Macau Business Daily, Feb 6, 2015 by Business Daily

MOP 6.00 Closing editor: Sara Farr Publisher: Paulo A. Azevedo Number 724 Friday February 6, 2015 Year III

Investigation underway

The black box has been recovered. And investigations are beginning. It has emerged that the TransAsia aircraft that crashed in Taipei had a maintenance check in Macau in April. Landing at MIA because of engine problems, an airline spokesperson told Business Daily. As a result of Wednesday’s crash, the Taiwanese Civil Aviation Authority has banned the airline from applying for any new routes until February 2016. With 18 Mainland tourists killed, China will assist in the investigations. The first time it has extended help to Taiwan under such circumstances. Page

‘Challenging’ deadline Hong Kong is having a hard time. And is starting to backtrack on the deadline for completion of its part of the Hong Kong-Zhuhai-Macau Bridge. Secretary for Transport and Housing Anthony Cheung said it’s a challenge to finish by 2016. “Hong Kong is not the only one encountering problems,” he said. “Macau and Guangdong are facing the same challenges,” according to Radio Television Hong Kong

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NagaCorp revenues jump NagaCorp is on a roll. The Cambodian gaming operator’s reported a 23 pct increase in gross gaming revenues for 2014. The company said the slowdown in Macau has helped. Boosting the take from Chinese VIPs. And making them much more accessible

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A point of character

www.macaubusinessdaily.com

BTCC to replace WTCC?

Bank profits down 20 per cent in December

Page 4 Alexis Tam in Cambodia for tourism, culture conference

Page 6 Caesars names former Hertz chief Frissora as Loveman successor

Page 7 Brought to you by

HSI - Movers February 5

Name

Trademarks mean money. Macau’s lower court rejected a request by booking.com to register its trademark here. Because the font of the text differed from that of the logo. The company filed an appeal. Now the Court of Second Instance has ruled in favour of the company. Declaring that the brand has, as argued, acquired its own distinguishing character

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Pension problems

%Day

China Resources Land

3.45

China Unicom Hong Ko

3.37

China Mobile Ltd

2.56

Tingyi Cayman Island

2.04

China Construction B

1.91

CNOOC Ltd

-2.16

PetroChina Co Ltd

-2.28

Kunlun Energy Co Ltd

-2.30

China Shenhua Energy

-2.34

China Resources Powe

-6.32

Source: Bloomberg

I SSN 2226-8294

According to a motoring magazine, overtures have been made. The Macau Grand Prix Committee has approached the organisers of the British Touring Car Championship (BTCC). They would like to replace the WTCC race finale that moves to Qatar this year. Macau has offered to pay for freight and travel. An incentive the Brits say is appealing. Meanwhile, Business Daily has been told that this year’s GP would host a TCR International Series race

The Chinese economy is slowing. Impacting pensions. Especially those related to migrant workers. The interregional money transfer process has not assured them

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February 6, 2015

Macau

TransAsia Airways banned from applying for new routes for a year The ban follows the deadly crash of the carrier’s turboprop plane on Wednesday, although it was in service for less than a year Stephanie Lai

sw.lai@macaubusinessdaily.com

roubled Taiwan carrier TransAsia Airways Corp. has been barred from applying for new flight routes for the year ending February 4, 2016 following its deadly crash in Taipei on Wednesday that claimed at least 31 lives, the Taiwanese civil aviation authority announced yesterday. Taiwan officials said yesterday that they were still interpreting the data from the recovered black box of the crashed plane, saying that they could announce the content today. But the investigation of the deadly incident could take a year, Taiwan’s Civil Aeronautics Administration (CAA) said yesterday. The CAA has also decided to ban new air rights applications by TransAsia Airways – for instance, to apply for a new flight route – for a year ending February 4, 2016. However, the wholly-owned budget carrier business of TransAsia, branded as V Air, would not be subject to the

Valuable routes insulate TransAsia from grim crash record Even after two deadly crashes in seven months, TransAsia Airways Corp. will likely rebound quickly as insurance covers any financial losses and its coveted routes through Taipei’s downtown airport make it popular with business travellers, Reuters reported. Airline analysts said that the carrier may have to offer discounts to lure back passengers after Flight GE235 ended in at least 31 fatalities on Wednesday. Amateur video from a car dashboard camera showed the plane clipped a taxi and a bridge before smashing upside down in a shallow river. “Songshan [airport] is in downtown Taipei... so their flights are valuable, especially for the corporate guys,” said Marc Wang, manager at KGI Securities in Taiwan. “I don’t think they’ll give up the business.” TransAsia operates about 22 daily flights from Songshan, mainly to domestic destinations but also to a few Chinese cities, including

ban as the budget carrier operated independently from its mother company, CAA said yesterday. In a statement released on Wednesday night, Macau’s Civil Aviation Authority noted that the engines of the turboprop ATR72600 aircraft that crashed had been replaced at Macau Airport on April 19 last year, during its delivery flight when the plane encountered ‘enginerelated technical issues’. The Authority further added that the engines were replaced by TransAsia engineers and that the plane left Macau Airport two days later. “We decided to land at Macau Airport because at that time we detected that there were some problems with the engines which needed a replacement. It was during its delivery flight from Toulouse in France en route to Taiwan,” a spokesperson from TransAsia Airways explained to Business Daily. The head of CAA, Lin Tyh-ming,

Shanghai. Taiwan Fire & Marine Insurance Co. Ltd. said it had underwritten TransAsia’s aviation hull and passenger liability insurance and estimated its maximum retained loss at US$225,000, which it said would have no significant impact on its business. Two other insurers, Cathay Financial Holding Co. Ltd. and Mega Financial Holding Co. Ltd., said they expected no significant financial impact from related claims. Wednesday’s crash and another fatal accident in July mean TransAsia is suspended from opening new routes, which will set back its ambition to grow as a regional carrier, said Michael Lee, Taiwan airlines analyst at Primasia Securities in Taipei. “It’s a problem for TransAsia because for the last two or three years TransAsia has been working pretty hard to shift its focus from the domestic market to the regional market,” Lee said. “The margin of the domestic routes is much lower than the regional routes.” TransAsia bounced back quickly from the July crash. Revenue passenger kilometres - a measure of an airline’s traffic - dropped 64 per cent in July from June but rebounded in August, JihSun Securities Investment wrote in a research note. Insurance covered all compensation claims, it said.

said the aircraft last underwent maintenance on January 26. The plane was powered by two Pratt & Whitney PW127M engines. Pratt & Whitney is part of United Technologies. The last communication from one of the pilots was “Mayday, Mayday: engine flameout”, according to an air traffic control recording on liveatc.net. A flameout occurs when the fuel supply to the engine is interrupted or when there is faulty combustion, resulting in an engine failure. Twin-engined aircraft, however, are usually able to keep flying even when one engine fails. “At this moment we really cannot comment on whether the engines issue is the cause of the incident, as we still have to wait for the result of the investigation on it,” a spokesperson from TransAsia Airways remarked to us yesterday.

China aid TransAsia Flight GE235, carrying 58 passengers and crew, lurched between buildings, clipped an overpass with one of its wings and crashed upside down into shallow water shortly after taking off from a downtown Taipei Airport on Wednesday. The plane was bound for the Taiwan island of Kinmen. At least 31 people were killed when the plane crashed. There were 15 known survivors and 12 more unaccounted for.

The pilot and co-pilot of the almost-new turboprop ATR 72-600 were among those killed, CAA said. Meanwhile, 18 of those killed were from among a group of 31 Chinese tourists, most from the southeastern city of Xiamen, it said. Three Chinese passengers were rescued. China President Xi Jinping expressed condolences to the relatives of the deceased on Wednesday, urging an immediate rescue of the injured. China would assist in the investigation into the incident, a spokesman from Taiwan’s Executive Yuan, Mr. Sun Li Qun, said yesterday. This was also the first time that mainland China has extended help to Taiwan over plane accidents. The crash was the latest in a string of aviation disasters in Asia over the past 12 months. Taiwan has had a poor aviation safety record in recent years, including the disintegration of a China Airlines 747 on a flight from Taipei to Hong Kong in 2002, killing 225. One of TransAsia’s ATR 72-500 planes crashed while trying to land on Penghu Island last July, killing 48 people. The disappearance of a Malaysia Airlines jet last March and the downing of a sister plane over Ukraine four months later resulted in the combined loss of 537 lives. The crash of an AirAsia jet bound for Singapore from Indonesia on December 28 killed all 162 people on board. with Reuters

Business Daily | 3

February 6, 2015

Macau

Police bust Macau created 5,400 new HK$7mln illegal companies in 2014 all-time record number of new sports betting ring An incorporations were registered in the fourth quarter with almost 1,500 new businesses, the majority wholesale and retail

The case involved accepting illegal wagers for football and basketball matches in an operation run by and targeting South Koreans

Luís Gonçalves

luis.goncalves@macaubusinessdaily.com

Stephanie Lai

sw.lai@macaubusinessdaily.com

hree South Koreans were arrested on February 3 for operating an illegal sports betting operation here for at least three months, in which Judiciary Police said a total of HK$7 million (US$902,806) in wagers was involved. The suspects were arrested at their residence in the Vella de Mar building in Areia Preta on Macau Peninsula, a unit which they leased in November last year as a site for allegedly operating a website that accepted illegal bets on global football matches and NBA basketball matches, Judiciary Police spokesman Choi Iat Peng said in a press briefing yesterday. Police believe that other suspects involved in the illegal sports betting business were still on the run, adding that they have also forwarded details to the judiciary authorities of South Korea. “It’s really the first case for us [concerning] Korean suspects running an illegal sports betting business here

in recent years,” Mr. Choi said. “We’ve so far seen 100 clients who have placed bets on this website operated by these three suspects, and the majority of them are South Koreans,” the police spokesman added. “Their wagers amounted to about a daily HK$100,000.” The three arrested South Koreans were charged with participating in organised crime and operating illegal gaming activities. The case has already been handed to the Public Prosecutor’s Office for further investigation, Judiciary Police have confirmed. The much larger illegal sports betting case busted by local police was one reported in late June last year when officers arrested 22 people for operating an illegal soccer gambling operation involving about HK$5 billion in bets on the FIFA World Cup. The 22 people arrested on that occasion comprised nine Malaysians, nine mainland Chinese and four Hong Kong residents.

