Macau Business Daily, July 25, 2012 by Business Daily

I SSN 2226-8294

City ‘not ready’ for democracy: Chan

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Row stalls firecracker factory’s ‘big bang’ plan

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Green shoots of trade for Cape Verde Page 6

Profiteering, rows, as typhoon STRIKES T

he city showed a darker side to its high-octane economy during Typhoon Vicente on Monday and early yesterday. No people were reported seriously hurt during the No 9 Signal storm – the worst since 1999. But there were multiple reports of taxi drivers profiteering from the emergency – in one case asking 1,000 patacas for a trip from the airport to downtown Macau that should normally cost around 100 patacas. And TDM’s Chinese-language radio service said police were called to Sands Cotai Central after around 100 canteen staff refused to leave yesterday morning. They claimed after reporting for work at 11pm on Monday – when the No 8 Signal was already raised – they were asked to end their shift at 5am yesterday – before the No 8 Signal was down. The report said the workers “suspected the company of trying to get away from

paying a high rate of compensation when employees work over 16 hours”. Sands China said it was a “misunderstanding” and the workers went home after the Labour Affairs Bureau attended. “In accordance with the company’s own typhoon guidelines and policies, a rest area (with beds, blankets and meals) was provided for the concerned team members to use at the end of their overtime, while waiting for the lowering of the T8 Signal prior to returning home,” Sands said in a statement. “Complimentary shuttle bus transportation was also provided in consideration of the weather conditions at the time,” it added. “Sands China strictly adheres to all Macau labour laws, including those involving overtime and working during typhoons, and places the highest priority on [the] safety of its team members,” said the company. More on pages 2 & 3

HANG SENG INDEX 19080

19030

18980

18930

18880

July 24

HSI - Movers

Economy slows home rent prices

Name

Home rental costs in the second half of 2012 are likely to rise at half the rate seen in the first six months says a real estate executive. Jeff Wong Chi Wai, head of residential at Jones Lang LaSalle Macau expects costs to increase by five percent in the close of the year, compared to about 10 percent in the first half of the year. Page 5

%Day

SANDS CHINA LTD

1.778

CHINA MOBILE

0.873

HONG KG CHINA GS

0.572

TINGYI HLDG CO

0.525

BANK OF CHINA-H

0.356

HSBC HLDGS PLC

-1.664

SINO LAND CO

-2.171

HENGAN INTL

-2.694

CHINA RES ENTERP

-3.006

CNOOC LTD

-4.016

Source: Bloomberg

Worker says tunnel collapse firm lying A worker on the Hengqin tunnel project that suffered a collapse last Thursday has accused the main contractor of lying when it said no one was injured. The person spoke – under condition of anonymity – to TDM News. The tunnel contractor – a company from the mainland – is due to deliver a report on the incident by the end of the month, the Infrastructure Development Office said yesterday.

2012-7-25

2012-7-26

2012-7-27

24˚ 28˚

26˚ 30˚

News where it matters

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www.macaubusinessdaily.com

Year I - Number 83 Wednesday July 25, 2012 Editor-in-chief: Tiago Azevedo Deputy editor-in-chief: José I. Duarte MOP 6.00

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business daily July 25, 2012

macau

Typhoon Vicente conquers gamblers’ desires Strongest storm since 1999 portends lowest revenue growth of 2012 this month

Photo of NCDC

Associate Editor

Typhoon Vicente shaved millions from Macau’s casino earnings

he disruption to tourism caused by Typhoon Vicente will contribute to July recording probably the lowest year-on-year growth of 2012 for gross gaming revenue – at around 2 percent. J.P. Morgan estimates the No 9 category storm – the strongest recorded since 1999 before the handover from Portuguese administration – cost Macau approximately 535 million patacas

(US$66.9 million) in lost gambling revenue on Monday alone. In July 2011, monthly revenue was 24.212 billion patacas according to the Gaming Inspection and Coordination Bureau. That means by the bank’s estimate this July’s storm-adjusted GGR of 24.7 billion patacas is likely to show only 2.01 percent year-on-year expansion. Ben Lee of IGamiX Management & Consulting put his storm-adjusted GGR figure for July slightly lower

Wish you weren’t here:

than J.P. Morgan’s. “If we adjust for the impact of the typhoon that hit Macau on Monday, we expect July to finish at around MOP24.5 billion,” he stated in a note to clients. Even without the typhoon, Macau would in likelihood have recorded the lowest year-on-year rise in GGR of 2012. But if the losses of Monday and the knock on effect of a slowing in revenue for the final eight days of July – predicted by J.P. Morgan –

were taken out of the equation, then Macau could have generated 25.275 billion patacas this month. That’s a growth rate 4.4 percent year-onyear and much nearer the previous year-on-year low of 7.3 percent achieved in May.

Storm adjusted Kenneth Fong of J.P. Morgan said in a note to investors yesterday: “The daily [revenue] run rate for the past

Postcards-style images of typhoon Vicente in Macau

July 25, 2012 business daily | 3

MACAU

Taxis profiteering Even when Chinese visitors were able to cross into Macau before midnight on Monday by the more sheltered land border with Zhuhai, they faced a battle to get to casinos because of taxi drivers profiteering from the weather. One customer was charged 1,000 patacas by a taxi driver to get from the Gongbei border post to Cotai according to Chinese-language Macao Daily News. Another traveller told Business Daily of being charged 300 patacas to travel from Areia Preta on Macau peninsula to Taipa. That’s a 400 percent premium on the normal 60 patacas fare. Even when tourists get a warmer welcome it’s a measure of the relative weakening of the Macau gaming market that unusual events such as typhoons have as much impact

Storm strikes city with force 9 Strong winds from Typhoon Vicente put city on high alert; Hong Kong hoists signal number 10

yphoon Vicente did not make it past signal No 9 when it blew through in the early hours yesterday, unlike Hong Kong where the highest warning level, typhoon signal No 10, was hoisted. Between 2.15 am and 5 am yesterday, typhoon signal No 9 was hoisted for the first time since before the handover. In 1999, a typhoon classed as a signal No 10 created record wind gusts of 181 kilometres per hour. Meteorological and Geophysical Bureau director Fong Soi Kun told Business Daily each city defined the most dangerous typhoons differently. In Macau, one criteria for a signal No 10 storm is that its eye must pass over the city. Typhoon Vicente came as close as 40 kilometres to the south of Macau, Mr Fong said. Still, that was a closer call than had been expected. Hong Kong defines the most dangerous storms as having sustained wind speeds above 118

as they currently do on monthly revenue and year-on-year growth rates. Las Vegas Sands Corp. is due to report its second quarter earnings on Thursday Macau time against this slightly downbeat mood. Cameron McKnight of Wells Fargo in New York said in a note that Sands Cotai Central, the latest Macau property from LVS, had “clearly underperformed” in the mass market and VIP since it opened on April 11. “We estimate its mass tables are only 60 percent utilised, which prompts us to question whether the opening of Phase II will see earnings inflect as positively as the Street currently estimates,” said the note. “We expect US$42 million of EBITDA in Q2. This compares to current Street estimates that still incorporate a meaningful ramp-up; with roughly US$100 million of EBITDA in Q4 2012 and US$170 million of quarterly EBITDA in 2013,” it added.

Photo by Manuel Cardoso

week picked up, to MOP835 million (versus MOP778 million in June, and MOP790 million for the first 15 days of July). For the rest of the month, if we assume a MOP300 million revenue for yesterday (given typhoon in Macau) and MOP830 million for the rest of the eight days, July should finish at around MOP24.7 billion.” The latter point – about a likely drop off in daily run rates for the final days of July, is a reference in part to the likely effects of the aftermath of the storm. Incoming flight and ferry schedules were further disrupted yesterday and continuing heavy rains – with the No 3 storm signal remaining in place for most of daylight hours – made travel by bus or by taxi slow and uncomfortable for locals and for mass-market tourists. Many shops were also either closed or involved in clean up operations – some of them because of water leakage or minor structural damage. The city’s Meteorological and Geophysics Bureau raised the No 8 storm signal at 7 pm on Monday, meaning all ferry transport into and out of Macau and all land-based public transport (excluding taxis) was halted. That will have had a major impact on Monday evening visitor numbers. Ferry passengers from the mainland and Hong Kong accounted for just under 40 percent of all tourist arrivals in 2011 according to the Statistics and Census Service. The No 8 signal was followed at 2.15 am yesterday by the No 9 signal. That was lowered back to No 8 at 5 am and then to No 3 at 9.30 am, meaning no incoming transport to Macau is likely to have arrived until 10.30 am at the earliest.

kilometres per hour and gusts above 220 kilometres per hour. “Wind intensity in Macau did not reach that threshold,” Mr Fong said. Vicente’s ferocity in Macau reached sustained winds of 119.8 kilometres per hour with gusts up to 151 kilometres per hour. Hong Kong’s weather observatory said the storm’s maximum

sustained wind speed reached 125 kilometres an hour, with some gusts recorded at up to 160 kilometres an hour. “The wind in usually more intense in Hong Kong” because it has higher ground than Macau, Mr Fong said. Hong Kong classified the storm as a “severe typhoon”, the second worst rank behind “super typhoon”. V.Q.

Tempest injures 16

total of 16 people were slightly injured in the aftermath of Typhoon Vicente. Macau’s civil defence service registered 254 storm-related incidents reported by the public. They included 103 windows, advertising signs and other structures blown away in the strong winds. Several storeys in two buildings in Taipa’s Flower City were evacuated because authorities feared a crane located on a nearby construction site might topple over. Floodwaters reached a height of 0.9 metres above street level at the Inner Harbour and 16 people went to the government shelter. About 1,800 people were affected by the cancel- Passengers affected lation of 32 flights, Macau by the cancellation International Airport director António Barros of 32 flights told Business Daily. Three other flights were diverted to Xiamen and over 100 people spend the night at the airport. According to the local broadcaster TDM, over 100 ferry passengers were stranded in Macau and had to wait until the No 8 warning signal was lowered to No 3 at 9.30 am yesterday morning to get a ferry to Hong Kong at the Outer Harbour Ferry Terminal.

1,800

V.Q.

4 |

business daily July 25, 2012

macau Brought to you by

HOSPITALITY Stuck on the pad The Outer Harbour’s heliport is the least used point of transit for visitors to the city. That is not surprising, since it is the most expensive way to travel to Macau and it caters to an elite segment of visitors. While arrivals through the heliport might be expected to be small, it seems to be losing customers rapidly – particularly those departing the city.

