Macau Business Daily, Feb 11, 2015

Chinese New Year is just around the corner. With a 7-day Golden Week raising expectations of a bumper Gross Gaming Revenue. But it’s the rest of February that worries analysts.

Everyone’s braced for a Y-O-Y drop; it’s just a matter of how much.

Research equity firm JL Warren Capital says Macau will take a 46 pct hit in the pocket. Largely because VIP gamblers are sidestepping the territory. ‘Mainland VIPs consider Macau too ‘sensitive’ . . . Today, many VIPs are asking agencies to take them to fresher destinations, such as London, Switzerland and Manila,’ says the company

MOP 6.00 Closing editor: Joanne Kuai Year III

Number 727 Wednesday February 11, 2015

Publisher: Paulo A. Azevedo

Hopes pinned on Golden Week

PAGES 3 & 5

HSI - Movers

X Files

February 10

Name

The bank is still recovering. HSBC’s Swiss branch was mired in controversy when confidential tax records were misappropriated. And a global furore followed. Now The International Consortium of Investigative Journalists says records show that 10 of the bank’s customers lived in Macau. Collectively depositing some US$8.8 million up to 2007

PAGE 4

%Day

China Merchants Hold

3.43

Want Want China Hol

1.87

China Resources Powe

1.74

China Mengniu Dairy

1.55

Wharf Holdings Ltd/T

1.51

HSBC Holdings PLC

-1.30

Sands China Ltd

-1.31

Kunlun Energy Co Ltd

-1.38

China Overseas Land

-1.49

China Unicom Hong Ko

-2.02

Source: Bloomberg

I SSN 2226-8294

SK Paradise for Chinese

Big brand believer

Paradise Co. is South Korea’s largest operator of casinos for foreigners.

It says it will expand floor space at three of its five foreigner-only casinos. Including doubling the size of gaming areas in its casino on Jeju Island. Chinese gamblers comprise more than two-thirds of its visitors. The decision was made despite China’s crackdown on foreign casinos appealing to its citizens

Restaurants operator Future Bright has announced mixed fortunes. Unaudited operation data for 2014 reveals that the food souvenir business sustained a net loss of some HK$39.4 million. The enterprise would therefore record a ‘considerable decrease’ in profit for last year. But the company remains on track to expand its shop empire. And still believes in the power of advertising

PAGE 7

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PAGE 2

China inflation hits 5-year low

China’s annual consumer inflation hit a fiveyear low in January. While factory deflation has worsened. Underscoring deepening weakness in the economy. Pressure is mounting on policymakers to inject more stimulus to underpin growth

PAGE 8 Hong Kong Tourism Board to co-operate with Macau counterparts on multi-destination scheme PAGE 6

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2 | Business Daily

February 11, 2015

Macau Union: At least 1,000 VIP room staff fired One of the city’s activist gaming labour groups, Forefront of Macau Gaming, estimates that at least 1,000 staff working in VIP gaming rooms here have been laid off since July last year, as about one-third of the VIP rooms have ceased or suspended operations. The lay-offs under the weakening VIP gaming performance include cashiers, public relations officers, accountants, customer service officers and chauffeurs, the union’s vice-director, Lei Kuok Keong, told Business Daily. He expected that this figure will increase in the coming months due to the ongoing anti-graft policy of Beijing and tight credit environment.

Food souvenir dip drags down Future Bright’s 2014 profit But that does not stop the restaurant operator from talks on having “world famous movie characters” help advertise its food souvenir products, having heavily advertised in this segment last year Stephanie Lai

sw.lai@macaubusinessdaily.com

R

estaurant operator Future Bright Holdings Ltd. said it would record a ‘considerable decrease’ in profit for last year, primarily due to a net loss in the company’s emergent food souvenir business, the company disclosed in its unaudited operation data to the Hong Kong Stock Exchange after trading hours on Monday.

Future Bright said its food souvenir business sustained a net loss of some HK$39.4 million (US$5 million) mainly in the second half of 2014, a period when Future Bright spent about HK$28 million on advertising for its food souvenir products. ‘...during the fourth quarter, the group’s food souvenir business continued to incur additional advertising costs, new shop opening costs and continuous operating costs of other shops which then

adversely affected the group’s overall performance in that quarter,’ Future Bright said of its loss in the food souvenir business in its Monday filing.

The Hong Kong-listed restaurant operator said that although it saw a 13.1 per cent year-on-year increase in the turnover of its core business of food and catering at HK$820.2 million for last year, operating profit declined 8.3 per cent to HK$249.2 million.

Apart from a loss seen in the food souvenir business segment, Future Bright blamed the ‘exchange loss on bank deposits’ at HK$11.7 million as well as a lesser increase in the fair value gain of its investment property - the ‘Yellow House’ near St. Paul’s Ruins - as the other main factors weighing down profits last year.

The fair value gain of the ‘Yellow

House’, a six-storey commercial building located near the tourist attraction St. Paul’s Ruins, has declined by 38.3 per cent from HK$120 million in 2013 to HK$74 million last year, according to the filing.

Despite seeing the food souvenir business segment weighing down the company’s profit for last year, Future Bright is still on track to continue shop expansion and accompanying heavy advertising for its products.

The company said on Monday that it was opening a new food souvenir shop under the Yeng Kee brand in Huafa Mall in Zhuhai in ‘a few weeks’ time’; it was also ‘in close negotiation for two more world famous movie characters for short term licences of three years for the group’s food souvenir products, including cookies, cakes and biscuits.’

Currently, Future Bright has been marketing its food souvenir products via a ‘Transformers’ movie character on a short term licence.

In August 2013, the company agreed to pay 4 million patacas (US$500,000) for the trademark rights of the 80 year-plus Macau Yeng Kee Bakery in Macau and Hong Kong as the start of developing its food souvenir business.

But this emergent business segment as well as the expenses of opening four new restaurants in Huafa Mall in Zhuhai weighed down Future Bright’s gross operating profit in the fourth quarter last year.

Future Bright’s gross operating profit in the fourth quarter was about HK$44.4 million, a decrease of about 39.8 per cent as compared to the same quarter of 2013 at HK$73.7 million.

In the period, the company’s gross operating profit margin also slipped to 19.5 per cent from 36 per cent in the fourth quarter of 2013, according to the Monday filing.

Chui: SAR Gov’t to continue negotiating with LRT main contractor

C

hief Executive Chui Sai On said he had had a meeting with the Secretary for Transport and Public Works Raimundo Rosario and members of the Transport Advisory Committee yesterday morning and that consensus has been reached that the Light Rail Transit (LRT) project should continue.

Chui Sai On added that public transportation would be the main method to solve the problem of Macau’s traffic and that no effort would be spared in building the LRT; meanwhile, other solutions would be considered to solve the city’s traffic problems. He was speaking to reporters on the sidelines of a Central Government Liaison Office Spring Gala.

The Chief Executive vowed that the SAR Government would continue to negotiate with the main contractor of the LRT; if this entity failed to meet requirements, he said that as a region ruled by law the SAR would resolve the matter in accordance with the law.

With regard to the audit report released on Monday lambasting the University of Macau’s lack of competence in managing its funds, Chui Sai On said he has talked with the Secretary for Social and Cultural Affairs Alexis Tam Chon Weng, who has instructed the university to analyse the audit report and hand in a report in response. The Chief Executive said that more details would be released following further evaluation.

Business Daily | 3

February 11, 2015

Macau

GGR to continue dropping in Feb, says Lionel Leong The Secretary for Economy and Finance anticipates further declines in gaming revenue this month. Meanwhile, Liaison Office head Li Gang maintains that the continuous drop in GGR is ‘normal’ for the adjustment of the industry Kam Leong

kamleong@macaubusinessdaily.com

T

he city’s Secretary for Economy and Finance, Lionel Leong Vai Tac, said yesterday that the government forecasts that gross gaming revenue (GGR) will continue to post a yearon-year drop this month. Meanwhile, director of the Liaison Office of the central government in Macau, Li Gang, stressed one more that the continuous drop in GGR is normal given the industry is undergoing adjustment.

“The GGR of February 2015 will be lower than that of February 2014 because the GGR had reached MOP38 billion (US$) in February 2014. We estimate that the GGR [this month] will not be as high, as the 38 billion of GGR [which was the] highest record that Macau has registered,” the Secretary said on the sidelines of the Liaison Office’s Chinese New Year cocktail party yesterday, indicating that lower GGR is usually posted prior to Chinese New Year.

Meanwhile, again on the sidelines of the event, Liaison Office head Li Gang told reporters that the drop in GGR for eight consecutive months remains within expectations, believing the gaming industry will enter a normal

phase of development “very soon”.

“After ten years of rapid development, the gaming industry has entered an interim development period… In this situation, I think it’s normal that GGR has dropped for consecutive months,” Mr. Li said.

“Such adjustment is still within expectations. Despite it affecting GDP to a certain level, GDP will not post as much decrease as it did during the SARS period… [GDP] will remain in positive growth. As such,

the adjustment phase is a very good base for the stable development [of the gaming industry] in the future,” he added.

Last month, the GGR in the city slumped by 17.4 per cent, reaching only some MOP23.7 billion (US$2.96 billion), compared to the MOP28.7 billion of January 2014, which is the eighth straight month that the city had posted declines in revenues.

Meanwhile, the chief executive of gaming operator SJM Holdings Ltd.

HK-currency credit cards drop 2.4pct in 4Q14 Overall, the number of credit cards in circulation increased 10.1 per cent in the fourth quarter of last year, with the biggest increase registered in the number of patacas-currency credit cards Sara Farr

sarafarr@macaubusinessdaily.com

T

he number of credit cards in circulation in Macau totalled 830,791 in the fourth quarter of last year, a slight increase of 1.3 per cent over that of the previous quarter but a 10.1 per cent increase compared to that of the same period a year earlier.

Official figures released yesterday by the Monetary Authority of Macau (AMCM) show that while the overall number of credit cards in circulation increased those of Hong Kong dollarcurrency cards decreased both on a quarterly and yearly basis. For the three months ended December 31, 2014, the number of Hong Kong dollar-currency credit cards was 77,779. This was a 9.1 per cent drop from that of the third quarter of 2014, and a 2.4 per cent decrease compared to the same period in 2013.

While the number of Hong Kong dollar-currency credit cards dropped, that of yuan-currency credit cards increased 9.9 per cent year-on-year to 153,960 at the end of the third

quarter last year. Of these, the number of patacas-yuan dual currency credit cards also increased by 9.9 per cent year-on-year to 153,934. This figure also represents a 2.3 per cent increase over that of the third quarter of last year.

