Macau Business Daily, Sept 8, 2014 by Business Daily

MOP 6.00 Number 621 Monday September 8, 2014

Publisher: Paulo A. Azevedo

Closing editor: Alex Lee

New food scandal erupts I

Year III

t’s called ‘gutter oil’. And now it’s Macau’s problem as well as Taiwan and Hong Kong’s. At least 21 local bakeries have been ordered to stop using recycled oil produced by Taiwanese enterprise Chang Guann Co. The latest food scandal has affected hundreds of bakeries and restaurants across the region. The company is accused of using tainted oil collected from cookers, fryers and grease traps to make lard PAGE 4

www.macaubusinessdaily.com

Asia Pacific pow-wow

Saving for a rainy day?

APEC is congregating in Macau. Asia Pacific Tourism Cooperation and Future Development is holding its first Tourism Ministerial Meeting today in Macau. Hosted by China, integration and transformation are key words on the farreaching agenda

Macau banks are piling up more non-resident deposits. Much more. An increase of 45.4 percent in July Y-o-Y. Loans dropped 9 percent

Gaming workers want even more Page 8

Page 5

Casino stocks tumble? Analysts unfazed Page 9

HSI - Movers September 5

Name

Put that in the bank New global banking standards have been announced. The idea is to cushion lenders’ balance sheets. But it will take some time to reach Macau. Raising capital at cheaper rates and lending more to China is the preferred approach, says a Bloomberg report

Page

Page 2

%Day

China Mengniu Dairy

2.77

New World Develop

2.18

Bank of China Ltd

0.81

China Shenhua Ener

0.64

China Resources Pow

0.62

Hong Kong & China Ga

-1.32

Galaxy Entertainm

-1.39

Belle International

-1.94

CITIC Ltd

-2.11

Hang Lung Propert

-2.32

Source: Bloomberg

Interview

I SSN 2226-8294

Shaking up the status quo Macau has plenty of old buildings. Many without management. Time to change, says João Afonso. The new MD of Bela Vista Property Services Ltd tells Business Daily that there are many gaps in local property services. A situation that BVPS, under the umbrella of property investor Sniper Capital, can put right, he says. The company will focus on redeveloping existing apartments and manage both old and new buildings

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6&7

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September 8, 2014

Macau

Slowly but steadily? Macau cheap debt source for China amid Basel III adoption drag Christopher Langner

acau isn’t in a hurry to adopt new global banking standards that cushion lenders’ balance sheets, instead allowing banks to raise capital at cheaper rates and lend even more to China. The local branch of Industrial & Commercial Bank of China Ltd sold US$320 million of 10-year subordinated bonds this week with the same characteristics of those sold by European lenders 20 years ago. Under widely-adopted Basel III banking rules, such bonds only count as capital if they feature clauses allowing the issuer to pause or cancel repayments under financial stress. ICBC Macau’s notes featured none of that. Both ICBC’s and Bank of China Ltd’s Macau branches hold about half of the former Portuguese colony’s banking assets, according to Ivan Lin, a Hong Kong-based analyst at Fitch Ratings Ltd. Loans to Chinese companies from banks operating in the mainlandcontrolled gambling hub grew fourfold since 2009 to

20 percent of their assets, the ratings company estimates. Only Hong Kong, which has adopted the new Basel III rules, is more exposed to China in the Asia-Pacific region. “The high dominance of Chinese banks in the Macau banking sector renders it vulnerable to any dislocation of the Chinese banking sector,” Lin said in a phone interview late last week. “Loan growth has been very fast.”

Basel III Basel III regulations adopted in most of the world, including China, require banks hold the equivalent of at least 8 percent of assets as capital, with over half comprising stock and the rest as Tier 1 and 2 subordinated capital that can be written down if the bank is no longer considered viable. Investors charge a premium for such loss clauses. Ten-year U.S. dollardenominated subordinated notes issued by ICBC Asia in October, which are Basel III

THERE ARE THINGS WE DON’T DO

compliant, have a 4.5 percent coupon. ICBC Macau’s bonds sold September 3 pay 3.875 percent. Macau banks are also required to hold 8 percent of their assets as capital, but with looser restrictions on qualifying investments. Any type of subordinated security is eligible for inclusion, and no loss absorption is required. Banks in Macau have about 14 percent of their assets as capital, according to The Monetary Authority of Macao. The central bank, which isn’t required to disclose the make-up of those assets, has “embarked on the preparation for implementation of Basel III, and will, taking into account the actual situation of the Macao Special Administrative Region, adopt the new measures properly and effectively,” Wendy Au, a Monetary Authority of Macao spokeswoman, said in an e-mailed response to Bloomberg News questions.

‘No debt’ There are 29 locally-

incorporated banks operating in Macau, according to the central bank’s website. Foreign loans surged to 325 billion patacas (US$40.7 billion) as of June from 37 billion patacas in December 2007, it shows. Basel III rules that require a loss-absorption clause for capital securities were suggested by the Bank for International Settlements after the global financial crisis as a way to curb the need for governments to rescue lenders using taxpayer money. Macau receives enough tax revenue from its casino operators to be able to weather any potential troubles in the financial system, Sonny Hsu, a Hong Kong-based analyst at Moody’s Investors Service, said in an interview Sept. 3. “Macau has no debt,” he added. Macau’s economy expanded at 10.2 percent in the first half from a year earlier, propelled by its casinos, according to the region’s statistics department. Gambling activities generated 361.9 billion patacas in 2013, more than four times the amount collected by all

BUT WE DO•••

the casinos in Las Vegas last year, according to Bloomberg Intelligence data. Macau is rated Aa2 by Moody’s and AA- by Fitch.

Casino loans Until 2009, when lending to China took off, Macau’s banks focused on mortgage and trade financing, Lin said. He also said most of the corporate lending within Macau is concentrated around its six casino operators. The system is still regulated by an act adopted in 1993, and according to Moody’s Hsu, Macau’s banks are still regulated by Basel I rules. In 2004, banks around the world adopted so-called Basel II rules, which made it more difficult for them to have most of their assets concentrated in a few activities or companies. In 2010, the Basel III rules required banks to manage their lending and liquidity risk much more carefully. In Macau, “a framework for bailing-in creditors to share potential losses is not established yet,” said Fitch’s Lin. Bloomberg

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September 8, 2014

Macau

Non-residents depositing more Deposits by non-residents increased 45 percent in the month of July over the same month last year, while pataca-denominated loans dropped 9 percent from that of a month earlier Sara Farr

sarafarr@macaubusinessdaily.com

on-residents’ deposits in Macau banks increased 45.4 percent to MOP225.95 billion at the end of July over that of a year ago. This is also a 6.7 percent increase from that of the month of June when deposits by non-residents totalled MOP211.79 billion. Overall, resident deposits in July increased by 1.2 percent from June and 19.2 percent from July a year earlier for a total of MOP479.58 billion patacas. The latest figures released Friday by the Monetary Authority of Macau show that there was an increase in the number of domestic loans applied for by the private sector. These totalled MOP317.63 billion in July, up by an overall 36.2 percent year-on-year; it is also a 2.5 percent increase from that of the previous month of MOP308.53 million. Of these domestic loans to the private sector, the majority at MOP199.15 billion were denominated in Hong Kong dollars, while MOP88.57 billion were in patacas. While the ‘other currencies’ in which domestic loans were granted to private companies accounted for only MOP29.91 billion of the total in July, it grew by 16.1

percent from that of a month ago, and 32.6 percent from that of a year earlier. In addition, external loans increased by 26.3 percent in July to MOP336.58 billion. Of these, ‘other currency’ denominated loans accounted for the biggest share of the pie at MOP253.96 billion. Hong Kong dollar-denominated external loans accounted for MOP77.73 percent of the total, up 11 percent from the month of June and 33.2 percent from that of July 2013. Patacadenominated external loans dropped 9.3 percent over that of the previous month to MOP4.89 billion. However, this figure represents a 65.2 percent increase from that of a year ago. Meanwhile, deposits in the public sector increased in July by an overall 2.3 percent from June and 23.4 percent from July 2013. Public sector deposits totalled MOP304.34 billion in July. Of these, MOP215.43 billion were in the Monetary Authority of Macau, with MOP88.9 billion in banks here. The loan-to-deposit ratio for the resident sector at the end of July rose 1.0 percentage points from that of the previous month to 55.9 percent,

while the ratio for both the resident and non-resident sectors grew by 0.5 percentage points to 82.3 percent.

Rolling in dough Currency in circulation grew 1.5 percent in July, while demand deposits grew 5.5 percent. This led to a 4.9 percent increase of ‘M1’ from that of a month earlier. ‘M1’ refers to that part of the money supply that includes physical coins and currency, as well as readily liquid assets such as on-demand bank deposits, and money held in cheque accounts. ‘M2’ is M1 plus all time-related deposits, savings deposits, and non-institutional money market funds. At the same time, quasi-monetary liabilities increased by 0.7 percent, while ‘M2’ increased by 1.2 percent to MOP489.4 billion. Compared to a year ago, ‘M1’ rose 12.2 percent and ‘M2’ rose 19.2 percent. The share of patacas in ‘M2’ stood at 24.6 percent, up slightly by 0.5 percentage points from that of a year ago but down 0.4 percentage points when compared with the same month a year earlier. Meanwhile, the

share of Hong Kong dollars in ‘M2’ was 49.9 percent, up 0.6 percentage points month-on-month but down 2.8 percentage points year-on-year.

MOP9.85 billion

currency in circulation, July 2014

September 8, 2014

Macau Fair for investment Macau’s Chief Executive, Chui Sai On, is in Xiamen, Fujian, to attend the 18th China International Fair for Investment and Trade (CIFIT). Hosted by the Ministry of Commerce and jointly organised by more than 50 ministries and commissions, provinces and municipalities, CIFIT is China’s biggest platform for attracting foreign capital and promoting international economic and trade cooperation. Before leaving, Mr. Chui received the Minister of Culture, Cai Wu, in Macau.

