Year II
Number 340
Friday August 2, 2013
Editor-in-chief Tiago Azevedo
Deputy editor-in-chief
Vitor Quintã
MOP 6.00
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April 19, 2013
Macau-Taiwan links need boost: mayor
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etter air links and better promotion would boost trade and cultural exchange between Macau and Taiwan, said the mayor of one of the island’s major cities during a visit. Latest official data show an 8.6-percent decline to over 458,000 in the number of visitors from Taiwan in the first half of this year from the same period of 2012.
Poor phone upgrade sales hit Hutchison
Jason Hu Chih Chiang, from the western Taiwan city of Taichung, told media yesterday: “The relationship between Taichung – or even the whole of Taiwan – and Macau can still be strengthened.” “If there were more flights, the number could easily break through the ceiling of one million [visitors],” said Mr Hu. More on page 4
Bank of East Asia trebles profit here in Macau Page 6
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Junkets ‘not the mafia’ says Jay Chun Many of the city’s VIP gambling promoters want to take part in the new Macao Gaming Show scheduled for November in order to explain their work, says Jay Chun, head of the organising body. “G2E Asia is a great show, but it is focused on gaming equipment… junkets contribute 70 percent of the market. They should be able to have a say,” he explains. Page 2
China Life passes AIA as city’s top life insurer Page 7
Hang Seng Index 22140
22112
22084
22056
22028
22000
August 1
HSI - Movers Name
%Day
LI & FUNG LTD
3.12
BOC HONG KONG HO
2.67
WHARF HLDG
2.62
TENCENT HOLDINGS
2.50
CHEUNG KONG
2.39
PING AN INSURA-H
0.00
CHINA CONST BA-H
0.00
CHINA UNICOM HON
-0.35
CHINA RES POWER
-0.55
WANT WANT CHINA
-0.57
Source: Bloomberg
July gaming rev up 20 pct year-on-year Macau’s gross gaming revenue grew in July at around two-and-half times the rate of the underlying mainland China economy. The city registered 29.49 billion patacas (US$3.7 billion) revenue, a growth of 20 percent year-on-year said city’s gaming regulator, the Gaming Inspection and Coordination Bureau. Analysts had forecast July growth in the range of 18 to 21 percent. China’s GDP growth in the second quarter was 7.5 percent. Page 3
Guangdong products a hit with fair visitors The four-day Guangdong & Macau Branded Products Fair began yesterday. It has 269 exhibition booths across 6,000 square metres in Fisherman Wharf’s convention and exhibition centre. More than 80 Macau companies – mostly in the food and beverage sectors – are taking part, along with 124 exhibitors from Guangdong. Last year’s event attracted 136,000 visits and sales revenue reached 40.5 million patacas, a 1.9 percent increase from 2011. Page 5
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August 2, 2013
Macau
Junkets rally to new casino industry show Macao Gaming Show will be held at CotaiExpo from November 14 to 16 Michael Grimes
michael.grimes@macaubusinessdaily.com
People talk about the junkets, as if they were the mafia. They are not Jay Chun, MGEMA chairman
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any of the city’s VIP gambling promoters have indicated they would like to take part in the new Macao Gaming Show and associated conference scheduled for November, says Jay Chun, head of the organising association. The plan for the new trade show was announced in May during Global Gaming Expo 2013 in the city. At that time there was some scepticism among gaming equipment makers informally polled by Business Daily that Macau needed a second such specialist event. But Mr Chun – chairman of Macau Gaming Equipment Manufacturers Association, and also of electronic table game maker LT Game Ltd – tells us the aim is not to replace G2E Asia, but to complement what it has to offer. “G2E Asia is a great show, but it is focused on gaming equipment such as the slot machines. But junkets [for VIP table games] contribute 70 percent of the market [revenue]. They should be able to have a say,” explains Mr Chun. “People want to know more about the junkets. That’s a very important area where Macao Gaming Show can connect people.” He adds: “The VIP junket system is getting more transparent. It’s different from the old days. Now they are corporate operations. You can see all the balance sheets, and where the money comes from. The way some people talk about the junkets, it’s as if they were the mafia. They are not. Today it is totally different, and they want to show people a positive image; to show that they are not monsters. It’s the biggest myth,” insists Mr Chun. Business Daily asked Mr Chun whether reports that convicted gangster Wan Kuok Koi wants to return to VIP gaming sent a message to the outside world that in fact things hadn’t changed in Macau VIP rooms. He dismissed such notions. “Not only is Macau on a level with international standards now, in some cases it exceeds the standards in other places,” he stated.
Welcome mat for niche suppliers “If you look at things like the anti-money laundering rules it is getting more strict. If you want to deposit more than half a million [HK dollars] you have to register your information.” He added: “Nowadays if you want to renew your [junket] licence you have to file your balance sheet.” A question then is how the new show will connect the oftenconfidential world of Macau VIP gaming with the public, the gaming investors and the regulators. It’s common at other trade shows for the conference section to discuss Asian junkets without a single junket operator taking part in the debate. Mr Chun says the forum at the new show is likely to be via small group meetings on the main show floor at CotaiExpo, rather than in the conference portion. “I think the connection will be more in the exhibition hall. Because there people can be talking in a friendly way [informal]. When you are businesspeople it’s difficult to discuss your business in a conference [format],” he explains.
Regulators invited “There will be regulators from overseas at the show, so there will be a chance for them to meet with the junkets. The junkets here can show the players, the regulators, and the casino operators from elsewhere, that they are transparent and want to give the best service for the industry,” he explains. “The VIP clubs will be in the middle of the floor because they will be the main supporter of our event,” says Marina Wong, general manager and event director for the Macao Gaming Show. “We have two of the VIP club associations supporting us as co-organisers,” she adds. The two trade bodies are the General Association of Administrators & Promoters for Macau Gaming Industry and also Associação de Mediadores de Jogos e Entretenimento de Macau. Between them they represent around 85 percent of
the 30-odd VIP gaming promoters registered with Macau’s casino regulator, the Gaming Inspection and Coordination Bureau, says Mr Chun. The new event will also be a way for casino operators from outside Macau to connect with junkets interested in expanding beyond Macau, says Jay Chun. “Overseas casino representatives will be coming, as they are also looking for junkets from this market to go to their casinos,” he explained. “We are also expecting subjunkets to come from all over the world. Their clients may want to play in Macau, but those overseas subjunkets may not have the connections here. The show is a way for the two sides to connect,” adds Mr Chun. Another important part of the event will be gaming equipment. That’s already well covered by G2E Asia, but Mr Chun thinks that with ever faster product cycles in the industry, there is room for a second such annual showcase in Macau. “In Japan with pachinko, the product cycle is three months – sometimes even less. That’s what we want on the manufacturing side. To bring new products to market,” states Mr Chun, who is also the chairman of Hong Kong-listed equipment maker Paradise Entertainment Ltd and its unit LT Game, maker of a live dealer electronic multi-game product popular in the Macau market and elsewhere. “We are inviting existing G2E Asia exhibitors and also small- and medium-sized firms to take part in the new show,” adds Mr Chun. The influential Association of Gaming Equipment Manufacturers – a United States-based trade body – lists most of the world’s major casino equipment firms on its membership roster. Business Daily asked Mr Chun whether AGEM would be supporting the new event. Mr Chun said: “We connected with AGEM at G2E Asia, but we haven’t been in touch since then. Of course if AGEM and their members would like to attend they would be very welcome.”
“Surrounding the VIP clubs on the show floor will be the electronic gaming machines, so we expect that to be a pretty big part of the event,” says Macao Gaming Show director Marina Wong. “And then around the periphery of the site we will have all the niche suppliers,” she adds. By ‘niche suppliers’ she means a range of businesses that aren’t currently on the roster of Macau’s existing trade show Global Gaming Expo Asia, organised jointly by the American Gaming Association and Reed Exhibitions. “We have five very specific areas where the casinos feel they really need more input,” explains Ms Wong. “One is souvenirs. There are a few operators that use a huge amount of souvenirs,” she adds. “Another is furniture, and a third is lighting.” Jay Chun, chairman of the organising association adds: “There are a lot of furniture manufacturers and lighting manufacturers especially in Guangdong province that casino operators would like to connect with.” “An additional segment is entertainers,” says Marina Wong. “They [casino operators] use a lot of entertainers, they use a lot of promotional services.” The fifth area is food and beverage supplies. “Casinos always look for niche food products. There are a lot of high-end restaurants in the casinos now. So they might want a certain kind of beef from Japan, or a certain cheese from France, or live airfreighted oysters,” explains Ms Wong. “The Macau food supply system is mostly geared for the mass market. So there are outside food suppliers very interested in serving Macau,” she adds.
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August 2,2013 2013 April 19,
Macau
July gaming revenue up 20 pct year-on-year Mainland tourist numbers also grew by 20 pct in June, says government Michael Grimes
michael.grimes@macaubusinessdaily.com
KEY POINTS July GGR grew at 2.5 times rate China Q2 GDP MOP29.49 bln, third highest ever 20 pct expansion year-on-year MOP200.93 bln for year to July 31
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acau’s gross gaming revenue grew in July at around two-and-half times the rate of the underlying mainland China economy. The city registered 29.49 billion patacas (US$3.7 billion) revenue, a growth of 20 percent year-onyear said city’s gaming regulator, the Gaming Inspection and Coordination Bureau. Analysts had forecast July growth in the range of 18 to 21 percent. China’s gross domestic product
BOC Macau eyes Hengqin yuan services T
he Macau branch of Bank of China Ltd is interested in developing yuandenominated business in Hengqin Island but says the official procedures to do that are “slow”. Ye Yixin, general manager of the branch, said they were striving to provide financial services in the Chinese currency in Hengqin, hoping to further help the Macau enterprises develop there. However many of the policies that will rule over the special area are still “at the promotional stage,” he told reporters in an unrelated public event yesterday.
