Closing editor: Luís Gonçalves
MOP 6.00
Whirlwind Romance
It was supposed to be for the long run. But casino-resort operator The Venetian Macao Ltd. terminated the contract with Chinese company Lander Real Estate Co. Ltd. after just 19 days. Sports promotion in and outside Mainland China brought them together. But both parties refuse to disclose what drove them apart
Year IV
Number 819 Tuesday June 23, 2015
Publisher: Paulo A. Azevedo
Page 2
Cleaning up the Team Zero tolerance. That is the message from Secretary for Security Wong Sio Chak regarding police violations of the law. Cases are being publicly exposed in the interests of transparency. “Only by cleaning up the team can the police force have a better image and improved workforce”, he says in an exclusive interview. Recruitment is challenging across the whole appointment spectrum. But 500 recruits are on the way. He acknowledges the relationship between gaming and crime. But says everything’s under control Page
3
The Hengqin magnet
Mainland companies shifting strategy towards R&D Page 10 Korean casinos plunge after report China arrests promoters Page 7 Paradise Ent pays final HK$5 cents dividend Page 7
Hengqin New Area wants Macau and Hong Kong to set up foreign private equities on the island. And is exploring ways to further facilitate two-way capital flows between Hengqin and Macau.Hengqin is also exploring forming more innovative finance policies as part of the Guangdong Free Trade Zone
MasterCard appoints Hiang Choong head of division for SARs Page 5
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Conservative considerations The gov’t has made a “reasonable” move. At least in the judgment of a University of Macau academic. This, with reference to the administration’s decision to invest part of its fiscal reserves in the provincial projects of Guangdong. Via its co-operation with China Development Bank. Adhering, still, to the MSAR’s cautious investment approach
HSI - Movers June 22
Name
Reversal of fortunes
China Life Insurance C
+2.99
AIA Group Ltd
+2.92
Bank of Communicatio
+2.85
Tingyi Cayman Islands
+2.30
The good old days have gone. Junkets were once responsible for 80 to 90 pct of all hotel room reservations in Macau. With high rollers sidestepping the city, hoteliers have lost their best clients. Forcing high-end units to slash prices to attract guests. Today, gaming promoters book just 30 to 40 pct of all rooms here
China Resources Powe
+2.20
CK Hutchison Holdings
-0.34
Lenovo Group Ltd
-0.35
Galaxy Entertainment
-1.30
Cheung Kong Property
-2.26
Sands China Ltd
-3.83
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www.macaubusinessdaily.com
%Day
Page 6
Source: Bloomberg
Insurance
Safe Boom
I SSN 2226-8294
Life insurance gross premiums. They account for MOP2.34 billion in Macau, 62.5 pct more than a year ago (MOP1.44 billion). China Life Insurance dominates amassing more than half the market
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2 | Business Daily
June 23, 2015
Macau Gov’t to unseal bids for 200 taxi licences today The government says today it will unseal the bids for 200 taxi licences it is publicly auctioning. Altogether 643 bids were filed with the Transport Bureau for the taxi licences, which carry a validity of eight years. These new taxi licences are to be issued as over 200 taxi licences are expiring this year and next. Speaking to TDM Radio, Macau Taxi Driver Mutual Association chairman Tony Kuok Leong Son said that the majority of bidders are taxi drivers rather than car owners.
Life insurance market expands 62.5 per cent in first quarter Life insurance gross premiums account for MOP2.34 billion in Macau, up from MOP1.44 billion. China Life Insurance is the dominant force in the market, taking a 54.3 per cent slice João Santos Filipe
jsfilipe@macaubusinessdaily.com
T
he life insurance market expanded 62.5 per cent yearon-year during the first quarter of the year in terms of gross premiums to MOP2.34 billion from MOP1.44 billion. The same trend was followed by gross claims that increased 44.3 per cent year-on-year to MOP616.87 million from MOP427.42 million. According to information released by the Monetary Authority of Macau (AMCM) China Life Insurance (Overseas) Co. Ltd. is the largest player in the market, achieving a share of 54.3 per cent in terms of gross premiums. This means that the slice of the market belonging to the Chinese company amounts to MOP1.27 billion. Second place is occupied by AIA International Ltd. with 24.8 per cent, which accounts for MOP579.3 million, while MassMutual Asia Ltd. collects a 5.9 per cent slice of the gross premiums pie, with MOP137.4 million.
Non-life Insurance
Life insurance has jumped by almost two-thirds although non-life
occupies third place with a share of 10.9 per cent (MOP62.7 million) of gross premiums.
Min Xin achieves top performance
insurance only increased 1.35 per cent year-on-year during the same period. This means that gross premiums for non-life insurance generated MOP573 million this year, while last year during the first quarter it generated MOP565.4 million. Regarding gross claims related to non-life insurance there was bad news for the insurance sector. Gross claims increased 34.68 per cent year-on-year during the first quarter of the year to MOP150 million from MOP111.4
million. The loss ratio for non-life insurance thus increased to 26.2 per cent from 19.7 per cent during the first quarter of 2014. In terms of market players by gross premiums, China Taiping Insurance (Macau) Company Ltd. takes MOP184 million, or 32.1 per cent of the total MOP573 million. Luen Fung Hang Insurance Company Ltd. is the second largest market player with 28.3 per cent and MOP162.4 million, while Macau Insurance Company Ltd.
However, and according to the statistics of AMCM, in terms of loss ratio the best performance belongs to Min Xin Insurance Company Ltd. with a ratio of 3.4 per cent as gross premiums account for MOP18.5 million and gross claims total MOP266,000. QBE Insurance (International) Ltd. registers a ratio of 7.7 per cent with premiums of MOP7.8 million and claims of MOP596,000. Delta Asia Insurance Ltd. takes third position registering a loss ratio of 7.8 per cent, as premiums account for MOP9.6 million and claims MOP751,000. In terms of insurance class, property all risks insurance generated the largest amount of gross premiums with MOP169.8 million, followed by employees compensation insurance (MOP131.5 million) and medical insurance (MOP86.3 million).
The Venetian Macao terminates contract with Lander Real Estate after 19 days
C
Benjamin Toh, executive director of Sands China Ltd. and Tao Chun, president of Lander Real Estate Co. were present at the contract signing ceremony held in Hangzhou, China on June 3.
asino-resort operator The Venetian Macao Ltd. has terminated the contract signed at the beginning of the month with Chinese company Lander Real Estate Co. Ltd. regarding the promotion of sports business in and outside Mainland China. The operator sent a letter to the Chinese company on 19th June to announce its intention, which was accepted ‘based on the principle of mutual respect’. The news was revealed yesterday by the Shenzhen company in a press release, which stressed that the initiative to scrap it came from The Venetian Macao, which is controlled by gaming operator Sands China. The reason behind the request to terminate the contract was not explained.
‘Based on the principle of mutual respect, the company [Lander Real Estate Co. Ltd.] agreed to terminate the co-operation agreement with The Venetian Cotai’, the press release explained. ‘This termination does not generate debts, or affects the company’s production operations and profits’, it stressed. Contacted by Business Daily, the President of Lander Real Estate, Tao Chun, declined to comment on this issue. Our publication also contacted Sands China for an explanation about this decision but the company also refused to comment on this matter. The agreement between The Venetian Macao Ltd. and Lander Real Estate Co. Ltd. sought to co-develop the sports business in and outside Mainland China; in particular, to work together to co-organise and broadcast large-scale sports events. It was signed on 3rd June and lasted just 19 days.
Business Daily | 3
June 23, 2015
Macau
Security head: Rectifying police discipline; organised crime under control In an exclusive interview, Secretary of Security Wong Sio Chak says that so far there has been no sign of increased criminal activity related to slumping gaming revenues but the authorities are nevertheless on high alert due to the rapidly changing nature of Macau society Joanne Kuai
joannekuai@macaubusinessdaily.com Photos: Cheong Kam Ka
The competition (for recruitment) is fierce.”
On alert
I
n the newly launched section of the official website of the Office of the Secretary for Security titled ‘Alarm Bells Ringing’ - 8 cases of officers violating the laws and regulations have been listed. The webpage, launched last week, displays cases dating back from December last year until June 12. They include officers from the Judiciary Police (PJ) involved in blackmail; a prison guard suspected of bribery; a Fire Services Bureau officer involved in an illegal gambling scheme; a Public Security Forces officer arrested for sexual harassment, and several more. Four of the offences were perpetrated just this month. Each case has been publicised with a summary description, response from the Secretary for Security and relevant departments, follow-up action and measures taken to prevent recurrences. In an exclusive interview with De Ficção Multimedia Projects (which owns Business Daily, Macau Business and Business Intelligence) the Secretary for Security, Wong Sio Chak, tells us the new measure seeks to enhance the transparency of the administration of the security sector as well as strengthening internal supervision and that of society.
Rectifying discipline
Instances of police force officers suspected of conducting crimes have made headlines throughout the city in recent months, raising concerns in local society about the quality and integrity of the individuals safeguarding the city’s security.
Secretary for Security, Wong Sio Chak, says they have zero tolerance of any violation and they do not fear this kind of expose, in the sense that it helps with “cleaning the team”. The security head also vows full co-operation with the investigatory bodies. “Some of the cases were investigated and exposed by our own people from the Public Security Police (PSP). Some were disclosed by the Commission Against Corruption (CCAC),” says Mr. Wong. “Our attitude is that we do not fear exposure, and we need to take the initiative to expose such cases by ourselves. Only by cleaning up the team can the police force have a better image and improved workforce.” The Secretary for Security added that as a law enforcement force, the discipline and integrity of the staff from the departments in his secretariat represent the fundamentals of a just and fair society in addition to increasing law enforcement efficiency.
