Macau Business Daily, Aug 7th, 2014 by Business Daily

MOP 6.00 Closing editor: Luis Gonçalves Publisher: Paulo A. Azevedo Number 599 Thursday August 7, 2014 Year III

‘Peace packages’ to double staff costs D

emonstrating casino workers don’t only make for bleak headlines. Analysts see more trouble ahead. Protests are already hitting the bottom line. A summer of discontent is likely to generate key risks for casino operators. Deutsche Bank predicts labour costs will double as companies shell out more to retain staff Page

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Rock on Construction of the Hong Kong-Zhuhai-Macau Bridge is behind schedule. Further delays may seriously jeopardise the 2016 opening. Hong Kong’s contractor can’t source enough rocks. And we have issues with our sector PAGE 2

Red tape tango

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Early 2016 was the original date. Now MGM Cotai hopes to open some time in 2016. MGM Resorts’ CEO James Murren says it all depends on getting the permits. Although he concedes that Macau is a building site so no-one can say for sure just when

HSI - Movers August 5

Name

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Lion City sags An expensive currency. Rising labour costs. Sales tax. They’re all driving Chinese shopping tourists from Singapore to Hong Kong and Macau. In five months, 27 percent less mainlanders have visited the Lion City

%Day

Want Want China H

2.07

CITIC Pacific Ltd

1.50

Hengan Internation

1.14

CLP Holdings Ltd

0.71

China Petroleum & Ch

0.67

Galaxy Entertainm

-0.86

Belle International

-0.92

China Mobile Ltd

-1.28

Hang Lung Propert

-2.10

China Unicom HK

-5.25

Source: Bloomberg

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Anti-monopoly crusade The Chinese Government is getting increasingly serious. It’s cracking down fiercely on monopolistic activities. Carmakers are the latest to be probed. But investigations into Accenture, Microsoft and Qualcomm signal a broader scope Page 9

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Housing hope

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The Housing Bureau has confirmed it. Some 20,000 new flats will be available to the public in “a short period of time”. Half will be public units. More than 5,000 will be located in Fai Chi Kei, Green Island (Ilha Verde) and Taipa PAGE 3

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August 7, 2014

Macau

A bridge too far The Hong Kong-Zhuhai-Macau Bridge, slated to open to traffic in 2016, is currently experiencing construction delays. Although related parties are making progress, it remains questionable whether the bridge will open on schedule Kam Leong

China-Portuguese speaking countries trade increases 7 percent

kamleong@macaubusinessdaily.com

he trade between China and Portuguese-speaking countries in the first half of 2014 amounted to US$64.6 billion, an annual increase of 6.83 percent, China Customs has announced. China’s imports from Portuguese-speaking countries reached US$44.220 million, an annual increase of 9.10 percent, while exports from China totalled US$20.46 billion dollars, an annual increase of 2.25 percent. In June, trade between the two amounted to US$11.33 billion, a decrease of 5.53 percent from the previous month. China’s imports were US$7.87 billion, down 6 percent compared to May, while exports from China to Portuguese-speaking countries were US$3.46 billion, a decrease of 4.44 percent.

Macao Polytechnic Institute extends helping hand

here is a strong chance that the Hong Kong-Zhuhai-Macau Bridge might not open to traffic, as scheduled, in 2016 due to construction delays in Hong Kong and Macau. Hong Kong Chinese newspaper Oriental Daily reported yesterday that the reclamation works for the Hong Kong part of the bridge is behind schedule due to a shortage of building rocks. The Highways Department of Hong Kong says that the contractor was not able to purchase enough of the giant stones from its mainland supplier to build the seawall, which is lagging as well as the procedures following, such as the piling up of sea sand. According to the newspaper, two million cubic metres of stones are needed to construct the seawall. In addition, the Department said that the non-dredging seawall construction method used for the construction has hit various difficulties and challenges, which are also affecting the progress of the construction. This method is the first time it has been used in Hong Kong.

Reclamation works for the Hong Kong part of the bridge is behind schedule due to a shortage of building rocks

Currently, the contractor is catching up with the schedule, the Department said. Construction linking Hong Kong to the bridge is also taking more time than anticipated by the Hong Kong authorities, Oriental Daily reported. Contractors have increased the number of staff and machines to speed up progress. The construction of the bridge is

Cabbies applaud sting operation T axi drivers welcome the government’s suggestion of authorising sting operations to bring errant cabbies to book. According to Portuguese-language newspaper Ponto Final, taxi drivers recognise that some of their actions infringe regulations and give them a bad reputation. The taxi drivers quoted by the newspaper say police should ‘do something to control cabbies, especially those who are the black sheep and charge too high

amounts.’ Last week, the government suggested an amendment to the current taxi regulations, which includes the setting up of sting operations to catch drivers breaking the rules. The government said it would fully review the current taxi regulations, primarily to introduce sting operations, and increase fines for drivers refusing to accept passengers to MOP5,000 from the current amount of MOP1,000. A public consultation was scheduled to begin this week.

planned to be finished next year, with the bridge slated to officially open to the public in 2016. However, Hong Kong is not the only party to fall behind in construction of the bridge. In June, the Infrastructure Development Office (GDI) of Macau admitted it was experiencing a ‘serious’ delay in the reclamation work of Zone A of the new urban area, where the infrastructure project linking Macau to the bridge will be built. Legislators have expressed concern that delay in the reclamation work will also put construction of the bridge behind schedule. The Office said yesterday that the current construction schedule for reclamation work is making up time by working 24 hours, with obvious improvements. Office coordinator Chan Hon Kit said when responding to legislator Si Ka Lon’s enquiry that the Office has proposals for linking Macau to the bridge. If the related constructions for abutments cannot be completed on time, the Office will build another passageway to connect Macau’s jurisdictional part of the artificial island to the bridge.

acao Polytechnic Institute distributed MOP950,000 during the second quarter of the year, according to the Official Gazette. The largest share of the amount (MOP287,900) was distributed to the Macao Polytechnic Institute Students Union. The financial aid was provided so that the union could organise student activities from May to September. The rest of the money was used to support students on exchange programmes whilst living in Macao. Macao Polytechnic Institute provided financial assistance to 108 students during the second quarter of this year.

August 7, 2014

Macau

20,000 more flats Reverted land just around the corner earmarked for Half of the new flats will be public houses - 5,600 from the “post-19,000 units” plan – located in different parts of Macau; namely, Fai Chi Kei, Green Island (Ilha Verde) and Taipa.

commercial use Sara Farr

sarafarr@macaubusinessdaily.com

Kam Leong

kamleong@macaubusinessdaily.com

he Housing Bureau said that some 20,000 flats will be available to the public in “a short period of time”, according to the deputy director Kouc Vai Han’s response to legislator Si Ka Lon’s enquiry regarding the Bureau’s long term plans for housing and housing supply for these two years. Mr. Kuoc said that around half of such new flats will be public flats, with 5,600 from the “post-19,000 units” plan, located in different parts of Macau, namely, Fai Chi Kei, Green Island (Ilha Verde) and Taipa. Another 4,400 flats are expected to be built on parcels of land that the government has recently approved for housing development use. She said that the government emphasises the

balance of public and private housing. In addition to speeding up the constructions of public housing, it has also carried out certain measures to adjust the private housing market.

Some 14,000 private flats will be available for the public in the following three years, according to Ms. Kouc. First quarter statistics released by the Land, Public Works and Transport Bureau shows that four private housing projects have been given the green light, while another 19 completed projects are under inspection. In addition, some 86 projects are under construction. The government announced last month that Zone A of the new urban area is slated for 28,000 public houses, while some 4,000 units will be allocated for private housing. The units are expected by the government to be completed between 2022 and 2023.

wo plots of land have reverted to the government to make way for a pedestrian walkway as well as a commercial building. According to yesterday’s Official Gazette, the two plots are on the Macau Peninsula, on Rua da Ribeira do Patene in the Inner Harbour district. The two plots where building no.16B currently is and where building no.16A formerly was will revert to the government ‘free of liens or encumbrances’, the administrative regulation dispatched by the Chief Executive said. Building no.16B, occupying a gross floor area of 11 square metres, will be knocked down, as was building no.16A, and both will make way for a pedestrian walkway. In addition, the final

purpose of the land concession of two buildings in the vicinity with a combined gross floor area of 216 square metres will also be revised and amended after no longer annexing the 11 square metre plot of land. Upon being revised, and given its future purpose, the two land lots with a combined gross floor area of 18 square metres will also revert to the government ‘free of liens or encumbrances’, the Official Gazette reads. According to the government dispatch, these 18 square metres will be turned into a pedestrian walkway, while a ‘horizontal property’ will be built on the remaining 198 square metres of reverted land. This, according to the administrative regulation, will be for residential units as well as a commercial property.

