Macau Business Daily, Sept 16, 2014 by Business Daily

MOP 6.00 Closing editor: Sara Farr Publisher: Paulo A. Azevedo Number 626 Tuesday September 16, 2014 Year III

4G services next year F

our 4G service licences are up for grabs. Telecommunication companies can start providing services by next year. CTM is sure to submit a bid but China Telecom will conduct a financial review before making a decision. SmarTone is an unknown and Hutchison will only decide when bidding details are revealed. Which the government is set to announce today PAGE

HK to lift residents’ yuan conversion limits www.macaubusinessdaily.com

Page 3

Pataca posts 9-month record increase in August Page 4

Gov’t adds MOP7.5 million to CCAC budget Page 7

HSI - Movers September 15

Name

Safe haven

Economic sanctions against the Kremlin are biting. Russian investors are thus moving their money beyond the reach of the West. Russians consider Macau an option. Beyond the reach of US and EU tentacles Page 7

Ace in the hole needed The year started off choppy. Then turned rocky. The gaming industry is down MOP4 billion patacas in revenues in the last three months alone. June to August gaming revenues dropped to MOP84.5 billion from MOP88.5 billion in the same period a year earlier. September is expected to follow suit, with all hopes pinned on October

%Day

Cathay Pacific Airwa

0.83

Tencent Holdings Ltd

0.41

China Resources Lan

0.11

Swire Pacific Ltd

0.00

Henderson Land Dev

0.00

Lenovo Group Ltd

-2.45

CITIC Ltd

-2.68

China Resources Pow

-2.89

Galaxy Entertainmen

-3.33

China Petroleum & Ch

-8.11

Source: Bloomberg

I SSN 2226-8294

Page 5

More yuan for HK Hong Kong will undertake a 10 billion yuan intra-day repurchase. In preparation for its access to the Shanghai stock market. The link will enable 13 billion yuan to flow north into mainland equities each day and 10.5 billion yuan to head south page 10

iCraze

Brought to you by

No date’s been set yet for the release of the new iPhone 6 here. That’s only encouraged the speculators. The device is being offered for at least double the original price tag. Smartphones, smart people? Page 2

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September 16, 2014

Macau

iPhone 6 speculation rife amid release uncertainty Some mobile phone sellers said the uncertain launch date of the latest Apple smartphone in mainland China has fuelled rampant speculation Stephanie Lai

sw.lai@macaubusinessdaily.com

ocal mobile phone retailers are looking to rake in profits from reselling Apple’s latest iPhone 6 and iPhone 6 Plus at nearly double or more than double their original price to eager local and mainland Chinese buyers. Interest has been spiked by news that Apple has yet to set a release date for the smartphones in mainland China, the company’s secondbiggest market after the U.S. “For sure the interest in iPhone 6 in the city is quite high . . . as soon as we posted our order notice on our Facebook page, we got more than a thousand likes within a day and we also receive a lot of queries whenever we open our store,” the owner of a mobile phone retail outlet in Macau Peninsula’s northern district, Jack Wong, told Business Daily. Like other local mobile phone retailers in the city that

joined the speculation craze over iPhone 6 and iPhone 6 Plus, Mr. Wong started taking purchase orders for these latest Apple models from buyers last week. Macau’s mobile telecommunications operators have not yet announced a date for the smartphone pre-orders. An iPhone 6 of 16GB, as quoted by Mr. Wong and two other retailers at Avenida Horta e Costa on the Macau Peninsula, sells in a range of between HK$10,000 (US$1,290) and HK$12,000 – a price level that is double or more than the model’s original price of HK$5,588. Buyers can get their hands on the smartphones over the coming weekend, the retailers said. Jack Wong and his fellow mobile phone retailers reckon that the delay in launching the iPhone 6 and iPhone 6 Plus in mainland China

did fuel speculation on the smartphones, as the city’s neighbouring Hong Kong, where they import the smartphones from, is also encountering tight supply of the products. Hong Kong is among the first batch of nine markets - including the U.S., Japan and Singapore – where the iPhone 6 and iPhone 6 Plus first went on sale. Consumers flooded Apple’s Hong Kong website with pre-orders on Friday, where quotas for the smartphones in this official channel were quickly filled within hours of online sales beginning at 3:00 pm. The second batch of markets where the iPhone 6 and iPhone 6 Plus are going on sale on September 26 include Taiwan, Russia, Turkey and 14 other European countries – but mainland China is not on the list, although the China Quality Certification Centre

granted China Compulsory Certificates for the devices on September 10. The certificates are required for selling electronic products on the mainland. “The delayed launch of iPhone 6 on the mainland fuelled a bit of speculation here,” Mr. Wong told Business Daily. “As we understand it, some stores that placed only 200 orders [from Hong Kong distributors] in the beginning [increased them] up to 400 orders as soon as they knew that the mainland was not in the first batch list. Now, when they know that China is again out of the second batch, the shops have [increased them] to 800 orders.” Another owner of a mobile phone retail outlet on Av. Horta e Costa, Mr. Che, told us that as Hong Kong has already seen excessive calls from both domestic and mainland Chinese ordering

the latest Apple iPhone from the city, people are now purchasing the smartphones in the U.S., Japan and Australia to resell them to Hong Kong and Macau – just a border crossing away from mainland China. To obtain the smartphone via official channels, telecom operators Companhia de Telecomunicações de Macau SARL (CTM) and Hutchison Telephone (Macau) Co Ltd told us that they are still pending authorisation from Apple to set the release date here. Both operators declined to reveal the expected quantity of the Apple smartphones to be supplied to the city. As with past experience of iPhones sold here, the telecom operators are only selling the smartphones via a tie-up with a monthly mobile data plan. with Kam Leong

September 16, 2014

Macau

Gov’t issuing four 4G licences for 2015 service Major telco CTM is submitting a bid to boost earnings, while competitor China Telecom Macau said that the leased line cost is a factor weighing on its decision Stephanie Lai

sw.lai@macaubusinessdaily.com

he government is issuing four licences to run the fourth generation (4G) wireless telecommunications services in the city by 2015, for which the major telco here, Companhia de Telecomunicações de Macau SARL (CTM), is sure to submit a bid. Meanwhile, the branch of China Telecom said that heavy leased line costs remained a major concern in deciding whether or not to join the latest race in the local mobile data market. Interested operators that would like to run 4G services in Macau can submit their bid to apply for the 8-year licence up to November 18. The operator is required to start providing 4G services within 2015, the Bureau of Telecommunications Regulation announced in a gazetted notice yesterday. The licence is renewable for another period of less than 8 years, the Bureau said. The telecom regulator also noted the possibility of launching a fifth licence within two years of the issuance of the first four 4G licences, depending on ‘actual conditions in the market’. But when asked about the consideration of issuing four 4G service licences in the first stage, the Bureau replied that it could only elaborate further in a press briefing today. The city’s dominant telco, CTM, confirmed to Business Daily that it would be submitting a bid to run 4G services following their study into providing the services since three years ago. In a press briefing by CTM’s parent company Citic Telecom International Holdings Ltd’s interim results on August 7, CTM chief executive Vandy

The major concern remains the leased line cost here, which is more expensive than neighbouring Hong Kong and mainland China, it’s a financial factor that we have to cautiously examine Song Tong, China Telecom’s local branch vice-general manager

Poon Fuk Hei said that his company was technically ready to run 4G services as soon as it obtained the licence, saying such services could further boost CTM’s business and lift the monthly average revenue per user (ARPU) figure. CTM’s mobile user base for the first half of this year was about 766,000 users, or a market share of

45 percent in the city; the company published the figure in Citic Telecom’s interim report released to the Hong Kong Stock Exchange earlier. Bidders that would like to run 4G services are required to submit their infrastructure plan, which should target a network coverage of 50 percent of the city, and all of it by the following year, the government noted in the Official Gazette. The bidder should also specify whether it is adopting the frequency division duplex (FDD) technique for launching the service or time division duplex (TDD) technique, or even both techniques simultaneously. In tandem with peers Hutchison Telephone (Macau) Co Ltd and SmarTone Mobile Telecommunications (Macau) Ltd, CTM is currently adopting the GSM and WCDMA network format, while China Telecom (Macau) Company Ltd is adopting the CDMA 2000 1X EV-DO format. “In terms of the technical aspect, we don’t have many problems in upgrading to a 4G network,” the vicegeneral manager of China Telecom’s local branch, Mr. Song Tong, told Business Daily. “In fact, we would very much like to compete for the 4G licence as well in regard to our development here and the users’ demand, and we’ve also done some preparation for it.”

Leased line cost “The major concern remains the leased line cost here, which is more expensive than neighbouring Hong Kong and mainland China, it’s a financial factor that we have to

cautiously examine,” he said. Companies providing mobile services, like China Telecom, have to use the leased line service to run their operations. CTM currently holds a dominant position in the city’s fixed landline network, as the only other competitor, MTEL Telecommunication Co Ltd, only received its fixed-line licence in June last year and is now still laying its Internet network in the city. “Users always like to enjoy greater speed but without needing to pay much more . . . so we don’t really expect a much bigger revenue increase from providing the 4G service,” Mr. Song remarked. “The fact is that the expenses for doing that will largely increase, especially in a market like Macau where you have heavy leased line cost.” Song Tong stressed that China Telecom Macau would have to conduct a financial review according to the bidders’ requirement to decide on whether or not to submit a bid. The local branches of Hong Kong-listed telco SmarTone had not replied to Business Daily requests for comment on whether they will compete for the 4G licence by the time the story went to press. In a written reply to Business Daily, Hutchison Macau noted that they would only decide whether to bid for the 4G license after studying the bidding terms. As stated in the telecom regulator’s gazetted requirements, operators providing 4G services also need to pay 5 percent of gross revenue derived from the services to the government as an annual ‘operation fee’ on top of the charges paid for the use of the radio spectrum.

