Macau Business Daily October 29, 2015

Closing editor: Joanne Kuai

MOP 6.00

Idle land forfeited The gov’t has reclaimed four more plots of idle land. Two - designated for residential use - belonged to Sociedade de Turismo e Diversões de Macau (STDM). The gov’t has now declared the invalidity of 22 land grants

Year IV

Number 908 Thursday October 29, 2015

Publisher: Paulo A. Azevedo

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Gaming Labour Force Stable The number of employees in gaming and junket activities increased by 1.2 pct to 84,200 in Q3. While unemployment L’Occitane net profit stands at 1.9 pct. Median monthly employment earnings are MOP15,000 (US$1,879) for the general population. to halve for six months Page 6 Meanwhile, the median salary of residents per month increased MOP500 in Q2 to MOP18,000 Page 2

Vitasoy net income to jump 40 pct for H1

Page 9 HBSC moves more business to Hong Kong

Pages 10 & 11

Expenditure outpaces revenue Public expenditure for 2014 rose 30.5 pct to MOP67.1 bln. While overall revenue decreased 8 pct to MOP161.9 bln. This per the 2014 Budget Execution Report published by the Legislative Assembly. A rapid rise in social welfare support and only moderate growth in direct tax resulted in the city’s surplus declining more than one-fifth

www.macaubusinessdaily.com

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Picking up the pace A poll suggests progress.

The official manufacturing Purchasing Managers’ Index will be on positive ground. After last quarter marked the lowest level in years

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Dollar rate hike could burst Hong Kong property bubble

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The meter’s ticking

He said the gov’t wouldn’t review public car parking regulations in the coming six months to a year. But Secretary for Transport and Public Works Raimundo Arrais do Rosário reiterated its declared position. No renewal of any lease for the 4,000 holders of a monthly parking ticket

HSI - Movers October 28

Name

%Day

Power Assets Holdings

+1.23

MTR Corp Ltd

+1.13

Sun Hung Kai Propertie

+0.85

Cathay Pacific Airways

+0.78

Henderson Land Devel

+0.59

Tingyi Cayman Islands

-2.47

Industrial & Commerci

-2.53

Retail

China Shenhua Energy

-2.82

All wrapped up

China Resources Land L

-3.02

China Mengniu Dairy C

-3.40

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Clothing retailer I.T Ltd. is in a good place. Sales in Macau continue unabated. Posting HK$101 mln despite reduced footfall for the six months ended August 31.

Conversely, the company posted a net loss of HK$31 mln converting Renminbi fixed deposits to Hong Kong dollars

Source: Bloomberg

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2 | Business Daily

October 29, 2015

Macau DICJ head stepping down Manuel Joaquim das Neves, Director of the Gaming Inspection and Co-ordination Bureau (DICJ), will step down on 25 November, Business Daily has learned.

Vice Director of DICJ, Leong Man Ion, will assume the post temporarily until a replacement is found.

After more than three decades as a civil servant, 56 year-old Manuel Neves said that he is leaving the public administration due to personal reasons and wants to take a break and dedicate more to family and leisure than to work.

Manuel Neves has a degree in Public Administration and Management from the Portuguese Catholic University. He then took a place in Public Administration in 1984 as professor at the Commercial School. The following year, he made the transition to DICJ where he held several positions. He acted as division chief and department chief before being promoted to assistant director, and then director in 1997.

Fund for Cultural Industries disburses MOP9.29 million

Gaming industry employees increase 1.2 per cent During the third quarter of the year the unemployment rate stood at 1.9 per cent in Macau, according to the Statistics and Census Services João Santos Filipe

jsfilipe@macaubusinessdaily.com

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he number of employees in Gaming and Junket Activities increased by 1.2 per cent to 84,200 from 83,200 during the period from July to September, in comparison with June to August, according to data published yesterday by the Statistics and Census Services (DSEC).

For the period spanning July to September, the unemployment rate stood at 1.9 per cent, the same as the previous period. While the total labour force in the Macau Special Administrative Region declined to

402,500 from 402,700, the number of the unemployed increased 1.2 per cent to 7,600 from 7,500. However, looking at the number by quarter, from the second to the third quarter of the year, the total employment force declined 3,400 to 394,900 from 398,300.

‘Fresh labour force entrants searching for their first job accounted for 14.6 per cent of the total unemployed, down 3.1 percentage points’, DSEC explained, in comparing the data with June to August.

The Fund for the Cultural Industries invested MOP9.29 million (US$1.16 million) during the third quarter of the year in Macau industries, according to data published in Macau’s Official Gazette yesterday The largest subsidy – some MOP1.20 million - was handed to cable station MASTV to support its role as a ‘platform of services for the development of cultural industries in Macau’.

Local company E.C. Produções de Video de Filme received the second largest subsidy, at MOP844,140, for the production of the movie ‘Dear, Please Forget Me’.

The third largest subsidy was paid to Iao Hin Design and Events and totalled MOP839,110 for de Art Gallery Iao Hen. During the third quarter of the year, some 41 companies were supported by the Fund for Cultural Industries.

Gov’t sets up committee for World Centre of Tourism and Leisure The government has established a committee for the World Centre of Tourism and Leisure initiative, chaired by the Chief Executive Fernando Chui Sai On, according to the Official Gazette yesterday. The committee aims to design and conduct policies to develop the city into a World Centre of Tourism and Leisure. The committee has nine other members, of which three are the city’s secretaries; namely, Secretary for Economy and Finance Lionel Leong Vai Tac, Secretary for Culture and Social Affairs Alexis Tam Chon Weng, and Secretary for Transport and Public Works Raimundo Rosario.

The unemployment rate of locals increased 0.2 percentage points during the third quarter to 2.7 per cent from 2.5 per cent. This is the third consecutive quarter with local unemployment growing. At the end of the first quarter of the year it stood at 2.4 per cent.

Comparing June to August with July to September, the number of employees in Restaurants and Similar Activities declined 2.4 per cent to 25,300 from 26,000. In the construction sector, the number shrank 0.9 per cent to 52,900 from 53,400. DSEC said this decline is related to the decreasing demand for manpower in the sector.

Median monthly earnings at MOP15,000

Regarding both Gaming and Junket Activities and Hotel and Similar Activities employment went up 1.2 per cent and 0.4 per cent, respectively.

From the second quarter to the third, median monthly employment earnings stood at MOP15,000 (US$1,879) for the general population. Meanwhile, the median salary of residents per month increased MOP500 during the second quarter to MOP18,000 from MOP17,500.

According to DSEC, workers in Gaming and Junket Activities’ monthly earnings stood at around MOP19,000, while workers in the construction sector were making around MOP13,000.

Government reclaims four more idle land plots

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he government took back four more plots of idle land yesterday, of which two both for residential use - belonged to gaming tycoon Stanley Ho’s Sociedade de Turismo e Diversões de Macau (STDM).

The government declared the land grants for the parcels of idle land invalid in the Official Gazette yesterday, making the total number of idle plots reclaimed 22.

One of the plots - awarded to STDM in 1995 next to the School of the Nations in Taipa and occupying some 3,911 square metres – was designated for a 22-storey building

and an 8-storey building. Meanwhile, another STDM plot reclaimed by the government is located in Estrada de D. João Paulino on Penha Hill. The land grant contract in 1968 permitted the company to build a 3-storey villa on the 968 square metre parcel.

The government dispatch announced that another idle plot that it has recovered is the artificial wetland for egrets off Baía de Nossa Senhora da Esperança in Taipa, which is next to The Taipa HousesMuseum not far from the high-end residence of One Grantai on Taipa Grande Hill.

The plot, occupying 19,245 square

metres, was awarded to Companhia de Investimentos Chee Lee, Limitada in 1990 for building a three-storey villa, a commercial centre, an open-air theatre and entertainment facilities, as well as a garden and a car park.

The last recovered idle plot was originally awarded to Chap Mei Artigos de Porcelana e de Aço Inoxidável e Outros Metais (Macau), Limitada in 1993. The plot, occupying 2,637 square metres in Pac On reclamation area, was designated for industrial use.

The landlords can still file a judicial appeal with The Court of Second Instance (TSI) within 30 days.

4 | Business Daily

October 29, 2015

Macau Government delegate to Wing Hing reappointed The government has renewed for the period of one year the nomination of Gonçalo Lourenço da Silva as delegate of the Executive to Chinese lottery company Sociedade de Lotarias Wing Hing Limitada.

The information was published yesterday in Macau’s Official Gazette and took effect on 25th October.

Mr. Gonçalo Lourenço da Silva, who has been the only representative of the government with the company since the handover, will be paid a monthly salary of MOP6,600 for this service. The contract for Wing Hing to run Chinese lotteries in Macau is set to expire by the end of the year.

