MOP 6.00
James Packer’s Sydney mansion sets property sales record
Closing editor: Joanne Kuai
Property developers return to asset securitisation market following government measures
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PAGE 9
China’s iron ore trading platform mulling asking for deposits PAGE 10
Year IV
Number 852 Friday August 7, 2015
Publisher: Paulo A. Azevedo
Astro Air to launch Shenzhen-Macau helicopter flights PAGE 4
Credit Guarantee Fund Bill Passes A credit guarantee fund. With an initial pot of MOP160 million plus an annual 5 pct from employers’ non-resident workers’ fees. Up and running in law on January 1. Secretary for Finance and Economy Lionel Leong Vai Tac said the gov’t would effectively act as creditor. With offending employers pursued by the administration for outstanding monies PAGE
5
Bullish outlook Paradise Entertainment forecasts a loss for the six months ended June 30. But the gaming equipment maker’s boss remains bullish. Jay Chun believes long-term prospects for its gaming machine sales are good. Both domestically and further afield
July wipes out June hopes
June’s sweet figures fanned hopes of a recovery. But may prove to be an economic mirage. China’s July perspective is growing grim. And next weeks’ data might prove to be the tipping point for yet further stimuli
PAGES 8 & 9
Brought to you by
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temporary respite Gold prices hit a 5-year low this week. Enough to get aficionados in the SARs into the shops. But jewellers are still facing multiple challenges. With the stock market crisis and harsh shop rents knocking confidence
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HSI - Movers August 6
Name
Melco Crown down 24 pct An unrelentingly challenging environment. Melco CEO Lawrence Ho gives it straight to investors. Melco Crown Entertainment Ltd. reported net income for 2Q of some US$916.08m. Down about 24 pct from 2014’s y-o-y US$1.199 bln. Ho also said he would be “very concerned” if the project didn’t get the 400 new tables requested
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POLITICS
%Day
MTR CORP LTD
+1.73
BELLE INTERNATIONAL HO
+1.38
CK HUTCHISON HOLDINGS
+0.97
SANDS CHINA LTD
+0.58
CATHAY PACIFIC AIRWAYS
+0.55
TINGYI CAYMAN ISLANDS
-2.40
KUNLUN ENERGY CO LTD
-2.47
POWER ASSETS HOLDING
-3.29
CHINA RESOURCES POWE
-3.80
LI & FUNG LTD
-4.20
Source: Bloomberg
land swap saga
I SSN 2226-8294
A tangled web. The defunct Firecracker Factory in Taipa, a plot near the Taipa Houses Museum, and ZAPE waterfront now occupied by One Central and Mandarin Oriental. What started out as simple land swaps have taken on a life of their own. The principal players are the gov’t, local businessman and casino boss Sio Tak Hong, and Shun Tak Holdings Ltd.
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2 | Business Daily
August 7, 2015
Macau
Price cut triggers gold rush for Hong Kong jewellers
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t’s a bit of hope for jewellers in Hong Kong and Macau but likely to fade fast. The biggest jewellers in both cities are enjoying a mini-gold rush as other luxury goods shops battle sluggish demand by cutting prices. To the Hong Kong-based newspaper The Standard, Luk Fook chief executive William Wong Waisheung said the number of shoppers at his stores has doubled over the
past two weeks, mainly because local people are stocking up on cheap gold. Gold prices hit a 5-year low this week after a US Federal Reserve official was seen backing expectations that US interest rates would rise as early as next month. In Hong Kong, 99 tael gold closed yesterday at HK$10,060 per tael, down about 7 per cent from a month ago.
Although a US rate increase means investors may get better returns elsewhere, it does not diminish the local love of gold and people have reacted quickly to a fall in gold prices, Wong told The Standard. Mr. Wong added that business is good in malls in residential districts such as Kwun Tong and Sheung Shui and sluggish in tourist favourites like Yau Tsim Mong and Causeway Bay. Vincent Fang Kang, a retail sector lawmaker, stressed that he expects more shops to close after Christmas in Hong Kong. The recent gouging cases perpetrated by pharmacies on tourists have taken a toll on confidence, he noted. Kowloon Watch managing director Wong Kam-shing said that retailers usually see a revival in July but sales last month were more akin to a slow June. The stock market crisis in China also had an effect, hitting the luxury market. The Standard also reported that Hongkongers are going on trips instead of shopping as foreign currencies weaken. "People use their extra money on luxury products and on travelling," Wong said. Luk Fook shut down several shops this year. It is difficult to reopen elsewhere as many landlords stand firm on rents even though many premises remain vacant, he said.
european Pavilion at 20th Macao int’l trade and investment Fair (MiF)
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ollowing the successful participation at last year’s edition of the Macao International Trade and Investment Fair (19th MIF) and from the enthusiastic response to the European Pavilion at the 2015 Macao International Environmental Co-operation Forum & Exhibition (MIECF), the European Chamber of Commerce in Hong Kong and the Macau European Chamber of Commerce have announced that they are delighted to co-host a European Pavilion at the 20th Macao International Trade and Investment Fair (MIF), which will be held at The Venetian Macao-Resort-Hotel from 22-25 October 2015. Some of the highlights of the 20th MIF for European countries are the new business opportunities created by the “’One Belt, One Road’ initiative, developing the ‘Three Centres’ to Promote the Platform between China and PSCs and expand co-operation between Guangdong and Macao by Promoting Business Opportunities in the Free Trade Zone. L.G.
Business Daily | 3
August 7, 2015
Macau
Iec Long Firecracker Factory land swap deal linked to casino bosses The site pertaining to the intended conversion of the firecracker factory into a theme park involves a sizable land debt that the government has yet to fully clear for owners Sio Tak Hong and Pansy Ho Stephanie Lai
sw.lai@macaubusinessdaily.com
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f the six plots of land that the government has yet to conduct land swaps for the original land grantees, the site of the now defunct Iec Long Firecracker Factory in Taipa occupies the biggest site that the government has yet to fully compensate the site owner for, local businessman and casino boss Sio Tak Hong. According to official dispatch No.87/2006, the MSAR Government agreed in January 2001 to acquire the site of the firecracker factory from its owner in order to build a theme park, in return for which the government had to compensate the owner with a 152,073 square metre plot near the Taipa Houses Museum park – located next to Avenida da Praia. The owner was Sociedade de Desenvolvimento Predial Baía da Nossa Senhora da Esperança, S.A., controlled by local businessman and Chinese People’s Political Consultative Conference member Sio Tak Hong, who is also the chairman of Capital Estate Ltd. and owner of Hotel Fortuna (a casino-hotel on the Macau Peninsula). The land swap deal between the government and Mr. Sio is also linked to Shun Tak Holdings Ltd., led by Pansy Ho Chiu King, local Chineselanguage news outlet All About Macau said in its August issue when first breaking the story. Of the 150,000 square metreplus site that the MSAR Government agreed to swap for Mr. Sio’s company, in 2002 Ms. Ho’s Shun Tak Group purchased from Mr. Sio the land interest of a site occupying 99,000 square metres for MOP500 million, the news outlet reported. Shun Tak intended to build a hotel complex on the 99,000 square metres of acquired Taipa site from Mr. Sio, an application that the then Chief Executive Edmund Ho Hau Wah approved in 2002, dispatch No.87/2006 read. However, no development on the swapped site at Avenida da Praia was possible for Mr. Sio or Shun Tak as the government later conserved the area as a nature park. Consequently, Shun Tak asked the government in 2005 the grant of a site of 18,363 square metres on the ZAPE waterfront on the Macau Peninsula, an area that later housed the high-end residence and shopping complex One Central and Mandarin Oriental Hotel. That means of the 99,000 square metres of land interest that Shun
Shun Tak intended to build a hotel complex on the 99,000 square metres of acquired Taipa site from Mr. Sio Tak Hong, an application that the then Chief Executive Edmund Ho Hau Wah approved in 2002, dispatch No.87/2006 read
Tak has purchased from Mr. Sio, the company still held an interest in the remaining 80,637 square metres that could be developed. No further information of land grants related to Sociedade de Desenvolvimento Predial Baía da Nossa Senhora da Esperança, S.A. or Shun Tak was available from the city’s Official Gazette. In a press release published last month, the Land, Public Works and Transport Bureau (DSSOPT) said that it has yet to conduct land swaps for six plots of land that the government has acquired from land grantees for public projects as well as private projects. In the statement, the Bureau said it has yet to swap land for the plots granted to Wynn Macau and MGM China on the Macau Peninsula as well as Galaxy Macau on Cotai, as the plots located in ZAPE and in Cotai that had originally been granted to third-party private landowners later underwent a change in land usage purpose for the development of the resortcasino business.
The plots granted to Wynn Macau and MGM China originally belonged to Nam Van Development Company, S.A.R.L., in which the government has to return to the company a site of a combined 107,685 square metres, All About Macau reported, citing information from official dispatches and the Bureau of Cartography and Cadastre Service. The government has also to swap land with private landowners pertaining to the building of the Golden Lotus Square on Macau Peninsula and the public housing site in Ilha Verde, the DSSOPT statement read. The government would have to look for land occupying 16,500 square metres to swap for the Golden Lotus Square, and another parcel of 16,463 square metres for the Ilha Verde public housing, which is now being constructed, the report said. The private landowner of the Golden Lotus Square plot is casino tycoon Stanley Ho Hung Sun, while the plot for the Ilha Verde public housing site originally belonged to a subsidiary of Hong Kong-listed developer Polytec Group, according to official dispatches.
