Macau Business Daily September 8, 2015

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MOP 6.00

Dorier expands in China, opens office in SAR

Closing editor: Joanne Kuai

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China’s central bank governor senses stocks rout almost finished Pages 8 & 9

Hong Kong real estate prices to drop next year Page 11

Year IV

Number 875 Tuesday September 8, 2015

Publisher: Paulo A. Azevedo

Materials prices local manufacturers’ biggest challenge Page 4

Spotlight on Tourism Little to offer. That’s the damning conclusion of a Hong Kong legislator. Yiu Si-wing said gaming-reliant Macau is even less attractive than the neighbouring SAR. And that Macau’s tourism businesses have been ‘dragged down’ by Hong Kong’s slowdown. A local scholar and trade chamber representative have called for redoubled efforts by the gov’t and industry to redress the situation Page

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Profits checking out A strong Hong Kong dollar. And regional competition from Japan and South Korea. Both combining to dampen hotel profits for stateowned travel services provider China Travel International Investment Hong Kong Ltd. Hotel revenue in the SARs dipped 20 pct y-o-y in H1 to HK$368 million

FX Falling

China's foreign exchange reserves fell to US$3.56 trillion at the end of August. Reserves decreased by US$90 billion in August. Thus marking the fourth consecutive month of falling forex reserves, according to PBOC

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Gaming

Moving On

The gov’t is to sign a public concession with public bus operator TCM. Abolishing the service contract previously slammed by the CCAC. The new contract will be similar to that of Macau New Era, says the gov’t, with different subsidy cap

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%Day

Kunlun Energy Co Ltd

+2.32

Want Want China Hol

+1.88

China Resources Powe

+0.90

CITIC Ltd

+0.63

Lenovo Group Ltd

+0.47

Hang Lung Properties

-2.41

BOC Hong Kong Holdin

-3.33

China Merchants Hold

-4.37

Galaxy Entertainment

-5.08

Belle International Ho

-5.26

Source: Bloomberg

Freefall

I SSN 2226-8294

Deutsche Bank expects gaming revenue to decline 35.2 pct y-o-y this month. To MOP16.57 billion, driven by freefalling VIP and mass markets. Analysts forecast a 27.2 per cent decrease in mass, with a whopping decline of 53 pct for the VIP segment

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2 | Business Daily

September 8, 2015

Macau

Better tourism promotion needed for Macau With Hong Kong and Macau suffering from tourism slowdown, both government and industry have to exert more effort to attract visitors to stay longer, say an academic and travel trade chamber representative Stephanie Lai

sw.lai@macaubusinessdaily.com

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ainland Chinese tourism has been slowing in both Hong Kong and Macau, prompting a local hospitality academic and travel trade chamber representative to call for better tourism promotion efforts by the government and industry here and improved support for hospitality services – especially transportation. Speaking on a programme hosted by Hong Kong’s public broadcaster RTHK yesterday, a Hong Kong legislator representing the tourism functional constituency, Yiu Si-wing, remarked that Macau’s tourism businesses have been partly “dragged down” by the slowdown evident in the Hong Kong market recently.

Mr. Yiu explained that Hong Kong, which relies on retail for tourism appeal while Macau relies on gaming, has been favoured by visitors as a destination for a Hong Kong-Macau joint tour. The Hong Kong lawmaker further added that non-gaming visitors that have travelled to Macau before had less interest in visiting again as Macau does not offer many attractions. “What Mr. Yiu said was one of the factors that contributed to the tourism slowdown seen here, but it may not be the core factor,” remarked Amy So Siu Ian, programme director of hospitality and gaming management at the University of Macau.

“We’ve had competition posed by the depreciation of Japan and South Korea’s currency, and that of Europe,” Ms. So said. “So the government really needs to promote a more diversified set of tourism elements here, and look to diversify its tourist source.”

Collective effort

The hospitality scholar said a “collective” effort is needed by the government and the casino operators here to attract overnight visitors, especially now when many casinoresorts have already put forward discounted accommodation packages to attract visitors. “Apart from Mainland Chinese, the government also has to reinforce the city’s tourism promotion to visitors from South Korea, Taiwan and Hong Kong,” Ms. So remarked to us. The Vice president of the Macau Travel Agency Association, Cheong Chi Man, said the Macau Government Tourist Office (MGTO) has already called upon his trade chamber to conduct better tourism promotions starting this month to attract more overseas visitors to visit here and extend their stay, especially those from Southeast Asia and China. “The tourism slowdown as Mr. Yiu mentioned has indeed also negatively affected here somewhat,” said Mr. Cheong. “But what’s more important to look at is that our [hospitality] services and supporting facilities still need plenty of improvements, especially like public transportation services,” the travel agency association representative added. “The transport service is in urgent need of improvement with more staff, even at the cost of importing outside labour to help with the market.”

S. Korea mulls visa waiver for Mainland Chinese South Korea is posing yet more challenges to here and Hong Kong in attracting Chinese visitors as the country has begun research into the possible introduction of visa waivers for Chinese on a gradual basis, news agency Yonhap reports. Citing an anonymous source in South Korea’s Foreign Ministry, the Ministry has asked a research centre affiliated with the International Organisation for Migration to write a report on the viability of signing a visa waiver agreement with China for ordinary passport holders. The report will be submitted by the end of October, the unnamed official told the agency. Currently, South Korea maintains an agreement allowing holders of Chinese passports for diplomats and government officials to stay in South Korea for up to 30 days without an entry visa.

In July, Macau received a total of 2.6 million visitors, a 3.8 per cent drop from a year ago. The number of Mainland Chinese visitors to Macau fell 6.1 per cent for the holiday month to nearly 1.8 million, faster than the overall decline. Meanwhile, Hong Kong recorded an 8.4 per cent fall in the number of visitors for July, with that of Mainland Chinese visitors alone sliding 9.8 per cent.


Business Daily | 3

September 8, 2015

Macau

Gov’t to sign public concession contract with TCM soon The contract terms to be signed with TCM will be largely similar to those with Macau New Era, save for the subsidy cap the government will impose upon the bus operator Stephanie Lai

sw.lai@macaubusinessdaily.com

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he Macau Government will soon convert the service contract signed with public bus operator Transportes Colectivos de Macau SARL (TCM) into a public concession, a format that will be similar to the contract signed with Macau New Era Public Bus Company in June last year. The news comes from an official dispatch published yesterday, which said Secretary for Transport and Public Works Raimundo Arrais do Rosário was authorised by the Chief Executive to sign a public concession contract with TCM. When asked by Business Daily when the signing of the public concession contract would take place, a spokesperson from Transport Bureau (DSAT) said that it would be “soon” with contract terms similar to the one signed between the government and public bus operator Macau New Era. Business Daily has asked TCM about the concession contract details, but the bus company has declined to elaborate at the moment.

Change of format

The amendment to be made to the service provider contract signed with TCM and operator Transportes Urbanos de Macau SARL (Transmac) is a response prompted by criticisms made by the Commission Against Corruption (CCAC) in November 2013. The service purchase format signed with the bus operators TCM and Transmac, which spans seven years starting from August 2011, stipulates that the bus companies do

not keep the bus fare but get a regular service charge from the government. But the Commission called this format a ‘poor use of public money’ and suggested the government switch the service provider contract with the bus operators into a public concession contract. The government signed a new public concession contract with Macau New Era Public Bus Company in June last year. Macau New Era is the bus company that replaced the bankrupt Reolian Public Transport Co. Ltd. As stipulated in the public concession contract, which expires on June 30 2017, Macau New Era will follow a new payment plan for the bus operator whereby it will receive subsidies from the government for its operation as well as keeping fares that passengers pay. The subsidies are calculated from the deduction of the estimated operation cost of fares revenue.

Different subsidy cap

The government has the authority to set a cap to the subsidies that it hands to the bus operators: whenever the revenue generated from fares and other assets deal exceeds the bus operator’s expenses by 3 per cent, the operator will have to return the subsidies it received in excess to the government. “This percentage [of subsidy cap] we have set with Macau New Era will be different to the one we’re having with TCM, but not by a large range,” the Transport Bureau spokesperson said, stressing that details will be announced later.

The amendment ... is a response prompted by criticisms made by the Commission Against Corruption (CCAC) in November 2013

In a statement released yesterday, the bureau noted that the amended contract to be signed with TCM will include terms that link the subsidies it is giving to the bus company to its performance and the enhancement of the environmentally friendly measures it should adopt for its fleet. When asked by Business Daily about the progress on the public concession contract negotiation with the government, fellow bus operator Transmac only replied that it has yet to overcome some ‘technical details’ on contract terms with the government, and that the company hoped the existing rights and duties it is having now will not change much with the new contract.

LRT inspection and environmental control awarded to LECM The contract for the inspection and environmental control of the Taipa segment of the Macau Light Rapid Transit (LRT) system has been awarded to the Macau Laboratory of Civil Engineering (LECM) and will cost the government MOP2.75 million. The payment will be made in tranches over three years. The first instalment will be paid this year in the amount of MOP0.57 million, while next year’s will be MOP1.62 and the last payment, in 2017, will be MOP0.56 million. Following numerous delays, the Taipa side of the LRT was supposed to be operational next year but earlier this year Secretary for Transport and Public Works Raimundo Rosario said this would not happen.

Gov’t spending MOP6.04 mln on VTS Saab Technologies (Hong Kong) Limited will receive MOP6.04 million for the contract for maintenance and repair of Macau’s Vessel Traffic Services (VTS) and for the acquisition of surveillance equipment. According to Macau’s Official Gazette dispatch, signed by Chief Executive Fernando Chu Sai On, this year the government will pay the Swedish company MOP1 million, MOP3.64 million in 2016, and MOP1.40 million in 2017. The Macau VTS control centres (VTS) are located in the Outer Harbour Ferry Terminal and Taipa Ferry Terminal and are primarily responsible for conducting the mandatory monitoring of vessels within Macao’s waters, especially highspeed passenger vessels navigating to or from the Outer Harbour Ferry Terminal and Taipa Ferry Terminal.