Gov’t to increase work-accident compensation for those treated in private clinics

he government is planning to raise the ceiling amount for work-accident compensation that workers can receive when being treated in private clinics from the current MOP270 (US$33.75), the president of the first standing committee of the Legislative Assembly (AL), Kwan Tsui Hang, said yesterday, without detailing the exact amount of the hike. According to local broadcaster TDM Radio, the committee discussed the bill amending the law regulating the work-accident compensation yesterday, when Ms. Kwan told reporters after a closed-door meeting that the controversial issues in the bill had been resolved, believing the government can re-organise the bill so

that it can be passed by the Assembly by Summer and subsequently implemented. The legislator said that one of the disputes in the bill was that workers and insurance companies may have divided opinions on the amount of compensation and the diagnosis, thus a third doctor from the Medical Affairs Committee would be required to resolve the issue. However, to get such a doctor, there needs to be prior agreement by both parties, which may delay compensation. Nevertheless, Ms. Kwan said that the government had agreed that a third doctor would be assigned by the government directly in future to resolve the impasse. K.L.

espite the economic slowdown and the casino revenue crisis, Macau continues to incorporate new companies at a record pace. Never like last year, however, with so many businesses opening their doors here, injecting – also on a record level – fresh millions into the city. According to the Statistics and Census Bureau, some 5,409 new companies were created last year, bringing MOP1.8 billion in capital to the local economy, an all-time record in terms of companies and investment. Almost two thirds came from the retail and business services sectors. The wholesale and retail segment incorporated 1,854 new companies last year and business services an additional 1,192, the report says. In the fourth quarter alone, company statistics revealed a mixed tendency. During this period Macau

incorporated 1,454 new companies with the all-time record registered in the second quarter of last year. But in December, only 399 businesses were launched here, the second worst month of 2014 and a possible indication of a deterioration of the economic sentiment in the city. In the last quarter, the number of new companies in Macau increased by 21 per cent, with the business services sector generating 43 per cent more businesses and real estate twice more (increase of 85 per cent). Around 70 per cent of the new incorporations of last year were small companies that started with a capital of less than MOP50,000 (3,749), while 155 businesses started with a capital of MOP1 million. With the economy growing at a double-digit clip, it’s no surprise that Macau launched two times more businesses last year than in 2010, for example.

4 | Business Daily

February 6, 2015

Macau

Bank profits down 20 per cent in December

HK Secretary: HK-ZhuhaiMacau Bridge hard to complete on time

Deposits by the most buoyant banking segment last year, non-resident customers, declined for a second straight month with clients cashing out MOP9 billion in December

Luís Gonçalves

luis.goncalves@macaubusinessdaily.com

anks in Macau registered the smallest profit of 2014 in December, a sign that the local economy slowdown is affecting the financial system as deposits and credit growth declines. Fourth quarter figures for the economy are scheduled to be released only in mid-March but expectations point to a new contraction of Gross Domestic Product (GDP) that will confirm the first economic recession here in years. According to data released by the Monetary Authority of Macau (AMCM), the operational profits of banks in Macau amounted to MOP645 million in December. That’s a 19.3 per cent decline compared to a year ago and

the second straight monthly drop. But more than the trend (two second straight monthly drops are not that serious) is the size that signals problems ahead. In December of last year, banks here made 30 per cent less in profits than the 2014 monthly average (MOP907 million), Business Daily calculations reveal. Compared to November, the drop was already 10 per cent and versus October more than 40 per cent. In all of 2014, local banks generated MOP10.9 billion in operating profits, still an 11.8 increase compared to 2013, when financial institutions made MOP8.5 billion. Operating results are profits that exclude profits or losses from previous years,

provisions and taxes. One of the drivers of the December slowdown was the softness of deposit growth here, especially among nonresidents, the segment of clients that has been growing the most in Macau as more people arrived here to work and benefit from the booming economy.

MOP65 billion pot of gold The AMCM report says that in December nonresident deposits in Macau banks declined by MOP9 billion to MOP219.4 billion. That’s 3.8 per cent compared to November. Deposits by residents stayed flat in December (growing

0.7 per cent) to MOP476 billion. December yearon-year figures, however, reveal a different story, as the economy was starting to enter its best quarter in years (first quarter of 2014) a year ago, with local clients pouring money into banks. In December 2014, deposits of non-residents went up by 25.7 per cent year-on-year, while residents’ increased 10.2 per cent. In the space of 12 months, nonresident customers alone deposited more than MOP65 billion in Macau banks. AMCM says that loans to the private sector increased by 2.3 per cent in December from the previous month to MOP339.1 billion, with the majority being denominated in Hong Kong dollars (MOP218.7 billion), followed by MOP94.0 billion in patacas, accounting for 65 and 25 per cent of the total, respectively. External loans rose to MOP350.6 billion, a 0.6 per cent jump, with only 1.2 per cent denominated in patacas and 23.2 per cent in Hong Kong dollars (MOP81.3 billion). The loan-to-deposit ratio in Macau – an indicator of the sustainability of a financial institution – continues to show a low risk activity here. The ratio for residents rose 0.6 percentage points from the previous month to 59.3 per cent. The ratio for both the resident and nonresident sectors also grew by 1.4 percentage points to 87.2 per cent.

ong Kong’s Secretary for Transport and Housing, Anthony Cheung Bing-leung, said it is challenging for all of the three parties, Macau, Hong Kong and mainland China, to complete the construction of the Hong Kong-Zhuhai-Macau bridge by 2016. The Secretary told reporters in the neighbouring Special Administration Region during a press gathering that it is challenging for Hong Kong to complete the construction by the end of next year. He stressed, however, that “Hong Kong is not the only one encountering problems in the progress of the construction. Macau and Guangdong are facing the same challenges,” according to Radio Television Hong Kong (RTHK). On Tuesday, the Secretary had said that he believes the construction of the Hong Kong Border, as well as the link to the Main Bridge, may not be finished by the end of 2016, claiming that the Highways Department of Hong Kong is still evaluating the date of traffic starting on the Bridge. Asked by Hong Kong reporters whether the construction would be completed in 2017, the Secretary said: “I hope it won’t be that dramatic,” according to Hong Kong’s Oriental Daily. The Hong Kong-ZhuhaiMacau Bridge, originally slated for completion in 2016, is a project that links A Perola in Macau with Hong Kong and Zhuhai. Mr. Cheung said that the three governments are striving to catch up with the construction schedule, whilst stressing that safety was a priority. K.L.

LVMH: U.S. market rebound offsets China, Macau, HK fall

VMH Moet Hennessy Louis Vuitton, the world’s largest luxury group, reported a better than anticipated growth of its fashion and leather-goods unit and liquor sales showed improving trends following the rebound of the U.S. market compensating for the drop in sales in Hong Kong, Macau and China, some of the company’s most important markets. The owner of famous brands like Luis Vuitton, Tag Heuer watches, Hennessy cognac and DFS retailer saw its shares soar to a 16-year high after fourth quarter results were published. LVMH has had to wrestle with Chinese tourists spending less in Hong Kong because of pro-democracy protests that ran for 79 days last year and restarted this month, while anti-graft measures are weighing on sales in China. Still, strengthening

demand in the Americas has helped cushion the effect of the slowdown in Asia for LVMH. The company said it had received a boost from the United States, which was its strongest region in the fourth quarter for growth in

cognac and fashion sales, helping compensate for weakness in China, and Hong Kong in particular LVMH founder and Chief Executive Bernard Arnault said on Tuesday after reporting fourth

quarter sales that there had been an “excellent response” to Ghesquiere’s work and Louis Vuitton’s margins were exceptionally high. Louis Vuitton is more than twice the size of Kering’s Gucci but it reacted faster than its Italian peer to growing disaffection with brands that did not regularly surprise customers with new styles and unexpected creative impulses. Organic sales of apparel and accessories advanced 4 per cent in the fourth quarter, buoyed by demand for new limited edition Louis Vuitton handbags, the Paris-based company said yesterday after markets closed. That represented an acceleration over the previous three months and topped analysts’ predictions of no growth. Vuitton sales were “sharply up” in January, the world’s largest luxurygoods maker said.

Business Daily | 5

February 6, 2015

Macau

Booking.com wins battle in Court of Second Instance The online booking company managed to prove to the Court of Second Instance that the expression ‘booking.com’ has acquired a secondary meaning in Macau and that regular clients are able to relate to the Dutch website João Santos Filipe

jsfilipe@macaubusinessdaily.com

he company booking. com was authorised on January 22 by the Court of Second Instance to register its trademark image in Macau after its intention was first rejected by a lower court. The online booking website managed to prove that the expression ‘booking. com’ has acquired a double meaning, which is related to the company. In 2012, the Netherlandsbased company applied to register 10 different trademark images in Macau, receiving approval for nine of the 10 requests. It was ruled that the trademark image in a regular black font over a white background reading booking.com would be rejected. According to the law, a trademark image may not be registered if all the

elements (such as text or logos) comprising it are used in common language or if those elements are used to define the kind of product or services the company offers. The image booking.com in regular black font over a white background falls into this latter category. However, the law also declares that such images may be authorised

to be registered if a brand has acquired on its own a distinguishing character. The decision of the lower court was based on the fact that it considered that the brand booking. com had not acquired a distinguishing character. And so it was published on July 8, 2013 in the Official Gazette that the company

was not allowed to use that image in Macau. On September 9, 2013 the company, based in Amsterdam, appealed the first decision with the Court of Second Instance, arguing that the expression booking.com has acquired a distinguishing character. This time the ruling was different. While ‘booking’ and ‘.com’ alone are considered two general expressions used in common language, the court decided that when combined and used together they acquire a secondary meaning. ‘The expression booking. com combined, due to its implementation over time and worldwide dimension, is already known among the users of such services [online accommodation and hotel bookings]’, the decision of

the judicial panel reads. ‘In spite of the co-existence of many operators providing online booking services, it is right to assume that a regular consumer may be able to distinguish by using such expression combined [booking.com] the online booking services provided by the company in relation to the other market players’. For the final decision it was also considered that the registration of the online domain booking.com also contributes to excluding any confusion regarding the distinguishing character of the brand. Previously, booking.com had managed to register the controversial trademark image in 17 different jurisdictions including the United Kingdom, New Zealand and Benelux.