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August 7, 2015
Macau opinion
Limits reached
Pedro Cortés
Lawyer cortes@macau.ctm.net
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nce upon a time the sky was the limit. Millions and millions of dollars rolling onto the casino tables. Nouveau riche habits fascinating the population. Lamborghinis, Ferraris, Aston Martins, Porsches and Rolls Royces were bought like cookies in the streets of St. Paul’s Ruins. Now the Macau population is facing the reality that the dream may have ended for some while others still continue to live beyond their means. VIP rooms have closed. People in construction have been dismissed and rehired. What’s going to happen next? Ah, that, indeed, is the question. Well, it’s now the time for the governors to govern, once and for all. The times of correction – I’d still rather call them that rather than a crisis – are the best for concrete measures to be taken in order to prepare for a better future. It’s up to the government to take the lead in this situation and not hide in their cabinets or studies. Traffic is chaotic. Parking space is almost impossible to find. Hospitals are scarce and the services may be improved. Education is to be a priority. The future cannot be reached without the new generations being well educated and prepared for the overwhelming challenges Macau is facing and will face. Security, apart from some episodes, is in good shape. Public Administration seems to be subject to a long awaited reform. Finally, Justice needs to be adapted to the new era ahead. There will be more and more disputes and the courts must be prepared with not only more judges but with new facilities. It’s incredible how the Judicial Base Court can be in the provisional – almost definitive – building it now occupies. There are, of course, other areas that need urgent intervention. Nonetheless, what we need are measures. Good ones. With a vision of improving people’s lives. Are the officials aware of this? Are they prepared? It looks like they are, which is a good start. Albeit mired in difficulties the Secretary for Public Works is showing that he’s very competent and capable. The same applies to the Secretary for the Economy and Finance. The latest headlines of the Secretary for Public Works and Justice seem in line with their three colleagues. As for Security, there will be disputes, there will be more crime. Hopefully, Macau will be prepared to prevent that from happening, as the violence that pervaded the late 90’s is still in people’s minds. People hope that the day-to-day problems they face can be solved. Hopefully, our government will be capable and competent enough to cope with people’s expectations. NB: I could not end this piece without offering my sincere congratulations to the Macau Special Olympics team that performed so well in the Special Olympics World Games that recently took place in Los Angeles. I will return to that theme in the coming week. *Part-time lecturer at the Chinese University of Hong Kong
Astro Air to launch Shenzhen-Macau helicopter flights
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henzhen helicopter and private jet operator Astro Air General Aviation Co. Ltd. is planning to launch helicopter flights connecting Shenzhen and Macau, as well as Hong Kong within this year, the company announced on Wednesday. According to the deputy manager of the company, Zhu Zi Lin, the proposed new helicopter flights between Shenzhen and the two Special Administrative Regions are now awaiting the green light from the Customs departments of the two SARs, Chinese media reported. The deputy manager expects the new flights to be operational within this year. Meanwhile, ticket fares for these flights have not yet been confirmed, Mr. Zhu said, noting that they will be based on the cost of the inbound Customs of the two SARs as well as the costs levied for the helicopters to land and take off.
Currently, Macau has three roundtrip helicopter flights connecting the city with Shenzhen Airport, operated by Sky Shuttle Helicopter Limited of Shun Tak Holdings Ltd. The current ticket fares for the route is MOP6,088 per single trip, taking some 15 minutes, according to Sky Shuttle’s official website. Although the Macau-Shenzhen helicopter route is already available, the Astro Air deputy manager did not believe that the current route fulfilled the city’s demands. “Currently, the demands of helicopter flights between Macau and Shenzhen are not low at all. In addition, the number of business trips between Shenzhen and Hong Kong is huge and the demand for these trips per day are very high, too, making convenient transportation more important,” Mr. Zhu said. “As such, we don’t need to worry about
the customer sources after launching these new routes,” he continued, as quoted by Hong Kong Chineselanguage newspaper Wen Wei Po. The manager did not say which landing site for its new helicopter flights would be used in Macau. Nevertheless, for the company’s new Shenzhen-Hong Kong routes, it will use Hong Kong - Macau Ferry Terminal in Sheung Wan in Hong Kong, while the landing site in Shenzhen for the flights will be located at the Chinese city’s Zhuo Yue Shi Ji Centre in FuTian District. The company official also said that the requirements for helicopter landing sites are rather easy, claiming any skyscrapers can be used for temporary landing sites for helicopters, as long as they meet the requirements for load bearing, safe landing area and clearance conditions. K.L.
Paradise entertainment bullish on business outlook
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aming equipment maker Paradise Entertainment Ltd. chairman Jay Chun said that while he has a cautious outlook on the full-year financial expectations amid the current gaming slump in Macau, the company was still bullish on the long-term prospects for its gaming machine sales. Mr. Chun made the remarks in an interview with Asia Fund Space, a networking site for pan-Asia listed companies and professional investors. “For FY2014, amortisation costs
related to our gaming machine segment will come into play for the 12-month period but we are bullish on the long-term prospects for our new gaming machine additions,” Mr. Chun was quoted as saying. Mr. Chun’s company issued a negative profit alert last month saying that they expected a loss for the six months ended June 30 due to the reduced gross gaming revenue of the casino management business and higher operating expenses, particularly for labour.
Apart from manufacturing and selling electronic gaming machines under the brand of LT Game, Paradise Entertainment also provides sales services, marketing, promotion, player development and referral for Waldo Casino and Casino Macau Jockey Club. Talking to Asia Fund Space, Mr. Chun said he expected Paradise Entertainment’s revenue to decline by low double-digits in the first half of this year. But the company remained upbeat as its EBITDA numbers have grown at a “much healthier pace” than its competitors, Mr. Chun remarked. The gaming equipment maker’s boss was also confident about gaming machine sales in Macau for the next few years. In late May, his company deployed 42 live multi-game (LMG) terminals at the newly opened Galaxy Macau Phase II, as well as an additional 50 such terminals in the Phase 1 property of Galaxy Macau, bringing total new deployment in both casinos to 92 terminals. As for the top overseas market in the US, Paradise Entertainment was also considering opportunities for gaming resorts outside of Las Vegas, including California, Pennsylvania, and some near to New York City. S.L.
Business Daily | 5
August 7, 2015
Macau
Changes to economic housing and labour creditor’s rights laws approved The Legislative Assembly has approved in a plenary session four new diplomas and a creditor’s rights fund to be available for employees next year João Santos Filipe
jsfilipe@macaubusinessdaily.com
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he Legislative Assembly (AL) yesterday approved in a plenary session changes to the economic housing law proposed by the government, which seeks to speed up the process of allocation of units. The law comes into effect today, with no change made in the plenary. Concerning the economic housing law, no-one opposed it except António Ng Kuok Cheong and Au Kam San. The legislators said that their vote was not aimed at the document but broadly at government policy concerning the distribution of housing units, which in their view is not
enough to resolve the problems of the burgeoning population.
Creditor’s right
Also yesterday, the AL approved the labour creditor’s rights bill – which proposes the establishment of a credit guarantee fund for the protection of wages – and the public service labour contract bill. The latter integrates the current two types of non-permanent contracts of public servants into a new contract scheme called an ‘administrative appointment contract’ that includes a severance compensation system for civil workers. The law defined a fund of MOP160
million (US$20 million) plus another yearly five per cent from the fee employers pay to hire non-resident workers. This will be put aside as the source of the fund to guarantee creditor’s rights for the protection of wages. In the event employers fail to pay workers’ salaries this fund will be used and later recouped by the government from offending employers. “The government will be in the position of being creditor and as such it will have all the legal means to reclaim the money”, the Secretary for Finance and Economy, Lionel Leong Vai Tac, explained following questions concerning the payback of the money used from the fund. The
law will come into effect on January 1 of next year and thus uchanged at the plenary. In relation to the public service labour contract bill only two points were rejected by legislators, concerning the introduction of a 12-salary cap on the compensation paid to workers dismissed by the government regardless of their time in the position. This bill passes into law on 1 November.
Changes in IACM to tackle red tape
The Legislative Assembly also approved yesterday in the plenary session the reshuffle and restructuring of the Civic and Municipal Affairs Bureau (IACM), with the function to promote and implement cultural and recreational policies to be transferred to the Cultural Affairs Bureau (IC) and the same functions concerning sports policies to the Sport Development Body (ID). It will involve the transfer of 270 public workers. Meanwhile, IACM will now have to co-ordinate and promote the mechanism for the development of interdepartmental public services as well as handling requirements and procedures in the name of other public entities to cut red tape and develop ‘one-stop’ services. The latter concerns the creation of a single public desk with competencies to handle requirements from citizens that involve different departments; it is expected to speed up processes such as the approval for licences to start a business in the region.
Au Kam San: What’s the austerity plan? Legislative Assembly member Au Kam San yesterday asked the government to clarify the austerity measures that are to be adopted should the average gaming revenue per month dip below the MOP20 billion threshold. At the moment, average monthly gaming revenue stands at MOP20.037 billion. “The government said recently that it’s probably going to cut public expenditure and the population is following the situation very closely. But given that the financial situation of the government affects the lives of the people in many aspects, the question remaining is how
the cut in public expenditure is going to be achieved”, he said. The legislator criticised the fact that since 2005 public expenditure increased from MOP15 billion to MOP83 billion in 10 years, which he said was “very scary”. The over-budget spending on public works and the lack of inspection in Macau was also attacked by the legislator. “The over-budget public spending is so huge that it makes us fear it, as there is no inspection of the public finances and the waste of public resources achieved is an astronomical amount”, he added.
