MOP 6.00 Closing editor: Luís Gonçalves Publisher: Paulo A. Azevedo Number 734 Monday February 23, 2015 Year III
Turn off the tap S
uccess can be a double-edged sword. Particularly concerning the Mainland’s Individual Visit Scheme. Secretary for Social Affairs and Culture Alexis Tam says the tourist capacity of Macau is a “serious problem”. And plans to meet with Mainland Authorities to review containment options. Restriction is one, he says, with different periods or stages sanctioned. There are no drafted plans at the moment. Some 31.5 million visitor arrivals were recorded last year, with 5pct more anticipated in 2015 PAGE
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Mass CNY migration
MGM: Volatility in Macau likely throughout 2015 PAGE 6
More than 1.5 million border movements. This was the figure recorded in Macau during Chinese New Year as at yesterday. Saturday was the busiest day for Macau authorities with 400,00 people entering or exiting the city. The Border Gate took the brunt of the crossing crowds
China firms replace banks to drive Hong Kong rents PAGE 8 190 illegal gaming ads removed since January PAGE 3
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‘Huge’ infrastructure potential China can contribute to the economic corridor development in the Central Asia Regional Economic Cooperation zone. So says the Asian Development Bank. To be accomplished by sharing its experience in logistics, infrastructure, economic zones, spatial economic agglomeration, urbanization and public-private partnerships
Old districts, new concepts The gov’t is pushing the ‘cultural & creative’ agenda. And Leong Hou Weng, GM of Number 81 Co. Ltd., is answering the call. His enterprise has acquired 20 shops in all in old districts on the Macau Peninsula. “In Macau, the talks about the cultural and creative industries have gone on for years,” he tells Business Daily. “But still we haven’t seen any substantial outcome from them, or projects that attract much visitor traffic.” A dozen new ‘artisan’ stores are currently up and running
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Wait-and-see Down Under Fortunes Macau VIP gaming revenues continue to decline. But others are profiting from the situation. Two of Australia’s biggest casino operators, in particular. Crown Resorts and Echo Entertainment registered record profits in their VIP rooms as gamblers move Down Under
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Ambrose So advises a wait-and-see attitude. The Chairman of the Board of Directors of SJM referred to the arrest of senior management member Alan Ho. “Mr. Alan Ho is responsible for managing Grand Lisboa. Concerning SJM, Mr. Alan Ho was not detained on SJM property. I think it’s better to wait and see what will happen”, said Mr. So
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February 23, 2015
Macau
Authorities register 1.5 mln border movements as at yesterday Saturday was the busiest day for Macau authorities as some 400,00 people left or entered the territory João Santos Filipe
jsfilipe@macaubussinessdaily.com
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total of 1.529 million border movements were recorded during Chinese New Year as at the time this newspaper went to press. The number of people leaving Macau was marginally larger than the number of people entering. A total of 766,523 left the Special Administrative Region, while 762,541 had entered since Wednesday until yesterday at 5.00 p.m. Saturday was the most crowded day at the borders of Macau as 407,201 people crossed, of which 220,450
entered the SAR and 186,751 left; followed by Friday (351,534) and Thursday (276,016). The Border Gate was the busiest border point totalling 518,849 people leaving and 517,849 people entering from Wednesday until yesterday, followed by the Outer Harbour Ferry Terminal (115,577/142,972) and Macau International Airport (36,969/35,662). Earlier this year, the Macau Government Tourist Office predicted that the
number of tourists to the territory would hit the one million mark during the first week of Chinese New Year, predicated upon 800,000 Mainland visitors travelling to Macau during this period in 2014. According to MGTO figures, the number of visitor arrivals in 2014 was 31.5 million, representing an increase of 7.5 per cent in relation to 2013. For this year, the government predicts an increase in total annual visitor arrivals of 5 per cent year-on-year.
SAR facing economic challenges, opportunities in Year of the Goat
T
he Secretary for Economy and Finance, Lionel Leong Vai Tac, said on Friday that challenges will co-exist with opportunities for the economy of Macau in the Year of the Goat, indicating that the city should seek not to reverse the development of the economy under the new environment. Mr. Leong said that he is still confident in the future development of the economy and the resilience of local industries when he phoned in to TDM Radio’s Macau Forum to express Chinese New Year greetings last Friday. “Although we see that the gaming taxes have been dropping recently and some industries are undergoing adjustment, the overall environment of the market, the visitor number, and the consuming ability of tourists remained well,” he told the show. “In the Year of the Goat, we will have some
opportunities for regional cooperation. In addition, some new big [casino] projects are to be completed this year. Hence, I think Macau should pursue adjustment only in the speed [of economic development] and not reverse [the development],” the Secretary said. Meanwhile, he said that the primary tasks for Macau to reach a diversified economy are to complete its roles as the World Centre of Tourism and Leisure and as a trade and economic co-operation service platform between China and Portuguesespeaking countries. He indicated that combining the regional diversity in the economy and the local economy will help Macau improve its economic structure, indicating that industries such as MICE, cultural and creativity, as well as Chinese medicine, will be the new economic growth points. K.L.
SJM adopts wait-and-see attitude to Ho case The Chairman of the Board of Directors of SJM, Ambrose So, said that the company is waiting to hear the outcome of the detention of senior management member Alan Ho, who was allegedly involved in a prostitution racket João Santos Filipe
jsfilipe@macaubusinessdaily.com
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he Chairman of the Board of Directors of SJM, Ambrose So, said that the company is taking and wait-and-see attitude in relation to the arrest of senior management member Alan Ho. The nephew of gaming tycoon Stanley Ho Hung Sun was arrested in January for allegedly being involved in a prostitution racket. “Mr. Alan Ho is responsible for managing Grand Lisboa. Concerning SJM, Mr. Alan Ho was not detained on SJM property. I think it’s better to wait and see what will happen”, Ambrose So is quoted as having said by Portuguese language radio TDM, during the company’s traditional Lunar New Year’s Eve Gala Dinner. Ambrose So also said that changes in government policies and in the global economy have resulted in one of the more challenging times for Macau’s gaming and tourism industry. “The economic environment for Macau and for the tourism and gaming industries has become more challenging than in any recent year. Changes in government policies and in the global economy have created an uncertain climate”, he said. “This comes at a time when Macau is making significant progress toward becoming a world centre of tourism and leisure, as the numerous resort and infrastructure projects under construction testify”, he stressed.
The Chairman of the Board of Directors of SJM explained that work on the company’s Cotai Project Lisboa Palace – is progressing on schedule. The project is slated to open in 2017. The Managing Director of SJM, Angela Leong, said that the company is very optimistic about the future of Macau and praised the work of
the local government, represented at the gala by the Chief Executive, Fernando Chui Sai On. “For the past year, gaming revenue, although a bit slack, SJM continues to be optimistic about the future economic development of Macau under the guidance and leadership of the Macau SAR Government”, she said.
Miss Leong also commented on the importance of the company’s new Cotai project. “The SJM team has been working diligently and devotedly on our mega project, the Lisboa Palace. SJM and I value the importance of this project, and I’ve been heavily involved in all aspects to perfect the Lisboa Palace project”, she revealed.
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February 23, 2015
Macau
Alexis Tam: Gov’t to review Individual Visit Scheme The Secretary says the city is receiving too many tourists and it is impossible for Macau to receive even more. Mr. Tam is going to meet with the Mainland authorities after Chinese New Year to study how to improve the scheme Kam Leong
kamleong@macaubusinessdaily.com
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for Mainland tourists with the State Council of China, National Tourism Administration, and the governments of the Mainland provinces which had joined the scheme, such as Guangdong Province. Mr. Tam perceives that Macau is only a small place occupying some 30 kilometers hence it is not possible for Macau to “digest” more tourists given the limitations of the capacity of Macau, even though the scheme has helped boost the economy of the Special Administrative Region since 2003. Nevertheless, the Secretary said that he does not have any drafted plans on how to improve the Individual Visit Scheme. Asked by reporters whether he hopes that Mainland authorities will tighten up the scheme, Mr. Tam said that restriction is one of the directions, claiming leading tourists to visit Macau
ecretary for Social Affairs and Culture Alexis Tam Chon Weng says the tourist capacity of Macau is a “serious problem”, claiming the government would review the mainland’s Individual Visit Scheme with Mainland authorities after Chinese New Year. The Secretary announced the possible review on Thursday morning, when he phoned local radio broadcaster TDM’s ‘Macau Forum’ show to send Chinese New Year greetings. During the show, he indicated that the government had realised that there are too many tourists in the city, which is affecting the quality of life of residents. He later told reporters on the sidelines of a government event celebrating the Chinese New Year that afternoon that the local government will study and analyse how to improve the travel scheme
190 illegal gaming ads removed since January
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he government has removed a total of 190 advertisements illegally promoting gambling since the beginning of this year, the acting head of the Inspection of Economic Activities Department of Economic Services, Kong Son Cheong, said. The acting head of the government department told local Chineselanguage newspaper Macao Daily in an interview published on Thursday that the number of gaming ads has been climbing since the fourth quarter of last year, and mostly promote online gaming on outdoor advertisements or on the walls of buildings, as well as on the exteriors of tour buses and taxis. According to Mr. Kong, the Economic Services are still investigating these illegal advertisements, while files have been opened on 31 illegal outdoor advertisements and those posted on the walls of buildings. He said that 22 of these 31 illegal ads, which had been posted near
in different periods or by different stages may also be possible, on the premise that the quality of life of Macau residents will not be affected. “The tourists will understand [the future restrictions]. If Macau is so crowded that [people] cannot even get on a bus or cannot find a restaurant for a meal, I believe even the tourists would not like to come,” he said. On the other hand, Mr. Tam reckons that regular crowd-control measures in the area of Ruins of Saint Paul’s are unnecessary, claiming crowds of tourists in the area only appear in peak tourist seasons. In 2014, the city received a recordbreaking number of visitors – more than 31.5 million visitor arrivals were registered, according to the Macau Government Tourist Office, which predicts that the number of tourists in 2015 will grow by more than five per cent year-on-year.
Corporate
the Border Gate and in front of the parking lot of tour buses in the area, had been removed by the advertisers themselves. However, he indicated that some of the outdoor advertisements near the Border Gate are not under the management of the Special Administrative Region. In addition, Mr. Kong claimed that less than five per cent of the ads currently posted on the exteriors of tour buses and taxis promote gaming elements, quoting the official data of the Economic Services. Meanwhile, regarding the advertising industry’s claim that the government has requested the removal of outdoor advertisements by gaming corporations, the acting head said the department’s requests for advertisement removals depend solely on content, indicating that any advertising promoting gaming as a major message is prohibited, but not those promoting non-gaming elements. K.L.