Human resources challenge
There are around 10,800 personnel under the Secretariat of Security. The Secretary says this year they intend to hire 500 people, of whom 400 will be police officers, while the remainder will be assigned civilian posts. Recruitment, however, remains a challenge. “Usually, the positions cannot be filled: 80 per cent would be a very good result already. Positions in the Judiciary Police, Public Security Forces Affairs Bureau and Customs are more or less O.K. But sometimes,
With gaming revenues plummeting in the city for a full year, potential related criminal activities have generally been of concern to society. The number of cases of illegal imprisonment and loan-sharking, for example, both exhibit year-on-year growth. In the first quarter of this year, 310 criminal cases were related to gaming, an increase of 22.45 per cent year-on-year, according to data released by the Security Secretariat. Wong Sio Chak said the growth rate in relevant crimes has decreased compared to the last two years. The security head indicated that there is no sign of increased related crimes but that the authorities are nevertheless keeping a close eye on developments. “Gaming is the key industry of Macau. It has a close connection to all aspects of our financial lives. The slump in gaming revenues would definitely have an impact on all walks of life. For the time being, there is no strong sign [of related crimes]. But we need to prevent the unstable elements that [accompany] these signs, such as unhealthy competition, and social security hazards caused by gangs fighting for interests,” said Wong Sio Chak.
Under control
Only by cleaning up the team can the police force have a better image and improved workforce Wong Siu Chak, Secretary of Security
only 30 per cent of the positions in the prison can be filled,” said Wong Sio Chak. The Secretary said that they have been trying to improve the staff working environment, such as providing counselling services for frontline officers to deal with work pressures. Moreover, improving the sense of belonging of the officers and their family members in order to build team spirit is also an important work. In addition, scientific deployment helps enhance efficiency. However, competing with the corporations for talent is not easy. “We need information technology (IT) talent to cope with the increasing Internet crimes and telecommunication crimes. But we’re very short-staffed,” says Mr. Wong. “The gaming operators need IT talent, as well, and they offer much better salaries than the government.
The Secretary for Security acknowledged that minor crimes always account for a large part of criminal cases. Wong Sio Chak said the number of serious crimes are declining, with zero cases of murder or kidnapping since last year, indicating that Macau’s environment is generally safe. In terms of the notorious organised crimes that were rampant in the late 90s in Macau, Wong Sio Chak said the SAR would not allow its people to relive those dark days. “It was a significant phenomenon before the handover - gangs fought for interests in the gaming industry, resulting in the deterioration of Macau’s social security. We need to reflect and use that situation that took place before the handover as a mirror – we cannot, and we won’t, allow security to go backwards,” said Mr. Wong. He added that the security forces have a full command of the activities of local gangs. “We need to control and monitor all triad groups and interested groups, especially triad groups’ activities inside the casinos. We must know and we do know.” In terms of money laundering, the Secretary for Security said that the Judiciary Police recently set up a task force tackling the issue and that the work of the Financial Intelligence Office has been bearing fruit. Nevertheless, the Secretary pledged that Macau would continue stepping up its efforts, as in participating in international co-operation and intelligence exchange.
4 | Business Daily
June 23, 2015
Macau Brands
Trends
The Amulette Raquel Dias newsdesk@macaubusinessdaily.com
T
he Amulette Collection has to be one of the most successful Cartier lines. The beautiful thing about it resides not only in the design but also in the meaning behind it. Made to be a talisman, the Amulette resembles a dream catcher, making it a bit magical. The last edition of the line was my favourite, with the onyx, rose gold and diamonds working in perfect harmony. The new Amulette collection is perhaps more feminine. It doesn’t carry the art deco feeling which the previous line did but it does have a more airy look to it. It features a wide range of semi-precious gemstones like onyx, mother-of-pearl and malachite. Soft pinks, greens, oranges and blacks are the colours of choice. Like previous editions, each Amulette represents something. There’s onyx for courage, malachite for luck, opal for happiness and lapis lazuli for serenity. There seems to be more choice this year. The collection features the same circular locket design but includes a selection of rings and chains. In keeping with the original Amulette design, all pieces are offset by rose gold and diamonds. For a softer feeling you can choose the delicate mother-of-pearl or go for a stamen piece with the black onyx. The reds and greens are perfect for an earthy feeling and the blue lapis lazuli will sparkle with their eye-catching gold elements.
Hengqin mulls further financial reforms While the island specialises in travel and leisure services under China’s master plan, the new area is also seeking more private equities to be set up by Macau and Hong Kong and easier capital flow Stephanie Lai
sw.lai@macaubusinessdaily.com
H
engqin New Area is hoping to encourage Macau and Hong Kong to set up foreign private equities on the island, and is exploring ways to further facilitate the two-way capital flow between Hengqin and Macau, the island's Administrative Committee head told Business Daily. Hengqin, which is now developing as a tourism complement to Macau, is also on its exploratory path to forming more innovative finance policies as the island has already become part of the Guangdong Free Trade Zone. “Now we're trying to create policies that can support firms from Macau and Hong Kong to establish foreign-invested private equities here, as this is part of how we want to innovate our finance-related policies,” the director of Hengqin Administrative Committee, Niu Jing, told us during a phone interview. His administration conducted a briefing for media last week introducing the island's development potential. Policy details and when they can be drafted are sketchy. “We’ve already received some enquiries about setting up private equities here,” Mr Niu said. “Now we’re preparing the drafting of the related regulations; but this will be similar to the incentives as practiced in Qianhai New Area and Shanghai Free Trade Zone.” “Meanwhile, we would like to see yuan-denominated funds set up on the island targeting investments and loans for the Portuguese-speaking countries, as they have a trade platform here
Now we’re trying to create policies that can support firms from Macau and Hong Kong to establish foreigninvested private equities here, as this is part of how we want to innovate our financerelated policies
[in Macau],” the Hengqin official added. “Some banks like BNU, Bank of China and ICBC as well as a few others from Brazil and Portugal are already considering forming funds.”
Almost 1,000
Currently, 985 enterprises are established in Hengqin running finance-related services, of which 14 are from Macau, according to Mr. Niu. Of these 14 institutions, one is a representative office of Luso
International Banking Ltd. – which is still confined to the business of conducting market research and consultation on banking services rather than raising capital or issuing securities for other enterprises. The registered capital of these 985 enterprises exceeds 140 billion yuan, and they are managing assets worth over 840 billion yuan. The director of Hengqin Administrative Committee told us that they are still exploring ways to further ease cross-border capital flow between the island and Macau. “Now we see successful examples of Macau banks offering mortgages to people buying homes in Hengqin,” Mr. Niu said. “But in future, the financing services offered will go beyond the property investment in the island.” “As we see more investment projects from Macau established here, gradually we’d like to see that the Macau banks can directly finance these projects by issuing securities or other means,” he added. Hengqin New Area in Zhuhai, along with Nansha New Area, Qianhai and Shekou in Shenzhen, are part of the Guangdong Free Trade Zone inaugurated in late April this year. The Free Trade Zone is meant to be a test-bed for the Mainland authorities to further relax capital or investment requirements for Macau and Hong Kong’s service providers setting up businesses in the zone, Guangdong Governor Zhu Xiaodan said in the inauguration ceremony.
Business Daily | 5
June 23, 2015
Macau
Academic: Gov’t investing fiscal reserves in Guangdong “reasonable” The government is making a safe and reasonable choice sinking some of its fiscal reserves into state projects, a direction that does not veer from the usual prudent investment approach, an academic concludes Stephanie Lai
sw.lai@macaubusinessdaily.com
T
he government has made a “reasonable” move in investing some of its fiscal reserves in the provincial projects of Guangdong via its co-operation with China Development Bank, a decision that still adheres to MSAR’s cautious investment approach, University of Macau finance academic Rose Lai Neng told Business Daily. The public is expecting a clearer picture from the government of its plan by next month or early August involving the investment of an initial MOP10 billion (US$1.25 billion) to MOP20 billion of fiscal reserves in projects in Guangdong through the provincial authorities and China Development Bank. Secretary for Economy and Finance Lionel Leong Vai Tac expects a return of 4 to 5 per cent per annum. “As there are not many other attractive investment channels worldwide, it’s a reasonable decision to have the fiscal reserves invested in the state,” professor of finance at University of Macau Rose Lai Neng says. “Political concerns aside, not many other options guarantee better returns than this [investing in Guangdong]; I think with a 4 per cent return the new investment plan is a safe and reasonable one for our fiscal reserves as China is now exporting its big [infrastructure] projects,” the professor said. “This return rate is achievable and not causing us losses.”
As there are not many other attractive investment channels worldwide, it’s a reasonable decision to have the fiscal reserves invested in the state Rose Lai Neng, professor of finance at University of Macau
The city’s fiscal reserve was created in February 2012, built on a basic reserve equivalent to 150 per cent of the latest total central services budget approved by the Legislative Assembly plus an extraordinary reserve equivalent to remaining past balances minus contributions to the basic reserve. As introduced by the economy and finance officials to the Legislative Assembly on Friday, Macau’s fiscal reserves grew to nearly MOP350 billion by May, of which the basic reserve amounted to about MOP134 billion.
The return rate on the fiscal reserves in its first year of 2012 was 1.6 per cent, growing to 3 per cent in 2013, according to data from the Monetary Authority of Macau. Last year, the return rate on the fiscal reserve was 2 per cent, generating about MOP4.67 billion profit. “There have been criticisms that the return rate has been low, and that the fiscal reserve system was set up very late,” the professor said. “It is against the backdrop that Macau’s huge income [through gaming] has not been imagined before, and our Authority was still not very experienced in reserve investment.” But the academic agreed that the Monetary Authority has been at least prudent in its investment approach with the fiscal reserves. It was only in the first half of last year that the Authority began investing its fiscal reserves in the equity markets. As at the first five months of this year, profit generated from equityrelated investment occupied around 48 per cent or MOP3.3 billion of the city’s total profit of MOP6.9 billion from the investment of fiscal reserves, official data reveals. Last year, this proportion of profit generated from equity-related investment stood at around 30 per cent of the overall investment profit for fiscal reserves while the majority of earnings were derived from the investment in bonds and related interests.
