Macau business daily, 2015 July 22 by Business Daily

MOP 6.00

BOC Macau branch guarantees China’s first dollar green bonds

Closing editor: Luís Gonçalves

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Polytec: Pearl Horizon foundations to be completed on time Page 5

Chow Tai Fook focus on Macau clients for Brisbane Casino

Las Vegas Sands to beat market consensus with good VIP local performance Page 7

Year IV

Number 840 Wednesday July 22, 2015

Publisher: Paulo A. Azevedo

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Vote-buying Backlash The People’s Alliance of Macau. The local association is appealing a Court of First Instance ruling sentencing two of its elderly members to prison terms. For vote-buying in the 2013 Legislative Assembly elections. Alliance leader and legislator Chan Meng Kam told Busines Daily, “We have always obeyed the [electoral] law here 100 per cent”. The verdict is alleged to have taken into account flawed evidence collected by the graft watchdog for the case. The inference is that Alliance members fell foul of a sting Page

Wage protection Mid-August. That’s the timeframe if all goes smoothly. The establishment of a credit guarantee fund for the protection of wages. The MOP160 million fund is designed to advance salary payments and other sums to employees unable to chase employers through the courts

HSI - Movers July 21

Name

%Day

China Unicom Hong Ko

+6.04

China Mobile Ltd

+4.07

China Resources Land

+3.23

China Mengniu Dairy C

+2.23

China Life Insurance C

+1.76

Sands China Ltd

-1.40

Galaxy Entertainment

-1.73

China Shenhua Energy

-1.79

Lenovo Group Ltd

-1.80

Cheung Kong Property

-1.87

Source: Bloomberg

I SSN 2226-8294

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Take a bow, BRICS Launched at last. Officials from the world’s largest emerging nations kicked off the New Development Bank (NDB) yesterday. The second of two new policy banks heavily backed by Beijing. And pitched as welcome alternatives to existing institutions such as the World Bank and IMF

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Taxing times

Easy come, easy go. In 1H, the gov’t collected MOP26.6 billion less in taxes from the gaming sector y-o-y. Local authorities are cashing in 40 pct less in taxes from the casino operators than in 2014. A worrying development given 85 pct of gov’t revenues comes from casinos

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www.macaubusinessdaily.com

Inflation

Still Afloat The economy’s still on the ropes. And gaming revenues show no signs of returning to the good old days. Meanwhile, price increases in the city continue to soften. Inflation stayed at 4.91 pct in June. The third consecutive month prices nudged up 5 pct, and the first time since 2010

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2015-7-22

2015-7-23

2015-7-24

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July 22, 2015

Macau Seminar for Macau enterprises on investment policy in Hengqin starts today The Macau Trade and Investment Promotion Institute, the Administration Committee of Hengqin Area and the Macau Chamber of Commerce will co-host the Seminar for Macau Enterprises – Investment Policy of Hengqin Area of Zhuhai, China (Guangdong) Pilot Free Trade Zone today. The event will take place in the World Trade Centre in Macau. In order to enhance and strengthen the recognition of the Hengqin investment and business environment, the seminar will introduce the policies and procedures in Hengqin, including approval for foreign investors, real estate policies and procedures, commercial registration in Hengqin (Macau investors) and related policies, cross-border foreign exchange management and innovative policies as well as the Inno Valley HQ and supportive fund.

Chan Meng Kam’s association appeals against vote-buying ruling

Bank of China Macau branch guarantees China’s first dollar green bonds

The director of Chan’s camp, Chan Tak Seng, said that they were appealing because of flawed evidence collected by the graft watchdog for the case Stephanie Lai

sw.lai@macaubusinessdaily.com

“Of those, our [64-year-old] member made 50 calls, while the two CCAC investigators have taken his calls as members of the association.”

Fight Back

he People’s Alliance of Macau (Aliança do Povo de Instituição de Macau), a local association led by legislator and businessman Chan Meng Kam (pictured), said yesterday that they are appealing against the Court of First Instance’s ruling of the year-plus imprisonment of two of the Alliance’s members for vote-buying in the 2013 Legislative Assembly election. “We are appealing because we are demanding justice, and we didn’t do what we were accused of,” the association’s director, Chan Tak Seng, stressed in a briefing yesterday, which was held in response to the court’s Friday ruling. However, legislators from the association - Chan Meng Kam, Si Ka Lon and Song Pek Kei - did not attend the briefing. The court has ruled that two members of the association, a 64-yearold man surnamed Ho and a 70-yearold woman, are to be imprisoned for one year and six months and one year and three months, respectively, for the crime of vote-buying. The two members of the People’s Alliance of Macau were accused of vote-buying by

We have always obeyed the [electoral] law here 100 per cent Chan Meng Kam

offering free meals and transportation to a restaurant to fellow members. These two association members will not have their sentence suspended, and will be deprived of their political rights for two years, the court ruled. Speaking at the briefing, Mr. Chan Tak Seng questioned the evidence collected by the Commission Against Corruption (CCAC) that was used in the court hearings. “We made a total of about 2,600 calls to our members [during the election],” Mr. Chan Tak Seng said.

Mr. Chan further added that the two investigators from the graft watchdog had joined their association as early as 2009, saying the association was not aware of their identity when they registered membership. “The CCAC investigators just kept on asking our member ‘Is there a meal?’ and ‘Is the whole family invited for the meal?’ repeatedly, which Mr. Ho [the 64-year-old member] definitely did not answer,” Mr. Chan said, stressing that the investigators had been posing “suggestive questions” to the two accused association members. In the Legislative Assembly election in September 2013, in a bid for re-election, Chan Meng Kam was leading the biggest electoral team of the 20 competing tickets, which had a total of 14 members. The tickets were competing for the 14 directlyelected seats in the Assembly. Chan Meng Kam emerged the biggest winner of the election when his ticket eventually had three members – including him – elected to sit in the Assembly. “We have always obeyed the [electoral] law here 100 per cent,” Chan Meng Kam told Business Daily during a phone enquiry, stressing that his association did not offer any members benefits for votes, nor had he instructed his peers in the Alliance to offer free meals. He did not directly respond, however, to why he did not lead the association’s press briefing yesterday.

injiang Goldwind Science & Technology Co. has sold US$300 million-worth of three-year bonds, marking China’s first sale of green bonds denominated in dollars. The bonds will have an irrevocable standby letter of credit denominated in U.S. dollars from the Macau branch of Bank of China Ltd., the company said. Orders for the bonds with a coupon rate of 2.5 per cent were almost five times more than the allotment, according to an e-mailed statement from the wind turbine maker that’s based in Urumqi in northwest China. Banks accounted for 70 per cent of the investors, with asset managers and sovereign wealth funds following, according to a person familiar with the deal who asked not to be identified. Asian investors were 97 per cent of the purchasers, with the remainder from Europe. Proceeds from the sale will be used to finance Goldwind’s low-carbon transport projects, renewable energy and other technologies related to climate change. Bloomberg

Business Daily | 3

July 22, 2015

Macau Hotel Estoril reconstruction plan confirmed in September Secretary for Social Affairs and Culture Alexis Tam Chon Weng said yesterday that the government will strive to confirm the proposal for revamping Hotel Estoril in September, including whether to keep the façade of the hotel. The Secretary cited a Portuguese architect’s opinion claiming the façade of the hotel is not a very important cultural heritage, and as such the hotel’s exterior should be re-designed as well. The reconstruction of the hotel seeks to convert it into a complex of leisure and culture services.

In addition, the cost of eating out rose by 6 per cent year-on-year last month, causing the price index for food and non-alcoholic beverages to jump 5.15 per cent year-on-year. For health services, the city saw the charges for out-patient services grow 7.64 per cent year-on-year in June, pushing the average price for health services in the territory up by 6.22 per cent year-on-year. Prices for household goods and furnishing also increased by 5.24 per cent from one year ago, driven by the cost of domestic services, especially for hiring domestic helpers, rising 6.42 per cent compared to June 2014.

Tobacco

Inflation rate nudges 5 pct for third straight month Consumer prices increased 4.91 per cent in June. Rents for homes and parking spaces continue to pressure prices in the city climbing above 10 per cent Kam Leong

kamleong@macaubusinessdaily.com

igher rentals for homes and parking spaces, as well as increased cost for eating out, increased the city’s composite consumer price index (CPI) in June by 4.91 per cent year-on-year, the latest data released by the Statistics and Census Bureau reveals.

The inflation rate, compared to the 4.93 per cent of May, has narrowed 0.02 percentage points. For the second quarter of the year, the average composite CPI increased 4.79 per cent year-on-year while that for the first half of the year went up 4.92 per cent year-on-year.

In June, prices for housing and fuel registered the most notable year-on-year increase of 9.17 per cent, according to DSEC, indicating that the actual housing rental had surged 10.57 per cent compared to the same period last year.

Alcoholic beverages and tobacco products, meanwhile, was the only category of goods to see prices drop in June, down 2.94 per cent year-on-year, following the price of tobacco products declining 4.68 per cent year-on-year. On a month-on-month comparison, the composite CPI in June still represents an increase of 0.48 per cent, as higher prices in summer clothing & footwear and automobiles registered, in addition to the rising rentals of parking spaces. According to DSEC, the price index of clothing and footwear grew 1.69 per cent month-on-month, while that of transport was up 1.37 per cent compared to May. However, charges for communication in June were 0.22 per cent cheaper than in May, with alcoholic beverages & tobacco products prices down 0.24 per cent month-on-month. For the 12 months ended June 2015, the average Composite CPI increased 5.43 per cent from the previous period. The price of housing and fuel, food and non-alcoholic beverages, as well as health services continued to post the most remarkable increases - some 11.09 per cent, 5.52 per cent and 5.12 per cent, respectively.

