Macau Business Daily, Dec 3, 2014 by Business Daily

MOP 6.00 Closing editor: Joanne Kuai Publisher: Paulo A. Azevedo Number 680 Wednesday December 3, 2014

Feast to famine

Year III

he worst has yet to come. As at November, Macau gaming revenue had plummeted for six consecutive months. According to our calculations, the crisis could cost the government a pretty penny. If the slowdown continues until mid-2015, as predicted, MOP20 billion will be lost in direct gaming taxes. Meanwhile, the SAR’s GDP dropped 2.1 per cent in Q3. A similar hit in Q4 would push Macau into recession PAGE

Tigerair to offer promotional tickets to Macau for MOP23

Public disclosure of assets

PAGE 5

China’s Summergate bought by Woolworths Liquor Group

A bulging property portfolio. Transport and Public Works Secretary-elect Raimundo Arrais do Rosário owns 23 properties according to his officials’ asset declaration. Meanwhile, incoming gaming policy czar Lionel Leong has declared the transfer of shares of multiple companies ahead of the cabinet reshuffle. The top tier of government officials have 90 days to declare their assets upon assuming a new post

PAGE 7

Citigroup expects to double digital-banking users in Asia PAGE 13

PAGE 3

Cat on a hot tin roof

HSI - Movers December 2

Name

%Day

Ping An Insurance Gr

6.09

China Life Insurance

5.85

COSCO Pacific Ltd

4.65

Bank of Communicatio

4.61

Bank of China Ltd

4.09

China Mengniu Dairy

-0.66

Swire Pacific Ltd

-0.85

Cathay Pacific Airwa

-1.47

China Resources Powe

-1.80

Sands China Ltd

-2.75

Source: Bloomberg

I SSN 2226-8294

Chinese developers will get only marginal relief. From the sector’s biggest headaches - too much unsold stock and tight liquidity. The force of the cut will also be feeble. Because bank lending to the property sector is in the doldrums

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PAGE 8

Manuel Cardoso passes away aged 66 Photographer Manuel Cardoso passed away yesterday in Macau at the age of 66. Mr. Cardoso was born on 19 February 1948. As a photographer, he had worked for the Portuguese language newspapers Gazeta Macaense, Clarim, Notícia de Macau throughout the years. He also worked

for the Centre for Information and Tourism and for the Government Information Bureau (GCS). In 1985, Portuguese Governor Almeida e Costa awarded him the Medal of Professional Merit. After putting his career in photography on hold for almost 20 years, Manuel Cardoso returned to work for the English newspaper Macau Daily Times. He was also a regular contributor to Business Daily and Macau Business. At this time, we at Business Daily extend our heartfelt condolences to Manuel Cardoso’s family.

2014-12-3

2014-12-4

2014-12-5

13˚ 17˚

11˚ 14˚

12˚ 16˚

2 | Business Daily

December 3, 2014

Macau

Gaming crisis to cost government two months’ tax The numbers are staggering. From June of this year until next summer, the gaming industry will likely lose MOP60 billion in revenues, and the government MOP20 billion in taxes, with Macau’s economy headed for recession for four straight quarters Luís Gonçalves

Luis.goncalves@macaubusinessdaily.com

he crisis was expected to last just two to three months but is likely to drag on for a full year putting Macau’s economy in its longest recession since the handover 15 years ago. Gaming revenues here have dropped for six straight months as at November (a 19.6 per cent decrease year-on-year) and investors are expecting the slowdown to last until June 2015. The biggest crisis since gaming liberalisation will weigh heavily on casinos, the government, and the economy here. According to Macau Business Daily calculations using official data and estimations by analysts, the gaming industry will lose MOP60 billion in revenues and the government MOP20 billion in direct gaming taxes from June 2014 to June of next year. For a casino-dependent economy like Macau the effects are the same: four straight quarters of recession. As in every single-resource economy, one day you’re growing 10 per cent, the next you’re in a 4 per cent recession. Macau’s Gross Domestic Product dropped 2.1 per cent in the third quarter year-on-year after the export of gaming services decreased by 12 per cent due to a decline of 7 per cent in casino revenues during that quarter. Even with investment jumping 35 per cent, the economy failed to register positive growth showing how deep the level of dependency on gaming is. But the worst has yet to come.

Macau is likely to enter recession in the last quarter of the year – a recession is defined as GDP decreases for two consecutive quarters.

Recession According to market estimations, after declining 7 per cent in the third quarter, gaming revenues will likely drop 20 per cent this quarter, 22 per cent in the first quarter of 2015 and 12 per cent in the second quarter of next year. In the end, casino revenues will decrease an average 15 per cent between June 2014 and June 2015 compared to the previous 12 months. If Macau’s GDP declined 2.1 per cent after gaming revenues decreased 7 per cent even with investment up 35 per cent, it is very likely that with revenues from casinos declining at the double the economy will contract even further. If the contributions to economic growth are similar to those in the third quarter (investment partially compensating for the drop in export of gaming services) the GDP of Macau could go down on average 4 to 5 per cent in each of the next three quarters. Until June this year, when gaming revenues started to decline, Macau’s economy had grown non-stop at an average 10 per cent every quarter since 2013. In the first quarter of 2014, for example, GDP rose 12.4 per cent, making it one of the world’s biggest economic growth stories.

For the gaming industry and the government the crisis will cost more than two months in revenues and taxes. The big six operators here will see revenues slashed by MOP60 billion, while authorities will be MOP20 billion lighter in taxes, around 8 per cent of Macau’s GDP.

Black November Using official data from the Gaming Inspection and Coordination Bureau (DICJ) and the most recent estimations from Morgan Stanley (published in November), gaming revenues in Macau will reach MOP323 billion in the 12 months ending June 2015. If market predictions are correct, this will mean a decrease of 15 per cent in revenues compared to the previous year (June 2013 to June 2014) when casinos here pulled in MOP382 billion from patrons. That’s also MOP60 billion less in revenues for the gaming companies here and for the government around MOP20 billion less in taxes (authorities charge 35 per cent of gaming revenues in taxes). Or in other words, the gaming crisis in Macau (if it lasts for 12 months) will cost two months of operations to casino here (overall Macau market makes around MOP30 billion each month in revenues) and the government two months’ taxes (authorities collect on average MOP10 billion every month in direct gaming taxes).

Full year gaming crisis in Macau Gaming revenue growth ( year-on-year) PERIOD

VAR.

3Q 2014

-7

4Q 2014*

-20

1Q 2015*

-22

2Q 2015*

-12

AVERAGE

Source: Morgan Stanley * Estimation

Gaming Revenues PERIOD

TOTAL

3Q 2013 to 2Q 2014

382

3Q 2014 to 2Q 2015

323

Source: DICJ/Morgan Stanley Value: MOP billion

November was not the worst month of the year, it was the second worst – In October, gaming revenues decreased 23 percent. But last month, casinos here amassed for the first time since 2012 less than MOP25 billion in gaming revenues, a warning signal that the bottom is still ahead.

Business Daily | 3

December 3, 2014

Macau

Rosario holds most residential assets amongst peers Meanwhile, the Secretary for Economy and Finance-elect Lionel Leong declared the transfer of shares of his companies to third parties because of the imminent cabinet reshuffle Stephanie Lai

sw.lai@macaubusinessdaily.com

f the five new Secretaries to assume office in December following a major reshuffle, the veteran engineer and Transport and Public Works Secretary-elect, Mr. Raimundo Arrais do Rosário, appears to own the biggest number of properties when compared to the rest of the Secretaries-elect, information about the officials’ asset declaration shows. Mr. Rosário, currently the head of the Macau Economic and Trade Representative Office at European Union in Brussels and in Lisbon, owns five residential units and 18 buildings – a number that far exceeds the four other Secretaries-elect (see table) and also the incumbent public works Secretary Lau Si Io, who owns four residential units, officials’ asset data disclosed on the local court website reveals. The public works Secretary-elect, who vowed on Monday that he would prioritise the city’s public housing policy and transportation issues as urgent tasks, was long engaged in the public works domain during the Portuguese administration before leaving the civil service to work in the civil engineering sector for a decade starting in 1990. That made Mr. Rosário the only new top aide that has been close to the city’s business circle aside from the Secretary for Economy and Financeelect Lionel Leong Vai Tac, who is an incumbent Executive Council member and boss of commercial linen laundry business Smartable Holding Ltd that serves the casino resorts here. Similar to incumbent Secretary for Economy and Finance Francis Tam Pak Yuen, who was engaged in the manufacturing business here before serving as the city’s top official, Mr. Leong was also in the garment manufacturing business before shifting to running a uniform cleaning service. At the press briefing on Monday, Mr. Leong confirmed that he was exiting the ownership of the companies he runs here by transferring his shares to other parties as the assumption of the top aide post requires he refrain from all private interests. The officialelect briefly told media that he would transfer the shares of his companies to a family trust he was going to establish. Local Portuguese-language newspaper Ponto Final first reported on Friday that Mr. Leong has been transferring the shares of his companies Seng San Enterprises Ltd, Seng San Garment Factory Ltd as well as Smartable Holding Ltd to four British Virgin Islands-incorporated companies. “Just like Mr. Francis Tam, Mr. Leong is not exactly a very big business owner, whose share transfer arrangement to us is not a pressing

*The information is extracted from the asset declaration database on the official website of the local courts. The asset status noted above was filed by the officials last year following the implementation of the amended asset declaration law, which is pending for a compulsory update when they take on the secretaries' posts.

issue,” pro-democrat legislator Au Kam San remarked to us. “What we would hope for in this new official is that . . . he try to strike a balance between the development of the casino industry here, while paying close attention to the diversification of the economy here, and looking at the needs of small and medium enterprises.” According to the amended asset declaration law that was put into effect last year, Macau’s top officials have to make their current asset status public within 90 days following the assumption of a new post, a renewal of office or upon a change in the civil service salary index exceedeing 85 points (equivalent to 6,290 patacas or US$787 at current level). The law applies to the Chief Executive, the Secretaries, legislators, judicial officers, Executive Council members, directors of the offices and the chiefs of the autonomous bodies here, such as Macau Post Savings, Pension Fund and Monetary Authority. The asset status made public includes properties owned, including land and number of residential units, the locations of which officials are not obliged to disclose; the information also includes the share ownership of the official in a company and positions in non-profit organisations.

