Closing editor: Luís Gonçalves
MOP 6.00
Avoiding austerity The warning signs are there. So says Co-Chairman and CEO of Melco Crown. Lawrence Ho says gaming revenues are very close to the austerity redline, as defined by the gov’t. On a more positive note, he believes the market has bottomed. Regardless, Studio City is on schedule, with the opening date to be revealed soon
Year IV
Number 842 Friday July 24, 2015
Publisher: Paulo A. Azevedo
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‘Adjustment’Biting Deeper Fewer gamblers. Fewer high-end retail customers. And fewer tourists. The new normal is pulling the statistics down to record lows. June posted its lowest tourist figures since September 2012. With last month’s 2.25 million visitor arrivals representing a plunge of 11.8 pct on May and 7.6 pct y-o-y. Driven primarily by the continuous drop in Mainland Chinese tourists. It was a mixed bag for visitors from other parts of the world, near and far Page
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Manulife net income grows 62.7 pct in 2014 Page 5 Chan Meng Kam’s association submits petition to CCAC Page 4 Government to bolster co-operation with Cape Verde Page 5
Private Property Registrations are down but still healthy. The Economic Services Bureau (DSE) received 3,459 applications for different types of industrial property registration during 2Q. Down 8.6 pct y-o-y. 95 pct registered trademarks in the city
Human Resources Office restructured for better grasp of employment situation Page 8
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Stimulating recovery Analysts are united on the point. A poll released yesterday is conclusive. It is expected the Chinese central bank and other authorities will undertake more measures to stimulate the economy
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HSI - Movers July 23
Bite worse than its bark?
Name
%Day
Sands China Ltd
+7.93
Galaxy Entertainment
+4.50
AIA Group Ltd
+2.18
Tingyi Cayman Islands
+1.96
Lenovo Group Ltd
+1.88
Hengan International
-0.67
China Merchants Hold
-0.67
Li & Fung Ltd
-0.81
China Unicom Hong Ko
-1.05
Gaming
Cheung Kong Property
-1.14
Of Mass, MICE and Men
Source: Bloomberg
The Society for Animal Protection in Macau. It will deliver a petition today bearing around 300,000 signatures. Demanding the gov’t close down the Canidrome. This and the future of its greyhounds were the topic of discussion at an ANIMA roundtable. Some 14 different organisations participated
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You can’t knock success. Better still, it presents the opportunity to knock the competition. Sands China has announced a better than expected profit for 2Q. Which CEO Sheldon Adelson sees as vindication of the company’s massand-MICE strategy, and the platform for a bit of bear baiting. The competition is inexperienced. And it’s making mistakes. And it won’t catch up to Sands China. Because the train has already left the station. Galaxy, in particular, was singled out
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July 24, 2015
Macau
Lawrence Ho: Further revenue decline may impose austerity on sector While the CEO of Melco Crown believes the market has bottomed he shares the same concern of the Secretary for Finance and Economy that further decline in revenue will require austerity measures João Santos Filipe
jsfilipe@macaubusinessdaily.com
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he Co-Chairman and CEO of Melco Crown said yesterday that revenues are very close to the level where the sector will have to implement austerity measures. Looking on the bright side, Lawrence Ho Yau Lung also explained that the market has probably reached bottom. “It’s difficult to say whether the market has reached bottom. It’s been stabilising at this level. It has probably bottomed but more important to us
It’s difficult to say whether the market has reached bottom. It’s been stabilising at this level. It has probably bottomed but more important to us and other operators is when it starts recovering. Everybody is looking forward to the recovery Lawrence Ho, Co-Chairman and CEO of Melco Crown
and other operators is when it starts recovering. Everybody is looking forward to the recovery”, Lawrence Ho said. “Even if it starts stabilising at this level, and based on what the Secretary for Finance said, this is close to the level where the government might need to look at austerity measures. If the government is looking at austerity measures maybe a lot of other gaming business operators will have to look at them, as well”, he added. Concerning the discussion on the universal smoking ban in casinos, the CEO of Melco Crown asked for the government to listen to the Legislative Assembly and the sector’s opinion. “Melco Crown has always been supportive of the Macau Government. On smoking control we support it. But as I read from the reports, the Legislative Assembly hopes that the government can do more consultation”, Mr. Ho said. “I hope that the government can listen to the Legislative Assembly, especially this year with the economic conditions. We support the health of our workers but for smoking lounges I still cannot see how it will hamper health”, he explained.
Studio City on schedule
Meanwhile, the co-founder of Melco Crown explained that work on the Cotai project, Studio City, has been smooth and that the opening date should be revealed soon. Previously, the company said the resort would open during the third quarter of this year. “Market conditions are very challenging but the construction
Lawrence Ho
process for our project has been very smooth. So far, progress is good. But we’re working hard on the remaining 5 per cent”, he said when asked if there were any delays in construction. The Co-Chairman of Melco Crown also spoke of his great expectations and confidence in the new project. “I am confident about it because of the attractions we’re introducing to the market, which is something that has truly never been done before. We hope this can stimulate more visitors to come here”, Mr. Ho said. Yesterday, Lawrence Ho attended the company’s celebration of the in-house programme ‘Back to School’, part of a partnership
ANIMA hosts roundtable condemning greyhound racing The Society for Animal Protection in Macau will deliver a petition today bearing around 300,000 signatures demanding the government close down the Canidrome
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he closure of Macau’s Canidrome and the future of its greyhounds were yesterday the topic of discussion of a roundtable organised by ANIMA, the Society for Animal Protection, at the Grand Coloane Resort. “We discussed what will happen to the animals kept at the Canidrome once it’s closed down”, the President of Anima, Albano Martins (pictured), explained.
with Luís Gonzaga Gomes LusoChinesa Secondary School and the Education and Youth Affairs Bureau. The programme of Melco Crown offers employees the opportunity to complete high school education. During the same ceremony, the company announced the winner of the Zaha Hadid Design Competition, which is part of the Melco Crown programme ‘Dare to Dream’, designed to promote local talent and qualifications. The competition, the winner of which was announced yesterday, challenged Macau students studying architecture locally or abroad to design a villa set in a landscape.
“We also discussed a worldwide strategy to put an end to the exploitation of greyhounds”, he added. The meeting was attended by 14 different organisations including the largest greyhound protection organisation in the United States GREY2K USA, and the British and Australian arms of the Royal Society for the Prevention of Cruelty to Animals. The event was also attended by organisations from Mainland China, Hong Kong and Taiwan. At the end of the roundtable a joint declaration was signed by all attendees outlining measures to fight the exploitation of greyhounds. In addition to the meeting, ANIMA will deliver a petition bearing around 300,000 signatures to the government today demanding the closure of the Canidrome. This question arises during a
time when the concession of the land given by the government where the track is sited is about to expire, namely on October 31. “We will not accept any other solution but the closure of the Canidorme. It does not make any sense to have this kind of cruelty in the most populated area of the world. It is good to remind [ourselves] that an average of 30 racing dogs are slaughtered every month”, Mr. Martins said. “On top of that, the Macau Yat Yuen Canidrome was supposed to invest MOP50 million in the area and that never happened”. The president of ANIMA also said the solution of combining greyhound and horseracing at the Macau Jockey Club in Taipa would not be acceptable to the organisation because the area is not large enough to accommodate dogs and horses. J.S.F.
Business Daily | 3
July 24, 2015
Macau
June visitor arrivals lowest in almost 3 years The downturn shows no sign of turning around. Last month, the total number of tourists to Macau was the lowest of the previous 32 months, since September 2012 Kam Leong
kamleong@macaubusinessdaily.com
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he city has seen visitor arrivals plunge by 7.6 per cent year-on-year to some 2.25 million, which is the lowest the territory has posted since September 2012, driven by the continuous drop in the number of Chinese Mainland tourists. According to the latest official data released by the Statistics and Census Services (DSEC), the number of visitor arrivals that the city registered last month, compared to 2.55 million in May, represents a notable decrease of 11.8 per cent. The slide is primarily due to tourists from the Mainland - the biggest visitor source of Macau, accounting for 63.8 per cent of the total who numbered only some 1.44 million, a year-on-year decline of 10.1 per cent. Those travelling under the Individual Visit Scheme, meanwhile, fell by 4.2 per cent to 644,207.
Of these Mainland Chinese tourists, 44 per cent were from Guangdong Province, amounting to 632,449 of the total, while the others derived mainly from Fujian Province and Hunan Province, totalling 66,804 and 59,448 of the total, respectively. In fact, in addition to the city’s biggest visitor market, it also saw visitors from most of its other Asian markets decline last month. Visitors from South Korea, which posted a year-on-year increase of 31.4 per cent in May, plunged 24.8 per cent year-on-year to 31,406 in June. The city also saw fewer Japanese tourists last month, with the number declining 13.3 per cent year-on-year to 20,991.
HK visitation improves
Meanwhile, the third biggest tourist source of Macau, Taiwan, saw the number of its residents coming to
the Special Administrative Region fall by 5.9 per cent year-on-year to 80,272. In addition, the number of tourists from India also declined 3.3 per cent yearon-year to 21,428. However, visitors from Hong Kong - the second biggest source of tourists, accounting for 23.3 per cent of the total - registered a slight increase of 2 per cent year-on-year, at 523,789. In addition, more visitors arrived from the Philippines, rosing 6.5 per cent to 22,222. For long-haul markets, tourist numbers from Australia and Russia fell 6 per cent and 19.1 per cent yearon-year, while those from the United States decreased 0.9 per cent year-on-year. By contrast, the number of tourists from the United Kingdom and Canada grew 7.7 per cent and 6.7 per cent year-on-year, respectively. Last month, the average
length of stay of visitors increased by 0.2 days yearon-year to 1.2 days. More than half, 52.1 per cent, of the city’s visitors are sameday visitors, staying in the territory only 0.2 days on average. Nevertheless, the length of stay of overnight visitors reached 2.2 days.
