Macau Business Daily, Aug 22, 2014

MOP 6.00 Closing editor: Luís Gonçalves Year III

Number 610 Friday August 22, 2014

Publisher: Paulo A. Azevedo

Milan Station doubles presence in Macau

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t posted a record 60 percent jump in sales for the first half. But a hefty rent hike is forcing handbag retailer Milan Station to move on. While its flagship store relocates round the corner to Rua da Palha, sales points in ‘exclusive clubhouses’ will almost double from six to ten. Jones Lang LaSalle Macau says shop space in neighbouring Rua de S. Domingos is fetching monthly rentals PAGE 4 of HK$600,000 to HK$1.1 million

www.macaubusinessdaily.com

Aquis digs in

Wynn Macau profits down 1.2 percent PAGE 6

Macau Legend revamp delayed

Before jumping in, register the brand. Aquis is investing MOP63 billion in a mega casino resort in Australia. But it’s also studying the possibility of entering the Macau market, the company tells Business Daily. Billionaire Hong Kong property developer Tony Fung’s company has already registered its trademarks here.

For shoes and clothing, casino management, retail, hotel and resorts, and real estate.

PAGE 5

China to build biggest casino in Caribbean PAGE 7

Brought to you by

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HSI - Movers August 21

Licence look-out The Transport Bureau is adamant. It confirmed yesterday that it will reinforce supervision of special crossborder driving licences.

This follows complaints that some mainlanders are allegedly illegally taking up other driving jobs in Macau.

Different driving cultures pose problems, it’s claimed

CE concedes capacity crisis

%Day

China Resources Pow

2.81

Lenovo Group Ltd

1.37

Belle International

1.02

Li & Fung Ltd

0.96

China Unicom HK

0.76

CITIC Pacific Ltd

-1.71

AIA Group Ltd

-1.71

Bank of Communic

-1.73

Want Want China H

-2.71

China Resources Ent

-2.92

Source: Bloomberg

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Only a few days to re-election. But Fernando Chui Sai On agrees that Macau is suffering a capacity problem.

The booming economy and tourist influx have come at a cost. Transportation, quality of life and human resources are all under stress. The CE candidate claims the government is listening. And will pay close attention to resolving associated issues. In addition, he plans to restructure his administration PAGE

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Wait and see It was an inspiring July. But August’s Manufacturing Purchasing Managers’ Index in China has returned to levels seen 3 months ago. The resurgence of the Chinese economy remains in doubt.

Despite being above the growth borderline Page 10

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August 22, 2014

Macau

Chui Sai On concedes Macau has capacity crisis Meeting with politicians, CE candidate Fernando Chui Sai On agrees with their concerns on the city’s capacity problem, claiming the issue has been noticed by the government, which will continue to work on alleviating its affect on the quality of life of local residents Kam Leong

kamleong@macaubusinessdaily.com

Central government to rule on border‑crossing hours extension The government is waiting for China to approve the extension of the operating hours of the borders, the CE candidate told reporters on the sidelines of his meeting with the Association of Returned Overseas Chinese to Macau yesterday afternoon.

According to local media TDM, Mr. Chui said an extension in the hours of the border crossing should be reached first, prior to the implementation of a 24-hour border-crossing, which he states in his political manifesto as the final objective.

He said that the government has been working hard on the issue for a long time. It is now awaiting a green light from the central government.

In addition, he believes that the Zhuhai-Macau Cross Border Industrial Zone border gate can relieve current pressure on the borders and hasten the speed of crossings.

Meanwhile, he repeated that he anticipates maintaining a government structure of five secretaries. However, he will improve administrative efficiency and clarify departmental functions in the near future by reforming the administration.

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hilst meeting with Electoral Commission members of the fourth sector yesterday morning Chief Executive candidate Fernando Chui Sai On affirmed that if his reelection bid is successful he will pay close attention to resolving the capacity problem of the city.

The members of the fourth sector are representatives from The National People’s Congress (NPC), The Chinese People’s Political Consultative Conference (CPPCC) and Macau’s Legislative Assembly.

The political members raised various questions. Several of them noted that the city’s rapid economic development has affected transportation, living conditions and human resources.

Legislator Kwan Tsui Hang believes that the capacity problem of the city arising from the [buoyant] economy will be the major problem that the future Chief Executive will have to resolve.

She said, “In transportation, housing, even the whole society, which

also includes crossing the border, we can see the problems of [full] capacity. In addition, tourists may not feel [Macau is] a leisure city, and it’s also directly affected our residents and blighted their lives.”

She also perceives that Macau will face another wave of economic development in the coming few years. Increasing the labor force and resolving the problems of human resources, as well as the capacity of the whole city, will need effective measures.

Mr. Chui replied that during the previous three terms of government the Institute of Tourism Studies had been delegated the task of studying tourist capacity in Macau. He said that there are a few points in the study that the government emphasises, such as the city’s hardware and software facilities, reception ability at the borders, and especially those [issues] affecting the quality of life of Macau residents.

“Up to now, in this year as well as last year, we can see that the central government did not approve any new cities for the Individual Visit Scheme to increase the [number of] tourists. This was actually [the result of] sufficient communication,” the candidate, who is also the incumbent CE, said. He said that the central government, Hong Kong SAR and Macau SAR are all involved in the dialogue.

“We have to chiefly consider the quality of life of Macau residents when increasing the number of tourists. Secondly, we have to

consider the labor force as well as our human resources, and how [citizens] can eventually share the results of our economy,” Mr. Chui said.

Th e v i ce- p r es i d e n t o f t h e Legislative Assembly, Lam Heong Sang, also expressed his concerns about the capacity problem of the city. “Macau is enjoying good development. [However], some 70,000 [non-resident workers] enter Macau to work in Taipa from seven o’clock every morning. After fourthirty in the afternoon, these 70,000 people go back to the mainland from Taipa . . . Some problems have already reached a critical point,” Mr. Lam said that the government actually has the ability to resolve the problems but “choose not to do it”.

In fact, in addition to members of the fourth sector, other representatives from other fields had expressed concerns on the issue earlier. A Commission member of the second sector, Agnes Lam Iok Fong, said this Sunday that she did not see a detailed description in Mr. Chui’s political manifesto on the city’s important issues, such as the capacity of tourists.

Resolving administrative problems Some politicians think that an improvement in the current administrative system and efficiency must be made.

Legislator Angela Leong On Kei thinks that legislative [bureaucracy] is slow and urged Mr. Chui to make it faster and more detailed while Mr. Chui said he agreed that the government should assume responsibility to prepare well for legislation.

A Macau representative of the CCPPC, David Chow Kam Fai, perceives that the current administrative problems such as the overlapping structure of civil servants, slow administrative efficiency and waste of public money are due to an outdated civil service approach.

In addition, he criticized the government for the lack of progress in the past 15 years, saying that the brains of the five secretaries “are not yet civilized”. He urged the government to spend its fiscal reserves on secondary allocation to residents and retirement protection, rather than solely on infrastructure.

Mr. Chui later replied that he understood that administrative efficiency does not meet expectations. “[Suggestions for] establishing better governance and how a government should command are clear. I hope that I can follow up on such problems after I win the election,” he said.

The meeting also discussed issues about education for the disabled, land resources, medical issues and the events industry. Mr. Chui agreed that the government should respond to the underlying issues.

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August 22, 2014

Macau

Aquis studies Macau market, registers brands The company owned by billionaire Tony Fung is investing 63 billion patacas in a casino resort in Australia but is studying the possibility of entering the Macau market, too, Aquis told Business Daily.

Meanwhile, the corporation has registered its trademarks here João Santos Filipe

jsfilipe@macaubusinessdaily.com

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quis Group is considering entering the Macau market as a complement to the casino and resort planned for Cairns, in Queensland (Australia). However, before any decision is taken and other options considered, the company has registered the brand in the Chinese Special Administrative Region, a spokesperson for Aquis told Business Daily.

“I can confirm Aquis has registered a number of brands in Macau. We’re currently considering a range of different options that may be complementary to our development plans for Cairns in Queensland”, a company representative said.

Aquis refused to volunteer further information,

saying that an official announcement would be made at the appropriate time. “Unfortunately we’re not in a position to provide details on these plans at the moment but will be making an announcement at the appropriate time”, the spokesperson added.

The company started the process of registering the brands Aquis, Aquis Casino and Aquis Great Barrier Reef Resorts on 29 January but they were only published last Wednesday in Macau’s Official Gazette. The areas of activity registered for the brands range from shoes and clothing to casino management, retail, hotel and resorts and real estate.

A legal expert from the government told Business

Daily that as Macau is not a member of the Madrid system companies might decide to register their trademarks in order to prevent other parties from using them.

The Madrid system allows trademarks to be registered at an international level that includes 91 countries or independent ruling bodies.

“Registering a trademark is a process taken in order to avoid another party using

this trademark. As Macau is not part of the international trademark system, this application can mean that companies are only trying to protect their brands”, he said.

“It may also mean that this company is planning to operate in Macau.

Nevertheless the government is not planning to attribute extra gaming concessions and the existing ones will only expire from 2020 to 2021.

As for hotel resorts, they can open any time”, the legal expert added.

Today, the Aquis company is building the Aquis Great Barrier Reef Resort in Cairns, Australia. The integrated resort will have gaming facilities and is expected to cost around MOP63 billion.

The company predicts that by completion, slated for 2018, it will be able to attract a million visitors a year.

The Cairns resort will have 7,500 hotel rooms scattered around an artificial lagoon.

It will also include an 18hole golf course and water park. The target clientele of the resort will primarily be Chinese and non-Australian VIP gamblers.

Billionaire Hong Kong property developer Tony Fung Wing Cheung is the man behind the project. He envisages that Cairns will be a gambling destination to rival Macau.

With the Aquis Great Barrier Reef Resort completed, Tony Fung may end up with two casino licences in Cairns, as yesterday he received authorisation from the Australian Competition and Consumer Commission to acquire another property in the region, the Reef Hotel Casino, for 1.6 billion patacas.

A final decision by the Queensland Government on the award of gaming licences for the region is only expected, however, by next year.

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August 22, 2014

Macau Brought to you by

HOSPITALITY Agencies losing grip According to the most recent figures, many hotel guests do not book their rooms through travel agencies. That may not come as a total surprise. First, the number of online booking sites seems to be growing without respite.