Alexis Tam Chon Weng

Raimundo Arrais do Rosário

(to assume Secretary for Social and Cultural Affairs) * incumbent Government Spokesperson Residential units owned 5

(to assume Secretary for Transport and Public Works) * incumbent head of the Macau Economic and Trade Representative Office at European Union in Brussels, and in Lisbon

Parking spaces 3

Residential units owned 5 residential units; 18 buildings

Sonia Chan Hoi Fan

Ho Veng On

(to assume post as Secretary for Administration and Judicial Affairs) * incumbent head of Personal Data Protection Office

(to stay in office as Audit Commissioner)

Residential units owned 3

Parking spaces 4

Residential units owned 6 residential units; 1 shop space

Parking spaces 2

Lionel Leong Vai Tac (to assume post as Secretary for Economy and Finance) * incumbent Executive Council member Residential units owned 1 (in UK; inclusive of a parking lot) Parking spaces 1 Position in company / Stakes owned Principal of Seng San Garment Factory Ltd 80% (initial capital: MOP200,000) President of Seng San Enterprises Ltd 10 % (initial capital: MOP200,000) Chairman of Smartable Holding Ltd 75% (initial capital: MOP10 million) Principal of ADD GRAND LTD 50% (initial capital:US$50,000) Shareholder of ‘’Macau Holdings Ltd’’ (澳門控股有限公司) 90% (initial capital: MOP100,000)

Wong Sio Chak

André Cheong Weng Chon

(to assume Secretary for Security) * incumbent director of Judiciary Police; deputy prosecutor

(to assume post as Commissioner Against Corruption) * incumbent director of Legal Affairs Bureau

Residential units owned 2 Parking spaces 2

Residential units owned 2 units in Macau and 2 units in mainland China

4 | Business Daily

December 3, 2014

Macau opinion

Season’s greetings

José I. Duarte Economist

mong the various government institutions – the word is used here in its widest sense – the Commission of Audit (CA) occupies a special place. It performs a critical role even if, most of the time, it is not entirely visible. In broad terms, it has to audit and validate the execution of the public budget and to monitor the general law compliance and economic efficiency of the usage of public money. Its reports open windows on the actual workings of the administration, and provide guidance to improve the execution of public resources. If anything, one may regret the impression that some of its conclusions and recommendations do not always seem to have been taken to heart by the departments concerned. Although the language used is, as a rule, measured, the implications of many of the conclusions reached and statements produced are not. Let us look into a few examples, picked up from among the various reports published and relating to big infrastructure works, as their very visibility and budgetary significance will help readers to put the issues in context. In May 2011, the CA published a report on the first phase of the Light Rail Transportation System (LRT). It makes startling statements: between 2008 and 2011, ‘almost 90 % of the award of [contracts] had no money at all in their budget by the time they were awarded’. Besides, they were awarded without any consultation or tender procedure, ‘directly with one supplier (…) ignoring whether there [were other] suppliers suitable for the service’. Moreover, the department in charge could neither ‘compile a reasonable budget or [keep] the execution within an acceptable deviation’ nor ‘set up a mechanism whereby performance [could be] assessed’. Among several recommendations, the CA included that ‘budgetary estimation should be based on enough, true and factual information’ and that budget execution ‘should comply strictly with [the] laws and regulations applicable to public finance management’ [sic]. In September 2012, a second report was published insisting on the need to ‘estimate financial resources according to the approved ‘conditions and specifications’, as well as the need to set up ‘an oversight mechanism’ for the execution of the works. Jump to July 2012 and to the Pac On ferry terminal. The CA notes that the decision to expand the terminal was taken, apparently, without any solid studies or analysis concerning future needs. As the CA puts it, although ‘the modifications made to the project increased significantly the scale and capacity of the future Pac On Terminal’, those changes did not take into account the impact of other infrastructure developments – for instance the new bridge to Hong Kong – or the possible ‘benefits of a phased building and operation’. On these matters, the Commission reminds the administration that ‘basic management principles suggest the first task to accomplish in a project is the definition of its purpose, need and objective’ [sic]. More recently, on the Cost Estimation for Macau University’s New Campus, the CA notes that the only budget ever made, and published in April 2010, amounted to 5.8 billion patacas. However, in November 2011 the government signed a building contract ‘capped at 9.8 billion’ and in March 2012 the actual cost ‘already exceeded 10.2 billion’. Although the report dates from January 2013, no further update is provided there. The auditors noted that as many as 57 additional ‘related works’ were not included in the original budget, and that only three of those were considered in the contract signed in 2011. Furthermore, ‘the unit price references used to estimate the funds needed were unsuitable’, as they related to buildings whose characteristics did not ‘match those projected for the campus’ and used Macau prices for works made in the mainland. Consequently, the figures ‘could not be used’ to monitor the execution and such ‘deficient estimates jeopardised an effective allocation of public resources’. For anyone, these facts and recommendations – not to mention their persistence over time - are, at the very least, confusing. For those familiar with the legal principles and rules applicable to public funds they are absolutely bewildering. Future Secretary for Public Works! Sincerely, we must wish you all the luck you can muster.

Controlling number of vehicles requires good public transport ‘Cost-increasing’ policies were suggested by the Transport Bureau head last week to control the number of vehicles in the city. The industry feels okay with such polices as long as the government pays more effort to improving the public transportation service Kam Leong

kamleong@macaubusinessdaily.com

irector of the Transport Bureau, Wong Wan, proposed last Sunday controlling the growth rate of vehicle numbers in the city at 4 per cent or below in 2020 by using several means to increase the cost of keeping a vehicle. Macau Motor Traders Association, however, perceives that once the Bureau can improve the public transportation services, the number of vehicles will certainly drop, although they agree with Mr. Wong’s idea. “There is room for the Bureau to improve the transportation service. The shortage of public transportation services, such as taxis, which are currently not enough or not mainly serving general residents, leads many residents to prefer buying vehicles of their own. If the public transportation service is good, many residents may not consider keeping a car,” the president of the Association, Patrick Tse Ka Ming, told Business Daily in a phone interview yesterday. On Sunday, Mr. Wong revealed that the government is considering increasing the cost of keeping a vehicle by hiking the related taxes on vehicles, amending the mandatory

vehicle inspection from once a decade to once every eight years, in addition to increasing the fares for public car parks in busy districts of the city. Mr. Tse revealed that the industry believes these ‘cost-increasing’ polices may be effective. Despite the Bureau not giving details of the increase in related taxes, the Association president believes that by increasing the cost of keeping a vehicle, residents may pause to think whether they can afford it. In addition, Mr. Tse indicated that increasing the fees of public car parks is necessary following inflation in Macau. Meanwhile, he expects the policy of shortening the period for mandatory vehicle testing will bring more than one benefit. “The shortened period will make vehicles on the road more secure and more protective for road users,” Tse said, adding residents may more easily abandon their old vehicles if the cost rises. Mr. Tse claimed that despite the industry preferring the government not doing anything to control the number of vehicles on the road, it concedes that “things that have to be

done have to be done for the overall development of society”. He said these possible new polices may excite the second-hand vehicles market yet will not overly affect the new vehicles market. Mr. Wong said last Sunday that the amendment of the mandatory vehicles examination period is expected to be implemented at the beginning of 2016 following evaluation. Meanwhile, the government will continue taking the related regulations of other cities as references to gradually shorten the period. Currently, in Hong Kong, vehicle owners have to take their vehicles for examinations every seven years while those in Singapore and Japan have to have their vehicles inspected every three years. Meanwhile, during the first three quarters of the year, the total licensed motor vehicles in Macau had already increased by 5 per cent year-on-year, totalling 236,334, according to official data released by the Statistics and Census Service (DSEC). Some 52 per cent of vehicles in the city are motorcycles, while 41 per cent are light private cars.

Business Daily | 5

December 3, 2014

Macau

Over 170 violations of Cultural Heritage Protection Law A total of 177 cases of breaches of the Cultural Heritage Protection Law have been registered in Macau since August last year, when it came into effect, the Cultural Heritage Council revealed yesterday João Santos Filipe

jsfilipe@macaubusinessdaily.com

ince August last year, when the Cultural Heritage Protection Law came into effect, a total of 177 violations have been reported, said the Cultural Heritage Council yesterday during a press conference in the Cultural Affairs Bureau. Of the total cases, 26 resulted in the suspension of construction works due to different reasons, such as the carrying out of works without the required licences. There were also four cases of violation of the suspension penalties. During the 5th Plenary Meeting of the Cultural Heritage Council the application of the worship practice of Tu Di Gong (Earth God) as Intangible Cultural Heritage was also discussed.

“There are around 170 places to worship Tu Di Gong. This practice has been transmitted to the younger generation and it is widely popular in Macau. We think it may be the

time for this application”, Lam Fat Iam, a member of the Cultural Heritage Council, said. The meeting also discussed the legal framework of the Plan for the Preservation and Management of the Historic Centre of Macau. An ongoing public consultation on the topic runs until 8 December. “We discussed some opinions concerning the control of visitors and traffic in the area, measures concerning advertising billboards and levels of pollution”, Cheong Cheok Kio, head of the Cultural Affairs Bureau’s Cultural Heritage Council, said. “We’re hoping to have the results of this public consultation released during the first quarter of next year”, he added.

Tigerair’s Macau-Taiwan flight tickets on sale today

ow-cost carrier Tigerair Taiwan is officially opening sales at noon today for its Macau-Taiwan routes. The joint venture between Taiwan’s China Airlines and Singapore’s Tiger Airways is scheduled to launch its Macau-Taipei routes on December 17 while the Macau-Kaohsiung route will commence the day after. Celebrating the launches of its new routes between Macau and the major Taiwan cities, the airline is offering 5,000 NT$88 tickets (MOP23) excluding tax. Tigerair will offer seven round-trip flights between Macau and Taipei Taoyuan International per week. The frequency will be increased to 10 a week from February 1. Meanwhile, three round-trip flights are offered by the airline per week between Macau and Kaohsiung.

