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Year II

Number 495 Thursday March 13 2014

Publisher: Paulo A. Azevedo

MOP 6.00

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Illegal transactions flood city M

acau’s most open secret – the laundering of money via a warren of retail stores - has been publicly exposed by a special Reuter’s report. The findings zero in on the use of UnionPay transaction payments to wash what one expert estimates to be billions of US dollars. The Shanghai-based credit card company, which now posts global transactions second only to Visa, claims

that the illicit transfers are hampered by jurisdiction considerations. The Macau Monetary Authority responded that the bank card-related business is subject to stringent supervision. Pages 8 & 9

Fund seeks compensation

Land deal raises questions

Private equity fund MKW Capital Management LP is seeking US$200 million from the Macau Government in a claim it says will wipe the slate clean on the closure of Viva Macau in 2010.


he government’s announcement that it may buy or rent mainland territory, on Macau’s doorstep, to facilitate the diversification of its industries has generally been met with enthusiasm by prominent businessmen and entrepreneurs in the territory. A high ranking mainland official says it is vital for the long-term prosperity of the SAR. While feedback has been positive, interested parties indicate that the devil is in the detail and that the government must spell out what is on offer and on what terms. Page


Who wants to be a millionaire?

Expats drive luxury rentals

The results of a survey commissioned by a local bank finds that one in ten Macau residents is a paper millionaire and that this wealth is not only liquid but has largely been accumulated by saving rather than investment. Researchers point to a conservative streak in the population. The gaming and tourism industries boast a quarter of these millionaires.

Human resource management consulting firm ECA International’s Accommodation Survey 2013/14 has lifted the lid on expat rental trends across 21 major cities in Asia. Although Macau was not included collected price data indicates that the city’s high end rentals would put it in 7th position in the property stakes.



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HSI - Movers March 12



Want Want China H


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MTR Corp Ltd


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China Shenhua En


Source: Bloomberg

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Macau Monetary Authority uncertain about establishing sovereign wealth fund While pledging that the Monetary Authority would introduce a more diversified asset portfolio for the city’s investment of the fiscal reserve, the president of the Authority, Anselmo Teng Lin Seng, noted in a reply to legislator Si Ka Lon’s enquiry that the decision to establish a sovereign wealth fund would need a wider social consensus and requires the city’s public finances to withstand higher volatility in the short-term rate of return. The Monetary Authority is still awaiting a reply from the State Administration of Foreign Exchange on the quota that Macau would get for investing in mainland domestic capital markets via the Qualified Foreign Institutional Investor (QFII) scheme, Mr Teng added.

High-end rentals 7th most expensive in Asia Costs for the sort of 3-bed units favoured by expats are higher than Mumbai suggests survey Stephanie Lai

LRT project racks up MOP8.4b to date The Light Rapid Transit railway project has so far cost the government 8.4 billion patacas (US$1.05 billion) while there are still no signs of construction on the Macau Peninsular. Andrew Ritchie, deputy director of the Transportation Infrastructure Office, told reporters on March 12 that the amount was calculated based on all the contracts granted. But he did not directly comment on whether the overall project cost will further balloon from the 11-billion patacas figure mentioned in 2011, as the Macau section is still on hold. Lei Chan Tong, the Office’s director, said they are still waiting for a consultant firm to mull different possible routes for the Macau section. The government is due to meet with the Legislative Assembly on Friday to discuss more details on the project, which has already suffered significant delays.

New Taiwan immigration rules facilitate better exchange The Taiwan government plan to raise the threshold in its investment residency scheme for Macau residents has had no negative effect on bilateral exchanges, said the Taipei Economic and Cultural Office in Macau. Lu Chang Shui, director-general of the office, said on March 12 that the change could even “bring more convenience for the exchanges between Macau and Taiwan” as the amendments “match” the rapid growth of Macau’s economy. Taiwan said in January that Macau people will need at least NT$10 million (2.64 million patacas) in the future versus NT$5 million now in order to acquire Taiwan residency.

Green shoots taking root The 2014 Macao International Environmental Protection Forum and Exhibition (2014MIECF) - hosted by the Macau Government - will be held from 27 to 29 March in the Convention and Exhibition Centre of The Venetian. Macao Trade and Investment Promotion Institute (IPIM) and the Macao Environmental Protection Bureau (DSPA) are the host co-ordinators for the event. Themed ‘Energising Green Business Growth’, it will address energy efficiency, renewable energy, green building, green transportation, waste and water management solutions and environmental services.


acau’s average rent for a threebedroom, high-end property – the sort most commonly sought by expatriate professionals – has reached 35,356 patacas (US$4,426) per month. That makes the city’s rental prices the seventh most expensive in Asia, human resource management consulting firm ECA International told Business Daily. Macau wasn’t in the formal survey that’s just been published, because the data sample size available wasn’t big enough. ECA International’s Accommodation Survey 2013/14 shows that neighbouring Hong Kong, still remains the most expensive place in the world to rent a high-end three bedroom flat. The average cost there of an unfurnished three-bedroom flat in a “sought-after area” is US$11,444 a month. ECA International told Business Daily that while Macau wasn’t officially recorded in the survey, price data available indicate the city is more expensive than Mumbai, India, where an upmarket three-bed unit can cost US$3,760 per month. According to the survey, Hong Kong leads the Asia markets at US$11,444 a month, followed by Tokyo (US$7,398), Singapore (US$5,630), Shanghai (US$5,124), Seoul (US$4,889), Beijing (US$4,500) and Mumbai. Across 21 major cities in Asia, the rental price for a high-end threebedroom property averages US$3,600, which is higher than the global average at US$3,000, the Accommodation

Comfort costs – upmarket living here has become more expensive

Survey 2013/14 stated. The data of rental prices were collected in September last year. Collection focused on neighbourhoods usually favoured by expatriates of all occupation types, ECA International noted. The rental cost was converted into US dollars using the exchange rate at the time of the data collection. “Actually from the first half of last year, we’ve already noticed that the average monthly rental cost for the high-end flats has climbed to 20,000 to 30,000 patacas,” said Alvin Mak, senior manager at investment department of Jones Lang LaSalle (Macau) Ltd. The property agency’s property review for Macau 2013 has noted that the average rental cost for the city’s high-end flats has climbed year-onyear by 17.7 percent. That’s actually

a slowing from the 24.2 percent rental surge seen in 2012. Jones Lang LaSalle (Macau) Ltd has measured the annual rental cost variation with data collected from more than 20 high-end residential buildings across the city, Mr Mak said. “We expect that the rise for rental cost this year for high-end flats will be around 15 percent,” Mr Mak told Business Daily. “Even before the completion of the Cotai casino-resort projects by 2015 or 2016, these companies are already having people come over to see to the operation or train staff here,” Mr Mak explained. “So with that the rental demand will still be strong, which will continue to stimulate the accommodation cost across the city,” he added. With Pierre-François Métayer

St Joseph University goes high-end Programme targets local senior managers Pierre-François Métayer


he St Joseph University of Macau proposes to run an advanced programme of ‘Casino and Hospitality management’ in partnership with Católica Lisbon School of Business & Economics and Kellogg School of Management (rated number one for executive MBA’s for three years by the Financial Times) from May to July 2014. The two months intensive programme is divided into four stages and will be conducted in Lisbon,

Chicago and Macau. “It is the first high-end advanced programme ever proposed in Macau but is one of many”, says Cherry Choeng, public relations officer at USJ. Concerning current level and service standards in Macau, Ms Cheong concedes that this course intends to raise the standards of local senior managers: in other words, to reinforce the main objective of building a high-end tourist

destination in the territory. There is no formal education requirement for this programme but admission is very selective and applicants are expected to have relevant working experience and hold a senior executive position. The programme – the fee for which is US$35,000 (280,000 patacas) - will primarily focus on hotel financial and marketing strategies, casino management, cultural and security issues.

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Macau Governments work to swat fruit fly An insect pest detected on fruit imported locally has been targeted for extermination via cooperation between the Macau and Zhuhai governments. The Civic and Municipal Affairs Bureau – Macau’s quarantine authority – has signed a three-year agreement with Zhuhai Entry-Exit Inspection and Quarantine Bureau to do research on the problem. It’s part of the Guangdong-Macau Cooperation Framework Agreement, under which the two jurisdictions liaise on food safety research on imported vegetables and seafood.

