MOP 6.00 Closing editor: Joanne Kuai
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xpectations have been high. CE Chui Sai On’s first Policy Address of his second term. Macau has entered an ‘adjustment’ period of slower growth. And needs to develop a broader range of attractions, he said. The gov’t also announced the establishment of a sovereign fund. While many residents’ benefits have been increased. Gaming licences, sector growth, housing and transportation were put in the mix. Legislators, however, gave the gov’t report card an average mark. Pages 2, 3 & 4
Year III
Number 755 Tuesday March 24, 2015
Publisher: Paulo A. Azevedo
Mixed report card for Policy Address
Casting couch calling
Growth slowing February figures are revealing. Rentals have been dropping for five consecutive months. Housing costs recorded the lowest growth last month since July 2013 at 10.7 pct. Overall, prices increased 5.3 pct. Courtesy of a CNY boost that hiked package tour costs and restaurant prices
Page 5
American mass media spreads its wings. 21st Century Fox has announced it’s going to enter the Hong Kong TV market. Employing local production companies and celebrities to produce premium miniseries. Investment per episode is a cool US$1mln
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HSI - Movers March 23
Lee Kuan Yew passes away
Name
The lion of the Lion City passed away yesterday. Singapore’s mentor statesman Lee Kuan Yew left an indelible mark on local politics and around the world. The international community has united in mourning. With leaders far and wide delivering heartfelt eulogies
%Day
Sino Land Co Ltd
4.86
China Resources Land
3.19
China Overseas Land
3.15
Lenovo Group Ltd
2.95
Hong Kong Exchanges
2.88
Galaxy Entertainment
-1.52
China Shenhua Energy
-1.75
China Petroleum & Ch
-2.10
Kunlun Energy Co Ltd
-2.28
Tingyi Cayman Island
-4.11
Source: Bloomberg
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March 24, 2015
Macau CE to attend annual Boao forum in Hainan Chief Executive Mr Chui Sai On is scheduled to attend the opening of the Boao Forum for Asia Annual Conference 2015 this Saturday. Mr. Chui will lead a delegation to Hainan Province on 27 to 28 March for the four-day forum themed ‘Asia’s New Future: Towards a Community of Common Destiny’. Members of the delegation include Chief-of-Office of the Chief Executive’s Office Ms. O Lam, Director of the Government Information Bureau Mr. Chan Chi Ping, and Director of Protocol, Public Relations and External Affairs Mr. Fung Sio Weng. The Commissioner of the Ministry of Foreign Affairs of the People’s Republic of China in the Macau Special Administrative Region, Mr. Hu Zhengyue, has been invited to join the delegation.
Macau Government to create sovereign wealth fund In his Policy Address speech Chui Sai On declared the creation of a sovereign fund as well as the beginning of a new stage for the gaming sector that will focus on non-gaming activities João Santos Filipe
jsfilipe@macaubusinessdaily.com
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he Government of Macau is going to start the creation of a sovereign wealth fund during the course of this year, Chief Executive Fernando Chui Sai On said yesterday in his Policy Address. In his speech, which did not announce any radical change to the politics guiding the Special Administrative Region, the fund was referred to as the Investment Development Fund. “This fund was one of the goals of my electoral programme. However, we have to be sensible. We will have to make low-risk investments in order to increase our revenue”, Mr. Chui said in a press conference following
his Policy Address. “We are going to study the funds created by other territories and also take into account Macau’s own characteristics to create this fund.” As for February, Macau’s gaming revenues have been declining for nine consecutive months and as well having an impact on operator’s revenues it has had an impact on government taxes derived from gaming. However, the leader of the Macau Government said that social policies will not be affected or changed. “In the budget for this year, we had already estimated that revenue from taxes from gaming would go down. Our
budget is very sensible and so it will not change our social policies, although it is worth mentioning that we have to be more careful”, he said. “We aren’t going to say that we are concerned only because the revenues of the gaming industry have been dropping for nine months”, he added. The Policy Address was also the opportunity for Fernando Chui Sai On to announce a new age for the gaming industry. In this era, the sector operators are expected to better balance gaming and non-gaming revenues. The year of 2015 is also set to be crucial for the industry because of the
beginning of the process to renew gaming concessions. “We are going to check whether the gaming operators fulfilled their obligations. The general review is a matter considered of major importance”, he said before talking on the prospects for the industry. “This is the beginning of a new stage for the gaming sector. The gaming and non-gaming revenues of the operators will have to be more even. This adjustment period will prepares us better for the future.” Chui Sai On also revealed that there is an ongoing process to implement measures for the gaming
operators and big companies to provide accommodation and transportation for nonresident workers. This was one of the hot topics of his political manifesto for his second term.
5-year development plan for tourism In order to reach the goal of transforming Macau into a World Tourism and Leisure Centre the government will form a special committee in tandem with a 5-year development plan which is expected to influence annual government plans. “In the future, the annual
Business Daily | 3
March 24, 2015
Macau Application for wage subsidy scheme resumes in April The government will accept applications for the wage subsidy scheme from April, whereby permanent residents aged 40 or above who earn less than MOP15,000 (US$1,878) a quarter can be granted a maximum of MOP5,000, the Official Gazette, published yesterday, noted. The scheme, which is now being extended for the eighth year as a provisional measure to compensate the city’s low-income group in lieu of a minimum wage policy, invites applications from the beginning of April, July, October, 2015 and January, 2016.
2015 Policy Address Economic Priorities
• Economic Diversification • Support the development of MICE (Meetings, Incentives, Conferences and Exhibitions), the cultural and creative sector, Chinese traditional medicine, and environmental protection industries.
Gaming Sector
• Review of gaming licences • Determine an optimal gaming sector growth rate • New measures regarding housing and transportation for non-resident gaming workers
Tourism
• Five-year development plan • Committee for the establishment of a World Tourism and Leisure Centre • Optimise the Individual Visa Scheme • Send report about Macau tourism capacity to Beijing • Sustainable tourism model seeking to protect residents’ quality of life
SME’s
• Prioritise local SME’s as suppliers of the government, increase as suppliers to public companies and gaming operators • Double to MOP7 million the maximum amount per company for the SME Credit Guarantee Scheme
government plans from the different Secretaries will have to take into account the goals set in the 5-year plan. The success in implementing this plan will be reflected in the system to assess the performance of the government”, he revealed. The head of the Macau Government also addressed the need to control the number of visitors to the region. In relation to this, he announced that the tourism capacity report of the Special Administrative Region had already been sent for approval to the Central Government and that changes to the Individual Visit Scheme
must be expected. “We cannot reach a saturation point in terms of visitors. That will be beneficial neither to Macau residents nor to tourists for they will not feel at home. Twelve years ago, the Individual Visit Scheme was created in order to help Macau. We appreciate it. Now it is time to change it but we have to bear in mind that this change will have be a win-win decision for both parties”, he said. Chui Sai On also stressed the need for the region to diversify its source of tourists, which according to his words comprise 90 per cent from Mainland China, Taiwan and Hong Kong.
No new policies for housing The Chief Executive said that 2015 will not bring new policies despite the fact that he admits that real estate prices are too high. “The real estate sector is very important to Macau, although prices are too high. We do not have new policies concerning housing. But I promise to exert all my effort in order to solve this problem”, Chui Sai On said. However, the government
will proceed with the works defined in previous years in order to construct 28,000 houses in Zone A. The construction works are on schedule. Concerning idle land, the government announced that from the 48 parcels identified, 22 will revert to the government and that this process is only pending the announcement in the Official Gazette. The Chief Executive said that in relation to the revocation of the land the government is ready to take judicial steps if necessary.
Judiciary to be updated Concerning the judicial system of Macau, the Chief Executive admitted that the system has to be updated to keep step with the economic and social development of the region. “We are aware that the current judicial system of the SAR is not completely [in accord with] economic and social development”, he said. Chui Sai On said the government will put all effort into changing this situation in order to upgrade the system and focus the need on strictly monitoring the development of public works.
Public Finance
• Establish a Sovereign Fund (SAR Investment Development Fund) • Long term mechanism to distribute fiscal surplus • Link the amount of transfers to Social Security Fund to the value of fiscal surplus
Regional Co-operation
• Macua-Zhongshan ‘Free Exercise’ yacht agreement • Expand service co-operation between China and Portuguese-speaking countries • Increase economic and cultural ties with Southeast Asian countries
Housing
• Build 28,000 new public housing units • Five new plots of land to build an extra 4,000 new homes • Public consultation on public housing scheme review
Local employee protection
• Deny import of foreign workers for gaming dealer posts • Licensing system for gaming industry workers
Transport
• Control the number and routes of casino shuttle buses • Increase supervision of taxi operations and issue new licences • Civil Servants
Political Development
• Promote democratic development of Macau
4 | Business Daily
March 24, 2015
Macau Macau lined up for newly created GT World Cup series Macau Grand Prix will host the newly created GT World Cup programme from November 19 to 22, the International Automobile Federation (FIA) announced last week. The FIA GT World Cup will be a single event, in which top teams and drivers from various FIA sanctioned series will participate. Nevertheless, this competition will not replace the World Touring Car Championship (WTCC) round, and is likely, instead, to replace the Macau GT Cup. So far, it has been announced that the race will be open to GT3-homologated cars and will be part of the 62nd Macau Grand Prix weekend. No further information has yet been disclosed. In recent years, the Guia Circuit hosted the Macau GT Cup, with high profile drivers and manufacturers joining the event. The race served as a round of the GT Asia series.