6 | Business Daily

December 3, 2014

Macau Brought to you by

HOSPITALITY

Chow Tai Fook profits plunge 23pct The jewellery retail company’s revenues also decreased to HK$29.3 billion but the company’s chairman remains optimistic sales will increase in 2015 Sara Farr

sarafarr@macaubusinessdaily.com

Consolidating trends Visitors to Macau, in October, increased by almost 10.9 per cent, when compared to the same month last year. This was the highest value for the monthly homologous rate for the last 16 months. Since June 2013, when the equivalent rate stood at 10.4 per cent, that figure was running in single digits. Some worrying figures, however, are those showing that growth hinges increasingly almost exclusively on the growth in the number of mainland visitors. While their number rose by more than 310,000 in the period, the total number of visitors rose by a lesser figure, standing very close to 260,000 people. That is, all other destinations combined posted a loss of about 50,000 people. The losses are led by the next two main sources of visitor, with a combined reduction of more than 45,000 visitors. Hong Kong, following an almost continuous declining trend, lost close to 6.5 per cent of its visitors, while the Taiwanese figure went down by 11.5 per cent. All remaining regions of origin are holding with difficulty, recording a 2.1 per cent drop in the period.

40.9pct same-store sales drop in HK, Macau, Taiwan

The chart makes those trends clear. Note that, for convenience, the strong seasonality of the data, that might unnecessarily complicate the plots for the purpose here, was smoothed using a 3-month moving average. China is neatly ahead, in both absolute figures and relative growth. More than that, the figures suggest an increasing reliance on same-day visitors. In fact, for all the main origins, same-day visitors outnumber overnighters. The latter are in decline in the case of Hong Kong. The other sets displayed, same-day visitors for Hong Kong, and same-day and overnight visitors from Taiwan, are virtually stationary. As a result, China’s share of total visitors was the highest ever.

68.7%

SHARE OF MAINLAND OF TOTAL VISITORS, OCTOBER

how Tai Fook Jewellery Group Ltd posted a profit drop of 23.3 per cent to HK$2.7 billion in the first half of 2015, the company announced in its interim report filed with the Hong Kong Stock Exchange yesterday morning. Companies have different financial years and that of Chow Tai Fook refers to the 12 months from April. As such, the company’s first half of the year refers to the six months between March 31 and September 30. Regardless, the world’s largest listed jeweller said its revenues for the period also decreased by 22.4 per cent to HK$29.3 billion. Same-store sales also decreased by 31.2 per cent overall, while that of their Hong Kong, Macau and Taiwan segment dropped 40.9 per cent, and

that of the mainland China market dropped 20.4 per cent. Revenue by geographical area shows that the mainland China market accounted for 58 per cent of the total, while the Hong Kong, Macau and Taiwan segment accounted for 42 per cent. This is a slight decrease for the latter markets compared to the same period last year, where Hong Kong, Macau and Taiwan accounted for 48.6 per cent of the overall revenue, while mainland China accounted for 51.4 per cent. The decline in revenue was mainly due to the “high base effect resulting from robust gold product sales following a sharp decrease of international gold price during the same period last year,” the company’s chairman Henry Cheng Kar-Shun

said. Gross profit margin, however, increased “attributable to the improvement in product mix resulting from the normalising demand for gold products and a steady growth of gem-set jewellery sales,” he added. Mr. Cheng also said his company expects the trend of “unfavourable operating environment” to continue but is “prudently optimistic” about the next six months. “Sales in the second half of the financial year are usually better as this six-month period is a traditional peak retail season thanks to the shopping sprees at traditional festivals and various celebratory occasions,” Mr Cheng added. The Chinese New Year will likely spike up sales of traditional gold products related to the Chinese zodiac animal products in 2015. “[It’s] the Year of the Sheep, an auspicious animal in the Chinese tradition,” Mr. Cheng said as the reason for the increase in sales. In addition, the sales of “fashion jewellery and youth line products will grow both online and offline as the increasing number of young customers, who form a large portion of online shoppers, will boost the demand for jewellery,” Chow Tai Fook’s chairman added.

EEH buys HK$14.1bln-worth of new EGT shares

GT Entertainment Holding Ltd (EEH) has bought 26 million new shares of common stock in Entertainment Gaming Asia Inc. The announcement was made in a filing with the Hong Kong Stock Exchange by Melco International Development, of which EGT Entertainment Holding Ltd is a wholly owned subsidiary. According to the filing, the new EGT shares comprise 10.6 million

new EGT shares subscribed by EEH pursuant to the full exercise of its basic subscription right and 15.5 million new EGT shares subscribed by EEH pursuant to the exercise of its over subscription right. With each share valued at US$0.54, the 26.1 million new shares were purchased for a total of US$14.1 billion (HK$109.3 billion). Prior to subscribing to the new stocks, EEH owned 11.5 million

shares of common stock in EGT, representing 38 per cent. Now, with the rights issue completed on November 26, EEH owns 37.5 million shares of common stock in EGT, representing 64.8 per cent. As a result of the share subscription, EGT has now become a subsidiary of EEH and therefore of Melco International Development. S.F.

Business Daily | 7

December 3, 2014

Macau Guangdong-Macau TCM Technology Industrial Park confirms design proposal The design proposal of the main building of the Guangdong-Macau Traditional Chinese Medicine Technology Industrial Park was announced earlier this week. The design of a United Kingdom and Mainland China consortium – Aedas Limited and China Huaxi Engineering Design & Construction Co Ltd. won the bid. The construction of the main building of the Park is slated to start in 2015, while the parties will try to complete construction by the end of 2016. The park occupies a total of 500,000 square metres and is funded by Macau Investment and Development Limited and Zhuhai Da Hengqin Investment Co., Ltd.

Iao Kun to buy smaller junkets in Macau The gaming promoter saw revenues from its VIP rooms drop by 15 per cent in the third quarter but investors are optimistic about future expansion in Macau and other Asian gaming destinations Luís Gonçalves

Luis.goncalves@macaubusinessdaily.com

ao Kun Group has the acquisition of small junket operators here as one of its main opportunities to grow its business in Macau in the near term. Outside the territory, the VIP rooms in the new Asian gaming locations of the Philippines, Korea and Vietnam are the best options to maintain long-term growth. In the third quarter of this year, the junket operator registered an operational loss of US$1.1 million, while revenues from VIP rooms dropped 15 per cent. Despite last quarter’s performance, investors maintained their trust in the group’s bright prospects. In a note to clients yesterday, Sterne Agee, for example, decided to keep its buy rating and target price, a sign that investors are expecting good profits in the future. The acquisitions of smaller junkets in Macau and the expansion to other

Asian gaming destinations are two strategies that Iao Kun will pursue in the future. The brokerage says Iao Kun’s management cited in a meeting with investors several growth opportunities in Macau in the upcoming months. Smaller gaming promoter acquisitions, new rooms and adjustment to higher performing rooms in its casino partners are the main strategies for the company to expand its business and profits in Macau. Outside Macau, the new casino buzz in places like the Philippines, Korea and Vietnam is also an opportunity to create new VIP rooms and attract new players.

Chasing competition The acquisition of smaller junkets here is seen by the market as a good

opportunity to extend business. The anti-graft campaign launched by Beijing, and the slowdown of the Chinese economy mean hard times for the VIP segment in Macau. With players having less money to spend and adopting a lower profile, junkets here have struggled to get new clients and collect debts. Even without official figures, several analysts say that most of the smaller junkets in Macau are going out of business, which poses an opportunity for bigger operators like Iao Kun to buy the smaller players in the market and increase their presence here. In the third quarter of this year, Iao Kun posted a loss of US$1.1 million in its operational profit (EBITDA or profit before interest, taxes, depreciation and

appreciation). The revenue from VIP gaming operations also decreased last quarter by 15 per cent from a year ago to US$51.9 million. Rolling chip turnover reached US$4.3 billion, a 5 per cent increase from the third quarter of last year. Sterne Agee underlined that despite the challenging environment affecting the VIP segment in Macau, Iao Kun performed better than its peers. The 5 per cent jump in the rolling chip turnover compares to a 19 per cent decrease registered by the overall Macau market. Iao Kun also admitted to investors its displeasure with the company’s current share price stating that it will likely be a buyer of its own stock after the dual listing by the end of the year or beginning of next.

Summergate and Pudao join forces with Woolworths Liquor Group

ine supplier Summergate Fine Wines & Spirits and Pudao Wines (Summergate) announced yesterday their acquisition by Australia’s biggest drinks retailer Woolworths Liquor Group (WLG). The founders of Summergate, Ian Ford and Brendan O’Toole, will both stay on as board directors, with Ian Ford staying on as Summergate CEO. According to Summergate, it will continue with its current business model and is fully resourced for its long-term growth. However, it declined to reveal to Business Daily how much the deal is worth. Summergate believes that the combination of its insight, distribution platforms, world-class portfolio and people, coupled with WLG’s powerful consumer facing expertise, scale and experience, will position Summergate for sustained and rapid growth in the following years. “Of the many companies that we have spoken to during the process of seeking capital for growth, Woolworths Liquor Group is by far the best fit for our business and our team, with a shared vision and values and fantastic synergies. We share a long-term view on future opportunities and have the resources, expertise and systems to support accelerated growth,” said Ian Ford, co-founder of Summergate.

Meanwhile, WLG Managing Director Brad Banducci said WLG is excited to invest in the region, which he describes as “the fastest growing wine market in the world”. “Brendan and Ian have built the

business from a start-up in 1999 to one of the leading fine wine distributors in the region . . . We are thrilled to make this investment to help support and grow Summergate even further,” Mr. Banducci said.

WLG comprises an alliance of popular drinks companies covering retail, online, production, supply, sourcing & distribution, including Dan Murphy’s, Langtons, Pinnacle Drinks, BWS, and Cellarmasters.

8 | Business Daily

December 3, 2014

Greater China Crackdown on foreign firms tax avoidance China will toughen its stance on tax avoidance by foreign firms to prevent tax payments being directed overseas, the official Xinhua news agency has said, after Beijing levied US$140 million in back taxes from U.S. firm Microsoft Corp last week. Beijing will closely monitor the profit levels of foreign firms operating in China to ensure companies do not shift profits to other regions where taxes are lower, a practice known as “base erosion and profit shifting” (BEPS), the Xinhua report said.

Trial of property register starts China has started to trial a property-registration system in various cities and is expected to launch the scheme nationwide next year, the state-owned China Securities Journal reported yesterday. The system will help discourage speculation and allow the government to track home ownership, forcing corrupt officials to come clean about properties they have bought with ill-gotten gains, industry experts say. It is also seen as a step toward the roll-out of a property tax, currently implemented only on a trial basis in the major Chinese cities of Shanghai and Chongqing.

