Macau Business Daily, Dec 10, 2014

MOP 6.00 Closing editor: Luis Gonçalves Number 685 Wednesday December 10, 2014

Publisher: Paulo A. Azevedo

Social benefits likely reduced in 2016

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Year III

ll the eggs have been in one basket. With the vast majority of direct taxes being stumped up by the casinos. The city’s expenses on social benefits largely rely on gaming tax revenue. The flat 2014 growth predicted by the gov’t will not affect the status quo next year. But 2016 could be another matter entirely. Chan Chak Mo, head of the Legislative Assembly’s second permanent committee, says zero growth next year could have far-reaching consequences PAGE

Sorte Estrela eyes a Macau casino

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Junket operators are having a tough time. But Sorte Estrela is not fazed. Having opened its first VIP room in Macau yesterday, it’s set its sights on the main prize.

From 10 VIP tables in Altira. To two more high roller rooms in Macau by 2017. To opening a casino within five years. Executive Director Fabian Fong tells Business Daily that by preference it will build in Macau. If not, there’s a big wide world out there

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China Resources Land

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China Life Insurance

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Source: Bloomberg

“Refined’ Crowne Plaza to open in 2Q 2015 Yes, there are HR challenges. But Crowne Plaza Macau GM Dominique Berhouet is more than upbeat. Slated to open early to mid-next year, the new hotel will be a “small but refined project”. Increasing visitors to the territory are encouraging. And being off the beaten track can be an opportunity, he says

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Growing competition www.macaubusinessdaily.com

Novotel Zhuhai opens December 20. Targeting business and leisure travellers stopping off at both the city and Macau. The 268-room property will add to Novotel’s existing network of five hotels in the Pearl River Delta

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Roadmap rethink

Haitong buys Portugal-based BESI for HK$3.6 bln PAGE 8

Appeal of Broken Tooth’s former associate rejected PAGE 6

It started yesterday. The annual Central Economic Work Conference in Beijing.

Task: develop next year’s economic roadmap. Meanwhile, experts are recommending government reduce its 2015 growth forecast

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More financial innovation needed, says Nobel Laureate Robert Merton PAGE 8

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December 10, 2014

Macau

Social expenses could be ‘affected’ in 2016 A legislator said the government’s budgeted expenses for next year, including social security cost, will not be affected by zero growth or less gaming revenue.

But 2016 could be a different story altogether Stephanie Lai

sw.lai@macaubusinessdaily.com

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he city’s expenses on social benefits, which largely rely on gaming tax revenue, will be affected only in the year 2016 should a zero growth forecast by the government for gaming revenue next year prove to be correct. Chan Chak Mo, the head of the Legislative Assembly’s second permanent committee, made the comment following a closed-door meeting deliberating upon the budget plan yesterday.

“For next year, in terms of gaming tax revenue and casino operators’ social contributions, the government estimates that in these two areas they will not see growth,” said Mr. Chan, who is also a member of a special Legislative Assembly committee that focuses on Macau’s financial affairs.

“But for what the government has already committed for the allotment to the provident fund and social security fund for the coming year, this is already fixed,” Mr. Chan informed media after the meeting. “If the social benefits expenses were to be affected by even less [gaming] revenue, at most the related contribution from the government would only be affected for the year 2016”.

The social security fund supports the city’s pension and several allowances, including allowances for unemployment, sickness, birth, marriages and funerals. The government is budgeting nearly MOP3.59 billion (US$449 million) to support the fund’s operation for 2015, according to its budget plan; but the detailed projections for the government’s contribution to the fund in the coming year were not revealed yesterday.

For 2013, the social security fund posted a revenue of nearly MOP12.7 billion, of which 95 per

THERE ARE THINGS WE DON’T DO

cent or MOP12 billion came from government contributions, the social security fund report for last year said.

The government’s contribution included a special injection of MOP5 billion into the fund, plus the regular

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Those people and their actions are our inspiration.

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Lau Si Io will likely head up the Science Centre, while Vasco Fong looks to be on his way to overseeing the Personal Data Protection Office

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There are men and women who give human kind their perseverance, their genius, their generosity and, in some cases, their own life.

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Gov’t reshuffle, take two

he reshuffling for Chief Executive Chui Sai On’s new administration isn’t over yet.

Incumbent Secretary for Transport and Public Works Lau Si Io will likely head the Science Centre, while the current commissioner of

practice of the government of reserving 1 per cent of the annual budget to support the fund; in addition, the government allocates no more than 3 per cent of annual gaming profits to social services, in which 75 per

cent of that money goes to the fund.

The MSAR Government is budgeting MOP154.7 billion for 2015, while spending MOP83.7 billion. That leaves the estimated surplus figure at MOP71 billion.

As Secretary for Economy and Finance Francis Tam Pak Yuen introduced the budget plan for a first reading at the Legislative Assembly last month, the city’s government expects to collect nearly MOP125 billion in direct taxes, of which the gaming tax would account for MOP115.5 billion.

The Legislative Assembly is now in the final stage of approving the 2015 budget plan; a plenary session will be held next week for the final reading of the plan, Mr. Chan said.

A major issue that the special committee on financial affairs of the Assembly has to address with regard to the budget plan is to see to the rapid rise seen in the budget for civil servants’ salaries and recruitment for 2015, which costs over MOP18.5 billion – representing a rise of MOP2.9 billion more, or 18.5 per cent higher, than when compared with this year.

The government explained to Mr. Chan’s committee that it was seeking to recruit 2,234 more people in the coming year in addition to the existing 32,791 civil servants. “As for whether the government really needs so many people in the coming year, our special committee will pursue the subject asking for more explanations,” said Mr. Chan. “But even if we work on our monitoring task, if the budget framework law [in amendment process now] does not give us enough power to grant the budget to be spent, the government still has the right to do what they are after – be it recruitment or other affairs.”

the Commission Against Corruption (CCAC) will move to direct the Personal Data Protection Office.

The news of Chui’s cabinet reshuffle was reported by local media, according to which Chau Wai Kuong, the current sub-director of Judiciary

info@goldfishmacau.com +853 2833 1258 www.goldfishmacau.com

Police, will become the authority’s director. The change takes place after incumbent director Wong Sio Chak becomes the new Secretary for Security.

A second sub-director of the Judiciary Police, Cheong Iok Kuan, will also move to become the head of the Cabinet for the Secretariat for Security. He worked with the newly nominated Secretary, Wong Sio Chak, more than 10 years ago. Previously, he had also been the director of the Judiciary Police School here.

Director of the Identification Bureau (DSI) Lai Ieng Kit will likely head the Cabinet for the Secretariat for Social Affairs and Culture, according to local media. In addition, the current advisor to the Cabinet for

the Secretariat of Social Affairs and Culture, Iao Man Leng, will become the new head of the Cabinet for the Secretariat of Administration and Justice.

With this change, the current head of the Cabinet for the Secretariat for Administration and Justice, Cheong Chui Ling, is set to move on to the Cabinet for the Secretariat for Transport and Public Works to conduct the same duties as currently.

Also, incumbent Secretary for Social Affairs Cheong U is said to head the executive committee of the Macau Foundation, while current Prosecutor General Ho Chio Meng will continue working for the Public Prosecutor’s Office, according to local media.

Business Daily | 3

December 10, 2014

Macau

Sorte Estrela: From VIP tables to casino hotel Yesterday, the gaming promoter hosted the grand opening of its first VIP room in Macau, and aims to open two more within two years. The main goal, however, is to have a casino hotel in Macau within the next 5 years João Santos Filipe

jsfilipe@macaubusinessdaily.com

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he grand opening of Sorte Estrela’s VIP room in Altira Macau took place yesterday.

The gaming promoter expects that this will be the first step on a path that will end with Sorte Estrela’s own casino hotel.

“I hope this is the first of three casino VIP rooms the company is going to open within two years.

And then after five years maybe the company will go through an IPO [Initial Public Offering] to become listed. The sale of equities will allow us to construct a casino hotel”, Executive Director of Sorte Estrela Entertainment Limited Fabians Fong told Business Daily yesterday.

The opening of the VIP room in Altira Macau comes at a time when the VIP segment is shrinking in Macau, as the Central Government in Beijing tightens its grip on graft. On the other hand, access to credit has

Sorte Estrela management celebrates first VIP room in Macau

become increasingly difficult and smaller gaming promoters are facing tough times.

“The VIP market is shrinking but that’s not affecting our operations.

Most gamblers in Macau come from Mainland China and we have clients from the Mainland as well.

However, that is not our reality. Our clients come mainly from Indonesia,

Malaysia, Singapore, India, Japan and Korea”, he said.

Sorte Estrela’s VIP room on the second floor of Altira Macau has 10 gaming tables that are borrowed from the Tung Shing VIP Club.

“Macau is the most difficult place to open a VIP room. The main difficulty comes not from the expenses related to the rent of the space but rather the expenses required to guarantee gaming tables”, the Executive Director of Sorte Estrela said.

In relation to a second VIP room operated by Sorte Estrela, the company is studying various scenarios. “We’re still thinking about the place. It may be in the City of Dreams or on the Macau Peninsula”, he said.

The goal of Sorte Estrela is to build its own integrated resort. With regard to this ambition, Macau is the most favoured place to build.

However, the company - which has six offices in Macau, Hong Kong, Malaysia and Indonesia - does not exclude the possibility of building in another country.