Accumulatively, visitor arrivals during the first half of the year totalled 14.8 million, down 3.5 per cent year-on-year, with visitors from the Mainland and Hong Kong dropping 4.2 per cent and 0.3 per cent yearon-year, while those form South Korea increased 9.6 per cent year-on-year.
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July 24, 2015
Macau
Human Resources Office Who’s that tapping? restructured for better grasp of employment situation opinion
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Pedro Cortés
Lawyer cortes@macau.ctm.net
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recent article in Ponto Final, the Portuguese daily newspaper, spotlights the contacts between Macau authorities and security companies in the acquisition of equipment enabling the police to invade our daily communications through nefarious forms. In the ever-evolving world of technology, it seems that Macau authorities don’t want to be left behind and the target now, in the pursuit of potential crime, is our private chats. I’m against all types of invasion. And not only myself. The legislators who structured the Criminal Procedure Code still in force, at least on paper, in Macau, are also against it. The code only authorises tapping in very specific situations: when there is an investigation of crimes with a maximum limit of over three years imprisonment or drug trafficking crimes, or prohibited guns, or smuggling crimes, or libel, threat, and invasion of private life, when committed through the telephone. We may concede that in 1996, when the Criminal Procedure Code was approved, communications were not as they are today and that the interpretation of ‘telephone’ can be wider in our time. This notwithstanding, tapping is a restricted ‘activity’ that cannot be used because on certain days the wind is blowing stronger than the day before if the agent wants to know what his wife was talking about with friends. In our point of view, the examples emanating from the National Security Agency and the information we got from Wikileaks seem to not be sufficient for our authorities to understand that life - free life - is one of the best gifts of the human race. When everybody hears and reads each others’ text messages, the freedom is immediately restricted. Do we want this? Or, ultimately, are we prepared for this? The idea of public powers is to protect a state’s citizens. The forecast now is to invade our day-to-day dealings, hopefully with decent criteria. Since I was a kid, my father told me to always step into the shoes of my counterparts before adopting any option. It would be advisable if our governors were citizens just for one day and figure out a situation where Big Brother would check e-mails, Skype conversations, whatsapps, wechat, etc. I’m sure they would not like to have their private life minutely scrutinised by any authority. There’s a danger of our future life being remote-controlled by an agency that knows when we go to the toilet or when we had a meal or when we had a secret affair. Information is power. But the mis-use of information acquired through invasion of our private behaviour should be criminalized, not enhanced. Some predict that newborns will be delivered into this life with a chip similar to those already used in pets. I certainly don’t want such a life. Do you? *Part-time lecturer at the Chinese University of Hong Kong
abour Affairs Bureau (DSAL) director Wong Chi Hong said the integration of the Human Resources Office into the Bureau will help the government better monitor the status of employing locals and outside workers. Speaking to media yesterday, the Bureau head said the integration of the Office is part of the initiative to streamline the administration’s structure. The Human Resources Office, established in 2007, was created to handle the employment applications of non-resident workers here, as well as collecting and analysing information about the nature of nonresident employment. The Office also suggests measures for employing nonresident workers. Secretary for Economy and Finance Lionel Leong Vai Tac mentioned on Tuesday that he hoped that the integration of the Office and the related legal changes could be made soon, although he did not say when the restructuring of the Office could be completed. Wong Chi Hong, also a former head of the Human Resources Office, said yesterday that the integration of the Office into the Bureau will not result in any changes in the number of staff currently working in the two units.
Chan Meng Kam’s association submits petition to CCAC
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ocal association The People’s Alliance of Macau, backed by legislator and businessman Chan Meng Kam (pictured), submitted a petition to the Commission Against Corruption (CCAC) yesterday, complaining that the graft watchdog had conducted illegal spying tactics on the association during the 2013 Legislative Assembly (AL) election.
Last week, a local court ruled that two elderly members of the association were guilty of the crime of vote-buying during the 2013 AL election. However, the association queries the legality of the investigation conducted by CCAC on the case, claiming the graft buster had infiltrated two undercover agents in the association illegally. Taking to reporters yesterday, association director Chan Tak Seng
stressed that his association will use everything it has to support the appeal of the case filed with the court. Claiming the association has been unjustly treated, Mr. Chan queried whether the graft watchdog had conducted similar methods of investigation into other local associations. He urged CCAC to release its investigation reports on the complaints it had received concerning the 2013 AL election. Three members of The People’s Alliance of Macau were directly elected to the Legislative Assembly during the 2013 election; namely, the leader, Chan Meng Kam, and Si Ka Lon and Song Pek Kei. Ms. Song said on Wednesday that the association has evidence showing that the two CCAC officials had intentionally concealed their true identity when joining the association. However, CCAC said in a statement on Tuesday night that its investigation into the bribery case was in accordance with local law. K.L.
Business Daily | 5
July 24, 2015
Macau Manulife net income grows 62.7 pct in 2014
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nsurer Manulife (International) Ltd. Macau branch registered a jump of 62.7 per cent year-on-year in net income for 2014, a notable improvement from the loss it posted one year ago, according to the company’s annual report released on Wednesday in the Official Gazette. Last year, the net income of the insurer reached MOP39 million (US$4.9 million), compared to a loss of MOP26.6 million that the company posted in 2013. Meanwhile, the premiums that the company generated from its direct services totalled MOP246.2 million in 2014, an increase of 23.6 per cent year-on-year from MOP199.1 million. On the other hand, Manulife granted a total of MOP73.3
million-worth of indemnity last year, with more than half, MOP40.4 million, for endowment insurance. Some MOP12.4 million-worth of dividends was allocated to the insured in the participating policy. ‘To meet the demands of the development of the Macau market, we added pensionable services [in 2014]…In addition, we [added] new marketing channels in banks,’ the company wrote in the report. The Canadian company, founded in 1984 and based in Hong Kong, offers life and health insurance, life protection and investment, critical illness protection, medical care, accident and disability protection, senior care and mortgage protection products. K.L.
Government to bolster co-operation with Cape Verde
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SAR Chief Executive Chui Sai On has met with the Minister of Tourism, Investment and Enterprise Development of the Republic of Cape Verde, Ms. Leonesa Fortes, to exchange views on strengthening bilateral co-operation. Mr. Chui said Macau and Cape Verde had laid a solid foundation for co-operation over the years and would forge closer ties in every respect. Ms. Fortes, visiting Macau for the first time, said Cape Verde was able to develop a leisure and tourism project thanks to the support of the Macau Government and its long-term friendly co-operative relations. She said Cape Verde-Macau co-operation had achieved good results, adding the Cape Verde Government would take
advantage of Macau’s network in trade and commercial services to step up ties with other Portuguese-speaking countries, and said she hoped to establish economic cooperation with the Mainland. The government would make concerted efforts to transform Macau into a commercial and trade co-operation services platform between China and the Portuguese-speaking countries, Mr. Chui stressed. The Secretary for Social Affairs and Culture, Mr Tam Chon Weng, who was also present at the meeting, said the tourism project in Cape Verde would further expand its cooperative scope with Macau. He also thanked the Chinese Embassy in Cape Verde for its long-term support in the co-operation.
Intellectual property rights applications reach 3,459 in Q2
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he Economic Services Bureau (DSE) received 3,459 applications for different types of industrial property registration during the second quarter of this year, according to the latest official data from the Bureau. The number represents a drop of 8.6 per cent compared to the 3,785 applications received during the second quarter of 2014, a decrease of 8.5 per cent quarter-onquarter. In fact, more than 95 per cent of these applications are
for registering trademarks in the city, some 3,299 of the total, a decline of 7.59 per cent quarter-on-quarter. Meanwhile, applications for the registration of invention patents, and their extension, amounted to 16 and 79 during the quarter, dropping 23.8 per cent and 15.05 per cent quarter-onquarter, respectively. In addition, the Bureau received fewer applications for registering industrial designs or models during the quarter, as the number
had decreased by 26.7 per cent quarter-on-quarter to 55, while applications for registering name and emblem of establishment had also plunged 62.5 per cent quarter-on-quarter to only 6. During the first half of the year, some 6,869 applications were filed with DSE accumulatively for such intellectual property rights, a jump of 9.7 per cent from 6,261 one year ago, according to official data. K.L.
Corporate
BNU credit card grand lucky draw BNU recently launched the BNU Credit Card Grand Lucky Draw promotion, with trips for two to the USA, New Zealand, France, Australia, Japan, South Korea and Thailand on offer. For every MOP5,000 spent on their BNU credit card before 15 March 2015 cardholders were entitled to one entry in the lucky draw. The prize presentation ceremony was held on 21 July, 2015 in BNU’s Main Branch. Ronald Kan, Executive Director of BNU, hosted the ceremony, presenting the
prizes to the winners. During the event, Ronald Kan announced that since the launch of BNU Asia Miles Visa Card at the beginning of this year it has also been a huge success. The number of applications is in accordance with initial projections and the bank is delighted to see the development. In addition, Ronald Kan mentioned another new product – the CUP Credit Card – a triple currency credit card which will be launched in September this year.