Monthly public car parking rentals safe for now The government says it is not scrapping the monthly public car parking rental in the coming six months to a year, but does not encourage its use, either Stephanie Lai

sw.lai@macaubusinessdaily.com

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ecretary for Transport and Public Works Raimundo Arrais do Rosário said the government did not plan to cancel the monthly parking rental system

for public parking lots in the coming six months to a year, a response that follows legislators' discussions about whether such a system should continue.

Legislators Si Ka Lon and Song Pek Kei, who initiated a motion of debate on the subject, reckon that the monthly parking rental system for public parking lots no longer fits the reality of the city as the big discrepancy between the public rental rate and the private one has led to some abuses of public resources.

Mr. Si has cited an example to Business Daily that some people who leased public parking lots have let these lots out to others at twice the cheap monthly rental fees they had been paying to the government.

Speaking to the legislators yesterday, Mr. Rosário said he acknowledged such abuses, adding that the government would take back

the public car parking lot leased via monthly fees once they identify tenants violating the parking rules.

But he said that the government did not intend to review the public car parking regulations in the coming six months to a year; in other words, the monthly parking rental system for public parking lots will not be scrapped in the short term.

The Secretary stressed the stance that the government would no longer encourage the use of the monthly parking system for public car parking lots.

He reiterated that the government would not renew any lease for the 4,000-odd holders of a monthly parking ticket once they terminate the rent at the public car parking lots.

The Transport Bureau (DSAT) currently manages 38 public car parks.

In sixteen of these public car parks some 4,692 parking lots are leased out via the payment of a monthly parking fee. According to an update from the Secretary yesterday, 423 of these public parking lots have no longer seen any monthly lease renewal.

In the Assembly, Mr. Rosário additionally said that about 500 public car parking lots in Fai Chi Kei and Taipa would be ready for use by early next year.

The increased availability of public car parking lots is part of the government's plan to build 12 new car parks providing about 7,100 parking lots in total, Mr Rosário said previously.

MSAR surplus slides by more than one-fifth in 2014 The city's public expenses, with the bulk going to social welfare, have grown at a much faster pace while revenue has contracted in tandem with the gaming downturn

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acau has seen its surplus decline by more than onefifth for the whole of 2014 as the city's growth in public expenditure outpaces revenue, resulting from the rapid rise in social welfare support and only moderate growth in direct tax.

The city’s surplus declined 23.9 per cent year-on-year to MOP94.8 billion for 2014, as public expenditure grew 30.5 per cent in the year while the overall revenue of the government was down 8 per cent, according to the 2014 budget execution report published by the Legislative Assembly.

The report is to be reviewed by the Assembly before it moves on to examine and approve the budget for 2016.

As disclosed in the report, Macau's public expenditure for 2014 rose 30.5 per cent to MOP67.1 billion, of which MOP30.6 billion was spent on an item called ‘regular expenses’ - a term that refers to expenses incurred by various allowances and subsidies here, including the cash-share scheme and government support of the provident fund.

This particular item showed an annual rise of 66.9 per cent for 2014, the report noted.

Meanwhile, the Macau Government's overall revenue decreased 8 per cent last year to MOP161.9 billion. Over eighty per cent of the revenue came from direct tax income, including gaming tax.

The local government took in a total of MOP136 billion of direct tax in 2014, representing a growth of only 2.7 per cent compared to the previous year. Direct tax from gaming last year, which stood at MOP128.7 billion, only inched up 1.65 per cent yearon-year.

The slight growth seen in direct tax was a consequence of the gaming downturn that emerged in the city last

year. Macau’s gross gaming revenue for 2014 showed a year-on-year decline of 2.5 per cent vis-a-vis the doubledigit growth seen in previous years.

Still, the government maintained sound fiscal reserves: as of 2014, this amount has grown 45.8 per cent year-on-year to MOP246.3 billion, according to the report.

Not spending to fullest

Of the approved budget for spending on public investment and development (PIDDA) at over MOP14.8 billion for 2014, the government only spent MOP7.26 billion.

PIDDA is a spending item that covers the city’s infrastructure projects.

That means the execution rate of the public investment plan for the past year has been only 49 per cent, the report said.

Most of the PIDDA execution went to the public works domain, which spent MOP11.86 billion in total last year.

The greatest expenses of MSAR in the public works domain went on the building of public facilities, at MOP1.37 billion – an item where only 43.6 per cent of the budget has actually been spent.

S.L.

6 | Business Daily

October 29, 2015

Macau

L’Occitane net profit to halve for six months

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rench cosmetic retailer L’Occitane International S.A. said its net profit may be halved for the six months ended September 30 this year due to sales growth not being as strong as before, it told Hong

Kong Stock Exchange.

The company said in a filing on Tuesday that its net profit for the period will drop between 40 and 50 per cent year-on-year, as ‘challenging global market conditions’ had softened the company’s sales

Local sales of I.T lift 6.2 pct in H1

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lothing retailer I.T Ltd saw its sales in the city post a year-onyear increase of 6.2 per cent for the six months ended August 31 this year, although it registered a net loss for the period.

The company told Hong Kong Stock Exchange yesterday that it had fallen into the red during the first six months of its fiscal year, posting a net loss of HK$31 million (US$3.86 million) from a net profit of HK$49.4 million during the same period of last year.

It explained in the filing that the loss was due to converting its Renminbi fixed deposits, amounting to 1.19 billion yuan (HK$1.45 billion),

growth. In addition, it said higher market expenses had affected its margins.

According to the same filing, the company’s net sales actually posted a yearon-year increase of 12.5 per cent, for 546.7 million euros

into Hong Kong dollars in order to minimise future exposure to RMB exchange risk in August this year, and because of a total non-recurring foreign exchange loss of HK$79.6 million.

During the six months, the retailer’s sales in the Special Administrative Region totalled HK$101 million.

‘Macau has continued to show modest growth despite lower-thanexpected tourist traffic,’ the company remarked.

EBITDA generated from the business in the territory reached HK$35.9 million, up nearly 3 per cent from HK$34.8 million one year ago. In addition, its operating profit jumped 2 per cent year-on-year to HK$31.8 million in the Macau market.

Meanwhile, the company’s retail sales in Mainland China significantly increased by19.1 per cent year-onyear to HK$1.33 billion during the period. However, the retailer saw its sales in Hong Kong fall 3.6 per cent year-on-year to HK$1.57 billion due to ‘consumer spending still lacking positive momentum.’

K.L.

(US$605 million/MOP 4.83 billion) for the six months.

The number represents an increase of 5.8 per cent at constant exchange rates.

But its sales in Hong Kong and Macau, where it has 35 and 3 stores respectively,

posted a year-on-year decline of 12 per cent at constant exchange rates to 58.1 million euros.

‘In Hong Kong, the retail operation remained impacted by weak market sentiment and a drop in Mainland Chinese tourists. During the second quarter of [the fiscal year], Hong Kong travel retail sell-through was sluggish due to the lagging effects of MERS in Korea and a drastic drop in traffic in Hong Kong and Macau,’ the retailer explained.

Nevertheless, the company believes its performance posted for the first half of the year would not impact its sales and net profit for the whole year as much as the second-half results, due to seasonality. ‘The Board expects that the seasonal trend will continue this year despite the volatile operating environment towards the second half of the financial year,’ it claimed.

K.L.

Coach posts slowest sales decline in nine quarters The handbag maker is transforming itself by renovating its stores and spending more on reviving its brand. It is also refreshing styles to target younger customers

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andbag maker Coach Inc reported its slowest drop in quarterly sales in more than two years as the company's efforts to shed its staid image and woo back customers with new products paid off.

Coach's stock was the top percentage gainer on the S&P 500, after the company also reported a better-than-expected quarterly profit due to fewer promotions.

Coach, founded in a Manhattan loft in 1941, is transforming itself by renovating its stores and spending more on reviving its brand. It is also refreshing styles to target younger customers under creative director and designer Stuart Vevers.

Vevers is bringing youthfulness to the brand, Chief Executive Victor Luis told Reuters, adding that the move is striking a chord with millennials and fashion-conscious customers.

Sales fell 0.8 per cent in the first quarter, compared with declines of between 11 and 16 per cent in the previous three quarters.

North America same-store sales fell 9.5 per cent, the smallest decline in two years.

This improvement comes after the company lost its appeal as a luxury brand due to years of over exposure, allowing newer rivals such as Michael Kors Holdings Ltd and Kate Spade & Co to capitalize on Coach's weakness.