4 | Business Daily

July 22, 2015

Macau opinion

On education policies

José I. Duarte Economist

s I try to avoid issues that too closely involve my personal interests or circumstances, topics relating to the dally life of schools or their management are not often touched upon here. Occasionally, however, general issues of policy are unavoidable. Concerns with education are widespread and there is a general understanding that an educated citizenry is the basic foundation of a modern society and an efficient economy. As such, education policies receive a significant level of attention in the media and are often the object of public debate. Local media in Macau have just reported that the Executive Council has approved that school curricula will be defined by law, meaning, apparently, that academic skills to be achieved in all the education levels up to secondary school will be set by the government. It is not fully clear what that actually means, in practice, although we are promised further details in the near future. If that means that minimum standards of academic – I underline, academic – skills will be set for the achievement of the various school degrees, that would involve no great novelty. Curricula guidelines and topics are usually set for the various academic levels. But the language used suggests more than setting content guidelines or general assessment objectives. The expressions used point to a more detailed, precise definition of the actual results achieved or, even more, the specific contents of those accomplishments. ‘Essential skills’ required from every student will be set, so that they will be the same for all students, and they will be reached by all students, it has been said, according to the media reports. Further, ‘each school will have to comply with instruction materials and other activities’. These seem very general statements, almost meaningless until the actual ‘skills’, the means to ‘measure’ them, and the selection criteria for those materials and activities are defined. We are further informed that these ‘requirements’ have been tested since 2011 in some schools and will now be implemented at all levels and types of schools. It is therefore fair to expect that a full presentation of those ‘tests’ is made available - for the tone of the presentation one feels this is both a momentous change and the result of careful planning. That, surely, means there will be a vast amount of data and facts to justify the change and to support the choices made. Principles, tools, experiences, outcomes, difficulties, all should be forcibly leading to the specific – and yet to be known – measures entailed by this policy change. And that brings us back to the initial considerations. As it happens, recently, a Portuguese newspaper dedicated a long dossier to the achievements of the Polish education system in recent years. The main ingredient for success identified? Increased schools autonomy! Food for thought, while we await further details.

Government loses MOP26.6 bln in gaming taxes The Executive have revelled in a healthy balance sheet but in H1 its surplus was reduced by MOP32.2 billion because of increasing expenditure and shrinking tax revenues João Santos Filipe

jsfilipe@macaubusinessdaily.com

ince the beginning of the gaming slowdown in June of last year, operators and junkets have been voicing their concerns about losses in terms of revenue. However, when it comes to victims of declining revenue they are not alone. The government is another victim as less money is siphoned off to Macau’s treasury in the form of taxes. According to data released by the Monetary Authority (AMCM) in the first half of 2015 direct taxes from gaming declined MOP26.6 billion. This represents a 39.4 per cent decline year-on-year to MOP45.7 billion from MOP75.4 billion during the first sixth months of 2014, according to Statistics and Census Service data. The decline in direct taxes from gaming has happened during a time when for the first half of the year gaming revenues dipped 37 per cent to MOP121.6 billion from MOP193.1 billion in the same period of 2014. Nevertheless, during the first half of the year direct taxes from gaming accounted for 84.8 per cent of the total public revenue

for the same period. Thus, it is not surprising public revenue went down to MOP55.1 billion from MOP83.4 billion, a decrease of 33.9 per cent year-on-year. Comparing the first two quarters of the year, the first quarter generated revenues to the government of MOP23.9 billion, while this value declined to MOP21.8 billion in the second quarter, a decline of 8.8 per cent quarter-onquarter (MOP2.1 billion). This cannot be considered a surprise as the first three months of the year included Chinese New Year, a period when gaming revenues tend to be higher because of the influx of Mainland visitors. This trend is similar for gaming revenue as during the first quarter revenue amounted to MOP64.8 billion but that value dropped to MOP56.8 billion, representing a decline quarteron-quarter of 12.2 per cent. This difference alone between the two quarters amounts to MOP8 billion.

Healthy balance sheet

For its part, the Macau Government has been adapting to the impact of

the gaming slowdown and last month alone decreased public expenditure by 29.5 per cent to MOP6.2 billion. However, considering the first half of the year, the expenses of the government increased to MOP27 billion from MOP23 billion, which represents an increase of 17.4 per cent. Concerning the overall balance the profit of the government was reduced by more than half during the first six months of 2015. This year, the profit from January to June stood at MOP28.1 billion, while last year it reached MOP60.4 billion, a difference of 53.5 per cent yearon-year. While the government has been coming to terms with the so-called ‘new normal’ of the gaming industry, the impact on the economy of the slowdown is affecting the region. While there are no figures related to the second quarter yet, for the first quarter of this year the Monetary Authority said that the Gross Domestic Product (GDP) of the territory had declined 24.5 per cent.

Business Daily | 5

July 22, 2015

Macau

Assembly targets approving guarantee fund for protection of wages by August While the suggested initial size of the fund at MOP160 million remains unchanged, the government is considering sourcing the fund from the taxing of employed non-resident workers Stephanie Lai

sw.lai@macaubusinessdaily.com

he government and the Legislative Assembly are striving to pass a final reading of the bill proposing the establishment of a credit guarantee fund for the protection of wages before the current legislative term ends in mid-August, Secretary for Economy and Finance Lionel Leong Vai Tac (pictured) told media after meeting with the third permanent committee of the Assembly yesterday. The fund is designed to advance salary payments and other sums by employees that are unable to be chased from their employers through court. It is suggested the fund be established by the government 1n the initial amount of MOP160 million (US$20 million) – a suggestion that remains unchanged from the time the Assembly first approved it in May last year until present. Following the advice of the committee, a new change that the government has suggested for the bill is to have the fund partly sourced by taxing the employment income of non-resident workers here,

Business Daily understands from committee member Ella Lei Cheng I.

January 2016

The government is striving to have the bill approved by the Legislative Assembly within this legislative term, so that the bill can come into effect in January 2016, Ms. Lei said after attending the committee meeting.

Upon the termination of an employment contract, the employee can already apply to the fund regarding owed pay or other claims they cannot pursue the employer for once the Labour Affairs Bureau has affirmed the liabilities involved. The funding amount will not cover more than half of the owed pay or other claims, according to the proposed bill. Should

Polytec: Pearl Horizon foundations to be completed on time

he foundation works of private residential project Pearl Horizon are expected to be completed within this year as scheduled, the developer, Polytec Asset Holdings Ltd. said, following complaints by some of its buyers regarding the developer’s delay in such works. On Monday, more than 10 purchasers of the housing project submitted a petition to government headquarters, stating they are concerned that the developer may not execute their promise to finish the foundation works of the project this year, meaning the whole building will not be completed in 2018. Following the allegations, a manager of Polytec Asset, Chan Sai Sai, told reporters that the company had started its work right after obtaining the construction permit from the government, claiming the delays in construction were due to having waited so long for the permit, Chinese-language newspaper Macao Daily reported.

the employee fail to get the owed pay or other claims from his or her employer through court proceedings eventually, the fund will grant the remainder of the owed pay or other claims. Upon the payback by the employer of owed pay or other claims, the employee will have to return the government's advanced payment to the fund, the bill states.

The fund is meant to protect both residents and outside employees working here. The head of the third permanent committee, Cheang Chi Keong, noted that a new working text of the bill will be delivered to the Assembly for deliberation soon. The Legislative Assembly passed the first reading of the bill on May 27 last year.

Corporate MGS unveils ambitious subsidy scheme

Although the manager noted that this housing project in Areia Preta will be finished in 2018 under normal weather conditions, he perceives that it does not mean buyers can move into their units in the same year as the developer will still need to get an in-take permit from the government. Mr. Chan also indicated that the company had expressed to buyers its willingness to refund [deposits] with interest if buyers feel the construction has taken too long. However, the manager said none of the buyers had applied for such refund. According to the representatives of the group of purchasers, they are dissatisfied that the foundation works of the project have not been completed after two years, having bought the units on a presale basis. They also complained that the developer had rejected meeting them on the progress of construction, an accusation the developer denied. K.L.

The Macau Gaming Show (MGS) has unveiled the most ambitious and wideranging package of travel subsidies and grants for visitors attending this year’s exhibition at The Venetian Macao, November 17-19 2015. The subsidy can also be claimed by qualified visitors before the show by the presentation of boarding passes and other documents to the MGS offices. Marina Wong, Event Director and

General Manager of MGS, said: “This year’s subsidy scheme for Qualified Buyers has been designed to help buyers from all over the world come to Macau and explore all the business opportunities available both in Macau and throughout Asia. The show is expanding into exciting new areas with gaming sitting at the heart of a tourism, culture and entertainment exhibition that is simply a one-stop show for Asia”.

6 | Business Daily

July 22, 2015

Macau

Casino stocks boom again – but Macquarie says it’s fleeting 500 per cent in the previous four years as an influx of Mainland tourists helped Macau become the world’s largest gambling hub. While shares may not fall much further, investors remain reluctant to buy as the outlook for the industry remains weak, Nomura Holdings Inc. said in a July 14 note. Gross gaming revenue in the former Portuguese enclave slumped 36 per cent from a year earlier in June, to its lowest level in more than four years. Analysts surveyed by Bloomberg expect a 30 per cent drop for the year ending December, before revenues climb 4.5 per cent in 2016.

‘Green shoots’

acau casino operators are leading gains on Hong Kong’s stock market for the first time in nine months, a winning streak Macquarie Investment Management Ltd. and Pictet Asset Management Ltd. say is temporary. MGM China Holdings Ltd., Wynn Macau Ltd. and Sands China Ltd. rose 20 per cent or more in July through this week, defying China’s stock rout and a report showing gamblers

are spending a third less on the tables than a year ago. Macquarie says the stocks slumped so much in the first half - with Wynn Macau falling 41 per cent - that a rebound was inevitable and it’s only a matter of time before the decline resumes. “They’ve been sold off quite significantly from their highs,” said Sam Le Cornu, who oversees about US$3 billion in Asian equities at Macquarie in Hong Kong. “In the short term, there’s

probably more downside. In the long term, there’s an opportunity but investors need to be very selective.” Casinos rallied this month after Macau eased travel rules for Chinese visitors and signalled it may relax a proposed ban on gamingfloor smoking rooms. Gaming shares plunged in the past year as China’s growth slowed, President Xi Jinping’s anti-graft campaign deterred high rollers and the Mainland stock market soared. Even

with this month’s advance, casinos are the worst 12-month performers on the MSCI Hong Kong Index.

