MOP 6.00 Vitor Quintã
External loans 1 up 31 pct y-o-y: Monetary Authority Page 5
Half of Chinese polled plan 3+ trips during 2014 Page 6
Number 449 Tuesday January 7, 2014
Editor-in-chief Tiago Azevedo
Government mulls cap on electronic gaming
April 19, 2013
he prospect of some kind of government cap on the growth of electronic gaming in Macau casinos was raised yesterday by the government official overseeing gaming policy. Secretary for Economy and Finance Francis Tam Pak Yuen said the current cap on traditional live dealer table numbers might continue after 2022. Last year Macau grossed 360.75 billion patacas. The bombshells were dropped during a question
and answer session at the city’s Legislative Assembly. Legislator Wong Kit Cheng asked why there was no cap on electronic gaming machines, to mirror the cap – at three percent compound annual growth – on live dealer gaming tables until the end of 2022. Mr Tam responded: “We have actually started some studies on this as the current slots are so much different from what we had in the past…” More on page 2
Genting HK unit plans Macau hotel, Hengqin theme park
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reasure Island Entertainment Complex Ltd, described as a member of Genting Hong Kong Group, wants to build a boutique hotel in Macau on reclaimed land opposite the old Casino Lisboa. The working title is “Resorts World Macau”, a company source told Business Daily. ‘Resorts World’ is the branding adopted by the parent, Malaysia’s Genting Group, wherever it operates casino resorts around the world. According to Yany Kwan, chairman of Treasure Island Entertainment Complex, plans submitted to the Macau government in August do not include gaming. But a source told Business Daily the firm “did not rule out” the possibility of gaming. Treasure Island Entertainment also plans a Hengqin Island theme park with an investment “of at least 30 billion yuan” [39.6 billion patacas, or US$5 billion].
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Macau slims capital invested in mainland ventures
Third party interested in taking over Reolian
SMEs get priority for Hengqin investment, govt says
The number of new investments by Macau enterprises in the mainland was the highest for a year in November, show data from China’s Ministry of Commerce. The ministry approved 46 new Macau-funded investments in the mainland in November, having approved only 27 in October. The number that the ministry approved in November was the highest since November 2012, when it approved 47.
At least one party is interested in taking over the public bus service of bankrupted Reolian Public Transport Co Ltd, Secretary for Transport and Public Works Lau Si Io stated yesterday. “I cannot answer further at this moment,” he added. Mr Lau also spoke about the city’s television market. He said a “non-profit institute” would after April replace Macau Cable TV Co Ltd in relaying free-to-air television signals.
Cross-border business proposals for neighbouring Hengqin Island’s special economic zone – ones that favour Macau’s small- and mediumsized enterprises – will get priority said Secretary for Economy and Finance Francis Tam Pak Yuen yesterday. Places at the GuangdongMacao Cooperation Industrial Park are already at least four times oversubscribed. Only 10 to 20 of the 89 proposals made so far are likely to get approval, added Mr Tam.
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January 7, 2014
Govt mulls cap on electronic gaming machines Administration also hints live dealer table cap could be extended beyond 2022 Tony Lai
he prospect of some kind of government cap on the growth of electronic gaming in Macau casinos was raised yesterday by the government official overseeing gaming policy. He added the current cap on traditional live dealer table numbers might continue after 2022. The bombshells were dropped during a question and answer session at the city’s Legislative Assembly. Legislator Wong Kit Cheng asked why there was no cap on electronic gaming machines, to mirror the cap – at three percent compound annual growth – on live dealer gaming tables until the end of 2022. Secretary for Economy and Finance Francis Tam Pak Yuen responded: “We have actually started some studies on this as the current slots are so much different from what we had in the past due to the rapid growth on the development of electronic gaming equipment.” He added: “We hope we can introduce to the public the government thoughts on this at an appropriate time.” It wasn’t immediately clear whether Mr Tam was referring specifically to so-called live dealer electronic table games – that have the same game play as live dealer tables but with electronic betting and bet settlement – or to traditional slot machines, or a combination of the two. The former product category has grown significantly in the past few years because they offer much lower minimum bets than traditional tables. Wagers on the mass-floor traditional tables have been pushed up by a combination of limited supply and increased demand as more and richer Chinese visit Macau. The tourists include so-called premium mass players who don’t necessarily qualify for the credit-based rolling chip VIP programmes but are willing to pay up to HK$4,000 (US$516) cash per hand of baccarat. Mr Tam admitted only imposing growth limits on traditional gaming
Double cap for Macau gaming floors?
tables might not be enough. “Gaming tables may not play a major role in the casino resorts in the next 10 or 20 years and perhaps the electronic gaming machines [would have] accounted for a principal position instead,” said the secretary. Official data show the number of slot machines reached 14,775 by the third quarter of last year, rising by a quarter from end of 2008. Data show revenue from slot machines increased by nine percent year-on-year to 10.6 billion patacas in the first three quarters of last year while the overall gross gaming revenue surged by 16.7 percent to 260.6 billion patacas at the same time. But Macau’s gaming regulator, the
Gaming Inspection and Coordination Bureau, told Business Daily in March 2013 by e-mail: “Gross gaming revenue from ETG [electronic table game] with live dealer is classified as table revenue, while revenue from ETG with no human dealer is counted as slot revenue”. Mr Tam also told the assembly yesterday that the question of whether a cap on traditional live dealer table numbers will continue after 2022 depends on discussions about possible renewal of the current gaming concessions. Those talks are due to start in 2015, Mr Tam has previously said. The government and the operators understand that “there is doubt
whether the city can maintain the current scale of gaming revenue amid regional competition” added Mr Tam yesterday. He reiterated that the proportion of non-gaming elements proposed for new Cotai resorts was “a major consideration” for the government when it came to distributing traditional tables in the next few years.
KEY POINTS Govt considers cap on electronic gaming machines Live dealer table cap could be extended beyond 2022
Tam promises better ‘mobility’ for local workers But announcement is short on details of how it will be achieved
ecretary for Economy and Finance Francis Tam said yesterday the administration needed to do better to find suitable jobs for residents after they have taken vocational training. “This will be one of the key policies” for the administration to improve as it aims to promote more mobility for residents in companies
like gaming firms, he stated. But he still did not specify how many residents the government wants to see in management positions at the gaming operators. Residents currently take up 85 percent of management positions in casino firms’ non-gaming operations, he said. Mr Tam also told the Legislative Assembly yesterday the government
would better ensure the upward mobility of Macau permanent residents employed in private companies outside the gaming sector. He didn’t say how. In another apparent shift of policy, Mr Tam said the government would propose – during discussions on concession renewals – the removal of all slot parlours from residential areas and the closure of any venues not located in casino premises. The regulation currently says slot parlours must be located in either a five-star hotel, a non-residential building located within a 500 metres (0.31-miles) radius of a casino, or a resort that is “not situated in a densely populated area”. The secretary additionally stated that the relocation of a Mocha Clubs slot venue to the Inner Harbour district was only “at a transitional stage”. T.L.
Slot parlours likely banned from all residential areas post 2022 Govt to improve ‘upward mobility’ of residents in workplace
Mr Tam also said the city’s gaming growth has been “under control” since 2008, when former chief executive Edmund Ho Hau Wah announced the administration would not accept any new land applications for gaming. The difficulty posed for industry analysts is knowing exactly how many gaming land allocations were approved prior to that date. ‘New’ projects keep being announced claiming pre2008 approval for gaming. With Michael Grimes
January 2014 April 19,7,2013
Genting HK unit to build Resorts World Macau Gaming not in plans but ‘not ruled out’ for site opposite old Casino Lisboa, source tells Business Daily Stephanie Lai
reasure Island Entertainment Complex Ltd, described as a member of Genting Hong Kong Group, wants to build a boutique hotel in Macau at a reclaimed land opposite the old Casino Lisboa. The working title of the project is “Resorts World Macau”, a company source confirmed to Business Daily. ‘Resorts World’ is the branding adopted by the parent, Malaysia’s Genting Group, wherever it operates casino resorts around the world. According to Yany Kwan, chairman of Treasure Island Entertainment Complex, a construction plan submitted to the Macau government in August last year, does not include any gaming facilities. Mr Kwan gave the news on the sidelines of a meeting to review investment bids for the GuangdongMacau Cooperation Industrial Park on Hengqin Island next door to Macau. His company is also interested in building a theme park at the latter location. A phone request by Business Daily for more information on the nature and amount of the Macau hotel investment went unanswered by the time Business Daily went to press. But a source told Business Daily the firm “did not rule out” the possibility of gaming, adding, “the part for gaming was actually not decided yet.” The most likely route for Genting to get gaming in Macau – assuming the developers hope to complete the project prior to the ending of the
An image yesterday of the Resorts World Macau site (Photo: Manuel Cardoso)
current gaming concessions in 2020 and 2022 – would be via a so-called ‘service agreement’ with one of the six existing concessionaires and subconcessionaires.