Govt open to more democratic polls The government prepared to consider more democratic feel for next round of elections Tony Lai

tony.lai@macaubusinessdaily.com

Outer Harbour Heliport Departures (Jan-May) 4000 3500 3000 2500 2000 1500 1000 500 0

2010

2011

Secretary for Administration and Justice Florinda Chan (centre) says Macau does not yet qualify for a more democratic political system

2012

There were just 445 people who left Macau from the heliport in the five first months of the year. That is the equivalent of three a day – hardly the sort of volume that is the cornerstone of a profitable business. Compared with the same period in the past two years, there has been a sustained decline in passenger numbers. They dropped by almost one-third between 2010 and last year, and there was a further 80-percent decline from last year to this year. The number of people using the heliport is about 12 percent of what it was two years ago. There has also been a significant decrease in the heliport’s biggest users, travellers from the mainland and Hong Kong. The top five users, by their country of origin, represent more than 90 percent of all trips in the past three years. The graph shows that passenger numbers have declined substantially across other source markets too. Heliport usage by the smallest source markets, which is not represented here, follows a similar pattern but their numbers are much lower and less meaningful.

he government will consider one-person, onevote elections to choose legislators to represent the functional constituencies and select members of the committee that elects the chief executive, according to the chairman of the Legislative Assembly’s second standing committee, Chan Chak Mo. But Secretary for Administration and Justice Florinda Chan said Macau “does not fulfil the criteria” for one-person, one-vote elections for the Legislative Assembly next year and the chief executive election in 2014. She did not say what the criteria were. Mr Chan’s committee has been discussing two political reform bills. He told reporters yesterday that the two new indirectly-elected seats that the bills would give the assembly

2010

2011

2012

Total

3552

2380

445

China

1116

922

159

Hong Kong

1915

1129

213

Japan

Korea

U.S.

Top 5

3245

2171

402

% Top 5

0.913 0.912 0.903 Source: DSEC

J.I.D.

“unfair situations”. Election spending cannot exceed 0.02 percent of the government’s budget that year or about 20 million patacas (US$2.5 million) in today’s terms. Government representatives told the committee the chief executive had executive power to set a lower ceiling. Also from yesterday’s meeting, the government said it would work to reduce the number of invalid ballots by improving communication between the assembly election committee and polling stations. There were a record 6,500 invalid votes in the last assembly election, which officials blamed on “different guidelines the polling stations and the election committee followed”, Mr Chan said. The committee continues its discussion of the reform bills next Tuesday.

AL committee still pondering debate rules

Heliport - Departures, Top 5 countries of origin

are to be allocated to representatives from the professional sector, service groups and education. The allocation would not be changed. Mr Chan said this reflected “the mainstream opinion” gathered by public consultations. It has also been endorsed by Ms Chan. If the bills are passed, they would add two directly elected seats and two indirectly-elected seats to the assembly, bringing the total number to 33. The proposed laws would also increase from 300 to 400 members the committee that elects the chief executive. In yesterday’s committee discussions, members sought to improve next year’s assembly elections with feedback from elections in 2009. Mr Chan said some legislators were worried candidates’ spending was too high and might cause

he Legislative Assembly’s committee on rules and statues has stepped back – for now – from a proposal requiring five legislators to support a new motion instead of the current two. Political blocs with only a handful of members in the chamber say it will discriminate against them. A raft of procedural reforms is planned, with over 20 changes including the ‘two to five’ rule. “There are too many [procedural] changes to be discussed, which means we cannot pass the final proposal to the whole assembly for review before the end of the current session,” said the committee chairman, Fong Chi Keong. He was speaking to reporters

yesterday after the tenth closeddoor meeting on the issue. The assembly originally planned to complete the revision before its summer recess begins on September 1. Mr Fong said the president of the assembly, Lau Cheok Va, instructed the committee “not to rush through the proposal”. A few legislators, mostly from the pan-democrat New Macau Association, strongly oppose raising the bar on calling for public hearings. Other members, like Lee Chong Cheng, have also asked for more time to discuss the proposal. Mr Fong said the committee did not discuss the hearing proposal yesterday, but other topics were

up for debate. The discussion included the possibility of changing the dates for the summer recess to allow legislators to spend more time with their families. At present, the legislative session goes from midOctober to mid-August. Mr Fong said some of these revisions are to prepare the legislature for the increase in the number of members after the election next year. The number of seats will rise from 29 to 33. The committee is also proposing to increase the number of legislators required to call for a plenary meeting from nine to 11, as well as adding more members to each of the assembly’s committees, stated Mr Fong. T.L.

July 25, 2012 business daily | 5

MACAU

Renters can expect mild increases in H2 Subdued economic growth is expected to put the brakes on the rapid rise in residential and commercial rents Xi Chen

xi@macaubusinessdaily.com

Slower economic growth is expected to exert downward pressure on rents in the next six months

ents will rise more slowly in the second half of this year as economic growth slows, according to Jeff Wong Chi Wai, the head of residential property at estate agency Jones Lang LaSalle Macau. Mr Wong told Business Daily he expects rents for housing to increase by 5 percent in the next six months, having risen by about 10 percent in the first half. “There is limited new supply on the market and there will be more non-resident workers coming

in, which will support rents continuing to go up,” he said. Mr Wong also expects slower growth in shop rents. “The rents in touristy areas have already gone up a lot in the first half. In the second half we should see only a slight increase,” he said. Earlier this month, Secretary for Economy and Finance Francis Tam Pak Yuen forecast single-digit economic growth because of a shaky international outlook. The annual rate of economic growth

in the mainland, Macau’s main source of tourists, slowed to 7.6 percent in the second quarter – the slowest in three years. Growth in gaming revenue here has also tapered off in recent months and is not expected to be spectacular this month, either. To counter the slowdown, Beijing has loosened monetary policy. But the president of the Macau General Association of Real Estate, Lok Wai Dak, told the Chineselanguage Macao Daily News the

effects would probably be felt here only in the fourth quarter. While slower economic growth would exert downward pressure on rents for now, big construction projects would lead to more demand for housing in the next few years, Mr Wong warned. “The Macau Light Rapid Trans system, the Hong Kong-ZhuhaiMacau Bridge and the hotel projects in Cotai mean that there will be more professionals coming to Macau to work, which will increase demand for property,” said Mr Wong .

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business daily July 25, 2012

macau Firecracker factory restoration on hold Photo by Manuel Cardoso

Brought to you by

Separated twins There is a lengthy and ongoing argument about the influence that prices in the mainland have on prices here. Some argue that inflation in the mainland drives inflation in Macau because much of what is consumed here is imported from the mainland. This reasoning is most frequently applied to the cost of food. How strong the relationship is and how it is exerted is examined here. So much of our food is imported from the mainland that it is reasonable to expect prices there to have some effect on prices here. Changes in Macau’s food price index should be explained by changes in the mainland’s food price index. If that that is the case, the relationship between both indexes should be stable.

Food inflation %, homologous rates 15

It is hard to draw that relationship from this graph. At the beginning of 2010, the food price indexes shadow each other closely. This does not necessarily mean that one explains the other but it suggests a strong correlation. From there onwards, the correlation is less apparent. Mainland food price inflation accelerates until about the middle of last year and the difference in food price inflation increases substantially. In the middle of last year, mainland food price inflation slows and inflation here continues to accelerate. Into this year, inflation here has stabilised and further decelerated in the mainland. There is clearly no strong connection between the two indexes. Other factors appear to be at work here and the relationship is less straightforward then might be supposed. J.I.D.

Taipa’s run-down Iec Long firecracker factory is the best-preserved relic of a once-dominant industry

ive years after it was first announced, the restoration of the Iec Long firecracker factory in Old Taipa Village for public use is stalled because it is still unclear who owns the land it sits on, the government says. In a reply to an inquiry by Legislative Assembly member Mak Soi Kun, Cultural Affairs Bureau head Guilherme Ung Vai Meng said his office was in constant contact with the owner of the factory buildings.

Mr Ung said discussions had allowed the government to begin work on smaller parts of the project, including the restoration of “a badly run-down” building. He said the “the complexity and sensitivity of the ownerships rights issue” had prevented the plan from progressing further. The Land, Public Works and Transport Bureau said in February last year that the land was divided into plots that remained in

private hands or had reverted to the government. Mr Ung said that once ownership was settled the government would begin restoration work in earnest. The plan includes a teahouse, two art galleries and a small auditorium on the site. The manufacturing of firecrackers was once the city’s dominant industry but it fell into decline and had completely disappeared by 1990. V.Q.

Cape Verde wants closer cooperation Macau is the Portuguese-speaking world’s gateway to China, and Cape Verde wants to talk business Xi Chen

xi@macaubusinessdaily.com

ape Verde and Macau are seeking a closer relationship so the Atlantic island state can take advantage of Macau’s position as conduit for business between the mainland and Portuguese-speaking countries. The prime minister of Cape Verde, José Maria Pereira Neves, on his first visit to Macau after eight years in power, said the two countries should expand cooperation to vocational training for the leisure

travel industry, and training and exchanges in the fields of science and technology, healthcare and public administration. The prime minister and his party had meetings on Monday with senior officials, including Chief Executive Fernando Chui Sai On. Mr Chui said Cape Verde and Macau could grow together through mutual support and co-promotion of their tourism resources. He said the government would continue to arrange business visits to Cape Verde to look for opportunities there. Macau was the last stop on Mr

Neves’s official visit to China. Mr Neves told the Portuguese news agency Lusa the visit had “exceeded all expectations”. His government had sought US$500 million (4 billion patacas) from the mainland it needs to build infrastructure. He secured a financial aid package of US$21 million, comprising a grant of US$8.5 million and an interestfree loan of US$12.5 million. The money would used for “higher education, professional training, construction of some cultural facilities and in the administration”. He is hopeful of more money in future.

