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Vitor Quintã

MOP 6.00

Casinos’ 2012 1 operating expenses up by a quarter

April 19, 2013

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Year II

Number 420 Friday November 22, 2013

Editor-in-chief Tiago Azevedo

Deputy editor-in-chief

Centralised body mulled to oversee law-making Page 5

More residents making big bucks in third quarter Page 6

Housing burden pushes inflation to 14-month high H

igh home prices are driving up inflation and hitting low-income households the hardest. Homeowners were paying 16 percent more for their mortgage instalments in October than a year ago whereas home rents jumped 14.6 percent.

With housing costs soaring and pricier restaurant meals, inflation hit 6.18 percent last month, the highest rate since August 2012. Restaurant meals are the biggest single outlay for households and this expense increased by 6.9 percent year-on-year. The cost of congee

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and noodles grew by 10.9 percent. Low-income families are most affected. Inflation for goods and services typically bought by such households was 6.94 percent, 12.3 percent higher than for other families. It is the highest gap in more than seven years. More on page 3

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CATHAY PAC AIR

3.21

CHINA COAL ENE-H

3.04

CITIC PACIFIC

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CHINA RES ENTERP

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TENCENT HOLDINGS

0.67

CHINA RES LAND

-1.63

BANK OF COMMUN-H

-1.90

BELLE INTERNATIO

-2.26

CHINA OVERSEAS

-2.65

NEW WORLD DEV

-3.31

Source: Bloomberg

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U.S. urges lower casino reporting threshold

Luxury goods shopping fuels retail recovery

A congressional commission in the United States has criticised Macau for maintaining a “very high threshold” for reporting financial transactions in casinos. The U.S.China Economic and Security Review Commission suggests Macau should reduce it to US$3,000. Macau officials have said that’s impracticable. Separately Macau’s Financial Intelligence Office said it received fewer reports of suspicious transactions in the first half.

Macau’s retail sector has seen its growth accelerate for a fourth consecutive quarter, official data show, fuelled by sales of luxury goods. With more tourists arriving, and more of them shopping here, there were record sales of mobile phones, Chinese food products and pharmacy goods. Retailers believe the good times are here to stay, with 78 percent expecting sales to improve or remain stable.

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‘Grinning paintings’ artist laughs off political spin Yue Minjun, known for his large paintings of his own smiling face, has become a symbol of the modern Chinese art scene. But the artist rejects attempts to categorise his works – selling for millions of dollars each – as political statements. Mr Yue was in Macau last week for a preview of an exhibition of his paintings and sculpture. The show opened yesterday. Page 7

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November 22, 2013

Macau

Need for speed – low reporting threshold ‘impracticable’

U.S. urges lower casino reporting threshold Congressional panel calls for all Macau betting transactions over US$3,000 to be logged Michael Grimes

michael.grimes@macaubusinessdaily.com

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congressional commission in the United States has criticised Macau for maintaining its “very high threshold” for reporting financial transactions in casinos – ten years after an international body recommended it should be lowered. The U.S.-China Economic and Security Review Commission, which published its full report this week, suggests Macau should lower the reporting threshold to US$3,000 (23,953 patacas). Macau officials have previously

said such a low threshold would be impracticable given the volume and velocity of money passing though the gaming rooms. Macau generated revenue equal to US$38 billion last year – more than six times that produced by the Las Vegas Strip. “Although Macau has been asked to lower its high transaction reporting threshold for casinos to US$3,000 as recommended by the Financial Action Task Force, Macau continues to allow a very high threshold of US$62,500 for reporting large transactions at

casinos,” the congressional report nonetheless maintains. It adds: “Although casinos and junket promoters are licensed by Macau’s gaming regulator, there remain significant vulnerabilities with unlicensed junket operators, junket affiliates, and satellite casinos that play an integral role in Macau’s gaming system. “These entities are not subject to the same regulations and reporting requirements as licensed entities and thus are more susceptible to money laundering and influence from

organized crime.” The report also suggests – quoting a visiting professor at the University of Macau – that de facto a two-tier system of regulation has developed in Macau’s casino industry. The system divides those casino operators directly answerable to overseas regulators because they have casino licences overseas, from the rest. “…in practice, there are two separate regulatory systems working in Macau. There are the casinos that are subject only to Macanese [sic] regulations. And there are those that are also subject to controls by states and nations outside of the PRC [People’s Republic of China] – in particular, the three casino operators who are also licensed by Nevada and other states,” the report says. It quotes directly from an article called ‘A Tale of Two Cities’ by I. Nelson Rose published in specialist journal Gaming Law Review and Economics. Mr Rose is a visiting professor at the University of Macau, and professor at Whittier Law School in California and also gave direct evidence to the panel on June 27. The final commission report covering all aspects of the U.S.-China economic and security relationship runs to 453 pages. It includes 40 pages of commentary on Macau and its neighbouring Special Administrative Region, Hong Kong. Most of the Macau material covers familiar ground in terms of Western perceptions of the territory: allegations of triad activity in casino junket operations; concerns that Macau is not sufficiently robust in controlling cross-border money laundering and claims of generally loose regulatory oversight by the government. “All of these concerns have led American companies operating casinos in Macau to take additional steps to prevent illegal activity in their operations,” states the report. But it adds: “The commission is not in a position to evaluate the adequacy of these measures to insulate these companies from the danger of association with illegal activity.” The report stressed however: “The commission did not seek nor did it find evidence of wrongdoing by any U.S.-based casino company, either in Macau or Las Vegas.”

Suspicious deals down in first half Higher gaming revenue does little to increase probes on dubious transactions Vítor Quintã

vitorquinta@macaubusinessdaily.com

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he Financial Intelligence Office received fewer reports of suspicious transactions in the first half of this year, even though gaming revenue continues to grow. According to the office’s latest newsletter, released yesterday, it received 777 reports in the JanuaryJune period, 21 percent less than a year before. The gaming sector remains the main breeding ground for these reports, accounting for 548 cases, or 70.5 percent of the total. All of the other cases were in the banking or insurance sectors. Casinos are required to report to the Gaming Inspection

and Coordination Bureau any transaction worth over 500,000 patacas (US$62,530). In other parts of the world transactions above US$3,000 must be reported, following standards set by the Financial Action Task Force, the international body set up to counter money laundering. The gaming regulator probably received more reports in the first half of 2013 than a year earlier, given that gaming revenue rose by 15.3 percent in that same period. The gaming bureau then passes cases of suspicious transactions to the Financial Intelligence Office. The office did not explain why suspicious transactions decreased.

The number of cases of suspicious transactions sent to the Public Prosecutions Office also dropped in the first half, from 115 to 89. The number of cases probed remains just a small fraction of the total number of suspicious transaction reports but the percentage is growing. The Financial Intelligence Office passed on to the prosecutors roughly 11.5 percent of the cases of suspicious transactions received in the first half, up from 9 percent last year. Most reports of suspicious transactions are classified as medium risk, office director Deborah Ng Man Seong said in May.

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Suspicious transaction reports sent to the Financial Intelligence Office

The office is revising the legislation that is meant to counter money laundering and the financing of terrorism.


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November 22, 2013 April 19, 2013

Macau

Housing cost surge shoves inflation rate up to 6.2 pct Low-income households are hit by higher prices for basic necessities Vítor Quintã

vitorquinta@macaubusinessdaily.com

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nflation rose to its highest in 14 months last month, mainly because families are paying more for the flats they live in, official data show. The Statistics and Census Service announced yesterday that the annual rate of consumer price inflation rose to 6.18 percent last month, the highest rate since August last year. The bureau said one cause of the rise had been an increase of 14.6 percent in rents for housing. But rents had less effect on inflation than housing costs in general, which include the cost of servicing mortgages. Housing costs, the second-biggest expense for households, increased by 16 percent, accounting for one-third of the rise in the inflation rate. About 70.8 percent of households own their homes, according to the 2011 census, and they are feeling the pinch from higher housing prices. The average price of housing increased to 66,936 patacas (US$8,383) a square metre in the third quarter of this year, 14.8 percent more than a year earlier, official data show. Chief Executive Fernando Chui Sai On steered clear of the property market in his Policy Address for 2014, delivered last week, because of fears that meddling could burst any asset bubble that may be forming. Stricter rules on sales of unfinished flats, imposed in June, have reduced the supply of new housing, meaning homebuyers have to pay more for

Housing costs have increased by 16 percent in the past year (Photo: Manuel Cardoso)

older flats. The higher cost of eating out accounted for one-quarter of the rise in the rate of inflation.

Poor get poorer The cost of meals in restaurants, the biggest single outlay for households, increased by 6.9 percent. The cost of congee and noodles – cheaper fare – increased by 10.9 percent. The combined cost of food, eating out and non-alcoholic drinks increased by 6.7 percent.

Prices of vegetables were 16.7 percent higher in October than a year earlier, even though they were 7.8 percent in comparison with September. Prices of fresh seafood were 20.2 percent higher in October than a year earlier, and prices of beef were 12.1 percent higher. Slower shipments from the mainland, Macau’s main supplier of food, probably pushed up prices of food and drink. The annual rate of food price inflation in the mainland was 6.1 percent last month because of national

holidays and droughts or floods in some places, according to the National Bureau of Statistics. Higher food prices and housing costs here mean inflation makes lowincome households – those spending between 6,000 patacas and 19,000 patacas a month – suffer most. The annual rate of inflation in the prices of goods and services typically bought by low-income households was 6.94 percent in October, 12.3 percent faster than inflation in the prices of goods and services typically bought by other households. The difference was the biggest for more than seven years. Low-income households spend a greater proportion of their budgets on basic necessities, and it was the prices of basic necessities that rose most rapidly.

KEY POINTS Healthcare costs rise 11.9 pct LPG 18.3 pct more expensive Package tours cost 19.5 pct more Jewellery, watches, 11.4 pct cheaper

Casinos’ operating expenses rise by quarter in 2012 Staff pay up 17 percent last year adds government’s Gaming Sector Survey

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perating expenses across Macau’s gaming sector rose 24 percent year-on-year in 2012, to 17.54 billion patacas (US$2.2 billion). Workers’ pay in the sector went up 17 percent. The increases are detailed in the Gaming Sector Survey 2012 published by the Statistics and Census Service yesterday. The cost pressures on the territory’s casino sector have been well documented. Business Daily reported in September that average monthly earnings for casino dealers in Macau rose 43 percent between the second quarter of 2004 – when the government started to compile such numbers – and the second quarter of this year. Fortunately for the local economy, the takings from the mostly Chinese gamblers frequenting the city’s casinos have risen even more steeply. “Both receipts and expenditure

of the gaming enterprises recorded continuous growth over the past five years, with receipts being more than double the amount of expenditure, indicating that the profit before deduction of special gaming tax has kept increasing,” said the statistics service in a commentary accompanying the survey. It added: “Receipts of the gaming sector registered double-digit yearon-year growth over the past five years except in 2009. In addition, receipts of the sector have exceeded 200 billion patacas since 2011.” Total receipts of the gaming sector in 2012 increased by 14 percent yearon-year to 306.82 billion patacas. Receipts from “gaming and related services” rose by 13 percent to 306.49 billion patacas. “Interest receipts” account for the difference of around 335 million patacas between the two numbers. That relates to money held by the casinos

Wages of ‘sin’ sector on the rise

as their operations generate free cash flow after paying off many capital costs associated with building the first round of new resorts. Such interest receipts leapt 141 percent year-on-year, from 139 million in 2011. Gross fixed capital formation rose by 42 percent year-on-year, “on account of a 45 percent increase in construction projects…[and] to the acquisition, reconstruction and

alteration of buildings by gaming enterprises,” said the statistics service. There was also an 82 percent rise in capital spending on electronic gaming equipment, to 738 million patacas, “upon an increase in acquisition”. The gaming industry survey excludes receipts from hotel services, which are detailed in a separate government report. M.G.