Melco Crown to run three money exchange stores in Studio City Melco Crown Entertainment is preparing to open Studio City on 27 October and yesterday received authorisation from the government to operate three money exchange stores in the new resort-casino, according to the Macau Official Gazette. In addition to the licence to run these three money exchange stores, the company founded by Lawrence Ho Yau Lung and James Packer also has a licence to operate 25 money exchange stores in City of Dreams and another 7 stores of this type in Altira Macau. This puts the total number of money exchange stores authorised to the group at 35. However, Melco Crown Entertainment is still awaiting approval of its request to install 400 extra gaming tables in the new US$3.2 billion property.

Revamp in Fai Chi Kei to cost MOP3.5 mln The government is going to pay MOP3.5 million to Sociedade de Consultadoria em Engenharia Civil, Limitada for the revamp of social facilities in the public housing in Fai Chi Kei, it was announced yesterday in the Official Gazette. Works involve the creation of divisions in different areas in the first and second floors of blocks number one and two of Fai Chi Kei public housing. Combined, all the areas where the works are going to take place total 5,000 square metres. According to the Infrastructure Development Office (GDI) the new divisions will be used as a day care centre for the elderly, study rooms and nursing home for the mentally disabled.


4 | Business Daily

September 8, 2015

Macau

Strong HK dollar, regional competition dents China Travel’s hotel earnings State-owned travel service provider China Travel International Investment Hong Kong Ltd. said its Hong Kong and Macau hotel profits had plunged by more than half Stephanie Lai

sw.lai@macaubusinessdaily.com

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strong Hong Kong dollar and regional competition from Japan and South Korea has dampened hotel operation profits for state-owned travel services provider China Travel International

Investment Hong Kong Ltd., the company’s interim report reveals. China Travel’s attributable profit from ‘travel destination operations’ - a term covering the company’s operation of hotels and investment in

theme parks and resorts in Mainland China – declined by 34 per cent yearon-year to HK$118 million for the first half of this year, a result that has been dragged down by poorer hotel earnings in the period.

Materials prices local manufacturers’ biggest challenge

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ore than half of local manufacturers suffered from the increasing cost of raw materials in the second quarter of this year, according to an excerpt from the Industrial Exports Survey conducted by the Economic Services (DSE). However, the bureau doesn’t reveal the number of enterprises surveyed. According to the excerpt, published on Monday ahead of the release of a full report, during April to June52.2 per cent of the surveyed manufacturers claimed that they had faced the challenges of surging prices of materials, while 50.7 per cent had suffered price competition from foreign companies. Some 31.6 per cent of interviewed manufacturers say they’ve faced ‘rising

salaries’, with the companies that had problems with lack of employees and shortage of orders 30.7 per cent and 11.5 per cent, respectively. The average duration of orders received by local industrial manufacturers during the second quarter of this year increased 25.9 per cent quarter-on-quarter, lasting 3.25 months on average per order. The figure also represents a 37.7 per cent increase compared to 2.36 months from the same period last year. According to the official data of DSE, ‘Pharmaceutical’, ‘other industries’, ‘apparel’ and ‘electrical/electronics’ manufacturers have 5.03 months, 3.41 months, 3.13 months, and 1.63 months of orders in hand. For export markets, the

surveyed manufacturers reckon that Mainland China and Hong Kong are rather good markets, while they perceive that other Asia Pacific countries and regions are the worst market for exports. On being asked about their prospects in the export industry for the coming six months, 20.6 per cent of interviewed manufacturers claimed they are optimistic, which, compared to the first quarter of this year, represents a rise of 2.4 percentage points, but a year-on-year decrease of 0.2 percentage points. Meanwhile, most enterprises, 67.2 per cent of the total, perceive that the prospects of the city’s export industry remain more or less the same, down 2.1 percentage points from the previous quarter.

In the period, China Travel, which runs four Metro Park Hotels in Hong Kong and one in Macau, saw its hotel operations revenue dip 20 per cent year-on-year to HK$368 million. Attributable profit in this segment also registered a 56 per cent decrease to HK$51 million. ‘The revenue and attributable profit of five hotels in Hong Kong and Macau decreased considerably due to factors including renovations in Mongkok and Kowloon Metropark Hotels, a strong Hong Kong dollar and loosened visa restrictions drawing more tourists to other destinations including Japan and South Korea,’ China Travel said in its interim report. The average occupancy rate of the five hotels in Hong Kong and Macau was 78 per cent for the first half of this year, down from the 91 per cent of a year ago. The average room rate of these hotels in the period was HK$807, 11.6 per cent down from HK$913 a year ago. China Travel did not express optimism in the SARs’ tourism market in the short term, noting in the report that overnight visitor arrivals in Hong Kong ‘will likely be under some pressure’. Groupwide, China Travel’s revenue in the first half of this year was HK$2.09 billion, while its net profit inched up 1 per cent to HK$937 million. The company’s attributable profit from core tourism operations was up 14 per cent year-on-year to HK$357 million.

Dorier expands in China, opens office in SAR

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rovider of audiovisual solutions Dorier has expanded to the territory by opening its fourth office in the People’s Republic of China. Before moving to Macau, the Swiss-based company was already operating in Beijing, Shanghai and Hong Kong via Dorier Asia. As a provider of audiovisual solutions, Dorier offers clients tailor-made solutions for event design, scenography, technical production and the creation of innovative audio-visual content, which works closely with the MICE (meetings, incentives, conferencing, exhibitions) sector. “We have ambitious growth targets for our business in Asia, and with the addition of this office

we hope we will continue to exceed our clients’ and partners’ expectations,” the Managing Director of Dorier Group, Olivier Croset, said in a statement. “Developing operations in Macau clearly reflects Dorier’s ongoing commitment to providing unparalleled audio-visual solutions to a strategically important region, which has seen tremendous potential in recent years”, the Managing Director of Dorier Asia, Alex Tan, stated. In Macau, Peter Hassal will be the Managing Director and Jeff Cheong the General Manager of Dorier Macau. According to the company statement, both are experienced in the audiovisual field and in the Macau market. The goal for them is to grow the brand locally.


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September 8, 2015

Macau

Deutsche Bank: Gaming revenues to decline 35.2 pct this month Having reviewed its predictions for the year, the investment bank now forecasts a 34.1 per cent decline year-on-year for 2015 João Santos Filipe

jsfilipe@macaubusinessdaily.com

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eutsche Bank is expecting gross gaming revenue (GGR) to decline 35.2 per cent this month, according to a report written by gaming analysts Carlo Santarelli and Danny Valoy. The forecast of the investment bank puts gaming revenues around MOP16.57 billion for the whole month, in contrast to the MOP25.56 billion registered during September 2014. At the same time, Deutsche Bank reviewed their forecast for the third quarter, full year of 2015 and for 2016 in terms of gaming revenues. All the periods were reviewed with larger drops than previously expected. “We are now projecting third quarter 2015 GGR to fall 35.1 per cent (previously -33.0 per cent) and 2015 GGR to decline 34.1 per

cent (previously -33.0 per cent). Our 2016 forecast is -5.8 per cent (previously -5.5 per cent). Our estimate for September is -35.2 per cent”, the report reads. Regarding this month, the drops in total revenue will be driven by steep declines in the VIP and mass market segments. As has been happening, VIP is expected to continue to be more affected by the so-called ‘new normal’ of the gaming sector. “Our 41.8 per cent VIP revenue decline estimate is predicated on a 53.0 per cent year-on-year decline in VIP rolling chip volume and hold of 3.80 per cent, against a 3.08 per cent hold comp from last September”.

Mass market more resilient

While the VIP segment is expected to shrink 53 per cent

year-on-year, the decrease in the mass market will be milder, at around 27.2 per cent. However, both mass table and slot revenues will be impacted. “Our expectation for a 27.2 per cent decline in the mass market assumes a 28.0 per cent year-on-year decline in mass table revenue and

a 19.5 per cent year-onyear decline in slot revenue. Mass table revenue per day in September, on a sequential basis, is estimated to be down 2.3 per cent relative to August versus an average over the last five years of -4.1 per cent”, the analysts continued. As for the third quarter of the year, Deutsche Bank

expects VIP revenue to be around US$3.48 billion (MOP27.77 billion), a 40.6 per cent year-on-year decline. At the same time, mass market revenues are predicted at US$3.25 billion (MOP25.98 billion), meaning a 27.9 per cent year-on-year drop. Still, according to analysts Carlo Santarelli and Danny Valoy for the whole year of 2015 VIP revenues are predicted to reach US$15.65 billion (MOP124.9 billion), meaning a decline of 41.1 per cent year-on-year, with mass market revenues US$13.32 billion (MOP106.36 billion), a drop of 23.6 per cent. The two segments combined will result in total revenues for this year of US$28.97 billion (MOP231.26 billion), representing a decrease of 34.1 per cent year-on-year.


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September 8, 2015

Macau

Prada renegotiating Hong Kong rentals amid China slowdown Despite high shop rents, the Italian fashion house does not plan to shut stores in China

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talian fashion house Prada is trying to negotiate lower shop rents in Hong Kong and Macau to reflect weak sales and the dwindling flow of wealthy tourists from mainland China, its chairman said on Thursday. However, the Hong Kong-listed group does not plan to shut stores in China, which accounts for more than a fifth of its global sales and has been hit by a rout in stock markets and last month’s surprise devaluation of the yuan.