Policy Address - What the legislators think Kam Leong
kamleong@macaubusinessdaily.com
No stress from supervision of gaming buses and staff transportation “I don’t feel stressed [about the policies of controlling the number of gaming buses and offering transportation for workers]. They are very down-to-earth policies that can make traffic in Macau smooth, in terms of urban transportation planning. I don’t think the policies will put pressure on the casinos despite the gaming industry having entered the new phase and economic development is slowing down.”
Gaming development needs to be stable Angela Leong On Kei
“The Chief Executive (CE) mentioned that we should keep the development of the gaming industry stable. I also believe that we [have to] stabilise the development of our dominant industry, as only after then can we develop the
Five-Year Plan helps to define long-term direction “There are many new highlights in this year’s Policy Address, with the biggest highlight being the Five-Year Plan [which regulates that every annual administrative plan should be for five years]. In the past 15 years, we did not hear much about much about planning for five years. Now a Five-Year Plan can allow Macau to have a more systematic political direction for its long-term development.”
diversity of the economy. The recent situation of the economy, the slowdown, is actually not good for society in general. As such, stabilising the gaming industry will make diversifying the economy smoother.”
Not supporting young people enough “I think that the CE did not say much [in the policy address] about young people. The issue of public housing is a very important issue to society, I also suggested recently that we should rent [public houses] to young people at a cheaper price for the short term, such as between five and six years, so that they can have a roof [over their heads] to plan their future. Although the Policy Address mentioned our free education, and many other things given to young people the reality is quite different. The contents on young people is not enough.”
Supporting ‘Made in Macau’ brands can be included in gaming review “I think that [the CE] also wants the gaming corporations to join procuring ‘Made-in-Macau’ products, in addition to government departments. In fact, I think that this is a very crucial suggestion. The government may make use of the interim review of the gaming industry to make the support of [Made-in-Macau brands] as a kind of indicator in the review to strengthen this idea. This will help us to see what the gaming industry can bring to us, in addition to the gaming tax.”
José Chui Sai Peng
List of 22 plots of idle lands is the most surprising “The biggest highlight of the whole Policy Address is that the government will soon announce the list of 22 plots of idle land. This is a very important issue, involving more than one thousand billion patacas. If the government can successfully take back all the 48 ‘pieces’ of idle land, it can take back benefits worth thousands of billions. In addition, some of these plots of idle land, which occupy a quite large area, belong to bigwigs of the city, so this is very important to Macau society. If there is progress made on receiving the idle lands, and the government does not let off the bigwigs, it will be doing quite a good job. In addition, if the government
António Ng Kuok Cheong
No actual measure improving quality of life “I cannot see how the government is to improve the quality of life of Macau residents in the whole Policy Address. Although [the CE] always mentions this issue, he has to know that life quality can only be improved if the administrative ability of the government is enhanced. Meanwhile, the administrative ability depends on how it can resolve the daily problems of residents, which are very varied, such as housing, medical, transportation, and social security. If you don’t actually face these problems, the problems will pile up and the complaints increase.”
Accountability systems for Secretaries José Pereira Coutinho
“If the government wants to improve its administrative ability, it has to implement an accountability system for
insists on not granting land on the new reclamation areas to enterprises but [uses it] to implement the concept of ‘Macau people, Macau land’, the public can be relieved about the government’s long-term housing policy.”
Dissatisfied with housing policy “I am not satisfied with the economic housing policy as the government may continue its policy of ‘Major social housing, minor economic housing’, which is totally wrong as the demand for economic housing is far higher than for social housing despite social housing also being a must. Although [the CE] did not mention exactly the policy in the Policy Address this year, it does not mean that he would stop such a policy.”
its chief officials. Such an accountability system is very important. We can see that the government is only planning to hold bureau heads accountable; however, bureau heads are only officials that execute orders [of the Secretaries]. As such, if the government does not have exact measures to conduct an accountability system [regarding chief officials] how can residents trust the government?”
Housing policy is a failure “The housing policy has failed a lot. The Policy Address only mentioned that there will be 29,000 public housing units more in the future; however, there is no timeframe for us to know when these 29,000 units [will be available].”
Business Daily | 5
March 24, 2015
Macau
Rentals dropped for fifth consecutive month in February Housing costs posted the lowest growth last month since July 2013. Overall, prices increased 5.3 per cent due to the Chinese New Year holiday that pushed up costs of package tours and restaurants Luís Gonçalves
Luis.goncalves@macaubusinessdaily.com
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he increase in rent prices in Macau slowed for the fifth consecutive month in February to post the smallest hike since July 2013, official data revealed yesterday. The ongoing softness of the real estate market, the major driver of prices here, was not enough, however, to stop inflation accelerating as the Chinese New Year holiday took prices of food, package tours and culture to new highs. Despite the holiday shopping frenzy and two million visitors during CNY in the city, the major point of February’s inflation figures was the slowdown of the real estate market that is starting to look like a trend as the local economy loses steam with plunging gaming revenues. According to the Statistics and Census Service (DSEC) the cost of housing and fuel increased 10.7 per cent last month from a year ago. That’s the fifth consecutive month of slower price growth and the smallest
increase for almost two years. Only in July 2013 did rents rise less than last month, with a 9.04 per cent hike, data from DSEC reveals. With inflation in housing costs reaching the 10 per cent mark, the property market could return to the single digit growth rates that were the norm before the Summer of 2013. In 2012, real estate prices went up 6.7 per cent, in 2011, 3.4 per cent and in 2010 housing costs only increased by 0.02 per cent.
CNY inflation Overall inflation increased 5.3 per cent in February from a year ago, above January’s 4.85 per cent hike but still the second lowest value for more than two years. The statistics bureau said that inflation accelerated last month due to the Chinese New Year holiday that increased the cost of eating in restaurants and joining package tours.
10.7 pct Increase in housing and fuel costs in February year-on-year The price of recreational and cultural services went up 9.49 per cent in February, the second greatest increase of all eleven categories DSEC use to calculate inflation here. Prices of food and non-alcoholic beverages registered the third biggest jump with an inflation of 4.82 per cent. From January, overall prices in Macau hiked 0.9 per cent last month with recreational and cultural services recording by far the largest jump (7.15 per cent), eight times
the average inflation. Housing costs accelerated 0.54 per cent, while food went up by 0.82 per cent. The only exception was clothing and footwear prices that decreased 1.21 per cent due to seasonal women’s clothing, the Statistics and Census Service said. Inflation in Macau continues to revolve around housing and food costs, with these two categories representing 60 per cent of the basket used to calculate price variations in the city.
6 | Business Daily
March 24, 2015
Macau Brands
Trends
An affair to remember
Fox enters Hong Kong TV market, investing US$1mln per episode
Raquel Dias newsdesk@macaubusinessdaily.com
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ass market brands are not the only ones that partner with designers. Escada has recently teamed up with artist Thilo Westermann. The affair was born when fashion director Daniel Wingate visited Thilo Westermann’s exhibition ‘So what does Forever Mean’ - at the Oechsner Galerie in Nürnberg, Germany. In the words of an expert: “His reverse plexi paintings are minimal. He works with the brush or needle millimetre by millimetre along the surface of the pane of plexi to give rise to an image. His hand moves so slightly that if you only look at it for a moment, you will hardly perceive the motion.” The artist has managed to translate into fabric what he usually does in glass, a myriad of meticulous lines, and details of nature. Although black and white are the predominant colours, a welcomed dash of fuchsia is added to some garments, making it a perfect collection for the coming Spring/ Summer season. Escada Meets Thilo Westermann is an original collection that showcases the collision of art and fashion. The seven-piece capsule collection is a testament to both the captivating power of creativity and vision. One of the few pieces that introduces a third colour, pink, to Westermann’s black and white, and still lives, is the silk dress. The design is elegant and bold at the same time. Perfect for Spring and Summer days, the seven-piece collection will be available in selected shops. You need to take a short trip to Hong Kong should you want to wear any of them, or merely to admire them.
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merican mass media corporation 21st Century Fox is to invest in making television programmes in Hong
Kong by using production companies and celebrities from the Special Administrative Region, Hong Kong newspaper South China Morning Post
reported yesterday. Fox International Channels are to spend US$1 million for each episode on one or two miniseries per year in Hong Kong, with the first two miniseries starting production this year. “We plan to produce premium miniseries; high-concept television made by film talent from here. Many film directors in Hollywood are producing television but this has yet to become a trend in Asia. We want to bring US standards to Asia,” the newspaper quoted senior vice-president of Fox International Channels Cora Yim as saying. According to her, the first show of the American corporation in Hong Kong will be titled ‘Guilty as Sin’, which will be set in Hong Kong and tell a local story. Meanwhile, the second show targets both audiences inside and outside Hong Kong, and will thus be shot in English. The newspaper says Fox is negotiating with possible partners in Hong Kong, hoping to reach deals during FILMART, an annual film and television trade gathering in Hong Kong that kicked off yesterday.