For instance, he said, the policy for Macau banks to offer loans to companies in Hengqin “has not been enacted and [the policy] allowing Macau investors in Hengqin to acquire financial support from banks here has also not been enforced”. “It is so slow,” the general manager said. The Monetary Authority of Macau has been helping the banking industry all along in negotiating with the Guangdong authorities on the implementation of such measures, Mr Ye said. But there is still no timetable, he added. The situation seems different in another of Guangdong province’s special economic zones, Qianhai in Shenzhen. In January Hong Kong media reported that 15 Hong Kong banks had signed deals with 15 Qianhai companies to provide loans of up to 2 billion yuan (2.6 billion patacas). T.L.
expansion slowed to an annual rate of 7.5 percent in the second quarter, according to figures released in mid-July by the National Bureau of Statistics of China. In the first three months of 2013 the growth rate was 7.7 percent. Visitors from the mainland account for around two-thirds of Macau’s tourists. Their numbers swelled by 20 percent year-on-year in June, the most recent numbers available, said the Statistics and Census Service. In the first six months
Constructor fined for LRT delay A
contractor for the Taipa section of the Light Rapid Transit (LRT) railway has been fined for 180,000 patacas (US$22,500) for “affecting the construction progress,” the Transportation Infrastructure Office said in statement yesterday. The office said that the unidentified contractor “failed to fulfil its contractual obligations to adequately carry out the management works”. A second contractor was also penalised for not taking appropriate safety measures during construction, said the statement. A spokesperson for the office
of 2013 total visitor numbers went up 4.2 percent. Nonetheless there is still caution among some Hong Kong-based analysts about short-term positives for Macau gaming stocks. “While the strong headline revenue growth of June and the easy comparison in the third quarter should act as supports, the uncertain macro outlook in China and concerns about slower VIP demand (amid a tight China credit environment) might cap upside in the near term,” said Kenneth Fong of J.P. Morgan in a note earlier this week. July’s revenue tally was the third highest monthly total this year. Cumulative total revenue for the year to July 31 is now 200.93 billion patacas, with a year-to-date growth rate of 15.9 percent. “Over the last four years the back half of the year has accounted for 54 percent of annual GGR,” said Union Gaming Research Macau in a note. “Should historical patterns hold true, we believe GGR should meet or even exceed our 16 percent [annual growth] forecast,” added the research house.
told Business Daily the fine amount for the second contractor was not yet known as “there are still some ongoing procedures”. According to the spokesperson, there were now three different contractors for the three parts of the Taipa section, as well as another company for the railway’s depot. But the office did not reveal the identity of the fined contractors. The statement said the construction progress for the Taipa section was behind schedule due to the rainy weather and a complex underground pipe network. But the contractors still “have the ability to get back on schedule”, the statement said. The Light Rapid Transit is expected to start operations by 2015 but the construction and tendering works of the Macau section are yet to begin. Secretary for Transport and Public Works Lau Si Io declined last month to pledge that the project would be ready on time. T.L.
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August 2, 2013
Macau
Increase Macau-Taiwan flights, mayor suggests
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The mayor of Taichung imagines the number of Taiwan visitors to Macau doubling
Gradual change In the first half of this year, Hong Kong and the mainland were the only tourism source markets with more than 500,000 tourist arrivals. There were more than 8.9 million mainland visitors to June 30, an average of about 1.5 million a month. The number of mainland arrivals was almost 2.7 times greater than tourists from Hong Kong, which had slightly more than 3.3 million tourist arrivals. The next biggest source markets after these are almost invisible in the graph below. The number of Taiwanese tourists is less than one-seventh of the number from Hong Kong, and 20 times smaller than the mainland’s total. These proportions are doubled and tripled for South Korea and the Philippines, the next two countries in the list. Tourist arrival numbers from these two countries are about 40 times and 60 times smaller than the mainland.
The flow of tourists from the mainland is also the most stable. In the first half of this year, the monthly change in arrivals never exceeded 3.5 percent. The variation in tourist arrivals from Hong Kong and Taiwan is noticeably higher at about 9 percent and 7 percent. Smaller tourism source markets show greater variability. Monthly changes for South Korean tourists vary from minus 17 percent to 24 percent. For tourists from the Philippines, the variation is from minus 19 percent to 40 percent. Given both of these countries contribute only a small proportion of Macau’s tourists, monthly changes go unnoticed in the graph. As many of the monthly changes noted in this analysis cancel out each other, the overall trend is more stable. The ups and downs did not exceed 1.9 percent.
Tony Lai
tony.lai@macaubusinessdaily.com
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he mayor of the Taiwan city of Taichung, Jason Hu Chih Chiang, believes more frequent flights between Macau and Taiwan are needed to increase bilateral trade and other exchanges. “The relationship between Taichung – or even Taiwan as a whole – and Macau can still be strengthened,” Mr Hu told reporters yesterday. “In the first six months there were about 450,000 Taiwan visitors,” he said on the sidelines of a Macau and Taiwan food fair in the new Macau Convention Centre. “If there were more flights, the number could easily break through the ceiling of 1 million.” Official data show over 458,000 people from Taiwan visited Macau in the first half of this year, 8.6 percent fewer than a year earlier. “Two years ago there were no direct flights between Macau and Taichung, and many people wanted to come to Macau. Now direct flights have begun, the problem is insufficient frequency,” Mr Hu said. Three airlines together have 16 flights a week between Macau and Taichung. Mr Hu thinks the Macau-Taichung route would be better served by two or three more flights each day. He does not consider empty seats on aircraft a big problem, believing that “more promotion” would fill them.
He said the air services between Hong Kong and Taichung had set a good example. “There are 63 flights a week and the seat occupancy rate is about 80 to 90 percent,” he said. “The weekend flights are jampacked.” Mr Hu said Macau could “serve as a port for us to enter the mainland market” for goods and tourism. The number of people from Taiwan that visited Macau in the first half was one-third lower than six years ago, just before direct flights between Taiwan and the mainland began. Mr Hu said the aviation agreement that Taiwan and Macau signed in 1995 should be reviewed.
Feeding inflation Taiwan exhibitors at the food fair told Business Daily that they wished to get a foothold in Macau, but that they were wary of high inflation here. A snack company manager, Yang Ming Ging, said his company had taken part in a lot of similar exhibitions here. “Our products are healthy, without any artificial additives, so they are quite favoured by people here,” Mr Yang said. He believes Macau is a niche market for such products. His said his company was interested in setting up a retail outlet
in a casino resort here, but that this would depend on it finding partners. The general manager of New Tai Yang Bakery, Chuang Nei Hui, said her company was close to setting up a shop here, having been persuaded to do so by “a few business chamber members”. Ms Chuang said: “Our business focuses on cake sales, and Macau is also famous for its baking, so we still have to see whether visitors prefer Macau baking or Taiwan baking.” But she has one main reservation. “I found out that inflation here is very high, even though the selling price here can be set higher,” she said. “So more research should be done to see how many more bakeries could be allowed in the market.” The annual rate of consumer price inflation in June was 0.6 percent in Taiwan but 5.3 percent in Macau, official data show. Bull Head sales representative Xi Yang said the sauce maker hoped to increase its presence in Macau and the mainland, and had done deals to sell its products in supermarkets here. The organisers of the food fair said it was mainly a business-tobusiness event. But representatives of Taiwan enterprises said they had yet to hear of any business-matching sessions. Ms Chuang said she was slightly worried that the Macau Convention Centre, next to the airport, might be “a bit remote” for most Macau people.
J.I.D.
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Tourists arrived in April, the highest month in 1H Mayor Jason Hu says more air services between Macau and Taiwan would mean more trade
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August 2, 2013
Macau
Instant rewards from Guangdong trade fair But some exhibitors are not satisfied with the long-term business-to-business impact Stephanie Lai
sw.lai@macaubusinessdaily.com
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This year’s Guangdong and Macau Branded Products Fair has 269 booths
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he four-day Guangdong and Macau Branded Products Fair opened yesterday, giving over 200 exhibitors an opportunity to promote their wares among potential buyers. But some exhibitors told Business Daily that the fair could do a better job of matching businesses. Representatives of coffee wholesaler Seng Pan Ltd and Ou Mun Café, two Macau enterprises, said the fair was an effective way to promote their brands among potential buyers here and in the mainland. They praised the event premises and the rent for a booth, which they described as reasonable. The fair takes up 6,000 square metres of the Fisherman Wharf’s convention and exhibition centre, and has 269 booths. A booth costs 2,800 patacas (US$350) for the four days. “Though we are mainly doing wholesale business, it is good that the event can bring you a strong retail performance, where many residents and mainland tourists are interested in checking us out,” said Seng Pan marketing manager Rebecca Tong. Seng Pan also promotes and sells products through its own website and the Taobao shopping website. “It is worthwhile to take the chance to meet some regular customers faceto-face, as their word-of-mouth promotion can also help us reach potential distributors or other coffee suppliers,” Ms Tong said. Ou Mun Café administrative manager Yoyo Wu said: “I think the fair is the second-best promoter for our business.” She said the best was the food festival, usually held in November. “One advantage of taking part in this fair is that it has a good location and promotion,” Ms Wu said. “We have participated in some similar fairs in the mainland before, and the cost was quite high, as you need to manage your own logistics
throughout.” Guangdong Haina Agriculture Co Ltd retails rice in Zhuhai. The company’s sales manager, Li Pei Xin, said the fair had promotional value. “We are engaging in a business-toconsumer platform that enables us to see a very strong retail performance,” Mr Li said. “And the companies need not bear a high cost burden.” But he has reservations about the fair’s usefulness in business matching. “What we are more concerned with is the lasting impact that the fair could create, namely more efforts to reach out to distributors or sales agents,” he said. “The fair does have a business matching platform, but I think that the platform should have a stronger impact on the exhibitors.” Flavosource Foodstuffs Co Ltd is a Guangdong company that makes and retails soy sauce. It is taking part in the fair for the first time. The company’s general manager, Liang Yao Nan, said: “We were not even informed that the fair had a business-matching platform.” Mr Liang suggested: “Perhaps the organiser should do better promotion of that.” Ove r 8 0 Ma ca u en ter p r i s es are taking part in the fair, most of them in the food and drink or associated businesses. The enterprises from Guangdong that are taking part are more diverse, including some in the arts and crafts, kitchenware and electronics businesses. The fair is organised by the Macao Trade and Investment Promotion Institute and Guangdong’s Department of Foreign Trade and Economic Cooperation. Sales at the fair amounted to 40.5 million patacas last year, 1.9 percent more than the year before. About 136,000 people visited the fair last year.