Weather Beijing 29/24o C Changchun 29/20o C

Harbin 31/20o C

Xian 34/23o C Shanghai 34/27o C Chengdu 30/23o C Kunming 22/17o C Haikou 28/24o C Sanya 32/27o C

Guangzhou 28/25o C

MACAU (23 July-28 July) Day

Temperature

Humidity

07/23

26/30o C

70/95 %

07/24

24/28o C

75/95 %

07/25

24/28o C

75/95 %

07/26

26/30o C

70/95 %

07/27

26/30o C

70/95%

07/28

27/32o C

65/95 %

Shenzhen 31/25o C

ASIA (today)

Hong Kong 29/26o C

Manila

TOKYO

Jakarta

30/25o C

33/24o C

31/23o C

32/23o C

Macau 30/26o C

Bangkok

SEOUL

K. lumpur

34/26o C

SINGAPORE

33/24o C

taipei

35/27o C

July 25, 2012 business daily | 7

MACAU Report on Hengqin tunnel collapse ready this month Builder of tunnel to Hengqin Island says the cave-in hurt nobody, a claim disputed by at least one worker Vítor Quintã

vitorquinta@macaubusinessdaily.com

he contractor building the tunnel to the new University of Macau campus on Hengqin Island will deliver this month a report on a cave-in at the construction site, according to the Infrastructure Development Office. The office said yesterday that the contractor held several meetings with experts at the weekend to find the causes and look for a solution to Thursday’s cave-in. It said work on the tunnel remained suspended. The project designer and construction supervisor had checked the rest of the tunnel “in detail”, it said. The contractor had begun stabilisation work on both sides of the collapsed pavement at the Hengqin exit from the tunnel. The contractor, a mainland Chinese company, said the cave in was a temporary work area and not an essential part of the tunnel. The company has improved drainage around the site because the typhoon season has begun. On Monday, the authorities hoisted signal No 9 for the first time in 13 years as Typhoon Vicente swept across Macau and Hong Kong. The Infrastructure Development Office did not say whether the collapse would delay the opening of the tunnel and so delay the university’s move to its new campus. And it said nothing about the implications of the collapse for the project’s 2 billion pataca

Whether anybody was injured by Thursday’s collapse depends on who you ask

(US$250 million) budget. Chief Executive Fernando Chui Sai On said on Monday that a preliminary report had indicated that none of the five people working in the vicinity at the time of the collapse had been injured. But an unidentified worker told TDM News that at least 30 workers had been on site and that some of them had been injured. The worker blamed negligence on the part of the on the contractor. He said construction crews were

Pachinko operator readies for listing Trading expected to start on August 6

achinko operator Dynam Japan Holdings Co Ltd yesterday released its prospectus ahead of a planned August listing on the Hong Kong Stock Exchange. Pachinko parlours operate at the fringes of legality in Japan, due to a blanket ban on gambling for cash. They have been unable to list in Tokyo and nervous Hong Kong regulators have, up until now, been hesitant to give the listing a green light. The listing committee gave Dynam regulatory clearance earlier this month and trading

in their initial public offering of at least 112 million shares is expected to start on August 6, with a maximum offer price of HK$16 (US$2.06) per share. Dynam intends to attract investors by pledging to pay out between 45 and 50 percent of next year’s net profit as a dividend, as well as pricing its shares at a significant discount to Macau gambling stocks, which yesterday closed between HK$10.8 and HK$27.40. The company hopes to raise HK$1.8 billion through listing. The offer price will be confirmed on August 3. D.R.

working around the clock to meet the deadline to complete the tunnel and that “safety measures weren’t properly taken”. The worker said about 12 people had left the site because they were worried about safety.

The deputy coordinator of the Infrastructure Development Office, Chau Vai Man, said in May that work on the tunnel should be finished by next month. The new university campus is meant to be ready this year.

8 |

business daily July 25, 2012

Greater china

Manufacturing and export sectors have been key drivers of China’s economic growth

China manufacturing ‘picking up’ But HSBC PMI remained below 50 for nine straight months Nick Edwards

hina’s flash factory purchasing managers index rose in July to its highest level since February, boosted by a pick up in output and signs of improvement in new export orders that offered relief to struggling financial markets. HSBC’s Flash China manufacturing purchasing managers index (PMI) rose to 49.5 in July from 48.2 in June, rising close to the 50 level that divides expansion from contraction. The increase was driven by a jump in the output sub-index to 51.2 – the best showing since October 2011. The new orders sub-index recovered

to a three-month high while new export orders gave their best showing since May, although both remained below 50 to suggest demand was still weak. An employment sub-index fell to its lowest level since March 2009. The flash PMI is the first significant Chinese data point in the third quarter of the year and signals that a sequential improvement in the economy in the second quarter may be broadening as pro-growth government policies aimed at countering the global downturn gain traction. Still, the HSBC PMI has been below 50 for nine straight months,

showing a need for those policies to remain in place. “This calls for more easing efforts to support growth and jobs,” Qu Hongbin, chief China economist with index sponsor, HSBC, said in a statement accompanying the survey. “We believe the fast falling inflation allows Beijing to do so and a more meaningful improvement of growth is expected in the coming months when these measures fully filter through.” China’s economic growth has slowed steadily since 2010 as the intensifying euro area debt crisis has weighed on the global economy. The PMI, compiled by U.K.

data provider Markit, showed broad improvement across the manufacturing sector with five sub-indexes showing their rate of decline slowing and five showing a change of direction. The output price sub-index broke above 50 for the first time in five months, a sign that final demand may be lifting factory gate prices, which have been in deflation for four months. The flash PMI is based on 8590 percent of total PMI survey responses, set to be published in full around a week later. The flash PMI steadied the euro

Cnooc drops on Nexen deal Stocks tumble on concern it will overpay for Canadian company James Paton and Rajesh Kumar Singh

nooc Ltd fell the most in two months in Hong Kong trading on concern China’s largest offshore oil and natural-gas explorer is overpaying in the US$15.1 billion acquisition of Nexen Inc. The transaction, including US$2.8 billion of net debt, is 20 percent more than the US$14.9 billion value of Nexen’s assets, based on the Calgary-based company’s proven and probable reserves, said Laban Yu, an analyst at Jefferies Hong Kong Ltd. Cnooc is paying a premium to boost China’s energy security and

avoid repeating its failed US$19 billion bid for California-based Unocal Corp. in 2005, he said. “The 61 percent premium is huge, it’s totally unreasonable,” said Mr Yu, who cut his rating on Cnooc shares to underperform from hold after the deal was announced on Monday. “It secures energy for the country, so it’s a good deal for China, but Cnooc’s shareholders have been taken for a ride.” Cnooc shares dropped as much as 4.5 percent to HK$14.74 before closing 4 percent lower

at HK$14.82. The benchmark Hang Seng Index closed down 0.8 percent at 18,903.2, the lowest close since June 25. The agreement to buy Nexen follows the Chinese company’s takeover of Nexen’s partner, Opti Canada Inc., last year and the bid for Unocal seven years ago, which was blocked amid political opposition in the U.S. Cnooc agreed to pay US$27.50 a share for Nexen, compared with its closing price of US$17.06 on July 20, the company said in a statement. The deal is the biggest overseas

Nexen produced 207,000 barrels a day in the second quarter

takeover by a Chinese company. That premium is “rich,” according to Thomas Wong, a Hong Kong-based analyst at Bank of America Corp.

‘Benefit of doubt’ Nexen has had setbacks at its Long Lake, Alberta, oil sands and North Sea operations, which held back earnings

July 25, 2012 business daily | 9

greater china and gave Asian shares a modest lift, although equity markets were largely lower on concern Spain is edging closer to needing a financial bailout. “The data gave a slight boost to markets, but whether such effects are sustainable are doubtful as Europe struggles with its problems,” said Hiroyuki Kikukawa, general manager at trading company Nihon Unicom. Three-month copper rose almost 1 percent and the Australian dollar erased early losses, largely in relief that the PMI suggested economic conditions in China were not worsening.

Jobs crucial Despite an overall upbeat reaction to China’s flash PMI, the report’s employment sub-index provided a potential alarm bell. It deteriorated from June, sinking further below 50 and to a 40-month low. While still just above the readings at the depths of the global financial crisis, when some 20 million Chinese jobs were axed in a few months in late 2008 as global trade ground to a halt, the fall in the employment index is a reminder of the risks in an area to which China’s government is most sensitive. Analysts broadly believe a headline PMI of 48 is consistent with manufacturing output strong enough to deliver the jobs growth that China’s government needs to absorb millions of new graduates and rural migrant workers each year. The 2008 job losses triggered the 4 trillion yuan (US$635 billion) stimulus programme from Beijing, analysts say. The government has studiously avoided delivering a carbon copy in

KEY POINTS PMI higher, but still suggests factory sector shrinking Output rising, slowdown in orders less intense Drop in employment index to 3-year low possible alarm bell Markets lifted by data, relief conditions not worsening

growth. Offshore crude output at the Usan project in Nigeria is growing slower than the company expected, the company said earlier this month. “Nexen has always been discounted by investors for its operating issues,” Mr Wong of Bank of America’s Merrill Lynch unit wrote in a report yesterdya. “We see Cnooc’s acquisition price as having assigned full benefit of doubt to the operational issues at Nexen.” Nexen’s oil and gas assets include production platforms in the North Sea, the Gulf of Mexico and in Nigeria, as well as oil-sands reserves at Long Lake where it already produces crude in a joint venture with Cnooc. Those assets produced 207,000 barrels a day in the second quarter, which would boost the Chinese company’s output by about 20 percent. About 28 percent of Nexen’s current production is in Canada. “While it seems unlikely that the synergies or sources of value can fully justify the premium being paid for Nexen by Cnooc, the potential downside seems limited also given the total size of the purchase premium

This suggests the effect of policy easing is being transmitted to the economy and reinforces our view that growth has bottomed in Q2 at 7.6 percent and will rebound in Q3 to 8.1 percent

Baidu considering acquisitions to expand Posted a 70 percent rise in second-quarter profit Mark Lee

Zhang Zhiwei, Nomura’s chief China economist

response to this slowdown, in large part because it is still cleaning up the consequences of the last programme. It has been “fine tuning” policies instead, fast-tracking fiscal spending on key projects, cutting the amount of cash banks must keep as reserves to free an estimated 1.2 trillion yuan for lending (US$190 billion) and, in the space of four weeks in June and July, twice lowering benchmark lending rates. Despite six straight quarters of slowing growth to just 7.6 percent in the second quarter versus a year earlier – only just above Beijing’s official 7.5 percent target – there are more job vacancies in China than there have been for around a decade. For Nomura’s chief China economist, Zhang Zhiwei, the PMI provided further evidence that a slowdown in China’s economy bottomed out in the second quarter of 2012. “This suggests the effect of policy easing is being transmitted to the economy and reinforces our view that growth has bottomed in Q2 at 7.6 percent and will rebound in Q3 to 8.1 percent,” Hong Kong-based Mr Zhang told Reuters. “We continue to expect policy easing to pick up, with two cuts to the reserve requirement ratio for the rest of 2012. The next cut could happen any time from now. We do not expect further interest rate cut for 2012,” Mr Zhang said. Reuters

15.50

15.25

15.00

14.75

relative to Cnooc’s market cap,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., wrote in a report yesterday. China, seeking to add oil and gas reserves to meet demand in the world’s largest energy-consuming country, sees Canada as a ready supplier as it prepares to expand its pipeline network to the Pacific coast for exports to Asia. Bloomberg

Making acquisitions gives Baidu ‘competitive advantages,’ says chief executive Robin Li

aidu Inc., owner of China’s most-used search-engine, will consider making acquisitions as the company aims to offer new services to users at a faster pace, chief executive Robin Li said. “In most cases, I would say I prefer buy to build,” Mr Li said in a conference call with analysts yesterday after Baidu reported earnings. The Beijing-based company will consider both acquisitions and in-house development to offer a wider range of services, he said, without giving details of potential targets. Baidu is expanding in display advertising to win sales from clients including Procter & Gamble Co, and aims to add mobile users as more Chinese access the Web on smartphones. Second-quarter profit rose 70 percent, beating analysts’ estimates, as more small businesses in China bought keywords on Baidu’s search-engine after the company stepped up marketing. “The company is looking for the next growth driver,” said Dundas Deng, an analyst at Guotai Junan Securities in Shenzhen who rates Baidu buy. Baidu may purchase companies that offer technologies for mobile users, Mr Deng said. Baidu’s American depositary receipts surged as much as 9.5 percent in extended trading after the earnings announcement. The stock earlier fell 2.8 percent to US$107.10 in Nasdaq Stock Market trading. Second-quarter net income climbed to 2.77 billion yuan (US$434 million), or 7.86 yuan per American depositary receipt, compared with 1.63 billion yuan, or 4.67 yuan, a year earlier, Baidu reported on Monday. That exceeded the

2.5 billion-yuan average of 10 analysts’ estimates compiled by Bloomberg. Revenue rose 60 percent to 5.46 billion yuan.