September 16, 2014

Macau

MGM now in crosshairs After Sands, Galaxy and SJM, it is MGM’s turn to face their worker’s demands for a better deal. Meanwhile, the head of FMG, which has been organising all the recent protests and movements, denied that he had received benefits from his employer, Wynn Macau Kam Leong

kamleong@macaubusinessdaily.com

Exports likely to be damaged by a more expensive pataca that reached its third highest value of the year compared to Macau’s major trading partners

he wave of movements against the city’s gaming corporations has spread to a new target. Some 200 gaming workers from MGM Macau met with the Labour Affairs Bureau yesterday afternoon, imploring the government department to follow up on the “harsh” conditions they are allegedly subject to from their employer. The action was initiated by local gaming union Forefront of Macau Gaming. According to union member Ung Kim Ip, who also represented MGM workers in yesterday’s meeting, the core demands of the workers are to combine their basic salary with the so-called “tea money”, tips from the guests, into one salary. “The current problem we’re having is that the bonus and the provident fund we receive are based on the basic salary, which only amounts to half of the total salary [every month],” Mr. Ung said. The attending workers were primarily dealers, supervisors and pit managers, according to the representative. In addition to the combination, the gaming workers would also like their employer to increase their salary to market level. “The average salary of dealers is 19,000 patacas. However, many dealers who have worked for many years are still receiving 17,900 patacas,” the representative said, claiming that this was still far behind the average salary in the market. Although the MGM workers managed to meet with the Bureau after an internal conversation with their own Human Resources Office they say they failed to get a proper response, Mr. Ung claimed that the workers were

Pataca posts 9-month record increase in August

Ung Kim Ip

not satisfied with the meeting they had with the Bureau, either. “The Bureau explained a lot of laws and regulations,” he said. Further action, such as assemblies or demonstrations, will depend on the response from MGM Macau.

Smoking Ban Mr. Ung also complained about the corporation’s measures regarding the government’s regulations on smokingfree casino gaming floors. He claimed that the company had installed new glass walls around the smoking area - the VIP rooms. However, the walls blocked the second-hand smoke vents. “In addition, by increasing the size of non-smoking areas in the VIP rooms, they will be able to set more smoking areas in the gaming floors as VIP rooms. As a result, the gambling tables accepting smoking are even more than those not accepting,” he said.

Corporate

The head of the union, Ieong Man Teng, also attended the meeting yesterday and denied the claim by a local Chinese-language newspaper that the president of the union had received benefits from his employer, Wynn Macau, to organise all the recent protests against other gaming corporations. “The reasons why there are not many complaints from Wynn workers [compared to other corporations] is that the average salary in Wynn is really the highest among all the six gaming corporations,” Ieong remarked. “When there aren’t many problems or big problems in a company of course there will be fewer staff to participate in such fights,” he claimed. Although dealers in Wynn Macau receive a monthly salary very close to the highest salary for dealers in Macau - 19,000 patacas - he is dissatisfied with the average salary of gaming workers in Macau when based on the GDP of the city. He said that the gaming corporations should share the fruits of their performance with their workers by adjusting their salaries.

he pataca exchange rate with Macau’s major trading partners has registered the biggest jump since November 2013, with exporters here facing additional difficulties as local currency gets more expensive. According to data released yesterday by the Monetary Authority of Macau (AMCM) the trade-weighted exchange rate index for the pataca rose 0.39 points from July to 97.71 points in August. The increase was the largest recorded since November 2013 when the pataca was valued 0.42 points from the previous month, AMCM revealed. Compared to August of last year, Macau’s currency went up by 0.14 points. The increase in August happened after the value of the pataca declined by 0.13 points in July. Last month’s reading was the third highest since January, AMCM said. The exchange rate index compares the value of the pataca against a basket of currencies from countries that Macau does most business with, like Hong Kong (HK dollars), China (US dollars), Japan (Yen) and Europe (Euro). As the pataca gets more expensive, companies who export to foreign markets feel their competiveness declining, as they need to sell their products at higher prices or cut revenue margins to accommodate currency appreciation. The pataca is pegged to the HK dollar, which in turn is pegged to the US dollar. AMCM also revealed that the preliminary estimate of Macau’s foreign exchange reserves totalled MOP130.2 billion (US$16.3 billion) at the end of August 2014. The reserves improved by 2.0 percent from July’s value of MOP125.9 billion (US$15.9 billion). Last month, foreign reserves represented 13 times the currency in circulation. L.G.

HK to lift residents’ yuan conversion limits before stock connect scheme BMW opens premium showroom BMW has opened its first premium selection showroom in Macau, providing premium automobiles and high standard service quality. The company said in a statement that ‘being the first ever certified pre-owned ‘BMW Premium Selection’ (BPS) service centre in Macau, BPS provides the most professional and highest quality service to the Macau automobile market.’ In addition, the company statement adds that this comes after an ‘increasing demand of premium used cars in Macau . . . All BMW Premium Selection automobiles will be arranged to go through a complete check-up from exterior to interior, including engines and performance checking,’ the company said, adding that ‘only automobiles of the highest standard will be qualified to be in the recommended list of BMW Premium Selection.’

ong Kong will lift the daily conversion limits for residents now capped at 20,000 yuan before a landmark scheme to connect stock markets between Hong Kong and Shanghai gets under way next month, its central bank chief said yesterday. While it has allowed nonresidents to convert unlimited daily quantities of yuan since 2012, it caps the conversion limit for residents primarily because it wanted to prevent rampant currency speculation among residents, analysts said.

Authorities expect the landmark stock-connect programme between Shanghai and Hong Kong – another step in China’s efforts to open up its markets – will launch in October and fuel more demand for yuan assets. Regulators and market participants are racing to test mechanisms to ensure readiness. Norman Chan, head of the Hong Kong Monetary Authority, the city’s de-facto central bank, was speaking at a conference. Reuters

September 16, 2014

Macau

Gaming industry MOP4bln down in revenues since June The figure could top MOP7billion if the anticipated 10 percent drop in gaming revenues this month materialises. The summer to forget has cast a long shadow Luís Gonçalves

Luis.goncalves@macaubusinessdaily.com

asino operators in Macau lost MOP4 billion in revenues this summer and are poised to lose an additional MOP3 billion this month as Beijing’s anti-corruption campaign continues to take its toll on the world’s gaming mecca, forcing gamblers to maintain a lower profile or move elsewhere to play such as Las Vegas or Singapore. According to Business Daily calculations using official data from the Gaming Inspection and Coordination Bureau (DICJ), between June and August this year gaming revenues in Macau dropped to MOP84.5 billion from MOP88.5 billion in the same period of 2013. That’s MOP4billion less in casino operators’ coffers or a decrease of 5 percent. Even if many investors attributed the first declines in revenue in June and July to the World Cup and UnionPay crackdowns the major causes for the most recent numbers suggest that the current soft performance could have more to do with the industry’s structural roots than temporary factors. The anti-graft campaign and current restrictions on credit in China are likely to continue in the coming months. Beijing’s campaign against corruption and extravagant spending is starting to change gamblers’ mindset in Macau, especially following the arrests of several top China aids. VIPs in particular – a segment responsible for two-thirds of Macau’s revenues – are playing and spending less and, according to analysts such as Deutsche Bank last week, moving

to Las Vegas or Singapore to play more freely.

Down under The most recent figures also show that the drop in gaming revenues here is accelerating and not slowing. In June and July, revenues went down 3.6 percent year-on-year and in August more than 6 percent. Several brokerages following Macau’s market estimate a new decline this month (the fourth in a row) between high single digit to low double digit with the mid-point at 10 percent. A drop that’s three times higher than that recorded in June. If the prediction is correct, Macau’s

gaming industry is facing an extra loss of MOP3 billion in revenues in September compared to a year ago from MOP28.9 billion to MOP25.3 billion. In accumulated terms and incorporating the 10 percent decrease estimated for this month, operators’ revenues in Macau could amount to MOP110.5 billion between June and September, down from MOP117.5 billion in the same period in 2013, official data revealed. In these four months, the industry generated MOP7 billion less in revenues than last year. This amount is enough to pay five times the recently announced renovation of MGM’s Macau casino hotel - worth MOP1.5 billion – or almost a quarter of the upcoming

Monthly Gaming Revenues June

2014

2013

Var.

27,215

28,269

-3.70%

July

28,415

29,485

-3.60%

August

28,876

30,737

-6.10%

September*

25,989

28,963

-10.00%

June to August

84,506

88,491

-4.50%

June to September

110,495

117,454

-5.92%

*estimation Value: million Patacas Source: DICJ

Accumulated Gaming Revenues since January 2014

2013

Var.

June

193,086

171,447

12.60%

July

221,501

200,932

10.20%

August

250,377

231,670

8.10%

September*

279,253

262,407

6.42%

*estimation Value: million Patacas Source: DICJ

Wynn Palace resort in Cotai with a budget of MOP31 billion.

Cloudy summer The effects of this ‘cloudy summer’ in Macau are already being reflected in the year-to-date performance, with the growth rate halved in a mere four months. Revenues since January increased 12.6 percent in June yearon-year and ran on a single digit in August. This month, accumulated revenue growth since the beginning of the year could likely go up only 6 percent, still a good performance but below the average of previous years. According to investors’ estimations, gaming revenues between January and September could top MOP279.2 billion from MOP262.4 billion a year ago. When the first declines occurred in early summer, the market expected a recovery in August, then postponed that to September and is now hoping for a return to form in October assuming Golden Week performs better than expected and compensates for the smoking ban, slated to start on October 6. Investors are already taking note of the increasingly negative sentiment emerging from the industry. ‘We continue to hear generally negative or apathetic commentary from investors as decelerating topline market growth and a lack of near-term positive catalysts overshadow the longer-term secular demand story’, Wells Fargo wrote in a note to clients yesterday. The US bank, in particular, estimates a drop of 9.5 percent in gaming revenues this month. Headwinds are likely to persist in the last quarter of the year in Macau, says Wells Fargo; namely through mass revenue deceleration, continued VIP declines, China anti-corruption drive and the future smoking ban.

