Macau Business Daily, Oct 14, 2014

MOP 6.00 Closing editor: Luis Gonçalves

Perfect Storm

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Publisher: Paulo A. Azevedo

t’s the Perfect Storm. Full smoking ban, HK protests, visa restrictions, anti-graft campaigns plus the upcoming fourth plenum in Beijing. Just a few events fomenting ‘Red October’. Analysts say the worst is not over for the casinos. Golden Week gaming revenues crashed 30 percent, despite 17 percent more mainland visitors. While postGolden Week activity ‘is very quiet’ and October revenues are a cause for ‘concern’.

The general consensus is a 20 percent hit for an historic low 6

Year III

Number 644 Tuesday October 14, 2014

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Government with a MOP80 bln ‘profit’ in 3Q

‘Shuttlegate’ under investigation Legislator Si Ka Lon is on the warpath. Yesterday, he urged the government to ensure that commuters would not be affected by public bus companies taking on private

services. Doubts emerged after TCM reduced its frequency for public services. They say the reasons were legitimate.

Internet chatter says buses were co-opted for gaming

corporation shuttle bus hire. In September, TCM exceeded its contractual obligations for number of journeys by 6 percent

PAGE

Macau’s fiscal surplus reached MOP79.29 billion in the first three quarters of the year. That already exceeds the annual target by 25 percent. As at October 1, the territory had amassed more than MOP120 billion in revenues, primarily from gaming taxes. It only needs MOP2.2 billion to reach its 2014 goal

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www.macaubusinessdaily.com

Not quick enough

Page 2

Islands Police Department building budget cut by 80 pct Page 7

Crocodile profits down with property investments Page 2

HSI - Movers October 13

Name

%Day

CLP Holdings Ltd

1.81

Power Assets Holding

1.79

Hengan International

1.75

Hang Seng Bank Ltd

1.50

Bank of East Asia Lt

1.45

Cathay Pacific Airwa

-1.39

Belle International

-1.57

Tingyi Cayman Island

-1.97

Kunlun Energy Co Ltd

-2.81

Lenovo Group Ltd

-3.19

Source: Bloomberg

Agile Property’s chairman has attracted the attention of Kunming City People’s Procurator.

The mainland property developer saw its shares plunge a record 17 percent in HK. HK$150 million was wiped out in a single day as investors dumped its shares.

Agile stressed that the investigation should not affect long-term operations

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Emperor acquires Bondwell for HK$819 million

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Double surplus China posted a strong rebound in imports and exports in September. The trade surplus in a year-toyear perspective showed a double record of the trade surplus

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October 14, 2014

Macau Emperor Int’l acquires Property investment Bondwell Ltd bites Crocodile profits Sara Farr

sarafarr@macaubusinessdaily.com

After achieving earnings of HK$236.9 million in 2013, the garment company has issued a profit warning informing shareholders and investors that profits will be cut significantly João Santos Filipe

jsfilipe@macaubusinessdaily.com

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E

mperor International Holdings Ltd is set to acquire the entire issued share capital and debt of Bondwell Ltd. According to a company filing with the Hong Kong Stock Exchange, the purchase will be made for HK$818.9 million. Emperor International has already paid an initial deposit of HK$50 million. A further HK$31.9 million, or an equivalent to 10 percent of the consideration, will be paid

by Friday next week, October 24.

The remaining balance of HK$737 million ‘shall be paid by the purchaser [Emperor International] to the vendors [Bondwell Ltd] upon completion’, slated for later this year on December 18.

Bondwell Ltd is an investment property holding company that leases a 25-storey commercial

building in Wanchai, Hong Kong.

The company’s total asset value was around HK$169.8 million at the end of August, while its net value was around HK$22.2 million.

Emperor International is an indirect wholly-owned subsidiary of Bondwell International and upon the completion of the acquisition will be the sole shareholder of Bondwell International.

The reason for the acquisition is so that Emperor International can ‘further broaden the group’s portfolio of property investment, hence increasing the rental revenue base,’ the filing reads, adding that currently Emperor International’s investment portfolio ‘has been strategically aiming at superior rental properties’. Wanchai in Hong Kong is one of the neighbouring SAR’s busiest commercial districts.

Corporate Hole-in-one for local charity associations It was another successful golf tournament for the Charity Association of Macau Business Readers, followed by a highly convivial get-together at the Gala Dinner and Prize-giving in the airy marquee of Grand Coloane Resort.

The business community of Macau once again enthusiastically swung their clubs on behalf of corporate social responsibility in the Macau Business Charity Golf Tournament.

The 26 assigned teams enjoyed an 18-hole round on the fabulous greens of Caesars Golf Macau, where JBA Consulting secured the overall win. Peter Greville, Edwin Whelan and Garrett Byrd donated the entirety of their MOP75,000 prize pot to the local Special Olympics Macau. The tournament’s net score winning team was Business Daily with James T. Osugi, Christopher Rodwell and Paulo A. Azevedo forwarding their MOP60,000 share to the Macau Child Development Association. As the MOP200,000 prize money had been divided into four, the runners-up of both gross and net score also had the opportunity to help other local charities and social institutions. Mr. Zhang, Mr. Hu and Mr. Fan from Team Caesars I chose to donate MOP40,000 to the Association of Mentally Handicapped, while last year’s winner Bally Technologies - and 2014 runner-up in the net score once more – forwarded their winnings to an orphanage in Coloane. The team comprised Bevan White, Colin Edwards and Alastair Dick.

With an official Special Olympics pitching challenge, the teams were not only given a variety of opportunities to challenge their skills but raised over MOP10,000 for the Special Olympics Macau team to pay for green fees in order to practice for next year’s Special Olympics World Summer Games in Los Angeles, USA. All in all, the event was an overwhelming success and the organisers look forward to the next outing in October 2015 even though the event concept might undergo changes in order to keep the perception of social responsibility top of mind.

evaluation of property values will bring the profit of Crocodile down steeply in the financial year of 2013/2014. Last Friday, the company issued a profit warning to the Hong Kong Exchange Stock to let shareholders and future investors know that the profits will have a large cut in comparison to the results of the previous year.

‘Based on the preliminary unaudited consolidated management accounts of the Group, the board of directors of the Company wishes to inform the shareholders of the Company and potential investors that the audited annual profit attributable to owners of the Company for the year ended 31 July 2014 are expected to record a significant decrease from that of HK$236.9 million for the last year’, the company said.

Crocodile is primarily involved in the manufacture and sale of

garments in Macau, Hong Kong and Mainland China. The group also has property investments in the former British colony and on the Mainland. The latter, according to Crocodile, is mainly responsible for dragging down profits for the year 2013/14.

‘The decrease in the Group’s results for the year is primarily due to the significantly lower revaluation gain arising from the revaluation of investment properties for the year as compared to the last year’, it was explained in the document.

The warning comes prior to the audited annual result being finalised. The results will only be announced at the end of the current month, according to the company.

Crocodile has two stores in the Special Administrative Region of Macau and last year the company achieved a profit of HK$239.9 million.

CR Asia teams up with Sinopec for mainland venture

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onvenience Retail Asia Limited (CR Asia), which operates Circle K stores and Saint Honore cake shops in Hong Kong and Macau, announced it would team up with Sinopec Marketing Co Ltd to operate petrol stations and convenience stores in mainland China.

In a filing with the Hong Kong Stock Exchange, CR Asia said it is expected to operate 10 petroleum stations and Easy Joy convenience stores for Sinopec Marketing under a pilot programme in Guangzhou in Guangdong Province.

The two parties will also consider

expanding to other districts in Guangdong under a new agreement if the pilot programme is successful. The company also said further stations and stores would be added in other parts of China if the two parties decide to continue their cooperation.

Sinopec Marketing is a whollyowned subsidiary of China Petroleum & Chemical Corporation. The business scope of Sinopec Marketing includes storage and logistics, retail sales, distribution of petroleum products as well as development and operation of non-fuel business such as convenience stores and car services, according to the filing.

Mainland woman arrested for fraud

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mainland woman has been arrested and is awaiting trial for repeated fraud, according to a statement released by the Public Prosecutor’s Office.

The Office said the woman was already forbidden from leaving the SAR and had to report regularly since February this year on suspicion of fraud. In August, she and her partner allegedly forged documents to obtain a SIM card from CTM that bore the number the victim used to contact the VIP room

in a casino. They then tried to defraud the casino of chips worth HK$34 million plus cash. The case, however, was exposed after witnesses discovered it and reported the case to police. The police targeted and arrested the suspect after studying surveillance videos. Following the police investigation, it was found that the woman had swindled HK$7 million from another victim using the same technique in a separate case. The case has been handed back to police for further investigation.

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October 14, 2014

Macau

Agile Property’s shares plunge 17 pct The mainland developer, popular with local and Hong Kong property investors, saw its shares plunge over an unexplained probe into its chairman’s activities Stephanie Lai

sw.lai@macaubusinessdaily.com

M

ainland Chinese property developer Agile Property Holdings Ltd saw its share price plummet after resuming trading yesterday morning.