Hong Kong’s third runway fees up in the air
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he proposed HK$180 (US$23) levy to be imposed on departing passengers from Hong Kong International Airport at Chek Lap Kok as a means to partly fund the airport’s third runway project will be reviewed by an appointed consultant, for which a lowering of the levy will be looked into, Hong Kong media has reported quoting Airport Authority chief executive Fred Lam Tin Fuk. The Airport Authority of Hong Kong is proposing a levy of a HK$180 additional fee for departing, nontransit passengers until the end of the construction of the third runway at the airport. Departing passengers will pay this fee on top of the HK$120 airport departure tax from next year, if the HK$141.5 billion third runway project can go ahead.
S p ea k i n g o n S u n d a y , t h e Airport Authority chief executive said he believed there was room for lowering the runway fee, whereby one of the possible solutions was to differentiate such fees according to whether passengers were travelling on a long-haul or short-haul flight. A consultant has already been appointed to review the proposed HK$180 runway fees to be shouldered by departing passengers, with the preliminary results expected to be out within two months, according to Mr. Lam. The government-approved third runway project, slated to open by 2023, will be funded through a mix of internal funds, external borrowing and higher user fees. The new facility will help Hong Kong International Airport, the world’s
largest handler of air cargo, boost capacity to 100 million passengers and 9 million tons of cargo a year by 2030, Financial Secretary John Tsang said in his budget speech last month. The airport said it handled 63.4 million passengers and 4.38 million tons of cargo last year, both of which are records. Mr. Lam said that the lowering of the runway fees will directly affect the Airport Authority’s internal rate of return, for which a new study for the return rate estimation is needed. The authority’s chief executive, however, said he could not disclose the internal rate of return for the third runway project at the moment as the construction fee is under review and the disclosure of such could cause public misunderstanding. S.L. /With Bloomberg
Insurer shooting for 1 million clients within five years
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nsurer FWD Group - whose business spans Hong Kong, Macau, Thailand and the Philippines eyes an eventual growth in its number of clients to one million within five years through the strengthening of sales of general insurance plans and the development of an online sales platform, Hong Kong-language media outlets reported. The target was quoted in a press briefing yesterday by FWD Chief Executive Officer of Hong Kong and Macau and Executive President of the Greater China Region David Wong, who also noted that the insurer had nearly 460,000 clients last year, a rise of 60,000 more compared to the previous year due to the rapid rise seen in the purchasers of the company’s general insurance plans.
The insurer also eyes a doubledigit increase in its premium income for this year, where the proportion of sales of investment-linked assurance scheme (ILAS) products will maintain at 20 per cent, according to Mr. Wong. Despite the Hong Kong insurance authority tightening ILAS sales procedures since the start of this year, FWD still believes in an increasing demand for the investment-linked products due to a robust performance of equity markets seen recently, Mr. Wong said. FWD, the insurance business arm of the private investment group Pacific Century Group, had a team of 1,828 insurance agents last year, a figure which the insurer hopes to grow to 3,000 by 2018. Last year, sales of insurance
plans generated by FWD’s own agents occupied 45 per cent of the group’s business, with another 40 per cent from bank insurances and the remaining 15 per cent through insurance brokers. Mr. Wong noted yesterday that the insurer is targeting an equal one-third proportion from these three sales channels in future. When asked whether the anti-graft policies in Mainland China would affect the group’s business from high-end clients, the insurer’s Hong Kong and Macau chief responded that the well-developed system of insurance plan sales in Hong Kong was still appealing to Mainland clients. Currently, Mainland clients account for over 20 per cent of the insurer’s new clients. S.L.
Business Daily | 7
March 24, 2015
Macau Rock in Rio to be broadcast in Macau until 2025 Representatives of Rock in Rio, the world’s biggest music festival, have signed a ten-year agreement with Shanghai-based FansTang, to broadcast Rock in Rio USA and Rock in Rio Brazil until 2025. The festival organisers are launching a campaign to target Chinese music fans, especially from the Mainland, Macau and Hong Kong. The campaign will also celebrate the 30th anniversary of the festival. Rock in Rio was held for the first time in Rio de Janeiro, Brazil, in 1985, expanding over the years to Europe. This year, the festival will take place on 18-20 and 24-27 September in Rio, and in Las Vegas on 8 & 9, and15 & 16 May 2015.
ABM: Macau should become Macau and HK: international financial centre OCBC’s “bread and butter”, says CEO F
A
fter buying Wing Hang Bank for US$5 billion last year, Singapore’s Oversea-Chinese Banking (OCBC) is keen to invest and diversify its portfolio in Mainland China and in the Pearl River Delta, attracting Chinese companies through the bank’s knowledge of South East Asian markets. Na Wu Beng, the chief executive of OCBC Wing Hang Bank, told South China Morning Post that the increased investment flowing between China and the South East Asian countries will be one of the axis of growth in the future. The bank’s experience
in the area will be a trump to attracting new corporate clients. OCBC aims to double the weight of the China market in its profits before tax in the next two years from the current 12 per cent to 20 per cent in 2017. Singapore is still the main contributor to OCBC’s earnings with a share of 60 per cent, followed
by Malaysia with a slice of 20 per cent. The acquisition of Wing Hang Bank last year, strengthened the position of OCBC in the Pearl River Delta, namely in Hong Kong and Macau. “Apart from Shanghai, the Pearl River Delta - including Hong Kong and Macau - is our bread and butter, offering higher returns and risks simultaneously,” Mr. Beng said. In 2013, the bank opened a corporate office in Shanghai, a move that reflected its commitment to the growing trade and investment between China and Southeast Asia. L.G.
ollow the steps of Hong Kong, Singapore and Shanghai, the three major financial centres in Asia. Macau Association of Banks (ABM) Chairman Ip Sio Kai said that the government should focus on turning Macau into an international financial centre, as the city is a natural free trade zone. Speaking during a Collective Wisdom Policy Centre forum about the government’s Policy Address, Mr. Ip underlined that authorities here should take advantage of being a Special Administrative Region with low taxes and economic freedom, things that are big trumps in attracting foreign companies. The ABM Chairman described Macau as a “natural free trade zone”. He also pointed out other competitive
advantages of the territory such as its legal framework and accounting standards that follow the best international practices - all together making Macau a suitable candidate to become an international financial centre. Mr. Ip said that Macau had already set up the Mainland’s first free-trade zone (FTZ) in Shanghai and is one of the cities listed as a possible offshore financial centre by the International Monetary Fund (IMF). In the same forum, Macau Economic Association President Henry Lei Chun Kwok said that the city’s economy is entering a “new normal” and that authorities should create a new strategy to promote non-gaming sectors, vital to diversifying Macau’s economy. L.G.
McMacC o. Ltd. (McDonald’s Macau)
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Greater China
ChemChina to buy Italian tyre maker Pirelli The agreement would give ChemChina access to technology used in making lucrative premium tyres and could help China develop its automotive industry Paola Arosio and Danilo Masoni
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hina National Chemical Corporation (ChemChina) agreed to buy tyre maker Pirelli in a 7.1 billion euro (US$7.7 billion) deal that will place one of the symbols of Italy’s manufacturing industry in Chinese hands. The deal with Pirelli’s shareholders is the latest in a string of takeovers in Italy by cash-rich Chinese buyers, who can take advantage of a weak euro just as signs emerge that Europe is coming out of economic stagnation. It will give ChemChina access to technology to make premium tyres, which can be sold at higher margins, and give the Italian company a larger presence in the huge Chinese market. ChemChina’s tyre making unit China National Tire & Rubber will first buy the 26.2 percent Italian holding firm Camfin owns in Pirelli and will then launch a mandatory takeover bid for the rest. The bid will be launched by a vehicle controlled by the Chinese state-owned group and partly owned by Camfin investors - Pirelli’s boss Marco Tronchetti Provera, Italian banks UniCredit and Intesa Sanpaolo, and Russia’s Rosneft, Camfin said in a statement. The offer will be launched at 15 euros per share, valuing the group at 7.1 billion euros excluding net debt of almost 1 billion euros at the end of 2014. The ChemChina unit also envisages taking the world’s fifth-
KEY POINTS Deal values Pirelli at 7.1 billion euros, excluding debt Agreement is latest Chinese acquisition in Italy ChemChina-controlled firm to bid for Pirelli minorities Pirelli truck unit to be merged with ChemChina’s AEOLUS largest tyre maker private. As details of the deal were leaked on Friday, shares in Milan-listed Pirelli, which started business 143 years ago producing rubber items, rose to a 25-year high and topped the 15 euro buyout price, prompting analysts to say shareholders may want to think twice before tendering their shares at that level. Sources close to the matter said on Friday the deal with the Chinese group will mean Rosneft, which is facing international sanctions due to the Ukraine crisis and needs to cut debt, reduces its stake in Pirelli. The agreement would give ChemChina access to technology
used in making lucrative premium tyres and could help China, already a global player in sectors such as telecoms and internet, develop its automotive industry. In turn Pirelli, whose tyres equip cars in Formula One motor racing, would have more bandwidth to compete against larger rivals such as Michelin and Continental which are looking for growth in Asia. Camfin said on Sunday Pirelli’s less profitable truck and industrial tyre business would be folded into ChemChina’s listed unit AEOLUS, allowing it to double its output. The new Chinese owners will pick a new chairman while Tronchetti
Provera, who started working in the tyre maker in 1986 after marrying a member of the Italian family that founded the firm, will remain chief executive. Previous Chinese acquisitions in Italy, the euro zone’s third-largest economy, include stakes in power grid firms Terna and Snam, turbine maker Ansaldo and luxury yacht maker Ferretti. Excluding the financial sector, Italy is the second-biggest acquisition market for China in Europe and fifth-largest worldwide with 10 deals completed since the start of 2014, according to Thomson Reuters data.