Premium staying flat Wells Fargo analysts also added that the slowing of credit growth in China is ‘meaningfully impacting’ the economy with VIP recovery in Macau not predicted to resume until mid-2015. The trend, however, is not exclusively for high rollers as mass premium players are also quite exposed to the changes of the real economy. ‘We also believe the premium business is more subject to macro trends and policy changes, which likely means sequentially flat revenue trends until supply growth picks up in 2015’, Wells Fargo said. While the long-term success story of Macau is still intact, investors are getting more pessimistic. The exclusively long term investor in Macau’s gaming industry is not in a panic or in a hurry to sell its positions in the casino operators here but some have already ‘mixed reviews’, Wells Fargo said following a meeting with investors in Macau. But the investors with short and long positions are ‘all negative’, a sign of some volatility in the months ahead if revenues don’t start to recover.

September 16, 2014

Macau Brands

Trends

Vintage in Lux Raquel Dias newsdesk@macaubusinessdaily.com

e’ve spoken a lot about vintage in this column. The truth is, every season, when collections come out we realise it’s not close to being over. Our obsession with revivalist fashion is undeniable. This time, we chose three very different handbags from different brands to make our point. If the love for vintage started as a ‘low budget’ movement it certainly isn’t one now.

Louis Vuitton If you love the brand’s classic travel trunks this is the piece to invest in (or at least to window shop). Nicolas Ghesquière’s first collection for the House of Louis Vuitton is ready .The Petite Malle bag comes in an assortment of materials and colours and is adorned with three crosses signed by photographer Albert Kahn.

Dolce & Gabanna Having the sensual Monica Bellucci as an inspiration, these vintage bags will take you back to days gone by. Miss Monica, as the collection is naturally called, are detailed crafted handbags that scream vintage chic. From brocades to leather and crocodile material, there’s a variety of choice. The threedimensional velvet patterns embody beautiful tapestries of the past, a nod to mediaeval times, and exude grandeur and sophistication. Even the lock on the front recalls its old charm.

Burberry The English house chose to recall recent decades, and created a beautiful retro collection of musthave bags. Inspired by the gold generation of literary creation, the Bloomsbury takes its name from the group of English artists and writers of the 20th Century which included Virginia Woolf and painter Duncan Grant. Each bag is handpainted with unique floral motifs, so that no two bags are identical. The bag’s slender shape and rounded top make it ideal as an everyday bag.

Legislators’ political agenda Members of the Legislative Assembly are set to return to work next month, with a number of issues on their agenda that require their full and undivided attention

t’ll be mid-October when Macau legislators return to the Legislative Assembly following a two-month recess. Among the many issues that need their attention, one of the most pressing is that of housing or lack thereof. As such, housing will remain one of the hot topics in the legislature. That is the forecast of many analysts and Assembly members, also taking into account that the Chief Executive, Fernando Chiu Sai On, considers housing a “top priority” for his new mandate. Political analyst Larry So believes that housing will generate many interventions from legislators, as has happened in the past, since the plans for the new reclaimed areas are still some time away from being made

public. “Even if more houses are made available in those areas, that will surely take at least ten years, so the high demand will remain and we’ll face growing problems from a lack of housing”, So says. A legislative draft on housing leasing has already been announced, and is purportedly currently being worked on by several departments. Gabriel Tong, one of the rent regime project’s legal advisors, indicates that the document is still in its early stages albeit rapidly progressing. The legislator, appointed by the Chief Executive, also considers that the issue, given its very divisive nature, will figure heavily in AL discussions. The restructuring of old neighbourhoods – regarding which

the government has removed a specific legal proposal from the docket – is one more issue that legislators such as Chan Chak Mo and Ng Kuok Cheong would like to see addressed, while urging the government to accelerate delivery of a final version. Larry So also predicts that “a lot will be discussed regarding how to properly use the land available”. The New Macau member says that “many other housing related issues such as the new land reclamations and the public transportation system” will be discussed during the new session. The full story can be read in this month’s issue of Macau Business magazine, available from newsstands and online at www.magzter.com.

Seeking breath of fresh air There are little to no guidelines on environmental protection despite the growing awareness. This is presenting industries with several challenges

nvironmental protection in Macau is still in its infancy despite being promoted for several years. While some ecofriendly projects show potential, the industry still faces difficulties due to the general lack of awareness. In addition to this, there is a lack of clear policies and measures guiding the industry’s growth. Environmental protection enterprises are lobbying for the enactment of specific environmental protection laws and regulations. The reinforcement of such regulations will drive the enterprises to introduce

largely applied environmentally friendly infrastructure, which in turn will eventually motivate the development of the local environmental protection industry. Experts say that the expansion of gaming companies presents the perfect opportunity for the application of environmentally friendly energy saving technologies and infrastructure. Morse Lei, Vice Council Chairman of the Macau Association of Environmental Protection Industry says. “The SAR Government has rendered great support to the industry.

They proactively organise the Macau International Environmental Cooperation Forum and Exhibition (MICEF), they support and introduce investment in the industry, and they have established the Environmental Protection and Energy Conservation Fund, which provides subsidies and promotes the acquisition or replacement of products or equipment with environmentally friendly and energy saving impact.” The full story can be read in this month’s issue of Macau Business magazine, available at newsstands and online at www.magzter.com.

September 16, 2014

Macau

Russian investors consider Macau safe haven The fear of further economic sanctions on Russia by the EU and US resulting from the Ukraine conflict is encouraging Russian investors to search for finance sources outside Western control João Santos Filipe

jsfilipe@macaubusinessdaily.com

ussian investors are seeing Macau as a safe place to move their money to in order to avoid the risks related to further economic sanctions by the United States and European Union, Hugo Williamson, managing director of the global risk consultancy IPSA International, told Business Daily. “We can say that after the sanctions, Russians investors want to diversify their financial sources and mitigate the risks of further sanctions that can seize their assets”, Williamson said. “These investors are looking for banks that are outside the regulatory arms of the US and EU, and Macau is one of those places”. The managing director of IPSA International explained that Macau is part of a group of Asian countries and regions, such as China, Hong Kong and Singapore, that provide financial services outside of US and EU control. “In order to mitigate the risks [of more sanctions], Russian investors are not only aiming to redistribute their finance sources, and the places where they deposit their money, but also create new relationships with finance institutions”, he said. Because of the conflict in Ukraine and the Russian occupation of Crimea in March, the EU and US have imposed various sanctions on major Russian state banks and corporations. In addition, some senior Russian officials and separatist leaders have been subject to Western travel bans and the freezing of their assets. Fearing that their assets may be frozen as well, some Russian companies and investors that have not yet been submitted to sanctions are seeking to place their assets outside of the country in order to be able to move their money at any time. Also, by looking for other finance sources they may be able to access credit sources outside the banks that have to comply with EU and US regulations. According to a report by the

Gov’t adds MOP7.5 million to CCAC budget

he Government has approved a 7.5 million-pataca supplementary budget for the Commission Against Corruption (CCAC). This is the second supplementary budget approved this year. According to Macau’s Official Gazette, an extra 7.5 million patacas will be added to the CCAC budget. Of the total supplementary budget, 3.4 million patacas will be used to pay staff and other collaborators of the Commission. Earlier this year, the organisation had a first supplementary budget approved totalling 16.2 million patacas, which means that for the whole year CCAC will be operated on a 23.7 million-pataca budget.

London firm CrossBorderCapital, accessed by Hong Kong newspaper South China Morning Post, for the first seven months of the year there was a net outflow of US$28 billion (223.5 billion patacas) from Russia, in contrast to net inflows of US$36 billion (287 billion patacas) for the whole of last year.

Macau reputation backlash If on the one hand Macau has the conditions to attract Russian money, on the other hand the fact that the former Portuguese enclave is close to one of the strongest financial centres in Asia – Hong Kong – and the reputation associated with the gaming industry may lead investors to choose other destinations to place their money. “There’s the possibility that Russian investors are looking for Macau to place their money. However, until now there is not a significant increase in the number of depositors from Russia”, an inside source in the banking sector told Business Daily. “They prefer other places where the regulations are not as tight as in Macau”, the source added. Another inside source in the

Provisional pipelines in Zone B to cost MOP12.5mln

he Macau Government will pay 12.5 million patacas to contractor Cheong Kong Limitada for the instalment of provisional pipelines in New Urban Zone B, it was announced yesterday in the Official Gazette. The payment will take two years and in the current year the government is to pay 8 million patacas. In 2015, Cheong Kong Limited will receive 4.5 million patacas to install the provisional pipelines. The dispatch detailing the payment was signed by Chief Executive Chui Sai On.

banking sector explained to Business Daily that the finance institutions in Macau that are more likely to profit from Russian investors are Asians. “As Western banks have also to comply with the regulations of their

home countries, these investors are more likely to approach Chinesebased or Asian-based banks”, it was explained. Another reason that may lead investors to prefer Hong Kong to Macau is the justification of opening a bank account in the former Portuguese territory, the managing director of the Hong Kong consultancy Alarice International, Ashley Galina Dudarenok, explained to Business Daily. “Although taxes are lower, in Macau the incorporation takes longer and the bank account opening meets further difficulties. As for Russians, you need to prove the necessity of having a bank account in Macau/ Hong Kong for their Macau/Hong Kong company”, she said. “If in Hong Kong the reason to open a bank account is more obvious (in cost cases – transaction payments to/from China), then for Macau the questions the bank will ask are: why didn’t you go to Hong Kong? What is the link between you and Macau? And that is not easy to explain for most businesses as they do not wish to go into further hassle”, she explained. For Ashley Galina Dudarenok, the reputation of Macau as a gambling centre and its reputation associated with money laundering will also drive most Russian investors to other havens. “Many ‘real businesses’ are afraid that opening a company in Macau will somehow determine the reputation of their business - as casino/money laundering linked. They just prefer to walk the ‘road most travelled’ and choose Hong Kong or Singapore”, she said.

