Macau Business Daily, Jan 26, 2015

MOP 6.00 Closing editor: Joanne Kuai Publisher: Paulo A. Azevedo Number 715 Monday January 26, 2015 Year III

Galaxy declares its mass market credentials

G

EG unveiled its HK$24.6 billion projects last Friday. Galaxy Macau Phase II and Broadway Macau are slated to open on May 27. “These projects will complement our position in the Macau and Hengqin area as a leisure and entertainment destination,” said vice chairman Francis Lui. The two projects will double the size of the company’s resort area in Cotai to 1.1 million square metres. “It will take some time for non-gaming to assume a more important role in terms of revenue,” Lui said, “But once the new projects are opened, which will take place in the next 2 to 3 years, there will be a very obvious change.”

PAGEs

Waiting room

Harbour less fragrant Hong Kong has taken a bit of a knock recently. It has dropped out of the world’s top 30 mostliveable cities. Poor air quality and social unrest caused by the Occupy Central movement have taken their toll. This, according to a survey by consulting firm ECA International for Asia expats

The end of 2017 is the new targeted completion date. This is for most of the buildings in the city’s second public hospital, situated in Cotai. First conceived in 2009, the first phase should have been completed in 2014. The budget estimate remains uncertain, while it may prove to be a challenge to find a capable contractor, it has emerged

PAGE 2

4&5

Adelson to become Sands China CEO amid Macau casino slump PAGE 7 Bad omens for Asia’s economies in 2015 PAGE 12 Japanese inflation moves into the slow lane PAGE 13

PAGE 10

Gaining weight

Brought to you by

Yuan importance in international markets is increasing meaningfully. So says a report issued by heavyweight consultancy firm Fitch. The company forecasts that the current year will see a more important role for the RMB

HSI - Movers January 23

Name

PAGE 11

INTERView

www.macaubusinessdaily.com

Young entrepreneur Unpopular but necessary. So says the winner of the 2014 Business Awards Young Entrepreneur.

Annabella Lam shares the trials and tribulations of setting up a laundry business with Business Daily. Today, Tim Bondi Enterprise Ltd. is one of the major players in Macau. The gaming liberalization policy presented her with a golden opportunity a decade ago. But it’s hard work, capital intensive, and difficult to attract new blood to the industry, she says

Pages 8 & 9

%Day

China Resources Ente

6.71

Cathay Pacific Airwa

5.91

Sino Land Co Ltd

3.70

Cheung Kong Holdings

3.04

Henderson Land Devel

3.00

China Shenhua Energy

0.00

AIA Group Ltd

-0.22

CITIC Ltd

-0.44

China Unicom Hong Ko

-0.50

Want Want China Hol

-2.66

Source: Bloomberg

I SSN 2226-8294

Brought to you by

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2 | Business Daily

January 26, 2015

Macau Fiscal Reserve flat in November Macau’s fiscal reserve topped MOP246.6 billion in November, a marginal increase of 1 per cent since October but an almost 50 per cent jump compared to one year ago. Data published by the Monetary Authority revealed that the city’s fiscal reserve has been slowing down its growth since the last half of 2014 as gaming revenues started to drop after the Summer. Since September, the increases have been almost marginal. However, the fiscal reserve size recorded in November is still quite large compared to only a year before. In 2013, the fiscal reserve amounted to MOP168 billion, 50 per cent and MOP80 billion less.

Most of second public hospital complex could be completed by end-2017 Changes made in the new hospital project design have already contributed to a 3-year delay, with budget estimation still uncertain Stephanie Lai

sw.lai@macaubusinessdaily.com

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he end of 2017 is the targeted completion date for most buildings in what would be the city’s second public hospital, as the government is now rushing the hospital complex project following a three-year delay in its original scheduled opening date for the project’s first phase.

Speaking to media after a meeting with the Medical Affairs Committee on Friday, Health Bureau officials explained that the first phase of the new public hospital complex project situated in Cotai – including a building for general practice and emergency services, an administrative building, a nursing institute and other ancillary services buildings – should be completed by the end of 2017.

“We did originally schedule the completion date for the hospital project’s first phase for 2014; but later we changed that because we decided that there should be sufficient supporting facilities to be set at the

site to go along with the establishment of an emergency service building, which is what we set for the first phase at the time...we have to have other specialist departments in place to provide comprehensive care,” said Philip Chou Kuok Hei, a co-ordinator of the extension and preparatory office at the Bureau – an organ that oversees the hospital project.

Changes made in the design over the functions of the buildings at the new public hospital project have accounted for the delay in the completion date, Mr. Chou noted.

“Originally, we would only see the completion of the laboratory building in 2019, as in the second phase,” Health Bureau director Lei Chin Ion explained regarding some of the changes made in their project design, “But afterwards we decided that the laboratory building should actually be completed sooner in 2017 in order to go along with the new hospital operation.”

The second phase of the new hospital project, including a rehabilitation hospital and dormitory for medical staff, will be completed in 2019, Health Bureau officials said.

First conceived in 2009, the plan for constructing the city’s second public hospital was announced by Chief Executive Fernando Chui Sai On in his 2010 Policy Address.

Currently, there is only one public hospital, on the Macau peninsula, known as Hospital Conde S. Januário, serving the city’s population of over 600,000.

The new hospital complex is situated at Estrada do Istmo in Cotai between Seac Pai Van Reservoir and Macau Dome, a site where the government also plans a connection to the light rapid transit system.

In 2010, the government announced an estimate of MOP10 billion for the construction costs of this new hospital project – but Health

Bureau officials noted on Friday that they could not provide a more updated figure of the project investment cost.

“This estimate [MOP10 billion] does not equal the budget,” Mr. Chou said. “We can only make a more accurate projection of the budget when the overall construction design of the project is all fixed.”

The official also conceded concerns about whether the new hospital project could be built on time.

“We hope that we can have a 24hour operation on the construction site because we do have a tight schedule to meet,” Mr. Chou remarked.

“We also hope that we can pick a capable contractor to take this huge project, which, as mentioned by the Infrastructure Development Office, is not easy.”

The Infrastructure Development Office is responsible for launching the public tender for the city’s major infrastructure projects.

Business Daily | 3

January 26, 2015

Macau

Same-day visitor arrivals on the rise Tourists visiting Macau for just one day increased by 4.7 per cent in December Sara Farr

sarafarr@macaubusinessdaily.com

M

acau welcomed a record 31.5 million visitors for the whole of last year, although for the last month of 2014 the number of visitors dropped slightly by 1.8 per cent.

The latest official figures released by the Statistics and Census Service (DSEC) show

that while the overall number of visitor arrivals dropped in December that of same-day visitors increased by 4.7 per cent year-on-year.

Same-day visitors totalled 1.4 million last month, while for the whole of 2014 the number of these visitors increased 12.6 per cent to 16.9

million. Same-day visitors accounted for 54 per cent of the overall visitors to the territory in December 2014.

When analysed by market, the number of visitors from Japan registered the biggest drop with a 16.4 per cent decrease to 24,904, followed

by Australia with a 16.2

Chui: gaming adjustment period is normal change

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hief Executive Chui Sai On said that the change in the numbers of VIP rooms in Macau casinos is a normal phenomenon. He indicated that Macau’s gambling industry has gone through some extraordinary development over the years, and that it is normal for it to enter the current adjustment period. He said that Macau’s fiscal reserves have been [well] prepared for the situation and that the most important thing is to guarantee people’s livelihood.

Chui Sai On was speaking to media yesterday prior to his trip to Beijing to meet ministerial departments.

Chui said he is going to discuss the development of the Chinese Medicine Park in Hengqin with the State Administration of Traditional Chinese Medicine of China. He will also negotiate supplements for the Mainland and Macau Closer Economic Partnership Arrangement (CEPA) in addition to exploring more opportunities for regional co-operation

with the National Development and Reform Commission.

When asked his opinion on a recent legislator’s comments regarding domestic violence the Chief Executive said that the government upholds the same stance that there would be no tolerance for domestic violence but said he respected the legislator’s freedom of speech. Regarding political reform - in particular, that the Legislative Assembly comprises directly-elected, indirectly-elected and appointed legislators - Chui said that any change would be subject to the central government’s decision.

On Saturday, the protest for abolishment of appointed legislators, also referenced to as the ‘Love me.

Don’t beat me’ protest, hosted

by Macau Conscience, had about 900 participants according to the organizer, while police put the number at 250 protesters during its peak. Police dispatched 60 officers to maintain order.

per cent drop to 9,563 in December 2014.

The number of American nationals, French, British, Canadian, Taiwanese and Hongkongers also dropped last month, while mainland Chinese and South Koreans were the only two that registered an increase over

that of December 2013.