China has gone from being an El Dorado to being an interesting market. We believe it can return to be a fairly good market but it’s hard to say how long it’ll take Carlo Mazzi, Prada Chairman

China’s economic slowdown is hurting the two shopping hubs, forcing several luxury brands to close shops or at least attempt to lower sky-high rents - with little luck so far. “Like our competitors we’ve started re-negotiating rents for shops in weak spots such as Hong Kong and Macau but landlords are not being very receptive, they’re rather rigid,” Prada Chairman Carlo Mazzi told Reuters in an interview in Milan. “China has gone from being an El Dorado to being an interesting market. We believe it can return to be a fairly good market but it’s hard to say how long it’ll take,” he said. Asia-Pacific is Prada’s biggest market, representing 36 per cent of total revenues. Greater China alone accounts for 22 per cent, or 774 million euros. Betting on fast-rising Chinese consumer demand, Prada picked Hong Kong for its market debut in mid-2011 and used the cash to repay debts and fund a costly retail expansion, opening 260 shops worldwide in four years. But after being the growth engine of the luxury sector for years, China has become a headache for big brands as its economic growth began to slow. The main stock market index has slumped almost 40 per cent since a seven-year high in mid-June. The Milanese group has seen profit margins fall in recent quarters as

revenue weakened while costs rose. Retail sales in the Asia-Pacific region fell 17 per cent at constant currencies in the three months to the end of April, rising marginally only thanks to the foreign exchange boost. Prada said last month trends in the Asia-Pacific region were little changed due to persistent difficulties in Hong Kong and Macau. It releases full first-half results on September 15.

Alternatives

“Boosting sales is not an easy goal at this time,” Mazzi said. “The phase of massive retail investments is behind us...We need alternatives to the shop network expansion,” he added, citing e-commerce and improving returns at existing shops. Luxury groups are still reeling from Beijing’s clampdown on lavish gift-giving and the blow to tourism in Hong Kong from last year’s prodemocracy protests. Mazzi expects sales in the former British colony, where Prada has 22 shops, to recover over time but growth rates are likely to be more modest than in the past. “We’re limiting expansion projects in Hong Kong and Macau,” Mazzi said. But “even with lower sales our Chinese stores continue to have positive - though much smaller margins. Closing shops in China is not on the table,” he added.

KEY POINTS Despite weak spots, no plans to close China stores Alternatives to shop network expansion needed to boost sales Uncertainties hold back investment in Africa, India “Let’s not confuse China with South American markets, knocked down by falling oil prices. China is not down on its knees, it just needs to correct some issues it has with its economy.” Prada, which also owns brands Miu Miu and Church’s, has just over 600 stores globally, of which 94 are in Greater China. No clear alternative market has emerged and Mazzi said Prada was not targeting expansion in any particular country. “There are uncertainties that hold back investments in markets where we had planned to boost our presence, such as Africa,” he said, also mentioning logistical and political problems in India. Reuters


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September 8, 2015

Gaming

Australia to crack down on illegal offshore betting operators Canberra has been forced into a fresh review of the Interactive Gambling Act because outdated laws have been rendered too ambiguous for new forms of controversial sports betting via smart phones and online poker services

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ustralia is set to crack down on illegal offshore gambling, with Social Services Minister Scott Morrison flagging a review of betting operators conducting business in Australia. Morrison said on Monday that while online betting and gambling is a US$1.1 billions industry in Australia, more than 60 per cent of operators do not pay tax. He said the government would be undertaking a “serious review” of the nation’s gambling laws. “According to the Australian Institute of Family Studies (AIFS) online gambling is a US$1.6 billion dollar business in Australia with sixty per cent of this revenue going offshore to more than 2, 000 sites beyond the reach of our regulators and tax collectors,” Morrison said in a statement. “Unlike Australia’s licensed operators, overseas agencies don’t contribute product fees to racing and sporting bodies, do not comply with Australia’s legal system and are

not obligated to monitor and report suspicious betting activity.” “Illegal offshore wagering also leaves Australian punters without protection for payouts on their winnings.” Morrison said gambling addiction affects hundreds of

thousands of Australians and by not properly monitoring and taxing these offshore companies, many are susceptible to losing a lot more than their money. “More than 400,000 Australians, mainly men, have gambling problems. These issues can affect hundreds of

thousands of Australian families and the children growing up in them,” he said. “Problem gambling can also have a significant impact on social services and welfare spending such as income support payments, financial counseling and measures to address domestic violence. “It is critical that we undertake a serious review of the impact of these illegal offshore operations on Australian consumers as well as our racing and sports industries and identify ways in which we can work to curb these impacts. It is especially important we look at what can be done to protect individuals vulnerable to problem gambling.” Morrison said the internal government review would begin immediately, with former New South Wales Premier Barry O’Farrell to oversee the investigation. The final recommendations are expected to be passed on to parliament by December 18. Xinhua

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September 8, 2015

Greater China

Beijing admits stock bubbles, says routs al

Investors worry the government will reduce its intervention, given the huge cost for little

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hina’s central bank governor and its market regulator have admitted that there were “bubbles” on the country’s stock exchanges, after a spectacular rally was followed by a painful bust, but said the turbulence was coming to an end. The benchmark Shanghai Composite Index by more than 150 percent in the year to June 12, fuelled by debt rather than fundamentals and encouraged by authorities. It has since plummeted nearly 40 percent since then, with official interventions to the tune of hundreds of billions of dollars failing to arrest the declines. People’s Bank of China (PBOC) Governor Zhou Xiaochuan (pictured) pointed to the March-June period in particular, when the Shanghai index leaped 70 percent. “Bubbles continued to build up until mid-June,” he told a G20 meeting of finance ministers and central bank governors in Ankara at the weekend, according to a statement on the PBOC website. “Since mid-June, three rounds of corrections took place in China’s stock market,” he went on. “The first two did not have international impact, while the third one in late August (had) some global influence.” Chinese bourses are largely separated from the rest of the world’s financial system by limits on investment from overseas. But news last week of a contraction in an official

gauge of Chinese factory activity sent domestic and world markets into a tailspin on worries the economy was headed for a “hard landing”. “The correction in the stock market has now come close to an end,” Zhou said in the statement, refraining from using the word “burst” and adding the Chinese economy was not “much affected” by the rout.

The market regulator, the China Securities Regulatory Commission (CSRC), echoed his comments in a statement on Sunday. “Gains on the stock market had been too rapid and large, forming stock market bubbles, therefore subsequent plunges and adjustments were inevitable,” it said. “At present, market risks and

bubbles have been released to some extent,” it added. Analysts estimate the Chinese government has spent hundreds of billions of dollars to prop up stock prices, including funding state-backed China Securities Finance Corp. (CSF) to buy shares. But investors worry the government will reduce its intervention, given the

Currency reserves fall by record on yuan support Although the PBOC holds almost a third of the world’s reserves

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hina’s foreignexchange reserves fell by a record last month as the central bank sold dollars to support the yuan after the biggest devaluation in two decades spurred bets on continued weakness. The currency hoard declined by US$93.9 billion to US$3.56 trillion at the end of August, from US$3.65 trillion a month earlier. Economists surveyed by Bloomberg had forecast a median US$3.58 trillion. The data illustrates the cost to China as it props up its currency and seeks to stem an outflow of capital that threatens to deepen the nation’s economic slowdown. Chinese officials telegraphed confidence in the economy’s underlying solidity, predicting stabilization in stocks and the currency at a gathering of Group of 20 finance chiefs Friday and Saturday. “If the central bank continues its intervention, China’s foreign-exchange reserves will continue to shrink -- the heavier the intervention, the deeper the fall,” said Li Miaoxian, a Beijing-based analyst at Bocom International Holdings. While the central bank is trying to talk up the yuan exchange rate, it’s

The level of the reserves remains very high and larger than what China needs, so there’s no threat to currency stability Dariusz Kowalczyk, strategist, Credit Agricole CIB

“inevitable” China will see continuous capital outflows and yuan depreciation pressure in the coming months. The offshore yuan traded in Hong Kong erased gains after the reserves figures were announced. The G-20, meeting in Ankara, pledged to avoid titfor-tat currency devaluations;

the U.S. Treasury chief separately said that China should avoid persistent exchange-rate misalignments. The biggest drop in China’s currency in 21 years last month had spurred concern that a weaker yuan will hurt countries exporting to China. China’s reserves more than tripled in the past decade as the People’s Bank of China

bought dollars to slow the yuan’s appreciation amid a swelling trade surplus. The PBOC holds almost a third of the world’s reserves. To ensure the influx of money didn’t spur a surge in inflation, the central bank raised the required reserve ratio for banks. With reserves now in reverse, the central bank has lowered

reserve requirements, with economists forecasting further reductions. Expectations that the U.S. will increase interest rates for the first time since 2006 this year are also luring funds from China, which has been loosening monetary policy since November. “The hope for the PBOC, we believe, is that extreme selling pressure on the yuan subsides and they can allow a moderate depreciation to restore export competitiveness,” Bloomberg Intelligence economists Tom Orlik and Fielding Chen wrote in a note. “The fear is that today’s data will reinforce the market view that the only way for the yuan to go is down, and further accelerate capital outflows.” A sustained shift from buying to selling from China would add pressure for Treasury yields to rise, the analysts wrote. “The decline is significant, and it’s slightly deeper than we thought,” said Dariusz Kowalczyk, a Hong Kongbased strategist at Credit Agricole CIB. “The level of the reserves remains very high and larger than what China needs, so there’s no threat to currency stability.” Bloomberg News


Business Daily | 9

September 8, 2015

Greater China

lmost over State planner sees signs of stabilization

e effect

BlackRock sees opportunities in real estate

The customs office is due to release August trade figures today The correction in the stock market has now come close to an end Zhou Xiaochuan, People’s Bank of China (PBOC) Governor

huge cost for little effect, and the market’s limited impact on the real economy. The CSRC sought to reassure traders, saying: “When fierce and abnormal volatilities take place in the stock market and may trigger systemic risks, the government will absolutely not sit back. “We will take decisive and multiple measures to stabilise the market in a timely manner,” it said, adding the CSF will “continue to play a stabilising role”. “Market transactions are basically normal and the liquidity is ample,” it added. The state-owned China Securities Journal reported last week that securities firms were transferring more funds to the CSF to help stabilise the market, with the additional amount estimated at more than 30 billion yuan (US$4.7 billion). AFP

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hina’s power usage, rail freight and property market have all shown improvement since August, indicating that the economy is stabilising, the country’s top economic planning agency said yesterday. The effects of supportive policies, including interest rate cuts, property market stimulus and local government debt swaps, will feed into the economy over the next few months and help underpin growth, the National Development and Reform Commission (NDRC) said on its website. “The power usage, rail freight, as well as real estate prices and turnover have all improved into August, indicating the economy is stabilising amid fluctuations,” the NDRC said. “The economy is expected to maintain steady growth and we are able to achieve annual economic growth target,” it added. A flurry of recent soft indicators - and a collapse in China’s stock markets - had heightened fears of a hard landing for the world’s secondbiggest economy and sent global financial markets into a tailspin. The recent downbeat data, however, has raised the risk the government could miss the full-year growth target.

