Closing editor: Joanne Kuai
MOP 6.00
Galaxy appoints Charles Cheung as Non-Executive Director Page 7 Hong Kong Stock Exchange to strengthen collaboration with Chinese authorities Page 8
MIA traffic 6 pct up for Golden Week Page 4
Publisher: Paulo A. Azevedo Number 898 Wednesday October 14, 2015 Year IV
Beijing faces dilemma of persisting with reforms or prioritising growth Page 10
Middle Class Key to Economic Recovery More middle class tourists will turn the economy around, says Billy Ng. The Merrill Lynch (Asia Pacific) Ltd. MD did add a caveat. That the city first needs to break the constraint of capacity. The gaming, lodging and leisure expert says Macau has to offer more and better attractions and hotel rooms. And that the right mix will surely translate into increased visitation Page 3
Border Business The 24-hour border crossing between Macau and Zhuhai. Creating many opportunities for businesses based in the neighbouring city. China Southern Airlines is an example. Having just welcomed its 10th airplane to Zhuhai Jinwan Airport, it plans to develop the Macau market
HSI - Movers October 13
Name
%Day
Galaxy Entertainment
+6.05
China Unicom Hong Ko
+3.86
China Resources Enter
+3.61
Sands China Ltd
+2.74
Hong Kong & China Gas
+2.02
Sino Land Co Ltd
-1.61
AIA Group Ltd
-1.67
Bank of Communicatio
-1.89
PetroChina Co Ltd
-2.03
CNOOC Ltd
-3.28
Source: Bloomberg
I SSN 2226-8294
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Gaming E-era Electronic Gaming Tables are the future of gaming. Or so Hong Kong-listed company Paradise Ent. believes. Having just placed 63 Live Multi-Game terminals in Casino Lan Kwai Fong. A trend driven by the hunt to reduce labour costs, says the Paradise chairman
www.macaubusinessdaily.com
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Better Trade Declining import figures. Hampering trade evolution. But China’s exports fell less than expected in September, with monthly figures suggesting recovery. An inflection point, according to some economists
Page 8
Meeting Message
A heart to heart. Chairman of the Nationals People’s Congress, Zhang Dejiang, recently met with a delegation of Macau legislators. Praising their implementation of the ‘one country, two systems’ principle. He appealed to the city’s lawmakers to study President Xi’s words to further unite the population and SAR Gov’t
Page 2
Gaming
Casino shares surge Macau casino shares rose in Hong Kong trading. After analysts said gaming revenue was stronger than expected this month. Bullish Credit Suisse and Deutsche Bank analysts say the mass market is looking good
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2 | Business Daily
October 14, 2015
Macau
‘Implement spirit of Xi’s speech’, Beijing chief tells local legislators The National People’s Congress chairman has met a delegation of representatives from Macau Legislative Assembly
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he head of the national legislature has told Macau legislators they should “look at the big national picture” and “have the concept of administrationoriented”. Zhang Dejiang, chairman of the National People’s Congress, delivered the message to a delegation of 31 legislators from the MSAR headed by the president of the Macau Legislative Assembly, Ho Iat Seng, at the Great
Hall of the People in Beijing yesterday. “Macau Legislative Assembly has played a significant role in safeguarding the principle of ‘one country, two systems’, strictly practising the Basic Law, and in protecting Macau’s rule of law as well as the stability and prosperity of society, especially in defending the political system that is administrationoriented,” said Mr. Zhang as reported by local public broadcaster TDM.
“I hope you can study and practice the spirit of Chairman Xi Jinping’s speech,” said Mr. Zhang, referring to the speech that Xi made last year at the 15th anniversary of Macau’s return to China’s sovereignty whilst attending the commemorative ceremony in the MSAR. “I hope you further push forth the principle of ‘one country, two systems’ as well as practising the Basic Law and uniting the powers from all walks of life giving out positive energy. To safeguard the stability and prosperity of Macau society and support the Chief Executive and the SAR Government in carrying out the administration in accordance with the law,” Mr. Zhang added. Ho Iat Seng, speaking after the closed-door meeting, said “[Zhang] encouraged us to look at the big national picture”. Ho quoted Zhang as saying that the legislators should also pay attention to forbidding interference by foreign forces.
Public hospital medical records found on street
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onfidential medical records from Conde S. Januário public hospital were recently found in the street. According to the Health Bureau, the documents fell off a garbage truck, after they had been trashed by the hospital. ‘Hospital Conde S. Januário apologises to the people involved in the situation and appeals for any document found to be immediately delivered to the hospital’, the press release from the institution reads. An internal investigation into the case is being conducted. The Secretary for Social Affairs and Culture, Alexis Tam, also commented on the case, telling journalists that he is going to follow up on it and that such a situation cannot be repeated.
CE inspects waters surrounding MSAR
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hief Executive (CE) Fernando Chui Sai On paid an inspection visit to waters and passages surrounding Macau and listened to the reports on ‘customary waters’ preparation work progress. The local government officially submitted its request for the administrative rights over the city’s customary waters to the central government in September and is expecting the approval by the end of the year. Chui Sai On said that the priority of the task force in preparation of the water management is to make relevant deployment in order to plan properly, effectively manage, and safeguard security.
Agile Property generates RMB26.59 bln from Jan to Sept
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uangzhou-based property developer Agile Property Holdings Ltd. generated RMB29.59 billion (US$4.66 billion) from its housing pre-sales for the first nine months of the current year, according to a filing with the Hong Kong Stock Exchange. During the period, the gross floor area (GFA) pre-sold was 3,343,000 square metres, which equates to an average selling price of RMB8,850 per square metre. In relation to the month of September alone, the company generated RMB2.99 billion from the pre-sales of housing units. During this period, the group pre-sold 322,000 square metres, an average price of RMB9,274 per square metre. Thus, during September the average selling price per square metre was up 4.5 per cent in comparison to the overall for the year. Agile Property is popular among local and Hong Kong investors for its residential projects on the Mainland. For the full-year of 2014, the group gain of 44.16 billion yuan from housing presales represented a year-on-year rise of nearly 9.5 per cent, realised from sales of the corresponding gross floor area of 4.59 million square metres. However, the presales figures fell short in terms of the target of 48 billion yuan for that period.
Business Daily | 3
October 14, 2015
Macau
Merrill Lynch: Capacity restricts gaming development However, prior to that, the Special Administrative Region needs to enhance its capacity, says Billy Ng, managing director of Merrill Lunch (Asia Pacific) Ltd. Kam Leong
kamleong@macaubusinessdaily.com
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mid the gaming downturn, an ultimate solution for the city to turn the situation around is to receive more tourists, especially the middle class, says Billy Ng, managing director of Merrill Lynch (Asia Pacific) Ltd., with the caveat that the city first needs to break the constraint of capacity. At the beginning of the month, the director of the Chinese Liaison Office in Macau, Li Gang, revealed that the central government will announce more policies to support the local economy, several of which will be related to the gaming industry. “I think [the polices] would be for the long-term. But I think the overall big direction [will be] to allow more people to come to Macau,” said Mr. Ng, who is also the head of Asia Gaming, Lodging and Leisure, Global Research of the firm. He was speaking yesterday on the sidelines of the Global Tourism Economy Forum (GTEF) 2015. “I believe the Chinese government don’t mind sending more people here but are the Macau Government
and Macau society ready to receive more?” the gaming analyst asked. Gross gaming revenues in the city have dropped sixteen consecutive months. In the first nine months the industry only generated some MOP176.01 billion, which is 36.2 per cent lower than the same period a year ago.
Capacity constraints
The plunge in the gaming industry, especially in VIP gaming, is leading operators to shift the focus of targeted customers. “In Macau, [gaming operators] might only have focused on the top class of China before, which accounted for only one per cent [of total tourists]. But they now need to focus on the top 10 or even 15 per cent. They need to broaden their appeal; they need to offer much greater variety in terms of services,” he said. Although the capacity is a constraint, Mr. Ng believes it will gradually be broken as more integrated resorts are opened. “Because of the capacity constraint, we can’t serve everyone…
‘Belt and Road’ gets thumbs up The annual two-day Global Tourism Economy assembly ended yesterday. Themed “Belt and Road Initiative: Unleashing the New Dynamics of Cultural Tourism”, the event gathered together some 60 ministerial officials from different countries, leaders from global private corporations, and experts and scholars from around the world. The Secretary for Social Affairs and Culture, Alexis Tam Chon Weng, said during his closing remarks yesterday that the Belt and Road Initiative advocates mutual development and win-win cooperation. He claimed that Macau, being one of the key hubs along the Maritime Silk Road and a major gateway that connects China to the world, is dedicated to supporting and
contributing to the vision and actions of the Belt and Road Initiative. Meanwhile, Pansy Ho, vice Chairman and Secretary-General of GTEF, concluded that, “Macau in its strategic physical and historic location stands ready to optimise the Belt and Road Initiative to offer multi-dimensional, multi-faceted and multi-cultural offerings that will give its visitors and residents a lasting collective experience and memories”. The forum also attracted more than 1,200 delegates from different countries and cities, including Featured Partner Countries Chile, Colombia, Mexico and Peru as well as provincial and municipal delegations from China, which was a 42 per cent growth compared with the first edition of GTEF. The next edition of GTEF will be held in Macau in 2016.