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November 22, 2013

Macau

High-end purchases drive retailing boom Shopkeepers reap the benefits of growth in the number of visitors and how much they spend Vítor Quintã

vitorquinta@macaubusinessdaily.com

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Nansha private jet hub seeks Macau capital

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uangzhou is trying to attract capital from Macau and Hong Kong for an airport focusing on private jets. The new infrastructure is planned for Nansha special economic zone. The city’s Municipal Development and Reform Commission organised on Wednesday a conference to promote the project, mainland media reported.

Neptune unit signs MOU on new junket deal

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acau casino junket investor Neptune Group Ltd says a wholly-owned subsidiary has signed a memorandum of understanding to acquire profit rights in Macau junket promoter Ocean Star Entertainment Co Ltd. A filing to the Hong Kong Stock Exchange says Ocean Star has a junket representative agreement at “COD Neptune Guangdong

The commission said it would like to attract 6 billion yuan (7.86 billion patacas) of private capital for the construction of Guangzhou’s second airport. There is still no final decision on how the investment will be handled. The Nansha airport will occupy about two square kilometres and it includes a helicopter pad, the commission said. The Guangzhou authorities announced early this year that they would like to establish a second airport in the city. In early September the city’s Municipal Development and Reform Commission confirmed they had decided to build an airport for business aviation in Nansha.

rowth in retail sales accelerated in the third quarter for the fourth quarter in a row, fuelled by sales of upmarket goods, official data show. The value of retail sales grew to 15.55 billion patacas (US$1.95 billion) in the third quarter of this year, 23.3 percent more than a year earlier, the Statistics and Census Service announced yesterday. The annual rate of growth has been picking up since it slowed to 15.1 percent in the second quarter of last year, the slowest rate for three years. The acceleration has been driven by sales of high-end products such as watches, jewellery and goods sold in department stores, most of which are meant for tourists. Sales of watches, clocks and jewellery amounted to 4.49 billion patacas in the third quarter, 27 percent more than a year earlier. They accounted for 29 percent of all retail sales. Department store sales rose by 25 percent to 2.47 billion patacas. Department stores and sellers of watches, clocks and jewellery reaped the benefits of growth in the number of visitors to Macau and the amount of money they spend here. The city had 7.77 million visitors in the third quarter, nearly 7 percent more than a year earlier, official data show. On average, each spent 914 patacas in the shops, 5.2 percent more. Other sorts of retailers made the

most of the visitor boom, setting new sales records even though the third quarter is usually an off season for them. Pharmacy sales rose by 23.7 percent to 467 million patacas as mainlanders continued to stock up on infant formula and cosmetics. Mainlanders like to buy smartphones here because there is no sales tax. Communication equipment sales rose by 49.5 percent to 321 million patacas. Growth in demand for souvenir food such as pastries and beef jerky meant sales of Chinese food rose by 15.7 percent to a record 151 million patacas. Macau people also helped fuel the retailing boom. Supermarket sales rose by 16.6 percent to a record 977 million patacas. Retailers believe the good times are here to stay. A Statistics and Census Service survey found that 35 percent expected sales to improve in the fourth quarter and 43 percent expected sales to be steady.

49.5 %

Annual increase in Q3 communication equipment sales

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VIP Club” in Melco Crown Entertainment Ltd’s City of Dreams casino resort on Cotai. The filing adds that “not less than 11” gaming tables are operated at the VIP club, “generating a rolling chip turnover which averages at approximately HK$6.43 billion [US$829.5 million] per month for the past 12 months”. The document adds that “a certain percentage of the monthly rolling turnover at the VIP Club goes to the profit of Ocean Star,” whose sole owner is said to be a person called So Wai Chi. The Neptune subsidiary signing the MOU is Credible Ltd, a British Virgin Islands company. M.G.

Visitors are driving sales of watches, clocks and jewellery


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November 22, 2013

Macau

Govt mulls centralised law-drafting body Florinda Chan concedes to coordination flaws over new legislation Stephanie Lai

sw.lai@macaubusinessdaily.com

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he government will consider setting up a centralised body to oversee all new legislation, Secretary for Administration and Justice Florinda Chan said yesterday. However, speaking during a question and answer session of the Policy Address for 2014, Ms Chan gave no hint of when a final decision

could be made. Several Legislative Assembly members complained of a lack of coordination with the government on law-making and inconsistent interpretation of legal provisions. Ms Chan said she understood legislators’ concerns. “Since the handover, each

Measures will be taken if bus system proves to be illegal, said Florinda Chan (Photo: Manuel Cardoso)

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department basically handles their own legislation procedures once the chief executive and the leading secretaries have confirmed that policy,” she said. “But we can probe the feasibility of having a central department to handle the law-making process,” the secretary said. Kwan Tsui Hang, a vice president of the Macau Federation of Trade Unions, criticised the policy address for including close to nothing on how the current laws are being enforced and on whether they can achieve their aim. André Cheong Weng Chon, director of the Legal Affairs Bureau, downplayed the remark. “After a law is passed, we do have training to help the enforcement departments have a uniform understanding of how the law should be interpreted,” he said. “But we cannot rule out instances where some civil servants read the provisions literally without really understanding the legal principle,”

said Mr Cheong. Since the new legal aid system came into effect in April this year, just 17 people asked for financial help related to administrative appeals over law interpretation. Legislator Chan Meng Kam said residents are worried over the lack of transparency when it comes to the accountability of officials and the performance assessment mechanism. He singled out the case of the Bureau of Telecommunications Regulation director Lawrence Tou Veng Keong, who last month was appointed as an advisor for Secretary for Transport and Public Works Lau Si Io Ms Chan stressed that “the secretary has the power to arrange a transfer or terminate the bureau director’s tenure if [it] deems [him or her] as unfit to remain at the position”. But she declined to comment on a report issued by the Commission Against Corruption last week that said the bus system is illegal. The report said the law allows private companies to operate bus services only under public service concessions, not through service contracts. Ms Chan promised to study the legal arguments included in the report. Several legislators said the Transport Bureau officials should be held accountable for the fiasco. “If we really confirm that there are irregularities in the bus service, we will deal with the case under current mechanisms, such as the disciplinary procedure” for officials, said Ms Chan.


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November 22, 2013 April 19, 2013

Macau

Ranks of high-income residents swell in Q3

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Fewer people work in hotels as median earnings in the industry decrease

Touring trends If the data for the third quarter is any indication, the number of visitors arriving in package tours is likely to rise again this year. To the end of September, tour group arrivals corresponded to 81 percent of the total figure for 2012. The record set last year of more than 9.1 million tourist arrivals in groups will probably be broken. This class of tourist has almost doubled since 2009, driven by a 96-percent rise in visitors from the mainland. Mainlanders represent more than 70 percent of all tour group arrivals in that period. In the first nine months of this year the proportion was topping 77 percent.

Stephanie Lai

sw.lai@macaubusinessdaily.com

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he number of Macau residents earning at least triple the median income leapt in the third quarter of this year as the labour shortage drove up wages. Some 16,600 residents earned 40,000 patacas (US$5,000) or more a month in the third quarter, nearly 58 percent more than in the second, the Statistics and Census Service announced on Wednesday. The number earning between 20,000 patacas and 40,000 patacas a month rose by 3 percent to 57,300. Most residents in full-time work made between 8,000 patacas and 12,000 patacas a month. The median earnings of the working population were 12,000 patacas a month. The median earnings of residents

rose by 1,000 patacas to 15,000 patacas a month, meaning migrant workers made less than residents. Migrant workers made up about one-third of the working population of 364,000. Construction companies hired more people in the third quarter than in any other quarter since 2007 as work on several new resorts in Cotai gathered pace. The construction industry took on about 3,400 extra workers, increasing its workforce to 38,200, the most since 2008. The median earnings of construction workers were 12,000 patacas a month. About 25,900 people worked in hotels in the third quarter, 3,200 fewer than in the second.

The decrease may have been due to lower pay. The median earnings of hotel staff fell by 10 percent to 9,000 patacas. Some 6,900 people were unemployed in the third quarter. Most previously worked in gaming or construction.

16,600

Macau residents making MOP40,000 or more a month in Q3

Oriental Watch profit drops 61.8pct The graph above omits data on mainland tourists to better zoom in on trends among the smaller players. Even Taiwan, which has grown dramatically and is the second biggest source market, represents about one-tenth or less of mainland arrivals. Arrivals tripled between 2009 and last year, but growth seems to be slowing lately. Hong Kong arrivals have risen steadily, at an annual average of about 17.4 percent. The biggest relative growth was recorded by South Korean tourists – rising almost sevenfold and still growing this year. Japanese arrivals suffered a noticeable drop between 2010 and 2011. There was a slight recovery last year, which will be met by a fall again this year. With just three months to go, the number of Japanese package tourists stands at less than 40 percent of last year’s total. J.I.D.

56%

Decrease in Japanese package tourists in Q3 from a year earlier

Net income from sales in Macau down but retailer mulls expansion

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riental Watch Holdings Ltd said profit for its financial first half dropped by 61.8 percent from a year earlier to HK$19.9 million (US$2.6 million). The company had a profit of HK$52 million in the AprilSeptember period of 2012. Turnover for the six months ended September 30 declined 4.7 percent to HK$1.7 billion, which led to a gross revenue decline of 8.9 percent, the company said in its unaudited results. Oriental Watch sells several renowned brands in Greater China, including Swiss brands like Rolex, Tudor, Piaget and Omega. The group operates 107 stores, including two outlets in Macau. Sales in Macau and mainland China dropped by 9.3 percent from a year earlier to HK$555 million. Profit for this segment tumbled by 60.5 percent to HK$26.6 million, from HK$67.5 million in 2012. The watch retailer management attributed the decline in profit to the slowdown in Hong Kong and China’s high-end goods market and “a decline in gross profit margin as compared to the previous corresponding period”. High rental costs also hit the retailer’s profit. The rental expense

increased by approximately 21 percent in the six months to September, Oriental Watch said in a filing to the Hong Kong Stock Exchange. But the company may soon expand in the Macau market. “As rental rates begin to stabilise… the group may consider further expansion in Hong Kong and Macau should retail premises become available at more reasonable costs,” it said. The economic slowdown in Greater China has rippled through the global retail industry. Hong Kong and China’s overall Swiss

watch sales from January to September 2013 has declined 7 percent and 15 percent year-onyear respectively, the Federation of the Swiss Watch Industry said in its latest export statistics. The company remains “cautiously optimistic” on the business outlook for its financial second half, saying it believes the demand for high-end goods “is still strong and growing amongst mainland consumers”. The board declared a final dividend of 75 Hong Kong cents per share.