Studio City: Macau’s New Landmark in LEGO® bricks Onsite construction starts next week on Macau’s new landmark – a reproduction of Macau’s new US$3.2 billion Hollywoodinspired entertainment destination resort, Studio City. Unlike the real complex, this meticulous reconstruction, complete with Art-Deco exterior and iconic figure-8 Ferris wheel, has taken just two months to plan and develop – faithfully reproduced in LEGO. Andy Hung, the first-ever Greater China LEGO Certified Professional, has been commissioned to build a LEGO minifigure-
scale replica of Asia’s Entertainment Capital, in the world-famous brick and building system, at Studio City’s sister destination resort, City of Dreams. The 2.15-metre high model, created from more than one million LEGO pieces, is his first Macau exhibition since being awarded LEGO Certified Professional status, and will give visitors a thrilling first glimpse of the awe-inspiring Studio City complex, with mini-model interpretations of the imposing 30-metre ‘Heroes of Steel’ and stunning Art-Deco façade.
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July 24, 2015
Macau
Sheldon Adelson: The other guys can’t catch up with us The CEO and Chairman of Las Vegas Sands says other casino operators in Macau are making big mistakes and paying the price of inexperience João Santos Filipe
jsfilipe@macaubusinessdaily.com
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he MICE-focused strategy of Sands China put the company well in front of its competitors, who are making “big mistakes”, struggling
with inexperience and failing to sell their rooms. This was the opinion shared yesterday by Sheldon Adelson, the Chairman and CEO of Las Vegas Sands and Sands
China, in a conference call detailing the company’s results. “We’re struggling less than our competitors because we have a unique tool. It’s
called MICE (Meetings, Incentives, Conferences, and Exhibitions). They can’t fill up the rooms with MICE, we can. So that’s why our occupancy is higher, our rates, our high cash rates are higher, and we have more of the mass market in the casino”, Sheldon Adelson said. “When I fist envisioned the idea of the Cotai Strip, other people criticised me and said it was never going to work. Now everybody’s cutting off their arms to get into Cotai”, he continued. “Why all of a sudden have we jumped in the whole quarter into first place? SJM has got 25 to 30 gaming licences out there, bringing money to them… The other guys can’t catch up with us, the train has already left the station”. Last May, Galaxy started the new wave of casino openings in Cotai with Galaxy Phase II and Broadway. The American billionaire, however, said he can see his competitors making a big mistake.
Galaxy of mistakes
“Galaxy made an enormous mistake. The other
Sands China profit beats estimates on mass market share gains
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ands China Ltd.’s secondquarter profit beat analysts’ estimates as the Macau casino operator gained share among mass market gamblers, helping offset declines in high rollers. Adjusted property earnings before interest, taxes, depreciation and amortization at the Hong Konglisted unit of Las Vegas Sands Corp. fell 30 per cent to US$564.5 million from US$800.6 million a year earlier, according to the parent company’s earnings statement. That exceeded the US$508.5 million median estimates of six analysts surveyed by Bloomberg. Macau’s casino industry has fallen for more than a year hit by China’s economic slowdown and campaigns against corruption prompting Chinese high-stakes bettors, or VIPs, to avoid the city. The downturn has eased since February, and a surprise move by the Chinese government to relax travelling rules to Macau fans hopes that casino revenue is due for a recovery. Sands China, controlled by billionaire Sheldon Adelson, lifted its share of mass market gambling revenue in the second quarter to 31.8
per cent from 31 percent in the first quarter, Barclays Plc analysts led by Phoebe Tse wrote in a note. “We expect its mass revenues to grow again as we believe further restrictive policies are ending”. Macau gross gaming revenue for 2015 may fall 30 per cent to about 246.1 billion patacas (US$30.8 billion) according to the median estimate of 11 analysts surveyed by Bloomberg. They expect the industry
to rebound with a 4.5 per cent gain in 2016, according to the median estimate of 10 analysts.
Mass market appeal
Second-quarter net income at Sands China dropped 37 per cent to US$388.7 million, while revenue fell 26 per cent to US$1.77 billion, according to the parent company. Sands China stock has declined 19 per cent this year, compared
companies will make big mistakes. They’re already making big mistakes. Now don’t ask me what they are doing”, he said. “I can tell you the mistakes that have been made but I don’t want to make it public because I don’t want to stop them from making mistakes in the future; after all, we are competitors”. While recently the market has been flooded with promotions to fill hotel rooms, Sheldon Adelson said that his competitors are giving the rooms for free because of their lack of experience. “They don’t have the experience of selling the rooms. All they did was give them all away. We have this experience. I’m sorry to sound boastful like this but we have to look at reality. The reality is that our experience tells us what to do, when other people are confronting experiences they have never confronted before”, he said. In relation to the Parisian, Adelson said the Grand Opening should take place in about 12 months, meaning the resort would open during Summer next year.
with a 7.1 per cent rise in the city’s benchmark Hang Seng Index. Casinos have sought to boost their mass market appeal as Chinese President Xi Jinping’s continuing crackdown on graft widened from government officials to state-owned enterprises and extended to fugitives overseas, hurting VIP revenue as these high-stakes gamblers opted to lie low. Mainland Chinese passport holders were told they could visit Macau more frequently and stay longer while transiting the city, reversing a policy that was imposed a year ago. Easier travel from Mainland China would benefit operators such as Sands China, Galaxy Entertainment Group Ltd. and Melco Crown Entertainment Ltd., which have opened or are opening new casinos in the coming year. Sands China is building the US$2.7 billion Parisian Macao, its fifth casino featuring a half-sized Eiffel Tower. The new casinos offer hope for the companies, which are focusing more on mass market gamblers, a segment that is generally more stable and profitable, Bloomberg Intelligence analysts Margaret Huang and Tim Craighead wrote on July 16. The government’s proposal for a complete smoking ban in casinos, which will include rooms reserved for VIP gamblers and abolish the airport-style smoking lounges that are currently allowed, could be an impediment to the hoped-for recovery. Bloomberg
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July 24, 2015
Gaming
Caesars falls 50 pct on court ruling, may spur bankruptcy The ruling by a U.S. bankruptcy judge this week deprives the casino giant of the breathing room it sought to get its financial house in order after taking on massive debts in a US$30.7 billion leveraged buyout
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aesars Entertainment Corp. may be forced to make major financial concessions to creditors to avoid bankruptcy after a judge said the casino company must face lawsuits with the potential to cost billions more than it can afford. The ruling by U.S. bankruptcy judge A. Benjamin Goldgar in Chicago this week deprives the casino giant of breathing room it sought to get its financial house in order after taking on massive debts in a US$30.7 billion leveraged buyout. The shares dropped 41 per cent. While Caesars’ main operating unit, which filed for bankruptcy in January, is shielded through an automatic stay of most litigation, the parent is not, Goldgar said. “The company lost a negotiating chip,” Erik Gordon, a law professor at the University of Michigan’s business school, said. “They will try to chug forward with a plan. That’s going to be a very rough road full of potholes because so far they’ve not been able to get the creditors together.” Creditors have accused Las Vegas-based Caesars of saddling the bankrupt unit with too much debt and too few assets, while the company’s private-equity owners, including Apollo Global Management and TPG Capital, seek to retain control of the more valuable parts of the company.
Shares plunge
Caesars shares fell 41 per cent to US$4.76 in New York trading on Wednesday, after plunging as much as 59 per cent. The stock is down 70 per cent this year. Wednesday’s ruling may give creditors including Appaloosa Management, Oaktree Capital Group, Tennenbaum Capital Partners and Centerbridge Partners more leverage in talks on a reorganisation plan. Those funds, which hold more than US$1 billion in the company’s so-called second-lien debt, have been Caesars’ main opponents in the bankruptcy. Second-lien bonds jumped after the ruling.
Caesars has been trying to persuade investors holding more than 50 per cent of the second-lien debt to sign a restructuring agreement that would pay them less than they are owed while still leaving Apollo and TPG with ownership stakes. Should more than 50 per cent of the second-liens agree, they might try to order the trustee behind the most threatening lawsuit in New York to drop the case, Julia Winters, an analyst at Bloomberg Intelligence, said.
Hard task
Getting there, however, may be very difficult using Caesars’ current offer, which is known as a restructuring support agreement, said Winters, a former bankruptcy lawyer. “I think the current RSA construct won’t woo the seconds with incremental improvements, now that they see US$12 billion in guarantee claims on the horizon,” Winters said. That means Caesars’ owners will need to trade more of their equity to creditors in exchange for eliminating debt, she said. It may be time for Apollo and TPG to drop their aggressive tactics, Gordon said. “They’re not going to come away with as much as they keep pushing for,” he said. “They keep getting slapped down.” In at least four lawsuits, creditors or a trustee representing them allege that the parent company is obligated to guarantee notes issued by the bankrupt Caesars Entertainment Operating Co., which is trying to eliminate about half its debt of almost US$20 billion.
Bankruptcy threat
If the creditors prevail in one of the cases, Caesars might be compelled to cover the unit’s debts. There wouldn’t be enough money to pay a multibillion-dollar judgment and the company might be forced into bankruptcy, a financial advisor for the operating company has testified.