Investors reluctant

The slump in the past year dragged the average valuation of Macau’s five biggest casino operators by market value to 18 times estimated earnings , about half of the peak reached in December 2013. At that point, Sands and Galaxy Entertainment Group Ltd. had surged more than

“We’re beginning to see some green shoots,” said Tony Chu, a Hong Kong-based money manager at RS Investment Management Co., which oversees more than US$20 billion. “We’ll potentially see some sequential improvement in Macau’s gaming revenue in the coming months, reflecting the lower base effect from last year. The comparables are going to get easier.” While valuations look reasonable, said Pauline Dan at Pictet Asset Management Ltd. in Hong Kong, casino stocks probably won’t gain significantly from current levels. “We may have seen the worst,” Dan, head of Greater China equities at Pictet, said by phone. “But there’s no rush to buy them. China’s economy is still slowing and ongoing restrictions on their operations will continue to curb growth in casino revenues.” Bloomberg

Retailer Stelux turnover drops 7 pct in Q1

atch and optical retailer Stelux Holidings International Ltd. saw its turnover fall 7.1 per cent year-onyear to HK$860.7 million (US$107 million) for its first quarter ended June 30, due to the decreases in turnover generated by its two major subsidiaries City Chain and Optical 88 during the period. According to the filing of the company with the Hong Kong Stock Exchange on Monday, the turnover that the company generated in its Greater China market registered a year-on-year decline of 3.8 per cent, accounting for HK$667.9 million of the total while that of its Southeast Asia market fell 16.8 per cent year-on-year to HK$192.8 million. The company noted in its filing that its drop in turnover for its Greater China market was ‘due to declining tourist spending in Hong Kong and Macau,’ claiming its retail business in Mainland China continued with turnover growth.

Meanwhile, its watch retail subsidiary City Chain posted a year-on-year decline of 8.3 per cent in turnover during the three months, at HK$452.8 million. Its total number of stores decreased to 368 from 403 one year ago.

The company’s retail subsidiary Optical 88 saw turnover drop 8.1 per cent year-on-year to HK$285.2 million during the three months, with the total number of stores falling to 229 from 231 one year ago.

Another subsidiary of the company, optical retailer eGG, however, posted a year-on-year jump of 68 per cent in its turnover to HK$38.8 million, the company filing said. K.L.

Business Daily | 7

July 22, 2015

Macau

LVS to beat market consensus with good VIP performance in Macau Union Gaming says that profits for the gaming operator are likely to total US$988.7 million versus consensus of US$967.8 million. Las Vegas Sands released its second quarter results today João Santos Filipe

jsfilipe@macaubusinessdaily.com

as Vegas Sands (LVS) is going to report the second quarter earnings today (US time) after the close of the New York Stock Exchange. Union Gaming expects the company to perform above consensus, reaching an EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) of US$988.7 million (MOP7.9 billion) vis-a-vis US$967.8 million (MOP7.7 billion). Concerning net revenue, the report, written by analysts Christopher Jones and John DeCree, forecasts the American company will achieve US$3.019 billion (MOP24.1 billion) against the FacSet Consensus that predicted revenues would reach US$3.004 billion (MOP24 billion). According to Union Gaming predictions, from the total US$3.019 billion of net revenue, the majority comes from Macau, which alone generates US$1.815 billion. The rest comes from Singapore (US$708.6

million) and the United States (US$495.5 million). The reason Union Gaming is more optimistic about the American company results is mainly explained by the situation of the Macau market and the capacity of Sands China to deliver a strong performance in the VIP segment. ‘Las Vegas Sands’ total GGR [gross gaming revenue] market share in Macau increased sequentially from 21.6 per cent in 1Q15 to 24.6 per cent in 2Q15. The gains in share are partially owed to a strong VIP hold rate in both May and June’, the report explained. ‘Total GGR at LVS’s Macau properties declined 31.6 per cent year-on-year in 2Q15, which actually made LVS the top performing concessionaire in terms of overall growth for the 2Q15’. Also, in the Macau mass market revenues went down but in share terms the company increased its

performance from 31 per cent to 31.8 per cent, as mentioned by the report.

Managing margin and risks

When it comes to the future of the company in the Special Administrative Region, the document stresses the importance of properly managing the margin pressure, as Macau’s labour market costs are increasing and hotel occupancy is declining.

‘While we believe that LVS has been disciplined in controlling its level of reinvestment, the company faces challenges around maintaining its Macanese labour force and lower overall hotel occupancy’, the authors say. ‘As a result, we continue to believe that LVS will see margin pressure in 2Q15 relative to last year, but see a more modest pace of operating deleveraging relative to the 1Q15’. While the report stresses the importance for the company of a diversified revenue stream, it also stresses some risks that may impact the company. Among the risks, the research equity firm mentions the possibility of a slowdown in terms of Chinese visitors, a delay in the approval of licences related to the construction of the Parisian resort, the impact of the smoking ban, and the surging competition from other locations.

8 | Business Daily

July 22, 2015

Macau

After beating James Packer, Echo and Chow Tai Fook focus on Macau clients for Brisbane Casino After pipping James Packer’s Crown for a licence to build a new casino in Australia's third largest city, Echo said yesterday it would team up with Hong Kong conglomerate Chow Tai Fook to bring Chinese high-rollers to Brisbane as an alternative to the Asian gaming hubs of Macau and Singapore

cho Entertainment Group and Chow Tai Fook Enterprises have fended off competition from billionaire James Packer’s Crown Resorts Ltd. to develop a new casino resort in Brisbane. Yesterday, Australian casino firm Echo Entertainment Group Ltd. said it will pay its Hong Kong partner Chow Tai Fook to fly in rich Chinese gamblers to a lavish new complex in Brisbane, upping the rivalry with Crown Resorts Ltd. for tourism's most coveted demographic. Destination Brisbane consortium includes Echo Entertainment, Chow Tai Fook Enterprises and Far East Consortium International. After pipping Crown for a licence to build a new casino in Australia's third largest city, Echo said on Tuesday it would team up with Hong Kong conglomerate Chow Tai Fook to bring Chinese high-rollers to Brisbane as an alternative to the Asian gaming hubs of Macau and Singapore. The involvement of Chow Tai Fook, a quarter stakeholder in the project, gives Brisbane-based Echo an opportunity to close in on Melbournebased Crown in the battle for Chinese visitors, the world's biggest and biggestspending outbound tourism market. "It will allow Echo to take a greater share of the VIP dollars that come into Australia once it opens up," said an analyst who asked not to be named because he had not yet published research on Echo's Brisbane licence. "It’s going to be a pretty impressive property." While Echo and Crown are booking record turnover from Chinese highrollers, Crown gets the larger share from its main casino in Melbourne. Spending by Chinese visitors to Australia leapt 19 per cent to A$5.7 billion (US$4.19 billion) last year, according to government figures.

Targeting Chinese

Crown is building a towering casino targeting Chinese gamblers near Echo's flagship complex on Sydney's waterfront. Had Crown won the Brisbane licence, it would have allowed the firm controlled by billionaire James Packer to dominate Echo in Australia's three most popular cities for foreign tourists. Echo Chief Executive Officer Matt Bekier said his firm got about 30 per cent of its Sydney revenue from Chinese high-rollers, and he anticipated Brisbane would receive about the same with the help of real estate, entertainment and jewellery conglomerate Chow Tai Fook. "Chow Tai Fook has very deep relationships with Macau-based junkets and they have a special incentive for bringing additional volume of VIP business to Australia that we don't currently see," Bekier told reporters. The Brisbane riverfront complex, scheduled to open in 2022, would make that city an essential sidetrip for Chinese gamblers arriving in Sydney and Melbourne, not an outright destination, he said.

The project is a wager that rising spending in Australia’s casinos can absorb as many as three new major resorts over the next five years, as an anti-graft crackdown in China drives Macau gamblers elsewhere in the region.

Echo Chief Executive Officer Matt Bekier says his firm got about 30 per cent of its Sydney revenue from Chinese high-rollers, and he anticipated Brisbane would receive about the same with the help of real estate, entertainment and jewellery conglomerate Chow Tai Fook

The Brisbane resort “will be an asset for this state that will compete with anything in Macau, Singapore or other destinations around the world,” Echo Chief Executive Officer Matt Bekier said in a regulatory statement on Tuesday. The resort centres around a C-shaped hotel, with a roof garden overlooking the Brisbane River, glass-floored observation deck, and a footbridge across the river, according to masterplans on its website. The state’s former Treasury building, which currently houses an Echo-owned casino, will be converted into a Ritz Carlton Hotel Co. site and a department store. More details of the resort, including development cost and final designs, must be worked out in the final stage of the planning process.

