Macau Business Daily, Aug 3 by Business Daily

Disgraced Ao retains Waterleau stake

ailed public servant Ao Man Long still technically owns 20 percent of Taipa wastewater plant operator Waterleau Macau Lda. At Mr Ao’s third and final corruption trial in April and May, judges ordered HK$31.9 million (US$4.1 million) obtained in bribes be seized. But recovery of the shares is up to the Financial Services Bureau. Page 3

‘Cash for clunkers’ call for cleaner, safer roads M

otor retailers have challenged an academic’s call for higher taxes on new car sales to depress registrations and so contain overcrowding of the city’s roads. “The roadway in Macau is too small and too limited, restriction of vehicles is necessary,” University of Macau professor Jacky So Yuk Chow told Business Daily. But local car sales firms say what’s needed is government programmes to reduce the number of older, more polluting vehicles. Only new registrations need to meet European emission standards adopted by Macau. The government does however have a tax reduction of up to 60,000 patacas on eco-friendly light vehicles. But roadworthiness inspections are only necessary here after a vehicle is ten years old. In Hong Kong checks are required after six years. Retailers add that in Macau it’s easy for owners of older

models to bribe mechanics to issue the necessary roadworthiness paperwork. They would like a ‘scrappage’ scheme – of the kind seen recently in the United States and the United Kingdom – whereby consumers are offered cash incentives to scrap their old cars and buy new, less polluting ones. The fact remains the roads are getting busier as Macau gets richer on the back of the still expanding casino industry. The latest government data show licensed motor vehicle numbers rose five percent year-on-year, reaching 210,580 at the end of June. The number of private cars grew 6.8 percent year-onyear to 83,641 by June 30. The number of motorcycles increased four percent to 112,644 compared to the same time a year ago. More on pages 2 & 3

I SSN 2226-8294

HANG SENG INDEX 19790 19770

UM campus costs a ‘black box’

19750 19730

an democrats have urged the University of Macau to reveal its budget plan for the equipment and facilities in the new Hengqin campus. The institution said it would do so by mid-year. New Macau Association described the university’s approach to financing issues at Hengqin as “black-box operations”. Campus construction costs have already risen 51 percent from first estimates, to 9.8 billion patacas (US$1.23 billion).

19710 19690 19670 19650

August 2

Page 4

HSI - Movers Name

Play fare says Reolian bus boss

SINO LAND CO

1.65

NEW WORLD DEV

1.00

POWER ASSETS HOL

0.90

BANK EAST ASIA

0.74

CHINA UNICOM HON

0.70

PETROCHINA CO-H

-2.54

BELLE INTERNATIO

-2.90

CHINA OVERSEAS

-3.38

SANDS CHINA LTD

-3.41

CHINA RES LAND

-4.63

ome Macau people are biased against public bus firm Reolian, claims general manager Cédric Rigaud. It follows an up and down week for the operator. A person claiming to be a company employee fly-posted messages at bus stops saying it was policy to ask drivers to speed. In brighter news, the firm’s service improvement plan has been approved at third time of asking. Page 6

Macau’s airport in tough neighbourhood

new round of airport expansions are planned in the Pearl River Delta region. Some of them are driven by fresh consumer demand for air travel in China, and others possibly by need for local economic stimulus. Stuck in the middle is Macau International Airport. It has limited room for expansion, at a time when the economics of air travel are calling for ever larger aircraft.

%Day

Source: Bloomberg

2012-8-3

2012-8-4

2012-8-5

26˚ 35˚

26˚ 33˚

26˚ 32˚

News where it matters

Page 7 www.macaubusinessdaily.com

Year I - Number 90 Friday August 3, 2012 Editor-in-chief: Tiago Azevedo Deputy editor-in-chief: José I. Duarte MOP 6.00

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business daily August 3, 2012

macau

Clamour to crush clunkers mounts The city is urged to step up its efforts to replace old motor vehicles with cleaner-running cars Xi Chen

xi@macaubusinessdaily.com

The government should impose tighter restrictions on motor vehicles, an academic says.

he city had 210,580 licensed motor vehicles at the end of June, 5 percent more than a year before, official data show. The number of licensed private cars was 83,641, 6.8 percent more than a year before, and the number of motorcycles was 112,644, 4 percent more. The number of new registrations of vehicles in the first half of this year was 8,298, 1 percent fewer than a year before. In June, 809 private cars were newly registered, 50 percent more than a year before and the highest number in any month for a year. With more motor vehicles on the road, some have argued for further restrictions to reduce traffic and air pollution.

“The roadway in Macau is too small and too limited. Restriction of vehicles is necessary,” the dean and professor of finance at the University of Macau, Jacky So Yuk Chow, told Business Daily. Mr So believes the city can use Singapore and Hong Kong as references in regulating vehicles. “In Singapore, the permit to buy a new car is more than the price of the car, and cars older than seven years are not allowed. Hong Kong’s driver licence and registration fees are also much higher than Macau’s,” he said. However, he says that public transport here should be given time to catch up with public transport in Hong Kong and Singapore. “Perhaps, we shall wait until the light

business as usual

Helping hands

rail system in Macau is completed,” Mr So said. He said that to reduce air pollution the government should encourage the replacement of old motor ve-

210,580 Licensed motor vehicles at the end of June

hicles with vehicles that are friendly to the environment. Car dealers echo Mr So. They say that before raising import duty the government should come up with a way to get rid of old vehicles.

Third-world standard “The vehicle inspection standard is very behind in Macau. A car owner can pay a small amount to a company to pass the examination,” said Jay Chu, the sales and marketing manager of V.W.M. Motors Ltd, which sells Volkswagens. Annual examination of motor vehicles is mandatory here only when they are 10 years old. In Hong Kong private cars must

Waterleau shares still Government admits nothing done about confiscating stake in Waterleau Macau Vítor Quintã vitorquinta@macaubusinessdaily.com

Paulo A. Azevedo pazevedo@macaubusinessdaily.com

am in terribly hot Dubai during the holy month of Ramadan as I write this column. When I checked into the hotel – which is owned by a Spanish chain – I had a quick chat with the two lovely ladies at the reception. One was German, the other from Myanmar. Over the next couple of days I met different employees throughout the property. The general manager is a French national and the house-keeping staff were from Bangladesh and Kenya. Room service was provided by mainland Chinese and Serbians. The chef that made breakfast was from Nepal. The receptionist from Ukraine. Of course, the Emirates’ story is different from that of Macau’s but both share at least one thing in common: they need international workers to face the shortage of manpower. The difference is that on the hot golden sands of Dubai, residents are not ashamed to welcome people from overseas. Macau pretends that we do not need them; that we are self-sufficient. In Macau, foreigners and mainland Chinese are treated with an incomprehensively stupid arrogance that borders on ignorant discrimination. How sad.

ust who holds a 20 percent stake in Taipa wastewater plant operator Waterleau Macau Lda is unclear, three months after the courts ordered the shares to be forfeited. The original owner, the former secretary of transport and public works, Ao Man Long, was sentenced on May 31 to 29 years in prison for corruption and money laundering. In sentencing Mr Ao, the Court of Final Appeal also ordered him to forfeit 31.9 million patacas (US$3.99 million) and his stake of 20 percent in Waterleau Macau. More than three months later, a spokesman for the Financial

Services Bureau told Business Daily that the bureau had not yet received the court’s judgement. “I presume they are using this justification because it has become the administration’s easy way out,” administrative law expert Vítor Gomes told Business Daily. Although the bureau denies having seen the judgement, a copy has gone to the office of Mr Ao’s successor as secretary of transport and public works, Lau Si Io. Mr Lau’s staff announced on June 12, less than two weeks after the court rendered its judgement, that it had begun the procedure for taking back land entangled in Mr Ao’s web of corruption.

August 3, 2012 business daily | 3

MACAU KEY POINTS The number of private cars was 6.8 percent higher at the end of June than a year before The vehicle inspection rules here lag behind international standards The government should consider incentives for trading-in old cars for green cars

undergo annual inspections once they are six years old. The result is that for every 70 new vehicles Macau gets, it gets rid of only three old ones, Mr Chu estimates. “Some of the old vehicles have thirdworld environmental standards and low safety measures,” he said. Mr Chu said the government should consider incentives for owners to tradein old cars so they could be scrapped. He said this would reduce air pollution, improve road safety, and compensate dealers should there be a change in tax policy. “New cars sold are more environmentfriendly and they have more safety measures in place to protect both the passengers and even pedestrians,” Mr Chu said. Ken Wong and Eric Lau, sales representatives for Arima Motors Co Ltd, which sells Fiat, Alfa Romeos and Abarths, believe restrictions on vehicles could be good for the city, even if they reduced their business. Mr Lau said he expected a change in tax policy sometime in the future, even though his industry was hoping for no change. Limiting sales with punitive taxes on second vehicles might be better than increasing licence fees or raising import duties.

Better deals sell cars Private vehicle sales have grown steadily but there have been shifts in buying patterns away from Japanese-made cars

otorists are taking advantage of tax breaks to buy green cars and taking advantage of a weaker euro to buy European cars, car dealers say. Dealers told Business Daily that the government’s tax reduction of 50 percent on the first 60,000 patacas (US$7,511) spent on environment-friendly vehicles was pulling in buyers. Buyers of vehicles that meet the Euro IV emission standard are entitled to the tax reduction. V.W.M. Motors Ltd marketing manager Jay Chu said the tax break, introduced in April, had prompted buying of the few models that meet the standard. His company sells Volkswagens. Harper Engineering Ltd, which distributes French and Japanese cars, said they had experienced the same trend. European cars are becoming more popular here, now that the weaker euro makes them less expensive. Eric Lau, a sales representative for Arima Motors Co Ltd, which sells Alfa Romeos, said: “European cars were considered more expensive and hard to repair locally, which limited their sales in the past.” Now a stronger yen and a weaker euro are reducing the price advantage Japanese cars have over European cars, and sales of European cars are improving. Mr Lau said middle-class people and younger people who were more knowledgeable were driving up the sales of European cars. He said sales of Alfa Romeos, which hit the market here in April, had been good, although they sold even better in Hong Kong. “Italian brands offer a different

Drivers are buying more European cars as the euro slumps, making luxury drives relatively more affordable

style, which suit some people’s taste better,” he said. The number of German cars sold here in June was 70 percent higher than a year before, Statistics and Census Service data show. “We used to have a 10 percent price premium to Japanese cars. However, there is no longer a price difference

because of the currency change, and people would prefer a German car as it is more fun to drive because of the stronger engine,” Mr Chu said. Sales of British cars in the first half of this year were the equivalent of more than 70 percent of sales in all of last year. X.C.

in Ao Man Long’s name They said this followed “an indepth analysis” of the judgement. The spokesman for the Financial Services Bureau said: “Once [the judgement is] received, the bureau will act in accordance with the court’s ruling as well as relevant legal requirements regarding the forfeiting of the company’s shares.”

