Macau Business Daily, April 9, 2012 by Business Daily

Japan-China accord on Euro debt

Page 10

Carat for striking jewellers Page 11

Price busting groceries Page 5

Local investment is risky business Page 7

Unhappy Easter

Poor weather sees retail sales down

ne of the coldest Easters in 90 years saw shop sales fall by as much as 20 percent for the season according to a straw poll conducted by Business Daily. The daily mean temperature on Easter Saturday was 19.4 degrees centigrade according to Macau’s Meteorological and Geophysics Bureau – only 2.7 degrees warmer than Easter 1925, one of the coolest spring holiday seasons since modern records began. On that day, April 12 1925, the daily mean struggled to 16.7 degrees according to bureau archives. This Easter was also wetter than last year, with 45 millimetres of rain falling in neighbouring Hong Kong in the space of a few hours on Thursday in the run up to the holiday. Easter is rarely a cash bonanza for Macau retail-

ers because it coincides with the Chinese festival of Ching Ming. Many people from the Chinese mainland and Hong Kong spend the time in their home community following the custom of tending relatives’ graves rather than gambling or shopping in Macau. But this year it seems the weather has been a factor in pushing a quiet season even further down the takings league table. Hong Kong Observatory said the unusually cold weather might be linked with a climate event in the Pacific Ocean known as La Niña that occurs on average every three to five years. Since September 2011, the central and eastern equatorial Pacific has been persistently cooler than normal - by 0.5°C or more. More on page 3

Foreigners may dodge Taiwan tax Page 9

Brought to you by

HSCE INDEX 10850 10800 10750 10700 10650 10600 10550 10500

April 5

HSCEI - Movers NAME

Running on empty says CESL Asia boss Sands China Inn the zone

aming operator Sands China says its new Macau resort Sands Cotai Central will drive the city’s non-gaming tourism by offering quality, affordable four-star rooms. It will increase by one quarter the number of such bedrooms in Macau when it opens on Wednesday. The

first phase of the resort will have twice as many fourstar rooms as five-star ones. That’s courtesy of Holiday Inn, one of the best-recognised mid-market foreign hotel brands on the Chinese mainland. Holiday Inn at Sands Cotai Central will offer 1,200 four-star rooms. There will be a further 600 five-star rooms and suites under the Conrad brand, and 4,000 Sheraton-branded rooms later this year. More on page 2&3

decision to hold government funding of Macau’s wastewater plant – including money for modernisation – while legal wrangles are solved is “a huge error of judgement” Business Daily has been told. “I don’t believe the legal dispute will be resolved during the next few years,” explains António Trindade, chief executive of CESL Asia Investments & Services Ltd, which now runs the

plant. He says the delay is hurting the public interest, perpetuating pollution in the Pearl River Delta and delaying an “urgent” water-recycling programme. “We can’t launch an investment worth 300 or 400 million patacas. The idea that public interest lies in waiting to solve the court issues has prevailed. Those issues are secondary but they influence our work,” he says. More on page 4&5

% DAY

CHINA RAIL CN-H

2.82

ZTE CORP-H

2.21

CHINA LONGYUAN-H

1.85

WEICHAI POWER-H

1.59

CHINA CONST BA-H

-1.96

AGRICULTURAL-H

-2.63

SINOPHARM-H

-2.96

BANK OF COMMUN-H

-3.20

BYD CO LTD-H

-3.92

Source: Bloomberg

Brought to you by

2012-4-9

2012-4-10

19˚ 22˚

20˚ 25˚

2012-4-11

21˚ 26˚

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business daily April 9, 2012

MACAU

Sands China tempts tourists with more mid-price rooms

Cirque’s show ZAiA continued to lose LVS money even after changes for the Chinese audience

Sands China is leading a charge to capture a new kind of overnight v them quality hotel rooms they can afford By Associate Editor

he competition for hotel guests among Macau’s fourstar hotels is intensifying. The first phase of Sands China Ltd.’s Sands Cotai Central, launching on Wednesday, has 1,200 fourstar rooms from Holiday Inn but only 600 five-star rooms and suites under the Conrad brand. “We have the opportunity to capture people who are currently day-trippers,

who cannot find accommodations that are of high quality and affordable prices,” Edward Tracy, Sands China president and chief executive, told Macau Business magazine. Two-thirds of Macau’s 22,338 hotel rooms are five-star grade but there is growing demand for midpriced rooms in the three and fourstar category. The current four-star stock is of

variable quality, and mostly on Macau peninsula, well away from the mass-market gambling halls of Cotai’s resorts. A survey of 39,900 visitors, conducted by the Statistics and Census Service last year, found an 83-percent satisfaction rate among hotel guests. But another government poll found that only nine percent of the respondents had come to Macau to gamble. That is surprising, given the uptick in gross gaming revenue and the

number of mass-market gamblers on the floor at the casino-resorts, and calls into question the accuracy of such market research. The prices of all Macau hotel rooms have been rising steeply. From the third quarter of 2010 to the fourth quarter of last year, the statistics bureau’s Tourism Price Index showed the hotel price component up by 72 percent. When hotel prices rise, tourists expect quality to improve. That’s not always the case in Macau says Sud-

High rolling

Sands will move some under-utilised gaming tables from its existing casinos, confirmed David Sisk, executive vice-president and chief operating officer

A casino called Himalaya and 28 new shops open in phase one of Sands Cotai Central

Photo by Gonçalo Lobo Pinheiro

ands China Ltd. has revealed the make-up of its gaming facilities at its new Sands Cotai Central, opening this Wednesday. The resort will have a casino called Himalaya with about 600 slots, 216 gaming tables and four live electronic gaming tables connected to 200 terminals for players. There will be another 150 VIP tables at The Paiza, the property’s dedicated area for high rollers. VIP players include “premium customers” and the high rollers provided by the junket operators. Premium customers are potentially worth more to the house because they are directly managed by Sands China. But the house also has to manage their credit, and that is a market risk. The other type of high

roller is managed and provided with gambling credit by third-party promoters known as junkets. The Paiza will host 11 junkets. The government has granted Sands China 200 new tables in the new resort’s first phase. A 5,500-table cap was announced by the government last year to limit the growth of the gambling sector, which grew 42 percent last year. The remaining 166 tables Sands needs to open phase one will come from previously mothballed or under-utilised inventory from its existing casinos. “Those are tables for which we don’t really have a strong use and that we have been holding in anticipation of opening Cotai Central,” says David Sisk, Sands China’s executive vice-president and chief

business daily April 9, 2012 | 3

MACAU

Big spenders

operating officer. Sands China intends opening a second casino branded “Pacifica” in the third quarter of this year. “Our understanding is that we have another 200 new tables that we were essentially promised [by the government],” Mr Sisk says. When fully operational by next year, Sands Cotai Central will be the biggest casino-resort in Sands China’s portfolio. The property will boast 5,800 hotel rooms, with the addition of nearly 4,000 rooms and suites under the Sheraton brand, half of which will open in September and the remainder next February. It will be the biggest Sheraton hotel in the world.

Sands Cotai Central will eventually have about 100 shops, more than 20 restaurants and 20,000 square metres of meeting and convention space. It will also have a multipurpose theatre. The venue is currently under construction but the company has not said what entertainment will be staged there. Cotai Central may eventually have a fourth hotel and mixed-use tower to be managed by Starwood under its St. Regis brand, according to Sands China’s regulatory filings. That fourth tower is expected to cost US$450 million (MOP3.6 billion) to build, but will only be developed “as demand and market conditions warrant it,” says the company.

Photo by Manuel Cardoso

hir Kale, Professor of Marketing at Bond University in Queensland, Australia. “I see a tremendous variance in the quality and offerings of four-star accommodation in Macau, more than anywhere else in the world. To use an apt cliché: ‘Don’t be misguided by the stars, use the compass of common sense instead’.” Occupancy rates at four-star hotels fell seven percent year-on-year in January. Statistics for January and February tend to be affected by sea-

All Cotai operators attract massmarket gamblers but many of those customers go home without spending a night at a hotel. The statistics bureau data shows that people who stay overnight spend more than day-trippers on non-gaming items — including restaurant meals and souvenirs. Mainland tourists who stay overnight spent MOP4,239 (US$541), excluding gambling, in the fourth quarter. A day visitor from the Chinese mainland spent only 813 patacas. There is a five-fold difference. Any additional non-gaming spending is welcomed by casino operators because it gives them a hedge against sudden downturns in the VIP baccarat market, which accounted for 72 percent of gaming revenues in the fourth quarter last year and is strongly correlated to the mainland’s economy. Gambling is thought to be 95 percent of Macau’s tourism revenue. Overnight visitors are also good for the Macau government. It wants the government in Beijing and foreign media to view Macau as a world-class tourism destination, not just a gambling haunt for mainland visitors. The opening of the Holiday Inn at Sands Cotai Central will increase by more than a quarter the current inventory of 4,333 four-star rooms. SJM Holdings Ltd., the casino operating company founded by Stanley Ho Hung Sun, said last year it would create more three-star rooms at its casinos, citing demand. There is in-depth analysis of the launch of Cotai Central in this month’s edition of Macau Business.

visitor by offering

Key Points 366 gaming tables at launch 166 tables from Sands China’s existing inventory 11 junkets signed up

Rain spoils Easter sales Retailers say long-weekend sales have been slow but Ching Ming lends much-needed vigour By Tony Lai tony.lai@macaubusinessdaily.com

he Easter long-weekend was far from extraordinary for Macau’s retailers. Store owners in the central areas of the peninsula, including Senado Square and the Ruins of St. Paul’s were disappointed with their sales. Gremlin Lao manages a clothing store in Senado Square. He said sales were down about 20 percent on last year’s Easter holiday. Sales had been acceptable on Friday and Saturday but declined yesterday. “It is also due to the weather, which was not good during these few days,” Mr Lao said. “There are, of course, fewer people when it rains.” Clothing store manager Kwai Lo also linked the weather to a dip in sales. She says the take was about 10 percent below her target. The streets were crowded but few people came in to shop. Ms Lo said Easter holidays attracted residents and visitors from Hong Kong, who usually come to Macau to “eat and have fun rather than shop”. Sales on April 2 and 3, the Ching Ming holidays for mainland tourists, were “better but not outstanding”. The mainland has enjoyed a fiveday holiday, including the weekend from March 31 to April 1 and the Ching Ming festival from April 2 to 4. There was no public holiday over Easter. Ling Liu, is a bakery manager at Senado Square, said most customers in Macau’s downtown shops were mainland tourists, so sales during Ching Ming were better than during last weekend. She added that Hong Kong visitors preferred to visit and shop in Taipa, which had more entertainment facilities and was less crowded.

