Macau Business Daily, Sept 17, 2014 by Business Daily

MOP 6.00 Closing editor: Sara Farr

Vanishing dreams

roof over your head here is getting harder to buy. A growing number of Macau residents are giving up on the idea. Property prices increased 25 percent in the 2Q to MOP111,000-plus per square metre. Banks are also sharing the pain. New mortgage approvals declined 40 percent in July alone, the Monetary Authority revealed PAGE

www.macaubusinessdaily.com

Year III

Number 627 Wednesday September 17, 2014

Publisher: Paulo A. Azevedo

Weng Hang’s profits down 4.2 pct PAGE 3 | VIP business boosts NagaCorp in 1H PAGE 5

HSI - Movers

Macao Ideas move to ZAPE to damage promotion

September 16

Name

The ‘Made in Macao’ product display centre is moving. Next month, Macao Ideas shifts from the tourist hub of Golden Lotus Square to a more discrete office in ZAPE. This will mean less visibility, companies told Business Daily. SME entrepreneurs say advertising impact will plummet. The centre currently showcases garments, food, wine, furniture, and arts and crafts souvenirs

%Day

MTR Corp Ltd

1.78

Cathay Pacific Airwa

1.52

Hengan Internationa

1.24

COSCO Pacific Ltd

1.13

BOC Hong Kong Holdi

0.78

Lenovo Group Ltd

-2.85

Galaxy Entertainmen

-3.25

China Mobile Ltd

-3.80

Sands China Ltd

-3.91

China Unicom Hong K

-4.53

Source: Bloomberg

I SSN 2226-8294

PAGE 2

Brought to you by

4G race until November Interested parties may now bid for a 4G licence. Submissions can be made up to November 18. Four licences are up for grabs. Future 4G services will operate in tandem with the current 3G and 2G services. The government says the industry still needs to cater to the needs of tourists PAGE 2

Diving deeper

Investment on the run

Morgan Stanley is pessimistic about immediate prospects. It says the gaming industry faces a new round of downward revisions. Revenues are predicted to drop 15 percent in the next two quarters. The market may recover in April. Meanwhile, staff costs and labour shortages are a ‘serious issue’ PAGE

Foreign direct investment has fallen to a two and a half year low. This highlights a downward trend in August. And a confusingly moody batch of results for the first eight months of the year Page 8

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September 17, 2014

Macau

Macao Ideas relocation doesn’t ad up ‘Made in Macao’ product display centre ‘Macao Ideas’ is shifting base from a tourist zone, which may dent advertising impact, companies say Stephanie Lai

sw.lai@macaubusinessdaily.com

acao Ideas - a product display centre established to promote Made in Macao brands - is moving away from its current location near the Golden Lotus Square tourist attraction to an office in ZAPE in October, an action that some users of the display centre worry will lessen promotional impact. Macao Ideas currently pays a very low rental to Macao Trade and Investment Promotion Institute (IPIM), which runs the exposition centre on the ground floor of the Tourism Activities Centre. Local companies ranging from garments to food products to wine, furniture and arts and crafts souvenir retailing can display their products in the centre, while their company’s information is publicised on Macao Ideas’ official website. But Macao Ideas will relocated to Macao Business Support Centre

inside the office building in China Civil Plaza in ZAPE on October 1, IPIM announced in a statement on Monday. The institute only briefly mentioned that the relocation was out of ‘development necessity’ without elaborating further. “Definitely there would be some advertising impact lost after Macao Ideas is relocated to an office from a tourist zone,” general manager of spectacle frame producer Sen Jiang Industrial Company Ltd Alan Wu told Business Daily. His company has showcased products in Macao Ideas since its operation began in May, 2011. He considers that Macao Ideas’ operation has been successful in helping to promote his company to professional buyers but an exposure to regular customers recognising his brand in a tourist hub is preferable. Founder and creative director of

Macau Creations Wilson Lam shares a similar view. Macau Creations, which sells design souvenir products, also has products displayed in Macao Ideas. “I would agree that the current site of Macao Ideas is a better spot that receives streams of mainland Chinese tourists,” Lam remarked. “I actually think that it’d be even better if the government allowed certain retail activities to go on inside Macao Ideas. It’s a bit of a waste merely using the space as a display centre there,” he added. However, unlike Mr. Wu, Wilson Lam said he did not sense much impact for his firm’s exposure to professional buyers via the operation of Macao Ideas. “It [Macao Ideas] is the government’s long-term investment to try to promote and support local brands, for which the companies need not pay a high advertising cost,” said the Macau Creations founder.

“However, it’s hard to measure how much that platform has actually helped us, just as you don’t know how much more traffic advertising in Art Map [a free Hong Kong monthly publication that posts news on art events and carries advertisements] can generate for your shop.” Nevertheless, both Wilson Lam and Alan Wu conceded that they will continue to place products in Macao Ideas following its relocation. In the statement released on Monday, IPIM said that it will continue to display products from over 110 firms following the relocation. Business Daily asked Macau Government Tourist Office - which owns the current site of Macao Ideas what the 600-square metre space will be used for once the Centre relocates but had not received a reply by the time the story went to press.

Government accepting 4G licence bids until November 18 The public tender for the 4G service was officially opened yesterday. 4G will be in, 3G and 2G won’t be out Kam Leong

kamleong@macaubusinessdaily.com

he city’s future 4G service will operate in tandem with the current 3G and 2G services in the near future, while operators providing the latest service will need to archive at least the minimum compensation scheme guided by the government, the Bureau of Telecommunications Regulation said yesterday. The government has officially opened its public tender for the 4G service. The bidding period will last two months, ending on November 18. The 4G service will be unveiled next year. However, according to the director of the Bureau, Horry Hoi Chi Leong, the debut of the latest telecommunications technology does not mean that current 3G and 2G services will be phased out. “There will be no such transitional period [from 3G to 4G]. It will all depend on the users, whether they will choose to use the 4G service or the 3G service. In the near future, Macau will have these two networks simultaneously,” Mr. Hoi said. In addition, he said that Macau as a tourist city will

also have to cater to the needs of tourists whose countries may still be using 2G service, claiming the city has the conditions to deal with them. The government announced on Monday in the Official Gazette that four 8-year licences will be issued next year. Future operators will have to provide service covering 50 percent of the territory within the following year and cover 100 percent in 2016. Although there are currently four telecommunications operators in the city, Mr. Hoi denied that the four licences are particularly geared for them.

“The number of licences to be issued is set based on the development of the market. Currently, there is no regulation ruling that only local operators can place their bids,” the director of the Bureau said, claiming that the environment of four operators will benefit “healthy competition in the market”. In fact, only CTM (Companhia de Telecomunicações de Macau SARL), seen as the dominant operator in the city, has announced its interest in bidding for the 4G service so far. Hutchison Macau, also known as 3 Macau and China

Telecom Macau, told Business Daily on Monday that it had to study and review the terms and requirements to decide if they would submit a bid, while SmarTone had not publicly expressed any interest yet. The public tender is open to all interested local and mainland operators thus it is hard to predict the number of bids the government will receive, the director said. In addition, he stressed that even if the number of bids is four or less all bids will be evaluated according to the requirements, meaning the government will reserve the

right to issue all four licences. All interested parties will have to propose a compensation scheme for users according to requirements; the government claimed yesterday, however, that it will issue a guideline on the minimum compensation for operators. The compensation scheme, according to the director, is to refund users should operators experience a large scope of service stoppage for a certain period of time. “We encourage bidders to propose a better compensation scheme than the minimum one,” Mr. Hoi said, adding that the government will not regulate the limit and will unite the scheme for every operator. He said the minimum compensation by the government, for example, may require the operator to refund one day of the service fee for that month to its users if its service breaks down for three to five hours and affects more than 50 percent of users. On the other hand, the future 4G operators will need to pay five percent of their gross revenue gained from the 4G services to the government as an annual ‘operation fee’. Reminded by reporters that voices in the market say the percentage is quite high, Mr. Hoi responded that the percentage is actually the same as for the current 3G service, claiming the percentage is reasonable and quite low compared to foreign countries. In addition, he explained that the ‘operation fee’ cannot be understood as ‘taxes’ to the government as it has different definitions and regulations. According to Mr. Hoi, the government received less than ten million patacas from operators providing 3G services every year.

September 17, 2014

Macau

Home sweet home no more A growing number of Macau residents are convinced that they will never own a home of their own Sara Farr

sarafarr@macaubusinessdaily.com

drop for the latter. In addition, the number of unfinished flats that were collateralised also dropped by 60.6 percent monthon-month to MOP1.1 billion from MOP2.7 billion in June. Overall, the gross outstanding value of residential mortgage loans at the end of July totalled MOP140.8 billion, down slightly by 2.2 percent from MOP137.8 billion recorded a month earlier. However, this figure was up 29.9 percent when compared to that of July 2013.

Investing in commercial

ot only did property prices increase by 25 percent in the second quarter of the year to MOP111,542 (US$13,973) per square metre but more Macau residents are giving up on getting a foot on the housing ladder. While the overwhelming majority of new residential mortgage loans are extended to Macau residents, the overall number of approved loans by banks here dropped 40 percent in

July over that of the previous month. Official figures released yesterday by the Monetary Authority of Macau (AMCM) show that new residential mortgage loans granted by banks totalled MOP5.5 billion at the end of July compared with MOP9.2 billion only a month earlier. The average price of housing bought off-plan also rose by 48 percent to MOP185,886 per square metre. In addition, the latest figures

from the Statistics and Census Service Bureau (DSEC) show that 2,462 homes were sold in the second quarter of the year, a 24 percent increase over the first quarter. Of the overall residential mortgage loans approved in July, MOP5.4 billion was taken out by Macau residents and MOP1.2 million by non-residents. That’s a 22.3 percent decrease for the former over that of June, while it is also a 94.7 percent

But while residential mortgage loans drop, the number of new commercial real estate loans approved by Macau banks increased by 60.5 percent in July over that of a month ago, and 580.3 percent year-on-year. Similarly to residential mortgage loans, the majority of people looking for credit for commercial properties were Macau residents, with the total value of new commercial real estate loans approved reaching MOP17.5 billion. Of these, MOP15.4 billion was extended to residents here, up by 43 percent from that of a month ago and 528.6 percent from that of a year earlier. New commercial real estate loans approved by banks here to non-residents totalled MOP2.1 billion, a staggering increase when compared to the MOP1.1 million taken out just a month earlier. In addition, the gross outstanding value of commercial real estate loans increased by 5.7 percent to MOP111.1 billion in July from MOP105.1 billion in June. This is also a 43.4 percent increase compared to that of a year ago. Earlier this year, the World Bank ranked Macau the fourth richest territory per person in the world, while the Global Property Guide has ranked Macau as having the eleventh highest average purchase price per square metre, making it one of the most expensive places to live in the world.