August 7, 2014

Macau

Protests increasing labour costs The wave of unhappy casino workers staging demonstrations in recent weeks will generate key risks for companies, mainly that of labour cost inflation and a slowdown in mass gaming growth rates, analysts warn Sara Farr

sarafarr@macaubusinessdaily.com

he recent wave of protests by disgruntled casino workers demanding higher monthly wages and better career prospects could put pressure on gaming companies, primarily due to labour costs. In her latest note to clients, Deutsche Bank Markets Research analyst Karen Tang warns labour costs could almost double those initially estimated. Galaxy Entertainment Group became the fifth casino company to increase bonuses in order to retain staff. Despite having made the announcement a day before the planned protest, as many as 1,000 casino workers still gathered in Lotus Square and marched towards StarWorld Hotel – a Galaxy property. ‘We think this will lift labour cost inflation from [between] 5 and 8 percent per annum previously to [between] 10 and 15 percent per annum in 2014-17,’ Ms. Tang said. To date, MGM China, Sands China, SJM and Wynn Macau have all increased their workers’ monthly pay by 5 percent. Galaxy and Melco Crown are the only two that haven’t yet given workers a pay rise. The latter is also the only company who isn’t disclosing what ‘normal bonuses’ in the company are and whether there are any at all. At Galaxy, Wynn Macau and MGM China, a ‘normal bonus’ is the equivalent of a month’s salary. At SJM, that varies between 1.2 and 1.7 months, while at Sands China, a ‘normal bonus’ is equivalent to a monthly salary plus a performance bonus. ‘So far, the second quarter earnings season has been disappointing, with Sands and Wynn missing consensus by [between] 7 and 11 percent. The key reason is higher staff retention costs,’ Ms. Tang added. Other ‘additional’ staff benefits at Galaxy include stock awards three times the monthly salary in 2014 plus an additional month of bonus in July for the next two years. At Melco Crown, these include either one month’s salary per year between 2014 and 2017 or six months salary in 2017. At MGM China, ‘additional’

So far, the second quarter earnings season has been disappointing . . . The key reason is higher staff retention costs Karen Tang, Deutsche Bank market researcher

staff benefits include a one month salary this year, while both Wynn Macau and Sands China are offering the equivalent of a monthly salary per year until 2017. SJM is the only company yet to announce ‘additional’ staff benefits. Another protest is scheduled to take place today, while casino workers are also planning to take to the streets on August 28 to coincide with the sixth anniversary of The Venetian. Official data from the Statistics and Census Service Bureau show that at the end of December 2013, the average monthly earnings of full-time employees in the gaming industry was 19,120 patacas, up 6 percent compared to that of a year earlier. These are the latest figures made available for the gaming industry. ‘Going forward, we think this will rise [between] 10 and 15 percent per annum,’ Ms. Tang said, adding that analysts at Deutsch Bank also ‘expect margin expansion from a favourable mix shift from VIP to mass will be diluted.’ The key risks of such protests and consequently staff retention measures, analysts warn, are ‘labour cost inflation and slowdown in mass gaming growth rates’.

Tang and the City

e all know about Shanghai Tang. Their shop in Central, Hong Kong used to be a must-go place. The 1920’s décor plus their signature fragrance transformed the shop into a tourist magnet. Unfortunately, they had to close it down a few years ago and an Abercrombie & Fitch took over the space. Nevertheless, the brand has grown stronger abroad and invested a lot in marketing. Their classic approach to fashion seems to be popular: cool lines with a touch of traditional Chinese detailing and you get a distinct Asian Chic feel. Their new collection is no exception. Shanghai Tang debuts their Fall/Winter 2014 choosing New York as the main background. The

campaign images follow the journey of a sophisticated Chinese couple around the Big Apple from their apartment in Columbus Circus to the metropolitan ambience of Central Park and the streets of New York. The city’s contrasts between the old and the new, the exposed bricks and old wood works great with the vintage feel of the collection. Photographer Richard Bernadin captures New York and the unique features of top Chinese models Wang Fan and Zhao Lei. The clean lines and warmer colours make an appealing collection. The brand that has for long positioned itself as luxury has made an effort to become more ‘wearable’ without losing its identity.

August 7, 2014

Macau

MGM Cotai opening date sliding back Until recently, early 2016 was the opening date for MGM Cotai. However, as the company realises that future construction permits may be difficult to obtain at this time in Macau, the target date is receding João Santos Filipe

jsfilipe@macaubusinessdaily.com

he Chairman and Chief Executive Officer (CEO) of MGM Resorts International, James Joseph Murren, has conceded that working permissions may delay the opening of MGM Cotai. When asked if the opening date for the casino was being pushed forward, Murren responded that there had been an issue with permits during the second quarter earnings conference call by the company. Originally, the company slated early 2016 but in its annual report this year it only targets 2016 as the opening date. “The issue with the timing and the problem with clarity is that – and we [other projects in Cotai] are all faced with this – is that the permission process is so uncertain as to future permits”, he said. “There’s such a backlog because there are so many towers, so many cranes, so many projects under

way right now in Macau that I don’t think anyone can, with any kind of precision, tell you exactly when they’re going to open”. In the construction process, labour is also perceived as a problem by MGM. However, the targeting date is still 2016. “Labour is always going to be one of the inhibiting factors. But we feel that we have the right contractor to get the right kind of labour for the project and we have received critical permits”, he said. “No-one knows for sure exactly to the month - certainly not to the day - when you can open. We know we’re opening in 2016. But rather than pin down a number or a date, we just have to be a little more general at this point in time”, Murren explained. Concerning work on the US$2.6 billion (MOP20.8 billion) project, the CEO of MGM China, Grant Bowie, confirmed that it is on budget.

“MGM Cotai construction is moving along at full steam. We’re nearing the completion of the extensive basement work, and now we can move at pace on to the construction of the hotel tower”, he said. “MGM Cotai will greatly expand our operations in Macau, as the property will have nearly quadruple our room base and triple our growth floor area”. During the conference call, James Murren revealed

more details about the new project of MGM in Macau. The Chairman of MGM Resorts International said that the company had hired the American architect and designer David Rockwell, founder of the Rockwell Group. “He’s a world-class designer that’s done a lot of work for us and others in our industry. And his team have been working on the spectacle. This is a large

entertainment experience, and retail experience, that is the heart of MGM Cotai. It will be over the top and drive significant interest on the mass side”, he added. Although the first phase of MGM Cotai is not completed yet, the company is already focusing its attention on the second phase. This phase of the project is focused on the rooms. “Because we’re so far along on MGM Cotai, we’re very happy to say that we’ve been focusing on the second phase of MGM Cotai, which will be all non-gaming, continuing to diversify and add likely over 700 additional guest rooms”, he said. “This is really meaningful to us because, as you know, MGM has the highest EBITDA per room in the Macau market, and MGM as MGM China will experience the most rapid growth in guest rooms over the next few years”.

August 7, 2014

Macau

China Tourists dump Singapore’s Great Sale for HK and Macau

etailers billed it as the Great Singapore Sale. Chinese tourist Zhu Liang bought it, only to regret afterward. “We will never come here again to shop on purpose,” said Zhu, a 35-year-old businessman from Hangzhou. Visiting the city during the final days of the summer sale season in July, he purchased a Loewe handbag for his wife, only to discover he could have paid less in Hong Kong. Behind the mark-up: a strengthening exchange rate, rising labor costs and a sales tax Chinese tourists don’t encounter in neighboring Hong Kong. A reduction in visitors from Asia’s largest economy contributed to a sales slide of as much as 4 percent in Singapore’s annual shopping festival, according to the retailers’ association. Visitors from China to Singapore dropped 27 percent in the five months through May from a year earlier amid slower economic growth on the mainland and the impact of a new Chinese law that clamped down on cut-price shopping tours. Total tourist arrivals slid 1.7 percent, according to the Singapore Tourism Board. Singapore’s retailers, already facing growing regional competition, are under the most pressure since the Asian financial crisis, Singapore Retailers Association Honorary Treasurer Kesri Singh Kapur said. “It is that grim,” Kapur, 47, said in a July 29 interview in Singapore. “Both the sides of consumption, which are the domestic customers and tourists, are not spending. I anticipate that at least for the next 12 months, the market will be sluggish.”

Losing Allure While China’s anti-corruption campaign against extravagant

spending by government officials and state-owned companies has also damped spending by Chinese at home and in Hong Kong, retailers in Singapore are grappling with the threat of a broader decline in appeal. Singapore’s average retail sales growth dwindled to less than 1 percent in the two years through May, according to government data that excludes motor vehicles. In Hong Kong, the average was 6.9 percent in the 24 months through June. The Southeast Asian island, home to an Asian leg of the Formula 1 race and two casino resorts, has seen its currency strengthen about 3 percent against China’s yuan in the past year, the most after the Korean won among major Asian currencies tracked by Bloomberg. The Hong Kong dollar has gained 0.9 percent.

Little Money “If we change our renminbi to Hong Kong dollar, it seems like we have a huge amount of money. With Singapore dollar, you just feel like it is little money,” Zhu said last week as he walked empty handed out of the Paragon mall on Orchard Road with his family. Singapore retail goods are generally about 10 percent more expensive than in Hong Kong, he said. Singapore imposes a 7 percent goods and services tax. While tourists can claim back part of that on departure, “there is still a differential of 2 to 3 percent,” said Kapur, who is also Asia head of Dubai-based AlFuttaim Group, the operator of retail chains such as Royal Sporting House, Marks & Spencer, and Robinsons department store in Singapore. International tourists including those from China, Indonesia and India account for at least 20 percent of Singapore retail sales, with Chinese

accounting for about half of that, Kapur estimated. Tourism Board data show Chinese visitors spent S$800 million ($640 million) in Singapore in the first quarter, of which almost half was on shopping. Regional Competition Retail brands have expanded into other markets in China, Indonesia, and Malaysia, making Singapore a less unique shopping destination, said Kapur. “Singapore had this aura and advantage of being slightly different from its neighbors” five or 10 years back, he said. “Yes we have a great Orchard Road, we have a great environment where people can walk and shop, but availability of brands has come at parity now.” Al-Futtaim has closed stores for brands including Shana and Vince Camuto in Singapore, and is closing Mango Touch, he said, estimating front-end retail staff costs have gone up as much as 30 percent in the last two to three years. The tourist dollar is also being stretched harder. Sightseeing, entertainment, and gaming income from visitors rose 19 percent in the first quarter from a year earlier, Tourism Board data showed. Shopping revenue slid 6 percent.