The operating unit argued that temporarily halting the lawsuits would permit it to keep negotiating with creditors in the hope of winning enough support for a plan that would allow it to exit Chapter 11. Goldgar denied the operating unit’s request, citing a list of legal precedents that he said argued against extending any protection to the parent. The lawsuits attack restructuring actions Caesars took in the years before the operating unit’s bankruptcy, including transferring assets and stripping noteholders of guarantees that the parent would repay the unit’s debts. Creditors claim those actions were designed to protect the private-equity owners, Apollo and TPG.
Leon Black
Apollo, run by billionaire Leon Black, along with TPG and co-investors, put up US$4.4 billion of equity for Caesars’ buyout, which was struck before the credit crisis unfolded in 2008. In 2013, Apollo and TPG injected at least US$600 million in Caesars Growth Partners LLC, a group of casinos spun out of the company that year. In some of the lawsuits, lowerpriority creditors accused company officials of intentionally creating a “good Caesars” with valuable assets and lower debt and a “bad Caesars” that would be put into bankruptcy, where debts can be wiped out. Caesars denies the allegations, arguing that its actions were legal and necessary. The company and the creditors will now focus on a lawsuit in Manhattan that is in the most advanced stages. In a preliminary ruling, U.S. District Judge Shira Scheindlin has already said Caesars’ creditors can seek a quicker-than-normal decision on whether the company violated federal law.
‘Strong’ defences
“We believe our defences in the New York litigation are strong, and will continue to contest those
cases vigorously,” Stephen Cohen, a company spokesman, said. “The bankruptcy court’s ruling was a technical interpretation of bankruptcy law and did not address in any way the merits of the New York litigation.” Caesars has tried for months to persuade various groups of senior and junior creditors to sign a restructuring support agreement that would allow Apollo and TPG to retain a stake in the operating unit and permanently halt the lawsuits. In most bankruptcy cases, company owners can’t retain any equity until they repay all debt in full. Caesars is pushing to be among the rare exceptions to that rule. Almost all of the lowest-ranking creditors, who hold unsecured debt that’s not backed by any collateral, have rejected the offer. First-lien bondholders and other higher-ranked creditors are divided. A majority of the senior bondholders signed the restructuring support agreement, while other creditors have so far refused.
Non-signers
A majority of Caesars’ most senior lenders, investors who hold US$2.8 billion out of US$5.4 billion in guaranteed bank debt, plus juniorranked creditors, haven’t signed the agreement, according to court filings. The operating unit’s largest second-lien bond, US$3.6 billion of 10 per cent notes due in 2018, climbed 4.5 cents to 32.8 cents on the dollar at 3:44 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Some second-lien bondholders who also are major shareholders in Caesars have agreed to the restructuring proposal. Caesars reached an agreement Monday with a group that includes Paulson & Co., Canyon Partners and Soros Fund Management, who are among the top 10 shareholders. They saw the value of their shares plunge Wednesday while the value of their bonds rose. Bloomberg
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July 24, 2015
Greater China
Stock rescue has US$800 billion bark, small market bite Authorities have produced the equivalent of less than 1 index point gain for every US$1 billion committed Pete Sweeney
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hina has enlisted US$800 billion worth of public and private money to prop up its wobbly stock markets, a Reuters analysis shows, but the impact of the unprecedented government-orchestrated rescue has so far been modest. Public statements, media reports and market data reveal that Beijing unleashed 5 trillion yuan ($805.2 billion) in funds - equivalent to nearly 10 percent of China's GDP in 2014 and greater than the 4 trillion yuan it committed in response to the global financial crisis - to calm a savage share sell-off. But while the 2008 stimulus package staved off recession, analysts wonder what benefit the stock rescue package can bring to offset the risk the government is buying stocks at valuations private investors are no longer willing to pay. "I'm quite negative towards the rescue," said Yang Weixiao, analyst at Founder Securities in Beijing. "The problem is, all these measures only change the supply-demand relationship, without changing the fundamentals. So there's no real support, and the calm could be only temporary. If the governments exits the bailout, prices could accelerate their journey back to fundamentals." Indeed, there are already some signs the government may be backing off from aggressive share purchases. A plan to raise 100 billion yuan via short-term bills by China Securities Finance Corp (CSFC), the statebacked institution that provides margin financing, has been delayed, four sources familiar with the matter told Reuters on Monday.
Yesterday the CSFC admitted that it had reduced stakes in some listed companies to bring it below a regulatory threshold, but said it had transferred the shares, not sold them. Respected private finance magazine Caijing also reported that the CSRC was considering withdrawing money from a stabilization fund, although CSRC denied the story. It's hard to tell how much state money has actually flowed into the market, given the opacity of some of the investing institutions through which it has been channelled. But Beijing's policy goal is not to prop up values by buying the stock market outright, but rather to entice private money back to the
KEY POINTS China stock market rescue measures add up to 5 trillion yuan Impact so far equivalent to less than 1 index point per $1 bln Hard to tell how much state cash has actually gone into market Despite June-July slump, China stock valuations remain high
market, surfing a wave of incoming government money. "Presumably the whole point is to say that you are going to spend this money, and then by saying it you don't actually have to spend it," said Andrew Batson, an economist at Gavekal Dragonomics in Beijing.
Rescue package
The combined measures, rolled out in a flurry of announcements earlier this month, included a 120 billion yuan stabilisation fund created by a core group of brokerages and 1.3 trillion worth of bank loans to state-backed margin finance companies. Potential inflows created by tweaking investment rules for pension funds amount to 600 billion yuan, while allowing insurers to invest up to 40 percent of their assets in stocks could generate an estimated 2.9 trillion yuan. There have also been high profile share buybacks announced by key stakeholders, and funds invested by the state-owned asset manager Central Huijin. All that followed a doublebarrelled burst of monetary policy stimulus by the central bank in late June that also explicitly targeted stock market stabilisation. But the response of private money to Beijing's enticements has been lukewarm. While the market has stabilised, with the Shanghai Composite Index recovering around 17 percent from a low point struck on July 8, it is still far below the semi-official recovery target of 4,500 points.
Beijing has thus so far produced the equivalent of less than 1 index point gain for every US$1 billion committed. And its market stability remains untested given the large numbers of companies still subject to trading halts. An analysis by Everbright Securities of fund flow data showed that while government flows into two mutual funds targeted for government intervention rose sharply in recent weeks, private inflows into new stock funds have collapsed. The other major problem with Beijing's strategy, Batson at Gavekal Dragonomics pointed out, is that many Chinese firms are still trading at stratospheric valuations. Even after the early-summer meltdown that saw markets shed around a third of their value in a little more than three weeks, the Shanghai Composite Index is still up nearly 100 percent from 12 months ago, with an average price-to-earnings ratio of 17.64 - higher than the Dow Jones Industrial average P/E of 16.12. The average P/E on the Shenzhen stock exchange is 47.23, while the small-cap ChiNext growth board is a heady 98.07. "If valuations are mean-reverting over time, which a lot of people think they are, that means that valuations could go down in the future," said Batson. "Which means that whatever buying the government does today could end up imposing a longer-term financial cost." Reuters
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July 24, 2015
Asia
Xi hones next economic blueprint Challenges include bringing down remaining barriers between China and the international economy and encouraging the upgrading of manufacturing Enda Curran and Ting Shi
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fter assembling rescues of indebted local governments and a plunging stock market for much of the year, China’s leadership gets an opportunity to revive their narrative of economic
reform at a gathering now set for October. Ahead of the Communist Party’s so-called Fifth Plenum in three months, President Xi Jinping (pictured) has been gathering in
recent weeks with provincial party bosses. Central to the talks has been the nation’s next five-year plan, where a key challenge will be how to deliver on promises to ease state control over the economy.
With a 2013 pledge to give a decisive role to markets seen by some investors as tarnished by regulators’ handling of a stocks surge and subsequent plunge, Xi’s blueprint could refocus attention on changes
State margin lender says didn’t violate share sale rules The reports follow documents published by the Shanghai Stock Exchange on Wednesday that showed the lender cut its stake in a major dairy producer Pete Sweeney
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he China Securities Finance Corp (CSFC) denied yesterday it had sold shares in violation of regulations during the recent market rout, but admitted it had reduced its holdings in some companies by transferring stakes. The state-owned margin lender, Beijing’s leading institution trying to prop up the wobbly stock market, told state media it had not sold off shares in any listed firm but had transferred shares it bought during the rescue period to unnamed mutual funds in order to bring itself below a regulatory threshold. The denial to the Shanghai Securities Journal and the Xinhua News Service among others, highlights the wary mood of Chinese stock market investors, who have become highly sensitive to any signs that the government’s commitment to putting more funds into the market to restart a bull market is flagging.