Awash in scandal Taiwan’s ‘gutter-oil’ scandal hits at least 21 local bakeries and manufacturers in Macau. Quarantine authorities here and in Hong Kong have cited technical difficulties in identifying the imported recycled oil produced from kitchen waste Stephanie Lai

sw.lai@macaubusinessdaily.com

ver the weekend, at least 21 local bakeries and food processing firms were ordered by quarantine authority Civic and Municipal Affairs Bureau (IACM) to stop using recycled oil produced by Taiwanese enterprise Chang Guann Co. This, amid the latest tainted lard scandal that has affected hundreds of bakeries, food processing companies and restaurants in Taiwan, Hong Kong and here. Renowned Macau chain bakery Padaria da Guia is among the 21 local bakeries and food processing firms that have been ordered by authorities to recall and stop using the tainted lard produced by Chang Guann. This follows the Taiwanese quarantine authority’s recent report that the Kaoshiung-based food oil company has been producing recycled oil - dubbed ‘gutter oil’ – for the use of bakeries and food processing firms. “The latest batch of Chang Guann’s lard that we bought was in mid-August; altogether 10 cans of the oil, each containing about 15 kg,” a representative from Padaria da Guia, told Business Daily, who declined to be named. There are currently 12 Padaria da Guia bakeries in Macau. “Luckily, as we’ve been busily engaged in producing mooncakes for the Mid-Autumn Festival, for which we haven’t used any lard; we also haven’t produced other traditional Chinese crispy cakes so far, which we bought the Taiwanese lard for,” the bakery representative added, “We’ve already returned all the 10 cans of lard to the importer - Companhia de Alimentos Tai

Heng Lda - but this tainted lard incident will definitely affect our business for a while at least.” The Food and Drug Administration of Taiwan said yesterday that 971 restaurants, bakeries and food plants, including 397 in Taipei City, had used the tainted oil supplied by Chang Guann Co, a leading food oil company on the island. Taiwan investigators found that in the six months f r o m February C h a n g Guann had bought 243 tonnes of tainted oil – collected from cookers, fryers and grease traps – from the owner of an illegal factory in southern Pingtung County. Kuo Lieh-chen – who mixed it with lard oil for sale to its customers worldwide was detained by Taiwanese authorities on Saturday. A total of 782 tonnes of the oil had been produced. Chang Guann has apologised but said it was unaware that the oil was recycled. The food safety scare has spread to Hong Kong and Macau, where the HKSAR also reported that Maxim bakery and edible oil distributors Shing Cheung and Dah Chong Hong

Ltd had imported and used Chang Guann’s lard. In Macau, the Civic and Municipal Affairs Bureau said that so far they have identified Companhia de Alimentos Tai Heng Lda as the sole importer of Chang Guann’s problem oil, adding that the latest batch of lard that the importer had purchased totalled some 2,300 cans (each containing 15 kg) in the last four months. Tai Heng still has about 1,600 cans of lard in stock and was required to cease selling them, the Bureau added. Business Daily tried to contact Tai Heng by phone for more information on the import of the problem lard from Chang Guann but could not reach the company by the time the story went to press.

Skipping monitor “It’s not for cost reasons that we bought Chang Guann’s lard – it’s because the brand was quite a famous Taiwanese firm,” the representative from Padaria da Guia remarked to us, “Actually, their lard is of a midrange price, at around 278 patacas (US$35) a 15-kg can, when compared

to other imported lard sold here.” The bakery’s representative said that they were also disappointed in the failure of local quarantine department Civic and Municipal Affairs Bureau to identify the problem oil from the Taiwanese firm. A spokesman from the Bureau explained to Business Daily, however, that technical difficulties still exist in identifying ‘gutter oil’ at chemical composition level. “It’s as Mr. Ko Wing Man [the Food and Health Secretary of Hong Kong] mentioned, that so far there is still not an established scientific means to identify so-called ‘gutteroil’ by international standards, for both the quarantine authority of the manufacturing place and the corresponding unit here,” the Bureau spokesman remarked. The international practice for ascertaining the quality of cooking oil is by testing the amount of Benzo[a] pyrene (BaP), aflatoxins and metal contaminants contained in the oil, which also apply to Hong Kong and here, both the Food Safety Centre of Hong Kong and the local Health Bureau further explained in press releases over the weekend. The Civic and Municipal Affairs Bureau told us yesterday that it was still confirming the list of imports from other Taiwanese food processing companies affected by the Chang Guann problem lard incident, as renowned Taiwanese firms such as Wei Chuan Foods Corp said over the weekend that they had taken 12 pork floss and meat paste products off the shelves after purchasing questionable items from Chang Guann.

Jason Chao files ‘abuse of power’ complaint

ocal activist Jason Chao has filed three complaints with the Public Prosecutor’s Office claiming ‘abuse of power’ by the Personal Data Protection Office, the Public Security Police (PSP) and Judiciary Police (PJ). He says that authorities abused their power by trying to stop the unofficial referendum from taking place, which concluded on August 31, the aim of which was to solicit opinions from the general public about whether they were in favour of universal suffrage regarding the

election of Macau’s Chief Executive. On August 24, when the referendum first started, the Personal Data Protection Office ordered its suspension because poll organisers were collecting voters’ personal details including their Macau ID card numbers. On that same day, five of the activists were arrested. “It’s clearly written in the law on personal data protection that we only need the public’s permission to collect their details. Citizens are giving out this information willingly to vote in the referendum,” Mr. Chao

is quoted as saying by Portuguese news agency Lusa. He said that the complaint against the Public Security Police is based on the fact that authorities used ‘psychological pressure’ to stop people from voting. Mr. Chao is being investigated by police for orderly disobedience for having collected voters’ personal information in the unofficial referendum, which he says has already been destroyed. Two other activists are also being investigated for allegedly using the Judiciary Police symbol.

with AFP

September 8, 2014

Macau

APEC debates tourism in Macau The 8th Asia Pacific Economic Cooperation (APEC) Tourism Ministerial Meeting and the 45th APEC Tourism Working Group Meeting begins today in Macau to discuss some of the most important issues of the tourism industry João Santos Filipe

jsfilipe@macaubusinessdaily.com

he 8th Asia Pacific Economic Cooperation (APEC) Tourism Ministerial Meeting and the 45th APEC Tourism Working Group Meeting starts today in Macau and runs until Sunday. Under the event themed Exploration of Asia Pacific Tourism Cooperation and Future Development is the first APEC Tourism Ministerial Meeting hosted by China. The tourism meetings will focus on the integration of Asia Pacific tourism markets, facilitating transformation and growth of the tourism industry, promoting intelligent tourism with modern technology and the interconnection of Asia Pacific travel, in addition to encouraging low-carbon development and cooperation between tourism operators. “The meeting will approach very important topics for the Tourism industry. Mainly the cooperation and integrations between different countries is very important but there are also big challenges concerning VISA restrictions and transportation”, Glenn McCartney, Assistant Professor of Hospitality and Gaming Management at the University of Macau, told Business Daily. “Research about tourism demonstrates that safety and security are the most import aspects for tourists when choosing a destination. However, accessibility in travelling comes right

after that”, he added. Asked about whether competitor tourist destinations may be able to cooperate, Mr. McCartney stressed that cooperation will have a larger benefits for the involved parties than competition. “Collaboration between competitors is likely to bring more tourists at a global level to the markets. Also, such collaboration may increase the awareness in tourists for a region. So, if a region does not earn that dollar or visitor in the short-term it may be the next destination of travellers that have been in a competitor region”, he explained. “Asia Pacific regions together may increase their share of the global market as alliances and synergies work better than regions working alone”.

Tourism more eco-friendly The APEC meetings will focus on greener tourism and try to encourage low-carbon development in the industry. “Tourism is not one of the largest polluting industries. However, it can be one of the most damaged by it as people will tend to avoid visiting polluted areas. Waste management is also very important for destinations. No-one likes to visit a place that is smelly or where you can see garbage in walkways”, he explained. “But we can

Hong Kong developers lobby for more imported labour

he chairman of Hong Kong’s Real Estate Developers Association’s executive committee, Stewart Leung Chi Kin, said they were writing to the government this week to urge relaxing rules on imported labour, arguing that this was a move to keep rising construction costs in check against the backdrop of labour shortages in the city, South China Morning Post has reported. Hong Kong’s labour shortage in the construction

sector has been intensified by the competition for manpower with Macau. Ongoing Cotai casino-resort projects and infrastructure projects being built here has resulted in some skilled workers being lured from Hong Kong to Macau for higher pay. By the end of July, there were 4,685 registered Hong Kong workers on Macau construction sites, more than triple the 1,305 workers registered in July 2012, Human Resources Office data shows.

see that the industry has been reacting to such problems and is acting more responsibly”, he said. Also, one of the goals of the APEC meetings is to promote intelligent tourism with modern technology, as devices such as smart phones are increasingly used by tourists. “Technology is more and more present in today’s world and we can see that through smart phones, mobile applications, online check-in and so on. The fact that this technology can provide extra information to tourists and make their travel more seamless is very beneficial for the industry”, Mr. McCartney said. “However it must never be seen as a substitute for face-to-face interactions, as many tourists still prefer it to using apps or the Internet. It should be seen as an alternative”, he remarked. The ministerial meeting will only start on 13 September. The outcome of it will result in the Macau Declaration that is expected to be passed on Sunday. The event is being organised by the Chinese National Tourism Administration in cooperation with the Macau Government. It has a budget of 75 million patacas and more than 500 meeting delegates are expected in Macau. Participants will include the tourism ministers or their representatives from the 21 APEC economies as well as representatives from 10 international organisations

MICE Trap “Contrary to what has been said by the government and published in the media, the Meetings, Incentives, Conferences and Exhibitions industry in Macau has not been growing, recent research demonstrates”, Glenn McCartney, Assistant Professor of Hospitality and Gaming Management at the University of Macau, told Business Daily, when asked about the benefits of the 8th Asia Pacific Economic Cooperation (APEC) Tourism Ministerial Meeting and the 45th APEC Tourism Working Group Meeting to the regions. “However the image of Macau as a MICE destination will benefit from the co-branding, meaning the different brands partnership involved in the meeting”, he said.

such as the APEC Secretariat, the Association of Southeast Asian Nations (ASEAN) Secretariat, the United Nations World Tourism Organization (UNWTO) and the Pacific Asia Travel Association (PATA).

September 8, 2014

Macau

“Macau lacks property management services”

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HOSPITALITY Growing packages The number of visitors arriving in Macau on packaged tours rose in July to almost 1.16 million, a number that sets a new record for the monthly figures of that tourism indicator. That figure amounted to an increase of 299,300 people relative to the same month last year; and it stands at more than a quarter of a million people above the average for the first half of the current year. Just a few years ago, in 2010, the monthly average was less than half that figure. No matter how one looks at them, the July figures are remarkable. If we compare the evolution of the first seven months of each year since 2010, the overall trend is clearly one of sustained growth. The plotted values in each year are above those for the previous one, albeit sometimes only marginally. The chart also shows clearly that from February of the current year growth started to accelerate somewhat and that the ‘jump’ in July – also seen in most of the previous year – was neatly above trend.

