Macau Business Daily, Jan 16, 2015 by Business Daily

MOP 6.00 Closing editor: Sara Farr Publisher: Paulo A. Azevedo Number 709 Friday January 16, 2015 Year III

Mini gold rush n ot enough to o ffset Occupy, says Luk Fo ok Pag

Doing the sand dance

acau keeps getting into the record books. Now it’s the second costliest city in the continent when it comes to construction. Only following Hong Kong in Asia – and 11th in the world. This isn’t likely to change any time soon. Demand for public housing, large hotel development projects and assorted infrastructure is keeping costs up. Particularly for sand, cement and human resources PAGE

Fragrant Harbour pulls the plug

DSRT: MTEL to provide Internet services Page 2

Hong Kong has cancelled its Capital Investment Entrant Scheme. HKSAR Chief Executive C.Y. Leung says the financial hub is currently in no need of investment capital. But it does welcome talent. As many as 360 Macau residents just made the cut and will get ‘permanent resident’ status in the neighbouring city Page

Storm before the calm

www.macaubusinessdaily.com

Gaming revenues are expected to drop further in the first quarter. Analysts predict a 29 per cent plunge y-o-y. February is forecast to represent the worst drop, following last year’s record 40 per cent growth. Thereafter, the pull of the new properties is expected to reverse the situation

Caesars’ files for bankruptcy Page 6

Brought to you by

HSI - Movers January 15

Name

%Day

Ping An Insurance Gr

3.96

China Life Insurance

3.60

AIA Group Ltd

2.27

Power Assets Holding

1.95

China Merchants Hold

1.69

New World Developme

-0.22

China Shenhua Energy

-0.22

Hang Lung Properties

-0.24

HSBC Holdings PLC

-0.35

Lenovo Group Ltd

-1.12

Source: Bloomberg

I SSN 2226-8294

Page 6

Very Important Plans

Darker shadows

Junket promoters are synonymous with Macau. But now they are shifting their focus overseas. One such large enterprise – David Group – is reputedly shutting down its Macau VIP rooms, according to analysts and an inside source. If so, it would follow a well-trodden path

December saw the return of shadow banking. Weighing as a main factor in the People’s Bank of China’s November rate cut. Meanwhile, economists’ forecasts and real data mismatch once more

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2 | Business Daily

January 16, 2015

Macau opinion

Rough seas

Chinese nationals form most of HK’s capital investment entrants The Capital Investment Entrant Scheme of Hong Kong, implemented since 2003 and suspended since yesterday, has generated HK$205.8 billion Stephanie Lai

sw.lai@macaubusinessdaily.com

José I. Duarte Economist

e are approaching the first month of mandate of our new government, and one feature has already become apparent. Overall, the performance of most has been mostly discreet, except for two of the new Secretaries. That was predictable. They are also still coming to terms with the changes and their new responsibilities. But two of its members have jumped determinedly into the public arena. Without much surprise, they were the Secretaries for the Economy and for Social Affairs. Both deal with the issues that come most directly to the mind of most residents when thinking about the government, and that more immediately affects their livelihoods. If the need to rapidly show that something is changing was to be felt, it would always fall to them to take the front seats. Other matters – administration, justice, security – may have deeper impact but they take longer to affect the daily lives of residents and to show up on the radar of the public mind. The primary area of concern, at this point, is probably, without many reservations, the short and long-term evolution of the casino industry and, inevitably, its impact on society. The state and changes in the economic regime are already being felt and nobody can offer a reasonable and reliable forecast about the duration and intensity of the current contraction. Its effects are and will be strongly felt, which fact alone guarantees that the new Secretary will not have here an easy task. The Secretary for the Economy has to manage expectations in a time of great uncertainty and, in all likelihood, one that will mark a permanent change in the growth regime of the main pillar of the economy, the gaming industry. He pledged the government’s attention to the effects of the current situation on small and medium firms and on the labour market at large. Those are certainly areas of concern but there is nothing really new there. Unfortunately for all of us, those issues will shortly require much more than just his attention. If anything, the definition of a proper framework for analysis and decision is quite behind the times. In fact, almost inadvertently, the recent statements just highlight how much of an opportunity has been lost. We were reminded that the central government has time and again asked that proper attention be given to the diversification of the economy in order to be better able to cope with future shifts in the economic winds. That was done in several instances, either directly or through speakers supposed to convey the official messages and feelings on the subject. The significance of the message was duly reflected in the media and occasionally amplified by analysts. But repeating or recognising that one should do something does not amount to preparing for it, much less doing it. And the point now is that the winds have already changed! By making (due) reference to the advice of the central government, the Secretary for the Economy has inevitably underlined the lost time that, if possible at all, has to be recovered now. The starting handicap is a big one. It is not just that a slowdown and change in growth trends for the industry impact seriously on other sectors of the economy and the livelihoods and job opportunities of residents; it is also that such a change will impact on the nature and intensity of competition between the gaming sector operators. They, meaning both the concessionaires and the junkets, will be increasingly fighting for market share, with the re-negotiation of the gaming concessions hanging like the sword of Damocles overhead. We can only wish the new Secretary and his team clear vision, serenity and the always-needed luck without which success never rewards even the most dedicated commitments. It is not to ask little.

early 90 per cent of Hong Kong’s approved capital investment entrants are Chinese nationals ‘with permanent residence overseas’, while another 1.5 per cent of approved entrants are MSAR residents, data from Hong Kong’s Immigration Department shows. Yesterday, however, Hong Kong’s Capital Investment Entrant Scheme was suspended – a day after a call by the city’s Chief Executive, Leung Chun Ying, when delivering his 2015 Policy Address. The scheme has been implemented since 2003, the time when the city’s economy was hit by the outbreak of severe acute respiratory syndrome (SARS). The scheme allowed people with right of residence anywhere in the world – except for four rogue states and the mainland – to move to Hong Kong if they put HK$10 million into government-approved investments, which could be stocks, bonds or insurance. Real estate used to be an investment class under the scheme but this category ceased in 2010. At the end of last September, of the 24,481 formal approvals granted for the Capital Investment Entrant Scheme, Chinese nationals ‘with permanent residence overseas’ accounted for 21,822 of the total,

or nearly 90 per cent, Immigration Department’s information reveals. Meanwhile, of 507 applications received, the department noted that 362 formal approvals have been granted to MSAR residents applying to move to Hong Kong under the Capital Investment Entrant Scheme. The scheme has introduced an investment capital of HK$205.8 billion (US$26.5 billion), of which one-fifth has been invested in real estate. The Immigration Department also announced that applications for the scheme received before the suspension date, whether approved or already processed, would not be affected. A similar version of this scheme in Macau, known as the investment immigration scheme, was suspended in 2007 following mounting criticism at the time that the scheme had invited rampant property speculation. The investment immigration scheme of Macau required investments of one million patacas in property and 500,000 patacas in fixed deposits. Accounting for the halt to the investment immigration scheme, Mr. Leung noted on Wednesday that “We don’t really need to attract

capital investment at the moment as we have seen excessive capital in some areas – such as in the property market. What we need now is talent, rather than capital”. The Hong Kong Chief Executive said one such initiative includes a pilot scheme for children of Hong Kong emigrants to move back to the city as well as a shake-up in the Quality Migrant Admission Scheme.

DSRT: MTEL to provide Internet services MTEL’s Internet Service Provider (ISP) Licence has been approved, says the newly inaugurated director of the Telecommunication Regulation Bureau Joanne Kuai

joannekuai@macaubusinessdaily.com

TEL Telecommunication Company Ltd. has already been granted the licence to provide an Internet service in Macau, and with the 4G network being put into use by the end of this year the charge for telecommunication services will be lowered in the future, said Hoi Chi Leong, the newly inaugurated director of the Telecommunication Regulation Bureau (DSRT). The new director of the DSRT said that his main focus now is to process the tenders for the 4G network and announce the results of the bidding within the first quarter of this year as well as launch the network within the year. Hoi Chi Leong said that they would keep an eye on the performance of MTEL as well, and that the authorities have already granted MTEL a licence to provide Internet services in Macau. “According to the information that we have gathered, they [MTEL]

charge less for some certain services but there may be fewer value added services based on the service fee scheme”, said Mr. Hoi. “With regard to which operator to purchase services from, that is up to the market and customers”. The telecommunication regulator also said that this year they are going to study licensing for the convergence of three services that will include TV broadcasting, Internet and fixed line. Supporting legislation regarding this issue and the launch of the service will transpire within two or three years. Hoi Chi Leong was speaking at the inauguration ceremony yesterday morning. The ceremony was presided over by Secretary for Transport and Public Works Raimundo Rosario. “With qualified education and years of management experience, I believe director Hoi is qualified for this job and is up to facing various challenges ahead, improving the Bureau’s work

and meeting the demands of Macau residents”, Secretary Rosario said. The Secretary also presided at the inauguration ceremony of the new Housing Bureau head Ieong Kam Wa. Raimundo Rosario said that in the Environmental Protection Bureau, vice director Vai Hoi Ieong would temporarily act as a substitute for the director, whilst in the Infrastructure Development Office, assistant coordinator Chau Vai Man will continue to act as co-ordinator while the coordinator Chan Hon Kit is away due to health reasons. He added that the former co-ordinator of the Transportation Infrastructure Office, Lei Chan Tong, willingly returned to the Housing Bureau. The Secretary for Transport and Public Works admitted that the many vacant management positions in his cabinet may affect work to some degree but stressed that the positions will be filled soon.

