MBd-July-26 by Business Daily

MOP 6.00 Vitor Quintã Deputy editor-in-chief Editor-in-chief Tiago Azevedo Friday July 26, 2013 Number 335 Year II www.macaubusinessdaily.com

April 19, 2013

Gaming boom is a mixed blessing: SMEs T

he involvement of international gaming operators in the Macau economy is a mixed blessing for small- and medium-sized firms suggests a survey. Inward investment of billions of U.S. dollars in new casino resorts has helped stimulate massive growth in gaming, tourism and supporting services, providing new opportunities for SMEs. But it’s also pushed up overheads and depressed hiring opportunities for those firms they claim.

Even though “the city’s gross domestic product grew 10-20 percent on average” in the 2010-2012 period, “the SMEs are not able to share the economic fruits,” said Feng Xiaoyun, economics professor at Jinan university. Stanley Au Chong Kit, chairman of the Macau Small and Medium Enterprises Association, said additionally the 100 million yuan (US$16.3 million) capital requirement for investment on Hengqin Island was “too high”. More on page 3

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Natural gas flowing into the city again

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The pipe that carries natural gas into Macau is working again after a two-year interruption, customs officials on Hengqin Island announced. But Macau’s government and its electricity distributor, Companhia de Electricidade de Macau SA (CEM) are awaiting word from the city’s sole importer of natural gas, Sinosky Energy (Holdings) Co Ltd, on the commercial resumption of the natural gas supply. Page 2

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HSI - Movers Name

New conventions hub eyes smaller events A new convention and exhibition centre owned by prominent Macau businessman Ng Fok will open on August 1 with a food trade fair, it was announced yesterday. The Macau Convention Centre “will basically target business-to-business exhibition events,” said Tony Lam Chong In, a consultant for the venture. “We believe that this positioning can complement what the convention market needs at the moment,” he told media. Page 4

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CHINA RES POWER

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COSCO PAC LTD

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CATHAY PAC AIR

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CHINA UNICOM HON

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HENGAN INTL

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PING AN INSURA-H

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CHINA SHENHUA-H

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AIA GROUP LTD

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SANDS CHINA LTD

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It’s “exceedingly unlikely” the Macau government will put casino licences up for public auction at the end of the current concessions and sub-concessions in 2020 and 2022, says a note from Union Gaming Research Macau. Francis Tam Pak Yuen, Secretary for Economy and Finance, on Wednesday mentioned an auction as one option. Union Gaming thinks “a one-time renewal fee” more likely. Page 5

ParknShop denies staff shuffle is for sell off

NEW WORLD DEV

Source: Bloomberg

Casino licence auction is ‘unlikely’

Sands China reports trebled Q2 profit

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Corruption: who’s asking the locals? Page 7

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July 26, 2013

Macau opinion

Reality check

Natural gas flowing into the city again But it is unclear when CEM or other consumers will get to put a match to it Tony Lai

tony.lai@macaubusinessdaily.com

José I. Duarte Economist

he news is emerging gradually but the message is becoming clearer by the day. China’s economy is slowing and the media are starting to take notice. The mood is changing and the concerns cannot be kept hidden in the basement for much longer. For a long time, many have argued that the model of the last 30 years or so could not go on forever, and there were signs that it was reaching its limits. From a starting point of next to nothing – and it is easy to forget how miserable the mainland was before it began to open up – infrastructure investment and a growing world economy provided a framework for stellar growth. Possibly more out of necessity than conviction, officials understood that. You cannot lead the “anti-imperialist” world if people in Kuala Lumpur or Bangkok, not to mention Singapore, live better lives than people in Beijing or Shanghai. The first step is to build roads, airports and houses. Then you open special exporting zones with favourable treatment for foreign investors. You provide cheap labour and land, add low taxes, security and the guarantee of profit repatriation and there is a miracle in the making. It worked earlier, with this or that adaptation, in Singapore, in Korea, not to mention Hong Kong and Taiwan, or even Japan. China added a size none of the other so-called ‘Asian tigers’ could muster. But nothing grows forever and change marches in the creases of development. The model implies sacrifices for the generations that have to make the transition. They work hard, very hard, and earn little, very little; and save as much as possible, by will or imposition. They forfeit consumption and enjoyment, expecting to escape abject poverty and the prospect of a miserable old age, and hoping for a better life for their children - but they cannot be kept in misery forever.

Harder times looming As economies grow, people demand more of the fruits of growth. Younger generations will be less and less willing to accept a few hundred yuan in wages, with a couple of bowls of rice and cabbage a day, plus a slot in a warm-bed dormitory, as the only fringe benefits. Wages rise, property prices too, and the cost advantages erode over time. Workers become more restless, ambitious and daring. Factory owners have been complaining about that in the Pearl River Delta region. Many have already started moving to other countries, namely in Southeast Asia. Meanwhile, the country cannot go on piling roads upon roads, empty buildings and underused airports or half-full rapid trains – and construction bubbles cannot grow eternally. The risks of defaults in the financial system increase, as it is not possible to hide bad debt forever unless you are willing to print unlimited amounts of money and risk serious inflation, which is anathema to the Chinese government. Besides, forcing low returns on the hard earned savings of the common man and woman to finance inefficient state companies and promote grandiose projects without real return becomes less and less tolerable over time. As the government manages expectations, releasing carefully designed statements and statistics on growth rates, reality is sinking in. The tide is turning. The real, real world strikes back. As Paul Krugman pointed out in the New York Times a few days ago, “the signs are now unmistakable: China is in big trouble”. “The only question now is how bad the crash will be”. The time is (more than) ripe to start thinking about the implications for Macau.

As economies grow, people will want more of the fruits of growth

he pipeline that carries natural gas into Macau has resumed operations after a two-year hiatus, customs on Hengqin Island has announced. But Macau’s government and its electricity distributor, Companhia de Electricidade de Macau SA (CEM) are awaiting word from the city’s sole importer of natural gas, Sinosky Energy (Holdings) Co Ltd, on the resumption of the natural gas supply. A report on the website of the Communist Party’s official newspaper, the People’s Daily, quoted customs on Hengqin as saying the pipeline from the island to Macau had “started supplying gas from July 23”. The report said the pipeline’s purpose was to supply natural gas to Macau for the next 20 years. It said the pipeline’s designed annual capacity was 520 million cubic metres. The supply of natural gas to Macau stopped in June 2011 because of construction work on Hengqin. This meant CEM had no natural gas to burn to generate electricity. It is cheaper to generate electricity by burning natural gas than by using other types of fuel. The public housing in Seac Pai Van has had a limited supply of natural gas since March, brought in through temporary pipes, according to the Office for the Development of the Energy Sector. Business Daily asked the Office for the Development of the Energy Sector when Macau’s supply of natural gas would return to normal. A spokesperson replied: “You can call Sinosky for more information.”

Sinosky had not replied to Business Daily inquiries by the time we went to press. Sinosky deputy general manager Stella Bai said in an interview with Business Daily in April that a leak in the undersea section of the pipeline had to be plugged before the supply of natural gas could resume fully.

Price stalemate A CEM spokesperson said: “We are still waiting for news from Sinosky. Though the gas pipeline’s operations are said to have resumed, we have yet to benefit.” The CEM spokesperson added: “We have asked the dispatch department, which said the current supply is still not enough for electricity generation.” The spokesperson was uncertain whether CEM could use natural gas to produce electricity this year. Government data show that in the first quarter of 2011, before the

natural gas supply stopped, 39.3 percent of Macau’s electricity was generated domestically. In the first quarter of this year only 10.9 percent was generated domestically. Sinosky has asked the government for permission to increase the price of the natural gas it sells. The deputy director of the Office for the Development of the Energy Sector, Lou Sam Cheong, said last week that negotiations on Sinosky’s request had reached stalemate. The company’s latest annual report says it bought gas for 4.60 patacas (US$0.58) per cubic metre but that its 15-year concession contract allows it to sell gas for only 2.74 patacas per cubic metre. Sinosky made a loss of 28.63 million patacas last year, bringing its accumulated losses to 119.5 million patacas. The company is a joint venture by Macau Natural Gas Co Ltd and China Petroleum & Chemical Corp.

The supply of natural gas to Macau stopped in June 2011

Chinese Estates losing less money over La Scala Developer boss Joseph Lau Luen Hung profiting from special dividend Vítor Quintã

vitorquinta@macaubusinessdaily.com

hinese Estates Holdings Ltd, the developer controlled by Hong Kong billionaire Joseph Lau Luen Hung, said the costs of the La Scala suspension tumbled drastically so far this year. In a statement to Hong Kong’s Stock Exchange late on Wednesday the company mentions a loss of HK$11.7 million (US$1.5 million) on the residential project in the first half of 2013. This figure includes HK$4.9 million for maintaining the sales office and the show flat for the corruption-hit development. It represents a huge improvement from last year, when Chinese Estates

registered a loss of HK$694.7 million over La Scala. A Chinese Estates subsidiary, Moon Ocean Ltd, won a 2005 tender for land near the airport. But the government declared the grant invalid last year after the Court of Final Appeal said Ao Man Long, secretary for transport and public works at the time, took bribes of HK$20 million from Chinese Estates boss Joseph Lau Luen Hung and another businessman, BMA Investment Ltd chairman Steven Lo Kit Sing. Moon Ocean has appealed from the decision. Mr Lo and Mr Lau are being

trialled here for money laundering and corruption. Despite its legal troubles here, Chinese Estates posted a 41 percent increase in first-half underlying profit. The developer will also pay HK$1.30 per share in a special dividend in addition to a 20 Hong Kong cents per share interim dividend. Mr Lau will pocket HK$2.15 billion, as he, his associates and family own about 75 percent of Chinese Estates, according to data compiled by Bloomberg. He has a net worth of about US$5.3 billion, according to Bloomberg Billionaires Index. With Bloomberg News

July April26, 19,2013 2013

Macau

Big players block SMEs business growth: survey Report claims a further 20-percent rise in costs would push most SMEs into red Tony Lai

tony.lai@macaubusinessdaily.com

SMEs ‘stand no chance’ to compete over resources, particularly over labour, says Stanley Au

he involvement of international gaming operators and other foreign firms in the Macau economy is a mixed blessing for small- and medium-sized firms suggests a survey. While the inward investment of billions of U.S. dollars in new casino resorts has helped stimulate massive growth in gaming,