“I am a bit disappointed as there was not a big difference in the number of people or sales between Easter and the usual weekends,” Ms Lai said. Ching Ming bump Another bakery had a similar story. A manager at San Man Lo, Wong Oi Nga, said there appeared to be more customers around than usual, but sales were still down about 10 percent year-on-year. She said visitors from Hong Kong had increased over the past few days and many had shopped for souvenirs yesterday before catching the ferry home. Hong Kongers typically spend anything from 100 patacas to 150 patacas in the shop. Mainland tourists would spend up to 600 patacas at a time, she said. A cosmetic store, mainly aimed at mainland customers, also found sales were stronger during Ching Ming. Manager Wendy Leung said sales across the long weekend were similar to a normal weekend but had increased by 10 percent during the Ching Ming festival. Food retailers had better luck. The owner of a Taiwanese-style drink store, who gave his name as Mr Lok, said business had been good bovver the weekend and during Ching Ming – sales were up by 10 percent. He said he had higher expectations and sales turned out to be “just okay”. Mr Lok also believes fewer people went out because of the rainy weather. However, Cindy Yu, senior sales manager at an ice-cream shop, said sales were 5 percent higher than usual over the weekend, meeting her expectations.

Photo by Manuel Cardoso

sonal factors related to the Chinese New Year. But the trend has been downward since last December. It’s a trend that doesn’t worry Sands China, says Kevin Clayton, executive vice-president of marketing operations for Venetian Macau Ltd., a Sands China subsidiary that operates The Venetian Macao Hotel. “We are starting to pick up an increased level of business, in particular across that four-star hotel product,” he says. Prior to the opening of Sands Cotai Central this week, Sands China has had an inventory of five-star rooms only.

Macau streets were crowded during the Easter long-weekend but retailers were disappointed with their sales

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business daily April 9, 2012

macau

Courtroom wrangling rattles wastewater plant operator The decision to freeze the overhaul of a wastewater treatment plant while legal disputes are resolved is “a huge error of judgement,” António Trindade told Business Daily. Mr Trindade is chief executive of CESL Asia Investments & Services Ltd. He says the delay is hurting the public interest, perpetuating pollution in the Pearl River Delta and delaying an “urgent” water recycling programme by Vítor Quintã vitorquinta@macaubusinessdaily.com

What’s the current status of the Macau wastewater treatment plant? The plant has not been operating at its full ability for a few years now. There are no regulations in Macau but the plant is operating below reasonable regulations in Europe or even in [mainland] China. One of the reasons is that the plant is in very poor condition. This has serious implications because, for starters, wastewater is not treated properly. It’s not a legal issue but one of public health. And the smell is also a consequence. Since we began operating, there have been very significant improvements, fewer complaints. Perhaps that is due to people being more understanding due to our communication. But the wastewater is being treated more thoroughly and that has an impact on smell. Worse than the smell are the polluting emissions. The plant has improved but it’s still not working well. There is an urgent need for the modernisation works that were stated in the contract. They were already urgent three years ago, when the governmental launched the tender.

So is the modernisation programme the only solution? We are doing all we can, even things that are beyond the normal operation of a plant. But we can’t launch an investment worth 300 or 400 million patacas. The idea that public interest lies in waiting to solve the court issues has prevailed. Those issues are secondary but they influence our work. It’s a huge error of judgement because the consequences, untreated

‘I don’t believe the legal dispute will be resolved during the next few years.’ wastewater and sea pollution, are the biggest possible damage to public interest. I understand that

the companies excluded from the tender are entitled to appeal but, if there is a conflict of interests, that must not impinge upon the interests of the residents living nearby. Has the government given you an idea on when the issue might be resolved? The government knows we are doing our best, despite the circumstances. Our relationship with the administration is very good but,

Tender trap engulfs bidders More than two years after its launch, a tender to operate, maintain and modernise the Macau peninsula treatment plant still attracts controversy. Two of the bidders – Austro-Indian company Va Tech Wabag Ltd., and a Sino-Belgian consortium, led by Waterleau Group NV and including Beijing Origin Water Technology Co. Ltd. – went to court after being excluded from the tender process. The Court of Final Appeal sided with the two bidders and criticised the government for wrongfully excluding the companies on “merely formal and absolutely harmless” issues. The government opened Wabag’s last November bid but the company slammed the decision as a “farce”. It has alleged the contract had already been awarded. Last week, the government readmitted Waterlau’s bid but the company said it was worried the move was “just for the sake of appearances”. In the meantime, the five-year contract, worth 604.9 million patacas (US$75.6 million), has been awarded to a consortium of CESL Asia Investments & Services Ltd., Portugal’s Indaqua-Indústria e Gestão de Águas SA and the mainland’s Tsinghua Tongfang Co. Ltd. The consortium is operating the plant, even though a contract has yet to be signed.

business daily April 9, 2012 | 5

MACAU macau even admitting that there is a will to enforce court decisions, I still don’t agree and we have made the administration aware of it. Obviously, our interests are at stake but this is mainly about the public interest. If the government were to cancel our contract, it would be much more expensive than any other alternative. We already have pledged to order hundreds of millions [of patacas] in equipment, including the membrane bioreactor process. For instance, we had to book the supplier in advance so they would spend three months just producing our membranes. The production is scheduled to start this month. As the tender programme clearly stated, the situation of the plant is unacceptable. For years the wastewater has been leaving the plant in just about the same situation as it arrived. What would be the impact of the plant’s modernisation? Macau doesn’t have water. One of the goals of modernising the plant was to be able to reuse the water. And that is in the public interest of not just Macau but also of Zhuhai and other places where the water supplied to Macau comes from. The water supplied to Macau has been needed in Zhuhai for de-

cades. For the past five or six years, there have been public tenders to start recycling water at the wastewater treatment plants. Has anyone seen any recycled water in Macau? That’s the problem. If it hasn’t happened so far, the companies and people involved must change. The wastewater treatment plants that exist are not working. CESL Asia has been operating the plant but, because the contract has yet to be formally signed, you have yet to receive any money. How much money have you already spent? I can’t disclose the exact figures but we are talking about tens of millions of patacas already spent, aside from orders made. Thankfully, we are still far from our financial breaking point. We are sure the government will pay us for the services we are providing but we hope this situation won’t last forever. The government won’t be able to endure having this situation dragging on eternally. Yet I don’t believe the legal dispute will be solved during the next few years, with all the suits that have been filed. The companies can be compensated, if it’s proven they are entitled to it. The government and the com-

panies can continue arguing on what happened but the solution to 180,000 cubic metres of highly polluted wastewater must not be further delayed.

‘For the past five or six years there have been public tenders to start recycling water at the wastewater treatment plants. Has anyone seen any recycled water in Macau?’ Gambling reported in city’s video arcades People may be gambling illegally inside video game arcades, TDM News reported on Friday. Video aired by the public broadcaster shows people trading arcade game tokens for cash. The law prohibits gambling outside of authorised areas such as casinos and slot parlours. Leong Vai Lam from the youth services group of the Macau General Neighbourhood Unions Association told TDM that arcades, much like casinos, also had “betting agents” or junket-style middlemen who traded arcade coins or toys for cash. Mr Leong said he believed some arcades operated with 70 to 80 percent of their video games involving gambling. The Civil and Municipal Affairs Bureau said it would investigate the claims and send inspectors to the city’s arcades.

Low-cost supermarkets tackle prices in Guangdong Subsidies and direct buying are fuelling low-cost groceries boom in southern province that could see cheaper prices here

fficials in Guangzhou are planning to open another 2,000 low-cost grocery stores this year to stabilise the prices of consumer goods, a move that could have an impact on prices here. Guangzhou’s Price Control Administration has pledged to examine the prices and quality of goods sold at low-cost grocery stores throughout Guangdong province, the Chinese-language Macau Daily News reported. Macau imports most of its food from Guangdong and imported inflation has been blamed for the rise in local Consumer Price Index, which hit 5.8 percent last February. The price control administration said its plans to launch another

2,000 stores would be significant in stabilising commodity prices. The price control administration has promoted low-cost grocery stores in 13 cities and counties since last September. It has encouraged suppliers, enterprises, store chains and the wholesale market to work closely with the stores. There are currently 150 low-cost grocery stores in Guangzhou, accounting for 8 percent of the 1,916 stores throughout the province. The 19 low-cost grocery stores in Lianjiang currently turn over up to 290,000 yuan (US$45,890) a day. They provide an average of 20,000 yuan in discounts each day, benefiting almost 300,000 people. Low-cost grocery stores have been

InBrief

G2E gaming summit wins Singapore award Last year’s Global Gaming Expo Asia has won an award for developing the best existing conference outside Singapore for events organiser Reed Exhibitions Hong Kong. The Asian Conference Award recognises innovation, product development and success throughout the industry. G2E Asia is the continent’s biggest gaming exhibition and conference. It has been held in Macau since 2008. The next edition begins on May 22 at The Venetian Macao Resort-Hotel.

developing significantly in Haifeng county as well, adopting the principle of “local purchasing, local delivery and selling for the local community”. During a recent conference in Boluo county, the idea of founding pharmacies selling cut-price medicines was floated. The chains would cooperate with existing retailers and set up counters selling lower-priced drugs within stores. Low-cost grocery stores keep prices affordable through a combination of subsidies and direct buying from farmers. The initiative was inspired by Singapore’s FairPrice supermarkets that were opened by the city’s trade union groups in the 1970s. C.L.

Ex-Venetian boss declined Oz licence Mark A. Brown, a former president of The Venetian Macao and also of Sands Macao, has been declined a gaming employee licence in the Australian state of New South Wales. The Independent Liquor and Gaming Authority did not give a reason. If the decision stands he cannot take up a job offer as international marketing manager at The Star Sydney Hotels & Casino, operated by Echo Entertainment.

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business daily April 9, 2012

MACAU Brought to you by

Financial Monitor Inflation pains Rapidly increasing prices are a leading concern for consumers and a hot topic for discussion. Some worries are probably overblown given the actual level of inflation and the evolution of income. But we do well in keeping an eye on the indicator. The initial impact of the financial crisis had a sobering effect on prices in 2009, when exceptionally low levels of inflation were recorded. But the data has revealed a sustained rise in prices since early 2010. There are many reasons for that trend. The city’s dependence on the mainland for imports of food has often been pointed out as a major contributor to the Consumer Price Index. Food is the indicator’s biggest component item, making up about one-third of the index. On a first approach, the comparison between the inflation rates of China and Macau seems to confirm that view. The parallel, with probably some delay, seems striking at first. However, the neat disconnect at the end of the period clearly requires further explanation. 8 7 6

Connections made as youth meeting kicks off Participants from all over the world take part in the Macanese Youth Meeting and gain glimpse of new business opportunities

he Macau Youth Federation says it will present new business opportunities to guests from all over the world arriving in the city for the second edition of the Macanese Youth Meeting. More than 30 young Macanese, aged between 18 and 40 from countries including Canada, Portugal and the United States, have gathered for the event that runs until April 15. One of the organisers, Duarte Alves, told Rádio Macau that the meeting sought to bring together young second-generation or third-generation Macanese to show them contemporary Macau.