Business Daily | 3

January 16, 2015

Macau

First runner-up in building costs in Asia Another title for Macau – the second most expensive city in terms of construction costs in Asia, following Hong Kong and followed by Singapore. The high costs, according to an Association head, are trigged by the casino projects, infrastructure and the lack of manpower Kam Leong

kamleong@macaubusinessdaily.com

acau ranked second most expensive market for construction in Asia last year, according to the latest International Construction Costs Report by Arcadis, a global natural and building asset design and consultancy firm which assessed some 43 locations in terms of the construction cost of 13 building types. The report shows that the construction cost in Macau, which topped almost the most expensive on the continent, was only cheaper than in its neighboring city of Hong Kong. Meanwhile, in global terms, Macau occupies 11th place, a significant drop of six places, compared to 2013, while Switzerland and Denmark are the two most expensive markets in the world, followed by Hong Kong. Nevertheless, the drop of Macau’s ranking in global markets does not represent a decline in the Special Administrative Region’s construction costs in the past year. Rather, costs continue to increase and is likely to keep climbing this year, given the fact that a number of big casino projects are under construction. ‘The construction industry is still booming as a result of the current wave of casino development. With construction wages having risen 13 per cent a year in Macau, labour costs continue to be the key driver in escalating construction costs’, the firm told Business Daily via email.

Factors driving cost up In fact, the firm is not the only one foreseeing a hike in the city’s construction costs. The director of the Association of Building Contractors and Developers, Paul Tse See Fan, told Business Daily yesterday in a phone interview that the increasing amount of infrastructure and the rising demand for construction materials and human resources are also factors triggering high building costs, in addition to the expansion

projects of the gaming corporations. “Many big hotel projects are under construction. The gaming corporations usually want to reach the profits fast. As such, they will offer higher pay to contractors, which pushes construction costs up. The increase in the supply of hotel rooms by between 20,000 and 30,000 in the coming two years is also adding pressure to costs. As such, even [with] gaming profits having dropped, it is not going to affect long-term development. Relaxation of construction costs may be seen in the future but not a significant drop”, the Association head said. “Meanwhile, the government has also increased the supply of public housing to respond to the demands of society… As such, they are requiring construction to go fast, which has also driven construction costs up”, he added. In addition, Mr. Tse indicated that Macau’s construction costs are also affected by the construction industry in Hong Kong. “Before, Hong Kong did not have

Asia Ranking

Global Ranking

Market

Global Ranking Change from previous report

Expected Cost Change in 2015 (%)

Hong Kong

-2

8-Jun

Macau

-6

N/A

Singapore

-5

4-Feb

Japan

-9

N/A

South Korea

1-1.5

China

-1

3-Feb

Brunei

-8

0-2

Philippines

6-Apr

Thailand

5-Mar

Malaysia

6-Apr

Indonesia

8-Jul

Taiwan

N/A

Vietnam

3-Jan

India

8-Jun

too many big projects; technical staff and companies [there] might go to Macau. Following the number of infrastructure [projects] increasing in Hong Kong, such as the MTR, Hong Kong-Zhuhai-Macau Bridge, the [resources] are not enough to serve the demands of [the two cities]”, he said, noting the increasing amount of infrastructure in Macau, Hong Kong and mainland China increasing the cost of construction materials, such as concrete and sand, which are in large demand. The Association head added that the city’s human resources are inadequate to deal with the number of public housing and other infrastructure constructions, pointing out that the lack of manpower is

another important factor driving Macau to post high building costs. In fact, the lack of manpower, indeed, may have driven labour costs for construction. According to the latest data from the Statistics and Census Service (DSEC), during the third quarter of 2014 the nominal wage of construction workers jumped nearly 11 per cent year-on-year. For local construction workers, salaries surged 20 per cent year-on-year, more than double compared to their salary in 2010. Meanwhile, the price of major construction materials, such as sand and concrete, jumped 17.9 per cent and 17.1 per cent per cubic metre, respectively, in the same period over that of 2013, according to DSEC.

Government of the Macao Special Administrative Region MACAU GOVERNMENT TOURIST OFFICE NOTICE The Macau Government Tourist Office hereby announces an invitation to tender for the “Macau Tourism Industry Development Master Plan Service Provision”, in accordance with the approval of the Secretary for Social Affairs and Culture dated 5th of December of 2014. From the date of publication of the present notice, interested bidders may visit the Macau Government Tourist Office Reception Counter, located in Alameda Dr. Carlos d’ Assumpção, no. 335-341, “Hotline” Building, 12th floor, Macau, to view the Tender Program and Terms and Conditions of the Tender within the working hours, and pay MOP 500.00 (five hundred patacas) to obtain the copies. For any further enquiries, please visit the Macau Government Tourist Office website (http://industry.macautourism. gov.mo) to submit your enquiries starting from the day of publication of the present notice until 10 days before the tender submission deadline. All replies will be posted on the same website. The maximum price limit for the tender is MOP 20,000,000.00 (twenty million patacas). Criteria for tender evaluation and their respective percentages are as follow: - Appreciation of the planning task (35%); - Planning methods and programme of work of the phases (20%); - Price (15%); - Experience (30%). Bidders must submit the tender written in Chinese, Portuguese or English, within the working hours by 17:45 hours on 2nd of March of 2015, to the Macau Government Tourist Office Reception Counter, located in Alameda Dr. Carlos d’Assumpção, no. 335-341, “Hotline” Building, 12th floor in Macau and shall submit the provisional guarantee fee of MOP 400,000.00 (four hundred thousand patacas). The provisional guarantee fee shall be paid by: 1) cash deposit to the account of “Tourism Fund” at Banco Nacional Ultramarino of Macau; 2) bank guarantee; 3) cash, cashier’s order or mark good cheque deposit directly to the Macau Government Tourist Office, cashier’s order or mark good cheque should be made payable to “Tourism Fund”; 4) wire transfer directly to the account of Tourism Fund, at Banco Nacional Ultramarino of Macau (account no. 8003911119). The tender opening session will be held in the Auditorium of the Macau Government Tourist Office, located in Alameda Dr. Carlos d’Assumpção, no. 335-341, “Hotline” Building, 14th floor in Macau, at 10:00 hours on 3rd of March of 2015. In case of the services of the Macau Government Tourist Office are suspended owing to typhoon or force majeure, the scheduled closing date and time for submission of tender, as well as the date and time for opening the tender shall be extended to the next working day that follows immediately. According to the article n.º 27 of Decree-Law n.º 63/85/M, of 6th July, the legal representatives of the Bidder should be present during the tender opening session for any complaints and/or to explain any doubts regarding their respective tender.

Macau Government Tourist Office, on 18th of December of 2014. Director Maria Helena de Senna Fernandes

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January 16, 2015

Macau ExCo member Peter Lam leaves Macau Foundation Local prominent businessman Peter Lam Kam Seng, also a member of the city’s policymaking Executive Council, ended his vice-presidency of Macau Foundation on December 19, a position he took up in 2011, the Foundation has announced. Mr. Lam has served the Foundation since 2001 when the unit was founded, and later became Macau’s biggest sponsor of not-for-profit entities. Mr. Lam’s position at the Macau Foundation has been taken up by former Secretary for Social Affairs and Culture Cheong U.

Mini gold rush not enough to offset Occupy, says Luk Fook Despite November’s gold rush with double-digit sales increases, Luk Fook sales in Macau and Hong Kong still dropped 6 per cent due to the disruption caused by Occupy Central in the fourth quarter of 2014, the company says Luís Gonçalves

luis.goncalves@macaubusinessdaily.com

he Occupy Central movement and the disruptions it caused in the main shopping areas of Hong Kong (and to some extent, here) continued to be the main factor for the biggest jewellery stores to justify the weak sales of the fourth quarter of 2014. This, despite less demand from Chinese customers and tougher comparisons with a record year in 2013. And if Hong Kong makes the headlines on company reports, the reality is that China sales are dropping even faster than here, regardless of Occupy. Yesterday, Luk Fook said its sales in Hong and Macau during its third fiscal year of 2014 – ended December – had decreased by 6 per cent. Gold products went down 5 per cent and gem-set jewellery 9 per cent compared to the same fiscal quarter of 2013. No sales values were reported in the filing sent to the Hong Kong Stock Exchange. The company blamed

weaker Chinese customer demand and the Occupy Central demonstrations in Hong Kong in which millions took to the streets for the soft performance. The quarter could have been much better as Luk Fook stores registered a mini gold rush in November

here and in Hong Kong, with sales going up by double digits. ‘Benefiting from the small scale gold rush, the Hong Kong and Macau market recorded a doubledigit positive growth in November’s sales. However, given the impact of the

‘Occupy Central’ movement in October and the overall weak consumer sentiment in December, the sales of the Hong Kong and Macau market for 3Q FY2015 was 6 per cent’. In mainland China, sales were even worse, declining

in the same period by 11 per cent, almost double Macau’s. Gold sales, for example, decreased by 16 per cent, while gem-set jewellery went up by 13 per cent. The record sales of gold and jewellery in 2013 made the comparisons with last year less favourable. In 2013, Luk Fook sales on the mainland were growing 36 per cent with gold skyrocketing 92 per cent. The company operates 10 stores in Macau and 47 in Hong Kong. In the quarter ended December, Luk Fook revenues decreased 7 per cent year-onyear against a 9 per cent rise in the same quarter of 2013. Still, Luk Fook did better in the fourth quarter than chief rival Chow Tai Fook, which reported a 21 per cent drop in sales here and Hong Kong, three times more than Luk Fook. Occupy Central was again the main factor affecting revenues, Chow Tai Fook said earlier this month. Overall sales were down 15 per cent.