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Macau Brought to you by
Financial Monitor Calming down Price movements in June confirm a declining trend that started in the final months of last year. The rate of inflation in the second quarter stood at 5.1 percent compared to the same period last year – noticeably lower than the 6.6 percent registered in the third quarter of last year. The inflation rate is back to the levels measured in early 2011. There was a short cycle of accelerating inflation for most of 2011 and last year, which seems to have subsided in the last four quarters. Inflation is still there but prices are rising more slowly. There is similar evidence for a slowing of inflation in all three leading indices. Aside from the consumer price index, or CPI, the Statistics and Census Service also has an index for families spending between 6,000 patacas (US$751) and 18,999 patacas a month, known as CPI-A, and for spending between 19,000 and 34,999 patacas, CPI-B.
Unappealing phone range trims Hutchison revenue Investors shy away after the wireless network operator reports a sales drop Vítor Quintã
vitorquinta@macaubusinessdaily.com
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he revenue of Hutchison Telecommunications Hong Kong Holdings Ltd, the carrier controlled by billionaire Li Ka Shing, declined in the first half of this year – the first such decline since it was listed in 2009. Hutchison Telecom, which runs the 3 network, told the Hong Kong Stock Exchange yesterday that its first-half revenue had slumped by 9 percent year-on-year to HK$6.15 billion (US$793 million). The company blamed a drop in the number of “popular devices” being launched. Its sales of mobile phones and other equipment fell by 27.7 percent to HK$1.8 billion. It also stopped sales of phones for less than their cost price, which had been meant to attract more prepaid subscribers in Hong Kong and Macau. This reduced mobile service
revenue by 3 percent to HK$2.6 billion and average revenue per user by HK$5 to HK$208 per month. The sales drop was poorly received by the stock market, Hutchison Telecom’s share price tumbling 12.7 percent to close at HK$3.86. Its share price fell in spite of the company having reported that its first-half profit rose by 2 percent to HK$572 million. Hutchison Telecom attracted 140,000 new mobile subscribers, taking its total to 3.78 million. The company expects its financial performance to “stabilise” in the second half as the number of subscribers “using higher-value services continues to grow”. Hutchison Telecom is one of the Macau’s three wireless telecommunications companies. It was fined 370,000 patacas in the first half for two service failures last year.
United States private equity firm KKR & Co LP is thinking about bidding for the ParknShop supermarket chain, two people with knowledge of the matter have said. KKR is talking to banks about financing for a deal, the sources said. ParknShop owner Hutchison Whampoa Ltd has asked would-be buyers to bid for the chain by August 16, people with knowledge of the process said last week. Hutchison Whampoa is seeking US$3 billion to US$4 billion for ParknShop, according to a person familiar with the matter. “This is ideal for private equity because it’s an asset that can generate very steady cash flows,” said an analyst for Credit Suisse, Cusson Leung. “Even though the growth is slower, ParknShop operates in a very stable market.” A private equity buyer could consider spinning off ParknShop as a business trust after acquiring it, Mr Leung said. Hutchison Whampoa is doing a strategic review of ParknShop, which also has operations in Macau. Bloomberg News
The chart shows that, in practice, there seem to be no significant differences between the three indices. Since 2010, price rises stood at 19.3 percent as measured by CPI, and at 19.7 percent and 19.9 percent for the other indices. In terms of average annual rates, the biggest difference, between the CPI and CPI-B indices, amounted to just 0.12 percentage points. The rates for CPI-A and CPI-B are virtually undistinguishable. They diverge by less than 0.04 percentage points over the past three years. These values raise a question of how useful these distinctions are. At their current rates, it will take more than 25 years for the difference between the two indices to increase by just one percentage point. J.I.D. The content of this column is the work of Business Daily’s journalists.
3.1%
The rise in prices in the first half of this year
KKR considering ParknShop bid
Hutchison Telecom expects its financial performance to ‘stabilise’ in the second half
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August 2,2013 2013 April 19,
Macau
Bank of East Asia triples profit here Strong growth in more profitable lending helps family-run bank Vítor Quintã
vitorquinta@macaubusinessdaily.com
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ank of East Asia Ltd said its first-half profit in Macau tripled year-on-year in the first half of 2013 thanks to cost reduction and a focus on more profitable business. The branch here “successfully expanded its cross-border banking facilities and diversified its customer base,” the bank said in a filing to the Hong Kong Stock Exchange yesterday. As a result Bank of East Asia got “strong loan growth,” with outstanding credit increasing by 18.7 percent year-on-year in the first half. Part of that lending growth came from joining a US$1.4 billion (11.18 billion patacas) syndicated loan for gaming operator Melco Crown Entertainment Ltd. Bank of East Asia contributed with US$40 million for the deal, signed earlier this year, which will go towards financing the construction of Melco’s Studio City resort in Cotai. The bank’s profit here, however, grew much faster than loans. It just about tripled year-on-year in the first half of 2013, the company said, without providing the actual figures. The growth came from “the implementation of measures to control costs” and to improve the margin between the interest it got from lending and the one it pay for deposits. The Macau branch is undergoing a hot streak. Last year Bank of East
Bank of East Asia’s Macau branch is undergoing a hot streak (Photo: Manuel Cardoso)
Asia’s profits here grew more than 14-fold to 19.35 million patacas, also thanks to an improvement in the interest margin. Hong Kong’s largest family-run lender saw its overall first-half profit rise 13 percent to HK$3.38 billion, beating analyst estimates of a decline. “The surprise of the earnings mainly comes from better than expected interest income driven
by faster loan growth, particularly in [mainland] China,” said Daiwa Capital Markets Hong Kong Ltd analyst Grace Wu. Chief executive David Li Kwok Po’s expansion in the mainland, where Bank of East Asia is the secondlargest foreign bank by number of branches, contributed to a 9.3 percent jump in lending. Shares of the bank jumped as
much as 3.8 percent after the earnings were announced, before closing up by 1.2 percent to HK$29.45. In addition, “loans grew faster than deposits, which also contributed to the better-thanexpected net interest income growth,” Ms Wu said yesterday. The bank’s net interest income jumped 23 percent. With Bloomberg News
China Life overtakes AIA as top Macau life insurer A first-quarter jump in premium income follows a year of surging profit Tony Lai
tony.lai@macaubusinessdaily.com
T
he Macau branch of China Life Insurance (Overseas) Co Ltd became the biggest player in the life insurance market here in the first quarter of this year. Monetary Authority of Macau data show that the China Life branch had premium income of 486.1 million patacas (US$60.86 million) in the first quarter, 263.5 percent more than a year earlier, giving it 37.9 percent of the life insurance market. This meant China Life Macau’s share exceeded that of American International Assurance Co (Bermuda) Ltd. AIA Macau had been the market leader since the Monetary Authority began releasing data on the life insurance industry in 2003. AIA Macau’s first-quarter life insurance premium income was 304.6 million patacas, 18.7 percent more than a year earlier, giving it 28.2 percent of the market. Business Daily asked AIA Macau and China Life Macau to comment
but neither had replied by the time we went to press. The first quarter continued a stretch of high-speed growth for China Life Macau. In 2010, the branch had 245.7 million patacas in premium income, giving it only 9.1 percent of the market, the fourth-largest share. China Life Macau’s gross premium income reached 559 million patacas last year, nearly half as much again as the year before, according to its financial report published in the Official Gazette this week. In contrast, the combined gross premium income of all Macau’s life insurers grew by only 19.1 percent last year, to 3.74 billion patacas. The financial report gives no explanation why the growth of China Life’s premium income outpaced that of the life insurance industry as a whole. China Life Macau’s profit surged to 111.6 million patacas last year, fourth-fifths as much again as the year before.
This week Fitch Ratings gave China Life Insurance Co Ltd, the parent company of China Life Overseas, a rating of A+, four notches below the top rating, with a stable outlook. Fitch cited China Life’s financial strength as the reason. The agency said the rating “factors in implicit capital and policy support
from the Ministry of Finance”. China Life and China Life Overseas are controlled by state-owned China Life Insurance (Group) Co. But Fitch gave a warning that the slowing of growth in the mainland economy and higher sovereign risk could jeopardise China Life’s business.
China Life had 37.9 percent of the life insurance market in the first quarter
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Greater China July home prices jump, SouFun says China’s new home prices jumped in July by the most since December as buyers don’t expect the government to tighten the property market further and push housing values lower. Prices surged 7.9 percent last month from a year earlier, to 10,347 yuan (US$1,688) per square metre (10.76 square foot), SouFun Holdings Ltd, the nation’s biggest real estate website owner, said in an e-mailed statement after a survey of 100 cities. Prices began rising from a year earlier in December, when they climbed 0.03 percent after a 0.46 percent slide in November. Home values in the southern business hub of Guangzhou soared 23 percent from last year, while in the capital Beijing they jumped 20 percent, SouFun said. China will seek “stable and healthy” development of the property market, the government said on its website after a meeting led by President Xi Jinping this week, prompting speculation that the government may relax property curbs. “Demand from first-home buyers is still strong in the market, while the policy uncertainty has been dismissed as it’s unlikely for the central government to issue a nationwide tightening policy,” said Dai Fang, a Shanghai-based analyst at Zheshang Securities Co. “Local governments with big price gains may announce some city-level property policy though.” With the increasing uncertainty about China’s economy, the expectation for harsher property curbs is weakening, SouFun said in the statement.