Marketing programme Third-quarter revenue will be in a range of 6.25 billion yuan to 6.41 billion yuan, Baidu said. That compares with the 6.39 billionyuan average of analysts’ estimates compiled by Bloomberg. Last year, Baidu paid US$306 million for a majority stake in Qunar. com Inc., a Chinese travel search site. Tencent Holdings Ltd, China’s biggest Internet company, is also making acquisitions and investments to add technologies and services. Making acquisitions, rather than developing technologies internally, “will give us time, and gives us competitive advantages,” Mr Li said yesterday. Baidu had more than 350,000 customers for its online advertising services at the end of the second quarter, 9.7 percent more than three months earlier, chief financial officer Jennifer Li said on the call. The company gained customers after a marketing programme last quarter, she said. “The smaller advertisers are helping the company,” Dick Wei, who rates Baidu overweight at JPMorgan Chase & Co in Hong Kong, said before the earnings release. Still, “it’s the bigger customers who’ll drive growth,” Mr Wei said. In the second quarter, Baidu accounted for 78.6 percent of China’s search-engine market by revenue, compared with 15.7 percent for Google Inc., according to researcher Analysys International. China’s online advertising market may expand by 39 percent this year to 65.1 billion yuan, slowing from 46 percent growth in 2011, according to a report by Nomura Holdings Inc. in June.

US$434 million

Baidu’s secondquarter net income

Bloomberg

10 |

business daily July 25, 2012

asia S.Korea’s Lee in national apology South Korean President Lee Myung-bak has apologised to the nation over corruption investigations involving his elder brother and former aides. “I bow my head and apologise for causing concern to the people with these incidents,” a solemn Mr Lee said in brief televised remarks. “It breaks my heart... that such regrettable things have happened among people so close to me.” Mr Lee’s elder brother Lee Sang-deuk was arrested and detained earlier this month pending a corruption trial. Prosecutors allege the 76-year-old former lawmaker took 600 million won (US$525,000) from the chairmen of two troubled savings banks between 2007 and 2011 in return for helping them avoid audits and punishment. The incidents are seen as a setback for Mr Lee’s conservative ruling party before a presidential election in December. He himself is barred from serving a second five-year term due to constitutional limits.

Japan warns of ‘one-sided’ yen gains Govt prepared to take decisive steps against excessive moves

The yen was trading at 94.66 to the euro at 5:40 pm yesterday

apanese Finance Minister Jun Azumi indicated increased concern about the yen’s advance, reiterating his resolve to take action against abrupt and speculative movements in foreignexchange markets. “It’s obvious that recent one-sided moves in the yen fail to reflect the real state of the Japanese economy,” Mr Azumi said at a press conference in Tokyo yesterday. “We won’t rule out any possible options to counter excessive moves” he said, adding that he is “ready to act decisively if needed.” The yen touched its strongest level

against the euro in 11 years this week and has also gained against the dollar, threatening the profits of exporters just as Europe’s debt crisis weakens demand. “Japanese authorities are increasing alarm on the yen’s gains by stepping up their rhetoric,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd in Tokyo and a former central bank official. “Yet, if Japan were to intervene unilaterally when the turmoil in Europe is deepening day by day, it’s just like a drop in the ocean.” The yen reached its highest point against the euro in 11 years this

week, and was trading at 94.66 to the euro and 78.20 to the dollar at 5:40 pm in Tokyo.

Successful intervention The government’s ‘‘verbal intervention” may help to limit excessive yen buying because investors will anticipate stronger steps to come, said Tomoko Fujii, a senior foreignexchange strategist at Bank of America Merrill Lynch in Tokyo. Japan’s unilateral interventions in currency markets last year were successful as they stemmed the yen’s rise against the dollar, a Ministry of Finance official involved with international affairs said. If Japan hadn’t bought dollars on October 31, the yen could have appreciated beyond the 75.35 yen to the dollar level it touched that day, said the official, who spoke on

It’s obvious that recent one-sided moves in the yen fail to reflect the real state of the Japanese economy Jun Azumi, Japanese Finance Minister

condition of anonymity. Eisuke Sakakibara, known as Mr Yen when he ran currency operations at the Finance Ministry in the 1990s, said at a conference in Singapore in June that “intervention could only be effective when two parties agree to intervene.” Without American support, “intervention couldn’t be effective,” he said, adding that “it’s a waste of time and waste of money”. The official said yesterday he would challenge any assertion that intervention wasn’t effective last year. Japan’s currency has appreciated almost 7 percent against the dollar since the U.S. currency reached a high for the year of 84.18 yen on March 15. The government is considering extending a 10-trillion yen (US$130 billion) lending programme beyond its expiration on September 30 to help companies take advantage of a stronger currency by pursuing mergers and acquisitions abroad, according to two government officials. The officials, who spoke on condition of anonymity because the discussions haven’t been made public, didn’t elaborate on how long the programme may be extended. The facility has helped finance 15 projects worth US$8.9 billion, according to the state-run Japan Bank for International Cooperation. JBIC Governor Hiroshi Okuda, who’s also a former chairman of Toyota Motor Corp., this month said Japanese businesses are calling for an extension of the programme.

Sharp drops to lowest since 1975 Net loss of US$1.3b expected for the 3-months ended June – report Mariko Yasu

harp Corp., Japan’s biggest maker of liquid-crystal displays, fell to its lowest since 1975 after the Nikkei newspaper reported the company will probably post a quarterly loss and plans to cut jobs. The consumer electronics maker dropped 1.7 percent to 278 yen (US$3.55) as of the close of trading on the Tokyo Stock Exchange, the lowest since December 1975. The stock fell as much as 5.4 percent

Sharp said to offer early retirement packages to several thousands of employees across the world

Bloomberg

July 25, 2012 business daily | 11

asia RBA Governor Glenn Stevens says monetary policies ‘are about right’

Australia to stay resilient to global shocks, C.Bank says RBA chief says current interest rates about right Wayne Cole

ustralia’s economy is undergoing changes that will make it more resilient to future global shocks, including a slowdown in China or an escalation in the European financial crisis, the country’s central bank chief said yesterday. Reserve Bank of Australia (RBA) Governor Glenn Stevens indicated that there would be scope to lower interest rates if the global economic outlook worsened seriously, but added that the current level of 3.5 percent was appropriate. “We think policy settings are about right for the circumstances we face,” Mr Stevens told a questioner after giving a speech titled “The Lucky Country”. Financial markets reacted by slightly paring back the chance of a cut in interest rates in August. The central bank eased in both May and June, but decided to pause this month to assess both the impact of past moves and the global outlook. In a cautiously upbeat speech on the domestic economy, Mr Stevens cited higher household savings, a more sober attitude towards debt, a shift by banks to domestic sources of funding and a period

of stable home prices as reasons for optimism.

intraday, while the benchmark Nikkei 225 Stock Average was declined 0.2 percent. Sharp will probably post a net loss of 100 billion yen (US$1.3 billion) for the three months ended June 30, Nikkei reported without saying where it got the information. The consumer electronics and appliances maker is considering cutting a few thousand jobs in its first workforce reductions, according to the report. Possible job cut measures include offering an early retirement plan, the Nikkei said. “Sharp is considering various measures to improve earnings and will disclose a plan as soon as it’s completed,” Miyuki Nakayama, a company spokeswoman, said yesterday. “Sharp is not the source of the Nikkei report,” she said. The company is projected to report a net loss of 76 billion yen for the first quarter ended June 30, according to the average of four analyst estimates compiled by Bloomberg. Sharp is scheduled to report earnings on August 2.

“The early retirement drive represents an advance for Sharp in that it has the company willing to tread on what has been sacred ground,” Yuji Fujimori, a Tokyobased analyst at Barclays Plc, said in a memo for investors yesterday. “But it also involves cash outlays and might therefore not be received as a clear positive.”

Policy tools Even if China’s economy slumped or Europe’s debt woes triggered another global financial spasm, Australia had the financial resilience and policy tools to respond. Key here would be a flexible exchange rate, with the Australian dollar likely to fall and provide stimulus to the domestic economy, much as it did in 2008, said Mr Stevens. Australia also had room to move on interest rates. “A serious deterioration in international economic conditions would still see Australia with scope to use macroeconomic policy, if needed, as long as inflation did not become a concern,” he said. Mr Stevens said he also felt that China, Australia’s single biggest export market, had room for stimulus if needed. “Even if one is concerned about the extent of problems that may lurk beneath the surface in China – say in the financial sector – it is not clear why we should assume that the capacity of the Chinese authorities to respond to them is seriously impaired,” he argued.

Bloomberg

Sharp Corp (6753 JT) share price JPY 295

275

24-Jul

Indeed, he played down fears about a hard landing in China, saying recent data was “quite consistent” with growth in industrial output of around 10 percent, and economic growth in the 7 to 8 percent range. “So far, then, the ‘China story’ seems to be roughly on course,” said Mr Stevens. He also took issue with talk that Australia had a housing bubble which was about to collapse.