Pataca reaches 4-year high, hurting local exporters The strong US dollar valuation against the currencies of Macau’s major trading partners such as Europe, Japan and China are putting the pataca on a record path Luís Gonçalves

luis.goncalves@macaubusinessdaily.com

he pataca reached its highest value since mid-2010 as the US dollar – which the city’s currency is pegged to through the Hong Kong dollar – rebounds against some of the major trading partners of Macau, such as Europe, China and Japan. If a strong currency is good news for residents who want to buy foreign goods or travel to Paris or Tokyo, it means problems ahead for local exporters as products become more expensive outside.

According to data released yesterday by the Monetary Authority of Macau (AMCM), the exchange rate for the pataca against its major trading partner currencies increased in December to 101.6 points. This is the highest value since July 2010, a more than four-year record, AMCM data shows. From November, the exchange rate of the local currency went up by one percentage point (0.99) and almost five percentage (4.91) points from December

of 2013. The strengthening of the pataca has been constant during the last year, gathering greater momentum since the summer. As it’s pegged to the US dollar, the currency value changes more with the fate of the US economy and less with the local one, which is currently addressing its biggest crisis in years. The recovery of the US economy has been growing in the last months with lower unemployment, rising exports and strong internal demand. Especially when compared

to Macau’s major trading partners: Europe is going through a deflationary cycle and almost no growth, Japan is coming up with measures to stimulate the economy, while China is growing much slower than expected and with credit shortages attached. All this makes the US dollar stronger than all these three regions’ currencies. AMCM compares the value of the pataca to a basket of euros, yen and yuan to calculate the trade weight exchange rate that

works also to ‘measure’ the competitiveness of Macau companies in foreign markets. The higher the pataca, the more expensive exporters’ products are outside Macau. AMCM also announced that the foreign exchange reserves amounted to MOP131.4 billion as at the end of December. This represents a 2.7 per cent increase from November (when reserves topped MOP127.9 billion). Today, Macau has in foreign reserves 12 times the amount of money in circulation.

Business Daily | 5

January 16, 2015

Macau Wynn dispenses ‘winter bonuses’ to employees Wynn Macau released ‘winter bonuses’ to its workers yesterday. Employees who had worked for the gaming corporation for more than six months were given a bonus equivalent to one month’s salary while those who had worked for the company 90 or more days but less than 6 months were given a bonus based on the number of days that they had worked, according to an internal Wynn notice. The top management of the company, however, did not benefit from this bonus. Wynn Macau is the second gaming corporation in the city that has given out bonuses to its workers this year, following SJM holdings Ltd.

Junkets on borrowed time? An inside source has told Business Daily that David Group is “shifting its focus to the overseas market” due to fierce competition in the VIP sector amid slumping gross gaming revenue in Macau Joanne Kuai

joannekuai@macaubusinessdaily.com

ne of the largest junket operators in Macau, the David Group, is said to be abandoning the city’s VIP market, according to Nomura, a financial services group and global investment bank based in Tokyo. “According to our industry information provider MGG, the David Group, one of Macau’s established junkets, is reported to be in the process of shutting down its VIP rooms in Macau.” Nomura Securities analysts said in a note. “This industry chatter was confirmed by sources at MGG.” An inside source told Business Daily that the company is not giving up its business in Macau entirely but that the company “is shifting its focus to the overseas market”, although the source said details of the operation adjustments would only be announced in due course. Based in Macau for 10 years, David Group currently owns seven VIP rooms here: two VIP rooms in Wynn Macau, two in MGM Grand, one in L’Arc, one in Galaxy and one in Four Seasons. David Group is considered to be one of the top 10 junket operators in the Macau gaming market judged by

volume of VIP chip roll which stands between 3 and 5 per cent, according to Nomura estimates. It is said to have a total of 58 gaming tables. The analysts at Nomura also pointed out that the junket operator even lowered its standard for recruiting new business, saying that “our channel checks yesterday with the David Group’s VIP receptionists found that they

…David Group, one of Macau’s established junkets, is reported to be in the process of shutting down its VIP rooms in Macau Nomura Securities analysts

had no idea whether the group was to shut down. In addition, when asked, they said no minimum fund is required to open an account for its VIP rooms”. Nomura’s analysts added that the incident is new to them “because David’s VIP rooms had previously required at least HK$100,000 to open an account”. However, when Business Daily called the service hotline of one of David’s VIP rooms, the receptionist said whoever wants to open an account need only deposit at least HK$50,000 in person. The source also told Business Daily that local junket operators are facing the shifting of the market and fierce competition among their peers. At the Macau Gaming Show 2014, David Group, which was one of the exhibitors, told Business Daily that in order to diversify its business and seek global expansion, [it would] provide services to high rollers who want to gamble elsewhere other than Macau in places in Asia such as the Philippines, Laos and Cambodia.

Isolated or structural Macau casinos have

traditionally been reliant on the VIP high roller sector, which accounted for nearly two-thirds of gaming revenue last year, according to data from the Gaming Inspection and Co-ordination Bureau (DICJ). But the landscape has shifted perceptibly: resort development and mass market growth have creased a US$50 billion run-rate in revenue after nine years of 28 per cent annualised growth. It was reported earlier that Macau’s junket model might be on borrowed time. “The business model looks nearbroken”, said Philip Tulk, an analyst with Standard Chartered in Hong Kong, attributing this to Beijing’s anti-graft campaign, credit shortage, and a surge in bad debts as China’s economy slows. Investors also believe that the downfall of the junket business in Macau is not only a matter of shortage and more expensive credit. It’s also a problem of lower quality VIP clients who gamble less and pay much later. Wells Fargo wrote in a recent note to clients that ‘our prior checks suggested the general quality of VIP players has declined’. With some casinos moving mass

premium gamblers to VIP rooms to avoid the smoking ban, these rooms are probably not exclusive to high rollers anymore. This month, Chinese media reported that 40 to 50 VIP rooms could shut their doors in the coming months. Macau gaming operators introduced more than 100 new VIP rooms over the last three years. In other words, in the near future Macau could lose half of the VIP rooms it has created since 2012. Morgan Stanley estimates that the repayment period to junkets more than doubled in 2014 from 15 days to more than 30 days, while smaller junkets have been driven out of business already. Without a healthy junket industry, casinos operators such as Las Vegas Sands Corp and Melco Crown Entertainment would have to rely on mass market gamblers or extend VIP credit directly - a practice that has led to write-offs in places such as Singapore, where junkets are tightly restricted. Some business insiders have called for rescue measures saying, “Macau needs to have some kind of protection for junkets to support the industry as this is what Macau depends on”.

6 | Business Daily

January 16, 2015

Gaming

Caesars Entertainment’s operating unit files for bankruptcy

he operating unit of Caesars Entertainment Corp, the largest U.S. casino company, filed for Chapter 11 bankruptcy yesterday to implement its plan to cut US$10 billion of debt. The second Chapter 11 filing for the unit this week follows months of negotiation and litigation over how best to reduce the billions of dollars of debt assumed in a 2008 buyout that was arranged by Leon Black’s Apollo Global Management LLC and David Bonderman’s TPG Capital Management LLP. That transaction occurred before the financial crisis and a glut of competition hobbled the U.S. gambling industry. Caesars has lost money every year since 2009 and has tried to remain solvent by refinancing debt and shuffling assets among its units. Lower-ranking creditors of the Las Vegas-based casino operator say the restructuring accord Caesars worked out with a select noteholder group unfairly protects the company’s interests at their expense. Their January 12 bankruptcy petition seeks to keep the casino operator from closing that deal. Caesars’ reorganization strategy protects Apollo and TPG by keeping the parent, Caesars Entertainment Corp., out of bankruptcy and instead puts in the operating unit and

its affiliates. C aesars listed about US$12.4 billion in assets and US$19.9 billion in liabilities in Chapter 11 documents filed yesterday in Chicago. The company said it has the support of its senior noteholders to implement the plan, which will reduce the operating unit’s debt to US$8.6 billion from US$18.4

billion. The bankruptcy protection was filed by Caesars Entertainment Operating Company Inc and several affiliates in the U.S. Bankruptcy Court for the Northern District of Illinois. T hey listed assets and liabilities of over US$1 billion, according to the filing. Much of the debt is a legacy of the US$30 billion

leveraged buyout of Harrah’s Entertainment that was led by Apollo Global Management and TPG Capital in 2008. U nder the plan, the operating unit will be split into a casino company and a real estate investment trust. The company does not anticipate closing any of its 44 casinos under the plan. T he bankruptcy plan

is opposed by junior noteholders as they will get less than 10 percent of the US$5 billion they are owed. The junior noteholders filed an involuntary bankruptcy against the operating unit in the U.S. Bankruptcy Court in Wilmington, Delaware on Monday. They are expected to ask to move the Chicago case to the Delaware court.