“Macau is our main target but if we cannot make it here we will build it in other country”, Mr. Fong said.

An a time that the government is emphasising the need for the Special Administrative Region to diversify its economy, opening a casino may not be the easiest of the tasks. The problem begins with a licence to run it.

“The ideal thing would be to have our own gaming licence. But if that is not possible, we will run a casino under the licence of another gaming operator”, Fong said. “I believe that for an amount of roughly HK$2 billion one may have the authorisation to run a casino under the licence of another gaming operator”.

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December 10, 2014

Macau Brought to you by

HOSPITALITY Restless residents Macau residents are travelling in increasing numbers. Travel arrangements made through travel agencies provide the best indicator of trends for these flows. Last year alone, almost 550,000 residents travelled on excursions using the services of travel agencies, while almost 900,000 individual trips were arranged by those agencies. In rough terms, that means residents used those services, on average, 2.4 times in 2013. In 2010, the total number of arrangements, both excursions and individual trips, were just over half the 2013 amount and the number of arrangements per resident stood at 1.4 cases per year. In both types of travel arrangements, China is becoming an increasingly dominant destination. The latest available figures, for last October, confirm that trend, and suggest that these figures are likely to grow this year by 7 to 8 per cent.

Li Gang, director of the Liaison Office

Li Gang: Macau achieves ‘leapfrog development’ with full central gov’t support If we compare the figures for the first 10 months of the year since 2008, we find excursions to China rose almost 2.9 times, a figure a bit above the average, which rose 2.6 times. Over the period, the share of China in the total number of excursions rose from 67 per cent to 73.3 per cent. The figures for individual travel are more impressive. In the same period, they rose 5.2 times and their share more than doubled, from less than a quarter to about 52 per cent. The chart shows neatly that trips to Honk Kong and Taiwan also increased albeit at noticeably lower growth rates. Travel to China, in either direction, is currently more frequent than to Hong Kong and Taiwan taken together.

Clearly, that was not the case in 2010. Overall, Greater China absorbs the vast majority of travellers. Their combined share currently represents about 85 per cent of all trips.

1.28 mln

trips by Macau residents arranged through travel agencies, October

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hina’s central government has always been a strong support behind Macau’s notable economic and social progress over the past 15 years, and will continue to back up Macau’ s development, said Li Gang, director of the Liaison Office of the central government in Macau.

It was Macau people’s adherence to the ‘One country, Two systems’ policy, the efforts of the Macau Special Administrative Region (SAR) Government and the central government’s support that jointly facilitated the region’s leapfrog development, said Li. “Earthshaking changes have taken place here over the past 15 years,” said Li, recalling the scenes he witnessed when Macau celebrated its return to the motherland in December 1999.

The central government has paid much attention to Macau’s development. While drafting the national socio-economic development programme, the central government gave firm support for Macau to build a world tourism and leisure centre and a platform for economic and trade cooperation with Portuguese-

speaking countries, which Li said is a major move to help Macau readjust its economic structure and lessen its heavy dependence upon casino gaming.

“Only by diversifying the economy can Macau prevent economic crisis,” he said.

Guided by China’s 12th five-year plan for socio-economic development for 2011-2015, the SAR Government strengthened urban planning and protection of historic sites, and launched the Ministerial Conference of the Forum for Economic and Trade Cooperation between China and Portuguese-speaking Countries.

Boosted by the triennial event, among others, trade between China and Portuguese-speaking countries surged to US$130 billion in 2013 from US$10 billion about a dozen years ago.

“Macau has played an irreplaceable role in China’s cooperation with these countries,” he said.

To further boost development in Macau, the central government signed the Mainland and Macau Closer Economic Partnership Arrangement (CEPA) in October 2003, which has

greatly promoted trade facilitation and boosted investment.

Under CEPA, the value of Macau’s zero-tariff exports to the mainland reached MOP530 million (about US$66.4 million) by June this year.

“The 15 years of development in Macau also proved a great success for the ‘One country, Two systems’ policy,” Li added.

The full implementation of the policy and Macau people’s support for the Basic Law has guaranteed that Macau people govern Macau and the SAR enjoys a high degree of autonomy, he said.

In the future, the central government will continue to improve the systems and mechanisms related to the implementation of the Basic Law, ensure the region’s high degree of autonomy and support the SAR Chief Executive and government in administration according to law, said Li. “I believe that with the joint efforts of the central government and the SAR Government, Macau will enjoy sustained prosperity and social harmony,” said Li. Xinhua

December 10, 2014

Business Daily | 5

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December 10, 2014

Macau Eldest daughter Jane Ho passes away

Novotel Zhuhai opening December 20 Novotel is opening in Zhuhai on the day of the MSAR handover anniversary, and hopes to attract both business and leisure travellers visiting both the city and Macau Stephanie Lai

sw.lai@macaubusinessdaily.com

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ovotel - the mid-scale hotel brand of French hotel Group Accor - will see its Zhuhai property opening for operation on December 20, adding to Novotel’s existing network of five hotels in the Pearl River Delta.

The new hotel, with 268 rooms and a floor providing MICE (meetings, incentives, conferences and exhibitions) facilities is located in midtown Zhuhai about 20 minutes’ walk from the Gongbei border. The hotel’s Pearl River Delta portfolio includes three Novotels in Hong Kong and two others in Shenzhen.

General manager of Novotel Zhuhai, Mr. Emile C. Aver, told Business Daily that the new hotel

is ready to welcome walk-in guests starting December 20, while its online booking system should be functional

by January.

Situated in a city of abundant Chinese budget hotels and inns, Novotel Zhuhai’s target clientele will be mainland Chinese business travellers – although Novotel Zhuhai also hopes to attract family visitors, Mr. Aver said.

“In Zhuhai, you have the seafood restaurants, the hot springs and the [statue of] the Fishing Lady . . . and with about a 40-minute drive visitors can also head for the Chimelong Hengqin theme park,” he said, noting that these attractions in Zhuhai as well as a cross-over to Macau could

Appeal of Broken Tooth’s former associate rejected Kam Leong

kamleong@macaubusinessdaily.com

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he Court of Second Instance (TSI) recently rejected the appeal of Artur Chiang Calderon, a former right-hand man to ex-14K gang boss ‘Broken Tooth’ Wan Kuok Koi, regarding the judgment of the Court of First Instance (TJB) in May that he was guilty of attempted assault and possession of prohibited weapons and sentenced to imprisonment for four years and nine months.

Mr. Calderon and three other men, including two fellows surnamed Fung and Zhou and junket promoter Lam Peng Chi, were first accused of attempted murder of the unfaithful wife of Mr. Lam in 2012. The judgment of TJB in May reduced this charge to attempted assault,

stating that there was no irrefutable evidence to show that the four men had intended to kill Mr. Lam’s wife although it was undoubtedly the case that the wife’s body would have been seriously injured if penetrated by the

be of particular appeal to visitors from northern China.

The mid-scale brand Novotel, whose operation in Zhuhai will post rates for a standard room from 500 yuan (US$80.7) to 700 yuan, aims to build a network of 500 hotels within five years, the Accor Group noted in its business review for 2013.

According to the review, there were 402 Novotels in 60 countries in Asia Pacific and Europe at the time, with 92 openings in the pipeline, of which over half were located in Asia.

The only member of the Accor Group currently operating in Macau is the luxury hotel brand Sofitel, situated on the premises of Ponte 16 in the Inner Harbour on the Macau Peninsula.

screwdrivers the defendants owned.

Mr. Calderon and his partners all denied attempted assault, claiming the court should declare them innocent or reduce their prison sentences.

TSI stressed in its judgment, however, that ‘Although the evidence of the first trial did not indicate the body or the health of the victim had been seriously injured, it does not affect the possibility that the court can rule the criminals were guilty of attempted assault’.

As such, TSI said the appeal filed by the four defendants regarding their convictions for attempted assault was without merit. The Court would maintain all the charges as sentenced in the first trial and would not hear other reasons that the men offered for their appeal.

In 2012, according to police, Mr. Lam offered 200,000 patacas to Mr. Caldron, a former PJ detective, to murder his wife, who was cheating on him. Mr. Calderon, after accepting the proposition, contacted his fellows Fung and Zhou to conspire in the plot. The four suspects prepared for the crime for around two months.

Yet, when Zhou was about to attack Mr. Lam’s wife in her home, he was prevented by PJ officers who were hiding in wait.

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ane Francis Ho, the eldest daughter of gaming tycoon Stanley Ho Hung Sun, passed away last week from rupture of the cerebral vascular aged 67 years, her daughter Ringo Siu confirmed to media on Monday.

Ms. Ho was the first daughter of Mr. Ho and first wife Clementina Leitão. Her funeral was held at Hong Kong Funeral Home yesterday, while the procession is scheduled for today. She will be buried in Hong Kong’s Chiu Yuen Cemetery, the family cemetery of Sir Robert Ho Tung, according to South China Morning Post’s Chinese edition.

Ms. Siu told reporters in Hong Kong on Monday that Ms. Ho had suffered from problems of nerves and vessels seven years ago, before both of her kidneys stopped functioning, the news outlet reported.

In fact, it had been rumoured that Ms. Ho was also suffering from mental disorders following her divorce from Siu Pak Shing, son of Hong Kong’s funeral service mogul Siu Ming, compounded by the death of her brother, Robert Ho, both of which happened in 1981.

