Macau Business Daily, Nov 10, 2014 by Business Daily

Number 663 Monday November 10, 2014

Publisher: Paulo A. Azevedo

Closing editor: Sara Farr

MOP 6.00

Up, up and away I

Year III

t’s on the up. Macau International Airport handled over 460,000 passengers last month. The 12 percent increase eclipsed last year’s Y-O-Y growth rate. China’s National Day holidays helped with 17 percent more passengers handled in Golden Week this year. MIA is close to achieving its yearly target for passenger volume; and has already surpassed the 2,161 business aircraft movements registered last year PAGE

Worse to come

Police expose 11 junk message stations

Morgan Stanley is swimming against the tide. Industry consensus is that gaming revenue hit bottom in October. But the U.S. bank says hold on a minute. They predict double-digit declines in revenue until the second quarter of 2015. ‘Stocks could start falling from mid-November and bottom in January’, they say

Page 5

Page 4

IGT profits drop 9 percent Page 4

Sinogreen Energy acquired by Jimei Entertainment Page 4

Brought to you by

HSI - Movers

New broom sweeps clean

November 7

Name

Will he or won’t he? Local media say it’s definite. Executive Council member Lionel Leong Vai Tac is to take up Francis Tam’s portfolio as Secretary for Economy and Finance. Other sweeping changes are to be made in the cabinet, as well. Justice, Security, Transport and Public Works, CCAC and Culture are all being shaken up, say the reports

Page

%Day

Best foot forward

Sands China Ltd

2.55

Hong Kong Exchanges

1.97

Sino Land Co Ltd

1.13

He put on a brave face at APEC. During the Asia Pacific Economic Cooperation CEO Summit Chinese President Xi Jinping conceded that China had turned in a weaker 2014 performance. But no cause for concern. He remains confident the country will surpass 7 percent growth

Galaxy Entertainment

0.81

China Resources Ente

0.45

Power Assets Holding

-1.86

Henderson Land Devel

-1.96

China Resources Powe

-2.79

China Mengniu Dairy

-4.70

Lenovo Group Ltd

-4.82

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Source: Bloomberg

I SSN 2226-8294

www.macaubusinessdaily.com

INTERVIEW

Pollsters’ paradise found wanting

Brought to you by

Macau is certainly familiar with polls. But an expert says they are far from scientifically conducted. Bottom line results often mask inadequate sampling methodology and analysis. Angus Cheong describes it as an abuse that can seriously mislead both policymakers and the public. The media, in particular, should pay attention to this, he says, and more training in research basics is essential for the industry

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November 10, 2014

Macau ‘Family hostel’ study to be released year-end The city’s first official study on the feasibility of the ‘family hostel’ concept is expected to be released by the end of the year, director of Macau Government Tourist Office (MGTO) Maria Helena de Senna Fernandes told media. The government is now studying the legal framework for the possibility of licensing this new category of hotel accommodation, which is conceived as a kind of family-run, bed-and-breakfast hotel. The MGTO head reiterated that public perception about this new type of accommodation is more important than the ‘technical aspects’ of licensing this type of hostel.

Macau has one company per 13 inhabitants Luís Gonçalves

luis.goncalves@macaubusinessdaily.com

ocal entrepreneurs continue to boost Macau’s economy as they continue to launch a record number of businesses. According to official data, thousands of firms are popping up every quarter, in the main SMEs owned by residents. In the third quarter of this year, 1,375 companies were incorporated in Macau’s economy. That’s 228 more than a year ago and the second best performance since 2012, Statistics and Census Service figures showed on Friday. The best quarter so far was the second of this year when 1,454 new firms were created here.

Today, Macau is creating companies two times faster than five years ago, data reveals. In the third quarter of 2009, the economy here incorporated 651 firms. These 1,300 new companies brought to Macau’s economy an additional MOP201 million in investment in the third quarter, a 55.6 percent increase from a year ago. The majority (951 out of 1,375) of the new firms were SMEs (Small and Medium-sized Enterprises) with a starting capital of less than MOP50,000. The second largest

group were new firms (251) that started business with a capital buffer between MOP100,000 and MOP500,000. The report also revealed that the flow of new companies is driven by local entrepreneurs. The Statistics Bureau says that 69.4 percent of the total capital generated by new incorporations in the third quarter was originated by Macau residents. Mainland Chinese businessmen were accountable for 16.3 percent and British Virgin Islands ones for 4 percent. Of all new companies incorporated between July and September, 905 belonged to

Source: Lionel Leong confirmed as next Secretary for Economy and Finance

ionel Leong Vai Tac, a businessman and member of the Executive Council whose political influence has been noticeably growing, will replace Francis Tam as Secretary for Economy and Finance in the Macau Government, a source has confirmed to Jornal Tribuna de Macau. Given his new responsibilities, Leong has already been replaced in the position he occupied in local associations. The replacement was enacted at his request. At the end of October, Lionel Leong refused to comment on this possibility, only stressing that he would be available for any position in which he could contribute to the development of Macau. According to the same source,

Wong Sio Chak is also “100 percent confirmed” as a member of the new team of Secretaries. The Director of Judiciary Police (PJ) will be the new leader of the security department, which has been handled by Cheong Kuock Va since the Special Administrative Region of Macau was created in 1999. Andre Cheong will also assume one of the main positions in Macau’s public services, Jornal Tribuna de Macau learned. Cheong will leave his position as Director of the Legal Affairs Bureau and assume the role occupied by Vasco Fong as leader of the Commission Against Corruption (CCAC). It is confirmed that San Hou Fai, President of the Court of Final Instance

Construction industry: Reservations on non-permanent residents’ qualifications

onstruction and urban planning representatives say they want more details on the draft of the administrative law and bill regulating registration and the qualification system. In addition, they queried whether non-permanent residents should also be given qualifications if they are not working in Macau, according to the president of the first

standing committee of the Legislative Assembly, Kwan Tsui Hang. Six representatives from six different construction and urban planning associations met with the committee yesterday morning to express their opinions on the bill. These representatives, according to Ms. Kwan, expressed the doubts about whether non-permanent residents

(TUI), Ho Veng On, Commissioner of Audit, and Choi Lai Hang, DirectorGeneral of Macau Customs Service, will retain their positions. Also, it is confirmed that Ma Io Kun, the Commissioner of the Public Security Police Force, will replace José Proença Branco as Commissioner-General of the Unitary Police Service. A month away from the new Executive Government taking up office, there is a list circulating in social networking websites that indicates that a judge at the Court of Final Instance, Song Man Lei, will be Secretary for Administration and Justice. The Chief-of-Cabinet of the Chief Executive office and government spokesperson, Alexis Tam, will be Secretary for Social

should also be given qualifications when they are not working in Macau, although they are qualified, suggesting these residents should at least stay in the city for 183 days per year to obtain such qualification. In addition, these representatives wanted to know what standards the government will use to set the future law and regulations of the bill, as well as the insurance, such as how much insurance the professionals have to purchase. However, Ms. Kwan said such details would only be discussed after a committee in charge of the system is established, in order to retain fluidity. The legislator also claimed that despite the sub-committee agreeing that the government should be careful

local investors. Following boisterous second and third quarters, Macau’s business sector is going straight for a record year. In the first nine months of 2014, almost 4,000 companies were created here attracting MOP1.5 billion in capital (127 capturing MOP1.3 billion). According to the Statistics and Census Service, at the end of September, Macau had 47,317 registered companies, 4,643 more than that a year ago. This figure means that Macau has a company for every 13 inhabitants (population today is around 620,000). The wholesale and retail sector was the most booming last quarter. It incorporated 447 new firms, almost half of the total. But while it generated more companies than others, retail didn’t lead the growth rate - real estate did. In the third quarter, the number of new real estate firms more than doubled, growing by 130 percent to 152. The construction sector also saw the number of new businesses increase by 48.5 percent. Meanwhile, business services firms decreased 11 percent in the third quarter.

Affairs and Culture, while Raimundo Arrais do Rosário (Director of the Macau delegation to Brussels) will be Secretary for Transport and Public Works. Jornal Tribuna de Macau was not capable of confirming these promotions, but the newspaper admits that Alexis Tam will be promoted. With relation to the Song Man Lei rumour, the same source says that it is logical that she will assume the position of Florinda Chan so that the cabinet will still have a woman sitting in it. It is also to be confirmed that Lai Kin Hong, President of the Court of Second Instance (TSI), will succeed Ho Chio Meng as Prosecutor General of the Public Prosecutor’s Office. The confirmation of all these posts is not going to be officially declared before November 11. Tomorrow, the Chief Executive will go to the Legislative Assembly to review the work of the government in 2014 and prepare the budget for 2015. Jornal Tribuna de Macau/Business Daily

when issuing qualifications, especially to non-permanent residents, it does not mean that the sub-committee agrees with all the opinions of the representatives from the construction and urban planning industries. However, the committee will pass the opinions of these representatives to the government. Meanwhile, one of the representatives, Wu Chou Kit, the council president of The Macau Institution of Engineers, told reporters after the meeting that the industry wants to increase the numbers of professionals as committee members in the future committee in order to supervise the system. K.L.

November 10, 2014

Macau Macau health centres reach international standards The six health centres in the city have officially received accreditation from an independent Australian not-for-profit organisation that is evaluating the services of medical hospitals and centres all over the world. In addition, the Health Bureau said that the report for reviewing the smoking ban in the city will be submitted early next year Kam Leong

kamleong@macaubusinessdaily.com

Faster annual growth of airport passengers in October The National Day holiday in the first week of last month helped boost the number of passengers the local airport handled Stephanie Lai

sw.lai@macaubusinessdaily.com

acau International Airport handled over 460,000 passengers last month, representing an increase that outpaced the growth rate that the airport saw in the same period last year. According to the latest statement by Macau International Airport Company Ltd (CAM), the number of passengers the airport handled in October represented a 12 percent yearon-year rise, compared to the 8 percent registered in the same month last year. The increase in October’s passenger volume approximates that of aircraft movement, which recorded a 12 percent yearly rise to around 4,600. The growth seen in airport passengers in October was partly boosted by the traffic brought by China’s National Day holiday in the first week of the month, for which CAM noted that the airport handled a total of 74,000 passengers from October 1-5, a rise of 17 percent compared to the same period last year. Currently, mainland Chinese visitors account for 37 percent of all passenger movements, while visitors from southeast and northeast Asia occupy another 36 percent – the two major sources of visitors for which CAM expects to see steady growth this month. The remaining 27 percent of visitors are from Taiwan. The over 4.5 million passengers the local airport handled in the first ten months of this year means that CAM has already achieved a significant number of the overall target for 2014, as the airport operator expected to handle 5.1 million passengers for the

whole year with a target revenue of MOP960 million (US$120 million). While the local airport is close to achieving its yearly target for private jet volume of 2,500, it has already surpassed the 2,161 business aircraft movements registered last year.

