Macau Business Daily, Sept 24, 2014 by Business Daily

MOP 6.00 Closing editor: Sara Farr Publisher: Paulo A. Azevedo Number 632 Wednesday September 24, 2014

Optimism galore

Year III

e’s renowned for his sunny disposition. That’s because he thinks in terms of the long game, says Steve Wynn. Protests? It’s understandable people want a piece of the pie, he says. The American hotel-casino mogul was in Hengqin, addressing university students about the impact of tourism. Fielding questions about tanking gross gaming revenues in Macau, he said three things concern him most. Staffing Wynn Palace and his relationship with the government and his employees PAGE

Chui: General budget won’t be increased

HSI - Movers September 23

www.macaubusinessdaily.com

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Name

Alter City increases Saipan investment Page 6

Law abiding authorities

2.41

Tingyi Cayman Island

1.11

China Unicom Hong K

0.65

China Petroleum & Ch

0.58

Bank of East Asia Lt

0.46

Tencent Holdings Ltd

-1.82

China Mengniu Dairy

-1.86

China Resources Ente

-2.11

Sands China Ltd

-3.03

Galaxy Entertainmen

-3.37

Brought to you by

Lady Luck takes a nap Gaming investors are being counselled to look elsewhere. Namely Singapore. Pundits say this year is a lost cause for casino stocks in Macau. And say revenues in Singapore could grow 4 percent in 2015. Macau could decline until 2016, they say

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Sino Land Co Ltd

I SSN 2226-8294

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September PMI has put the smile back. The Chinese government gives a sigh of relief. The Purchasing Managers Index still keeps China on the expansion side of the indicator

%Day

Source: Bloomberg

Police say they complied with the law. Five members of the Forefront of Macau Gaming union are official suspects. They are accused of ‘aggravated disobedience’ following a protest last month. The police say they breached official cordons. The union says it’s a big misunderstanding

Positive PMI

Record August arrivals No gloom on the visitor arrival front. August welcomed the largest number of tourists Macau has registered in a single month. 3.1 million people. Various mainland visitor indicators rose. And Koreans have discovered the city big time. The Taiwanese aren’t joining in the party yet

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September 24, 2014

Macau

The summer of 3 million While the overall number of tourist arrivals hit a new record for the summer months, visitors from Taiwan chose to stay away from the SAR

Three gaming operators rise to transportation challenge

Sara Farr

sarafarr@macaubusinessdaily.com

million tourists have visited Macau, an 8 percent increase on a year earlier. While the number of Taiwanese visitors dropped in the month of August, their overall number for the eight months between January and August totalled 646,953 – making them the third main source of tourists after mainland China (14.2 million) and Hong Kong (4.4 million), respectively. Visitors continued to spend an average of one day in the territory, with overnight visitors staying an average of 1.9 days and same-day visitors 0.2 days.

he director of the Transport Bureau (DSAT), Wong wan, announced yesterday that the government is meeting with three gaming companies with regard to how these operators will operate shuttle buses for non-resident workers between the border gate and their workplaces. Mr. Wong said during a TDM radio show – Macau Forum – that these companies are positively responding to the government, although he declined to reveal which ones. He also believes that the shuttle buses, which would only run in a single direction each time, would help resolve the capacity problem on the territory’s packed roads. “We’re now studying with the gaming corporations how to pick up their construction workers living in the mainland between the border gate and their workplaces during a certain period of time when they head to work and leave work,” Mr. Wong said, stressing that the certain period of time referred to 7:00am and 8:30am and between 5:00pm and 8:00pm. He also said that the government will alleviate traffic pressure between the two destinations gradually as soon as the measure comes into force. “We hope that once we reach agreement with one corporation, it will start [offering shuttles to the workers] first,” he said. The idea of gaming operators offering both transportation and accommodation to their non-resident workers was floated in the political manifesto of Chief Executive Fernando Chui Sai On during his election bid. No details on how these operators would offer accommodation, however, has been forthcoming so far.

t was a new record for a single month – 3.1 million tourists visited Macau in August alone, up 7 percent from the same month a year ago. The latest figures released yesterday by the Statistics and Census Service show reveal that same-day visitors accounted for over half of the total at 54 percent or 1.7 million. While mainland China continued to be the primary source of visitors to the territory, with their numbers increasing by 13 percent from August 2013 to 2.1 million this year alone, tourists from South Korea took a particular liking to travelling here, with numbers showing a 20.1 percent

increase last month to 58,115 yearon-year. Of all mainland Chinese visiting Macau last month, the number of those travelling under the individual visit scheme rose by 19 percent to 1.1 million. In addition, the number of visitors from the United Kingdom increased by 8.9 percent to 5,677. Visitors from Canada and Taiwan, however, chose to steer clear of Macau. The latter saw numbers drop 10.5 percent in August to 88,253 compared to the same month only a year earlier, while the former decreased by 7.3 percent to 5,128. So far this year as many as 21.1

Chui: General budget won’t be increased

PSP claims it followed law when charging FMG members

hief Executive Fernando Chui Sai On said yesterday in Beijing that the future general budget for his next administration will not be increased. In addition, he said that there is currently no news with regard to the names of the new secretaries. According to local media TDM, the CE said that he would start studying the reform of the public administration from January next year. He perceives that not increasing the general budget, as well as controlling human resources, is the second spirit when working on the reform. In addition, Mr. Chui said that he was about to start the nominations for the new leading bodies of the government, claiming he would not reveal the identities of possible candidates as they have first to be appointed by the central government. During his recent election bid, Mr. Chui suggested in his political manifesto that he would streamline the administration system and resolve the problem of functions overlapping different government departments in order not to waste resources, although the number of secretaries will remain at five. K.L.

K.L.

Police say that the Forefront of Macau Gaming case was initiated right after the protest because members were suspected of breaking the law Kam Leong

kamleong@macaubusinessdaily.com

he Public Security Police Force (PSP) released a press statement on Monday evening saying that the police had followed regulations and had not conducted any inappropriate behaviour by recently summoning the five members of gaming labour union Forefront of Macau Gaming (FMG) to the police station. PSP accused the union members of ‘aggravated disobedience’ as they are suspected of breaking through a defensive police cordon during a protest against the six gaming corporations on August 25. On Monday, FMG questioned the allegations, saying that they are being accused of creating a ‘white terror’ prior to their new wave of pro-

tests, and are urging police to withdraw charges. Meanwhile, the police said in their statement that it had warned the union on the day of the rally that if the protesters did not follow the confirmed route they would be charged with ‘aggravated disobedience’. The police also claimed that they had met with the union on August 22 and that the union had confirmed the protest route. Regarding the union questioning why the police had only laid charges two weeks after the protest the police said that they ‘had immediately worked on the report right after the end of the movement, in which the protesters are suspected of violating the law during their

rally,’ stressing that the PSP will follow the regulations when conducting any criminal investigations in order to protect the rights of the individuals involved. Both union and police agree that chaos erupted on August 25 when MGM workers tried to break through the police cordon, paralyzing traffic in the area. The president of the union, Ieong Man Teng, vice president Lei Kuok Keong, Secretary General Cloee Chao, board members Ung Kim Ip and Loi Ngai Wai were all named as suspects by the police. According to Mr. Lei, Ms. Chao was the first to be prosecuted, while the other four were called to assist in the case by police before being informed that they, too, were suspects.

September 24, 2014

Macau

Wynn bullish about Macau’s future The Chairman of Wynn Resorts said he’s not concerned with the short-term and that in the long-term he sees Macau as one of the most dynamic tourist destinations in the world João Santos Filipe

jsfilipe@macaubusinessdaily.com

teve Wynn says that he is not concerned about the gross gaming revenue slowdown in Macau. The chairman of Wynn Resorts, parent company of Wynn Macau, was yesterday at the University of Macau’s Hengqin Campus for a presentation to students about the impact of tourism on the region and stressed that he is bullish about the gaming industry in the Special Administrative Region. “We’ve invested more in Macau than we’ve made. We have more under investment than all the profits we have made since day one here. That shows that as a capitalist I’m completely confident”, he said after being questioned about the decrease in gross gaming revenue over the

Japanese interest Steve Wynn also revealed that Wynn Resorts is interested in investing in Japan if the gambling industry is legalised. However, he is not ready to give any additional information, as legislation has not yet been passed. “I’m certainly interested in Japan. When the time comes, when Japan is available, I will step up and bring our capital, our experience, our imagination to the table”, he said. “When the government makes the decision, what will matter is what the government will expect in Tokyo or Osaka or any place else. What they are looking for, what the terms of the deal are… Before that, we’re not going to throw out numbers to newspapers”, he said, adding that “it will depend on the deal they want, then we can respond.”

last three months. “We’re ahead on where we were last year. Generally speaking, I’m bullish about Macau and happy to have these investments here”, he added. Wynn also stressed that he is not worried in the short-term about Golden Week and whether it will cause the market to rebound from the red in terms of gross gaming revenue. “I don’t care about the short-term. I don’t make any decision based on the short-term. I care about the longterm, about my relationship with the government and my employees”, he explained.