Analyst: Macau gaming revenues to drop 29pct in Q1 The future for Macau will be bright. But until the opening of the new casinos starts, the industry will have to endure another two quarters of steep declining revenues, CLSA gaming researcher Aaron Fischer said during a presentation at G2E Asia João Santos Filipe

jsfilipe@macaubusinessdaily.com

ross Gaming Revenue (GGR) has been in freefall for seven months now and according to the Regional head of Consumer & Gaming Research from CLSA, Aaron Fischer, the pain will last into the third quarter of the year, when Galaxy Phase II and Studio City are expected to start operating. “Unfortunately, for the first half of this year some very weak data is coming in and we’re forecasting gross gaming revenue to be down 29 per cent for the first quarter. For the second quarter we’re expecting a 20 per cent year-on-year decline”, Fischer said in a press conference presenting this year’s edition of the G2E Asia gaming expo. “February will represent the worst news for the industry, as last year the growth rate reached 40 per cent”, he added. In relation to the second half of the year, the analyst said that he was very confident, as supply will increase

again, after a year of stagnation without any casinos or gaming tables being added to the current capacity of the industry. However, Mr. Fischer warned that the ‘glory days’ are over. “The glory days are over in relation to the last ten years, when companies were able to build small facilities with gaming tables and they were not required to invest a lot in the nongaming side. Now the government is saying they need to invest more on the non-gaming side. So the return is actually coming down from 50 per cent to 30 per cent”, he explained. “However, this return is still three times larger than the return in projects built in the US, Australia or other parts of the world”, he stressed. A aron Fischer also explained that after years of relying on the VIP segment, where revenue has been mauled by the anti-corruption crackdown, the increase in nongaming supply would start a new

trend for the industry, with more focus on the mass market.

G2E hosts pavilion for nightlife Global Gaming Expo (G2E) Asia announced yesterday that it would host a pavilion for Nightlife, the result of a partnership with Macau International Clubbing Show (MICS). The exhibition will take place at The Venetian Macao from May 19 to 21. The next edition of G2E is going to be more focused on the non-gaming sector than in previous years, following the recent trend of the Macau gaming industry. “This is the first year G2E Asia is bringing suppliers and high profile brands from the international clubbing scene to the gaming industry”, said Josephine Lee, senior vice president of Reed Exhibitions, the organiser of the exhibition in a partnership with

the American Gaming Association. “As the Asian gaming industry continues to evolve, visitor per capita spending increases have triggered entertainment growth across the region, making it the ideal time to debut this new feature”. With this partnership with MICS there is the possibility that famous worldwide DJs such as Steve Aoki, Avicii, Bob Sinclair or Hardwell will come to Macau during GE2. The 2015 G2E Asia will have new features reflecting the latest trends of the gaming industry. This year, the iGaming sector will comprise a larger proportion in comparison to 2014. Also, in the official event programme one of the days will be totally dedicated to iGaming. From 2013 to 2014 the number of attendees at G2E Asia jumped 36 per cent from 6,074 to 8,233. At the same time, the number of exhibitors went up 13 per cent from 141 to 160.

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January 16, 2015

Greater China China to create venture capital to support start-ups ICBC to sell off asset-backed securities Industrial & Commercial Bank of China Ltd, the world’s largest lender by assets, plans to sell as much as 11.35 billion yuan (US$1.8 billion) of asset-backed securities, according to two people with direct knowledge of the matter. The sale may take place this month, one of the people said. It will be split into a senior tranche of about 10.51 billion yuan and a junior tranche of 840 million yuan, the people said, asking not to be identified as the details are private.

GM sees improved profit in 2015 General Motors Co forecast its 2015 operating profit will increase from last year due mostly to growth in its two largest auto markets, China and the United States. As it moves past a year marred by massive recalls from a defective ignition switch linked to at least 45 deaths, GM said modest growth in global vehicle sales this year would help the largest U.S. automaker post improved results in all of its regions. It provided no specific figures. GM also said it remained on track for 2016 targets, including 10 percent profit margins in North America and a return to profitability in Europe.

CRCC likely to triumph in Mexico train project again China Railway Construction Corp (CRCC) looks poised to clinch a contract to build a US$3.75 billion Mexican high-speed train system even after its original winning bid was revoked when it became engulfed in a political scandal, say sources with knowledge of the bidding. México on Wednesday revealed fresh preliminary bid terms for the tainted train project linking México City with the wealthy, industrial city of Querétaro, which was meant to be one of Mexican President Enrique Peña Nieto’s flagship infrastructure investments.

Superb Summit criticizes Muddy Waters Chinese timber supplier Superb Summit International Group has described comments by independent research firm Muddy Waters in November that questioned its accounts as “misleading” without providing further clarification. Superb Summit’s comment was the Hong Kong-listed company’s first official reaction to a critical Muddy Waters research note issued on November 20. The company, whose shares have been suspended since then, said it would publish a clarification “in due course”. Superb Summit said the Muddy Waters report “contained misleading statements and fabricated contents to asperse the company and its subsidiaries.”

PBOC stays neutral in open market China’s central bank will skip open market operations yesterday, traders said, meaning it will neither inject nor drain funds from the banking system this week. The People’s Bank of China (PBOC) did not inject or drain funds on a net basis in the market last week.

In the first half of 2014, 83 new funds were set up in China’s venture capital market

hina will set up a government venture capital fund worth 40 billion yuan (US$6.5 billion) to support start-ups in emerging industries, in its latest move to support the private sector and foster innovation. “The establishment of the state venture capital investment guidance fund, with the focus to support fledging start-ups in emerging industries, is a significant step for the combination of technology and the market, innovations and manufacturing,” China’s State Council, the cabinet, said in a statement. “It will also help breed and foster sunrise industries for the future and promote (China’s) economy to evolve towards the medium and high ends,” it said in the statement published in the government’s website, referring to sectors which the government is promoting such as technology and green energy. The government issued the statement after a meeting on Wednesday. It did not give a timetable, but past experience has shown that such a fund could be established within a few weeks after an announcement. China’s venture capital market remains small, the legacy of the country’s decades of the planned

It will also help breed and foster sunrise industries for the future and promote (China’s) economy to evolve towards the medium and high ends China’s State Council statement

economy in which private sector’s development is largely subject to a great variety of restrictions. In the first half of 2014, 83 new funds were set up in China’s venture capital market, with fresh capital eligible for investment in the mainland surging 157 percent from a year earlier, but remaining at a

moderate US$6.76 billion, according to a research by Zero21PO Capital, a service provider and investment institution in China’s private equity industry. During the period, 517 investment cases occurred in the market, with details of 440 made public on a combined investment capital of US$5.3 billion, the research showed. Still, the government is increasingly supporting the expansion of the industry since two years ago when mapped out a strategy to let market forces to eventually play a “decisive” role in China’s economy. Last month, for instance, regulators issued new rules to allow insurance companies to invest their huge pool of premiums in venture capital funds for the first time. The cabinet said in Wednesday’s statement that the planned fund would be funded by the government’s existing capital designated for expansion of emerging industries and by state corporates, while also inviting private partners to participate in. The fund will render public tenders to invite high processional asset managements to operate, with returns giving priority to private investors, it said. Reuters

Alibaba invests in a taxi app An Alibaba spokeswoman said SoftBank had contributed the bulk of the funding Yoshiyasu Shida

apan’s SoftBank Corp said it and other firms including Chinese e-commerce giant Alibaba Group Holding Ltd had invested about 70 billion yen (US$600 million) into Travice Inc, the operator of Chinese taxi hailing app Kuaidi Dache. Alibaba already holds an undisclosed stake in Kuaidi, one of two local apps that together control around 90 percent of the China online taxi hailing market. The investment marks the latest bet by the Japanese internet company on taxi hailing apps after it poured almost $500 million last year into Southeast Asia’s GrabTaxi and Indian app Ola, owned by ANI Technologies. “Kuaidi Dache has grown to become a leading player in the Chinese mobile taxi booking industry, and we are convinced it will see further remarkable growth,” Nikesh Arora, vice chairman of SoftBank Corp, said in a statement on Thursday. The company did not give a valuation for Kuaidi. SoftBank’s other investment partners include Tiger Global, which also holds a stake in Kuaidi. The app will use the funds to expand its services and market share, Kuaidi CEO Chuanwei Lu said in the joint statement.

Kuaidi competes with Didi Dache, in which internet firm Tencent Holdings Ltd has a stake, and U.S. firm Uber Technologies, which is backed by Chinese internet firm Baidu, in a market that Chinese firm iResearch estimates will see user numbers triple to 45 million this year compared to 2013. Many tech industry analysts expect these rides-on-demand to become a

key link in domestic logistics over the long term, making them attractive to e-commerce companies such as Alibaba. The SoftBank-led investment comes a week after China’s transport ministry banned car hailing apps from using cars and drivers without taxi licenses in a bid to regulate the fast growing sector. Reuters

Business Daily | 9

January 16, 2015

Greater China

Credit growth jumps as shadow banking stages comeback

hina’s shadow banking industry staged a comeback in December as equity investors and local governments contributed to a surge in credit, underscoring challenges for a central bank trying to revive growth without exacerbating risks. Aggregate financing was 1.69 trillion yuan (US$273 billion), the People’s Bank of China said in Beijing yesterday, topping the 1.2 trillion yuan median estimate in a Bloomberg survey. While new yuan loans missed economists’ forecasts, shadow lending rose to the highest in monthly records that began in 2012. With economic growth headed below 7 percent, the central bank cut interest rates for the first time in two years in November. While manufacturing and factorygate deflation have worsened, the main stock market index surged about 30 percent since the rate reduction was announced on November 21. “This highlights the dilemma for the PBOC: the real economy is still weak, and loan demand is weak, but speculative activity is rampant in the stock market, and local

restrictions on borrowing by local-government financing vehicles.

The real economy is still weak, and loan demand is weak, but speculative activity is rampant in the stock market, and local governments need funding Shen Jianguang, economist, Mizuho Securities

Local financing

median estimate of 880 billion yuan. The M2 gauge of money supply rose 12.2 percent from a year earlier, compared with the median estimate of 12.5 percent.