Macau banks started offering patacas-yuan dual currency credit cards in the third quarter of 2009.

These are also simultaneously referred to as pataca-cards and yuan-cards, according to the Monetary Authority.

Pataca-currency credit cards still remained the largest number in circulation at 599,052 at the end of 2014. This was also a 2.6 per cent increase over that of the previous three months and a 12 per cent increase over the fourth quarter in 2013.

Credit limit granted totalled MOP17.3 billion in the last three months of 2014, up 24 per cent year-on-year, and 5 per cent on that of the previous three months of MOP16.5 billion.

In addition, credit card receivables increased by 11.6 per cent to MOP2.2

billion in the fourth quarter of last year, while it also represented a 15.4 per cent increase over that of the previous quarter (MOP1.8 billion).

Total rollover amount reached MOP590.4 million, up 7.2 per cent from that of a year earlier. The delinquent amount of receivables overdue between three and six months (referred to as ‘delinquent amount 1’) totalled MOP9.4 million in the fourth quarter, up 10.8 per cent year-on-year, while the delinquent amount of all receivables overdue for more than three months (referred to as ‘delinquent amount 2’) totalled MOP18.3 billion, up 54 per cent yearon-year, and up 11.4 per cent compared to that of the third quarter of the year of MOP16.4 billion.

Meanwhile, credit card turnover increased 14.6 per cent year-onyear to MOP4.6 billion in the last three months of 2014, of which cash advance turnover totalled MOP214.8 million, up 19 per cent over that of the same period a year earlier.

said the future full smoking ban in casinos will not be the biggest factor driving the slump even more.

“Even if there’s no full smoking ban, the GGR of the VIP sector will continue to drop. It’s very hard to tell how much GGR will [exactly] decrease following the full smoking ban,” Mr. So remarked.

Nevertheless, the SJM chief said the government should consider allowing casinos to establish smoking rooms inside casinos, claiming that such establishments would not conflict with the full smoking ban.

“In Hong Kong or Macau International Airport, smoking rooms are available despite smoking being prohibited [outside the areas]. As such, we should respect those who smoke as they will not affect those who do not smoke,” he said.

On the other hand, the Chief Executive Officer (CEO) of MGM China, Grant Bowie, told reporters after the event that the continuous drop in GGR shows that it is time for Macau to re-balance its gaming elements and non-gaming elements, claiming the situation that the gaming industry is undergoing is “exciting” and “challenging”.

Lionel Leong: Licensing system for importers of petroleum products help understand price

S

ecretary for Economy and Finance Lionel Leong Vai Tac said yesterday that the licensing system for importers of petroleum products will help the government obtain more information on the prices of fuel and gas products so that it can analyze whether the prices of these products will have a negative impact on society.

The Secretary said that the importers of petroleum products will have to submit invoices, the cost price of the products and the quantity imported to the government following the implementation of the licensing system.

In the past, importers only had to declare to the government the prices of their fuel and gas products; Mr. Leong claimed that the government could only follow up on prices through the quantity stored by importers.

The licensing system, announced

by Chief Executive Fernando Chui Sai On on Monday, mandates that importers must obtain an import permit from the government before purchasing fuels and gas products.

K.L.

4 | Business Daily

February 11, 2015

Macau

Ten clients and US$8.8 million Stuck in the tracks related to Macau involved in Swiss Leaks scandal opinion

A major scandal involving the Swiss branch of HSBC may have repercussions on up to 10 clients living in Macau that had deposited US$8.8 million in the bank up to 2007. The data was revealed by the International Consortium of Investigative Journalists José I. Duarte Economist

The new Secretary for Public Works has inherited a raft of tough dossiers. The most visible is, possibly, the Light Rail Transit project. The current situation appears, in essence, very simple to sum up: nobody really knows when it will be operational; nobody is really able to put forward a reliable estimate concerning its final cost. The process seems to have reached the point where no-one seems to know exactly what’s going on.

The original date scheduled for the beginning of operations was 2011. By mid-2013, with work already running well behind schedule, the then Secretary declared to the press that no more delays would be tolerated!

What that meant was never really clear.

The same official reassured us, in 2014, that the government was committed to starting operations as soon as possible and that the Taipa section, at least, would start in 2016.

On past form, that is unlikely to happen.

The latest cost estimate (?!) is a multiple of the original budget. The original costing was set at 4.2 billion patacas. This, in turn, was hiked to 7.5 billion patacas in 2009, and 11 billion patacas in 2011. In September 2012, that value had jumped to 14.3 billion patacas.

It seems that no update has been made since, suggesting that we have reached the point where no-one dare offer a new estimate.

To put things in due perspective, let us point out that the Commission of Audit has produced three reports on the topic: the first in May 2011; the second in September 2012; and the third in January 2015. Reading the three Commission reports amounts to browsing a catalogue of negligence, ineptitude, ignorance, illegalities or worse.

With a modicum of seriousness, the publication of any of them would have meant resignations – voluntary or otherwise – and disciplinary, if not civil or criminal, charges against those responsible for the situation.

Apparently, no responsibilities were ever assigned and no consequences have ensued to anyone. All this saps confidence in public institutions. This does nothing to promote competence and dedication to the res publica; and it creates an environment that favours opportunism and breeds a sense of impunity – a toxic mix as far as proper governance is concerned. It is possibly high time to put an end to this state of affairs.

And now that we are at it, why not settle for a less ambitious Light Rail plan? The usefulness of the existing one was never properly demonstrated, to be sure. Perhaps we should consider dropping, at least, the Macau side of the project. Why not direct most tourists to Hengqin Island and use the rail to move them from there to the casinos, hotels and transportation nodes in Cotai and Taipa? Indemnities to pay for unfulfilled contracts – if any would actually be due under the current circumstances – would probably prove much cheaper than letting this carbuncle fester.

João Santos Filipe

jsfilipe@macaubusinessdaily.com

T

en clients and US$8.8 million (MOP70.2 million) related to Macau may be affected by the Swiss Leaks scandal, according to data revealed by the International Consortium of Investigative Journalists (ICIJ). This episode involves the Swiss banking arm of HSBC and how it allegedly helped wealthy customers dodge taxes and conceal millions of dollars of assets.

Macau ranks 155 out of 203 jurisdictions in relation to the amount of money kept in the HSBC Swiss branch. As for the number of clients, the Special Administrative Region places in 153rd position with 10 clients, which would account for 32 accounts opened between 1973 and 2002. The maximum amount of money associated with a client linked to Macau was US$2.5 million (MOP20 million). However, of the 10 clients of the HSBC Swiss branch living in Macau only two are SAR passport holders.

As for Hong Kong, the Chinese administrative region occupied 36th position with US$1.8 billion (MOP14.4 billion) in terms of amount deposited in the Swiss HSBC bank. Concerning the number of clients, it ranks 24 with 984 clients and a total of 1,498 bank accounts opened from 1969 to 2006. From these, only 89 clients are Hong Kong passport holders, including the permanent judge of the Court of Final Appeal Joseph Paul Fok

and his wife. Their bank account was closed in 2002.

Mainland China ranks 61 in money terms with US$517 million (MOP4.1 billion) and occupies 56th position with 246 clients (664 bank accounts opened from 1969 to 2006), with 69 being Mainland China passport holders. Li Xiaolin, daughter of former PRC Premier Li Peng, haswith five bank accounts under the name of Metralco Overseas S.A., a Panamaregistered company dissolved in 2012, which held US$2.48 million (MOP19.8 million).

Not surprisingly, the list is topped

by Switzerland both In terms of client numbers (11,235) and in the amount of money in the accounts (US$31.2

Corporate The return of Tromba Rija In 2007 and 2009, the Macau Tower’s 360° Café showcased a number of signature dishes by renowned Portuguese restaurant Tromba Rija. Last December, the restaurant opened Its first overseas outlet. ‘The Chinese name 皇家葡萄餚 is inspired by the family name of Elisabête and Fernando. It implies that the dishes there embody the 50 years of culinary history developed and upheld by the Real family and certainly are ‘Real’ Portuguese cuisine,’ a company statement said, adding that ‘Tromba Rija is determined to serve authentic Portuguese culinary delights with the use of the finest ingredients and traditional cooking style.’ Signature dishes include Roasted Suckling Pig, Steamed Chicken with Eggs, Lemon and Parsley, Octopus Boiled in Olive Oil and Garlic, Braised Salty Cod and Onion Gratinated with Potato Chips and Cream, Duck Rice, Steamed Baked Salty Cod in Olive Oil and Garlic.

billion / MOP249.1 billion). In total, the documents account for more than US$100 billion (MOP798.6 billion) from 106,000 clients from 203 countries.

The list of people related to the Swiss HSBC bank includes such names as the kings of Jordan, Abdullah II, and Morocco, Mohammed VI, as well as the Spanish banker Emilio Botín, who passed away last year and controlled Santander Bank. Australian media tycoon Kerry Packer, who died in 2005 and was the father of Melco Crown Entertainment Limited’s Co-chairman James Packer, is also mentioned.

The data published yesterday is based on documents secreted away by former HSBC employee Hervé Falciani, who turned them over to the French Government in 2008. While most clients and account data cover 1988 to 2007, amounts are related to 2006 to 2007.

‘We acknowledge that the compliance culture and standards of due diligence in HSBC’s Swiss private bank, as well as the industry in general, were significantly lower than they are today’, the bank said. HSBC also admitted that it was accountable for past control failure but that it has fundamentally changed since then.

ICIJ stresses that the fact that a person or company is mentioned in the leaked documents does not imply that they have broken any law or acted improperly.

Business Daily | 5

February 11, 2015

Macau

Gaming industry to fall 46 pct this month as VIP players sidestep Macau For many years, Macau has benefited from its location on the doorstep of Mainland China but as the corruption crackdown continues Chinese VIP players are afraid of gambling in the former Portuguese colony because it is too close to Mainland scrutiny, JL Warren says João Santos Filipe

jsfilipe@macaubusinessdaily.com

C

hinese New Year is a time to celebrate but gaming operators will have little reason to do so as gross gaming revenue (GGR) is expected to drop 46 per cent year-onyear to MOP20.7 billion, according to research equity firm JL Warren Capital LLC. ‘In February, Macau is likely to experience the worst decline year-onyear in gross gaming revenue since 2014. We now estimate total GGR of MOP20.7 billion in February, a 46 per cent decline year-on-year, largely as a result of a sharp decline in the VIP segment’, the firm said in a published note.

