MOP 6.00 Vitor Quintã
he United Kingdom’s finance minister has announced a new capital gains tax for non-British owners selling property there. It would apply to “future gains” – i.e. profits on future sales. It would come into effect in April 2015 he said, without specifying the size of the levy. Unlike the stamp duty imposed in Macau on total sale price, the British tax on profits is being presented as supporting a fairer
system rather than as a market 1 cooling measure. “…it’s not right that those who live in this country pay capital gains tax when they sell a home that is not their primary residence – while those who don’t live here do not,” said the minister, George Osborne. Macau investors recently attended roadshows here for off-plan properties in London and Manchester. More on page 4
Number 434 Thursday December 12, 2013
Editor-in-chief Tiago Azevedo
Macau investors face profit tax on U.K. property
April 19, 2013
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Graft watchdog busier with private sector corruption growing
Waste firm wins contract extension as dispute rumbles on
La Scala land sale was legal court is told
Hang Seng Index 23690
O Super Mass Main floor bets hit HK$4k
Deutsche Bank thinks Macau’s gross gaming revenue could grow by 20 percent next year – even with no new casinos. “…casinos are able to identify a new class of ‘Super Premium’ players who typically play at the tables with a minimum bet at HK$4k or above, even higher than the ‘Premium Mass’ category who tend to play at the tables with a minimum bet at HK$2k,” says DB’s Karen Tang. Page 2
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Double-digit GDP growth this year: economist
Happiness begins… with a home, says study
Macau’s economy will increase about 11 percent this year, Macau Economic Development Promotion Association president Ieong Tou Hong predicts. Gross domestic product (GDP) growth will linger at a high single-digit rate until 2016, Mr Ieong said in a forum held by Bank of China Macau Youth Association on Tuesday. Macau’s GDP growth stood at 10.5 percent for the first three quarters this year, official data show.
Macau residents are generally happy but their concern over housing and inflation is increasing, shows the city’s Happiness Index survey released yesterday. The index is compiled annually in the second half of November with data gathered by Macao Polytechnic Institute and Macau Association of Economic Sciences. This year the overall index measured 6.98 points out of 10, up by 0.07 points compared to a year ago.
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December 12, 2013
Is it a bird? Is it a ‘plane? Careless considerations No, its ‘Super Mass’ opinion
Macau casinos cultivating a new generation of cash-based players staking MOP4,121 per hand, suggests Deutsche Bank Michael Grimes
José I. Duarte Economist
ark Twain popularised a phrase in which he said there are three types of lies: lies, damned lies and statistics. The original source was never fully ascertained, but the saying became famous. It is meant to bring a smile of amusement, with the implicit warning to be always critical of statements wrapped in numbers that supposedly speak for themselves. Browsing the news or listening to people in positions of power today, you might be forgiven for believing the quip has some truth to it, perhaps more literally than the author intended. Let us take a recent example, the issue of home ownership by residents. In the Policy Address for 2014, the Chief Executive Fernando Chui Sai On mentioned a figure that has since done the rounds. He said 80 percent of residents lived in their own homes. This seemed to imply that the issue of housing prices and rents was a minor problem that only affected a minority. Well, if that was the purpose, either the chief executive was poorly advised and misled by the apparent simplicity of the conclusion, or it was a creative use of numbers, framed so as to evade the concern, if not to mislead the audience. To see why the numbers are misleading, we must ask what the figures actually are concerning the various types of housing tenure. The 2011 Census showed that there were 168,937 land-based households, of which tenants occupied 41,376 homes, while 119,937 were “owneroccupied”. The remainder were other types of tenure, including housing provided by employers. To start with, these figures do not mean that 80 percent of owners live in a property they own – the percentage is a little more than 70 percent. Even if we add all types of tenure other than tenancy, the figure rises to 75.5 percent. Only an optimistic rounding system would allow that to become “about” 80 percent.
Not small issue So, from the beginning, the figure is wrong. But that is not a major difference and nothing to fret about. Not exactly. Accuracy from the mouths of those in power and on policy matters cannot be seen as a minor issue, and the figure does not spell out what it pretends to say. The health of the real estate market does not affect only the quarter of the population living in rented homes, which is far from a negligible minority. First, we are talking about households where the owner lives. We cannot conclude from that figure that no one in that household will need or be looking for an alternative dwelling. In many of these households, there will be marriages and divorces, implying an additional demand for independent housing. Their combined figure amounted to more than 5,000 cases last year. Then we have those persons who, whether or not they plan to have families, want to live independently. Finally, we have to take into account non-resident workers. Only a minority of them will have dwellings provided by the employer or be able, or willing, to buy property. At the end of October, there were 132,500 nonresident workers here, many of them in singleperson households. Add to that the staff who will be needed for the facilities being built in Cotai, and it is clear the demand will be substantial. When each of these factors is combined, most of the city’s population will be affected and public housing is not the answer. So, dismiss the idea that housing is a relatively minor issue, which affects only a small minority of the population. The problem goes far beyond that. There are other impacts that have not been mentioned here. There is the effect that high prices have on the cost of doing business here, a particular worry for small and family businesses. What this episode suggests is that the government not only misinterprets the figures and looks at the matter casually – it seems to believe it need not really care.
‘Super Premium’ – an emerging segment of Macau gamblers
nvestor concerns that 2014 could see a slowing in year-onyear revenue growth for Macau casinos’ mass market table gambling may be overplayed, suggests a new report from Deutsche Bank AG in Hong Kong. Currently market consensus for revenue growth across all Macau gambling segments in 2014 is 15 percent year-on-year. Deutsche Bank thinks it could reach 20 percent if certain positive trends carry over from 2013. The negative factors for 2014 cited elsewhere include the fact no new properties are due to open next year, and the government’s current annual cap on the number of freshto-market live dealer tables. But Karen Tang of Deutsche Bank Markets Research says in a report issued on Tuesday that it’s feasible in 2014 for mass table revenue to expand at a pace similar to this year, even from a high base. The report mentions several factors including the development of a new segment in the so-called
‘premium mass’ sector of high stakes players making cash bets of up to US$516 (4,121 patacas) per hand. Ms Tang refers to these players as “Super Premium”. “In our conversation with casino management, we learnt that Macau’s mass market is dominated by the 80/20 rule, i.e. the top 20 percent players account for 80 percent of mass revenue,” writes Karen Tang. “Over the past six months, partly due to the increasing sophistication of casino operators’ customer optimisation programmes, casinos are able to identify a new class of ‘Super Premium’ players who typically play at the tables with a minimum bet at HK$4k or above, even higher than the ‘Premium Mass’ category who tend to play at the tables with a minimum bet at HK$2k,” she adds.
Margin growth This year the premium mass table games segment – though still smaller in total bet volume than the credit-
based VIP one – has been a big driver of Macau industry growth because of its reportedly superior margins. In the first nine months of this year, Macau gaming’s total earnings before interest, taxation, depreciation and amortisation (EBITDA) grew 30 percent year-on-year, driven by 17 percent gross gaming revenue growth and margin expansion of 190 basis points, says Ms Tang. Accumulated gross revenue market-wide for the nine months to September 30 grew at 16.7 percent year-on-year, according to data from the local regulator, the Gaming Inspection and Coordination Bureau. Mass growth was 29.3 percent, with VIP expansion at 11.3 percent for the period. Any suggestion therefore of slowing in the mass segment during 2014, makes analysts and investors more bearish. The bank’s research however indicates that a year ago, Macau’s top 26 percent of mass tables had a minimum bet of HK$2,000, but that now, the top 12 percent has a minimum bet of HK$4,000.
Emperor International issuing U.S. dollar notes
mperor International Holdings Ltd, a company currently building a new shopping centre in a prime location on Macau peninsula, plans to issue an undisclosed amount of United States dollar-denominated notes to “nonU.S.” investors. The book building for the offer is being conducted by Emperor Securities Ltd, China Minsheng Banking Corp Ltd Hong Kong Branch
and Guotai Junan Securities (Hong Kong) Ltd, according to a filing with the Hong Kong Stock Exchange. Emperor International Holdings is a unit of Emperor Group, a conglomerate founded by Hong Kong businessman Albert Yeung Sau Shing. He also controls Macau’s Grand Emperor hotel-casino which operates under a licence from Stanley Ho Hung Sun’s Sociedade de Jogos de Macau SA.
Emperor International said in an October filing that its new Macau shopping development is expected to open next year. The site at the junction of Avenida do Infante D. Henrique and Avenida da Praia Grande is being redeveloped as a “multi-storey premium retail complex” with a total gross floor area of approximately 30,000 square feet (2,787 sq. metres), it said. M.G.
December 12, 2013 April 19, 2013
Macau Macau more competitive among China cities Macau is the 12th most competitive city among more than 34 major cities and areas in the Greater China region, this year’s edition of the annual China City Competitiveness Report shows. The Hong Kong-based China Institute of City Competitiveness, which released the report, said the city moved up one place compared to last year. The territory was also the fourth most international Chinese city, trailing behind Hong Kong, Shanghai and Beijing. The institute compiled the report by looking at factors like the development prospects, economy, environment, and quality of assets.
