Macau Business Daily, August 1, 2013 by Business Daily

MOP 6.00

Yacht fair tacks for mainland customers

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Govt’s rainy day fund leaks money in June

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Vitor Quintã

April 19, 2013

Year II

Number 339

Thursday August 1, 2013

Editor-in-chief Tiago Azevedo

Deputy editor-in-chief

New pre-sales law boosts price of older flats Hong Kong sales push exports to 5-year high Macau’s growing role as a middleman between modern China and the outside world is helping revive the city’s trading tradition. The territory’s exports in the first half of 2013 rose to a five-year high. Exports increased by 17 percent year-on-year to 4.61 billion patacas (US$577.2 million) in the JanuaryJune period, the Statistics and Census Service announced yesterday. Page 2

ith new rules making it more difficult to sell unfinished flats, the real estate industry expects “unhealthy” price hikes in pre-owned homes to continue this year due to limited supply. The Financial Services Bureau announced yesterday that in June the average home price actually decreased by 23.2 percent month-on-month to 75,448 patacas (US$9,431) per square metre. That was because monthly sales volume – mostly dependent on newly built homes – collapsed in the wake of the new regulations limiting pre-selling of such units. But the average selling price of pre-owned flats went up by six percent month-onmonth in June to 70,371 patacas per square metre. More on page 3

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The government is changing the investment strategy for the Social Security Fund, in a bid to boost returns. The fund has failed to outpace inflation for two straight years. The system was set up to provide retirement and unemployment benefits for Macau residents. Additionally, the government may ask employees to shoulder more of the burden on contributions. Page 5

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HSI - Movers Name

Doubts on Amax as ‘going concern’ The accounts of Macau junket investor Amax Holdings Ltd contain “material uncertainty which may cast significant doubt about the group’s ability to continue as a going concern,” says the firm’s annual report for year ended March 31. Amax had losses for the 12-month period of approximately HK$39.38 million (US$5.08 million). The firm is chaired by Ng Man Sun, a veteran of VIP room operations. Page 7

Chow time – casino veteran on Wharf 2.0 Macau businessman David Chow Kam Fai is to demolish the fake volcano and Roman amphitheatre in the failed theme park he opened at Fisherman’s Wharf on the city’s waterfront seven-and-a-half years ago. He is replacing them with something a little less kitsch and more in keeping with the neighbourhood: a casino resort boasting an opera house and dinosaur museum, he says. Mr Chow hopes it will return him to the spotlight in the world’s largest single-city casino jurisdiction. Page 6

%Day

CHINA RES LAND

3.40

CHINA COAL ENE-H

1.72

CHINA OVERSEAS

1.59

GALAXY ENTERTAIN

1.24

CATHAY PAC AIR

1.13

CHINA SHENHUA-H

-1.75

KUNLUN ENERGY CO

-2.06

LI & FUNG LTD

-2.29

BELLE INTERNATIO

-3.11

TENCENT HOLDINGS

-3.25

Source: Bloomberg

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August 1, 2013

Macau

Hong Kong sales push exports to five-year high But the territory is selling ever fewer ‘made in Macau’ goods Vítor Quintã

KEY POINTS Trade deficit sets new record high Imports of cosmetics rise 55 percent

vitorquinta@macaubusinessdaily.com

Exports to the U.S. fall almost a third U.K. is biggest European trade partner

acau’s growing role as a middleman between modern China and the outside world is helping revive the city’s trading tradition. The territory’s exports in the first half of 2013 rose to a five-year high. Exports increased by 17 percent year-on-year to 4.61 billion patacas (US$577.2 million) in the JanuaryJune period, the Statistics and Census Service announced yesterday. The territory’s exports are having the best start to any year since 2008. However most of the growth is coming from record level re-exports – goods shipped in only to be shipped out, with no value added to them here – instead of ‘made in Macau’ goods. In the January-June period, reexports increased by 30 percent to 3.6 billion patacas. This is the highest half-year figure since the Statistics and Census Service began collecting data in 1997. Most of that growth came from sales of goods to Hong Kong, which rose by 29 percent to 2.55 billion patacas, strengthening its position as Macau’s largest export market. Hong Kong remains far ahead of mainland China, which bought just 779 million patacas in goods from Macau, up by 25 percent from the

Territory’s exports have best start to year since 2008

first half of last year. Sales of electronic components surged by 91 percent to 449 million patacas. Most of these exports were mobile phone handsets and equipment sent to Hong Kong. The city also saw a fast growth in re-exports of luxury goods. Macau sold 358 million patacas worth of diamonds and diamond jewellery,

up by 130 percent year-on-year. A similar growth was felt in the reexports of clocks and watches, which reached 316.4 million patacas. In contrast the value of domestic exports decreased by 14 percent year-on-year to 1.01 billion patacas in the January-June period. This is the worst start to any year for ‘made in Macau’ goods since 1997.

The main reason for it is the decline of the textile manufacturing industry, which is still the city’s major domestic exporter. Exports of textiles and garments decreased by 21 percent to 435 million patacas in the first half, a far cry from the 7.98 billion patacas sold in the same period of 2004. The end of World Trade Organization quotas globally in 2005 doomed the local textilemanufacturing sector. On the other hand Macau is importing ever more products, namely consumer goods to feed the service sector. Imports rose by 13 percent yearon-year in the first half to a record high of 38.81 billion patacas. Most of that went to consumer goods – 24.76 billion patacas, up by 17.5 percent. The city’s growing restaurant sector meant imports of food and beverages increased by nine percent year-on-year to 4.56 billion patacas. The booming retail trade is also driving up the imports of gold jewellery (up by 18 percent to 4.12 billion patacas) and watches (up by 19 percent to 2.91 billion patacas).

Yacht fair a shop window for mainland Plain sailing for expo’s third edition as more mainlanders take up boating Tony Lai tony.lai@macaubusinessdaily.com

yachting showcase for the mainland’s growing ranks of recreational sailors will take place in Macau later this year. The third edition of the China (Macau) International Yacht Import and Export Fair will take place at The Venetian Macao in November, it was announced in Hong Kong on Tuesday. One of the event’s organisers, Nam Kwong International Conference and Exhibition Department, said 1,000 professional buyers attended last year, a 20-percent increase from 2011. The total number of visitors remained stable at 45,000 people. “The fact that Macau has successfully held the yacht show for two consecutive years shows it has grown to be a hub for yacht imports and exports to the mainland,” said the department’s director Liao Qihui. There were about 20 orders for yachts last year, with almost 300 customers expressing an interest. China Ocean Aviation Group Inc is also involved in organising the fair. Its convention project manager Wang Hongguo told the state-owned China News Agency that 60 percent of buyers in the past two editions

The third edition of the fair will take place in November

came from the mainland. The number of recreational sailors has increased in the mainland in the past few years. “I predict mainland buyers will continue to play a main role in this exhibition and there will be a rise in sales,” he said. A government pledge to allow

yachts to sail on the same permit between Macau, Hong Kong and Guangdong could further assist the industry’s development in the Pearl River Delta region, Mr Liu said. Guangdong’s official government newspaper, Southern Daily, reported last week that the government plans

to open up Zhongshan city, north of Macau, as a marina for Macau- and Hong Kong-registered yachts. As well as a 20,000-square-metre area at The Venetian Macao, this year’s fair will feature a display at the Macau Yacht Club’s marina in Ilha Verde for the first time.

August 1,2013 2013 April 19,

Macau Shun Tak buys Hengqin land for hotel, offices Shun Tak Holdings Ltd won the bidding for a Hengqin Island site with 23,834 square metres, the group announced yesterday. The conglomerate will pay 721 million yuan (US$116.7 million) for the land, with “direct access” to the port and commercial facilities near the bridge to Macau. The project will include offices, a hotel, commercial spaces and serviced apartments. It will complement Shun Tak’s hospitality business in Macau, and will tie in with its strategy “to build up its asset base in China,” managing director Pansy Ho Chiu King said in a statement.

Unhealthy flat price spike as off-plan buys sidelined Some real estate agents say limited supply will drive continued ‘unhealthy growth’ Tony Lai tony.lai@macaubusinessdaily.com

ith new rules making it more difficult to sell unfinished flats, realtors have forecast an “unhealthy” spike in prices for housing will continue with few, new flats coming onto the market. The Financial Services Bureau announced yesterday that the average home price fell 23.2 percent in June to 75,448 patacas (US$9,446) a square metre. In the broader context, combined prices are up 27.9 percent over the same time last year. But the average price of completed flats grew by 6 percent from May to 70,371 patacas a square metre. The month-to-month hike in completed flats does not surprise HKP Estate Agency (Macau) Ltd district sales director Marco Wong Kwok Ki. “After the new law, there are basically no new unfinished flats in the market so the owners [selling flats] can ask for a higher price,” he told Business Daily.

Starting from June 1, sales of flats “off the plan” will only be legal after the foundation of the housing development is complete and the project has been registered. Midland Realty (Macau) Ltd chief executive Ronald Cheung Yat Fai said: “There are some buyers in real need of a flat so they have to accept, even grudgingly, the higher price.” “Some very old flats in the northern district can be sold for 4 million patacas and from that you can see how big the demand is.” Just 739 sales were recorded in June, down by 45.1 percent from May. There were only 73 unfinished flats sold, with 90 percent of sales being existing flats.

Finished flats The market has reversed from May when more than half of home sales were unfinished flats, as developers rushed to clinch deals before the new rules came into effect. Estate agents believe bricks-

and-mortar flats will dominate sales while developers play catch up on unfinished projects. Mr Cheung said some new, unfinished flats could be ready for

KEY POINTS Pre-sales rules squeeze unfinished flats’ sales Price of existing homes up over residents’ demand Fewer transactions expected in second half Special stamp duty lapse ‘of little help’: agents

Existing flats accounted for 90 percent of all home transactions in June (Photo: Manuel Cardoso)

sale after September. Mr Wong was more conservative and believes this will only happen early next year. “The housing market will remain quiet in the second half of this year with a continuous drop in the number of transactions,” said Mr Wong. “The price will remain the same due to the demand from residents. “But there is room for a 3 to 5 percent easing due to a smaller contribution from more expensive unfinished flats.” Mr Cheung warned that the price of existing flats “will continue to grow unhealthily due to the supply and demand unbalance”. Executive director of Ricacorp (Macau) Properties Ltd, Jane Liu Zee Ka, told Hong Kong media outlets on Tuesday that the limited supply of housing could force up prices “by 5 to 8 percent in the second half”.