The organisation depends on the Macau Youth Federation for assistance in promoting exchange and interaction between residents and overseas Macanese. Representatives from the 11 houses of Macau established worldwide, including Portugal, Brazil, Canada, United States and Hong Kong, are in the city. The first edition of the event took place in 2009 and was organised by the Macanese Communities Council. This year the Macanese Youth Meeting will be organised for the first time by a group of 14 young Macanese. Attendees at the meet-

ing will take a tour of the city and visit Zhongshan, in Guangdong province. Mr Alves told Portuguese news agency Lusa: “The new Macau generation studied abroad and had another perspective on life, and this is all a plus if one day they decide to come back and help us develop this great land.” The second edition of the Macanese Youth Meeting was due to take place last year. The city hosted the biggest edition of the Macanese Communities’ Meeting in 2010 when it hosted about 1,300 people. C.A.

Portuguese interest in mainland trade fund

5 4 3 2 1 0

jan 2010 IPC/CN

jan 2011

jan 2012

IPC/MO

The correlation becomes even less clear if we look at food components included in the inflation index. Certainly, rising food prices in the mainland and a yuan that is appreciating are bound to have a significant effect on the territory’s inflation rate. But as these graphs illustrate, the explanation is not that simple. J.I.D. 16 14 12 10 8 6 4 2 0

jan 2010 IPC/CN/Food

jan 2011 IPC/MO/Food

jan 2012

ortuguese entrepreneurs and business associations are eager to become involved in a US$1-billion (8 billion pataca) fund that promotes bilateral trade between the mainland and Portuguese-speaking countries, Portuguese legislator Carlos Páscoa said. The deputy head of the Forum for Economic and Trade Cooperation Between China and

Portuguese-Speaking Countries, Rita Santos, recently introduced the fund to the Portuguese parliament. The fund, which does not have an official name, was announced by premier Wen Jiabao in 2010. Mr Páscoa highlighted the fund’s importance and said it represents an opportunity to enhance the relationship between Portugal and the mainland, especially “because

it came after the purchase by Chinese investors of EDP and REN,” two Portuguese companies in the energy sector. He said Portuguese entrepreneurs “have to turn their focus to Asia because this is where the opportunities are and the money is”. Portugal is, for Asia, “a possibility for entering in Europe at competitive prices and through interesting logistics platforms”.

Weather Beijing 25/13o C Changchun 14/8 o C

Harbin 13/6 o C

Xian 25/11 o C Shanghai 22/16 o C Chengdu 21/15 o C Kunming 22/12 o C Haikou 26/23 o C Sanya 31/24 o C

Guangzhou 24/18 o C

MACAU (9-14 April) Day

Temperature

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20/25 o C

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21/25o C

80/95 %

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22/27 o C

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Shenzhen 24/22 o C

ASIA (today)

Hong Kong 25/21 o C

Manila

Macau 25/21 o C

TOKYO

Jacarta

31/26 C

32/25 o C

21/11 o C

32/24 o C

Bangkok

SEOUL

K. lumpur

35/27 C o

SINGAPORE

18/8o C

33/25 o C

taipei

23/21 o C

business daily April 9, 2012 | 7

MACAU 65.4

Macau’s score in the Euromoney country risk ranking out of 100

Country risk ranking says city going backwards Macau slid to its worst ranking in two years in the Euromoney survey of investment risk, falling further behind Hong Kong by Vítor Quintã vitorquinta@macaudailytimes.com

acau is a bigger risk for investors now than at any other time in the past two years, the latest edition of the Euromoney country risk ranking says. The city dropped 10 spots in the past year to settle in 32nd. According to the survey released last week, Macau’s risk score fell by 10 points to 65.4 out of 100. It was the second biggest in the world in the past year, trailing only Bermuda, whose score fell 10.1 points. The Euromoney country risk survey monitors expert opinion on public debt investments. A higher score indi-

cates a more secure investment. Though Macau fell to 32 of the 186 jurisdictions surveyed, it managed to remain in the second tier of least risky centres for investment. Euromoney describes tier-two countries

Macau’s risk rating dropped 10 points since March 2011, the second biggest fall in the world during that period

and territories as being “sound and stable and usually well developed” but with “persistent negative characteristics”. “Towards the lower end of this tier, countries may also exhibit signs of being over reliant on a narrow set of economic sectors,” the publisher adds. There is no available data on why the city’s rating was sliced by 10 points. In fact, Euromoney deputy editor Andrew Mortimer said Macau had made “the biggest gains in Asia” during the past decade, climbing 53 places overall during that time.

A year ago, the city scored poorly for “political risk”. This factor evaluates government stability, perception of corruption, the judicial system, transparency and access to information. A poll by the Political and Economic Risk Consultancy last month found that perceptions of corruption in Macau’s business sector had improved significantly from last year among expatriates. At the end of last year, there were 9,246 cases pending in court, the lowest since 2006. The drop in the city’s Euromoney ranking sees Macau fall further behind Hong Kong. The financial centre is also ranked among first tier territories, with a score of 82.7 points – a two-point decline from last year. The mainland also saw its score fall by more than two points to 61.47 points. However, Macau remains far above the global average for risk, which decreased by almost three points to 42.49 points this year. The main reason was a huge 30-point tumble in debt indicators, as several European countries face sovereign debt crises. Global economic, political and structural risks improved slightly. Norway retained its top ranking, followed by Singapore and Switzerland. “Asian sovereigns are overtaking advanced Western economies in their financial and economic stability,” Mr Mortimer said.

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business daily April 9, 2012

GREATER CHINA

InBrief Regulators tie up to

grow corporate bond China’s securities regulator is said to have finished drafting framework rules that would allow SMEs to sell bonds

HTC net profit falls 70 percent Taiwanese smartphone maker HTC Corp’s net profit fell 70 percent in the first quarter, coming in just below forecasts, in a lean quarter for the company ahead of its new One series of models that hit the market this month. HTC is banking on those models to regain market share lost to Apple Inc’s iPhones and Samsung’s Galaxy range. The world’s No.5 smartphone maker’s unaudited net profit in the quarter was T$4.464 billion (US$151.50 million), compared to T$14.83 billion a year earlier and T$10.94 billion in the previous quarter, it said.

Beijing cracks down on irregular operations China’s top banking regulator has started a nationwide crackdown on irregular banking operations, including unreasonable charging and credit terms, a Chinese official announced. Yang Jiacai, of the China Banking Regulatory Commission (CBRC), said the body has sent 12 inspection teams to banking outlets around the nation to identify problems and promote rectification of existing issues. “Many banks have standardised their service fees as required, halted some of them and introduced favourable policies. But we have discovered that some banks need further improvement in implementation,” said Yang, quoted by official news agency Xinhua.attractive,” while prices of completed retail and office projects are “quite steep,” he added.

hina’s three ministerial bodies vying to reshape the country’s fragmented corporate bond market have agreed to work together to speed up development plans, the central bank said on Friday. The People’s Bank of China, the National Development and Reform Commission (NDRC), and the China Securities Regulatory Commission (CSRC) have formed an “inter-ministry coordination mechanism” to jointly develop the corporate debt market, the central bank said in a statement on its website, Reuters reported. Meanwhile, China’s securities regulator finished drafting framework rules that would allow small and medium-sized companies to sell bonds through private placements, Bloomberg reported a person with knowledge of the process as saying. The proposed rules would allow companies to sell debt without administrative approvals, said the person.

Saudi Basic Industries Corp (SABIC), the world’s largest chemical producer by market value, said it was planning to invest US$100 million to build a technology research and development centre in China. The facility in the Shanghai region will house a total of about 400 employees when it is completed in 2013, the company said. SABIC, 70 percent owned by the government of Saudi Arabia, makes chemicals, fertilisers, plastics and metals used in paint, rubber, textiles, leather, cleaning products, glass, food and other consumer industries.delivered through wireless devices, to become more competitive.

Agencies

Chinese firm in join bid for Elpida TPG Capital LP and China’s Hony Capital to take part in a second round of bidding for Elpida Memory, closing on April 27 By Junko Fujita

SABIC to invest in R&D centre

The China Securities Regulatory Commission may begin trials for the sale of high-yield bonds as early as the first half, Chairman Guo Shuqing told reporters last month. At present, long-term bonds issued by China’s state-owned enterprises are often approved by NDRC, the country’s economic planning agency, and the central bank controls non-financial enterprises debt instruments via the interbank investor association, while the CSRC regulates bonds traded on China’s stock exchanges and is trying to launch a junk bond market. Establishing a deep and liquid market for corporate bonds is seen as a vital step in efforts to reduce China’s reliance on bank lending for credit creation in the economy.

rivate equity firms TPG Capital LP and China’s Hony Capital are to bid jointly for Elpida Memory, a source familiar with the matter said on Friday, joining an increasingly international battle for the bankrupt Japanese chipmaker. The two firms will take part in a second round of bidding for Elpida, due to close on April 27, said the person. Elpida is the world’s No.3 maker of dynamic random access memory (DRAM) chips, trailing Samsung Electronics and SK hynix with a market share of around 12 percent. Suitors are likely to be interested in the chips it manufactures for smartphones and tablets. With Chinese, U.S. and South Korean firms in the bidding process, it looks increasingly likely there will be a foreign rescue within Japan’s once-mighty technology sector. South Korea’s SK hynix has confirmed it is bidding, while sources have told Reuters that U.S. firm Micron Technology is also in the race. Japan’s Toshiba Corp has approached SK hynix about a joint bid after its solo offer was reportedly below Micron’s bid of at least 150 billion yen (US$1.82 billion), other sources have said. Elpida, formed over a decade ago via a merger of several big Japanese chipmakers’ struggling DRAM operations, filed for creditor protection in late-February, with US$5.6 billion in debt - the biggest bankruptcy

of a Japanese manufacturer. The company had been struggling with weak chip prices and as consumers increasingly bypass PCs for products like Apple Inc’s iPad, which uses mainly flash memory. It was also saddled with heavy capital spending, while a strong yen undercut its global competitiveness. According to DRAMeXchange, an industry tracker, DRAM contract prices fell 58 percent last year, while spot prices decreased 70 percent. Reuters

business daily April 9, 2012 | 9

GREATER CHINA

Taiwan to exempt some foreign dealers Overseas investors without offices and direct business operations in Taiwan may be exempt from a capital-gains tax on stock trades

Taiwan tax reform panel believes some foreign institutional investors should be exempt from a planned tax on stock investment gains, discussion of which has spooked investors and triggered a plunge in the local market. In a statement late on Thursday, the finance ministry said the panel “had achieved a high level of con-

sensus” that foreign institutional investors without a permanent presence in Taiwan should be exempt from any tax. Foreign investors account for about one-third of all stock trading in Taiwan. The panel was set up as part of broader reform plans by the government in the wake of pledges to address the growing rich-poor gap.