September 16, 2014

Greater China Economists dial down growth forecasts Data showing that the Chinese economy quickly lost steam in August caused some economists yesterday to trim their 2014 growth forecasts for the country. UBS shaved its fullyear forecast to 7.2 percent from 7.3 percent. Barclays Capital reduced its projection to 7.2 percent from 7.4. ING cut its forecast to 7.4 from 7.5 percent. Over the weekend, data showed factory output grew at its weakest pace in nearly six years in August while weaker readings in investment, retail sales and imports revealed a picture of an economy struggling to gain momentum despite recent stimulus steps.

CNOOC reports deepwater gas discovery

China’s largest producer of offshore oil and gas CNOOC said yesterday that CNOOC 981, the country’s first deepwater drilling rig, has reported its first deep-water gas field discovery below the South China Sea. The newlydiscovered Lingshui 17-2 gasfield is located 150 kilometres south of the Hainan Island. Its average operational depth was 1,500 meters below the sea surface, the company said in a statement. Xie Yuhong, a manager with CNOOC, said the Lingshui 17-2 gas well was tested to produce 56.5 million cubic feet of natural gas per day, equal to about 9,400 barrels of liquid oil per day.

Alibaba plans to boost IPO size

Shanghai free trade zone project stuck But progress has been slow and policies vague as the political focus has turned from reform to shoring up growth, leaving foreign companies unsure of investing in the free-trade zone (FTZ)

disappointing first year for Shanghai’s much-hyped free-trade zone, seen as a pet project of Premier Li Keqiang and billed as a reform laboratory, raises questions about China’s commitment to opening up its markets as it wrestles with a slowing economy. The 29 square kilometre zone on the outskirts of China’s commercial capital - hailed as Beijing’s boldest reform in decades - was meant to test changes such as currency liberalisation, market-determined interest rates and free trade. But progress has been slow and policies vague as the political focus has turned from reform to shoring up growth, leaving foreign companies unsure of investing in the free-trade zone (FTZ). “There has been some progress in the Shanghai free trade zone, but the progress is much slower than the market had expected, especially in the financial market sector,” said Zhu Haibin, chief China economist at JP Morgan in Hong Kong. In particular, China needs to transform government functions and release a list of which sectors are off-limits to foreign investors rather than assessing investments on a caseby-case basis, Zhu said. “If the progress is too slow on this front, it may risk turning out to be a failure.” In another setback, the state-run Xinhua news agency said yesterday that the zone’s deputy head, Dai Haibo, had left his post. The South China Morning Post paper, quoting sources, reported earlier that Dai was suspected of disciplinary violations and would be forced to step down. The administrative committee of the zone could not be immediately reached for comment.

Alibaba Group Holding Ltd is planning to increase the size of its initial public offering due to strong investor demand. The Chinese e-commerce company plans to increase the top end of the price range to above US$70 and plans to announce the new price range as early as Monday, Bloomberg said. Reuters reported on Friday that Alibaba plans to close its IPO order book early after it received enough orders to sell all the shares in the record-breaking offering. The company launched its IPO last week and is expected to price the deal on September 18.

Port partnership with Malaysia China has signed an agreement with Malaysia to establish a sister port partnership between two major shipping cities as the two countries seeks to rejuvenate the ancient maritime Silk Road. The Qinzhou Port in south China’s Guangxi Zhuang Autonomous Region has become a sister port of Kuantan, a port city in Malaysia, following an agreement signed in Nanning City, capital of Guangxi yesterday. Taking immediate effect, the two ports will cooperate in various fields including shared shipping lanes, logistics, information exchange and talent training, said Li Xinyuan, mayor of Qinzhou City.

The Shanghai Free Trade Zone entrance

A broad reform agenda to remake China was unveiled to much fanfare in November 2013, but an unexpectedly sharp slowdown in the economy at the beginning of the year quickly saw attention refocused on ensuring the government’s 7.5 percent growth target would be met. “We’ve seen some policies in the free-trade zone, but they are not relevant to my company and we haven’t seen any benefits yet,” said a corporate treasurer at a major foreign manufacturing technology company who asked for anonymity as she was not authorised to speak on the issue. On Wednesday, Premier Li said

Some companies feel it’s unnecessary to set up entities in the FTZ if the only purpose is for cross-border fund flows, since they can already do it now outside the FTZ Becky Liu strategist, Standard Chartered Bank Hong Kong

Beijing would review the development of the Shanghai FTZ. The FTZ was widely seen as Li’s pet project, but he did not attend the opening ceremony last year. The heads of the central bank and the foreign exchange regulator were also absent.

Slow take-off The free trade zone, part of wider financial reforms such as transitioning to a fully convertible yuan currency, is seen as an important step towards developing a more open economy regulated by policies similar to those in developed markets. Newly-registered foreign enterprises accounted for 12 percent of the more than 10,000 firms allowed to operate within the zone by the end of June, official data showed. But excluding Hong Kong and Taiwan, foreign companies comprised just 6 percent, or 643 entities, far less than expectations. Even local companies have frustrations. “We don’t feel the policies that govern the Shanghai FTZ are attractive and we’ve had to wait for such a long time for new policies to be launched,” said a senior manager from a Chinese company, speaking on condition of anonymity. The Shanghai FTZ’s attractions have also been reduced by the roll-out of some policies on a nationwide basis, detracting from what was meant to be the exclusive nature of policies within the zone. Pilot schemes that have been made available nationwide include crossborder cash pooling and netting for multinational companies as well as cross-border trade settlement for individuals. Reuters

September 16, 2014

Greater China

Alibaba doesn’t want “list” marriage The decision not to go with Nasdaq means that Alibaba may not join any major global index this year

libaba Group Holding Ltd could have sold nearly $2 billion worth of stock without lifting a finger. All it had to do was list its shares on Nasdaq. That listing would have guaranteed Alibaba inclusion in the Nasdaq 100 Index by the end of the year, and funds which track the index would have had to buy. But two sources familiar with the situation said Alibaba executives worried about Nasdaq’s ability to handle their US$21 billion initial public offering later this month, since the exchange botched Facebook’s market debut two years ago. Nasdaq tried to persuade Alibaba that it had fixed the problem, the sources said, but it is not clear whether they were swayed. One of the sources said that Alibaba eventually was satisfied that Nasdaq had solved the issue and chose NYSE because its overall pitch was better. The other said Nasdaq executives believed that Alibaba decided that the possibility of a botched IPO, however small, outweighed the possible benefits of being in the index. Alibaba’s misgivings about Nasdaq’s technology, two years after Facebook’s glitch-ridden, US$16 billion market debut, show the incident continues to threaten Nasdaq’s reputation.

Listings contributed only 12 percent of Nasdaq’s US$1.9 billion in revenues in 2013, and large listings such as Alibaba’s are less profitable for exchanges, but within the financial community they are taken as a barometer of success. Nasdaq systems buckled under the tremendous volume of orders on the first day of trading in Facebook’s shares in 2012, leading to hours of delay. In its presentation to Alibaba, Nasdaq detailed the steps it had taken to prevent another Facebook-style glitch, two sources familiar with the pitch said. The exchange has said it

responded to Facebook by putting extra safeguards in place, creating new positions within the company to improve communications with the industry and regulators when errors occur, and establishing an engineering team to monitor and analyse daily performance. ETFs and mutual funds that track such benchmarks have to buy and hold their stock. The Nasdaq 100, which includes companies such as Apple and Google, has a market capitalization of US$4.75 trillion. Funds such as the US$46.8 billion QQQ PowerShares exchangetraded fund, the fifth-biggest ETF

in the world, track the Nasdaq 100, according to data from Thomson Reuters’ Lipper service. If the IPO values the company at US$200 billion, Alibaba would have been about 3.3 percent of the index. There are more than US$54 billion in ETF assets alone linked to the index, which means at least US$1.7 billion would have flown into Alibaba shares. The chance to get on Nasdaq 100 was a selling point for Facebook itself. In the lead-up to the Facebook IPO, Nasdaq reduced the amount of time a qualifying firm needs to be listed on Nasdaq in order to be added in the index to three months from a year. Alibaba doesn’t qualify to be on many of the world’s major indices, since it is registered in the Cayman Islands. The behemoth S&P 500 Index, which has a market capitalization of US$18.6 trillion, only lists U.S. companies. The Chinese firm is not eligible to be part of the biggest MSCI or FTSE indices for other reasons, although MSCI is looking at changing its index rules in a way that could put Alibaba on a major index. And finally, Alibaba gave up a chance for mainland Chinese to invest, since China-based money manager Guotai Asset Management’s Guotai Nasdaq 100 Index trades on the Shanghai Stock Exchange. Reuters

China caps end-month bank deposits The notice was jointly issued by the central bank and the finance ministry

hinese regulators have imposed measures to stop banks from collecting large amounts of deposits at the end of a month to flatter their financial position, a practice that traders have said threatens the stability of China’s financial system and markets. Deposits at banks at the end of any given month must not exceed 3 percent of the average daily level during that month, the China Banking Regulatory Commission (CBRC) said in a notice published in its website. It also banned banks from using interest rates exceeding regulatory limits to attract deposits or using wealth management products to indirectly boost their savings as the end of month approaches. Lenders that violate these and other new requirements will have part of their business suspended while serious violators will have their ratings downgraded, the regulators said. The new policy “is aimed at improving the appraisal mechanisms for banks, and at effectively preventing and controlling risk,” the regulators said in the notice, posted at the weekend. The deposit level at Chinese banks has a bearing on the bank’s rating by regulators. Other requirements, such as a 75 percent loan-to-deposit ratio, have also encouraged banks to bolster their deposits at the end of a period, they said. These practices have caused sharp fluctuations in Chinese market interest rates and distorted China’s credit data, causing instabilty in the markets and worries over the health

of the economy, analysts have said. The weighted average rate for China’s benchmark seven-day bond repurchase agreement tends to rise sharply at the end of month and surge at the end of each quarter. Surges in end-of-quarter bank deposits have also boosted new loans extended by banks in the last month of a quarter, and then dropped sharply the month after, leaving the

3 pct deposits at banks at the end of any given month limit

impression in certain months that economic growth was slowing sharply. In the latest example, Chinese banks posted a sharply-lower-thanexpected 385.2 billion yuan (US$62.8 billion) worth of new yuan loans in July after a surprisingly high 1.08 trillion yuan in June, causing fresh jitters about a further slowdown of the world’s second-largest economy. Reuters