Shanghai Stock Exchange building
The reports follow documents published by the Shanghai Stock Exchange on Wednesday that showed the CSFC cut its stake in a major dairy producer below 5 percent. Regulations issued by the China Securities Regulatory Commission (CSRC) on July 8 prohibited major stakeholders in Chinese listed companies - those holding more than 5 percent in a given firm - from selling shares for six months, threatening strict punishment. The block on sales was part of an overall policy package, including increased investment from state-owned financial institutions and others, to support the market after it plunged nearly 30 percent in just a few weeks from mid-June. But in the process of buying shares to stem the sell-off, the CSFC, controlled by the CSRC, appears to have inadvertently acquired stakes over 5 percent, media reports said. For example, CSFC held two tranches of shares in Inner Mongolia Yili Industrial Group,
representing 3.39 percent and 2.66 percent of the company’s total shares on July 9, the stock exchange statement showed. That brings the total stake to 6.05 percent. However, CSFC’s holding in one of the tranches declined to 1.62 percent by July 17, bringing its total stake below 5 percent to 4.28 percent, the statement said. CSFC could not be immediately reached by Reuters for comment. Calls to the CSRC requesting comment were not answered. The Hong Kong Securities Clearing Co (HKSCC) also reduced its stake from 5.22 percent to 4.92 percent over the same period, according to the statement. The HKSCC is a wholly-owned subsidiary of the Hong Kong Exchanges and Clearing Ltd (HKEx) and can act as a nominee or proxy for other investors. The HKEx said it is not the beneficial owner of the shares in an emailed statement to Reuters. Reuters
Business Daily | 11
July 24, 2015
Asia to the social and economic landscape for years to come. Among central topics will be the role and structure of state-owned enterprises, oversight of energy prices, and what to do with the current 7 percent growth target. “Here lies the credibility of the leadership,” said Zhang Wenkui, a senior researcher at the Development Research Centre, a unit of the State Council, or China’s cabinet. The fiveyear plan “is supposed to make the Chinese Dream happen.” Xi, who will mark three years as the party’s general secretary this autumn, has championed a vision of becoming a “moderately well-off society” by 2020, with gross domestic product and per-capita income levels double those of 2010.
Lagging reforms
While progress has been made in shifting the Chinese economy’s reliance toward the consumer --
The Xi leadership needs to move from an era of promises to one of active implementation Kerry Brown, director of China Studies Centre, University of Sydney
and away from exports and heavily polluting industries such as steel -moves to introduce greater private sector competition and reduce politically driven credit allocation have lagged behind. “The Xi leadership needs to move from an era of promises to one of active implementation,” said Kerry Brown, director of the China Studies Centre at the University of Sydney, who previously worked at the British embassy in Beijing. “We are now almost three years into this new era and the honeymoon is long over.” A draft of the 2016-2020 plan is complete and the government is seeking comments from local officials and experts, China Business News reported this week. Xi has been at the centre of the planning process, holding meetings with party bosses of at least 18 provinces in the past three months, according to the official Xinhua News Agency. Current and retired Communist Party leaders are set to discuss the proposals in the coming weeks during their annual conclave at the Yellow Sea resort area of Beidaihe, more than 200 kilometres from the capital.
Urbanization Push
Their challenges include limiting population growth in some toptier cities, such as Beijing, and encouraging rural migrants to move elsewhere. Expanding the nation’s social-security system, reforming rural landholdings and giving families of internal migrants access to public services including education and health are other key areas. “One area where people are looking for more movement on is state-owned enterprise reform, which would have significant repercussions across the economy,” said Mark Williams, chief Asia economist at Capital Economics Ltd. in London.
“Some sort of privatization and breaking up of the big entities” is needed, he said. Bringing down remaining barriers between China and the international economy, encouraging the upgrading of manufacturing, reforming energy pricing and supporting smaller enterprises are among the points to watch, said Han Meng, a senior researcher at the Institute of Economics of the Chinese Academy of Social Sciences in Beijing. “The GDP target can be lower and growth rate slower, around 6.8 percent is likely,” Han also said. That would match the International Monetary Fund’s projection for this year, a pace that would be the weakest since 1990.
Growth target
One option would be to abandon the annual growth target, a move that could allow policy makers to take more risks, according to Levin Zhu, former head of China International Capital Corp. “If they can let go the GDP target, we probably can have a more rational, systematic reform” of state-owned enterprises, Zhu said on a panel at a conference in Singapore earlier this week.
Letting go hasn’t been easy.
The government’s recent measures to stem losses in the stock market have set back its stated aim of increasing the role of markets in the economy, Standard & Poor’s said yesterday. “We believe the central government has shown a reduced regard for longterm implications when addressing immediate risks,” S&P credit analyst Kim Eng Tan said in a press statement. “Such actions put policy credibility and effectiveness into question.” Bloomberg News
More policy easing seen to lift sputtering economy Annual inflation is forecast to average 1.5 percent this year
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hina looks set to further reduce interest rates and the amount of cash that its banks must hold as reserves to keep its economy growing at 7 percent this year, the slowest pace in a quarter of a century, a Reuters poll showed. Additional policy support would make it the most aggressive easing cycle overseen by the People’s Bank of China (PBOC) since the height of the 2008/09 global financial crisis. A 25-basis-point reduction in interest rates and another 100 basis points of cuts in the reserve requirement ratio (RRR) are expected
by December, analysts surveyed by Reuters said. To stoke activity, the central bank has cut lending rates four times since November to 4.85 percent, and thrice reduced the amount of cash that the biggest banks must hold as reserves to 18.5 percent. The string of policy loosening steps should help the world’s secondlargest economy expand 7 percent this year, the poll showed, though the outlook for 2016 is expected to worsen slightly. The economy is seen growing 6.7 percent next year, according to the
People’s Bank of China headquarters in Beijing
median forecast of 39 analysts, down a touch from a forecast of 6.8 percent in April. Wagers on a further cooling in the Chinese economy contrasts with government data released last week that showed growth holding steady at 7 percent between April and June, unchanged from the first three months of the year. “Although recent data point to signs of stabilization, the recovery remains at an early stage, thus warranting further easing to sustain the improvement,” Qu Hongbin, an economist at HSBC, wrote in a report. The Chinese economy has faced a difficult period this year, as decelerating growth in factory output, retail sales and domestic investment has been compounded by a slowing property market. Analysts see a challenging year ahead as stress in the industrial sector and sluggish domestic demand keep authorities busy pump-priming activity. Moderating economic growth is expected to keep price pressures muted. Annual inflation is forecast to average 1.5 percent this year, half of the government’s 2015 target of 3 percent, before quickening a touch to 2.0 percent next year. Reuters
Banks’ forex settlement deficit expands in H1 China continued to see a deficit in its foreign exchange settlement in the first half of the year with expanded volume from that in the second half of 2014, official data showed yesterday. Chinese lenders bought US$866.5 billion’s worth of foreign currency and sold US$971.9 billion, resulting in a net sale of US$105.4 billion, said Wang Chunying, spokeswoman with the State Administration of Foreign Exchange. The forex settlement deficit stood at US$62.5 billion in the second half of 2014 and China continued to see a surplus in its foreign exchange settlement in 2014, but the volume narrowed significantly.
Tsinghua still in Micron talks China’s Tsinghua Holdings is still discussing a potential deal to buy U.S. chipmaker Micron Technology Inc and hopes it could eventually go through, the state-backed investment company’s chairman told Reuters yesterday. Sources told Reuters earlier this week that Micron has dismissed an informal US$23 billion offer from Tsinghua Unigroup, a private equity subsidiary of Tsinghua Holdings, on the presumption that a deal would be blocked by U.S. regulators. The mooted takeover of the last remaining U.S. dynamic memory chipmaker would be the largest foreign deal by a Chinese company.
Wal-Mart buys Mainland ecommerce company Wal-Mart Stores Inc has taken full ownership of Chinese e-commerce firm Yihaodian.com, buying out the 49 percent stake that it did not already own to accelerate its push online, the U.S. retail giant said yesterday. The investment will help WalMart target China’s fast-growing online market at a time when largely brick and mortar retailers are feeling the pinch of competition from online rivals and a slowing of the world’s second-largest economy. Wal-Mart’s move also comes after China said last month it will allow full foreign ownership of some e-commerce businesses.
Electrical steel anti-dumping investigation starts The Ministry of Commerce (MOC) yesterday began looking into dumping allegations for grain-oriented flat-rolled electrical steel imported from Japan, the Republic of Korea and the European Union (EU). The MOC will try to determine whether the imports have damaged or affected domestic producers’ interests, the ministry said in a statement. The investigation started on July 23, the statement said.
Brokerage firm seeks funding for own margin business Brokerage Central China Securities Holdings Co Ltd is seeking to raise about $330 million by selling new shares to fund its margin finance business, IFR said yesterday, citing a term sheet. The capital raising is the first by a brokerage since a stock market plunge earlier this month that wiped out more than US$3 trillion of investors’ wealth. Before then, Chinese brokers had raised about US$30 billion so far this year to meet unprecedented demand for margin finance from retail investors. Excessive leverage positions in the stock market were partly to blame for the market meltdown, analysts said.
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July 24, 2015
Asia
South Korea records worst growth in over 6 years The economy expanded 2.2 percent in the June quarter from a year earlier Christine Kim
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outh Korea’s economy recorded its weakest expansion in six years in the second quarter, battered by a deadly virus outbreak, dry weather and poor exports, adding pressure on lawmakers to swiftly pass a pending supplementary budget. The economy grew just 0.3 percent in April-June over the previous quarter, the Bank of Korea (BOK) estimated yesterday, the slowest since the first quarter of 2009 as consumption was pummelled by an outbreak of Middle East Respiratory Syndrome (MERS). The data follows 0.8 percent growth in the first quarter on a sequential basis while the median forecast from a Reuters survey was 0.4 percent. “We’re seeing local consumption coming back but it’s going to take some time for tourism to recover past levels,” said Jeon Seung-cheol, director general of the central bank’s economic statistics department. “As for the drought, increasing rainfall has helped us reach a turning point but the effects still remain as some farm product prices are higher than last year’s.” Huh Jae-hwan, an economist at Daewoo Securities said it would be difficult for the economy to grow
KEY POINTS Q2 GDP +0.3 pct s/adj q/q (Reuters poll +0.4 pct) Q2 GDP +2.2 pct y/y (Reuters poll +2.3 pct) Quarterly growth weakest since Q1 2009 Bank of Korea Governor Lee Ju-yeol (pictured) said the decline in the tourism industry from MERS would cut 2015 GDP growth by 0.1 percentage point
by over 1 percent in the following quarters, the government’s current target. The economy expanded 2.2 percent in the June quarter from a year earlier, slowing from 2.5 percent growth in the first quarter. Private consumption fell 0.3 percent in quarterly terms, marking the sharpest fall since the second quarter of 2014 as MERS infected 186 people, 36 of whom died. BOK Governor Lee Ju-yeol said the decline
in the tourism industry from MERS would cut 2015 GDP growth by 0.1 percentage point. The outbreak has since died down, but visitors have been slow to return. “Only two to three buses come a day now, when before MERS we saw 100 daily,” said a manager at Seoul’s Dongwha Duty Free. “Just because they say on TV MERS is gone doesn’t mean the tourists are going to come back overnight. We think things will turn around starting August.”