The National Bureau of Statistics said yesterday that it had revised China’s economic growth rate in 2014 to 7.3 percent from the previously released figure of 7.4 percent. The NDRC cited data from the State Grid as saying that China’s total power consumption in August rose 2.47 percent on the year - the fastest growth so far this year and steady growth was likely to continue in September. The average daily rail freight volume rose 1.6 percent in August from July, the NDRC said China’s exports are likely to swing into positive growth in August from a 8.3 percent drop in July, the agency said without giving specifics. The customs office is due to release August trade figures on Tuesday. Analysts polled by Reuters expected exports to drop 6.0 percent in August compared with a year earlier. Reuters

2014 GDP growth rectified down A final confirmation could come in January 2016

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hina yesterday lowered last year’s economic growth figure to 7.3 percent after concerns about slowing expansion caused global market havoc, but said its own stock exchanges are stabilising following “bubbles” and painful corrections. The new number remains the lowest since 1990, when growth plummeted to 3.9 percent. Global stock markets have been pummelled by concerns over slowing growth in the nation, a key driver of the world economy.

The National Bureau of Statistics said on its website it reduced the gross domestic product (GDP) growth figure from the 7.4 percent announced in January after a “preliminary confirmation”. A final confirmation could come in January 2016, it added. After decades of double-digit expansion, authorities are trying to pull off a tricky rebalancing -from an investment- and exportled economic model to one where domestic consumer demand drives slower but more sustainable growth. Finance minister Lou Jiwei told a

Finance minister Lou Jiwei told a G20 meeting economy had entered a “new normal”

G20 meeting of finance ministers and central bank governors in Ankara at the weekend that the economy had entered a “new normal”. Growth was “expected to remain at around seven percent and the situation may sustain for four to five years”, he said. Nomura International analyst Wendy Chen said yesterday’s GDP correction was largely related to service sectors, which were key to the overall transition but had lower growth than earlier figures showed.

‘Risks and bubbles’

The National Development and Reform Commission, China’s top economic planning agency, played down growth concerns, saying electricity consumption and railway cargo transport -- two of the indicators Chinese Premier Li Keqiang reportedly refers to when gauging the health of the economy -- improved in August. Property prices and transaction volumes also rose, it said in a statement yesterday, predicting the economy was “able to achieve the full-year expansion target” of around seven percent. “The GDP figure correction for last year has little impact on the market,” Shenwan Hongyuan Group analyst Qian Qimin told AFP. “It was the figure for last year and everyone knows the economy is not good anyway.” AFP

The private equity arm of BlackRock Inc is ready to increase its exposure to Chinese commercial real estate as it sees good entry points following recent weakness in the economy and credit environment, an executive of the U.S. money manager said yesterday. John Saunders, Head of Asia-Pacific Real Estate at BlackRock, told Reuters the fund would target mass-affluent shopping malls and Grade A and B offices in China’s first-tier and selective second-tier cities. “We see the current malaise as a good entry point that we believe will throw up some good opportunities,” Saunders said.

Yuan FX swap deal signed with Tajikistan China’s central bank has signed a 3 billion yuan (US$471 million) currency swap with Tajikistan, the bank said on its website. The People’s Bank of China said yesterday the swap lasts three years and aims to boost bilateral trade and investment and to stabilise regional financial markets. State news agency Xinhua reported on Saturday that the swap was worth 3.2 billion yuan, citing Tajikistan’s central bank.

Australian Treasurer warns on FTA outcome Australia’s Treasurer Joe Hockey has warned colleagues that if the opposition blocks the China-Australia free trade agreement, China could walk away from the landmark deal. Talking to the Australian Broadcasting Corporation yesterday, Hockey said he had discussed the terms of the free trade agreement with Chinese Finance Minister Lou Jiwei at a G20 meeting between the world’s finance ministers in Turkey over the weekend. Hockey said it could be up to a decade before China would renegotiate the deal if it was blocked by Labour in Parliament.

Man Group head says not investigated The China head of hedge fund Man Group said yesterday she had not been taken into custody by the Chinese authorities, denying media reports that said she was being investigated. Li Yifei told Reuters she had been attending industry meetings. She also said had taken a 5-6 day trip to meditate. “I wasn’t investigated,” Li told Reuters by telephone, adding she was “shocked” by the media reports. Bloomberg had reported that Li had been taken into custody.

Vice minister pledges better air quality Environmental quality is the only criterion to measure the performance of the environment watchdog, Vice Minister for the Environment Pan Yue said yezterday, vowing to further reduce air pollution. To improve air quality, environment regulators should not only focus on reducing emissions of major pollutants but all polluting discharge, Pan said in an interview. “There are many factors that have an influence on air quality, therefore, total emission regulation is needed,” he added. Pollution reduction measures should not just focus on industry, he said, urging efforts to reduce vehicle emissions and agriculture discharge, too.


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September 8, 2015

Greater China

Outbound investment quotas frozen as outflows hurt yuan Chinese investors are seeking to diversify in overseas assets after the Shanghai Composite Index of shares tumbled

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hina refrained from granting new quotas for residents to invest in overseas markets for a fifth month in August, the longest halt in six years, as authorities seek to stem weakness in the yuan. The State Administration of Foreign Exchange, which has approved 132 local institutions to put as much as US$89.99 billion in offshore assets via its Qualified Domestic Institutional Investor program, hasn’t granted new allocations since March. Quotas for overseas investors to access domestic capital markets rose US$16.4 billion to US$140.3 billion in the period, data from the regulator show. The yuan traded 1.4 percent weaker outside of China than inside the country yesterday, indicating depreciation pressure. China is trying to open its capital account enough for the yuan to win reserve status from the International Monetary Fund, while trying to curb an exodus of funds from an economy expanding at the slowest pace since 1990. Chinese investors are seeking to diversify in overseas assets after the Shanghai Composite Index of shares tumbled 39 percent from this year’s peak on June 12. The yuan slumped 3.6 percent in Shanghai and 4.9 percent in Hong Kong in the past 12 months. “Interest is there but whether the money can leave in the short term is the problem,” said Thomas Kwan, Hong Kong-based chief investment

officer at Harvest Global Investments Ltd., whose Chinese unit offers QDII funds. “To avoid triggering excessive yuan outflows, I don’t think regulators would grant additional QDII quotas in the short term.” The State Administration of Foreign Exchange didn’t reply to a faxed request for comment. China’s QDII quota increased 8 percent in the first quarter of this year, after falling 1 percent in 2014 as the regulator withdrew some unused ones. That for Qualified Foreign Institutional Investors, allowing overseas companies to buy domestic securities with foreign currency, has expanded 15 percent this year. “Policy makers are not enthusiastic about granting more QDII quotas right now,” said Chen Xingdong, chief China economist at BNP Paribas SA in Beijing. “The depreciation pressure has intensified. They don’t want to do anything now that could strengthen capital outflows.”

By liberalizing offshore investment for mainlanders, there’s a potential that if people onshore are genuinely lacking in confidence in local markets, then there’s really no other place for you to park your money Aidan Yao, senior economist, AXA Investment Managers

Capital account

Impossible trinity

China’s foreign-exchange reserves fell US$315 billion in the year through July to US$3.65 trillion. The stockpile may have dropped by as much as US$200 billion in the last few weeks of August on People’s Bank of China moves to support the yuan, Michael Every, head of financial markets research at Rabobank Group in Hong Kong, wrote in a September 1 research note.

Expectations that the U.S. will raise rates for the first time since 2006 this year are also luring funds from China, which has been loosening monetary policy since November. The one-year Chinese government bond yield is 1.91 percentage points higher than that of U.S. Treasuries, down from 3.74 a year ago.