Fewer sales The number of transactions involving unfinished flats in the second half “will only be one-third of what was achieved in the first half,” said Mr Cheung. The city’s first laws to regulate real estate agents, which also came into force last month, also dampened the number of transactions, he said. “There was basically no business in the first week of July as many agencies either closed their shops or went out on the streets.” Agents organised protests against the new law, which they claim makes transactions troublesome to process. Agents are now required to ink a contract with the buyers and sellers when they provide a service. Staff at Midland Macau took “about two weeks” to become familiar with the new rules, Mr Cheung said. The first batch of flats that escape penalty under the special stamp duty can potentially come onto the market soon. The regime was introduced in June 2011. It would have little effect on the market, Mr Cheung said. “Buyers are in no rush to sell their flats and secondly there were actually not many homes sold in the first few months” after the special stamp duty was introduced, he said. The duty is an additional 20-percent levy on property if it is sold within a year of being purchased or 10 percent if it is sold between one and two years after it is purchased.

August 1, 2013

Macau New U.S. consul in town Clifford Hart, formerly in charge of nuclear talks with North Korea, arrived in Hong Kong to replace Stephen Young as United States consul general in Hong Kong and Macau. In a statement released by the consulate, Mr Hart said he intends “to continue to work with (…) Macau as the region diversifies its economy and overcomes the challenges brought on by economic success”. “I am proud that U.S. companies have played a key role in this growth,” he added. Mr Hart has had previous assignments in mainland China. He is fluent in Mandarin and Cantonese.

Fiscal reserve slides backwards in June City’s ‘rainy-day fund’ needed bolstering after civil servants’ wage hike Vítor Quintã vitorquinta@macaubusinessdaily.com

he government’s fiscal reserve has recorded a monthly loss for the first time, curbing a strong start to the reserve’s second year of operation. The amount in the reserve fell to 166.09 billion patacas (US$20.79 billion) in June, a 246.4-million pataca decrease in one month, according to an update on the fund’s performance published by the Monetary Authority of Macau in yesterday’s Official Gazette. It was the first monthly drop since the reserve was created in February last year and it came unexpectedly, just when it seemed the reserve’s investment strategy seemed to be gaining traction. Between March and May, the reserve’s return on investment had been just short of 2 billion patacas, already a bigger return than the 1.73 billion patacas from the reserve’s first 12 months of operation. After June’s loss, the return to date in the reserve’s second year stands at 1.75 billion patacas. In the March-June period the reserve’s return on investment was less than 1.07 percent, lower than the 1.55 percent rate of inflation during that period, according to official data. That means the reserve is going backwards in real terms. The monetary authority said in April it would “adopt an investment strategy that aims to achieve a higher return in the long term”. January’s transfer of the 2011 fiscal surplus, almost 64 billion patacas, boosted the special reserve,

Bad air penalties loom over casinos Results of second air quality checks out ‘soon’, official says

he government will reduce the smoking areas of gaming venues that again fail the air quality checks, whose results will be out “soon”, stressed the Health

The monetary authority said in April it would seek out higher-risk investments (Photo: Manuel Cardoso)

which is for investment, and has allowed the authority to invest in higher-risk vehicles. But in June the regulator had less money to play with following May’s wage increase for civil servants. The pay hike meant a 633-millionpataca increase in the government’s budget for this year.

Services Bureau. Bureau director Lei Chin Ion said yesterday they were “at the final stage” of double-checking the data on the air quality of smoking areas in casinos gathered in a second round of checks. “We have a procedure to reduce [casinos’] smoking areas and we are now compiling the results and [carrying out] that procedure at the same time,” he told media after meeting with the Hong Kong Secretary for Food and Health Ko Wing Man. Asked whether his comment meant that some casinos failed the air quality test for a second time, Mr Lei replied: “We are still looking at the results.” He gave no timeframe for when the data would be out, only saying it would be “soon”. The air quality checks took time as a large amount of data was involved and the government had to “cautiously handle” the issue, the

That meant a transfer of almost 950 million patacas from the special reserve to the basic reserve, which is kept for emergencies. The fund’s rules say the basic reserve must amount to 150 percent of the annual expenditure budgeted by the government, which has now reached 83.2 billion patacas.

The basic reserve hit 111.92 billion patacas in June, whereas the special reserve had just 52.06 billion patacas. Business Daily asked the Monetary Authority of Macau if the transfer to the basic reserve was connected to the fiscal reserve’s June loss, but had not received a reply late last night.

A partial smoking ban in casinos was introduced on January 1

director explained. The bureau said in April that 28 out of Macau’s 46 gaming venues, or 63.6 percent of the total, had air quality issues in the first round of checks.

Since January, smoking is only allowed in specific smoking areas of casinos no larger than half of their operating floor. T.L.

August 1, 2013

Macau New Nevada enforcer also covering Macau The Nevada Gaming Control Board in the United States has named a new chief of its enforcement division, reports the Las Vegas Sun newspaper. The section is charged with keeping the state’s casinos and clubs crime-free. It also has responsibility for overseas enforcement. This covers Nevada-licensed operators with out of state investments, including firms with Macau operations. Karl Bennison will replace Jerry Markling, who is retiring. “The board is involved in many complex regulatory issues, not only in Nevada but around the world; these include criminal matters ranging from money laundering to slot cheating,” said chairman A.G. Burnett.

Social security fund aims to catch inflation Official also hints employees may be asked to shoulder more of contributions burden Stephanie Lai

sw.lai@macaubusinessdaily.com

he government is changing the investment strategy for the Social Security Fund, in a bid to boost returns. The fund has failed to outpace inflation for two straight years. The system was set up to provide retirement and unemployment benefits for Macau permanent residents. Additionally, the government may ask employees to shoulder more of the burden on contributions. Currently the administration supports the fund with a capital transfer of public money, and monthly contributions are made by employers and employees in the ratio of 1.5 patacas to one pataca. The fund is hiring two more companies this year to help pick the investments, president Ip Peng Kun told media. His comments came after a meeting yesterday with the Standing Committee for Coordination of Social Affairs. Up to December 31 last year, the fund amounted to 15.73 billion patacas, including capital contributions from the government and employees. A total of 88 percent of the fund was invested in bank deposits and the remainder in lowrisk investment vehicles, the 2012 Social Security Fund report shows. The fund’s rate of capital return last year was only 3.73 percent, lower than the city’s then inflation rate of 6.11 percent. In 2011 the fund’s return was 1.64 percent versus a 5.81 percent inflation figure. “Our investment returns rate was indeed lower than the inflation rate in Macau these years,” said Mr Ip. “But considering the fund is making a long-term investment, I think the

Contributions row

Ip Peng Kun, president of Social Security Fund

3.73 percent of return rate was still an acceptable level.” “To chase close to the high inflation rate that Macau saw these years was really quite difficult,” the fund president continued, “And for the nature of the social security fund, we have to keep a stable approach in making investments.” “Currently I think the return rate is already quite good,” said Mr Ip, adding “[it is] just that the overall

return rate was dragged down in the past year as we placed more of our capital in bank deposits.” The social security fund president said that the government would soon increase to 40 percent of overall fund capital the amount placed with global investment vehicles. That would include stocks and bonds. The percentage of fund money in bank deposits will fall to 60 percent from the current 88 percent.

Court delves into Ao’s immigration records T he immigration records of jailed government secretary Ao Man Long must be clarified by police, The Court of First Instance heard yesterday at the bribery trial of two Hong Kong tycoons. Presiding judge Mário Silvestre said the court received a reply from the Public Security Police Force on Mr Ao’s “abnormal” immigration records from May and June 2005. Lawyers representing Joseph

“We are also signing two more investment companies to manage our investment this year, and now we are drafting the contract details,” said Mr Ip, declining to name the two companies. Currently State Street Corporation and J.P. Morgan are managing the investment for the social security fund. “With the two new investment companies, we’re planning to enhance the input for global investment part in order to have better returns,” Mr Ip noted. “In the future we may place a higher portion in bonds.” Business Daily asked the Social Security Fund for more details of in what stocks and bonds it had invested since 2011, but no response was available by press time.

Lau Luen Hung and Steven Lo Kit Sing pointed out last week that immigration records showed Mr Ao was not in Macau between May 25 and June 25, 2005. The two tycoons were said to have met the former secretary during this period. The police reply failed to explain “why there were consecutive records only showing [Mr Ao] leaving or entering the city,” Judge

Silvestre said. He repeated his demand for more information from the police. Commission Against Corruption chief investigator Lei Tong Leong told the court last week that incomplete records were not unusual because top officials could use special channels to pass through immigration. Mr L a u , ch a i r m a n o f H o n g Kong-listed developer Chinese Estates Holdings Ltd, and Mr Lo

Talks on how much employers and employees should pay to the fund are again deadlocked, the media heard yesterday. Fund president Mr Ip mentioned in December last year the government hoped the monthly contribution ratio would eventually move from 1.5 to 1 (with the employer paying the larger proportion), to 1.2 to 1 and then 1 to 1 over four years. The government also proposed the monthly contribution amount should be raised from the current 45 patacas to 100 patacas, and eventually to 270 patacas per month, also over a four-year period, with further subsequent adjustments for inflation. The employer side of the committee, represented by businessman Vong Kok Seng, supports the government’s proposal. The employee side – represented by Federation of Trade Unions – insists the present ratio is good enough, taking into account its affordability for workers. After attending yesterday’s discussion, Mr Ip said he was “sorry” the employers and employees had been unable to reach a consensus. “We will collect opinions from both parties and form a proposal, and we will see if we can suggest some adjustment in the contribution ratio and amount for the committee to discuss again,” added Mr Ip.

are accused of paying Mr Ao HK$20 million (US$2.5 million) to ensure the success of their bid for land plots near Macau airport, where high-end residential development La Scala was being built. Rui Sousa, lawyer for Mr Lo, also asked the court to follow up the delivery of documents from Portugal. The trial has adjourned for summer and resumes on August 29. T.L.

August 1, 2013 April 19, 2013

Macau

Out from under the volcano David Chow says he’s bounced back from his Fisherman’s Wharf troubles and expects fresh success after his recent IPO

the Hong Kong Stock Exchange in July, raising HK$2.04 billion net (US$263 million); less than half of what was initially planned. Mr Chow, a Macau legislator for 13 years until 2009, has kept a low profile since the failure of the theme park. Merrill Lynch and U.S. hedge funds Och Ziff and TPG-Axon were among backers who ploughed nearly US$400 million into the theme park in 2006, recouping only around a third of their investment three years later.

Community gift “We were never wrong,” Mr Chow said in an interview in Hong Kong’s Central business district. “For me it was a park. We are not making money there. It was a gift to the society. Now we are going to build the park into a resort.” Mr Chow’s mother ran multiple VIP gambling clubs in the 1970s for Stanley Ho. Her son will have plenty of fresh competition. Six casinos are scheduled to open on Cotai in the next three years, just as his new one at Fisherman’s Wharf is due to open. “David went away and did what he had to do, reorganise,” said a former investor in Mr Chow’s theme park who declined to be named due to company policy. “He’s well connected in Macau so maybe he can

make it work but it’s a hard model to execute. You are competing with the mega casinos.” Those are being built on the nearby Las Vegas-style Cotai strip, where LVS has already become a powerful force with 1,500 gaming tables, 9,000 hotel rooms, an apartment complex and multiple high-end retail outlets. Macau limits the number of casino licences, so Mr Chow’s gaming operations are done through a service agreement with Sociedade de Jogos de Macau SA, the entity that holds the SJM Holdings casino concession. SJM also provides the licences for his existing Legend Club and Pharaoh’s Palace casino, where customers are greeted by giant sphinx heads and gilded columns, and at Babylon Casino at Fisherman’s Wharf. Mr Chow’s firm said in a preI P O p r es s co n fer en c e i t h a s a ‘comfort letter’ from the government regarding the company’s request for up to 350 new-to-market tables to fuel its expansion plans.