Demonstrations In a press conference after his presentation, Wynn also explained his views on the recent demonstrations of workers demanding higher salaries. “I also understand why people want to receive more money. The industry in healthy, it’s generating a lot of revenue. Everybody wants to get a bigger piece of the pie. That’s usual and there’s nothing wrong with that”, he said. However, for the American the problem related to employees that may arise is with regard to the workforce needed for the new Cotai project - Wynn Palace - slated to open in Chinese New Year 2016. The solution, he says, is to hire more non-resident workers. “My company is going to spend US$4 billion on Wynn Palace. Will I have enough workers to staff it? Are we going to be allowed to have enough employees to run the place?” he asked. “Getting people to get here from abroad is very easily accomplished, provided the government thinks it’s appropriate. Now, once you employ everybody from Macau it seems to me that you have to bring people from outside. Hopefully, the leadership of Macau will continue to be inspiring and come up with solutions to meet these problems”, he said. As for the negotiations with the government for casinos to be

obliged to offer accommodation and transportation for workers he said he was not concerned about it as it is something that his company already does. Steve Wynn also talked about the gaming revenues and non-gaming revenues in his hotels and casinos in Macau. The American tycoon stressed that non-gaming revenues are increasingly healthy, in spite of being eclipsed by gaming revenues. “When the gaming revenue is US$4.5 billion there aren’t enough restaurants, enough hotels, rooms and shows on earth to equal the casino numbers. It’s not that the non-revenue is not growing rapidly in Macau. It’s growing unbelievably fast”, he explained. “Gaming revenue is growing so fast that it’s hidden and camouflaged the enormous growth in non-gaming revenue”, he said. In relation to non-gaming activities, Wynn revealed that he expects them to help transform Macau into “the most dynamic tourist destination” in the whole world by 2017.

CCAC satisfied Earlier this year, the Macau Commission Against Corruption (CCAC) confirmed that it was investigating the deal involving the purchase of Cotai land on which Wynn Palace is being erected. Before, it had been reported that the company had paid US$50 million to a Macau company with ties to a close associate of the top official. Yesterday, however, Wynn said that the probe was concluded. “They’re satisfied. I think they’re done with their investigation”, he said. “Everything about those transactions is so crystal-pure and clean that you could drink [it] like bottled water”.

“The most extraordinary case study in modern history”

n his speech to the students of the University of Macau, Steve Wynn stressed that Macau’s economic growth since the handover is one of the most extraordinary events of modern economic history. “What happened here is the most extraordinary case study in modern history. Over US$50 billion has been spent on hotels and resorts, creating job opportunities and improving living standards”, he said. The owner of Wynn Macau took around 10 minutes for his initial speech, following which he answered questions from students and teachers.

He began his speech by saying that all people, including himself, present in the University Hall were students. However, when it came to speaking about the secret behind his success Wynn highlighted the role of people. “The thing that make businesses successful, the thing that makes governments successful, the thing that makes universities successful, powerful and enduring, is people”, he said. “The great single edge is getting people who work with you to feel well about themselves. That’s the most important secret I can share with you”.

September 24, 2014

Macau

Investors throw in the towel on Macau, move to Singapore Analysts have decided to throw in the towel and admit that 2014 is lost. Wells Fargo listed 23 upcoming events which will disrupt the gaming industry here, warning its clients that Macau is no longer a cash cow until mid-2015. Morgan Stanley says investments should move to a more stable Singapore Luís Gonçalves

luis.goncalves@macaubusinessdaily.com

f Las Vegas is currently profiting at the expense of Macau in terms of Chinese gamblers, Singapore is likely to do the same for gaming investors as analysts start advising their clients to sell off shares in operators with property here and put them in a ‘safe heaven’ 2,500 km south. Reports from two major US banks popped up this week showing that after three months of waiting for a recovery in Macau the market has decided to throw in the towel and admit that things here are still going to get worse for revenues, profits and stocks. The year’s lost and the only solution is to hunker down and wait for an inflection point around the middle of 2015 when the new flow of casino openings starts in Cotai. For investors in gaming stocks, it also means that the party is over for the year and that those banking on making money in the near term had better move elsewhere. In a report published yesterday, Wells Fargo said that ‘after fresh analysis and channel checks, we feel

near-term uncertainty has increased to the point that it has become very difficult to pitch Macau gaming as a new-money idea for the next 6-12 months’. Even conceding to being ‘one of the more cautious houses’ regarding the Macau gaming sector, the US bank admitted that ‘we see balanced risk/reward here and believe trends could worsen before they stabilise and stocks settle’. Wells Fargo warned clients that gaming revenue growth in Macau would stay flat in 2014 and 2015 – after years of doubledigit performance – while major operators profits predicted for 2015 are overestimated by at least 10 percent. A wave of downgrades will likely occur in the coming weeks as the market corrects its figures.

From soft, to rocky, to shattered The deterioration of the gaming sector in Macau this Summer (already three months in a row with declining revenues since June) caused Wells Fargo to change the outlook from

We feel near-term uncertainty has increased to the point that it has become very difficult to pitch Macau gaming as a new‑money idea for the next 6-12 months Wells Fargo

‘choppy’ to ‘rocky’ with investors trying to call the bottom since June to no avail. ‘Since then (downgrade to rocky), we’ve been seeing almost weekly news flow and data that’s more surprising and appears increasingly negative’. A shattered outlook is just around the corner. Wells Fargo listed no less than 23 negative events (versus only 11 positive catalysts) threatening Macau in the coming months and that will probably depress the current downfall of revenues and the underperformance of stocks even further. PBS Frontline and the New York Times will, by the end of the month, publish two investigative pieces on Macau and VIP junkets that are poised to send shockwaves through media all over the world and scare investors and gamblers. The impact of Reuter’s piece on illegal UnionPay terminals in Macau early this year is just an example of what’s coming. The impact of the upcoming smoking ban – starting October 6 – is unknown, the 4th Communist Party Plenum next month is likely

September 24, 2014

Macau Revenues growth (Singapore vs Macau)

Source: Morgan Stanley

Gaming stocks downgraded (US$) Valuation range Operator

Current Price

New Stock Price

Prior Stock Price

Las Vegas Sands

62.33

60-70

80-85

Melco Crown Ent.

27.06

28-31

38-40

MGM

23.12

23-26

24-28

Wynn

185.28

180-200

245-250

Source: Wells Fargo

to divert gamblers from here, with the same happening with Chinese Premier Xi Jinping’s visit to Macau in December. These events will add extra pressure on casino operators that are already struggling to attract more players in an environment reeling from visa restrictions, less available credit, a lower profile by junkets and VIPs, and an anti-corruption and anti-lavish spending campaign by Beijing officials.

US Big Four downgraded Wells Fargo has not been soft in its approach to the near-term future of Macau’s gaming sector. The bank decided to downgrade the stocks of major operators here and cut price performance by 20 percent on average. All four big gambling companies listed in the US - Las Vegas Sands, Melco Crown Entertainment, MGM and Wynn – have been reduced from ‘outperform’ to ‘market perform’ category, meaning that investors are not expecting these operators to perform above the rest of the market. Since January, gaming stocks have dropped 14 percent, while the S&P500, the world’s biggest index listing the world’s major corporations and market thermometer, increased by 9 percent, a lag of 23 percent. The gaming sector, especially the most exposed to Macau, was also downgraded from ‘overweight’ to ‘market weight’, a hint to gaming stock owners to sell off and reduce casino positions in their portfolios. The downgrades come as no surprise with casino shares trading well below their stock price for months.

We expect Singapore revenues to grow 4 percent in 2015, whereas 1Q2015 could see Macau revenues decline by 2016 Morgan Stanley

Headwinds coming to Macau in the next six months

Panic ahead With several negative events in the pipeline and a new flow of downgrades for the next three to six

months, investor sentiment could easily turn to panic as it did in 2012. This time, however, things could be worse. If in 2012, a 6 percent decrease in estimates caused stocks to lose 25 percent, this year losses could top almost 50 percent. Wells Fargo noted that from this year’s peak, gaming shares have already declined 18 percent, with estimations reduced by 5 percent. With an expected extra downward revision of 10 percent for 2015 profits in the coming weeks, stocks will likely plummet 25 percent from current prices, the US bank said. With no money to make in Macau’s stocks for the next 12 months, gaming investors have to bet on other destinations. Yesterday, Morgan Stanley gave its clients an option: Singapore. The bank underlined that Singapore’s casino market has a better nearterm growth profile and more stable cash flow generation than Macau. Revenues are estimated to increase by 20 percent year-on-year in the fourth quarter against a decline of 15 percent expected for Macau. “We

Source: Wells Fargo

expect Singapore revenues to grow 4 percent in 2015, whereas 1Q2015 could see Macau revenues decline by 2016”, wrote Morgan Stanley’s analysts. The bank decided to advise their clients to increase Genting Singapore’s shares in their portfolios – upgrading them from ‘equal’ to ‘overweight’ – as the operator generates healthy cash flow and its performance is likely to be upgraded in the future should Japan legalise casinos next quarter, the groundbreaking at Jeju (South Korea) and the opening of Jeruru Hotel, properties likely to attract Chinese gamblers, most of them diverted from Macau. Morgan Stanley’s focus on Singapore as an alternative to Macau for investors searching for more profitable locations to allocate their investments is set to be a trend in the coming quarter. Whilst gaming shares exposed to Macau will still go bottoms up, investors will stay on the sidelines and wait to re-enter the market when stocks get cheaper, and then re-enter to profit from the expected surge in Cotai openings.

September 24, 2014

Macau Brought to you by

HOSPITALITY Losing Steam There is little doubt that gambling is the main driver of the Macau economy. The sector attracts thousands of visitors every day and generates huge amounts of revenue for the public purse. Besides their direct impact, casinos exert a strong pull on other important economic activities, such as the hospitality sector, retail and transport, to mention the most obvious. In fact, it is difficult to think of any activity unaffected in several ways by the big flows of people and money associated with the activity. However, for the first time since the financial crisis hit – to be more precise, since June 2009 - the sector has posted negative growth. The first negative figure, last June, was generally dismissed as a transitory side effect of the rise in betting on football associated with the World Cup but the argument could not survive the negative results that followed. The recent slowdown in the sector has become a matter of concern for many other activities and companies, and for the economy as a whole.