Manufacturing – key driver of China’s growth
Chinese manufacturing data mixed in July Private estimates more pessimistic than government data
C
hina’s factory activity stayed weak in July as persistent pressure on the economy extended into the third quarter, although bigger firms fared better as the government moved to bolster growth, a pair of surveys showed yesterday. A small improvement in the official PMI offered some optimism for an economy that has slowed in nine of the past 10 quarters, but analysts cautioned against rushing to a conclusion the world’s second-largest economy had arrested its decline. The official manufacturing index unexpectedly rose while a private gauge that includes smaller businesses fell to an 11-month low, signalling government efforts to bolster economic growth may be helping larger companies. The government won’t let growth decelerate to a level below a “reasonable zone,” the State Council Information Office said after a Purchasing Managers’ Index reading of 50.3 for July, up from 50.1 in June. A gauge from HSBC Holdings Plc and Markit Economics fell to 47.7. A reading above 50 indicates expanding activity while a figure below that level points to a contraction. The government has tried to allay concerns the economy has slowed more than expected as it pushes through reforms, recently announcing a series of targeted support measures and expressing confidence of meeting its 7.5 percent growth target this year. “The government needs to do more to strengthen this momentum if you look at the official figure. There are still a lot of uncertainties in the economy,” said Haibin Zhu, chief China economist at JPMorgan Chase & Co in Hong Kong. “The HSBC PMI concentrates on small companies, so we can see the small companies are more affected by the liquidity tension apparently,” said Wei Yao, China economist at Societe Generale SA in Hong Kong. “I think the official report does offer a slim hope that the economy is stabilising at least, but it is still a bit early to conclude that things have turned around decisively.” The better-than-expected official
PMI buoyed shares in China and Asia and helped the Australian dollar, considered a proxy for Chinese growth because of the countries’ strong trade links, pull away from a three-year low hit in early trade. But the strengthening of the official gauge is “still very modest given the backdrop that smaller companies are still suffering,” said Ms Yao. “It’s still too early to say the economy is undeniably picking up. It’s still a very weak reading compared to historic levels.” The politburo, China’s top decision-making body, has pledged stable economic growth in the second half of this year as it presses ahead with reforms and restructuring. While keeping the door shut for big stimulus, the government has unveiled polices to boost spending in social housing, urban infrastructure, highspeed rail and energy-saving industries, and tax breaks for small firms. Analysts in a Reuters poll forecast annual GDP growth slowing to 7.4 percent in the third quarter from 7.5 percent in the second. Full-year growth is forecast to be 7.5 percent – in line with the official target. Manufacturing and other recent data have “prompted Beijing to introduce more fine-tuning measures,” Qu Hongbin, HSBC’s chief China economist in Hong Kong, said in a statement. “These targeted measures should boost confidence and reduce downside risks
KEY POINTS Official PMI inched up to 50.3 in July from June’s 50.1 HSBC PMI dips to 47.7 in July, lowest in nearly a year Factory sector struggles, big firms fare better Little signs of a quick turnaround in economy
to growth.” Liu Li-Gang, head of Greater China economics at Australia & New Zealand Banking Group Ltd in Hong Kong, said the government number “further casts doubt on the reliability of this official forwardlooking indicator”. Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong, said the “bottom line is that there is a signal of improvement in the official reading, confirmed by an across-the-board uptick for almost all sub-indexes, and in any case government stimulus will lead to further improvement later in the second half” and a rebound in economic growth by the fourth quarter.
Employment weakens China’s leaders are working to turn the economy into one led by domestic consumption and demand from a focus on manufacturing and exports, but those changes raise the possibility of job losses as traditional industries restructure. A sub-index of the HSBC PMI measuring employment contracted for a fourth month to be at its weakest since March 2009. The official PMI indicates employment has been falling since the middle of last year. Authorities hope the services sector can pick up the slack, but a failure to keep Chinese in jobs could threaten the social stability and economic prosperity that the Communist Party says justifies its one-party rule More manufacturing job losses look inevitable as Beijing tackles the worst polluters and loss-making companies in sectors gripped by overcapacity as part of its economic reforms. “With weak demand from both domestic and external markets, the cooling manufacturing sector continued to weigh on employment,” said Mr Qu. China’s official PMI suggests services are growing faster than manufacturing. The services measure has hovered between 53.9 and 56.7 in the past 12 months, while manufacturing has fluctuated between 49.2 and 50.9. Reuters
Alibaba blocks services related to WeChat Alibaba Group Holding Ltd, China’s largest e-commerce company, has suspended some services related to competitor Tencent Holdings Ltd’s instant messaging application WeChat. A function that allowed sellers to subscribe to WeChat applications through Alibaba has been temporarily suspended, Alibaba spokeswoman Florence Shih said yesterday. The block ensures sellers “conduct their marketing activities in a safe and legitimate manner,” she said. Some sellers on Alibaba have tried to steer transactions away from its Taobao Marketplace and Tmall.com platforms, and disturbed customers through promotions on WeChat, Alibaba said in its statement. “Alibaba wants to create its own community as opposed to benefiting Tencent,” said Billy Leung, an analyst at RHB Research Institute Sdn in Hong Kong. “Tencent is a very strong force, they’ve got money backing and user base.” Unlisted Alibaba, which started developing its mobile business three years ago, hasn’t kept up with Tencent’s WeChat, Alibaba chairman Jack Ma said at the Credit Suisse Asian Investment Conference in Hong Kong in March. Since then Mr Ma has stepped his drive on winning more mobile users, including buying an 18 percent stake in Sina Corp’s Weibo unit.
Xi calls for boosting navy China’s President Xi Jinping called on the country to strengthen its maritime forces, as a senior military official said the nation’s navy may be generations behind those of the U.S. and Russia. To prepare to deal with a variety of “complex situations” China needs to improve its ability to safeguard maritime rights, Mr Xi said during a study session before the 86th anniversary yesterday of the founding of the People’s Liberation Army, according to the official Xinhua news agency. China will stick to the path of peaceful development yet “in no way will the country abandon its legitimate rights and interests, nor will it give up its core national interests,” the president was quoted as saying. China unveiled a new coast guard this month, as it faces disputes with Japan over islands in the East China Sea and with Vietnam and the Philippines in the South China Sea. The country is also reliant on sea lanes for imports of oil from the Persian Gulf that pass through the Strait of Malacca. China bought more than 50 percent of its oil from the Middle East last year, customs data show.
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Greater China
Stock market ‘dysfunctional’: Neoh Market starved for funds amid IPO freeze, says former adviser
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hina’s equity market has become “dysfunctional” after the regulator halted share sales and investors shifted to wealth-management products, said Anthony Neoh, a former government adviser who helped the nation open up to foreign money managers a decade ago. Smaller companies are losing access to capital as the China Securities Regulatory Commission extends a more than nine-month halt on initial public offerings and government-controlled banks focus on lending to state-owned enterprises, said Mr Neoh, who helped start the Qualified Foreign Institutional Investor programme as the CSRC’s chief adviser from 1999 to 2004. Many investors assume wealth-management products are guaranteed by the government, creating “tremendous moral hazard,” Mr Neoh said. The Shanghai Composite Index tumbled 42 percent in the four years to Wednesday, the worst performance worldwide after Greece’s ASE Index. Investors have liquidated about 2.7 million stock accounts since June 2011 and about 116 million are empty or frozen, regulatory data show. More than 700 companies are waiting to raise funds, according to data compiled by Bloomberg. “We now have a dysfunctional
Anthony Neoh was CSRC’s chief adviser until 2004
stock market,” Mr Neoh, who is now part of the CSRC’s international advisory body and a visiting professor at the National University of Singapore, said in an interview. “The stock market has been starved for funds.”
Ponzi scheme The Shanghai Composite dropped 12 percent this year as Premier Li Keqiang signalled tolerance for slower growth to shift the economy away from investment-led stimulus. The
government is targeting expansion of 7.5 percent this year, which would be the slowest since 1990. Chinese stocks will eventually rally as the economy grows at a faster pace than most major countries and regulators increase oversight of stock sales, Mark Mobius, who oversees about $53 billion as the executive chairman of Templeton Emerging Markets Group, said in an interview. “The IPO situation will get better in the sense that the quality of new issues coming into the Chinese market will improve,” Mr Mobius said.
Wealth-management products, which CSRC chairman Xiao Gang likened to a Ponzi scheme in an October commentary, have lured investors because they typically provide rates of return higher than savings deposits, which are set at 3 percent annually. The value of the products, which invest in everything from money markets to stocks and localgovernment loans, surged eightfold since 2009 to 8.2 trillion yuan (US$1.3 trillion) at the end of March, according to government data. While they look like time deposits to investors, about 70 percent of them don’t have their principal guaranteed by banks, according to data from the China Banking Regulatory Commission, which requires banks to register all WMPs they sell. About half invest in riskier areas including stocks, derivatives and loans to local governments and property developers, the CBRC said. “We don’t have a set of standards that are uniform for trust companies, insurers and wealthmanagement firms,” said Mr Neoh, who was chairman of Hong Kong’s Securities and Futures Commission from 1995 to 1998. “The implicit understanding is that if something goes wrong, the government will come in and protect them.” Bloomberg News
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August 2, 2013 April 19, 2013
Greater China Rongsheng jumps after issuing convertible bonds China Rongsheng Heavy Industries Group Holdings Ltd, the shipyard seeking financial assistance from the government, surged the most in more than nine months after it agreed to issue convertible bonds to raise capital. The company aims to raise a net HK$1.38 billion (US$178 million) from selling the bonds to Action Phoenix Ltd, it said in a statement to the Hong Kong stock exchange on Wednesday. The bonds maturing in 2016 have a coupon of 7 percent, and an initial conversion price is HK$1 a share, about 22 percent more than Wednesday’s closing price, the Shanghai-based company said. The country’s largest shipyard outside state control said on July 5 it was seeking help from the government after a plunge in orders forced it to reduce production and “restructure” its workforce. Chinese shipmakers are struggling as a global vessel glut makes orders more difficult to win and pushes down prices. “Rongsheng is desperate for cash as there are signs that its balance sheet is really stretched,” said Lawrence Li, a Shanghaibased analyst at UOB-Kay Hian Holdings Ltd. “The much-needed money will help ease pressure, but this is far from enough.” The shares jumped as much as 13.41 percent in Hong Kong trading yesterday. It closed at 93 Hong Kong cents. Rongsheng had a total of 28.8 billion yuan ($4.7 billion) of debts as at the end of last year, according to data compiled by Bloomberg. That included 19.34 billion yuan of short-term debt. The sale represents “an opportunity to enlarge and diversify the shareholder base of the company, to improve the liquidity position,” Rongsheng said. Should all the bonds be converted, Action Phoenix will own 16.67 percent of the enlarged share capital, it said. Bloomberg News
Rail debt costs surge as Li steps up investment
B
orrowing costs for China’s state- owned railway company are rising the fastest in two years just as Premier Li Keqiang vows to accelerate network expansion in an economy set to grow at the slowest pace in 23 years. The yield on 10-year rail debt surged 21 basis points last month to 5.29 percent in Shanghai, the biggest increase since August 2011, ChinaBond data show. The rate on similar-maturity government bonds climbed 21 basis points to 3.72 percent. China Railway Corp, which took over the dismantled Ministry of Railways as well as its 2.8 trillion yuan (US$457 billion) debt in March, has government approval to raise as much as 130 billion yuan more this year, flooding the market for its bonds. China is relying on rail investments to boost the economy with more than 1,400 companies in industries including steel, cement and paper being told to cut output. The government will speed up network construction, especially in the central and western regions, because railroads promote urbanisation, stabilise growth and improve people’s lives, Mr Li told the cabinet last week. “The takeaway from the speech was that China Railway may have to increase bond sales to fund the expansion in the west,” said
China relying on rail investments to boost economy
Guangzhou-based Xie Jun, head of fixed-income investments at GF Fund Management Co, which oversees around 113 billion yuan of assets. “The performance of railway bonds will still mainly be affected by shortterm liquidity as investors are worried cash supply will continue to be tight.” China Railway, the nation’s biggest issuer of corporate debt, sold 20 billion yuan of securities due 2023 at 4.97 percent last week, up from 4.68 percent at the previous sale of the tenor in August 2012. Ten-year
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railway yields rose to 5.34 percent on July 24, the highest level since November 2011. A cash squeeze, which peaked in June as the central bank weeds speculative funds out of the financial system, may damp demand at a time when issuance may rise six-fold in the rest of the year. The State Council, or cabinet, raised planned spending on tracks, trains and related fixed assets to 690 billion yuan from 650 billion yuan. Bloomberg News
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August 2,2013 2013 April 19,
Asia
Najib plans budget measures Weakening As Fitch cuts Malaysia outlook on worsening reform prospects
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alaysian Prime Minister Najib Razak said he’ll announced steps in his budget speech later this year to tackle risks to the fiscal position outlined by Fitch Ratings. Fitch cut its outlook to negative from stable this week, citing the Southeast Asian nation’s rising debt levels and lack of budgetary reform. The credit rating company’s concerns are shared by the government, Mr Najib told reporters at an Islamic finance event in Kuala Lumpur yesterday, without giving details of fiscal measures planned for his October 25 budget address. “We are just looking at various policy options but we do understand that there’s a need for us to strengthen the fiscal and macro position of the government,” he said. “The actual details will be unveiled shortly, particularly in the forthcoming budget.” Mr Najib, who is also finance minister, led his Barisan Nasional coalition to victory in Malaysia’s general election in May following a spending spree which saw him raise civil servants’ salaries and give cash handouts to the poor. He also froze planned cuts in state subsidies on essential items and stalled on
introducing a goods and services tax. “It’s important for us to reduce our vulnerabilities and one of the areas is in the fiscal area,” central bank Governor Zeti Akhtar Aziz told reporters at the same event. “Malaysia has the capacity and capability to address it in a gradual and sequent manner.” Malaysia remains committed to trimming the deficit to 3 percent of gross domestic product by 2015 and won’t let state debt exceed 55 percent of GDP, the government said in an e-mailed statement yesterday. It still plans to reduce subsidies and broaden the tax base, it said.