Add to that the fact that many hotels or hotel franchises nowadays have their own online reservation tools and use them, at times, quite aggressively, and you might expect a substantial share of guests skipping the services of travel agencies altogether.

The figures seem to confirm that. In the period starting in 2010 and ending last June, the overall proportion of those booking their rooms through travel agencies has dropped almost continuously. A small recuperation in the first semester of the year, relative to the same period last year, does not hide the fact that in the last three semesters that booking share stood some eight to nine percentage points below what it was in 2010 and the first half of 2011. This trend can be seen in all categories of hotel. The only exception is guesthouses, but the corresponding share, and their weight in the sector, is very small.

Differences between the various categories of hotel are quite significant. The greatest share of bookings is found in 4 and 3-star hotels, for which current values stand at 51 percent and 46.2 percent, respectively. The biggest losses in share happened in 4-star hotels, which still recorded a share in excess of 65 percent in early 2010; and 2-star hotels, which went from 52 percent to 34 percent in the same period.

In the case of 5-star hotels the same share has stood below one-third of the total number of reservations for the last five semesters.

38.2%

share of hotel guests using travel agencies, 2014H1

Milan Station mulls Macau expansion Handbag retailer Milan Station wants to have more sales points in the city’s ‘clubhouses,’ while it is relocating its high street branch store due to rent surge. Macau sales increased 60 percent in the first half Stephanie Lai

sw.lai@macaubusinessdaily.com

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ong Kong listed handbag retailer Milan Station Holdings Ltd is planning to expand its retail points in the city’s ‘clubhouses’ amid booming sales here, while suffering from a widening loss for the group for the first half of this year.

Milan Station said sales here surged 58.2 percent year-on-year to HK$55.2 million (US$6.9 million) for the first six months this year in its interim results filed with the Hong Kong Stock Exchange after trading hours on Wednesday.

‘The growth was mainly attributable to the sale of the group’s high-priced products, which target those customers with high spending power, in exclusive clubhouses in Macau,’ the company noted in the filing, adding that its sole high street retail shop in Rua de S. Domingos also reported ‘solid’ sales for the first half of this year.

Business Daily asked Milan Station to confirm whether the ‘clubhouses’ mentioned refer to the firm’s retail points situated in the VIP lounges of the casinos in the city but the firm responded that it was ‘not convenient’ to clarify the nature of the clubhouses.

The retailer said in its 2012 annual report that it wanted to open ‘specialty counters in the VIP lounge of the premier casinos in Macau’ and it also mentioned in May last year that they had ‘succeeded in striking a deal with an exclusive clubhouse in Macau to set up a point of sale in the latter’s entertainment premises.’

Ten sales points To further boost sales growth, Milan Station said in its interim results report that it planned to increase the number of sales points from six to ten in ‘exclusive clubhouses’ in Macau.

Despite the first half sales boom recorded for Macau, escalating rental costs are weighing on the firm’s operation here, prompting it to relocate its branch store.

In order to reduce its rental expenses, Milan Station said in the filing that it will move its branch store from the prime tourist destination of Rua de S. Domingos to Rua da Palha, a nearby street.

Milan Station told Business Daily that the monthly rental of the new location, which its branch store would move to by mid-September, is 60 percent less than the current site in

Rua de S. Domingos. The owner of the S. Domingos branch store site had requested a 30 percent hike in rent.

For the first half of this year, the retail rentals in the major tourist spots of S. Domingos and S. Paulo areas saw the strongest growth, while overall retail rentals for the Macau market recorded a 7.4 percent yearon-year growth for the second quarter this year, estate agency Jones Lang LaSalle Macau stated in its half-year review.

The agency cited examples in the review of three new retailers taking up shop space in Rua de S. Domingos in the first half of this year for monthly rentals of HK$600,000 to HK$1.1 million.

Widening loss Revenue contributed by the Macau market accounted for 16.8 percent of Milan Station’s total revenue at about HK$329.3 million, while gross profit margin of the firm’s operations here is the highest at 35.8 percent when compared with Hong Kong, mainland China and Singapore.

Milan Station has suffered from a first half group-wide loss of about HK$19.8 million amid dampened consumer sentiment in Hong Kong and mainland China following the continuing slowdown in the luxury retail market. The loss figure of the firm in the same period last year was about HK$10.4 million.

Milan Station cited optimism for the Macau retail market, saying that the luxury goods sector could see “steady development” against the backdrop that more high-end international

To cut down rental expenses, Milan Station will move its branch store from the prime tourist destination of Rua de S. Domingos to Rua da Palha Milan Station

brands would be attracted here with the ongoing construction of 5-star hotels, shopping centres and casinos.

For the firm’s major market for sales, Hong Kong, a darker picture emerged as Milan Station said they saw more mainland Chinese tourists from the second and third-tier cities travelling in the city that had “weak spending power”, and were on sameday return trips.

A challenge confronting the firm in the Hong Kong market is the shift in overall consumption patterns of mainland visitors travelling under the individual visit scheme, who are opting for mid-range and low-priced cosmetics, clothing and shoes.

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August 22, 2014

Macau

Macau Legend revamp delayed Trinity profits Macau Legend, controlled by businessman and former legislator David Chow Kam Fai, saw profits decline by 15 percent for the first half Stephanie Lai

sw.lai@macaubusinessdaily.com

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otel and casino operator Macau Legend Development Ltd reported a decline in first half profits of 15 percent, while announcing postponement of completion dates for its new hotels for the revamp of theme park Macau Fisherman’s Wharf.

Macau Legend’s profit for the first half of this year was HK$226.4 million (US$29.2 million), a year-onyear drop of 15 percent or HK$40.4 million, the firm said in its interim results filing with the Hong Kong Stock Exchange after trading hours on Wednesday.

Explaining the profit decline, the firm said in the filing that it was ‘mainly due to the inclusion of the unrealised exchange loss on bank fixed deposits denominated in yuan of approximately HK$73.9 million,’ resulting from a decline in the exchange rate of yuan against Hong Kong dollars in the period.

Macau Legend’s adjusted EBITDA for the first half was HK$462.5 million, up 7 percent from a year earlier.

The firm’s revenue rose by 8.7 percent to HK$917 million, in which total gaming revenue rose by 5.1 percent to HK$654.9 million – driven by growth in both the mass and VIP gaming segments at its Pharaoh’s

Palace Casino, where Macau Legend operates 56 mass gaming tables and 75 VIP tables.

Macau Legend does not have a gambling licence of its own but operates its casinos – Pharaoh’s Palace Casino and Babylon Casino – under a service agreement with SJM Holdings Ltd. In the interim results filing, Macau Legend mentioned that Harbourview Hotel, which was slated to be completed by the third quarter of this year as mentioned in the firm’s early June filing, will only be ‘substantially completed in the third quarter of 2014’, with an anticipated opening in the fourth quarter.

The firm did not elaborate in the filing on the postponement of the completion of the 444-room Harbourview Hotel, which will not include a casino; but the firm mentioned that it expected the construction to be completed with total costs ‘much lower’ than the original budget.

Macau Legend also noted in the Wednesday filing that the second new hotel on the Wharf, the 229-room Legend Palace Hotel, is slated to be completed by the fourth quarter of 2015 instead of the second quarter as mentioned previously.

The firm said that the construction of Legend Palace Hotel is expected to

Putting the brakes on special driving licences Some mainland drivers are allegedly making use of such licences to illegally take up other driving jobs in Macau

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n response to Legislator Zheng Anting’s enquiry about mainland drivers with special driving licences found working ‘over the line’ in Macau, thus affecting the benefits of local drivers, Transport Bureau director Wong Wan replied that the amendments drafted in related regulations will extend the supervision of the authorities on this issue.

These special driving licences are issued to mainland companies stationed in Macau that hold dual driving registration plates. The licences allow them to transport freight and passengers across the border.

Mr. Wong said that to expand supervision a cross-department working group will re-evaluate the penalties for violators as well as the allocation of licences to related companies. The draft for the amendment is finished and is now under verification and analysis by legal departments.

“Besides imposing fines on violators, the Bureau will take measures such as ‘not issuing licences’ or ‘not renewing licences’

as a penalty,” Mr. Wong wrote.

In addition, Mr. Wong said that the Bureau would regularly provide the information of mainland drivers and vehicles with dual licences to related departments and assist law enforcement departments to immediately prosecute anyone violating the regulations.

Currently, the Road Traffic Ordinance does not mandate any immediate punishment for nonresident drivers contravening traffic regulations, according to Mr. Zheng.

He also suggests that the Bureau make the supplementary course of Macau transportation a compulsory item for mainland drivers before issuing licences to them. Mr. Wong responded that the Bureau has an open attitude to the idea and that it would depend on public opinion.

Mr. Zheng perceives that these mainland drivers working “over the line” in Macau may cause dangerous accidents due to the different driving cultures in Macau and Mainland China. According to Mr. Wong, there were 889 effective special driving licences as at June 30 this year.

start in the fourth quarter of this year, following the demolition of the Tang Dynasty complex, with foundation work to be ‘completed in two months.’

Macau Legend made no mention in its interim results of the gaming tables to be approved or allotted to Legend Palace Hotel and a third new hotel to be added to the Wharf, Legendale Hotel.

The overhaul of Macau Fisherman’s Wharf is expected by the firm to boost its gaming tables from 146 to 500.

The design of Legendale Hotel, with over 500 rooms, is currently ‘under review for reduction of construction costs and improvement in planning and operational efficiencies,’ Macau Legend said in the filing.

Macau Legend raised an additional of HK$1.35 billion in January by selling more shares for the revamp cost of Fisherman’s Wharf, following its global share sale grossing about HK$2.2 billion in June last year.

cut by half Y

esterday, Trinity announced a reduction of 47.3 percent from HK$150 million in the first half of 2013 to HK$79 million in the first six months of this year.

‘Revenue from the Greater China market, which contributed 88.7 percent of the Group’s total revenue over the first six months of the year, decreased by 5.7 percent,’ said a filing sent to the Hong Kong Stock Exchange. ‘This was largely because of the ongoing slowdown of the Chinese Mainland economy which resulted in softer consumer demand, as well as government measures that have impacted gift purchases across the premium and luxury sector.’

Other reasons pointed out by the company for the drop in profit was the swing in foreign exchange losses. “The depreciation of the RMB since March 2014 has had an adverse impact on the valuation of the Group’s RMB net assets, mainly in short-term deposits and receivables. As a result, an unrealized foreign exchange loss of HK$41.3 million was recognized,’ it said.