Late completion At a business aviation forum held on Friday, Cui Guang, director of the logistics and general aviation development department at CAM, said the company anticipates 2,500 business aircraft movements for 2014, which would represent a 25 percent growth compared to last year. However, Mr. Cui noted a delay in the completion of the new private jet hangar, originally expected to be in use this year. He did not specify what construction problems were causing the delay but said that the new date for its completion is March 2015. In addition, the airport operator told Business Daily that private jet operators can expect a new company undertaking the FBO (fixed-base operator) service – known as the ground handling works – by the first quarter of next year, alongside the existing long-time operator Macau Business Aviation Centre. The airport operator is also currently in talks with a MRO (maintenance, repair and overhaul) operator over service contract terms, which would be the first time such an operator is introduced here to provide private jet maintenance service. The new MRO operator is expected to start its service next year, CAM added.

fter Conde de São Januário General Hospital, the six health centres of the Health Bureau have also been issued accreditation certificates by the Australian Council on Healthcare Standards (ACHS), meaning the clinical, supporting and cooperating functions of these centres have reached international standards, following some AUD60,000 (MOP 412,418) that was spent on improving facilities and services since the Bureau decided to join the programme in 2012, according to the head of the Bureau, Lei Chin Ion and Cheang Seng Ip. The director of the Bureau, Mr. Lei, said last Friday on the sidelines of the board ceremony for the certificate that the health centres had passed all 26 requirements for the accreditation, which states a minimum of 15 requirements to be met. The accreditation needs to be up updated and is up for renewal every three years. Meanwhile, the deputy director of the Bureau, Mr. Cheang, indicated that rather than the number of healthcare staff employed the Council stressed the authentication and the qualification of the staff, including doctors, nurses and pharmacists. The Council also suggested the Bureau establish a training scheme for new staff to meet ACHS standards. The health centres are the first batch of daytime medical centres in the city to receive such an accreditation. Mr. Cheang said he welcomed private medical organisations such as Kiang Wu hospital and the University Hospital of MUST applying for such accreditation from ACHS based on their own administrative decisions. Meanwhile, Mr. Lei said the Bureau is striving to submit a report reviewing the smoking ban at the beginning of

2015, claiming the final objective of the Bureau is to have a full smoking ban in all casinos. “We’ve already delegated a company to do the air quality test for the reports. The result of a test [on the air quality of casinos], which was conducted before the smoking ban took effect in 2013, has been released. We will compare the test with the other tests [conducted] before and after October 6, when the smoking ban came into effect, to prepare a general report and submit it in the January of next year,” Mr. Lei said, claiming the implementation of such would still depend on the opinions of the public as well as the Legislative Assembly, despite the Bureau seeking a full smoking ban. In addition, he said the Bureau will study whether other places, such as universities and open-air bus stops will also have a full smoking ban imposed, following a large-scale survey, including questionnaires and phone interviews, as well as other opinions from the public and the media over the last three years. Asked by reporters about the progress of the case in which Melco Crown Entertainment is suspected of having violated the smoking ban law in the mass gaming areas of its casinos, Mr. Lei stressed again that the case is under analysis by the Bureau’s legal adviser. In addition, he indicated casinos will only be required to remove all their smoking rooms in mass gaming floors when their air quality as well as other facilities, such as vending machines, do not meet the standards. Meanwhile, before imposing any punishment, the Bureau will have to conduct a hearing, collect evidence as well as work on a written report and pass this for analysis to legal advisers.

November 10, 2014

Macau Brought to you by

HOSPITALITY Sky-high The Statistical and Census Department has just published its annual survey on the gambling sector. Coming out at a time of contracting gambling revenue, it is easy, perhaps, to forget how extraordinary the evolution of the sector has been since 2004. In that year, the total sector revenue stood at just above 44 billion patacas. At the end of last year, that value had exceeded 362 billion patacas. That is a more than eightfold increase in a decade, corresponding to an average growth of almost 25 percent per year. To put it into a different perspective, relative to the end of 2004 figure revenue doubled in early 2008. Then, it doubled again, roughly, by mid-October 2010 and then it doubled again by early mid-2013. If it maintained the same average growth over the next few years it would double again in less than three years, somewhere in the later part of 2016. That is, even before most of the facilities under development had swung into full operation.

Police expose 11 junk message stations

udiciary Police (PJ) have announced that they exposed a total of 11 ‘fake base stations’ in a residential building last week. The ‘fake base stations’, operating for more than half of a year, had also established fake websites to swindle and steal personal data of victims in addition to spreading junk messages. According to TDM Chineselanguage radio, the latest exposed ‘fake base stations’ last Thursday were located in six flats in two

residential buildings near the Border Gate. The PJ seized a total of 48 laptops, 40 RFIC simulators, 8 twoin-one desktop computers as well as 67 pairs of transmission antennae and mobile phones from 11 stations, worth more than 1 million patacas. The Head of the IT Crimes Division at the PJ, Sou Sio Keong, said the stations spread junk messages by establishing a ‘super-strong’ frequency channel which covered part of the area near the Border Gate in order

to influence the telecommunications networks, TDM reported. Last Wednesday, four mainland Chinese men were arrested by the PJ for alleged involvement in sending mobile junk messages to people who cross the border. These suspects revealed that they were hired to spread the texts for 5,000 yuan per month. Meanwhile, the PJ suspects that there are more people involved in the case who remain at large. K.L.

IGT profits drop 9 percent The American-based company has registered declining gross profits for product sales and gaming operations, which dragged net income down. IGT, however, has managed to increase gross margins João Santos Filipe

jsfilipe@macaubusinessdaily.com

Note, however, that the average figure hides very significant changes over time. In the earlier part of the period growth started at a relative slow pace, until it shot up by more than 50 percent in 2007. The following two years’ growth rates went down to 30 percent, in 2008 and, the lowest in the period, below 10 percent, in 2009. The financial crisis was certainly felt but growth never stopped, it just slowed down. Then accelerated growth came with a vengeance, making up for lost time. In 2010, the rate reached its all-time peak, standing just above 57 percent. Lower rates in the three following years have, nonetheless, as we have seen above, allowed the total revenue to double in the period.

8.23-fold

increase in gambling revenue, 2004-2013

nternational Game Technology (IGT) recorded a 9 percent drop in net income in the fiscal year of 2014 from US$494.1 million (MOP3.9 billion) to US$408.6 million (MOP3.3 billion) the company has announced. The negative trend was primarily driven by declines in product sales and gaming operations. As for product sales, gross profit plummeted 18 percent from US$565 million (MOP4.5 billion) in 2013 to US$464.9 million (MOP3.7 billion) in 2014. In relation to gaming operations, gross profit decreased 11 percent. In 2013, the gross profit was US$617.1 (MOP4.9 billion) but during the last fiscal year reached US$547.4 (MOP4.4 billion). On the other hand, IGT’s DoubleDown Casino business

increased its revenue by 28 percent in comparison to last year. This means that revenue from social gaming went up from US$218.5 (MOP1.7 billion) to US$280.5 (MOP2.2 billion). “Our focus on profitability resulted in significant improvements in our gross margins for the year, and in our gross and operating margins for the fourth quarter, in large part due to cost saving actions we took

earlier this year,” IGT Chief Executive Officer Patti Hart said. “While we continue to see muted demand in our core business, our DoubleDown Casino business drove 28 percent revenue growth for the full year while maintaining industry-leading player monetization rates and growing daily active users.” Gross margin during 2014 increased 62 percent in the interactive business, 55 percent in product sales and 62 percent in gaming operations. In July, IGT entered into a definitive merger agreement with GTECH S.p.A. for the acquisition of IGT by GTECH for US$6.4 billion. “The transaction is currently expected to be completed in the first half of calendar 2015”, IGT said in the announcement of its fiscal results.

Sinogreen Energy now Jimei Entertainment

he Sinogreen Energy International Group Ltd has proposed changing its name to Jimei International Entertainment Group Ltd, according to a company filing with the Hong Kong Stock Exchange. The filing reads that the proposed change of the name will ‘provide the company with a new corporate image and identity in light of the business development and diversification of the group’.

This comes after Macau veteran junket operator Jack Lam Yin Lok replaced Chau Chit as chairman of the company amid a major board reshuffle, according to an announcement filed with Hong Kong Stock Exchange last week, which also indicated Daniel Domingos António, a former inspector adviser at Gaming Inspection and Coordination Bureau, has joined the group as an independent nonexecutive director. Previously in a share subscription

completed in September, the Jimei Group Ltd’s chairman Mr. Jack Lam and his associates have assumed control of 65.85 percent of Sinogreen Energy’s shares. Sinogreen Energy, which trades in conductive silicon rubber keypads said in a filing on July 25 that Mr. Lam’s subscription of shares in the company could help ‘diversify its business into the Macau gaming market’ with the Jimei boss’s ‘extensive experience and business network in the gaming industry’.

November 10, 2014

Macau

Forget October, Macau’s gaming nightmare’s getting even scarier Luís Gonçalves

luis.goncalves@macaubusinessdaily.com

t came as a shock. October gaming revenues dropped 23.2 percent, more than investors forecast and the worst decline since the casino sector had been liberalised in Macau. For the majority of investors, the market had reached bottom and casino stock prices already incorporated the bad news. Thus recovery, even if timid, was probably under way. But maybe not. For Morgan Stanley, it’s too soon to let off the fireworks. Macau’s gaming crisis is still going to get worse and last until the second quarter of 2015 with double-digit declines in revenues likely to remain for some months. ‘The market has rallied with a view that October is the worst revenue decline and that most of the bad news is already in the price. We disagree’, the bank wrote. Failed estimations have been more the rule than the exception this year.