Global Genting According to Mr Kwan, the project – at Praça de Ferreira do Amaral by Nam Van Lake – would see a low-rise boutique hotel “providing hundreds of rooms”. A source said the venue would also have “shopping facilities, venues for shows and even conventions and exhibitions.” Treasure Island Entertainment Complex Ltd claims it was granted
the reclaimed land plot in 2008. A total construction footprint of 8,100 square metres (87,000 sq feet) for the hotel project was specified in the government land concession according to the company. Genting operates casinos in the Philippines, Malaysia, the United Kingdom and the United States as well as Singapore and is building its first in Las Vegas. Genting Hong Kong operates Star Cruises casino ships out of Hong Kong as well as being a joint venture partner in Resorts World Manila. Genting Group – led by Malaysian entrepreneur Lim Kok Thay – has long-coveted a presence in the Macau gaming market. It made a bid for
one of the three new gaming licences offered by the Macau government in 2001, but its proposal was not taken forward. In 2007, a unit called Genting International pulled out of a planned gaming venture in Macau involving partnership with the city’s former casino monopolist Stanley Ho Hung Sun. It withdrew reportedly because of concerns in Singapore, where Genting had won a bid to build one of two casino resorts. Mr Ho has previously been labelled “unsuitable” by gaming regulators in Nevada because of alleged ties to triads in the casino junket operations in his Macau casinos. With Michael Grimes
Genting arm proposes Hengqin theme park Treasure Island Entertainment Complex says the project may cost up to 40 billion yuan
reasure Island Entertainment Complex Ltd, a Macau company that says it is part of Genting Group’s Hong Kong operation, is proposing to build a theme park on Hengqin Island, company chairman Yany Kwan said yesterday. Mr Kwan spoke to reporters after meeting members of a panel that assesses investment proposals by enterprises interested in doing business in the area of the island reserved for Macau companies. “There will be different zones designed for the theme park,” Mr Kwan said. “The core zone, in our initial design, will be able to provide more than 20 types of amusement facilities to visitors.” “The other areas will be open for the public to
shop or dine.” Mr Kwan said the theme park would need at least 0.5 square km of land. “The project may require three phases of construction, with an investment of at least 30 billion yuan [39.6 billion patacas] to 40 billion yuan,” he said. He said he could not predict how long the whole park would take to build. But the first phase, which would have a cinema, a performance venue and amusement facilities, should take 30 months, he said. Mr Kwan said the first phase would cost about 15 billion yuan. Treasure Island Entertainment Complex declined to say where the money would come from. The company told Business Daily that it had yet to decide
A panel assesses proposals by enterprises for projects on Hengqin Island
on a name in English for the theme park. But a literal translation of its name for the park in Chinese is “Resorts World Hengqin, China”. Mr Kwan said he was unworried by the prospect of competition from the Chimelong International
Ocean Resort on Hengqin or Ocean Park in Hong Kong. The main elements of the Chimelong resort are due to open before the Lunar New Year at the end of this month. “It’d be even better if we can have a group of different theme parks operating on the
island or in our neighbouring region so that people have more choice,” Mr Kwan said. “That would be like people can visit Disney World, Universal Studios and Six Flags in Orlando on their family trips.” S.L.
January 7, 2014
Macau investments in mainland thriftier Even though Macau investors are putting money into more projects across the border
he number of new investments by Macau enterprises in the mainland was the highest for a year in November, Ministry of Commerce data show. The ministry approved 46 new Macau-funded investments in the mainland in November, having approved only 27 in October. The number that the ministry approved in November was the highest since November 2012, when it approved 47. But Macau investors are investing less money than before in projects across the border, the ministry’s data show. November’s investments were together worth US$10 million (80 million patacas), 66 percent less than October’s – although they were worth about the same as the investments approved a year earlier. The trend of Macau investors putting less money into more projects in the mainland began in the second half of last year. Macau businesspeople have said the trend may not be a bad sign, because it may mean that smaller
US$10 mln Macau investment in the mainland in November
enterprises here are eager to tap mainland markets. But some have argued that Macau investors lag other outside investors in the mainland in putting money into projects that promise higher value added – the sort of projects the mainland is seeking. In the first 11 months of last year the Ministry of Commerce approved 283 new Macau-funded investments in the mainland, six more than in the equivalent period of 2012. The investments were together worth US$430 million, 9.1 percent less. The decline in the value of Macau investments bucks the general trend of greater foreign direct investment in the mainland. The value of new FDI in the mainland was US$105.5 billion in the first 11 months of last year, 5.5 percent more than a year earlier. The Ministry of Commerce said the value of trade between Macau and the mainland had risen to US$290 million in November, 1.1 percent more than a year earlier. The value of bilateral trade was US$3.24 billion in the first 11 months of last year, 23.9 percent more than in the equivalent period of 2012. Macau’s exports to the mainland were worth US$350 million, 58.8 percent more than a year earlier. The city’s imports from the mainland were worth US$2.89 billion, 20.8 percent more. T.L.
Trade between Macau and the mainland grew fast in the first 11 months of last year
FTZ plan too rushed, Global Times warns The newspaper says the Pearl River Delta free trade zone proposal hangs in the balance Tony Lai
uangdong’s drive for a free trade zone encompassing Macau, Hong Kong and parts of the province is “too hasty” because important matters have yet to be settled, a state-run newspaper has said. The Global Times, which often speaks for the central government, carried on Sunday a commentary under the headline: “Case for Guangdong FTZ hangs in the balance”. The newspaper attributed the commentary to media editor Louise Ho. The commentary says there is “no doubt” that a free trade zone open to foreign investment could mean closer economic cooperation in the Pearl River Delta and more financial innovation in the mainland. But it says Guangdong must first distinguish the things the zone would do from the things its component parts already do,
and overcome the differences among the economic systems in the province, Macau and Hong Kong. “[The] authorities in Guangdong were perhaps too hasty with their proposal – waiting another year or two would allow them to observe developments in the Shanghai [free trade zone],” the commentary says. The central government approved a free trade zone in Shanghai in September. Another mainland newspaper, the Shanghai Securities News, reported last month that Guangdong submitted its proposal for a free trade zone to the State Council in the middle of December. The newspaper said the Pearl River Delta zone would have fewer restrictions on outside investment than the Shanghai zone. The Guangdong government declined to
comment on the report. The Global Times commentary says one of the problems with the proposal
for a Pearl River Delta free trade zone is that it is “too similar” to the mainland’s Closer Economic Partnership Arrangements (CEPAs) with Hong Kong and Macau. The purpose of the CEPAs and their supplements is to make access to mainland markets easier for Macau and Hong Kong enterprises. The commentary says: “There are numerous gaps between the legal and financial systems of Guangdong and the two special administrative regions that will have to be bridged.” Beijing will hesitate before approving any more free trade zones because the Shanghai zone “has yet to produce any meaningful economic benefits
for the country at large”, the commentary says. “Taking the potential problems into consideration, Guangdong will likely have its work cut out convincing the central government that [a free trade zone] in southern China is necessary,” it concludes. Guangdong’s proposal is to bundle its economic zones – Qianhai near Shenzhen, Nansha in Guangzhou and Hengqin Island – together with Macau and Hong Kong. Macau Chief Executive Fernando Chui Sai has shown support for the proposal. Mr Chui said last month that a free trade zone could open mainland markets wider to Macau enterprises.
The central government approved the Shanghai Free Trade Zone in September
January 7, 2014
Money supply up 21 pct y-o-y Additionally, external loans up 31 pct in November says monetary authority Michael Grimes
oney supply rose slightly in November when judged month-on-month, but was up 21.3 percent when measured year-on-year said the city’s de facto central bank, the Monetary Authority of Macau. Many contemporary economists see money supply growth as an important predictor of growth in prices and inflation, though not on a one-for-one basis. ‘M1’ refers to that part of the money supply that includes physical coins and currency, as well as readily liquid assets such as on demand bank deposits, and money held in cheque accounts. ‘M2’ is M1 plus all time-related deposits, savings deposits, and non-institutional moneymarket funds. On an annual basis, M1 and M2 grew 30.5 percent and 20.4 percent respectively
in Macau during November said the authority, though it added measured monthon-month M1 was down 7.8 percent and M2 was virtually at standstill at only 0.1 percent expansion. The pataca’s share of M2 stood at 23.8 percent, up 0.1 percentage point
from October, but down 0.6 percentage points from a year earlier. The Hong Kong dollar’s share of M2 in November was 52.8 percent, down 0.4 percentage points monthto-month and 2.3 percentage points year-on-year said the monetary authority.
Bally will ‘vigorously defend’ SHFL Nevada-based casino equipment maker slams analysts’ report as ‘misleading’ Michael Grimes
asino equipment maker Bally Technologies Inc says it will “vigorously defend” the right of its recently acquired subsidiary SHFL Entertainment (Asia) Ltd to sell electronic table games in Macau. It was the first time Bally has referred specifically to the trade dispute it inherited after a US$1.3 billion (10.4 billion patacas) leveraged buyout of fellow equipment maker SHFL entertainment Inc was completed in November. Bally’s statement was prompted by what it called a “factually incorrect” and “misleading” analysts’ report into SHFL’s market rival Paradise Entertainment Ltd and its LT Game brand of electronic table games using a live dealer. The report was issued on December 23 by Hong Kong financial services
firm Oriental Patron. Two former bosses at China’s central bank are listed as directors of Oriental Patron. The report had stated Paradise had “secured its monopoly position in the LMG [live multi game] segment” and that SHFL entertainment had been “precluded from [the] Macau market” due to legal issues. But Bally said in a statement that its wholly owned subsidiary SHFL entertainment (Asia) Ltd “categorically denies that any patents or any other legal issues preclude SHFL’s live multi-game product called SHFL Fusion Hybrid from Macau”. Bally added: “Any affirmations or insinuations that patent I/380 or any other patent held by Paradise Entertainment, LT Game, Natural Noble, or any of its subsidiaries or affiliates, grants respective owners with a monopoly over live multigame solutions constitute false representations and are misleading to the market. SHFL will continue to vigorously defend its position and right to sell respective products in Macau.” The reference to “patent I/380” concerns a Macau patent granted to Paradise chairman Jay Chun’s firm Natural Noble Ltd, and acquired last year by Paradise.