One in 10 has made their million Survey finds big savers hold the most money, but hold significant share and property portfolios Tony Lai


lmost one Macau resident in 10 is a millionaire – at least on paper and in patacas – a new study has found. The study, commissioned by Banco Weng Hang SA, a unit of Hong Kong’s Wing Hang Bank Ltd, says most pataca millionaires accumulated their wealth by saving, rather than investing. About 15.7 percent of 700 survey respondents held liquid assets, excluding property, of at least 1 million patacas (US$125,000), the study says. The research was carried out by the University of Macau, who surveyed the 700 Macau residents aged 30 or older between November and January this year. Based on the city’s population of 598,200 people at the end of the third quarter, the university says about 58,000 people – about 9.5 percent of the population – are millionaires, said Clement Chow Siu Fung, an associate professor of business management. The estimate represents 21.4 percent of the employed population. “This result is not surprising,” said Mr Chow. “If this [survey] had been done 20 years ago, I would have been very surprised.” “The result is quite similar to Hong Kong’s. Today people can accumulate their wealth through the growing Macau economy and money they earn from their properties… as well as higher salaries,” he said. A similar survey carried out last year by Citibank Hong Kong concluded that about one in 9 Hong Kongers held HK$1 million or more in liquid assets. The head of Banco Weng Hang’s wealth management

About 58,000 residents saved more than a million patacas

department, Kenneth Kuok, said the number of pataca millionaires could be higher because survey respondents tended to understate their wealth. Official data show the average home price climbed to 81,811 patacas a square metre last year – a tenfold increase over 2004’s 8,259 patacas a square metre. The median monthly salary has more than doubled to 15,000 patacas in the same period.

The typical survey respondent had 53 percent of their assets held in savings, and about 21 percent as stock market investments. “Most of our clients know the savings in bank will depreciate against inflation as the interest rate is so low now,” Mr Kuok said. But the bank’s customers tended to hesitate before investing in anything but savings, showing a conservative streak. Mr Chow said it was

likely that people were just easily satisfied with their risk and returns. “The government is also taking good care of the Macau people that they have higher sense of security and feel no urge to make bold investments,” Mr Chow said. Yesterday’s survey said 72 percent of respondents with more than 1 million patacas had accumulated their wealth by saving, 47 percent said they held property, and 48 percent invested in stocks.

For those yet to make 1 million patacas, 93 percent said they accumulated wealth by saving, but the proportion that invested in real estate and the stock market were lower than for paper millionaires, at 23 percent and 30 percent. The survey also said the gaming and tourism industries had the most millionaires, accounting for 25 percent. About 20 percent were employed in banking and 11 percent said they were public servants.

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Macau Brands


Fund wants US$200 mln to settle Viva Macau claim Political pressure will force Fernando Chui into paying, equity flion: reportFund tells groundedHong Kong newspaper Tony Lai

Business travel the French way Raquel Dias


iving in Asia can mean long haul flights several times a year. As first class grows increasingly expensive, companies and businessmen are opting for traditional Business Class. Most airlines, however, have started to introduce in-between cabins such as ‘premium economy’. Adding prestige to their Business cabins has been a trend for quite some time now. A decade ago, British Airways, the UK’s flag carrier, first introduced flat beds. The trend caught on and in later years many carriers followed suit. Just last month, French flag carrier Air France made news in the travel world by installing arguably the best Business Class flat beds in the industry. Air France wowed travellers and journalists alike with the introduction of what the company calls a ‘cocoon in the sky’. Although some might say there are striking similarities between the French carrier beds and those of Singapore Airlines, differences do exist. The company has installed a 16-inch touch-screen monitor for every seat as well as allowing each passenger a small private compartment for their in-flight gadgets. Technology is a big part of the new design: a wide high definition touch-screen, a touch-screen handset, electrical outlet, USB port and new noise-reduction headphones are all included. The cocoon itself features ‘leather upholstery with topstitching and provides an ideal level of comfort’. All this for €55,000 (around 65,500 patacas) - the price of each seat. In total, 2,102 seats will be installed between June 2014 and the summer of 2016 on 44 Boeing 777s. According to some sources, we should expect the renovated planes to fly to Hong Kong in late summer.


he private equity fund controlling what remains of the airline Viva Macau wants US$200 million (1.6 billion patacas) from the Macau government. MKW Capital Management LP says the amount will settle all claims against the government for its official decision to ground the low-cost carrier in 2010. A government spokesperson said yesterday the grounding decision was “lawful” but would not comment further yesterday. The Hong Kong Economic Journal reported yesterday that MKW Capital would pile political pressure on Chief Executive Fernando Chui Sai On. The newspaper’s report quoted an unnamed source close to the international private-equity fund. The claim by MKW Capital is equivalent to the US$200-million loss in the airline’s valuation after the subconcession agreement was cancelled in 2010, the newspaper said. Viva Macau’s contract to fly

was scrapped in March of that year 2010 after the repeated cancellations of its flights left thousands of passengers stranded. The airline was said to be unable to settle its jet fuel bills. In July, the Court of Final Appeal upheld the government’s right to issue an administrative act ordering the airline’s grounding. Viva Macau had claimed the government had issued an “illegal administrative act” ordering Air Macau Co Ltd to revoke Viva Macau’s contract. Air Macau gave the sub-concession licence to Viva Macau in 2005. The Hong Kong Economic Journal said the private equity fund hoped to pursue the claim via “a diplomatic campaign” to pressure Mr Chui after he announced earlier this month he was interested in running for the city’s top job when his current once five-year tenure ends on December 19. Business Daily unsuccessfully

attempted to contact MKW Capital yesterday. Research published last year by the Harvard Business School concluded there was no other option but to close Viva Macau. December’s paper by Harvard’s management professor Dante Roscini and Asia-Pacific Research Centre assistant director G.A. Donovan concluded there were few options remaining after last year’s court case. One final hope might be a diplomatic intervention by the United States government. Yesterday’s newspaper report said US officials were following the case. It quoted Scott Robinson, a spokesman for the US Consulate General for Hong Kong and Macau. “Our representatives have observed past proceedings in this case, and we have raised the matter at senior levels of the Macau government,” he was reported as saying.

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Macau MGTO supports travel association award The Macau Government Tourist Office is sponsoring a regional tourism award - the Pacific Asia Travel Association Gold Awards - for the 19th consecutive year, according to a statement released by the Association. The award will feature seven categories this year including the newly introduced corporate social responsibility award recognising individuals and organisations promoting the travel industry in the Asia Pacific region. MGTO Director Maria Helena de Senna Fernandes said the award is a “meaningful” platform for tourism professionals wishing to share their experiences.

Sourcing land to help diversify economy Macau businesses want to see small print in deal to obtain land in Hengqin, Nansha, Zhongshan Stephanie Lai


usiness leaders have welcomed a government proposal to buy or rent land on Nansha or Cuiheng in Zhongshan for the city’s expansion. They say the government’s move to diversify the economy is the right direction to pursue, but they want to see details of the policy. The director of the Central People’s Government Liaison Office in Macau, Li Gang, said officials from Macau, Nansha in Guangzhou, and Cuiheng in Zhongshan were discussing land deals. “Macau lacks land and talents the most, and once these two problems are solved, the city can enjoy

long-term prosperity,” Mr Li said on Tuesday. Representatives from Macau Chamber of Commerce and International Logistics and Forwarding Association of Macau agree that the decision to seek more land was the right path. “For Macau’s service sector, in particular the logistics industry and the convention and exhibition businesses, having more land there is definitely beneficial for the companies as they can have more space to support warehousing and product distribution,” said Mr Vong Kok Seng, vice-president of the Macau Chamber of Commerce.

“And Cuiheng is only onehour away from us, which is not far off. “But we need more details such as the land cost differences between Hengqin and Cuiheng, and what are the target sectors that the latter would like to develop.” The director of the International Logistics and Forwarding Association of Macau, Victor Lei, said he hoped more land would be available for manufacturing and logistics. “But we definitely don’t want to see the mistakes made by Macau and mainland government in the CrossBorder Industrial Zone before to be committed once again,”

Mr Lei said. A complicated mainland declarations process had added to the challenge of operating within the zone, he said.

Maritime pursuits Business Daily approached the Secretary for Economy and Finance but had not received a reply before going to press last night. A spokesman for the Chief Executive said they could not comment. Last June, Guangdong governor Zhu Xiaodan said the Cuiheng district in Zhongshan would become another prime area for a

free-trade initiative including Guangdong and Macau, after Hengqin Island and Nansha. Mr Zhu met top officials from Macau and signed a letter of intent to develop Cuiheng as a marine tourism destination. But little has been mentioned since then. The Zhongshan Daily newspaper reported in July that Hong Kong’s Emperor Entertainment Group has plans to invest US$1.63 billion (130 billion patacas) to develop a “cultural park” project in Cuiheng. Emperor operates casinos and hotels here, and would build a music and film production centre in Cuiheng.

