Macau Business Daily, June 4, 2012

Year I - Number 46 -Monday June 4, 2012 Editor-in-chief: Tiago Azevedo Deputy editor-in-chief: José I. Duarte MOP 6.00

Interview

Middle class suffers ‘more than before’ Kwan Fung, Head of the Economics Department, University of Macau

Pages 4 & 5

CTM fined for first blackout

Sands clinches plot-for-flats deal

Page 2

Tax hike fuels tobacco smuggling

Page 8

China non-factory activity softens Page 9

S

ands China Ltd has given up its courtroom fight for Lots 7 and 8 in Cotai, the company has announced. Parent company Las Vegas Sands said in its 2011 report it had so far spent US$101.1 million in capitalised costs for the site.

In return for dropping its case, the government will grant the gaming operator an extension on the development of Lot 3, sources told Business Daily. The company was required to complete building work in less than a year but already

Flat sales hit 10-month high

acknowledged that it would ask for a deadline extension.

Sands China’s president Edward Tracy said the company was focused on “accelerating our development and design work on parcel 3, and thus bringing it to the market as quickly as possible” In addition, Sands China will also win the go-ahead to sell its Four Seasons apartments, sources added. The deal could set a precedent for other operators keen to build and sell flats in Cotai. “As well as being good news for SCL it will be interesting to see if this

sets a precedent for other operators on Cotai,” a source told Business Daily.

With the Sands China dispute solved, the government can now plan a new use for the land, and that could include a theme park – a “need” that Chief Executive Fernando Chui Sai On identified last month. “What we lack now is a theme park – maybe we could have some kind of policy inclination to encourage and support the city to have its own theme park,” Mr Chui said.

www.macaubusinessdaily.com

Brought to you by

MORE ON PAGE 7

HANG SENG INDEX

MICE industry withers as organisers spend up

18750

18700

The number of meetings, incentives, conventions and exhibitions fell in the first quarter of this year but organisers’ expenses increased seven-fold – from 3.2 million patacas last year to almost 24.7 million patacas. They are struggling to see a return on their investment, with revenues up but to just 3.5 million patacas.

18650

18600

18550

18500

June 1

Page 2

HSI - Movers

Lawmakers demand probe into La Scala

The number of residential units sold in April reached a 10-month high of 1,600 transactions – an increase of one-quarter over the previous month.

Home sales recorded in the Macau peninsula jumped by more than onethird to more than 1,400 transactions.

Similar growth was experienced in Taipa, where transactions increased to 332 from 241. Sales in Coloane shrank by one-third to 124.

While the numbers are the best this year, they are far from the record of 2,009 transactions last June.

Prices were mostly steady, with the average price per square metre reaching 52,367 patacas, down by 0.7 percent compared to March but up by 4.2 percent from a year before.

Page 3

New Macau Association legislators have called for an independent committee to probe the role of Secretary for Transport and Public Works Lau Si Io in the La Scala land deal. Meanwhile, another pan-democrat legislator has made an official complaint to the Public Prosecutors’ Office accusing Mr Lau of breaking the law by allowing the land grant to go ahead.

Page 3

Gaming growth on the slide

Name

%Day

CATHAY PAC AIR

4.17

WANT WANT CHINA

3.04

NEW WORLD DEV

2.03

LI & FUNG LTD

1.40

BOC HONG KONG HO

0.94

BOC HONG KONG HO

-1.56

COSCO PAC LTD

-2.52

HONG KONG EXCHNG

-2.74

CHINA OVERSEAS

-2.84

ALUMINUM CORP-H

-4.76

Slowing VIP demand pushed gaming revenue growth to 7.3 percent last month, the smallest year-on-year increase in almost three years.

Some analysts are concerned the results signal a definitive end to a record-breaking run but Las Vegas Sands president Michael Leven said the slowdown was “seasonal”.

The standout statistic was massmarket demand was far stronger, growing by about 30 percent.

2012-6-04

2012-6-05

2012-6-06

Page 6

25˚ 30˚

26˚ 31˚

26˚ 31˚

Source: Bloomberg

Brought to you by

2 |

business daily June 4, 2012

macau Brought to you by

CTM’s blackout in February left up to 96 percent of 3G mobile subscribers without any service for six hours

HOSPITALITY Day trippers’ spending A significant number of tourists fall within the category that the statistics bureau labels “excursionists”, or day trippers who do not stay overnight. Typically, they represent upwards of half of the city’s tourists but place a significant strain on infrastructure, starting with facilities at the border crossings. Casino and travel agencies often provide transportation and, as a result, traffic congestion is heightened.

Single-day visitors, quarterly 2500000

2000000

1500000

20 04 20 Q1 04 20 Q2 04 20 Q3 04 20 Q4 05 20 Q1 05 20 Q2 05 20 Q3 05 20 Q4 06 20 Q1 06 20 Q2 06 20 Q3 06 20 Q4 07 20 Q1 07 20 Q2 07 20 Q3 07 20 Q4 08 20 Q1 08 20 Q2 08 20 Q3 08 20 Q4 09 20 Q1 09 20 Q2 09 20 Q3 09 20 Q4 10 20 Q1 10 20 Q2 10 20 Q3 10 20 Q4 11 20 Q1 11 20 Q2 11 20 Q3 11 20 Q4 12 Q1

1000000

500000

The number of day trippers has grown significantly, by almost a factor of four, since the arrival of international casino companies in 2004. For the first quarter of this year, an average of more than 22,000 tourists entered every day – almost 450 busloads.

Their impact on the city’s traffic conditions and footpaths is evident. To the best of my knowledge, no one has tried to put a dollar value on the costs of excursionists but we do have an idea of how much they spend.

Excursionist’s per capita expenditure (MOP)

MOP800,000 slap for CTM blackout Telecommunications provider fined 800,000 patacas for causing February 6 blackout

T

elecom provider CTM has been fined 800,000 patacas (US$100,000) for a sixhour network outage that crippled 3G mobile services on February 6, Telecommunications Regulation Bureau director Lawrence Tou Veng Keong said on Friday.

The service outage was caused by operational and technical mistakes on the part of the company, according to the results of an on-site inquiry and eight meetings between the investigating team and CTM staff.

Inquiry team leader Kam Weng Tam, a professor in the Department of Electrical and Computer Engineering at the University of Macau, said CTM

made two serious mistakes that led to a “data storm” on the network.

Too much data was jammed during transmission to the core system, causing it to malfunction.

In being unable to ensure safe and complete operation of the network, CTM violated two regulations and a provision on its contract with the government, Mr Tou said.

He said the company would be fined 800,000 patacas. The highest penalty is 1.3 million patacas.

Furthermore, the inquiry found three main flaws in CTM’s operations: inadequate qualified or experienced technicians, it was unaware of the risks involving

the setup and verification of the network’s service system, and it was slow to react.

The disruption affected between 63 and 96 percent of 3G mobile subscribers, some 2G consumers and Internet users.

CTM announced it would offer discounts as compensation for the blackout. The value of discounts could reach 30 million patacas.

On May 11, part of CTM’s mobile service suffered a two-hour blackout, which the company said had been caused by human error.

CTM has not yet said whether it will offer compensation for May’s failure.

X.C.

Exhibitors splash cash as MICE staggers

2000

1800

Meetings and exhibitions industry fails to find its niche, with fewest events held since 2009

1600

Tony Lai

tony.lai@macaubusinessdaily.com

20 04 20 Q1 04 20 Q2 04 20 Q3 04 20 Q4 05 20 Q1 05 20 Q2 05 20 Q3 05 20 Q4 06 20 Q1 06 20 Q2 06 20 Q3 06 20 Q4 07 20 Q1 07 20 Q2 07 20 Q3 07 20 Q4 08 20 Q1 08 20 Q2 08 20 Q3 08 20 Q4 09 20 Q1 09 20 Q2 09 20 Q3 09 20 Q4 10 20 Q1 10 20 Q2 10 20 Q3 10 20 Q4 11 20 Q1 11 20 Q2 11 20 Q3 11 20 Q4 12 Q1

1400

Method 1

1200

Method 2

Note that the method for estimating expenditure changed in 2010. In that year, we have estimates based on both the previous and current methodology. The numbers suggest that earlier estimates were inflated. Using only data for the most recent periods, following the new method and ignoring the effects of inflation, these figures are not negligible. Accepting these estimates, day trippers contributed about 2 billion patacas to business revenues here in each of the last two quarters, excluding gambling revenues. Total revenue has doubled in the past two years alone.

J.I.D.

T

he city’s meetings, incentives, conventions and exhibitions (MICE) industry continues to struggle – with just 271 events held in the first quarter – but organisers spent seven times more.

The Statistics and Census Bureau says there were 1,045 MICE events overall last year, the lowest figure since the bureau began collecting industry data in 2009. The decline was due to a reduction in the number of government meetings, from 29 to 14. The number of incentive meetings fell by 14 percent.

According to the data released on

Friday, the number of events held in the first quarter decreased by six events, compared to a year ago.

There were fewer events held in venues that were free-of-charge. They fell by more than half to 21 events.

The average duration of MICE events also decreased, by 0.1 points to 2.1 days. Event organisers kept on investing last quarter.

Their expenses increased sevenfold, from 3.2 million patacas (US$400,000) in the final quarter last year to about 24.7 million patacas in the first quarter.

The biggest share of expenses went on venue production and decoration (7.5 million patacas), with 5.4 million patacas spent on advertising, promotion and public relations.

Revenues generated increased by 43 percent year-on-year to 3.5 million patacas.

While the number of events tumbled, the industry attracted more participants, whose number increased by about 25 percent to 161,781 in the first quarter.

The rise comes from increased participation in cultural and arts events, which saw 200 more participants than the 21,000 last quarter.

Commerce, trade and management continue to dominate MICE events, accounting for almost half the 129 events. Medical and health events ranked second, with a 24 percent year-on-year rise to 31 events this quarter, trailed by information technology with 29 events.

Weather Beijing 31/19o C Changchun 20/14o C

Harbin 18/14o C

Xian 30/18o C Shanghai 26/20o C Chengdu 24/20o C Kunming 26/17o C Haikou 32/25o C Sanya 32/26o C

Guangzhou 32/24o C

MACAU (04 June-09 June) Day

Temperature

Humidity

06/04

25/30o C

70/90 %

06/05

26/31o C

70/90 %

06/06

26/31o C

70/90 %

06/07

27/32o C

70/90 %

06/08

27/32o C

70/90 %

06/09

27/32o C

70/90 %

Shenzhen 30/23o C

ASIA (today)

Hong Kong 32/26o C

Manila

TOKYO

Jakarta

31/26o C

32/26o C

23/17o C

32/23o C

Macau 30/25o C

Bangkok

SEOUL

K. lumpur

35/27o C

SINGAPORE

27/18o C

35/25o C

taipei

29/23o C

June 4, 2012 business daily | 3

Investors plough money into flats

Photo by Manuel Cardoso

MACAU

Uncertainty, new releases in the peninsula and Taipa drives home sales to a 10-month high

editorial

Looking beyond Cotai

Vítor Quintã

vitorquinta@macaubusinessdaily.com

José I. Duarte

T

Volatile stock markets are fuelling investment in real estate, agents say

S

ales of flats in April were up by one quarter over sales the previous month, yet prices remained steady, according to the latest housing data. The number of residential sales reached a 10-month high but remained well below the monthly peak of 2,009 transactions last June.

The Financial Services Bureau said 1,600 houses and apartments were sold in April, a 26 percent improvement over March’s 1,265 transactions.

More homes were sold in the Macau peninsula, where deals grew by more than a third to number 1,144 transactions.

Similar growth was experienced in Taipa, where the number of transactions rose from 241 in March to 332 in April.

There were two, big residential projects in Taipa that came onto the market in March. Apollo Manhattan Holdings II Ltd is selling 84 of the Manhattan South Tower’s 88 units after buying the property in the

fourth quarter of last year.

Chinese Estate Holdings, developer of the luxury La Scala complex, claimed 300 of the project’s 900 units had been sold in the first four days, at an average rate of 7,200 patacas per square foot.

But sales were hit by allegations that the head of Chinese Estates, Joseph Lau Luen Hung, bribed former civil servant Ao Man Long to secure the plot where the HK$20-billion (US$2.6 billion) project is being built.

Sales in Coloane shrank by more than one third to 124 transactions, which is likely due to a break in the marketing of apartments at the One Oasis project.

Home prices were almost unchanged, with the average price per square metre reaching 52,367 patacas (US$6,580). The price per square metre was down by just 0.7 percent compared to March but was up by 4.2 percent year on year.

Midland Macau managing director

Ronald Cheung told Business Daily a month ago he expected the “positive trend” to continue in April, which is usually a seasonal peak for the real estate market, but to flatten out last month.

The Macau government introduced several measures last year, including a special stamp duty, to curb speculation.

Mr Cheung says 80 percent of the buyers are now residents, with the remainder from the mainland or Hong Kong.

The realtor believes residents are taking advantage of low interest rates. The benchmark Macau Interbank Offered Rate remained less than 0.6 percent throughout March.

“Volatile” stock markets are pushing people into the property sector as “a steady-growth investment for the long-run,” Mr Cheung said.

Others are homeowners searching for bigger houses or looking to buy a flat for their children, he added.