Chinese slowdown hits luxury sales (Photo: Manuel Cardoso)

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November 22, 2013 April 19, 2013

Macau

Yue Minjun takes rosy view of his most famous works Yue Minjun, known for his large paintings of his own smiling face, has become a symbol of the modern Chinese art scene. Mr Yue has achieved international stardom on the strength of his signature grin, and his paintings sell for millions of dollars. He now brings his work to Macau. Luciana Leitão

leitao.luciana@macaubusiness.com

Photos by Manuel Cardoso

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lmost six years after his rise to the forefront of the market for modern Chinese art, Yue Minjun’s enigmatic, jaw-breaking grin makes his face one of the most recognisable of our time. Mr Yue calls his laughing selfportraits “pink humour”. He says his work is “neutral” and not meant to display any “strong opinion”. All sorts of art experts and intellectuals say Mr Yue’s work is an expression of disillusion or – as theorist Li Xianting puts it – a “self-ironic response to the spiritual vacuum and folly of modern-day China”. The 51-year-old artist was most prolific right after the crackdown on the protesters in Tiananmen Square in 1989, so art critics all over the world describe his paintings as expressions of disappointment with the political environment in the mainland. “Many different people are influenced by the political environment,” Mr Yue told Business Daily in an interview. “The political issues are real and many different people besides artists, like writers and other intellectuals, are influenced by this environment.” Mr Yue was in Macau last week. An exhibition of his paintings and sculpture opened at the Macau Museum of Art yesterday and continues until February 16. Whether his laughing man series of paintings is meant as criticism of China, he does not say, remarking only that it is more neutral than people tend to think. “Even though it visually looks very strong, it doesn’t mean to express something as strong as it looks like,” he said, speaking through an interpreter. Mr Yue is usually the laughing subject of his paintings. He was like “an actor in a movie”, playing different parts in different stories and against different backgrounds, he said with a smile – a gentler, less face-splitting smile than

In the past decade works by artists such as Cai Guoqiang, Zhang Xiaogang and Mr Yue have broken record after record. “The Last Supper” by Zeng Fanzhi sold for HK$180.4 million (US$23.3 million) at an auction last month by Sotheby’s in Hong Kong, setting a record. Mr Yue’s exhibition in Macau is entitled “Yue Minjun: Neo-Idolatry”. It shows 52 oil paintings and sculptures created over the years. “It’s not a retrospective. These are recent works, because I actually have many different series of my work, and I brought what I had in my studio in Beijing,” Mr Yue said. He said the pieces he had brought here reflected different stages of his career, which reflected his personal and professional pursuits. Among the works he has brought to Macau are his overlapping portraits. These, he said, were the results of his musings on “the essence of painting” and how, in the past, it was only passive. “In this series, I used two paintings that were still wet and clashed the canvases together, so the paintings could paint themselves. It’s the active process of painting. Now the painting itself is taking action to become a giver,” he said.

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Yue Minjun and some of his work at the Macau Museum of Art

the smile in his paintings. Art historians usually define Mr Yue as one of the mentors of the movement called cynical realism, which was born right after 1989 and tries to find a way to weave China’s tumultuous experience into works of art. Mr Yue finds the term reductive, as it may be applied only to his laughing man series, which he believes to be a very small part of his work. The mesmerising enigma of that reddish face with the broad, laughing mouth and eyes tight shut from the strain of hilarity is subject to a multitude of interpretations. The artist is not always comfortable with how his work is analysed. He prefers to define his laughing man series as “pink humour”. Mr Yue said he had to start with something that he knew really well – himself. “It is not cynical, not that intense. I’m just using this in a very indirect way to express something,” he said. He was born in 1962 in Daqing in the province of Heilongjiang. He grew up during the Cultural

Revolution. His first job was in an oilfield, working as an electrician. He graduated from Hebei Normal University only in 1989. Mr Yue started producing paintings in earnest in the early 1990s, when the laughing man series began. In the late 1990s he won international recognition after the laughing man appeared at the Art Biennale in Venice. Since then he has become world famous, holding exhibitions in Asia, Europe and North America.

Way to the bank Collectors everywhere pay a lot of money for his paintings. In 2007 his painting “Execution” set a record for modern Chinese art when it sold for about US$5.3 million at Sotheby’s in London. In 2010, his work “On the Lake” was sold for US$1.8 million in Hong Kong. China has one of the most unpredictable markets in the world for modern art.

Mr Yue still paints the laughing man that made him famous, but he is trying new avenues. He said he expected to become “more complex” as an artist as he became more aware of “contradictions” within himself. Copies of his paintings can be seen everywhere in the mainland. He said he could do nothing about this, as copying was part of Chinese culture. “In China, when people learn calligraphy or painting they use imitation. They train a lot to imitate the original work. It’s a tradition for learning. Those people who copy my work don’t think it’s a problem. It’s a cultural practice,” he said. Mr Yue disagrees with the tradition, but cannot stop it. “To learn Chinese characters you need to practice, that’s why it’s different in China,” he said. Asked if he had ever seen a copy of his work as good as or better than the original, he replied: “If you have doubts about the spelling of a word, what do you do? Do you copy it?” Mr Yue doubts that he has found the key to success. “Maybe hard work”, he said. Last year he had his institutional consecration in Europe in the form of a retrospective entitled “L’Ombre du fou rire” at the Foundation Cartier in Paris. A retrospective has yet to be held in mainland China. “It is difficult to be an artist in China,” Mr Yue said.

It is not cynical, not that intense. I’m just using this in a very indirect way to express something Yue Minjun


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November 22, 2013 April 19, 2013

Greater China

Factory growth slows in Nov Gaw Capital Manufacturing gauge declines in growth headwind

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Chinese manufacturing gauge declined for the first time in four months, adding headwinds to a recovery in the world’s second-largest economy as leaders start to implement the broadest policy reforms since the 1990s. The preliminary 50.4 reading for the November Purchasing Managers’ Index released yesterday by HSBC Holdings Plc and Markit Economics compared with a 50.8 median estimate from analysts. The final number for October was 50.9, and levels above 50 indicate expansion. Slower manufacturing gains would add challenges for Premier Li Keqiang in carrying out a reform package that includes loosening controls on interest rates and giving farmers more land rights. Expansion headwinds may intensify after last month’s slowdown in credit growth that suggests Mr Li is trying to contain financial risks. “The recent growth rebound may have peaked,” said Ding Shuang, senior economist at Citigroup Inc in Hong Kong. “Tighter credit conditions and reform measures will continue to weigh on investment and growth through next year,” and reforms may be slowed if the risk of expansion slipping below 7 percent “becomes material”. The final reading of the HSBCMarkit manufacturing PMI will be released on December 2. The National Bureau of Statistics publishes its own PMI survey, with a bigger sample size, on December 1.

“I think generally this still reflects a cautiously optimistic view on China’s economy. The most important thing is that China will focus on reforms in the coming years,” said Hao Zhou, economist at Australia & New Zealand Banking Group Ltd in Shanghai. “I think in the short term, from now to next year, economic growth will still see some downside bias, as reforms will likely hurt some industries and sectors,” he added.

Analyst Projections Estimates for the HSBC-Markit preliminary, or Flash, PMI, from 18 analysts ranged from 50.4 to 51.7. The gauge is based on 85 percent to 90 percent of responses to surveys sent to more than 420 manufacturers.

The recent growth rebound may have peaked Ding Shuang, Citigroup Inc

Output expanded at a faster pace while new orders rose at a slower pace, according to HSBC’s statement. Gauges of new export orders, employment and output prices showed contraction while input prices rose at a slower pace. The Communist Party last week unveiled policy shifts after a four-day summit known as the third plenum. The dozens of measures include gradually relaxing the residenceregistration system in mid-sized cities, accelerating convertibility of the yuan and reducing price controls on water, oil, gas and power. Given yesterday’s figures, “resentment from vested interest groups resisting reforms will escalate,” said Steve Wang, Hong Kong-based chief China economist at Reorient Financial Markets Ltd. Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd., said a growth slowdown this quarter won’t necessarily slow down reforms. Instead, it will help accelerate changes that boost domestic demand, including rules on rural property, residential registration and the onechild policy, while “leaving other reforms that are negative to growth in a later stage,” Mr Shen said. Gross domestic product growth rebounded to 7.8 percent in the third quarter from a year earlier, after a 7.5 percent pace in the previous three months. Reuters/Bloomberg News

Expansion in the vast factory sector slowed as new export orders shrank

Peugeot talks hit snag on Dongfeng deal P

SA Peugeot Citroen’s plan to raise funds through a share sale have hit a snag as Dongfeng Motor Corp seeks a smaller stake than first discussed, people familiar with the matter said.

