MOP 6.00
Surveillance company Synectics opens office in Macau
Closing editor: Joanne Kuai
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Haitong Securities completes acquisition of Portuguese BESI Page 7
Publisher: Paulo A. Azevedo Number 876 Wednesday September 9, 2015 Year IV
Chinese state-owned enterprises reform plan outlined
Mainland authorities mull measures for fostering long-term investment in stock markets Page 8
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Ad Hoc Guidelines A Hornet’s Nest
Gov’t instructions on gaming ads. Both ambiguous and contradictory, say local lawyers. The intentions of the Macau Economic Service may be laudable. But the desire to clarify existing legislation is a legal minefield. Which, taken in extremis, is causing confusion and negatively impacting the gaming industry, not to mention various ad related sectors
September 8
Name
%Day
Wharf Holdings Ltd/Th
+7.86
Lenovo Group Ltd
+6.14
China Resources Land
+5.76
City water capacity increased
Ping An Insurance Gro
+5.49
Galaxy Entertainment
+5.36
China Resources Enter
+1.69
Hong Kong & China Ga
+1.66
Macao Water is mulling a further service fee hike. Meanwhile, the Main Storage Reservoir Water Treatment Plant III was inaugurated yesterday. Increasing capacity to 390,000 cubic metres a day
Hengan International
+1.36
China Resources Powe
+1.11
Li & Fung Ltd
0.00
Page
5
Source: Bloomberg
Page 2
Trade gap widening China’s foreign trade in August dropped 9.7 pct y-o-y. To 2.04 trillion yuan. A steeper decline than the 8.8 pct contraction of July, official data revealed yesterday. The trade surplus expanded 20.1 pct to 368 billion yuan in the month
Pages 8 & 9
I SSN 2226-8294
For medicinal purposes Chinese medical company Guangzhou Pharmaceutical Holdings Ltd. and Guangdong-Macau Traditional Chinese Medicine Science and Technology Industrial Park in Hengqin have signed a framework agreement. Both parties pledge to promote Chinese medicinal products and Chinese medical culture overseas
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Tourism
www.macaubusinessdaily.com
HSI - Movers
Back in business for Bangkok Local tour operators will resume booking Bangkok tours this week. Previously cancelled due to safety concerns following last month’s bomb outrage. Several local insurance companies are using Hong Kong’s travel alert system as a benchmark for claims. Macau Government Tourist Office expects to finalise its own system this year
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September 9, 2015
Macau
Guangzhou Pharmaceutical announces co-operation with Industrial Park The Chinese medical company has announced co-operation initiatives with Guangdong-Macau Traditional Chinese Medicine Science and Technology Industrial Park to market Chinese medical products Stephanie Lai
sw.lai@macaubusinessdaily.com
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ainland Chinese pharmaceutical c o m p a n y Guangzhou Pharmaceutical Holdings Ltd. signed a framework agreement with the operator of GuangdongMacau Traditional Chinese Medicine Science and Technology Industrial Park in Hengqin on Monday to mark co-operation initiatives on marketing Chinese medical products and product registration. Guangdong-Macau Traditional Chinese Medicine Science and Technology
Industrial Park, an MSAR Government-backed project in Hengqin, is based on the Guan gdo n g - M a ca o Co-operation Framework Agreement signed in March 2011, for which the MSAR Government founded a joint venture with Zhuhai Da Hengqin Investment Co. Ltd. to construct, operate and manage the park. Business Daily understands from Guangdong-Macau Traditional Chinese Medicine Technology Industrial Park Development Co. Ltd. that the framework agreement
has yet to entail any actual investment committed by Guangzhou Pharmaceutical in the park. The agreement signals the direction for both Guangzhou Pharmaceutical and the park to co-operate on the international registration of Chinese medicinal products and the promotion of Chinese medical culture overseas. On Monday, Guangzhou Pharmaceutical also reached a strategic agreement with the University of Macau to co-operate on scientific research and exchange of
medical professionals. The University of Macau houses a State Key Laboratory of Quality Research in Chinese Medicine.
International opportunities
In a statement released yesterday, GuangdongMacau Traditional Chinese Medicine Technology Industrial Park Development Co. Ltd. said it believed the co-operation with Guangzhou Pharmaceutical would attract more smaller medical firms to establish business in the industrial park.
The park operator also stated that its connections with the Portuguesespeaking countries and Association of Southeast Asian Nations could provide a platform for introducing Guangzhou Pharmaceutical's products to the international market. About 30 companies have registered interest in operating in the park but only 10 are currently discussing contract terms with the governmentbacked joint venture to settle in the park, Business Daily understands from the park operator. The park is expected to be operational in the first half of 2017 with a headquarters building and testing and research centre completed. The second phase of the park, which will house clinics providing Chinese medicinal and healthcare services, as well as a training hub for Chinese medical practice, is expected to be completed in 2020, Guangdong-Macau Traditional Chinese Medicine Technology Industrial Park Development Co. Ltd.'s president Yuki Lu Hong told media on June 30.
Macao Water mulling further service fee hike The recent 4.28 per cent fee increase granted by the government was substantially lower than the 11.88 per cent the company requested in March
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he city’s sole water distributor - Macao Water Supply Co. Ltd. - is planning to apply for a service fee hike, according to the Executive Director of Macao Water, Kuan Sio Peng. The government granted a 4.28 per cent increase to MOP5.12 (US$0.64) per cubic metre of water supplied to users to the company last week, which is substantially lower than the 11.88 per cent requested by Macao Water in March. Ms. Kuan said that the company appreciates the support of the SAR Government but will consider applying for another service fee increases
in accordance with the economic development and operational cost. She made the remarks yesterday on the sidelines of the inauguration ceremony of the Main Storage Reservoir Water Treatment Plant III (MSR III) which was completed in the middle of this year. Costing MOP120 million, the MSR III is one of the Macao Water infrastructure projects to be implemented between 2011 and 2020 worth a combined total MOP700 million. Ms. Kuan said that currently the Main Storage Reservoir Water Treatment Plant has the capacity to process 60,000 cubic metres of water
per day, which puts the total capacity of the water that the city can supply to 390,000 cubic metres a day which would guarantee Macau’s demand for water for the next five years. The executive director said that during the construction of MSR III, with the support of Sino French Water and the SUEZ Group, the team had successfully completed the construction without water supply suspension some twelve times. She added that from January to July this year, the quantity of the water consumed in the city has increased 3 per cent due to the increased number of residents and tourists.
Macao Water says the future Seac Pai Van Water Treatment Plant, designed for a total capacity of 200,000 cubic metres a day, will be divided into two phases, with the first phase to be completed in 2019. Marine and Water Bureau Director Susana Wong Soi Man said that the government is studying the plant’s planning stage and will consider the water demand for the development of Cotai. She added that the project involves a large investment and construction and that the government has to consider the method of supervision as well.
Business Daily | 3
September 9, 2015
Macau EGL Tours Macau’s Sabrina Iong told Business Daily that a fiveday package tour to Bangkok cost around MOP3,000 (US$375.8), a level that is similar to the price before the blast. While Macau has yet to establish an outbound travel alert system, the Hong Kong Government raised its red outbound alert for Bangkok after the August 17 bomb blast at the popular Erawan Shrine. The red alert – a travel advisory warning against nonessential travel - is still in effect while the amber alert remains for the rest of Thailand.
Insurance coverage
Agencies to resume Bangkok package tours this week Most tour operators, however, are not offering big discounts to the Thai capital to lure package tour clients Stephanie Lai
sw.lai@macaubusinessdaily.com
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ome of the city’s travel agencies are resuming bookings for Bangkok-bound package tours this week after having been assured of stepped-up security in the Thai capital, although no big discounts have been introduced by the tour organisers or hotels for travel packages yet, Business Daily uas learned. EGL Tours (Macau) Co. Ltd. is resuming booking for Bangkok-bound package tours on Friday September 11, the company’s general manager
Sabrina Iong told us. Most local tour groups destined to depart for the Thai capital on or before August 23 until this Thursday had been cancelled due to safety concerns following last month’s pipe bomb blast that killed 20, including two Hong Kong residents. “Since the blast we have seen conditions stabilise with no more incidents taking place,” Ms. Iong told us. “And we’re also assured that the security level there has been enhanced, so we’re accepting bookings again on September 11.”
Andy Wu Keng Kuong, president of the Macau Travel Industry Council, told us that local package tours booked to travel to Bangkok via Air Asia flights have also resumed their travel schedules. “But I believe that the travel agencies here and in Hong Kong, as well as the hotel operators in Thailand, are not really putting forward any discount policies to lure visitors until the [Hong Kong] red travel alert is removed,” Mr. Wu said.
Patrick Leong, president of the Macau Insurance Agents and Brokers Association, told us that some insurance companies here take the Hong Kong’s travel alert system for reference on policy terms for customers’ claims for travel accidents. “Half of the insurance companies here, especially those that are branches of the Hong Kong ones, would usually let customers claim half of the prepaid travel tickets or tour package expenses under a red travel alert [raised by Hong Kong authorities],” Mr. Leong said. “But the coverage terms really differ according to different insurance companies, and customers ought to read them very carefully, especially the exclusion clauses.” Macau Government Tourist Office Director Maria Helena de Senna Fernandes told media in June that the government expected to finish the internal discussion on an outbound travel alert system within this year. The classifications of different levels of threats for an outbound travel alert system can serve as a reference for the insurance sector to form travel compensation plans, she said. The outbound travel system in Hong Kong, established in 2009, covers a total of 85 countries and classifies threats and risks into three levels, identified by three colours amber, red and black. The amber alert means local residents should monitor the situation of the destination and exercise caution, whilst residents should avoid non-essential travel and adjust travel plans when a red alert is issued. A black alert, meanwhile, warns residents to avoid all travel to or within that particular country.