The main source for that growth was, without much surprise, mainland China. Compared to July last year, the number of mainlanders visiting on packaged tours rose by 39.4 percent; they alone added 267,000 visitors to the tally, the equivalent of just under 90 percent of the total increase. Other sources of visitors also registered noticeable rises in their figures. Visitors from Taiwan, in particular, rose by almost 28 percent, with the corresponding absolute increase amounting to 5.5 percent of the total variation. Most countries saw their numbers rise. The notable exception was Hong Kong, which saw figures drop by about 5 percent. However, all these weigh little in the overall changes. J.I.D.

34.8%

visitors on packaged tours increase, July, Y-o-Y

The territory still has a lot of old-looking buildings with no management. So says the new managing director of Bela Vista Property Services Limited, a company under the umbrella of property investment manager Sniper Capital. In an exclusive interview with Business Daily, João Afonso said that Bela Vista Property Services Limited - which now manages luxury residential projects The Fountain Side and The Waterside - will focus on attracting more business with other property owners in order to redevelop existing apartments, furnish them and manage old and new buildings in Macau. The idea is to target expats arriving in the territory for Cotai’s next stage of development Luciana Leitão leitao.luciana@macaubusiness.com

Photos by Manuel Cardoso

As the new managing director of Bela Vista Property Services Limited, will there be changes ahead? It’s a new opportunity for me to stay ahead on this new project. It’s a new challenge but it’s not that new. I’ve already been in this business for quite a long time — already more than 25 years. I was born here in Macau; I know the culture here in Macau and I know the way normally to proceed. Also, I believe in Macau there’s a gap for these kinds of services. For people to invest in Macau or to have new projects in Macau, to go into this industry [real estate], for newcomers it’s not that easy. They always need to depend on a local and also a company to help them to lead the projects. That’s why at Bela Vista Property Services Limited we’re focusing on helping these people invest in Macau and on how they’re going to improve their business. When you mention there’s a gap in this type of service in Macau, you’re referring to property management services? Yes. There’s a series of services still missing in Macau. One of them is property management. Most residential buildings in Macau don’t have a proper management, so normally the owners organise a committee and manage a building by themselves; and usually it’s quite a low quality of management. What we want to do is to promote these services and to help them manage the building and have a proper management for that building. We’re also providing more services, like project and construction management, project advisory and consultancy, property and facilities management, tenancy management, leasing, HR, accounting and also marketing. What’s The Waterside occupancy rate? We’re trying to improve The Waterside. We’re not focusing on

the occupancy rate; what we’re focusing on at The Waterside is to help to promote quality living. We try to help the owner to increase the rent — this is our aim this year and also in the coming two years. We want quality, not quantity. If you ask me if the occupancy rate is up or down, we’re in a good range, so at The Waterside we’re not 100 percent occupied but we’re in good shape — more than 80 percent occupied. The range is quite acceptable in this market. How much is the average lease or unit at The Waterside? At the beginning of this year we tried to achieve a minimum of HK$24 per square foot but we already achieved over HK$28 by the end of Q2, so between HK$28 and HK$30. What are you leasing the most expensive apartments for at The Waterside? On average, we’ve already achieved HK$28 per square foot. We’re still studying the new market for this year. Actually, we have two luxury duplex apartments but this isn’t the right time [to reveal] how much we’re going to ask, so probably at the end of Q3 we’ll release the news to the market. Who’s renting apartments at The Waterside? We have quite a range of people leasing The Waterside. Some are from the VIP rooms in the casinos and also we have expats from overseas. We also have a few locals leasing our units and some businessmen from Mainland China. So, the range of people is quite diverse; we’re not only focusing on the gaming industry or people working in VIP rooms. Step by step, The Waterside will be recognised by the experts coming to work in Macau and they will use our services. Our services are the leading residential, like serviced,

apartments in Macau. Our product is tailor-made; we have different types of apartment they can choose from — we have contemporary design, we have classic design fully furnished, and if they want we can provide services: cleaning services in the apartment, also laundry services, so it’s like a package. They will feel comfortable living in Macau and living at The Waterside because we provide a similar service to hotel services. But it’s not really considered a serviced apartment? Actually, the aim of what we’re doing is not to be a serviced apartment. A serviced apartment you can lease for one, two or three days. It depends upon the client. But for us, the minimum leasing period is one year, so I cannot say we are a serviced apartment. Actually, we’re more than a serviced apartment — it’s a home for people coming to Macau.

Almost sold out How about The Fountain Side; how many units have you sold to date? It’s a residential building. The whole building was completed at the end of last year. It’s a very nice building, located in the Penha area. What we’re doing on the services is to help them to do the property management and actually to manage the whole building,

Most of the residential buildings in Macau don’t have proper management

September 8, 2014

Macau the end of Q3 I’m going to manage business with other entities. What kind of business — property management? Property management and project services also. I hope to get some projects also. With local property owners? I’ll focus more on local entities but also on some overseas. For instance, Hong Kong owners have property in Macau but no time to manage their properties. Probably, I’m going to contact them and help them because today empty apartments in Macau are not that popular. Most of the time nowadays people want to rent furnished apartments. Many casinos are springing up in Macau, and many new restaurants and hotels. I believe in these coming two years a lot of overseas people will come to work in Macau and I’m sure they’re coming to work for one or two years, and won’t bring their own furniture. So, what they will try to find in this market is furnished apartments. They just bring their luggage and stay in the apartment for one to three years; when they finish the contract, they’ll leave Macau. So, what I’m going to tell overseas investors, like Hong Kong people or Mainland Chinese, is that I’m going to help them manage their apartments and fit them out with furniture and, at the same time, help them lease [their apartments] to these people.

including security, guards and maintenance. You also worked in designing the project? Actually, it was a different company. I’m still working in Sniper Capital and I used my position as a Sniper director to help this project. Actually, we’re an affiliated company. But from now on I’ll be more focused on Bela Vista Property Services because I feel it’s more important for my career to have this kind of service in Macau. But you’ll retain your position at Sniper Capital? Yes, at the same time. At this point, how many units/villas at The Fountain Side have already been sold? We’ve already sold most of the apartments and, so far, one villa. We have four villas. We have 38 apartments. What price range are we talking about? Every three months, prices change in the property market. At the moment, the price is up to HK$9,000 per square foot. How much does the most expensive unit cost? It’s a villa but I don’t know the exact figure because it’s under our marketing team. And you also throw in a BMWi3 to those who buy a villa? Yes. We have a joint venture with BMW — the model of the car is i3. We try to have a lot of green elements at The Fountain Side. The future is that people will drive an electric car because it’s less polluting and it’s cheaper to charge a car with electricity. This is the future. That’s why we’re the first

residential building to promote the electric car. We had this kind of idea and BMW also feel it was a great idea to have an electric car in our building so we came up with this joint venture. We’re going to have a station, inside the building, in the parking space, so that when people have electric cars they can just go in and during the night time they can charge the car. Are people already living in The Fountain Side? Not yet; because we’re still waiting for the occupancy licence [allowing] people to move in. We’ve already had the inspection done by DSSOPT so we’re waiting to receive the permit; after we receive it we’ll start to hand over to buyers. Bela Vista will also manage a project in Senado Square. Is it confirmed that it will be a shopping mall? That’s a Sniper project. For Bela Vista Property Services, we don’t yet have any contract or deal with this project because this one’s not yet started. It’s (too) early to approach them but I hope we can help them in the future. For this interview, I prefer to focus on Bela Vista Property Services. I prefer to focus on this company first.

The new projects In that case, what will Bela Vista Property Services’ new projects be? Since I’ve just been promoted my aim now is to try to engage with other companies and try to get more business for the company. I’m now promoting my company and meeting a lot of people. So far, I’m still dealing with the people and have no contract signed — only with The Fountain Side and The Waterside. But I hope that by

In that case, you’ll target expats that come to Macau on a temporary basis? Yes. For that, I also need to help the owners in Macau improve their apartment — otherwise the expats will not stay because they won’t spend the money to buy the furniture, curtains, beds and all these things for two years.

At the beginning of this year, we tried to achieve a minimum of HK$24 per square foot [at The Waterside] but we already achieved over HK$28 by the end of Q2, so between HK$28 and HK$30

Would serviced apartments be the best option for such people? There are a lot of requirements for serviced apartments from the DSSOPT. For normal private residential buildings it’s not that easy to fulfil all the requirements for them to operate like a serviced apartment. They have a lot of restrictions. For the normal residential building, it won’t be possible to change the usage. So, for these coming two years I don’t believe a lot of serviced apartments will [emerge on the market]. What will be happening will be private owners improving their apartment and leasing it out to those overseas people coming to Macau.

That’s why at The Waterside you don’t have traditional serviced apartments? Yes, it’s very hard. For our tower to fulfil all these requirements it’s quite difficult, because the building is already there. But I also don’t think it’s a bad idea for investors to invest in Macau in serviced apartments because they can find land in Macau and from day one they can try to build them. This scenario is much easier than converting an existing residential building.

Still profitable Considering the problems with the property market, is Macau still a profitable place to invest in property? I think so. In these few years the price has already increased quite a lot but I believe our market is still well bellow the market of Hong Kong. People still invest in Macau because Macau is going on the right path and the real estate market will still grow in the coming few years. But from the perspective of Sniper Capital, which owns many properties in Macau, is it now a less optimistic scenario? For this interview I prefer to talk about Bela Vista Property Services. I’m not sure what the view of Sniper Capital is but I believe they also believe in Macau. You’re trying to expand Bela Vista Property Services by establishing agreements with existing owners? It’s a range of services, and this is one of them. Macau has a lot of buildings with no management — you can see by the entrance and lobby of the buildings in Macau, the building look is getting old. Some of the buildings have already existed in Macau for many years but if you don’t have any company to help them to manage them, they’re very difficult to promote. We need to change the concept of the people — we need to go to these people, to these building owners and tell them ‘your building is getting old and you need to improve the building and then you need to have the building managed’. You’re now also targeting old buildings in Macau or still only luxury properties? For us, if the owner accepts our services, we don’t mind managing an old building or a high-end residential building; we don’t mind. It can be luxury or nonluxury or it can be a simple fivestorey building. You mentioned that Bela Vista is negotiating with a few companies. When do you expect to close some deals? I’m already working on getting more business for this company. Probably, by the end of Q3 I hope to have some of that business. This is possible because I already have some people approaching us. Some big, some small apartments, middle to high end. They understand they need to improve their buildings to match what’s happening in Macau. When you go to some areas, like NAPE or Praia Grande, [there are] such beautiful buildings but no maintenance, they look old. But they’re in a very good location, the view is nice, so why not improve the building? The value of the apartment and of the whole building will increase. This is the future of the business.

September 8, 2014

Macau Sage Parts setting up facility at Macau’s airport Sage Parts, a supplier of parts for aviation ground support equipment, has said it will open a parts and service facility at Macau International Airport. The company said it would do so in partnership with ground handler Menzies Macau Airport Services Ltd. Sage Parts vice-president for business development Ewald Groenewald said the Macau facility would make parts available immediately, eliminating the possibility of equipment sitting idle until replacement parts arrive.