MGM MACAU celebrates Chinese New Year with lion dance blessing ceremony MGM MACAU held a lion dance blessing ceremony at the hotel property to mark the arrival of the Chinese New Year. The ceremony kicked off with an eye-dotting ritual performed by Mr. Grant Bowie, Chief Executive Officer and Executive Director of MGM China Holdings Limited, with his management team, as he wished Macau a promising year ahead and all an auspicious Year of the Goat. The ceremony culminated with a spectacular lion dance parade to the accompaniment of cymbals, drums, firecrackers and gongs. The crowd watched in amazement as the lions marched into the hotel lobby to kick the festive atmosphere up a notch. Grande Praça was dressed up for the Chinese New Year with enormous jade and gold coins hovering over the Water-Sky Aquarium, symbolizing good fortune. Until March 15, visitors can wander from stall to stall at the Grande Praça and savour various East-meets-West delights like Beijing-style sugar coated fruit skewers, traditional Beijing pastry and doughnuts, as well as specialty homemade ice-creams and sorbets in unique flavours.
4 | Business Daily
February 23, 2015
Macau
Old neighbourhoods conduit for cultural and arts tourism In an interview with Business Daily, Leong Hou Weng, the General manager of Number 81 Co. Ltd., explains his concept of “cultural and creative” retail in acquired shop spaces in the city’s old neighbourhoods. Twelve new shops in two small lanes near St. Paul’s Ruins and eight more in Calçada Central de S. Lázaro pioneer the grand experiment Stephanie Lai
sw.lai@macaubusinessdaily.com
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cquiring shop spaces in the city’s old neighbourhoods, turning them into artistic products stores and directly operating them is Number 81 Co. Ltd.’s new retail format that seeks to have profits saved from being eclipsed by everincreasing shop rents. About a year ago, Leong Hou Weng, the general manager of Number 81 Co. Ltd. charged his team with finding old, defunct shop spaces in Macau’s old neighbourhoods, a search that culminated in his company reaching Rua de Nossa Senhora do Amparo and Patio de Chon Sau – two small and quiet lanes near the tourist-packed St. Paul’s Ruins, as well as Calçada Central de S. Lázaro, a back lane near St. Lazarus Church. All these small lanes are located on Macau Peninsula. The subsequent action of Mr. Leong and his company was the purchase of 12 shop spaces on Rua de Nossa Senhora do Amparo and Patio de Chon Sau, and another 8 ground-floor shop spaces on Calçada Central de S. Lázaro. Mr. Leong is not willing to disclose the investment figure involved in the acquisition of the shop spaces and turning them into “specialty retail stores” selling glassware, ceramic art works, design clothing, furniture and even candies.
Starting Point “In Macau, the talks about the cultural and creative industries
In Macau, the talks about the cultural and creative industries have gone on for years but still we haven’t seen any substantial outcome from them, or projects that attract much visitor traffic Leong Hou Weng, General manager of Number 81 Co. Ltd.
have gone on for years but still we haven’t seen any substantial outcome from them, or projects that attract much visitor traffic,” Mr. Leong Hou Weng told us in an interview. “So, we want to build a project with an artistic ambience, one that comprises stores selling artistic products as well as a cafe and restaurant, so that people can come to this small neighbourhood to eat, play and shop.” Another associate of Mr. Leong’s company, a unit called Number 55
Co. Ltd., is the owner and operator of a similar street project concentrating on artistic product stores on Calçada Central de S. Lázaro – but the retail content of the eight stores is still being planned. Mr. Leong is also the general manager of Kou Fu Real Estate, a local company specialising in purchasing the city’s old low-rise residences and redeveloping them into offices. But Kou Fu has no stake in the two emergent art street projects or takes part, nor does it take participate
in their daily operation, Mr. Leong explains.
Expensive Mr. Leong and his team witnessed the launch of the shops on Rua de Nossa Senhora do Amparo and Patio de Chon Sau in the first week of February, from which they hope their retail operations will benefi from a spill-over of visitors from the nearby crowded St. Paul’s Ruins zone.
Business Daily | 5
February 23, 2015
Macau “When we acquired these shop spaces on Rua de Nossa Senhora do Amparo and Patio de Chon Sau, all of them were defunct. And we did encounter some difficulties in the acquisition process where the owners were really aggressive in the price call, or were unwilling to sell the units because they were inherited properties,” Mr. Leong told us. “These shop spaces were also of an old structure which needed quite a lot spent on to renovate the whole thing. Renovation costs in Macau are now very expensive,” the project operator said.
Leasing out Mr. Leong’s Number 81 Co. Ltd. owns all 12 stores on Rua de Nossa Senhora do Amparo and Patio de Chon Sau, and directly operates six of them. These six stores sell Murano glass, South African handicrafts, designer furniture, ceramic art works, and candies. (see portfolio) Six other units are leased to the operators of a mobile phone and gadget store, a Macanese cafe, a patisserie, a local design clothing store, a Korean fashion & make-up studio and a restaurant. “We are leasing out the shop spaces at a discounted rent, which is about 40 per cent cheaper than the streets in other old neighbourhoods,” Mr. Leong said, “For some of the shops we also subsidise their renovation costs.” “We’re basically saved from the pressure of having landlords that threaten you with a pricey rent
We want to build a project that has an artistic ambience, and one that comprises stores selling artistic products as well as a cafe and restaurant
We did encounter some difficulties in the acquisition process where the owners were really aggressive in the price call
increase, as we’re been directly operating these acquired properties,” he added. “As long as you have better visitor traffic, you can sustain the business here. Now many people are really scared of the rent increases in the streets, which is what we’ll not [impose] upon our tenants.”
Shopping for arts While the emergent specialty retail project on Rua de Nossa Senhora do Amparo and Patio de Chon Sau has begun attracting curious tourists since starting operations at the beginning of this month, Mr. Leong expects that the payback period for this street project will only transpire some five years later. The consideration of establishing the project in these two quiet lanes takes advantage of the adjacent tourist attraction of St. Paul’s Ruins, while the lanes are also located in an antique stores-dotted neighbourhood with a special cultural ambience, Mr. Leong remarked. The venture of he and his team into the sale of art works started two years ago when associate company Number 55 Co. Ltd. opened a gallery near the Mandarin’s House in Barra district and another one near Albergue SCM in St. Lazarus district, which were again acquired properties in the old neighbourhood.
Cool “‘Cool’ [the gallery in Albergue SCM] has been hosting some activities
of artistic exchange these years, like the Sino-Portuguese photography exhibition that’s on now,” said Mr. Leong. “These two galleries represented our very first step in trying this model of acquiring properties and operating them directly. We’re dedicated to these projects, even though the returns will only come slowly.” Mr. Leong’s venture has fortuitously begun amid the government’s increased call to diversify tourism resources from its vibrant gaming industry, and it has already begun marketing some of the city’s neighbourhoods or art exhibition centres as an alternative travel route for visitors. An example is the St. Lazarus Church district, coined by the Macau Government Tourist Office as a ‘Cultural and Creative Industries Zone’, and embracing Portuguesestyle houses in Albergue SCM and 10 Fantasia, housing galleries, a Portuguese restaurant, and a centre hosting art-related courses.
A diverse portfolio of products Stores directly operated by Number 81 Co. Ltd. 289 – Murano glass PSR – South African arts and crafts T.O.W. - Contemporary art works Buddy – Candy store KUSO – Ceramic art works by Portuguese artist Mário Reis HMPH – Modern Asian glass Stores leased out by Number 81 Co. Ltd. Cacao Patisserie – Italian gelato and French patisserie Advanced – Mobile phone and gadget store SAB8 – Macanese cafe (opening soon) DARE TO DREAM – Macau fashion brand BESTIE – Korean fashion and make-up studio HAYO – Fusion cuisine (opening soon)
6 | Business Daily
February 23, 2015
Macau
MGM: Volatility in Macau likely throughout 2015 The Chairman and Chief Executive Officer of MGM International Resorts, James Murren, said in an interview that 2015 is an uncertain year but that he’s nevertheless very confident about the future of Macau’s gaming industry João Santos Filipe
jsfilipe@macaubusinessdaily.com
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he Chairman and Chief Executive Officer of MGM International Resorts is not expecting stability to arrive in Macau’s gaming industry any time soon. The CEO of the major shareholder of MGM China explained his perspective on Macau in an interview with American Broadcast channel CNBC. “I don’t think that volatility is going away near-term”, James Murren said last week during the interview. “This year is uncertain”. Last year, Macau gaming revenues declined 2.6 per cent from MOP360.7 billion in 2013 to MOP352 billion. This result was the consequence of a seven-month declining streak during 2014. The cold streak, however, persists as it has been prolonged a further month, after revenues shrank another 17.4 per cent in January from
MOP28.7 billion to MOP23.7 billion. February is not expected to change this scenario for the gaming concessionaires, with the ‘losing’ streak likely to hit the nine-month mark. In February 2014, gross gaming revenue peaked at MOP38 billion, a year-on-year increase of 40.3 per cent. Most analysts are now predicting that February 2015 revenues will drop from 40 to 50 per cent Y-O-Y. In spite of this scenario, driven among other factors by the Central Government’s policy on corruption in Mainland China that has diverted VIP gamblers from Macau, the Chairman and CEO of MGM International Resorts expressed confidence in the future of the Special Administrative Region. “We’re very confident about
Macau’s long-term potential. But the VIP business, the highend business, has been really suffering from the corruption crackdown in China”, he said. He explained that the operations of the company in Macau had outperformed the results of all other regions but that “still doesn’t make it feel any better”. Murren also said that not only his company but other concessionaires in Macau’s gaming market are taking a “longer-term view”. This was in reference to the second wave of casino openings in Cotai, which kick off in May with the opening of Galaxy Phase II and Galaxy at Broadway. Concerning MGM China’s investment in Cotai, it is expected to open next year and during MGM International Resorts’ fourth-quarter earnings call Murren said that
James Murren, CEO of MGM International Resorts
construction was “progressing really well”.
Five per cent increase in profits Last year - and despite the 2.6 per cent drop in gross gaming revenue - MGM China managed to increase its profit 5 per cent from an operational profit or EBITDA of HK$6.645 billion (MOP6.844 billion) in 2013 to HK$6.998 billion
(MOP7.208 billion). The profit margin (a measure of a company’s profitability) also rose 170 basis points to 27.5 per cent with higher revenues coming from the mass market and better cost control, MGM said in its results for the fourth quarter of the year. “We are certainly not immune to the challenges confronting the Macau market but we do believe we have robust and responsive strategies that will allow us to create opportunities for future growth”, Grant Bowie, Chief Executive Officer and Executive Director of MGM China, said. MGM China is a joint venture of the American company MGM Resorts International and Pansy Ho, daughter of casino mogul Stanley Ho.