4 | Business Daily
September 9, 2015
Macau
Provident fund yields 2.18 pct per annum for account holders
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he earnings rate for the account holders of the city’s provident fund calculated from September last year to August this year - is 0.1814 per cent or an annualised interest rate of 2.1768 per cent, the Social Security Fund (FSS) announced yesterday. Interest rate earnings were transferred to account holders on Monday. The interest is generated by fixed deposits placed in banks, according to FSS. The provident fund accounts for residents was first established by the government in 2010 with the aim of better protecting the retirement of Macau residents. Currently, those eligible to withdraw the fund only include residents aged 65 or above, or those who are
younger but need to meet large medical expenses due to serious injury or illness of his or herself or that of their spouse. The yield of the fund in the previous two years has been 2.03 per cent and 1.78 per cent per annum, respectively. As the provident fund is still reliant upon government revenue, the Social Security Fund has conducted a public consultation to collect opinions on launching a non-compulsory provident fund system contributed to by employers and employees. Chief Executive Fernando Chui Sai On said in August that the bill for the noncompulsory provident fund will be deliberated upon by the Executive Council by year-end. S.L.
Surveillance company Synectics Sam Woo Construction denies forecasts of 70 opens office in Macau
pct increase in revenue
The surveillance firm previously worked for MGM Macau and Melco Crown Entertainment’s competitor, The chairman of the company Solaire Resort and Casino in the Philippines said two days ago that he hoped revenues would increase h e s u r v e i l l a n c e region’, the Vice President of to offer technical support technology company Global Gaming at Synectics, at a local level. Together 70 per cent. Now the company with our emphasis upon Synectics has opened John Katnic, said. an office of Macau in order to S y n e c t i c s h a s b e e n product innovation the has issued a filing explaining meet the ‘increased demand expanding in the region in investment demonstrates that the comments were for its integrated surveillance terms of its operations and our commitment to existing solutions in the region’. The has provided surveillance customers and to the Asia ‘his personal views’ announcement was made systems to MGM Macau, and Pacific market as a whole”,
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yesterday in a press release by the England-based company. ‘With a growing customer base in the region it is vitally important that we have the right infrastructure in place to offer dedicated technical support where and when it is needed. The new Macau office fulfills that need and reflects our commitment to the gaming sector in this
Solaire Resort and Casino in the Philippines. Earlier this year, it also announced it had secured a multi-million dollar expansion project for a high profile Asia Pacific gaming property, which it did not name. “The new Macau office will play a crucial role in our continued growth strategy by boosting our ability
the Chief Executive of Synectics, Paul Webb, said in a statement. The office in the territory opens one year after an investment in the Asia Pacific region of the company, which is located in Singapore and includes training facilities and engineering lab among other initiatives. J.S.F.
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he Sam Woo Construction group denied yesterday that its forecast revenue for 2015/2016 will grow at the same pace as the previous year, which was around 70 per cent year-on-year. The clarification was issued in a press release to the Hong Kong Stock Exchange after local media reported that company chairman Lau Chun Ming wished profits would grow at a similar rate to that of fiscal 2014/2015. ‘The directors noted that Mr. Lau was responding to a question raised in a media interview held after the Company’s annual general meeting for his view on the group’s business in fiscal year 2015/2016. The directors would like to clarify that Mr. Lau merely expressed his personal view in hoping
for a revenue growth in fiscal year 2015/16. However, Mr. Lau did not intend to respond to any estimate on the growth rate’, the filing explains. ‘The directors also clarify that Mr. Lau’s response was entirely his personal view and was made based on his personal expectation of the future development of the Group and personal assessment of the performance of the construction industry, and therefore should not be read as any indication of the expected revenue of the group for FY15/16 or any future period’, the board added. During fiscal year 2014/2015 the construction company, which is involved in projects in Cotai, recorded a net income of HK$219.2 million and HK$851.3 million revenue. J.S.F.
Business Daily | 5
September 9, 2015
Macau
DSE instructions on gaming ads raising questions of legality Lawyers contacted by Business Daily say that instead of DSE issuing instructions the government should have created an administrative regulation to avoid colliding with the territory’s legal framework João Santos Filipe
jsfilipe@macaubusinessdaily.com
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acau Economic Service (DSE) instructions on recognising illegal ads for gaming activities are raising questions in terms of legality and raising issues about the method adopted by the government to implement what could be regarded as a new interpretation of the law. The latest instructions from DSE forbid advertising games by showing gaming symbols such as slot machines or gaming tables, or promoting gaming by using ambiguous, covert or implicit forms, like rewards points schemes. “It appears that these instructions are illegal and against the gaming contracts and Law 13/2009 [The Macau Legal Framework of
Internal Sources of Law]. There is not mention of the instructions in Law 13/2009. In order to bring such changes it would have to be executed through a new law or an administrative regulation”, lawyer Pedro Cortés told Business Daily yesterday. Mr. Cortés is a Senior Partner at Rato, Ling, Lei & Cortés, the law firm that recently published an article in the legal newsfeed service Lexology titled Instructions on Recognising Illegal Ads for Games of Fortune and Chance. In the article, it is argued that for the current instructions to remain in force the government should review, suspend or revoke the Advertisement Act [Law
7/89/M] by Legislative Assembly law or review the signed gaming contracts, which require operators to advertise casinos. If the executive fails to do so, these instructions will conflict with existing law. A similar opinion is shared by lawyer and partner at MdME law firm Rui Pinto Proença, although suggesting that the instructions of DSE carry the intention of clarifying what he considers the overly vague provisions of the Advertisement Act. “The guidelines carry the right intention, to bring clarity of the overly vague provisions of Law 7/89 regarding gaming advertising. However, I do agree that those intentions should have
been brought forward with a more adequate form and substance”, he told Business Daily. “An administrative regulation from the Chief Executive supplementing Law 7/89 on the topic would have been more consistent with Macau’s legal framework and may have brought the precision to the language that the guidelines clearly lack”.
Negative impacts on different sectors
On another level, the DSE guidelines are bringing instability to the gaming industry but also other sectors whose business model is dependent upon advertising, such as advertising agencies or other platforms dependent upon advertising revenues
such as social media platforms, billboard and media companies. “I’ve heard of cases of companies selling gaming equipment that have become averse after the instructions [of DSE] to advertise their products. This seems totally absurd in the world’s gaming mecca”, Pedro Cortés, also a columnist for Business Daily, said. “It seems to me that those companies are not only authorised but should advertise their products and that is not breaching the law. If advertising their products was to violate the law, then it would be the same as banning the advertising of French wine oak barrels in Bordeaux”. “In fact, the feedback we’ve been getting from industry clients seems to indicate that the guidelines have managed to create as many grey areas as the ones they have cleared”, Mr. Proença commented. “There are certain restrictions in the guidelines (such as the restriction on rewards programmes or to the qualification of gaming promoters) that exceed, in my opinion, the scope and extent of the ones set out in the law - which they are not legally capable of doing. If enforced, such restrictions may have very negative consequences on the industry”, he said.
6 | Business Daily
September 9, 2015
Macau Taiwanese travel agency executives visit Macau and Zhuhai The four-day tour was organised by the Joint Working Committee on Tourism in Support of Macau's Aspirations to Build a World Centre of Tourism and Leisure, a think tank created in June
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external trade law for not declaring their re-exports to the authorities, which could result in a fine of MOP1,000 to MOP50,000 and the confiscation of the export items. The two residents have also allegedly violated the laws protecting industrial property, which carry a maximum imprisonment of six months or a fine of 30 – 90 days for the act of selling, circulating or hiding counterfeit products.
early 40 travel agency executives and members of the press from Taiwan visited Macau and Zhuhai from 4 to 7 September as part of an event organised by the ‘Joint Working Committee on Tourism in Support of Macau's Aspirations to Build a World Centre of Tourism and Leisure’. According to Macau Government Tourist Office (MGTO) the purpose of this invitation to the Taiwan delegation was to promote regional co-operation in tourism between the different regions, to attract more Taiwanese visitors to Macau and Zhuhai on one trip, and also to continue to develop the Special Administrative Region’s goal of becoming a World Centre of Tourism and Leisure. The delegates of the so-called ‘fourday multi-destination familiarisation tour’ came from Taipei, Taichung and Kaohsiung including senior agency personnel. The tour included visits to various resort hotels, a grand art exhibition, the Historic Centre of Macao and old Taipa Village in Macau. The delegates also had the opportunity to assist at the Macau International Fireworks Display Contest and taste local cuisine before heading to Zhuhai. These activities are part of the ‘Joint Working Committee on Tourism in Support of Macau’s Aspirations to Build a World Centre of Tourism and Leisure’, which was established in early June in an agreement signed by the Macau Government and China National Tourism Administration.