Going forward, we have more capacity, as well as the investment that will [be] put in, which is over US$20 billion. The 20 billion is
not about casinos but a lot more attractions and hotel rooms. As such, we believe Mainland middleclass people will respond to that ultimately,” he posited. He stated that it would only be a matter of time before more mass-class tourists appear if the city really does offer something attractive. “As soon as you build something attractive, from what we see, either internally or externally, [tourists] will respond. And it’s just a matter of time. I think they will show up to see the new wave of supply in Cotai,” he claimed. But he suggests that the government should increase promotion of the different sides of Macau to tourists. “In the past, it was a bit challenging [for promotion] as we didn’t have a lot of different offers, while gaming was the main thing. Going forward, if we have more resorts, or other different types of entertainment I think it will help,” he believes.
4 | Business Daily
October 14, 2015
Macau
China Southern inaugurates 10th plane in Zhuhai The airline, headquartered in Guangdong, seeks to further develop the Macau market using Zhuhai Airport as a base since Hengqin port now opens around the clock
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hina Southern Airlines Company Limited welcomed its 10th aircraft at Zhuhai Jinwan Airport on Monday, doubling its fleet in the Zhuhai market in three years, says Xinhua News Agency. This is part of China Southern Airlines’ strategy to develop the Macau market, said the General Manager (GM) of China Southern Airlines Zhuhai Branch, Peng Tieshan. Since the 24-hour operation of the Lotus Bridge-Hengqin border checkpoint took effect, linking Cotai in Macau to the neighbouring island in Zhuhai City around the clock, the airline has launched supporting transportation services. In addition, China Southern launched a MacauWuhan route in May, which flies three times a week using the B73G. According to data provided by China Southern Airlines, the
company transported 1.68 million passengers through Zhuhai Jinwan Airport, an almost 100 per cent increase compared to 2012. The company is expecting to transport 2 million passengers through Macau and Zhuhai this year. The Zhuhai Branch GM said that with the deepening of cooperation between the SAR and Zhuhai, the company aims to utilise the concept of the ‘Macau + Hengqin = International Leisure and Tourism Centre’ to nurture the tourism market in Macau and Zhuhai and take advantage of Macau as a major attraction to develop more routes. Mr. Pang said the company will add one more plane next year and another in 2017 and two to three planes a year in the following three years in order to meet the target of
around 20 planes in the Zhuhai fleet by the end of the thirteenth five-year plan (2016-2020) – China’s strategy of a series of social and economic development initiatives. China Southern Airlines started its Zhuhai branch 20 years ago from Zhuhai Airport and first launched routes connecting Beijing and Changsha in Hunan Province. “As the only airline company based in Zhuhai Airport, and mainly consisting of Boeing 737 aircraft, China Southern Airlines Zhuhai Branch has opened routes connecting Zhuhai to Hangzhou, Harbin, Zhengzhou and Changchun,” said Peng Tieshan. “Now the number of cities that we connect Zhuhai to has reached 24, covering all major transport hubs and tourists hot spots in China.” J.K.
MIA traffic record 6 pct up for Golden Week
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uring the National Day Golden Week holidays for Chinese nationals falling from 1-7, October Macau I n t e r n a t i o n a l A i r p o r t ( MIA ) recorded a passenger volume of over 120,000 and aircraft movements of over 1,200 representing a 6 per cent and 5 per cent increase, respectively, vis-à-vis the same period last year. MIA recorded over 4.4 million passengers up to 7th October 2015. The company issued a press release yesterday saying that during this Golden Week, despite Typhoon Dujuan and Mujigae bringing tremendous rain to Macau and the cities around the Taiwan Strait, it didn’t affect the travel of Macau residents and visitors. MIA had a smooth and orderly operation with daily inbound and outbound flights recording over 155 takeoffs and landings. Typhoons and rainy weather did not significantly impact airport operations. Arrivals in Macau from Mainland China during the October 1-7 break rose 7.1 per cent from last year, when visitations gained 17 per cent, according to Macau government data. Typhoon Mujigae, the strongest October storm to hit the Chinese Mainland since 1949, did not help. As the typhoon made landfall in southern China on October 4, the number of arrivals in Macau from the Mainland fell 16 per cent.
Corporate
More funds find their way to deserving charities The 9th Annual Macau Business Charity Golf Tournament took place last Friday on the rolling greens of Caesars Golf Macau followed by the prestigious charity Gala Night at Grand Coloane Resort. This event is palpably a success not only by still having been sold out but because of the huge amount of money donated by strictly private enterprises and individuals.
Wynn Macau I (1st place), Caesars Legends (2nd place), and Macau Business (3rd place) were the respectable winners of this year’s edition. The organisers thank everybody for their unstinting support and the generous sponsors of this year’s edition - whilst looking forward to the 10th anniversary of this great event in October 2016!
Two-star Michelin chef at Mandarin Oriental Vida Rica Restaurant at Mandarin Oriental, Macau will host guest chef Stéphane Buron from 20 to 22 October. Chef Buron heads the two-Michelinstarred restaurant at hotel Le Chabichou in the luxurious French Alpine ski resort of Courchevel. Crowned Meilleur Ouvrier de France, a most prestigious title that
means ‘Best Craftsman of France’, Chef Buron will introduce Mandarin Oriental guests to his refined, ingenious creations that bring out the full flavours of fresh natural ingredients. Chef Buron’s delicious signature dishes include Roasted Racan’s pigeon breast served with herb crusted giblets tart and carrot garden.
Business Daily | 5
October 14, 2015
Macau
Paradise Entertainment confident about electronic gaming The Hong Kong-listed company has announced the instalment of 63 Live Multi-Game terminals in the new electronic area of Casino Lan Kwai Fong João Santos Filipe
jsfilipe@macaubusinessdaily.com
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evenue from gaming may have decreased during the last year and four months, driven by declining mass market and VIP segments. However, when it comes to Electronic Gaming Tables (EGT) there are opportunities in the market, as this segment is expanding. “We feel that there is a trend in the market of Electronic Gaming Tables to grow. This is mainly driven by the interest [in cutting] labour costs and also because of the new casinos opening”, Mr. Jay Chun, Chairman and Managing Director of Paradise Entertainment, explained to Business Daily. The company announced yesterday that it had successfully installed 63 Live Multi-Game terminals in the net electronic area of
Casino Lan Kwai Fong. These terminals offer six baccarat games and jackpots and were installed under leasing agreement. However, Paradise Entertainment is working to install more terminals this year and next, when major casino operators Wynn Macau, MGM and Sands China are expected to start operating their new projects in Cotai. “We have more orders from clients for this year, which we will announce later. In relation to 2016, we expect to have a good year. We already have some contracts signed but we cannot reveal them due to confidentiality clauses”, he said. Mr. Chung explained that in his view the electronic gaming segment has the potential to expand over
the years in comparison to the VIP and mass market segments. “This segment is smaller than the others. But we feel it has the potential to continue expanding. Actually, we feel that we have more orders this year than in the past and we expect to have more orders next year. This shows the trend of this segment”, he said. Paradise has over 3,700 LMG terminals in 18 casinos in Macau. The company’s patent-protected LMG solution is a hybrid, live dealer technology with multitable game offerings.
Comfortable performance
Mr. Chung declined to elaborateon the financial results of this year, which are expected to be announced after December.
“Until the results are announced we may not comment. However, I can say that in terms of the financial results, our performance for this year is comfortable”, he said. Last year, Paradise Entertainment announced a net profit of HK$58.44 million, which was a decline of 39.6 per cent in relation to the previous year, from HK$96.73 million.
Next month, the Macau Gaming Show gaming and entertainment exhibition will be hosted at The Venetian, when Paradise Entertainment will introduce new products to the market. “We are preparing to introduce new products to the Macau market. However, we will only announce them during the Macau Gaming Show, where we will host launching ceremonies of the products”, he announced.
6 | Business Daily
October 14, 2015
Macau opinion
Macau investors can avoid the gambler’s fallacy David Fickling
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amblers and investors share a tendency to overrate the past as a guide to the future. The so-called “gambler’s fallacy” is why roulette players believe they can hit winning streaks, and why mutual funds warn that past performance is no guarantee of future results. It might also be why Macau’s casino stocks have been so battered this year. On the face of it, the territory’s gaming industry seems to be in a horrible place: But investors should only worry about a drop in revenue if it means a company’s debts are unsustainable, or its equity overvalued. Neither looks to be the case in Macau: The enterprise value of the big six Macau casinos comes in at an average 12.5 times forecast EBITDA -- ahead of the 11.5 for the four publicly traded players on the Las Vegas strip, though not by much. The Macau companies also don’t need to worry so much about their lenders breathing down their necks: all have net debt of less than four times EBITDA, a metric achieved only by Las Vegas Sands in the U.S. The territory is in the process of transforming itself from the high-rolling, Bugsy Siegel days -- when the growth industry was VIP gamblers betting US$10,000 a hand on baccarat -- to the more profitable mass market business. While revenue from high rollers continues to decline, the take from ordinary gamblers was flat in the September quarter, suggesting that part of the industry may have bottomed out. The casino operators are certainly betting on growth: Melco Crown will open its massmarket Hollywood-themed Studio City development later this month, and new MGM, Wynn, Sands and SJM hotels will add nearly 10,000 rooms to the city by 2017, increasing capacity by about a third. Macau’s lackluster occupancy rate this year raises legitimate questions about demand for all those new rooms. But with Chinese house prices rebounding from lows earlier this year and outbound tourist numbers hitting a record in the June quarter, there may yet be room for growth. SJM Holdings currently has Macau’s biggest overall market share and the second-highest exposure to the mass market, after Sands China. After subtracting net cash of about US$2.7 billion, the casino business is worth US$2.13 billion, less than the U.S. racecourse owner Penn National. With analysts forecasting that SJM will post almost five times as much net income in 2016 as Penn, that looks worth a punt.