U.S. judge awards US$40.7 mln in SEC case over bitcoin Ponzi scheme The virtual currency has been available in Macau since this summer through Hong Kong-based Bitcoin vending machine distributor Bitcoinnect

U.S. federal judge in Texas ordered Bitcoin Savings and Trust and its owner to pay a combined US$40.7 million after the Securities and Exchange Commission established that the company, which sold investments using the virtual currency, was a Ponzi scheme. In a decision dated Thursday, U.S. Magistrate Judge Amos Mazzant said

Trendon Shavers “knowingly and intentionally” operated his company “as a sham and a Ponzi scheme,” misleading investors about the use of their bitcoin, how he would generate promised returns and the safety of their investments. Shavers, of McKinney, Texas, did not immediately respond on Friday to a request for comment. His ability

to pay the judgment is unclear. Shavers’ lawyer withdrew from the civil case this week, court records show. The SEC said Shavers used the online moniker “pirateat40” to raise more than 732,000 bitcoin from February 2011 to August 2012, promising investors up to 7 percent in weekly interest to be paid based on his ability to trade the currency. But according to the decision, Shavers used new bitcoin to repay earlier investors, diverted some to personal accounts at the nowbankrupt Mt. Gox exchange and elsewhere, and spent some investor funds on rent, food, shopping and casino visits. “The collective loss to BTCST investors who suffered net losses (there were also net winners) was 265,678 bitcoins, or more than US$149 million at current exchange rates,” wrote Mazzant, who sits in Sherman, Texas. Mazzant held Shavers and his company liable to give up US$38.6 million of illegal profits plus US$1.8 million in interest. Each defendant was also fined US$150,000. The SEC announced the case on July 23, 2013, the same day it warned investors to be on alert for potential scams involving bitcoin and other “cutting-edge” investments. Reuters

The chart shows that the last four years were a period of almost relentless growth. Every year, in any given month, casino revenues were beating records relative to the previous year. Even in 2012, when growth slowed a bit, all the rates recorded were positive. In the period observed here, they were at times very high, frequently exceeding 20 percent growth. In the first semester of this year, however, the homologous growth rate stood at 10.2 percent. The slowing down of total revenue growth, when compared to the previous year, was already becoming apparent. As a matter of fact, the declining trend kicked in sharply in March.

4.5 %

drop in gambling revenue from June to August, compared to previous year

Alter City increases Saipan investment The Macau-based group will increase its investment in the Northern Mariana Islands to the tune of US$300 million

lter City Group Holdings Ltd has increased its investment by US$100 million (MOP800 million) for a proposed casino resort in Tinian, an island in the Northern Marianas south of Saipan. According to a report by the Saipan Tribune, the Macau-based company has increased its investment to US$300 million from US$200 million. Under the terms of the ‘draft’ lease agreement between Alter City and Tinian’s Department of Public Lands, the project will occupy as much as 152 hectares of public land and is valid for 40 years – the initial 25-year lease with the option to extend for another 15 years.

Although the company has announced that it has increased its investment in the proposed casino resort, Alter City has yet to apply for a casino licence, the Saipan Tribune reports. The proposed casino resort is a three-phase project featuring 1,000 hotel rooms, water parks, an 18hole golf course, villas and casino facilities. It is expected to take 12 years to complete. The Saipan Tribune also reports that the Tinian Department of Public Lands expects the casino project to generate revenues of over US$1.44 billion in 25 years.

There are two land lease payment options, the report says. ‘One is a guaranteed minimum lease payment of US$2.04 million in 24 years. Any extension will bring in an additional US$1.53 million, totalling US$3.57 million in 40 years,’ while an alternative option will see the gaming industry in the island rake in over US$10 million in 25 years, and ‘adding more than US$12.93 million for any 15-year extension will bring the land lease payments to a total of nearly US$23 million in 49 years.’ Once the proposed project and land lease is approved, Alter City will pay a security deposit of US$300,000.

Stay in the finest hotels in Macau and read Business Daily news where it matters

September 24, 2014

Gaming

S&P downgrades Atlantic City’s rating on wave of casino closings The outlook is negative, which means the former US East Coast gambling capital may face further downgrades

tlantic City, New Jersey, the onetime U.S. East Coast gambling capital losing as many as five casinos this year, had its credit rating cut one level to BBB+ by Standard & Poor’s. The reduction, from A-, puts the city’s generalobligation debt three steps above speculative grade. Moody’s Investors Service on July 23 assigned a junklevel Ba1 rating, down two steps from Baa2, on US$245 million of general-obligation debt. The outlook is negative from both ratings companies, which means it may face further downgrades. “The downgrade and negative outlook reflect our opinion of the revenue and potential liquidity pressures that the city faces following the closing of four of its 12 casinos, two of which are in bankruptcy,” S&P analyst Lindsay Wilhelm, based in New York, wrote in the report. Trump Plaza, Caesar’s Entertainment Corp.’s

Showboat, Revel and the Atlantic Club, all battered by out-of-state competition, closed this year. Trump Taj Mahal may shut in November, leaving the city with seven casinos. Republican Mayor Don Guardian and his spokesman, Christopher Filiciello, didn’t immediately respond to a phone message left at their office.

The casinos’ successful tax appeals forced an almost 30 percent increase this year on residential property levies. “We believe, and officials also acknowledge, that rate increases of this magnitude are unsustainable and they are looking to alternative sources of revenue and substantial expenditure cuts,” according to the report.

Governor Chris Christie, 52, a Republican in his second term, met behind closed doors on Sept. 8 with political leaders and casino officials on ways to build Atlantic City revenue on non-gambling attractions including entertainment and retail. The city is four years into Christie’s five-year turnaround effort, including more marketing, policing and

tax breaks, that hasn’t taken hold. Christie’s spokesmen, Kevin Roberts and Michael Drewniak, didn’t immediately respond to an e-mailed request for comment. Christopher Santarelli and Joseph Perone, spokesmen for the state treasury, also didn’t respond to an e-mail. Bloomberg

Cuomo may join casino spree as Atlantic City burns: Muni Week New York will hold a three-day hearing on applications for as many as four licences to build Las Vegas-style casinos in the Albany area, the Catskills and Hudson Valley, and near the Pennsylvania border

ot far from Baltimore’s Inner Harbor, 15,000 people came to the opening of Caesars Entertainment Corp.’s casino on August 26 to be treated to fireworks, champagne and shows by Iggy Azalea and Gladys Knight. Over the next week, Caesars raked in US$5.7 million from the unlucky or unsophisticated. More than onethird of the casino’s winnings went to Maryland’s tax collector, which has the windfall earmarked for public schools. America’s state and local governments are addicted to gambling. Casinos alone were the source of US$8.6 billion in taxes in 2012, according to the American Gaming Association. Growing hunger has encouraged banks of slot machines to sprout around the eastern U.S., eating away at the regional monopoly once held by now-struggling Atlantic City, New Jersey. Next up: The Empire State. Starting yesterday, New York is holding three days of hearings on applications for many as four licenses to build Las Vegas-style casinos in the Albany area, the Catskills and Hudson Valley, and near the Pennsylvania border. Governor Andrew Cuomo is betting (figuratively) that they could add US$430 million to state and local government taxes and bring jobs

to economically struggling areas. Weighing against that is the risk that the casinos could crash in the face of increasing competition from Maryland, Massachusetts and other nearby states. New York need look only to Atlantic City, where four casinos have closed this year. Among them was Caesar’s Showboat. It shut less than a week after the company’s grand opening in Baltimore. Maybe that’s why Paul D, the MTV reality star, was on hand in Charm City, performing as a DJ for revelers, instead of back on the Jersey Shore. In the six years since investment bank Lehman Brothers Holdings Inc. filed for the largest bankruptcy in history, triggering a worldwide market meltdown, state and city pension plans have been slowly on the mend. As the Standard & Poor’s 500 Index headed toward record highs, the shortfall in public retirement systems eased to US$1.26 trillion at the end of June, according to data released by the Federal Reserve last week. In 2011, it was US$388 billion higher. Tomorrow, the Census Bureau will release a snapshot of the performance at 100 of the largest U.S. pension funds. Why does it matter? To make up for lost ground, more taxpayer

money – and, for public employees, larger chunks of their paychecks – have been set aside for pensions. Across the country, worker benefits have been scaled back, too. The gap between assets and obligations has driven credit rating cuts to bonds sold by borrowers including Illinois and New Jersey. Tomorrow, the Census will release its tally of tax collections. The secondquarter figures may look grim: The Nelson A. Rockefeller Institute of Government in Albany estimates that income taxes plunged 7 percent from a year earlier. The backstory is that the figures are down because governments got a windfall a year earlier, after savvy taxpayers moved income into the 2012 tax year to avoid federal rate increases. California was once likened to Greece because of its chaotic politics and chronic budget deficits. Not any more. The state’s now projecting a surplus. And its credit rating from Moody’s Investors Service is the highest since 2001, before the full brunt of the Internet bubble’s demise. The state is the biggest borrower in the municipal market this week. Tomorrow it’s scheduled to complete a US$2.3 billion sale of debt to raise money for infrastructure.

Municipalities are set to sell about US$8.1 billion of long- term debt this week, up from US$6.8 billion last week, according to Bloomberg data.

What’s the matter with Kansas? That was the title of Thomas Frank’s 2004 book, examining how a one-time hotbed of prairie populism is now dominated by the Republican Party. That may not be assured for long. After tax cuts led to a budget shortfall this year and the state’s credit rating was lowered, more than 100 current and former Republican officials revolted against Governor Sam Brownback and endorsed his Democratic challenger in the November election. The race is now a toss-up, according to the Cook Political Report. Another incumbent Kansas Republican, U.S. Senator Pat Roberts, is trailing independent businessman Greg Orman, a recent poll found. And Republican Secretary of State Kris Kobach, who last week lost a court fight after he refused to let a Democrat withdraw from the senate race, is facing his own tough battle for re-election. Bloomberg

September 24, 2014

Greater China Customs clearance in two more areas Two coastal regions including Guangdong province and the Yangtze River economic zone are the most recent areas to join in customs clearance reform, the General Administration of Customs (GAC) said on Monday. Aimed at shortening clearance procedures, the reforms will ease restrictions on goods. They will greatly facilitate flow of goods into the country, according to the administration. The first batch of cities from the Yangtze River delta to enact the reforms will be Shanghai, Nanjing, Hangzhou, Ningbo and Hefei, the GAC said. In Guangdong, only air and maritime transport were included, with overland freight set to get listed on December 1.