Corporate
SJM awards scholarships to staff children
GEG Youth National Education competition winners visit China
Sociedade de Jogos de Macau, S.A. (SJM) awarded scholarships to 40 children of staff today, including new scholarships to 10 outstanding students of Year 2015 and renewal of scholarships for 28 recipients of Year 2014, 2013 and 2012. The 11th Annual SJM Scholarship
The ‘GEG Macau Cup – 7th Youth National Education Competition;’ organised by the National Conditions Education (Macau) Association and title sponsored by the Galaxy Entertainment Group (GEG) has been successfully completed. After the competition, winners joined the six-day
Awards was held at Kam Pek Community Centre. Ten outstanding students were selected by the SJM Scholarship Selection Committee from 56 applicants this year. Each will be awarded MOP20,000 per year until they finish their university studies.
trip to Shenyang and Fushun in Liaoning Province and visited 9.18 Historical Museum and more. The trip fostered the students’ understanding of the development and traditional culture of China and enhanced their patriotic spirit through the study of the Sino-Japanese war.
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August 7, 2015
Macau ambrose so hopes studio City attracts more visitors to Macau
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Melco profit down 24 pct in Q2
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elco Crown net revenues in the second quarter of 2015 fell 24 per cent to $US916 million. The company says the decline in net revenue was primarily attributable to lower rolling chip revenues and mass market table games revenues in Macau, partially offset by the net revenue generated by City of Dreams Manila, which commenced operations in December 2014. Its closely watched property earnings before interest, taxes, depreciation
and amortisation fell 35 per cent to $US204.9 million, as compared to adjusted property EBITDA of US$313.6 million in the second quarter of 2014. Lawrence Ho, Co-Chairman and Chief Executive Officer of Melco Crown Entertainment, commented: “We delivered a solid operating and financial performance in the second quarter of 2015 in what continues to be a challenging environment for Macau”. Melco Crown Entertainment
announced recently that it plans to open the US$3.2 billion casino Studio City on October 27, joining in a competition to lure Chinese tourists amid an industry downturn that has seen high rollers vanishing. Melco is “actively” in talks with the Macau Government on gaming table allocation for the new project, and is hoping to get 400, Ho said, adding that he would be “very concerned” if the project didn’t get that number of tables.
he chief executive of SJM Holdings Ltd., Ambrose So Shu Fai, said he hopes that Melco Crown’s new Studio City project, slated to open on October 27, will help to increase the number of the city’s visitors. Asked by reporters on Wednesday evening whether the upcoming opening of Studio City will affect the business of SJM, Mr. So indicated that it will for sure decrease the market shares of the city’s other gaming operators in the current economy, according to local Chinese-language newspaper Jornal Do Cidadão. Nevertheless, he claimed that he hopes that the new project can boost the number of visitors to the city, so that the overall income of the local gaming industry will be boosted. Meanwhile, although the city’s gaming revenues have dropped for 14 consecutive months, Mr. So said that he is still optimistic about gaming development in the future, saying he expected drops in gaming revenues to narrow during the second half. Last month, the city’s gaming revenues posted a year-on-year decline of 34.5 per cent to MOP18.61 billion (US$2.33 billion). On a month-onmonth comparison, it represents a rebound of 7.2 per cent. The SJM chief executive also perceives that the relaxation of visa restrictions for Mainland Chinese will help improve the city’s gaming revenues. In addition, Mr. So reckons that the drop in visitors during the first seven months of the year is not due to regional competition. He claimed that regional competition does not affect the city too much, as the city still has its geographic advantages in that it is convenient for Mainland visitors. Instead, he indicated the city’s gaming industry is more affected by central government policy. K.L.
China security & Fire Gambling mogul Packer sells sydney scoop up 100-mln yuan mansion for australian record lisboa Palace contract
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hanghai-listed security system manufacturer China Security & Fire Co. Ltd. said its whollyowned subsidiary China Security & Fire Technology Group Co. Ltd. has won a contract for an intelligent building project for SJM Holdings Ltd.’s new Cotai project Lisboa Palace, worth 100 million yuan (MOP130.9 million/US$16.4 million). This is the first project that the Chinese company will be engaged in, in the city, according to its filing with Shanghai Stock Exchange yesterday. The manufacturer expects the contract will account for 7 per cent of its total operation income for 2014, bringing positive effects to its income for 2015 and 2016.
‘The implementation of the project will help China Security & Fire enter the big-scale security systems integration and security operation market of Macau’s gaming industry, and fulfil the strategic target of [the company] that is planning to develop business globally,’ the company wrote in the filing. In addition, the Shanghailisted company said it had established a subsidiary in Macau with registered capital of MOP50,000 (US$6,250). It said the establishment of the local company is to meet the requirement of the contract that it signed with Lisboa Palace’s contractor Jebsen Consultants & Engineering Company Ltd. K.L.
C
asino billionaire James Packer sold his Sydney harborside mansion for a reported A$60 million (US$44 million), a new record in Australia’s biggest city. The six-level La Mer property in the suburb of Vaucluse owned by Packer and his former wife sold in the past week for a record price for any home in Australia, the Daily Telegraph reported Thursday, without giving the source of the sale price. Fairfax Media reported it sold for A$70 million. Surging home prices in the nation’s biggest cities following the central bank’s two interest-rate cuts this year to a record-low 2 per cent have sparked fears of a property bubble. The sale of Packer’s mansion won’t be subject to scrutiny under laws regulating the sale of property to overseas
buyers as the new owner is Australian. “Mr. and Ms. Packer have entered contracts for the sale of their property in Vaucluse to Australian buyers,” a spokesman for Packer’s Consolidated Press Holdings Ltd. said in an e-mailed statement. “The sale details for the house are confidential.”
20 cars
The six-bedroom main residence at La Mer includes underground parking for 20 cars, vast entertaining spaces
and two self-contained staff quarters under the rooftop lawn and lap pool, according to Fairfax. Packer, 47, is the chairman and largest shareholder of Crown Resorts Ltd., which has casinos and resorts in Macau, London and Australia. Often seen in the company of show-business stars such as Mariah Carey and Leonardo DiCaprio, he plans to open a new casino in Las Vegas in 2018. He has a net worth of about US$4.6 billion, according to Bloomberg data. Sydney house prices soared 18.4 percent in July from 12 months earlier, the most since December 2002. The previous sale price record in Australia was A$52 million for a mansion in Sydney’s Point Piper called Altona, according to the Daily Telegraph. Bloomberg
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August 7, 2015
Greater China
July econom after signs o
Annual retail sales growt
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hina’s economy likely showed renewed signs of weakness in July after a brief pick-up in June, Reuters polls showed, reinforcing expectations that Beijing will need to roll out more policy support to meet its full-year growth target. Panic selling in the country’s stock markets early in the month also likely chilled consumer and business confidence, though unprecedented government support measures appear to have stemmed the rout for now. A raft of data this weekend and next week is expected to show domestic and export demand remained sluggish, weighing on factory activity, while new loans could fall sharply, possibly as Beijing pressed banks to support the stock market. “The real economy, though stabilising at a low level, is still struggling to turn around,” said Tao Wang, an economist at UBS in Hong Kong, adding that she expected the central bank to cut interest rates again towards the end of September. China’s exports were seen dropping 1.0 percent in July compared with a year earlier, after growing 2.8 percent in June, a median forecast of 31 analysts polled by Reuters showed. Unexpected growth in June had fuelled hopes that global demand was finally improving, but official and private factory surveys in recent days have shown export orders shrank in July, pointing to more weakness in coming months.
top bank regulator says bad loans surge As China restructures its economy, the total number of industrial companies reporting losses increased 11 percent in May
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China’s five biggest state-owned lenders are expected to report first-half earnings in the next few weeks
ad loans at Chinese banks rose 35.7 percent during the first half of 2015 as economic growth remained sluggish and manufacturers struggled, the chairman of the banking sector regulator said. Shang Fulin, chairman of China Banking Regulatory Commission (CBRC), told an internal meeting last week that non-performing loans (NPLs) at banks rose 322.2 billion yuan in the first six months of the year to 1.8 trillion yuan (US$289.9 billion), according to a transcript of the meeting seen by Reuters. He also said the banks’ profit growth in the first-half slowed by 13.03 percentage points from a year ago, with total net profits amounting to 1.1 trillion yuan in the first six months. “In the bigger context of (China’s) economic slowdown, the whole truth of the banking sector’s credit risks is beginning to emerge,” Shang said, according to the transcript. Lower profit growth will “reduce shareholder return, weaken banks’ capability to supplement capital and prevent risks”, he added, saying it was now the “new normal”. The proportion of NPLs rose 0.22 percentage points from the beginning of the year to 1.82 percent of all loans at end-June, Shang said.