6 | Business Daily

February 6, 2015

Macau

Grand Prix Committee approaches BTCC Series to race in Macau The Committee, co-ordinated by João Costa Antunes, has been in touch with the organisers of the British Touring Car Championship for the series teams to race at this year’s Macau Grand Prix

Overseas Macau talent hope for better policies

João Santos Filipe

jsfilipe@macaubusinessdaily.com

he Macau Grand Prix Committee has floated the possibility to British Touring Car Championship (BTCC) of its teams competing in this year’s event, Motorsport News magazine has reported. Since 2005 the Guia Circuit has hosted the finale of the World Touring Car Championship (WTCC). However, it was decided that this year the last round of the series would move from the MSAR to Qatar, opening the door for a different competition to take place on the Guia track in Macau. “The bosses in Macau have been in touch with TOCA [organisers of the BTCC]. They’re looking at various

options and the BTCC cars are one of those options”, series director Alan Gow told the British magazine. The prospect of having many cars from this series racing in Macau, however, looks unrealistic for the time being, according to Gow. “They asked me if teams would be interested so I got in touch with the teams and most of them said yes. The reaction has been positive but I think they will only bring a handful of cars”, he said regarding the British teams’ prospects of racing in Macau. “The organisers haven’t had direct contact with the teams so they’re just fishing around to see what’s available”. Motorsport News also disclosed

that the Grand Prix Committee, headed by Co-ordinator João Costa Antunes, has offered to pay the cost of freight and travel for the teams that accept the invitation to race in Macau. The head of Motorbase racing team, David Bartrum, liked the idea of racing in Macau when asked by the British magazine. “It’s a lovely idea. It would be a good way of generating extra budget during the closed season”, he said. “They’ve given us some idea about what they would help with in terms of costs and it looks very appealing”. If the BTCC teams compete in Macau it will not be as part of the championship calendar but as a standalone event. In spite of the interest in the BTCC series, the Grand Prix Committee has been in conversations with the newly created TCR International Series, whose season finale has not yet been officially announced but will take place in Asia in the weekend of November 22. During last year’s Grand Prix some drivers told Business Daily that this year’s event would host a TCR International Series race. Last year, the 61st edition of the Macau Grand Prix had a budget of MOP200 million. Swede Felix Rosenqvist emerged victorious after claiming victory in the headline Formula 3 race.

Alexis Tam attends UN conference on tourism and culture

ecretary for Social Affairs and Culture Alexis Tam Chon Weng attended the first ever World Conference on Tourism and Culture along with over 1,100 participants, which included some 40 tourism and culture ministers from various parts of the world. Mr. Tam said that Macau may enjoy a reputation for gambling but in point of fact the combination of culture and tourism is Macau’s main attraction. He added it is also the SAR Government’s goal to better protect cultural heritage as well as building the partnership between culture and tourism. Convened to bring together Ministers of Tourism and Ministers of Culture to identify key opportunities and challenges for stronger cooperation between the fields, two United Nations agencies launched the First World Conference on Tourism and Culture on Wednesday in Siem Reap, Cambodia.

The Conference, run by the UN World Tourism Organisation (UNWTO) and the UN Educational, Scientific and Cultural Organization (UNESCO) seeks to address the overlap between culture and tourism,

tackling the question of how to harness the power of tourism and culture to alleviate poverty, create jobs, protect natural and cultural heritage and promote international understanding.

acau talent residing aboard have expressed concern about the lack of attraction of the SAR for talent to return and contribute, and urged the government for better policies. Registered as a Macau talent and currently working as a senior customer manager of a Hong Kong bank, Kuan Sai Cheong said Macau is short of space for talent to develop and added problems such as high rent and skyrocketing housing prices may diminish willingness to work in the city. Mr. Kuan made the comment on the sidelines of a seminar organised by the Macau Talent Development Committee. To strengthen communications with Macao residents working or starting a business abroad, the committee organised two seminars yesterday at Macao Polytechnic Institute. The Macau talent working in the financial industry pointed out that since the SAR doesn’t position itself as solely developing the gaming industry, other opportunities can be explored for talent to develop, such as the Free Trade Zone in the neighbouring Guangdong region, and starting a business in Hengqin can be a good option as well. The seminars aimed at providing a platform for the 18 candidates participating in the ‘Celebrating 15 th Anniversary of the Macao Special Administrative Region Talent Group Investigation Plan’ to conduct exchanges with members of the Committee, representatives from local associations, enterprises and academic institutions as well as the general public. Some 12 candidates delivered keynote speeches on specific topics, such as information and technology, healthcare, talent, etc., in addition to sharing their experiences in the industries. Speakers of the former included the product design manager of a high-tech microelectronic enterprise in Mainland China, the business manager of fibre communications products of a Taiwan technology company, and the senior manager of a technology application company in the United States among many others. In the seminars, participants introduced the development of the industries they are engaged in and shared their personal career path and work experience, in addition to proposing recommendations regarding the development of relevant industries in Macao. J.K.

Business Daily | 7

February 6, 2015

Gaming

NagaCorp revenues soar, net profit drops As Macau registered its very first annual drop in gross gaming revenue in 2014 down by 2.6 per cent year-on-year - gaming revenues in the Cambodian casino jumped 23 per cent Kam Leong

kamleong@macaubusinessdaily.com

ambodian gaming operator NagaCorp Ltd. said the gross gaming revenue of its casino in Cambodia – NagaWorld – surged some 23 per cent year-on-year in 2014, reaching US$381.4 million. Nevertheless, the net profit of the group still posted a 3 per cent decrease year-onyear, the company told the Hong Kong Stock Exchange on Wednesday after trading hours. The Hong Kong-listed company said that the slowdown of the gaming industry in Macau had helped it reach Chinese gamblers in terms of VIP and mass gaming segments. ‘The downturn in Macau offers the group further opportunities to further penetrate the Chinese gaming market in both the VIP and Mass Gaming segments, by being able to offer attractive commercial terms to junket operators and agents as a result of NagaWorld’s low cost structure,’ the company filing reads. In fact, the filing also quotes data from the Cambodian authorities, revealing that the number of Chinese visitors to the country

cent, reached only US$84.6 million.

Net profit drop

in the first eleven months of 2014 had increased 22 per cent year-on-year, totalling 507,860 visitors.

VIP revenues up As the VIP industry in Macau decreased, the operator actually saw its revenues from high-rollers jump by more than 41.3 per cent year-on-year in 2014, reaching US$188 million. Claiming it is planning to ‘sign up more Macau-

based junket operators in the coming months as they seek to diversify their operations to other parts of Asia’, its main source of VIP revenues, meanwhile, came from Southeast Asia. ‘The ability of the group to outperform Macau in topline growth is attributable to the relatively high proportion of revenue derived from the Mass Market, and the fact that most VIP revenue is derived from Southeast Asia,’ it said in the filing.

In fact, the Chief Financial Officer of the company, Philip Lee Wai Tuck, revealed at a press briefing on the annual result in Hong Kong yesterday that the company was considering signing up three junkets from Macau this year. Meanwhile, revenues from the gaming tables of the company’s mass gaming floor also jumped 21 per cent year-on-year, amounting to US$108.6 million; revenues from electronic gaming machines, slashed by 17 per

Despite the operator’s casino revenue soaring last year, the company’s net profit registered a year-onyear decrease of 3 per cent to US$136.1 million. However, if the effects of the entrance fee of electronic gaming machines in 2003 are excluded, the net profit of the company increased by 9 per cent year-on-year. ‘The relatively lower net profit growth compared to gross gaming revenue growth is a result of higher incentives given to junket operators to promote NagaWorld to the rest of Asia [including China] as well as higher staff costs to improve service quality and staff retention,’ the company explained in its Wednesday filing. NagaWorld, located in Phnom Penh, is the only casino in the Cambodian capital city. Developing another casino project in Russia with Macau gaming mogul Lawrence Ho, who owns Melco Crown Entertainment Ltd., the Cambodian operator said the new project of the parties ‘will commence operation no later than 2018.’

Caesars names former Hertz chief Frissora to succeed Loveman

aesars Entertainment Corp. named former Hertz Global Holdings Inc. Chief Executive Officer Mark Frissora as its new CEO to succeed Gary Loveman, three weeks after the casino company put its biggest unit in bankruptcy. Frissora, who left the car-rental agency in September, will join the company immediately as CEOdesignate, become a member of the board and take over as CEO on July 1. Loveman will end his term as CEO on June 30 and remain chairman, according to a statement on Wednesday. Loveman said it was his decision to step down. He is credited with expanding the company’s Total Rewards loyalty program, now widely copied in the industry, and establishing Caesars’ online gaming business. Loveman failed to gain access for Caesars in Macau, now the world’s biggest gambling market, and oversaw the US$30.7 billion buyout of the company in 2008, as the industry entered its worst slump in history. “After 12 years as CEO, Caesars has accomplished more than what we could have imagined when I arrived in 1998,” he said in the statement.

“Now, with the company in the midst of a formal restructuring of one of its subsidiaries and a merger between entities, the time is ripe for a transition.” Loveman, 54, will continue to oversee the restructuring of the company’s largest division, Caesars Entertainment Operating Co., which filed for bankruptcy court protection last month. Caesars is controlled by the private-equity groups Apollo Global Management and TPG Capital.

Debt, restructuring Frissora, 59, joins at a time when Caesars, the largest owner of casinos in the U.S. is challenged on several fronts. The company is trying to reduce debt at the operating company, and merge the parent again with Caesars Acquisition Co., a unit that went public in 2013. Caesars is battling some creditors who have sued the company, saying its restructuring efforts have stripped assets from them. Caesars is also coping with increased competition and a slowdown in spending by consumers in many of its markets. The company’s revenue shrank to US$8.5 billion in 2013 from

Gary Loveman

US$10.1 billion five years earlier. Frissora joined Hertz as CEO in 2006, after its own leveraged buyout. He supervised an expansion of the business beyond airports as well as the 2012 acquisition of Dollar Thrifty Automotive Group Inc.