It was not at all clear that Australian housing was overpriced internationally, he argued, while many home owners were ahead on their mortgage payments and arrears were very low. “The ingredients we would look for as signalling an imminent crash seem, if anything, less in evidence now than five years ago,” he said. Reuters

12 |

business daily July 25, 2012

MARKETS Hang SENG INDEX NAME

PRICE

Day %

VOLUME

10.4

0.1926782

26420663

CITIC PACIFIC

10.94

-1.263538

CLP HLDGS LTD

64.85

CNOOC LTD

1219705

COSCO PAC LTD

PRICE

Day %

VOLUME

26.75

0.1872659

14886536

ALUMINUM CORP-H

3.04

-1.298701

6784243

BANK OF CHINA-H

2.82

0.3558719

163031310

BANK OF COMMUN-H

4.84

-1.022495

13770012

BANK EAST ASIA

26.15

-1.320755

BELLE INTERNATIO

AIA GROUP LTD

NAME CHINA UNICOM HON

NAME

PRICE

Day %

VOLUME

POWER ASSETS HOL

60.2

2462668

3183058

SANDS CHINA LTD

22.9

1.777778

9014689

-0.3840246

1094024

SINO LAND CO

12.62

-2.170543

2621243

14.82

-4.015544

106266879

94.3

-0.8412198

2916374

10.04

-0.1988072

2526931

SWIRE PACIFIC-A

89.65

-1.483516

1096900

SUN HUNG KAI PRO

13.42

-0.2971768

9039845

ESPRIT HLDGS

8.96

-0.2227171

2476755

TENCENT HOLDINGS

226.8

-0.2638522

1910334

BOC HONG KONG HO

23.5

0.2132196

6726193

HANG LUNG PROPER

25.95

-0.9541985

2981400

TINGYI HLDG CO

19.14

0.5252101

3549393

CATHAY PAC AIR

12.7

-1.090343

2722456

HANG SENG BK

105.3

-0.6603774

810270

9.03

0.1108647

9113344

-1.492537

3170286

HENDERSON LAND D

43.5

-1.472254

1124890

42.85

-1.039261

3022300

CHINA COAL ENE-H

6.56

-1.649175

14088659

HENGAN INTL

72.25

-2.693603

3508087

CHINA CONST BA-H

4.81

-0.6198347

133947563

HONG KG CHINA GS

17.58

0.5720824

4199192

CHINA LIFE INS-H

20.8

-0.952381

25609988

HONG KONG EXCHNG

101.5

-0.4901961

1843183

CHINA MERCHANT

23.7

-0.4201681

1986671

HSBC HLDGS PLC

62.05

-1.664025

21382216

CHEUNG KONG

CHINA MOBILE

WANT WANT CHINA WHARF HLDG

MOVERS

86.7

0.8726003

11801228

HUTCHISON WHAMPO

68.4

-1.227437

3835621

-1.166861

12484714

IND & COMM BK-H

4.12

-0.2421308

155373338

CHINA PETROLEU-H

6.84

-0.5813953

42483446

13.72

-0.4354136

7147781

HIGH

19641.72

CHINA RES ENTERP

19.36

-3.006012

2608252

MTR CORP

26.2

-1.132075

1196980

LOW

18881.31

CHINA RES LAND

14.88

-0.1342282

6167907

NEW WORLD DEV

9.65

-1.430031

4924736

CHINA RES POWER

16.32

0.2457002

3306349

52W (H) 22808.33

PETROCHINA CO-H

9.42

-1.361257

52715688

CHINA SHENHUA-H

27.4

-1.438849

9298503

PING AN INSURA-H

59.95

-1.154163

6019832

(L) 16170.35

LI & FUNG LTD

1 19650

INDEX 18903.2

16.94

CHINA OVERSEAS

18880

20-Jul

24-Jul

Hang SENG CHINA ENTErPRISE INDEX NAME

NAME

PRICE

DAY %

VOLUME

AGRICULTURAL-H

2.97

-0.6688963

38582684

AIR CHINA LTD-H

5.17

7228252

CHINA PETROLEU-H

ALUMINUM CORP-H

CHINA PACIFIC-H

PRICE

DAY %

VOLUME

24.35

0.6198347

11235978

YANZHOU COAL-H

6.84

-0.5813953

42483446

ZIJIN MINING-H

3.04

-1.298701

6784243

CHINA RAIL CN-H

6.8

3.816794

9392377

ANHUI CONCH-H

19.54

-0.4077472

7970850

CHINA RAIL GR-H

3.37

2.743902

18486075

BANK OF CHINA-H

2.82

0.3558719

163031310

CHINA SHENHUA-H

27.4

-1.438849

9298503

BANK OF COMMUN-H

4.84

-1.022495

13770012

CHINA TELECOM-H

3.75

1.902174

52908410

BYD CO LTD-H

13.1

-0.6069803

744407

DONGFENG MOTOR-H

10.08

-0.9823183

11935043

3.7

12731525

GUANGZHOU AUTO-H

5.43

-1.272727

2825617

CHINA COAL ENE-H

6.56

-1.649175

14088659

HUANENG POWER-H

5.71

1.420959

7663937

CHINA COM CONS-H

6.81

0.1470588

9413817

IND & COMM BK-H

4.12

-0.2421308

155373338

CHINA CONST BA-H

4.81

-0.6198347

133947563

JIANGXI COPPER-H

16.52

-1.077844

7453388

CHINA COSCO HO-H

3.31

-2.071006

8811462

PETROCHINA CO-H

9.42

-1.361257

52715688

CHINA LIFE INS-H

20.8

-0.952381

25609988

PICC PROPERTY &

8.36

-1.762632

12736296

CHINA LONGYUAN-H

4.73

-1.25261

4309211

PING AN INSURA-H

59.95

-1.154163

6019832

CHINA MERCH BK-H

13.6

0.1472754

10592317

SHANDONG WEIG-H

8.61

0.4667445

2251096

CHINA CITIC BK-H

CHINA MINSHENG-H

6.68

-0.1494768

16107537

SINOPHARM-H

21.05

0.7177033

1608501

CHINA NATL BDG-H

7.25

-1.761518

39828189

TSINGTAO BREW-H

45.2

-1.525054

1139843

11.88

-1.328904

3072991

WEICHAI POWER-H

22.35

-1.758242

1064616

CHINA OILFIELD-H

NAME

PRICE

DAY %

11.12

-0.8912656

5884065

2.31

-3.75

29958890

8.46

-0.5875441

9601019

10.22

-4.12758

5763976

ZOOMLION HEAVY-H ZTE CORP-H

MOVERS

VOLUME

2 9580

INDEX 9217.23 HIGH

9572.96

LOW

9200.8

52W (H) 12651.92 9200

(L) 8058.58 20-Jul

24-Jul

Shanghai Shenzhen CSI 300 NAME

PRICE

DAY %

VOLUME

PRICE

DAY %

VOLUME

PRICE

DAY %

VOLUME

AGRICULTURAL-A

2.44

-0.8130081

42578451

DAQIN RAILWAY -A

6.05

0.331675

17659384

SANY HEAVY INDUS

11.61

0.0862069

18871250

AIR CHINA LTD-A

6.24

-1.421801

12509946

DATANG INTL PO-A

5.15

-2.830189

6476127

SHANDONG GOLD-MI

32.43

0.8082064

3385444

ALUMINUM CORP-A

6.04

8151403

DONGFANG ELECT-A

16.16

0.0619195

4394643

SHANG PHARM -A

11.1

9549110

14.35

0.8432888

10755600

EVERBRIG SEC -A

13.45

0.5231689

7842587

SHANG PUDONG-A

7.46

0.1342282

48389405

ANHUI CONCH-A

NAME

BANK OF BEIJIN-A

7.25

0.1381215

7950124

GD MIDEA HOLDING

9.52

-0.9365245

21572404

SHANGHAI ELECT-A

4.26

3054756

BANK OF CHINA-A

2.68

-0.7407407

17533566

GD POWER DEVEL-A

2.74

-0.3636364

23504810

SHANXI LU'AN -A

20.69

1.173594

10649818

BANK OF COMMUN-A

GF SECURITIES-A

15.43

1.513158

16030495

SHANXI XINGHUA-A

37.18

0.5680281

2528587

GREE ELECTRIC

21.27

-0.3747073

5812760

SHANXI XISHAN-A

14.83

0.4062288

9082067

GUANGHUI ENERG-A

13.16

9941056

SHENZ DVLP BK-A

14.8

-0.06752194

10094330

4.16

-1.187648

51053961

BANK OF NINGBO-A

9.8

0.3070624

7763871

BAOSHAN IRON & S

4.11

15949609

16.86

1.261261

2682207

GUIZHOU PANJIA-A

16.91

0.415677

7313752

SHENZEN OVERSE-A

6.41

2.070064

17271948

CHINA CITIC BK-A

3.78

-0.7874016

10033263

HAITONG SECURI-A

9.87

0.7142857

37962606

SUNING APPLIAN-A

6.75

0.7462687

40598828

CHINA CNR CORP-A

3.68

-0.2710027

20189723

HANGZHOU HIKVI-A

27.1

1.956358

1695812

TSINGTAO BREW-A

36.32

-0.05503577

1734068

CHINA COAL ENE-A

7.53

-0.5284016

9024600

HENAN SHUAN-A

62.91

0.3989786

789599

WEICHAI POWER-A

23.58

-0.4643309

7245718

CHINA CONST BA-A

3.89

-1.269036

19801106

HONG YUAN SEC-A

19.12

-0.778412

22648568

WULIANGYE YIBIN

35.83

0.6460674

28430835

BYD CO LTD -A

CHINA COSCO HO-A

4.44

4945736

HUATAI SECURIT-A

10.68

2.10325

23719990

XIAMEN TUNGSTEN

41.56

0.1445783

3089802

CHINA CSSC HOL-A

22.28

0.4508566

2597037

HUAXIA BANK CO

8.37

-0.5938242

20558885

YANGQUAN COAL -A

15.16

0.730897

10090860

CHINA EAST AIR-A

4.21

-3.881279

16043708

IND & COMM BK-A

3.68

-1.075269

23071341

YANTAI CHANGYU-A

61.42

0.6555228

1073998

CHINA EVERBRIG-A

2.7

-0.7352941

19185261

INDUSTRIAL BAN-A

11.94

-0.1672241

26785000

YANTAI WANHUA-A

13.42

0.4491018

3861206

19.83

1.588115

13494941

INNER MONG BAO-A

39.09

0.2307692

20951509

YANZHOU COAL-A

18.68

-0.2669514

2860762

CHINA MERCH BK-A

9.59

-1.031992

59762139

INNER MONG YIL-A

19.52

1.932115

12227909

YUNNAN BAIYAO-A

62.36

3.933333

2090602

CHINA MERCHANT-A

11.63

2.738516

11948432

INNER MONGOLIA-A

4.87

1.037344

19389594

ZHONGJIN GOLD

20.94

0.1913876

2916008

CHINA MERCHANT-A

23.59

3.374233

7676122

JIANGSU HENGRU-A

29.52

