Macau Business Daily, Oct 31, 2014 by Business Daily

MOP 6.00 Closing editor: Luís Gonçalves Year III

Number 657 Friday October 31, 2014

Publisher: Paulo A. Azevedo

E-CIGARETTE REVOLUTION ARRIVES IN MACAU

lectronic cigarettes have arrived here. With the real thing banned from mass gaming floors, and a universal ban on tobacco products from New Year’s Day, e-cigarettes’ time may have come. The government has confirmed that they may be used in casinos and other enclosed spaces. Distributors told Business Daily this may represent a business opportunity PAGE

OCBC profits up 60 pct PAGE 4

Francis Tam: Table cap policy non-negotiable PAGE 6

Jaime Carion says he’s retiring due to health… PAGE 2

… while Lau Si Io says he’s not ready to go PAGE 6

Galaxy powering ahead GEG is building two 5-star hotel properties. Its Phase 2 Cotai project will feature JW Marriott Hotel and The Ritz-Carlton. To be completed during the first quarter of next year. Some 600-800 employees are being sought, with locals first choice

PAGE 6

S. Korea displaces Thailand Forget Thailand. Macau residents are skipping the Land of Smiles for South Korea. The new destination is hot. Last month, the Hermit Kingdom attracted more than double the normal number of Macau visitors. Macau’s favourite destination is followed by the Mainland, Hong Kong and Taiwan

PAGE 5

HSI - Movers

YellowTaxigate

October 30

Name

No end in sight for the yellow taxi dilemma. They say they’re losing money operating the on-call service. The company’s government contract expires November 6. Either it’s renewed and all 100 yellow taxis provide purely on-call service. Or the black cabs step in as back-up, says Wong Wan, Transport Bureau director.

PAGE 2

%Day

CHINA RESOURCES POWE

2.77

TINGYI CAYMAN ISLAND

1.99

BELLE INTERNATIONAL

1.03

CHINA MENGNIU DAIRY

0.90

CHINA RESOURCES LAND

0.89

PING AN INSURANCE GR

-1.12

CHINA PETROLEUM & CH

-1.18

BANK OF COMMUNICATIO

-1.90

PETROCHINA CO LTD

-1.93

CNOOC LTD

-4.46

Source: Bloomberg

I SSN 2226-8294

www.macaubusinessdaily.com

That’ll do nicely Put it on the card. The Chinese cabinet will liberalise the credit card market. Visa and Mastercard celebrated with visions of access to a US$1 trillion market.

PAGE 8

Brought to you by

2014-10-31

2014-11-01

2014-11-02

24˚ 29˚

23˚ 30˚

October 31, 2014

Macau

Disagreement about yellow taxi contract renewal One of two scenarios may unfold after November 6: The contract is renewed and all 100 yellow taxis have to provide purely on-call service as required by the government, or the contract expires and yellow taxis stop, with black taxis acting as back-up

Carion retirement due to health reasons

Joanne Kuai

joannekuai@macaubusinessdaily.com

nine-month contract extension between yellow taxi operator Vang Iek Radio-Taxi Co Ltd and the government expires on Thursday. So far, no consensus has been reached by the two parties regarding renewal of the contract. The government is urging a purely on-call service from the yellow taxi but the operator says that the business model is not sustainable. The Director of the Transport Bureau, Wong Wan, said that currently the major disagreement lies in the additional charge, which he wouldn’t disclose for fear of “arousing public discontent”. Mr. Wong said a back-up plan has been drafted if the contract doesn’t get renewed, in which case, the regular taxis [black] would come to the rescue. He disclosed that the government has already reached out to the black taxis operation and he believed that the company has the technology, namely

call stations, and enough human resources, to cope with a transition prior to another 200 new black taxis starting operation, which he expected to happen in January 2015. Mr. Wong said it wouldn’t make that much of an impact since on average only 16 to 22 yellow taxis provide purely on-call service on a daily basis according to the Bureau. As required by the Transport Bureau, upon the signing of the contract extension in February Vang Iek is committed to having 60 of the 100 yellow taxis operating via phone calls instead of being hailed on the street, while the remainder must gradually transit into a purely on-call service as well. Since then, however, the taxi operator has consistently registered losses, said Eugenio Cheng Weng Chiu, executive direct of Vang Iek. Mr. Cheng told Business Daily that they make 50 percent revenue of the

regular taxis, with greater expenditure on the call station, dispatch centre and other logistics. Mr. Cheng said it was basically impossible for the company to survive if they could only provide purely on-call service, and they are still in discussion with the government, hoping to reach an alternative operation model. The Transport Bureau director also added that they are not entertaining the possibility of launching an open bid to run an on-call taxi service if the contract with Vang Iek ends, prior to reviewing the overall taxi service, having a better plan, and revising relevant laws. Mr. Wong was speaking to reporters after meeting the Traffic Consultative Committee, with whom he discussed traffic arrangements for the Grand Prix and public transportation arrangements if the Ilha Verde border opens after midnight.

ncumbent director of the Land, Public Works and Transport Bureau (DSSOPT) Jaime Roberto Carion revealed to the media yesterday, a day after the announcement of his voluntary retirement, that the decision hadn’t been a sudden one, and that two years ago he had been diagnosed with liver problems, which made him consider retirement. “I was scared I had liver problems, my health wasn’t too good.” Mr. Carion said he chose this year to retire given that he had been working for the Bureau for the past 36 years. When asked if the shadow of the then-secretary Ao Man Long still hovered, he said that one person’s mistake cannot harm another’s life nor public service. He did not name a possible successor to head the Bureau.

October 31, 2014

Macau

Permitted in casinos, E-cigarettes drift into Macau By contrast with traditional cigarettes, the new smoking ban law allows electronic cigarettes to be used on casino gaming floors. The application of the law in other non-gaming spaces in 2015 here is giving e-cigarettes manufacturers plenty of reasons to launch their products in the SAR João Santos Filipe

jsfilipe@macaubusinessdaily.com

he elect ronic cigare tte (e-cigarette) market has had a new incentive to expand in Macau since October 6. The new smoking law that came into effect on that day bans smoking from casino gaming floors, allowing it only in lounges built for the purpose or in areas of restricted access. However, e-cigarettes are not affected by the new regulation and smokers are allowed to smoke it in smoking-free areas, which include mass market gaming floors. “According to the present law, the use of electronic cigarettes is not banned”, a spokesperson from the Health Bureau told Business Daily, after being asked if people could still use them in casinos following the new non-smoking regulation. This is where the opportunity for the sale of electronic cigarettes arises, as people may prefer to smoke these electronic devices instead of stopping gambling to go to a lounge or outdoors to have a cigarette. E-cigarettes are an emerging industry worldwide and ‘compartmentalised’ legislation as applied in Macau has inadvertently helped the industry prosper in many countries. In addition, these kinds of device have been used to help people quit smoking. According to an article published by Reuters, in the United States market alone e-cigarettes have grown at 115 percent each year from 2009

to 2012. This year, the market is expected to grow by as much as 240 percent. In Macau, however, the reality of the e-cigarettes market is very different. According to sources in the tobacco industry contacted by Business Daily the market is marginal or non-existent. “We’ve been paying attention to the electronic cigarette market for a while and so far we cannot find any place in Macau where it’s possible to buy these cigarettes”, Sunny Iao, Sales Manager of Hing Cheong Hong Tobacco Company Limited, told Business Daily. “At present, the electronic cigarettes in Macau are mainly brought from Mainland China by tourists that consume them here”, he explained. However, the Sales Manager of the private company that wholesales cigars and cigarettes says, “We may consider selling electronic cigarettes here in the future. It will depend on market demand and on British American Tobacco, as we work closely with them and we will depend on whether they provide such a product”. In addition, tobacco giant Philip Morris International is closely following the development of this market, according to the Manager for Corporate Affairs of Philip Morris Asia responsible for Hong Kong and Macau. “The phenomenal growth of

the worldwide e-cigarette category demonstrates that many adult smokers are looking for non-combustible alternatives to conventional cigarettes. Macau is no exception”, Cecilia So said. “Although we currently don’t market e-cigarettes in Macau, Philip Morris International is actively developing a portfolio of potentially reduced-risk products which includes e-cigarettes”.

Further incentives The incentive for the development of the e-cigarette market will be stronger from 1 January on, as legislation will also be applied to other places such as pubs, nightclubs, dancehalls, saunas and massage parlours. In fact, on 17 October the Health Bureau convened 11 representatives from different sectors, which included nightclubs, casinos and saunas, to further explain further the implications of the new law and how these sectors should prepare for its application. The authorisation to use electronic cigarettes in nonsmoking areas was one the topics discussed. The proximity to the largest production centre in the world of this product, Shenzhen, is another factor that may help to develop the e-cigarette market in Macau. According to Reuters, 95 percent of the world’s e-cigarettes are

produced in the southern metropolis of Shenzhen, by companies such as Shenzhen Smoore Technology, FirstUnion Group, Shenzhen Seego Technology Co Ltd and Ruyan Tech. This should not be a surprise as the electronic device was invented ten years ago by a Chinese medical researcher. However, even if the market is growing worldwide, in China the consumption of e-cigarettes is only a tiny part of the cigarette business.

Unknown effects Although the new law does not prohibit the use of e-cigarettes, the effects of such devices on people are not yet completely understood, as the Health Bureau stressed in its response to Business Daily. “According to the World Health Organization (WHO) there is not yet scientific evidence to support that the use of electronic cigarettes is safe and that these cigarettes are an efficient therapy to replace nicotine use”, the spokesperson for the Health Bureau explained. The Health Bureau also said that the use of this product should be avoided. “The Government of Macau and the services involved in the prevention of smoking will not stimulate, support or accept any sponsorship from companies related to electronic cigarettes”, he added.