Workers appeal to Labour Affairs Bureau Facing unresolved demands, SJM workers met with the government in the hope it could help settle the labour dispute Kam Leong

kamleong@macaubusinessdaily.com

ne week after their work-torule action, local gaming labour union Forefront of Macau Gaming (FMG) led some 300 workers of Sociedade de Jogos de Macau, S.A (SJM) to meet the Labour Affairs Bureau to urge the government department to intervene in the labour conflict. “The purpose of today’s action is to raise the similar demands we mentioned [earlier] to the Labour Affairs Bureau, which is about the improvement in remuneration and benefits system of SJM,” Ieong Man Teng, the head of the union, told Business Daily in a phone interview last Friday. “In addition to those demands, we want to complain about the procedures for obtaining doctors’ and clinics’ certificates [to prove that workers are sick].” According to Mr. Ieong, SJM restricts the list of doctors or clinics that employees may visit when unwell. Doctors’ notes from doctors or clinics not on the approved list are not accepted by the employer. Meanwhile, the first industrial action of SJM workers, work-to-rule, is still taking place in SJM casinos since being launched on Saturday August 30, the union leader said. “Temporally, the workers have decelerated their speed of distributing cards [to gamblers],” he said. On Saturday, the union claimed that some 600 workers in Grand Lisboa, the flagship property of the company, had called in sick. In addition, many purposely showed up late for work and refused to work overtime. In fact, the union had planned a bigger scale protest before the work-to-

rule – which was to reject distributing chips to gamblers. This action, however, was suspended after SJM announced it would offer two bonuses to staff for the next five years. Although the two bonuses awarded by SJM may equate to between 1.5 months and two months salary for staff, employees remain unsatisfied as their core issues – wages and equal pay for the same positions – have not been addressed. The work-to rule, according to Mr. Ieong, has spread to other SJM casinos from Grand Lisboa. He also revealed to Business Daily that another action, specifically targeting SJM, will be unveiled some time next week, with details to be announced later.

Tripartite meeting preferable According to an internal memo issued by SJM chief operating officer Ng Chi Sing to the workers of Grand

market place Crowne Plaza Macau appoints GM

nterContinental Hotels Group (IHG) has appointed Dominique Berhouet as general manager of Crowne Plaza Macau, an IHG property to be finished in the fourth quarter this year. Crowne Plaza will be at The Residencia project, near the future Zhuhai-Macau-Hong Kong bridge connection. Mr. Berhouet will be in charge of overseeing the pre-opening phase of the hotel through its official launch to create a destination for business and leisure travelers. Dominique

joined IHG in 1999, and has opened or rebranded various hotels, primarily with Crowne Plaza Hotels and Resorts during his 15 years with the group. Prior to the appointment, Dominique was general manager of Crowne Plaza Hong Kong Kowloon East and Holiday Inn Express Hong Kong Kowloon East. He has been in the industry for more than 30 years with experience across the United States, Europe, Hong Kong and China.

Lisboa, the company had invited a total of 15 representatives - five dealers, five supervisors and five pit managers - to discuss the demands of the workers. However, Mr. Ieong, who has led all the recent gaming protests and actions, said that such an arrangement is not proper and that the workers would reject any such meeting. “Firstly, they’re worried that the company will find representatives of their own pretending to be their voices. Secondly, they fear there will be retribution after attending the meeting. As a matter of fact, they [the workers] want a tripartite meeting, which the Labour Affairs Bureau should attend, too,” Mr. Ieong said. SJM is the third target of FMG. It has staged protests against Sands China and Galaxy Entertainment Group since the end of July. On August 25, the union even held the city’s first protest against the Big Six gaming corporations, an event which at least 1,400 gaming workers attended.

Think and act green

acau has financed 3,300 friendly environment projects to the tune of 200 million patacas since 2011 The Macau Government has announced that it has awarded over 200 million patacas in response to 3,300 requests for financial assistance to acquire environmentally products and equipment. The fund, established in September 2011, has received 5,700 applications as at the end of June. The financial limit for each aid case is 80 percent of the costs as long as these costs do not exceed 500,000 patacas. The government is now studying the possibility of expanding the scope of recipients to educational institutions in addition to the percentage granted to each aid case. The cap could reach a million patacas.

Millions for surveys

he government has commissioned four surveys from UMTEC to evaluate the dynamics of Macau’s population and tourist displacement. The surveys will cost 5.5 million patacas. Similar surveys were already conducted in 2009 but the government considers that people flow has since been aggravated as reflected in local traffic. The surveys’ objective is to determine people’s habits and to determine which pathways are more frequented, in which type of transportation and when, in order to redefine the city’s traffic patterns.

September 8, 2014

Macau

Analysts remain confident Casino bulls seen capitulating after stocks tumble Kana Nishizawa and Weiyi Lim

acau casino analysts are a persistent bunch. After shares of Galaxy Entertainment Group Ltd and five listed peers tumbled an average 27 percent in the past six months through the end of last week, analysts have barely touched their bullish ratings, with the consensus call slipping to 4.3 from 4.4 on a scale where 5 equates to a unanimous buy recommendation. No other group of stocks worldwide with market values of at least US$10 billion (MOP80 billion) and ratings above 4 has declined so much, according to data compiled by Bloomberg. Casino profits here are getting squeezed by China’s anti-graft campaign, slowing economic growth and workers’ demands for higher wages. While analysts at Barclays Plc and Daiwa Securities Group Inc. say their optimistic outlook is justified by lower valuations after the selloff, Sumitomo Mitsui Trust (HK) Ltd predicts securities firms will cut their recommendations as earnings growth slows. “Expectations for their gross revenue have been too high,” Katsumi Takagaki, the Hong Kong-based

investment officer at Sumitomo Mitsui Trust, whose parent oversees about US$474 billion, said by phone on September 2. “We’re likely to see some more downgrades.” Chinese President Xi Jinping has cracked down on corruption and extravagant spending by officials since coming to power almost two years ago. Macau, the only place in China where casinos are allowed, has tightened visa restrictions on mainland visitors and restricted the use of China UnionPay Co’s debit cards at casinos.

Revenue drop Total gross gaming revenue in the world’s biggest gambling hub fell 6.1 percent to MOP28.9 billion (US$3.6 billion) in August from a year earlier, a third straight monthly decline, Macau’s Gaming Inspection and Coordination Bureau said this week. That compares with the median estimate of a 2 percent decrease by seven analysts surveyed by Bloomberg News. June’s drop in revenue was the first in five years.

“The Chinese government’s efforts to combat corruption are very serious, and that’s preventing many people from going to Macau,” Lewis Wan, the Hong Kong-based chief investment officer at Pride Investments Group Ltd, which manages about US$250 million, said by phone on September 2. Disappointing full-year earnings for casino operators may convince analysts to cut stock ratings, said Wan, who doesn’t hold any casino shares. So far, analysts are sticking with their bullish recommendations. Galaxy Entertainment, founded by billionaire Lui Che Woo, has 29 buy ratings, six holds and zero sells even after the stock tumbled 31 percent from its January 17 record to wipe out US$13.8 billion of market value through yesterday. The company’s consensus rating of 4.6 on Bloomberg’s scale has slipped from 4.7 during the period.

‘Limited downside’ Sands China Ltd, the Hong Konglisted unit of Las Vegas Sands Corp, has 24 buy recommendations, eight

Hang Seng stocks with biggest gap between market price (Estimate) The following table shows the companies in the Hang Seng Composite Index with the biggest gaps between their stock price and analysts’ average price estimates as of Sept. 5. The average estimate is based on data compiled by Bloomberg and reflects forecasts for the next 12 months, a period that varies among brokerage firms. Only companies that have at least four analyst target prices are included. *T

Top Positive Gap Percentage @

Tkr Company Name Gap% 179 200 1928 2282 27 330 3311 880 2318 3888 1128 1112 2313 777 1212 669 489 914 2601 2196 363

Johnson Elec H Melco Intl Deve Sands China Ltd Mgm China Holdi Galaxy Entertai Esprit Hldgs China State Con Sjm Holdings Lt Ping An Insurance Kingsoft Corp Wynn Macau Ltd Biostime Intern Shenzhou Intl G Netdragon Webs Lifestyle Intl Techtronic Inds Dongfeng Motor Anhui Conch-H China Pacific-H Fosun Pharma-H Shang Indus Hld

38.9 38.5 34.4 33.8 32.3 29.9 27.8 26.6 26.4 25.5 24.4 22.4 21.0 20.9 19.9 18.9 18.5 17.9 17.9 17.4 17.4

# ofAnalyst

5 5 23 21 26 5 13 23 19 12 22 16 7 8 10 6 25 20 14 7 6

Last Price

Average Target

30.40 19.52 48.20 25.10 56.65 12.72 12.58 18.88 66.15 21.20 27.85 28.05 24.35 14.52 14.34 23.20 13.90 27.85 29.95 26.50 25.75

1 Year %Return

42.21 27.03 64.80 33.57 74.93 16.52 16.08 23.91 83.59 26.61 34.65 34.34 29.46 17.56 17.19 27.57 16.48 32.84 35.31 31.12 30.23

53.87 6.15 10.47 13.19 16.90 3.91 5.31 1.75 17.82 24.92 28.58 -38.97 2.31 17.06 -12.20 26.91 25.64 11.13 11.49 110.69 2.13

41.60 13.61 9.42 46.79 100.82 27.35 56.00 11.76 14.32 12.88 64.10 47.86 53.29 128.76 97.95 11.62

97.67 38.35 0.35 40.79 21.48 18.68 -0.75 67.42 36.90 25.02 11.58 39.56 31.74 11.29 24.33 87.31

Top Negative Gap Percentage@ 1211 2328 1880 2018 19 341 168 992 2356 1072 2 440 12 11 941 867

Byd Co Ltd-H Picc Property & Belle Internati Aac Technologie Swire Pacific-A Cafe De Coral Tsingtao Brew-H Lenovo Group Lt Dah Sing Bankin Dongfang Elect Clp Hldgs Ltd Dah Sing Financ Henderson Land Hang Seng Bk China Mobile China Medical S

-26.8 -8.4 -6.9 -5.8 -5.5 -4.7 -4.6 -4.5 -4.3 -3.6 -3.5 -3.4 -2.8 -2.4 -2.2 -1.4

15 15 16 26 9 5 13 27 10 8 6 11 14 14 27 10

56.80 14.86 10.12 49.70 106.70 28.70 58.70 12.32 14.96 13.36 66.40 49.55 54.85 131.90 100.20 11.78

*T @ -- The top gap list are either the top 50 companies or at least with more than +/-1% gap from market price.

holds and zero sells as of yesterday. The stock has fallen 26 percent from its March 6 peak, reducing its valuation to 15.4 times estimated earnings for the next 12 months from 23.4 in December. Hong Kong’s benchmark Hang Seng Index has a multiple of 11, while the Shanghai Composite Index trades at 8.4. Galaxy Entertainment dropped 0.4 percent to HK$57.20 at 9:51 a.m. in Hong Kong. Sands China retreated 0.3 percent to HK$48.55. The Hang Seng Index lost 0.3 percent. “At these valuation levels, we believe there are limited downside risks,” Jamie Soo, an analyst at Daiwa Securities in Hong Kong, said by e-mail. New casino openings and improving transport networks mean the mid- to long-term prospects are “very much intact.” At least seven new casino complexes are projected to open over the next three years, which could add about 3,200 betting tables and more than 11,000 hotel rooms, according to Barclays, which said it remained positive on the city’s gambling industry in an August 26 note.