Deficit gap The deficit is forecast to narrow to 4 percent of GDP this year from 4.5 percent at the end of 2012, according to the central bank’s annual report in March. The FTSE Bursa Malaysia KLCI Index fell 1.3 percent yesterday, the most in seven weeks, the ringgit slumped to a three-year low and 10-year bond yields climbed to the highest since January 2011 after Fitch cut its outlook on Tuesday. The selloff was a “knee-jerk”
reaction and investors should take this opportunity to accumulate positions, CIMB Group Holdings Bhd. analysts Terence Wong and Lee Heng Guie wrote in a report yesterday, standing by their prediction that the KLCI will rally to 1,850 by year-end. The gauge closed at a record on July 24 and has climbed 5.3 percent this year. “The average lifespan for a rating outlook is about 18 to 24 months before a downgrade is enforced, giving Malaysia time to prevent that,” they said. “The rating watch outlook is a warning for Malaysia to improve its macroeconomic management and the government has time to get its house in order.” Malaysia’s public finances are its key rating weakness, Fitch said. Rising state subsidies pose risks and it would be difficult for the government to achieve its 2015 deficit target without additional steps, the company said. The economy is projected to grow between 5 percent and 6 percent this year after expanding 5.6 percent in 2012, according to the central bank. Growth may moderate in 2013 and next year on external factors, Mr Najib said yesterday. Bloomberg News
We do understand that there’s a need for us to strengthen the fiscal and macro position of the government Najib Razak, Malaysian Prime Minister
exports weigh on South Korea S
outh Korean exports grew far less than expected in July and a measure of manufacturing activity slumped to the worst in nearly a year, data showed yesterday, suggesting global demand has yet to turn to underwrite a firm recovery in Asia’s fourth-largest economy. Overseas shipments by the world’s seventh-largest exporter rose by 2.6 percent in July in annual terms, better than a 1.0 percent fall in June but far below the median forecast of 5.0 percent growth from a Reuters survey of economists. In another sign of the challenging international conditions, average exports value per working day – a useful measure for monthly comparison in the absence of seasonally adjusted figures – slipped to US$1.83 billion in July, the weakest in 11 months and down from US$2.17 billion in June. “Today’s export figures show that weak global demand is still weighing on Korea’s growth,” said HSBC Holdings Plc economist Ronald Man. “The smaller trade balance, too, means that the direct support from net exports may decrease, keeping GDP growth under pressure in the third quarter.” The potential for an underwhelming third quarter GDP outcome was underscored by the latest manufacturing report. The purchasing managers’ index from HSBC Holdings Plc and Markit Economics shows South Korea’s manufacturing sector fell to a seasonally adjusted 47.2 percent in July, the lowest in 10 months and slipping further below the 50 mark separating growth from contraction as new export orders declined. Yesterday’s data indicates that the pace of recovery in South Korea’s economy remained modest, underpinned by the government’s stimulus measures, with a full-fledged rebound not yet firmly entrenched. Reuters
Australian govt considers levy on bank deposits A
ustralia’s Treasurer Chris Bowen confirmed yesterday he was in discussion with banks about a possible new levy to protect customer deposits as the government seeks new revenue to shore up its budget. Initial reports of the levy sent shares in Australia’s major banks down.
Mr Bowen is expected to update Australia’s budget forecasts today, ahead of national elections which could be called at any time, and has said he is committed to returning a surplus budget by 2016-17 despite falling revenues. Citing unidentified sources, the Australian Financial Review said the proposed levy is between 0.05 percent and 0.1 percent on protected deposits, with the level set at A$100,000 (US$89,700). The paper had initially said the levy was between 0.5 percent to 1.0 percent. Presently, the government guarantees bank deposits up to A$250,000 without charging the banks. The levy would provide insurance in case future bailouts were needed, the pa p er s a i d , a d d i n g i t wa s estimated to raise less than A$1 billion over four years. Shares in Australia’s Big Four banks – Australia and New Zealand
Banking Group Ltd, Commonwealth Bank of Australia, National Australia Bank Ltd and Westpac Banking Corp – fell by around 2 percent following the initial report. They all closed down yesterday between 0.06 percent and 1.60 percent. Mr Bowen said he had held talks with banks about how to better protect deposits in the unlikely event of a bank failure, but he stopped short of confirming any new charge. “The IMF has expressed the view for some time that there is a gap in Australia’s public policy when it comes to provisioning for any bank or deposit-taking institution’s failure. Our financial regulators have expressed the same strong views,” Mr Bowen told Australian radio. “I’ve been consulting with banks, and credit unions and others about how we tackle that issue, how we make sure there is money set
aside in the unfortunate and very unlikely event that a deposit taking institution in Australia comes into difficulty,” he added. Reuters
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August 2, 2013 April 19, 2013
Asia Temasek names Zoellick to board Temasek Holdings Pte Ltd appointed former World Bank president Robert Zoellick to its board of directors as Singapore’s state-owned investment company looks to start its first office in the U.S. Mr Zoellick, 60, will take up the position from August 15, Temasek said in a statement. Mr Zoellick’s appointment “comes at an opportune time, as Temasek sets out to establish its first U.S. office in the near future,” Lim Boon Heng, Temasek’s new chairman, said in the statement. “Bob’s insights will be especially helpful as we continue to explore opportunities in U.S., Europe and also in the various growth markets.”
Indonesia inflation at 4.5-year high Increase in consumer prices adds pressure on central bank Nilufar Rizki and Adriana Nina Kusuma
Sharp narrows second quarter loss Sharp Corp posted a narrower loss than analyst estimates as sales of liquid-crystal displays and solar cells rose. The net loss totalled 18 billion yen (US$183 million) in the three months ended June 30, compared with the 138 billion yen loss a year earlier, the company said yesterday. Sharp, which is benefiting from a weaker yen and cost cuts, needs additional funds to boost its capital ratio, executive Tetsuo Onishi said in Tokyo. The company plans to raise about 100 billion yen through public and private share sales in September, people familiar with the situation said yesterday.
DBS less keen on M&A after Danamon failure Singapore’s DBS Group Holdings Ltd said it has little appetite for acquisitions after a bid for PT Bank Danamon Indonesia Tbk stumbled, adding that it would instead redouble efforts to expand its existing Indonesian operations. The deal was seen as part of chief executive Piyush Gupta’s (pictured) push to diversify DBS’s earnings base away from Singapore and Hong Kong, which contributed about 88 percent of net profit in the first half of the year. “I really have no compulsion to do any acquisition,” Mr Gupta told a news conference on quarterly earnings. “All over Asia, it is very difficult for you to do a deal.”
BIMB pays US$884m for Bank Islam Malaysia’s BIMB Holdings Bhd will pay US$884 million to gain full control of Bank Islam Malaysia Bhd, the country’s oldest and largest standalone Islamic bank, in a deal that will help it expand in a rapidly growing sector. BIMB, which currently owns 49 percent of Bank Islam, will pay for a 30.5 percent stake from a unit of Dubai Group for US$550 million. BIMB will acquire the remaining 18.5 percent from Tabung Haji, a domestic pilgrim fund and BIMB’s biggest stakeholder, for US$334.6 million. The acquisitions are subject to approval by regulators and finance ministry.