KEY POINTS CHINESE BANK NON-PERFORMING LOAN RATIO WAS 1.82% AT END-JUNE BAD LOANS ROSE 322.2 BILLION YUAN IN H1 TO 1.8 TRILLION YUAN
China’s five biggest state-owned lenders, which include the Industrial and Commercial Bank of China Ltd , China Construction Bank Corp , Bank of China Ltd and Agricultural Bank of China Ltd, are expected to report first-half earnings in the next few weeks. As China restructures its economy, the total number of industrial companies reporting losses increased 11 percent in May from a year earlier, Nomura said in a July 21 report. Total losses at the firms rose 15 percent during the same period. Separately, Shang said China Development Bank and the ExportImport Bank of China had received 568.9 billion yuan in capital injections. Reuters
Business Daily | 9
August 7, 2015
Greater China
mic data seen downbeat of hope in June
Foreign office vows infrastructure for ASEAN countries
th was seen unchanged at 10.6 percent
KEY POINTS JULY EXPORTS SEEN AT -1.0 PCT Y/Y VS JUNE +2.8 PCT Y/Y JULY IMPORTS SEEN AT -8.0 PCT Y/Y VS -6.1 PCT IN JUNE JULY CPI F’CAST +1.5 PCT Y/Y, VS JUNE +1.4 PCT Y/Y JULY FACTORY OUTPUT F’CAST +6.6 PCT Y/Y VS JUNE +6.8 PCT Y/Y NEW YUAN LOAN F’CAST 738 BLN YUAN IN JULY VS 1.28 TLN IN JUNE Dragged in part by a tumble in global commodity prices, imports were seen shrinking for the ninth straight month, slipping 8.0 percent in July from a year earlier. Imports had tumbled 6.1 percent in June. Reflecting sluggish economic activity, producer prices were estimated to have slid 5 percent in July from a year earlier, the biggest drop since the global financial crisis. Consumer inflation also likely stayed muted, running at 1.5 percent on a yearly basis, compared with June’s 1.4 percent. A cooling housing market, uneven exports and lacklustre investment
growth have weighed on China this year, with economic growth expected to cool from 7.4 percent in 2014 to 7 percent in 2015, the slowest in a quarter of a century. The shakeout in China’s stock markets in June and July that wiped out a quarter of share prices has added a new sense of urgency for top officials as they try to contain any fallout for the economy and the financial system. Acknowledging the challenges ahead, the Politburo, an elite decisionmaking body of the Communist Party, restated in July that the government would push through targeted measures to foster economic growth.
Lukewarm demand
Factory output was forecast to have grown 6.6 percent last month from a year earlier, slipping from June’s 6.8 percent. A private activity survey last week showed activity at smaller factories shrank the most in two years, while an official survey showed growth had stalled. Some market watchers fear companies had been investing in the stock market as orders sagged and profit margins shrank. Annual retail sales growth was seen unchanged at 10.6 percent, despite some automakers’ reports this week of sharply lower sales. Fixed-asset investment, one of the major drivers of the Chinese economy,
was estimated to have risen 11.5 percent in the first seven months of the year, up a shade from the 11.4 percent gain seen between January and June. And despite China’s easy monetary policy, which authorities have loosened at the most aggressive pace in almost seven years, new loans were estimated to have nearly halved in July after a lending surge the previous month. The fall-off in loans may be partly seasonal as Chinese banks often conduct 60 percent of the year’s lending in the first six months of the year. Banks are forecast to have made 738 billion yuan (US$118.9 billion) worth of new loans in July, down from June’s 1.28 trillion yuan. Commercial bank lending in China is partly controlled by the central bank as a way of setting policy. “While the stock market fallout will not result in a financial crisis in China according to our assessment, banks may reduce their lending to the real economy because they are asked to support the securities market,” economists at ANZ said. The broad measure of M2 money supply was seen to have grown 11.7 percent in July from a year ago, down a touch from June’s 11.8 percent, but within sight of the government’s targeted 12 percent increase for the year. Reuters
developers come home to asset-backed securitisation Clare Jim
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hina’s property developers are returning to the asset securitisation market after a three-year absence, prompted by lighter rules on how they can package up and sell future cash flows to raise funding. Shimao Property Holdings, a major developer, has packaged its future management fees into an asset-backed securitisation worth 1.5 billion yuan (US$243 million), which will start trading next week. The success of this funding deal could attract followers into China’s securitisation market, emboldened by April’s change in rules allowing companies selling asset-backed securities (ABS) merely to register with the central bank, rather than having to seek regulatory review and approval as in the past. It also could help fulfil the property sector’s search for cheaper and more diverse sources of funding as it tackles slowing sales and squeezed margins. Shenzhen-based Bosera Asset Management Co. has structured the deal which it said comprises five tranches with a maximum 5-year maturity and a coupons paying between 5.5 percent and 7.1 percent, and had been fully subscribed by banks.
Chinese Foreign Minister Wang Yi said here that China will provide developing countries including the Southeast Asian nations with infrastructure “most in need.” At a press conference after the China-ASEAN (10+1) Foreign Ministers’ Meeting on Wednesday, Wang said the priorities of the cooperation between ASEAN and China in the 21st Century Maritime Silk Road should be the infrastructure construction and international cooperation in production capacity. The minister said China and the ASEAN countries, at different stages of industrialization, could realize complementarity.
GM sales drop 4 pct General Motors Co sales in China fell 4 percent year-on-year in July but the U.S. automaker said it remained on track to achieve an upbeat goal for profit margins this year in its second-largest market. GM and its joint ventures sold 229,175 cars in China in July, attributing the decline to model changeovers, according to a statement on its website yesterday. The July drop compares with a 0.2 percent increase in June and a 4 percent decline in May. GM sales grew 3.3 percent in the January-to-July period compared with the same months last year.
Pork imports to surge People in China eat more than half the pork consumed in the world but domestic supplies come mainly from small farms that cut their herds whenever costs rise, causing boom-and-bust cycles that have led to record-high hog prices this year. Wary of the social impact of such gyrations in the cost of a staple food, the government is trying to develop a more reliable food chain, but supplies are likely to remain tight until the first quarter of 2016. Rabobank is forecasting a 54 percent increase in pork imports this year to 2 million tonnes.
Property taxes coming soon “We’re also talking to Shimao about securitising its hotel room income and car park fees, but it’s not confirmed yet,” said the official, who asked not to be identified as he was not allowed to speak to the media. The last known deal in which future flows in the real estate sector were securitised was in 2012, when state-backed Shenzhen Overseas Chinese Town packaged and sold its theme park admission ticket receipts, issuing securities worth 18.5 billion yuan. Rainy Du, partner at Beta Consulting Company, said developers had previously raised funds mainly through less-regulated trust products, which pool money from cash-rich individuals and companies to make high-interest loans, and are at the heart of the China’s vast and opaque shadow banking system. “But you can’t pay just 5.5 percent on a trust product because it’s also sold to retail investors who seek a higher return,” she said, adding the lower yields might encourage more developers to issue asset-backed securities. Typically, ABS products could include all forms of receivables, be they from property sales or management fees.
China’s securitisation market had new issues totalling US$45 billion last year and is set to grow 50 to 100 percent this year, rating agency Moody’s Investors Service forecast. New issuance in the first quarter was US$17.7 billion. Even at interest rates as low as the 5.5 percent which Shimao offers on its cheapest tranche, returns are higher than the average 3.78 percent offered on preference ABS in the second quarter, reflecting the higher risk premium demanded by investors for Shimao’s securitisation, even though it is AAA-rated by Moody’s local affiliate China Cheng Xin International Credit Rating. In the event of a default, preferred ABS investors have the right to be paid out of the borrower’s underlying assets first. Though ABS are known to generally have a lower risk of default, the recent stock market rout might make investors more wary of such products. “Innovation is not easy, because investors will not be familiar with the new product,” said Zhao Xijun, deputy dean of the School of Finance at Renmin University of China. Reuters
The Standing Committee of the National People’s Congress (NPC), China’s top legislature, has included Property Tax Law in a legislation plan released this week. “Conditions to enact these laws are ripe, and the 12th NPC plans to review them within its tenure [which ends in early 2018],” said the Standing Committee. “The property taxes law will probably be passed by the end of 2017,” said Shi Zhengwen, a professor of fiscal and financial law. There is no official timetable for the implementation of property taxes but the market widely expected 2020 to be the time.
Massive amounts of water desalinated China had built a total of 112 seawater desalination plants by the end of 2014, producing 926,900 tonnes of fresh water per day, the State Oceanic Administration said yesterday. According to its report on seawater use in 2014, the desalination plants are mainly located in costal cities and islands in severe shortage of fresh water, in nine coastal provincial-level regions. In north China, desalted water is mainly used for water-intensive industries including electricity and steel in Tianjin, Hebei and Shandong, while in south China, desalted water is mainly for civilian needs.
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Greater China
Iron ore trading platform considers deposits to cut default risk The move could differentiate the platform, also known as COREX, as it competes with Singapore-based globalORE which does not require deposits Manolo Serapio Jr
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hina’s biggest physical iron ore trading platform is considering collecting deposits from market members including miners and steelmakers to curb the risk of them defaulting amid volatile prices, its president said. Prices for the steelmaking ingredient have been ping-ponging over the last few months, increasing the chances that some buyers or sellers could walk away from deals agreed at levels they consider relatively unfavourable. Rebounding to US$65 a tonne in June from below US$47 in April, the glut-hit commodity slid to a decadelow of US$44 in July before recovering to around US$56 currently. “A dispute occurred when one party tried to cancel a sale or purchase after the transaction was concluded on the platform. We think it’s normal because it happens in traditional trade as well,” said You Song, president of the Beijing Iron Ore Trading Centre Corp. He did
not give more details, but said there had been a few disputes. “That’s why we are going to introduce the standard contract and why we are going to collect deposits from members,” You told Reuters by phone, adding that change would only be implemented after consulting with members. The move could differentiate the platform, also known as COREX, as it competes with Singapore-based globalORE - the world’s largest platform for spot iron ore cargoes - which does not require deposits from members. Although the additional cost of providing deposits could weigh on some firms. Both platforms include top iron ore miners Vale, Rio Tinto and BHP Billiton, along with major steelmakers like Baoshan Iron and Steel and Hebei Iron and Steel. COREX has 126 members, while globalORE has 106, according to their websites.