Banco Weng Hang’s H1 profit drops by 4.2 pct Weng Hang said it still saw robust consumer loan demand in the period, although growth has slowed with shrunken mortgage plans Stephanie Lai

sw.lai@macaubusinessdaily.com

anco Weng Hang, S.A., which mainly operates retail banking in the territory, posted a net profit drop of 4.2 percent for its first half performance amid a slowing of total loans growth. The bank’s parent company, Hong Kong’s Wing Hang Bank Ltd, told the Hong Kong Stock Exchange on Monday that Weng Hang’s net profit for the first six months this year decreased by 4.2 percent year-on-year to 187.6 million patacas (US$23.5 million) due to the net gain on a property disposal of 54 million patacas in the same period last year. Banco Weng Hang reported 21.3 percent growth in operating profit before impairment and allowances to 199.5 million patacas in the period, reflecting the strong growth of the city’s economy

as both tourism and gaming sectors continue to expand. Backed by “robust” consumer loan demand coupled with improved interest yields, Banco Weng Hang’s first-half net interest income jumped 25.1 percent year-on-year to HK$259 million, about 14 percent of the group’s total net income interest at HK$1.84 billion, the interim report noted. The group’s lending to its customers here was HK$19.14 billion in the first half of this year, about 23 percent higher than the HK$15.5 billion patacas in the same period last year. But the group noted in the report that despite strong growth in consumer loans and cross-border trade loans here, total loans increased by a relatively modest 3.5 percent compared to the end of 2013,

mainly due to sluggish growth in mortgage loans in the first quarter resulting from a sharp decrease in property transactions. In the period, the loan-todeposit ratio of Banco Weng Hang was 69.8 percent. By the end of June, the group had 13 branches in Macau, 42 branches in Hong

Kong and 15 branches and sub-branches in mainland China. The group’s firsthalf profit attributable to shareholders decreased by 7.4 percent to HK$932.8 million from a year earlier, regarding which Wing Hang noted that the main reason was the decrease in capital

gains on disposal of properties and unreaslised losses on the bank’s subordinated liabilities. The earnings per share of the group in the period decreased by 9 percent to HK$3.03 from HK$3.33 a year before. Wing Hang does not recommend any interim dividend for the year 2014.

September 17, 2014

Macau

For Macau only

Brought to you by

This Special Administrative Region lacks land and has sought it in Hengqin where it plans further development projects

HOSPITALITY Flying higher Based on data released by travel agencies, the statistical department publishes monthly figures on travel organised by travel agencies for Macau residents, including both packaged tours and individual travel. The last few years suggest indeed that many Macau citizens have taken to travelling with gusto. Of course, these figures do not account for travel arrangements made independently but they should provide a fair enough picture of the evolution of residents’ travel patterns. Taken together, packaged and individual travel arranged through travel agencies went up by more than 25 percent in the last year to July. From July 2010 to July 2014, those numbers more than doubled, and the same happened in both components of travel. While that growth was faster, initially, in the case of packaged tours, it has lately been felt especially in the case of individual travel. Last July, year-on-year, growth rates reached 7 percent for packaged tours and 37.2 percent for individual trips.

Greater China, comprising mainland China, Hong Kong and Taiwan, was the destination for most of resident’s trips. In July, that proportion reached 80 percent of the total. This figure sits, actually, at the lower end of the typical combined share for those three regions. Such a comparatively low figure is the natural result of rising numbers of trips to other parts of the world over the summer period. In the previous six months the corresponding figure had always stood above 85 percent. Mainland China alone commands the bigger share of all travel destinations, and one that has been rising steadily. It went from around 45 percent in 2010 to more than 55 percent in the last eleven months ending in July. J.I.D.

1.488 mln

resident’s trips arranged by travel agencies, last year to July

acau wants to expand its land and has requested Beijing’s permission to expand its footprint on Hengqin Island. The same can’t be said of Hong Kong as the neighbouring region “has” Shenzhen, which experts label similar to Hengqin Island. Professor and co-director of the Centre for Greater China Studies at the Hong Kong Institute of Education, Sonny Lo Shiu Hing, says that at this point the Fragrant Harbour is quite cautious, mostly because of the geography of its border. “In Macau, you have Hengqin but in Hong Kong there is just Shenzhen nearby, so the

situation is a little bit different,” he says. And, even if Hengqin is not an option for Hong Kong due to distance, along the Shenzhen border there is no unique island similar to Hengqin. “In Hetao, Shenzhen, there are some difficult problems with the soil, so it’s not easy for the government to handle pollution and sustainable issues.” Zhuhai Da Hengqin Investment Co Ltd, responsible for the land development and infrastructure projects on Hengqin Island, recently told the press that 79 Hong Kong firms had registered interest in investing. By May this year, the registered capital

of these 79 Hong Kong firms totalled about 25.3 billion (US$3.27 billion). News reports also reveal that Hong Kong property developer Lai Sun Group will invest HK$3.8 billion (US$490 million) in the first phase of a cultural and commercial development on Hengqin Island to be called Creative Culture City. Lai Fung Holdings Ltd chairman Chew Fookaun says he expects construction to begin this year. The project also includes plans for an e-sports arena. The full story can be read in this month’s issue of Macau Business magazine, available from newsstands and online at www.magzter.com.

Breaking point, almost The infrastructure is starting to feel the strain of the growing number of foreigners moving to Macau for work and end up calling it home

acau’s population stood at 624,000 at the end of the second quarter of the year; with the number of large-scale infrastructure projects planned for the city in the next couple of years, that number is only set to increase. This, however, is putting a strain on the territory and soon enough Macau will be left unable to cope with the growing number of workers arriving here on a monthly basis. Economist José Isaac Duarte and urban planner Francisco Vizeu Pinheiro say there is no easy solution, since the workers are essential for building the new Cotai – the casino area located twixt Taipa and Coloane

islands – gaming complexes. “Planning is always part of the solution but considering the limitations, I believe a limit has been reached, even considering the new reclaimed sites”, says Vizeu Pinheiro. Macau has been trying to fight the lack of space by creating new areas reclaimed from the sea. As the population grows – in a territory that welcomes around 30 million tourists every year – the proportion of social facilities has decreased and now stands below the world average and even that of Mainland China, according to the urban planner. As an example, he points to the number of available hospital beds. On the

other hand, Isaac Duarte says that Macau has “reached the period in its history when more non-resident workers are entering the territory”. The consequences of population growth transcend the economic area and may well fuel a rise in social tensions and even racist episodes akin to what is unfolding in Hong Kong. He adds that, “tensions will increase as non-resident numbers go up. Soon, one third of the population will be of a floating nature. People in transit, living in a sort of social limbo”. The full story can be read in this month’s issue of Macau Business magazine, available from newsstands and online at www.magzter.com.

September 17, 2014

Macau Construction worker fatality VIP clients drive in Sands Cotai Central 7 percent jump in NagaCorp profits A The gaming company that runs NagaWorld in Cambodia increased its profits by US$4.7 million in the first half of the year after VIP revenues climbed 61 percent. NagaCorp wants to expand to the north of Asia, with sights on the Chinese market

Macau resident died on Monday while working in Sands Cotai Central. The male construction worker was 58 years old and died from an accidental fall while working on what is going to be a theatre in the south of the complex. The accident took place at 5.00 pm, the Labour Affairs Bureau confirmed to Business Daily. This was before the Meteorological Bureau decided to hoist Signal 3 due to typhoon Kalmaegi, later upgraded

to Signal 8. This is the second fatal accident in a Sands China property this year, and follows an accident on the Parisian construction worksite, which took place in June. On that occasion construction was stopped as the Land, Public Works and Transport Bureau (DSSOPT) revealed that the contractor had built a structure of approximately 10 floors in height despite only having a licence permitting earthworks.

João Santos Filipe

jsfilipe@macaubusinessdaily.com

Kalmaegi leaves 5 injured in its wake

clean-up was underway yesterday afternoon after typhoon Kalmaegi left five injured and a number of fallen trees and billboards. Authorities recorded 86 incidents between 1:15am and 1:00pm yesterday, with Signal 8 hoisted. Of the five people injured, two required hospital treatment. Several flights and ferry services were cancelled on Monday night and most of yesterday, while schools were suspended for the whole day and

agaCorp registered a net profit of US$67.6 million (540 million patacas) for the first half of the year, the company announced in its interim report. This is an increase of US$4.7 million (38 million patacas) or 7 percent in comparison with the first half of last year (US$62.9 million or 502 million patacas). The VIP segment was the main cause for the improved performance of the company after its revenues jumped US$32.7 million (261 million patacas), meaning 61 percent, from 53.3 million (425 million patacas) to 86 million (687 million patacas). Overall, 45 percent of NagaCorp’s revenue was generated by VIP gaming (US$86 million or 687 million patacas), 28 percent in mass market tables (US$53.1 million or 424 million patacas), 22 percent in mass market electronic gaming (US$41.2 million or 329 million patacas) and 5 percent (US$10.7 million or 86 million patacas) in non-gaming areas that include hotel, food, beverage and entertainment. The total revenue for the first half of the year was US$191 million (1.5 billion patacas) in comparison to 151.6 million (1.2 billion patacas) for the first half of the previous year. “We are pleased to report that NagaCorp continued to outperform its regional gaming competitors during the first six months of 2014”, Chairman Timothy Patrick McNally and the Chief Executive Officer Tan Sri Dr Chen Lip Keon wrote in messages included in the company results. “We achieved these results despite the negative news and slowdown of GGR growth in Macau. The Company’s positive results were attributed to higher business volume from the Public Floor Tables and the successful ramp-up of VIP Gaming generated through the junket incentive programme”, they added. In the last three months, Macau’s

gross gaming revenue has been shrinking in year-on-year terms. However NagaCorp GGR grew 35 percent sequentially from the first quarter to the second quarter of the year. “The directors believe that the growth in the Group’s GGR compared to the decline in Macau highlights the different and diverse source gaming markets of the Group (predominantly from South East Asia and Indochina) compared to Macau (predominantly from China)”, the company explained. As for the future, in terms of VIP segment NagaCorp is focused on expanding in North Asia, while continuing to develop South East Asia. In order to do that, the company decided to open a marketing office in the Special Administrative Region of Macau. “To further diversify and grow its revenue base, the Group is expanding its reach to North Asia and plans to sign up new junket operators. To pursue this, the Group has established a marketing office in Macau for the purpose of promoting NagaWorld to the North Asian junket market while continuing with its market development in South East Asia”, it was revealed. Concerning the mass market, Chinese customers are the main target of the company based in Cambodia, which bought two Airbuses to facilitate travel to the country. “With regard to the mass market, the Group is also focused on developing the China market by improving accessibility to Phnom Penh, using its recently acquired Airbus A320s and collaborating with key outbound Chinese travel agents”, the company said. The company casino NagaWorld is located in Phnom Penh, the capital of Cambodia, and has 169 gaming tables and 1,544 electronic gaming machines. NagaCorp also has offices in Hong Kong, Macau, Thailand, Vietnam and Malaysia.

public service suspended for the morning. The bridges between Macau and Taipa were closed until Signal 8 was lowered although the tunnel on Sai Van Bridge opened during the 12-hour period. A total of 26 cases of fallen trees were reported, in addition to 12 billboards and four scaffolding. There were also reports of three flood areas and two road accidents. While lashing through Macau, typhoon Kalmaegi registered wind speeds of 120 kilometres per hour.