Hike in fuel charges pushes consumer prices higher
I
ndonesian inflation surged more than expected in July and the June trade deficit widened, which could pressure the central bank to keep tightening monetary policy to aid the ailing rupiah even though that could further drag down growth. The statistics bureau reported yesterday that annual headline inflation in July was 8.61 percent, the highest rate since the beginning of 2009. The bureau’s figure surprised the market because on Tuesday, central bank governor Agus Martowardojo gave July annual inflation as 8.18 percent. The rupiah did not change on the inflation data, trading at 10,280/10,285 to dollar. The Jakarta stock market benchmark index was flat. July’s inflation was the highest since January 2009, when it was 9.17 percent. The market long expected high inflation, as food and transport prices have soared since Indonesia on June 22 raised fuel prices by an average 33 percent. Inflationary pressures have also been increased because July has coincided with the Muslim fasting month, which normally triggers a spike in prices. A Reuters poll projected that July annual headline inflation would be 7.99 percent. Annual core inflation, which excludes volatile food prices and
ANZ opens gold vault in Singapore A
ustralia & New Zealand Banking Group Ltd started a second bullion vault in Asia to cater for growing physical demand that the Melbourne-based company sees driving prices as much as 13 percent higher over two years. The leased facility, which can hold 50 metric tons, opened in Singapore last month, adding to storage in Hong Kong, Perth and Zurich, said Eddie
administered ones, was 4.44 percent in June, up from the previous month’s 3.98 percent. Month-on-month inflation was 3.29 percent, compared with a forecast 2.69 percent. Chua Hak Bin, economist at Bank of America Merrill Lynch in Singapore, called the July inflation “much higher than expected”, noting that earlier the Bank Indonesia said it expected 7.7 percent. “There is a risk that Bank Indonesia may have to further tighten and hike policy rates to contain inflation,” Mr Chua said.
Trade deficit In June, the central bank raised its policy rate by 25 basis points, and in July it hiked a surprising 50 points more to 6.50 percent. Arga Samudro, economist at Bahana Securities in Jakarta, said he now expects the central bank to increase the rate a further 50 points at its next policy meeting on August 15. Gundy Cahyadi, economist at OCBC Bank in Singapore, said he wasn’t so worried about inflation, saying the pace had surged on a “temporary supply shock and we think that inflation will start to ease again after September/October”. He said the government needs to make improving productivity
Listorti, co-head of fixed income, currencies and commodities. The vault could keep US$2.13 billion of metal at Wednesday’s close, Bloomberg calculations show. The bullish stance from ANZ, which has forecast gold at US$1,400 an ounce in 2014 and US$1,500 in 2015, contrasts with the outlook from Goldman Sachs Group Inc, which predicts lower prices as the U.S. Federal Reserve scales back stimulus. Gold has plunged 21 percent this year, tumbling into a bear market as stocks and the dollar rallied. “There is nothing that indicates the strong physical demand trend that we have seen will reverse,” Mr Listorti said in an interview in Singapore. “We see demand coming from financial institutions. Gold accounts for a very small percentage
a key priority. Indonesia today will report economic growth data for the second quarter. A Reuters poll expects the annual rate to be 5.95 percent. In all of 2012, gross domestic product increased 6.2 percent, and the government’s target for this year was 6.3 percent. Domestic consumption accounts for more than half of Indonesia’s economy, and there’s been extra pressure on it to drive growth because exports have been poor. Indonesia reported a trade deficit for June of US$850 million, compared with May’s revised US$530 million. Traditionally, Indonesia produced trade surpluses, but it has had a series of deficits since last year, which have widened its current account deficit. Bank Indonesia estimates that the current account deficit in the AprilJune period was around US$8 billion, the biggest in two years. The deficit, the bank said, will ease to US$6 billion in the third quarter. Worries about the Indonesian economy and monetary tightening by the U.S. Federal Reserve led to a heavy sell-off in June, and the central bank spent about US$7 billion to support the rupiah. In July, the rupiah weakened to below 10,000 to the dollar. This year, the rupiah was weakened about 6.3 percent against the dollar. Reuters
There is a risk that Bank Indonesia may have to further tighten and hike policy rates to contain inflation Chua Hak Bin, Bank of America Merrill Lynch
of some central banks’ reserves. There’s room to grow there.” Demand for physical metal is robust, irrespective of prices, said Mr Listorti, whose team distributes about 15 percent of the world’s primary gold production. Clients include central banks, sovereign wealth funds and asset managers, he said. The company has a supply agreement with the Perth Mint and is one of the top three providers of gold into China, the bank said. ANZ joins JPMorgan Chase & Co, UBS AG and Deutsche Bank AG in offering gold-storage services in Singapore as the Southeast Asian nation plans to become a regional trading hub to take advantage of growing wealth in the Asia-Pacific region. Bloomberg News
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August 2,2013 2013 April 19,
Markets Gaming Stocks - Daily Performance (Hong Kong Stock Exchange) 64.2
41.50 41.35
23.70 23.45
64.1
41.20
23.20 64.0
41.05
Max 41.45
average 41.291
Max 42.75
Min 40.95
average 42.283
40.90
Last 41.35
Min 41.95
Last 42.35
22.95 Max 64.1
average 64.004
PRICE
WTI CRUDE FUTURE Sep13
105.57
BRENT CRUDE FUTR Sep13 GASOLINE RBOB FUT Sep13 GAS OIL FUT (ICE) Sep13
NY Harb ULSD Fut Sep13
average 22.260
Min 21.35
Last 22.35
22.70
22.2
42.5
19.8
22.1
42.2
19.6
22.0
41.9
Max 19.88
average 19.707
DAY %
YTD %
(H) 52W
Min 19.52
Last 19.8
(L) 52W
12.64404609
108.9300003
86.23999786
107.92
0.204271123
1.552648913
114.3699951
96.65000153
299.24
-0.130160531
9.295445414
309.1700077
260.2499962
920.5
0.849082443
1.404571743
980
832.5
3.43
-0.464306442
-4.6692607
4.517000198
3.349999905
306.44
0.307692308
2.368465008
319.1699982
275.5500078
Gold Spot $/Oz
1319.31
-0.9653
-20.7365
1796.08
1180.57
Silver Spot $/Oz
19.601
-1.6083
-34.902
35.365
18.2208
Platinum Spot $/Oz
1435.9
-0.2466
-5.3929
1742.8
1294.18
Palladium Spot $/Oz
727.6
-1.031
3.9934
786.5
566.88
LME ALUMINUM 3MO ($)
1804
1.576576577
-12.97636276
2200.199951
1758
LME COPPER 3MO ($)
6880
2.152932442
-13.25179675
8422
6602
LME ZINC
1843
0.381263617
-11.39423077
2230
1779
13875
2.58780037
-18.66940211
18920
13205
3MO ($)
LME NICKEL 3MO ($) AGRICULTURE ROUGH RICE (CBOT) Sep13 Dec13
19.4
SOYBEAN FUTURE Nov13 COFFEE 'C' FUTURE Sep13 SUGAR #11 (WORLD) Oct13
AUD GBP CHF EUR JPY MOP HKD CNY INR THB SGD TWD PHP IDR AUDJPY EURCHF EURGBP EURCNY EURMOP EURJPY HKDMOP
ASIA PACIFIC
CROSSES
0.157977883
2.888672509
16.47500038
14.60000038
478.5
-0.104384134
-20.21675698
665
471.25
667
0.414000753
-17.34820322
905.75
648
1209.75
0.29015544
-7.138744963
1409.75
1186.5
119.1
0.42158516
-21.87602493
196.75
117.0999985
NAME
15.92999935
ARISTOCRAT LEISU
74.34999847
CROWN LTD
16.96
COTTON NO.2 FUTR Dec13
COUNTRY MAJOR
15.85
WHEAT FUTURE(CBT) Sep13
-0.058927519
84.87
-0.363935196
-15.45363908
22.3599987
7.78511557
89.55999756
World Stock Markets - Indices NAME
Max 22.5
20.0
0.514138817
NATURAL GAS FUTR Sep13
CORN FUTURE
63.9
Max 22.15
average 21.985
Min 21.9
Last 22
21.9
Currency Exchange Rates
NAME
METALS
Last 64.1
42.8
Commodities ENERGY
Min 64
PRICE
DAY %
YTD %
(H) 52W
(L) 52W
0.8969 1.5191 0.9299 1.3245 98.62 7.9877 7.7551 6.1304 60.655 31.33 1.2723 30.047 43.59 10267 88.453 1.23164 0.87189 8.1115 10.5793 130.61 1.03
-0.6425 -0.0263 -0.129 -0.0604 -1.0039 -0.0113 -0.0052 -0.0245 -0.4638 -0.1915 -0.0236 -0.203 -0.3212 -0.0974 -0.3686 -0.0682 0.0321 0.3748 0.0643 -0.9341 -0.0097
-13.5768 -6.0893 -1.5593 0.417 -12.6952 -0.0563 -0.058 1.6345 -9.3315 -2.3939 -4.0006 -3.3747 -5.9303 -4.6167 0.9881 -1.9616 -6.4767 1.3068 -0.4622 -13.0465 -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
0.8927 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
Macau Related Stocks PRICE
DAY %
YTD %
(H) 52W
(L) 52W
4.39
1.152074
39.36508
4.49
2.29
VOLUME CRNCY 1667240
13.33
4.140625
24.92971
13.75
8.33
2173395
AMAX HOLDINGS LT
1.07
0.9433962
-23.57143
1.72
0.75
168176
BOC HONG KONG HO
25
2.669405
3.734438
28
22.85
14797091
CENTURY LEGEND
0.35
0
32.07548
0.42
0.22
0
CHEUK NANG HLDGS
6.28
1.618123
4.841406
6.74
3
112000
CHINA OVERSEAS
22.45
0.4474273
-2.813854
25.6
17.28
13309187
CHINESE ESTATES
17.88
3.592121
47.4102
17.88
8.272
591969
CHOW TAI FOOK JE
9.94
0.5055612
-20.09646
13.4
7.44
5247073
EMPEROR ENTERTAI
2.64
1.538462
39.68254
3.07
1.35
1190000
2.1
-0.4739336
73.26359
2.76
0.993
1344000
GALAXY ENTERTAIN
41.35
1.22399
36.24382
44.95
18.1
4963602
HANG SENG BK
119.8
0.926706
0.9267086
132.8
107.4
845010
0
-26.01504
35.3
22.01
1827501
COUNTRY
PRICE
DAY %
YTD %
(H) 52W
(L) 52W
DOW JONES INDUS. AVG
US
15499.54
-0.1356263
18.27972
15634.32031
12471.49
NASDAQ COMPOSITE INDEX
US
3626.371
0.2738584
20.09785
3649.35
2810.8
FTSE 100 INDEX
GB
6634.74
0.2066134
12.49498
6875.62
5605.589844
DAX INDEX
GE
8328.96
0.6402875
9.413204
8557.86
6596.21
HOPEWELL HLDGS
24.6
NIKKEI 225
JN
14005.77
2.468848
34.73331
15942.6
8488.14
HSBC HLDGS PLC
88.45
1.491681
8.794584
90.7
64.65
12885198
HANG SENG INDEX
HK
22088.79
0.9373661
-2.507538
23944.74
19076.78906
3.86
-12.66968
8.426968
4.66
2.98
36048518
CSI 300 INDEX
CH
2245.364
2.386799
-11.0025
2791.303
2023.171
LUK FOOK HLDGS I
22.4
3.225806
-8.19672
30.05
16.88
2182121
MELCO INTL DEVEL
15.94
1.918159
76.91453
18.18
5.51
6282000
TAIWAN TAIEX INDEX
TA
8056.22
-0.6378932
4.633031
8439.15
7050.05
MGM CHINA HOLDIN
23
2.908277
73.21521
23.65
9.869
5473798
KOSPI INDEX
SK
1920.74
0.3505692
-3.821139
2042.48
1770.53
MIDLAND HOLDINGS
3.14
0.3194888
-15.13514
5
2.68
1174000
S&P/ASX 200 INDEX
AU
5061.49
0.1882827
8.873833
5249.6
4212.7
NEPTUNE GROUP
0.176
1.734104
15.78948
0.23
0.131
7670000
NEW WORLD DEV
11.34
0
-5.657242
15.12
9.38
11710009
SANDS CHINA LTD
7782437
JAKARTA COMPOSITE INDEX
ID
4618.44
0.1748881
6.990382
5251.296
3978.078
FTSE Bursa Malaysia KLCI
MA
1781.36
0.4930555
5.471449
1826.22
1590.67
NZX ALL INDEX
NZ
971.668
0.265402
10.15983
998.487
PHILIPPINES ALL SHARE IX
PH
4053.33
0.2790663
9.57967
4571.4
HUTCHISON TELE H
42.35
0.9535161
24.74227
43.7
22.25
SHUN HO RESOURCE
1.44
0
2.857145
1.67
1.06
0
786.091
SHUN TAK HOLDING
3.62
8.708709
-13.60382
4.65
2.62
28181002
3411.69
SJM HOLDINGS LTD
HSBC Dragon 300 Index Singapor
SI
609.87
-1.09
-1.81
NA
NA
STOCK EXCH OF THAI INDEX
TH
1433.69
0.7413185
3.000143
1649.77
1186.38
HO CHI MINH STOCK INDEX
VN
492.43
0.1179221
19.02206
533.15
372.39
Laos Composite Index
LO
1325.67
0.1541216
9.129302
1455.82
1003.17
Shanghai Shenzhen Composite index is listing the biggest companies by market capitalisation. All data supplied by Bloomberg unless otherwise indicated.