MERS, drought effects dissipating, but slowly The bank’s base rate currently stands at 1.50 percent while it sees 2.8 percent growth this year. Huh said it would be unlikely for the central bank to cut rates again, given mounting household debt. Yesterday’s data showed the drought cut farm output by 11.1 percent in the second quarter versus the first, its worst fall since the first quarter of 1990. Exports continue to struggle with no clear sign of a pickup.
New Zealand central bank cuts rates A slowdown in major trading partner China and cooling domestic inflation have policy makers worried Naomi Tajitsu
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ew Zealand’s central bank cut its policy rate by a quarter percentage point yesterday in response to a slowing economy, and looks set to return rates to levels during the depths of the global financial crisis. The New Zealand dollar rallied on the decision as some had expected a more aggressive 50-basis-point reduction, highlighting how a collapse in dairy prices is squeezing an economy that was the envy of the developed world only a few months ago. The Reserve Bank of New Zealand cut its official cash
rate (OCR) by 25 basis points to 3.0 percent, the second cut in as many months in a stark shift from 2014 when it tightened rates by 100 basis points. “A reduction in the OCR is warranted by the softening in
the economic outlook and low inflation,” RBNZ Governor Graeme Wheeler (pictured) said in a statement. “At this point, some further easing seems likely,” Wheeler said, backing market
expectations for rates to fall toward 2.50 percent by year-end - matching levels seen during the 2009 global financial crisis. In the past few months the economy has started to show cracks after galloping at an enviable 3.0 percent-plus growth rate until the end of last year. A slowdown in major trading partner China - a big buyer of New Zealand’s key dairy products - and cooling domestic inflation have policy makers worried about an even bigger hit to the agriculture-based economy.
Reuters
“Clearly there still is an easing bias in there ... But I think like many central banks around the world there’s a large burden on the data,” said Tom Kennedy, economist at JPMorgan in Sydney. All 13 economists polled by Reuters after Thursday’s announcement are predicting another 25-basis point easing at the next policy review in September.
Dairy woes
The past month alone has seen a roughly 20 percent fall in global dairy prices, substantially hurting farmer incomes. Business and consumer sentiment has sunk to threeyear lows, as annual economic growth, which eased to 2.6 percent in the first quarter, shows signs of cooling further. Adding to the economic risks is persistently sluggish domestic inflation, which is running at an annual 0.3 percent rate - well below the midpoint of the RBNZ’s 1-3 percent target range over the medium term. Reuters
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July 24, 2015
Asia Japan’s trade deficit narrows 92% on jump in exports
Indonesian rupiah hits 17-year low
Despite exports to China rising a modest 2.2 per cent since January
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rade deficit narrowed sharply last month as exports of automobiles and electronic parts picked up while a sky-high energy import bill continues to fall, finance ministry data showed yesterday. The country’s trade deficit came in at 69.0 billion yen (US$556 million), plunging 91.7 percent from a 834.0 billion yen deficit a year ago, and offering some good news for an economy struggling to gain traction. In June, the value of imports jumped 9.5 percent while imports were down 2.9 percent. Over the six months through June the deficit shrank 77.4 percent as weak commodity prices helped bring down Japan’s energy bill, which soared after it had to replace nuclear power in the aftermath of the Fukushima nuclear crisis. Oil prices fell Wednesday after US government data showed higher crude stockpiles -- cheaper energy is generally good news for resourcepoor Japan “Exports will gradually regain strength toward the second half of this year,” said Akiyoshi Takumori, an economist at Sumitomo Mitsui Asset Management. “External demand will support the economy.” Japan’s exports to the key North American market were up 16.9 percent over the first half of the
year, 5.1 percent to European Union countries while exports to China rose a less robust 2.2 percent since January, the data showed. But export volumes barely budged and there are fears about a slowdown in China, a major trading partner with Japan. “China will continue to pose a risk to Japan’s economy,” said Atsushi Takeda, an economist at Itochu Corp. Japan’s central bank this month cut its annual growth and inflation forecasts for the world’s third-largest economy, with analysts warning weaknesses remained and the downgrade hinted at a disappointing second quarter. The economy expanded 1.0 percent in January-March after limping out of recession in the last three months of 2014, and business confidence remains strong.
But consumer spending has struggled after a sales tax rise last year and economists widely expect the Bank of Japan to ramp up its monetary easing programme, likely later this year, to bring Japan closer to its inflation target. The target is a cornerstone of Prime Minister Shinzo Abe’s drive to conquer years of stagnant or falling prices and revive the economy. Marcel Thieliant from Capital Economics warned that the beneficial impact of falling gas and oil prices on Japan’s trade balance was running out of steam as the yen continues to weaken against the dollar. “The decline in gas prices, which follow crude oil prices with a lag of around six months, has now run its course,” Thieliant said in a commentary. AFP
Singapore's June consumer prices keep slipping
Indonesian authorities yesterday downplayed the weakening rupiah, which hit a fresh 17-year low against the dollar, saying it would not have a significant impact on Southeast Asia’s largest economy. The rupiah, the second worst performing Asian currency this year after the Malaysian ringgit, fell as much as 0.2 percent yesterday to 13,395 per dollar, its weakest since August 1998. “The ups and downs of the rupiah are normal. It will not have a big impact,” chief economics minister Sofyan Djalil told reporters.
ANZ raises interest rates on investment home loans Australia and New Zealand Banking Group (ANZ) is raising interest rates on loans for homes bought for investment purposes just days after tough new capital rules were unveiled, in a move that other lenders are likely to mirror. The Australian Prudential Regulatory Authority (APRA) announced on Monday that banks should have cash reserves equal to 25 percent of mortgage books by July 2016, up from 16 percent now. ANZ’s move also follows increasingly stern warnings from APRA to keep annual growth in investment home loans to below 10 percent.
Hyundai profit slides South Korea’s Hyundai Motor Co said its net profit slumped for the sixth quarter in a row, in line with forecasts, as weak sales in key markets like China and the United States and the won’s strength continue to shackle the automaker. The firm, which with affiliate Kia Motors ranks fifth in global auto sales, said yesterday its net profit fell 24 percent to 1.7 trillion won in April-June from 2.2 trillion won a year earlier. Second-quarter sales to China - its biggest market - dropped by around 8 percent.
The MAS core inflation gauge rose 0.2 percent from a year earlier Sydney median house price surpasses London ingapore's annual consumer in May, due to a pick-up in services
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prices fell for the eighth straight month in June, an outcome that could give the central bank room to ease policy if economic growth disappoints. The all-items consumer price index (CPI) in June fell 0.3 percent from a year earlier, official data showed on Thursday, in line with the median forecast in a Reuters survey. In May headline CPI fell 0.4 percent. The smaller drop in annual headline CPI was due to factors such as larger increases in the costs of food and private transport costs, the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) said. The MAS core inflation gauge rose 0.2 percent from a year earlier, up from a five-year low of 0.1 percent
and food-related costs. Core inflation excludes the prices of cars and accommodation, which are influenced more by government policies, and is the focus of monetary policy. The drop in the core inflation rate to a five-year low in May, coupled with a contraction in Singapore's economy in the second quarter, have put renewed focus on the possibility of a further easing of monetary policy later this year. Tim Condon, head of research Asia for ING Bank in Singapore, said any further loosening of monetary policy will likely depend on the outlook for growth. "Inflation is incapable of surprising at this point. They've slashed their forecasts and I think that's it," he said.
KEY POINTS June CPI -0.3 pct y/y vs -0.3 pct y/y forecast Core CPI +0.2 pct y/y vs +0.1 pct y/y forecast Annual headline, core CPI both edge up vs May figures Larger y/y rises in costsof private transport, food in June "People are now talking about them reducing the 2015 growth forecast...If they cut that, given the benign inflation outlook, that could argue for some increase in (monetary policy) accommodation." Condon expects the MAS will keep its monetary policy unchanged at the next scheduled policy review in October. Services inflation in June rose slightly to 0.55 percent on year, compared with 0.46 percent in May, MTI and MAS said. But accommodation costs in June fell 2.6 percent from a year earlier after a 2.5 percent drop in May. Reuters
Sydney’s median house price has topped the 1-million-Australian dollar threshold for the first time, according to figures released by real estate advertising group Domain yesterday. Growth over the June quarter saw Sydney home prices leap 8.4 percent to hit 1,000,616 Australian dollars (US$737,330), 22.9 percent for over the year, surpassing median prices in London and drawing closer to New York. Domain said that is the fastest annual pace of gain since at least the late-1980s, outdoing the property price boom of the early-2000s.