Entertainment ‘Galore’ “Hotels are a little more expensive, entertainment is galore in Singapore, the dollar is getting diverted into other areas and not so much into retail,” Kapur said. Revenue during the Great Singapore Sale that ran from May 30 to July 27 showed a 2 percent to 4 percent decline from the 2013 period, Kapur estimated. In contrast, Genting Singapore Plc (GENS), Southeast Asia’s largest casino operator by

Visitors from China to Singapore dropped 27 percent in the five months through May from a year earlier amid slower economic growth on the mainland and the impact of a new Chinese law that clamped down on cut‑price shopping tours

market value, said in May that gaming revenue from its venue on Sentosa island rose 29 percent in the first quarter from a year earlier to S$671.94 million. Arrivals from China have also been hurt by political turmoil in Thailand and the March disappearance of a Malaysian plane carrying many citizens from China, whose travelers often include Singapore as part of a broader Southeast Asian holiday, according to Song Seng Wun, a Singapore-based regional economist for CIMB Research. “It all adds up to a fairly bearish picture for the retail sector,” said Selena Ling, an economist at OverseaChinese Banking Corp. in Singapore. “It’s hard to see immediate light at the end of the tunnel.”

August 7, 2014

Macau

Good Caesars, bad Caesars

aesars Entertainment’s negotiations with noteholders challenging efforts to restructure US$12.7 billion in debt have spilled into court, as the casino company claims hedge funds want to force a default while a bond trustee alleges Caesars is squandering assets. Caesars sued more than 30 bondholders, including funds overseen by Appaloosa Management LP, Oaktree Capital Group Holdings LP and Elliott Management Corp. Caesars accused them in a statement of attempting to impede the restructuring with ‘disruptive appearances before gaming regulators’ and ‘a baseless default notice.’ Wilmington Savings Fund Society, a trustee for holders of some of Las Vegas-based Caesars’ 10 percent notes payable in 2018, simultaneously sued the company in Delaware Chancery court in Wilmington, accusing it of fraudulently transferring assets as part of the restructuring and wasting assets. Caesars’ effort to reshuffle debt drew the ire of noteholders after the company, the largest owner of casinos in the U.S., took steps to remove guarantees on much of its US$23 billion in debt to prepare for a wider reorganisation. In May, the company sold a 5 percent stake in Caesars Entertainment Operating Co., its largest unit, to undisclosed investors. The sale meant some bond investors will no longer hold a claim to the parent company’s assets, leaving them with less bargaining power in talks over the debt. The operating company was insolvent at the time Caesars forced it to give up some of its most valuable assets, according to the trustee’s lawsuit. That makes the transfer an intentional fraud inflicted on creditors, according to the suit.

Talks Continue Negotiations with bondholders over Caesars’ debt will continue despite the lawsuits, said a person familiar with the talks, who asked not to be

identified because the matter is private. Caesars fell 9.5 percent to US$12.71 in trading in New York. The shares, which dropped as much as 13 percent today, have fallen 53 percent since March 4. The operating unit’s bonds were the third-most actively traded yesterday among U.S. non-financial high-yield issuers, according to Trace, the bondprice reporting system of the Financial Industry Regulatory Authority. The unit’s US$3.6 billion of 10 percent notes due 2018 rose 2.8 percent to 31.875 cents on the dollar today in New York, according to Trace. The bonds are still trading at less than half their price in September 2013 when the company announced transactions to restructure commercial mortgage-backed security debt.

Creditors’ Interest In the trustee’s suit, Wilmington Savings Fund contends Caesars’ executives “have made clear they have no intention of preserving the value” of the gaming company “or otherwise protecting the interests of creditors.” Bruce Bennett, a lawyer for noteholders, said today in a phone interview that about two months ago “more than 50 percent of the holders of the second-priority notes under the 2009 indenture” approved filing a suit over Caesars’ debt-reorganisation effort. Bennett confirmed that the bondholder group in the Wilmington Savings Fund suit includes Appaloosa and Oaktree. Caesars was purchased in a US$30.7 billion leveraged buyout led by Apollo Global Management LLC (APO) and TPG Capital in 2008. Last month, Caesars won approval for $1.75 billion refinancing from Illinois casino regulators over the objections of bondholders.

Bondholder Talks A lawyer for several debt holders told the Illinois Gaming Board July 24

that Caesars was putting the Caesars Entertainment unit’s finances in jeopardy by shifting casino assets to other subsidiaries and stripping away a guarantee of their debt. Some of Caesars’ noteholders, including Appaloosa’s David Tepper, contend they may get shortchanged in the debt reorganisation and are challenging the terms of the company’s reshuffling of its obligations. Tepper was listed as the U.S.’s highestpaid hedge fund manager last year by Institutional Investor’s Alpha magazine after he received US$3.5 billion, according to the publication. Tepper didn’t immediately respond to an e-mail today seeking comment on Caesars’ suit against him or the Delaware suit. One of the lead defendants in Caesars’ lawsuit is Elliott Management, billionaire Paul Singer’s hedge fund and leader of an effort to force Argentina to pay its defaulted debt holders. Argentina defaulted for the second time in 13 years last week after negotiations with the holdouts led by Singer failed. Stephen Spruiell, a spokesman for Elliott, didn’t immediately respond to phone and e-mail messages seeking comment on the cases. Alyssa Linn, a spokeswoman for Oaktree at Sard Verbinnen & Co., didn’t immediately respond to phone and e-mail messages seeking comment on them.

Swap Positions Caesars singled out Elliott among the first-lien investors for creditdefault swap positions the hedge fund took in connection with the company, lawyers for the casino owner said in the New York suit. Those positions create “a blatant conflict of interest” and incentivize creditors to trigger a default so Elliott and others can cash them in, Caesars’ attorneys said. Instead of negotiating a deal that would allow Caesars to cut its debt and avoid bankruptcy, Elliott is

attacking the casino owner because the fund is “betting the CDS holdings will pay off if its baseless assertions can convince the market” that Caesars will default, the company’s lawyers said.

Caesars’ Payments Caesars officials said in the New York suit that it “has never missed a single payment of interest or principal on the notes since they were issued” and executives’ moves over the past months have extended the company’s “ability to make payments of its obligations as they come due.” In the Delaware suit, creditors accused Caesars’ officials of wrongfully maneuvering to devalue noteholders’ investments through “self-dealing transactions” designed to “move some of the company’s most valuable assets out of the reach of creditors.” The suit cites the transfer of businesses such as Caesars’ interactive gambling unit, the Planet Hollywood casino in Las Vegas and Harrah’s New Orleans. The trustee’s suit also claims Caesars transferred its online gambling business, which the company valued at US$779 million, from the operating company to the parent company in 2011 “for little or no consideration.”

Hotel, Mall The Wilmington Savings Fund suit also claims Caesars directors wrongfully transferred the Octavius hotel tower and the Project Linq shopping mall in Las Vegas to an affiliate for the assumption of US$450 million in bank debt and no consideration for the equity value. After a bondholder complained, the price was increased by $150 million in cash and notes. The net effect of the transactions has been to divide the gaming company into two segments: a “Good Caesars” and “Bad Caesars,” according to the trustee’s suit. Bloomberg

August 7, 2014

Greater China

July data to give clues on recovery strength Property investment, sales and construction could show a seventh month of deterioration

raft of China data over the coming week will give the first indications of the economy’s third-quarter performance, after conflicting signals suggested that more stimulus measures may be needed to ensure a sustained recovery. While manufacturing appears to have picked up, thanks largely to government support measures and a modest resurgence in exports, data this week showed sudden and unexpected weakness in the services sector. The decline appeared linked to the cooling property market, which may be facing a prolonged slump that could hurt related businesses and dampen consumer confidence. A Reuters poll of 30 economists shows factory output likely held steady in July while overall investment growth ticked higher, chiming with expectations that a flurry of progrowth steps from Beijing earlier this year is paying dividends. Anecdotal evidence, however, suggests property investment, sales and construction could show a seventh month of deterioration, suggesting the sector will be an increasing drag on activity even if other parts of the world’s second largest economy are gaining traction. “We expect the upcoming July data to show steady momentum in real economic activity, on the back of the on-going export recovery, policy support, robust credit expansion and improving business confidence,” Wang Tao, an economist at UBS, said in a recent note to clients. Some economists are concerned that policy measures may only generate a quick and temporary boost to factory activity before their effects begin fading out later in the year, much like the trend seen in past

Property is still the weakest point in the Chinese growth process

years when the government rolled out similar support measures. But other economists played down such worries, saying that a single month of data is far from enough to judge the health of the entire services sector or whether consumers are starting to tighten their purse strings. “I think people might overplay this particular weak reading of service PMIs in one particular month,” said Helen Qiao, chief China economist at Morgan Stanley in Hong Kong. Indeed, economists in the latest poll expect retail sales grew 12.4

percent in July from a year earlier, the same pace as in June. “I still believe that it is more likely to be a property index caused issue and that will go away as the policy impact kicks in,” Qiao added. The poll showed that fixedasset investment, a key driver of the economy and also an important indicator to gauge the effect of government measures, is forecast to have grown 17.4 percent in the first seven months of 2014 from a year earlier, a touch higher than 17.3 percent rise in the first half. Factory output likely grew by an annual 9.0 percent in July, compared

with 9.2 percent in June, mainly due to a higher comparison base of a year ago, analysts said. China’s leaders have stressed that they would focus more on measures targeted to help specific sectors in the second half of this year instead of massive and more general stimulus spending. Since April, Beijing has loosened policy by reducing the amount of cash that some banks have to hold as reserves, instructing regional governments to quicken their spending, and hastening the construction of railways and public housing.