FUTURE BRIGHT
19.8
1.851852
11.56402
22.382
13.311
3819532
12.18
-1.456311
-13.49432
17.38
12.18
1572501
WYNN MACAU LTD
22
0
5.011929
26.5
16.12
5135474
ASIA ENTERTAINME
4.12
-2.369668
46.37528
4.7647
2.2076
327331
BALLY TECHNOLOGI
71.68
0.4062194
60.32208
72.11
41.74
386511
BOC HONG KONG HO
3.13
0
1.9544
3.6
2.99
1000
GALAXY ENTERTAIN
5.33
1.717557
34.25693
5.77
2.37
9100
INTL GAME TECH
18.47
-0.1621622
30.3458
20.25
10.92
2180781
JONES LANG LASAL
91.03
-4.2495
8.446506
101.46
61.39
1621143
LAS VEGAS SANDS
55.57
-1.244002
20.38562
60.54
34.0875
4490001
MELCO CROWN-ADR
24.88
0.3630496
47.74347
25.2
9.62
2450193
MGM CHINA HOLDIN
2.78
0
50.27027
2.85
1.36
9015
MGM RESORTS INTE
16.31
-0.2446483
40.12027
16.52
8.83
7782767
SHFL ENTERTAINME
22.75
-0.04393673
56.89655
23.08
12.35
732353
SJM HOLDINGS LTD
2.54
0
11.52011
2.9481
1.8043
6300
133.13
0.04508905
18.3483
144.99
86.7893
923565
SMARTONE TELECOM
WYNN RESORTS LTD
AUD HKD
USD
Hang Seng Index NAME AIA GROUP LTD
PRICE
DAY %
VOLUME
36.95
0.5442177
18278885
ALUMINUM CORP-H
2.44
2.09205
6990822
BANK OF CHINA-H
3.26
0.3076923
162480645
BANK OF COMMUN-H
5.07
0.3960396
18506922
BANK EAST ASIA
29.45
1.202749
3610683
BELLE INTERNATIO
11.36
1.428571
BOC HONG KONG HO
NAME CHINA UNICOM HON CITIC PACIFIC
PRICE
DAY %
VOLUME
11.34
-0.3514938
8554749
POWER ASSETS HOL
71.25
2.2972
2434025
8.44
0.2375297
3274240
SANDS CHINA LTD
42.35
0.9535161
7782437
SINO LAND CO
11.04
0.729927
3830823
SUN HUNG KAI PRO
104.4
0.8695652
2573593
92.5
1.092896
1787822
360.6
2.501421
4451833
CLP HLDGS LTD
64.45
0.2332815
2028290
14.16
1.142857
31267353
COSCO PAC LTD
11.06
1.46789
4941044
SWIRE PACIFIC-A
10598134
ESPRIT HLDGS
13.04
3.164557
9515455
TENCENT HOLDINGS
HANG LUNG PROPER
25.6
1.789264
11298573
119.8
0.926706
845010
25
2.669405
14797091
14.44
0.5571031
2290890
HANG SENG BK
CHEUNG KONG
111.6
2.385321
4117916
HENDERSON LAND D
48.5
0.2066116
4356969
4.16
0.4830918
15373966
HENGAN INTL
85.6
0.4694836
1407004
CHINA CONST BA-H
5.79
0
131643489
CHINA LIFE INS-H
18.76
0.8602151
17552742
CHINA MERCHANT
24.55
1.237113
3771573
HONG KG CHINA GS
20.2
1.609658
5572471
HONG KONG EXCHNG
121.2
0.5809129
1369103
HSBC HLDGS PLC
88.45
1.491681
12885198
CHINA MOBILE
82.85
0.4242424
11676421
HUTCHISON WHAMPO
87.7
0.1713307
6409501
CHINA OVERSEAS
22.45
0.4474273
13309187
IND & COMM BK-H
5.11
0.1960784
148725108
5.8
0.5199307
45570926
LI & FUNG LTD
10.58
3.118908
24549516
CHINA PETROLEU-H CHINA RES ENTERP
24
0.2087683
2013389
MTR CORP
29.35
1.733102
1600514
21.55
1.173709
4944182
NEW WORLD DEV
11.34
0
11710009
CHINA RES POWER
17.96
-0.5537099
14096380
PETROCHINA CO-H
9.15
0.8820287
38378208
CHINA SHENHUA-H
22.55
0.6696429
8546914
PING AN INSURA-H
50.2
0
10343979
CHINA RES LAND
PRICE
CNOOC LTD
CATHAY PAC AIR CHINA COAL ENE-H
NAME
DAY %
VOLUME
TINGYI HLDG CO
19.28
0.5213764
3319751
WANT WANT CHINA
10.44
-0.5714286
8714890
68.5
2.621723
3658283
WHARF HLDG
MOVERS
44
3
3 22140
INDEX 22088.79 HIGH
22132.68
LOW
21867.25
52W (H) 23944.74 (L) 19076.78906
21860
30-July
1-August
14 14
August 2, 2013 April 19, 2013
Classifieds Mountain Villa For Sale in Koh-Samui
Bruno Beato Ascenção
Price: HK$ 16 million
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Lawyer
Avenida da Praia Grande, no. 409, China Law Building, 11th floor. Tel:28785795 Fax:28785797 Email:bascencao@gmail.com
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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 2,2013 2013 April 19,
Opinion Business
wires
Misreading Chinese rebalancing
Leading reports from Asia’s best business newspapers
Inquirer Business
Stephen S. Roach
Faculty member at Yale University and former Chairman of Morgan Stanley Asia, is the author of The Next Asia
The European Chamber of Commerce of the Philippines has urged the government to honour the contracts and refrain from taking any action that may result in a “huge trust deficit”. “The government has to understand that ‘trust’ is an asset it has to have. It’s precisely because of changing the rules midstream that investors are more and more reluctant to invest long-term,” explained Henry Schumacher, vice president for external affairs at the ECCP. “Who guarantees that the rules agreed with this administration will be honoured by successive governments? Remember, PPPs [publicprivate projects] in infrastructure will last 25 years.”
Jakarta Post Indonesia’s government is preparing several short- and long-term mitigation policies to overcome the country’s slowing economic growth caused by uncertainties in the global economy, says Finance Minister Chatib Basri. Mr Chatib said that in the short term, the government would push the realisation of foreign-currency-denominated financing sources through the issuance of government bonds and increasing the participation of state-owned banks in maintaining liquidity. As a long term policy, the government is trying to improve the current account deficit by pushing increases in exports, managing imports, and improving investment climates.
Straits Times Former World Bank president Robert Zoellick is to join the board of Singapore state investor Temasek Holdings Pte Ltd later this month. Mr Zoellick, 60, who left his position at the World Bank last year, will be the first recruit to the investor’s board by its new chairman Lim Boon Heng. “Over the years, I have also come to know Temasek well, and have followed its growing reputation as a well-regarded international investor,” Mr Zoellick said in a statement released by the investor.
China Daily The chief of China’s top banking regulator said on Wednesday that the banking sector has achieved its risk control goal in the first half of 2013, with growth in some financial products slowed and loan risks in a few target sectors under control. In the January-June period, loans via local government financing vehicles (LGFVs), wealth management products (WMPs), as well as businesses of trust companies all grew at a slower pace, said Shang Fulin, president of the China Banking Regulatory Commission.