Last year, gaming operators cashed in gross revenues of MOP38 billion for February, which accounted for a year-on-year increase of 40.3 per cent. However, if the prediction of JL Warren proves correct, it will be the worst February since 2011, when GGR accounted for MOP19.9 billion.

Concerning the current month, according to the equity research casinos chalked up MOP5.8 billion during the first eight days of February.

However, this figure is expected to decline sequentially based on the trend of previous years. Good news comes in the form of the 7-day holiday at Chinese New Year, when GGR is expected to increase from a daily MOP948 million to MOP1.138 million.

Macau blackballed According to JL Warren the decline in GGR is the consequence of changes happening in the VIP segment. The fact that Macau is so close to Mainland China is causing VIP players to blacklist it, requesting junket operators to take them to other locations, including Europe.

‘Mainland VIPs consider Macau to be too ‘sensitive’ as the venue is

too close to Mainland China where the anti corruption [campaign] continues to gain momentum. Today, many VIPs are asking agencies to take them to fresher destinations, such as London, Switzerland and Manila’, it is claimed.

On top of local competition, the credit crisis has posed a problem for the promoters, as some have been forced to restructure their operations and number of gaming rooms.

‘As for all debt-fuelled bubbles, a painful de-leveraging has started now that the easy credit is gone.

Macau VIP rooms are no exception.

Signs of a credit crisis appeared as early as the disappearance of Huang Shan, a junket operator who vanished in April 2014. Huang’s disappearance, along with more than HK$100 billion, had a greater impact on the VIP business than most had anticipated due to the high leverage used by the junkets, casino operators and gamblers’, it is explained.

The equity research firm also stressed that the full smoking legislation likely to be approved by 2016 will exert extra pressure on the market.

6 | Business Daily

February 11, 2015

Macau

Hong Kong to co-operate with Macau promoting multi-destination travel

T

he Tourism Board of Hong Kong is to co-operate with Macau and Guangdong Province this year to promote a multidestination scheme for attracting visitors in Hong Kong to travel to the nearby cities as well, the executive director of the Board, Anthony Lau, told Hong Kong media on Monday.

Hoping the scheme would consolidate Hong Kong as a tourism hub, the Hong Kong official body claimed that it would allocate more resources to promoting the multidestination travel scheme as well as its Indian market. The Board expects that the increase in resources for these new markets will bring some 5 per cent more visitors – or 960,000 travellers - to the Special Administrative Region this year.

On Monday, the Tourism Board announced that Hong Kong had welcomed a total of 60.84 million tourists last year, a jump of 12 per cent year-on-year. In 2014, Macau hosted some 31.5 million visitors, representing a year-on-year growth of 7.5 per cent.

K.L.

Kenchart acquires land for logistics centre Sara Farr

sarafarr@macaubusinessdaily.com

K

enchart Development Ltd. is in talks with the government of Chinese town Zhangpu in Jiangsu Province to acquire a plot of land to set up a logistics and distribution centre for the group.

Kenchart is an indirectly wholly owned subsidiary of Hong Kong-listed clothing retail enterprise I.T Ltd., which has a store at The Venetian Macao.

In a filing with the Hong Kong Stock Exchange, the parent company of I.T Ltd. said the plot of land occupies an area of around 100,005 square metres and is located on the southern side of San

Jia Road inside the Kunshan German Industrial Park.

The acquisition cost is approximately 300 million yuan (HK$372 million).

According to the filing, if the acquisition is successful, ‘the duration of the land use right of the land is 50 years from the date of the contract,’ and the land ‘will be developed and utilised by the group as its logistics and distribution centre in the People’s Republic of China.’

Currently, the group is using several warehouses located in different cities throughout mainland China.

‘The group faces long-term rental pressure and limitation

in expansion in the existing facilities,’ the filing reads.

Earlier this month, I.T Ltd. said its comparable store sales were affected by last year’s Occupy Central movement in Hong Kong, resulting in sales growth in the SAR dropping by some 4.5 per cent yearon-year during the third quarter of its fiscal year ended November 30.

The accumulative store sales of the group during the first nine months of the fiscal year still posted positive growth, up 0.8 per cent, 2.7 per cent and 13.1 per cent year-on-year in Hong Kong, Mainland China and Japan, respectively.

Jismyl Teo Chor Khin, CEO of DMX Technologies

DMX Technologies says CEO, CFO suspended in HK police probe

S

ingapore-listed DMX Technologies Group Ltd said it had suspended two of its executives after being told that they had been arrested by the Commercial Crime Bureau of the Hong Kong Police Force last week.

DMX Technologies said Jismyl Teo Chor Khin, its chief executive officer, and Skip Tang, chief financial officer, were arrested on February 3 and subsequently released on bail. No formal charges have been laid by the Hong Kong authorities against the company or any of its officers, it added. The Hong Kong authorities are conducting an investigation relating to events in 2008, DMX Technologies said in a statement.

It said the company had been informed of the arrests by the chief executive Teo. She could not immediately be reached by Reuters for comment.

DMX Technologies is engaged in software and information technology services, and has been listed on the Singapore Exchange since 2002. Three quarters of its revenue in 2013 came from China, followed by Indonesia which contributed 16 percent, Reuters data showed.

Headquartered in Hong Kong, the company has offices in mainland China, Macau, India, Indonesia, Korea, Malaysia, Singapore and Vietnam, the company’s website said.

Reuters

Business Daily | 7

February 11, 2015

Gaming

Paradise expands Korean casinos as Chinese pack halls amid curbs

P

aradise Co., South Korea’s largest operator of casinos for foreigners, is increasing gambling space to cater for a boom in Chinese visitors, even as China cracks down on foreign casinos marketing to its citizens.

Paradise will expand floor space at three of its five foreigner-only casinos including doubling the size of gaming areas at its casino on Jeju Island, as Chinese gamblers who comprise more than two-thirds of its visitors pack its halls, Vice Chairman Lee Hyuk-Byung said in an interview.

China announced on February 6 it would stop foreign casinos from luring its citizens to gamble overseas including through offices set up in the country, the latest in a slew of policies linked to an anti-corruption campaign that has hit gambling revenues in Macau. Seoul-based Paradise doesn’t market directly to gamblers in China as that is illegal, and it mainly relies on word of mouth, Lee said on February 5, prior to China’s announcement.

There isn’t enough

information about the latest policy and Paradise hasn’t seen any impact on its operations, said Hyejeong Shim, an investor relations official at the company after China’s announcement.

Woo Chinese Casino operators such as Australia’s Echo Entertainment Group Ltd. and Nagacorp Ltd. are trying to woo Chinese gamblers as the anti-graft campaign and stricter visa rules to Macau drove bettors to seek out alternative gaming markets.

There has been a surge in the number of visitors from China to South Korea over the past two years, Lee said.

“If you visit our casinos, it isn’t full on the weekdays, but on the weekends from Friday afternoon to Sundays, it’s fully packed and very crowded,” Lee said. “This means we cannot provide all the gaming needs of our visitors. By expanding, we can.”

Paradise shares rose as much as 3.7 percent to 22,600 won before trading 1.6 percent higher while

rival Grand Korea Leisure Co. was unchanged after plunging 4 percent earlier.

The benchmark Kospi index fell 0.4 percent.

While sentiment for Paradise and Grand Korea Leisure will probably suffer in the short term, China’s clampdown is unlikely to seriously impact casino markets targeting Chinese gamblers, Ilwoo Yang, an analyst at Samsung Securities Co., wrote in a note this week.

“Korean casinos may actually benefit, as their success at attracting Chinese punters appears to be due to Korea’s proximity to China, not marketing capabilities,” he wrote.

Baccarat games Paradise will spend US$26 million on the expansion, Lee said. The operator will add 26 gambling tables at its casinos, mostly for baccarat card games, bringing the total to 252, according to the company. Baccarat games are a favourite of China’s gamblers, The expansion by the South Korean operator comes

as Macau’s casino revenue slumped for an eighth straight month in January, for the longest losing streak on record. Paradise in 2014 posted its first profit decline in three years, according to data compiled by Bloomberg.

Chinese tourists to Korea are increasing as Korean pop culture gains popularity and travel restrictions between the two countries ease, Lee said.

Mainland gamblers formed 67 percent of the company’s high rollers last year, growing from 46 percent in 2010, the Seoul-based company said.

Chinese accounted for 77 percent of the total mass gamblers last year, up from 50 percent in 2010, it said.

Emulate Macau About 6.1 million mainland travellers went to the North Asian country last year, an increase of 42 percent, according to data from the Korea Tourism Organisation.

South Korea last year approved construction of its first foreign-owned casino as Asia’s fourth-largest economy tries to emulate Macau and

Singapore in attracting more tourism spending from China.

Paradise is Korea’s largest foreigners-only casino operator with almost 50 percent market share, the company said, citing data from the Korean Casino Association. Grand Korea Leisure, a state-run casino operator, ranked second with a 42 percent share.

Kangwon Land Inc., which operates South Korea’s only casino that allows local gamblers, is the country’s largest operator overall by sales, followed by Paradise, according to data compiled

by Bloomberg.

Paradise plans to focus on bringing in mass market gamblers, especially with its 1.3 trillion won (US$1.2 billion) integrated resort Paradise City project, Seoulbased Shim said.

Paradise is teaming up with Japanese video-game and pachinko operator Sega Sammy Holdings Inc. to build a foreigners-only casino resort, which will have Korean-style spas, restaurant and K-pop entertainment, Lee said.

Bloomberg

Caesars’ Swaps payout tied to expired pacts denied by panel

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review panel appointed by the International Swaps & Derivatives Association denied payouts on contracts tied to Caesars Entertainment Corp. that expired before the casino operator’s largest unit filed for bankruptcy in January.

A three-person arbitration board ruled that a so-called “failure to pay” credit event had not been triggered prior to December 20, the day the credit-default swaps in question expired, by the company’s decision

earlier that week to skip debt payments. The panel’s decision will be binding for all market participants.

The independent review group was called on for only the second time in the history of the creditswaps marketplace after a 15-firm ISDA committee of bond traders that normally determines such cases failed to reach the 80 percent voting majority required to resolve the matter. The arbitration verdict clears the way for an auction that will

determine payouts for the remainder of the swaps after the ISDA committee ruled unanimously on Jan. 16 that Caesars’s decision to file for protection that month triggered payments on those contracts.