Gambling man Mr Chow says he helped develop Macau’s VIP junket model, a system extending credit to wealthy Chinese gamblers. He also worked as a junket operator in Las Vegas,

bringing in high rollers to the Nevada gaming city. “I have the blood for gaming,” he said with a laugh. Mr Chow is known as a prolific gambler. He was in a long-running lawsuit in Hong Kong with Steve Wynn over nearly US$5 million in gambling debts, and eventually settled out of court. “To be a casino operator or be in the industry, you have to know what is gambling,” Mr Chow said. One of Mr Chow’s biggest current backers is Dynam Japan Holdings Co Ltd, a Japanese pachinko company, which put US$35 million into the IPO as a cornerstone investor. Yoji Sato, Dynam’s chairman, said the Macau Legend investment would give his company “valuable know-how in the entertainment and casino business in Macau”. He declined to comment on Mr Chow’s previous theme park failure. Macau Legend has enough money to start the casino development without needing to raise more until next year, said Sheldon Trainor, the company’s executive director. It would likely seek debt financing rather than issuing new shares, he said. “After this IPO they [casino rivals] understand this is the David Chow now. They forget me a long time,” said Mr Chow. Reuters Photo by Naty Torres

acau businessman David Chow Kam Fai is to demolish the fake volcano and Roman amphitheatre in the failed theme park he opened at Fisherman’s Wharf on the city’s waterfront seven-and-ahalf years ago. Mr Chow is replacing them with something a little less kitsch and more in keeping with the neighbourhood: a casino resort boasting he says an opera house and dinosaur museum. Mr Chow, co-chairman of Macau Legend Development Ltd, hopes it will return him to the spotlight in the world’s largest single-city casino jurisdiction. Mr Chow developed the original Fisherman’s Wharf jointly with former Macau gaming monopolist Stanley Ho Hung Sun. With nonagenarian Mr Ho in retirement, Mr Chow, a relative youngster at 62, is now competing with the industry’s modern leaders, septuagenarians Sheldon Adelson at Las Vegas Sands Corp and Steve Wynn at Wynn Resorts Ltd. They and other, younger, newcomers including two of Mr Ho’s children, have built massive casino, hotel and shopping complexes that rake in the equivalent of billions of U.S. dollars each year. “It is my time to come now,” said Mr Chow, whose Macau Legend Development Ltd listed on

To be a casino operator or be in the industry, you have to know what is gambling David Chow, co-chairman, Macau Legend Development

Trial judge denies LVS bid to overturn Suen award Casino op plans to take fight to a higher Nevada court, says spokesman

as Vegas Sands Corp has lost an initial bid to set aside a US$101.6 million (811.6 million patacas) – including interest – jury award to Richard Suen. The Hong Kong businessman claimed he helped the casino operator obtain a gaming licence in Macau in 2002. LVS says it will appeal to a higher Nevada court against the decision not to vacate the lawsuit verdict that

favoured Mr Suen. Clark County District Judge Rob Bare – the trial judge in the process that led to the jury award – decided at a hearing on Tuesday United States time in Las Vegas to deny a request by LVS to enter judgment in its favour. The judge also rejected the alternatives of ordering a new trial or cutting the amount of the jury award.

LVS chairman and majority owner Sheldon Adelson testified during the trial that Mr Suen, a friend of his younger brother Lenny Adelson, had contributed nothing to helping Sands get a concession in Macau. The Nevada jury in May awarded Mr Suen US$70 million in damages, to which Judge Bare added US$31.6 million in prejudgment interest. “Nothing has changed,” Ron

Reese, a spokesman for LVS, said yesterday in an e-mail. “We will absolutely appeal,” he added. “We are very pleased that Judge Bare denied all the motions made by the Sands [sic],” John O’Malley, a lawyer for Mr Suen, said after the hearing. “We expect Las Vegas Sands to appeal and we will defend the verdict.” M.G. with Bloomberg News

August 1,2013 2013 April 19,

Macau

Doubts on Amax as ‘going concern’ Junket investor ‘experiencing persistent negative operating cash flows’, says filing Michael Grimes

michael.grimes@macaubusinessdaily.com

he accounts of Macau junket investor Amax Holdings Ltd contain “material uncertainty which may cast significant doubt about the group’s ability to continue as a going concern,” says the firm’s annual report for year ended March 31. Amax had losses for the 12-month period of approximately HK$39.38 million (US$5.08 million). The firm is chaired by Ng Man Sun, a veteran of VIP room operations with former Macau casino monopolist Stanley Ho Hung Sun. Mr Ng made international

HK$39.38 mln

Amax losses for the 12-months ended March 31

headlines last summer when he was attacked by masked men while dining at the New Century Hotel, Taipa; a venue where Amax has operated a casino junket operation. Amax has “been experiencing persistent negative operating cash flows” stated the annual report, adding that as of the end of March, liabilities exceeded assets by around HK$30.72 million. The document adds: “In order to improve the group’s operating and financial position, the directors have been implementing various operating and financing measures as follows: actively collecting outstanding debts due from an associate and other debtors; actively looking for potential investment opportunities; cost minimisation and control measures; and negotiating with banks and financial institutions such as financial leasing company to obtain new credit lines or financing to fulfil the operational and additional financial obligations.” Hong Kong-listed Amax said in a filing in early July it wants to operate a casino in the Turkish Republic of Northern Cyprus. The area of the Mediterranean island is only

Ng Man Sun, chairman of Amax Holdings

recognised by Turkey. The United States’ Department of State said in its latest International Narcotics Control Strategy Report in March the jurisdiction “lacks the legal and institutional framework necessary to provide effective protection against the risks of money laundering”.

On Tuesday Amax said in another filing it proposes changing its name to Amax International Holdings Limited, to “refresh the corporate image and identity of the company and…more appropriately describe the version and business landscape of the group”.

August 1, 2013 April 19, 2013

Greater China

Taiwan economic growth beats forecasts Rise in consumer spending drives second-quarter growth

Private consumption contributed 0.87 percentage points to growth

aiwan’s economy expanded at a faster-than-estimated pace in the second quarter as domestic consumption improved, even as a slowdown in China damps the outlook for the island’s exports. Gross domestic product rose 2.27 percent from a year earlier after increasing 1.67 percent in the first quarter, the statistics bureau said in a preliminary report in Taipei yesterday. The pick-up in growth came as the island faces increasing risks from China, its biggest trading partner, which recorded a second straight quarterly slowdown. Chinese Premier Li Keqiang’s efforts to rein in a record credit boom and curb housing prices increase the risk of missing the year’s expansion goal, dragging on the global recovery and hurting demand for Taiwan’s products.

In the second half, Taiwan’s “recovery will still be at a very slow pace because of the weakness in external demand,” said Ma Tieying, an economist at DBS Group Holdings Ltd in Singapore. “The slowdown of China is a major risk facing Taiwan because the economy is largely supported by China.” The benchmark Taiex stock index slipped 0.68 percent yesterday. The Taiwan dollar gained 0.2 percent to NT$29.962 against the U.S. currency, according to Taipei Forex Inc. It has declined about 3 percent this year. “Exports and private consumption were a little better than expected but still weak. This is another quarter of below-trend growth for Taiwan at the hand of weak global demand,” said Katrina Ell, an analyst at Moody’s Analytics in Sydney.

Steel demand to remain weak

“Although the whole sector reported low profits in the first half, demand growth for steel products is slower than output growth,” CISA vice-chairman Zhang Changfu told reporters at a news briefing. On Monday, the Ministry of Industry and Information Technology said the debt-to-asset ratio of Chinese steel firms reached 69.4 percent in the first five months of this year, up 1.4 percentage points compared with the same period of 2012. Total debt chalked up by large and mid-sized steel mills between January and May reached 3 trillion yuan, up 6.5 percent from year ago, the report said. It also said that there was unlikely to be any recovery in demand in the second half of this year as China’s economy slows. Overcapacity has long been identified as a major challenge facing the sector, with years of rampant and unregulated growth creating a surplus of around 300 million tonnes. However, steel firms have continued to build new facilities this year. Citing statistics from consultancy Mysteel, the industry ministry said

Demand growth slower than output, industry says

hinese steel demand is expected to remain weak in the second half of 2013, the country’s steel association said yesterday, putting further pressure on steel mills struggling with falling prices that have pushed them into the red. The group’s 86 members made a combined loss of 669 million yuan (US$109 million) in June, marking the first aggregate loss this year, the China Iron and Steel Association (CISA) said in its second-quarter report. For the first six months, 35 members were in the red, it said.

Gross capital formation was a negative 0.52 percentage points after adding 1.55 points to growth in the previous quarter. “Business investment was a drag after adding to growth in the previous two quarters. Our full-year 2013 forecast of 2.5 percent looks intact,” she said.