Corporate lending governments need funding,” said Shen Jianguang, Hong Kong-based chief Asia economist at Mizuho Securities Asia Ltd. “I believe the PBOC will further postpone rate and RRR cuts, and instead will resort to targeted measures of injecting liquidity.” New yuan loans, which measure new lending minus loans repaid, were 697.3 billion yuan, missing the

December’s entrusted loans increased to about 458 billion yuan, according to PBOC data compiled by Bloomberg -- the most on record for the company-tocompany credits that are brokered by banks. Trust loans increased to 210 billion yuan, the most since March 2013. The contrast between new yuan loans and aggregate

financing “shows that financial liquidity is not sufficient to support economic activity,” said Lu Ting, Bank of America Corp.’s head of Greater China economics in Hong Kong. “IPOs have been active, and shadow banking is reviving.” The outstanding balance of margin-trading loans on the Shanghai and Shenzhen stock exchanges rose to a then-record 1.02 trillion yuan on December 30, according to data compiled by Bloomberg. That was up from 757 billion yuan on November 21. Some of the jump in shadow-banking credit might have been related to the anticipation of new

“In December, there were a lot of LGFVs spurring borrowing, because if they didn’t borrow then, they can’t do it any more,” said Tao Dong, chief regional economist for Asia excluding Japan at Credit Suisse Group AG in Hong Kong. Long-term loans are also on the rise, Tao said, to support infrastructure building led by the central government. Foreign-exchange reserves at the end of December were US$3.84 trillion, compared with US$3.89 trillion at the end of September, PBOC data showed. “The implications are that the PBOC will have to find new ways to inject liquidity in coming months,” BofA’s Lu wrote in a note to clients. He expects three 50 basis point cuts to banks’ required reserve ratios in 2015 and said there’s room for a quarter percentage point reduction to deposit rates and a 40 basis point cut to lending rates. Bloomberg News

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January 16, 2015

Greater China

China’s US$1.8 trillion stock surge: What happens if gains persist Mergers and acquisitions could be smaller and slower if extra business makes even marginal firms profitable Alfred Liu

hina’s stock market swelled US$1.8 trillion in value in six months as trading volumes hit records. The Shanghai Composite Index jumped 3.5 percent yesterday for a gain of more than 60 percent since mid-July. Should the bull market be sustained, analysts see at least six implications for finance and the economy. 1. China’s deleveraging gets easier China’s been on a debt binge since 2008, adding to risks for the financial system. The fastest-growing and biggest part of the borrowing -- which rose to 251 percent of gross domestic product by mid-2014, according to an estimate by Standard Chartered -- is by companies. If the rally continues, the appetite for shares would encourage equity sales that help companies to cut debt, said Rainy Yuan, a Shanghai-based analyst at Masterlink Securities Corp. 2. Broker shake-up delayed When the broking industry was mainly struggling after the bursting

of a 2007 stock bubble, consolidation seemed more likely. Now, mergers and acquisitions could be smaller and slower if extra business makes even marginal firms profitable. “Valuations are so high now that market-driven consolidation may slow,” said Judy Zhang, an analyst at BNP Paribas SA in Hong Kong. The nation had 115 brokerages in 2013, according to the most recent data from the Securities Association of China. 3. Extra credit risks The money sucked into the share market may exacerbate competition for funding. Among those most vulnerable are the individuals, small businesses and unlisted property developers borrowing from the likes of pawn shops, online peer-to-peer financing sites and private lenders, Standard Chartered analysts in Hong Kong including Dorris Chen wrote in a report this month. If the bull market persists, the extra stress may increase defaults by such borrowers, the least creditworthy, they said.

Banks may find it more difficult to manage liquidity, an “important” concern, said Jim Antos, a Hong Kongbased analyst at Mizuho Securities Asia Ltd. 4. No reserve-ratio cut While analysts are split, some have argued that share gains could encourage the government to hold off from cutting the reserve requirements that dictate how much money lenders park at the central bank. Reductions aimed at fueling economic growth could lead to more money flowing into stocks, adding to the risk of a bubble. The central bank has been “reluctant” to move because of sharemarket concerns, Lu Ting, a Bank of America Corp. economist, said in Hong Kong this month. See CHART 5. Banks fortify capital China’s banks may take the opportunity to sell equity to bolster capital, an option that is cheaper for lenders than raising money via issues of the subordinated securities called preferred shares.

“Distressed equity market valuations over the past few years made it extremely hard for banks to issue common equity,” the Standard Chartered analysts said. Underscoring how that has changed, shares of Industrial & Commercial Bank of China Ltd., the nation’s largest lender, climbed 29 percent in the past two months. 6. Volatile money markets A protracted bull market could add to the potential for volatility in Chinese money markets. The interbank market’s seven-day repurchase rate had its biggest weekly jump of 2014 in the week ended Dec. 19 as initial public offerings and share- price gains drew more money to stocks. “The risk-on mode will keep demand robust for new shares, so it’s almost inevitable to result in volatility in money markets,” said Liu Changjiang, a fixed-income analyst at Essence Securities Co. Bloomberg News

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Business Daily | 11

January 16, 2015

Asia

Japan machinery orders heighten doubts over recovery The world’s third-biggest economy has shown few signs of rebounding strongly as domestic consumption has remained soft Stanley White

apan’s core machinery orders rose less than expected in November, suggesting companies are still cautious about capital expenditure with renewed worries about global growth adding to doubts over how quickly the economy can recover from recession. Lacklustre business investment could also be a sign that consumer demand is weak, which could make it difficult for the Bank of Japan to achieve its 2 percent inflation target. The 1.3 percent increase in core orders, which exclude those of ships and electric power utilities, lagged a 5.0 percent rise forecast by economists in a Reuters poll. It followed a 6.4 percent decline in October. Japan’s policymakers have said consumer spending, corporate profits, capital expenditure and exports will underpin growth this year. However, signs of a slowing global economy, plunging oil prices and a sudden slide in copper prices underscore the challenges to this scenario. “Capital expenditure has been on the recovery path since the summer last year, but now we are starting to see some signs of caution,” said Hidenobu Tokuda, senior economist at Mizuho

KEY POINTS Nov core machinery orders +1.3 pct mth/mth pct vs +5.0 pct f’cast Data suggests capex recovery could be slow Japanese industrial zones don’t generate feeling of true recovery

Research Institute. Weak capital expenditure could cast doubt on Prime Minister Shinzo Abe’s argument that his mix of fiscal stimulus, monetary easing and structural reforms is leading to a revival of Japan’s hollowed-out manufacturing sector. Offshore developments, including slowing growth in China - Japan’s major export market - also is casting doubt about the strength of recovery. “There are lingering concerns about domestic demand. Some companies may also be worried about a slowdown in China,” Tokuda said.

Orders from manufacturers fell 7.0 percent in November, faster than a 5.5 percent decline in the previous month, Cabinet Office data showed. Compared with a year earlier, core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, tumbled 14.6 percent. The median estimate was for a 5.8 percent annual decline. The Cabinet Office lowered its assessment of machinery orders, saying the recovery is showing signs of stalling. Abe is hoping that corporate

Govt counting on higher corp profits to spur capex tax cuts starting next fiscal year will encourage Japanese companies to bring manufacturing capacity back home from overseas markets. Many policymakers are also encouraged because other surveys show companies plan to increase investment next fiscal year. However, the tepid rise in machinery orders in November suggests an acceleration in capital expenditure is far from certain, especially also as a slowdown in China and weakness in the euro zone tempers global growth. Reuters

Australian employment surges in December Data due next week might well show inflation slowed to below the floor of the RBA’s 2-3 percent target band last quarter

ustralian employment surged past all expectations in December, shoving the jobless rate down to a fourmonth low of 6.1 percent and suggesting the economy was healthy enough to soldier on without another cut in interest rates. The Australian Bureau of Statistics reported net employment rose 37,400 in December, 10 times the forecast of 3,800. The unemployment rate also came a surprise as analysts had tipped 6.3 percent. Adding to the strength, all the job gains came in full-time work which leapt 41,600. The only caveat was that the series was plagued with survey problems last year that have led investors to be wary of reading too much into one month’s numbers. “The size of the gains will reawaken doubts on credibility,” said Michael Blythe, chief economist at Commonwealth Bank.

Positive indicators The Reserve Bank of Australia (RBA) has kept

But all the rise in employment was full-time and the unemployment rate fell even though participation rose. It’s hard not to see that as positive Michael Blythe, Commonwealth Bank, chief economist

rates at 2.5 percent since last cutting in August 2013 and so far has shown little inclination to ease further, in part because of concerns lower borrowing costs would heat up the housing market. Leading indicators have also been pointing to an improvement in the demand

for labour. Job adverts in newspapers and on the web rose for a seventh straight month in December to the highest in over two years, according to a survey from ANZ. Likewise, the government’s own survey of vacancies showed an increase of 2.8 percent in the three months to November, taking them to a two-year peak. That was echoed in yesterday’s figures which showed annual growth in employment accelerated to 1.9 percent in December,

surpassing growth in the workforce for the first time in months. Yet wages growth is running at around the slowest annual pace in over a decade which, combined with steep falls in petrol prices, make for a very benign outlook for inflation. Data due next week might well show inflation slowed to below the floor of the RBA’s 2-3 percent target band last quarter. “The big fall in global energy prices means lower than previously expected

inflation in 2015 provides the scope for lower interest rates,” said ANZ chief economist Warren Hogan, in a change of house view on Thursday. “As such, we have now factored into our forecasts two 25 basis point cuts over the first half of 2015.” ANZ had previously forecast rates to remain unchanged all year. Hogan also predicted 10-year bond yields would fall to 2.10 percent, from already historic lows around 2.60 percent. Reuters

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January 16, 2015

Asia Singapore home sales drop Annual home sales dropped to the lowest in six years in 2014 as government property measures and lending curbs stemmed purchases. Sales last year dropped by half to 7,557 units from 2013, the lowest number since the 2008 financial crisis, according to data released today by the Urban Redevelopment Authority. Developers sold 230 units last month compared with 423 units in November, according to the data. “Demand has been curtailed by the government measures to curb speculation,” said Donald Han, managing director of real estate firm Chestertons.