Aussie firm defies prime minister An Australian state-owned electricity firm will defy Prime Minister Tony Abbott and seek funding for a new wind farm hub from the government’s Clean Energy Finance Corp (CEFC), adding to uncertainty in the country’s No. 2 clean energy sector. Abbott has come under fire from investors after ordering the A$10 billion (US$7.45 billion) CEFC to stop investing in wind and solar power, saying wind farms are “visually awful” and CEFC could better invest in less established clean technology. Australia is one of the world’s biggest carbon emitters.
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International Daily Mail lowers guidance as advertising markets worsen The publisher of the Daily Mail newspaper and website said it had seen a “marked deterioration” in the British print advertising market that would result in full-year results coming in at the lower end of expectations. Total underlying advertising revenues across its DMG Media unit were down 6 percent in the three months to the end of June compared to last year, the company said. Ad revenue at Mail Online, the biggest newspaper website in Britain, attracting 25.3 million users in February according to comScore, grew 7 percent. That was not nearly enough to compensate for a 13 percent slump at its print titles.
Stronger rouble boosts Severstal’s net profit Severstal, one of Russia’s largest steel producers, saw its second-quarter net profit increase by 39 percent quarter-on-quarter because of a stronger rouble, it said yesterday. Severstal’s net profit of US$469 million was boosted by a FX translation profit of US$130 million, the company, controlled by billionaire Alexei Mordashov, said in a statement. Adjusting for this non-cash item, the company would have posted an underlying net profit of US$339 million, missing an estimate by analysts of US$358 million. Its revenue increased 18 percent quarter-on-quarter to US$1.8 billion, while EBITDA rose 0.9 percent to US$588 million.
PREPA bondholders propose restructuring Bondholders of Puerto Rico’s debt-laden public utility PREPA offered to refinance US$8 billion in debt by splitting it into two classes of bonds, a move they say would save PREPA US$2.5 billion in financing costs through 2025, according to an outline of the proposal made public by the bondholders yesterday. The plan, presented to PREPA on July 7, is the latest salvo in on-going restructuring talks between the power utility and creditors who hold about US$9 billion in total debt, and counters a June proposal from PREPA that has met resistance from creditors.
Screwfix drives Kingfisher’s better UK sales Kingfisher, Europe’s largest home improvements retailer, posted improved growth in both Britain and France in its latest 10-week sales yesterday, with the outcome in the UK and Ireland boosted by its Screwfix division. Sales at stores open more than a year rose 16.7 percent in the 10 weeks to July 11 at Screwfix, which supplies tools, plumbing and electrical equipment to Britain’s tradesmen and home improvement enthusiasts.
Roche sees two-year window before copycat Switzerland’s Roche expects no copycat competition to its biotech cancer drugs for another two years, giving it space to grow a successful portfolio of new and established medicines. The strategy is working so far, with group sales in the first half increasing by a slightly better-than-expected 3 percent as demand for oncology drugs helped offset the strength of the Swiss franc. Roche is the world’s largest maker of cancer drugs and investors are banking on its ability to stay ahead as it advances into the hot new field of immunotherapy.
Syngenta spars with suitor Monsanto over takeover Swiss company Syngenta is under pressure from shareholders to explain its stance Ludwig Burger
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yngenta and unwanted suitor Monsanto squabbled over an earnings report from the Swiss pesticides maker yesterday, with both sides claiming it strengthened their case in a US$45 billion takeover battle. Monsanto wants to combine its world-leading seeds business with Syngenta’s own seeds and pesticides. Syngenta has rejected the proposal and refused to open its books, despite the offer of a US$2 billion cash payment should the transaction fail to win regulatory approval. Both sides found fodder in the first half earnings report to press their argument. Adjusted earnings per share from Syngenta fell 6 percent and sales fell 10 percent in the first six months of the year but still exceeded average estimates in a Reuters poll. Adjusted for currency swings, sales rose 3 percent. “Syngenta in a strong position for negotiations on a combination with any other player in the industry. We consequently confirm our “Outperform” rating,” analyst Bernd Pomrehn of MainFirst bank wrote in a note. Syngenta said it did not need to do a deal. “Syngenta is not the one with the problem, Monsanto is the one with the problem that it is trying to solve on the back of our crop protection products,” Chief Executive Michael Mack told Reuters in a telephone interview. “I completely reject any suggestion that the company is incomplete in any way.” “Syngenta’s earnings announcement confirms it still does
not have a long-term vision or plan that would create the same value as Monsanto’s very attractive 449 Swiss franc [per share] proposal,” Monsanto Chairman Hugh Grant said in an emailed statement. “Monsanto remains ready to discuss with Syngenta a combination that would provide highly attractive returns to shareholders and would represent a transformational opportunity for global agriculture to meet the needs of farmers and broader society. The ball remains in their court.” Last week, Monsanto said it was far from going hostile for Syngenta, saying the U.S. firm was focused on trying to secure a negotiated deal. Syngenta is under pressure from shareholders to explain its stance. Hedge fund Paulson & Co has taken a stake in Syngenta, sources have said, and one of its top 20 investors, Henderson, criticised the company for limiting communication with all but the biggest investors to a YouTube video.
KEY POINTS Syngenta CEO says sees no need for deal Monsanto says it offers better solution for investors Syngenta first-half earnings and sales lower but beat expectations Mack claimed that Syngenta’s management was supported in rejecting Monsanto’s bid by a broad base of important investors. “We did talk to quite a few more than our top five shareholders, some of which are also shareholders of Monsanto... They are absolutely supportive of what we are embarking on here,” he told Reuters. Reuters
Falling Spanish jobless rate raises stakes in election Wages have dropped, and even as more jobs are created, many are temporary and precarious Sarah White and John Stonestreet
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pain’s jobless rate dropped to its lowest level in over three years in the second quarter, offering a boost to Prime Minister Mariano Rajoy as he seeks to persuade voters that an economic recovery is taking root. At 22.4 percent, the unemployment rate is still higher than anywhere else in Europe bar crisis-hit Greece and it has not dipped below a fifth of the workforce in five years, even after Spain exited recession in mid-2013. But it is now slightly lower than when Spaniards last voted in a general election, at the end of 2011, helping Rajoy deliver on a pledge to end his
term with fewer jobless. With voters set to head for the polls again by the end of this year, he is banking on an economic turnaround to win again, though unpopular austerity measures in recent years as well as corruption scandals have hurt his party’s standing. “We’re very well aware of the still long road ahead of us. (But) we’ve come from causing half of Europe’s unemployment to creating half of Europe’s jobs,” Rajoy said at an event in Madrid yesterday. “It’s a big change and it’s a change with a social face, bearing the names and surnames of real people.”
IHS Global Insight analysts Raj Badiani analyst said that while Rajoy’s government was now better placed to defend its pre-election narrative that the recovery was getting more inclusive, a key electoral battle will be to address the current standard of living crisis. Although the jobless rate was down from 23.8 percent in the first three months of this year, after close to 412,000 jobs were created in the April-June period as summer hiring in the services industry got underway, many Spaniards say they are yet to feel the benefits of this recovery. Reuters
Business Daily | 15
July 24, 2015
Opinion Business
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Leading reports from Asia’s best business newspapers
Irrationality and self-interest in pension funds James Saft
TAIPEI TIMES
Reuters columnist
Plans to expand the WTO’s Information Technology Agreement (ITA) tariff elimination program might not come to fruition if Taiwan insists on including flat panels on the list, Minister of Economic Affairs John Deng said yesterday. “Taiwanese information technology products account for 5 to 7 percent of the export value of global information technology products, which makes Taiwan a critical player in the ITA negotiations,” Deng told reporters. Last weekend, the US, China, South Korea and other WTO members reached a preliminary agreement to add 201 new IT items to the tariff-elimination list.
INQUIRER.NET The (Philippine) Securities and Exchange Commission (SEC) has warned the public not to fall prey to an investment scam perpetrated by a Laguna-based beauty product distribution company called F.L.A.G. Prosperity Marketing Inc., also known as Freedom Life Advanced Global Prosperity Marketing Inc. In an official advisory, SEC said that F.L.A.G. Prosperity Marketing was not authorized to solicit investments from the public, noting that this firm had not secured prior registration and/or license from the SEC to solicit investments as required under Section 8.1 of the Securities Regulation Code.
THE STRAITS TIMES The upcoming Singapore Savings Bonds and stricter rules on how much capital banks must hold may be driving lenders to offer enticing promotional rates for fixed deposits. A shortage of funds on deposit available to banks for lending might also have prompted them to step up the competition for cash. Putting US$25,000 into a 12-month fixed deposit now yields 1.5 per cent at OCBC and 1.45 per cent at Maybank, up from around 0.25 per cent to 0.7 per cent a year.
BANGKOK POST Thailand’s unemployment rate is likely to rise as manufacturers eye cheaper locations in the region, says the Employers’ Confederation of Thai Trade and Industry. EconThai vice-president Tanit Sorat said the group’s survey of 11 big industries found that 400 companies had considered a lay-off programme this year. Mr Tanit said the survey result, coupled with the recent relocations by LG and Samsung of their TV-making units to Vietnam, is an alarming sign for Thailand. Because of the economic slowdown globally and domestically, many companies have seen eroding orders from local and overseas markets in recent times.