Accounting errors He left after the company said its audit committee had found errors in its accounting and after activist investor Fir Tree Partners called for his replacement. The company didn’t file reports for 2014 and disavowed the previous three years of results. Before that, Frissora was CEO of

Tenneco, the auto- parts maker. After Caesars completes its bankruptcy court restructuring, the company will likely sell assets such as its non-core properties in Las Vegas, according to Chris Jones, an analyst with Union Gaming Group. Frissora’s experience courting business customers at Hertz could aid Caesars’ convention business, he said. Loveman is the rare former college professor to run a major U.S. company. An economist who taught at Harvard Business School, he developed strategies for customer relationship management and consulted with Caesars before joining the business full time. Loveman grew the business through acquisitions and new casinos in Ohio and Maryland. He also focused the company on nongambling amenities in Las Vegas. “We respect Gary’s desire to begin transitioning the management of the company at this time,” Marc Rowan, founder of New York-based Apollo, and David Bonderman, founder of Fort Worth, Texas-based TPG, said in a statement. “We look forward to his continuing role overseeing the restructuring.” Bloomberg

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Greater China HK and Mexico sign MoU Hong Kong Special Administrative Region and Mexico yesterday signed here a Memorandum of Understanding (MoU) on cooperation in the field of intellectual property (IP). Director of Intellectual Property Ada Leung of the Hong Kong Special Administrative Region and Director General of the Mexican Institute of Industrial Property Miguel Angel Margain signed the MoU. The MoU provides a framework to facilitate cooperation between China’s Hong Kong and Mexico in the areas of IP, such as exchange of information, best practices and experience, training of personnel, promotion of IP trading and commercialization as well as joint organization of seminars and conferences.

Premier Li hears opinion on gov’t work report Chinese Premier Li Keqiang held a symposium to solicit opinions from leaders of non-communist political parties on the draft of the annual government work report. The participants offered suggestions in a wide range of issues, such as administrative reform, agriculture, and pensions. Chen Changzhi, chair of the Central Committee of the China National Democratic Construction Association, said efforts should be made to improve the multi-tier capital market system to support the real economy. Li exchanged ideas on major topics with the group

Yum’s fall less than expected The owner of KFC and Pizza Hut said that sales at established restaurants in its biggest market China fell less than feared in the fourth quarter as it fights to recover from a food scandal involving a minor supplier, and its shares jumped 2.1 percent. Samerestaurant sales in China, Yum’s No. 1 market for revenue and profit, fell 16 percent for the quarter that ended December 27 on continued fallout from allegations that a former supplier used expired meat. But the decline was less severe than the 19.4 percent drop expected by analysts polled by Consensus Metrix.

Anbang to expand business to Korea China’s Anbang Insurance Group Co has signed an initial agreement to buy a controlling stake in South Korea’s Tong Yang Life Insurance for around 1.1 trillion won (US$1.01 billion), a South Korean newspaper reported yesterday. Anbang has signed a memorandum of understanding to buy South Korean private equity firm Vogo Investment’s 57.5 percent stake in the country’s eighthlargest life insurer, Korea Economic Daily reported without naming specific sources. Officials at Vogo and Anbang could not be immediately reached.

Nuclear base generates record electricity The Dayawan nuclear power base, China’s largest, generated a record 45.4 billion kwh of electricity last year, the operator said. The figure accounted for 8.6 percent of the 528 billion kwh generated over the past two decades, said Jiang Xinghua, president of Dayawan Nuclear Power Management Company. The base, which has six generation units from two nuclear power plants by the South China Sea in Guangdong, has supplies one tenth of the province’s power.

HK jewellery giant branches into ‘black gold’ As its jewellery business posted a 10 percent drop in sales in its most recent quarter and is expecting the current quarter to be weak Chen Aizhu

ong Kong-based Chow Tai Fook group, owner of the world’s biggest jewellery company, is making an unlikely foray into China’s oil trading business, according to several traders recruited by the group. China’s state-controlled oil sector is subject to heavy restrictions, but independent companies are expecting Beijing to lift at least some of the barriers this year, and familycontrolled Chow Tai Fook has already prepared the ground to take advantage of the opportunities. The group, which also has a large property business, set up Chow Tai Fook Energy Co. Ltd last July, the traders said, and Gao Jianfeng, a former trading manager for Chinese oil and gas giant Sinopec Corp, said he had been appointed as its president. The company traders said the jewellery maker had been looking at diversifying into the oil business for some time, but the decision to launch a trading operation may have been prompted by a slowdown in its core activities. Its China-centric Chow Tai Fook Jewellery business, which has a market value of around HK$102

billion (US$13 billion), posted a 10 percent drop in sales in its most recent quarter and is expecting the current quarter to be weak, too. A slowing Chinese real estate market has also clipped cash flow for its property arm, New World Development, worth just over HK$83 billion. The company is not alone in

gearing up for the opening up of China’s oil markets; traders told Reuters this week that CEFC China Energy, a small chemicals and fuel company, is also beefing up its oil business in readiness. Like CEFC, Chow Tai Fook could be looking to obtain a permit from Beijing authorities to import crude

Hong Kong home prices rise The city’s real estate sub-index has risen more than 28 percent since lows were struck in March 2014

ong Kong’s home prices rose last year to a record high, official data showed, as tightening measures failed to curb skyrocketing prices supported by strong local demand and tight supply in one of the world’s most expensive

property markets. An index of overall private home prices for December edged up 3.5 percentage points year-on-year to 277.6 points. That’s 13 percent higher than the year before and a ninth straight monthly gain.

Government data showed home prices have risen nearly 35 percent since 2012, when the city’s leader Leung Chun-ying took power with a pledge to make housing more affordable. The data came days after warnings

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February 6, 2015

Greater China oil into China, senior China-based oil traders said, though the fact it does not own oil and gas producing assets could prove an obstacle. In the meantime, it could start by acting as a regional trader or a supplier in China, they said. Company traders said Chow Tai Fook Energy has already opened a Beijing operation, led by Zhou Xuan, another former Sinopec trader. The company has also registered a Singapore operation, led by James Goh, a seasoned Singapore-based crude oil trader formerly with Astra Transcor Petroleum. Goh and Zhou confirmed their appointments. It will soon set up London and Houston outlets. Beijing hopes market-based reforms will make the energy sector more efficient, and the involvement of independents would also help make a success of its launch of oil futures in Shanghai. Henry Cheng Kar Shun, head of the family’s business interests, is a member of the Chinese People’s Political Consultative Conference (CPCCC), an advisory body to parliament. His office declined to comment on this story. Reuters

US$13 billion

Chow Tai Fook Jewellery business market value

The number of private homes completed in 2014 jumped 89 percent from a year earlier of a housing bubble from government officials that have sparked renewed concerns of more property curbs. Hong Kong Monetary Authority chief executive Norman Chan said earlier this week the authority will “take some anti-cyclical measures at appropriate moment” if the upward cycle continues, while the secretary of transport and housing said “necessary measures” would be taken should the property market become overheated. Some analysts, however, expected home prices to rise another 5 to 10 percent this year as pent-up demand for smaller units continued to boost sales for the city’s powerful developers, including Asia’s richest man Li Kashing’s Cheung Kong Holdings Ltd and Hong Kong’s largest developer, Sun Hung Kai Properties Ltd. The number of private homes completed in 2014 jumped 89 percent from a year earlier to an eight-year high as the government continued to sell more land to developers to increase housing supply. The city’s real estate sub-index has risen more than 28 percent since lows were struck in March 2014. Home prices in the former British colony have surged about 130 percent since 2008 due to low interest rates, a supply shortage and ample liquidity. Reuters

Reining in luxury car prices Beijing says a pilot scheme will promote competition and give consumers more choice Samuel Shen and Kazunori Takada

hina is taking aim again at foreign luxury carmakers such as Audi, BMW and MercedesBenz by allowing unauthorised dealers to sell imported cars - socalled ‘parallel imports’ - in a move to rein in high-end car prices. Publicly, Beijing says a pilot scheme, which officially kicks off in Shanghai’s free trade zone next week, will promote competition and give consumers more choice, but people close to policymakers say it’s the latest in a series of measures aimed at bringing down prices that are far higher in China than elsewhere. For the luxury car marques, the move comes on top of weakening sales growth in the world’s biggest market, tensions with dealers, and a recent price fixing probe. A lawyer who attended a closeddoor seminar last year said officials at the Ministry of Commerce and the National Development and Reform Commission, China’s top economic planner, made clear their intention was to cut the price of high-end imported cars. “Legalizing parallel imports is part of a broad anti-monopoly campaign by the government to improve market order and bring down prices of imported cars,” he said, asking not to be identified as he is not authorised

to speak to the media. In an emailed proposal reviewed by Reuters, the China Automotive Technology and Research Centre (CATARC), a government-affiliated think-tank, lobbied Beijing a year ago to legalize parallel imports “to break monopoly and promote competition.” Sales of premium cars rose by more than a fifth last year to around 1.6 million vehicles, according to consultancy Automotive Foresight (Shanghai) Co Ltd, but still account for less than 10 percent of China’s total car sales. Together, Audi, BMW and Mercedes have around 70-80 percent market share in the premium segment. More than 20 dealers have applied to join the pilot scheme, where imported luxury models will be sold at a 10-20 percent discount to those available through authorized channels, said an official at the Shanghai Waigaiqiao Automobile Exchange Market Co Ltd, the market organizer. A BMW 650i xDrive Convertible that sells from US$97,900 in the United States, can cost close to 2 million yuan (US$320,179) in China. That scale of price differential has come under fire from Chinese media, and regulators last year fined a Chinese venture of Audi and the local sales unit of Fiat’s Chrysler a combined

Industry ministry bets on steel capacity growing Some analysts expect capacity to increase by only about 10 million tonnes this year Ruby Lian and David Stanway

rude steel capacity in China, the world’s top producing country, is likely to grow this year despite difficult market conditions as new projects are coming on-stream, the Ministry of Industry and Information Technology (MIIT) said yesterday. Long-standing overcapacity, slower growth in demand and tighter credit have forced many Chinese steel mills to produce at a loss or at low profitability. “Generally, oversupply in the steel sector is unlikely to improve this year, exports will drop slightly, steel prices will stay at low levels and steel mills’ profitability may not be positive,” MIIT said in a report on its website (www.miit.gov.cn). Investment in the ferrous metals smelting and processing industry fell 5.9 percent last year but remained at a relatively high level and there are still 2,037 new steel projects under construction. China’s crude steel capacity reached 1.16 billion tonnes at the

end of 2014, with its production accounting for 49.4 percent of global output, MIIT said. Despite the removal of an export rebate for boron-added steel products from this year, steel exports are expected to stay at elevated levels due to a continued supply glut at

KEY POINTS China’s crude steel capacity at 1.16 bln T 2,037 new steel projects under construction Steel exports expected to stay at high levels

US$46 million for price fixing.