Farm produce prices edge up Price of produce in 36 large and medium-sized Chinese cities moved up slightly in the week ending November 30 compared with the previous week, the Ministry of Commerce said yesterday. The average price of 18 vegetables experienced a rise of 2.5 percent due to seasonal pricing, pushing up the overall prices of farm produce, the ministry said. Pepper, lettuce and cucumber prices rose 13.3 percent, 9.1 percent and 7.8 percent respectively over a week earlier. Food accounts for about one third of China’s consumer price index (CPI), a main gauge of inflation.

Deposit insurance announces financial reform Proposed bank deposit insurance scheme will be an important development for further financial reforms, reducing financial risks and rebalancing the economy, said Fitch in its latest report. “This (the deposit insurance scheme) would ultimately translate into greater economic rebalancing as well as a potentially lower propensity for the state to support non-systemically important banks,” Fitch said. According to the PBOC, the proposed insurance scheme will cover a maximum of 500,000 yuan (US$81,566) per deposit account (yuan and foreign currency), allowing for full insurance of 99.6 percent of accounts or an estimated 46 percent of total deposits.

Toyota says auto sales up Toyota Motor Corp and its two Chinese joint ventures sold about 92,300 vehicles in China in November, up 2.9 percent from a year earlier, the Japanese automaker said yesterday. That followed an 27.1 percent year-on-year jump in October and a 26.1 percent rise in September. In the first 11 months of the year, Japan’s biggest automaker by sales volume sold about 907,400 vehicles in China, up 12.2 percent from a year earlier. Toyota aims to sell more than 1.1 million vehicles in China this year.

Rate cut cold comfort for struggling developers The lowering of the lending benchmark will bring only marginal relief to the sector’s biggest headaches Umesh Desai and Xiaoyi Shao

roperty developers, among China’s most heavily leveraged companies, will get a negligible lift from the country’s first benchmark interest rate cut in two years as sales slip and banks pull back on lending to the sector. After a long bull run, China’s property market, which makes up about 15 percent of its economy and is the main driver of demand in some 40 industries from cement to steel, has grappled with soft prices and mounting inventories for at least six months. That prompted China’s central bank to cut its benchmark lending rates by 40 basis points to 5.6 percent on November 21, reversing in part its drive to cool a sector that many feared had become so bloated by speculative froth that it was crowding out other forms of investment. But the lowering of the lending benchmark will bring only marginal relief to the sector’s biggest headaches - too much unsold stock and tight liquidity. “The fundamental problem of China’s housing market is oversupply,” said Ding Zuyu, co-president

of real estate services firm E-House China, and a few home buyers encouraged by the rate cut wouldn’t change that. New home prices in China dropped for a seventh consecutive month in November from the previous month, a survey by the China Real Estate Index System (CREIS) showed. The force of the cut will also be enfeebled because bank lending to the property sector is in decline, having dropped 23.3 percent in the third quarter from the previous three months, Reuters calculations from central bank data showed. “The impact on property will be limited because for developers, funding access is more critical than borrowing cost,” said Su Aik Lim, Fitch Ratings analyst. “Even if interest cost falls, access to borrowing is poor, so weak developers still cannot avoid a liquidity crisis when their sales slow.” Standard & Poor’s said this week liquidity was a key risk for some developers, while forecasting a 5 percent fall in average selling prices in 2015.

The impact on property will be limited because for developers, funding access is more critical than borrowing cost Su Aik Lim, Fitch Ratings, analyst

Moody’s expects residential property sales to shrink between 0 and 5 percent, too. All of which will make banks yet more wary about lending to the weaker players, which leaves them ever more reliant on their ability to keep generating cash. “The biggest most reliable source of funding is property sales; it is

ICBC seeks simpler Basel bond sale Bank of China’s US$6.5 billion issue of offshore additional Tier 1 notes in October was originally priced in U.S. dollars, divided by the yuan rate Christopher Langner

ndustrial & Commercial Bank of China Ltd.’s Basel III-compliant bond issue will be structured more simply than Bank of China Ltd.’s to avoid the extra paperwork caused by that offer’s currency pricing. The nation’s largest lender by market value has said the par values of its planned US$5.7 billion sale will be US$20 per dollar-denominated note, 15 euros (US$18.70) for a tranche in that currency and 100 yuan (US$16.26) for a dim sum portion, according to the offering circular. Chinese banks have sold US$72 billion of securities that count as capital this year, more than lenders anywhere else, as bad debts soared and the economy grew at the slowest pace in five years. The amount surpasses what financial institutions raised in France and the U.K. combined and is more than three times what U.S. banks have issued to strengthen their books. Bank of China subsequently changed trading in its Tier 1 notes to yuan, meaning all trades that had been done before the switch had to be rebooked. Its October 16 offering was the biggest single tranche U.S. dollar bank capital sale. As per Chinese regulations, the securities had a 100 yuan par value.

Settlement was in the U.S. currency at a fixed rate of 6.1448 yuan per dollar. Because of that, each note had a dollar value of US$16.274 and the broken numbers didn’t conform to bond market conventions. The currency was switched to yuan several days later. In July, ICBC’s board approved a

plan to issue as much as 35 billion yuan of preferred securities offshore that count as additional Tier 1 capital under new banking regulations. The lender has been meeting investors since November 26 in preparation for the deal, which is expected this week. Bloomberg News

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Greater China

more important to boost sales than obtaining more construction loans,” said David Ng, property analyst with Macquarie Securities. Larger players, such as Vanke, Country Garden , China Overseas and Shimao Property , have already been increasing their asset turnover in a bid to improve cash flows, taking market share from the smaller fry. Fitch estimates that the share of the top five developers, based on

accumulated sales, has risen to 11 percent in September from 8 percent in end-2013, which also gives them bigger elbows in the scrum for financing. “Banks are lending to companies that can sell faster, so they get their money back quickly and renew their loans more comfortably,” said Ng. That virtuous circle for the most successful becomes increasingly vicious for the strugglers as sales

growth remains in the doldrums. “From the demand side - the rate cut will not stimulate demand sufficiently for cities that face oversupply,” said Lim. He added that lower interest costs would be of only slim benefit to even the most indebted builders. “From the borrowers’ perspective, interest expense accounts for only 5 percent of home selling price; the impact from a 40 bps cut will only

cut interest expenses by about 6-7 percent, or around 0.3 percent of selling price.” It’s a point not lost on apartment hunters like Li, a 37-year-old finance professional who would like a second home in Beijing. “Compared with the huge amount for a housing downpayment, what’s the use of the moderate rate cut?” she said. Reuters

Fourth richest Chinese seeks Dalian Wanda IPO Wang has tried to list Dalian Wanda Commercial Properties before Matthew Miller and Clare Jim

ang Jianlin plans to raise as much as US$6 billion from selling shares in Dalian Wanda Commercial Properties Co Ltd, to help fund the expansion of an empire built at speed using cheap government land. China’s fourth-richest man with a net worth of US$13.2 billion, according to Forbes, has opened 100 Wanda Plaza mixed-use developments from 21 just four years ago. Wang is aided, he has said, by land bought at half the price others would have paid, from authorities betting on his ability to boost local economies. Dalian Wanda Commercial Properties is now China’s largest in the sector with 178 projects in 112 cities across 29 provinces, many anchored by malls and hotels alongside office and residential towers. On Monday, it won approval in Hong Kong to conduct the biggest initial public offering (IPO) in Asia Ex-Japan in four years. But the approval comes at a time when an industry slump is pulling down earnings, and while eight so-called Wanda Cities - massive multi-projects

Wang Jianlin will remain controlling shareholder after the IPO

- exacerbate its debt burden. Regulatory reasons scuppered a Hong Kong IPO in 2005, and its application in Shanghai lapsed earlier this year with the bourse saying submitted documents were out of date. Wang, a former member of the People’s Liberation Army, now plans to take the developer into the world’s 10 largest cities over the next decade, beginning last year with Los Angeles, Chicago, London, Madrid and Gold Coast. “China’s outbound

investment is an inevitable trend,” Wang told the APEC CEO Summit in November.

Profit drop Dalian Wanda Commercial Properties, in a filing to the Hong Kong Stock Exchange, said net profit fell 47 percent in January-June to 4.97 billion yuan (US$807.93 million) due to a decline in the fair value gain of its properties. Revenue fell 27 percent in the same period after rising 70 percent over 2012 and 2013, when it peaked

at 86.8 billion yuan. It said the fall came as it completed fewer residential projects and because selling prices declined following a yearslong government campaign to stop prices spiralling. Current liabilities rose 21.7 percent in January-June alone to 219.36 billion yuan. Its gearing ratio - or debt compared with owners’ equity - reached 87.8 percent from 53 percent at the end of 2013, though its debt-to-asset ratio was 51.6 percent. Credit-ratings firm Fitch Ratings in November pointed

to Wanda Cities being a “cash drain” but said they were “positive to Wanda” in the longer term. “There is a good potential for Wanda City projects to become famous tourist spots and this can enhance Wanda’s brand image,” Fitch said. Wang, 60, will remain controlling shareholder after the IPO. He also heads Dalian Wanda Group, the developer’s parent, which wants to raise overseas sales to 20 percent by 2020, while increasing revenue to US$100 billion from US$30 billion. “We take the initiative and have bargaining power,” Wang told students at Harvard University in 2012. “Our cost of land acquisition is much cheaper than other companies.” Dalian Wanda Group includes Wanda Cinema Line Co Ltd, which on Friday won approval to raise up to 2 billion yuan (US$325.41 million) in a domestic IPO. It also includes Hong Kong-listed Wanda Hotel Development Co Ltd, which changed its name from Wanda Commercial Properties Group Co Ltd in October. Reuters

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Asia Japanese annual wage gains slow Japanese wage earners’ total cash earnings in October rose at the slowest annual pace in eight months and real wages fell for 16 months in a row, posing a challenge to Prime Minister Shinzo Abe’s efforts to sustain growth and end deflation. Total cash earnings in October rose 0.5 percent from a year earlier, up for an eighth straight month but slowing from September, weighed by a decline in part-timer salaries, labour ministry data showed yesterday. Real wages, which are adjusted to reflect consumer prices, fell 2.8 percent in the year to October, extending a run of declines since July 2013 as wages are lagging behind inflation.