Same-store sales in Macau and Hong Kong remained relatively flat (decreasing 0.3 percent) in comparison to the first half of 2013.

J.S.F.

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August 22, 2014

Macau

Wynn Macau profit drops 1.2 percent The company posted a net profit of HK$3.65 billion for the first half of the year in comparison to HK$3.70 billion last year. Wynn Macau revealed that it had increased staff costs by 25 percent prior to the new benefit scheme taking effect João Santos Filipe

jsfilipe@macaubusinessdaily.com

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he net profit of Wynn Macau dropped 1.2 percent year-onyear from HK$3.70 billion to HK$3.65 billion during the first six months of the year, the company revealed yesterday in a filing with the Hong Kong Stock Exchange.

During the first half of the year, Wynn Macau’s revenues totalled HK$16.2 billion, an increase of 8.8 percent, while in the previous year it totalled HK$14.9 billion. This increase was mainly attributable to a 9.2 percent increase in casino revenues from HK$14 billion to HK15.3 billion. On the other hand, revenues from rooms decreased from HK$73,529 to HK$65,647 (10.7 percent) while revenues from retail dropped from HK$758,020 to HK$712,071 (6.1 percent).

As for costs and expenses, they increased 9.8 percent from HK$11.2 billion to HK$12.3 billion. The largest share of the expenses related to taxes and premium: HK$7.7 billion, which means an increase of 7.3 percent from HK$7.2 billion.

In the last month, casino dealers have been on the streets of Macau demonstrating for better wages and associated benefits. Wynn Macau costs related to staff increased 25 percent, from HK$1.16 billion to HK$1.45 billion during the first six months of the year.

Wynn approved and adopted the employee ownership scheme and granted a mandate to the directors of the company to allot, issue and procure the transfer of and otherwise deal with up to 50,000,000 shares in connection with the employee ownership scheme. These resolutions aimed at “encouraging and retaining them [employees] to make contributions to the long-term growth and profits of the Group”.

Meanwhile, in the first half of the year Wynn managed to reduce

Wynn maintained the amount of commissions paid to junkets in the first half to around HK$1 billion

the amount of commissions paid to gaming junkets. In 2014, Wynn Macau paid HK$993,699 while in 2013 the commissions paid to gaming promoters totalled HK$1 billion, a decrease of 0.6 percent.

Renovation reduces table capacity Since March, Wynn Macau has been undergoing renovation. An approximately 27,000 square feet area of the casino is being reworked to increase VIP gaming rooms. These works, expected to end early 2015, have resulted in a reduction in the number of gaming tables and slot machines.

As at 30 June the number of VIP tables was 256, some 29 less (285) than in 2013. There was also a five mass-market table games reduction from 205 to 200. The largest reduction, however, was in slot machines from 884 to 613 (271).

As for Wynn Palace, the group’s project in Cotai, Wynn has invested HK$8.7 billion as at 30 June, it was revealed. The total project budget is expected to hit HK$31 billion and it is targeting to open its doors in the first half of 2016.

Gaming revenues offset 2013 trade deficit T he booming revenues accrued by the casino industry here from gaming tables, hotels and entertainment have propelled the balance of trade and Macau’s current account into another record year, despite the growing trade deficit in the goods market. The investment in foreign assets by residents and government drove the balance of payments into negative territory.

According to the Monetary Authority of Macau (AMCM) the current account registered a 20 percent increase in its surplus last year due to gains derived from the casino industry.

The current account consists of the balance of trade (measuring imports and exports) and also the difference between earnings

on foreign investments and payments made to foreign investors and net cash transfers. The current account totalled MOP165 billion last year compared to MOP138 billion reported in 2012.

The main driver was the solid performance of services exports that includes revenues from casinos and the hotel and tourism industries, which are dominated by the six big gaming operators here. The export of services amounted to MOP428 billion in 2013, an 18 percent hike from 2012 (MOP362 billion).

But if the trade balance of services continues to beat records, in the goods market the situation is the opposite.

As Macau residents earn more money and tourists spend more, the demand for foreign

products is skyrocketing.

The import of goods grew 15 percent last year, while the export of merchandise only increased 10 percent.

This widened the gap in the trade balance deficit from MOP70 billion to MOP81

billion, a 15 percent hike, official data reveals.

Last year, the net outflow of cross border transactions accelerated with more money going out of Macau than entering. Net outflow reached MOP63 billion in

2013 against MOP52.2 billion, a 15 percent increase, AMCM said yesterday: ‘The significant increase stemmed mainly from the increase in income earned by foreign direct investors in Macau’.

Another point underlined

by AMCM was the huge increase in the accumulation of foreign financial assets

by Macau residents and the government. This trend made the reserve assets go from a surplus of MOP30 billion in 2012 to a deficit of MOP4 billion last year.

Macau’s balance of payments, the balance that records all economic transactions between the residents of a country and the rest of the world including trade, capital and financial transfers, registered a deficit of MOP4.5 billion last year.

In 2012, the balance of payments recorded a surplus of MOP30 billion, AMCM revealed yesterday.

L.G.

7

August 22, 2014

Macau

Gambling, IT, booze addiction rife in Japan A study finds that five percent of Japanese are addicted to gambling, a challenging result for the authorities now that the multi-billion dollar casino industry is knocking at the door

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early five percent of Japanese adults are addicted to gambling, a rate of up to five times that of most other nations, according to a study.

The study, released to local media on Wednesday,

also showed rising adult addiction to the Internet and alcohol in a society long known for its tolerance of boozing and its love of technology.

“If something new becomes available, addiction

will only rise,” Susumu Higuchi, Japan’s leading expert on addiction who headed the study, told local journalists according to the Asahi Shimbun newspaper.

The survey, taken last year and sponsored by the

China to spend US$1 billion on biggest Caribbean casino The mega resort will have luxury hotels, hundreds of private homes, a school, hospital, marinas, golf courses, an entertainment district, horseracing track and the Caribbean’s biggest casino

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hinese investors are to plunge more than US$1 billion into developing Antigua and Barbuda’s first mega-resort, creating 1,000 jobs for the tiny cash-strapped nation.

Construction on the mammoth 1,600-acre (647-hectare) multi-hotel, residential and commercial project is slated to begin early next year.

The ‘Singulari’ scheme - 50 per cent bigger than the regionally-heralded Baha Mar resort under way in the Bahamas - is being lauded as a major feather in the East Caribbean country’s tourism cap.

Occupying 900 acres of land in the north of Antigua and 700 acres of tiny islands, it will include several luxury hotels, hundreds of private homes, a school, hospital, marinas, golf courses, an entertainment district, horseracing track and the Caribbean’s biggest casino.

It is being created on land previously owned by disgraced US financier Allen Stanford, once Antigua’s largest employer.

Sam Dyson, of Luxury Locations real estate agency which introduced Beijing-based Yida International Investment Group to the island in May 2013 and negotiated the deal with the land’s liquidators, said: “Singulari will provide Antigua & Barbuda with an economic boost and galvanise the destination as a tourism force to be reckoned with.”

A Yida spokesman said job fairs would be held within weeks to ensure locals were given first priority for the 200 positions being made available later this year when the land is prepared for development, and the 800 created next year when construction starts.

“Over the next 10 years, Yida Group and its global partners will create an additional US$2 billion of gross domestic product and economic value to Antigua, including sales of real estate, creation of new industries and origination of foreign direct investment,” he added.

Antiguan Prime Minister Gaston Browne signed a memorandum of agreement with the developers on June 13, one day after taking office following June’s general election. Browne declared his intention to transform the country - suffering crippling national debt and unemployment - into an economic powerhouse.

With national debt at almost 90 percent of GDP, the main challenge for the new government will include reviving the 108-square mile (280-square kilometer) country’s tourism-dependent economy.

Financial woes have been exacerbated by fallout from Texas businessman Stanford’s US$7 billion Ponzi scheme. A citizen of Antigua and Barbuda, Stanford was the private sector’s biggest employer prior to his arrest in 2009.

AFP

health ministry, emerged as the Japanese Government mulls controversial plans to legalise casino gambling in certain special zones, with some saying it would boost the number of foreign tourists.

Researchers estimate that roughly 5.36 million people in Japan - 4.8 percent of the adult population - are likely pathological gamblers who cannot resist the impulse to wager, the Yomiuri Shimbun said.

The study said 8.7 percent of men and 1.8 percent of women fit the internationally accepted definition of addicts, according to the Mainichi Shimbun.

The wide availability of pachinko parlours - loud, colourful salons that offer rows of pinball-like games - and other gambling establishments is believed to be contributing to the problem.

The ratio of compulsive gamblers in most nations

“stands more or less around one percent of the adult population. So Japan’s ratio is high,” a member of the study group told reporters, according to the Nikkei newspaper.

The study questioned 7,000 Japanese adults nationwide, of whom 4,153 gave valid answers.

Around 4.21 million adults are believed to show signs of Internet addiction, the study found, a rate that has risen 50 percent in five years, the Nikkei said.

Researchers blamed the spread of smartphones and the increasing quality of digital content for the rising number of IT addicts, who often prefer the Internet over other essential activities such as sleeping, the Nikkei said.

More than a million people were believed to be addicted to alcohol, compared with an estimated 830,000 people a decade ago, the Mainichi said.

AFP

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August 22, 2014

Greater China First large private investment set up The country’s first national-level private investment company, China Minsheng Investment, was established yesterday. Endorsed by the State Council (China’s cabinet) in April, China Minsheng Investment has a registered capital of 50 billion yuan (US$8.1 billion), funded by the top 59 private Chinese companies.

The 59 shareholders are all large-sized private companies, with combined assets of nearly 1 trillion yuan. They are involved in a range of businesses from machinery manufacturing, metallurgy, information technology, assets management, environmental protection, new energy, power generation and e-commerce.

Government efficiency pilot tested A pilot to streamline administrative approvals by combining government departments has proven a success after a three-month trial in Tianjin. The Binhai New Area Administrative Approval Bureau in Tianjin, the first of its kind in the country, was inaugurated on May 20 when integration of 216 administrative approval items and staff from 18 different government departments were folded into one unit. By Tuesday, the bureau had handled 38,348 administrationrelated items and completed 97.9 percent of them, with the registration of 1,812 new companies.