Complications Mr Gomes said the government, or more probably the Public Prosecutions Office, would have to go back to court to get the Court of Final Appeal’s order enforced. “The judge will then decide to change the name on the share certificates from the defendant to the MSAR. That decision will clinch the transfer of the shares,” he said. The Court of Final Appeal said the shares were a bribe given to Mr Ao to ensure that Waterleau Macau’s Belgian parent company,

Waterleau Global Water Technology NV, won contracts for wastewater treatment plants in the cross-border industrial park and on Coloane. The company, now called Waterleau Group NV, denies these accusations. But its chief executive, Luc Vriens, goes on trial next month in a case linked to the Ao scandal. Mr Vriens has been charged with corruption and money laundering. He denies the charges. If and when the government gets its hands on Mr Ao’s stake in Waterleau Macau, it will be a shareholder in a subsidiary of Waterleau Group, which is suing the government over the botched tender for the wastewater treatment plant on the peninsula. “As soon as the government gets hold of those shares, what to do with them is no longer a legal problem. It becomes a political problem,” Mr Gomes said.

Lau Si Io’s cabinet received the verdict but the Financial Services Bureau says it is still waiting

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business daily August 3, 2012

macau Brought to you by

HOSPITALITY New wave For many years passenger ferries were the main, if not the only way to get to Macau. The opening of land borders and the increasing flow of visitors from the mainland has changed that. But ferries are still the preferred means of travel for tourists from Hong Kong, the city’s second biggest source of visitors. Ferries are also the main way of transferring passengers from Hong Kong International Airport, and its wide network of international flights, to Macau. The data for the first half of this year shows developing trends. The passenger ferry arrival figures in the chart below have been converted into monthly averages to make an easier comparison.

Pan-democrats roast UM campus secrecy The New Macau Association asks for more openness in administering the University of Macau’s finances Tony Lai

tony.lai@macaubusinessdaily.com

The University of Macau should release the budget for its new campus, the pan-democrats say.

Most ferry arrivals are from Hong Kong island. There was a decrease in the number of arrivals from the island last year but it was so small that we can consider 2010 and last year to be stable. The same can be said of sailings from Kowloon. The start of ferry services from Tuen Mun in April last year may explain the decrease in arrivals from there last year – a decrease of 1.5 percent. The figures so far this year suggest a bigger annual decrease, of perhaps 5 percent to 7 percent. But in the first half the number of sailings from Tuen Mun almost doubled, after a second ferry operator began services from there at the end of last year. The present predicament of one of the ferry operators sailing from Tuen Mun makes it uncertain whether the trend towards greater use of Tuen Mun at the expense of other terminals will continue. The greatest decrease has been in the number of passengers transferred by ferry from Hong Kong’s airport. The average number of ferry arrivals per month from the airport fell by more than 45 percent to just 290 in the first half from 536 in 2010. Last year, the number fell by almost one-fifth. Changes in the pattern of ferry arrivals from the mainland, not shown here, have mostly been negligible. J.I.D.

he pan-democrats have asked the University of Macau to open the budget for fitting out its new campus on Hengqin island to public scrutiny. The New Macau Association handed a petition to the university yesterday which calls the university’s Hengqin campus finances “black-box operations”. New Macau president Jason Chao Teng Hei told reporters that the university was due to release the budget for fitting out the new campus with equipment and furniture in the middle of this year, as promised by rector Zhao Wei last year. Mr Chao said the university had yet to release the budget, even though it was already calling for bids to fit out the campus. “Besides the budget for construction, the facilities and the equipment are a big part of the overall budget,” he said. “That’s why we urge the University of Macau to unveil its budget plan for the facilities.” Construction of the campus, including the tunnel linking it to Macau, will now cost the government 9.8 billion patacas (US$1.23 billion) instead of the 6.5 billion patacas originally estimated. Mr Chao said there was generally “a lack of transparency in the execution by the University of Macau of many important decisions”. He said examples included the move to Hengqin and the naming of the buildings there. New Macau was more worried about how the public would be able to supervise the university in the future, after it amended its charter. The university is discussing amendments to its charter which

are meant to give it more autonomy, including financial autonomy.

On schedule The university is currently treated as a public entity and is constrained by certain laws that apply to all public bodies. “Zhao Wei wants to turn the University of Macau into a world-class university but its transparency now is even worse than the universities in the mainland,” said Mr Chao. “It’s hard to imagine what will happen if it is independent.” He said public supervision of the university would become more difficult if it maintained its present attitude. The need for openness was voiced by academics at a seminar in February about the autonomy, control and accountability of institutions of higher education. “I believe the key is transparency. University budgets and measures need to be transparent and communication with society and the media has to be improved,” said William Mobley, a visiting professor of management at the University of Macau. Mr Chao is also worried that the cavein at the tunnel construction site last month might delay construction of the campus or make it more expensive. Mr Zhao told reporters this week that the plan was still to move to the new campus next year. Construction is due to be completed this year. But Mr Zhao said a plan to increase the intake of students next year would depend on the contractor’s report on the cave-in at the tunnel construction site. The pan-democrats urged the government to release the report to the public as soon as the contractor delivered it. Work on the tunnel has been suspended since the cave-in.

Daily News sublets high as office rents Two service charges of 75,000 patacas (US$9,375) paid to Chinese-language newspaper Macau Daily News by the Macau Civility Development and Research Centre are as big as office rents in the city centre. New Macau Association president Jason Chao Teng Hei made the claim yesterday. He told reporters that the office space rented to the think tank was priced at about 12 patacas a square foot based on the assumption that the office was between 6,000 and 10,000 square feet. Mr Chao said real estate agents told him the charge was similar to office rents in the city’s main street San Ma Lo. “Can you still consider it as service fee?” Mr Chao said. New Macau has accused the newspaper of breaching its lease agreement with the government, which forbids it from renting out any part of the building. Mr Chao said the pan-democrat members of the Legislative Assembly would file a complaint with the Financial Services Bureau and with Secretary for Transport and Public Works Lau Si Io. On Wednesday, legislator Lee Chong Cheng, who heads the centre, confirmed the think tank paid 75,000 patacas in November and December as “service charges” for security, water, electricity and cleaning. T.L.

August 3, 2012 business daily | 5

MACAU

Minor matter makes crossing complicated Restrictions should be imposed on youths using the Gongbei border crossing once it is open around the clock, a legislator says Xi Chen

he government should consider restricting the freedom of minors to cross the border once the Gongbei crossing is open 24 hours a day, according to a pan-democrat member of the Legislative Assembly, Paul Chan Wai Chi. In an inquiry he sent to the government two weeks ago, Mr Chan said restrictions were placed on the freedom of youths to move in and out of the city under Portuguese rule. The New Macau Association legislator asked if the government would impose similar restrictions to keep youths away from places where they could gamble. Secretary for Security Cheong Kuoc Va said in 2010 that Macau and Beijing were negotiating keeping the border open around the clock. Mr Chan said the government

should start making plans for the public transport arrangements, such as more bus stops, that should be in place in the north of the city. The head of the urban planning department of the Land, Public Works and Transport Bureau, Lao Iong, said in December that the government would invite this year bids for urban renewal work in the Gongbei area. Mr Chan also asked for an update on progress towards keeping the Lotus Bridge to Hengqin Island open around the clock for vehicles licensed to use the roads on both sides of the border. He said six months had passed since officials from Macau and Guangdong had met to discuss border matters. The government should state publicly when it would open the Lotus Bridge crossing 24 hours a day.

Photo by Manuel Cardoso

xi@macaubusinessdaily.com

The possibility of the Gongbei border crossing being open around the clock was first mooted two years ago

Hutchison profits rise in first half

Smartphone services and data sales boosted profits for Hutchison, operator of the ‘3’ brand in Macau

obile services provider Hutchison Telecommunications Hong Kong Holdings Ltd, which also operates in Macau, announced a 15 percent profit increase for the first half of this year. Hutchison, which offers mobile telecommunications under the ‘3’ brand, saw its profit grow to HK$568 million (US$73.2 million) or about HK$0.12 per share, according to a filing to the Hong Kong stock exchange yesterday. The increase came as revenue rose 12 percent to HK$6.7 billion, “driven by strong growth in smartphone sales and data communication,” the company said. The number of 3G and 4G customers in Hong Kong and Macau increased 21 percent to almost 2.9 million. The number of 2G users dropped by 22 percent to just 770,000. More people using more data services “translated into steady ARPU [average revenue per user] growth,” Hutchison added. The average

revenue grew eight percent from the first half of 2011 to HK$256. The company’s operating profit increased even faster than revenue, up by 26 percent to HK$675 million, mostly thanks to “cautious cost management,” the filing adds. Still, Hutchison accounted for just 5.6 percent of the profits of conglomerate Hutchison Whampoa Group, whose chairman is Hong Kong tycoon Li Ka Shing, the ninth richest person in the world according to Forbes magazine. In Macau, Hutchison is the second largest service provider behind Companhia de Telecomunicações de Macau SARL. In June the company reported unstable mobile data service, with some clients unable to access the Internet for 20 hours, according to the Bureau of Telecommunications Regulations. The Macau government asked Hutchison to prepare a full report on the glitch but has yet to announce its response to that report. V.Q.

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business daily August 3, 2012

macau Brought to you by

Third time the charm for Reolian service plan

Frozen deals Fresh food imports are restricted here. It distorts the market and creates significant costs to consumers. There are substantial increases in costs in each step in getting food to consumers. Regardless of limitations that distort the market, fresh food might be expected to be imported predominantly from nearby regions, which in some sense limits competition. In the case of frozen food imports, there is not the same limit imposed by geography. Frozen food could be sourced more cheaply from alternative sources in great quantities. The cost of getting frozen food into supermarkets should be lower. We can test that hyphotesis using a common ingredient, chicken parts, imported from China, Brazil and the United States.

The costs for frozen chicken pieces seem to support it. They cost noticeably less than the fresh alternative – in some cases they are lower by about 50 percent – and prices tend to be more stable. Imports from Brazil were , in nominal terms, in May even cheaper than they were in 2009. The graph shows retail prices only, since wholesale prices are not available.