In January, banks and brokerages said gaming revenues in Macau would increase 15 to 20 percent in 2014. In June, when the drop here started, investors said casino revenues would rebound around September or October in a worst-case scenario. The story is now known: October was the worst month ever, while gaming revenues in 2014 will not grow the predicted 20 percent but drop by more than 5 percent. At least. In a report released last week, Morgan Stanley warned its clients that the Macau gaming industry would only reach bottom in terms of revenues, profits and stock prices in the first quarter of 2015. This means that casinos and gaming investors have to face three to six more months of negative headlines. Between June and October, the casino industry

and the government (which receives 35 percent of all gross gaming revenues) saw revenues slashed by MOP16 billion and MOP5.6 billion, respectively, compared to the same period last year, according to Business Daily calculations. If Morgan Stanley is right, many more billions are at stake in the upcoming months. The US bank believes Macau’s market will bottom only at the beginning of next year for several reasons. First, in the previous two crises (the downturns of 2008 and 2012) casino stock prices bottomed at the same time as revenues and profits, contrary to consensus that says shares tend to anticipate downturns and recovery of companies. ‘Stocks could start falling from mid-November and bottom in January’, wrote Morgan Stanley. Second, the next two

Morgan Stanley doesn’t believe the current market consensus that Macau’s gaming industry reached bottom last month, with revenues plummeting 23 percent. It’s time to fasten your seat belts for the first quarter of 2015, they say, with shares, profits, mass and VIP revenues all taking a bath

quarters will bring even more negative news for the gaming industry. The last quarter of the year will see mass revenues turn flat and the VIP segment decline 32 percent from a year ago. But worse has yet to come in 2015. Because of base and comparison effect (the first quarter of 2014 was the best ever in Macau in terms of revenues) the first three months of next year will cascade negative figures.

Source: Morgan Stanley

According to Morgan Stanley estimations, mass revenues will decrease for the first time (5 percent) while total revenues are set to diminish 22 percent. Following which, the basis for recovery could be in place. The new openings from Melco Crown and Galaxy in 2015 are likely to attract new customers to Macau, while the comparison effect will also be more favourable.

November 10, 2014

Macau

Leading research concludes public polling employs no scientific methodology In Macau, most polls are not conducted employing scientific methodology says the president of the Macau Polling Research Association and Macau representative for the Asian Network for Public Opinion Research, Angus Cheong. He tells Business Daily of his concern about the unscientific methods used in Macau - and elsewhere – with the obvious risk of forming wrong perspectives on public opinion Luciana Leitão

luciana.;eutao@macaubusiness.com

Photos by Manuel Cardoso

As the president of the Macau Polling Research Association and Macau representative of Asian Network for Public Opinion Research, do you believe surveys are being conducted correctly, reflecting trustworthy outtakes of public opinion? I’m very worried about the abuse of polling in society - in Macau, in Hong Kong and everywhere. More and more polls are being conducted by organisations, universities and the government but people normally just pay attention to the results and seldom pay attention to the methodology and quality of analysis. We have to start paying more attention to the quality of the data, the quality of the analysis and the representation of the samples. We have a big challenge here in Macau because most of the surveys or polls are not well or scientifically conducted. What are the risks of having a poll unscientifically conducted? You will mislead policymakers and the general public. The general public will form their opinions based on what they already know. If the result is not correct or scientifically conducted, then it will affect the formation of people’s opinions. What are the main mistakes being made? The first thing is the sampling. Sample people on the street and you’ll never get a representative sample. The second is people need to pay more attention, especially the media — they are the gatekeepers, they need to know more about it, not just report what the survey told you to report. More training should be provided, so standards can be improved. We need to rely on scientific results, not unscientific results, which will mislead the whole of society. Also, surveys are normally over-interpreted: you interview 100 people and you say that 70 percent say they use mobile phones every day, and you draw the conclusion that most people are addicted to phone use and the government needs to do something. Where’s the relationship between that? Local government has been doing a lot of public consultations to assess people’s opinions. Are these being done correctly? I’ve been doing public consultation for years and there’s no international standard. Different countries and places have their different situations, so they use different methods. But no matter what, you have to be open and you

have to consult different segments or different kinds of people. You have to present the result openly and, of course, there are different kinds of formats — seminars, hearings, writing a letter to the government, phoning in to the radio. I’d say these are all traditional means. You’ve also got to analyse what the media say, what people are saying in social media. You also need to do scientific surveys, so that you can compare different results from different sources. In the long run, the government needs to have some kind of standardised procedure, a very open, scientific procedure to conduct. Is it open and scientific in Macau? At this point, many public consultations are very open. They actually invite citizens to express their opinion but I don’t know whether they have a very structured and systematic way of doing it. The method is very important. If you have such open procedures then that will boost the public’s trust in the government, otherwise people will be suspicious. You’ve got to let people know your methodology.

My own understanding is that Facebook is very good for companies to maintain the relationship with customers and build up the image I would say Facebook is still the best one because it’s been in the market for years and has all the mechanisms for advertising, business and promotion purposes

Is the government releasing information about their methodology? That will take time but they need to take the first step.

The power of social media You’re also the director of ERS e-Research Lab, which conducted research on the impact Facebook has in social movements, looking specifically at the events that took place between April and May. What were your main conclusions? Facebook is a platform for people — especially young people — to communicate, to share viewpoints and to organise and promote an event. We actually tried to look at how Facebook can function regarding such kinds of events [the demonstrations in May] and we tried to look at the trend of how the event developed by looking at Internet data. We tried to analyse all the available data and at a specific time we can see whether it’s a very hot issue or not, so we can check the number of likes, posts and shares, and it shows how it develops. We could also check different kinds of issues that people were talking about. They were talking about their concern about the law for the retirement pension. They also talked about whether they would demonstrate. A few years back, Internet forums were considered the most important instrument to talk about politics in Macau. Did the May demonstrations show that Facebook has surpassed these forums’ importance? Yes. Over the years, we’ve been monitoring the different channels different people use to express their viewpoints. Maybe you can say that five years ago the forums [Bulletin Bot Services - BBS] were the most popular ones — there are nine to 12 different forums in Macau and we actually try to keep an eye on them, try to see how they function and what role they play in society. You can say they were the channels where people expressed viewpoints, but also people would use them to source information. But you can see that because social media developed so fast, social media outgrew these forums. Facebook is nowadays the most popular medium for expressing viewpoints on the Internet. WeChat is a very hot channel nowadays but it is limited to a closed circle — you don’t know what they’re talking about unless you’re a member of a circle. Facebook is the public area for people to get and share information.

Does Facebook reach a wider number of people faster? Yes. It’s easier for young people to get together but recently there’s been some kind of research indicating that it seems that people use social media to express different viewpoints. In fact, there’s some kind of phenomenon called the ‘spiral of silence’ on Facebook, whereby when one opinion dominates on your wall most people that have different viewpoints may not be willing to express them. This is not a good phenomenon because you can’t exchange viewpoints — in terms of expressing viewpoints, interaction and exchanging viewpoints, social media may not be the ideal place. Along with the obvious leisure side, you mentioned the impact social media has on political movements. Are people in Macau also using Facebook for other purposes, such as business? It’s a good tool. You can use Facebook, you can create your fan page, you can have some kind of immediate response to enquiries and you can also promote your products. Of course, promotion is not just doing some hard advertising there because nobody will see it. Maybe you can use some kind of storytelling technique that would help you build your image and build up your relationship with potential clients or [current] clients. Is Facebook becoming a powerful advertising instrument in Macau? No. In Macau, I’ve seen a few companies advertising on Facebook but not many. Most companies still rely on traditional channels like magazines and newspapers. The market is not so large, and when you spend the money on Facebook you can only target a very specific kind of audience. Of course, if you want to target that audience Facebook may be a good channel to do so. Facebook is very good at maintaining a relationship with customers and building up your image. Is it essential in Macau for a company to have a Facebook page? If there’s a new medium, why not use it? But before you go ahead you have to think it’s not just a tool, it is a strategy. It’s a longterm plan. I send the information out and then . . . ? Nobody knows what’s going on with the information itself, you’ve got to know whether this information can be effective or not. Can it reach your audience? How many clicks? What are the page views? You just post something on the website and

November 10, 2014

Macau

you have no follow-up. This is not a good strategy in the big data era. How can you keep track? I don’t think small and medium enterprises have the capacity to do that. To plan it in advance, you need to have a database but it’s expensive. You need to record the viewing behaviour of your customers — whether they click on your website or not, when and which page. You’ve got to monitor downloads, usage and frequency, so that you can reach your audience, otherwise you waste your money.

Plan ahead When you publish an ad in a newspaper, you also don’t know if it reaches your audience. So, why is social media less effective? That’s why media planning companies or research companies keep doing surveys — they’re asking people whether they have seen this ad before and where from. And these kinds of readership surveys help to identify whether the advertisement is effective or not. On the Internet or for social media we don’t need that because we can record it. Every single step of using the Internet will be recorded but the problem is: When you construct your website do you have any tools to record? Normally, traditional IT companies don’t provide such service or they don’t have this sense or the client doesn’t know and doesn’t require them to do so. So, in the end, if you want to know the behaviour of your viewers, you don’t know, because you didn’t plan to have those tools. Are bigger companies doing this? Even bigger companies don’t have a very systematic planning/strategy to do so but I would encourage them to do so, to plan. Those chain store supermarkets, from a big data perspective, you can do some data mining and categorise the different types of customers — high-end, middle and low-end,

Dr. Angus Cheong, founded ERS e-Research & Solutions (Macau), former Project Director of the Macao Internet Project (MIP) and Macao Public Opinion Project (MOP) at the University of Macau

people who spend more and people who spend less or people who spend lots of money on shampoos or snacks. You can segment all your plans and you have the contact information, so you can specifically send different kinds of message to different segments of your friends and customers. If companies want to be effective in using social media, do they need to use a strategy? They need to have a strategy. How can they improve their strategy? They need to have the data, like the viewing data. So, how can SMEs use social media? There’s just one way — you just put the message there and that’s it. You don’t know the effectiveness of what you put there. That’s why almost all the international big companies are now doing data mining — they want to know

what exactly happened to their customers. Even the government can do something like that. For example, in a public hospital you can open the data in a real time manner in order to know how many patients are lining up, so the third party developer can develop an app. If I’m a user of that app, I can check – “Oh, at this time, there were 50 patients lining up for that doctor”. Is the government in Macau at that stage? Not yet but I’m sure they’re trying to look at other solutions because that will help the government be more efficient. For business purposes, which of the social media is more effective? Here in Macau most people use Facebook, followed by WeChat. In fact, in terms of instant messaging WeChat is more dominant, more than Facebook, but Facebook is more social, more open. Then, followed by WhatsApp. I would still say Facebook is the best one because it has been in

the market for years and has all the mechanisms for advertising, business and promotion purposes. But none of them exclude the need to run ads in newspapers at the same time? It depends on what kind of product or service you have. If you’re selling a car you may do both — new and traditional media — because the magazines are good quality, the content is very focused, so it’s targeting whitecollar or professional people, so you may keep both. With social media, you can watch videos of cars, so the combination would be excellent. But if you’re selling something like clothes, you may not use newspapers — you just use magazines or social media or new media. Or if you sell something like restaurant dining — if you’re targeting young people, it’s more effective to use social media rather than newspapers because less and less young people read the newspaper. It has to be specific targeting — what target audience you want to reach.