-1.534356

3904010

ZIJIN MINING-A

3.69

-0.2702703

23876159

CHINA MINSHENG-A

5.8

-0.3436426

52040168

JIANGSU YANGHE-A

145.11

3.65

1722708

ZOOMLION HEAVY-A

31104894

CHINA NATIONAL-A

6.08

0.1647446

16224466

JIANGXI COPPER-A

21.62

-1.23344

9271402

ZTE CORP-A

CHINA OILFIELD-A

17.77

1.542857

7363454

JINDUICHENG -A

12.09

0.08278146

3329889

INNER MONG YIL-A

CHINA PACIFIC-A

22.97

0.7014467

18537823

JIZHONG ENERGY-A

14.66

0.4109589

16588983

6.07

0.8305648

17691394

KANGMEI PHARMA-A

15.48

-0.3219575

7069226

249.38

2.803199

3437214

41.48

1.916462

5502305

CHINA LIFE INS-A

CHINA PETROLEU-A CHINA RAILWAY-A

4.69

0.6437768

12278399

KWEICHOW MOUTA-A

CHINA RAILWAY-A

2.61

0.3846154

12260892

LUZHOU LAOJIAO-A

CHINA SHENHUA-A

21.97

0.04553734

6627804

METALLURGICAL-A

2.3

10605480

2.52

11254793 57475958

MOVERS

194

0.2197802 0.1748252

10646022

21.7

0.2772643

18120731

20 2420

INDEX 2375.992

4.9

5.150215

57701131

NINGBO PORT CO-A

CHINA SOUTHERN-A

4.46

-0.4464286

12795775

PANGANG GROUP -A

3.82

-0.5208333

CHINA STATE -A

3.21

34933053

PETROCHINA CO-A

8.86

-0.2252252

6909164

HIGH

2419.92

CHINA UNITED-A

3.71

0.5420054

64717216

PING AN INSURA-A

44.93

0.3125698

15740904

LOW

2353.22

CHINA VANKE CO-A

9.33

1.302932

33037828

POLY REAL ESTA-A

11.44

2.142857

27067272

CHINA YANGTZE-A

6.56

0.9230769

13060190

QINGDAO HAIER-A

11.04

-0.2710027

10306044

CITIC SECURITI-A

12.27

-0.2439024

82268510

QINGHAI SALT-A

35.1

2.392065

9462063

CSR CORP LTD -A

4.29

0.7042254

7311375

SAIC MOTOR-A

12.51

0.8870968

12281716

CHINA SHIPBUIL-A

9.12 11.46

52W (H) 3083.191 (L) 2254.567

2350

20-Jul

24-Jul

FTSE TAIWAN 50 INDEX NAME

PRICE DAY %

Volume

NAME

ACER INC

25.95

-2.443609

26210431

FORMOSA PLASTIC

ADVANCED SEMICON

22.05

-2.863436

62314024

ASIA CEMENT CORP

36.45 -0.4098361

ASUSTEK COMPUTER

264 -0.7518797

AU OPTRONICS COR

9.68

CATCHER TECH

PRICE DAY %

Volume

NAME

PRICE DAY %

78.8

5041380

FOXCONN TECHNOLO

105.5

10595362

TPK HOLDING CO L

3015946

FUBON FINANCIAL

30.45

0.3294893

11018108

TSMC

1982794

HON HAI PRECISIO

85.6

-1.154734

26416449

-3.2

113406771

HOTAI MOTOR CO

190

0.5291005

234045

TAIWAN MOBILE CO

Volume

1.041667

331.5

1.067073

4228276 4072613

74.8

0.6729475

39973144

UNI-PRESIDENT

48.05

-1.029866

5760642

UNITED MICROELEC

12.35

0.4065041

22201911

WISTRON CORP

34.75 -0.4297994

169

2.424242

11904524

HTC CORP

280.5

-2.264808

12914301

CATHAY FINANCIAL

28.85

0.1736111

7695642

HUA NAN FINANCIA

16.65

0.3012048

6435726

YUANTA FINANCIAL

13.1

23614974

CHANG HWA BANK

15.85

YULON MOTOR CO

48.5

0.3102378

3346506

0.3164557

5630510

LARGAN PRECISION

589

1.376936

842288

CHENG SHIN RUBBE

79.2 -0.1261034

2890486

LITE-ON TECHNOLO

37.85

2.993197

3016346

CHIMEI INNOLUX C

9.45

-4.158215

66326646

MEDIATEK INC

243.5

6117463

CHINA DEVELOPMEN

6.94

0.1443001

18679863

MEGA FINANCIAL H

23.15

0.2164502

18371772

CHINA STEEL CORP

26.7 -0.7434944

24001403

NAN YA PLASTICS

54.9

1.666667

4533985

CHINATRUST FINAN CHUNGHWA TELECOM COMPAL ELECTRON DELTA ELECT INC

17.35

9787339

PRESIDENT CHAIN

154.5

1087756

88.8 -0.5599104

9086795

QUANTA COMPUTER

74.1

-0.269179

5538953

0.744879

6532208

SILICONWARE PREC

28.1 -0.5309735

8806475

97.4 -0.6122449

4581480

SINOPAC FINANCIA

11.6 -0.4291845

21213554

27.05

FAR EASTERN NEW

2865396

SYNNEX TECH INTL

FAR EASTONE TELE

66.5

-1.917404

5935291

TAIWAN CEMENT

FIRST FINANCIAL

17.65 -0.2824859

7350937

TAIWAN COOPERATI

FORMOSA CHEM & F

75.7 -0.1319261

3083375

TAIWAN FERTILIZE

FORMOSA PETROCHE

82.4 -0.7228916

935936

TAIWAN GLASS IND

-2.046784

7943033

36.15 -0.6868132

5837714

17.7

5373010

67 -0.5934718

2997686

26.7

-1.111111

1510899

MOVERS

9 4910

INDEX 4788.75 HIGH

4908.84

LOW

4758.99

6115640

52W (H) 5960.61 (L) 4643.05

4750

20-Jul

24-Jul

July 25, 2012 business daily | 13

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

MElCo CRowN ENtERtAINMENt

MGM CHINA HolDINGS

18.7

18.6

18.5

Max 18.68

Average 18.621

Min 18.44

last 18.62

18.4

Max 27.4

SANDS CHINA ltD

Average 26.329

Min 25.05

last 25.2

Min 22.5

26.0

10.80

25.5

10.75

25.0

Max 10.94

last 22.9

22.40

Average 10.856

Min 10.74

last 10.74

PRICE

16.2 16.0 15.8

14.10

15.6

14.05 14.00 Max 14.22

Average 14.02

DAY %

YTD %

(H) 52W

(L) 52W

WTI CRUDE FUTURE Sep12

88.62

0.544588155

-10.36714878

110.8699951

77.69999695

BRENT CRUDE FUTR Sep12

103.91

0.629478985

-0.962638201

124.1999969

88.90999603

GASOLINE RBOB FUT Aug12

288.03

-0.090186965

7.193896539

326.7099857

243.0099964

894

-0.055897149

-0.528511822

1046.5

798.5

3.097

-0.641642605

-5.463980464

4.787000179

2.174999952

GAS OIL FUT (ICE) Sep12 NATURAL GAS FUTR Aug12

283

0.39377062

-0.481766712

332.949996

250.8399963

Gold Spot $/Oz

HEATING OIL FUTR Aug12

1573.91

0.1037

0.5751

1921.18

1522.75

Silver Spot $/Oz

26.9638

0.0141

-3.1299

44.2175

26.085

Platinum Spot $/Oz

1393.79

-0.1826

-0.0509

1915.75

1339.25

Palladium Spot $/Oz

567.07

0.0265

-13.2257

848.37

537.54 1832.25

LME ALUMINUM 3MO ($)

1878

-0.739957717

-7.02970297

2675.25

LME COPPER 3MO ($)

7401

-1.908548708

-2.618421053

9905

6635

LME ZINC

1814

-1.386246263

-1.680216802

2539.5

1718.5

3MO ($)

LME NICKEL 3MO ($)

Min 13.86

15.4

last 14.18

Max 16.24

Average 15.890

PRICE MAJORS

ASIA PACIFIC

CROSSES

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

15600

-2.194357367

-16.6221272

25195

15450

15.435

-0.097087379

2.694610778

13.95499992

775.5

-1.273074475

32.28144989

800

499

WHEAT FUTURE(CBT) Sep12

892.75

-2.191180498

27.21767011

947.25

606.75

SOYBEAN FUTURE Nov12

1586.5

-2.203729388

31.74174798

1691.5

1115.75

184

-0.594273366

-21.45144077

288.8500061

150.0999908

CROWN LTD

SUGAR #11 (WORLD) Oct12

23.7

-0.795311846

3.810775296

26.03999901

19.23999977

AMAX HOLDINGS LT

COTTON NO.2 FUTR Dec12

72.19

1.38523E-05

-17.81648452

102.25

64.61000061

BOC HONG KONG HO

AGRICULTURE ROUGH RICE (CBOT) Sep12 Dec12

COFFEE 'C' FUTURE Sep12

World Stock MarketS - Indices COUNTRY

PRICE

DAY %

YTD %

(H) 52W

(L) 52W

DOW JONES INDUS. AVG

12721.46

-0.7885315

4.124395

13338.66016

10404.49

NASDAQ COMPOSITE INDEX

2890.15

-1.201586

10.93987

3134.17

2298.89

FTSE 100 INDEX

5545.1

0.2029321

-0.487766

5989.07

4791.01

DAX INDEX

6419.66

0.005140723

8.838236

7382.8

4965.8

NIKKEI 225

8488.09

-0.2377673

0.3872133

10255.15

8135.79

HANG SENG INDEX

18903.2

CSI 300 INDEX

2375.992

0.4464725

TAIWAN TAIEX INDEX

7008.35

-0.2899528

last 15.5

Min 15.48

-0.7886752

2.543119

DAY %

1.0287 1.5497 0.9926 1.2099 78.22 7.9901 7.7573 6.3859 56.015 31.79 1.2593 30.106 42.03 9509 80.468 1.201 0.78072 7.738 9.6672 94.64 1.03

YTD %

-0.0777 -0.3024 -0.2821 -0.2884 -0.0511 -0.005 -0.0039 0.0016 -0.0736 -0.0629 -0.0794 -0.2093 0.0428 -0.0631 0.0249 -0.0017 -0.009 -0.1344 0.2369 0.2325 0

(H) 52W

0.764 -0.296 -5.4906 -6.6507 -1.6748 0.1189 0.1302 -1.4234 -5.2664 -0.755 2.962 0.5746 4.3064 -4.6272 -2.5302 1.3147 6.7463 5.1202 7.0837 5.3043 0.0097

(L) 52W

1.1081 1.6618 0.9952 1.4549 84.18 8.0449 7.8113 6.4474 57.3275 32 1.3199 30.716 44.35 9662 88.637 1.24736 0.88861 9.3616 11.6793 114.18 1.0311

0.9388 1.5235 0.7071 1.2067 75.35 7.9823 7.7526 6.2769 43.855 29.63 1.1992 28.764 41.57 8458 72.057 1.00749 0.77553 7.7187 9.6438 94.24 1.0288