Legislators demand probe of Lau’s role in La Scala deal New Macau Association wants a high-level inquiry into the La Scala land deal; delivers complaint to the public prosecutor

L

egislators Ng Kuok Cheong and Paul Chan Wai Chi want a Legislative Assembly committee to probe the actions of Secretary for Transport and Public Works Lau Si Io in okaying last year’s land grant for the La Scala development.

The two pan-democrat legislators from the New Macau Association want the committee to conduct hearings and summon those involved to testify, they said last Friday.

Also on Friday, the third pandemocrat legislator, Au Kam San, handed a complaint to the Public Prosecutors’ Office that accuses Mr Lau of breaching the law.

The government approved in March last year a new land grant to the developer of La Scala, a project linked

to the corruption scandal surrounding former secretary Ao Man Long.

The Court of Final Appeal sentenced Mr Ao to another six months in prison on Thursday, meaning he will spend 29 years behind bars.

Mr Lau’s legal adviser said last month they had asked the authori-

ties if the plot was connected to Mr Ao’s actions. The Public Prosecutors’ Office said they had not been asked about the land deal.

The trio of legislators questioned why the secretary did not ask the office. They said it seemed officials had “deliberately avoided certain key information”.

Mr Lau’s staff said they wrote to the Commission Against Corruption and received a notice “which did not include information on any criminal case”. But the watchdog said it had “explicitly stated the plots were involved in an ongoing investigation”.

The legislators argue that it would be impossible for top officials to be unaware of the problems surrounding the land deal.

V.Q.

he fact that the Macau economy is becoming ever more entwined to the mainland economy does not come as a surprise to anyone. But we tend to focus on the most obvious and visible outcomes, be they the visitor flows that keep our streets busy, some shop owners happy and contribute to the amazing casino revenue figures or the prices of food and other essentials imported from the mainland.

There are certainly deeper roots and longer-term effects that go well beyond these more visible indicators. We, collectively, and the government, in particular, do not appear to be paying enough attention to them. I think we should.

The development of Hengqin Island is a case in point. We seem to look at it as just another, admittedly huge, construction site across the Lotus Bridge. At most, it relates directly to us because it will host the University of Macau.

Few people realise how big the overall project is and its possible role in the development and structuring of the economy of the Pearl River Delta.

To start with, it will aim to have it all. That includes everything Macau has been saying it has wanted for years: recreational facilities, hotels, fancy new industries, luxury condos and MICE infrastructure, You name it. It will have everything we have been dreaming about, except casinos.

The investment in the re-structuring of the city of Zhuhai goes well beyond Hengqin Island proper.

Across the border, they certainly seem to have a vision about where they want to go. But has the administration on this side of the border given serious thought about its likely impacts — good, bad or uncertain — on the evolution and development of Macau?

To start with, Hengqin will aim to have it all.

You name it. It will have everything we have been dreaming about, except casinos But we should not stop there. This is not the only thing happening in the mainland that might create an impression on Macau.

And I am not even thinking about the possibility, ever present, that sooner or later other regions may be granted the right to develop a gambling industry. Hainan is always in mind. Less visible, but not necessarily less important, is the case of Wenzhou.

There is talk of creating what would amount to the mainland’s first “special financial zone”.

As is so often the case with this type of experiment, time will tell exactly what the mainland authorities have in mind, what type of support or resistance their intentions will generate, or what services will be allowed and what is their timing. But there is talk of allowing the creation of private banks and, possibly, letting them carry out some international operations.

The broad effects of this evolution – not to mention the symbolism, should it happen – cannot be underestimated. It may affect profoundly the funding tools available to private companies and will open new avenues for interaction with international financial markets.

Is anyone considering the possible impact on Macau or what influence that may have on the funding channels of operators here? Will it divert away financial flows that today come this way in the absence of other outlets?

We seem transfixed by the recent transformation of Macau. Maybe it is time for us all – and the administration in particular – to start looking more thoughtfully to what is happening beyond our borders, lest we be blinded by the wonder of our achievements.

4 |

business daily June 4, 2012

macau

Squeezed in the middle José I. Duarte

jid@macaubusinessdaily.com

While income inequality in the city appears to be narrowing, mostly because of the government’s investment in social welfare, there are other problems looming.

The middle class is suffering “relatively more than before, largely due to an increase in prices,” says Kwan Fung, head of the Economics Department, University of Macau.

In an exclusive interview with Business Daily, he says controlling inflation will be difficult, “unless we accept a GDP growth that is slower”.

Housing is one of the most pressing problems because of the city’s limited land supply. Mr Kwan says urban planning should be focused mainly on residential development.

S

ome would say Macau is sensitive to the dynamics of markets in the mainland.

They could influence money and the flow of people into the city.

What’s your take?

I would say that we are even more sensitive to the number of visitors from mainland China than to financial flows, in part because in Macau we don’t have sophisticated financial markets. But, of course, people may argue that those larger gaming operators require a relatively huge capital for funding their operations. But I guess most activities will be financed on their own or in the Hong Kong market.

So, for that part, I would think we are not very sensitive, unless we face another Global Financial Crisis.

But that apart, I don’t think it is as important as the number of visitors from the mainland.

You were optimistic about the city’s economy in a recent presentation on economic growth. Some people have reservations about investment.

They expect it to fall faster than you assume.

You may regard us as slightly more optimistic for two reasons.

First, there is the role of public investment. The ongoing public

works, especially the LRT [Light Rail Transit], will generate more investment for several years. Then there are the private investments in Cotai. The second phase of Galaxy, Wynn… I think several projects will keep investment high.

All the big gaming operators have to approach the government with their projects. Do you get any specific information about their investment plans?

No, we don’t. But that would help.

Another issue for the future is Hengqin. How do you factor that into a model about Macau?

We don’t know much about that at this moment. The development plan of Hengqin is still very preliminary.

For now, the impact should be very limited. Not much financial capital from Macau, as yet, has been put into the island. We don’t say that in the long-run, maybe after five years, that may not have a positive effect.

But at this moment, we don’t feel it is an important variable affecting GDP growth.

In what conditions do you think that might happen?

The development of Hengqin focuses on a few sectors of high

value production. But they have not been realised. At this moment we are not optimistic about that park’s contribution to the economy.

Besides Hengqin, we can look to development in the Pearl River Delta. How much will integration affect the economy?

We are moving in that direction.

Actually, it has not contributed much to economic growth.

Maybe the bridge will help. Easier connection with Hong Kong will bring more business opportunities.

Of course, people can say that will affect our ferries, the airport… that part is true. But I guess more business opportunities will become possible.

Macau has an amazing GDP or income per capita. That could mean greater inequality.

Do you think that might impact on the economy and on consumption patterns?

Well, that’s a lot to be discussed.

The issue you mentioned, income inequality, actually, we have estimated several times Macau’s Gini ratio. To some extent, the asymmetry has slightly decreased.

This also matches the Gini estimates from the Statistics and Census Bureau.

That means, based on this objective estimate, income inequality did not get worse, as we all would expect.

So why has this happened?

Why do people complain a lot, including myself?

Well things are more expensive.

But, in recent years, because of the financial conditions, the government has put a lot in social welfare. So, low-income families receive quite a lot.

Don’t forget the minimum survival

income has been increased several times. And the increase is quite significant, higher than 10 percent.

So I think this contributes to a relative narrowing down of the income gaps. But I can understand why quite a lot of people complain.

I think the middle class has suffered relatively more than before, largely due to an increase in certain prices.

Are we watching something that, in different circumstances, is happening in other parts of the world, the middle class squeeze?

Yes, yes. I tell you, in general, the complaints come mainly from there.

Have you estimated the Gini index from the last census?

Not yet.

Let us talk about inflation.

How do we cope with inflation in Macau?

Of course, we don’t like it. But let us think about what happened in the economy in the past years.

GDP growth has been over 20 percent. But inflation has been at 5 or 6 percent.

To some extent, this is, sort of, technically acceptable. I’m not saying it is okay. We have to accept it. But an economy with such a high GDP growth, probably the top one in the world, in such a short time... that creates a huge demand. The production does not meet the needs.

What happens? The prices go up.

Our inflation has largely been driven by a high GDP growth. And this growth comes mainly from the

Measuring inequality The Gini coefficient is a statistical measure of income distribution, varying from from zero to one. The closer to zero, the more even income distribution is. The closer to one, the greater the difference between the affluent and low-income earners.

Values around 0.3 represent low levels of social inequality and are common in Scandinavian Europe.

A coefficient greater than 0.5 represents a high level of inequality.

June 4, 2012 business daily | 5

MACAU We have very high GDP growth and very low unemployment.

Five or six percent of inflation is not surprising, fits what could be expected

gambling sector, benefiting from the huge influx of visitors. Such a high GDP growth is the main factor, creates a demand pressure difficult to forestall. Actually 6 percent inflation is not too high.

So, why do people complain?

Well, people always complain about prices. Food prices went up more than 10 percent and people are very sensitive to that.

How to solve the problem? It is difficult, unless we accept a GDP growth that is slower.

It’s a kind of a trade-off. We have very high GDP growth and very low unemployment. Five or six percent of inflation is not surprising, fits what could be expected.

SME’s often complain about labour costs and rent. Doesn’t that have a negative impact on them and also society?

I agree. Labour is an important part of their costs. If they want to rely, in the future, a lot on labour, the evolution for them may be negative.

If the government allowed more imported labour, that would help, but not solve the longterm problems.

But housing is also a problem…

I have a different opinion on the housing problem in Macau. I still promote the idea of a separate market for housing, two separate markets. Those who need to buy property for their own use should be subject to minimum market... shouldn’t be led by the market.

The other, luxury buildings, let the market do it.

Some might argue that allowing so many luxury developments also increases land scarcity for other types of development…

I agree. So my idea is that, with the limited land supply, a higher percentage should be reserved to develop housing for residents.

We are talking about urban planning?

Yes, urban planning should be focused mainly on residential purposes, rather than speculative purposes.

Making models

economy is similar to Macau.

They visited us and, after discussion with them, we found we could follow their model.

At the very beginning, the model had only some ten or eleven equaWhen you presented your tions. Over time we started refining forecasts for Gross Domestic it. We tried to begin with a smallProduct recently, people scale model, a framework first. And expressed reservations about then we extended it. your findings. The government’s We had contact with some United own forecast is much lower than States specialists who also visited yours. Can you tell us how your us. We decided to change our strategy. It became a more sophisticated model works?

We started this work several years framework, with all these equations ago, in 2006 and 2007. The mod- covering many more sectors, most el we developed is what we call a of the economic activities. structural model, in the sense that I think right now our model is we use some 100 equations to rep- quite comprehensive. Whether or not our forecast is accurate is anresent the economy.

It is a Keynesian model and it could other question. be regarded as a very standard one. The model, we feel, is quite good.

In Hong Kong and other econo- Now it is in a stage of consolidamies, this kind of model is certainly tion, we are refining the data. And, a popular one. It is Keynes-inspired in fact, forecasting the GDP growth in the sense that it basically follows is just part of our work.

Eventually, we the standard, want to use this what we call the model to test, Income Identity. or to examine, That is, Gross various govDomestic ProdThe income (Y) generated in the ernment poliuct equals conproduction of goods and services cies: whether sumption plus equals gross domestic product (GDP); the government investment, and and income is spent as: should spend so on. household consumption (C); more or spend We associate investment by firms (I); less or spend in these 100 equagovernment’s public expenditure which sector, tions to differ(G); and net exports (X - M), that is, and how this ent categories exports less imports. spending affects or sectors. We various sectors cover consumpGDP = Y = C + I + G + (X-M) or the economy. tion, investment, employHow did you ment, inflation, adapt the modexport and imel to the specific characteristics port of goods and services … then, for example, in the consumption of Macau? How was it refined? section, we subdivide into con- The model, at the very beginning, sumption from households, con- came out quite well. sumption from non-profit making Then, the financial crisis produced some peculiar results in the Macau organisations, and so on.

Then we identify the dependent economy. We had to adjust the model. and independent variables and we Moreover, last year, the governcompute a model of simultaneous ment revised the GDP figures substantially, especially in the part reequations to obtain an estimate. lated to gambling. We had to revise When did you started designing the data. In the case of Macau, we have to pay particular attention to and testing it?

It took about one year. We had the the gaming sector, because this is help of specialists from Singapore. the pillar, the key part of the MaWe picked Singapore because the cau economy.

Income identity

Policy testing Has any government department shown interest in your work?

We have a project, commissioned by the Tertiary Education Services Office, on human capital development in Macau. They asked us to make some output GDP forecasts related to the demand for labour with different levels of qualifications. So they will use our model to forecast how many university graduates, in which fields, will be demanded in the future, for how many years. This project is ongoing.

And we have concluded one for the newly established government research policy unit. They’re doing a population policy study. They asked us to make also some projection of the GDP because they need this information for their study.

Demographic variables are often forgotten in most models. How do you integrate them?

To be honest, we don’t have a demographic variable in our model.

The way we go about it is like this.

They are doing these demographic calculations. They need to know what type of labour will be needed.

So we provide our forecast and, based on our forecast, they do the labour demand projection.

The evolution of the labour force depends on inflows of workers, either on blue cards or, in some cases, those allowed to become residents.

Both can change quickly. How does your model deal with that?

There is no 100-percent good way. We use historical data and estimate the needs of labour, but then we need to adjust to the actual evolution.