Beijing city government sells bonds China’s Beijing city government auctioned a total of 10.5 billion yuan (US$1.71 billion) of five-, seven- and 10-year bonds at yields of 4.00, 4.18 and 4.24 percent, respectively, traders said yesterday. It is the eighth time this year that a Chinese local government has issued bonds directly, without Finance Ministry acting as a proxy. China announced in May that it would allow local governments to issue U.S.-style municipal bonds for the first time in an experiment to straighten out its messy state budget, and start the clean-up of its massive local government debt problem.

Beijing expands carbon trading scheme The Beijing municipal government will add 120 companies to its emissions trading scheme from 2014, bringing in sectors like public transport in a bid to strengthen control over the city’s rapidly growing greenhouse gas emissions. The capital is one of seven cities and provinces in China that have launched pilot carbon markets ahead of a national scheme within 2020, as the world’s biggest-emitting nation seeks to limit its impact on global warming. The Beijing scheme was launched last year, covering 490 companies in the power, heating and manufacturing sectors, as well as some public buildings.

Mongolia eyes economic boost with Xi’s visit China already buys more than 90 percent of Mongolia’s exports Terrence Edwards and David Stanway

C

hinese President Xi Jinping arrived in Mongolia for a two-day visit designed to deepen economic ties between the neighbours, with Mongolia desperate to kick-start its struggling economy with fresh investment.

Xi’s arrival marks the first Chinese presidential visit to Mongolia in 11 years, and Mongolia, hit by plunging commodity prices and a rapid decline in foreign investment, is keen to agree to new deals on transportation, energy and mining investment with its dominant trading partner.

In an article written by Xi for publication in Mongolian newspapers, the Chinese president said the country would do all it could to help Mongolia develop.

“China hopes that both countries can push cooperation on building inter-connecting railways and roads, the development of mines and processing ... so that people in both countries can receive even more benefits,” Xi wrote.

China already buys more than 90 percent of Mongolia’s exports, mainly of coal and copper, and 49 percent of foreign enterprises registered in Mongolia are Chinese, Xinhua news agency reported.

But while the focus is likely to be on economic cooperation, persistent Mongolian worries about Chinese political hegemony in the region make a bigger breakthrough unlikely, analysts said.

“I don’t think right now is the time to talk about breakthroughs in

relations - the Mongolian economy is in a difficult situation but it isn’t difficult enough to have any immediate impact (on relations),” said Sumati Luvsandendev, head of the Sant Maral Foundation, a local polling organisation.

Mongolia aims to use its mineral wealth to modernise its isolated pastoral economy, but it has struggled to fund its plans. Legislation aimed at restricting foreign ownership in “strategic” sectors has also deterred foreign investment, which fell 70 percent in the first half of 2014.

But despite political opposition, the government appears to be warming to the prospect of further Chinese involvement in its mining and infrastructure sectors, the two pillars of its long-term development plans.

Mongolia is also keen to use the Chinese rail network to deliver coal and other minerals to other markets, and a transhipment deal is expected to be signed during Xi’s visit.

“I think the most important deal we can get out of this visit is a rail transit agreement,” said Bontoi Munkhdul, chief executive of the

Pictured Mongolian Presidential Palace

U.S. sorghum imports under obs

The move comes after China has already rejected more than 1 milli due to the presence of genetically modified strain Niu Shuping and Dominique Patton

C

hinese authorities are stepping up checks on U.S. cargoes of sorghum, traders said, potentially curbing shipments from the world’s largest exporter of the corn-substitute.

Four traders with direct knowledge of the matter said the country’s quarantine office last month asked local authorities to tighten checks of sorghum and barley, looking for impurities such as pesticide residues and heavy metals.

A quarantine bureau spokesman declined to make immediate comment.

The move comes after China has already rejected more than 1 million tonnes of U.S. corn due to the presence of genetically modified strain that has not been approved by Beijing.

Chinese feed mills have increasingly been turning to U.S. sorghum as a cheap substitute for domestic corn, which has seen prices inflated as Beijing supports the country’s rural population.

“There are worries in the market,

which should reduce imports of sorghum in later months,” said Zhang Yan, an analyst at Shanghai JC Intelligence Co. Ltd (JCI).

JCI cut its forecast for sorghum imports to 1.6 million tonnes for the 2014/15 marketing year, down from 3.9 million tonnes predicted earlier.

China is the world’s largest importer of U.S. sorghum, with its feed mills buying almost all their sorghum from the country.

“Shipments already booked or on the way to China may have no problem, but bookings after the notice may face trouble,” said another industry source, who declined to be named as he is not authorised to speak with media.

“Some of the major buyers have already been informed of strict checks,” said the source.

Sorghum is traditionally used to make alcohol in China but use in animal feed surged last year as the

A sorghum field

KEY POINTS China stepping up checks on U.S. sorghum cargoes -traders Could slash imports of the corn-substitute Has already rejected more than 1 mln T of U.S. corn

9

August 22, 2014

Greater China Ulan Bator-based Cover Mongolia consultancy. “Allowing rail access to seaports in China would allow us to export our commodities to other sea-borne Asian nations such as Japan or South Korea.”

The government in Ulan Bator has already agreed to form a joint venture with state-owned Chinese coal giant Shenhua Group to build a 13-km rail link that will help deliver Mongolian coal across its southern border.

During a Mongolian government delegation visit to China last year, officials told Reuters that a working group had been set up to build roads, railways and pipelines connecting the two countries to Russia.

Xinhua informed that the ChinaMongolia-Russia Economic and Trade Cooperation Fair opened on Wednesday with the inauguration of a centre to process a cost-saving customs document in Erenhot, a city on the China-Mongolia border.

The centre will handle ATA Carnets, an international customs document which allows duty-free temporary export and import of goods for up to a year.

Reuters and Xinhua

Lenovo has more IPO candidates The company’s fund invests in areas including online and mobile games

T

he Lenovo Group Ltd. start-up fund that backed iDreamsky Technology Ltd. through its U.S. initial public offering this month said it has three more candidates that are almost ready for share sales.

LeFund, a US$100 million investment fund Lenovo set up in 2010, has so far invested in 30 companies, of which iDreamsky was the first, Dennis Song, the fund’s managing director, said in an August 19 interview in Beijing.

The fund invests in areas including online and mobile games, security and cloud computing, with the goal of helping Lenovo, the world’s largest maker of personal computers, move beyond hardware into Internet services, Song said. The fund, which has seen the returns of 70 fold or more on some investments of US$1 million to US$2 million, will bring other holdings to market following the iDreamsky IPO that raised about US$115.5 million this month, he said.

“We have other very successful investments and return cases that are not yet in the IPO phase but we believe will be later,” Song said. “We have three candidates in the pre-IPO, pending IPO phase.”

While Song declined to identify

the candidates, he described some of the fund’s other key holdings.

Facial recognition One start-up the fund invested in is Face++, a maker of cloud-based facial recognition technology, Song said. It competes with Face.com, which was acquired by Facebook Inc. in 2012. Face++ has a valuation of about US$100 million, Song said.

Lenovo has integrated Face++ technology into its video conference call application available in China called “Youyue,” which means Friend Appointment in Chinese.

The technology enables facial and

expression recognition and can help detect if a user is smiling, crying or laughing and recommend icons for the user automatically, Song said.

Another investment is in Zaker, which makes information sharing software that is now pre-loaded on Lenovo tablets, Song said. Zaker has a valuation of about US$70 million after its latest round of fundraising, he said.

The fund has also invested in ShopEx, which makes a software sales platform for independent e-commerce sites. About 70 percent of independent e-commerce sites in China use the software, including Lenovo’s own online shops, Song said.

Bloomberg News

One Lenovo investment is in Zaker, which makes information sharing software that is now pre-loaded on Lenovo tablets (pictured)

S.Korea and China’s renewed links bring results Since 1992 trade between South Korea and China has surged some 36-fold

servation

ion tonnes of U.S. corn

industry sought to diversify ingredient supplies and replace expensive domestic corn.

Some big buyers contacted by Reuters said they were adopting a ‘wait-and-see’ approach to any further sorghum purchases.

“It is still unclear if quarantine authorities are testing every shipment.

They could really make things go crazy as they did for DDGS,” said a trader with a large buyer in south China.

China has stopped issuing import permits and demands certification that imported distillers’ grains (DDGs), a by-product of corn-based ethanol, do not contain the MIR 162 GMO strain.

Another large buyer in the southern province of Guangdong said it had stopped placing new orders but declined to say why.

U.S. alfalfa imports have seen rapid growth in recent years to meet demand from China’s fast expanding dairy.

Reuters

A picture of the latest visit of President Xi to South Korea, accompanied

by South Korea President Park Geun-hye

S

outh Korea and China have upgraded the bilateral partnership since the two nations set up diplomatic relations in 1992, especially on areas of trade, finance and culture, a South Korean think tank said yesterday. After Chinese President Xi Jinping visited Seoul in July, the neighbours strengthened their strategic cooperative partnership, upgrading the quality of bilateral economic cooperation and widening communication channels both politically and diplomatically, the Hyundai Research Institute (HRI) said in a report.

The report said Xi’s visit to South Korea drove Seoul and Beijing to enter a new era of “politically warmer and economically hotter,” noting that it would be meaningful as this year marks the 22nd anniversary of establishing

diplomatic ties on August 24, 1992.

Since that day, trade between South Korea and China surged some 36-fold from US$6.4 billion in 1992 to US$228.9 billion in 2013, equalling to an annual average increase of 19 percent.

China has become South Korea’s largest trade partner since 2004, and in 2013, South Korea was China’s fourth-largest partner for trade.

The bilateral trade has been qualitatively upgraded as main trade items changed from low valueadded products such as textiles and cement to high-end goods, including semiconductors, synthetic resins and oil products.

Financial and monetary cooperation has been strengthened.

Central banks of the two countries signed a currency swap deal worth 180 billion yuan (about US$29 billion)

in December 2008, before expanding the contract to 360 billion yuan in October 2011. Also, the countries agreed to open a market to trade their currencies directly in Seoul as early as within this year.

Cultural exchanges continued to widen. Personnel exchange between the two countries expanded more than 87-fold since the diplomatic normalization, from 90,000 in 1992 to 7.89 million in 2013. A total of 3.97 million South Koreans visited China last year, and 433 million Chinese toured South Korea.