Aussie government spending rise Australian government spending for consumption rose 0.8 percent in the third quarter to an inflation-adjusted A$69.97 billion (US$59.5 billion), the Australian Bureau of Statistics reported yesterday. Investment spending by the government and public enterprises fell by 4.4 percent to A$17.73 billion. However this series has been routinely distorted due to accounting for the transfer of assets between the public and private sectors. The data will feed into the gross domestic product (GDP) report for the third quarter due today.

Union Frozen expects revenue increase Thai Union Frozen Products Pcl expects its 2014 revenue to hit US$4 billion in 2014, and is targeting a 2015 revenue of US$5 billion on growth in its tuna and shrimp businesses, president and chief executive said yesterday. The company, the world’s largest canned tuna producer, is also seeking to expand via mergers and acquisitions as it eyes revenues of around US$8 billion in 2020, Thiraphong Chansiri told reporters.

Auto parts execs to get jail Two executives, from Japan-based auto parts makers T.RAD Co Ltd and Mitsuba Corp, have agreed to plead guilty and serve U.S. prison terms for conspiring to fix the prices of auto parts, the Justice Department said. The Justice Department, along with antitrust enforcers globally, have been investigating price fixing of more than 30 car parts. Both men agreed to pay fines of US$20,000, the department said. The two companies are among 32 that have pleaded guilty to fixing the prices of dozens of car parts.

MOL’s CFO resigns for personal reasons Malaysian online payments company MOL Global Inc. said Chief Financial Officer Allan Wong resigned last month for personal reasons, not because of any accounting or financial reporting issues. MOL Global’s shares, which were halted on November 24 after the company said it would delay its quarterly earnings report, fell as much as 45 percent to US$2.25 after resuming trade on the Nasdaq. The company announced the delay and Wong’s departure at the same time last month, without citing a reason.

Australia’s RBA keeps rates on hold The drop in commodity prices has certainly eaten into sources of national income Wayne Cole

RBA’s Governor Glenn Stevens

ustralia’s central bank kept interest rates at record lows for a 16th straight month yesterday, saying sub-par economic growth could extend this unusually lengthy period of stability for some time yet. There was little relief for the hardpressed local dollar as the Reserve Bank of Australia (RBA) repeated the currency was overvalued given the on-going slide in prices for many of the country’s commodity exports. “Overall, the Bank still expects growth to be a little below trend for the next several quarters,” said RBA Governor Glenn Stevens following the bank’s monthly policy meeting. “On present indications, the most prudent course is likely to be a period

KEY POINTS RBA keeps rates at 2.5 pct, policy outlook stable Q3 GDP looking solid as net export volumes add 0.8 ppt Sliding resource prices still cut into export earnings Approvals to build new homes jump in plus for future growth

of stability in interest rates.” The cash rate has been at 2.5 percent since August last year as the A$1.6 trillion ($1.36 trillion) economy struggles with the winding back of mining investment and declining terms of trade. So sharp has been the fall in export prices, notably for iron ore, that investors are wagering rates might have to be cut again. Interbank futures imply around a 60 percent probability of an easing by August next year, even though RBA officials have shown no sign of contemplating such a move. Perhaps sensing the shifting winds, Deutsche Bank has changed its call and now predicts the RBA will lower rates by 50 basis points in two

S.Korea inflation at 9-mth low November’s figures build case for more rate cuts Christine Kim

outh Korea’s inflation in November cooled to a 9-month low on weak energy prices and depressed consumer confidence, data showed yesterday, adding to fears of deflation and reinforcing expectations for additional monetary easing in coming months. The consumer price index was just 1.0 percent higher in November from a year earlier, Statistics Korea reported, marking the slowest rate since February this year. It compared with a 1.2 percent gain in October, and was also below the 1.2 percent rise forecast in a Reuters poll. The Bank of Korea cut its policy interest rate by 25 basis points each in August and October in an effort to re-energise a faltering economy. It next reviews policy on December 11. Amid fresh signs the economy is struggling to regain its footing, analysts expect the central bank to do more to drive growth. South Korea’s government has warned of Japan-style deflation taking hold and has implemented some stimulus measures in recent months, but analysts say the country could end up repeating Japan’s mistakes by failing to address structural weaknesses. South Korea’s annual inflation

has stayed below the lower end of the central bank’s 2.5-3.5 percent target range since June 2012. Policymakers have mainly blamed low global commodities and oil prices for the benign inflation. Annual core inflation, which strips out volatile agricultural and oil products’ prices, rose 1.6 percent from 1.8 percent in October, and was the slowest growth since a 1.5 percent rise in August last year. In monthly terms, the inflation

index in November fell 0.2 percent, compared with the poll’s forecast for no change and a 0.3 percent decline in October. Data released on Monday showed South Korea’s exports fell 1.9 percent in November from a year earlier, widely missing expectations as a plunge in oil prices dented related shipments. Manufacturing activity also remained stuck in contractionary territory for the third month in a row. Reuters

South Korea’s annual inflation has stayed below the lower end of the central bank’s 2.5-3.5 percent target range. Pictured Bank of Korea

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Asia instalments over 2015. The bank’s chief economist, Adam Boyton, cited a moderation in the housing market, a shrinking terms of trade and his expectation of rising unemployment as reasons for the change.

Net exports drive growth The drop in commodity prices has certainly eaten into sources of national income, from export earnings to company profits, wages and tax receipts. Yet a decade-long boom in mining investment is also greatly boosting the volume of resources Australia can ship abroad. As a result net exports added a healthy 0.8 percentage points to gross domestic product (GDP) in the third quarter, reinforcing expectations for a solid rise in growth overall. The GDP report is due on Wednesday and analysts have been looking for a robust rise of 0.7 percent in the quarter and 3.1 percent for the year. The latter would be faster than the United States which only managed growth of 2.4 percent despite all the talk of its global outperformance. Tuesday’s data also produced more evidence that low mortgage rates were working to revive the housing market. Approvals to build new homes surged 11.4 percent in October, completely reversing a big fall in September and keeping the annualised pace of approvals near record peaks. “This means that the peak in this residential construction upturn will be extended well into 2015,” said Diana Mousina, an economist at Commonwealth Bank. “This has important ramifications for other parts of the economy because the construction process has a sizeable multiplier effect and is very labour intensive.” Reuters

Malaysia confident in meeting deficit target Indeed, Bank of America Merrill Lynch said in a research note on Monday that Malaysia’s deficit is expected to widen to 3.8 percent next year

Iconic Petronas Towers in Kuala Lumpur

alaysia is sticking to its target of reducing its budget deficit to 3.0 percent of gross domestic product next year despite pressure from tumbling oil prices, the country’s second finance minister said yesterday. State oil company Petronas, which accounts for most of the government’s revenue from oil and gas, warned on Friday that its various payments could fall by 37 percent next year if oil stayed at around US$75 a barrel. Fearing that would blow a big hole in next year’s budget, which

forecast oil prices would be around US$105, investors have dumped Malaysian shares and the ringgit, which suffered one of its worst drops since the 1997/98 Asian financial crisis. But Ahmad Husni Hanadzlah, Malaysia’s second finance minister, said the deficit targets for 2014 and 2015 remain in place, pending a final decision on Petronas’ payments to the government. “We have to look into the overall financial position in terms of the tax that we will receive from the petrol

and gas industry,” Ahmad told reporters. The government narrowed the deficit to 3.9 percent of GDP in 2013 and aims to trim it further to 3.5 percent this year and 3 percent in 2015, with the goal of a balanced budget by 2020. This year’s goal appears to be in sight. Despite the recent slide in oil prices to five-year lows, Petronas has already paid most of what it committed to the government for 2014, and the government abolished costly fuel subsidies from December 1. The International Monetary Fund said last week that the deficit could even drop below the 3 percent target next year due in part to the reduced subsidy burden. That, plus the introduction of a new consumption tax next April, could reduce the strains on government finances if oil prices remain weak. But other economists say the 2015 deficit target is at risk. With big oil producers battling for market share and global economic growth slowing, economists aren’t sure how far oil and gas prices will fall, or how long they will remain at multi-year lows. Government revenues could be cut by 7.4 billion ringgit (US$2.16 billion), from an official estimate of 235.2 billion ringgit for 2015, due to lower collections from oil-related activities, HSBC said in a recent note. Reuters

Indonesia to boost oil reserves to tackle graft The Ministry of Energy has asked an independent team of experts to recommend specific government policies to clean up Petral, Pertamina and the rest of the energy industry

ndonesia’s new administration plans a major expansion of oil storage and will construct more refineries as part of sweeping energy reforms that will also help in cracking down on corruption in the state oil trader. When completed, the plan to increase storage and refining capacity will allow Southeast Asia’s largest economy to shift from buying gasoline and diesel on the opaque spot market to stable long-term contracts with foreign producers. That would also reduce opportunities for graft at Petral. Energy Minister Sudirman Said told reporters last week: “Every transaction that is hidden definitely has that potential (for corruption). Direct deals reduce that potential...and reduce the role of intermediaries.” Indonesia plans to add a minimum of 9.4 million barrels of new fuel storage capacity by 2019, an increase of around 40 percent, at a cost of US$2.44 billion, Pertamina officials said.

The country, which is expected to become the world’s largest gasoline importer by 2018, wants to increase its operational reserves to 30 days worth of fuel, up from the current 18-23 days. In the longer term, Pertamina is looking to upgrade its six refineries to increase capacity to 1.5 million barrels per day from the current 1 million bpd. It is also considering investing in new refineries, despite not having built one since 1994. The refinery and storage development plans are not new under President Widodo but have been held back for years by vested interests who profit from subsidised fuel imports, which account for a third of the annual 2,039 trillion rupiah (US$166.11 billion) budget.

Pushing aside the middleman The president’s plan will also likely side line Hong Kong-based Pertamina Energy Trading Limited (Petral).