Grey market China has had a grey market in auto sales for some time, centred around the northern port city of Tianjin where about half of China’s total car import deals are done. But buyers have been cautious given the lack of quality guarantee and aftersales service on unauthorised cars. That will change under the new scheme. “The main significance (of the pilot scheme) is that buyers will now be legally entitled to warranty packages,” whether their imported car comes through an authorised or unauthorised channel, said IHS Automotive analyst Namrita Chow. Analysts said it was difficult to gauge the likely impact on car prices given a lack of clarity over which models come under the parallel import scheme. In an emailed statement, Audi said its dealer network in China was “very well prepared for competition,” while BMW said it doesn’t expect any “substantial” impact on its China business. Daimler, which owns Mercedes-Benz, said it was too early to comment. Reuters

home and competitive prices, the ministry said. The China Iron & Steel Association has forecast domestic crude steel output would fall 1.1 percent to 814 million tonnes this year, after rapid expansion over the past decade, as a slowing economy has hit demand for commodities. China’s apparent steel consumption fell 4 percent to 740 million tonnes last year, and steel demand is unlikely to improve much as Beijing is shifting its economic growth model and slowing fixed asset investment. In order to minimise their risks on loans, banks have largely cut credit to Chinese steel mills since last year, leading to shutdowns and bankruptcies at some companies. The debt-to-asset ratio for large steel mills dropped 0.8 percentage points to 68.3 percent last year but was still 11 percentage points higher than in 2007 when the industry experienced a boom. Reuters

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Greater China

Economic slowdown spells trouble for migrants’ pensions China has 268 million migrant workers in total, but the situation is particularly difficult for 166 million of them that work outside their home provinces

Migrant workers contribute too much and get too little Duan Yi, labour lawyer, law firm Laowei

An increasingly aging population is increasing pensions consolidation problems

hina’s flagging economy is making it harder for Beijing to mend holes in its pension system for 166 million of the country’s migrant workers, a problem that contributed to a doubling in the number of strikes last year. Once a driver of economic growth, China’s army of migrant workers is ageing. More than 40 percent of migrants today are over 40 years old, compared to 30 percent in 2008, government data show, yet less than a sixth of them have a pension. Forcing manufacturers to start contributing more to their workers’ retirement funds now will be tough though, given that slowing growth and rising costs are already causing factory closures and layoffs. But doing nothing risks inciting more labour unrest, a central concern of Chinese leaders. The number of strikes in 2014 rose to 1,378 compared to 656 the

year before, according to Hong Kong advocacy group China Labour Bulletin. Some of that growth was due to migrant workers protesting over their pension arrangements, an issue that rarely caused strikes until last year. Beijing - and local governments - are partly to blame for the pension shortfall. Factory auditors say officials in export regions rarely demanded full social insurance contributions from companies as they want to keep them investing in their province. During the 2008 financial crisis, the central government made this official, allowing struggling companies to delay social insurance contributions for their staff for “no longer than six months”, according to a document dated December 22, 2008 posted on the Ministry of Human Resources and Social Security’s website. That policy was formalised in 2011 when China’s social insurance

law came into effect and allowed companies to delay paying their contributions if they had permission from the local authorities. Provincial government websites in Guangdong, Guangxi, Shanxi and Sichuan all indicate companies are allowed to postpone social insurance payments.

Investment competition Employers in China are required to pay into the national pension plan on behalf of their staff - typically around 20 percent of an employee’s wage and employees chip in another 8-10 percent. Employees must contribute for 15 years to become eligible for benefits. The statutory retirement age for corporate employees in China is 50 for women and 60 for men. Chris King Chi Chan, associate professor of sociology at the City University of Hong Kong who

researches labour and civil society in China, says the government’s efforts to lighten the burden on companies is due to the intense competition among regions to attract investment. Workers have not made the complicity of government a focus of their protests. But coverage in state media of the social insurance law has educated workers. Lawyers and labour activists say the slowing economy has coincided with the first generation of migrant workers hitting retirement age. Now many of these workers are discovering that despite decades of work, their pensions are meagre and opportunities for re-employment scarce. The system is “very unfair to the first generation of migrant workers,” says Shenzhen worker Peng, whose employer only started making contributions to her pension 13 years ago, meaning she will have to top it up by about 1100 yuan (US$176) a month for around two years. Under Chinese law, while migrant workers can transfer their personal pension contributions between provinces, only 12 percent of the larger employer contribution is transferred. Some experts have called for migrants to be able to keep the full employer contribution. Manufacturers aren’t happy, either. With labour costs rising at least 25 percent every year, many Hong Kong manufacturers in Guangdong have fallen on hard times, says Stanley Lau, chairman of the Federation of Hong Kong Industries, a 3,000-member business lobby. A factory laying off workers might be able to negotiate with local officials over the timeline for paying wages and benefits they owe their staff. But once a factory decides to close, officials stop negotiating, Lau says. Reuters

Taiwan consumer prices shrink The wholesale price index fell 7.57 percent on year, also its biggest drop since 2009

onsumer and wholesale prices in Taiwan posted their biggest fall in more than five years in January but economists said there was no danger of the island slipping into deflation as the drop was mainly due to plunging world oil prices and a lower base, rather than a broad-based slump in demand. The consumer price index (CPI) fell 0.94 percent in January from a year earlier, the statistics agency said yesterday, well below forecasts in a Reuters poll for a rise of 0.36 percent and a reading of 0.61 percent in December. On a monthly seasonallyadjusted basis, the CPI fell 0.84 percent from December. The statistics agency

attributed the contraction to lower oil prices, rebates of electricity prices and a higher base of comparison with last year, when the Lunar New Year holiday fell in late January. The holiday this year falls in mid-February. Janaury core CPI, which excludes more volatile food and fuel costs, rose 0.64 percent from a year earlier, following a gain of 1.38 percent in December. The wholesale price index fell 7.57 percent on year, also its biggest drop since 2009. “Taiwan’s CPI will remain at lower level for at least the first half of this year,” said Tony Phoo, an economist of Standard Chartered in Taipei. “However, the government will soon implement policy

The government will soon implement policy measures, such as hikes of taxi fares and national health insurance fees, to prevent deflation Tony Phoo, economist, Standard Chartered

measures, such as hikes of taxi fares and national health insurance fees, to prevent deflation. Most of all, we don’t expect oil prices to fall below the US$50 level again,” he said. Taiwan’s export-driven economy grew 3.51 percent

in 2014, its fastest pace in three years, fuelled by global demand for smartphones from Apple and other technology goods, but there are risks that growth this year could be undermined by slowdowns in Europe and mainland China. Reuters

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Asia

Indonesian growth at 5-year low Eyes will now be on Widodo pledge of putting the economy back on track by cutting red tape and improving infrastructure Sam Reeves

Widodo’s team on its victory day

ndonesia’s economy expanded at its slowest pace for five years in 2014, official data showed yesterday, hit by political uncertainty and weak exports, putting pressure on the country’s new president to deliver much-needed reforms. Southeast Asia’s biggest economy expanded 5.01 percent year-on-year, the statistics agency said, down from 5.8 percent in 2013, and the weakest pace since 2009, at the height of the global financial crisis. The figures “help to underline the challenge facing the country’s new president, Joko Widodo, who despite a promising first few months in office faces a tough challenge”, said Gareth Leather, Asia

economist from Capital Economics. Indonesia’s economy, long a bright spot among the Group of 20, has been slowing in recent years as the price of its key commodity exports are hit by weakening demand in regional powerhouse China and other major markets. With exports subdued, there were also worries about a stubborn current account deficit and the impact of high interest rates put in place to shore up the rupiah, which has tumbled against the dollar in expectations of tighter US monetary policy. The economy was also dragged by a long-running presidential election, which took six months and two polls

and led many firms to hold off investment until a successor was know. Eyes will now be on Widodo, a reformist and former businessman who won the presidency on a platform of putting the economy back on track by cutting red tape and improving infrastructure. The former governor of Jakarta wasted little time in cutting huge fuel subsidies -- long seen as a weight on growth -- saving billions of dollars, which he has pledged to divert to improving ageing roads, ports and railways.