Latest official data said consumer price index inflation averaged 5.51 percent in the twelve months to November 30, the slowest pace since October 2011. Macau’s money supply numbers for November show that deposits by Macau residents stayed
virtually unchanged from the preceding month at 436.9 billion patacas (US$54.7 billion), but up 20.4 percent judged year-on-year. Non-residents’ deposits grew 2.7 percent monthon-month to 173.3 billion patacas and 32.1 percent year-on-year. Loans to the private sector rose 2.1 percent from October to November to 254.77 billion patacas, and 30 percent up from 2012. External loans rose 5.3 percent month-on-month in November, to nearly 278.76 billion patacas, an expansion of 31.2 percent year-on-year. The loan-to-deposit ratio for the resident sector at end-November grew 0.8 percentage points from the previous month to 50.5 percent. The ratio for both the resident and non-resident sectors also increased 2.1 percentage points to 78.7 percent.
January 7, 2014 April 19, 2013
Half of Chinese polled plan 3+ trips this year Macau, Hainan, among most popular destinations for mainland travellers says Ctrip.com survey Michael Grimes
The main difference is their business model is based on use of prepaid vouchers for placement of bets. In some cases winnings may be paid ‘in kind’ via consumer goods or services, rather than in cash. Ctrip.com claimed that approximately 95 percent of respondents to its survey planned in 2014 to either increase their per trip budget or maintain previous levels of spending. It said a third of those replying plan to spend at least 10,000 yuan (13,172 patacas) on at least one trip. The survey also found that more Chinese tourists are choosing not to travel in groups. Figures from the World Tourism Organization showed that the number of international trips by Chinese tourists grew to 83 million in 2012 from 10 million in 2000. China’s spending on travel abroad totalled US$102 billion (814.7 billion patacas) in 2012, making the country the largest contributor to the tourism industry worldwide, according to the organisation. Macau’s casino gross in 2012 was equal to US$38 billion. Around 60 percent of Macau’s tourists come from the mainland, and Macau counts as an ‘overseas’ destination, therefore Macau alone could have accounted for about one quarter of that global Chinese tourism spend. The majority of respondents to the Ctrip.com survey said they intend to travel during the Chinese Lunar New Year holiday, which begins on January 31, and the National Day holiday, which begins on October 1. Ctrip.com conducted the research in December. It said it received replies from people in more than 30 Chinese cities.
Chinese dream? More mainlanders now travelling independently
n online survey of Internet users in China suggested at least half of those polled intend to take three or more “trips” this year. The figures were reported by the official news agency Xinhua, quoting Ctrip.com, a Chinese tourist service company. The report didn’t specify the definition of a “trip”. According to the survey, Thailand,
Hong Kong, Macau and Taiwan were listed as favourite ‘overseas’ destinations for 2014. Sanya on Hainan Island – located 504 kilometres (313 miles) southwest of Macau; Lijiang in Yunnan province; and Jiuzhaigou in Sichuan province are the most popular domestic travel destinations. In Hainan’s case, sandy beaches
and a sub-tropical climate are not the only attractions for Chinese visitors. Business Daily reported last year that mainland officials have issued a number of so-called ‘Special Entertainment Licences’ to Hainan tourism resorts providing facilities that look and operate for all practical purposes like Macau’s casinos, complete with table games and slot machines.
Amount Chinese spent on ‘overseas’ trips – including Macau – in 2012
Room rate growth outpaces occupancy Figures to end-November suggest 3- to 5-star hotels up 3.64 pct
acau’s unofficial hotel occupancy figures up to and including November have been released by the Macau Hotel Association. Business Daily’s resident economist José Duarte yesterday in his thrice-weekly column described hotel occupancy rates as “a critical indicator for the hospitality industry and the viability of hotels in different categories”. He added that in the past three years, demand for Macau hotel rooms had only risen marginally faster than supply. That could partly be because hoteliers appear to be calibrating room rate increases at a rate higher than occupancy expansion – possibly in order to support margins. In the 11 months to November 30, occupancy rates for all the association’s 41 hotels in the three- to five-star categories rose 1.20 percent to 88.04 percent occupancy, while room rates
in all those categories appreciated year-on-year by 3.64 percent. Five-star properties saw the strongest growth in occupancy in the 11 months to November 30 – by 1.71 percent, to 88.43 percent – but not the strongest growth in average room rates. Five-star rates settled at 1,717 patacas (US$215) per night during the period – a 2.38 percent expansion. Three-star hotels had the highest average occupancy in the first 11 months of 2013, at 88.08 percent, while four-star properties registered 86.97 percent uptake. That differential might account for why the three-star segment showed the largest growth in room rates for the first eleven months. The price per night rose 8.02 percent year-on-year to end the period with an average of 1,049 patacas. That was actually a 17 percent premium to the average price of supposedly
superior four-star rooms, which had an average cost of 898 patacas. Ricardo Siu Chi Sen, associate professor of business and economics at the University of Macau, recently explained to Business Daily that star
category was not the only predictor of room rates. The way hotel segments and hotel groups are marketed can have an influence on headline average rates, he stated. M.G.
January 2014 April 19,7,2013
500.com triples share price Investors in online services firm upbeat on prospects for mainland lottery contracts
Lottery the analogue way
he stock price of Shenzhenbased 500.com Ltd has nearly tripled from its US$13 (103.84 patacas) initial public offering price in the six weeks since its New York Stock Exchange debut, says Reuters. As Business Daily reported in October, the online services company believes it has an understanding with China’s Ministry of Finance to develop a purpose built platform in China for Internet sales of traditional lottery tickets and for sports betting. But neither service is likely to be available in Macau. Here Macauslot – Sociedade de Lotarias e Apostas
KEY POINTS 500.com stock nearly triple launch price China Sports Lottery new online products not for Macau Mainland consolidating lottery contractors Only 8 pct of Chinese adults buy official lottery products
Mútuas de Macau Lda – a monopoly founded by Stanley Ho Hung Sun, is the only company legally authorised to operate an online portal for betting on football and basketball. It appears 500.com is one of the beneficiaries of a central governmentsanctioned modernisation process for China’s two state lotteries – the Welfare Lottery started in in 1987, and the Sports Lottery established in 1994. Although thus far much of the management for the lotteries has been devolved to provincial level, part of the modernisation drive – an initiative of the central government – is to whittle down the number of lottery contractors – thought to have been in the thousands – to a handful of large, professionally managed firms. The benefits of that can cut both ways. A small number of providers are easier for the authorities to oversee and regulate. Limiting the number of providers also creates better economies of scale, potentially better returns and thus more incentive for investors to put large amounts of capital into new infrastructure. “Over the next five years it is very clear that the Chinese market will continue to grow very quickly and the government regulatory regime will become more open and transparent,” Zhengming Pan, chief financial officer at 500.com told Reuters.
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Total revenue from China’s two legal lottery systems in 2012 came to 261.52 billion yuan (US$43.2 billion), up 18 percent from 221.582 billion yuan in 2011, said mainland government agencies. Only seven to eight percent of Chinese adults buy domestic lottery tickets compared to 70 percent to 80 percent of adults playing domestic lotteries in the wider Asia Pacific region, according to industry estimates. The mainland government is keen to lure more players via improved payouts, new products
The Chinese government wants to consolidate the current lottery market, making it easier to control and regulate Hoffman Ma, deputy chairman of Success Universe
and wider distribution channels, industry executives told Reuters. “The Chinese government wants to consolidate the current lottery market, making it easier to control and regulate,” said Hoffman Ma Ho Man, deputy chairman of Success Universe Group Ltd, a Macau casino operator and leisure and gaming company authorised to provide sports lottery sales agency services in three Chinese provinces. “They [government] are seeking operators with stable platforms and want to ensure that all bets that come through will pay tax,” Mr Ma told Reuters. Unlike the United States and Europe, where prizes can climb into the hundreds of millions of dollars, China caps jackpots at 10 million yuan. Tickets sell for two yuan to 200 yuan, with proceeds supporting sports and welfare charities. But as Business Daily reported last year, one of the factors inhibiting growth of sports betting products offered by China’s official lotteries is the low average percentage return to player compared to unauthorised online products. “…pricing in the government channels isn’t that great – with a mandatory maximum return to player of 69 percent. The return to player in the illegal market is probably 95 to 98 percent,” a lottery industry insider told us. M.G. with Reuters
January 7, 2014 April 19, 2013
Greater China Beijin probes nearly 37,000 officials for corruption China investigated almost 37,000 officials suspected of corruption in more than 27,000 cases between January and November, state media said on Sunday. Out of the 27,236 cases, 12,824 resulted in “losses for the people” involving a total of 5.51 billion yuan (US$0.9 billion), Xinhua news agency said without elaborating. It cited a statement from the Supreme People’s Procuratorate, China’s top prosecuting body, which could not be reached for comment. China’s top prosecutor Cao Jianming told the National People’s Congress parliament in October that 200,000 people had been probed for embezzlement or bribery between January 2008 and last August. Communist Party chief Xi Jinping has taken a hard line against graft since coming to power a little over one year ago, warning that corruption could destroy the party. He has threatened to stamp down on high-ranking officials, or “tigers”, along with low-level “flies” to maintain the purity of the party. At the same time he has mounted an austerity drive, with a range of measures including limits on banquets and bans on gift-giving.