Corporate Sheng Kung Hui and Galaxy ‘Run for Fun’ Galaxy Entertainment Group’s Staff Social Club and Sheng Kung Hui Macau Social Services Coordination Office have organised a ‘Run for Fun’ on Guia Hill to promote a healthy lifestyle and worklife balance. Around 200 team members participated in the competition in the men’s and women’s individual race as well as the mixed relay race awards. The winner of the Men’s and Women’s Individual Races, Qin Xue Liang and Adhikari Shanti Devi, came from UA Cinema of Galaxy Macau and the Security Department of Waldo Casino, respectively, the Galaxy said in a company statement. As for the Mixed Relay Race, ‘The best of Universe’ from Table Games of StarWorld Hotel garnered first place. One of the participants, who recently registered for the Macau Galaxy Entertainment International Marathon in December, regarded this run as a warm-up and added that having practiced with his colleagues for months it had not only improved his physical fitness but fostered and enhanced the friendship between them.

November 10, 2014

Gaming

Japan set to indefinitely postpone casino legalization: sources

apanese lawmakers are set to indefinitely postpone legalizing casinos as Prime Minister Shinzo Abe, whose cabinet has been hit by a series of scandals, lacks the political leverage to pass a bill this year, sources directly involved in the process said. The latest in a string of delays for the controversial bill will be a blow for Abe, who has promoted casino resorts as part of his economic growth program, and for casino developers from Las Vegas to Macau. It also dashes hopes for any casino resort to be built in time for the 2020 Olympics in Tokyo. Gaming companies such as Las Vegas Sands Corp, Caesars Entertainment Corp and MGM Resorts International have been hoping Abe would unlock an “integrated resort” market that brokerage CLSA

Deutsche Bank’s Rankin named CEO of Packer’s Consolidated Press

eutsche Bank AG’s co-head of corporate banking and securities, Robert Rankin, will leave to join Australian billionaire James Packer’s Consolidated Press Holdings Ltd. Rankin, an Australian, will leave his job in London in January to become chief executive officer of Packer’s investment firm, Deutsche Bank said in a statement today. A successor will be named “in due course,” the Frankfurt-based lender said. “I see Rob as my partner going forward,” Packer said in a telephone interview. “I’ve known Rob for a long time, he is someone I have great faith in and great trust in.” At Deutsche Bank, Rankin oversees the corporate finance unit, which houses the advisory arm,

estimated could generate annual revenue of $40 billion. Pro-casino lawmakers intend to push back a vote on the bill instead of trying to pass it in the current parliamentary session ending this month, three people directly involved in pushing the casino bill told Reuters on Tuesday. Although they aim to keep the bill on the table, the sources said there was a considerable chance it would not come up for discussion even in 2015. Higher-priority bills, including those related to national defense, are likely to take up debate time in the next parliament session, they said. “If they can’t pass it now, I doubt whether they’ll ever be able to pass it,” one of the sources said. The bill was already in a tight race for time to pass by the Nov 30

debt and equity underwriting, while Colin Fan, the other co-head of the investment bank, is responsible for trading. Rankin took up the position in March 2012. Deutsche Bank hired Rankin, a former head of investment banking for Asia-Pacific at UBS AG, as CEO for the region excluding Japan in 2009. He was initially hired to improve the bank’s standing in advisory in Asia. At the time, the company ranked behind firms such as UBS. In its statement, Deutsche Bank said its share of the global corporate finance fee pool increased to 5.5 percent in the first nine months of 2014 from 5 percent in 2011. Packer will remain as chairman of Consolidated Press Holdings. Born into an Australian media dynasty started by his grandfather Frank, Packer has a net worth of about US$5.2 billion according to Bloomberg Billionaires. His investments include casinos from Melbourne to Macau. “I look forward to working with the bank as a client in the future,” Rankin said in the statement. Bloomberg

end of the current session. It faced opposition from some members of Komeito, Abe’s junior coalition party, and from some quarters of his own Liberal Democratic Party, who are concerned about the impact of gambling addictions. Anti-casino lawmakers recently stepped up their campaign, drawing the public’s attention to Japan’s already high rates of gambling addiction, mostly related to pinballstyle “pachinko” games played throughout the country. The biggest setback for the procasino camp, however, came last month when two cabinet ministers quit over funding-related misdeeds, putting Abe on the defensive. “It’s not just about the extra time required due to the two resignations ... it’s no longer a question about casinos and addiction,” one of the

Law clearing way for Massachusetts casinos survives repeal vote

assachusetts voters on Tuesday upheld a 2011 law that paved the way for legal casino gambling in the state, voting down a referendum that would have overturned the measure and stopped two planned casinos in their tracks. Anti-gambling activists campaigned for the referendum, arguing that casinos would cause harm including problem gambling and higher crime rates that would outweigh the benefit of any jobs created in the New England state. Pro-casino activists noted that neighboring Connecticut was already home to multiple large casinos, which are patronized by many Massachusetts

sources said, adding “the leadership” lacked political support. Until a few weeks ago, most analysts still expected the casino bill to be adopted in November, allowing leaders to pass a second bill outlining regulations in 2015. One Japanese casino industry source said there was a chance legislation could be delayed by three or four years, meaning actual casino development may have to wait until around 2024. Toru Mihara, who teaches at the Osaka University of Commerce and was one of the architects of the casino bill, said failure to pass the bill in this session would be a “total loss of face” for Abe’s cabinet. He also said the bill will be difficult to pass next year, as newer topics come up in parliament. Reuters

gamblers, and that having casinos at home would boost state coffers. The Massachusetts Gaming Commission has already awarded two casino licenses, one to MGM Resorts International to open a casino in Springfield, along the state’s border with Connecticut, and a second to Wynn Resorts Ltd to open a casino just outside Boston. The formal award to MGM had been put on hold at the company’s request until the results of Tuesday’s referendum were known. The commission has yet to rule on a third license, to operate a casino around the Cape Cod beach resort area. A fourth license, awarded to Penn National Gaming Inc allowed for a slot machines-only facility on the Rhode Island border. The planned casinos have already taken a toll on another longtime Massachusetts institution, the 79-yearold Suffolk Downs thoroughbred race track, which said last month it had run its last race after failing in a joint bid with Connecticut’s Mohegan tribe to win the Boston-area license. Reuters

November 10, 2014

Greater China

President Xi says risks to economy “not that scary” The remarks from Xi came a day after data showed annual growth in Chinese exports and imports cooled in October Sui-Lee Wee and Gerry Shih

he risks faced by China’s economy are not that scary and the government is confident it can head off the dangers, President Xi Jinping told global business leaders yesterday to dispel worries about the world’s second-largest economy. In a speech to chief executives at the Asia Pacific Economic Cooperation (APEC) CEO Summit, Xi said even if China’s economy were to grow 7 percent, that would still rank it at the forefront of the world’s economies. China’s economy, the world’s second-largest, has had a rocky year. Growth slid to a low not seen since the 2008/09 global financial crisis in the third quarter dragged by a housing slowdown, softening domestic demand and unsteady exports. “Some people worry that China’s economic growth will fall further, can it climb over the ridge?” Xi said. “There are indeed risks, but it’s not so scary”. “Even at growth of around 7 percent, regardless of speed or volume, (we) are among the best in the world,” he said, noting that China’s economy remained “stable”. To shore up activity, policymakers have loosened monetary and fiscal policies since April to ensure that the economy can grow by around 7.5 percent this year. Regional governments have accelerated spending on some infrastructure projects and abolished limits on the number of homes that Chinese can buy. The central bank has also injected short-term loans into banks to increase credit supply, and cut mortgage rates for some home buyers. Yet the results yielded have not

China’s President Xi Jinping speaks during the opening of the APEC CEO Summit at the China National Convention Centre

been as good as some had hoped, fuelling speculation that China may have to cut interest rates or the reduce the amount of deposits that banks set aside as reserves - moves Beijing has denied are on the cards. Xi, who would sign off on any interest rate cut in China alongside the country’s elite decision-making Politburo, did not comment on the policy outlook, but stressed that his government was focused on reforms and that China was open for business. Underlining the country’s growing clout as an exporter of capital, he said China’s overseas direct investment

was expected to hit US$1.2 trillion in the next decade. After three decades of almost uninterrupted double-digit growth, China’s economy has lifted several hundred millions of Chinese from abject poverty, but also polluted the country’s air, land and waterways. The destruction of China’s environment and a yawning income gap has led Chinese authorities to promise to enact sweeping social, financial and economic reforms in the country that would be the most ambitious in three decades. “These reforms are gradually

being put into effect project by project,” Xi said. “Once the bow is drawn, the arrow cannot be put back in the quiver; we will resolutely deepen reform.” Xi also sought to address concerns that China’s growing economic and diplomatic prowess could constitute a threat beyond its borders, saying that China is willing to have friendly relations with its neighbours. China has territorial disputes with many of its neighbours and has been much more aggressive in enforcing its claims in recent years. Reuters

Surprise at Mexico’s scrapping of rail deal The decision was made ahead of a state visit to Beijing by President Enrique Peña Nieto

hina expressed surprise yesterday at Mexico’s decision to revoke a US$3.75 billion high-speed rail contract from a Chinaled consortium, saying the Chinese company involved had strictly followed the bidding procedure. After the contract to build the link was awarded on Monday, Mexican opposition politicians accused the government of favouring the group led by China Railway Construction Corp Ltd, the sole bidder. Mexico’s Communications and Transport Ministry, which has defended the bidding process, said on Friday it expects to re-run the tender in late November under the same terms, and would keep it open for six months to enable all interested parties to participate. China’s official Xinhua news agency, citing an unnamed spokesman from powerful economic planner the National Development and Reform Commission, said Mexico’s decision was “because of domestic factors”. “It had nothing to do with the

Mexico’s Communications and Transport Ministry expects to re-run the tender in late November under the same terms

Chinese enterprise, and the Chinese government hopes that the case could be settled properly as soon as possible,” the spokesman said. “It is surprising to hear Mexico decided to scrap the rail deal as the Chinese enterprise has been strictly following the public bidding procedures and requirements, and the bidding content complies with

the requirements of the Mexican government,” he added. “The Chinese government encourages enterprises to participate in infrastructure construction in Mexico in a mutually beneficial way, and hopes the Mexican government could create a fair competition environment for these enterprises.” The decision was made ahead of

a state visit to Beijing by President Enrique Peña Nieto, who will also be attending the November 10-11 Asia Pacific Economic Cooperation summit. Since Peña Nieto took office in late 2012, he has tried to forge closer ties with China after years of rivalry between the two countries seeking to supply the U.S. market. Reuters

November 10, 2014

Greater China US$113 bln in infrastructure projects China approved more than US$100 billion worth of infrastructure projects in late October and early November, state media said on Saturday, in a bid to bolster slowing growth in the world’s second largest economy. China’s top economic planning body, the National Development and Reform Commission (NDRC), approved 21 infrastructure investment projects between October 16 and November 5 with a total investment value of 693.3 billion yuan (US$113.24 billion), the official Xinhua news agency said on Saturday, citing state radio. The projects included 16 railways and five airports.