Mr. Robert Ho, the only son of Mr. Ho and Ms. Leitão, died in a car crash in Portugal. Mr. Stanley Ho, currently 93 years old, has 17 children with his four wives.

K.L.

In fact, the ex-PJ detective was imprisoned for 10 years and six months in 1999 along with his ex-boss Mr. Wan after both men were arrested by police in 1998 following a failed bomb attack allegedly targeting thenPJ chief António Marques Baptista.

Released in 2009, Mr. Caldron was active in the VIP gaming business in casinos before being arrested again in December 2012 - a week before Mr. Wan’s scheduled release from jail.

CORRECTION In Friday’s edition of Business Daily (December 5, 2014) we incorrectly said that Telecommunications operator Companhia de Telecomunicações de Macau SARL (CTM) had lost 33 per cent of its fixed-line business since MTEL had started operations. In our story ‘CTM ready to face competition’ on page 6, it should read that ‘CTM welcomes market competition after MTEL announced a coverage of 33 per cent.’ We apologise for any inconvenience caused.

Business Daily | 7

December 10, 2014

Macau

Gaming in a slump but increasing visitor numbers good news Crowne Plaza Macau is scheduled to open in 2Q 2015, GM Dominique Berhouet tells Business Daily. Human resources present a challenge but he’s generally optimistic about IHG’s “small but refined project” Joanne Kuai

joannekuai@macaubusinessdaily.com

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rowne Plaza Macau - of the Intercontinental Hotels Group - is at pre-opening stage. General Manager Dominique Berhouet told Business Daily that the growing visitation to Macau is a great sign and that the company is not overly concerned by the slump in the gaming industry provoked by the ongoing decline of gross gaming revenue.

“It’s encouraging to see that [although] gaming businesses have been affected the number of tourists are ahead of last year, which indicates to me that people are coming to Macau perhaps doing something other than gaming,” said Mr. Berhouet. “If that’s the case, and we continue to build this as a destination resort, it’s going to attract leisure guests and families. I think it’ll be terrific for Macau, for the people of Macau, for the city, more diversity.”

Mr. Berhouet said the hotel originally slated to open by the end of this year – is now scheduled to open in the second quarter of 2015.

He denies it’s a delay but says some processes take time. “Here we are working with local authorities for human resources, quotas and for other issues such as licensing programmes.

The human resources issue is the one I’m focusing on most right now”.

The aim of the hotel is to have 217 employees. Mr. Berhouet said, as of November, there are 28 personnel in position, of whom 23 are local.

Mr. Berhouet admitted that human resources are a great challenge here

in Macau but that they are now focusing on bringing onboard more local youngsters.

Challenges “It’s a huge challenge. And I exactly intend to meet the challenge. I made a speech at MUST (Macau University of Science and Technology). We’re looking at universities and all the resources that people in Macau are already looking at. We’re hoping to attract people to work in our hotel,” said Mr. Berhouet. “If we can get young people with no experience and we can hire on attitude and train those people up, I’m sure we’re going to be very successful”.

Unlike the majority of hotels in town, Crowne Plaza is located in the north end of the Macau Peninsula in Areia Preta - not close to any gaming facilities or even tourist spots, which Dominique Berhouet considers a “great and unique selling point . . .

I like this hotel because it’s different.

It’s different than anything that’s being offered right now. And it’s going to be a unique experience for people. That’s why I like to think there’s going to be a demand for a hotel like this in Macau.”

Crowne Plaza Macau is also located in one of the seven towers of the Residencia, of which five towers are residential apartments, one is for Grand Residencia executive apartments and one is for the hotel. Mr, Berhouet believes the strong residential base will play to

their advantage.

“I think it would be a huge benefit for us because we basically already have a base of people, of residents that are connected to our building, so we’re very optimistic,” he said.

“We’re looking into three different incentive programmes right now.

And we’re also looking at a loyalty programme for the local market.

Hopefully, we’re going to attract a lot of Macau people. We’re going to need Macau people to be in our restaurants to be successful”.

Mr. Berhouet expects the hotel market occupancy rate to reach upwards of 70 per cent during the first year it opens and attract frequent individual travellers and families as well as corporate business.

Long stay Mr. Berhouet joined Intercontinental Hotels Group (IHG) in 1999, and has opened or rebranded various hotels, primarily with Crowne Plaza Hotels and Resorts during his 15 years with the group.

Prior to his appointment, he was GM of Crowne Plaza Hong Kong Kowloon East, where they did a unique model of opening the Crowne Plaza and Holiday Inn Express and service apartments all in one area, under one management team. It’s the first time the company undertook such an initiative. He believes it’s a model that is going to be carried over and would be done by a lot of hotels in the future.

With a strong suit in pre-opening and re-branding in the hospitality industry, he says he intends to stay for a while with this new project in Macau.

“I want to stay here. I’ve really grown attached to the project. I look forward to spending a few years in Macau. I like it here. I want to open it, make it very successful, create a great team and create a great business here - and create a hotel that all of our guests love”.

CROWNE PLAZA MACAU 208 rooms 17th floor indoor swimming pool 780 sq. m grand ballroom 6 multifunction rooms 170 seats in All Day Dining Restaurant 145 seats in Chinese Cantonese Restaurant 8 km from Macau International Airport 5 minutes drive from Zhuhai Gongbei Border Gate

8 | Business Daily

December 10, 2014

Macau

Haitong buys BESI for HK$3.6bln Novo Banco’s investment unit has been sold to the Chinese company, Haitong has announced in a filing with the Hong Kong Stock Exchange

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aitong Securities Co Ltd has bought Novo Banco’s investment bank Banco Espirito Santo de Investimento (BESI) for 379 million euros (HK$3.6 billion).

According to a company filing with the Hong Kong Stock Exchange, Haitong’s wholly-owned subsidiary HTIH, which entered into the purchase agreement with the Portuguese bank,

will pay 56.9 million euros as an ‘initial payment’ by December 19, followed by the remainder once the full purchase is completed.

Completion should take place 15 working days from

when the agreement was first entered into, according to the filing, meaning that it should be finalised by December 31.

The sale of BESI is the latest stage in the dismantling of the family-controlled

Nobel Laureate: Financial innovation essential to improving global system Robert Merton spoke on the role of fiscal science in the global practice of finance

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nnovation is the driving force behind improving the global financial system, says Robert Merton, the 1997 Nobel Laureate in Economics and this year’s recipient of an honorary doctorate from the University of Macau, who was here as a keynote speaker in a forum entitled ‘Finance and Social Responsibility’.

During his speech, he said that the scientific breakthroughs in finance during the last 40 years shaped and were shaped by ‘extraordinary innovations’ in finance practice. These, in turn, allowed for expanded opportunities for risk sharing and lowered transaction costs

as well as information and agency costs, he said.

While financial innovation is essential, it also carries with it increased risks,

‘particularly from mismatches between innovation and the infrastructure necessary to support it,’ Professor Merton said, pointing out that this

was the case of the global financial crisis between 2008 and 2009. It was the ‘result of inappropriate use of financial innovations,’ he said.

As an example, from another of his speeches in 2010, Professor Merton took the rising home prices between 1996 and 2006 in the US as ‘Trend 1’, declining US interest rates as ‘Trend 2’, and the increasing efficiency of mortgage refinancing as ‘Trend 3’.

According to him, “Each trend taken individually is beneficial or benign,” while all three together creates the “unintended synchronisation of homeowner leverage.”

While leveraging can

Espirito Santo group in the wake of revelations in May of accounting irregularities in one of its holding companies.

Portugal launched Novo Banco as part of a 4.9-billioneuro bailout of BESI aimed at averting a national disaster and a fresh eurozone crisis.

Novo Banco, which holds the healthy assets of BESI (including Macau branch, BESOR), was itself put up for sale last week, with tenders closing at the end of the year.

The sale is aimed at raising funds to pay back 3.9 billion euros to the Portuguese Government – the part of the bailout that was disbursed in the form of a loan.

BESI, directed by Jose Maria Ricciardi, the cousin of former BESI boss Ricardo Salgado, operates in 16 European countries as well as in the Americas, Africa and Asia. Its net profit was 3 million euros in the first half of the year.

Haitong International, listed on the Hong Kong stock market, has 4.6 million private customers and 12,000 institutional clients in nearly 30 Chinese provinces.

Novo Banco shed its insurance arm Tranquilidade, selling it to Apollo of the United States, while its travel subsidiary Espirito Santo Viagens was sold to Switzerland’s Springwater and its health unit Espirito Santo Saude was snapped up

by Fosun of China following a takeover battle in October.

Fosun, as well as Spanish banks Caixa and Santander, have expressed interest in acquiring Novo Banco.

S.F. with AFP

be done incrementally, deleveraging cannot. This is primarily because of, according to Professor Merton, the indivisibility of owner-occupied residential housing. The result is that the “residential mortgage market is six times more vulnerable” and estimated losses of between US$1.2 trillion and US$1.5 trillion were recorded between June 2006 and December 2008.

Also at the forum as guest speaker was Tian Guoli, chairman of the board of directors of the Bank of China, who discussed how financial institutions lack a sense of social responsibility if they single-mindedly pursue profits. “The gap between theory and reality would be widened,” he said, adding that financial practitioners must balance engaging in behaviour as an economic man and assuming their social responsibility. The financial sector, he said, is part of society and should assume the responsibility to advance the development of society.