Pertamina barrels

The company, which conducts its trading business from Singapore, holds a near monopoly on the trading of billions of dollars worth of crude and oil products in and out of the former OPEC member. Petral reported revenue of US$31.5 billion and net profit of US$47 million in 2011, the latest data provided on the company’s website. Petral regularly buys gasoline, diesel and jet fuel from Malaysia’s Petronas,

Chinese oil trader Unipec, Royal Dutch Shell, and others. But the lack of transparency from its oil trades has raised concerns that transactions can be easily manipulated by what the president calls the oil mafia, which is believed to steal as much as US$400 million a year, according to presidential adviser Ari Soemarno. Last week, State Enterprises Minister Rini Soemarno, who is the sister of

Ari Soemarno, said she would consider relocating Petral to Indonesia from its offices in Hong Kong and Singapore, a move that could allow for better government oversight of the company. The energy ministry and the country’s main anti-graft watchdog, the Corruption Eradication Commission, are planning separate audits of Petral to ensure no wrongdoing. Reuters

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Asia Japan halts buying U.S. LPG Japanese buyers of liquefied petroleum gas (LPG) are holding off on increasing term supplies from the United States following a plunge in oil prices that has made U.S. LPG more expensive than Middle East imports, senior industry sources said yesterday. Japanese LPG buyers such as Astomos Energy Corp and Eneos Globe Corp have been aggressively boosting U.S. The development of U.S. shale resources has led to a sharp increase in oil and gas production, turning it from a large energy importer into a net exporter of LPG.

India’s RBI leaves rates on hold The RBI’s next policy review is in early February, and most analysts had expected the central bank would either cut interest rates then or wait until April Suvashree Choudhury and Rafael Nam

Nomura expects higher revenue

Nomura Holdings Inc. forecast it would earn a few hundred million dollars in additional revenue after Moody’s Investors Service lifted its credit rating on Japan’s biggest investment banking and brokerage group. Nomura will get an additional US$250 million in revenue annually over the next 18 months, it said in a presentation at an investors conference in Tokyo yesterday, without giving details on how the expected increase in revenue would be distributed over the period. Higher ratings help to lower funding costs.

Northern Star finds gold near mine Gold miner Northern Star Resources Ltd said yesterday it had made a “significant” gold discovery below an old open-pit mine next to its Kanowna Belle gold mine in Western Australia. Drilling at White Feather hit “spectacular” grades of more than 5,300 grams per tonne from about 200 metres underground, Northern Star, Australia’s secondlargest listed gold miner, said in an announcement to the stock exchange. Northern Star is spending A$50 million (US$43 million) this year drilling in areas previously mined above ground.

Bumi units file for U.S. creditor protection Shares in Indonesia’s biggest coal miner PT Bumi Resources Tbk rose the most yesterday in over four months after three of its units filed for protection from U.S. creditors after failing to make debt interest payments. The filing comes a week after Bumi Investment Pte Ltd, Bumi Capital Pte Ltd and Enercoal Resources Pte Ltd also obtained a sixmonth moratorium in a Singapore court against legal action from creditors. Both moves give Bumi Resources, which was hard hit by a sharp drop in coal prices, more time to restructure its debts.

Officials had told Reuters last week that Finance Minister Arun Jaitley would press RBI Governor Raghuram Rajan (pictured) for a cut in rates

he Reserve Bank of India held interest rates steady as widely expected at its policy review yesterday, but said it could cut interest rates by early next year depending on whether inflation eases further and on fiscal developments. Forty-one of 45 economists polled by Reuters had forecast that the RBI would keep the repo rate at

8.00 percent, while four expected a reduction of 25 basis points. “A change in the monetary policy stance at the current juncture is premature,” the RBI said in its statement. Helped by tumbling oil prices, India’s annual consumer price inflation slowed to 5.52 percent in October, sharply down from a peak of 11.16 percent struck in November last year.

S&P doubts Japan has detailed fiscal consolidation plan

Some economists also worry the Bank of Japan’s purchases of government debt via its quantitative easing could make the government complacent on fiscal policy Stanley White

The RBI said in its statement that it expected inflation for December to rise from current level, and added that “the key uncertainty is the durability of this upturn.” The RBI has targeted consumer price inflation at 6 percent for January 2016, and the central banks said risks to the target “appear evenly balanced under the current policy stance.”

tandard & Poor’s cast doubt on Japan Prime Minister Shinzo Abe’s ability to repair the country’s tattered finances, a day after Moody’s tarnished the government’s economic record less than two weeks away from a major election. Abe’s decision to delay a sales tax increase by 18 months may help the economy in the short term, but there is still no guarantee taxes will rise because the political dynamic could change after the election, Takahira Ogawa, director of sovereign ratings at S&P, told Reuters. The growing reservations about Japan come at an awkward time for Abe as he has called an election on December 14 that has become a vote on whether he has done enough to fundamentally improve the prospects for growth. “I might be wrong, but judging

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Asia India’s benchmark 10-year bond yield fell 5 basis points on the day to 8.01 percent, while the rupee at 61.93 to the dollar was little changed from levels seen before the RBI announced its decision. “Clearly a very dovish statement,” said R. Sivakumar, head of fixed income for Axis Asset Management. “Markets like clarity and they are reading this as a signal that barring any surprises, a February 2015 rate cut looks likely.” While the decision to leave rates unchanged had been expected, officials had told Reuters last week that Finance Minister Arun Jaitley would press RBI Governor Raghuram Rajan for a cut in rates when they held a customary meeting before the policy review. There was no official confirmation whether that meeting had taken place. Limp economic growth during Prime Minister Narendra Modi’s first six months in power has caused unease in government quarters, raising some calls for an early rate reduction. Reuters

However, if the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle Reserve Bank of India statement

by history I’m not optimistic about getting a detailed fiscal plan,” Ogawa said. “In addition, if the government fails to implement its plan, then it doesn’t make any sense.” Abe’s decision to delay a sales tax hike to 10 percent from 8 percent may prove popular with voters, but some economists say it is now impossible to reduce the primary budget deficit in fiscal 2020, an important fiscal consolidation target. The primary budget deficit excludes debt servicing costs and income from bond sales. Even without the delay, the government is not doing enough to correct the structural problems that make it difficult to reduce debt, such as low growth, a shrinking population and rising welfare spending, Ogawa said. Some economists also worry the Bank of Japan’s purchases of government debt via its quantitative easing could make the government complacent on fiscal policy because yields are kept very low, or in some cases even go into negative territory. Japan’s economy unexpectedly slipped into recession in the third quarter, nearly two years after Abe returned to power promising to revive the economy with his “Abernomics” mix of massive monetary stimulus, spending and reforms. Reuters

Thai banks search for overseas expansion As domestic market doesn’t return enough business volume Khettiya Jittapong and Manunphattr Dhanananphorn

hailand’s big banks are hitching a ride on the caravan of Thai companies departing for new growth centres in the Greater Mekong region, which includes Myanmar and southern China, as a chill in retail lending drives them to look outward for long-term growth. Bangkok Bank, Krung Thai Bank, Siam Commercial Bank (SCB) and Kasikornbank are investing millions in new branches overseas as they step up lending and trade financing to Thai businesses expanding in Cambodia, Laos, Myanmar and Vietnam. “Expanding in foreign markets where we are not familiar has some risks,” Chaiyarit Anuchitworawong, executive vice president of Bangkok Bank, told Reuters. “But if our clients go first and we follow them, this will help reduce some risks.” Thai direct investment in Cambodia, Laos, Myanmar and Vietnam rose to US$936 million last year, the highest since the 20082009 global crisis. At stake for Thai entrepreneurs - and Thai banks is a chance to grow in a combined economy almost the size of Thailand’s. The formation of a single market in Southeast Asia, planned to begin in 2015, also raises hopes of freer capital flows and expectations of higher demand for banking services. Success for Thailand’s banks will depend on how quickly they can beef up their presence. Any stalling in domestic loan and deposit growth due to the prolonged and severe downturn in the Thai economy or a sharp drop in the banks’ substantial capital reserves will challenge their plans, analysts say. Kasikornbank plans to nearly double its staff in Southeast Asia and China next year, after investing US$40 million in a new branch in Laos opening in December, its president

about compliance and regulatory uncertainty, especially in Myanmar. But Thai companies remain upbeat about the region.

We do not expect to see strong growth in the near future, but it’s an opportunity that will boost organic growth for Thai banks. Risk will be limited, given most Thai banks are following Thai companies expanding in the region Adisorn Muangparnchon Phillip Securities analyst

Teeranun Srihong told Reuters. SCB aims to hire up to 50 staff in Cambodia, Laos, Myanmar and Vietnam over the next three to five years as the bank sets up the infrastructure for corporate banking, said Kamalkant Agarwal, head of its international banking business. Bangkok Bank, which has the biggest foreign operation among Thailand’s big four banks with international lending comprising 16-17 percent of total loans, plans to open a branch in Phnom Penh this year. It is also the only Thai lender with a banking licence in Myanmar. Bankers have voiced concerns

Domestic woes In the first nine months of 2014, direct investment in Cambodia, Laos, Myanmar and Vietnam fell 13.46 percent to 20.4 billion baht (US$619.87 million), Bank of Thailand data published on November 28 shows. Non-performing consumer loans have soared to a four-year high as households struggle to pay back debts, slamming the brakes on private demand and leading the World Bank to cut Thailand’s economic growth forecast to the lowest in Southeast Asia. To be sure, Thai banks are far better capitalised today with bigger buffers against bad loans compared to the 1997-98 financial crisis. The capital adequacy ratios of the country’s big four lenders range from 15.85 percent to 18.7 percent. Among banks in Southeast Asia’s biggest economies, Thai lenders also stood out with the highest return on equity last year, at 21.4 percent, Thomson Reuters data shows. Now is their chance to look outward, analysts say. Competition from regional players in the domestic banking scene is also intensifying, building a case to diversify. Mitsubishi UFJ Financial Group acquired a 72 percent stake in Bank of Ayudhya Pcl, Thailand’s fifth-biggest lender, in late 2013. Increasing economic integration will also drive capital flows across borders, and in turn, demand for banking services and lending, said Kittiya Todhanakasem, first senior executive vice president at Krung Thai Bank. Reuters