S.L.
J.S.F.
Customs crack down on intended re-exports of counterfeit products
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he Customs filed a criminal report with the Public Prosecutor’s Office yesterday against two Macau residents exporting products that counterfeit 15 brands, involving the alleged violation of external trade laws and intellectual property protection laws. On August 12, Macau Customs identified 34 boxes of products not declared as re-exports at the Macau International Airport; namely, watches, handbags, leathergoods,
clothing, shoes and mobile phones branded as Chopard, Rolex, Prada, Burberry, Chanel, Louis Vuitton, Gucci, Calvin Klein, Dior, Adidas, Nike, Mizuno, IPHONE, New Balance and Yonex. The products were later confirmed as counterfeit items, the Customs said. But the department did not reveal the value of the items to be re-exported. The two Macau residents were accused of allegedly violating the
IPM targeting more students from Portuguese-speaking countries
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he Macau Polytechnic Institute (IPM) is aiming to have 100 students on exchange programmes from Portuguesespeaking countries by next year. The goal was set by the President of IPM, Lei Heong Iok, and is dependent upon the occupation of the facilities at the old campus of the University of Macau. “Fortunately, the government ceded to IPM five buildings on the old campus of the University of Macau. Next year, we’re going to move the Portuguese Language Teaching and Research Centre and we will have better conditions”, he told Portuguese news agency Lusa.
According to Lei Heong Iok, this year some 40 foreign students from Portuguese-speaking countries came to IPM on the exchange programs, while last year there were around 30. Now the goal is to increase the number of students to 100 by next year.
Business Daily | 7
September 9, 2015
Macau
Haitong Securities completes acquisition of Portuguese BESI The parent company of Novo Banco Ásia in Macau will receive around 3.38 billion euros to sell its investment arm to the Chinese company João Santos Filipe
jsfilipe@macaubusinessdaily.com
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aitong Securities has completed the acquisition of the investment arm of Portuguese bank Novo Banco for 379 million euros (MOP3.38 billion). With this operation, Banco Espírito Santo de Investimento (BESI) will now be named Haitong Bank, according to the Chinese company. The acquisition of BESI was completed through the wholly controlled subsidiary named Haitong International Holdings Limited, with the deal confirmed last Monday late night in a filing with the Portuguese Securities Market Commission (CMVM). ‘The distribution network and clients base of BESI are very good. This will allow Haitong to expand its capacity in mature European markets and in South American and African emerging markets’, Haitong Securities explained to Portuguese news agency Lusa. The Chinese company also justified
this investment with ‘the strong profitability and high operational efficiency’ of the former investment arm of Novo Banco. The newly named Haitong Bank has branches in London, Madrid, New York and Warsaw plus seven subsidiaries outside Portugal in such places as the United Kingdom and Brazil. The agreement on the deal was first reached on December 4 last year pending the approval of regulators such as the Bank of Portugal, the European Commission and the Portuguese Competition Authority. Novo Banco, which is the parent company of Novo Banco Ásia, was created after the collapse of the Portuguese bank Banco Espírito Santo (BES) and the subsequent 4.9 billion euro (MOP43.65 billion) bailout in August 2014. At that time, BES was divided into a ‘good’ and ‘bad’ bank. Novo Banco is considered the good bank, which until now included investment banking unit BESI.
The Portuguese Government is also currently in the process of selling Novo Banco – the deal included the Macau Novo Banco Ásia – and is in exclusive talks with Fosun International for
the purpose. As for Haitong, it is operating in the territory through Haitong — Companhia de Valores Internacional, Macau Branch.
8 | Business Daily
September 9, 2015
Greater China
August impo fears of shar
Exports in August dropp Winni Zhou and Pete Sweeney
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hina’s imports shrank far more than expected in August, falling for the 10th straight month and adding to global investors’ concerns that the world’s secondlargest economy may be slowing more sharply than earlier expected. Imports fell 13.8 percent from a year earlier, more than the 8.2 percent drop economists had expected and an 8.1 percent decline in July, reflecting both lower world commodity prices and persistently sluggish demand at home.
KEY POINTS Weak trade data suggests further deterioration in economy Imports fall more than expected, -13.8 pct vs f’cast -8.2 pct Exports -5.5 pct y/y, vs f’cast -6.0 pct
Dividend taxes cut for long-term shareholders The measures are the latest in a volley of policy moves Beijing hopes will halt a slide in Chinese equities
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hina said on Monday it would remove personal income tax on dividends for shareholders who hold stocks for more than a year, in a move aimed at encouraging longer-term investment in equities as opposed to short-term speculation. The government also said it would halve the tax on dividends for those holding shares between a month and a year and that the changes came into effect yesterday.
Full tax payment will be required for shareholders who hold shares for less than a month, the finance ministry said in a statement on its website. The measures are the latest in a volley of policy moves Beijing hopes will halt a slide in Chinese equities that has rattled global investors and raised fresh doubts about the strength of the world’s second-biggest economy. Hours earlier, the Shanghai and Shenzhen Stock
Exchanges and the China Financial Futures Exchange proposed introducing a “circuit breaker” on one of the country’s benchmark stock indexes to stabilise the market, the Shanghai exchange said in a statement on its website. The exchange is proposing that a 5 percent rise or fall in the CSI300 index from the previous day’s close would trigger a 30-minute suspension of all the country’s equity indexes if the move
occurs before 2:30 p.m. After that time, a 5 percent move would prompt a suspension until the market close. Moves of 7 percent from the previous close would trigger a trade suspension for the rest of the day. The exchanges are seeking comment from market participants on the proposals before September 21. There is no guarantee that Beijing will adopt the proposals, but, if enacted, they could prove a disincentive to investors who want to buy stocks, by restricting the market’s potential to rise as well as to fall.
Mixed reaction
“It prevents a degree of very unhealthy volatility from impacting the market and at the same time allows investors to trade their conviction but not to the point where it becomes dysfunctional and counterproductive,” said Peter Kenny, chief market strategist at Clearpool Group in New York. “This could actually help global markets quite a bit just in terms of investor psychology.” But the reaction among others was sceptical.
“What’s the point? It merely delays the pace of the market fall,” said Liu Ligang, China economist at ANZ in Hong Kong. “If you resume market trading again (after the 30 minute suspension), the market will continue to fall. Why should they (even) have an equity market? This policy-making style is pushing China backwards to a planned economy.” Other market participants expressed doubts that volatility could be tamped down, as the myriad of measures taken by policymakers to reduce the wild swings in the stock market have been ineffective thus far. “They tried to encourage long-term investment and also to curb volatility, but I don’t think that can be totally under control at this point,” said Tracy Chen, a portfolio manager at Legg Mason unit Brandywine Global in Philadelphia. “The market’s confidence in Chinese policymakers is a little bit shaky right now.” T h e C SI 3 0 0 i n d e x comprises the largest listed companies in Shanghai and Shenzhen. Reuters
Business Daily | 9
September 9, 2015
Greater China
ort slump raises rper slowdown
ped 5.5 percent from a year earlier
Global financial markets have been rattled in recent weeks by fears that China’s slowdown could drag on already sluggish global growth, while adding to deflationary pressures by depressing prices. Indeed, the data yesterday showed sharp drops in imports from Australia, the European Union and Japan, which tumbled 29.6 percent, 21.7 percent and 14.7 percent, respectively. China’s imports from the United States also fell at a sharper pace than in July, dropping 5.9 percent. “Imports are much worse than expected ... and are also a leading indicator for exports, as around half of China’s exports are processing trade,” said Nie Wen, analyst at Hwabao Trust, Shanghai. “I’m not optimistic about the prospect of exports and it’s unlikely China can achieve its export target this year.” Wen predicted the central bank will have to cut banks’ reserve requirements at least three more times this year to pump more money into the slowing economy and counteract the impact of capital outflows as investors move their money elsewhere. Exports in August dropped 5.5
percent from a year earlier, slightly less than a 6.0 percent decline forecast in a Reuters poll, and improving from an 8.3 percent drop in July. That left the country with a trade surplus of US$60.24 billion for the month, the General Administration of Customs said, far higher than forecasts for US$48.20 billion.
Hard landing?
Global investors will be combing China’s August data over the coming weeks to see if the economy is at risk of a hard landing, with some analysts fearing current economic growth rates are already much weaker than official data suggest. Though most economists believe a gradual and prolonged slowdown is more likely, a stock market crash and the unexpected devaluation of the yuan currency last month have rattled confidence in the government, both inside and outside of China. On August 11, the People’s Bank of China jolted markets by devaluing the yuan by nearly 2 percent. Economists say that may give a mild boost to Chinese exports eventually, but most have not expected it to show up in August data.
China’s imports of key commodities such as iron ore, crude oil and soybeans all dropped in August from July, suggesting cheap international prices are no longer enough to drive Chinese buyers to stock up as demand remains weak. “This makes it the sixth month this year where imports have declined by more than 10 percent,” wrote Angus Nicholson of IG in a research note. “Of most concern for Australian miners is the 14 percent decline in iron import volume month-on-month. It also does not bode well for hopes that stepped-up Chinese fiscal stimulus in the second half of the year will help eat into the growing global oversupply in the iron ore market.”