Bold reforms He increased the price of petrol and diesel by more than

From fiscal rationalisation, involving bold subsidy cuts to infrastructure build-up, as well as measures to pull in more (foreign direct investment), these take time to bear fruit but will ultimately put the economy on a more even keel Wellian Wiranto, economist, OCBC Bank

30 percent in November. A month later, buoyed by huge falls in global oil prices, he cut the subsidy for petrol entirely. The leader is also seeking to make life easier for

investors, and this month launched a national “onestop service” for business permits. Previously, firms often had to seek licences from numerous different agencies and ministries before they could invest, a complex and time-consuming process. His government has also pledged to plough money into the manufacturing sector, as it seeks to transform the commodity-dependent economy. Nevertheless, observers point out that huge challenges remain, not least the endemic corruption and vested interests that have in the past hampered attempts at reform in Indonesia. Wellian Wiranto, an economist from OCBC Bank in Singapore, said the 2014 growth figure looked like “quite a deceleration” compared to previous years and it would be hard for Indonesia to reach rates of above six percent this year. But he was positive about future prospects. Before yesterday’s data, the statistics agency had updated its base year for GDP calculations from 2000 to 2010, which they said could lead to a small difference in the final figure. AFP

Easing proponent Harada to join Bank of Japan board The appointment is unlikely to trigger an immediate shift in policy Tetsushi Kajimoto and Leika Kihara

he Japanese government yesterday nominated an academic known as an advocate of aggressive monetary easing to join the central bank’s divided policy board, tipping it more in favour of Governor Haruhiko Kuroda’s push for radical stimulus. But the nominee, 64-year-old Yutaka Harada, has told Reuters the BOJ does not necessarily need to persist with its 2 percent inflation target, a view that contradicts the mainstream view of the BOJ and may complicate debate within the board. Harada, a Waseda University professor, will replace Ryuzo Miyao, also an academic, whose five-year term ends in March. “Harada is regarded as a reflationist who seeks to extricate Japan from deflation by boosting the economy through bold monetary policy,” said Kyohei Morita, chief Japan economist at Barclays Capital. Markets have focused on who

KEY POINTS Harada to replace policy dove Miyao Seen as advocate of aggressive monetary easing Harada seen as not insistent on 2 pct target Another vacancy in June may boost Kuroda’s grip of board

would succeed Miyao, who swung the board narrowly in favour of October’s surprise monetary easing that was decided by a 5-4 vote. The close vote has given greater significance to the board’s composition, as it suggested the

difficulty Kuroda might face should he want to ease further. Kuroda may have a stronger grip of the board with the addition of Harada, who wrote a book on how bold monetary easing can beat deflation with BOJ deputy governor Kikuo Iwata. The government will have another chance to shift the board’s balance in favour of Kuroda when the term of Yoshihisa Morimoto, who voted against the October easing, expires in June. For now, Harada’s appointment is unlikely to trigger an immediate shift in policy. Sources told Reuters that the BOJ has put policy on hold and found backing for its waitand-see stance from Prime Minister Shinzo Abe’s advisers. Harada told Reuters in an interview in January that the focus of monetary policy should be on stimulating the economy rather than achieving an inflation target, which should be considered only as

a means for reflating growth. “I think it’s okay even if the BOJ doesn’t achieve 2 percent inflation in fiscal 2015. It’s important, instead, to guide policy so that the economy can continue to grow around 2 percent,” Harada said in the interview. The BOJ is caught in a bind, nearly two years into its stimulus experiment, as it further qualifies its inflation goals in response to tumbling oil prices, a move that could prove self-defeating by tempering price expectations. Koya Miyamae, senior economist at SMBC Nikko Securities, said Harada may pave the way for the BOJ to make its price target and its time-frame more ambiguous. The nomination must be approved by both houses of parliament to take effect, which is seen as a near certainty as Abe’s ruling coalition holds a strong majority in both chambers. Reuters

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Asia POSCO keeps spending target The firm yesterday kept its 2015 spending target largely unchanged at 2.9 trillion won (US$2.66 billion) from 3 trillion won on a parent basis last year as the world’s sixth largest steelmaker expects Chinese demand to remain sluggish. Steel prices are hovering at their lowest in a decade, as China, the world’s biggest producer and consumer of the alloy, faces weak demand. The market is also flush with steel from local producers. With the outlook for China unlikely to improve soon, POSCO has been trying to restructure its affiliates.

NAB posts 6 pct rise

National Australia Bank posted a 6 percent gain in first-quarter cash profit as record low interest rates helped loan revenues nudge higher and after booking a small gain on sale of part of its UK commercial property loans. Australia’s economy has slowed as a decade-long commodities price boom unwinds, but bank profits have mostly continued to grow thanks to rises in mortgage lending and a tight rein on costs. NAB has underperformed its rivals, however, due to problems with its UK business.

McDonald’s Japan posts loss The Japanese unit of McDonald’s Corp posted its first annual operating loss since going public in 2001 with sales battered by a food safety scandal and a shortage of french fries. McDonald’s Holdings Co (Japan), which operates the fast food chain’s second-largest restaurant network in the world, did not give an earnings forecast for the current business year but said it hoped to issue one in the first quarter. In a country where consumers are highly attuned to food quality issues, analysts have said they do not expect a quick turnaround for the company.

Aussie see Pacific deal close Australian Trade Minister Andrew Robb said an ambitious Pacific trade pact could be reached within weeks after years of contentious negotiations. The Trans-Pacific Partnership (TPP) trade agreement includes 12 countries covering 40 percent of the world economy, among them the United States and Japan. Last month, U.S. Trade Representative Michael Froman official told lawmakers the deal could be wrapped up within months. A small number of issues remained to be worked out, Robb said without giving details, but there was a strong appetite to conclude a deal.

Australian retail volumes surge Lower interest rates and falling petrol prices should give consumers the wherewithal to keep shopping Wayne Cole

ustralian retail sales rose only modestly in December but widespread softness in prices meant volumes for the whole fourth quarter surged by the most in almost two years, delivering a much-needed fillip to economic growth. A sustained pick up in consumption is desperately needed to offset the deepening drag from falling export earnings and a downturn in mining investment. That was a major reason the Reserve Bank of Australia (RBA) cut interest rates to a record low of 2.25 percent this week, and why markets continue to hanker for yet more easing. Thursday’s data from the Australian Bureau of Statistics showed retail sales rose 0.2 percent in December, from November when they had edged up by only 0.1 percent. The result was short of forecasts but was more than balanced by a healthy 1.5 percent jump in inflation-adjusted sales for the fourth quarter to a record A$69.2 billion (US$53.7 billion). The outsized gain in volumes came courtesy of a complete lack of pricing pressure, with retail inflation in the

Aussies return to the shops

quarter essentially non-existent. Demand was especially strong for household goods where sales volumes surged 5.5 percent in the quarter amid a rush to furnish new homes or renovate existing ones. Three of the major banks have all passed the RBA cut on in full, lowering the standard variable mortgage rate

to four-decade lows around 5.65 percent. Borrowers with a A$300,000 loan should now save around A$750 a year in payments. That came on top of a huge fall in petrol prices in recent months which was already acting as a form of easing by leaving households with more of their cash.

Malaysia’s 2014 trade surplus widens Local currency has underperformed compared with Asian peers as a result of the deterioration in the country’s external balances

alaysia’s export growth rose to 2.7 percent in December from a year earlier, as its monthly trade surplus shrank to 9.2 billion ringgit (US$2.58 billion), government data showed yesterday, as the Southeast Asian economy was hit by falling world prices for its oil, gas and commodity exports. For the full year, Malaysia posted a surplus of 83.11 billion ringgit (US$23.26 billion), up 16.6 percent from 2013, with higher demand for manufactured products helping exports to grow 6.4 percent in 2014, while imports grew 5.4 percent. The trade ministry said it expected the trade surplus to increase by 2-3 percent in 2015 and expected export growth of the same magnitude. The smaller trade surplus in December was expected after the November surplus came in at a threeyear high of 11.13 billion ringgit. Export growth was still more than expected in December. The median forecast from a Reuters poll of analysts

was for exports to grow 1.0 percent, and for a trade surplus of 9.00 billion ringgit. “There are some positives in non commodities exports - machinery and chemicals and food exports did quite well,” Jeff Ng, economist with Standard Chartered in Singapore. “The general concern is that energy exports continue to contract.” Ng said the trade data reflected weak external demand and the negative impact of weak oil prices, but he said the second half of this year could improve. Malaysia’s ringgit currency has underperformed compared with Asian peers as a result of the deterioration in the country’s external balances and pressure on its fiscal deficit due to the slump in oil and gas earnings. Michael Wan, an economist at Credit Suisse in Singapore, said Malaysia had still to feel the full impact of the oil price slump on its exports of liquefied natural gas. “On the imports, capital and consumption goods drove the

KEY POINTS Dec imports up 4.2 pct y/y vs 2.05 pct f’cast Trade surplus 9.2 bln rgt vs f’cast 9.00 bln rgt surplus Trade surplus rises 16.6 pct in 2014 to 83.11 bln ringgit ($23.3 bln) increase. There’s a frontloading of consumption,” Wan said, adding that Malaysians were buying ahead of the introduction of a general sales tax in April. Exports to China, Malaysia’s largest trade partner, fell 4.8 percent in 2014. Exports to the United States rose 11 pct and exports to India rose 23.9 pct. Reuters

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Asia Thai consumer confidence index slips A 20 percent fall in petrol prices combined with 50 basis points of rate cuts, together represents a 1.4 percentage point boost to 2015 income growth, worth over 1.5 percentage points of 2014’s consumption Scott Haslem, chief economist, UBS

Ratings agency Fitch estimates households would save around A$761 a year if petrol prices stayed at current levels, equivalent to a 35 basis-point cut in mortgage rates on the average loan balance of A$210,625. Scott Haslem, chief economist at UBS, suspects the RBA will cut by a further quarter point in March. If so, the total reduction in household debt payments would amount to around A$8.5 billion for all of 2015. Reuters

The Bank of Thailand predicts 2014 growth of 0.8 percent and the International Monetary Fund sees 0.5 percent

onsumer confidence in Thailand fell in January from an 18-month high, a university survey showed yesterday, as worries about the global and domestic economy offset benefits from lower gasoline prices. The consumer confidence index of the University of the Thai Chamber of Commerce slipped to 80.4 last month from 81.1 in December. Reduced retail gasoline prices lowered living costs, which encouraged consumer purchases, but lower prices for commodities that Thailand produces, rubber and rice, hurt demand. “The bustling new year period is gone and purchasing power from the provinces disappeared as falling prices of commodities have started to sap consumption,” Thanavath Phonvichai, an economics professor at the university, told reporters. He said the economy “has recovered slowly and people are not confident that it will really make a comeback”, as rice and rubber prices are likely to stay low. “How fast consumption will improve depends on government disbursement to boost the economy at a time exports and tourism have yet to fully recover,” Thanavath added.