Bloomberg News
October’s GGR could track narrower decline
The city’s October gross gaming revenue could track a narrower fall than previous months, thanks to better than expected earnings during the National Day Golden Week, analysts wrote Stephanie Lai
sw.lai@macaubusinessdaily.com
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acau’s October gross gaming revenue (GGR) could track a narrower fall than previous months this year on the back of stronger than expected gaming earnings during the National Day Golden Week holiday, research teams from Credit Suisse AG and Wells Fargo Securities LLC believe. For the first eleven days of October this year, both Credit Suisse and Wells Fargo estimated that average daily revenue amounted to MOP827 million (US$103.6 million). The first seven days of the month were a National Day holiday for Mainland Chinese visitors. “Up to 11 October 2015, Macau gross gaming revenue was MOP9.1 billion, implying average daily revenue (ADR) of MOP827 million month-to-date,” Credit Suisse research analysts Kenneth Fong and Isis Wong wrote. “Compared to ADR of MOP1,075 million during the corresponding period last year (October 1 to 12,
2014) the run rate this Golden Week dropped 23 per cent year-on-year, narrowing from 36 per cent in the first nine months of this year and 33 per cent in September. Note, this is the most significant month-on-month narrowing for revenue drop so far in 2015,” said the Credit Suisse analysts. Gross gaming revenue in the city’s casinos reached MOP6.4 billion in the October 1-7 holiday period, according to figures collected by Macau public broadcaster TDM. The Credit Suisse research team noted that the strong set of data and run rate of October 1 to 11 comes in ahead of their initial expectation of ADR at MOP750 million to MOP800 million and the street’s MOP700 million to MOP750 million. “We believe the strong run rate month-to-date should have dismissed market concerns about junket liquidity post-Dore junket incident,” Fong and Wong wrote. Assuming lower run rate for the rest of the month, Credit Suisse
estimates gross gaming revenue would post a decline of 25 per cent to 28 per cent year-on-year versus the prior estimate of -31 per cent. The estimation Credit Suisse made for the expected October gross gaming revenue is similar to that of Wells Fargo. “Based on checks through October 11, we estimate October Macau gaming revenues to decline -24 per cent to -28 per cent year-on-year versus our prior estimate of -30 per cent to -34 per cent,” Wells Fargo’s senior analyst Cameron McKnight wrote. The city’s accumulated casino revenue for the first nine months this year stood at MOP176.02 billion, which is 36.2 per cent lower than the same period last year. The September gross gaming revenue was MOP17.13 billion, representing a decrease of 33 per cent from a year ago and a sixteenth consecutive month of gaming slump, data from the Gaming Inspection and Co-ordination Bureau (DICJ) shows.
Business Daily | 7
October 14, 2015
Macau
Casino shares surge on stronger-than-expected revenue Macau casino shares rose in Hong Kong trading after a brokerage said gaming revenue was stronger than expected this month
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GM China Holdings Ltd. surged 6.9 per cent to close at HK$11.42, the most intraday gain since July 9. Galaxy Entertainment Group Ltd. jumped 6.1 per cent with Sands China Ltd., SJM Holdings Ltd. and Wynn Macau Ltd. rising more than 2 per cent. The benchmark Hang Seng Index lost 0.6 per cent. Macau’s gross gaming revenue was MOP9.1 billion (US$1.1 billion) during the first 11 days of October, a period that included China’s weeklong National Day holiday, according to data from Credit Suisse Group AG. That works out to an average daily revenue of MOP827 million in the month to date, higher than the brokerage’s estimate of MOP750 million to MOP800 million, analysts
led by Kenneth Fong wrote in a note Monday. Macau is going through the worst downturn in its history as China’s anti-graft crackdown and slowing economic growth have kept high rollers at bay. The city’s gaming revenue has fallen for 16 straight months with September figures dropping to the lowest level since late 2010. Still, casino receipts so far in October may lead to a drop of 25 per cent to 28 per cent, Fong wrote, the smallest decline in nine months. Melco Crown may have clinched the approval of 210 new gaming tables for its Studio City casino-resort, which is scheduled to open on October 27, and another 40 by the end of the year, Fong wrote, citing Asia
Galaxy appoints Charles Cheung as Non-Executive Director
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harles Cheung Wai Bun was appointed a NonExecutive Director of Galaxy Entertainment Group with effect from 12 October, the company has announced in a filing with the Hong Kong Stock Exchange. From 1987 to 2008, Dr. Charles Cheung held the position of Independent Non-executive Director of the group. The information sent to the Hong Kong Stock Exchange also announced
that the two parties had signed a three-year contract. Dr. Cheung, who is 79 years old, holds other positions, including Vice Chairman of the Executive Committee of the Metropolitan Bank (China), Independent Non-Executive Director of Grand T G Gold Holdings Limited and Zebra Strategic Holdings Limited, China Financial International Investments Limited, Pioneer Global Group Limited and Universal Technologies Holdings Limited.
Consensus seems too excited on quarteron-quarter mass gross gaming revenue stabilization, and fails to consider longerterm mass margin impact from increasing competition Karen Tang, analyst at Deutsche Bank AG
Gaming Brief. Galaxy could also get 50 new tables in the coming weeks and another 50 after that, according to the report. “If correct, this would be a potential positive for Melco and Galaxy given the under-allocation of new tables is one of the biggest market concerns for new projects,” Fong said.
Earnings season
Casino revenue from mass-market gamblers, referring to lower-end players, has recovered 3 percent in the third quarter, compared with the previous three-month period, according to Karen Tang, an analyst at Deutsche Bank AG. “Consensus seems too excited on quarter-on-quarter mass gross gaming revenue stabilization, and fails to consider longer-term mass margin impact from increasing competition” after the opening of Studio City, she wrote in a note Monday. She expects Galaxy and Melco to report the strongest earnings growth in the upcoming third-quarter earnings season which will be kicked off by Galaxy this week. Bloomberg
8 | Business Daily
October 14, 2015
Greater China
September exports fall less than expected but imports slump Import volumes are a leading indicator for exports in China, given a large share of materials and parts are re-exported as finished goods Xiaoyi Shao and Pete Sweeney
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hina’s exports fell less than expected in September, with monthly figures even showing signs of a mild recovery over the summer, but a hefty drop in imports may keep pressure on policymakers to do more to stave off a sharper economic slowdown. Exports fell 3.7 percent from the same period last year, less than a drop of 6.3 percent forecast by economists in a Reuters poll and a 5.5 percent decline in August.
However, imports by value tumbled for the 11th straight month, losing over 20 percent year-on-year in September due to weak commodity prices and soft domestic demand, which will continue to complicate Beijing’s efforts to stave off deflation. Highlighting persistent weakness in demand at home and abroad, China’s combined exports and imports fell 8.1 percent in the first nine months of the year from the same period in 2014, well below the full-year official target of 6 percent growth. “In general, there are no green shoots in this set of data,” said Zhou Hao, senior economist at Commerzbank in Singapore. “The growth of port throughput volume still remains low.” However, monthly figures were much more rosy. Exports to every major market except
Taiwan rose from August, as did imports. Julian Evans-Pritchard of Capital Economics warned that annual export readings may be distorted downward by base effects from the strong export performance at the end of 2014, which many suspected was due to yuan speculation disguised as trade. He suggested paying closer attention to monthly trends, which show a steady rise to most major export markets in the U.S. and Europe over the summer. “Basically, exports have been doing better since the 2nd quarter, but that recovery trend has been masked on a year-on-year basis because the second half of 2014 was so strong.” Evans-Pritchard also said that import data had become unreliable given massive swings in prices due to the commodity downturn and a divergence between prices and trading volumes.
“September’s import figure does not bode well for industrial production and fixed asset investment,” wrote ANZ economists in a research note reacting to the figures. “Overall growth momentum last month remained weak and Q3 GDP growth to be released next Monday (October 19) will likely have edged down to 6.4 percent in the third quarter, compared with 7 percent in the first half.” China posted trade surplus of US$60.34 billion for the month, the General Administration of Customs said yesterday, higher than forecasts for US$46.8 billion. While the surplus is largely due to weak imports, it does help ease pressure on the country’s money supply from capital outflows, the ANZ economists argued.