Are you working on a single forecast or using different scenarios?

Different scenarios. Baseline, more optimistic, more pessimistic.

So you make alternative discretionary assumptions about some factors?

We do. The baseline includes some assumptions about the growth of exogenous variables. For example, the GDP growth in Mainland China, Hong Kong, the United States. We use their historical data to obtain the forecast in our exogenous variables.

How far into the future do you feel you can make a confident projection?

We think five years. Actually, the government wants us to do it for 15 or 20 years. Impossible. At most, we can try for ten years. Beyond that it is too much.

In the work you provide to the government, what is the horizon?

We make quarterly forecasts on our own, for internal uses, we may not announce. But we announce at least once a year an annual forecast.

6 |

business daily June 4, 2012

macau

InBrief Spring goes out of Macau’s gambling step Countdown to Sam Ka villagers

Residents of Sam Ka village in Taipa will have a 30 day-period to leave their shacks to make room for a road for a new public housing complex at Estrada Coronel Nicolau de Mesquita, according to a notice published by the Land, Public Works and Transport Bureau on Friday. The villagers have now two weeks to appeal to Chief Executive Fernando Chui Sai On.

May growth lowest since 2009 – operator says ‘it’s seasonal’ Associate Editor

ume VIP market doesn’t collapse completely.

The most upbeat analysts and investors regard the May figures as what the financial sector refers to as “a difficult comp”.

That means when seasonal and other one-off variations create anomalies that make year-onyear comparisons either difficult or potentially misleading.

May blues

Construction Bank eyes more branches China Construction Bank Corp.’s Hong Kong unit plans to expand its network in the Macau and Hong Kong by about a third to as many as 65 branches in the next five years, Miranda Kwok, chief executive of China Construction Bank (Asia) Corp. said, also to boost its yuan-denominated business. The bank has eight branches in Macau and 41 locations in Hong Kong.

AirAsia Philippines’ halts Macau route Budget carrier AirAsia’s Philippine unit said Friday it had shelved daily flights to Macau planned for July amid a simmering maritime dispute between China and the Philippines. “I was advised that travel agents in Macau had cancelled tour groups to the Philippines” because of the territorial dispute, chief executive Marianne Hontiveros told AFP. She said the unit has not set a new timetable for launching the service.

Calls for St. Paul as pedestrian area An association of residents and representatives from shop-owners have called on authorities to transform Rua de S. Paulo, close to the St. Paul Ruins, into a pedestrian-only area during daytime. The Transport Bureau and the Land, Public Works and Transport Bureau have pledged to analyse the suggestion and use it “as a reference” for the urban planning and traffic design of the area.

New certification for heliport, airport Macau’s international airport and heliport will have to require new certification within six months after a new bylaw comes into effect. The Executive Council backed this bylaw on Friday, giving more powers to the aviation regulator to carry out regular inspections and handle certification renewals. The new certification issued by the Civil Aviation Authority will be valid for a five-year period.

28000 26000 24000 22000 20000 18000 16000 No darling buds this May – lowest revenue growth for three years

M

acau gaming revenues for May registered the lowest year-on-year growth rate seen in nearly three years. According to data released by the Gaming Inspection and Coordination Bureau (DICJ) on Friday, Macau’s gross revenue for the month was 26.078 billion patacas (US$3.26 billion), an increase of 7.3 percent on the 24.306 billion achieved in May 2011.

The last time such a modest yearon-year growth was recorded was in July 2009, when the world was still recovering from the first shocks of the global credit crisis.

The more bearish analysts are concerned the May results are a definitive end to a long and recordbreaking run. That’s because they represent a slowing beyond even the average 25 percent year-onyear improvement seen in the first

four months of 2012 which itself was a significant fall on the overall 42 percent revenue expansion of 2011.

As Business Daily reported last week, the braking effect in May was due principally to a slowing in demand among VIP gamblers from China. High rollers of all stripes were responsible for more than 70 percent of all Macau revenues from casino games of fortune last year.

Mass-market demand in May actually held up strongly at around 30 percent year-on-year growth – based on daily run rates up to May 27 – said Kenneth Fong of J.P. Morgan in Hong Kong in a note to investors before the official figures were issued. Mass-market gaming has gross margins typically double those of VIP, so an outperformance in mass gaming should be of benefit to operators; provided the high vol-

“I think it’s seasonal,” said Michael Leven, president and chief operating officer of LVS when asked about the Macau VIP slowdown at an in investor conference in New York last week.

“May is generally not the best month. And Golden Week [the Chinese New Year holiday] this year was actually three or four days versus seven [normally]. April was fine.”

Mr Leven added however that getting intelligence on trends in junket business can be difficult even for the senior managements of Macau casinos.

“We talk to the junkets but these are not individuals that generally reveal a whole lot about their business. And sometimes we’re not particularly interested in digging deeper,” stated Mr Leven.

“Macau’s GGR percentage for May 2012 will likely be the lowest number that we have seen in the last three years,” said Jon Oh of CLSA Asia-Pacific Markets in New York in a note to investors ahead of the DICJ tally, adding “this is a denominator problem more than an overall numerator deceleration”.

“We expect June 2012 to be an easier comp and a reversion to mid-teens growth levels may not be out of the question.”

Mr Oh stated: “Mass-market is finally outpacing VIP; year-to-date growing at 39 percent versus VIP’s 21 percent.”

Cameron McKnight of Wells Fargo in New York said in another note ahead of Friday’s official numbers: “Macro indicators [for mainland China] remain weak with reports suggesting that China’s biggest banks may fall short of loan targets for the first time since 2005.”

And he added: “We remain cautious on Macau gaming revenue growth, and continue to expect below-consensus 18 percent year-on-year growth for 2012.”

Gaming results: Market Share Per Operator (2012)

May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May

SJM

32% 29% 28% 27% 29% 26% 27% 26% 27% 28% 27% 25% 29%

Sands China 16% 16% 15% 14% 14% 14% 16% 17% 19% 18% 17% 18% 17% Galaxy

13% 15% 19% 20% 20% 21% 20% 19% 19% 17% 20% 21% 20%

Wynn

13% 15% 15% 13% 12% 13% 13% 14% 13% 13% 12% 13% 11%

MPEL

14% 14% 16% 15% 16% 15% 13% 14% 13% 14% 14% 14% 12%

MGM

11% 11% 8% 11% 10% 11% 11% 10% 10% 10% 10% 10% 11%

Total

100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

* Figures are rounded to the nearest unit, therefore they may not add exactly to the rounded total

June 4, 2012 business daily | 7

MACAU

Sands China units give up rights to Cotai 7 and 8 In exchange SCL may have secured future of Cotai 3 – sources

Photo by Manuel Cardoso

Associate Editor

rooms and accommodation added LVS’s chairman and chief executive Sheldon Adelson in a conference call to discuss the company’s fourth quarter 2011 earnings.

Theme park?

But if Parcel 3 has now been secured for SCL under a so-far confidential deal with government, it still leaves the question of what will happen to Parcels 7 and 8. Parcel 7 is contiguous to SCL’s existing land bank on the eastern side of the Cotai Strip and lies directly south of the company’s Sheraton Hotel tower which is due to open in September as part of phase two of Sands Cotai Central. Parcel 8 lies directly south of Parcel 7. LVS said in its 2011 report it has so far spent US$101.1 million in capitalised costs for the site.

Much fought over – Parcels 7 and 8 on Cotai

T

wo subsidiaries of Sands China Ltd have given up their legal rights to Cotai land parcels 7 and 8 – and in return SCL will be allowed a completion date extension on Parcel 3 and to sell apartments in its Four Seasons Macao development, Business Daily has been told. The latter is a longcherished dream of the company, dating back to the Four Seasons’ completion in 2008.

“On January 4, 2011, the subsidiaries [Venetian Macau Limited and Venetian Orient Limited] filed a judicial appeal with the Court of Second Instance in Macao in relation to the decision,” SCL said in a filing to the Hong Kong Stock Exchange on Friday.

“On May 30, 2012 the subsidiaries withdrew the appeal in accordance with articles 84(d) and 86 of Macao’s Administrative Litigation Procedure Code,” it added.

SCL declined a request from Business Daily to give specific reasons for the appeal withdrawal.

But an industry source told us: “Withdrawing the legal action means SCL and its subsidiaries are giving up their legal right to challenge via the courts the Macau Chief Executive’s original decision. I would expect however that in return for withdrawing the action, the company has asked for a settlement that gives it some kind of benefit.”

The source added: “There are a number of possibilities. One is that the government has offered compensation for the US$100 million (800 million patacas) the company says it has spent on preparing the ground on 7 and 8.

“Alternatively the government may have offered SCL something else it wants. One thing could be approval for a co-operative land title scheme at Sands’ Four Seasons apartments.

Another is an expansion on SCL’s labour import quota. A fourth possibility is the government has agreed to an extension on the completion deadline for the development of SCL’s Parcel 3. Or

there could be a combination of more than one of those elements.”

The source added that a deal could also be advantageous to the government.

“A settlement out of court allows the government to make a fresh disposal of the land. It also removes the risk of the government losing the land in the event that the SCL subsidiaries had won their case.”

A second source told Business Daily that the deal gives the time extension on Parcel 3 and allows the Four Seasons apartment sales.

KEY POINTS Sands China gives up rights to Cotai Parcels 7 and 8 Company may have done deal with govt – industry source SCL speeding up efforts on developing Parcel 3 Govt may want nongaming on Parcels 7 and 8

Another person familiar with the protracted land rights debate on Cotai told us: “As well as being good news for SCL it will be interesting to see if this sets a precedent for other operators on Cotai. MPEL was interested at one stage in building an apartment block at City of Dreams. And although they don’t comment on it

officially I think Galaxy would be interested in that on Cotai.”

Parcel 3 The price asked by SCL in return for dropping claims to 7 and 8 may well be government cooperation on Parcel 3, a piece of land on the western side of the Strip next to Four Seasons Macao. That was given some weight by a statement the company issued on Friday afternoon on behalf of Edward Tracy, Sands China’s president and chief executive.

Mr Tracy said: “We are focused on adding to that [Cotai] critical mass through the opening of the next phase of Sands Cotai Central this fall and by accelerating our development and design work on Parcel 3, and thus bringing it to the market as quickly as possible.”

SCL’s parent company Las Vegas Sands Corp said in its 2011 annual report that under the terms of the already approved land concession for Parcel 3 it is required to complete building work by April 17, 2013.

Given that the company is still busy completing phase two of Sands Cotai Central and has imposed both labour import restrictions and a cap on new gaming tables, no one in Macau realistically expected SCL to be able to complete Parcel 3 by that date.

LVS said as much in its 2011 annual report: “We intend to apply for an extension from the Macao government to complete our parcel 3 development as we will be unable to meet the April 2013 deadline.”

In February this year our sister publication Macau Business reported SCL had submitted plans to the government for a 4,000-room hotel scheme on Parcel 3. A source told Macau Business Newsletter the project would be “highly themed” but different from the neighbouring Venetian Macao, with most of the hotel rooms as three- and fourstar units. There would also be a separate tower for VIP gaming

Accelerating development and design work on Parcel 3 Edward Tracy,

Sands China’s president and chief executive

Yet another source told Business Daily: “The government has made no secret of the fact it would like more non-gaming projects on Cotai, so that could be a possibility for 7 and 8.”

In April Macau’s Chief Executive Fernando Chui Sai On told the Legislative Assembly: “What we lack now is a theme park – maybe we could have some kind of policy inclination to encourage and support the city to have its own theme park.” Mr Chui didn’t state what form the theme park would take or where it would be.

In September 2010 SJM Holdings, the Hong Kong-listed parent company of Macau gaming operator Sociedade de Jogos de Macau, wrote to the government expressing interest in taking over Parcels 7 and 8. And in November of that year a company called Macau Theme Park and Resort Ltd – controlled

by Angela Leong On Kei, a Macau legislator, a director of SJM and the fourth consort of former Macau gaming monopolist Stanley Ho Hung Sun – said it intended to build a 10.4 billion patacas “family-oriented amusement resort and hotels” scheme on a site near the Macao Dome on Cotai.

8 |

business daily June 4, 2012

macau

Customs busts big-time cigarette smugglers

Brought to you by

Winds stay poor, economy cruises The first quarter figures for gross domestic product are out.

Some observers are concerned that the economy is slowing down and, in particular, the external conditions are less favourable than before. There is some truth in that.

Both our main source markets, the mainland and Hong Kong, are expected to grow slower than before.

Moreover, the overall outlook for the world economy is unclear. Economies such as the United States are gaining traction slowly and the threat of serious disruptions caused by the difficulties in the Euro zone cannot be put aside.

On the positive side, the economy has cruised through most of the crisis without too much pitch and roll.

Three big seizures account for 40 percent of all cigarettes uncovered in the first quarter

M

acau Customs has impounded 53,000 smuggled cigarettes in the past eight weeks, worth 60,000 patacas (US$7,500), with 27,000 patacas of unpaid taxes.

The three biggest cases account for about 40 percent of the confiscated cigarettes impounded in 178 seizures made in the first quarter.

Customs officers found cigarettes being sold in two shops for 8 to 10 patacas a pack on April 24. The tax alone on a single packet is 10

patacas and the average retail price is usually about 26 patacas.

The shops’ managers did not have the necessary import licences.