To preserve its luxury image, Coach has pulled back on flash sales and is focusing on pricier handbags such as the US$600 Ace satchel and US$500 Nomad hobo bag.

However, analysts said Coach's

KEY POINTS Q1 earnings of US$0.41/shr vs est. US$0.40 Sales down 0.9 pct vs 11-16 in previous 3 quarters Pricey handbags, Stuart Weitzman shoes in demand Shares up as much as 9 pct

results cannot be read as a precursor to the performance of Michael Kors or Kate Spade.

"A lot of this for Coach is selfhelp," said Neil Saunders, CEO of research firm Conlumino, adding that the handbag market is still challenged due to lack of innovation.

Net income fell 19 per cent to US$96.4 million, or 35 cents per share.

Excluding items, Coach earned 41 cents per share.

Analysts on average had expected earnings of 40 cents per share and revenue of US$1.04 billion, according to Thomson Reuters I/B/E/S. Coach's shares were up 4.7 per cent at US$31.75 in afternoon trading on the New York Stock Exchange.

Up to Monday's close, the stock had fallen 19.3 per cent this year.

Reuters

8 | Business Daily

October 29, 2015

Macau

Hello Kitty, farewell Rolex as Hong Kong shoppers go downmarket As high-end retailers bargain for lower rents or close stores amid a decline in Mainland tourists who had underpinned their sales, mid-tier retailers are filling the gaps

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n Hong Kong, fancy purses are out, sneakers are in.

U.S. luxury handbag maker Coach Inc. opened its four-story flagship store in the heart of Hong Kong’s Central district to much fanfare in June 2008, with a celebritystudded, champagne- fueled party.

In August, the company quietly terminated its HK$5.6 million (US$723,000) per month lease and Adidas is moving in -- paying 23 per cent less in rent, according to Colliers International Group Inc. This is not an isolated case. Russell Street in Causeway Bay, which boasted the most expensive shop rents in the world until New York’s Fifth Avenue overtook it a year ago, is undergoing a major transformation.

A location formerly rented by Emperor Watch & Jewelry Ltd. that sold diamond-studded Cartier watches is now home to discount cosmetics retailer company Bonjour Holdings Ltd. that sells HK$58 packets of Hello Kitty false eyelashes and HK$18 jars of Tiger Balm ointments. Next door, rival Colourmix Cosmetics Co. has moved into a space vacated by Swiss watchmaker Jaeger-LeCoultre.

As Kering SA’s Gucci, LVMH’s Louis Vuitton, and jewelry chain Chow Tai Fook Jewelry Group Ltd. bargain for lower rents or close stores amid a decline in Mainland tourists who had underpinned their sales, mid-tier retailers are filling the gaps. Brands

that appeal to the broader market are taking advantage of declining leases to move into some of Hong Kong’s most coveted retail locations.

“The fallout in the watch and jewelry as well as luxury sector is paving the way for fast fashion brands to expand,” Tom Gaffney, head of retail at Jones Lang LaSalle Inc. in Hong Kong, said in a phone interview.

Rents decline

Retail rents started falling after the city’s appeal as a shopping paradise for Mainland tourists was hurt by antiChina protests last year, a slowing Mainland economy and Beijing’s austerity and anti-graft campaigns, which have made the Chinese wary of splurging on luxury goods. Hardest hit have been sales of watches and jewelry, where sales have fallen year on year for the past 11 months.

"Shopping habits are changing; a couple of years ago it was not uncommon to see mainlanders go into watch stores and ask for 10 Rolexes," said Marcos Chan, head of research for Hong Kong, Taiwan and Macau at CBRE Group Inc. "Now we hardly see people even buying one."

While luxury brands are abandoning street-front locations, they are maintaining their presence in high-end malls where monthly rents are lower in part because landlords also receive a portion of sales receipts as part of a tenant’s payment.

The fallout in the watch and jewelery as well as luxury sector is paving the way for fast fashion brands to expand Tom Gaffney, head of retail at Jones Lang LaSalle Inc. in Hong Kong

Another source of the slowdown is that Chinese shoppers, who represent 10 per cent of global tourism and more than 25 per cent of luxury spending, are forsaking Hong Kong in favor of Europe, South Korea and Japan, attracted by weaker currencies and relaxed visa procedures, according to Bloomberg Intelligence. A rising backlash against Mainland tourists has also hurt Hong Kong’s appeal, said CBRE’s Chan.

Jones Lang expects street rents in Central to drop a further 10 per cent in 2016 after falling about 20 per cent to 30 per cent this year, while leases on more than 200,000 square feet of space on Queen’s Road in Central, one of the city’s premier shopping destinations, will become available between now and 2018.

Just steps from one of Hong Kong’s busiest subway stations in Central, Athens-based affordable fashion brand Folli Follie opened a store in mid-October after luxury watch retailer Carlson moved out.

Hennes & Mauritz AB is also taking advantage of falling rents to expand. On Oct. 30, it will open a four-story flagship, its largest store in Asia, in Causeway Bay. “One part of our expansion strategy is about getting a good and competitive deal,” said Magnus Olsson, the Swedish retailer’s country manager for Greater China, declining to provide rental details. “If we were not happy, we wouldn’t have opened.”

Helen Mak, senior director of retail services at Colliers, said that while Hong Kong’s superior level of service will continue to attract tourists, they are looking for a different shopping experience on the city’s high streets.

"In the past, four out of five shops were selling Rolexes," she said. "In the future, a tourist will expect to see more varieties of retail shops in Hong Kong."

Bloomberg

Business Daily | 9

October 29, 2015

Macau Three Chinese suitors show interest in Starwood Hotels It was reported that interested Chinese entities have submitted proposals to the Chinese government to allow them to compete to buy Starwood, the owner of St. Regis and Sheraton hotel brands

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hina's sovereign wealth fund and two big Chinese companies have expressed interest in Starwood Hotels & Resorts Worldwide Inc, joining other potential suitors from around the world, a source familiar with the matter said on Tuesday.

Starwood Hotels, the owner of St. Regis and Sheraton hotel brands, has indicated it is considering a sale, and its highly prized collection of properties has also garnered interest from wealthy Middle Eastern investors and other global firms, the person said.

Lodging giant Shanghai Jin Jiang International Hotels Group Co, Hainan Airlines Co's parent HNA Group as well as sovereign wealth fund China Investment Corp have expressed interest in Starwood, according to the source, who was not authorized to speak on the record.

The three Chinese entities have submitted proposals to the Chinese government over the past two months to allow them to compete to buy Starwood, the WSJ reported, citing sources.

Beijing is expected to select a single bidder in the next few weeks, the Journal said. China's government only wants one bidder so as not to drive up the price by bidding against one another, the paper said.

Starwood shares rose as much as 12.5 per cent to US$77.10 on Tuesday, giving the company a market value of about US$13 billion.

Starwood said it did not comment on market rumors or speculation.

Shanghai Jin Jiang International Hotels Group, HNA Group and China Investment Corp did not respond to requests for comment.

If a Chinese company does emerge as the ultimate buyer for Starwood, it could be controversial. In the past, Chinese companies have bought other hotel properties, most notably the Anbang Insurance Group's purchase of New York's Waldorf Astoria in 2014 without objection from the U.S. government.

The government is unlikely to step in and stop this proposed transaction, although it may shift sensitive meetings out of Starwood properties or ask for particular hotels to be sold if they are near sensitive military institutions, said Paul Marquardt, a Cleary Gottlieb lawyer who is an expert on foreign investment in the United States.

Starwood had reached out to potential bidders including InterContinental Hotels Group Plc, Wyndham Worldwide Corp and sovereign wealth funds in July, three months after it decided to explore a sale.

InterContinental had said then that it was "not in talks with Starwood with a view to a combination of the businesses," while Wyndham had declined to comment.

Reuters

Vitasoy net income to jump 40 pct for H1

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ong Kong-listed beverage producer Vitasoy International Holdings Ltd. expects its profit attributable to equity shareholders to jump by between 30 and 40 per cent for the first half of its fiscal year ended September 30.

The company told Hong Kong Stock Exchange on Tuesday afternoon that the anticipated lift in net income from HK$222 million (US$27.6 million) one year ago is because net profit generated by the Mainland Chinese market

had registered a ‘significant increase’.

It claimed that its business in the country had ‘benefited from the combined effect of effective management of raw materials cost and strong market demand for certain products during the peak summer season.’

Nevertheless, the company noted in the filing that it is not bullish on its performance for the rest of the fiscal year.

‘Given the seasonality of the Group’s business, the Board does not expect the second half of the

financial period to be as favourable as the current period, particularly with the uncertainty of the macroeconomic and renminbi trend in Mainland China,’ the producer claimed.