Slowdown fears
China is widely expected to post its slowest economic
growth in a quarter of a century this year as activity is weighed down by weak demand, entrenched factory overcapacity, high debt levels and cooling investment appetite. That is denting any remaining hopes that a recovery in China’s domestic demand might offset weakness elsewhere. In fact, developed economies are to blame for the global economic malaise because their slow recoveries were not creating enough demand, China’s Finance Minister Lou Jiwei was quoted as saying on Monday. IMF Managing Director Christine Lagarde said last week that the world could get stuck in a muddle of mediocre growth, with high debt and unemployment, unless policymakers take economic reforms more seriously. Reuters
Without closer cooperation and information sharing, Hong Kong’s markets would be exposed to unacceptable risks Ashley Alder, Chief Executive, Hong Kong Securities and Futures Commission
Hong Kong flags tighter trade scrutiny Like most international markets, Hong Kong’s regulators oversee trading behaviour only at the broker level Michelle Price
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ong Kong’s securities regulator yesterday said it was considering monitoring trading at client level and stressed the importance of sharing information with Beijing, in comments likely to unnerve investors. Hong Kong Securities and Futures Commission (SFC) Chief Executive Ashley Alder (pictured) also told the Thomson Reuters 6th Pan-Asian Regulatory Summit that the watchdog
was exploring an overhaul of the way it oversaw the Chinese territory’s market. His comments come as Chinese regulators ramp up surveillance of foreign investors operating in China’s stock markets to stem a broad market rout. Like most international markets, Hong Kong’s regulators oversee trading behaviour only at the broker level. But in China, participants at
any level are accorded a unique identification code which allows regulators to drill deeper into order books. Although Alder did not provide more details, a move to allow the exchange and regulators to see which underlying firms are trading would bring Hong Kong in line with mainland Chinese markets and allow the SFC to see which funds are participating in Hong Kong.
Some investors have also raised concerns that schemes to bring mainland stock markets closer to the former British colony, such as a landmark Hong Kong Shanghai stock connect launched last November, increase the likelihood of more interference by China’s regulators. But yesterday, Alder rebuffed concerns expressed in the media and among market participants over fears mainland regulators have been interfering in the Hong Kong market, saying closer cooperation was essential for the future of Hong Kong. “Some have raised doubts about whether we should be sharing information with the mainland at all ... but without closer cooperation and information sharing, Hong Kong’s markets would be exposed to unacceptable risks,” Alder said. Reuters
Business Daily | 9
October 14, 2015
Greater China Construction Bank sells 1 bln yuan-worth of dim sum bonds in London The deal comes ahead of a state visit by President Xi Jinping to Britain later this month
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hina Construction Bank has sold 1 billion yuan (US$158.20 million) of offshore yuan bonds in London, in a move to provide more investment products to European investors and speed the internationalisation of the currency. The two-year bond was priced at 4.3 percent, lower than initial guidance in the 4.55 percent area, according to a term sheet seen by Reuters yesterday. Demand was strong, with orders totalling more than 5.5 billion yuan from 72 accounts. Asian investors accounted for 99 percent of the actual placements and the rest went to European investors. Banks took 52 percent of the issue, followed by funds at 36 percent and private bank/corporates at 12 percent.
Most of the offshore yuan bonds issued so far are listed on the Hong Kong Stock Exchange as Asian investors are still the main investors in yuan products. The deal came ahead of a state visit by Chinese President Xi Jinping to Britain later this month. Britain and China agreed to a series of initiatives in September ranging from an expanded currency swap agreement to Chinese investment in British nuclear power and a feasibility study for a scheme to connect the London and Shanghai stock markets. The senior unsecured bond will be listed on the London Stock Exchange and proceeds will be used for general corporate purposes. The state-owned lender has A1(Moody’s)/A(S&P)/A(Fitch) ratings, but the issuance is expected to be unrated.
The senior unsecured bond will be listed on the London Stock Exchange and proceeds will be used for general corporate purposes
China Construction Bank International, Standard Chartered, HSBC, BNP Paribas and UBS are joint lead managers and book runners. The People’s Bank of China (PBOC) plans to issue up to 5 billion yuan of one-year bill in London soon, the first such debt issued by the central bank, three sources with direct knowledge told Reuters last week. China Agricultural Bank is also selling dual currency bonds denominated in the yuan and the dollar in London. Reuters
Huarong IPO seeks US$2.8 billion
Insurers seek Western mentors Chinese insurers are pursuing strategic tie-ups and outright M&A to tap Western expertise, keen for knowledge on products, pricing and technology as a nascent market for health and property insurance takes off, industry executives say. China is set to climb one notch to become the world’s No.3 insurance market this year, state-run news agency Xinhua quoted insurance regulator chief Xiang Junbo as saying in January. Non-life insurance premiums jumped 17 percent in real terms in 2014, the 13th straight year of double-digit growth, according to Swiss Re.
Car sales mark first rise in 6 mths
Vehicle sales in China grew 2.1 percent in September, snapping a fivemonth streak of declines, as dealers look to a government tax cut on small cars to revive the world’s largest auto market. China’s State Council halved the sales tax on cars with 1.6-litre engines or smaller to 5 percent from Oct. 1 through the end of 2016 in a bid to boost flagging car sales dragged down by the slowest economic growth in 25 years. September sales rose to 2 million vehicles, contributing to a 0.3 percent increase for the first nine months of 2015 compared to the same period a year earlier.
Investor stabs asset The company and some of its shareholders plan to offer management CEO shares equivalent to 16.4 percent of its enlarged share capital after default Elzio Barreto and Fiona Lau
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hina Huarong Asset Management Co Ltd’s initial public offering will seek to raise up US$2.8 billion, its indicative price range shows, marking the biggest Hong Kong listing in 10 months as investors venture back into equities after a market slump this year. The second of China’s four biggest bad debt managers to list after China Cinda Asset Management Co Ltd raised US$2.8 billion in 2013, Huarong is likely to benefit from a 21.5 percent surge in Cinda’s shares over the past nine trading sessions. “Cinda has been on a tear the past few days, so that’s obviously very good,” said a source familiar with the deal. Huarong and some of its shareholders plan to offer shares equivalent to 16.4 percent of its enlarged share capital in an indicative range of HK$3.03 to HK$3.39 each, sources with direct knowledge of the plans said yesterday. The sources declined to be identified as details of the deal have not been released to the public. Huarong did not immediately respond to a request for comment.
Huarong’s price range is equivalent to a forecast price-tobook ratio of 0.96 to 1.05 times for 2015, the sources said, compared with 0.9 times for Cinda. Huarong’s deal is slated to be launched on Thursday, just days after an up to US$2 billion IPO from China Reinsurance (Group). The companies received approvals weeks ago but the deals were delayed
KEY POINTS Shares to be offered in HK$3.03 to HK$3.39 range -sources Huarong IPO seen benefiting from recent China Cinda rally IPO secured about US$1.8 bln in pledges from cornerstones
due to a steep slide in China equities as well as volatility in other global markets. Huarong’s IPO would be the largest in Hong Kong since property developer Dalian Wanda Commercial Properties Co Ltd raised US$4 billion in December. China’s bad debt management firms make money by buying soured loans from banks and other companies and then restructuring the debt or recovering cash from the borrowers. Huarong said it plans to use most of the proceeds from the IPO to expand its distressed debt business. The Huarong IPO secured commitments worth about US$1.8 billion from around 12 to 13 cornerstone investors, the sources said. The final names on the list might change, but include real estate developer Sino-Ocean Land Holdings and utility State Grid Corp of China, with pledges of US$680 million and US$300 million respectively, one of the sources said. Sino-Ocean and State Grid did not immediately respond to Reuters e-mailed requests for comment on the IPO. Reuters
A Chinese investor stabbed the chief executive of a struggling Beijing-based asset management company after losing his investment, a company source said, highlighting growing public anger over loosely regulated financial products. Wang Jie, the CEO and general manager of Global Wealth Investment, was stabbed in the shoulder during a meeting with investors, the company representative said. He was rushed to hospital where he remained in a coma. The assailant, aged in his 20s, was sitting next to Wang during the meeting, the source said. After the stabbing, he calmly waited for police to arrive, she added.
Sunward buys Canada’s Avmax to diversify into aviation Chinese construction equipment maker Sunward Intelligent Equipment Co said it has bought Canadian aviation services provider Avmax Group, which has assets of up to $312 million, amid a sustained downturn in the construction machinery market. Sunward closed the deal with Avmax’s biggest shareholder in mid-September, but the pricing has yet to be finalised based on Avmax’s future performance, among other factors, Sunward said in a stock exchanging filing late on Monday. Sunward will raise up to 2.2 billion yuan (US$347.24 million) via a private placement arrangement of shares to fund the acquisition, it added.
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October 14, 2015
Greater China
Beijing to put growth before reform ambitions amid slowdown fear In the first two quarters of the year, annual growth came in at 7.0 percent, in line with the target for 2015 Kevin Yao
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hinese leaders will signal that growth is their priority over reform for the world’s second-biggest economy by setting a growth target of around 7 percent in their next long-term plan even as the economy loses momentum, policy insiders say. The Communist Party’s central committee will meet from October 26-29 to set out their 13th Five-Year plan, a blueprint for economic and social development between 2016 and 2020. While the government has flagged a “new normal” of slower growth as it tries to shift the economy to sustainable, consumption-led growth, official data shows it has consistently at least met, and mostly exceeded, the growth targets it sets. “We will have to rely on policy stimulus to safeguard the 7 percent growth target,” said an economist from a government think-tank. “We should not put financial liberalisation at the forefront of economic reforms.” Beijing needs average growth of close to 7 percent over the next five years to hit a previously declared goal of doubling gross domestic product and per capita income by 2020 from 2010. But a plunging stock market and the unexpected fallout from a modest devaluation of the yuan have raised fears among policymakers that an abrupt slowdown in growth could spark systemic risks and destabilise the economy. “It appears that growth has outweighed the reform agenda, which could stabilise the market for the short term while adding destabilisation
factors in the medium term,” said Zhou Hao, senior economist at Commerzbank in Singapore.