October 31, 2014

Macau

OCBC net profit balloons in Q3

Brought to you by

The bank’s latest net profit increased by more than 60 percent, credited to a one-off gain amounting to more than S$391 million (MOP2.44 billion) Kam Leong

kamleong@macaubusinessdaily.com

HOSPITALITY STAFF ATTRACTOR Casinos aside, one of the most significant sectors for the local economy performance, is the hotel sector. Certainly, its fortunes are closely tied to those of gambling. But it is, on its own, a meaningful contributor to overall employment and a growth driver for many goods and services suppliers. The annual survey on the sector, which has just been published, shows that the sector has directly employed some 40,000 people. Average staff remuneration has grown steadily, more than doubling in absolute size from 2009 to 2013. Accounting for the rise in the workforce, that value still amounts to an increase of 45 percent in the average compensation per employee in that period, or the equivalent of an average annual just below 10 percent. Standing at more than 17,000 patacas per month, the average compensation has clearly beaten inflation and is also neatly higher than the economy’s median wage.

Other staff-related indicators have also risen consistently in the period observed here, even if the growth in staff has stalled in the last year. On the one hand, Gross Value Added per worker, an important measure of the sector’s performance, went up by 16 percent in the last year alone, and by 54 percent since 2009. On the other hand, we find that very similar values were observed for the amount of revenue per worker. The corresponding figures are 14 percent and 54 percent, respectively, in the same time frames. With all the major variables in the full period posting values within a 50 to 55 percent band, the relationship between GVA and revenue has been mostly stable. Their ratio oscillated, without a clear trend, between 47.2 and 49.9 in the period. J.I.D.

8.2 bln mop TOTAL STAFF COMPENSATION IN HOTEL SECTOR, 2013

he net profit of OverseaChinese Banking Corporation Limited (OCBC) soared by 62 percent, reaching S$1.23 (MOP7.7 billion) after tax in the third quarter of the year, compared to the S$759 million (MOP 4.7 billion) during the same period last year. The significant growth in the net profits of the Group is down to a oneoff gain of S$391 million (MOP2.44 billion) arising from the Group’s increased stake in Bank of Ningbo Co., Ltd. Excluding this gain, the Group’s core net profit increased by only 11 percent. In fact, the core net profit of the Group included the results of the 97.5 percent-owned OCBC Wing Hang Bank, which contributed profits of some S$38 million (MOP237 million) to the Group. In addition, the net interest income of OCBC jumped 27 percent yearon-year, amounting to some S$1.25 billion (MOP7.8 billion) in the three month, while the core-interest income of the Group before one-off gains decreased by 3 percent year-onyear, at some S$801 million (MOP5 billion). OCBC Wing Hang Bank, formerly Wing Hang Bank, became a whollyowned subsidiary of OCBC only after the quarter-end on October 15 despite the Group’s acquisition of Wing Hang Bank on July 29 of this year. Meanwhile, compared to the

previous quarter, the Group’s core net profit posted a decline of 9 percent. In addition, non-interest income, excluding one-off gains, decreased by some 6 percent, although the net interest income, including OCBC Wing Hang’s contribution, grew by 11 percent.

Net profit reaches S$3 bln by September In the first nine months of the year, the net profit after tax of OCBC achieved S$3.05 billion (MOP19 billion). The core net profit after tax, excluding one-off gains, surged by 30 percent, totaling some S$2.66 billion (MOP16.6 billion). “Our record nine-month results reflect the underlying strength

and diversity of our banking and insurance franchise. Independent of the consolidation of OCBC Wing Hang’s earnings, we achieved broadbased loan growth, improved our net interest margin and reported record fee income, particularly in wealth management,” the CEO of the Group, Samuel Tsien, commented on the results. Since October, OCBC has had a total of 80 branches across Macau and Hong Kong, the Group stated at the beginning of the month. In fact, following a deal in which OCBC took over Wing Hang Bank Ltd., worth HK$ 38.4 billion, 13 Macau branches and 57 Hong Kong and mainland branches of Banco Weng Hang, SA are now under the operation of OCBC Wing Hang.

Macau Foundation grants MOP348.2 mln in Q3

he Macau Foundation granted MOP348.2 million in subsidies to associations and individuals in the third quarter of the year. According to the list published in Macau’s Official Gazette, in the three months ended September 30, the largest chunk of subsidies granted went to the Macau University of Science and Technology (M.U.S.T.), which received some MOP89.7 million. Of the overall subsidies granted between the months of July and the end of September, MOP27.2 million was the last instalment of a ‘special subsidy’ for M.U.S.T.’s soccer field and sports pavilion, while MOP62.5 million went towards the University

Hospital, the International School of Macau, and M.U.S.T.’s medical training centre. The House of Portugal (commonly known as Casa de Portugal) received MOP3.6 million, which represents the second instalment of government financial support for the association’s planned activities for this year. The Society for the Protection of Animals (Anima) was a benefactor in the amount of MOP1.6 million to help support its activities. In addition, the International Institute of Macau got MOP3 million, while two entities tied to the public administration here – the Macau Retirees Association (APOMAC) and the Macau Civil Servants Association (ATFPM) – were granted

MOP800,000 and MOP720,000, respectively, in the third quarter of the year. Charity group Caritas received MOP3.8 million as part of the second instalment of the annual subsidy to help support the 28 entities that depend on the group. In addition, the Women’s General Association of Macau got MOP20 million for the first phase of the construction works of Fu Luen School building. And the Macanese Association received MOP800,000. In the long list of benefactors were also funds to be attributed for celebration activities of the SAR’s 15th year anniversary and 65th anniversary of the founding of the Communist Party – China National Day.

October 31, 2014

Macau

Thailand losing out to South Korea for Macau tourists Macau residents travelling outbound are cold-shouldering the Land of Smiles and opting for South Korea instead. In September alone, the number of locals travelling to Korea more than doubled Sara Farr

sarafarr@macaubusinessdaily.com

hailand once was a popular, if not one of the most popular, travel destinations for Macau residents, whether for a city-break or a longer vacation. Now, South Korea is convincingly favoured over the Land of Smiles. In September alone, the number of Macau residents travelling to South Korea increased by 111.8 percent to 4,800 compared to that of the previous year. The latest figures released yesterday by the Statistics and Census Service (DSEC) show that 3,900 Macau residents travelled to Thailand last month, down 35.7 percent from August 2013. As at the end of September, South Korea welcomed a total of 43,000 Macau resident arrivals, while Thailand received only 30,800 in the first nine months of the year.

Mainland China remained the most popular choice for a getaway, with as many as 75,600 Macau residents travelling there, representing a yearly increase of 20.8 percent. Hong Kong came in second, welcoming as many as 15,600 Macau residents, representing the second largest drop after Thailand at 21.6 percent over that of September 2013. Taiwan saw 14,500 Macau residents, an increase of 27 percent, while the number of visitors to Malaysia increased by 7.5 percent year-on-year to 2,000.

Package tours galore The number of visitors travelling to Macau on package tours increased by 9 percent in September to just over one million, with the primary source of tourists mainland China

112pct INCREASE IN SEPT OUTBOUND TRAVEL TO S. KOREA Y-O-Y at 840,000, representing a yearly increase of 11 percent. Macau was also a popular tourist destination for Taiwanese. The number of visitors from the ‘Beautiful Island’ increased by 10 percent to 62,000, while that from South Korea increased by 4 percent to 34,000. Between January and the end of September, the number of visitor

arrivals on package tours totalled 8.83 million, up 19 percent over that of the same period last year. As many as 124,000 Macau residents used the service of travel agents when booking their holidays in September, up 12 percent from a year ago, while those travelling on package tours totalled 43,000. Outbound package tours favoured mainland China at 74 percent, followed by South Korea and Taiwan, each at 7 percent. In all, the number of Macau visitors travelling outbound last month increased by 7 percent yearon-year to 1.1 million. Fewer guests checked into hotels and guesthouses here, however, with the overall accommodation occupancy rate 85.2 percent for the month of September.

Public works secretary not ready to retire

he incumbent Secretary for Transport and Public Works, Lau Si Io, said yesterday that he was “not of retirement age” and would continue to serve the MSAR Government at whichever post he was assigned upon the imminent reshuffle of the top officials in December for the new 5-year term. Speaking to reporters on the

sidelines of a Legislative Assembly sub-committee meeting yesterday, the Public Works Secretary did not directly respond to whether he would continue to work at his post following Chief Executive Fernando Chui Sai On assuming his second five-year term starting after December 20 but noted that he would continue to work for the MSAR Government.

“My current term ends on December 20,” said Mr. Lau yesterday when asked if he would continue to work as Public Works Secretary, “And from then on it all depends on the assignment from the MSAR Government and central authorities.” “I’ve not reached retirement age yet,” said the 58-year-old. “I will

continue to work for the MSAR, and I’ll be glad to do that in whichever position is asigned.” Mr. Lau assumed the portfolio of Public Works Secretary in February, 2007, following the arrest of his disgraced predecessor Ao Man Long for his involvement in a string of corruption and money laundering offences.