However, when analysing the whole twelve months of 2014, the biggest drop in visitor arrivals was recorded amongst nationals from France, by 8 per cent, followed by Hong Kong at 5 per cent, Canada by 4.9 per cent and Taiwan by 4.7 per cent.

In the twelve months ended December 31, 2014, the overall number of visitor arrivals from South Korea registered the biggest increase, jumping 16.9 per cent to 554,521. The second largest growth was by visitors from mainland China, increasing 14.1 per cent to 21.3 million over that of the whole year of 2013.

Visitors’ average length of stay decreased to 0.9 days in December 2014 over that of the previous year. Overnight and same-day visitors posted an average stay of 1.9 days and 0.2 days, respectively, official figures show.

4 | Business Daily

January 26, 2015

Macau

Galaxy Phase II and Broadway to open on May 27 The company’s new HK$24.6 billion projects were unveiled last Friday in a ceremony that took place in Galaxy Macau. Non-gaming was the main focus of the press conference, which marks a new chapter in the evolving story of the Galaxy Entertainment Group João Santos Filipe

Jsfilipe@macaubusinessdaily.com

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alaxy Macau Phase II and Broadway Macau will open on 27th May, Galaxy Entertainment Group announced on Friday during a ceremony in Galaxy Macau unveiling the two projects.

“This is a new chapter for Galaxy.

These projects will complement our position in the Macau and Hengqin area as a leisure and entertainment

destination,” the Vice Chairman of Galaxy Entertainment Group (GEG), Francis Lui, said during the presentation.

While Galaxy Phase II cost some HK$19.6 billion, Broadway is a HK$5 billion investment. This places the company’s investment in Macau at HK$43 billion since it started operating in the territory. In total,

GEG is planning to invest some HK$100 billion. The two projects, which will be linked directly by a bridge, will double the size of the company resort area in Cotai to 1.1 million square metres.

“Since we founded Galaxy Entertainment Group our vision has been closely aligned to that of the Macau SAR Government. Now we’re

taking our vision even further. These new developments deliver a more diverse set of experiences to meet visitors’ growing desire to enjoy a wider world of indulgence, style, fun and privilege,” Mr. Lui said.

When Galaxy Phase II opens its doors the resort will offer more than 3,600 rooms, suites and villas in 5-star hotels The Ritz-Carlton, Banyan Tree,

Galaxy in talks with Government on gaming tables

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alaxy Macau Phase II and Broadway at Galaxy Macau, previously called the Grand Waldo complex, will open on May 27, the company has announced. Galaxy bought Grand Waldo in 2013.

Francis Lui, deputy chairman and CEO Lui Che Woo’s son, said that he’s in talks with the

government on the number of gambling tables it will be allotted.

Galaxy says it has the capacity to add as many as 500 gaming tables and 1,000 slot machines to Galaxy Macau Phase II. “There is not a concrete figure on the number of gaming tables because we

are still negotiating with the government. However, we are confident that we will have a proper number and that we will have our needs approved, as we have been very much aligned with the Government of Macau since the beginning,” Lui responded when questioned about the issue.

“As far as it concerns gaming tables we have started working with the government on that. However, we’re quite confident we’re going to get a sufficient number of gaming tables to generate the returns we’ve been forecasting,” the Group Chief Financial Officer explained further regarding the number of gaming tables.

As with the presentation made by Studio City of Melco Crown, the Galaxy Phase II and Broadway Macau presentation avoided mentioning the gaming side of the resorts. The explanation concerning gaming was only provided in response to questions by the press.

J.S.F

Business Daily | 5

January 26, 2015

Macau

JW Marriot Hotel, Hotel Okura and Galaxy. In addition, Broadway Macau will add another 320 rooms to the company portfolio in Cotai, bringing the total to close to 4,000.

Targeting mass market “China has 1.3 billion people and an emerging middle class. They will travel to Macau for more than just gaming. Nowadays, these people stay 1.9 days here, which is very encouraging. However, if they stay for more then two days it means that they are engaging in other activities besides gaming. In recent years Galaxy has been moving in this mass market direction,” Lui said in relation to the more mass market approach of the company.

The new projects will allow the company to expand its non-gaming offer with a new Grand Resort Deck.

The new deck features the Skytop Adventure Rapids, which includes what GEG claims to be the world’s longest skytop aquatic adventure river, at 575 metres, and skytop wave pool.

Retail areas in Galaxy Macau will be expanded to over 200 shops,

which will occupy an area of over 100,000 sq. metres. Broadway retail includes around 20 retail shops that represent Macau and Asian brands.

In relation to entertainment, Broadway Macau will have a 3,000-seat area for concerts, shows, conventions, sports events and conferences.

During the presentation - attended also by GEG Chairman Lui Che Woo, President Michael Mecca and Group Chief Financial Officer Robert Drake - one of the focal points was the non-gaming aspect of the new developments. The son of Lui Che Woo said that in two to three years non-gaming will assume a very important share of the revenues of the gaming operators.

“It will take some time for nongaming to assume a more important role in terms of revenue. But once the new projects are opened, which will take place in the next 2 to 3 years, there will be a very obvious change,” he claimed.

Upon becoming operational on May 27, the Galaxy Group project will need around 8,000 employees, which may be a problem as the

Tax increase a ‘major decision’

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ice chairman of Galaxy Francis Lui considers the possibility of a tax increase on gaming from 39 per cent to 43 per cent a major decision, which will require a careful approach by the Macau Government.

“Concerning a possible tax increase, the government said that they are not considering reviewing it right now. We are realistic to say that the government will look into all aspects before any decision. This is a major decision and the Executive will be very careful before they decide,” Mr. Lui said, before explaining that neither he nor any member of his team had any information on the intention of the government raising taxes.

“This is not a small business so

the government is going to be very careful,” he added. The process to renew gaming licences in Macau will start to be discussed this year.

The son of Lui Che Woo also commented on the slowdown of the VIP industry in Macau and the fact that some junket companies are closing rooms in some casinos.

“We don’t feel the VIP downturn because we’ve been going in the right direction for some time. Our principle is that we always do business with the larger VIP promoters. And so far, if you look at our results for the past year you can actually see that it is still growing,” he said. “I really don’t want to comment on particular cases but overall the Galaxy VIP segment is doing quite well,” he said.

unemployment rate in Macau is around 1.7 per cent and there is a legal limit to imported labour. At the same time, Melco Crown is also in the market for more workforce.

The company, which will open Studio City in the third quarter of the year, is planning to hire 8,000 to 10,000 workers.

“We have already recruited over 1,000 people. So we are optimistic that we should be able to recruit the rest of them before the opening.

Concerning non-local workers we will probably need a few thousand.

However, it will very much depend on parity being given to local people first,” Francis Lui told journalists.

Galaxy Macau after Phase II opening Built Area: 1 million sq. metres Accommodation Capacity: up to 3,600 rooms across 5 hotels Retail area: Over 200 shops (100,000 sq. metres) Food & Beverage: Over 80 restaurants, cafes, bars and lounges MICE capacity: Over 3,000 guests Grand Resort Deck: Over 75,000 sq. metres Gaming tables: Not announced

Broadway Macau Built Area: 100,000 sq. metres Accommodation Capacity: 320 rooms Retail area: Over 20 shops Food & Beverage: Over 40 restaurants, cafes, bars and lounges Entertainment capacity: Over 3,000 people Gaming tables: Not announced

6 | Business Daily

January 26, 2015

Macau

Casino Concession Review: More corporate tax, less gaming tax Union Gaming says the forthcoming review of casino concessions is likely to change the industry’s current tax structure, while reducing the concession period from 20 to 10 years. In 2015, labour remains the most delicate issue. UG believes operators will choose to reduce new hires rather than embark upon a policy of dismissals Luís Gonçalves

Luis.goncalves@macaubusinessdaily.com

D

uring the forthcoming review of casino concessions, the government will likely push for a new tax structure whereby operators will be charged more via corporate tax whilst seeing a reduction in gaming tax, currently at 39 per cent. This will give Macau the opportunity to keep the current level of money coming from casinos as the market matures - the ‘new normal’ - whilst securing a tax structure less dependent upon the ups and downs of revenues.

According to Union Gaming (UG), this is probably one of the major changes that Macau will impose upon the Big Six gaming operators during the discussions. These discussions, scheduled to happen this year and next, are expected to be smooth as the local government and Beijing are not keen to change the nature of the concessions that otherwise could destabilise the Macanese economy.

‘We believe the greatest risk is that the Macau Government will look to keep more cash closer to home, possibly implementing a higher corporate tax rate and lowering the gaming tax rate’, wrote the brokerage in a note to clients.