Price tag

Mark Wilson, a Deutsche Bank analyst in Sydney, estimated in a July 20 note to clients that the development will cost A$1.5 billion (US$1.1 billion). Echo said it expects to fund the project through existing and new debt facilities and cash flow generated by the business. Chow Tai Fook and Far East will each have a 25 per cent stake in the consortium, with Echo holding the remaining 50 per cent. All three will provide capital to develop the resort,

with their contributions matching their stakes. Residential and related developments will be paid for by Chow Tai Fook and Far East on a 50-50 basis, Echo said. Echo will receive a fee for operating the integrated resort and its partners will also receive fees for any VIP business which they directly refer to the casino, according to the statement. The decision seals a turnaround in Echo’s battle with Australia’s biggest casino company, Crown. That company broke Echo’s Sydney casino monopoly two years ago after winning the rights to develop a new casino targeting high rollers on the shores of Sydney Harbour opposite Echo’s Star site. Crown had submitted a rival Brisbane development plan with property developer Greenland Investment Pty. Echo’s net income in the year ended June 30 will have almost doubled from a year earlier, hitting A$201 million according to the average of eight analyst estimates compiled by Bloomberg. Returns on Echo’s stock amounted to about 42 per cent over the 12 months ended June 30, compared to a 17 per cent decline for Crown, the first time Echo has outperformed its larger rival since the 2012 fiscal year. Bloomberg /Reuters

Business Daily | 9

July 22, 2015

Greater China

BRICS bank starts operation Headquarters are based in Shanghai while president is Indian Kundapur Vaman Kamath

NDB is a new member and partner to the global development system Lou Jiwei, China’s Finance Minister

The NDB will collaborate with the AIIB, including setting up a hot-line with the other lender, NDB President Kundapur Vaman Kamath said in Shanghai yesterday. It is looking at local funding solutions, such as tapping financial and capital markets in BRICS nations, he said.

Open mind (L-R) The President of the New Development Bank (NDB), Kundapur Vaman Kamath of India, China’s Finance Minister Lou Jiwei and Shanghai’s mayor Yang Xiong, attend the opening ceremony of the NDB in Shanghai yesterday

he biggest emerging economies opened their New Development Bank in Shanghai, strengthening China’s ability to offer developing nations the support traditionally given by the U.S. and Japan through organizations like the World Bank. The NDB -- or BRICS Bank as it is known after sponsors Brazil, Russia, India, China and South Africa -- will help with the recovery and development of emerging economies,

China’s Finance Minister Lou Jiwei said at the lender’s opening ceremony in Shanghai yesterday. It can promote cooperation among developing nations without undermining the roles of existing institutions like the World Bank, he said. “NDB’s support for infrastructure construction will effectively ease the bottleneck that has constrained emerging and developing nations for long and will offer support for their economies’ upgrade and growth,” the

minister said. “NDB is a new member and partner to the global development system.” While the BRICS nations account for about a quarter of global economic output, they and their neighbours have long depended on loans from the U.S.led World Bank and the Japan- steered Asian Development Bank. China has sought to build its own influence, with its role in the NDB as well as leading the creation of the US$100 billion Asian Infrastructure Investment Bank.

Crash curbs early European appetite for A-Shares Many investors may wait until mainland stocks are included in indexes run by providers such as FTSE and MSCI

Jupiter Fund Management for example said it had held off buying A-Shares, preferring to bet on the H-Shares of Chinese companies traded in Hong Kong, or Chinese stocks listed in Taiwan or the United States, which have not been as badly hit as their mainland cousins. “The (mainland) stock market is not functioning in a disciplined way,” said Stephen Mitchell, head of strategy, global equities at Jupiter. “The fact you can get a retail stock market bubble this quickly ... does affect people’s view of the A-Shares market.” The CSI300 index of the largest listed companies in Shanghai and Shenzhen hit an all-time high on June 8, before slumping 32 percent through July 8, but

H-Shares, more popular with international investors due to their greater tradability, fell less. China-focused funds sold to foreign investors, most of which invest in H-Shares, lost only about 7 percent of the US$100 billion in assets managed at end-June, Lipper data showed. China has made attempts to improve international investors’ access to mainland shares but these have so far had limited success. An original programme, called the Qualified Financial Institutional Investor (QFII) programme, allowed overseas investors to use foreign currency to access stocks and other assets, albeit with many restrictions around trading. The subsequent more flexible RQFII programme

“We will have an open mind in terms of the instruments we will use for funding projects,” Kamath said. “Should we approach the financial markets, the capital markets in five BRICS countries to raise localcurrency funds so that in a way we break the challenge and the cost of dealing in hard currencies where the exchange rate continues to impact you for a long, long time? Could we start by making substantially large bond issuance in the domestic market?” The NDB will have initial capital of US$50 billion with plans to raise that to US$100 billion over time. In the AIIB, China will hold a veto power on some subjects and is the biggest shareholder.

allowed funds to invest using renminbi, and Britain, France, Singapore, Taiwan and Germany were among those fighting to secure a quota from the Chinese government.

Low take-up

But in Britain, for example, just 25 percent of the country’s 80 billion yuan RQFII quota has been taken up by asset managers in London, equivalent to just US$3.2 billion. “I’ve visited a lot of London-based fund managers and the frequent response has been ‘we don’t understand the market, or believe the market’,” said Stewart Aldcroft, senior advisor for fund services at Citi. “A lot of managers were able to miss out on the fall in value because they didn’t believe the rise.” U.S. universities and endowments made more use of QFII quotas than London’s asset management community, Aldcroft said. RQFII take-up in Germany and France was higher, but overall European demand remains relatively low, he added. At June 29, US$139 billion had been invested in the QFII and RQFII programmes by

Bloomberg News

foreign investors against a limit on both of nearly US$300 billion and a net capitalisation of China’s mainland stock markets of US$11.5 trillion before the crash. One successful RQFII applicant was Swiss fund firm Pictet, with a quota of around US$160 million awarded in December. As the share suspension was largely impacting smaller companies and start-ups, Pauline Dan, head of greater China equities at Pictet Asset Management, said her blue-chip bets were largely unaffected. A third method of direct access, launched late last year, is the Shanghai-Hong Kong Stock Connect, a programme that enables investors in each market to trade shares on the other market using local brokers and clearing houses, subject to quotas. But just 126.4 billion, or around 42 percent, was being used as of July 16, data showed, relative to a potential capacity of 300 billion yuan (US$48 billion). Emerging support for Connect from European regulators could lead to more funds taking advantage of the system. Reuters

10 | Business Daily

July 22, 2015

Greater China

False dawn? Economy steadies, but some fear it won’t last Some analysts who believe China has exaggerated its economic resilience said growth was stabilising Sue-Lin Wong and Kevin Yao

usiness is roaring at Qiu Bangsheng’s factory in eastern China, where whizzing machines churn out long, white strips of polypropylene that are rolled into cylinders and turned into nappies and other hygiene products. For Premier Li Keqiang and China’s top economic policymakers, who have been at pains to contain a downturn that is likely to be the worst in 25 years, stories like Qiu’s are exactly what they want to hear. “Companies reported an improvement in business conditions in June and the property sector is warming up,” said a researcher at the National Development and Reform Commission, China’s powerful economic planner, who asked not to be identified. “It seems that Premier Li is happy.” The question is whether Qiu’s success shows the unexpected stabilisation in growth during the second quarter was a signal of an inflection point for the world’s secondlargest economy, or merely reflects a government which remains wedded to hitting an arbitrary target that fails to address long-term imbalances. Data last week showed China

The basic tone of loose policy will continue. It will be even more difficult to achieve 7 percent growth this year if we make slight adjustments to or tighten policy Wang Jun, senior economist, China Centre for International Economic Exchanges

defying hard times to maintain a growth rate of 7 percent in the first six months, bang in line with Beijing’s full-year target. Some economists have long been sceptical about China’s official data, although the country’s statistics

bureau said last week its numbers were accurate and rejected suggestions they could be inflated. Other analysts fear the figure, if not embellished, was masking crucial weaknesses. Growth in trade, investment, output and retail sales mainstays of the economy - remained sluggish despite three interest rate cuts this year, they said, curtailed by a firm yuan and a still-wobbly housing sector. “I’m not very optimistic about economic growth in the second half,” said Wang Jun, a senior economist at the China Centre for International Economic Exchanges (CCIEE), a well-connected think-tank. Indeed, it was a boom in the financial industry - the fastest-growing sector in the second quarter - that boosted services growth, momentum that is expected to have now fizzled on the back of a June stock market crash. That means further policy easing and support may be needed to meet this year’s official target.

A fragile stabilisation

Qiu knows his firm’s success is due in part to central and local government

support, including subsidies, and he notes smaller factories that are unable to upgrade are going out of business. But while those smaller factories were not full of robots, they were full of workers. And with growth slowing noticeably over the past few years, the loss of low-end manufacturing jobs and resultant unemployment poses a risk to a sustained recovery. Moreover, while China wants its manufacturers to move up the value chain, its economy may not yet be producing enough of the higherskilled, higher paying jobs it needs to both replace those lost and tilt growth towards consumption. Qiu has not needed to hire many new workers as his profit growth has accelerated from 10 percent in 2009 to 25 percent now. Instead of 70 people on the shop floor, since he automated the factory in 2013 he now needs only 10 to 20 for each of the three daily shifts. Automation has allowed him to run production around the clock, and he estimates it has replaced around 300 workers he would have otherwise hired. “Our goal is to maximise profits. If we want to achieve this, we need to control our costs and that’s impossible if we don’t automate and modernise,” he said. To be sure, even some analysts who believe China has exaggerated its economic resilience said growth was stabilising. Capital Economics, a research house, thinks China’s real growth rate was probably 1 to 2 percentage points lower, but argued the economy may still be turning a corner given signs of a pick-up in electricity output, housing construction, port turnover and cargo and passenger traffic. Whether that can last, or is sufficient to power the economy in coming months, is open to debate. The fallout from the stock market meltdown, which saw the value of Chinese listed companies plunge by about a third from peak to trough, remains to be seen. Some analysts worry that supporting the equity market could cut the finance available for companies and hurt the real economy. “I think the stabilisation is very fragile,” said Wang from CCIEE. “The basic tone of loose policy will continue. It will be even more difficult to achieve 7 percent growth this year if we make slight adjustments to or tighten policy.” Reuters