Surging tourists in “Golden Week” A total of 480 million trips are expected to be made by travellers during the upcoming National Day holiday from October 1 to 7, up 13 percent year on year, the China Tourism Academy predicted on Monday. Tourism income is expected to jump by 20 percent from a year ago to 27 million yuan (US$4.39 million). Dai Bin, president of the academy, said the stable economic growth, new policies and promotion from travel agencies will be the major driving force, and predicted outbound tourism will see the most increase during the coming holiday.

Russia say sanctions won’t affect China deals Russia will meet a plan to boost oil flows to China despite Western sanctions over Russia’s role in the Ukraine crisis aimed at barring its oil firms from foreign technologies and funds, Russian deputy energy minister said. “We have recourses that we need, we are able to increase production (in Eastern Siberia), we have finances for that,” Kirill Molodsov told an energy conference at Russia’s Far East island of Sakhalin. “Russia does not see any risks or dangers that these projects (to increase oil flows to China) would not be put on stream as decided,” he said.

Blackstone to buy stake in medical company Blackstone Group L.P. has agreed to buy a stake in China’s Xinrong Best Medical Instrument Co, the U.S. private equity firm said in a statement yesterday. Blackstone did not give the size of the stake or other financial details. A person with direct knowledge of the matter said Blackstone is investing around US$100 million in the company, which makes orthopaedic implants. Boston Consulting Group projects the China orthopaedic implant market to grow to US$4.1 billion in 2020 from US$1.3 billion in 2013, driven by an ageing population and increasing affordability of treatment.

Biggest banks may ease mortgage policy Criteria for loans to first-home buyers may be eased and people who have paid off outstanding mortgages may be considered eligible for first-home status

hina’s four biggest banks may ease mortgage lending, the latest in a series of policy steps aimed at supporting the country’s sliding property market, the 21st Century Business Herald reported. Criteria for loans to first-home buyers may be eased and people who have paid off outstanding mortgages may be considered eligible for firsthome status, the newspaper said, citing unidentified people at Industrial & Commercial Bank of China Ltd. and Agricultural Bank of China Ltd.

Executives at Bank of China Ltd. met yesterday to discuss adjusting mortgage policies, according to the report, citing an unidentified person. The report didn’t say if the change applied to those who already own more than one home. Tight credit is damping housing demand even after the central bank on May 13 called on the biggest lenders to accelerate the granting of mortgages. While 37 of the 46 cities that imposed limits on home ownership since 2010 had removed or eased such restrictions as of September 3 to stem the decline

in sales, many homebuyers still have a wait-and-see attitude, according to Centaline Group, parent of China’s biggest property agency.

Down payments Bank of China and Agricultural Bank declined to comment. ICBC and China Construction Bank Corp. were not immediately available for comment. The central bank didn’t immediately reply to faxed questions. China raised the minimum down

Jack Ma, richest of the rich Although the vast majority of the roughly 1,100 people tracked by Hurun on therichest Chinese list saw their wealth grow, it’s tense times for the Chinese elite Gerry Shih

ack Ma, executive chairman of Alibaba Group Holding Ltd, has become China’s richest man with a fortune estimated at US$25 billion, underscoring the ascension of tech tycoons over real estate peers in the world’s second biggest economy. Ma knocked Wang Jianlin, head of the Wanda property group, into

second place with US$24.2 billion, according to this year’s list of China’s super-rich published by Hurun Reports Inc. Tech billionaires accounted for half of the top 10 names and included Tencent Holdings Ltd founder Pony Ma in fifth place with a US$18.1 billion fortune and Baidu Inc CEO

Robin Li in sixth position with US$17.5 billion. Making the top 10 for the first time were cell phone company Xiaomi Inc co-founder Lei Jun and e-commerce entrepreneur Liu Qiangdong who led JD.com to a New York listing this year - in ninth and tenth position respectively.

Hong Kong shares hit a fresh two-month low Hong Kong shares finished at their lowest in two months yesterday, unimpressed by stronger Chinese mainland markets and weighed down by a few index heavyweights. The Hang Seng Index slipped 0.5 percent to 23,837.07 points, the lowest close since July 22. The China Enterprises Index of the leading offshore Chinese listings in Hong Kong was off 0.3 percent to its lowest since July 21. Sands China dived 3.0 percent and Galaxy Entertainment Group sank 2.5 percent, leading losses among casino operators after a brief rebound last week.

Jack Ma (C), the founder and executive chairman of Alibaba, gives a thumbs up in front of the New York Stock Exchange before the launch of the Chinese company’s initial public offering in New York

September 24, 2014

Greater China payment for second homes to 60 percent with higher interest rates, and suspended third-home mortgages in a four-year campaign to curb property speculation that had driven up housing prices. Beijing, Shanghai, Guangzhou and Shenzhen, known as “first-tier” cities, lifted the requirement further to 70 percent last year after prices jumped. First-home buyers are allowed to pay only 30 percent up front, and are eligible for mortgage-rate discounts of as much as 30 percent the central bank’s benchmark.

Strict curbs In Beijing, at least 70 percent of homebuyers who are currently deemed second-home buyers may qualify for first-home status if the reported policy changes take place, according to Wu

We expect these measures to help ease the property market downturn to an extent, but not to reverse the downtrend or drive through a visible rebound UBS economists report

Hao, a manager at the loan brokerage of Bacic & 5i5j Group, the city’s secondbiggest realtor for existing homes. The city is the most strict with the curbs, treating all mortgage applicants who ever owned a home or borrowed money as second-home buyers even if they’ve sold their only home or paid off their only mortgage, she said. The loosening will benefit first-tier cities the most, where the definition of first-home buyers has been most strictly applied, according to Jinsong Du, a Hong Kong-based property analyst at Credit Suisse Group AG. The move will also raise investor expectations for more policy support, he said.

Mortgage discounts Mortgage-rate discounts on first homes have been rare since last year after banks tightened lending as competition for deposits intensified and default risks climbed. In Beijing and Shanghai, first-home mortgage rates were the same as the benchmark rate in July, and in Guangzhou they were 5 percent to 10 percent higher than the benchmark rate, according to Centaline. A Chinese bank will consider buyers as first-home buyers if they pay off outstanding mortgages, and will ease restrictions on second-home purchases, the Shanghai Securities News reported yesterday, citing an unidentified official from the bank. The newspaper didn’t identify the bank or provide details about the changes. Fuzhou, capital of the south-eastern province of Fujian, said yesterday people who have paid off loans could be considered first-time home buyers and enjoy preferential rates, according to a statement on local government’s website. Bloomberg News

While six real estate developers occupied the top 10 places in 2013, just two made the cut this year, a reflection of a Chinese housing market that has stalled for several quarters. Although the vast majority of the roughly 1,100 people tracked by Hurun saw their wealth grow, it’s tense times for the Chinese elite as President Xi Jinping’s administration continues its far-reaching corruption crackdown in both the public and private sectors. According to Hurun, five members of its rich list are under investigation, two have been imprisoned, two are awaiting sentencing, one has been sentenced to death, while one - the flamboyant Sichuan businessman Li Yan - has disappeared altogether. Hurun said it counted a record 354 U.S. dollar billionaires in mainland China, up 13 percent from last year and which compares with just 65 billionaires in 2012. “The entrepreneurial spirit that has caught China seems not to be abating, with eight self-made individuals born in the eighties making the list,” said British accountant Rupert Hoogewerf, Hurun Report chairman and chief researcher. Hurun said its rankings were accurate as of mid-August. It was not immediately clear what valuation it used for Alibaba. A record-setting IPO this month catapulted Alibaba’s valuation to well over US$200 billion. Ma owns 7.8 percent of Alibaba and also made gains of some US$850 million by selling shares in the offering. Despite the size of Alibaba’s IPO, only one other Alibaba shareholder, Simon Xie, made Hurun’s list, coming in at No. 177. Xie is an Alibaba vice president and co-founder who holds significant shares in the company alongside Ma. Reuters

Abalone farmers storm Chinese shipyard Public awareness over China’s industrial pollution has grown in recent years and Chinese leaders have vowed to clean up its waterways and skies

shipyard in China’s southeast has suspended operations after at least 500 farmers, who blame water pollution from the yard for killing their abalone harvest, stormed the yard and smashed its offices, an official at the shipyard said yesterday. There has been no work at the Fujian Huadong Shipyard, which sits on the north coast of Luoyuan Bay in Fujian province, since last Wednesday, said an assistant manager at the factory who gave only his surname, Zhang. Luoyuan Bay is home to numerous floating farms that cultivate the sought-after shellfish, a delicacy that is eaten in Asia at banquets and even exchanged as gifts. Public awareness over China’s industrial pollution has grown in recent years and Chinese leaders have vowed to clean up its waterways and skies. Zhang said farmers from surrounding villages visited the offices of the Luoyuan Bay area Communist Party committee after an unusually high number of abalone deaths in August.