Growth eases in HK private sector A gauge of business conditions in Hong Kong’s private-sector economy showed modest expansion in activity last month, although the rate of growth eased from November’s 10-month peak. The HSBC Holdings Plc purchasing managers index (PMI) for December fell to 51.2 from 52.1 in November. A reading above 50 indicates expansion. New orders received by private-sector companies grew but were weaker than in November. New business from mainland China expanded for the second month in December, and the rate of growth was the fastest since August 2011. Output expanded for the fourth consecutive month. Although the rate of growth eased to a modest pace, it was the second fastest since January last year. Overall input prices faced by private-sector companies continued to increase, the latest rise in costs reflecting higher purchasing prices and salaries. The rate of inflation picked up slightly. “The pace of growth in the Hong Kong economy may have slowed marginally in December, but output and new orders are still rising faster than their historical average rates,” Qu Hongbin, HSBC’s chief China economist, said in a statement. “There was an overall contraction in employment, but the acceleration in new orders from China is encouraging and should limit any downside to overall output.”
Reforms seen lifting Hang Seng Hong Kong’s benchmark equity index may advance 10 pct, analysts Kana Nishizawa
ong Kong stocks are poised to gain in 2014, with the Hang Seng Index climbing to a five-year high on a stronger global economy and steady growth in China as it pushes forward with policy changes, according to strategists. The city’s benchmark equity index will advance 10 percent to 25,658 this year from the end of 2013, according to the average of eight analyst estimates compiled by Bloomberg. Mainland shares traded in Hong Kong may climb even further, with Credit Suisse Group AG predicting the Hang Seng China Enterprises Index, also known as the H-share index, will surge 39 percent from December 31. RBC Investment Management (Asia) Ltd said the health-care and clean-energy industries will benefit from policy shifts in China. The Hang Seng Index climbed 15 percent from its 2013 low in June through last week amid confidence in the world’s two largest economies. The gauge traded at 10.1 times estimated earnings at the end of last week, while the H-share index’s 7 times multiple was the cheapest among benchmark gauges in Asia. China’s policymakers in November unveiled the biggest reform package since the 1990s, boosting shares, before surging funding costs weighed on markets at year-end.
Toyota Motor Corp and its two local jointventure partners sold more than 900,000 vehicles in China last year, two executives said yesterday, beating its annual sales target as it recovered from the impact of a territorial dispute between Beijing and Tokyo. One of the executives said Toyota and its Chinese partners sold about 916,400 vehicles in China last year on a preliminary basis, up from about 840,000 vehicles sold in 2012. The other said sales were over 900,000 vehicles. Both declined to be named because they were not authorised to speak to reporters. The executives said key new products, including the significantly redesigned RAV4 Toyota-branded compact sport-utility vehicle, helped recover much of the ground the company lost after a dispute over a group of islets in the East China Sea fanned anti-Japan sentiment in China. The automaker sold about 108,400 automobiles in China in December, up 19.4 percent from a year earlier. That follows a 40.7 percent yearon-year jump in November and a 80.6 percent rise in October, which were partly boosted by a low base from last year. Toyota operates joint ventures in China with FAW Group and Guangzhou Automobile Group.
“It will be a steady year for Hong Kong in 2014 because China’s talking about so many reforms being implemented over the next five years,” said Teresa Chow, a fund manager who helps oversee US$1.5 billion
at RBC Investment. “U.S. data is showing a positive trend and growth is on track, which is positive in general for Asian markets.” The Shanghai Composite Index of Chinese shares traded mainly by
Mainland wages seen jumping in 2014 As Beijing accelerates shift to a more services-driven economy
Toyota beats sales target in China
The Hang Seng Index climbed 15 pct from its 2013 low in June
hina’s wages are set to increase by 10 percent or more in 2014, driving more low-cost manufacturers out of the country and boosting consumption, according to analysts at firms including Bank of America Corp. Lu Ting, a Hong Kong-based economist for Bank of America, said in an e-mail that he sees wage growth of 11 percent this year after an estimated 10.7 percent gain in 2013. JPMorgan Chase & Co and Mizuho Securities Asia Ltd analysts said in interviews that they predict 10 percent to 15 percent increases. China’s ruling Communist Party is pushing for pay increases to retain public support and to accelerate the nation’s shift away from polluting and capital-intensive manufacturing to a more services-driven economy. In minimum-wage increases so far announced for 2014, workers in Shenzhen in Guangdong province get a 13 percent boost and the gain for those in Yangzhou, Jiangsu province, is 15.6 percent. “The trend of shifting low-end manufacturing bases to southeast Asian countries will only accelerate,” said Shen Jianguang, chief Asia economist at Mizuho in Hong Kong, who formerly worked at the European Central Bank and International Monetary Fund. Mr Shen sees a strengthening currency and tougher controls on pollution also contributing to factories
exiting for nations such as Bangladesh, Vietnam and Cambodia. Demographic shifts will limit the labour force in coming years as the population ages. The party in November pledged to loosen the one-child policy and also to ease the household registration, or hukou, system, which has served to constrain labour mobility.
Vietnam’s appeal Rising wages have pushed companies such as Nike Inc to seek lower labour costs in countries such as Vietnam. The risk for China and President Xi Jinping is a deeper economic slowdown, should the nation stumble during the transition to higher-value manufacturing. In Shenzhen, the 13 percent rise in the minimum wage to 1,808 yuan (US$298) a month as of February is almost double the pace of the previous increase. According to the central government’s five-year plan from 2011-2015, minimum wages should increase by 13 percent a year. Minimum wages should rise until they reach at least 40 percent of average urban salaries by 2015, according to a guideline in a 35-point income-distribution plan issued by the State Council in February 2013 to tackle the country’s widening wealth gap. As of May 1, 2013, the highest monthly minimum wage was in
KEY POINTS Pay to increase by at least 10 pct – analysts Factories may exit to southeast Asian countries Beijing risks a deeper economic slowdown
Shanghai, at 1,620 yuan, and the lowest was in Anhui province at 1,010 yuan, according to data from China Labour Bulletin, a Hong Kong-based worker-rights organization. More broadly, China’s wage gains have been slowing. Average urban salaries rose 11.9 percent to 46,769 yuan in 2012, down from a 14.4 percent pace in 2011, according to data from the National Bureau of Statistics. Salary figures from the first three quarters of 2013 show a gain of about 11 percent from the comparable period in 2012. The 2012 gains were, in nominal terms, the second-lowest in the past decade. The highest increase was 18.5 percent in 2007, when gross domestic product rose 14.2 percent in real terms, the most since 1992. Bloomberg News
January 2014 April 19,7,2013
Hang Seng Index fell 0.6 percent to 22,684.15. The benchmark gauge of Hong Kong equities sunk 8.2 percent in the first half of 2013 to trail 23 other developed markets tracked by Bloomberg, before rebounding 12 percent in the next six months.
Economy strengthens China’s economy emerged from a two-quarter slowdown in the three months through September, with factory output in August reaching the fastest pace in 17 months. The nation’s government said at last month’s annual Central Economic Work Conference it will seek “reasonable” growth. The nation will set a goal of 7.5 percent expansion for 2014, the same as last year, Caixin reported on its website on December 16. “China is going to concentrate on quality of growth rather than blindly follow GDP figures,” said
It will be a steady year for Hong Kong in 2014 because China’s talking about so many reforms being implemented over the next five years local investors will rise 22 percent this year, according to the median forecast of four securities firms that provided targets for the gauge. The measure slid 2.3 percent to 2,238.6 points yesterday, while the
Teresa Chow, RBC Investment
Francis Lun, chief executive officer of local brokerage GEO Securities Ltd. “There will be growth pains for the market.” Infrastructure and raw material stocks will suffer as local governments spend less on building, while Internet and phone companies will rally as users increase in China, he said. Official gauges of China’s manufacturing and services industries declined in December to four-month lows, data showed last week. Both measures remain above 50, indicating the industries are still expanding. Shares listed in Hong Kong will benefit from the recovery in the U.S. and Europe, according to Arthur Kwong, the head of AsiaPacific equities at BNP Paribas Investment Partners. China’s Communist Party leadership on November 15 detailed changes including easing the onechild policy and scrapping aspects of the household registration system, or hukou, that impeded migration between towns and small cities. Lawmakers are also ending a ban on mainland stock listings and seeking to curb pollution. While mainland Chinese firms traded in Hong Kong are likely to benefit from reform measures, the city’s companies face headwinds this year, according to Credit Suisse. A potential rise in interest rates remains a threat to local property prices, while gaming stocks that led gains last year on the Hang Seng Index are becoming expensive, the bank said in a research note dated December 6. Stocks fell in December, with the H-share index erasing almost all its gains since reform details were announced. Money-market rates surged to their highest since June, when funding costs climbed to a record.