South Korea’s exports of cultural contents, including K-Pop or soap opera, to China rose from US$581 million in 2009 to US$1.29 billion in 2012, equivalent to an annual average expansion of 28.4 percent.

The portion of content exports to China accounted for 27.6 percent of the total in 2012, up from 24.5 percent in 2010.

Xinhua

US$29 bln China-South Korea currency swap deal worth

10

August 22, 2014

Greater China

Geely car factory factory in Ningbo

Factory index falters The PMI, however, remained above the 50-point level that separates growth in activity from contraction for a third consecutive month Xiaoyi Shao and Gui Qing Koh

G

rowth in China’s vast factory sector slowed to a threemonth low in August as output and new orders moderated, a preliminary private survey showed on yesterday, heightening concerns about increasing softness in the economy.

The tepid reading came as China’s economic growth appears to be faltering again, with recent indicators ranging from lending to output and investment all pointing to weakness.

With conditions looking increasingly unsteady, analysts say more stimulus may be needed in coming months to bolster growth and offset the downdraft from the cooling housing market.

The HSBC/Markit Flash China Manufacturing Purchasing Managers’ Index (PMI) fell to 50.3 from July’s 18-month high of 51.7, missing a Reuters forecast of 51.5.

It was the lowest reading since May, though the PMI stayed above the 50-point level that separates growth in activity from contraction for a third consecutive month.

“Today’s data suggest that the economic recovery is still continuing but its momentum has slowed again,” said Hongbin Qu, chief economist for China at HSBC.

“We think more policy support is needed to help consolidate the recovery.

Both monetary and fiscal policy should remain accommodative until there is a more sustained rebound in economic activity,” Qu said.

Losses for most Asian stock markets, including Hong Kong and China, deepened after the PMI survey while the Australian dollar fell. Australia is sensitive to news out of China, its key export market.

A HSBC/Markit sub-index measuring new orders, a gauge of demand at home and abroad, fell to a three-month low of 51.3. The sub-index for output also dropped to a three-month low in August.

More measures expected “Definitely there will be more measures to keep growth momentum steady in coming months,” said Zhu Qibing, economist at Minzu Securities in Beijing. “But we don’t expect interest rate cuts in the near term as the central bank has reiterated that it would keep its prudent monetary policy unchanged.”

Wang Tao, China economist at UBS, said in a note to clients on Thursday that continued policy support, improved external demand

plus new measures “should keep growth momentum relatively firm through September”.

“The positive impact of still accommodative liquidity conditions, faster fiscal spending, and additional policy support, including intensified support for social housing and more widespread relaxation of local property restrictions, will still likely be felt in the next few months,” Wang said.

Chen Dongqi, a researcher at a government thinktank affiliated to China’s top economic planner, the National Development and Reform Commission, said this month China should loosen monetary policy further through “modest” cuts in bank lending rates and reserve requirements.

China’s cabinet pledged on Wednesday that it will lower taxes for high-tech companies and cutting red tape in its latest bid to help businesses operate.

Property worries The PMI survey also showed employment fell at a faster pace than in July, indicating more layoffs in the manufacturing sector which could begin to erode consumer confidence.

Any marked weakening

in the labour market would raise alarm bells for China’s leaders, who regard healthy employment levels as a top policy priority and an important condition for social stability.

KEY POINTS China Aug factory activity slowed to 3-month low New orders and output sub-indices cooled Survey adds to concerns about softness in economy More steps may be needed to keep growth momentum

A slowdown in the property market appears to be deepening, chilling activity in related sectors, while some economists fear banks may be increasingly reluctant to extend credit, particularly to private companies, as bad loans continue to rise and asset quality deteriorates.

The Bank of China Ltd, the country’s fourth-largest lender by market value, earlier this week reported slowing profit growth and said it could see more loans go bad in the second-half of the year as growth in the export sector founder.

Still, a Reuters poll in July showed analysts were divided over whether China would cut the reserve requirement (RRR) in coming months in a bid to free up more funds for banks to lend.

Half of the economists surveyed thought the RRR would be reduced by 50 basis points to 19.5 percent between October and March, and a vast majority thought interest rates would remain unchanged.

In a bid to re-invigorate the economy, China has relaxed monetary policy since April by easing controls in the property market, accelerating the construction of some infrastructure works, and relaxing reserve requirements for small banks to boost lending.

Some economists worry there is already more money in the system than it can digest and any new injections would flow directly into speculation, not the real economy, a view echoed by the central bank in recent statements.

In the past, a typical RRR cut by the PBOC was usually 50 basis points, and it would pump about 550 billion yuan Reuters

11

August 22, 2014

Asia

Thai IPOs poised for post-coup rally

World Bank to issue bond sale in India

The environment has become far more conducive for firms to raise funds as prospects for the economy are brightening Viparat Jantraprap

T

hailand’s stock market has experienced a wave of initial public offerings (IPOs) since the military took over the country three months ago, with companies relieved that the political deadlock has ended.

The environment has become far more conducive for firms to raise funds as prospects for the economy are brightening, with growth tipped at 5.5 percent next year, and the benchmark stock index is trading at 14-month highs having jumped 10 percent since the coup.

“The more stable political situation is generally good news for companies and investors,” said Prasert Patradhilok, president of Advisory Plus, an investment advisor.

“The IPO window is opening and the momentum should continue, until the election risk late next year.”

Bangkok Airways and Bangkok Land are among the approved IPOs waiting for listing dates in the coming months. As of June, there were 13 companies and four property funds that had obtained approvals and were negotiating with the Thai stock exchange over listing dates.

A further 28 companies, four property funds, one infrastructure fund and three real estate investment trusts (REIT) are in the bulging IPO pipeline awaiting filing approvals.

Thai investors will buy most of the small deals. But the bigger ones such as Bangkok Airways and Impact Growth Real Estate Investment Trust, each seen valued at 20-30 billion baht (US$623-935 million), will be marketed internationally, providing a test of how foreigners view post-coup Thailand as a place to invest.

Many of these deals will come this year and while it might be a stretch, the Stock Exchange of Thailand thinks it may even break its 210 billion baht (US$6.54 billion) IPO target for 2014.

Last year was the busiest in a decade, according to the exchange, with 38 IPOs worth 192 billion baht (US$6.01 billion) booked, but this year could turn out better, which would be a remarkable feat given the political turbulence.

There were just 11 IPOs worth 23 billion baht in the five months before the May 22 coup, but since the army takeover 12 deals worth 34.3 billion baht have been booked, exchange data shows.

Investment bankers said valuations were fairly high versus historical levels, making it attractive for firms to list.

The benchmark SET index is trading at 13.86 times 12-month forward price earnings ratio, versus an average of 15.13 times from 1997-2013, Thomson Reuters Datastream shows.

The IFC will use a combination of bonds and swaps to raise up to US$2.5 billion

Infrastructure funds

KEY POINTS More than 30 companies and trusts in line to list on Thai bourse Big IPOs will reveal foreign investor appetite for Thai risk

The Thai stock market was Southeast Asia’s worst performer in 2013, suffering a 6.7 percent drop as Prime Minister Yingluck Shinawatra grip on power began slipping away.

Recent IPOs performed strongly.

Shares in beverage maker Sappe, for example, doubled on its June 25 debut and has risen a further 7.2 percent from there.

Next off the block will be Exotic Food, which will list on Thailand’s Market for Alternative Investment bourse on August 25.

The ruling military council’s commitment approval of 2.4-trillionbaht of infrastructure investment over the next eight years, has also excited investors.

Construction stocks have surged with shares in builders such as Ch Karnchang Plc. and Italian Thai Development up almost 50 percent.

Investors are preparing for infrastructure funds to start listing.

Among large offerings expected, telecoms group Jasmine International’s planned infrastructure fund for its broadband Internet business could list with a valuation around 60-70 billion baht.

(Pictured) Thailand’s National Legislative Assembly on Wednesday elected junta leader Prayuth Chan-Ocha to be the country’s 29th prime minister

Reuters

The International Finance Corporation headquarters in Washington

T

he World Bank’s private sector financing arm said it would raise US$2.5 billion in Indian rupee-denominated bonds to fund much-needed infrastructure projects across the country.

The debt sale by the International Finance Corporation (IFC), the largest global development institution focused on the private sector, marks one of India’s biggest-ever financing offers.

The proceeds of the bond sale will be used to help finance India’s ambitious infrastructure programme to overhaul its shabby roads, ports and airports among other projects.

India requires big investment to carry out the planned infrastructure programme, expected to cost around US$1 trillion in the five years to 2017.

But a shallow bond market and lack of other long-term financing have hampered efforts to raise the necessary money.

Leading Indian financial daily, The Economic Times, called the bumper debt sale a “vote of confidence in the Indian economy” under the country’s new right-wing premier Narendra Modi.

The IFC will use a combination of bonds and swaps -a trade of one financial instrument for another- to raise up to US$2.5 billion (150 billion rupees) in local currency financing over the next five years.

The offer “will deepen the bond market and also provide much-needed finance to infrastructure projects”, India’s Finance Secretary Arvind Mayaram said in a statement.

Last year, the Washington-based IFC raised US$1 billion through the issue of overseas rupee-linked bonds to fund infrastructure projects, drawing a broad range of international investors.

Indian authorities have been working to ease regulations to make it simpler for multilateral agencies to issue bonds.

AFP

12

August 22, 2014

Asia

Japan manufacturers’ mood up A survey shows manufacturing activity accelerated in August

C

onfidence at Japanese manufacturers inched up in August to mark the first improvement since April, but the service sector’s mood soured for the second straight month, a Reuters poll showed, reflecting a tame economic recovery from April’s sales tax rise.

A separate survey showed manufacturing activity accelerated in August as export and domestic demand increased in another sign that the economy is steadying after the sales tax hike.

While the service-sector mood is seen rebounding over the coming three months - suggesting the pain of the tax hike is easing - manufacturers’ sentiment is expected to slide, possibly reflecting lingering concerns that external demand and factory output will not improve further.

The Reuters Tankan poll of 400 big firms taken August 4-18, of which 281 replied, followed data last week that showed the economy had suffered its worst slump in April-June since the March 2011 disaster.

Although policymakers and private-sector economists expect a rebound in the current quarter, the poll indicated that any recovery is likely to be modest.