Stimulus, environment
The government is likely to boost infrastructure spending in the new Five-Year plan, a favoured means of stimulus in China, under Beijing’s push for regional integration and the “New Silk Road” scheme, to try to meet an earlier growth target set for the current decade. While the specifics remain vague beyond the intention to build out road, rail and building infrastructure projects across Central Asia, analysts also expect the plenum to contain a raft of environmental measures. Power generation from renewable fuels is expected to be a central pillar of any such initiatives, which would likely boost demand for copper and aluminium in particular as power grids are upgraded and connected to solar, wind and hydro power projects. The National Development and Reform Commission (NDRC), China’s top economic planner, did not respond to a request for comment.
Meeting targets
In the first two quarters of the year, annual growth came in at 7.0 percent, in line with the target for 2015, with the government rejecting suggestions that the figures were being inflated to meet official forecasts. Reuters reported in June that China could aim for “around 7 percent” growth for the next five years, but since then market and economic conditions have deteriorated. The expected emphasis at the
upcoming plenum on achieving the growth forecast will raise questions about the leadership’s resolve for “decisive results” in wide-ranging economic reforms by 2020 that were made at a party meeting in 2013. President Xi Jinping has reaffirmed a commitment to market-based reforms, seen by some as a bid to repair damage to the government’s reformist image caused by its recent heavy-handed intervention in the stock and currency markets.
KEY POINTS China leaders will discuss new 5-Year plan at party plenum China eyes around 7 pct annual average growth in 2016-20 Slowdown fears stoke internal calls for lowering growth goal Beijing may need stimulus to safeguard growth target Grappling with thornier reforms ahead of 2020 deadline
The Communist Party’s central committee will meet from October 26-29 to set out their 13th Five-Year plan. Previous edition pictured
But potentially disruptive changes, such as lifting capital controls, may fall behind growth-friendly reforms such as changes to spur private investment in state firms and public projects, the insiders said. “Chinashouldnotloosencapitalcontrols quickly and yuan internationalisation must be based on market demand and economic development,” said a former policy adviser to the central bank.
Bound by old target
Cai Fang, vice head of the Chinese Academy of Social Sciences, a top government think-tank, told a recent forum that he expected annual potential growth to dip to 6.2 percent in 2016-2020 if China failed to unleash new growth drivers. The government will exceed the 7 percent target for the current 2011-15 Five-Year plan with growth averaging around 7.8 percent. But growth has slowed markedly in that time, from 9.5 percent in 2011 to being on track for a quarter-century low of around 7 percent this year. “The worst has yet to come. The economic slowdown may still deepen,” Guan Qingyou, chief economist at Minsheng Securities, told a recent seminar. The International Monetary Fund expects China’s economic growth to slow to 6.8 percent this year and 6.3 percent in 2016. “The mainstream view on the growth target is still around 7 percent,” said an economist at a well-connected think-tank. “But the pressure will be bigger given the complex global and domestic environment.” Reuters
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October 14, 2015
Asia
Indonesia to require more capital for most important banks Right now Indonesia faces considerable market volatility and a cooling economy Hidayat Setiaji
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ndonesia’s most important banks will have to set aside more capital as a buffer against financial market volatility, according to a draft regulation. The Financial Services Authority (OJK) is proposing that systemically important banks must set aside an additional “capital surcharge”, equivalent to 1-3.5 percent of their riskweighted assets, depending on how influential they are in Indonesia’s financial system. Banks will be required to set aside the capital surcharge by December, based on their financial statements as of June, according to the draft regulation, which has been made public for consultation. The new regulation would be part of stricter protocols that Southeast Asia’s largest economy is planning to strengthen the financial system. The proposed law stipulates that regulators must make a list of more important banks that would receive different treatment from other banks if they face liquidity or solvency problems, according to a copy
This draft law is a priority to maintain stability in the financial system as a management protocol in case of a monetary crisis Mirza Adityaswara, senior deputy governor, Bank Indonesia
of the draft seen by Reuters. It also details the steps the authorities must take under various scenarios in financial markets. The proposal comes as Indonesia faces considerable market volatility and a
cooling economy. Its stock market is the worst performing in emerging Asia, having fallen 21 percent this year before recovering some of its losses. The rupiah is down by nearly 9 percent against the dollar so far this
year, making it the second worst-performing currency in the region. However, the authorities say the proposal, which the OJK, the Finance Ministry and the central bank have discussed for several years,
Bank of Korea to stand pat this week With policy makers expressing optimism about a recent pick‑up in momentum as consumer spending rebounds, analysts say borrowing costs aren’t likely to be lowered this week
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outh Korea’s central bank is expected to keep interest rates steady for a fourth straight month at this week’s policy review, but many analysts believe a fragile economic recovery amid a collapse in exports may force another rate cut by year-end. Twenty six of 29 analysts polled by Reuters forecast the Bank of Korea (BOK) would hold its seven-day base rate at 1.50 percent on Thursday. The rest expect rates would be lowered to 1.25 percent. The BOK has cut interest rates twice this year, with the last one coming in June as growth in Asia’s fourth largest economy slowed sharply due to a slide in exports and weak
domestic consumption following the outbreak of the Middle East Respiratory Syndrome virus in late May. The slowdown in the country’s major trading partner China has been particularly hard on Korea’s globetrotting manufacturing firms. But with policy makers expressing optimism about a recent pick-up in momentum as consumer spending rebounds, analysts say borrowing costs aren’t likely to be lowered this week. That stance could change rapidly, however, as slackening global growth continues to pressure the economy. “Hints of more easing may surface in November on doubts third-quarter
momentum will not spill over into the fourth,” said Yoon Yeo-sam, a fixed-income analyst at KDB Daewoo Securities in Seoul.
KEY POINTS 26 out of 29 see base rate unchanged Respondents divided between imminent cut and no change Consumption improving while exports still a drag
is not a response to recent market ructions. “This draft law is a priority to maintain stability in the financial system as a management protocol in case of a monetary crisis,” Bank Indonesia’s senior deputy governor Mirza Adityaswara told Reuters. Indonesian banks seem financially sturdy, with average capital adequacy ratios reaching 20.5 percent as of July, central bank data showed. But they also faced pressures with credit growth slowing and non-performing loans rising. Several big banks have hiked provisions for bad loans, pushing firsthalf profits to the first decline in almost a decade. Finance Minister Bambang Brodjonegoro said he hopes the draft law, which is currently being discussed by the government and parliament, will be passed this year. The OJK aims to issue the regulation this year, banking supervisor Nelson Tampubolon told Reuters. Reuters
Fourteen of the 29 analysts in the same poll, including the three who expect an easing this week, are predicting a 25-basis-point cut as soon as November. Thirteen saw no change for an extended period, while two had no clear views. Data has shown consumers splurged during the third-quarter thanks to a major autumn holiday and discount sales nationwide, but the worry is that this upturn won’t be enough to make up for a collapse in exports. Economic growth during the third quarter would likely reach 1 percent or slightly higher, BOK Governor Lee Ju-yeol said over the weekend on the side-lines of an annual meeting of the World Bank and International Monetary Fund in Lima. Lee said growth was moving largely in line with the bank’s earlier expectations. The central bank will also release revised economic forecasts for 2015 and 2016 on Thursday, which are widely expected to show little change from its July projections for this year’s growth at 2.8 percent and next year’s at 3.3 percent. Reuters
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October 14, 2015
Asia
Australian business confidence rebounds There was also a notable pick-up in the outlook for hiring
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National Australia Bank’s monthly survey of more than 400 firms showed its index of business conditions held at an above-average +9 in September
ustralian business confidence rebounded in September as sales and profits held firm, a survey showed yesterday, while a measure on employment intentions jumped to its highest since mid-2011. National Australia Bank’s monthly survey of more than 400 firms showed its index of business conditions held at an above-average +9 in September while confidence climbed 4 points to +5. “Overall, the business survey suggest a good degree of resilience in what appears to be a building non-mining sector recovery,” said NAB’s chief economist Alan Oster. “This is particularly apparent in industries thought to be highly responsive to currency changes in the near-term, including personal and business services.” The survey’s index of sales eased four points in September but at +15 remained well above its longrun average. Profitability dipped two points but was again firm at +8. A majority of industries reported improved conditions with only mining and manufacturing in the red.
N. Zealand Government unlawfully withheld secret TPP documents The application for a judicial review of Trade Minister’s refusal to release documents was brought by seven special interest groups
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judge yesterday ruled New Zealand Trade Minister Tim Groser had acted unlawfully in refusing to release documents regarding the controversial 12-nation Trans- Pacific Partnership agreement (TPP/TPPA). In a judgement issued by the High Court, Justice David Collins quashed Groser’s decision to withhold official papers requested under the country’s Official Information Act. The application for a judicial review of Groser’s refusal to release documents was brought by seven
special interest groups and Auckland University Law Professor Jane Kelsey who have protested the secrecy of the TPP talks which were concluded with an agreement last week. Groser and his officials had adopted a “blanket” approach to requests for TPP documents rather than assessing each piece of information requested against the criteria in the Act for withholding official information, Collins said in his judgement. “I have concluded this approach did not comply with the Act,” he said. “When the minister
reconsiders his decision he will be required to do so in a way that is consistent with his obligations under the Act.” Kelsey, who officially requested the information in January, said Groser’s approach “epitomizes the contempt for democratic processes and accountability that has pervaded these negotiations.” “It’s cold comfort that the minister will have to revisit the request, using a proper process and interpretation of the rules, after the negotiations have already concluded,” Kelsey said in a statement.