September 16, 2014

Greater China

Hong Kong plans Aussie trade minister yuan repos to meet longs for FTA After almost 10 years and 21 rounds of SHG demand negotiations, many business leaders from Shanghai stocks tend to trade at a discount to Hong Kong counterparts and HKMA’s additional supply of yuan will help alleviate cash squeezes for the currency in Hong Kong

Hong Kong Monetary Authority

ong Kong is setting up a 10 billion yuan (US$1.6 billion) intra-day repurchase facility and seeking to relax a cap on yuan purchases by the city’s residents before local investors gain access to Shanghai’s stock market. Hong Kong Monetary Authority will also announce in coming weeks a list of five to six banks that will act as “primary liquidity providers” for the yuan and have their own access to intra-day and overnight repos, Chief Executive Norman Chan said at a conference in Hong Kong. The Hong Kong-Shanghai Stock Connect program, which is scheduled to start in October, will enable 13 billion yuan to flow north into mainland equities each day and 10.5 billion yuan to head south. Shanghai stocks tend to trade at a discount to Hong Kong counterparts and HKMA’s additional supply of yuan will help alleviate cash squeezes for the currency in Hong Kong if equity flows prove lopsided. Among stocks that are listed in both cities, the Shanghai securities trade at an average discount of 4.3 percent to their Hong Kong counterparts, according to the Hang Seng China AH Premium Index. Hong Kong’s yuan interbank offered rate, known as yuan Hibor, for overnight loans between lenders

The market consensus is there will be more flows to Shanghai at the beginning, which is going to be a net withdrawal from Hong Kong’s yuan liquidity to the onshore market Crystal Zhao analyst at HSBC

ranged in the past month between 1.5 percent and a one-year high of 4.91 percent. It has averaged 1.63 percent since being introduced in June 2013. Bank of China (Hong Kong) Ltd., the city’s yuan clearing bank, may expand the list of collateral it accepts for its intraday repurchase facility for loans in the currency, head of investment Chordio Chan said at today’s conference, which was organized by the Treasury Markets Association in Hong Kong. HKMA’s Chan said the new 10 billion yuan repo facility will be separate from Bank of China (Hong Kong)’s.

Conversion limit Hong Kong’s officials have also discussed with the People’s Bank of China plans to scrap a 20,000 yuan daily currency- conversion limit that applies to permanent residents, according to HKMA’s Chan. “The PBOC says it doesn’t see any problems with removing the quota,” he said. “We are seeking to get this arrangement implemented before the start of the Shanghai-Hong Kong Connect.” The conversion cap is a hindrance as Hong Kong faces competition from London and Singapore, which are seeking a greater role in offshore yuan trading. China appointed clearing banks in the U.K. capital, Seoul and Frankfurt this year and assigned Renminbi Qualified Foreign Institutional Investor quotas to places beyond Hong Kong. The allocations allow yuan raised offshore to be used to buy securities in China’s domestic market. China will look at setting up more mutual trading connections with other markets, Xu Hao, deputy directorgeneral of department of fund and intermediary supervision at China Securities Regulatory Commission, said at today’s conference. He didn’t give further details on what assets and markets may be involved. The government will also keep expanding the RQFII and Qualified Foreign Institutional Investor programs, Xu said. Bloomberg News

both countries are eager to see an FTA negotiation concluded as soon as possible

ustralian Trade and Investment Minister Andrew Robb said yesterday that he believes Canberra could reach a Free Trade Agreement (FTA) consensus with China by the end of this year and this could benefit both countries widely. Robb made the remarks to Xinhua in a short interview after delivering a speech at the Australian Dairy Farm Investment Forum which was held in Melbourne, saying “solid” progress had been made during negotiations with his Chinese counterpart on the issue. However, even though Robb said “solid” progress had been made during the negotiation, he refused to disclose the relevant details. “It’s not a good idea to put all your cards on the table during the negotiation. All I can say is all these things are very complicated... a lot of work had been done, but big important issues like dairy, end up in the final stage of the negotiations... many cases we haven’t finalized are very critical issues,” he told Xinhua. When answering how the FTA would influence the two countries’ economies, Robb stressed both sides would greatly benefit in various economic sectors. “In agriculture, environmental water management, health, education, engineering, accounting and financing we have wonderful services, if freed up, could make very great contributions to China moving to domestically focused economy,” said the high- ranking official. In his speech at the forum, Robb told hundreds of entrepreneurs and officials that Australia had got “very tough negotiations” with China and that Chinese are “tough negotiators,” but “it’s time to have the courage to make decisions to complete the agreement and take the relationship between Australia and China to the next level.” “Further delays would only

exacerbate competitors, like New Zealand,” he said. According to figures released by New Zealand’s dairy trade, revenue from China increased by 3.7 billion Australian dollars (US$3.3 billion) by the end of 2013 since completion of their agreement, but at the same time Australia’s revenue from China has increased by 173 million Australian dollars (US$155.9 million). Xinhua

For Australia, we can get clear guidelines and access to increased investment into Australia, access to China’s key agricultural market, to get opportunities for our services industries to expand into China, that’s very important for Australia and it will benefit both sides Andrew Robb Australian Trade and Investment Minister

Australian Trade and Investment Minister Andrew Robb

September 16, 2014

Asia

Thailand and Vietnam reach rice supply deal with Philippines In Thailand, 5 percent broken grain was quoted at US$435 a tonne

he Philippines’ grains procurement agency said yesterday that Thailand and Vietnam would supply a total of 500,000 tonnes of rice under governmentto-government deals, with Vietnam cutting its price to match Thailand’s offer to secure part of the deal. The shipment of the 25 percent broken grain, due to arrive between October 15 and December 15, would boost stockpiles in the Philippines, one of the world’s biggest buyers of the grain. The government has released rice from its warehouses in recent months to flood the local market with cheap varieties and bring down retail prices. In the tender run by the National Food Authority (NFA), Thailand offered to supply 300,000 tonnes of rice at US$475 per tonne, CIF, beating Vietnam, which offered to supply 400,000 tonnes at $479 per tonne. But Vietnam agreed to an invitation from the NFA to supply 200,000 tonnes at the price offered by Thailand. Cambodia was disqualified from the tender because its offer did not comply with the delivery schedule of October 15 to December 15 set by the NFA. The supply deal, the first government-to-government arrangement with Thailand in at least a decade, will be welcomed by the Thai military government, struggling to manage huge stockpiles built up under the government it ousted in May.

the Philippines’ total duty-free shipments this year to around 1.7 million tonnes, the highest in four years. In addition, the private sector is allowed to import 350,000 tonnes this year subject to a 40 percent tariff. Manila has given the NFA permission to import another 500,000 tonnes of rice for emergency needs. It is not clear if it will purchase the additional volume under a government-to-government deal or in an open market tender. Officials expect rice prices in the Philippines to start easing in the last quarter of the year as local harvests and the additional imports boost supply, helping bring down food price inflation, which is hovering at five-year highs. Reuters

However, it was unlikely to provide much support for prices at a time when demand generally is thin and supply in the main producing countries is rising, traders said. The military government estimated after an audit that up to 18 million tonnes of rice ought to be in the stockpiles, bought from farmers under a money-guzzling state intervention programme that ran from October 2011 until early this year. However, around 20 percent was missing from stocks, of poor quality or not of the quality it was registered as. Thailand is due to start harvesting its main crop in November, when

another 28.5 million tonnes of paddy could come on to the market. Despite its current low stocks, Vietnam would be able to deliver the grain on time, traders said. Farmers in the Mekong Delta have begun harvesting their third rice crop, the smallest among the three crops each year, with supplies expected to pick up from October to November. Yesterday, Vietnam’s 5 percent broken grain was quoted at US$450US$455 a tone, free-on-board, against US$450 last week, while the 25 percent broken rice was unchanged at US$405-US$410 a tonne. The new supply deal would bring

S.Korea’s Iranian oil imports double The six international powers, also including Russia and China, will hold their first full negotiating round with Iran since July on September 18 in New York Meeyoung Cho

Bidboland gas refinery in Iran

outh Korea’s imports of Iranian crude doubled in August from a year ago but fell 8 percent in the first eight months year-on-year, reflecting moves by the world’s fifthlargest crude oil importer to navigate terms of sanctions reliefs. Preliminary customs data showed yesterday that Seoul bought 567,913 tonnes of crude oil from Tehran last month, or 134,284 barrels per day (bpd), compared with 558,690 tonnes a month ago and 272,090 tonnes a year ago. The low level of imports in August 2013 reflected South Korea’s move to meet its target of cutting shipments from the OPEC member in the June-November period of last year by 15 percent to extend a U.S. sanctions waiver. The intake of Iranian crude in January-August this year by Asia’s fourth-largest economy stood at 4.24 million tonnes, or 127,944 bpd, down 8 percent from a year ago and 5 percent below the 2013 average at 134,000 bpd, according to the data and Reuters’ calculations. Iran and Western powers agreed a preliminary deal in Geneva in

KEY POINTS Thailand to supply 300,000 tonnes Vietnam to bring in 200,000 tonnes Both shipments priced at US$475 a tonne Shipments to arrive between Oct. 15 and Dec. 15

November 2013 under which Iran suspended higher-grade uranium enrichment, a potential route to bomb-making, in exchange for some easing of sanctions on its oildependent economy. South Korea and other Asian buyers are supposed to hold their crude imports from Iran at end-2013 levels - or between 1 million and 1.1 million bpd - under the terms of the Geneva accord. Iran and world powers remain far apart over Tehran’s nuclear programme, and they face a “difficult road” to reach a deal by a late November deadline, a senior Iranian negotiator said earlier this month. Overall, South Korea imported 11.4 million tonnes of crude last month, or 2.7 million bpd, compared with 9.7 million tonnes in August last year, the customs data showed. Final data for August crude oil imports will be released by state-run Korea National Oil Corp later this month. Reuters

KEY POINTS Aug Iran oil imports at 567,913 T, double y/y -customs Jan-Aug Iran oil imports at 127,944 bpd, down 8 pct y/y Jan-Aug Iran oil imports below 134,000 bpd avg for 2013 Total crude imports in Aug at 11.4 mln T, up 17 pct y/y

September 16, 2014

Asia Singapore retail sales rise Retail sales increased 5.5 percent onyear in July, driven by strong vehicle sales, said the Department of Statistics in Singapore yesterday. The total retail sales value in July was estimated at 3.2 billion Singapore dollars (2.56 billion U.S. dollars), higher than the 3.0 billion Singapore dollars (2.4 billion U.S. dollars) in the same period last year. However, when compared with the previous month, retail sales fell marginally by 0.2 percent in July. Retailers of motor vehicles recorded a sales increase of 41.0 percent in July compared to the same period last year.