Citigroup sees Asia digital users doubling Asian consumer banking made up almost 10 percent of Citigroup’s US$59 billion of revenue in the nine months to September

itigroup Inc. expects to double digital-banking users in Asia in the next five years, helping the third-biggest U.S. lender by assets boost client accounts and revenue without the cost of setting up branches. The 7.5 million customers using Citigroup’s online and mobilebanking services in the region will probably grow to 15 million by 2019, bolstered by rising affluence and a burgeoning middle class, Jonathan Larsen, Asia-Pacific head of consumer banking, said in an interview in Hong Kong last week. “Our strategy is essentially an urban strategy and it’s tapping into this new urban middle class that has

been created in the last 30 years in Asia,” said Larsen, 48. Chief Executive Officer Michael Corbat is expanding in faster-growing markets while trimming brick-andmortar branches and operations in locations with less potential. Larsen expects the number of outlets in Asia to stay little changed at 450 in coming years as the development of its digital network allows New York-based Citigroup to pursue business without relying on new outlets. Citigroup said in October that it will exit consumer banking in 11 markets including Japan and consumer finance in Korea to boost returns. The new structure will serve almost 57 million

clients in 24 markets, half of which are in Asia. The Asian consumer business has 35 million customer accounts. It generated revenue of US$5.76 billion for the nine months through September, accounting for 20 percent of the total for global consumer banking, company filings show. “The whole distribution strategy we have is to find an efficient way to be present in these priority cities through a limited physical footprint,” Larsen said. The business he oversees encompasses a region where economic growth is outpacing the rest of the world. Developing Asian countries including China and India may expand 6.5 percent this year, more than triple the 1.8 percent rate for advanced economies, according to October projections from the International Monetary Fund. Bloomberg News

14 | Business Daily

December 3, 2014

International

U.S. manufacturing cools Falling commodity prices, especially crude oil, saw a gauge of prices paid by factories falling to its lowest level since July 2012 Lucia Mutikani

Airport tax rise in Lisbon As of Monday, airport tax at Lisbon and Porto have increased by 7.56 percent and 1.5 percent, respectively, airport management company Aeroportos de Portugal (ANA) said on its website. “The total increases over the last five years are the equivalent of less than a euro (97 cents)(about US$1.2 dollar) per passenger and Lisbon airport’s taxes are below the average for similar airports, such as Madrid,” ANA said. This is the fourth airport tax hike since the company was privatized at the beginning of 2013.

Global PMI growth at 14-month low Global manufacturing activity expanded at its weakest pace in over a year in November, with new orders rising at their slowest rate since July 2013, a business survey showed on Monday. JPMorgan’s Global Manufacturing Purchasing Managers’ Index (PMI), produced with Markit, fell to 51.8 in November from October’s 52.2. That was the lowest reading since September 2013 but it has now come in above the 50 mark that separates growth from contraction for two years. A sub-index covering new orders fell to 52.2 from October’s 52.9.

.S. factory activity moderated in November, but sustained gains in new orders and a rebound in exports suggested the economy remained on a firmer footing despite slowing global growth. The Institute for Supply Management (ISM) said its index of national factory activity fell to 58.7 last month as the pace of restocking slowed. The index had touched a 3-1/2-year high of 59 in October. “The world economy may be faltering, but that is not stopping the U.S. economy from improving,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. A separate report from financial data firm Markit showed its U.S. Manufacturing Purchasing Managers index fell to a 10-month low of 54.8 in November from a reading of 55.9 in October. But this survey has a short history, making it a less reliable gauge of U.S. manufacturing activity. Other reports showed manufacturing growth across Asia and Europe easing in November. There had been concerns that weak global demand was undercutting U.S. manufacturing after data last week showed a second straight month of declines in planned business spending on equipment in October. The ISM survey showed new orders increased to their highest level since

Agriculture Ministry of Albania announced on Monday that the government will allocate 1.9 billion leks (US$17.4 million) subsidies to support farmers and the rural development in 2015. According to the Rural Development strategy for 2015, the main target is envisioned to increase investments in agriculture, farming, fishery and agribusiness. Agriculture Ministry has envisioned for 2015 the facilitation of procedure to apply for agricultural financing, taking into consideration with great priority the widening of benefits and the increase of number of farmers that will profit from state budget support, in order to enhance competitiveness and production standards.

Latvian budget expenditures are growing too fast, the Baltic News Service cited Finance Ministry’s state secretary Baiba Bane as saying. “In our opinion, considerable resources have been allocated to the government priorities. Expenditures are growing too fast and they should be balanced with rise of revenues,” said Bane. She said that the European Commission has also raised the same concerns. Finance Minister Janis Reirs reported expenditures in next year’s budget are 240 million euros higher than that of this year. The most considerable rise has been planned for defence, interior sector, education, health sector and farming.

Manufacturing activity slows in November Gauges for new and export orders rise Markit PMI brakes to 10-month low in November

August, while export order growth also accelerated. Survey respondents reported “substantial” order intake for machinery, which they said had resulted in “a very healthy backlog.” Furniture manufacturers said business continued to be “stronger than last year.” “There is no sign that the stronger dollar and/or the weakness seen globally is negatively impacting manufacturing in the U.S.,” said Michelle Girard, chief economist at RBS in Stamford, Connecticut. While a measure of factory employment ebbed a bit in November,

it remained consistent with solid job growth. Electrical equipment, appliances and components manufacturers said they continued to hire people. They also noted that people were leaving to take other jobs. Falling commodity prices, especially crude oil, saw a gauge of prices paid by factories falling to its lowest level since July 2012. “This price dynamic is a positive for corporate profits and signals lower inflation pressures in the economy,” said John Silvia, chief economist at Wells Fargo Securities in Charlotte, North Carolina. Reuters

Ministers urge European common corporate tax laws

Albania allocates agro subsidies

Latvian budget expenditures rocketing

KEY POINTS

The ministers noted the OECD and Group of 20 countries had an anti-BEPS initiative and said the EU should also adopt a common set of binding rules Gernot Heller

he German, French and Italian finance ministers have urged the European Commission to draw up EU-wide laws to curb corporate tax avoidance and prevent member states from offering lower taxes to attract investors. In a letter to economics and tax commissioner Pierre Moscovici, the ministers of the euro zone’s three biggest economies called for a comprehensive anti-BEPS (Base erosion and profit sharing) directive for member states to adopt by the end of 2015. “This strong initiative taken by the EU, which could be proposed by the end of 2014, would give Europe the leading place it deserves at the international level,” said the letter, signed by Germany’s Wolfgang Schaeuble, France’s Michel Sapin

and Italy’s Pier Carlo Padoan. “Our citizens and our companies expect us to cope with tax avoidance and aggressive tax planning. It is our common duty to meet their expectation by ensuring that everyone pays their fair share of tax to the state where profits are generated,” said the letter made available to Reuters. Luxembourg is defending itself against allegations of sweetheart deals between multinationals and tax authorities. New European Commission President Jean-Claude Juncker, a former Luxembourg prime minister, has said he will fight tax evasion with a greater automatic exchange of information. The Luxembourg affair highlighted how companies exploit tax competition among EU member

states to pay less. “Since certain tax practices of countries and taxpayers have become public recently, the limits of permissible tax competition between member states have shifted. This development is irreversible,” the ministers said in their letter. The Commission has said it will work on preventing such competition in the future through the Common Consolidated Corporate Tax Base (CCCTB) law. These should encompass mandatory and automatic exchange of information on cross-border tax rulings, including transfer pricing, a register identifying beneficiaries of trusts, shell companies and other nontransparent entities and measures against tax havens. Reuters

Business Daily | 15

December 3, 2014

Opinion Business

wires

The return of currency wars

Leading reports from Asia’s best business newspapers

CHINA DAILY More than 1,000 environmental violation cases have been investigated and over 20 million yuan (US$3.25 million) fine collected since municipal pollution control regulations were put in action in March, according to Beijing municipal Environmental Protection Bureau, reported chinanews. com. The city’s environment protection agency has set aside the first week from March to December as air pollution lawenforcement section. Major issues related to pollution are tackled every week. With the December already underway, Beijing will focus on monitoring the elimination of waste gas of the coal.

Nouriel Roubini

Chairman of Roubini Global Economics and Professor of Economics at NYU’s Stern School of Business

THE TIMES OF INDIA After remaining sluggish for a significant period, the manufacturing sector had something to cheer about as data showed the core sector — comprising energy, cement, steel and fertilizer — rising to a four-month high in October, along with signs of recovery in car sales and factory activity hitting a near two-year high in November. The robust core sector data, which accounts for nearly 40% of the index of industrial production (IIP), came a day ahead of the monetary policy review. Pressure has mounted on the RBI to cut interest rates against the backdrop of moderating inflation.

THE PHNOM PENH POST Chinese firm, Qin Zhou Shenghe Electronic Technology Co, has slated US$16 million for the construction of an LED light-making factory in Cambodia, representatives from the company said on Thursday. “We want to expand our market to Cambodia,” said Huang Mei Xiang, marketing manager of Qin Zhou Shenghe Electronic Technology Co. “The LED lighting market in Cambodia is worth around US$81 million and we want to capture the entire market share,” she said. The Chinese firm is currently awaiting licensing approval from the Cambodian government and plans to commence operations in March at a yetto-be determined location.