Economist sees 11 pct growth for full year Economy to continue expanding at a high single-digit rate until 2016, academic says Stephanie Lai
he economy will expand by about 11 percent this year, according to forecasts by the Macau Economic Development Promotion Association. And gross domestic product will continue to increase at high single-digit rates until at least 2016, the association’s president Ieong Tou Hong told a forum on Tuesday. The government says GDP was up by 10.5 percent at the end of the third quarter. A surge in tourist spending, driven by last month’s extended Macau Grand Prix fortnight and the Christmas holidays, will accelerate growth in the fourth quarter, lifting the full-year rate of growth to about 11 percent, Mr Ieong said. Secretary for Economy and Finance Francis Tam Pak Yuen said in July that the city’s economy would grow by “a middle single-digit” figure
this year. A researcher and executive from the Bank of China Macau Youth Association, Felicity Pang Veng I, told Tuesday’s forum that growth would ease next year. The bank’s data suggested economic growth of about 9.43 percent. Ms Pang said the inflation rate would be about 5.05 percent next year and gross gaming revenue would grow by 13.2 percent. Strong gaming revenue will be the main factor keeping the city’s economic growth at a high single-digit figure until 2016, Mr Ieong said. Heavy investment in new casino resorts in Cotai and in major public infrastructure projects will also help. Each of the city’s six gaming operators have new casino-resorts planned for Cotai or are expanding existing facilities between
This year’s GDP estimate by the Macau Economic Development Promotion Association 2015 and 2017. Meanwhile the government is looking at projects such as the Hong Kong-ZhuhaiMacau Bridge, the new mainland border crossing in Ilha Verde and reclamation. The government and private sector would invest more than 200 billion patacas (US$25 billion) here up to 2016, he said.
Corruption cases in private sector soar More complaints on kickbacks last year, says graft watchdog Stephanie Lai
(Photo: Manuel Cardoso)
he number of complaints over alleged corruption filed with Macau’s graft watchdog soared last year, mostly due to more cases busted in the private sector. The Commission Against Corruption said in its annual report for 2012, which was released yesterday, that it investigated 183 cases of criminal complaints, 63.4 percent more than in the previous year. The increase was mainly due to more corruption reports from the private sector, the commission said. A total of 102 cases
Grand Prix and Christmas have been great boosts to tourist spending, says Ieong Tou Hong
coming from the private sector were investigated, a commission spokesperson told Business Daily. The most frequent corruption cases in the private sector involved illegal kickbacks or “improper competition” by companies, commissioner Vasco Fong Man Chong wrote in the report. A bigger number of companies were accused of paying bribes during purchasing procedures or of forging documents or false reporting quotations in an attempt to win construction projects, Mr Fong said. There were also forged reports over purchase or construction costs filed by government departments, the commissioner pointed out. The commission, which is also the city’s ombudsman, received almost 1,000 complaints from citizens against the government last year. The nature of the complaints is changing, though, Mr Fong wrote, with many linked to “new problems derived from social development”. The commission also
slammed the Monetary Authority of Macau over the issuing of special banknotes to commemorate the 100th anniversary of Bank of China. The Bank of China’s Macau branch was allowed to issue batches of three and 30 banknotes. The selling price was set by the city’s de facto central bank. But the price of these uncut notes was only approved by one member of the Monetary Authority’s administrative committee, the commission stressed. In contrast, the selling price for a single of these special banknotes was decided by the administrative committee of Monetary Authority and later approved by the Secretary for Economy and Finance Francis Tam Pak Yuen. In addition the government has failed to set a maximum number of uncut notes to be sold to the public, the commission noted. This shows that there were flaws in the Monetary Authority’s oversight on the sales procedure of the commemorative notes, the report added.
December 12, 2013
Macau Property fund returns 85 pct The Macau Property Opportunities Fund had a return of 85 percent in the 12 months ended November, according to a British investment industry lobby group. The Association of Investment Companies said the London-listed fund was the best performer of the funds run by more than 300 member companies. Sniper Capital Ltd manages the fund that develops and invests in commercial and residential property in the Pearl River Delta region. Its investments include The Waterside, lease-only apartments in One Central, The Fountainside residential complex, and a retail project near Senado Square.
Profit tax on foreigners selling U.K. property Experts say most Macau investors in that market not ‘flippers’ but looking for longer rental yield Michael Grimes
in the U.K. they consider a longer horizon. Usually they will buy and then hold for rental income, for five or even ten years,” he added. In central London, about 28 percent of home buyers in the two years to June didn’t live in the U.K., according to broker Knight Frank LLP. That rises to about 49 percent for new homes. In Greater London, 10 percent to 15 percent of new homes are bought by non-residents, Knight Frank estimated in October. Luxury-home developers plan to build more than 20,000 properties in London with a value of about 50 billion pounds (656.06 billion patacas) in the next decade, Mark Farmer, head of residential property at consulting firm EC Harris LLP wrote in a November 25 report.
Flip side Macau and Hong Kong have in the past been targets for a lot of speculative investors – sometimes referred to as ‘flippers’ – who buy residential properties not for rental yield but to sell for a quick profit in a rising market. That opportunity has been squeezed by cooling measures. Macau’s special stamp duty imposes a levy on sellers of 20 percent of the transaction value of a property if it is sold within a year of being purchased, or 10 percent if it is sold between one and two years after being purchased.
London calling – up to 15 pct of homes in U.K. capital sold to non-residents
he closure of a United Kingdom property tax loophole – a move likely to cool the market’s appeal to Chinese and other overseas buyers – could actually have the short-term effect of heating the market further, suggest some real estate experts. The U.K.’s finance minister George Osborne announced the new capital gains tax for nonBritish owners in a statement to Parliament on December 5. It would apply to “future gains” – i.e. profits on future sales. It would come into effect in April 2015 he said, without specifying the size of the levy. “This type of gains tax will definitely – to a certain extent – have an effect on the potential buyers, especially the psychological effect,” Jeff Wong Chi Wai, head of residential sales at Jones Lang LaSalle (Macau) Ltd told Business Daily. It’s been suggested in the U.K. property industry that some overseas buyers might consider purchasing and then selling on before the measure comes into effect, but at price levels that would still be prohibitively high for domestic buyers. But the British government insists the move is to create a fairer market. “Britain is an open country that welcomes investment from all over the world, including investment in our
residential property. But it’s not right that those who live in this country pay capital gains tax when they sell a home that is not their primary residence – while those who don’t live here do not,” said Mr Osborne. Capital-gains tax rates for second homes of U.K. residents currently range from 18 percent to 28 percent. “Without knowing more details of the new policy for overseas buyers – in particular the rate of the tax –
KEY POINTS U.K. capital gains tax on foreign sellers from April 2015 Rate not yet announced by government Macau investors in that market ‘long-term’ Two-thirds of off-plan London homes sold to Asian buyers
it’s probably too early to say what effect it will have,” Ronald Cheung Yat Fai, chief executive of property agency Midland Realty (Macau) Ltd told Business Daily yesterday.
…it’s probably too early to say what effect it will have Ronald Cheung, CEO Midland Macau
Off plan In the London property market ‘South Asian’ buyers – usually a reference locally to people from Hong Kong and surroundings, Singapore and the Indian subcontinent – account for two-thirds of new homes sold before completion. That’s according to Land Securities Group Plc, the largest U.K. real estate investment trust. The high-end market is dependent on pre-sales to overseas buyers to help get development finance and deal with rising land costs, said Michael Lister, a lecturer at the University of Westminster. In August Jones Lang LaSalle held what’s thought to be one of Macau’s first overseas property road shows – outside of major trade events. It was to promote off-plan sales of flats at Royal Arsenal Riverside, near the River Thames in Woolwich, southeast London. The project is scheduled for completion in 2015. “Most of the investors were professional people,” said Jeff Wong “When people think of investing
Hong Kong has increased minimum down payments six times in fewer than three years and in February doubled stamp-duty taxes for all properties over HK$2 million (US$258,000). Singapore linked borrowers’ maximum debt levels to their incomes and raised transaction and capital gains taxes. “Before the local cooling measures people could easily flip properties – sometimes holding them for only a few months or one or two years in order to have the capital gain immediately,” said Jeff Wong of Jones Lang LaSalle. “In Macau you easily have 20 or 30 percent or even 50 percent [valuation growth] in the past few years,” he added. “Although in the long-term the outlook for U.K. property is positive, usually the annual increment is only 10 percent, even in good years,” he stated. With Bloomberg News
December 12, 2013
CSR wins another contract while legal dispute plays out Waste collection company will earn more than 69 million patacas for short-term deal to April Vítor Quintã firstname.lastname@example.org
acau Waste Systems Co Ltd, known as CSR, will make more than 69 million patacas (US$8.6 million) from the extension of its solid waste management contract until April. The government has extended the contract while a new 10-year contract remains on hold awaiting a court case. It will be the fourth extension of CSR’s original contract, which expired in September 2011. A notice published in the Official Gazette on Tuesday says the extension is worth 69.1 million patacas. The Environmental Protection Bureau said in October it could not sign the new contract because a losing bidder had applied for an injunction preventing the government from signing the contract with its preferred contractor, CSR. The new contract is valued at 2.07 billion patacas. “Considering the original
CSR has been responsible for collecting the city’s rubbish since before the handover
contract will end on October 31, the SAR government decided to have a short-term extension of six months with the existing operator, based on the terms of the original contract,” the bureau said at the time.