Aussies pleased with FTP evolution Australia said on Saturday it was pleased with progress on a longplanned free trade pact (FTP) with China and that it would be happy to conclude it by next week when Chinese President Xi Jinping visits. Xi will attend the G20 summit in Brisbane next week and then make a formal state visit. “I understand that our negotiators are very pleased with the progress,” Australian Foreign Minister Julie Bishop told reporters on the side-lines of the Asia-Pacific Economic Cooperation (APEC) forum in Beijing.

Momo files for IPO China’s Momo Inc., a mobile-based social networking platform, filed with U.S. regulators on Friday to raise up to US$300 million in an initial public offering of its American Depositary Shares (ADS). The company said it was the No. 3 instant messaging app in China, and also offered mobile games, paid emoticons and mobile marketing services. Its user base more than doubled to 180.3 million in the year through September. Social messaging services have drawn considerable investor interest of late.

Wal-Mart to focus on food safety Wal-Mart Stores Inc. is focusing on food safety as the world’s largest retailer aims to boost profitability of its more than 400 stores in China, Wal-Mart Asia chief executive Scott Price told Reuters. Food safety is a highly emotive issue in China where there have been numerous scandals from photos of food oil being scooped from drains to tales of phoney eggs and melamine-tainted milk powder. Wal-Mart came under fire in Chinese media earlier in the year after a supplier’s donkey meat product was found to contain fox meat.

Six economic crime suspects arrested China has seized another six economic crime suspects in the Philippines, authorities said yesterday, amid a sweeping campaign aimed at blocking “the last route of retreat” for corrupt officials. Police in east China’s Zhejiang Province captured two suspects in two separate Philippine cities in October, while another four were urged to give themselves up, according to Zhejiang provincial public security department. Of the six fugitives, four have been taken back to China, the department said. China has snagged 180 economic crime suspects abroad since Fox Hunt 2014 operation started.

Annual China trade growth Annual growth slowed to 7.3 percent in the third quarter - the weakest since the height of the global financial crisis as a cooling property sector weighs on domestic demand

nnual growth in China’s exports and imports slowed in October, data showed on Saturday, reinforcing signs of fragility in the world’s second-largest economy that could prompt policymakers to roll out more stimulus measures. Exports have been the lone bright spot in the last few months, perhaps helping to offset soft domestic demand, but there are doubts about the accuracy of the official numbers amid signs of a resurgence of speculative currency flows through inflated trade receipts. Exports rose 11.6 percent in October from a year earlier, slowing from a 15.3 percent jump in September, the General Administration of Customs said. The figure was slightly above market expectations in a Reuters poll of a 10.6 percent rise. A decline in China’s leading index on exports in October pointed to weaker export growth in the next two to three months, the administration said. Imports rose an annual 4.6 percent in October, pulling back from a 7 percent rise in September, and were weaker than expected. That left the country with a trade surplus of US$45.4 billion for the month, which was near record highs. September’s surprisingly strong export growth led some analysts to

question the accuracy of the official data amid signs of hot money inflows as firms tried to evade capital controls by over-invoicing precious metal sales. The latest trade data indicated a cool down in such speculative activity amid fears of an official crackdown. Customs data showed China’s exports of precious metals and jewellery rose 187 percent in October from a year earlier. The pace eased from a 678 percent jump in September. China’s exports to Hong Kong, where over-invoicing is typically most pronounced, rose 24 percent in October from a year earlier, slowing from September’s 34 percent increase. Exports to the United States, China’s top export destination, rose 10.9 percent in October from a year earlier, largely matching September’s rise, while exports to the European Union, the second-biggest market, grew 4.1 percent, slowing sharply from a 14.9 percent jump in September.

On track to miss trade target China’s external trade environment may slightly improve in 2015 but still faced uncertainties, the Ministry of Commerce said in a report published on Saturday. China’s combined exports and imports rose 3.8 percent in the first ten months from a year earlier, the

KEY POINTS Oct exports +11.6 pct y/y, slightly above forecast Oct imports +4.6 pct y/y, weaker than expected Oct trade surplus US$45.4 bln, near record high Customs expects export growth to slow in next 2-3 months Trade ministry sees limited rebound in external demand in 2015

Canada signs China trade deals More than 20 commercial agreements signed between executives from both countries Andrea Hopkins and Megha Rajagopalan

anadian and Chinese companies have signed trade deals worth more than C$2.5 billion, despite continued tension over the detention of two Canadians near the North Korean border. Canadian Prime Minister Stephen Harper said the more than 20 commercial agreements signed between executives from both countries are expected to create more than 2,000 jobs in industries as diverse as aerospace, infrastructure, mining, energy and agro-food. He also raised the case of expatriates Kevin and Julia Garratt, held by China for suspected theft of military and intelligence information and for threatening national security. At a news conference following the bilateral meetings between Harper and Chinese Premier Li Keqiang, who sits on the elite politburo standing committee of the ruling Communist Party, Li said China respected human rights. “As for the case, I want to reiterate that China is a country ruled by law,

and is developing its legal institutions. The judicial authorities in China will handle the case in accordance with the law. At the same time the legal rights and interests of the people concerned will be protected,” Li said. Harper was silent on the sensitive Garratt issue during the news conference but a spokesman said later that he had raised the issue during his meeting with Li. In a speech earlier in the day to Canadian and Chinese business groups, Harper said Canada’s prosperity is rooted in both economic freedom and respect for the rule of law, democracy and human rights. The headline deal was an agreement between China’s and Canada’s central banks to a currency swap worth 200 billion yuan (US$32.67 billion) or C$30 billion. That will help set up a clearing bank, and allow the two banks to swap currencies if needed to ease trade and investment. The yuan clearing bank would be the first in the Americas, and

China’s Premier Li Keqiang (R) talks to Canada’s Prime Minister Stephen Harper during a signing ceremony at the Great Hall of the People in Beijing

US$32.67 billion currency swap agreement between China’s and Canada’s central banks

November 10, 2014

Greater China

IT agreement pending China’s decision

slows

Talks on the ITA during APEC come amid broader controversy over the future of regional free trade frameworks

administration said. That suggests China will miss its trade growth target for a third consecutive year. The government missed its targets of 8 percent in 2013 and 10 percent in 2012 and aims for 7.5 percent growth this year. A deluge of China data over the coming week, including factory output and investment, is likely to show a persistent cooling in the economy, reinforcing views that authorities may need to do more to fight slackening growth. China’s reform-minded leaders have refrained from acting forcefully, such as by cutting interest rates. That has caused concerns among some analysts that the modest policy measures may not be enough to prevent a sharper slowdown. Reuters

hina is part of “intensive” talks on a global trade pact regarding information technology products, the World Trade Organization’s chief said on Saturday, but it is unclear if a deal will be made at a meeting of Asia-Pacific leaders underway in Beijing. The United States and other countries have been hopeful that

China would sign on to the Information Technology Agreement (ITA), which requires signatories to eliminate duties on some IT products, during the AsiaPacific Economic Cooperation summit that ends on Tuesday. Washington has blamed China, the world’s biggest exporter of IT products, for derailing talks on an update to the 16 year old WTO pact on technology trade by asking for too many exemptions. Washington has warned that China must move ahead with the ITA or risk upsetting other trade talks, namely a U.S.-China bilateral investment treaty currently in the works. U.S. Trade Representative Michael Froman has said updating the deal would also give a boost to the WTO, which is facing its worst crisis in two decades. Trade experts say that the WTO

still has an important role as a forum for settling commercial disputes, but that role will be degraded and increasingly obsolete if its twodecade-old trade rules do not evolve. Critics have questioned why China, which has said it wants to help reinvigorate the WTO, so far has been resistant to the ITA. China has argued that a reduction in tariffs on some products would be unfair and that the agreement should take into account countries’ different stages of development. China’s Commerce Minister Gao Hucheng said at a separate briefing that officials had formally proposed a feasibility study on the Chinabacked Free Trade Area of the AsiaPacific (FTAAP), although it will still need approval from senior leaders next week. Reuters

What I know is that conversations are happening, they are intensive and my hope is that these negotiations would be concluded as quickly as possible Roberto Azevedo WTO chief

Silk Road infrastructure fund fuelled by US$40 billion allow Canadian financial institutions to use it to process payments for their customers in yuan. Harper said deals also included an investment agreement in the sustainable technologies sector between Canadian-owned Airborne China Ltd and Heilongjiang InterChina Water Ltd to cooperate on air pollution reduction projects in China. Canadian-owned Plasco China signed an agreement with Shougang Group to bring Plasco’s waste-to-energy technology to China. Canadian-owned Kryton International Inc and Beijing Maple Real Estate Company Ltd Group reached a deal to use Kryton International Inc.’s environmentallyfriendly waterproof concrete technology and products in the Chinese company’s development projects. Reuters

It was not immediately clear precisely how the fund would work

hina will contribute US$40 billion to set up a Silk Road infrastructure fund to boost connectivity across Asia, President Xi Jinping announced on Saturday, the latest Chinese project to spread the largesse of its own economic growth. China has dangled financial and trade incentives before, mostly to Central Asia but also to countries in South Asia, backing efforts to resurrect the old Silk Road trading route that once carried treasures between China and the Mediterranean. The fund will be for investing in infrastructure, resources and industrial and financial cooperation, among other projects, Xi said, according to Xinhua.