Dongfeng is weighing buying about 10 percent, half the size of the original proposal, said the people, who asked not to be identified discussing private talks. The Chinese company is more interested in expanding an existing industrial venture than buying a stake, they said. Peugeot initially proposed a capital increase of at least 3 billion euros (US$4 billion), in which Dongfeng and the French state would take equal stakes of about 20 percent, people familiar said last month. Peugeot, which reported a firsthalf operating loss in its automotive unit of 510 million euros, is looking to raise money for development spending

buys new property in London H

ong Kong based private equity firm Gaw Capital Partners and three South Korean investors have teamed up to buy the London headquarters of retailer Marks & Spencer for around US$321 million, adding to a string property deals by Asian investors this year. Asian investors, including insurers and banks, are buying into European properties as a way to diversify their portfolios as they seek steady yield of between 5-6 percent. “There is definitely a growing demand from Asian institutional investors in safe commercial and residential real estate purchases abroad,” said Christina Gaw, managing principal and head of capital markets at Gaw Capital. The purchase of Waterside House in Paddington, which has 237,800 square feet of office space, would make it Gaw Capital’s fourth property deal in London this year. The formerly run-down Paddington area is being redeveloped to include the construction of a rail line to cross London and new hotels and retail properties. The building was designed by architect Richard Rogers, who also designed the Lloyds of London Building and the Pompidou Centre in Paris. China’s Ping An Insurance Group in July acquired the Lloyds of London Building, the first direct overseas property acquisition by a mainland China insurance company and a deal in which Gaw Capital was an advisor. Gaw Capital was joined in the Waterside acquisition by the Korean Federation of Community Credit Cooperatives, Suhyup Bank and Hyundai Securities, according to a source with direct knowledge of the matter. Gaw Capital announced the deal in a statement on Wednesday without disclosing details. The seller of Waterside was D2 Private, an Irish property investment company, the source added. The source could not be named because details of the deal were private. Gaw, which has US$7.1 billion in assets under management, recently launched Gaw Capital Partners USA to raise up to US$500 million to invest in U.S. commercial real estate. The firm last month said it has raised a US$1.025 billion real estate fund for investment in China. Reuters

and to expand outside Europe, where demand is at a two-decade low. “Peugeot’s issues today are so global that having Dongfeng buying 10 percent of its shares won’t change anything,” said Florent Couvreur, an analyst at CM-CIC Securities in Paris who recommends selling the shares. “Peugeot has to deal with restructuring its European activities; its synergies with GM, which are non-existent; the inconsistency of its product range and its huge operational problems.” A smaller Dongfeng stake would potentially give the state, interested in protecting jobs and retaining

the automaker’s base in France, greater say. Some in the Peugeot family, which owns 25.5 percent, are concerned about the French government’s increased influence and want guaranteed board seats or other protections as a counterweight after a capital increase likely dilutes their holding, the people said. Another option Peugeot has would be selling its 57 percent Faurecia SA stake, with Canadian parts-maker Magna International Inc and other industrial competitors showing interest in the French supplier, people said. Peugeot thus far has said that it intends to keep the holding. Bloomberg News


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November 22, 2013 April 19, 2013

Greater China

YST Dairy to use proceeds to build five new dairy farms

YST Dairy raises US$425 mln in HK IPO Shares priced below mid-point of marketing range

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uanShengTai Dairy Farm Ltd, China’s fourth biggest raw milk producer, priced its US$425 million Hong Kong IPO near the low end of expectations, leaving some room for gains in its debut, sources familiar with the deal

said yesterday. The IPO was the second in Hong Kong in two months from a dairy company and comes amid a surge in capital markets activity in the dairy industry in Greater China, with US$4.6 billion of mergers and acquisitions and

equity deals in 2013. The year is shaping up to be the busiest ever for both M&A and equity issuance in the Asia ex-Japan region, according to Thomson Reuters data, as investors bet on booming demand in China.

China Huishan Dairy Holdings Co Ltd, the country’s second-biggest raw milk producer, raised US$1.5 billion in an IPO in September, with other large transactions including China Mengniu Dairy Co Ltd’s US$1.6 billion takeover of Yashili International Holdings Ltd in June. Growing demand for milk and other dairy products has spurred other deals around the world, including a US$1.1 billion IPO last month by Mexico’s largest dairy producer, Grupo Lala SAB de CV , and an ongoing takeover battle for Warrnambool Cheese and Butter Factory Co in Australia. “There are many positive drivers for the industry,” said Anson Chan, an analyst at KGI Securities in Hong Kong. The IPO got a last minute boost after the Chinese government unveiled major economic reforms last week, including allowing millions of families to have two children in the country’s most significant liberalisation of its strict one-child policy in about three decades. The move helped stoke a rally in companies that make baby products and infant milk formula makers. YuanShengTai, also known as YST Dairy, ranks fourth among raw milk producers in China, with nearly one-third of the output

of China Modern Dairy and less than half the production of Huishan Dairy. YST Dairy priced the IPO at HK$2.70 per share, compared with the indicative range of HK$2.49-HK$3.18, said the sources, who were not authorised to speak publicly on the matter. It offered 1.22 billion shares in the IPO, putting the deal value at HK$3.29 billion (US$425 million).

Safety cushion The deal was priced at a 2014 price-to-earnings ratio of 17 times, compared with a 20 times P/E for Huishan Dairy and 19 times P/E for Modern Dairy. “Given that it’s a smaller scale, it has higher execution risk, so it’s understandable why investors would demand a lower price to give them more upside and give them a safety cushion,” KGI’s Mr Chan said. YST sells all of its raw milk to five companies, including China’s three largest dairy processors, China Mengniu Dairy Co Ltd, Inner Mongolia Yili Industrial Group Co Ltd and Bright Dairy & Food Co. Mengniu, China’s largest dairy company, agreed to buy US$60 million worth of YST Dairy as a cornerstone investor in the IPO. Reuters


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November 22, 2013 April 19, 2013

Greater China

PBOC may slowdown US dollar purchases

Beijing eases limits on private aircraft travel

Central bank less interested in increasing foreign reserves

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he People’s Bank of China said the country does not benefit any more from increases in its foreign-currency holdings, adding to signs policymakers will rein in dollar purchases that limit the yuan’s appreciation. “It’s no longer in China’s favour to accumulate foreign-exchange reserves,” Yi Gang, a deputy governor at the central bank, said in a speech organised by China Economists 50 Forum at Tsinghua University yesterday. The monetary authority will “basically” end normal intervention in the currency market and broaden the yuan’s daily trading range, governor Zhou Xiaochuan wrote in an article in a guidebook explaining reforms outlined last week following a Communist Party meeting. Neither Mr Yi nor Mr Zhou gave a timeframe for any changes. China’s foreign-exchange reserves surged US$166 billion in the third quarter to a record US$3.66 trillion, more than triple those of any other country and bigger than the gross domestic product of Germany, Europe’s largest economy. The increase suggested money poured into the nation’s assets even

as developing nations from Brazil to India saw an exit of capital because of concern the Federal Reserve will taper stimulus. Mr Yi, who is also head of the State Administration of Foreign Exchange, said in the speech that the yuan’s appreciation benefits more people in China than it hurts.

‘Less interventionist’ His comments are “consistent with the plans to increase the renminbi’s flexibility so they become less interventionist,” Sacha Tihanyi, senior currency strategist at Scotiabank in Hong Kong, said yesterday. The central bank may widen the yuan’s trading band in “the coming few months,” he added. The yuan’s spot rate is allowed to diverge a maximum 1 percent on either side of a daily reference rate set by the People’s Bank of China. The trading range was doubled in April 2012, after being expanded from 0.3 percent in May 2007. The band could be widened to 2 percent, Hong Kong Apple Daily reported yesterday, citing an interview with

the Hong Kong Monetary Authority’s former chief executive Joseph Yam. Capital inflows into China accelerated in October, official data suggest. Yuan positions at the nation’s financial institutions accumulated from foreign-exchange purchases, a gauge of capital flows, climbed 441.6 billion yuan (US$72 billion), the most since January. About half of October’s increase in the positions was attributable to surpluses in trade and foreign direct investment, with the rest accounted for by inflows of “hot money,” Goldman Sachs Group Inc Hong Kong-based analysts MK Tang and Li Cui wrote in a November 18 note. “It appears that many in the People’s Bank think the time is about right to scale back currency interventions,” Mark Williams, London-based chief Asia economist at Capital Economics Ltd, wrote in an e-mail yesterday. “But China has got itself into a situation where stopping intervention will be very hard to do” and comments such as Yi’s will spur speculative inflows, he added.

China has simplified flight approval procedures for private aircraft in a move that may lead to the full opening of its under-developed general aviation market. The move may provide marketing opportunities for companies such as Cessna Aircraft Co and Bombardier Inc who have been eager to sell their pricy private jets in the world’s largest economy. Under the new rule, jointly issued by the Civil Aviation Administration of China (CAAC) and the military, companies or individuals flying in a private jet or helicopter outside a no-fly zone within the country no longer need to submit their plans to the military. They only need the permission of CAAC. The policy, effective December 1, marks China’s latest step in easing its grip on air space since late 2010 when it opened up low-altitude space for commercial jets in select cities, industry observers say. “It’s good now that they’ve eased the control all over the country, not just in those pilot cities. But the market for general aviation is still in the initial stage and it’s hard to say how fast it could grow,” said Jefferies Hong Kong analyst Liu Boyong. “We don’t have enough airports for small jets.” The more immediate beneficiaries are general aviation service providers, such as Citic Offshore Helicopter Co Ltd, as the new rules would cut back the paper work for flight approval and improve their operating efficiency, industry observers say.

Bloomberg News

Hong Kong domestic workers treated as ‘slaves’: Amnesty

closed on Wednesday at its highest since early February, ended down 0.5 percent at 23,580.29 points. The China Enterprises Index of the top Chinese listings in Hong Kong sank 0.9 percent. The HSBC China flash purchasing managers’ index (PMI) came in at 50.4 in November from October’s 50.9 final reading – its first monthon-month drop in the pace of growth in four months – checking gains from earlier this week as investors cheered China’s ambitious reform agenda. “The market is taking profits after gains from the past few days on reforms by the government,” said Zhang Gang, strategist at Central China Securities in Shanghai. “There’s currently a lack of further drive, but it’s only temporary. The economy is already stable and there will be more news on the implementation of reforms so further downside is unlikely.”

Amnesty International yesterday condemned the “slavery-like” conditions faced by thousands of Indonesian women who work in Hong Kong as domestic staff, accusing authorities of “inexcusable” inaction. Its report, “Exploited for Profit, Failed by Governments”, comes just weeks after a Hong Kong couple were jailed for a shocking string of attacks on their Indonesian housekeeper, including burning her with an iron and beating her with a bike chain. Amnesty found that Indonesians are exploited by recruitment and placement agencies who seize their documents and charge them excessive fees, with false promises of high salaries and good working conditions. The process amounted to trafficking and forced labour, Amnesty said, as the women could not escape once they were in debt and their documents seized. “From the moment the women are tricked into signing up for work in Hong Kong, they are trapped in a cycle of exploitation with cases that amount to modern-day slavery,” said Norma Kang Muico, Asia-Pacific migrants’ rights researcher at Amnesty. She said she feared the problem was widespread in Hong Kong, where some 150,000 Indonesian women work as “domestic helpers”. “A conservative figure would be thousands” based on the research figures and taking into account that the most vulnerable were still kept behind closed doors, she said. The report accuses both Indonesia and Hong Kong of “inexcusable” inaction. “The authorities may point to a raft of national laws that supposedly protect these women but such laws are rarely enforced,” said Ms Muico. Hong Kong lawmaker Fernando Cheung said Thursday that he felt “ashamed”. “The government should increase its effort in implementing the laws that are being violated,” he told reporters. Hong Kong is home to nearly 300,000 maids from mainly Southeast Asian countries, predominantly Indonesia and the Philippines, with growing criticism from rights groups over their treatment.