The monthly poll is strongly correlated with the Bank of Japan’s tankan survey. Weak readings in the quarterly tankan due next on October 1 and other indicators could keep the pressure on central bank to

act to sustain growth in the world’s third largest economy.

“Recovery in demand is being delayed as China and other emerging markets lack momentum despite steadiness in the U.S. economy as seen by recent indicators,” a producer of nonferrous metals said in the Reuters poll.

Sentiment at materials businesses such as chemicals and textile/paper took a hit, with companies raising concerns about geopolitical risks and rising raw materials costs that squeeze their profits.

Non-manufacturers in areas such as real estate/construction and retail/ wholesale were still feeling the impact

Malaysian carriers have been caught in a price war over the past few years

A

Reuters

Kawasaki Heavy Industries facilities in Kobe, one of the biggest industrial complexes in Japan

AirAsia takes advantage of MAS restructuring

irAsia Bhd’s second-quarter results point to early signs of a recovery in the Malaysian market with a planned restructuring

Indexes are calculated by subtracting the percentage of pessimistic responses from optimistic ones.

The index for manufacturers is expected to worsen to plus 17 in November, and the nonmanufacturers’ index is seen rising to plus 24, meaning that optimists outnumber pessimists.

The last BOJ tankan showed on July 1 that big manufacturers’ mood worsened in the three months to June but was seen improving in the current quarter.

The Markit/JMMA flash Japan Manufacturing Purchasing Managers Index (PMI) rose to a seasonally adjusted 52.4 in August, up from a final reading of 50.5 in July as activity output accelerated.

The index remained above the 50 threshold that separates expansion from contraction for the third straight month and showed the fastest expansion since March.

by Malaysian Airline System Bhd (MAS) expected to lead to lower capacity in the sector.

Malaysian carriers have been

of the sales tax hike and led the slump.

A real estate firm said housing demand slumped sharply after the sales tax hike, and many industry participants believed it would be hard to recover at least until the next tax rise planned in October 2015, that could encourage last-minute spending to avoid the higher tax rate.

In the Reuters Tankan, the sentiment index at manufacturers stood at plus 20, up 1 point from July. The service-sector gauge was at plus 19 in August, down 4 points from the prior month and marking a second straight month of declines.

caught in a price war over the past few years as both MAS and AirAsia have added seat capacity to retain market share. Last year’s entry of Malindo, an affiliate of Indonesia’s Lion Group, put further pressure on yields. Analysts now expect struggling MAS to cut domestic capacity, thus easing pressure on the industry.

“We remain convinced that AirAsia will be able to weather the cut-throat competition and emerge as the final victor,” AllianceDBS analyst Tan Hee Kong said in a report yesterday. “A more benign competitive landscape is finally around the corner with MAS expected to cut back on capacity next year.”

Hit by two jetliner disasters, MAS is in the process of being delisted by state investor Khazanah Nasional before a comprehensive restructuring likely to be announced this month.

AirAsia’s quarterly net profit jumped more than five times on foreign exchange gains, the deferment of taxes and a small increase in the number of passengers. The company said average fares fell 1 percent in the quarter, slower than the previous quarters, with the trend moving upwards in the second half as “irrational pricing of competitors is diminishing.”

Operating profit at Asia’s largest budget airline however fell 17 percent as it blamed the decline on the first

KEY POINTS Manufacturers’ Aug sentiment index +20, seen at +17 ahead Service-sector index +19, seen rebounding to +24 in Nov Reuters Tankan strongly correlates with BOJ tankan PMI shows manufacturing accelerated in Aug

quarterly loss at its Thai associate.

In the results statement, Group CEO Tony Fernandes said added capacity in the region and Malaysia especially will return to a “realistic” level in the second half.

AirAsia’s net profit rose to 367.16 million Malaysian ringgit (US$116 million) in the three months ended June from a year ago. Revenue rose to 1.31 billion ringgit from 1.25 billion ringgit.

Reuters

We remain convinced that AirAsia will be able to weather the cutthroat competition and emerge as the final victor Tan Hee Kong AllianceDBS analyst

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13

August 22, 2014

Asia

Indian companies take up arms on Modi pledge

S.Korea’s startup growth hits record Startup growth in South Korea hit the monthly high as retired baby boomers set up businesses amid strong government support, central bank data showed yesterday. The number of newly established firms registered in the court as a corporate body increased from 7,133 in June to 8,129 in July, according to the Bank of Korea (BOK). The July figure was the highest since the BOK began compiling the data in January 1998, surpassing the previous high of 7,226 tallied in April 2014.

Tata Sons will invest US$35 billion in the next three years to expand sectors including defence

Origin Energy underlying profit dips

Indian Navy personnel perform a display during the commissioning ceremony, by Indian Prime Minister Narendra Modi (not pictured)

S

ome of India’s biggest companies are pouring billions of dollars into manufacturing guns, ships and tanks for the country’s military, buoyed by the new government’s commitment to upgrade its armed forces using domestic factories.

India, the world’s largest arms importer, will spend US$250 billion in the next decade on kit, analysts estimate, to upgrade its Soviet-era military and narrow the gap with China, which spends US$120 billion a year on defence.

Under the last government, procurement delays and a spate of operational accidents -especially dogging the navy- raised uncomfortable questions over whether India’s armed forces are capable of defending its sea lanes and borders.

Even before his landslide election victory in May, Prime Minister Narendra Modi promised to assert India’s military prowess and meet the security challenge posed by a rising China and long-running tensions

with Pakistan.

Within weeks of becoming prime minister, he boosted defence spending by 12 percent to around US$37 billion for the current fiscal year and approved plans to allow more foreign investment into local industry to jump-start production.

Launching a new, Indian-built naval destroyer last week, Modi said: “My government has taken important steps in improving indigenous defence technology ... We can guarantee peace if our military is modernised.”

This build-up comes as Southeast Asian nations expand their own defence industries, spurred by tensions with China. India, reliant on a state defence industry that often delivers late and over budget, risks being caught flat-footed.

“The opportunity is huge,” said M.V. Kotwal, president (Heavy Engineering) at Larsen and Toubro Ltd, one of India’s biggest industrial houses.

“We really expect quicker

implementation. There are signs that this government is very keen to grow indigenisation,” added Kotwal, referring to increasing domestic production.

Tata Sons, a US$100 billion conglomerate, said last month it will invest US$35 billion in the next three years to expand into new areas with a focus on a handful of sectors including defence.

Larsen is putting US$400 million into a yard to build ships for the navy, while Mumbai-based Mahindra Group is expanding a facility that makes parts for planes, including for the air force, and investing in armoured vehicle and radar production.

The companies are being lured by the prospect of lucrative returns on their investments as the Modi government has pledged to make “buy Indian” the default option for future orders.

Larsen is targeting a fourfold increase in annual defence revenue to US$1 billion within the next five years.

Reuters

Treasury Wine dragged down by US results They said the destruction of U.S. inventory was complete and a broad restructure was taking effect

A

ustralia’s Treasury Wine Estates Ltd, the world’s No. 2 winemaker, swung to its first annual net loss and missed analysts’ forecasts as the takeover target grappled with massive oversupply in its U.S. arm and sales fell globally.

Weighed down by an A$280 million (US$259.95 million) impairment charge related largely to reductions in the asset value of commercial brands, particularly in its U.S. division, Treasury booked a A$100.9 million net loss for the year to June 30, from a net profit of A$47.2 million the previous year.

Without the one-off charge, net profit for the maker of Penfolds, Lindemans and Wolf Blass wine fell

to A$112.8 million from A$141.7 million the previous year, below the A$123.2 million average forecast of analysts polled by Thomson Reuters I/B/E/S. The result caps a second horror year for the Melbourne-based Foster’s Group spinoff, whose books are being perused by U.S. private equity giants KKR & Co LP and TPG Capital Management for rival US$3.1 billion takeover bids.

Treasury has been viewed as ripe for a takeover since late 2013 after it warned of problems at its U.S. operations and diminishing demand from China as the government cracks down on luxury gifts to officials.

The company shook investor

confidence when it announced in July 2013 that it would destroy $35 million worth of wine and take a US$160 million write-down in the United States, where it owns several wineries including Beringer. The debacle led to the departure of former Chief Executive David Dearie.

But until opening its books to KKR and TPG earlier this month for due diligence, Treasury had been putting its faith in new CEO Mike Clarke, a food and beverage turnaround specialist installed on March 31.

Yesterday, Treasury said the destruction of U.S. inventory was complete and a broad restructure under Clarke was taking effect.

Reuters

Origin Energy Ltd, Australia’s biggest energy retailer by sales, reported a 6 percent fall in underlying annual profit yesterday, missing analysts’ expectations as its energy markets business struggled with weaker sales.

Underlying profit was A$713 million (US$662 million) for the year to June 30, from A$760 million the previous year.

Analysts polled by Thomson Reuters I/B/E/S forecast an average annual underlying profit of A$742.7 million. Net profit rose 40 pct to A$530 million.

Vietnam holds Medi-Pharm Expo The Vietnam International Hospital, Medical and Pharmaceutical Exhibition 2014 (Vietnam Medi-Pharm Expo 2014), the 14th edition of this kind ever held in the country, kicked off yesterday, attracting more than 250 local and foreign companies operating in the areas.

Domestic and foreign exhibitors from 20 countries and territories including China, India, Germany, Singapore, South Korea, the United States and Thailand, present their latest products and technology with medicines, health equipment, ophthalmologic equipment and dental products during the threeday expo. The event is expected to provide opportunities for enterprises to exchange experience and seek new trade partners.

S.Korea exports fell South Korean exports for the first 20 days of this month fell 1.2 percent from a year earlier while imports rose 5.4 percent, customs agency data showed yesterday. Exports for the August 1-20 period totalled US$25.766 billion and imports were US$27.646 billion, Korea Customs data showed on its website.

This brought the trade deficit for the 20-day period to US$1.88 billion. Trade data for the full month, as well as details on shipments, will be released on September 1.

Toyo Engineering wins steam cracker contract Japan’s Toyo Engineering Corp said yesterday it has been awarded a contract for building a steam cracker complex project in Malaysia by a unit of state oil firm Petronas for about 240 billion yen (US$2.31 billion). This is part of Petronas’ refinery and petrochemical integrated development (Rapid) in Pengerang, Johor, Malaysia. The contract has been awarded on a lump sum turnkey basis and completion of the facilities, which include the ethylene production plant, pyrolysis gasoline plant and butadiene extraction plant, is scheduled for mid-2019, the Japanese firm said in a statement.