Hengqin worst option for SMEs: Stanley Au The business potential of Hengqin Island cannot yet be compared with two other special economic zones also in Guangdong province said Stanley Au Chong Kit. “It still needs to take some time before Hengqin becomes a prosperous market,” the chairman of the Macau Small and Medium Enterprises Association explained his rationale to media yesterday. He added the threshold requiring investors in Hengqin to have a minimum registered capital of 100 million yuan (130 million patacas) was “too high”. “No threshold is needed as it should be a free market,” said Mr Au. “If the response is not enthusiastic [the Hengqin authorities] will naturally lower the limit.” He also complained support to SMEs on Hengqin remains at the discussion stage without any sign of action. Businessmen “will surely prefer Nansha and Qianhai to Hengqin”, he said, referring to two rival special economic zones.

tourism and supporting services, providing new opportunities for SMEs, it’s also pushed up overheads and depressed hiring opportunities for those firms. Research by the Macau Small and Medium Enterprises (SMEs) Association and Guangdong province’s Jinan University says 82 percent of 545 SMEs surveyed saw their turnover grow by under 10 percent during each of the past three years. “Five percent of them even had negative growth,” Feng Xiaoyun, economics professor at the Jinan university, said in a press conference yesterday. Even though “the city’s gross domestic product grew 10-20 percent in average” in the 2010-2012 period, “the SMEs are not able to share the economic fruits,” she said. Ms Feng said: “There is nothing wrong with the business environment but the problem lies in the market structure.” Stanley Au Chong Kit, chairman of the association, said the SMEs have been “squeezed out by the big companies, namely gaming operators,” since the liberalisation of the gaming market in 2002. “For example, the construction industry should be very prosperous in these last few years due to the infrastructure development but our results show the SMEs in that sector were not [prosperous],” Ms Feng said. “Most likely it was the Chinese state-owned firms that benefited,” she added. Mr Au also said the SMEs “stand no chance” to compete over resources, particularly workers, with the gaming companies and the public departments.

In the red The survey carried out in the first quarter of this year also shows

“the biggest threat to most [SMEs] is the rise in the operating costs”. Spending on labour and rent were the top major costs. The median salary of the employed population has risen by one-third since 2010 to 12,000 patacas (US$1,500) in the first quarter of this year, official data show. The report warns that “most SMEs can only afford a further hike of 20 percent… in their costs”, which Ms Feng described as “the survival line”. “If there is a rise of 20 percent in labour costs… 90 percent of the SMEs will start posting losses,” she predicted. “If the rents increase by a further 20 percent, some 80 percent of the SMEs in the retail industry will be in the red.” No official data are available on shop rents in Macau. The SMEs in the tourism and retail sector have performed “relatively better”, Ms Feng said. Both the university and the association have called on the city’s SMEs to become more professional and go high-end. More discussions are however needed on how to do so, they admitted. Ms Feng said the government should have a complete set of policies for SMEs, instead of scattered rules. An independent government body or committee should also be set up to help SMEs, she added. The survey will be finalised by

KEY POINTS Turnover growth from most SMEs below 10 pct a year SMEs would struggle with a further 20 pct cost hike Fewer than 40 pct asked for govt support 85 pct of firms have less than 20 staff Firms with 200 staff or fewer, classified as SMEs Full survey results out in September

late-August or September and then submitted to the government as a reference for compiling next year’s Policy Address, Mr Au said. In April Chief Executive Fernando Chui Sai On pledged at the Legislative Assembly to strengthen support for the SMEs.

business as usual

False prophets

Paulo A. Azevedo pazevedo@macaubusinessdaily.com

he life of a gaming analyst must be tough. I can see how hard it might be to visit Macau, once in a blue moon, to talk to some people here and then predict a slowdown in gaming revenues. I am sure most analysts – fortunately not all – studied at the same school as the Secretary for Economy and Finance. That would explain Francis Tam Pak Yuen’s ultra-conservative estimates for GDP growth. So conservative as the government’s forecast for this year’s surplus, which was reached in five months. Last month, the surplus was already more than 40 percent higher, at about 56.78 billion patacas (US$7.11 billion), than the projected annual surplus of 40.45 billion patacas the government expected. An economics student who was that inaccurate would be flunked straight away. But in Macau it seems we can do and say anything without consequences. Analysts have insisted that the gaming industry – the economy’s main pillar – is headed for a slowdown every single year. Yet, results keep breaking previous records and the industry is far from reaching maturity. Some see a second intention, a kind of side manoeuvre, in those experts’ predictions. I do not believe that is the case. They just panic too easily and some of them, frankly, have no idea what they are talking about.

July 26, 2013

Macau

New convention centre eyes smaller events

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HOSPITALITY

Venture owned by Macau businessman Ng Fok will focus on business-to-business trade

Destination China Macau residents are travelling outside our borders with increasing frequency. Since the beginning of 2011, the Statistics and Census Service has been publishing monthly data on trips arranged trough travel agencies. They distinguish between package tours and trips arranged for individuals. The data do not cover trips that travellers arrange themselves. But they do constitute a sample big enough for analysis of patterns of travel. The figures suggest that Macau people are travelling more. In the two years for which we have full figures, the number of trips arranged by agencies has increased by 70 percent. This year, figures to May are already a quarter higher than last year in the same period. Most is individual travel, although the relative weight of package tours seems to be rising.

Stephanie Lai

sw.lai@macaubusinessdaily.com

The Macau Convention centre is located behind Golden Crown China Hotel, opposite to the airport

Most trips that travel agents arranged for Macau people in 2011 and last year were to the mainland. In the two years observed, trips to the mainland represented 56 percent of the total and almost three quarters of the package tours. The next most common destination was Hong Kong, followed by Taiwan. Altogether, the three destinations represent almost 85 percent of the total. The figures for other destinations, mainly to Asian common holiday spots, drop very fast. Thailand, a favourite with beachgoers, was the fourth most common destination. Just over 5 percent of trips arranged by travel agents were to Thailand. Together, trips arranged by travel agents to Europe, North America, Australia and New Zealand made up only about 0.5 percent of the total. J.I.D.

593,798

Trips abroad that travel agents arranged for Macau people in the first five months

new convention and exhibition centre owned by prominent Macau businessman Ng Fok will open on August 1 with a food trade fair, it was announced yesterday. The Macau Convention Centre “will basically target business-tobusiness exhibition events,” said Tony Lam Chong In, a consultant for the venture. “We believe that this positioning can complement what the convention market needs at the moment, and it can better suit the small- and medium-scale exhibitions,” he told media. The centre will make its debut with the four-day “Fine Food Show 2013”, promoting fruits and other agricultural products from Taiwan and Hebei province’s Shijiazhuang prefecture. For the rest of 2013, the centre located behind Golden Crown China Hotel, opposite to the Macau International Airport, is already booked for a China-Taiwan tea trade fair and a Taiwan computer show. “But that does not mean we will only position the centre to exclusively serve [mainland] Chinese or Taiwanese enterprises,” said Mr Lam. “We will welcome any local convention companies, advertising companies, or wedding planners to use the site and the hotel nearby.” Mr Ng also owns Golden Crown China Hotel.

“In the second half of this year, we would like to achieve a goal of organising an event on a bimonthly basis,” Mr Lam noted. “And later we will target hosting events once a month.” The centre has been ready since 2011, admitted the consultant. Asked if the opening delay was due to any changes in its usage, Mr Lam, said the goal had always been a convention centre, since the project’s design was ready in 2003. Neither Mr Lam nor Au Chung Kong, director of the centre’s

Imported labour tops 120,000

he number of non-resident workers in Macau has topped 120,000 for the first time ever, as almost 2,600 were hired last month, official data show. The Human Resources Office announced yesterday there were 121,194 imported employees in the city by the end of June, up by almost 10,000 from last year. The construction sector was the

operator, The Road of Chong Wa (Macau) Trading Co Ltd, gave any reasons for why the centre was closed for two years. “We have considered the city’s economic development (…) and we thought that now should be the proper time for opening,” said Mr Lam, who also heads the Macau Fair and Trade Association. The centre has a total floor space of about 3,200 square metres with two convention rooms with 240 square metres each. It can accommodate over 118 standard-size exhibition booths.

one driving the growth, as it hired almost 700 new workers, taking its total imported workforce to just short of 18,100. The construction industry is gearing up to build the new casino resorts in Cotai. But hotels and restaurants are still the biggest employers of nonresident workers, taking on 560 more last month and so increasing their combined imported workforce to 36,086. Wholesale and retail trade hired 481 employees from elsewhere in June, taking its total to 13,630. Last month’s growth means that imported labour is likely to account for over a third of Macau’s employed population, for the first time ever. V.Q.

July 26, 2013

Macau

Sands China Q2 profit trebles Foundation work on The Parisian ‘well under way’, adds chairman Michael Grimes

michael.grimes@macaubusinessdaily.com

ands China Ltd said second quarter profit more than trebled as it added gambling tables. Globally however secondquarter results for Las Vegas Sands Corp – 70 percent owner of Sands China – fell short of analysts’ estimates. A lower win percentage on table games at LVS’s Marina Bay Sands resort in Singapore, and at Sands Cotai Central in Macau, plus competitive pressure on hotel room rates in the home market of Las Vegas, Nevada, were contributing factors, LVS said. Net income for Sands China – the Hong Kong-listed unit of Las Vegas Sands – increased to US$487.6 million (3.90 billion patacas) from US$160.5 million a year earlier, according to the parent’s filing yesterday. Revenue climbed 40 percent to US$2.07 billion from

US$1.48 billion. Commenting on the Macau properties’ mass-market table games performance, Rob Goldstein, president global gaming operations, told analysts on an earnings conference call: “It is flattish in the win per unit basis but in the aggregate it’s growing up because obviously we have more tables on the floor.” In January the Macau government announced that 200 new to market tables were being released to Sands China. But neither the government nor the company specified the timetable for that table quota issuance or to which properties the tables would be allocated.