The goal of the fund is to “break the connectivity bottleneck” in Asia, state media quoted Xi as saying during a meeting in Beijing with leaders from Bangladesh, Cambodia, Laos, Mongolia, Myanmar, Pakistan and Tajikistan. The Silk Road Fund will be “open” and welcome investors from Asia and beyond to “actively” take part in the project, Xi was cited as saying, ahead of a separate summit of the Asia Pacific Economic Cooperation (APEC) grouping, also being held in the Chinese capital. It was not immediately clear precisely how the fund would work, when it would start operations or where it would be based, though in all likelihood it would be China.

But Xinhua said it would focus on China’s Silk Road Economic Belt and the 21st Century Maritime Silk Road initiative, which aim to build roads, railways, ports and airports across Central Asia and South Asia. China will also provide neighbouring countries with 20,000 places for training “connectivity professionals” over the next five years, Xi said. China has sought to address fears in the region - and globally that its bounding economic growth will inevitably bring about a more assertive, muscular diplomatic and military approach to issues such as territorial disputes. Reuters

November 10, 2014

Asia SGX launches inquiry arm Singapore Exchange (SGX) has set up a board of inquiry to investigate the power supply system malfunction which led to a three-hour trade halt in its securities market on Wednesday afternoon, local media reported yesterday, citing Deputy Prime Minister and Minister for Finance Tharman Shanmugaratnam. Tharman made the remarks while speaking after touring the Community Health Day at SATA CommHealth Jurong East Medical Centre, Channel NewsAsia reported. The official said SGX has appointed independent experts to look into several matters, including power supply and recovery processes.

Japan sees TPP agreement difficult report Economy Minister Akira Amari said on Saturday he saw progress in Asia-Pacific regional trade negotiations, although it would be difficult to reach an agreement by the end of the year, according to Jiji press. Trade ministers from the 12 nations participating in the Trans-Pacific Partnership (TPP) pact held talks on the side-lines of an annual Asia-Pacific Economic Cooperation Forum (APEC) meeting in Beijing. The regional trade pact was stalled in September, as the U.S. and Japan, the two biggest economies participating in the trade deal, blamed the other for a stalemate over tariffs on farm products.

Indonesia’s forex reserves rise Indonesia’s foreign exchange reserves rose to US$111.97 billion by the end of October from US$111.2 billion the previous month, Bank Indonesia said. Foreign reserves were supported by portfolio inflows, central bank deputy governor Perry Warjiyo said. The rupiah strengthened 0.37 percent during October against the dollar and closed at 12,080 per dollar. The rupiah traded at 12,170 against the dollar on Friday. Warjiyo expects even stronger inflows after the government decides on when it will raise fuel prices, seen as crucial to reducing the country’s budget and current account deficits.

Malaysia exports rise Malaysia’s exports in September rose 2.0 percent from a year earlier, supported by higher demand towards the year-end, government data showed. The rise was lower than the 2.70 percent median forecast in a Reuters poll. Imports were up 1.1 percent from a year earlier while the country’s trade surplus for the month came in at 9.3 billion ringgit (US$2.78 billion). Exports of the country’s mainstay electrical and electronic products grew by 5.3 percent. Exports of commodities such as palm oil and crude oil rose 15.8 percent and declined 9.0 percent, respectively.

Kuroda has provoked a monetary tremor with his surprising easing

Kuroda uses surprise to head off inflation forecast There were other triggers for action, including October’s plunge in oil prices

he Bank of Japan Governor not only surprised the markets with his latest splurge of monetary easing. He sprang it on his own board members just two days earlier, jolted into action to stop them making a low-ball forecast that might have sunk his flagship inflation target. To achieve maximum effect for the shock decision, Haruhiko Kuroda and right-hand man Masayoshi Amamiya kept only a handful of elite central bank bureaucrats in the loop as they laid the ground for the expansion of their quantitative and qualitative easing (QQE) programme. They didn’t even give the usual forewarning to senior bureaucrats at the Ministry of Finance, according to interviews with nearly a dozen insiders and government sources with

knowledge of the bank’s deliberations. No leaks reached the media, and the announcement at the Oct. 31 policy meeting pushed the Nikkei stock average to seven-year highs and the yen to seven-year lows against the dollar. The market reaction will have been welcome news to Kuroda, but the impact he wanted above all was to alter inflation expectations in a country that has struggled with crippling deflation for two decades. Timing was critical - and not of his choosing. At the policy meeting the board would also issue a new consumer inflation forecast for the next fiscal year, based on the median estimate from the nine members. But two days before publication, the preliminary estimate was only around

1.5 percent, three of the sources said. That was well below the 1.9 percent forecast made in July, and if published could have been fatal to his key goal of hitting 2 percent from April next year. Since price expectations play a key role in the consumer behaviours that ultimately determine prices, doubts about the target could be self-fulfilling. There were other triggers for action, including October’s plunge in oil prices and the fact that an easing burst would have more market impact in the week the U.S. Federal Reserve decided to turn its own liquidity taps off. But it was the inflation forecast that convinced Kuroda and his aides to go for another burst of stimulus, three sources said. Board members

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

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November 10, 2014

Asia APEC countries agree to establish network to curb corruption

In order to completely overcome the chronic disease of deflation, you need to take all your medicine. Half-baked medical treatment will only worsen the symptoms

The agreement commits the 21 member economies in the Asia-Pacific region, including China and the United States

Haruhiko Kuroda Bank of Japan Governor

would then have to revisit their estimates in light of the new action. It worked. They revised their forecasts to take account of the QQE injection, bringing the figure up to 1.7 percent, enough to keep Kuroda’s target within sight and perhaps drain the growing pool of doubters. Annual core consumer inflation was down at only 1 percent in September, prompting many to charge Kuroda with unfounded optimism. A Reuters poll of economists had forecast only 1.1 percent for the year to come. Though Kuroda won the vote, which will boost the BOJ’s government debt purchases by US$260 billion a year and triple its buying of risky assets, he also paid a price for the manner and haste of the decision: a board split almost down the middle.

KEY POINTS Kuroda aimed to influence preliminary board inflation estimate Decided on timing just a couple of days before announcement Launched secretive campaign to persuade board members Board split could make future decisions harder to achieve

sia Pacific countries agreed on Saturday to cooperate on the extradition of corrupt officials, enhance asset recovery efforts and establish an anticorruption transparency network to share intelligence on graft. The network, called the APEC Network of Anti-Corruption Authorities and Law Enforcement Agencies (ACT-NET), is the first such network that members of the Asia-Pacific Economic Cooperation group had worked to set up. It is led by China but also pushed forward by the United States. The network would be an informal one “for sharing information” among anti-corruption and law enforcement authorities in the Asia-Pacific region, according to a statement issued by the APEC members. The agreement commits the 21 member economies in the AsiaPacific region, including China and the United States, to “deny safe haven to those engaged in corruption, including through extradition, mutual legal assistance and the recovery and return of proceeds of corruption”. The agreement comes as Chinese President Xi Jinping seeks to widen

Because policy board members are barred from discussing policy without a quorum in a formal meeting, Kuroda sent BOJ bureaucrats as his emissaries to corral a majority for his easing plan, sources said. He knew he had the votes of his two deputies, and that there was no hope of winning over the board’s two market economists who have long expressed public doubts about QQE, especially Takahide Kiuchi, who wants the programme terminated in two years. So fierce lobbying focused on the board’s two former businessmen, Koji Ishida and Yoshihisa Morimoto. Despite frantic efforts, he failed to win them over. Worse, though they had rarely voiced open doubts about QQE before, their opposition would now become public. The sources said the swing voter was the hard-to-predict former academic Ryuzo Miyao, who took a long time to convince. One suggested Kuroda had let a genie of dissent out of the bottle, which could make future easing decisions more difficult to achieve. “Those who dissented this time may be inclined to dissent again if the BOJ were to ease further,” said the source. Takeshi Minami, chief economist at Norinchukin Research Institute and one of just four of the 19 economists who had correctly forecast the Halloween surprise in a Reuters poll, expects the bank will want to ease again in mid-2015. If so, Kuroda, whose determination to stay the course is unflagging, could well need Prime Minister Shinzo Abe to stack the BOJ board with reliable reflationists when Miyao’s term ends in March and Morimoto’s in June. Reuters

his far-reaching graft campaign to nab suspects who have fled abroad, particularly those who have taken their ill-gotten gains with them. Last month, China said it had captured 180 people suspected of committing economic crimes in its campaign called “Operation Fox Hunt”. “We believe that this cooperation is a major step forward,” U.S. Secretary of State John Kerry said at a news briefing. Western governments have balked at setting up extradition deals with China because torture is often used by Chinese legal authorities in extracting confessions, and capital punishment is widely meted out for corruption crimes. The agreement also said it would “establish measures and systems to protect whistle-blowers”. It is uncertain how the agreement would work among countries that do not have mutual extradition treaties. China has extradition treaties with 38 countries, but not the United States, Canada or Australia - the three most popular destinations for suspected economic criminals, according to state media. Reuters

CapitaLand’s profit rises CapitaLand has realigned its business to focus on its core markets of Singapore and China Pooja Thakur

apitaLand Ltd., Southeast Asia’s biggest developer, said thirdquarter profit rose 1.3 percent as finance costs declined and revenues increased from its mall businesses. Net income increased to S$130 million (US$100 million) in the three months ended September 30 from S$128.3 million a year earlier, the Singapore-based developer said in a stock exchange statement. Excluding profit contribution and stake sale gains from Australand Property Group, earnings would have risen 12 percent, it said. Revenue fell 4.3 percent to S$918.9 million. CapitaLand has realigned its business to focus on its core markets of Singapore and China after buying the rest of its mall unit to consolidate and boost returns. The two countries, the company’s main markets, accounted for 80.1 percent of the group’s earnings before interest and tax in the September quarter, it said. The company has seen an exodus of senior management over the past few months. Lim Beng Chee, the chief executive officer of CapitaLand’s mall unit resigned September 1. CapitaLand said in June the group’s deputy chief executive officer, Olivier

Lim, would leave. Wong Heang Fine, the Singapore residential head, left the company last month. Finance costs slid 11 percent to S$105.4 million in the third quarter, the company said. Singapore’s private home prices fell for a fourth consecutive quarter in the three months ended September, bringing the slide in the past year to almost 4 percent. That’s the longest losing streak since 2009, when the government started housing curbs that have included a cap on debt. Home prices need to drop further, Tharman Shanmugaratnam, Singapore’s finance minister, said in a speech on October 28, signalling the government may not reverse the curbs yet. CapitaLand’s China home sales declined 43 percent to 3,288 units in the first nine months to September, the developer said. Home sales in Singapore fell 79 percent to 237 units during the same period, it said. CapitaLand’s shares rose 1 percent to S$3.15 at the close of trading today, while the benchmark Straits Times Index fell 0.1 percent. The company reported earnings after the market close. Bloomberg News

November 10, 2014

International VEB plans new branch Russian state development bank Vnesheconombank plans to open a new branch in Hong Kong, where energy giants Gazprom, Lukoil and Rosneft are also looking to potentially list, Russia’s Economy Ministry said on Saturday. Russia is increasingly shifting its focus to Asian markets after Western sanctions this year targeted a number of Russian lenders and energy companies by limiting their access to funding over Moscow’s role in the Ukraine crisis. An unnamed official from Gazprom said in June that the company was in talks to add a listing in Hong Kong.