Indian companies risk drop Corporate default probability is inversely correlated to economic growth and equity-market capitalization Anoop Agrawal

S.Korea import prices fall South Korea’s import prices, in won terms, fell in August from a year earlier at their fastest pace in 17 months, central bank data showed yesterday, as the local currency gained against the U.S. dollar while crude oil prices declined. Import prices, in won terms, dropped 9.9 percent in August from a year earlier, the Bank of Korea said. That compared with a revised 8.6 percent fall in July and was the steepest decline since an annual 10.8 percent drop in March 2013.

Singapore unemployment rate remains low The unemployment rate in Singapore remained low and stable amid the tight labour market in the first half of 2014, said Ministry of Manpower (MOM) yesterday. The seasonally-adjusted citizen unemployment rate was 2.9 percent in June, and the resident long-term unemployment remained amongst the lowest globally, at 0.6 percent. Total employment growth in the first half moderated to 52,200 excluding Foreign Domestic Workers, down from 61,100 in the same period last year. This was largely driven by the slowdown in foreign employment growth.

Audi starts to sell automobiles in Cambodia German car producer Audi officially opened its sales office in Phnom Penh, the capital of Cambodia, yesterday, aiming to tap into the country’s rising demand for luxury automobiles. “We decided to invest in Cambodia because we have observed that the country has been enjoying political stability and strong economic growth,” Laurent Genet, chief executive officer of Automotive Asia (Cambodia), which distributes Audi cars in Cambodia, said at the showroom inauguration ceremony. “More importantly, there is rising demand in luxury cars in this Southeast Asian nation due to the growing number of middleand high-class families.”unnamed investment banking sources.

Reserve Bank of India headquarters in Nagpur

he risk of Indian companies reneging on their debt in the coming 12 months has fallen to a three-year low as stocks rallied to a record on the prospect of an economic revival, Bloomberg’s default risk model shows. The median probability of nonpayment has dropped to about 0.45 percent from last year’s peak of 0.75 percent and as much as 1.3 percent during the 2008 credit crisis, according to the gauge, which is based on factors including share performance and debt metrics. The average yield on fiveyear AAA company bonds dropped 29 basis points this year to 9.34 percent as inflation slowed. A similar rate in China is 5.21 percent. Corporate debt-rating upgrades are exceeding downgrades in India for the first time since 2011, after Asia’s third-largest economy expanded at the fastest pace in more than two years last quarter. Bad loans at local banks have declined from an eight- year high and the S&P BSE Sensex index of local shares surged 27 percent so far in 2014. “The credit profile of companies has been improving in line with the recovery taking place in the economy,” D.R. Dogra, managing director in Mumbai at CARE Ratings, said in an e-mail interview on Sept. 10. “A gradual pick-up in sales and recovery in profit margins has also helped to alleviate the situation. In fact, a direct indicator of the above is that the non-performing assets of banks have been stable.” Default probability for Reliance Industries Ltd., the operator of the world’s largest oil refining complex, dropped to 0.05 percent from 0.075 percent a year ago, the Bloomberg gauge for nonpayment risk shows. A similar measure for Bharti Airtel Ltd., the nation’s biggest issuer of foreign-currency bonds this year,

has declined to 0.09 percent from 0.29 percent.

Economic outlook Corporate default probability is inversely correlated to economic growth and equity-market capitalization, according to a September 10 Bloomberg report on corporate credit risk in India. That means this year’s drop in the gauge reflects the pickup in the economy and the stocks rally that has made it easier for businesses to access capital. Prime Minister Narendra Modi, who took office after a landslide election victory in May, has pledged to boost the economy. His government plans to cut the budget deficit to a seven-year low, spur infrastructure development and allow more foreign investment in industries from defense to railways. The finance ministry sees annual growth quickening to as much as 5.9 percent in the year through March 2015, after the previous period’s 4.7 percent that was near the slowest in a decade. The first improvement in local corporate debt ratings since 2011 is supporting that forecast.

‘Bottoming out’ Rankings for 239 firms were raised this year at Crisil Ltd., the local unit of Standard & Poor’s, data compiled by Bloomberg show. That outnumbered the 198 downgrades. “Clearly, we have seen a bottoming out of the credit risk profile,” Deep Narayan Mukherjee, a Mumbai-based director at India Ratings & Research, the local unit of Fitch Ratings, said in a phone interview on Sept. 10. “In the next six to 12 months we should see stronger signs of recovery.” Non-performing debt as a proportion of total advances fell to

4 percent as of March 31 from 4.2 percent in September, which was the highest since 2005-2006, the RBI said in a report last month. Loan recoveries at State Bank of India, the biggest lender, more than doubled in the first quarter and tripled at Bank of Baroda, ranked second by assets. ICRA Ltd., the local unit of Moody’s Investors Service, sees more improvement in Indian lenders’ asset quality should the new government deliver on its pledge to revive growth. The rally in local stocks has made it easier for companies to sell shares and replace their debt with equity capital, reducing the risk of defaults, according to ICRA.

Public, private Credit risk for India’s state-owned enterprises has declined less than for private companies, according to the Bloomberg report. “Among non-financials, leverage and median default risk for public sector firms seem higher than for private sector firms, but both sectors have declined slowly over the past two years,” according to the report. “The higher leverage and default probability for public non-financials are not just a size effect, but potentially performance-related.” Credit-default swaps also signal a drop in bond risk for Indian firms. The average cost of contracts protecting the debt of eight Indian issuers has slumped 122 basis points in 2014 to 215, according to data provider CMA. Bond yields in India have dropped this year on speculation cooling inflation will add room for the central bank to lower interest rates, helping companies rein in borrowing costs. Ten- year government bond rates declined 34 basis points, or 0.34 percentage point, in 2014 to 8.49 percent, while the rupee appreciated 1.3 percent to 61.04 per dollar, according to data compiled by Bloomberg. Bloomberg News

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September 16, 2014

Asia

NZ growth to slow but still solid A Reuters poll points to the central bank staying on hold until the first quarter of next year before it resumes a gradual tightening

he New Zealand economy is expected to have slowed to its weakest pace in a year in the second quarter, hurt by softening commodity prices and reduced building activity, easing pressure on the central bank to raise rates any time soon. However, with the economy still seen growing at a solid pace, analysts don’t expect the data to have a bearing on Saturday’s general elections, in which the ruling centre-right National government has a strong lead. The agricultural-based economy is expected to have grown 0.6 percent in the three months to June 30, according to the median in a Reuters poll, the slowest pace since the second quarter of last year. The Reserve Bank of New Zealand (RBNZ) last week forecast 0.8 percent growth in its quarterly monetary

KEY POINTS New Zealand Q2 GDP data Sept 18 Reuters poll: Growth of 0.6 pct in Q2; 3.8 pct annual rate Prices for key exports have fallen, domestic activity solid Growth back at more normal levels, backing RBNZ’s move to sidelines Data seen having no bearing on Saturday’s election

The Auckland central business district

policy statement, as it signalled it will be holding rates steady well into next year. The expected slowdown comes after three consecutive quarters of growth of 1 percent and more, which were driven by rocketing dairy prices and commodity exports, and a surge in the construction sector. The annual rate is seen holding at the six-and-ahalf year high of 3.8 percent posted in the first quarter. Many economists see this as the peak of New Zealand’s growth in the currency cycle as sliding commodity prices weigh, although solid domestic activity is expected to keep the economy

humming along at a decent pace. “After a blazing start to the year, there’s no question that the New Zealand economy has lost some of its momentum in recent months,” said Westpac senior economist Michael Gordon. “However...the change in fortunes hasn’t been dramatic - more like a slowing from above-trend growth to something closer to trend.” The data comes two days before the country’s three-yearly election, with the governing National Party campaigning on its economic and fiscal management record. Latest polls show it comfortably ahead in the polls, although it will

likely need the support of minor parties to govern, and a close result and lack of a clear decision on election night may lead to some volatility in financial markets. The central bank said in last week’s monetary statement that it expects growth of 3.7 percent through 2014, but forecast a gradual slowdown, which along with soft inflation pressures justified its decision to sit on the side-lines for the time being. The bank left its cash rate at 3.5 percent, but its forecasts imply the rate headed to 4.5 percent by the end of next year. Reuters

Mongolia claims Rio Tinto tax dispute resolved The development of the project has been embroiled in a series of disputes between its two owners Terrence Edwards

tax dispute that threatened to delay the giant Oyu Tolgoi copper mine being developed in Mongolia by Rio Tinto has been

Oyu Tolgoi mine in Mongolia

resolved, a government official said yesterday. The US$6.5 billion Oyu Tolgoi project will produce more

than 300,000 tonnes of copper concentrate a year once construction is fully completed. It is expected to boost Mongolia’s economy by a third by 2020. But the development has been embroiled in a series of disputes between its two owners, Rio Tintosubsidiary Turquoise Hill Resources and the Mongolian government. Mongolia’s vice-minister of mining, Oyun Erdenebulgan, told Reuters that the two sides have agreed to cut an outstanding tax bill on the project to US$30 million. The authorities had delivered a US$130 million bill in June. “I understand both parties are now working closely and effectively and nobody wants to delay because of this tax issue,” he said, adding that the project would resume construction in the first quarter of 2015. Oyu Tolgoi, located in Mongolia’s vast and remote southern Gobi region,

is 66 percent owned by Torquoise Hill, with the Mongolian government holding the remaining 34 percent. The first open-pit phase of the project went into operation in July 2013, and the mine produced 76,700 tonnes of copper concentrate by the end of that year. However, the second phase, which involves the underground expansion of the mine, has been subject to a series of delays. The Mongolian government expressed concern about financing terms and cost overruns, and also ordered Turquoise Hill to draw up a new feasibility study. Oyun said all remaining disputes on the project had been settled, and both sides were waiting for the completion of the new feasibility study. “When it has been received, we will appoint a committee to approve it,” he said. Reuters

September 16, 2014

International Russia to honour all trade deals Russia will honour all its agreements with the European Union and Ukraine, but will trigger “protective measures” if a trade pact between the two comes into force early, Prime Minister Dmitry Medvedev was quoted by RIA news agency as saying. The European Union and Ukraine agreed on Friday to delay the implementation of their free-trade pact until the end of 2015 in a concession to Russia, which is at loggerheads with Kiev over the conflict in eastern Ukraine. Medvedev also said yesterday the decision made in Brussels must be given a legal basis.