“Moreover, the implementation of reforms such as lowering the entry barriers for private business in service sectors and expanded VAT reforms should help to revitalise service sectors in the year ahead,” Mr Qu said. Reuters
HSBC services PMI at lowest in over two years
after a protracted slowdown. While it was expected to lose steam as the government reins in rampant credit growth and demand for China’s exports remains subdued, activity has remained resilient into the December quarter. Beijing has said it will accept slower growth as it tries to reshape the economy towards more sustainable growth, based on consumer demand, after three decades of breakneck expansion led by exports and credit. China’s economic growth is likely to come in at 7.6 percent in 2013, the government has said, just above the official target of 7.5 percent and slightly below the 7.7 percent in 2012. Data for 2013 GDP is set to be released on January 20. “What has been the principal sort of driver of the market since the beginning of the new year has been a disappointment of the Chinese PMI data,” said Guy Stear, Asian credit and equity strategist at Societe Generale in Hong Kong, adding that growth in China is a “focal point” for markets. “We expect the steady expansion of manufacturing sectors to lend support to service sector growth,” said HSBC’s China chief economist, Qu Hongbin.
hina Mobile Communications Corp, the parent of the world’s largest phone company, is probing a decision by its Hong Kong unit to exit the territory’s television market at a loss one year after introducing service. China Mobile is investigating whether the transaction meets its internal guidelines as well as regulations of China’s State-owned Assets Supervision and Administration Commission, the company said in an e-mail yesterday. The sale involved a unit that owned spectrum to broadcast mobile television service in Hong Kong, the company said, without identifying the buyer. China Mobile beat two bidders in an auction for the spectrum in June 2010, paying HK$175 million (US$22.6 million) for rights to airwaves for mobile TV service. The service, a mix of free and paid programmes that required a plug-in adapter to receive broadcasts on a smartphone, was introduced in Hong Kong in December 2012. Hong Kong Television Network Ltd said last month it paid about HK$157.4 million for the China Mobile unit that owned the spectrum, including options. That amount is HK$17.6 million less than China Mobile paid for the spectrum and related licences. “The Hong Kong market is very competitive as there are many providers of video content,” Ricky Lai, a Hong Kong-based analyst at Guotai Junan International Holdings Ltd, said by phone. “The China Mobile service is quite inconvenient for users because they need an external adapter.” Hong Kong Television bought the unit after it failed to get its own free-toair licence in October. The Hong Kong government’s denial of the licence to Hong Kong Television triggered protests by tens of thousands of people. The demonstrations reflected concerns that Hong Kong’s policies favour big business, lack accountability and may undermine freedom of speech in the semi-autonomous Chinese city. Licences were given to PCCW Ltd and I-Cable Communications Ltd, both controlled by billionaires. Hong Kong Television Network’s founder and chairman Ricky Wong said the government’s denial of the licence was “unreasonable, unfair and lacks transparency”. In November, Hong Kong lawmakers voted down a motion to probe the decision.
Services industry growth confirms year-end cooldown rowth in China’s services industries slowed in December, a pair of surveys showed, mirroring a slowdown in manufacturing and confirming views that the world’s secondlargest economy lost steam at the end of last year. The HSBC Holdings Plc/Markit Economics services Purchasing Managers’ Index (PMI) dropped to 50.9 in December, its lowest since August 2011, from 52.5 in November, HSBC said yesterday. New business expansion was the slowest in six months. The PMI follows a similar survey by China’s National Bureau of Statistics on Friday, which showed a slowdown in servicesector growth to a four-month low of 54.6 from the previous month’s 56.0. Both surveys follow two other P MIs las t week th at sh owed China’s factory activity slowed in December, suggesting the moderation in the country’s growth in the final quarter of 2013 was broad-based. But all four measures remained above the 50 point level that separates expansion in activity from contraction. China’s economy has regained some momentum since mid-year
China Mobile probes exit from HK TV service
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January 7, 2014 April 19, 2013
Shadow banking risks exposed by debt audit Local governments seen incurring in more expensive borrowing costs
Shang Fulin says shadow banking sector needs more oversight and regulation
hina’s audit of local governments exposed an increased reliance on shadow banking, swelling the risk of default on 17.9 trillion yuan (US$3 trillion) of debt. Bank lending dropped to 57 percent of direct and contingent liabilities as of June 30 from 79 percent at the end of 2010, while bonds rose to 10 percent from 7 percent, National Audit Office data show. Trust financing surged to 8 percent from zero, while other channels that sidestep loan curbs accounted for the remaining 25 percent. The yield on five-year AA notes, the most common rating for local government financing vehicles, jumped by a record 158 basis points last year to 7.6 percent. That exceeds the 5 percent on emerging-market corporate notes, Bank of America Merrill Lynch indexes show. “As banks tightened their purse strings, local governments had no choice but to resort to shadow banking and incur more expensive borrowing costs,” said Tang Jianwei, a Shanghai-based economist at Bank of Communications Co, the nation’s fifth-largest lender. “That will further constrain their repayment ability and eventually overwhelm some lower-level entities which have borrowed way beyond their means. I won’t rule out some defaults in 2014.” Premier Li Keqiang is cracking down on less-regulated shadow banking activities, estimated by JPMorgan Chase & Co at US$6 trillion
KEY POINTS Local governments more reliant on shadow banking Shadow banking activities seen at US$6 trln – JPMorgan China’s local government debt at US$3 trln Analysts don’t rule out some defaults in 2014
in May last year, while the central bank engineered a cash crunch in June 2013 to push deleveraging in the world’s second-largest economy. China’s borrowing spree since 2008 has evoked comparisons to debt surges that tipped Asian nations into crisis in the late 1990s and preceded Japan’s lost decades.
Credit negative The increase in government debt as revealed in the audit is a creditnegative development, Moody’s Investors Service said in a report dated January 2. “This sizable accumulation in local government debt will be a burden on the carry risks to central government finances,” it said. Local government debt overdue at the end of June was 1.15 trillion yuan, or 10.56 percent of borrowings, the audit report showed. That compares with the 1.3 percent overdue ratio in the banking system, reflecting the practice of rolling over regional debt instead of classing it as delinquent, according to Barclays Plc. “Rapidly rising local-government debt poses the biggest medium-term fiscal risks,” Chang Jian, a Hong Kongbased economist at Barclays, wrote in a December 31 note. “Intertwined with the under-regulated and poorly managed shadow banking business, slowing economic growth and more liberalised markets, systemic financial risks are increasing.” The China Banking Regulatory Commission estimated in 2010 that about half of the bank loans to LGFVs were being serviced by secondary sources including guarantors because the ventures couldn’t generate sufficient revenue, according to a person with knowledge of data collected by the nation’s regulator. In 2012, the agency suggested banks cap loans to such vehicles to levels reached at the end of 2011. CBRC chairman Shang Fulin reiterated the limit last month. As a result, growth in bank loans to local governments slowed to 19 percent to 10.1 trillion yuan from the end of 2010 to June 30, 2013, compared with a 67 percent jump in total debt, audit data showed. Trust financing to LGFVs surged to 1.4 trillion yuan from zero and bond
As banks tightened their purse strings, local governments had no choice but to resort to shadow banking and incur more expensive borrowing costs Tang Jianwei, Bank of Communications
issuance more than doubled to 1.8 trillion yuan.
Asset quality As asset quality concerns on loans to LGFVs has been a major valuation overhang for Chinese banks, the outcome from the recent national audit on local government debt is positive for banks, Simon Ho and Paddy Ran, analysts at Citigroup Inc wrote in a report on January 3. China’s local governments are responsible for 80 percent of spending while getting about 40 percent of tax revenue, the legacy of a 1994 taxsharing system, according to the World Bank. Local governments have set up more than 10,000 financing vehicles to fund projects such as subways and airports because regulations limit their ability to borrow money directly. Deprived of relatively cheaper loans from banks, some LGFVs are paying more to borrow from trust companies. Local governments are normally charged more than 10 percent annually for funding from such sources, the official Xinhua news agency reported in November. That compares with the People’s Bank of China’s 6 percent benchmark oneyear lending rate. Shanghai Chengtou Corp. sold the first onshore dollar-denominated bond
by an LGFV, issuing US$200 million of AAA rated notes with a 3.3494 percent coupon on December 27, according to a statement on the website of the Shanghai Clearing House. Trusts typically get people to invest at least 1 million yuan in alternatives to bank accounts linked to the PBOC’s 3 percent benchmark deposit rate. They had 10.1 trillion yuan of assets under management as of September 30, an increase of 60 percent from a year earlier, according to the China Trustee Association. About 26 percent of their proceeds were invested in infrastructure projects. The National Development and Reform Commission will work to prevent default, fiscal and financial risks in LGFVs as 100 billion yuan of debt is estimated to come due this year, according to a statement posted on the agency’s website on December 31. The special vehicles will be allowed to sell bonds at lower costs to refinance higher-cost borrowings, and the NDRC can approve new debt to finish projects short of funding, according to the statement.