For the previous fiscal year, Vitasoy’s profit attributable to equity shareholders reached HK$372 million, up 21 per cent year-on-year, according to its annual filing, which stated that sales in Macau had delivered a year-on-year growth of 17 per cent.

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Corporate

Celebrating “International Chefs Day” at GEG In celebration of “International Chefs Day”, Galaxy Entertainment Group (“GEG”) partnered with Macau Culinary Association to hold a culinary activity, “Healthy Kids – Healthy Future”, at Oasis, Galaxy Macau™ last Saturday.

Seventy parents and children from General Union of Neighborhood Associations of Macau (“UGAMM”) were

invited and were accompanied by thirty chefs from Macau Culinary Association, Institute for Tourism Studies, GEG and local restaurants during this cheerful activity. Aiming to promote the importance of a balanced diet and healthy lifestyles, this activity intends to foster communication and interaction between parents and children.

CTM receives ‘iPhone Masters’ certificate Following the recent launch of 4G+ service, CTM continues to stimulate the popularity of mobile data service application, to enable residents to enjoy a vibrant digital life. CTM is pleased to announce that 15 front-line staff have successfully completed the iPhone Masters training programme

and received the iPhone Masters certificates from Apple. It is the third time that CTM has been awarded the certificate and the only telco in Macau to receive this accreditation. The iPhone Masters Certificate Presentation Ceremony was held at CTM Concept Store on 27 October.

10 | Business Daily

October 29, 2015

Greater China

Rail links with Europe open way for more trade in fresh food China currently imports US$6-7 billion of perishable food from Europe each year, mainly pork, dairy, fruit and seafood Dominique Patton and Matthew Miller

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ising investment in rail links between China and Europe could boost Chinese imports of fresh foods like meat and dairy products, predicts a new report from Dutch bank Rabobank.

Railway lines built in recent years connecting

southern Chinese cities to Europe significantly reduce transport times compared with ocean freight. But they are mainly used to ship industrial and IT products to Western markets, while many wagons return to China empty.

New facilities to handle agricultural products at Chinese rail terminals would allow for more imports of perishable goods, would raise open new trade routes, and raise Europe’s advantage in agricultural trade with China, the report said.

“It could potentially be a game changer,” said Jeroen Nijsen, Rabobank Asia chief executive, noting that 20 percent of China’s food imports come from Europe.

“Transportation time is about 40-50 days - if that could be brought down to 13 days or two weeks it could bring a whole new potential to Europe.”

China currently imports US$6-7 billion of perishable food from Europe each year, mainly pork, dairy, fruit and seafood.

But Chinese demand for high quality, fresh food is growing rapidly. Fresh produce sales are booming

at online retailers who are expected to see annual sales growth of more than 50 percent in coming years, said the bank.

Imported food accounts for 13 percent of online food sales, the highest value item, added the report.

More investment is needed in cold storage facilities to handle imports in new rail terminals however.

The YuXinOu railway, launched in 2011 and one of the earliest projects under China’s rejuvenation of old Silk Road trade routes, runs from Chongqing through Kazakhstan, Russia, Belarus, Poland and Germany, ending in Rotterdam in the Netherlands.

But with no fruit or meat-designated ports at the Chongqing rail terminal, agricultural products imported from Europe cannot be handled by customs there and cold

storage facilities are also inadequate.

The “whole warehousing or cold chain infrastructure... really needs to be beefed up,” said Nijsen.

Non-perishable agricultural imports could also benefit from the new routes if transport costs reach parity with shipping, added the report, giving European exporters a significant advantage in transport times over major agricultural exporters such as the United States and Brazil.

“Railway costs are still higher than shipping costs, but there’s the potential to have that reverse in the next few years,” added Nijsen.

Use of more and larger trains would cut costs, allowing rail freight to take a share of the 10 million tonnes of perishable goods shipped to China by sea each year.

Reuters

HSBC shifts derivatives trades to HK During the past 18 months, many banks have begun to review their Asia trade booking arrangements amid tough new rules that have made Britain less attractive as a global trade booking centre Michelle Price and Lawrence White

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SBC has begun shifting billions of dollars worth of derivatives trades from London to Hong Kong to take advantage of the city’s favourable funding and regulatory environment, and to help position itself for a potential relocation of its headquarters, sources with direct knowledge of the bank’s trading arrangements told Reuters.

The development comes as a slew of regulatory changes brought in after the 2008 financial crisis make it increasingly expensive for banks to trade derivatives in the United States and Europe. Booking trades outside Britain would potentially help reduce HSBC’s exposure to the country’s bank levy, one of the sources said.

The British lender, which is exploring whether to relocate its headquarters out of London, has begun moving interest rate swaps booked in Britain over to its Hong Kong subsidiary, three people with direct knowledge of HSBC’s trading books said.

Interest rate swaps, which allow investors and companies to hedge their exposure to interest rate changes, comprise the bulk of the global overthe-counter derivatives market, with

Business Daily | 11

October 29, 2015

Greater China October official PMI seen edging up Some analysts hope the third-quarter cool-down could mark the low point for 2015

KEY POINTS China official PMI seen at 50.0 in Oct vs 49.8 in Sept Data due on Nov 1 at 0100 GMT

A

ctivity in China’s manufacturing sector likely picked up slightly in October but remained subdued, a Reuters poll showed, fuelling hopes that the world’s secondlargest economy may be bottoming out after a burst of stimulus measures.

The official manufacturing Purchasing Managers’ Index(PMI) likely edged up to 50.0 in October from 49.8 in September, according to a median forecast of 20 economists in a Reuters poll.

Still, the expected improvement remained marginal, with the reading at the 50-point mark that separates contraction from expansion on a monthly basis.

Factory activity shrank in September for a second straight month, albeit at a slower pace than in August.

“Stimulus measures continued to gain traction in October, which would be conducive for large and state factories,” said Zhang Yiping, an analyst at Merchants Securities in Shenzhen.

To shore up growth, the government has cut interest rates six times since November and lowered the amount of cash that banks must hold as reserves four times this year.

The latest cut in interest rates and banks’ reserve requirement came last Friday.

a notional value of around US$500 trillion, according to the Bank for International Settlements.

Large swap dealers like HSBC typically hold hundreds of billions of dollars worth of such trades on their balance sheet.

“Our approach to booking derivatives transactions is driven by a number of factors, including client needs and the type of contract,” a Hong Kong-based spokesman for HSBC said in response to questions on the matter.

Global banks have typically held the majority of Asia-related derivatives trades on their European balance sheets, with London being a major booking centre for such deals.

This model has historically been more efficient than having multiple booking centres, allowing banks to gain economies of scale by aggregating their capital and infrastructure in one

or two locations, while London also has a deep talent pool of middle and back-office staff.

After the financial crisis, many U.S. banks increased the volume of trades they booked in London as its regulatory regime was less onerous than the one they faced on Wall Street.

During the past 18 months, many banks have begun to review their Asia trade booking arrangements amid tough new rules that have made Britain less attractive as a global trade booking centre. These include ringfencing retail customers’ deposits, new European Union rules governing the processing of derivatives, and the bank levy.

The levy is currently a tax on British banks’ global balance sheets but the government has announced plans to change it so that by 2021 it will apply only to assets held in Britain.

HSBC began reviewing its trading arrangements more than 18 months ago, but started moving interest rate swaps in recent months, two of the sources said.

KEY POINTS Some interest rate swap trade booking moved to Hong Kong Regulation making it more expensive to book trades in London Hong Kong wants to rival London, New York as booking centre Shifting trades could help prepare ground for potential HQ move

Aiming to rival London and New York

Hong Kong’s top financial policy advisory body, the Financial Services Development Council, said in a September 2015 paper that Hong Kong should “seize the opportunity” to position itself as a global booking centre to rival London and New York.

For HSBC, moving such trades to Hong Kong is easier than for many other global lenders as it has a big standalone Hong Kong-incorporated bank subsidiary which has low funding costs due to the bank’s large deposit base, two sources said.

Booking more trades in Asia also helps lay the groundwork for a potential relocation of the bank’s

Data released last week showed China’s economy grew 6.9 percent between July and September from a year earlier, dipping below 7 percent for the first time since the global financial crisis.

Some analysts hope the thirdquarter cool-down could mark the low point for 2015 as a burst of stimulus measures rolled out by Beijing gradually take effect in coming months, but muted monthly data for September kept such optimism in check.

The official PMI survey focuses more on larger, state-owned firms while another private one on the small and mid-sized companies, which are facing tougher financial and operating conditions.

The official PMI factory numbers will be released on Sunday, November 1, alongside the official services PMI. The Caixin/Markit manufacturing PMI will be released on November 2.