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August 22, 2014

International Ukraine’s economy minister resigns Ukraine’s economy minister announced his resignation yesterday following conflict within the government on how to turn around the dire national economic situation. “Instead of continuing to fight yesterday’s system, I have decided to focus on working with the people of tomorrow,” Pavlo Sheremeta wrote on his Facebook page. Sheremeta was appointed as economy minister in the government of Prime Minister Arseniy Yatsenyuk.

Since then, Ukraine’s ailing economy has continued deeper into crisis.

Ukraine has now been in underlying recession for more than two years, with business activity contracting by 2.3 percent in the second quarter of 2014.

UK retail sales rise British retail sales grew by a weakerthan-expected 0.1 percent in July from the level in June, official data showed yesterday. Retail sales, a key indicator of household spending confidence, also rose 2.6 percent compared with July 2013, the Office for National Statistics said in a statement. The data missed market expectations for a monthly gain of 0.5 percent and an annual jump of 3.1 percent, according to analysts polled by Dow Jones Newswires.

BES bondholders position over split Junior bondholders of Portugal’s Banco Espirito Santo have selected law firm Shearman & Sterling to represent them in a challenge to the terms of the bank’s rescue and will open discussions with the Bank of Portugal later this week, a source familiar with the situation said.

A dramatic restructuring plan agreed on August 3 moved most of Banco Espirito Santo’s business into the newly created Novo Banco, which was bolstered by 4.9 billion euros (US$6.5 billion) of capital from the country’s bank resolution fund.

Air Berlin reports return to profit Air Berlin, Germany’s second-biggest airline, said yesterday it flew back into profit in the second quarter and promised a massive restructuring programme later this year. Presenting the company’s second-quarter results, chief executive Wolfgang Prock-Schauer said: “We were able to improve the net result and our operating result is looking better than it did a year ago, but this is not sufficient. In the period from April to June, Air Berlin booked bottom-line net profit of 8.6 million euros (US$11.4 million), compared with a loss of 38 million euros a year earlier.

Ethiopia coffee export earnings to rise Ethiopia’s arabica coffee export earnings are forecast to climb 25 percent to about US$900 million in 2014-15 because of higher prices after a drought damaged plants in the biggest grower of the bean, Brazil, an industry group said. Arabica prices on the Ethiopia Commodity Exchange could average US$2 a pound if supplies of the crop in the world market are tight, Ethiopian Coffee Exporters’ Association General Manager Alemseged Assefa said in the capital, Addis Ababa. Ethiopia is Africa’s biggest producer of the crop and the origin of the arabica plant.

Eurozone business growth slows Markit’s Composite Purchasing Managers’ Index (PMI) will provide gloomy reading for the European Central Bank (ECB) Jonathan Cable

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uro zone private business growth slowed more than expected this month, despite widespread price cutting, as manufacturing and service industry activity both dwindled, a survey showed yesterday.

Euro zone economic growth ground to a halt in the second quarter, dragged down by a shrinking economy in Germany and a stagnant France, even before any impact from sanctions imposed on and by Russia over Ukraine.

Markit’s Composite Purchasing Managers’ Index (PMI) will provide gloomy reading for the European Central Bank (ECB), suggesting its two biggest economies are struggling like smaller members.

Based on surveys of thousands of companies across the region and a good indicator of overall growth, the Composite Flash PMI fell to 52.8 from July’s 53.8, far short of expectations in a Reuters poll for a modest dip to 53.4.

However, readings above 50 still indicate expansion. Markit said the data point to third-quarter economic growth of 0.3 percent, matching predictions from a Reuters poll last week.

“We are not seeing a recovery taking real hold as yet. We are not seeing anything where we look at it and think ‘yes, this is the point where the euro zone has come out of all its difficulties’,” said Rob Dobson, senior economist at Markit.

The euro zone has also yet to feel the full effect of escalating tensions with Russia.

Europe stung Moscow with economic sanctions, prompting a titfor-tat response from Russian President Vladimir Putin, over the Kremlin’s support for rebels in eastern Ukraine.

The composite PMI in Germany Russia’s biggest trade partner in the European Union which has already seen exports to the country plunge in the first half of the year - fell to 54.9 from 55.7.

For France, the euro zone’s second largest economy, the Composite PMI rose from 49.4 to the break-even mark at 50.

Struggling to support growth while battling the threat of deflation, the ECB

The EuroTower in Frankfurt. Headquarters of the European Central Bank

is providing another round of temporary access to cheap cash for banks. There is also a one-in-three chance it embarks on an asset purchase programme next year, a Reuters poll showed.

Consumer prices in the euro zone rose just 0.4 percent on the year in July, the weakest annual rise since October 2009 at the height of the financial crisis, and well within the ECB’s “danger zone” of below 1 percent.

Worryingly, according to the composite output price index firms cut prices for the 29th month - and at a faster rate than in July. It dipped to 48.9 from 49.0.

Also of concern, suggesting factories

do not expect things to improve anytime soon, manufacturing headcount fell at the fastest rate in nine months. The sub-index dropped to 49.1 from 49.9.

Optimism about the future also sank among services firms - the business expectations index plummeted to 58.6 from 61.7, its lowest reading in a year.

The manufacturing PMI fell to 50.8 from 51.8, below the consensus forecast for 51.3 and its lowest since July 2013. The output index, which is used to calculate the composite PMI, sank to 50.9 from 52.7. The services PMI fell in line with expectations to 53.5 from 54.2.

Reuters

US regulators warn banks about poor risk-spotting The firms who received the warnings are among the largest banks in the world

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.S. regulators are sending some of the biggest global banks verbal warnings as they crack down on the firms’ poor grasp of their own weaknesses, and push for rapid improvements in risk assessment, according to two sources familiar with the matter.

The firms who received the warnings are among the largest banks in the world, but the sources declined to name individual firms because the enforcement actions are not public.

Given the regular contact between supervisors and bank officials, the warnings could have come in meetings, phone calls, or letters.

Banks are responding to the

stepped-up pressure by hiring people with experience in data governance and analytics. One of the sources said recruitment calls have spiked in the last 18 months as regulators have issued more non-public enforcement actions.

The world’s largest banks have only grown bigger since the 2007-2009 financial crisis, and now contain even more separate entities involved in a dizzying web of credit obligations and trading positions. Banks, hobbled by what regulators believe is poor riskmanagement data, are struggling to get a handle on the full scope of their trading activities and asset quality.

The result is that six years after the financial crisis, regulators and the

industry they oversee cannot confidently assess big-picture threats to the U.S. financial system.

And what was once viewed as an issue for data geeks has now been elevated to a safety-and-soundness concern that could eventually lead to restrictions on bonuses, dividends and share repurchases.

“The information that external investors and supervisors have about these firms is essentially hostage to the quality of the data management within these firms,” said Lewis Alexander, a U.S. chief economist at Nomura and also chairs the OFR’s advisory committee.

Reuters

15

August 22, 2014

Opinion Business

wires

Leading reports from Asia’s best business newspapers

THE TIMES OF INDIA The banking industry has been shaken by the discovery of a fixed deposit scam where Dena Bank and Oriental Bank of Commerce (OBC) are the latest victims to be defrauded of over Rs 256 crore and Rs 180 crore, respectively. The finance ministry has ordered a forensic audit in these stateowned banks where proceeds of institutional fixed deposits were diverted on the basis of forged documents. Both the banks have complained to the Central Bureau of Investigation (CBI), which is looking into the matter.

THE ASAHI SHIMBUN A record 1,269,700 foreign tourists travelled to Japan in July, partly due to large Chinese cruise ships visiting the nation’s ports and an increase in international flights, the Japan National Tourism Organization said August 20. The July figure is a 26.6-percent increase over the month of June and surpassed the previous record of 1.231 million set in April. The number of visitors to Japan has exceeded 1 million for five consecutive months now since March, with the cumulative number for the year topping 7.5 million.

THE KOREA HERALD Samsung Electronics Co.’s average sales price for its flat-screen TVs fell 13 percent in the first half of 2014 from last year, apparently as the firm sought a bigger world market share over profit, data showed yesterday. The price of the company’s flat TV line-up averaged US$646 in the January-June period, while the combined shipment advanced 16 percent, the data compiled by Strategy Analytics showed. The industry tracker said demands for Samsung products gained in Latin America due to the FIFA World Cup in Brazil, with the company aggressively promoting its Ultra HD models around the globe.

INQUIRER.NET Lawmakers have filed a bill seeking to standardize rates of automated teller machine (ATM) transaction charges.

Bayan Muna Representatives Carlos Zarate and Neri Colmenares re-filed House Bill 2105 which “seeks to provide for a standard rate of transaction charges on ATMs and require the posting of said fees on ATM screens prior to the completion of any transaction” in a bid to protect users from hidden charges. This comes after several banks announced an increase in the interbank ATM charges and a subsequent order by the Bangko Sentral ng Pilipinas (BSP) to halt the said plan.

In search of convergence Ricardo Hausmann

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Professor of economics at Harvard University, where he is also Director of the Center for International Development

AMBRIDGE – One puzzle of the world economy is that for 200 years, the world’s rich countries grew faster than poorer countries, a process aptly described by Lant Pritchett as “Divergence, Big Time.” When Adam Smith wrote The Wealth of Nations in 1776, per capita income in the world’s richest country – probably the Netherlands – was about four times that of the poorest countries. Two centuries later, the Netherlands was 40 times richer than China, 24 times richer than India, and ten times richer than Thailand.

But, over the past three decades, the trend reversed. Now, the Netherlands is only 11 times richer than India and barely four times richer than China and Thailand. Spotting this reversal, the Nobel laureate economist Michael Spence has argued that the world is poised for The Next Convergence.

Yet some countries are still diverging. While the Netherlands was 5.8, 7.7, and 15 times richer than Nicaragua, Côte D’Ivoire, and Kenya, respectively, in 1980, by 2012 it was 10.5, 21.1, and 24.4 times richer.

What could explain generalized divergence in one period and selective convergence in another?

After all, shouldn’t laggards grow faster than leaders if all they have to do is imitate others, even leapfrogging now-obsolete technologies? Why didn’t they grow faster for so long, and why are they doing so now?

Why are some countries now converging, while others continue to diverge?