Default concern “The top leadership is aware of the problem, and has already started to take action,” said Wang Ming, marketing director at Shanghai Yaozhi Asset Management LLP, which oversees 2 billion yuan of fixed-income investments. “The NDRC statement is meant to address the default concern.” President Xi Jinping last year said the performance of regional officials will be measured by how effectively they control debt. There haven’t been any defaults in China’s publicly traded domestic bond market since the central bank started regulating it in 1997, according to Moody’s Investors Service. Borrowing costs are climbing as regulators are freeing up interest rates. The nation started the trading of negotiable certificate of deposits last month, a sign that regulators will accelerate the liberalising of rates, after the ruling party’s third plenary session in November decided to grant the market a “decisive” role in allocating resources. Bloomberg News
January 2014 April 19,7,2013
South Korea’s Park warns on yen Yen down over 30 percent versus won in past two years
outh Korean President Park Geun-hye said a weak yen puts a burden on the economy, highlighting the risk that the won’s rise to a more than five-year high against the Japanese currency poses to a rebound in growth. South Korean companies should respond to the yen’s slide by cutting costs and restructuring to boost competitiveness, Ms Park said at a New Year’s press briefing in Seoul yesterday. She also announced a threeyear economic plan to spur domestic demand, reorganise state-owned companies and facilitate new engines for growth. An appreciating won is contributing to tighter monetary conditions that could hurt a recovery in Asia’s fourth-biggest economy, possibly prompting the Bank of Korea to cut its policy rate at a meeting this week, Goldman Sachs said in an e-mailed note yesterday. Ms Park aims to sustain a rebound in growth that the finance ministry forecasts will rise to 3.9 percent this year from 2.8 percent in 2013. “Crisis can be turned into opportunity,” Ms Park said. “The weak yen is a burden for Korea, but South Korea is ahead of Japan in terms of free-trade agreements. Companies need to utilise these and improve export competitiveness.” All 13 economists
surveyed by Bloomberg News as of today expect the central bank to keep the benchmark interest rate at 2.5 percent on Thursday. South Korean authorities have from time to time been suspected of stepping into the market to smooth excessive volatility in the won. Finance Minister Hyun Oh-seok brushed aside worries over currency issues, saying last week the yen’s slide had been expected to some extent and was “inevitable” due to policy changes in Japan. The yen’s value against the won has fallen by more than 30 percent over the past two years to its weakest in more than five years last week.
Spurring demand The won traded at 10.187 against the yen yesterday afternoon in Seoul, having touched 9.958 on January 1. Ms Park said a fundamental solution would be to spur domestic demand and balance that with exports to strengthen the economy. “We should not allow external risks such as a weak yen to shake our economy,” Ms Park said. Ms Park’s promise to shift policy focus towards growing the service industries away from supporting large exporters has already boosted perception among traders and analysts that her
Yen fall a reminder of need to rebalance economy, says Park Geun-hye
We should not allow external risks such as a weak yen to shake our economy Park Geun-hye, South Korean President
government would be more tolerant of won appreciation. “It has become evident that exports of manufactured goods alone cannot create more jobs and boost domestic demand,” Ms Park said, reassuring that her government would put the focus on helping service industries and smaller companies. Central bank data released yesterday showed South Korea’s foreign exchange reserves rose 6 percent last year, a relatively small gain compared with the surge in the current account
surplus and the won’s sharp appreciation. Ms Park also commented on recent tensions with North Korea and said that the two countries should resume reunions of families separated by the Korean War as a starting point for improving relations. North Korea cancelled planned reunions last year just days before they were to be held. She reiterated that she would not rule out a summit with North Korean leader Kim Jong-un if the meeting could lead to concrete results. Reuters/Bloomberg News
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Bangladesh ruling party ‘wins poll’ Leader wins boycotted vote marred by deadly clashes
angladesh Prime Minister Sheikh Hasina Wajed won another five-year term in a boycotted election marred by violence that killed more than a dozen people, according to preliminary results. The opposition had boycotted the vote, and fewer than half the 300 parliamentary seats were contested. At least 18 people were killed during Sunday’s polling. Dozens have died in the run-up to the election. Voter turnout appears to have been particularly poor, with just over 20 percent reportedly taking part. More than 70 percent voted in the 2008 parliamentary elections, with officials saying the fear of violence and the boycott kept many away this time. Widespread violence erupted across the country on Sunday. Scores
of polling stations – many of them schools – were torched, and violent clashes broke out between opposition activists and police.
With results in from all but eight constituencies, the Awami League won 105 of the 147 contested seats, with allied parties or independent
candidates taking the remaining 34. The ruling party also held 127 seats that were unopposed. “The election has shown how polarized Bangladesh politics is, and that instability is set to continue,” S. Chandrasekharan, director of the South Asia Analysis Group, a research organisation based in New Delhi, said by phone. “There will be a threat to the economy, which has been doing well compared with India and other countries.” Ms Hasina faces the challenge of quelling the deadliest period of political unrest since the country’s founding in 1971 to avoid further disruptions in the world’s secondlargest garment exporter. Constant nationwide strikes by political opponents risk hurting an economy situated near India and China that is forecast to grow 7 percent in the next fiscal year. “Voter turnout was very low, which means people have shunned this farcical election,” Osman Farooq, a spokesman for the opposition Bangladesh National Party said. AFP
January 7, 2014 April 19, 2013
Japan’s stocks fall on profit taking Nikkei falls most in 10 weeks as trading resumes after break Adam Haigh and Toshiro Hasegawa
apanese stocks fell as trading resumed after the New Year break, with the Nikkei 225 Stock Average posting its biggest drop since October as a stronger yen weighed on the nation’s exporters. Toyota Motor Corp, the world’s largest carmaker, slipped 1.9 percent. SoftBank Corp sank 3.5 percent after the rating of Sprint Corp, which the mobile-phone operator acquired last year, was cut at Cowen and Company. Fast Retailing Co, the heaviestweighted stock on the Nikkei 225, slipped 5.8 percent. Inpex Corp declined 3.5 percent as energy explorers led losses among the 33 Topix index industry groups. The Nikkei 225 decreased 2.3 percent to 15,908.88 at the close of trading in Tokyo, its first decline in 10 sessions and its biggest drop since October 25. The Topix slid 0.8 percent to 1,292.15, with all but four of the gauge’s subsectors dropping. The yen strengthened 0.5 percent to 104.35 per dollar yesterday after closing on December 30 at 105.15. The JPX-Nikkei Index 400 lost 0.8 percent to 11,669.06 on its first trading day. “While Japan was on a break, shares in the U.S. and Germany fell noticeably,” said Hideyuki Ishiguro, senior strategist at Okasan Securities Co in Tokyo. “The yen is also going back higher,” weakening exporters’ profit outlook. The Standard & Poor’s 500 Index fell 0.9 percent on January 2, while the German DAX Index sank 1.6 percent. The Topix’s 51 percent advance in 2013 was its third-biggest on record, while the Nikkei 225’s yearly gain was the largest in four decades, as Prime Minister Shinzo Abe and Bank of Japan governor Haruhiko Kuroda took steps to end 15 years of deflation. Strategists surveyed by Bloomberg expect the Topix will climb about
KEY POINTS Main stock index fell as much as 2.6 pct JPX-Nikkei 400 fell on debut on Jan 6 Nikkei 225 index gained 5 pct in 2013 Japanese shares could rise further in 2014
Nikkei 225 – biggest drop since October 25
15 percent to 1,484.50 by the end of 2014, as the yen weakens amid prospects for further stimulus by the BOJ while the Federal Reserve cuts back.
BOJ stimulus Mr Kuroda said Japan’s central bank won’t necessarily end or scale back stimulus in two years and will continue it until inflation stabilises at 2 percent, according to a January 1 interview in the Yomiuri newspaper. In his New Year statement, Mr Abe said his program of reforms won’t be easy and the nation is only halfway toward ending deflation. The Nippon Individual Savings Account programme began yesterday, allowing people to buy 1 million yen (US$9,600) of risk assets exempt from capital gain taxes annually for five years. Twenty securities
China-South Korea reject Japan talks
hina and South Korea rejected talks with Japan as Prime Minister Shinzo Abe called for improved relations a week after his visit to a war shrine drew an angry response from both countries. Speaking at a New Year press conference in the southern prefecture of Mie, Mr Abe said his door remained open to talks and urged his counterparts to take a similar stance. Officials from China and
South Korea yesterday signalled that there was little chance of improved ties in the near future. “Holding talks with China and South Korea is extremely important for the peace and stability of the region. There is no prospect for summits at this point,” Mr Abe said. “When there is a difficult problem, it is all the more necessary for leaders to open up and talk without preconditions.”
companies and six banking groups submitted 3.97 million applications to tax offices, and they expect a further 250,000 soon, according to newspaper reports. The JPX-Nikkei 400, a stock measure created to boost investment in Japanese companies that provide higher returns on equity, fell on its debut yesterday. The index seeks to identify Japanese companies that use cash efficiently and have management that is focused on creating value for investors, Japan Exchange Group Inc and Nikkei Inc said in November. Japan’s Government Pension Investment Fund, the world’s biggest pool of retirement savings, is considering using the JPX-Nikkei 400 as a benchmark for domestic stock investments, president Takahiro Mitani said in a December 4 interview in Tokyo. The Nikkei Stock Average
Volatility Index, a gauge of options prices on the Nikkei 225, climbed 8 percent yesterday, the most since November. Exporters dropped. Toyota Motor lost 1.9 percent to 6,300 yen. Honda Motor Co declined 1.3 percent to 4,275 yen. Canon Inc, a camera maker that gets 80 percent of revenue outside Japan, fell 0.9 percent to 3,300 yen. Fast Retailing slumped 5.8 percent to 40,900 yen, the clothing retailer’s largest decline since August. Inpex retreated 3.5 percent to 1,301 yen. SoftBank slid 3.5 percent to 8,880 yen. Sprint Nextel was downgraded to market perform by Cowen analyst Colby Synesael, who cited valuation and said SoftBank was unlikely to buy the remaining 20 percent of Sprint.
Japan’s ties with China and South Korea have been chilled by two separate territorial disputes since before Mr Abe took office in December 2012. His December 26 visit to the Yasukuni Shrine that honours millions of war dead, including convicted war criminals, was described as “disappointing” by the U.S. and prompted outrage in China and South Korea. Mr Abe said he wanted to explain his reasons for visiting Yasukuni as well as his thinking on reinterpreting or revising the country’s pacifist constitution and plans for Japan to
take a more active security stance. “I feel sorry that the environment for cooperation repeatedly gets shattered at a time when the cooperation between the two countries should be expanding,” South Korean President Park Geunhye said at a press conference in Seoul yesterday. Mr Abe’s visit to Yasukuni had closed the door to dialog with China because he disregarded the opposition of the Chinese people, Foreign Ministry spokeswoman Hua Chunying said in Beijing yesterday.