Corporate Sofitel presents French cuisine credentials Sofitel Wine Days 2014 kicks off today with Chef Nicolas Rieffel from Alsace introducing a series of events. In France, wine harvesting traditionally occurs between September and October. As the ambassador of French elegance, Sofitel links its collection of addresses to gastronomy and collaborates with renowned wineries. Sofitel Wine Days run from today to October 31. The company is also organising a ‘unique dining experience with Chef Vincent Rouillé, who has more than 10 years experience in food and beverage’. He says, “As much as I love French food, I enjoy discovering other recipes and cultures ; I’m constantly updating, tweaking recipes as new produce becomes available.” Chef Rouillé’s first efforts will include evolving the local influence into classical French cuisine such as tableside Steak au Poivre and ‘continually embracing the philosophy of serving tableside on seasonal produce, crafted to evoke full flavours through the use of the finest ingredients,’ the company added. Meanwhile, Chef Nicolas Rieffel will host a cooking session with students from IFT and M.U.S.T at Sofitel Macau to showcase Alsatian Cuisine.

September 17, 2014

Gaming

Gaming revenues could drop by double digits until early 2015 Morgan Stanley says the industry here will face a new round of downward revisions for revenue and profit growth. Less revenues and increased staff costs could be an explosive mix for operators Luís Gonçalves

Luis.goncalves@macaubusinessdaily.com

he drop in Macau’s gaming revenues will continue to accelerate through the rest of the year and is unlikely to recover before the start of the second quarter of 2015, opening doors for further downward revision for casino profits in Macau, Morgan Stanley said yesterday. In a note to clients, Morgan Stanley predicts that gaming revenues here will decrease 4 percent in the third quarter compared to the same period last year. In September, revenues are set to drop 10 percent. Until the Spring of next year, the gaming industry in Macau will face some hard times with revenues dropping by double digits. According to the US bank’s estimates, revenues will fall by 14 percent in the last quarter of 2014 and a record 16 percent in the first three months of 2015, both on a year-on-year basis.

9 percent for 2014 and 14 percent for 2015 as too high and needing to come down. This could drive industry multiples above long-term averages and thus valuation does not look compelling despite underperformance year to date’, wrote the bank to clients. The causes for the downturn include the usual suspects. In the VIP segment decline is driven by the junket liquidity shortage, property sector downturn and transit visa restrictions affecting junkets and agents. The opening of Phase 2 in Cotai, once heralded as a path to the recovery of the VIP segment, ‘is unlikely to bring growth back to VIP in view of growth saturation and lagging demand’, Morgan Stanley wrote. In the mass segment, events like the smoking ban set to start in October, transit visas and limited hotel rooms are the main headaches for operators.

Turbulence Only then will operators’ revenues turn and start to improve as the wave of new openings in Cotai adds more capacity and, hopefully, attracts more gamblers. For the second quarter of next year, gaming revenues will still drop by 6 percent before returning to positive territory. Morgan Stanley says that the average growth of revenues for 2014 and 2015 will hover between 3 and 4 percent. With diminishing revenues, gaming operators will suffer some

The real problem

turbulence on the stocks front and some damage to profits. Morgan Stanley also underlines that profit growth could continue to

lag if staff costs increase ahead of the first openings in Cotai of Galaxy and Melco Crown Entertainment. ‘We view consensus revenue growth of

However, Morgan Stanley notes that labour shortage is the ‘obvious and quite serious issue’ in Macau. Operators will need an extra 6,000 to 8,000 new workers for the new casinos in Cotai. In addition, recent strikes and employee demands have already increased staff costs by 10 percent annually. This could be an explosive mix for the gaming companies in Macau as revenue growth is slowing down while staff costs could cause a ‘severe margin pressure’ in profits.

Hong Kong H-Shares Erase Year’s Gain on typhoon day

ong Kong stocks fell yesterday, with a measure of Chinese stocks traded in the city erasing this year’s gains, after foreign direct investment in China dropped, and ahead of the start of a Federal Reserve policy meeting. The city’s markets were closed in the morning because of a typhoon. Sinopharm Group Co. slumped 4.7 percent, leading declines on the so-called H-share gauge. China Unicom (Hong Kong) and China Mobile slid at least 3.6 percent as the telecommunications industry fell the most on the Hang Seng Composite Index. PAX Global Technology Ltd., which sells credit card payment terminals, tumbled 13 percent after its controlling shareholder sold a stake in the company. Casino companies retreated. The Hang Seng China Enterprises Index of mainland equities listed in the city, also known as the H-share index, dropped 0.7 percent to 10,755.13 in Hong Kong during the afternoon session, headed for a 0.5 percent loss for the year. The gauge is poised for a five-day drop of 5.7 percent, its biggest such retreat since June 2013. The benchmark Hang Seng Index fell

0.5 percent to 24,225.90. “I see further downside,” said Dickie Wong, executive director of research at Kingston Financial Group Ltd. “The major concern right now is about the Fed raising interest rates sooner than the market expected. Most economic data from China are not that surprising but I don’t see any big boost to the local stock market.” Hong Kong cancelled morning stock trading after the city issued its third-highest storm signal for the first time this year for Typhoon

Kalmaegi. The city also closed schools and banks, while hundreds of flights were delayed or cancelled. Foreign direct investment into China, a gauge of external confidence, dropped 14 percent in August from a year earlier amid widening antitrust probes into multinational companies, data showed today. Inbound investment was $7.2 billion last month following a 17 percent drop in July. The H-share measure lost 5 percent from Sept. 8 through yesterday as

investors weighed the strength of the mainland economy after reports from industrial output to retail sales missed analyst estimates. The index traded at 7.3 times estimated earnings at the last close compared with 11.2 for the Hang Seng Index (HSI) and 16.6 for the Standard & Poor’s 500 Index. Futures on the S&P 500 (SPX) dropped 0.1 percent today after the underlying equity benchmark dropped 0.1 percent yesterday. Internet stocks and small-cap shares tumbled, sending the Nasdaq Composite Index near a one-month low, as investors sold some of the bull market’s best-performing shares. Economic data yesterday showed U.S. industrial production unexpectedly declined in August for the first time in seven months as automakers slowed assembly lines. Fed policymakers begin a two-day meeting today as they wind down a bond-buying programme and consider when to start raising interest rates. The central bank has been saying since March that interest rates would stay low for a “considerable time” after it completes the asset purchases known as quantitative easing. Bloomberg

September 17, 2014

Gaming

Macau unions say police questioned leaders following protests

hree Macau labour leaders said they were questioned and warned of possible charges by police after participating in protests that threaten to undermine casino earnings. Macau Gaming Industry Frontline Workers’ union co-founder Cloee Chao and two other members said they were separately questioned last week on suspicion of breaching police barricades during an August 25 demonstration. All three deny the allegations. The union is planning more protests to be held over China’s week-long National Day public holiday. “I feel intimidated,” said Chao, a 34-year-old single mother of two. “It’s a warning and a threat to me.” Macau authorities have evidence that protesters breached the cordon, police spokesman Wong Chi-wang said by phone yesterday. More time is needed to respond to the union’s specific comments, Wong said. A representative of the city government referred enquiries to the police. Chao and her union members are spearheading something that Macau’s US$45.2 billion gaming industry, which generates seven times more revenue than the Las Vegas Strip, have rarely seen before: worker protests. They’ve held eight demonstrations this year, with the September 13 one drawing about 700 employees demanding better pay and working conditions from top Asian casino operator SJM Holdings.

Industrial Action The unions have said workers from gambling mogul Stanley Ho’s SJM are considering taking industrial action during the annual holiday starting October 1, when mainland tourists often travel to Macau as casinos are illegal at home. Sands China, controlled by billionaire Sheldon Adelson, plunged as much as 4.1 percent to HK$44.10 in Hong Kong trading, its lowest level in more than a year. Wynn Macau Ltd. slumped as much as 3.2 percent and Galaxy Entertainment Group dropped 3.5 percent. The city’s morning trading sessions had been cancelled because of a typhoon. A shortage of labour is “quite a serious issue” for Macau’s casino

operators as they expand with a series of new resorts in the city’s Cotai district, Praveen Choudhary, an analyst at Morgan Stanley in Hong Kong, wrote in a note today. “Recent strikes and subsequent announcements related to higher bonuses are pushing staff costs growth of more than 10 percent per annum, which could mean severe margin pressure together with revenue growth slowdown,” he wrote.