Business Daily | 11

July 22, 2015

Greater China

Crash curbs early European appetite for A-Shares

37 trade remedy probes in H1

Many investors may wait until mainland stocks are included in indexes run by providers such as FTSE and MSCI

umbling share prices and trading suspensions have tempered any early enthusiasm for mainland Chinese equities among overseas funds, confirming the cautious approach evident in their limited exposure despite official attempts to lure them in. Three government programmes designed to help overseas investors buy Chinese stocks have had limited take-up and it will likely take a measure such as inclusion in more mainstream stock market indexes for that to change dramatically. The recent market rout has inevitably knocked confidence, prompting some to reconsider plans to buy mainland Chinese shares, known as A-Shares. Jupiter Fund Management for example said it had held off buying A-Shares, preferring to bet on the H-Shares of Chinese companies traded in Hong Kong, or Chinese stocks listed in Taiwan or the United States, which have not been as badly hit as their mainland cousins. “The (mainland) stock market is not functioning in a disciplined way,” said Stephen Mitchell, head of strategy, global equities at Jupiter. “The fact you can get a retail stock market bubble this quickly ... does affect people’s view of the A-Shares market.” The CSI300 index of the largest listed companies in Shanghai and Shenzhen hit an all-time high on June 8, before slumping 32 percent through July 8, but H-Shares, more popular with international investors

due to their greater tradability, fell less. China-focused funds sold to foreign investors, most of which invest in H-Shares, lost only about 7 percent of the US$100 billion in assets managed at end-June, Lipper data showed. China has made attempts to improve international investors’ access to mainland shares but these have so far had limited success. An original programme, called the Qualified Financial Institutional Investor (QFII) programme, allowed overseas investors to use foreign currency to access stocks and other assets, albeit with many restrictions around trading. The subsequent more flexible RQFII programme allowed funds to invest using renminbi, and Britain, France, Singapore, Taiwan and Germany were among those fighting to secure a quota from the Chinese government.

Low take-up

U.S. universities and endowments made more use of QFII quotas than London’s asset management community, Aldcroft said. RQFII take-up in Germany and France was higher, but overall European demand remains relatively low, he added. At June 29, US$139 billion had been invested in the QFII and RQFII programmes by foreign investors against a limit on both of nearly US$300 billion and a net capitalisation of China’s mainland stock markets of US$11.5 trillion before the crash. One successful RQFII applicant was Swiss fund firm Pictet, with a quota of around US$160 million awarded in December. As the share suspension was largely impacting smaller companies and start-ups, Pauline Dan, head of greater China equities at Pictet Asset Management, said her blue-chip bets were largely unaffected. A third method of direct access, launched late last year, is the Shanghai-Hong Kong Stock Connect, a programme that enables investors in each market to trade shares on the other market using local brokers and clearing houses, subject to quotas. But just 126.4 billion, or around 42 percent, was being used as of July 16, data showed, relative to a potential capacity of 300 billion yuan (US$48 billion). Emerging support for Connect from European regulators could lead to more funds taking advantage of the system. Reuters

Two women to decide future of Taiwan A KMT defeat could derail seven years of progress toward the Communist Party’s ultimate goal, reunification

he most harmonious period in China-Taiwan ties will be tested in the coming presidential election as a candidate from a proindependence party leads the polls. While opposition leader Tsai Ing-wen has vowed to maintain cordial relations with Taiwan’s increasingly powerful former foe, her party retains independence as an official goal -- something China would consider a hostile act. Her main opponent, the ruling Kuomintang’s Hung Hsiu-chu, has swung the other way, calling for a peace deal with the Communist Party to formally end a civil war the two sides started 70 years ago. Relations between Taipei and Beijing are at their strongest since Chiang Kai-shek and his KMT party fled the mainland in 1949. President Ma Ying-jeou, in power since 2008, has signed 21 trade deals with China, which now represents almost onethird of Taiwan’s overseas commerce. Neither side wants a return to hostilities that could also drag in the U.S. The KMT has suffered at home amid scandals, slower growth and resistance to greater China ties, including the withdrawal of debate

If Hung wins, the normalized means of exchanges will continue. If Tsai wins, it may take a bit of an exploring, testing and a more circuitous route Alexander Huang, assistant professor, Tamkang University

on a services trade pact last year after student protesters occupied the island’s parliament. Ma, who’s barred from a third term, was forced to step down as party chief in December after Tsai’s Democratic Progressive Party won big in local elections. Tsai’s the favourite to succeed Ma after losing to him in 2012. The former London School of Economics-educated law professor holds a 12-point lead over Hung, according to a poll conducted on Sunday by the TVBS cable news network. Tsai, who served as a deputy premier under Chen, hasn’t endorsed the One China policy, although she supports continued cross-strait relations. “We do have a broad consensus in Taiwan, that is, the maintenance of the status quo,” Tsai said while in Washington in June. She also pushed back at China, saying, “I will uphold the right of the people to decide their future free of coercion.” Chinese President Xi Jinping told a Ma envoy in 2013 that they can’t keep passing the problem “from generation to generation.” Bloomberg News

The Ministry of Commerce (MOC) said yesterday that China was subject by 37 trade remedy probes in H1, including 32 anti-dumping cases. Altogether 14 countries and regions, mostly G20 members, initiated investigations targeting Chinese products, down 30 percent year on year, MOC spokesman Shen Danyang revealed at a press conference. The probes involved US$3.5 billion, down 34 percent year on year. Hardware, chemicals and the light industries are areas that suffered the most probes, according to the MOC.

Spring to buy 21 Airbus planes Chinese budget carrier Spring Airlines said it plans to buy 21 Airbus A320 planes for 12.45 billion yuan (US$2.04 billion), citing growth in both international and domestic air travel. The Shanghai-listed company plans to fund the purchase in part through a private placement of shares to raise 4.5 billion yuan, according to a statement to the exchange late Monday. The single-aisle A320 has a list price of US$97 million, according to Airbus. Spring Airlines was founded in 2005 and now flies more than 90 domestic and international routes, according to its website.

State guesthouse sues Philips A Chinese central government guesthouse, where Beijing has hosted leaders from Nixon to Putin, has sued electronics maker Philips claiming false advertising, a potential headache for the Dutch firm in one of its key markets. The Diaoyutai State Guesthouse said Philips had illegally used its name in Chinese adverts, according to a Beijing court statement posted online yesterday. The venue is seeking 100,000 yuan (US$16,104) in compensation. Philips made 12 percent of its 21.4 billion euro (US$23.16 billion) global revenue from China last year.

Car rental firm eHi receives injection NYSE-listed Chinese car rental firm eHi Car Services announced on Monday that it had reached a deal with a Chinese policy lender for 241.5 million dollars of funding. The deal with China Development Bank (CDB), one of China’s three policy lenders, will allow eHi to receive 1.5 billion yuan in credit through multiple financial instruments for five years. The funding will be used to expand eHi’s existing network and car fleets, said eHi’s CEO Zhang Ruiping. The deal also includes car-related fixed asset investment by the Shanghai-based eHi and CDB’s Shanghai branch.

Micron does not believe deal with Tsinghua Micron Technology Inc has told China’s Tsinghua Unigroup Ltd that its US$23 billion acquisition offer is not realistic because U.S. authorities would block the deal due to national security concerns, according to people familiar with the matter. The Boise, Idaho-based chipmaker’s response to Tsinghua’s overtures illustrates the hurdles the Chinese state-backed investment firm would have to overcome given the enormous dependence of modern weapons on computer chips. Micron thinks that an acquisition by Tsinghua would not be approved by the U.S. inter-agency task force.

12 | Business Daily

July 22, 2015

Asia BOJ soothes government over fewer meetings The Bank of Japan (BOJ) will hold fewer policy-setting meetings from next year, having assured the government that it will take steps to maintain smooth communication between them, according to sources familiar with the discussions. The BOJ decided in June to cut the number of rate reviews per year to eight from the current 14, in line with the practices of the Federal Reserve and the European Central Bank. In four of the meetings, the BOJ will issue reports with new long-term economic and price projections, double the current number.

Australia to introduce country-of-origin label Australia will introduce mandatory country-of-origin food labelling from 2016, Prime Minister Tony Abbott said yesterday, a move given impetus by a hepatitis outbreak earlier in the year blamed on contaminated berries from China. Under the new rules, food labels will show consumers where products are made, grown or packaged, Abbott told reporters in Canberra. Domestically produced products will have a green and gold kangaroo logo, alongside a bar chart showing the proportions of ingredients coming from Australia. Agriculture Minister Barnaby Joyce dismissed any criticism of xenophobia, insisting the new law was simply closing a loophole.

NZ central bank poised to cut rates Central bank is almost certain to cut interest rates on Thursday to fend off growing economic headwinds from a collapse in dairy prices and low inflation. After galloping at an enviable 3.0 percent-plus growth rate until the end of last year, New Zealand’s economy has started to feel the pinch of a slowdown in China which is buying less of its major dairy products. Thirteen of 15 economists polled by Reuters expect the Reserve Bank of New Zealand to cut its Official Cash Rate by 25 basis points to 3.0 percent

Myanmar, Vietnam radios cooperate in broadcast sector The state-run Myanmar Radio and Television (MRTV) and Voice of Vietnam have agreed to cooperate in the broadcast sector in Myanmar, official media reported yesterday. A memorandum of understanding (MoU) was signed between U Tint Swe, Permanent Secretary of Ministry of Information and Vu Hai, Vice Chairman of VOV on Monday in Nay Pyi Taw, said the Global New Light of Myanmar. Both sides touched upon matters related to boosting cooperation in the sector through the MoU. Since 1999, MRTV and VOV have began cooperation in the broadcast sector.