Reuters

headquarters, both politically and operationally, the sources said. HSBC CEO Stuart Gulliver has said the lender will ‘pivot’ its strategy towards China and its Pearl River Delta.

“They also want to inflate the Hong Kong balance sheet so that if they decide to move their headquarters to Hong Kong they can say to the regulators ‘well, look, we do as much business in Hong Kong as we do in London’,” one of these people said.

Moving trades to Hong Kong involves changing a trading contract so that the bank’s client, which could be a fund manager, company or another bank, has the HSBC Hong Kong entity as its counterparty.

For some clients, however, this may not be possible for legal reasons, in which case the HSBC London entity transacts a so-called ‘back-to-back’ trade with the Hong Kong entity.

This transaction effectively transfers the trade to the Hong Kong balance sheet but the client keeps the British entity as its legal counterparty.

The bank is currently focusing on moving interest rate swaps, which comprise the largest part of the London swaps portfolio, one person said.

A third source with direct knowledge of the bank’s trading book said HSBC had also been booking a greater proportion of new Asia trades in its Hong Kong subsidiary over the past 18 months. HSBC announced in April that it was reviewing whether it should move its headquarters out of Britain amid shareholder pressure to boost returns.

Hong Kong, the bank’s former home, is considered a natural alternative by market-watchers, while the Hong Kong Monetary Authority, the city’s de facto central bank, has said it would welcome such a move.

Reuters

Taiwan firm shuts China plant A Taiwan company that makes backlight modules used in Apple Inc’s iPad as well as other products said it was closing one of its China factories due to sluggish global demand for tablets. Taiwan-based Coretronics Corp has closed the factory in China’s eastern city of Nanjing and laid off about 200 employees, a company spokeswoman told Reuters yesterday. The closure comes as global shipments for monitors, notebooks and tablets are projected to drop an average 10 percent on-year respectively in 2015, according to research firm WitsView.

Oil cargoes stranded at Qingdao port About 4 million barrels of crude oil bought by a Chinese state trader for the country’s strategic reserves have been stranded in two tankers off an eastern port for nearly two months due to a lack of storage, two trade sources said. The delays will cost millions of dollars and indicate how China is struggling to import record amounts of crude if storage and port capacity at Qingdao, its largest oil import terminal, are unable to keep pace. China’s crude oil imports rose nearly 9 percent in the first nine months of the year.

Big mainland firm to develop Mexican industrial park State-owned China Communications Construction Company (CCCC) reached a preliminary accord yesterday to build an industrial park in Mexico that could become one of the biggest-ever Chinese investments in Latin America’s second-largest economy.

The government of the western state of Jalisco and Liu Yueping, Americas chief of CCCC, signed a memorandum in Guadalajara, the state capital, to develop the park. It could give China a major foothold to supply the North American market. The two sides agreed to carry out a six-month feasibility study to identify a suitable location.

Nissan CEO sees economic slowdown as temporary Nissan Motor Co Chief Executive Carlos Ghosn said yesterday he was not worried about the longer-term potential of the Chinese economy, characterising the recent slowdown as a temporary correction.

“I think this is a temporary slowdown,” Ghosn, who also heads Nissan’s French partner, Renault SA, told Reuters at the Tokyo Motor Show when asked about the world’s second-biggest economy. “The economy in China has been growing so fast, from time to time it needs a period to retune. That’s what’s taking place today,” he said in an interview.

Mainland online shopping platform launched in Kenya Chinese e-commerce group Chinabuy has launched its online shopping services in Kenya, offering online shoppers access to different items for direct purchase from Chinese manufacturers and online sites. The firm, which will operate locally as Chinabuy. co.ke, is a one-stop shopping platform with millions of items from many factories and providers. “Africa and China have been trading with each other for centuries but the level and intensity of their trade relationship has increased dramatically since online e-commerce has become the norm,” Chinabuy Group CEO Joe Zhang said in a statement issued in Nairobi.

12 | Business Daily

October 29, 2015

Asia

Japan’s quarterly retail sales rebound offers some relief The data is among a host of indicators the BOJ will scrutinise at a crucial rate review on Friday Leika Kihara

J

apan’s retail sales jumped in the third quarter as falling prices and gradual wage gains underpinned consumption, suggesting the economy may narrowly escape recession despite taking a hit from China’s slowdown.

On a quarterly basis, retail sales increased 1.8 percent in July-September after a feeble 0.2 percent gain in AprilJune, a sign household spending was emerging from the doldrums.

The data offers some relief for the Bank of Japan (BOJ), which is under pressure to expand stimulus further as early as Friday, when it is also expected to slash its rosy economic and price projections.

Retail sales fell 0.2 percent in September from a year earlier but rose 0.7 percent from the previous month after flat growth in August, data from the Ministry of Economy, Trade and Industry showed yesterday.

“The worst for consumption is over and we’re seeing a steady pickup as falling prices boost household income,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“A rebound in consumption will keep the economy on track for a recovery. The BOJ probably won’t ease on Friday,” he added.

Japan’s economy shrank in AprilJune and some analysts say it may have suffered another contraction in July-September as China’s slowdown hurts factory output.

Given growing signs of pick-up in

consumption, however, Norinchukin’s Minami expects the economy to have expanded slightly in the third quarter to narrowly escape recession.

The data is among a host of indicators the BOJ will scrutinise at a crucial rate review on Friday, when it faces a key test to its rosy forecast that inflation will accelerate toward its 2 percent target next year.

Clinging to the hope that a moderate recovery is intact, many BOJ officials prefer to hold off on expanding an already massive stimulus programme that has had limited success in accelerating inflation.

But pessimists in the BOJ fret that sluggish exports and output could hurt corporate sentiment, delaying capital expenditure plans and wage hikes. That could hurt consumption and delay a sustained end to deflation.

Data due this week will underscore the patchy nature of recovery. Output was expected to fall 0.5 percent in September, while household spending was seen rising 1.2 percent from a year earlier, according to a Reuters poll.

Core consumer prices likely suffered the second straight month of annual declines in September due largely to slumping energy costs, respondents forecast, which would benefit households but would hold back price growth further below the BOJ’s target.

KEY POINTS Retail sales fall 0.2 pct yr/yr vs f’cast +0.4 pct Sept retail sales up 0.7 pct from August Q3 retail sales up 1.8 pct after flat growth in Q2 Spending pick-up may help Japan avert recession

Australian inflation surprisingly soft The annual pace of CPI inflation held steady at 1.5 percent and below market forecasts of 1.7 percent Wayne Cole

A

ustralian inflation was surprisingly subdued last quarter with few signs of price pressures right across the economy, an open invitation to further cuts in interest rates that sent the local dollar sharply lower.

The Australian currency shed three quarters of a U.S. cent as key measures of underlying inflation rose by just 0.3 percent in the third quarter, the smallest increase since 2011 and below market forecasts of 0.5 percent.

The annual pace of core inflation slowed to around 2.15 percent, from 2.3 percent in the second quarter.

That was less than what

Reuters

the Reserve Bank of Australia (RBA) had been projecting and almost at the floor of its long-run target band of 2 percent to 3 percent.

Investors immediately reacted by ramping up wagers on a cut in rates at the central bank’s November 3 policy meeting.

“The fact that the core is so weak is material because that tends to be what the RBA targets,” said JPMorgan senior economist Ben Jarman.

“This has definitely got the hares running on the prospect of a near-term RBA cut.”

Interbank futures jumped to imply a 50-50 chance of an easing in the 2

percent cash rate next week, up from one-in-five before the data. December implied an 82 percent probability and a move to 1.75 percent

was fully factored in by February.

Australia is grappling with the end of a long mining boom, but the central bank

has had to tread carefully in order to avoid further fuelling a hot housing market.

Talk of an easing had already been stoked by the recent decision of Australia’s major banks to lift mortgage rates in an effort to shield profits from rising regulatory costs.

“You have to say data like this coupled with what the banks have done recently with the tightening up in conditions must increase the risk of a move before year end,” said Su-Lin Ong, a senior economist at RBC Capital Markets.

“November may still be a bit early but you can’t rule it out and the risk is a lot higher for December.”

Yesterday’s data from the Australian Bureau of Statistics also showed its headline consumer price index (CPI) rose 0.5 percent in the third quarter, a slowdown from the second quarter when it rose 0.7 percent.

The annual pace of CPI inflation held steady at 1.5 percent and below market forecasts of 1.7 percent.

Reuters

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Business Daily | 13

October 29, 2015

Asia Philippines sees bigger role for renewables in new energy plan The country currently generates 42.5 percent of its electricity from coal Florence Tan

T

he Philippine government is working on a new energy plan it hopes the next administration will adopt to curb the expanding share of coal in its fuel mix for power generation, an official said.