Corporate General Manager Martin Schnider with dragon Parade
Mandarin Oriental Macau Welcomes Year of the Goat Mandarin Oriental, Macau welcomed the auspicious Year of the Goat today with roars of firecrackers and a series of celebratory activities. After the rituals of thanks performed by the hotel management, Martin Schnider, General Manager of Mandarin Oriental, Macau, initiated the traditional dragon and lion dance processions in an eye-dotting ceremony. Mimicking the movements of the lion and the legendary dragon, the dance was meant to bring good luck, fortune, power, wisdom and prosperity to all the guests, staff members and the hotel. After a ‘lettuce picking’ ritual (which symbolises possessing prosperity), a couplet presentation and a martial arts performance, the ceremony came to an end as firecrackers lit up the sky. The dragon and lion parades then went around the hotel together with the ‘God of Fortune’ to spread prosperity and fortune to everyone.
Business Daily | 7
February 23, 2015
Gaming
Australia’s casinos play winning hand as China crackdown spooks Macau Crown Resorts, Australia’s biggest casino firm, said revenue from VIPs gambling at its Melbourne casino nearly doubled in the six months ended December, while rival Echo Entertainment Group Ltd. said VIP gambling in its Australian casinos had hit a record in the half
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ustralia’s top two casino operators are profiting from expanding at home as China’s anti-corruption crackdown empties the once-booming gambling hub of Macau, sending Asian high rollers further afield. As Macau’s takings slide, Crown Resorts Ltd., Australia’s biggest casino firm by market value, said last week that revenue from VIPs gambling at its Melbourne casino nearly doubled in the six months ended December. Rival Echo Entertainment Group Ltd. has said VIP gambling in its Australia casinos hit a record in the half. Even as the Macau hit ate into its profits, Crown shares jumped 10 per cent, joining Echo in rising on proof they are succeeding as casinos around the world look to lure customers from the biggest global gambling centre. Macau is expected to see an industry revenue slump of about 40 per cent this month. The boost comes as Crown, halfowned by Australian billionaire James Packer, and Echo step up their domestic rivalry. Crown is building a A$2 billion (US$1.56 billion) casino a short walk from Echo’s newly refurbished Sydney waterfront complex, while the pair are also vying for government approval to build a casino in Brisbane - an Asian tourism hotspot. “There’s no doubt been some diversion from Macau,” Crown Chief Executive Officer Rowen Craigie told an analyst briefing on Thursday. “You don’t want to over-emphasise that but clearly those more distant destinations have benefited.”
KEY POINTS Crown Resorts says Melbourne VIP gambling surges Shares up 10 pct even as Macau six-month profits slide Echo Entertainment also luring custom from Macau
Crown Casino and the Eureka Tower on the Yarra River in Melbourne
Crown’s shares hit a five-month high on Thursday, even as it reported half-yearly profit nearly halved largely on falling Macau takings. While Crown’s profit from its onethird stake in Macau-focused Melco Crown Entertainment slumped by 42 per cent, revenue from VIPs gambling at its Melbourne casino leapt 86 per cent. Two weeks earlier, Echo said turnover from VIP gamblers at its Australian casinos nearly doubled to an all-time high of A$23 billion as net profit for the period surged 78 per cent to A$112.6 million. Its
shares have risen by up to 9 per cent on the news.
Junkets Galore The newly created diaspora of high rollers has given the Australian casino operators a fresh motivation to win over junket operators, now looking for new destinations to send their clientele with no particular attachment to a country. “VIP (clientele) is volatile,” said Paul Kasian, head of asset management at EQT Trustees, which holds 0.24 million shares of Crown. “You’re
probably going to see VIP spread out of Macau...various destinations will benefit.” Crown said it will work to build relationships with Macau-based junket operators whose business largely involves sourcing high-net-worth individuals from the mainland and arranging all-in-one holiday packages involving gambling. It is up to junket providers to mine potential customer bases by finding those with business or family connections to Australia and luring them with financial incentives and giveaways, said Crown’s Craigie. “There’s always the search for attracting new junket operators and inviting existing junket operators to step up their level of business,” he said. “Increasingly they’re putting business into other destinations (outside Macau). They’ve got choices just as the premium players have.” Reuters
Mongolian parliament to vote on casino bill With Xi Jinping having announced restrictions in the territory and gross gaming revenue decreasing steadily for eight consecutive months, the plan is to lure Chinese gamblers to Mongolia from Macau
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he Mongolian parliament may vote this month on draft legislation to develop multibillion dollar casinos to lure gamblers away from hubs like Macau, in an effort to stimulate a slumping economy and diversify from the mining industry. At a meeting on February 12, the country’s Cabinet Secretariat approved the draft of a bill that would target private partnerships to build two casinos targeting China’s high-roller gamblers, according to an email to Reuters from the Ministry of Justice. The move comes as countries across Asia from Vietnam to South Korea are building large-scale casino resorts to lure the
region’s wealthy gamblers, particularly from China, to boost consumer spending, leisure industries and economic growth. Companies including U.S. billionaire Sheldon Adelson’s Las Vegas Sands, MGM Resorts and Genting Bhd are keen to expand their footprint in Asia. “Russia, China and Japan are some of the biggest gamblers in the world. Japan and Russia already don’t need visas for Mongolia, and Chinese with official passports don’t either,” said a member of the working party that drafted the bill, who asked not to be named. The working party member said that the bill comes with restrictions that would bar Mongolians from
playing in the casinos, similar to countries like Vietnam, South Korea and Cambodia. In February, China announced it will crack down on attempts by foreign casinos to lure its citizens abroad to gamble. The proposed bill has not specified potential casino locations but the working party member said that one option would be Khushigt International Airport, currently under construction with Japanese partners Mitsubishi Corp. and Chiyoda Corp. taking lead roles. The casino would likely be fully owned and operated by private investors as part of a larger effort to create centres for tourism to boost the industry. “Xi Jinping has plans for
restrictions on Macau and business is shrinking now, so hopefully we can get tourists that might have travelled to Macau,” said the working party member involved with cobbling the bill together. Mongolia annulled legislation permitting casinos in 2010 because of concerns
about corruption and social issues. The working party, which operates directly under the prime minister, has said it looked at casino legislation in France, the United States, Singapore and Korea before drafting the bill. Reuters
8 | Business Daily
February 23, 2015
Hong Kong
Companies will continue to look for decentralised locations for cost savings… If some space is returned on expiry or surrendered, increasing demand from mainland firms can backfill that space Marcos Chan, CBRE’s head of Hong Kong research
China firms replace banks to drive Hong Kong rents
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hinese brokerages and asset management firms are underpinning Hong Kong office rents as the city cements its financial-market ties to the world’s second-largest economy. Prime office space leased by financial companies north of the border was 148,000 square feet last year, a 51 per cent jump from 2013, according to data from realtor CBRE Group Inc. Industrial Securities Co., a brokerage based in Fuzhou city in eastern China, and Sino Life Insurance Co. are among those that have rented new offices in Hong Kong’s Central business district in the last two quarters, CBRE said. Chinese firms are expanding in the city as Hong Kong connected its stock exchange with Shanghai in November and is expected to replicate the link with Shenzhen’s bourse later this year in a push by China to globalize its markets. They are also propping up the world’s costliest office market after London as some foreign banks including Standard Chartered Plc and Barclays Plc scale back unprofitable businesses. “Chinese financial services companies are eager to expand here because they see Hong Kong as a perfect springboard for their internationalization,” Ricky Lau, the head of office leasing at Savills Plc in Hong Kong, said in an interview. “Hong Kong’s stock market is robust and active. That also attracts Chinese brokerages.” Overall rents this year are expected to rise 5 per cent, compared with 0.2 per cent growth in 2014 and a 1.6 per cent decline in 2013, according to CBRE.
More links Hong Kong’s Chief Executive Leung Chun-ying said at a February 9 forum he hopes the bourse link with Shenzhen will begin in the second half of this year. Like the Hong Kong-Shanghai connect, it will allow foreigners to invest in China’s equities and Chinese investors a route to buy Hong Kong stocks. “A lot of mainland banks and
brokerages still don’t have branches in Hong Kong, or they only make up a small portion of the business,” said Marcos Chan, CBRE’s head of Hong Kong research. “Those in securities trading and wealth management will gradually start to position themselves in Hong Kong” as links extend to other markets including commodities, he said. China is also studying connecting its bond market with Hong Kong, the South China Morning Post reported on February 10. The average value of shares changing hands on the Hong Kong bourse climbed 18 per cent to HK$72 billion ($9.3 billion) in the past 12 months from a year earlier, according to data compiled by Bloomberg.
Smaller spaces While Chinese firms looking to establish Hong Kong offices are willing to pay a premium of 5 per cent for a good location, according to Lau of Savills, they are opting for smaller spaces. They are mostly seeking new offices under 10,000 square feet as vacancy rates in prime Central buildings remain low, according to Jones Lang LaSalle. They accounted for 28 per cent of all new lettings in Central last year, the realtor said. “The demand is healthy, but they’re not scrambling for the space,” said Paul Yien, regional director of markets at Jones Lang LaSalle. “They might renew and expand by another 3,000 to 4,000 square feet. It’s not massive growth.” Industrial Securities rented a whole floor in the AIA Central building, while Shenzhen-based insurer Sino Life leased 6,200 square feet of net floor area in Two International Finance Centre, according to CBRE. Two IFC, the second-tallest skyscraper in the city, is home to the Hong Kong Monetary Authority and UBS Group AG.
Everbright, Haitong China Re Asset Management Co., a unit of Beijing-based China
Reinsurance Group Corp., leased 5,000 square foot at Three Exchange Square in Central, according to Savills. Everbright Securities Co., the brokerage that’s seeking to purchase Hong Kong-based Sun Hung Kai Financial Ltd., expanded its offices at Far East Finance Centre in the Admiralty district, paying as much as HK$80 a square foot, a person with knowledge of the transaction said. Average rents in Admiralty and Far East Finance Centre are HK$50 to HK$60 per square foot. High rents are a concern for Haitong International Securities Group Ltd., which said it wants to hire some people dismissed by global banks. “We will utilize our existing offices before considering expanding,” spokeswoman Mimzy Si said by phone. “We could consider getting more space if the rent is attractive.”
Global banks For now, the mainland firms are a boon for landlords as some multinational banks scale back operations or seek cheaper rents to cut costs. Standard Chartered said last month it would cut 200 equities jobs, mostly in Asia. The bank, whose lease at Two IFC is coming due in July, has no plans to move from the building, a person familiar with the situation said. Joyce Li, a spokeswoman at the London-based bank, declined to comment. Nomura Holdings Inc., which also cut jobs at its Asia equities division, renewed its lease at Two IFC though negotiated a lower rent, said another person with knowledge of the deal. Aaron Pan, a Nomura spokesman, declined to comment. Barclays, the U.K.’s second-biggest bank by assets, started eliminating 100 jobs across its Asia-Pacific investment-banking and markets businesses in the middle of last year. Allister Fowler, a spokesman for Barclays, declined to comment on the bank’s office lease. “We’re seeing individual cases of space being returned, but it’s not a
trend happening with every bank,” said Jones Lang LaSalle’s Yien. “With a low vacancy rate of 3.7 per cent in Central, I don’t see a huge impact on the market.” Wells Fargo & Co. is relocating from Central to Three Pacific Place, owned by Swire Properties Ltd., in the Wan Chai district, according to CBRE. German bank Commerzbank AG is moving to The Lee Gardens, owned by Hysan Development Co., in the Causeway Bay district, according to Savills.