MasterCard appoints Hiang Choong head of division for SARs and Taiwan
M
asterCard has appointed Hiang Choong as Division President for Hong Kong, Macau and Taiwan, the company announced last week. While the MasterCard office for the three regions is based in Hong Kong, Mr. Choong will assume responsibility for all aspects of the business. These include strategy, business development, acceptance expansion, operations, marketing and product introductions for the continued growth and expansion of the company in Hong Kong, Macau and Taiwan. Before assuming the position of Division President for the regions, Choong was Chief of Staff to the CEO of MasterCard in New York. Hiang Choong is a lawyer by training and has held various leadership roles within the company including Head of Legal for MasterCard’s Asia/Pacific and Middle East and Africa regions based in Singapore. He is a graduate of the Australian National University with degrees in Law and Arts with a double major in Psychology and Sociology. J.S.F.
Corporate
CTM organises caring activity to increase health awareness of elderly
City of Dreams, sole Macau winner of Food Traceability Best Practice Award
CTM has been collaborating with different associations to drive the popularisation of information technology with the objective of building a Digital City. Jointly organised by CTM and the Women’s General Association of Macau, a caring activity was held last week in Putai Vegetarian Restaurant, to which 100 elderly were invited from the service centres managed by the Association. In addition to offering vegetarian food, a volunteer team from
City of Dreams, the flagship integrated resort of Melco Crown Entertainment, has been named Gold Enterprise Winner of the first-ever ‘Quality Food Traceability Scheme’ in Hong Kong, making it the only company from Macau to have its food traceability practices recognised by the Hong Kong chapter of GS1, a non-profit global supply chain standards organisation headquartered in Brussels, Belgium. This distinguished award once again recognises the success of City of Dreams’ ongoing
the Macau Red Cross was invited to conduct a healthcare briefing for the elderly, as well as providing a basic health condition assessment. During the event, CTM set up a booth to provide health analyses for the elderly using digital health equipment. The organisers envisaged that through this caring activity they could not only express their care for the elderly but also motivate their use of information technology, in order to enjoy a wonderful lifestyle.
pursuit of high-level food safety and the creation of the best and most trusted dining experiences for its guests. The aim of the Quality Food Traceability Scheme is to recognise Hong Kong and Macau-based enterprises which demonstrate excellence in the tracking and tracing of the sources and provenance of all food products (including sources of feed, other ingredients, and packaging) through all stages of production, processing and distribution.
6 | Business Daily
June 23, 2015
Macau
Junkets’ share of hotel room reservations drops from 80 to 30 pct The slump in the VIP segment has not only dried up gaming revenues in Macau. It has also had a significant impact on the hotel industry here: High-end units have already slashed prices by more than half and the fight now is for low-end customers where price is king Luís Gonçalves
Luis.goncalves@macaubusinessdaily.com
We believe the downtrend in [hotel] prices in Macau could continue over the next few years Morgan Stanley
I
t’s one of the lesser known sides of the VIP and junket crisis in Macau. With gaming revenues getting almost all the spotlight on the issue, there’s another major and important segment for the casino industry and local economy that’s struggling with the current changes: hotels. With high rollers avoiding Macau and junkets shutting down rooms as a consequence, hotels here are losing their best clients. VIP customers used to generate a lot more than half of all revenues for Macau hotels and more than 80 per cent of all room reservations. With high-income clients, price was basically not an issue. Now, everything’s changing. According to a recent report from a trip to Macau, Morgan Stanley says the quality of hotel customers in the city continues to deteriorate and operators are entering into a price war in order to attract new guests. Current clients are now lower-end than before and increasingly price sensitive.
The US bank noted that today many 5-star hotel rooms in the city cost around US$160 per night. The figure is half - and in some cases a third - of the average price charged for the same room in 2014. For example, last year a room in Wynn Macau cost an average of US$333 and US$400 for Four Seasons Macau. Room prices in the city for the main hotel chains in 2015 cost between US$200 in Crown Towers to US$75 dollars in East Asia Hotel. (see graph)
trend is unlikely to change in the future. ‘Operators have been forced to cut prices but the new customers are price sensitive and have lower spending power. We think price points have further downside risk’, the report says. With the new properties in Cotai expected to increase the overall room supply here by 50 per cent until 2017 Morgan Stanley is clear about the effects: ‘We believe the downtrend in prices could continue over the next few years’.
Exit
No hope
But as several junkets exited the market and the remaining cut costs, hotels suffered. Morgan Stanley reports that hotel rooms reserved by junkets as a percentage of the total inventory decreased from 80-90 per cent to 30-40 percent. With an excess of supply, hotel operators now have to cut prices in order to attract new clients. And the
The takeaways from Morgan Stanley’s trip to Macau were far from being the best. ‘Searching for hope, but nothing found’ was one of the chapter’s titles from the visit report. Despite all the widely known drops in revenues, profits and share pric-
es, new risks for the industry are growing. New junket room closures, lower margins due to salary hikes and diminishing revenues and regulatory risks like the smoking ban has put the US bank on the cautious side regarding the industry here. The Macau casino industry continues to be affected by the liquidity shortage, with less credit from casinos to junkets and increased bad debt from gamblers. More junket rooms are likely to be closed in the upcoming months and negatively impact revenues here. VIP still accounts for 50 per cent of all casino revenues in Macau. Morgan Stanley also noted the limited room for casino operators to cut costs. Salary hikes should reach 5 per cent every year but with revenues pressured on the downside, profit margin erosion is almost guaranteed.
Macau hotel room rates (in Rmb)
Source: Morgan Stanley
Business Daily | 7
June 23, 2015
Gaming
Korean casinos plunge after report China arrests promoters Paradise shares closed 12 per cent lower and Grand Korea fell 14 per cent. Chinese authorities are focusing on casino operators from neighboring countries that have set up offices “to attract and recruit Chinese citizens” to gamble abroad
K
Kangwon Casino
orea casino operators Paradise Co. and Grand Korea Leisure Co. plunged in Seoul trading after a report that China arrested 14 South Koreans including the companies’ employees for allegedly marketing to Chinese gamblers. The Korean nationals were arrested Wednesday and face charges of luring Chinese citizens to casinos and violating foreign currency laws, the Yonhap News agency reported last Friday, citing a South Korean Embassy official it didn’t name. Paradise closed 12 per cent lower at 24,800 won in Seoul, the lowest in more than a month, after dropping 13 per cent on last Thursday. Grand Korea fell 14 per cent, extending the previous day’s 9 per cent slump. The Kospi gained 0.3 per cent. Paradise lost contact with six employees who were on a business trip to China and is checking on their whereabouts, said a company
official who declined to be identified, adding that the staff weren’t casino marketers. A South Korean embassy staff member who answered the telephone in Beijing declined to comment on the arrests. Calls to Grand Korea weren’t answered. Paradise, South Korea’s largest operator of casinos catering to foreigners, is increasing gambling space to take advantage of the boom in Chinese visitors, its Vice Chairman Lee Hyuk-Byung said in February, just as China started a crackdown on promoters working for foreign casinos. Chinese authorities are focusing on casino operators from neighboring countries that have set up offices “to attract and recruit Chinese citizens” to gamble abroad, a Ministry of Public Security official said in February. The clampdown came amid Beijing’s campaign against corruption that’s prompted highstakes gamblers to avoid Macau. Bloomberg
Paradise Entertainment pays final HK$5 cents dividend
Paradise Entertainment Chairman Jay Chun
P
aradise Entertainment Limited is going to pay a final dividend of HK$5 cents per ordinary share, a decision taken during the Annual General Meeting of the gaming company that took place on Friday. The decision was unanimous among the shareholders with no votes cast against the value proposed by the board. During the same meeting, the company, which runs Kam Pek Paradise Casino and Casino Waldo, also re-elected Shan Shiyong and Hu Liming as executive directors by a vast majority.
8 | Business Daily
June 23, 2015
Greater China Guideline for entrepreneurship in rural regions The Chinese government has promised support for migrant workers, college graduates and army veterans who wish to return to their rural hometowns to start businesses amid a national campaign to boost entrepreneurship and employment. The State Council, China’s cabinet, released a guideline recently saying the government will lower the threshold for them, offer tax breaks, cut administration fees, subsidize business loans and optimize supporting policies. “Cost reduction is vitally important for startups. These policies serve them right,” said Zhou Tianyong, professor with the Party School of the Communist Party of China Central Committee.
HSBC recommends learning from Japan China today and Japan in the 1980s share some similarities and China should look at how Japan dealt with deflation, banking giant HSBC said in a report. Although China today is very different from Japan in the 1980s, there are lessons to be learned regarding how to avoid the deflation trap, how to implement restructuring policies and maintain expansionary fiscal policy, it said. “The most important lesson from Japan is that policymakers should act decisively to prevent deflation,” the report claimed. China is facing challenges. The first priority should be to prevent deflation from taking hold, it said.
Deeper ties with Lithuania Chinese Vice Premier Zhang Gaoli and Lithuanian Prime Minister Algirdas Butkevicius agreed to advance bilateral relations to higher levels. Zhang held talks with Butkevicius Sunday, saying that China considers Lithuania as an important partner of cooperation in the Baltic region and in the European Union (EU). Noting that next year marks the 25th anniversary of the establishment of diplomatic ties between China and Lithuania, he expressed hope that the two sides will further step up cooperation in various areas so as to advance bilateral relations to higher levels. Zhang urged the two countries to further enhance mutual trust.