This wiped about HK$150 million (US$19.3 million) off the company’s value in a day, following media reports about the alleged involvement of the company’s chairman in a bribery case linked to officials in Yunnan Province.

Hong Kong-listed Agile Property Holdings Ltd, popular with investors in Hong Kong and Macau for its property projects on the mainland, saw its share price drop 17.2 percent to HK$3.95 since it resumed trading at 9:00am yesterday morning, while the Hang Seng Index rose 0.24 percent to 23,143.38 points in the same day.

Agile Property’s share price decline was bigger than its fellow mainland-based property developers listed in Hong Kong such as Sunac,

Greentown China and Shimao Property, all of which registered a drop of between 2.3 and 4 percent in share price at the close of trading yesterday.

Agile Property’s management confirmed in a telephone conference with investors yesterday morning that the company’s chairman, Chen Zhuo Lin, was facing investigation by mainland authorities; during the conference, Agile Property did not confirm whether the investigation was related to bribery although it stressed that the investigation should not affect the long-term operation of the company, Hong Kong’s Chineselanguage financial news outlets reported.

Following a halt of trading in its shares since the morning of October 3, the company released an inside information notice to the Hong Kong Stock Exchange on Friday that its nonexecutive director Madam Luk Sin Fong had received

a notice from the Kunming City People’s Procurator that her spouse, Chen Zhuo Lin, had been required to ‘stay at a designated residence since the evening of September 30’.

The inside information notice did not mention the cause for Mr. Chen’s detention.

On Sunday, mainland’s Chinese-language financial news outlet Caixin.com published a report citing ‘informed sources’ saying that when the party discipline supervision unit was investigating former party secretary of Kunming, Zhang Tianxin, it had found

evidence of Agile Property bribing Yunnan provincial officials for the company’s property projects. Mr. Zhang was expelled from the ruling Communist Party of China in mid-July for ‘dereliction of duty . . . and for taking advantage of his position for personal gains’, China’s graft watchdog Commission for Discipline and Inspection announced at the time.

The Commission made no mention at the time, however, of whether there were any ties of interest between Mr. Zhang and Agile Property.

The designated residence imposed on Mr. Chen was

related to the investigation into the alleged bribery of Yunnan Province officials by Agile Property, Caixin.com reported.

In the inside information notice filed on Friday, Agile Property also announced shelving the plans for a HK$2.75 billion rights issue, through which the Guangzhou-based company sought to finance existing debt as well as accumulate general working capital.

In the telephone conference with investors yesterday Agile Property noted that it expected the cashflow of the company to reach 12 billion yuan (US$1.96 billion) to 13 billion yuan by the end of this year, and would not purchase any plots of land in the short term. The company’s current cashflow is about 7.8 billion yuan.

Agile Property also announced in the conference that it was in talks with banks to extend the terms of its bridging loan.

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October 14, 2014

Macau Legislator Si Ka Lon champions public bus services Doubts have been raised that bus operator TCM may have reduced its frequency for public services by offering shuttle buses for a gaming corporation. Legislator Si Ka Lon urged the government to ensure that the public would not be affected by the operator’s private services Kam Leong

kamleong@macaubusinessdaily.com

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egislator Si Ka Lon filed an interpellation with the Transport Bureau yesterday, querying if the government had investigated if a bus operator, as claimed by residents on the Internet, had really reduced the frequency of its bus services as a result of shifting its vehicles and drivers to shuttle imported workers for a gaming corporation.

Although Mr. Si did not indicate the name of the bus operator in his enquiry, he provided pictures of TCM, showing that the operator did offer shuttle bus services for Sands China workers.

At the beginning of the month, the rumour of TCM shifting some of its buses for private services frequently leading to reduced public services spread on the Internet. Business Daily approached TCM yesterday

for its further comments on the issue but there was no reply from the operator by the time the story went to press.

Meanwhile, both of the other two bus operators - Transmac (Transportes Urbanoes de Macau) and New Era (Macau Nova Era

de Autocarros PĂşblicos) claimed that they do not currently have any contracts with gaming corporations to shuttle their imported labour, the deputy general manager of Transmac Kuan Weng Kai and the general manager of New Era Daniel

Fong informed Business Daily yesterday.

In fact, TCM recently told local Chinese media TDM Radio that it completed 2,366 journeys in September, which was six percent more than the journeys regulated by its contract with the government for public bus services.

In addition, TCM announced to the media that the missing journeys that had been reported on the Internet were due to the sick leaves of bus drivers or other unforeseen incidents rather than the company shifting the buses or drivers to other business.

Mr. Si urged in his enquiry that the government evaluate the operating ability of the bus companies in order to serve residents first.

He questioned if the Bureau had adopted any measures to supervise the bus

operators to ensure that their public services would not be affected by their private business.

He also queried why the bus operator is able to lease buses for private services when other companies complained of the shortage of bus drivers in Macau.

When the issue was exposed on the Internet, the Bureau replied that it is legal for the bus operators to run rental services for private companies as long as vehicles used for public services are not placed at the disposal of private business to the detriment of public services.

It also confirmed that some gaming corporations had started to arrange shuttles to pick up their non-resident staff since the end of last month, renting buses from bus operators.

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October 14, 2014

Macau Brands

Trends

Here comes the sneaker Raquel Dias newsdesk@macaubusinessdaily.com

October revenues of ‘concern’ Last month, Macau casinos raked in 11.7 percent less revenue than a year ago. And while the number of mainland Chinese visiting the territory during Golden Week increased by 17 percent, gaming revenues dropped a precipitous 30 percent in the 7-day holiday Sara Farr

sarafarr@macaubusinessdaily.com

First it was the velvet collection of Tom Ford’s sneakers, then the specially designed Ermenegildo Zegna collection and now the out-of-the-box Chanel option for ladies. It seems that this season we’ll all be wearing nice, comfortable footwear. Made of tweed and lambskin, these chic trainers are the perfect excuse to keep the high heels at bay. Although we’re used to seeing sneakers all around in the high street, it’s definitely new to see them on the luxury runways where comfort is never really an issue. The trick seems to be applying an ‘elevated twist’ with materials like suede and leather, embellished with metallic refinements and sported on double soles or hidden wedges. This last one, a trend that started last year, is actually a great option for those ladies who fancy a bit of height without compromising comfort. It actually works out perfectly since the wedge is hidden inside the shoe.

As it always is with these things, one assumes that affordable brands will soon launch their own lines.

In fashion, as in history, actions have reactions.

Years of stiletto heels for ladies and uncomfortable sleek leather shoes for men, left the market tiered. Now all we need is a comfy pair to make our way through winter. It helps that they look adorable.

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ost-Golden Week table play is “very quiet”, say analysts at Wells Fargo Securities, LLC. This follows a 30 percent decline in gaming revenues during the 7-day holiday that ran from October 1 to 7, during which period the number of visitors from mainland China increased 17 percent compared to National Day holiday last year.

Senior analyst Cameron McKnight and Rich Cummings, associate analyst at Wells Fargo, said in their latest note to clients that ‘we believe that some of this weakness may be a result of cancelled China, Hong Kong [and] Macau tour groups,’ which saw visitation from mainland Chinese drop around 15 percent. ‘We believe it’s unlikely Macau-only tour groups will replace lost demand,’ the note reads. Analysts suggest there isn’t enough to do in Macau to justify visitors staying for up to three days.

What is most common is for tourists to purchase a 3-day package tour, which includes two days in Hong Kong and a day here.

While analysts admit it is still too soon to tell what the outcome of the month will be in terms of casinos’ gross gaming revenue there are still challenges creating uncertainties.

The two primary ones are the full smoking ban in casinos that came into effect just last week on October 6 and the fourth plenum that begins

We sense investors are looking for reasons to buy Wells Fargo

in Beijing on Monday next week, on October 20.

‘Our -21 percent year-on-year October estimate implies results for the rest of October will be down by 9 percent year-on-year,’ McKnight and Cummings wrote in their note to clients. ‘However, with the implementation of the smoking ban this past Monday and the fourth plenum beginning on October 20, considerable uncertainty exists with regards to the October outlook.’

Current analysts’ estimates of a 21 percent decline in gross gaming revenues could mark the bottom of

Macau’s growth rate decline and ‘stocks will look inexpensive once Cotai projects open.’ These, according to analysts, could be positive strong points as sentiment suggests investors are looking to buy.

But while some remain bullish on Macau’s long-term secular growth story, others warn that October could be ‘much worse given typical intramonth trends’ and revenues could be 30 percent less than initially estimated.

‘Improvement in the second derivative is already in estimates, and potential risk for cannibalisation in 2016 could be high if growth does not pick up materially,’ the American brokerage firm’s note reads.

Last month, Macau’s gross gaming revenues decreased by 11.7 percent to MOP25.6 billion (US$3.2 billion) with mass table revenues increasing 15 percent year-on-year, while junket volume dropped 25 percent in the same period.

Analysts remain confident that China’s policies are ‘negatively affecting’ growth here, mainly in the implementation of visa restrictions, anti-graft campaign, cutback on credit and softening housing market.

One other factor to take into consideration as uncertainty lingers, and in addition to the effects of the full smoking ban and fourth plenum, is Chinese President Xi Jinping’s visit to Macau in December.