MACAU RELATED STOCKS NAME

PRICE

(H) 52W

(L) 52W

2.6

-0.7633588

18.18182

3.25

1.88

1144135

8.39

-0.1190476

3.70828

9.29

7.45

1465665

0.065

-25.28735

0.119

0.055

900000

23.5

0.2132196

27.71739

24.45

14.24

6726193

CENTURY LEGEND

0.26

-1.886792

13.04348

0.38

0.204

CHEUK NANG HLDGS

2.96

-1.986755

5.714288

3.95

2.3

5000 12484714

ARISTOCRAT LEISU

DAY % YTD %

VOLUME CRNCY

CHINA OVERSEAS

16.94

-1.166861

30.50848

19.16

9.99

CHINESE ESTATES

8.99

0.2229654

-28.08

13.68

8.3

36000

CHOW TAI FOOK JE

8.93

-1.434879

-35.8477

15.16

8.55

3143200

EMPEROR ENTERTAI

1.35

-1.459854

21.62162

1.84

0.97

635000

FUTURE BRIGHT

0.98

-1.010101

133.3333

1.09

0.3

822000

GALAXY ENTERTAIN

18.62

-0.3211991

30.75843

24.95

8.69

4346000

HANG SENG BK

810270

105.3

-0.6603774

14.27021

124.3

84.4

HOPEWELL HLDGS

22.2

-0.2247191

11.78247

24.903

18.56

386500

HSBC HLDGS PLC

62.05

-1.664025

5.169492

78.6

21382216

HUTCHISON TELE H

3.58

-2.717391

19.73244

3.86

2.53

2098965

LUK FOOK HLDGS I

16.68

-1.184834

-38.45019

46.15

14.7

1025000

MELCO INTL DEVEL

5.46

0.1834862

-5.372617

10.76

4.3

2057000

22808.33

16170.35

1.289571

3083.191

2254.567

MGM CHINA HOLDIN

10.74

-1.286765

11.96651

17.183

7.6

587200

-0.901149

8819.929688

6609.11

MIDLAND HOLDINGS

4.11

1.481481

3.944137

5.217

2.887

1286000

KOSPI INDEX

1793.93

0.2509165

-1.742304

2174.73

1644.11

NEPTUNE GROUP

0.163

-4.117647

46.84684

0.205

0.08

4440000

S&P/ASX 200 INDEX

4133.232

0.103925

1.890059

4612.2

3765.9

NEW WORLD DEV

9.65

-1.430031

54.15335

10.96

6.13

4924736

SANDS CHINA LTD

22.9

1.777778

4.328015

33.05

14.9

9014689

SHUN HO RESOURCE

1.13

1.32

0.82

SHUN TAK HOLDING

2.68

4.72316

4.668

2.241

2441751 2790840

JAKARTA COMPOSITE INDEX

10.70

CURRENCY EXCHANGE RATES

NAME

10.85

14.15

Commodities

CORN FUTURE

26.5

14.20

22.55

METALS

10.90

14.25

22.70

ENERGY

27.0

wyNN MACAu ltD

22.85

Average 22.725

10.95

SJM HolDINGS ltD 23.00

Max 23.05

27.5

3992.113

-0.4409205

4.45111

4234.734

3217.951

FTSE Bursa Malaysia KLCI

1632.57

-0.220026

6.653032

1647.94

1310.53

NZX ALL INDEX

771.656

-0.2322057

5.735228

806.015

700.441

SJM HOLDINGS LTD

14.18

1.141227

13.38978

20.711

10.079

PHILIPPINES ALL SHARE IX

3432.76

0.2312517

12.73284

3527.48

2695.06

SMARTONE TELECOM

15.86

-0.2515723

18.00596

18.5

9.8

451500

HSBC Dragon 300 Index Singapor

572.49

-1.36

15.34

WYNN MACAU LTD

15.48

-2.025316

-20.61538

27.48

14.807

2123900

STOCK EXCH OF THAI INDEX

1186.42

0.1105383

15.71218

1247.72

843.69

HO CHI MINH STOCK INDEX

415.63

-1.507145

18.22785

492.44

332.28

Laos Composite Index

1004.47

11.67478

1083.92

876.33

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

ASIA ENTERTAINME

3.39

-1.73913

-42.34694

10.8692

3.21

97092

BALLY TECHNOLOGI

45.8

-2.032086

15.7735

49.32

24.74

341774

BOC HONG KONG HO

3.07

28.06675

3.15

1.81

500

GALAXY ENTERTAIN

2.33

-3.818369

24.59893

3.24

1.08

2000

INTL GAME TECH

14.88

-2.617801

-13.48838

19.15

13.12

2546029

JONES LANG LASAL

67.48

-3.778697

10.15345

93.94

46.01

482371

LAS VEGAS SANDS

39.1

-4.025528

-8.495201

62.09

36.08

12801274

MELCO CROWN-ADR

9.83

-4.97825

2.182953

16.15

7.05

5423802

MGM CHINA HOLDIN

1.47

23.3539

2.2131

1.0025

500

MGM RESORTS INTE

9.77

-0.1022495

-6.327903

16.05

7.4

11031842 354349

SHUFFLE MASTER

15.25

-1.612903

30.11945

18.77

7.35

SJM HOLDINGS LTD

1.82

13.21416

2.6037

1.2624

120

WYNN RESORTS LTD

95.02

-2.353304

-14.00127

158.2244

1857716

AUD HKD

USD

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14 |

business daily July 25, 2012

Opinion

HSBC needs CEO who will clean up and break up the bank Simon Johnson

Professor at the MIT Sloan School of Management and a senior fellow at the Peterson Institute for International Economics

ankers have made some dramatic moves in recent years, but even the most cynical observers were stunned last week when David Bagley, HSBC Holdings Plc’s top compliance officer, resigned during a U.S. Senate hearing. “As I have thought about the structural transformation of the bank’s compliance function,” he told the senators, “I recommended to the group that now is the appropriate time, for me and for the bank, for someone new to serve as the head of group compliance.” Translation: I am taking responsibility for the complete failure of compliance on my watch. The failure is indeed complete. Investigators working for Democratic Senator Carl Levin of Michigan have established a decade-long pattern of behaviour in which HSBC, one of the world’s largest banks, provided moneylaundering services to drug traffickers in Mexico and criminals around the world. The bank also broke U.S. laws restricting transactions with Iran. These were not isolated occurrences. No doubt some bank employees had gone rogue, yet the problems went far beyond that, including wilful blindness by senior executives. The point of compliance is to catch such behaviour before it damages the brand and threatens to bring down the company.

Management failure The bank’s management failed in this regard, and the buck shouldn’t stop with Bagley. Chief Executive Officer Stuart Gulliver should take responsibility by stepping down. What’s more, his successor should break the bank into more

investigation for fixing benchmark manageable parts. Something has gone very wrong on interest rates, including the London Gulliver’s watch. Why would any interbank offered rate, known as responsible board of directors trust him Libor, and its euro counterpart, to clean up properly? Three arguments Euribor. It is a prominent member of are being advanced for why he needn’t 10 Libor panels. With the full scope of the inquiries not yet known, might resign; none is convincing. First, it is suggested that HSBC didn’t other legal disasters loom? lose much from this scandal. The total The second argument for keeping fine is likely to amount to US$1 billion Gulliver is that he had nothing to do (about 1/17th of last year’s profit). The with the bank’s Mexican business. There was a bank’s shares time when fell only about 3 CEOs took repercent between sponsibility for when the news major complifirst broke and the Big banks benefit ance failures. July 17 hearing. Last SeptemPresumably, the from large, opaque and ber, for exmarket reaction ample, Oswas limited dangerous government wald Gruebel because the stepped down bank’s U.S. and subsidies. The subsidies as CEO of Latin American Swiss bank b u s i n e s s e s are a form of crony UBS AG after account for less unauthorised than 15 percent of capitalism that should trading led operating profit. to losses of How much be ended US$2.3 billion. damage has Part of the really been done, CEO’s job is and how far to make sure does this failure of compliance go? It is very hard the company follows the law. No to tell with a huge bank like HSBC, one expects the top executive and it would be wise to presume to be involved in every transacthe worst. I agree with Mike Mayo, tion or to personally review every a respected bank analyst at Credit trading position. Agricole Securities, who said recently that large banks are increasingly Highly compensated difficult to analyse, making it hard to know whether they are good or bad CEOs, however, are compensated investments. At this point, HSBC is so highly because they are supposed out of control that breaking it up would to make sure the proper systems be good for shareholders. Who wants are in place to avoid illegal activity. to invest in a bank where management (Gulliver’s 2011 compensation doesn’t know what is going on? package, at 7.2 million pounds, HSBC is also reported to be under or US$11.3 million, touched off

David Bagley, former HSBC head of compliance

a political storm in the U.K. over financial executives’ pay.) Third, some commentators point out that HSBC is a global bank not fully subject to U.S. or U.K. authorities. It has a balance sheet of about US$2.5 trillion (depending on whether you follow U.S. or international accounting rules), or roughly the same size as the British economy. It boasts of having about 300,000 employees serving 100 million customers out of 7,200 offices in 85 countries and territories around the world. As such, HSBC is too big to fail. Executives speak of the bank as being “backed by the balance sheet” of the U.K. and the willingness of British taxpayers to provide bailouts (or not ask too many questions when the political class arranges one). Any illegal behaviour that reduces shareholder capital – a big fine imposed by U.S. regulators, for example – exposes the U.K. taxpayer to greater risk. Big banks benefit from large, opaque and dangerous government subsidies. The subsidies are a form of crony capitalism that should be ended, exactly as Jon Huntsman, the former Republican presidential candidate, has suggested. These banks should be broken up and made small enough to fail. If the megabank continues to exist and the subsidies stay in place, there is no market discipline that will constrain bad behaviour. Regulators must, in this case, prevent management from behaving in a reckless manner. The Bank of England and the U.K. Financial Services Authority would be foolish to ignore what has happened at HSBC. They should expect members of Parliament to take a keen interest, particularly given the Libor scandal at Barclay’s Plc. An informed and focused public outcry can have a major effect. Through the activities of HSBC, the British taxpayer has been effectively enabling the dealings of Mexican drug cartels. How can this not be a political scandal of the first order? Gulliver has given no indication that he intends to resign. Former Barclays CEO Bob Diamond was similarly defiant – until he was gone. His resignation was entirely appropriate. Diamond presided over illegal behaviour by Barclays’s staff. If he didn’t know what they were doing, that just speaks to his inability to be an effective CEO. The U.K. taxpayer should demand the same outcome for Gulliver. And the HSBC board should hire a replacement who commits to creating value for shareholders by breaking up what has become a toobig-to-manage bank. Bloomberg View

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July 25, 2012 business daily | 15

OPINION Business

wires Leading reports from Asia’s best business newspapers

Korea Times The Korea Exchange (KRX) exports its advanced information technology system to developing countries seeking to become the best capital market in the North East Asia. The operator of the nation’s stock bourses and forwards markets has provided a Korean-style IT system to Asian countries helping them operate markets easier and quicker. The KRX established a bonds trade system for Bursa Malaysia, the South East country’s stock bourse, in January 2008 edging eight other bidders.