Parisian project Sheldon Adelson, chairman of LVS and Sands China, stated on the conference call yesterday that piling

Sands China’s Cotai operations help threefold profit hike

‘Unlikely’ govt will auction casino licences: analyst Union Gaming says one-time renewal fee – or at the outside a gaming tax hike – more feasible Michael Grimes

michael.grimes@macaubusinessdaily.com

t’s “exceedingly unlikely” the Macau government will put casino licences up for public auction at the end of the current concessions and sub-concessions in 2020 and 2022, says a note from Union Gaming Research Macau. Francis Tam Pak Yuen, Secretary for Economy and Finance, on Wednesday mentioned an auction as one option. He was speaking on the sidelines of an unrelated event. But Union Gaming said in its note: “…we find it exceedingly unlikely that the licences will be put up for public bid.” It added “a one-time

renewal fee, or potentially a change to the tax rate,” were more likely. A report in May by Macquarie Equities Research in Hong Kong mentioned the possibility of a hike in gaming tax – currently standing at an effective rate of 39 percent – come concession renewals. At the time the idea was greeted with some scepticism by sections of the industry. But as Macquarie pointed out in its research, while the effective gaming tax rate has risen 260 percent since 1976 (from 10.8 percent to 39 percent); between 2005 – when the full economic effects of market

work on Sands’ fifth Macau property – The Parisian – was “well under way”. He added that the property – in an earlier call mentioned as a US$2.8 billion project – had a targeted “late 2015” opening. Asked about table numbers for The Parisian, Mr Adelson said “There is no news on [government] table allocation”. Regarding access to labour – an issue locally given the current low unemployment rate of 1.8 percent and the government’s constraints on importing outsiders – Mr Adelson said: “…the government would not have given [a] building permit to us [if] they didn’t think that they could allow the labour.” Mr Adelson was also asked by an analyst about LVS’s contractual obligation to the Macau government to build a fourth tower at Sands Cotai Central. “…we have been sitting with an approval to go forward with the St Regis,” stated the LVS chairman, referring to the branding for units in the fourth tower. “But, since we didn’t have the approval to sell the apartments on the co-op or any other scheme, we decided not to go, but we still have the building permit,” he added. That was a reference to the Macau government decision in early June, to allow – after a four-and-a-half years wait – LVS to sell usage rights to the firm’s Four Seasons Macao apartment tower on Cotai through a share-issuing cooperative scheme. It could net the Macau subsidiary HK$6 billion (US$755 million), said a note from Union Gaming Research. with Bloomberg News

liberalisation and relaxation of crossborder travel rules from the mainland started to be felt – and December 2012, gross gaming revenues have grown 560 percent. Union Gaming thinks however that the spectre of growing regional competition for gaming spend could act as a brake on Macau’s gaming tax policy. “…we believe that encroaching regional gaming expansion (Japan, Philippines, South Korea, Taiwan, Vietnam, Vladivostok [Russia], etc.) is likely to keep any fees or tax increases at a manageable level that is still beneficial for Macau,” said Union Gaming. On Wednesday Mr Tam had mentioned the government might negotiate shorter, five-year contracts wi th ca s i n o o p er a to r s , l o n g e r contracts or auction casino licences publicly. He mentioned 2015 as ‘the proper time’ to begin discussions on the renewal of the concession and sub-concession licences. Manuel Joaquim das Neves, director of local regulator the Gaming Inspection and Coordination Bureau told our sister publication Macau Business magazine in March last year it would be “hard” for new operators to enter the market at the end of the current permits, but didn’t expand on the reasons.

Jacobs promises more revelations Sacked Sands China boss says has LVScommissioned probes into Macau govt officials, but firm says allegations ‘shrill’

as Vegas Sands Corp is stalling a wrongful termination lawsuit linked to Macau that could expose billionaire Sheldon Adelson’s company to “serious legal and political problems,” a dismissed executive claims in court papers. Steve Jacobs sued LVS in 2010 in Nevada after he was sacked as chief executive of the casino operator’s Sands China Ltd unit. Mr Jacobs said in a filing this week in the Nevada Supreme Court that he has three investigative reports commissioned by the company “on foreign government officials, as well as individuals with whom they were doing business that were suspected of having ties to Chinese organised crime.” LVS alleges Mr Jacobs “stole” three reports prepared by Steve Vickers, a former Hong Kong policeman who at the time was working for a company called International Risk Ltd. The reports detail the investigation of “certain Macau government officials” and others, according to letters by LVS’s lawyers sent to Mr Jacobs’ lawyers and seeking the return of the documents. LVS is currently appealing via Nevada’s highest court three rulings by the trial judge in the wrongful termination lawsuit. The firm last month won a postponement of a hearing on whether the claims against Sands China should be heard in Nevada or Macau. “LVSC and Sands China believe they are above the law; too big, too important, and too influential to play by the rules,” Mr Jacobs said in the filing. “It is with this attitude that they ground this action to a standstill. It is a defendant’s dream.” Sands China fell 1.99 percent to HK$41.95 at the close of trading yesterday on the Hong Kong Stock Exchange. According to a July 23 filing by LVS with the Nevada Supreme Court, Mr Jacobs’ allegations the firm is trying to stall the lawsuit are “baseless”. It accused Mr Jacobs and his attorneys of making “increasingly shrill claims” about concealment of documents and sabotage of evidence sharing in the case. “…the facts don’t support that premise,” Ron Reese, an LVS spokesman said yesterday, commenting on the claim LVS is trying to delay the Nevada jurisdiction hearing. M.G. with Bloomberg News

July 26, 2013 April 19, 2013

Macau Brought to you by

Financial Monitor Buying time Rising numbers of mainlanders have been flocking to Macau and Hong Kong to buy all kinds of luxuries. That demand translated into a significant rise in the trade of watches and jewellery. Macau’s imports of watches and jewellery have risen accordingly. Exports have also increased, although they are worth just a small fraction of what imports are worth. Trade statistics allow us to know where are those exports going. All exports of jewellery are re-exports. Overall, we are not dealing with very significant numbers in the context of all external trade. The value of exports of watches and jewellery between January 2010 and May this year was 2.7 billion patacas (US$337.9 million). Most exports are going to Honk Kong, mainland China and Taiwan. The chart shows the figures for exports to all other markets, based on the reduced sample of data publicly available. The small value of some of these exports, emphasised by the limits imposed by confidentiality rules, means that analysis is only possible for a very small fraction of total exports, amounting to just about 8.6 million patacas.

ParknShop staff transfer ‘internal reorganisation’ The supermarket chain says pay and benefits will remain the same Stephanie Lai

sw.lai@macaubusinessdaily.com

ong Kong Supermarket chain ParknShop has denied that the transfer of its staff to a new subsidiary is part of a plan by Hutchison Whampoa Ltd to sell the business. ParknShop has asked over 10,000 employees in its 345 and more branches in Macau, Hong Kong and the mainland to sign letters consenting to their transfer to a new subsidiary, ParknShop (HK) from August 1. Only days earlier Hutchison Whampoa, controlled by Asia’s richest man, Li Ka Shing, said it was conducting a strategic review of ParknShop. Mr Li said last Saturday that he had no plans to withdraw from retailing in Hong Kong. At present, ParknShop employees have contracts with AS Watson Group, a member of the Hutchison Whampoa group. ParknShop (HK) is a whollyowned subsidiary of AS Watson. AS Watson’s director of operations, investments, international buying and communication, Malina Ngai Man Lin, said 86 percent of all ParknShop employees had already agreed to the transfer. Ms Ngai said their pay and benefits would remain the same. She told Hong Kong reporters on Wednesday that at first the employees had been given until yesterday to give their consent, but that the deadline

had been scrapped. Business Daily asked ParknShop how many of its Macau employees had agreed to the transfer, but we had received no reply by the time we went to press. Ms Ngai denied that ParknShop might soon be sold. ParknShop describes the transfer as an “internal reorganisation” that will have no effect at all on terms and conditions of employment. The transfer is an attempt to adapt to “the introduction of an increasing number of new regulations in Hong Kong that may impact on the retail industry”, the supermarket chain says in a written statement it issued on Tuesday. “Different regulations apply to different retail businesses, therefore we have decided to group them into respective entities accordingly,” it says. Ella Lei Cheng I of the Macau Federation of Trade Unions told Business Daily that the federation had so far received no complaints from ParknShop employees about the transfer. “We will keep a close watch on how the issue evolves to see if the workers have been under any unfavourable influence due to the group’s latest decision,” Ms Lei said. The Labour Affairs Bureau told Business Daily it had received no complaints or enquiries from Macau Parknshop employees.

We can see that exports of watches are slightly more diversified than jewellery. Most of these destinations represent so tiny values that they are hardly visible in the plot. In six cases, total values stand around 100,000 patacas or less in the period observed. Of the 16 countries identified, seven received only one type of exports, either watches or jewellery. With some irony, the chart is dominated by the exports of watches to Switzerland, with a value of about 3.7 million patacas. Only two more countries, Japan and the United States, are close or over the 1-millionpatacas mark. Given the size of the sample, we must be careful on extrapolating these observations. J.I.D. The content of this column is the work of Business Daily’s journalists.

The supermarket chain has 14 branches in Macau

Aeon, China Resources ponder ParknShop bids Japan’s Aeon Co Ltd and stateowned China Resources Enterprise Ltd are among the companies considering bids for supermarket chain ParknShop, sources say. Three sources say ParknShop’s parent company, Hutchison Whampoa Ltd, has given suitors until August 16 to make their initial bids. The sources say Hutchison Whampoa is asking US$4 billion (32 billion patacas). The conglomerate intends to focus more on retailing health and beauty products, which are better-known around the world and can be sold more profitably than supermarket goods. Australian retailers Woolworths Ltd and Wesfarmers Ltd, and China’s Sun Art Retail Group Ltd are among the other companies thinking of bidding, the sources say. Reuters/Bloomberg News

July April26, 19,2013 2013

Macau

Macau and corruption Every outsider has an opinion on claimed graft in Macau, but few seem to ask those who actually live there Michael Grimes

michael.grimes@macaubusinessdaily

Transparency International research methods “It’s incredibly challenging to ask questions about corruption and bribery in the same way in 107 countries around the world,” says Deborah Hardoon, Transparency International research manager. With the Global Corruption Barometer, it aims to ask the same questions for consistency, and then has them translated into local languages. “In many cases our national chapters based in the country or jurisdiction had the opportunity to review these translations to make sure they were capturing the concept correctly,” added Ms Hardoon. Ricardo Siu from the University of Macau says like-for-like translation risks missing a weighting for cultural and economic differences between jurisdictions. “I think Transparency needs to take into consideration the stage of social, political and economic development across different countries,” he tells Business Daily. “This may affect the responses to the same question,” he adds. Larry So Man Yum, associate professor at Macao Polytechnic Institute, echoes the need for cultural sensitivity when conducting such market research. For the Corruption Perceptions Index, Transparency uses data sources from outside institutions. It previously used 17 but in 2012 it reduced the number of sources to 13. That meant there were only two sources still covering Macau – the Hong Kong based Political and Economic Risk Consultancy Ltd, and United States-based consultancy HIS Global Insight. Deborah Hardoon explained to Business Daily the reason for the change. “…the previous CPI [Corruption Perceptions Index] was a relative index which meant that it was providing scores for countries based not only on perceptions of corruption in that country, but also on how other countries scored around [relative to] that country. “That meant your score could go up from one year to the next, simply because other countries are seen as more corrupt. So it’s not that you are getting better, it’s that others are getting worse,” she said M.G.

acau is regularly the subject of news stories around the world in connection with allegations of money laundering and graft. But a new piece of research from Transparency International – the Global Corruption Barometer – chose not to poll the residents here. “The Barometer is quite a high demand project in terms of resources,” Transparency’s research manager Deborah Hardoon told Business Daily. “We have to take a decision on which jurisdictions get in and which don’t,” she added. Transparency International is a not-for-profit organisation based in Germany. It’s perhaps best known for its Corruption Perceptions Index – published since 1995 and based on research by professional institutions.