With no details from authorities, Union Gaming says that another possibility is the reduction of the concession from the current 20 years to only ten. However, the brokerage underlines that the discussions will focus on maintaining the current level of casino operations – mainly gaming revenue – and some commentaries from Macau and Beijing to the operators in order to centre their development on developing the social welfare and infrastructure of Macau.

Labour pains But if the extension of the casino licences is a hot topic for the long-

Corporate

reductions, we expect operators to minimise hiring in the current environment, and they could reduce headcount needs for their upcoming projects”. The expectations of Macau citizens regarding future wage growth will be one of the main challenges for the executive here.

A year of two tales

term, the labour market is the main issue this year, says Union Gaming.

With the economy booming in the last few years, fuelled by record gaming revenues, casino workers have seen ‘considerable wage growth’. With the reality shock of last year (revenues dropped by 2 per cent ) and the expectations of a further decline this year of 5 per cent, wage growth will suffer additional pressure, UG noted: ‘To the extent that this creates resentment within the labour force, this remains a real risk, especially given other social and transportation issues that weigh on life in Macau’.

A record drop in revenues like the one Macau suffered last year (seven straight months of declines likely to last five more until the Summer), should theoretically result in a flow of dismissals in any industry. However, Union Gaming says the scenario is ‘highly unlikely’ and believes that none of the six concessionaires will follow this path. The solution is probably to soften future hiring.

It’s clear that after this reset, the VIP segment will emerge as a shadow of its former self.

We don’t think it will go away entirely, as there is real service there Union Gaming

“Even if performance continues to decline, we believe that the political risk of cutting Macanese jobs is far too great. However, instead of headcount

Union Gaming estimates gaming revenues will decline 4 to 5 per cent in 2015, putting the industry in the red for its second straight year. In terms of performance, the year will be divided in two. In the first half, revenues are expected to go down between 15 to 20 per cent, followed by a recovery into positive territory with a 5 to 10 per cent growth. Describing the current Macau market as ‘badly bruised but still functioning’, Union Gaming says the city’s mass market remains intact as shown by the 7 per cent increase in visitation last year, ‘providing the engine for both near and long-term growth and stability in Macau’.

‘Although we look to China for economic improvements, especially in the lending and housing markets, we see Macau specifically maturing as a broader and more palatable investment, one with less focus on the controversial VIP sector and one that is still seeing its regulations and controls continue to evolve, not unlike other large global gaming markets.’

The shift from VIP to mass market means that the outlook for the junket business ‘remains bleak’.

Union Gaming says it doesn’t believe in the end of the VIP segment in Macau but ‘it’s clear that after this reset, it will emerge as a shadow of its former self. We don’t think it will go away entirely, as there is real service there.’

MGM Macau pastry chef at La Coupe du Monde de la Pâtisserie MGM Macau’s pastry chef Micky Ma has been selected to represent the China National Team at the finale of La Coupe du Monde de la Pâtisserie 2015, as top chefs from around the world compete for the World Pastry Champion title. This competition is widely renowned as the Olympics of the culinary world. Chef Ma will collaborate with two other expert chefs from China to compete for national glory in this culinary event. Each team must finish a total of six creations in nine hours, and Chef Ma will be responsible for producing an ‘artistic creation made of chocolate’, ‘frozen dessert’ and ‘plate dessert’.

“I’m lucky that MGM Macau puts an emphasis on arts-related programmes, be they culinary, visual or architectural. A lot of my inspiration for the three competing creations are drawn from my experience being a part of our hotel, and being involved in a host of top-notch happenings, where innovative confectionery designs and experimental flavours are often a must,” Chef Ma, who has been with MGM for three years, said.

Business Daily | 7

January 26, 2015

Macau

Adelson to become Sands China CEO

S

heldon Adelson will take over as chief executive officer of Sands China Ltd., putting the 81-year-old billionaire founder directly in charge of the Macau casino amid a record slump in revenue at resorts in the gambling enclave.

Adelson, also chairman, will be appointed CEO from March 6, while Robert Goldstein, chief operating officer of parent Las Vegas Sands Corp., will become interim president, Sands China said in a statement Friday afternoon. They replace Edward Tracy, whose retirement was announced on Jan. 16.

“Business strategy has always been decided by Mr Adelson all this while, so in terms of strategy, I wouldn’t expect any change,” said Goh Shengyong, a Hong Kongbased gaming analyst at BNP Paribas. “It would be more of re-aligning and getting Macau and Singapore to report directly to Vegas.”

Macau, which contributes almost two-thirds Las Vegas Sands’s revenue, has suffered its first annual drop in aggregate gaming revenue as China’s anti-graft campaign deterred high rollers. Sands is preparing to open its fifth casino in Macau as early as

this year, among a slew of new projects by operators as they compete to win back traffic.

No disagreement Sands China shares fell as much as 1.6 percent HK$37.25 at the resumption of trading after the mid-day break in Hong Kong, during which the management

change was announced.

Marina Bay Sands, the casino resort in Singapore which represented 21 percent of Las Vegas Sands’ revenue in 2013, is not expected to see a management change, Goh said.

Tracy, 62, had led Sands China for more than three years and will stay on as a consultant, it said last week, adding the

executive had no disagreement with the company.

The China unit of Las Vegas Sands has been locked in a four-year legal battle with former CEO Steve Jacobs, who contends he was ousted in 2010 because he clashed with Adelson over demands he collect information on Macau officials to exert “leverage” on them.

Still on Friday, the company announced an interim dividend of HK$0.99 per share, a 13.8 percent increase over last year’s interim, a company statement read. A total of around HK$7.99 billion in capital will be returned to the eligible shareholders through the dividend, which is expected to be paid on February 27.

Bloomberg

8 | Business Daily

January 26, 2015

Macau

“Opportunities are reserved for those who prepare well” A laundry plant may not be the first idea for many seeking to set up their own business. However, seeing the liberalization of the gaming industry, Annabella Lam, acclaimed Young Entrepreneur by the Business Awards 2014, set up a laundry plant – Tim Bondi Enterprise Ltd - ten years ago. In an interview with Business Daily, the young female entrepreneur speaks of the difficulties of operating such an “unpopular” but necessary business. Relying on casino clients, Ms. Lam says she is unfazed by declining gaming revenue affecting her business, claiming it may be a good opportunity for SMEs Kam Leong

kamleong@macaubusinessdaily.com

Tim Bondi Tim Bondi Enterprise Ltd. - one of Macau’s major laundry plants - was set up by Annabella Lam 10 years ago when she saw the business opportunities presented by the casinos.

Currently, the company provides laundry services to 6,000 4-star and above hotel rooms, accounting for nearly one quarter of the total in Macau.

Without prior experience, Ms. Lam said she had to learn about laundry from Canada, the United States and Hong Kong. Later, she was given an opportunity by Sands China to provide laundry services for the corporation’s first hotel in Macau – Sands Macau.

After that, it signed exclusive contracts with Ms. Lam’s company for the laundry service for its other projects in the city; namely, The Venetian and Four Seasons Hotel.

At this moment, in addition to Sands China, Tim Bondi is serving Hotel Okura in Galaxy, Rio Hotel, Melco Crown’s Altira, MGM Macau, L’Arc Macau and Hotel Royal.

Meanwhile, the scale of Ms. Lam’s laundry plant has grown tenfold following a decade of development, increasing from only 20-odd employees to 300 staff today. In addition, the plant site has expanded to occupy some 100,000 square feet from its initial 10,000 square feet.

Why did you want to set up a laundry plant in Macau?

I had the concept of setting up a laundry plant when I saw the gaming industry was liberalised, which I thought would attract many overseas investors to Macau. At that time, I’d just graduated [in Canada] and I went to The Venetian in Las Vegas, where I discovered [the scale] of the projects there were much bigger than those in Macau.

Hence, I started thinking that many auxiliary facilities for the upcoming projects in Macau would need to be invested in by some people or improved to reach international level. When I returned to Macau, I told my family that it would be a very good business opportunity, convincing them to consider setting up the [laundry] business in Macau.

Luckily, I found a site for the plant at that time so I started to give it a try.

How long did it take to implement your idea?

It did not take much in terms of time as it was easy to find a plant site then. We spent around one year in preparation. And it was really lucky that I had the idea ten years ago because if the idea only came up now I believe the operation would be very difficult in terms of human resources, site, and operation cost.

What difficulties did you encounter when setting up your business?

[At that time], Macau had its own laundry techniques, which had advantages and shortcomings but improvements were needed. The difficulty was that we had to teach [experienced employees] to correct their bad habits, which took quite a long time for us. And I learned from that. From then on, I would hire those who did not have any concept of laundry at all [in order] to teach them about the techniques

[Declining GGR] is a slight adjustment but it is not necessarily a bad thing. On the contrary, there may be more opportunities for SMEs to develop their business due to such slight adjustments

from the beginning. In addition, we printed some instructions of the steps for them to follow, which made it much easier.