IPad and MacBook excluded from official procurement Apple depended on Greater China for about 16 percent of its US$37.4 billion in revenue last quarter

hina’s government excluded Apple Inc. iPads and MacBook laptops from the list of products that can be bought with public money because of security concerns, according to government officials familiar with the matter. Ten Apple products -including the iPad, iPad Mini, MacBook Air and MacBook Pro- were omitted from a final government procurement list distributed in July, according to officials who read it and asked not to be identified because the information isn’t public. The models were on a June version of the list drafted by the National Development and Reform Commission and Ministry of Finance, the officials said. Apple is the latest U.S. technology company to be excluded from Chinese government purchases amid escalating tensions between the countries over claims of hacking and cyber spying. China’s procurement agency told departments to stop buying antivirus software from Symantec Corp. and Kaspersky Lab, while Microsoft Corp. was shut out of a government purchase of energy- efficient computers.

“When the government stops the procurement of products, it sends a signal to corporates and semigovernment bodies,” said Mark Po, an analyst with UOB Kay Hian Ltd. in Hong Kong. “The Chinese government wants to make sure that overseas companies shouldn’t have too much influence in China.”

China sales Apple depended on Greater China for about 16 percent of its US$37.4 billion in revenue last quarter, according to data compiled by Bloomberg. IPad sales in the world’s biggest market increased by 51 percent and Mac sales by 39 percent, Chief Executive Officer Tim Cook said July 23. The heightened scrutiny of foreign companies follows Edward Snowden’s revelations last year of a National Security Agency spying program and the May announcement of indictments by U.S. prosecutors of five Chinese military officers for allegedly stealing corporate secrets. Bloomberg News

When the government stops the procurement of products, it sends a signal to corporates and semi-government bodies Mark Po analyst, UOB Kay Hian

Reuters

August 7, 2014

Greater China China Mobile in talks to buy Axiata stake China Mobile Ltd. has held talks about purchasing a minority stake in Axiata Group Bhd., Malaysia’s largest wireless carrier by market value, people with knowledge of the matter said. The Beijing-based company asked to buy about 20 percent of Axiata, a stake that would be valued at more than US$3.7 billion based on Tuesday’s closing price, said one of the people, asking not to be named as the information is private. No agreement was reached, as Axiata and its largest shareholder Khazanah Nasional Bhd. are unwilling to sell that much stock.

Accenture investigated in Microsoft probe China’s anti-monopoly probe into Microsoft expanded to Accenture yesterday as one of the company’s offices in China is under investigation. The State Administration for Industry & Commerce (SAIC) said in a statement that it is investigating Accenture’s office in Dalian City, northeast China’s Liaoning Province, for being the financial service outsourcer of Microsoft China Co., which is suspected of monopoly practices. The SAIC did not reveal results of the investigation and the probe is still underway.

Bank of Shanghai plans private share placement

Bank of Shanghai is planning a private share placement of up to 700 million shares, its second such issuance in a year, to meet capital requirements needed for a planned IPO, a newspaper reported. The bank has not set a price for the issuance but last year’s placement was set at 13.9 yuan per share and if set at the same price it would raise 9.7 billion yuan (US$1.6 billion), the 21st Century Business Herald reported. Many shareholders, however, expect Bank of Shanghai to set a higher price given strong profits last year, it said.

Yue Yuen boosts staff benefits Chinese shoe manufacturer Yue Yuen Industrial Holdings Ltd, hit by strikes this year, said it expected to book a US$112 million provision to improve employee benefits that would have a material impact on its first-half results. The amount is bigger than a preliminary estimate made in May of a US$37 million provision for an employee benefit programme at its Gaobu factory. Yue Yuen, which is controlled by Taiwan-listed Pou Chen Corp, said it had decided to improve benefits at its other factories in China as well.

Easier rules on new mutual funds Taiwan’s financial regulators will ease rules to allow local mutual fund firms to establish new funds more quickly as part of a broader move to establish the island as a wealth management hub in Asia. Local players, which managed client assets of T$2.1 trillion (US$70 billion) combined, will not have to wait for regulatory approval to launch new funds, the Financial Supervisory Commission (FSC) said. They will receive approval as soon as 12 days after filing applications to the FSC, it said.

Carmaker probes signal anti-monopoly war Probes into 12 Japanese companies have also been completed

hina yesterday announced that it will punish two auto giants for monopolistic practices, indicating a step up in enforcement of the country’s six-year-old AntiMonopoly Law. Separate anti-trust probes into Chrysler and Audi, conducted since late 2011 alongside similar investigations into other players in the auto sector, are drawing to an end, said Li Pumin, spokesman for the National Development and Reform Commission (NDRC). He did not specify punishments. Chrysler was investigated by the Shanghai Municipal Development and Reform Commission and Audi by the Hubei Province Price Bureau. Probes into 12 Japanese companies have also been completed, finding monopolistic behaviour on prices of auto parts, and they will be punished in accordance with the law, Li said. He confirmed reports that the Jiangsu Province Price Bureau separately launched an anti-trust investigation last week into MercedesBenz dealers in five Jiangsu cities. On Monday, inspectors from the bureau and the Shanghai Municipal Development and Reform Commission visited Mercedes-Benz’s Shanghai premises. Inspectors are still collecting evidence and investigating whether the German car giant has used monopolistic tactics, the spokesman said. The NDRC launched antimonopoly probes into the auto sector at the end of 2011 to safeguard competition in the market and protect customer rights.

A tuned Audi model

If a firm manipulates prices by controlling production, distribution and sales of a product, it violates the Anti-Monopoly Law, which came into force in 2008. According to the Anti-Monopoly Law of China, enterprises which have been involved in a monopoly may be fined between 1 and 10 percent of their total sales of the previous year. Many auto makers, especially luxury brands, have announced price cuts in the past two weeks. The latest such move was made by Chrysler’s China unit, which on Tuesday announced a 20 percent-price cut for 145 spare parts, a 650,000yuan (US$106,557) reduction for its Jeep Grand Cherokee SRT8 model

and a 450,000-yuan cut for its 5.7L Grand Cherokee. The company claimed the price cuts were made to reward Chinese consumers for their loyalty and to respond “positively” to the NDRC’s anti-monopoly probes. On Sunday, Mercedes-Benz announced that it will slash prices for some spare parts by up to 29 percent from September 1. The reductions will involve over 10,000 parts, with a 15-percent price cut on average. At the end of July, Jaguar Land Rover and Audi also reduced prices for cars or parts. They both said that the price cuts were made in response to the NDRC’s anti-monopoly probes. Xinhua

Chinese yacht market yet to set sail Growth has been rapid, says Blanc, but in addition to import taxes a major obstacle is a near total absence of public marinas

espite its long coastline and 1.35 billion-strong population -including thousands of multi-millionaires- China has only an estimated 3,000 pleasure boats, and yachting remains a niche pastime. Traugott Kaminski, head of China operations for Italian yachtmaker Sanlorenzo, brought two yachts to China in 2003. “Think about the car industry, 10 or 15 years ago nobody expected China would become the biggest market worldwide and the

same thing will happen to the yachting industry,” he went on. Chinese buyers have different requirements to Westerners, explained Kaminski. “In Europe you will use the boat for a two- or three-week cruise,” explained Kaminski. “In China, you are using it for a day cruise, so you don’t need so many cabins, you need a big spa, you need entertainment space.” In the West, the captain and

crew are often seen as part of the family. Not so in China, where the wheelhouse and kitchen need to be separate. Chinese clients also want a round table to eat at, a karaoke machine, a mah-jong table and more shade. Marco Valle, sales director for Azimut, one of the world’s major yachtbuilders, remembers the first yacht he sold in China, around a decade ago, to a rich Shanghai businessman. The client asked if it could be delivered without an engine, as he intended to keep it moored to show off to his contacts. Growth has been rapid, says Blanc, but as well as the import taxes, another major obstacle is a near total absence of public marinas, so that almost all the infrastructure is run by elite private yacht clubs, with memberships costing 700,000 to one million yuan. Demand for yachts saw a hiccup last year in the face of a much-publicised austerity and anti-corruption drive by Chinese President Xi Jinping, several vendors said. AFP

August 7, 2014

Greater China

Offshore debt market not yet a global play The perception that it is an insider’s market has hampered its global development and intended role in helping internationalise the yuan

hina’s offshore bond market looks to be booming with record issuance and strong demand, but rather than the global market that was hoped for it has been a speculative play on the yuan dominated by Chinese issuers and investors. The “dim sum” bond market has been largely shunned by big U.S. and European institutional investors, and worries about the lack of information on issuers, debt structures and rights in case of a default mean that is unlikely to change soon. Despite record half-yearly issuance of 359 billion yuan (US$58 billion) in the first six months of 2014, the perception that it is an insider’s market has hampered its global development and intended role in helping internationalise the yuan.