Casino Profit Sands China’s revenue and operating margin almost tripled from its 2008 level to US$8.9 billion and 26 percent last year. Billionaire Lui Che-Woo’s Galaxy has jumped by about 1,400 percent in the past five years in Hong Kong trading, even though its shares are down 27 percent this year. Galaxy, Sands China and Wynn Macau have announced additional staff bonuses in recent months to counter worker dissatisfaction. Following a demonstration by Galaxy workers last month, Lui said he would consider distributing stock to staff. Macau’s casino operators didn’t immediately respond to telephone and e-mailed queries about the police action and planned protests. While Chao and her colleagues have organised and participated in demonstrations since May 2012, last week was the first time the trio said they had faced police questioning. They also said police called two of their families. A police officer told Chao, Lei Kuok Keong and Ung Kim Ip that authorities are looking into charging them with aggravated disobedience and will consider taking their cases to the Public Prosecutor, the three claimed. No charges have been filed so far, they said. Union chairman Ieong Man Teng and board member Loi Ngai Wai said they received calls from the police to turn up for questioning. Chao said that even after she submitted her contact details in an application for the August 25 protest, a police officer called her father, who is almost 80 years old, last week to ask about her. “My father and mother were scared and were crying,” she said. “They thought

something had happened to me.” Li, vice chairman of the Frontline union, said a police officer also called his parents’ home looking for him. Chao, a supervisor on a gaming floor at Wynn Macau, led more than 1,400 workers from the city’s biggest casinos

last month to demand higher salaries and better working conditions. Police officers and security guards put up barricades, with some of them holding hands as they blocked demonstrators from entering the casinos. Bloomberg

September 17, 2014

Greater China Aluminium executive resigns A senior executive at the state-owned Aluminium Corp of China Ltd (Chalco) has resigned, the company said yesterday, a day after the government’s top anti-graft agency said he was being investigated for suspected corruption. Chalco Vice Chairman Sun Zhaoxue is also general manager at the company’s unlisted parent, the Aluminum Corp of China (Chinalco). On Monday, the Central Commission for Discipline Inspection said Sun was suspected of “serious violations” of the law, a euphemism for corruption. In a filing to the Shanghai stock exchange, Chalco said Sun had resigned.

11th China-ASEAN Expo kicks off

In the first eight months of the year, China’s services sector attracted US$43.3 billion of FDI

China August FDI falls The weak investment data comes as China’s economic growth appears to be hitting a soft patch after a bounce in June

C The 11th China-ASEAN Expo kicked off in Nanning, capital of south China’s Guangxi Zhuang Autonomous Region yesterdfay, with over 2,300 companies from China and the Association of Southeast Asian Nations (ASEAN) attending the event. Chinese Vice Premier Zhang Gaoli and leaders of ASEAN member countries attended the opening ceremony. With the theme of “jointly building the 21st Century Maritime Silk Road”, the expo hosted 4,600 exhibitors, 1,259 of which are from ASEAN countries. Initiated in 2004, the expo serves as an important platform to promote bilateral trade and relationships between China and the ASEAN.

Maldives gives airport contract to Chinese firm The Maldives signed a deal with a Chinese firm to upgrade its international airport on Monday as Chinese President Xi Jinping toured the main island on his first trip to a region that India has long regarded as falling within its natural sphere of influence. The contract to expand Male airport has been given to Beijing Urban Construction Group Company Limited after the Maldivian government cancelled a US$511 million deal with India’s GMR Infrastructure two years ago. India has been concerned about growing Chinese involvement in the Indian Ocean.

To U.S. consumers Alibaba is a non-entity The vast majority of Americans have never heard of Alibaba, the Chinese e-commerce company which is on the verge of potentially the world’s largest initial public offering. An Ipsos poll conducted for Thomson Reuters found that 88 percent were not aware of Alibaba Group Holding, which on Monday raised the price range of its initial public offering. The IPO, expected later this week, could overtake the current record, Agricultural Bank of China Ltd.’s US$22.1 billion listing in 2010. A juggernaut in China, Alibaba sells more than both Amazon.com Inc. and eBay Inc. combined.

hina’s foreign direct investment in August fell to a low not seen in at least 2-1/2 years, underscoring the challenges to growth facing the world’s second-biggest economy. The weak investment data comes as China’s economic growth appears to be hitting a soft patch after a bounce in June, with indicators ranging from imports to industrial output and investment all pointing to sluggish activity. China attracted US$7.2 billion

in foreign direct investment in August, the Commerce Ministry said yesterday, down 14 percent from a year earlier and at a level not seen since at least February 2012. That left China with US$78.3 billion of FDI in the first eight months of 2014, down 1.8 percent from a year earlier. “It reflects the downward pressure on the manufacturing sector,” said Zhou Hao, an ANZ economist. “The manufacturing sector has not been doing well so it’s logical

that companies are reducing their investment.” FDI is an important gauge of the health of the external economy, to which China’s vast factory sector is oriented, but it is a small contributor to overall capital flows compared with exports, which were worth about US$2 trillion in 2013. China startled global investors last weekend when it released data that showed factory output growing at its slackest pace in six years in August, stoking fears its economy was sliding

Regulator questions Lexus over parts pricing Probe extends to other global automakers including Daimler’s Mercedes-Benz and Tata Motors Ltd.’s Jaguar Land Rover

hina’s price regulator has summoned executives from Toyota Motor Corp over pricing policies and practices for spare and replacement parts at its luxury Lexus division, people with direct knowledge of the matter said. The questioning coincided with the first-ever punishments of foreign automakers for price-fixing this month, when fines were imposed on the Chinese venture of Volkswagen AG and the China sales unit of Fiat’s Chrysler. A slew of antitrust investigations that encompass a wide range of

firms including Microsoft Corp and chipmaker Qualcomm Inc. has prompted complaints from foreign officials and the business community that foreign firms are being targeted unfairly. According to three China-based Toyota executives, the National Development and Reform Commission (NDRC) this month summoned Beijing-based executives at Lexus for questioning. Two of the executives, who declined to be named because of the sensitivity of the subject, said the NDRC questioned the Lexus

KEY POINTS Lexus execs questioned about spare, replacement parts policies Coincides with action against sales units of VW-FAW, Chrysler Mercedes-Benz, Jaguar Land Rover also being probed

September 17, 2014

Greater China KEY POINTS China Jan-Aug FDI falls 1.8 pct from year earlier August inflows at lowest in at least 2-1/2 years Evidence of further weakness in economy Authorities see no abnormal outflows of foreign capital

deeper into a bruising downturn and causing some economists to trim their 2014 growth forecasts. And even though data suggests that sluggish domestic demand is now a bigger drag on China’s economy compared with buoyant exports, Shen Danyang, spokesman at the commerce ministry, said the trade sector too is vulnerable to a cooldown. “We are not sure foreign trade can certainly sustain the high growth rate seen recently in coming months because there are still a lot of uncertain factors in external and domestic markets,” Shen told reporters at a monthly media briefing. Helped by a firmer U.S. economy, China’s exports have picked up recently to be a rare source of cheer in an otherwise gloomy data landscape. Figures this month showed exports in August jumped 9.4 percent from a year earlier while imports fell for the second consecutive month, raising concerns that tepid domestic demand exacerbated by a cooling housing

leaders about the brand’s spare and replacement parts policies, including pricing. Takanori Yokoi, a Beijing-based Toyota spokesman, declined to comment on the information provided by the sources, but said Toyota would cooperate with Chinese authorities if there was an investigation into anticompetitive matters. Officials at the NDRC could not be reached for comment. The summoning of Lexus China executives escalates the NDRC’s probe into Toyota. Earlier this year, the anti-trust regulatory unit of NDRC made initial enquiries about the brand’s auto parts policies via the China Automobile Dealers Association (CADA), Toyota executives familiar with the matter have said, adding that the association has been conducting an industry-wide survey since April. Two of the executives with information about the NDRC’s latest move said it is looking into pricing policies and practices of the Japanese luxury brand in the south China province of Guangdong. It appears the regulator is trying to build a case against Lexus for engaging in price-manipulation in connection with spare parts, they said. But they added that it did not seem that a fine on Lexus was imminent. “As far as I know and at this point, there is no imminent action on us,” one of the executives who spoke with Reuters said. “It’s been very quiet.” Last week, Hubei province’s price bureau said it would fine the sales unit of Volkswagen’s joint venture FAW-Volkswagen Automobile Co Ltd 249 million yuan (US$40.6 million) for fixing Audi prices. The NDRC’s Shanghai branch also fined the China sales unit of Fiat’s Chrysler 32 million yuan for operating a price monopoly.

market was increasingly weighing on the economy.

More interest in services FDI inflows in China have maintained steady growth every year since the country joined the World Trade Organization in 2001. Inflows reached a record high of US$118 billion in 2013. Defending China’s on-going antitrust investigations that have involved at least 30 foreign companies including Microsoft, Shen said the decline in FDI was not linked to the country’s anti-monopoly probes. Chinese authorities saw no abnormal outflows in foreign capital, Shen said. In the first eight months of the year, China’s services sector attracted US$43.3 billion of FDI, up 8.9 percent from a year ago and faring much better than the manufacturing industry, where FDI dropped 15.7 percent from a year ago to US$27.5 billion. Shen said China would continue to support imports of advanced technology and equipment and was studying ways to increase the financial aid for such importers. Among the 10 countries that were the biggest sources of China’s FDI, investment from South Korea surged 31.3 percent on an annual basis and that from Britain leapt 18.9 percent. In contrast, investment from Japan plunged 43.3 percent from a year earlier while FDI from the United States and European Union dropped between 17-18 percent each. China’s non-financial direct outbound investment rose 15.3 percent in the first eight months from a year earlier to US$65.2 billion. Reuters

Gold reserves could be boosted Central banks, net buyers of gold for 14 straight quarters, helped limit bullion’s losses last year that were the most since 1981

hina may join other emerging countries in boosting gold reserves as the precious metal makes up a smaller share of its foreign-exchange holdings compared with developed economies, said a London-based researcher. The country hasn’t announced any changes to state gold reserves since authorities in 2009 said holdings totalled 1,054.1 metric tons. While China holds the world’s biggest foreign-exchange reserves, bullion accounts for 1.1 percent of the total, compared with about 70 percent for the U.S. and Germany, the biggest gold holders, World Gold Council data show. Central banks, net buyers of gold for 14 straight quarters, helped limit bullion’s losses last year that were the most since 1981 and may increase purchases to as much as 500 tons this year after adding 409 tons last year, the London-based council said August 14. The precious metal rose 3 percent this year as geopolitical tensions boosted demand for a haven. Russia is among nations that added gold to reserves this year, boosting holdings to the highest in at least two decades and surpassing China’s hoard to become the fifth-largest by country, data from the council show.