140 120 100 80 60 40 20 0

This graph shows the increase in price from the border to the consumer. The highest percentage mark-up between the retail and import prices are on products imported from outside China. The size of the mark-up may also be affected a lack of competition among distributors in Macau and is potentially exacerbated by demand from tourists, hotel chains and restaurants that cater to more affluent business customers. The average consumer does not seem to have an easy way out of this squeeze.J.I.D.

he Transport Bureau has accepted the third version of the service improvement plan filed by bus operator Reolian Public Transport Co Ltd, says general manager Cedric Rigaud. Last month the bureau twice rejected Reolian submissions and gave the company until the end of July to submit a revised proposal. Mr Rigaud said the approved plan involved more training for drivers and equipment upgrade. “We have not waited for the improvement plan to take some initiatives,” the executive added. Reolian will introduce in Macau a new type of small bus, “that we are going to test by the end of the year,” Mr Rigaud said. The bus will have a higher passenger capacity and meet the Euro 5 emission standards. Authorities accepted the service revamp plans of the other two public bus operators – Transportes Urbanos de Macau SARL and Sociedade de Transportes Colectivos de Macau SARL – at first submission. Only if the service improvement plans are adequately implemented will the three operators get the 23 percent increase in the service charge that the

government announced last month. The implementation of the increase was suspended after criticism from associations and legislators over exactly how service improvements would be measured. Mr Rigaud brushed aside claims on posters placed on bus stops – from

a person claiming to be a Reolian driver – that drivers were ordered by the company to speed. “In Macau they are against Reolian. We can see it from Facebook; we can see a certain attitude and some very biased analysis,” he said. V.Q.

Reolian set to introduce a new type of small bus

Junket op AERL shifts strategy to lure casinos J

unket operator Asia Entertainment & Resources Ltd says from September it will be switching from a commission system to a revenue share model for its Macau VIP gaming rooms. The Nasdaq-listed company says casino operators MGM China, Wynn Macau and SJM prefer the revenue system. Adopting it will give AERL a better chance of expanding its operations into their properties it adds. Currently all AERL’s rooms – at Galaxy’s StarWorld and Galaxy Macau properties and at The Venetian Macao – are under a fixed commission model of 1.25 percent of rolling chip turnover. This guarantees junkets a defined income subject to

rolling volume. Revenue share deals theoretically offer a bigger cut to the junkets but carry more risk. If the house is unlucky in VIP baccarat in a particular quarter, then there is a smaller amount of revenue for the casino to share with the junket. But under a revenue share regime there are also opportunities for the casinos to add volume incentives for the junkets. “By shifting to a revenue sharing model, under normal circumstances, the company believes it can generate commission of over 1.30 percent of rolling chip turnover, and in addition, be able to negotiate on additional allowances and other incentives, thus increasing revenue

and ultimately, net income,” said AERL in a statement to the New York Stock Exchange. “Two years ago, we had only US$45 million [359 million patacas] in cage capital, which made it prudent to enter into a fixed commission remuneration structure to mitigate our risk,” said AERL chairman Lam Man Pou, who started his career as a junket agent during the monopoly era of Stanley Ho Hung Sun. “Today, with over US$260 million in cage capital and with 29 VIP tables in three rooms, we believe the greater volatility surrounding a revenue sharing model is significantly reduced,” added Mr Lam. A.E

Weather Beijing 27/23o C Changchun 27/20o C

Harbin 27/19o C

Xian 32/21o C Shanghai 32/27o C Chengdu 33/22o C Kunming 26/18o C Haikou 32/24o C Sanya 32/27o C

Guangzhou 36/26o C

MACAU (30 July-4 August) Day

Temperature

Humidity

07/30

25/33o C

45/90 %

07/31

26/33o C

40/85 %

08/01

26/35o C

40/90 %

08/02

26/35o C

40/90 %

08/03

26/33o C

50/90%

08/04

26/32o C

70/90 %

Shenzhen 34/26o C

ASIA (today)

Hong Kong 32/27o C

Manila

TOKYO

Jakarta

29/26o C

30/25o C

29/25o C

30/24o C

Macau 33/27o C

Bangkok

SEOUL

K. lumpur

29/26o C

SINGAPORE

33/26o C

31/25o C

taipei

33/27o C

August 3, 2012 business daily | 7

MACAU Corporate

MPEL hits high note on music scholarships

Region’s airports to complement, not clash Macau’s airport has a role to play in the face of competition from a proposed second airport in Guangzhou, Shenzhen’s third terminal Vítor Quintã

vitorquinta@macaubusinessdaily.com

our young musicians received a scholarship of up to one million patacas (US$125,000) from Macau casino operator Melco Crown Entertainment Ltd to attend a conservatory of their choice anywhere in the world. The Melco Crown Entertainment-Yundi Scholarship was founded in 2011 by the company and the Chinese classical pianist Li Yundi. The scholarship recipients were decided at the Macao Young Musicians Competition this week, judged by Mr Li and professors Zhao Rui-lin and Li Ji-wu from the Central and Shanghai Conservatory of Music. The young winners include Su Fei Nga, Chan Sin, Cheong Hoi Leong and Choi Hio Lam. The award presentation ceremony at Grand Hyatt Macau, in MPEL’s City of Dreams resort on Cotai, was attended by Leung Hio Ming, acting president of Macau’s Cultural Affairs Bureau. He said their success would act as an inspiration for others.

Staff retention pays for StarWorld

early 40 percent of staff at Galaxy Entertainment Group’s StarWorld Hotel have worked at the property since it opened in 2006 says the company. That continuity appears to have paid dividends in terms of service and customer satisfaction. The hotel received three prizes at the 2012 Asia Hotel Golden-Olive Awards held in Shenzhen. StarWorld is the only hotel in Macau to have won three Asia Hotel Golden-Olive Awards. “StarWorld Hotel has gained more than thirty awards since opening. Just in the first half of 2012, StarWorld Hotel has obtained eight weighty awards. These are the best ways to recognise the hard working of our entire team and the preeminent service quality they provide to the guests,” said Charles So, vice president in hotel operations. Asia Hotel Golden-Olive Awards is co-organised by: China Tourism and Hotel Management Association; China Travel Industry Association; Swiss Lausanne (HK) Hotel Management School; Chinese Hotel Brand Research Centre and Commercial Times.

lthough a proposed second airport in Guangzhou may increase competition, analysts say the future for Macau International Airport relies on the development of the city’s economy. And a regional aviation boom will help, bringing tourists from fresh destinations. Guangzhou mayor Chen Jianhua told the city’s People’s Congress on July 30 that authorities were studying the feasibility of a second airport, possibly in Nansha, according to the Chinese-language Southern Metropolis News. Hong Kong, Macau and Guangzhou airports aside, the Pearl River Delta region also has a combined military and civilian airport in Foshan, and civilian airports in Zhuhai and Shenzhen. Shenzhen’s deputy mayor Zhang Wen said in May that Shenzhen Bao’an International Airport’s fourth terminal would open next spring. The airport will have an annual capacity of 45 million passengers. Hong Kong is planning a third runway by 2023. The associate director of the Chinese University of Hong Kong’s Aviation Policy and Research Centre, Law Cheung Kwok, said Macau’s importance in the Pearl River Delta was assured.

“Any airport will mostly accommodate the needs of the local economic activity and that is the case of Hong Kong. At most, one-third will cater for demand of the wider region,” he told Business Daily. “The expansion of the domestic economy will be by more important for Macau than the impact from external competition.” He said it was important that the city was pictured as a destination and not just a stopover hub. Macau’s aviation regulator says the size of the market would help foster competition. In June, the Civil Aviation Authority told Business Daily the five civilian airports in the Pearl River Delta each had their own purpose, which complemented each other. “Although there are five airports in the PRD [Pearl River Delta] region, the air passenger market in this region will be big enough to support the survival of the airports,” a spokesman said. Another aviation expert who was not authorised to comment told Business Daily that airports surrounding Macau would help attract tourists from markets that did not have direct flights to the city. The Global Financial

Crisis, bankruptcy of Viva Macau two years ago and stagnant size of the Air Macau fleet meant there were many markets without direct flights. Once the airport reaches its capacity, regional airports will push traffic to the city, “welcoming a huge number of visitors,” he said. Ground transport links are set to improve dramatically in the next few years with a railway linking Guangzhou to Gongbei opening next year and the Hong KongZhuhai-Macau Bridge ready by 2015. “It would offer much more choices and convenience and residents in the west part of the Pearl River Delta could come to the airport much more easily,” Mr Law said. But the other aviation expert believes in the future Macau’s airport “will be able to choose its specialisation among the air traffic segments with a higher contribution to the Macau economy”. In the meantime, the airport must maintain a balance between regular carriers, budget airlines and private jets, he said. Mr Law agrees that lowcost carriers “have a lot of potential” to expand their routes but he suspects Macau will have trouble competing with Hong Kong’s private jet sector.

Sheraton website heralds hotel’s Sept opening

heraton Macao Hotel, Cotai Central has launched a hotel website with extras in advance of its September 20 opening. As well as the usual functions such as online vacancy inquiry and booking, the site – sheratonmacao.com – features detailed information on Macau’s heritage and culture, including its architecture and festivals. “sheratonmacao.com is a robust, user-friendly site that makes it easy for guests to explore all of the unique experiences that Macau and the Sheraton Macao Hotel has to offer,” said Josef Dolp, the property’s managing director. The site is available in English, Simplified Chinese and Traditional Chinese. The hotel – part of Sands China’s latest Macau resort, Sands Cotai Central – will take over the mantle of Macau’s biggest by room capacity. It has 3,863 compared to its sister hotel The Venetian Macao with 3,000 rooms across the road on the Cotai Strip. That had been the biggest since it opened in August 2007.