Aussie tourism, banking at record rate Chinese are flocking to Australia’s banks and tourist resorts in a record number, according to official data released yesterday. The Australian Bureau of Statistics data yesterday showed that Australian services exports to China is standing at US$6.32 billion U.S. dollars in 2014, three times that of a decade ago. A 16.4 percent rise over the 2013 figures has been primarily led by a 14.6 percent rise in tourism. Chinese tourists are currently making up more than 86 percent of services exports to China.
China’s central bank branch office in Shanghai
Explosive local debt threatens easing efforts The PBOC may have to ease more aggressively, including cutting bank requirement reserves, to ensure base rates do not rise further Nathaniel Taplin
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upport for China’s economy from the central bank has been put at risk by a surge in municipal bond issuance that has driven up yields, undermining its efforts to cut borrowing costs. Heavily indebted local governments seeking to refinance expensive debt have issued more than 600 billion yuan (US$96.7 billion) of municipal bonds in the past month - more than in all of 2014. Traders are betting government bond yields will rise rather than fall in coming months on the back of more debt sales, producing a tugof-war between a People’s Bank of China (PBOC) determined to prop up flagging economic activity and a bond market awash with supply. “The sudden fall in government bond futures really runs against the overall monetary easing trend,” said a senior trader at a major Chinese bank. “It reflects market sentiment that investors are supplied with too much new debt of late, including local government bonds.” Five-year September 2015 government bond futures suffered their worst trading day of the year on May 26. Driving the huge new issuance of municipal bonds is an estimated 22.6 trillion yuan of high interest local government debt, which provinces are struggling to refinance more cheaply. Nomura estimates the municipal bond market will grow 1,000 percent to 12.1 trillion yuan by 2020 - larger than the size of the entire treasury market now. With local government spending collapsing in the second quarter to just 1.2 percent growth from a year earlier and investment growth at a 10-year low, the PBOC has little
choice but to support heavy municipal bond issuance and keep bond yields in check. Analysts suggest recent policy moves, including cheaper rates in its long-term pledged supplementary lending (PSL) facility, are designed to do just that. “Recent developments suggest that the PBOC’s primary mandate, at least for now, is supporting fiscal expansion by safeguarding the issuance of local government bonds,” PRC Macro Advisors said in a report. However, the central bank has since February repeatedly struggled to stop medium-term interest rates from rebounding. Since mid-May, 5-year treasury yields have risen nearly 30 basis points to 3.26 percent, while 6-month forwards have opened up a 120-basispoint premium over the 5-year spot rate.
Markets versus PBOC
The latest rebound in yields is part of a worrying pattern that has persisted since the beginning of the year. After the PBOC’s rate cut on February 28, bond yields initially spiked rather than eased, as the announced expansion of municipal debt market issuance undermined the rate cut’s impact. Yields fell only when the 1.5 trillion yuan National Social Security Fund said it would purchase a portion of the new debt on April 1. Then after interest rates were cut on May 10 - the third cut in six months and bringing the one-year lending rate to 5.1 percent - bond yields fell but bounced back a week later when the flood of new provincial bond issuance began on May 18.
KEY POINTS Massive municipal debt refinancing threatening monetary policy Traders are betting govt bond yields will rise not fall Long rates continue to rebound despite easing measures Steepening yield curve may force much stronger PBOC action Again, bond yields fell only once policymakers resorted to unconventional measures, namely cutting the rate on loans provided under the PBOC’s PSL programme - a long-term liquidity facility for banks backed by, among other things, municipal debt. But even that fall in yields has proved transient and yields are now close to their June 1 highs. Linan Liu, Deutsche Bank’s Greater China rates strategist, said in a report the investment bank expects at least another 4.4 trillion yuan of municipal bond issuance during 2016-2017. “To prevent the long-term riskfree rate from rising excessively due to government bond supply, we expect the PBOC to increase longterm liquidity operations such as the PSL.” Reuters
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June 23, 2015
Greater China
Zijin targets Australian gold mine in M&A spree Until Zijin started shopping around, Chinese interest in the Australian sector briefly flickered after China Molybdenum Co. paid US$820 million in 2013 for Rio Tinto's stake James Regan
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ijin Mining Group launched a bid for Australian gold explorer Phoenix Gold yesterday, the Chinese company’s third planned acquisition of a foreign mining asset in less than a month. Long-dormant M&A activity in
Australia and other mining-intensive countries is showing signs of a rebirth, with Zijin the most acquisitive to date and with the deepest pockets. “The company is open to opportunities around the world,” Zijin Executive Director and Vice
President George Fang told Reuters. “It is a goal to find more gold or other assets.” In May Zijin announced it was issuing shares to raise 10 billion yuan (US$1.61 billion) for acquisitions. Before launching its A$47 million
Australia is the world’s second-biggest producer after China. Pictured Super Pit gold mine
(US$36.55 million) offer for Phoenix, it accumulated a 17.9 percent interest in the company. Zijin, one of China’s largest gold mining companies, unveiled two acquisitions in May for more than US$700 million, one in Papua New Guinea and one in Democratic Republic of Congo. Zijin already mines gold next door to a Phoenix deposit after paying A$240 million for another Australian miner, Norton. “Gold is our game,” Fang said. “Our team has the experience in gold mining.” Until Zijin started shopping around, Chinese interest in the Australian sector briefly flickered after ChinaMolybdenum Co paid US$820 million in 2013 for Rio Tinto’s stake in the Northparkes gold and copper mine, but it soon died out. But now, a weakening currency and cheap labour is putting polish back on Australian gold miners. Gold bullion denominated in U.S. dollars has fallen around 38 percent since a late 2011 peak, while Australian dollar gold hit a two-year high in February. Gold output in Australia - the world’s second-biggest producer after China - reached a decade high last year and is tipped to rise further in 2015. The S&P/ASX All Ordinaries Gold index tracking Australian gold producers has risen more than 30 percent this year. Evolution Mining last month paid Barrick Gold US$550 million for an Australian mine, instantly making it the country’s second biggest gold producer listed on the Australian Securities Exchange. A bidding war for the mine attracted 17 parties, according to people familiar with the sales process. Zijin has made the withdrawal of a placement of 61.9 million Phoenix shares by Evolution, which is awaiting a shareholders’ vote today, a condition of its offer. Phoenix is advising shareholders not to take any action as it solicits alternative proposals. Reuters
“Rent-a-protest” group busted The organizer admitted that he would receive an unknown amount of extra money if the protest was effective
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olice in east China’s Shandong Province have busted a group that allegedly organized multiple mass protests to influence court sentences, according to the Ministry of Public Security. The group in question specialized in paying a “relatively regular” group of people who acted as mass protestors in the name of protecting the rights of petitioners and assisting lawyers advocating their rights, the ministry said in a late Sunday statement, citing police investigations. Among the detained is Zhai Yanmin, 54, the main organizer that paid people to stage protests, and Liu Jianjun, a lawyer who accepted cases from involved parties who hoped to influence judges and assigned them to Zhai. They are under the charge of staging illegal gathering to disrupt social order. “The group was close-knitted with specific assignments for its members, and their activities were seen in heated cases across the country,” the statement said. The statement cited one incident on June 15, when unidentified protestors
I had run several businesses, but they all failed... then I met some petitioners and won their praises by helping them. I felt proud once again, and came up with the idea of doing a favour for petitioners to make money and build a reputation Zhai Yanmin, protests organizer
holding banners saying “people have the rights to supervise justice” and “Xu is not guilty” gathered in front of the Intermediate People’s Court of Weifang, a city in Shandong, resulting in a huge number of onlookers and severe traffic jams. At the same time, pictures and stories were posted on foreign websites, claiming that petitioners gathering before the court accused the judicial organ of wrongful convictions, according to the statement. Follow-up inquiries revealed that the protestors came from eight provinces and had nothing to do with Xu. The protestors said they only knew Xu’s case was related to corruption, and they were “employed” by Zhai to stage the protest. Zhai was arrested on the same day in Beijing. “I had run several businesses, but they all failed... then I met some petitioners and won their praises by helping them. I felt proud once again, and came up with the idea of doing favour for petitioners to make money and build reputation,” Zhai was quoted by the police as saying.