Luxury tax Taiwan in May lowered its official forecast for growth this year to 2.4 percent from 3.59 percent. The economy expanded a seasonallyadjusted 0.59 percent in the second quarter from the previous quarter, yesterday’s report showed. Private consumption increased 1.61 percent in the second quarter from a year earlier, compared to a 0.35 percent gain in the previous

period. Manufacturing rose 1.22 percent from a year earlier, slower than a 1.54 percent pace in the first quarter. President Ma Ying-jeou said in an interview last week that he ruled out driving down the Taiwan dollar to boost exports following the currency’s rally against the yen. He said the government aims for growth of at least 2 percent this year. Overseas shipments, which are equivalent to about two-thirds of gross domestic product, rose a better-than-expected 8.6 percent in June from a year earlier, even as industrial output slipped for a fifth straight month. Export orders, an indication of shipments in the next one to three months, also fell for a fifth month in June. Taiwan earlier let insurers invest in infrastructure projects and created a NT$1 billion (US$33 million) fund to channel money to companies in a bid to spur growth. The central bank held the benchmark interest rate at 1.875 percent for an eighth straight meeting in June, the longest period of inaction. The government is considering tightening luxury-tax rules to narrow the gap between property prices and personal incomes to boost consumption. It is also seeking closer trade ties with other countries to reduce its reliance on China, and earlier this month signed an economic cooperation agreement with New Zealand, its first such deal with a developed country. Bloomberg News/Reuters

Taiwan’s recovery will still be at a very slow pace because of the weakness in external demand Ma Tieying, DBS Group

RMB669 mln Combined loss of CISA’s 86 members in June

in its sector report that as many as 31 new smelters either went into operation or began construction in the first quarter of 2013 alone, involving a total crude steel capacity of 38 million tonnes. Chinese steel firms were not

expected to cut output to reasonable levels because they were still able to maintain small profit margins. Fear of losing market share and worries about banks cutting back credit would also keep production at high levels. Reuters

August 1,2013 2013 April 19,

Greater China

China to meet growth target: NDRC chief Xu says ‘arduous efforts’ needed to support economy COSCO seen selling property assets China’s largest bulk shipper, China COSCO Holdings Co Ltd, may sell some of its US$1.6 billion in property assets to avoid a delisting after it flagged a first-half loss, weighed down by a global shipping industry slump. The state-controlled company has posted losses for two consecutive years, and a third year would trigger delisting from the Shanghai stock exchange. COSCO announced in March that it was selling its logistics unit to try to return to profitability, yet on Monday it said it expects to post a firsthalf loss. The loss will likely be 70 percent to 85 percent smaller than a year earlier, but that may not be enough to assure a profitable year. Analysts said the company may need to sell more assets, most likely its office buildings, to stay in the black in 2013. “It’s fairly difficult for the company to have a full-year turnaround with just earnings from its core businesses, so continuous disposal of its assets is the way to go,” said Lawrence Li, an analyst with UOB Kay Hian Holdings Ltd in Shanghai. COSCO’s properties were valued at about 10 billion yuan (US$1.6 billion) in 2012, according to Barclays Plc analyst Jon Windham. The company declined to comment on whether it planned to offload property assets.

HK makes third arrest related to China Metal Hong Kong’s police arrested a third person related to the investigation into China Metal Recycling Holdings Ltd, the company that the city’s securities regulator accused of fabricating sales. A 37 year-old man surnamed Leung was arrested yesterday morning. Two people were arrested on July 26 in connection with the case and both are currently on bail, an earlier police statement said. It identified the two as a 46 year-old man surnamed Lam and a 42 year-old woman surnamed Lai. The Securities and Futures Commission is seeking to liquidate the Hong Kong-based scrap metal dealer after it found evidence that the company inflated the size of its business to gain a listing in 2009. China Metal adds to a series of accounting scandals at Chinese companies that is prompting regulators to toughen enforcement and share-sale rules. The court will hear the case on August 2 on the continuation of appointment of provisional liquidators, where China Metal will have the chance to address the allegations, the SFC said in a July 29 statement.

Workers strike against takeover More than 5,000 Chinese workers at a Sino-U.S. joint venture tyre manufacturer have gone on strike against the American parent company’s US$2.5 billion takeover by an Indian firm, state media reported. Cooper Tire & Rubber Co announced last month that it would be taken over by Apollo Tyres Ltd of India, making the combined group the seventh-largest such firm in the world. But thousands of staff at Cooper Chengshan, a joint venture in the eastern Chinese province of Shandong, have walked out in protest, the Xinhua news agency said. It quoted union leaders saying they wanted to block the huge transaction, which saw Cooper shares leap on the New York stock exchange. Workers are concerned the Indian company will be unable to repay debt taken on in the highly leveraged acquisition and their interests could be damaged, Xinhua said. Cooper holds 65 percent of the joint venture while China’s Chengshan Group has the remaining 35 percent. Employees have become increasingly vocal in China with numerous labour disputes occurring in recent years, but the cause of the Cooper Chengshan strike is unusual, with protests normally focusing on pay and current working conditions.

hina will meet its economic growth target of 7.5 percent this year as authorities will continue to implement prudent monetary policy and keep market liquidity relatively ample, the chief of the top economic planning agency said yesterday. Xu Shaoshi, chairman of the National Development and Reform Commission, also said in a live webcast that the government will unveil an urbanisation plan in the second half of 2013 and will push ahead with housing registration and land reforms. Mr Xu’s comments are the latest from top officials to affirm China’s plans to transform its economy and reassure markets it is on track to meet its goals. On Tuesday the politburo, China’s top decision making body, vowed to keep growth steady while pressing on with reforms. “We are confident, and have the necessary means and the ability to achieve this year’s economic growth target of around 7.5 percent. But we also need to make arduous efforts,” Mr Xu said in the webcast on the central government’s website. Top leaders have made clear they will accept a slowdown in growth as they restructure the economy away from dependence for growth on exports and manufacturing, and towards one driven by consumption and services. However, they have indicated that annual growth should not be allowed to slip below 7 percent. Getting rural workers to move to the cities is part of the transformation effort as the government sees it as boosting

opinion

China’s domesday debt survey

James Saft

Reuters columnist

ike William the Conqueror before him, Premier Li Keqiang is initiating his own Domesday survey in China, and this time the attempt to curb local abuses of power will have global economic consequences. China’s State Council, chaired by Premier Li, has ordered the National Audit Office to begin auditing what could total US$2 trillion or US$3 trillion of debt taken on by local governments. The Audit Office will suspend other work and give all staff “crash” training so that auditors can begin fanning out across the country this week, according to a report by the state-run People’s Daily. The clear implication is that China is seeking to rein in local governments, which have helped along what is clearly a boom and may be a bubble by borrowing and spending freely on local development. For China, this will act as another brake on

Xu Shaoshi – confident on full-year growth target

consumption, which it wants to make the main engine of growth. “We will push forward reforms on household registration system, land, fiscal and financial areas, social security and so on while improving the quality of urbanisation,” Mr Xu said. “The policy focus will shift to stabilising growth in the second half,” in line with recent remarks by Premier Li Keqiang, said Shen Jianguang, chief Asia economist

at Mizuho Securities Asia Ltd in Hong Kong. The economy will bottom out in July and August and the government will use fiscal and monetary policy to support growth, Mr Shen said. Recent reports “signal no change of policy stance” and the broader message “does not show a sense of urgency”, Zhang Zhiwei, chief China economist at Nomura Holdings Inc in Hong Kong, said in a note.

already slowing growth. For the rest of the world, it means less demand, especially for the kinds of raw materials and energy which go into real estate development and infrastructure. William ordered the 1086 “Domesday Book” census of property, so called because it was said to be as thorough and wide-reaching as the final judgement, shortly after the Norman conquest of England in order to nail down who owned what and who might have usurped something belonging to the crown he now possessed. Premier Li, who assumed office in March, has a related but different problem. Despite laws against it, local governments have taken on huge debts, an amount estimated by the last audit at about US$1.75 trillion at the end of 2010. Analysts believe that has grown substantially since then, leading to growing concern about the country’s overall debt profile. While the IMF has estimated China’s total government borrowing to be a bit less than 50 percent of annual GDP (as compared to about 100 percent in the U.S.) local government debt has grown faster, and pays a higher rate of interest, than forms of borrowing more tightly controlled by the central government. Of particular interest is a story in China Business News, citing an unnamed source, which said China had decided that it should cap its fiscal deficit at 3 percent of GDP, well below the 5 percent or more many economists estimate it may now be. To do that would likely require quite a savage cutting back on local government debt, or for central government to content itself with a smaller piece of the pie and all the diminished opportunities for reward, control and influence that implies.

about the debt practices. But the relationship between local and central government in China is complicated, and, in fact, local authorities have exercised much discretion in directing development, and, despite rules to the contrary, contracted much debt to fund it. Because rural land in China is held, in essence, collectively, there is a huge and profitable opportunity for local governments in re-badging rural land as urban or industrial, paying off its occupiers, and selling rights or leases on for development. So-called Local Government Financing Vehicles are set up to do an end-run around prohibitions on local debt and allow governments to borrow the money needed to fund both development and the infrastructure it requires. Much of this development has arguably been of low quality in recent years, producing extra manufacturing capacity which may not be needed and apartments to meet speculative demand. China clearly needs to transition to a model in which it depends less on investment and more on consumption, and reining in helter-skelter local development is as good a place to start as any. That said, a crackdown on local borrowing will have large repercussions. As the U.S. demonstrated in the last decade, borrowing and spending money to dig holes in the ground and put up buildings is a great way to give the appearance of strong economic growth. Limit that and growth goes down with it, though perhaps the growth you get is more stable. Estimates of the likely run-rate of Chinese growth have been dropping sharply, and this will only exacerbate this trend. Like everything in China today, what happens there matters everywhere. The big and easy-topick losers are the commodities and energy used in developing infrastructure, and those countries, such as Australia, which produce them. This won’t be quite doomsday, but as one more piece of evidence that China is aiming for higher quality, if slower, growth, the local debt audit is a big story.

Global impact Taking a step back, the most surprising thing about this whole story is that a government, much less one in a single-party state, needs an audit to know how much its constituent parts have borrowed. Little wonder ratings agencies have expressed concern

Reuters/Bloomberg News

Reuters

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Greater China EU questions data in solar dispute

Chinese solar firms seek new markets With EU sales likely capped, companies look at emerging markets Charlie Zhu

deal between Beijing and Brussels to regulate trade in solar panels will limit Chinese firms’ growth prospects in the European Union, the world’s largest solar market, and force them to step up sales to ‘emerging’ markets at home and in the United States and Japan. News of a deal – which had threatened to boil over into a wider trade war covering wine and steel – helped push up shares in Shanghai-listed solar panel makers Hareon Solar Technology Co Ltd and Shanghai Chaori Solar Energy Science & Technology Co Ltd early this week. “It’s good news they finally found a solution,” said Haiyan Sun, a senior executive at panel manufacturer Trina Solar Ltd, which competes against Yingli Green Energy Holding Co Ltd, LDK Solar Co Ltd, Suntech Power Holdings Co Ltd, JA Solar Holdings Co Ltd and Canadian Solar Inc. “The focus for us is to rapidly develop other markets, like China, Japan and the United States.” Globally, Chinese manufacturers are on track to ship a total of 22 to 23 gigawatts (GW) of solar modules this year. Total estimated global demand is 35 GW, according to industry analysts.

Solar power has good development prospects but its cost must come down further Bai Jianhua, State Grid Corp’s research institute

For Chinese firms, future growth is likely to be in their domestic market, Japan, the United States, the Middle East and South Africa, analysts said. China’s solar panel demand should reach 7 to 8 GW this year, said Glenn Gu, senior analyst at IHS Consulting in Shanghai, while shipments to Japan and the United States could reach 3 to 3.5 GW and 2 GW, respectively. While the small print of the European Union deal has yet to be announced, one EU source said it had been agreed that Chinese firms could sell into Europe at a minimum price of 0.56 euro cents (US$0.74) per watt, with a total ceiling of 7 GW a year – around half of the EU’s 2012 demand of about 15 GW. Chinese solar panel production quadrupled in 2009-11 to 55 GW as it took advantage of renewable energy market growth amid concerns about climate change. But the global financial crisis and euro zone paralysis forced EU governments to withdraw generous industry subsidies. That, along with cut-price Chinese imports, pushed many European solar firms into bankruptcy.