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October 14, 2014

Macau Fiscal surplus reaches MOP79.29 bln for first three quarters

T

he fiscal surplus of the government reached MOP79.29 billion (US$ 9.9 billion) for the first three quarters of the year, surpassing by nearly a quarter the government’s target for the year’s total surplus, according to the latest figures from the central account released by the Financial Services Bureau (DSF).

The official figures reveal that the amount of fiscal surplus for the first nine months had registered only a slight increase of 2.2 percent year-

on-year, a big drop compared to a year-on-year 26 percent increase in the fiscal surplus during the same period of last year.

In addition, the government revenue rose by some 9 percent year-on-year during the period, reaching more than MOP120 billion; the government has to gain some MOP2.2 billion patacas more to reach its goal for the year.

Meanwhile, in terms of gaming taxes, although the government had experienced a jump of 16 percent yearon-year during the first nine months

Police Box

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of last year, the taxes for the three quarters of this year only posted a 9.1 percent increase, amounting to some MOP101 billion, rather less than the goal of MOP117.8 billion for the year.

Although three quaters of the year have gone, government expenditure remains within the scope budgeted for the year. During the period, the government spent some MOP40.8 billion, suggesting there is still some MOP36.8 billion for it to spend during the last quarter of the year.

K.L.

he cost of designing a new building for the Islands Police Department has been cut by 80 percent from MOP14.6 million to MOP2.9 million, it was announced yesterday in Macau’s Official Gazette.

The first contract between the Macau Government and the company CBMORENO, Arquitectos Associados, LDA. was signed on 18 October 2010. Initially, the project was estimated to cost MOP14.6 million, to be paid over four years.

In the first year of the contract the company would be paid MOP2.9 million, MOP10.1 million in 2011 and MOP0.7 million in 2012 and 2013.

However, a different contract was revealed yesterday in the Official Gazette. The total cost of the design of the project will amount to only 20 percent of the original plan, accounting for MOP2.9 million.

The first installment was paid in 2010, when CBMORENO received MOP1.45 million. This year, the company will receive another MOP1.45 million.

During 2011 and 2013, and contrary to what was initially planned, the company did not receive any money for the project.

The Islands Police Department is integrated into Macau Public Security Police Force and oversees the regions of Taipa and Coloane, which geographically used to be two different islands but are now connected by Cotai land reclamation.

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October 14, 2014

Macau

Retail might also suffer a slowdown, says Macau Shopping Festival’s general director For this year’s edition of the Macau Shopping Festival, as in the previous one, the organization will try to attract more local shoppers rather than only target Mainland Chinese visitors.

In an interview with Business Daily, the general director of Macau Shopping Festival Organizing Committee 2014, Vincent Tung, says locals are getting wealthier and more open to a different type of shopping, and increasingly represent a suitable target as well.

Looking at overall retail growth in the territory, Mr. Tung, who is also director of group marketing at Shun Tak Holdings Limited, says that in the past three to four years the figures have been very positive but this year might be more difficult, considering Beijing’s anti-corruption campaign as well as the curb on UnionPay. Luciana Leitão Photos by Manuel Cardoso

This is the fourth edition of Macau Shopping Festival. What do you expect to be different this year?

The whole idea came about five years ago — it was initiated by Sands China.

The economy was slow, especially for the retail industry; we didn’t get any shoppers and nobody would actually take Macau seriously as a shopping destination.

We wanted to get all the traders to promote Macau as a shopping destination. We believe our software and hardware are up to international standards, especially since we have all the big shopping malls in the casinos, like One Central, New Yaohan, all the local specialties, and we believed shopping could be a good support for gaming. If you look at all the tourism destinations, shopping is one of the key attractions or entertainment for tourists. Besides going sightseeing, you can buy something.

Macau is also good in a way because we have all the international brands, luxury products, plus all those products like jewellery, watches, leather, all the souvenir cookies and some ‘Made in Macau’ souvenirs.

It would do everyone good for the whole of Macau and the retail industry to let the world know Macau is also a shopping destination besides Hong Kong.

Especially a lot of Chinese tourists would visit Hong Kong and come to Macau and they could still shop here. Also, it’s a different experience to shop in Macau. Our shortcoming is that the duration of people staying in Macau is short — less than two days. That’s why last year we came up with the theme ‘One day shopping, one day playing’, trying to promote that Macau has enough shopping for you to fill up the whole day and then the next day you can enjoy playing; and playing can include gaming, food, sightseeing and trying to extend the duration of stay for these people.

So, to move forward, this year we actually had a familiarization tour to Singapore to look at their shopping festival — their focus is more on the locals. For us, 90 percent are actually visitors and less than 10 percent are locals.

Two years ago, we started off with something special — how can we turn Macau Shopping Festival into something unique as compared to other shopping destinations in Asia.

And how can you make it unique?

We did research and we see that most of the countries/cities

Last year, we only had three days. Hopefully, they will like to participate more or spend more to support the local retail industry.

would do their shopping festival during the Summer so we chose December as our shopping festival month because it’s traditionally a shopping season due to Christmas and also all the international luxury brands go on sale; otherwise, we couldn’t convince them to go on sale. The first impression of a shopping festival is a lot of discounts and sales, so that helps. Taking the month of December, everybody will go on sale.

We chose December to be our shopping festival month because it’s traditionally a shopping season due to Christmas and also all the international luxury brands will go on sale

You can actually see we have 17 organizing committee members casino operators plus the shopping malls, Macau Tower, Fisherman’s Wharf, New Yaohan - then we recruit local small and medium enterprises to participate.

Last year, we started off with a Christmas window decoration campaign, with a MOP3,000 subsidy for decoration. Two years ago, we started a free lucky draw for all inbound tourists. That actually can help to position our shopping festival as unique for Macau. It’s unique because all the other countries/cities will not offer a lucky draw upon arrival. All our members will still do our property promotion for Christmas, on top of all the discounts. That proved to be a good attraction.

Last year, we wanted to encourage more locals because locals are getting more affluent, wealthier, richer; a lot of them go overseas or to Hong Kong for shopping.

To support the local SMEs, we also offer free lucky draws for the locals, so they don’t have to do anything, they can just go to the CTM shop and enjoy a free lucky draw to see if they win any prizes.

Will you have any features this year to attract more locals?

This year, we’ll extend the local lucky draw period to seven days.

Did you see any increase in the number of local participants last year?

Yes, we did post-campaign research on all the participating SMEs. Over 60 percent of them appreciated or used the window decoration subsidy.

And over 70 percent indicated substantial growth in business during December, so these are encouraging figures.

Hopefully, this year we can make it even better for the locals. We’ll have more promotion, small interviews, more publicity and this year we’ll also have a grand opening show in the House of Dancing Water theatre. We have commissioned artist Eric Tsang to host a game show, tailormade for the Shopping Festival; this show will be recorded and broadcast in China, so the coverage will be wide.

Our main target is still the Mainland Chinese — about 70 percent of visitors are from China and they’re big spenders. Plus we work with MGTO’s overseas rep offices in the short-haul regions like Hong Kong, Taiwan, Japan, Korea, Singapore, Thailand and Malaysia, to actually promote the Macau Shopping Festival. For Macau, we need new products, more than the World Heritage Sites, the Grand Prix, fireworks, so December will have a shopping festival to complement the year’s calendar of activities.

What was the percentage of locals coming to the Macau Shopping Festival last year?

We don’t have those figures but, roughly around 10 percent came to buy something. By independently tracking, we can see that 90 percent are foreigners and 10 percent are locals.

Retail growth You said the Macau Shopping Festival was created because retail was supposed to support the growth of the gaming industry. Has that really happened?

It’s going in a positive direction. Retail revenue has gone to over MOP60 billion, year on year, with 20-plus percent increase year-on-year.

This year might be more difficult with all this anti-corruption happening in China and this curb on UnionPay. So, you cannot expect expect a trend [to last] forever. There will be a time there

9

October 14, 2014

Macau In a way, yes, but this is not something we can actually control. It’s government policy.

They can make the airport more international, with more direct flights coming in. The problem for Macau is it only has 600,000 people, so the outbound travellers number is small, thus every time you come in, it’s mainly the visitors coming in, flying out. In Hong Kong, you have a lot of outbound travellers but in Macau you don’t have enough outbound travellers.

That’s one of the shortcomings for more international carriers flying directly to Macau.

Do you expect this to change when we have the Light Railway Transit and the bridge connecting Hong Kong, Zhuhai and Macau?

Yes. Let’s say our ferry service is already helping out — more international travellers can just fly to Hong Kong because it’s a more international airport, and the ferry comes to Macau, that already helps.

Hopefully, the bridge will also help.

This year, it might be more difficult with all this anti-corruption happening in China and the curb on UnionPay. So, you cannot expect a trend [to last] forever

will be a slowdown and then go up again; this is the normal business cycle.

We will still have double-digit growth this year but you have to look at the Golden Week performance and see how we did on Golden Week. Especially, with Hong Kong having this Occupy Central problem . . .

Has the Occupy Central movement affected Macau?