There are potentially many answers to these questions.

But I would like to outline a possible explanation that, if true, has important implications for development strategies today.

The economic expansion of the last two centuries has been based on an explosion of knowledge about what can be made, and how. An apt metaphor is a game of Scrabble: Goods and services

are made by stringing together productive capabilities – inputs, technologies, and tasks – just as words are made by putting letters together. Countries that have a greater variety of capabilities can make more diverse and complex goods, just as a Scrabble player who has more letters can generate more and longer words.

If a country lacks a letter, it cannot make the words that use it. Moreover, the more letters a country has, the greater the number of uses it could find for any additional letter it acquired.

This leads to a “quiescence trap,” which lies at the heart of the Great Divergence. Countries with few “letters” lack incentives to accumulate more letters, because they cannot do much with any additional one: you would not want a TV remote control if you didn’t have a TV, and you would not want a TV broadcasting company if your potential customers lacked electricity.

This trap becomes deeper

Participating in global value chains is an alternative way to learn by doing that is potentially more powerful than closing markets to foreign competition

the longer the alphabet and the longer the words. The last two centuries have seen an explosion in technologies – letters – and in the complexity of goods and services that can be made with them. So the techies get techier, and the laggards fall further behind.

Why, then, are some poorer countries now converging?

Is the technological alphabet getting shorter? Are products getting simpler?

Obviously not. What is happening is that globalization has split up value chains, allowing trade to move from words to syllables.

Now, countries can get into business with fewer letters and add letters more parsimoniously.

It used to be that if you wanted to export a shirt, you had to be able to design it to the taste of people you didn’t really know, procure the appropriate materials, manufacture it, distribute it through an effective logistical network, brand it, market it, and sell it.

Unless you performed all of these functions well, you would go out of business. Globalization allows these different functions to be carried out in different places, thereby allowing countries to participate earlier, when they still have few locally available capabilities, which can then be expanded over time.

A recent example is Albania. Known as the North Korea of Europe until the early 1990s, when Albania abandoned its quixotic quest for autarky, it started cutting and sowing garments and shoes for Italian manufacturers, gradually evolving its own fully integrated companies. Other countries that started in garments – for example, South Korea, Mexico, and China – ended up reusing the accumulated letters (industrial and logistical capabilities) while adding others to move into the production of electronics, cars, and medical equipment.

Consider this a stylized version of the sale of IBM’s Thinkpad to China’s Lenovo. Once upon a time, IBM asked a Chinese

manufacturer to assemble its Thinkpad – using the components that it would supply and following a set of instructions – and send the final product back to IBM. A couple of years later, the Chinese company suggested that it take responsibility for procuring the parts. Later, it offered to handle international distribution of the final product. Then it offered to take on redesigning the computer itself. Soon enough, it was no longer clear what IBM was contributing to the arrangement.

Learning to master new technologies and tasks lies at the heart of the growth process. If, while learning, you face competition from those with experience, you will never live long enough to acquire the experience yourself. This has been the basic argument behind import-substitution strategies, which use trade barriers as their main policy instrument. The problem with trade protection is that restricting foreign competition also means preventing access to inputs and knowhow.

Participating in global value chains is an alternative way to learn by doing that is potentially more powerful than closing markets to foreign competition. It enables a parsimonious accumulation of productive capabilities by reducing the number of capabilities that need to be in place in order to get into business.

This strategy requires a highly open trade policy, because it requires sending goods across borders many times. But this does not imply laissez-faire; on the contrary, it requires activist policies in many areas, such as education and training, infrastructure, R&D, business promotion, and the development of links to the global economy.

Some dismiss this strategy, arguing that countries end up merely assembling other people’s stuff.

But, as the famous astronomer Carl Sagan once said: “If you want to make an apple pie from scratch, you must first invent the universe.”

The Project Syndicate 2014

16

August 22, 2014

Closing Bank of Communications profit rises as forecast

Hong Kong’s inflation slows to 3.3 pct in July

China’s Bank of Communications Co Ltd, the country’s fifth-largest listed bank, reported a 5.6 percent rise in first half net profit, in line with forecasts, as interest income remained steady. BoCom on Thursday posted net profit of 36.77 billion yuan(US$5.98 billion) for the January-June period. A Reuters poll of analysts had forecast net income of 36.9 billion yuan for the first half. The first-half figure implies a net profit of 18.08 billion yuan in the second quarter, up 5.6 percent from the same year ago period.

Hong Kong’s Consumer Price Index (CPI) in July fell to 3.3 percent year on year from 3.4 percent in June, mainly due to the smaller increases in private housing rentals and the charges for package tours, the city’s statistics department said yesterday. On the other hand, the Composite CPI in July rose 4.0 percent from a year ago, compare with the 3.6 percent in June. Prices for electricity, gas and water rose 30.1 percent, followed by alcoholic drinks and tobacco 7.8 percent, housing 4.4 percent, food 3.6 percent and miscellaneous goods 2.9 percent.

G20 to create anti “too-big-to-fail” bonds The reform would put in place the final major piece of G20 regulation on banking

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overnment leaders are expected to agree in November that the world’s top banks must issue special bonds to increase the amount of capital which can be tapped in a crisis instead of calling on taxpayers to come to the rescue, industry and G20 officials said.

The bonds, known as “gone concern loss absorption capacity” or GLAC, are seen by regulators as essential to stopping the world’s 29 biggest lenders from being “too big to fail”.

The plans are being drafted by the Financial Stability Board, the regulatory task force of the Group of 20 economies which declined to comment ahead of a G20 summit in November, when G20 leaders will discuss the reform before it is put out to public consultation.

The reform would put in place the final major piece of G20 regulation on banking as the global body turns to a “post-crisis” agenda of fostering economic growth and bedding down the rules it has approved.

There had been unease in Asia and parts of Europe over how big the bond issues need to be to provide this cushion but there is now a new optimism amongst bankers and regulators that the G20 will reach a deal in November.

“The industry is definitely in favour of making resolution, supported by

ICBC branch in Hong Kong entrance. ICBC is considered the largest bank in the world

an appropriately flexible concept of GLAC, work. That is the key pending aspect on ending too-big-to-fail,” said Andres Portilla, director of

regulatory affairs at the Institute of International Finance, a Washingtonbased banking and insurance lobby.

“What is likely to happen is that

Li & Fung profit rises China plans to expand on improved sales to U.S. visa-free scheme

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i & Fung Ltd., the world’s largest supplier of clothers and toys to retailers, reported first-half profit rose 16 percent as revenue from the U.S. climbed.

Net income rose to US$111.4 million in the six months that ended in June from a restated US$96.4 million a year earlier, the company led by billionaire Chairman William Fung said today in a statement to the Hong Kong’s stock exchange.

Sales increased 3 percent to US$8.7 billion.

Li & Fung, whose customers include Wal-Mart Stores Inc. and Target Corp., last month completed a separation from its brand- management unit. The Hong Kong-based company also restructured LF USA and discontinued some of its less profitable brands before folding the American business into Global Brands Group Holdings Ltd. that began trading on July 9.

The brand-management unit, which manages more than 350 labels, including Coach Inc. shoes, and licenses characters such as Angry Birds and Spider-Man, had been a drag on Li & Fung’s finances, according to Chris Zee, an analyst at HSBC. Bloomberg News

there will be a consultative proposal, but without all the detail that a lot of people would like,” Portilla added.

However, a G20 source said a deal was not only expected but would also be more detailed than some parties anticipate, which is essential for conducting a thorough impact assessment before finalising the rules.

“The authorities and the FSB are working to have a proposal that will contain sufficient granularity of numbers to be a meaningful consultation and quantative impact study to calibrate the final rule,” the source said.

Top banks expect they will have to hold GLAC bond capital equivalent to about 10 percent of their riskweighted assets on top of their core capital buffers which currently stand at around 10 percent. But they hope for some leeway if they can show that they can already be wound down smoothly in a crisis because of simplified structures.

The G20 source poured cold water on this, saying regulators believe all the world’s top 29 banks earmarked for tougher supervision will need a significant cushion of such so-called “bail-in” bonds for some time to show they can be shut without public aid.

Regulators ultimately want to price bank debt better and end the cheaper funding that too-big-to-fail banks enjoy because markets assume governments would never allow them to collapse.

“We have been lowering our systemic support assumptions for banks or changing their outlooks to ‘negative’ to reflect the on-going effort by governments to try to eliminate that support,” said Johannes Wassenberg, managing director of banking at Moody’s credit rating agency in Europe.

Reuters

India to tighten up banking risk management

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hina may expand its 72-hour visa-free policy for foreigners in a bid to boost the country’s tourism. Chinese authorities are mulling over measures to expedite visa processing and will gradually optimize visa-free stays for international transit passengers, the State Council, China’s cabinet, said in a guideline published yesterday.

The policy is already in place for foreign visitors to cities of Beijing, Shanghai, Guangzhou, Kunming, Chengdu, Chongqing, Shenyang, Dalian, Guilin and Xi’an. China hopes expanding the program will help bolster tourism to and from Asia, central and eastern Europe and Africa. The State Council said it also aims to make it easier for foreign-funded travel agencies to get business certificates from local tourism authorities. Chinese travelling abroad are among the fastest growing tourism population due to steadily increasing incomes. This has resulted in a huge spending deficit with foreign tourists coming to China. According to China Tourism Academy the gap in money spent by Chinese tourists overseas versus foreign tourist spending in China is estimated around US$100 billion.

Xinhua

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ndian Finance Minister Arun Jaitley said yesterday that the government was working to tighten up risk management in the banking sector, responding to recent scandals that have raised doubts about lending practices at state banks.

Jaitley did not name any bank, but his comments followed the launch of an investigation into whether the head of state-controlled Syndicate Bank took bribes to roll over a loan to family-controlled Bhushan Steel. “Some recent instances have been disturbing,” Jaitley told a banking audience in New Delhi.

“I would only hope that they are a drop in the ocean and we have all learnt the lessons from such incidents, and there will be no repetition of them.”

The investigation into Syndicate Bank has raised broader concerns about weak oversight, corruption and politically directed lending at India’s dominant state banks, which are weighed down by bad loans.

In his maiden budget last month, Jaitley said state banks would need US$40 billion in fresh capital by 2018 to meet international capital adequacy standards. Much of this cash is expected to be raised on financial markets.

Reuters