You’ve got to be a fairly specialist investor to be interested in these bonds if you are in Europe because a lot of issuers are below investment grade, an area we wouldn’t seek to invest in Andrew Main managing director, Stratton Street

“You’ve got to be a fairly specialist investor to be interested in these bonds if you are in Europe because a lot of issuers are below investment grade, an area we wouldn’t seek to invest in,” said Andrew Main, a managing director at London-based Stratton Street with assets of US$1.55 billion at end May. A slowdown in the economy and volatility in the yuan has tempered enthusiasm for Chinese debt among foreigners. And with Beijing starting to allow companies to default on debts instead of bailing them out, as part of its push to introduce more market discipline, investors have to better assess their risks. Year-to-date U.S. dollar returns are negative for an index of dim sum bonds compiled by HSBC, compared to a 6.8 percent rise in 2013. In comparison, a similar index measuring returns for Asian companies selling U.S. dollar debt returned 6.6 percent compared to minus 2.4 percent in 2013.

Credit ratings A fund manager in Hong Kong attended an investment forum in London, but found very few investors involved in the dim sum market due to the difficulty in doing fundamental analysis on Chinese issuers. “Some asset managers in Europe try to avoid buying yuan bonds after so many negative new headlines about China,” the fund manager said on condition of anonymity as he wasn’t authorised to speak to the media. While the dim sum market traces its roots back to 2007, it was only in July 2010 after a landmark agreement between China and Hong Kong’s central banks encouraging offshore yuan bond issuance from foreign companies and relaxing investment restrictions that the market really

Hong Kong Stock Exchange square

took off. McDonald’s Corp and Hopewell Highway Infrastructure Ltd were the first foreign issuers, but four years on locals dominate. About 90 percent of dim sum debt this year has come from Chinese and HK issuers. The nature of the market was highlighted by a dim sum issue by Beijing Infrastructure Investment, the first issue by one of China’s local

Tesla resolves trademark dispute in China A complete solution to the long-standing trademark dispute would remove an obstacle to Tesla’s growth plan in China Samuel Shen and Norihiko Shirouzu

.S. electric carmaker Tesla Motors Inc. said it has “completely and amicably” resolved a trademark dispute in China, removing a hurdle that had threatened CEO Elon Musk’s ambition to expand rapidly in the world’s biggest auto market. It is the second time Tesla has announced an end to the dispute with Chinese businessman Zhan Baosheng, who registered the “Tesla” trademark before the Palo Alto, California-based carmaker came to China. Tesla said in January that the issue had been resolved, but last month, Zhan moved to bring Tesla to court. A complete solution to the longstanding trademark dispute would remove an obstacle to Tesla’s growth plan in China, which billionaire co-founder Musk expects to become the company’s

government financing vehicles, the opaque entities that are a major part of China’s gigantic debt problem. The company sold a 1.2 billion yuan three-year dim sum bond at 3.75 percent, a rate that would make blue-chip companies jealous. More than 90 percent of the issue was taken up by investors in Hong Kong and Singapore. Reuters

biggest global market next year. Beijing has unveiled a slew of incentives, including purchase subsidies and tax cuts, to accelerate sales of electric cars, a market also targeted by Volkswagen and BMW. “Mr Zhan has agreed to have the Chinese authorities complete the process of cancelling the Tesla trademarks that he had registered or applied for, at no cost to Tesla,” Tesla said in an e-mailed statement yesterday. Separately, Tesla and Zhan have also reached commercial terms for the transfer to Tesla of certain domain names, including tesla.cn and teslamotors.cn, the company said, declining to give financial details. “Tesla looks forward to continuing to grow its business in China and to expanding the impact of electric vehicles in this very important market,” Tesla said in the statement. Tesla’s trademark dispute underscores a thorny issue faced by foreign companies doing business in China. Global companies like Apple Inc., Koninklijke Philips NV and Unilever NV, have all been embroiled in trademark disputes in the country in the past. Based in China’s southern province of Guangdong, Zhan registered the trademarks to the Tesla name in both English and Chinese in 2006. He had in the past sought to sell the label to the U.S. company but negotiations collapsed. Reuters

August 7, 2014

Asia

Modi’s tax u-turn to produce a single market More than six decades after it achieved independence, India has yet to have a single internal market, with its economy divided up by state taxes on commerce

This is the easiest and most important reform for the new government to push forward Sudhir Kapadia Ernst & Young LLP partner

US Secretary of State John Kerry (L) shakes hands with Indian Prime Minister Narendra Modi (R), in New Delhi, India. Kerry began a three-day visit to India looking to improve bilateral ties.

The GST would streamline the tax administration and result in higher revenue for the federal government and states, Finance Minister Arun Jaitley said in his July 10 budget speech. Businesses selling across states face a border tax, local sales tax, central service tax, federal excise,

central sales tax and other duties that often vary by state and product.

Political hurdles In his budget speech, Jaitley said the government will garner the twothirds majority needed to pass the

Shagang Haili ship at Port Hedland

Australia’s ports face union fight escalation The engineers’ strike is the first to hit Port Hedland following three months of threats

ug boat engineers at Port Hedland, Australia’s biggest iron ore port will stop work for four hours on August 9, 11 and 13 over a pay dispute, which will slow exports from BHP Billiton and Fortescue Metals Group. The industrial action marks a step

Consumer costs While the government touts the benefits of a unified sales tax for businesses, consumers may fare less well as producers and retailers of everything from basic staples to highend handbags raise prices to cover the duty.

hat may be about to change, following the reversal by one of the biggest foes of a national sales tax - Narendra Modi, the prime minister who took office in May. After opposing a goods-and-services tax (GST) during his 12 years running Gujarat state, Modi has pulled his ruling party behind the idea and plans to enact it within eight months. Success would mean replacing more than a dozen types of tax that increase incentives for corruption, and offer the economy a boost of as much as 1.7 percent, according to the National Council of Applied Economic Research in New Delhi. Modi, who once said the levy was “impossible” to implement, now needs the revenue to trim a federal deficit. “This is the easiest and most important reform for the new government to push forward,” Sudhir Kapadia, a partner for Ernst & Young LLP in India, said by phone. “There are huge leakages in the current system. With a uniform system, businesses will finally be able to make decisions purely on the grounds of profit.” Modi is under pressure to raise revenue after keeping the previous government’s fiscal deficit target of 4.1 percent of gross domestic product in the year ending next March. A weak monsoon and rising oil prices threaten to inflate a subsidy bill that has risen fivefold over the past decade. Passing the tax law would require votes in both houses of parliament, plus the support of 15 of the 29 states to amend the constitution.

GST bill in both houses of parliament by April. While states would get part of the revenue for the new unified levy, some are reluctant to surrender their right to tax, he said. About 140 countries have adopted a GST or national level value-added tax framework, with GST rates varying from 5 percent to 20 percent, according to ICICI Bank Ltd.

up in the dispute between tug workers and operator Teekay Shipping at Port Hedland, which handles a quarter of the world’s seaborne iron ore, mostly going to China, Japan and South Korea. “It’s a shot across the bow. We’re hoping it focuses minds so we can sit down and common sense will prevail,” Andrew

Williamson, senior national organiser for the Australian Institute of Marine and Power Engineers, told Reuters. Tug boat captains, engineers and deck hands have been demanding higher pay and more leave from Teekay following a one-third increase in iron ore shipments through Port Hedland

The constitutional amendment would pass if Modi’s five BJP-ledstates are supported by the 11 states controlled by the opposition Congress Party, which introduced Singh’s version of the GST bill. Constitutional hurdles mean the GST will probably be implemented some time in 2017, according to R. Muralidharan, an executive director at PricewaterhouseCoopers India. Still, even a watered-down GST would spur manufacturing and create jobs, he said by phone from Mumbai. Bloomberg News

over the past year that has stretched their work hours as the tug boats guide all iron ore vessels in and out of the port. “Teekay is continuing to negotiate with the three unions and is considering its legal options,” the company said in a statement emailed to Reuters. The engineers’ strike is the first to hit Port Hedland following three months’ of threats, but the union said the work stoppages will have minimal impact on shipments as they have been timed to coincide with low tides at the port. The union said it had given three days notice to Teekay, just ahead of the expiration of an approved period for taking industrial action at the port. BHP and Fortescue said they would have comment on the industrial action later yesterday. Reuters

KEY POINTS Union says stoppages planned at low tide for minimal impact Port handles more than half of Australia’s iron exports Port Hedland shipped 33.6 mln tonnes of iron ore in Jun

August 7, 2014

Asia New S. Korean tax rules to redirect cash reserves The measures are also part of a broader effort to rebalance the export-reliant economy towards domestic consumption tax breaks to companies that pay out more in wages. Based on last year’s earnings, companies that belong to the sprawling Hyundai Group would have had the largest exposure to the law, facing 284.1 billion won (US$275 million) in further taxes if the base was set at 60 percent, according to CEO Score, South Korea’s corporate watchdog, which has questioned whether the rules will be effective. A spokeswoman for Hyundai Motor, the group’s flagship company, declined comment. The new law will apply only to large companies with equity capital of more than 50 billion won.

Echoes of earlier law

New tax rules promote investment against cash reserves

bout 4,000 firms will be affected by new South Korean tax rules aimed at redirecting excess cash from conglomerates to households in a stimulus campaign launched by Finance Minister Choi Kyung-hwan. The measures are intended to prod companies to boost dividends, spend on workers, and increase investment to bolster domestic consumption to keep the economy on a firm recovery path in the face of sustained weakness in global demand. Under the new rules, affected companies will have two choices: pay

a 10 percent tax on total excess cash if they don’t spend 60 to 80 percent of their net profit on investment, wage increases or dividends; or unless they spend 20 to 40 percent on wages and dividends, the Ministry of Strategy and Finance statement said. It said it expects the first group largely to consist of manufacturers and the second to be service providers. The finance ministry has said the entire tax revision for this year will bring in 568.0 billion won in taxes over the next few years, but has not set a forecast for the excess cash reserves law.