The plan could see the Philippines generating a third of its electricity

KEY POINTS Plans to curb coal use, boost green energy - govt official But has been tough for gas to compete with cheap coal Philippines is world’s No.2 producer of geothermal energy

each from natural gas, coal and renewables between 2016 and 2040, Loreta G. Ayson, undersecretary at the Department of Energy said late on Tuesday.

Ayson said the energy department was finalising a fuel mix policy that pushed for an increased share of cleaner fuels, hoping the successor of President Benigno Aquino, who will step down next June, will support it.

“Right now, we’re heavily dependent on coal for power generation. If we continue (at current rates of coal power expansion), we will be 70-percent dependent on coal by 2040-2050,” she told Reuters on the side-lines of the Singapore International Energy Week.

“That means we really have to do something about it in consideration of our concern for climate change.”

The Philippines currently generates 42.5 percent of its electricity from coal, with that share likely to increase

South Korean imports slide seen slowing Both government and central bank officials have been stressing domestic consumption has been coming back at a steady pace

I

mports are expected to slow their fall in October for the first time in four months as consumer sentiment improves thanks to stimulus and a government campaign, a Reuters survey found yesterday.

The median forecast from 14 analysts showed imports were expected to fall 13.4 percent in October from a year earlier, which would be the slowest decline since

January. The same poll projected exports would drop 14.5 percent, extending the slump in shipments seen throughout this year.

“We expect continued pressure on exports on the back of weak global demand, but imports may show a slight recovery due to a rebound in domestic demand as a result of stimulus and other government aids,” said Charu Chanana, economist at 4CAST.

in the short-term as projects that will boost coal-fired power capacity by more than 25 percent in just three years are already in place.

Investments in power generation from clean fuels such as gas and renewables have lagged coal as the latter is cheaper and quicker to build to meet growing electricity demand in the Philippines.

“There’s nothing we can do to stop (projects that have already been approved), so by all means they have to go, they have to proceed,” Ayson said.

“When we have the fuel mix policy, we can be more discriminating when approving service contracts after 2020.”

About a quarter of Philippines’ power comes from natural gas produced at the giant Malampaya field and 26 percent comes from renewable sources geothermal and hydro energy. The country is the second largest geothermal power producer in the world after the United States.

“By 2024, our Malampaya gas will be depleted so we just have to find another gas source or hopefully we will have another gas find in the Philippines,” Ayson said.

Still, projects to import liquefied natural gas (LNG) have been delayed.

“There are some committed projects on-going in various stages, except that somehow they haven’t be able to meet the targets they have set,” Ayson said.

“Hopefully by 2016, we can have some in operation.”

Energy World Corp Ltd has said it does not expect the Philippines’ first power plant fired by LNG to be ready for commercial operation until the first half of next year.

Reuters

“The continued weakness in commodity prices, however, would continue to lower the overall import bill.”

Reflecting the rise in consumption, the Reuters survey projected inflation in October would probably reach 0.8 percent, accelerating from 0.6 percent in September to its highest level since January this year.

Both government and central bank officials have been stressing domestic consumption has been coming back at a steady pace, rebounding from an outbreak of Middle East Respiratory Syndrome that peaked in June.

The recent recovery in consumption has been attributed mainly to a government campaign launched midAugust dubbed the “Korea Grand Sale,” urging retailers nationwide to offer in discount sales to attract customers.

September factory output data is also expected to mirror firming domestic demand, forecast to rise for a second month by a seasonally adjusted 0.4 percent on monthly terms, the poll found.

The industrial output data will be published on October 30, while trade figures are due Nov. 1. Inflation data is expected on November 3.

Reuters

KEY POINTS September industrial output seen +0.4 pct s/adj m/m October exports seen -14.5 pct y/y, imports -13.4 pct y/y October CPI seen +0.8 pct y/y vs +0.6 in Sept

OCBC’s core profit beats expectations Oversea-Chinese Banking Corp, Singapore’s second-biggest lender, beat expectations with a 7 percent increase in core third-quarter net profit, as loans growth pushed up interest income by 6 percent. OCBC’s net profit came in at S$902 million (US$646 million) in the three months ended September, versus S$841 million excluding exceptional gains a year earlier and an average forecast of S$883 million from six analysts polled by Reuters.

Overall earnings were lower than a year earlier when OCBC had a net profit of S$1.23 billion.

S.K. dept, discount store sales rebound Sales at South Korea’s top department and discount stores for September rebounded as South Koreans splurged for an autumn holiday, official data from the trade ministry showed yesterday. Combined sales last month at department stores run by Hyundai Department Store, Lotte Shopping and Shinsegae Co rose 2.8 percent from a year earlier, the Ministry of Trade, Industry and Energy said in a statement. This was the strongest rise seen since May this year and partially recouped the 6.5 percent decline in August.

NZ central bank warns Kiwibank New Zealand’s central bank issued a formal warning to state-owned Kiwibank Ltd yesterday for failing to meet anti-money laundering requirements, in the wake of criticism that the country’s regulatory regime is too lax. Legal experts have raised concerns about the flow of possibly illegal money into New Zealand, with a relaxed company regime putting the country at risk as a safe haven for money laundering. In 2012, the European Union removed New Zealand, along with Russia, from its banking and corporate white list for not having strong enough controls against money-laundering.

NAB reveals UK exit plans National Australia Bank yesterday said it plans to sell its British operations by early 2016, two months later than expected, revealing for the first time how it intends to exit a business that has frustrated shareholders for years.

CEO Andrew Thorburn, who made the exit a priority when he took office last August, said some of the under-performing operations would be spun off and others sold through an initial public offering, in what he called a “complex transaction”.

Nomura’s quarterly net falls after lawsuit settled Japan’s top investment bank Nomura Holdings Inc said yesterday its quarterly net profit fell after it booked costs to settle a lawsuit with Italian bank Monte dei Paschi. Nomura said its July-September net profit was 46.6 billion yen (US$387.14 million), compared with 52.9 billion yen in the previous year. The profit compared with a mean estimate of 11.3 billion yen from three analysts, according to Thomson Reuters data

14 | Business Daily

October 29, 2015

International Sweden’s Riksbank expands QE The Riksbank expanded its bond-purchase plan for a fourth time since February as policy makers in Sweden struggle to keep pace with stimulus measures in the euro zone. The quantitative easing program was raised by 65 billion kronor (US$7.6 billion). The bank opted to keep the benchmark repo rate at minus 0.35 percent, as estimated by 13 of the 15 analysts surveyed by Bloomberg. Two had foreseen a cut. The Riksbank’s expanded QE program means it will have purchased 200 billion kronor in bonds by the end of June 2016.

Top 100 CEO retirement savings equals 41% of U.S. families

The retirement savings accumulated by just 100 chief executives are equal to the entire retirement accounts of 41 percent of U.S. families -- or more than 116 million people, a new study finds. The Centre for Effective Government and Institute for Policy Studies has found that the 100 largest chief executive retirement funds are worth an average of about US$49.3 million per executive, or a combined US$4.9 billion.

David C. Novak, the recently departed chief executive officer of Yum! Brands Inc., is at the top of the list, with total retirement savings of US$234.2 million.

VW slumps to first quarterly loss in at least 15 years Volkswagen posted its first quarterly loss in at least 15 years, slammed by costs related to its rigging of diesel emissions tests, and lowered its profit outlook. The German group yesterday reported a third-quarter operating loss of 3.48 billion euros (US$3.84 billion), in line with a 3.47 billion-euro loss forecast in a Reuters poll of analysts.

VW set aside 6.7 billion euros in the July-September period to cover costs related to the manipulations affecting 11 million cars globally, up slightly from the 6.5 billion announced a week after the cheating became public on September 18.

British regulator provisionally clears BT-EE deal Britain yesterday provisionally cleared BT’s deal to buy mobile operator EE in a 12.5 billion pound (US$19 billion) tie up that will create the country’s leading player in broadband, fixed line and mobile. The Competition and Markets Authority said it had decided that the merger, which will bring together BT’s more than 10 million retail customers and EE’s 24.5 million direct mobile subscribers, “was not expected to result in a substantial lessening of competition in any market in the UK”. The decision will infuriate both companies’ rivals, many of which rely on BT’s infrastructure to provide their own services.

Rights activists disappointed on Qatar labour reforms It was not clear exactly when the changes would take effect, but it was unlikely before 2017 at the earliest

R

ights activists said yesterday they were disappointed by long-awaited reforms of Qatar’s much-criticised “kafala” labour system for foreign workers, which critics have likened to modernday slavery.