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Macau Two big winners tipped in Cotai expansion Galaxy Entertainment Group Ltd and Melco Crown Entertainment Ltd are best placed to benefit from the next phase of Macau’s development, Wells Fargo says. Reuters quotes research by the United States stockbroker as saying Cotai’s expansion could more than double Macau’s annual gaming revenue to US$115 billion (MOP920 billion) in four years. Galaxy and Melco will be the first to open new casinoresorts in 2015, giving them a first-mover advantage in the contest for more gaming tables, Wells Fargo says. Telsey Advisory Group says work in Cotai is proceeding apace. It expects Wynn and MGM to open their new resorts early in 2016, and Las Vegas Sands Corp to open its Parisian development late in 2015.

The Japanese bet

deputy chairman Francis Lui told Bloomberg that the company was prepared to allocate up to HK$30 billion in both the Japanese and Taiwan markets. Sources from several Macau gaming operators have alluded to Business Daily that various Tokyo visits are “a way of showing our willingness and deep commitment to Japanese efforts in legalising casinos there”. Anticipating new market opportunities, major international events companies such as Reed Exhibitions and Clarion Events have taken the initiative to host gaming conferences in the country. The administrations of Otaru, Tomakomai and Kushiro in Hokkaido have all expressed interest in developing an integrated resort, with Satoshi Sasaki of the foreign tourism promotion group in the Department of Economic Affairs of the Hokkaido Government conceding to Gambling Compliance that while these cities all offer tourist-friendly environments “there’s a lot to do at this stage”.

Macau operators “push” for new legislation Mike Armstrong and Alex Lee


apanese municipalities Hokkaido and Nagasaki are pushing ahead with studies on integrated resorts (IRs) development, while the new governor of Tokyo remains undecided, says Gambling Compliance, a UK company familiar with the gaming aspirations of a country now attracting covetous glances from some of the

world’s foremost gaming corporations. In particular, Tokyo’s appointment as host city for the Summer Olympics has galvanised global – and regional - players Las Vegas Sands Corp., MGM Resorts International, Wynn Resorts and other big hitters firmly entrenched in Macau, the world’s leading gaming jurisdiction, into

business as usual

What happened after Rock ‘n Roll Raquel Dias

presenting their credentials to a government many feel is ripe for approaching ahead of the possible passage of the casino promotion bill in the Japanese National Diet. Sheldon Adelson, CEO of Las Vegas Sands Corp., has indicated his company would spend up to US$10 billion (MOP80 billion) to build casino properties in Japan, while MGM Resorts CEO James Murren is on record as willing to put down another US$10 billion but would look for a 51% partnership with local land developers. Melco Crown Entertainment Ltd CEO Lawrence Ho told Macau Business he would be keen to invest there and, in fact, the company recently pledged US$10 million (MOP80 million) for cultural projects in Japan as a sign of its commitment to the country. In addition, Galaxy Entertainment

US$10 billion

Amount of cash MGM and Las Vegas Sands each promise to invest Nevertheless, in a move suggestive of the seriousness of the government’s openness to overtures Sasaki’s division has asked its legislature to earmark some US$200,000 (¥20m) to study the economic impact and social repercussions of approving integrated resorts in Hokkaido, while the Hokkaido government has assigned two of its officials to work specifically on integrated resorts development, said Sasaki.

Journalists wanted We are looking for highly skilled candidates to fill the following positions:


here’s no way of describing how ecstatic I was leaving the Rolling Stones concert on Sunday at the Venetian Macau. Everyone around me was singing and commenting on Mick Jagger’s impressive moves; the beer must have helped because the crowd was very cheerful. As I made my way to the taxi line, I was expecting a long wait. The long queue proved me right and I began to curse my fate - I still needed to work once I got home. After twenty minutes, I realised we weren’t moving so I went to see what was happening. As I turned my head I realised taxis weren’t stopping where they were supposed to. Instead, they were doing a u-turn and parking near the empty shuttles. It took me three seconds to understand what was going on. By that time, a blond lady realised it, too, and left to try to catch one of them. It was then that I fully comprehended: not only were taxis checking to see who offered more but they weren’t taking foreigners, either. I got seriously angry. I left the queue to talk to the two men who were near all the action. It was dark and I could not see very well. Once I got there, to my surprise one of them was a police officer and the other a Venetian employee. With the most calm of faces the police officer told me there was nothing he could do as the taxis were on private ground. “But what they’re doing is illegal,” I almost shouted. He smiled and said, “Sorry; there’s nothing we can do”. At a time when the taxi associations are demanding more money and the government is ignoring the problem, something needs to be done. One of these days - not in the distant future - Macau will have the same bad reputation as other South East Asian cities.

Editor • Reporter

The roles would involve covering and/or editing – with our existing team – stories about business, economics and politics. As well as covering the main stories of the day we would expect the successful candidates to have initiative and be able to generate their own story ideas and angles. They should also be able to pursue exclusive stories and investigations.


Bachelor’s degree holder, preferably in Journalism or English, with an excellent command of the English language; At least 2 years of experience gained at a newspaper and/or magazine for the reporter position, and 5 years of experience for the editor position. (Those with prior involvement in trade and business publications will have an advantage); Ability to work under pressure and strong sense of responsibility; Excellent organisational skills and exceptional attention to detail; Proofreading skills. Interested parties should send a CV with full career details, availability and expected salary to: All personal data collected are used for recruitment purposes only.

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Macau Analysts see March gaming revenue rising 13-18 pct Nomura Securities and Wells Fargo Securities estimate this month’s growth in gross gaming revenue will be between 13 percent and 18 percent, Barron’s reports. Wells Fargo says this month’s average daily revenue was MOP1.3 billion (US$162 million) up to Sunday, 16 percent more than at the equivalent point last year. It says gaming revenue growth this month could be up to 18 percent higher than a year ago. Nomura has issued similar forecasts.

The second Cotai phase New casinos have luck of the draw in second expansion phase Farah Master


alaxy Entertainment Group Ltd and Melco Crown Entertainment Ltd look best placed to benefit from the next phase of Macau’s development as the world’s gambling capital adds eight more mega-casinos by 2017. The expansion will take place in the glitzy Cotai Strip and is expected to more than double Macau’s annual gaming revenues to $115 billion in four years, according to research from U.S. brokerage Wells Fargo. Galaxy and Melco’s casinos will be the first properties to open in the second expansion phase starting early-2015. That puts them ahead of peers like MGM China and Wynn Macau in the race for dealers and gaming tables, which are both in short supply. MGM and Wynn are also planning to open casinos in Cotai, but at a later date. Galaxy, owned by Hong Kong construction tycoon Lui Che Woo, has the largest plot of land on Cotai and will still have half the area left to build on after its new resort opens next year. Sands, in contrast, will use up the last of its Macau land for its Parisian complex, slated to open at the end of 2015. “Sands has had a great run here with the last property to open...Clearly from the beginning of next year it is going to get tougher from a competitive standpoint,” said Philip Tulk, who tracks gaming companies at Standard

“I would not expect the share price performance to be comparable with last year but I would still foresee there would be a decent amount of growth” Chartered in Hong Kong. Diminishing returns SJM and Sands dominate the gambling scene in Macau, together accounting for nearly half of total gaming revenues that stood at $4.8 billion in February. But competition is expected to heat up as other casino operators expand their portfolios, potentially crimping profits. “I would not expect the share price performance to be comparable with last year but I would still foresee there would be a decent amount of growth,” said Victor Yip, gaming analyst at UOB Kay Hian in Hong Kong. With four Macau properties, Sands China raked

in more revenue last year than all of the Las Vegas strip. Its shares have surged more than six-fold from their IPO price in 2009 and doubled since the last big casino opening in 2012. While all operators in Macau are blessed with surging demand, analysts have become more selective as gaming revenue growth starts to mature. Sands, which has more hotel rooms than the other gaming operators combined, remains a popular pick with 22 of 25 analysts awarding it a “buy” or “strong buy” rating, according to Thomson Reuters data Galaxy is slightly less popular among analysts due

to a more expensive valuation, with 20 of 26 giving it a “buy” or “strong buy” rating. Its shares, however, have surged more than 350 per cent since their launch in 2011, valuing it at $40 billion. Several factors, however, clouding the outlook for all casino operators in Macau. Slowing economic and credit growth in China may pinch high-rollers and there is uncertainty over gaming license renewals due in 2020. The labour market in Macau is also tight. Analysts estimate new casinos opening in 2015-2017 will require 12,600 new dealers, yet only about 700 are available per year. Macau laws dictate only locals can work as

Victor Yip, Gaming analyst at UOB Kay Hian

dealers, and the government is under pressure from residents who regularly take to the streets to ensure these restrictions remain. Macau’s government has also not confirmed how many new tables it will allow in the next phase of expansion for the Cotai Strip. Casino operators, however, appear unfazed for now by these concerns, focusing instead on Macau’s massive potential. Reuters