Expansion of the mainland’s economy will have a far greater effect on the airport’s fortunes than competition between airports in southern China, academics say

8 |

business daily August 3, 2012

Greater china Same-store sales growth in China slowed to 2.2 percent in the three months to June

China slowdown forcing companies to offer discounts Move seen hurting margins and driving down earnings Justina Lee

or years, China’s increasing affluence fuelled surging sales for consumer companies. That boom is waning as slower spending translates into inventory

overloads, discounting and losses for some brands. To lure increasingly pricesensitive shoppers, companies from electronics retailers to footwear

makers are being forced to offer discounts that are hurting margins and driving down earnings. Even McDonald’s Corp., the world’s largest restaurant chain,

Chinese developers fall on property curb concern Government expected to release new tightening policies

hina’s property stocks fell, with the gauge tracking developers on the Shanghai Composite Index declining the most in four months, on renewed concern the government will issue more curbs to cool the real estate market. A gauge tracking real-estate companies plunged 4.9 percent, the most since January and the biggest loss among five industry groups on the benchmark index. Poly Real Estate slumped 9.2 percent to 10.30 yuan (US$1.6). Beijing Capital Development plunged 9.8 percent to 10.18 yuan, the most since November 2010. Gemdale Corp. tumbled 6.4 percent to 5.43 yuan. The Shanghai Composite Index dropped 0.6 percent to 2,111.18 at the close, as about thee stocks fell for each one that gained. The CSI 300 Index slid 1 percent to 2,344.88. Thirty-day volatility in the Shanghai Composite Index was at 14.3. About 5.4 billion shares changed hands in the gauge yesterday, 29 percent lower than the average this year. “Investors are speculating the government has enough information to release new tightening policies,” said Dai Fang, a Shanghai-based property analyst at Zheshang Securities Co. “It’s hard to tell whether the government eventually

will, because they still put economic growth as a priority.” China’s Premier Wen Jiabao said the country will “unswervingly” implement property controls and prevent home prices from rebounding, the official Xinhua News Agency reported this week, citing a government meeting held on July 26.

The country’s home prices posted the biggest gain in more than a year in July, signaling a turning point for the nation’s property market, SouFun Holdings Ltd, the country’s biggest real estate website owner, said on Wednesday. Home prices rose 0.3 percent from June to 8,717 yuan (US$1,369) per square metre, SouFun said in a statement, based

has introduced a value dinner starting from 15 yuan (US$2.40) and reported slower same-store sales growth. China’s second-largest electronics retailer, Gome Electrical Appliances Holding Ltd, in July forecast a first-half loss even as its website offered discounts of as much as 50 percent. I.T Ltd, a department store that sells brands including Levi’s and Puma in Greater China, cited discounting for narrower gross profit margins in the year ended February. Slower sales have left Nike Inc. with too much inventory in China, its second-largest market after the U.S. The discounting and weaker sales reflect the escalating pressure on local and global brands in China, where two years of economic growth of more than 9 percent encouraged companies to expand. International brands have relied on Asia to offset a spending slump in the U.S. and Europe. “Maybe previously, a PRC consumer didn’t even need to ask the price and just bought the product,” said Eugene Mak, an analyst at Core Pacific-Yamaichi International Hong Kong Ltd. “Now they’re more price sensitive.”

Economic slowdown Retail sales grew 13.7 percent in June, the slowest pace since February last year and near levels seen in early 2009 in the months after the Lehman Brothers Holdings Inc. bankruptcy. Gross domestic product expanded 7.6 percent in the three months ended June, in a sign the government is yet to get the economy firing as quarterly growth cooled to the slowest pace in three years. Daphne International Holdings

on its survey of 100 cities. That was the second monthly gain and the biggest rise since June 2011. “Property developers have been selling at a discount and they realize they have enough demand to remove that discount,” said Zhu Jixiang, a Shanghai-based analyst at CSC International Holdings Ltd. “This is increasing concern among investors that this would result in more curbs by the government.” China sent eight teams to 16 provinces late last month to check on the implementation of its property curbs, according to a statement on the central government website last week. The nationwide check is aimed at “firmly” restraining property speculation and consolidating result of the curbs, it said. Bloomberg

China’s home prices posted the biggest gain in more than a year in July

August 3, 2012 business daily | 9

greater china Ltd, which sells shoes under its namesake brand and also has distribution rights for international lines such as Aerosoles and Aldo in China, last month said intense promotional efforts, together with rising production costs, were pressuring the group’s gross margin. “Domestic consumption demand is slowing in China,” said Mr Mak. “We do generally see an increase in promotions and discounts in both China and Hong Kong this year. Partly, it’s the inventory build-up, the other part is just slower demand.” Retailers in expansion mode are getting hit as their investments in new stores are taking longer to pay off amid slowing consumer spending. Golden Eagle Retail Group Ltd said earnings will be little changed in the first half of this year because of a deceleration in sales and stores’ startup costs. Price wars have nicked results in the sportswear sector, where companies went on an expansion spree after the Beijing Olympics in 2008. Li Ning Co., the Beijing-based sportswear retailer founded by the former Olympic gymnast of

15 yuan McDonald’s value dinner

the same name, in July said chief executive Zhang Zhi Yong stepped down, three weeks after it forecast a “substantial” profit decline. “The sportswear industry in China has suffered from over- expansion,” executive vice chairman Kim Jin Goon said on a conference call with reporters while discussing the CEO’s departure. “Growth in supply exceeded the pace in demand, leading to a short-term saturation.” Li Ning’s website carried a banner advertising a 50 percent discount on all items around the time of the CEO’s resignation.

Value for money Illinois-based McDonald’s secondquarter same-store sales growth in China slowed to 2.2 percent from 8.5 percent in the preceding threemonth period. In China, “consumers are reacting with greater caution as the economy has slowed” and value lunches and the newly introduced value dinner were driving sales, chief executive Don Thompson said on a July conference call. In the “current operating environment,” all businesses will increase “consumer-facing activities,” McDonald’s spokeswoman Jessica Lee said via e-mail. “McDonald’s is constantly finding ways to meet customer needs,” she said. The fast-food chain in April introduced its first value dinner in China, where it already had other value offerings for lunch and breakfast. The evening meal offers an entree, drink and fries starting from 15 yuan between 5 pm and 8 pm every day. The Economist’s Big Mac index in July put the price of the Big Mac alone in China at US$2.45, or 15.60 yuan. Bloomberg

Industry warns EU over solar duties As group presses ahead with China anti-dumping case in Europe

hina could retaliate over a European anti-dumping complaint filed against Chinese solar companies, officials from a Chinese industry body said yesterday in a protracted row over cheaper Chinese solar modules. Western solar companies have been at odds with their Chinese counterparts for years, alleging they receive lavish credit lines to offer modules at cheaper prices, while European players struggle to refinance. Jobs and profits would be lost if the European Commission ruled in favour of a complaint made by European solar firms, led by Germany’s SolarWorld AG, Sun Guangbin, Secretary General of the China Chamber of Commerce for the Import & Export of Machinery and Electronic Products, told a news conference. “If they implement trade restrictions, demand for solar products will not be met as only a small number of firms will profit from it, which will push up costs,” Mr Sun said. “Many people in Europe will lose their jobs as upstream and downstream firms will suffer,” Mr Sun said, adding that China’s imports of solar equipment and related services helped support 300,000 jobs across Europe.

The European Commission has 45 days to decide if it will start an investigation once a complaint has been filed, then has nine months to decide on provisional duties. It must conclude its investigation within 15 months. “We call on the EU Commission and all EU members to deal with the issue prudently and fairly,” Wang Guiqing, Vice President of the Chamber, told reporters. “The issue has aroused a high degree of attention from the Chinese government. We hope that the worst case scenario can be avoided.” China’s solar firms last week warned of a trade war and called on the government to respond with all means to an anti-dumping complaint filed by European competitors. . SolarWorld spearheaded a similar initiative in the United States, leading the world’s largest economy in May to impose duties of about 31 percent on solar panel imports from China. Almost 60 percent of China’s solar exports, worth US$35.8 billion, were shipped to the EU in 2011. Mr Wang denied allegations that Chinese solar firms had sold products below market value in Europe – the world’s biggest solar market – arguing that their competitiveness stems from greater efficiency. Reuters

Hanlong mulls lower offer for Sundance

ichuan Hanlong Group may cut a cash takeover offer for Australian iron ore developer Sundance Resources Ltd by 12 percent after metal prices fell, according to two people with knowledge of the matter. Hanlong, which won Chinese conditional approval for the bid yesterday, will probably offer 50 Australian cents a share for the rest of the company that it doesn’t own, said the people, asking not to be identified as the information is private. That values Sundance at A$1.5 billion (US$1.6 billion). Hanlong, an investor in highway and power projects, had offered 57 cents a share in October. Hanlong, which already owns 17 percent of Sundance, wants the company for its US$4.7 billion Mbalam iron ore project on the border of the republics of Congo and Cameroon in western Africa. “The power is with the buyer now with weak commodity prices,” James Wilson, senior analyst at RBS Morgans said. “Having said that, there have been M&A deals in the sector and

mining majors are saying long-term demand outlook is positive.” Sundance and Hanlong are in talks about a “reasonable acquisition price,” Perth-based Sundance said yesterday in a statement. The company’s shares were suspended from trading in Sydney prior to receiving the decision from China’s National Development and Reform Commission. The commission’s approval is conditional on the price, Hanlong securing debt funding and mining development rights, Sundance said. Slowing demand in Europe and China, the biggest metals consumer, is weighing on commodity prices, prompting companies to assess spending plans on new mines and takeovers. Since Hanlong made a revised offer in October, iron ore prices have declined 34 percent and Sundance’s shares are down 26 percent. A spokeswoman for Sundance declined to comment on the lower offer. The lower offer was reported on Wednesday by the Australian Financial Review. The shares last traded at 33.5 cents. Bloomberg