One of the managers later confessed that the cigarettes were bought in Zhuhai’s Gongbei area and smuggled into the Macau by couriers who crossed the border several times a day.

A woman collecting cigarettes from couriers at a store close to the Border Gate was caught on May 31. She later admitted being paid

8 patacas a packet to collect the cigarettes, which she used to pay 5 patacas a pack to the courier.

The cigarettes have been confiscated and customs said those involved could be fined from 5,000 to 100,000 patacas.

Beginning in April, the number of duty-free cigarettes each person can bring into the city has been halved to 100. Customs understands some visitors are smuggling cigarettes into the city for organised black market groups.

X.C.

Real quarterly GDP Homologous growth rate, chained prices (2010) 35 30

HAPPENINGS

25 20 15 10

Venetian debut for leading U.S. orchestra

5 0

200 5 200 Q1 5 200 Q2 5 200 Q3 5 200 Q4 6 200 Q1 6 200 Q2 6 200 Q3 6 200 Q4 7 200 Q1 7Q 200 2 7 200 Q3 7 200 Q4 8 200 Q1 8Q 200 2 8 200 Q3 8 200 Q4 9 200 Q1 9Q 200 2 9 200 Q3 9 201 Q4 0 201 Q1 0Q 201 2 0 201 Q3 0 201 Q4 1 201 Q1 1Q 201 2 1 201 Q3 1 201 Q4 2Q 1

-5 -10

The financial crisis surely had an impact, but it was shorter and less violent than might have been expected.

There were four quarters in negative territory, in the second half of 2008 and first half of 2009, but the recovery was quick and strong – even if the crisis lingered almost everywhere else.

In fact, growth since the recession has been stronger than before. Even the lowest recent rates are mostly on par with the highest before the crisis.

The evolution in the structure of GDP is possibly a greater worry.

GDP structure select components (as % of GDP) 120

100

80

60

40

20

01 002 003 004 005 006 007 008 009 010 011 Q1 2 2 2 2 2 2 2 2 2 2 12 20

0

20

Fixed capital

Xgoods

Xservices

Data for the first quarter confirm that the economy is increasingly dependent on the export of services, which include and are driven mainly by gambling. It constituted 113 percent of GDP in the first quarter. Ten years ago, the figure was 65 percent and was already considered excessive. Exports of goods are reaching levels of irrelevance, dropping from 35 percent to 3 percent in the same period.

Even investment, which has picked recently, is well below the “golden period” of 2005-2009.

Diversification is certainly not the name of the game.

J.I.D.

The Philadelphia Orchestra makes a debut performance at The Venetian Theatre tonight

T

he Venetian Theatre will host an exclusive chamber performance from the famed Philadelphia Orchestra tonight. The concert features a select group of two violinists, two violists and two cellists.

Currently in the middle of a 10-day tour of the mainland, the orchestra is performing as well as organising workshops and master classes in Beijing, Shanghai, Guangzhou, Tianjin and Macau.

The orchestra has a 112-year history and deep connections to the mainland, becoming the first American orchestra to perform in China in 1973.

“The music of our great orchestra is symbolic of the friendships that have been built and endured over four decades, of the connection between our countries and the individuals who have performed together and shared their art and their talents,” orchestra president and chief executive officer Allison Vulgamore told Business Daily.

“It is a powerful truth that music is a language that transcends political borders. It is our common language, shared person to person, and country to country.”

This will be the orchestra’s first visit to Macau. Sponsored by Sands China Ltd, it commemorates the upcoming 40th anniversary of its historic 1973 trip.

“There is a particular anticipation associated with performing in a new city for the first time,” Ms Vulgamore said.

“There will be a great deal of positive energy in the concert hall that evening, shared between our performers onstage and the audience.”

The orchestra is using the tour to gauge the interest for annual visits to China for the next five years, according to media reports.

“We have strong musical traditions within our countries and to share them across many miles really helps us to get to know one another as artists, as people and as citizens of a shared world,” she said.

The Venetian Theatre, the former home of Cirque du Soleil’s Zaia, opened on April 8 with a performance by leading violinist Jue Yao. Since then, it has also hosted the China National Symphony Orchestra and a concert by noted jazz artist George Benson.

X.C.

There will be a great deal of positive energy in the concert hall, shared between our performers onstage and the audience Allison Vulgamore,

Philadelphia Orchestra president

June 4, 2012 business daily | 9

GREATER CHINA

China non-factory activity weakens Market demand remains steady – official

C

hina’s non-manufacturing industries expanded at a slower pace for a second month, as export orders declined and weakness in real estate countered strength in retailing and leasing, an official survey indicated.

The purchasing managers’ index fell to 55.2 in May from 56.1 in April, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in a statement yesterday in Beijing. A reading above 50 indicates expansion.

The data add to evidence of slower growth in the world’s secondbiggest economy as Europe’s debt crisis crimps overseas demand and government curbs on real estate feed through to more industries.

A manufacturing report on Friday showed the weakest reading since December, helping send Brent crude tumbling below US$100 a barrel for the first time in almost eight months.

“Although the index fell slightly in May, it was still at a relatively high level of 55.2 which is in line with the general trend of steady growth in nonmanufacturing industries,” Cai Jin, a federation vice chairman, said in the statement. “Market demand remains steady and reflects the structural changes in our country’s economy.”

Non-manufacturing industries account for about 40 percent of the economy, according to the federation. The PMI, which is seasonally adjusted, is based on a survey of about 1,200 companies covering 27 service industries including construction, telecommunications and transport.

Kong-based economist, estimates the government may implement a stimulus in the range of 1 trillion yuan (US$157 billion) to 2 trillion yuan while Credit Agricole CIB strategist Dariusz Kowalczyk said a total 1 trillion yuan may be needed this year and next to spur growth.

Easing inflation

compared with a year earlier.

Expansion moderated to 8.1 percent in the first three months of the year, the fifth straight quarterly slowdown.

Dong Tao, Credit Suisse’s Hong

Boost demand Premier Wen Jiabao and the State Council warned last month that the economy faces increasing downward pressure. They pledged to put a greater focus on growth and “actively” boost domestic demand.

The National Development and Reform Commission may be accelerating construction approvals as part of measures to counter a slowdown that Credit Suisse Group AG estimates will push economic growth down to 7 percent or “slightly below” this quarter

55.2 purchasing managers’ index in May

A manufacturing PMI compiled by the statistics bureau and logistics federation fell to 50.4 in May from 53.3 in April, a June 1 report showed. The reading, barely above the 50 mark that divides expansion from contraction, was the lowest in five months and compares with a 52.0 median estimate in a Bloomberg News survey of 27 economists.

A separate gauge from HSBC Holdings Plc and Markit Economics released the same day showed a seventh straight contraction, the longest since the global financial crisis.

Inflation indicators in both the nonmanufacturing and manufacturing PMIs declined in May, giving policy makers more room to implement stimulus to combat the slowdown.

Consumer prices rose 3.4 percent in April from a year earlier, below the government’s 4 percent target for 2012 for the third month.

A gauge of input prices in yesterday’s survey fell to 53.6 from 57.9 in April, while a subindex measuring the prices charged for goods contracted, showing a below-50 reading for the first time this year, according to the statement. The federation’s official manufacturing PMI showed input prices contracting for the first time since December.

The “obvious” decline in prices “could take some pressure off inflation,” Mr Cai said in yesterday’s statement.

Bloomberg

Beijing cracks down on Tiananmen anniversary Petitioners held in Beijing, forced to return to their home province

P

olice in China beat and detained political activists marking the 23rd anniversary of the crackdown of the Tiananmen democracy protests yesterday, rights campaigners said.

Officers used violence against rights defenders in the southeast Fujian province and detained them, while more than 30 petitioners were held in Beijing and forced to return to their home province, the activists reported.

“Around 20 rights defenders were stopped by police and beaten this morning on May First Square,” Shi Liping, the wife of activist Lin Bingxing, told AFP by phone from Fuzhou, capital of Fujian province.

Police in Fuzhou, when contacted

by AFP, denied anyone had

been detained.

People’s Liberation Army soldiers stormed into central Beijing on June 3-4, 1989, firing upon unarmed demonstrators and citizens, killing hundreds, as they ended six weeks of democracy protests on Tiananmen Square.

Over two decades later, Beijing still considers the incident a “counter revolutionary rebellion” and a “political storm” and has refused to acknowledge any wrongdoing or consider compensation for those killed.

In Beijing, police detained at least 30 activists from eastern China’s Zhejiang province at a Beijing railway station on Saturday and put them on a bus to their hometown of Wuxi.

“The police told us it was because of June 4 [the day of the crackdown], that during sensitive periods they had to clean up unstable elements,” petitioner Xie Qiming, told AFP from the bus.

“No one was beaten, but there were no legal procedures either, they just forced us on to the bus and are sending us home.”

Veteran dissident Hu Jia said on his microblog that police had stepped up security around the homes of numerous political activists and social critics in Beijing.

Rights lawyers said police had also contacted them and warned against participating in activities marking the crackdown.

AFP

China mulls more opening steps China is considering steps to allow overseas firms to float shares in the country and foreign institutions to invest yuan they hold in domestic markets, state media on Saturday quoted a government document as saying.

The government will draft rules for overseas firms to list in China and make necessary preparations for the opening, according to the documents signed by eight government departments, including the top planner, the National Development and Reform Commission.

China has been talking about the launch of an international board in the Shanghai Stock Exchange to encourage foreign listings. It was about to kick off the new board in the second half of last year but the move was delayed by the erupting euro zone debt crisis.

This year, China has conducted a slew of market reforms, including to improve initial public offering rules to clampdown on excessive speculation in newcomers and a plan to launch a high-yield bond market for small companies to raise funds.

It has also doubled the yuan’s trading band against the dollar and plans to launch a slew of derivatives, such as government bond futures, in a bid to offer corporations more hedging tools.

“Currently and in a coming period of time, the global economic structure will be faced with deep adjustments,” said the document, also signed by the People’s Bank of China, the central bank, and the Ministry of Finance.

VW to expand mainland market Volkswagen elevated China’s status within its sprawling empire and reasserted control over its wayward trucks brands with an extensive overhaul of senior management as it bids for global market dominance.

The company created a management board position dedicated solely to China – it’s single largest market – which will be filled by Jochem Heizmann, who has been heading up the group’s commercial vehicles businesses.

Volkswagen was the first overseas carmaker to enter China three decades ago, and with its two local partners is investing 14 billion euros (US$17.3 billion) up to 2016 to build factories around the country.

It has been scooping up brands like Scania, MAN , Porsche and Ducati in recent years as part of an effort to overtake General Motors and Toyota at the top of the industry by 2018.

“Our company has grown strongly and become more international in recent years. This fundamental reorganisation is the right response to the increasing challenges,” Volkswagen chief executive Martin Winterkorn told reporters at a news conference in Stuttgart.

Mr Heizmann, a manufacturing expert, will have the job of expanding Volkswagen’s business in China, where the group sold 2.3 million vehicles last year.

10 |

business daily June 4, 2012

ASIA

Stocks cap five week losing streak Weak manufacturing activity in China and dismal growth data from India underscore Asia’s vulnerability to the European turmoil Nick Gentle

A

sian stocks fell for a fifth week, the regional index’s longest streak of weekly losses in a year, as Spain’s borrowing costs soared and amid further signs that China’s economic slowdown is deepening, dimming the outlook for companies dependent on global demand.

The MSCI Asia Pacific Index fell to levels last seen in December, with Japan’s Topix Index recording a ninth week of decline, the longest such run since 1975.

HSBC Holdings Plc, Europe’s biggest lender, fell 3 percent.

China Railway Construction Corp. dropped more than 7 percent as China’s industrial production expanded at a slower rate and the country ruled out stimulus measures on a scale similar to 2008.

“Investors are still not convinced about the debt crisis in Europe and that’s being reflected in higher bond yields in Spain and Italy,” said Khiem Do, Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management (Asia) Ltd. Europe is “the most significant risk from a global investor view point. Over the past 12 months, the Western world has been trying to find holes in the China growth story.”

[Europe is] the most significant risk from a global investor view point. Over the past 12 months, the Western world has been trying to find holes in the China growth story Khiem Do,

Baring Asset Management (Asia) Ltd

The MSCI Asia Pacific Index fell 0.2 percent to 111.38 last week.

The gauge dropped 10 percent in May, the most since October 2008, as economic reports showed the economies of China and the U.S. slowing while the debt crisis that began in Greece spreads to larger countries in Europe.

The losses erased US$4.5 trillion in global equity value last month, according to data compiled by Bloomberg. That dragged the value

its longest losing streak since September 1975, as Europe’s crisis crimped the outlook for exporters and sent the yen to its highest level against the euro since 2000.

The benchmark Nikkei 225 Stock Average lost 1.6 percent.

Australia’s S&P/ASX 200 Index gained 0.9 percent and South Korea’s Kospi index increased 0.6 percent. Indonesia’s Jakarta Composite Index slumped 2.6 percent as coal miner PT Bumi

room for additional measures to support the economy.

Europe declines Companies that do business in Europe declined. Canon Inc., the Japanese camera maker that counts Europe as its largest market, dropped 5.6 percent to 3,050 yen in Tokyo. HSBC fell 3 percent to HK$60.85 in Hong Kong.