Wells Fargo rides shotgun on Macau in the top 5 Louis XIII investment conflab
 big cap China plays


he senior management of Louis XIII Holdings Ltd, which recently announced that it has secured a HK$3.05 billion loan from an unnamed Mainland bank for the construction of its upscale casino-hotel in Coloane, recently attended investment meetings hosted by Wells Fargo Securities, LLC, a U.S. broker-dealer registered with the U.S. Securities and Exchange Commission. The premium mass-focused, US$1b Louis XIII hotel and casino - expected to open its doors in Macau (Cotai) in early 2016 – is viewed by Wells Fargo as a

‘positive addition to the Macau gaming landscape’ and identified several key takeaways in its post-meeting report. ‘ While expectations are for Louis XIII to generate $300MM in EBITDA in its first year,’ wrote the broker, ‘we see potential upside, and potential branding extension opportunities for Louis XIII given its growing status as an ultra-luxury Chinese brand,’ In particular, Wells Fargo anticipates a strong mass market outlook driving margin expansion, with a bullish medium-term outlook. The Macau SAR Government has not yet approved the licensing of a casino.


hinese and American entertainment companies are making great strides in the P.R.C. with Qihoo 360 Technology (QIHU), Melco Crown Entertainment (MPEL), Wynn Resorts (WYNN), Baidu (BIDU) and Las Vegas Sands (LVS) all highly rated, according to the Big Cap Screen of the Day, which lists hefty stocks with strong earnings and price performance that as often as not benefit from greater liquidity. Qihoo – a Chinese company that

has developed its own search engine to rival that of Chinese Internet giant Baidu – enjoys the highest possible Composite Rating of 99 in tandem with mobile gaming and music products giant Baidu. But it is the appearance of three of Macau’s integrated resort behemoths on the list that has caught the eye of many: their spectacularly high composite ratings of 99 (Wynn Resorts), 99 (Melco Crown) and 98 (Las Vegas Sands) speaks volumes about their expansionary visions in Asia and stirling market performance.

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Transactions under fire How China’s official bank card is used to smuggle money James Pomfret with Farah Master in Macau and Yimou Lee in Hong Kong


rowing numbers of Chinese are using the country’s statebacked bankcards to illegally spirit billions of dollars abroad, a Reuters examination has found. This underground money is flowing across the border into the gambling hub of Macau. And the conduit for the cash is the Chinese government-supported payment card network, China UnionPay. In a warren of gritty streets around Macau’s ritzy casino resorts, hundreds of neon-lit jewellery, watch and pawn shops are doing a brisk business giving mainland Chinese customers cash by allowing them to use UnionPay cards to make fake purchases - a way of evading China’s strict currency-export controls. On a recent day at the Choi Seng Jewellery and Watches company, a middle-aged woman strode to the counter past dusty shelves of watches. She handed the clerk her UnionPay card and received HK$300,000 in cash. She signed a credit card receipt describing the transaction as a “general sale”, stuffed the cash into her handbag and strolled over to the Ponte 16 casino next door. The withdrawal far exceeded the daily limit of 20,000 yuan, or US$3,200, in cash that individual Chinese can legally move out of the mainland. “Don’t worry,” said a store clerk when asked about the legality of the transaction. “Everyone does this.” Internal discussion documents prepared by UnionPay and by financial authorities in Macau and China show these fake sale cashbacks are widespread in such retail stores. The practice violates China’s anti-money-laundering regulations as well as restrictions on currency exports, according to Chinese central bank documents reviewed by Reuters. Chinese authorities also fear the UnionPay conduit is being used by corrupt officials and business people to send money out of the country. It’s unclear why the central bank, the Peoples Bank of China (PBOC), hasn’t cracked down harder on the practice, although the documents Reuters reviewed show the bank was aware it had become a growing problem. Industry experts point to a weak enforcement culture in China, a reluctance to hurt Macau financially with 80 percent of the city’s revenues drawn from gambling, and a willingness to tolerate some capital flight - especially if it can be tracked through names on bank cards. Moreover, the rapid growth of UnionPay, including the spread of its terminals at retail stores across the world, is playing a key role in China’s strategy for making the yuan a global currency. No one knows for sure how much Chinese money is being channelled illegally into Macau. Tam Chi Keong, an assistant professor at the Macau University of Science and Technology, puts the total at HK$1.57 trillion (US$202 billion) a year through various channels. Tam says his estimate is based on his analysis of Macau’s finances and interviews with gambling industry participants.

Relatively unknown in the West, UnionPay has quietly grown to become one of the biggest card brands in the world (Photo: Manuel Cardoso)

A senior UnionPay executive said the Shanghai-based company has long been aware of the payment card abuse in Macau and elsewhere, but was limited in its ability to act. That’s because the primary responsibility lies with authorities in Macau or any other country where the fraud is taking place, he said. “The problem you are talking about has existed for several years,” said the executive, who spoke on condition of anonymity. “We have continuously taken measures.”

ones, to process their yuan-based transactions through UnionPay’s electronic payment network. All Chinese merchants and automated teller machines are required to process their yuan transactions through UnionPay. The World Trade Organization in July 2012 ruled that China was discriminating against foreign card brands, but it made no specific recommendations. Foreign card brands still have to use UnionPay for settlements in China. UnionPay’s increasing use overseas

The government’s son Though relatively unknown in the West, UnionPay has quietly grown to become one of the biggest card brands and payment networks in the world, accepted in 142 countries. There are more UnionPay cards in circulation now than any other brand - 3.53 billion, or nearly a quarter of the world’s total, according to the industry newsletter, the Nilson Report. Visa remains the world leader by transaction value with $4.6 trillion in card transactions in the first half of 2013; UnionPay was second with $2.5 trillion. If UnionPay poses a problem for Chinese authorities, it is a problem of their own making. The card brand is often seen as an arm of Chinese state policy. UnionPay was established in 2002 by the PBOC and the State Council or Cabinet. Its founding shareholders were 85 Chinese banks, led by the five biggest state-owned banks. Former senior PBOC officials still fill the company’s top ranks, including UnionPay’s current chairman, Su Ning, and its former president, Xu Luode. They declined requests to be interviewed. UnionPay dominates the card market in China thanks to a central bank decree that requires all card issuers, including foreign

KEY POINTS No one knows for sure how much Chinese money is being channeled illegally into Macau UnionPay founding shareholders were 85 Chinese banks Macau Monetary Authority say that bank card-related businesses have “been subject to very stringent ongoing supervision

is part of Beijing’s multi-pronged strategy to eventually open up China’s capital account and internationalize the yuan, which is formally known as the renminbi or yuan. Beijing also eased restrictions on many kinds of capital transfers as it gradually loosens up control over the currency, making it easier for money to leave China’s borders. The efforts have paid dividends. The renminbi has already overtaken the euro to become

the second-most used currency in trade finance, according to data from global transaction services organization SWIFT. “(China) may be happy to see UnionPay sweeping different markets across the world in different countries and territories,” said Yan Lixin, head of Fudan University’s China Centre for Anti-Money Laundering Studies in Shanghai. “It is backed up by the government. It is the real son of the government.” At the same time, these changes have vastly complicated the compliance challenges for UnionPay. While the card system is helping monetary authorities open up the capital account, it is also enabling people to funnel their ill-gotten gains out of China, said Yan. “It’s not the only tool” for money laundering, Yan says, “but it’s a major tool.” Macau is a prime gateway for this activity. It is the only place in China where casino gambling is legal, and so Chinese gamblers bring vast sums of money here. Because Macau is administered separately from the mainland, there are restrictions on how much currency mainland Chinese can take into the gambling haven. But gamblers find ways of skirting currency controls when they cross into Macau. And much of the money these mainlanders ostensibly take to Macau for gambling, Chinese authorities believe, is actually going abroad into bank accounts. Any steps to clamp down on UnionPay cashback transactions would likely rattle Macau, because the cash also feeds the casino sector on which the territory’s $43.6 billion economy overwhelmingly depends. Macau is now the world’s biggest gambling hub, with revenues seven times those of Las Vegas. Last year, gambling revenue rose 19 percent to $45.2 billion. Nearly 40 percent of that went to the government in taxes. Beijing is particularly concerned

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Macau about the role of this capital flight in the country’s endemic government corruption scandals. An internal research report in 2008 by the PBOC identified UnionPay cards as one of the main tools for corrupt individuals to facilitate cross-border transfer of funds. The central bank report said the practice was growing rapidly. Many card users follow their money abroad. Since the mid1990s, an estimated 16,000 to 18,000 Communist party officials, businessmen, CEOs and other individuals have “disappeared” from China, according to a separate PBOC report prepared in 2008 - taking with them some 800 billion yuan ($133 billion). But the practice isn’t limited to corrupt officials. The ubiquitous UnionPay card, with its instant access to piles of cash, has made the task of whisking money out of China far easier for ordinary Chinese.