12 |

business daily August 3, 2012

MARKETS Hang SENG INDEX PRICE

Day %

VOLUME

PRICE

Day %

VOLUME

SINO LAND CO

1.65

-0.5504587

20483285

CHINA UNICOM HON

11.38

-0.5244755

21974519

NEW WORLD DEV

1.00

-0.9375

14957893

CITIC PACIFIC

11.28

0.3558719

POWER ASSETS HOL

0.90

384089509

CLP HLDGS LTD

66.85

BANK EAST ASIA

0.74

0.9708738

22005369

15.5

CHINA UNICOM HON

0.70

0.5545287

1594100

10.84

PETROCHINA CO-H

-2.54

0.6963788

19303705

9.43

BELLE INTERNATIO

-2.90

9492371

HANG LUNG PROPER

27.15

CHINA OVERSEAS

-3.38

2390275

HANG SENG BK

108.8

0.8341057

HENDERSON LAND D

45.35 72.3

HONG KG CHINA GS

17.86

-0.5567929

5907924

HONG KONG EXCHNG

105.4

1.151631

3733132

65.7

0.07616146

18085025

69.45

-0.6437768

9298560

4.52

1.573034

399579925

14.96

-2.349869

16057235

HIGH

19885.99

27.4

1.107011

2622625

LOW

19646.96

NAME

CNOOC LTD COSCO PAC LTD ESPRIT HLDGS

SANDS CHINA LTD

-3.41

1.273262

3573972

CHINA RES LAND

-4.63

2.937063

64820432

CHINA CONST BA-H

5.28

0.7633588

353435316

CHINA LIFE INS-H

21.6

0.6993007

23081166

CHINA MERCHANT

24.15

1759311

89.7

-1.374382

16021752

HUTCHISON WHAMPO

18.32

-0.1090513

21667161

IND & COMM BK-H

CHINA MOBILE CHINA OVERSEAS

HENGAN INTL

HSBC HLDGS PLC

NAME

PRICE

Day %

POWER ASSETS HOL

61.45

0.7377049

3779299

2275110

SANDS CHINA LTD

23.45

2.178649

15008691

-0.2238806

1966332

SINO LAND CO

13.36

0.6024096

8082911

-1.399491

67930607

97.2

0.2578649

4135863

1.119403

4995425

SWIRE PACIFIC-A

93.55

0.5373455

1381208

8221958

TENCENT HOLDINGS

230.2

-0.6902502

2388220

-1.630435

9241465

TINGYI HLDG CO

19.36

0.6237006

3414260

1755980

WANT WANT CHINA

9.56

1.4862

10898993

0.3318584

2705960

WHARF HLDG

45.5

1.111111

5637622

-1.766304

3990430

SUN HUNG KAI PRO

MOVERS

3 19890

INDEX 19690.2

CHINA PETROLEU-H

7.04

52572089

CHINA RES ENTERP

21.95

2.093023

3772099

MTR CORP

CHINA RES LAND

15.54

-1.270648

5651466

NEW WORLD DEV

10.04

1.107754

20169188

CHINA RES POWER

17.1

4.523227

11024275

52W (H) 22623.22

PETROCHINA CO-H

9.85

1.337449

88994931

CHINA SHENHUA-H

29.3

0.6872852

14582043

PING AN INSURA-H

61.85

1.643385

8057816

(L) 16170.35

LI & FUNG LTD

VOLUME

19640

31-Jul

2-Aug

Hang SENG CHINA ENTErPRISE INDEX PRICE

DAY %

VOLUME

PRICE

DAY %

VOLUME

CHINA PACIFIC-H

25.1

-0.3968254

34720800

YANZHOU COAL-H

12.1

-1.305057

20125324

6630700

CHINA PETROLEU-H

7.05

0.1420455

42118673

ZIJIN MINING-H

2.47

-1.593625

21535700

7218215

CHINA RAIL CN-H

6.7

-3.458213

25810200

ZOOMLION HEAVY-H

9.08

-1.089325

14589961

21.05

-1.405152

19039323

CHINA RAIL GR-H

3.39

-1.453488

13979054

ZTE CORP-H

10.18

-2.303263

6452139

BANK OF CHINA-H

2.95

-0.6734007

261950406

CHINA SHENHUA-H

-1.023891

11440944

BANK OF COMMUN-H

5.13

-1.346154

15965267

CHINA TELECOM-H

3.96

0.2531646

34070883

BYD CO LTD-H

13.4

1.669196

3145252

DONGFENG MOTOR-H

11.1

1.462523

12131073

CHINA CITIC BK-H

3.89

-2.015113

46470310

GUANGZHOU AUTO-H

5.5

-0.9009009

3491934

CHINA COAL ENE-H

7.31

-0.6793478

28397052

HUANENG POWER-H

5.62

0.7168459

30046064

NAME

PRICE

DAY %

VOLUME

AGRICULTURAL-H

3.15

-0.6309148

75136559

AIR CHINA LTD-H

5.41

-1.096892

ALUMINUM CORP-H

3.17

ANHUI CONCH-H

NAME

CHINA COM CONS-H

6.7

-2.332362

9819270

IND & COMM BK-H

4.48

-0.8849558

237218376

CHINA CONST BA-H

5.25

-0.5681818

211538161

JIANGXI COPPER-H

17.7

0.4540295

14013890

3.23

-2.121212

14763400

PETROCHINA CO-H

9.6

-2.538071

104413031

21.25

-1.62037

19329448

PICC PROPERTY &

8.7

-0.1148106

19609400

CHINA LONGYUAN-H

4.78

-1.035197

4192300

PING AN INSURA-H

61.05

-1.293452

6712956

CHINA MERCH BK-H

14.24

-0.9735744

8267799

SHANDONG WEIG-H

8.35

-2.224824

2525600

CHINA COSCO HO-H CHINA LIFE INS-H

CHINA MINSHENG-H

7.24

-0.2754821

22295800

SINOPHARM-H

22.65

-1.521739

5337650

CHINA NATL BDG-H

8.05

0.625

69150448

TSINGTAO BREW-H

-0.8810573

2652300

11.94

-1.15894

1644439

WEICHAI POWER-H

20.5

-0.1641451

4213328

CHINA OILFIELD-H

NAME

MOVERS

1 9810

INDEX 9669.21 HIGH

9809.88

LOW

9551.25

52W (H) 12439.69 (L) 8058.58

9550

31-Jul

2-Aug

Shanghai Shenzhen CSI 300 NAME

PRICE

DAY %

VOLUME

PRICE

DAY %

VOLUME

PRICE

DAY %

AGRICULTURAL-A

2.51

0.4

23973558

DAQIN RAILWAY -A

6.03

0.166113

24417409

QINGHAI SALT-A

33.56

-0.6512729

3451673

AIR CHINA LTD-A

5.94

-1.818182

9182462

DATANG INTL PO-A

5.04

1.002004

2610162

SAIC MOTOR-A

12.88

-0.3866976

10842516

ALUMINUM CORP-A

NAME

VOLUME

5.86

-0.6779661

3755787

DONGFANG ELECT-A

15.09

-1.757812

6600394

SANY HEAVY INDUS

-1.234568

17607371

ANHUI CONCH-A

14.82

-0.8032129

14710504

EVERBRIG SEC -A

12.32

-3.06845

13246594

SHANDONG GOLD-MI

33.27

-1.568047

5153890

BANK OF BEIJIN-A

7.59

0.66313

13302197

GD MIDEA HOLDING

9.29

-0.8537887

8981871

SHANG PHARM -A

10.77

0.4664179

6898877

BANK OF CHINA-A

2.75

-0.3623188

22713779

GD POWER DEVEL-A

2.68

11522923

SHANG PUDONG-A

7.75

1.30719

75444190

SHANGHAI ELECT-A

4.43

1.83908

60996542

GF SECURITIES-A

13.35

-3.120464

14915369

BANK OF NINGBO-A

10.14

-0.5882353

12516849

GREE ELECTRIC

21.15

-2.892562

8545953

BAOSHAN IRON & S

4.24

1.193317

23631957

GUANGHUI ENERG-A

12.09

-4.351266

17612721

16.81

-1.925321

4492698

-1.119023

30117604

BANK OF COMMUN-A

BYD CO LTD -A

14.3

0.2102313

5466233

GUIZHOU PANJIA-A

CHINA CITIC BK-A

3.96

1.278772

19109216

HAITONG SECURI-A

9.72

CHINA CNR CORP-A

3.75

-0.2659574

15845064

CHINA COAL ENE-A

7.52

-1.182654

4816325

CHINA CONST BA-A

4.01

0.25

12523591

4.25

3358534

SHANXI LU'AN -A

20.77

-1.095238

12043119

SHANXI XINGHUA-A

35.17

0.9182209

1319003

SHANXI XISHAN-A

14.34

-2.316076

9812524

SHENZEN OVERSE-A

5.88

-4.854369

60414767 35981519

HANGZHOU HIKVI-A

27.5

1.102941

2171502

SUNING APPLIAN-A

6.34

-2.009274

HEBEI IRON-A

2.63

0.7662835

26017816

TSINGTAO BREW-A

34.6

-3.942254

6765961

HENAN SHUAN-A

62.5

-0.63593

899283

WEICHAI POWER-A

23.5

0.3415884

3844434

CHINA COSCO HO-A

4.23

-0.4705882

3793538

HONG YUAN SEC-A

18.95

0.05279831

17010949

WULIANGYE YIBIN

34.93

-0.9359047

14627327

CHINA CSSC HOL-A

20.13

-3.499521

4303704

HUATAI SECURIT-A

9.22

-3.757829

16844517

YANGQUAN COAL -A

15.16

-2.003878

7856369

CHINA EAST AIR-A

4.05

-1.937046

8151626

HUAXIA BANK CO

8.87

0.3393665

27068040

YANTAI CHANGYU-A

60.02

-2.024159

1018294

CHINA EVERBRIG-A

2.76

15961728

IND & COMM BK-A

3.78

0.265252

22996303

YANTAI WANHUA-A

13.24

-0.82397

3461545

CHINA LIFE INS-A

18.67

-2.04617

8698371

INDUSTRIAL BAN-A

12.5

0.2405774

35982219

YANZHOU COAL-A

18.69

0.05353319

2659924

CHINA MERCH BK-A

10.01

0.4012036

41041273

INNER MONG BAO-A

36.74

-1.342642

23286753

YUNNAN BAIYAO-A

61.08

3.50788

2376834

CHINA MERCHANT-A

10.5

-2.325581

7578639

INNER MONG YIL-A

18.75

-1.574803

9634433

ZHONGJIN GOLD

21.38

-1.881597

4418506

CHINA MERCHANT-A

21.06

-9.807281

21750457

INNER MONGOLIA-A

5.1

0.3937008

42501767

ZIJIN MINING-A

3.66

-1.081081

18581206

CHINA MINSHENG-A

6.02

0.1663894

60043896

JIANGSU HENGRU-A

29.11

0.275577

2061697

ZOOMLION HEAVY-A

9.86

-0.5045409

31866798

CHINA NATIONAL-A

6.12

2.857143

32935916

JIANGSU YANGHE-A

138.9

-2.127959

1260824

ZTE CORP-A

11.25

-1.746725

8910387

CHINA OILFIELD-A

16.1

-3.187011

4820651

JIANGXI COPPER-A

20.1

-1.373896

4907122

CHINA PACIFIC-A

21.86