Egypt-Greece-Cyprus to boost cooperation Egypt, facing its worst power crisis in decades, on Saturday pledged greater energy cooperation with Greece and Cyprus, a diplomatic move that opened up the possibility of progress in talks to import natural gas from Cyprus. The meeting in Cairo between Anastasiades, Egyptian President Abdelfattah al-Sisi and Greek Prime Minister Antonis Samaras demonstrated deepening ties between the three states, who are challenging Turkey’s efforts to chart gas deposits in areas of the east Mediterranean claimed by Cyprus. The emerging alliance fits Egypt’s interests well.

Libyan protesters seize eastern oil port Libyan state security guards have started a protest at the 120,000 barrel per day Hariga oil port in the east, halting all oil exports from the terminal, a Libyan oil official said on Saturday. The closure only adds to the growing chaos in Libya, whose internationally recognised government has been driven out of the capital by an alliance led by forces from the city of Misrata, which has installed a rival government and parliament. The protesters at Hariga were part of a state security oil force that has gone on strike over pay several times this year.

SEC to double damages against Wyly The U.S. Securities and Exchange Commission will ask a federal judge to more than double the money Texas businessman Sam Wyly must pay from US$200 million to US$455 million for his involvement in an offshore fraud scheme, a lawyer for Wyly said on Friday. U.S. District Judge Shira Scheindlin in New York has already ordered Wyly and the estate of his late brother Charles to pay US$187.7 million plus interest to the SEC, which the regulator has said should total just under US$300 million.

LNG project to cost up to C$40 billion Royal Dutch Shell Plc., the lead partner in the consortium planning the LNG Canada facility on British Columbia’s northern coast, said on Friday the project to liquefy natural gas for export to Asia could cost as much as C$40 billion (US$35.3 billion) when fully complete. Shell’s cost estimate for the LNG Canada facility near Kitimat, British Columbia, was included in the environmental assessment filed with provincial regulators on Friday. The filing begins a 180-day review of the proposal but the company cautioned it and its partners have not yet decided whether to build the plant as it waits on regulatory approvals, a detailed cost estimate and lines up customers for the project’s natural gas.

Big Oil cutbacks deal supply-chain pain Brent crude prices have tumbled nearly 30 percent in the past five months

elt-tightening by big energy majors faced with plunging oil prices is battering the finances and share prices of their suppliers, as investors reassess the sector’s ability to keep gushing cash. A growing list of delayed or cancelled projects, seen by some investors as a healthy move by majors to rein in capital spend after a poor history of returns is working its way through corporate earnings; it has already pummelled the share price of some European suppliers seen as financially fragile. Fugro, once seen as a blue-chip on Amsterdam’s benchmark index, has had more than 30 percent of its stock-market value wiped out in a week since scrapping its dividend. It is seeing trade swings more suited to a small-sized firm: on Thursday its one-day gain was 28 percent. The worst of this volatility may yet be to come, analysts and fund managers warn, as the recent fall in oil prices - triggered by a supply glut as well as worries over cooling demand - and the delayed effect of capital-expenditure cuts keeps up the pressure on companies to plug balance-sheet gaps. “Oil services firms are like euro zone banks a few years ago. There’s a lot of damage in the sector and it could get worse before it gets better,” said Arnaud Scarpaci, fund manager at Montaigne Capital. And that in turn may tarnish the long-term appeal of an energy sector that has consistently been among the top dividend-paying industries since the financial crisis, representing around $41.6 billion in total pay-outs for the second quarter of 2014 alone, according to data from Henderson Global Investors. According to analysts at Nomura, Norwegian oil-drilling contractor Seadrill is one example of a firm that could fill an expected funding gap in 2015 by cutting dividends. Seadrill declined to comment. “Everybody’s concern is that we are in a deteriorating market (for suppliers),” said KBC analyst Dirk Verbiesen.

Oil slick Brent crude prices have tumbled nearly 30 percent in the past five months, to US$82 a barrel - a level not seen in four years, with some expecting the supply-demand mismatch to get worse. A recent Reuters poll of economists and analysts shows that Brent is seen averaging US$93.70 in 2015 and US$96.00 in 2016. This has caught oil majors, not just suppliers, off-guard - French group Total for example still uses US$100 per barrel in its projections - and is starting to seriously dampen their plans to ramp up investment. But oil majors by and large are bigger and more diversified than their suppliers, allowing them leeway to protect pay-outs. BP even announced a dividend increase last month. So while Fugro and peers like Petroleum Geo Services and CGG are facing these pressures with a net-debtto-EBITDA ratio of between 1.9 and 2.8, according to Reuters data, more diversified oil majors like BP and Royal Dutch Shell are at between 0.5 and 0.8. “The fall in oil prices is unlikely

KEY POINTS Crude prices sink 30 pct in 5 months, hit 2010 levels Hedge fund short sellers circle oil services shares Fugro stock down over 30 pct since scrapping dividend CGG posts 24 pct drop in revenues

to incite oil companies to invest in the short term...This has dragged down the oil-services sector but it has also been made worse in certain cases, including Fugro, by stretched balance sheets,” said Alain Parent, an analyst at Natixis in Paris. Reached for comment, Fugro said its business had “compelling long-term potential” but that it faced challenging mid-term market conditions as a result of spending cutbacks. It did however say that it might benefit from a new era of no-frills services by offering more standardised products. This week, France’s CGG posted a brutal 24 percent drop in quarterly

revenue as the group scrambles to reduce the size of its seismic survey fleet, while Norway’s Aker Solutions warned that oil companies could further delay major projects. Seeing blood in the water, hedge fund short sellers have been circling shares of oil services companies, with CGG, Fugro and Seadrill featuring among the most shorted stocks in Europe, with between 8 and 10 percent of their shares out on loan, according to Markit data. Hedge funds AQR Capital Management, Marshall Wace LLP, BlackRock Investment Management, Citadel Advisors and Oxford Asset Management feature among the funds with the biggest short positions on oil services shares, according to regulatory filings with European market regulators. Marshall Wace, Citadel and Oxford AM declined to comment, while officials for AQR and BlackRock were not immediately available. Officials from Petroleum GeoServices could not be reached immediately. A spokesman for CGG referred to comments made on Thursday by the company’s CEO Jean-Georges Malcor, who said the group has already made a lot of adjustments and cost cuts to cope with order cancellations and an oil price around $80. Montaigne Capital’s Scarpaci warned that sharp rebounds in prices like the ones seen on Thursday in a number of stocks could happen in the coming weeks, given the bearish consensus and the high level of short selling. Reuters

November 10, 2014

Opinion Business

wires

The economics of inclusion

Leading reports from Asia’s best business newspapers

THE NEW ZEALAND HERALD

Ricardo Hausmann

Director of the Centre for International Development and Professor of the Practice of Economic Development at the John F. Kennedy School of Government at Harvard University

Thousands of New Zealanders rallied in the streets against a contentious trade agreement. People in 17 centres around the country voiced their opposition yesterday to the Trans-Pacific Partnership Agreement (TPPA). New Zealand is one of 12 countries involved in negotiating an agreement for trade between partners. Trade Minister Tim Groser said yesterday it was looking like the agreement would be signed early next year. “Frankly, the Prime Minister and I both feel that we are probably more likely to get this done than not,” he said on TVNZ’s Q + A programme.

PHILSTAR The Philippines has received US$85 million worth of investment pledges for projects in Mindanao during a recent international trade fair and conference. According to the Department of Trade and Industry, the Philippines received the investment commitments during the 2nd BIMP-EAGA (Brunei-Indonesia-Malaysia-Philippines East ASEAN Growth Area) and IMT-GT (Indonesia-Malaysia-Thailand Growth Triangle) Trade Fair and Business Leaders’ Conference, organized by the Mindanao Development Authority (MINDA) held late last month in Davao. Including pledges made for other countries, the event cornered a total of US$132.26 million worth of possible investments.

THE JAPAN NEWS The government plans to start imposing income tax on latent profits on shares and other securities held by rich citizens who emigrate to other countries, Finance Ministry officials said. At the day’s meeting of the government’s Tax Commission, the officials said that the government will introduce a system to treat latent profits as income and levy tax on emigrating rich people when they leave Japan for settlement in other countries. In Japan, a 20 percent tax is imposed on capital gains, while there is no such tax in countries such as Singapore and Switzerland.

THE KOREA HERALD U.S.-based Excelerate Energy has signed an agreement to lead a floating liquefied natural gas (FLNG) project off the coast of Equatorial Guinea, which includes the key participation of South Korean shipbuilder Samsung Heavy Industries, according to Excelerate’s website, A statement dated November 6 said Excelerate Energy will act as the consortium’s leading contractor in the deal with London-based Ophir Energy to develop gas reserves in the Block R natural gas field west of Bioko Island. The company said it will partner with Samsung Heavy Industries and U.S. engineering company Black & Veatch.

any people find economic growth to be a morally ambiguous goal – palatable, they would argue, only if it is broadly shared and environmentally sustainable. But, as my father likes to say, “Why make something difficult if you can make it impossible?” If we do not know how to make economies grow, it follows that we do not know how to make them grow in an inclusive and sustainable way. Economists have struggled with the trade-off between growth and equity for centuries. What is the nature of the trade-off? How can it be minimized? Can growth be sustained if it leads to greater inequality? Does redistribution hamper growth? I believe that both inequality and slow growth often result from a particular form of exclusion. Adam Smith famously argued that, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” So why would growth not include people out of self-interest, rather than requiring deliberate collective action? It is well known that levels of income are dramatically different around the world. Thanks to more than two centuries of sustained growth, average per capita income in the OECD countries is just under US$40,000 – 3.3, 11.3, and 17.7 times more than in Latin America, South Asia, and Sub-Saharan Africa, respectively. Sustained growth has obviously not included the majority of humanity. What is less well known is that huge gaps exist within countries. For example, GDP per worker in the State of Nuevo León in Mexico is eight times that of Guerrero, while output per worker in the Department of Chocó in Colombia is less than one-fifth that of Bogotá.