Mobius to Beijing: quit fighting the market and let stocks fall Traders are positioning for further downside in the options market

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ow do you get a bottom-up stock picker, a chart watcher and an economist to agree? Try asking them about Chinese equities. Mark Mobius (pictured), Tom DeMark and George

Magnus -- world-renowned forecasters who view markets through three very different lenses -- are all finding common ground with their predictions that Chinese shares have further to drop. They say government efforts

“Interest to have U.S. dollar exposure is much higher now because of worries on yuan depreciation,” said Harvest’s Kwan. Diversification is now a consideration as well as returns, he said, so clients are becoming interested in developedmarket equities in addition to Hong Kong dollar-denominated Chinese shares and U.S. currency bonds of Chinese companies. By keeping borrowing costs low to counter the slowdown, seeking to prevent further currency depreciation with intervention and opening up the capital account, policy makers are challenging Nobel-winning economist Robert Mundell’s “impossible trinity” principle. That theory stipulates a country can’t maintain independent monetary policy, a fixed exchange rate and free capital borders all at the same time.

to prop up the US$5.1 trillion market are futile, a view that’s gaining traction among analysts after an unprecedented two-month rescue effort failed to spark a sustained rally. “I’d expect the government

China’s capital and financial account deficit was a record US$78.9 billion in the first quarter of this year. Vice Public Security Minister Meng Qingfeng said regulators will start a campaign to crack down on underground banks and illegal crossborder money transfers, according to an August 24 statement on the ministry’s website. On the home front, China is pressing ahead with easing capital controls. On July 15, it issued new

to be reducing intervention,” Mobius, the Franklin Resources Inc. money manager who’s been investing in emerging markets for more than four decades, said in an interview in Hong Kong on Friday. “They realize it’s not working.” The Shanghai Composite Index will probably drop to 2,590 before prices bottom out, DeMark, who has spent more than 40 years developing indicators to identify market turning points, said in an interview on August 31. Magnus, a senior independent economic adviser to UBS Group AG, says the government needs to allow the gauge to slump to between 2,500 and 2,800.

Bearish positions

Traders are positioning for further downside in the options market, where bearish contracts on the mainlandlisted China 50 ETF climbed to the most expensive level on record versus bullish ones last week. In the U.S., an ETF designed to make money when Chinese shares fall has recorded a 60-fold surge in assets since June. Foreign money managers have sold Shanghai equities through the city’s crossborder exchange link for four straight days, bringing outflows since July 3 to US$4.9 billion. Valuation

gaps between dual-listed shares are approaching the widest levels since 2009, a sign that international investors in Hong Kong are even more pessimistic than their mainland counterparts. Japan’s experience in the 1960s shows state support measures can work, according to Paul Sheard, chief global economist at Standard & Poor’s in New York. Japanese authorities helped set up rescue funds to buy equities after a big selloff in 1963. Shares ultimately rebounded and economic development continued. For Alex Wong, a Hong Kong-based assetmanagement director at Ample Capital Ltd., Chinese stocks are still too expensive to lure non-state investors. Equities on mainland bourses traded at a median 45 times reported earnings last week. That’s the highest among the 10 largest markets and more than twice the 18 multiple for the Standard & Poor’s 500 Index. The Shanghai Composite, where low-priced banks have some of the biggest weightings, has a ratio of 16. “It wouldn’t be surprising to see another 5 to 10 percent fall during big volatility this week,” Wong said. The government “can’t buy stocks forever,” he said. Bloomberg News


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September 8, 2015

Greater China National and NZ mayors gather in Xiamen The inaugural China-New Zealand Mayoral Forum is being held in Xiamen, a coastal city in east China’s Fujian Province, yesterday. The event, organized by the Chinese People’s Association for Friendship with Foreign Countries and the Local Government New Zealand lobby group, has attracted more than 200 participants from the two countries, including mayors, governors, business and education leaders. Ma Peihua, vice chairperson of the National Committee of the Chinese People’s Political Consultative Conference, the country’s political advisory body, addressed the opening ceremony. Ma called for more exchanges between mayors and governors of both countries.

OECD says too soon to calibrate devaluation impact

rules requiring only registration instead of pre-approval for foreign central banks, sovereign wealth funds and global financial organizations to trade Chinese bonds. In the other direction, progress has stalled with no details on extending a stock exchange link between Shanghai and Hong Kong to include Shenzhen. It’s reasonable to expect the QDII2 scheme, allowing domestic investors to buy overseas

property or securities directly, to be delayed, Huang Li, a Shanghaibased analyst at Fitch Ratings, said last month. Outbound investment flows via QDII rose about 30 percent following the stocks rout, she said, based on third-party data. “By liberalizing offshore investment for mainlanders, there’s a potential that if people onshore are genuinely lacking in confidence in local markets, then there’s really

no other place for you to park your money,” said Aidan Yao, a Hong Kong-based senior economist at AXA Investment Managers, which oversaw the equivalent of US$773 billion at the end of June. “The issue is with investors looking offshore for investment opportunities at a time when confidence is not restored. You could risk larger outflows than otherwise.” Bloomberg News

Hong Kong home prices may begin to drop in 2016 Hong Kong reported the weakest home sales in 17 months last Wednesday Jill Mao

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ong Kong’s property prices may correct next year after reaching a record high, as an economic slowdown in China and Hong Kong starts to weigh on real estate, according to JPMorgan Chase & Co. Residential prices may start to fall by 5 percent to 10 percent annually starting in 2016, Cusson Leung, head of Hong Kong research, conglomerates and property for JPMorgan, said in a briefing on Friday. Prices of new homes will rise by 5 percent in 2015, as demand remains strong. Prices of existing housing will increase by 10 percent, according to Leung. Leung said the shrinking retail market, driven by luxury brands closing stores, as well as the prospect of rising unemployment in Hong Kong will hurt property sales. Investors globally have been rattled by concern that China’s growth is slowing and that the markets may not be able to

withstand an increase in U.S. interest rates. “Pressure on the economy is the biggest concern here instead of an interest rate hike,” said Leung. Hong Kong’s private-sector economy suffered its sharpest contraction since 2009 in August, sending a warning sign for the

economic health of Asia’s financial capital. Hong Kong reported the weakest home sales in 17 months last Wednesday, after a month-long stock rout that began in China hurt market sentiment among homebuyers and investors. It sold onethird fewer units in August than a year earlier, according to data from the government. Centaline Property Agency Ltd., one of Hong Kong’s two largest property brokers, said its volume of contracted sales for existing apartments valued from HK$10 million (US$1.3 million) to HK$20 million plunged 50 percent last month as the Hang Seng Index stock benchmark declined. Volumes may shrink a further 20 percent in September from August, Louis Chan, chief executive officer of Centaline’s residential unit said last week. Bloomberg News

A senior official at the Organisation for Economic Cooperation and Development said yesterday that it was too early to interpret China’s recent yuan devaluations as an attempt to boost its exports. OECD Deputy Secretary-General Rintaro Tamaki, speaking at a news conference in Tokyo, said the scope of the devaluations was rather small to be aimed at the promotion of exports. He added that utmost attention should be paid to whether China can carry out structural reform to achieve stable and sustainable economic growth.

Exploring cooperation in e-commerce with ASEAN

China and ASEAN countries will explore cooperation in e-commerce during the 12th China-ASEAN Expo lasting from September 18 to 21 in Nanning, capital of Guangxi Zhuang Autonomous Region. More than 500 political and business leaders as well as experts from China and 10 ASEAN countries will join the China-ASEAN e-commerce summit, scheduled from September 18 to 19. Executives from China’s e-commerce giants including Alibaba and JD.com are also expected to attend. The summit will centre around four topics -- Internet plus new economy, cross-border e-commerce new base, economic and trade information sharing harbour, and new opportunities of innovation and business start-ups.

Training for UN military observers launched The Ministry of National Defence yesterday started an international training course for military observers of the United Nations (UN). More than 40 military personnel, including Chinese training instructors and foreign attaches to China from 22 countries such as Australia, Denmark and the United States, gathered in Beijing to attend the threeweek training course. The sessions will be oriented around UN peacekeeping missions and will be in English. Courses will include a range of topics including case analysis and simulation drills.


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September 8, 2015

Asia

“Thaksinomics” return as Thai junta rethinks revival strategy The man charged to lead the economic revival plan is marketing executive Somkid Jatusripitak Martin Petty and Orathai Sriring

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he generals battling to revive Thailand’s economy have been loath to employ anything resembling populism, having lambasted their predecessors for policies they say haemorrhaged billions of dollars and left Thais saddled with record household debt. But in a stark strategy shift, the military has had to bite the bullet and reopen the populist playbook of the billionaire Shinawatra family whose governments they have twice overthrown in coups. The junta announced last week it would channel 136 billion baht (US$3.8 billion) into getting the rural masses spending to rev-up an economy stuttering amid weak exports, falling factory output and scant retail growth. The man charged to lead the economic revival plan is marketing executive Somkid Jatusripitak, the new boss of a technocrat team given three months to get the economy in shape after what amounted to a purge by the junta of underperforming policymakers last month. The irony is Somkid, now deputy prime minister, was the architect of “Thaksinomics”, the populist handouts that spurred GDP growth to as much as 7.2 percent but angered the military-backed royalist establishment because they entrenched the popularity

and electoral dominance of the man they revile - former premier Thaksin Shinawatra. And he’s not worried about a backlash. Though no longer part of Thaksin’s political clique, Somkid has made no attempt to brand the policies any differently, using Thaksin’s term “village funds” and promising to relaunch his One Tambon One Product (OTOP) initiative, where each small area grows or produces just one highquality product.

Spending for the military

Somkid says the stimulus is just the start and measures to boost long-term competitiveness will follow. It’s unclear if the extra spending will spur a durable economic recovery though, with growth clocking a feeble 0.4 percent on-quarter in April-June. Somkid, 62, who runs a marketing business, has held finance and commerce portfolios in previous governments. He was an advisor to the junta but is reported to have clashed with the man he replaced as deputy prime minister, royalist Pridiyathorn Devakula, who served two military governments. The new rural stimulus measures 60 billion baht in village microloans, 36 billion in sub-district spending and 40 billion for small projects - represent

a smaller-scale revival of the policies that stoked months of protests last year against Yingluck Shinawatra’s government, which culminated in a coup. Populism is core to Thailand’s political crisis, angering middle classes who consider it vote-buying in the guise of fiscal stimulus and a reckless use of their tax money.