Another problem was the machines. Macau did not have too many foreign machines to purchase. So we had to purchase all the machines outside Macau, such as from Hong Kong.

Did you have the idea of relying mainly on machines for the operation at the beginning?

Actually, we didn’t have that many advanced machines before. We only had simple machines, such as dry-cleaning machines and wetcleaning machines. We did not have those automatic ones.

When did you decide to introduce more advanced machines for your company?

It was about 5 or 6 years ago. The chief reason was because it was getting hard to hire employees.

Business Daily | 9

January 26, 2015

Macau

You have to calculate the cost very carefully and think well whether you have the ability in addition to being brave.

After all, setting up a business is different to seeking a job. You have to put all your thoughts into it

After attending some laundry seminars and expos, as well as asking opinions from more experienced people, we found that some machines are very good, which can save human resources as well as lowering the probability of error. So we started to purchase the machines gradually, like playing with toy blocks.

Are human resources one of the biggest limits for the laundry industry?

Human resources are one of the biggest problems. After all, laundry is not a comfortable job and it requires physical labour. Another challenge for laundry is that not many young people are willing to enter the field.

Are your workers mainly local or non-resident workers?

We primarily hire local people.

However, our company did not have any other method to hire [more employees.] We posted recruitment [ads] every day in the newspapers, even posting notices near [the laundry plant], hoping to attract housewives living nearby to come and work for us.

In addition to human resources, are there any other limitations to the development of your business?

Well, the plant sites. Luckily, we started our business 10 years ago when the price for the site was around 500 to 700 patacas per square foot. As we believed that the strategies of the government would attract many more hotels, whenever we saw appropriate sites we purchased them. If I had not made such a decision 10 years ago, I believe it would be very difficult for me to start the business.

In Macau, operation costs are

actually very high, no matter for human resources or for the sites. In addition, for the laundry, the money we earn is really from hard work the investment cost in the machines is very high; however the margin is very small as our strategy focuses on mass production, with high quantity but little profit.

How about the competition? Is it stiff for the laundry industry in Macau?

There are a few good laundry plants in Macau. There are about 20,000 hotel rooms in Macau; we only launder for some 6,000 rooms. So, of course, there are other laundry plants offering similar services.

But do the hotels outsource laundry to outside Macau, such as to the Mainland?

No. All the uniforms and bed linen must be cleaned in Macau.

They cannot leave the territory, as regulated by law.

Following the declining gross gaming revenues, many worry about the prospects of the gaming industry. Meanwhile, your clients are primarily casinos.

Are you worried?

No, I’m not worried. [The gaming industry] has been good for so many years, enabling the economy to surge. And now it’s only in an adjustment phase. However, you can see that there are many investors, so the development of Macau will remain good.

[Declining GGR] is a slight adjustment but it is not necessarily a bad thing. On the contrary, there may be more opportunities for SMEs to develop their business due to such slight adjustments.

How about the site for expansion?

We’ve prepared already as opportunities are reserved for those who prepare well.

The investment cost in the machines is very high; however the margin is very small as our strategy focuses on mass production, with high quantity but little profit

What are the expansion plans of Tim Bondi?

Currently, the city has around 24,000 hotel rooms with four or five stars. The number of rooms will increase by 13,000 in 2018. It’s not likely that any new laundry plant can take care of all these 13,000 rooms. As such, we’ve already purchased some new machines. At this moment, we handle some 25,000 uniforms and 60 tons of bed linen every day. The machines that I newly purchased will allow me to handle another 40 or 50 tons of bed linen and 15,000 uniforms per day. In addition, I currently have some 300 employees. We’re looking for more. I think we’ll need 200 more employees to be ready for the expansion.

You are also vice director of the Macau SMEs Association. What are the main difficulties for SMEs? Drivers, operational costs and rent.

Rent nowadays is increasing a lot. The rental of inferior [shops] that you think you can start your business in may [exceed] 60,000 or 70,000 a month. Luckily, adjustments are starting to be seen following the policies of the government …which is why there’s no sudden sharp increase in rental.

Are the government policies supporting SMEs enough?

I think it’s good to operate a business in Macau. As there are expos and subsidies for SMEs, even environmental funds can also be granted to SMEs. If you ask whether it’s easy for SMEs to develop their business here, I can say that it’s like the boss has already given you a road, and you need to be hardworking and catch good timing.

You picked up the Youth Entrepreneur prize from Business Awards 2014 recently. Any suggestions for young people keen to start their own business?

You have to calculate the cost very carefully and think well whether you have the ability in addition to being brave. After all, setting up a business is different to seeking a job. You have to put all your thoughts into it. And you’ll find that you’ll lose much of your private time. You will have to think really hard about what you want to do in the future for your business.

10 | Business Daily

January 26, 2015

Hong Kong

HK falls out of top 30 most-livable cities

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ong Kong has dropped out of the world’s top 30 mostlivable cities because of poor air quality and social unrest caused by the Occupy Central movement, according to consulting firm ECA International for Asian expatriates.

The city’s livability ranking fell 16 spots to the 33rd, one of the steepest slides in the survey, while another Asian financial hub, Singapore, topped the list for the 16th straight year, according to a report posted on ECA’s website on Thursday.

While Hong Kong remains highly ranked, “Air quality remains a lot poorer there than many other parts of the region,” the report cited Lee Quane, ECA International’s regional

director for Asia, as saying. “In addition, Hong Kong’s socio-political score worsened this year as a result of the unprecedented unrest there in recent months and the restrictions placed on movement.”

Pro-democracy protesters occupied swathes of the city in the last quarter, clashing with police and obstructing traffic in Hong Kong’s biggest political crisis since its return to China’s rule in 1997.

While pollution levels showed slight improvement last year, they still fell short of standards from the World Health Organization, according to the report by Clean Air Network Ltd., an environment monitoring group.

In Asia, Hong Kong ranks sixth

for livability, behind Singapore and the Japanese cities of Osaka, Nagoya, Tokyo and Yokohama, according to ECA’s annual survey.

Chinese cities Shanghai, ranked 110th globally, is mainland China’s most livable city followed by Beijing, which is ranked 122th globally. Southwestern metropolis Chongqing and southern city Shenzhen saw the most improvement over the year.

Quane cited improvements in “housing, goods and services, recreation, healthcare” for the ascendancy of the Chinese cities on ECA’s ranking list, while noting that

Haitong Int’l issues US$700mln in bonds

M

ainland China’s second largest brokerage - Haitong International Securities Group Ltd. - has announced the issuance of bonds in the amount of US$700 million, the company said in a filing with the Hong Kong Stock Exchange.

The bonds have not and will not be registered under the Securities Act, and will also not be sold within the United States. According to the

filing, the bonds will only mature on July 29, 2020. ‘The issue price of the bonds will be 98.593 per cent of the principal amount,’ the filing added.

‘The proceeds from the bonds are intended to be used primarily for general corporate purposes of the group,’ the filing read, adding that ‘the company may adjust the foregoing plan in response to changing market conditions and thus reallocate the use of proceeds.

Meanwhile, the company has also released its preliminary financial data for 2014, according to which Haitong’s profit for the period increased by 89.4 per cent to 7.6 billion yuan from 4.03 billion yuan a year earlier.

Profit before tax also jumped 90.9 per cent to 10.4 billion yuan from 5.5 billion yuan in 2013.

‘In the second half of 2014, the rise in the securities market and the growing activeness of the market brought about a gradual escalation trading volume,’ the company said in a separate filing, adding that Haitong had ‘strengthened its efforts in the innovation of proprietary trading businesses, diversified its profitmaking approaches and seized the opportunities in the market, achieving satisfactory returns.’

S.F.

improvements have been tempered by “problems associated with the country’s rapid growth including pollution, infrastructure, corruption and food safety.”

Australian cities were featured heavily in the top 10 places in the ranking. Adelaide and Sydney were tied in second spot, followed

by Osaka, Brisbane, Wellington, Canberra, Copenhagen, Denmark, Nagoya and Perth.

The ECA’s livability assessment of 450 major world cities is based on measurements including air quality, infrastructure, healthcare, education, leisure facilities, personal safety and political tensions.

Bloomberg

Birmingham City announces further cash theft

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irmingham International Holdings Ltd., owner of English football team Birmingham City, informed the Hong Kong Stock Exchange late on Thursday night of a suspected misappropriation of HK$8 million (US$1.03 million) from the company by a former employee, in addition to the company’s previous announcement of a HK$30 million sum of missing money. Jerry Ko, a former financial officer of Birmingham International and colleague of convicted money launderer and former CEO Carson Yeung Ka Sing, was arrested by Hong Kong police on January 17, South China Morning Post reported citing police and sources close to the matter.