Trades on these platforms are used by pricing agencies such as Platts to help determine prices of globally traded iron ore, which reaches around 1.4 billion tonnes annually. COREX took over the China Beijing International Mining Exchange, the country’s first physical iron ore trading platform, in September last year. Volume traded on the platform climbed to almost 10 million tonnes in the four months starting September from 4 million in the first half of 2014. In January-July this year, volume reached 19.56 million tonnes. That puts volume on track to hit 30 million tonnes this year, said You. He aims to boost that to 100 million tonnes in five years. GlobalORE said its volume reached 27.24 million tonnes in January-July. It handled 46.25 million tonnes in 2014 - the most since it started in 2012.
Man who called top stock rally sees rout worsening The Hang Seng China Enterprises Index of mainland shares traded in Hong Kong will drop about 10 percent, Chart Partners manager said Adam Haigh
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ore than two decades’ experience poring over stock charts helped Thomas Schroeder lock in profits in April before Chinese companies in Hong Kong went into free-fall. Now he’s bearish again, betting the slump in Chinese shares won’t stop
anytime soon. The Shanghai Composite Index will decline to as low as 3,100 in two months, Schroeder said, 16 percent below the closing level Wednesday, despite intermittent rallies as the government steps up efforts to stabilize the market. The Hang Seng China Enterprises
Index of mainland shares traded in Hong Kong will drop about 10 percent, he said. To Schroeder, slowing Chinese economic growth and collapsing commodities prices are heightening the chance that the indexes will fall below key equity market support
KEY POINTS VOLATILE PRICES HAVE BOOSTED CHANCE OF DEFAULT COREX PLATFORM SAYS DEPOSITS WOULD CUT THAT RISK ALSO PLANNING TO LAUNCH STANDARD CONTRACT THIS YEAR You said that a standard contract could be introduced this year and would include more terms and conditions on shipment, on price adjustments as well as on cancellation and payment. He added that COREX may provide financial services to help clients get loans.
levels. These are lines on charts that technical analysts say typically mark a floor for prices. Technical analysts use past patterns to try to predict future movements. “For now, we’re in the bear camp,” Schroeder, founder and managing director at Chart Partners Group Ltd., a provider of trading strategies linked to technical analysis, said by phone from Bangkok. “You’re not going to get to it right away. I’m sure the Chinese government will continue to come in and try to support the market in Shanghai. But in the next two months, you’re going to be” reaching these levels. The former global head of technical research for SG Securities and Asian technical analysis chief at UBS AG is watching the 3,400 level on the Shanghai Composite. He expects the gauge to fall further if
Reuters
that’s breached. It closed Wednesday at 3,694.57.
April call
The H-share measure had jumped 37 percent from a low in October when Schroeder made his call. Though it edged up a further 5.8 percent to a peak on May 26, it then slumped more than 25 percent, while a 32 percent rout in Shanghai shares helped destroy about US$4 trillion in mainland market value. The chartist forecasts a smaller decline in Hong Kongtraded Chinese equities because the relative strength indicator, a measure of momentum, highlights the possibility of rallies on the Hang Seng China Enterprises Index, he said. The RSI for the H-share gauge stood at 34 on Wednesday, compared with 41.3 for the Shanghai measure. Some traders say a figure below 30 means shares are poised to rise. Bloomberg News
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Asia
South Korea revises tax code to boost household wealth The finance ministry said it aims to hand in this year's tax code revision to parliament by September 11 Christine Kim
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outh Korea plans to allow financial institutions to sell a new savings product eligible for steep tax advantages from next year to help improve household finances, the government said yesterday. It also plans to offer a tax incentive to companies hiring young people aged between 15 and 29, the finance ministry said in a statement covering annual revisions of the tax code. The schemes are still subject to parliamentary approval. The Ministry of Strategy and Finance said it plans to introduce individual savings accounts (ISA) from next year to enable South Korean savers accumulate more wealth in an environment of record-low interest rates. The accounts enable savers to place financial products including cash deposits, funds and stock investment accounts into one basket, the income from which will later be eligible for lower taxation than currently levied. ISA owners will be required to maintain the accounts for at least five years, after which they will be taxed 9.9 percent of the
net income made beyond 2 million won (US$1,707.21) from the combined products. Accounts that return less than 2 million won will not be subject to tax. Currently, South Koreans are taxed at 15.4 percent on income from investment products. South Koreans aged 15 to 29 will be able can cash out their ISAs after three years, according to the finance ministry. Those who decide to cash out before the obligatory three-year or fiveyear subscription period will
not be eligible for the lower tax rate. All subscribers will be subject to an annual subscription limit of 20 million won and they are free to switch products within the accounts. Once parliament approves the revised tax code later this year, South Koreans will be able to apply for ISAs starting 2016.
Youth employment
Currently, South Koreans are taxed at 15.4 percent on income from investment products
The finance ministry also proposed a new tax advantage for companies
nZ trade Min says tPP must address interests beyond u.s.-Japan Minister said no decisions had been made on when to hold the next round of TPP ministerial talks but he was keen to set a time quickly
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Tim Groser, New Zealand Trade Minister
welve-nation Pacific Rim trade talks must better reflect the interests of participants other than the United States and Japan, rather than centring on their bilateral agreements, New Zealand Trade Minister Tim Groser told Japan's Nikkei business daily. He rejected suggestions, however, that New Zealand had played a major role in scuttling a possible deal in Trans-Pacific Partnership talks last week by taking hard line on dairy market access, according to an interview published yesterday. Negotiators cited a clutch of lingering disputes, including auto trade between Japan and North America, New Zealand's dairy exports and monopoly periods for next-generation drugs, that ministers were unable to resolve when they met to clinch a TPP agreement.
that actively hire young workers. South Korean firms will receive tax cuts of 5 million won for every eligible newly-hired worker after the tax code is approved. Companies categorized as conglomerates, or chaebol, will receive 2.5 million won worth of tax exemptions per worker, according to the ministry. The law will be in place for three years. The government also revised an existing law that reduces income tax for young workers employed at small- to medium-sized businesses in South Korea, changes for which will also be applicable for 3 years. South Korea's youth unemployment is currently at levels unseen since the early 2000s. It stood at 10.2 percent in June, compared to 3.9 percent for the general working population. The revisions come after the South Korean government and major local industry associations agreed to create some 200,000 jobs for young people until 2017, ahead of an expected period of job scarcity. The finance ministry said it aims to hand in this year's tax code revision to parliament by September 11. Reuters
"The central problem with this negotiation is that it is not just a bilateral negotiation between the U.S. and Japan," Groser told the Nikkei in a telephone interview conducted on Wednesday. "There are 12 countries involved and their interests must be reflected before we have a balanced agreement." Groser told the Nikkei that a bilateral U.S.-Japan agreement on autos did not fully take into account what Mexico and Canada want, while the pact also did not address New Zealand's interests in dairy products. He dismissed suggestions, reported in Japanese media, that New Zealand got in the way of concluding a deal by pushing for dairy market access in exchange for concessions on drug data protection. "That's a complete misrepresentation of the round in Hawaii," the Nikkei quoted him as saying. "The reality is that we were never given even minimal offers on things that are of interest to New Zealand that we could accept." He said no decisions had been made on when to hold the next round of TPP ministerial talks but he was keen to set a time quickly, the Nikkei said. "What is really important is that we maintain momentum. If we lose momentum, we lose everything," he said. Reuters
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Asia
Modi’s “port-led” export drive leaves India’s hinterland stranded Unless government makes faster progress on stalled rail and road corridors, India’s exporters will find it hard to compete during the global trade downturn Manoj Kumar
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umbai’s commercial seaport, which handles over half the container traffic through India’s major ports, is doubling capacity as Prime Minister Narendra Modi seeks to build an export powerhouse. The expansion, due to be completed in seven years, can’t come quickly enough for Avinash Gupta, whose family business supplies steel forgings to Europe and the United States from the industrial hub of Ludhiana in northern India. Yet the greatest challenge his US$30 million business faces is getting his production to port. Gupta pays nearly US$800 to a state-run rail cargo company to transport a 20-foot container to Mumbai - as much as 40 times the cost of shipping it onward to the Gulf commercial hub of Dubai. It is exporters like Gupta that Modi had in mind when he launched his ‘Make in India’ drive last September, laying out a model of “port-led” development that would support industrial growth and help create manufacturing jobs. Modi’s vision includes creating a tax union to slash costs and transport
times, and a network of industrial corridors connecting the interior to ports. But political opposition to both the new tax and a law making it easier to buy land for development mean those may be years away. For now, the inefficiencies are exacerbating the pain of weak global demand and a 15 percent drop in exports between December and June from a year ago. Exporting a standard container requires seven documents, takes 17 days and costs US$1,332 in India, according to the World Bank’s Doing Business 2015 report. India ranked 126th of 189 economies on the ease of trading across borders, well behind Mexico (44th) and China (98th). All of India’s ports together handle less trade than Shanghai alone.
Rising costs
Gupta runs one of the thousands of small companies that contribute about half of India’s US$300 billion in annual goods exports. Despite falling global prices, his costs have gone up, and his overseas sales are down more than 60 percent.