Q:
What do you call a system in which everyone bets on something they don’t really think is going to happen? A: Institutional asset management. Why do pension fund and endowment sponsors pay so much attention to past performance by fund managers and to the recommendations of consultants when neither shows much evidence of being a useful gauge of the ability to outperform in the future? The answer, according to a new study, lies in two familiar forces which govern so much of human endeavour: irrationality combined with the desire to cover one’s own rear end. Some US$7.6 trillion of assets are controlled by U.S. institutional funds, a mix of public and private pension and charity or endowment funds. This money is overseen by plan sponsors, who manage the funds, choosing managers and strategies. Plan sponsors, in turn, rely on consultants, who help them to evaluate and choose fund managers for given mandates. A total of 94 percent of plan sponsors use consultants, according to data from Pensions and Investments Magazine. One of the great mysteries of this process is that sponsors appear to lean heavily on past performance, as well as on the recommendations of consultants, to help them choose fund managers, despite studies showing that neither strategy works particularly well. Howard Jones of the Saïd Business School, University of Oxford, and Jose Vicente Martinez of the University of Connecticut delved into the
data to try to determine why. Their new paper looked at 13 years of data from Greenwich Associates covering about half of all U.S. institutional equities holdings. Greenwich Associates polls sponsors on a variety of measures, allowing the authors to work out how plan sponsors actually expect managers to do in the future. Sadly expectations don’t seem to marry up with reality. “Neither plan sponsors’ expectations, nor past performance, nor the nonperformance factors they evaluate in their asset managers, reliably predict the performance of those asset managers,” Jones and Martinez write. “As for flows, we find that these are at best only marginally a function of plan sponsors’ expectations, but they are driven significantly by past performance and by investment consultants’ recommendations far beyond the effect that these have on expectations.”
Interestingly, past performance is a more important driver of flows than future expected performance
Career risk and irrationality In other words, all of the analysis done by plan sponsors doesn’t predict how managers will do, and even taking expectations into account they give money to the fund managers who’ve done well in the past anyway. As well as those who manage to get on the good side of consultants. Earlier research indicates that consultants do help to determine which funds get money, but find no evidence that these recommendations add value. So what on earth is going on? There is, after all, a fair bit of money at stake, not to mention
the retirement of a chunky proportion of the public. The authors find a fair bit of irrationality at work, as sponsors choose based on past performance and soft factors, like service, despite neither being a good indicator of future outcomes. What we also have is a good old-fashioned agency problem, in that the best interests of the plan sponsors as individuals are a good deal different than the best interests of the funds for which they act as agents.
“Plan sponsors chase past performance and consultants’ recommendations because they feel that, as a rationale for selecting asset managers, these indicators are more defensible to their superiors, stakeholders and, possibly, the courts than their own expectations are,” the authors write. Interestingly, past performance is a more important driver of flows than future expected performance. Perhaps that’s because it is a lot easier to point to a track record when in front of a judge, or just in an annual review, than say “I thought they’d outperform.” Plan sponsors window-dress their pension plans, according to the study, larding them with fund managers with recent strong track records. This is much like what mutual fund managers do, buying topperforming stocks just before mandatory reporting periods. And remember, we are not talking about mutual fund choices by amateurs. This is a money-intensive and sophisticated process, yet one which in the end seems to produce perverse results for perverse reasons. “The policy implications of this are sobering,” Jones and Martinez write. “For, as long as sponsors consider that they will be judged by others who do believe that past performance and consultants’ recommendations are informative about future performance, sponsors will behave as if they do so themselves, even if this is not the case.” Pension savers deserve something better. Reuters
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July 24, 2015
Closing Crude oil import opened to private refineries
Asian currency index declines to five-year low
China has given private refineries the green light to import crude oil, opening up a heavily-monopolized sector. The Ministry of Commerce yesterday specified the requirements for non-state companies to import crude. Qualified firms must have an annual refining capacity of over 2 million tonnes and meet efficiency and environmental standards. They should also have storage capacity for no less than 300,000 tonnes of crude, with terminals that can handle more than 50,000 tonnes. China is one of the world’s largest oil buyers. Nearly 60 percent of its oil consumption comes from imports. There are more than 20 qualified non-state importers.
A measure of Asian currencies dropped to a fiveyear low as South Korean data added to signs regional growth is slowing, just as a looming U.S. interest-rate increase may spur capital outflows. South Korea’s won (pictured) led losses as a report showed the economy expanded 2.2 percent in the three months through June, missing estimates and decelerating for a fifth straight quarter. Asian exports are already contracting as growth falters in China, the top destination for many of the region’s manufactured goods. Global funds have cut their equity holdings in six of eight Asian markets tracked by Bloomberg in July.
Iran eyes US$185 bln oil, gas projects after sanctions Many European companies have already signalled interest in re-establishing business in Iran Shadia Nasralla and Maria Sheahan
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ran outlined plans yesterday for the rebuilding of its core industries and trade links in the wake of a nuclear agreement with world powers, saying it was targeting oil and gas projects worth US$185 billion by 2020. Iran’s Minister of Industry, Mines and Trade Mohammad Reza Nematzadeh said the Islamic Republic would focus on its oil and gas, metals and car industries with an eye to exporting to Europe after sanctions have been lifted. “We are looking for a two-way trade as well as cooperation in development, design and engineering,” Nematzadeh told a conference in Vienna. “We are no longer interested in a unidirectional importation of goods and machinery from Europe,” he said. The United Nations Security Council on Monday endorsed a deal to end years of economic sanctions on
Iranian lawmakers listen to Foreign Minster Mohammad Javad Zarif (C) speaking in the Iranian parliament in Tehran to brief them about the nuclear deal with world powers agreed on 14 July in Vienna
Iran in return for curbs on its nuclear programme. Sanctions are unlikely to be removed until next year, diplomats say, as the deal requires approval by the U.S.
Congress. Nuclear inspectors must also confirm that Iran is complying with the terms of the deal. Iran’s deputy oil minister for commerce and
Indonesia raises import duties on consumer goods
China’s land price gains quicken in second quarter
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ndonesia raised import tariffs on food, clothes and many other consumer goods yesterday in a move to help domestic producers, though economists said it would fuel inflation and noted firms faced bigger problems than foreign competition. Indonesia’s economy is growing at its slowest pace for nearly six years - just 4.71 percent annually in the first quarter - and is struggling to develop new engines of growth to counter the weakness of the commodity sector. Suahasil Nazara, head of the finance ministry’s fiscal policy office told Reuters that the increased tariffs were “meant to push local industry”. Officials said that the new measures were consistent with World Trade Organisation rules. “This isn’t a protectionist measure,” said Bachrul Chairi, Director General of International Trade Cooperation at Trade Ministry. “We raised them (tariffs) based on our national interest and it does not violate the rules.” The new tariff on cars was fixed at 50 percent, from a range of 10 percent to 40 percent previously. Reuters
international affairs, Hossein Zamaninia, said Tehran had identified nearly 50 oil and gas projects worth US$185 billion that it hoped to sign by 2020.
In preparation for negotiations with possible foreign partners, Zamaninia said Iran had defined a new model contract which it calls its integrated petroleum contract (IPC). “This model contract addresses some of the deficiencies of the old buyback contract and it further aligns the short- and long-term interests of parties involved,” he said. He said Iran would introduce the oil and gas projects it has identified and the new contract in international markets later this year. Deputy Economy Minister Mohammad Khazaei said Iran had already completed negotiations with some European companies wanting to invest in the country. “We are recently witnessing the return of European investors to the country. Some of these negotiations have concluded, and we have approved and granted them the foreign investment licences and protections,” Khazaei told the conference. “Even in the past couple of weeks we have approved more than US$2 billion of projects in Iran by European companies,” he said, without naming the firms or providing further details. Nematzadeh said Iran aimed to join the World Trade Organization once political obstacles were removed and would be interested in preferred trade deals with Europe and central Asian countries. Reuters
Kenyan bank hosts yuan clearing centre
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rowth in China’s residential land prices quickened slightly in April-June against the previous three months, the land ministry said, adding to signs of stabilisation in the property market. China’s housing market has gained some momentum this year after a slew of government measures to support the sector. The average price of land used for residential homes in 105 major cities rose 1.0 percent to 5,359 yuan (US$863) per square meter in the second quarter compared with the January to March period, according to a statement on the ministry’s website. That compares with a 0.5 percent quarter-onquarter rise in the first quarter. The data coincided with figures last week showing China’s home prices rose for a second month in a row in June, on a monthly basis, indicating that government efforts to boost the struggling property sector have started to gain traction. Compared with a year earlier, residential land prices rose 2.7 percent in the second quarter, slowing from a 3.0 percent annual gain in the first quarter.
Kenyan bank has opened a new branch that will host a clearing house for Chinese renminbi (RMB) that would allow the settlement of trade deals to help boost economic growth. The National Bank of Kenya (NBK) said the Premium Branch located at an upscale shopping mall, Yaya Centre, in Nairobi, will benefit traders as it would cut the costs they incur when converting from the Kenyan shilling to the Yuan. NBK Managing Director Munir Mohamed said during the launch that the clearing centre will accelerate trade between the two nations and ensure efficient service. “We are approaching the issue from a holistic perspective and offering a unique service that will provide an opportunity for traders from Kenya and China to conduct business by making the Chinese currency available without intermediation,” Mohamed said. He said bilateral trade between Kenya and China, which has expanded enormously, requires a flawless payment system that does not have to go through another intermediary currency.
Reuters
Xinhua