Taiwan TV sale hits obstacle By Faith Hung

rivate equity fund MBK Partners’ hopes for a quick conclusion to the US$2.4 billion sale of its Taiwan cable TV business have been dashed after the deal descended into controversy over pro-China political comments by the buyer’s chairman. MBK agreed to sell China Network Systems (CNS) to media and manufacturing conglomerate Want Want China Holdings in October 2010, looking to offload a company it had bought in 2007 for US$1.5 billion. Already bogged down in Taiwan’s notoriously labyrinthine regulatory processes, the deal hit a fresh obstacle after Want Want Chairman Tsai Yen-ming told the Washington Post in January that he wanted China and Taiwan to unify quickly. The remark and others on China raised the hackles of regulators acutely sensitive to mainland influence in democratic Taiwan’s media, and triggered a rash of “please explain” demands and requests for proof of editorial independence at Want Want.

That has left both MBK and the buyer frustrated and ramped up the possibility of the deal collapsing. “MBK is evaluating all possibilities. It is urging the NCC (National Communications Commission) to make a ruling as soon as possible, no matter which way,” said a source close to the private equity fund, who requested anonymity due to the sensitivity of the matter. “MBK needs leeway either to withdraw the sale or find another buyer. It believes the NCC has all the information it needs to make a ruling. At this point, only God knows what else it needs,” said the source. Chen Kuo-long, spokesman for the NCC, said the deal is still under review and that more than 300 meetings have been held to discuss it. If the deal fell through, interested buyers may include Fubon Financial, analysts said. Fubon’s controlling shareholders, the Tsai family, bought cable TV firm Kbro from Carlyle Group last year.

Key Points Deal was already bogged down in dense regulatory process Regulator says has had over 300 meetings on matter Fubon could be alternative buyer

Reuters

The first item on its agenda was a capital gains tax that may include a tax on gains from stock investments. The panel will send a proposal to the cabinet on a capital gains tax within a month. “There’s a lot of displeasure among investors,” Eric Chou, who helps manage around US$1.8 billion at Jih Sun Securities Investment Trust

Co. in Taipei, told Bloomberg on Saturday. “The capital-gains tax proposal is negative to the market.” The uncertainty over whether the tax will be implemented has sent the benchmark TAIEX index down 5 percent over the last five sessions, upsetting investors already nervous over a slow global recovery. “One-third of the profits we’ve earned in the past three months has gone in the last three sessions,” said Alex Hu, vice president of Mega Securities’ proprietary trading department, quoted by Reuters. “The government should remove the uncertainty very soon.” “The uncertainty over the tax is causing panic among investors,” said Yu Rayming, chief investment officer of Prudential’s asset management arm in Taipei. “Stock valuations have come down to a reasonable level, about 15 times PE, but it’s hard to say how much further stocks will fall.” Taiwan tried to impose a similar tax on stocks gains in 1988, but the announcement of the plan triggered a 33 percent plunge in the market over 19 consecutive sessions and the idea was shelved. In an attempt to soothe concerns, the finance ministry told investors last week not to fret too much about the discussions over the tax, saying that it may not ultimately come to pass. Currently, Taiwan puts a 3 percent tax on all equity transactions. Income from the transaction tax last year was T$94 billion (US$3.18 billion) according to ministry figures. Agencies

10 |

business daily April 9, 2012

ASIA

InBrief Concerns rise over N.Korea rocket plan South Korea, Japan and China expressed concern over North Korea’s plan to launch a rocket this month as the communist nation’s preparations raise tension in the region. The plan must be cancelled “immediately” as it threatens peace and security in the region, South Korea’s Foreign Ministry said yesterday in a statement on its website, citing discussions between Foreign Minister Kim Sung Hwan and his Japanese counterpart Koichiro Gemba in Ningbo, China. In a separate meeting, Kim and Chinese Foreign Minister Yang Jiechi pledged their nations will continue diplomatic efforts to steer North Korea away from provocative actions.

Japanese Finance Minister Jun Azumi says the debts crisis ‘still needs careful monitoring’

Japan, China to hold talks on IMF contributions The two nations have not yet decided whether to increase contributions after the euro zone expanded its bailout capacity last month By Mayumi Otsuma

apan and China will seek to coordinate on supporting the International Monetary Fund’s effort to contain Europe’s debt crisis, Japanese Finance Minister Jun Azumi said. “Rather than make decisions independently, we’ve agreed to consult each other very closely” on financial contributions to the IMF, Azumi told reporters after meeting with Chinese Finance Minister Xie Xuren in Tokyo. The finance ministers of Asia’s two largest economies met before the Group of 20 countries gathering later this month in Washington. One topic at the G-20 meeting will be increasing cooperation with the IMF. The Fund needs more resources to shield the global economy from threats of strains on Europe’s financial system, rising oil prices and high unemployment, Managing Director Christine Lagarde said last week. “It won’t probably be smooth for G-20 nations to hammer out details for their contributions to the IMF,” Tomoko Fujii, a senior foreign-exchange strategist at Bank of America Merrill Lynch in Tokyo, said before Azumi and Xie met. “It’s important for Japan to check China’s intention on this, while China probably wants to increase its political influence if it puts up money.”

The IMF asked in January for as much as US$500 billion in additional lending resources. Member countries have been reluctant to pitch until European nations did more to help themselves. The U.S. has refused to increase its contribution to the fund.

‘Not Convincing’ European finance ministers decided March 30 that 500 billion euros (US$667 billion) in fresh money would be added to the 300 billion euros already committed to create an 800 billion-euro defence against the two-year-old turmoil. Euroarea finance chiefs insisted that they’ve fulfilled their side of the bargain. “The firewall European nations presented in March isn’t convincing enough to give momentum to discussions for other countries’ financial contributions to the IMF,” Fujii said. Concerns about Europe’s debt crisis were rekindled this week as Spain’s borrowing costs surged on concern that the country’s public debt will expand and the region’s fourth- largest economy may ask for a bailout. Yields on Spain’s 10-year bonds rose to a four-month high. “Europe’s crisis hasn’t ended” even as the situation improves

from last year, Azumi said Saturday. “This still needs careful monitoring and we can’t yet become optimistic.”

Samsung expects profits to double Samsung Electronics has said it expects its profit for the first three months of the year to almost double as its smartphone sales continue to grow. The company said it expects an operating profit 5.8tn won (US$5.1billion) for the period. The success of Samsung’s Galaxy range has seen it become the world’s biggest-selling smartphone maker. Analysts said the firm had benefited from keeping its margins healthy, despite growing competition. The company will release its full earnings report on April 27.

Yet to Decide Japan and China have yet to decide on cooperation with the IMF, and will continue their discussions on this until the G-20 meeting, Azumi added. The nations agreed to strengthen and expand Asia’s regional currency swap agreement, sharing a view that “there is a need for Japan and China to cooperate to prevent crisis in Asia,” he said. Possible G-20 support for the global economy could be similar to a G-20 decision in April 2009 to triple the fund’s resources as part of plan to avoid the global economy from slipping into a recession. At the time, the U.S. and Japan each contributed US$100 billion, the European Union US$178 billion and China US$50 billion. Azumi and Xie agreed the world economy continues to grow at a moderate pace even as many uncertainties still remain, according to a statement released by the Japanese finance ministry.

Bloomberg

India to sell-off stake in state firms India is not making life easy for itself as it looks to sell-off stakes in state companies to help plug a yawning budget gap, with New Delhi’s own policies battering sentiment towards government enterprises even as it readies more for market. This week the government ordered staterun Coal India to sign guaranteed supply pacts with power producers at below-market prices, raising the hackles of British activist investor The Children’s Investment Fund Management (TCI). TCI, which owns 1 percent of Coal India, the world’s largest coal miner, plans legal action against it for not protecting minority shareholder interests.

business daily April 9, 2012 | 11

ASIA

India’s jewellers call off strike Jewellers suspended the longest nationwide strike after the government assured it would consider their concerns

ewellers in India called off their three-week-old strike on Saturday, an industry official said, on assurances from Finance Minister Pranab Mukherjee that the government would consider scrapping a budget proposal to levy excise duty on unbranded jewellery. “The strike has been called off today (Saturday) onwards. We will be starting our shops from tomorrow,” said Kumar Jain, vice chairman of the Mumbai Jewellers Association, after the meeting with Mukherjee, who imposed a 1 percent levy for non-branded jewellery for the first time and doubled import duties on gold bars, coins and platinum in his March 16 budget speech. The wedding season is at its peak in India, with Akshaya Tritiya, one of the biggest gold buying festivals later in the month, making the period crucial for jewellers. Jain said the strike would resume on May 11 if the tax rollback does not materialise. The 21-day strike was staged to protest against an excise levy on

unbranded jewellery and a tax collected at source on transactions worth more than 200,000 rupees (US$3,900). The annual budget also doubled import duty on gold to 4 percent. The moves were game-changers for the US$200 billion a year jewellery industry and experts had predicted they could cut gold imports by a third to 655 tonnes in 2012, allowing China to overtake India as the biggest gold importer. The end to the shutdown may boost Indian imports, helping sustain this year’s 4.5 percent rally in gold prices. Bullion is rising for a 12th year as Europe’s debt crisis and concerns that global economic growth may slow fuelled demand

The strike may resume in a month if the tax rollback does not materialise

for a protection of wealth. The strike by jewellers resulted in a loss of 200 billion rupees (US$3.92 billion), according to industry officials. India’s current-account deficit wid-

ened to US$19.6 billion in the three months to December 31 from a revised US$18.4 billion in the prior quarter, the central bank said in a report on March 30. Agencies

Myanmar targets boost in rice exports Tax concessions extended to help rice exporters, as Myanmar wants the U.S. to lift sanctions faster

yanmar wants the U.S. to lift sanctions faster after Secretary of State Hillary Clinton said some restrictions on investment and financial services would be eased, according to an adviser to President Thein Sein. “They should do more if they want to see us reaching the mission faster,” Nay Zin Latt told Bloomberg News over the weekend in an emailed response to questions. “The government is doing its job, which is national reconciliation and being a democratic society. This is the time giving more carrots will work more.” The U.S. will allow companies to invest in certain sectors of Southeast Asia’s fourth-smallest economy, Clinton said on April 4, without offering specifics.