T
he punditocracy has once again succumbed to the “China Crash” syndrome – a malady that seems to afflict economic and political commentators every few years. Never mind the recurring false alarms over the past couple of decades. This time is different, argues the chorus of China sceptics. Yes, China’s economy has slowed. While the crisisbattered West could only dream of matching the 7.5 percent annual GDP growth rate that China’s National Bureau of Statistics reported for the second quarter of 2013, it certainly does represent an appreciable slowdown from the 10 percent growth trend recorded from 1980 to 2010. But it is not just the slowdown that has the sceptics worked up. There are also concerns over excessive debt and related fears of a fragile banking system; worries about the ever-present property bubble collapsing; and, most important, the presumed lack of meaningful progress on economic rebalancing – the long-awaited shift from a lopsided exportand investment-led growth model to one driven by internal private consumption. With respect to the last point, recent shifts in the composition of Chinese GDP appear disconcerting at first glance. Consumption (private as well as public) contributed only 3.4 percentage points to economic growth in the first half of this year, and an estimated 2.5 percentage points in the April-June period – a deceleration on a sequential quarterly basis that underscores a cyclical, or temporary, weakening in Chinese consumer demand. At the same time, the contribution from investment surged from 2.3 percentage
points of GDP growth in the first quarter of 2013 to 5.9 percentage points in the second quarter. In other words, rather than shifting from investment-led to consumer-led growth, China appears to be continuing along its investment-led growth track.
Reason for optimism For an unbalanced economy that has under-consumed and over-invested for the better part of three decades, this is unnerving. After all, China’s leadership has been talking about rebalancing for years – especially since the enactment of the pro-consumption 12th Five-Year Plan in March 2011. It was one thing when rebalancing failed to occur as the economy was growing rapidly; for the sceptics, it is another matter altogether when rebalancing is stymied in a “slow-growth” climate.
The rebalancing of any economy can hardly be expected to occur overnight
pull it off. China has an ample supply of all three. The composition of GDP is probably the worst metric to use in assessing earlystage progress on economic rebalancing. Eventually, of course, GDP composition will provide the acid test of whether China has succeeded. But the key word here is “eventually”. It is far too early to expect significant shifts in the major sources of aggregate demand. For now, it is much more important to examine trends in the potential determinants of Chinese consumption. From this perspective, there is good reason for optimism, especially given accelerated growth in China’s services sector – one of the key building blocks of a consumerled rebalancing. In the first half of 2013, services output (the tertiary sector) expanded by 8.3 percent year on year – markedly faster than the combined 7.6 percent growth of manufacturing and construction (the secondary sector). Moreover, the gap between growth in services and growth in manufacturing and construction widened over the first two quarters of 2013, following annual gains of 8.1 percent in both sectors in 2012. These developments – first convergence, and now faster services growth – stand in sharp contrast with earlier trends.
Shifting pattern
This is superficial thinking, at best. The rebalancing of any economy – a major structural transformation in the sources of output growth – can hardly be expected to occur overnight. It takes strategy, time, and determination to
Indeed, from 1980 to 2011, growth in services output averaged 8.9 percent per year, fully 2.7 percentage points less than the combined growth of 11.6 percent in manufacturing and construction over the same period. The recent inversion of this relationship suggests that the structure of
Chinese growth is starting to tilt toward services. Why are services so important for China’s rebalancing? For starters, services are far more labourintensive than the country’s traditional growth sectors. In 2011, Chinese services generated 30 percent more jobs per unit of output than did manufacturing and construction. This means that the Chinese economy can achieve its all-important labour-absorption objectives – employment, urbanisation, and poverty reduction – with much slower GDP growth than in the past. In other words, a 7-8 percent growth trajectory in an increasingly services-led economy can hit the same labour-absorption targets that required 10 percent growth under China’s previous model. That is good news for three reasons. First, services growth is beginning to tap a new source of labour-income generation, the mainstay of consumer demand. Second, greater reliance on services allows China to settle into a lower and more sustainable growth trajectory, tempering the excessive resource- and pollution-intensive activities driven by the hyper-growth of manufacturing and construction. And, third, growth in the embryonic services sector, which currently accounts for just 43 percent of the country’s GDP, broadens China’s economic base, creating a significant opportunity to reduce income inequality. Far from crashing, the Chinese economy is at a pivotal point. The wheels of rebalancing are turning. While that is not showing up in the composition of final demand (at least not yet), the shift from manufacturing and construction toward services is a far more meaningful indicator at this stage in the transformation. So, too, are signs of newfound policy discipline – such as a central bank that seems determined to wean China off excessive credit creation and fiscal authorities that have resisted the timeworn temptation of yet another massive round of spending initiatives to counter a slowdown. Early steps toward interestrate liberalisation and hints of reform of the antiquated hukou (residential permit) system are also encouraging. Slowly but surely, the next China is coming into focus. China doubters in the West have misread the Chinese economy’s vital signs once again. © Project Syndicate
16
August 2, 2013
Closing IMF warns of Greek bailout shortfall
Fed views economic growth as ‘modest’
Greece will probably need more money and debt relief from European countries in order to meet the objectives of its bailout programme, according to a report by the International Monetary Fund staff. In the report the fund’s staff said 4.4 billion euros (US$5.8 billion) of financing has yet to be identified next year under the rescue package it finances with euro-area nations. In addition, a December commitment by Europeans to provide further debt relief for Greece may require agreeing to measures as early as 2014-2015, provided Greece meets its budget targets, the IMF staff said.
The U.S. Federal Reserve downgraded its assessment of the economy on Wednesday but made no changes to policy after second-quarter growth came in at an unexpectedly strong annualised rate of 1.7 percent. The economy grew by 0.4 percent in the second quarter compared with the previous three months. But rather than the “moderate” expansion it reported in June, the Fed said that growth in the first half of the year had been “modest”, a nod to weak recent data but still leaving every chance of a September reduction or “tapering” in asset purchases.
South Korean plan for Macau rival collapses South Korea’s Incheon city said yesterday a 317 trillion won (US$290 billion) plan to transform a fishing village into a rival to Macau’s gaming market has collapsed, the Associated Press reported. Incheon Free Economic Zone official Jung Mi-hyun said luxury hotel operator Kempinski AG, a key member of the development consortium, failed to raise a promised US$40 million by the end of July. Kempinski’s Korean unit KI Corp is the largest shareholder in the consortium, Eightcity Co. Incheon said it planned to team up with a group of investors to develop a leisure and gaming destination three times the size of Macau. The development was supposed to include hotels, casinos, performance halls, shopping malls, a marina resort and a Formula 1 race course. Now Incheon said the six-year-old contract with Eightcity is cancelled and it will seek a new developer. The city is considering using multiple developers and investors by splitting up the district. Eightcity said it cannot accept the city’s move and will seek to nullify the cancellation in court. Park Seong-hyun, vice chairman of Eightcity, was quoted by Associated Press as saying the company is still trying to attract investment to the project and Incheon city is also responsible for the delay in raising the money on time. “We are willing to continue to pursue the project,” Mr Park was quoted as saying. “The city cannot unilaterally call off the contract.”
Residential prices may fall up to 15 pct by year’s end – analysts
HK developers turning blue As property market enters ‘ice age’ Yimou Lee
G Sony earnings boosted by yen Sony Corp has reported a jump in profits for the April-to-June quarter, boosted by a weak yen and surge in smartphone sales. It made a net profit of 3.5 billion yen (US$35m) in the quarter, reversing a loss of 24.6 billion yen last year. Many Japanese firms have seen their profits jump amid a sharp decline in the yen’s value – which lifts profits when they repatriate their foreign earnings back home. The yen has dipped nearly 25 percent against the U.S. dollar since November. A weak currency also makes Japanese goods more affordable for foreign buyers, helping boost sales of exporters such as Sony. The company said its sales rose 13 percent in the three months to the end of June, from a year earlier, primarily “due to the favourable impact” of the currency movement. It also raised its sales forecast for the current financial year to 7.9 trillion yen from its projection of 7.5 trillion yen in May. Sony also kept its fullyear operating profit outlook unchanged from its May forecast of 230 billion yen.
overnment cooling measures to rein in Hong Kong’s property market are finally taking a toll on the city’s powerful developers and industry watchers forecast prices could drop by up to 15 percent in the second half of this year. Weak property sales at conglomerate Cheung Kong (Holdings) Ltd, controlled by Asia’s richest man, Li Ka Shing, confirmed that a series of tightening steps are weighing on companies’ bottom lines and taking the heat out of one of the world’s most expensive real estate markets. “It’s like an ice age now from an agent’s perspective,” said Patrick Chau, director of residential investment at property consultant Savills Plc. “The sales volume has dropped substantially since the implementation of a series of tightening policies.” New home transactions dropped 22 percent in the first half of this year from a year earlier and were down 40 percent when compared with the second half of 2012, according to Centaline Property Agency, one of the city’s leading agents. For the second quarter, overall home transactions dropped to 11,443, the lowest quarterly sales
s i n ce 1 9 9 6 , a cco r d i n g t o r e a l estate services company Colliers International. Industry analysts now expect residential prices to drop between 5 and 15 percent by the end of this year. Cheung Kong, the city’s secondlargest developer, reported yesterday a 13 percent year-on-year decline in first-half profit to HK$13.4 billion (US$1.73 billion) due to weaker property sales in Hong Kong. Property sales accounted for 37 percent of its total first-half turnover, down from 57.3 percent a year earlier. The company blamed new government regulations and measures for sluggish residential property transactions. Cheung Kong sold 267 units in Hong Kong in the first half for HK$2.8 billion (US$361 million), less than a tenth of its full-year sales target, according to BNP Paribas property analyst Wee Liat Lee.
Property chills The company’s sluggish figures came just a day after Hang Lung Properties Ltd posted a 23 percent drop in first-half profit after it sold “substantially fewer residential units”.
“If you ask me to describe the market with one word, I will use ‘winter’,” Hang Lung Properties chairman Ronnie Chan said at its earnings briefing on Wednesday. “It feels like winter when selling properties in Hong Kong.” In February, the government imposed higher stamp duties and home loan curbs on property transactions, coming nearly four months after it introduced a 15 percent tax on overseas buyers that many analysts said was aimed at mainland Chinese. New rules that came into effect in April on sales practices, including new guidelines on marketing strategies, have also led some developers to delay the launch of new projects. Credit Suisse said in a recent report that no property projects had been completed in Hong Kong during the first half, although some analysts said it was too early to say if this signalled the start of a longterm downturn. “It’s a mind-playing game now – whether I should liquidate properties and get the cash, or should I hold and put them in the leasing market?” said Mr Chau of Savills. Overall residential property prices have jumped 120 percent since 2008 on ultra-low interest rates, tight supply and abundant liquidity. They have slipped about 3 percent from record highs in early March. Analysts said developers would have to cut prices further to attract local buyers as mainland Chinese investors, who at one point accounted for more than 40 percent of sales, had fled overseas for better options. “They are going to reduce the price [of new projects]. They have to face the reality,” said Ricky Poon, executive director of residential sales at Colliers International. Reuters