Time bomb

The rescue package comes at a critical time, with low commodity prices hurting farmers’ income and consumer confidence, which was down in August for an eighth successive month to its lowest since the May 2014 coup. Output from the autos and electronics-led manufacturing sector has fallen on an annual basis in 27 of the past 28 months, while exports, equivalent to 60 percent of Thailand’s US$374 billion economy, have fallen for seven straight months after two years of annual contraction. Somkid has been an instant hit in local business circles, drawing loud laughter and applause during an hour-long speech in front of hundreds of businessmen last month during which he promised to revamp the rural economy and create “spark and motivation”.

I think positively… You have to build the strength of the grassroots economy or else the whole economy cannot survive Somkid Jatusripitak, Thai economic revival team leader

Thirachai Phuvanatnaranubala, the first finance minister in Yingluck’s ousted government, welcomed the new approach but with household debt at 80 percent of GDP, he said Somkid’s team should tread very carefully. “Grassroots stimulus through consumption is not the answer,” he told Reuters. “Stimulus through personal debt is just a time bomb. The benefit will be short lived, and the payback painful.” Reuters

BoJ officials less confident in underlying growth Data released after Kuroda spoke in late August indicated the economy entered the third quarter lacking momentum Toru Fujioka and Masahiro Hidaka

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ank of Japan officials’ confidence in underlying economic growth is wavering in face of evidence of weakness, making them cautious about the outlook for a pickup in inflation, according to people familiar with the discussions. For months, BOJ officials regarded a downturn in the economy in the second quarter as a temporary soft patch, with growth and inflation likely to pick up in ensuing months. Now, the outlook may not be so clear,

with weakness in industrial output and exports weighing on a rebound, and renewed declines in oil pressuring inflation expectations, according to the people, who asked not to be named because the discussions were private. Governor Haruhiko Kuroda said on August 26 in New York that recent weakness in production and exports would pass and that, while the central bank was ready to adjust monetary policy if necessary, the

current level of stimulus was enough to spur consumer price gains to its 2 percent target. The BOJ chief last October unexpectedly expanded easing to ward off the risk of an extension in a “deflationary mind-set” in the wake of a tumble in oil prices. With Kuroda’s repeated expressions of confidence in a rebound in inflation, some economists in recent months have pared back their expectations for additional monetary stimulus, surveys

show. Turmoil in China’s markets, along with domestic weakness, could challenge that shift. “It’s becoming more difficult for the BOJ to achieve its bullish scenario for the economy and inflation,” said Yasunari Ueno, an economist at Mizuho Securities Co. Ueno, who has been among those predicting the BOJ will step up its asset purchases, also said that additional stimulus is unavoidable if the central bank wants to retain its credibility.

The economy is seen shrinking an annualized 1.8 percent in the second quarter from the first three months of the year. While retail sales rose for a fourth straight month in July, industrial output and household spending unexpectedly declined and the BOJ’s main inflation gauge slipped to zero percent for a third time this year. There have also been signs of weakness in inflation expectations. Bloomberg News

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September 8, 2015

Asia

Indonesia more exposed to capital flight than Malaysia Indonesian stocks and local-currency sovereign bonds have fallen faster than Malaysia’s Lilian Karunungan and Yudith Ho

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ocked by a political scandal and falling oil prices, Malaysia has been dominating headlines in recent months as the ringgit leads a drop in Asian currencies. That’s taken the spotlight off the economy of neighbouring Indonesia, which Standard & Poor’s says is more exposed to capital flight. “The thing about Malaysia is that the capital market is deeper there, so there’s less reliance on foreign capital among corporates or banks to fund their growth,” said Kyran Curry, S&P’s director of sovereign ratings in Singapore. “Indonesia is much more vulnerable to shifts in outflows and inflows. We’re worried about Indonesia’s foreign-exchange reserves.” Bank Indonesia’s reserves have fallen almost 7 percent in the five months though July, with figures for August due later on Monday. While that’s less than in Malaysia, Curry says he’s concerned as the monetary authority in Jakarta has recently been “spending a lot to stabilize volatility in the currency.” The rupiah has weakened 4.9 percent since the end of July, less than half the 11 percent slide in the ringgit, as China’s devaluation of the yuan spurred depreciation in the region.

Fund flows

“The government is doing things and the central bank is working to try and deepen the local capital market but it’s taking a long time to develop,” said Curry. Indonesia’s benchmark stock gauge lost 15 percent over the past three months, compared with a 10 percent drop in Malaysia. The two countries’

local-currency bonds are the only decliners in Asia over the period. Malaysia’s have dropped 0.7 percent and Indonesia’s have fallen 1 percent, according to Bloomberg indexes. Foreign funds have pulled US$467 million from Indonesian shares this year after pumping a net US$3.8 billion into the securities in 2014, exchange data show. Some 16.4 billion ringgit (US$3.8 billion) has been taken out of Malaysian stocks in 2015, following 6.9 billion ringgit of outflows in 2014. With the highest yields in emergingmarket Asia, Indonesia’s local- currency sovereign bonds are popular with overseas investors, who own almost 38 percent of them. The ratio in Malaysia is 32 percent, according to data compiled by Bloomberg. “Malaysia never had the massive inflows that Indonesia had over the course of the last few years,” said S&P’s Curry. Neither Indonesia nor Malaysia’s credit ratings are under any immediate threat, he said. S&P is the only one of the three big rating companies that doesn’t rank Indonesia as investment grade, assigning the country its top junk rating of BB+. It assesses Malaysia four levels higher at A- with a stable outlook. Indonesia’s outlook could be changed to stable from positive if macroeconomic imbalances arise or if the current administration’s reform push wanes, Curry said.

Sounder footing

Malaysia’s economy is on a sounder footing than Indonesia’s, said Stuart Allsopp, head of Asia country risk and financial markets strategy at BMI Research in Singapore. Malaysia recorded a current-account surplus of US$1.8 billion in the second quarter

at the current exchange rate, while Indonesia posted a deficit of US$4.48 billion, official data show. In contrast to Indonesia, Malaysia also has a positive net international investment position, said Allsopp. “This means that if the dollar strengthens due to Fed rate hikes, Indonesia finds the local-currency value of its external debts have increased, making it more difficult to repay them,” he said. “In the case of Malaysia, its external assets rise concomitantly so the net impact is very little.” Barclays Plc is recommending clients be underweight Malaysian bonds and is neutral on Indonesian debt, said Rohit Arora, a Singaporebased rates strategist for emerging Asia at the U.K.-based lender.

Maintain buffers

“We’re equally concerned on both, but looking at the terms of trade and cyclical weakness in commodity prices, then the ringgit looks more vulnerable than the rupiah,” said Singapore- based Arora. Indonesia’s “domestic markets aren’t deep enough, which means it relies more on foreign funding compared with any other market in the region,” he said. That reliance on offshore funds leaves the country exposed when the Fed starts raising interest rates and if China’s economic slowdown worsens. At the moment the main risk is central banks “panicking and putting a lot of money into supporting currencies and burning through their reserves,” said S&P’s Curry. It’s important to maintain buffers should the external environment weaken further, he said. Bloomberg News

Australian job advertisements rebound Job advertisements in newspapers and on the Internet bounced in August, though annual growth continued to cool from a peak seen earlier in the year. A monthly survey by Australia and New Zealand Banking Group showed total job advertisements rose 1.0 percent to 147,510 per week on average in August, from July when they fell 0.5 percent. Ads were 8.7 percent higher on August last year, continuing to slow from the 14.1 percent pace seen in May. Internet ads climbed 1.0 percent in August, while newspaper ads rose 0.8 percent.

Thai Minor expansion reaches Portugal Thai hotel group Minor International Pcl said yesterday it aimed to acquire Tivoli Hotel and Resorts’ remaining eight hotels, all of which are in Portugal, as part of an aggressive plan to expand overseas. The company announced this year that it wanted to have 190 hotels by 2019, up from around 133 currently. In January, it said it was acquiring four hotels in Portugal and two in Brazil from Tivoli for around US$200 million. Minor International reported a 12 percent drop in second-quarter net profit to 541 million baht.

Tesco sells South Korean unit to MBK-led group Britain’s Tesco has agreed to sell its South Korean unit to a group led by private equity firm MBK Partners for US$6.1 billion, it said on Monday, in its first major disposal since it hit financial difficulties. Seeking to raise funds to revitalise its domestic business, Tesco said it would sell Homeplus, its biggest overseas unit, to a group of investors led by MBK and including the Canada Pension Plan Investment Board, Public Sector Pension Investment Board and Temasek Holdings. The world’s third largest retailer has been looking to make disposals after a slowdown in its home market.

MUFG to offer Japan Post shares at banking unit Mitsubishi UFJ Financial Group will sell shares in the Japan Post Holdings group at its banking unit, sources said, giving it a leg-up over rival mega-banks only prepared for an offering at their brokerage arms. MUFG expects to underwrite 300 billion yen (US$2.5 billion) of the mammoth triple-IPO by Japan Post Holdings and its two financial units, and plans to offer a third of that at the Bank of Tokyo-Mitsubishi UFJ, sources with knowledge of the matter said. They spoke on condition of anonymity because they are not authorised to discuss the matter publicly.

Vietnam’s coffee output to drop

Counting Indonesian rupiah

Output in the 2015-2016 crop is much likely to decline in the three consecutive crops, by at least 20 percent, due to unfavourable weather conditions, the Vietnam Coffee and Cocoa Association said. Right from the start of the current crop, drought happened and prolonged in key coffee-growing provinces, including Dak Lak, Lam Dong, Dak Nong and Gia Lai, damaging tens of thousands of hectares. Coffee trees also faced unexpected cold spells and hoarfrost. Its coffee output is forecast to decrease by 15-20 percent against the previous crop.


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September 8, 2015

International World’s top pension funds see assets pass US$15 trillion The combined assets of the world’s largest 300 pension funds grew more than 3 percent in 2014 to a new high of more than US$15 trillion, driven by retirement saving in North America and Europe, a study showed yesterday. Ageing populations in the developed world have spurred pensions saving, while governments have provided incentives to encourage citizens to save more to avoid poverty in old age. North America had the highest five-year combined compound growth rate of around 8 percent, according to the study, compiled by specialist newsletter Pensions & Investments (P&I) and consultants Towers Watson.