Singapore monetary authority reviews data Government data released last week shows Singapore’s economy contracted in the second quarter Masayuki Kitano and Saeed Azhar

ingapore's central bank said yesterday that headline and core inflation this year are likely to be at the lower end of its earlier forecasts, but it expects prices to pick up in 2016. The risk of a further downgrade to the central bank's inflation forecasts is low, Monetary Authority of Singapore (MAS) Managing Director Ravi Menon told a news conference. "What is the risk of inflation coming in even lower, outside the forecast range? At this point I'd say the risk is low," he said. "Our baseline assumption is that in Q4 we should start to see some increase at least in core inflation," Menon added. All-items consumer inflation has been negative, on an annual basis, every month between November and May. Headline inflation is likely to be negative for the rest of 2015, meaning consumer inflation is likely to come in at the lower half of the central bank's forecast range of -0.5 percent to 0.5 percent this year, Menon said. Core inflation is expected to be in

the lower half of the 0.5 percent to 1.5 percent forecast range, he said. Menon said that Singapore's current policy stance remains "appropriate" for ensuring mediumterm price stability, but added that what the MAS decides at its next scheduled policy review in October would depend on forthcoming economic data. "As of now, I can only say that the monetary policy settings are something that we are very comfortable with... whether that will change in October, I can't say, it will be data-dependent," Menon said. He added that Singapore is "not facing deflation" as price declines have been neither persistent nor pervasive.

Expectations defused?

The Singapore dollar turned firmer to hit a session high of 1.3694 per the U.S. dollar after the central bank's remarks. "Recent scattered expectations for policy easing in October will probably be defused on the back of the latest MAS comments," said

Emmanuel Ng, a foreign exchange strategist with OCBC Bank. "Basically, there were no indications that they expect that their inflation forecasts are at imminent risk of being breached on the downside," Ng said. MAS, which yesterday released its annual report, said it is reviewing its forecast for economic growth this year. The current forecast is for gross domestic product to expand 2-4 percent. Government data released last week that showed Singapore's economy contracted in the second quarter. The lacklustre growth performance, coupled with a drop in year-on-year core inflation to a five-year low of 0.1 percent in May, has put renewed focus on the possibility of a further easing of monetary policy later this year. In January, the MAS surprised markets by easing policy in an unscheduled decision, saying a plunge in commodity prices had significantly altered the inflation outlook. Reuters

Philippines’ Aquino signs into law fair trade legislation Trade officials have said the new law will allow micro, small and medium-sized enterprises to compete more equally with larger firms

hilippine President Benigno Aquino signed into law yesterday landmark fair trade legislation aimed at curbing cartels, price fixing and other forms of anticompetitive practices, which have long stifled economic growth. The Philippine Competition law, which took two decades for Congress to enact, will seek to prevent large companies monopolising business and setting up cartels, manipulating and distorting market prices and will promote free and fair trade. It will also will create a competition commission, an independent body that will regulate and rule on cases involving practices such as anti-competitive acts, cartels and price manipulation.

“At last, small and big business can now compete to come up with quality products at the most reasonable price instead of under the table deals and political connections,” Aquino said in a speech during the signing of the fair trade law. “With this legislation, we are promoting market competition. Everyone will benefit from this law and will end up as winners.” The commission will be able to impose fines of up to 250 million pesos (US$5.52 million) and courts could impose jail terms from two to seven years to company officers and directors found guilty of unfair practices. Trade officials have said the new law will usher in an era where

micro, small and medium-sized enterprises can compete with large and multinational firms ahead of the ASEAN economic integration. The economies of the 10-member Southeast Asian states will start integration at the end of 2015, bringing down duties and non-tariff barriers to create a single market to promote trade and investment. Aquino also signed into law the foreign ships co-loading act to reduce logistics costs for producers, create a more efficient import and export system and lower consumer goods prices. The law will also help in decongesting ports in the country. Reuters

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Business Daily | 13

July 22, 2015

Asia

Japan’s business mood subdued on uncertainty over China Data in the past few weeks showed shipments and output weakening, but capital expenditure picking up Tetsushi Kajimoto and Izumi Nakagawa

Japanese economy relies heavily on third sector consumption

onfidence at Japanese manufacturers in July was subdued and the service sector mood dimmed the most in over a year, a Reuters poll showed, reflecting worries about sluggish consumption and exports as growth cools in major trading partner China. The Reuters Tankan - which closely tracks the Bank of Japan’s quarterly tankan survey - showed both manufacturers’ and servicesector morale staying muted over the next three months. The subdued sentiment joins a recent mixed batch of data that underlined the fragility of Japan’s economy, and shows companies were far from assured about the outlook. The poll of 516 big and midsize firms between July 1 and 15, of which 285 responded, showed business managers were worried about the state of China’s economy - a major market for Japanese exporters. “Asian markets centring on China are not performing very well. We have not felt a recovery in domestic markets related to private consumption either,” said one chemicals producer. The downturn in China’s economy, which is on course to grow at its slowest pace in over two decades this year, has continued to hurt exports and manufacturing across much of Asia. “The worsening outlook index among the processing industries suggests the prospects for demand from China and Asia are not bright,” said Yuichiro Nagai, economist at Barclays Securities. “We expect a contraction in the second quarter. If the big drop in retailer’s mood points to weakness in consumption, the economy may remain in a soft patch in the current quarter.” The Bank of Japan trimmed its growth forecast last Wednesday but held off on offering fresh stimulus, convinced that an expected pick up

KEY POINTS July manufacturers’ sentiment index 14, unchanged from June Service firms’ index down the most in over a year Retailers’ index plunges to zero, from 34 in June Business mood seen largely unchanged ahead Reuters poll strongly correlates with BOJ tankan

in consumption will help accelerate inflation toward its 2 percent target next year. The Reuters Tankan sentiment index for manufacturers held steady at 14 in July. The index is seen inching up to 15 in October. The service-sector index tumbled from a record high of 36 in June to 24, the biggest decline since May 2014 when a sales tax hike dealt a blow to consumers. Retailers’ mood plunged from over one year highs seen in June, weighing on the overall service sector mood. That bodes ill for private consumption, which accounts for roughly 60 percent of the economy and is needed to pick up to cement a recovery from an expected slowdown in growth in the second quarter. “Customers are staying away due to an unusually rainy weather and summer goods sales are slumping,” said one retailer. Reuters

MERS cuts South Korea’s growth pace Most analysts agree that economic activity will pick up in the second half

outh Korea’s economy in AprilJune likely grew at half the pace of the previous quarter, a Reuters survey found, as an outbreak of Middle East Respiratory Syndrome (MERS) hurt private consumption and tourism while exports failed to pick up. The economy probably expanded by 0.4 percent in the second quarter from the first on a seasonally adjusted basis, according to a Reuters survey, slowing down from 0.8 percent growth in January-March. Second quarter growth data is unlikely to surprise markets as Bank of Korea Governor Lee Ju-yeol said early this month it would be around 0.4 percent.

“Weakness in the second quarter is expected on weak exports, MERS and dry weather, but from the third quarter we’ll see heightened growth as MERS has simmered down while consumption is recovering faster than expected,” said Kim Jong-su, an economist at Taurus Investment & Securities. Most analysts were in agreement with Kim that economic activity will pick up in the second half, thanks to the central bank’s four rate cuts since last year and the government’s stimulus efforts.

Tourism, services impacted

Since MERS started spreading in late May, it infected 186 people, 36

of whom died. The virus battered tourism and services industries as the public eschewed spending for fear of contracting it. The outbreak has been contained, but Korean merchants have voiced complaints over cancelled visits by foreign tourists. Retail sales data shows the hit from MERS. In May, sales at department as well as discount stores rose from a year earlier, but in June they tumbled 10.7 percent and 9.7 percent, respectively. The trade-reliant economy did not have exports to fall back on in the second quarter as shipments have been falling throughout this year. Exports fell 7.2 percent in the second

quarter from a year ago which was the worst quarterly performance since the third quarter of 2009. In June, the Bank of Korea made its fourth rate cut since August and trimmed its growth forecast for this year due to MERS. The bank’s base rate now is 1.50 percent and GDP projection for this year is 2.8 percent. The central bank is unlikely to cut rates again this year unless Asia’s fourth-largest economy derails from its growth path. To aid growth, the government has proposed an 11.8 trillion won (US$10.24 billion) supplementary budget, which the parliament is weighing. Reuters

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July 22, 2015

International

UK public finances improve again Brazil convicts first executives in Petrobras scandal Three executives of Brazil’s Camargo Correa group were convicted on Monday of money laundering, corruption and other charges, the first construction-industry executives to be sentenced in a giant price fixing and bribery scandal involving state-run oil company Petrobras. Dalton dos Santos Avancini, chief executive officer of Camargo Correa Construções e Participações SA, João Ricardo Auler, the company’s chairman, and Eduardo Hermelino Leite, a senior executive, were all convicted of corruption and membership in a criminal organization. The ruling was handed down by Judge Sergio Moro of Brazil’s Federal Court in Curitiba.

The deficit stood at 4.9 percent of gross domestic product, half its level in 2010 when Osborne's Conservative Party first took power

ritish government borrowing in June fell by less than expected but was its lowest for that month in seven years, the latest sign that the turnaround in the country’s economy is helping the public finances. Britain’s headline public borrowing fell to 9.4 billion pounds

For the first three months of the 2015/16 tax year, public sector net borrowing was 25.1 billion pounds

U.S. banks prepare for oil firms loans to worsen U.S. banks are setting aside more money to cover bad loans to energy companies after oil prices plunged over the last year, raising the possibility that deteriorating loans could start to weigh on their earnings, some analysts said. Loan credit quality for U.S. banks has been improving since the financial crisis. In the first quarter, 2.49 percent of loans on banks’ books were delinquent, the lowest level since the fourth quarter of 2007, according to the Federal Reserve, which hasn’t released second quarter data. The rate peaked at 7.4 percent in the first quarter of 2010.

Hollande announces emergency plan for livestock French president Francois Hollande has said he would unveil an emergency package of measures to help France’s livestock and dairy sector today. Yesterday’s announcement came as livestock farmers in tractors maintained a blockade of roads in north-western France, keeping pressure on the government to take action over what they say is a squeeze in their margins by retailers and food processors. “Beyond the issue of distribution and prices, I have asked that there should be an emergency plan for French livestock and dairy producers,” Hollande told reporters in Paris.