“Should (the excess corporate cash tax law) be activated as planned, we would like our tax revenue from this to reach zero,” said Moon Chang-yong, director general of the ministry’s tax analysis bureau. The final levels are still to be determined, and the legislation, which would apply for three years starting in 2015, needs parliamentary approval. President Park Geun-hye’s single five-year term ends in February 2018. The new rules, which have been met with wariness by Korea Inc and enthusiasm by investors hoping for bigger dividend payouts, also give

Somphote becomes billionaire His company’s share price rally this year makes it the second-best performer on Thailand’s Market for Alternative Investment

omphote Ahunai, the founder of Energy Absolute Plc., a Bangkok-based biodiesel producer and solar plant operator, became a billionaire as the stock more than tripled this year to a record. Somphote, 46, owns about 40 percent of Energy Absolute, according to a March 27 filing to the Stock Exchange of Thailand. The stake is valued at US$1.2 billion, according to the Bloomberg Billionaires Index. Investors are betting on higher

earnings from solar and wind power plants as Southeast Asia’s second-biggest economy increases its usage of renewable energy. The company’s revenue and profit are expected to climb as solar and wind power plants begin operating, said Suwat Sinsadok, an analyst at CIMB Securities (Thailand) Co. “Somphote’s engineering and financial background has been a complete combination in successfully implementing the solar and power

Bangkok’s skyline

plant projects,” said Suwat, referring to the wind- power projects. “The company’s earnings will grow exponentially in the coming years with its high efficiency and projects.” The company’s share price rally this year makes it the second-best performer on Thailand’s Market for Alternative Investment, which includes 101 small- and medium-

The corporate cash reserves tax law echoes a similar law that took effect in 1991 but was scrapped 10 years later in 2001 when it failed to meet its goal of boosting share dividends. Korean companies are notoriously thrifty with dividends, paying out an average of 21 percent of their profits last year, according to the finance ministry, compared with the 40 percent global average. Cash reserves at the country’s top 10 conglomerates rose more than eight times between 2001 and the first quarter of this year, to about US$464 billion, according to CEO Score. Globally, companies have reined-in investment spending in the aftermath of the financial crisis. Finance Minister Choi Kyunghwan has warned that South Korea was in danger of slipping into the kind of long slump that Japan had been in for two decades and offered stimulus measures in late July, including US$11 billion in new spending plans. Reuters

sized companies. Energy Absolute accounts for more than a third of the weighting on the index, according to data compiled by Bloomberg. Energy Absolute has the capacity to produce more than 211,000 gallons (800,000 litres) of biodiesel and 80 tons of glycerine a day, according to its website. The company’s profit in the first quarter surged more than fivefold to 459.9 million baht (US$14.3 million), according to its exchange filing. Earnings climbed as it started operating a 90-megawatt solar power plant in December, it said in a separate statement. Commercial operations of another 90-megawatt solar power plant is expected at the end of 2014, followed by a similar-sized facility in December 2015, according to the company’s website. It also has plans for 12 wind power projects with combined capacity of 620 megawatts, it said. Bloomberg News

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August 7, 2014

Asia Malaysia exports up Malaysia’s exports in June rose 7.9 percent from a year earlier, below expectations, while the trade surplus also came in below forecast at 3.97 billion ringgit (US$1.24 billion). Data released yesterday showed imports rose 9.2 percent from a year ago, below expectations. Exports were supported by strong shipments of crude oil, which gained 24.5 percent from a year ago, and by a 19.3 percent rise in machinery exports. Exports to China declined by 1.9 percent from a year earlier.

PetroVietnam oil production falls

Vietnam National Oil and Gas Group (PetroVietnam) produced some 2.8 million tons of petroleum in the first seven months of 2014, down 27.6 percent year on year, said Vietnam’s Ministry of Industry and Trade (MoIT) yesterday. According to a report by MoIT updating the production activities of Vietnam’s energy sectors including electricity, oil, gas and coal, mineral, in July alone, a total of 340,400 tons of petroleum was made by PetroVietnam, a decrease of 41.3 percent year on year. Output of exploited crude oil in July reached 1.4 million tons, bringing the total January-July figure to 9.8 million tons, up 1.4 percent year on year.

Samsung Elec, Apple to drop lawsuits Samsung Electronics Co Ltd and Apple Inc agreed to scale down their international legal war and withdraw patent lawsuits outside the United States, a Samsung spokesman said yesterday. A Samsung spokesman said the rival firms had agreed to end patent disputes in nine countries, without elaborating on why they would continue to fight it out in the United States.

Skymark to stop flights from Japan’s Narita over Airbus order halt Skymark Airlines Inc. plans to withdraw from operations at Narita International Airport as it prepares to pay possible penalties over the cancellation of its order for Airbus aircraft, public broadcaster NHK reported yesterday. The Japanese carrier plans to halt flights from Tokyo’s Narita airport and close its office there as early as endOctober, NHK reported on its website, without saying where it obtained the information. Representatives from Skymark were not immediately available for comment. Last week, Skymark warned of uncertainty about its ability to stay in business if it had to pay penalties to Airbus. Its quarterly loss also widened sharply.

NZ jobless at lowest mark in 5 years Employment growth was strongest in the construction industry and utilities sectors Gyles Beckford

ew Zealand unemployment fell more than expected to its lowest in five years on modest job growth in the second quarter, while wage pressures nudged up, although the central bank still has breathing space to stay on hold for the time being. The jobless rate fell to 5.6 percent in the three months to June 30 from a downwardly revised 5.9 percent, as employment grew 0.4 percent or 10,000 jobs, Statistics New Zealand said yesterday. Economists polled by Reuters forecast unemployment falling to 5.8 percent, with employment growth of 0.7 percent, although the participation rate fell as the working age population grew. Wages data released at the same time showed private sector wages rose 0.6 percent in the second quarter, for an annual rate of 1.8 percent, above expectations of 0.4 percent quarterly shift.

KEY POINTS NZ Q2 jobless rate 5.6 pct, lowest since Q1 2009 Job growth in construction, utilities, service sectors Wage growth perks up but not pressing RBNZ seen on sidelines until year end

A poll of 14 economists showed eight expect the Reserve Bank of New Zealand to raise rates to 3.75 percent in December

The reports were a mixed bag pointing to steady growth in the labour market, while labour cost pressures perked up, in part because of a rise in the legal mininum wage. “There is little in today’s data to change our view that the RBNZ will pause for the remainder of 2014, with a modest degree of OCR (overnight cash rate) lifts beyond then,” said ANZ senior economist Mark Smith. The Reserve Bank of New Zealand last month lifted its cash rate to 3.5 percent, the fourth rise since March, but signalled a halt amid benign inflation, a high currency, and falling commodity prices. A Reuters poll of 14 economists showed eight expect the RBNZ to raise rates to 3.75 percent in December, with most others looking to the first quarter of 2015. The New Zealand dollar initially

picked up slightly but then eased to settle around US$0.8440 from US$0.8552 before the data. The currency was already under pressure after a further sharp fall in dairy prices in the latest global auction. Employment growth was strongest in the construction industry and utilities sectors, with earthquakedamaged Canterbury showing the strongest growth. New Zealand’s economy grew 3.8 percent in the year to March, on the back of strong commodity prices and the rebuilding of Christchurch. But annual inflation is contained at 1.6 percent, commodity prices have eased, and the New Zealand dollar remains elevated, while strong migration gains are stoking local demand and boosting the workforce. Reuters

Japan’s nuclear restart may be delayed until 2015 Sendai plant is likely to be the first nuclear plant to be allowed to restart under tough new safety rules

he long-awaited restart of Japan’s nuclear power plants is facing yet another setback and may be delayed until 2015, Japanese media said on Wednesday, piling pressure on struggling utilities to push for fresh price hikes. Kyushu Electric Power’s tworeactor Sendai plant, located about 1,000 km (600 miles) southwest of Tokyo, is likely to be the first nuclear plant to be allowed to restart under tough new safety regulations after the 2011 Fukushima crisis. The Sendai plant cleared the Nuclear Regulation Authority’s (NRA) initial safety hurdle last month, but the utility was supposed to hand in additional, detailed paperwork on specific safety features at the site and how they planned to construct them. Japan’s public broadcaster NHK and other media said that Kyushu Electric said documentation issues meant final deliberations on the

restart would be pushed back by the regulator, delaying the restart until after winter. A Kyushu Electric spokeswoman said that the company does not have a timeline for starting up the reactors and confirmed comments by an executive that submission of

US$400 million Kyushu Electric quarterly loss

additional documents may be delayed until late September or even October. “We have been saying that we cannot say when the (restart) will be,” the spokesman said. The utility has said that restarting the two Sendai reactors would cut its fossil fuel purchases by 200 billion yen over a year. Even after final approval by the nuclear regulator, Japan has said it will defer any final decision on restarting reactors to the local prefecture and host community where the plants are based. All 48 of Japan’s nuclear reactors were gradually taken offline and remain idled after an earthquake and tsunami set off a nuclear crisis at the Fukushima Daiichi plant in March, 2011. Their shutdown has forced utilities to import record amounts of liquefied natural gas and coal to run power stations. Reuters

August 7, 2014

International Chile expects economic upturn in 2015: president Chilean President Michelle Bachelet said her government has prepared “a contingency plan” for the anticipated economic slowdown, but expected to see an upturn in 2015. Bachelet said she was “not surprised” by the latest Monthly Economic Activity Index, which showed a 0.8-percent slip, according to the presidential press office. “We’re calm, because we knew from the start that this economic slowdown, which we already saw at the beginning of last year, was going to evolve the way it has,” she. Chile’s economic growth rate fell from 5.25 percent in 2012 to 4.1 percent in 2013.