Capital flight Today, the outflow is gathering pace. In Macau, UnionPay card transactions reached 130 billion Macau patacas (US$16.77 billion) in just the first four months of 2012, up from 88.1 billion patacas in all of 2011, according to a confidential report by Macau’s banking regulator, the Macau Monetary Authority, reviewed by Reuters. Around 90 percent of those transactions were “highly concentrated in jewellery, ornament and luxury watch sales”, the report said. If that rate persisted for the full year, UnionPay sales in Macau for all of 2012 would have reached nearly US$50 billion - nearly US$45 billion of it for jewellery-related sales, a figure exceeding even Macau’s total gambling revenues that year. “Are these actual transactions? Where does this money come from?” the deputy head of the Monetary Authority, Wan Sin Long, asked in the document. “Banks have not carried out good monitoring, nor earnestly handled the situation,” Wan was cited as saying in the document. “If this continues, this could affect the question of the further opening up of the yuan.” All the counter-parties involved benefit from these cashback transactions, an industry source said. The retail merchant makes money on the exchange rate, the way a currency trader would. The Macau banks overseeing the merchant charge 1 percent to 2 percent on the transaction. And the UnionPay

card-issuing bank back in China will generally charge around 1 percent on the transaction, the source said. The cashback activity is spreading beyond Macau to other Chinese tourist destinations, including Taiwan, Japan and South Korea, people in the creditcard industry say. UnionPay cashback transactions reached 9.78 billion yuan (US$1.59 billion) in 2012 in Taiwan, almost doubling from the year before, according to a report by Taiwan’s government investigation agency. Taiwan authorities said in January, given the abnormal UnionPay transactions they found, they would consider setting up a crossstraits mechanism to ensure timely information exchange and prevent illegal money laundering, according to CNA, its semi-official news agency. Taiwan’s cabinet is considering the proposal. China isn’t standing still. A decade ago, the government began trying to rein in money laundering, and since then it has amended criminal laws and strengthened commercial banking rules.

130 bln patacas UnionPay card transactions in just the first four months of 2012

UnionPay officials say they are trying to stamp out the illicit transfers. One of the main steps the company took came in June of 2012, when it required UnionPay card-issuing banks to put a 1 million yuan ($166,000) daily limit on any transaction in Macau, down from 5 million to 10 million yuan previously. That limit applies to actual sale transactions. UnionPay’s rivals, meanwhile, don’t appear to be playing the cashback game. Macau jewellery stores visited for this article said Visa and Mastercard were not generally used for cashback transactions. A senior executive with a rival

UnionPay officials say they are trying to stamp out the illicit transfers (Photo: Manuel Cardoso)

card brand said his company had “zero tolerance” for the kind of cashbacks allowed by UnionPay. “We don’t allow jewellery stores to give any form of cash whatsoever,” this person said. “That’s completely illegal... Both as a bank and a (card) network, we’re supposed to close it down immediately.”

Local authorities responsible In a written response to questions for this article, UnionPay said it “has always strictly prohibited the swiping of cards for cash without any goods being purchased and has collaborated from many sides to boost the investigation of such risks.” According to UnionPay’s “Operating Regulations,” overseas banks participating in the UnionPay system are required to close the accounts of merchants found to be engaged in fraudulent transactions. But local authorities such as the Macau Monetary Authority have the primary responsibility for investigating suspicious cross-border transactions, the company says. The Macau Monetary Authority said in a written response that bank card-related businesses in Macau have “been subject to very stringent ongoing supervision.” The authority noted it has “come across a couple of cases of supervisory concerns, and legal proceedings were taken against the parties concerned, including merchants.” It didn’t elaborate. Deborah Ng, head of Macau’s Financial Intelligence Office, said UnionPay has tried to take a more active role recently to “take care of whether there are some irregular activities involved.” But the card company can do more, she said in an interview. “They need to have some monitoring of abnormally large transactions, (and) frequent transactions from some commercial merchants,” Ng said.

No limits Despite the professed intensity in scrutiny, the practice continues openly. At a jewellery outlet run by Hong Kong-listed Chow Tai Fook in the Grand Lisboa casino, staff said customers could swipe UnionPay cards to buy gold bullion of up to 10 million yuan ($1.5 million) - then sell it straight back for hard cash. A Chow Tai Fook spokesman confirmed that. He said the store had “no specific limits on the amount that our customers can buy using

any form of payment, as long as the payment is approved by the bank when we swipe the card.” At a jewellery store inside the Venetian Macau casino run by Las Vegas Sands, a manager said card cashbacks constituted most of the shop’s business. The shop was run by the owner of a VIP room or “junket” operator, which brings in big gamblers from the mainland. “I would say there’s no upper limit for UnionPay,” said the blacksuited manager, who spoke on the condition he not be identified. “The credit limits aren’t enforced at all.”

It’s not the only tool [for money laundering], but it’s a major tool Yan Lixin Head of Fudan University’s China Centre for Anti-Money Laundering Studies in Shanghai

An executive at Las Vegas Sands, speaking on condition of anonymity, said vendors with UnionPay cardswiping machines have been caught wandering around the casino. “People walk around with mobile union pay card machines on the gaming floor,” the executive said. “They are linked to China (computer) servers, not (ones in) Macau. So it is like they are getting cash out in China. When we see them on the floor we kick them out.” That practice also exists outside the casinos, too. Macau’s merchants lately have tried to better disguise the UnionPay transactions by routing transactions electronically across the border to China to escape the scrutiny of Macau authorities, a banker in Macau said. “They closed the Macau tap, but they’ve opened an even larger China tap,” said the Macau banker with direct knowledge of the practice. “The merchants are always cunning.” A UnionPay memo to banks and counterparties in Macau, dated October 29 and reviewed by Reuters, said the company was aware of these practices and had initiated steps to stop it. It urged Macau banks and UnionPay counterparties to crack down by blacklisting such retailers and fining them. UnionPay said in the memo it hoped that all parties with UnionPay linked business would make a “concerted effort to rectify Macau’s UnionPay card transaction market discipline and sustain its stable longer term development.” A visit to Macau since the memo was issued, however, found cashback services to be flourishing. Inside seven such stores, customers were observed swiping UnionPay cards at glass counters and receiving wads of cash without actually buying anything. “We can remit as much money as you like with your UnionPay card,” said a red-haired man surnamed Lai at one jewellery shop. A yellow sign carried the slogan: “Welcome Renminbi. Welcome UnionPay cards.” “You don’t actually buy anything,” said Lai, standing near a half-empty display case containing a messy spread of watches and jewellery. “We just help people get money out of China so they can gamble more.” Reuters

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Greater China

Ready to act China’s Central Bank prepared to cut bank reserves if growth falters - sources


hina’s central bank is prepared to take its strongest action since 2012 to loosen monetary policy if economic growth slows further, by cutting the amount of cash that banks must keep as reserves, sources involved in internal policy discussions say. A cut would be triggered if growth slips below 7.5 percent and towards 7.0 percent, they said, and would come on top of money market operations and currency intervention via state banks that traders say has already loosened monetary conditions. Apart from supporting a stumbling economy, the stronger action of

cutting bank reserves would provide a cushion against any shocks from financial reforms that the central bank is widely expected to push through this year, including a widening of the yuan’s trading band to give the currency more room to rise or fall each day and allowing banks more room to set deposit rates. “The economy faces big downward pressure,” said a senior economist with the State Information Centre, a top think-tank affiliated to the National Development and Reform Commission, the country’s top economic planning agency. “Cutting RRR is likely if economic

growth slows further. But they may still need to wait and see the firstquarter economic data,” said the economist, who requested anonymity due to the sensitivity of the matter. The RRR is the reserve requirement ratio, the official name for bank reserves. The concern is that the financial reforms could weigh on an already slowing economy, so the central bank will be prepared to free up some cash by cutting bank reserves if need be to give the economy support, the sources at top government think-tanks said. Private economists have suspected that the central bank might be willing to cut the RRR, but the sources

China steps up hunt for corrupt officials overseas C hina will step up its hunt for corrupt officials who have fled abroad, confiscate illegal assets of overseas fugitives and stop suspect offenders leaving the country, as it intensifies the fight against graft, state media said on Wednesday, citing the country’s top prosecutor. Cao Jianming, the head of the Supreme People’s Procuratorate, said China will “work more closely with judicial organs abroad to expand channels and measures to hunt those who have fled and to recover ill-gotten gains”, the China Daily newspaper said.