Public poll The Barometer by contrast is based on surveys with the public done face-to-face, by telephone or online by local market research firms using a sample typically of 1000 residents per jurisdiction. The aim is to find out what is their personal experience of corruption in business and in dealings with officials. This year’s Barometer, published on July 9, is one of the most extensive indices on graft in the world, covering 107 countries or territories. Macau has never been on the Global Corruption Barometer since it was launched in 2003. Hong Kong was on the Barometer from its inception in 2003 until 2010 but has not appeared since. Ricardo Siu Chi Sen, Associate Professor of Business, Economics, at the University of Macau, told us he

didn’t know of any market research done direct with the Macau public on the topic of corruption. “As an academic, I would say it’s better to have more indicators rather than fewer, when it comes to reference points for Macau’s development,” he stated. Tackling corruption is currently high on the agenda of China’s recently installed new central government. It’s one thing for China to tackle corruption internally, but another it seems for outsiders to ask questions on how well the authorities there are doing. After making an appearance on Transparency International’s 2010 Barometer, China has dropped off. “China was indeed on our list of countries to be surveyed [in 2013] but it wasn’t possible for Gallup [market research] to find a local affiliate that could conduct the survey this year in its completeness,” Deborah Hardoon told us. Among the 12 questions asked for the 2013 Barometer, were: ‘To what extent do you think that corruption is a problem in the public sector in this country?’ and ‘How effective do you think your government’s actions are in the fight against corruption?’ Pressed on whether that meant the local research companies felt some questions were taboo, Ms Hardoon replied: “That is the suggestion we may take from that response, but that’s not what we were told. We weren’t told explicitly this or that particular question is taboo. But one can make those kind of assumptions.” It’s expected the mainland will be on the Corruption Perceptions Index due out later this year. Between 2006 and 2011 Macau was also on it. In the first five years, Macau’s

ranking on the list deteriorated, i.e. professional institutions reported a worsening of corruption. But the city’s exit from last year’s Perceptions Index is for technical reasons linked to its small population size and changes in 2012 in the way the report is compiled, says Transparency International. A criticism of research that measures perceptions of corruption is that third parties then use the work as statements of fact rather than of opinion when advising foreign investors. All the United Statesbased gaming firms with operations in Macau for example, constantly brief their management teams on how to avoid exposure to regulatory risk linked to the Foreign Corrupt Practices Act – a U.S. statute that among other things forbids bribing of foreign officials.

Not reality Stuart Campbell of University of Minnesota-Twin Cities School of Law, in the U.S., raises the FCPA issue in a research paper titled ‘Perception is Not Reality’ published in February. “Recent years have seen an explosion in the number of FCPA enforcement actions by the U.S. government,” he writes. “International corporations have been faced with the challenge of complying with the FCPA in nations whose cultural and legal treatment of corruption can vary widely,” he adds. “The use of corruption perception to compare risk between nations is a misuse of these statistical measures, and potentially increases

the economic distortion generated by the FCPA,” states Mr Campbell. Ricardo Siu says however that research on perceptions is still a useful starting point for debate. “No matter whether we agree with a piece of research – the numbers mentioned and the possible indicators that things are betting better or worse – the simple act of asking ‘why?’ or ‘why not?’ can help bring about improvements in society,” he suggests. There is research that indicates Macau has actually improved on its anti-corruption stance. The city’s graft watchdog-cum-public ombudsman, the Commission Against Corruption, points out that from 2010 to 2012, the Hong Kong based Political and Economic Risk Consultancy Ltd gave Macau annual rankings of 5.71, 4.68 and 2.85 respectively – with a lower score indicating improving integrity. This is “showing that the situation of Macau has been constantly improving,” says the Commission. There are also a number of regionally generated surveys that rate the ease and confidence of the business community in doing deals in Macau and Hong Kong. Those surveys are relative to the rest of Greater China, rather than to the global picture. In June the Hong Kongbased China Institute of City Competitiveness found Macau had risen from 16th place to 13th in its competitiveness survey. A competitiveness study released in May by the Chinese Academy of Social Sciences suggests Macau’s competitiveness rose by three places to 10th among all Chinese cities.

July 26, 2013 April 19, 2013

Greater China

Li pledges support from rail to taxes Move indicates leadership’s concern about slowdown

hinese Premier Li Keqiang said the nation will speed railway construction, especially in central and western regions, adding support for an economy that’s set to expand at the slowest pace in 23 years. The State Council also on Wednesday approved tax breaks for small companies and reduced fees for exporters as it pledged to keep the yuan’s exchange rate “basically stable at a reasonable and balanced level,” according to a statement after a meeting led by Mr Li. Additional spending would help the world’s second-largest economy, after the government signalled this week it will protect its 7.5 percent growth target for this year following a second straight quarterly slowdown. Economists surveyed by Bloomberg News cut expansion forecasts this month, reaching a new median estimate of 7.5 percent, which would be the lowest since 1990. “Premier Li’s team has been surely working around the clock” to arrest the slowdown, said Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong. “It’s a small stimulus” that may boost confidence while having a limited effect in boosting demand, Mr Lu said yesterday. The Shanghai Composite Index slid for a second day, losing 0.6 percent to 2,021.17 at the close. CSR Corp, the nation’s biggest trainmaker, and China Railway Construction Corp rose at least 2.9 percent after the government announced plans to accelerate railway construction. The State Council is targeting 690 billion yuan (US$112 billion) of fixed-asset investment in the railway industry this year, the Beijing News reported yesterday, citing a summary of the meeting.

China plans a railway development fund to boost construction

That compares with a 650 billion yuan figure given in a rail-bond prospectus published last Friday. For the five years through 2015, the cabinet set a goal of investing 3.3 trillion yuan, or 500 billion yuan more than in the previous plan, according to the Beijing News. The State Council Information office didn’t immediately respond to a faxed question from Bloomberg News on the authenticity of the newspaper report. Investors are looking for signs of additional support measures after exports fell last month by the most since the global financial crisis. China’s manufacturing weakened more than estimated in July,

according to a preliminary survey of purchasing managers released on Wednesday.

Jobs pressure The cabinet’s comment on the yuan may signal concern about burdens on exporters. The currency has risen 1.5 percent this year against the U.S. dollar, the most among 11 major Asian currencies tracked by Bloomberg, and the yuan is up 17 percent against the yen as Japan implements record monetary easing to beat deflation. The yuan comment indicates that the central bank won’t allow the

currency to appreciate against the dollar from the current level, though it may also prevent depreciation, Mr Lu said. Yesterday, Yin Chengji, spokesman for the Ministry of Human Resources and Social Security, said at a briefing in Beijing that while employment in the nation is stable, China will face large pressure on jobs and focus on finding jobs for university graduates. “China faces quite heavy employment tasks in the following months and the pressure over employment will be very big,” he told a media briefing. Resolutions passed at the cabinet

Bo Xilai to face trial on corruption charges Charges pave way for trial, but no date has been announced yet Megha Rajagopalan

hina charged disgraced senior politician Bo Xilai with bribery, abuse of power and corruption yesterday, paving the way for a trial seen by many as a test for legal reform and President Xi Jinping’s commitment to combat corruption. Mr Bo, 64, could appear in a courtroom in the eastern city of Jinan in Shandong province within weeks, capping the country’s biggest political scandal since the 1976 downfall of the Gang of Four at the end of the Cultural Revolution. He has not been seen in public for 17 months. Mr Xi, who formally took power in March, will be eager to put the Bo scandal behind him and have unstinted support from the Communist Party as he embarks on an ambitious rebalancing of the

world’s second-largest economy and cracks down on corruption among senior officials. But the outcome of the trial of Mr Bo, a charismatic and well-loved leader to some and a power-hungry politician to others, could sharpen rifts. Mr Bo committed serious crimes and will be indicted on the charges of bribery, embezzlement and power abuse, state news agency Xinhua quoted the indictment as saying. He had been informed of his legal rights and interviewed by prosecutors, it said. Mr Bo, as a civil servant, took advantage of his position to seek profits for others and accepted an “extremely large amount” of money and properties, Xinhua said. Mr Bo is certain to be found guilty. His wife, Gu Kailai, and his former police chief, Wang Lijun, have both

been jailed over the scandal, which stems from the murder of British businessman Neil Heywood. The government in September last year accused Mr Bo of corruption and of bending the law to hush up the murder.

Trial date China’s prosecutors and courts come under Communist Party control and they are unlikely to challenge the party’s previous accusations. “For a case that is politically tinged like this, the possibility of getting a fair trial is slim,” said Chen Ziming, an independent political commentator in Beijing. “Basically it’s been decided from above, the courts below will just act in accordance with the instructions.”

A source with direct knowledge of the case said Mr Bo has had regular access to legal counsel and is likely to be able to have the lawyer of his choice. Many analysts say it is unlikely he would receive the death penalty. They expect the court to hand down a suspended death sentence, which effectively means life in prison, although the term can be reduced to 15 or 20 years. “It would be immensely controversial if they executed him, it’ll be inconsistent with Xi Jinping’s efforts to move people forward and unite people and calm things down,” Jerome Cohen, a law professor from New York University and an expert in Chinese law, said before the indictment.