Elliott Management Corp. and Pacific Investment Management Co. were among five members of the ISDA committee that voted for the payouts to be triggered on the December 20 swaps, leaving the body two votes short of a necessary

12-vote supermajority. Caesars had identified Elliott as one of the firms thwarting restructuring efforts to inflate the value of its swaps positions. Elliott added to the derivatives trades as it helped orchestrate a bankruptcy plan, two people with knowledge of the trading said in December.

ISDA is a trade organization that sets standards for the credit-swaps marketplace.

Bloomberg

8 | Business Daily

February 11, 2015

Greater China High-speed railway to link Chinese border city to Vladivostok Plans for a high-speed rail link between Hunchun in Jilin Province and Vladivostok in Russia are taking shape, local authorities said on Monday.According to Jiang Chaoliang, governor of Jilin Province, the new railway will boost trade between Jilin and Russia, and cooperation between the province and northwest Asia. Hunchun, on the border with Russia, is only about 180 kilometers from Vladivostok, but it takes more than five hours to travel one-way by car. More than 1,000 Russians pass through Hunchun every day.

UnionPay expand along the “belt and road”

China’s largest bank card brand, UnionPay has expanded in overseas markets especially in Central Asia, riding on the “belt and road” initiatives. UnionPay International said on Monday that it is improving its services and networks in Central Asian countries to support this national strategy. UnionPay debit and credit cards are now accepted by nearly 60 percent of ATMs and more than 40 percent of POS terminals in Kazakhstan after the first card was issued last November. These numbers will likely continue to rise in 2015. Kazakhstan is not the only country where UnionPay is doing well.

China launches first maritime Silk Road cruise liner A Chinese cruise liner to ply the 21st Century Maritime Silk Road started its maiden voyage from the Beihai port in southwest China’s Guangxi Zhuang Autonomous Region on Monday morning.

The liner has scheduled stops in Vietnam, the Gulf of Thailand and Malaysia before eventually reaches Kuantan Port in Malaysia. The 135-m-long 20-m-wide modern cruise ship can accommodate about 400 people and is equipped with wireless Internet access. In 2013, Chinese President Xi Jinping proposed the rejuvenation of the Maritime Silk Road to establish a closer China-ASEAN community

China unlikely to weaken yuan China is unlikely to “purposely weaken” its currency, the yuan, or renminbi (RMB), as it would go against the authorities’ commitment to economic rebalancing and structural reforms, HSBC said on Monday. Even dismissing the economic rationale behind the Chinese central bank favoring relative currency stability, there is another strong argument for this view. “It boils down to the significant size of China’s economy and the ‘currency war’ deterrent of the RMB,” according to a report from the banking giant. China’s share of global growth and trade has risen rapidly in the last few decades, which means a large RMB depreciation would be disruptive to global trade flows and international relations, it said.

China Jan inflation hits 5-yr lo pressure builds for more polic

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hina’s annual consumer inflation hit a five-year low in January while factory deflation worsened, underscoring deepening weakness in the economy and heaping pressures on policymakers to inject more stimulus to underpin growth.

The risk of deflation is rising for the world’s second-largest economy as a property market downturn and widespread factory overcapacity have been compounded by an uncertain global outlook and falling commodity prices.

A collapse in global oil prices have already unleashed a wave of easings around the world as central bankers from Europe to Canada to Australia sought to defuse the deflationary pressures and bolster their economies.

And more policy support is expected from Beijing after the National Bureau of Statistics said on Tuesday that China’s consumer price index rose 0.8 percent in January year-on-year, undershooting expectations of a 1.0 percent rise and marking the weakest reading since November 2009.

“Today’s data confirmed the economic slowdown in January, while intensifying disinflation will weigh further on firms’ profit margins,” said Julia Wang, Greater China economist at HSBC. “This increases the need for further monetary easing. We continue to expect another 25bps cut to the policy rate in Q1.”

Analysts also said that factory deflation remains a big worry.

KEY POINTS Jan CPI +0.8 pct y/y, vs forecast +1.0 pct Jan PPI -4.3 pct y/y, vs forecast -3.8 pct Reflects weak demand, falling global commodity prices More policy steps expected to support slowing economy The data showed producer price index dropped 4.3 percent in January from a year earlier, worse than a 3.8 percent fall expected by analysts and extending factory deflation to nearly three years. Price cuts have sapped profitability of Chinese manufacturers.

“The PPI really shocked us,” said Zhu Qibing, a macro-strategist at Minzu Securities in Beijing.

Zhu expects the People’s Bank of China bank to cut interest rates around March and April to support the economy.

The central bank is widely expected to loosen policy further after cutting bank reserve requirements last week for the first time in over two years, seen as a mostly defensive move against capital outflows.

That followed a surprise cut to benchmark interest rates in November, also the first such move in more than two years, to lower borrowing costs and support growth.

Mainland stock indexes rose around 1 percent after the data, led by financial shares. Traders say investors hope for signs of fresh liquidity injections in response to

Hong Kong warns over digital currencies amid alleged bitcoin fraud

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ong Kong’s central bank has warned people against investing in virtual currencies amid local media reports that a bitcoin exchange may have run off with US$387 million in client funds - making it potentially the biggest bitcoin scandal after last year’s bankruptcy at Tokyo-based Mt.Gox. The South China Morning Post reported that clients of Hong Kongbased MyCoin had approached a local lawmaker alleging the company absconded with their money. An assistant for Legislative Council member Leung Yiu-chung told Reuters that Leung had received more

than 15 complaints from MyCoin clients regarding the alleged fraud, and these would be passed on to the police on Wednesday.

The Hong Kong Monetary Authority (HKMA) said in a statement that the case “may involve fraud or pyramid schemes,” adding: “Given the highly speculative nature of Bitcoin, we have all along urged the public to exercise extra caution when considering making transactions or investments with Bitcoin.”

Calls to MyCoin in Hong Kong could not be connected. Calls to the company’s China customer service line were not answered.

Bitcoins are created through a ‘mining’ process where a computer’s resources are used to perform millions of calculations.

Advocates say the virtual currency is revolutionary as it’s not controlled by a central bank and has potential as an alternative means of online payment. But the rise of bitcoin, which is unregulated in many countries including Hong Kong, has stoked concerns it can be used as a vehicle to launder money and finance extremist groups.

Mt.Gox, once the world’s largest bitcoin exchange, filed for bankruptcy a year ago after it claimed to have lost around US$500 million worth of customer bitcoins in a hacking attack.

On its website, MyCoin claims to be a “leading global Bitcoin trading platform and application service provider,” with a Chinabased research and development team.

MyCoin promised clients a HK$1 million ($128,976) return over a 4-month period based on a HK$400,000 investment that would produce 90 bitcoins on maturity, the South China Morning Post reported, adding MyCoin claimed to have 3,000 customers each investing an average of HK$1 million.

The price of a bitcoin has slumped from a late-2013 high of above US$1,000 to around US$220, according to CoinDesk’s price index.

Business Daily | 9

February 11, 2015

Greater China

ow, cy support

Kowalczyk, senior economist at Credit Agricole in Hong Kong.

Distortions caused by the timing of the Lunar New Year may have exaggerated weakness in the headline inflation number due to stronger preholiday spending in January last year.

The new year fell on January 31 in 2014 but will be on Feb 19 this year.

Food price rises eased to 1.1 percent in January from 2.9 percent in December, contributing about 80 percent of the decline in January inflation, the statistical bureau said.

Data over the weekend showed a surprising plunge in China’s imports, suggesting the economy is continuing to lose momentum despite a raft of stimulus measures. Still, analysts say the impact of holidays may have distorted the extent of the downturn.

The statistics bureau will release combined data for January and February next month to help smooth out distortions from the Lunar New Year holidays.

Global impact

slowing growth although markets have largely priced in more easing.

Distortions “This will likely be the low point for CPI inflation given that oil is rebounding. Still, the data will increase rate cut expectations and we see a cut in March,” said Dariusz

Yu Qiumei, a senior statistician at the National Bureau of Statistics, said worsening factory price deflation in October was mainly caused by a drop in global oil and commodity prices.

The government is expected to set an inflation target for 2015 at the opening of the annual parliament meeting in March. Sources have told Reuters that the government is looking at lowering its inflation target to around 3 percent this year.

Consumer prices rose 2 percent in 2014, coming in well below a target of 3.5 percent as deflation fears intensified.

The government is also expected to lower its GDP target to around 7 percent this year, after the economy grew 7.4 percent in 2014 - the slowest pace in 24 years.

Reuters

HKEx weighs expanding eligible HK stocks for Chinese investors

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ong Kong Exchanges and Clearing Ltd is considering expanding the number of Hong Kong stocks Chinese investors will be able to buy as part of the Hong Kong-Shanghai stock connect programme, Chief Executive Charles Li told reporters at a briefing on Tuesday.

The expansion of Hong Kong stocks that mainland investors could buy under the programme would offer them an additional incentive to invest, in return for the expected opening of the Shenzhen stock exchange to Hong Kong investors later this year.

“We will likely enhance the underlying eligible stocks in southbound,” Li said, referring to the list of Hong Kong stocks that mainland investors can buy.

Li also said that he expects the Shenzhen link to open in the second

half of the year. Reuters reported on January 28 that the launch would likely take place round then, a timeline that could undermine China’s chances of being included in a major MSCI investor benchmark.

The launch of Stock Connect in November last year is regarded as a milestone in the opening up of China’s stock markets.

So-called northbound buying from Hong Kong into the mainland has been active, with Hong Kong’s stock exchange telling investors it expects them to hit the limit of shares they can buy via its trading link with Shanghai by the end of March.

However mainland investors have been more reluctant to buy Hong Kong shares, leading to lighter southbound flows.

Reuters

Dalian Wanda to buy Infront Sports to get soccer World Cup media rights Matthew Miller

KEY POINTS Dalian Wanda agrees to buy Infront Sports for 1.05 bln euros Deal will see Wanda taking 68.2 pct stake Acquisition advances Wanda’s plans to build its entertainment business

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hina’s Dalian Wanda Group Co signed a 1.05 billion euros (US$1.2 billion) deal to buy Swiss sports marketing firm Infront Sports & Media AG, and said it plans to acquire more overseas companies this year to deepen its push into sports and entertainment.

The acquisition will see Wanda Group, China’s largest property developer which also controls the country’s largest cinema chain, take a 68.2 percent stake in Infront, which focuses on distributing media rights for broadcasting

sports events including the soccer World Cup and several Olympic winter sports.

Three unidentified Chinese and global investors will take the remaining minority stake, Wanda executives told Reuters. Infront generated about 800 million euros in revenue last year.

“This purchase allows Wanda to become a global leader in the sports industry in a single bound,” Dalian Wanda Chairman Wang Jianlin told reporters after a deal signing ceremony in Beijing.