Government reassurances
China’s top economic planning agency said on Monday that power usage, rail freight and the property market have all improved since August, indicating the economy is stabilising. “We are able to achieve the annual economic growth target” of 7 percent, the National Development and Reform Commission (NDRC) said. Top officials have also tried to reassure nervous financial markets that they do no see further reason for the yuan to weaken, after the sudden devaluation last month sparked fears of global competitive devaluations. “The yuan devaluation will have limited impact on exports,” said Li Jian, head of foreign trade research at the Commerce Ministry’s thinktank in Beijing. “Exports are falling because demand is weak, not because the price is not good.” Many traders, however, believe there is political pressure to allow a deeper depreciation of the currency in coming months as the economy slows. Reuters
EU business lobby says China losing reform momentum Firms are concerned about a suite of new laws dealing with national security
Police with north China’s Shanxi Province have started an investigation into the province’s largest private iron and steel enterprise, local authorities said. According to a notice of the Yuncheng City government, Haixin Iron and Steel Group, which has filed for bankruptcy, had around 6 billion yuan (US$970 million) in its account as of November last year based on the audit report. However, the debt claims of 752 creditors totalled 23.4 billion yuan as of this May. Police and relevant departments are reviewing the company’s audit report and asset assessment, fund flow and personal assets of major sponsors.
Box office already past 2014 total China’s 2015 box office has already exceeded the 2014 total of 29.6 billion yuan (US$4.6 billion). Chinese cinemas had taken 30 billion yuan by Sunday, 48.5 percent more than in the same period last year, according to the State Administration of Press, Publication, Radio, Film and Television (SARFT). Chinese movies raked in 18 billion yuan, 60 percent of the total. Fifty-four films have grossed more than 100 million yuan this year, with five of them earning more than 1 billion yuan. Box office exceeded 20 million yuan in the first half, but the summer season has been even more blockbusting.
Alibaba cuts graduate recruitment Alibaba announced it would cut its graduate recruitment quota as part of a “talent strategy adjustment”. The Hangzhou-based company originally planned to recruit some 3,000 graduates in 2016. According to a post on its graduate hiring website earlier this month, however, the quota will be cut and the recruitment process will become more competitive. This shift in the talent strategy has not come out of nowhere. In a speech released in April, Alibaba founder and chairman Jack Ma said the company had developed too quickly, and its over 30,000 employees were enough.
Mainland brands showcase opens in UK
Michael Martina
In order to promote China’s brands and products, better wedge into British and European markets, 146 Chinese companies attend the “European Showcase for Brands of China 2015” that held in the National Exhibition Center of Birmingham from September 6 to September 9. The showcase, which is hosted by China’s Ministry of Commerce (MOFCOM), is part of the exhibition of Birmingham’s Autumn Fair. It is also the 13th consecutive years for MOFCOM holding such a Chinese products promotion event in Britain. One hundred and forty six selected Chinese brand enterprises from China showcase themselves in 156 booths.
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he Chinese government is losing momentum in its efforts to reform the slowing economy, a European business lobby said yesterday, decrying what it called “protectionist tendencies” against foreign firms on national security grounds. China is headed for its slowest economic expansion in 25 years in 2015 and mainland stock markets have slumped 40 percent since midJune, sending global financial markets lower. Complaints from the international business community, eager for the ruling Communist Party to implement promised market reforms, have become increasingly vociferous as the downturn has dulled optimism about the pace of liberalisation. Firms are concerned about a suite of new laws dealing with national security that are “detrimental to the credibility of the Chinese marketplace”, the European Union Chamber of Commerce in China said in its annual business climate report. “It is now clear that some reform momentum has been lost”, the report said, adding that businesses were
Police launch investigation into steel company assets
Google set to return to mainland unsettled by the “markedly slow progress”. “The Chinese government must avoid giving in to the protectionist tendencies that are continuing to curtail legitimate market access, whether on the grounds of national security or other concerns,” it said. EU Chamber President Joerg Wuttke told reporters at a briefing that China still had strong potential for growth but that members wanted to see the country’s leaders move faster.
“We definitely would like to see a stronger sense of urgency going through each and every echelon of the government and not this kind of laid back wait and see attitude,” Wuttke said. While the Chamber endorsed the on-going anti-corruption campaign under Xi, it also “causes jitters” within the government and slowed the implementation of reforms, Wuttke said. Reuters
Google Play, the mobile application store, could return to the Chinese mainland as early as this month, China Daily reported yesterday. Google pulled its services from the mainland in 2010. Citing information.com, a tech news site, the article said Google was working on a “special” version of Google Play for China, and the platform will be available for Android devices for sale in China. The paper quoted a Beijing-based application developer as saying that Google Play will be tailored to suit the Chinese market.
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September 9, 2015
Greater China
Some of the state-owned companies are worldwide leaders such as Sinopec, the biggest company in China and third in the world by annual revenue according to the Fortune Global 500 List.
State firms reform plan prepares way for share privatization Current state owned-asset supervisors should shift from managing individual enterprises to state-capital management
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hina plans to sell shares of some state-owned enterprises (SOE) and consolidate others in a plan that paves the way for the country’s largest overhaul of its bloated businesses since the late 1990s. China will “forcefully push state-owned enterprises to reform and go public and create conditions for conglomerates to list all their assets,” according to a document jointly issued by the Communist Party Central Committee and the State Council seen by Bloomberg News. Government-run companies in competitive
sectors must seek more diversified ownership by selling stakes to state and non-state investors, the document showed. The government also plans to create special investment vehicles to manage stateowned capital and may merge or restructure state companies, according to the document. They also will promote cross-shareholding and “blending” between state-owned capital and private investments. With the world’s secondlargest economy posting the slowest growth in a quarter century, China’s
government branches will next start to map out detailed plans that potentially affect tens of thousands of companies with estimated assets of about US$16 trillion. A quicker pace of reform may spur speculation over which ones will be reorganized, potentially fuelling further volatility for stocks in Shanghai and Hong Kong.
Two categories
The new guidelines for state companies include splitting them into two main groups -- those that are commercially oriented, and others that are
focused on not-for-profit operations, the document shows. China has approved the basic SOE reform guidelines and seeks basic completion of the plan by 2020, the official Xinhua News Agency reported yesterday. State-run companies have been a drag on economic growth. Their output slumped in July to the lowest level since December 2008, National Bureau of Statistics data show. Separately, the Stateowned Assets Supervision and Administration Commission -- the agency overseeing the
Uber to enter 100 more Chinese cities within 12 months -CEO The firm and rival Didi Kuaidi are spending heavily to subsidise rides and gain market share
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Communist leadership
Current state owned-asset supervisors should shift from managing individual enterprises to state-capital management, according to the proposal. As part of the reforms, one principle is to enhance leadership of the communist party in the stateowned enterprises. JPMorgan Chase & Co. estimates there are more than 150,000 SOEs across the country, accounting for 17 percent of urban employment and almost 80 percent of the CSI 300 Index in China. The last time China made a big push to reform its industries was in the 1990s under then-Premier Zhu Rongji. That drive resulted in more than 60,000 business closures and 30 million layoffs, according to JPMorgan. Bloomberg News
KEY POINTS Uber doubles June-set goal of 50 cities in 12 months China market share 30-35 pct vs 1 pct 9 months ago Uber China raised US$1.2 bln in on-going funding round
Jake Spring
.S. ride-hailing service Uber Technologies will enter 100 more Chinese cities over the next year, doubling a previous goal set just three months ago, Chief Executive Travis Kalanick said yesterday. Uber’s China unit currently operates in almost 20 cities, Kalanick said at an event in Beijing held by Uber investor Baidu Inc. The speech comes a day after Kalanick said the China unit had raised US$1.2 billion during on-going fundraising, while people familiar with the matter told Reuters that larger local rival Didi Kuaidi had brought in US$3 billion.
government’s companies -said the reform guidelines will be released soon. SASAC didn’t reply to a faxed request for comment.
Welcome govt ride-hailing regulations to be issued this year The two firms are spending heavily to subsidise rides and gain market share, betting on China’s Internetlinked transport market becoming the world’s biggest and most lucrative. “When we started this year, we were about one percent market share. Today, nine months later, we’re looking at about 30 to 35 percent market share”, Kalanick said. He did not specify whether that market was for all ride-hailing services including taxis, where Didi Kuaidi dominates, or just for private cars. Uber also welcomes new regulations expected later this year governing ride-hailing services in
China, Kalanick said. At the event, Baidu, China’s Internet search leader, demonstrated a voice-operated artificial intelligence smartphone assistant for finding nearby offline services, which could also control a robot reminiscent of Disney’s WALL-E. After the Baidu slot, Kalanick spoke of the importance of Uber’s relationship with the Internet firm. “We can get introductions to the city governments, the government officials that want to shepherd our kind of innovation and our kind of progress into their cities,” he said. During the speech, Kalanick
adopted the language of Chinese officialdom, using favoured Communist Party subjects such as harmony and stability. “Progress is something we see the government be incredibly open to, whether it be about more jobs and less pollution, less congestion on the streets, better utilisation of infrastructure, that kind of progress always has to be in harmony with stability and that is one of the big things that we partnered with the government on,” he said. Reuters
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September 9, 2015
Asia
Latest data reveals unsolved spots of Japan’s Abenomics Economy entered the third quarter lacking momentum, according to recent data Keiko Ujikane
JAPAN CABINET OFFICE REPORT Gross domestic product shrank at an annualized 1.2 percent pace Private inventories added 0.3 percentage point to quarterly GDP, more than the 0.1 point initially estimated Private consumption subtracted 0.4 percentage point from GDP Net trade took off 0.3 percentage point Capital spending shaved 0.1 percentage point Prime Minister Abe (C) escorted by government’s economy strongmen: Finance Minister Taro Aso (R) and Economy Minister Akira Amari (L)
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apan’s economy contracted last quarter less than initially estimated, thanks to a build-up in inventories that risks damping a rebound. Gross domestic product shrank at an annualized 1.2 percent pace in the three months through June from the first quarter, less than the 1.6 percent drop reported last month, the Cabinet Office said yesterday in Tokyo. Economists had estimated a 1.8 percent contraction. Businesses reduced investment more than first estimated, in a rebuff to Prime Minister Shinzo Abe’s call for Japanese companies to deploy their record cash holdings and a surge in profits into capital spending. Also dragging on the economy was consumption -- even after an advance in wages. Overseas, Japan is facing growing risks from a slowdown in China, its biggest trading partner.