Domestic demand Anticipating EU restrictions, Chinese solar panel makers revved up sales to Europe in the first half of this year, with exports already reaching 6.5 GW, analysts said. Chinese solar panel sales to the EU reached 21 billion euros (US$27.9 billion) last year. It’s unclear if any annual EU quota on Chinese panels covers first-half shipments, but exports to Europe are expected to ease in the current quarter after a surge in April-June, which has left an inventory build-up of about 2 GW. China said earlier this month it aimed to more than quadruple solar power generating capacity to 35 GW by 2015 in an apparent bid to ease a massive glut in its panel industry – which employs thousands and is staggering under heavy debts – and trim its reliance on coal. But Mr Gu and other analysts

US$27.9 bln Value of Chinese solar panel sales to the EU last year question how Beijing can crank up domestic demand given the uncertainties over subsidies to the industry, the country’s geographical energy imbalance and a lack of infrastructure needed to harness intermittent renewable energy. As part of an ongoing restructuring of China’s solar panel sector, some of the more than 100 panel makers are likely to go out of business, Mr Gu said, with industry leaders – most of which are U.S.-listed and supply high-quality panels and better warranties – emerging as the winners. Globally, the solar industry has made significant gains in driving down costs over the last five years, but it has yet to be weaned off big subsidies. Solar power remains an inefficient source of energy and is hugely expensive – installing 35 GW of solar capacity would cost around US$50 billion, plus the subsidies needed for solar producers under long-term power purchase agreements with the government, analysts said. “Solar power has good development prospects but its cost must come down further,” said Bai Jianhua, deputy chief engineer at the research institute overseen by State Grid Corp, China’s dominant utility and buyer of renewable power. “It’s not time to embark on large-scale development of solar power. Now it’s only time to carry out some development while pushing for technological upgrades,” he said, adding this was his personal view. Reuters

The European Union is investigating a German company it used to help make its case in a solar panel dumping dispute with China, following complaints from firms that install the panels that Brussels was misled by erroneous data, a letter reviewed by Reuters showed. The data, supplied by the Bonn-based consultancy firm Europressedienst, helped to build the Commission’s case that Chinese companies were dumping solar panels at below cost in Europe, a dispute defused at the weekend when Beijing and Brussels agreed to curb Chinese imports and avoid tariffs. The data is disputed by EU firms that install solar power systems, who believe it may have been used to exaggerate Europe’s capacity to produce its own solar panels. The installers benefit from cheap Chinese imports, putting them at odds in the trade dispute with European firms that make panels, which accused China of dumping. For the manufacturers, it was important to show Europe had the capacity to meet demand. Any doubts about the handling of the case could be damaging to the Commission’s standing as it seeks to manage a tense relationship with China. A majority of EU governments were against duties on China’s solar panel imports. China denies dumping. Other trade disputes with China are still outstanding, including one involving EU wine. A July 2 letter to Europressedienst seen by Reuters reveals for the first time that the Commission, the EU’s executive, has started its own investigation into the data firm, seeking to double check information it provided about the solar market. The installers say Europressedienst gave the Commission data that had earlier been used by European solar panel makers to make their case that Chinese rivals were dumping. They also say Europressedienst had previously done work for Germany’s main solar panel maker SolarWorld AG and manufacturers’ lobby group EU ProSun, a suggestion that could imply a conflict of interest. Europressedienst declined to comment on the matter. “Unfortunately, as consultant of the European Commission with a specific work order, we cannot comment on any point towards the press,” the firm said in an e-mail. It declined to elaborate further and referred questions to the Commission. Milan Nitzschke, president of EU ProSun and vice president of SolarWorld AG, confirmed that the lobby group used Europressedienst data in its initial complaint about dumping to the Commission last year, but denied any alliance with the research firm to inflate the size of EU solar capacity. He also confirmed that SolarWorld had employed Europressedienst’s director to help on marketing and publication projects, but said it had not paid him to produce data or work on the anti-dumping case. At the heart of the data dispute is whether Europressedienst’s numbers exaggerate the European Union’s ability to meet its own solar panel needs, which could serve those who wish to show Chinese imports are not needed. Europressedienst is cited 23 times as a source for data in the Commission’s ruling of June 4, which found Chinese exporters guilty of dumping and ordered penalties. A Commission spokesman said this week that the Commission relied on Europressedienst only for general data, such as Europe’s overall solar panel sales volumes, production and the number of employees, which would not have affected its conclusions in the case. For more detailed figures, such as industry sales prices, the cost of production and profits, the Commission used data produced from its own questionnaires that were sent to solar companies, the spokesman said. Reuters

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Asia

Japan mulls deficit cut Ruling party sees no change in sales tax hike plan

Shinzo Abe expected to lift sales tax as planned

India hunts for Subbarao successor I

ndia has started a search for a new central bank governor after Duvvuri Subbarao said he doesn’t want to be considered for another term, Finance Minister Palaniappan Chidambaram said. While Mr Chidambaram declined to disclose names of candidates for the position, the Times of India reported Raghuram Rajan, chief economic adviser at the Finance Ministry, and Economic Affairs Secretary Arvind Mayaram are in contention, without saying where it got the information. “Subbarao met me a few days ago and said he would like

Duvvuri Subbarao

to move on and he would not like to be considered for another term,” Mr Chidambaram was quoted as saying in the interview with Times of India. “So, I accepted that. Now we are in the search mode.” The new governor will have to contend with a currency trading near a record low, accelerating inflation and the challenge of reviving an economy growing at the slowest pace in a decade. The central bank left interest rates unchanged on Tuesday and said increases in borrowing costs earlier this month to stem the rupee’s slide will be reversed in a measured way as the currency stabilises.

apan is considering an 8 trillion yen (US$82 billion) target for budget-deficit cuts over the next two years as officials debate how to proceed with a sales-tax increase that threatens to damage an economic rebound. The goal is based on the assumption that the consumption levy is raised as planned to 8 percent in April, from 5 percent now, according to two government officials who asked not to be named per government policy. Prime Minister Shinzo Abe’s administration plans to release its medium-term fiscal plans, and a final decision on the sales levy, later this year. With a report yesterday showing little sign of the wage gains Mr Abe needs to bolster his reflation campaign, policymakers face the challenge of reining in the world’s largest public debt burden without derailing growth. Economy Minister Akira Amari said yesterday officials will canvass with “experts” on how to implement the tax hike enacted by the previous administration. “It’s highly likely that Abe’s government will choose to lift the sales tax as planned,” said Akito Fukunaga, chief rates strategist in Tokyo at Royal

Mr Subbarao, 63, has led the monetary authority since 2008 and a two-year extension given in 2011 is due to expire in September. The rupee, down 13 percent against the dollar in the past six months, has been hurt by a record current-account deficit and the prospect of reduced U.S. monetary stimulus. Mr Subbarao raised two rates on July 15 and has capped cash injections into the banking system and tightened lenders’ reserve ratios to curb the supply of rupees, joining nations from Brazil to Indonesia in fighting currency weakness. “The new person will have to be adept at coordination and that’s the biggest skill required for the job,” said N. R. Bhanumurthy, an economist at the National Institute of Public Finance and Policy in New Delhi. “He has to handle the Finance Ministry as well as the RBI” in coordinating policy to stem the rupee’s decline, he said. Bloomberg News

Bank of Scotland Group Plc’s RBS Securities unit, one of the 24 primary dealers in Japanese government securities. “The amount of 8 trillion yen underlines that the government has no other choice,” given the difficulty in finding other means to make up the deficit cut, he said. The cabinet office estimated in August last year that a 1 percentage point increase in the tax would create about 2.7 trillion yen in extra revenue. RBS’s Mr Fukunaga estimates that a 3 percentage point increase in the consumption tax will generate about 7 trillion yen to 8 trillion yen.

‘No option’ Mr Amari told reporters that “there is no option to not raise the consumption tax at all,” barring an external shock of a magnitude similar to the September 2008 global money-market breakdown. He said that economic expansion may slow next year due to the levy, then rebound after that. Expert-produced studies showing varying impacts on the economy from scales of tax increases could help policy makers determine how much of a supplementary budget is needed to counter the hit, according to Mr Fukunaga.

RBA seen cutting rate to record I

nvestors are betting an Australian rate cut is a done deal after Reserve Bank Governor Glenn Stevens indicated the local dollar’s world-beating losses aren’t enough to bolster growth. Traders see a 99 percent chance the RBA will cut the cash rate by a quarterpercentage point to 2.5 percent at an August 6 meeting, up from 51 percent odds seen at the beginning of July, swaps data compiled by Bloomberg show. The central bank will probably drop the benchmark to 2.25 percent or lower by year-end, the data show.

Economists estimate the need for a 5 trillion yen package to cushion Japan from the move scheduled for April, a Bloomberg News survey showed this month. The legislation approved under the former government allowed a delay in the twostep tax increase, which would bring the rate to 10 percent in 2015, depending on the state of the economy. Officials have said the call will be made after the government’s second estimate of second-quarter gross domestic product, due September 9. The prime minister will likely proceed with raising the national sales tax as planned, a senior official in Mr Abe’s ruling party has said. Mr Abe has shown no signs that he would change the tax hike plans to accommodate advisers who are urging him to go slow, Takeshi Noda, head of the Liberal Democratic Party’s tax commission, told Reuters. “Confidence in Japan would fall, and government bond yields would be affected” if Tokyo gives the impression that it is faltering on the tax issue, Mr Noda said. “That could be fatal.” “The biggest risk to ‘Abenomics’ is a spike in interest rates,” he added. Bloomberg News/Reuters

“Stevens has pretty much told you that he’s cutting rates next week,” said Ray Attrill, the Sydney-based global cohead of currency strategy at National Australia Bank Ltd. “We got the message that further currency depreciation doesn’t mean they need to be thinking about pulling interest-rate policy levers into reverse any time soon.” The Aussie’s 12 percent slide in the past three months, the most among major developed currencies, isn’t enough for Mr Stevens as he flagged further declines on Tuesday and said the inflation outlook allows for room to lower interest rates if required. Government bonds are rallying for the first time since April with investors expecting the RBA to make the world’s biggest rate reductions over the next year as unemployment rises and a housing recovery stumbles after the peak of a mining boom. Bloomberg News

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Asia Honda’s spending squeezes profit Honda Motor Co Ltd said net profit fell 7 percent in the fiscal first quarter as U.S. sales growth and the benefits of a weaker yen were offset by increased spending. The automaker posted a net profit of 122.5 billion yen (US$1.2 billion) in the April-June quarter, compared with 131.7 billion yen in the same period a year earlier. Revenue rose 16 percent to 2.83 trillion yen, while operating profit grew 5 percent to 185 billion yen in the three-month period. Despite the better sales performance, profits were squeezed by Honda’s heavy spending as it looks to expand production and further advance into emerging markets.