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January 2014 April 19,7,2013
Asia Philippines unlikely to borrow offshore The Philippines is unlikely to sell sovereign debt overseas early this year, with the government opting to first observe how other sovereign issuers would fare given market volatility, its national treasurer said yesterday. “There is no urgency to immediately go out,” Rosalia de Leon told reporters after the Treasury’s monthly T-bill auction. “We are looking at the QE now, we have to watch markets more closely,” she said, referring to expectations the U.S. Federal Reserve will start tapering its massive stimulus early this year. She also said Manila wants to see the performance of other sovereign issuers such as Sri Lanka this year.
India’s Sensex drops to three-week low Indian stocks dropped for a fourth day, led by power companies and lenders, as the benchmark index fell to its lowest level in three weeks. The S&P BSE Sensex retreated 0.3 percent to 20,792.52, according to provisional closing prices in Mumbai, the lowest level since December 19. Indian manufacturing output dropped in December from the previous month, according to a survey last week, prompting concerns about the pace of growth in Asia’s third largest economy. The Sensex climbed 9 percent in 2013, capping the best annual gain among the four-largest emerging markets, and trades at 13.3 times projected 12-month earnings.
Indonesia 2013 growth seen at 5.7 pct: minister Slower growth may give central bank room to cut rates later
outheast Asia’s largest economy may have cooled to its weakest in four years as activity dropped sharply late in the year, suggesting that Bank Indonesia could loosen its tight monetary stance in the coming months. The economy is expected to have expanded 5.7 percent in 2013, bolstered by strong domestic consumption and government spending, Finance Minister Chatib Basri said yesterday. Gross domestic product grew 6.23 percent in 2012. On a quarterly basis, the economy contracted 1.4 percent to 2.0 percent in the fourth quarter from the third, he said. “Leading indicators in Q4 showed loan growth started slowing, a decline in cement sales, a slow down in imports of capital goods and a decrease in oil lifting,” Mr Basri said. He also said the current-account deficit, which has been a major worry for investors, would be 3.5-3.7 percent of GDP in 2013 and decline to 2.7-3.2 percent in 2014. “The policy taken by the government since August to ease the current-account deficit has shown results,” Mr Basri said. The moderation in economic growth was seen in line with the government’s and Bank Indonesia’s efforts to rein in domestic consumption and imports. “We concur with the government’s expectation because external trade conditions have not improved due to exports which are still weak, and imports on the other hand, have not decreased
Chatib Basri sees current-account deficit at no more than 3.7 pct of GDP
despite the rupiah’s depreciation,” said Arga Samudro, economist at Bahana Securities in Jakarta.
Monetary policy Since June, the central bank has lifted its key reference rate by a total of 175 basis points to 7.50 percent, in a bid to shield the G20 economy from overheating amid concerns over a ballooning current-account deficit. Analysts said the improved data gives Bank Indonesia some leeway to ease monetary policy in the second half of the year. Markets may also take comfort when a new administration is in place after presidential elections in July. “With inflation at 5-6 percent, BI has sufficient room to cut rates if the rupiah strengthens on capital
inflows after election results. BI could cut its rates without sacrificing the rupiah or the current account,” said Jakarta-based economist for BII, Mr Juniman. He added the central bank could raise its reference rate by 50 basis points in the first half and cut the rate by the same amount in the second half. The rupiah was Asia’s worstperforming currency last year, losing more than 20 percent to the dollar on worries over Indonesia’s vulnerability to capital outflows when the U.S. Federal Reserve scales back its stimulus. For the July-September quarter, the country posted a current account deficit of 3.8 percent of GDP, easing from a record-wide gap of 4.4 percent the previous quarter. Reuters
Thai state bank seeks funds for rice scheme Australia shares post big drop Australian shares fell 0.5 percent yesterday as a dip in commodity prices dragged on resource stocks and as growth in China’s services sector slowed sharply, raising concerns about the pace of recovery in Australia’s largest export market. The S&P/ASX 200 index fell 25.2 points, its biggest one day drop in three weeks, to 5,324.9. The benchmark added 0.5 percent last week for its third week of gains. New Zealand’s benchmark NZX 50 index slipped 0.1 percent to 4,765.3.
Singapore A380 in emergency landing Singapore Airlines Ltd diverted an Airbus SAS A380 superjumbo carrying 467 passengers to an airport in Azerbaijan after the aircraft, headed to Singapore from London, lost cabin pressure. Singapore Air Flight 317 landed at Baku airport, the carrier said in an e-mailed statement. Airbus, based in Toulouse, France, is following up on the issue and providing technical assistance to the airline, said Sean Lee, a spokesman at the planemaker. Singapore Air was the world’s first carrier to operate the A380 and had 19 in its fleet as of December 1. It has five more on order.
Government still struggling to sell huge stockpiles of rice
Thai state-backed farm bank will issue a 20 billion baht (US$606 million) bond next week in another attempt to raise funds for the government’s ricebuying scheme, which has run out of money because of a failure to find buyers for the grain. The generous intervention scheme helped Prime Minister Yingluck Shinawatra win power in a 2011 election but hundreds of farmers, some unpaid since October, have joined demonstrations which began in November. More are considering joining protests next week aimed at ousting her. “The 20 billion baht is not enough to pay the thousands of farmers who are still waiting for their money and they are getting angry and thinking about protesting,” said Prasit Boonchoey, head of the Thai Farmers Association. He told Reuters he attended anti-government rallies in November. The bond issue could face a tough reception next week given the political uncertainty, with protesters planning to shut down Bangkok to sabotage the upcoming election. The Bank of Agriculture and Agricultural Cooperatives (BAAC) only managed to raise 37 billion baht
when it auctioned an initial 75 billion baht bond in November. Churarat Sutheethorn, head of the Public Debt Management Office (PDMO), told Reuters a new threeyear bond would be auctioned on January 16.
The 20 billion baht is not enough to pay the thousands of farmers who are still waiting for their money and they are getting angry and thinking about protesting Prasit Boonchoey, head of the Thai Farmers Association
“It is part of the total 75 billion baht in bonds we aimed to issue to fund the 2013/14 rice scheme,” she said, adding the bank could return to the debt market again in March to try to raise the remaining 18 billion baht. The Yingluck government won a landslide election in July 2011 helped by its promise to pay farmers 15,000 baht per tonne of paddy, way above the market price. The scheme made Thai rice uncompetitive in the export market and in 2012 Thailand lost its crown as the world’s top exporter to India. The state amassed huge stockpiles which it is still struggling to sell. Protesters say the scheme is corrupt and has helped wealthy farmers and regional politicians more than the poor. It helped fuel opposition to Ms Yingluck before the outbreak of street protests in November. The BAAC, acting for the state, has spent up to 680 billion baht buying rice and the scheme is expected to run up huge losses if grain is eventually offloaded at market prices. The government has not put an official estimate on the losses but industry insiders and some academics say they could be as high as 425 billion baht. Reuters
January 7, 2014 April 19, 2013
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January 2014 April 19,7,2013
Free trade forever
Leading reports from Asia’s best business newspapers
Richard S. Grossman
Professor of economics at Wesleyan University and a visiting scholar at Harvard University’s Institute for Quantitative Social Science
The Johor state government in Malaysia has not received any application or proposal to open a casino in the state, said government head Mohamed Khaled Nordin. He dismissed allegations that a casino would be opened at a hotel. “We did not receive any application, proposal or plans on the [casino] project,” he said. “I do not know where the news came from, it suddenly emerged but as far as I know, all casino licences are controlled by the federal government and not by the state,” Mr Khaled added.
Myanmar Times Myanmar has only managed to meet 63 percent of its annual bilateral trade target of US$25 billion through the first months of the 2013-14 fiscal year, drawing doubts for the first time whether the figure can be met, officials said. Total trade between April and December reached US$15.8 billion, a marked improvement of 24.4 percent from the same period last year, according to data released by the Ministry of Commerce. “It’s not certain that we will hit the target,” U Soe Win, deputy director general of the department of commerce and consumer affairs, said.
Inquirer Business Cebu Air Inc, the Philippines largest budget airline, is seeking to acquire the Philippine unit of Singaporean low-cost airline Tiger Airways Holdings Ltd in a move to widen market share as competition also prompts its rivals to consolidate. Should the deal be approved, Cebu Air could end up owning 100 percent of Tigerair Philippines, Civil Aeronautics Board executive director Carmelo Arcilla said. The proposed a c q u i s i t i o n w o u ld need to pass several regulatory hurdles, including approval by the Securities and Exchange Commission and the CAB, which is looking into the deal’s competitive and legal implications, Mr Arcilla said.