“In addition to Infront, Wanda will buy at least two cultural companies this year,” he added, without giving details.

Reuters had reported that Wanda would buy Infront earlier this month.

The purchase from London-based private equity group Bridgepoint comes a few weeks after Wanda announced a 45 million euro investment in Spanish soccer champions Atletico Madrid, its first overseas sports deal.

The group, which controls China’s biggest commercial

real estate developer, Dalian Wanda Commercial Properties Co. , is aggressively expanding overseas to move away from China’s property market, which has been hit by a slowing economy and a series of cooling measures.

Revenue at Wanda’s culture division, which includes U.S. motion picture theatre chain AMC Entertainment Holdings Inc. and Wanda Cinema Line Corp, China’s biggest movie theater company, more than doubled last year to 34 billion yuan (US$5.5 billion).

Wang said he expected the unit’s revenues to rise further to around 45 billion yuan this year.

Infront was awarded by FIFA the exclusive sales rights to broadcast packages of its events from 2015 to 2022, which will include two soccer World Cups.

Bridgepoint bought Infront for about 550 million euros including debt in 2011. Wang said he wants to eventually list the company, adding: “the timing will be decided

by Infront rather than me”.

Reuters

10 | Business Daily

February 11, 2015

Greater China

Qualcomm to pay US$975 million to resolve China antitrust dispute Noel Randewich and Matthew Miller

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ualcomm Inc has agreed to pay a fine of US$975 million, the largest in China’s corporate history, ending a 14-month government investigation into anticompetitive practices.

The deal - the details of which were first reported by Reuters - also requires Qualcomm to lower its royalty rates on patents used in China, likely helping local smartphone makers such as Xiaomi Technology Co Ltd and Huawei Technologies Co Ltd. Qualcomm said the agreement removes a major source of concern for its investors, sending shares of the San Diego-based chipmaker up 2.8 percent to US$69 in after-hours trading.

China’s expanding high-speed 4G network is driving demand for smartphones with leadingedge technology, but Qualcomm’s opportunities have been clouded by the antitrust probe, which has also contributed to problems in collecting royalty payments from device makers.

Qualcomm said in a statement on Monday it would not contest the National Development and Reform Commission’s (NDRC) finding that it violated an antitrust law.

Asked whether the resolution in China could affect the outcome of ongoing antitrust probes into Qualcomm in Europe and the United States, Qualcomm President Derek Aberle said, “We fully respect their authority, but we don’t believe it’s likely that other agencies will necessarily meet similar conclusions.”

The U.S. firm cut its full-year earnings estimate, putting the cost of the fine at about 58 cents per share, but it raised the lower end of its revenue forecast slightly.

KEY POINTS Fine is biggest ever in China; could have been higher Qualcomm cuts full-year earnings estimate U.S. firm will lower its patent rates in China

“It removes a significant source of uncertainly from our business and positions our licensing group to really participate in the full growth of the wireless market in China,” CEO Steve Mollenkopf said in a phone interview. “It’s something we’re happy is over.”

Fine could have been higher Discussions in Beijing over one of the most contentious cases under China’s 2008 anti-monopoly law had intensified in recent weeks, culminating in meetings between Qualcomm senior executives and the NDRC on Friday.

Xu Kunlin, head of the NDRC’s anti-monopoly bureau, said the $975 million fine - equal to 8 percent of Qualcomm’s 2013 sales in China was less than the 10 percent of sales maximum allowed under Chinese law because Qualcomm fully cooperated with investigators.

“Issuing the fine was not our primary purpose,” Xu told reporters on Tuesday, according to a Sina.com live-blog of his remarks. “Our purpose was to restore orderly, free-market competition. Qualcomm’s practices had stifled innovation.”

Under the terms of the agreement, Qualcomm will offer licenses to its current 3G and 4G essential Chinese patents, widely used by Chinese device makers, separately from other patents. For companies opting for the new agreement, which applies to phones sold for use in China, Qualcomm will calculate royalties based on 65 percent of the phone’s selling price, instead of on the whole price.

Some on Wall Street have speculated that even limited concessions made to Qualcomm’s licensing business in China could affect the technology company’s licensing deals elsewhere.

“That’s the first time I’ve ever seen them in writing agree to that and it begs the question of why 65 percent is the right number in China and it’s not the right number everywhere,” said Bernstein analyst Stacy Rasgon.

As a result of the fine, Qualcomm said it now expects full-year earnings per share of US$3.56-US$3.76 for fiscal 2015, compared with a prior

Qualcomm shares gain 2.8 pct in after-hours trading (Adds Chinese government comment; updated stock price)

forecast of US$4.04- US $4.34. It raised its fiscal 2015 revenue forecast to US $26.3- US $28 billion, slightly raising the lower end of its previous forecast of US $26- US $28 billion.

Excluding the cost of the fine and other one-time items, Qualcomm forecast earnings of US $4.85- US $5.05 per share, raising the lower end of its previous forecast of US $4.75-

US $5.05. On that basis, analysts had expected US $4.96 per share, on average, according to Thomson Reuters.

Qualcomm is one of several overseas companies, including Microsoft Corp, to come under investigation in China for allegedly anti-competitive practices Reuters

Yanjing brewery rises after beermaker said to plan stake sale

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eijing Yanjing Brewery Co., China’s thirdlargest beermaker, rose yesterday the most in 14 months after people with knowledge of the matter said the company plans to sell about a 20 percent stake to a foreign strategic partner.

Shares of Yanjing, the nation’s only major brewer without an overseas partner, rose as much as 7.4 percent in Shenzhen after the company issued a statement denying the

planned sale. The benchmark Shenzhen Composite Index climbed 0.7 percent.

Yanjing, backed by the Beijing municipal government, has reached out to potential investors including overseas brewers, two of the people said yesterday, asking not to be identified as the information is private. The stake could be valued at about US$740 million based on Yanjing’s current share price,

according to data compiled

by Bloomberg.

The company doesn’t have any plans to sell a 20 percent stake and it has never contacted any foreign beverage makers, Yanjing said in a Shenzhen exchange filing today. Yanjing’s controlling shareholder has nothing it needs to disclose and the company’s business operations are normal, according to the filing.

Bloomberg

Business Daily | 11

February 11, 2015

Asia

DBS’s quarterly China bad loans jump, but bank plays down risks Saeed Azhar and Anshuman Daga

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ingapore’s DBS Group Holdings saw its China bad debt provisions quadruple in the latest quarter but the bank played down the risks for its loan book, saying much of jump was due to one soured loan to a copper smelter.

DBS said it was not worried about its China portfolio as most of its loans were trade finance loans to banks, but Chief Executive Piyush Gupta warned the country’s anti-corruption drive as well as debt woes in certain corporate sectors may lead to some unexpected surprises.

“It’s quite clear in the last two or three months...(in) some specific sectors in China - you are beginning to see stress and default,” he told Reuters Television after the bank’s earnings briefing.

China’s slowing economy has heightened financial risks around the country’s heavily indebted companies and governments, which owe a

combined US$15 trillion, according to a state audit and private estimates.

Much focus has been on the slowing property sector, particularly after struggling developer Kaisa was late with a bond coupon payment this year.

DBS, Singapore’s biggest bank, said fourth-quarter bad debt provisions for Greater China excluding Hong Kong soared to S$40 million (US$30 million).

James Antos, Hong Kong-based banking analyst at Mizuho Securities Asia, said it was difficult to reconcile DBS’s outlook for its China-related loans with recent macro-economic data.

“I don’t care who you are, you can’t fight the economic cycle and the economic cycle is down,” he said.

“So I can’t believe that DBS is going to get out of China unscathed, especially since this is one of the most important growth areas strategically that they have identified for their bank.”

KEY POINTS DBS Q4 net profit S$838 mln versus S$931 mln consensus China bad loan provisions up four times DBS much of jump due to one sour loan to a copper smelter

Overall bad debt provisions rose 40 percent to S$211 million from a year earlier, the highest level since the quarter ended June 2013, according to Thomson Reuters data. Provisions for Singapore loans to consumers and small to medium sized businesses also climbed sharply.

The charges saw DBS book a weaker-than-expected net profit of S$838 million, below an average forecast of S$931 million from six analysts polled by Reuters.

The provisions also eclipsed a 10 percent rise in full-year net profit to a record S$4 billion.

Despite the bad debt charges, its non-performing loan ratio was 0.9 percent in the fourth quarter, little changed from recent quarters.

DBS earns nearly 90 percent of its profit from Singapore and Hong Kong and about 6 percent comes from mainland China and Taiwan.

Separately, DBS’s Gupta quashed much speculation that he could be a potential replacement for Peter Sands, the embattled chief executive of Standard Chartered, saying he had not been approached and was not interested in the job.

Reuters

Japan’s SoftBank Q3 profit slips, no end to Sprint costs Teppei Kasai

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apan’s SoftBank Corp said yesterday its third-quarter operating profit slid 5.9 percent, missing estimates, as the ambitious mobile telecom firm continues to soak up the cost of trying to turn around loss-making U.S. unit Sprint Corp.

SoftBank, which took over the number 3 U.S. carrier for more than US$20 billion in 2012, said October-December operating profit was 191.39 billion yen (US$1.6 billion), down from 203.46 billion yen a year ago. That trailed the 219.08 billion yen average of five analysts’ estimates compiled by Thomson Reuters StarMine.

Japan’s third-biggest mobile carrier by subscriber numbers kept its operating profit forecast for the fiscal

year ending March unchanged from 900 billion - having cut the target by 10 percent in its last quarterly report citing Sprint costs.

“Overall, SoftBank is doing well, but with Sprint...being in a tough situation, I think it will have a long battle to fight,” SoftBank’s Chief Executive Masayoshi Son told reporters in Tokyo.

The comments echoed Son’s message from the previous quarter, underlining the scale of the task in ending losses as Sprint. The company, 80 percent-owned by SoftBank, is locked in intense competition with larger rivals AT&T Inc and Verizon Communications Inc to retain subscribers.

Earlier this month, Sprint reported revenue for the quarter ended

December fell less than expected, as the U.S. mobile provider attracted more subscribers by cutting prices and offering promotions. Still, Sprint’s net loss more than doubled to US$2.38 billion.

SoftBank bought the number three U.S. mobile carrier as part of Son’s drive to expand outside Japan’s sluggish economy, but Sprint has been undergoing a painful revamping of its network, cutting thousands of jobs, that has caused a mass exodus of subscribers.