Thailand’s main exports have been affected by low prices

With exports and domestic demand weak, Southeast Asia’s second-largest economy grew only 0.2 percent in the first nine months of 2014 from 2013.

Rate cut coming? Consumption, which accounts for half of the economy, has been crimped by high household debt, one reason the Bank of Thailand (BOT) has held its policy interest rate at 2 percent since March. With consumer prices falling and economic growth weak, some analysts

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expect the BOT to cut the rate at its March 11 meeting. But the BOT said on Tuesday it had no plans to adjust monetary policy despite the first annual decline in consumer prices in more than five years in January. The headline consumer price index fell 0.41 percent. The university’s confidence index began declining months before Thailand entered a period of political turmoil in late 2013. Through April 2014, it fell 13 consecutive months. Reuters

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February 6, 2015

International Siemens plans 7,400 job cuts Siemens AG plans to cut about 7,400 jobs worldwide as Chief Executive Officer Joe Kaeser tries to reduce costs at Europe’s biggest engineering company, said a person familiar with the matter. The cuts, representing about 2 percent of Siemens’s global workforce, may be announced as early as this week, two people said, asking not to be identified as the plan is not public yet. About 3,300 of the job reductions may affect Siemens’s German operations, two people familiar with the matter said. A Siemens representative declined to comment.

Merkel and Hollande visit Russia and Ukraine German Chancellor Angela Merkel and French President Francois Hollande will travel to Ukraine and Russia to seek a way to defuse escalating violence in eastern Ukraine. Merkel and Hollande met Ukrainian President Petro Poroshenko in Kiev yesterday and will meet Russian President Vladimir Putin in Moscow today, both governments said. Merkel and Hollande are “stepping up efforts toward a peaceful resolution” of the conflict “in the context of the escalation of violence in recent days,” Merkel’s chief spokesman, Steffen Seibert, said in an e-mailed statement.

World food prices extend fall Global food prices fell in January, continuing an almost uninterrupted decline since last April due to ample global supplies of most main food groups, the United Nations food agency said yesterday. The Food and Agriculture Organisation’s (FAO) price index, which measures monthly price changes for a basket of cereals, oilseeds, dairy products, meat and sugar, averaged 182.7 points in January, 3.6 points below its revised reading for December. The index has now dropped every month since April 2014, barring a short-lived respite in October, FAO said.

France struggles for climate deal A global deal to curb carbon emissions must recognise each country’s right to develop, France’s foreign minister said in New Delhi yesterday, as the host of this year’s U.N. climate change talks seeks to win India’s backing for a global deal. Laurent Fabius said that efforts to reach an agreement, which is due at the United Nations summit in Paris in December, would fail if any country believed it would hurt their economic prospects. India, the world’s third-largest emitter of greenhouse gases, often acts as the voice of the developing world in climate change talks, and winning its support is seen as crucial if countries are to reach a deal.

Ukrainian sees 2015 inflation at 17.2 pct Ukraine’s central bank forecast yesterday that consumer price inflation this year would be 17.2 percent and warned that inflationary and devaluation risks would continue in the near term. In December of last year annual inflation was 24.9 percent. Representatives of the central bank told a news conference the bank was raising its overnight refinancing rate to 23 percent from 17.5 percent as of February 6. They said they estimate 2014 contraction in gross domestic product growth at 6.7 percent.

Oil majors fail to find reserves to counter falling output The ability of oil companies to replace reserves has not been as much of a concern for some executives and investors in recent years due to the shale oil boom Tom Bergin and Ron Bousso

ig oil companies had a poor record of finding and producing oil and gas last year, according to figures out in the past week - and big cuts in spending in response to falling crude prices could undermine their plans to turn that around. Four of the world’s six biggest oil firms by market value - Royal Dutch Shell, Chevron, BP and ConocoPhillips - released provisional figures showing together they replaced only two-thirds of the hydrocarbons they extracted in 2014 with new reserves. Combined, those four and industry leader Exxon Mobil posted an average drop in oil and gas production of 3.25 percent last year. All predict their output will increase and new reserves will be added in coming years. But the 2014 results echo longer-term trends. Over the past decade, the biggest Western oil companies have seen reserves growth stall, production drop 15 percent and profits fall by almost a fifth - even as oil prices almost doubled, a Reuters analysis of corporate filings shows. Analysts and industry executives have blamed the sector’s anaemic performance in that period, in part, on companies’ approach to spending on new fields and infrastructure, tending to ramp it up when oil prices rise and cut when prices plummet, such as in the late 1990s and after the 2008 financial crisis. The latest collapse has seen prices halve since June. In recent months, the biggest oil groups on both sides of the Atlantic have announced sharp

cuts in capital expenditure (capex) out as far as 2017, as they seek to preserve cash to maintain dividends. Investors have largely welcomed the focus on dividends. But some say the cuts could come back to bite the industry. But the high cost of extracting shale oil makes doing so profitably a challenge where prices are low making traditional and less expensive reserves more relevant in a downturn.

Lost opportunities BP and Chevron have announced around 13 percent cuts in capex for 2015, while ConocoPhillips last week upped its planned reductions in spending for 2015 to 33 percent. Shell and Exxon have not issued budget plans yet. Oil executives play down worries

A UK lobby group says traders need qualification

about the sector’s fundamental health. They say lower production reflects an increased focus on returns, rather than output for its own sake, while falling reserves figures can be misleading. However, even executives accept that excessive pruning of investments can cost them barrels and profits in the long term. Shell has shelved projects and put off US$15 billion of spending it might have committed to over the next three years. Analysts at Jefferies predict Exxon will announce a 13 percent drop in capex when it presents its strategy plans in March. Martijn Rats, head of oil companies research at Morgan Stanley in London, said in a research note this week that overly aggressive cuts could have long-term repercussions. Reuters

The British government initiated a review of how to clean up the industry

Steve Slater and Matt Scuffham

housands of bond, currency and commodities traders in London should have to pass an exam and obtain a new qualification to trade as part of attempts to raise standards, Britain’s bank lobby group said. The British Bankers’ Association (BBA) said a “licence to trade” qualification and tougher codes of conduct should be introduced to strengthen trust in financial markets after a series of damaging scandals. The BBA said everyone involved in FICC (fixed income, currencies and commodities) markets should be required to pass exams and be professionally qualified, although the qualification wouldn’t need to be the same for all markets. “This is a once in a generation chance to clean up financial markets -- we must seize it,” BBA Chairman Anthony Browne said in the group’s response to the Bank

of England and UK government’s Fair and Effective Market Review. The government initiated a review of how to clean up the industry after Britain’s banks were caught up in a series of trading scandals. “Restoring trust to financial markets is hugely important to the banking industry in the UK,” said Browne. The BBA said proposals to increase individual accountability for senior managers should be extended to include all market participants, excluding those in retail banking. Bank of England Deputy Governor Minouche Shafik has said tougher rules may be needed to stop the “anything goes” attitude of traders uncovered in recent investigations. . Shafik said last month the review would look at how to give teeth to industry codes of conduct, such as by making them mandatory.

The review is due to make recommendations in June and likely to focus on bolstering codes, as much of the legislative work is already in the pipeline at the European Union level. Reuters

KEY POINTS FICC traders would be required to hold qualification BBA also backs extension of accountability regime BBA says review a ‘once-in-alifetime’ opportunity

Business Daily | 15

February 6, 2015

Opinion Business

wires

Two cheers for the new normal

Leading reports from Asia’s best business newspapers Jim O’Neill

Honorary Professor of Economics at Manchester University

THE PHNOM PENH POST Speaking at the inaugural World Conference on Tourism and Culture in Siem Reap yesterday, Prime Minister Hun Sen praised the tourism sector’s role in boosting Cambodia’s economic growth and reducing poverty. Tourism injected US$3 billion into Cambodia’s economy last year, a figure Hun Sen predicted would rise to US$5 billion by 2020. He added that the estimated 600,000 Cambodians who earn a living off the tourism industry today would increase to 800,000 by 2020. Cambodia received 4.5 million international tourists last year.

THE TIMES OF INDIA Days ahead of the Budget, Reserve Bank governor Raghuram Rajan pitched for increasing the tax exemption limit on financial investments by individuals from Rs 1.5 lakh a year. “Remember the government increased the limit for tax benefit in savings by Rs 50,000 in the last Budget. The question is - is there room for more primarily because the real tax benefit has fallen over time because the limit was at Rs 1 lakh for a long time? Maybe what we have to do is increase that,” Rajan said on a call with analysts.

THE ASAHI SHIMBUN Sony Corp. trimmed its forecast of losses and estimates the Sony Pictures hack cost it about US$15 million, but expects no significant harm from the cyber attack in the long run. Sony also issued new earnings forecasts for the fiscal year ending in March and said it was benefiting from strong sales of the PlayStation 4, other devices and network services. The hack became public in December when the Hollywood studio’s computers were crippled and sensitive documents were posted online. The company … expects a loss of 170 billion yen (US$1.4 billion) for the fiscal year.