Economic Times U.K.-based pharmaceuticals major GlaxoSmithKline Plc has approached regulators in India to hike stake in its domestic arm by buying a 24.33 percent stake in the company. The proposal will come up before the meeting of the Foreign Investment Promotion Board (FIPB), headed by Economic Affairs Secretary Arvind Mayaram, on January 10. After purchase, the pharmaceuticals giant hold in the Indian subsidiary will go up to 75 percent. The proposed transaction will not result in any change in control of the Indian company as GSK is already the majority shareholder.
n December 7, representatives from the World Trade Organisation’s 159 member countries reached agreement on the first multilateral trade deal in the WTO’s 19year history. Although the Trade Facilitation Agreement – dubbed the “Bali package,” after the Indonesian island where the meeting took place – did not address the most pressing North-South trade issues, it remains an important economic and political milestone. The Bali package commits WTO members to moving toward lowering nontariff trade barriers – for example, by establishing more transparent customs regulations and reducing traderelated paperwork. These changes might seem like bureaucratic minutiae, but the agreement’s impact – adding US$1 trillion to global output and creating 21 million jobs worldwide – will be substantial. The agreement has been criticised for failing to meet the goals set out in the WTO’s 2001 Doha Development Agenda. But these objectives – including improvement of market access in agriculture, manufacturing, and services; clarification of international trade rules; and progress on addressing relevant environmental issues – were overly ambitious. Even the modest Bali package was touch and go, requiring an extra day of negotiations to reach agreement on contentious issues like Indian farm subsidies and the U.S. embargo of Cuba. Nonetheless, it is clear that trade liberalisation is gaining momentum. Consider the impressive scale and scope of other multilateral trade agreements – such as the
Trans-Pacific Partnership, the Transatlantic Trade and Investment Partnership, and the Trade-in-Services Agreement – that are currently being negotiated.
Trade policy Current progress toward trade liberalisation underscores how trade policy – especially that of the United States – has improved over the last hundred years. The early nineteenth century was characterised by high tariff rates in both the U.S. and Europe. But, during the last few decades of the century, European tariff rates fell substantially, largely in response to the United Kingdom’s unilateral repeal of the Corn Laws, which had imposed substantial tariffs on imported grain. The U.S., however, continued to charge much higher tariffs. Unlike in Europe, partisan politics shaped U.S. trade policy before World War II, with the Republicans raising tariffs and the Democrats reducing them. One of the most notable hikes occurred in 1922, when the Republicancontrolled government passed the Fordney-McCumber Tariff, which raised the average import tariff rate by 64 percent. This triggered vehement protests – and strong retaliation – from America’s trading partners. From 1925 to 1929, 33 tariff revisions were made in 26 European countries, and 17 were made in Latin America. International conferences in Brussels in 1920, Portorose in 1921, and Genoa in 1922 – as well as the League of Nations’ World Economic Conference in Geneva in 1927 – endorsed a tariff truce, but to no avail. In 1930, U.S. President
Herbert Hoover and a Republican Congress, enacted the Smoot-Hawley Tariff Act, sending the tariff war into high gear. Though the SmootHawley tariff increases were modest compared to those under Fordney-McCumber, their timing turned the act into a virtual synonym for bad trade policy. According to the League of Nations, Smoot-Hawley triggered “an outburst of tariff-making activities in other countries, at least partly by way of reprisals,” with substantial duty hikes made almost immediately by Canada, Cuba, France, Italy, Mexico, and Spain. Thus, though Smoot-Hawley was not a direct cause of the Great Depression, as many have claimed, it did contribute to a breakdown of international trade precisely when the world could least afford it. The two-thirds decline in aggregate imports from 1929 to 1933 was only partly a result of falling incomes, and hence import demand; retaliatory trade and exchangerate policies also played a major role in bringing about the global trade collapse.
Increased openness Even when world trade finally began to revive after the depression ended, it remained fragmented, developing primarily within trading blocs and regions. It was only after World War II – when the General Agreement on Tariffs and Trade (succeeded in 1995 by the WTO) began the process of multilateral trade liberalisation – that SmootHawley’s destructive legacy was finally overcome. Of course, protectionist pressures have occasionally arisen since then. For
Policymakers nowadays seem genuinely disinclined to resort to tariff increases
example, during the 1992 U.S. presidential campaign, Ross Perot argued that ratifying the North American Free Trade Agreement would lead to a “giant sucking sound,” as U.S. jobs migrated to Mexico and American workers’ wages fell. And many countries have introduced minor – and not so minor – impediments to trade since WWII. Nonetheless, the overall trend has been toward increased openness. In fact, the postwar era has been the longest sustained period of trade liberalisation in history – a particularly impressive feat, given that the world has just suffered the worst economic downturn since the Great Depression. Indeed, policymakers nowadays seem genuinely disinclined to resort to tariff increases. There is no denying that Bali was not a complete success, and much of the WTO’s Doha agenda remains unfulfilled. But the fact that countries have continued to pursue trade liberalisation, however gradually, at a time of weak economic growth, suggests that free trade is here to stay. © Project Syndicate
January 7, 2014 April 19, 2013
Closing Macau applies for QFII to boost fiscal reserve Govt tightens grip over employment agencies The Macau government wants to invest in exchange-traded securities on the mainland to boost the return of its fiscal reserve. Secretary for Economy and Finance Francis Tam Pak Yuen told the Legislative Assembly yesterday they “have already launched the application procedure for QFII” in order to do so. The Qualified Foreign Institutional Investor is a scheme that allows licensed foreign investors to trade in Shanghai and Shenzhen. Mr Tam also said the annual investment return of the fiscal reserve was 2.9 percent last year. The reserve was worth 168.2 billion patacas (US$21 billion) as of December 30.
The government will soon finish drafting a law regulating employment agencies, Secretary for Economy and Finance Francis Tam Pak Yuen said in a Legislative Assembly session yesterday. The bill will create a license system for these firms and include “heavier penalties” in case of breaches to the law, Mr Tam said. The bill will also introduce a licensing mechanism for employees in those firms. Mr Tam yesterday also said the government will seek a “legal solution” to “plug the loophole” in current laws which allow non-residents to look for jobs here while holding a tourist visa.
Third party interested in taking over Reolian Government has until March to find solution for bankrupted bus operator Tony Lai
t least one party is interested in taking over the public bus service of bankrupted Reolian Public Transport Co Ltd, Secretary for Transport and Public Works Lau Si Io said yesterday. “A third party has contacted the government expressing interest [in the service],” Mr Lau told members of the Legislative Assembly. “But I cannot answer further at this moment,” he said. “The timing is not right as it involves some commercial decisions.” Mr Lau only stressed they are “optimistic” in finding a new operator before the March deadline. The government has taken over Reolian’s service for six months starting in October. The government has now three months to find a solution for Reolian before its assets are seized by creditors and it services wrapped up. The court last month approved the government’s application to delay a premature end for Reolian, and will allow it to continue using the bus company’s
assets until the end of March. Transport Bureau director Wong Wan said any new operator would have to maintain the salary level and benefits that Reolian employees enjoy currently. The administration has also launched a liability claim procedure to get back the expenses incurred during the takeover from bankrupted Reolian, added Mr Lau. The secretary also hinted that the bus contracts with the other two bus operators would not be scrapped despite a hard-hitting report by the Commission Against Corruption. In November the watchdog said the bus system was “illegal” as the government signed service provider contracts instead of public service concessions. Mr Lau added however that the government was likely to “amend the existing two bus contracts” but did not go into details. Mr Lau also spoke about the city’s television market. He said a “nonprofit institute” would replace Macau
Cable TV Co Ltd in relaying the “free-to-air television signals”. Cable TV’s exclusive concession contract expires in April. But the official did not say if the government would set up a new entity or if a third party would be in charge of the service. Currently most households
receive free-to-air television signals relayed by Cable TV to 14 antenna companies based on an agreement signed in August. An interim study report by the University of Macau due to be released “by mid-month” would help define the future of the pay television service here, added Mr Lau.
SMEs get priority for Hengqin investment: Tam Ideas include ‘food plaza’ and TV production facility media told yesterday Stephanie Lai
ross-border business proposals for neighbouring Hengqin Island’s special economic zone – ones that favour Macau’s small- and medium-sized enterprises – will get priority said Secretary for Economy and Finance Francis Tam Pak Yuen yesterday. Places are already at least four times oversubscribed. Only 10 to 20 of the 89 proposals made so far are likely to get approval, added Mr Tam. From August to October 31 last year, Macau Trade and Investment Promotion Institute received 89 investment proposals from local companies or individuals that want to establish business in “Guangdong-
Macao Cooperation Industrial Park” – a term that the Hengqin authorities use to refer to five square kilometres (1.9 sq miles) of land set aside for sectors covering tourism and leisure, culture and creativity industry, information technology, research on traditional Chinese medicine and financial services. Macau’s review of the investment projects would be completed this month and forwarded to the Hengqin authority for a decision, Mr Tam stated yesterday. The secretary spoke after attending a meeting between investors and the project evaluation committee on this side of the border. Its members are
local officials and leaders of trade associations. “The land [on Hengqin] is really limited and for all of the 89 investment projects to settle there is not practical,” said Mr Tam. “I’d estimate that about 10 to 20 of these investment projects can be realised in Hengqin eventually.” “The investment scale alone does not decide whether the project can be accepted...” Mr Tam added. “The projects that are able to bring in more participation of the [local] small and medium businesses can get higher positions in the evaluators’ list,” he explained. Chan Chak Mo, managing director
of one would-be investor – restaurant operator Future Bright Holdings Ltd – told media yesterday that his group would like to establish a ‘food plaza’ on the island, which would compose of 100 restaurants and souvenir shops. But Mr Chan declined to reveal the investment amount for the project. Local businessman Lam Ion Fun has applied to build a facility for television productions and music recording with an “initial investment” of 1.5 billion yuan (1.96 billion patacas). Mr Lam, chairman of Macau Cable TV Ltd, said he is applying under his own name rather than that of his TV company.