VIP gamblers Macau is building a light rail system and a larger ferry terminal close to the Cotai Strip, Asia’s answer to the Las Vegas Strip, while a bridge linking Macau to Hong Kong and the Chinese city of Zhuhai is under construction. New capacity will attract more mass-market gamblers, Stephen Yang, head of institutional research at Sun Hung Kai Financial Ltd, said by phone from Hong Kong. Yet risks for the industry abound. Revenue from so-called VIPs is projected to decline 5 percent this year, Credit Suisse Group AG said in an August 15 report, cutting its forecast from a 1 percent increase. High-stakes bettors accounted for about two-thirds of gambling revenue last year. More casinos also mean operators will need to find staff in a city where the unemployment rate held at a record-low of 1.7 percent in July, according to government data.

Labour costs Barclays estimates new projects will need an additional 14,000 to 17,000 dealers and 35,000 other workers, while Deutsche Bank AG says the cost of labor for operators will probably rise 10 percent to 15 percent annually in coming years. Hundreds of casino workers in the city of about 600,000 people protested last weekend, demanding higher pay. “The street might be underestimating the upcoming labor cost and shortage,” Kathy Xu, a Hong Kong-based investment manager at Aberdeen Asset Management Plc who is avoiding casino shares, said in a phone interview on September 3. Aberdeen oversees about US$551.4 billion worldwide. “Investors are worried about the growth potential for Macau going forward because there are many policy risks.” Bloomberg

September 8, 2014

Greater China

Hard times for steelmakers Even for the best performing steel companies, the debt-to-asset ratio remained above 60 percent

he first six months of 2014 were not easy for a slowing Chinese economy. For China’s steel companies, times were even harder. Over half of the listed Chinese steel companies saw their debts approach alarming levels in the January-June period, with steelmakers filing their half-year results to stock exchanges by the end of August. Of all 33 listed steelmakers, 18 firms posted a debt-to-asset ratio higher than 70 percent, with Xinjiangbased Bayi Iron & Steel Co., Ltd. was burdened with the highest debt ratio at 86.46 percent, according to their

financial statements. Even for the best performing steel companies, the debt-to-asset ratio remained above 60 percent, a level that underlines the hardship of the entire sector. China currently has 86 steel companies that produced 411.91 million tonnes of crude steel, 362.02 million tonnes of pig iron and 552.25 million tonnes of rolled steel products in the first half of the year, according to data by the China Iron and Steel Association (CISA). Total debts of the steel sector exceeded 3 trillion yuan (US$486

billion) by the end of June, and 43 percent of the total debts, or 1.3 trillion yuan, stemmed from bank loans, the CISA data showed. Xu Xiangchun, a steel analyst for Mysteel.com, a steel market portal, said Chinese steelmakers had expanded too fast over the past few years but such expansion is mainly driven by mounting debts borrowed from banks and other financing channels. As steelmakers owe more, banks are more reluctant to make loans to the sector due to the high debtto-asset ratio, thus squeezing their liquidity, Xu said. Early in July, the China Banking Regulatory Commission warned banks to be careful about risks in lending to iron ore dealers, steel companies and other sectors experiencing overcapacity. The China International Steel Congress last month estimated the country’s steel industry now has an excess capacity between 180 million tonnes and 240 million tonnes. Such overcapacity means steel companies like Bayi Iron & Steel Co., Ltd. must compete with each other with lower prices in order to survive the fierce competition. Sitting on the highest debt-toasset ratio, Bayi attributed its loss of 719 million yuan in the first half of the year to weaker demand from the property and infrastructure

The sun shines for solar companies American depositary receipts of Changzhou-based Trina added 2.4 percent to US$14.26 for their fourth straight advance Belinda Cao

rina Solar Ltd. rose to a threemonth high, leading a weekly rally among Chinese solar manufacturers in New York as the Asian nation moves to boost subsidies for the industry. Trina, China’s largest profitable panel maker, surged 14 percent last week, the most since May. Yingli Green Energy Holding Co., the world’s biggest producer, gained 12 percent. Daqo New Energy Corp. rose 10 percent. The Bloomberg ChinaUS Equity Index added 3.6 percent since August 29. The National Energy Administration asked local authorities to identify projects where power can be delivered to nearby customers, provide extra subsidies for public organizations and in rural areas and allow more projects

Xinhua

For steel companies, a debt-to-asset ratio higher than 70 percent means the firm is facing a capital problem Zhang Lin steel specialized analyst lgmi.com

Axiom Capital Management in New York, said by phone. He said investors are also buying the shares amid expectations that the market for polysilicon, the raw material for making solar modules, is stabilizing. That is a bullish sign after a global supply glut had pushed down prices in the five years through 2013. The spot price of polysilicon rose 27 percent in the first half of this year on rising demand in the U.S., China and Japan, according to a report by Bloomberg Intelligence.

Import tariffs

4.9 pct

Shanghai Composite Index last week’s increase

construction sectors. “The demand has dwindled greatly and the steel market is flagging,” the steel company said in its note to investors. In the January-June period, Chinese steel companies posted a combined profit of 2.27 billion yuan, reversing a loss of 2.33 billion yuan in the first quarter, according to the CISA data. But the profit is brought by 4.32 billion yuan in investment revenues and 3.88 billion in non-operating income, rather than their lossincurring core steelmaking business. Under such pressure, Xu said, many steelmakers may have to cut or even suspend their production to get through hard times. “If their money is draining, selling fixed-assets in exchange of operating liquidity is also another option for steel companies,” Xu said.

to qualify for subsidies, according to a statement on the agency’s website dated September 2. “The policy has been implemented

for some time, but now it’s officially listed on their website, so that’s what people are getting excited about,” Gordon Johnson, a solar analyst at

American depositary receipts of Changzhou-based Trina added 2.4 percent to US$14.26 for their fourth straight advance. Yingli, based in Baoding in China’s northern Hebei province, climbed 2.5 percent to US$3.75. Daqo, a polysilicon producer based in Wanzhou in the west of China, jumped 3.2 percent to US$38.89, the highest in four months. Chinese import tariffs on U.S. and South Korean producers contributed to the increase in polysilicon spot prices, James Evans, a Bloomberg Intelligence analyst, wrote in the report. China, which imports most of the silicon it uses to make solar panels, affirmed the duties in January. The iShares China Large-Cap ETF, the biggest Chinese exchangetraded fund in the U.S., added 0.8 percent to US$42.52, pushing the weekly gain to 5.1 percent. The Hang Seng China Enterprises Index surged 3.7 percent to 11,368.34 for the largest weekly rally since July. The Shanghai Composite Index jumped 4.9 percent to 2,326.43, completing the best week since February 2013. Bloomberg New

September 8, 2014

Greater China Shift to high-end electronics takes time Chinese manufacturers will have to spend at least five years in their shift to high-end electronics as the country seeks to move up its value chain, the HSBC Global Research said. China’s strongest comparative advantage won’t be in high-end electronics until its GDP per capita doubles to around US$13,000, a goal which is unlikely to happen within the next five years, Ronald Man, an economist with HSBC Asia-Pacific, said in his latest note to investors. China’s shift to the higher end of the electronics market will give more Asian developed economies time to respond.

More electric cars Chinese car makers produced 11 times as many new energy vehicles in August 2014 as they did in August 2013, as the government rolled out more support for the sector, new data has showed. They made a total of 5,191 of the green vehicles last month, the Ministry of Industry and Information Technology said in a statement. For the first eight months of the year, total production more than quadrupled to 31,137 units. New energy vehicles include pure electric cars and plug-in hybrid electric vehicles.

H.K. regulator gets tougher The Securities and Futures Commission says that strategic solutions imposed in the past will not be repeated Douglas Wong

ong Kong’s Securities and Futures Commission told banks and other firms that penalties in misconduct cases will have tougher sanctions that go beyond remedies like reimbursing investors for losses, a law firm said. Chief Executive Ashley Alder and enforcement head Mark Steward told more than 200 representatives of investment banks and advisers that so-called remedial solutions imposed in the past in place of penal sanctions were strategic, and will not be repeated, according to a report on the September 2 briefing by law firm Herbert Smith Freehills. Alder, Steward and two other regulators also said that primary responsibility for market misconduct lies with senior management, and they must ensure proper conduct and

procedures are in place, according to the report summarizing the briefing. SFC spokesman Ernest Kong confirmed the briefing took place and declined to comment on specifics. “The SFC has clearly reiterated its intention to hold senior management to account for failings within the firms that it regulates,” said Herbert Smith Freehills lawyer William Hallatt, who attended the briefing and wrote the report. Banks were told that moneylaundering controls were an SFC inspection focus, and that there is concern that identification and reporting of suspicious transactions is lower than it should be, according to the report. Hong Kong law extends liability to any person involved in the management of the business if relevant misconduct occurred with

their consent, connivance or neglect, the report said. The SFC repeated last month that banks authorizing prospectuses that contain untrue statements can be held criminally liable. The watchdog said in 2012 that a stricter regime was needed to protect investors after a string of accounting scandals involving publicly-listed Chinese companies. During the 2008 financial crisis, a credit-linked product structured by Lehman Brothers Holdings Inc. collapsed and wiped out the savings of as many as 40,000 people in Hong Kong. The SFC forced the 16 Hong Kong banks that sold US$1.8 billion of the products, known as Lehman mini bonds, to return more than 90 percent to most investors. Bloomberg News

In 2013, Chinese tourists accounted for 37,000 of Kenya’s approximately one million international visitors

Wildlife is the main attraction of Kenya’s tourism strategy

as well as the marketing blitz the East African nation has embarked on to market the country to the Chinese as a favourable destination. If the agreement will be signed, Kandie said the government will then roll out a comprehensive strategy to woo more Chinese into the country. “Both nations will engage in joint promotion of tourists on the ground,” she said. Kenya is currently negotiating with

The Chinese Ministry of Commerce (MOC) said yesterday it would waive anti-dumping measures on rubber imported from Russia, Japan and the Republic of Korea (ROK) beginning today. The ministry said it has received no expiry review request from Chinese industries to extend the anti-dumping measures, which expired yesterday, and it would not start an expiry review itself. The five-year anti-dumping duties against styrene butadiene rubber, a raw chemical material used in tires and other rubber products, were imposed in 2009 as investigations found dumping caused substantial damage to the domestic industry, the MOC said.