Hutchison Whampoa Ltd, the port operator that gets about 55 percent of revenue from Europe 3.8 percent to HK$64.

China has no plan to introduce stimulus measures on the scale deployed during the global financial crisis to counter this year’s economic slowdown, the official Xinhua News Agency reported. The government has cut

HSBC fell 3 percent to HK$60.85 in Hong Kong

of shares on the MSCI Asia Pacific Index to 11.4 times estimated earnings, according to data compiled

by Bloomberg. That compares with 12.2 times for Standard & Poor’s 500 Index companies and 9.8 times for the Stoxx Europe 600.

Topix losses Japan’s Topix Index declined 1.8 percent as it fell for a ninth week,

Resources plunged 20 percent on the reduced outlook for fuel demand and the prospect of quotas on production.

Hong Kong’s benchmark Hang Seng Index slipped 0.8 percent and Shanghai Composite Index, which tracks shares on China’s biggest stock market, increased 1.7 percent amid speculation that slowing manufacturing activity and lower home prices give the government

banks’ reserve ratios three times since November and vowed to fast-track infrastructure projects to boost growth.

“The Chinese government will continue to cut the reserve ratio but I don’t think they will implement any monetary stimulus,” Cedric Ma, Senior Investment Strategist at Convoy Asset Management Ltd. “There is no emergency right now.”

Bloomberg

Japan to widen insider trading crackdown Securities regulator plans to involve U.S. authorities – sources Noriyuki Hirata

J

apan’s securities regulator plans to ask the U.S. Securities and Exchange Commission (SEC) to cooperate in a widening probe of insider trading in Japanese shares, two sources with knowledge of the situation said on Saturday.

Japan’s Securities and Exchange Surveillance Commission (SESC) believes confidential information on a planned share offering by Tokyo Electric Power Co. in 2010 was leaked to American investors, according to the sources, who asked not to be named because the investigation remains ongoing.

The identity of the U.S. investors was

Japan’s securities regulator believes confidential information on a share offering by Tepco was leaked to American investors

not immediately clear. The move to involve the SEC in the probe marks an escalation of a crackdown on a practice that Japanese securities regulators believe has become widespread in the Tokyo market in recent years.

In the deals under investigation, investors were tipped off about planned share offerings by the brokerages involved, then short-sold the shares. They were then allowed to buy back into the offering to close the position at a profit, people

involved in the investigation have said.

Japanese financial regulators have the power to act against foreign financial institutions with operations in Japan, but it was not clear what penalties they could seek against funds which may have engaged in insider trading from offshore.

Japanese officials who have been investigating the role of Nomura Securities Co. in insider trading cases believe information regarding the Tokyo Electric offer leaked from Nomura to U.S. investors through a third party, sources said.

On Friday, Nomura replaced the head of institutional sales at its core securities unit. A source with knowledge of the matter said Kenichi Ishitomi had been asked to relinquish his post to focus on cooperating with the SESC probe.

The SESC plans to ask foreign securities regulators to cooperate with the ongoing investigation if there is evidence to suggest investors

June 4, 2012 business daily | 11

asia

India export growth continues to slow Compounds economic woes; govt urged to act

A

sharp slowdown in India’s foreign trade added to the woes of Asia’s third-largest economy and piled more pressure on the weak coalition government to take steps to boost economic growth.

Indian exports inched up 3.23 percent to US$24.5 billion in April from a year earlier after falling in March, data released on Friday confirmed, a far cry from the more than 20 percent growth recorded in recent years.

India has been hit by falling demand from its traditional export markets such as the United States, which is struggling to bring down unemployment and Europe, where a sovereign debt crisis tipped many economies back into recession.

The export figures compounded an already gloomy economic picture – GDP data last Thursday showed the economy grew at its slowest pace in nine years in the first three months of 2012. The rupee has also tumbled to record lows last week.

There was fresh evidence of a slowdown in the manufacturing sector, which accounts for nearly 15 percent of the economy, on Friday as India’s top automaker Maruti Suzuki said its car sales in May fell

KEY POINTS Exports up 3.23 percent, far from the 20-percent growth in recent years India’s top automaker reports falling car sales Indian media blast govt’s handling of economy Prime Minister announces steps to track costs of govt projects

in other countries profited from the same leak of insider information.

The SESC has declined to comment on the details of its ongoing investigation.

US$5.8 billion Amount that Tepco raised to finance investment in nuclear power and expansion plans

JP Morgan & Chase is the only foreign entity that has been implicated in the insider trading

5.9 percent, dragged down by high fuel costs and an excise tax hike.

After the shock GDP data, Prime Minister Manmohan Singh awoke to newspaper editorials accusing him of weak leadership and demanding that he take action to arrest the economic slide.

Chetan Ahya said on Thursday.

Mr Singh on Friday also unveiled a new plan to fast-track delayed infrastructure projects to provide fresh impetus to the economy. More than 200 large state-funded road, port and oil pipeline projects are running behind schedule.

India’s top automaker said its car sales in May fell 5.9 percent

He held a brief meeting of his economic cabinet on Friday evening, but the only item on the agenda was a proposal to lift a ban on the export of skimmed milk powder. One minister leaving the meeting said the economic situation was not discussed.

The meeting capped a bad week for Mr Singh’s government, which not only had to contend with awful economic news but a national strike on Thursday against a steep petrol price hike. The increase, a reform cheered by investors, is now expected to be partially rolled back within the next few days.

“We believe policymakers’ decision to continue the bad mix of growth since the credit crisis is at the heart of most of the macro challenges facing the country,” Morgan Stanley economist

investigation so far. Investigators found that a JP Morgan salesman leaked information on a 2010 share offering by Nippon Sheet Glass to a Tokyo-based fund, sources have said.

JP Morgan, which has not been named as a target of investigation and may not face penalties, has said Japanese regulators had not found any “organisational” involvement in the improper trades.

The Tokyo Electric share offering announced in September 2010 was controversial even at the time, with some analysts suggesting that sharp sell-off in its shares suggested insider trading.

Shares in the utility, which is now being nationalised as a result of the high costs of cleaning up after last year’s Fukushima nuclear disaster, fell almost 13 percent in the two weeks before the share offering was announced.

Tepco raised US$5.8 billion in the deal to finance investment in nuclear power and expansion plans in overseas gas and nuclear projects.

Reuters

Standard & Poor’s cut India’s credit rating outlook in April to negative from stable, worried by its fiscal and current account deficits. The decision jeopardises India’s longterm rating of BBB-minus, the lowest investment grade rating.