Villagers decided to target the shipyard directly after they received no reply to their petition, Zhang said. “On the 16th (last Tuesday) some villagers cornered one of our bosses and wouldn’t let him leave, they wouldn’t let him drink or eat,” Zhang said. “There were at least 500 villagers who arrived the next day,” he said. “After work at the yard stopped, they entered the locked offices of our finance and administrative departments and smashed the computers, cupboards ... They left after they got tired,” Zhang said. Media reports said the villagers blamed the factory for polluting the water in which the abalone was farmed. A Luoyuan government official said they had sent a team to investigate. The factory, which opened in 2011, switched its focus to ship repair last year after the global shipping slump sapped demand for new vessels, Zhang said. Ship repair usually has a greater impact on the environment, he said, but the reasons for the abalone deaths were likely to be more complex. Reuters

Restructuring process cuts demand for iron ore Iron ore has fallen more than 40 percent this year as growth in supply from low-cost producers outpaced demand in China

restructuring in China’s economy has reduced business confidence and demand for steel and iron ore in the world’s top consumer of both commodities, said Nev Power, chief executive of world No. 4 iron ore miner Fortescue Metals Group. “With the restructuring that’s going on in the Chinese economy, it has reduced business confidence to some extent and we’re seeing less demand for steel and therefore iron ore through that process,” Power said on the sidelines of a mining conference in Melbourne. Some economists have trimmed their 2014 growth forecasts for China after data showing a slowdown in factory output, while recent comments Finance Minister Lou Jiwei suggested Beijing may be amenable to slower growth. Iron ore has fallen more than 40 percent this year as growth in supply from low-cost producers outpaced demand in China, hitting a five-year low of US$79.80 on Monday. Power said that while a slump in iron ore prices has pushed out some high-cost producers from the market, supply was “not being cut back fast enough to reduce the overhang in the market”. “The response by high-cost producers ... has been much slower than certainly what I thought and

An iron mine facility

what most in the industry thought,” he said. “But inevitably that needs to happen ... so the iron ore price will be low for long enough for that supply to exit the market. That’s an economic reality.” While stockpiles at China’s ports remain high, Power said steel mills

were running with relatively low stockpiles. Power said Fortescue’s delivered cost into China is less than US$50 a tonne. “Our focus is on making sure that our production is as efficient and low cost as possible,” he said. Reuters

September 24, 2014

Greater China

Factory activity gives planners a break Policymakers are likely to lower select lending rates such as mortgage rates Jake Spring

hina’s manufacturing sector unexpectedly picked up some momentum in September even as factory employment slumped to a 5-1/2-year low, a potential source of worry for Communist leaders who prize social stability above all else. Signs of a weakening labour market reinforced expectations that China would further relax financing conditions in coming weeks, but stop short of cutting interest rates or loosening the reserve requirement for all banks to support the economy. The HSBC/Markit Flash China Purchasing Managers’ Index (PMI) rose to 50.5 in September from Augusts’ final reading of 50.2, slightly above the 50 mark separating expansion from contraction which had been expected by economists in a Reuters poll. “We believe liquidity conditions will be easy,” said Ting Lu, an economist at Bank of AmericaMerrill Lynch. “But we don’t expect a universal cut in interest rates or the reserve requirement ratio.” Instead, policymakers are likely to lower select lending rates such as mortgage rates, and the central bank may extend more loans to big banks with the cash being re-lent to businesses under a “re-lending” exercise, Lu said. Economists’ bets that there would be no overt policy easing are in line with remarks by senior leaders such as Finance Minister Lou Jiwei, who said over the weekend that China would not dramatically alter its policy based on any one indicator. But the government’s promises to desist from ramping up credit supply are increasingly being tested by a

run of data showing that the world’s second-biggest economy is sliding into a deeper slowdown, dragged by a cooling housing sector. Yesterday’s PMI showed a measure of employment shed more than a point to drop to 46.9, its lowest since February 2009 during the global financial crisis, when a collapse in exports threw tens of millions of Chinese out of work. A hefty drop in employment could raise alarm bells for the government, which has indicated it will tolerate slower economic growth below 7.5 percent for the year as long as employment is not affected. “The real estate risk is already materialising,” said Dariusz Kowalczyk, an economist at Credit Agricole Corporate and Investment Bank in Hong Kong. “This will keep gross domestic product growth at a depressed level of around 7 percent year-on-year this quarter.” Still, Asian markets found consolation in the PMI poll that China’s economy was not faring as badly as some feared. Stock markets and the Australian dollar clawed back some of their early losses, while Shanghai stocks rose.

No high-profile steps China’s urban unemployment rate was nearly 4.1 percent at the end of June, though many economists believe the real number may be much higher given its army of migrant workers. The employment index aside, other measures in the PMI poll fared better, which could keep Beijing’s response more modest for now.

KEY POINTS China’s Sept flash PMI at 50.5 vs poll 50.0 Unemployment sub-index falls to 5-1/2-year low of 46.9 Economists bet on more policy loosening but see no rate cut

Total new orders rose, and new export orders also climbed to their highest level since March 2010. The overall output level remained flat on the month, while output prices fell to a six-month low. The final HSBC/Markit manufacturing PMI for the month is due on Sept. 30, while the official reading will be released on Oct. 1. The HSBC surveys covers more small- to medium-sized companies, which are believed to be under greater stress than larger, state-owned firms which the official report focuses on. “We still expect some more measures to support growth, such as stimulating infrastructure investment, relaxing property market policies and some more monetary easing steps,” said Louis Kuijs, an economist at RBS in Hong Kong. “However, the recent signs of policymakers suggest to us that they

will not resort to more significant and higher profile measures unless growth takes another turn for the worse.”

Gradual slowdown Chinese leaders have publicly ruled out another massive stimulus programme this year like the one launched during the global financial crisis, but are prepared to take targeted measures supporting the most vulnerable sectors. The central bank last week injected money into the country’s top banks in a bid to help support the economy by keeping borrowing costs down, and media have reported this week that the “Big Four banks” plan to ease rules on mortgage lending in a move orchestrated by regulators. Yet even so, China’s economy is not showing signs of a revival. Export growth has been unsteady, and a cooling housing market is undermining already softening domestic demand. Worse, recent data showed factory output grew at the weakest pace in nearly six years in August. Prices for Chinese steel and iron ore futures have slumped to record lows, while oil, copper, rubber and other raw materials have also skidded on fears of slowing China demand, which is rapidly leaving the United States as the only major driver of world economic growth. “The economy still faces significant headwinds, particularly from the property sector, and our base scenario remains a gradual slowdown in the coming months,” Capital Economics said in a note to clients. Reuters

September 24, 2014

Asia

SoftBank mulls expanding to Mexico SoftBank would enter Mexico just as new laws open the telecommunications market to foreign investors and set up the industry for intensified competition

apanese mobile-phone company SoftBank Corp. is considering an investment in Mexican wireless carrier Grupo Iusacell SA, according to people with knowledge of the matter, in what may be its first foray into the fast-growing Latin American market. SoftBank, which controls Sprint Corp. in the U.S., is in advanced stages of reviewing Iusacell’s assets, said one of the people, who asked not to be identified because the process is private. Iusacell owner Ricardo Salinas, Mexico’s fourth-richest person, said earlier this month that he would soon announce a new “world-class strategic partner” for the company. Grupo Televisa SAB agreed to sell its half of closely held Iusacell, the third-largest mobile-phone operator in the country, to Salinas for US$717 million this month. Televisa took a loss on its investment just three years after it agreed to buy the stake for US$1.6 billion, as the carrier struggled to compete in Mexico. SoftBank would enter Mexico just as new laws open the telecommunications market to foreign investors and set up the industry for intensified competition. The Tokyo-based carrier is also among potential suitors contacted by America Movil SAB, which is preparing to sell assets in Mexico worth as much as US$17.5 billion to reduce its market share to appease regulators, people with knowledge of the matter said last week. Iusacell controls about 8

A SoftBank branch shop in Japan

percent of Mexico’s mobile market, trailing billionaire Carlos Slim’s America Movil and Madrid-based Telefonica SA. The new partner in Iusacell needs to have “high technical capacity, to be an international player, and have the financial capacity to face the demand there is in this market,” Luis Nino, a spokesman for Salinas, said when the Televisa exit was announced.

Multiple suitors SoftBank is one of multiple potential suitors for Iusacell’s assets, one of the people said. Hiroe Kotera, a spokeswoman for SoftBank, declined to comment on

34 percent SoftBank’s stake in Alibaba

whether the company is interested in Iusacell. A press official for Salinas didn’t reply to requests for comment. SoftBank already has ties with Iusacell, in a roaming agreement that allows SoftBank’s mobile customers

to connect to the Internet through Iusacell’s network in Mexico for a flat rate. In 2010, Masayoshi Son, the billionaire founder of SoftBank, laid out a 300-year plan that included investing in 5,000 companies by 2040. Even as he forecast that 99.98 percent of companies would cease to exist in their current form over the next 30 years, he vowed that SoftBank would survive.

Alibaba stake He’s since been expanding, including the purchase of Sprint and acquiring a 34 percent stake in Chinese e-commerce company Alibaba Group Holding Ltd.,

which began trading in New York last week. SoftBank has operations in the Western Hemisphere thanks to its acquisition last year of a controlling stake in Sprint, the third-biggest U.S. wireless carrier. Son named Marcelo Claure as Sprint’s CEO last month. Claure, who founded phone distributor Brightstar Corp., is a Spanishspeaking Bolivian citizen and long-time Miami resident. While Son scrapped plans last month to combine Sprint with T-Mobile US Inc., SoftBank only weeks later sold almost US$4 billion in bonds, a war chest that could be used for potential acquisitions. Bloomberg News

S. Korea to top Vietnam’s FDI in 2014 During the eight-month period, Vietnam lured some US$10.23 billion in FDI from 51 countries and regions

xperts predicted that South Korea will possibly become Vietnam’s largest foreign direct investment (FDI) contributor in 2014, local Bao Cong Thuong (Industry and Trade News), an online newspaper under Vietnam’s Ministry of Industry and Trade reported on yesterday. The comment was made following positive assessments of South Korean officials on investing environment in Vietnam and the fact that many big South Korean groups intend to expand their businesses in Vietnam, reported Bao Cong Thuong. Specifically, Shim Won Hwan, General Director of South Korean biggest enterprise Samsung Electronics in Vietnam said in a recent conference that the group will expand its investment in Vietnam in coming years. In addition to electronics, Samsung will invest in other areas such as

hydropower, airport, shipbuilding and petrochemical among others, said Shim. Jun Dae Joo, South Korean Ambassador to Vietnam, was quoted by Bao Cong Thuong yesterday that Vietnam has been an attractive investment destination for many South Korean enterprises thanks to abundant workforce and good socio-economic growth. South Korea topped Vietnam’s FDI in the first eight months of 2014, with newly registered and added capital of US$3.22 billion, accounting for 31.5 percent of Vietnam’s FDI, said Foreign Investment Agency (FIA) under the Ministry of Planning and Investment. Cumulatively, as of the end of August, South Korean enterprises have invested into 3,930 projects in Vietnam with total registered capital of US$32.845 billion, said FIA. During the eight-month period,

Samsung Electronics (South Korea headquarters pictured) in Vietnam said in a recent conference that the group will expand its investment in coming years

Vietnam lured some US$10.23 billion in FDI from 51 countries and regions. Japan ranked the second in the list of Vietnam’s top investors with US$1.27 billion, accounting for 12.4 percent of the national total.