Reuters

Reuters

It’s no longer in China’s favour to accumulate foreignexchange reserves Yi Gang, central bank’s deputy governor

Most stocks fall on manufacturing concerns M

ost Chinese stocks fell after a manufacturing gauge declined and on speculation the government will announce property curbs. A rally for energy shares almost erased a loss of as much as 1.3 percent for the benchmark index. About five stocks fell for every three that rose on the benchmark Shanghai Composite Index, which slipped less than 0.1 percent to 2,205.77 at the close. A Chinese manufacturing gauge known as the flash PMI declined for the first time in four months. Finance Minister Lou Jiwei told the People’s Daily that the

government will increase taxes for owning properties. “There’s concern about more curbs in the property market,” said Tang Yonggang, an analyst at Hongyuan Securities Co in Beijing. “With property prices going up and talk of higher taxes, there are a lot of concerns and uncertainty about how taxes are going to be implemented. The flash PMI didn’t help sentiment.” Hong Kong shares also fell yesterday, easing from a near 10-month closing high a day earlier, hit by prospects the U.S. Federal Reserve could start to taper stimulus soon. The Hang Seng Index, which


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November 22, 2013 April 19, 2013

Asia

Singapore raises GDP growth forecast Externally-oriented sectors likely to support growth, ministry says

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ingapore raised its growth forecast for 2013 after the economy unexpectedly expanded last quarter, supporting the central bank’s decision to forgo stimulus for the Southeast Asian nation. The economy will grow 3.5 percent to 4 percent in 2013 and expand as much as 4 percent next year, the trade ministry said in a statement yesterday. It had previously forecast growth of as much as 3.5 percent in 2013. Gross domestic product expanded an annualised 1.3 percent last quarter from the previous three months, compared with a 1 percent decline estimated earlier. Asian economies are benefiting from a demand pickup aided by the U.S. Federal Reserve’s extension of monetary stimulus even as global risks remain from budgetary wrangling in Washington and a nascent recovery in Europe. Trade-dependent Singapore said yesterday exports will rebound in 2014 after contracting this year, easing pressure on the central bank to allow its currency to weaken to support overseas shipments. “We are in an expansionary phase even though we should not expect it to be too robust,” said Edward Lee, regional head of research at Standard Chartered Plc in Singapore. “There are pockets of strength in external demand and that is adding to a resilient domestic economy.” “Externally-oriented sectors such

GDP grew 5.8 percent in the three months through September from a year earlier, compared with an earlier estimate of a 5.1 percent expansion, yesterday’s report showed. The government forecasts growth of 2 percent to 4 percent in 2014. The central bank said on October 14 it will maintain a modest and gradual appreciation of the currency, forgoing stimulus as labour shortages and record home prices fuel inflation. Consumer prices rose at the slowest pace in four months in September. The policy stance remains appropriate, central bank deputy managing director Jacqueline Loh told reporters yesterday. Singapore’s manufacturing rose 0.1 percent last quarter from the previous three months, compared with an Oct. 14 estimate of a 3.4 percent decline. The services industry expanded 2.8 percent in the same period, while construction contracted 2.5 percent. “We’re seeing some green shoots coming from manufacturing recently,” Irvin Seah, an economist at DBS Group Holdings Ltd in Singapore, said before the report. “We’re seeing improvement across Asia.” Bloomberg News

Manufacturing rose 0.1 percent last quarter

as manufacturing, wholesale trade and transportation and storage are likely to support growth, in line with a slight pickup in the global economy,” the trade ministry said yesterday. “Domestically- oriented sectors such as construction and business

services are also expected to remain resilient in the fourth quarter.” The 1.3 percent quarter-onquarter expansion exceeded all 15 estimates in a Bloomberg survey, where the median was for a 0.3 percent drop.

1.3 %

GDP growth in Q3 from the previous three months

Investors can’t buy enough of Vietnam equities Foreigners have bought US$208.5 million of the nation’s shares this year

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he rush of foreign investors into Vietnam’s most-favoured companies has exhausted the government-limited supply of shares, freezing out some as inflation slows and the economy recovers from the weakest growth since 1999. Vietnam Dairy Products JSC, the nation’s largest milk producer, and DHG Pharmaceutical JSC, the biggest listed drugmaker, are among 20 companies with overseas ownership at the 49 percent limit, according to Ho Chi Minh City-based ACB Securities Co. Foreigners have bought a net US$208.5 million of the nation’s shares in 2013, the eighth straight year of inflows, as the benchmark VN Index rose 22 percent.

Signs that Prime Minister Nguyen Tan Dung’s Communist government is relaxing its grip on the Southeast Asian economy have helped spur the fastest pace of stock purchases by foreigners since 2008. Templeton Emerging Markets Group and Dragon Capital Group Ltd say they’ve been unable to buy as many shares as they want, while PXP Vietnam Asset Management predicts the US$45 billion market will extend gains as limits for some companies get raised to 60 percent as soon as year-end. “It’s like a double-edged sword,” Mark Mobius, who oversees about US$53 billion as the chairman of Templeton Emerging Markets

Group, said in a phone interview. “On one hand, it’s difficult to get in. But once you’re invested, you could do quite well.” Vietnam’s finance ministry has submitted a plan to the prime minister for raising the foreign ownership cap. The proposal would allow overseas investors to increase holdings of voting shares in some industries to a maximum 60 percent from 49 percent, Nguyen Son, the head of market

development at the State Securities Commission, said. Foreigners would be able to buy as much as 100 percent of non-voting shares, he said. Higher foreign limits in Vietnam “would be a great catalyst for the market,” said Tran Thi Kim Cuong, the head of equities at Manulife Asset Management (Vietnam) Co in Ho Chi Minh City. “The stocks which are at the full limit will be beneficiaries.” Bloomberg News


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November 22, 2013 April 19, 2013

Asia

BOJ seen postponing 2pct inflation goal Central bank maintains massive stimulus, rosy outlook

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he Bank of Japan will need to postpone the timeframe for achieving a 2 percent inflation target as it refrains from enlarging its asset-purchase programme, economists forecast in a Bloomberg News survey. Twenty-two of 37 analysts see governor Haruhiko Kuroda’s board altering the objective adopted in April. JPMorgan Chase & Co says the change may come in April or July next year, with the timeframe extended to the fiscal year starting April 2016. The BOJ yesterday stuck with a pledge to expand the monetary base by 60-70 trillion yen (US$700 billion) a year. “Japan’s economy is recovering moderately,” the BOJ said in a statement announcing the decision, unchanged from the assessment it made last month. “Exports have generally been picking up,” reflecting a moderate recovery in overseas economies, it said. An economic slowdown last quarter and the likely blow to consumption from a sales-tax increase in April next year highlight the risk that Abenomics will lose steam and fail to stamp out deflation. The central bank estimated last month that a key inflation gauge will rise 1.9 percent in the fiscal year starting April 2015, an assessment that economists dispute. “The BOJ will at first extend the timeframe for its goal,” said Kyohei Morita, chief Japan economist at Barclays Plc. “Revising or abandoning the 2 percent part of the target is a non-starter as it would provoke a market backlash.” The central bank said in April it will achieve the target “at the earliest possible time, with a time horizon of about two years”.

Revision timeframe The BOJ said overseas economies as a whole are “picking up moderately,”

Haruhiko Kuroda adopted the 2 percent inflation goal in January

revising its wording from October 4, when it said they were “gradually heading toward a pick-up”. But with momentum lacking in emerging Asian nations, significant buyers of Japan’s exports, Mr Kuroda will likely remind markets the BOJ is watching overseas headwinds and stands ready to ease again if its inflation goal comes under threat. At the policy meeting, board member Takahide Kiuchi repeated his proposal for the BOJ to switch to a target of 2 percent inflation in the “medium to long term,” and to describe its easing as “an intensive measure” intended to last about two years. Masaaki Kanno, chief economist at JPMorgan in Tokyo and a former central bank official, earlier said the BOJ may alter its timeframe when it revises down its price forecast for fiscal

2015. Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co in Tokyo, said the change may be made in October next year.

controversial sequestration of carbon in soil scheme, and the planting of 20 million trees. Labor opposition climate change spokesman Mark Butler called it a “very sad day for the Lower House of the Parliament”. “There was a great opportunity here for us to find a middle ground,” he said. While the government has the numbers in the lower house, Labor and the Greens have control of the upper house Senate where the Clean Energy Legislation (Carbon Tax Repeal) Bill 2013 now goes.

Of the economists polled, 35 said the BOJ won’t achieve its goal. Inflation expectations have fallen from a May high. The so-called breakeven rate that represents the inflation level that investors expect over five years was at 1.53 percentage points yesterday, compared with a 1.89 point reading on May 23. Nineteen economists in the Bloomberg survey said the BOJ will add stimulus in the second quarter of next year after the sales-tax bump, with seven saying it will ease in the July-September period. A joint statement in January by the bank and government committing to a 2 percent inflation target may be an obstacle to any alteration, according to some analysts including Naomi Muguruma. “The BOJ can’t modify or abandon its target just because it’s harder to reach than expected as it made a pledge to the public,” said Ms Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley Securities Co. “Unless the yen depreciates further or bond yields rise for bad reasons, the BOJ will have to continue accommodative measures to achieve 2 percent inflation.” The central bank adopted the 2 percent inflation goal in January at the prompting of Prime Minister Shinzo Abe, who urged unlimited easing in an election campaign that saw him reinstated as prime minister in December. In April, the BOJ added the 2-year timeframe and committed to buying more than 7 trillion of government bonds a month. In April, Abe noted that the inflation objective shouldn’t be pursued at “all costs” and could be beyond the nation’s reach if global conditions changed. “What is important is to aim steadily for the target,” he said.

AFP

Bloomberg News/Reuters

KEY POINTS BOJ says economy recovering moderately Exports ‘generally’ picking up – central bank Tepid overseas growth reminder of risks

Repeal of Australia’s carbon tax closer

A

bill to abolish an Australian carbon tax designed to combat climate change cleared parliament’s lower house yesterday with the new conservative government saying “it doesn’t work”. Scrapping the divisive tax was a central election promise for Prime Minister Tony Abbott who argued that the cost of the levy was passed on to consumers, resulting in higher utility bills and day-to-day costs. The tax charges the country’s biggest polluters for their emissions at a fixed price and was due to transition to an emissions trading scheme.

“We will be repealing the carbon tax, firstly, because it doesn’t work, secondly, because it destroys our competitiveness and, thirdly, because we gave our word,” Environment Minister Greg Hunt said. The government claims that removal of the tax would strengthen the economy of Australia, which is among the world’s worst per capita polluters due to its reliance on coalfired power and mining exports. Mr Abbott instead favours a “direct action” plan that includes an incentive fund to pay companies to increase their energy efficiency, a

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November 22, 2013 April 19, 2013

Asia Retailers agree on Bangladesh work safety standards Clothing makers trying to rebuild their image

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wo groups led by the U.S. and European retailers including Wal-Mart Stores Inc and Hennes & Mauritz AB agreed to improve work safety inspection standards in Bangladesh. The Alliance for Bangladesh Worker Safety, led by a group of North American apparel companies, and the Accord on Fire and Building Safety whose members mainly are European retailers, have agreed on a “common, minimum criterion for fire and structural inspection safety standards, pending a few final modifications” the group said in a statement posted on its website yesterday. “The challenges in Bangladesh are many and complex, and the solution requires collaboration across

The challenges in Bangladesh are many and complex, and the solution requires collaboration across all interested parties Jeffrey Krilla, president of the Alliance for Bangladesh Worker Safety

Retailers under pressure to help improve conditions across Bangladesh’s apparel industry

all interested parties,” Jeffrey Krilla, president of the alliance, said in the statement that didn’t disclose details of the agreement. Clothing makers in the country are trying to rebuild their image after the April collapse of the Rana Plaza factory complex killed more than 1,100 people in the country’s worst industrial disaster. The agreement was made with the retailer groups as well as the Switzerland-based International Labour Organisation and the Bangladesh University of Engineering and Technology, according to the statement. The Alliance also said it has added 66 more factories into the supplier database, bringing the total to 686 Alliance member factories.