Qatar’s Emir Sheikh Tamim bin Hamad al-Thani on Tuesday approved a new law overseeing the sponsorship system -- which currently only allows workers to leave the country with the approval of their employer -- as well as rules which allow workers to switch jobs.

But activists said the changes were unlikely to make a real difference for the thousands of foreign workers in the oil-rich Gulf state, many of whom are preparing facilities for Qatar’s hosting of football’s 2022 World Cup.

“These changes are unlikely to lead to a meaningful improvement,” Nicholas McGeehan, Gulf researcher at Human Rights Watch, told AFP. “One of the most disappointing aspects of the law is the fact that workers will still apparently need employer permission to leave the country,” he said.

The new rules will allow foreign workers wishing to leave Qatar to apply for permission at least 72 hours beforehand to the interior ministry.

If this permission is initially denied, employees seeking to leave the country can complain to a grievance committee, which will be established under the new law.

The changes also allow foreign workers to switch jobs at the end of a fixed-term contract.

Under the current system, workers who leave a job at the end of a contract have to wait two years to return to Qatar to take up a new position, if the employer objects to the new job.

Exiting the country and changing work contracts had proved the trickiest areas to change and were the subject of fierce debate within Qatar, with the country’s main advisory body, the Shura Council, questioning reforms earlier this summer.

AFP

The system applies to some 1.8 million foreign workers, who make up about 90 per cent of the population in the tiny Gulf state

Zuma says South Africa in ’serious struggle’ Falling metal prices have forced mining companies such as Anglo American Platinum to consider firing workersw

I

n his frankest admission yet about the state of the economy, President Jacob Zuma said South Africa faces a “serious struggle” to meet growth and jobs targets amid a global slowdown.

“You can’t say, when the economy is not growing, that your original plans will be implemented as they were,” Zuma, said in an interview Tuesday in Pretoria, the capital. “There will be an impact, which will mean that in terms of how we meet them, it is going to be a serious struggle.”

South Africa’s economy is battling to create enough jobs for the almost one in four that are unemployed, putting the government’s budget under strain. Finance Minister Nhlanhla Nene last week cut his growth forecast for this year to 1.5 percent from 2 percent, while the statistics agency said on Tuesday that the unemployment rate rose to 25.5 percent in the third quarter. The government’s goal is to boost growth

to more than 5 percent by 2020 and reduce the jobless rate to 14 percent.

Running battles

Falling metal prices, triggered by a slowdown in China, has forced mining companies such as Anglo American Platinum Ltd. to consider firing workers. Investment in South Africa has also stagnated as business confidence remains near a four-year low, dragged down by an energy crunch that resulted in frequent powers cuts, particularly in the first half of the year.

Zuma spoke at his residence near the Union Buildings where four days before thousands of demonstrators called for a freeze on university tuition, capping more than a week of protests by the students that were the biggest since the end of apartheid. The unrest provoked running battles between the police using stun grenades and protesters outside Parliament in Cape Town and in Pretoria. On Friday, Zuma bowed to their demand.

“It was clear that if we did not have a solution the demonstrations would have gone further,” Zuma said. “They were very courageous.”

Facing stones

The protests weren’t a sign of deepening discontent with the ruling African National Congress (ANC), Zuma said, and were instead part of demands by young South Africans to ensure that black people gain equal access to an economy still dominated by whites.

The #FeesMustFall Twitter campaign was fuelled by rising student costs, including fees, housing, food and textbooks that can exceed 100,000 rand (US$7,300) a year.

First-year tuition alone at the University of the Witwatersrand in Johannesburg, where the protests started, ranges from about 32,000 rand to more than 58,000 rand.

At the October 23 protest at the Union Buildings, Zuma said he observed students throwing stones at police and “interfering” with a podium set up for him, before deciding against coming out to address the protesters directly.

The student protests have rattled investors, with the rand slipping 4.3 percent against the dollar since the start of last week, the most of 16 major currencies monitored by Bloomberg.

Two years before the next ANC leadership contest, Zuma said he’ll be guided by the ruling party on whether to stay on as ANC leader for a third term.

Bloomberg News

Business Daily | 15

October 29, 2015

Opinion Business

wires

The wrong war for central banking

Leading reports from Asia’s best business newspapers

Stephen S. Roach

Faculty member at Yale University and former Chairman of Morgan Stanley Asia

THE STAR Weak commodity prices will continue to put pressure on Malaysia’s fiscal and broader economic outlook next year, said Fitch Ratings.

According to the international rating agency, some of the detailed assumptions for the country’s Budget 2016 looked optimistic, hence, could potentially pose some downside risk to the Government’s projections. It added that Malaysia’s fiscal and broader economic outlook would remain under pressure from weaker commodity prices into 2016. Fitch noted that there could be a risk of Malaysia missing its 2016 fiscal deficit target of 3.1% of gross domestic product.

JAKARTA GLOBE Indonesia will announce next week a new set of economic stimulus measures that will include tax incentives to attract much-needed investment in Southeast Asia’s largest economy, the vice president said. “Next week we will announce some policies to make investment, domestic or foreign, more efficient,” Jusuf Kalla told Reuters in an interview in his Jakarta office.

President Joko Widodo’s administration has regularly rolled out a series of stimulus measures since September, including lowering energy prices, cutting red tape and reforming the minimum wage formula.

THANH NIEN NEWS The annual Vietnam International Retail and Franchise Exhibition (VIETRF) will be held in Ho Chi Minh City from November 5 to 7 with 320 booths of 250 companies from Vietnam and 13 other countries, organizers said. “Vietnam’s retail market is growing rapidly and global retailers are rushing to Vietnam from over the world since 2009 when Vietnam’s market was open to foreign enterprises,” Ji Hang Shin, representative of South Korean trade show organizer Coex, one of the organizers of the exhibition, said at a press briefing.

THE ASAHI SHIMBUN Toshiba Corp. plans to sue former executives involved in padding the electronics giant’s profits in a scandal that has damaged the company’s reputation and led to an expensive in-house investigation, sources said. The potential legal action stems from a proposal submitted by a Toshiba shareholder in Nara Prefecture on September 8. The shareholder argued that the former executives should pay a total of 1 billion yen (US$8.26 million) to the company to cover the expenses required to uncover the truth and to help restore confidence in Toshiba.

Central banks’ governors and finance ministers at latest IMF meeting

F

ixated on inflation targeting in a world without inflation, central banks have lost their way. With benchmark interest rates stuck at the dreaded zero bound, monetary policy has been transformed from an agent of price stability into an engine of financial instability. A new approach is desperately needed.

The US Federal Reserve exemplifies this policy dilemma.

After the Federal Open Market Committee decided in September to defer yet again the start of its long-awaited normalization of monetary policy, its inflation doves are openly campaigning for another delay.

For the inflation-targeting purists, the argument seems impeccable. The headline consumer-price index (CPI) is near zero, and “core” or underlying inflation – the Fed’s favourite indicator – remains significantly below the seemingly sacrosanct 2% target. With a long-anaemic recovery looking shaky again, the doves contend that there is no reason to rush ahead with interest-rate hikes.

Of course, there is more to it than that. Because monetary policy operates with lags, central banks must avoid fixating on the here and now, and instead use imperfect forecasts to anticipate the future effects of their decisions. In the Fed’s case, the presumption that the US will soon approach full employment has caused the so-called dual mandate to collapse into one target: getting inflation back to 2%.

Here, the Fed is making a fatal mistake, as it relies heavily on a timeworn inflation-forecasting methodology that filters out the “special factors” driving the often volatile prices of goods like food and energy. The logic is that the price fluctuations

Just as a few of us warned of impending crisis in the 2003-2006 period, some – including the Bank of International Settlements and the IMF – are sounding the alarm today, but to no avail

will eventually subside, and headline price indicators will converge on the core rate of inflation.

This approach failed spectacularly when it was adopted in the 1970s, causing the Fed to underestimate virulent inflation. And it is failing today, leading the Fed consistently to overestimate underlying inflation. Indeed, with oil prices having plunged by 50% over the past year, the Fed stubbornly maintains that faster price growth – and the precious inflation rate of 2% – is just around the corner.

Missing from this logic is an appreciation of the new and powerful global forces that are bearing down on inflation.

According to the International Monetary Fund’s latest outlook, the price deflator for all advanced economies should increase by just 1.5% annually, on average, from now to 2020

– not much higher than the crisis-depressed 1.1% pace of the last six years. Moreover, most wholesale prices around the world remain in outright deflation.