October 31, 2014

Macau

Tam: Table cap policy non-negotiable Macau Legend’s goal of running 500 tables in all is “possible”, although the administration says it will strictly abide by the table cap policy set for the decade until 2022 Stephanie Lai

sw.lai@macaubusinessdaily.com

hile reiterating that no casino operators here can circumvent the government policy that imposes a cap on gaming tables at three percent compound annual growth until 2022, Secretary for Economy and Finance Francis Tam Pak Yuen told reporters yesterday that it is “possible” for local gaming operator Macau Legend Development Ltd to operate up to 500 tables in total. Hong Kong-listed Macau Legend – co-chaired by local businessman and former legislator David Chow Kam Fai – informed the Stock Exchange late Tuesday that the Gaming Inspection and Coordination Bureau had already confirmed the granting of 35 additional gaming tables to the company, although the Macau Government also noted that the “formal approval” process of the table grant was ongoing. The 35 additional gaming tables, which the Macau Legend board expects to support the revamped Macau Fisherman’s Wharf, is only the first batch of the 350 extra tables the company would like to secure in the coming years to boost their gaming capacity. In its IPO prospectus last year it said it aimed to operate up to 500 tables in total. “The [gaming table cap] policy to keep at 3 percent compound annual growth is a fixed one,” Mr. Tam said on the sidelines of a Legislative Assembly sub-committee meeting

AMCM: Fiscal reserves at MOP245 bln to September

he total amount of the city’s fiscal reserves was MOP 244.57 billion as at September 30, comprising MOP116.46 billion as the basic reserve, MOP125.20 billion as the excess reserve and an accumulated investment profit of MOP2.91 billion, the Monetary Authority (AMCM) announced yesterday. The investment profit of nearly MOP3 billion was primarily from the money market and the bond market, which earned some MOP2.01 billion and MOP 2.87 billion, respectively. The investment in foreign exchange, however, experienced a loss of MOP1.92 billion. Meanwhile, the investment in equity related exposure gained some MOP163 million. In addition, at the end of September, offshore renminbi, mainly offshore Dim Sum bonds and interbank deposits, accounted for most of the fiscal reserves at 37 percent, followed by 29 percent in U.S. dollars.

yesterday. “It is a policy that not any particular company or project can break.” Macau Legend told investors last year that the 350 extra gaming tables the company was asking for would not be part of the Macau market’s

current table cap regime. The cap allows for three percent compound annual growth from 2013 from a starting point of 5,500 tables until 2022. “We did not set a fixed amount on how many gaming tables a project can get,” the Secretary noted. “The starting count of these 5,500 tables from all casino operators here and the [compounded growth rate at] three percent per annum meant that we’re seeing an addition of about 1,000 to 2,000 tables within these 10 years.” The 35 additional gaming tables to be allotted to Macau Legend are part of the 45 new gaming tables requested by Sociedade de Jogos de Macau S.A. (SJM), which supplies the gaming licence to Mr. Chow’s company. “For any of these [casino] projects that are asking for 300 or 500 more gaming tables, it’s possible while we are keeping this table cap policy,” the Secretary remarked about Macau Legend’s request as stated in its IPO prospectus. “It’s also possible that the company can achieve their additional tables after 2022.” However, the uncertainty over how many gaming tables Macau Legend is getting in the coming two years for its ongoing overhaul of Macau Fisherman’s Wharf and the delays in the completion of two new hotels at this waterside property is exerting pressure on the company’s performance.

Macau investment in Mainland grows 10 pct

or the first three quarters of this year, Macau’s value of investments in mainland China has shot up but the city’s trade with its largest partner has posted a slight decline in the period when its exports remained weak. In the first 9 months of this year, 266 Macau investments were approved on the mainland, 56 more than the equivalent period last year, latest data from the Ministry of Commerce of China shows. The value of these investments was US$430 million, which is 10 percent more. The Ministry of Commerce of China approved 41 investments by Macau enterprises in September, the month with the second most number of investments approved by the central authority in this year so far. The value of the investments realised on the mainland in September, which rose by one-third to US$40 million (319 million patacas) when compared with the previous month, stayed flat when judged on an annual basis as the Macau investments value seen in the same month last year was also US$40 million. The value of trade between the mainland and Macau reached US$340 million in September, 6.25 percent more than a year before as the city imported more. But the value of bilateral trade in the first nine months was US$2.64 billion, 0.5 percent less than the equivalent period last year. The value of Macau’s imports from the mainland in the first 9 months rose by 5.5 percent to US$2.49 billion, while the value of the city’s exports has declined by 49.1 percent to US$150 million. S.L.

JW Marriott & Ritz-Carlton hotels hiring 800 staff

he two new hotels in Galaxy Entertainment Group’s Phase 2 project on Cotai JW Marriott Hotel and The RitzCarlton - are to be completed during the first quarter of next year, the vice operating director of the two hotels, Rauf Malik, said on Wednesday, claiming that they are aiming to recruit some 600 to 800 people for the two properties. According to local Chinese newspaper Macao Daily, Mr. Malik said during a cocktail party celebrating the upcoming openings of the two hotels that they are currently looking for employees to deal with the operation of the hotels next year. Meanwhile, he claimed that local residents are preferred. The vice operating director said that he would offer reasonable remuneration to his staff following a market survey. As such, he is not worried about the lack of human resources. In fact, he reckons that 90 percent of his future employees will work for the company for the long term.

Saying he is optimistic about the prospects of the local hotel industry, Mr. Malik said the occasional fluctuations appearing in the market may not influence longterm development. In addition, he perceives that the future completions of other large-scale hotel projects in the city will only facilitate benign competition for the hotel industry, according to the Chinese newspaper. The Phase 2 project of Galaxy Macau is expected to open by mid-

2015, the vice chairman of the Group, Francis Lui Yiu Tung, said earlier in July. The gaming operator is spending some HK$ 19.6 billion on the project. Meanwhile, Phases 3 and 4 of the Group projects are targeted to be finished in 2016 and 2018, respectively. The total amount of investment will be HK$60 billion, the father of Mr. Lui and chairman of the Group, Lui Che Woo, said at that time. K.L.

October 31, 2014

Macau

Melco Crown drop undercuts analysts’ buy calls Analysts have cut their 2014 sales estimates for six Macau casino operators by an average of 6 percent, with Melco’s revenue being reduced the most, data compiled by Bloomberg shows account for almost 90 percent of all visitors to Macau, making the casino market extremely sensitive to changes in China,” Brian C. Miller, an analyst at Bloomberg Intelligence, said by e-mail. The austerity drive “has caused wealthy Chinese gamblers to reduce/avoid trips to Macau leading to a downturn in gross gaming revenue that began in March and has worsened since. October is expected to be the worst month yet.” Nineteen of 27 analysts covering Melco still have buy recommendations, data compiled by Bloomberg shows. Maher at Craig-Hallum Capital, who has a price target of US$48, says the company’s stock is poised to rally as it is on track to open new facilities. Ken Chen of Bank of China Ltd, the only analyst to forecast the Melco sell-off last year, raised his recommendation to hold in November.

Baccarat boom Lawrence Ho, Melco Crown CEO

ollowing the consensus view has proved to be a losing strategy for investors in Melco Crown Entertainment Ltd. Twenty-one of 23 analysts had a buy rating on the Chinese casino operator a year ago. Since then, the company’s American depositary receipts have dropped 23 percent to US$26.15. That’s 32 percent below the analysts’ average price projection set 12 months ago. Analysts have been caught off guard by the duration of the Chinese Government crackdown on corruption that has curbed spending by high rollers in Macau, the world’s biggest gambling hub. Casino revenue has also been squeezed as a faltering property market is pushing the economy towards the slowest expansion since 1990. Analysts have cut their 2014 sales estimates for six Macau casino operators by an average of 6 percent, with Melco’s revenue reduced the most, data compiled by Bloomberg shows. “The length of China’s anticorruption campaign caught me by surprise,” Bryan Maher, a senior research analyst at Craig- Hallum Capital Group Ltd. said in a phone interview from Minneapolis yesterday. “Melco is very concentrated in Macau compared with peers which have operations in other places, so anything

The length of China’s anti-corruption campaign caught me by surprise Bryan Maher, senior research analyst, Craig- Hallum Capital Group Ltd

that happens in Macau will affect its performance,” said Maher, who has had a buy rating on the stock since April 2013.

Sales decline Melco, controlled by Lawrence Ho and Australian billionaire James Packer, has lost 33 percent this year in New York trading, compared with a 3.2 percent gain in a Bloomberg index of the most-actively traded Chinese companies in the U.S. The Bloomberg gauge slipped 0.1 percent yesterday,

while Melco added 2.4 percent. Maggie Ma, a spokeswoman for the Hong Kong-based company, couldn’t be reached for comment by phone or e-mail outside of normal business hours in Macau yesterday. Melco may post a 7.1 percent slide in sales and a drop in net income when it reports third-quarter results on November 6, according to the mean estimate of at least six analysts surveyed by Bloomberg. That follows a 26 percent plunge in adjusted earnings per share in the second quarter amid a slump in high-stakes gambling volume, the first decline since the third quarter of 2012. Analysts have on average cut the 2014 sales figure by 11 percent this year.

Broad crackdown China’s clampdown on corruption and lavish spending, started in late 2012 after President Xi Jinping took over the Communist Party, hitting big spenders who contributed more than 60 percent to Macau’s gambling revenue. These high rollers are now betting outside the city, the only place in China where casino gambling is legal, boosting overseas casinos from Manila to Las Vegas. “Mainland China and Hong Kong

Melco Crown, which is expanding overseas in the face of land and labour constraints in the former Portuguese colony, has partnered with Belle Corp. to develop a resort in Manila. Its US$2.9 billion Hollywood-themed Studio City will open in Macau’s Cotai Strip as it taps into a baccarat boom that drove up gaming revenue 18 percent in 2013. China’s economy expanded 7.3 percent last quarter from a year ago, the slowest pace since 2009, as a property slump continues to drag on growth. New-home prices dropped for a fifth month in September and China’s broadest measure of new credit last month fell short of economists’ estimates. The impact of the economic slowdown on Macau’s gaming sector was a surprise to casino analysts, who had thought the industry was less exposed to macroeconomic factors, said Cameron McKnight, a senior analyst at Wells Fargo Advisors LLC. “China has been slowing for quite a while yet Macau had remained strong and that prompted a lot of folks to say Macau’s secular growth story is playing out right here, therefore macro factors are less relevant,” McKnight, who lowered his buy recommendation on the stock to hold in September, said by phone yesterday from New York. “Credit growth has yet to find a bottom; it is continuing to decelerate.” Bloomberg

Macau investment in Mainland grows 10 pct

Commerce of China shows. The value of these investments was US$430 million, which is 10 percent more. The Ministry of Commerce of China approved 41 investments by Macau enterprises in September, the month with the second greatest number of investments approved by the central authority in this year so far. The value of the investments realised on the mainland in

September, which rose by onethird to US$40 million (319 million patacas) when compared with the previous month, stayed flat when judged on an annual basis as the Macau investments value seen in the same month last year was also US$40 million. The value of trade between the mainland and Macau reached US$340 million in September, 6.25 percent more than a year before as

the city imported more. But the value of bilateral trade in the first nine months was US$2.64 billion, 0.5 percent less than the equivalent period last year. The value of Macau’s imports from the mainland in the first 9 months rose by 5.5 percent to US$2.49 billion, while the value of the city’s exports has declined by 49.1 percent to US$150 million. SL.