Why would capitalists extract so little value from workers if they could get so much more out of them? The answer is surprisingly simple: fixed costs. Modern production is based on networks of networks. A modern firm is a network of people with different expertise: production, logistics, marketing, sales, accounting, human-resource management, and so on. But the firm itself must be connected to a web of other firms – its suppliers and customers – through multi-modal transportation and telecommunication networks. To form part of the modern economy, firms and households need access to networks that deliver water and dispose of sewage and solid waste. They need access to the grids that distribute electricity, urban transportation, goods, education, health care, security, and finance. Lack of access to any of these networks causes enormous declines in productivity. Just think of how your life would change if you had to walk two hours each day to obtain drinking water or wood for fuel. But connecting to these networks involves fixed costs. Before anyone can consume a kilowatt-hour, a litre of water, or a bus ride, somebody has to get a copper wire, a pipe, and

a road to their house. These fixed costs need to be recouped through long periods of use. If income is expected to be low (perhaps because of other missing networks), it does not pay to connect a firm or a household to the network, because the fixed costs will not be recouped. Growth is not inclusive because fixed costs deter markets from extending the networks that underpin it. Changes in these fixed costs have outsize effects on who is included. For example, the first telephone company started operations in 1878, while mobile phones are barely 25 years old. One might expect that the former would have diffused more than the latter, just because of the time advantage. Yet, in Afghanistan, there are 1,300 mobile phones for every landline. In India, there are 72 cell phone lines per 100 persons, but only 2.6 landlines. In fact, many Indians with mobile phones must defecate in the open because the median Indian does not have piped water in his house. In Kenya, where there are 50 mobile phones per 100 people, only 16% of the population has access to electricity. This reflects the fact that cell phone towers and handsets are much cheaper than pipes and copper wires, making it possible for the poor

So, a strategy for inclusive growth has to focus on ways of either lowering or paying for the fixed costs that connect people to networks

to pay the fixed costs. It is the fixed costs that limit the diffusion of the networks. So, a strategy for inclusive growth has to focus on ways of either lowering or paying for the fixed costs that connect people to networks. Technology can help. Clearly, cell phones have done wonders. Cheaper photovoltaic cells may enable remote villages to get electricity without the fixed costs of long transmission lines. Mobile banking may lower the fixed costs faced by traditional banks. But in other areas, the issue involves public policy. From its beginning in 1775, the US Postal Service was based on the principle “that every person in the United States – no matter who, no matter where – has the right to equal access to secure, efficient, and affordable mail service.” A similar logic led to the expansion of the interstate highway system. Obviously, all of this costs money, and it is here that priorities matter. Poor countries lack the money to connect every person to every network at once, which explains the huge regional differences in income. But too many resources are often allocated to palliative redistributive measures that address the consequences of exclusion rather than its causes. Countries such as Brazil, South Africa, Peru, Uganda, Guatemala, Pakistan, and Venezuela spend substantially more money on subsidies and transfers than on public investment to expand infrastructure networks, education, and health care. A strategy for inclusive growth must empower people by including them in the networks that make them productive. Inclusiveness should not be seen as a restriction on growth to make it morally palatable. Viewed properly, inclusiveness is actually a strategy that enhances growth. Project Syndicate

November 10, 2014

Closing China, Indonesia agree on greater cooperation

Indian Prime Minister Modi expands cabinet

China and Indonesia will enhance cooperation particularly in areas of maritime development and infrastructure, the two countries’ presidents agreed yesterday. President Joko Widodo’s (pictured left) proposal to build Indonesia a maritime power and Chinese President Xi Jinping’s initiative of the 21st Century Maritime Silk Road conform to each other to a very high extent, according to Xi, who met with Joko Widodo in Beijing. Joko Widodo said Indonesia supports the establishment of the Asian Infrastructure Investment Bank (AIIB), and hopes it can join the project at an early stage.

Modi (pictured) yesterday on rejigged his Cabinet, inducting 21 new ministers, in his first major expansion since assuming office in May this year. The new entrants to Modi’s Cabinet were administered the oath of office by Indian President Pranab Mukherjee at Rashtrapati Bhavan, his official residence at the heart of the national capital. Among the 21 new Ministers, four are cabinet ministers while the rest are junior ministers, some with independent charge. The four cabinet ministers include Manohar Parrikar, the former Chief Minister of the western Indian state of Goa, who is likely to become the new defence minister.

Kerry meets Chinese CEOs Kerry’s meeting highlights the growing importance of Chinese companies as they move from being suppliers to investors

US Secretary of State John Kerry (L) next to US Trade Representative Michael Froman (R) at the start of the Asia-Pacific Economic Cooperation (APEC) Summit yesterday

etween discussing Ukraine with Russia’s foreign minister in Beijing and flying to a meeting on Iran’s nuclear program, U.S. Secretary of State John Kerry took time to meet with some of China’s biggest investors in the U.S. Among the executives at the meeting in Beijing yesterday was Lenovo Chief Executive Officer Yang Yuanqing, who last month closed US$5 billion in asset purchases

from U.S. companies. A photograph of the group Yang posted to his Twitter account also featured China Petrochemical Corp. Chairman Fu Chengyu, Dalian Wanda Group Chairman Wang Jianlin and Xiaomi Corp. Chief Executive Officer Lei Jun. Kerry’s meeting highlights the growing importance of Chinese companies as they move from being suppliers to investors. Last year was the first time Chinese investment in

the U.S. exceeded U.S. investment in China, with President Xi Jinping today signalling more is to come when he told a gathering of executives in Beijing that China will invest US$1.25 trillion abroad over the next decade. “Participated in a round table with John Kerry to discuss ways to strengthen global relationships and build more trust,” Yang said in his Twitter post, without elaborating. Kerry, in Beijing for meetings of the

Asia-Pacific Economic Cooperation forum, gathered with the executives after meeting Russian Foreign Minister Sergei Lavrov, Australia Foreign Minister Julie Bishop and Indonesian Foreign Minister Retno Marsudi. The investments Lenovo completed last month include the US$2.91 billion purchase of Motorola Mobility from Google Inc., and the US$2.1 billion purchase of International Business Machines Corp.’s low-end server unit. With the purchase of Motorola, Lenovo will look to expand smartphone sales in developed markets such as the U.S., Yang has said. China Petrochemical, also known as Sinopec, agreed in February 2013 to pay US$1.02 billion for a 50 percent stake in Chesapeake Energy Corp.’s Mississippi Lime assets. The assets, located in Oklahoma, were producing 46,000 barrels of oil a day at the end of 2012. Also in 2012, Wanda bought AMC Entertainment Holdings Inc., the secondlargest U.S. cinema chain, for $2.6 billion including debt. That made Wanda the largest theatre owner in the world. Xiaomi overtook Lenovo as the world’s third-largest smartphone maker in the third quarter behind Samsung Electronics Co. and Apple Inc., International Data Corp. announced last month. Xiaomi is expanding in 10 markets outside of China this year, Lei has said. The company hasn’t announced plans to sell phones in the U.S. According to the U.S. State Department, other executives who attended included Robin Li from Chinese search engine Baidu Inc., WH Group Chairman Long Wan, Tianjin Pipe Group Corp. Chairman Liu Yunsheng and Alibaba Group Holdings Ltd. Chief Executive Lu Zhaoxi. A few hours after meeting the executives, Kerry flew to Oman for meetings with Iranian Foreign Minister Mohammad Javad Zarif and European Union foreign policy chief Catherine Ashton.

Abbott says G20 summit won’t be a talkfest

HK-SHG link start date to be given soon

Formosa to invest US$2.0 billion in US

ustralian Prime Minister Tony Abbott yesterday vowed that the G20 leaders’ summit this week “won’t be a talkfest” as he hailed the economic meeting as the most important ever held in his nation. Abbott reiterated that the forum, which will see the leaders from 20 of the world’s biggest developed and emerging economies gather in Brisbane on November 15 and 16, was resolute in its aim to lift growth. “We have a very clear goal -- to boost global economic growth by two percent above what is currently expected over the next five years,” Abbott said in a statement yesterday. “All the countries of the G20, including Australia, will be detailing their growth strategies at this summit. “It won’t be a talkfest. It’s an economic summit –- so it will focus on what can be done to create jobs, identify tax cheats and improve the world economy.” Australia has sought to make economic growth the G20’s top priority. AFP

he start date for the planned trading link between the stock markets of Hong Kong and Shanghai will be given soon, Hong Kong’s chief executive said after meeting President Xi Jinping. “I can share good news with you here,” Leung Chun-ying told reporters in Beijing. “Related authorities will announce a formal launch date in the near future.” China is counting on the bourse link, which will allow a net 23.5 billion yuan (US$3.8 billion) a day in cross-border purchases, to help liberalize its financial system and increase use of the nation’s currency. Regulators have signalled that work has been completed for the trading link. Hong Kong Finance Secretary John Tsang said in his blog today that the city has basically finished preparations, while Shanghai Securities News cited China Securities Regulatory Commission Vice Chairman Yao Gang on October 30 as saying the arrangements were in their final stages. “The central government attaches great importance to and supports the Shanghai-Hong Kong Connect,” Leung said. Bloomberg News

Bloomberg News

aiwan’s petrochemical giant Formosa Plastics Group plans to pour another US$2 billion into its US investment projects as part of efforts to profit from North America’s shale energy revolution, local media said yesterday. The investment was spurred by cheap supplies of natural gas, Wang Wen-yuan, director of the group, said at the group’s annual sports day event on Saturday, according to the Economic Daily News and Apple Daily. The ethylene produced from shale gas costs only around US$300 per tonne, compared with $900 per tonne from oil, he was cited as saying. Ethylene is an organic compound widely used in chemical industry. Plants will be set up to produce ethylene glycol (EG), a chemical compound widely used in the production of polyester fibres, and high-density polyethylene (HDPE), a chemical material used in manufacturing plastic bottles and corrosionresistant piping, Wang said. A power plant that uses waste heat to generate power will also be established, he said. AFP