"Companies are still struggling to reduce stockpiles in the face of weak demand at home and abroad," said Junichi Makino, an economist at SMBC Nikko Securities Inc. "The government will probably compile about 2.5 trillion yen worth of stimulus in an economic package around October," he predicted. That’s US$21 billion. Japan’s economy entered the third quarter lacking momentum, according to recent data. While retail sales rose for a fourth straight month in July, industrial output and household spending unexpectedly fell. Also worrying for reflationist, today’s report showed a retreat in the GDP deflator, which is a broad measure of inflation across the economy. This gauge was falling through much of the 1990s and 2000s as Japan stagnated. It turned up last year as Bank of Japan monetary
easing sent the yen tumbling and prices rising. Now, it’s slowing again: Monthly inflation data have also slowed, to zero percent in July when looking at consumer prices excluding fresh food, one of the BOJ’s main measures. Central bank officials are becoming less confident about Japan’s underlying economic strength, making them cautious about the outlook for a pickup in inflation, people familiar with the discussions have said this month. With the BOJ’s 2 percent inflation target distant, the most recent data contrast with a shift among some economists toward the view that the central bank won’t step up its asset purchases. Advisers to Abe have raised the possibility of extra stimulus. Etsuro Honda called for a fiscal boost of as much as 3.5 trillion yen while Koichi Hamada said further monetary easing
Government spending and residential housing added to GDP
and fiscal steps will be needed if the economy fails to grow this quarter. Even so, Economy Minister Akira Amari said on September 1 that the government isn’t seeking any urgent budgetary support for now. BOJ Governor Haruhiko Kuroda in New York last month that the central bank can achieve its 2 percent inflation target with the current level of monetary stimulus. Today, Chief Cabinet Secretary Yoshihide Suga said the Abe administration would do its utmost to foster a strong economy. There’s work to do for Japan to catch up with its biggest developed counterparts, which have outpaced it since the global recovery began in 2010.
Aussie Prime Minister forces early vote on China-Australia FTA He said it would give Australia “unparalleled access” to what will soon become the “biggest” market in the world
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ustralia’s Prime Minister Tony Abbott yesterday moved a motion to force a vote on approving a China-Australia Free Trade Agreement (ChAFTA). In an effort to speed up the process and force Labour to accept the deal negotiated between Australia and China, Abbott called on Opposition Leader Bill Shorten to rubber
stamp the agreement. Abbott said it would be “unconscionable” for Shorten to block the FTA, telling parliament that unless it was accepted in its “ negotiated form,” China would “walk away.” Labour has voiced reservations over the deal, citing a raw deal for Australian workers -- an opinion shared by the workers’ unions -- as
reasons for its opposition to the ChAFTA in its current form. Shorten has asked to amend the agreement, stating that “labour market testing” had to be compulsory for projects worth in excess of US$110 million. This would ensure Australian citizens and permanent residents had a priority to apply for
advertised jobs before those coming into Australia on a working 457 visa. But Abbott has said there is nothing to hide in the deal, telling parliament that conditions, pay and safety standards would all be the same with or without the ChAFTA. “There is no possibility of placing foreigners in Australian jobs without
Bloomberg News
labour market testing,” Abbott said. Shorten moved to amend the agreement, asking that ChAFTA can “maximize job opportunities” for Australian workers, “protect overseas workers from exploitation and maintain Australian wages and conditions” as well as uphold Australian safety standards. However, Abbott was stubborn to the idea of tweaking the terms, despite an offer from Shorten to sit down and sort out the differences. Instead, the prime minister said the deal was one that was extremely beneficial to Australia, and acknowledged that the FTA was the only one that China had signed with a G20 nation. Xinhua
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Asia
S.Korea budget to focus on growing jobs The government expects next year’s budget will create 64,000 jobs for youth Christine Kim
As the importance of government spending is becoming more crucial in boosting the economy and creating momentum for growth, we have increased next year’s budget Bang Moon-kyu, South Korean vice finance minister in charge of budget affairs South Korean Finance Minister Choi Kyung-hwan speaks during a press conference at the government complex in Sejong, South Korea on the government’s proposal for the fiscal 2016 budget
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outh Korea plans to boost government spending next year to support economic growth and create more jobs, the finance ministry said yesterday, but spending growth will be held below this year’s rate to avoid sharply widening the budget deficit. Announcing the 2016 annual budget and its medium-term fiscal management plans, the finance ministry said fiscal spending would grow by an average 2.6 percent each year for the 2015 to 2019 period.
This was slower than an average 4.7 percent expansion announced last year in the ministry’s medium term plans to 2018. Next year, spending will increase 3.0 percent to 386.7 trillion won (US$322.6 billion), less than the 5.5 percent rise set for this year and the slowest expansion since a 2.9 percent gain in 2010. “We have very limited funds in terms of tax revenue, but as the importance of government spending is becoming more crucial in boosting the
economy and creating momentum for growth, we have increased next year’s budget,” Bang Moon-kyu, a vice finance minister in charge of budget affairs, told a briefing on Friday in Sejong, the official capital south of Seoul. Echoing this year’s budget, which saw the largest-ever allocations to health, jobs and welfare, funds for that category will rise 6.2 percent next year. The government expects next year’s budget will create 64,000 jobs for youth, compared to 48,000 planned for this year.
The finance ministry said the additional budget introduced during the MERS scare demanded spending growth for next year be reined in due to the extra borrowing it had required. South Korea was expected to show a fiscal deficit of 2.3 percent of annual gross domestic product, slightly worse than a 2.1 percent shortfall projected for this year. Bang said although South Korea’s fiscal position was not serious, the government would not be able to achieve a fiscal surplus through 2019. The government plans to submit next year’s budget bill to parliament for approval by September 11. South Korea’s fiscal year starts on Jan. 1. The government assumed next year’s economic growth at 3.3 percent for the budget, versus a projected 3.1 percent for this year and last year’s actual 3.3 percent growth. Separately, finance ministry officials told Reuters the government would sell up to a net 46.2 trillion won worth of treasury bonds next year compared to 52.3 trillion won worth set for 2015, which includes newly-issued treasury bonds for this year’s supplementary budget. Also, the government lowered the limit for possible foreign currencydenominated foreign exchange stabilization bonds to US$500 million next year, down from US$700 million for this year.
Modi asks billionaires if China’s pain can be India’s gain Manoj Kumar
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rime Minister Narendra Modi called bankers and billionaires to his residence yesterday to brainstorm on how India can manage global economic turbulence, including opportunities for Asia’s thirdlargest economy in China’s market and growth woes. The morning meeting in New Delhi was attended by tycoons including India’s richest man, Mukesh Ambani, Finance Minister Arun Jaitley, central bank governor Raghuram Rajan,
economists and state and private bank chiefs. At the gathering, industry chamber ASSOCHAM told Modi policy makers needed to act fast to “bullet proof” India from global jitters - calling for a deep cut in interest rates and new duties to stop dumping of Chinese products such as steel. India’s macroeconomic situation has improved considerably since the “taper tantrum” of 2013, not least thanks to lower prices for the commodities it imports. Then, inflation, for example,
was at double digits - it has since halved. The International Monetary Fund considers India’s economy a rare bright spot among emerging markets and Modi sees a chance to attract more foreign investment as money flows out of China. But it will not be easy to turn China’s pain into India’s gain. Investors and corporates increasingly worry that Modi has not moved fast enough since taking office. Annual growth slowed to 7 percent
in the June quarter. “Mr. Modi ran a successful state. He campaigned for 2 years saying he knew what to do. He has been there 15 months with the largest majority since independence yet little has happened,” U.S. investor Jim Rogers told Reuters Trading India yesterday. Rogers recently announced he had sold his India investments. After farmer protests forced the government to drop a major land reform
Reuters
and opposition parties delayed a growth-boosting tax overhaul, expectations are growing that Modi will soon unveil new measures to make it easier for foreign money to enter India. The government predicts India’s economy will grow at 8 percent or more in 2015/16, prodded by government spending. Yet private investment has been slow to pick up, with banks and businesses hobbled by bad debts and high lending rates. In the real economy, there are few signs of an major economic recovery. In the construction and diamond polishing industries, for example, there have been large layoffs. ASSOCHAM called on central bank chief Raghuram Rajan to slash interest rates by up to 1.25 percentage points by March to help revive investment and growth. Reuters
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Asia Abe retains party post for 3 more years Economists say Abe should tackle tough structural reforms, such as freeing up the rigid labour market to boost productivity
Australian business conditions improved in August as both trading and profitability grew, yet confidence took a hit amid growing worries about the health of China’s economy, a survey showed yesterday. National Australia Bank’s monthly survey of more than 500 firms showed its index of business conditions rose 5 points to +11 in August. In contrast, its measure of business confidence dipped 3 points to +1 - its lowest since mid-2013. The survey’s index of sales jumped to +20, from +12, while profitability rose five points to +12.