Policy shifts away from bumper harvests As well as growing amounts of rice and wheat, China is also consuming more protein-rich food
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hina will no longer chase bumper grain harvests and instead make safer foods a priority and boost imports as it bids to tackle its rural environmental problems, government officials said. The shift in emphasis suggests authorities are willing to forgo their obsession with
agricultural output growth. Achieving bumper harvests has long been considered a political necessity for the world’s most populous country, particularly after Mao’s 1958 “Great Leap Forward” industrialisation campaign led to widespread famine. “In our current grains
policy, one of the most important ideas is to speed up the transition in the way we boost grain output,” said Han Jun, deputy director of the Office of Central Rural Work Leading Group, the country’s top decision maker on rural policy. “In the past we were exhausting our resources and environment in pursuit of yield, and now we have to focus equally on quantity, quality and efficiency and particularly the quality of grain output growth, environmental protection and sustainable development,” Han told the China Development Forum on Saturday. He said China had recently published its sustainable development plan for agriculture, which will cap water use as well as reduce the use of chemical fertilizer and pesticides in its agriculture production. China’s huge grain reserves should help ease the
We have to focus equally on quantity, quality and efficiency and particularly the quality of grain output growth, environmental protection and sustainable development Han Jun, deputy director, Office of Central Rural Work Leading Group
Reuters
transition and reduce the risk of food shortages, said Han. His speech was carried on www.sina.com. China should remain self-sufficient in cereals given its huge population, while making full use of international markets for farm products that are in short supply. Qian Keming, chief economist at China’s agriculture ministry, said the country could achieve an 85 percent self-sufficiency ratio by 2020, which was lower than the controversial 95 percent rate that Beijing has been aiming to maintain over the past few decades. China’s grain production should be capped at 610 million tonnes, rather than the previous level of 650 million tonnes, which is close to the country’s maximum capacity and puts its resources and the environment under strain, said Qian. Ning Gaoning, chairman of the China National Cereals, Oils and Foodstuffs Corp (COFCO), told the Saturday forum that China could open up more to agriculture trade. As well as growing amounts of rice and wheat, China is also consuming more protein-rich food, which means it needs extra supplies, he said. Reuters
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Greater China
Stricken steel mills look to state to ease exit strategy Hebei’s local officials estimate that as many as 400,000 workers will need new jobs once planned mill closures are complete David Stanway and Ruby Lian
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any loss-making Chinese steel mills could finally be ready to shut their doors this year, with the government expected to offer more incentives for stricken enterprises to close as the economy slows and a war on smog intensifies. For years, hundreds of poorlyregulated mills dodged policies aimed at solving the perennial problems of pollution and overcapacity, protected by surging demand and the reluctance of local authorities to jeopardise growth and employment. But tougher environmental enforcement and a slowdown in demand have now mired the sector in losses, leaving firms struggling to pay wages or upgrade technology. The head of a state-owned mill said this month that 2015 could end up being the sector’s worst year yet. From last year, regulators promised to give the market a bigger say in deciding which mills would close, but many have clung on longer than expected in the hope that rivals perish first, propped up by local authorities terrified by the prospect of unemployment and unrest. With excess capacity now said to
stand at about 300 million tonnes and prices drifting near 20-year lows, the industry is waiting for Beijing to step in again with decisive measures aimed to close failing steel firms for good. “The central government may have to find a way to deal with it, but eventually the bottom line is they have to close down those steel mills,” said Helen Lau, analyst at Argonaut Securities in Hong Kong. Fears of a widespread shutdown of Chinese mills that could cut the country’s demand for iron ore sent prices of the raw material last week to the lowest since records began in 2008.
Exit mechanisms Under a revised restructuring plan the government will improve “exit mechanisms” for the sector, allowing enterprises already facing losses to find a way out, according to a draft published by the Ministry of Industry and Information Technology. Cao Huiquan, chairman of Hunan Valin Iron and Steel Group, told Reuters last week that local governments still propped up loss-
Private mills have no money to revamp their environmental equipment. They are still making losses and they can’t get money Xu Zhongbo, head of Beijing Metal Consulting
making firms to save jobs and prevent expensive investments from being devalued. “The exit threshold in the sector is high, capital injections are high
and firms have spent huge amounts,” he said. “And then we have the employment problem, which needs to be resolved through government spending.” While there are already procedures in place to help liquidate plants, bankruptcies have been rare, with local authorities reluctant to handle rising unemployment and preferring lenders to restructure debts, banking sources say. “Local governments will not let their companies go bankrupt, they will push banks to restructure loans,” said a loan officer at the headquarters of one of the top five Chinese banks. In Hebei, a major steelmaking province close to Beijing, growth slipped to 6.5 percent last year, one of the lowest rates in the country. Local officials estimate that as many as 400,000 workers will need new jobs once planned mill closures are complete. But it appears to be winning a campaign for more state support, with Premier Li Keqiang telling a Hebei delegation this month that the province should be offered preferential policies and financing.
Developers turn to onshore yuan debt Firms scramble back despite a cooling housing market and a series of scandals such as Kaisa Group’s failure to repay a coupon payment Clare Jim
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hinese developers plan to eschew the offshore market and borrow more money onshore this year thanks to lower funding costs and improved liquidity on the back of government easing measures. The move by Chinese property firms, which account for about onethird of the Asia high-yield market, coincides with interest rate cuts on the mainland and an expected hike in U.S. interest rates later in the year. Expectations of a weaker yuan, which fell 2.4 percent in 2014, had also been driving the trend, though last week’s dramatic 1 percent bounce in the currency has now split market watchers on the currency’s outlook this year. Developers’ drive back into onshore bonds comes despite a cooling housing market and a series of scandals such as Kaisa Group’s failure to repay a coupon payment, which have dented investors’ confidence. Country Garden is just one developer that plans to borrow more onshore in yuan this year. The company, which has a market capitalisation of nearly 8 billion yuan (US$1.29 billion), wants to raise the proportion of its loans in yuan to 60
percent this year from 50 percent in 2014. “Interest for five-year mediumterm notes in China is around 6 percent, lower than offshore,” Chief Finance Officer Wu Jian Bin told Reuters. Country Garden recently paid 7.5 percent on five-year senior notes but thinks that will drop to just 6 percent when it issues onshore bonds later this year, said a company official who declined to be identified as the plan has not been finalised. “We are already seeing funding
costs in onshore markets edging down because of monetary loosening. On the other hand, offshore market yields are going up due to RMB depreciation expectations,” said Nathan Chow, CNH strategist with DBS Bank. Yields on Chinese corporate bonds dropped by 50 basis points or more after the People’s Bank of China cut interest rates in November and February and lowered bank reserve requirements (RRR). More cuts are expected in coming months as Beijing tries to meet a slower growth forecast of 7 percent this year.
China’s medium-term note (MTN) market reopened to real estate issuers last year after a four-year halt, although it is currently open only to China-listed firms. Regulators are expected to open it to Hong Kong issuers later this year. Many Hong Kong-listed Chinese developers have expressed interest in borrowing in this market. An executive at a Beijing-based H-share property firm said it hopes to raise more yuan debt this year - all of it onshore. “The yuan expectation is weak, so fewer investors will buy dim sum bonds, which means the issuing price for us will go up,” said the executive, who asked not to identified as he was not authorised to speak to the media. Dim sum bond issuance is set to fall this year for the first time since the Hong Kong market began in 2007 as it has become cheaper to issue on the mainland. Yields on dim sum bonds issued by Chinese property developers have widened to at least 6.5 percent in the last six months, reflecting investors’ concerns over China’s cooling property market, according to analyst Simon Colvin at Markit. Reuters
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March 24, 2015
Greater China Former energy executive charged with graft Chinese prosecutors yesterday charged a former senior energy executive with bribery, abuse of power and other corrupt practices, the latest official to face court in a sweeping crackdown on corruption. Wang Yongchun was a deputy general manager of China’s biggest oil company, China National Petroleum Corporation, the parent of PetroChina, until he became caught up in a graft probe last year. Several senior CNPC executives have already been put under investigation in a far-reaching corruption crackdown.