“Once evidence is sufficient, we’ll initiate the confiscation procedure according to the law,” Cao was quoted as saying. China has long grappled with the problem of so-called “naked officials”, the term for government workers whose husbands, wives or children are all overseas, have used their foreign family connections to illegally move assets or avoid probes. The estimated number of mainland officials and their family members shifting assets offshore varies among academics, with some putting it at more than 1 million in

the past five years. Cao said 10.14 billion yuan (US$1.65 billion) in “dirty money” and property was recovered and 762 corruption suspects were captured at home or abroad last year, the China Daily said. But Chinese judicial officers face challenges in capturing fugitives and the proceeds of their crimes due to the political and legal hurdles involved in extradition, evidence collection and China’s use of the death penalty, the paper quoted Cao as saying. China has more than 500 economic fugitives abroad, most of them in the

provided the first confirmation that the central bank is discussing such an option. Since May 2012, major banks have had to keep a fifth of their cash as reserves. Most of the top think-tank economists believe the central government would lean on fiscal policy to do its part to support growth, repeating the mini-stimulus seen last year when Beijing made targeted infrastructure investments, among other measures. Trade data last weekend shook markets globally by showing an unexpected fall in exports in February of 18 percent compared with a year earlier. Purchasing managers’ indexes this year have suggested growth in factory-sector activity - for years the engine of China’s economy - is stalling. China’s consumer inflation hit a 13-month low of 2 percent in February, a sign that slowing growth rather than rising prices poses a bigger risk to the economy. However, taking these figures as a clear indicator of the economy’s health is difficult because data for the first few months of the year is distorted by the Lunar New Year holidays. While financial markets have taken the data at face value to suggest the economy is struggling, some economists say a clear picture will not emerge until data for March is published. And that data will not be released until the middle of April. Still, other private-sector economists say the actions of the central bank in letting interest rates fall and the yuan decline has been in effect a policy easing, perhaps suggesting the central bank is concerned about the economy’s health. The weighted average of the benchmark seven-day repo stood at 2.26 percent earlier on Tuesday. Average rates have not been so low since 2012. The yuan has fallen sharply since the middle of February and dropped the most on Monday since April 2008. Reuters

United States, Canada and Southeast Asian countries, the China Daily said, citing the ministry of public security. Those suspected of offering and taking bribes and dereliction of duty will be banned “more quickly from leaving China and supervision will be tightened on officials”, Cao said. The moves marked the government’s latest effort to make life tougher for officials looking to spirit assets and family members out of the country to avoid close scrutiny and strict currency controls. Chinese President Xi Jinping has made fighting pervasive graft a central theme since becoming president last year and has warned, like others before him, that corruption threatens the party’s survival. Reuters

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Greater China

Going global Alibaba to pay US$804 million for control of ChinaVision Media

12.5 billion Alibaba will buy new shares of ChinaVision for 50 Hong Kong cents


libaba Group Holding Ltd. will pay HK$6.24 billion (US$804 million) for control of ChinaVision Media Group Ltd., giving China’s biggest e-commerce company access to content from games and films to English Premier League soccer. The purchase of new stock, at a 22 percent discount to the previous closing price, will boost the stake held by Alibaba and parties acting with it to 70.8 percent from 27 percent, according to a ChinaVision filing yesterday. The shares surged more than fivefold, headed for the biggest gain on record. The deal boosts Alibaba’s access to ChinaVision’s television programs, movies and live sport as it tries to compete with Tencent Holdings Ltd. and Baidu Inc. for China’s 618 million online users. ChinaVision’s current shareholders include Tencent, which operates the WeChat message service and is attempting to compete with Alibaba in shopping and gaming. “The acquisition can help Alibaba increase content on its platform,” said Ricky Lai, an analyst at Guotai Junan International Holdings Ltd. in Hong Kong. “It could add certain entertainment and media content into its instant messaging app, Laiwang, to increase the popularity of the app.” Alibaba will buy 12.5 billion new shares of ChinaVision for 50

Hong Kong cents, according to the filing. The Hangzhou, China-based e-commerce operator is seeking a waiver from a Hong Kong rule requiring it to make a buyout offer for ChinaVision. Shares of ChinaVision rose to as high as HK$3.39 before trading at HK$2.37 as of 10:17 a.m. in Hong Kong, increasing its market value to HK$19.7 billion. The benchmark Hang Seng index fell 1.6 percent. At ChinaVision’s current price, the shares Alibaba agreed to buy are valued at HK$29.6 billion, or HK$23 billion more than the purchase price. ChinaVision Media produces and distributes movies and television dramas. The company was entitled to 30 percent of investment return in the blockbuster movie “Journey to the West: Conquering the Demons,” directed by Chinese movie star Chiau Sing Chi, according to the company’s interim report in 2013. The Hong Kong-based company co-manages the Beijing Times, the biggest morning newspaper in the Chinese capital, and has mainland mobile TV broadcast rights to English Premier League soccer for the next three seasons, according to its Website. Alibaba, which operates e-commerce businesses including and Taobao, has been expanding its digital content. Last year it released a smart TV

operating system and set-top box while in January it started a platform hosting mobile games to compete with Tencent. “We are pleased to collaborate with the ChinaVision Media Group to explore future business opportunities as part of Alibaba’s digital entertainment strategy,” Alibaba said in an e-mailed statement. Tencent owns an 8 percent stake in ChinaVision Media and Sequoia Capital 2010 owns a 12 percent stake, according to data compiled by Bloomberg. Alibaba has been valued at as much as US$200 billion as it considers moving toward the biggest IPO since Facebook Inc. The company hasn’t decided on a timeframe or venue for the IPO and hasn’t hired bankers, a spokeswoman said on March 7. Alibaba posted its fourth straight quarterly profit gain on surging revenue. The company, founded by billionaire Jack Ma, makes most of its sales from commissions and advertising. Net income attributable to ordinary shareholders was US$792 million in the three months ended September, a 12 percent increase from the June quarter, according to a presentation dated January 28 from Yahoo! Inc., which owns about 24 percent of Alibaba. Revenue rose 51 percent to $1.78 billion.

China on course to exceed 2015 shale target with Fuling find

shale bonanza. “China is on the way to achieve its 2015 target, especially with the suddenly expanded capacity from Sinopec,” said Gordon Kwan, regional head of oil and gas research at Nomura Holdings Inc. in Hong Kong. He said PetroChina Co., the nation’s biggest oil and gas company, may produce as much as 2 billion cubic meters of shale gas in 2015. China’s annual shale gas production surged more than fivefold in 2013 to 200 million cubic meters a year, according to the Land and Resources Ministry. The country consumed 169 billion cubic meters of gas in 2013, with about one third coming from imports. The Fuling project recorded daily production of 2.2 million cubic meters on March 2, up from 1.5 million cubic meters, according to the Chongqing Daily, the official newspaper of the municipality where Fuling is located.


hina, which sits on the world’s largest shale reserves, may exceed its 2015 output goal, as a new project in the nation’s southwest and the promise of fresh investment leave government targets looking out of date. China Petrochemical Corp., the parent of the listed company known as Sinopec, agreed last week with local government to build shale gas capacity at its Fuling site to 5 billion cubic meters a year by 2015. It suggests a national target of 6.5 billion cubic meters will be met or surpassed. “China can easily beat the 2015 target, thanks largely to the accelerated

pace of development from Sinopec’s Fuling project,” said Shi Yan, an analyst at UOB-Kay Hian Ltd. in Shanghai. Shi said contributions from other shale producers could lift 2015 output as high as 10 billion cubic meters. While China’s reserves are almost double that of the U.S., its production target is meager compared to U.S. output in 2012 of 266 billion cubic meters. High costs, difficult terrain and lack of infrastructure have stunted development and cast doubt on whether even its existing targets could be met. As concerns over coalfired pollution mount, the nation is pushing harder to unlock its potential

Bloomberg News

Bloomberg News

Cathay Pacific profit jumps on higher passenger demand Cathay Pacific Airways Ltd. annual profit tripled as higher travel demand helped Asia’s biggest international carrier mask a decline in cargo revenue. Net income climbed to HK$2.62 billion (US$338 million) last year from a restated HK$862 million a year ago, Cathay said in a stock exchange statement today. That compares with the HK$2.77 billion average of 16 analyst estimates compiled by Bloomberg. Revenue rose 1.1 percent to HK$100.5 billion. Incoming CEO Ivan Chu is set to take over this week amid a slump in the cargo business, which posted a revenue decline of 3.6 percent last.

Franshion markets US dollar debt after busiest sales day Franshion Properties China Ltd. is marketing dollar-denominated bonds after the busiest day for sales in the U.S. currency in Asia in almost three weeks. The Hong Kong-listed property developer, which gets all its revenue from operations on the mainland, plans to sell five-year notes to yield about 5.875 percent, a person familiar with the matter said. Times Property Holdings Ltd., a builder based in Guangzhou, southern China, is also offering five-year securities, as is Nomura Holdings Inc., while Australia & New Zealand Banking Group Ltd. plans to sell 10-year bonds, separate people said today.