Foreign-exchange reserves of China, the second-biggest economy, have nearly doubled to US$3.99 trillion since April 2009 when the nation last announced changes to bullion holdings, according to State Administration of Foreign Exchange data. Last year the country, also the biggest bullion producer, overtook India as the top gold user after price declines spurred buying. The U.S. holds 8,133.5 tons of gold in reserves, while Germany keeps 3,384.2 tons and Italy has 2,451.8 tons, World Gold Council data show. Russia keeps 1,105.3 tons, or 9.8 percent of its total holdings, according to the data. Bloomberg News

Xi calls for closer China-Sri Lanka partnership He called on both sides to enhance exchanges and cooperation in maritime, business, infrastructure, defence, tourism and other areas, so as to accelerate the renewal of the Maritime Silk Road

hina stands ready to work with Sri Lanka to consolidate their strategic cooperative partnership and pursue common development for a better future, says Chinese President Xi Jinping. In a signed article published yesterday ahead of his state visit to the South Asian island country, Xi said he is “looking forward to having in-depth exchange of views with President Mahinda Rajapaksa and other leaders and people from various sectors of Sri Lanka on bilateral relations and issues of mutual interest.” Focusing on the future development of China-Sri Lanka ties, Xi put forward in the article a four-point proposal aimed at boosting bilateral cooperation for the benefit of both countries. Firstly, the two countries should coordinate development strategies and work as partners in pursuit of common dreams, Xi said. He pointed out that the Mahinda Chintana, which represents Sri Lanka’s dream of national strength and prosperity, has much in common with the Chinese Dream of national rejuvenation. Also, Sri Lanka has envisaged itself becoming a five-fold hub: maritime, aviation, commerce, energy and knowledge, which coincides with China’s proposal to build the 21st Century Maritime Silk Road, the president said.

Sri Lanka’s President Mahinda Rajapaksa

Secondly, Xi said, the two sides should consolidate goodneighborliness and friendship and continue to be mutually beneficial partners. Thirdly, the two countries need to increase strategic coordination and become each other’s strong support, said Xi. Noting that both China and Sri Lanka need a peaceful, stable and friendly international environment for their development, the president

reaffirmed that China will uphold and carry forward the Five Principles of Peaceful Coexistence, enhance coordination and cooperation with Sri Lanka in regional and international affairs, and safeguard the common interests of the two countries and developing countries as a whole. Fourthly, Xi proposed that the two countries build a strong bridge of friendship and become true friends who understand each other. Xinhua

September 17, 2014

Greater China

Coal imports of high ash, high sulphur banned from 2015 When the regulation is implemented, Australian and South African coal with a heating value of 5,500 kcal/kg will be worst hit

hina will ban the import and local sale of coal with high ash and sulphur content starting from 2015 in a bid to tackle air pollution, with tough requirements in major coastal cities set to hit Australian miners. China imported about 54 million tonnes of Australian thermal coal and another 13 million tonnes from South Africa in 2013 -most of which would not meet the tightest proposed restrictions on ash and sulphur content. The policy, previously reported by Reuters, comes as prices on the GlobalCOAL Newcastle index slump to a five-year low amid a supply

We don’t think it will have a big impact for the Australian producers, based on the data and what we understand of the specifications Wayne Calder, deputy executive director, Australia´s Bureau of Resources and Energy Economics

glut and slowing demand from China, the world’s top importer. Under the new regulations, to come into effect in January, the government has set different level of requirements on coal grades for mining, local sales and imports. The most stringent requirements are for cities in the southern Pearl River Delta, the eastern Yangtze River Delta and three northern cities including Beijing, Tianjin and Hebei. These will be banned from burning coal that has more than 16 percent ash and 1 percent sulphur, according to a statement published on the National Development and Reform Commission website. Since the coastal regions such as Guangdong and

Zhejiang province are some of China’s top coal importers, the regulations are set to block a sizeable amount of imports. “Coal that does not meet these requirements must not be imported, sold nor transported for long distances,” the NDRC said, adding that the customs authority will check the quality of coal imports. Coal from about 28 Australian coal mines would not meet the tightest restrictions, according to data from Morgan Stanley and Wood Mackenzie, however it is unclear how much of that goes to China. Among the larger operations that would not meet restrictions on ash content are BHP Billiton’s Mount Arthur operations, which produce about 16

million tonnes a year, Glencore’s Mangoola mine, Rio Tinto’s Hunter Valley operations and Bengalla mine and Wesfarmers’ Curragh mine. Australia’s official resources forecaster, however, said it did not expect the new restrictions to not have much impact on Australia’s exports, as most shipments go to southern areas of China that it believed would still take coal with higher ash and sulphur content. Macquarie analysts said almost half of Australia’s coal would not meet the Chinese cut-offs. Glencore, the world’s biggest thermal coal exporter, BHP, the world’s biggest metallurgical coal exporter, and Rio Tinto had no immediate comment on the new restrictions.

China will also implement a blanket ban on domestic mining, sale, transportation and imports of coal with ash and sulphur content exceeding 40 percent and 3 percent respectively. For coal that will be transported for more than 600 kilometres from their production site or receiving ports, the minimum energy requirement was set at 3,940 kcal/kg, with a maximum ash and sulphur content of 20 percent and 1 percent respectively. When the regulation is implemented, Australian and South African coal with a heating value of 5,500 kcal/ kg will be worst hit, since their ash content hovers around 23-25 percent and they contain sulphur of 0.81.0 percent, traders have said. Reuters

China Mobile expands 4G amid subsidy cuts The company will cut US$2 billion from device subsidies this year

hina Mobile Ltd., the world’s largest phone company by users, will expand its fourthgeneration wireless network 40 percent beyond previous plans for this year to lure subscribers with faster data speeds. The carrier will have 700,000 4G base stations by the end of 2014, Chairman Xi Guohua told an industry forum in Hsinchu, Taiwan yesterday. China Mobile in March had projected a network of 500,000 base stations on the TD-LTE system this year. China Mobile is counting on 4G services to attract users who spend more downloading games and videos to help reverse a decline in profit. The company yesterday said that expanding the network will help boost 4G users to 300 million by 2016, from 50 million by the end of this year. China Mobile received a license

to begin commercial 4G service in December. The 4G push comes at a price, as the carrier said in March that capital spending would rise 22 percent to 225.2 billion yuan

Beijing headquarters of China Mobile

(US$36.6 billion) this year as it built out high speed networks. As a result, the carrier is projected to report an 11 percent decrease in net income to 108.6 billion yuan in

2014, according to the average of 23 analysts estimates compiled by Bloomberg. That would follow a 5.9 percent drop last year, and represent the largest annual decline since 1999. To help offset rising network spending, the carrier is cutting back on subsidies for high-end handsets like Apple Inc.’s iPhone. China Mobile will shift from subsidizing devices to instead providing users with discounts on mobile services while selling smartphones without contracts, Xi said yesterday. China Mobile plans to have 70 percent of its 4G handsets costing less than 1,000 yuan by the end of this year, Wang Xiaoyun, general manager of the carrier’s technology department, said at the Taiwan conference yesterday. Bloomberg News

September 17, 2014

Asia

Australia’s central bank warns against housing speculation Home prices grew by almost 11 percent in the year to August, driven in large part by demand for investment properties

ustralia’s central bank has warned that record low levels of interest rates risked stoking an unwelcome increase in home prices and debt, another sign that a further easing in policy was unlikely. In minutes of its September 2 meeting, where the Reserve Bank of Australia (RBA) kept its cash rate steady at 2.5 percent for a 13th straight month, the bank reiterated that the most prudent course was for a period of stability in rates. “Accommodative monetary policy was supporting demand in some sectors of the economy, but policy also needed to be cognizant of the risks to future growth that could accompany a large further build-up in asset prices, particularly if that was associated with an increase in leverage,” the minutes said. Board members noted that there has been stronger competition in lending for housing and to large businesses, although this has not led to a general easing in mortgage lending standards and practices to date. “For investors in housing, the pick-up in housing credit growth had been more pronounced than for owner-occupiers, with investor demand particularly strong in Sydney and to a less extent in Melbourne,” it said. Home prices grew by almost 11 percent in the year to August, driven in large part by demand for investment properties. The RBA has kept rates low for more than a year to support an economy adjusting to the end of a mining boom. In a speech yesterday, Assistant Governor Christopher Kent said low interest rates and robust population growth were underpinning demand in the housing market. Low interest rates were also supporting consumption at a time when subdued conditions in the

KEY POINTS RBA steps up rhetoric on rising home prices, warns against debt Market pricing out almost any chance of another rate cut Notes A$ still high, latest fall would have been welcomed

labour market were weighing on the growth of incomes. “These developments, as well as growth in export industries such as tourism and education, are consistent with a pick-up in business conditions across a range of industries,” said Kent.

No more cuts But the RBA was also keenly aware there could be a danger to the economy should home owners react to any future fall in prices by cutting back their consumption. The warning on home prices should only reinforce market expectations for a further long period of stable rates. The central bank last cut in August 2013 and investors are wagering the next move will be upward but not until the middle of 2015. “They are obviously signalling that they don’t want to cut rates. But whether that means a rate hike is any closer, I doubt it,” said Shane Oliver, chief economist at AMP Capital. “The key problem facing the

Reserve Bank of Australia headquarters

Reserve is the (strong) Australian dollar at the moment. As we’ve seen, the minutes have provided a small lift to the dollar.” Indeed, the central bank again cited the Australian dollar as a drag on the economy since it remained “above most estimates of its

fundamental value.” It would therefore likely be content that the exchange rate has taken a spill in the last week or so, losing four U.S. cents and briefly dipping below 90 U.S. cents on Monday Reuters

Toyota pauses on Mexico expansion The upshot is that a decision on the expansion is unlikely before the start of 2015

oyota Motor Corp is reconsidering a move to open a new compact car assembly plant in Mexico after company President Akio Toyoda told planners searching for a site to pause and review its rationale, executives familiar with the matter said. According to four Toyota and group executives, momentum had been building for a decision this summer on the expansion, with the aim of starting production of the mass market Corolla in Mexico in a few years. But Toyoda then asked the team to “re-review” the project by year’s end, the people said. “There’s absolutely no unused capacity lying around anywhere in North America? Installing production capacity

Toyota´s President Akio Toyoda

to try to trigger growth is the old way that got us in trouble before,” one of the executives said, referring to questions Toyoda posed in asking for a comprehensive last-minute re-examination. The upshot was that a decision on the expansion is unlikely before the start of 2015, two Toyota executives who spoke on condition of anonymity said. One said Toyota would probably go ahead with the plant, but might scale it down or delay the start of construction. Toyota already has a pick-up truck plant in the northwestern Mexican state of Baja California, capable of producing 63,000 Tacoma vehicles a year, but does

not have any capacity for passenger cars. A company spokesman said Toyota had not made any decision on a new plant in Mexico. “We are always evaluating our production capacity in Mexico, and in North America generally, to keep it in line with local market demand, but no such decision has been made at this time,” the spokesman said. The agonizing over further expansion encapsulates the strategic dilemma facing the 58-year-old company chief, who took charge of the firm founded near 80 years ago by his grandfather in 2009 after a 15-year hiatus without a member of the Toyoda clan at the helm. Reuters

September 17, 2014

Asia Indonesia sells 10 trln rupiah at bond auction Indonesia sold 10 trillion rupiah (US$836.1 million) of conventional bonds at an auction yesterday, as targeted, the finance ministry’s debt office said. Most yields were higher compared with previous sales in the first week of September. The 10-month T-bills had the weighted average yield of 6.61560 percent. The yields for 5-year and 10-year bonds were 8.04980 percent and 8.30677 percent, respectively, higher than 7.99000 percent and 8.21812 percent from the previous auction on September 2. The yield for the 20-year bond was 8.86988 percent. The highest bid-to-cover ratio was 2.72 for the 10year bond.