Pemex pays US$295 mln to settle Siemens dispute Mexican state oil company Pemex reached a US$295 million settlement with a group including German industrial conglomerate Siemens in a longstanding dispute over a refinery project, a person familiar with the matter said on Monday. The deal was originally announced in March but did not give details of the final settlement. A Mexican official close to the negotiations said that Pemex had agreed to settle for US$295 million. Earlier in the day, Pemex said in a statement that the deal struck definitively ends the 14-year-long dispute, but it did not give a sum.

in June from 10.2 billion pounds a year earlier, compared with economists’ forecasts of an 8.5 billion pound deficit, the Office for National Statistics said yesterday. For the first three months of the 2015/16 tax year, public sector net borrowing was 25.1 billion pounds, down nearly 20 percent compared

British finance minister George Osborne

with the April-June period of last year and its lowest for the same period since the 2008/09 financial year. The ONS said that income tax receipts in June rose by 0.3 billion pounds to 11.5 billion pounds, the highest level since records began in 1997. Corporation tax was up nearly 14 percent at 1.7 billion pounds, also the highest amount on record. British finance minister George Osborne said earlier this month that he was aiming to bring down the budget deficit in the current financial year to 69.5 billion pounds, or 3.7 percent of economic output, lower than his previous target. In the 2014/15 financial year, the deficit stood at 4.9 percent of gross domestic product, half its level in 2010 when Osborne’s Conservative Party first took power but still bigger than the hole in the finances of most other advanced economies. Osborne also used his postelection budget to set himself less challenging targets for the three years after the current financial year and he pushed back the date when Britain is scheduled to wipe out the deficit altogether until 2019/20. Public sector net debt, excluding state-controlled banks, totalled 1.513 trillion pounds in June equivalent to 81.5 percent of GDP, the second highest ratio on record. The figure included the addition of 100 million pounds in debt relating to a revision of debt levels at Network Rail, a railway company. Osborne is aiming to start bringing the ratio down in the 2015/16 financial year after it rose sharply following the financial crisis. Reuters

Swiss banks rehabilitating Russia with year’s biggest Eurobond Ak Bars may receive strong demand from a “very specific target investor base” of Asians seeking higher yields and Swiss investors Ksenia Galouchko and Lyubov Pronina

lender from Tatarstan is about to go where no other Russian bank has dared in six months: the Eurobond market. Untouched by sanctions over Ukraine, OAO Ak Bars Bank is pitching to raise as much as US$400 million in bonds maturing up to three years from now. It’s offering to pay no more than 8.5 percent in annual interest, compared with 6.8 percent on similarly rated notes from PAO Promsvyazbank due April 2017. Success in the sale, led by Credit Suisse Group AG and UBS Group AG, may mark the revival of a market closed to all but the biggest Russian companies since the nation’s incursion into Crimea. Amid the dearth of issuance, Russian corporate bonds have rallied: six of the 10 best returns in the past month have come from Russian banks’ securities. “Investors are a lot more comfortable with Russian credit risk compared to six months ago as the fundamental deterioration has not been as severe as originally feared,” Apostolos Bantis, a credit analyst at Commerzbank AG in Dubai, said by e-mail on Monday. After meeting investors in Hong Kong on Monday,

Ak Bars continues in Singapore Tuesday and Zurich Wednesday.

grade and two below the Republic of Tatarstan.

Asian investors

Credit quality

Ak Bars may receive strong demand from a “very specific target investor base” of Asians seeking higher yields and Swiss investors managing Russian private wealth, said Sergey Dergachev, a senior portfolio manager who helps oversee US$13 billion of emerging-market debt at Union Investment Privatfonds GmbH in Frankfurt. “Most likely, Ak Bars will be more a one-off issue,” Dergachev said by e-mail on Monday. “I don’t expect a wave of Russian new issuance in the second half of 2015.” Ak Bars is seizing on a “favourable” moment in the market for its sale, the bank’s press service in Kazan, said by e-mail Monday. Yields on Russian companies’ foreign bonds have dropped to an average 7.1 percent from as high as 13.6 percent in December, when plunging oil prices and a rout in the ruble sent investors fleeing from the nation’s assets. Moody’s Investors Service rates Ak Bars with Promsvyazbank at B1, four steps short of investment

Its “credit quality is supported by the government of Tatarstan, one of the most financially sound Russian regions,” said Alexey Tretyakov, a money manager at Aricapital Asset Management in Moscow, who holds Ak Bars 2015 notes and is considering buying the new bonds. Russian companies have reduced international bond sales to US$214 million this year from US$8.7 billion by this time in 2014 and US$28.6 billion for the same period on 2013, according to data compiled by Bloomberg. OAO Gazprom, Russia’s biggest company, sold US$700 million of one-year notes in November and Alfa Bank, the nation’s largest privately owned lender, issued US$250 million. Bank UralSib raised US$77 million in January. UBS helped arrange the sales for Alfa and UralSib. Most issuers stayed out of the market as borrowing costs surged with the Bank of Russia hoisting benchmark borrowing rates by 650 basis points to 17 percent last year. It has since cut the rate to 11.5 percent. Bloomberg News

Business Daily | 15

July 22, 2015

Opinion Business

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Leading reports from Asia’s best business newspapers

Europe’s vindictive privatization plan for Greece

TAIPEI TIMES

Yanis Varoufakis

The Ministry of Finance is to suggest that the Cabinet create a platform to marshal the operations of four state funds to boost their efficiency and profitability so they can better help strengthen the nation’s financial health, Minister of Finance Chang Sheng-ford said. “The idea is to integrate the four funds into a quasi-sovereign wealth fund without needing to revise the law,” Chang said. The funds are the Labour Insurance Fund, Labour Pension Fund, Public Service Pension Fund and postal savings deposits with an aggregate value of more than NT$7 trillion (US$223.34 billion).

Former finance minister of Greece, is Professor of Economics at the University of Athens

THE KOREA HERALD Investors have growingly shifted their money to short-term financial instruments, such as money market funds, in 2015 as interest rates have hit rock bottom, data showed yesterday. Money market funds are short-term debt securities, such as Treasury bills and commercial papers. They are widely considered as safe as bank deposits yet provides a higher return. The net asset value of MMFs came to 38.23 trillion won (US$33.1 billion) as of Thursday, surging 46.4 percent from the end of last year, according to market researcher FnGuide.

PHILSTAR The government incurred a wider budget surplus in May after expenditures continued to miss the target, the Department of Finance (DOF) reported yesterday. The DOF said the government posted a budget surplus of P67.3 billion in May, more than five times the P11.8 billion surplus in the same month last year. The latest fiscal performance is a reversal of the P35.78-billion deficit targeted for the month and marks the second consecutive month the government posted a budget surplus. Government revenues surged 41 percent to P242.5 billion in May from P172.2 billion in the same period last year.

THE PHNOM PENH POST The International Finance Corporation (IFC) has given Cambodian microfinance institute Hattha Kaksekar Ltd (HKL) a loan of up US$10 million, aiming to boost access to finance to small- and medium-sized enterprises in Cambodia’s rural areas. The additional loan is intended to help HKL, Cambodia’s fourth-largest microfinance institution, achieve its goal of doubling its loan portfolio to US$504 million by 2017, according to a statement released yesterday. HKL plans to leverage its mobile-banking services to expand its reach to farmers in Cambodia’s provinces.

n July 12, the summit of eurozone leaders dictated its terms of surrender to Greek Prime Minister Alexis Tsipras, who, terrified by the alternatives, accepted all of them. One of those terms concerned the disposition of Greece’s remaining public assets. Eurozone leaders demanded that Greek public assets be transferred to a Treuhand-like fund – a fire-sale vehicle similar to the one used after the fall of the Berlin Wall to privatize quickly, at great financial loss, and with devastating effects on employment all of the vanishing East German state’s public property. This Greek Treuhand would be based in – wait for it – Luxembourg, and would be run by an outfit overseen by Germany’s finance minister, Wolfgang Schäuble, the author of the scheme. It would complete the fire sales within three years. But, whereas the work of the original Treuhand was accompanied by massive West German investment in infrastructure and large-scale social transfers to the East German population, the people of Greece would receive no corresponding benefit of any sort. Euclid Tsakalotos, who succeeded me as Greece’s finance minister two weeks ago, did his best to ameliorate the worst aspects of the Greek Treuhand plan. He managed to have the fund domiciled in Athens, and he extracted from Greece’s creditors (the so-called troika of the European Commission, the European Central Bank, and the International Monetary Fund) the important concession that the sales could extend to 30 years, rather than a mere three. This was crucial, for it

will permit the Greek state to hold undervalued assets until their price recovers from the current recession-induced lows. Alas, the Greek Treuhand remains an abomination, and it should be a stigma on Europe’s conscience. Worse, it is a wasted opportunity. The plan is politically toxic, because the fund, though domiciled in Greece, will effectively be managed by the troika. It is also financially noxious, because the proceeds will go toward servicing what even the IMF now admits is an unpayable debt. And it fails economically, because it wastes a wonderful opportunity to create home-grown investments to help counter the recessionary impact of the punitive fiscal consolidation that is also part of the July 12 summit’s “terms.” It did not have to be this way. On June 19, I communicated to the German government and to the troika an alternative proposal, as part of a document entitled “Ending the Greek Crisis”: “The Greek government proposes to bundle public assets (excluding those pertinent to the country’s security, public amenities, and cultural heritage) into a central holding company to be separated from the government administration and to be managed as a private entity, under the aegis of the Greek Parliament, with the goal of maximizing the value of its underlying assets and creating a home-grown investment stream. The Greek state will be the sole shareholder, but will not guarantee its liabilities or debt.” The holding company would play an active role readying the assets for sale. It would “issue a fully collateralized bond on the international