China’s Hong Kong sat the third place with total registered and added capital of US$1.19 billion, accounting for 11.6 percent of Vietnam’s total FDI attraction during the period. Xinhua

September 24, 2014

Asia India mulls removing drugs price fix India’s decision to withdraw the drug pricing authority’s powers to fix the prices of non-essential medicines will be on a prospective basis, and will not affect price caps imposed in July on 108 drugs, a senior government official said yesterday. The official in the drug pricing authority declined to be named due to the sensitivity of the matter. The Department of Pharmaceuticals withdrew guidelines issued on May 29 that gave the National Pharmaceutical Pricing Authority (NPPA) the powers to fix the prices of drugs that are not on the essential medicines list.

HCM City to see CPI rise in September The consumer price index (CPI), an indicator for the inflation growth, in Vietnam’s southern economic hub Ho Chi Minh (HCM) City is forecast to soar by 1.13 percent from August, driven by increase in price of education, according to the city’s statistics office yesterday. The figure would push a year-on-year increase of 3.16 percent. According to the office, prices for educational goods and services increased the most compared to August, up by more than 19 percent, as consumers stocked up on school supplies for the new academic year.

S. Korea’s national debt rises South Korea’s national debt rose to 34.3 percent of its gross domestic product (GDP) last year, a government report said yesterday. Debts owed by central and provincial governments reached 489.8 trillion won (US$470 billion) as of end-2013, or 34.3 percent of the GDP, up 46.6 trillion won (US$44.7 billion) from a year earlier, according to the Finance Ministry. The central government’s debt increased 38.9 trillion won (US$37.3 billion) to 464 trillion won (US$445 billion) in 2013, with the figure for provincial governments rising 7.7 trillion won (US$7.38 billion) to 25.7 trillion won (US$24.6 billion).

Philippine company offers to buy Indophil Indophil Resources NL said yesterday Philippine-based conglomerate Alsons Group has offered to fully acquire the Australian company for US$0.30 a share in an all-cash deal. The offer represents a 43 percent premium to Monday’s close. Indophil owns 37.5 percent of Sagittarius Mines Inc, the operator for the Tampakan project in the southern Philippines province of South Cotabato. Tampakan is believed to be one of the biggest undeveloped copper and gold mines in Southeast Asia. Mining giant Glencore, which holds 13.1 percent stake in Indophil, intends to approve the acquisition.

Australia aims at energy Energy resource exports in 2013 were worth about A$69 billion or Byron Kaye

ustralia yesterday said it wants to dramatically deregulate its energy industry, boost domestic gas supply and cut renewable energy subsidies as it prepares to ramp up exports of liquefied natural gas. In a draft policy blueprint, the conservative coalition government unveiled a range of policy proposals - most involving scaling back government interference - that it said would keep the country’s energy industry competitive amid dwindling demand and investment. “The Australian energy market has undergone significant transformation in recent years as a result of declining demand and changing patterns of consumption,” industry minister Ian Macfarlane told a mining conference in the city of Melbourne. “We cannot afford to just coast along because we are blessed with such a diverse energy resource.” Australian energy resource exports in 2013 were worth about A$69 billion or nearly a quarter of the country’s total exports, with more than half of those exports coal, making it the world’s No.2 coal exporter. But profit from coal exports is

slowing because of lower coal prices and a relatively high Australian dollar, the paper warned, and energy investment has “peaked and is entering a downturn” as companies shift from construction to production. Australia will become the first country to develop coal-seam gas for LNG export in late 2014, and “must remain at the forefront of industry innovation...to secure its share in growing global LNG markets”, it added. It said governments must streamline workforce and environment laws between states, “rationalise” subsidies for households which return unused solar power to the grid, introduce “smart metres” so consumers can use appliances at cheaper times, and speed up gas supply so prices don’t rise as gas exports begin. The government, swept to power a year ago partly on promises to repeal an unpopular carbon emissions tax, published the so-called “green paper” after taking 260 submissions over a previous draft document. It will take submissions on the document before unveiling an official policy later this year.

Pelican Point power station in Australia

The new energy measures should benefit the country’s largest energy retailer, Origin Energy Ltd,, which plans to export LNG from Queensland state to Asia, and No.2 retailer AGL Energy Ltd which plans to fill the domestic supply gap left once Origin and others sell gas offshore. About 80 percent of Australia’s power is produced by coal-fired

Indian minister wants to hike food hand outs If implemented, an increase in distribution of cheap food to the bulk of India’s population would run counter to Modi’s strategy of financial ‘inclusion’

ndia should increase hand outs of subsidised grain, its food minister was quoted as saying, in a move that would backtrack on long-term commitments to reduce food stockpiling and undermine vestigial hopes of salvaging a global trade accord. Food Minister Ram Vilas Paswan said in a newspaper interview that Prime Minister Narendra Modi’s fourmonth-old government wanted to hike monthly hand outs of food grains like rice by 40 percent from the current five kilogrammes per person. “The focus of the government would be on providing food security to all,” Paswan told Tuesday’s Economic Times. “With huge stocks of grain in the country we want to increase (the) monthly entitlement to 7 kg.” It was not immediately clear whether Paswan, who represents a regional party in Modi’s nationalist coalition, was speaking on behalf of the government. If implemented, an increase in distribution of cheap food to the bulk of India’s population would run counter to

Woman harvesting wheat, Raisen district, Madhya Pradesh, India

Modi’s strategy of financial ‘inclusion’ that foresees gradually shifting to paying welfare benefits in money; and not in kind. It would also boost India’s food subsidy bill that is already budgeted at US$19 billion for the fiscal year through to March 2015 at a time when Finance Minister Arun Jaitley faces a challenge to meet fiscal targets. India is at loggerheads with the World Trade Organization over its

decision to veto a landmark accord because it wanted more attention paid to its demand to be able to stockpile subsidised crops to ensure security of supplies. In a filing earlier this month, India disclosed that it spent a total of US$56 billion on farm support and food stockpiling in 2010-11, arguing that it was conforming to agreed limits limits on agricultural subsidies. Reuters

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September 24, 2014

Asia

deregulation nearly a quarter of the country’s total exports

Millions of Indonesians prone to poverty Another problem faced by Indonesia is the growing income inequality among society

A We cannot afford to just coast along because we are blessed with such a diverse energy resource Ian Macfarlane, Australia’s industry minister

power stations, making it one of the world’s biggest carbon emitters on a per capita basis. Last month, a governmentcommissioned report recommended Australia effectively end its Renewable Energy Target (RET), a scheme designed to ensure that 20 percent of its electricity would be generated from renewable sources by 2020.

Australian Greens Senator Larissa Waters criticised the energy paper as “cling(ing) to last century’s ideas by focusing on fossil fuels while the world calls for action on climate change”, a reference to the United Nations Climate Summit 2014 taking place in New York. But the Energy Networks Association, which represents grid companies, said it supported the proposal to change “unfair cross subsidies between users”. Reuters

senior official of World Bank (WB) said yesterday that at least 68 million of Indonesian people are at risk of poverty, as their earnings are slightly above poor families. “They may easily plunge into poverty, should they experience misfortunes such as suffering illness, hit by disaster and lose their jobs,” Head of WB Indonesia Representative office Rodrigo A. Chaves said in a WBinitiated event held here. Citing Indonesia’s poverty rate figures, the official said Indonesia is facing problems in its efforts to reduce poverty as it only recorded 0.7 percent reduction from 2012 to 2013, a figure he regarded the least in the past decade. Another problem faced by Indonesia is the growing income inequality among the society, he said, adding that it has been happening over the past several years and has potentiality to incite social conflict. Reports said coefficient that measures inequality among income distribution (Gini ratio) in Indonesia has risen from 0.37 in 2012 to 0.41 percent in 2013. Zero in Gini ratio expresses perfect equality, while one implies maximum inequality.