Yuko Yoshikawa and Kiyoshi Takenaka
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apanese Prime Minister Shinzo Abe won a rare second consecutive term yesterday as ruling party chief, and hence premier, pledging to retain focus on reviving the world’s third-biggest economy and deepen debate on revising its pacifist constitution. Abe, who took office in December 2012 promising to reboot a stale economy and bolster Japan’s defences, won another three-year term as Liberal Democratic Party (LDP) president after his only potential rival, former LDP executive Seiko Noda, failed to gain enough sponsors to launch a challenge in the party poll. “While creating a virtuous economic cycle, I will spread the feeling of recovery to every nook and cranny of the regions and throughout the country, completely escape deflation and create growth in a strong, future-oriented economy,” Abe told a crowd of supporters before registering for the vote. Abe said he would also tackle the problems of Japan’s low birth rate and ageing population. He said in a statement he would deepen public debate on revising Japan’s post-war, pacifist constitution with an aim to changing the charter. Surveys show many Japanese voters are wary of revising the constitution’s pacifist Article 9. Abe’s policy team has pledged to
KEY POINTS Abe prioritises economic revival Abe aims to revise pacifist constitution refocus on the faltering economy after spending political capital in the past year pushing unpopular legislation that could let Japanese troops fight overseas for the first time since World War Two. Japan has had a series of revolvingdoor leaders, beginning with Abe’s own troubled first term in 2006-2007, after maverick Junichiro Koizumi’s five-year stint as premier from 20012006. The next general election is not scheduled until 2018. The yen has eased more than 30 percent against the dollar and Tokyo share prices and corporate profits have more than doubled since Abe took over as head of the thenopposition LDP in September 2012 and led the party to victory, buoyed by hopes for his “Abenomics” recipe for economic revival. However, corporate investment is sluggish and wage rises have failed
Bid by rival could have snarled security bill debate to keep pace with higher prices, dampening consumption. GDP shrank an annualised 1.2 percent in the April-June quarter due to an export slump and weak consumer spending. Economists say Abe should tackle tough structural reforms, such as freeing up the rigid labour market to boost productivity. They expect he is likely to rely on more politically palatable measures, such as an extra budget for the current fiscal year and easy monetary policy. A challenge by Noda could have snarled debate over the security bills, which the government aims to enact as early as next week despite popular protests and surveys showing most voters oppose them. Reuters
NZ central bank expected to cut rates on Thursday A steep fall in dairy prices has slashed incomes in the industry, which accounts for roughly 7 percent of the overall economy Charlotte Greenfield
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he Reserve Bank of New Zealand (RBNZ) is widely expected to cut its official cash rate (OCR) by 25 basis points this week and to signal it may wait to see how a series of cuts affects the economy before committing to more monetary easing. The central bank is likely to cut its growth outlook in its quarterly monetary policy statement on Thursday as falling global dairy prices and a slowdown in China, its biggest export market, raise the risk of sluggish growth at home, while inflation pressures remain minimal. A sharp fall in the New Zealand dollar has cushioned the blow of lower prices for dairy products, the country’s main export earner, while brightening the outlook for non-dairy exports. A Reuters poll of economists found all 12 expect a cut in the OCR to 2.75 percent on Thursday, although economists were divided
about the possibility of a further easing to 2.50 percent by year-end. A cut on Thursday would be the third in as many policy reviews by the RBNZ, which has been unwinding last year’s monetary tightening cycle after lifting the official benchmark rate by a total of 100 basis points to 3.5 percent. “If we get three (cuts) in a row, they’re going to have to sit back at some stage into a period of assessment. I’m just not convinced that the economy’s weak enough to justify giving us four right upfront,” ANZ chief economist Cameron Bagrie said. The RBNZ was the first central bank in the developed world to raise rates in early 2014 as climbing dairy prices, the rebuilding of earthquake-hit Christchurch, an immigration boom and a redhot housing market in Auckland combined to make New Zealand one of the fastest-growing Western economies.
Australian business conditions improve
But a steep fall in dairy prices has since cut the terms of trade and slashed incomes in the dairy industry, which accounts for roughly 7 percent of the overall economy. As annual GDP growth eased to 2.6 percent in the first quarter, analysts expect the RBNZ on Thursday to downgrade its growth forecast for the coming year from 3.3 percent and to lower its rate projections to include another cut to 2.5 percent in the next few months. But some economists said that additional easing beyond that rate would require a sharp downturn in the economy. “Recent developments have probably not been sufficient for the RBNZ to signal that it is willing to cross the line in the sand at 2.5 percent,” said Dominick Stephens, chief economist at Westpac, in a research note. Reuters
Japanese service sector sentiment worsens in August Japan’s service sector sentiment index fell to 49.3 in August, down for the first time in two months and the lowest level since January, a Cabinet Office survey showed yesterday. The survey of workers such as taxi drivers, hotel workers and restaurant staff - called “economy watchers” for their proximity to consumer and retail trends - showed their confidence about current economic conditions declined from 51.6 in July. The outlook index, indicating the level of confidence in future conditions, slipped to 48.2 in August from 51.9 the previous month.
South Korean FX bank deposits fall again Foreign exchange bank deposits in South Korea declined for a fourth straight month in August, central bank data showed yesterday, as yuan-denominated deposits continued to fall as some accounts matured. Total foreign exchange deposits inched down US$1.18 billion to US$59.69 billion as of the end of August, the Bank of Korea said in a statement, bringing the overall amount to the lowest since June last year. Yuan deposits fell for a fourth consecutive month, down US$3.68 billion at US$10.63 billion as of the end of last month.
1MDB shortlists four parties for unit bid Troubled Malaysian state fund 1MDB has shortlisted four parties for the final bidding stage in the sale of its power unit, Edra Global Energy Bhd - which banking sources have said is valued at around 10 billion ringgit (US$2.3 billion). 1MDB, the subject of multiple investigations amid allegations of financial mismanagement and graft, has been at the centre of a political crisis for Prime Minister Najib Razak who chairs its advisory board. It is seeking to pare back US$11 billion in debt and the power unit is widely viewed as its best asset.
India considers safeguard duty on steel An Indian government body has found evidence that rising imports of some hot-rolled steel products from China, Japan, South Korea and Russia pose a threat to the domestic industry, potentially paving the way for an import levy known as a safeguard duty. The Directorate General of Safeguards said it would look into whether a duty was needed after the Steel Authority of India, JSW Steel and Essar Steel filed an application in July seeking safeguard measures for a four-year period. The steel makers have been pushing for a safeguard duty.
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International U.S. small business confidence rises slightly U.S. small business confidence rose modestly in August, suggesting the economy continued to grow at a steady clip halfway through the third quarter. The National Federation of Independent Business said yesterday its Small Business Optimism Index gained half a point to 95.9 last month. The NFIB said the survey of 656 businesses had not been impacted much by the recent turmoil in global financial markets, which was triggered by concerns over slowing economic growth in China. “Most of the interviews were completed before the big slide,” the NFIB said in a statement.
Euro-Area economy grows more than estimated Government spending increased 0.3 percent in the three months through June Alessandro Speciale and Catherine Bosley
Russia to keep Fitch rating as long as debt stable Fitch has no plans to downgrade its sovereign credit rating on Russia as long as the country holds down its debt, the agency said yesterday. Fitch is the only one of the three big ratings agencies which still has an investment grade rating on Russia, after lowering its assessment in January to BBB- with a negative outlook. “The way we look at Russia is the following: The foundation of its rating is its strong sovereign balance sheet, (it) has very low external debt, (and) is a net external creditor,” Charles Seville, senior director of sovereign ratings.
Lufthansa pilots warn of more action Germany’s Lufthansa will not give in to pilots who began a two-day walkout yesterday and threatened further strikes in their long-running dispute over cost cuts, retirement benefits and pay, the airline said. Lufthansa was forced to cancel 84 of about 170 long-haul flights planned for yesterday from Frankfurt, Munich and Düsseldorf, expects several hundred cancellations today and was told by pilots’ union Vereinigung Cockpit that further industrial action could be taken. The pilots’ 13th strike inside 18 months drew a defiant response from Germany’s largest airline.
President Mario Draghi has committed to expanding stimulus if necessary
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he euro-area economy grew more than initially reported in the second quarter, driven by a surge in exports and consumer spending. Gross domestic product rose 0.4 percent in the three months through June after expanding a revised 0.5 percent in the first quarter, the European Union’s statistics office in Luxembourg said yesterday. Household consumption increased 0.4 percent. Eurostat had reported
second-quarter growth of 0.3 percent on August 14. The European Central Bank predicted last week that the region’s recovery will continue, albeit at a weaker pace as an economic slowdown in emerging markets including China weighs on global trade. Policy makers revised down their growth and inflation forecasts for the 19-nation bloc through 2017, and President Mario Draghi committed to expand stimulus if needed.