July April26, 19,2013 2013

Greater China meeting included the exemption of companies with monthly sales of less than 20,000 yuan from value-added and business taxes starting August 1, according to the statement. The move will benefit more than 6 million small businesses and affect jobs and income of tens of millions of people, the government said. China will also reduce administrative fees on export inspections and encourage financing and tax-rebate services for small firms to promote trade, according to yesterday’s statement. The government also plans to grant ownership and operating rights on some city and regional railways to local government and private investors. “To get rich, you must build roads first, especially railroads,” Mr Li was cited by the official Xinhua news agency as saying at the meeting. Accelerating railway construction brings “multiple benefits” by promoting urbanisation, stabilising growth and improving people’s lives, he added. “I suspect that we will see a lot of announcements of targeted spending over the next few months,” said Mark Williams, a former U.K. Treasury adviser on China who is now a London- based economist at Capital Economics Ltd. “They may not add up collectively to much of a stimulus but they reflect efforts to really stabilise growth at the current level.” Bloomberg News/Reuters

RMB690 bln

Fixed-asset investment in the railway industry this year

Bo Xilai was removed from his post in March 2012

But Mr Xi will have a difficult time convincing people that the charges against Bo are justified, said Bo Zhiyue, a professor of Chinese politics at the National University of Singapore. “All these charges are their excuses,” professor Bo said. “They apply to anybody in the Politburo and the Politburo Standing Committee. There are no exceptions.” Prosecutors in Jinan indicted Bo, Xinhua said, meaning the trial will take place there. Xinhua did not say when Mr Bo’s trial will start. But according to Chinese law, charges must be served to the defendant and his or her lawyers at least 10 days before a trial begins. Reuters

HK tries to lure demand for sukuk H

ong Kong faces a similar challenge to Singapore in encouraging companies to tap the Islamic debt market, as banks urge the government to take a lead in a city with only 200,000 Muslims. The territory, which granted sukuk equal tax treatment last week, needs to have state-related agencies offer Shariah notes if it wants to become a regional hub, Tengku Zafrul Tengku Abdul Aziz, chief executive at Maybank Kim Eng Holdings Ltd, said yesterday in Kuala Lumpur. Awareness programmes and guidelines are still required, Mohd Effendi Abdullah, Kuala Lumpurbased head of Islamic markets at AmInvestment Bank Bhd, the second-largest underwriter, said in an interview. The city, which first identified developing Islamic finance as a priority in 2007, amended regulations to tap a forecast US$950 billion of international demand for sukuk by 2017, more than triple the current amount of the debt. Singapore has S$1.83 billion

Ma pledges not to drive down Taiwan dollar T

aiwan President Ma Yingjeou ruled out driving down the Taiwan dollar to boost exports following the currency’s rally against the yen and said the government still aims for growth of at least 2 percent this year. A decline in the Taiwan dollar would push up prices of imported commodities and hurt the livelihood of the island’s people, Mr Ma said in an interview at his presidential office in Taipei yesterday. Japan, which competes with the island as an exporter of electronics, was able to depreciate its currency because of entrenched deflation, he said. The weakening global recovery led Taiwan in May to cut its official forecast for gross domestic product growth this year to 2.4 percent from 3 . 5 9 p er cen t. E x p o r ter s including Taiwan Semiconductor Manufacturing Co have called for a drop in the local currency, which has rallied 22 percent against the yen in the past 12 months as Japanese Prime Minister Shinzo Abe moved to revive growth. Orders for Taiwan exports, which account for about 70 percent of the economy, fell for a fifth straight month in June. “We would like an adequate depreciation in the Taiwan dollar to keep our competitive edge,” Tsai Lien-sheng, secretary general of the Chinese National Federation of Industries, which represents

(US$1.4 billion) of Shariahcompliant bonds outstanding after changing its tax laws in 2006, less than 2 percent of the amount in industry pioneer Malaysia, central bank data show. “I don’t think this means the floodgates are going to open and suddenly we’re going to see a huge inpouring of sukuk in Hong Kong,” Davide Barzilai, a partner specialising in Islamic finance at law firm Norton Rose Fulbright LLP, said. “We are not the Middle East and we’re not Malaysia, so there isn’t a local market that’s been requiring this.” Amending the tax law will pave the way for issuers in China to tap Shariah-compliant funds via Hong Kong, and develop the city’s assetmanagement business by increasing product variety, Secretary for Financial Services and the Treasury K.C. Chan said in a December 28 statement before a draft was submitted to the Legislative Council. The city has the world’s sixthbiggest foreign-exchange market with a daily turnover of about US$237.6 billion, according to the Bank of International Settlements. “This tax legislation removes a key hurdle in the development of the sukuk market in Hong Kong,” said Ahsan Ali, head of Islamic b o n d o r i g i n a ti o n a t S t a n d a r d Chartered Plc in Dubai. The city can “act as a gateway to the Greater China region for Shariahcompliant investors,” he said. Bloomberg News

PBOC will not scrap deposit rates soon China will not remove the ceiling on bank deposit rates soon as a deposit insurance system should be in place before that will happen, the China Securities Journal reported yesterday, citing a former central bank vice governor. The scrapping of a ceiling on deposit rates would be the final step in China’s interest rate liberalisation but that is unlikely to happen either this year or the next, Wu Xiaoling, former vice governor of the People’s Bank of China, was quoted as saying. China’s central bank removed controls on bank lending rates last week and has said that it plans to free up deposit rates eventually, but now was not the right time.

Beijing sells residential land at record Beijing sold a high-end residential land parcel for a record price as developers sought to tap rising demand for luxury homes even as the government maintains its property curbs. The 75,360 square-metre (811,168 squarefoot) Sunhe plot, in a northeastern part of the city known as the “central villa district” near the airport, was sold for 2.36 billion yuan (US$385 million) to COFCO Property (Group) Co, according to a statement on the local land reserve centre’s website. That implies about 46,000 yuan a square metre of buildable area.

Baidu profit beats estimates Ma Ying-jeou, Taiwan President

more than 100,000 manufacturers on the island, said yesterday. “The government needs to look at the currency moves of our major competitors, including South Korea and Japan.” Mr Ma said the economy can continue to expand without risking inflationary pressures from a weaker currency. “We have a more balanced policy,” he said. “We think a stable currency will affect our imports and exports in a more balanced way.” So far, the policy is working, according to Grace Ng, an economist with JPMorgan Chase & Co. in Hong Kong. “I don’t see a significant negative impact on the real economy in terms of competitiveness because what the central bank is doing is to keep a stable effective exchange rate,” she said. “In Asia, you can see Taiwan’s inflation picture is relatively well contained.” Mr Ma said the performance of the island’s trading partners will help decide economic growth. “We want to grow at least 2 percent and hope for faster than 2 percent,” he said. “We need to see how quickly Europe and the U.S. recover.” Bloomberg News

Baidu Inc, owner of China’s largest Internet search engine, reported second-quarter profit that beat analysts’ estimates as advertisers spend more money to reach customers surfing the Web with their smartphones and tablets. The Beijing-based company reported net income of 2.64 billion yuan (US$431 million), compared with the 2.6 billion-yuan average of eight analysts’ estimates compiled by Bloomberg. Revenue rose 39 percent to 7.56 billion yuan, according to a statement released yesterday. More than 10 percent of revenue in the quarter came from mobile devices, with most of that generated through advertising sales on its search app for smartphones and tablets.

Work on world’s tallest building halted Work on a Chinese skyscraper aiming to be the world’s tallest building has been ordered to stop just days after breaking ground, local media reported yesterday. “Relevant authorities” had ordered a halt to work on the Sky City tower in Changsha, in the central province of Hunan, “because it did not complete the required procedures for seeking approval to start construction”, the Xiaoxiang Morning Post newspaper said. At 838 metres (2,749 feet), the tower would surpass the world’s current tallest skyscraper, the Burj Khalifa in Dubai, by 10 metres.

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July 26, 2013 April 19, 2013

Asia Chinatrust to buy Tokyo Star bank CTBC Financial Holding Co agreed to buy Tokyo Star Bank Ltd for about 52 billion yen (US$520 million), the first takeover of a Japanese commercial lender by a foreign bank, two people with knowledge of the matter said. CTBC, the Taipei-based lender known as Chinatrust, will buy a controlling stake from shareholders including Lone Star Funds, Shinsei Bank Ltd and Credit Agricole SA, the people said. The acquisition is subject to approval from financial regulators in Japan and Taiwan, according to the people.

South Korea growth strongest in two years Consumer spending helps buoy economy

Lloyds mulls sale of Australian business Lloyds Banking Group Plc is studying a sale of its unprofitable Australian business, two people with knowledge of the matter said. In Australia, the Lloyds International unit reported a loss of A$148.3 million (US$135.6 million) in 2012, narrowing from a shortfall of A$1.2 billion the previous year. The bank, part-owned by the U.K. government, is divesting assets it no longer considers essential as it shrinks its balance sheet after a bailout in 2008.

Hyundai Motor profit beats estimates Hyundai Motor Co reported secondquarter profit that beat analysts’ estimates, helped by sales in China and Brazil. Net income, excluding minority interests, fell to 2.4 trillion won (US$2.15 billion) from 2.45 trillion won a year earlier, the Seoul-based company said in a statement yesterday. Revenue increased 5.7 percent to 23.2 trillion won. “New plants that opened in Brazil and China helped Hyundai,” Lee Sang Hyun, an analyst at NH Investment & Securities Co said.

CapitaLand warns of market headwinds CapitaLand Ltd said prices and sales of Singapore residential properties are expected to moderate because of government measures aimed at curbing speculation. The developer sold 139 residential units in the three months ended June 30, 31 percent fewer than in the same period last year, the company told the Singapore stock exchange. Second-quarter profit fell 0.7 percent on lower portfolio gains, it said.

India moves closer to gold import quota India introduced regulations that stop just shy of imposing gold import quotas as it tries to stifle demand ahead of a key buying season and narrow a yawning trade deficit. By tying gold imports directly to export volumes, India is effectively trying to cap how much bullion can be brought into the country, tightening supplies and driving up local prices. Twenty percent of all gold imports must be used for overseas sales, the Reserve Bank of India said. The latest step not only aims to curb imports, but also boosts exports, helping narrow the trade deficit.

Economy boosted by a jump in domestic consumption

outh Korea’s economy grew the most in more than two years, on stronger government spending and private consumption even as a slowdown in China clouds the outlook. Gross domestic product rose 1.1 percent in April-to-June from the previous quarter when it rose 0.8 percent, the Bank of Korea said yesterday in a statement in Seoul. From a year earlier, Asia’s fourth-largest economy expanded 2.3 percent. President Park Geun-hye boosted spending and the central bank cut its key rate in May, buttressing the economy against a sluggish property market and slower growth in China, South Korea’s biggest trading partner. The central bank is counting on improving domestic demand and resilient exports to achieve forecasts for expansions of 2.8 percent this year

and 4 percent next year, the fastest since 2010, when the economy was pulling out of a global slump. “The GDP figures are a positive surprise, which will give investors more confidence about the economic outlook,” said Lee Jae Hyung, a fixed-income analyst at Tongyang Securities Inc in Seoul. “Today’s data will reduce calls for further monetary easing. The next rate move for the BOK will be a hike.” Government spending rose 2.4 percent in the second quarter from the previous three-month period, when it expanded 1.2 percent. Private consumption rebounded, rising 0.6 percent after a 0.4 percent drop in the first quarter. Construction investment gained 3.3 percent, while facilities investment declined 0.7 percent. South Korea’s exports of goods and services increased 1.5 percent in

the second quarter, slowing from a 3 percent rise in the previous quarter, as the yen’s more than 24 percent fall against the won over the past 12 months gives rival Japanese exporters a boost.