Wage increase Unsafe factories and wages higher than only Myanmar in Asia have sparked labour tensions in Bangladesh’s US$20 billion garment industry.

Thai rice hoard may hurt prices Government has spent US$21.3 bln buying milled rice from farmers

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ecord reserves of rice in Thailand, accumulated from a state-buying programme that’s spurred concern from the International Monetary Fund, are seen contributing to lower prices next year as worldwide harvests expand. The stockpiles probably total 16 million metric tons, which will pressure global prices, according to Eklavya Chandra, director at Bangkok-based Phoenix Commodities

Ltd. (Thailand), part of a group that trades about 1 million tons of rice a year. The Thai holdings will increase 18 percent to 14.9 million tons in 2013-2014, the International Grains Council forecasts. The third-largest shipper started buying from farmers at abovemarket rates in 2011 to boost rural incomes, fulfilling a campaign pledge by the Pheu Thai Party, which won a parliamentary majority that year.

Stockpiles probably total 16 million metric tons, analyst estimates

A series of protests by workers demanding higher wages have taken place in the past several months in the industrial zones of Gazipur and Ashulia on the outskirts of the capital Dhaka. Some workers clashed with the police in demonstrations that forced the shutdown of factories. Two workers died and 30 others injured in a protest this week as thousands took to the streets demanding a higher monthly salary of 8,000 taka (US$103). The government last week increased the minimum wage to 5,300 taka, below the amount unions are demanding. Except for one or two factories, most that had been shut by labour unrest have resumed production, Abdus Salam Murshedy, president of Exporters Association of Bangladesh, said yesterday. “Workers have joined work,” he said. “We expect that the government will issue a formal, written notice on the new wage structure today. The situation is returning to normal.” Bloomberg News

The IMF said last week the programme was likely to generate wider losses and should be dropped in favour of budget transfers to lowincome households. Thai ministers said the will press on with the intervention. “Everybody realises that 16 million tons cannot be sold in a year or two years, so there is no bullish trend in the market,” Ms Chandra said in an interview. “Supply continues to increase, while Thai stocks put more pressure on prices.” The price of Thai 5 percent broken white rice, an Asian benchmark, tumbled 26 percent this year to US$433 a ton, contributing to lower food costs as harvests of corn, wheat and soybeans increased. World food prices tracked by the Food & Agriculture Organisation lost 5.3 percent in the past year. “It’s still a buyers’ market because supply is actually more than demand,” said Anthony Lam, vice chairman at Hong Kong-based Golden Resources Development International Ltd. “In the short term, the Philippines is going to buy and Indonesia will buy soon, before the election, that will spike up prices.” Thailand has spent 678 billion baht (US$21.3 billion) since October 2011 buying about 29 million tons of milled rice from farmers. The scheme spurred the build-up of record reserves and dethroned the country as the largest exporter. Bloomberg News

Resona seeks Myanmar bank ties Resona Holdings Inc, Japan’s fifth-biggest bank by market value, is seeking an alliance with a financial institution in Myanmar as its corporate clients enter the Southeast Asian nation. The company sent an executive in charge of global businesses to Myanmar last week to study the country, President Kazuhiro Higashi, 56, said in an interview in Tokyo yesterday. “I see more of our clients expanding into Myanmar as infrastructure improves,” Mr Higashi said. “The main reason why they’re interested in the country is its low production costs.” Resona would join its bigger rivals in tapping credit demand from Myanmar as the government opens up its economy to foreign investment following five decades of military rule. The move gives Japan a chance to establish another low-cost manufacturing base similar to that of Thailand, home to factories of Nissan Motor Co, Canon Inc and Hitachi Ltd. The bank is working with accounting and law firms in Myanmar to learn how to help its Japanese customers enter the market, according to Mr Higashi.

Mongolia to resolve Rio Tinto’s mine dispute next year Mongolia hopes the US$5 billion expansion of a giant copper and gold mine can start next year as it works to resolve a dispute with global mining giant Rio Tinto Group, its partner on the project, a government source said. But Rio Tinto may be reluctant to push on too quickly due to bleak market conditions, the source said, with copper prices down more than 10 percent in 2013 and expected to drop further on a flood of new supplies from South America and Africa. The company was not immediately available for comment. Copper shipments from the first phase of the Oyu Tolgoi project started in June, but Rio Tinto put plans to build an underground mine on hold in late July amid complaints by Mongolia that costs had spiralled out of control and that its interests had not been fully served. “Our side is committed to starting the second phase as soon as possible and we can agree on certain issues in December or January and plan development,” said the source, who is involved in Mongolia’s discussions with Rio Tinto but did not want to disclose his name.

Japan pension fund urged to diversify Japan’s 121 trillion yen (US$1.21 trillion) pension fund needs more independence from bureaucrats and should put some of the world’s biggest retirement savings pool into private equity and commodities, an expert panel said. The Government Pension Investment Fund should review domestic bond holdings and consider investing more in overseas assets, according to a report released by the advisory group. The fund should also look at diversifying into private equity, commodities and real-estate investment trusts, where returns may be higher than on local sovereign bonds, the panel said. The fund’s allocation to domestic bonds is too high and it should calculate investment risk based on inflation of 2 percent, Takatoshi Ito, the panel’s chairman, told reporters. GPIF should also consider investing in infrastructure, the panel said. Mr Ito yesterday delivered the panel’s report to Economy Minister Akira Amari, who said he will work toward realising its proposals.


14 14

November 22, 2013 April 19, 2013

Markets Gaming Stocks - Daily Performance (Hong Kong Stock Exchange) 59.0

89.20

27.2

58.9

88.45

27.1

87.70

27.0

86.95

26.9

58.8 58.7 58.6 Max 59

average 58.739

Min 58.55

58.5

Last 58.55

Max 89.2

average 86.922

Min 86.3

Last 86.85

56.9

Last 56.25

56.1

PRICE

Max 23.95

average 23.739

DAY %

YTD %

(H) 52W

Min 23.5

Last 23.75

(L) 52W

93.77

-0.085242408

0.622384376

107.9400024

85.45999908

BRENT CRUDE FUTR Jan14

108.03

-0.027762354

3.447285263

113.3099976

96.13999939

GASOLINE RBOB FUT Dec13

266.55

0.093879084

4.759471781

290.3199911

241.5999889

912

0.13724952

1.333333333

968

838.75

3.686

0.326619488

-6.63627153

4.744000435

3.378999949

295.23

-0.074462684

-1.059016723

321.1599827

276.4999866

1246.63

-1.9413

-25.103

1754.46

1180.57

GAS OIL FUT (ICE) Jan14 NATURAL GAS FUTR Dec13 NY Harb ULSD Fut Dec13 Gold Spot $/Oz Silver Spot $/Oz

19.918

-2.2645

-33.8492

34.3838

18.2208

Platinum Spot $/Oz

1398.6

-0.9483

-7.8504

1742.8

1294.18

Palladium Spot $/Oz

715.38

-0.4703

2.2468

786.5

629.75

LME ALUMINUM 3MO ($)

1781

-0.724637681

-14.08586589

2184

1758

LME COPPER 3MO ($)

6996

0.37302726

-11.78918169

8346

6602

LME ZINC

1890

-0.316455696

-9.134615385

2230

1811.75

13530

-0.733675715

-20.69167644

18770

13205

15.66

-0.15938795

1.589361012

16.80999947

14.91500092

3MO ($)

LME NICKEL 3MO ($) AGRICULTURE ROUGH RICE (CBOT) Jan14

425.5

0.058788948

-30.18867925

654.75

420

WHEAT FUTURE(CBT) Mar14

658

0.381388253

-20.88969041

904.75

647.75

SOYBEAN FUTURE Jan14

1278

0.333660451

-2.368220015

1406

1169

110.25

0.045372051

-31.24415341

172.25

104.1499939

17.6

0

-14.48007775

20.71999931

16.69999886

Mar14

COFFEE 'C' FUTURE Mar14 SUGAR #11 (WORLD) Mar14 COTTON NO.2 FUTR Mar14

23.5

78.32

0.230355772

-1.372623095

90.61000061

76.58999634

COUNTRY MAJOR

ASIA PACIFIC

CROSSES

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

29.1 28.9 28.7 Max 29.3

average 29.095

Min 28.55

Last 29.05

28.5

World Stock Markets - Indices

PRICE

DAY %

YTD %

(H) 52W

(L) 52W

0.9297 1.6105 0.9171 1.3432 100.72 7.9845 7.752 6.0928 62.8812 31.78 1.2488 29.59 43.755 11703 93.64 1.23196 0.83406 8.1798 10.725 135.29 1.03

-1.1378 -0.2848 -0.7197 -0.7096 -0.8141 -0.0013 -0.0052 0.0066 -0.483 -0.4279 -0.3764 -0.1724 -0.1714 -0.3674 0.3236 -0.013 0.4232 0.7971 0.7058 -0.1109 0

-10.4163 -0.4389 -0.1854 1.8347 -14.5155 -0.0163 -0.0181 2.2617 -12.5414 -3.776 -2.1941 -1.8824 -6.285 -16.3206 -4.6059 -1.9871 -2.2349 0.4609 -1.8145 -16.0544 -0.0097

1.0599 1.6381 0.9839 1.3832 103.74 8.0111 7.7664 6.2566 68.845 32.48 1.2862 30.228 44.82 11733 105.433 1.265 0.88151 8.4957 11.0434 135.95 1.032

0.8848 1.4814 0.8891 1.2746 81.69 7.9818 7.7498 6.0773 52.89 28.56 1.2168 28.913 40.54 9590 85.117 1.20302 0.80312 7.8281 10.195 105.23 1.0289