Decentralised locations Royal Bank of Scotland Group Plc gave up half of its offices in Central and moved to the eastern district of Quarry Bay, people with knowledge of the matter said in August. RBS has firmed up plans to sell or wind down its Asian corporate banking business within months, a person familiar with the process said earlier this month. The average monthly rent in Central as of the fourth quarter was HK$99.3 a square foot, compared with HK$59.9 in Wan Chai and HK$45.6 in Hong Kong’s east, according to CBRE. “Companies will continue to look for decentralized locations for cost savings,” said Chan of CBRE. “If some space is returned on expiry or surrendered, increasing demand from mainland firms can backfill that space.” New supply this year is expected to be almost 2 million square feet, falling short of the average annual demand of 2.4 million square feet, according to Yien at Jones Lang LaSalle. Less than half of the new supply won’t be available for lease, such as a building purchased by Citigroup Inc. last June for its own use, Yien said. “Now we’re seeing the mainland firms coming in, starting small; if business is good, they’ll double the space,” said Craig Shute, CBRE’s senior managing director for Hong Kong, Macau and Taiwan. “Hong Kong is still the gateway for China as well as capital going from east to west.” Bloomberg
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February 23, 2015
Greater China
Deciphering the Chinese economy, from grassroots To buffer the economic downturn, the Chinese government has loosened monetary policy through rate and reserve requirement cuts, deepened economic reforms, reduced government intervention, and rolled out infrastructure projects from railways to power plants. But how did these policies actually affect those at the coalface?
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or those living in the Loess Plateau in northwest China, the Spring Festival celebration came at the end of a long, bitter winter. It is also the time of year when people like Su Haiying, from Ganguyi Town in Yan’an City, calculate how much they earned in the outgoing Lunar Year. Su may be from farming stock but he no longer tends the sweet potatoes that were once the most important source of income for generations of farmers working the area’s barren, loose, sandy soil. Instead, Su and his son turned to the more profitable trade of building material transportation. “The Year of the Horse was bad for our transportation business,” Su lamented, adding that in 2014 he and his son only earned half of what they had in 2013. China’s property market plummeted last year as oversupply dampened buyers’ enthusiasm. The crash in real estate investment, especially in new construction projects, played its part in dragging China’s economic growth down to a 24-year low. However, there are other opportunities to make a good wage despite the property market downfall: Infrastructure projects. Su and his son were able to secure work with a highway construction project, making around US$10,000. Meanwhile, Su’ s neighbor Tian Guangping was glad that he followed in his father’s footsteps and continued to cultivate crops. “Last year I made about 90,000 yuan (US$14,000),” Tian said. He said the money came from the sweet potatoes that he had grown on his half a hectare plot of rented land. Sweet potatoes from Ganguyi have a great reputation as the tubers grow particularly well in the region’s soil. Tian has big dreams for the Year of
Almost every young man and woman has left for the city… They are now construction workers or waitresses Loess Plateu, government official
the Goat. His town plans to establish a 24-hectare organic sweet potato farm in 2015. Tian hopes to be involved in the project as “green products” fetch a higher price on the domestic market. The Party’ s flagship magazine
Qiushi last week published an article by Chinese Premier Li Keqiang that advocated agricultural modernization. Li wrote that this was increasingly more important as it would stabilize economic growth and promote structural transformation. The article follows a commitment by the central government earlier this month to expedite agricultural modernization through favorable policies, deepened reform and technological innovation.
New trends Su’s “yaodong”, a house dug out of a hillside, is now connected to the Internet. A township official said about half of the families living in villages near the town center are also connected, with plans to expand the network further. This is to expected to narrow the e-commerce usage gap between urban and rural residents. Experts forecast that the rural e-commerce market will
top 460 billion yuan by 2016 in terms of online sales, and has the potential to exceed urban consumption within the next decade. Chinese e-commerce giant Alibaba announced last October that it would invest 10 billion yuan over the next three to five years to build 1,000 operating centres in county seats and up to 100,000 service outlets in villages. The isolated Losses Plateau also sees more and more of the younger generation leave for the bigger cities, and many in the area only expect this trend to continue. According to a local government official who requested anonymity, only about 30 people now live in his village, as compared to the officially registered population of 360. “Almost every young man and woman has left for the city,” the official said. “They are now construction workers or waitresses.” “The young people don’t see farming as a ‘good job’,” one villager said. Xinhua
ADRs rally for third week as sales drive gains Guangzhou-based company Vipshop reported sales of US$1.36 billion in the fourth quarter, compared with the US$1.23 billion average estimate
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hinese stocks rose for a third week in New York, the longest stretch since October, after better-than-expected sales data from Vipshop Holdings Ltd. boosted optimism about Internet companies’ quarterly results. Vipshop, a Chinese online fashion retailer that focuses on time-limited “flash” sales, jumped 17 percent in the holiday-shortened week, set for the biggest advance since March. JD.com Inc. and E-Commerce China Dangdang Inc. climbed more than 6 percent in the four days. The Bloomberg index of the most-traded Chinese companies in the U.S. was
up 0.8 percent for the week, extending its 2015 advance to 6.1 percent. Vipshop on February 16 posted fourth-quarter sales that beat projections and predicted first-quarter revenue growth that was above estimates. Of 16 U.S.-listed Chinese companies that have posted fourth-quarter results, 11 have surpassed analysts’ mean sales forecasts, data compiled by Bloomberg show. Automobile information website Autohome Inc. and travel-booking site Qunar Cayman Islands Ltd., which are among 12 companies estimated to post results next week, are projected to say that sales jumped.
“The big picture is that the number of Internet users in China is still increasing,” Brendan Ahern, New Yorkbased managing director at Krane Fund Advisors LLC, a provider of Chinese ETFs, said by phone. “Companies will figure it out how to monetize the move onto the mobile space. The other macro driver is the growth in domestic consumption, which will benefit these Internet companies.”
Autohome sales Vipshop slipped 0.1 percent to US$25.57. The Guangzhou-based company reported fourth- quarter
sales of US$1.36 billion, compared with the US$1.23 billion average estimate of 10 analysts surveyed by Bloomberg. It forecast sales will grow to as much as US$1.3 billion this quarter, beating a US$1.19 billion average estimate. Autohome will probably say sales surged to US$102 million in the fourth quarter from US$63.8 million in the year-ago quarter, according to the average of five analyst estimates compiled by Bloomberg. Qunar, controlled by Baidu Inc., is projected to report that sales doubled in October-December. JD.com, China’s secondbiggest e-commerce company,
rose 0.6 percent to US$27.99, extending its weekly advance to 6.8 percent. Dandang, a Beijing-based online retailer, rose 2.1 percent to US$9.36 for a weekly climb of 7.7 percent. The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, the largest U.S. exchange-traded fund that tracks mainland Chinese stocks, added 0.2 percent to US$35.98, extending its weekly advance to 0.9 percent. The iShares China Large-Cap ETF, the largest Chinese ETF in the U.S. tracking Hong Kong shares, added 0.4 percent to US$43.24 and rising 0.6 percent for last week. Bloomberg News
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February 23, 2015
Greater China Pacific island leaders to voice opinions on China’s regional role
China to step up major transport infrastructure construction China will maintain the scale and intensity of major transportation infrastructure construction in 2015 to buoy growth. The National Development and Reform Commission (NDRC) said that more railway lines, particularly in the central and western regions, will be put into operation this year, which will stabilize economic growth and improve people’s livelihoods. The NDRC will continue to encourage social capital through preferential measures to attract investment in major transportation infrastructure in 2015. In 2014, the NDRC approved 34 billion yuan (US$5.56 billion) for transportation infrastructure, which included railways, roads, airports and waterways.
Chinese brokerages post big profits in 2014 Chinese brokerage firms saw surging profits in 2014 boosted by easing measures from policymakers, the Securities Association of China (SAC) said. Combined net profits of 120 brokerage firms totaled 96.55 billion yuan (US$15.78 billion) in 2014, surging 119.34 percent from 2013, according to SAC. The aggregate revenues of these brokerages hit 260.28 billion yuan last year, up 63.45 percent compared with 2013. The sector’s strong performance was attributed to bullish Chinese shares in the last quarter of 2014, thanks to the recovering economic climate and easing measures from the central government. China’s A shares raised 724.9 billion yuan in 2014, with 47.1 billion yuan raised through the initial public offerings (IPO) of 94 enterprises, and 677.8 billion yuan from refunding by 609 listed companies.
China on blue alert for blizzard China’s weather observatory yesterday issued a heavy snowstorm blue alert for the country’s northeast regions. The National Meteorological Center (NMC) forecast snowstorms will hit northeastern provinces on Sunday and Monday, with up to 20 millimeters of snow expected in Heilongjiang Province. Parts of Heilongjiang will see blizzards and strong winds and icy road conditions. The NMC advised residents to stay indoors and asked local authorities to be prepared. China has a four tier colour coded weather warning system, with red representing the most severe, followed by orange, yellow and blue.
Hit sci-fi novel nominated for Nebula Awards The English version of a Chinese scifi novel has been nominated in the 2014 Nebula Awards, the publishers announced on Saturday. “The ThreeBody Problem” by Liu Cixin is among six novels nominated by the Science Fiction & Fantasy Writers of America. The other five nominees are all works by English-speaking writers. The Three-Body Problem is the first part of Liu’s Three Body trilogy, translated into English by Chinese-American sci-fi writer Ken Liu, a winner of the Hugo, Nebula, and World Fantasy awards himself. In the trilogy, the entire solar system is flattened into two dimensions in an apocalyptic battle between humans and aliens. It has been hailed for its extraordinary artistry by Chinese sci-fi lovers.