It might affect some visitors that, instead of coming to Hong Kong/Macau, may choose other destinations. According to Hong Kong figures, they still experienced 2 percent growth. Our number of visitors is still growing but then the spending may be less.

Gaming revenue has dropped for four consecutive months and that will affect the shopping a little bit.

We had a slowdown in the past three months with the gaming revenue dropping, too.

Will this drop in gaming revenues also affect the performance of the Macau Shopping Festival?

We have yet to see. That will have a certain effect on it but hopefully locals can shop more.

Do you expect the percentage of locals coming to this year’s edition of the Macau Shopping Festival to be higher?

We would hope so. We try to encourage locals to shop more.

It’s also good because everywhere is on sale and also a lot of prizes are there to win, so why not shop here? Also, they can support the local SMEs. We did see a problem for visitors supporting local SMEs because they don’t have time or they don’t even know how to find the shop.

Visitors will always hang out in a few areas — Saint Paul’s Ruins and tourism hotspots plus casinos — but then if you want them to go to a particular shop it takes time.

Traffic is also a concern. If you go to the northern district, you may not be able to find a taxi to come back. This is still a challenge for local SMEs but we’re still doing the best we can to help them out.

Over these past three editions, what went well and what was not so good?

We still need to create more awareness, to become really well established with a festive campaign. In December, everybody will know it’s the Shopping Festival — we can also enjoy shopping coming to Macau in December. That’s something that has yet to be firmly established.

The big shopping malls have enjoyed double-digit growth yearon-year for the past three to four years. When we started off, it was after the financial tsunami — the economy was small, the shopping malls didn’t have enough visitors, tenants would complain, but in the past three years everybody was happy, enjoying 20 or 30 percent growth year-on-year, so there was no complaint. But in the past three months everybody has been concerned. This year, we came up with a simple theme - ‘I buy Macau’ — [meaning] buy like shopping but also buy like gambling. It fits Macau well, because it’s also a gaming destination. We have created a mascot and a theme song for the Shopping Festival. Hopefully, we can also build the Macau Shopping Festival brand, with a stronger image. We expect this to go further this year.

Last year, we wanted to encourage more locals because locals are getting more affluent, wealthier, richer; a lot of them go overseas or to Hong Kong for shopping

A push for other visitors Do you expect initiatives like this to help diversify the type of visitors coming to the territory?

We’re working with MGTO’s overseas rep offices, to promote in their countries or regions that Macau is having a Macau Shopping Festival, so more people could come.

This year is the 15th anniversary of the establishment of the MSAR, so there is a lot of celebration, and in itself that’s already attracting people to Macau. With Macau Shopping Festival underlying the whole month with all these celebrations, hopefully it can create a stronger impact and generate more noise in the whole region.

Hopefully, more non-Chinese visitors may also come to Macau in December.

Does Macau need this and other types of initiative to attract different visitors?

Yes. The whole policy of Macau is [about] World Tourism Leisure destination.

The objective is actually to diversify Macau from being just gaming, with more family-oriented attractions and also with Hengqin supporting the playground of Macau. Also, in two years time, the bridge will be built.

We’re actually trying to year-onyear build a stronger foothold and a foundation for the tourism industry. Of course, it cannot be successful overnight. Everything is looking positive.

In two years’ time, the bridge will be built and then in the next two or three years, three mega resorts will open, and Hengqin will also be more mature. So, hopefully, this part will be a better destination for all sorts of visitor. Then, of course, families with kids will enjoy more shopping, plus the youngsters and all those non-gaming people will be enjoying entertainment and shopping rather than just gaming.

Until now, 80 percent of Macau visitors come from Mainland China.

Is this only due to the lack of a good transportation system?

Macau Shopping Festival is also promoting local SMEs. Is this also a good way to diversify Macau’s economy?

Yes, we try to help them as much as we can. The whole economy is not getting healthier because we don’t have enough human resources.

For local SMEs, it’s very difficult to hire human resources because most people prefer to work in the casinos with more benefits - the pay is higher - rather than working in a little shop. This is actually not a healthy trend. Unless these local SMEs have very unique products most of them are still mom and pop stores.

Still, I don’t want to get into that topic because I’m not an expert on that. But from our perspective we just help to bring more shoppers to them.

Will you have other events/features in Macau Shopping Festival that might attract different types of visitor?

All of our malls or shopping centres will have promotions on top of the tenants’ discounts. This will help because you come to Macau and when you enter you already have the chance to win prizes and then you can enjoy discounts everywhere and gifts or whatever you can get from shopping. Everywhere you go, you see Christmas decorations, you have a good atmosphere for shopping and hopefully this will help for people to come.

Foreigners appreciate Christmas.

When you come to Macau, you see the whole town is decorated and there’s a Christmas atmosphere.

That can also encourage people to shop. Also, with the theme ‘I buy Macau’, hopefully this can be a longer-term theme, establishing Macau as a shopping destination with the Macau Shopping Festival a good time to visit Macau. If you’re not only keen on gambling, even for families and kids, because its also the anniversary month, there are fireworks and the Latin Parade, all of this can combine together.

What kind of other visitors do you expect to attract?

We hope the Koreans and Japanese, all these short-haul visitors. You cannot really count on the longhaul, you don’t really expect someone from Europe to fly here just for the Macau Shopping Festival, they won’t really bother.

NOTICE: Due to a technical failure with yesterday’s edition of the newspaper, we are re-printing Monday’s interview in full in today’s edition.

10

October 14, 2014

Greater China ICBC starts bonds sale in S. Korea ICBC, the country’s largest bank, plans to sell the Chinese yuan-denominated bonds in South Korea Tuesday for the first time in a non-resident capacity, the bank’s Seoul branch said yesterday. ICBC Asia, the bank’s Hong Kong branch, will issue the two-year Chinese currency bonds worth 180 million yuan (about 31.3 billion won or US$29.2 million) here on October 14 at a coupon rate of 3.7 percent.

Property investors beat record in Australia Chinese property buyers have spent a record 462 million Australian dollars (US$400 million) on Queensland real estate last financial year, a 43 percent increase than a year earlier, a report said yesterday. The latest annual report of Queensland’s Foreign Ownership of Land Register Act released yesterday showed that the Chinese almost doubled their real estate spending in the Brisbane City Council area during 2013-14, to a record 185 million Australian dollars (US$160 million), up from 96 million Australian dollars (US$83 million) in the previous year.

22,000 civil servants to be recruited China’s national-level government agencies, their affiliated public institutions and local branches will recruit over 22,000 civil servants in 2015, up from the 19,000-plus in 2014.

Business Daily Half Page Ad Thank You Option I outlined.indd 1

Exports and imports surge ahead The rise in exports accelerated from August’s 9.4 percent and was Fran Wang

C

hina’s exports and imports both rose more than expected in September, Customs data showed, but analysts warned that fundamentals remained weak.

The country’s trade surplus more than doubled year-on-year to US$31.0 billion as exports rose 15.3 percent to US$213.7 billion, the General Administration of Customs announced, while imports climbed 7.0 percent to US$182.7 billion.

The rise in exports accelerated from August’s 9.4 percent and was ahead of the median forecast of 12.5 percent in a poll of 15 economists by Dow Jones Newswires.

The positive figures are the latest contradictory indicator for China’s economy, a key driver of global growth.

Customs spokesman Zheng Yuesheng attributed the improvement to major economies recovering and external demand strengthening.

“The good momentum is expected to continue in the fourth quarter,” he added.

But analysts urged caution.

Julian Evans-Pritchard, China economist with Capital Economics, said that while import growth rebounded, “this should not be taken as a sign that domestic demand growth is turning

a corner”.

“The strength seems to have been driven by a surge in imports for processing and re-export,” he added.

“As such, it mostly reflects a brighter export outlook rather than a pick-up in domestic demand.”

The improvement was expected to prove “short-lived”, he said, citing oversupply in the struggling property sector and “subdued commodity demand”.

The expansion in exports may be linked to the launch of Apple’s iPhone 6, Nomura analysts said in a research note, adding “external demand faces a high level of uncertainty due to

weakening European growth and recent geopolitical risks”.

September’s import growth was “much higher than expected”, they said, but cautioned that domestic demand “remained weak”.

Property risks Recent reports have suggested expansion in China -- which stood at 7.7 percent last year, maintaining its slowest pace in more than a decade -- is weakening even after authorities took limited stimulatory measures.

Industrial production growth slowed sharply in August to its lowest

10/13/2014 12:35:06 PM

11

October 14, 2014

Greater China Vehicle sales growth slowest

of expectations

ahead of the median forecast of 12.5 percent Japanese carmakers Nissan Motor Co Ltd

and Honda Motor Co Ltd both posted their third consecutive monthly decline in China sales

The momentum of the mild recovery in external demand continued from previous months.

The property sector remains the biggest risk area in terms of internal demand Ma Xiaoping, economist, HSBC

level for more than five years, official data said last month, while house prices have fallen for five consecutive months.

Officials are targeting economic growth of “about 7.5 percent” this year, the same as last year’s objective.

The goal is normally exceeded, but senior officials have repeatedly sought

to play down its significance this year.