October 31, 2014

Greater China Xiaomi third place in worldwide sales China’s Xiaomi Inc has become the world’s third-largest smartphone vendor just three years after first hitting the market, trailing only Samsung Electronics Co Ltd and Apple Inc, according to a new industry study. Strategy Analytics said Xiaomi accounted for 6 percent of all 320 million smartphones shipped during July-September. Samsung made up 25 percent, down from 35 percent a year earlier due to rising competition from several directions. Xiaomi has been the top seller in its home market of China and recently entered India.

HK shares fall on weak results Hong Kong shares ended lower yesterday, as investors sold shares in companies that posted weaker earnings for the third quarter. The Hang Seng Index unofficially closed down 0.5 percent at 23,702.04 points, while the China Enterprises Index of the leading offshore Chinese listings in Hong Kong declined 0.9 percent. Several major companies and banks posted weaker-than-expected results or provided pessimistic earnings outlooks. Shares of BYD Co Ltd slumped 7.8 percent, West China Cement Ltd dropped 2.5 percent, and China Citic Bank Corp Ltd declined 0.8 percent.

Rongsheng secures cash injection The country’s largest private shipbuilder, has secured a cash lifeline that could be worth up to HK$3.23 billion dollars and is looking to change its name to reflect its shift into oil exploration. Shares in heavily indebted Rongsheng, which were suspended on August 29 after the company said it was in the process of restructuring, surged almost 17 percent higher after trading resumed yesterday. Rongsheng said late on Wednesday it would issue warrants worth HK$510 million to a Cayman Islands-incorporated investment firm.

Baidu says mobile investment a priority China’s dominant search engine Baidu Inc. said it would continue to invest significantly to adapt its business to the mobile era. Sometimes known as the “Google of China,” Baidu reported lower-than-expected 52 percent increase in third quarter revenue, and said it expected revenue growth in the fourth quarter to slow down marginally. The results pushed shares of the U.S.-listed company down 1.6 percent to US$221.01 in extended trading, but executives took a longer-term view and reiterated investing in mobile was the company’s top priority.

Beijing plans to free bank car Total bank card transactions leapt 37 percent to 21.8 trillion yuan in China in 2012, from 2011

isa Inc. and Mastercard Inc. welcome China’s plans to open up its market for clearing domestic bank card transactions, as they stand to gain access to a growing market worth more than US$1 trillion a year. While China lags behind countries such as the United States in spending on credit, habits are changing fast and the Chinese are increasingly swiping plastic to satisfy their growing appetite for consumer goods. The State Council, China’s cabinet, said after a weekly meeting that foreign firms that meet its criteria could set up their own clearing companies. Visa, the world’s largest credit and debit card company, welcomed the move. Household debt in China amounted to just 37 percent of GDP at the end of July, compared with 81 percent in the United States. But the Chinese, renowned for being thrifty, are changing fast. China’s total outstanding credit card balances, while less than 10 percent of household debt, were a third higher at the end of June than a year ago, according to the People’s Bank of China. The amount outstanding per card has increased by more than two-thirds in two years. Mastercard, the second-largest payments company globally, also welcomes the opportunity to expand in the world’s second-largest economy. Access for foreign firms to China’s fast-growing electronic payments market is a controversial issue. China promised to reform and free its electronic payments market after the World Trade Organization

KEY POINTS CHINA TO FREE UP MARKET FOR CLEARING BANK CARD TRANSACTIONS MOVE COULD BENEFIT FOREIGN FIRMS SUCH AS VISA, MASTERCARD

(WTO) said in 2012 that its behaviour discriminated against U.S. firms. It was not immediately clear if the move would allow foreign firms to process credit and debit card payments made in yuan in China. In July 2012, the world trade body held that China had discriminated against U.S. bank card suppliers in its electronic payments market by favouring state behemoth China

Alibaba shares could more than double by 2017 Some investors have shied away from Alibaba pointing to concerns about such things as its governance structure Luciana Lopez and Sam Forgione

I actually believe that Alibaba is going to become the first global e-commerce company

Ching Fu: we’ve won minesweepers bid Taiwan’s largest private shipbuilder, Ching Fu Shipbuilding Co Ltd, said yesterday it had won a contract to build six mine countermeasure vessels for Taiwan’s military for an undisclosed amount. The bid was part of a procurement process by the Ministry of National Defence, said an official at Ching Fu Shipbuilding, who declined to be named as he was not authorised to speak to the media. Defense ministry officials declined to comment on the deal. Local media have reported that the defence ministry’s total procurement budget for mine countermeasure vessels is T$35.2 billion Taiwan dollars (US$1.2 billion).

UnionPay, following a complaint to the WTO by the United States. The trade watchdog found that UnionPay had an illegal monopoly on yuan payment cards issued and used in China, but rejected the U.S. claim that UnionPay was an “acrossthe-board monopoly supplier. As the world’s largest card brand with 3.53 billion cards in circulation since its founding in 2002, UnionPay’s

Mark Yusko Morgan Creek Asset Management head Alibaba’s founder Jack Ma ringing the NYSE opening bell on company’s IPO first session

hares of Chinese e-commerce site Alibaba Group could more than double in the next three years, vaulting the company past Apple Inc as the world’s biggest publicly traded company, Mark Yusko, head of the US$4 billion Morgan Creek Asset Management, said on Wednesday. “I think Alibaba will be within three years the most valuable asset

on the planet,” said Yusko, speaking at the Reuters China Summit. Shares could go from their current price of about US$99 to US$250 within three years, Yusko said. Morgan Creek has about 5 percent of its funds invested in Alibaba, which began trading on the New York Stock Exchange in September. That initial public offering, at US$25

billion, broke records, with retail and institutional investors scrambling to buy shares. The stock has since risen 44 percent from its IPO price of US$68. Alibaba Group Holdings currently has a market capitalization of US$250.5 billion, or 40 percent of Apple’s US$626 billion.

October 31, 2014

Greater China

rds market Official PMI seen edging up Most analysts believe authorities will continue to roll out modest support measures in coming months to lift activity

(US$3.6 trillion)

rise came at a time of explosive growth in China’s interbank card market. China requires all foreign card companies to piggyback on UnionPay’s network when accepting yuan payments. This means firms such as Visa and Mastercard must give a cut of every credit or debit card transaction to UnionPay and the card issuing bank. Reuters

Morgan Creek bought Alibaba two years ago before the shares began trading publicly, through private purchases, Yusko said at the summit, which was held in Reuters’ New York office. “I actually believe that Alibaba is going to become the first global e-commerce company,” Yusko said, adding that current Alibaba shareholder Yahoo Inc would most likely become part of the Chinese company. A Yahoo representative declined to comment. Nevertheless, some investors have shied away from Alibaba, pointing to concerns about such things as its governance structure and conflicts of interest between founder Jack Ma’s role as a steward of the company and his investment interests elsewhere. And China itself has become a source of wariness for many investors. Shortseller Jim Chanos, who spoke at the Reuters Summit on Tuesday, noted his own worries that the country is facing a credit crunch that will erode growth. But Yusko said that China still offers opportunities for investors looking to specific sectors. Morgan Creek, he added, is “wildly bullish” on five areas: retail, consumer, China Internet, healthcare and alternative energy. Within those sectors, Morgan Creek has bought shares in a Chinese sportswear company, China Dongxiang, which also owns shares of Alibaba; Tuniu Corporation, a travel company, and Dianping, a Yelp-like restaurant review and business listing site. China, Yusko added, is “one of our biggest positions.” Reuters

rowth in China’s manufacturing sector likely picked up slightly in October as demand improved, a Reuters poll showed, offering some tentative signs that the world’s second-biggest economy may be stabilising but at levels which are subdued. The official manufacturing Purchasing Managers’ Index (PMI) likely edged up to 51.2 in October from September’s 51.1, the median estimate from 24 economists showed. A reading above the 50-point level indicates an expansion in activity while one below that points to a contraction on a monthly basis. The survey will be released on Saturday. The pick-up in activity may assure investors that the Chinese economy, which has stumbled this year, is not doing as badly as some had feared, though a roaring recovery is unlikely. “Electricity generation and the property sales have picked up somewhat in the past three weeks, which could reduce the downside risks facing the economy,” economists at ANZ Bank said in a note to clients. “Overall, we see that China’s growth momentum will only pick up modestly in the upcoming months as massive policy easing is unlikely,” the ANZ economists said. Hurt by unsteady exports, a housing downturn and cooling investment growth, the Chinese economy is in danger of missing the government’s growth target of about 7.5 percent this year. Third-quarter growth of 7.3 percent was the weakest since the global financial crisis. Most analysts believe authorities will continue to roll out modest

support measures in coming months to lift activity, but they are divided over whether it would act more aggressively, such as by cutting interest rates, unless there is a risk of a sharper slowdown. Instead, Premier Li Keqiang has stated repeatedly that authorities will tolerate growth slightly below the 2014 official target as long as the labour market remains healthy and as the government tries to reshape the economy so it is driven more by domestic consumption and less by exports and investment. A preliminary PMI survey released last week by HSBC/Markit showed the manufacturing sector gained momentum in October, even though analysts said the figure did not point to a fourth-quarter turnaround in

the economy. The official PMI is focused on larger, state-owned factories, as opposed to the HSBC/Markit PMI which focuses more on smaller manufacturers in the private sector. Reuters

KEY POINTS CHINA OFFICIAL PMI SEEN AT 51.2 VS 51.1 IN SEPT DATA DUE ON NOV 1 AT 0100 GMT

Property prices may decline by up to 10% All but five of the 46 cities that imposed limits on home ownership since 2010 have removed or relaxed such restrictions Pooja Thakur

hina property prices may decline as much as 10 percent this year and the slump may extend into 2015, according to SouFun Holdings Ltd. “Chinese property prices are seeing an adjustment after the rapid increase in the past two years,” Vincent Mo, founder of China’s biggest real estate information website, said in a Bloomberg Television interview with Haslinda Amin in Singapore. “Prices should stabilize by the middle of next year.” China’s new-home prices fell in all but one city monitored by the government last month from August, the most since January 2011 when the way the date is compiled changed, as the easing of property curbs failed to stem a market downturn amid tight credit. Home sales slumped 11 percent in the first nine months, prompting the central bank to ease mortgage restrictions on September 30. All but five of the 46 cities that imposed limits on home ownership since 2010 have removed or relaxed such restrictions amid the property downturn that has dented local revenues from land sales.