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China, Tajikistan, and Uzbekistan. “China can contribute to the economic corridor development in the CAREC region by sharing its experience in logistics, infrastructure, economic zones, spatial economic agglomeration, urbanization and public-private partnerships,” he said. “Large investment needs for infrastructure in the region create large funding gaps,” he said. All CAREC countries have s u b s ta n ti a l n eed s i n e n e r g y development, Zhang added. An ADB study in central Asia found that investment of about 36 billion U.S. dollars is needed before 2022 for power infrastructure in four countries. “Given the large funding gap, China could look into co-financing with the ADB and other multilateral institutions in CAREC countries, and share its technical and management skills in large infrastructure projects,” he said.
fficials and academics from around the Pacific will gather in Samoa this week to give their views on China’s evolving relations with Pacific island nations. Organised by the New Zealand Contemporary China Research Centre at Victoria University of Wellington, the National University of Samoa, and the Centre for Oceania Studies at Sun Yat-sen University in Guangzhou, the conference would be an opportunity to discuss changing geopolitics in the Pacific region, said the head of the New Zealand centre. There would be particular emphasis on regional security, development cooperation, and trade and investment, Tony Browne, chair of the New Zealand Contemporary China Research Centre, said in a statement. “This is the first time such a conference has been held with the views of the Pacific islands themselves being at the heart of the discussion,” said Browne. “The growing Chinese involvement in the Pacific has led to widespread discussion about the impact this is having on the region’s long term economic growth and social development.” The conference would bring together Pacific island government leaders, heads of regional organizations and scholars to put their perspectives on the record. “This is the first time that a leading Chinese University has joined with universities in New Zealand and the Pacific Islands to discuss China’s role in the region in this way,” he said. The conference “China and the Pacific: The View from Oceania “ is to be held at the National University of Samoa from February 25 to 27.
Xinhua
Xinhua
China, ADB can tap “belt and road” potential
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he Asian Development Bank (ADB) and China can make use of the huge potential in infrastructure and energy along the belt and road, said ADB Vice President Zhang Wencai. “Belt and road” refers to the Silk Road economic belt and the 21st century maritime Silk Road proposed by China in 2013 for improved cooperation between countries in Asia, Europe and Africa. The belt and road will result in increased investment that will improve connectivity across Central Asia, Zhang said in an interview with Xinhua. The ADB can work with China to translate the concept into concrete action through the Central Asia Regional Economic Cooperation (CAREC) program, Zhang said. The CAREC program is an ADB initiative launched in 2001 to promote regional cooperation in transport, energy and trade between its 10 members, including Afghanistan, Azerbaijan,
Coolpad to quadruple online phone sales
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oolpad Group Ltd. plans to use a new joint venture to quadruple online smartphone sales in China this year and help narrow the gap with leader Xiaomi Corp. The venture with Qihoo 360 Technology Co., owner of China’s second-biggest search engine, will boost online sales of Dazen- brand smartphones to 20 million units this year and drive an increase in total sales of about a third, Chief Financial Officer Jiang Chao said in an interview. Coolpad has a target of moving up one level to second place in China Web sales in 2015, Jiang said at the company’s Shenzhen headquarters. Qihoo agreed in December to buy a 45 percent stake in the e-commerce operations for US$409 million, as Coolpad brought in a partner with more skills in Internet services after Xiaomi’s surging online business cut into shipments. Coolpad, which had relied on wireless carrier outlets for sales, established the Dazen brand for Web orders last year and plans to open 20,000 of its own stores to bolster retail demand. “Our company didn’t have wireless application teams and we didn’t know how to develop mobile software,” Jiang said. “Now Qihoo has come into this new joint venture so we can use Qihoo managers and R&D employees to develop very good wireless software.” Hitting the online sales goal would boost Coolpad’s total smartphone sales
to more than 60 million units, up from 45 million devices last year, Jiang said. Xiaomi’s Chief Executive Officer Lei Jun has set a goal of boosting total sales to 100 million smartphones this year, from 61 million in 2014. Coolpad fell to fifth place in China’s smartphone market last year, with 9.4 percent share, from third place in 2013 when it held 10.7 percent, according to International Data Corp. Tony Wei, a Beijing-based spokesman for Xiaomi, said the company doesn’t comment on competitors. Traction in Coolpad’s online sales push has been slow because its previous focus on sales through operators made it weak in marketing and branding, said Tay Xiaohan, a Singapore- based analyst with IDC. “The tie-up with Qihoo will help Coolpad to a certain extent since Qihoo has a strong base of users and stronger branding than Coolpad,” Tay said.
Qihoo boost Qihoo only entered the Web search market in 2012, taking on leader Baidu Inc. By the third quarter of 2014, Qihoo had captured 16.7 percent of queries, according to data from Bloomberg Intelligence. That cut Baidu’s share to 75.8 percent, down from 84.1 percent in the third quarter of 2012, when Qihoo entered the market. Coolpad could use the lift.
The stock is rated hold or sell by 11 of the 18 analysts tracked by Bloomberg and only seven recommend investors buy it. In the next 12 months, the shares are projected to climb 15 percent to HK$1.72 in Hong Kong trading, according to 12 analysts’ price estimates. Coolpad will also target Xiaomi offline, Jiang said. The company plans to invest 300 million yuan (US$48 million) to open 20,000 stores to sell its phones by the end of 2016, Jiang said. Coolpad will open the first 5,000 Ivvi brand shops by the year- end, with another 15,000 coming next year, he said. The outlets will carry three brands of devices made by the company: Coolpad, Dazen and Ivvi, Jiang said. Having a retail presence will complement the online push, he said. Instead of targeting the new stores in first-tier cities such as Beijing, where high-income consumers gravitate to Apple Inc. and Samsung Electronics Co., Coolpad will focus on third- and fourth-tier cities where those brands don’t reach consumers with lower incomes. The retail shops may sell 5 million to 10 million devices this year, Jiang said. “People like to see things online but they also want to be able to see and experience the real phone offline as well,” Jiang said. “Online-to-offline is the future.” Bloomberg
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February 23, 2015
Asia
Modi bets on GM crops for India’s second green revolution Environmental and grassroots groups have opposed such crops, with Greenpeace claiming the current government’s rush fails to address fundamental loopholes in the regulatory mechanism
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n a fenced plot not f ar f r om In d ian Prime Minister Narendra Modi’s home, a field of mustard is in full yellow bloom, representing his government’s reversal of an effective ban on field trials of genetically modified (GM) food crops. The GM mustard planted in the half-acre field in the grounds of the Indian Agricultural Research Institute in New Delhi is in the final stage of trials before the variety is allowed to be sold commercially, and that could come within two years, scientists associated with the project say. India placed a moratorium on GM aubergine in 2010 fearing the effect on food safety and biodiversity. Field trials of other GM crops were not formally halted, but the regulatory system was brought to a deadlock. But allowing GM crops is critical to Modi’s goal of boosting dismal farm
productivity in India, where urbanisation is devouring arable land and population growth will mean there are 1.5 billion mouths to feed by 2030 – more even than China. Starting in August last year, his government resumed the field trials for selected crops with little publicity. “Field trials are already on because our mandate is to find out a scientific review, a scientific evaluation,” Environment Minister Prakash Javadekar told Reuters last week. “Confined, safe field trials are on. It’s a long process to find out whether it is fully safe or not.” Modi was a supporter of GM crops when he was chief minister of Gujarat state over a decade ago, the time when GM cotton was introduced in the country and became a huge success. Launched in 2002, Bt cotton, which produces its own pesticide, is the country’s only GM crop and covers 95 percent of India’s cotton cultivation
of 11.6 million hectares. From being a net importer, India has become the world’s second-largest producer and exporter of the fibre. However, grassroots groups associated with Modi’s Hindu nationalist Bharatiya Janata Party (BJP) have opposed GM crops because of the reliance on seeds patented by multinationals. The Swadeshi Jagran Manch, a nationalist group which promotes self-reliance, has vowed to hold protests if GM food crops are made commercially available. “There is no scientific evidence that GM enhances productivity,” said Pradeep, a spokesman for the group. “And in any case, why should we hand over our agriculture to some foreign companies?” A handful of agrichemical and seeds companies dominate the global market for GM crops, including Monsanto Co., DuPont Pioneer, a unit of DuPont, Dow AgroSciences,
a unit of Dow Chemical, and Syngenta.
Second green revolution Largely agricultural India became self-sufficient in foodgrains after the launch of the Green Revolution in the 1960s, when it introduced high-yielding seed varieties and the use of fertiliser and irrigation. The challenge now is to replicate that success in edible oils and vegetables, which are increasingly in demand. India imports about 60 percent of its edible oil needs at an annual cost of up to $10 billion - its third-biggest import item after crude oil and gold. The trials of the mustard plant, which provides the highest yield of all oilseeds, are being led by Delhi University researchers headed by Deepak Pental, a scientist who returned to India in 1985 from Britain. He has said that he has developed a transgenic
mustard strain that raises output by up to 30 percent but that further trials were halted after the moratorium. The federal environment ministry began approving GM field trials in August, although applicants need to seek no-objection certificates from states where the trials are to be conducted. States ruled by the BJP are spearheading the trials: Last month, Maharashtra gave the all-clear to open field trials of rice, chickpeas, corn and aubergine, as well as new varieties of cotton. Punjab, ruled jointly by the BJP and a local party, gave the go-ahead for mustard in October followed next month by Delhi, then indirectly run by the federal government in the absence of a local government. “The [federal] government is, for a change, being decisive,” Pental said, adding his mustard strain could be ready to be released for commercial farming in a year or two. Environmental group Greenpeace, however, remains opposed. “The current government’s rush with open field trials without addressing the fundamental loopholes in the regulatory mechanism is a matter for serious concern,” said Manvendra Singh Inaniya, a campaigner for Greenpeace India. “This leaves us vulnerable to contamination with untested and potentially hazardous GM food. We urge the Union Government to roll back approvals given to open air field trials of GM crops.” But the environment ministry official said studies have found no ill effects from GM foods and that local firms should partner with multinationals like Monsanto, which has already licensed its Bt Cotton product to several Indian companies. “Farmers are smart and deserve wider choices,” a spokesman for Monsanto in India said. “They will only reward products, practices and partnerships which create value on their farms.” Reuters
French president to pay state visit to Philippines
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rench President Francois Hollande will pay a state visit to the Philippines this week at the invitation of Philippine President Benigno S. Aquino III, the Philippine Department of Foreign Affairs (DFA) said yesterday. Hollande will be in Manila from February 26 to 27, and the visit will be the first for an incumbent leader of France since the establishment of
diplomatic relations between the two countries in 1947. The DFA said the French president will be accompanied by a delegation of over 100 officials, celebrities and media people. “President Aquino and President Hollande will discuss various facets of a bilateral relationship that has gained momentum in recent years. They will also exchange views on pressing regional and global issues,
including terrorism, which has recently manifested itself in France,” the department said in a statement. Hollande will also use the occasion of his visit to the Philippines to drum up support for action on climate change, it added. France is hosting the 21st meeting of the Conference of Parties (COP21) in Paris in December 2015. It is estimated that about 40, 000 stakeholders will attend COP21.