Zhai received the case of Xu from Liu, who is with the Beijingbased Kangpu Law Firm, after Xu’s relatives asked Liu to find a way to have Xu’s sentences revoked during the second trial at the Weifang court. “I felt that Zhai could help since he was a man very passionate about public affairs,” Liu said, adding that he later introduced Xu’s wife to Zhai and they made the deal to stage protests at the court. In addition to fake protestors “bought” at the price of 1,000 yuan (US$161) each person, the deal also included a “seminar” on Xu’s case with the participation of university professors, experts and reporters to create a hype before the protest. Liu received 14,000 yuan as kickback from the 70,000 yuan paid by Xu’s relatives for the seminar. Zhai initially got 10,000 yuan from Xu’s wife to pay for the protestors. Referring to Liu Xing, the leading protestor instructing others before the court, Zhai said, “he had done this before... sitting in silence, shouting slogans, raising banners and uploading photos online to increase pressure on courts.” Zhai admitted that he would receive an unknown amount of extra money if the protest was effective, and if the protestors were detained, Xu’s relatives would have to pay more as condolence money for the detainees. Xinhua
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June 23, 2015
Greater China
Innovation shift leads firms to pour money into U.S. R&D Most Chinese FDI happens when investors snap up established U.S. companies
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urging investment by Chinese companies in U.S. research labs is yielding a fast-growing trove of patents, part of a push to mine America for ideas to help China shift from being the world’s factory floor to a driver of innovation. Largely absent from American research hubs a decade ago, Chinese firms including Huawei Technologies and ZTE Corp are now using U.S. researchers to create patents ranging from new software to internet infrastructure, according to an analysis of Thomson Reuters’ global intellectual property database. The rapid growth in China’s U.S. investments will be a key topic at economic and security talks today and tomorrow between top U.S. and Chinese officials in Washington. They are negotiating a bilateral investment treaty that could deepen ties between the world’s two largest economies. Even without a treaty, China is pouring capital into U.S. research as well as buying other assets. While its firms are still newcomers to investing in America and few work on the technological frontier, the Thomson Reuters data offers a glimpse of the advanced economy China aspires to build. Patented inventions by Chinese firms that involved at least one U.S. researcher roughly doubled worldwide in each of the last three years, reaching 910 in 2014. “We have established a beachhead,” said Vincent Xiang, who heads international investment at Humanwell Healthcare Group, a Chinese drug company that has put over US$50 million into a New Jersey subsidiary that employs dozens of U.S. researchers. Rather than compete with powerhouses like U.S. drug maker Merck to invent blockbuster medicines, Humanwell’s U.S. researchers are making smaller refinements such as figuring out how to administer some drugs as pills rather than injections. Humanwell’s New Jersey researchers have won approval on four patents so far in the United States and European Union, Xiang said. There are advantages to setting up labs in the U.S., where there are over 800,000 people with research doctoral degrees in science, engineering, and health.
A small but growing player
And yet, direct investment between the United States and China is remarkably low considering the size of their economies, and the fruits of China’s U.S. R&D are similarly modest compared with the vast quantities of patents that emerge from America every year. The cumulative stock of foreign direct investment in China from the
United States makes up just over 1 percent of the FDI sunk into Chinese businesses by all nations, according to U.S. government data. Most FDI in China comes from other Asian countries. China’s share of America’s FDI stock is even smaller, but it has been growing rapidly in recent years as Beijing has eased restrictions on outward investment. That is helping Chinese companies sink more money into a range of advanced economies. The Thomson Reuters data also shows a sharp increase in recent years in patents by Chinese firms using German and Japanese researchers. Annual flows of Chinese FDI into the United States have gone from tens or hundreds of millions of dollars per year between 2000 and 2009 to US$14.3 billion in 2013 and US$11.9 billion in 2014, according to Rhodium Group figures, which are widely cited because they track China’s investments made via third countries such as Singapore. That is now approaching the annual flows from America’s traditional sources of FDI: advanced countries such as Germany and Canada who continue to mine much more knowledge from Americans than does China. German companies extracted 1,416 patents last year using U.S. researchers.
Without access to innovation, it is hard to win in the domestic market Vincent Xiang, international investment head, Humanwell Healthcare Group
China already publishes more patent applications than any other country, although development economists note that its statemandated patent targets often lead to lower quality patents, particularly those taken out only in China. However, the Thomson Reuters data, which brings together information from patent offices in dozens of countries, points to many high quality inventions using U.S. researchers. For example, Huawei, the top Chinese company with patents fuelled by U.S. research, has a U.S. patent for processing fibre optic signals that was cited by 101 later inventions.
The recent Chinese National Patent Development Strategy highlights the country’s plans through 2020, including seven strategic industries positioned for growth: biotechnology, alternative energy, clean energy vehicles, energy conservation, highend equipment manufacturing, broadband infrastructure and highend semiconductors. It also includes an increase in research and development expenditures as a proportion of economic output from 1.75 percent in 2010 to 2.2 per cent this year. Most Chinese FDI happens when investors snap up established U.S. companies, such as when auto parts maker Wanxiang Group bought California-based electric carmaker Fisker Automotive - and its patents - at a bankruptcy auction last year. The Chinese are also starting new ventures and have invested US$3 billion in these “greenfield” projects over the last three years, according to Rhodium. America’s state and local governments have set up dozens of offices to compete with one another to attract this capital, which could flow more freely under a U.S.-China investment treaty. Officials offer potential investors tax incentives and introduce them to potential local partners and to legal and accounting firms. Reuters
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June 23, 2015
Asia
Asia’s exporters struggle to cope with a changing global economy The biggest falls in Asian exports this year have been in shipments to China and other emerging markets Nicholas Owen
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n the good old decades, many Asian governments could stick to a simple economic strategy - ramp up exports, and reap solid growth rates. Now, export-led growth no longer serves the region well and Asia is struggling to overhaul that economic model as it waits for world trade to recover. And the rebound “is going to be capped”, says HSBC economist Fred Neumann, because of changes in the world economy, including how American consumers are “much more frugal” than a decade ago. Asian exports to the United States have risen this year, but Neumann says such growth now is more driven by investment in software development and shale-oil drilling than by activity that pulls in imports. Stalled global trade talks and the shrinkage of manufacturing supply chains that stretch from China, the world’s workshop, are making policymakers from Bangkok to Seoul consider new models as exports may never again grow rapidly as in the 2000s. “The global trade pattern has changed,” Paiboon Kittisrikangwan, a deputy governor at Thailand’s central bank, told Reuters last week. The patchy recovery
The global trade pattern has changed Paiboon Kittisrikangwan, deputy governor, Thailand’s central bank
in advanced economies isn’t producing the same import demand as before, he said. South Korean Finance Minister Choi Kyung-hwan has called for a “strategic change” by exporters to target Chinese consumers rather than factories. Indonesian Trade Minister Rachmat Gobel, pressed on what he’s doing to boost exports, says he will seek more access for local goods to Western markets.
Missing a pick-up
So far this year, exports from East Asia - from Southeast Asia across to Japan - have fallen an average of around 5 percent in dollar terms. Poor performers include Indonesian coal, Malaysian palm oil,
Singapore pharmaceuticals and Korean cars. “Things are not looking up,” said Neumann of HSBC, citing persistently weak export orders and purchasing managers’ indexes. “They all point towards no pick-up.” Economists had hoped temporary factors such as Lunar New Year and U.S. winter weather might explain weakness. But Dan Martin at Capital Economics said these cannot explain the still-weak numbers, which are “something to worry about more than we did before”. Some of the weakness reflects strength of the dollar, which means earnings booked in local currencies are worth less when reported
in the U.S. currency. However, concern is rising that rather than another cyclical slowdown from which demand will bounce back, Asian exporters face something structural - and there will be no return to strong growth. China’s 2001 accession to the World Trade Organisation “led to a burst of supply-chain integration and trade creation in the global economy,” said Neumann.
Shipments to china down
As China’s manufacturing centres boomed, shipping goods to the West’s spendthrift shoppers, supply chains stretched out across the region as factories sucked in
high-end components. This specialisation lifted Asia’s productivity growth, too. But these days, things are different. The dispersion of supply chains looks to be ending and “might even go into reverse as China starts to make more of those components,” said Martin. The biggest falls in Asian exports this year have been in shipments to China and other emerging markets. Today, there’s no prospect of another China-like opening to rescue struggling exporters. The pace of world trade liberalisation has stalled. Talks over a U.S.-led Trans-Pacific Partnership (TPP) seem to be going nowhere. And there is no sign of another WTOsponsored Doha round to prise open new markets. In the United States, a rule of thumb used to be that each percentage point of GDP growth produced two percentage points of import growth. But now the ratio is about one-to-one, said Neuman. In Thailand, where the central bank now expects exports to fall a third straight year, deputy governor Paiboon says “We need to do some soulsearching as to whether we can continue to rely on external demand to the extent we have so much in the past.” Reuters
One-third of Australian locations in recession The PwC report said the Australian resources boom and the high Australian dollar have further narrowed Australia’s economy
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ne-third of Australia is in recession with a shrinking number of locations generating most of Australia’s wealth, according to a PriceWaterhouse Coopers (PwC) research revealed yesterday. Accounting giant PwC said close to one in every five Australian dollars of Australia’s national income is produced by just 10 locations out of 2,214 in Australia, led by the central business districts (CBD) of Melbourne and Sydney as well as the iron-ore- rich Pilbara region in Western Australia, Fairfax Media reported. PwC Director of Economics and Policy Rob Tyson told the Australian Financial Review the findings are critical as Australian businesses and governments spend close to 350 billion Australian dollars (US$272.19 billion) per year on investment. “More and more locations are suffering declines, while a key handful of locations are becoming more and more important,” Tyson said.
Tyson said 35 percent of locations around the country were effectively in recession in the last financial year, with trends identified in the PwC model likely to worsen as growth in Australia’s economy is effectively coming from less than 0.5 percent of Australia’s landmass.
The PwC report said the Australian resources boom and the high Australian dollar have further narrowed Australia’s economy, noted by the number of manufacturing regions in Australia having declined sharply. The PwC predicts continuing decline in the resources and
manufacturing sectors means further locations could contract. “Grappling with this realty will become one of the most challenge questions facing business and government, explaining patchy policy, investments and business performance across Australia.” PwC said.