28.28 million Indonesian people living in poverty

Rodrigo said persistence of poverty and income inequality problems would hinder the benefits of high growth the country has been experiencing over the past years. He said the high growth the country has achieved so far has helped it to reduce poverty rate this year, compared to 24 percent in 1999. Indonesia recorded an average of 5.9 percent growth from 2009 to 2013. Indonesian Central Statistic Bureau (BPS) said earlier that people living in poverty line by March this year reached 28.28 million, or lower than 28.60 million as of September last year. In percentage, the reductions were 11.46 percent to 11.25 percent respectively. Xinhua

Sri Lanka pushes banks to cut lending rates The central bank held its reverse repurchase or standing lending facility rate at 8.00 percent as expected Shihar Aneez and Ranga Sirilal

ri Lanka’s central bank announced moves yesterday to make commercial banks lower their interest rates and increase lending to support an economy expected to grow 7.8 percent this year, while keeping its own policy lending rate unchanged. The central bank held its reverse repurchase or standing lending facility rate at 8.00 percent as expected. But it also restricted commercial banks use of its standing deposit facility (SDF) to three times a calendar month at the current 6.50 percent rate, and announced that further deposits would only receive 5 percent. With treasury yields at below 6.3 percent, the 6.5 percent deposit rate had presented banks with a profitable arbitrage opportunity, but the lower deposit rate will now pressure them to boost their lending to customers. “We see so much liquidity remaining in the system without being utilised for economic activity,” Central

Sri Lanka’s Bank of Ceylon (central bank headquarters)

Bank Governor Ajith Nivard Cabraal told Reuters. “With this move we expect banks to lend at cheaper rates.” While the policy lending rate is already at multi-year lows, commercial banks’ lending rates are above 13 percent. The central bank said in

a statement that its moves aimed to encourage banks to lend to the “private sector at more reasonable interest rates, and thereby support the growth momentum of the economy, given the low inflation environment.” For the remainder of September, banks can only use the standing deposit

facility twice, the statement said. The central bank also suspended the daily auction facility with effect from yesterday. Top listed lender Commercial Bank of Ceylon immediately signalled its intention to cut. “We are lowering our lending rates in line with

the new decision,” Dharma Dheerasinghe, the bank’s chairman told Reuters. The central bank said inflation is now projected to remain comfortably at around 3-4 percent by the end of 2014 due to the recent reduction in energy and fuel prices, having previously foreseen year-end inflation in a range of 4-5 percent. Cabraal said he was confident Sri Lanka’s economy will achieve the 7.8 percent growth estimated for this year. Cabraal expected private sector credit growth to pick up. The central bank said private sector credit growth for July “remained moderate”, but did not give figures. Credit growth was 2 percent in June, its lowest since April 2010, down from 2.2 percent in May. Some banks and economists say they have not seen much demand for borrowing for investment, as consumer spending is declining due to higher taxes and lower disposable income. Reuters

September 24, 2014

International M&S frees Alan Stewart to take up Tesco British retailer Marks & Spencer has allowed Alan Stewart, its departing chief finance officer, to join troubled rival Tesco in the same role two months early following an appeal from Tesco’s new chief executive Dave Lewis. Tesco, Britain’s biggest grocer, said Stewart would join the firm yesterday, rather than the previously announced date of December 1. Stewart quit M&S on July 10 to join Tesco but had since been on a period of so called “gardening leave”, with M&S intent on holding him to his contractual notice period.

Argentina’s Fernandez meets Soros Argentine President Cristina Fernandez met with Argentina bondholder and billionaire financier George Soros, who is suing a U.S. bank caught in the middle of the country’s latest default. A spokesman for Soros said they had discussed topics including the energy sector. Soros’ portfolio also includes a 3.5 percent stake in Argentina’s statecontrolled energy firm YPF. Fernandez is in the United States ahead of the United Nations General Assembly, as relations between Buenos Aires and Washington sour over the role a U.S. court played in Argentina’s debt saga.

Kocherlakota calls for clarity on inflation target The U.S. Federal Reserve should make it clear that it is just as keen to fight too-low inflation as too-high inflation, and should rewrite its long-run goals to reflect that commitment, a top Fed official said. The Fed should also consider imposing a two-year deadline for meeting its 2-percent inflation goal, and be clear that financial stability is a factor in monetary policy decisions, Minneapolis Fed President Narayana Kocherlakota said in remarks prepared for delivery at the Economic Club of Marquette County in Michigan’s Upper Peninsula.

Angolan plant plans chills LNG project Angola’s liquefied natural gas plant faces major reconstruction to fix design flaws and corrosion of nearly-new equipment, threatening to extend a lengthy closure and pushing unofficial estimates of the project’s cost to at least US$12 billion. A consortium of investors, which apart from Chevron includes Angolan state energy firm Sonangol, BP, Total and Eni, contracted U.S. engineering giant Bechtel built the technically advanced plant on the Atlantic coast north of Luanda.

Jimmy Choo to go public

Luxury shoe brand Jimmy Choo unveiled plans yesterday to launch on the London market next month to raise cash for expansion in Asia and elsewhere. The group said in a statement that its owner JAB Luxury has agreed to float a 25-percent stake in a partial initial public offering (IPO) on the London Stock Exchange. The firm did not state how much cash it was aiming to raise, but media reported the IPO could generate around £600 million (US$981 million, 763 million euros).

Euro zone business growth slows again The business expectations index fell to a 14-month low of 58.4 Jonathan Cable

uro zone business activity has expanded at a slightly weaker pace than expected in September as firms cut prices for the 30th month in a row, a survey showed yesterday. The data will dishearten the European Central Bank, which is struggling to spur growth and revive inflation rooted way below its target. Markit’s Composite Flash Purchasing Managers’ Index, based on surveys of thousands of companies across the region and seen as a good indicator of growth, dipped to a ninemonth low of 52.3, shy of expectations in a Reuters poll for no change from August’s 52.5. The index has been above the 50 mark that separates growth from contraction since July 2013 although Markit said the latest survey pointed to third-quarter economic growth of just 0.3 percent. “The ECB will be disappointed. It’s got a big uphill battle on its hands and perhaps what the survey is saying is what they have done to date is not going to be enough,” said Chris Williamson, chief economist at Markit. “Although they will want to wait and see what the ABS purchases do in terms of stimulating the economy, the danger is the longer you wait, the more entrenched the downturn becomes.” The ECB surprised markets earlier this month by cutting benchmark lending and deposit rates further and said it would buy asset-backed securities and covered bonds. Growth ground to a halt in the bloc last quarter as Germany’s economy shrank and France’s stagnated, adding to the pressure on the ECB, although no change to policy is expected when the Governing Council meets next week.

European Union Parliament

The manufacturing PMI for Germany, Europe’s largest economy, slumped to 50.3, its lowest reading since June 2013 and below all forecasts in a Reuters poll of 32 economists. A service industry PMI for France, the bloc’s second-biggest economy, sank to 49.4 after just two months in growth territory.

Price fall Consumer inflation in the 18 countries sharing the euro rose to just 0.4 percent year-on-year in August, slightly higher than July’s 0.3 percent but staying so far below the ECB’s 2 percent target ceiling that it was not enough to radically alter the outlook. According to the PMIs, firms cut prices again this month - although not as steeply as they did in August. The composite output price index rose to 49.2 from 48.9 but has now been below the 50-mark for a full 2-1/2 years. “Growth is only being achieved by price discounting across the region as a whole,” Williamson said. A manufacturing PMI for the euro zone nudged down to 50.5, in line

KEY POINTS Euro zone flash composite PMI falls to 9-month low of 52.3 PMIs suggest Q3 economic growth of 0.3 pct - Markit Firms cut prices for 30th month running with the consensus forecast but below August’s 50.7. The output index, which feeds into the composite PMI, held steady at 51.0. Next month is unlikely to see much improvement, if any, as new orders fell for the first time in over a year. The sub-index dropped to 49.7 from 50.7. The flash services PMI also fell, coming in at a below forecast 52.8 compared to August’s 53.1. With the slowdown continuing, service firms were less optimistic about the future. Reuters

Electronics giant Philips to split in historic move Details on how its lighting business will be spun off into a separate legal structure are to be announced in 2015

hilips said yesterday it would split the 120-year-old Dutch giant in two, separating its healthcare-lifestyle division from the historic lighting business in a dramatic streamlining move. “We’re preparing Philips for the next century,” CEO Frans van Houten told a telephone press conference. “Giving independence to our lighting solutions business will better enable it to expand its global leadership position and venture into adjacent market opportunities,” Van Houten said. Both companies will continue to use the Philips name, the company said in a statement, noting that its HealthTech business had sales of 15 billion euros (US$19 billion) in 2013 and its lighting business sales of seven billion euros. Details on how its lighting business will be split off into a separate legal structure are to be announced in 2015.

The companies will be based in the Netherlands, Van Houten said, adding that it was too early to say how many job losses might be involved.

The global HealthTech is worth more than 100 billion euros and the lighting business worth more than 60 billion euros, Philips said. The new structure should result in savings of 100 million euros in 2015 and another 200 million in 2016. The move will also incur annual restructuring costs of around 50 million euros up to 2016, the company said. The split comes after German engineering and technology giant Siemens in July last year separated the activities of its lighting company Osram, the world’s second largest. Osram, with about 40,000 staff worldwide, restructured after suffering a net loss of 378 million euros in 2012. Philips, Osram and fellow light bulb market leader General Electrics are facing stiff competition from players such as Samsung and LG as the market has shifted toward low-energy bulbs and light-emitting diodes. AFP

September 24, 2014

Opinion Business

wires

Burning down the house

Leading reports from Asia’s best business newspapers Donald Kaberuka

President of the African Development Bank

THE JAPAN NEWS With demand for gifts and souvenirs among foreign tourists expected to increase after cosmetics, food and other products are granted duty-free status on October 1, department store chains around the nation are working to expand their services for customers from overseas. Duty-free items are currently limited to products such as electronics and clothing, but come October, consumable items including food, alcohol and cosmetics will also be available. Department store chains are busily preparing for the expansion, taking such steps as establishing special duty-free sales areas, expanding counters to process duty-free purchases and hiring more staff.

THE JAKARTA GLOBE People in developing countries view corporations more favorably than those in developed countries, a survey by CNBC and public relations firm Burson-Marsteller showed. According to the survey, 72 percent of the public in emerging economies saw corporations as a “source of hope, rather than fear”, compared with 52 percent in developed economies. The survey also found that 57 percent of the general population and 53 percent of executives believed that corporations take advantage of tax loopholes to avoid paying their fair share of tax.

THE TIMES OF INDIA According to top banks and NBFCs, since April this year competitive pressure has prompted home and auto financiers to offer aggressive promotional schemes at rates that are lower by anywhere between 20-50 bps (basis points). What’s more, with the festive season rolling in, banks and NBFCs may prune rates by another 10-20 bps, say sources. “Interest rates are not coming down but pressure of competition means the rate to the customer has seen some downward trend,” said Sumit Bali, executive vice president, Kotak Mahindra Bank.