Alas, the Greek Treuhand remains an abomination, and it should be a stigma on Europe’s conscience

capital markets” to raise €3040 billion (US$32-43 billion), which, “taking into account the present value of assets,” would “be invested in modernizing and restructuring the assets under its management.” The plan envisaged an investment program of 3-4 years, resulting in “additional spending of 5% of GDP per annum,” with current macroeconomic conditions implying “a positive growth multiplier above 1.5,” which “should boost nominal GDP growth to a level above 5% for several years.” This, in turn, would induce “proportional increases in tax revenues,” thereby “contributing to fiscal sustainability, while enabling the Greek government to exercise spending discipline without

further shrinking the social economy.” In this scenario, the primary surplus (which excludes interest payments) would “achieve ‘escape velocity’ magnitudes in absolute as well as percentage terms over time.” As a result, the holding company would “be granted a banking license” within a year or two, “thus turning itself into a full-fledged Development Bank capable of crowding in private investment to Greece and of entering into collaborative projects with the European Investment Bank.” The Development Bank that we proposed would “allow the government to choose which assets are to be privatized and which not, while guaranteeing a greater impact on debt reduction from the selected privatizations.” After all, “asset values should increase by more than the actual amount spent on modernization and restructuring, aided by a program of publicprivate partnerships whose value is boosted according to the probability of future privatization.” Our proposal was greeted with deafening silence. More precisely, the Eurogroup of eurozone finance ministers and the troika continued to leak to the global media that the Greek authorities had no credible, innovative proposals on offer – their standard refrain. A few days later, once the powers-that-be realized that the Greek government was about to capitulate fully to the troika’s demands, they saw fit to impose upon Greece their demeaning, unimaginative, and pernicious Treuhand model. At a turning point in European history, our innovative alternative was thrown into the dustbin. It remains there for others to retrieve. Project Syndicate

16 | Business Daily

July 22, 2015

Closing Hong Kong Government reshuffles cabinet

Stocks cap best winning streak since May

China’s Hong Kong Special Administrative Region government (headquarters pictured) announced yesterday a major cabinet re-shuffle. Secretary for the Civil Service Paul Tang has resigned, citing “unexpected family reasons.” His replacement is Clement Cheung, the commissioner of Customs and Excise. Separately, Home Affairs Secretary Tsang Tak-sing said he’s “glad to resign,” and he’s being replaced by Lau Kong-wah, the under secretary for Constitutional and Mainland Affairs.

China’s stocks capped their longest stretch of gains in almost two months, as smaller companies extended a bull-market rally and speculation grew the government’s market-support measures have contained excessive price swings. The Shanghai Composite Index advanced for a fourth day, finishing above 4,000 for the first time since July 1. It rose 0.6 percent to 4,017.68. The ChiNext small-caps gauge, dominated by technology and new economy stocks, rose 1.2 percent, adding to a rally of more than 20 percent since the July low.

Regional casinos succeed in U.S. revitalized gambling panorama Houston billionaire Tilman Fertitta is gaining a solid position amid established tycoons

ome to swamp tours, refineries and petrochemical plants, not to mention the occasional alligator, Lake Charles isn’t often mistaken for Las Vegas. But the Louisiana city’s becoming a bright spot among recovering U.S. gambling destinations, with its three bustling casinos -the newest of which of has seven restaurants, five bars, a beach, a marina with deepwater yacht slips and a pool that’s open ’til 2:30 a.m. Eight months old, the Golden Nugget Hotel & Casino is attracting so many visitors it’s giving the competition a boost. Regulators credit the Nugget with helping lift gambling revenue at what the state calls riverboat casinos by 19.3 percent to US$179 million in May, making it the best month since they were legalized in 1991. The Nugget, built for US$700 million, has “far surpassed our expectations,” said Ronnie Jones, chairman of the Louisiana Gaming Control Board. “The market’s on fire.”

They have proven in Lake Charles that you can grow the market, if you build a product of substantial value and make it attractive William Hornbuckle, president of MGM Resorts

Gambling’s on an upswing across the U.S., a turnaround after a casino glut and a falloff in betting forced closures of half a dozen properties and several bankruptcies over the past year, including of Caesars Entertainment Corp.’s largest division. Lake Charles and the

BlackRock steps up mainland drive with new licence

Nugget, part of a chain owned by Houston billionaire Tilman Fertitta, could stumble if fickle gamblers retrench again -or next-door Texas makes good on threats to sanction casinos -- but for now it’s an example for companies like MGM Resorts International.

Fertitta’s recipe

Fertitta said the secret’s in his recipe for a regional casino, what he described as a first-class product for the everyman. “You don’t have to go to Vegas anymore,” said Fertitta, 58, whose net worth Forbes magazine estimates is US$2.7 billion. “It’s that nice.” The marble-topped checkin desk is equipped with builtin iPads, and the Blue Martini bar has 42 versions of the drink. Boutiques sell Breitling watches, Nanette Lepore fashions and handmade gourmet truffles. But it’s not all swank. There’s an all-you-caneat buffet, of course, and RV parking. Non-hotel guests can buy a day-pass to the pool -- complete with waterfall, slides, lazy river, swim-up

bar and mid-water daybeds -- for US$30. Normally a new entrant to a gaming market is a negative for veterans, but this one has been good to Pinnacle Entertainment Inc.’s L’Auberge, which is next door, and the Isle of Capri Casino Inc. property a few miles away. Jones, the gaming board head, said they’re benefiting from the Nugget, which has been attracting an average 353,000 visitors a month, according to the casino, or about five times the local population.

Gambler’s boardwalk

People tend to drop by more than one when they’re in town, and Fertitta made that easy for the L’Auberge; a boardwalk connects the two (key for gamblers who like to relocate if their luck’s running cold). “We’re seeing a younger demographic,” L’Auberge General Manager Keith Henson said. His casino-hotel’s sales were up 0.4 percent in the first five months of the year, while Isle of Capri’s were 2.9 percent higher.

Of course, that’s also due to the national comeback, spurred by rising home and stock prices and lower unemployment. In 20 states tracked by Well Fargo & Co., gambling revenue rose 4.9 percent in May, after falling 1.3 percent in 2014. Moody’s, which last June lowered its industry outlook to negative, this month raised it back to stable, citing in part growth from new properties such as the Nugget. The recovery’s precarious, according to Moody’s, because gambling is tied to mercurial discretionary income. Fertitta bought the 69-year-old Golden Nugget in Vegas and its sister in Laughlin, Nevada, in 2005. He now has five locations, after acquiring the Trump Marina Hotel & Casino in Atlantic City, New Jersey, in 2011 and an Isle of Capri property in Bixoli the following year and spending US$300 million upgrading and rebranding them. He has growth plans, though he wouldn’t share them. “Obviously,” he said, “we’re building a big gaming company.” Bloomberg News

Stockmanipulationprobeextended Central bank injects massive toShanghaiFreeTradeZone funds into policy lenders

.S. fund giant BlackRock Inc has won a special new licence that will allow it to raise funds in China directly for the first time, a senior executive told Reuters, paving the way for the world’s largest money manager to expand in the mainland. Speaking in an interview in Bangkok this week, BlackRock vice chairman Philipp Hildebrand, said his company was granted a so-called Qualified Domestic Limited Partnership (QDLP) license “reasonably recently”. He said BlackRock, with about US$4.5 trillion in assets, is committed to China and will “do whatever that entails” to provide asset management services there. At a time when China’s stock markets are gingerly recovering from their worst ever sell-off, the new licence allows BlackRock, which already has some operations in the country, greater freedom to raise funds onshore from domestic high net worth Chinese investors through a wholly owned fund management company. BlackRock now joins a handful of other global funds with QDLP licences including, Man Group Plc and Och-Ziff Capital Management Group. Although the Chinese authorities do not publish information on QDLP licenses, BlackRock is among the first traditional asset managers to receive such a license, according to people familiar with the matter

hina is investigating companies in Shanghai’s free-trade zone that allegedly exploited looser policy controls to manipulate the stock market, according to people familiar with the matter. The Shanghai zone companies may have fabricated cross-border trade to transfer capital into and out of China, said the people, who asked not to be identified because the probe hasn’t been made public. The investigation is part of a broader probe into accusations that some trading firms may have manipulated the stock and futures markets. The alleged malfeasance exposes some of the risks China faces as it opens up its capital account and seeks to make good on pledges in 2013 to give the market a more decisive role in the economy. “The regulation in the Shanghai free-trade zone will be stricter in the future as a result of the probe,” said Le Xia, a Hong Kong-based economist at Banco Bilbao Vizcaya Argentaria SA. “The Chinese government will be more cautious. The pace of capital account opening will probably slow in the near-term.” The team, led by Vice Minister of Public Security Meng Qingfeng, found signs some trading companies may have manipulated futures, and went to Shanghai on June 10, Xinhua said.

eople’s Bank of China and finance ministry will inject billions of dollars into the country’s policy banks, Caixin reported yesterday without specifying the source of its information. The People’s Bank of China will inject US$45 billion into the Export-Import Bank of China (EXIM) and the finance ministry will inject 100 billion yuan (US$16 billion) into the Agricultural Development Bank of China (ADBC), Caxin, a respected domestic financial magazine, reported. After this round of capital injection totalling $109 billion, the central bank will replace the finance ministry as the biggest shareholder in CDB and EXIM, Caixin said. In April, the State Council approved reform schemes for the country’s three major policy banks - CDB, EXIM and ADBC, requiring them to supplement capital, strengthen internal and external control, and build up sustainability. CDB is responsible for funding China’s large infrastructure investments at home and overseas. EXIM provides support for China’s “going out” strategy, facilitating trade and Chinese companies’ expansion abroad. ADBC is China’s major lender for agricultural business.

Reuters

Bloomberg News

Reuters