Lagarde says Fed must be sure before moving Fed Vice Chairman Stanley Fischer gave a mixed review of the latest U.S. jobs report in a briefing to G-20 officials Greg Quinn and Alessandro Speciale

Fiat Chrysler CEO says GM merger a “high priority” Fiat Chrysler Automobiles (FCA) boss Sergio Marchionne said that seeking a tie-up with General Motors was a “high priority” and such a deal would also be the best strategic option for its U.S. rival. GM’s board rebuffed a merger proposal from the Italian-American carmaker earlier this year. That has not stopped Marchionne from wooing his bigger competitor as he seeks to reduce the number of players in the industry and share the prohibitive costs of building greener and more intelligent cars.

More work to be done for G-20 according to Turkey official More needs to be done to achieve an additional 2 percent increase in growth over five years as targeted by G20 countries at a summit last year in Australia, Turkey’s Deputy Prime Minister Cevdet Yilmaz said on Sunday. Turkey holds the G20 presidency this year and has just finished hosting a meeting of finance ministers in the capital Ankara, from where Yilmaz was speaking. Yilmaz, who is Turkey’s deputy prime minister in charge of the economy, said that preparations were being made for different scenarios for U.S. Federal Reserve policy.

Primark owner sees bigger hit from currency moves Associated British Foods, the company behind budget retailer Primark, said a stronger pound and U.S. dollar would have a bigger-than-expected hit on fullyear earnings and could weigh on profits in its new financial year. The company, which makes more than half its annual profits from Primark and also has sugar and ingredients businesses, said yesterday exchange rate moves would knock around 30 million pounds (US$46 million) off operating profit for the year ending September 12, up from its previous estimate of 25 million pounds.

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he U.S. Federal Reserve must be certain that the job market and inflation are strong enough to justify raising interest rates, the head of the International Monetary Fund said after a Group of 20 meeting focused on the pressure the increase may place on the global economy. “The Fed has not raised interest rates in such a long time, that it should really do it for good, not give it a try and then have to come back,” IMF Managing Director Christine Lagarde (pictured) said at a press conference Saturday in Ankara. “The IMF thinks that it is better to make sure that data are absolutely confirmed, that there is no uncertainty, neither on the front of price stability nor on the employment and unemployment front, before it

actually makes that move.” Traders are torn on when the Fed will raise interest rates, with Bill Gross of Janus Capital Management seeing an even chance that the Fed could raise or hold rates when it meets September 16-17. Investors scaled back expectations for the U.S.’s first rate increase since 2006 after a selloff in China became a global stock-market rout. The Fed’s key interest rate has been frozen since 2008. Fed officials explained their thinking on a possible rate increase during the G-20 meeting, Spanish Economy Minister Luis de Guindos said. “They made a series of comments about monetary policy with some factors that favour a rate increase and others that might push it back,” he said.

Italian businesses hail Renzi’s reforms Italy’s growth estimate of 0.7 percent this year is below the European Union average though

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fledgling economic recovery after the longest post-war recession is giving companies cause for hope in Italy, where Prime Minister Matteo Renzi says his ongoing reform agenda is helping turn around the euro zone’s third largest economy. Over the past 18 months, Renzi has tackled the labour market, the banking sector, education and the public administration, among other areas, even though few reforms are yet operational and their long-term impact remains to be seen. Renzi turned up at the meeting to reel off his achievements in a speech followed by two hours of questions from foreign and domestic participants on the future of Italy. All the executives said there was much more to be done to bring Italy’s growth in line with the rest of Europe, tackle stifling bureaucracy and corruption, speed up the justice system, cut taxes and keep control of tottering public finances.

But the overall atmosphere was in sharp contrast to last year’s gloomy discussions over the crisis and impatience at the lack of progress, and an internal poll showed 69 percent of participants had an excellent or good assessment of Renzi. “My view of the government is very positive. Italy is out of the recession and for the first time in I don’t how many years they are talking of raising the growth forecast,” said Federico Ghizzoni, CEO of top Italian bank UniCredit. Italy’s growth estimate of 0.7 percent this year is below the European Union average, while Renzi’s government has so far failed to cut a huge public debt of 2 trillion euros.

Broken taboos

EU authorities and the International Monetary Fund still say Italy is too slow in making structural reforms to tackle what they see as the asphyxiating influence of vested interests from

Fed Vice Chairman Stanley Fischer gave a mixed review of the latest U.S. jobs report in a briefing to G-20 officials, Luxembourg Finance Minister Pierre Gramegna said in a Bloomberg Television interview. “He told us that the numbers in the U.S. are excellent because unemployment went down from 5.3 to 5.1 percent, which is an excellent number, but then he immediately cautioned that the number of 173,000 additional jobs was an August figure and that the August figure wasn’t very reliable,” Gramegna said. Emerging-market officials at the G-20 were divided on whether it’s better for the Fed to tighten its policy this month or later on, saying that there were “both sentiments in the room,” said the Luxembourg finance chief. The gain in payrolls, while less than forecast, followed advances in July and June that were stronger than previously reported, the Labor Department said Friday. The jobless rate was the lowest since April 2008. The strength of the economy and the jobs market though has yet to lift inflation up to the Fed’s 2 percent target. Prices in the U.S. rose 0.3 percent in the 12 months through July, measured by the Fed’s preferred gauge. Inflation has lingered below the Fed’s target for more than three years. Bloomberg News

unions and professional groups to taxi drivers. Renzi, who last year skipped the Ambrosetti conference on the shores of Lake Como to visit instead a hydraulic equipment plant, this time turned up to boast about his accomplishments and promise more reforms in the next 2-1/2 years before elections. “Italy is no longer a problem for Europe,” he said, adding that during his tenure 25 percent of the nearly 1 million jobs lost during the crisis had been recovered. He said this was thanks to his labour market reform which eased firing restrictions and offered temporary tax breaks for companies that hire workers on permanent contracts. Though economists say it is way too early to tell is his “Jobs Act” is having any impact on unemployment, entrepreneurs praised Renzi for taking on trade unions and other lobby groups, changing the perception of Italy as a country impervious to change. Sandro De Poli, CEO and Chairman of General Electric in Italy and Israel, said Renzi was “at least a straight-talker who gets to the point and explains how he plans to reach his goals.” In his speech, Renzi said the business world should also change its ways and that the days of the ‘salotto buono’ - a system based on influence and connections that has bound top Italian companies together for decades - were over. Reuters


Business Daily | 15

September 8, 2015

Opinion Business

wires

China confronts the market

Leading reports from Asia’s best business newspapers Jeffrey Frankel

Professor of Capital Formation and Growth at Harvard University

THE KOREA HERALD Retail giant Lotte Group ranked No. 1 among South Korea’s family-controlled conglomerates in terms of violations of the country’s fair trade rules, a report showed yesterday. The report by the Fair Trade Commission sent to Rep. Shin Hak-yong’s office, revealed that Lotte topped the list for breaking rules aimed at preventing market distortions in the last 10 years. The antitrust agency’s report covered the country’s five conglomerates or chaebol. During the 10year period, Lotte, the fifthlargest conglomerate, was charged and fined 147 times, although 88 of these were administrative warnings for minor violations.

THANH NIEN NEWS With the dong declining by around 5 percent against the US dollar so far this year, many local businesses have reported currency-exchange losses of up to tens of millions of dollars. At a meeting organized by the Ministry of Industry and Trade on September 3, Vu Anh Tuan, deputy CEO of the national mining group Vinacomin, said a stronger dollar increased the company’s debt load. The devaluation of the dong has caused its electricity business to incur a total loss of around VND1.2 trillion (US$56.66 million).

THE PHNOM PENH POST A World Bank report released last month shows that as of 2011-2012 only 7.9 per cent of Cambodia’s arable land was irrigated, with the a Ministry of Water Resources official contesting these numbers as old data and that irrigated land figures were higher than reported. The report, titled Cambodian Agriculture in Transition: Opportunities and Risks and published on August 19, shows the actual irrigated area in the Kingdom was around 317,000 hectares in 2011-2012, less than 8 per cent of 4 million hectare of total arable land in the country.

THE STAR There is still ample liquidity in the market and funds will flow back to emerging economies though at a more discriminated basis, according to Pascal Blanque, global CIO of Amundi Asset Management, which manages over US$1 trillion in assets. “There will be a point where we will see inflows back into the emerging economies benefiting the ones that are showing the strongest fundamental. This is clear,” the European CIO of the Year 2013 told StarBiz. Blanque said there were also cyclical elements like the impact of the US Federal Reserve and current adjustments.