They may include telecommunications, agriculture, tourism and banking, according to two senior administration officials who briefed reporters the same day. Nothing has been decided, they said. Myanmar plans to increase rice exports by almost a fifth to 1 million tonnes in the current fiscal year (20122013), owing partly to international help in reviving its agriculture sector, state media said on Saturday. Minister of Agriculture Myint Hlaing said President Thein Sein, a key reformer in the year-old civilian government, had instructed the ministry to boost rice yields and quality. Tax concessions would also be extended to help rice exporters, the newspapers said. “With the assistance of ex-

Myanmar plans to increase rice exports by almost a fifth to 1 million tonnes

perts at home and abroad, both high-yield and highquality rice will be grown on over 100,000 acres in the coming season,” official newspapers quoted Myint Hlaing as saying during a meeting of exporters and

industry officials in the capital Naypyitaw. Rice exports are seen as an area with huge potential for Myanmar, which was the world’s biggest exporter of the grain under British colonial rule. It shipped a world record

3.4 million tonnes in 1934. Thein Sein sees the revival of Myanmar’s rice sector as a priority as the country seeks to emerge from decades of isolation under military rule and Western sanctions. Agencies

12 |

business daily April 9, 2012

MARKETS Hang SENG INDEX Ticker NAME

PRICE

Day %

VOLUME

(H) 52W

(L) 52W

28.15

0.3565062

32317856

29.9

19.84

3.7

-0.2695418

24191012

7.8

3.2

3.15

-1.5625

257060675

4.5

2.2

5.74

-3.204047

39643667

7.827

4.15

29.05

-1.190476

1282099

34.45

21.85

0.1430615

10124200

17.54

11.38

21.6

-0.4608295

11851936

25.6

14.24

13.7

-0.8683068

7873236

20.15

11.8

101.9

-1.163919

4726372

131.8

79.1

CHINA COAL ENE-H

8.82

-1.121076

14688601

11.66

6.59

CHINA CONST BA-H

-1.960784

300279649

7.55

4.41

20.5

29137915

30.6

17.04

25.15

-3.639847

3939084

37.6

83.65

-1.005917

10523111

87.5

68.05

15.96

0.7575758

25806913

17.86

9.99

CHINA PETROLEU-H

8.38

-1.062574

56876317

9.67

6.22

291

CHINA RES ENTERP

-0.1848429

9319058

35.5

1109

CHINA RES LAND

14.3

2.142857

22881559

15.8

7.28

836

CHINA RES POWER

13.64

-2.710414

8845941

16.2

10.82

1088

CHINA SHENHUA-H

33.2

-1.043219

10445250

40.2

27.1

762

CHINA UNICOM HON

13.3

0.3016591

21699807

17.68

12.64

267

CITIC PACIFIC

12.98

-0.6125574

2115400

24.6

10.26

CLP HLDGS LTD

66.85

0.0748503

1768465

75.2

62.1

883

CNOOC LTD

15.88

-0.3764115

42232768

21.15

11.2

1199

COSCO PAC LTD

11.42

-1.381693

9332325

17.16

7.52

330

ESPRIT HLDGS

16.7

1.45808

8220562

36.75

7.55

101

HANG LUNG PROPER

29.3

-2.006689

5800200

36.25

20.85

HANG SENG BK

102

-0.5847953

1512092

127

84.4

HENDERSON LAND D

43.95

0.3424658

2967344

56.95

33.2

1044

HENGAN INTL

80.35

-1.652387

2265023

56.8

HONG KG CHINA GS

20.45

1.741294

9009328

20.65

16.68

1299

AIA GROUP LTD

2600

ALUMINUM CORP-H

3988

BANK OF CHINA-H

3328

BANK OF COMMUN-H

BANK EAST ASIA

1880

BELLE INTERNATIO

2388

BOC HONG KONG HO

293

CATHAY PAC AIR

CHEUNG KONG

1898 939 2628

CHINA LIFE INS-H

144

CHINA MERCHANT

941

CHINA MOBILE

688

CHINA OVERSEAS

386

Shanghai Shenzhen CSI 300 NAME

PRICE

DAY %

VOLUME

AGRICULTURAL-A

2.64

-0.3773585

44463978

AIR CHINA LTD-A

5.96

-0.5008347

9528953

ALUMINUM CORP-A

6.75

-0.8810573

16935603

ANGANG STEEL-A

4.32

-0.2309469

7317298

ANHUI CONCH-A

16.88

-0.05920663

45832104

BANK OF BEIJIN-A

9.78

-0.407332

19639156

BANK OF CHINA-A

3.02

0.6666667

38746340

BANK OF COMMUN-A

4.67

34198817

BAOSHAN IRON & S

4.82

15637730

BBMG CORPORATI-A BYD CO LTD -A CHINA CITIC BK-A

8.16

-0.8505468

10489193

28.37

-1.935707

6711401

4.29

0.2336449

11530388

CHINA CNR CORP-A

4.16

-0.7159905

18078619

CHINA COAL ENE-A

9.08

-0.8733624

8788035

CHINA CONST BA-A

4.73

-1.25261

59553523

CHINA COSCO HO-A

5.11

0.5905512

16116841

CHINA CSSC HOL-A

33.55

-0.4155536

7289314

CHINA EAST AIR-A

3.63

-0.2747253

11404777

CHINA EVERBRIG-A

2.85

29449538

CHINA INTL MAR-A

14.16

-0.7012623

10133805

CHINA LIFE INS-A

16.69

-0.4176611

6205999

CHINA MERCH BK-A

11.81

-0.2533784

46468361

CHINA MERCHANT-A

11.8

-0.589722

8233973

CHINA MERCHANT-A

21.02

1.057692

6440572

CHINA MINSHENG-A

6.28

0.1594896

97721020

6.21

1.470588

19522229

CHINA OILFIELD-A

CHINA NATIONAL-A

17.12

0.5284792

5862024

CHINA PACIFIC-A

19.69

0.2545825

11885206

7.18

-0.2777778

37695915

CHINA PETROLEU-A CHINA RAILWAY-A

2.52

-0.3952569

19846881

CHINA RAILWAY-A

4.18

21671686

CHINA SHENHUA-A

26.01

0.3859514

12862124

CHINA SHIPBUIL-A

5.77

-1.02916

19768394

CHINA SHIPPING-A

3.08

2.325581

36805502

CHINA SOUTHERN-A

4.56

-0.8695652

23461662

CHINA STATE -A

3.12

0.9708738

69361135

CHINA UNITED-A

4.21

-1.173709

70225754

CHINA VANKE CO-A

8.38

0.2392344

42694204

NAME CHINA YANGTZE-A CITIC SECURITI-A

NAME

PRICE

VOLUME

(H) 52W

(L) 52W

-0.6875477

2042041

186.5

99.15

68.75

-1.221264

11000498

85.35

76.1

-2.059202

9379421

94.2

53.6

5.03

-1.565558

240403948

6.75

3.46

17.22

-4.013378

28583677

20.575

10.82

2300167

29.1

22.45

11631200

13.226

6.13

HSBC HLDGS PLC

HUTCHISON WHAMPO

1398

IND & COMM BK-H

494

LI & FUNG LTD

MTR CORP

27.15

-0.7312614

NEW WORLD DEV

9.15

-1.081081

857

PETROCHINA CO-H

-1.256732

47947186

12.5

8.59

2318

PING AN INSURA-H

60.2

0.7531381

12044241

87.9

37.35

POWER ASSETS HOL

57.3

-0.174216

2466094

64.8

SINO LAND CO

12.9

7059921

14.16

8.482

SUN HUNG KAI PRO

95.95

-0.3116883

13325774

129

85.45

SWIRE PACIFIC-A

88.75

1377696

103.896

69.321

700

TENCENT HOLDINGS

222.8

3047460

230.8

139.8

322

TINGYI HLDG CO

21.85

-0.9070295

5516091

17.84

151

WANT WANT CHINA

8.74

-2.780868

15071039

9.07

6.03

WHARF HLDG

42.95

-1.264368

4944050

33.15

WHARF HOLDINGS LTD

42.95

-1.264368

4944050

33.15

Price 20593 52W (H) 24468.640625

(L) 16170.35

IN FOCUS SHSZ300 index Top 10 performers - 6-Apr-12 (%) 8 7 6 5 4 3 2 1 0 PRICE

DAY %

VOLUME

PRICE

DAY %

6.46

-0.7680492

10918171

NAME PETROCHINA CO-A

9.71

-0.1028807

VOLUME 8704167

12.42

1.305057

88687695

PING AN INSURA-A

38.08

0.8474576

19232997 27617466

4.5

-0.8810573

22404768

POLY REAL ESTA-A

11.36

-0.4382121

7.4

-0.1349528

21121723

QINGHAI SALT-A

33.3

0.8479709

6183035

DATANG INTL PO-A

5.02

-1.181102

5514417

SAIC MOTOR-A

14.99

0.4018754

18003774 25173656

DONGFANG ELECT-A

21.96

-0.768188

7961631

SANY HEAVY INDUS

13.14

-0.07604563

EVERBRIG SEC -A

12.48

-1.10935

8945155

SHANDONG GOLD-MI

32.92

-0.5137504

4485720

GD MIDEA HOLDING

13.14

-2.449889

25946325

8.94

0.1119821

56682481

SHANG PUDONG-A

2.56

-0.3891051