Hong Kong home prices hit record

Memorandum promotes tourism with Kenya

he Kenyan and Chinese governments are set to sign a Memorandum of Understanding on cooperation in tourism as part of the renewed effort to attract visitors from the Asian nation, a senior government official said. Cabinet Secretary East African Affairs, Commerce and Tourism Phyllis Kandie told Xinhua in an exclusive interview in Nairobi that she will lead a Kenyan delegation to China International Fair on Investment and Trade later this month. “The MOU is part of the deals that were agreed upon during Chinese Premier’s visit to Kenya earlier in the year,” Kandie said. During the visit she will also meet the officials from China National Tourism Administration so that they can finalize the tourism deal. Kandie said the number will rise as Kenya engages closer with China

Anti-dumping measures on imported rubber

China in order to increase the number of direct flights and destinations that Kenya Airways flies into China. The two nations hope to increase the number of Chinese inbound tourists by partnering with Chinabased travel agents. Kenya will also need to upgrade its capacity so that it can absorb more Chinese tourists. She said the Asian tourists need specialized services in terms of cuisines and language and so Kenya’s university curriculum will need to include courses on Chinese culture. According to her, tourism contributes about 20 percent to Kenya’s GDP. The Ministry of Tourism said most Chinese tourists come during the two months window period around the annual wildebeest migration. Xinhua

Hong Kong’s home prices hit a record high for a third consecutive month in July, official data showed, as strong demand from end-users boosted sales for small and medium-sized units in one of the world’s most expensive property markets. An index of overall private home prices for July edged up 5.5 percentage points month-onmonth to 255.6, a fourth consecutive month of gains and another record high after June. Home prices have risen 10.9 percentage points this year, according to government data.

September 8, 2014

Asia

High-level meetings fever Asian leaders multiply gatherings where politics and economy walk hand in hand

Bangladeshi Prime Minister Sheikh Hasina (L) presents an album of the Royal Bengal Tiger to Japanese Prime Minister Shinzo Abe (R) at her office in Dhaka last weekend

apanese Prime Minister Shinzo Abe flew to Bangladesh on Saturday for a two-stop tour of South Asia as the globe-trotting leader asserts Tokyo’s interest

in a region where it has ceded influence to China. Abe becomes the first Japanese prime minister to visit Bangladesh in 14 years and on Sunday will be the

first to travel to Sri Lanka in nearly a quarter of a century. “I came here with 22 top leaders of business, ranging from infrastructure to safe water, with a strong hope

In spite of US$8.2 billion-worth of foreign trade in the last 5 months

import representing US$13.76 billion. Meanwhile, Myanmar is planning to establish an export promoting organization, named as MYANTRADE, in a bid to boost export of the country.

US$2.65 billion 2013-14 Myanmar’s trade deficit

Seeking attention For Bangladesh and Sri Lanka, the increased attention of the region’s largest economies creates the

India and Australia seal uranium agreement

Myanmar sticks to a US$2 billion trade deficit yanmar sustained a trade deficit of over US$2 billion in the first five months (April- August) of the 2014-15 fiscal year, according to official statistics issued yesterday. With its total foreign trade amounting to over US$10 billion during the period, its export stood at over US$4 billion, while its import took more than US$6 billion. However, the total foreign trade during the period was up from US$8.2 billion in the same period of 2013-14 which ended in March. According to the Central Statistical Organization, Myanmar also suffered a trade deficit of US$2.65 billion in the whole of 2013-14, which registered a total trade volume of 24.87 billion dollars with export taking up US$11.108 billion and

of doing business in Bangladesh,” Abe told a forum in Dhaka attended by more than 100 executives from both countries. Asian great-power diplomacy has stirred to life since the rise to power of Indian nationalist Narendra Modi, who announced his intent to play an active role on the world stage by inviting regional leaders to his inauguration in May. Abe comes to India’s backyard after hosting Modi for summit talks that yielded a Japanese pledge to invest US$34 billion in India and launched a “special, strategic global partnership” to deepen security cooperation. The Japanese premier pre-empts Chinese President Xi Jinping, who travels to India and Sri Lanka later this month. “Prime Minister Modi is weaving a complex tapestry of relations with Asia,” said Dayan Jayatilake, a political scientist, author and former Sri Lankan diplomat. In addition to reaching out to Abe, Modi this week welcomed Australian Prime Minister Tony Abbott for the first solo visit by a foreign leader since his election, signing a deal for the supply of uranium for nuclear power generation in India. Although Modi seeks pragmatic economic engagement with China, in Tokyo he criticised countries with an “expansionist” mind-set, a coded jibe against Beijing’s assertive behaviour in Southeast Asia.

A national export strategy aimed at bringing up both the quantity and the quality of the export goods is being drafted, the Ministry of Commerce said. A law governing value-added export goods as well as an antidumping law and a safe-guard law are also being drawn, it added. Myanmar mostly exports its agricultural produce, animal byproducts, mine and forest products in its trade with foreign countries, while it imports from neighbouring countries consumers products, raw materials and investment goods. The statistics also show, in 2013, Myanmar’s border trade hit US$4. 68 billion, of which export stood at US$2.9 billion while import US$1.83 billion. Xinhua

Talks on the Civil Nuclear Cooperation Agreement began about two years ago

ustralian Prime Minister Tony Abbott sealed a civil nuclear deal to sell uranium to India and also offered to increase supplies of conventional fuel to help it overcome chronic shortages. “We signed a nuclear cooperation agreement because Australia trusts India to do the right thing in this area, as it has been doing in other areas,” Abbott told reporters after he and Indian Prime Minister Narendra Modi signed a safeguards pact to sell uranium for peaceful power generation.

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September 8, 2014

Asia opportunity to attract much-needed investment and promote exports. Bangladeshi Prime Minister Sheikh Hasina visited Tokyo in May and Abe’s return visit followed up on Japan’s commitment to invest 600 billion yen (US$5.7 billion) over the next four to five years. Abe praised Bangladesh’s progress in developing its Bay of Bengal industrial belt but urged the country to do more to improve infrastructure and transportation. He praised the export growth achieved by the Bangladeshi garment industry. Japan also provided a US$450 million development loan for the construction of a 1,350 megawatt coal-fired power station. In return, Hasina told Abe that Bangladesh had withdrawn its bid for a non-permanent seat on the U.N. Security Council for 2015-16 in favour of Japan. “I appreciate the decision, and it will foster the relationship of the two counties,” Abe said. For Japan, which has to import most of its energy, the Indian Ocean is a critical sea passage for supplies of oil and liquefied natural gas from the Middle East. Sri Lankan President Mahinda Rajapaksa will welcome the attention of Japan as a donor and investor and as a counterweight to China, which financed a US$500 million port terminal in Colombo that was opened last year. “They (the Japanese) are aware that we are beholden to China’s influence in many ways, so they would like to counter that,” said Nanda Godaga, a retired Sri Lankan diplomat who follows Japanese foreign policy. Reuters

“That is why we are happy to trust India with our uranium in months, years and decades.” The nuclear deal is a further step toward India achieving international acceptability for its nuclear programme despite not ratifying the nuclear nonproliferation treaty, and follows similar agreements with the United States and France. It will also help end lingering mistrust between the former British colonies, who share just A$15 billion in annual trade, a fraction of Australia’s roughly A$150 billion trade with China. Talks towards the Civil Nuclear Cooperation Agreement began about two years ago after Australia lifted a long-standing ban on selling uranium to energystarved India. “Australia can play the role of a long-term reliable supplier of uranium to India,” a brief description of the pact issued by the Indian foreign ministry said. India faced sanctions after testing nuclear weapons in 1998, but the restrictions have eroded after a 2008 U.S. deal that recognized its growing economic weight as well as safeguards against diversion of civilian fuel for military purposes India is the first customer to buy Australian uranium without being a signatory to the nuclear non-proliferation treaty. The deal, which is criticized by environmentalists and nuclear campaigners, was welcomed by Australian uranium mining company Toro Energy. Toro Energy has environmental approvals for a uranium project in Western Australia and is in initial talks with India companies for investment. Reuters

Rajan warns of stimuli backfire The Reserve Bank of India Governor said the world is “setting the stage for a repeat” of the years that followed the Asian financial crisis of the late 1990s Sandrine Rastello

ggressive monetary policy by developed economies may hurt global growth by pushing emerging markets to pile up foreign-exchange reserves instead of spending, Reserve Bank of India Governor Raghuram Rajan said. Rajan, a regular critic of the unprecedented monetary stimulus the world’s richest nations have put in place, said the world is “setting the stage for a repeat” of the years that followed the Asian financial crisis of the late 1990s. At the time, developing economies traumatized by capital outflows and painful bailouts started accumulated reserves as insurance, leaving it to U.S. consumers to buoy global consumption. “Any emerging market today is going to look at the currency volatility and say ‘whatever money comes in, I’m going to be careful about it, I’m going to be build some reserves,’” Rajan said in a speech in Chicago. “That kind of policy will depress global demand.” Overseas investors pulled US$8 billion from rupee-denominated debt last year, pushing the currency to an all-time low, as the U.S. Federal Reserve signalled it would begin paring its record monetary stimulus. Rajan, who took office a year ago, has overseen a recovery of the currency, raising interest rates three times in his first five months as he also seeks

to tame Asia’s fastest inflation. “We’ve had six or seven years of this and we still have a weak recovery, so you have to ask ‘is this the answer?’” he said of developed economies’ stimulus policies such as record low interest rates and asset purchases.