The original contract says CSR must be paid 132.7 million patacas a year for its services. In June, Spanish firm Urbaser SA applied to the Court of Second Instance for an injunction to stop
the government from signing the contract with CSR. Urbaser later asked the court to overturn the award of the contract, saying the bidding process was flawed.
Hearing delayed Urbaser said the tender requirements “objectively benefited CSR” because no anti-corruption criteria were included in the evaluation of the bids. The Environmental Protection Bureau said its tender and evaluation processes were “just, fair, open and rigorous”. The bureau said in October the government had not ruled out shortening CSR’s contract extension if the legal dispute was settled before April. Business Daily has unsuccessfully asked the bureau for more information on the Urbaser lawsuit. A court hearing is yet to be scheduled, partly because of a change in the judge presiding over the case, a source said, on condition they remain anonymous because they are not authorised to speak to the media. The biggest delay however has been caused by difficulties in notifying another of the losing bidders, Guangzhou Standard Environmental Real Estate Management Ltd, the source said. CSR has said it would ensure the continuity of its rubbish collection service, a job it has held since before the handover. CSR is a joint venture between Hong Kong’s Swire SITA Waste Services Ltd and Macau’s H. Nolasco Group.
December 12, 2013 April 19, 2013
Macau Gaming workers back smoking rooms One of the city’s major gaming worker associations has voiced support for the creation of smoking rooms to replace the smoking areas in gaming venues. Leong Sun Iok, vice-president of the Macau Gaming Industry Workers Association, said on Tuesday it was “a practical temporary proposal” before a full smoking ban. On the other hand he is worried the venues forced to reduce their smoking areas could see their air quality worsen due to higher smoke concentration. The six gaming operators have signed a petition backing smoking rooms without gaming tables or slots.
La Scala land grants above board, court told
Ms Portela’s evidence yesterday contradicted remarks made by representatives of the Commission Against Corruption in October. It said the government had lost “some 800 million patacas” on the deal after agreeing to offer Macau International Airport Co Ltd 2 billion patacas in exchange for the land.
Selling the land directly was the quickest way to develop the area and make a profit, witness says Tony Lai email@example.com
The court will hear the final witnesses in the La Scala trial on Monday (Illustration: Rui Rasquinho)
he decision to grant land near the airport to a firm controlled by Hong Kong businessmen who are now facing corruption charges was within the law, a court heard yesterday. The bribery trial of Joseph Lau Luen Hung and Steven Lo Kit Sing resumed yesterday at the Court of First Instance. The pair is accused of paying a HK$20-million (US$2.58 million) bribe to former secretary for Transport and Public Works Ao Man Long in 2005. Lei Pou Fat Development Co Ltd, a governmentowned firm that controlled the land, granted the sites to Moon Ocean Ltd. That company was originally
under Mr Lo’s control but was later purchased by Hong Kong-listed Chinese Estates Holdings Ltd, where Mr Lau is the chairman. The deal went through even though none of the three bids met the requirements, primarily because they were joint ventures. The idea to award the land directly came from António Castanheira Lourenço, who was a manager at Lei Pou Fat and a director at the Infrastructure Development Office, according to Maria Nazaré Saias Portela, a government representative at Lei Pou Fat and member of the bid evaluation committee. “At that time there were only two scenarios: either
THERE ARE THINGS WE DON’T DO
[we] did not award the land or [we] changed it to a direct land grant to one of the firms,” she told the court. “The shareholders wanted to develop the land and profit [from the sale] so the land was awarded to [the company with] the highest bidding price.” Moon Ocean’s 1.37 billion pataca bid was the highest of the three tenders. Although Lei Pou Fat was 88-percent owned by the government, it “was a still private firm aiming for profits,” Ms Portela told the court. Lei Pou Fat would profit from the sales because the company’s shareholders had paid a lower price to acquire the land in the 1990s.
The shareholders wanted to develop the land and profit [from the sale] so the land was awarded to [the company with] the highest bidding price Maria Nazaré Saias Portela, government representative in Lei Pou Fat
BUT WE DO•••
Ms Portela said she had never received an order from Mr Ao regarding the blocks of land. “The administrative procedures involved [in this case] were the same as in other grants,” she said. Mr Castanheira Lourenço also denied that the imprisoned official had any undue influence in his evidence. During the trial the prosecution has argued that Mr Ao told the bid evaluation committee to grant the land to Moon Ocean so the tender process would not be a pointless exercise. Ms Portela said Lei Pou Fat shareholders decided to sell the land in 2005 as “there were signs the property market was starting to pick up”. “The development period of those plots would expire by 2015 so the bidding process had to be carried out [at the time],” she said. Ms Portela did not say why shareholders were not willing to repeat the bidding process. Gaming magnate Stanley Ho Hung Sun complained after his attempts to obtain the land were rejected, saying he had received “different treatment” compared to prominent businessman Ng Fok, she said. Mr Ng’s firm was awarded another land plot by Lei Pou Fat in early 2005. Mr Ho’s Sociedade de Turismo e Diversões de Macau SA was one of the bidders for the La Scala plots. It is also a minority shareholder in Lei Pou Fat along with Mr Ng and the airport company. The court will hear the final witnesses on Monday prior to the closing statements by the defence and the prosecution.
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December 12, 2013 April 19, 2013
Happiness begins with a home: study Index measuring contentment found residents fret most about housing and inflation Stephanie Lai
acau residents are generally happy but their concern over housing and inflation is increasing, shows the city’s Happiness Index survey released yesterday. The index is compiled annually in the second half of November with data gathered by Macao Polytechnic Institute and Macau Association of Economic Sciences. This year the overall index measured 6.98 points out of 10, up by 0.07 points compared to a year ago. “Global surveys that measure the same subject found that the happiest country scores an index of 74 or 75 out of 100 this year,” said Joey Lao Chi Ngai, president of Macao Association of Economic Sciences at a media briefing yesterday. “Macau’s happiness index level is relatively high” when set against the most contented communities, he suggested. The survey asked 1,106 residents aged 18 or older how happy they were and how satisfied they were with government policies. The survey found respondents were least happy with consumer prices. That sub-index of satisfaction scored only 4.62 points out of ten. Year-on-year inflation rose to
6.18 percent in October, a 14-month high, official data show. The biggest drop in happiness indicators, however, came in the sub-index for housing. It fell from more than 6.26 points in the past two years to 5.79 points this year. The result is a sign that the government ought to do more to alleviate inflationary pressures and to implement a better housing policy, Mr Lao concluded. Residents were also unhappy with transport, a sub-index that they rated at just 4.98 points. On the other hand the respondents were relatively happy with their personal health, education environment, family relationships and social life, all of which scored more than seven points out of 10. Residents working in the finance and real estate industries are the happiest – an index above seven points – among all sectors, for a second year, the survey found. The research did not go into detail on whether or not this result was connected to the respondents’ income or working hours. In contrast residents working in the gaming sector are the least happy ones, with a rating below seven points in the past four surveys.
Corporate PCCW signs alliance with Macau ICT firm Hong Kong-based PCCW Solutions has formed a strategic alliance with a Macau company to jointly bid for government projects here, in Zhuhai and in Hengqin Island. PCCW Solutions, a subsidiary of PCCW Ltd, signed a deal with ICTology Information Technology Ltd, an information and communications technology (ICT) services provider in Macau. The two firms are looking to provide ICT services and facilitate e-government initiatives in the three regions on areas such as cloud computing, data centre service and intelligent transportation system. Wilson Ma, chairman of ICTology, said: “To cope with the development in Macau, Zhuhai and Hengqin, we are expecting many IT business opportunities coming from local government, recreation and tourism, banking and commercial industries.” George Fok, managing director of PCCW Solutions, said the strategic alliance “will enable us to bring best-in-class ICT services, international best practices, professional local support and the latest technologies”.
DFS re-brands stores to T Galleria Luxury travel retailer DFS Group has re-branded its downtown stores in Macau from DFS Galleria to T Galleria by DFS earlier this week. T Galleria is the new brand that DFS Group first unveiled in September at a special event in Hawaii. Philippe Schaus (pictured), chairman and chief executive of DFS Group, believes “this new, bold and modern brand identity” will be able to “truly reflect what we have become – the world traveller’s preferred destination for luxury shopping”. Almost half of DSF’s worldwide stores now boast the T Galleria brand, said Mr Schaus, quoted by the Moodie Report. The change is also a further bet on Macau, said Benjamin Vuchot, DFS Group president for Asia North. “We continue to see opportunities in Macau, as the local economy registers sustained growth each year in Macau’s thriving and increasingly diversified leisure industries.”
Government needs better housing policy suggests survey
When it comes to income, people earning from 10,001 patacas (US$1252) to 15,000 patacas a month were the least happy. They scored only 6.76 points out of 10. The survey measures the happiness index of residents using an income scale that ranges
from 5,000 patacas to more than 70,000 patacas. Respondents that earn between 15,000 patacas and 50,000 patacas a month were happiest, with their satisfaction indices showing a spread of 10 basis points from a baseline of 7.03 points.