On Tuesday SoftBank said it booked a loss of 29.51 billion yen to cover in severance costs associated Sprint job cuts. In the same period a year earlier, the comparable figure was 5.34 billion yen.

Reuters

12 | Business Daily

February 11, 2015

Asia Australian desalination plant remains unused The yet-to-be used Victorian desalination plant will cost 460 million U.S. dollars this year even though it won’t produce a drop of water, the Victorian Government confirmed. With Melbourne’s dam levels at 75 percent full, almost three times that of the lowest levels experienced in 2009, the three- billion U.S. dollar plant will spend a third year idle. A spokeswoman for Water Minister Lisa Neville confirmed no water order would be made in 2015 from the plant located on the Bass Coast, 132 kilometers south-east of Melbourne.

Cambodia weighs oil stockpile Cambodian Prime Minister Hun Sen said that the government is studying the possibility to purchase petroleum for a stockpile as global oil price is going down. “I have recommended Economy and Finance Minister (Aun Porn Moniroth) to study the possibility to buy petroleum for a stockpile as oil price falls, so when it goes up again, we will have an oil stockpile for use,” he said during a graduation ceremony of about 1,500 students at the Royal University of Law and Economics. “For us, as a non-oil producing country, we want to see such low price of oil,” he said.

However, the prime minister predicted that petroleum price will bounce back.

Jakarta flood disturbs business, displaces residents Floods hitting Indonesian capital Jakarta has paralyzed business activities in parts of the city and forced residents to take shelters. In downtown, waters submerged the area by up to one meter high on Tuesday, hampering traffic. Flooding also inundated other parts of the city and caused many governmental officials to halt work. Some 6,000 people have been displaced by the floods following heavy downpours that drive rivers bloated and burst their banks, the national disaster management agency reported yesterday. “The figures could rise as there are still data have not reported,” Sutopo Purwo Nugroho, spokesman of the agency told Xinhua via phone.

Aussie farmers supportive of Chinese Farmers from Western Australia are overwhelmingly supportive of Chinese and other foreign investment, new research revealed yesterday showed.

Despite researchers expecting farmers from WA’s wheatbelt to say foreign investment had destroyed local employment opportunities and caused a detrimental rise to land prices, they said much the opposite. The research sought a grassroots perspective with bankers, property managers, government department staff members and farmers taking part. “The most interesting results were from the farmers,” said Dr Marit Kragt, an assistant professor at the School of Agriculture and Resource Economics at the University of Western Australia.

Amid mobile slump, Samsung needs more outside customers for chips, panels Industry officials estimate that external clients account for around a fifth of Samsung Display’s sales of smaller smartphone and tablet

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s Samsung Electronics Co Ltd sells fewer of its own smartphones, the South Korean group’s components businesses are under pressure to pick up the slack and secure external customers for chips and display panels, including putting these in rival mobile devices.

Samsung Display has begun supplying organic light-emitting diode (OLED) panels to Chinese smartphone makers Lenovo , Coolpad, Oppo Electronics and Vivo Electronics.

And the subsidiary says it’s on the lookout for more clients, aiming to have half its total revenue by 2017 from sales to outside customers, up from just over a third in 2013.

Industry officials estimate that external clients account for around a fifth of Samsung Display’s sales of smaller smartphone and tablet panels compared to about 50 percent for large panels for TVs, underscoring a need for more mobile clients.

“Samsug Display’s desire to grow overseas sales wasn’t as strong when Samsung Electronics’ Galaxy S devices were selling well, but now it’s trying to avoid being too overreliant on a single client,” a person with direct knowledge of the matter told Reuters.

Samsung’s systems chips business is also trying to grow its customer base following a weak 2014. Some analysts say the business lost more than $1 billion last year on declining sales of Galaxy smartphones and the loss of a contract to supply the processor for Apple Inc’s iPhone 6.

Samsung’s next Galaxy S smartphone is widely expected to be powered by its own Exynos processor chips after Qualcomm Inc acknowledged that a key customer won’t use its Snapdragon mobile chip in a flagship device.

Samsung has declined to comment on that, but another individual

familiar with the matter said the proportion of next-generation Galaxy S phones powered by Exynos chips will likely increase from previous versions.

A successful launch of the new device could help win more external orders, and bolster profits. Samsung said late last month it was in talks with third-party customers about supplying its Exynos mobile processors.

“Some of Samsung’s components businesses and other affiliates were too dependent on the captive (in-house) market,” said IM Investment analyst Lee Min-hee. “There’s been a general shift in direction, with the businesses looking to make external sales and diversify the customer base.”

Weak mobile business Samsung’s mobile profits for October-December dropped 64 percent from a year earlier, as

Record exports show manufacturing growth of Philippines lifting Rising labor costs in China, a young and educated workforce in the Philippines and its increased access to some overseas markets are giving local manufacturers a fillip

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hilippine manufacturers like Claus Sudhoff are finding themselves in the right place at the right time, a boon that’s boosting Southeast Asia’s fastest-growing major economy.

“We have received questions from new customers asking if we can expand our production,” Sudhoff, 73, said in Cavite province about 41 kilometers (25 miles) south of Manila, as he showed European ambassadors and Philippine trade officials around his 25-year-old garment factory last week. “We’re very excited about these opportunities.”

Philippine exports rose 9 percent last year to a record on unprecedented levels of shipments to the U.S., China and Japan, data released Tuesday in Manila showed. Overseas sales of electronics were the highest since 2010 and more garments were shipped than any year since 2011.

Rising labor costs in China, a young and educated workforce in the Philippines and its increased access to some overseas markets are giving local manufacturers a fillip while luring foreign companies such as Mitsubishi Corp. and Shimano Inc. Along with the boost to domestic consumption from falling oil prices, the nation is one of the few in the region that can raise interest rates this year in response to any Federal Reserve

increase without being constrained by faltering growth.

The Philippines is withstanding a regional export slowdown that’s hurt expansion for its neighbors including Indonesia and Singapore. Uneven global economic growth means some nations need easy monetary policies as others move toward normalizing their settings, Group of 20 finance chiefs said, according to a draft communique obtained by Bloomberg.

While Philippine exports totaled about $62 billion last year compared with Singapore’s $522 billion and Thailand’s $225 billion, the country is improving its skills and climbing up the value chain, Trade Secretary Gregory Domingo said. It is also looking beyond electronics, with its share slipping to about 40 percent of shipments in 2014 from 60 percent in 2009.

Bloomberg

editorial council Paulo A. Azevedo, José I. Duarte, Mandy Kuok Founder & Publisher Paulo A. Azevedo | pazevedo@macaubusinessdaily.com Newsdesk João Santos Filipe, Luis Gonçalves, Michael Armstrong, Sara Farr, Stephanie Lai, Óscar Guijarro, Kam Leong, Joanne Kuai GROUP SENIOR ANALYST José I. Duarte Brands & Trends Raquel Dias Creative Director José Manuel Cardoso Designer Francisco Cordeiro WEB & IT Janne Louhikari Contributors James Chu, João Francisco Pinto, José Carlos Matias, Larry So, Pedro Cortés, Ricardo Siu, Rose N. Lai, Zen Udani Photography Carmo Correia Assistant to the publisher Laurentina da Silva | ltinas@macaubusinessdaily.com office manager Elsa Vong | elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd.

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Business Daily | 13

February 11, 2015

Asia Canon to buy Sweden’s Axis Communications for US$2.8 bln

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Galaxy S5 sales disappointed and rivals like China’s Xiaomi Inc became increasingly competitive. Analysts don’t expect any smartphone turnaround as margins remain squeezed.

Nomura and other brokerages, though, have raised their 2015 earnings forecasts for Samsung, betting on improved contributions from component sales. As smartphone competition heats up, Samsung should benefit from better demand

for components such as chips and panels.

The system chip business in particular is expected to be a catalyst.

Local media reports and analysts say Samsung is likely to win back the Apple contract and supply the majority of mobile processors for the next iPhone.

Display sales, too, should provide an additional boost this year as the business expands its external customer base. Daewoo Securities

tips 2015 operating profit to more than double to 1.7 trillion won ($1.55 billion) from last year.

“We’re starting to hear talk that Samsung’s annual profit could actually increase this year, contrary to the market consensus before the fourth-quarter results were announced, and I think that will be the case as well,” said Park Junghoon, a fund manager at HDC Asset Management, which holds Samsung shares.

anon Inc., the world’s largest camera maker, will buy Sweden’s Axis Communications AB for 23.6 billion Swedish krona (US$2.83 billion).

Canon will pay 50 percent more than Monday’s closing price, according to a statement. Axis makes video-surveillance equipment ranging from cameras to encoders and related software. The company is poised to see a 25 percent gain in profit this year, according to the average analyst estimate compiled by Bloomberg.

Tokyo-based Canon is looking to diversify its businesses as the use of smartphones to take snapshots eats into camera sales globally. The acquisition would be Canon’s largest ever, according to data compiled by Bloomberg.

McDonald’s India cuts salt, calories in burgers and fries Competition from newer, healthier fast food options is just starting to catch on at the burger chain known globally for the consistency of its food Nivedita Bhattacharjee

M

cDonald’s Corp is cutting the amount of calories and salt on its Indian menu as it fights to hold on to customers in a rapidly growing developing market where newer, healthier fast-food options are just starting to catch on.

The burger chain is known globally for the consistency of its food, down to the thickness of fries or the amount of cheese on burgers, and changes run the risk of upsetting customers who expect the same taste on every visit, everywhere.

Amit Jatia, vice president of one of India’s two main McDonald’s franchisees, said that changes to reduce sodium and calories in fries, buns and sauces had been done gradually, and were subtle enough to keep taste consistent and customers happy. McDonald’s has not talked about these changes previously.

“It wasn’t as if we suddenly cut the salt in our foods one day. Our menu and sourcing teams have been working

to make slight alterations for months now,” Jatia told Reuters in an interview.

McDonald’s in India has cut sodium in its sauces and buns by 10 percent and in fries by 20 percent, Jatia said.

Calories in sauces are down by 30-40 percent over the last six months.

Loyalists interviewed in Delhi, Kolkata and Mumbai said they did not detect any difference in taste.

“I order in from McD’s at least twice a month and think it tastes pretty much the same,” said Rahul Dutta, 29, a marketing executive based in New Delhi.

Jatia heads the south and western McDonald’s

franchisees in India, running 202 stores and 30 cafes.

Another group controls the north and east, with 166 restaurants.

Burger wars Rising levels of obesity, once just a problem of rich nations that the World Health Organisation says is increasingly affecting low and middle-income countries, has put pressure on fast food chain’s globally to offer healthier food.