How much more? “How much more can you do of this stuff and of course what’s the payback when you’re unwinding?” he said at the event organized by the Chicago Council on Global Affairs. Indian policy makers have now rebuilt foreign-exchange reserves to near a record high as investors weigh the timing of an interest-rate increase by the Fed. India will probably be less vulnerable to a global shift of funds, Rajan said last month. “I don’t want to jump up and down,” Rajan, a former chief economist at the International Monetary Fund, said of data released last month that show Indian’s economy grew 5.7 percent in the three months ending in June. Still, the figure is “reassuring” and should help the country meet a 5.5 forecast for the fiscal year, and “maybe a little better.” Expansion may be in the 6 percent range next year and in the 7 percent range after that, he said. Bloomberg News

Any emerging market today is going to look at the currency volatility and say ‘whatever money comes in, I’m going to be careful about it, I’m going to build some reserves. That kind of policy will depress global demand Raghuram Rajan RBI Governor

APEC discuss human resource Representatives from 21 member economies of the Asia-Pacific Economic Cooperation (APEC) gathered in Vietnam’s capital Hanoi to discuss measures to strengthen people-to-people connectivity and quality employment through human resources development. The discussion is also the theme of the sixth APEC Human Resource Development Ministerial Meeting which drew the participation of over 100 delegates. Addressing the meeting, Vietnamese Prime Minister Nguyen Tan Dung said over the past 25 years, APEC has become an economic forum representing some 40 percent of the world population and contributing 54 percent of the world Gross Domestic Product (GDP).

Myanmar to use fresh ODA Myanmar will use a fresh Official Development Assistance (ODA) loan provided by Japan to implement four development projects in the country, according to the Ministry of Finance yesterday. Under the loan agreement formally signed in Nay Pyi Taw by Japanese Ambassador Tateshi Higuchi and Myanmar Deputy Minister of Finance Dr. Lin Aung, the 63.17 billion yens’ (US$631 million) ODA, is set to be used in the four projects which are upgrading of YangonMandalay railroad (Phase-1), water supply in Yangon, infrastructural development in Thilawa Port (Phase-2) and development of irrigation facilities in western Bago region.

Malaysia, Australia to continue air cooperation Malaysian Prime Minister Najib Razak and his visiting Australian counterpart Tony Abbot said in a joint press conference that the two countries would continue their cooperation in dealing with the tragedies of MH370 and MH17. Najib said the two countries would continue to work together to locate the missing aircraft. Abbot said a new search would start in a fortnight’s time, and all humanly possible efforts were taken to scour the zone. On the cost of the search for MH370, he said Malaysia and Australia would contribute 60 million Australian dollars (US$ 56.3 million) each.

Rakuten in talks to buy Ebates Billionaire Hiroshi Mikitani’s Rakuten Inc. is in talks to buy U.S. website operator Ebates Shopping.com Inc., as the owner of Japan’s largest online mall expands overseas. Rakuten is negotiating the acquisition, it said in a statement yesterday, without providing further details. The Tokyo-based company may pay about 100 billion yen (US$950 million) for Ebates, a person familiar with the matter said, asking not to be named as the details of the talks are private. The deal follows Rakuten’s US$900 million acquisition of Internet messaging and calling service Viber in March.

September 8, 2014

International Plosser warns over hike rates delay Charles Plosser, president of the Philadelphia Federal Reserve Bank and the loan dissenter at the Fed’s July policy meeting, continued his push for the U.S. central bank to change its language on interest rate policy to reflect an improving economy and pave the way for a faster-than expectedinterest rate hike. Plosser, who is known for his longstanding warnings about potential inflation, said the Fed’s steady, accommodative language had fallen out of step with a strengthening economy. The Fed’s policy committee meets later this month in a session that may see Plosser get his wish.

New canal schemes miss trade boat In recent years, freight traffic travelling from Asia to the east coast of the United States has increasingly circumvented the Panama Canal

‘Some impact’

Colombia coffee output to rise Coffee production will be between 11.5 million and 12 million 60-kg bags in 2014, up from a previous estimate of 11.4 million bags, the head of the farmer-funded growers’ federation said, thanks to good weather and tree renovation. Colombia, the world’s No. 1 producer of washed arabica beans, had a harvest of 10.9 million 60-kg bags in 2013, the highest production in decades, which followed four years of output lows. Munoz said the increase was thanks to good weather and the planting of 3 billion new trees as part of a crop-renewal program.

U.S. job growth slows U.S. employers hired the fewest number of workers in eight months in August and more Americans gave up the hunt for jobs, providing a cautious Federal Reserve with more reasons to wait longer before raising interest rates. Nonfarm payrolls increased 142,000 last month after expanding by 212,000 in July, the Labor Department said. The jobless rate fell one-tenth of a percentage point to 6.1 percent, but that was partly because people dropped out of the labour force. Data for June and July were revised to show 28,000 fewer jobs created than previously reported.

More powers for Scots if staying in UK The British government is scrambling to respond to a lurch in the opinion polls towards a vote for Scottish independence this month by promising a range of new powers for Scotland if it chooses to stay within the United Kingdom. British finance minister George Osborne said yesterday that plans would be set out in the coming days to give Scotland more autonomy on tax, spending and welfare if Scots vote against independence in a historic referendum on September 18.

Apple courts fashionistas Apple Inc. has invited top fashion editors and bloggers in unprecedented numbers to its Tuesday launch gala, further evidence that the iPhone maker is preparing to take the wraps off a smartwatch. Apple is forging closer ties to the fashion world as it plots its foray into the fertile field of wearable technology, trying to win over a critical crowd that may prove crucial to the success of consumer gadgets worn around the body. A smartwatch would represent Chief Executive Officer Tim Cook’s first real new product since taking the baton from Steve Jobs.

Meanwhile, Chinese interests are involved in a project still on the drawing board to link the Pacific and Atlantic oceans with a second canal through Nicaragua. But while the channel through central America should attract an increase in business, “it will not be revolutionary” in terms of global traffic, said James Frew, an analyst with Maritime Strategies International. He also highlighted the efficient overland distribution network from California to the US east coast, which gives shippers an alternative route.

Panama’s canal panorama

ast projects to expand the Suez and Panama canals are being talked up as the biggest upheaval for decades in global maritime traffic, but experts say they could be outflanked by a trade shift towards Asia. In recent years, freight traffic travelling from Asia to the east coast of the United States has increasingly circumvented the Panama Canal and its restrictions on ship size in favour of the Suez route open to most big vessels. Egyptian President Abdel Fattah al-Sisi has launched plans for a second Suez canal in parallel to the existing one at a cost of US$4.0 billion (3.0 billion euros). To attract business back, the board of the Panama Canal began work in 2007 to widen the channel to permit the passage of ships carrying a much greater volume of containers. The broader channel would allow for vessels carrying 12,000 TEU containers (TEU, or “twenty-foot

equivalent unit”, is the standard unit of measurement for containers) - a big increase from the current capacity of 5,000 TEU.

For most shipping business such as dry bulk and tankers it’s not really such a big deal Ralph Leszczynski head of research Banchero Costa brokerage

The enlargement of the Panama Canal “should have some impact on container trades”, explained Ralph Leszczynski, head of research at the Banchero Costa brokerage. “However, for most shipping business such as dry bulk and tankers it’s not really such a big deal,” he said. There are 4,500 container ships in the world compared to at least 10,000 dry cargo ships and more than 7,000 tankers. In addition, “the high cost of passing through the Panama Canal is such that it will become less and less attractive for transporting commodities whose prices have fallen - like iron ore,” said Marc Pauchet, head of research on dry bulk carriers at the broker Braemar ACM. The Suez Canal remains “fundamental for all Middle East Gulf to Europe crude oil trades... but even there it’s losing importance, as the main sources of growth in oil demand are China and India, and their imports do not cross any canal,” said Leszczynski. Sisi has said the canal through Egypt must be doubled with the second route to increase traffic flow within a year. The only real restriction, he said, “is that you cannot get a fully loaded VLCC (very large crude carriers) through the Suez Canal but there’s no restriction on container ships at the moment.” These tankers must currently unload part of their cargo at the beginning of the channel and reload at the end, in order to maintain the correct waterline to pass through. Leszczynski believes that there is also no economic justification for the construction of a competitor to the Panama Canal in Nicaragua. AFP

European stock market faces harder selling Private equity-backed IPOs have accounted for one-fifth of the total so far this year, the highest proportion since at least 1994

uropean stock market listings are kicking off again after a summer break, but many companies hoping to copy successful flotation earlier in the year now have to convince investors weary from a flood of new names and burned by high prices. Enthusiasm for initial public offerings (IPOs) has quadrupled the amount raised in Europe in the first nine months of this year compared to last to a total of US$55.5 billion. But the sheer number of deals is starting to put fund managers off and prompt fears from bankers that some of their IPO clients will get lost in the noise, with investors simply not able to schedule time to listen to them all. In particular, companies set up with private equity are keen to capitalise on current strong valuations

to return money to their founders. Private equity-backed IPOs have accounted for one-fifth of the total so far this year, the highest proportion since at least 1994, according to Thomson Reuters data, with Carlyle’s UK car services firm RAC, BC Partners’ Italian retail chain Gruppo Coin and Lone Star’s German property business TLG among those being lined up to float in the coming months. But their emphasis on securing high prices at listing is starting to put off the new investors they need to woo. Some investors complain that advisers’ strategy of targeting shortterm U.S. hedge funds prepared to pay top dollar has in particular forced up the valuation of companies - especially those with a smaller international presence which underperform in the markets once shorter-term funds have moved on.

UK retailer Poundland and Swedish cable operator Com Hem are just some that are now trading below their issue price, making fund managers worry about getting burned by similar patterns in future deals. Reuters

KEY POINTS Firms line up for the next wave of IPOs But investors weary of ploughing through lots of names Concerns also mounting that prices to date too high

September 8, 2014

Opinion Business

wires

Is Abenomics working?

Leading reports from Asia’s best business newspapers

PHILSTAR

Koichi Hamada

Special Economic Adviser to Japanese Prime Minister Shinzo Abe

Australia and New Zealand Banking Group Ltd. (ANZ Bank) and ING Bank said they expect the Bangko Sentral ng Pilipinas (BSP) to increase lending rates by another 25 basis points (bps) this month. Both global financial institutions said the BSP would use either the special deposit account (SDA) or the reverse repo (RRR) for the hike in lending rates. ING Bank Manila senior economist Joey Cuyegkeng said additional tightening of monetary policy is likely as core inflation for August has jumped and seems to be trending higher.

THE KOREA HERALD The chairman of South Korea’s largest automaker Hyundai Motor Group is on a trip to India and Turkey over the fiveday Chuseok holiday to check production and sales of the carmaker’s “strategic” mini vehicles. Chung Mong-koo’s trip to India is his first since 2010, and his third foreign inspection tour this year, after visits to Europe and the United States. The tour of the Chennai plant comes as automotive think tanks like the Korea Automotive Research Institute predicted car sales on the subcontinent will rise 2.7 percent on-year to 2.53 million units.

THE JAPAN NEWS Electricity companies are likely to decide sometime this year whether to decommission or seek extensions for seven aging nuclear reactors that have been operating for around 40 years, according to sources. The government may ask Kansai Electric Power Co., Kyushu Electric Power Co. and two other utilities to submit plans for dealing with the aging reactors as early as October. The government wants to make progress on initiatives for decommissioning reactors so it can show its willingness to reduce the nation’s dependency on nuclear power, the sources said.