TUI to become top tourism company German travel group TUI and its British subsidiary TUI Travel have finalised terms on creating the world’s biggest tourism operator, the pair announced yesterday. “The merger will result in the creation of the world’s number one integrated leisure tourism business... with enhanced long-term growth prospects,” said a joint statement following an announcement in June that had revealed a merger in principle. Following the all-shares merger, the combined group will be domiciled in Germany and have a premium listing on the London Stock Exchange. The merger is expected to eventually deliver cost savings of at least US$58 million a year.

Hedge funds lower crop bets American farmers will collect the biggest corn and soybean crops ever this season

edge funds cut bullish wagers on agricultural commodities to the lowest since January before the U.S. forecast rising grain supplies and sent wheat, corn and soybean prices to four-year lows. Money managers lowered their netlong position on crops from coffee to wheat in 10 of the past 11 weeks, U.S. government data show. Investors got more bearish on sugar and have the most-negative outlook on soybeans since 2006. American farmers will collect the biggest corn and soybean crops ever this season, while global wheat reserves are set to reach a three-year high, the U.S. Department of Agriculture said September 11. Three months of rain and mild weather created almost ideal growing conditions, spurring price declines that drove the Bloomberg Commodity Index to a five-year low last week. “The weather’s been very

conducive for a very strong crop,” Kelly Wiesbrock, a portfolio manager at Harvest Capital Strategies in San Francisco, which oversees US$1.8 billion, said in a telephone interview September 10. “We’ve completely rebuilt inventory levels from a couple years ago. They’re no longer tight, and you’ve seen corresponding prices drop a lot.”

Farm wagers Combined net-bullish positions across 11 agricultural products fell 14 percent to 237,297 futures and options contracts as of September 9, Commodity Futures Trading Commission data show. The wagers are down 79 percent from this year’s peak in April. Global corn stockpiles are projected to reach a 15-year high before the 2015 harvest, with production climbing in the U.S., Europe and Brazil. Soybean

Heineken confirms, rebuffs SABMiller bid Dutch brewer Heineken said it was approached by larger rival SABMiller about a potential takeover but that its controlling shareholder intended to keep the company independent. The maker of Heineken and Amstel beers said it consulted with its majority shareholder and concluded that SABMiller’s proposal was “non-actionable”. “The Heineken family has informed SABMiller, Heineken and Heineken Holding of its intention to preserve the heritage and identity of Heineken as an independent company,” it said in a statement.

H&M tops forecast sales rise Hennes & Mauritz’s sales climbed nearly 20 percent in August, beating forecasts and extending what has been a strong run for the world’s secondbiggest fashion retailer this summer. The Swedish company has benefited from a recovering U.S. economy, stronger online sales and a broader product offering which includes new brands such as & Other Stories and sales of items such as home ware. Hennes & Mauritz (H&M), which lags Zara-owner Inditex by annual sales, said yesterday its sales rose 19 percent year-on-year in August, well above the 13 percent increase expected in a Reuters poll of analysts.

Investec sells Irish loans South African investment bank Investec has sold 540 million pounds (US$877 million) of Irish mortgages to U.S. private equity firm Lone Star, marking its second deal this month to get rid of loans it not longer wants. Investec said yesterday it was selling its Irish home loan business Start Mortgage and some other Irish mortgage assets to an affiliate of Lone Star Funds. It said the deal was part of its plan to simplify and reshape its banking business. It follows the sale last week of its UK mortgage business Kensington for 180 million pounds.

output will rise to the highest ever, at 311.13 million metric tons. World food prices retreated in August to the lowest in almost four years, the United Nation’s Rome-based Food & Agriculture Organization said September 11. The index for cereals declined for a fourth straight month, dropping 13 percent since April. Low prices may not last if buyers expand purchases of cheap supplies. Traders will shift their focus to robust demand “in coming months,” with corn futures “trending back towards US$4,” Christoper Narayanan, the head of agricultural research at Societe Generale, said in a Sept. 12 report. Global consumption will rise 2 percent this season to 970.69 million tons, the USDA predicts.

Yield risk Freezing temperatures and excessive rain can still threaten to reduce corn and soybean yields before harvesting begins at the end of this month in most of the northern half of the Midwest. The U.S. is the world’s biggest grower of corn and soybeans and the top exporter of wheat. “If you were to get a sharp U-turn in prospects for the really nice weather we’ve been having, some kind of frost or winter-type blast, that would” help support prices, Sameer Samana, a senior international strategist who helps manage US$1.4 trillion at Wells Fargo Advisors LLC in St. Louis, said in a telephone interview September 11. “It would be a short-lived rally.” The net-short position in soybeans reached 39,786 futures and options last week, the CFTC data show. That compares with 25,574 a week earlier and is the biggest bearish holding since October 2006. Bloomberg News

Egypt tourism could fully recover by end-2015 The rapid advance of Islamic State has worried governments across the region, including in Egypt

gypt’s tourism industry, battered by three years of political upheaval and street protests, could fully recover by the end of 2015 if current levels of stability persist, the tourism minister, Hisham Zaazou, said. But Zaazou also expressed concern that tourism would take another hit if Islamic State militants, who have seized parts of Iraq and Syria, showed any signs of infiltrating Egypt, the biggest Arab country. Egypt has long been a magnet for visitors interested in ancient sites, sunbathing on the Red Sea coast, or Nile cruises, but their numbers have fallen sharply since a popular revolt overthrew President Hosni Mubarak in February 2011. Once peaking at US$12.5 billion a year, tourism revenues were less than half that in 2013 as political tension in the lead-up to the army’s ouster of Islamist President Mohamed Mursi put off foreign visitors. Although tourists have been slowly reappearing in hotels this year,

The idea of trying to secure our country and ensure that this kind of threat does not infiltrate and come into Egypt is definitely of concern for the government and the president Hisham Zaazou, Egypt tourism minister

especially from other Arab states, a deterioration of the security situation in the Middle East poses a further threat to the sector. U.S. Secretary of State John Kerry met with Egyptian President Abdel Fattah al-Sisi and other senior officials over the weekend during a regional tour aimed at building a global coalition against Islamic State. The al-Qaeda offshoot has been coaching Egypt’s most dangerous militant group, Ansar Bayt al-Maqdis, on ways of operating more effectively and evading capture, an Ansar commander recently told Reuters. Egypt is also closely monitoring Islamic State-inspired militants who operate just over the border in the chaos of post-Gaddafi Libya and are seeking to topple the Cairo government. “Definitely it does concern me. We are now looking like a green oasis in the middle of this desert, of this turmoil around us both in Libya, what’s happening in Iraq and Syria,” said Zaazou. Reuters

September 16, 2014

Opinion Business

wires

Restructuring debt restructuring

Leading reports from Asia’s best business newspapers

THE KOREA HERALD

Barry Eichengreen

Professor of Economics and Political Science at the University of California, Berkeley, and a former senior policy adviser at the International Monetary Fund

Stock funds that invest in overseas securities have suffered massive outflows over the past five years as investors drawn by an earlier stock boom in emerging markets exited to reduce losses after being spooked by the financial crisis in late 2007, data showed yesterday. Foreign stock funds posted a total outflow of 29.19 trillion won (US$28.09 billion) from July 2009 to August 2014. On a monthly basis, such funds have suffered a capital outflow for 62 straight months, according to the data compiled by the Korea Financial Investment Association (KOFIA).

THE STRAITS TIMES The surprisingly slow global economic recovery was the cue for local economists to drastically cut their forecasts for Singapore’s export performance this year. Exports had earlier been expected to climb 4.1 per cent for the year but that prediction was slashed to a 1.1 per cent slide in a Monetary Authority of Singapore (MAS) survey of 22 private-sector economists last week. Economists told The Straits Times last week that the dramatic turnaround in their estimates stemmed from falling demand for the type of electronic products made here.

THE AGE Australian house prices are among the world’s most expensive when measured against incomes and rents, according to the Bank for International Settlements, but it also finds real price growth in the country has been flat once adjusted for long-term trends. According to the BIS’s latest quarterly review of global housing, Australia was the second most expensive market on a seasonally and inflationadjusted index of advanced economies, behind Norway and ahead of Great Britain and Sweden. Australia scored 200 points, where the base, representing the average of the full sample of countries, is 100.

THE STAR Eco World Development Group Bhd will take up the offer to buy 190.2ha in Batu Kawan from Penang Development Corp (PDC) for RM1.02bil. PDC is offering the sale of the property to Eco World as the group is the only bidder. It is learnt that PDC will give Eco World the offer letter in two weeks to buy the property at RM50 per sq ft. PDC has firmed up plans to turn the 190.2ha near the second Penang bridge into a golf course and a mixed development project.