Zijin in talks to buy mines abroad
“The restructuring of Hebei’s steel industry has been far harder than expected and we need the state to come out with a series of measures to support our transformation,” said Zhang Qingwei, Hebei’s governor.
Casualties of war Since China launched its “war on pollution” last year, mills have faced tougher standards, with executives even risking imprisonment if they
fail to comply. A crackdown on the city of Linyi in Shandong led to the closure of several mills, and a new round of inspections in Hebei could force more plants to rectify or die. Larger steel firms have expressed hope that tougher environmental legislation will create a level playing field, but many firms have had little option but to keep running polluting equipment. The hope has been that local
governments will either pay for their upgrades or compensate them for closing down. “Private mills have no money to revamp their environmental equipment. They are still making losses and they can’t get money,” said Xu Zhongbo, head of Beijing Metal Consulting, which advises steel mills. “They will use their existing equipment and try to continue producing and just see what happens.” Reuters
Taxman ready to reap Alibaba windfall
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Alibaba employees
trading restrictions that apply to employees until the company reports results in May. The total lock-up represents roughly 18 percent of Alibaba’s shares, which if sold would fetch just over US$37 billion at Friday’s closing price. Although Alibaba did not disclose the identity of the shareholders subject to the lock-up, many will be taxable in China, where most of its 22,000 people are employed, and its share scheme is subject to a number of
Taiwan’s jobless rate drops Unemployment dipped to 3.69 percent in February, marking the lowest level for the month in almost 15 years, the island’s statistics authority said yesterday. The rate was 0.02 percentage points lower than that seen in January, according to the statistics agency. The unemployment rate for the January-February period also hit its lowest level for the same period in almost 14 years. New jobs for February were mainly created by the service and industry sectors, which added 94,000 and 41,000 new jobs, respectively, for the month.
Sugar imports lower than expected
A spokesman for Alibaba said employees were responsible for reporting share sale gains to the tax authorities hina could make billions of dollars from taxing gains made by employees of e-commerce giant Alibaba Group who are free to sell their shares for the first time since its IPO, as the country tightens up its leaky mechanisms for tax collection. On Wednesday, a six-month lockup period for the recently New Yorklisted stock expired, allowing insiders who bought 437 million shares prior to the IPO to sell their stock, though 100 million of them are subject to
Chinese company is in talks to buy gold and copper mining assets abroad and expects to finalise some acquisitions this year, its chairman said yesterday. Chen Jinghe said that current market conditions were favourable for acquisitions but did not identify targets. Zijin was also likely to conclude development of its stalled copper mine project in Peru this year after facing opposition from the local community, Chen said. The Rio Blanco copper project in northern Peru was struck by bouts of violence before and after it was bought in 2007 by Zijin.
controls that will help ensure China gets its tax. Current and former employees hold around 26.7 percent of the company, having built up holdings through stock options and other incentives since 1999, according to a Reuters report from June using IPO securities filings. Those subject to the expiring lockup will have obtained their shares at different times and costs, so the gains figure is unknown, but the tax is expected to reach billions of dollars for China’s State Administration of Taxation (SAT). While tax on employee compensation is withheld by employers, tax on share sales must be declared by employees, meaning it’s typically harder for the authorities to track. It is not uncommon for employees participating in Chinese company stock incentive schemes to transfer their shares to offshore trusts in the Cayman or British Virgin Islands to avoid tax, according to a person who helps create such structures. A larger lock-up of more than a billion shares held by insiders including founder Jack Ma and Yahoo! Inc expires in September. Reuters
China imported nearly 124,000 tonnes of sugar in February, down around 24 percent from a year ago and about half the volume expected by industry, with analysts saying shipments were likely delayed as the Lunar New Year holiday fell in the middle of the month. Some shipments may also have been refused entry for “policy reasons”, said one analyst, after Beijing implemented a new approval process for non-quota imports. The Chinese government is under pressure to reduce sugar imports to help struggling domestic mills that are forced to pay high prices for locally grown sugarcane.
Tingyi’s sales and profit down China’s largest food and beverage maker, Tingyi Holding Corp, said net profit slid 2 percent in 2014, falling well below estimates, as a slowing economy and fierce competition dragged sales down for the first time in almost two decades. Hong Kong-listed Tingyi, owner of the Master Kong brand and a partner with PepsiCo Inc and Starbucks Corp in China, said yesterday profit for the year fell to US$400.5 million from US$408.5 million a year earlier. The result lagged far behind an average forecast of US$445.7 million compiled from around 30 analysts polled by Reuters.
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Asia
Singapore CPI fall marks longest drop since 2009 The most likely scenario is for the Monetary Authority of Singapore to ease its exchange rate-based monetary policy even further Masayuki Kitano and Jongwoo Cheon
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ingapore’s consumer prices fell in February for a fourth-consecutive month, the longest slide in more than five years, underscoring expectations that the central bank may ease monetary policy further in April. The all-items consumer price index fell 0.3 percent in February from a year earlier, official data showed yesterday. Headline inflation had been expected to fall 0.2 percent, according to a Reuters poll. The index has been falling on a year-on-year basis since November, pressured by sliding oil prices as well as falls in housing rents and private transport costs. February’s slide in
Monetary Authority of Singapore headquarters
headline CPI marked the longest decline since the second half of 2009, when headline CPI fell from a year earlier for six straight months. The most likely scenario is for the Monetary Authority of Singapore to ease its exchangerate based monetary policy
further at its bi-annual policy review in April, said Jeff Ng, an economist for Standard Chartered. “We see them easing by recentring the Singapore dollar NEER. But I think it’s going to be a close call,” Ng said, referring to the Singapore
dollar’s nominal effective exchange rate (NEER). The MAS, Singapore’s central bank, manages monetary policy by letting the Singapore dollar rise or fall against the currencies of its main trading partners within an undisclosed trading band based on its NEER. In January, MAS unexpectedly reduced the slope of its policy band for the Singapore dollar in an unscheduled policy statement. In a Reuters poll published earlier this month, seven of 11 analysts said they expect the MAS to ease monetary policy further in April. Core inflation, which excludes car-related and accommodation costs and is the focus of monetary policy,
came in at 1.3 percent yearon-year in February, higher than the market forecast of a 1.1 percent rise. Industrial production data for February due later this week may be more crucial to the monetary policy outlook than the inflation data, said Tim Condon, head of research Asia for ING. “Because if they have to revise the growth forecast... if they deem that necessary, then I think that would be a more likely trigger of a further easing by the MAS,” Condon said. More than 20 central banks around the world have taken advantage of cooling inflation to ease policy so far this year to boost sluggish growth. Reuters
Biggest wealth fund ready to buy ‘a lot’ of Asian real estate A Norwegian fund got permission to expand into real estate in 2010 after previously being limited to investing in stocks and bonds Saleha Mohsin
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orway’s wealth fund is making final preparations for its first Asian real estate investment as it builds a portfolio of properties in the world’s biggest cities. After scouring Asia for investment opportunities, the US$870 billion fund, built from Norway’s oil revenue, has narrowed its search to Singapore and Tokyo, said Karsten Kallevig, head of real estate investments at the Oslo-based fund. “Tokyo is arguably the single biggest market in the world for real estate,” he said in a March 20 interview. While the fund doesn’t have an ultimate spending target, “we can invest a lot in Asia,” he said. The Government Pension Fund Global, its official name, targets markets based on growth potential and supply constraints as it seeks to invest in 10 to 15 cities globally. It has already snapped up properties in New York, Paris, London and Berlin among other cities. The fund held about US$18 billion, or 2.2 percent
of its assets, in real estate last year, and is seeking to build that share to 5 percent. The focus is on specific markets rather than sectors, Kallevig said. “When we say Singapore and Tokyo, we mean the better parts” of those cities, he said. “My guess is office properties will be the main component, because that’s what’s for sale in those parts of town. There aren’t many shopping malls in the centre of Tokyo or the centre of Singapore.”
Recovery signs Since Japanese Prime Minister Shinzo Abe took power in 2012, he has pledged to revive the world’s third-largest economy. The nation’s commercial real estate market is showing signs of a recovery and office vacancies, a measure of unoccupied space, in Tokyo fell to 5.3 percent in February from 7 percent a year earlier, according to brokerage Miki Shoji Co.