Ma Xiaoping, a Beijing based economist with HSBC, told AFP that property remained “the biggest risk area in terms of internal demand”.

September’s trade surplus was lower than August’s record US$49.8 billion, and also came in below expectations of US$42 billion.

In the third quarter, exports rose 12.8 percent year-on-year while imports crept up 0.9 percent, Customs said without giving totals.

For the first three quarters, China recorded a total trade surplus of US$231.6 billion, the statement said, up 37.8 percent year-on-year.

Exports climbed 5.1 percent over the nine-month period to US$1.7 trillion, while imports rose 1.3 percent to US$1.46 trillion.

Trade with the European Union was up 10.2 percent at 2.81 trillion yuan (US$460 billion), 14.5 percent of the total, and up 5.2 percent with the US to 2.48 trillion yuan, 12.8 percent of the total.

But bilateral trade with Hong Kong fell 13 percent year-on-year to 1.61 trillion yuan.

With Japan it crept up 0.4 percent to 1.43 trillion yuan.

AFP

C

hina’s September auto sales rose 2.5 percent from a year earlier, its slowest pace in 19 months, dragged down by sluggish sales of commercial vehicles such as trucks, an industry association said yesterday.

Vehicles sales totalled 1.98 million units last month, the China Association of Automobile Manufacturers (CAAM) told a press conference in Beijing. Passenger vehicle sales rose 6.4 percent while commercial vehicle sales slumped 16 percent.

During the first nine months of 2014, China’s vehicle sales rose 7.0 percent from a year earlier.

CAAM has forecast that the market will expand 8.3 percent this year, slowing from last year’s 13.9 percent pace.

“China already has a huge auto market, and with more cities expected to restrict auto sales to fight pollution, it’s natural for growth to slow down,” said Li Xiangfeng, an analyst at Shanghai-based consultancy ISE. “The market cannot grow at double-digit pace forever,” he said, adding that the slump in commercial vehicle sales might be cased by a slowing economy.

In September, Japanese carmakers Nissan Motor Co Ltd and Honda

Premium carmaker BMW posted a 17.9 percent growth during the first nine months

Motor Co Ltd both posted their third consecutive monthly decline in China sales, registering decreases of 20 percent and 23 percent respectively.

Nissan attributed the decline to sluggish sales of commercial vehicles and increased competition while Honda said dealers had been clearing inventory ahead of the launch of two new models later this year.

On the other hand, sales of German brands have continued to be robust.

Premium carmaker BMW posted a 17.9 percent growth during the first nine months while Daimler AG’s Mercedes Benz said its China sales jumped 30.5 percent in September.

Volkswagen AG’s premium brand Audi posted a 13 percent increase in China sales in September.

Reuters

U.S. ETFs to take aim at bond market The government-related bond market is about US$3 trillion Ashley Lau

U

.S. investment firms are readying the first line of exchangetraded funds designed to give American investors access to China’s swelling onshore bond market, which has been largely closed off to foreigners.

At least four fund managers - Deutsche Bank AG, Global X Funds, KraneShares and Van Eck Global - have outlined plans to launch China onshore bond ETFs, according to company filings with the U.S. Securities and Exchange Commission. The first of the funds could launch as early as this month, sources familiar with the matter say.

Some of the funds will invest in a range of yuan assets, including government and corporate bonds, while others will be more specialized, focusing on commercial paper, for example. They will be targeted at both institutional and retail investors.

Gaining access is no small thing for investors. The government-related bond market is about US$3 trillion (18.4 trillion yuan) and China’s domestic corporate

bond market has grown to about US$1.5 trillion (9 trillion yuan) at the end of August, after companies raised a combined US$261 billion (1.6 trillion yuan) from bond issuance in the first eight months of the year. In June, credit agency Standard & Poor’s said the Chinese corporate bond market overtook the United States as the world’s biggest and is now set to soak up a third of global company debt needs over the next five years.

While onshore Chinese bonds carry the currency, default and regulatory risks that might be expected in a fledgling market, their relatively high yields and low correlation to U.S. Treasuries and other global fixed-income and equities markets will make them appealing to investors, analysts say.

Ten-year yields on Chinese government bonds are hovering around 4 percent, compared to about 2.3 percent in the United States and

Britain. If, as some investors expect, the Chinese economy slows further, then the value of high-yielding bonds will likely be bolstered as interest rates fall.

Limitations, risk Nevertheless, headwinds still exist.

For starters, there’s the government-run quota system which limits foreign access to China’s onshore market.

Only about US$108 billion (662.2 billion yuan) had been approved for foreign investment in the mainland’s securities markets, including stocks and bonds, under the country’s Renminbi Qualified Foreign Institutional Investor (RQFII) and Qualified Foreign Institutional Investor (QFII) programs, by the end of September.

To access those onshore bonds, U.S. fund issuers will have to partner with approved asset managers, mainly based in Hong Kong, and could find their supplies limited.

The operational complexity of these ETFs is in part reflected in the higher fees they are expected to demand.

The KraneShares fund, for

example, will charge 0.68 percent in annual management fees, while the Global X fund is expected to cost 0.65 percent in annual management fees.

By comparison, the PowerShares Chinese Yuan Dim Sum Bond fund, which invests in offshore bonds, has an annual management fee of 0.45 percent.

While, the lack of defaults in the Chinese corporate debt market is comforting for investors, it can add to uncertainty because of the possibility of shocks when the authorities do eventually allow more defaults. Bondholder protections have yet to be fully tested.

Finally, there is currency risk as well. Only one of the KraneShares funds has explicitly said it will hedge currency, while the other funds in their filings do not indicate currency hedging and warn of the currency risks.

The firms declined to comment on the specifics of the filings, as is typical before a fund’s launch. While the yuan has been appreciating for years against the dollar, gaining 2.9 percent in 2013, it has shed 1.5 percent so far in 2014.

Reuters

12

October 14, 2014

Asia Temasek to invest in restaurants Singapore’s state-linked investment giant Temasek Holdings agreed to take a stake in restaurant operator Devyani International, who is the largest franchisee for Pizza Hut and KFC in India and also has Pan India franchisee rights for Costa Coffee, local media reported yesterday. According to Channel NewsAsia, Temasek will buy an existing US$16.56 million in Devyani, which has over 300 food and beverage outlets in India, Nepal and Nigeria, from ICICI Venture, a wholly owned subsidiary of India’s largest private sector financial services group ICICI Bank.

Kuroda justifies policy divergence

Bank of Japan Governor Haruhiko Kuroda said the divergence in monetary policy among the world’s four largest central banks is justified as they reflect differences in their economic situations. The Federal Reserve and the Bank of England are moving towards normalising their ultra-loose monetary policies, while the European Central Bank and the BOJ are continuing their massive stimulus. Kuroda reiterated his view that while Japan’s economy was headed for a moderate recovery, the central bank would stick to its quantitative easing programme as the country was still only half-way in meeting its 2 percent inflation target.

Bank Negara’s Governor to The central bank held off on a second consecutive interest-rate Jeanna Smialek, Belinda Cao and Chong Pooi Koon

M

alaysia’s monetary policy stance will remain supportive of growth amid uncertainty in the global recovery and even as the risk of inflation also increases, central bank Governor Zeti Akhtar Aziz said.

Threats to Malaysia’s expansion have risen as policies in advanced economies lead to higher volatility, Zeti said in an interview in Washington on October 11 Accelerating price gains in the Southeast Asian nation are temporary, and will ease to the long-term average of 3 percent by 2016, she said.

“I would like to put it in very clear terms that right now, the monetary policy stance is to be accommodative, that means to support growth,” Zeti, 67, said. “Given the global outlook for growth and so on, that monetary policy will still need to remain accommodative.”

Bank Negara Malaysia held off on a second consecutive interest-rate increase last month and said it will assess the balance of risks between growth and inflation in considering further policy moves. Exports, which helped the economy expand more than

Bank Negara’s Governor Zeti Akhtar Aziz (second from left) at a CNN Debate on the Global Economy on the sidelines of the IMF meeting. She is the 2nd starting from the left

6 percent in the first half of 2014, have cooled in recent months, while subsidy cuts and a new consumption tax next year are seen curbing private spending.

“Even if BNM has the space to hike because growth has been OK, it may not be in a rush to do so,” said

Santitarn Sathirathai, a Singaporebased economist at Credit Suisse Group AG. “With additional risks to growth that Zeti highlighted, that means that space to hike may be somewhat weakened as well. It adds to further reason to pause and wait and see.”

Indonesia’s Garuda makes plane order

Myanmar open tender The purchase is worth US$4.9 billion at current list prices for wood logs sale Myanmar’s state-run timber enterprise has invited open tender for sale of more than 1,000 tons of teak and hardwood logs and the sale is set for October 21, according to an announcement of the Myanmar Timber Enterprise (MTE) published yesterday.

The MTE has set a target of more than 500,000 tons of teak and hardwood logs and sawn timber for domestic use in the 2014-15 fiscal year and so far, 100,000 tons have been sold, earning 35 billion Kyats (US$35.7 million), the announcement said.