Growth potential Slowing growth in emerging economies and discussion in the U.S. of a rollback in Federal Reserve stimulus are risks to the global economy, Finance Minister Hyun Oh Seok said yesterday at a meeting in Seoul. “I assess that the agreement secured the minimum safety net we need to ease market uncertainties,” Mr Hyun said. Slower growth in China is “a major risk” to South Korea’s outlook, given Korea’s manufacturing sector has significant trade and investment exposure to the world’s secondbiggest economy, said Ma Tieying, an economist at Singapore-based DBS Group Holdings Ltd. The preliminary China Purchasing Managers’ Index fell to 47.7 in July from 48.2 in June, further below the level of 50 that separates contraction from expansion, HSBC Holdings Plc and Markit Economics said yesterday. “A slowdown in China will inevitably cause some adverse impact on the Korean economy,” said Ma before the GDP data were released. The economy will expand 3 percent in the second half of 2013 and 4 percent next year, “close to our potential” growth rate, Mr Hyun said. Central bank governor Kim Choong-oo, who raised the BOK’s growth forecasts on the fiscal and monetary stimulus, said on July 11 the economy will grow 1 percent or so each quarter into next year, reaching its potential output by 2015. The government obtained a 17.3 trillion won (US$15.5 billion) extra budget in May from parliament and front-loaded about 60 percent of spending in this year’s main budget to the first half of the year. Reuters

Japan seen needing US$50b to cushion tax rise Failing to implement tax boost risks undermining confidence

apanese Prime Minister Shinzo Abe, now sitting on the biggest parliamentary majority in six years, faces the threat of political dissent within months as a planned sales-tax rise threatens to arrest an economic rebound. The world’s third-largest economy has 30 percent odds of tipping into the fourth recession since 2008 should Mr Abe bump the consumption levy to 8 percent in April from 5 percent, according to the median of 23 estimates in a Bloomberg News survey. He’ll need a 5 trillion yen (US$50 billion) fiscal package to cushion the impact of the increase, the survey showed. Deteriorating growth would counter Mr Abe’s promise to revive Japan from two decades of economic malaise, which swept his Liberal Democratic Party to power in December and won it a majority in the Diet’s upper house this month. At the same time, failing to implement the tax boost risks undermining confidence in Japan’s pledges to rein in the world’s largest debt burden.

“ Th e m a r k et wo ul d r a i s e a question mark about Abenomics if the economy fell into a recession after raising the sales tax,” said Yoshimasa Maruyama, chief economist at trading company Itochu Corp in Tokyo. “Members of Abe’s ruling party will request extra spending – especially people who represent sectors that will be badly affected by deregulation and the TPP freetrade negotiation.” The prime minister – who has championed monetary and fiscal stimulus, along with deregulation,

as his three-pronged strategy to end deflation and lift growth – was bequeathed the sales-tax increase. His predecessor as LDP chief negotiated with the then-governing Democratic Party of Japan to pass legislation for a two-stage boost to the levy, to 10 percent in 2015. The legislation gave the government an opt out should the economy not be judged strong enough. Toshifumi Suzuki, chairman of Tokyo-based retailer Seven & I Holdings Co, said in a statement this week that “if we misread the timing for raising the sales tax, it would seriously affect consumer spending and damage the economy, which has just started to improve”. Gross domestic product rose 4.1 percent in the first quarter on an annualised basis. Finance Minister Taro Aso said two days ago that the government will make its final call on whether to proceed with the tax increase after the second estimate of second-quarter GDP, which is scheduled for release September 9. Bloomberg News

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July April26, 19,2013 2013

Asia

Philippines holds rate to protect growth Central bank cautious due to financial market volatility

he Philippine central bank left its benchmark interest rate unchanged at a record low 3.5 percent yesterday, saying the domestic economy remains strong despite subdued global prospects and possible external shocks. It also kept the rate on its shortterm special deposit account (SDA) facility at 2.0 percent, so it could review the impact of previous cuts and a May move to ban some types of trust funds from placing money there. But the Bangko Sentral ng Pilipinas revised up its inflation forecasts for this year through 2015, partly due to a weaker peso, faster money supply growth and an acceleration in prices in June. It now expects average inflation this year to come in at 3.3 percent from a previous forecast of 3.1 percent. Inflation in 2014 is now seen averaging 4 percent instead of 3.6 percent, the central bank said, before slowing to 3.5 percent in 2015, against an earlier forecast of 3.4 percent. The central bank has set a 3 percent to 5 percent inflation target for this year and next, and 2 percent to 4 percent for 2015. Policymakers do not see inflation becoming a threat this year or next year despite expectations of strong growth, giving the central bank policy flexibility. The Philippines was Asia’s fastest growing economy in the first quarter.

The Philippine economy continues to be robust, supported by favourable domestic demand and buoyant market confidence Amando Tetangco, governor, Philippine central bank

“The Philippine economy continues to be robust, supported by favourable domestic demand and buoyant market confidence,” Governor Amando Tetangco told a media briefing. The monetary board feels financial market volatility “persists owing to concerns over the timing of the tapering of monetary stimulus

in advanced economies, and this suggests caution in assessing the policy stance,” he said. All 11 economists in a Reuters poll predicted no change in both the policy and facility rates. The overnight borrowing rate was last changed in October, with a 25 basis point cut. Recent sell-offs in emerging markets have dampened the peso,

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down more than 5 percent so far in 2013, helping address authorities’ concerns earlier this year of a strong currency that was hurting exports. Analysts say emerging markets such as the Philippines should be wary of capital flight once the Federal Reserve reverses its bondbuying stimulus. Reuters

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April 19, 2013

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July April26, 19,2013 2013

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

Max 41.25

average 40.908

Min 40.6

Last 40.65

41.4

63.3

22.0

41.2

63.0

21.8

41.0

62.7

21.6

40.8

62.4

21.4

40.6

Max 63.3

average 62.993

Min 62.15

62.1

Last 62.8

Max 21.95

average 21.558

Min 21.25

Last 21.9

19.9

42.40 42.25

21.8 21.7

19.7

42.10

21.6 19.5

41.95

Max 42.3

average 41.964

Min 41.8

Last 41.95

41.80

Max 19.9

average 19.69

Commodities PRICE

WTI CRUDE FUTURE Sep13

DAY %

105.21

Last 19.8

YTD %

-0.170794193

(H) 52W

(L) 52W

12.25992318

108.9300003

86.23999786

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

BRENT CRUDE FUTR Sep13

107.06

-0.12127997

0.74338948

114.3699951

96.65000153

303.26

-0.726725154

9.015745201

316.3199902

264.1299963

GAS OIL FUT (ICE) Sep13

912.75

-0.327600328

0.550812448

980

832.5

3.714

0.432666306

3.454038997

4.525000095

3.354000092

302.41

-0.75155891

0.900870842

320.449996

273.759985

Gold Spot $/Oz

1320.42

-1.7647

-20.6698

1796.08

1180.57

Silver Spot $/Oz

20.0851

-1.6304

-33.2943

35.365

18.2208

Platinum Spot $/Oz

1439.81

-0.6507

-5.1352

1742.8

1294.18

Palladium Spot $/Oz

740.34

0.2247

5.8143

786.5

559

LME ALUMINUM 3MO ($)

1851

0.298022216

-10.70911722

2200.199951

1758

LME COPPER 3MO ($)

7055

0.227305015

-11.04526541

8422

6602

LME ZINC

1885

-0.132450331

-9.375

2230

1779

14370

1.6985138

-15.76787808

18920

13205

15.95

0.156985871

3.537812399

16.47500038

14.60000038

482

0.364393545

-19.63318049

665

479.5

653.5

0.038270188

-19.02106568

905.75

650.5

1252.75

-0.318281281

-3.838034926

1409.75

1186.5

121.1

-0.12371134

-20.56411938

196.75

117.0999985

NAME

15.92999935

ARISTOCRAT LEISU

74.34999847

CROWN LTD

NY Harb ULSD Fut Aug13

3MO ($)

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

Dec13

WHEAT FUTURE(CBT) Sep13 SOYBEAN FUTURE Nov13 COFFEE 'C' FUTURE Sep13 SUGAR #11 (WORLD) Oct13

16.25

COTTON NO.2 FUTR Dec13

0.681536555

85.91

0.198273851

-18.99302094

22.80999947

9.105918212

89.55999756

ASIA PACIFIC

CROSSES

Max 21.8

average 21.552

Min 21.45

Last 21.7

21.4

World Stock Markets - Indices

PRICE

DAY %

YTD %

(H) 52W

(L) 52W

0.9146 1.5325 0.9388 1.3183 100.03 7.99 7.7574 6.1348 59.045 31.08 1.2684 29.928 43.35 10268 91.486 1.23768 0.8602 8.1004 10.532 131.87 1.03

-0.8456 -0.1759 -0.3409 -0.4004 0.02 -0.0013 -0.0039 0.0179 0.146 -0.4183 -0.134 -0.0033 -0.1615 -0.0487 0.869 0.0606 0.2279 0.3173 0.3988 0.4171 0

-11.8713 -5.2609 -2.4925 -0.0531 -13.9258 -0.0851 -0.0877 1.5616 -6.8592 -1.6088 -3.7055 -2.9905 -5.4095 -4.626 -2.3599 -2.44 -5.2058 1.4456 -0.0152 -13.8773 -0.0097

1.0625 1.6381 0.9914 1.3711 103.74 8.0111 7.7664 6.387 61.2125 31.73 1.286 30.228 44.181 10330 105.433 1.265 0.88151 8.4957 10.9254 133.8 1.032

0.8999 1.4814 0.9022 1.2113 77.13 7.9818 7.7498 6.1203 51.3863 28.56 1.2152 28.913 40.54 9448 79.408 1.20066 0.77907 7.7394 9.6813 94.67 1.0289