While shipping lines have slashed freight rates in search of business, state-run Container Corp of India actually raised rail rates by up to 15 percent in April - even though its fuel costs have fallen. “The hike in freight costs has made our life difficult. Since exports are already down 60-70 percent in the last three months, we will soon have to cut production,” said Gupta. Unless Modi’s government makes faster progress on stalled rail and road corridors, like one that would link Mumbai port to New Delhi and lower costs, India’s exporters will find it hard to compete on price and speed during the global trade downturn. Nowhere is this more evident than at state-owned Jawaharlal Nehru Port Trust (JNPT), which last year signed a US$1.26 billion deal with Singapore’s PSA International to build a fourth terminal in Mumbai on reclaimed land. Modi has also acted to simplify export procedures, launching electronic clearance by customs, trade and port officials. “Ports are the gateway to trade growth,” said Neeraj Bansal, the head
of JNPT. “The government is expanding port capacity and building railway freight corridors and roads to reduce logistics costs for exporters. Trade is dynamic, we cannot wait till the end of global recession.” The two-stage expansion by PSA International would boost capacity to around 11 million twenty-foot equivalent units (TEU). That would speed turnaround times and cut costs - it
KEY POINTS COST OF GETTING CONTAINER TO PORT PROHIBITIVE - EXPORTER PORTS EXPAND BUT ROAD, RAIL LINKS LAG MODI BACKS STATE PORTS, BUT PRIVATE RIVALS CHEAPER GLOBAL TRADE DOWNTURN PUTS INDIAN EXPORTERS UNDER PRESSURE
australia creates jobs and jobless Despite unemployment edging up, Australia’s labour market has been surprisingly resilient compared to the overall economy Charlotte Greenfield
A
ustralia’s unemployment rate rose to its highest in six months in July even as the number of jobs added shot up almost four times more than expected, a mixed bag that did little to clarify the outlook for another rate cut. Yesterday’s data from the Australian Bureau of Statistics showed 38,500 new jobs were added in July, far higher than the 10,000 analysts expected. Yet the jobless rate also surprised by ticking up to 6.3 percent, from a revised 6.1 percent the month before. The rise in unemployment was greeted with optimism by
some analysts as it was driven by more people entering the workforce. The participation rate climbed to its highest in two years at 65.1 percent. “We did see the unemployment rate rise but given job growth has also been quite strong, it’s still a positive. The jump in the unemployment rate was because the participation rate jumped, and that means more workers are looking for jobs,” said Janu Chan, an economist at St George. Markets were nonplussed by the data with the local dollar first climbing over a third of a U.S. cent, only for it to lapse back to US$0.7330 as investors
reacted to the unemployment figure. The mixed numbers were thought unlikely to have a large impact on the Reserve Bank of Australia’s (RBA) next meeting to set interest rates, after it held
its cash rate steady at record lows of 2.0 percent in August. “It doesn’t change the overall view that there’s plenty of spare capacity in the labour market and the economy in general. We still see the RBA
holding steady for some time to come,” said Skye Masters, head of interest strategy at NAB. Interbank futures were little changed, implying around a 50-50 chance of an easing by Christmas. Job gains have beaten market forecasts for seven of the past nine months and annual employment growth of 2.1 percent is as fast as that of the United States. However, the labour force is expanding even faster thanks to brisk population growth and a higher participation rate. While a strong 243,600 net new jobs were created in the year to July, the workforce rose by 275,400. The RBA has been puzzled at the resilience of employment given the economy overall is growing below potential at around 2.5 percent. Among the possible explanations include that subdued wages were making labour more attractive or that the economy’s potential speed limit might now be lower than in the past, a phenomenon seen in many developed nations. Reuters
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August 7, 2015
Asia
Prime Minister Modi speaks with Indian Minister of External Affairs Sushma Swara
can take up to 12 hours for a truck to enter the port due to narrow approach roads, limited parking and customs delays. More than 10,000 trucks enter every day. Imports, too, are hobbled by the poor infrastructure, with several container shippers imposing congestion surcharges of up to US$200 per TEU to cover the cost of delays in unloading. “Congestion at major ports is predominantly caused by an inability to clear cargo from the quayside, and that manifests itself mostly on the bulk handling terminals on the east coast,” said Ian Claxton, managing director of Thoresen Shipping. Analysts estimate it takes up to four times as long to fill or unload a cargo ship at JNPT than at private rival the Adani Port and Special Economic Zone Ltd up the coast in Gujarat, Modi’s home state. “Land connectivity plays a major role,” said Deven Choksey, managing director at KR Choksey Securities, a brokerage, adding that even after the expansion “the inherent disadvantages of JNPT will continue.” India added 71 TEU of capacity at major ports in the fiscal year to March 31. Modi wants to double total capacity to 1,600 million tonnes at major ports over the next five years. But businesses hit by the worst slide in exports since the global crisis of 2008 say Modi’s approach to easing rules for trade and expanding staterun ports fails adequately to tackle competitive barriers. “Even a delay of a few hours results in missing the vessel and sometimes cancellation of an order,” said Khalid Khan, a Mumbai-based exporter of engineering goods and regional president of the Federation of Indian Export Organisations. Reuters
thailand’s consumer mood worsens The baht has weakened about 6.4 percent this year Kitiphong Thaichareon and Orathai Sriring
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hai consumer confidence fell to a 14-month low in July, dented by slow economic growth, contracting exports and low commodity prices, a university survey showed yesterday. The consumer confidence index of the University of the Thai Chamber of Commerce dropped to 73.4 in July from 74.4 in June, its seventh consecutive monthly decline. The reading was the lowest since May 2014, when the army seized power to end political unrest. The university projected economic growth of 2.5-2.9 percent this year but said expansion could quicken if the government undertakes shortterm economic stimulus measures. At present, there are no signs yet that the government will launch additional stimulus, but Prime Minister Prayuth Chan-ocha is coming under increasing political pressure to do something to boost an underperforming economy. “If the government comes up with good short-term stimulus measures, consumer confidence may pick up in the fourth quarter,” the university said. The central bank said on Wednesday it will be trimming its forecast for 3 percent growth this year. In 2014, Southeast Asia’s second-largest economy expanded 0.9 percent.
More than a year after the coup, the military government has been unable to turn around a long-term decline in exports, while domestic demand has remained subdued. Record high household debt levels have curbed private consumption, which makes up half of the economy, while low commodity prices and a sharp drop in government subsidies have cut farmers’ purchasing power.
Impact on banks
Exports are likely to fall 4 percent this year, a third straight year of
contraction, according to the Finance Ministry. Kiatnakin Bank PCL, one of Thailand’s top auto loan providers, said this week it expected no loan growth this year after a 5 percent contraction in the first half. Hopes that bad debts in the Thai financial system may have peaked this year are fading as more small companies and medium-sized enterprises default on their bank loans, hit by slowing domestic consumption and falling exports. Reuters
Takata swings to Q1 net profit Japan’s Takata Corp, whose air bag inflators are at the centre of a global safety recall, yesterday said it swung to a net profit in the first quarter due to higher overseas sales, and lifted its operating profit forecast by 18 percent. Net profit was 3.1 billion yen (US$24.85 million) in April-June, versus a 38.7 billion yen loss a year prior. Operating profit rose 35 percent to 10.3 billion yen. For the year to March, operating profit is likely to be 40 billion yen instead of 34 billion yen due to a stronger-than-expected first quarter.
Stressed loans to add US$16 bln to Indian banks’ needs Indian banks may need up to 1 trillion rupees (US$15.7 billion) to manage the risks from their exposure to debt-stressed companies, Fitch’s Indian unit said, on top of the tens of billions of dollars in capital they need to comply with global banking rules. State-run lenders, who dominate India’s banking sector with more than 70 percent market share, will need 930 billion rupees to deal with stressed loans, India Ratings and Research said in research published yesterday. That may “significantly increase” the Indian government’s equity injection requirements in the stateowned banks, it said.
SoftBank Q1 profit rises SoftBank Corp reported an 8 percent rise in quarterly profit as loss-making Sprint Corp fared better than expected, leading the Japanese telecoms conglomerate to declare it was seeing “light at the end of the tunnel” for its U.S. unit. SoftBank, which bought the U.S. carrier for more than US$20 billion in 2013, said yesterday its April-June operating profit rose to 343.6 billion yen (US$2.75 billion) from 319.4 billion yen a year ago. Sprint has struggled to compete against larger rivals AT&T Inc and Verizon Communications Inc even while it burns through cash trying to acquire and retain customers.
Bharti Airtel expands 4G footprint ahead of rival launch India’s top mobile operator Bharti Airtel Ltd said yesterday it launched fourth-generation (4G) mobile technology in 296 towns, becoming the first company to offer commercial high-speed data services in the country. Bharti Airtel has ramped up its 4G push ahead of the anticipated entry of cash-rich Reliance Industries Ltd , which plans to start pan-India 4G services in December. A rising proliferation of cheap smartphones has boosted demand for mobile data as more and more Indians demand faster downloads and use their handsets to access the Internet.
Tepco reactors on priority list for restart screening Japan’s nuclear regulator said yesterday it placed on a priority list for safety screening two reactors operated by Tokyo Electric Power (Tepco), the owner of the wrecked Fukushima Daiichi nuclear plant. The move potentially brings Tepco closer to restarting the Kashiwazaki-Kariwa station, the world’s biggest nuclear plant, though the checks are expected to take at least several months, based on the progress of other screenings. Even if Tepco gets approval from the regulator any restart must be signed off by the governor of Niigata prefecture, where the plant is located.
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International Germany has growing doubts about Greek deal The German government has growing doubts a deal on a multi-billion-euro bailout for Greece can be agreed in the next two weeks, meaning Athens would need to secure a bridge loan, Bild daily reported yesterday. “That is not achievable,” the newspaper quoted a government source as saying of the Aug. 20 deadline for agreeing the new bailout. A 3.5-billion-euro (US$3.82 billion) debt payment to the European Central Bank falls due on Aug 20 and without a bailout deal, Athens will need bridge financing.