December 12, 2013 April 19, 2013
HSBC to sell stake in Bank of Shanghai Santander expands presence in China while other foreign banks hit the exit button
SBC Holdings Plc, Europe’s largest bank, agreed to sell its 8 percent stake in Bank of Shanghai Co to Banco Santander SA as it exits minority investments to boost profitability Santander, which already has a consumer finance venture and a car financing business in China, said on Tuesday the deal also included a cooperation agreement with the Chinese bank, taking the value of its investment to 470 million euros (US$647.3 million). The deal is seen helping Bank of Shanghai move a step forward with an expected initial public offering by giving it a secure foreign investment and a valuation. The Chinese lender is seeking an IPO in Shanghai and Hong Kong with a combined value of about US$2 billion. Bank of Shanghai officials could not be immediately reached for comment on the deal or the IPO plans. HSBC had earlier flagged its interest in selling the stake, which it said had a fair value of HK$3.63 billion (US$468.18 million) as of September 30. The Asia-focused bank paid US$62.6 million for the holding in December 2001. HSBC has also been selling minority holdings as part of a restructuring since the start of 2011. It has cut 46,000 jobs and sold or closed 52 businesses, including a minority stake in Chinese insurer Ping An Insurance Group Co of China Ltd. U.S. and European banks, including Bank of America Corp, Goldman Sachs Group Inc and UBS
HSBC is the biggest foreign bank in the mainland by assets and branch network
AG have also sold their stakes in Chinese banks, booking hefty profits from holdings that yielded few strategic advantages. Regulatory and other business reasons also prompted the sales. Santander, however, is moving in the other direction. The bank said it would help statecontrolled Bank of Shanghai, which it said had 98 billion euros of assets and was the second-biggest city-focused commercial and retail bank in the
country, with training in areas such as risk management.
China business Santander is also planning to develop a joint wholesale banking business, adding to what Santander might be able to offer some of its big corporate clients in Latin America, a key hub that provides around 50 percent of its profits. “Santander is also developing
investment banking activities in China, mainly based on financing the substantial trade flows between the Asian giant and Latin America,” the bank said in a statement which listed existing ventures in China. Asia-focused HSBC said China was still one of its priority markets and chief executive Stuart Gulliver has said in recent months that its 19 percent stake in Bank of Communications Co Ltd remained core. The transaction is subject to
Beijing paves way for NDRC slim-down Regulators also revising securities law and writing a futures law
hina has stripped dozens of powers away from central government ministries as it bids to cut red tape and prevent Beijing’s army of bureaucrats from micromanaging the world’s secondlargest economy. The mainland’s cabinet, the State Council, announced late on Tuesday that it was removing 82 powers from a number of central government ministries, including the powerful National Development and Reform Commission (NDRC) and the Ministry of Environmental Protection. In a series of sweeping reforms published in November, China’s ruling Communist Party promised to free up the market by simplifying administration and “restrict central government management of microeconomic issues to the greatest possible extent”. Sources have said the policy document is likely to pave the way for a longanticipated restructuring of government departments next March, which could result in the creation of new energy and environment “superministries” and a scaling back of the roles and responsibilities of the NDRC.
The NDRC, a sprawling superministry with a huge swathe of duties ranging from cutting greenhouse gases to deciding energy prices, has long been under fire for resisting reform and for making heavy-handed interventions in the economy. Beijing has promised to reduce its involvement in matters like the approval of new industrial projects, allowing it instead to focus on improving rules and regulations. The notice said the NDRC would no longer be responsible for issuing new coal production licences. Other powers to be stripped include the transportation ministry’s role in approving port renovations and the commerce ministry’s say in which companies are allowed to export tungsten and antimony.
Securities reform Leaders are also revising the country’s securities law and writing a futures law, the legislature said. The legal changes underway include codifying plans to shift from an approval-based system
China’s IPO market frozen since October 2012
for initial public offerings to a registration system, state media reported, lowering a major hurdle for companies trying to raise funds on the country’s stock exchange. The finance and economics committee of the National People’s Congress, China’s rubber-stamp parliament, is also considering changes to the laws on mergers and acquisitions, corporate restructurings, and investor protection, the parliament said in an announcement posted on its website.
China’s IPO market has been frozen since October 2012, and more than 850 companies are currently waiting for IPO approval. The reform blueprint approved last month promised a shift to a marketbased system where regulators focus on information disclosure but leave judgments on risk and profit potential to investors. The China Securities Regulatory Commission, which approves new issues, said last month that a new, more streamlined process could take
December 12, 2013 April 19, 2013
Greater China approval from the China Banking Regulatory Commission. Mr Gulliver had said in May that HSBC could sell its Bank of Shanghai stake for between US$500 million and US$600 million. Santander declined to comment on how much it had paid for the 8 percent stake alone. “The stake in Bank of Shanghai doesn’t seem to bring much synergy to HSBC’s China business,” Rainy Yuan, a Shanghai-based analyst at Masterlink Securities Corp, said. “It’s understandable for HSBC to reallocate the resources to other Chinese lenders with more potential.” HSBC is the biggest foreign bank in China by assets and branch network. The lender, which operates 150 outlets on the mainland, boosted its China profit by about 12 percent last year to 3.8 billion yuan (US$626 million), according to its website. Peers have been selling out of China in part because some struggled to make quick progress with their Chinese joint ventures, and also because they are bulking up capital ahead of more stringent international solvency rules. Santander said it expected its deal with Bank of Shanghai to close in the first half of 2014. It said the transaction would impact its capital to risk-weighted assets ratio by about 0.01 percent. Reuters
KEY POINTS HSBC places fair value of US$468.2 mln on stake Santander says eyeing China trade flows with Latam Bank of Shanghai expected to list shares in HK, Shanghai
Drugmakers in China face U.S. scrutiny
Anbang buys stake in China Merchants
FDA to boost inspections into drug manufacturing practices
.S. regulators are more than tripling to 27 the number of workers they’ll have in China to inspect pharmaceutical plants and products, a move that may spur a wave of enforcement similar to what’s happening in India. An increased number of Food and Drug Administration investigators in India this year led to import bans against some generic drugs from Ranbaxy Laboratories Ltd and Wockhardt Ltd for failure to meet U.S. standards. The China expansion is the culmination of almost two years of negotiations with government officials, Christopher Hickey, director of the FDA’s China office, said in a telephone interview from Beijing. China, like India, has become a significant supplier around the world of the active ingredients found in prescription drugs, Mr Hickey said. U.S. Vice President Joe Biden visited Beijing last week and was able to secure a final commitment from the government to allow more inspectors into China to routinely review drug manufacturing practices and conditions. “It’s always difficult to say with precision what will happen with warning letters or inspections,” Mr Hickey said. “One thing we have seen with our inspections overseas in India, and here in China, is that
over time, inspectors are better able to identify specific problems in the firms.” Among the 19 new employees stationed in China, 10 will be pharmaceutical inspectors, Mr Hickey said. The number of food inspectors will increase to eight over the next year, allowing the FDA to complete about 160 inspections a year, compared with 20 to 25 now, he said. Drugmakers will see a similar increase. “Clearly that’s a possibility that we could see more enforcement letters,” said Linda Bentley, chairman of the legal practice group dealing with FDA matters at the law firm Mintz Levin in Boston, said in a telephone interview. China became a particular point of focus after contaminated doses of Baxter International Inc’s blood thinner heparin was linked to 246 death reports from January 1, 2007, to May 31, 2008. The active pharmaceutical ingredient was made in China. Around that same time, tainted jerky treats imported from China began to be linked to thousands of dog illnesses in the U.S. The FDA opened its China office in November 2008 with posts in Beijing, Shanghai and Guangzhou, according to the agency’s website. Bloomberg News
Tencent to invest in Qianhai Internet giant to set up e-commerce and online finance firms
KEY POINTS State Council removes powers from central bodies Scales back responsibilities of the NDRC Legislature revising securities law, writing futures bill NPC mulls changes to mergers and acquisitions
effect in January, but some reforms required changes to the law. The legal changes could be finished as early as the second half of next year, following a comment and revision process, the official China Securities Journal reported. Regulators have implemented a series of administrative rules for futures trading, but the lack of a legal foundation has hindered the development of futures, the parliament said in its announcement. Reuters
encent Holdings Ltd, Asia’s largest Internet company, set up e-commerce and Internet finance companies in China’s Qianhai economic zone as it steps up the battle for users with Alibaba Group Holding Ltd and Baidu Inc. The company will invest at least 10 billion yuan (US$1.6 billion) in the district of the southern city of Shenzhen, Jerry Huang, a director of investor relations at Tencent, said in an e-mail yesterday. Qianhai was created in 2010 as a testing ground for more liberal financial policies, including freer yuan usage and capital-account convertibility. Alibaba, founded by billionaire Jack Ma, and Baidu are competing with Tencent to sell shopping services and wealth products to China’s 591 million Internet users. The investment in Qianhai, a 15-square-kilometre (5.8 square miles) area near Hong Kong, could help Tencent venture into loans and expand e-commerce, said Jim Antos, an analyst at Mizuho Securities Asia Ltd in Hong Kong. “They’re following Jack Ma and Alibaba,” Mr Antos said by phone. “If they could provide working capital finance to smaller companies, they’re going to get more usage of their site, the smaller company will be happy and they’re going to be happy.” Tencent is waiting for more details
about the financial policies coming out of Qianhai, Mr Huang said in the e-mail. The companies in the zone have a registered capital of about 1.6 billion yuan, he said. The microfinance unit of Alibaba, China’s largest e-commerce company, has extended in excess of 120 billion yuan to more than 500,000 small online businesses since starting three years ago, Teresa Li, a spokeswoman for Alibaba in Hong Kong, said in an October 15 e-mail. The average size of the loans is about 30,000 yuan and the non-performing loan ratio is less than 1 percent, she said. Chinese Internet companies are also creating online investment products that provide higher returns than the benchmark one-year savings rate in China. Alibaba’s financial affiliate created Yu’E Bao, an online fund product that has attracted more than US$16 billion from 30 million Chinese users by November 14. Baidu, owner of China’s largest Internet search engine, offered in October “Baifa,” an online moneymarket fund managed by China Asset Management Co. The product attracted more than 1 billion yuan of investment from more than 120,000 customers on its debut, according to Kaiser Kuo, a Beijing-based spokesman for Baidu. Bloomberg News
Anbang Insurance Group bought a stake valued at US$2.1 billion in China Merchants Bank Co, boosting speculation it has abandoned interest in Hong Kong’s Wing Hang Bank Ltd. Anbang’s property and casualty insurance unit bought 1.13 billion Shanghai-traded shares of China Merchants Bank, raising its stake to about 5 percent of total share capital, a Hong Kong stock exchange filing by the Shenzhenbased lender showed yesterday. China Merchants Bank didn’t disclose the price for the stake, which based on yesterday’s trading in Shanghai would be worth 12.6 billion yuan (US$2.1 billion). Shares of Wing Hang declined 1.8 percent to HK$110.70 in Hong Kong. Anbang is baulking at the asking price for Wing Hang, the secondlargest family-run Hong Kong lender, two people with knowledge of the matter said last week. “Anbang’s investment in China Merchants Bank could mean they’re dropping interest in Wing Hang Bank,” Ronald Wan, chief China adviser at Asian Capital Holdings Ltd, said yesterday. “If they can’t agree on a price with Wing Hang, it’s a dead end.” Anbang has indicated it’s willing to pay no more than 1.7 times the Hong Kong lender’s book value this year, less than an asking price of about two times, the people said.