Reuters

12 |

business daily June 4, 2012

MARKETS Hang SENG INDEX PRICE

Day %

VOLUME

PRICE

Day %

VOLUME

25.25

-0.1976285

99505578

CHINA UNICOM HON

10.64

-0.1876173

50453051

3.2

-4.761905

25163105

CITIC PACIFIC

11.64

-2.675585

3489827

BANK OF CHINA-H

2.98

-0.3344482

359894239

CLP HLDGS LTD

63.75

0.8702532

5417919

BANK OF COMMUN-H

5.04

0

18814784

CNOOC LTD

13.74

-2.136752

72169868

BANK EAST ASIA

25.85

-0.3853565

6379405

9.28

-2.521008

BELLE INTERNATIO

12.38

-0.6420546

19626002

ESPRIT HLDGS

12.28

BOC HONG KONG HO

21.55

0.9367681

13419602

HANG LUNG PROPER

CATHAY PAC AIR

NAME AIA GROUP LTD ALUMINUM CORP-H

NAME

COSCO PAC LTD

2947570

SINO LAND CO

10.76

0.3731343

11415254

SUN HUNG KAI PRO

4957466

-0.7168459

2232276

5042636

TENCENT HOLDINGS

214

0.2811621

3034701

-1.76

5474571

TINGYI HLDG CO

18.2

-1.194354

7963155

24.75

0

7848242

WANT WANT CHINA

9.16

3.03712

21285593

WHARF HLDG

40.65

0.2466091

5430251

4.173623

7795027

HANG SENG BK

100

-0.2991027

1884338

4051984

HENDERSON LAND D

39.3

0.511509

2641079

CHINA COAL ENE-H

7.02

-2.364395

29423496

73.85

-0.5387205

3758149

CHINA CONST BA-H

5.42

0.7434944

406077564

18.3

0.4390779

13566287

CHINA LIFE INS-H

17.94

-1.536773

30139045

CHINA MERCHANT

23.3

-1.061571

9018554

HONG KONG EXCHNG

106.6

-2.737226

7733208

HSBC HLDGS PLC

60.85

-0.6530612

26204161

77.9

-0.7643312

11831286

HUTCHISON WHAMPO

64

0.2349256

6438239

15.76

-2.836005

26069449

IND & COMM BK-H

4.7

-0.4237288

306388315

CHINA PETROLEU-H

6.86

-0.723589

44674137

LI & FUNG LTD

14.44

1.404494

23888347

CHINA RES ENTERP

24.25

-1.221996

4758316

MTR CORP

25.25

0.7984032

2775260

MOVERS

17

19

2 19100

INDEX 18558.34 HIGH

18897.12

LOW

18420.4

14.6

-0.273224

7876668

NEW WORLD DEV

8.53

2.033493

13678977

52W (H) 23707.94

CHINA RES POWER

14.12

0.5698006

9206336

PETROCHINA CO-H

9.78

-0.407332

72592033

(L) 16170.35

CHINA SHENHUA-H

27.45

0.3656307

21210002

PING AN INSURA-H

56.5

-1.137358

14303465

PRICE

DAY %

VOLUME

22.75

-1.515152

7969178

CHINA RES LAND

VOLUME

0.05688282

-0.8938547

CHINA OVERSEAS

-0.2764977

83.1

88.7

CHINA MOBILE

Day %

54.1 87.95

12.48

HENGAN INTL

PRICE

POWER ASSETS HOL

SWIRE PACIFIC-A

CHEUNG KONG

HONG KG CHINA GS

NAME

30-May

1-Jun

18400

Hang SENG CHINA ENTErPRISE INDEX NAME

NAME

PRICE

DAY %

VOLUME

AGRICULTURAL-H

3.11

-0.955414

178385144

AIR CHINA LTD-H

4.93

4.008439

16394209

CHINA PETROLEU-H

6.86

-0.723589

3.2

-4.761905

25163105

CHINA RAIL CN-H

5.86

ANHUI CONCH-H

23.4

-2.09205

10288070

CHINA RAIL GR-H

BANK OF CHINA-H

2.98

-0.3344482

359894239

CHINA SHENHUA-H

BANK OF COMMUN-H

5.04

0

18814784

CHINA TELECOM-H

BYD CO LTD-H

15.7

-0.5069708

2227613

DONGFENG MOTOR-H

CHINA CITIC BK-H

4.05

0.7462687

24501197

GUANGZHOU AUTO-H

6.68

1.519757

8950046

CHINA COAL ENE-H

7.02

-2.364395

29423496

HUANENG POWER-H

4.87

-1.217039

17339486

CHINA COM CONS-H

7.08

-3.013699

21540438

IND & COMM BK-H

4.7

-0.4237288

306388315

CHINA CONST BA-H

5.42

0.7434944

406077564

JIANGXI COPPER-H

16.1

-1.348039

11888256

ALUMINUM CORP-H

CHINA PACIFIC-H

PRICE

DAY %

VOLUME

YANZHOU COAL-H

12.8

-1.990812

11979526

44674137

ZIJIN MINING-H

2.53

2.845528

55108626

-2.819237

58278949

ZOOMLION HEAVY-H

10.86

-4.56942

20106636

2.94

-2

12504157

ZTE CORP-H

15.28

-0.6501951

3273393

27.45

0.3656307

21210002

3.51

-1.404494

46017975

13.62

3.181818

20293153

3.62

-2.688172

11746291

PETROCHINA CO-H

9.78

-0.407332

72592033

17.94

-1.536773

30139045

PICC PROPERTY &

8.51

-1.390498

18682578

CHINA LONGYUAN-H

4.76

0.2105263

11342897

PING AN INSURA-H

56.5

-1.137358

14303465

CHINA MERCH BK-H

14.6

-2.536716

17808941

SHANDONG WEIG-H

7.98

0.2512563

8632826

CHINA COSCO HO-H CHINA LIFE INS-H

NAME

MOVERS

10

1

INDEX 9620.87 HIGH

9776.62

LOW

9525.39

CHINA MINSHENG-H

7.23

-2.42915

32912420

SINOPHARM-H

17.24

-1.934016

3945744

52W (H) 13317.51

CHINA NATL BDG-H

9.22

-2.123142

38655561

TSINGTAO BREW-H

47.55

-2.261048

1421444

(L) 8058.58

10.96

1.669759

10020319

WEICHAI POWER-H

33.5

-2.189781

2575752

CHINA OILFIELD-H

29

9800

30-May

1-Jun

9500

Shanghai Shenzhen CSI 300 PRICE

DAY %

VOLUME

PRICE

DAY %

VOLUME

AGRICULTURAL-A

2.65

0.3787879

38416578

CHINA VANKE CO-A

9.15

-1.081081

34606947

AIR CHINA LTD-A

6.31

0.96

14862952

CHINA YANGTZE-A

6.88

-0.2898551

9350135

ANGANG STEEL-A

4.22

0

4773529

CITIC SECURITI-A

13.88

0.7988381

ANHUI CONCH-A

17.32

-3.348214

55341362

CSR CORP LTD -A

4.94

-0.4044489

15097254

DAQIN RAILWAY -A

7.43 22.02 14.8

NAME

NAME

NAME

PRICE

DAY %

VOLUME

5.72

-0.8665511

11135396

SHANXI COAL -A

28.42

-1.728907

2152399

71799074

SHANXI LU'AN -A

26.63

-2.525622

16675872

0.2028398

29497043

SHANXI XINGHUA-A

76.1

1.156454

1447406

-0.1344086

24403965

SHANXI XISHAN-A

17.86

-1.597796

16837022

-0.9892086

14767044

SHENZ DVLP BK-A

15.78

0.5736138

15835304

2.139406

17916396

SHENZEN OVERSE-A

6.09

-1.456311

31019975

15.7

-1.133501

1292184

12.25

0.4922067

23241938

SHANGHAI ELECT-A

BANK OF BEIJIN-A

9.85

BANK OF CHINA-A

3.03

0

18991890

DONGFANG ELECT-A

BANK OF COMMUN-A

4.62

0.2169197

58041630

EVERBRIG SEC -A

BANK OF NINGBO-A

9.97

-0.7960199

12558254

GD MIDEA HOLDING

12.71

0.6334125

38116878

SINOVEL WIND-A

BAOSHAN IRON & S

4.84

0

12971886

GD POWER DEVEL-A

2.54

0.7936508

39159291

SOUTHWEST SECU-A

8.24

-0.9615385

17822833

GEMDALE CORP-A

7.01

-0.1424501

33511020

SUNING APPLIAN-A

9.03

-1.419214

37101410

24.28

-1.300813

3167787

GF SECURITIES-A

33.03

1.319018

13584796

TONGLING NONFE-A

21.93

0.3202196

12534628

CHINA CITIC BK-A

4.24

0

13168452

GREE ELECTRIC

22.58

-0.9649123

8812739

TSINGTAO BREW-A

37.37

-0.585262

1479388

CHINA CNR CORP-A

4.35

-0.6849315

28118507

GUIZHOU PANJIA-A

33.22

-0.2102734

4589675

WEICHAI POWER-A

33.39

0.14997

4419795

CHINA COAL ENE-A

8.98

-0.5537099

12684116

HAITONG SECURI-A

10.63

1.722488

82887103

WUHAN IRON & S-A

2.86

-0.6944444

10257533

CHINA CONST BA-A

4.49

0

19840954

HANGZHOU HIKVI-A

46.65

-1.165254

2122583

WULIANGYE YIBIN

33.22

3.007752

38699535

CHINA COSCO HO-A

5.06

-0.1972387

6436823

HEBEI IRON-A

3.03

-0.3289474

14364862

XCMG CONSTRUCT-A

15.27

0.1311475

13955659

CHINA CSSC HOL-A

31.63

-0.4093199

4439404

IND & COMM BK-A

4.24

0.4739336

48006448

XIAMEN TUNGSTEN

48.81

0.9931719

11266549

CHINA EAST AIR-A

4.21

0.7177033

23236762

INDUSTRIAL BAN-A

13.36

0.2250563

42348923

XINHU ZHONGBAO-A

4.89

3.164557

28713166

CHINA EVERBRIG-A

2.87

-0.3472222

25201642

INNER MONG BAO-A

45.67

3.325792

107151374

XINJIANG GUANG-A

15.81

0.2536462

24064636

CHINA HAINAN-A

7.12

0

9396741

INNER MONG YIL-A

22.39

-0.3560303

21438306

YANGQUAN COAL -A

19.01

-0.627287

11307953

CHINA INTL MAR-A

15.05

0.1330672

7792999

INNER MONGOLIA-A

6.44

1.737757

99346640

YANTAI CHANGYU-A

94.1

0.1170337

932820

CHINA LIFE INS-A

17.58

0.9764503

4540153

JIANGSU HENGRU-A

26.91

3.024502

4315679

YANTAI WANHUA-A

15.12

0.06618134

9555288

CHINA MERCH BK-A

11.67

0.08576329

59686818

JIANGSU YANGHE-A

140.95

-1.662768

1795501

YANZHOU COAL-A

22.79

0.1318102

3476093

JIANGXI COPPER-A

25.7

0.03892565

7639968

ZHONGJIN GOLD

23.08

-0.2592913

9232129

JINDUICHENG -A

14.1

0.07097232

7986372

BBMG CORPORATI-A BYD CO LTD -A

CHINA MERCHANT-A

13.45

-1.465201

16291793

CHINA MERCHANT-A

25.25

0.1984127

7687314

CHINA MINSHENG-A

6.34

-0.4709576

85792039

JIZHONG ENERGY-A

19.97

-2.155806

11878722

CHINA NATIONAL-A

6.7

-1.470588

20243020

KANGMEI PHARMA-A

12.69

0.1578532

14581307

240.37

1.559067

3850434

0.8308157

8968970

CHINA OILFIELD-A

17.85

0

7269450

KWEICHOW MOUTA-A

CHINA PACIFIC-A

21.43

1.084906

9025433

MINMETALS DEVE-A

26.7

6.7

0.2994012

21567396

NARI TECHNOLOG-A

19.28

-0.464636

5726821

NINGBO PORT CO-A

2.64

0.7633588

24715894

CHINA PETROLEU-A CHINA RAILWAY-A

2.74

-0.7246377

37865418

CHINA RAILWAY-A

4.51

0.6696429

15711283

PANGANG GROUP -A

8.04

-2.781137

59829010

13.67

0.2199413

MOVERS

120

165

15 2660

INDEX 2632.998

CHINA SHENHUA-A

25.89

-0.461361

11568344

POLY REAL ESTA-A

25447361

HIGH

2654.23

CHINA SHIPBUIL-A

5.87

-0.5084746

35596691

QINGHAI SALT-A

31.72

0.6345178

4812386

LOW

2622.07

CHINA SHIPPING-A

2.89

-0.6872852

10269522

SAIC MOTOR-A

15.51

-1.335878

10075875

CHINA SOUTHERN-A

4.87

1.037344

42317819

SANY HEAVY INDUS

14.92

-0.1338688

27385412

CHINA STATE -A

3.33

-0.8928571

50172079

SHANDONG GOLD-MI

34.34

0.08743806

7629602

CHINA UNITED-A

4.11

0.2439024

33261293

SHANG PUDONG-A

8.78

0.1140251

42401677

PRICE DAY %

Volume

PRICE DAY %

Volume

52W (H) 3140.10 (L) 2254.56

2620

30-May

1-Jun

FTSE TAIWAN 50 INDEX NAME ACER INC

NAME

30.05

-1.636661

15265006

FORMOSA PLASTIC

77.1

-1.28041

6084804

27.5

-2.654867

12884672

FOXCONN TECHNOLO

102

-5.116279

35.15

-1.402525

3365510

FUBON FINANCIAL

28.6

ASUSTEK COMPUTER

286

-4.347826

3750561

HON HAI PRECISIO

AU OPTRONICS COR

11.9

-2.459016

31051694

HOTAI MOTOR CO

CATCHER TECH

182

-3.957784

22092808

HTC CORP

CATHAY FINANCIAL

28.7

-1.880342

9218464

HUA NAN FINANCIA

CHANG HWA BANK

15.15

ADVANCED SEMICON ASIA CEMENT CORP

0

16686244

TPK HOLDING CO L

414

-6.966292

8899132

-3.541315

15987554

TSMC

79.9

-6.110458

66924957

85.3

-2.514286

36539870

UNI-PRESIDENT

44.85 -0.1113586

186.5

-4.603581

686006

UNITED MICROELEC

12.55

-3.72093

11301183

WISTRON CORP

37.55 -0.9234828

-3.353659

6808797

YUANTA FINANCIAL

12.85

-2.281369

20048703

YULON MOTOR CO

49.2

-4.83559

6979107

LARGAN PRECISION

535

-5.141844

2240025

3470754

LITE-ON TECHNOLO

36.65

-4.057592

5199606

CHIMEI INNOLUX C

12.2

-2.788845

32777746

MEDIATEK INC

257.5

-2.462121

8003158

CHINA DEVELOPMEN

7.14

-4.8

52161161

MEGA FINANCIAL H

20.2

-2.650602

14301482

CHINA STEEL CORP

27.7

-1.071429

14832051

NAN YA PLASTICS

51.5

-1.717557

6451804

CHINATRUST FINAN

16.2

-2.702703

28092259

PRESIDENT CHAIN

155.5

-1.269841

723549

90 -0.2217295

7533834

QUANTA COMPUTER

76.4

-2.051282

13288195

COMPAL ELECTRON

29.5

-4.220779

12424571

SILICONWARE PREC

30.7

-5.538462

7131701

DELTA ELECT INC

82.5 -0.8413462

7683465

SINOPAC FINANCIA

10.35

-6.756757

39407363

FAR EASTERN NEW

29.6

-1.986755

6015081

SYNNEX TECH INTL

66.6

-0.149925

3298256

FAR EASTONE TELE

67

0.9036145

4571348

TAIWAN CEMENT

33.65 -0.2962963

6551999

-3.438395

11662080

77

-2.531646

6805706

TAIWAN FERTILIZE

FORMOSA PETROCHE

82

0.6134969

1558874

TAIWAN GLASS IND

TAIWAN COOPERATI

7541499 63169755

414

5424705

16.85

-4.198473

3694681

15.85

-2.258065

FIRST FINANCIAL

Volume

94.5

71.7 -0.4166667

FORMOSA CHEM & F

PRICE DAY %

TAIWAN MOBILE CO

CHENG SHIN RUBBE

CHUNGHWA TELECOM

NAME

17.2

-2.272727

3544580

68

-2.017291

1530598

27.3

-2.325581

1477856

MOVERS

2

47

8458709

1 5080

INDEX 4886.53 HIGH

5042.25

LOW

4886.53

52W (H) 6224.53 (L) 4643.05

4870

30-May

1-Jun

June 4, 2012 business daily | 13

MARKETS GAMING STOCKS - DAILY PERFORMANCE (Hong Kong Stock Exchange) gaLaXy ENTERTaINMENT

Max 18.70

average 18.25

MELCO CROWN ENTERTaINMENT

Min 18.00

Last 18.04

19.0

32.0

12.5

18.8

31.6

12.3

18.6

31.2

12.1

18.4

30.8

11.9

18.2

30.4

11.7

18.0

SaNDS CHINa LTD

Max 26.70

average 26.39

Max 31.95

average 31.29

Min 30.30

Min 25.80

Last 26.30

average 12.12

Min 11.70

Last 11.72

WyNN MaCaU LTD 19.50

26.6

13.5

19.34

26.4

13.4

19.18

26.2

13.3

19.02

26.0

13.2

18.86

25.8

13.1 Max 13.58

average 13.36

WTI CRUDE FUTURE Jul12

83.23

-3.813706229

-16.25075468

111.4899979

77.40000153

BRENT CRUDE FUTR Jul12

98.43

-3.376852852

-6.816245385

125.6100006

94.34999847

GASOLINE RBOB FUT Jul12

265.68

-2.420391523

-2.132832357

332.1799994

246.4999914

843

-2.740121142

-6.281267371

1045.75

810

2.326

-3.963666391

-28.27628739

5.130000114

2.095999956

NATURAL GAS FUTR Jul12 HEATING OIL FUTR Jul12

DAY %

YTD %

(H) 52W

Min 13.12

18.70

Last 13.22

Max 19.42

average 18.99

262.79

-2.785587452

-7.556196574

331.9299936

256.3099861

1624

3.6971

3.7759

1921.18

1478.78

Silver Spot $/Oz

28.5275

1.6118

2.4879

44.2175

26.085

1445

2.5004

3.6214

1915.75

1339.25

Palladium Spot $/Oz

613.25

1.0713

-6.1591

848.37

537.54

LME ALUMINUM 3MO ($)

1955.75

Platinum Spot $/Oz

PRICE

(L) 52W

Gold Spot $/Oz

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

1972.5

-1.078234704

-2.351485149

2695

LME COPPER 3MO ($)

7361

-0.861952862

-3.144736842

9905

6635

LME ZINC

1890

1.042502005

2.43902439

2539.5

1718.5

16100

-0.800985829

-13.94975949

25195

16020

14.04

-1.300527241

-8.65322056

19.375

14.02999973

551.5

-0.675371454

-16.5973535

795

551

WHEAT FUTURE(CBT) Jul12

612.25

-4.893203883

-10.78324226

928

592.25

SOYBEAN FUTURE Nov12

1258

-0.964377091

4.463358937

1400

1115.75

COFFEE 'C' FUTURE Jul12

157.5

-1.960784314

-32.17054264

290.75

156.5

SUGAR #11 (WORLD) Jul12

19.09

-1.699279094

-15.38120567

27.02999878

18.94999886

AMAX HOLDINGS LT

COTTON NO.2 FUTR Dec12

67.61

-3.894811656

-23.03051002

107.1999969

67.34999847

BOC HONG KONG HO CENTURY LEGEND

3MO ($)

LME NICKEL 3MO ($) AGRICULTURE ROUGH RICE (CBOT) Jul12 Jul12

Last 18.86

Min 18.76

World Stock MarketS - Indices

DAY %

0.9701 1.5363 0.9661 1.2434 78.02 7.9931 7.7605 6.3696 55.585 31.77 1.2926 29.915 43.47 9390 75.683 1.20129 0.80935 7.8635 9.8543 97.01 1.0299