Activist investor takes stake in Mondelez Billionaire activist investor William Ackman’s hedge fund has built a stake worth about US$5.5 billion in Cadbury chocolate and Oreo cookies maker Mondelez International Inc, which could become a potential target in a consolidating food industry. Pershing Square Holdings Ltd said late on Wednesday that it intends to notify the Securities and Exchange Commission that it holds a 7.5 percent stake in Mondelez, including forward purchase contracts and call options. The Wall Street Journal, said the activist investor wanted the snack maker to grow revenue faster and cut costs significantly or sell itself to a rival.
Europe’s banks turning corner All the firms reported at least double-digit profit gains from a year earlier
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he largest banks in the euro area posted their highest combined profit in more than four years, a sign the beleaguered industry may be turning the corner. The 10 biggest lenders by assets in the region earned 11.4 billion euros (US$12.4 billion) in net income in the second quarter, the most since the first three months of 2011, data compiled by Bloomberg show. Battered by souring loans and slack demand during the sovereigndebt crisis, Europe’s banks are benefiting from an economic recovery fuelled by stimulus from the European Central Bank. They still
face headwinds from stricter capital rules, fines for past misconduct and narrow lending margins, challenges some are addressing by overhauling their businesses. “European banks are moving in the right direction,” said Patrick Lemmens, who helps oversee about 10 billion euros in financial-services stocks at Orix Corp.’s Robeco Groep NV in Rotterdam. “European banks are a reasonable story, with provisions behaving quite well, nonperforming loans going down, which also help results, and some loan growth here and there.” Signs of a recovery have made
Adidas to consider sale of struggling golf brands German sportswear company Adidas has engaged an investment bank to consider the possible sale of its golf brands, which are struggling as the sport loses popularity, particularly in the United States, its biggest market. Adidas made the announcement yesterday as deteriorating golf sales overshadowed otherwise positive second-quarter results. A spokesman said the firm was considering all options, including the possible sale of TaylorMade, the main golf business, or smaller brands Adams and Ashworth.
U.S. investment funds target Italian shipping debt deals Distressed debt investors are looking to buy shipping loans from Italian banks, encouraged by legal and regulatory changes that could reduce the chances of them getting embroiled in drawn-out bankruptcy proceedings. U.S. hedge funds including Davidson Kempner, King Street Capital, York Capital and private equity firm Z Capital, have set their sights on an estimated US$13 billion of shipping loans portfolios held by Italian banks, six sources said, speaking on condition of anonymity. Some of the loans are bad debts.
Israeli cabinet passes 2015-16 budget draft Israel’s cabinet approved the state’s budget draft for 2015-16 early yesterday after a marathon all-night session, ending weeks of political infighting that saw last-minute deals to allow the budget to head to parliament. Parliament is expected to take its initial vote on August 31 on the spending package, which will face an uphill battle because of deep divisions between ministers and other lawmakers in Prime Minister Benjamin Netanyahu’s government. Netanyahu leads a five-party coalition that came to power after elections in March.
banking shares the second-best performing group in the Stoxx Europe 600 Index in the past six months, with a 14 percent gain. The banks index reached the highest level in more than four years in July.
Deutsche Bank, BNP
Societe Generale SA shares jumped 7.9 percent on Wednesday, the most in two years, after the French bank posted the highest quarterly profit since 2007 and raised its capital target. UniCredit SpA, Italy’s largest bank, rose the most in almost three years the same day after reporting earnings that topped analysts’ estimates. Banks have scaled back to adjust to tougher conditions and more moves are in store. Deutsche Bank AG is reducing costs and selling a consumer unit, while UniCredit is revising its business plan a year after setting targets. BNP Paribas SA is contemplating the deepest cuts at its investment bank since the financial crisis, people familiar with the matter said last week, and Societe Generale plans more expense reductions. Bank lending to companies and households rose for a second straight month in June after shrinking from May 2012 through March of this year, according to the ECB. Bad debt as a portion of total lending is also shrinking, allowing banks to reduce the amount they set aside to cover credit losses. The region’s 10 largest banks recorded a 12 percent increase in combined revenue in the second quarter from a year before, with only UniCredit showing a decline.
Legal risks
Not everyone is convinced the pickup signals a long-awaited rebound, as low interest rates curb returns from lending and legal risks persist. Deutsche Bank racked up more than 11 billion euros of legal expenses since the beginning of 2008, the highest such bills for any bank in the euro area, according to data compiled by Bloomberg. The company said last week it expects “litigation to remain a burden in the coming quarters.” Bloomberg News
u.K. industrial output unexpectedly falls on oil and gas In the second quarter, industrial output rose 0.7 percent instead of the 1 percent estimated in gross domestic product data last month Jillian Ward
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.K. industrial production unexpectedly fell in June as North Sea producers cut output for the first time in three months. Total production fell 0.4 percent from May, when it rose a downwardly revised 0.3 percent, the Office for National Statistics said in London yesterday. An increase of 0.1 percent was expected by economists in a Bloomberg survey. Factory output increased a larger-than-forecast 0.2 percent. The figures come as the Bank of England prepares to release its latest interest-rate decision together with quarterly forecasts. While some policy makers are expected to push
for an increase in borrowing costs to counter growing wage pressures, recent surveys suggest the economy lost some momentum at the start of the third quarter. Purchasing managers indexes published this week showed manufacturing remains “near stagnant‘‘ while services slipped slightly last month. The economy grew at a 0.6 percent quarterly rate in July, compared with 0.7 percent growth in the second quarter, according to Markit Economics. In the second quarter, industrial output rose 0.7 percent instead of the 1 percent estimated in gross domestic product data last month. The revision had a negligible impact
of less than 0.1 percentage point on gross domestic product for the period. Manufacturing declined an unrevised 0.3 percent. In June, the fall in industrial output was driven by a 5.8 percent drop in oil and gas production, the biggest decline since January last year. It followed three months of gains and was partly due to maintenance that halved production at the Sullom Voe oil field. Manufacturing rose in seven out of 13 sub sectors, with basic metals and metal products making the biggest contribution. This was largely due to a 31 percent increase in production of weapons and ammunition. Bloomberg News
Business Daily | 15
August 7, 2015
Opinion
China’s malfunctioning WIRES financial regulations BUSINESS
Leading reports from Asia’s best business newspapers
Zhang Jun
Professor of Economics and Director of the China Centre for Economic Studies, Fudan University
THE KOREA HERALD Sales of imported cars in South Korea jumped 14.3 percent in July from a year earlier, driven by strong demand for German vehicles, industry data showed yesterday. According to the data by the Korea Automobile Importers and Distributors Association, 20,707 foreign vehicles were newly registered in the country last month, compared with the previous year’s 18,112 units. The July registration figure, however, was down 14.7 percent from a month earlier. The latest figure raised the cumulative sales of imported cars during the January-July period to 140,539 units, a 25.1 percent rise from the same period in 2014.
THANH NIEN NEWS The US poultry industry has denied allegations that it was dumping cheap products into Vietnam, one week after Vietnamese producers accused it of pursuing an unfair pricing policy. In a statement quoted by Vietnamese media, the US Poultry and Egg Export Council President James Sumner said US chicken products in Vietnam are sold at similar or even higher prices compared to those in the US. He quoted his agency’s statistics as saying that two-third of US’s chicken leg quarters were consumed in the home country.
TAIPEI TIMES The consumer price index (CPI) declined 0.66 percent last month from the same period the previous year as cheaper fuel costs depressed the inflationary gauge, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said. The absence of inflationary pressure gave the central bank room to extend its loose stance on monetary policy and weaken the local currency to shore up exports and the economy as a whole, economists said. “The CPI lost 0.66 percent last month because energy and communications cost reductions more than erased food price increases,” DGBAS Deputy Director Tsai Yu-tai said.
THE JAKARTA GLOBE The Indonesian government has lowered its full-year growth target to the range of 5.0 to 5.2 percent, from a previous figure of 5.2 percent, following second-quarter growth of 4.67 percent that was the slowest in six years, Finance Minister Bambang Brodjonegoro said. “We hope the economic growth in the second half will be better,” he said. “We will take any measure necessary to reach it.” Government spending so far this year amounts to Rp 913.5 trillion (US$68 billion), or 46 percent of the full-year budget of Rp 1,984.1 trillion.