S.Korea could keep expansionary Whether the central bank will succumb again to government pressure

outh Korea will maintain pro-growth policy until a sustained recovery is firmly secured, possibly beyond 2015, as an anticipated pick-up next year might only be tentative, the finance minister said yesterday. Finance Minister Choi Kyunghwan noted that the policy interest rate, currently just one cut away from a record low of 2.0 percent, was not low when compared to rates in the major economies in a “new normal” environment.

He also said he was well aware of the risk that South Korea’s economy could fall into the kind of slump that Japan suffered for 15 years, adding his ministry keen to devise policy tools to overcome that risk. Government bond futures jumped as his pledge indicated that the country’s policy interest rate could be cut further or stay low for a longer period than thought before. “Global interest rates are incredibly low - to the point where this situation has been called a ‘new normal’. Our interest

rate is nearing a record low but compared to other countries, they are very high,” Choi told visiting foreign media. The Bank of Korea cut its policy interest rate by 25 basis points to 2.25 percent in August. It kept the rate unchanged at the September 12 meeting but investors and analysts saw a considerable chance of a further cut as early as next month. The seven-day repurchase agreement rate fell as low as 2.0 percent in early 2009 at the peak of the global financial crisis.

Vietnam credit set to grow Vietnam’s credit extension is expected to pick up pace over the rest of the year to reach growth of 10 percent from 2013 levels, though still below the government target of 12-14 percent, a state-run newspaper reported yesterday. The forecast was given by State Bank of Vietnam Deputy Governor Nguyen Thi Hong, who said she hoped actual credit growth would exceed 10 percent, the Vietnam News daily said. Achieving that forecast, however, would require a sharp pickup in the speed of credit growth in the last four months of 2014.

Nissan may purchase LG batteries Nissan may begin purchasing electric-vehicle batteries from LG Chem as it opens procurement to external suppliers in addition to its own manufacturing with NEC Corp, Chief Executive Carlos Ghosn said on Monday. “We will have both, and I hope even more,” Ghosn said when asked whether the Japanese carmaker would purchase from suppliers as well the NEC joint venture, AESC. Ghosn is preparing to cut in-house battery manufacturing, sources earlier told Reuters, while exploring a deal in which LG would produce power packs at existing Nissan production sites in Britain or the U.S.

Indonesia to ratify ASEAN haze agreement Indonesia’s parliament yesterday voted to ratify a regional agreement on cross-border haze as fires ripped through forests in west of the country, choking neighbouring Singapore with hazardous smog. Officials in Singapore and Malaysia have responded furiously to Indonesian forest fires, which have intensified and become more frequent in recent years. Singapore’s air pollution rose to unhealthy levels on Monday as Indonesian authorities failed to control fires in Sumatra island’s vast tracts of tropical forest. Parliament’s decision has been passed into law.

Bank of Korea headquarters in Seoul

Complex hybrids on Aussie regulator’s radar Britain’s regulator last month banned banks from selling CoCos to the public

anks and brokerages are targeting retail investors with risky and complex hybrid instruments that even some professional investors avoid, a trend that worries Australia’s investment regulator. Contingent convertible bonds or “CoCos” are hybrid securities that count as Tier 1 capital under the Basel III international banking regulations. They behave like bonds but can be written off or converted into ordinary shares if regulators declare a bank’s capital has fallen too low - potentially wiping out CoCo holders in the process. Regulators require banks to hold certain amounts of these hybrids so they have a strong enough capital base to avoid the need to be bailed out by taxpayers in the event of a financial crisis, as banks in many countries were in 2008/2009. Australian financial institutions have raised more than A$38 billion (US$34 billion) in Tier 1 hybrid capital. Most of the convertible bonds have been sold to retail investors attracted by eye-catching returns of 5 percent to 6 percent, well above a typical fiveyear term deposit offering 4 percent.

KEY POINTS Retail investors buying risky hybrids professionals won’t touch The State Savings Bank building in Martin Place, Sydney, built in 1928 and used until 2012 by the Commonwealth Bank of Australia

While many private bankers actively steer wealthy clients away from CoCo bonds on the grounds that the returns are too low for the risk involved, retail investors cannot get enough of them. That haste worries the Australian Securities and Investments Commission (ASIC), the regulator, which fears many retail investors do not understand the risks involved in buying CoCo securities. Britain’s regulator last month banned banks from selling CoCos to the public because of “particular risks of inappropriate distribution to ordinary retail customers.”

Vast majority of A$38 bln bank hybrids held by retail investors Regulator concerned about mis-selling, poorly understood risk Last month, Commonwealth Bank of Australia (CBA), the nation’s largest lender by market value, sold a A$2.6 billion issue of Tier 1 CoCo hybrids in just a couple of days. CBA increased the deal from A$2 billion initially and set the yield around 5.43 percent, or 280 basis points over bank bill swaps, the tightest margin yet seen for this type of asset. Reuters

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September 17, 2014

Asia India offers market for glut-hit iron ore

policy for years has to be seen

KEY POINTS Expansionary policy to stay possibly for years: fin min S.Korea keen to avoid repeating Japan’s mistakes: fin min Bond futures jump on minister’s easy policy pledge Since he was appointed finance minister in June, Choi has repeatedly warned of the risk that Asia’s fourthlargest economy could fall into a long, Japan-style slump and has introduced multi-billion-dollar stimulus measures.

Bank of Korea under fresh pressure The minister started work in July and the Bank of Korea’s rate cut in August was also widely viewed as being influenced by Choi’s demands for coordinated stimulus efforts. Whether the central bank will succumb again to government pressure has to be seen as economic

indicators increasingly show Asia’s fourth-largest economy is on the right track to recovery, despite a slow improvement in exports. The Bank of Korea Governor Lee Ju-yeol said earlier yesterday the effects of the bank’s interest rate policy in supporting the economy are limited, due to cyclical and structural changes. “The Bank of Korea may feel as if they’re under undue pressure again while they have been working more or less in line with the government’s expansionary policies as of late,” said Lee Chul-hee, an economist at Tongyang Securities, who expects the next rate move to be a hike late next year. “With household debt and U.S. interest rates to consider, the central bank is in no hurry to make any rash decisions, when they feel like current base rates are sufficiently accommodative of economic growth,” he said. Recent data has shown domestic demand picking up, partly thanks to recent stimulus efforts, with money supply growth accelerating and retail sales improving as the economy moves on from the effects of the Sewol ferry sinking, that left more than 300 passengers dead and stifled consumption. Reuters

The country may ship in up to 45 million tonnes over the next three years

n oversupplied global iron ore market may find some relief from an unlikely source as former No.3 exporter India turns into a big importer due to a cutback in domestic production. The country may ship in up to 45 million tonnes over the next three years as home-grown iron ore output falls short of domestic steel production needs, an executive at an influential industry group said. India imported just 0.37 million tonnes of the steelmaking raw material in 2013/14, government data showed. But already JSW Steel, India’s third-largest maker of the alloy, has said it will import 6 million tonnes of iron ore in 2014/15 against zero a year earlier. “There’s no option but to import to meet the shortfall. We’re looking at between 10 and 15 million tonnes every fiscal year over the next three years,” Basant Poddar, vice president of the Federation of Indian Mineral Industries, the only industry group for mining firms in the country, told Reuters by phone.

“The mine closures all over India, starting from Karnataka, Goa, Odisha and Jharkhand, have created a massive disruption to supply,” Poddar said. Mining in the key iron ore Indian states of Karnataka and Goa was banned in 2011 and 2012, respectively, following a crackdown on illegal mining by the Supreme Court and the government. Several mines in top producing Odisha state and in Jharkhand too were closed this year following government-imposed restrictions on the renewal of mining licenses. While the bans have since been lifted, delays in restarting mining operations in Goa and Karnataka and the latest mine closures in the other states have limited local iron ore supply. The disruptions have cut India’s iron ore production to 152 million tonnes in the year ended March 31, from about 218 million in 2009/10, according to the Indian Bureau of Mines. Reuters

Kuroda yearns for a stable yen The BOJ has stood pat on monetary policy since deploying an intense burst of stimulus in April last year

ank of Japan Governor Haruhiko Kuroda said stable yen moves are crucial for the country’s business sector, nodding to complaints from some companies that rising import costs from sharp yen declines were starting to hurt their bottom line. But he stressed that the reversal of past “excessive” yen gains is prompting some Japanese companies to boost domestic investment instead of shifting production overseas, suggesting that he still broadly sees yen weakness as a welcome trend. “I agree that from a business perspective, exchange-rate stability is extremely important,” Kuroda said in a meeting with business executives in Osaka, western Japan, yesterday. Kuroda said it was difficult to control yen levels with Japanese policy alone because currency rates can move on various factors, such as economic developments in the United States, Europe and Asia. “Still, there’s solid coordination between the government and the BOJ. From this standpoint, we will do our best to ensure currency stability,” he said. A weak yen is seen as a boon for Japanese exporters, including those based in Osaka such as electronics

KEY POINTS Reversal of excessive yen gains slowing capex outflow -Kuroda Gov says can’t control FX with Japan policy alone BOJ will act without hesitation if price target threatened Kuroda keeps upbeat view on economy

Bank of Japan Governor Haruhiko Kuroda

giant Panasonic Corp, whose profits have climbed as their goods have become lowerpriced and more attractive in overseas markets. But exports have failed to pick up despite the weak yen, disappointing policymakers who had hoped rising overseas shipments would support a fragile economic recovery and help offset the impact of a slump in domestic demand after a sales tax hike in April.