In a recent corporate social responsibility report, McDonald’s said that by 2020 it aimed to offer sides of salads, fruit or vegetables as a

substitute for fries in its value meals in 20 major markets.

The reduction of salt in fries, buns and nuggets was part of a global push to reduce sodium levels in its food, McDonald’s said, while the reduction of oils in sauces was a local initiative in India.

The changes have reduced the calorie impact of a burger by 7-8 percent, it said.

The chain trimmed salt in fries at its British restaurants in 2006.

Some analysts think this is the chain’s way of getting out ahead of a looming burger war in India.

In its bigger markets like the United States, McDonald’s is losing customers to chains like Panera Bread or Chipotle Mexican Grill, which are seen as selling food with fresher ingredients.

That was part of the reason behind an abrupt management change at McDonald’s last month, when CEO Don Thompson left after three years on the job.

In India, where obesity

Bloomberg

is a growing problem and incidence of diabetes is rising rapidly, more international chains are moving in to challenge McDonald’s dominance.

Burger King, Carl’s Junior, Johnny Rockets and Wendy’s have announced plans or already set up shop, posing stiffer competition to McDonald’s and Yum Brand’s KFC, which gave been around for about a decade.

Technopak predicts the industry will be worth 490 billion rupees (US$7.92 billion) by 2020, up from 154.4 billion rupees (US$2.50 billion) last year.

Like rival Yum Brands, McDonald’s has made changes to its traditional menu to suit cultural norms in the majority Hindu country, steering clear of beef and pork while offering vegetarian sandwiches and egg-free mayonnaise.

India accounts for a small portion of McDonald’s global sales of US$27.4 billion, but is among its fastest growing markets. Jatia said the aim was to open as many as 250 stores in the next three to five years.

Analyst Sushmul Maheswari of business and consultancy firm RNCOS said the India unit has been growing at 11 percent over the past three years, and part of its success was down to consistency.

“McDonald’s burger and fries are popular because they have that peculiar taste that is available only with them,” he said. “They cannot tinker with that, even if they are healthy tweaks.”

Reuters

14 | Business Daily

February 11, 2015

International New group to focus on gas links in Europe A high-level group on central and southeast Europe gas connectivity was established at a meeting in Sofia on Monday, the Bulgarian government said in a press release. “The group is envisioned to work in two subgroups -- the political and expert level -- and will work on gas connectivity in the region, long term diversification of natural gas sources and the security of gas supplies,” the statement read.

One of the priorities of the group will be seeking out three different sources of natural gas to central Europe. Its first task will be to review natural gas supply and demand in the region. Maros Sefcovic, Vice President of the European Commission in charge of the Energy Union, said at the founding meeting European countries should demonstrate that they can work together to achieve greater connectivity.

Greece Needs 10 Billion-Euro Bridge Funding From EU Troika officials said Athens may be given more time to present its complete proposals for a permanent arrangement if Prime Minister Alexis Tsipras accepts he needs a new program

Turkey’s lira sinks to all-time low Turkish lira fell to a new all-time low of 2.5010 against U.S. dollar this week amid expectations on the U.S. Federal Reserve to raise interest rates by mid-year, private Dogan news agency reported. The currency has already hit a series of historic lows during the past four weeks, according to statements by government officials, including President Recep Tayyip Erdogan, who urged the Central Bank of Turkey to cut interest rates. The Turkish Lira has lost more than 3 percent against the U.S. dollar since mid-December. There has been rift between the Central Bank Governor Erdem Basci and President Erdogan, who wanted bigger cuts in order to stimulate the economy.

Russia’s oil export revenues fall 11 pct

T The like-for-like oil export of Russia declined by nearly 11.4 percent to 153.8 billion U.S. dollars in 2014, the Federal Customs Service of Russia said. The physical volume of oil export edged down 5.6 percent to 223. 4 million tons in 2014 against 236.6 million tons a year earlier, the agency said in its 2014 export and import data of essential goods. Meanwhile, a monthly report released Monday by the Organization of the Petroleum Exporting Countries (OPEC) estimated that Russia’ s oil exports in 2015 would drop by 60,000 barrels a day, and oil production by 70,000 barrels a day.

New cars licensed in Ireland up 26 pct There was a nearly 26 percent increase in the number of new private cars licensed in Ireland in January, compared to the same month last year, according to official figures. The figures from the Central Statistics Office (CSO) indicated that a total of 20,105 new private cars were licensed for the first time in the month, a 25.9 percent increase on the previous year. The highest number of new private cars licensed in January, classified by maker, was Toyota, followed by Ford, Hyundai and Volkswagen, according to the CSO figures.

he risk of a clash between Greece and its euro partners grew as German Chancellor Angela Merkel signaled little willingness to compromise over the conditions attached to the country’s bailout.

Merkel said she’s looking for a “viable recommendation” from Greece as it tries to drum up support for a 10 billion-euro (US$11.3 billion) bridge plan ahead of a euro-area finance ministers’ meeting on Wednesday.

“It’s clear that the risks to the world economy, the risk to the British economy of this standoff between the euro zone and Greece, is growing each day,” U.K. Chancellor of the Exchequer George Osborne said in an interview with Bloomberg Television in Istanbul. “The risks of a miscalculation or a misstep leading to a very bad outcome are growing as well.”

While French Finance Minister Michel Sapin said that a plan for bridge funding was needed, such an accord would require an easing of Germany’s stance in the standoff between Greece and its creditors over conditions attached to its 240 billion-euro lifeline. The impasse risks leaving Greece without funding as of the end of this month, when its current bailout expires, and puts Europe’s most-indebted state’s euro membership in danger.

Not tenable Greece’s public debt currently stands at more than 320 billion euros,

or about 175 percent of gross domestic product. About 100 billion euros of that debt needs to be canceled for it to be manageable, Matthieu Pigasse, head of Lazard Financial Advisory, hired by the Greek government as adviser on issues related to public debt and fiscal management, said today in an interview on France Inter radio in Paris.

Such a reduction would bring the country’s ratio of debt to GDP to 120 percent in 2020 and would make Greece’s debt burden more “sustainable,” he said.

“Everyone knows, each European government knows, that the debt is today unsustainable or untenable,” he said.

In an attempt to stave off a funding crunch and buy time to push creditors to ease austerity, Greece’s Finance Minister Yanis Varoufakis is set to present a proposal at today’s meeting of euro-area finance ministers in Brussels that will ask for an 8 billioneuro increase in the stock of Treasury Bills the country is allowed, said a government official who asked not to be named because the negotiations are confidential. He will also seek the disbursement of 1.9 billion euros of profits that euro area-central banks made on their Greek bonds holdings.

A bridge Behind the public rhetoric, the Greek government has shifted to a more cooperative stance in recent conversations with the troika of the IMF, the European Central Bank

and the European Commission, according to an official representing the creditors.

Two other troika officials said Greece may be given more time to present its complete proposals for a permanent arrangement if Prime Minister Alexis Tsipras accepts he needs a new program, which will include monitoring, and commits not to reverse the most important overhauls of the bailout agreement.

The Greek government’s proposal for a bridge deal is aimed at allowing the country to break the impasse and negotiate a more permanent arrangement with its creditors by this summer.

Confidence vote Greece’s new anti-bailout government, led by Tsipras, laid out a lengthy list of policy actions, including a gradual increase in the minimum wage and a boost to the threshold of tax-exempt income. The plan will be put to a confidence vote in Greece’s parliament today. The measures would breach the terms of the country’s emergency loans agreement with the euro area and the IMF. Tsipras has said they are necessary to alleviate the “humanitarian crisis” in Greece after five years of belt tightening that left more than a quarter of the workforce without a job. A Feb. 6 poll for Skai Television showed that 72 percent of those surveyed support his negotiating tactics.

Bloomberg

Business Daily | 15

February 11, 2015

Opinion Business

wires

Leading reports from Asia’s best business newspapers

Cheap oil for change Sri Mulyani Indrawati Kaushik Basu

Managing Director and Chief Operating Officer Senior Vice President and Chief Economist of the World Bank of the World Bank, is a former minister of finance of Indonesia

The Phnom Penh Post Thailand has agreed to assist Cambodia in installing a National Accreditation System (NAS) to ensure all Cambodia-made products meet ASEAN and international quality standards as the Kingdom prepares for regional integration at the end of the year. Cambodia’s Ministry of Industry and Handicrafts (MIH) and Thailand’s Ministry of Industry signed an agreement in Phnom Penh yesterday to commence designing the new system. Under the agreement, Thailand’s National Standardization Council will work with the MIH’s Department of Accreditation to assess the capabilities of Cambodia’s independent accreditation bodies.

Bangkok Post The state-owned Government Savings Bank (GSB) plans to seek approval soon for a multibillionbaht loan project to address the poor’s indebtedness and economic disparity. The bank plans to extend the loan through its People’s Bank project, deposits for loan products and a lending scheme guaranteed by the Thai Credit Guarantee Corporation (TCG), GSB president Chatchai Payuhanaveechai said yesterday.

The GSB will charge lower interest rates than loan sharks, he said, adding that the People’s Bank scheme now imposes a rate of 0.5% to 0.75% per month, far below the 10% a month of underground lenders.

The Straits Times Demand for residential properties in Malaysia is set to drop further this year due to cooling measures and weaker buyer sentiment, Moody’s Investors Service said in its latest quarterly report on Southeast Asia economies. “We expect the anticipation of higher mortgage rates in 2015 and the implementation of a 6 per cent goods and service tax in April to dampen sales in 2015 as buyers take a wait-and-see approach,” said Ms Jacintha Poh, a Moody’s assistant vice president. The assessment came as part of the rating agency’s latest edition of Inside ASEAN, a publication looking at the region’s major credit trends.

The Jakarta Post Technology, Research and Higher Education Minister Minister Muhammad Nasir emphasized on Monday that the development of a national car would be exclusively aimed at producing an electric car. He said his ministry opted for an electric car due to its environmental friendliness. “We do not develop cars powered by oil-based fuel because the crude oil supply is dwindling,” he said after visiting Batam Polytechnics in Batam, Riau Islands, as quoted by Antara news agency. He added that Japan and South Korea had mastered the technology for cars using oil-based fuel, so it would be difficult to match.

T

he recent decline in oil prices is likely to have a major, largely positive impact on the global economy – even greater than most observers seem to recognize. Indeed, if governments take advantage of lower oil prices today to implement critical energy-policy reforms, the benefits may improve structural features of their economies tomorrow.