Foxconn to begin funding start-ups Foxconn Technology Group, maker of Apple Inc iPhones and iPads, is launching an investment fund to finance start-ups developing new kinds of wearable computers, according to two people familiar with the project. Syntrend Creative Park Co, a Foxconn unit, will administer the NT$200 million (US$6.8 million) fund and select participants for a trial in the first quarter, the people said, asking not to be identified because the details aren’t public. Operations at the incubator, providing offices and advisory services for start-ups, will open by the end of next year to create wearable and connected technologies, the people said. Foxconn is expanding beyond manufacturing devices for clients including Apple and HewlettPackard Co as slowing sales and increased competition challenge founder Terry Gou’s target of 15 percent annual revenue growth. In June, the billionaire showed off a smartwatch the company is developing and in October it acquired licences to offer fourth-generation wireless service in Taiwan. Syntrend will open its Taipei Information Park by the fourth quarter of next year, the people said. As many as 20 start-ups will be selected, with funding likely to be about NT$1 million each, the people said.
Banks to offer RMB19 bln of NCDs Five Chinese banks will sell 19 billion yuan (US$3.13 billion) of negotiable certificates of deposits (NCDs) today, the official Shanghai Clearing House announced on its website, ushering a new phase for the liberalisation of Chinese interest rates. The banks, which include the Agricultural Bank of China, Bank of China, China Construction Bank, China Development Bank and the Industrial and Commercial Bank of China, will offer tenors of one month, three months and six months, according to the announcement yesterday. The six-month tenor will be priced at 97.450 yuan, it said, while the three-month tenor will price at 98.734 yuan and the one-month at 99.5691 yuan. A type of investment that gives buyers fixed interest payouts, NCDs are a step towards relaxing China’s control over rates as they let buyers and sellers negotiate prices between themselves. The next expected step is for Beijing to implement a deposit insurance scheme, with the ultimate goal of letting deposit rates float freely. Interest rates in China are controlled by the government, which instructs banks how much to pay for deposits and how much to lend, in part to protect their profit margins.
December 12, 2013 April 19, 2013
Everbright Int’l to sell US$472 mln shares C
Regulators trying to cut industrial overcapacity
Beijing to revamp state firms management New structure to improve efficiency while keeping control
he regulator of China’s state-owned businesses is considering creating new bureaucracies to restructure and invest in state firms, the official China Securities Journal reported yesterday, a move interpreted as a means to improve efficiency without abandoning control. The new institutions would be part of Beijing’s latest reform effort to both increase the role of market forces in pricing resources while still preserving a leadership role for state firms. They would also seek to alleviate entrenched industrial overcapacity aggravated by state firms over-investing. Analysts say Beijing hopes to move toward a more efficient model of state ownership, possibly modelled on Singapore, where the state retains ownership but management is focused on getting returns on investment than serving myriad policy goals.
Without quoting named sources, the Journal said the regulator was considering three new “management platforms” for state-owned assets, to facilitate investment in research and innovation, assist with sectoral restructuring, and operational management. According to the report, the first platform would focus on “natural monopolies,” such as energy and telecommunications, to ensure safeguards and public interest while driving research and innovation. The second platform would be more of an investment holding company focused on state-owned firms in multiple industries, in particular energy, real estate, pharmaceuticals and finance – which would operate similarly to Singapore’s Temasek Holdings Pte Ltd investment entity. The th i r d p l a tfo r m wo u l d focus more on operational control through purchases of equity shares
Cinda raises cash to buy distressed debts Bad-loan manager gets billions from Hong Kong’s biggest IPO in a year
hina Cinda Asset Management Co Ltd, one of the nation’s four state-owned bad-loan managers, raised HK$18.5 billion (US$2.4 billion) in Hong Kong’s biggest initial public offering in a year as it prepares to take on more distressed assets. The company sold 5.3 billion shares at HK$3.58 each, the top of the price range, Beijing-based Cinda said in a statement to the Hong Kong Stock Exchange yesterday. The stock will start trading today, it said. The HK$18.5 billion is the company’s net proceeds, according to the statement. The IPO will help Cinda, created in 1999 to buy bad debts from state-owned banks on the verge of insolvency, to profit from a new round
of non-performing loans following a US$6.5 trillion lending spree since the end of 2008 as the government combated an economic slowdown.
US$2.4 bln Cinda raised in HK’s IPO
in state-run firms. The report said this could result in the State-owned Assets Supervision and Administration Commission unit purchasing shares in listed state-run companies to help with “liquidity”. Such investments could mean more state money being injected into Chinese listed firms, but domestic stock markets did not appear to respond well to the news, with major indexes down over 1 percent at time of reporting. Economists have also pointed out that some of the primary sources of state-owned companies’ monopoly power are being withdrawn by regulators at the central bank. Access to cheap capital from staterun banks, for example, could be made more difficult once deposit rates are liberalised, and at the same time the Beijing is requiring them to pay out more in dividends to the state. Reuters
The company plans to use about 60 percent of the proceeds to enhance distressed asset management, which remains its core business after generating at least 30 percent in pretax returns on average equity since 2010, according to its prospectus. Non-performing loans at Chinese banks increased for an eighth consecutive quarter in the three months ended September 30 to 563.6 billion yuan (US$93 billion), extending the longest streak in at least nine years. They account for just 0.97 percent of the nation’s outstanding loans, according to the banking regulator. The company also plans to use about 20 percent of the IPO proceeds in its financial investment and asset management business, with the remainder to recapitalise its financial subsidiaries that now cover securities, trust, leasing and insurance, according to the prospectus. Cinda is benefiting from a resurgent IPO market in Hong Kong as investors bet the Chinese economy will stabilise. The sale is the city’s biggest since November 2012, when People’s Insurance Company (Group) of China Ltd raised US$3.6 billion. Bloomberg News
hina Everbright International Ltd said yesterday it would issue HK$3.66 billion (US$472 million) worth of new shares to its controlling shareholder, raising capital to develop its environmental protection business. The waste management and energy company will issue 430 million new shares to Guildford Ltd at HK$8.52 each, a 4.38 percent discount to the previous close, the company said in a filing to the Hong Kong bourse. The amount represents 10.6 percent of the company’s existing shares outstanding. The controlling shareholder will subscribe to the new shares after selling the same amount of China Everbright International’s shares at the same price, it said. Trading in the shares, which were suspended on Tuesday afternoon, resumed yesterday. China Everbright is an investment holding company with interests in environmental energy project construction and operation, including waste-to-energy power plants, waste water treatment and alternative energy. Morgan Stanley and China Everbright Securities are handling the deal. Reuters
Chinalco copper output cuts to trim global surplus C
hinalco Mining Corp International said copper output from its mine in Peru may be as much as 37 percent lower than expected next year because of limited power supplies, helping cut the projected global surplus. Production from the US$2.2 billion Toromocho mine may be 120,000 to 150,000 metric tons next year, compared with the previous forecast of 190,498 metric tons, Chinalco Mining, a unit of China’s biggest aluminium producer, said yesterday. Long-term production won’t be affected, it said. A cut of 70,498 tons from Chinalco Mining would represent almost onefifth of the projected surplus next year and could help boost copper prices in London, which have dropped 9.8 percent this year. “It’s illustrative of the ongoing supply challenges that face the copper market,” Andrew Driscoll, the head of resources research at CLSA Ltd in Hong Kong. “We do expect supply to grow less than some of the more optimistic estimates out there.” Bloomberg News
December 12, 2013 April 19, 2013
Nikkei 225 set for slump: Saison Consumer spending expected to fall as prices rise Yuko Takeo
apan’s Nikkei 225 Stock Average is poised to slump next year as households face a sales-tax increase and inflation that outstrips wage growth, spurring a reduction in consumer spending, said Saison Asset Management Co. The gauge will tumble to as low as 10,000, a level unseen since December 2012, if price increases aren’t matched by higher salaries, said Tetsuo Seshimo, a portfolio manager at Saison, which oversees about 80 billion yen (US$778 million). That would be a 36 percent slide from Tuesday’s close. The yen’s 16 percent fall this year raised the cost of energy and food staples such as wheat, increasing living expenses for middleincome households, Mr Seshimo said. “No one is going to spend more when prices are rising,” he said in an interview. “A balance can only be reached with an increase in basic salaries.” Investors are gauging whether Prime Minister Shinzo Abe can spur a sustainable economic recovery after his fiscal stimulus and the Bank of Japan’s unprecedented monetary easing drove the steepest stock rally this year among global developed markets. A gauge of Japan’s consumer prices rose 0.9 percent in October even as wages extended the longest fall since 2010, spurring concern that households will become more cautious as living standards slip. Equity investors face the biggest
risk of declines after Japan’s sales tax is raised to 8 percent in April from 5 percent, cutting further into consumers’ spending power, Mr Seshimo said. The last increase to the levy, a 2 percentage-point rise in 1997 under Ryutaro Hashimoto, cost the former prime minister his job as Japan sank into a recession.