“His unlawful approach in circumventing the Official Information Act appears to have achieved its goal.” She called on Groser to now release at least some documents to help inform the debate on the TPP. “I have updated the original request to the minister dating to this week. Let’s hope the minister now takes the law seriously and releases the raft of documents -- and goes back to the other TPPA parties and asks them to rescind their secrecy memorandum.” Association of Salaried Medical Specialists (ASMS), which was also party to
There was a notable pick up in the outlook for hiring with NAB’s measure of employment rising five points to +4, the highest in four years. “Consistently aboveaverage outcomes since March suggest that the improved momentum in the non-mining economy is not merely an aberration, but has become much more ingrained,” said Oster. There were also brighter signs for business investment with the survey’s index of capital expenditure edging up to +7 in September, thanks mainly to the services sector. Capacity utilisation likewise ticked up to 81.3 percent, matching its highest since early 2012. “The trend continues to show improvement, which provides some optimism on the outlook for non-mining business investment and the labour market,” said Oster. The Reserve Bank of Australia has long been hoping for a revival in spending by firms outside of the mining sector which is suffering from weaker commodity prices. Reuters
the application, said the negotiations had shown “a contempt for openness and accountability.” “Maybe now that the negotiations have been concluded, perhaps we will finally get a chance to see what we’ve been signed up to,” ASMS executive director Ian Powell said in a statement. Other applicants, including the Greenpeace environmental campaign group, backed the call for the government to immediately release the TPP text. “The New Zealand government has got to release the full text immediately, so we can all see for ourselves what is in this deal because, right now, all the indications are that the TPP has been concocted solely for the benefit of foreign companies and their sharp-suited billionaires, not for the people of New Zealand,” Greenpeace chief policy advisor Nathan Argent said in a statement. Xinhua
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October 14, 2015
Asia Rising food prices push India’s September CPI up Economists had forecast consumer inflation to rise to 4.3 percent Manoj Kumar
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rise in some food prices lifted Indian retail inflation in September after it had hit a record low in the previous month, but inflation is expected to remain low thanks to falling global commodity prices. Poor monsoon rains have led to drought in some parts of the country for the second straight year, forcing up prices for popular staples such as pulses and vegetables. Retail inflation, which the central bank tracks to set interest rates, rose
to 4.41 percent in September from a revised 3.74 percent in August, data released by the Ministry of Statistics showed. Retail food inflation for September came in at 3.88 percent, higher than a provisional 2.20 percent in August. Economists had forecast consumer inflation to rise to 4.3 percent last month, and many of them expect it to remain below RBI’s forecast of 5.8 percent by January 2016. “Room for further rate cuts will depend on comfort of achieving 5
percent target in January-March 2017, and also developments in the global financial markets,” said Indranil Pan, chief economist at IDFC Ltd. The governor of the Reserve Bank of India, Raghuram Rajan, cut the policy interest rate last month to a 4-1/2-year low of 6.75 percent to support an economic recovery that is not strong enough to create jobs for India’s burgeoning workforce. The RBI cut its growth forecast to 7.4 percent for the fiscal year to end March, well below the government’s initial target of 8.1-8.5 percent, but still faster than China. Analysts say a fall in local fuel prices and the government’s promise to contain fiscal deficit at 3.6 percent of GDP this fiscal year could dampen demand-led inflationary expectations in Asia’s third largest economy. “Short-term pre-emptive measures and an increase in imported supplies are expected to rein in any trickledown impact in the weeks ahead,” DBS bank said in a research note yesterday. India’s economy continues to face headwinds, particularly on the external front including risks of a long-awaited rate hike by the U.S. Federal Reserve, but low inflation suggests that the central bank has scope to cut interest rates early next year. Last week, the International Monetary Fund cut its global growth forecast to 3.1 percent for 2015, citing weak commodity prices and a slowdown in China. The Fund expects the Federal Reserve to start raising rates this year, although it expects the central bank to stay its hand until it sees signs of inflation rising toward its two percent target. Reuters
The members of the panel don’t specify a level to which corporate tax should be cut
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profits to induce capital spending. The members don’t specify a level to which corporate tax should be cut. Abe has pledged to lower corporate tax rate to less than 30 percent within a few years. His government cut the effective corporate tax rate to 32.11 percent in the current fiscal year from 34.62 percent last year.
Indonesia’s government will revise the way it calculates minimum wages as part of a package to stimulate economic activity, a palace official told Reuters yesterday. Annual wage increases will be linked to economic growth and inflation data starting from this year, giving employers more certainty about their future labour costs, according to the senior official, who did not want to be identified because he is not authorized to speak to the media. President Joko Widodo’s administration will announce the changes on Thursday.
S. Korea’s household debts continue surging trend Household debts in South Korea continued its monthly surging trend in August due to the record- low borrowing costs, central bank data showed yesterday. Debts owed by households to deposit-taking institutions, including banks and non-bank deposit takers, increased 9.8 trillion won (US$8.5 billion) in August from a month earlier, according to the Bank of Korea, the country’s central bank. It was only the second largest monthly increase to the record high of a 10.1 trillion expansion in April this year. Household debts extended by deposit-takers reached a record high of 773.1 trillion won as of end-August.
Aboitiz Power plans to expand in SE Asia
Members of Japan advisory panel want swift corporate tax cut
ome members of the Japanese government’s top advisory panel are calling for a swift cut in corporate taxes and other steps to spur capital spending and boost wages to rev up growth, government officials told Reuters yesterday. The proposals, to be presented on Friday by the four private-sector members of the 11-member Council of Economic and Fiscal Policy, reflect Prime Minister Shinzo Abe’s push to get companies to spend their cash piles to drive the economy. Policymakers are keen to generate a virtuous economic cycle in which companies spend record profits to raise wages and capital expenditures. That, in turn, should stimulate private consumption, which accounts for roughly 60 percent of the economy. While household incomes have improved, a deflation mind-set persists and consumption has been slow to recover mainly among lowincome groups, the proposals say. Despite record corporate profits, capital spending has been sluggish, they note. The proposals urge the government to press ahead with steps, including “early completion of growth-oriented corporate tax reform” to pave the way for company
Indonesia to revise minimum wage formula
It plans to further reduce the rate to 31.33 percent or less in the year that will begin in April 2016. “With strong determination to prevent a return of deflation, ensuring the private-demand-led virtuous cycle is critical at a time when uncertainty grows over the outlook on China and the global economy,” the proposals say. Reuters
Aboitiz Power Corp said it plans to invest as much as US$500 million over the next five years, mainly in Indonesia, as the Philippines’ second-largest power producer by capacity seeks to boost profits and expand outside its overcrowded home market. CEO Erramon Aboitiz told Reuters yesterday that Aboitiz was also interested in projects in Vietnam and Myanmar, which along with Indonesia the company had identified as key markets. “We’ve made a decision to really look at opportunities outside the Philippines,” Aboitiz said on the side-lines of an APEC energy ministers’ meeting in the island of Cebu.
Australia still has flexibility on interest rates
Central bank still has scope to lower interest rates if needed, though easing further would likely have less impact on economic activity than in the past, a top official said yesterday. Answering audience questions after a speech, Reserve Bank of Australia (RBA) Deputy Governor Philip Lowe said the domestic economy was on track for a gradual pickup and that unemployment had stabilised. Asked about the risk of a recession, Lowe said the probability was low right now, but a downturn could not be ruled out at some point in the future.
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October 14, 2015
International Germany to cut 2015 growth estimate The German government will trim its estimate for growth this year to 1.7 percent but it is sticking with a forecast for growth of 1.8 percent next year, a senior government official told Reuters yesterday. Economy Minister Sigmar Gabriel is expected to announce the updated forecasts today. Previously, the government had been projecting growth of 1.8 percent this year, but a slowdown in China and other emerging markets has weighed on recent industrial orders, output and export data.
Top brewers AB InBev, SABMiller agree mega tie-up The brewing sector is looking at consolidation faced with the increased popularity of so-called craft beers that are brewed by smaller independent firms
Russian c. bank governor says inflation to fall Russia’s inflation rate will start falling “quite abruptly” after the end of this year, Central Bank Governor Elvira Nabiullina said in an interview with CNBC yesterday. “Inflation by the end of this year will be a little bit more than 12 percent, 12 to 13 percent, but then it will start dropping quite abruptly because those one-time factors that caused the inflation will have passed and also because of weak demand in the economy and our tough monetary policy,” she said. Nabiullina also said that Russian banks were in a stable condition.
Britain cuts 2017 car production forecast Britain will build around 1.8 million cars in 2017, less than originally expected, due to more sluggish growth in Europe, industry body the Society for Motor Manufacturers and Traders said yesterday. A spokesman at the SMMT told Reuters last month that the group forecast car output of 1.95 million cars in 2017, but Chief Executive Mike Hawes said on Tuesday that the figure would be “something in the order of 1.8 million cars.” He said that the industry would by 2020 beat the record of 1.92 million cars set in 1972, potentially several years later than originally expected.