One in every five Australian dollars of Australia’s national income is produced by just 10 locations, including Sydney (pictured)
Xinhua
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June 23, 2015
Asia
Goldman is picking Aussie banks that drew Buffett’s interest Bank valuations in Australia are now close to the cheapest since 2012 relative to global peers Narayanan Somasundaram and Adam Haigh
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and expects productivity improvements to continue. “Most of the attention on the banking sector at the moment is on capital and credit risk,” Hershan said in an interview. The average cost-to-income ratio for the four largest Australian lenders dropped to 44.2 percent in the latest six- month period, data compiled by Bloomberg show. That compares with 63 percent for the largest U.S. and Canadian banks, 61 percent for their British peers and 43 percent for the biggest Singapore lenders, the data show.
oldman Sachs Asset Management’s Dion Hershan invested in Australian banks as concerns about capital levels and a weak economy battered their shares, betting efforts to improve efficiency will bolster earnings. The U.S. firm, which oversees about A$6.5 billion (US$5 billion) in Australian equities, added holdings while Commonwealth Bank of Australia and its competitors sank and price swings became the widest in almost two years. Bank valuations in Australia are now close to the cheapest since 2012 relative to global peers, catching the attention of money managers from Warren Buffett to Fidelity Worldwide Investment. Hershan, head of Australian equities at Goldman Sachs Asset Management, said he took advantage of market “noise” to increase his holdings
Buffett interest
Commonwealth Bank, Australia & New Zealand Banking Group Ltd. and Westpac Banking Corp. are the top three holdings of Goldman Sachs Australian
S. Korean pension fund may seek outside help on Samsung vote It is mandated to vote against decisions that could damage shareholder value Joyce Lee
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outh Korea’s national pension fund, which holds what could be the swing shareholder vote in Samsung Group’s contentious US$8 billion merger plan, may outsource its decision to an external panel, sources say. The National Pension Service (NPS) is the largest investor in South Korean stocks. It has substantial stakes in companies including Samsung C&T - the battleground between the powerful Samsung Group and U.S. hedge fund Elliott. Elliott, in a rare case of shareholder activism in a country long wary of foreign funds, is trying to block the sale of Samsung C&T to sister firm Cheil Industries, the de facto holding
company of Samsung Group. Elliott says Cheil’s offer undervalues C&T, in which the fund has a 7.1 percent share. Samsung C&T shareholders friendly to the takeover hold a combined 20 percent stake in the construction firm. The deal needs the support of least two-thirds of votes at a shareholder meeting on July 17. NPS owns a 10.2 stake, so its vote could sink or seal a deal key to ensuring a stable leadership transfer in Samsung’s founding Lee family. NPS, the world’s third-largest pension fund with US$444 billion in assets, is mandated to vote against decisions that could damage
There is a lot of market interest in this decision, so we’re not going to rush it National Pension, service spokesman
shareholder value. When a case is less clear, which may apply in the Samsung deal, it calls on an external nine-member committee consisting
Equities Fund, which managed A$555 million as of May 31, according to its website. The lenders made up almost a third of the portfolio, more than their 23 percent weighting in the benchmark S&P/ASX 200 Index. Investors have favoured Australian lenders for their shareholder returns amid five consecutive years of record profits. Forward dividend yields on Commonwealth Bank, National Australia Bank Ltd., Westpac and ANZ are among the highest in an index of global bank shares, with all forecast to pay out at least 5 percent. Buffett told Fairfax Media last week that he may buy an equity stake in at least one of the country’s banks in the next five years. Three of the biggest lenders pledged to bolster their capital after the banking regulator said in April that recommendations in a government report for higher buffers against homeloan risks can be “dealt with sooner rather than later.” Shares of the four banks have fallen as much as 16 percent so far this quarter. “When people are fixated on what’s happening next week or next month, they often lose sight of what’s going to happen over the long term,” Hershan said. “We’ve modestly increased our positions” in Australian banks shares. Bloomberg News
of academics, think-tank researchers and a lawyer. “Looking at shareholder value, it’s about whether there will be a synergy effect through the merger,” said a committee member, declining to be identified because he was not authorised to speak with the media. “Samsung says there is a synergy effect but doesn’t say what kind and how much. There is some inadequacy in explanation.” The NPS is in a tricky position: It is under growing pressure to champion good corporate governance in a country where stocks have long traded at discounts to global peers due to opaque share structures and low dividends. But blocking the deal could batter C&T’s share price. Park Ju-gun, who heads corporate analysis firm CEO Score, said he expects NPS to vote for the deal even though he thinks it should align with Elliott. “NPS will argue that its goal is to make a profit and the deal will accomplish that. Another argument will be based on a half-baked notion of patriotism,” he said. PS’s Samsung C&T stake is worth about 1 trillion won (US$907 million). NPS casts thousands of votes every year, and calls on the external committee a few times annually on difficult votes. The committee members change every two years. 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, Stephanie Lai, Óscar Guijarro, Kam Leong, Joanne Kuai GROUP SENIOR ANALYST José I. Duarte Brands & Trends Raquel Dias 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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June 23, 2015
Asia Indonesian regulator may ease foreign ownership rules for Islamic banks Middle Eastern banks have shown “pretty strong” interest in expanding in the world’s most populous Muslim country
Al Barak banking group branch office
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ndonesia’s financial regulator said it may ease foreign ownership restrictions for Islamic banks a move that could attract Middle Eastern lenders such as Bahrain’s Al Baraka Banking Group.
Under a 2012 rule introduced amid calls by nationalist politicians to limit foreign ownership, an overseas bank can only own up to 40 percent of an Indonesian lender.
Nelson Tampubolon, banking supervisor at Indonesia Financial Services Authority, said the regulator is looking at relaxing overseas ownership requirements in cases where a foreign bank plans to convert an Indonesian commercial lender to an Islamic one. But certain conditions would apply, such as whether Indonesia already has a market access agreement with the foreign country and whether the foreign bank can bring in the expertise that local lenders lack, Tampubolon told Reuters in a text message. His comments follow remarks earlier this month that China Construction Bank Corp would be permitted to own more than 40 percent of a merged Indonesian bank should it buy stakes in two separate lenders and combine them into a single entity. Middle Eastern banks have shown “pretty strong” interest to expand in the world’s most populous Muslim country, Tampubolon added. A relaxation of the rule would help Bahrain-based Al Baraka with its plans to enter Indonesia’s Islamic banking sector by as early as 2016, Chief Executive Adnan Ahmed Yousif told Reuters by email. Al Baraka opened a representative office in Jakarta in 2008, which it has used to explore potential acquisition targets. Last year Dubai Islamic Bank said it was seeking to raise its holding in PT Bank Panin Syariah Tbk to 40 percent from 24.9 percent. Reuters
Supermarket sales rose 5.7 per cent in the year to May marking second straight month of increase
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feel the pinch from sluggish Asian demand. “Industrial production will increase moderately reflecting domestic and overseas demand, albeit with some fluctuations,” the BOJ said in a monthly economic report released yesterday. The central bank also warned there was “high uncertainty” on its forecast that output will rebound in the third quarter. Japan has emerged from last year’s recession as companies start to increase capital expenditure and consumer spending recovers from the pain of last year’s sales tax hike.
Production is likely to jump just over 10 percent in 2015 from a year ago to more than 10 million tonnes, boosted by ample monsoon rains, said an industry body. That should help the world’s top importer of edible oils curb overseas purchases in the marketing year that starts in November, dragging on international prices. It could also bolster India’s exports of animal feed ingredient soymeal, which is made from soybeans. The country’s two top growing states have received significantly higher rainfall than normal since the beginning of the four-month monsoon season.
Nepal forms reconstruction authority Nepal is gearing up to establish a reconstruction authority headed by Prime Minister Sushil Koirala nearly two months after a massive earthquake jolted the Himalayan nation, government officials said. Government spokesman Minendra Rijal said an Ordinance on Authority for Reconstruction of the Structures Damaged by Earthquake has been forwarded to President Ram Baran Yadav for endorsement. The government has planned to form such an authority ahead of the International Donors’ Conference on Nepal’s Reconstruction scheduled for Thursday with the theme “Towards a Resilient Nepal.”
Air New Zealand sells maintenance business Air New Zealand has agreed to sell its SAFE Air maintenance business to an Australian unit of Airbus Group for an undisclosed sum, the national carrier said yesterday. Safe Air has been sold to Airbus Group Australia Pacific Ltd, which maintains helicopters and aircraft, including Royal Australian Air Force Orion and Hercules planes. “We’ve worked with Safe Air in the past and for us, bringing the company into Airbus strengthens our position and potential in New Zealand,” said Jens Goennemann, Managing Director of Airbus Group Australia Pacific.
Bank of Japan: Factory output likely to hit soft patch April-June he Bank of Japan said it expects factory output to fall for the first time in three quarters in April-June on weak Asian demand, underscoring the fragile nature of the economic recovery. Industrial production rose 1.5 percent in January-March from the previous quarter, helping the world’s third largest economy expand much faster than expected. But the central bank offered a cautious view on the outlook for output, saying it may have briefly hit a soft patch as automakers see domestic inventories build up and steelmakers
India’s 2015 soybean output to jump
Supermarket sales rose 5.7 percent in the year to May to mark the second straight month of increase, data showed yesterday, signalling the mood of consumers was brightening. But soft exports are emerging as a headache for the BOJ, weighing on output on casting doubt on the bank’s forecast that solid overseas demand will help the economy gain momentum later this year. The BOJ issues a summary of its economic assessment on the day of its monetary policy decision, and releases a more thorough report on economic components the following market day. Reuters
Indians, Chinese drive New Zealand migrants record Arrivals from India and China drove a record annual gain in migrants in the year to the end of May, the New Zealand government statistics agency said yesterday. New Zealand had a net gain (more arrivals than departures) of 5,100 migrants last month, marginally down from a peak of 5,500 in January, according to Statistics New Zealand. Annual permanent and long-term migration showed a record net gain of 57,800 migrants in May, the 10th straight month of annual records. The increase in migrant arrivals in May was led by India, Australia, the Philippines, China and France.