Business Daily | 9

December 10, 2014

Gaming

US District Court dismisses LT Game litigation

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he United States District Court has dismissed litigation brought by LT International, Ltd, an affiliate of LT Game, against SHFL entertainment, Inc. SHFL – formerly known as Shuffle Master – has been in a long and at times bitter trade dispute with a Macaubased company called LT Game Ltd and its Hong Kong-listed parent company Paradise Entertainment Ltd. It concerns a patent claimed in Macau by LT Game for technology in a multi-game electronic table game product featuring a live dealer.

Bally Technologies Inc last year acquired SHFL Asia’s parent company SHFL Entertainment Inc. Locally-based casino supplier LT Game Ltd, a subsidiary of Hong Kong-listed Paradise Entertainment Ltd, complained that SHFL’s product – a table game with electronic bets but featuring a live dealer – infringed an LT Game patent in Macau for multi-terminal systems combining electronic betting with a live dealer.

“We are pleased that the Federal Court dismissed this matter,” said Ken Jolly, SHFL’s vice president Asia. “We are committed to serving the needs of customers in Macau and in all legalised gaming markets

openly and competitively, and this important decision enables us to continue on this path with even greater focus.”

In October 2012, a counter litigation by Shuffle Master Asia Ltd, a unit of

SHFL, sought to prevent Paradise and its units from claiming a monopoly in Macau on the relevant technology. A month after the injunction, Macau’s lower court dismissed the case, and SHFL filed an appeal with

the Court of Second Instance.

Now the Court of Second Instance has also dismissed SHFL’s appeal.

In Macau, patent infringement is a criminal offence. As such, the case was brought by the Public

Prosecutor’s Office, with businessman Jay Chun – chairman of LT Game and of Paradise – as what’s known under the Criminal Procedure Code system as an ‘assistant’ to proceedings.

S.F.

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Casino trade group releases first industry standards

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nder pressure from the federal government, the trade group for the U.S. casino industry has released the first ever set of best practices aimed at helping the industry police itself for money laundering activity.

“For a number of years, individual properties and companies within the casino industry have made anti-money laundering compliance a priority but

the best practices are really the first time the industry came together as one to tackle this,” American Gaming Association Chief Executive Geoff Freeman said in an interview.

Since mid-2013, casinos have been on notice they must step up their compliance with the Bank Secrecy Act, the primary U.S. anti-money laundering law, which has required them to report large cash transactions

for decades and since 2002 has obliged them to report customers’ suspicious activity.

For those that fail, there is an increasing threat of civil or even criminal penalties from the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and the Justice Department.

But even as casinos scramble to comply, a rulemaking push on the back burner at FinCEN could add to their burden, requiring them to scrutinise the source of high-rollers’ funds, a source familiar with the matter said.

FinCEN makes and enforces antimoney laundering rules pursuant to the Bank Secrecy Act. The 17-page AGA best practices document, which was released to FinCEN, was developed by about 20 casino compliance officers and lawyers and overseen by AGA’s Bank Secrecy Act compliance unit. It outlines money laundering risks, regulatory requirements and compliance strategies.

The document says casinos should take extra steps to determine where high-roller customers’ money originated in risky transactions, such as those from jurisdictions of concern.

Macau, where several American casinos operate, is one top area of concern for U.S. officials.

In March, Thomson Reuters reported FinCEN was weighing a rule to shed light on the source of certain gamblers’ money. That was put on hold because of other rulemaking priorities, a source familiar with the matter said on condition of anonymity.

Casino executives began feeling heat from federal authorities in August 2013, when Las Vegas Sands Corp agreed to pay US$47 million to settle with Justice over anti-money laundering failures.

In October 2013, Caesars Entertainment Corp disclosed FinCEN was investigating a subsidiary, Desert Palace Inc, over purported BSA compliance failures.

Reuters

10 | Business Daily

December 10, 2014

Greater China Shanghai aluminium sinks Shanghai aluminium plumbed its lowest level since May yesterday as growing overcapacity and the shaky outlook for demand in China curbed buying that had already begun to wane towards year-end. “Supply is growing steadily, with new capacity and idled plants (restarting),” said analyst Paul Adkins of consultancy AZ China in Beijing. “Demand is sputtering. It’s a combination of weak macroeconomic signals and pre-year-end wind-down.” Chinese manufacturers have been exporting semi-processed aluminium shapes, sidestepping export tariffs and easing a supply shortage in the rest of the world.

Investment in Vietnam close to US$8 billion As of December 5, Chinese investors registered 1,082 projects with registered capital of US$7.94 billion in Vietnam so far, ranking ninth out of 101 economies investing in Vietnam, according to Vietnam’s Ministry of Planning and Investment’s Foreign Investment Agency (FIA).

The average investment per project by Chinese investors stood at 7.34 million dollars, compared with the average level of over 14 million dollars per one foreign direct investment (FDI) project in Vietnam.

Chinese investors turn out to be keen on industrial processing and manufacturing with 744 projects and 4.23 billion U.S. dollars, accounting for 53.3 percent of the Chinese investment in Vietnam.

Hebei shifts steel mills to coast Northern China’s Hebei province, the country’s dominant steel producing region, is set to move 16 million tonnes of output capacity to the coast in a step aimed at “upgrading” the sector. According to a document posted on the official local government website (www. hebei.gov.cn), steel enterprises signed an agreement with banks and local governments at the weekend aimed at shifting operations to new port zones. Moving facilities to the coast has been a major part of a strategy aimed at consolidating China’s bloated and fragmented sector.

Hainan to buy more Thai rubber China’s Hainan Rubber Industry Group is in talks with the Thai government about buying a further 200,000 tonnes of rubber, a source with knowledge of the matter said yesterday, but no deal has been done yet. Thailand’s deputy agriculture minister, Amnuay Patisse, told Reuters on Monday that the rubber had already been sold, the second large sale to the Chinese group in as many months. hailand, the world’s top rubber exporter, was struggling to ship bulging stockpiles of the commodity until Hainan stepped in to snap up 208,000 tonnes in November.

Emissions pledges to curb warming Recent pledges by China, the United States and the European Union to limit greenhouse gas emissions will slow the rate of global warming this century, a study by climate scientists showed. But the study, released during U.N. talks on a climate deal in Lima, said temperatures were still on track to breach a promise by almost 200 nations to limit global warming to 2 degrees Celsius (3.6 Fahrenheit) to avert more heat waves, floods and rising sea levels.

China advisers recommend 7pct growth goal in 2015 Economists expect policymakers to embark on their biggest easing campaign since the global financial crisis Kevin Yao

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hina’s leaders should cut next year’s economic growth target to 7 percent, according to influential advisers recommending the country’s leadership which met yesterday to map out economic and reform plans for 2015.

China looks set to miss its growth target this year for the first time since 1999, and full-year growth is likely to be the weakest in 24 years.

The government last cut its annual growth target in 2012, to 7.5 percent from the 8 percent it had kept for eight years.

Government-run think-tanks, which are influential in the decision-making process but do not wield power themselves, plan to recommend that Beijing reduce its official 2015 GDP growth target to 7 percent from 7.5 percent this year, sources said.

“President Xi (Jinping) has already hinted at the growth target when he said growth of 7 percent is the highest in the world,” said a senior economist at the Chinese Academy of Social Sciences (CASS), who declined to be named.

“I think it should be 7 percent if there are no more surprises. But it can’t be lower than 7 percent, otherwise there could be employment problems and debt default problems.”

China’s reform-minded leaders have shown greater tolerance for slower growth, but will have to tread carefully to avoid a sharper slowdown that could fuel job losses and debt default risks, analysts say.

The annual Central Economic Work Conference, which state radio said gathered from yesterday, may reiterate a prudent monetary policy, but the sources believe the underlying tone could be accommodative to ward off a sharp growth slowdown.

Growth VS reform Economists expect policymakers to embark on their biggest easing campaign since the global financial crisis, forecasting a combination of more rate cuts and reductions in bank reserve requirements to encourage lending despite mounting bad loans.

After months of saying major

stimulus wasn’t needed, the central bank surprised markets on November 21 by cutting interest rates for the first time in more than two years to shore up growth and lift some of the pressure off debt-laden companies.

Economists believe the move signalled policymakers’ concern over a sharper slowdown, even as Xi talks about a “new normal”, that China should adapt to slower, but more sustainable, growth after three decades of breakneck expansion.

The People’s Daily, the Communist Party’s leading paper, said in a commentary that the government’s efforts to support growth and reforms were equally important. “The new normal does not mean growth is not needed.

Reforms lack basic premise if growth is not stable,” it said, adding China should keep credit steady to support growth and curb systemic risks to avoid a “disruptive mistake”.

In September, Xinhua news agency, another party mouthpiece, said those who expected interest rate cuts showed their distrust of reforms. The People’s Daily retorted

Taiwan, China solar producers no threat to U.S. Several U.S. solar firms told they relied on imported cells because U.S.-made alternatives did not meet the right specifications

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olar products from China and Taiwan do not compete with U.S.-made goods, foreign producers told the U.S. International Trade Commission, as they sought to avert import duties.