Hollande’s visit reciprocates Aquino’s first official visit to France in September 2014. France is the Philippines’ second largest trading partner in the European Union with two-way trade amounting to 2.39 billion U. S. dollars in October 2014. This represented an increase of 24 percent from the same period of the year before. Xinhua
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Asia Singaporean former PM in hospital for severe pneumonia Lee Kuan Yew, former prime minister of Singapore, has been hospitalised for severe pneumonia but his condition has stabilized, according to a statement released by the Prime Minister’s Office (PMO). Lee, 91, was admitted to Singapore General Hospital on Feb. 5 for severe pneumonia. He remains on mechanical ventilation in the ICU. “He is conscious and lightly sedated, and his doctors are continuing to monitor his condition,” the PMO said. His ill health has prevented him from attending public and constituency events in recent months. According to the Strait Times, he attended the People’s Action Party’s 60th anniversary celebrations at the Victoria Concert Hall in November 2014 and his constituency’s Tree Planting Day earlier the same month. As an MP for Tanjong Pagar GRC (Group Representation Constituency), he also attended Tanjong Pagar GRC’s National Day dinner in August 2014. Lee was hospitalized for an infection, fever and cough during the lunar New Year in 2014.
Philippines pledges to strengthen efforts to ensure conviction of drug suspects The Philippine government vowed to intensify efforts to ensure that those charged for illegal drugs get convicted as the number of drug cases filed in courts significantly increased last year. Philippine Drug Enforcement Agency (PDEA) Director General Arturo Cacdac Jr. cited in the agency’s consolidated report that a total of 17,074 drug cases were filed in different courts nationwide in 2014 compared to 10,502 in 2013, an increase of 62. 57 percent. He said internal support mechanisms have been institutionalized to strengthen PDEA’s aggressive campaign against illegal drugs. Capability enhancement trainings, such as anti-drug investigation courses, are regularly provided to enable agents to prepare airtight cases in coordination with PDEA lawyers, he said. “Moot courts are used to prepare PDEA agents and chemists who will stand as prosecution witnesses.
Bangladeshi ferry capsizes on River Padma near Dhaka An overloaded Bangladeshi ferry carrying about 100 passengers sank Saturday afternoon in a river in central Munshiganj district, some 27 km southwest of capital Dhaka, police said. A police official who preferred to be unnamed said the ferry MV Mostafa, carrying some 100-150 passengers, capsized in Padma river at around 12:00 p.m. local time Sunday after it was hit by a goods laden cargo tanker. A rescue vessel has been called in to boost local efforts to salvage the ferry, said the official. Authorities don’t know how many people remained missing. The official, however, said most of the passengers, who survived by swimming, have been rescued shortly after the ferry capsized.
Australia asks trio to bid for US$39bln submarine project Prime Minister Tony Abbott is trying to boost Australia’s defense capability, but the announcement is set to disappoint South Australians who want the project kept wholly onshore
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ustralia is inviting Japan, Germany and France to bid for a A$50 billion-contract (US$39 billion) to helm production of a new submarine fleet in the largest defense procurement program in the nation’s history. “All three countries have proven submarine design and build capabilities and are currently producing submarines,” Defense Minister Kevin Andrews said in statement. The process will take about 10 months before a winning bidder is selected, he said. Countries such as Vietnam and India are also expanding their submarine fleets as China seeks greater military clout in the Pacific. Prime Minister Tony Abbott, whose government trails in opinion polls, is trying to boost Australia’s defense capability. At the same time, he has to reassure China – his nation’s biggest trading partner – that the subs won’t be used to try to contain the rising superpower. “The stakes are high to get this right,” said John Blaxland, a senior fellow at the Australian National
University’s Strategic and Defence Studies Centre in Canberra. “Whoever Australia signs with, it will be looking to get more than just good submarines, but also strategic and economic benefits.” The announcement comes after media speculation intensified that Australia would bypass a bidding process and select Japan to build the fleet. The U.S. ally needs to replace its six Collins-class diesel-electric submarines by 2026 in order to adequately patrol the Pacific Ocean and Indian Ocean.
Bidding options The bidders will have the option to design and build the fleet overseas, in Australia or a “hybrid approach,” Andrews said, without specifying how many submarines the government wants. After winning power in September 2013, Abbott – who faced down a challenge to his leadership this month – scrapped the previous Labor government’s plan to locally build 12 submarines.
The announcement is set to disappoint South Australian voters, who want the project kept wholly onshore. Hopes that the government’s Adelaide-based defense contractor ASC would win the contract were damped when former Defense Minister David Johnston told parliament in November that he wouldn’t trust the company to “build a canoe.” ASC had itself said that it wasn’t able to design and build submarines from scratch, Abbott told reporters in Adelaide on Friday. The government said it expected “significant work” to be undertaken in Australia during the construction phase that will create at least 500 highly skilled jobs.
Best subs “It’s very important that we get the best possible submarines at the best possible price, maximizing Australian involvement in their construction and maintenance,” Abbott said. In a bid to tap into the popular support for an Australian component to the sub construction, Stockholm-
Lion Air apologises after delays leave thousands stranded
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ndonesia’s Lion Air apologised and offered compensation after a third day of delays and cancellations stranded thousands of passengers during the busy Chinese New Year holiday. Indonesia’s largest budget carrier said the disruption had started when three aircraft suffered “foreign-object damage”, causing a ripple of further delays in its network. “I apologise to our passengers and we are giving them compensation,” co-founder Rusdi Kirana told Reuters, adding that 2,000 passengers had been directly affected by the chaos. Photos posted on Twitter showed passengers wandering on the tarmac at Jakarta’s main international airport and security forces deployed to keep order. Some images showed broken computers and office equipment at a check-in area after a number of passengers staged protests. The airline ran out of cash to compensate passengers at its airport counters and was forced to borrow from the airport authorities. Kirana said the money would be repaid immediately.
He said that the problems had been exacerbated by the lack of four spare planes that were not available over the peak holiday period because they were undergoing maintenance.
‘Mistake’ “We do understand that we made a mistake,” he said. “It is a good lesson for us concerning coordination between the commercial and engineering teams.” The airline said in a statement that passengers would receive compensation or a free ticket. Kirana added that passengers were also given taxi fares. Privately owned Lion Air is one of the world’s fastest growing airlines and has placed large orders with Airbus and Boeing.
Its ascent symbolises Indonesia’s rapid aviation growth at a time when the country’s system of regulation is under growing scrutiny, but it has also been criticised for delays. Indonesian President Joko “Jokowi” Widodo was quoted by the Jakarta Post as saying that good public services must be provided. Transport Minister Ignasius Jonan, meanwhile, asked the airline to explain its crisis-management planning, the newspaper reported. Jakarta’s airport authority said it was waiting for more information from Lion Air on the number of flights affected. Mikael Robertsson, co-founder of aircraft-tracking website Flightradar24.com, estimated that between 31 percent and 34 percent of the airline’s flights appear to have been delayed by an hour or more on Wednesday and Thursday, falling to 22 percent on Friday. Kirana said that 12 of the airline’s 109 aircraft had been involved directly in the disruption and that he expects the situation to return to normal on Saturday Reuters
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 23, 2015
Asia
Tony Abbott
based weapons maker Saab AB said in a statement Thursday it intended to present the Australian government with a “highly competitive offer to build submarines in Adelaide utilizing industry Australia-wide.” Saab made the offer, even though Sweden, which designed Australia’s existing submarines, wasn’t invited to bid for the new contract.
Choosing Japan, which is new to defense exports, would be a bet that its technology would be suitable. Prime Minster Shinzo Abe, who has a strong relationship with Abbott, has eased restrictions on military
exports as part of an effort for his nation to shed some of its pacifist ethos as military and territorial tensions with China increase. This is another reason why Abe is trying to develop defense ties with Australia. Japan has been deploying Soryu submarines since 2009, with the latest models manufactured by Kawasaki Heavy Industries Ltd. and Mitsubishi Heavy Industries Ltd. costing about 60 billion yen (US$505 million), Yasushi Kojima, a lieutenant commander at the government’s Maritime Staff Office, said in a December phone interview. “Individual projects concerning defense equipment and technology transfer are a government matter,
and we aren’t in a position to comment,” Mitsubishi Heavy said in an e-mailed response. Kawasaki Heavy spokesman Yoshiyuki Kinugasa also declined to comment in a telephone interview. ThyssenKrupp AG, Germany’s largest steelmaker, said its marine unit could build 12 submarines for Australia for about A$20 billion. “It’s very important both for Japan and Australia,” said Narushige Michishita, director of security and international studies at the National Graduate Institute for Policy Studies in Tokyo. “For Japan it would be the first major export since the decision last April to lift the ban on exports.” Australia’s decision is complicated
because its specific requirements for the fleet means no “off-the-shelf” submarines will suit, Blaxland said. Germany’s experience in submarine exports and Australia’s apparent desire to do a deal with Japan means the bidding process is probably down to those two, with France seen as an unlikely winner, he said. “The decision to invite bidders makes sense because Abbott can’t just be seen to make a selection, which is what the media said he was about to do,” Blaxland said. “I suspect the Japanese will be interested because it wants to demonstrate it can sell defense technology to another Asian power.”
South Korea February 1-20 exports flat vs year ago
Overwork causes mass fainting in Cambodian shoe factory
Concerns over high bacteria levels in Boracay water
Indonesia not to import rice despite rising domestic price
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Defense exports
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outh Korean exports for the February 1-20 period totalled US$26.79 billion, customs data showed, unchanged from a year earlier but a robust showing when considering holidays and weak oil prices. The three-day Lunar New Year holidays fell in February this year but in January last year, making much of South Korean economic indicators for either month vulnerable to distortions. Including January figures, South Korean exports for this year to February 20 amounted to US$72.02 billion, down 0.5 percent from the comparable period of 2014, the data from the Korea Customs Service showed. South Korea has said its exports are faring well, excluding the effects of the plunge in global prices of oil and related products. Refined oil and petrochemical products account for nearly 20 percent of South Korea’s exports. Imports for the February 1-20 period fell 16.3 percent on-year to US$24.30 billion, the data showed. South Korea will release foreign trade data for the whole of February on March 1, along with a breakdown of figures by destination and industry. Asia’s fourth-largest economy and the world’s seventh-largest exporter is the first major trading powerhouse to publish foreign trade figures each month.
ore than 60 workers in the Long Lead footwear factory in north Cambodia’s Kampong Chhnang province collapsed on Saturday afternoon for fear of an electric fault, a local police chief said. “Over 60 workers got fainted after an electric fault broke out in a workplace and triggered fears among workers,” said Duong Hong, police chief of Kampong Trolach district, where the incident occurred. “They got nervous and tried to make their way out of the factory, which resulted in mass fainting.” The ill-fated workers were sent to hospitals soon after the incident and no one was in serious condition, he said, adding that workers’ poor health was blamed for the fainting. According to the website of the Garment Manufacturers Association in Cambodia, the factory employs 1,405 workers. Last month, some 63 workers in the Sun Best garment factory in southern Kandal province also got either injured or fainted in a stampede triggered by an electric fault. Mass faintings happen frequently in garment and footwear factories. The Ministry of Labour reported 1,806 faintings in 34 factories last year, up 119 percent from 823 in a year earlier. The main causes were overwork, poor health, poor environment, exposure to chemical substances, and hysteria, the ministry said.