Mr. Ko was subsequently released on bail, with no charges laid against him.

Business Daily | 11

January 26, 2015

Greater China 400 polluting factories shut down Beijing closed or removed 392 polluting factories in 2014, according to the municipal people’s congress. A total of 30 industrial relief and cooperation platforms and 53 related programs were launched to pull the polluting companies out of Beijing in the past year, mayor of Beijing Wang Anshun said in a government work report. An additional 36 low-end wholesale markets were also shutdown. The municipal industrial and commercial authorities have turned down 3,760 applications for new businesses because they were on the list of prohibited or restricted operations.

Global interest grows in China’s currency Fitch expects some sovereigns with clearing centres to follow suit with their own dim sum bond issues in 2015

Alibaba’s Jack Ma supports “new normal” Jack Ma, executive chairman of Chinese e-commerce giant Alibaba Group Holding, isn’t worried about slowing Chinese economic growth, he told a meeting of business and political leaders in Davos, Switzerland. “If China still keeps 9 percent growth of the economy there must be something wrong. You will never see the blue sky. You will never see quality. China should pay attention to the quality of the economy,” he said in a question-and-answer session at the World Economic Forum.

Boosting private banks Banking regulator promised continued support for private banks this year as they revealed their policy direction on Friday. “Based on the previous trials, we will actively and steadily push forward the development of private banks,” said Wang Zhaoxing, vice chairman of the China Banking Regulatory Commission (CBRC). “Meanwhile, we will establish a prudent supervision mechanism for risk control and corporate management targeting private banks in order to ensure growth on a healthy path,” Wang said at a policy briefing meeting held by the State Council Information Office.

Interest cuts weak in stimulating Interest cuts can improve China’s market expectation in short term, but may only create limited stimulus for the real economy, an expert said Saturday. “Considering the overcapacity in many industries, interest cuts may cause huge capital flow into stock markets other than supporting real economy,” said Liu Shijin, deputy head of the Development Research Center of the State Council, China’s cabinet. He said the deflation risk in China comes from shrinking demands and excessive production instead of insufficient money supply, which is totally different from the cases in mature markets like the United States.

Urban unemployment at 4.1 pct Labour market was stable last year even as its economic growth plumbed a 24year low, with the urban unemployment rate little changed at 4.1 percent at the end of December, the government said.

Chinese authorities have said that avoiding mass unemployment is a crucial policy priority, although the urban jobless rate is widely known to understate the real unemployment figure, a point acknowledged by the government. The urban unemployment rate hovered between 4 percent and 4.5 percent in the last decade.

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he Chinese currency yuan, or renminbi, continues its ascent among international payment settlements, trade and currency investment, ratings agency Fitch said in their latest report.

A rapidly expanding network of offshore yuan clearing centres has facilitated direct access to China’s onshore financial markets, Fitch said.

“We expect the proliferation of these offshore clearing centres to drive greater issuance of dim sum bonds by both Chinese and non-Chinese governments, financial institutions and corporates in 2015,” it said.

Dim sum bonds are yuandenominated bonds issued outside the Chinese mainland.

In 2014, eight new offshore yuan clearing centres opened in major financial centres - Doha, Frankfurt, London, Luxembourg, Paris, Seoul, Sydney and Toronto. So far in 2015, another two have opened their doors in Bangkok and Kuala Lumpur. There are now 14 offshore yuan clearing centres.

These banks convert local currency directly into renminbi without using

Hong Kong controls the vast majority of offshore yuan flow, though the share is now about 70 percent

a U.S. dollar stepping stone, reducing time and costs. Hong Kong controls the vast majority of offshore yuan flow, though the share is now about 70 percent, down from an average of around 80 percent in 2012.

According to payment services company SWIFT, more than 50 countries and regions now use the yuan for more than 10 percent of their payments with China’s mainland and Hong Kong.

The expansion of clearing centres underlines the potential of dim sum bonds in 2015 and beyond. The size of the dim sum bond market has grown from an equivalent US$5 billion at the end of 2009 to approximately US$70 billion at the end of 2014, though it is still a tiny fraction of the US$5.8-trillion local yuan bond market.

In October 2014, the British government became the first nonChinese sovereign to issue dim sum bonds worth 3 billion yuan (US$490 million). Australia’s New South Wales government then issued 1 billion yuan in dim sum bonds, two days after Sydney became a clearing centre in November.

Fitch expects other sovereigns with clearing centres to follow suit with their own dim sum bond issues in 2015.

Reuters

Ministry denies civil servant wages raised significantly A spokesperson went on to say that civil servants and staff at government-sponsored institutions would get a salary increase of about 300 yuan

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hina on Friday said it had not significantly raised civil servants’ wages, denying state media reports and a government document that the wages were raised in October.

The document, dated January 12 and seen by Reuters, showed wages were raised at least 31 percent.

Asked about the reports at a press conference, Li Zhong, a spokesman for the Ministry of Human Resources and Social Security, said: “The information is not the truth.”

He added there was still a process ahead to determine the nature of any wage hikes.

According to the official Xinhua

News Agency, Li went on to say that civil servants and staff at governmentsponsored institutions would get a salary increase of about 300 yuan (US$48) on average. It did not give a percentage, date or any other details.

Beijing is working to combat corruption and lift the spending power of millions as the country seeks to boost consumption. Low pay for civil servants is one of the main drivers of corruption as workers seek supplementary income, critics say.

Li said local governments still must sort out how to implement any future salary hikes, and other problems, like weeding out compensation for people who don’t actually work

at government agencies but are listed as staff, should take priority.

Hu Xiaoyi, vice minister at the ministry, told reporters last Monday that the cabinet had agreed to “adjust” the basic wages of civil servants.

As part of the revision, subsidies and performance bonuses for government workers would be frozen, the document said.

The monthly salary of ordinary government workers is as low as 510 yuan (US$82), while the standard monthly salary of China’s most senior leaders, including President Xi Jinping, starts from 5,250 yuan (US$845), the document showed.

Reuters

12 | Business Daily

January 26, 2015

Asia ASEAN to declare single market ASEAN will officially call itself a single market by year’s end, but “big things” like seamless travel within the 10-nation bloc would only come in 2020, Malaysia’s trade minister told AFP in an interview. “We’re going to declare ourselves as an ASEAN Economic Community,” said Mustapa Mohamed, whose country holds the rotating presidency of the Southeast Asian bloc this year. “We don’t have complete integration or harmonisation yet, 2015 is laying the stage for bigger things to come,” he said on the side-lines of the World Economic Forum in Davos.

60 bidders for Myanmar’s exchange licence A total of 60 private security companies have so far bid for service provider licenses for establishing Myanmar’s first ever stock exchange in Yangon, according to the Finance Ministry yesterday. With Deputy Finance Minister Maung Maung Thein as its chairman, the Securities and Exchange Commission has started inviting applications for service providers for the establishment, granting four kinds of services licenses, including underwriters, dealers, brokers and consultants.

AirAsia chief claims for a regional regulator

Southeast Asia needs regional aviation regulators to streamline a fragmented safety framework and ensure common standards for aircrew training in the booming industry, AirAsia’s group chief executive officer said. The patchy airline safety record of Indonesia, the largest country in the region, has been in the spotlight after an Indonesia AirAsia Airbus A320 crashed into the Java Sea on December 28, killing all 162 people on board. The Association of Southeast Nations (ASEAN) has no regional agencies overseeing aviation safety or co-ordinating air traffic control, unlike the more developed European market.

Pakistan central bank to cut rates Pakistan’s central bank cut its key discount rate to 8.5 percent from 9.5 percent on Saturday, in line with analyst expectations and citing lower inflationary pressure due to falling global oil prices.

Central Bank Governor Ashraf Wathra said the new rate would be in place for two months until the next central bank meeting to discuss further policy.

“Keeping in view the declining inflation due to falling international oil prices, (the) central bank has decided to lower the discount rate,” Wathra said in televised remarks.

Asian economies to grow at lacklustre pace in 2015 The cooling inflation trend, coupled with weak growth, has raised prospects of policy easing from regional central banks Sumanta Dey

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merging Asian economies will grow at a lacklustre pace this year and next, held back by a slowdown in China and weak global demand, while cooling inflation will probably throw open the door for monetary policy easing, a Reuters poll showed.

Much will depend on how China performs as demand for raw materials from its vast factory sector and for finished goods from its massive population could alter the growth trajectory of regional trade partners.

China’s growth rate will probably slow further to 7.0 percent this year from 7.4 percent in 2014, restrained by weak lending and a housing slump, according to a Reuters quarterly global economic outlook, published as world leaders meet at the World Economic Forum in Davos, Switzerland.

That slowdown in the world’s second-largest economy is likely to prompt more stimulus and interest rate cuts from China’s central bank later this year.