THE AGE Former Howard-government health minister Michael Wooldridge has been banned as a company director for more than two years over his role in the US$500 million collapse of retirement village empire Prime Trust. Other directors of the scheme, including founder Bill Lewski, have also received bans, with Mr Lewski’s lasting 15 years, the most of any of the firm’s directors. Mr Lewski was described as the “most culpable by far” in the collapse of the scheme by Justice Bernard Murphy, after he facilitated a US$33 million payment for his own benefit.

he recent decision by the Bank of Japan to increase the scope of its quantitative easing is a signal that another round of currency wars may be under way. The BOJ’s effort to weaken the yen is a beggar-thy-neighbour approach that is inducing policy reactions throughout Asia and around the world. Central banks in China, South Korea, Taiwan, Singapore, and Thailand, fearful of losing competitiveness relative to Japan, are easing their own monetary policies – or will soon ease more. The European Central Bank and the central banks of Switzerland, Sweden, Norway, and a few Central European countries are likely to embrace quantitative easing or use other unconventional policies to prevent their currencies from appreciating. All of this will lead to a strengthening of the US dollar, as growth in the United States is picking up and the Federal Reserve has signalled that it will begin raising interest rates next year. But, if global growth remains weak and the dollar becomes too strong, even the Fed may decide to raise interest rates later and more slowly to avoid excessive dollar appreciation. The cause of the latest currency turmoil is clear: In an environment of private and public deleveraging from high debts, monetary policy has become the only available tool to boost demand and growth. Fiscal austerity has exacerbated

the impact of deleveraging by exerting a direct and indirect drag on growth. Lower public spending reduces aggregate demand, while declining transfers and higher taxes reduce disposable income and thus private consumption. In the eurozone, a sudden stop of capital flows to the periphery and the fiscal restraints imposed, with Germany’s backing,

Countries that were overspending, under-saving, and running currentaccount deficits have been forced by markets to spend less and save more

by the European Union, the International Monetary Fund, and the ECB have been a massive impediment to growth. In Japan, an excessively front-loaded consumption-tax increase killed the recovery achieved this year. In the US, a budget sequester and other tax and spending policies led to a sharp fiscal drag in 2012-2014. And in the United Kingdom, self-imposed fiscal consolidation weakened growth until this year. Globally, the asymmetric adjustment of creditor and debtor economies has exacerbated this recessionary and deflationary spiral. Countries that were overspending, under-saving, and running current-account deficits have been forced by markets to spend less and save more. Not surprisingly, their trade deficits have been shrinking. But most countries that were over-saving and under-spending have not saved less and spent more; their current-account surpluses have been growing, aggravating the weakness of global demand and thus undermining growth. As fiscal austerity and asymmetric adjustment have taken their toll on economic performance, monetary policy has borne the burden of supporting faltering growth via weaker currencies and higher net exports. But the resulting currency wars are partly a zero-sum game: If one currency is weaker, another currency must be stronger; and if one country’s trade balance improves, another’s must worsen.

Of course, monetary easing is not purely zero-sum. Easing can boost growth by lifting asset prices (equities and housing), reducing private and public borrowing costs, and limiting the risk of a fall in actual and expected inflation. Given fiscal drag and private deleveraging, lack of sufficient monetary easing in recent years would have led to double and triple dip recession (as occurred, for example, in the eurozone). But the overall policy mix has been sub-optimal, with too much front-loaded fiscal consolidation and too much unconventional monetary policy (which has become less effective over time). A better approach in advanced economies would have comprised less fiscal consolidation in the short run and more investment in productive infrastructure, combined with a more credible commitment to medium- and long-term fiscal adjustment – and less aggressive monetary easing. You can lead a horse to liquidity, but you can’t make it drink. In a world where private aggregate demand is weak and unconventional monetary policy eventually becomes like pushing on a string, the case for slower fiscal consolidation and productive public infrastructure spending is compelling. Such spending offers returns that are certainly higher than the low interest rates that most advanced economies face today, and infrastructure needs are massive in both advanced and emerging economies (with the exception of China, which has overinvested in infrastructure). Moreover, public investment works on both the demand and supply sides. It not only boosts aggregate demand directly; it also expands potential output by increasing the stock of productivity-boosting capital. Unfortunately, the political economy of austerity has led to sub-optimal outcomes. In a fiscal crunch, the first spending cuts hit productive public investments, because governments prefer to protect current – and often inefficient – spending on public-sector jobs and transfer payments to the private sector. As a result, the global recovery remains anaemic in most advanced economies (with the partial exception of the US and the UK) and now also in the major emerging countries, where growth has slowed sharply in the last two years. The right policies – less fiscal austerity in the short run, more public investment spending, and less reliance on monetary easing – are the opposite of those that have been pursued by the world’s major economies. No wonder global growth keeps on disappointing. In a sense, we are all Japanese now. Project Syndicate

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December 3, 2014

Closing Taiwan urges foreign investors to control Chang Hwa bank Russia sees first recession in 4 years in 2015 Taiwan’s finance ministry is urging foreign investors to elect its representatives to the board of Chang Hwa Commercial Bank (headquarters pictured) as it seeks to wrest control of the midsized lender from Taishin Financial Holding. Chang Hwa is due to elect a new board on December 8. Foreign investors hold an up to 15 percent stake, Wu Tang-chieh, a deputy minister at the finance ministry, told Reuters, and their vote is likely to be key in determining who will ultimately control the bank. Taishin is the top shareholder in Chang Hwa.

Russia’s economy may enter its first recession since 2009 in the first quarter, Deputy Economy Minister Alexei Vedev said, as the Ukraine conflict and lower oil prices exact a toll on the world’s biggest energy exporter. Gross domestic product may shrink 0.8 percent next year, compared with an earlier estimate of 1.2 percent growth, Vedev told reporters in Moscow (pictured) yesterday. GDP will probably shrink or show zero growth this quarter and decline in the next three months on an annual basis, he said. A recession is usually defined as two consecutive quarters of contraction on a quarterly basis.

Hong Kong, Shanghai up on easing hopes The PBOC last week announced a surprise cut in interest rates

ong Kong and Shanghai shares rallied yesterday on hopes the Chinese government will unveil fresh easing measures to boost the economy following another batch of weak manufacturing data. The Hang Seng Index in Hong Kong rose 1.23 percent, or 286.85 points, to 23,654.30 on turnover of HK$104.41 billion (US$13.47 billion). Traders moved back into the Hong Kong market after sending it tumbling 2.6 percent on Monday in response to China’s official index of manufacturing, which showed a further slowdown in activity. Tumbling oil prices also weighed on energy firms. Adding to buying sentiment yesterday was a surge of more than three percent in Shanghai, where investors were betting that leaders will unveil more measures to kick start the world’s number two economy. The central People’s Bank of China last month announced a surprise cut in interest rates, which sent regional stocks surging. Investment firm Reorient Group said: “These fundamental factors, besides cheaper crude oil, are putting legs under the rally in China stocks, which are also clearly benefiting from

1.23 pct Hang Seng Index rising

technical drivers including rising trading turnover and investors chasing the current upward momentum.” Wall Street offered a soft lead, with retailers hurt by disappointing sales over the Thanksgiving/Black Friday weekend, which kicks off the festive shipping season. The Dow eased 0.27 percent, the S&P 500 fell 0.68 percent and the Nasdaq sank 1.34 percent Monday. A slight recovery in oil prices after a two-day plunge to five-year lows helped energy companies, which had

been punished on Friday and Monday. PetroChina rose 1.87 percent to HK$8.19 and CNOOC added 1.12 percent to HK$10.84. However, airlines, whose biggest outlay is fuel, eased after a healthy run-up -- Cathay Pacific slipped 1.47 percent to HK$17.4 and Air China was 0.84 percent lower at HK$5.93. Among other firms Henderson Land Development added 1.87 percent to HK$51.65, HSBC gained 0.39 percent to HK$76.40

and China Mobile edged up 0.65 percent to HK$93.40. In mainland China the benchmark Shanghai Composite Index shot up 3.11 percent, or 83.39 points, to 2,763.55 -- its highest since July 2011 -- on turnover of 397.2 billion yuan (US$64.8 billion). The Shenzhen Composite Index, which tracks stocks on China’s second exchange, rose 1.48 percent, or 20.94 points, to 1,433.50 on turnover of 265.8 billion yuan. “Investors poured funds into high-quality, blue-chip

financial firms on hopes of a strong stock market performance,” Zhang Qi, an analyst for Haitong Securities, told AFP. And Tang Yonggang, chief investment adviser at Hong Yuan Securities, told Dow Jones Newswires: “The liquidity-driven strength in the stock market will extend.” Banks rebounded, recovering from falls on Monday after the central bank announced plans for deposit insurance. Minsheng Banking Corp. surged by its 10 percent daily limit to 7.91 yuan in Shanghai while Ping An Bank soared 7.63 percent to 13.12 yuan in Shenzhen. Securities firms also rose on expectations of good earnings growth. In Shanghai, Everbright Securities rose by its 10 percent daily limit to 21.41 yuan and Industrial Securities jumped 8.22 percent to 12.24 yuan. AFP

Qunar targets profit China probes stock regulator Vietnam to grow above target influenced by Alibaba rivalry official over IPOs conomy is expected to grow faster than its

unar Cayman Islands Ltd., a Chinese travel website, forecast its first profit as a public company in the fourth quarter of 2016 as competition intensifies and Alibaba Group Holding Ltd. expands. For next year, marketing costs will continue to rise in line with sales, while headcount expenses will be under control, Chief Executive Officer CC Zhuang said in an interview in Beijing yesterday, the first time the company controlled by Baidu Inc. has given a timeframe to turn profitable. “If we can properly deliver our strategy, we will be profitable at the end of 2016,” he said. Competition in the travel market is increasing in China, where an estimated 116 million people will travel abroad this year, exceeding the populations of Canada and Germany. In August, Ctrip.com International Ltd., the nation’s biggest travel website, agreed to a US$500 million investment from Priceline Group Inc. Alibaba in October rebranded its travel business as Alitrip, an independent unit to tap mobile users.

hina is investigating a senior official in its stock market regulator for corruption, with domestic media linking the probe to companies listing on the country’s US$400 billion technology board. The Communist Party’s corruption watchdog said Li Liang, head of the investor protection bureau of the China Securities Regulatory Commission (CSRC), was under investigation for “violation of laws and discipline”. The investigation comes as China’s securities regulator is pushing to make the IPO approval process more transparent, and during a government clampdown on corruption. From 2009 to 2012, Li had responsibility for examining companies’ proposed initial public offerings (IPOs) for the Nasdaq-style ChiNext board of the Shenzhen Stock Exchange, according to Caixin magazine. ChiNext now lists 400 companies with a market capitalisation of 2.39 trillion yuan (US$390 billion), according to the exchange.

5.8 percent target this year, accelerating from last year thanks to steady growth in exports, the government said yesterday. Growth this year could be more than 5.9 percent, while inflation could stay below 3 percent, Prime Minister Nguyen Tan Dung told the annual Vietnam Business Forum, revising his estimate from “above 5.8 percent” mentioned earlier in a government statement. Stable growth is crucial to the export-driven economy as the government is in final talks on multiple trade deals and has been pushing for reforms to erase bad debt and remove hurdles that have been curbing expansion. “Vietnam has grown to achieve quite comprehensive results in various areas, including in the economy, society and politics, but the achievements are yet to match with potential and have not reached our own requirements,” Dung said. Beijing’s decision to move an oil rig into waters claimed by Hanoi in May had hurt the country’s economic performance, he said.

Bloomberg News

AFP

Reuters