-0.6815084

8587947

JINDUICHENG -A

11.97

-1.237624

2723805

CHINA PETROLEU-A

5.95

-1.490066

15617028

JIZHONG ENERGY-A

13.96

-2.581996

15421093

CHINA RAILWAY-A

4.72

-2.074689

25350918

KANGMEI PHARMA-A

15.78

3.47541

12080363

CHINA RAILWAY-A

2.62

0.7692308

28294288

KWEICHOW MOUTA-A

242.16

-0.3661798

1705477

CHINA SHENHUA-A

22.05

-1.209677

7654119

LUZHOU LAOJIAO-A

39.32

-2.140368

5949661

METALLURGICAL-A

2.31

-0.4310345

12772460

MOVERS

220

10 2370

INDEX 2334.882

CHINA SHIPBUIL-A

4.63

-1.068376

10579423

CHINA SOUTHERN-A

4.11

-2.836879

22728753

NINGBO PORT CO-A

2.49

-0.7968127

5175630

CHINA STATE -A

3.05

-2.24359

83025972

PANGANG GROUP -A

3.76

0.2666667

42367516

HIGH

2365.55

CHINA UNITED-A

3.57

0.2808989

32715255

PETROCHINA CO-A

8.91

5930471

LOW

2327.77

CHINA VANKE CO-A

8.7

-6.752412

95384880

PING AN BANK-A

15.16

8907731

CHINA YANGTZE-A

6.59

0.1519757

6455968

PING AN INSURA-A

44.84

-0.818403

14692688

CITIC SECURITI-A

11.96

-0.3333333

37963738

POLY REAL ESTA-A

10.3

-9.171076

86784975

CSR CORP LTD -A

4.3

0.7025761

17172026

QINGDAO HAIER-A

11.04

-1.604278

4290505

52W (H) 2983.012 (L) 2254.567

2325

31-Jul

2 -Aug

FTSE TAIWAN 50 INDEX NAME ACER INC ADVANCED SEMICON

PRICE DAY %

Volume

NAME

27.05

-1.992754

20270143

FORMOSA PLASTIC

23.5

0.6423983

18732504

FOXCONN TECHNOLO

PRICE DAY %

Volume

NAME

PRICE DAY %

Volume

8592860

TAIWAN MOBILE CO

100

1.010101

4458511

107.5

0.9389671

8569753

TPK HOLDING CO L

347

3.58209

8220095

-1.234568

43525031

51.8

2.777778

10796826 18646767

ASIA CEMENT CORP

-0.131406

3859528

FUBON FINANCIAL

31.6

0.3174603

10796105

TSMC

ASUSTEK COMPUTER

283

1.615799

3818287

HON HAI PRECISIO

84.8

0.2364066

27796767

UNI-PRESIDENT

AU OPTRONICS COR

8.99

-3.229279

77673756

HOTAI MOTOR CO

204

1.492537

909564

UNITED MICROELEC

12.55 -0.3968254

CATCHER TECH

135

-6.896552

80725722

HTC CORP

288

-1.369863

7299138

WISTRON CORP

32.65

0.927357

5826344

29.65 -0.1683502

10655588

HUA NAN FINANCIA

16.95 -0.2941176

4466012

YUANTA FINANCIAL

9531469

YULON MOTOR CO

54.3

3.231939

18365329

CATHAY FINANCIAL CHANG HWA BANK

16.3

6342385

LARGAN PRECISION

623

1.300813

2429469

CHENG SHIN RUBBE

81.5

2.130329

24602956

LITE-ON TECHNOLO

38.6

2.251656

5734108

CHIMEI INNOLUX C

9.34

-2.198953

34861121

MEDIATEK INC

272.5

6.862745

26827520

CHINA DEVELOPMEN

7.08

0.5681818

48029285

MEGA FINANCIAL H

24.25 -0.4106776

23786343

CHINA STEEL CORP

26.45

-0.750469

13903158

NAN YA PLASTICS

57.7

-1.367521

5592343

CHINATRUST FINAN

17.85 -0.8333333

34147774

PRESIDENT CHAIN

162

3.184713

3234744

CHUNGHWA TELECOM

88.9

-1.222222

5903296

QUANTA COMPUTER

71.5

-3.897849

21788591

COMPAL ELECTRON

27.8

-1.41844

5869610

SILICONWARE PREC

32.6

-2.39521

10392967

DELTA ELECT INC

100

-1.477833

5245917

SINOPAC FINANCIA

12.7

-1.930502

26631035

FAR EASTERN NEW

34.1

1.337296

8475971

SYNNEX TECH INTL

66.3

1.221374

2506575

FAR EASTONE TELE

-2.116402

6469800

TAIWAN CEMENT

35.75

2.43553

7731076

18.35

0.273224

11161632

TAIWAN COOPERATI

18.3

0.2739999

22871047

0.7556675

3739510

TAIWAN FERTILIZE

72.3

1.544944

9035545

86.8 -0.2298851

1700314

TAIWAN GLASS IND

28.2

-1.052632

1994969

FIRST FINANCIAL FORMOSA CHEM & F FORMOSA PETROCHE

MOVERS

3 4990

INDEX 4976.36 HIGH

4986.18

LOW

4877.18

52W (H) 5837.13 4870

(L) 4643.05 30-Jul

1-Aug

August 3, 2012 business daily | 13

MARKETS GAMING STOCKS - DAILY PERFORMANCE (Hong Kong Stock Exchange) GAlAXy ENtErtAINMENt

Max 19.12

Average 18.912

MElco croWN ENtErtAINMENt

Min 18.78

19.2

26.5

19.1

26.3

19.0

26.1

18.9

25.9

18.8

25.7

18.7

last 18.98

SANDS cHINA ltD

Average 23.095

Max 23.15

Max 26.35

Average 25.947

Min 25.6

Min 22.65

last 23.65

PRICE

23.8

14.3

23.4

14.2

23.0

14.1

22.6

Average 10.617

Min 10.52

last 10.58

10.5

17.3 17.2 17.1 17.0 16.9 16.8

14.0 Max 14.38

Average 14.2

DAY %

YTD %

(H) 52W

(L) 52W

0.202451918

-9.891777081

110.8699951

77.69999695

BRENT CRUDE FUTR Sep12

106.47

0.481313703

1.47731605

124.1999969

88.90999603

GASOLINE RBOB FUT Sep12

286.31

1.019688095

7.785265219

320.4399824

237.3699903

GAS OIL FUT (ICE) Sep12

910.25

0.082462892

1.279554937

1046.5

798.5

3.149

-0.693787449

-4.081632653

4.634000301

2.221999884

NATURAL GAS FUTR Sep12

286.61

0.255351896

0.603741795

332.9600096

251.5599966

Gold Spot $/Oz

HEATING OIL FUTR Sep12

1604.58

-0.6458

2.535

1921.18

1522.75

Silver Spot $/Oz

27.5156

-1.4

-1.1475

44.2175

26.085

Platinum Spot $/Oz

1399.13

-0.7709

0.332

1915.75

1339.25

Palladium Spot $/Oz

582.81

-1.2186

-10.8171

809.07

537.54 1832.25

LME ALUMINUM 3MO ($)

1861

-1.482265749

-7.871287129

2598

LME COPPER 3MO ($)

7425

-1.785714286

-2.302631579

9726

6635

LME ZINC

1822

-1.08577633

-1.246612466

2474

1718.5

3MO ($)

LME NICKEL 3MO ($)

15550

-1.985502679

-16.88936398

24850

15450

15.625

0.256657042

3.958749168

13.95499992

799.25

-0.156152405

36.3326226

820.5

499

WHEAT FUTURE(CBT) Sep12

873.75

-0.653780557

24.51015319

947.25

606.75

SOYBEAN FUTURE Nov12

1627.25

-0.10742787

35.12559684

1691.5

1115.75

COFFEE 'C' FUTURE Sep12

173.95

-0.372279496

-25.74172892

288.8500061

SUGAR #11 (WORLD) Oct12

22.52

-0.177304965

-1.357862462

COTTON NO.2 FUTR Dec12

70.77

0.297619048

-19.43306011

AGRICULTURE ROUGH RICE (CBOT) Sep12

Min 14.02

16.7

last 14.02

Max 17.22

Average 16.96

Dec12

PRICE MAJORS

ASIA PACIFIC

CROSSES

AUD GBP CHF EUR JPY MOP HKD CNY INR THB SGD TWD PHP IDR AUDJPY EURCHF EURGBP EURCNY EURMOP EURJPY HKDMOP

last 16.9

Min 16.78

PRICE

DAY %

YTD %

(H) 52W

(L) 52W

3.25

1.88

3860574

150.0999908

CROWN LTD

8.39

-0.94451

3.70828

9.29

7.45

1372849

25.77999878

19.23999977

AMAX HOLDINGS LT

0.061

-29.88506

0.119

0.055

102.25

64.61000061

BOC HONG KONG HO

23.95

0.4192872

30.16305

24.45

14.24

9463093

CENTURY LEGEND

0.234

1.739129

0.35

0.204

7.142859

3.9

2.3

5000

CHINA OVERSEAS

17.7

-3.384279

36.36364

19.16

9.99

28535089

CHINESE ESTATES

8.98

-28.16

13.68

8.3

31500

CHOW TAI FOOK JE

8.9

0.5649718

-36.06322

15.16

8.4

2436600

(H) 52W

(L) 52W

12971.06

-0.2891915

6.167353

13338.66016

10404.49

2920.21

-0.65691

12.09374

3134.17

2298.89

FTSE 100 INDEX

5727.21

0.2518896

2.780373

5989.07

4791.01

DAX INDEX

6769.49

0.2225196

14.76922

7194.33

4965.8

NIKKEI 225

8653.18

0.1311062

2.339703

10255.15

8135.79

CSI 300 INDEX

TAIWAN TAIEX INDEX

KOSPI INDEX S&P/ASX 200 INDEX

0.9388 1.5235 0.7071 1.2043 75.35 7.9823 7.7526 6.2769 44.3025 29.72 1.2001 28.792 41.57 8473 72.057 1.00749 0.77553 7.7018 9.6245 94.12 1.0288

7.72727

19690.2

(L) 52W

1.0857 1.6618 0.9972 1.4549 84.18 8.0449 7.8113 6.4453 57.3275 32 1.3199 30.716 44.35 9662 88.637 1.24736 0.88861 9.2878 11.6793 114.18 1.0311

3.043478

NASDAQ COMPOSITE INDEX

(H) 52W

2.9876 0.0193 -4.0798 -5.1771 -1.7376 0.149 0.1573 -1.137 -4.7905 0.0952 4.0693 1.0546 4.8177 -4.2951 -4.6964 1.2338 5.4163 4.2045 5.4487 3.5967 0.0097

2.37

DOW JONES INDUS. AVG

HANG SENG INDEX

YTD %

-0.114 -0.5311 -0.2147 -0.1462 -0.1533 -0.01 -0.0155 0.0204 -0.4686 -0.1269 -0.0963 -0.0267 -0.1554 -0.0739 -0.0535 -0.0699 -0.382 0.5099 0.1416 -0.0208 0

ARISTOCRAT LEISU

World Stock MarketS - Indices COUNTRY

DAY %

1.0514 1.5546 0.978 1.229 78.27 7.9877 7.7552 6.3674 55.735 31.52 1.2459 29.963 41.825 9476 82.297 1.20196 0.79057 7.806 9.8171 96.2 1.03