The U.S. arm of German solar manufacturer SolarWorld AG complained Chinese solar producers were able to sidestep duties imposed in 2012 by sourcing cells used in solar panels from Taiwan, and the U.S. Commerce department has already set preliminary duties on products from both countries.

“Chinese and Taiwanese imports have taken over the U.S. market at precisely the time when U.S. producers should have recovered and thrived. Instead, the U.S. industry is again fighting for its survival,” said SolarWorld counsel Tim Brightbill, from the Washington law firm Wiley Rein LLP. Several U.S. solar firms told the ITC, which must rule on whether the imports hurt local producers, that they relied on imported cells because U.S.-made alternatives did not meet the right specifications.

“U.S. suppliers cannot supply the high efficiency cells and high wattage modules that we use for our projects. For this reason, in our experience, the U.S. solar products are not interchangeable with the solar products we import,”

said Polly Shaw, vice president of government affairs at solar technology firm SunEdison.

Austin Chiu, general counsel for Taiwan’s Neo Solar Power, also representing the Taiwan Photovoltaic Industry Association, said Taiwanese cells helped U.S. module assemblers.

“They must rely on Taiwan cells because they cannot get the cells they need from SolarWorld or Suniva,” Chiu said, referring to the U.S. cell producers.

Ardes Johnson, SolarWorld’s vice president of sales, said the preliminary duties had stemmed a price “freefall” but many foreign producers had specifically told customers that they would drop prices again if duties were not confirmed by the ITC and Commerce.

“SolarWorld has increased its sales in recent months, with the trade duties in place. But if the duties go away, our sales agreements would be in jeopardy,” he said.

Gary Shaver, president of solar module manufacturer Silicon Energy, said he shared SolarWorld’s concerns about a rush of cheap, subsidized imports depressing prices and eroding market share.

“The American solar industry, including small producers like Silicon Energy, has been devastated by the unfair trade practices of Chinese and Taiwanese solar producers,” he said.

The Commerce Department is due to make its final decision by December 15 and the ITC by January 29.

Reuters

Business Daily | 11

December 10, 2014

Greater China KEY POINTS Annual economic meeting started yesterday - state radio Many think-tanks recommend 2015 target of 7 pct growth Commodity price fall seen justifying lower inflation target Official economic target announcements expected in March

by arguing that cutting rates could not be seen as the opposite to reforms.

At the meeting, top leaders could discuss ways to quicken economic reforms next year, including a fiscal overhaul to deal with the root cause of local government debt, and further financial market liberalisation, the sources said.

Inflation seen easing too Several think-tanks have also suggested the government lower its target on consumer inflation to around 3 percent from this year’s 3.5 percent, given falling commodity prices.

“We recommended a growth target of around 7 percent,” said Zhu Baoliang, chief economist at the State Information Centre. “We suggested an inflation target of around 3 percent. On employment, we should aim for 10 million new jobs,” he said, adding he recommended a quicker

pace of reform in 2015.

The government may budget a deficit of nearly 3 percent of GDP in 2015 from this year’s 2.1 percent, to allow local governments to sell bonds independently as they scale back fund-raising via local financial vehicles, sources said.

“We will close the back door, barring local governments from raising debt via special purpose

vehicles, but we must open up the front door. We need to boost fiscal spending and expand the budget deficit as we need to stabilise growth,” said the CASS economist.

The meeting, expected to run until Thursday, is unlikely to result in any public announcement of economic targets, which are usually reserved for the opening of the national parliamentary session in early March.

Adding to already gloomy data, analysts expect upcoming figures on investment and inflation to be similarly lacklustre, and the property market is likely to remain weak well into 2015, weighing on demand for everything from furniture and glass to cement and steel.

Reducing the growth target would be a natural reaction as Beijing moves to manage domestic expectations.

Reuters

Bond yields spike after corporate debt market crackdown Official bond clearing house surprised traders when it clamped down on the corporate bond market on Monday Lu Jianxin and Pete Sweeney

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hina Development Bank bond yields rose nearly 30 basis points at market open yesterday, traders said, as the market reacted to new corporate bond market restrictions announced on Monday afternoon.

The benchmark government bond future contract also reacted, sliding over 1 percent in morning trade.

China’s official bond clearing house surprised traders when it clamped down on the corporate bond market on Monday, excluding about 500 billion yuan (US$81 billion) worth of corporate bonds from being used for bond repurchase agreements.

The move follows other measures to crack down on fixed income trade, in particular higher-risk debt issued by low-quality issuers, and is likely to further spur the migration of capital out of fixed income into Chinese stock markets, which have exploded in recent months

as money has moved from real estate and wealth management products into shares.

China Securities Depository and Clearing Corp (CSDC) said in an announcement after the market closed on Monday that with immediate effect, only corporate bonds with the highest rating of AAA and those issued by firms with a high rating of AA and above could be used for bond repo business.

Analysts say the regulators’ exclusion of lower grade bonds from being used in bond repurchase contracts, a key source of secondary liquidity in trade, increases the risk of trading such bonds, depressing demand and putting upward pressure on yields.

The move follows through on a decree issued by the State Council in early October to clear debt issued by local government financial vehicles (LGFVs), even though the CSDC’s ban

Shanghai Stock Exchange building

apparently covers a wider range of corporate bonds, the announcement shows.

Given that more than 1 trillion yuan of outstanding corporate bonds are now deposited at the CSDC, analysts estimate that around 500 billion yuan of the bonds will be excluded from the repo business starting yesterday, with the yields of credit bonds possibly being pushed up by a few dozens of basis points as their prices fall.

In an earlier followthrough step of the cabinet decree, the Ministry of Finance issued in late October new rules to accurately assess the amount of debt outstanding at the local government level by the end of the year.

Chinese authorities are struggling to manage a massive US$3 trillion in outstanding local government debt, much of it raised by LGFVs to finance infrastructure and real estate projects during the global financial crisis.

Reuters

12 | Business Daily

December 10, 2014

Asia Japanese Prime Minister Shinzo Abe speaks to a crowd of voters during the lower house election campaign rally at a train station in Tokyo

S.Korea store sales decline Sales at South Korea’s top department and discount stores fell for a third straight month in November, preliminary government data showed yesterday, suggesting that domestic consumption remains fragile in Asia’s fourth-largest economy. Combined sales last month at department stores run by Hyundai Department Store, Lotte Shopping and Shinsegae Co fell by 5.6 percent from a year ago in November, the finance ministry’s estimates showed. It was the biggest drop for department store sales since a 6.3 percent decline in September.

Sales fell 2.2 percent in October.

Merpati explores debt-to-equity swap Heavily indebted Indonesian stateowned carrier PT Merpati Nusantara Airlines is exploring restructuring options including a debt-to-equity swap and finding strategic investors, its chief executive told Reuters yesterday. State enterprises minister Rini Soemarno said Merpati’s fate will be decided in the next few weeks, the Jakarta Post reported last week. Merpati, which has debt of more than 6 trillion rupiah (US$488 million), has been grounded since February, struggling to pay employee salaries, insurance and fuel bills.

Aussie crackdown on risky mortgage Australian regulators said yesterday that they would take a tougher line on risky mortgage lending, seeking to pre-empt the threat of a housing bubble and targeting a key plank of growth for the country’s major banks.

The moves, aimed predominantly at housing investors, followed warnings from the central bank about the growing risk posed by rapidly rising house prices in Australia’s major cities - already among the world’s most expensive. But they fell short of the widespread macro prudential measures that some market watchers had feared, setting targets that most banks were already meeting.

Japan LNG spot price falls Liquefied natural gas (LNG) spot prices for Japanese buyers fell in November after two straight months of rises, the government said yesterday, as faltering demand in Asia combined with rising supply from countries including Australia and Russia. Asian LNG buyers face the prospect of lower import costs over winter for the first time since the Fukushima nuclear disaster in 2011 due to rising supplies.

Spot LNG contracted in November for delivery to Japan averaged US$14.40 per million British thermal unit (mmBtu), down from US$15.30 a month earlier, the Ministry of Economy, Trade and Industry (METI) said.

Japanese firms see economy stall Nippon companies want Abe to focus on growth Tetsushi Kajimoto

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apanese companies want Prime Minister Shinzo Abe to do more to boost growth, including steps like income tax cuts, as most think the economy is stalled or in recession after an April sales tax hike, a Reuters poll showed.

Coming ahead of a general election

on Sunday in which Abe is seeking a fresh mandate for his reflationary policies, the survey results show strong support for his recent decision to put off a further planned increase to the sales tax by 18 months.

If he is re-elected - and polls have predicted a landslide victory - around

half of firms want Abe to prioritise cuts to the corporate tax rate - which at around 35 percent is one of the world’s highest - as well as other growth strategies such as structural reform.

Another 23 percent said they were keen to see measures to boost

NZ central bank on hold with lower rates A Reuters poll of economists expects the bank’s next move will be a tightening in the third quarter or later next year, with the cash rate at 3.75 percent by the end of 2015

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ew Zealand’s central bank is set to reaffirm on Thursday that interest rates will be on hold until the end of next year, reinforcing a dovish policy outlook as low price pressures and a rout in commodities remove the need for near term rate rises.

The Reserve Bank of New Zealand (RBNZ) has been on the side-lines since September, weighing up the impact of its 100 basis points of rises between March and July, as well as weakening commodity prices, moderate inflation, an elevated exchange rate, and surging immigration.