Abe, Goldman Mr Abe’s success in reviving the world’s third-largest economy hinges on wages rising more than the BOJ’s 2 percent inflation target, according to Kathy Matsui, chief Japan strategist for Goldman Sachs Group Inc. “What we want is for wages to rise
A balance can only be reached with an increase in basic salaries Tetsuo Seshimo, Saison Asset Management
Equity investors facing bigger risk of declines
more than prices,” Mr Abe said last week in an interview with Bloomberg News. “We want to enter a virtuous cycle as quickly as possible,” where economic growth propels corporate profits, employers raise compensation and workers spend more, he said. Regular wages excluding overtime and bonuses fell 0.4 percent in October from a year earlier, a 17th straight monthly decline, according to labour ministry data released on December 3. The changes to Japan’s labour force make it less likely Mr Abe’s attempts to spur wage growth will be successful, Mr Seshimo said. Mr Seshimo is also sceptical about the strength of the U.S. economic
Bipolar yen key to traders’ profits Abe’s pledge turned the tide for the Japanese currency
he secret to success in the US$5.3 trillion a day foreignexchange market may lie in Japan for traders suffering the secondworst year of losses on record. Japan’s yen was either the best or worst performer among its Group-of-10 peers every year since 2008, prompting Deutsche Bank AG to deem it vital to the success of trading strategies. It’s down 16 percent versus the dollar in 2013, leading the pack again. “The yen wins the prize for most bipolar G-10 currency,” Alan Ruskin, the New York-based global head of G-10 foreign-exchange at Deutsche Bank, the world’s largest currency trader, wrote in research note this month. “It will have been the strongest currency five times and the weakest five times since 1998, underscoring the extent to which getting the yen right has been important.” Getting it right has been increasingly tough for investors and traders amid a drop in volatility. The Parker Global Strategies LLC’s
The yen’s slide started two years ago
Currency Manager Index is down more than 10 percent from its peak in mid-October of 2009, including a drop of about 4 percent this year.
The MSCI All Country World Index of stocks has gained about 50 percent, including dividends. JPMorgan Chase & Co says the
recovery and sees Japanese equities being dragged lower when data on growth in the world’s biggest economy disappoints, he said. The Nikkei 225 rose to 15,749.66 on December 3, the highest close since December 2007. It’s since slipped 0.9 percent, paring its advance this year to 50 percent. Earnings per share on the gauge will rise 17 percent over the next 12 months, analyst estimates compiled by Bloomberg show. Japan’s gross domestic product will increase 1.5 percent in 2014, trailing the 2.8 percent growth of the global economy, according to separate surveys of economists. Bloomberg News
reason for the yen’s “extreme” performance is that Japan’s monetary policy tends to contrast with that of other nations. While the Federal Reserve is considering reducing the amount of money it prints to pump into the U.S. financial system through its bond purchases, Bank of Japan officials are hinting that they may add to the US$68 billion they buy each month. “Japanese monetary policy tends to be extreme compared with other countries, so the yen becomes a very extreme currency,” Tohru Sasaki, a former BOJ official who now heads Japanese rate and currency research at JPMorgan, said in an interview. “The yen will continue to be the weakest currency among majors next year.” Mr Sasaki forecasts that Prime Minister Shinzo Abe will continue to be successful in depreciating the yen to stoke growth and end 15 years of deflation. Traders are more confident in Japan’s ability to keep weakening the yen. The number of wagers by hedge funds and other large speculators on a drop in the currency compared with those on a gain increased to 133,383 contracts last week, from 62,395 as of November 1, according to the Washington-based Commodity Futures Trading Commission. Bloomberg News
December 12, 2013
Closure of vehicle, engine plants to affect 2,900 jobs
GM to halt car production in Australia U.S. carmaker will cease production by the end of 2017 Maggie Lu Yueyang and Sonali Paul
eneral Motors Co said it would stop making cars in Australia by 2017 due to high costs and a cripplingly strong currency, fuelling fears rival Toyota Motor Corp will follow suit and put the entire local autos industry at risk. The decision by the world’s second-largest auto maker to close its Holden plants in South Australia and Victoria states is the latest blow to Australia’s manufacturing industry and the auto sector in particular. “No matter which way we apply the numbers, our long term business case to make and assemble cars in this country is simply not viable,” general manager Mike Devereux told reporters at GM’s car plant in Adelaide yesterday. The decision to halt domestic production of Holden cars, long a source of national pride, will pile more pressure on Prime Minister Tony Abbott’s conservative government, which is seeking to manage a slowdown in the US$1.5 trillion economy as a decade-long mining investment boom slows. GM chairman and CEO Dan Akerson said the decision reflected a “perfect storm” of negative influences facing the Australian automotive industry including the sustained strength of the Australian dollar, high cost of production, and a small, fragmented and highly competitive domestic market.
In May, Ford Motor Co said it would shut its two Australian auto plants in October 2016, blaming similar factors. There have been widespread concerns that an exit by GM Holden would be followed by the sole remaining producer, Toyota, threatening around 150 parts and component suppliers directly employing more than 40,000 people. “You need two manufacturers to get that critical mass,” said influential independent Senator Nick Xenophon. “You lose that critical mass, they fall like dominos.” Australian Manufacturing Workers Union national vehicles division secretary Dave Smith said it was “almost certain” Toyota would follow suit and leave Australia.
Strong dollar Toyota said it would work with suppliers and the government to determine its next steps and whether it could continue operating in Australia, where it employs 4,000 people and produced almost 100,000 vehicles last year. “This will place unprecedented pressure on the local supplier network and our ability to build cars in Australia,” Toyota Australia said in a statement. The world’s largest automaker is currently negotiating changes to its
workplace agreement as it seeks to improve productivity and cut costs. A worker vote is due tomorrow. “A no vote is going to send a very strong message to our parent company that we are not serious about transforming our business,” Beck Angel, spokeswoman for Toyota Australia, told Reuters before the GM announcement. Deputy Prime Minister Warren Truss said it was important that Toyota was given “every opportunity to survive these difficult times”. Australian manufacturing employs around 921,000 people, having declined by more than 10 percent in the past decade as the strong Australian dollar and high costs make imports more competitive. “If the automotive sector leaves then that’s a sector of manufacturing in Australia that has been a source of innovation and skills that has spilled over to other forms of manufacturing in Australia,” said Stephen Clibborn, a lecturer in work and organisational studies at the University of Sydney Business School.
Iconic brand Holden traces its roots in Australia to a saddle maker in 1856 and is part of the Australian psyche, fuelled by a fierce rivalry with Ford in showrooms around the country and on racetracks such as Mt Panorama at Bathurst.