The data are “fairly encouraging,” said Timo Del Carpio, European economist at RBC Europe in London. “What the second quarter figures are showing is a recovery that is maybe a bit more balanced than in the first quarter.” With China jolting global markets by devaluing its currency, the euro area needs demand for its exports from countries such as the U.K. and the U.S., as well as from consumers and the public sector to drive growth. Government spending increased 0.3 percent in the three months through June, while investment fell 0.5 percent after a 1.4 percent surge at the start of the year, according to the report. Household consumption contributed 0.2 percentage point to GDP, and net trade added 0.3 percentage point. A gauge of factory and services activity rose to a four-year high in August in a sign that the euro area’s recovery is proceeding at pace. Unemployment in the region declined to 10.9 percent in July, the lowest since early 2012. Bloomberg News
Platinum upgrade to golden reserve status seen as monetary alchemy
Platinum is not viewed as a financial asset that can be used Dilma stands by Brazil’s to meet balance-of-payments financing needs austerity program Brazil’s current economic struggles are due in part to prolonged government stimulus that must be cut back, President Dilma Rousseff said, in a rare public acknowledgment that her policies had contributed to a deep recession. In a video posted online to mark Brazil’s Independence Day, Rousseff renewed her commitment to an austerity agenda amid growing concern in financial markets about the government’s slipping budget targets and unrest in her ruling coalition. “If we made mistakes, and that is possible, we will overcome them and move on,” Rousseff said.
Spanish home prices jump most since crisis Spanish house prices jumped the most on record in the second-quarter, strengthening the foundations of the country’s economic recovery. Housing rose 4.2 percent in the quarter compared with a 0.6 percent contraction in the previous three months, according to data released by Spain’s National Statistics Institute yesterday. That was the fastest clip since the institute, known as INE, started publishing real estate prices in 2007. “These figures show the gradual recovery of the Spanish property market, which is necessary for the definitive reactivation of the real economy,” said Belen San Jose, an analyst at Bankinter SA.
Ed Stoddard and Jan Harvey
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outh Africa’s mining industry, unions and the government want to boost platinum’s sagging fortunes by promoting it as a central bank reserve asset, but upgrading the metal to gold’s coveted financial status will be an uphill struggle. Obstacles to this attempt at monetary alchemy are many: the small size of the platinum market, gold’s long history as a store of value, and the inherent aversion to risk shared by most central bankers. The initiative, part of a bid to stem job losses in South Africa’s mining sector, aims to have the white metal treated as an official central bank reserve, like gold and foreign currency holdings. Platinum’s primary role at present is industrial, as a component in emissions-capping catalytic converters used in automobiles. South Africa accounts for about 70 percent of global platinum production, and so has the most to gain from such a development at a time when the metal’s spot price is near 6-1/2-year lows below US$1,000 an ounce. But the South African Reserve
Bank (SARB), which would need to champion the notion for it to gain traction, signalled on Monday it was cool to the idea. “The SARB has had numerous approaches by interested parties over the years to consider adding platinum to its official reserves,” said Hlengani Mathebula, head of the SARB’s group strategy and communications.
Size and liquidity count
While technically central banks can hold anything they want, reserve assets are set out in guidelines drafted by global bodies, including the International Monetary Fund (IMF) and central banks. Under those guidelines, gold is a reserve asset, but platinum is not because it is not viewed as a financial asset that can be used to meet balanceof-payments financing needs.
Size and liquidity count.
“The platinum market is just too small. China has US$3.7 trillion of foreign exchange reserves. To keep 1 percent by value in platinum, at US$1,000 an ounce, would need 37 million ounces of platinum, which is
six years’ mine supply,” said Matthew Turner, an analyst at Macquarie. “To get 0.1 percent, you’d only need to buy two-thirds of a year’s mine supply, but why would you want to hold 0.1 percent of your reserves in platinum? What use would that be to anyone?” The gold market is much larger and has a deeper history as a financial asset due to the “gold standard”, under which currencies were pegged to a specified amount of bullion. The South African initiative is calling for a push to get support from the BRICS group of emerging economies - Brazil, Russia, India, China and South Africa. “If you’re talking about the smaller BRIC nations, there is adequate liquidity if platinum were held at a ratio of five to one, or eight to one, versus gold in a typical portfolio,” the WPIC’s Wilson said. Russia, as the world’s secondlargest platinum producer, could be an easy sell. Moscow and Pretoria floated the idea of an OPEC-style platinum cartel two years ago. Reuters
Business Daily | 15
September 9, 2015
Opinion Business
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Leading reports from Asia’s best business newspapers
CME challenges LME in its metals trading heartland
THE STAR Moody’s Investors Service says that the depreciation in the Malaysian ringgit is manageable for the sovereign (A3 positive), banks and rated corporates, although it indicates a weakening environment. A Moody’s vice president and senior research analyst Rahul Ghos said: “We see ringgit depreciation as a symptom of declining export revenues, capital outflows, and worsening investor sentiment toward Malaysia. The report issued yesterday said the Malaysian ringgit has depreciated by about 25% against the US dollar in the past 12 months.
Andy Home
Reuters columnist
to killing off the queues, a prerequisite for formulating the physical delivery options for the premium contracts. But the long and the short of it is that by the end of this year European aluminium players will have two premium contracts to trade.
Heartland
VIETNAM NEWS A lot needs to be done between now and the end of the year to meet the export growth target of 10 per cent, the Ministry of Industry and Trade has said. The export prices and volumes of many agricultural and mineral products would continue their downward trend, affecting the increase in export value, Nguyen Tien Vy, head of the ministry’s planning department, said. He said domestic companies’ exports would continue to see slow growth as major commodities such as agro-products, seafood and minerals were on the decline.
JAKARTA GLOBE Indonesia stands to lose US$600 billion from its economy and, with it, its aspired spot among G7 countries by 2030 with current capacity of financial system, warns a study from New-York based consulting firm Oliver Wyman and the Mandiri Institute, an economic think tank of the country’s largest lender, Bank Mandiri. The report, titled “Financial Deepening in Indonesia: Funding Infrastructure Development, Catalyzing Economic Growth,” suggests the country must develop initiatives to boost numbers of investors, bond issuers, listed companies and financial instruments in order create a pool of funds that will support economic growth.
THE AGE Westpac Banking Corp’s decision to take restructuring costs “below-the-line” at its upcoming full year results has disappointed analysts who fear they may be recurring rather than one-off costs, while the bank’s 15 per cent return on equity target has been greeted with scepticism given regulatory imposts being piled upon the sector. Westpac said on Monday it would lift investment spending by 20 per cent to A$1.3 billion with most of this to be deployed towards technology. Significant item restructuring provisions charge the costs of restructuring to the balance sheet, which means they do not impact on cash profit.
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hen Hong Kong Exchanges and Clearing (HKEx) bought the venerable old London Metal Exchange (LME) back in 2012, it did so with eyes firmly fixed on China. The vision was to leverage the LME’s near monopoly on base metals pricing in the rest of the world to open up the world’s fastest-growing metals market. That remains the vision, although HKEx’ ambitions in the commodities space have taken back seat to its StockConnect bridge between Hong Kong and mainland Chinese stock markets. What HKEx almost certainly wasn’t expecting back in 2012 was a challenge to the LME’s existing franchise outside of China. But U.S. exchange CME has other ideas. It has just announced its fourth new base metals contract and with the latest, a European aluminium premium contract, it is taking the battle into the LME’s historic heartland.
Premium opportunity There will be many on the LME “Street” that greet CME’s latest product launch with a knowing smile or a shrug of the shoulders. After all, up to now CME has struggled to extend its industrial metals portfolio beyond copper, a metal in which its COMEX division has deep roots in the North American market-place. Everyone remembers the COMEX aluminium contract of the noughties, an ultimately doomed attempt to challenge the LME’s dominance in aluminium trading. But one of CME’s more recent forays beyond copper does genuinely appear to be gaining traction. Its U.S. aluminium premium contract, indexed against Platts’ assessment of the Midwest market, has this year seen both volumes and open interest accelerate.
CME has already thrown down a marker of its ambitions to grab a larger slice of the metals trading pie
The fact that they have done so even while physical premiums have collapsed should give LME supporters pause for thought. When the contract was launched in 2012, it looked like an opportunistic bid to capitalise on the LME’s problems with its North American manufacturing user base. Relations had almost reached breaking point on the vexed issue of aluminium loadout queues from some LME warehouse locations, particularly Detroit, and the resulting perceived impact on physical premiums. Premiums were going stratospheric, widening the disconnect between hedgeable LME basis price and “all-in” price, the latter including a then non-hedgeable premium component. As is often the way with such things, it took a long while for the CME premium contract to build any momentum. In December last year trading volumes were just 947 lots and open interest just 5,431 lots. Then premiums imploded early this year. The CME front-month Midwest premium collapsed from 24.12
cents per lb at the end of January to 8.39 cents at the end of June, not least because the LME had announced a series of ever more stringent warehousing rules, in effect killing off the queue model. Not entirely surprisingly, that premium slump was a shot in the arm for the CME premium contract. More surprising, though, is the fact that the subsequent stabilisation of the premium, currently trading at 7.19 cents per pound, has been accompanied by still rising volumes and open interest. Volumes in August were 4,555 lots, bringing the yearto-date total to 25,787 lots. Open interest reached a new record high of 19,335 lots, or 483,375 tonnes, at the end of the month.