At the last review the bank removed the explicit tightening bias from its statement, which had referred to further rises being needed over time.

But with consumer price inflation easing to 1 percent in the year to Sept 30, the bottom of the RBNZ’s 1-3 percent target band, the central

bank can afford to sit tight for an extended time as it waits for catalysts to resume rate hikes.

Financial market pricing sees just 12 basis points of rises over the next 12 months, the same level priced in before the October statement.

Some business and union groups want the RBNZ to cut rates, arguing that the current level props up an overvalued currency, and imposes high borrowing costs even as the global outlook appears shaky.

But analysts see no chance the RBNZ will undo its tightening, and there are reasons why it will want to keep a hint of hawkishness given immigration gains at record levels, and a still lively housing market.

And while global oil prices have fallen more than 40 percent since June, which is now feeding through into lower New Zealand pump prices, the RBNZ has a policy of “looking through” short term price swings.

KEY POINTS RBNZ official monetary policy statement, Dec 11, 9 am (2000 GMT) RBNZ seen holding rate at 3.5 percent because of low inflation Central bank to reinforce extended pause in tightening Reuters poll: next move a 25bps rise from Sept 2015 Trading bank fixed home lending rates have eased since the RBNZ has taken a breather, effectively easing monetary policy.

Reuters

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Business Daily | 13

December 10, 2014

Asia Some 55 percent of companies said the economy is at a standstill and 14 percent said it is in recession. The remainder agreed with government and central bank view that the economy is improving, with 23 percent describing it as picking up and 8 percent saying it was doing well.

Managers respond to the poll on condition of anonymity. The survey, which is conducted for Reuters by Nikkei Research, polled 486 firms and around 250 answered the questions on the economy and policy preferences.

KEY POINTS 72 pct want growth policies, only 19 pct call for fiscal reform 55 pct say economy at standstill, 14 pct see it in recession Most say no impact from BOJ Oct easing

BOJ easing impact limited

Some say easing to help with borrowing costs, capital spending

consumer spending such as income tax cuts, while only 19 percent said the government should prioritise fiscal reform that would tackle the country’s ballooning debt.

“The government must put the economy back on track for growth, otherwise the decision to delay the tax hike will become meaningless,” wrote an executive from a transportation firm.

The Reuters Corporate Survey, conducted between November 25 and December 3, also provided a moreup-to-date take on the state of the economy after GDP data showed it shrank for a second straight quarter in July-September.

The decision to delay an additional sales tax hike to 10 percent from 8 percent until April 2017 drew support from 72 percent of Japanese firms. The survey was mostly completed before Moody’s Investors Service last week downgraded Japan’s sovereign debt rating by one notch to A1, saying the tax hike delay made it more difficult for the world’s third-biggest economy to meet its debt reduction goals.

There were, however, far fewer plaudits for the central bank’s October 31 shock expansion of its asset buying programme - a move the bank said was necessary to defeat deflation, and which has since helped pushed the yen down some 10 percent to seven-year lows against the dollar.

Sixty-three percent of firms said the move would not have an effect on business, while a quarter said it would have a positive impact and the remaining 12 percent said it would have a bad impact.

Reuters

Australian business confidence declines A survey of consumers found sentiment had taken a dive in the wake of disappointing news on economic growth last week

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measure of Australian business conditions fell back sharply in November while confidence continued to decline, a subdued survey that will only add to speculation of further cuts in interest rates.

National Australia Bank’s survey of more than 400 firms showed its index of business conditions retreated to +5 in November to be in line with its long run average. The index had jumped by the most on record in October to reach +13, its highest since early 2008.

The survey’s measure of business confidence shed 4 points to stand at +1, with the biggest drops in the finance, property and recreation sectors.

The weakness led NAB to join the growing club of banks that believe the Reserve Bank of Australia (RBA) will have to cut its 2.5 percent cash rate.

“Softer commodities and labour market outlook mean we have changed our rate call to two cuts of 25 basis points in March and August 2015, then on hold until late 2016,” said Alan Oster, chief economist at NAB.

Financial markets have moved decisively in recent weeks to price in at least one more cut to 2.25 percent, in part due to steep falls in prices for some of Australia’s major resource exports.

A separate survey of consumers out yesterday found sentiment had taken a dive in the wake of disappointing news on economic growth last week.

The ANZ Roy Morgan index of consumer confidence dropped 3.1 percent to its lowest in four months with respondents fretting over the economic outlook.

NAB’s survey of businesses found the pullback in November was concentrated in retail, manufacturing and service industries.

Its index of sales dropped 9 points to +11, while profitability sank a matching amount to +6. The employment index dipped 2 points to zero, an ill omen for the official jobs report due on Thursday.

Inflationary pressures remained restrained with wages growth subdued and purchase and final product costs up only modestly.

Reuters

Asian foot-dragging leaves taxpayers on hook for bank bail-outs Several Asian nations, including China, India and South Korea are making slow progress implementing bank anti-crisis reform Michelle Price

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sia’s financial regulators are dragging their feet on implementing measures to protect taxpayers from big bank failures, leaving governments on the hook for bail-outs and potentially forcing large global lenders to exit some markets.

After Lehman Brothers collapsed in 2008, G20 countries along with Hong Kong, Singapore and Switzerland, pledged to introduce new rules by the end of 2015 that would allow large financial firms to be wound down without triggering a market meltdown.

However, several Asian nations, including China, India and South Korea are making slow progress implementing these reforms, hampering efforts by banks to finalise plans about what they would do if they went bust, according to lawyers working on the issue.

Asia’s slow progress is making it tough for policymakers globally to deliver on a promise to end the “too big to fail” problem a pledge made by the G20 in

the wake of the 2008 crisis to ensure taxpayers should not pick up the bill when lenders collapse.

The region’s move to shore-up its banks after the 1997-1998 Asian financial crisis and relative comfort with state ownership are said to be among the reasons holding Asian policymakers back.

One lawyer working on the plans said there was “bemusement” in the financial industry as to why some Asian regulators hadn’t done more.

In Europe and the United States, by contrast, public anger caused by governments spending more than US$1.5 trillion to rescue firms like American International Group Inc and Royal Bank of Scotland Ltd means regulators have acted quicker to bring in so-called bank “resolution” laws.

Living wills Central to the postcrisis reform programme is a requirement for 39 large financial firms, deemed by regulatory watchdog the

Financial Stability Board to be crucial to the global financial system, to draw-up so-called ‘living wills’ detailing how they could be allowed to die while maintaining critical functions such as ATM payments.

For these plans to work, however, all countries in which these banks operate must introduce new laws that allow governments to take swift action in the event of a bank failure, such as selling assets or writing down debt.

This means large banks are reliant on Asian governments to overhaul their insolvency regimes, before they can finalise their living wills.

India has failed to fully

implement even one of nine key requirements drawn-up by the FSB on bank resolution, though the government is drafting some proposals.

South Korea and China have yet to fully implement six of the nine requirements.

As a result, some large Western lenders, under pressure in the United States and Europe to complete these plans, may have to move critical parts of their Asia businesses, such as outsourcing hubs in India, to other markets.

One area where many Asian jurisdictions are lagging is the power to promptly put into effect resolution instructions

from overseas regulators.

These legal obstacles are beginning to reverberate in New York and Europe, home to many of the large banks.

If Asian governments don’t speed-up, home regulators may force banks to ringfence overseas assets inside subsidiaries that are kept separate from the parent company, an expensive strategy.

In the worst-case-scenario, some Asian countries may become marginalised as home regulators impose strict limits on what banks can do in those markets or require lenders to sell assets altogether.

Reuters

14 | Business Daily

December 10, 2014

International Euro zone financial tax closer Eleven euro zone countries will try for a preliminary deal on a financial transactions tax in early 2015, France’s finance minister said yesterday after the group missed their year-end deadline for an accord. “We remain collectively committed to working hard to find concrete solutions for a first step towards an FTT, even if it will probably not be by the end of this year, but at the beginning of next year,” Michel Sapin told his peers during a meeting in Brussels that was broadcast to reporters.

Russian economy to contract The World Bank said it expected the Russian economy to contract by 0.7 percent in 2015 in its new baseline scenario before growing by 0.3 percent in 2016. The new baseline, or most likely scenario, assumes an average oil price of US$78 per barrel for 2015 and of US$80 per barrel for 2016. “Investment is projected to contract for a third year in a row in 2015, because of continued uncertainty, restricted access to international financial markets by Russian companies and banks, and lower consumer demand,” Birgit Hansl, World Bank lead economist for Russia, said in a statement.

Zimbabwe recovers diamonds Zimbabwe has won back its diamonds worth about US$45 million that had been seized in Belgium by a South African mining company three months ago, state media reported. South Africa’s Amari Platinum Holdings had sued the Zimbabwe government at the International Court of Arbitration in Paris, France over its platinum concession that was cancelled by the Zimbabwe government a few years ago. A group of former commercial famers had also sued the government and sought to attach the same diamonds for lack of compensation of their farms taken by the Zimbabwe government for distribution to landless blacks.

Mexico leader opens summit amid security crisis Mexican officials were hoping for a better attendance than past summits, which have lost their lustre over the years Laurent Thomet

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acing a security crisis shaking his administration, Mexico’s embattled President Enrique Peña Nieto turned to diplomacy as he hosted a summit of Latin American, Spanish and Portuguese leaders.