YTD %

-0.4311 -0.9094 0.2588 0.2499 1.051 0.0438 0.0412 -0.0173 0.9445 0.2203 -0.557 -0.2574 -0.1265 0.1065 1.4997 0.0092 -1.154 0.4769 0.6596 0.804 0.0097

(H) 52W

-4.976 -1.1581 -2.8983 -4.066 -1.4227 0.0813 0.0889 -1.1712 -4.5336 -0.6925 0.3095 1.2168 0.8512 -3.4185 3.6323 1.2903 2.9703 3.4425 5.0506 2.7317 0.0194

(L) 52W

1.1081 1.6618 0.9772 1.4697 84.18 8.0449 7.8113 6.4909 56.515 31.96 1.3199 30.716 44.35 9662 88.637 1.24736 0.90835 9.514 11.7768 117.9 1.0311

0.9388 1.5235 0.7071 1.2288 75.35 7.9823 7.7529 6.2769 43.855 29.63 1.1992 28.63 41.879 8458 72.057 1.00749 0.79505 7.8544 9.8423 95.6 1.0288

MACAU RELATED STOCKS (H) 52W

(L) 52W

ARISTOCRAT LEISU

NAME

2.86

-2.389078

30

3.25

1.88

1246997

CROWN LTD

8.35

-1.533019

3.213842

9.29

7.45

2346935

0.081

1.25

-6.896549

0.125

0.06

4228000

21.55

0.9367681

17.11957

24.45

14.24

13419602

0.225

-3.433476

-2.173915

0.41

0.204

212750

2.97

-1

6.07143

4.79

2.3

0

CHINA OVERSEAS

15.76

-2.836005

21.41757

17.86

9.99

26069449

CHINESE ESTATES

8.99

-0.1111111

-28.08

13.88

8.3

284570

CHOW TAI FOOK JE

8.86

-1.336303

-36.35058

15.16

8.84

15642400

EMPEROR ENTERTAI

1.18

-1.666667

6.306305

2.09

0.97

660000

FUTURE BRIGHT

0.88

1.149425

109.5238

1.09

0.3

882000

18.04

-4.246285

26.6854

24.95

8.69

35720521 1884338

CHEUK NANG HLDGS

PRICE

DAY % YTD %

VOLUME CRNCY

COUNTRY

PRICE

DAY %

YTD %

(H) 52W

(L) 52W

DOW JONES INDUS. AVG

US

12118.57

-2.217946

-0.8102212

13338.66016

10404.49

NASDAQ COMPOSITE INDEX

US

2747.48

-2.824563

5.463412

3134.17

2298.89

HANG SENG BK

100

-0.2991027

8.518718

125

84.4

FTSE 100 INDEX

GB

5260.19

-1.140229

-5.600757

6084.08

4791.01

HOPEWELL HLDGS

19.92

-1.386139

0.3021117

24.903

18.56

784530

DAX INDEX

GE

6050.29

-3.417577

2.575974

7523.53

4965.8

HSBC HLDGS PLC

60.85

-0.6530612

3.135593

80.5

56

26204161

NIKKEI 225

JN

8440.25

-1.199617

-0.1785806

10255.15

8135.79

HUTCHISON TELE H

3.35

-2.046784

12.04013

3.71

2.33

3357047

HANG SENG INDEX

HK

18558.34

-0.3820818

0.6723803

23338.76

16170.35

LUK FOOK HLDGS I

15.72

-2.360248

-41.99262

46.15

15.6

3688000

MELCO INTL DEVEL

6.13

-5.546995

6.239168

10.76

4.3

2803000

CSI 300 INDEX

CH

2632.998

0.03632161

12.24585

3140.102

2254.567

MGM CHINA HOLDIN

11.72

-6.24

22.1832

17.183

7.6

17947291

TAIWAN TAIEX INDEX

TA

7106.09

-2.676299

0.4809019

9070.25

6609.11

MIDLAND HOLDINGS

3.9

-0.2557545

-1.366877

5.226

2.887

4476000

NEPTUNE GROUP

0.103

0.9803922

-7.207208

0.157

0.08

260000

NEW WORLD DEV

8.53

2.033493

36.26198

12.032

6.13

13678977

SANDS CHINA LTD

26.3

-0.754717

19.81776

33.05

14.9

86179425

SHUN HO RESOURCE

1.18

0

18

1.32

0.82

0

2.536232

10.58453

4.668

2.241

1416750 12163426

GALAXY ENTERTAIN

KOSPI INDEX

SK

1834.51

-0.4860399

0.4803542

2192.83

1644.11

S&P/ASX 200 INDEX

AU

4063.882

-0.3036118

0.1804862

4657.4

3765.9

ID

3799.766

-0.8624972

-0.5815247

4234.734

3217.951

FTSE Bursa Malaysia KLCI

MA

1573.59

-0.4479113

2.79997

1609.33

1310.53

SHUN TAK HOLDING

2.83

NZX ALL INDEX

NZ

771.639

-1.036652

5.732895

806.015

700.441

SJM HOLDINGS LTD

13.22

-4.063861

5.713181

20.711

10.079

SMARTONE TELECOM

14.42

0.4178273

7.29167

18.5

9.8

1334844

WYNN MACAU LTD

18.86

-0.9453782

-3.282051

27.48

14.807

10200962

JAKARTA COMPOSITE INDEX

PHILIPPINES ALL SHARE IX

11.5

13.6

PRICE

NAME

Max 12.46

26.8

NAME

CORN FUTURE

30.0

CURRENCY EXCHANGE RATES

GAS OIL FUT (ICE) Jul12

METALS

Last 30.30

SJM HOLDINgS LTD

Commodities ENERGY

MgM CHINa HOLDINgS

PH

3365.81

-0.3357861

10.53418

3518.96

2695.06

HSBC Dragon 300 Index Singapor

SI

521.03

-0.46

4.98

na

na

ASIA ENTERTAINME

4.33

-6.88172

-26.36055

10.8692

3.66

38736

STOCK EXCH OF THAI INDEX

TH

1115.19

-2.304862

8.765069

1247.72

843.69

BALLY TECHNOLOGI

44.56

-4.274973

12.63903

49.32

24.74

730700

HO CHI MINH STOCK INDEX

VN

428.8

-0.09319664

21.97412

492.44

332.28

BOC HONG KONG HO

2.82

-1.74216

17.63786

3.15

1.81

68556

Laos Composite Index

LO

1015.25

1.834577

12.87328

1146.63

876.33

GALAXY ENTERTAIN

2.49

0

33.15508

3.24

1.08

1000

INTL GAME TECH

13.41

-6.223776

-22.03489

19.15

13.38

4690060

JONES LANG LASAL

68.88

-4.993103

12.43879

99.89

46.01

383836

LAS VEGAS SANDS

42.97

-6.951061

0.5616674

62.09

36.08

20702862

MELCO CROWN-ADR

10.95

-6.808511

13.82537

16.15

7.05

5430499

MGM CHINA HOLDIN

1.64

0

37.61931

2.21314

1.00254

100

MGM RESORTS INTE

10.37

-4.247461

-0.5752666

16.05

7.4

15664708

SHUFFLE MASTER

657395

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

14.81

-6.620429

26.36518

18.77

7.35

SJM HOLDINGS LTD

1.71

-3.932584

6.371544

2.60368

1.26239

2000

WYNN RESORTS LTD

97.38

-5.493012

-11.86533

165.4931

96.52

3345814

AUD HKD

USD

Contact Information

ONE YEAR Suscription REGULAR 1,560 Mop 20% discount 1,150 Mop

First Name (Mr/Mrs/Ms) Last name Address Postal Code Country Phone Fax Email

Payment

Subscription Period: from

(yy)|

(mm)|

to |

(yy) |

(mm) |

I wish to pay by Cheque or Direct Deposit

Make payable to De Ficção-Projectos Multimedia

Banco Comercial de Macau (BCM) Acct# 1099732111

Make payable to De Ficção-Projectos Multimedia Limitada

Banco Nacional Ultramarino (BNU) Acct# 9008096687

Visa Master Card American Express Credit Card

Account Number Expiration Date mm Cardholder’s Name

yy

CVV2/CVC2

14 |

business daily June 4, 2012

Opinion Euro bonds with strings are Europe’s best way forward Clive Crook Bloomberg columnist

W

hether Greece keeps the euro or abandons it, the European Union must strengthen its defences against a wider attack on its monetary system, and soon.

This will inevitably require steps toward fiscal union. Yet popular support for deeper political integration in the EU, never high to begin with, is lower than it has been for years.

How can you have closer fiscal union without closer political union?

At the simplest level, you can’t. This contradiction is a brute fact that the EU’s leaders can’t just wish away.

The most they can do is blunt its force by choosing the right form of limited fiscal union – one that protects national sovereignty and national interests as much as possible.

Forget full fiscal union. This crisis has already stretched European solidarity, such as it was, to the breaking point.

There’s no support for creating a federal structure of the U.S. kind, with a centrally managed budget and automatic fiscal transfers from rich to poor regions. To stride in that direction when Europe’s citizens are so plainly opposed would be madness.

In some respects, the EU should move in the opposite direction. In the medium term, Europe needs to drop its blithe commitment to “ever closer union” and adopt a more

The crucial thing about the euro area is that its members are now deeply financially integrated, with good and bad consequences

discriminating approach. It needs as much union as required to make the single currency viable, and no more.

Until further notice, the watchword should be, “union where necessary, national sovereignty where possible” – and the formula to resolve the financial crisis should be aligned with that agenda.

How, exactly? Let’s stipulate that the euro is worth saving. Creating it in the first place was a mistake, but one that can’t be undone except at colossal cost – as Greece’s exit may be about to prove. What are the minimum fiscal and financial requirements for making the single currency work?

them, a crisis of confidence in one country can become unmanageable and drag down others. But strings are needed too, or governments will lack the incentive to keep their borrowing under control.

I like proposals along lines suggested

by John Muellbauer, Paul De Grauwe and others. Issue jointly guaranteed euro bonds – but set a limit on the amount that any country can sell.

De Grauwe proposes a limit of 60 percent of gross domestic product.

Once a country has issued euro bonds in that amount, any further borrowing must be in the form of its own nonguaranteed bonds. Especially for small at-risk economies, the yield on those riskier bonds would be higher. This creates an incentive for governments to keep their borrowing under control over the course of the economic cycle.

No more lectures

The crucial thing about the euro area is that its members are now deeply financially integrated, with good and bad consequences. A single capital market widens financial opportunities for companies and households, but it also makes countries more financially fragile. It removes interest rates as a tool of national policy, leaving fiscal policy as the only way to lean against the ups and downs of the business cycle. Yet it also makes fiscal policy harder to use at times of crisis – because if things go wrong, a country with no currency of its own can’t print money to meet its obligations, and is therefore at risk of insolvency.

A quicker union Worse, this added fragility is contagious. A crisis of confidence in one part of so integrated a system directly affects the others. The deeper the integration, the bigger this so-called externality.

So, first things first. The euro area is a single financial system and needs a single financial regulator, a single plan for bank-deposit insurance,

and a single process for resolving distressed financial firms. The EU institutions needed to discharge these functions exist but only in embryonic form. They must be quickly grown to maturity. A well-built currency union must be a true financial union.

The fiscal policy part is more subtle.

Lacking control of interest rates, governments need effective fiscal policy more than they did before the euro existed, not less. Their ability to borrow in recessions needs to be preserved and improved – but not so much that they are empowered to overborrow, get into trouble and force their euro-area partners to pick up the bill. The fiscal pact adopted in response to the crisis, which France and others now seek to modify, is directed at stopping overborrowing.

It comes close to abolishing fiscal policy as a stabilisation tool. It’s so unbalanced in favour of discipline over empowerment that it’s unworkable and lacks all credibility.

The remedy is jointly guaranteed euro bonds – but with strings attached.

Joint guarantees are necessary to attack the problem of fragility. Without

Germany and other creditworthy countries would still object that this system involves their paying a subsidy to Greece, Spain, Portugal and Italy. The cost of borrowing for the distressed economies would fall – but the cost of borrowing for Germany and others would rise. To mitigate this problem, charge variable annual fees for participating in the guaranteed bond issue so that the least-creditworthy countries paid more. Jointly guaranteed euro bonds would have one yield in the capital market, but after the fees were collected and distributed, Spain would pay more than that and Germany less.

These conditional euro bonds would cut average borrowing costs by making the euro system less fragile. That’s important, because it would allow a win-win outcome in which (after fees) Germany would pay no more to borrow and Spain would pay less.

To lessen fears that this would be political union by stealth, responsibility for issuing the bonds and assessing fees could be given to a technocratic fiscal council. The fees formula could be based on objective measures of creditworthiness. Germany would have no need to lecture Spain on the importance of frugality. And it would be for Spain to decide how and when to improve its creditworthiness, knowing that, as it does, its borrowing costs would fall.

I grant you this model doesn’t resolve the fiscal-political dilemma. Nothing can. Europe needs a measure of fiscal union, and this entails some degree of further political union whether citizens want it or not. But conditional euro bonds can deliver the necessary fiscal pooling with the minimum surrender of national sovereignty. They’re the best available option.