Macau Related Stocks NAME

PRICE

ARISTOCRAT LEISU

DAY %

YTD %

(H) 52W

(L) 52W

VOLUME CRNCY

4.8

4.347826

52.38095

5.12

2.6

3737078

CROWN RESORTS LT

16.38

-0.1828154

53.51453

17.38

9.95

1014639

AMAX INTERNATION

1.07

-1.834862

-23.57143

1.72

0.75

1795600

BOC HONG KONG HO

26

-1.140684

7.883816

28

22.85

13356994

0.51

12.08791

92.45284

0.56

0.24

9499169

7

0.286533

16.86144

7.28

4.13

10000

CHINA OVERSEAS

23.85

-2.653061

3.246752

25.6

17.7

17294376

CHINESE ESTATES

22.25

0.4514673

97.85607

22.8

9.767

124500

CHOW TAI FOOK JE

12.2

-2.24359

-1.929257

13.4

7.44

10371498

EMPEROR ENTERTAI

3.89

-2.261307

105.8201

4.66

1.6

1060000

3.3

0.6097561

172.2714

3.41

1.103

968517

GALAXY ENTERTAIN

58.55

-1.01437

92.91598

63.75

27

5020626 973870

CENTURY LEGEND

NAME

29.3

23.6

WTI CRUDE FUTURE Jan14

CORN FUTURE

26.8

Currency Exchange Rates

NAME

METALS

Last 27.05

23.7

Commodities ENERGY

Min 26.9

23.8

56.3

Min 56.15

average 27.116

23.9

56.5

average 56.308

Max 27.2

24.0

56.7

Max 56.85

86.20

CHEUK NANG HLDGS

COUNTRY

PRICE

DAY %

YTD %

(H) 52W

(L) 52W

DOW JONES INDUS. AVG

US

15900.82

-0.414667

21.34196

16030.28

12765.32031

NASDAQ COMPOSITE INDEX

US

3921.27

-0.2615506

29.86429

3994.969

2912.416

FTSE 100 INDEX

GB

6648.67

-0.4851012

12.73116

6875.62

5727.86

HANG SENG BK

125.9

0.2388535

6.065715

132.8

110.6

DAX INDEX

GE

9131.66

-0.7651539

19.95786

9253.679688

7139.99

HOPEWELL HLDGS

26.1

0

-21.50376

35.3

23.2

661000

NIKKEI 225

JN

15365.6

1.920393

47.81466

15942.6

9161.21

HSBC HLDGS PLC

86.45

-0.2883506

6.334559

90.7

75.15

7170086

HANG SENG INDEX

HK

23580.29

-0.5087157

4.07544

23944.74

19426.35938

CSI 300 INDEX

CH

2409.989

-0.6128627

-4.47741

2791.303

2023.171

TAIWAN TAIEX INDEX

TA

8099.45

-1.279914

5.194496

8476.63

7061.87

KOSPI INDEX

SK

1993.78

-1.162975

-0.1637425

2063.28

1770.53

FUTURE BRIGHT

HUTCHISON TELE H

2.92

-2.666667

-17.97753

4.66

2.91

20389000

LUK FOOK HLDGS I

29.9

-0.3333333

22.54099

30.5

16.88

3476498

MELCO INTL DEVEL

26.1

-0.5714286

189.6781

28.1

7.77

5382697

MGM CHINA HOLDIN

27.05

-0.1845018

103.7162

30

12.426

1699989

MIDLAND HOLDINGS

3.2

-1.234568

-13.51351

4.29

2.68

482000

NEPTUNE GROUP

0.295

9.259259

94.07895

0.4

0.131

242850000

NEW WORLD DEV

10.52

-0.5671078

-12.4792

15.12

9.98

15735711

SANDS CHINA LTD

56.25

-0.530504

65.68483

60.5

30.35

8015999

S&P/ASX 200 INDEX

AU

5288.318

-0.3645106

13.75295

5457.3

4366.8

JAKARTA COMPOSITE INDEX

ID

4320.668

-0.6922427

0.0922225

5251.296

3837.735

FTSE Bursa Malaysia KLCI

MA

1792.77

-0.3291284

6.147019

1826.22

1590.67

SHUN HO RESOURCE

1.62

0

15.71429

1.92

1.22

0

NZX ALL INDEX

NZ

1016.19

-0.4054583

15.20737

1048.998

858.253

SHUN TAK HOLDING

4.38

-1.573034

4.534605

4.8

3.2

4166755

PHILIPPINES ALL SHARE IX

PH

3737.18

-0.7040981

1.032716

4571.4

3440.12

SJM HOLDINGS LTD

23.75

0.422833

33.82048

28

16.762

6300893

8.73

-1.689189

-37.99716

14.96

8.68

3843961

WYNN MACAU LTD

29.05

0.8680556

38.66348

32.6

19

2399669

ASIA ENTERTAINME

N/A

N/A

N/A

N/A

N/A

0

69.59

-1.009957

55.64751

78.03

43.57

478148 43453

SMARTONE TELECOM

Euromoney Dragon 300 Index Sin

SI

620.89

-0.29

-0.03

NA

NA

STOCK EXCH OF THAI INDEX

TH

1381.76

-1.640791

-0.7306433

1649.77

1260.08

HO CHI MINH STOCK INDEX

VN

503.54

-0.3916759

21.70739

533.15

374.15

BALLY TECHNOLOGI

Laos Composite Index

LO

1279.86

-0.07963275

5.358213

1455.82

1196.44

BOC HONG KONG HO

3.36

2.12766

9.446256

3.6

2.99

GALAXY ENTERTAIN

7.6738

-1.617949

93.29471

8.11

3.57

3366

INTL GAME TECH

16.43

-1.557819

15.94919

21.2

12.9

7575473

JONES LANG LASAL

95.25

-0.7295466

13.47391

101.46

76.0595

186593

LAS VEGAS SANDS

69.07

-0.4037491

49.63172

73.49

40.5687

2891882

MELCO CROWN-ADR

33.47

-1.093381

98.75297

37

13.95

1950539

MGM CHINA HOLDIN

3.54

0

102.252

3.88

1.703

2725

MGM RESORTS INTE

18.44

-0.7000539

58.41924

20.98

9.61

9384901

SHFL ENTERTAINME

23.16

0

59.72414

23.25

12.98

808759

SJM HOLDINGS LTD

3.07

-4.95356

34.79006

3.6

2.1494

38700

158.39

-0.508794

43.38892

170.254

104.6878

780101

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

WYNN RESORTS LTD

AUD HKD

USD

Hang Seng Index NAME

PRICE

DAY %

VOLUME

AIA GROUP LTD

38.8

-0.1287001

15941223

ALUMINUM CORP-H

2.85

0.3521127

8607040

BANK OF CHINA-H

3.69

-0.8064516

313736565

BANK OF COMMUN-H

5.69

-1.896552

26696329

33.95

-1.020408

1833258

9.5

-2.263374

23686329

BANK EAST ASIA BELLE INTERNATIO

NAME

PRICE

DAY %

VOLUME

CHINA UNICOM HON

12.08

-1.468189

14937202

POWER ASSETS HOL

CITIC PACIFIC

11.28

1.98915

14119929

CLP HLDGS LTD CNOOC LTD COSCO PAC LTD ESPRIT HLDGS

26

-1.140684

13356994

HANG LUNG PROPER

CATHAY PAC AIR

16.08

3.209243

10043174

HANG SENG BK

CHEUNG KONG

BOC HONG KONG HO

121.5

-0.5728314

4275874

CHINA COAL ENE-H

5.09

3.036437

93731703

CHINA CONST BA-H

6.2

-1.430843

301038409

63

0.5586592

2942533

15.66

-0.6345178

37339076

11.5

0.5244755

2607442

16.44

0.6119951

14594237

26.2

-0.56926

4126000

125.9

0.2388535

973870

HENDERSON LAND D

46.05

-0.1084599

2048668

HENGAN INTL

95.75

-0.4160166

2184109

HONG KG CHINA GS

18.24

0.2197802

8980064

HONG KONG EXCHNG

137.7

-0.8639309

7112149

HSBC HLDGS PLC

86.45

-0.2883506

7170086

HUTCHISON WHAMPO

96.6

-0.4123711

3314670

IND & COMM BK-H

5.51

-0.5415162

246124189

10.96

0.3663004

10166565

29.9

-0.1669449

1897394

CHINA LIFE INS-H

24.35

0

55264065

CHINA MERCHANT

29.05

0.3454231

3472533

CHINA MOBILE

80.95

-1.340646

27828483

CHINA OVERSEAS

23.85

-2.653061

17294376

CHINA PETROLEU-H

6.96

-0.143472

83682256

LI & FUNG LTD

CHINA RES ENTERP

27.25

0.7393715

6741317

MTR CORP

CHINA RES LAND

21.15

-1.627907

9480050

NEW WORLD DEV

10.52

-0.5671078

15735711

CHINA RES POWER

18.48

0.1083424

9738000

PETROCHINA CO-H

9.44

-1.564129

62249944

CHINA SHENHUA-H

26.15

0.5769231

22041461

PING AN INSURA-H

71.05

-0.4901961

22853697

NAME

PRICE

DAY %

62.7

-0.2386635

3056240

SANDS CHINA LTD

56.25

-0.530504

8015999

SINO LAND CO

10.84

0.1848429

4709583

99.6

-0.2503756

3123869

SUN HUNG KAI PRO

VOLUME

SWIRE PACIFIC-A

91.85 -0.05440696

TENCENT HOLDINGS

421.8

0.6682578

TINGYI HLDG CO

22.25

0.4514673

5871905

WANT WANT CHINA

11.04

-1.604278

13213218

64.8

-0.4608295

2922313

WHARF HLDG

MOVERS

17

32

23834.52

LOW

23521.03

1 23840

INDEX 23580.29 HIGH

917658 3074383

52W (H) 23944.74 (L) 19426.35938

23510

19-November

21-November


15 15

November 22, 2013 April 19, 2013

Opinion Business

wires

Leading reports from Asia’s best business newspapers

China Daily China’s top securities regulator pledged to persistently push share issuance reform toward a more market-oriented model and further open up the country’s capital market. The securities watchdog has been “firmly determined” to promote a registration system for IPO issuances to replace the current administration approval mechanism. “To further improve IPO reform, more work needs to be done, including modifying the current securities law, establishing compensation mechanism for investors and improving the delisting system for unprofitable public companies,” Xiao Gang, chairman of the China Securities Regulatory Commission, said.

What’s stopping robust recovery?

Times of India Jet Airways on Wednesday announced that it has given equity shares to Abu Dhabi’s Etihad representing a 24 percent stake in Naresh Goyal’s airline. Also, Etihad president James Hogan and CFO James Rigney have been named as additional directors on board of Jet, giving the Gulf carrier a firm say in how Jet will be steered now. With this announcement, the US$900-million deal was finally concluded seven months after it was announced. Jet chairman Naresh Goyal said: “I am confident that this investment will greatly benefit all our stakeholders while significantly benefitting our customers.”

Asahi Shimbun Toyota Motor Corp is promising a mass-produced fuel cell car by 2015 in the latest ambitious push to go green by an industry long sceptical about the superclean technology that runs on hydrogen. Satoshi Ogiso, the Toyota executive in charge of fuel cells, said the vehicle is not just for leasing to officials and celebrities but will be an everyday car for ordinary consumers, widely available at dealers. “Development is going very smoothly,” he said on the sidelines of the Tokyo Motor Show.