GM may look at shipping more South Korean-made cars to Australia as part of a global production restructuring, a source told Reuters last week. Mr Devereux declined to comment on where it would source imported cars. Yesterday’s announcement came only one day after Mr Devereux said the company needed more assistance from the Australian government to survive long term. Mr Abbott’s government had earlier ruled out providing the industry further additional assistance, saying it needed to stand on its own feet. The government has also come under pressure to support flag carrier Qantas Airways Ltd, which is shedding 1,000 jobs in an attempt to stem mounting losses. Australia has annual sales of around 1.1 million new vehicles, but sales of locally manufactured vehicles have fallen to less than a quarter of that, from almost 389,000 in 2005. GM said it expects to record pretax charges of US$400 million to US$600 million in the fourth quarter of 2013 due to the closure. Reuters
KEY POINTS GM exit plans follows Ford, concerns about industry future Strong currency, slipping sales, hammer auto industry Toyota says under ‘unprecedented pressure’
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December 12, 2013
Political woes may hurt Thai growth
S.Korea set to cut state company debt
Protests could delay public spending and investment, central bank says
outh Korea yesterday announced a set of measures to reduce debt levels at key state-controlled firms, the latest effort by President Park Geun-hye’s administration to ensure fiscal soundness. The Ministry of Strategy and Finance said in a statement it plans to reduce the debt-to-capital ratios of 41 key public firms to about 200 percent in 2017, the last full year for the Park administration’s five-year term, from 221 percent in 2012. Data provided by the finance ministry shows that total debt at the 41 firms, which account for nearly all of the public companies’ debt, ballooned to 473 trillion Korean won (US$449 billion) last year from 274 trillion won in 2008, when the debtto-capital ratio stood at 137 percent. The new directives address mounting debt levels at public firms, such as state utility Korea Electric Power Corp (Kepco) and unlisted state public housing construction firm Korea Land & Housing Corp, in a bid to ensure that the government’s fiscal health is not jeopardised. The firms will be instructed to slash incentive payments for senior executives and reduce benefits for workers in cases where more than the market norm is offered. The firms will also be ordered to re-examine all existing projects to eliminate unnecessary expenditure and tie any new spending to expected future income.
he Bank of Thailand’s monetary policy committee (MPC) felt that political tensions could keep hurting sentiment about the country when it surprisingly cut the policy interest rate at its November 27 meeting. “Downside risks to growth have increased and it would take time before the economy could resume growing at a normal pace,” minutes of that meeting, published yesterday, said. The minutes noted that the domestic political situation “could further dent sentiments, potentially affecting private spending and tourism, as well as causing further delay to public spending and investment”. At the meeting, the MPC voted 6-1 to cut the policy rate by 25 basis points to 2.25 percent. Nearly all analysts had expected the rate to be held at 2.50 percent. The minutes said six members considered the 25 basis point cut appropriate due to the increased downside risks to growth and how domestic demand and exports remained weak. One member voted for no change, saying that the economy should be able to resume its normal growth next year while risks to financial stability remained. At the November 27 meeting, the committee cut its growth projection for 2013 to around 3.0 percent from
Protests continue in Bangkok despite snap election
3.7 percent. The minutes said that the revision “has not taken into account possible additional effects from the political situation”. The committee also cut its 2014 growth estimate to around 4 percent from 4.8 percent. The minutes were published at time Thailand continues to face a political crisis. After weeks of anti-government rallies, Prime Minister Yingluck Shinawatra dissolved parliament and called a snap election for February 2, but protesters continue to demand
that she step down now. Southeast Asia’s second-biggest economy after Indonesia expanded 6.5 percent in 2012, rebounding strongly from severe flooding in 2011, when it had growth of just 0.1 percent. Thailand’s consumer confidence fell for an eighth straight month in November. The consumer confidence index from the University of the Thai Chamber of Commerce slipped to 75, its lowest reading since February 2012, from 76.6 in October.
Heineken to control India’s United Breweries
replaced by a desire to support an industry in trouble. “Yanzhou’s commitment to keeping the operations going, in the event that they lift the control or maintain their current level of ownership, is perhaps an enticing position from the government’s perspective, rather than risk some of the assets getting closed down,” said Mr Drew. “What they are looking for is someone that can ensure that these businesses are going to be kept operational,” he said. Yanzhou’s current holding in its Australian unit is 78 percent. It had proposed in July to buy out the minorities to take full control of Yancoal Australia in a deal worth A$200 million.
he Netherlands’ Heineken NV has become the largest shareholder of India’s United Breweries Ltd after its stake inched past that of liquor baron Vijay Mallya. Heineken, the world’s third-largest brewer, now owns 38.7 percent after buying 1.3 percent on Tuesday from Citicorp Finance India, showed data on the National Stock Exchange yesterday. Mr Mallya owns 37.4 percent. United Breweries makes Kingfisher Strong, India’s biggest-selling beer, as well as London Pilsner and Kalyani Black Label. Heineken’s new shares had been pledged as collateral for a loan it extended to parent UB Group, which is controlled by Mr Mallya, said a person with direct knowledge of the matter who declined to be identified. Mr Mallya, who also owns grounded Kingfisher Airlines Ltd, owed lenders about 60 billion rupees (US$982.08 million) as of September. Last year, he sold the majority of United Spirits Ltd to British drinks maker Diageo PLC for US$2.1 billion. Heineken on Tuesday spent 2.8 billion rupees on 3.5 million United Breweries shares at 772.9 rupees each, exchange data showed. Yesterday, United Breweries shares rose as high as 4.8 percent to 813 rupees after closing 0.4 percent higher on Tuesday.
Australia clears Yanzhou Coal to buy out local unit Decision comes amid fears bar had been raised on foreign investment
ustralia yesterday cleared the way for China’s Yanzhou Coal Mining Co Ltd to take full control of its local unit, offering reassurance that the country remains open to foreign investment. Treasurer Joe Hockey removed conditions that were imposed on the Chinese state-owned company in 2009 that required Yanzhou to cut its ownership in Yancoal Australia Ltd to less than 70 percent and said he would be open to a full takeover. Mr Hockey’s move follows his high profile rejection of a A$2.8 billion (US$2.6 billion) takeover of Graincorp Ltd by U.S. agribusiness giant Archer Daniels Midland, which spawned fears the recently elected conservative government would take a more protectionist stance
on foreign investment. Chris Drew, an analyst at RBC Capital Markets, said the decision reflected the government’s desire to protect a coal industry under pressure from weak prices, with many operations struggling and job losses mounting. Mr Hockey indicated that Yanzhou’s investment in the beleaguered industry was welcome. “In commitments provided to me, Yanzhou has undertaken to continue to support Yancoal’s ongoing operations in Australia, thereby maintaining its position as a major regional employer,” Mr Hockey said in a statement. The change in stance appears to reflect a political environment where a fear of Chinese companies snapping up local resources assets has been
December 12, 2013 April 19, 2013
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December 12, 2013 April 19, 2013
Leading reports from Asia’s best business newspapers
Jakarta Post Indonesia rolled out an online self-certification scheme that will simplify the procedure for exporters seeking to obtain a certificate of origin for their products. The scheme will allow businesses to easily benefit from zero percent tariffs under the ASEAN Free Trade Area (AFTA). At present, the certificate is provided by the Trade Ministry after verification by the relevant trade authority. Trade Minister Gita Wirjawan said that the new scheme, starting off as a pilot project, would be in place for 15 exporters who regularly sold their products to Laos and the Philippines.
Asahi Shimbun Japan’s government officials agreed on legal revisions to punish companies that mislabel items on restaurant menus following a series of food-related scandals at prestigious hotel chains and department stores. Japan currently has no legislation stipulating clear standards for menu displays at restaurants. They recommended fines against violators of the revised law. “Companies have lacked a feeling of legal compliance, and there have been problems in administrative bodies’ monitoring and instructive activities,” said consumer affairs minister Masako Mori.
The Age Consumer confidence in Australia has lost its postelection glow, falling almost five percent this month to its lowest level since July. The Westpac Melbourne Institute Index of Consumer Sentiment fell from 110.3 points in November to 105.0 in December. “It appears that the boost in confidence partly associated with the election result and booming house prices has faded in December,” Westpac’s chief economist Bill Evans said, adding that uncertainty about unemployment also weighed on sentiment. “In particular, confidence around the economic outlook has faltered,” he said.
Thanh Nien Daily The State Bank of Vietnam has again banned dividend payments by financial institutions that do not make enough provisions for bad debts, after a similar ban last year. According to a statement on its website, banks are not allowed to hike salaries and bonuses either before provisioning. Governor Nguyen Van Binh ordered banks to strictly follow the central bank’s guidelines in dealing with bad debts. SBV began tightening its policy, which Mr Binh said would help speed up structural reforms, in 2011 when profits plunged for the first time.
Philippines has more to fix than typhoon damage William Pesek
Bloomberg View columnist
f Benigno Aquino is the sunny face of the new Philippines, the gun-toting Kim Henares is his alter ego. Henares, 53, is the crusading tax commissioner President Aquino hired in July 2010 to do something new in the Philippines: doggedly chase down tax cheats. That includes national heroes such as boxer Manny Pacquiao. Last month, Henares went toe-to-toe with the world champ, freezing two of his bank accounts as she sought to collect US$50 million in unpaid taxes. This fight is helping to fill the coffers of the Philippines, a onetime basket case that’s more recently been embraced by investors. Several dramatic moves from Aquino – including jailing predecessor Gloria Arroyo, firing Chief Justice Renato Corona for hiding assets, and raising taxes on politically connected companies – have been key to the Philippines winning investment-grade ratings for the first time.