China’s manufacturing growth stalled for a second straight month in January, data showed on Friday.

Companies had to cut prices at a faster clip to win new business, adding to worries about deflationary pressures.

A faltering euro zone and China coupled with disinflation posed the biggest threat to the global economy this year, economists in a Reuters poll said last week.

They predicted global growth was likely to average 3.5 percent this year and 3.8 percent in 2016, unchanged from October’s forecasts.

Rapidly cooling inflation around the world, thanks to a spectacular 60 percent drop in global crude oil prices since June, has forced major central banks to ease policy.

The European Central Bank announced a quantitative easing programme on Thursday to buy 60 billion euros of sovereign bonds and private securities each month from March through September 2016, although economists polled soon after

KEY POINTS Emerging Asia seen growing at lacklustre pace in 2015 Inflation likely to cool in most economies Monetary policy to remain accommodative Interest rate cuts seen in China, India, South Korea said that won’t help bring inflation up to target.

They also predict the ECB will have to extend the intended timeframe to beyond September next year something entirely possible if the Bank of Japan’s QE programme is any guide.

Singapore CPI falls With Singapore’s growth likely to remain modest in 2015 and as weak oil prices bring disinflationary pressures, analysts say the possibility of the MAS easing policy this year has grown Masayuki Kitano

S

ingapore’s headline and core inflation could fall below the official forecast range this year if low oil prices persist, the central bank said on Friday, after consumer prices fell for a second straight month in December.

The Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) kept their forecasts for headline inflation and core inflation in 2015 unchanged at 0.5-1.5 percent and 2-3 percent, respectively.

The central bank and MTI, however, tweaked the way they describe the downside risks to the inflation outlook from oil prices.

“There has been a change in semantics. It does seem like from the wording that they sound a bit more dovish,” said Michael Wan, an economist at Credit Suisse.

MTI and MAS said both headline

and core inflation “would come in below” the official forecast ranges for 2015 if global oil prices remained at the current low levels.

They had previously said that headline and core inflation “could come in slightly below” the forecast ranges if the low current levels of oil prices were to be sustained.

The change suggests the MAS is unsure where oil prices will be by the end of the year, said Jeff Ng, an economist for Standard Chartered.

“That will be a major swing factor for overall inflation expectations,” he added.

“I think over the past few months, the probability that the central bank will ease has increased,” Ng said, but added that Standard Chartered’s current forecast is for MAS to stand pat at its next policy review in April.

The MAS manages monetary policy

by letting the Singapore dollar rise or fall against the currencies of its main trading partners within an undisclosed trading band.

At its last policy review in October, the MAS stuck to its tight monetary policy stance of allowing a “modest and gradual” appreciation of the Singapore dollar and kept the slope, width and mid-point of the Singapore dollar’s policy band unchanged.

The all-items consumer price index in December fell 0.2 percent from a year earlier, more than a 0.1 percent decline forecast in a Reuters poll. That followed a 0.3 percent drop in November, the first annual decline in nearly five years.

Core inflation, which excludes carrelated and accommodation costs and is the focus of monetary policy, came in at 1.5 percent on an annual basis, matching November’s 19-month low.

Reuters

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Business Daily | 13

January 26, 2015

Asia

Japan has spent trillions of yen over more than a decade with little success so far in raising inflation.

Yet more stimulus is expected later this year.

While economists slightly upgraded 2015 growth projections for most East Asian economies in the latest poll, weak consumer demand and credit growth could thwart a swift recovery.

“The combination of slowing consumer credit growth and, in several economies, falling property

prices could curb private consumption this year, trimming the windfall to households from the sharp decline in oil prices,” said Benjamin Shatil, an economist at JP Morgan.

Australia is expected to report sharply lower growth this year, owing to steep falls in prices of its major commodity exports, notably iron ore.

And inflation is forecast to cool this year throughout Asia, compared with expectations just three months ago, with price rises decelerating to

below 2 percent on an annual basis in New Zealand, Singapore, South Korea and Taiwan.

While that would surely come as good news to consumers burdened with high inflation and interest rates for most of the past half decade, if sustained it could hurt factories, hit corporate profits and in turn lead to weak pay growth.

“With oil prices continuing to tumble and incoming inflation prints surprising on the downside,

Japan inflation slowing Jobs related data and household spending will be released alongside core CPI data on Friday

Brazilian Minister of Finance Joaquim Levy (L) and Governor to the Bank of Japan Haruhiko Kuroda at the 2015 World Economic Forum

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apan’s consumer inflation likely slowed for a fifth straight month in December due largely to falling oil prices, a Reuters poll showed, keeping the Bank of Japan under pressure to meet its ambitious 2 percent inflation target.

More optimistically, for an economy seeking to emerge from recession, factory output probably rebounded in December helped by the electronic parts and automobile sectors after an unexpected slip the previous month.

Annual export growth was also seen improving in December from November’s levels, helped by a weak yen and stronger demand from the United States and some Asian nations.

“December data next week will be examined for evidence to see if the economy really hit the bottom and

started picking up in the OctoberDecember quarter, as many people expect,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

Whilst putting an unwanted dampener on inflation, the slump in crude oil prices should benefit consumer spending and reduce manufacturers’ costs, Shinke said, unless the weak oil market destabilised other financial markets.

The core consumer price index (CPI), which excludes volatile fresh food but includes oil products, is expected to have risen 2.6 percent in December from a year earlier, the poll of 25 economists showed.

That would follow a 2.7 percent rise in November and a 2.9 percent increase in October.

KEY POINTS Dec core CPI seen up 2.6 pct, easing for 5th straight mth Factory output seen rising 1.3 pct after falling in Nov Exports likely up for 4th straight month, deficit to shrink CPI data due 2330 GMT Jan 29, factory output, 2350 GMT Trade data due 2350 GMT Jan 25

the prospects for monetary easing in emerging Asia have risen,” said Shatil.

India’s central bank will probably cut its benchmark repo rate by 50 basis points in the next quarter after a surprise cut this month. In a year, the lending rate is predicted to have been slashed to 7.00 percent from 7.75 percent now.

South Korea is also expected to cut its key rate by March.

Reuters

Excluding the effects of the sales tax hike, consumer inflation was estimated at 0.6 percent in December, just over a quarter of the way to achieving the BOJ’s 2 percent target.

Earlier this week, the BOJ sharply cut its inflation forecast to 1.0 percent for the fiscal year starting in April from 1.7 percent projected three months ago. BOJ Governor Haruhiko Kuroda conceded it may take longer than expected to hit 2 percent inflation.

Japan’s factory output will likely show a 1.3 percent gain in December from the previous month when it fell 0.5 percent.

Exports are expected to have risen 11.0 percent in December from a year ago, the poll showed, suggesting a moderate recovery in overseas demand.

“A slide in oil prices will curb import values, while exports are recovering, although at a moderate pace, and the trade deficit probably shrank for a third straight month compared with a year ago,” an analyst at Shinkin Central Bank said in the survey.

Imports probably gained 2.3 percent last month, which would result in a trade deficit of 740.3 billion yen, down from November’s 891.9 billion yen, but still the 30th consecutive monthly deficit.

Unemployment was expected to have stayed unchanged at 3.5 percent in December, and the job availability ratio was also expected to have been steady in December at 1.12, meaning more than one job was available per job seeker, according to the poll.

Household spending was expected to show a 2.5 percent annual decline in December, falling for a ninth straight month, the poll showed.

The world’s third-largest economy is expected to expand an annualised 3.2 percent in October-December after two straight quarterly contractions, a separate poll taken earlier this month showed.

Reuters

14 | Business Daily

January 26, 2015

International U.S. oil workers talks moving slowly With just a week of bargaining left until the national contract for U.S. refinery workers expires, the United Steelworkers union (USW) said talks with oil company representatives for a new agreement were going slow, according to a message sent to members via Twitter. “It’s time for the industry to get serious about addressing issues that matter to USW members,” the message said. “Be ready to stand up and fight back!”

The USW rejected the first industry proposal on Friday, calling it “inadequate and offensive,” according to a message sent to members.

Oi open to all options Oi SA, Brazil’s most indebted phone carrier, is open to all options in a potential process of industry consolidation as long as the transaction helps create value for shareholders, Chief Executive Officer Bayard Gontijo said on Friday.

Rio de Janeiro-based Oi gained financial muscle to undertake a takeover or merge with a rival after shareholders in a Portugal-based subsidiary approved the subsidiary’s sale on Thursday. Oi has no plans to raise funding for any deal, which could be paid for in cash or in any other form, Gontijo added.

MasterCard allows US-cards in Cuba MasterCard said it would remove a block on transactions made in Cuba using its cards issued in the United States, effective March 1. The United States announced sweeping new rules this month that will significantly ease sanctions on Cuba, opening up the communist-ruled island to expanded U.S. travel, trade and financial activities.