Taiwan to launch ETF platform for mainland China stocks Taiwan’s will launch an exchange-traded fund platform for investors to trade in mainland China stocks this year, the chairman of Taiwan’s Financial Supervisory Commission said in a statement to lawmakers Wednesday. The proposed ETFs would allow Taiwan fund managers to invest in Chinese stocks under the mainland’s RQFII program, or the renminbi-qualified foreign institutional investor scheme, which permits overseas investors to use renminbi deposits at financial institutions to invest in Chinese securities. The president of Taiwan’s Stock Exchange had previously told Reuters he expected the ETFs would be launched in the first half of 2014.

Ackman accuses Herbalife of breaking laws in China Hedge fund manager William Ackman renewed his attack on Herbalife on Tuesday and said he has evidence the U.S.-based nutrition and weight loss company is breaking direct-selling laws in China, its fastest growing market. Ackman, who has placed a US$1 billion short bet against Herbalife, said the company was making recruits pay an entry fee and letting distributors recruit new members, activities he said were illegal in China. He also said the company is disguising its sales to distributors as hourly consulting fees. Herbalife said it follows local laws.

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Asia Thailand cuts rate as unrest hurts economy Thailand cut its key interest rate for the first time this year to bolster the economy as prolonged political unrest curbed local demand and hurt tourism. The Bank of Thailand cut its one-day bond repurchase rate by a quarter of a percentage point to 2 percent, with monetary policy committee members voting four-to-three in favour, it said in Bangkok today. Sixteen of 26 economists in a Bloomberg survey predicted the decision, with the remainder expecting the rate to be held. Thai consumer confidence fell to its lowest in more than 12 years in February as anti-government protests persisted for more than four months.

Japanese SoftBank challenge U.S. broadband market The company might buy T-Mobile but confronting regulatory institutions

Australia’s population shows risk aversion Australia’s aging population could become a headwind to growth if it reduces the appetite for taking risks, a top central banker warned yesterday, though he emphasised the country also had demographic advantages enjoyed by few of its peers. Reserve Bank of Australia (RBA) Deputy Governor Philip Lowe said evidence suggested younger workers were more likely to set up their own businesses, to adopt new technologies and to be more adventurous in their financial decisions. Such current situation involves a major challenge as productivity had already slowed in the past decade, he added.

India’s SpiceJet to buy 42 Boeing jets Boeing Co. won an order for 42 of its 737 Max planes valued at about US$4.4 billion from SpiceJet Ltd., an Indian budget carrier controlled by billionaire Kalanithi Maran. SpiceJet, which has taken delivery of 31 Boeing planes so far, has another 59 on order including those announced today, the plane maker announced in a statement today at the air show being held in Hyderabad, in south India. The value of the order is based on list prices. Airlines typically get discounts. Today’s order will keep SpiceJet as a Boeing customer after considering switching to Airbus.


illionaire Masayoshi Son (pictured) says his wireless Internet service can challenge U.S. cable companies with lower prices and increased speeds. The pitch probably won’t quiet regulators’ qualms about his plan to buy T-Mobile US Inc.

Son, the president of Japan’s SoftBank Corp., told an audience in Washington yesterday that he wants to invest in high-speed mobile broadband service to compete against companies such as Comcast Corp. and Verizon Communications Inc. that offer fast

Web access over wires. After buying control of thirdlargest U.S. wireless provider Sprint Corp. last year, Son wants to acquire T-Mobile, the fourth-largest. Even if the merger sparks competition with cable, the elimination of one of

Morgan Stanley sees cheaper Toyota agrees to first pay raises since ’08 Toyota Motor Corp. agreed to increase base wages in Japan for the first time since 2008 as the nation’s largest company heads for record profits. The average Toyota Motor Workers’ Union member will earn 2,700 yen (US$26) more in base pay per month, Senior Managing Officer Naoki Miyazaki told reporters today. That’s 0.8 percent of last year’s average salary and below the 4,000 yen the union was asking for. A weaker yen has helped Toyota forecast a record 1.9 trillion yen profit for the year ending March 31.

Palm oil market drops for second day Palm oil declined to the lowest level in almost a week on concern that the highest price in almost 18 months may reduce demand from buyers including India, the world’s biggest importer. The contract for May delivery retreated as much as 1.2 percent to 2,837 ringgit (US$863) a metric ton on Bursa Malaysia Derivatives, the lowest level for futures since March 6, and traded at 2,847 ringgit in Kuala Lumpur. Futures jumped to the highest level since September 2012 yesterday after a less than expected harvest in Malaysia.


eserve Bank of India Governor Raghuram Rajan’s success in containing Asia’s worst inflation and stabilizing the rupee is spurring forecasts lending rates will drop from a three-year high. Morgan Stanley predicts interest rates will fall as gains in consumer prices slow to 6.4 percent by March 2015, from 8.79 percent in January and a record 11.16 percent in November, analysts including Anil Agarwal in Hong Kong wrote in a March 10 report. With inflation now below loan rates, lenders can afford to charge less, according to Bank of Baroda. “Real interest rates being in positive territory gives lenders room to cut rates without taking a large hit on profits,” Subhash Sheoratan Mundra, Mumbai-based chairman of the state-owned lender, said in a March 10 telephone interview. Rajan, who has said inflation poses the “gravest threat” to Asia’s thirdlargest economy, raised the repurchase rate three times since September and boosted foreign reserves by luring

US$34 billion through discounted swaps for banks. Consumer- prices rose 8.3 percent last month, the least since January 2012, a Bloomberg survey of analysts showed before data due 5:30 p.m. in New Delhi yesterday. “There is confidence lending rates will fall because of the central bank’s steps to contain inflation,” Dharmakirti Joshi, chief economist in Mumbai at Crisil Ltd., the Indian arm of Standard & Poor’s, said in a telephone interview yesterday. “Recent interest-rate increases were aimed at creating a stable environment. The calibrated steps have reinforced the view that the central bank will help spur growth after inflation slows.”

Loans, Deposits Deposit growth averaged 15.7 percent this year, compared with an eight-year low of 13.1 percent in the same period of 2013, RBI data show. Credit expansion slowed to 14.3 percent in the year through February 21, from 18.2 percent in

the 12 months ended September 6, as economic growth stayed near a decade low. The ratio of loans to deposits in the banking system fell to 77.1 percent as of February 21 after touching a record 78.3 percent as of September 20, latest RBI data show. Consumer inflation has dropped below the 9 percent rate paid by State Bank of

editorial council Paulo A. Azevedo, José I. Duarte, Emanuel Graça, Mandy Kuok Founder & Publisher Paulo A. Azevedo | GROUP SENIOR ANALYST José I. Duarte Newsdesk Cynthia Wong, Luciana Leitão, Óscar Guijarro, Pierre-François Metayer, Stephanie Lai, Tony Lai EDITOR AT LARGE Alex Lee Brands & Trends Raquel Dias Creative Director José Manuel Cardoso DESIGN Francisco Cordeiro WEB & IT Janne Louhikari Contributors James Chu, João Francisco Pinto, José Carlos Matias, Larry So, Pedro Cortés, Ricardo Siu, Rose N. Lai, Zen Udani Photography Carmo Correia, Manuel Cardoso Assistant to the publisher Laurentina da Silva | office manager Elsa Vong | Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd.

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Asia four major wireless carriers won’t be overlooked by antitrust regulators, said Maurice Stucke, a law professor at the University of Tennessee. “He has to overcome the presumption that this merger is anticompetitive,” said Stucke, a former Justice Department lawyer. “You can’t argue we should allow this market to be more concentrated in order to better compete in a separate market.” Son didn’t mention a possible merger during his remarks. Asked afterward by reporters about T-Mobile, based in Bellevue, Washington, he said he wouldn’t discuss specific companies. Son said he isn’t seeing U.S. officials on his Washington visit. “Not this trip but whenever we have the opportunity sometime in the future, that is I think necessary,” Son said.

Alternative Internet SoftBank hired Bruce Gottlieb as an executive vice president for legal and regulatory affairs in Washington, D.C., the company said in a statement yesterday. Gottlieb was previously Chief Counsel of the Federal Communications Commission. Mitsuhiro Kurano, a Tokyo-based spokesman for SoftBank, said the company has no comment beyond Son’s speech. Son is positioning a bigger wireless broadband provider as an alternative for American consumers who today only have two major choices for Internet at home: their landline phone company, such as New York-based Verizon, or a cable-TV company, like Comcast, based in Philadelphia. “I’d like to provide an alternative” to slow and expensive U.S. Internet service, Son said in his remarks at the U.S. Chamber of Commerce, across a park from the White House. Son stood before a video screen that bore bar

charts, images and messages including: “Change the U.S. wireless status quo.”