Abbott opens BHP’s new coalmine Australian Prime Minister Tony Abbott joined executives of the world’s biggest mining company, BHP Billiton, yesterday to officially open its new US$3.4 billion Caval Ridge coalmine in Queensland.

The opening of the new mine comes at a time when Australia’s coal sector is struggling with low prices, and new tariffs for imports into China. And last month BHP announced it was cutting 700 jobs from its Queensland coal operations. But yesterday, BHP coal president Dean Dalla Valle said the opening of the mine was a significant milestone for the company.

I

ndonesian flag carrier Garuda has placed an order for 50 planes worth almost US$5 billion, US plane giant Boeing said, as competition heats up for passengers in Asia’s increasingly crowded skies.

Garuda ordered 46 of Boeing’s new 737 MAX 8 jets and is converting existing orders for four 737-800s to 737 MAX 8s, the plane manufacturer said.

The purchase is worth US$4.9 billion at current list prices, although airlines typically receive large discounts for big orders.

“This order helps continue our commitment to offer the people of Indonesia and Southeast Asia the most comfortable, most efficient air travel in the region,” said Emirsyah Satar, Garuda chief executive officer.

The aviation sector in Indonesia, the world’s fourth most populous country with 250 million people, has grown rapidly in recent years as an economic boom creates a new class of consumers.

Garuda, a state-owned, full-service airline, is facing stiff competition from budget carriers in the region, such as fellow Indonesian outfit Lion Air

-- which has expanded rapidly -- and Malaysia’s Air Asia.

The announcement marks the latest phase in an impressive turnaround for the airline.

In the 1990s and early 2000s the airline was plagued by problems, including heavy debts and a poor safety record, but Satar has successfully turned it around since his appointment in 2005.

It was the first Indonesian firm to be allowed back into European Union airspace in 2009 after a ban

was imposed across the country’s airline industry.

The 737 MAX family of aircraft are single-aisle jets that carry around 200 passengers. Boeing says they are the most fuel-efficient 737s to date, a key selling point as airlines struggle with high fuel prices.

Garuda currently operates 77 Boeing 737s, Boeing said in a statement announcing the purchases.

It did not say when Garuda would start to take delivery.

editorial council Paulo A. Azevedo, José I. Duarte, Mandy Kuok Founder & Publisher Paulo A. Azevedo | pazevedo@macaubusinessdaily.com Newsdesk João Santos Filipe, Luciana Leitão, Luis Gonçalves, Michael Armstrong, Sara Farr, Stephanie Lai, Óscar Guijarro, Kam Leong GROUP SENIOR ANALYST José I. Duarte Brands & Trends Raquel Dias Creative Director José Manuel Cardoso Designer Francisco Cordeiro WEB & IT Janne Louhikari Contributors James Chu, João Francisco Pinto, José Carlos Matias, Larry So, Pedro Cortés, Ricardo Siu, Rose N. Lai, Zen Udani Photography Carmo Correia, Manuel Cardoso Assistant to the publisher Laurentina da Silva | ltinas@macaubusinessdaily.com office manager Elsa Vong | elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd.

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13

October 14, 2014

Asia

support growth increase last month

Given the global outlook for growth and so on, that monetary policy will still need to remain accommodative Zeti Akhtar Aziz, Bank Negara, Governor

The government raised fuel prices on October 2, the latest in subsidy reductions ranging from sugar to electricity that have left companies and consumers grappling with higher costs. The finance ministry forecasts inflation of 4 percent to 5 percent next

year, the fastest since 2008.

While the risk of quickening consumer-price gains has increased, “our assessment is that inflationary expectations are well-anchored,” Zeti said. “The trend that we need to monitor is the potential second-round

effects, and right now our assessment is that these second-round effects would be weak.”

The central bank raised its key rate by 25 basis points in July to 3.25 percent, the first such move since 2011. Interest-rate swaps are pricing in a 50 basis-point increase in borrowing costs in the next year, data compiled by Bloomberg show.

The last policy decision for 2014 is on November 6.

“We don’t think there’s going to be a hike in November,” Santitarn said.

“Another hike will come probably early next year.”

The ringgit has climbed 0.7 percent against the U.S. dollar this month, among the best performers of 11 major Asian currencies tracked

by Bloomberg. It was little changed yesterday.

More diversified Malaysia raised its growth forecast for 2014 to as much as 6 percent from a previous projection of 4.5 percent to 5.5 percent. The expansion will be between 5 percent and 6 percent in 2015, the finance ministry said Oct. 10.

While the economy is now more diversified and spurred by domestic consumption and investment, external demand remains an important source of growth, Zeti said. There are concerns the global recovery will stall, she said.

Federal Reserve Vice Chairman Stanley Fischer said Oct. 11 weakerthan-expected global growth could prompt the U.S. central bank to slow the pace of eventual rate increases.

The International Monetary Fund this month cut its outlook for world expansion in 2015 and warned of the risks of rising geopolitical tensions and a financial-market correction as stocks reach “frothy” levels.

Volatile markets The Fed’s normalization will result in more volatile markets even as it indicates the world’s largest economy is on a stronger growth path, Zeti said. For Malaysia, the change in the U.S.’s policy direction will have more impact on the ringgit and other financial markets, and less on the economy, she said.

The IMF expects growth in Malaysia and the Philippines to remain strong in 2014-2015, “helped by favourable external demand and broadly accommodative policies and financial conditions,” it said Oct. 7.

The fund forecast expansion of 5.9 percent for Malaysia in 2014 and 5.2 percent in 2015.

The government will implement a 6 percent goods and services tax from April 1. Prime Minister Najib Razak said on Oct. 10 his administration will hand out more cash to lower-income households to reduce the impact of the levy and cope with higher prices as he cuts subsidies.

“The effect of these adjustments have tremendous benefits because it removes price distortions in our economy and it enhances the fiscal position of the government,” Zeti said. “This is what we want to see because it will make our position on stronger foundations going forward.”

Vietnam investment arm calls for fewer purchases Prime Minister Nguyen Tan Dung has outlined a revamp of all state enterprises to spur growth

A

Vietnamese government investment arm that’s been newly charged with buying stakes in state companies with failed public offerings is calling for scaled-down purchases, countering an aggressive government plan.

State Capital Investment Corp., which holds state stakes in listed companies, says it is asking the government to “narrow down and prioritize” the number of firms it has to invest in among the 340 businesses that are required to sell shares by end-2015, according to Deputy General Director Le Song Lai. Vietnam’s privatization of state-owned companies has lagged this year and the government raised just 2.23 trillion dong (US$105 million) from initial public offerings, less than half the target for the shares sold. Prime Minister Nguyen Tan Dung has outlined a revamp of all state enterprises to spur growth as the economy is on course to expand below 7 percent for a seventh straight year.

Failed IPOs “The real question is: Why are these IPOs failing?” said Michel Tosto, head of institutional sales at Viet Capital Securities in Ho Chi Minh City. “Asking

We need from the government specific criteria for the stake purchases.

The 340 companies are too many. It will be very hard for us to do the job with such vagueness Le Song Lai, SCSI Deputy General Director

the SCIC to step in is just a stopgap. It doesn’t really fix the issue. The SCIC belongs to the government. You are shifting the assets from the government to the SCIC. They are not totally independent.

The SCIC needs to have the power to make IPOs more successful.”

The benchmark VN Index dropped 0.6 percent at the break in Ho Chi Minh City trading. It has gained almost 22 percent so far this year. The dong was little changed at 21,215 against the U.S. dollar.

Under a new regulation passed in September, SCIC, as the investment arm is commonly known, will make investments in government-controlled companies that fail to sell shares to the public in IPOs, Lai said. SCIC currently holds stakes in Vietnam Dairy Products JSC, the country’s second-biggest listed company, and FPT Corp., the largest listed telecommunications firm, among others.

SCIC is responsible for managing the government’s holdings in companies that have sold stakes to investors.

It currently holds stakes in about 400 companies that have been privatized.

The company’s 2013 profit rose to 4.3 trillion dong, up 8 percent from 2012, according to data on its website. By contrast, net income for Vinamilk, the country’s second biggestlisted company, rose 12 percent to 6.53 trillion dong last year, according to data compiled by Bloomberg.

Bloomberg News

Prime Minister Nguyen Tan Dung

Bloomberg News

14

October 14, 2014

International Russia spends US$6 bln in defending rouble Central bank has spent around US$6 billion defending the rouble in the past 10 days, the central bank’s Governor Elvira Nabiullina said yesterday. Nabiullina added that the situation on the currency market was under control. The rouble has weakened around 18 percent against the dollar so far this year, pressured by falling oil prices, dollar strength and risk aversion to Russian assets due to Western sanctions over the Ukraine crisis.

IMF to lend Jordan US$129 mln The International Monetary Fund (IMF) will lend soon Jordan US$129 million as part of a loan to the Kingdom, the staterun Petra news agency reported yesterday. The amount is part of a 2.1-billion dollar loan the IMF agreed to extend to Jordan in 2012 to help it cope with an increasing number of Syrian refugees in the Kingdom and push forward the country’s financial reforms, Jordanian Finance Minister Umayyah Toukan said.