MasterCard said on Friday that it was removing the block following guidance from the U.S. Department of Treasury’s Office of Foreign Assets Control.

Madagascar needs reforms Madagascar will not achieve the 5 percent growth the International Monetary Fund has projected for it this year unless it introduces reforms to boost tax revenue and improve the business climate, an IMF official told Reuters.

The Fund said earlier this week that the economy of the Indian Ocean island showed early signs of recovery.

Growth was estimated at 3 percent in 2014, with the potential to rise to 5 percent in the current year. But weak tax revenue, coupled with fuel subsidies and an under-funded civil service pension fund, are putting pressure on Madagascar’s budget.

Germany halts arms exports to Saudi Arabia Germany has decided to stop arms exports to Saudi Arabia because of “instability in the region,” German daily Bild reported yesterday. Weapons orders from Saudi Arabia have either been “rejected, pure and simple,” or deferred for further consideration, the newspaper said, adding that the information has not been officially confirmed. The decision was taken on Wednesday by the national security council, a government body that includes Chancellor Angela Merkel, Vice Chancellor Sigmar Gabriel and seven other ministers, it said.

Central bankers look to leaders to boost economies Speakers from the IMF, the ECB, the Bank of England and the Bank of Japan said their ultra-loose monetary policy could only buy limited time for politicians Noah Barkin and Paul Taylor

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entral banks have done their best to rescue the world economy by printing money and politicians must now act fast to enact structural reforms and proinvestment policies to boost growth, central bankers said.

Two days after the European Central Bank launched a bold bondbuying drive to revive inflation in the euro zone, a top ECB official warned that Europe’s common currency project could come unstuck if the bloc limped on with sluggish growth and mass unemployment.

“We can’t do everything for Europe, we did our part on Thursday, others have to do their part. There is nothing we can do as the ECB to lift growth in a lasting way,” ECB executive board meeting Benoit Coeure said.

Reviewing the global economic outlook at the World Economic Forum in Davos, speakers from the IMF, the ECB, the Bank of England and the Bank of Japan said their ultra-loose monetary policy could only buy limited time for politicians.

The ECB announced on Thursday a massive programme of buying government bonds with printed money over 18 months from March in a drive to raise the inflation rate from the current 0.7 percent towards its target of close to but just below 2 percent.

“The political foundation of the European project is being weakened,” Coeure said, pointing to low growth and high unemployment.

Separately, ECB President Mario Draghi, who did not attend Davos this year, urged governments to redouble efforts to create a “genuine” economic union.

In an advance text of a contribution for the WirtschaftsWoche magazine,

Bank of England governor Mark Carney said there was a greater danger of reckless risktaking in the financial industry when interest rates were at rock bottom

KEY POINTS Coeure says low growth threatens Europe’s political foundations Japanese central banker calls ECB moves “significant” BlackRock chief points to more pessimistic mood in Davos Draghi also said reforms were needed to raise competition, cut bureaucracy and improve labour market flexibility.

Other central bankers in Davos praised the ECB’s bold action, which comes after similar measures in the United States, Britain and Japan, designed to revive the economy and avert deflation.

Rule on zero-risk weighting for sovereign debt reviewed The review of the rule was announced as part of Basel’s work programme Huw Jones

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lobal banking supervisors are reviewing a rule that allows banks to hold little or no capital against risky sovereign debt held on their books.

The so-called zero-risk weighting rule was heavily criticised during the euro zone debt crisis when several countries in the single currency area had to be bailed out.

Even though the ratings on these countries’ debt sank to junk status in some cases, banks were allowed

to hold little or no capital.

The rule requires banks to hold capital commensurate with the underlying credit risk but European regulators allow banks to hold no capital against debt held in their currency.

The reasoning is that a country can always print money to pay interest on its debt even when in trouble, though this is not possible for euro zone countries, including Greece and Ireland who had to be rescued.

Bank of England governor Mark Carney said there was a greater danger of reckless risk-taking in the financial industry when interest rates were at rock bottom, but regulators were now more aware of the problem and poised to respond.

With doubts abounding as to whether Western economies face long-term stagnation and prolonged ultra-low inflation, Carney sought to reassure British consumers and savers that the BOE had the means and the will to get inflation, currently at just 0.5 percent, back up to 2 percent within a two-year horizon.

Larry Fink, chief executive of BlackRock, the world’s largest money manager, noted that the mood in Davos this year was more pessimistic than in 2014, when the euro zone seemed on track to recover from its deep financial and economic crisis.

Since then, a range of geopolitical risks have surfaced and growth in Europe has stalled.

Reuters

The euro zone debt crisis triggered calls for a review of the global rule written by the Basel Committee of banking supervisors, but the issue had been too politically sensitive to tackle until now.

Hard-pressed national treasuries like the existing rule because it encourages banks to buy their debt, and some countries fear that change would mean a two-tier debt market emerging as lenders opt for low-risk bonds like German Bunds to save on capital requirements.

Capital on debt at a time of record low interest rates could encourage banks to cut holdings, just when regulators put pressure on them to buy more debt to fill out liquidity buffers required under another Basel rule.

“The overall result is therefore further downward pressure on lending capacity to the real economy, possibly not what is required at this point in the cycle,” said Simon Gleeson, a financial services lawyer at Clifford Chance.

The amount of bonds in question can be huge.

Reuters

Business Daily | 15

January 26, 2015

Opinion Business

wires

Leading reports from Asia’s best business newspapers

ECB QE, small but imperfectly formed

THE KOREA HERALD James Saft

South Korean companies’ investment in China reached an eight-year high in 2014 amid their growing interest in the world’s second-largest economy following the conclusion of a bilateral free trade deal, data showed yesterday.

South Korean firms invested a combined US$3.97 billion in China last year, up 29.7 percent from the previous year, according to the data by the Beijing office of the Korea International Trade Association.

The amount accounted for 3.3 percent of overall foreign direct investment in China, up from 2.6 percent a year earlier.

Reuters columnist

PHILSTAR Philippine economic growth could accelerate to 6.3 percent in the fourth quarter on improved exports data, UK-based investment bank Barclays said. “With exports improving in November-December amid stable domestic demand, we expect growth to improve in Q4,” the bank said in its latest Emerging Markets Weekly report. Latest government data showed exports surged 19.7 percent to US$5.2 billion in November from the same month in 2013 on higher shipments of coconut oil, cathodes and sections of cathodes, machinery and transport equipment, chemicals, woodcrafts and furniture, among others.

THE TIMES OF INDIA Indian lender Yes Bank is the main suitor in the race for Deutsche Asset Management (India) Pvt. Ltd’s mutual fund business in India, two sources who are directly involved in the process said, although talks are still at an early stage.

The deal, which the sources estimate at nearly 2 billion rupees (US$32.5 million), is coming at a time of optimism in Indian markets after a surprise interest rate cut and hopes of reform ahead of the government’s maiden budget next month.

THE BANGKOK POST Former prime minister Yingluck Shinawatra has not been banned from travelling overseas, a spokesman for the National Council for Peace and Order said on Saturday.

Col Winthai Suvaree, the army spokesman, said Ms Yingluck can still travel abroad, but needed to ask permission from the NCPO as she had done in the past. Col Winthai was responding to a question about whether the NCPO feared Ms Yingluck would flee the country to escape facing criminal charges. On Friday, Ms Yingluck was indicted in the Supreme Court’s Criminal Division for Persons Holding Political Positions by Attorney-General Trakul Winitnaiyaphak.

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E, European Central Bank style, passed the markets test but will have a harder time doing as well for the euro zone economy or the currency union project.

Mario Draghi’s plan to buy 60 billion euros a month of bonds met with success on narrow but important terms: driving euro zone stocks to a seven-year high and shaving two cents off the amount the euro purchases in dollar terms.

That’s excellent, because the plan, which will likely involve more than one trillion euros in bond buying by September 2016, has some notable flaws, both in its design and its essential nature.

The plan is designed to run until September of next year or until the medium-term inflation outlook hits 2.0 percent, whichever comes first. Crucially most of the purchases will be made by national central banks, rather than the ECB, with the euro zone central bank taking lossabsorbing risk on only 20 percent.

A euro of bonds bought is a euro to financial markets, and traders took the plan as being large enough to warrant the kind of moves the ECB would dearly like to see, and which represent the minimum hurdle for the plan.

A euro of bonds bought is not a euro in terms of the message the farming-out of risk to national central banks sends.

The unmistakable message is that euro zone monetary policy

is not a single thing, any more than euro zone fiscal policy. While the euro member states are certainly all in things together, they will all hang by ropes of varying lengths if things go wrong.