A key reason why the price decline’s impact has so far been underestimated is that nobody knows how long it will last. And, indeed, past price movements provide little guidance in this regard. When prices plunged in 2008, they shot back up almost faster than experts could say “new normal”; after the 19861987 drop, prices remained low for a decade and a half.

This time, the price trajectory is likely to be determined by a new player in the energy game: shale oil. The marginal cost of shale-oil production (the expense of continuing to pump an existing well) varies from US$55 to US$70 per barrel. Add a US$5 profit margin, and the oil-supply curve now has a long, near-horizontal segment in the range of about US$60-75 per barrel. Regardless of demand, this will be the natural nesting range for the price of oil – call it the “shale shelf” – and will likely remain in place for a protracted period.

This provides some insight into OPEC’s decision last November not to curtail supply. Saudi Arabia correctly reasoned that cutting

A key reason why the price decline’s impact has so far been underestimated is that nobody knows how long it will last

output would not boost prices, but simply concede space for new players to step in and grab market share.

Of course, this pattern could be disrupted, if, say, a war or major conflict in an oil-exporting region constrained supply enough to cause prices to spike beyond the shale shelf. But, in the absence of a major unexpected shock, oil companies will remain under pressure to continue selling oil, even at low prices, as they struggle to service the large debts they incurred on investments when oil prices were high. This pressure is precisely what drove oil prices so low in December

and January.

Given this, it is reasonable to expect the oil supply to remain plentiful, and prices to remain moderate, through 2016 – a trend that will boost global growth by an estimated 0.5 percentage points over this period. The impact will be especially large for countries like India and Indonesia, where the bill for oil imports amounts to as much as 7.5% of GDP. In fact, India’s current account, which has been in deficit for years, is likely to record a surplus this year.

This creates a unique opportunity for energy-policy reform. In far too many countries, fuel is heavily subsidized, straining government budgets and encouraging wasteful consumption. Low oil prices offer an ideal opening to reduce subsidies, thereby releasing funds that governments can spend on basic services and social-welfare programs that advance poverty reduction.

But advising countries simply to lower subsidies is often meaningless. In countries where the government dictates gas prices – like India and Indonesia did until recently (and, to some extent, continue to do) – lower market prices would reduce the subsidy automatically. That is why holding down subsidies is inadequate for such countries.

The goal should be to shift from a fixed-price system, with occasional governmentdecreed adjustments, to a market-based price regime, in which the government makes a credible pledge not to limit

prices, with the exception of predefined extreme circumstances.

While such a move would have a negligible effect on prices now, it would provide countries with a huge advantage during future oil-price fluctuations, because consumers and retail suppliers would no longer be cut off from price signals.

Amid all of this good news, two serious concerns stand out.

In the short run, declining oil prices create grave challenges for those who, having invested in expanding production when prices were high, now face large costs and failing businesses.

More problematic, lower oil prices encourage excessive consumption – the long-term environmental impact of which will be compounded by the weakening incentive to invest in alternative energy sources.

Policymakers must recognize these risks, and implement policies to mitigate them.

Specifically, governments should divert the money they save on oil and subsidies to targeted programs aimed at helping people escape poverty, and they should incorporate into their tax regimes incentives for innovation and investment in clean energy.

With the correct approach, today’s oil-price volatility could turn out to be a critical turning point on the path toward a more sustainable future, characterized by shared prosperity and genuine progress on poverty reduction.

The direction to take is clear.

Project Syndicate, 2015

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February 11, 2015

Closing Hang Seng to sell Industrial Bank for US$2 Billion

Obama says time running out for Iran nuclear accord

Hang Seng Bank Ltd, the Hong Kong lender controlled by HSBC Holdings Plc, will sell a stake in China’s Industrial Bank Co. for as much as US$2 billion to boost capital.

The transaction will involve the sale of as much as 952 million shares, a 5 percent stake, at 13.36 yuan each, representing a deal size of as much as 12.73 billion yuan (US$2 billion), Hang Seng Bank said in a Hong Kong stock exchange filing.

The price presents a discount of about 7 percent to the closing price of Industrial Bank on the Shanghai Stock Exchange. The Hong Kong lender will keep a 5.87 percent stake in Industrial Bank after the disposal.

PresidentBarackObamasaidIranisrunningoutoftime to make a deal that would break a 12-year impasse and limit the Islamic Republic’s nuclear program in exchange for lifting international sanctions. “They should be able to get to yes,” Obama said Monday at a White House news conference with German Chancellor Angela Merkel. He said that stumbling blocks at this point are Iranian “hard-liners” and that nation’s internal politics.The president said he doesn’t believe any further extensions of talks would be “useful.” Negotiators have a March 24 deadline to hammer out a framework for an agreement to curtail any Iranian nuclear weapons capabilities. Iran says its nuclear program is solely for civilian purposes.

China plans to toughen national security The proposed security reviews are part of a law that could lead to the biggest overhaul of China’s rules governing foreign investment since the late 1970s Shai Oster

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hina’s plan to broaden its ability to review incoming foreign investments for nationalsecurity threats is fueling concern the move will add a layer of scrutiny for global companies expanding in the world’s second-largest economy.

The American Chamber of Commerce in China is preparing to voice concerns over the strengthened national-security measures, according to a draft of the Chamber’s response to the government’s proposed Foreign Investment Law. The trade group will also seek further clarification on various parts of the regulations.

The proposed security reviews are part of a law that could lead to the biggest overhaul of China’s rules governing foreign investment since paramount leader Deng Xiaoping introduced elements of capitalism into the economy in the late 1970s. The section on national security review stands out because they go beyond the current powers of China’s Commerce Ministry or the

comparable system in the U.S. “These changes will strengthen Beijing’s ability to use the NSR process to block foreign investments it deems unacceptable for policy or other reasons, a power it may use more often in the future,” Marcia Ellis, a Hong Kongbased partner at Morrison & Foerster LLP, said in an interview.

Under the Chinese proposal, which is subject to feedback from the public until Feb. 17, the State Council would create a inter-ministerial body to review investments that may threaten national security, just as the U.S. does with its Committee on Foreign

Investment, which is also known as CFIUS.

Chinese CFIUS Like CFIUS, China can block incoming foreign acquisitions through the Commerce Ministry. Unlike CFIUS, the new Chinese body would be able to scrutinize cases involving incremental investments or sales of minority stakes.

In the U.S., 87 percent of 538 transactions that were brought up for a security assessment between 2008 and 2012 were completed. The rest of the bids were mostly abandoned during the review process and only a singe deal

-- one involving a Chineseowned company’s plans to develop a windfarm near a Navy base in Oregon -- was rejected by a presidential decision, according a congressional report.

Fewer deals appear to be blocked by security concerns in China because most are scuttled in the early stages of confidential talks with officials, Ellis said.

The reviews, which would be jointly conducted by the Ministry of Commerce, the National Development and Reform Commission and any other agency with an interest in the deal, would be final and immune to any judicial appeal, according to lawyers interviewed by Bloomberg.

‘Broad scope’ “We are concerned with the broad scope in the Draft Law,” according to the draft letter from Amcham in China, the American Chamber of Commerce in Shanghai and U.S. Chamber of Commerce.

“We believe that any review process should be limited to national security risks,

China report shows financial Russia to ratify agreement risks reined In on BRICS bank by March

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he central bank has published a more granular look at credit expansion that shows it’s getting a lid on that murky world of shadow banking.

Outstanding trust loans, which are pooled loans sold as funds to investors, expanded 10.7 percent in 2014, a fraction of the 61.1 percent surge in 2013. Credit from Chinese companies’ commercial bills, basically a back endorsed IOU, shrank 1.8 percent, down from a 12.6 percent expansion in 2013 and a peak of 136 percent in 2010.

The development is double edged as it also suggests constrained financing for private enterprises and property developers.

The total outstanding value of aggregate social financing - - including bank lending, trusted loans, commercial bill borrowing and corporate bonds -- rose 14.3 percent, the least since 2005.

With shadow banking apparently tamed for now, the People’s Bank of China may have a freer hand to loosen monetary policy, with economists forecasting more interest rate cuts and lower bank reserve requirements this half.

ussia is set to ratify an agreement on the creation of a bank for the BRICS bloc of large emerging economies this month or in March, the country’s finance minister said.

The establishment of the development bank, aimed at providing funds for infrastructure projects, has been slow in coming with prolonged disagreement over funding and management of the institution.

Finance Minister Anton Siluanov said Russia was running ahead of the other BRICS nations.

“We are ahead of everyone. Our ratification is possible for the end of February or at the latest March,” Siluanov told reporters on the sidelines of a meeting of G20 finance chiefs on Tuesday.

Russia is expected to commit $2 billion to the fund.

Siluanov said discussions between BRICS countries took place at deputy level at the summit because not all of the finance ministers were there.

He said terms of reference for the bank as well as the board of directors and executives were being discussed.

Bloomberg

Reuters

and not national interest, economic security, industrial security or social stability.”

Besides the topic of national security, Amcham also urged the government to narrow the list of industries subject to restricted investment and said the proposed law could have a “significant impact” on companies listed overseas that use variable interest entities, commonly used to circumvent foreignownership limits, because of questions over foreign control and ambiguity over the fate of existing VIEs.

Chinese welcome The new rules come as foreign firms complain they are being unfairly targeted by the Chinese government, which on Tuesday announced it’s fining U.S. chipmaker Qualcomm Inc. a record $975 million for antitrust violations. In an Amcham survey last year, 60 percent of respondents in China said they feel less welcome in the country than before, up from 41 percent a year earlier.

Bloomberg

India’s anti-graft party decimates ruling BJP in Delhi

I

ndia’s anti-graft Aam Aadmi Party (AAP) scripted yesterday a landslide victory, decimating the country’s ruling Bharatiya Janata Party (BJP) in the assembly polls in the national capital, in a major setback for Prime Minister Narendra Modi.

The AAP, led by 46-year-old former civil servant-turned- politician Arvind Kejriwal, got 67 seats in the 70-member assembly while the BJP managed to bag just three seats -- down from 32 in the polls held in December 2013 -- and the main opposition Congress party failed to get even a single seat.

Kejriwal will take oath as Delhi’s Chief Minister at the Ramlila grounds on Feb.14, the same day when he had last year resigned as the Chief Minister, following 49 days in office after leading a minority government with outside support from the Congress party.

“We will always walk the path of truth. It is very scary, the kind of support the people of Delhi have given us. My top priority will be to end bribery. I will be people’s Chief Minister” he said, addressing his supporters.