Philippines approves infrastructure projects

A Philippine cabinet-level agency has approved five public private partnership (PPP) projects worth more than 500 billion pesos (US$11 billion) to upgrade the country’ roads, airports and seaports and boost economic growth. “All the PPP projects on the agenda were approved last night,” Cosette Canilao, head of the PPP Centre overseeing the development of major infrastructure, said yesterday. The projects still need to be approved by the National Economic and Development Authority (NEDA) board chaired by President Benigno Aquino before they are offered for tender.

Samsung in talks with BlackBerry Samsung Electronics recently offered to buy BlackBerry Ltd for as much as US$7.5 billion, seeking its valuable patents as it battles Apple in the corporate market, according to a person familiar with the matter and documents seen by Reuters. South Korea’s Samsung proposed an initial price range of US$13.35 to US$15.49 per share, representing a premium of 38 percent to 60 percent over BlackBerry’s current trading price, the source said. Representatives from the two companies met last week.

PC virus costs Vietnamese US$400 mln Vietnamese users lost almost US$400 million in 2014 due to malicious software programs, or virus, a local Internet security firm (Bkav) said yesterday. The total damage done by virus amounted to 8.5 trillion VND, or US$396.12 million in 2014, local Tuoi Tre (Youth) News reported, quoting the Bkav’s latest survey findings announced on its website. The loss was calculated on the income of the victims and amount of time their work was disrupted by malware issues, said the firm.

India makes surprise interest rate cut Reserve Bank of India Governor insisted his priority is bringing inflation under control

ndia’s central bank cut interest rates by 25 basis points yesterday, the first time in almost two years, in a surprise announcement to boost the flagging economy after inflation eased. The Reserve Bank of India (RBI) reduced the benchmark repo rate -- the level at which it lends to commercial banks -- to 7.75 percent ahead of next month’s policy meeting. RBI governor Raghuram Rajan said the bank was confident of cutting rates because local food and global oil prices have brought stubborn inflation under control in recent months. “These developments have provided headroom for a shift in the monetary policy stance,” Rajan said in a statement. The RBI has been under pressure from government and business leaders to reduce rates to increase lending and help kick start the economy, which has been struggling through the worst slowdown since the 1980s. After storming to power at elections in May, Prime Minister Narendra Modi promised to reform and revive Asia’s third-largest economy by attracting more foreign investors and bolstering manufacturing.

Reserve Bank of India’s governor Raghuram Rajan (pictured) said local food and global oil prices brought inflation under control

But Rajan has insisted his priority is bringing inflation under control, although the bank had signalled that a cut was on the cards at its February 3 meeting. Inflation, especially high food

prices, have caused much hardship for India’s 1.2 billion population, of which nearly a quarter live in severe poverty, according to the World Bank. Daniel Martin, senior Asian economist at Capital Economics,

Bank of Korea cuts 2015 forecasts Governor announced central bank decided to hold rate

outh Korea’s central bank cut its forecasts for consumer prices and economic expansion this year following a policy meeting at which it kept the benchmark interest rate unchanged at a record low. Inflation will slow to 1.9 percent, from a previous estimate of 2.4 percent, Governor Lee Ju Yeol said yesterday after the bank held the seven-day repurchase rate at 2 percent. Gross domestic product growth is expected to ease to 3.4 percent, compared with an earlier projection of 3.9 percent. Lee said the current interest rate is “not insufficient to support growth” and that the central bank will set future inflation targets soon. He has indicated that with low price gains linked to supply factors such as the plunge in oil, it isn’t desirable to manage monetary policy just to match inflation goals. “We expect the economy to recover in the coming quarters, supported by low oil prices, loose fiscal policy and the BOK’s earlier rate cuts,” Krystal Tan, a Singapore-based analyst at Capital Economics Ltd., said in a note after the interest rate decision. “We doubt the central bank will respond to

a fall in inflation that has been caused by temporary supply-side factors.”

Record low Thirteen of 17 economists surveyed by Bloomberg News forecast yesterday’s rates decision correctly. The rest expected a cut to an unprecedented 1.75 percent. The central bank lowered the seven-day repurchase rate to 2 percent in October, equal to a record low last seen in 2010. Consumer prices in Asia’s fourthbiggest economy increased 0.8 percent

in December from a year earlier, the slowest pace since 1999 and trailing the BOK’s target range of 2.5 percent to 3.5 percent. President Park Geun Hye injected a new element of uncertainty earlier this week for economists trying to forecast yesterday’s move when she said the government would discuss borrowing costs with relevant authorities. While Park later downplayed the comments, noting that monetary policy decisions aren’t made by her presidential office, yields on government bonds fell to recordlows this week on bets the BOK may cut rates.

Global outlook

South Korean President Park GeunHye speaks during a New Year’s news conference at the presidential house in Seoul last Monday

“The BOK will probably cut the interest rate either in March or April as it starts to realize more support measures are needed,” Yoon Yeo Sam, a fixed income analyst at Daewoo Securities Co., said before Lee held a post-decision briefing with reporters. “That’s when we expect more downward revisions to come for global and domestic growth.” Bloomberg News

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Business Daily | 13

January 16, 2015

Asia BOJ keeps upbeat view on most regions of Japan The cut is the first since March 2013

Many analysts expect growth to rebound as the tax-hike pain subsides Leika Kihara

welcomed the cut, saying the “economy could certainly use some support, with the industrial sector, in particular, clearly struggling to gain any momentum”. The economy grew 5.3 percent from July-September year-on-year, significantly slower than the previous three months, and far too low to help create jobs for its tens of millions of young people. Rupa Rege Nitsure, chief economist at the Bank of Baroda, said the decision “is quite consistent with the guidance in their (the RBI’s) last policy review”. “It’s driven by a very sharp fall in crude oil prices this week” as well as the recent falls in inflation, she told AFP. The decline in food prices “has been consistent for four to five months”. Consumer price inflation inched up to five percent year-on-year in December, from a three-year low of 4.38 percent in November. The RBI yesterday said the cash reserve ratio would be kept at 4.0 percent, but the reverse repo rate at which the RBI borrows from commercial banks would fall to 6.75 percent. AFP

he Bank of Japan maintained its upbeat economic assessment for eight of Japan’s nine regions in a quarterly report yesterday, signalling that the country is on track to emerge from recession without additional monetary easing. It cut its assessment for one region, the northernmost prefecture of Hokkaido, where factory output took a hit from declines in public works spending. “All regions, including Hokkaido, said their economies were recovering or recovering moderately as a trend against the background of firm domestic demand, a pick-up in overseas demand and steady improvements in job and income conditions,” said the report, issued at a meeting of the BOJ’s branch managers. Japan’s economy slipped into recession in the third quarter of last year as a sales tax hike in April cooled household spending. BOJ Governor Haruhiko Kuroda stuck to his optimistic outlook, telling the branch managers’ meeting that the world’s third-largest economy is recovering moderately as a trend. “We will adjust policy as needed,

KEY POINTS BOJ keeps assessment for 8 of 9 regions BOJ says regional economies recovering as a trend Governor Kuroda remains optimistic on economy Benefits of fuel cost falls yet to reach small firms looking at upward and downward risks to the economy and prices,” he said. The quarterly report comes ahead of next week’s rate review, where the BOJ is likely to raise next fiscal year’s economic growth forecast but cut its consumer inflation projection due to slumping oil prices. Any cut in its inflation forecasts will underline the challenges of achieving the BOJ’s 2 percent target and keep it under pressure to ease monetary policy again.

BOJ Governor Haruhiko Kuroda

Having eased policy in October last year, many BOJ officials hope to hold off on action next week. They argue that while the rout in global oil prices will slow inflation short term, falling fuel costs are positive for the economy and will help push up prices in the long run, reflecting the recovery. But the benefits of lower fuel costs have yet to spread to broader areas of Japan, according to the regional report. “While some small firms said they are feeling the positive effect of oil price falls, others said the benefits haven’t spread enough yet,” the report said. Reuters

Australia to probe overcharging service stations Petrol pump prices are not regulated in Australia but the Australian Competition and Consumer Commission has used anti-cartel laws to fight price fixing by large players A Caltex Woolworths petrol station in Margate, Queensland

Whatever justification there is for the gap between city prices and rural prices, once you get a reduction in the international price of petrol, that should flow on generally throughout the country

ustralian authorities said yesterday they would start investigating petrol stations without warning for possible price fixing after a lawmaker accused some of failing to pass on huge falls in the oil price to consumers. The probe will put additional pressure on firms like Chevron Corp and its half-owned retail subsidiary Caltex Australia Ltd, Britain’s BP and Dutch Vitol which dominate Australia’s service station industry.