That is not tremendously helpful, though perhaps it is the price the policy had to pay to keep on the right side of German politics as well as the law.

Still, so long as the money is created and funnelled into financial markets, we can depend on financial markets to make use of it. What is less clear is where the money goes or to what use it is put. While lower bond yields are a help to companies, they are also an incentive to take risks elsewhere, outside the euro zone, perhaps in places with unified policy.

While the euro member states are certainly all in things together, they will all hang by ropes of varying lengths if things go wrong

Big for markets, small for euro zone The other issue isn’t the size of the policy against expectations, but the size in terms of the impact it is likely to have on the euro zone economy. Here the news is far less good.

Reports in December indicated that internal ECB studies reckoned that a one-trillion-euro QE program would boost prices by just 0.2 to 0.8 percentage point after two years, somewhere between five and nine times less efficient than the equivalent studies for the U.S. and UK. A similar study by Societe Generale concluded euro zone QE would be five times

less efficient than in the U.S. “The potential amount of QE needed is two to three trillion euros!” Societe Generale economist Michel Martinez wrote in a note to clients.

“Hence for inflation to reach close to a 2.0 percent threshold medium term, the potential amount of asset purchases needed is two to three trillion euros, not a mere one trillion. Should the ECB target such an expansion of its balance sheet, it would have to ease some conditions on its bond purchases (liquidity rule,

quality ...) or contemplate other asset classes: equity stocks, real estate investment trusts, exchange-traded funds ..., as the BoJ, previously.”

Capital markets just do not play the same role in the euro zone economy, which is far more dependent on bank lending, as they do in the U.S. And the bond-buying plan does very little directly for banks, and nothing for bank capital levels, which are woefully low.

And the plan won’t help Greece, at least at first, as its bonds won’t be eligible for inclusion until the summer at the earliest, and only then if it remains in good standing with the ECB, the IMF and the European Commission.

Perhaps by then we’ll have a better reading on Greece’s ultimate direction, as negotiations over debt terms with whatever government emerges from Sunday general elections will be underway, if not likely concluded.

Until then we can probably expect financial markets to continue to enjoy the effects of euro zone QE. The silver lining too is that the plan is small enough and ineffective enough to stand as an incentive for the Federal Reserve to remain on hold.

Given that a Fed hike is probably just as frightening, if not more so, to risk assets as a Greek rupture, investors, if not Europeans, can be glad the ECB wasn’t able to be more bold.

Reuters

16 | Business Daily

January 26, 2015

Closing Modi breaks protocol to welcome Obama

Xinjiang to add more roads to villages

Signalling his determination to take relations with the United States to a higher level, Indian Prime Minister Narendra Modi broke with protocol to meet and bear-hug U.S. President Barack Obama as he landed in New Delhi yesterday. Obama’s visit is a fresh bid to make India an enduring strategic partner and will nurture his friendship with a prime minister who a year ago was persona non grata in Washington. Even before the first official meeting between the two leaders, Indian media reported that negotiators had struck a deal on civilian nuclear trade.

Northwest China’s Xinjiang Uygur Autonomous Region has announced plans to build more roads to remote villages. According to Xinjiang transport department, 2.7 billion yuan (about US$440 million) will be spent on 4,000 kilometres of blacktop roads connecting all roadless townships, and on construction of roads in remote villages. Xinjiang has 111,600 kilometres of road in rural areas and nearly 99 percent of towns and 98 percent of villages are linked by roads. Since 2010, a total of 17.8 billion yuan has been spent on rural roads and benefitting 4.76 million people.

Got a spare billion?

Investment bankers are keen to help Family offices manage a clan’s day-to-day financial affairs, but for investment advice they tapped private bankers and fund managers

T

he growing ranks of the super rich and their increased appetite for risk have caught the eye of investment bankers.

Traditionally focused on companies and institutions, investment banks are hiring staff and reorganising teams to cater to wealthy clans, from Chinese multi-millionaires to old world dynasties in Europe and the United States.

While some such families have been involved in direct investment for years, many more are just getting interested, seeing more potential for profit there than in funds or markets.

Unsurprisingly, investment banks in Switzerland, the global hub of wealth management, have led the way in targeting family offices, the private firms that manage the financial affairs of the richest families.

But U.S. banks are also deploying more investment bankers to focus on the super rich, whose numbers are on the rise. At the top end, a study by UBS and consulting firm Wealth-X identified 2,325 billionaires last year, up 7.1 percent over 2013.

BoA Merrill Lynch hired

Swiss banks, like UBS, are pioneers in rich families’ wealth management

KEY POINTS Super rich increasingly seek direct investments Banks restructure, hire staff in pursuit of family funds Family offices bring in ex-bankers for advice a Goldman Sachs banker last year to look after family offices within investment banking, while JP Morgan asked two of its investment team to focus on the area.

And banks are also trying to reorient their structure to seize the opportunity UBS created a joint venture between its investment bank and wealth management department at the end of 2010, and Credit Suisse has also adapted.

But since interest rates tanked in the wake of the global financial crisis, they have been hiring in-house advisers, often ex-investment bankers keen to do business with former colleagues.

U.K. consumers affected by euro zone weakness

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They are helping family offices to look for more creative ways of earning a return than simply handing their cash over to fund managers, whose 2 percent annual fees and 20 percent on any profit earned are falling, but not fast enough for some.

Trust Wealthy families made a string of high-profile deals in 2014. The Qatari royal family poured 1.75 billion euros (US$2 billion) into Deutsche Bank’s 2014 rights issue, while the billionaire March clan’s holding firm Corporacion Financiera Alba took an 8 percent in

Spanish airport operator Aena ahead of its initial public offering (IPO) this year.

Having a family buy into a new share deal can be a trump card for investment bankers because they are willing to tie up their funds for a long time.

Family offices offer investment banks the possibility of a lengthy and lucrative relationship and are also often easier to deal with than institutional investors whose decisions are often delayed by internal committees.

UBS said it expects to earn around 260 million Swiss francs (US$297 million)

in Global Family Office revenues outside the United States in 2014. Within that, earnings from direct deals grew fastest of all, although it is still dwarfed by income from the foreign exchange division for example.

But establishing the connection can be difficult.

In the rarefied world of family money, deals between dynasties are still favoured.

The average deal size for office-to-office deals in 2013 was US$119 million compared to US$76 million syndicated by investment banks, according to UBS and family office data provider Campden Wealth.

Reuters

Chinese become targets in DR Congo

Global economic headwinds in spotlight at Davos

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ritish exporters are taking a knock from the sluggishness of the euro area, leaving consumers fuelling much of the fire behind the expansion.

Households ramped up spending in stores at the fastest pace in more than a decade in the fourth quarter, and data today will show how much that checked the impact of weak external demand.

Economists forecast growth of 0.6 percent in the three months, down from 0.7 percent in the third quarter.

While the build-up to the general election in less than four months may weigh on confidence, further stimulus may reverse the cooling trend.

The European Central Bank will pump US$1.3 trillion into the economy of Britain’s biggest trading partner, while a slump in oil prices and strengthening wage growth are handing Britons the spending power they’ve been missing for years.

“Growth is pulling back but the recovery hasn’t stumbled,” said Victoria Clarke, an economist at Investec Securities in London.

lashes between Democratic Republic of Congo police and political protestors that left some 40 people dead last week also revealed the level of hostility towards the Chinese in the capital Kinshasa.

Though the protests primarily opposed a change to electoral law that would allow Kabila to remain in office beyond 2016, the rioters’ targets appeared to have been influenced by the government’s decision to boost economic ties with China.

Gigantic contracts between Kinshasa and Beijing signed in 2007 and 2008 gave Chinese companies the right to operate many of mineral-rich DR Congo mines in exchange for developing the country’s road system and other infrastructure.

As a result, some observers say, when the protests opposing Kabila’s effort to retain power in the impoverished country turned to rioting, the focus fell on Chinese businesses.

Thousands of Chinese workers have come to DR Congo to provide labour for the projects covered by those contracts.

Bloomberg News

AFP

he annual meeting of the 45th World Economic Forum on Saturday came to an end and world leaders are still scrambling to find ways to stimulate economic growth.

Discussions at the forum during the last few days suggested that the global economy is facing strong headwinds of unemployment, geopolitical risk, low investment and slow progression of structural reforms.

At a panel discussion at the forum, Zhu Min, Deputy Managing Director of IMF, argued that the weak investment will hinder the economic recovery in the euro area.

However, Axel A. Weber, Chairman of the Board of Directors of UBS, slammed the euro area governments for not conducting necessary structural reforms, which he thought were the remedy for the problems in the euro area.

Over 2,500 participants from more than 140 countries and regions representing business, government, international organizations, academia, civil society and the media attended the four-day Davos meeting featuring 280 sessions and workshops.

Xinhua