The People’s Bank of China’s new rules give homeowners who have paid off their mortgages and want a second property the same advantages as firsttime buyers, including a 30 percent

As long as China’s economy expands, the correction will be temporary. The property market will probably have another hot cycle in one to two years Vincent Mo SouFun Holdings founder

minimum down payment, compared with at least 60 percent previously. SouFun’s American depositary receipts have dropped 45 percent this year. The property website company, which covers more than 300 Chinese cities, is seeking to generate additional revenue from property transactions and financial services, Mo said. “Today we are a traditional Internet portal collecting listing fees,” Mo said. “We are now trying to see if we can collect fees from the transactions. SouFun needs to do something new; we want to change the company from a purely Internet platform to also a transacting platform and a financial-services platform.” China will support consumption in six industries including real estate development as growth in the world’s second-biggest economy slows, the State Council said after a meeting yesterday. The announcement is the first in recent years in which the central government officially declared direct support for the housing market, and may boost property shares, according to Credit Suisse Group AG. Bloomberg News

October 31, 2014

Asia

China banks’ bad loans surge Chinese banks are trading at an average one-year forward price-to-earnings ratio of 4.3, making them the cheapest in Asia according to SmartEstimates Lawrence White and Engen Tham

wo of China’s biggest banks reported sharply rising bad loans for the third quarter on Wednesday, and one added that a credit crunch squeezing small companies in the country’s export-oriented eastern provinces may be spreading westwards. Bank of Communications Co Ltd (BoCom) and Industrial and Commercial Bank of China (ICBC) reported their biggest quarterly increase in bad loan levels in two years as China’s economic slowdown stretched more companies’ ability to repay debts. Earlier this year, the lenders said customers were hardest hit in the eastern regions of the country, reflecting a credit crunch in the powerhouse Yangtze and Pearl River delta regions with their large percentage of private-sector firms that have less access to funds than state-owned peers. Now, smaller and mediumsized companies in provinces

further west may suffer as the funding drought for companies without powerful state backing envelops them, BoCom said. “In the f u tu r e, th e possibility that risks will gradually spread from small and micro enterprises to large and medium enterprises ... and from eastern region and coastal areas of China where risks have concentrated to central and western regions will be intensified,” BoCom, China’s fifth-largest listed bank, said in its filing. That confirmed analysts’ expectations of a westward

expansion of the funding problems for smaller companies in China. “In the second half of this year we’re seeing a migration of asset quality problems to western China, as stress migrates along supply chains, and the East Coast / export issues become more of a domestic demand issue,” said Josh Klaczek, head of Asia financial services equity research at JPMorgan. BoCom’s third-quarter net profit rose a less-thanforecast 6.3 percent to 14.7 billion yuan (US$2.41

billion), while ICBC’s net profit climbed 7.7 percent to 72.4 billion yuan, in line with analysts’ expectations. China’s listed banks are expected to report an overall 15 percent year-onyear drop in revenues for the third quarter, according to Thomson Reuters StarMine SmartEstimates, making them the weakest-performing banking sector in the Asia Pacific region. Investor wariness of the banks’ prospects is reflected in their share prices. Chinese banks are trading at an average one-year forward price-to-earnings ratio of 4.3, making them the cheapest in Asia according to SmartEstimates. The slowing economy has compounded worries, with data last week showing China’s gross domestic product grew only 7.3 percent in the third quarter from a year earlier, the lowest rate since the global financial crisis. Premier Li Keqiang has stated repeatedly that

authorities would tolerate growth slightly below target as they try to reshape the economy so it is driven more by domestic consumption and less by exports and investment. That decline in fixed asset investment could hit western provinces hard, JPMorgan’s Klaczek said, since growth there in recent years has been largely driven by construction. Reuters

KEY POINTS ICBC, BOCOM REPORT SHARPLY RISING BAD LOANS CREDIT CRUNCH SET TO SPREAD WEST AS CONSTRUCTION SLOWS CHINA BANKS SET FOR WEAKEST PERFORMANCE AMONG ASIA PEERS

October 31, 2014

Asia

Lacklustre South Korean Vietnam to sell industrial output rare US$1 bln harming recovery sovereign bond Some analysts believe the softness in factory activity is a temporary phenomenon

Investor meetings began on Wednesday. A 144A/Reg S format bond issue could follow

Christine Kim

ietnam plans to raise US$1 billion from its first global sovereign bond in more than four years, and has hired three foreign banks to help tap international investors. Meetings are scheduled with potential investors in Singapore, Hong Kong, London and three cities in the United States, the official Thanh Nien (Young People) newspaper said. Vietnam’s Finance Ministry has hired Deutsche Bank, HSBC and Standard Chartered Bank for the global bond investor road shows, it said in a statement issued earlier this month without giving the size of the issue. The Vietnamese government has approved a plan to sell a new sovereign bond to swap for debt issued in 2005 and 2010. The Southeast Asian country requires intensive funding to accommodate economic growth, slated to accelerate to 5.8 percent this year and 6.2 percent in 2015. The country is rated B1 by

outh Korea’s industrial output was almost flat in September, and was well short of market expectations, suggesting that weak factory activity could undermine a tentative economic recovery following a sharp slowdown in the second quarter. Industrial output rose by a seasonally adjusted 0.1 percent in September on monthly terms, Statistics Korea data showed yesterday, showing the lingering effects of a recent strike by auto workers. The result was far behind the median forecast of a 1.9 percent rise in a Reuters survey of 14 analysts, and followed a revised 3.9 percent slump in August. August’s reading was slightly worse than the preliminary 3.8 percent decline. Some analysts believe the softness in factory activity is a temporary phenomenon, picking the Bank of Korea to stay on the side-lines for now after it cut rates twice this year to recharge an economy hit by weak consumption and tepid exports. “Temporary factors like partial strikes in the auto sector in September took a toll on the sector, resulting in disappointing results but not enough to lead to despair,” said Stephen Lee, economist at Samsung Securities. “Overall indicators aren’t bad. Sentiment surveys have tipped weakness (in output) for October, but after that we may be able to see a small rebound in November. (Today’s data) is not enough to push aggressively for another rate cut.” Although factory shipments to the domestic market rose an annual 2.1 percent in September, it failed to recoup the 4.2 percent drop in August. But policymakers are more upbeat about the outlook and have said that consumption is on the rise. This contrasts with a central

KEY POINTS SEPT INDUSTRIAL OUTPUT +0.1 PCT M/M (REUTERS POLL +1.9 PCT) SEPT DATA ADDS TO UNCERTAINTIES IN RECOVERY NOV BSI EDGES DOWN VS OCT

Moody’s and BB- by Standard & Poor’s, and both ratings have a stable outlook. “Vietnam is quite a rare issuer so I think there will be interest because of the scarcity value. The economy has stabilised significantly in many aspects”, said Rajeev De Mello, a Schroders fund manager based in Singapore. In 2010, the government picked Barclays Capital, Citigroup and Deutsche Bank as joint lead managers for the issuance of a US$1 billion 10-year sovereign bond. In 2005, Vietnam sold US$750 million worth of sovereign bonds maturing in 2016. The debt due in 2020 is now yielding around 4 percent, compared with the bonds due in 2016, which yield around 2 percent. Vietnam’s public debt has been rising, with 98 percent being used for development, Finance Minister Dinh Tien Dung was quoted in a government statement as saying on Wednesday. Reuters

There is appetite for spreads and the yield hunt is still on, so a 10-year bond will not put investors off. Beyond that it will depend on the insurance companies and pension funds - it will be related to a specific type of demand South Korean President Park Geun-Hye (front) addresses the National Assembly in Seoul. Park warned on the economy risks prolonged stagnation, citing low growth, low inflation, a weak Japanese yen and a fast-ageing population as negative factors

bank survey out earlier in the day showing manufacturers are more pessimistic about their business conditions, pointing to weak domestic consumption as their biggest worry. Retail sales also fell 3.2 percent from a year ago in September, but the weakness was attributed to a surge in spending seen in August due to the Chuseok holidays, which fell on an earlier date this year compared to 2013. President Park Geun-hye warned on Wednesday the economy risks prolonged stagnation, citing low growth, low inflation, a weak Japanese yen and a fast-ageing population as negative factors. On an annual basis, industrial output rose 1.9 percent in September after a revised 2.8 percent fall in August, the data showed, compared with a median 2.8 percent rise tipped in the Reuters survey.

Other data from Statistics Korea showed that servicesector output rose by a seasonally adjusted 0.1 percent in September on a monthly basis following a revised 0.3 percent gain in August. Capital investment jumped 13.2 percent on-month in September, eclipsing a 10.8 percent decline in August while construction orders gained 36.8 percent on-year last month, following a stellar 81.3 percent leap in August. Authorities are hoping that domestic consumption will steadily pick up and help spur the economy, even as a slowdown in global growth threatens to undermine exports. Last week, data showed the economy expanded by a seasonally adjusted 0.9 percent in the September quarter in sequential terms, in line with expectations and rebounding from a 0.5 percent rise in the second quarter. Reuters

Rajeev De Mello, Schroders fund manager

Vietnam’s Finance Ministry has hired Deutsche Bank, HSBC and Standard Chartered Bank for the global bond investor road shows

October 31, 2014

Asia

Indonesia tells private firms to hedge forex loans In addition, beginning from 2016, firms borrowing from abroad must have a credit rating of at least ‘BB’ Gayatri Suroyo

ndonesia’s central bank yesterday ordered private firms to hedge more of their foreign debt to limit the risks of offshore borrowings and reduce pressure on the rupiah in Southeast Asia’s biggest economy. Bank Indonesia issued the regulations, effective January 1, as a proactive move ahead of an expected increase in U.S. interest rates next year. The central bank said companies will be required to hedge 20 percent of their external debt due within 3-6 months that has not been covered by their current foreign-exchange assets. In the three months prior to their debt reaching maturity, firms must maintain that level of hedging, said Juda Agung, executive director of the department of economic and monetary policy at Bank Indonesia (BI). The hedging requirement will rise to 25 percent in 2016. The central bank is also requiring private firms to have liquidity ratios of 50 percent in 2015 and 70 percent in 2016 three months prior to maturity.

for more than half of the country’s total foreign debt. The private total has almost doubled since 2010.