34988969

SHANGHAI ELECT-A

29.96

1.216216

12875318

SHANXI LU'AN -A

GREE ELECTRIC

20.84

-0.09587728

8031160

GUIZHOU PANJIA-A

29.02

1.114983

6806057

HAITONG SECURI-A

9.81

1.029866

105489572

HANGZHOU HIKVI-A

43.5

-0.1148106

829551

HEBEI IRON-A

2.93

0.3424658

23004020

5.4

0.3717472

4959184

26.09

1.557026

11890200

SHANXI XISHAN-A

15.14

0.3313453

10645659

SHENZ DVLP BK-A

15.99

1.58831

19387554 17903512

7.25

0.2766252

SINOVEL WIND-A

SHENZEN OVERSE-A

15.41

0.06493506

1786898

SUNING APPLIAN-A

10.43

1.262136

59511133

HENAN SHUAN-A

71.13

3.236575

4248488

TSINGTAO BREW-A

33.32

-0.1797484

1239879

HUATAI SECURIT-A

9.39

0.8592911

15395943

WEICHAI POWER-A

30.92

-0.3544956

3862039

HUAXIA BANK CO

10.87

0.9285051

20175386

WULIANGYE YIBIN

34.71

1.848592

18826431

IND & COMM BK-A

4.29

-0.2325581

42145644

XIAMEN TUNGSTEN

43.53

-0.1834442

11005632

INDUSTRIAL BAN-A

13.24

-0.2260739

56238193

XINJIANG GUANG-A

24.5

3.157895

11650901

INNER MONG BAO-A

71.67

-2.009844

49185360

YANGQUAN COAL -A

18.03

1.178451

13915109

INNER MONG YIL-A

22.91

0.4384042

6513266

INNER MONGOLIA-A

6.39

1.913876

186235885

JIANGSU YANGHE-A

157.15

3.042423

954712

24.69

0.5702648

8612634

JIANGXI COPPER-A

YANTAI CHANGYU-A

93.56

-2.956125

1299854

YANZHOU COAL-A

22.64

-0.4835165

5263774

YUNNAN BAIYAO-A

49.8

-0.04014452

1161393

20.99

1.156627

9026453

ZIJIN MINING-A

4.15

-0.2403846

38720478

ZOOMLION HEAVY-A

9.26

0.4338395

46620141

ZHONGJIN GOLD

JINDUICHENG -A

13.43

1.053424

13489633

JIZHONG ENERGY-A

18.12

1.059677

8350423

207.97

0.9563107

2672989

ZTE CORP-A

16.6

-1.190476

13693936

42.91

4.302382

6317716

ZOOMLION HEAVY INDUSTRY S-A

9.22

6.466513

65389591

16.77

2.069385

19974998

KWEICHOW MOUTA-A LUZHOU LAOJIAO-A METALLURGICAL-A

2.57

-0.3875969

25029642

NARI TECHNOLOG-A

20.45

-2.665397

8834648

NEW HOPE LIUHE-A

17.1

0.5291005

3568527

NINGBO PORT CO-A

2.5

9876160

PANGANG GROUP -A

7.12

3.338171

89831882

NAME

VOLUME

Day %

130

HONG KONG EXCHNG

CSR CORP LTD -A

GD POWER DEVEL-A

DAY %

PRICE

388

DAQIN RAILWAY -A

GF SECURITIES-A

Hang SENG CHINA ENTREPRISE INDEX

Ticker NAME

ZTE CORP-A

Price 2519.83 52W (H)3380.527 (L) 2254.567 MOVERS

PRICE

DAY %

VOLUME

CHINA LONGYUAN-H

6.58

1.857585

10986749

PETROCHINA CO-H

CHINA MERCH BK-H

15.9

-0.7490637

22633443

CHINA MINSHENG-H

7.47

3.034483

90308168

148

133

NAME

19 PRICE

DAY %

VOLUME

-1.256732

47947186

PICC PROPERTY &

9.43

-1.770833

9781774

PING AN INSURA-H

60.2

0.7531381

12044241

AGRICULTURAL-H

3.33

-2.631579

141791930

CHINA NATL BDG-H

10.48

58598066

SHANDONG WEIG-H

8.46

0.4750594

6218100

AIR CHINA LTD-H

5.27

-1.495327

10952000

CHINA OILFIELD-H

11.86

0.1689189

10996285

SINOPHARM-H

21.25

-2.968037

2215835

ALUMINUM CORP-H

3.7

-0.2695418

24191012

CHINA PACIFIC-H

24.8

-0.4016064

7039746

TSINGTAO BREW-H

43.85

-1.015801

1042575

ANHUI CONCH-H

1.167315

18689400

CHINA PETROLEU-H

8.38

-1.062574

56876317

WEICHAI POWER-H

38.2

1.595745

3137656

BANK OF CHINA-H

3.15

-1.5625

257060675

CHINA RAIL CN-H

5.83

2.821869

45455011

YANZHOU COAL-H

17.14

-1.380898

15194167

BANK OF COMMUN-H

5.74

-3.204047

39643667

CHINA RAIL GR-H

2.94

0.6849315

53653477

ZIJIN MINING-H

BYD CO LTD-H

20.8

-3.926097

5318364

CHINA SHENHUA-H

33.2

-1.043219

10445250

ZOOMLION HEAVY-H

CHINA CITIC BK-H

4.61

-1.705757

39387400

CHINA TELECOM-H

4.19

-1.643192

63340333

ZTE CORP-H

CHINA COAL ENE-H

8.82

-1.121076

14688601

DONGFENG MOTOR-H

-1.547117

20609780

CHINA COM CONS-H

7.72

-1.530612

15076759

GUANGZHOU AUTO-H

8.1

-1.459854

4376009

CHINA CONST BA-H

-1.960784

300279649

HUANENG POWER-H

4.47

-0.4454343

15247913

CHINA COSCO HO-H

5.1

36701168

IND & COMM BK-H

5.03

-1.565558

240403948

20.5

29137915

JIANGXI COPPER-H

18.78

-1.157895

14950168

NAME

PRICE DAY %

CHINA LIFE INS-H

FTSE TAIWAN 50 INDEX NAME

PRICE DAY %

Volume 39.15

Volume

3.05

-1.92926

47194337

10.86

0.3696858

15274752

20.8

2.211302

7187695

ZOOMLION HEAVY INDUSTRY - H

10.72

-0.7393715

11040692

ZTE CORP-H

20.65

1.719902

5045095

Price 10744.91 52W (H) 13770.7 (L) 8058.58 MOVERS

NAME

3 PRICE DAY %

Volume

Far Eastern New Century Corp

1.070

3672.913

34.15

Siliconware Precision Industries Co

0.951

3116.361

35.8

Far EasTone Telecommunications Co Ltd

0.824

1596.665

60.5

SinoPac Financial Holdings Co Ltd

0.662

7288.503

10.65

First Financial Holding Co Ltd

0.870

5749.076

17.75

Synnex Technology International Corp

0.966

1544.603

73.3

Formosa Chemicals & Fibre Corp

3.137

4267.854

86.2

Taiwan Cement Corp

1.088

3692.176

34.55 18.5

Acer Inc

0.902

2703.059

Advanced Semiconductor Engineering Inc

1.700

6712.086

29.7

Formosa Petrochemical Corp

1.488

1897.217

Taiwan Cooperative Financial Holding

0.781

4947.619

Asia Cement Corp

0.721

2351.863

35.95

Formosa Plastics Corp

4.536

6120.840

86.9

Taiwan Fertilizer Co Ltd

0.479

735

76.4

Asustek Computer Inc

1.788

752.760

278.5

Foxconn Technology Co Ltd

1.220

1172.720

122

Taiwan Glass Industry Corp

0.484

1706.742

33.25

AU Optronics Corp

1.020

8760.837

13.65

Fubon Financial Holding Co Ltd

Catcher Technology Co Ltd

1.287

723.796

208.5

Hon Hai Precision Industry Co Ltd

Cathay Financial Holding Co Ltd

2.242

7824.354

33.6

Chang Hwa Commercial Bank

0.565

3931.746

16.85

Cheng Shin Rubber Industry Co Ltd

1.121

1854.356

70.9

Chimei Innolux Corp

0.791

6741.975

13.75

China Development Financial Holding Corp

0.863

11250.646

China Steel Corp

2.901

11284.657

Chinatrust Financial Holding Co Ltd

1.778

11238.437

Chunghwa Telecom Co Ltd

2.947

3801.149

Compal Electronics Inc

1.252

Delta Electronics Inc

1.758

1.905

6718.311

33.25

Taiwan Mobile Co Ltd

1.285

1676.208

89.9

10.377

10627.373

114.5

TPK Holding Co Ltd

0.719

176.453

477.5

Hotai Motor Co Ltd

0.831

409.634

238

TSMC

18.646

25753.417

84.9

HTC Corp

4.389

862.052

597

Uni-President Enterprises Corp

1.583

4544.369

40.85

Hua Nan Financial Holdings Co Ltd

0.888

6160.736

16.9

United Microelectronics Corp

1.600

12987.771

14.45

Largan Precision Co Ltd

0.498

100.605

580

Wistron Corp

0.779

2052.140

44.5

Lite-On Technology Corp

0.699

2296.218

35.7

Yuanta Financial Holding Co Ltd

1.311

10016.140

15.35

30.15

MediaTek Inc

2.765

1147.610

282.5

18.55

Mega Financial Holding Co Ltd

1.519

8544.629

20.85

90.9

Nan Ya Plastics Corp

4.466

7852.299

66.7

4420.952

33.2

President Chain Store Corp

1.090

779.717

164

2383.486

86.5

Quanta Computer Inc

1.895

2874.431

77.3

Price 5503.52 52W (H) 6265.48 (L) 4643.05 MOVERS

business daily April 9, 2012 | 13

MARKETS GAMING STOCKS - DAILY PERFORMANCE (Hong Kong Stock Exchange) galaXY ENtErtaINMENt