Italy’s prime minister says Ferrari will also list in Milan Luxury carmaker Ferrari, which is due to make its debut on Wall Street this month, will also have a listing in Milan, Italian Prime Minister Matteo Renzi said yesterday. In the U.S. initial public offering, Fiat Chrysler Automobiles (FCA) is offering a 10 percent stake in Ferrari at US$48-US$52 a share, a price that would give it a market capitalisation of up to US$9.8 billion. “I have a commitment from (FCA CEO) Sergio Marchionne, and I am grateful to him, that Ferrari will also have a listing in Milan, I guess at a later stage,” Renzi said.
Barclays to name former JPMorgan banker as new CEO British bank Barclays is close to naming former JPMorgan Chase banker Jes Staley as chief executive, signalling a renewed focus on an investment banking division that has been pared back over the past three years. Barclays offered the position to Staley, currently managing partner of U.S. hedge fund firm BlueMountain Capital Management, and he accepted the offer, a person with knowledge of the situation told Reuters on Monday. Staley ran JPMorgan’s investment bank and asset management business and had been at the bank for 34 years before leaving in early 2013 to join BlueMountain.
At £44 a share, the new all-cash offer is a premium of about 50 percent to SABMiller’s closing share price on September 14
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ritish brewer SABMiller announced yesterday it had finally agreed a takeover by AnheuserBusch InBev, the world’s biggest beer producer -- for about US$109 billion. Including debt, the cost of buying SABMiller is around US$117 billion, making it the world’s third biggest takeover after two mega mergers across the telecoms sector. Belgian-Brazilian group AB InBev, the maker of Budweiser and Stella Artois lagers, struck a deal with the producer of Foster’s and Grolsch at the fifth time of asking. Shares in SABMiller, the world’s second-largest brewer, surged on the announcement, with markets expecting a deal to go through despite regulatory hurdles. “The boards of AB InBev and SABMiller announce that they have reached agreement in principle on the key terms of a possible recommended offer,” the British group said in a statement.
SABMiller added that its board “would be prepared unanimously to recommend the all-cash offer of £44.00 per SABMiller share” to its shareholders. AB InBev has until October 28 to make the bid formal. The terms of yesterday’s deal is meanwhile higher than a fourth bid tabled by AB InBev on Monday that was worth about £43.50 a share. At £44 a share, the new allcash offer is a premium of about 50 percent to SABMiller’s closing share price on September 14, or final business day prior to renewed speculation of an approach by AB InBev. While most companies’ share prices were in the red yesterday following weak Chinese data, SABMiller soared 8.56 percent to £39.31 and Budweiser maker AB InBev won 2.0 percent to 100.40 euros. Connor Campbell, analyst at Spreadex trading group, noted that
Private equity into subSaharan Africa takes off Unlisted investment funds are expected to raise as much as US$5.4 billion
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nternational private equity has become the fastest growing source of investment in sub-Saharan Africa but better risk management tools and a way to develop whole sectors was needed to make sure benefits are spread more widely, a study found. In recent years, investors tired of low returns in developed markets have increasingly looked to cash in on the rapid growth and emerging middle-class consumers in Africa, home to many of the fastest expanding economies in the world. Investments from international private equity has grown five-fold since 2008 across sub-Saharan Africa and now amounts to around US$12
billion, or 20 percent, annually of cross-border investments, a working paper released yesterday by the Overseas Development Institute (ODI) said. While capital flow was needed to speed up economic development, especially in the private sector, those who wanted to put their money to work in the region were still struggling with a lack of investment opportunities, the institute found. “The region is suffering from an ‘overhang’ of unused capital because of the lack of suitable companies for investment,” the report said. “Firms are too small, lack human capital and are often within underdeveloped sectors that lack the
“any pact that would cause a single company to produce a third of the world’s beer is going to come under intense, potentially deal-ending, scrutiny from regulators”. SABMiller, which also makes beers Peroni and Pilsner Urquell, claimed the previous bids had undervalued the company. AB InBev recently reported a sharp fall in second quarter profits owing to weak economic conditions in several markets. In order to firm up its business, SABMiller earlier this year bought London-based craft beer company Meantime for an undisclosed sum, as big players in a saturated beer market eye opportunities in the fastgrowing segment. Elsewhere, Dutch beer giant Heineken has bought half of USbased beer maker Lagunitas, hoping to cash in on the global rocketing popularity of craft beers. AFP
economic ‘eco-system’ that supports the growth of individual firms,” the ODI report said. It said development agencies needed to approach sectors and industry as a whole rather than piecemeal. Development finance institutions needed to come up with ways to create more medium-size businesses, while also providing investors with risk insurance tools that were more flexible and less costly, the ODI said. Mutual funds ploughing their money into limited stock markets were “creating moderate but growing risks of asset bubbles and financial instability.” Meanwhile, investors in private equity funds had started building up their own rather than buying into businesses. Unlisted investment funds are expected to raise as much as US$5.4 billion earmarked for the region over the whole of 2015, well above the US$4.1 billion raised last year, the report said. It said well over half of the money invested by those funds since 2008 has gone into the energy sector, with Blackstone, Denham Capital and Helios Partners topping the list of private equity funds. Reuters
Business Daily | 15
October 14, 2015
Opinion Business
wires
China is not collapsing
Leading reports from Asia’s best business newspapers
Anatole Kaletsky
Chief Economist and Co-Chairman of Gavekal Dragonomics and the author of Capitalism 4.0, The Birth of a New Economy
TAIPEI TIMES Tax revenues last month fell for the first time this year as the national treasury collected NT$193.1 billion (US$5.93 billion) a drop of 14.3 percent from the same period a year earlier, as an economic slowdown weighed on corporate and personal incomes, the Ministry of Finance said yesterday. Corporate income slumped 38.4 percent year-on-year to NT$39.5 billion, while personal income dropped 5.6 percent to NT$38.9 billion, as companies and individuals reported less earnings amid a global slowdown, the ministry said. Securities transactions taxes lost an extra 4.1 percent last month to NT$6.2 billion.
BANGKOK POST The government plans to issue an administrative order to claim the assets of expremier Yingluck Shinawatra to compensate the state for losses incurred from her administration’s rice-pledging scheme -- a move which will bypass court procedures. It claims the action is to prevent the case from expiring based on the two-year statute of limitations, which will expire in February 2017. Deputy Prime Minister Wissanu Kreangam said that the planned administrative order is in compliance with the 1996 Act on Liability for Wrongful Acts of Officials.
THE STRAITS TIMES Both prices and volumes of non-landed private property (in Singapore) continued to slide, as sluggish conditions continue to dog the resale market. Data from SRX Property showed that prices in September fell 1.2 per cent compared to the same period last year. Since the start of the year, prices have fallen by 0.7 per cent. Similarly, the number of private homes exchanging hands also dropped by about 10.6 per cent. Some 446 non-landed private units were resold in September, down from the 499 units resold in August.
PHILSTAR Job-generating foreign direct investments managed to rise in July but the seven-month tally remained down by 35 percent from a year ago due to uncertainties brought about by the impending interest rate hike by the US Federal Reserve and the global economic slowdown led by China. In a report, the Bangko Sentral ng Pilipinas (BSP) said foreign direct investments registered a net inflow of US$458 million in July, 1.55 percent higher from last year’s US$451 million. Despite the increase in July, the seven-month tally was still 35 percent lower at US$2.48 billion compared with last year’s US$3.82 billion.
Bank Governors and Finance Ministers pose for group photograph during IMF/World Bank Annual Meetings at Lima Convention Centre in Peru. All eyes were on China’s economy
O
ne question has dominated the International Monetary Fund’s annual meeting this year in Peru: Will China’s economic downturn trigger a new financial crisis just as the world is putting the last one to bed? But the assumption underlying that question – that China is now the global economy’s weakest link – is highly suspect. China certainly experienced a turbulent summer, owing to three factors: economic weakness, financial panic, and the policy response to these problems. While none on its own would have threatened the world economy, the danger stemmed from a self-reinforcing interaction among them: weak economic data leads to financial turmoil, which induces policy blunders that in turn fuel more financial panic, economic weakness, and policy mistakes. Such self-reinforcing financial feedback is much more powerful in transmitting global economic contagion than ordinary commercial or trade exposures, as the world learned in 20082009. The question now is whether the vicious circle that began in China over the summer will continue. A sensible answer must distinguish between financial perceptions and economic reality. China’s growth slowdown is not in itself surprising or alarming. As the IMF noted, China’s growth rate has been declining steadily for five years – from 10.6% in 2010 to a projected rate of 6.8% this year and 6.3% in 2016. This deceleration was inevitable as China advanced from extreme poverty and technological backwardness to become a middle-income economy powered by external trade and consumer spending. It was also desirable, because rapid growth was hitting environmental limits. Even as the pace of growth
slows, China is contributing more to the world economy than ever before, because its GDP today is US$10.3 trillion, up from just US$2.3 trillion in 2005. Simple arithmetic shows that US$10.3 trillion growing at 6% or 7% produces much bigger numbers than 10% growth starting from a base that is almost five times smaller. This base effect also means that China will continue to absorb more natural resources than ever before, despite its diminishing growth prospects. Yet China is causing high anxiety, especially in emerging countries, largely because financial markets have convinced themselves that its economy is not only slowing, but falling off a cliff. Many Western analysts, especially in financial institutions, treat China’s official GDP growth of around 7% as a political fabrication – and the IMF’s latest confirmation of its 6.8% estimate is unlikely to convince them. They point to steel, coal, and construction statistics, which really are collapsing in several Chinese regions, and to exports, which are growing much less than in the past. But why do the skeptics accept the truth of dismal government figures for construction and steel output – down 15% and 4%, respectively, in the year to August – and then dismiss official data showing 10.8% retail-sales growth? One reason can be found in the financier George Soros’s concept of “reflexivity.” Soros has argued for years that financial markets can create inaccurate expectations and then change reality to accord with them. This is the opposite of the process described in textbooks and built into economic models, which always assume that financial expectations adapt to reality, not the other way round. In a classic example of reflexivity, when China’s stock-market boom turned into July’s bust,
the government responded with a US$200 billion attempt to support prices, closely followed by a small devaluation of the previously stable renminbi. Financial analysts almost universally ridiculed these policies and castigated Chinese leaders for abandoning their earlier pretenses of market-oriented reforms. The government’s apparent desperation was seen as evidence that China was in far greater trouble than previously revealed. This belief quickly shaped reality, as market analysts blurred the distinction between a growth slowdown and economic collapse. In mid-September, for example, when the privatesector Purchasing Managers’ Index (PMI) came out at 47.0, the result was generally reported along these lines: “The index has now indicated contraction in the [manufacturing] sector for seven consecutive months.” In fact, Chinese manufacturing was growing by 5-7% throughout that period. The supposed evidence was wrong because 50 is the PMI’s dividing line not between growth and recession, but between accelerating and slowing growth. Indeed, for 19 out of the PMI’s 36 months of existence, the value has been below 50, while Chinese manufacturing growth has averaged 7.5%. Exaggerations of this kind have undermined confidence in Chinese policy at a particularly dangerous time. China is now navigating a complex economic transition that involves three sometimesconflicting objectives: creating a market-based consumer economy; reforming the financial system; and ensuring an orderly slowdown that avoids the economic collapse often accompanying industrial restructuring and financial liberalization.