Some lawmakers and market analysts fret that further yen declines may do more harm than good by boosting the cost of fuel and raw material imports for Japanese firms.

Governor remains optimistic Kuroda reiterated his optimistic view of the economy, saying it will continue to

recover moderately as the pain from the April tax hike on consumption gradually subsides. While acknowledging that external demand has been weak and some geo-political risks were of concern, he said robust household and corporate spending will underpin Japan’s recovery. On monetary policy, Kuroda stressed the BOJ’s readiness to expand stimulus

further “without hesitation” should risks threaten achievement of the bank’s price target. “Japan’s economy has been on a path suggesting that the price stability target of 2 percent will be achieved as expected,” he said in the speech to Osaka business executives. “We are only halfway there, however, and the Bank will continue with quantitative and qualitative easing (QQE), aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner,” he said. Reuters

September 17, 2014

International German investor sentiment falls again Investor sentiment in Germany fell for the ninth month in a row in September amid jitters about the economic fallout from global crises, a survey indicated yesterday. The widely watched investor confidence index calculated by the ZEW economic institute fell by 1.7 points to 6.9 points in September, it said in a statement. However it was a shallower decline than in previous months and the drop less steep than expected. Analysts polled by Dow Jones Newswires had pencilled in a reading of 5.0 points.

Petra sells rare blue diamond for US$27.6 mln London-listed Petra Diamonds Ltd sold a rare blue diamond found at its mine in South Africa for US$27.6 million, falling short of the price some analysts had expected it to fetch. The company recovered the 122.52-carat diamond in June from its Cullinan mine, a site with a long and illustrious history of producing high-value stones. Petra said the diamond was purchased by a partnership comprising itself and a polishing partner, who wished to remain anonymous. The diamond miner, which has five mines in South Africa and one in Tanzania, will receive 85 percent of the agreed sale value.

Russia will struggle to help firms under sanctions The Russian government will offer the economy the kind of investment it needs because of its large state social spending commitments, former finance minister Alexei Kudrin said yesterday. A strong advocate of liberal reforms and fiscal prudence, Kudrin has become almost the lone voice among the Russian elite to criticise government policy in dealing with the fallout from the Ukraine crisis. At a foreign business conference, Kudrin said he expected the Russian economy to stagnate this year or weaken further, and that growth would be negative in 2015.

Airbus to sell off business units in company review The group said yesterday it would sell its Professional Mobile Radio secure communications assets and confirmed plans to sell a 49-percent stake in submarine supplier Atlas Elektronik

irbus Group has unveiled plans to sell half a dozen businesses with combined annual revenues of around 2 billion euros (US$2.6 billion), simplifying its Defence and Space division to focus on warplanes, missiles, launchers and satellites. Announcing the results of a portfolio review, Europe’s largest aerospace group signalled a break with previous efforts to diversify into security activities and a halt to investment in defence electronics, in which it lacks the scale of rivals. Europe’s defence industry is struggling as cash-strapped governments cut back on military spending. EADS, later renamed Airbus, responded in 2012 by trying to merge with Britain’s BAE Systems, but the deal was blocked by Germany. That, coupled with the strongerthan-expected growth of its jetliner business, led Airbus to drop a previous goal of having broadly balanced revenues from its commercial and defence arms, and launch a reassessment of its defence and space activities. The group said yesterday it would sell its Professional Mobile Radio secure communications assets and confirmed plans to sell a 49-percent stake in submarine supplier Atlas Elektronik, unwinding two efforts at diversification embarked on nine years ago. It said it would also consider selling other commercial and non-governmental satellite communications activities. Also up for sale are systems and software company ESG, as earlier reported by Reuters, and three smaller units: U.S.-based environmental systems supplier Fairchild Controls,

An Airbus Beluga with Columbus module at Cape Canaveral

German cabin simulator maker Rostock System-Technik and AvDef, a small aviation company in southern France that trains fighter pilots. In early trading, Airbus Group shares were down 0.7 percent, in line with the broader European market. The move comes weeks after a reorganisation of space launcher activities jointly with France’s Safran and leaves Airbus Group’s share of the Eurofighter and MBDA missile consortia, as well its own A400M airlifter, at the centre of a non-jetliner portfolio focused on aeronautics and space. “We came to the conclusion that our division must focus on the following core businesses: Space, Military Aircraft, Missiles, and related Systems and Services,” Bernhard Gerwert, head of the Defence & Space business, said in a letter to staff. The shake-up is likely to test the group’s prickly relations with the German government, following

warnings from group Chief Executive Tom Enders about the impact of Berlin’s stringent export controls on defence jobs and industrial investment. But he said Airbus would no longer invest in defence electronics and security, something it would need to do in order to reach a global position. The group is overshadowed by competitors including France’s Thales, Europe’s largest defence electronics firm. Airbus paired its defence and space unit a year ago under the brand of its best-known civil plane-making unit and announced a review of assets. The division had proforma sales of 14.4 billion euros in 2013, of which electronics made up 9 percent and communications, intelligence and security had 18 percent. Gerwert said he aimed to get the first indications of interest for the units being sold by the end of the year and to complete the first disposals in the first half of 2015. Reuters

Colombia may pre-finance 2015 needs

British annual inflation keeps free falling

Colombian Finance Minister Mauricio Cardenas said the government could start early to pre-finance some of its estimated US$3 billion in 2015 borrowing needs by tapping international capital markets before year-end. “We are now thinking for next year. We may pre-finance some of the needs for 2015, but that depends on the markets, that depends on the assessment whether it is better to come to the markets with a bond issue this year or next year,” Cardenas said in an interview with Reuters.

Analyst expectations had been for the annual rate to remain at 1.6 percent

Investcorp buys U.S. real estate portfolio Investcorp, an alternative investment manager based in Bahrain, said yesterday it had acquired a portfolio of office and industrial property assets in three cities in the United States for around US$250 million. The purchases, done in separate transactions, were completed by the firm’s U.S.-based real estate arm, a statement from Investcorp said. The properties are in Durham, Seattle and Jacksonville. In total, they cover nearly 2.2 million square feet and have an average occupancy rate of 87 percent, the statement added without naming the parties from which the purchases were made.

ritain’s 12-month inflation dipped to 1.5 percent in August from 1.6 percent in July, official data showed yesterday, easing pressure on the Bank of England to raise rates. The Consumer Prices Index (CPI) inflation measure matched May’s level, which had been a near fiveyear low point. Analyst expectations had been for the annual rate to remain at 1.6 percent, according to a survey by Dow Jones Newswires. Britain is a member of the European Union but not of the eurozone, where inflation has fallen to 0.3 percent, causing the European Central Bank to take exceptional measures to ward off the dangers of deflation. “Falls in the prices of motor fuels and food & non-alcoholic drinks provided the largest downward contributions to the change in the rate,” the Office for National Statistics said in a statement in London. “The largest, partially offsetting, upward effects came from clothing,

Falls in the prices of motor fuels and food & non-alcoholic drinks provided the largest downward contributions to the change in the rate Office for National Statistics statement

transport services and alcohol.” On a month-on-month basis, the CPI rose by 0.4 percent in August from July, in line with analyst expectations. “With inflation at a five-year low, it is difficult to see why the Bank of England should even consider raising interest rates at present,” said Ben Brettell, senior economist at Hargreaves Lansdown stockbrokers. “We are faced with uncertainty around the Scottish referendum, and there are signs the economy is slowing somewhat, with UK manufacturing activity growing at its slowest rate in 14 months in August.” Last week, Bank of England governor Mark Carney hinted that the bank could raise its main interest rate from a record-low level in early 2015, citing the country’s solid economic recovery despite recent weaker data. Earlier this month, the BoE voted to hold its key interest rate at half a percent, in its first meeting since divisions emerged over when to tighten policy. AFP

September 17, 2014

Opinion Business

wires

The people’s corporations

Leading reports from Asia’s best business newspapers

THE KOREA HERALD

Lucy P. Marcus

Founder and CEO of Marcus Venture Consulting, Ltd., is Professor of Leadership and Governance at IE Business School

Prosecutors searched the computer center of South Korea’s No. 2 lender Kookmin Bank yesterday as part of a probe into suspicions surrounding the bank’s introduction of a new computer system, prosecution sources said. During the raid on the computer center in western Seoul, prosecution investigators secured company e-mails exchanged among employees in charge of the mainframe system change, according to the sources. The probe began as the Financial Supervisory Service (FSS) filed a complaint against four key executives of KB Financial Group Inc., the lender’s parent, on Monday over the system change.

PHILSTAR Remittances from overseas Filipinos continued to grow robustly, expanding 7.1 percent to US$2.3 billion last July, data released by the Bangko Sentral ng Pilipinas (BSP) showed. For the first seven months of the year, remittances grew 6.4 percent to US$15 billion. The BSP attributed the consistent growth to the steady increase in remittance flows from both land-based workers with long-term contracts (up five percent), and sea-based and land-based workers with short-term contracts (up 8.4 percent). The remittance growth came as demand for skilled Filipinos abroad remained stable.

THE STAR The introduction of the Goods and Services Tax (GST) will reduce the Government’s dependence on income tax and oil revenue as well as reduce the size of the country’s shadow economy, says Finance Ministry tax division under secretary Datuk Siti Halimah Ismail. Siti Halimah said the contribution of indirect taxes, such as sales and service taxes, to the Government’s revenue had decreased significantly over the past few decades. As a result, she said the Government was currently highly dependent on income tax revenue, which contributed 58% or RM127bil of total revenue in 2013.