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hina’s current economic woes have largely been viewed through a single lens: the government’s failure to let the market operate. But that perspective has led foreign observers to misinterpret some of this year’s most important developments in the foreignexchange and stock markets. To be sure, Chinese authorities do intervene strongly in various ways. From 2004 to 2013, the People’s Bank of China (PBOC) bought trillions of dollars in foreign-exchange reserves, thereby preventing the renminbi from appreciating as much as it would have had it floated freely. More recently, the authorities have been deploying every piece of policy artillery they can muster in a vain attempt to moderate this summer’s plunge in equity prices. But some important developments that foreigners decry as the result of government intervention are in fact the opposite. Exhibit A is the August 11 devaluation of the renminbi against the dollar – a move that invoked for US politicians the old adage, “Be careful what you wish for.” The devaluation – by a mere 3%, it should be noted – reflected a change in PBOC policy intended to give the market more influence over the exchange rate. Previously, the PBOC allowed the renminbi’s value to fluctuate each day within a 2% band, but did not routinely allow the movements to cumulate from one day to the next. Now, each day’s closing exchange rate will influence the following day’s rate, implying adjustment toward market levels. The authorities probably would not have moved when they did had it not been for growing market pressure for a depreciation that could help counteract weakening economic growth. In fact, bolstering

growth might have been the primary motivation for the country’s political leaders, even as the PBOC remained focused on advancing the longer-term objective of strengthening the market’s role in determining the exchange rate. But the two motivations are consistent: market forces would not be placing downward pressure on the renminbi if China’s economic fundamentals did not warrant it. The American politicians who demanded that China float its currency may have anticipated a different outcome – somewhat unreasonably, given that market forces reversed direction in mid-2014 – but one can hardly blame the Chinese for taking them at their word. To be sure, China remains far from embracing a free-floating currency, let alone a fully convertible one, which would require further liberalization of controls on cross-border financial flows. Unification of onshore and offshore markets is more important than a floating exchange rate in determining whether the International Monetary Fund will include the renminbi in the basket of currencies used to determine the value of its reserve asset, the Special Drawing Right. Much commentary on the subject has underestimated the importance of the criterion that the currency be “freely usable.” Nonetheless, many are fretting that China’s exchange-rate adjustment has triggered a “currency war,” with other emerging economies devaluing as well. But, more than a year after the economic fundamentals swung against emerging markets (and especially away from commodities) and toward the United States, this adjustment was due. Though the Chinese move likely influenced the

Some important developments that foreigners decry as the result of government intervention are in fact the opposite

timing, other devaluations would have inevitably taken place. Warnings about competitive devaluations are misleading. Exhibit B in the case against attributing financial developments in China to government intervention is the stock-market bubble that culminated in June. According to the conventional wisdom, the authorities consistently intervened not only to try to boost the market after the collapse, but also during its yearlong run-up, when the Shanghai Stock Exchange composite index more than doubled. The finger-wagging implication is that Chinese policymakers, particularly the stock-market regulator, have only themselves to blame for the bubble. There is undoubtedly some truth to this story. It seems clear that the extraordinary run-up in equity prices was fuelled by a surge in margin financing of stock purchases,

which was legalized in 20102011 and encouraged by the PBOC’s monetary easing since last November. Likewise, there was plenty of support for the bull market in governmentsponsored news media, for example. But what many commentators fail to note is that China’s regulatory authorities took action to try to dampen prices over the last six months of the run-up. They tightened margin requirements in January, and again in April, when they also facilitated short-selling by expanding the number of eligible stocks. The event that ultimately seems to have pricked the bubble was the China Securities Regulatory Commission’s June 12 announcement of plans to limit the amount that brokerages could lend for stock trading. This is precisely the kind of counter-cyclical macroprudential policy that economists often recommend. But, whereas advanced economies rarely implement this advice, China and many other developing countries do tend to adjust regulation, including reserve requirements for banks and ceilings on homebuyers’ borrowing, counter-cyclically. One could criticize the Chinese regulator on the grounds that the effect of its moves to increase margin requirements did not last long; or one could criticize it on the grounds that its moves caused the recent crash. But, either way, these measures were intended to stem the rise in market prices, rather than to contribute to it. This is not a trivial point. Nor is the fact that the PBOC’s interventions in the foreignexchange market over the last year have aimed to dampen the renminbi’s depreciation, not add to it. Given this, it is facile to blame China’s problems on government intervention. Project Syndicate


16 | Business Daily

September 8, 2015

Closing Thailand’s investment budget disbursements seen below target China stock market tumble hits emerging stocks Finance ministry said yesterday it expects disbursement of the investment budget for the fiscal year ending September 2015 to fall short of target. “It is about 60 percent now. We may end the current fiscal year in the region of 70 percent as this is already a final month,” Deputy Finance Minister Wisut Srisuphan told reporters. The total budget for 2015 is 2.575 trillion baht (US$71.3 billion), with the portion for investment around 451 billion baht (US$12.49 billion), ministry data showed. The ministry last week eased rules on budget approvals for small scale government projects to boost disbursements in the next fiscal year, Wisut said.

Emerging market stocks stumbled to the lowest in almost two weeks yesterday with many Asian bourses suffering steep losses, dragged down by another sharp fall in mainland shares while currencies across the asset class chalked up losses. MSCI’s broadest emerging market index fell more than 1 percent after China stocks closed as much as 3.4 percent down on the day as the sell-off continued in the aftermath of a four-day market holiday. Stocks in HK slipped to their lowest in more than two years, while Indonesia’s main index dropped 2.5 percent. “Nowadays we are worried about pretty much everything that comes out of China,” said Cristian Maggio, head of emerging markets strategy at TD Securities.

Taiwan August exports fall for 7th month Weak exports and sluggish domestic consumption prompted the government in August to cut its 2015 GDP target to 1.56 percent Faith Hung and Roger Tung

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aiwan’s exports fell for a seventh straight month in August, raising the prospect that full-year growth will likely tumble to a 2009 low amid softening global demand for its tech products. Exports last month contracted 14.8 percent from a year earlier, worse than a forecast 13.5 percent decline in a Reuters poll and an 11.9 percent fall in July. The finance ministry said yesterday it would be difficult for exports to post year-onyear growth for the rest of this year. Patchy global growth and easing demand for tech products after a rush of orders from Apple Inc that produced a windfall for Taiwan’s manufacturers last year, will cast a shadow on the island’s export-driven economy. “The latest export and import data both missed expectations, putting pressure on the government to slash its 2015 GDP target again,” said Lucas Lee, analyst of Mega Securities, Taipei.

KEY POINTS August exports -14.8 pct vs -13.5 pct Reuters poll forecast U.S. exports +6 pct; to China -8.2 pct Exports to Europe +16.2 pct; to Japan -9.1 pct

Weak exports and sluggish domestic consumption prompted the government in August to cut its 2015 GDP target to 1.56 percent, the worst since the financial crisis. Taiwan is one of Asia’s major exporters of technology goods, and its shipments trend is a key gauge of global demand for technology gadgets.

Glencore seeks to cut debt amid commodities shock

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With no imminent sign of any improvement in the global economy, Taiwan’s central bank may cut its policy interest rate in September or December to bolster growth, some analysts have said. Exports to China shrank 8.2 percent last month from a year ago, less than July’s 13.8 percent fall, while those to the United States rose 6 percent, better than a 1.0 percent rise in July.

But overall weakness in the economies of Taiwan’s major partners, especially China, will likely keep a lid on its exports. China’s giant manufacturing industry contracted and euro zone and U.S. growth eased in August, data published earlier this month showed, while the International Monetary Fund cut its forecast for world growth this year.

Taiwan’s tech titans are also downbeat. Manufacturers in the upstream supply chain such as TSMC and Mediatek Inc, both chipmakers, and ASE, which tests and packages chips, have warned recently against being optimistic about the second half of the year, traditionally a peak season for the tech sector.

Uber rival Didi Kuaidi raising about US$3 billion

Philippine deficit surges to US$688.96 million

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wiss mining giant Glencore, hit by collapsing commodities prices, announced yesterday drastic moves to cut its US$30 billion-dollar debt by about a third, as the slowdown in China wreaked further havoc across markets. Glencore, which has lost more than 50 percent of its market value this year, said it planned to raise US$2.5 billion (2.2 billion euros) in share sales and suspended dividend payments until further notice. The moves were aimed at cutting about US$10.2 in debt by the end of next year. Glencore took the further step of suspending production at mines in Zambia and the Democratic Republic of Congo, as the company reels from what it has previously described as the worst commodities market since the financial crash of 2008-2009. A slowdown in China, the world’s top commodities consumer, has reverberated around the globe, with major producers, including Brazil and Canada, falling into recession. Concerns over prolonged stalled Chinese growth have slashed iron ore prices by roughly a half, as coal, copper and other commodities have fallen by 20-40 percent.

ide-hailing service Didi Kuaidi, Chinese rival to Uber, is set to raise about US$3 billion through its latest fundraising round, said two people familiar with the matter, raising the stakes between two of the world’s most valuable start-ups. The inflow of cash comes weeks after Reuters reported that U.S. challenger Uber Technologies Inc was closing a US$1 billion funding round for its Chinese unit. Didi Kuaidi, which has the largest market share of car-hailing apps in China, in July said it raised US$2 billion, and that the amount may rise by another “few hundred million” due to what it said was tremendous interest from global investors. A Didi Kuaidi spokeswoman declined to comment on the latest figure. The funding rounds illustrate how investors are undeterred by the competition and the fact that the two companies have been bleeding cash as they subsidise rides to gain market share. Investors in Didi Kuaidi include Chinese Internet titans Alibaba Group Holding Ltd and Tencent Holdings Ltd, both rivals of Baidu.

AFP

Reuters

Reuters

he Philippine budget deficit rose to 32.2 billion pesos (US$688.96 million) in July, exceeding last year’s deficit of 1.8 billion pesos (US$38.51 million) for the period on the back of robust expenditure growth, the Department of Finance (DOF) said yesterday. Year-to-date, the budget shortfall reached 18.5 billion pesos (US$395.83 million), lower than the 55.7 billion pesos (US$1.19 billion) posted last year. The government’s total revenues for July hit 178.5 billion pesos (US$3.82 billion), 7 percent higher than previous year’s figure, while total revenues from January to July reached 1.26 trillion pesos (US$26.96 billion), reflecting a 15 percent growth year-on-year. Meanwhile, the national government’s disbursement for July amounted to 210.7 billion pesos (US$4.51 billion), 25 percent higher than a year ago level. For the first seven months to July, expenditures rose by 11 percent year-on-year to 1.28 trillion pesos (US$27.39 billion). With the increased spending in July, Finance Secretary Cesar Purisima said expenditures are on track to drive the country’s growth for the third quarter. Xinhua


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