MACAU RELATED STOCKS NAME

PRICE

CHEUK NANG HLDGS

JAKARTA COMPOSITE INDEX

Max 10.76

WyNN MAcAU ltD 14.4

89.09

NAME

10.6

25.5

last 26

24.2

WTI CRUDE FUTURE Sep12

CORN FUTURE

10.7

CURRENCY EXCHANGE RATES

NAME

METALS

10.8

SJM HolDINGS ltD

Commodities ENERGY

MGM cHINA HolDINGS

EMPEROR ENTERTAI

DAY % YTD %

VOLUME CRNCY

1.4

26.12612

1.83

0.97

1345000

1.02

142.8572

1.1

0.3

3528000

GALAXY ENTERTAIN

18.98

-0.3151261

33.28652

24.95

8.69

3411735

HANG SENG BK

108.6

-0.1838235

17.85133

123

84.4

799191

HOPEWELL HLDGS

22.7

0.8888889

14.3001

24.707

18.56

418676

HSBC HLDGS PLC

65.65

-0.0761035

11.27119

78.6

7619093 7429979

FUTURE BRIGHT

HUTCHISON TELE H

3.7

-1.069519

23.74582

3.86

2.53

LUK FOOK HLDGS I

18.02

-5.157895

-33.50554

46.15

14.7

5889668

MELCO INTL DEVEL

5.6

-2.777778

-2.946274

10.76

4.3

1504777 5166672

-0.6567987

6.812314

22623.22

16170.35

2334.882

-1.007737

-0.4629607

2983.012

2254.567

MGM CHINA HOLDIN

10.58

-2.398524

10.29848

16.975

7.6

7267.96

-0.0347982

2.769763

8627.7

6609.11

MIDLAND HOLDINGS

4.13

0.7317073

4.449948

5.217

2.887

3977399

1869.4

-0.5601272

2.391361

2155.44

1644.11

NEPTUNE GROUP

0.157

41.44144

0.205

0.08

20980000

4269.539

0.1589579

5.250224

4479.5

3765.9

NEW WORLD DEV

10.14

0.9960159

61.98082

10.96

6.13

9671337

SANDS CHINA LTD

22.65

-3.411514

3.189062

33.05

14.9

9285293

SHUN HO RESOURCE

1.13

1.28

0.82

SHUN TAK HOLDING

2.75

0.3649635

7.458466

4.589

2.241

7218629

4093.112

-0.9043292

7.093687

4234.734

3217.951

FTSE Bursa Malaysia KLCI

1633.45

0.06003173

6.710522

1647.94

1310.53

NZX ALL INDEX

793.743

0.8487249

8.761669

806.015

700.441

SJM HOLDINGS LTD

14.02

-2.638889

12.11035

20.563

10.079

5031912

PHILIPPINES ALL SHARE IX

3504.46

0.1571896

15.08748

3527.48

2695.06

SMARTONE TELECOM

16.14

-0.7380074

20.08929

18.5

9.8

1338201

HSBC Dragon 300 Index Singapor

590.98

0.26

19.07

WYNN MACAU LTD

16.98

-1.622248

-12.92308

26.913

14.62

7260832

ASIA ENTERTAINME

2.93

-5.787781

-50.17007

10.8692

2.8

274628

BALLY TECHNOLOGI

43.22

-1.121025

9.251766

49.32

24.74

761204

BOC HONG KONG HO

3.01

0.3333333

25.56381

3.15

1.81

1500

GALAXY ENTERTAIN

2.4

-2.040816

28.34225

3.24

1.08

2000

INTL GAME TECH

11.28

-0.3533569

-34.41861

18.35

11.07

4466662

JONES LANG LASAL

64.94

-2.624082

6.007185

87.52

46.01

1421173

LAS VEGAS SANDS

37.26

2.306425

-12.80131

62.09

34.72

8719660

MELCO CROWN-ADR

9.97

-1.101081

3.638255

16.03

7.05

4294683

MGM CHINA HOLDIN

1.36

-7.482993

14.12333

2.1753

1.0025

13800

MGM RESORTS INTE

9.42

-1.05042

-9.683608

15.25

7.4

6751712 351803

STOCK EXCH OF THAI INDEX

1201.13

0.152589

17.14685

HO CHI MINH STOCK INDEX Laos Composite Index

1247.72

843.69

416.1

0.8605018

1025.56

18.36155

492.44

332.28

14.01953

1072.89

876.33

Shanghai Shenzhen Composite index is listing the biggest companies by market capitalisation. All data supplied by Bloomberg unless otherwise indicated.

SHUFFLE MASTER

14.32

-1.984942

22.1843

18.77

7.35

SJM HOLDINGS LTD

1.83

4.571429

13.83621

2.6037

1.2624

6095

WYNN RESORTS LTD

95.3

1.653333

-13.74785

154.7051

90.108

1749203

AUD HKD

USD

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business daily August 3, 2012

Opinion How should China respond to the slowdown? Yu Yongding

Former member of the monetary policy committee of the Peoples’ Bank of China and former director of the Chinese Academy of Sciences Institute of World Economics and Politics

hina’s annual GDP growth slowed to 7.6 percent in the second quarter of 2012, down from 8.1 percent in the first quarter and the lowest growth rate since the second quarter of 2009. The newly released growth data may have dispelled fears of a hard landing for China, but have nonetheless prompted many to argue that China must stimulate its economy further to guarantee 8 percent annual growth. Since early 2010, in order to contain inflation and property bubbles, the Chinese government has tightened monetary policy. As a result, inflation fell in June to 2.2 percent, a 29-month low, and house prices, for which the National Bureau of Statistics unfortunately has stopped issuing official data, seem to be stabilising, and may even have fallen, albeit modestly. The slowdown in China’s growth rate is, to a certain extent, a reflection of the success of the government’s effort to rein in the real-estate bubble, as well as of other official policies aimed at rebalancing the economy. The growth rate of investment in realestate development, which directly accounts for more than 10 percent of GDP, plummeted by 16.3 percentage points year on year in the first half of 2012. That led to an investment slowdown in many related industries, such as construction materials, furniture, and appliances, causing annual growth in fixed-asset investment to fall from 25.6 percent to 20.4 percent. The trend for household consumption is less clear. But many economists

have found evidence that growth in household consumption in the first half of 2012 was stronger than official statistics have shown.

Investment inefficiency The slowdown of the economy in 2012 should have been anticipated in 2011 by the government. In early 2012, in his speech to the annual People’s Congress, Premier Wen Jiabao, explaining why the government’s indicative target for economic growth in 2012 was 7.5 percent, pointed out that the purpose was “to guide people in all sectors to focus their work on accelerating the transformation of the pattern of economic development and making economic development more sustainable and efficient.” In fact, in order to create adequate space for changing the GDP-centred growth pattern, China’s 12th FiveYear Plan set an indicative target of 7 percent annual average GDP growth in 2010-2015. China’s investment rate is about 50 percent of GDP, while real-estate investment accounts for more than 10 percent of GDP. Given the prevalence of repetitive constructions and ubiquitous waste, investment efficiency is deteriorating quickly. With an annual growth rate of 10 percent, an investment rate of 50 percent implies a capital-output ratio of five, which is unusually high relative to other countries. China’s consumption rate is 36 percent. If government statistics are not entirely unreliable, this rate is simply too low. While huge

amounts of money have been poured into physical infrastructure, public expenditure on human capital and social security is below the world average. More resources should be reallocated from physical capital formation to human capital formation. Thanks to persistent current-account and capital-account surpluses for two decades, China has accumulated US$3.2 trillion in foreign-exchange reserves. But, as a country with huge net foreign assets, China runs a deficit on the investment-income account. Since 2008, China’s current-account surplus as a proportion of GDP has fallen significantly. But China is still running twin surpluses, and there is a lingering question about whether the fall is structural or cyclical.

Growth or adjustment Indeed, China needs to accelerate its economic adjustment, even at the expense of growth. Otherwise,

Given the prevalence of repetitive constructions and ubiquitous waste, investment efficiency is deteriorating quickly

it will have to pay an even higher adjustment cost later. For many years, the government has maintained an implicit minimum growth target of 8 percent per year, which was considered necessary to create ten million new jobs annually. But demographic and other structural changes may have altered labourmarket conditions: so far, despite below-8 percent growth, there seem to be few signs of distress. The question now is whether the government will be unnerved by the poorest quarterly growth performance in three years and usher in a large stimulus package, with the consequences that China has experienced whenever such a package is implemented. Wen said recently that China “should continue to implement a proactive fiscal policy and a prudent monetary policy, while giving more priority to maintaining growth.” Moreover, in recent months, the government has approved some large steel and energy projects, and more such approvals may come. It is certainly appropriate for a government to respond to changing circumstances in a timely fashion. But the slowdown to 7.8 percent annual growth in the first half of 2012 does not warrant a change of policy direction. China must choose between higher growth and faster structural adjustment. It cannot have both at the same time. Faced with the current slowdown, China can afford to stay the course, at least for the time being. © Project Syndicate

editorial council Paulo A. Azevedo, Tiago Azevedo, Duncan Davidson, Emanuel Graça, Cris Jiang Founder & Publisher Paulo A. Azevedo | pazevedo@macaubusinessdaily.com Editor-in-Chief Tiago Azevedo DEputy Editor-in-Chief José I. Duarte Newsdesk Vitor Quintã (Chief Reporter) Tony Lai, Xi Chen Creative Director José Manuel Cardoso Designer Janne Louhikari Contributors Frederico Rato, Pereira Coutinho, Ricardo Siu, Rose N. Lai, Zen Udani Photography Carmo Correia, John Si, Manuel Cardoso Assistant to the publisher Laurentina da Silva | ltinas@macaubusinessdaily.com office manager Elsa Vong | elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd.

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August 3, 2012 business daily | 15

OPINION Libor punishment could be wires worse than the crime Business Leading reports from Asia’s best business newspapers Mikhail Chernov

Finance professor at the London School of Economics

Japan Today Toyota said Wednesday it will recall nearly 780,000 vehicles in the United States to fix a defect that could allow rust to form in the suspension to the point where parts break off. Toyota said it has not yet devised a remedy, but will contact owners and offer repairs free of charge as soon as it has. The recall comes a month after Toyota added two models to a controversial 2009 recall. Toyota has worked hard since then to regain its once-stellar reputation for safety. The company managed to regain its position as the world’s number one automaker in the first quarter of 2012.