Jordan now holds about 650,000 Syrian refugees. It imports about 96 percent of its energy needs annually.

S.Africa launches car industry probe Competition authorities are investigating price fixing and collusive tendering in the automotive industry, with top Japanese component suppliers Panasonic and Mitsubishi Electric Corp among those being probed. Information received by the Competition Commission suggested collusion among automotive component manufacturers when bidding for tenders to supply parts, such as electric power steering and spark plugs, to car makers. Competition authorities said information in their possession pointed to 82 component manufacturers colluding over prices for 121 different automotive parts in the 14 years since 2000.

Bolivia’s Morales claims re-election victory Bolivian President Evo Morales declared a landslide re-election victory on Sunday, hailing it as a triumph for socialist reforms that have cut poverty and vastly expanded the state’s role in the booming economy. Official results were slow coming in but an exit poll and a quick count showed Morales, a former coca grower, trouncing his opponents with about 60 percent of the vote and easily winning a third term in power. Morales, who became Bolivia’s first indigenous leader in 2006, will now be able to extend his “indigenous socialism”, under which he has nationalized key industries.

Israel Corp finance chief to become CEO Avisar Paz, the chief financial officer of Israel Corp, will take over as the conglomerate’s chief executive once its reorganisation is complete, the company said yesterday. Israel Corp is planning to spin off some of its less profitable assets into a new listed company in a bid to boost the value of its core businesses and attract a broader range of investors. Last month, CEO Nir Gilad said he would step down after eight years in the post following the restructuring, for which a timetable has not been made public.

European bank mergers still face hurdles Bank mergers prompted by the launch of the euro in 1999 have stalled since Lehman Brothers collapsed in 2008

H

ealth checks on Europe’s banks may reveal takeover targets, but because protectionist regulation across the region has yet to be addressed, any post-”stress test” tie-ups are likely to be along national lines and could make a splintered industry more so.

The European Central Bank takes direct authority over the currency area’s 120 top banks on November 4 after publishing the results of its review of their balance sheets on October 26.

But prospects for subsequent crossborder mergers have faded since Europe has yet to address national regulators’ power to stop capital moving across borders, company law requiring subsidiaries to be run independently and secrecy laws.

All have a chilling effect on crossborder investment.

Bank mergers prompted by the launch of the euro in 1999 have stalled since Lehman Brothers collapsed in 2008 - an event that prompted then Bank of England governor Mervyn King to observe that “global banks are global in life but national in death”.

Data compiled by Reuters show cross-border banking mergers and acquisitions in the euro area peaked in 2007 - the year a consortium led by Royal Bank of Scotland bought ABN AMRO of the Netherlands in a deal that turned disastrous for all parties.

Deals have since dwindled to barely US$1.5 billion in value in the first nine months of this year as bankers were put off by the cost of unwinding soured mega-deals and new rules which make major banks more expensive to run.

Nonetheless, some European banking experts are optimistic the obstacles will diminish over time, once the ECB settles into its role as single supervisor and gets to work.

UniCredit headquarters in Milan

The European Commission, which polices the EU’s single market, is working with the European Banking Authority to try to curb restrictions on the free movement of capital.

Banking nationalism The introduction of a single supervisor is arguably the biggest leap forward in European integration since the launch of the euro in 1999. But putting the ECB at the head of a network of country regulators seems unlikely to end the “banking nationalism” demonstrated in a series of regulatory spats.

Early in the financial crisis, Polish regulators restricted Italy’s UniCredit from shifting funds from its well capitalised subsidiary Pekao SA to Italy, fearing retrenchment by foreign banks could drain their economy of liquidity.

At the height of the crisis in 2011, Germany’s financial regulator BaFin took similar action, banning Italy’s UniCredit from transferring billions of

euros from its German subsidiary back to its Milan headquarters.

BaFin feared Italy might need a euro zone bailout and the transfers could leave German depositors exposed to supporting UniCredit, Italy’s largest bank by assets.

Following Germany’s move the Bank of Italy increased its scrutiny of Deutsche Bank’s Italian operation - an apparent act of retaliation - and pushed it to become financially self-sufficient.

The dispute was eventually settled after talks between the Bank of Italy and BaFin, with UniCredit agreeing to a smaller transfer, sources familiar with the case said.

While the crisis has blown over and UniCredit no longer needs to move capital - German regulators say the rules still apply despite the European Commission’s introduction of the single supervisory mechanism (SSM) that put the ECB in charge.

It’s not hard to find other examples of nationalistic regulatory decisions.

Reuters

Britain launches process to sell Eurostar stake Eurostar is also 55-percent owned by French rail operator SNCF and five percent by Belgium’s SNCB

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ritain’s government officially launched yesterday an attempt to sell its 40-percent stake in Eurostar, the high-speed rail service connecting London with Paris and Brussels.

It forms part the state’s plan to recoup £20 billion (US$32.2 billion, 25.4 billion euros) from asset sales by 2020 to help bring down the country’s debt pile.

The government announced its intention to privatise its stake in Eurostar late last year.

“I am determined that we go on making the decisions to reform the British economy and tackle our debts.

So we will proceed with the potential sale of the UK’s shareholding in Eurostar today,” finance minister George Osborne said in a statement.

The Treasury said it “would expect to reach definitive agreements in the first quarter of 2015” over the sale, ahead of a general election in Britain

This compounds the issue of foreign ownership of Britain’s railways as the French state have first refusal on our slice of the highly profitable Eurostar cake Mick Cash, UK Rail, Maritime and Transport union, general secretary

that is due soon after.

The train service has carried more than 145 million passengers in its 20 years of existence, and 10 million alone last year, the Treasury said.

Trade union leaders meanwhile hit out of the potential sale.

There are concerns also that the government could offload the stake at a price deemed too cheap, in a repetition of last year’s partprivatisation of Britain’s Royal Mail postal service.

Shares in the company surged following its stock market debut.

Eurostar is soon to begin services to other French cities, while competition beckons.

Last year, Germany’s Deutsche Bahn obtained approval to run trains through the Channel Tunnel and is expected to begin offering services linking London to Frankfurt and Cologne in Germany from 2016.

AFP

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October 14, 2014

Opinion Business

China’s financial floodgates

Leading reports from Asia’s best business newspapers

José Antonio Ocampo Kevin P. Gallagher

wires

Professor at Columbia University, is former UN Under-Secretary-General for Economic and Social Affairs and former Finance Minister of Colombia

Co-director of the Global Economic Governance Initiative at Boston University’s Pardee School for Global Studies

THANH NIEN NEWS A Vietnamese government investment arm that’s been newly charged with buying stakes in state companies with failed public offerings is calling for scaled-down purchases, countering an aggressive government plan. State Capital Investment Corp., which holds state stakes in listed companies, says it is asking the government to “narrow down and prioritize” the number of firms it has to invest in among the 340 businesses that are required to sell shares by end2015, according to Deputy General Director Le Song Lai.

THE STAR The alignment of the second Mass Rapid Transit line 2 (MRT2) has caused confusion among the officials and industry executives in the construction and transportation sector. In the Budget 2015 unveiled last Friday, Prime Minister Datuk Seri Najib Tun Razak announced that the MRT2 project, to cost an estimated RM23bil, would be from Selayang to Putrajaya and work would start next year. The MRT2 project is something that has been discussed over the past one year. But according to the master plan, it was supposed to start in Sungai Buloh and end in Putrajaya.

JAKARTA GLOBE President-elect Joko Widodo would be short Rp 86 trillion (US$7 billion) in next year’s state budget, an amount that the new administration would need for Indonesia’s infrastructure development projects, according to senior officials. The House of Representatives agreed last month to set aside Rp 150.7 trillion in spending for infrastructure, compared to Rp 236.6 trillion proposed by government ministries.

Bambang Brodjonegoro, the deputy finance minister, said that ideally the government should spent about 20 percent of its annual budget in infrastructure projects to bring the country’s economic growth to between 6 percent and 8 percent every year.

THE AGE Foreign ownership in Qantas is close to busting the 49 per cent ownership cap, which is expected to put downward pressure on the airline’s share price as overseas investors face the prospect of reducing their holdings.

Qantas advised the market yesterday that, based on its most recent reconciliation, foreign holdings had risen to 47.8 per cent as at September 17 from 44.7 per cent a month earlier. Shares in Qantas slid 2 per cent to US$1.32 in early trading yesterday as the possibility of foreign investors having to divest part of their shareholdings increased.

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s China’s economy starts to slow, following decades of spectacular growth, the government will increasingly be exposed to the siren song of capital-account liberalization. This option might initially appear attractive, particularly given the Chinese government’s desire to internationalize the renminbi. But appearances can deceive.

A new report argues that the Chinese authorities should be sceptical about capital-account liberalization. Drawing lessons from the recent experiences of other emerging countries, the report concludes that China should adopt a carefully sequenced and cautious approach when exposing its economy to the caprices of global capital flows.

The common thread to be found in the recent history of emerging economies – beginning in Latin America and running through East Asia and Central and Eastern Europe – is that capital flows are strongly pro-cyclical, and are the biggest single cause of financial instability. Domestic financial instability, associated with liberalization, also has a large impact on economic performance, as does the lack of control over non-bank financial intermediaries – an issue that China is now starting to face as the shadow banking sector’s contribution to credit growth becomes more pronounced.