Macau Related Stocks PRICE

DAY %

YTD %

(H) 52W

(L) 52W

4.31

0.9367681

36.82539

4.49

2.29

2859062

12.52

-0.2390438

17.33833

13.75

8.28

2130278

AMAX HOLDINGS LT

1.08

-0.9174312

-22.85714

1.72

0.75

171550

BOC HONG KONG HO

24.4

-0.610998

1.244812

22.85

6518762

0.315

1.612903

18.86793

0.42

0.22

6.01

3.264605

0.3338937

6.74

2.97

213000

CHINA OVERSEAS

22.1

0.913242

-4.329006

25.6

16.761

11450678

CHINESE ESTATES

16.28

8.10093

34.21913

16.3

8.253

1248639

CHOW TAI FOOK JE

9.93

-0.501002

-20.17685

13.4

7.44

4071516

EMPEROR ENTERTAI

2.65

-0.3759398

40.21164

3.07

1.35

235000

FUTURE BRIGHT

2.17

6.896552

79.03905

2.76

0.964

6408000 7217949

CENTURY LEGEND

NAME

19.3

COUNTRY MAJOR

GASOLINE RBOB FUT Aug13

NATURAL GAS FUTR Aug13

METALS

Min 19.38

21.5

Currency Exchange Rates

NAME ENERGY

21.2

CHEUK NANG HLDGS

VOLUME CRNCY

COUNTRY

PRICE

DAY %

YTD %

(H) 52W

(L) 52W

DOW JONES INDUS. AVG

15542.24

-0.1638003

18.60558

15604.22

12471.49

NASDAQ COMPOSITE INDEX

3579.6

0.009107992

18.54889

3624.538

2810.8

GALAXY ENTERTAIN

40.65

-0.7326007

33.9374

44.95

16.98

FTSE 100 INDEX

6598.02

-0.3384977

11.87237

6875.62

5478.02

HANG SENG BK

118.9

0.08417508

0.1684946

132.8

104.2

860539

DAX INDEX

8337.05

-0.5019626

9.519477

8557.86

6324.53

HOPEWELL HLDGS

25.25

-1.750973

-24.06015

35.3

21.468

2510000

NIKKEI 225

14562.93

-1.142806

40.0931

15942.6

8328.019531

HSBC HLDGS PLC

7736250

HANG SENG INDEX

21900.96

-0.3093915

-3.336548

23944.74

18710.58984

CSI 300 INDEX

2237.683

-0.5098813

-11.30694

2791.303

2023.171

TAIWAN TAIEX INDEX

8163.58

-0.3978678

6.027405

8439.15

6922.73

KOSPI INDEX

1909.61

-0.1291787

-4.378461

2042.48

S&P/ASX 200 INDEX

5035.612

0.01072477

8.317182

4674.828

-0.9172119

FTSE Bursa Malaysia KLCI

1810.75

NZX ALL INDEX

PHILIPPINES ALL SHARE IX

JAKARTA COMPOSITE INDEX

87.55

-0.6242906

7.687573

90.7

61.1

HUTCHISON TELE H

4.47

-0.4454343

25.5618

4.66

2.98

723714

LUK FOOK HLDGS I

22.65

-7.17213

30.05

16.28

1101000

MELCO INTL DEVEL

15.3

-1.162791

69.81132

18.18

5.12

1705000

MGM CHINA HOLDIN

21.9

2.097902

64.93101

9.509

3558730

1758.99

MIDLAND HOLDINGS

3.1

0.9771987

-16.21622

2.68

954000

5249.6

4084.4

NEPTUNE GROUP

0.181

5.847953

19.07895

0.23

0.131

54760000

8.296666

5251.296

3964.808

NEW WORLD DEV

11.82

2.249135

-1.663897

15.12

9.38

16986911

0.04143646

7.211585

1826.22

1590.67

SANDS CHINA LTD

41.95

-1.985981

23.56406

43.7

20.65

8869235

SHUN HO RESOURCE

1.43

0.7042254

2.142859

1.67

1.03

32000

978.029

-0.5369624

10.88098

998.487

768.755

SHUN TAK HOLDING

3.46

-0.2881844

-17.42244

4.65

2.62

4817001

4133.11

-0.01959399

11.73648

4571.4

3411.69

HSBC Dragon 300 Index Singapor

623.27

0.49

0.35

STOCK EXCH OF THAI INDEX

1482.04

-1.286833

6.473744

1649.77

1172.92

HO CHI MINH STOCK INDEX

491.78

-0.485653

18.86496

533.15

372.39

Laos Composite Index

1323.63

0.618016

8.961366

1455.82

1003.17

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

SJM HOLDINGS LTD

19.8

1.123596

11.56402

22.382

12.995

4633349

12.54

-1.724138

-10.9375

17.38

12.28

1153533

WYNN MACAU LTD

21.7

-1.138952

3.579948

26.5

14.62

4442963

ASIA ENTERTAINME

4.1

-1.678657

45.66472

4.7647

2.2076

81212

BALLY TECHNOLOGI

70.25

-0.5239309

57.12369

71.53

41.74

481590

BOC HONG KONG HO

3.13

-0.9493671

1.9544

3.6

2.99

1000

GALAXY ENTERTAIN

5.29

3.269888

33.24937

5.77

2.25

100

INTL GAME TECH

18.83

2.896175

32.88638

20.25

10.92

6568996

JONES LANG LASAL

95.65

-0.5200208

13.95044

101.46

61.39

222768

LAS VEGAS SANDS

54.95

-1.364208

19.04246

60.54

32.6127

5582059

MELCO CROWN-ADR

23.92

-1.03434

42.04275

25.2

9.13

1389653

MGM CHINA HOLDIN

2.8

0.3584229

51.35135

2.85

1.36

1000

MGM RESORTS INTE

16.07

-0.3101737

38.05842

16.5

8.83

6280929

SHFL ENTERTAINME

22.87

-0.5652174

57.72414

23.08

12.35

353822

SJM HOLDINGS LTD

2.52

-0.7874016

10.642

2.9481

1.7255

3737

131.13

-0.2965328

16.57036

144.99

84.4902

1276385

SMARTONE TELECOM

WYNN RESORTS LTD

AUD HKD

USD

Hang Seng Index NAME

PRICE

DAY %

VOLUME

NAME

PRICE

DAY %

VOLUME

NAME

PRICE

DAY %

VOLUME

AIA GROUP LTD

35.7

-1.652893

23613932

CHINA UNICOM HON

11.24

1.261261

12647675

POWER ASSETS HOL

69.25

-0.6456241

2164724

ALUMINUM CORP-H

2.58

0.3891051

15222730

CITIC PACIFIC

8.87

-1.114827

5121569

SANDS CHINA LTD

41.95

-1.985981

8869235

BANK OF CHINA-H

3.27

-0.304878

186917041

CLP HLDGS LTD

64.1

-1.156515

2780180

SINO LAND CO

11.08

-0.5385996

2748271

BANK OF COMMUN-H

5.11

-0.3898635

16509564

CNOOC LTD

14.2

-0.6993007

26182684

SUN HUNG KAI PRO

103.1

-1.150527

3509098

BANK EAST ASIA

28.9

0.6968641

1650424

COSCO PAC LTD

10.98

1.666667

4459614

SWIRE PACIFIC-A

93.85

0.6974249

1294683

BELLE INTERNATIO

11.3

-0.528169

8626575

ESPRIT HLDGS

12.16

-0.1642036

2721000

TENCENT HOLDINGS

334.4

1.088271

3230951

BOC HONG KONG HO

24.4

-0.610998

6518762

HANG LUNG PROPER

24.55

-0.6072874

4811647

TINGYI HLDG CO

19.36

-0.9211873

2159505

118.9

0.08417508

860539

WANT WANT CHINA

10.66

-0.3738318

9935600

50.2

0.1996008

2880468

2755136

HENGAN INTL

83.95

-1.235294

1923849

14.12

1.436782

2315308

HANG SENG BK

CHEUNG KONG

CATHAY PAC AIR

110

-0.5424955

2257657

HENDERSON LAND D

CHINA COAL ENE-H

4.29

-0.6944444

34197458

CHINA CONST BA-H

5.76

0.6993007

251524992

CHINA LIFE INS-H

18.58

-0.5353319

20051942

CHINA MERCHANT

24.65

0.203252

HONG KG CHINA GS

19.82

0.1010101

5945143

HONG KONG EXCHNG

122.2

-0.3262643

1559586

2211901

HSBC HLDGS PLC

87.55

-0.6242906

7736250

HUTCHISON WHAMPO

86.85

0.1152738

3932478

5.1

-0.7782101

225031890

10.68

-0.7434944

9961014

CHINA MOBILE

83.3

0.3010235

9632186

CHINA OVERSEAS

22.1

0.913242

11450678

IND & COMM BK-H

CHINA PETROLEU-H

5.86

-0.3401361

76362039

LI & FUNG LTD

CHINA RES ENTERP

23.95

1873671

MTR CORP

29.1

-0.6825939

2856255

0.9615385

6937076

NEW WORLD DEV

11.82

2.249135

16986911

CHINA RES LAND CHINA RES POWER

18.82

1.72973

16352027

PETROCHINA CO-H

9.21

-0.5399568

44795661

CHINA SHENHUA-H

23.1

-1.282051

15973710

PING AN INSURA-H

50.3

-1.275761

8696205

WHARF HLDG

MOVERS

3 21980

INDEX 21900.96 HIGH

21971.97

LOW

21517.2

52W (H) 23944.74 21500

(L) 18710.58984 23-July

25-July

14 14

July 26, 2013 April 19, 2013

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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

July April26, 19,2013 2013

Opinion Business

wires

China’s end of exuberance

Leading reports from Asia’s best business newspapers Michael Spence

Taipei Times Taiwan’s economy is to grow about 2.28 percent this year and 3.31 percent next year, the Chung-Hua Institution for Economic Research forecast on Wednesday. The Taipei-based institute’s forecast was 1.35 percentage points lower than the 3.63 percent expansion it forecast in April. “The pace of recovery of Taiwan’s economy has remained quite slow,” Wu Chung-shu, the institute president, told a press conference. The economy in the first half of this year is likely to have grown only 1.98 percent, with sentiment in the second half expected to recover gradually, it said.

Korea Herald The government plans to provide financial support to South Korean companies seeking to take over overseas firms in the plant design and engineering, embedded software and system-on-chip businesses. “The Industry Ministry is in discussion with K-Sure, the nation’s official export credit agency, to develop a plan to support partial loss incurred during the M&As,” said a ministry official. “The M&A fund support plan is aimed at acquiring overseas talent in high value-creating businesses that Korean companies haven’t developed yet in a short period of time.’’

Economic Times India’s government has upped the ante in its drive to restrict gold imports into the world’s biggest consumer, introducing regulations that stop just shy of imposing quotas as it tries to stifle demand ahead of a key buying season and narrow a yawning trade deficit. By tying gold imports directly to export volumes, India is effectively trying to cap how much bullion can be brought into the country, tightening supplies and driving up local prices. Twenty per cent of all gold imports must be used for overseas sales, the Reserve Bank of India said.