MElCo CrowN ENtErtaINMENt

21.8

MgM CHINa HolDINgS

35.5

14.15

35.4

14.10

21.2

35.3

14.05

35.2

14.00

35.1

13.95

13.90

21.6 21.4

20.8 20.6 20.4 20.2

last 21.45

Max 21.55

average 21.22

34.9

Min 20.70

SaNDS CHINa ltD 31.2 31 30.8 30.6 30.4 30.2 30 29.8 29.6 29.4

13.85 last 35.45

Max 35.45

average 35.36

16.7

22.6

16.6

22.4

16.5

22.2

16.4

22.0

21.4

last 16.38

Min 30.05

Max 16.60

average 316.41

IN FOCUS

YTD %

(H) 52W

(L) 52W

AUD

1.0307

0.3603

0.9599

1.1081

0.9388

GBP

1.5871

0.3034

2.1103

1.6747

1.5235

CHF

0.9173

0.218

2.2675

0.9596

0.7071

EUR

1.3097

0.1989

1.0493

1.494

1.2624

JPY

81.64

0.3552

-5.7937

85.16

75.35

MOP

7.997

0.0275

0.0325

8.0449

7.9823

NIKKEI 225

HKD

7.7644

0.0193

0.0386

7.8113

7.7529

HANG SENG INDEX

CNY

6.3058

0.1285

-0.1713

6.5472

6.2846

DOW JONES INDUS. AVG

INR

51.105

-0.7631

3.8352

54.305

43.855

FTSE 100 INDEX

THB

30.98

0.0646

1.8399

31.96

29.63

SGD

1.2607

0.0079

2.8476

1.3199

1.1992

ASIA PACIFIC

DAX INDEX

MACAU RELATED STOCKS DAY % YTD %

(H) 52W

(L) 52W

VOLUME CRNCY

ARISTOCRAT LEISU

3.17

-0.3144654

44.09091

3.3

1.88

2760586

CROWN LTD

8.75

-0.5681818

8.158218

9.2

7.45

794133

AMAX HOLDINGS LT

0.089

2.298854

0.147

0.06

4970500

BOC HONG KONG HO

21.6

-0.4608295

17.39131

25.6

14.24

11851936

CENTURY LEGEND

0.26

6.995885

13.04348

0.46

0.204

144000

3.2

14.28572

4.79

2.3

CHINA OVERSEAS

15.96

0.7575758

22.9584

17.86

9.99

25806913

CHINESE ESTATES

10.48

-1.503759

-16.16

14.88

10.2

395000

CHOW TAI FOOK JE

11.88

-2.302632

-14.65517

15.16

11.68

14357000 1895000

FUTURE BRIGHT GALAXY ENTERTAIN HANG SENG BK

1.4

26.12612

2.09

0.97

0.66

-1.492537

57.14286

0.76

0.3

162000

21.45

0.7042254

50.63202

22.45

8.69

7349159

102

-0.5847953

10.68909

127

84.4

1512092

68.75

-1.221264

16.52542

85.35

11000498

HUTCHISON TELE H

3.35

12.04013

3.6

2.13

2518075

LUK FOOK HLDGS I

22.65

-3.205128

-16.42067

46.15

19.2

5670957

HSBC HLDGS PLC

AUD

CROSSES

HKD

2.5329

30.716

28.48

0.1053

2.5497

44.35

41.879

IDR

9169

-0.0327

-1.0906

9367

8458

AUDJPY

84.114

0.0297

-6.7551

90.031

72.057

EURCHF

1.20096

0.0441

1.3181

1.31665

1.00749

EURGBP

0.82496

0.1188

1.0219

0.90835

0.82219

EURCNY

8.2404

0.625

-1.2888

9.6769

7.9674

EURMOP

10.4533

0.0057

-0.9691

11.9509

10.1031

EURJPY

106.86

0.2152

-6.7378

123.33

97.04

HKDMOP

1.0297

0.0291

0.0388

1.0311

1.0288

COUNTRY

PRICE

DAY %

YTD %

(H) 52W

(L) 52W

13060.14

-0.1117421

6.896468

13297.11

10404.49

NASDAQ COMPOSITE INDEX

3080.5

0.4044862

18.24655

3134.17

2298.89

5723.67

0.348892

2.716844

6103.73

4791.01

6775.26

-0.1297158

14.86703

7600.410156

4965.8

7.57

-1.560468

31.19584

10.76

4.3

1950042

-0.8510638

45.74412

17.183

7.6

3163019

DAX INDEX

MIDLAND HOLDINGS

4.05

0.7462687

0.2475257

6.123

2.95

2650036

0.105

-4.545455

-5.405407

0.158

0.08

310000

30.8

0.1626016

40.3189

32.55

14.9

9155785

1.2

1.32

0.82

SHUN HO RESOURCE

-0.105

42.75

DOW JONES INDUS. AVG

13.98

SANDS CHINA LTD

29.531

NAME

MGM CHINA HOLDIN NEPTUNE GROUP

TWD PHP

World Stock MarketS - Indices

FTSE 100 INDEX

MELCO INTL DEVEL

Min 21.80

DAY %

NASDAQ COMPOSITE INDEX

EMPEROR ENTERTAI

average 22.11

PRICE MAJORS

CHEUK NANG HLDGS

Max 22.50

CURRENCY EXCHANGE RATES

20 18 16 14 12 10 8 6 4 2 0

PRICE

last 22.15

Min 16.24

Stock Exchange indices - Year-to-date performance (%)

NAME

Min 13.94

21.6

16.1 average 30.67

average 14.03

21.8

16.2

Max 31

Max 14.10

wYNN MaCau ltD

SjM HolDINgS ltD

16.3

last 30.38

last 13.98

Min 35.10

NIKKEI 225

9688.45

-0.8104337

14.58367

10255.15

8135.79

HANG SENG INDEX

20593

-0.9522399

11.70969

24468.64063

16170.35

CSI 300 INDEX

2519.83

0.2784906

7.421453

3380.527

2254.567

SHUN TAK HOLDING

3.14

22.69803

4.686

2.241

3942239

TAIWAN TAIEX INDEX

7706.26

0.869654

8.967371

9099.75

6609.11

SJM HOLDINGS LTD

16.38

-0.9673519

29.17981

10.22

5110881

KOSPI INDEX

2029.03

0.01281565

11.13467

2231.47

1644.11

SMARTONE TELECOM

16.28

0.1230012

21.13096

18.5

9.8

499819

S&P/ASX 200 INDEX

4319.847

-0.3234296

6.490391

4976.4

3765.9

WYNN MACAU LTD

22.15

-1.336303

13.58974

27.48

14.807

6831836

ASIA ENTERTAINME

6.1

-4.984424

3.741495

10.8692

4.72

90202

BALLY TECHNOLOGI

46.95

-1.157895

18.68048

47.6

24.74

403583

BOC HONG KONG HO

2.82

17.63786

3.22

1.81

8182

GALAXY ENTERTAIN

2.74

3.007519

46.52406

2.87

1.08

16300

INTL GAME TECH

16.77

-0.1785714

-2.500004

19.15

13.38

1900428

JONES LANG LASAL

81.68

-0.4266732

33.33334

107.84

46.01

315751

LAS VEGAS SANDS

58.76

2.781179

37.51463

59.85

36.08

8567922

MACAU CAPITAL IN

0.11

9.999998

0.11

500

MELCO CROWN-ADR

13.82

1.245421

43.65905

16.15

7.05

5601391

MGM CHINA HOLDIN

1.83

53.56302

2.21314

1.00254

1000

MGM RESORTS INTE SHUFFLE MASTER SJM HOLDINGS LTD WYNN RESORTS LTD SJM HOLDINGS LTD WYNN RESORTS LTD

13.6

0.3690037

30.39309

16.05

7.4

9926979

17.65

-0.786959

50.59727

18.77

7.35

581817

2.12

-1.395349

30.06135

2.64

1.28

1100

125.94

1.761474

13.98317

165.4931

101.02

1049855

2.15

2.64

1.28

31.90184

1100

123.76

-1.527689

165.4931

101.02

12.01014

1193586

JAKARTA COMPOSITE INDEX

USD

4166.374

0.782238

9.010539

4232.923

3217.951

FTSE Bursa Malaysia KLCI

1598.87

0.3407722

4.451472

1609.33

1310.53

NZX ALL INDEX

773.896

-0.2465813

6.04216

814.431

700.441

PHILIPPINES ALL SHARE IX

3429.43

-0.2109594

12.62348

3465.89

2695.06

HSBC Dragon 300 Index Singapor

574.63

-0.05

15.78

N/A

STOCK EXCH OF THAI INDEX

1182.41

-1.30875

15.32108

1214.31

843.69

HO CHI MINH STOCK INDEX

447.44

0.5641337

27.27635

488.02

332.28

Laos Composite Index

987.62

9.801434

1348.88

876.33

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

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business daily April 9, 2012

Opinion

The Neuroeconomics Revolution

Robert J. Shiller Professor of Economics at Yale University

conomics is at the start of a revolution that is traceable to an unexpected source: medical schools and their research facilities. Neuroscience – the science of how the brain, that physical organ inside one’s head, really works – is beginning to change the way we think about how people make decisions. These findings will inevitably change the way we think about how economies function. In short, we are at the dawn of “neuroeconomics”. Efforts to link neuroscience to economics have occurred mostly in just the last few years, and the growth of neuroeconomics is still in its early stages. But its nascence follows a pattern: revolutions in science tend to come from completely unexpected places. A field of science can turn barren if no fundamentally new approaches to research are on the horizon. Scholars can become so trapped in their methods – in the language and assumptions of the accepted approach to their discipline – that their research becomes repetitive or trivial. Then something exciting comes along from someone who was never involved with these methods – some new idea that attracts young scholars and a few iconoclastic old scholars, who are willing to learn a different science and its different research methods. At a certain moment in this process, a scientific revolution is born. The neuroeconomic revolution has passed some key milestones quite recently, notably the publication last year of neuroscientist Paul Glimcher’s book Foundations of Neuroeconomic Analysis – a pointed variation on the title of Paul Samuelson’s 1947 classic work, Foundations of Economic Analysis, which helped to launch an earlier revolution in economic theory. And Glimcher himself now holds an appointment at New York University’s economics department (he also works at NYU’s Center for Neural Science). To most economists, however, Glimcher might as well have come from outer space. After all, his doctorate is from the University of Pennsylvania School of Medicine’s neuroscience department. Moreover, neuroeconomists like him conduct research that is well beyond their conventional colleagues’ intellectual comfort zone, for they seek to advance some of the core concepts of economics by linking them to specific brain structures. Much of modern economic and financial theory is based on the assumption that people are rational, and thus that they systematically maximize their own happiness, or as economists call it, their “util-

ity.” When Samuelson took on the subject in his 1947 book, he did not look into the brain, but relied instead on “revealed preference.” People’s objectives are revealed only by observing their economic activities. Under Samuelson’s guidance, generations of economists have based their research not on any physical structure underlying thought and behavior, but only on the assumption of rationality. As a result, Glimcher is skeptical of prevailing economic theory, and is seeking a physical basis for it in the brain. He wants to transform “soft” utility theory into “hard” utility theory by discovering the brain mechanisms that underlie it. In particular, Glimcher wants to identify brain structures that process key elements of utility theory when people face uncertainty: “(1) subjective value, (2) probability, (3) the product of subjective value and probability (expected subjective value), and (4) a neuro-computational mechanism that selects the element from the choice set that has the highest ‘expected subjective value’…” While Glimcher and his colleagues have uncovered tantalizing evidence, they have yet to find most of the fundamental brain structures. Maybe that is because such structures simply do not exist, and the whole utility-maximization theory is wrong, or at least in need of fundamental revision. If so, that finding alone would shake economics to its foundations. Another direction that excites neu-

roscientists is how the brain deals with ambiguous situations, when probabilities are not known, and when other highly relevant information is not available. It has already been discovered that the brain regions used to deal with

‘Yet it is likely that one day we will know much more about how economies work – or fail to work – by understanding better the physical structures that underlie brain functioning’

problems when probabilities are clear are different from those used when probabilities are unknown. This research might help us to understand how people handle uncertainty and risk in, say, financial markets at a time of crisis. John Maynard Keynes thought that most economic decision-making occurs in ambiguous situations in which probabilities are not known. He concluded that much of our

Founder & Publisher Paulo A. Azevedo | pazevedo@macaubusinessdaily.com

business cycle is driven by fluctuations in “animal spirits,” something in the mind – and not understood by economists. Of course, the problem with economics is that there are often as many interpretations of any crisis as there are economists. An economy is a remarkably complex structure, and fathoming it depends on understanding its laws, regulations, business practices and customs, and balance sheets, among many other details. Yet it is likely that one day we will know much more about how economies work – or fail to work – by understanding better the physical structures that underlie brain functioning. Those structures – networks of neurons that communicate with each other via axons and dendrites – underlie the familiar analogy of the brain to a computer – networks of transistors that communicate with each other via electric wires. The economy is the next analogy: a network of people who communicate with each other via electronic and other connections. The brain, the computer, and the economy: all three are devices whose purpose is to solve fundamental information problems in coordinating the activities of individual units – the neurons, the transistors, or individual people. As we improve our understanding of the problems that any one of these devices solves – and how it overcomes obstacles in doing so – we learn something valuable about all three. © Project Syndicate

Editor-in-Chief Tiago Azevedo DEputy Editor-in-Chief José I. Duarte

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business daily April 9, 2012 | 15