‘Correct’ to be proactive The rupiah has been one of Asia’s most volatile currencies this year, raising the risk of currency mismatch for firms that borrow in foreign currencies and get their income in rupiah. Yesterday’s announcement shows Indonesian authorities “are not just being proactive in their monetary policy ... but they are also being more proactive in their macro prudential policy, which I think is correct,” said Claudio Piron, co-head of currency and rates strategy for Asia at Bank of America Merrill Lynch. The growth in Indonesia’s broad private debt over the past decade has been slower than in some other regional countries such as South Korea and Thailand. Still, BI is worried about the debtservice ratio, given export receipts cover just around half the interest and principal payments on the country’s foreign debt each quarter. BI has been tweaking the rules this year to encourage corporates to hedge more of their currency risk. It recently allowed early termination of rupiah forward contracts and laid down rules for hedging by state firms. At present, it costs between 6.2 percent to 6.9 percent to buy dollars from one-month to one-year in the future as hedges in the rupiah forward market. Reuters

Some rating-rule exemptions However, companies with loans meant for infrastructure or refinancing old loans would be exempt from this requirement on minimum credit rating, BI said. The central bank’s announcement came within hours of the U.S. Federal Reserve formally ending its massive bond-buying programme known as quantitative easing. U.S. interest rates are expected to start rising sometime in 2015, and this

KEY POINTS INDONESIA IS ‘FACING RISKS’ CBANK GOVERNOR could cause outflows from emerging markets such as Indonesia that have hefty current account deficits. Martowardojo said that capital outflow “generally happens if we’re perceived as reactive instead

of proactive. We must be seen as proactive, that we know our problems and we know what to do.” Offshore borrowing by Indonesia’s private sector, amounting to US$156.2 billion at the end of August, accounted

FROM 2016, BORROWERS TO NEED AT LEAST ‘BB’ RATING HEDGING RULE FOR PRIVATE FIRMS TO BEGIN JAN 1

New Zealand’s central bank holds fire Markets have reduced expectations of rate rises in the next 12 months

ew Zealand’s central bank held rates steady yesterday and signalled it will keep monetary policy on hold closer to the end of next year, diluting its tightening bias just as the U.S. Federal Reserve moved a step closer to raising rates. “A period of assessment remains appropriate before considering further policy adjustment,” RBNZ Governor Graeme Wheeler said in a statement, after holding its official cash rate (OCR) at 3.50 percent, citing low inflation and slowing global growth. Wheeler added that global monetary policies looked set to remain

Reserve Bank of New Zealand’s Governor Graeme Wheeler

soft for longer, and noted that New Zealand’s economy was adjusting to past rate hikes.

Significantly, in a nod to soft inflation data and dovish market pricing the RBNZ dropped its explicit tightening bias contained in the September monetary statement, when it spoke of further rate rises being needed to return the cash rate to a more neutral level. Markets have reduced expectations of rate rises in the next 12 months to 12 basis points from 17 basis points before the latest statement. A Reuters poll after the statement has a majority view that the RBNZ will pause at least until September or even December next year before

resuming rate rises. The RBNZ raised rates by 100 basis points between March and July, but the latest brief statement did not specify how long it expects to be on hold. Its interest rate forecasts in September suggested it would pause at least until March next year, but that is now seen as likely to be September or later. New Zealand’s annual inflation rate slowed to 1 percent in the third quarter, the bottom of the RBNZ’s 1-3 percent target band, while economic growth has started to slow after hitting a decade high of 3.9 percent in the second quarter. Reuters

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.

Business Daily is a product of De Ficção – Multimedia Projects ADDRESS Block C, Floor 9, Flat H, Edf. Ind. Nam Fong Av. Dr. Francisco Vieira Machado, No. 679, Macau TEL. (853) 2833 1258 / 2870 5909 FAX (853) 2833 1487 EDITOR editor@macaubusinessdaily.com NEWSROOM newsdesk@macaubusinessdaily.com ADVERTISING advertising@macaubusinessdaily.com SUBSCRIPTIONS sub@macaubusinessdaily.com

October 31, 2014

Asia

Malaysia’s tiered fuel subsidy idea panned by critics At least half of the population will continue to get fuel subsidies

Thai cuts 2014 GDP growth Thailand’s economy is expected to grow at a slower pace of around 1.4 percent this year, down from 2.0 percent forecast in July, a senior official from the finance ministry said yesterday. The downgrade is due mainly to weaker-than-expected exports, Kritsada Jinavijarana, directorgeneral of the Fiscal Policy Office, told a news conference. The reduced growth forecast was calculated from a range of 1.2-1.7 percent. The ministry also cut its export growth estimate this year to 0.1 percent from 1.5 percent seen earlier, he said.

S.K. may take hit from U.S. rate hike

alaysia has followed up on two fuel subsidy cuts in the past year with a proposal for a tiered subsidy system that sceptics say will be hard to execute and looks more like an attempt to placate voters griping about living costs. In recent years, Malaysia has shielded its citizens from the full brunt of surging crude oil prices with fuel subsidies of around 24 billion ringgit (US$7.34 billion) annually. That has exacerbated the government’s budget deficit, one of the region’s biggest as a proportion of gross domestic product. To shore up its finances, Malaysia cut the subsidies in September 2013 and then again this month. That raised the price of petrol and diesel, stirring public debate on inflation and living costs. The subject is growing ever more tender as Malaysia heads towards implementing a 6 percent goods and services tax in April next year. Economists say a window has

opened up for Southeast Asia to consider dismantling subsidies as global crude prices sink to multi-year lows. But instead of biting the bullet and pledging more market-oriented fuel prices, Malaysia earlier this week proposed tweaking its subsidy system. Second Finance Minister Ahmad Husni Hanadzlah said on Monday that the government is considering implementing a three-tier fuel subsidy mechanism next year under which some of the population will be fully subsidised and some not at all, depending on how much people earn a month. Critics of Prime Minister Najib Razak’s economic stewardship say it is a tactic to ensure that the majority of society continues to be subsidised, especially poor but politically important states such as Sabah. Under the proposed tiered mechanism, individuals earning less than 5,000 ringgit a month will

be eligible for a full subsidy. Those earning between 5,000 and 10,000 ringgit would get a partial subsidy and those earning more than that would get nothing. But the median monthly salary for Malaysia’s 9.3 million workers stood at 1,500 ringgit last year, according to a government report published in August. Although the next national elections are not due until 2018, Najib has shown he is conscious of voter support. The prime minister recently said he would cut individual income taxes by between 1 and 3 percentage points next year. Some consumer groups are also concerned about data security, as the tiered subsidy scheme might involve embedding personal income information onto the chips of identity cards, which Malaysians must carry by law. Reuters

Samsung seeks smartphone revamp Analysts say Samsung will likely have to sacrifice margins to protect its market share

amsung Electronics Co Ltd yesterday said it would revamp its smartphone line-up to take on competitors in the rapidly growing mid-to-low range segment, after third-quarter earnings set it on course for its worst year since 2011. The global smartphone leader’s market share declined in annual terms for the third straight quarter in July-September, lagging Apple Inc in the premium market and overtaken by rivals like Lenovo Group Ltd and Xiaomi Inc at the bottom end, research firm Strategy Analytics said. Executives said the South Korean giant would overhaul its lower-tier line-up to boost price competitiveness and use higher-quality components to set its devices apart, after it announced its worst third-quarter profit in more than three years. Samsung said its third-quarter operating profit fell by an annual 60.1 percent to 4.1 trillion won (US$3.9 billion), matching its guidance issued earlier this month.

While the company expects profits to pick up in the fourth quarter on strong demand for televisions and memory chips, analysts still expect Samsung to record its worst annual operating profit in three years. Profit for the mobile division fell 73.9 percent to 1.75 trillion won in the third quarter, its worst performance since the second quarter of 2011. Samsung spent most of the quarter without launching a new flagship device, and continued to struggle in the mid-to-low tier markets against cheaper and value-packed offerings like Xiaomi’s Redmi 1S. Robert Yi, Samsung’s head of investor relations, said the firm would launch new mid-tier models in the fourth quarter, although he didn’t specify what features they would have. Samsung expects average selling prices for handsets will rise in the fourth quarter due to an increase in premium smartphone sales, namely of the Galaxy Note 4, and as demand picks up in the holiday shopping season.

KEY POINTS Q3 OPERATING PROFIT 4.1 TRLN WON, DOWN 60.1 PCT Y/Y SAMSUNG SAYS TO TAP MID-TOLOW TIER MARKET FOR GROWTH MOBILE DIVISION EARNINGS SLUMP TO MORE THAN 3-YR LOW SAMSUNG SEES PICKUP IN Q4 PROFIT ON TV AND MEMORY DEMAND

Samsung’s chips division was a bright spot, recording a 2.26 trillion operating profit for the July-September quarter to mark the highest earnings since the third quarter of 2010. Reuters

A rate hike by the U.S. Federal Reserve as well as slower growth in China could have a big impact on South Korea’s financial markets, its central bank said in a report yesterday. The Bank of Korea said sluggish growth in the euro area and the weakening Japanese yen also posed as short-term risk factors that could negatively influence South Korea’s economy. The remarks were made in a biannual report on financial stability handed to the National Assembly and came just after the Fed ended its monthly bond purchase programme and expressed confidence in the U.S. recovery.