Ecclestone settles bribery trial Formula One tycoon Bernie Ecclestone yesterday rejected criticism of his US$100-million payment to end his trial in Germany on bribery charges and praised the capitalist system. A day after the court case in Munich was spectacularly halted, the British billionaire told the German press that he could not “understand” people saying he had bought a dismissal. “To me it looks as if the judges, in their opinion, didn’t really have another choice,” the 83-year-old told mass circulation Bild daily, in comments published in German.

British industrial output rebounds Industrial output across Britain rebounded in June from activity in May, official data showed yesterday. Output rose by 0.3 percent in June compared with a fall of 0.6 percent in May, the Office for National Statistics said in a statement. Over a 12-month period, industrial output rose by 1.2 percent in June, the ONS added. Manufacturing output -which excludes mining and quarrying, electricity, gas and water supply- climbed 0.3 percent in June compared with May. It increased by 1.9 percent year-on-year.

Russia bans meat imports from Romania Russia has suspended imports of beef and cattle from Romania, a regulator said yesterday, Moscow’s latest trade ban following new Western sanctions against Russia over the Ukraine crisis. Russian veterinary and phytosanitary service Rosselkhoznadzor said in a statement the ban was temporary and caused by an outbreak of the spongiform encephalopathy, or mad cow disease, in Romania.

Venezuela reports nationalized oil revenues Energy and Oil Minister said the country’s energy sector has brought in US$510 billion in oil revenues since it was nationalized in 2003. Following the decision to reclaim the nation’s oil industry, more than US$300 billion dollars have been spent in the past decade on social programs, the Minister added. “The oil belongs to Venezuela. It cannot be privatized under any circumstances,” affirmed Minister Ramirez. He gave credit to late President Hugo Chavez, who made the decision to nationalize the vital sector.

Standard Chartered to face more US fines Banking regulator found “certain issues” with its anti-money laundering systems

tandard Chartered Plc. said it faces further U.S. fines over the British bank’s flawed efforts to block money laundering and posted a 20 percent earnings decline on losses in Asia. Adjusted pre-tax profit, which excludes adjustments to the value of the company’s own debt, fell to US$3.3 billion in the first half from US$4.1 billion in the year-earlier period, the London-based bank said in a statement yesterday, matching the average of 11 analysts’ estimates in a Bloomberg survey. The bank posted a US$127 million loss in Korea for the period. Standard Chartered said it’s likely to face more penalties after New York’s banking regulator found “certain issues” with its anti-money laundering systems. That adds to the pressure on Chief Executive Officer Peter Sands, 52, as he navigates faltering economies in Asia, where the bank gets about three- quarters of its earnings. The Financial Times reported last month that Chairman John Peace has been urged to replace Sands. “There are on-going risks and scrutiny regarding anti-money laundering issues,” which combined with bad loans in China and capital issues create “an on-going overhang” for Standard Chartered, JPMorgan Chase & Co. analysts including Josh Klaczek said in a note. They have an overweight rating on the shares.

No silver bullet “First-half performance was impacted primarily by a downturn in financial markets and the challenges

We have taken assertive action to manage shortterm performance issues John Peace, Chairman, Standard Chartered

we face in Korea,” Peace said in the statement. “We have taken assertive action to manage short-term performance issues.” The bank said there is no “silver bullet” to turn the Korean division around. In East Asia, operating profit slid 59 percent in the year. Operating profit in greater China fell to US$728 million in the first half from US$745 million a year earlier. In Europe, profit slumped to US$153 million from US$303 million, while the Americas and Africa also reported declines. The bank left its dividend unchanged at 28.80 cents a share.

U.S. sanctions Standard Chartered said it’s in talks to settle claims that it failed to detect transactions that should have been reviewed for money-laundering violations, and that “a monetary penalty and remedial actions” may result. Benjamin Lawsky, superintendent of New York’s Department of Financial

Services, is seeking more than US$100 million from the bank, according to a person familiar with the matter. The alleged lapse, caused by a problem with a software program, was detected by Ellen Zimiles, the independent monitor installed at the bank as part of a 2012 settlement for violating U.S. sanctions against Iran, said the person. The monitor’s term may be extended beyond its original two years, Standard Chartered said. Faltering earnings and rising legal costs have put further pressure on Sands. The FT reported on July 23 that Peace had been urged to search for a new CEO, with Temasek Holdings Pte, the Singaporean state-owned investment company that owns about 18 percent of the bank, pressing for a clearer succession plan, citing people it didn’t identify. Temasek declined to comment, as did Aberdeen Asset Management Plc, which holds 7.7 percent of the bank and was said by the FT to seek Sands’s ouster. Bloomberg News

Italy’s back to recession Prime Minister Matteo Renzi is under pressure to quickly turn around the euro region’s third-biggest economy Chiara Vasarri

talian gross domestic product unexpectedly dropped in the second quarter, showing the economy is in recession. Gross domestic product fell 0.2 percent from the previous three months, when it declined 0.1 percent, the national statistics institute Istat said in a preliminary report in Rome yesterday. That compares with the median forecast of a 0.1 percent expansion in a Bloomberg survey of 22 economists. From a year earlier, output shrank 0.3 percent. With Italian youth unemployment above 40 percent and sovereign debt of about 2 trillion euros (US$2.7 trillion), Prime Minister Matteo Renzi is under pressure to quickly turn around the euro region’s third-biggest economy. Lower-than-expected growth may undermine his plans to bring the country’s deficit-to-GDP ratio to 2.6 percent this year and start reducing Europe’s second-biggest debt.

Renzi has acknowledged that annual GDP growth will probably fall well below the Treasury’s 0.8 percent forecast, while the government’s debt reduction plans also seem to be yielding disappointing results, Wolfango Piccoli, managing director at Teneo Intelligence in London, wrote in a research note this week.

Deficit reduction “Under present conditions, and assuming a more realistic growth rate of 0.3 percent, the cabinet will need to find at least 15 billion euros to 16 billion euros to keep its 2014 deficit reduction plans on course,” he said. Last month the Bank of Italy lowered its growth forecast for this year to 0.2 percent, less than a third of its previous prediction. Even so, industrial production increased 0.9 percent in June, Istat said earlier today. That beats the median economist forecast of 0.8 percent.

Italian Prime Minister Matteo Renzi

While the third quarter should see a modest pickup in personal consumption and gross fixed investment, the Italian economy and banking sector are among the most exposed to Russia, Riccardo Barbieri, the London-based chief European economist at Mizuho International Plc., said in a July 31 research note. Bloomberg News

August 7, 2014

Opinion Business

wires

Hunting tigers in China

Leading reports from Asia’s best business newspapers Minxin Pei

PHILSTAR

Professor of Government at Claremont McKenna College and a non-resident senior fellow at the German Marshall Fund of the United States

The Aquino administration is set to roll out 18 major infrastructure projects worth P602.2 billion under the Public Private Partnership (PPP) program before June next year. PPP Centre executive secretary Cosette Canilao said during the Quarterly Roundtable of The Wallace Business Forum that the 18 projects are part of the inventory of 47 PPP projects already in the pipeline. Two of the biggest projects to be rolled out include the North-South commuter rail worth P265.3 billion to be launched in November and the proposed subway system.

THE BANGKOK POST Digital TV operators called on the national telecom regulator to allow them to delay their second payment on licence fees and network rents, citing lower than expected earnings due to the delayed distribution of subsidy vouchers. The Radio and Television Broadcasting Professional Federation, the Advertising Association of Thailand and the Media Agency Association of Thailand have voiced opposition to the 690baht subsidy coupon. They want the National Broadcasting and Telecommunications Commission to increase the value of the coupon to meet the actual price of settop boxes.

THE STRAITS TIMES Mainboard-listed Chinese firm Yangzijiang Shipbuilding has reported a record quarterly earnings of 1.24 billion yuan (S$250.5 million), a 52 per cent spike in net profit from last year. The jump in profit came about despite revenue dropping 3 per cent to 4.3 billion yuan. The company said in a statement yesterday that its shipbuilding revenue declined by 3.2 per cent to 3.9 billion yuan as it delivered only nine vessels in the quarter, down from last year’s 11 vessels. Much of its earnings were buoyed by a 317 per cent jump in its other income to 215 million yuan.

TIMES OF INDIA Ratan Tata is said to be considering a personal investment in Snapdeal, an e-commerce firm, at a time when online retail is generating investor euphoria on the back of exponential growth. In a move that would signal his interest in India’s emerging consumer Internet story, the 76-year-old chairman emeritus of Tata Sons may buy out an early investor in Snapdeal through a secondary sale, people familiar with the development said. Kunal Bahl, co-founder of Snapdeal, did not respond to TOI’s query.