Reuters
Xinhua
he Philippine government raised concern over the water quality problems in the infamous Boracay island in central province of Aklan, saying that failure to immediately address this could drive away tourists. Ramon Paje from the Department of Environment and Natural Resources said that all stakeholders, who benefit from the various tourism and business opportunities of the island, should help maintain the good quality of its beaches. The DENR’s Environmental Management Bureau office in Western Visayas has reported that coliform bacteria levels in a drainage outlet that empties into the sea in Sitio Bulabog in Boracay exceed safe standards and reach 47,460 most probable number (mpn) per 100 milimeter (ml). The safe level is 1,000 mpn/100ml for waters for swimming and other human contact activities. Apart from posing serious health and sanitary problems, coliform bacteria could also adversely affect aquatic resources, including marine life and coral reefs that, aside from the powdery white sand beaches, form part of the island’s main attractions. Paje said the evident cause of beach pollution is the lack of proper drainage system in the area. He called for completion of the ongoing sewerage and drainage improvements on the island to help reduce the amount of pollutants directly discharged to surface water and groundwater. Xinhua
Bloomberg News
he Indonesian government will not ship rice from abroad despite the prices of the commodity rising at home, an official said in Jakarta. Indonesian Trade Minister Rahmat Gobel said the country still has sufficient stockpile to be sold in order to ease the price rising. Besides, he added that good harvest is expected in some areas to increase supply at the markets. “We will not import rice [as] we still have sufficient stockpile, and great harvests are nearly to happen,” Minister Rahmat said at the trade ministry. The price of rice, a staple food in the vast archipelago country with a population of over 238 million, has risen by about 30 percent. Minister Rahmat said the policy was taken in part to protect local farmers. “Should I import rice, it will arrive at the time of great harvest. This is not good for growers,” he said. In March and April, Indonesian will have bumper harvest of rice with a total output of 13.2 million at 4.5 million hectares of paddy fields, Hasil Sembiring, director general of food at the agriculture ministry said. Indonesia’s rice production was estimated to grow by 0.35 percent to 34 million tons in 2014 from a year earlier, based on the first government forecast, according to the agriculture ministry. Indonesia had previously imported rice from Thailand, Vietnam and other countries. Xinhua
14 | Business Daily
February 23, 2015
International
U.S. refinery strike spreads to one-fifth of national capacity USW International union President Leo Gerard said they were the result of the industry’s bargaining tactics, and its refusal to meaningfully address safety issues
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he largest U.S. refinery strike in 35 years entered its fourth week as workers at 12 refineries accounting for one-fifth of national production capacity were walking picket lines as of midnight local time yesterday, according to union officials. A total of 6,550 members of the United Steelworkers union (USW) at 15 plants, including the 12 refineries, are involved in the work stoppage that began on February 1 when talks for a new three-year contract between the USW and lead oil company negotiator Shell Oil Co stopped. Talks were resumed but have halted again after nearly reaching an agreement on Friday, said sources familiar with the negotiations. After the latest breakdown between the two sides, Steelworkers leaders targeted Shell, which is the U.S. arm of Royal Dutch Shell Plc, calling workers out at a chemical plant and three refineries in the company’s Motiva Enterprises joint-venture with Saudi Aramco. The first work stoppage of the three refineries was at the nation’s largest, the 600,250 barrel per day Port Arthur, Texas, refinery, where workers walked out at midnight on Saturday. Twenty-four hours later, USW
members were also picketing at Motiva’s 235,000 bpd Convent, Louisiana, and 238,000 bpd Norco, Louisiana, refineries and the Shell chemical plant in Norco. In announcing the strikes, USW International union President Leo Gerard said they were the result of the industry’s bargaining tactics. “The industry’s refusal to meaningfully address safety issues through good faith bargaining gave us no other option but to expand our work stoppage,” Gerard said in a statement. No new talks had been scheduled between the two sides. Shell and the USW were near an agreement for a new contract on Friday night, but other oil companies were unwilling to accept the bargain, said sources familiar with the talks. “As the lead company, Shell has the role to get the oil companies to come along,” said one of the sources. “The (union) leadership group decided Shell needed to be put on the list of targeted companies.” Shell spokesman said it was disappointed by the new strikes. In a letter Shell has sent to striking employees at its Deer Park, Texas, refinery and chemical plant, a copy of which was seen by Reuters, the
company said the key sticking point was non-union contractors who perform daily maintenance, which the USW would like to see replaced with union workers. The company said it needed flexibility. “Hiring flexibility is a proven way to protect our core Shell workforce and the long-term economic viability of our workforce,” the letter said. “This strategy has served us all well, as we have not had to conduct any layoffs in decades.” The strike that began February 1 was last expanded February 6, when workers at BP Plc-operated refineries in Indiana and Ohio were told to begin a work stoppage the following day. Workers were already on strike at Shell’s 327,000 bpd joint-venture refinery in Deer Park since the strike began on February 1. The strike may complicate operations at the Port Arthur refinery, where two of three crude distillation units, the workhorses of the refinery, are running below capacity and fuelmaking units are shut for repairs or refurbishment. Shell and the union met continuously from Wednesday through Friday following a weeklong break for the company to reply
to an information request and a counterproposal from the USW. Union negotiators have rejected seven contract offers from Shell. The USW’s lead negotiator, International Vice President Gary Beevers, has told Reuters that safe staffing levels were a point of contention in the talks. The union also wants “no retrogression” language, which preserves agreements from previous contracts. In addition to the BP, Motiva and Shell plants, workers are striking at ones owned by Lyondell Basell, Marathon Petroleum, and Tesoro in California, Kentucky, Texas and Washington. Only one refinery has shut down due to the strike - Tesoro’s 166,000bpd plant in Martinez, California, which was previously scheduled to undergo maintenance. The USW wants a three-year pact that would cover 30,000 workers at 63 U.S. refineries with two-thirds of domestic capacity. Refiners are using trained replacement workers, primarily managers and engineers to keep plants running at near normal rates. Reuters
Greece exits bailout, austerity with euro group deal, more difficulties ahead: PM
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reece exits the painful four-year bailout program and austerity after the deal clinched with euro zone creditors on Friday, Greek Prime Minister Alexis Tsipras said. He warned, however, Greek people that despite the achievement of the extension of the international lifeline for four more months in return of reforms, more difficulties awaited Greece
ahead in efforts to overcome the debt crisis. “We won a battle, but not the war... We achieved much, but a long and difficult path lies ahead of us,” Tsipras said in a televised address. “[Friday] we made an important step, leaving behind austerity, the memoranda and the troika,” he stressed. After two weeks of negotiations with euro zone partners Greece agreed to a
bridging deal which extends the program expiring on February 28 to May under strict conditions. If euro zone partners approve the list of reforms Athens will present today, and if creditors approve the review of policies promoted over the next two months, Greece will receive further financial aid to stay afloat and in the euro zone. Friday’s deal was welcomed with some relief by political
analysts and representatives of the business world in Athens who feared the prospect of a confrontation with creditors and a cash crunch and Grexit. On the other hand, despite concessions made by the new Left- led government which had outrightly rejected the bailout, the tight timetables and terms set by lenders have raised concern to pro- government commentators that Tsipras was left with small room to realize
his policy program. “We kept Greece on its feet with dignity,” Tsipras stressed. The most critical phase of the negotiations starts after the four- month extension, when Athens will negotiate “the final agreement that will take us from the policy of the destructive memoranda to the policy of growth, employment and social cohesion, “ he concluded. Xinhua
Business Daily | 15
February 23, 2015
Opinion Business
wires
Leading reports from Asia’s best business newspapers
Has China’s steel juggernaut run out of road?
BANGKOK POST Thailand’s retail industry is expected to grow by 5-10% this year from 1.55 trillion baht last year as local consumption recovers. Suwit Kingkaew, a senior vice-president of CP All Plc, operator of the 7-Eleven convenience store chain, yesterday said local consumption was improving, and the momentum was expected to continue throughout 2015. Retail growth this year will come partly from greater exports to Cambodia, Laos, Myanmar and Vietnam. Last year GDP in those countries grew by 7-8 percent, while Thai exports to them rose by 14-18 percent. “Thai products are popular in those countries but face competition from products from Vietnam and China,” Mr Suwit said.
THE JAKARTA POST Private lender PermataBank, owned by conglomerate Astra International and Standard Chartered Bank, saw its net profit squeezed last year despite lending growth. The publicly listed lender posted Rp 1.58 trillion (US$122.81 million) in consolidated net profit between January and December last year, a 8.86 percent drop compared with Rp 1.72 trillion in the same period of 2013, according to its financial report. Lending grew 11 percent to Rp 132 trillion in outstanding last year versus Rp 119 trillion in 2013, driven by small and medium enterprise (SME) business as well as local and middle market corporations.
THE PHNOM PENH POST More than 100 unofficial lenders have flooded into the National Bank of Cambodia seeking formal registration after the authorities announced a crackdown earlier this month on unrecognised operators. In a joint declaration from the Ministry of Economy and Finance and the NBC on February 2, officials appealed to consumers to be wary of the increasing prevalence of unrecognised lenders, often operating in small groups and masquerading as NGOs or microfinance institutions. Officials said these lenders were charging high interest rates and threatening people’s livelihoods without having the proper financial credentials in place.
THE JAPAN NEWS The land ministry has officially announced a transportation plan, named “operation eight directions,” to be used in the event of an earthquake with a seismic centre directly beneath the Tokyo metropolitan area. The plan will secure emergency routes in eight directions toward central Tokyo within 48 hours of the occurrence of such a quake. By linking expressways and main roads that have suffered less damage, the Land, Infrastructure, Transport and Tourism Ministry aims to open roads into the devastated centre of Tokyo at the earliest opportunity, to assist rescue workers and for the transportation of necessities. The plan was mapped out by the ministry in July last year, with the details having been under discussion with the National Police Agency and other entities.
Andy Home
Reuters columnist
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veryone’s talking about “peak steel”. Zhang Guangning, chairman of the China Iron & Steel Association, (CISA) started it, when he told the Association’s annual conference in January that “China’s steel sector has already entered a period of peaking and flattening out.” Anodyne sounding words they may be but they have generated shock waves that are still reverberating in news headlines and analyst notes around the world. Because China, the engine of global steel production and consumption, is not supposed to have reached the stage of “peaking and flattening” yet. Iron ore miners such as Rio Tinto and BHP Billiton would not have invested billions of dollars in lifting supply, if they thought demand for their product was already topping out in what is their biggest single customer. Sure, a slowdown in the breakneck speed of the Chinese steel juggernaut was expected but “peak steel” certainly wasn’t expected until some time in the next decade. So is Zhang right? Because if he is, it’s very bad news indeed. For China’s steel sector. For iron ore miners. And for the rest of the world too.