Jakarta Globe Indonesia said Wednesday it recorded an all-time trade deficit in June, and that ongoing global worries might result in a full-year trade deficit. June’s data released by the Central Statistics Agency showed a deficit of US$1.3 billion. During the 2008-2009 global economic slowdown, Indonesia’s exports were supported by demand from Asian giants such as China and India. This year, however, demand from both countries has slowed. The Indonesian economy is expected to grow about 6.1 percent this year, slowing from last year’s 6.5 percent.

New Straits Times Malaysia’s Axiata Group Bhd joins a growing number of companies using mobilephone airtime to back Islamic transactions as Asian subscribers are forecast to dominate the global market in three years. The telecom operator, with businesses in India, Indonesia and Sri Lanka, set up its first multicurrency sukuk programme worth US$1.5 billion backed by telephone minutes, according to a July 19 stock exchange filing. Emirates Telecommunications Corp, the sheikdom’s largest phone company, established a US$1 billion Shariah-compliant debt plan supported by similar assets in November 2010.

eople are rightly appalled at the way bankers manipulated Libor, a benchmark interest rate that influences the value of hundreds of trillions of dollars in financial contracts worldwide. But before authorities topple more banks’ managements and scrap an indicator that has served the market for three decades, they should ask themselves a question: who was really harmed? The most significant misreporting of the London interbank offered rate, in an economic sense, occurred during the financial crisis. Banks lowered the borrowing rates they reported for the calculation of Libor because they wanted to avoid the impression that they were in distress. Some estimates suggest U.S. dollar Libor might, at certain times during 2008, have been artificially depressed by more than 0.30 percentage point. The misreporting was bad for investors in various securities, such as mortgage bonds tied to Libor, because it artificially lowered the payments they received. It also provided a welcome relief for millions of struggling U.S. homeowners with floating-rate mortgages, and greatly helped the Federal Reserve in its efforts to get interest rates down. At the time, the Wall Street Journal estimated that the benefit to homeowners and other borrowers amounted to more than US$10 billion a month – a meaningful stimulus at a crucial moment in the recession.

Utility functions This vast transfer of wealth was not necessarily a zerosum game, because the winners and losers were very different people. In economic terms, they had different utility functions: a US$100 break on a monthly payment would mean a lot more to an unemployed homeowner than a loss of US$10,000 to a relatively wealthy investor. So it’s probable that, on balance, the benefit to homeowners outweighed the suffering of investors. In other words, by lying about their borrowing costs to make themselves look healthier than they were, banks might actually have done humanity a great service. The people and institutions harmed were largely sophisticated types who should have known what they were getting into. Although anyone who committed fraud should be punished to the full extent of the law, authorities should consider this context in deciding what to do with the senior managements of the banks involved. There is, of course, no guarantee that at some point in the future, bankers won’t have an incentive

to overstate their cost of funds as systematically as they understated it during the crisis. It’s hard, though, to imagine a situation that would compel them to do so. Individual banks have different investments that a rise in interest rates would affect in complex and conflicting ways. Only something as powerful as the fear of bank runs can override those varied interests. In such cases the incentive is always the same: push rates down to avoid looking weak. Libor actually works pretty well most of the time. Outside of crisis periods, dollar Libor closely tracks interest rates on U.S. Treasuries. Any significant divergence would immediately set off alarm bells and create arbitrage opportunities, limiting banks’ ability to manipulate the rate. When crises do happen, the incentives to lie arise in a way that – thanks to the Libor scandal – we now understand pretty well.

Keeping Libor Any potential replacement for Libor could entail all kinds of new and less manageable flaws. Consider the general collateral repo rate, the rate at which banks make loans against good collateral, such as Treasuries. It has the advantage of being based on actual, observable loans, as opposed to Libor, which relies on banks to estimate their borrowing costs. Yet the repo rate is also tied to supply and demand in the Treasury market, which can fluctuate in unpredictable ways – for example, when global investors are looking for a safe

place to park their cash. In some markets, then, it might be best to stick with Libor. One solution would be to separate Main Street from Wall Street, in much the same way we do by allowing only wealthy, sophisticated investors to put their money in hedge funds. Consumer products such as mortgages and auto loans could be pegged to the central bank’s target interest

rate, as is already done in some countries. Financial professionals could decide on the best benchmark for all their derivative contracts and so on. If they still prefer Libor, so be it. For all its shortcomings, Libor is the evil we know. Before we throw it out and start over, we should consider the potential for unintended consequences. Bloomberg View

It’s probable that, on balance, the benefit to homeowners outweighed the suffering of investors. The people and institutions harmed were largely sophisticated types who should have known what they were getting into

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business daily August 3, 2012

CLOSING Lagarde says IMF stands by Greece

Hong Kong choking

The head of the International Monetary Fund vowed the global lender will stand by troubled Greece. Leaders of Greece’s fragile coalition government on Wednesday have agreed 11.5 billion euros (US$14.1 billion) in new spending cuts needed to keep its EU/IMF bailout. “The IMF never leaves the negotiation table,” IMF managing director Christine Lagarde said. “We are in Greece at the moment ... and we are engaged in dialogue with the Greek authorities.” Ms Lagarde acknowledged, however, that Greece could do more by collecting more taxes from wealthy Greeks to boost government revenues and economic reforms to strengthen the economy.

Hong Kong choked under the worst smog ever recorded in the city yesterday, with residents warned to stay indoors, away from the blanket of toxic haze. Air pollutant readings broke records going back to 1999, except for levels reached when a natural dust storm hit the southern Chinese territory two years ago. Officials said the pollution had been exacerbated by the influence of Typhoon Saola, some 700 kilometres (450 miles) to the east. The storm’s outer high-pressure air mass blanketed Hong Kong, bringing strong sunshine and high temperatures that pushed up ozone levels.

Iran loses US$133 million a day on embargo Sanctions fuelling unemployment and inflation fears

Life is getting harsher as sanctions bite

.S.-led sanctions against Iran are costing OPEC’s thirdlargest producer US$133 million a day in lost sales without raising global crude prices, handing President Barack Obama an electionyear foreign-policy victory. Shipments from Iran have plunged by 1.2 million barrels a day, or 52 percent, since the sanctions banning the purchase, transport, financing and insuring of Iranian crude began July 1, according to data compiled by Bloomberg. Annualized, that would cost President Mahmoud Ahmadinejad’s country about US$48 billion in revenue, equivalent to 10 percent of its economy. “It’s been an unqualified success,” Mike Wittner, head of oil-market research for the Americas at Societe Generale SA, said in a telephone

interview from New York on July 25. “There were a lot of concerns sanctions could backfire by causing an oil-price spike, but in the end the U.S. and Europeans got their cake and they ate it too, because volumes are down and prices are down.” Crude futures in London rose as high as US$128.40 on March 1, an advance of 20 percent for the year, after Iranian officials threatened to order the closing of the Strait of Hormuz. Prices retreated as Saudi Arabia boosted output. The Organization of Petroleum Exporting Countries’ biggest producer is pumping more than 10 million barrels a day, the most in three decades and 22 percent more than at the end of 2010, according to the International Energy Agency. Iran is exporting 1.1 million barrels a day of oil,

according to the median estimate of 10 analysts compiled by Bloomberg, down from an average of 2.3 million in 2011. The lost sales are valued at US$133 million a day, based on the 2012 average price of US$110.60 a barrel for Iran Heavy crude in Asia, according to Bloomberg data.

Sanctions sting Prices of meat, rice and bread have spiraled in Iran as the rial lost a third of its value against the dollar on the open market since November. Inflation accelerated to 22.4 percent in the 12 months through June 20, according to the central bank. Unemployment reached 13.5 percent in March, the Shargh newspaper reported, citing figures from the national statistics bureau.

The jobless rate was 11.9 percent in 2010, according to the International Monetary Fund. Economic growth will slow this year to 0.4 percent, from 2 percent in 2011, the IMF said July 16. The EU ban prevents most tankers from sailing to the country because the global marine-insurance industry is concentrated in London. All but 5 percent of the world’s fleet is insured by members of the Londonbased International Group of P&I Clubs, and the Islamic republic doesn’t have enough ships of its own to compensate. China, Iran’s biggest customer and an opponent of sanctions, imported more crude from the Persian Gulf producer in June than its monthly average for 2011. Since the July embargo, Iranian tankers able to carry at least 20 million barrels have signaled for the Asian nation, ship-tracking data compiled by Bloomberg show. The world’s second-largest oil consumer hasn’t sent any of its own ships since July 1, and the government in Beijing hasn’t said if it will insure cargoes. “The future of Iran’s oil exports hinges on whether China is going to use its own ships,” said Nigel Prentis, the London- based head of research at HSBC Shipping Ltd. “That’s what we’re waiting for, because there’s nothing stopping them aside from the insurance issue.” Bloomberg

Spain passes key debt test Madrid sold 3.1 billion euros despite ECB doubts

pain passed a key test yesterday by easily selling 3.1 billion euros (US$3.8 billion) of debt despite investors doubts that the European Central Bank will be in a position to help struggling eurozone economies. The bank was going to hold its monthly meeting later in the day. Although the Treasury was forced to pay the second highest yield on its 10-year paper since the launch of the euro in 1999, analysts said the auction was solid in the current context. The cost of borrowing was nearly a full percentage point below the peak yield in the secondary market last week. The results lifted market sentiment, with the premium which investors pay to hold Spanish over German debt falling after the auction.

Spanish bond yields, which had hit euro-era highs due to the possibility that Madrid would have to be bailed out, fell last week after President Mario Draghi said the ECB would do whatever it takes to save the common currency, within its mandate. But concerns that the ECB will now fail to meet the market’s expectations sent them up again in the last two days. “The auctions were good, with better demand at the shorter maturities which looks to me like the auctions were driven by more short-covering demand,” said Peter Chatwell, rate strategist at Credit Agricole in London. “Certainly there is still a lot of doubt whether the ECB has the mandate to do anything which structurally tightens Spanish or Italian spreads.”

Spain survives another round

Spain yesterday sold 3.1 billion euros of bonds, beating its target of 2 to 3 billion euros, though it paid higher rates than the last time the bonds were sold at a primary auction. The Treasury raised 1 billion euros of the longer-dated, benchmark bond, due January 31, 2022, at an average yield of 6.647 percent compared to 6.43 percent when it was last sold in the primary market on July 5. The

yield in the secondary market had reached 7.639 on July 24, before Mr Draghi spoke last week. Sources have told Reuters that bold action – such as the ECB resuming controversial purchases of government debt issued by the most troubled eurozone economies to curb their borrowing costs – is at least five weeks away. Reuters