Premium competition So you can see why CME is now looking to replicate that success in Europe, this time linking its product to Metal Bulletin’s assessment of the European duty-unpaid premium. It is also stealing a march on the LME, which has itself committed to four new aluminium premium contracts, aimed at exactly the same disgruntled user base as those of CME. The LME contracts, one for the U.S., one for Europe, one for East Asia and one for SouthEastern Asia, are only scheduled to go live on November 23. The CME’s version will start trading on Sept 21. The key difference between the two is the fact that while CME’s are cash-settled, the LME’s are physically settled, allowing delivery of metal in locations without queues, which really means all but two, Detroit and the Dutch port of Vlissingen. To be fair to the LME, the exchange would probably have liked to launch its premium contracts a lot sooner but got bogged down in a legal challenge from Russian producer RUSAL over its proposed solution
Moreover, the CME’s latest proposition is symbolically significant. It is taking its competition with the LME into the latter’s heartland. If European manufacturers and producers hedge at all, they are likely to be doing so on the LME, with its multiple good delivery points scattered across the region. It is an open secret that the only entities to vote against the HKEx purchase of the LME were German industrial users, who liked the LME just the way it was. But CME has already thrown down a marker of its ambitions to grab a larger slice of the metals trading pie with both its physically-delivered “all-in” aluminium contract, launched last year, and a new zinc contract, launched in June 2015. The former is still struggling to build momentum with open interest last month of just 122 lots although low usage does not mean no usage. Those volume and open interest figures only tell half the story. Stock movements tell the other half. CME aluminium warehouses have taken in 29,500 tonnes and loaded out 15,400 tonnes of metal so far this year. Even that sort of delivery activity, of course, is dwarfed by that on the LME and many sceptics will hear the echo from that failed COMEX aluminium contract. Unless that is, CME is able to tap a new seam of potential users, those who either haven’t ever used the LME or those who would like to but are too small to clear the high credit bar for opening an LME account. That might be one reason for the U.S. premium contract’s relative success, given a large number of smaller manufacturers in the Midwest who have never hedged their aluminium exposure before and were unlikely to do so on the LME. Which raises the interesting question of whether there are similar players in the European region who might be drawn to the CME’s more vanilla trading model. Time, as they say, will tell. For now the LME still enjoys a near monopoly on pricing outside of China, barring North American copper. What’s changed, though, is the fact that monopoly is no longer undisputed. Reuters
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September 9, 2015
Closing Li Ka-Shing’s CKI offers US$11.6 billion to buy Power Assets
Koreas reach deal on family reunions in step to ease tension
Cheung Kong Infrastructure Holdings Ltd. offered US$11.6 billion to buy Power Assets Holdings Ltd. in stock as Li Ka-shing seeks to combine his utility businesses for further expansion. Cheung Kong Infrastructure will offer 1.04 shares for every Power Assets share not owned by Li’s companies, according to a Hong Kong exchange statement yesterday. Cheung Kong Infrastructure will also pay out a conditional special interim of HK$5 a share, it said. Hong Kong’s richest man is reshuffling his sprawling business empire for the second time this year as he looks for acquisitions worldwide. The new company will operate assets in utilities, waste management and transportation in China, Europe and Australia.
North Korea and South Korea agreed to hold the first reunions of families divided by their civil war in nearly two years, as they continue to ratchet down tensions after a military standoff last month. Each side will send 100 people to North Korea’s Mount Geumgang resort between October 20 and 26, Lee Duk Haeng, a South Korean Red Cross official, said yesterday at a briefing following nearly 24 hours of talks between the two sides. About 66,000 South Koreans remain on the waiting list for the reunions, according to the Unification Ministry. The two Koreas also agreed yesterday to meet again soon “for broad discussions on mutual interests,” Lee said.
Thailand approves US$5.7 bln measures to aid small firms Yesterday’s package follows a stimulus worth 136 billion baht (US$3.76 billion), aimed at lifting spending power in rural areas. Kitiphong Thaichareon
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hailand’s military government yesterday approved a new round of economic measures worth 206 billion baht (US$5.7 billion) to help small and medium-sized businesses (SMEs), as the ruling junta seeks to revive flagging economic growth. “It’s the prime minister’s order to help SMEs facing a business downturn and to create new business operators,” newly-appointed Deputy Prime Minister Somkid Jatusripitak told reporters, referring to General Prayuth Chan-ocha, who changed his cabinet last month in a bid to tackle the economic problems. A weak economy could undermine support for the generals as frustration with restrictions on political activity simmers, particularly among younger voters and supporters of ousted former prime minister Yingluck Shinawatra. The measures include
KEY POINTS Govt to offer 100 bln baht in soft loans Provides 100-billion baht credit guarantee Cuts SME tax rate to 10 pct, tax exemptions for start-ups 100-billion baht in seven-year soft loans, which will give the government an interest burden of about 20 billion baht during the period, Finance Minister Apisak Tantivorawong told reporters after a cabinet meeting. The government will set up a 6-billion baht fund to help raise funds for SMEs and provide a 100-billion-baht credit guarantee, he said. Existing SMEs will see their
Taiwan eases manufacturing semiconductors in China
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income tax cut to 10 percent from 10-15 percent for two tax years, while start-ups in certain sectors will receive a five-year tax exemption, he added but gave no estimated loss in revenue from the tax breaks. Small firms are suffering from a credit crunch, falling sales and weak consumption amid high household debt while banks grow more cautious about lending for
fears of bad debt. To help small business is crucial as they account for 37 percent gross domestic product and employs 11 million people, according to Maybank Kim Eng Securities. Yesterday’s measures would help 60,000 SMEs to continue business and maintain about 240,000 jobs, the Finance Ministry said in a statement. The economy grew 0.4 percent in April-June from
the prior quarter. A deadly bomb in Bangkok last month cast a shadow over tourism, one of the economy’s main drivers. The national planning agency last month cut its 2015 economic growth forecast to 2.7-3.2 percent from 3.0-4.0 percent. Economists believe the new target is still too optimistic. Growth last year was 0.9 percent.
OECD says China economy weakening further
South Korea launches sports fixing, gambling probe
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aiwan has relaxed curbs on its companies setting up semiconductor manufacturing plants in China, in a bid to enable them to better compete for mainland clients. The island’s economics ministry said it will allow a maximum of three wholly-owned 12-inch wafer foundries to be set up in China by Taiwanese companies, easing previous rules that limited such investments to mostly older technology and to joint ventures. Amid political tensions between the neighbours, Taiwan has restricted manufacturing activities of its prized semiconductor sector in China, with an eye to protecting intellectual property and trade secrets. But competition from China’s fast-growing, though fledgling chip industry, has put pressure on Taiwanese companies to widen their mainland footprint. And foreign companies are also building their presence in the mainland. While Samsung Electronics Co already has a huge chip plant in China, Intel Corp and Qualcomm Inc have announced investments in China. As a result, Taiwan Semiconductor Manufacturing Co (TSMC), and its smaller domestic rivals had urged the island nation to relax the curbs.
hina’s economy is losing steam and other big emerging market economies such as Brazil and Russia are also showing signs of weakness, the Paris-based Organisation for Economic Co-operation and Development said yesterday. While growth in the euro zone looks stable, it seems to be tapering in the U.S., UK and Canadian economies, albeit from relatively high levels for mature economies of their kind, the OECD said in its latest report on a forward-looking indicator it compiles monthly. The leading indicator, a synthetic index designed to detect turning points, dipped to 97.6 from 97.9, retreating further from the 100 mark that represents the long-term average. In advanced economies, the think tank reported slips of a tenth of a point for the U.S., UK and Canadian economies, to 99.5, 99.7 and 99.4 respectively. “The outlook continues to deteriorate for China, with the CLI (leading indicator) pointing more strongly to a loss of growth momentum. Signs of slowing growth momentum are also re-emerging in Russia. In Brazil, weak growth momentum is anticipated.”
Reuters
Reuters
Reuters
outh Korean police announced yesterday a formal investigation into match-fixing and illegal gambling by more than two dozen current and former sportsmen, mostly basketball and judo players. Police said the probe had been triggered by an alleged game-rigging incident in February this year, involving a 29-year-old basketball player -- identified only by his surname Kim. Kim was suspected of helping throw a match by intentionally missing a number of baskets at the request of a fellow gambler and 28-year-old judo player, a police statement said. Twenty four other current and retired players -- 11 in basketball, 12 in judo and one in wrestling -- are also being investigated for alleged gambling on sports fixtures using illegal Internet betting sites, the statement said. The wagers ranged from just one million won (US$830) to hundreds of millions of won. Professional sports in South Korea have been rocked by a series of scandals in recent years. In 2011 prosecutors charged 57 people -- 46 current and former players and 11 criminal gang members and bookmakers -- with fixing the results of 15 matches in the professional football K-League. AFP