Peña Nieto opened the two-day Ibero-American summit in Veracruz as Mexico’s image is tarnished by a security nightmare stemming from the September disappearance and probable massacre of 43 students.

“Today in Mexico the moment has arrived to define the future of Ibero-America,” Peña Nieto said as he inaugurated the summit, 23 years after the first one in Guadalajara, western Mexico.

It is Spanish King Felipe VI’s first summit since he ascended to the throne in June, but the presidents of regional heavyweights Brazil, Argentina and Venezuela are not coming.

Sixteen of 22 leaders showed up on the first day, five more than last year’s summit in Panama, though Salvadoran President Salvador Sanchez Ceren missed the start due to an undisclosed illness.

Officials were hoping Cuban President Raul Castro could still make a surprise appearance, following a special invitation from Spain to attend his first ever Ibero-American talks since coming to power in 2006.

“President Castro is doing everything possible to come to this summit,” Mexican deputy foreign minister Vanessa Rubio told Radio Formula.

While the meeting is focusing on boosting education, innovation and culture in the region, the missing students case shadowed the event.

Prosecutors confirmed over the weekend that one of the 43 missing students was among charred remains found in a landfill and nearby river

Leaders participating in the 24th Ibero American Summit pose for a family picture in Veracruz, Mexico, 08 December 2014

in Guerrero state.

The identification by an Austrian medical university bolstered suspicions that the students were slaughtered by a drug gang after they were delivered to the hit men by corrupt police.

‘Kind of failed state’ Hours before the meeting, around 20 protesters stood outside the convention centre wearing black shirts with letters that spelled out “42 still missing, Peña out.”

The president has faced a wave of protests over the case, which has angered Mexicans fed up with a drug war that has left 100,000 people dead or missing since 2006.

Peruvian President Ollanta Humala told reporters on the side-lines of the meeting that his government backed Peña Nieto.

“This can be a point of unity for Mexican society, uniting, as they have been doing, to find the truth and prevent that this type of event,

which shames all of us, from being repeated,” Humala said.

Uruguay’s President Jose Mujica caused waves last week when he said the case showed that Mexico was a “kind of failed state” -- words he quickly retracted after Mexico protested.

But the talks focused on relaunching a forum that has lost influence over the years, as various trade and diplomatic blocs have formed in the region.

At a pre-summit event with Peña Nieto, Spanish Prime Minister Mariano Rajoy called for IberoAmerican unity, saying the forum “is good for all of us, without exception.”

Peña Nieto said a key goal of the summit is to create an Ibero-American university exchange program for 200,000 students.

Ecuadoran President Rafael Correa lamented the state of education in the region, stressing that “there are no Latin American universities among the 100 best in the world.”

AFP

BMW CEO to step down early in 2015 Norbert Reithofer will step down early as chief executive of German carmaker BMW in May of next year and be replaced by Harald Krueger, the company’s 49-year old production chief. The Munich-based carmaker announced the surprise changes in a statement yesterday. Reithofer, who has run BMW since 2006, is slated to succeed Joachim Milberg as chairman of the company’s supervisory board, BMW said.

Uganda launches anti-graft strategy As the world commemorated the International Anti Corruption Day yesterday, Uganda launched a five year strategy to combat corruption. Simon Lokodo, minister of state for ethics said in a statement issued yesterday that government is committed to fighting the malaise which he says is caused by moral decadence. “The main driver of corruption is moral decadence which leads to impairment of one’s integrity and virtues. We must therefore concertedly fight corruption,” he said in a statement to mark the day under the theme -- “Fighting Corruption: a Collective Responsibility”.

German imports speeds up falling trend However business and investor sentiment improved in November after months of decline

G

erman imports posted their steepest drop in almost two years in October after a strong rise the previous month, while exports also fell, but economists remained upbeat about the prospects for Europe’s largest economy.

Seasonally-adjusted data from the Federal Statistics Office showed imports declining by 3.1 percent on the month, undershooting by far a consensus forecast for a 1.5 percent decrease. It was the sharpest fall since November 2012.

Exports also dropped by 0.5 percent on the month, though that was a better reading than the 1.5 percent decline that a Reuters poll had forecast.

“The weak imports are on the one hand a sign of weak domestic demand but on the other hand they are a consequence of the slide in

oil prices,” said Christian Schulz, economist at Berenberg Bank.

On an unadjusted basis, exports rose to a record high of 103.9 billion euros while imports also climbed to their highest level in two years.

But Schulz said foreign trade should nonetheless provide impetus in the fourth quarter, adding that important markets like the United States and the United Kingdom were growing strongly while demand in the euro zone had also stabilised.

A breakdown of unadjusted trade data showed exports to the euro zone rose by 1.9 percent in October compared with the same period last year, while exports to countries outside of Europe were up by 6.3 percent.

Exports climbed at a faster pace than imports in the third quarter, helping trade to make a positive

0.2 percentage point contribution to gross domestic product (GDP) in the third quarter.

Nonetheless, the German economy, once revered for its strong growth even during the euro zone crisis, skirted a recession in the July-September period after contracting in the second quarter.

The outlook for the fourth quarter is rosier. Business and investor sentiment improved in November after months of decline, industrial orders have surged and European Central Bank President Mario Draghi has said the weakening of the euro exchange rate should boost exports.

However, output has increased modestly, manufacturing activity shrank in November at the fastest rate in 17 months and the Bundesbank has slashed its growth forecasts for this year and next.

Reuters

Business Daily | 15

December 10, 2014

Opinion Business

wires

A year of divergence

Leading reports from Asia’s best business newspapers

THE STRAITs TIMES

Mohamed A. El-Erian

Chief Economic Adviser at Allianz and a member of its International Executive Committee

Singapore-based DBS Bank Ltd. said key policy rates will likely be left unchanged when the Bangko Sentral ng Pilipinas (BSP) meets this week. The bank said the central bank may maintain the overnight borrowing and overnight lending rates at four percent and six percent as inflation continued to ease and economic growth decelerated. “GDP (gross domestic product) growth disappointed in third quarter on slower fiscal spending and the most recent budget data suggests that fiscal spending has not picked up as yet in October,” DBS said.

THE TIMES OF INDIA The Competition Commission of India (TOI) approved Sun Pharmaceutical’s US$3.2 billion acquisition of rival drug firm Ranbaxy Laboratories, provided the companies divest some overlapping brands within six months. The completion of the merger would make Sun Pharma the largest drug maker in the domestic market. The TOI ordered Sun and Ranbaxy to sell seven brands, in which the merged company would have “appreciable adverse effect” on competition. TOI reported CCI will soon give a go-ahead to the merger on condition the two companies will divest some products to avoid monopoly.

THE AGE National Australia Bank yesterday became the second of Australia’s big four retail banks to change its call on interest rates in 2015, following a gloomy response to its latest monthly business survey. NAB said continuing softness in commodity prices and the strong chance of higher unemployment had spurred the rethink. NAB’s revised view comes as its Monthly Business Survey for November showed a retreat in business conditions, declining 8 points to a reading of 5 points. Business confidence fared worse, and is now at its lowest level since the middle of 2013.

TAIPEI TIMES The government won a majority of seats in Chang Hwa Bank’s board election, a result that might raise legal disputes over a 2005 agreement to help Taishin Financial Holding Co gain control of the CHB boardroom. The Ministry of Finance, the second-largest shareholder in CHB with a 20 percent stake, won four director seats and two independent director seats in the nine-member boardroom, leaving Taishin Financial with two director seats and one independent director seat.

The results came after a special CHB shareholders’ meeting that lasted for seven hours due to a record-high attendance.

I

n the coming year, “divergence” will be a major global economic theme, applying to economic trends, policies, and performance. As the year progresses, these divergences will become increasingly difficult to reconcile, leaving policymakers with a choice: overcome the obstacles that have so far impeded effective action, or risk allowing their economies to be destabilized.

The multi-speed global economy will be dominated by four groups of countries. The first, led by the United States, will experience continued improvement in economic performance. Their labour markets will become stronger, with job creation accompanied by wage recovery. The benefits of economic growth will be less unequally distributed than in the past few years, though they will still accrue disproportionately to those who are already better off.

The second group, led by China, will stabilize at lower growth rates than recent historical averages, while continuing to mature structurally. They will gradually reorient their growth models to make them more sustainable – an effort that occasional bouts of global financialmarket instability will shake, but not derail. And they will work to deepen their internal markets, improve regulatory frameworks, empower the private sector, and expand the scope of marketbased economic management.

The third group, led by Europe, will struggle, as continued economic stagnation fuels social and political disenchantment in some countries and complicates regional policy decisions. Anaemic growth, deflationary forces, and pockets of excessive indebtedness will hamper investment, tilting the balance of risk to the downside. In the most challenged economies, unemployment, particularly among young people, will remain

Multi-speed economic performance will contribute to multi-track central banking, as pressure for divergent monetary policies intensifies, particularly in the systemically important advanced economies

alarmingly high and persistent.

The final group comprises the “wild card” countries, whose size and connectivity have important systemic implications. The most notable example is Russia. Faced with a deepening economic recession, a collapsing currency, capital flight, and shortages caused by contracting imports, President Vladimir Putin will need to decide whether to change his approach to Ukraine, re-engage with the West to allow for the lifting of sanctions, and build a more sustainable, diversified economy.

