percent in the first six months of 2014 from a year earlier, and some banks have begun discounting their mortgage rates to first-time buyers. Reuters

KEY POINTS

A real estate agency office

Weighed by excess supply in some cities and economic uncertainties, the property market has lost momentum since late 2013. Home prices fell 0.5 percent in June from May, though they were still up 4.2 percent from a year earlier, data released earlier this month showed. Nine of 16 respondents thought the market would not bounce back any time soon as the slowdown may last for at least a year.

“The market may get a brief respite in the second-half of this year, but the adjustment will continue in the medium term,” said Harrison Hu, an economist at UBS in Beijing. Given that China’s property market is diverging between cities in terms of performance, analysts thought smaller cities would see deeper price drops in the secondhalf of this year. Cities struggling with large

Home prices seen +0.5 pct y/y in 2014 vs +4.3 pct in previous poll Cooldown risks likely to be contained due to policy easing More than half respondents see downturn lasting for at least a year

Papa John’s closes store in China

HTC expects one more bad month

HK Exchange Fund assets at HK$3,071

apa John’s International Inc. closed an outlet in eastern China after it used expired pizza dough, fuelling further concerns about food safety at fast-food chains in the country. One of the pizza-maker’s five branches in Nanjing city was found to have used the expired ingredient two days after it passed the expiration date, Zhang Lie, a spokesman for the Louisville, Kentucky-based company, said. Local food regulators are investigating the case, he said. Chinese consumers are reeling from revelations that hamburgers, chicken nuggets and other products they bought from Papa John’s, McDonald’s Corp. and Yum! Brands Inc.’s KFC were made with meat that passed sell-by dates by a year. This has renewed fears over unsafe food in the country following abuses that included melamine-laced baby milk formula. The government wants to strengthen food safety by increasing penalties for violations, and raising compensation for consumers in a new draft law. Bloomberg News

aiwan’s struggling smartphone maker HTC said yesterday it expected revenue in the July-September quarter to drop up to 35 percent from Q2 as sales slowed for some products. HTC estimated that revenue in the third quarter to be in the range of Tw$42 billion-Tw$47 billion (US$1.4 billion-US$1.57 billion), down 28 percent to 35 percent from the previous quarter when revenue almost doubled to Tw$65.1 billion on-quarter. Gross profit margin in the current quarter is estimated to be 22.5 percent to 23.0 percent while earning per share is expected to be in the range of Tw$0.05-Tw$0.69, it said in a statement. “Some of our products, after the initial excitement, have settled at a lower level,” chief financial officer Chialin Chang said. “But the good thing is it is stabilised.” HTC’s net profit came in at Tw$2.3 billion in the second quarter, aided by the good sales of its new flagship smartphone HTC One M8 and other models, the company said. AFP

ssets at the Exchange Fund, which is used to back the Hong Kong dollar, totalled HK$3,071.0 billion ($396.26 billion) at the end of June, the Hong Kong Monetary Authority (HKMA) said yesterday. The figure was HK$50.8 billion higher than the total at the end of May, with foreign currency assets rising HK$51.2 billion while Hong Kong dollar assets decreased by HK$0.4 billion, the city’s de facto central bank said in a statement. The HKMA said the rise in foreign currency assets was mainly due to valuation gains on foreign currency investments, the purchase of foreign currencies with Hong Kong dollars and an increase in unsettled purchases of securities. The decline in Hong Kong dollar assets was mainly due to the sale of Hong Kong dollars for foreign currencies and fiscal drawdowns. These decreases were largely offset by an increase in Exchange Fund Bills and Notes issued but not yet settled. Reuters