OPINION

Mind the gap

China’s growing growth risks

José I. Duarte Deputy Editor-in-Chief

Yao Yang Director of the China Centre for Economic Research, Peking University

f everything goes right for China, it will surpass the United States as the world’s largest economy, in current dollar terms (and more quickly in real terms), by 2021. Its per capita income will reach that of today’s lower tier of highincome countries. But, despite its forward momentum, the Chinese economy faces looming risks in the coming decade. The immediate risk is continuing stagnation, or recession, in Europe. In the last decade, export growth has accounted for roughly one-third of China’s overall economic growth, and about one-third of Chinese exports went to the European Union. If the situation in Europe continues to deteriorate, China’s growth will be dragged down. Over-tightening of domestic macroeconomic policies, especially those aimed at the real estate market, could heighten the risk of a slowdown, with house prices currently falling across China, owing to stringent government measures. Indeed, the situation is much like that of the 1997 Asian financial crisis. In the several years before that crisis hit, China had been combating inflation and appeared to be headed for a soft landing. But the combination of crisis and austerity condemned China to several years of deflation and considerably slower growth. Today, as China looks to the medium term, the government must face the problems created by its pervasive role in the economy. A new World Bank report singles out lack of reform of state-owned enterprises as the most important impediment to the country’s economic growth. But that is only a symptom of a deeper problem: the government’s dominant role in economic affairs.

infrastructure, the government recently abandoned several high-speed rail projects that were already under construction. But government overinvestment is also evident in numerous industrial parks and high-tech zones. China’s investment frenzy reminds many people of Japan in the 1980s, when high-speed rail links were extended to Japan’s remotest corners. Most rely on government subsidies to this day. And, while the subsidies may improve the quality of life for ordinary people in some respects, they also detract from it by suppressing domestic consumption. Infrastructure investment will inevitably run up against the law of diminishing marginal returns, but consumption growth does not have a limit. Suppressing consumption thus suffocates future growth, and the share of household consumption in GDP has declined from 67 percent in the mid1990s to below 50 percent in recent years, with most of the decline reflecting the distortions created by government policies. China’s government is production-oriented by nature.

‘Today, as China looks to the medium term, the government must face the problems created by its pervasive role in the economy’

Investment frenzy In addition to controlling 25 percent to 30 percent of gross domestic product directly, the government also takes a lion’s share of financial resources. In recent years, more than onethird of total bank lending has gone to infrastructure, most of which has been built by government entities. Indeed, recognizing its over-investment in

The upside is that this has helped to maintain high GDP growth rates. But the downside is equally pronounced. One negative consequence is the persistent deepening of income inequality. The Gini coefficient of per capita income has surpassed 50 (with 100 representing maximal inequality), put-

ting China in the upper quartile of inequality worldwide. Fighting inequality The problem may not be inequality per se but its consequences, one of which is the bifurcation of human capital. The return on education is increasing in China, but access to education is becoming increasingly divided socially and geographically. While education is improving in urban areas, children in the countryside are facing a decline in educational quality, because better teachers find their way to the cities. Moreover, given the income disparities between cities and rural areas, their education is more expensive than it is for urban families. As a result, a majority of rural kids will enter the workforce without a university diploma. Among China’s 140 million migrant workers, 80 percent have only nine years or less of formal education – far short of what high-income countries require. Despite officials’ seeming desire to reduce income inequality, China’s government is aggravating it, by – among other things – subsidising producers, favouring capitalintensive industries and maintaining a highly inefficient financial sector. But there are also promising signs of an economic uptick. The government has just announced new rules for household registration, known as hukou. Except in large cities, people can now freely choose their hukou after three years of residency. This will greatly help migrants by ensuring equal access to education for their children. To change completely the government’s distorting behaviour, however, requires more drastic political changes. The hukou reform is a good start, as it will strengthen migrants’ political rights in local communities. Given their large numbers, their political participation may force local governments to become more responsive to ordinary people’s needs. And government responsiveness at lower levels, one may hope, might eventually trickle up to the top.

The government has submitted a draft law to the Legislative Assembly that recommends a salary increase for public servants. The proposal was approved on its first reading to the assembly on March 29. It was fast-tracked for discussion and approval at the assembly’s Third Commission on April 2. A date has yet to be set for a second reading. Two things seem plausible, if not inescapable. First, the draft law will be approved sometime later this month, in time to take effect in May. In fact, by the terms submitted to legislators, the salary adjustment will take effect in the first month after the law is published. Second, the session is likely to be attended by the chief executive, who will defend both the increase and its timing. As May 1 approaches, he may seize the opportunity to announce the continuation of some existing benefits for residents, presumed temporary, if not announce some new ones. Inflation will be the main justification. The privileged residents of a territory with bulging coffers, we can splurge to buy social harmony and delay facing fundamental problems. We are lucky that this overindulgence does not have a more pronounced economic impact by, say, further increasing inflation. A fair share of the bonanza hand-outs for residents will most likely be spent in casinos, rapidly recycling it into the public coffers, or for the greater benefit of Zhuhai shops or Thai resorts beyond our borders.

The increased salaries will apply only from May onwards. In general terms, we are talking about a raise of about 4.3 percent for the full year.’

Some might find all this understandable under the circumstances. On the face of it, the proposed raise of 6.45 percent does not seem too bad. It appears to match the purchasing power lost to inflation last year. But the increased salaries will apply only from May onwards. In general terms, we are talking about a raise of about 4.3 percent for the full year. A colleague has done the sums. At most that means public servants will have the same purchasing power as they enjoyed at the time of the handover. The economy has boomed since then because of the casino industry and median salaries have more than doubled. Public sector workers have received cumulative increases of 22 percent in the same period. Public servants, relatively speaking, are coming much cheaper. Furthermore, the government seems to be telling public servants they are worth no more today than they were 12 years ago. In a justification note to the assembly, submitted with the draft law, the government says the purpose behind the recommended raise is to help the public service “retain and attract personnel” and counteract the private sector’s allure. How does the government reconcile this claim against the proposal?

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business daily April 9, 2012

CLOSING Executives leave Blackberry maker

U.S. freezes pay for top executives

Blackberry maker Research In Motion Ltd is losing two more senior executives as the money-losing company embarks on a strategic overhaul that its new chief executive says could result in its sale. Alan Brenner, a senior vice president for the BlackBerry platform, will leave after a transition period, and Alistair Mitchell, a vice president for the BlackBerry Messenger instant messaging product, has already left, RIM spokeswoman Tenille Kennedy said in an email statement.

The chief executives of General Motors, AIG, and Ally Financial had their 2012 compensation packages frozen for a second year in a row by the U.S. Treasury Department after they got “exceptional” bailout help during the financial crisis. The Treasury said that all three were making progress at repaying the taxpayer funds given to them to keep them from collapsing during the 2007-2009 financial crisis but their pay practices remain under scrutiny of a “special master” until they do pay it back.

Dollar falls after U.S. jobs data disappoint Underwhelming U.S. jobs report weighs on dollar as euro bounces from lows and Spain debt worries persist Luciana Lopez

he U.S. dollar fell against the euro and the yen on Friday after lower-than-expected U.S. jobs figures bolstered views the Federal Reserve could yet ease policy further to boost the economy, though thin holiday trading exacerbated currency moves. The dollar reversed early gains against the euro after data showed U.S. nonfarm payrolls rose by 120,000 in March, far lower than the 203,000 expected in a Reuters survey. The data especially disappointed after recent numbers suggested a stronger recovery in the beleaguered jobs market. “The question for the dollar is whether this is as viewed as an outlier in an otherwise improving trend in labor markets, or if it’s viewed as enough to revive talk of another round of Fed policy easing,” said Omer Esiner, chief market analyst with Commonwealth Foreign Exchange in Washington D.C. “At the very least it will keep the door open to additional policy easing, more so than before the number was released. In that respect it’s definitely a negative for the dollar.” The euro rose 0.26 percent to US$1.3097, bouncing from a

three-week low of US$1.3033 hit the previous session, according to Reuters data. Nevertheless, dismal data from the euro zone, fears about Spain’s debt levels, and expectations that European monetary policy will stay loose have the euro down about 2 percent against the dollar this week. The dollar was off 0.95 percent to 81.51 yen, for a loss of about 1.7 percent for the week. Activity was light and trading desks thinly staffed, with the U.S. stock market closed and the U.S. bond market closed early in observance of the Good Friday holiday. Much of Asia was off as well. “Monday’s price action will be a lot more telling as participants in the U.S. and abroad digest today’s [Friday’s] jobs data,” said Daniel Hwang, senior currency strategist at Forex.com in New York. Hwang said euro uptrend technical support converges around US$1.3150, the 100-day simple moving average. “Raised expectations of Fed stimulus should cause some consolidation of the dollar next week, especially after this week’s gains, and I think the euro is likely to test that support level.” Reuters

Europe may be heading back into debt storm A flood of easy money made for a calm start to 2012 but a poor Spanish bond sale last week signals it may only have been a lull before the debt storm breaks Richard Lein

he European Central Bank injected roughly one trillion euros (US$1.3 trillion) into eurozone banks at auctions in December and February, helping to ease concerns banks would face a funding crunch. Some of this cash ended up in the sovereign bond markets, helping reduce the rates countries need to pay to raise funds after a year of high tension over whether Italy and Spain - the eurozone’s thirdand fourth-largest economies - might also need to be bailed out after Greece, Ireland and Portugal. “The first quarter was exceptional for eurozone state borrowing,” said Jean-Francois Robin at France’s Natixis bank. The first three months of the year are important as countries often try to meet a huge chunk of their annual borrowing needs at the outset and they made the most of the early calm. “Paris and Berlin borrowed at historically very favourable rates and Madrid got a long way towards covering its financing needs this year,” noted Robin. Spain covered 43 percent of its annual mediumand long-term financing needs in the first quarter, taking advantage of rates of around 4.0 percent compared to near 7.0 percent at the height of the crisis late last year.

But in the first week of April the calm on European debt markets abruptly ended. Spain barely raised the amount it sought in a bond auction on Wednesday and had to pay investors sharply higher rates just after announcing a tough 2012 budget that aims to make a whopping 27 billion euros in savings. Madrid’s warning that its public debt will jump by 10 percentage points this year to nearly 80 percent of gross domestic product (GDP) clearly

rattled investors who also faced the prospect of an economy slipping deeper into recession. While ECB liquidity measures helped shield Madrid from immediate danger, economist Raj Badiani at IHS Global Insight warned the risks are expected to intensify next year as Spain is battered by recession and high unemployment and bad real estate assets drag down banks. This would make it difficult for Spain to achieve its target of reducing its public deficit to the EU ceiling of 3.0 percent of GDP by austerity measures alone, he said, and raised the possibility it would need some sort of help from its European partners. “This could entail the ECB providing more protection than its current policy of making limited Spanish bond purchases in the secondary market,” he said. Bond yields of weaker eurozone states are moving higher as did the gap with those of German government bonds, the benchmark measure. The yield on Spanish 10-year bonds jumped to 5.735 percent from 5.332 percent at the end of March, with the spread with German bonds widening to over 4.0 from 3.54 percentage points. The spread between German and Italian bonds widened to 3.67 from 3.31 percentage points. AFP