Reliance seeks US$1.75b of loans Reliance Industries Ltd, operator of the world’s biggest oil refinery complex, plans to borrow US$1.75 billion by midAugust to refinance debt and fund capital expenditure, according to two people familiar with the matter. The facility may be drawn in U.S. and Singapore dollars, Euro and Japanese yen, and proceeds will help to refinance US$1.2 billion of multicurrency loans signed in 2008, the people said. Some US$550 million of new money denominated in U.S. dollars will be raised for capital expenditure. Reliance plans to spend 1.5 trillion rupees (US$24.6 billion) over the next three years to expand businesses ranging from natural gas to petrochemicals and telecommunications.

Toyota planning to raise output target Toyota Motor Corp plans to produce more than 10 million vehicles this year, becoming the first carmaker to reach that milestone, according to two people familiar with the matter. Toyota and its subsidiaries expect combined output to climb to about 10.1 million vehicles in 2013, or 200,000 higher than previously forecast, said the people The new targets will be disclosed when the Toyota reports earnings tomorrow, the people said. Toyota’s full-year profit will probably jump 74 percent to a six-year high of 1.68 trillion yen (US$17 billion), according to analyst estimates.

Toshiba swings back to black Toshiba Corp said yesterday that it swung to a small net profit in April-June quarter, partly thanks to a healthy performance at its nuclear power systems business and growth in its solar power generation and automotive areas. In its fiscal first quarter that ended in June, Toshiba said it recorded a net profit of 5.30 billion yen (US$54 million) compared with a loss of 12.11 billion yen in the same period a year earlier. Revenue in the quarter rose 9.6 percent to 1.390 trillion yen, while operating profit jumped to 24.35 billion yen from 11.47 billion yen.

Thailand sees modest Q2 growth Exports equal more than 60 percent of the economy Orathai Sriring

hailand’s economy is expected to grow modestly in the second quarter even as exports fell for a second month in June dampened by tepid global demand, the central bank said yesterday. Weak consumption and investment figures for June against the previous month also pointed to subdued growth for Southeast Asia’s second-largest economy and strengthens the likelihood that interest rates will be kept low to support the economy. “Economic growth moderated as consumption flattened out after picking up strongly in 2012 and merchandise exports contracted amid fragile global demand and supply constraints. Manufacturing production and investment slowed down accordingly,” the central bank said in a statement. Methee Supapong, the central bank’s senior director macroeconomic and monetary policy department, said the economy in the second half should recover on exports as major economies, especially the United States, are expected to improve. “If exports pick up, private consumption and investment will follow,” he told a news briefing. Thailand’s economy grew 5.3 percent from a year earlier in the first quarter but contracted 2.2 percent on the quarter. Earlier this month, the finance ministry said the economy may have expanded by less than 4 percent in the second quarter from a year earlier and full-year GDP growth could be around 4 percent. The finance ministry had cut its growth outlook for 2013 GDP to 4.5

percent from 5.3 percent, citing weak consumption and the slow recovery in the economies of its trading partners.

Exports fall Exports, which equal more than 60 percent of the Thai economy, fell for a second month in a row by 3.5 percent in June from a year earlier, central bank data showed, roughly matching Ministry of Commerce data published at the end of June. In May, exports fell 5.1 percent on year, according to the central bank. In June, imports rose 0.9 percent from a year earlier, resulting in a trade surplus of US$590 million, up from a surplus of US$540 million in May. Thailand is a regional hub for global car makers and the world’s number two producer of hard

disk drives. With the outlook for growth continuing subdued, most economists expect no change in the policy rate the rest of the year. “The economy in the second quarter is really slow but we think the worst is over for this year,” said Sarun Sunansathaporn, an economist at Tisco Securities. “Given the better outlook in the second half, a cut in the policy rate in May is enough and it should remain steady until the first half of next year,” he added. The central bank’s monetary policy committee kept the benchmark interest rate unchanged at 2.50 percent on July 10, after it cut rates in May. The central bank said the rate was appropriate for the economy, which did not need stimulus measures. Reuters

Thailand exports drop 3.5 pct in June

Australia: probe suggests charging ex-ministers Labor powerbrokers acted corruptly, says inquiry

wo former New South Wales state ministers, accused of corruption in the awarding of coal licences, should be criminally charged, an inquiry said. The Independent Commission Against Corruption yesterday recommended to the public prosecutor that former Labor party mining minister Ian Macdonald and his predecessor Eddie Obeid be charged with conspiracy to defraud after Mr Macdonald awarded a coal-exploration licence covering Obeid’s land. Both men had denied any wrongdoing in their testimony. The inquiry heard that Mr Obeid’s family stood to make more than A$100 million (US$90 million) from inside information on the coal-exploration licences. The investigation has caused a backlash against the Labor party in Australia’s most-populous state, where Prime Minister Kevin Rudd must shore up

support if he is to win elections due by November 30. “This issue has damaged Labor’s brand in New South Wales and therefore its election prospects federally,” said David Burchell, a professor of humanities and political analyst at the University of Western Sydney. “There’s no kind of light show that Rudd can perform that can magically make the party’s image problem in the state go away quickly.” Mr Rudd told reporters yesterday that he had been “disgusted by what I have seen before ICAC,” adding “anyone responsible for corrupt behaviour should face the full force of the law”. The commission regarded evidence Mr Obeid gave on some important issues as “deliberately untrue,” Commissioner David Ipp wrote in the report. “The commission regarded his repeated attempts to

distance himself from the Obeid family business as deliberately false.” The license was granted to Cascade Coal Pty in 2008, according to the inquiry. Five investors in the company should be charged with fraud, the commission recommended. Macdonald, then Minister for Primary Industries, opened a number of areas in the state for coal exploration and issued licenses, according to transcripts from the inquiry. Among them was the Mount Penny Exploration licence, which covered an area located on top of a farm that had been purchased by a trust controlled by Obeid’s family, Geoffrey Watson, the lawyer assisting the commissioner, told the inquiry. “The practical effect of Mr Macdonald’s decision has been to confer massive cascading profits upon Mr Obeid and his family,” Mr Watson said. AFP

13 13

August 1,2013 2013 April 19,

Markets Gaming Stocks - Daily Performance (Hong Kong Stock Exchange)

Max 41.1

average 40.947

Min 40.4

Last 40.85

41.2

64.20

41.0

63.65

40.8

63.10

40.6

62.55

22.5

22.1

40.4

Max 64.2

average 63.947

Min 62.05

Last 64

62.00

21.7

Max 22.5

average 22.260

Min 21.35

Last 22.35

20.0

42.8 42.5

22.00 21.95

19.8

42.2

21.90 19.6

41.9

Max 42.7

average 42.437

Min 41.6

Last 41.95

41.6

Max 20

average 19.753

Commodities PRICE

DAY %

YTD %

(H) 52W

Last 19.44

(L) 52W

WTI CRUDE FUTURE Sep13

103.69

0.59177338

10.63807085

108.9300003

86.23999786

BRENT CRUDE FUTR Sep13

106.82

-0.084182958

0.517549638

114.3699951

96.65000153

GASOLINE RBOB FUT Aug13

301.09

-0.251780686

8.235674743

316.3199902

264.1299963

GAS OIL FUT (ICE) Sep13

908.5

-0.164835165

0.082621867

980

832.5

NATURAL GAS FUTR Sep13

3.442

0.291375291

-4.335742079

4.517000198

3.349999905

300.27

-0.133036219

0.186847286

320.449996

273.759985

Gold Spot $/Oz

1332.91

0.7468

-19.9194

1796.08

1180.57

Silver Spot $/Oz

19.9405

1.5471

-33.7745

35.365

18.2208

NY Harb ULSD Fut Aug13 METALS

Min 19.44

19.4

21.85 Max 22

average 21.954

Min 21.8

Last 22

Platinum Spot $/Oz

1442.8

0.4595

-4.9382

1742.8

1294.18

Palladium Spot $/Oz

738.46

0.0081

5.5456

786.5

566.88

1776

-1.058495822

-14.32706223

2200.199951

1758

LME ALUMINUM 3MO ($) LME COPPER 3MO ($)

6735

-2.07909276

-15.08006557

8422

6602

LME ZINC

1836

-0.541711809

-11.73076923

2230

1779

13525

-1.313389274

-20.72098476

18920

13205

3MO ($)

LME NICKEL 3MO ($) AGRICULTURE ROUGH RICE (CBOT) Sep13

COUNTRY MAJOR

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

ASIA PACIFIC

CROSSES

PRICE

DAY %

YTD %

(H) 52W

(L) 52W

0.9036 1.5217 0.9274 1.3283 97.83 7.9878 7.7551 6.1288 60.9837 31.34 1.2723 29.986 43.45 10278 88.399 1.23184 0.87287 8.1409 10.6099 129.94 1.03

-0.3749 -0.6139 0.2911 0.1206 0.184 0.005 0.0039 0.0441 -0.8178 -0.2234 -0.1808 -0.1 -0.1381 -0.0389 0.5588 0.1762 -0.7298 -0.0332 -0.1112 0.0693 0

-12.9312 -5.9285 -1.2939 0.7051 -11.9902 -0.0576 -0.058 1.661 -9.8202 -2.425 -4.0006 -3.1781 -5.6272 -4.7188 1.0498 -1.9775 -6.5817 0.9409 -0.7493 -12.5981 -0.0097

1.0625 1.6381 0.9899 1.3711 103.74 8.0111 7.7664 6.3778 61.2125 31.65 1.286 30.228 44.181 10330 105.433 1.265 0.88151 8.4957 10.9254 133.8 1.032

0.8999 1.4814 0.9022 1.2134 77.13 7.9818 7.7498 6.1203 51.3863 28.56 1.2152 28.913 40.54 9448 79.408 1.20066 0.78128 7.7531 9.6926 94.93 1.0289