THE NEW ZEALAND HERALD Former Fonterra boss Andrew Ferrier has been appointed chairman of New Zealand software developer Orion Health and is already proving himself adept at dodging questions on a possible share market listing by the fast-growing firm. The company -- which is mulling a stock exchange float that would raise growth capital -- also appointed Lester Levy, chairman of the Auckland and Waitamata District Health Boards, to its board as an independent director at its annual shareholders’ meeting at Auckland Hospital yesterday. Orion develops technology that allows doctors to store and look up patient records online.

wo big power shifts are occurring around the world today. First, corporate power is growing relative to that of governments. Second, ordinary people are also gaining greater influence. What does it mean that these seemingly contradictory shifts are happening simultaneously? There is, no doubt, more power in the hands of companies than ever before. People who have not been popularly elected control more and more of our daily lives – from entertainment and energy supplies to schools, railways, and postal services. At the same time, the speed of technological innovation is outpacing that of legislation, meaning that corporate activities are routinely entering seemingly gray areas devoid of regulation. But, counterbalancing this trend, people now have the means and opportunities to ensure that companies’ behaviour does not go unchecked. They are becoming more educated and aware of how companies operate, and they are more proactive and outspoken when they believe a company has crossed the line. The public increasingly acts as the conscience of companies and industries, asking hard questions and holding them to account. In the past several years, more effective means of collective action – such as social media, open publishing platforms, and online video sharing – have given people more levers to pull. As people pursue boycotts and disinvestment, lobby for legislation, and activate social-media campaigns with growing sophistication, they are increasingly able to influence companies’ operational and strategic decision-making, thereby imposing checks and balances on today’s enormous accretions of private power.

The public increasingly acts as the conscience of companies and industries, asking hard questions and holding them to account

For some companies, this has come as a thunderbolt. Consider the British Petroleum oil spill in the Gulf of Mexico in 2010. The BP spill was one of the first instances in which companies were forced to contend with the power of social media – and in which people realized the potential of the tools at their disposal. Like most companies at the time, BP was accustomed to communicating with traditional seats of power – the White House, the Kremlin, and so on – and to doing so via traditional modes of communication, such as briefing carefully selected journalists and distributing precisely worded press releases. The Gulf oil spill changed all of that. Communities united around an issue and found a voice on Facebook. There was

a massive conversation going on, and BP was neither a part of it nor able to control it via traditional communicationmanagement methods. Since then, there has been a marked increase in this sort of direct action. Social media spread ideas in an immediate and unfettered manner. A document, an image, or a video is shared, and suddenly what was secret or shielded is globally exposed. And, though wrong or false information spreads just as quickly as true information, corrections are often swift as well. For younger people today, using social media as a tool for activism is second nature. They are fluent in using YouTube, Twitter, Facebook, and Reddit to communicate and create a community around an idea, issue, or objection – and to nurture the growth of a small group into a mass movement. And older people are not far behind. As corporate power rises, holding companies to account becomes increasingly important. The scope of accountability must expand as well, in order to affect the behavior of executives and nonexecutives alike. And companies’ board members will be increasingly held to account for how well they hold senior management to account. With all of that comes a culture of questioning that which was previously unquestioned – including how companies are run and whether an organization’s actions are ethical. Any action can be questioned by anyone, and if others find it interesting or important, the question will spread – and not just within a small community or a specialist group, but more broadly and around the world. This shift has changed the nature

of activism and collective action. It has also made for new kinds of allies, with activist investors like Carl Icahn tweeting their intentions and markets responding. Likewise, those who in other circumstances might see activist investors as natural adversaries can agree with the positions that they take, such as concerns about executive compensation or corporate social responsibility. Activist investors can write open letters that may not be picked up by mainstream media outlets, but that can go viral on Twitter or Reddit. This is often enough to make boards and executive committees sit up and take notice. Corporate leaders who embrace this new reality, view it as an opportunity, and resist the inclination to “manage” or avoid issues will have a competitive advantage. They will not regard meeting people where they are as a way to manipulate them, but as an opportunity to hear what they are saying. Their first impulse will not be to figure out how to use modern means of direct communication to persuade customers, employees, and other stakeholders to think and do the things that they want them to think and do. Instead, they will make real changes – and they will be better off for it. Companies make our cars, our phones, and our children’s textbooks – and exercise increasing control over the daily lives and destinies of people worldwide, not only those who use their products, but also those who work for them and those who live in the communities where they are based. If companies do not take seriously the responsibility that comes with their great and growing power, people will be there to remind them. Project Syndicate 2014

September 17, 2014

Closing Hyundai Motor to build two new plants in China

China to hold biennial air show in Zhuhai

South Korean automaker Hyundai Motor Co plans to build two new factories in China instead of one, two people familiar with the matter told Reuters yesterday. The increase is to meet the request of China’s central government, which wants Hyundai to build a plant in the north-eastern Hebei province as part of a development plan spanning Beijing, Tianjin and Hebei, one of the people said. Hyundai, which has three factories in Beijing, in March signed a preliminary agreement to build a plant in the south-western city of Chongqing to help the automaker expand into western China.

China will open its biennial air show featuring new aircraft, trade talks and technological exchanges on November 11 in Zhuhai. New weaponry will be demonstrated at the 10th China International Aviation and Aerospace Exhibition, known as Airshow China, said spokesman of China Air Force Shen Jinke yesterday. Some of the aircraft on display joined in a multinational anti-terror drill, dubbed “Peace Mission 2014,” held in north China among the regional security group Shanghai Cooperation Organization in late August. Stunt flying will be performed by five female fighter pilots from the China Air Force.

Mali inks accords with China Mali’s Government gave few details on the terms of the 34 agreements

ali has signed a string of agreements with China totalling about US$11 billion, most of it intended to finance two major railway projects linking the land-locked country to the coast, Mali’s presidency said. Mali gave few details on the terms of the 34 agreements but said they included some loans. They coincide with fresh talks with the International Monetary Fund to review a programme for Mali and resume aid payments halted this year. The IMF and World Bank froze nearly US$70 million in financing after the Fund expressed concern in May about Mali’s purchase of a US$40 million presidential jet and a loan for military supplies, deals that undermined donor confidence in the commitment of Mali’s new government to rebuild the country after a coup and an uprising in 2012. The agreements were signed during a four-day visit by President Ibrahim Boubacar Keita to China from September 9 to 13 for the World Economic Forum in Tianjin, according to a statement published on the website of Mali’s presidency. China’s Foreign Ministry declined to confirm the value

KEY POINTS Two major railways among 34 planned deals Deals come as Mali in new talks with IMF China’s foreign ministry declines to confirm agreements

Mali’s President Ibrahim Boubacar Keita

of the projects. “China is willing to increase trade and economic cooperation with African countries to promote joint development,” ministry spokesman Hong Lei told a daily news briefing in Beijing when asked if he could give any details about the Mali projects. He did not elaborate except to say China had already released news about Keita’s visit. The ministry said in a short statement on its website last week that Premier Li Keqiang told Keita that China was

willing to increase cooperation on mining, agriculture and infrastructure. It made no mention of any deals signed. China typically gives very few details about agreements signed with other countries, especially in Africa. Mali’s presidency said in the website statement the biggest of the planned projects was an US$8 billion, 900-km railway linking the capital of Bamako to Guinea’s port capital Conakry. Another 750 billion CFA francs (US$1.48 billion)

would be used to renovate the Bamako-Dakar railway, linking Mali to the Senegalese capital to the west. Other projects include the construction of a fourth bridge across the Niger river in Bamako and the construction of roads, especially in the north of the country, which was seized by a mix of separatist and al Qaeda-linked rebels in 2012. French troops were scrambled to scatter the Islamist fighters, and a U.N. peacekeeping mission

has since deployed. But slow progress has left Keita struggling to retain the popular support that swept him to power last year. The statement also lists planned housing, energy and education projects. The US$11 billion includes US$51 million in gifts and interest-free loans from China announced by the government on Friday. Mali secured more than US$4 billion in donor pledges last year. Reuters

China posts first monthly New Zealand Customs Japan, China, S.Korea forex transaction deficit dog sniffs out RMB stash finance chiefs to meet

hinese bought more foreign currency than they sold in August, resulting in the first monthly deficit in foreign exchange purchases in 13 months, China’s foreign exchange regulator said yesterday. Chinese institutions and individuals bought US$147.4 billion in foreign currency and sold US$146.6 billion in exchange for 903.3 billion yuan in August, according to data from the State Administration of Foreign Exchange (SAFE), China’s forex regulator. China’s growing appetite for foreign currency has led to a deficit of US$800 million in foreign exchange transactions in the month, suggesting that Chinese tend to hold foreign currencies. The deficit was compared with a 1.2-billionU.S.-dollar surplus in July, and the fluctuation in forex transactions contributed to changes in China’s foreign reserves. Considered part of China’s broad money supply, funds for foreign exchange stood at 29.5 trillion yuan (US$4.79 trillion) at the end of August, down 31.2 billion yuan from a month ago, the central bank said Monday. Xinhua

ew Zealand Customs officers said yesterday they have seized 700,000 Renminbi (US$113,644) from a man who was attempting to smuggle the cash out of the country to Hong Kong. Auckland man Xiaosheng Yu, 59, was convicted in Auckland District Court yesterday of attempting to take the cash out of the country without declaring it. He was fined 800 NZ dollars (US$653) and forfeited the cash, said a statement from Customs. Yu was about to board a flight to Hong Kong at Auckland Airport on November 13, 2012, with his wife and a friend, when a Customs cash detector dog sniffed cash in his wife’s carry-on bag. It was the first time a cash detector dog had made such a find in New Zealand. A baggage search of the trio revealed newspaperwrapped bundles of cash in two carry-on bags, and more in a checked-in suitcase. When interviewed, Yu explained through a translator that the money was his legal income in China. Xinhua

inance ministers and central bank governors from Japan, China and South Korea will meet on Friday ahead of this weekend’s Group of 20 gathering in Cairns, Australia, a Japanese finance ministry official said, despite Tokyo’s strained diplomatic ties with its north Asian neighbours. The policymakers will discuss macroeconomic conditions and regional financial cooperation, and South Korea will chair the meeting, the official said. The three sides have not held such meeting since Prime Minister Shinzo Abe returned to power in late 2012. In the past, they would have usually met during an Asian Development Bank’s annual conference. Ties between Japan and its neighbours have soured due to maritime territorial disputes, and rows related to the legacy of Japan’s wartime aggression in Asia. As a result, financial cooperation has stalled in recent years between Tokyo, Beijing and Seoul, including over agreements such as one that would enable Japan to buy Chinese government debt. Reuters