But, rather than recognize the likely drivers of these developments – namely, a seemingly chronic shortfall of global aggregate demand amid a supply glut and a deflationary profusion of technological innovations and new supply chains – the Fed continues to minimize the deflationary impact of global forces. It would rather attribute low inflation to successful inflation targeting, and the Great Moderation that it presumably spawned.

This prideful interpretation amounted to the siren song of an extremely accommodative monetary policy. Unable to disentangle the global and domestic pressures suppressing inflation, a price-targeting Fed has erred consistently on the side of easy money.

This is apparent in the fact that, over the last 15 years, the real federal funds rate – the Fed’s benchmark policy rate, adjusted for inflation – has been in negative territory more than 60% of the time, averaging -0.6% since May 2001. From 1990 to 2000, by contrast, the real federal funds rate averaged 2.2%. In short, over the last decade and a half, the Fed has gone well beyond a powerful disinflation in setting its policy interest rate.

The consequences have been problematic, to say the least.

Over the same 15-year period, financial markets have become unhinged, with a profusion of asset and credit bubbles leading to a series of crises that almost pushed the world economy into the abyss in 2008-2009. But rather than recognize, let alone respond to, pre-crisis excesses, the Fed has remained agnostic

about them, pointing out that bubble-spotting is, at best, an imperfect science.

That is hardly a convincing reason for central banks to remain fixated on inflation targeting. Not only have they failed repeatedly to get the inflation forecast right; they now risk fuelling renewed financial instability and sparking another crisis. Just as a few of us warned of impending crisis in the 2003-2006 period, some – including the Bank of International Settlements and the IMF – are sounding the alarm today, but to no avail.

To be sure, inflation targeting was once essential to limit runaway price growth. In today’s inflationless world, however, it is counterproductive. Yet the inflation targeters who dominate today’s major central banks insist on fighting yesterday’s war.

In this sense, modern central bankers resemble the British army in the Battle of Singapore in 1942. Convinced that the Japanese would attack from the sea, the British defences were encased in impenetrable concrete bunkers, with fixed artillery that could fire only to the south. So when the Japanese emerged from the jungle and mangrove swamps of the Malay Peninsula in the north, the British were powerless to stop them. Singapore quickly fell, in what is widely considered Prime Minister Winston Churchill’s most ignominious military defeat.

Central bankers, like the British army in Singapore, are aiming their weapons in the wrong direction. It is time for them to turn their policy arsenal toward today’s enemy: financial instability. On that basis alone, the case for monetary-policy normalization has never been more compelling.

Project Syndicate

16 | Business Daily

October 29, 2015

Closing Thai rubber farmers demand assistance measures

Taiwan economy seen flirting with recession in Q3

Thai rubber farmers took aim at the government yesterday, demanding it approve measures to help increasingly desperate growers in the world’s top exporting nation for the commodity. Their demands come after the cabinet on Tuesday approved measures worth about US$1 billion to help rice farmers, including grants and an interest rate reduction for farmers from a state bank. Those measures came after much resistance from the military government that took power after a 2014 coup. The generals now running Thailand had then vowed to end the country’s populist subsidies as part of their justification for seizing power.

Taiwan’s economy is expected to have contracted for the first time in six years in the third quarter, as the island’s major export manufacturers stumble amid a slowdown in China and slackening global demand. Taiwan’s July-September gross domestic product is forecast to have shrunk 0.6 percent from the same period a year earlier, a Reuters poll of 15 analysts showed, which would be the first year-on-year contraction since the depths of the global financial crisis in 2009. The economy grew 0.52 percent on-year in the second quarter. The risk of a recession also appears a touch-and-go affair.

Fed rate call could burst Hong Kong housing bubble US central bank’s head Janet Yellen has repeatedly said she expects the first increase in nine years to come before the end of 2015

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uoyed by record-low borrowing costs, a Hong Kong housing boom has seen prices more than double in six years, making it one of the world’s most expensive property markets, but experts warn a US interest rate hike could send valuations plunging.

The expected hike by the Federal Reserve has also renewed debate on whether Hong Kong should maintain a decades old peg with the US dollar, as its ties with China grow ever closer.

At the height of the global financial crisis in 2008 the Fed slashed interest rates to near zero and introduced an unprecedented bond-buying scheme that effectively kept long-term borrowing costs down.

With Hong Kong bound

by US monetary policy this fuelled a borrowing spree in the city that helped feed a surge in property prices -making it one of the least affordable places in the world to own your own home.

A 40-square metre flat would be expected to set a buyer back more than US$750,000, according to data from the Hong Kong Property Review.

However, with the US economy crawling back into rude health, the Fed is considering an end to the days of cheap loans as it looks to prevent bubbles forming that could knock a recovery off course.

And analysts warn homeowners could see their investments hammered.

And while speculation is mounting that FED’s lift-off could be pushed back to next year owing to concerns about China’s growth slowdown, a rise at some point is virtually certain.

Hong Kong-based brokerage CLSA warned the residential market was at a “turning point”, with prices possibly dropping 17 percent by 2017, while other firms have tipped falls of up to 30 percent.

Economists say

Bank robber turned millionaire arrested in China

government restrictions on borrowing mean there is unlikely to be the widespread bankruptcies and defaults seen after the SARS crisis in 2003. Still, mortgage holders are worried.

Dicey issue

A potentially more dicey issue for the government is whether

to maintain the peg that keeps Hong Kong at the mercy of Fed policymakers.

The city’s dollar was linked to the greenback in 1983 in a bid to prevent a sell-off as it wobbled over fears about China’s reunification talks with Britain.

And it has fared well.

While some Asian economies

Steel industry expected to deepen output cuts

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were forced to abolish their dollar pegs during the Asian financial crisis of the late 1990s, Hong Kong stood strong.

But, with China now a global economic powerhouse, some analysts say a tie-up with China’s yuan could suit the city better.

AFP

Cnooc revenue tumbles as oil rout overpowers output boost

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Chinese bank robber turned multimillionaire property developer has been arrested 16 years after he committed the crime, state media reported yesterday.

The man, identified only by his surname Shi, led a five-strong gang which stole 2.08 million yuan (now US$330,000) in December 1999 from a bank branch in the central province of Henan, the official Xinhua news agency reported.

Shi took his share of the money from the robbery and turned it into a business empire exceeding “hundreds of millions” of yuan and spanning “property development, commerce and amusement farms”, the Zhengzhou Evening News reported.

The thieves fired eight shots during the heist, seriously injuring a guard and a bank teller, and the crime became a national sensation.

It was not clear how the police had cracked the case, with the Zhengzhou Evening News saying only that the investigative team spent more than 10 months investigating, using “scientific data and human intelligence”.

Three of the men were apprehended by more than 80 armed police last week, according to the newspaper, while Shi and another man were captured three days later at a friend’s house.

hinese steel mills are likely to be forced into making deeper cuts in output over the next few months, as shrinking demand, soaring losses and tighter credit undermine firms in the world’s biggest producer, industry officials and analysts said.

The industry has defied pressure to make big cuts so far, though the bottom line of steel firms is suffering and efforts to boost exports have riled rival producers in countries ranging from India to the United States.

Major steel producers suffered total losses of 28.12 billion yuan (US$4.42 billion) in the first three quarters of 2015, the China Iron and Steel Association (CISA) said.

“Since 2010, government departments have issued 20 policy documents to eliminate inefficient capacity, and some has been shut, but overall capacity still hasn’t fallen,” CISA vice-chairman Zhu Jimin told a briefing.

But with steel prices at their lowest in decades state-owned mills are starting to close plants.

Iron ore prices have slumped nearly 30 percent since the beginning of this year to US$50.80 on a rising tide of production and slowing demand.

nooc Ltd., China’s biggest offshore oil and gas producer, posted a 32 percent decline in third-quarter sales as slumping oil prices overwhelmed a boost in production and a cut in spending.

Revenue from oil and natural gas output was 36.3 billion yuan (US$5.7 billion) in the three months ended September 30 while output rose 24 percent, the Beijing-based explorer said in a statement to the Hong Kong stock exchange yesterday. Cnooc doesn’t disclose profits quarterly.

“Cnooc’s has delivered an output beyond most people’s expectations,” Neil Beveridge, an analyst at Sanford C. Bernstein & Co., said by phone from Hong Kong. “Cnooc has performed very well and better than expected” given the drop in oil prices and pressure to control costs, he said.

Brent, the benchmark for more than half of the world’s crude, averaged about US$51 a barrel in the third quarter, compared with more than US$103 a year ago.

Shares of Cnooc, which earns almost all its income from oil and gas production, have dropped 31 percent in the past year as the explorer’s efforts to raise output and cut costs were stymied by crude’s plunge.

AFP

Reuters

Bloomberg News