THE STAR Various stakeholders in the property sector hold divergent views on the new set of guidelines governing property purchases by foreigners in Selangor, with some believing it will prevent them from sweeping up properties and driving up prices. National House Buyers Association secretary-general Chang Kim Loong applauded the state government’s move to set a minimum purchase price of RM1mil for the Hulu Selangor and Sabak Bernam districts (Zone 3) and RM2mil elsewhere (Zones 1 and 2). According to an Aug 28 circular, the guidelines, effective Sept 1, apply to foreigners, permanent resident holders and foreign companies.

hat does it take to generate a global response to a global threat? The financial crisis of 2008 and the threats from insurgency and terrorism in 2014 are seen as “clear and present dangers” to one and all – and both have drawn a global response. Meanwhile, climate change, and the devastating effects of carbon-dioxide emissions, pose greater and longer-term threats, and yet have elicited only a feeble response from the global community for the past 30 years. In New York this week, United Nations Secretary-General Ban Ki-moon has convened a summit of world leaders to address this global phenomenon, which urgently requires collective intervention. The world has played politics with climate change for long enough. Immediate electoral or economic imperatives will never alter the fact that global warming will be as damaging for the rich world as it already is for the poor. The world has flagrantly failed in its response to the 2005 Kyoto Protocol: Today, we emit more greenhouse gases than at any point in history. We know that we need to keep global warming below 2° Celsius to avoid a planetary catastrophe, and yet the Intergovernmental Panel on Climate Change informed us last year that we are on course for a 3.7°-4.8°C rise in average global temperature by the end of the century.

No region of the world is immune to the impact of CO2 emissions. The World Meteorological Organization has recorded more than 8,000 weather, climate, and water-related disasters worldwide since 1970, costing nearly two million lives and some US$2.4 trillion. A third of these cases were in Africa, accounting for almost 700,000 lives and economic damage of about US$27 billion. In 2012 alone, the continent experienced 99 extreme weather events, which is double the long-term average. Twenty percent more Africans will be at risk of hunger in 2050 due to a changing climate. The costs of adapting to climate change are also high: an estimated US$45-US$50 billion per year by the 2040s, and US$350 billion per year by the 2070s. If Africa fails to find the money to finance adaptation, the total damage could amount to 7% of Africa’s GDP by the end of this century. At the very least, we need the UN meeting to produce four outcomes. The first is a global commitment to cut greenhouse-gas emissions through smart, efficient fiscal and economic policies and regulation – including carbon pricing, reduced fossil-fuel subsidies, incentives, and performance standards. This would not only help to fight climate change, but would also benefit growth, competitiveness, and job creation. This is particular-

No region of the world is immune to the impact of CO2 emissions

ly true in Africa, where some countries, are on an alarming trajectory toward becoming major greenhouse-gas emitters, despite having abundant natural resources that can be developed sustainably and with a minimal carbon footprint. Second, we need a global agreement on a mechanism to raise and channel sufficient and predictable financial support and to accelerate technology transfer to developing countries, especially in Africa. Current funding levels will not suffice. I sat on the UN High-Level Advisory Group on Climate Change Finance, which concluded in 2010 that we could mobilize US$100 billion annually by im-

posing an agreed levy per ton of CO2 emitted. Thus far, the world has not displayed the political will to do that. Third, world leaders should vow to remove all obstacles to a legally binding universal agreement at the global climate conference in Paris in December 2015. And when that agreement is reached, it must be rigorously implemented. A fixed penalty price for non-compliance will send the right signal of the world’s collective recognition that our economic future is inextricably linked with our environmental future. Finally, we need a specific commitment from African leaders to create the right climate to attract private-sector support for green development. The most forward-thinking private investors are already searching for any green investment that offers a reasonable yield. Africa must make such opportunities easier to find, by consistently implementing good environmental policies; establishing national “green growth” road maps; devising innovative financing vehicles to minimize risk; and lowering transaction costs. World leaders must act on all global challenges when they recognize them. Preventing bank failures and stopping terrorist attacks are important goals; unless we get serious about addressing climate change, we are likely to have more of both. Project Syndicate

September 24, 2014

Closing UK regulator fines Barclays US$62 million

New 10-euro banknote in circulation

Britain’s financial watchdog said yesterday it had fined Barclays 38 million pounds (US$62 million) for failing to ensure that customer money was properly safeguarded and adequate records kept. The fine is the highest ever imposed by Britain’s Financial Conduct Authority (FCA) for client asset breaches, reflecting what it called “significant weaknesses” in Barclays’ systems and controls between November 2007 and January 2012. Barclays said it had not profited from the issue and that no customers had lost out as a result of the failings.

The European Central Bank announced that the new 10-euro banknote will start circulating from yesterday. The ECB is gradually phasing in new banknotes to replace those in circulation since the euro became a physical currency in January 2002. It started with new five-euro banknotes in May 2013 and new 10-euro notes are being introduced from September 23. Like the new five-euro note, the new 10euro note has enhanced security features. Its hologram and watermark include a portrait of Europa, a figure from Greek mythology.

China to face US$100 billion tourism deficit China has become the world’s main source of international tourists in recent years

hina is set to see its tourism deficit exceed US$100 billion this year as Chinese traveling overseas spend much more than foreign visitors back home, according to a report by the China Tourism Academy (CTA). “A tourism deficit greater than US$100 billion is a sure thing this year,” said CTA president Dai Bin, citing explosive growth in outbound tourists and a lacklustre inbound tourism market. About 116 million Chinese are expected to travel and spend US$155 billion overseas in 2014, up 20 percent from a year ago, Dai said. China has become the world’s main source of international tourists in recent years, as a richer middle class seeks more exotic experiences overseas, said the report. The expected net tourism deficit reflects the increasing purchasing power of Chinese abroad, as they tend to open their wallets generously in European cities such as Paris and London to buy luxury goods from branded bags to expensive wrist watches. Last year, per capita spending by Chinese traveling overseas was almost three times the amount foreign visitors spent in China, according

A tourism deficit greater than US$100 billion is a sure thing this year Dai Bin, CTA president

to Fan Zhiyong, an associate professor under the School of Economics with the Renmin University. Chinese tourists made a total of 98.2 million trips overseas last year, climbing 18 percent from a year earlier, according to the China National Tourism Administration. For the first half of 2014, the administration estimated that Chinese spent more than US$70 billion on their overseas trips during the period, up 20.7 percent year on year. As Chinese spend more

time and money overseas, competition to attract them is intensifying among foreign countries. Currently, Chinese can travel to 151 countries for tourism purposes, with Senegal becoming the latest destination under a memorandum of understanding between the two countries this month. India is also preparing to launch a tourism promotion campaign in Chinese media in the coming months, while introducing audio recordings in Mandarin at popular Indian monuments.

China first recorded a tourism deficit in 2008, when the global financial crisis greatly discouraged foreign spending in the country while a stronger yuan encouraged tourist outflow. Zhao Xijun, vice dean of the School of Finance and Economics under Renmin University, said the tourism deficit could help internationalize the Chinese renminbi currency as the yuan is converted and used internationally by a growing number of tourists. For example, the mostvisited overseas regions for Chinese, such as Southeast Asian nations, Australia and the Republic of Korea, as well as Taiwan, Hong Kong and Macao, have seen renminbi settlement business boom in recent years. The internationalization of the yuan and Chinese cross-border consumption support each other, Zhao said, The tourism deficit will offset a huge part of the trade surplus China accumulated through its merchandise trade. The country posted a total trade surplus of US$200 billion in the first eight months of 2014, an increase of 30.3 percent from a year earlier, according to customs data. Xinhua

China finds irregularities in TCM products

Sinosteel facing financial difficulties

Travel warning hits Philippine tourism industry

hina’s drug watchdog has found 12 percent of traditional Chinese medicine (TCM) materials and tablets in a random sample check to be substandard, saying the quality situation is “not optimistic.” Irregularities including artificial colouring, weight-increasing practices and contamination by counterfeit or substandard ingredients were found in 93 out of 772 batches of TCM materials and tablets, according to a statement released Tuesday by the China Food and Drug Administration (CFDA). Sold by weight and mostly processed from plants and animals parts, TCM ingredients are often altered through deceptive practices such as soaking them in salt water to increase their weight and mixing them with cheap but similar materials. The statement noted that the products checked were randomly collected from TCM manufacturers, sellers and users across the country, adding that groups related to questionable products will be punished by local drug administrations. Xinhua

inosteel Corp., a Chinese state-owned mining company and steel trader, said it’s facing financial difficulties as the economy slows and some customers are not paying on time. The company is taking measures to improve earnings and maintain cash flow, a Sinosteel official, who asked not to be identified because of company rules, said by phone from Beijing. The official denied a report on NetEase.com that said Sinosteel has over 10 billion yuan (US$1.6 billion) in overdue loans owed to banks, including the Industrial & Commercial Bank of China Ltd. and Bank of Communications Co. Steel traders are having trouble repaying loans as steel prices in China have tumbled 27 percent this year amid an industry overcapacity and slowing demand from homebuilders. A court in Shanghai received 1,051 disputes worth combined 11.4 billion yuan regarding lending to steel traders in the first quarter, the China Securities Journal reported in April. Bloomberg News

ens of thousands of Chinese tourists have cancelled trips to the Philippines after a travel warning by Beijing, inflicting major pain on hotels, airlines and tour operators, industry figures said yesterday. China warned its citizens this month to avoid visiting the Philippines, citing a foiled bomb plot against the Chinese embassy in Manila and the danger of criminal gangs. The alert had an immediate impact on the Philippines’ most famous destination, Boracay island, with nearly 20,000 Chinese tourists cancelling bookings within five days, regional tourism director Helen Catablas said. “This is serious. The hotels were counting on income from these reservations. It’s like money disappeared,” Catablas told AFP, adding the cancelled bookings led to about 500 million pesos (US$11 million) in losses. The country’s biggest budget carrier, Cebu Pacific, said it had cancelled 149 flights to and from China for the rest of the year because of the sudden drop-off in demand. Reuters