One peak or two? “Peak steel” is a more ambiguous concept than it seems. Seen through the eyes of the iron ore market, which it tends to be, it means a peak in China’s steel production. And there are plenty of signs that output growth is braking sharply. It was just 0.9 percent last year, according to the World Steel Association, citing CISA’s own estimates. Give or take a percentage point or two because no-one, inside or outside China, is quite sure about the accuracy of the official figures. At 815 million tonnes last year, there’s a lot of margin for statistical error and, it is widely suspected, a lot of long-standing errors in the statistics. But the trend is ominously clear. Production growth is definitely flattening, even if it hasn’t peaked yet. CISA itself has projected a further output rise to 837 million tonnes in 2015. Which is rather the problem because Chinese consumption is showing worrying signs of having already peaked. CISA’s own estimate is that Chinese apparent consumption fell 3.4 percent last year, the first contraction in three decades. Emphasis on the word “apparent” in that sentence because quantifying with any degree of statistical accuracy what’s going on in a steel sector as large as China’s is a thankless task.
But there is strong corroborating evidence that demand is struggling. Steel prices within China are completely bombed out. On the Shanghai Futures Exchange, steel rebar, a form of steel most associated with construction, has spent the last couple of months wallowing at its lowest levels since the contract was launched in 2009. Hot rolled coil, more reflective of the broader manufacturing sector, had been holding up better until it too collapsed in the early part of January. Steel exports, by contrast, are booming. China exported 94 million tonnes of products last year. That was more than last year’s steel production in the U.S., the world’s largest third-largest producer. Exports in January were equivalent to an annualised 124 million tonnes. That was more than production last year in Japan, the world’s second-largest producer. Everyone’s worried about peak steel production in China. Maybe they should be more worried about peak steel consumption.
Errors of the past But can Chinese steel consumption really have peaked, or even come close to peaking? Even factoring in Beijing’s efforts to shift the Chinese growth story from a fixed asset investment model to a slower but more sustainable consumer-led model, steel consumption should still have plenty of upside. Or as analysts at Natixis expressed it with some understatement, “the rather worrying fact (is) that China may have achieved its peak steel demand at per capita income at or below US$5,000 (2005 dollars), well below the US$15-25,000 levels achieved in the US and South Korea The issue, though, as they themselves concede, is that such comparisons with historical norms may not capture the uniqueness of the Chinese steel story. No other country has unleashed the amount of concentrated infrastructure spend as China did at the height of the Global Financial Crisis. New cities, new roads, new railways, new airports were built at an extraordinary rate. All needing steel. Chinese steel production capacity exploded to meet that government-stimulated demand. This has not been a normal developing economy growth story. It was an extraordinary strategy to immunise Chinese growth from the manufacturing contraction that was gripping the rest of the world. And it worked. Up to a point. Because after the binge comes the hangover.
Ghost towns of empty residential blocks attest to the exuberance of the property boom. As this previous driver of steel demand slows, the consequences of past excess are mirrored in the zombie steel mills producing surplus product at a loss. The fate of these two weakening pillars of the Chinese economy are inextricably entwined, not least through the shadow debt structures which are creaking ominously in both.
Running out of road CISA has been warning of the perils of excess steel capacity and production for a long, long time. Although Beijing regularly mandates the closure of older capacity, particularly in the capital city’s most-polluted neighbouring provinces, such cuts have done little to stop the steel juggernaut. CISA estimates total steel-making capacity still stands at around 1.2 billion tonnes. The resulting margin pressures have been extreme and the sector is surviving in significant part thanks to those massive exports. The authorities are trying to stem the outbound tide, most recently in the form of cancelling rebates on some boron-steel exports. But they daren’t risk turning off the export safety valve completely for fear of the possible consequences on such a core part of the Chinese economy. The juggernaut, it seems, will be allowed to thunder onwards. But if Chinese demand is even
close to peaking, the chances of the juggernaut running out of road are rapidly rising. That’s obviously very bad news for China’s steel-makers. And it’s obviously very bad news for the world’s iron ore producers, who are already engaged in a brutal pricing war. The displacement of higher-cost iron ore supply was always going to be a messier affair than the big Australian and Brazilian producers hoped. Falling oil prices, feeding through to a lowering of the global iron ore cost curve, have made it messier still. Peaking demand growth in China is going to make for a long, bloody war of attrition. And that’s bad news for the non-steel world too. The entire steel supply chain may be at risk of a deflationary spiral. As iron ore prices fall, costs fall for Chinese steel producers, incentivising them to produce more, which means steel prices fall. Without any improvement in domestic demand, that means they export ever cheaper steel in ever greater quantities to everyone else. Or, to quote Natixis again: “when policy-makers around the world worry about pervasive global deflationary forces, this ‘early’ maturity of Chinese heavy industry may be one of the more significant factors at work.” “Peak steel”, it seems, could be everyone’s problem. Reuters Column
16 | Business Daily
February 23, 2015
Closing RMB61bln in taxes reduced for China’s small firms
Indian corporate officials taken into custody
Tax breaks for small and micro-sized businesses in China amounted 61.2 billion yuan (US$10 billion) in 2014, the State Administration of Taxation (SAT) revealed. Business income tax of 10.1 billion yuan was reduced or scrapped from 2.46 million small and micro businesses, as companies with annual taxable business income below 100,000 yuan were eligible to a 50 percent reduction. China has expanded preferential tax policies for small companies and reduced their tax burden to boost economic growth and employment. Nearly 80 percent of urban jobs are provided by small companies.
A court in the Indian capital yesterday sent five corporate officials from unnamed companies to policy custody for three days, after they were brought before a judge over alleged corporate espionage. The Indian police have arrested 12 people since last week over the leakage of confidential document from some key ministries and a part of a 2015-16 budget inputs to corporate entities. The document was allegedly stolen by some government employees and their collaborators from a tight security government complex in central Delhi.
Jaguar Land Rover to recall 61,793 vehicles on air-bag software
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aguar Land Rover North America will recall more than 61,000 vehicles after finding that some passenger-side airbags may not open on impact due to faulty software. The company will recall 61,793 Range Rover and Range Rover Sport models manufactured from 2012 to 2015, according to a statement posted on the U.S. National Highway Traffic Safety Administration’s website. Owners will be alerted about the recall, which is expected to begin April 17, and dealers will update the software free of charge. The defect stems from the vehicle’s occupant classification system, which
engages the airbag when it senses a passenger’s presence. The software improperly reads some lightweight adult passengers as children and fails to engage the airbag, according to the statement. No accidents or injuries have been linked to the defect, according to a separate document on the NHTSA’s website. Airbag recalls have plagued the industry since last year. Fiat Chrysler Automobiles NV, Honda Motor Co. and Toyota Motor Corp. recalled 2.1 million vehicles in January because of air bags that could go off while driving. Some of those cars were being recalled again after last year’s
Myanmar to develop balloon flight tourism
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massive 10-automaker recall of Takata Corp. air bags over complaints that inflators could explode and send shrapnel at drivers and passengers. The defects have led to recalls of more than 20 million vehicles and a fifth U.S. fatality from such incidents was linked to Honda in January. It’s the biggest challenge to the technology since the mid-1990s, when NHTSA began investigating reports that first- generation air bags deployed with such force that children and small adults riding in front seats were being killed and, in some cases, decapitated.
The recall is at least the second this month for Jaguar Land Rover North America, a unit of the British luxury sports- car brand owned by Tata Motors Ltd. A February 7 notice said the company would recall as many as 104,000 cars after NHTSA published three notices that highlighted issues that could lead to faulty braking and lighting. In the U.S., once a manufacturer or the NHTSA determines a vehicle is defective, the automaker will usually agree to voluntarily issue a recall and to fix the defect for free. All the owner has to do is take it to a dealership affiliated with the manufacturer. Bloomberg News
Cuba, U.S. telecoms to sign direct connection accord
Madrid cargo train arrives in China’s small commodity hub
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yanmar is planning to boost the country’s hot air balloon rides to attract more tourist arrivals, the Ministry of Hotels and Tourism said. Balloon flights will be expanded in major tourist attraction sites, including Inlay, Mandalay, Sagaing and Monywa, the ministry said. Three companies – Balloons over Bagan, Myanmar Ballooning and Golden Express Tours – are operating balloon services in Bagan with a total of 21 balloons. Customers for the balloon rides are mainly from Europe and the United States, the ministry added. Bagan, which is on the list of the most beautiful hot air balloon rides in the world, started the services in 1999. Hot air ballooning is particularly brisk during Christmas and Chinese Lunar New Year, a balloon flight businessmen said. Balloon-ride passengers reached 17,802 with a revenue of US$4.23 million last year, up from 11,362 with US$3.10 million in 2013, the ministry said. A total of 3.05 million tourists visited Myanmar in 2014, and the figure is expected to reach 7.5 million by 2020.
uba’s state-owned Telecommunications Company SC (Etecsa) announced that it had completed talks with the U.S. IDT Domestic Telecom, INC. IDT) over the signing of a Service Agreement for the Operation of International Telecommunications, which will allow direct interconnection between the United States and Cuba. No details of the talks between Etecsa and IDT, or the content of the agreement to be signed, are available. There is a statement posted at Etecsa’s website featuring the talks between the two companies. “The restoration of direct communications between the U.S. and Cuba will allow greater facilities and quality in the communications between the people of both nations,” said the Cuban company in the statement, indicating that now relevant approvals are expected from the U.S. authorities to implement the agreement. Etecsa, owned by the Cuban government, is the only company allowed so far in the country to provide public and private telephone service, and Internet connectivity.
Xinhua
Xinhua
cargo train with 64 containers completed its maiden journey from Madrid, Spain, to China’s eastern city of Yiwu yesterday. The train travelled for 24 days along the Yixin’ou cargo line, the longest of all the ChinaEuropean cargo railways, officials said. The train was carrying famous Spanish products including wine and olive oil. The 13,000-km line passes through China, Spain, Kazakhstan, Russia, Belarus, Poland, Germany and France. The service opened at the end of 2014. The first train from China to Spain, carrying stationary, craft products and products for the Christmas market, left Yiwu on November 18, 2014, and arrived in Madrid after 21 days. The line is a more efficient export channel for Yiwu’s commodities, as the city previously relied heavily on air and sea transportation. “The cargo train will boost economic exchange between Yiwu, the world’s largest small commodity market, and Madrid, Europe’s largest small commodity market,” said Li Huihuan, manager of Yiwu C. F. International Logistics Co. Ltd. Xinhua