Indonesia to change fuel subsidies New government will make changes to its costly gasoline and diesel subsidies before the end of the year, the country’s chief economics minister said yesterday. Although a highly unpopular step, Indonesia’s new minority coalition government has to urgently address Indonesia’s biggest fiscal problem a US$23 billion fuel subsidy bill. The subsidy regime is the main factor behind the budget and current account deficits. An advisor to President Joko Widodo told Reuters earlier this month that a fuel price hike of 3,000 rupiah was planned by the new government, possibly as early as November 1.

National Australia Bank plans UK exit NAB said it has made exiting its UK operations an “absolute priority” after write-downs for the troubled business led to a 10 percent decline in annual cash profit. Chief Executive Officer Andrew Thorburn, who took the helm in August, has moved quickly to clear up problem areas at Australia’s fourthbiggest lender by market value. He has also offloaded a minority stake in its U.S. unit, Great Western Bancorp Inc, via a public offering, sold a big chunk of UK non-performing loans and shuffled key management roles.

Innocean readies IPO Innocean Worldwide Inc., the in-house advertising agency for Hyundai Motor Group, will soon choose bankers to manage an initial public offering that it hopes enables it to emerge from the shadows of the conglomerate and better compete for global clients. Set up nine years ago to handle global advertising for Hyundai Motor Co and its Kia Motors Corp unit, Innocean is South Korea’s No.2 ad agency. An August stake sale to investors including the private equity arm of Morgan Stanley valued it at 1 trillion won (US$956 million).

October 31, 2014

International Brazil’s Vale posts net loss The company yesterday posted a net loss of US$1.44 billion for the third quarter, well below forecasts, hurt by a fall in the price of iron ore and a weakening Brazilian currency. Vale, the world’s largest producer of iron ore, mined a record amount of the steel-making ingredient during the third quarter, but the slight rise in production was not enough to offset the plunge in price. The loss contrasted with a net profit of US$3.5 billion in the same period last year. A Reuters poll of seven analysts had forecast net profit of US$956 million.

Ukraine gas supplies in doubt Ukraine’s efforts to unblock deliveries of Russian gas as winter sets in were deadlocked yesterday as Moscow’s negotiators were quoted demanding firmer commitments from the European Union to cover Kiev’s pre-payments for energy. EU-hosted talks were adjourned after running late into the night, Energy Minister Alexander Novak and the head of Russian gas firm Gazprom told Russian news agencies. They would resume later if Ukraine and the EU had a firm financing deal in place, Gazprom head Alexei Miller said.

Mobile payment big growth driver Visa Inc. reported a better-thanexpected adjusted quarterly profit and said the mobile payment industry would be “a great driver” for business, sending its shares up nearly 4 percent in extended trading. The world’s largest credit and debit card company and its competitors are turning their attention to mobile payments, an industry given fresh impetus by the entry of Apple Inc. Visa, along with Mastercard Inc. and American Express Co, have partnered with Apple in the launch of a system Apple Pay - that allows iPhone users to pay for anything.

Businesses, trade to support U.S. third-quarter growth With a war chest of about US$2 trillion, businesses have been slow to ramp up spending. But change is in the air Lucia Mutikani

robust pace of business spending likely buoyed U.S. economic growth in the third quarter, a sign corporate chieftains have confidence in the sustainability of the recovery. Gross domestic product likely grew at a 3.0 percent annual pace, according to a Reuters survey of economists, with housing, trade, government and consumers also lending support. While that would be a step down from the second quarter’s brisk 4.6 percent pace, it would the fourth quarter out of five that the economy has expanded at or above a 3 percent clip. “It was a very good quarter for business investment,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester Pennsylvania. Businesses, with a war chest of about US$2 trillion, have been slow to ramp up spending. But change is in the air. With unused factory capacity nearing pre-recession levels, the GDP report is expected to show a second straight quarter of double-digit growth in spending on equipment and a rise in investment in structures. While data on Tuesday suggested some moderation in the pace of

equipment investment in the fourth quarter, it is still expected to remain strong enough to keep the economy on a higher growth pace. “There is no doubt that business investment activity has picked up over the last quarters, reflecting more confidence in the durability of the recovery,” said Harm Bandholz, chief U.S. economist at UniCredit Research in New York. One of the few areas that is likely to drag on growth is inventories. A build up in inventories had added 1.42 percentage points to growth in the second quarter.

Consumer spending to moderate The data comes one day after the Federal Reserve ended its asset purchasing program. Fed officials, who saw sufficient underlying strength in the broader economy, described business investment as “advancing.” While growth in consumer spending is expected to have decelerated from the second-quarter’s 2.5 percent pace, it likely still contributed to GDP growth. Consumer spending accounts for more than two-thirds of U.S. economic activity. The moderate pace of consumer

spending likely helped keep inflation pressure under wraps during the quarter, with the two price indexes in the report expected to have decelerated sharply. Declining gasoline prices and accelerating job growth, which is expected to lift wages, will provide tailwinds for consumer spending in the fourth quarter. Housing will be another source of growth thanks to a rebound in home building and sales, which lifted brokers’ commissions. Spending on home improvements will also help. Government spending is also expected to offer some support. A smaller trade deficit should be another boost to growth. Although there are concerns a strengthening dollar and slowing euro zone and Chinese economies will crimp U.S. export growth, economists believe the impact will be marginal. “We expect the positive momentum established in the third quarter to carry over into the fourth quarter,” said Guy Berger, an economist at RBS in Stamford, Connecticut. “We believe the direct impact on U.S. GDP from a strong dollar and slower global growth is small.” Reuters

The Federal Reserve (headquarters pictured) ended its asset purchasing program yesterday

U.S. businesses urge trade law action U.S. businesses urged President Barack Obama to make a case for fasttrack authority on trade agreements before his upcoming trip to Asia, which is seen as an opportunity to push a Pacific trade deal. Myron Brilliant, head of international affairs for the U.S. Chamber of Commerce, said Obama should send a signal about trade in the time between mid-term U.S. elections on November 4 and the APEC summit in China on November 10-11. A bipartisan bill on so-called trade promotion authority (TPA) was introduced in Congress in January but has not progressed to a vote.

Rents to choke Spain’s retailers Many shops could be forced to shut up shop next year when a 30-yearold regime of below-market-rate rents ends. Even though the rental scheme is widely viewed as an anachronism, it has helped many stay in business during the past five years of intermittent recession. If rental terms change dramatically when the agreement expires in January, freelance worker unions estimate that just over 100,000 stores, bars and restaurants - between 5 and 10 percent of the national total - are at risk of closure.

Shell beats Q3 earnings expectations Oil companies have seen billions wiped off their stock market values as crude prices dropped over the past four months by 25 percent

oyal Dutch Shell beat expectations with core earnings of US$5.8 billion for the third quarter and maintained its dividend as both upstream and downstream divisions delivered strong results. Europe’s biggest oil company by market value also said it had appointed former chairman of Bank of America Charles Holliday as its chairman. Holliday will take over from current chairman and former boss of Finnish mobile firm Nokia Jorma Ollila in 2015. The Anglo-Dutch oil major has enjoyed a rapid recovery over the past year through asset disposals and the ramp up of production in the Gulf of

Mexico and West Africa. Quarterly earnings nevertheless declined from the second quarter of 2014, mostly due to weaker oil prices and lower oil production. Oil and gas production in the quarter was 5 percent lower than in the same quarter last year at 2.79 million billion barrels of oil equivalent per day as Shell divested assets. “The recent decline in oil prices is part of the volatility in our industry. It underlines the importance of our drive to get a tighter grip on performance management, keep a tight hold on costs and spending, and improve the balance between growth and returns,” Chief Executive Ben van

Beurden said. Oil companies have seen billions wiped off their stock market values as crude prices dropped over the past four months by 25 percent to a fouryear low near US$85 a barrel due to slowing global demand particularly in China and ample supplies. The trend is stacking pressure on the majors’ efforts to protect earnings by cutting investment and operating expenses. Shell is in a push to shed US$15 billion in assets this year, which it has largely achieved. The company said it had divested in the third quarter a total of US$1.6 billion in the upstream and US$2 billion in the downstream. Reuters

October 31, 2014

Opinion BUSINESS

WIRES

Leading reports from Asia’s best business newspapers

THE STAR When middle income professionals are unable to afford their own home based on a single income and have to team up with either a spouse or another person to qualify for a mortgage loan, then it is a sign that the unaffordability of our housing market has become critical. A finding by US-based urban development researcher Demographia reveals Malaysia’s residential housing market is “severely unaffordable”, even more out of reach than residents in Singapore, Japan and the United States. Demographia’s finding, cited by Singapore’s Straits Times in a report on October 14, rates housing as severely unaffordable.

THE JAKARTA GLOBE Indonesia’s central bank yesterday instructed private firms to hedge more of their foreign debt to limit growth of offshore borrowings and reduce risks to the rupiah. A new regulation, to be effective January 1, requires companies to hedge 20 percent of their external debt due within 3-6 months that has not been covered by their current foreign-exchange assets. Firms must also have additional 20 percent of their foreign exchange needs three months before their debt matures, said Juda Agung, executive director of the department of economic and monetary policy at Bank Indonesia (BI).

THE KOREA HERALD Naver Corp., South Korea’s top Internet portal operator, said yesterday its third-quarter net profit almost doubled from a year earlier as overseas sales from its mobile messenger service Line spiked. Net profit reached 143 billion won (US$136 million) in the July-September period, compared with 74.4 billion won a year earlier, the company said in a regulatory filing. Operating income came to 189 billion won during the third quarter, rising from 101 billion won the previous year. Sales reached 700 billion won in the same period, up 22.3 percent from a year earlier, it said.

THE TIMES OF INDIA The government can add US$30-35 billion to country’s foreign exchange reserves if the effort to unearth “black money” from abroad is successful, a report by Bank of America Merrill Lynch said on Wednesday. It said the estimate was based on an assumption of US$200 billion capital flight based on recent research study. “If even half of this is unearthed and taxed at 30-35%, this could add three to four months of current import cover to foreign exchange reserves, over time, when import cover is running low at 8.3 months,” the report said.