Most academic research also supports the view that financial and capital-account liberalization should be undertaken warily, and that it should be accompanied by stronger domestic financial regulation. In the case of capital flows, this means retaining capital-account

regulations as an essential tool of macroeconomic policy.

Indeed, during the 1990s, China – and also India – taught the rest of the developing world the importance of gradual liberalization. It was a lesson that many countries fully learned only in the wake of the economic and financial crises that began in East Asia in 1997, spread to Russia in 1998, and affected most of the emerging world. By maintaining strong capital-account regulation, China avoided the contagion.

Even the International Monetary Fund, in late 2012, adopted a cautious approach. The IMF now recognizes that capital-account liberalization comes with risks as well as benefits, and that “liberalization needs to be well planned, timed, and sequenced in order to ensure that its benefits outweigh the costs.” Moreover, the Fund now regards capital-account regulations as part of the broader menu of macro-prudential measures that countries should be free to use to prevent economic and financial instability.

To the extent that capital-account volatility is the major pro-cyclical financial shock in emerging economies, regulation should be the major macro-prudential instrument used to counter it. These regulations should complement, not substitute for, other countercyclical macroeconomic policies. The IMF recommends giving higher priority to those other policies, whereas we have previously recommended using them and capital-account regulations simultaneously.

It is not just emerging markets that have had to pay heed to the dangers of rapid liberaliza-

The IMF now recognizes that capital-account liberalization comes with risks as well as benefits, and that “liberalization needs to be well planned, timed, and sequenced in order to ensure that its benefits outweigh the costs

tion. Japan’s experiences also offer valuable lessons about the importance of prudence in capital-account liberalization for a currency in increasingly high demand internationally. For an extended period, Japan allowed only strongly regulated financial intermediaries to manage capital flows, effectively discouraging the international use of its currency. And when a tsunami of capital looked set to flood the economy, policymakers did not shy away from trying to contain the inflows.

In a sense, Western Europe was once in the same boat.

Its capital-account liberalization was also a long-term process, beginning with current-account convertibility in 1958 and ending with capital-account convertibility in 1990. And it faced a crisis of its payments system two years later that led to significant depreciation for some countries’ currencies.

None of this is intended to suggest that the internationalization of the renminbi should not take place in the foreseeable future.

Given the importance of China in the global economy, the denomination of an increasing share of trade and investment in renminbi seems inevitable.

But China’s authorities should manage that process gradually, choosing the specific channels through which it should take place.

Indeed, China is perhaps the most successful example in history of gradual and pragmatic economic transformation. It should not allow itself to be tempted from its tried and tested course by calls for a policy that has led too many emerging economies onto the rocks.

Project Syndicate

16

October 14, 2014

Closing Myanmar’s first KFC restaurant to open in 2015

Rubber roads to boost consumption and revenue

Yum Brands Inc is partnering with Singapore-listed Yoma Strategic Holdings Ltd to debut a KFC restaurant in Myanmar in 2015, making it one of the first big Western fast-food chains to enter the newly emerging market. Global companies have been lining up to take advantage of an underpenetrated market in Myanmar, which has been opening up since 2011. Yum, which owns the KFC and Pizza Hut brands, joins a list of companies which hope to tap the country’s growing middle and affluent classes, estimated by the Boston Consulting Group to double by 2020.

Malaysia plans to build rubberised roads from 2015 in a bid to boost domestic consumption and shore up battered prices of rubber, after a price-floor plan by major producing nations proved tough to implement among farmers desperate for cash. Feeble demand in an amply supplied market has already pushed down rubber prices to below production costs and sent benchmark futures to a five-year low, forcing No. 2 producer Indonesia to urge suppliers to not sell at less than US$1.50 per kilogram. In Malaysia, some farmers have begun abandoning their rubber plantations due to weak prices.

Premier Li discusses Russian deals Li’s Russian trip is part of a week-long visit to Europe

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hinese Prime Minister Li Keqiang met President Vladimir Putin during a visit to Moscow as Russia struggles with its most serious standoff with the West since the Cold War. Li jetted into the Russian capital Sunday for a three-day visit aimed at bolstering economic ties between the two neighbours in a trip hailed

by Beijing as a “major event.”

Ahead of the meeting with Putin at his residence outside Moscow, Li sat down with his Russian counterpart Dmitry Medvedev with a raft of economic deals on the table.

Medvedev told the meeting that the two sides would sign over 40 “very important bilateral documents,” Russia’s TASS news agency reported.

Li’s first visit to Russia as premier comes at a sensitive time as the Kremlin is grappling with the consequences of its support for separatists in Ukraine during a six-month conflict in the east of the ex-Soviet nation.

Ahead of his Moscow visit, Li travelled to Germany for talks with Chancellor Angela Merkel. He will also participate in a summit in Milan later this week.

Merkel has been seen as one of the European Union’s top negotiators on the Ukraine crisis.

She has held regular talks with Putin but has also thrown her weight behind EU sanctions against Russia in a bid to make Putin drop support for separatists in eastern Ukraine.

Saddled with several rounds of Western sanctions and the Russian economy in tatters, the Kremlin appears keen to see an easing of punitive measures from the West.

Chinese Prime Minister Li Keqiang inspects the guard of honour upon his arrival at Moscow’s Vnukovo airport, Russia, 12 October 2014

Putin late Saturday ordered a pullback of troops from the border with Ukraine and will hold key talks with Ukrainian President Petro Poroshenko on the side-lines of an Asia-Europe meeting in Milan.

China has spoken out against Western sanctions against Russia and has called on all sides to reach a political settlement over Ukraine.

Once bitter foes during the Cold War, Moscow and Beijing have over the past years ramped up cooperation

as both are driven by a desire to counterbalance US global dominance.

China and Russia often work in lockstep at the UN Security Council, using their veto power as permanent council members to counter the West on issues such as the Syria crisis.

Russia’s showdown with the West over Ukraine has given Moscow a new impetus to court Beijing.

Resource-hungry China is seeking to diversify its sources of energy amid booming domestic consumption,

BNP joins the Hong KongShanghai link biz

Protesters and angry citizen clash in HK

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NP Paribas SA started a broker-custodian service for investors trading equities through the planned exchange link between Hong Kong and Shanghai that may reduce the risk of information leaks.

France’s biggest bank will act for clients as an integrated custodian and broker to meet trading requirements for the program, BNP said today in a statement. Under current rules, the link requires money managers to shift shares from their custodian bank to a broker before 7:45 a.m. on the day they plan to execute a trade.

“This solution will cover the entire trade lifecycle from pre-trade checks and execution to clearing and settlement,” Lawrence Au, head of BNP Paribas Asian brokerage business.

A requirement to transfer shares in advance of sale has raised concerns among some investors that their intentions may leak to the market. In most international markets, long-only managers can have the securities delivery and payment between the custodian bank and the broker settled after the trade has been executed.

Bloomberg News

while Russia is seeking to tap fastdeveloping Asian markets.

After a decade of tough negotiations China and Russia inked a 30-year, US$400-billion agreement in May that will eventually involve 38 billion cubic metres of gas annually.

Critics however disparaged the terms of the deal, saying Putin, in his bid to spite the West, signed an agreement that was more beneficial to China than to Russia.

AFP

Accor among potential buyers of Louvre Hotels

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undreds of men attempted to break through barricades erected by Hong Kong prodemocracy protesters near the city’s business district, as a third week of rallies tried the patience of truck and cab drivers.

A line of cabs and trucks drove right up to some barricades earlier this afternoon, with banners on their hoods saying “Enough is Enough.” Scuffles broke out with police and some men, who were wearing facemasks, were detained.

The pro-democracy protests have polarized the city, with thousands of people rallying for free elections, while earning the ire of retailers and drivers. This is the second time the police had to come between mobs of angry men seeking to get rid of the protesters since the rallies started September 26.

“I’ve lost about 30 percent to 40 percent of business” since the protests started, said Ku Takman, a cab driver at the barricades. “They are blocking my roads. I am here after hearing the call on the radio of my taxi.”

ccor, Europe’s largest hotel group, is among potential buyers of No. 2 budget operator Louvre Hotels, which owner U.S. investment group Starwood Capital is seeking to sell, a source close to the matter said yesterday.

“Accor is looking at the dossier but the process is at an early stage,” the source told Reuters.

French daily Les Echos said yesterday that Starwood was seeking buyers for Louvre Hotels and that Accor was among those that had submitted non-binding offers in a sale which could raise 1.21.5 billion euros (US$1.5-1.9 billion) -- or over 10 times gross operating profit of 110 million euros.

Among other potential buyers, Les Echos cited private equity groups PAI Partners, CVC, Blackstone, and French property group Fonciere des Murs.

Starwood Capital took on Louvre Hotels as part of its acquisition of Taittinger’s hotel and champagne empire in 2005.

Louvre Hotels bought Dutch hotel operator Golden Tulip in 2009 and is No. 2 for budget hotels in Europe after Accor.

Bloomberg News

Reuters