Jakarta Globe Fitch Ratings expects Indonesian residential property developers to book lower presales in 2014 due to stricter mortgage regulations for second homes, higher average selling prices and limited new project launches. “The decline in pre-sales will be more evident in the medium- to high-end property segments, where the buyers are typically upgraders for whom home purchases can be postponed,” Fitch said in an official release. Prices for Indonesian residential property rose sharply at about 30 percent annually over the past three years.

Michael Spence

T

Nobel laureate in Economics, is Professor of Economics at New York University’s Stern School of Business

he growth map of the global economy is relatively clear. The U.S. is in a partial recovery, with growth at 1.5-2 percent and lagging employment. Europe as a whole is barely above zero growth, with large variations among countries, though with some evidence of painful re-convergence, at least in terms of nominal unit labour costs. China’s growth, meanwhile, is levelling off at 7 percent, with other developing countries preparing for higher interest rates. Many advanced economies must still address the end of the pre-crisis growth pattern generated by excessive domestic demand. In such economies, that pattern not only typically depended on leverage; it also enlarged the non-tradable side of the economy and shrank the tradable side. And yet, given that the nontradable sector is constrained by its reliance on domestic demand, recovery – if it comes – will depend on the tradable sector’s growth potential. To realise that potential, the tradable sector has to re-expand at the margin: as a weakening currency causes imports to fall and real unit labour costs decline as nominal wages flatten out, unemployed labour and capital flow toward external markets for goods, services, and resources. This is already happening in the United States, where exports are above their previous peak while imports remain subdued; the currentaccount deficit is declining; and even net employment in the tradable sector is increasing (for the first time in two decades). Indeed, recent data suggest that more than half of the acceleration in U.S. growth is occurring on the tradable side,

even though it accounts for only about one-third of the economy. And that contribution is probably an underestimate, because income generated on the tradable supply side produces income that becomes demand on the non-tradable side – a multiplier effect that crosses the tradable/nontradable boundary.

Fiscal drag The U.S. economy is relatively flexible, and this kind of structural adjustment in the private sector occurs reasonably quickly. And yet employment still lags, owing to longer-term factors like labour-saving technology and reconfigurations of global supply chains, in which lower-value-added segments and functions tend to be concentrated in lower-income countries. One reason the U.S. recovery is only partial is fiscal drag, a lingering effect of the post2008 downturn, which shifted some leverage to the public sector, resulting in a growing debt burden that has been addressed – controversially so – by immediate austerity. But the main problem is that public-sector investment remains well below growthsustaining levels. The hard part of fully realising potential growth is shifting the composition of domestic demand from consumption to investment without adding leverage. That means paying for it on the public-sector side, via taxes and a reduction in household consumption (and in wealth accumulation). It also means getting the balance between domestic and external demand right, and appreciating the sensitivity of medium- and long-term growth to the composition (and size) of domestic aggregate demand. Against this background,

monetary policymakers must be cautious, because low interest rates can shift the growth model back toward leverage and domestic consumer demand, stalling the structural shift to the tradable side that is underway.

Bigger challenge Several European countries also became too dependent on domestic demand and need to rebalance toward the tradable side. But the challenge for them is much bigger and the process slower.

Given that the non-tradable sector is constrained by its reliance on domestic demand, recovery – if it comes – will depend on the tradable sector’s growth potential

In the first decade of the euro, nominal unit labour costs rose sharply in Greece, Ireland, Italy, Portugal, and Spain, while virtually flatlining in Germany. Absent the common currency, these divergences would have been accompanied by

exchange-rate adjustments – certainly after (and perhaps even before) the pattern of excessive leverage and domestic demand ended. But such adjustments cannot happen in a monetary union, so unit labour costs are slowly re-converging via a protracted process of flat nominal wage growth and slowly declining real wages (a process that would be quicker with higher inflation in Germany and Northern Europe). With domestic demand in short supply, this slow road essentially postpones or impedes growth via expansion of the tradable sector. The speed of structural adjustment is also strongly influenced by how easily employment can shift from an economy’s non-tradable to its tradable side and across segments of global supply chains. Countries’ degree of labourmarket flexibility varies considerably, and the reforms that increase it are critically important. For example, the German reforms of 2003-2006 increased flexibility significantly (though in a more benign global and eurozone setting).

Germany, China Much is made of Germany’s large current-account surpluses. But, just as the eurozone’s struggling economies have an overvalued currency, Germany has an undervalued one, which tends to produce external surpluses and, by definition, an excess of savings over investment. An undervalued currency also tends to produce an unbalanced growth model of the opposite kind: an outsize tradable sector and insufficient domestic aggregate demand. Because the non-tradable sector in advanced economies tends to create more jobs, this model can lead to an employment problem (even if it is partly masked by cutting hours rather than workers). In principle, Germany could try to boost domestic demand by leveraging up; but, unless the exchange rate adjusts upward to shrink the tradable sector at the margin, doing so would be inflationary. The European Central Bank would then have to intervene to maintain the credibility of its commitment to price stability, which is its primary mandate. It is little wonder that Germany finds it difficult to achieve a sustainable pattern of balanced growth in the eurozone as it is currently configured. Anyone familiar with China’s structural shifts on the supply and demand side will recognise some similarities with the German case. The main point is that restoring growth requires a careful analysis of structural balance, attention to demand constraints in the non-tradable sector, and a focus on the impediments to expanding the tradable sector. Some of those impediments are supply-side rigidities; others have more to do with bloated domestic demand. Neither can be ignored if robust recovery is to be achieved. © Project Syndicate


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November 22, 2013 April 19, 2013

Closing Huafa Industrial wins Hengqin land auction RBI raises concerns about bad loans A unit of Zhuhai developer Huafa Industrial Co Ltd announced yesterday it has won a land auction for three plots in the north of Hengqin Island. The company said in a filing it would pay 5.86 billion yuan (US$962 million) for the plots with a total area of about 129,650 square metres. Most of the land, 110,555 square metres, will be used for residential development, Huafa told the Shanghai Stock Exchange. A smaller plot with 19,092 square metres will be used for commercial and community facilities in the special economic zone located right next to Macau, the developer added.

The Reserve Bank of India said yesterday it would focus on the monitoring of banks’ asset quality and help improve the poor debt recovery process in the country, underlining the central bank’s growing discomfort with rising bad loans. Bad debts have surged in India as economic growth has slowed to a decade low, while investments have also stalled. The focus on asset quality comes as bad debts at Indian banks have nearly doubled since 2009 to 4.2 percent of total loans at the end of September, central bank data showed, while debt restructuring is also at a record high.

Van Rompuy, left, Li Keqiang and Barroso at the close of the annual summit

China, EU agree to start talks on investment treaty Chinese Premier says ‘still great potential’ for more cooperation

C

hina and the European Union will begin talks on a landmark treaty aimed at boosting investment that lags behind burgeoning trade and at tackling thorny market access issues, the two sides announced at a

summit yesterday. Chinese Premier Li Keqiang and European Commission President José Manuel Barroso said in speeches in Beijing that the potential agreement would increase openness and deepen cooperation as

Eurozone T recovery weakens in November France the weakest link in euro area this month

Market access

well as boosting investment, which has not kept pace with trade growth. “Trade volume between the two sides has increased at a very fast pace, but we must realise that there is still great potential for China and the EU to increase direct investment

he fragile recovery in the eurozone private sector weakened unexpectedly this month despite resurgent growth in Germany, as French business activity took a tumble, surveys showed yesterday. Markit Economics’ Eurozone Services Purchasing Managers’ Index (PMI), which gauges business activity across thousands of service sector companies large and small, fell to 50.9 in November from 51.6 last month. It was the weakest reading in three months and undercut even the lowest forecast from 32 economists polled by Reuters, although the index held above the 50 line dividing growth in activity from contractions. Overall, the survey underlined how lopsided the eurozone’s recovery from recession is towards growth in

between each other,” Mr Li said in his speech at the close of the annual summit. Europe is China’s most important trading partner and for the EU, China is second only to the United States. But the bilateral relationship has been weighed down by a series of trade rows ranging from steel and wine to solar panels. In 2012, bilateral trade in goods and services reached 483.5 billion euros (US$650.5 billion), according to the EU delegation to China. China exported 289.7 billion euros in goods to Europe last year to Europe’s 143.9 billion in goods to China. However, EU imports from China last year decreased for the first time since the financial crisis, falling 0.9 percent. EU officials say the planned investment pact, the announcement of which had widely been expected at the summit, is a test of China’s willingness to compromise and play by rules set down by the World Trade Organisation that ban subsidising of companies to undercut foreign competitors.

Despite doubling trade with China since 2003, the EU accuses Chinese companies of benefiting from unfair state aid allowing them to dump goods in Europe, selling them at below cost. “Trade and investment issues remain high on our agenda and we have made a substantial step forward

Germany, with the rest of the bloc struggling to sustain momentum. France in particular, where business activity unexpectedly shrank, was the weakest link in the eurozone this month. “The French data were a key cause of the decline, but there was also an easing evident in the rest of the region,” said Chris Williamson, chief economist at survey compiler Markit. “Output outside France and Germany did rise for the fourth month in a row, suggesting the region is returning to growth – but the concern is that the rate of increase we saw in November did slide to the weakest we’ve seen in those four months.” Mr Williamson added the survey was consistent with eurozone economic growth of around 0.2 percent in the

by launching negotiation on an investment agreement, covering both investment protection and market access,” European Council President Herman Van Rompuy said at the summit. “A level playing field, transparency and confidence in the rule of law are essential on both sides for business to thrive,” he said. The summit comes on the heels of the HighLevel Economic and Trade Dialogue (HED) that was held in Brussels last month. EU leaders have said they looked at the summit as a chance to establish the direction of relations with China for the next decade under new Chinese President Xi Jinping, who took office in March. Mr Li called on both sides to fight protectionism and lift trade, and said he wanted EU countries to increase exports of high-tech products to China as part of an effort to bring total trade volume between the two to US$1 trillion by 2020. The two sides also signed a cooperation pact on urbanisation, under which Europe will offer advice based on its experience. China had embarked on a major effort to have more people live in its cities as part of its rebalancing of the economy towards a consumer driven one. Chinese government officials at the summit said they were “still perfecting” the urbanisation plan. Reuters

current quarter. The eurozone economy grew 0.1 percent from July through September, according to an early official estimate last week. “It is important to remember that it is still growing,” said Mr Williamson. Order books at services companies, which range from major international banks to high street hairdressers, filled at a roughly unchanged rate compared with last month. Manufacturers fared better this month, helped by the fastest rise in new export orders since May 2011. Markit’s Eurozone Manufacturing PMI rose to 51.5 in November from October’s 51.3. That was its best showing in the five months since factories broke their almost two-year run of declining activity. Reuters


Macau Business Daily, November 22, 2013