Industrial production Hanoi to see 4-month will increase moderately consecutive hike CPI reflecting domestic and Vietnam’s capital Hanoi is expected to overseas demand, albeit see consumer price index (CPI) hike for the fourth consecutive month in June, with some fluctuations said Hanoi Statistics Office yesterday. In Bank of Japan report
Bank of Japan headquarters
June, the city’s CPI is forecast to increase 0.13 percent against May, and 0.98 percent compared to the same period of 2014. Among items in the CPI calculation basket, the price of transport group is likely to witness the highest increase of 3.58 percent in June against the previous month due to hike in local petroleum price.
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June 23, 2015
International Political scandals ‘contaminate’ Chile’s economy Chile’s economy has not been immune to the slew of graft allegations plaguing the political and business elite which have undermined business and consumer confidence, Finance Minister Rodrigo Valdes said. Politicians across the political spectrum have been accused of accepting illicit campaign contributions from major businesses. That, along with allegations that President Michelle Bachelet’s son used his political connections to help his wife gain preferential access to a US$10 million dollar loan and turn a quick profit on a real-estate deal, have helped drag consumer sentiment to its lowest level since Chile’s 2009 recession.
ETE confirms bid for reluctant Williams Co Energy Transfer Equity LP confirmed it had made a US$48 billion unsolicited bid for natural gas pipeline company Williams Companies Inc, hours after Williams rejected the offer as significantly too low. Energy Transfer Equity (ETE), an energy assets portfolio company, said its all-stock offer of 0.9358 shares per Williams’ share represented a 32 percent premium to the stock’s closing price of US$48.34 on June 19. Williams said in a statement on Sunday that the unsolicited proposal had prompted it to launch a review of strategic alternatives but the current offer “significantly undervalues” the company.
Ukraine creditor group hopes meeting soon A committee of Ukraine’s bondholders said yesterday that a debt restructuring plan proposed by Kiev was based on IMF estimates that were not yet publicly available, adding it hoped to meet with the Fund and Ukraine’s government soon. Ukraine is negotiating with foreign bondholders to restructure US$23 billion of debt as part of a broader International Monetary Fund-led bailout package, but talks have stalled over a disagreement on the necessity of a writedown on the principal of the bonds. The Ukrainian finance ministry made a US$75 million coupon payment on a Russian-held bond yesterday.
Altice bids for Bouygues Telecom European telecoms group Altice has made an offer to buy France’s Bouygues Telecom through its subsidiary Numericable-SFR, the companies said yesterday, driving up shares across the French telecoms sector. Bouygues said its board would meet today to discuss what it called Altice’s “unsolicited offer”, adding that no negotiations between the two sides were underway. “Altice will update the market in due course,” it said. Neither party disclosed the size of the offer, but sources told Reuters that the controlling shareholder of Altice, had submitted a bid in recent weeks worth around 10 billion eurosin cash.
Internet advertising to drive global ad spend Surging growth in advertising via mobile phones and tablet computers will help Internet advertising overtake television as the dominant medium for global ad spending by 2017, a leading media buyer forecasts. Zenith Optimedia, owned by advertising agency Publicis, said yesterday that it expects mobile advertising - via smartphones, iPads and other tablet computers - to more than double its share of global ad spending between 2014 and 2017, to 12.9 percent. It would contribute 70 percent of growth in all advertising spending over that period.
ECB again increases emergency liquidity reserve for Greek banks The new increase in the ECB’s Emergency Liquidity Assistance (ELA) was the third since Wednesday
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he European Central Bank (ECB) again increased emergency liquidity funds for Greece’s banks yesterday, according to a Greek bank source who said the ECB may renew the hike “at any time” if necessary. The new increase of the ECB’s Emergency Liquidity Assistance (ELA) was the third since Wednesday and came as Greek savers continued withdrawing their money in large volumes from the country’s banks. Though the total amount of the new reserve was not divulged, the Greek source said ECB “governors may meet at any time ... including today or tomorrow” to review the situation, which is likely to evolve against an emergency eurozone summit in Brussels yesterday sought an accord on Greece’s debt crisis. On Wednesday the ELA ceiling was raised by 1.1 billion euros (US$1.25 billion) to 84.1 billion euros, as the rate of Greek bank withdrawals rose. On Friday the reserve was increased a further 1.8 billion euros. Greece’s central bank said Greek business and private bank deposits had fallen by nearly 30 billion euros between December and April, to 128 billion euros. Greek savers have been pulling their money from national banks at even higher rates in recent weeks, amid fears Athens may fail to reach agreement with its creditors to free up bailout funds needed to honour a June 30 debt repayment.
Greece’s Prime Minister Alexis Tsipras (L) is welcomed by European Commission President Jean-Claude Juncker ahead of an emergency leaders summit on Greece at the European Commission in Brussels
AFP
Russia orders cuts in World Cup spending President Vladimir Putin says he is confident Russia will host the finals despite FIFA investigations Katya Golubkova
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he Russian government ordered 30 billion roubles (US$560 million) in cuts in spending on the 2018 World Cup finals yesterday, the latest cutback as an economic crisis takes a toll. No reason was given for the decision, but Russia has been forced to cut costs since the global price of oil collapsed last year and Western governments imposed economic sanctions over Moscow’s role in the crisis in Ukraine. A decree issued by the government said total spending on the tournament would now be 631.5 billion roubles (US$11.8 billion) but Sports Minister Vitaly Mutko said the building and
renovation of stadiums would not be affected. “We proceed from the fact that we’re working on a revision of the (World Cup) budget. Of course it’s a question of optimising the preparations. We’re primarily taking out the excess hotels,” he told reporters. President Vladimir Putin says he is confident Russia will host the finals despite investigations into alleged corruption at soccer’s governing body FIFA and how Russia was awarded the 2018 finals. “We won in a free fight and we are going to host the World Cup,” he told Reuters and other international news
agencies in the city of St Petersburg on Saturday.
Personal and national ambitions
Putin will do all he can to ensure the finals are not taken away from Russia, especially as a presidential election is due in 2018 and he sees the tournament as a chance to showcase Russia as a modern state; but Russia has been forced to lower its sights as the economic downturn worsens. Russia won the right to host the finals with a bid promising to build six new stadiums, hotels, training grounds and health facilities. Costly airport renovations and high-speed rail links are also needed to ease travel between the 11 host cities. Before the new government decree, the World Cup organisers had already axed plans to build 25 hotels, cut the number of training grounds and reduced the capacity of some of the venues to save on building costs. Building materials are now being sourced locally from Russian providers because of the rouble’s decline against the U.S. dollar in the past year, pushing up construction costs. Russia also hopes to avoid criticism over the price tag after the cost of hosting the Winter Olympics in Sochi last year soared and put the spotlight on Russia’s problems with corruption and cronyism. Reuters
Business Daily | 15
June 23, 2015
Opinion Business
wires
The tragedy of the climate commons
Leading reports from Asia’s best business newspapers
Petros Sekeris
Principal Lecturer in Economics at the Department of Economics & Finance, Portsmouth Business School
THANH NIEN NEWS Vietnam is betting that the most significant easing of business regulation in 25 years and an accelerated sale of state-owned firms’ shares will revive a flagging investment outlook. The government on July 1 will reduce to six from 51 the number of areas in which firms are prohibited from operating, including production of fireworks and genetically-modified products. It will also loosen regulation in more than 100 other areas in what will be the biggest overhaul of business rules in the economy since private firms were allowed in Vietnam in 1990.
THE STRAITS TIMES Private property prices in Singapore could fall a further 10 per cent from current levels over the next two years, French bank BNP Paribas said in a research report yesterday. Although prices have fallen 5.5 per cent from their mid2013 peak, BNP Paribas said that a “closer look at valuation metrics and underlying drivers” shows the market has further to correct before a bottom can be called. The bank said the Singapore government is unlikely to unwind the total debt service ratio (TDSR) cap, given its effectiveness in curbing property demand and supporting long-term financial stability.
THE KOREA HERALD The South Korean government will make its fifth attempt to sell a controlling stake in state-owned Woori Bank next month, following its previous failures to put the lender in private hands, industry sources said yesterday. The Public Fund Oversight Committee, a government-run body in charge of privatizing the country’s No. 3 bank, will unveil a new plan in mid-July after wrapping up a feasibility review. Four previous auctions to sell Woori Bank have fallen through due to a lack of bidders, including the latest attempt where only one company had submitted a bid in November last year.
THE AGE Swiss-based mining giant Glencore says it will pay a third party to market and distribute its coal as it moves to close its Singapore office. The company, one of the world’s largest producers and traders of resources from coal to copper, is currently under audit by the Australian Taxation Office for the low level of taxes it pays locally. In evidence to the parliamentary inquiry into corporate tax avoidance Glencore’s Australian regional finance chief Nick Talintyre explained how Xstrata’s coal marketing business has been integrated into Glencore’s global coal marketing.
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y now, the danger from climate change and other forms of environmental degradation is so evident that it seems crazy to ignore it. And yet the world has failed thus far to devise an adequate response to the problem. Our first stab at a solution, the 1997 Kyoto Protocol, set only modest goals and failed to include the world’s biggest polluters. The effort in Copenhagen in 2009 to craft a more potent global agreement ended in a breakdown of negotiations. Our collective failure to take action is not the result of having chosen leaders who are insane or irrational. The reason we seem incapable of coming together to protect the climate is known as the “tragedy of the commons”: a shared resource tends to be rapidly depleted because no single actor – whether a country or a person – considers how their actions affect other users. In other words, because you reap all of the benefits, but suffer only part of the costs, you are tempted to over-exploit the resource. And, so far, there is little reason to believe that we are on track to find a way to ensure a happier ending. The soon-to-be-endangered Atlantic bluefin tuna is one example. We have a shared interest in preventing the species from being fished to extinction. And yet individual fishermen have little reason not to catch as many tuna as possible, as any animal that escapes their net will likely end up in another’s. A similar logic applies to countries considering fishing quotas; as a result, bluefin stocks are running low. One approach to ending the tragedy of the commons was devised some 50 years ago by the economist Ronald Coase. His solution was to assign property rights to the shared resource, compensating the losers. With private ownership established, market mechanisms could restore efficiency.