Tokyo is arguably the single biggest market in the world for real estate Karsten Kallevig, Government Pension Fund Global, head of real estate investments
Singapore, smaller in size than New York, has seen a booming property market in recent years amid rising wealth and an influx of foreigners. Office rents in the central business district jumped 14 percent
last year, the biggest increase in the region, amid a limited supply, according to broker Jones Lang LaSalle Inc. The fund got permission to expand into real estate in 2010 after previously being limited to investing in stocks and bonds. The real estate portfolio returned 10.4 percent last year, as the total fund gained 7.6 percent, its smallest rise since 2011. It has warned it expects diminished returns amid record low, and even negative, yields in key government bond markets combined with slow growth in developed markets. Just as in earlier purchases in Europe and the U.S, the fund will find partners for the Asian expansion, Kallevig said. The next trip to the area will probably be in the second quarter of this year, he said. “If we’re really successful there, then maybe we can add a third and a fourth and a fifth city at some point,” he said. Bloomberg News
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March 24, 2015
Asia Hotel Shilla to buy stake in duty-free firm The company is buying a 44 percent stake in in-flight duty-free retailer DFASS for US$105 million via its U.S.based affiliate, the South Korean hotel and duty-free operator said yesterday. Hotel Shilla, a unit of Samsung Group, said in a statement it retains a call option to buy an additional 36 percent of DFASS in five years. Miami-based DFASS operates more than 25 duty-free shops in the United States, Latin America and the Caribbean as well as in-flight duty-free services, according to its website.
Australian regulator to look at UBS An Australian regulator said it has requested information from UBS after a senior politician said he had the bank change an analyst’s report about a US$13 billion electricity network that it is helping the government sell. Mike Baird, the premier of the state of New South Wales who is pushing for the sale of the network, confirmed this month that his office asked sale adviser UBS to reissue an analyst report without a reference to the deal as being “bad for the budget”.
DB steps up Islamic finance efforts The Asian Development Bank (ADB) is stepping up efforts to assist member countries to use Islamic finance in areas such as infrastructure financing, ranging from technical assistance to providing credit guarantees, an ADB official said. The Manila-based development lender sees Islamic finance, a sector which now holds systemic importance in countries such as Pakistan and Bangladesh, as complementing its objectives to boost financial inclusion and promote financial stability. Sharia-compliant instruments such as sukuk, or Islamic bonds, have gained prominence as funding tools for a wide range of countries over the last year.
India becomes thirdlargest steel producer According to the data compiled by the World Steel Association, India has produced 14.56 million tonnes of steel in the first two months of this year and beat the United States to become the world’s third-largest producing country. The first and the second spots are occupied by China and Japan, the figures revealed. The United States has been holding the position of the third- largest steel producer since 2010, but India managed to scale its production in January and February and reached the third spot.
NZ to send more cyclone relief The New Zealand government is to give a further one million NZ dollars (US$756,544) and other assistance to help Pacific island nations recover from Tropical Cyclone Pam, Foreign Minister Murray McCully said yesterday. The additional funding would be split equally between Vanuatu and Tuvalu, McCully said in a statement. The additional funding would bring New Zealand’s total financial contribution to Cyclone Pam relief to NZ$3.5 million (US$2.65 million).
Japan’s long-term price trend unchanged Bank of Japan governor warns Prime Minister Abe that the momentary environment is blurring the underlying progress of prices Stanley White
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ank of Japan Governor Haruhiko Kuroda said he told Prime Minister Shinzo Abe yesterday that inflation is slowing due to a decline in oil prices but there is no change in the long-term rising trend for consumer prices as the economy improves. Kuroda, speaking to reporters after the meeting, said he also told Abe that the economy remains on a gradual recovery path. Kuroda also said that monetary policy was not discussed, but that may do little to quell speculation that the prime minister had a message for the central bank governor. The meeting occurred at a time when slowing inflation is testing the BOJ’s ability to meet its 2 percent consumer price growth target, and raising questions about whether additional monetary easing is needed later this year to keep prices on track. “I explained that the economy is doing well and remains on track for recovery,” Kuroda told reporters. “Oil price declines will eventually stop having an impact on consumer prices, so there is no change to the price trend.” The prime minister and the central bank governor regularly meet to exchange views on the economy. Kuroda said Abe did not ask questions. However, government officials attending the BOJ’s policy meeting in February dropped their calls for the central bank to hit its inflation target “at the earliest date possible” - signalling less urgency. Last week Kuroda admitted that consumer prices could temporarily fall due to lower oil prices but sent a strong signal that he saw no need
Bank of Japan Governor Haruhiko Kuroda
KEY POINTS PM, BOJ Gov regularly meet to discuss economy Consumer prices expected to fall on oil rout Timeframe for BOJ price target may be optimistic to expand its quantitative easing. Data due on Friday are expected to show that excluding the effects of a sales tax hike, the core consumer price
index (CPI) rose just 0.1 percent yearon-year in February, as a collapse in oil prices from last year weighs on CPI. Kuroda has said the BOJ can meet its 2 percent inflation target sometime around fiscal 2015 starting in April, because the output gap between the economy capacity to produce and its actual performance is improving, while the oil price decline will start to fall out of the year-on-year comparison. Many economists say achieving the target on time is unlikely because inflation may not accelerate fast enough within what many central bank watchers consider to be an overly ambitious timeframe. Reuters
Jakarta will compete with Beijing to host AIIB At least 35 countries will join the AIIB by the deadline of March 31
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ndonesia will seek to host the Asian Infrastructure Investment Bank’s headquarters, the finance minister of Southeast Asia’s largest economy said on Monday, though the new multi-lateral lender is led by China and Beijing wants the role for itself. A number of countries have said they would participate in the AIIB. The new bank is slated to start operations by the end of the year. “It is our aspiration to have the headquarters in Jakarta, but of course we will have to compete with Beijing on that,” said Bambang Brodjonegoro, speaking on the side-lines of the Credit Suisse Asian Investment Conference in Hong Kong. Bambang, echoing recent comments by China’s Finance Minister, Lou Jiwei, said the infrastructure needs of Asia are endless and the
It is our aspiration to have the headquarters in Jakarta, but of course we will have to compete with Beijing on that Bambang Brodjonegoro, Indonesia’s Finance Minister
AIIB will be complementary to the Asian Development Bank (ADB), which focuses on development and education, as well as infrastructure. “AIIB will focus only on infrastructure,” the Indonesian minister said. At least 35 countries will join the AIIB by the deadline of March 31, the bank’s interim chief, Jin Liqun, said on Sunday. India, Indonesia and New Zealand have expressed interest in joining the bank, he told a conference in Beijing, following a request by Britain, France, Italy and Luxembourg to become founding members. The United States, worried about China’s growing diplomatic clout, has questioned whether the AIIB will have sufficient standards of governance and environmental and social safeguards. Reuters
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March 24, 2015
International
Global deflation fears closer
Saudi Arabia discards A world more connected means more pressure to keep policy easy OPEC manoeuvre OPEC will not take sole responsibility for propping up the oil price, Saudi Arabia’s oil minister said, signalling the world’s top petroleum exporter is determined to ride out a market slump that has roughly halved prices since last June. Last November, Organization of the Petroleum Exporting Countries kingpin Saudi Arabia persuaded members to keep production unchanged to defend market share. The move accelerated an already sharp oil price drop from peaks last year of more than US$100 per barrel that was precipitated by an oversupply of crude and weakening demand.
France’s conservatives, far-right win local polls France’s right celebrated yesterday after a conservative alliance and the far-right National Front took top spots in weekend local polls, dealing President Francois Hollande and his Socialists a new blow ahead of the 2017 presidential election. In a key test ahead of the presidential vote, an alliance lead by former president Nicolas Sarkozy took first place with 32.5 percent of the vote, while the National Front (FN) of Marine Le Pen came second with 25.4 percent. The Socialists trailed in third with an estimated 22 percent, the latest haemorrhage of support for the party since Hollande.
Volkswagen to reduce activity at Russian plant German car producer said yesterday it would reduce shifts and lay off at least 150 workers at its Russian car plant in Kaluga, south of the capital Moscow. The carmaker said the Kaluga plant would work four days a week from April to July this year, while in May the number of shifts would decrease to two from three. It added that the production would be suspended for two weeks on May 5-8 and May 12-15.
Sudan hosts tripartite summit Khartoum yesterday is to host a tripartite summit for presidents of Sudan, Egypt and Ethiopia to sign on a Declaration of Principles on the Great Ethiopian Renaissance Dam (GERD). Egyptian President Abdel Fattah el-Sisi and Ethiopian Prime Minister Hailemariam Desalegn yesterday arrived in the Sudanese capital Khartoum to take part in the summit. The three countries reached an agreement of principles in March on sharing the Nile River water and the construction of the GERD which worries the two downstream countries (Egypt and Sudan).
Kenya to build wall at Somalia border Kenya plans to kick off construction of a wall along its border with Somalia as a security measure to help thwart off cross-border incursions by Al-Shabaab militants. Interior Cabinet Secretary Joseph Nkaissery said this was part of the government’s plan of ensuring the insecurity-hit Mandera County is safe from Al-Shabaab militants, adding that the construction of the security wall will start this week in Mandera town to Wajir. He said the construction of the wall will reduce the porous border entries into the country, which has witnessed increased terror attacks recently.