It may also impact large domestic retailers like supermarket companies Woolworths Ltd and Wesfarmers Ltd’s Coles, which run customer loyalty programmes that rely on fuel discounts. Already they have watched the price of petrol that consumers pay at the pump slide by more than a third since July last year as the spot price of oil plunged amid concerns of global oversupply. But the Australian government earlier this month

said service stations in some regional areas seem to have cut prices by less than those in cities, where there is more competition, and ordered a three-year investigation into how they decide prices. Yesterday, the Australian Competition and Consumer Commission (ACCC) said it would use its compulsory information gathering powers to produce eight reports a year on petrol pricing, up from one currently, noting that the gap between regional and city prices has tripled since July.

Rod Sims, Australian Competition and Consumer Commission, commissioner

“That is very hard to understand and we are very concerned about that,” ACCC commissioner Rod Sims told reporters. “Whatever justification there is for the gap between city prices and rural prices, once you get a reduction in the

international price of petrol, that should flow on generally throughout the country.” A Caltex spokeswoman told Reuters that the ACCC’s own analysis had found petrol price moves in regional locations tend to lag those in larger cities because of slower product turnover, and “this phenomenon is again being seen”. A BP spokeswoman said the company had supported the ACCC’s fuel price monitoring program since it started producing annual reports in 2008. Spokespeople from Woolworths and Vitol declined to comment, while Coles did not immediately respond to requests for comment. Petrol pump prices are not regulated in Australia but the ACCC has used anti-cartel laws to fight price fixing by large players. In August last year, the regulator launched Federal Court action against petrol price information service Informed Sources and several retailers, alleging they were collaborating on price movements. Informed Sources has maintained it is a private company which collects information from its own surveys and petrol retailers, based on publicly available information. Reuters

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January 16, 2015

International German hits threeyear record growth The German economy expanded by 1.5 percent in 2014, its strongest rate in three years and in line with expectations, a preliminary estimate from the Federal Statistics Office showed yesterday. The German economy had a robust start to last year but only narrowly avoided a contraction in the third quarter after shrinking in the second.

UK Home Retail reiterates guidance Britain’s Home Retail said it expected to post full-year profit before tax in line with expectations despite underlying growth at its Argos and Homebase chains over the Christmas period missing forecasts. Britain’s biggest household goods retailer said it had taken a different approach to Christmas trading this year, after the adoption of the Black Friday promotional day at the end of November skewed normal shopping patterns.

IMF to appoint new deputy director

The International Monetary Fund plans to appoint a new deputy managing director who will for the first time focus on the day to day running of the global financial institution. Carla Grasso, who used to work at Brazil’s Vale SA, the world’s largest iron ore producer, will become a deputy managing director and the newly created Chief Administrative Officer, IMF Managing Director Christine Lagarde said in statement on Wednesday. Grasso replaces Nemat Shafik, who left the IMF last spring to become deputy governor at the Bank of England.

Morgan Stanley names new commodity chiefs Morgan Stanley appointed two new executives to run one of Wall Street’s last big commodity trading operations following the unexpected departure of the previous co-heads.Nancy King and Peter Sherk, insiders who have worked in the bank’s commodities group for more than a decade, have taken on dayto-day responsibility for the business, effective immediately, according to a memo sent by Colm Kelleher, president of institutional securities. They replace Simon Greenshields, who has left the bank after 31 years, and Colin Bryce, who is moving to a senior advisory role.

JPMorgan presses managers to cut costs Senior executives at JPMorgan Chase & Co are pressuring managers across the bank to cut costs, after disappointing revenue growth has hurt profits, a person familiar with the matter told Reuters. The bank might implement specific expense goals for businesses, the source told Reuters, adding, “Everyone is having to give at the office on this.” JPMorgan said it expects to disclose more about its cost-cutting efforts on Feb. 24, when it hosts its investor day. On Wednesday, JPMorgan posted a 3 percent decline in revenue.

U.S. House approves bill scaling back Wall Street reform law President Barack Obama has threatened to veto the bill if it reaches his desk Emily Stephenson

awmakers in the U.S. House of Representatives approved a bill scaling back the 2010 Wall Street financial reforms, an early victory that could embolden Republicans to continue chipping away at the oversight law. House Republicans view much of the Dodd-Frank law as unworkable and an unnecessary burden on American businesses, while many Democrats have vowed to defend it. In a mostly party-line vote of 271 to 154, lawmakers voted to send the measure to the U.S. Senate. The bill would give banks extra time to comply with part of the law’s controversial Volcker rule and loosen disclosure requirements for small companies seeking to raise capital, among other changes. “The community banks and the Main Street businesses that are trying to put America back to work are suffering under the sheer weight, load, volume, complexity and cost of the regulatory burden that has been imposed,” said House Financial Services Committee Chairman Jeb Hensarling, a Republican. Republicans control both houses of the U.S. Congress after major wins in last November’s elections, and they have made it a top priority to

reduce what they view as a burden on business due to federal regulation. The Dodd-Frank law is a top target. Republicans brought up the financial regulation bill after returning to Washington last week. They tried to move it quickly under special rules that required twothirds of the House’s approval, but Democrats defeated that plan. On Wednesday, supporters, including 29 Democrats, approved the bill under normal rules that required fewer votes. It is unclear whether it would pass in the Senate, where

Republicans hold a slimmer majority than in the House. The bill’s most controversial portion relates to the Volcker rule, which bans banks from making risky trades with their own money and restricts certain types of investments. The bill gives banks two more years to comply with a section related to collateralized loan obligations, or bundles of business loans. Banks said they would have to dump investments, disrupting the market, if the rules were not changed. Reuters

Russian central bank replaces monetary policy head Several Russian lawmakers have criticised central bank for letting the rouble plummet last year after floating the currency in November

ussia’s central bank replaced its head of monetary policy, the first reshuffle since the bank failed to halt the rouble’s sharp decline late last year. A long-time central bank technocrat, Dmitry Tulin, will replace Ksenia Yudayeva who has been the focus for criticism over the defence of the rouble, which fell more than 40 percent last year, briefly hitting a record low of 80 to the dollar. Dmitry Tulin, who has been working on-and-off at the bank since 1978, has been a deputy chairman there since 2004. He will become first deputy chairman in charge of monetary policy - effectively the number two to central bank governor, Elvira Nabiullina - the central bank said. Tulin, 58, is to take on his new responsibilities over the next few days. Nabiullina was quoted as saying in the statement that the move was an organisational one to split the “goals of price and financial stability” into independent units. “I want to emphasise that we are preserving both strategic and tactical guidance

The very ideology of monetary policy will be a continuity of the way we worked in 2013 and 2014 Elvira Nabiullina, Russia’s central bank Governor

to monetary policy,” Nabiullina said. “The very ideology of monetary policy will be a continuity of the way we worked in 2013 and 2014.” But analyst Tim Ash said the reshuffle suggested the central bank was not free to act without political guidance, saying Nabiullina, also

criticised for Russia’s monetary policy, had so far been saved from a predictable cull. “I think therein is a clear message that the central bank was not entirely free in terms of its decision set late last year,” Ash said in a note, referring to his belief the Kremlin had told the bank to keep reserves high to weather what Russian politicians expect to be a long standoff with the West over Ukraine. U.S.-trained Yudayeva, who joined the bank in late 2013, will retain the title of a first deputy and will be responsible for financial stability, analysis and economic forecasting as well as the bank’s international policy. President Vladimir Putin said in December the central bank should have acted more swiftly, but has largely backed the central bank’s actions. The rouble, hit by falling oil prices, Russia’s main export, and Western sanctions imposed on Moscow for its role in the Ukraine crisis is trading 50 percent lower against the dollar than in early January of 2014. Reuters

Business Daily | 15

January 16, 2015

Opinion Business

wires

Leading reports from Asia’s best business newspapers

Diversification, a bet on human ingenuity

THE STRAITS TIMES Real estate investments continued to head south in the fourth quarter of last year, plummeting more than half to S$2.38 billion, according to property consultancy DTZ. The quarter-on-quarter decline in investments was likely due to a 52 per cent fall in Government Land Sales and the slowdown in investments in office space which plunged by 92 per cent to S$152 million. “Although investors were attracted by the expected rental appreciation, investment activity was constrained by limited stock and yield gap in pricing expectations between sellers and buyers,” said DTZ.

James Saft

Reuters columnist

THE PHNOM PENH POST In a bid to stock 1.2 million tonnes of rice paddy, Cambodia has sent a draft memorandum of understanding to China asking the country for a US$300 million loan to build more than 10 warehouses nationwide. The draft MoU was prepared by the Ministry of Economy and Finance and sent to the Chinese government late last month, according to Mey Kalyan, senior adviser for the Supreme National Economic Council (SNEC) and leader of the project. Kalyan said Cambodia is now waiting for the Chinese government’s response and expects to begin the project mid-year.

THE BANGKOK POST While a fierce debate is raging over whether the government’s rice subsidy is more effective than the rice-pledging policy initiated by the Yingluck Shinawatra administration, at least the cash giveaways have proved a better method of passing on subsidies to needy farmers. About 60% of the government’s 40-billion-baht hand-out has been given to farmers in the Northeast and upper North who are poorer than those in other regions, said Bank for Agriculture and Agricultural Cooperatives Bank for Agriculture and Agricultural Cooperatives (BAAC) president Luck Wajananawat.