Bloomberg View

editorial council Paulo A. Azevedo, Tiago Azevedo, Duncan Davidson, Emanuel Graça, Cris Jiang Founder & Publisher Paulo A. Azevedo | pazevedo@macaubusinessdaily.com Editor-in-Chief Tiago Azevedo DEputy Editor-in-Chief José I. Duarte Chief REPORTER Vitor Quintã Newsdesk Cláudia Aranda, Kristy Chan, Kelsey Wilhelm, Cherry Lee, Terina Cao, Tony Lai Creative Director José Manuel Cardoso Designer Janne Louhikari Photography Carmo Correia, John Si, Manuel Cardoso Assistant to the publisher Laurentina da Silva | ltinas@macaubusinessdaily.com office manager Elsa Vong | elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd.

Business Daily is a product of De Ficção – Multimedia Projects Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 Email newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com

June 4, 2012 business daily | 15

OPINION

Austerity and debt realism wires Business Leading reports from Asia’s best business newspapers

Asahi Shimbun Beleaguered semiconductor maker Renesas Electronics Corp. on Friday asked its three main shareholders to pump 100 billion yen (US$1.3 billion) in additional capital into the company, according to sources quoted by the newspaper. However, two of the shareholders, NEC Corp. and Hitachi Ltd, refused the request.

Only Mitsubishi Electric Corp. was willing to inject funds, the publications said, adding that Renesas is now considering receiving subordinated loans from the shareholders to secure the necessary funds to implement its restructuring programmes. The main points of the plan require laying off more than 12,000 employees and selling some factories.

Bangkok Post Thailand’s Kasikornbank (KBank), the leader in small and medium-sized enterprise (SME) loans, has been forced to change its strategy due to more intense competition. The lender has said it is paying closer attention to the asset quality of SMEs while turning down customers seeking to refinance debt from other banks. Despite the more cautious strategy, KBank, Thailand’s fourth-largest bank by assets and the top SME lender with a 440-billionbaht (US$13.9 billion) portfolio as of last month, is maintaining its full-year SME loan growth target of 10-11 percent. Siam Commercial Bank and TMB Bank have announced plans to use debt refinancing to capture new SME customers with aggressive targets.

Business Inquirer Overseas entrepreneurs are being urged to consider doing business in the Philippines, which has seen a phenomenal rise in the number of call centres as well as business and knowledge process outsourcing firms. “There is now high foreign investor confidence in the Philippines and the administration is actively seeking public-private partnerships and is encouraging stronger foreign direct investments,” Philippine Ambassador to Germany Maria Cleofe Natividad was quoted as telling German businessmen during a forum last week. Meanwhile, Philippine Ambassador to Canada Leslie Gatan also exhorted Canadian businessmen “to look towards the Philippines as their definitive gateway to the Asean Economic Community and Asia.”

Kenneth Rogoff

Professor of Economics and Public Policy at Harvard University

M

any, if not all, of the world’s most pressing macroeconomic problems relate to the massive overhang of all forms of debt.

In Europe, a toxic combination of public, bank, and external debt in the periphery threatens to unhinge the eurozone.

Across the Atlantic, a standoff between the Democrats, the Tea Party, and old-school Republicans has produced extraordinary uncertainty about how the United States will close its 8 percent-of-GDP government deficit over the long term. Japan, meanwhile is running a 10 percent-of-GDP budget deficit, even as growing cohorts of new retirees turn from buying Japanese bonds to selling them.

Aside from wringing their hands, what should governments be doing? One extreme is the simplistic Keynesian remedy that assumes that government deficits don’t matter when the economy is in deep recession; indeed, the bigger the better. At the opposite extreme are the debtceiling absolutists who want governments to start balancing their budgets tomorrow (if not yesterday). Both are dangerously facile.

The debt-ceiling absolutists grossly underestimate the massive adjustment costs of a self-imposed “sudden stop” in debt finance. Such costs are precisely why impecunious countries such as Greece face massive social and economic displacement when financial markets lose confidence and capital flows suddenly dry up.

Of course, there is an appealing logic to saying that governments should have to balance their budgets just like the rest of us; unfortunately, it is not so simple. Governments typically have myriad ongoing expenditure commitments related to basic services such as national defense, infrastructure projects, education, and health care, not to mention to retirees. No government can just walk away from these responsibilities overnight.

When US President Ronald Reagan took office on January 20, 1981, he retroactively rescinded all civil-service job offers extended by the government during the two and a half months between his election and the inauguration. The signal that he intended to slow down government spending was a powerful one, but the immediate effect on the budget was negligible. Of course, a government can also close a budget gap by raising taxes, but any sudden shift can significantly magnify the distortions that taxes cause.

Long-term costs If the debt-ceiling absolutists are naïve, so, too, are simplistic Keynesians. They see lingering post-financial-crisis unemployment as a compelling justification for much more aggressive

fiscal expansion, even in countries already running massive deficits, such as the US and the United Kingdom. People who disagree with them are said to favour “austerity” at a time when hyper-low interest rates mean that governments can borrow for almost nothing.

But who is being naïve? It is quite right to argue that gov-

Of course, there is an appealing logic to saying that governments should have to balance their budgets just like the rest of us; unfortunately, it is not so simple ernments should aim only to balance their budgets over the business cycle, running surpluses during booms and deficits when economic activity is weak. But it is wrong to think that massive accumulation of debt is a free lunch.

In a series of academic papers with Carmen Reinhart – including, most recently, joint work with Vincent Reinhart (“Debt Overhangs: Past and Present”) – we find that very high debt levels of 90 percent of GDP are a long-term secular drag on economic growth that often lasts for two decades or more. The cumulative costs can be stunning. The average high-debt episodes since 1800

last 23 years and are associated with a growth rate more than one percentage point below the rate typical for periods of lower debt levels. That is, after a quarter-century of high debt, income can be 25 percent lower than it would have been at normal growth rates.

Of course, there is two-way feedback between debt and growth, but normal recessions last only a year and cannot explain a two-decade period of malaise. The drag on growth is more likely to come from the eventual need for the government to raise taxes, as well as from lower investment spending. So, yes, government spending provides a short-term boost, but there is a trade-off with long-run secular decline.

Slow and low It is sobering to note that almost half of high-debt episodes since 1800 are associated with low or normal real (inflation-adjusted) interest rates. Japan’s slow growth and low interest rates over the past two decades are emblematic. Moreover, carrying

a huge debt burden runs the risk that global interest rates will rise in the future, even absent a Greek-style meltdown.

This is particularly the case today, when, after sustained massive “quantitative easing” by major central banks, many governments have exceptionally short maturity structures for their debt. Thus, they run the risk that a spike in interest rates would feed back relatively quickly into higher borrowing costs.

With many of today’s advanced economies near or approaching the 90 percent-ofGDP level that loosely marks high-debt periods, expanding today’s already large deficits is a risky proposition, not the cost-free strategy that simplistic Keynesians advocate. I will focus in the coming months on the related problems of high private debt and external debts, and I will also return to the theme of why this is a time when elevated inflation is not so naïve. Above all, voters and politicians must beware of seductively simple approaches to today’s debt problems. © Project Syndicate

16 |

business daily June 4, 2012

CLOSING Japan’s Noda to reshuffle cabinet

Australia credit: Lehman rate cuts loom

Japanese Prime Minister Yoshihiko Noda will reshuffle the Cabinet today in an effort to win opposition backing for doubling the consumption tax, after his bid to heal a breach in the ruling party failed. “I’ll map out the scale of Cabinet changes” by tomorrow (today), Mr Noda said. The prime minister may bow to opposition pressure to fire Transport Minister Takeshi Maeda and Defence Minister Naoki Tanaka, who were censured by parliament’s upper house in April. The premier said yesterday he was unable to persuade ruling party powerbroker Ichiro Ozawa to drop his opposition to a tax increase.

Reserve Bank of Australia Governor Glenn Stevens will make the deepest interest-rate cuts since the 2008 collapse of Lehman Brothers Holdings Inc., credit markets show, as Europe’s crisis threatens to sap global growth. Interest-rate swaps indicate better-than-even chances the RBA will lower its 3.75 percent overnight cash-rate target to 3.25 percent today and to a record 2.25 percent by November. Prospects for rate cuts are spurring gains in government bonds, the developed world’s best performers this quarter. The RBA cut rates by one percentage point since November, 2011.

Merkel rejects debt sharing Says ‘under no circumstances’ would she agree to Germany-backed euro bonds competitiveness in Europe, she said.

Ms Merkel, the head of Europe’s biggest economy and the largest contributor to bailouts for Greece, Portugal and Ireland, is the pivotal player in efforts to resolve the crisis now in its third year.

European ‘cloud’

Angela Merkel says what’s needed is an economic overhaul to tackle the lack of competitiveness in Europe

G

erman Chancellor Angela Merkel hardened her opposition to joint debt sharing in the euro region as President Barack Obama singled out Europe’s leaders for not doing enough to arrest the financial crisis.

With Europe’s debt crisis cited last week for cancelled IPOs, weaker-than-expected Chinese manufacturing figures and a rise in the U.S. jobless rate, Ms Merkel rejected joint debt issuance in the

17-nation euro area as a solution, saying “under no circumstances” would she agree to Germany-backed euro bonds.

Now, some “come along and ask for euro bonds, saying all we need are equal interest rates and everything will turn out all right,” Ms Merkel said in a speech to members of her Christian Democratic Union in Berlin yesterday.

Instead, what’s needed is an economic overhaul to tackle the lack of

Mr Obama, speaking at a Chicago fundraiser last Friday as he bids for re-election in November, said that a report showing the slowest month of U.S. employment growth in a year was in large part “attributable to Europe and the cloud that’s coming over from the Atlantic.” The “whole world economy has been weakened by it,” he said.

“Europe is having a significant crisis in part because they haven’t taken as many of the decisive steps as were needed to deal with the challenge,” he said at a separate event in Minneapolis.

The president’s point person for the European crisis, Lael Brainard, Treasury undersecretary for international affairs, ended a three-day tour of Europe’s crisis capitals late last week as work continued on erecting a financial firewall to stem contagion.

The European Union is targeting July 9 as the start date for its permanent rescue fund, the 500

billion-euro (US$620 billion) European Stability Mechanism, an EU official said.

Spanish storm Ms Brainard held closed-door meetings with government officials in Athens, Madrid, Paris, Frankfurt and Berlin in a week when investors flocked to the perceived safety of German and U.S. bonds. The euro fell against the dollar and dropped to an 11-year low against the Japanese yen as uncertainty over the outcome of Greek elections on June 17 shifted to take in Spain, where Prime Minister Mariano Rajoy’s government is struggling to shore up banks amid a recession.

Ms Merkel and Finance Minister Wolfgang Schaeuble are urging Mr Rajoy to take an international bailout since Spain cannot solve its banking woes alone, German news magazine Der Spiegel reported yesterday in an advance copy of an article in this week’s edition, without citing a source for the information.

Spain “will emerge from the storm under its own efforts and with the support of our European partners,” Mr Rajoy said in a speech on Saturday in Sitges, near Barcelona, calling on analysts and investors to moderate “irrational” views of Spain’s financial situation. “We are not on the edge of a precipice.”

Bloomberg

Suu Kyi urges investor caution Asks for help on Myanmar jobs ‘time bomb’

N

obel laureate Aung San Suu Kyi urged foreign firms on Friday to invest cautiously in fast-changing Myanmar and give priority to creating jobs as much as making profits to help defuse the “time bomb” that is the country’s high unemployment rate.

Speaking during her first trip outside her country in 24 years, the leader of the fight against dictatorship in Myanmar warned against “reckless optimism” about its rapid reforms, which could be easily undone if not supported by the military.

Ms Suu Kyi, 66, said the country faced a crisis due to the number of people without work and urged foreign companies to provide jobs and training. Their investments should not fuel corruption or line the pockets only of the business elite.

“The proportion of young people unemployed in Burma is extremely high. That is a time bomb,” she said

in a speech to the World Economic Forum on East Asia in Bangkok.

“Please don’t think about how much benefit will come to those who are investing. I understand investors invest because they hope to profit from ventures – I agree with that – but our country must benefit as much as those who invest.

“I want this commitment to mean quite simply jobs – as many jobs as possible.”

Ms Suu Kyi said she felt President Thein Sein was committed to improving the country but the extent to which his reforms were irreversible depended on the military, by far Myanmar’s most powerful institution.

“I do believe in the sincerity of the president,” she said. “But I also recognise he’s not the only person in government and as I keep repeating, there’s the military to be reckoned with.”

Even if the government was pushing

through democratic, social and economic reforms, it did not seem interested in overhauling a judiciary that lacked independence, she said.

“Would-be investors in Burma please be warned: even the best investment law will be of no use whatsoever if there are no courts clean or independent enough to be able to administer those laws justly,” she said.

“So far, we’re not aware of any reforms on the judicial front ... Not many in the government seem to agree with this,” she said.

Ms Suu Kyi played down talk of Myanmar being caught up in a geopolitical tug-of-war between the United States and China, and said she welcomed responsible investment from any country.

“I’m concerned when people say Burma is a battleground for the United States and China. It should not be so,” she said.

“It’s imperative we have good

Suu Kyi says Myanmar ‘must benefit as much as those who invest’

relations with our neighbours and at the same time, we want to open up the country to others interested in our welfare and helping our country to progress.”

Reuters