The alternative would be to attempt to divert popular discontent at home by expanding Russia’s intervention in Ukraine. This approach would most likely result in a new round of sanctions and counter-sanctions, tipping Russia into an even deeper recession – and perhaps even triggering political instability or more foreign-policy risk-taking – while exacerbating Europe’s economic malaise.

Brazil is the other notable wild card. President Dilma Rousseff, chastened by her near loss in the recent presidential election, has signalled a willingness to improve macroeconomic management, including by resisting a relapse into statism, the potential benefits of which now pale in comparison to its collateral damage and unintended consequences. If she delivers, Brazil would join Mexico in anchoring a more stable Latin America in 2015, helping the region to overcome the disruptive effects of a Venezuelan economy roiled by lower oil prices.

This multi-speed economic performance will contribute to multi-track central banking, as pressure for divergent monetary policies intensifies, particularly in the systemically important advanced economies. The US Federal Reserve, having already stopped its large-scale purchases of long-term assets, is likely to begin hiking interest rates in the third quarter of 2015. By contrast, the European Central Bank will pursue its own version of quantitative easing, introducing in the first quarter of the year a set of new measures to expand its balance sheet. The Bank of Japan will maintain its pedal-tothe-metal approach to monetary stimulus.

Of course, there is no theoretical limit on divergence. The problem is that exchange-rate shifts now represent the only mechanism

for reconciliation, and the divide between certain market valuations and their fundamentals has become so large that prices are vulnerable to bouts of volatility.

For the US, the combination of a stronger economy and less accommodative monetary policy will put additional upward pressure on the dollar’s exchange rate – which has already appreciated significantly – against both the euro and the yen. With few other countries willing to allow their currencies to strengthen, the dollar’s tendency toward appreciation will remain strong and broad-based, potentially triggering domestic political opposition.

Moreover, as it becomes increasingly difficult for currency markets to perform the role of orderly reconcilers, friction may arise among countries. This could disturb the unusual calm that lately has been comforting equity markets.

Fortunately, there are ways to ensure that 2015’s divergences do not lead to economic and financial disruptions. Indeed, most governments – particularly in Europe, Japan, and the US – have the tools they need to defuse the rising tensions and, in the process, unleash their economies’ productive potential.

Avoiding the disruptive potential of divergence is not a question of policy design; there is already broad, albeit not universal, agreement among economists about the measures that are needed at the national, regional, and global levels. Rather, it a question of implementation – and getting that right requires significant and sustained political will.

The pressure on policymakers to address the risks of divergence will increase next year. The consequences of inaction will extend well beyond 2015.

Project Syndicate

16 | Business Daily

December 10, 2014

Closing Chinese mainland’s top negotiator arrives in Taiwan

Homegrown GPS to serve global users by 2020

The president of the Chinese mainland-based Association for Relations across the Taiwan Straits (ARATS) Chen Deming arrived in Taiwan yesterday noon to start a 8-day visit to the island. As part of annual exchanges between ARATS and the Taiwan-based Straits Exchange Foundation (SEF), Chen’s trip includes seeing Taiwan’s agriculture, bio-technology, green tourism, volunteer groups and senior citizen welfare sectors. Yesterday afternoon, Chen visited Linkou Chang Gung Memorial Hospital and a rental residential complex built by Chang Gung for senior citizens in nearby Taoyuan. Chen’s counterpart Lin Join-sane will host a dinner in honour of the guests.

The Beidou Navigation Satellite System -- China’s independently developed global navigation satellite system (GNSS) -- will have a constellation of 35 satellites and be ready to provide global users with geo-positioning by 2020, an insider said yesterday.

By 2020, China will be the third country to provide a GNSS, said Lei Fanpei, chairman of China Aerospace Science and Technology Corp., which is in charge of the research and development, and manufacturing of satellites and rockets for Beidou. Beidou is the Chinese equivalent of the United States’ NAVSTAR Global Positioning System (GPS) and Russia’s Global Navigation Satellite System (GLONASS). Currently,

Internet company to make electric vehicles China is proposing to grant auto manufacturing licenses to companies other than carmakers to encourage innovation grant auto manufacturing licenses to companies other than carmakers to encourage innovation and create local challengers to Tesla Motors Inc., as part of a broader goal to lead the global auto industry.

Leshi rose 0.5 percent to 37.03 yuan at the close in Shenzhen trading, after jumping as much as 7.4 percent following Jia’s announcement on his Weibo social-media account yesterday.

New players

A

Chinese video website operator is applying for a license to produce electric vehicles in the world’s largest auto market, as the government prepares a policy to open auto manufacturing to non-carmakers.

Leshi Internet Information & Technology (Beijing) Co., which streams dramas including NBC’s “The Blacklist” on its letv.com

website, has spent the past year developing an EV with the ambition of helping China upend traditional auto industry leaders like the U.S., Europe, Japan and South Korea while cutting pollution, according to the Beijing-based company.

“This is our dream and passion,” Chairman and President Jia Yueting, 41, said in an interview by e-mail,

without elaborating on when the car will be available for sale. “Look at China’s skies, all responsible corporate citizens want to do something about it. This is the truth.”

Leshi’s announcement comes after Google Inc. in May said that it plans to deploy at least 100 fully autonomous vehicles that it designed in tests starting this year. China is proposing to

“Leshi has been trying to diversify and it’s the CEO’s wish to become bigger and enter new industries,” Luke Xu, a Beijing-based analyst with iResearch, said by phone. “The government is encouraging the development of the electric- vehicle industry, and everybody sees an opportunity in the fastdeveloping market.”

China is seeking to finish drafting a policy by the end of the year that would allow new players to produce EVs in the

world’s largest auto market, according to the nation’s top planning agency.

Companies should have more than three years of product research and development experience, have capability for vehicle design, and have auto production capacity before applying for licenses, according to a draft circulated for public comment until December 2.

Wanxiang Group Corp., the auto-parts supplier that owns Fisker Automotive, has said it expects to receive a license to produce EVs in China when the rules are finalized.

Lagging behind The proposal to grant more manufacturing licenses comes as China lags behind its own target for putting eco-friendly cars on the road, even as the government offers billions of dollars in subsidies and pledges to build charging stations for the public.

Leshi’s Jia declined to say how the company plans to fund the development of electric vehicles, saying only it will be “innovative.”

The company will bank on its “DNA and experience managing disruptive change to traditional industries” and “redefine the auto industry,” he said, without being more specific. “We don’t only want to challenge Tesla, we will do better than them,” Jia said.

China to let non-banks trade in interbank FX market

UAE to activate China currency swap

China seeks more help hunting fugitives

C

T

D

hina will allow financial firms apart from banks to trade in its interbank foreign exchange market from January 1, the government said yesterday in another step to deepen the country’s financial markets.

Sources with knowledge of the matter had told Reuters in the past two months that China was set to relax the rules for its interbank currency market by allowing nonbanks, including brokerages, insurers and trust firms, to trade in the interbank foreign exchange market.

The new rules will allow firms that trade derivatives and currencies in the spot market to also work in the interbank foreign exchange market without the need for further government approvals, the State Administration of Foreign Exchange (SAFE) said.

The rules were published online yesterday, though they were finalised on December 5.

China’s currency regulator did not say which firms counted as financial companies, though it singled out currency brokerages as among those that do not need further approval to operate in the interbank market.

The brokerage would be the first non-bank entity to enter the business.

Reuters

he central banks of the United Arab Emirates and China aim to activate their 35 billion yuan (US$5.7 billion) currency swap agreement soon, a senior UAE central bank official said yesterday.

The agreement, designed to facilitate two-way trade and investment, was originally signed in January 2012, permitting the central banks to swap their currencies if needed.

But private bankers believe there has been little if any use of the arrangement in practice.

Most of the UAE’s trade is conducted in dollars and the vast bulk of its foreign reserves are in dollars; its currency is pegged to the U.S. currency.

Last month Qatar, a rival financial centre in the Gulf, took a step towards overtaking the UAE in building financial ties with China. It signed a similar 35 billion yuan swap deal with Beijing and said it would become the Middle East’s first hub for clearing transactions in the Chinese currency.

Industrial and Commercial Bank of China’s Doha branch was appointed as the clearing bank for yuan deals in Qatar.

Reuters

Bloomberg News

isciplinary watchdog opened a new “whistle blowing channel” yesterday, to help facilitate international support of its on-going campaign to repatriate fugitive corrupt officials.

The Communist Party of China’s (CPC) Central Commission for Discipline Inspection (CCDI) released a bilingual statement saying that corrupt officials who fled abroad “must be brought to justice” as they ruined the Party’s ethics and discipline codes; dishonoured the Party and the government; undermined social justice; and caused public discontent.

People, at home or abroad, with relevant information are encouraged to pass on intelligence via a form hosted on the official Supervision Ministry/CCDI website.

The page, “Anti-corruption fugitive repatriation and asset recovery”, explains that it will deal with reports on CPC members and public officials who have fled abroad, transferred the proceeds of corruption offshore as well as offer advice on fugitive repatriation and asset recovery.

Although those offering information may do so anonymously, the website stated that it welcomed credited reports, adding that those that included the real name of the informer would be treated as priority cases.

Xinhua