Managing this trifecta successfully will require skillful juggling of priorities – and that will become much more difficult if Chinese policymakers lose international investors’ trust or, more important, that of China’s own citizens and businesses. Vicious circles of economic instability, devaluation, and capital flight have brought down seemingly unbreakable regimes throughout history. This probably explains the whiff of panic that followed China’s tiny, but totally unexpected, devaluation of the renminbi. The renminbi, however, has recently stabilized, and capital flight has dwindled, as evidenced by the better-than-expected reserve figures released by the People’s Bank of China on October 7. This suggests that the government’s policy of shifting gradually to a market-based exchange rate may have been better executed than generally believed; even the measures to support the stock market now look less futile than they did in July. In short, Chinese economic management seems less incompetent than it did a few months ago. Indeed, China can probably avoid the financial meltdown widely feared in the summer. If so, other emerging economies tied to perceptions about China’s economic health should also stabilize. The world has learned since 2008 how dangerously financial expectations can interact with policy blunders, turning modest economic problems into major catastrophes, first in the US and then in the eurozone. It would be ironic if China’s Communist leaders turned out to have a better understanding of capitalism’s reflexive interactions among finance, the real economy, and government than Western devotees of free markets. Project Syndicate
16 | Business Daily
October 14, 2015
Closing China to recruit more civil servants
Maldives tops list of Chinese tourists’ favourite island spots
The application period for joining China’s national-level government agencies, their affiliated public institutions and local branches is about to open, with the country planning to recruit 27,000 such civil servants, up from around 22,000 last year. Candidates can apply online from October 15 to 24, with written tests stating on November 29, according to a statement issued yesterday by the Organization Department of the Communist Party of China Central Committee, the Ministry of Human Resources and Social Security, and the State Administration of Civil Service. Candidates with experience working for local government bodies will be favoured.
The Maldives topped a list of Chinese tourists’ 20 favourite island destinations announced at the on-going 2015 International Islands Tourism Conference in east China’s Zhejiang Province. The list was created based on a poll that was launched by the conference’s organization committee and evaluation of an expert panel. The poll started in June, drawing more than three million responders to vote on more than 70 destinations via the committee’s official website, as well as some major portals and microblog services. Taiwan, Bali, and Thailand’s Phuket Island were also listed. Chinese islands filled five spots on the list.
Global oil demand growth to slow in 2016 Consumption is expected to average 95.7 million barrels a day next year
Fatih Birol, Chief Economist of the International Energy Agency
T
he world’s demand for oil is expected to slow in 2016 in response to a more pessimistic outlook for the global economy, likely keeping the crude market oversupplied, the International Energy Agency (IEA) said yesterday. “Global demand growth is expected to slow from its five-year high of 1.8 million barrels per day in 2015, to 1.2 mb/d in 2016,” moving closer toward its long-term trend, the IEA said in its monthly oil market report. That will probably mean a continued oil supply glut next year, especially with the
expected arrival of Iranian crude. “A projected marked slowdown in demand growth next year and the anticipated arrival of additional Iranian barrels -– should international sanctions be eased -– are likely to keep the market oversupplied through 2016,” it said. Citing the International Monetary Fund’s recent downward revisions on global growth estimates by onefifth of a percentage point, “projections for commodities demand logically require some trimming,” the report said
U.S. small business confidence edges up
S
Global consumption is expected to average 95.7 million barrels a day next year, down 100,000 from estimates in last month’s report. One surprise is the resilient oil demand in China despite its economic slowdown. “Our preliminary August estimate posted a near double-digit percentage point gain in year-on-year terms despite the otherwise ailing macroeconomic backdrop,” the Paris-based agency said. Crude oil prices were relatively stable in September and have rallied early this month on “expectations of a
Severe budgetary strain and ongoing issues with security and infrastructure are likely to limit supply growth in the near-term for Iraq International Energy Agency
lower US output and rising tension in the Middle East,” the IEA said.
Rebalancing market, when?
The IEA, a Paris-based institution which analyses energy markets for advanced oil-consuming nations, noted that oil prices over US$50 per barrel were “a powerful
driver in rebalancing the global oil market, but the big question is just when will equilibrium be restored.” Crude output by the 12-nation OPEC cartel rose by 90,000 barrels a day to 31.72 million in September driven by Iraq, now the world’s biggest source of additional supply. Iraq’s banner month to a record 4.3 million barrels per day was due to a recovery in northern exports from disruptions along the country’s pipeline to Turkey. “But severe budgetary strain and on-going issues with security and infrastructure are likely to limit supply growth in the near-term for Iraq,” the IEA added. As for non-OPEC producers, supply growth is eroding with the sharpest slowdown in the United States. In September nonOPEC oil production is estimated to have dropped by 180,000 barrels per day to 58.3 million. In 2016 lower oil prices and steep spending cuts are expected to reduce non-OPEC output by nearly 500,000 barrels per day, the report added. AFP
China, Singapore hold annual cooperation meetings
Switzerland said to impose 5% leverage ratio on biggest banks
C
S
mall business confidence rose marginally in September as stock market volatility raised concerns about sales growth, suggesting the economy was expanding at a moderate pace. The National Federation of Independent Business said yesterday its Small Business Optimism Index gained 0.2 point to 96.1 last month. It said that level was consistent with a 2.5 percent annualized growth rate. “Financial markets did not provide any encouragement to owners, instead providing volatility that only a trader could like. This produces uncertainty,” the NFIB said. Seven of the index’s 10 components eked out small gains last month, while the share of small business owners expecting stronger sales volumes in the next few months fell six points. While there were minor declines in labor market indicators, they remained at historically strong levels and the NFIB said actual reported employment was “very” strong. The government reported earlier this month that the economy added 142,000 jobs in September after creating only 136,000 positions in August.
hina and Singapore held three annual meetings of bilateral cooperation in Singapore yesterday, agreeing to speed up the negotiations of a third intergovernmental project so as to launch its construction at an early date. Chinese Vice Premier Zhang Gaoli and Singaporean Deputy Prime Minister Teo Chee Hean co-chaired the 12th meeting of China- Singapore Joint Council for Bilateral Cooperation (JCBC), a high- level institutional mechanism established in 2003 to oversee the entire range of bilateral cooperation. Viewing the new project to be located in western China “a strategic cooperation project between the two countries,” both sides hope that the cooperation could form a network and radiate the vast western part of China in order to promote local social and economic development. China and Singapore currently have two flagship projects - the Suzhou Industrial Park and the Eco-city in north China’s port city of Tianjin. According to Chinese Ambassador to Singapore Chen Xiaodong, the third project will focus on connectivity, modern logistics and finance.
Reuters
Xinhua
witzerland’s finance ministry will require the country’s biggest banks to have capital equal to about 5 percent of total assets after UBS Group AG and Credit Suisse Group AG sought to win easier terms, according to people briefed on the deliberations. The decision would mimic the U.S. leverage ratio for its biggest banks, which exceeds the 3 percent minimum set in a global agreement by the Basel Committee on Banking Supervision, according to the people, who asked not to be identified because the talks aren’t public. The Swiss government will also align its calculation of the ratio with the method employed in the U.S., resulting in fewer types of debt counting toward capital, one of the people said. The measure of financial strength has gained importance since the 2008 financial crisis as a means of making big banks less prone to collapse. A government-appointed expert panel recommended in December that Switzerland follow the lead of the U.S., which in recent years has introduced some of the world’s toughest capital requirements. Bloomberg News