LAREMONT, CALIFORNIA – In the boldest move yet since President Xi Jinping launched his anticorruption campaign, China has announced the start of a formal investigation into “serious disciplinary violations” by one of the Chinese Communist Party’s most senior figures, Zhou Yongkang. Though rumours of Zhou’s political demise had been circulating for nearly a year, anyone familiar with Chinese political intrigue knew that, until the CCP made it official, Zhou’s many powerful patrons and cronies could still save him. Now it is official: a “mega-tiger” has been brought down. But is that what China really needs? Since 2012, when Xi began “hunting tigers,” as he put it, three dozen government ministers, provincial governors, and other high-level officials have fallen into his net. But Zhou is no ordinary tiger. A former member of the Politburo Standing Committee, the CCP’s top decision-making body, Zhou was considered untouchable. Since the end of the Cultural Revolution, the CCP has adhered to the implicit rule that members of the Politburo Standing Committee, sitting or retired, enjoy immunity from criminal prosecution. Some have, of course, been purged in power struggles, such as the one that led to the fall of Hua Guofeng, Mao’s immediate successor, in the early 1980s. But the defeated have typically retired quietly, and never faced formal corruption charges. Given this history, the prosecution

of Zhou is a watershed event – far more significant than the riveting trial of the disgraced former Chongqing Communist Party Secretary Bo Xilai a year ago. It unambiguously demonstrates Xi’s personal authority and political resolve. But the question remains: What exactly does Xi

The question today is thus not whether Xi has amassed enough authority to effect change in China (he has), but whether he has built a coalition capable of advancing his declared goal of reviving promarket reforms

hope to achieve with China’s most fearsome anti-corruption campaign in more than three decades? The conventional wisdom is that the threat of prosecution serves Xi’s goals of consolidating power and compelling the bureaucracy to implement economic reforms that run counter to its interests. The two prongs of Xi’s political strategy – cleansing the Party and reinvigorating China’s economy – are thus complementary and interdependent. This strategy has considerable merit. But even the Machiavellian dictum that a ruler should encourage his citizens’ fear rather than their love can go only so far. The most successful political leaders are skilled coalition-builders. Consider Deng Xiaoping, China’s most successful reformer (the Tiananmen Square massacre of 1989 notwithstanding). The grand coalition that he forged, against all odds, upon his return to power in 1979 was essential to bringing about the economic transformation that followed. The question today is thus not whether Xi has amassed enough authority to effect change in China (he has), but whether he has built a coalition capable of advancing his declared goal of reviving pro-market reforms. And, so far, the answer seems to be no. Since taking over the presidency, Xi’s actions have been both resolute and contradictory. On one hand, he has been aggressively pursuing “tigers” and “flies” (lower-level officials), while curbing, at least temporarily,

the privileges enjoyed by Chinese officials. On the other hand, he has launched an equally ferocious campaign against political liberalization, arresting and jailing leading human-rights activists and cracking down on China’s once-vibrant social media. The risks of waging a two-front war are obvious. If Xi’s fight against corruption is genuine, it will engender fear and resentment among the Chinese bureaucracy. While officials feign compliance with Xi’s economic-reform agenda, they will seek any opportunity to stymie it. The absence of significant real progress since Xi unveiled his economic blueprint last November suggests that this is already happening. At the same time, Xi’s tough stance against political reform is diminishing hope among liberals. Of course, this group – including intellectuals, social activists, journalists, and progressive private entrepreneurs – has little institutional power. What it does have is the capacity to influence ordinary Chinese – making them a valuable addition to a pro-reform coalition. Deng recognized this potential in the 1980s; unless Xi follows suit, he will find it increasingly difficult to rally the public behind his vision for China’s future. This is not to say that caging Zhou was not a good move. But Xi must now shift his focus from bagging another quarry to winning over new and perhaps unexpected allies. His long-term success – and that of China – depends on it. The Project Syndicate 2014

August 7, 2014

Closing China remains biggest importer of Vietnamese fruits

Cambodian economy to grow by 7.5 pct this year

China remains the biggest importer of Vietnamese fruits, vegetable in the first half of 2014, accounting for some 31.77 percent of the export value, according to statistics from Vietnam Customs. The Vietnam Industry and Trade Information Centre (VITIC) under Ministry of Industry and Trade on Wednesday quoted Vietnam Customs as saying that during the January-June period, Vietnam exported nearly US$684.5 million worth of fruits and vegetable to the world market, up 43.82 percent year-on-year. In particular, fruits and vegetable sold to China reached over US$217.4 million in value during the period, seeing an increase of 41.22 percent year-on-year.

Prime Minister Hun Sen (pictured) said yesterday that the country’s economy is forecast to grow by 7. 5 percent in 2014, driven by steady growth in agriculture, garment export, tourism, and construction. “Cambodia has been enjoying full peace, security, political stability, social order, and development of all sectors,” he said during an international symposium. “The 2014 economic growth rate is projected to be 7.5 percent.” He said last year, the country achieved an economic growth of approximately 7.6 percent, while gross domestic product (GDP) increased to more than US$15 billion and GDP per capita increased to US$1,036.

China may raise bonds threshold Industrial companies may have to demonstrate asset-liability ratios below 60 percent to avoid additional regulatory scrutiny for such bond issues

hina’s top economic planner has warned of increasing risk in the country’s corporate bond market and will probably raise the threshold for new issues in the part of the market it regulates, sources with direct knowledge of the matter told Reuters yesterday. The National Development and Reform Commission (NDRC), which is responsible for approving issuance of non-listed companies’ bonds with tenors of one year and above, delivered the warning at a recent meeting with underwriters, the sources said. “Requirements will be strengthened, but you have to ask the NDRC for details,” one source said. The N D RC d id n ot immediately respond to requests for comment. The amount of the NDRCapproved corporate bonds issued in the first half of this year reached 491.3 billion yuan (US$79.6 billion), exceeding last year’s total of 475.2 billion yuan, which analysts attribute to Beijing’s decision to loosen liquidity in response to slowing growth. “The NDRC put forward some proposals and asked

Shanghai Stock Warrant

institutions to give their feedback by Thursday,” said a source at a securities brokerage in Beijing, adding that some of the suggested new requirements appeared to be so rigorous as to be impractical. All companies that now

China’s smoggiest province closes 56 mines

need only to register with the NDRC to issue bonds, instead of going through formal approval procedures, may have to prove their asset-liability ratio is below 20 percent, down from the existing 30 percent, the sources said.

Industrial companies may have to demonstrate assetliability ratios below 60 percent to avoid additional regulatory scrutiny for such bond issues, compared with 65 percent for now, the sources said. Local government

Thailand holds rates

ifty-six mines have been shut down in north China’s Hebei Province, which holds the country’s smoggiest cities. The 56 include 10 illegal mines and 46 others which are within 300 meters of expressways or railways, said Wei Fenghua, an official with the Hebei Land and Resources Department, on Wednesday. In April, the province launched a campaign to make its mines less polluting and stop them operating near densely populated areas, targeting 632 mines close to railways, expressways and cities. Most of the 251 mines which failed to meet environmental protection requirements suspended production and underwent treatment while 325 others are due to be treated, said Wei. Hebei has 14,000 mining sites, including many opencast ones. The mines are a major contributor to air pollution. Hebei had seven of the 10 most polluted cities in China in the first half of this year, according to the Ministry of Environmental Protection. Xinhua

entral bank held its key interest rate yesterday as the kingdom’s economy showed signs of revival after an army coup ended months of political protest which rattled consumers, tourists and investors.The Bank of Thailand kept its policy rate at 2.00 percent, a level set in March in an effort to boost an economy which shrank 2.1 percent quarter-on-quarter in the first three months of 2014. The economy had since shown “signs of improvements... from private spending following the political resolution,” said Paiboon Kittisrikangwan, Secretary of the Monetary Policy Committee (MPC). Explaining the decision, he said the bank expected stronger domestic demand in the second half of the year as “fiscal policy, particularly public investment, should lend further growth recovery” while exports including tourism are also expected to recover, albeit slowly. It was the bank’s second monetary policy decision since the army toppled a civilian government whose spending plans were hamstrung by months of political turmoil. AFP

financing vehicles (LGFVs), which now require special examination if they have an asset-liability ratio at 75 percent or more, may in the future go through the stricter procedures at 70 percent, among other tightening steps, the sources said. Chinese corporates have faced an increasingly tight funding environment, even as the central bank has loosened liquidity, as banks have grown more wary of lending to riskier firms after Beijing signalled a greater tolerance for bond defaults. However, companies at risk of bankruptcy, especially those in industries grappling with overcapacity and LGFVs dabbling in real estate, have proven willing to promise bond investors high returns in exchange for the capital necessary to keep themselves above water. Regulators are increasingly concerned that such firms are cannibalising capital from more productive companies. A finance ministry official said in June that the pressure on local governments to repay their US$3 trillion debt is the greatest this year when a fifth of loans are due. Reuters

214 factories suspended after Kunshan blast

uthorities in Suzhou City of east China’s Jiangsu Province have suspended production in 214 factories in a safety overhaul after an explosion in a local factory left 75 people dead and 185 others injured last week. The blast gutted a wheel hub polishing workshop owned by the Taiwanese-invested Kunshan Zhongrong Metal Products Co., Ltd. in Kunshan City on Saturday morning. An investigation concluded that there was “very serious dereliction of duty,” given the excessive metal dust inside the workshop, which was ignited by flames and caused the explosion. The suspended factories were found to suffer the same safety risk of dust pollution, the municipal government said on Wednesday. Saying that the accident in Kunshan revealed broader work safety loopholes, the State Council Work Safety Commission on Monday ordered a safety campaign targeting factories that process aluminium, magnesium, coal, wood, paper, tobacco, cotton and plastic, among other materials considered potential ignition sources. Xinhua