THE JAKARTA GLOBE Local e-commerce website Bukalapak.com, aims to multiply visitor numbers and transaction values by eightfold in 2015, on the back of growing online economy in the country. “Our target in 2015 is an eightfold increase in visitors to 10 million and Rp 8 trillion [US$79 million] in transactions,” Bukalapak chief executive Achmad Zaky told reporters on Wednesday. “With the lack of massive marketing strategy we see a greater potential with our website.” The website booked Rp 1 trillion in transactions last year.

he conventional wisdom about the state of the world economy goes something like this: Since the start of the 2007-2008 financial crisis, the developed world has struggled to recover, with only the United States able to adjust. Emerging countries have fared better, but they, too, have started to flounder lately. In a bleak economic climate, the argument goes, the only winners have been the wealthy, resulting in skyrocketing inequality. That scenario sounds entirely right – until, on closer examination, it turns out to be completely wrong. Start with economic growth. According to the International Monetary Fund, during the first decade of this century, annual global growth averaged 3.7%, compared to 3.3% in the 1980s and 1990s. In the last four years, growth has averaged 3.4%. This is far lower than what many had hoped; in 2010, I predicted that in the coming decade, the world could grow at a 4.1% annual rate. But 3.4% is hardly disastrous by historical standards. To be sure, all of the large, developed economies are growing more slowly than they did when their economic engines were roaring. But it is only the eurozone that has badly disappointed in recent years. I had assumed, when I made my projections in 2010, that the region’s poor demographics and weak productivity would prevent it from growing at more than 1.5% a year. Instead, it has

managed only a meagre 0.3%. For Japan, the US, and the United Kingdom, the prospects are brighter. It should be relatively straightforward for them to grow at an average rate that outpaces that of the last decade – a period that includes the peak of the financial crisis. In addition, the dramatic drop in the price of crude oil will serve as the equivalent of a large tax cut for consumers. Indeed, I am rather baffled by the IMF’s decision to downgrade its growth forecast for much of the world. If anything, with oil prices falling, an upward revision seems warranted. Another factor supporting a more positive outlook is the rebalancing that has occurred between the US and China, the world’s two largest economies. Each entered the financial crisis with huge current-account imbalances. The US was running a deficit of more than 6.5% of its GDP, and China had a surplus of close to 10% of its GDP. Today, the US deficit has fallen to about 2%, and the Chinese surplus is less than 3%. Given that their intertwined imbalances were key drivers of the financial crisis, this is a welcome development. It has recently become fashionable to disparage the economic performance of the large emerging countries, particularly China and the other BRIC economies (Brazil, Russia, and India). But it is hardly a surprise that these countries are no longer growing as fast as they once did. In 2010, I predicted that China’s annual growth would slow to 7.5%. It

Since 2000 the BRICs have been responsible for nearly a third of the rise in nominal global GDP

has since averaged 8%. India’s performance has been more discouraging, though growth has picked up since early 2014. The only real disappointments are Brazil and Russia, both of which have struggled (again, not surprisingly) with much lower commodity prices. Their lethargic performance, together with the eurozone’s, is the main reason why the world economy has not managed the 4.1% growth that optimists like me thought was feasible. The conventional wisdom on wealth and inequality is similarly mistaken. From 2000 to 2014, global GDP more than doubled, from US$31.8 trillion to over

US$75 trillion. Over the same period, China’s nominal GDP soared from US$1.2 trillion to more than US$10 trillion – growing at more than four times the global rate. In 2000, the BRIC economies’ combined size was about a quarter of US GDP. Today, they have nearly caught up, with a combined GDP of more than US$16 trillion, just short of America’s US$17.4 trillion. Indeed, since 2000, the BRICs have been responsible for nearly a third of the rise in nominal global GDP. And other emerging countries have performed similarly well. Nigeria’s economy has grown 11-fold since 2000, and Indonesia’s has more than quintupled. Since 2008, these two developing giants have contributed more to global GDP growth than the EU has. Statistics like these utterly disprove the idea that global inequality is growing. Gaps in income and wealth may be shooting up within individual countries, but per capita income in developing countries is rising much faster than in the advanced economies. Indeed, that is why one of the key targets of the United Nations Millennium Development Goals – to halve the number of people living in absolute poverty – was achieved five years ahead of the deadline. None of this is meant to deny that we are living in challenging and uncertain times. But one thing is clear: economically, at least, the world is continuing to become a better place. Project Syndicate

16 | Business Daily

February 6, 2015

Closing Sri Lanka gives green light to Chinese port project

Japanese Prime Minister eyes constitutional revision

Sri Lanka’s government yesterday approved a US$1.4 billion port city project earmarked as the largest Chinese investment project in the country to date, an official said. Cabinet spokesman and Health Minister Dr. Rajitha Senarathne told reporters that the project, which was being reassessed for its environmental feasibility by the new government, had received approval. “We are satisfied with the environmental feasibility study done by a local university. We may require a second feasibility for the second phase of construction but there is more time to get that done. So Cabinet has approved the project to continue,” he said.

Shinzo Abe (pictured) said it is reasonable to amend the country’s constitution after the upper house election scheduled for the summer of 2016, local media reported yesterday. According to Japan’s Asahi Shimbun, Abe expressed his view when he talked with Hajime Funada, chairman of the ruling Liberal Democratic Party (LDP), for the promotion of revision to the constitution. During the talks, Funada said “Considering the pace of discussions, I think the initiation (of amendments) and a national referendum will take place after the House of Councillors election. “ Abe said “it is a reasonable timing”, according to the report.

Will they, won’t they? Analysts split on PBOC rate cut by March

s China’s leaders prepare for an annual gathering of the nation’s legislature, they must make a choice: help growth by making it cheaper to borrow, or keep stimulus limited for fear of exacerbating credit risks. Economists are split on what the immediate answer will be. Ten of 22 surveyed by Bloomberg since Wednesday’s cut to banks’ required reserve ratios forecast the People’s Bank of China will lower lending rates in the next eight weeks, while 12 see no change. Just four see another RRR cut this quarter. Most forecast lower borrowing costs and bank reserves by mid year. The PBOC’s challenge is to prevent economic growth from sliding below 7 percent without restarting the credit engine that fuelled bad-loan risks to developers and local governments. Those forecasting an imminent rate cut point to deflation pressures, deteriorating growth, capital outflows, and the PBOC stirring into action mode. “We expect further moves in the coming months, as Chinese policymakers often ease along multiple dimensions simultaneously,” Goldman Sachs Group Inc. economists led by Song Yu wrote in a note. By contrast, Tao Dong, chief regional economist for Asia excluding Japan at Credit Suisse Group AG in Hong Kong, said Wednesday’s RRR cut reduces the likelihood of an interest rate move in the near future.

A look through the PBOC’s past playbook should encourage those forecasting more stimulus surprise interest-rate cut, forecasts rate reductions this quarter and next.

‘Blunt tool’

“The PBOC doesn’t really want to cut reserve ratios or cut interest rates,” he said. “The PBOC thinks the problem doesn’t lie with it, it lies with the banks. The bigger problem is the economy needs organic growth, and that growth can’t be stimulated by the monetary policy hormone.”

Capital outflows Weighed down by a property slump and overcapacity, China saw the biggest outflow of capital since at

least 1998 last quarter. With money flowing out, the reserve-ratio cut is in part aimed at offsetting that drain. Analysts expect lowering lenders’ reserve ratio by 50 basis points could inject about 600 billion yuan (US$96 billion) into the economy. Even a 19.5 percent reserve requirement means about 22 trillion yuan is still locked up. China’s deposits totalled 114 trillion yuan at the end of last year. Chang Jian, chief China economist at Barclays in Hong Kong who correctly predicted November’s

Rapid growth of African banks may pose risks

Singapore plans aircraft tracking system

he International Monetary Fund (IMF) said yesterday that the expansion of pan-African banks has posed some regulatory challenges that, if not addressed, may increase spill over risks. IMF said in its report that expansion of crossborder banking in Africa in recent years is benefiting financial development but supervision of it is constrained in some countries. An IMF report notes that pan-African banks have a systemic presence in around 36 countries and are now more important than the continent’s long-established European and American banks. According to the report, there has been a rapid expansion of pan-African banks (PABs) in recent years, with seven major PABs having a presence in at least ten African countries. Three of them are headquartered in Morocco, two in Togo, and one each in Nigeria and South Africa. Additional banks have a regional presence with operations in at least five countries. The PABs are now much more important in Africa than the long- established European and American banks, IMF said. Xinhua

An RRR cut “is generally viewed as the most blunt tool in the monetary policy tool box,” said Goldman’s Yu. Unlike its biggest peers, the PBOC has plenty more ammunition. The one-year lending rate is 5.6 percent -- a long way from the zero bound that forced the Federal Reserve, Bank of Japan and European Central Bank into quantitative easing. The question is whether the PBOC is about to head down the same easing path and end up with the same results. “Monetary policy can only go so far,” Credit Suisse’s Dong said. “If you don’t believe that, ask the ECB chairman, ask the BOJ governor. Monetary policies can’t replace fiscal policies, let alone structural reforms.” An option for the PBOC may be to use the exchange rate, which has come under pressure from the outflow of capital. So far, China has been among the few nations facing weaker growth to refrain from explicitly or implicitly tipping its currency lower and historically has refrained from such a move during global slowdowns. The last two easing cycles both saw three cuts in reserve requirements for major banks, moves often accompanied by lower interest rates. Bloomberg News

Alibaba’s Ant Financial enters India

ingapore said yesterday it will introduce a new aircraft tracking system that will ensure complete surveillance of its airspace, amid global efforts to prevent a repeat of Flight MH370’s inexplicable disappearance. The automatic dependent surveillance-broadcast (ADS-B) system will be deployed in the city-state’s airspace and uses satellites to monitor all flights in real-time, the Civil Aviation Authority of Singapore (CAAS) said in a joint statement with US-partner Aireon LLC. The disappearance of Malaysia Airlines Flight MH370 on March 8, 2014 en route from Kuala Lumpur to Beijing has prompted an industry-wide rethink of the way planes are tracked. The aircraft, with 239 people on board, has never been found and is ones of aviation’s greatest mysteries. On Wednesday, an international aviation summit in Montreal gave strong backing to plans to monitor flights in distress in real-time, making it easier to pinpoint the location of planes lost at sea. Airlines will also be required to track their aircraft at 15-minute intervals.

nt Financial Services Group, an affiliate of China’s Alibaba Group Holding Ltd, has agreed to buy 25 percent of Indian payment services provider One97 Communications, tapping into the country’s smartphone and online industry boom. The companies did not provide the value of the deal, but a person with knowledge of the matter called the investment a precursor to One97 listing on the stock exchange, and said the stake was worth more than US$500 million. The deal values One97 at more than US$2 billion, making it one of the most-valuable start ups in the country. One97 runs Paytm, an online platform through which users can shop or pay utility bills, whereas Ant runs Paytm’s Chinese peer Alipay. Alibaba spokeswoman Teresa Li and One97 founder Vijay Shekhar Sharma declined to disclose the value. Sharma told Reuters that Ant would buy new shares in his company. Paytm has benefited from the spread of affordable handsets and internet connectivity.

AFP

Reuters