15.925

0.188738597

3.375527426

16.47500038

14.60000038

476.5

-0.209424084

-20.55022926

665

471.25

656.5

0.190766883

-18.64931846

905.75

648

SOYBEAN FUTURE Nov13

1206.75

0.311720698

-7.369027058

1409.75

1186.5

COFFEE 'C' FUTURE Sep13

120.45

0.124688279

-20.99048868

196.75

117.0999985

NAME

PRICE

DAY %

YTD %

(H) 52W

(L) 52W

15.92999935

ARISTOCRAT LEISU

4.34

0.6960557

37.77777

4.49

2.29

1435272

74.34999847

CROWN LTD

12.8

1.66799

19.96251

13.75

8.33

1034421

CORN FUTURE

Dec13

WHEAT FUTURE(CBT) Sep13

SUGAR #11 (WORLD) Oct13

16.94

COTTON NO.2 FUTR Dec13

0.059066745

85.2

-15.55333998

0.070472163

22.48999977

8.204216408

89.55999756

World Stock Markets - Indices NAME

21.80

Currency Exchange Rates

NAME ENERGY

21.1

COUNTRY

PRICE

DOW JONES INDUS. AVG

15520.59

NASDAQ COMPOSITE INDEX

3616.467

FTSE 100 INDEX

DAX INDEX

YTD %

(H) 52W

(L) 52W

18.44036

15604.22

12471.49

0.4814206

19.76985

3629.123

2810.8

6576.82

0.08933259

11.51291

6875.62

5605.589844

8245.11

-0.3132625

8.311716

8557.86

6596.21

NIKKEI 225

13668.32

-1.452795

31.4871

15942.6

8488.14

HANG SENG INDEX

21883.66

-0.3202156

-3.412908

23944.74

19076.78906

CSI 300 INDEX

2193.021

0.1659368

-13.07718

2791.303

2023.171

TAIWAN TAIEX INDEX

8107.94

-0.6811987

5.30476

8439.15

KOSPI INDEX

1914.03

-0.1575337

-4.157133

S&P/ASX 200 INDEX

5051.978

0.09383342

JAKARTA COMPOSITE INDEX

DAY %

Macau Related Stocks VOLUME CRNCY

AMAX HOLDINGS LT

1.06

-3.636364

-24.28571

1.72

0.75

285800

BOC HONG KONG HO

24.35

-0.408998

1.037343

22.85

6672424

CENTURY LEGEND

0.35

32.07548

0.42

0.22

CHEUK NANG HLDGS

6.18

0.6514658

3.171957

6.74

125000 34984898

CHINA OVERSEAS

22.35

1.590909

-3.246755

25.6

17.28

CHINESE ESTATES

17.26

2.615933

42.29866

17.28

8.272

865267

CHOW TAI FOOK JE

9.89

0.4060914

-20.49839

13.4

7.44

2803400

2.6

-0.3831418

37.56614

3.07

1.35

466300

2.11

1.442308

74.08866

2.76

0.993

1462000 8463053

EMPEROR ENTERTAI FUTURE BRIGHT GALAXY ENTERTAIN

40.85

1.239157

34.59637

44.95

18.1

HANG SENG BK

118.7

0.08431703

132.8

107.4

833418

HOPEWELL HLDGS

24.6

-1.204819

-26.01504

35.3

21.714

1428983

HSBC HLDGS PLC

87.15

-0.2289639

7.195568

90.7

64.65

8558592

HUTCHISON TELE H

4.42

-0.896861

24.15731

4.66

2.98

1064000

LUK FOOK HLDGS I

21.7

-3.555556

-11.06557

30.05

16.88

1370350

MELCO INTL DEVEL

15.64

4.405874

73.5849

18.18

5.51

6485000

7050.05

MGM CHINA HOLDIN

22.35

2.995392

68.32

22.5

9.869

3963477

2042.48

1770.53

MIDLAND HOLDINGS

3.13

0.9677419

-15.40541

2.68

2128000

8.669222

5249.6

4212.7

NEPTUNE GROUP

0.173

-0.5747126

13.81579

0.23

0.131

4650000

NEW WORLD DEV

11.34

-1.219512

-5.657242

15.12

9.38

11728809

SANDS CHINA LTD

9912731

4576.555

-0.6929386

6.020083

5251.296

3978.078

FTSE Bursa Malaysia KLCI

1775.96

-1.065134

5.151722

1826.22

1590.67

NZX ALL INDEX

969.096

-0.2939443

9.868232

998.487

PHILIPPINES ALL SHARE IX

4042.05

-1.069329

9.274721

4571.4

41.95

1.084337

23.56406

43.7

22.25

SHUN HO RESOURCE

1.44

2.857145

1.67

1.06

782.663

SHUN TAK HOLDING

3.33

0.6042296

-20.52506

4.65

2.62

7603250

3411.69

SJM HOLDINGS LTD

19.44

-0.2053388

9.535581

22.382

13.311

5005976

SMARTONE TELECOM

12.36

-0.3225806

-12.21591

17.38

12.28

281202

1.851852

5.011929

26.5

16.12

8866183

ASIA ENTERTAINME

4.22

-0.2364066

49.92808

4.7647

2.2076

104788

BALLY TECHNOLOGI

71.39

1.07603

59.67345

71.64

41.74

353489

HSBC Dragon 300 Index Singapor

616.62

-0.72

STOCK EXCH OF THAI INDEX

1406.26

-2.032826

1.029503

1649.77

1186.38

HO CHI MINH STOCK INDEX

491.85

0.677529

18.88188

533.15

372.39

Laos Composite Index

1323.63

0.1536017

8.961366

1455.82

1003.17

WYNN MACAU LTD

BOC HONG KONG HO

3.13

1.9544

3.6

2.99

1000

GALAXY ENTERTAIN

5.24

0.7692308

31.98992

5.77

2.37

50500 1858551

INTL GAME TECH

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

18.5

0.5981512

30.55752

20.25

10.92

JONES LANG LASAL

95.07

0.7097458

13.25947

101.46

61.39

177194

LAS VEGAS SANDS

56.27

2.588879

21.90208

60.54

34.0781

5015303

MELCO CROWN-ADR

24.79

3.984899

47.20902

25.2

9.62

3962923

MGM CHINA HOLDIN

2.78

50.27027

2.85

1.36

9015

MGM RESORTS INTE

16.35

2.443609

40.46391

16.52

8.83

7802085

SHFL ENTERTAINME

22.76

0.04395604

56.96552

23.08

12.35

1236145

SJM HOLDINGS LTD

2.54

2.419355

11.52011

2.9481

1.8043

200

133.07

1.37122

18.29496

144.99

86.7893

1205855

WYNN RESORTS LTD

AUD HKD

USD

Hang Seng Index NAME AIA GROUP LTD

PRICE

DAY %

VOLUME

NAME

PRICE

DAY %

VOLUME

NAME

PRICE

DAY %

VOLUME

36.75

0.6849315

25715891

CHINA UNICOM HON

11.38

0.1760563

17347077

POWER ASSETS HOL

69.65

0.287977

1734126

ALUMINUM CORP-H

2.39

-3.238866

12053990

CITIC PACIFIC

8.42

-1.750292

4901361

SANDS CHINA LTD

41.95

1.084337

9912731

BANK OF CHINA-H

3.25

-0.3067485

292046913

CLP HLDGS LTD

64.3 -0.07770008

1861357

SINO LAND CO

10.96

-1.083032

4116602

BANK OF COMMUN-H

5.05

24934304

SUN HUNG KAI PRO

103.5

0.1936108

4571346

BANK EAST ASIA

29.1

1989881

BELLE INTERNATIO

11.2

-3.114187

18848612

BOC HONG KONG HO

24.35

-0.408998

CATHAY PAC AIR

14.36

1.126761

CHEUNG KONG

109

-0.456621

3097924

CHINA COAL ENE-H

4.14

1.719902

36530065

CHINA CONST BA-H

5.79

0.6956522

250372336

CHINA LIFE INS-H

18.6

0.867679

35719492

CHINA MERCHANT

24.25

1.041667

3613956

CHINA MOBILE

CNOOC LTD COSCO PAC LTD

-0.8498584

37221691

10.9

6011726

SWIRE PACIFIC-A

91.5

-0.6514658

2121404

ESPRIT HLDGS

12.64

-0.7849294

9869341

TENCENT HOLDINGS

351.8

-3.245325

7117694

6672424

HANG LUNG PROPER

25.15

0.1992032

13589331

TINGYI HLDG CO

19.18

-1.337449

2279740

3548549

HANG SENG BK

118.7

0.08431703

833418

10.5

-0.5681818

7395036

HENDERSON LAND D

48.4

-0.3089598

3187136

66.75

-0.6696429

4084882

HENGAN INTL

85.2

0.8880995

2131816

HONG KG CHINA GS

19.88

-0.2008032

5721881

HONG KONG EXCHNG

120.5

-0.2483444

2022692

HSBC HLDGS PLC

87.15

-0.2289639

8558592

87.55

-0.7369615

7259437

5.1

0.1964637

158027950

10.26

-2.285714

20713317

82.5

-0.9009009

20988650

HUTCHISON WHAMPO

22.35

1.590909

34984898

IND & COMM BK-H

CHINA PETROLEU-H

5.77

0.3478261

52900213

LI & FUNG LTD

CHINA RES ENTERP

23.95

-1.033058

2790954

MTR CORP

28.85

-0.3454231

1664581

21.3

3.398058

20846620

NEW WORLD DEV

11.34

-1.219512

11728809

CHINA RES POWER

18.06

-1.419214

10769924

PETROCHINA CO-H

9.07

-1.626898

69479915

CHINA SHENHUA-H

22.4

-1.754386

15786126

PING AN INSURA-H

50.2

0.2997003

8703050

CHINA OVERSEAS

CHINA RES LAND

WANT WANT CHINA WHARF HLDG

MOVERS

22070

INDEX 21883.66 HIGH

22063.11

LOW

21766.1

52W (H) 23944.74 (L) 19076.78906

21760

29-July

31-July

14 14

August 1, 2013 April 19, 2013

Classifieds Mountain Villa For Sale in Koh-Samui

Bruno Beato Ascenção

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editorial council Paulo A. Azevedo, Tiago Azevedo, José I. Duarte, Emanuel Graça, Mandy Kuok Founder & Publisher Paulo A. Azevedo | pazevedo@macaubusinessdaily.com Editor-in-Chief Tiago Azevedo DEputy Editor-in-Chief Vitor Quintã Associate editor Michael Grimes GROUP SENIOR ANALYST José I. Duarte Newsdesk Luciana Leitão, Stephanie Lai, Tony Lai EDITOR AT LARGE Alex Lee Creative Director José Manuel Cardoso WEB & IT Janne Louhikari Contributors James Chu, João Francisco Pinto, Larry So, Pedro Cortés, Ricardo Siu, Rose N. Lai, Zen Udani Photography Carmo Correia, 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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15 15

August 1,2013 2013 April 19,

Opinion

A little inflation is just wires what Europe needs Business

Leading reports from Asia’s best business newspapers

Yomiuri Shimbun Japan, China and South Korea began the second round of three-way free trade agreement talks in Shanghai on Tuesday. During the fourday talks, the three countries will discuss scrapping tariffs on industrial and agricultural products and liberalising trade in services, among other issues. The free trade bloc would be the world’s thirdlargest after North America and the European Union. The negotiations among the three restart as efforts to lower tariffs and other trade barriers among major economies gain momentum.

Melvyn Krauss

Emeritus economics professor at New York University and a senior fellow at the Hoover Institution at Stanford University

Myanmar Times Myanmar’s central bank plans to complete the switch from the managed-float system it has used since April 2012 to a free-floating policy within a year, deputy finance minister U Maung Maung Thein said. “When the market operates under a free-floating policy, we have to think about how far we should go,” said a spokesperson for the central bank’s foreign exchange management department. He said the new system will not be entirely free but it will be freer than the current one. Initial trades will be restricted to transactions between the kyat and the U.S. dollar.