One approach to ending the tragedy of the commons was devised some 50 years ago by the economist Ronald Coase. His solution was to assign property rights to the shared resource, compensating the losers
Such a solution might work for fish, provided that migrating populations could be tracked; but it is far harder to apply it to something like the climate. How, after all, would one assign property rights to atmospheric composition? The alternative approach – embodied by the Kyoto Protocol – is to implement quotas limiting individual actors’ permissible greenhouse-gas emissions. Only then is a market created to allow actors to buy the emissions permits they need and sell those they do not use. In theory, this approach provides an incentive for the participants to cooperate, as the arrangement’s breakdown would accelerate the depletion that all have agreed to avoid. In practice, however, these types of deals are difficult to conclude and often are violated.
For starters, domestic politics can pose an obstacle to participation in international treaties, especially when policymakers facing re-election are dependent on the support of interest groups with goals that run counter to the public’s welfare. Decisions made during US President George W. Bush’s two terms in office offer an illuminating contrast. In 2001, during his first 100 days in office, Bush blocked or overturned many laws and regulations protecting the environment, and he put a definitive end to American participation in the Kyoto Protocol. The mining and oil industries – important sources of support for his next presidential election campaign – had gotten their money’s worth. Once Bush’s re-election was secured, however, he had less incentive to seek the support of these powerful lobbies. During his second term, Bush created the world’s largest ocean preserve – a 360,000-squarekilometer area around the Hawaiian Islands. Because Bush was constitutionally barred from seeking a third term, the way was opened for more environmentally friendly policies. Another impediment to cooperation is geopolitical. If conflict over valuable resources is unavoidable, as examples throughout history suggest, there is little reason for a country not to exploit a given resource to the maximum possible extent prior to the emergence of scarcities. To the extent that countries believe that resource-based conflict is inevitable in the future, negotiations to limit resource depletion become more likely to break down in the short run. Of the two obstacles, domestic interest-group politics is the more easily surmountable. Over the past two centuries, political leaders have become more accountable to constituencies
within and outside of their countries’ borders, and voters have become less susceptible to lobbying groups and the media. Further education of the electorate may be the key to speeding up this process. The geopolitical concerns are more difficult to address. The challenge of persuading countries to cooperate is similar to the one governments have always faced in inducing their citizens to contribute to the common good; everyone benefits from good roads, but most people would prefer not to contribute to the cost of their construction. According to the American economist Mancur Olson, these types of cooperation problems are easier to solve when there are as few decision-makers as possible. Within a country, the problem is overcome by providing governments with the coercive capacity to collect taxes, redistribute public goods, and mediate conflicts between citizens. By extension, one solution to the global problem would be for all of humanity to be ruled by a universal government, accountable to its constituents, and endowed with the authority to enforce its decisions. Such a scenario is of course extremely unlikely; nation-states will never agree to hand over their sovereignty to a world government. In the absence of alternatives, the best solution, it seems, would be a reduction in the number of actors – a return to a bipolar world in which two superpowers decide for themselves and their subordinates. But, while this solution would contain the problem of the commons, the dangers could outweigh the benefits. Last time, international cooperation was underpinned by fear of blowing up the planet. Now, too, fears of mutually assured destruction could reemerge. Project Syndicate
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June 23, 2015
Closing Philippines vice president quits Aquino’s cabinet
Vietnam approves adjusted Phu Quoc development plan
Philippine Vice President Jejomar Binay (pictured L) has resigned from President Benigno S. Aquino III’s Cabinet, his media affairs head said yesterday. Binay quit as the chairman of the Housing and Urban Development Coordinating Council and as Presidential Adviser on Overseas Filipino Workers’ Concern. Joey Salgado, Binay’s media affairs chief, said the vice president tendered “his irrevocable resignation from the Cabinet effective immediately.” He did not cite any reason for Binay’s resignation. Binay is facing corruption allegations for alleged overpriced projects in Makati City, Metro Manila, when he was still the mayor of the place.
Vietnamese Prime Minister Nguyen Tan Dung has approved adjustments to the overall plan through 2030 for the development of Phu Quoc island (pictured) in the southern province of Kien Giang, Vietnam News Agency reported yesterday. Under the modified plan, the tourism, service and entertainment complex, including casinos, will be moved from Da Chong beach in Bai Thom commune, to Bai Dai beach in Ganh Dau commune. The new plan also adds a cable car line from An Thoi town to Hon Thom Island in Hon Thom commune and a golf course. In the revised plan, land dedicated to tourism will span 4,003 hectares.
Japan’s fiscal strategy takes flexible approach to spending Some economists believe Japan needs to cut welfare spending Takaya Yamaguchi
Policymakers are torn between banking on faster economic growth to increase revenues - as pictured Prime Minister Shinzo Abe hopes - or exercising greater fiscal discipline to reduce the pressure on debt
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apan’s government said yesterday it would adopt a flexible approach rather than fix a mandatory cap to curb the annual increase in budget
spending, as it tries to reduce a mountain of debt. Releasing a blueprint of its fiscal strategy for the coming years, the government recommended limiting rises
in general account spending to 1.6 trillion yen (UZ$13 billion) for the three years to March 2019, but stopped short of calling for a binding limit.
Prime Minister Shinzo Abe’s top economic advisory panel, the Council on Economic and Fiscal Policy, approved the strategy paper yesterday. The absence of a binding cap could raise concerns that the government would be tempted to spend more if economic growth falters, and risk increasing a public debt burden that is already more than twice the size of its US$5 trillion economy and the largest of any advanced nation. The strategy paper showed that the government has set a goal of keeping GDP growth above 2 percent in real terms and 3 percent in nominal terms. “The government is operating on the assumption that economic growth does well and tax revenue really starts to take off,” said Norio Miyagawa, senior economist at Mizuho Securities. “This is admirable, but when you look at our public finances, you would think a little more
Thailand to select central bank governor from outside
Atlantic Council urges clarity over plans for yuan
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inance minister said yesterday he would seek cabinet approval for one of the two shortlisted non-central bank candidates as the next Bank of Thailand governor. The new governor will face the unenviable task of helping stimulate an economy still sputtering one year after the army seized power to end political unrest. Current Governor Prasarn Trairatvorakul’s five-year term ends at the end of September. Finance Minister Sommai Phasee told reporters the selection panel had submitted him “two names of external candidates” from the overall original pool of five candidates who had joined the race for the job. Sommai will pick one of the recommended candidates for cabinet approval. External candidates are non-central bank officials. The cabinet is expected to vote on the new governor in the next two weeks. Veerathai Santiprabhob is considered the prime candidate outside the central bank. He is a member of the junta’s appointed “superboard” overseeing state firms and is also on the central bank’s seven-member monetary policy committee. Reuters
he increasing use of the yuan internationally could lead to a healthier global economy, but if Beijing fails to handle the project successfully it could spark currency wars and create systemic risk in financial markets, the Atlantic Council warned yesterday. The U.S. based global affairs think tank said China needs to be more transparent in its policies and timetable for opening up its capital account, and should make credible institutional and regulatory reforms. “For all of the dynamism in Asian markets, the Chinese financial system lacks the transparency needed to maximize robust and long-term foreign investment,” the think tank said in the report sponsored by the City of London, Thomson Reuters and Standard Chartered. The think tank also said the yuan’s internationalisation was not a matter just for China, but also merited trans-Atlantic and transPacific coordination. Policy uncertainties and abrupt changes have always been one of the main deterrents for foreign investors and companies considering entering China and including the yuan in their currency portfolios. Reuters
effort should be put into cutting spending.” The new guidelines, which will be used to compile next fiscal year’s budget, reiterate the government’s goal of returning to a primary surplus in fiscal 2020. The blueprint set an interim target of reducing the primary deficit, which excludes debt servicing and revenue from new debt, to 1 percent of gross domestic product in fiscal 2018. The plan also calls for limiting increases in welfare and healthcare spending to 1.5 trillion yen over the next three years. A government official told reporters that the government would retain some leeway in determining actual spending increases, and the guidelines set for health and welfare spending or overall spending growth did not represent firm targets. Some economists believe Japan needs to cut welfare spending, rather than slow the annual increase, given the country’s rapidly ageing society. The government also released an updated version of its economic growth strategy that shifts the focus to boosting capital expenditure. The strategy also highlighted the need to increase investment on artificial intelligence and robots to make up for labour shortages as more people reach retirement. Reuters
Siberian deal sees BP bet on Russia’s energy pivot toward China
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P Plc’s US$750 million purchase of a Siberian oilfield stake is as much a bet on China as it is on Russia. Taas-Yuriakh Neftegazodobycha LLC’s blocks near China’s northern border will supply the planned Tianjin refinery on the east coast, according to OAO Rosneft, which sold the 20 percent holding last week. BP Chief Executive Officer Bob Dudley predicts the unit’s natural gas reserves will prove strategic as Russia develops its Far East and builds ties with the world’s biggest energy consumer. “You have to make a judgment on whether it will have value,” Dudley told Bloomberg News on June 19 in St. Petersburg, referring to the gas reserves. “We believe it will, eventually.” BP’s Siberian acquisition comes at a time when Russia is turning to “BP has been in Russia since the mid-1990s and is probably the most successful of the western majors there and in understanding how Russia works,” said Alex Brooks, an oil and gas analyst at Canaccord Genuity Ltd. in London. Bloomberg News