Simon Kennedy
G20’s central bankers during last meeting
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entral bankers are realizing that what happens abroad matters more than ever to inflation at home. In the past month, policy makers from Ottawa to London have used speeches to highlight how their local inflation rates may be driven by events outside their control, complicating their ability to set the right monetary policy. “There is evidence that fluctuations in global inflation account for a large and growing share of the variation in inflation in individual economies,” Bank of Canada Governor Stephen Poloz said February 24. “How does this affect our ability to target domestic inflation?” Bank of England Governor Mark Carney noted in a March 12 speech that the correlation between inflation rates in major economies grew in the wake of 2008’s financial crisis. If recent weakness persists, there is a risk of “a self-fulfilling fear of a bad outcome,” he said. While Federal Reserve Chair Janet Yellen said last week that declining energy and import prices are likely to be a transitory influence on inflation, officials signalled they are finding it trickier than they originally thought to separate U.S. monetary policy from the rest of the world amid a soaring dollar.
Among those on Wall Street tuning into such a threat is Gustavo Reis, an economist at Bank of America Merrill Lynch in New York. By adopting a worldview when assessing the outlook for central banks, he predicts even more monetary easing this year after 25 central banks already
There is evidence that fluctuations in global inflation account for a large and growing share of the variation in inflation in individual economies Stephen Poloz Bank of Canada Governor
injected fresh stimulus.
Disinflation ‘heft’ That’s because BofA Merrill Lynch’s measure of global inflation has dropped to about 1 percent, the weakest since the recession year of 2009, amid tumbling oil prices. Even stripping out volatile elements leaves the bank’s so-called trimmed inflation indicator at 1.5 percent over the past six months. “In short, the current episode of global disinflation has heft,” Reis told clients in a March 20 report. That’s bad news for policy makers because global price trends are increasingly important, he said. He calculates that in the past 15 years, three common factors explained inflationary shifts for countries composing 85 percent of the world economy. Those are commodity costs, long-term influences such as better Asian supply-chains and the dollar. A world more connected means more pressure to keep policy easy, said Reis, who predicts more action from the central banks of China, Russia, Colombia, Turkey, India, Indonesia and Poland before the end of the year. “Global inflation is heading down, with momentum,” said Reis. “And this matters more than it used to.” Bloomberg News
Fed’s Bullard says dollar near fair value but path unclear The Federal Reserve last week moved a step closer to hiking rates for the first time since 2006
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he dollar index is not far from fair value but it is unclear how much more the U.S. currency will strengthen against the euro, St Louis Federal Reserve President James Bullard said yesterday. Speaking on CNBC, Bullard pointed to the run up to the European Central Bank’s launch if quantitative easing earlier this month as a driver of the dollar’s 25 percent surge against the euro. “It (QE) is a major development on global financial markets and (that) the run up to that led to a depreciating euro and a strengthening dollar is not surprising at all,” he said. “That has all been priced into markets so I think it’s unclear at this point where the dollar euro exchange
rates are going to go.” He also said an exit of Greece from the euro would be possible but prove very painful for Greece itself. “I think it’s (Grexit) much more manageable than it would have been a couple of years ago and so I do think it could be done but I don’t think it’s advisable to try to go down that path,” he told CNBC in an interview. “Greece would face a very different and I think bleak future if it went in that direction but I don’t think the spill over into international markets is as it would have been.” The Federal Reserve last week moved a step closer to hiking rates for the first time since 2006, but downgraded its economic growth and
inflation projections, signalling it is in no rush to push borrowing costs to more normal levels. Bullard, who has long called for the Fed to raise rates sooner rather than later, said he had not changed his view in general, just altered the path of his own rate projection to reflect that policy had not moved as fast as he had expected. “I’ve not become more dovish it was just the committee didn’t move in March,” he said. “I think there was some dovishness (from the meeting) because there’s doubts. Going into the summer, we are going to see how the data comes in and we’ll be able to make a move but we don’t have to make a move.” Reuters
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March 24, 2015
Opinion
How far will the euro fall? wires Business
Leading reports from Asia’s best business newspapers
Anatole Kaletsky
BANGKOK POST
Chairman of the Institute for New Economic Thinking and the author of Capitalism 4.0, The Birth of a New Economy
The sudden turnaround by Prime Minister Prayut Chan-o-cha on the imposition of the land and buildings tax brought relief to middle-income taxpayers but prompted confusion among economists, policymakers and even the finance minister himself. For those against the proposed tax, Gen Prayut’s decision was sensible, showing his sensitivity to the public outcry. But those who view the tax as essential felt the move showed indecision that reflected the PM’s vulnerability to public pressure. Finance Minister gave an austere warning: the country was likely to face fiscal woe if it failed to implement the tax.
TAIPEI TIMES Democratic Progressive Party (DPP) Chairperson and presidential candidate Tsai Ing-wen said that keeping cross-strait relations stable is a shared objective, adding that all concerned parties should sit and negotiate a solution acceptable to all involved. “I can feel that everyone is concerned about how the DPP — and I — will handle China affairs. We are working hard to take care of the issue, hoping to maintain cross-strait stability and peace under very complicated circumstances, while defending Taiwan’s interests at the same time, and allow Taiwanese to have more options,” Tsai said.
THE JAKARTA POST Publicly listed petrochemical giant Chandra Asri Petrochemical (CAP) is looking for more tax incentives for its underconstruction US$435 million synthetic rubber plant in Cilegon, Banten, to maintain profitability. The company, which formed a joint venture between CAP and French tire maker Compagnie Financière Groupe Michelin to build the Cilegon plant, has submitted a request to the government for tax exemption once it starts commercial activities. The project is expected to start this year and be completed within two years, and is handled by CAP’s wholly owned subsidiary Petrokimia Butadiene Indonesia (PBI) and Michelin.
THE STRAITS TIMES Singapore issuers are turning to private debt placements to seek tighter pricing and new investors amid an uncertain rates outlook. Showing the way last week were Singapore Telecommunications and Bank of East Asia, Singapore branch, which together raised S$250 million (US$180.5 million) from a handful of investors. OCBC was sole lead manager on both deals, propelling the city state’s third-largest bank to the top spot on the book runner league tables for Singapore dollar bonds, replacing long-time market leader DBS Bank.
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he US dollar is hitting new 12-year highs almost daily, while the euro seems to be plunging inexorably to below dollar parity. Currency movements are often described as the most unpredictable of all financial variables; but recent events in foreign-exchange markets seem, for once, to have a fairly obvious explanation – one that almost all economists and policymakers accept and endorse. French President François Hollande, for one, has ecstatically welcomed the plunging euro: “It makes things nice and clear: one euro equals a dollar,” he told an audience of industrialists. But it is when things seem “nice and clear” that investors should question conventional wisdom. A strong dollar and a weak euro is certainly the most popular bet of 2015. So is there a chance that the exchange-rate trend may already be overshooting? In one sense, the conventional explanation of the recent euro-dollar movement is surely right. The main driving force clearly has been monetary divergence, with the Federal Reserve tightening policy and the European Central Bank maintaining rock-bottom interest rates and launching quantitative easing. But how much of this divergence is already priced in? The answer depends on how many people either are unaware of the interest-rate spread or do not believe that it will widen very far. Last year, many investors questioned the ECB’s ability to launch a bond-buying program in the face of German opposi-
tion, and many others doubted the Fed’s willingness to tighten monetary policy, because doing so could choke off the US economic recovery. That is why the euro was still worth almost US$1.40 a year ago – and why I and others expected the euro to fall a long way against the dollar. But the scope for dollar-bullish or euro-bearish surprises is much narrower today. Does anyone still believe that the US economy is on the brink of recession? Or that the Bundesbank has the power to overrule ECB President Mario Draghi’s policy decisions? With so much of the monetary divergence now discounted, perhaps we should focus more attention on the other factors that could influence currency movements in the months ahead. On the side of a stronger dollar and weaker euro, there seem to be three possibilities. One is that the Fed could raise interest rates substantially faster than expected. Another is that investors and corporate treasurers could become increasingly confident and aggressive in borrowing euros to convert into dollars and take advantage of higher US rates. Finally, Asian and Middle Eastern central banks or sovereign wealth funds could take advantage of the ECB’s bond-purchase program to sell increasing proportions of their German, French, or Italian debt and reinvest the proceeds in higher-yielding US Treasury securities. These are all plausible scenarios. But at least four factors
A strong dollar and a weak euro is certainly the most popular bet of 2015. So is there a chance that the exchange-rate trend may already be overshooting?