Korea Herald The deal to sell state-run Woori Finance Holdings Co is estimated to fetch at least 5.42 trillion won (US$4.85 billion), the financial regulator said, amid the government’s push to wrap up the longpending privatisation of the banking giant. The Financial Services Commission, the country’s top financial regulator in charge of the Woori sale, said the estimated value has grown by 1.9 trillion won from the figure it came up with a year earlier.

Taipei Times Taiwan likely underperformed last quarter with GDP growth of 2 percent as weak global demand continued to constrain its export-oriented economy, Moody’s Analytics said. “Soft global demand remains a drag on Taiwan’s economy and we expect second-quarter GDP growth to come in at 2 percent from the year-ago level,” said Katrina Ell, an associate economist in Moody’s Sydney office. However, the second-quarter growth projection is stronger than the agency’s previous forecast of 1.5 percent and Moody’s attributed the upward adjustment to an unexpected surge in last month’s exports.

he European Central Bank has faced criticism lately for failing to give a clearer blueprint of future monetary policy in its new “forward guidance”. The critics are missing the point. In a statement this month, the bank’s governing council promised to keep interest rates at current or lower levels for “an extended period of time”. That sounds vague, if you are looking for details on policymaking plans. Yet the ECB was doing something quite different: It was telling the world that it won’t mindlessly follow the U.S. Federal Reserve if the Fed removes monetary accommodation. This was, in effect, a European declaration of monetary policy independence, and the governing council’s 23 members were unanimous in delivering it. The ECB, however, needs to do more and act to raise the euro area’s inflation rate to meet the bank’s target. Europe doesn’t appear to have an inflation problem, but it does: The rate at which prices are increasing in the 17 economies of the euro area is too low. Core inflation excluding energy, food, tobacco and alcohol, has been stuck at 1.2 percent for months, and a recent uptick in the headline rate the ECB uses for targeting should fool no one.

Perverse transfers These increases in the Harmonized Index of Consumer Prices were almost entirely due to rising energy prices. Inflation will probably remain well below the bank’s target rate of just less than 2 percent for some time to come, on current policies. This is damaging, because

below-target inflation causes perverse income transfers from the periphery of the euro area to its core. The currency zone’s rate of inflation fell by almost a third – from 2.4 percent in June 2012 to 1.6 percent in June 2013 – helping creditors such as Germany at the expense of debtors such as Italy and Spain. This is because the lower the rate of euro-area inflation, the higher the real burden of interest payments that debtor countries have to pay. By the same token, the real benefit to creditor countries rises. Even Germans suffer from an unduly low inflation rate, because it makes it less likely German loans to the troubled periphery economies will ever be paid back, without further aid. The left hand takes, and the right hand is pressed to give it back. In the meantime, this process fosters further mutual resentment and suspicion – the last thing that Europe needs at the moment. Moreover, a too-low inflation rate raises the real cost of capital to business, hindering investment and economic growth throughout the region. Germans must understand that inflation can be too low and that this comes at a cost to them. There are no winners here. The ECB shouldn’t acquiesce in subtarget inflation. The bank has a mandate, and its credibility depends on adhering to it. It isn’t enough for Europe’s central bank to promise to keep its foot on the monetary accelerator for an extended period of time. The ECB must press down harder and pick up speed so that inflation rises – not past the target, of course, but above

where it is now. Some on the ECB’s governing body worry about a slippery slope. They think that once the bank starts boosting inflation, it won’t be able to stop, because they see inflation as a drug – the more you take, the harder it is kick the habit. This is tantamount to declaring that the euro area’s central bank lacks the means to fulfil its price stability mandate and so shouldn’t try. It simply isn’t the case.

Wrong message Recently, the influential ECB executive board member Joerg Asmussen was quoted as saying, “while monetary policy would remain expansive as long as necessary, one can assume as soon as we see a sign of inflation, we will act

The first thing the ECB should do to fight anaemic inflation is cut the bank’s main policy interest rate by 25 basis points, and perhaps go to negative deposit rates

against it”. This is the wrong message. How is Europe to escape its low inflation problem if the ECB seeks to nip in the bud any new developments that might increase the inflation rate? It is wrong – and dangerous – to encourage creditor countries such as Germany to think that the lower the inflation rate, the better it is for them. Members of the ECB’s governing body may well be divided over whether to adopt even further monetary accommodation to boost current inflation to target levels. My response is, so what? Unanimity doesn’t guarantee good policy. The ECB scored its greatest triumph – the Outright Monetary Transactions bond purchase programme that cut borrowing costs for troubled euro-area economies last year – despite fierce opposition from the German Bundesbank. An overemphasis on unity can give a determined few effective veto power over what the majority wants. Just think, if ECB President Mario Draghi had insisted on unity before introducing the bond purchase programme last year, there might not be a euro today and Europe’s economy would be in significantly worse shape than it is. The first thing the ECB should do to fight anaemic inflation is cut the bank’s main policy interest rate by 25 basis points, and perhaps go to negative deposit rates. At July’s meeting, the governing council said with one voice that further interest-rate cuts would be acceptable, if the economic data warrants them. An inflation rate stuck well below target is exactly the kind of data that makes the case for a further rate cut compelling. Bloomberg View

August 1, 2013

Closing HK posts first quarter fiscal deficit

EADS to change its name to Airbus

Hong Kong posted a HK$11.1 billion (US$1.43 billion) fiscal deficit for April-June, the first three months of the financial year 2013/14, against a HK$9.7 billion deficit for the same period last year, official data showed yesterday. A government spokesman said the deficit for the period was mainly because of some major types of revenue, including salaries and profits taxes, were received towards the end of this financial year. “It is expected that a small deficit of about HK$4.9 billion will be recorded in our accounts in the coming year, and we shall largely achieve fiscal balance,” Financial Secretary John Tsang Chun Wah had said earlier this year.

European Aeronautic, Defence & Space Co, the parent company of Airbus, says it is to rename itself after its commercial plane-making subsidiary. It will be called Airbus Group and have three divisions; commercial aircraft, defence and space, and helicopters. EADS said the move would “enhance integration and cohesion by renaming the group and its divisions using the globally recognised Airbus brand”. Implementation of the change will start in January and is set to be completed in the second half of 2014. The announcement ‘came as EADS revealed that second quarter net profits rose by 14 percent to US$686 million.

DBS drops US$6.5 bln Danamon bid After failing to win control under new bank ownership rules Sanat Vallikappen

BS Group Holdings Ltd ended a bid to acquire PT Bank Danamon Indonesia for US$6.5 billion in what would have been Southeast Asia’s largest banking takeover after failing to win regulatory approval for a majority stake. The agreement with Danamon’s biggest shareholder, Temasek Holdings Pte, will lapse after today’s deadline, Singapore-based DBS said in a statement yesterday. Southeast Asia’s largest bank had offered on April 2, 2012, to buy 99 percent of Danamon – including a 67 percent stake from Temasek – for 66.4 trillion rupiah (US$6.5 billion). The deal’s failure poses a setback for DBS chief executive Piyush Gupta’s ambitions of expanding in faster-growing countries to reduce reliance on lending in Singapore, Southeast Asia’s least-profitable loan market. The acquisition had been delayed for more than a year after Indonesia implemented new bank ownership rules that limit DBS to a

DBS wanted to reduce reliance on lending in Singapore

40 percent stake. “Indonesia was supposed to give them a leg up in terms of growth,” said Julian Chua, a Kuala Lumpurbased analyst at Nomura Advisory Services Sdn. “The growth areas for

them would still be North Asia, Asean region and India.” Buying Danamon would have given DBS an opportunity to expand in higher yielding markets as domestic loan profitability remains

the weakest in the region. Indonesia’s former central bank Governor Darmin Nasution told parliament on May 21 that DBS would be allowed to buy a 40 percent stake, in line with bank ownership rules set after the takeover bid was announced in April last year. Indonesia has been using the transaction to seek equal access in Singapore for its banks. The central bank wants reciprocity for the Singapore operations of PT Bank Mandiri, PT Bank Rakyat Indonesia and PT Bank Negara Indonesia, its three biggest state-owned lenders, Mr Nasution had said. Bank Indonesia signalled in March that it might implement a five-year waiting period before acquirers can increase stakes above 40 percent. Foreign buyers must commit to supporting the economy by lending to productive sectors, among other criteria, it said. The original agreement called for DBS to acquire Temasek’s 67.4 percent stake in Danamon by allowing Singapore’s state-owned investment company to swap its Danamon holdings into DBS shares. The swap was agreed to at a price of 7,000 rupiah for each Danamon share and called for DBS to issue 439 million new shares to Temasek at S$14.07 apiece, increasing Temasek’s stake in DBS to 40.4 percent from 29.5 percent. Following that transaction, DBS would make a tender offer for any remaining Danamon stock for 7,000 rupiah a share, taking its holding in the Indonesian bank to 99 percent. Bloomberg News

Euro zone jobless rate falls slightly Number of jobless falls for first time since April 2011

he number of jobless in the euro zone fell for the first time in more than two years in June, but the unemployment rate stayed at a record 12.1 percent. The jobless total fell by 24,000 to 19.26 million, the first decrease in the jobless total since April 2011. The jobless rate was 26.3 percent in Spain, and 26.9 percent in Greece, but only 4.6 percent in Austria and in Germany it was 5.4 percent. The figures add to recent hopes that the economic situation in the euro zone may be stabilising. Falling spending in June by shoppers in Germany, France and Spain, whoever, will dampen any early celebrations, but low annual inflation – stable at 1.6 percent in July – means the European Central Bank is able to act if the recovery falters.

Retail sales in Germany, Europe’s largest economy, fell by the most this year in June, slipping 1.5 percent, while French spending fell back in the month from May and missing expectations of a rise. In Spain, retail sales fell for the thirty-sixth month running in June and only 39 fewer people were out of a job in the month compared to May in a country where the unemployment rate is second only to Greece in the wider European Union at 26.3 percent. “It’s no secret that domestic demand remains very weak because spending is massively impaired by unemployment and austerity,” said Gilles Moec, an economist at Deutsche Bank. Talk of a recovery has intensified, however, after euro zone business and

economic sentiment indices rose to a 15-month high in July, helped by the European Central Bank’s pledge to stand behind the euro zone, as well as a recovering U.S. economy and a lessening of harsh austerity policies. The latest euro zone purchasing managers’ (PMI) survey have also swung into growth territory, and consumer confidence remains strong in Germany, having risen to its highest level in nearly six years heading into August, a GfK survey showed earlier this week. These signs of improvement mean the European Central Bank is likely to hold off from cutting interest rates when it meets today. In a Reuters poll of 70 economists, conducted before the PMI survey came out last week, all but one expected the ECB to hold policy rates steady.

Some 3.5 million young people unemployed in the euro zone