Overseas investors need fresh incentives to put more money into the Philippines economy
Last week brought some fresh, and welcome, news to a country still reeling from the devastation of Typhoon Haiyan. The country’s ranking in Transparency International’s Corruption Perceptions Index improved 11 places in one year, putting it 94th out of 177 countries. That still leaves the Philippines just behind India, but it’s a rare good-news story in a year that otherwise, according to Transparency International, cast doubt “on the prediction that the 21st century will be the Asian century”. Clearly, the Aquino-Henares tag team is doing something right.
Eager investors But as walls of money zoom toward the Philippines, some observers are asking if it’s all too much, too soon. In other words, is excitement over so-called Aquinonomics outpacing the reforms needed to keep the economy on the path toward reform? Does the 82 percent surge in Philippine stocks from the time Aquino took office mostly reflect hot money emanating from the Federal Reserve and Bank of Japan? Is Aquino’s miracle nothing more, as some have argued recently, than a bubble? Probably not. Aquino’s goodgovernance campaign is more than a slogan. It has increased checks and balances – Henares among them – in a system where there were scant few. That’s yielding real benefits, including a narrowing budget deficit, lower bond rates and a stable currency. The Philippines boasts a
current-account surplus of more than 4 percent of gross domestic product, which folks in Jakarta and New Delhi will tell you is a great thing to have when markets are gyrating. Amando Tetangco has proved to be a steady hand at the central bank. Still, recent questions about the economy are a timely reminder that with his sixyear term a bit more than half over, Aquino’s job is very far from done. Mark Mobius, who works in Singapore for Templeton Emerging Markets Group, told Bloomberg News something one hears a lot lately: “It’s just too expensive. There’s a shortage of good companies. They need more IPOs.” Overseas investors need fresh incentives to put more money into the Philippines economy. One downer is the unsteady way the government has aided the more than 10 million people affected by the typhoon. Before the storm, a huge pork-barrel scandal in which politicians misused a US$566 million anti-poverty fund reminded the world how much of the old Philippines remains. Chronic neglect and overlapping levels of deeply entrenched vested interests means this isn’t a six-year job, but a 10- or 15-year one. The most important thing Aquino can do is institutionalise his policies by strengthening the judiciary, creating a more powerful and fully independent anticorruption agency, and encouraging freer watchdog groups to police the government.
Aquino should clamp down on rampant smuggling at the Bureau of Customs, divert more of the investment going into real estate into much-needed infrastructure projects, and make the education system more globally competitive.
Shooting straight Aquino also needs to rally Filipinos around the nation’s China-challenging 7 percent growth rate in order to advance the idea that good governance will enrich all citizens. The quid pro quo, of course, is that Aquino must work harder to lower unemployment, which remains stubbornly high at 7.3 percent. The president should also take the Aquino-Henares tag team to the next level. Why not start doing more lifestyle checks not only on politicians, but also on the legions of “middle class” actors, singers and sports stars who, like Pacquiao, long avoided the tax man? Henares’s tenacity has helped claw back some of the US$10 billion – 4 percent of GDP – in taxes the government estimates go unpaid every year. Henares began carrying a semi-automatic pistol eight months into the job as she made more and more headlines – and enemies. Now she occasionally joins Aquino for target-shooting practice. Talk about an apt metaphor for an economy that’s rarely been able to shoot straight. The key now is to make it into one that can’t miss. Bloomberg View
December 12, 2013 April 19, 2013
Closing IEA boosts global oil demand estimate
Google opens first Asia data centres
Global oil demand in 2014 will be higher than previously forecast, after consumption in the U.S. rebounded to its strongest level in five years, the International Energy Agency said. The IEA forecast yesterday in its monthly oil market report that demand will increase by 1.2 million barrels a day, or 1.3 percent, to 92.4 million a day next year, raising its projection from last month by 240,000 a day. While the agency boosted estimates for the amount of crude OPEC will need to supply, “making room” for the potential return of Iranian exports “could be a challenge for other producers” in the group, it said.
Google Inc has opened its first ever data centres in Asia as it looks to boost its growth further in the region. The move comes as a growing number of people in Asia are getting connected to the internet. Google said that having data centres in Asia will help it to provide faster and “more reliable” access to its tools and services to users in the region. The two new centres are based in Taiwan and Singapore. “The growth in Asia’s Internet has been amazing,” Joe Kava, vice president of data centres at Google, said. The firm said it plans to invest US$600 million in the long run in the Taiwan data centre, the bigger of the two facilities.
Europe edges toward plan to close failing banks Fight over crucial details of sharing failure costs put off Annika Breidthardt and John O’Donnell
U.S. budget deal reached in Congress A U.S. cross-party Congressional budget committee convened after an October government shutdown has reached an agreement to fund federal services. The proposed deal finances the government for two years and reduces the federal deficit by US$23 billion. It also avoids another government shutdown on January 15 when government funding is scheduled to run out. The new deal “cuts spending in a smarter way,” Republican Congressman Paul Ryan said. The budget deal also offsets US$63 billion in previously enacted automatic military and domestic spending cuts triggered in January when Democrats and Republicans failed to reach a budget compromise. Mr Ryan and Democratic Senator Patty Murray, the respective chairs of the House and Senate budget committees, were called on to reach a cross-party budget deal in the wake of October’s partial government shutdown over federal spending. “We have broken through the partisanship and gridlock,” Ms Murray said of the new deal. Mr Ryan said he was optimistic the new budget agreement could pass both sides of the highly politically divided Congress. The measure is expected to come to a vote before the House recesses for several weeks beginning tomorrow.
China new loans exceed estimates China’s new yuan loans and broadest measure of credit exceeded estimates last month in a sign authorities are trying to support growth amid a mixed picture from other economic data. New local-currency loans were 624.6 billion yuan (US$103 billion), the People’s Bank of China said yesterday, compared with the 580 billion yuan median estimate of 41 analysts surveyed by Bloomberg News. Aggregate financing was 1.23 trillion yuan, topping all economists’ estimates, while M2 money supply increased 14.2 percent from a year earlier. China’s leaders are meeting in Beijing this week to discuss policies for next year, including whether to set a lower growth goal for 2014. Yesterday’s figures are at odds with indications, including rising money-market interest rates and bond yields, that the government wants to restrain debt. “It will lead people to wonder how adamant are the authorities to rein in credit growth, how serious are they to contain the increase in leverage,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Group Plc in Hong Kong. The pace of credit extension is “still rather strong,” suggesting a “continued rapid increase” in the ratio of credit to gross domestic product, Mr Kuijs said. “That increase in leverage needs to moderate.” The Shanghai Composite Index fell 1.5 percent today. The data were released after markets closed.
Divisions remain over agency and fund to close banks
urozone countries edged toward agreeing a plan to tackle ailing banks but divisions remain about key parts of the reform that is needed to underpin confidence in the bloc’s lenders. After a financial storm that toppled banks and dragged down states from Ireland to Spain, countries are considering a fresh blueprint outlining what to do when a bank fails, a critical second pillar of a wider reform dubbed banking union. Sealing a deal ahead of next week’s meeting of EU leaders will allow Germany’s Chancellor Angela Merkel and her peers to trumpet an important overhaul of banking although their readiness to share the costs of failed lenders, a central tenet of banking union, may fall short of what was hoped. A draft plan, circulated among EU ministers at a meeting in Brussels this week, spells out how a new agency may close failing banks chiefly in the eurozone and, crucially, how the cost can be shared out among different national funds in the scheme. Linking these funds will take 10 years, however, and it will fall to countries to cover the costs in the mean time. Significant divisions remain. A quick succession of daily meetings have been planned to seal agreement when the ministers meet on the eve
of the leaders’ two-day summit on December 19-20. “We have sent a common signal to the markets that the European banking sector is stable,” Wolfgang Schaeuble, Germany’s finance minister, told reporters. “Europe is a bit more complicated than the United States but… we have found a solution,” he said, adding, however, that a ministers’ meeting next week was needed to finalise the agreement. “Nothing is agreed until everything is agreed.”
Sharing the cost The new agency to shut banks and a fund to pay for the clean-up will form a second pillar of banking union, as soon as the European Central Bank starts supervising banks late next year. Stronger countries in the eurozone do not assist weaker ones with direct financial support. Germany, Europe’s strongest economy, is reluctant to set a precedent by helping repair banks in struggling countries such as Spain. Mr Schaeuble emphasised that it was down to countries to individually shoulder the burden. To complicate matters further, Germany wants a new treaty agreement between governments in the scheme, a step that could be cumbersome. France’s Finance Minister Pierre
Moscovici said that the basis for an agreement had been reached, a view echoed by Michel Barnier, the European commissioner responsible for the law. But two officials inside the meeting painted a bleak picture. “There are more questions than answers,” said one. Winning German’s support will also require countries to back an early introduction of rules to impose losses on senior bondholders and large depositors in failing banks, as was done in Cyprus. Germany has long called for such a fast-tracking of rules, which were originally planned only for 2018. In the draft paper, officials proposed a starting date of January 2016, an acceleration that would have significant implications for bondholders as well as savers with more than 100,000 euros (US$137,200) in their accounts. A deal among governments on how to wind down banks by the self-imposed year-end deadline is important because it will allow countries to address potential problems revealed by a health check of banks by the ECB next year. Failure to reach agreement would reflect badly on the bloc’s politicians, whose response to the crisis has at times been slow and chaotic. Reuters