TAIPEI TIMES The government is likely to impose phase-two water rationing measures on New Taipei City’s Banciao and Sinjhuang districts, as well as on Greater Taoyuan’s Linkou District after the Lunar New Year holiday, the Ministry of Economic Affairs said. “The water level of the Shihmen Reservoir in Taoyuan is currently 50.79 percent and will drop to below 50 percent soon, marking the lowest level in the past 11 years,” Vice Minister of Economic Affairs Yang Weifu told a news conference after a water supply meeting.

o diversify investments is to bet on, rather than against, human ingenuity. Diversification is a bet on human ingenuity, but made in a humble way which wants to capture a fair share of ingenuity in aggregate rather than a huge share of advances in particular. Investment guru Dylan Grice once said that investing in commodities was a bet against human ingenuity. His point, most recently illustrated by the plunge in the energy markets, was that investors were wrong to expect a real risk premium from an asset class whose prices should be expected to decline in real terms over the long term. Human beings figure out a better way to create commodities more cheaply or to obtain more of them than previously thought possible, fracking being but one example. That caps price gains and makes it hard to profit over the longer term. Better, under the circumstances, to try to capture the benefit of that ingenuity, usually by investing in equities, which give holders unlimited upside to benefit from a better, cheaper drilling apparatus, cell phone or mousetrap. There are basically two approaches to this strategy: to be discerning, or to be humble.

The way of the stock picker The first way, historically far more popular and definitely far

It is immensely satisfying to be the stock picker who figures out how the future is going to break

more fun, is to try to discern which technologies will displace which business models and then invest accordingly. There is much to be said for this, after all. Firstly if you get in early and correctly you can make a fortune. Figure out that America is going to want to drink individual cups of coffee made with little capsules (an idea I found hilarious at first) and you might be an early investor in Keurig, now part of Keurig Green Mountain, the wonder stock of the most recent decade. Everybody, well almost, has an uncle who almost bought McDonald’s at 30 cents in the 1960s.

This is also, besides potentially greatly enriching, a lot of fun. It is immensely satisfying to be the stock picker who figures out how the future is going to break. This makes us feel that, rather than simply being rentiers exchanging our capital for a return, that we too are innovators improving the lot of mankind with our capsule coffee. Scientists, almost. I am convinced that much of the mysterious appeal of active fund management and its bad twin, hedge funds, is that they make the client feel clever. The irony here is that though you may have decided that you want to bet on human ingenuity, as a stock or fund manager picker you’ve decided that the way to do that is to rely on the judgement of one person: you. You can use all the gate keepers you want, but ultimately you are choosing to delegate the technology picking to someone else. Why you might believe that you are well suited to make this choice, other than the fact that you happen to have assets, I cannot say.

The way of the humble The alternative is to accept that, on the evidence, people are good at innovating and that these innovations will increase output and living standards. But just as ingenuity makes fortunes, so it destroys them, eating the lunch and profit

margins of those businesses whose operating models are displaced. A well-diversified portfolio is positioned to benefit from those innovations in aggregate, earning a modest but less volatile return. It isn’t necessary to work out that the Erie Canal will kill the businesses of some eastern farmers or millers, or that the railroads, less than a generation later, will do the same to the Erie Canal and some of its beneficiaries. Given that the Internet is so revolutionary, the stock picking way is particularly tempting, but if the innovation is more ground breaking, more lunches are going to be eaten. WhatsApp looks like a revolution, and so it may be, but it is very hard to gauge both how sustainable and profitable it will be and whose profits it will eat. Better instead to take a modest premium from a more efficient, better connected world. Diversification works two ways: giving you exposure to innovation while making sure you don’t get too badly hurt by its collateral damage. That’s even before we consider the ways in which diversification, one of the only free lunches of the investment world, allows for better risk-adjusted returns. Have faith in the future, but be humble enough to understand you have little specific idea what that means. Reuters

16 | Business Daily

January 16, 2015

Closing China starts “toilet revolution” at tourist sites

Kick off to the new electricity pricing system

China will launch a “toilet revolution” at tourist sites across the country this year to make the notorious facilities cleaner and more regulated, tourism authorities said on yesterday. China will spend three years to improve the toilets at tourist sites that have long been complained of their insufficient numbers, unhygienic conditions, and lack of management, said Li Jinzao, head of China National Tourism Administration. Some 33,500 new toilets will be built at tourist sites during the period and another 25,000 renovated, according to Li. By 2017, the country aims to make tourist restrooms reach three-star standards.

China’s top economic planner unveiled the country’s new electricity distribution pricing system yesterday as they look to reform the sector. The southern city of Shenzhen was the first to launch the new pricing system, which began this year, said the National Development and Reform Commission (NDRC). For every 1,000 kwh of electricity, the new electricity distribution price stands at 143.5 yuan (US$23.5) in 2015, lower than the 155.8 yuan in 2014. For 2016 and 2017, the new prices will be 143.3 and 142.8 yuan, respectively, according to the new pricing system.

Uniqlo tells China suppliers to improve work conditions Fast Retailing, Uniqlo-owner, also said it would take steps to improve its monitoring system for its manufacturing partners

niqlo-owner Fast Retailing Co Ltd said yesterday it has instructed two suppliers in China to improve factory working conditions after an inspection by the Japanese apparel retailer found several problems, including long working hours. The move came after SACOM, a Hong Kong-based advocacy group, issued a report saying that employees at Dongguan Tomwell Garment Co Ltd and Pacific (Pan Yu) Textiles Ltd were working excessive hours in unsafe conditions, including extremely high temperatures, poor ventilation and floors covered with sewage. Factory safety at suppliers to global clothing brands has been under scrutiny after the collapse of a factory in Bangladesh in 2013 that killed more than 1,100 workers. In China, poor working conditions was widely cited as contributing to a number of suicides in recent years, such as at factories of Apple supplier Hon Hai Precision Industry Co Ltd, also known as Foxconn. “Respecting human rights and ensuring appropriate working conditions for the

Respecting human rights and ensuring appropriate working conditions for the workers of our production partners are top priorities for Fast Retailing Yukihiro Nitta Fast Retailing executive officer responsible for Corporate Social Responsibility

workers of our production partners are top priorities for Fast Retailing, and in this we are completely aligned with SACOM,” Yukihiro Nitta, group executive officer responsible for Corporate Social Responsibility, said in a statement. Fast Retailing said it had told Dongguan Tomwell Garment and Pacific (Pan Yu) Textiles to make various improvements in regulating working hours and their

factories. It also instructed Dongguan Tomwell Garment to establish a workers’ union, hold elections and organise its first assembly in March, it said. The company, however, said its inspection had found discrepancies with several points in SACOM’s report regarding Pacific (Pan Yu) Textiles, including that the cause of a worker’s death was by electrocution. It said it would continue its inspection and seek talks with SACOM

Bank of China sues Kaisa unit

TSMC posts record profit

ank of China Ltd. is suing a unit of Kaisa Group Holdings Ltd. after the developer skipped a payment on its U.S. currency bonds and as local creditors seek to recoup funds. The Shenzhen Intermediate People’s Court said in a notice on its website that it will hear the case brought by China’s third-largest lender by market value from March 24. The court accepted the case against a unit of Kaisa and two other defendants on January 7, according to the statement, which didn’t provide any further details. Kaisa has moved closer to default after failing last week to pay a US$23 million coupon on US$500 million of 10.25 percent bonds due 2020. It’s being investigated about links to a senior Shenzhen official who’s under a probe, two people familiar with the matter said earlier this week. The Shenzhen Intermediate People’s Court website shows local banks and creditors have submitted more than 30 pre-litigation applications to seal Kaisa’s assets. Bloomberg News

for clarification. Dongguan Tomwell Garment makes clothes for Uniqlo and Pacific (Pan Yu) Textiles supplies textiles to garment factories, including Dongguan. Neither company answered calls seeking comment. SACOM said it appreciated Fast Retailing’s quick response. “SACOM will continue to monitor the working conditions in Uniqlo’s suppliers and looks forward to

a dialogue with the company,” it said in a statement. Fast Retailing also said it would take steps to improve its monitoring system for its manufacturing partners including beefing up measures to check overtime hours, tracking such information as employee accidents and strikes, and introducing a system to monitor textile factories that supply garment plants. Nitta said Fast Retailing would check progress within a month along with third parties including auditors. Reuters

China widens definition of loan-to-deposit ratio

aiwan Semiconductor Manufacturing Co said yesterday its fourth quarter net profit and revenue both hit record highs thanks to strong demand for chips used in mobile devices, reported to include Apple’s iPhone 6. TSMC, the world’s biggest contract microchip maker by revenue, said profit in the three months to December rose 78.5 percent year-on-year to Tw$79.99 billion (US$2.58 billion). Revenue also reached a record Tw$222.52 billion, up 52.6 percent from the same period last year, it said in a statement. “The strong demand for TSMC’s advanced technologies continued into the fourth quarter. Our 20-nanometer production was ramped-up at record speed and reached 21 percent of our fourth quarter revenue,” chief financial officer Lora Ho said. Currently 20-nanometer technology -- a manufacturing process that makes chips higher-speed and more power efficient -- is the most advanced method used by TSMC and reportedly produced the “A8” chips for Apple’s iPhone 6 models.

hina’s central bank has changed the way it calculates banks’ loan-to-deposit ratios by including interbank deposits and lending for the first time, the Shanghai Securities News reported. Savings that banks hold for non-banking financial institutions will be classified as deposits under a notice issued by the central bank yesterday, the newspaper said, citing Sheng Songcheng, head of the People’s Bank of China’s statistics department. Money advanced by banks to those institutions, which include financial leasing firms, will be counted as loans, according to the report. Banks can’t lend more than 75 percent of deposits and widening the parameters of that ratio may have given some firms scope to extend more credit, boosting government efforts to bolster the economy. The inclusion of loans by non-bank institutions surprised analysts from GF Securities Co. and Bank of Communications Co. as it curbs the benefits derived from the wider definition of deposits.

AFP

Bloomberg News