China Daily Reforms are in the works for initial public offerings on the Chinese mainland stock exchanges, after a nine-month suspension of new issues, but industry experts do not expect a fundamental improvement. Market participants believe the reform proposal is a signal that the IPO moratorium, which began in November, will soon end. There are at least 677 companies waiting for their chance to be listed. The draft reforms aim to address longstanding problems such as price manipulation and windowdressing of prospectuses.

Nobel laureate in economics and a Professor of Economics at New York University’s Stern School of Business

hina’s growth has slowed considerably since 2010, and it may slow even more – a prospect that is rattling investors and markets well beyond China’s borders. With many of the global economy’s traditional growth engines – like the United States – stuck in low gear, China’s performance has become increasingly important. But now growth rates for Chinese exports and related indices in manufacturing have fallen, largely owing to weak external demand, especially in Europe. And the Chinese authorities are now scaling back the other major driver of their country’s growth, public-sector investment, as low-return projects seem to generate aggregate demand but prove unsustainable fairly quickly. The government is using a variety of instruments, including financial-sector credit discipline, to rein in investment demand. Essentially, the government guarantee associated with financing publicsector investment is being withdrawn – as it should be. But, to circumvent the restrictions in the statedominated financial system, a shadow banking system has developed, raising new risks: economic distortions; reliance on excess leverage to drive growth in the consumer, real estate, corporate, and government sectors; and dangers associated with inadequate regulation. As a result, investors are worried that China could slip into the excess-leverage growth model that has served many developed economies so poorly. Much has been made of domestic consumption as a driver of Chinese growth in the future. But Justin Lin, a former World Bank chief economist, has argued forcefully that investment will and should remain a key growth driver, and that domestic consumption in China’s growth pattern should not be pushed beyond its natural limits into a highleverage model based on rising consumer debt. That seems right. The risk is that Lin’s warning will be interpreted as an argument for sticking with an investmentled model, which would imply more low-return public-sector projects and excess capacity in selected industries. The right target for generating growth is domestic aggregate demand based on the right mix of consumption and high-return investment.

Unclear future Analysts and investors have at least two related concerns. One is that, facing declining

growth, policymakers will resort to excess investment or leverage (or both), creating instability. The other is that they will resort to neither, and that no alternative growth engines will have been started, leading to an extended slowdown with unpredictable political consequences at home and serious economic consequences abroad. In short, many investors are nervous because China’s future growth story is unclear to them. It is certainly less clear than the previous story, which cannot be retold. There is no real way to allay these concerns quickly. Only time, implementation of the policy and systemic reforms to be revealed this fall, and actual economic performance will settle the matter one way or the other. The shift in the growth

pattern, if successful, will occur over several years. So, what one should be looking for is movement in the right directions, which are fairly clear. One is a shift in comparative advantage. Rising incomes require rising productivity. That means increasing capital and human capital intensity across both the tradable and non-tradable sectors of the economy. On the tradable side, one should look for structural change and a shift in output to higher-value-added components of global supply chains. Here, innovation and the conditions that support it – including competition and free entry and exit from the market – play an important role. If policymakers choose a model based on a large statedominated sector protected from internal and external competition, innovation objectives are unlikely to be met, adversely affecting future growth.

Good sign

With significant elements of the global economy and external demand facing headwinds, China’s acceptance (so far) of a growth slowdown, while its new growth engines kick in, is a good sign

Meanwhile, the nontradable side should grow. As China becomes richer, its middle-class citizens will not just buy more tradable goods like cars, electronics, and appliances; they will buy housing and a host of nontradable services, too. An efficient supply-side response to this large and growing source of demand requires regulatory reform in many services, including finance, product safety, transport, and logistics. But households still control too little income and save at very high rates. The control of income by the overlapping corporate and public sectors makes it easier to push the investment-led growth model to the point of low (or even negative) returns. So the entire fiscal system is a crucial item

on China’s reform agenda, especially management of public capital. Fiscal reform will determine many things: the components of domestic income and demand that will drive structural change on the supply side, the allocation of income and expenditure across levels of government, and the embedded incentives that this allocation implies. Outside of China, this part of the reform agenda is the least well understood. Moreover, social services and social security will need to be strengthened in order to reverse a pattern of rising inequality. Beyond that, more inclusive growth depends on the completion of the urbanisation process that underpins the creation of a modern economy; addressing corruption and unequal access to market opportunities; and aggressively mitigating well-known and serious environmental problems. With significant elements of the global economy and external demand facing headwinds, China’s acceptance (so far) of a growth slowdown, while its new growth engines kick in, is a good sign, in my view. It suggests that policymakers are playing for longer-run sustainable growth and have become warier of policies that, if used persistently, amount to a defective, unsustainable growth model. Watching for progress on these key elements of structural change and reform seems to be the right stance. If markets are confused or pessimistic about China’s longer-term agenda, but if the direction of structural change and reform is positive, there may be investment opportunities that were absent in the more exuberant recent past. © Project Syndicate

July 26, 2013

Closing HK increases buffer against cash crunch HSBC wins yuan investment licence Hong Kong’s central bank said it would offer overnight and one-day cash to banks involved in offshore yuan trade, in a move to safeguard against any cash tightness in the offshore market. The Hong Kong Monetary Authority said it stood ready to offer up to 10 billion yuan, in total on a single day, using its own sources of yuan funds, to meet banks’ emergency liquidity needs. Last month, the offshore market caught the backwash from a cash crunch in mainland China markets, where short term rates briefly spiked as high as 30 percent.

HSBC Holdings Plc has received approval from mainland Chinese regulators to invest yuan onshore, the latest step in the opening up of China’s financial markets to overseas funds. The bank’s asset management arm said yesterday that it had obtained a licence under China’s renminbi qualified institutional investor (RQFII) scheme, which will enable it to put yuan into the country’s equity and bond markets. Earlier this month, Chinese authorities took further steps to widen the existing channels for international investment. A number of foreign banks and asset managers are awaiting approval.

Asians sticking with gold funds Demand strong in Hong Kong, Macau and India, analyst says

But physical gold is still a favourite in Macau. A gold rush in April depleted supplies in the city as retail customers, mostly from mainland China, took advantage of the biggest decline in wholesale gold prices in thirty years.

Shiny luxury

Physical metal rules but paper gold catching up in Asia

sian investors are keeping faith in gold funds, taking in their stride a stunning plunge in the price of the metal over the past few months, as paper gold looks to be finding a stronger foothold in the region. In sharp contrast to Western markets, where investors made a beeline to exit gold fund investments, a net US$33.5 million was pumped into Asian gold and precious metals miners’ funds in the three months to June, according to data from fund tracker Lipper and Reuters calculations. Similar funds in the West saw net outflows of about US$18 billion, or about 11 percent of their end-

March assets under management, in the same period, according to the Lipper data. The conflicting responses to the 20 percent fall in gold prices this year show a growing appetite for gold funds in Asia and provide hope for a fledgling funds industry that has struggled to attract investors. It also shows the limited presence of speculators and hedge funds, who dominate the Western market for gold funds. “It’s more about the mentality,” said William Chow, managing director of Value Partners Group’s exchange-traded fund (ETF) business. “Asian risk appetite for gold is more stable than that of

U.S. investors.” The firm runs the biggest Hong Kong-domiciled gold ETF which held gold worth about US$100 million at end-June. Asia’s demand for physical bullion is unparalleled, from buying jewellery for weddings to storing coins under the bed. But Siyi Lim, an ETF analyst at OCBC Investment Research in Singapore, says individual investors are becoming more aware of the different gold products in the market. “Increasingly, we see investors turning to ETFs as a way to gain immediate access to entry and exit,” said Mr Lim. “Demand is particularly strong in Hong Kong, Macau and India.”

Gold – coming off 12 years of gains – is headed for its worst annual performance since 1997 on worries global central banks will withdraw their easy-money policies of the past few years, making the metal less compelling for investors. The precious metal fell sharply in April, down over US$200 an ounce in two days, and then again in June when it fell 15 percent over nine sessions. India’s SBI Gold Exchange Traded Scheme and Japan’s Nomura Gold Futures Fund were among funds that saw inflows last quarter, data from Lipper, a Thomson Reuters company, showed. “Gold is not just considered an investment tool in Asia, it is also seen as a luxury. So when the price drops, people tend to accumulate more,” said Tanawat Roongtanapirom, a fund manager at Kasikorn Asset Management, which runs the US$591 million K Gold, Asia’s biggest gold fund. Despite the inflows, Asia remains a far smaller market for gold funds compared to the United States, where top hedge fund managers such as John Paulson of Paulson & Co. Inc, David Einhorn of Greenlight Capital Management and Dan Loeb of Third Point LLC have significant exposure to the metal. Gold-backed ETFs are a relatively new concept in Asia. China, the second-biggest gold buyer, only recently approved the launch of its first two gold ETFs. The funds raised a total of 1.6 billion yuan (US$261 million) in their initial funding round, which was below expectations. T.A. with Reuters

Moody’s puts Philippine ratings on review for upgrade

oody’s Investors Service placed its rating on the Philippines on review for an upgrade yesterday, raising the possibility the country could soon win its third investment grade rating. “The Philippines’ economic performance has exceeded Moody’s expectations, supporting the view that the economy will grow significantly faster than similarly rated peers over at least the next two to three years,” Moody’s said in a statement.

The agency also said that while the Philippines has achieved one of Asia’s highest growth rates in the past year, “there have been no strong signs of overheating or a build-up in macroeconomic imbalances”. This year, the Philippines has won investment-grade ratings from two agencies. Fitch Ratings delivered the first, in March, and that was followed five weeks later by Standard & Poor’s. Moody’s currently rates the Philippines Ba1, and a one notch

upgrade would bring it to Baa3. Philippine officials welcomed Moody’s decision, describing it as vote of confidence in the Southeast Asian economy and a boost to the country’s efforts to attract investors. “The status of review for upgrade should be seen as a recognition of the positive changes in the Philippine economy brought on by the Aquino administration’s commitment to good governance,” Finance Secretary Cesar Purisima told reporters.

Central bank Deputy Governor Diwa Guinigundo said: “It is a belated recognition of the Philippines’ strong efforts at self transformation.” The Philippines eclipsed China as the fastest growing nation in Asia after it posted a surprisingly strong annual growth of 7.8 percent in the first quarter. Economists believe the country can sustain its strong momentum on the back of solid domestic consumption and higher government spending. Reuters