Business Inquirer The Chamber of Mines of the Philippines (COMP) said it supported the recent government suspension of a foreign-led mining operation that was contributing to the environmental concerns in its host province. The miners’ group said that while it was confident that its members adhere to the principles of responsible minerals development. The suspended mining firm, Shenzou Mining Group Corp., is not a member of COMP, the industry group said.

Jakarta Post Yahoo! Indonesia announced today that it has agreed to return all trademarks and domain pertaining to Koprol to the founders of the geotagging based website. Koprol, launched in 2009, was a site that Yahoo! Indonesia acquired in 2010 to compete against similar sites. However, Yahoo! Indonesia announced last month that it would relinquish this site in an effort to streamline its business. The release, however, did not provide further details on the deal struck between both sides.

Business Line The US wants India to raise its foreign direct investment (FDI) ceiling, especially in the Defence sector. “If India raises its FDI ceiling to international standards, it would increase commercial incentives to invest,” the US Deputy Secretary of Defence, Ashton B. Carter, said. He was delivering a lecture on ‘Towards a joint vision for US-India Defence cooperation’, organised by the Confederation of Indian Industry. Currently, India limits FDI in the Defence sector to 26 percent. The statement comes a day after the Samajwadi Party joined the Left parties in opposing the proposed move to allow FDI in multi-brand retail.

Bubbles without markets Robert J. Shiller

Professor of Economics at Yale University

speculative bubble is a social epidemic whose contagion is mediated by price movements. News of price increase enriches the early investors, creating word-of-mouth stories about their successes, which stir envy and interest. The excitement then lures more and more people into the market, which causes prices to increase further, attracting yet more people and fuelling “new era” stories, and so on, in successive feedback loops as the bubble grows. After the bubble bursts, the same contagion fuels a precipitous collapse, as falling prices cause more and more people to exit the market, and to magnify negative stories about the economy. But, before we conclude that we should now, after the crisis, pursue policies to rein in the markets, we need to consider the alternative. In fact, speculative bubbles are just one example of social epidemics, which can be even worse in the absence of financial markets. In a speculative bubble, the contagion is amplified by people’s reaction to price movements, but social epidemics do not need markets or prices to get public attention and spread quickly. Some examples of social epidemics unsupported by any speculative markets can be found in Charles MacKay’s 1841 best seller Memoirs of Extraordinary Popular Delusions and the Madness of Crowds. The book made some historical bubbles famous: the Mississippi bubble 1719-20, the South Sea Company Bubble 171120, and the tulip mania of the 1630’s. But the book contained other, non-market, examples as well. MacKay gave examples, over the centuries, of social epidemics involving belief in alchemists, prophets of Judgment Day, fortune tellers, astrologers, physicians employing magnets, witch hunters, and crusaders. Some of these epidemics had profound economic consequences. The Crusades from the eleventh to the thirteenth century, for example, brought forth what MacKay described as “epidemic frenzy” among would-be crusaders in Europe, accompanied by delusions that God would send armies of saints to fight alongside them. Between one and three million people died in the Crusades. There was no way, of course, for anyone either to invest in or to bet against the success of any of the activities promoted by the social epidemics – no professional opinion or outlet for analysts’ reports on these activities. So there was nothing to stop these social epidemics from attaining ridiculous proportions. MacKay’s examples may seem a bit remote to us now. Some examples that we might relate to better can be found

sulting in a famine that killed tens of millions.

Speculative bubbles are just one example of social epidemics, which can be even worse in the absence of financial markets

in the communist, centrally planned economies of much of the twentieth century, which also had no speculative markets. To be sure, events in these economies might seem attributable simply to their leaders’ commands. But social contagions took hold in these countries even more powerfully than they have in our “bubble” economies. China’s Great Leap Forward in 1958-61 was a marketless investment bubble. The plan involved both agricultural collectivisation and aggressive promotion of industry. There were no market prices, no published profit-and-loss statements, and no independent analyses. At first, there was a lot of uninformed enthusiasm for the new plan. Steel production was promoted by primitive backyard furnaces that industry analysts would consider laughable, but people who understood that had no influence in China then. Of course, there was no way to short the Great Leap Forward. The result was that agricultural labour and resources were rapidly diverted to industry, re-

Ponzi resemblances The Great Leap Forward had aspects of a Ponzi scheme, an investment fraud which attempts to draw in successive rounds of investors through word-of-mouth tales of outsize returns. Ponzi schemes have managed to produce great profits for their promoters, at least for a while, by encouraging a social contagion of enthusiasm. Mao Zedong, on visiting and talking to experts at a modern steel plant in Manchuria, is reported to have lost confidence that the backyard furnaces were a good idea after all, but feared the effects of a loss of momentum. He appears to have been worried, like the manager of a Ponzi scheme, that any hint of doubt could cause the whole movement to crash. The Great Leap Forward, and the Cultural Revolution that followed it, was a calculated effort to create a social contagion of ideas. Some might object that these events were not really social epidemics like speculative bubbles, because a totalitar-

ian government ordered them, and the resulting deaths reflect government mismanagement more than investment error. Still, they do have aspects of bubbles: collectivisation was indeed a plan for prosperity with a contagion of popular excitement, however misguided it looks in retrospect. The recent and ongoing world financial crisis pales in comparison with these events. And it is important to appreciate why. Modern economies have free markets, along with business analysts with their recommendations, ratings agencies with their classifications of securities, and accountants with their balance sheets and income statements. And then, too, there are auditors, lawyers and regulators. All of these groups have their respective professional associations, which hold regular meetings and establish certification standards that keep the information up-to-date and the practitioners ethical in their work. The full development of these institutions renders really serious economic catastrophes – the kind that dwarf the 2008 crisis – virtually impossible. © Project Syndicate

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business daily July 25, 2012

CLOSING Beijing to loosen insurers’ investment

U.S. subprime rally building

China plans to double the amount insurers can invest in private equity and allow them to trade financial derivatives both at home and abroad as part of efforts to broaden their investment scope, according to draft regulations seen by Reuters. Insurers will be permitted to invest up to 10 percent of their total assets in private equity, up from 5 percent, according to rules drafted by the China Insurance Regulatory Commission. That would potentially unleash about US$50 billion of fresh capital into unlisted firms.

The rally in United States home-loan securities without government backing is accelerating as investors wager the housing bust is over and supply is sopped up by bond dealers emboldened by new capital rules. Gains on subprime-mortgage bonds from 2005 through 2007, the years leading to the worst financial crisis since the Great Depression, have soared to 5.4 percent, bringing returns for the year to 21.6 percent, according to Barclays Plc data. Investors are seeking mortgage securities after a 35 percent decline in home prices from the peak in 2006.

Germany’s AAA rating under threat With Moody’s slicing Germany’s rating outlook and more Spanish regions seeking bailout, the euro tumbled

erman bond yields rose from near all-time lows as Moody’s Investors Service cut the outlook on the nation’s Aaa rating, while the euro weakened. The yield on the 10-year bund, Europe’s benchmark debt security, climbed to 1.23 percent in London after matching the record low of 1.127 percent on Monday. The euro depreciated for a fifth day against the yen. Moody’s Investors Service on Monday changed its outlook for Germany, the Netherlands and Luxembourg to negative from stable as fallout from Europe’s debt crisis cast a shadow over the eurozone’s top-rated countries. Moody’s cited an increased chance that Greece could leave the eurozone, which “would set off a chain of financial sector shocks ... that policymakers could only contain at a very high cost.” It also warned that Germany and other countries rated ‘Aaa’ might have to increase support for troubled states such as Spain and Italy that are struggling to finance their deficits. Spain’s bailout of its regions

risks pushing the nation closer to a full international rescue after investors charged the nation more to borrow for five years than for a decade, threatening its access to debt markets. Spain’s five-year borrowing costs briefly rose above 10- year yields today, and traded 5 basis points below the 7.57 percent rate on benchmark 10-year debt at 11.30 am in Madrid. Bonds issued by Catalonia continued to fall after the region said it may tap the government’s rescue fund. The German Finance Ministry said the country would remain an anchor of stability in the 17-nation euro one, adding that Moody’s was focusing on short-term risks. “By means of its solid economic and financial policy, Germany will retain its ‘safe haven’ status and continue to play its role as the anchor in the eurozone responsibly,” the ministry said in a statement. It added, “Germany continues to find itself in a very solid economic and financial situation.” “Opposition to additional commitments for rescue measures

The euro depreciated for a fifth day after German credit outlook cut

is likely to strengthen,” said Berenberg Bank economist Christian Schulz. He added, however, that Germany’s cost of borrowing is unlikely to rise because of the change in the ratings outlook as it is still viewed as a safe haven. Moody’s said it would also weigh the eurozone developments’ impact on Aaa-rated Austria and France.

“Europe’s recession is deepening and spreading to the core, including Germany,” said Kit Juckes, head of currency research at Societe Generale SA in London. “For investors, fearful of downgrades even to core debt, the path of least resistance will be to look outside Europe and hope that the U.S. data is a little stronger.” Bloomberg/Reuters

HK back to business after Vicente Shops, transportation and the stock exchange were back in business after biggest typhoon in 13 years

ong Kong retailers and banks reopened and the city cleaned up its streets after severe Typhoon Vicente, the most intense storm to hit the city since 1999, swept into China. The Hong Kong Observatory cut its storm warning level to No 1, the lowest signal, as workers cleared debris-littered streets. Trading at the Hong Kong Exchanges and Clearing Ltd resumed at 1 pm after

the morning session was cancelled. The government closed all schools and public clinics yesterday as strong winds and heavy rain emptied streets, toppled trees and closed ports. Cathay Pacific Airways Ltd, the city’s biggest carrier, which halted all local operations on Monday night, said flights continue to be disrupted. “Vicente continues to move inland and weaken gradually,” the observatory said in a statement

posted on its website. Retailers including Apple Inc., Gucci Group, Coach Inc. and Folli Follie all have shops in the city’s central district. The city is dependent on Chinese tourists to drive sales, with the economic slowdown in the mainland dragging retail-sales growth in Hong Kong to its weakest pace since 2009 in May. Trucks and carts dotted the streets

Typhoon Vicente hit late on Monday, bringing winds of more than 140 km/h and heavy downpours

as deliveries were made, and office employees wore flip-flops and sandals to work as they navigated slippery pavements. Bus companies suspended 56 routes and diverted 15 because of fallen trees and road closures, the government said in a statement. Some ferry services resumed, it said. A total of 138 people sought hospital treatment, according to the Hospital Authority. Authorities are dealing with one landslide, seven instances of flooding and as many as 1,033 reports of fallen trees, the government said. Port operators said they restarted gate services. MTR Corp.’s trains resumed operations after some were disrupted this morning by damaged cables and fallen trees. More than 100 subway passengers were stranded overnight when the No 10 signal was hoisted, RTHK said on its website. Banks in the city resumed operations two hours after the lowering of the typhoon signal, the Hong Kong Association of Banks said. Bloomberg