The agreement is based on the Common Reporting Standard, which was developed by the OECD

Why taxation must go global Wolfgang Schäuble

Germany’s Federal Minister of Finance

e are witnessing profound changes in the way that the world economy works. As a result of the growing pace and intensity of globalization and digitization, more and more economic processes have an international dimension. As a consequence, an increasing number of businesses are adapting their structures to domestic and foreign legal systems and taxation laws. Thanks to technical advances in the digital economy, companies can serve markets without having to be physically present in them. At the same time, sources of income have become more mobile: There is an increasing focus on intangible assets and mobile investment income that can easily be “optimized” from a tax point of view and transferred abroad. Tax legislation has not kept pace with these developments. Most of the tax-allocation principles that apply today date back to a time when doing business internationally primarily meant transporting goods across a border to a neighbouring country. But rules that were devised for this in the 1920s and 1930s are no longer suitable for today’s international integration of economic processes and corporate structures. They need to be adapted to the economic reality of digital services. In the absence of workable rules, states are losing revenue that they urgently need in order to fulfil their responsibilities. At the same time, the issue of fair taxation is becoming more and more pressing, because the number of taxpayers who make an adequate contribution to financing public goods and

services is decreasing. The resulting tensions between national fiscal sovereignty and the borderless scope of today’s business activities can be resolved only through international dialogue and uniform global standards. Within the European Union, permitting groups of states to forge ahead with joint solutions to issues that can be addressed only multilaterally has worked well in the past. If such measures prove successful, other states follow. This approach can also serve

The resulting tensions between national fiscal sovereignty and the borderless scope of today’s business activities can be resolved only through international dialogue and uniform global standards

as a global governance model for resolving international problems. In today’s world, even large states cannot establish and enforce international frameworks on their own. Groups of countries still can. This has been demonstrated in the context of financial-market regulation; it is starting to become clear with regard to the regulatory framework for the digital economy; and it is now being confirmed in the area of taxation. The Seventh Meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes took place in Berlin this week, bringing together representatives from 122 countries and jurisdictions, as well as the EU. A joint agreement on the automatic exchange of information on financial accounts was signed on Wednesday. The joint agreement was originally an initiative by Germany, France, Italy, the United Kingdom, and Spain. Roughly 50 early-adopter countries and territories decided to take part, while other countries have indicated their willingness to join. The agreement is based on the Common Reporting Standard, which was developed by the OECD. Under the CRS, tax authorities receive information from banks and other financial service providers and automatically share it with tax authorities in other countries. In the future, virtually all of the information connected to a bank account will be reported to the tax authorities of the account holder’s country, including the account holder’s name, balance, interest and dividend income, and capital gains. Various measures are in place

to ensure that banks can identify the beneficial owner and notify the relevant tax authorities accordingly. The CRS thus expands the scope of global, cross-border cooperation among national tax authorities. In this way, we can establish a regulatory framework for the age of globalization. The automatic exchange of information is a pragmatic and effective response to the perceived lack of global governance regarding international tax issues. By making taxation fairer, governments will have a positive impact on people’s acceptance of their tax regimes. This great success in the fight against international tax evasion would have been unthinkable only a few years ago. Now it is important to continue the efforts of the OECD and the G-20 in the area of corporate taxation. We need to make sure that creative tax planning in the form of profit-shifting and artificial profit reduction is no longer a lucrative business model. A “beggar-thy-neighbour” taxation policy, by which one country pursues tax policies at the expense of others, is just as dangerous as beggar-thy-neighbour monetary policies based on competitive currency devaluation. It leads to misallocations – and will ultimately reduce prosperity around the world. That is why we need to agree on uniform international standards in order to achieve fair international tax competition. The progress achieved in Berlin on the automatic exchange of tax information shows that, by working together, we can realize this goal. Project Syndicate

October 31, 2014

Closing China’s capital account deficit widens

Shanghai-HK stock link in final preparations

China’s capital and financial account deficits widened in the third quarter, as the country became a net capital exporter, according the State Administration of Foreign Exchange (SAFE) yesterday. It expanded to 502 billion yuan (US$81.6 billion), compared with US$16.2 billion in the April-June period. There was surplus of US$94 billion in the first quarter. The capital account deficit comes as China invests more aggressively overseas using the huge current account surplus accumulated through foreign trade. Q3’s current account surplus stood at US$81.5 billion. For the first nine months, China’s total capital and financial account was US$14.1 billion.

Preparation for the Shanghai-Hong Kong stock exchange (HKSE trading lobby pictured) connection is in the final stage, vice chairman of China’s securities regulator Yao Gang told a financial forum in Beijing yesterday. The Shanghai-Hong Kong Stock Connect scheme will allow mutual stock market access for investors and is an important aspect of capital market reform. The scheme was widely expected to be begin on Monday, and the “delayed” frustrated the markets, sending shares related to the scheme nose-diving on Monday. The connect program was first announced in April with a declared six-month preparation period before official launch.

China’s growth-obsessed officials ignoring green policies China has issued a flurry of policy directives since Premier Li Keqiang launched a “war on pollution” earlier this year

ocal officials determined to make their economies bigger at any cost are ignoring Beijing’s push to cut hazardous air pollution, opting instead to expand heavy industries and cut clean energy from the grid, a Chinese parliamentary report said. The Standing Committee of the National People’s Congress, China’s parliament, dispatched a team of inspectors to 10 cities and provinces from May to September to oversee the implementation of new pollution policies. The team found some local officials continued to pursue GDP growth at the expense of the environment, according to details published on China’s parliament website. “Some local governments have not fulfilled their responsibilities to improve air quality,” the report said. “In some locations, enforcement is not stringent or no punishment is imposed on violators.” The capital is braced for more heavy smog, although hundreds of industrial sites are being shut to ensure the air is cleaner during an Asia-Pacific Economic

Local governments are suffering from a loss of jobs and taxation and to some extent they want to keep industries running, so there is a mixed response

Polluting steel factories in Benxi, China

Cooperation (APEC) summit in Beijing next week. China has issued a flurry of policy directives since Premier Li Keqiang launched a “war on pollution” earlier this year. It has also vowed to end a growth-at-all-costs economic model and pay more heed to the impact of industry on the environment. But the slowdown in GDP growth is piling pressure on Communist Party officials. “Local governments are suffering from a loss of jobs and taxation and to some extent they want to keep

Japan’s airways giant sees net profit surge

industries running, so there is a mixed response,” said Tao Wang, a climate expert at the Carnegie-Tsinghua Centre for Global Policy. “In general the economic slowdown is good news for pollution ... but the government still needs to move in the right direction to persuade (local authorities) to change,” he said. Beijing has ordered provinces to cut capacity in polluting sectors such as steel but inspectors found that in some regions, which it did not identify, capacity was

Tao Wang, climate expert, Carnegie-Tsinghua Centre for Global Policy

still being added. The report also said that coal consumption, the major cause of China’s smog problems, continued to grow rapidly, while electricity from renewable sources such as solar and wind was not even being connected to the grid in some cases.

Poor results for AgBank and BoC

The report backs up findings from the Ministry of Environmental Protection this month, which said that some regions of the heavily polluted province of Hebei were not taking their environmental responsibilities seriously enough. The ministry said that during a heavy bout of smog that hit Beijing and surrounding regions on October 8, some local governments in Hebei were guilty of pursuing “form over substance” when it came to implementing anti-pollution policies. Hebei officials have complained that they are bearing too much of the burden for cutting pollution. The province has set an 8 percent growth target for 2014, but it stood at just 6.2 percent in the first three quarters. China has adopted a new environmental law that gives local authorities more power to punish wrongdoers, but it only comes into force at the start of next year. “I think a lot of the people trying to enforce these policies are looking at next year’s law to come into place,” said Calvin Quek with Greenpeace East Asia. Reuters

India’s healthcare to cost US$26 bln

apan’s All Nippon Airways (ANA) Holdings Inc. said yesterday that its group net profit in the first half of fiscal 2014 surged 78.2 percent on year to 35.77 billion yen (US$328.04 million), local media reported. The Japanese carrier attributed the increase to the new slots allocated in Tokyo’s Haneda airport in March, which gave a boost to its international flight business. The increased revenue also offset higher fuel costs on the back of a weaker yen. Operating profit for ANA in the half-year period rose 33 percent to 531.37 million dollars, while sales grew 9.1 percent to 7.84 billion dollars. For the full fiscal year to March 2015, the airline kept its estimate of a 320.99 billion dollars’ net profit on sales of 15.59 billion dollars, up 6.2 percent. It maintained the forecast despite recent declines in fuel prices partly because it is hard to predict the impact of the expanding Ebola virus outbreak on passenger demand, said Japan’s Kyodo News.

gricultural Bank of China Ltd., the nation’s third-largest lender, posted its weakest quarterly profit growth since 2011 as a housing slump exacerbated a slowdown in the economy. Net income for the three months through September increased 6.1 percent to 48.4 billion yuan (US$7.9 billion) from 45.6 billion yuan a year earlier, a Hong Kong exchange filing showed today. That compared with the 50.3 billion yuan median of 11 analysts’ estimates in a Bloomberg News survey. Bank of China, the nation’s fourth-largest lender, today reported a profit slowdown after doubling money set aside for bad loans. Chinese economic growth forecast to be the weakest since 1990 is a challenge for lenders facing competition for deposits as technology companies such as Alibaba Group Holding Ltd. and Baidu Inc. expand into online financing. The central bank has provided cash to individual lenders to support growth, while avoiding any acrossthe-board cut in interest rates or reserve requirements.

ndia’s universal health plan that aims to offer guaranteed benefits to a sixth of the world’s population will cost an estimated 1.6 trillion rupees (US$26 billion) over the next four years, a senior health ministry official said. Under the National Health Assurance Mission, Prime Minister Narendra Modi’s government would provide all citizens with free drugs and diagnostic treatment, as well as insurance cover to treat serious ailments. The proposed plan would be rolled out in phases from April 2015 and will cover the entire population by March 2019, C.K. Mishra, an additional secretary at the health ministry, told Reuters. When the entire population is covered, it would cost an estimated US$11.4 billion annually. Healthcare experts caution that it could take decades before India’s 1.2 billion people are adequately covered and that the costs of provision could face significant upward pressure.

Xinhua

Bloomberg News

Reuters