could push the dollar-euro exchange rate the other way. First, there is the effect of the strong dollar itself on the US economy and its monetary policy. If the dollar continues to rise, US economic activity and inflation will weaken. In that case, the Fed, instead of raising interest rates faster than expected, will probably become more dovish. Second, there must be serious doubts about whether Asian and Middle Eastern governments will in fact want to shift more reserves into dollars, especially if this means converting the euros they have
acquired since 2003 at a loss and far below their purchasing power parity. Many countries have spent decades diversifying their wealth away from dollars, for both financial and geopolitical reasons. With the US increasingly prone to using its currency as an instrument of diplomacy, even of warfare – a process known in Washington as “weaponizing the dollar” – China, Russia, and Saudi Arabia, for example, may well be reluctant to shift even more of their wealth into US Treasury bonds. A third factor suggesting that the euro’s downward trend against the dollar may not last much longer is the trade imbalance between the US and Europe. The gap is already wide – the International Monetary Fund forecasts a US$484 billion deficit this year for the US, versus a US$262 billion surplus for the eurozone – and is almost certain to widen much further, owing to the euro’s 20% depreciation since the IMF released its estimate last autumn. The implication is that hundreds of billions of dollars of capital will have to flow annually to the US from Europe just to maintain the present euro-dollar exchange rate. And as the transatlantic trade imbalance widens further, ever larger capital flows will be needed to keep pushing the euro down. Such huge capital flows are entirely possible, but what will drive them? That question leads to the final and most important reason for expecting the euro’s decline to reverse or at least stabilize. While higher US interest rates will attract some investors, others will move away from the dollar if the combination of a more competitive euro, the ECB’s enormous monetary stimulus, and an easing of fiscal pressures in France, Italy, and Spain generates a genuine economic recovery in Europe. The resulting flows of global capital into European shares, property, and direct investment – all of which are now substantially cheaper than corresponding US assets – could easily outweigh the cash and bond investments attracted by rising US interest rates. What, then, can strike a balance between the opposing forces operating on the euro-dollar exchange rate? No one can say for sure, but one thing is certain: Whereas the profits from playing transatlantic interest-rate differentials may run to 1% or 2% per year, investors can easily lose that amount in a single day – or even an hour – by buying the wrong currency when the trend turns. As we know from decades of Japanese and Swiss experience, selling a low-interest-rate currency simply to chase higher US yields is often a costly mistake. Project Syndicate
20 | Business Daily
March 24, 2015
Closing HK to raise retirement age for new civil servants
Internet to cover all Chinese middle, primary schools
The Hong Kong Special Administrative Region government (headquarters pictured) said yesterday that it will adopt a higher retirement age for new recruits with effect from June 1. Specifically, the retirement age of new recruits appointed to the Civil Service on or after June 1, 2015, will be raised to 65 in respect of the civilian grades, and 60 in respect of disciplined services grades, regardless of their ranks. For serving civil servants, flexible measures for extending their service will be formulated with a view to addressing the different operational and succession needs of individual grades or departments.
All primary and middle schools in China will soon be connected to the Internet, the Ministry of Education said yesterday. Each school will have at least one state-of-the-art computer facility, according to a 2015 plan on digitalized education issued by the ministry in February. The ministry expects local governments and enterprises to cooperate to help primary and middle schools in remote and poor rural areas get access to the Internet. It also suggested more fiscal support in setting up multi-media classrooms. In 2015, 2.6 million teachers will be trained and assessed on information technology.
World leaders laud Singapore’s Lee President Xi Jinping described Lee as “an old friend” of Chinese people and the founder and pioneer of China-Singapore ties
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overnment and business leaders remembered Lee Kuan Yew as a political “giant” who forged Singapore as a regional economic powerhouse and helped foster greater cooperation among many Southeast Asian nations. Lee, who died yesterday at 91, was Singapore’s first elected prime minister, a Cambridge Universitytrained lawyer who led the nation from 1959 to 1990, a period that included full independence from Great Britain and a split with Malaysia. U.S. President Barack Obama said discussions with Lee in 2009 were “hugely important” in helping him formulate the U.S.’s policy of rebalancing to the Asia Pacific region. Lee was hospitalized February 5 to treat severe pneumonia, where he was sedated and put on mechanical ventilation. As leader, he crafted policies to encourage foreign investment while averting corruption and emphasizing discipline, efficiency and interracial harmony. His son, Lee Hsien Loong, has been prime minister since 2004.
‘Uniquely influential’ China said the elder Lee was a “uniquely influential” statesman with oriental values and international vision, according to a statement from Foreign Ministry spokesman Hong Lei. President Xi Jinping sent his condolences in a telegram to Singapore President Tony Tan, China’s Foreign Ministry said, where Xi described
way” of achieving his dream for a prosperous nation.
Modern society
A file picture dated 29 June 2010 shows Singapore’s Minister Mentor Lee Kuan Yew during a forum in Singapore
Lee as “an old friend” of Chinese people and the founder and pioneer of China-Singapore ties. India’s Prime Minister Narendra Modi took to Twitter to call Lee a “lion among leaders” while Japanese Prime Minister Shinzo Abe said Lee had “unparalleled insights.” Taiwan President Ma Ying-jeou said Lee was a decisive leader who was proud of helping Taiwan bridge relations with China. News Corp. Chairman Rupert Murdoch called Lee a “great
uncompromising statesman” in a Twitter posting, saying the two first met in Australia 50 years ago. Lee’s advice was “always wise,” Murdoch said. Other business leaders praised Lee’s drive for Singapore’s success. Li Ka-shing, Hong Kong’s richest man, said he was a “veritable force of nature” who accomplished what few managed to do, while Southeast Asia’s wealthiest man Robert Kuok said the late premier “did not allow anything to stand in his
Lee “personally shaped Singapore in a way that few people have any nation,” U.K. Prime Minister David Cameron said in a statement. “His place in history is assured, as a leader and as one of the modern world’s foremost statesmen.” In neighbouring Malaysia, Prime Minister Najib Razak called Lee’s achievements great and his legacy “assured.” After more than 140 years under British rule, Singapore joined the Federation of Malaysia in September 1963 before leaving less than two years later amid ideological differences. Lee was a “giant of our region” who 50 years ago led a “vulnerable, fledgling nation to independence,” Australian Prime Minister Tony Abbott said in a statement. New Zealand Prime Minister John Key cited Lee’s efforts to help establish the 10-member Association of Southeast Asian Nations, “which has offered cohesion and stability in a diverse region.” United Nations Secretary-General Ban Ki Moon praised Lee’s efforts to transform Singapore into ‘a thriving international business hub.’’ World Bank President Jim Yong Kim said Lee showed how a city-state with few natural resources could succeed through education, planning and an efficient civil service. Bloomberg News
NZ-SK FTA under fire as provisions revealed
Greek deputy PM to visit China
China Resources Land says 2014 profit jumps
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s the ink dried yesterday on the free trade agreement between New Zealand and South Korea, critics claimed it was a secondrate deal that would “handcuff” New Zealand’s sovereign right to make laws and regulations. Prime Minister John Key and South Korean President Park Geun- hye witnessed the signing of the free trade agreement (FTA) by Trade Ministers Tim Groser and Yoon Sang-jick in Seoul. South Korea was New Zealand’s sixth largest export destination for goods and services and its eighth largest import source, with total two-way goods trade of US$3.06 billion. New Zealand Trade Minister Tim Groser said the FTA secured the long-term future of New Zealand exporters whose international competitors were benefiting from the South Korea’s other FTAs. The agreement would progressively remove tariffs on 98 percent of New Zealand’s exports to South Korea. However, critics derided it as an agreement with few long-term benefits, while enabling foreign corporations to sue the government over changes in laws and regulations regarding such areas as health, safety and environment. Xinhua
eputy prime minister Ioannis Dragasakis will visit China this week, Beijing’s foreign ministry announced yesterday, as concerns over the cash-strapped country’s financial crisis intensify. Dragasakis will visit China from Wednesday to Saturday at the invitation of Chinese vice premier Ma Kai, foreign ministry spokesman Hong Lei said at a regular briefing. Hong provided no further details. China has developed close economic ties with Greece. Chinese shipping giant COSCO has a 35year concession managing the two main container terminals at the port of Piraeus. COSCO was also a bidder in a process to privatise the Piraeus port authority that was recently halted by the new government. Visiting Piraeus in June last year, Chinese Premier Li Keqiang said the port could become “a Chinese gateway to Europe”. Leftist Greek Prime Minister Alexis Tsipras visited a Chinese warship that was docked at the port last month. A number of Greek officials have openly broached the prospect of Athens turning to Russia or China for financial assistance. AFP
tate-backed property developer China Resources Land Ltd said yesterday core profit jumped 25 percent last year, helped by its focus on high-end projects in top-tier cities that yield better margins. Annual core profit, which excludes investment gains and losses, climbed to HK$11.8 billion (US$1.5 billion). That compares with an average forecast of HK$11.2 billion for core profit from four analysts polled by Reuters. China’s property market began to slump from the first quarter of 2014 after the central government tried to cool the overheated sector with tighter bank lending and restrictions on second home purchases. Even so, a number of big property developers including China Resources Land managed to post year-on-year gains in contract sales last year. Net profit for Shenzhen-based China Resources Land, the country’s ninth biggest developer, was flat at HK$14.7 billion. While the first two months of 2015 saw property sales drop by the most in three years, developers and analysts now expect prices to slowly recover. Reuters