THE NEW ZEALAND HERALD Russia’s decision to play hardball with Western food producers could not have come at a worse time for the New Zealand dairy sector as the season starts to get into full swing. Last month, Russian President Vladimir Putin implemented a retaliatory food import ban on countries that had earlier placed sanctions on Russia for supporting proRussian separatists fighting Ukraine government forces along its Russian border. The international dairy trade has been hardest hit by the ban, but the global fruit and vegetables market has also been affected.

ast April, Japan’s government implemented a long-planned consumption-tax hike, from 5% to 8%, the first in a two-step increase that is expected to bring the rate to 10% by 2015. The hike – a key feature of “Abenomics,” Prime Minister Shinzo Abe’s three-pronged strategy to revive Japan’s economy – signals the government’s long-term commitment to fiscal consolidation. But it has also dealt Japan a heavy macroeconomic blow. Preliminary GDP data show a 6.8% contraction year-on-year in the second quarter of this year – the largest since the 2011 earthquake and tsunami that devastated the country. Moreover, consumer spending fell by a record amount, contributing to a total real (inflation-adjusted) decline of 5.9% from last July. But it is not all bad news. Expansionary monetary policy – the second of three so-called “arrows” of Abenomics, after fiscal stimulus – has brought down the unemployment rate to just 3.8%. The ratio of job openings to applicants has exceeded parity, and the GDP deflator narrowed to close to zero. Such data have given rise to two opposing views. Some economists worry that negative second-quarter data will dampen inflation expectations, thereby undermining Abe’s plan for boosting growth. Meanwhile, the Bank of Japan (BOJ) is emphasizing the positive outcomes of its monetary policy – and is hesitating to continue its expansionary measures.

If the first view proves correct, the BOJ will need to ease monetary policy further to counter falling inflation. If the BOJ is right, it should maintain its current approach, while the government should either postpone the next consumption-tax increase or implement it in two 1% increments, instead of a single 2% hike.

As the deflation gap narrows, however, the overall impact of monetary policy will weaken, as it increasingly influences prices more than output

Of course, the second-quarter GDP data show the economy’s immediate response to the hike. But no decision should be made until the third-quarter results are released, providing a clearer picture of what will happen to Japan’s economy after it absorbs the first rate increase. Fortunately, that is precisely what Abe intends to do. In any case, the success of

monetary policy is difficult to deny. As the deflation gap narrows, however, the overall impact of monetary policy will weaken, as it increasingly influences prices more than output. That is why it is time for Japan’s leaders to shift their focus from the demand-focused first and second arrows to the supply-oriented third arrow: a new growth strategy. When there is sufficient excess supply in the economy, promoting supply-side productivity is practically useless without efforts to boost demand. That implies that it was not appropriate to focus on growth until the deflation gap narrowed considerably – that is, until now. The third arrow is not a traditional industrial-policybased approach. On the contrary, it emphasizes reform of the labour market, deregulation, and a reduction in the corporate-tax rate. A key component of Abe’s growth strategy is to expand the workforce – a major challenge, given that Japanese society is aging rapidly. One logical solution would be to integrate more foreign labour into the Japanese economy. But efforts to promote immigration face considerable social and cultural barriers. A simpler solution would be to mobilize working-age women who already – or plan to – stay at home. By removing the barriers to employment that women face – whether practical obstacles, like insufficient childcare services, or social constraints – Japan

could substantially increase women’s workforce-participation rate, creating an invaluable buffer against the growing labour shortage. The second imperative for boosting growth is the removal of excessively cumbersome government regulations. Under the current system, it took 34 years to approve the establishment of a new medical school – the result of collusion between government officials and doctors. Abe’s plan calls for introducing a series of less strictly regulated special economic zones, each with a specific objective – for example, adopting new medical technologies or attracting foreign businesses. Such a move promises to help prevent damaging obstructionism by the authorities. At the same time, the government should work with the country’s trade unions to boost the flexibility and efficiency of the labour market. Finally, Abe’s growth strategy demands a corporate-tax reduction – a powerful tool for increasing the tax base in a world in which countries are competing to attract multinational companies. Indeed, lower taxes are vital to increase foreign and domestic investment in Japan. Some of these initiatives, particularly deregulation, will undoubtedly face resistance from bureaucrats concerned about losing their influence. But, as long as Abe, backed by Chief Cabinet Secretary Yoshihide Suga, remains committed to his stated objectives, Japan’s economic future will remain bright. Project Syndicate 2014

September 8, 2014

Closing Chinese shipbuilders heading for turbulent waters

Mooncake trains strained by surge in tourist numbers

Chinese shipbuilding companies received more orders but saw shrinking profits in the first seven months, according to the latest data by the China Association of National Shipbuilding Industry (CANSI). As the industry sails into the choppy seas with overcapacity and fiercer competition, the market outlook is “not optimistic”, the CANSI said, citing fewer ship transactions and limited price hikes. New shipbuilding orders jumped 42.5 percent from last year to 45.73 million deadweight tonnes (DWT) during the first seven months, while completed shipbuilding volume fell 21.5 percent to 20.66 million DWT, according to CANSI.

A second round of extra trains has been ordered into operation as travel numbers reach unexpected heights during the MidAutumn Festival travel rush, the China Railway Corporation said yesterday. About 9.2 million passengers travelled by rail on Saturday, up 23.2 percent from the same period last year, according to CRC data. The CRC expected a passenger increase of 12.4 percent based on data from last year during the four-day rush beginning Friday. On Saturday alone, passenger numbers were about 8 percent higher than what the CRC predicted the previous day.

Asian investors tune-up before FED action It is entirely plausible that U.S. growth disappoints, thereby keeping yields down but pushing stock markets sharply lower

aced once again with the prospect of rate rises in the United States, investors in Asia are no longer selling and running as in the past, choosing instead to stay in markets like India and South Korea, that are relatively sheltered from global forces. The two bouts of market turmoil in May 2013 and January this year demonstrated the perils of selling out of markets prematurely and indiscriminately. This time, investors have already begun preparations for a rise in U.S. rates by mid-2015 at the earliest, albeit with a degree of caution about the different moving parts to the policy story. For one, central banks in Europe and Japan could soon be injecting stimulus, which would compensate the world for the cash the Federal Reserve is withdrawing. Standard responses to a spike in U.S. rates, such as avoiding Indonesia, India and other countries that rely on external funding, may no longer be appropriate, given how rapidly Asia has changed in the past year. The region’s current account

Asian investors expect a rate rise from U.S. Federal Reserve (pictured)

deficits are smaller; bond yields are high and currencies already quite weak. Governments perceived to be more reformoriented have taken over in India and Indonesia, and Asia’s rallying stock markets are backed by robust growth in company earnings. As of now, both Asian equity and bond markets are still riding a six-year long rally spurred by the heavy quantitative easing policies of the Fed and other developed economies. The basis for investment is belief that, unlike the scares in 2013 and early 2014, the Fed

Australia and China walk to trade deal

will raise rates only when it is confident that the economy is on track for higher growth, more jobs, better demand and investment. The decision to stay invested in high growth emerging markets in Asia is the simpler one. Markets are pricing little change in the already low U.S. yields - 10-year yields are around 2.4 percent, and the forwards markets indicate little to no growth or inflation prospects. The equity market meanwhile is consistently reaching for record highs.

The more challenging issue for investors is that of deciding which shoe drops first, bonds or equities. As yields rise, bond prices would drop. Still, that happy coexistence of surging bond and equity prices could very well continue, and should fund managers sell before an actual turn in the market they could risk underperforming peers and global indices. Westpac’s McKay finds India has made greater strides in fixing its current account problem, more so than Indonesia which was one of

New Chinese rules on overseas investment

ustralia’s Foreign Minister Julie Bishop welcomed her Chinese counterpart to Sydney yesterday, saying the two nations were “on track” to sign a free-trade agreement this year strengthening their relationship. Australia is hosting Foreign Minister Wang Yi for the second annual Australia-China Foreign and Strategic Dialogue, which comes ahead of Chinese President Xi Jinping’s visit in November for the G20 summit in Brisbane. “The Australia-China relationship is strong, it is mature, it is growing,” Bishop said at a media conference with Wang. “China is Australia’s largest two-way trading partner. We are on track to sign a free-trade agreement with China later this year which will further strengthen this relationship.” The trade talks began in 2005, but stalled last year over agriculture and China’s insistence on removing investment limits for state-owned enterprises. Over the past year Australia has sealed free trade deals with Japan and South Korea. The bilateral talks follow Australia’s push to forge closer ties with Japan, China’s regional rival. AFP

ew measures to allow easier overseas investment by domestic companies have been released by the Chinese Ministry of Commerce (MOC). Under the new rules, the ministry cedes its previous control over the number of investment projects. Only overseas investment projects in sensitive countries or regions, as well as in sensitive industries will require approval by the MOC. Such sensitive countries or regions include countries that have not established diplomatic ties with China and those countries under the United Nations sanctions. Other overseas investment projects only need to register with the MOC, according to the new measures posted on their website. Aimed at allowing more freedom for outbound investment, the measures take effect on October 6 this year. Previously, any overseas investment project worth more than US$100 million was required to be approved by the MOC. Overseas investment in energy and mining, or projects between 10 million and US$100 million, must also be approved by provincial commerce departments. Xinhua

the worst hit in 2013. Plus, in a scenario where a rise in U.S. yields is preceded by strong global growth, India’s services exports would benefit hugely. McKay also reckons the winning markets this time might be in countries, like South Korea, that offer foreigners a seamless transfer from equities to bonds. Investors should be wary of being too exposed to China, should there be a decline in global demand and therefore in the exports that are driving Chinese growth, he said. Reuters

Bangladesh’s annual inflation cools

nnual inflation rate edged down in August to 6.91 percent from 7.04 percent a month ago, the Statistics Bureau said yesterday, as prices of food items rose at a slower pace. Food inflation inched down to 7.67 percent from 7.94 percent in July, but non-food inflation quickened to 5.76 percent from 5.71 percent, the Bangladesh Bureau of Statistics said. Annual inflation in Bangladesh accelerated to 7.35 percent in the fiscal year ending in June, from 6.78 percent the previous year, exceeding a target of 7 percent on food prices. Food prices went up in the last financial year as supplies of basic foodstuffs were boosted by frequent transport blockades and other unrest in the run-up to elections in January. The government aims to hold inflation below 7 percent in the current fiscal year. The central bank has kept its key policy rates unchanged since February last year, when it cut rates by half a percentage point on a slower economic growth outlook. Reuters