Members of Argentina’s Chamber of Deputies begin a debate over a bill to locally pay the bondholders on September 10th

ometimes the worst intentions yield the best results. So it is, unexpectedly, with Argentine debt. The story begins with Argentina’s financial crisis in 2001-2002. There is no question that the crisis left the country unable to service its debts. But Argentina made no friends by waiting four years to negotiate with its creditors and then offering settlement terms that were stingy by the standards of previous debt restructurings. Still, the terms were acceptable to the vast majority of the country’s creditors, who exchanged their old claims for new ones worth 30 cents on the dollar. All, that is, except for a few holdouts who bought up the remaining bonds on the cheap and went to court, specifically to the US District Court of the Southern District of New York, asking to be paid in full. This quixotic strategy met with unexpected success when Federal Judge Thomas Griesa ruled in the holdouts’ favour. Griesa idiosyncratically reinterpreted the pari passu, or equal treatment, clause in the debt contracts to mean that “vulture” funds refusing to participate in the earlier debt exchange should receive not 30 but 100 cents on the dollar. Griesa’s ruling threatened to hold the Bank of New York Mellon, the Argentine government’s agent, in contempt if it paid other bondholders without also paying the vultures. Effectively barred from servicing its debt on the renegotiated terms, Argentina had little choice but to default again. This was not an episode from which anyone emerged smelling

like a rose. Argentina’s hardball tactics and erratic policies did not endear it to investors. The vultures showed no scruples in profiting at the expense of Argentine taxpayers. They are now deploying the same strategy against the Democratic Republic of the Congo, one of the world’s poorest countries. Griesa, for his part, showed no compunction about upending a financial order in which marketbased exchanges of old bonds for new ones are used to restructure the debts of countries unable to pay. By making it impossible for sovereigns to restructure, he effectively rendered them unable to borrow in the United States. Ignoring previous precedent and all economic common sense, he threw international financial markets into turmoil. This prompted various suggestions for reforming sovereign-debt markets. Resuscitating ideas advanced in the wake of Argentina’s earlier default, some experts proposed creating an international bankruptcy court in the IMF. Others suggested that Argentina might issue bonds under European – or even domestic – law. But experience has shown that bondholders are not inclined to subordinate their claims to some untested international bankruptcy court. The only thing they would like less are obligations whose terms were enforced by courts as easy to manipulate as Argentina’s. As for borrowing in European currencies, Griesa was quick to declare that his rulings would cover such bonds as well. Fortunately, there is a simple solution to these problems. Investors could agree to insert

language into bond contracts that leaves no room for vulture funds. First, they could clarify the pari passu clause, specifying that it guaranteed comparable treatment for existing bondholders, not for existing bondholders and earlier bondholders whose claims were already extinguished. Second, issuers could add “aggregation clauses” specifying

Resuscitating ideas advanced in the wake of Argentina’s earlier default, some experts proposed creating an international bankruptcy court in the IMF

that an agreement supported by a qualified majority of a country’s bondholders, say, two-thirds, would bind one and all. There was already movement after Argentina’s earlier default to add “collective-action clauses” that allowed the holders of an individual bond issue to take a binding vote to accept a restructuring offer. But this still allowed the vultures to block the process by buying up a third of a particular bond issue. By contrast, purchasing a third of a country’s entire debt stock, as required for a blocking position when all bondholders vote together, is an altogether more costly proposition. In 2003, in an article in the American Economic Review, Ashoka Mody and I made the case for these provisions. They are basically what the International Capital Market Association of leading investors and issuers has now agreed to implement, subject to some additional details that need not be examined here. Why didn’t it happen sooner? The answer is that getting investors to agree is like herding cats. In this case, it required strong behind-the-scenes leadership from the US Treasury. The agreement is not perfect, and problems remain. Because new contractual provisions are not easily retrofitted into old bonds, it will take years before the clauses are included in the entire stock of debt. Establishing an international bankruptcy court would be a far more efficient solution, but that doesn’t make it feasible. Investors were wise to acknowledge that, in international capital markets, the perfect is the enemy of the good. Project Syndicate 2014

September 16, 2014

Closing China’s funds for foreign exchange drop unexpectedly

OECD reduces eurozone growth forecasts

China’s funds outstanding for foreign exchange fell unexpectedly in August, underscoring short-term pressure of capital outflow, according to data released yesterday by the People’s Bank of China (PBOC). Funds for foreign exchange stood at 29.46 trillion yuan (US$4.79 trillion) by the end of August, down 31.15 billion yuan from a month ago, the PBOC data showed. The decline in August reversed a growth in funds for foreign exchange seen in July, according to the PBOC, China’s central bank.

Sickly eurozone recovery is a drag on the outlook for the global economy, the OECD warned yesterday as it cut growth forecasts for most major advanced economies. The sluggish recovery is also at risk from increased tension over conflicts in Ukraine and the Middle East, and uncertainty over the future of Scotland, the Organisation for Economic Cooperation and Development said. “Continued slow growth in the euro area is the most worrying feature of the projections,” the OECD said, as it updated its forecasts for major economies.

Rooftop power generation surges despite challenges China’s National Energy Administration issued a statement asking local governments to facilitate the construction of distributed PV generation units

fter installing eight photovoltaic panels on the roof of his twostory house, Wen Xingwang’s financial future is looking a bit brighter. In nine months following the installation off the panels, the 22-year-old has made more than 900 yuan selling the excess power back to the state grid, with overall revenues reaching 1,400 yuan. Wen, who works at a PV company in Shizuishan City of northwest China’s Ningxia Hui Autonomous Region, invested 20,000 yuan last December building the simple distribution PV generation unit. The 2-kilowatt generation unit has so far produced more than 2,000 kilowatt hours(kwh) of electricity, with the extra energy produced sold for 0.59 yuan per kwh to the state grid, earning an extra 60 percent

from the deals in the form of a subsidy from the central government. The current price for household electricity is 0.45 yuan per kwh. Wen plans to expand the capacity of his rooftop power generation unit to 5 kw as the central government continues encouraging the development of distributed PV generation units, normally installed on the roofs of residential and commercial buildings. China’s National Energy

Administration (NEA) issued a statement on September 2, asking local governments to facilitate the construction of distributed PV generation units by reducing taxes for those using them and encouraging banks to help provide financing. The administration also asked the state grid to offer the same price for the electricity as they would for large-sized PV power stations. That means Wen can get prices

as high as 0.9 yuan per kwh, boosting annual revenues to 5,000 yuan. Wen is not the only one cashing in on rooftop power generation. Zhu Qijie, a villager in Yangzhou City of east China’s Jiangsu Province, made 4,449 yuan in profits within one year generating 6,000 kwh of electricity through a rooftop PV unit by the end of June. In Jiangxi Province, about 2,000 households have

applied to install distributed PV generation units after the province began the promotion in June 2013. According to NEA data, 990,000 kw distributed PV capacity were added to the state grid in the first half of this year, more than that in the whole year of 2013. The NEA unveiled its PV development targets for 2014 in August, vowing to install 13 gigawatts of new PV power capacity this year. The target is more ambitious than the State Council guideline released in July 2013, which outlined plans to install 10 gigawatts of PV power capacity every year from 2013 to 2015. To boost the sagging solar power industry, China has turned to distributed PV power generation and rolled out a string of preferential policies, including subsidies and tax reduction. However, promoting doesn’t always equate power production. Huge initial investment and long cost recovery time affect people’s enthusiasm to build the distributed PV generation units, said Kang Hailong, general manager of Ningxia Photoelectricity Construction Engineering Co. Ltd, which is building PV facilities in residential compounds in the region. For Wen, it will be 10 years before he can reclaim his cost under current earnings level. The average lifespan of a distributed PV unit is roughly 25 years.

Xi touts ‘maritime silk road’ on South Asia tour

Shanghai-HK stock link finishes new tests

Google launches US$105 phones

hina’s President Xi Jinping enlisted the Maldives’ backing for a “21st century maritime silk road” yesterday as he began a tour of South Asia in the strategically located Indian Ocean island chain. The Maldives is best known for its tourist industry but also straddles major international shipping lanes, and Chinese investment there has grown significantly as Beijing seeks to secure vital trade routes. Xi is in the Maldives at the start of a tour set to focus on China’s growing economic influence in South Asia, which has raised alarm bells in regional power India. From the Maldives he will travel to Sri Lanka where China has invested heavily, building a deep-sea harbour and an international airport in an area that straddles the east-west shipping lane, the world’s busiest trade route. The “maritime silk road” - touted by Xi during a visit to Indonesia last year - is intended to revive a trade route running from China through Southeast Asia and the Indian Ocean to Europe. AFP

new stock trading program that will link Shanghai and Hong Kong’s exchanges has completed the second round of trading tests, paving the way for its official launch. The Shanghai-Hong Kong Stock Connect, a pilot program designed to allow mutual stock market access for investors in the Chinese mainland and Hong Kong, conducted a new round of tests during the past weekend, the Shanghai Securities News reported Monday. On Saturday, the Shanghai Stock Exchange tested the system’s performance under different trading simulations. A total of 94 members participated in the test and no major problems were reported. This successful test and the first one in late August show Shanghai’s trading system is technologically ready for official launch, the report said. The Hong Kong stock exchange said Sunday that its second test had also proved successful. The program was first announced in April 2014 aiming at enabling investors of both markets to trade designated shares listed in each other’s market. Xinhua

Xinhua

oogle launched in India yesterdayMonday the first smartphones under its Android One project, pricing them at around 6,399 rupees (US$105) to capture the low-cost segment of the world’s fastest growing smartphone market. The Mountain View-Based company tied up with Indian mobile players Micromax, Karbonn and Spice Mobiles to launch the affordable phones, which are powered by its operating system and aimed at emerging markets. After launching in India, Google said it plans to expand Android One to Indonesia, Philippines and other South Asian countries by the end of 2014 and in more countries in 2015. Google outlined the pricing and expansion details in a marketing document seen by Reuters. India is seen as a lucrative market for low-cost smartphones because many people are buying the devices for the first time. Just 10 percent of the India’s population currently owns a smartphone, brokerage Nomura said in a recent research note, and that figure is likely to double over the next four years. Google, however, is not the only company jostling for a share of the Indian market. Reuters