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he tumult in China’s equity market appears to have come to an end. But considerable uncertainty remains, not only about what caused the recent plunge in the Shanghai and Shenzhen stock exchanges, but also about what the episode will mean for China’s financial-reform efforts. China’s stock-market crash has been attributed to a variety of factors. Official media initially attributed the disaster largely to the “malicious” short-selling of Chinese shares by foreign banks and traders. Later, domestic investors were added to the list of suspects, and the Chinese authorities announced a rigorous investigation into the source of short selling. More recently, the discussion has shifted toward a seemingly more credible cause: the proliferation of margin financing since 2010. With retail investors borrowing large amounts to finance share purchases, participation in the stock market surged, effectively turning a sound bull market into a “mad cow.” But while margin financing, enabled by online platforms, amplified the risks of volatility, it alone could not cause such a crash. The real culprit is the government, which first fanned the flames of excessive investment, then suddenly tried to cut off the fire’s oxygen supply. China’s fragmented regulatory system – composed of the People’s Bank of China (PBOC), the China Securities Regulatory Commission (CSRC), the China Banking Regulatory Commission (CBRC), and the China Insurance Regulatory Commission (CIRC) – exacerbated the situation considerably. Last December, after two years of a “slow bull” market, People’s Daily, the mouthpiece
of the Chinese Communist Party, announced the arrival of a so-called “reform bull” market that would push the Shanghai Composite Index far above 4,000. This convinced practically everyone that a “big bull” market, possibly lasting a decade, had begun and spurred investors to buy stocks at already-high prices. In other words, the authorities fuelled a bubble. The CSRC was pursuing an excessively narrow objective, focusing only on getting the bull market going by delivering policies and speeches aimed at boosting investor confidence and spurring participation. After this crisis, it became clear that this incentive was both toxic and precarious. The CSRC, as China’s capital-market regulator, together with other regulators, neglected to fulfil their proper mission: to create a robust institutional framework capable of sustaining strong investment. Once the market took off, euphoria took over. Even as stock-market indices moved well beyond reasonable bounds, regulators failed to predict the boom’s speed and scale. Not surprisingly, they lacked any plan for stabilizing the market in its wake. To be sure, as the A-market headed toward 5,000, regulators finally realized that the risk of a sharp correction was rising, too. But, instead of working incrementally to create strong, targeted regulations, they performed an abrupt aboutface, warning investors about risky bubbles and declaring war on margin finance. With that, the soaring index started to plummet – and the CSRC fell into chaos. Beyond issuing a flurry of administrative orders, it did little to interact with investors and the market, lacking the means to solicit
The conclusion is clear: the current regulatory system, characterized by a clear and rigid division of responsibility among its constituent bodies, is completely out of sync with China’s rapidly growing, and increasingly integrated, capital markets
public opinion and advice. It was only when the rout was in full swing that the PBOC recognized what was happening – the CSRC had been unable to turn the tide alone – and declared that it would step in to capitalize the market. The conclusion is clear: the current regulatory system, characterized by a clear and rigid division of responsibility among its constituent bodies,
is completely out of sync with China’s rapidly growing, and increasingly integrated, capital markets. Yet, according to China’s recently announced draft Internet finance regulations, the country’s “1+3” regulatory model is to be retained. It is time for China’s leaders to recognize that its regulatory framework – and, in particular, its approach to regulating the capital market – is no longer tenable, and to pursue a major regulatory restructuring. One option that has been proposed would be to create a single super-regulator, like the Financial Supervisory Committee that was established in South Korea after the 1990s Asian financial crisis. With or without such a body, improved channels for cooperation among ministries will be vital. Such cooperation is not unprecedented in China. Indeed, although ministries, seeking to protect their own turf, undoubtedly impede one another on major issues, they have been collaborating wholeheartedly in China’s effort to reshape the world economic order. Former Deputy Finance Minister Jin Liqun, whom the government has nominated to be the first president of the Asian Infrastructure Investment Bank, has indicated that the AIIB’s successful launch was driven by such ministerial cooperation. In order to protect the interests of investors better, China now must find ways to ensure such cooperation among its existing financial regulators, including by revamping the relevant institutions. As it pursues farreaching financial-sector reform, now is the time to do so. The market plunge should provide added impetus. The fear is that the recent stock-market crash may have spooked the government, causing it to slow the pace of reform, including efforts to open up China’s capital account. Whether reform momentum is maintained will depend largely on whether the government recognizes that the crash was the result of a regulatory failure, or remains adamant that it was the work of some nefarious foreign force, determined to destroy the Chinese economy. While the latter scenario is possible, it seems unlikely. Judging by China’s reform progress in recent years, and the current government’s repeated promises to deepen those efforts, I am confident that the country’s leaders will respond to the recent crash by reaffirming the financial-reform agenda. Ignoring the lessons of the recent crash would be a serious mistake – one that China’s pragmatic and tenacious authorities will be determined to avoid. Project Syndicate
16 | Business Daily
August 7, 2015
Closing China places 85 pct wildlife under protection
Metro buys Asia food service group for US$290 mln
China has placed 85 percent of land biosystems and wildlife under protection, the Ministry of Environmental Protection (MEP) stated yesterday. A new system comprised 2,729 natural reserves, and a number of forests, wetlands and geological parks, covering over 1.7 million square kilometres, 18 percent of China’s land territory. The MEP, however, admitted that overall degradation of biodiversity has not been halted. About 90 percent of grassland is degraded or is desertificated, about 40 percent of wetland is under threat and the survival of 10.9 percent of higher plants and 21.2 percent of vertebrates is under threat. Some rare species remain unprotected, the MEP added.
German retailer Metro AG has bought Singapore-based restaurant supplier Classic Fine Foods Group from private equity group EQT for US$290 million to help it expand in the food delivery business in Asia and Europe. Metro said the purchase of Classic Fine Foods (CFF), which supplies upmarket hotels and restaurants with high-quality products such as dairy, meat and seafood, would help its cash and carry business expand in fast-growing Asian markets. Reuters reported in May that Metro was among suitors for CFF including China’ state-owned Bright Food Group Co and Switzerland’s DKSH. Metro has already moved into food delivery in core markets such as China, Germany and Russia.
US$147 bln to prop up Mainland markets Goldman said the government has picked up heavyweight blue-chip stocks in sectors such as banking, insurance, food and beverage, and healthcare
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S investment bank Goldman Sachs has estimated the Chinese government has spent up to 900 billion yuan (US$147 billion) in the last two months to try to prop up stock prices and halt a market rout. After the Shanghai market peaked in mid-June and then fell 30 percent in three weeks, the government intervened with a rescue package that included funding the statebacked China Securities Finance Corp. (CSF) to buy stock. Goldman said the government spent 860-900 billion yuan to support the stock market in June and July, according to a research report issued Wednesday. The report put the total war chest of potential funds available for market support at around 2.0 trillion yuan -- including funds already spent. Bloomberg News yesterday reported that the CSF -- previously a largely unknown institution that helped provide financing to brokerages -- was seeking an additional 2.0 trillion yuan, which would bring its total market support funds to 5.0 trillion yuan.
Shanghai Stock Exchange building
Worries the government is preparing to exit the market, despite repeated denials, were the trigger for the biggest oneday fall in eight years of 8.48 percent last month. But Goldman said fears of an imminent exit by the “national team” -- as the media and market regulator have dubbed the players supporting
taiwan’s HtC to cut jobs to revive sales
the market on behalf of the government -- are overdone. “The probability of a rash exit is low as the market has not yet stabilised and the government has no pressing need for the funds,” the report said. It forecast the benchmark Shanghai index would trade in a range from the mid-
3,000 point level but would be capped at 4,500 points. Yesterday, the Shanghai Composite Index closed down 0.89 percent at 3,661.54 points. It is now down around 29 percent since its peak closing on June 12 -- nearly the level that sparked the initial government intervention. Other analysts have said
China’s machinery sector grows slower than expected
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aiwanese smartphone maker HTC Corp said it would cut jobs and discontinue models as part of its strategy to focus on high-end devices to better compete with the likes of Apple Inc and Samsung Electronics. “The cuts will be across the board,” Chief Financial Officer Chialin Chang told reporters after HTC reported a second-quarter loss and forecast another for the third-quarter. “They will be significant.” Chang said the cost reductions would extend to the first quarter of next year, but declined to give further details. A pioneer in early smartphones, HTC has been dismissed by industry watchers as confused, unoriginal and uncompetitive. The company has been losing market share over the past few years, hit by intense competition at the high-end of the market from the likes of Apple and Samsung Electronics while budget Chinese rivals have also eclipsed its low-cost offerings. Chang said HTC was banking on selling highend models in emerging smartphone markets such as India, where he said the company has a 20 percent market share of phones priced between US$250-US$400.
roduction growth in China’s machinery sector slowed sharply in the first half of 2015, an industry association said yesterday, predicting a moderate rebound amid grim conditions. The China Machinery Industry Federation (CMIF) said the sector expanded just 5.7 percent in the first six months, while the growth was 11.2 percent in the same period last year. China’s total industrial production increased 6.3 percent in H1, and growth in the machinery sector fell short of the national average. “This was very rare. The deceleration was beyond our expectation,” said the CMIF in a statement. A survey by the federation showed machinery makers were afflicted by shrinking demand, declining orders and dropping prices. The CMIF attributed the lacklustre performance to less investment caused by an economic slowdown. “The sector may slightly warm up in the latter half of the year to bring annual growth to around 8 percent, as a slew of pro-growth measures will hopefully take effect,” the CMIF reckoned. Annual growth will definitely be lower than the 10-percent increase recorded in 2014, it added.
Reuters
Xinhua
they expect the market to test support at 3,500 points and possibly at the 3,200 level in volatile trading. Goldman said the government has picked up heavyweight blue-chip stocks in sectors such as banking, insurance, food and beverage, and healthcare. AFP
Kyrgyzstan becomes fifth member of russia-backed economic bloc
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yrgyzstan became yesterday the fifth member of a Moscow-backed economic bloc of former Soviet countries, a move firmly linking the Central Asian state to Russia at the risk of disrupting trade with China. The impoverished nation of six million people signed accession papers for the Eurasian Economic Union (EEU) in December, but had to wait for the bloc’s four other members -- Armenia, Belarus, Kazakhstan and Russia -- to ratify its entry. In 1998, Kyrgyzstan was the first of the exSoviet states to join the World Trade Organisation and has since grown into a hub for the re-export of Chinese goods throughout the region after Beijing joined the WTO in 2001. But Eurasian Union tariffs on imports are significantly higher than WTO tariffs, raising fears that EEU membership will lead to a rise in prices in the mainly agrarian economy. Union membership may however ease bureaucratic troubles for up to a million Kyrgyz migrants living and working in Russia, whose remittances hold the key to social stability in the politically fragile nation. AFP