‘Real World’ The U.S. has slower Internet services than Japan and South Korea, and ranked 15th out of 16 countries surveyed by speed, Son said. Japan came in 14th, and was the most improved for higher speeds, according to the survey. SoftBank fell 3.9 percent to close at 7,862 yen at the close of trade in Tokyo, the biggest drop since February 3. The Topix index lost 2.1 percent. Wireless isn’t a competitor now with faster, wired Internet services. It could be with investment, Son said. “Yes we can,” Son said. “Yes we can.” It’s not clear that Sprint, of Overland Park, Kansas, needs to buy T-Mobile to shake up the market in the “very appealing ways” Son described, John Bergmayer, senior staff attorney with the Washington-based policy group Public Knowledge, said in an e-mail. Wireless service isn’t robust enough to serve as a competitive substitute for fast wired Internet service, Bergmayer said.

Antitrust Concerns “Before we start treating wireline and wireless as competitors and allowing various mergers to skate through as a consequence, I want to see it in the real world,” Bergmayer said. Son and Sprint Chief Executive Officer Dan Hesse got a “highly skeptical” response when they raised the possible T- Mobile deal with Federal Communications Commission Chairman Tom Wheeler in February, and resistance in an earlier meeting at the Justice Department. Bloomberg News

loans in India

Dharmakirti Joshi, chief economist at Crisil Mumbai

‘Ample Room’ So-called real deposit rates are positive relative to consumer prices after remaining negative for most of the last five years, and slower inflation implies “ample room for banks to cut deposit rates,” the Morgan Stanley analysts wrote. India is the only emerging economy in Asia where lenders are likely to cut the cost of capital, according to the U.S. bank.


pple Inc. appealed a federal judge’s ruling last week denying the company’s bid for a sales ban on Samsung Electronics Co. smartphones found to have infringed the iPhone maker’s patents. U.S. District Judge Lucy Koh in San Jose, California, for a second time on March 6 rejected Apple’s request to ban more than 20 Samsung smartphones, no longer on the market, that were at issue in the companies’ first U.S. patent trial in 2012. Apple filed a one-paragraph notice today in Koh’s court saying it will ask the U.S. Court of Appeals for the Federal Circuit in Washington to review the case. Patent experts have said the ruling last week may make it harder for Apple to get a similar ban it would seek if it wins another trial scheduled to begin this month over newer devices. Koh’s decision may also give Samsung leverage as the world’s top two smartphone makers continue to talk to a mediator about a possible settlement. In their battle to dominate the worldwide smartphone market, Samsung and Apple have spent hundreds of millions of dollars in legal fees claiming each copied features of the other’s products since Apple initiated the fight in 2011. Koh previously found in rejecting a sales ban that Apple didn’t prove that Samsung’s infringement caused irreparable harm. The Federal Circuit later ordered her to reconsider her

US$929.7 mln Penalty amount against Samsung ruling, saying she set too high a standard in requiring Cupertino, California-based Apple to show that patented features of its phones are the “sole driver” of consumer demand.

Additional Hearings Koh concluded last week that, even after additional hearings following the appeals court ruling, the iPhone maker hadn’t marshalled enough evidence to win a sales ban. A jury in the 2012 case found Samsung infringed Apple’s patents, and Koh, in a final judgment last week, approved a US$929.7 million penalty against Samsung that was the product of two separate jury verdicts on infringement damages. Both companies have appealed the damages award. Adam Yates, a spokesman for Suwon, South Korea-based Samsung, declined to comment on Apple’s appeal. Bloomberg News

Indonesia bourse chef predicts golden year for stocks

Recent interest-rate increases were aimed at creating a stable environment”

India for the first time since March 2012, according to data compiled by Bloomberg. Savings at lenders are expected to increase 15 percent in the financial year ending March 31, while loans will increase by about 14 percent, Vishal Narnolia, Mumbai-based banking analyst at SMC Global Securities Ltd. said by phone yesterday.

Apple appeals rejection on Samsung’s trial resolution

A gauge of wholesale prices climbed 4.90 percent in February from a year earlier, the least since May, according to a separate Bloomberg survey before official data due March 14. Governor Rajan said in a February 27 in Mumbai that the best way the central bank can support growth is by reducing inflation, which should also help stabilize the rupee. The former International Monetary Fund chief economist has raised benchmark borrowing costs to 8 percent from 7.25 percent since taking office in September. His predecessor, Duvvuri Subbarao, cut the repurchase rate from a three-year high of 8.5 percent as growth slowed to 4.5 percent in the fiscal year ended March 2013, the weakest since 2003. Bloomberg News


he Jakarta Composite Index is poised to extend this year’s gain by another 10 percent as the government takes steps to improve exports and infrastructure, according to the head of the nation’s stock exchange. The benchmark gauge for Indonesia’s US$410 billion equity market will probably climb 20 percent in 2014, the most since 2010, after gaining 10 percent this year through yesterday, President Director Ito Warsito said in an interview. The bourse plans to attract 30 initial public offerings in 2014, versus 31 last year, he said. Indonesian shares have posted the biggest rally in Asia after Vietnam as net inflows by foreign investors climbed to about US$918 million, the most among regional markets tracked by Bloomberg. Investor sentiment has improved amid a narrowing currentaccount deficit and a rally in the rupiah, after the index fell 11 percent in the second half of 2013. “We are still optimistic about 2014,

although there are some concerns on the economic side,” Warsito, 52, said yesterday at the exchange. “We believe the composite index can still grow by around 20 percent.” Warsito forecast in an interview on June 27, 2012, that the index would rise as much as 14 percent to 4,500 by the end of that year. It ended 2012 about 10 percent higher at 4,316.69. Manufacturing and infrastructure stocks will probably be among the best performers this year as the government offers tax incentives to build factories and allows foreign investment in ports and airports, said Warsito, a graduate of Harvard Business School. The Jakarta Construction, Property & Real Estate Index has jumped 27 percent this year, the best performance among 9 industry groups.

Bank Earnings Profits at lenders will probably slow this year after the central bank lifted interest rates by 1.75 percentage points in 2013 to reduce the currentaccount gap, he said. With Bank Indonesia now expected to pause, corporate bond issuance will pick up, Warsito said. Companies are forecast to issue 50 trillion rupiah (US$4.4 billion) of bonds in 2014, compared with 57.5 trillion rupiah last year, he said.

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Old Spice… really for men? Women use men oriented products if it matches their needs

Cow Udders


hat’s the come-on intoned by the buff actor in Procter & Gamble Co.’s Old Spice commercials, imploring women to stock up on the men’s grooming products for their significant others. It turns out, though, that some are stocking up for themselves. Young women are embracing Old Spice - long known as the brand dad kept in the medicine cabinet even as P&G’s marketing continues to focus on their male peers. Sarah Olivieri, who started an “Old Spice for Women” Facebook page, said she came to the product for health reasons after searching for a deodorant that wasn’t an antiperspirant. Its relatively low price and newer scents also appeal to Old Spice fans. “There’s a lot of women out there, who, for different reasons, like to use Old Spice,” said Olivieri, 33, who runs a media company in Rifton, New York. The brand’s female inroads represent a small positive for P&G’s struggling beauty division, which accounts for about 23 percent of the Cincinnati-based company’s revenue. The unit’s sales declined 2 percent in the six months that ended December 31 from the year-earlier period. The whole industry is contending with sluggish growth over the next four years, underscoring the need to find new buyers for its wares. Sales of home care products are forecast to rise just 2.4 percent a year from 2014 to 2018, according to Euromonitor International.

Keeping It Cool Cultivating unintended audiences is a delicate process. While pushing a brand’s boundaries can fuel growth, the risk is alienating the existing market. The newfound customers also might not want to be courted directly, said Delia Passi, founder of

to delay doing laundry. In Vietnam, where the product is known as Ambi Pur, it’s caught on as a deodorizing spray for the helmets worn by riders of the country’s ubiquitous motor scooters.

Bag Balm, developed to soothe sore cows’ udders, became a popular skin softener for humans and their dogs. Kimberly-Clark Corp.’s Kleenex, meanwhile, was initially seen as a disposable cleaning tissue. Old Spice’s trip to the female market began after an image makeover. Long associated with middle-aged men, Old Spice began a new campaign in 2010 starring actor Isaiah Mustafa as “The Man Your Man Could Smell Like.” The first spot, where Mustafa advises that “anything is possible when your man smells like Old Spice and not a lady,” has drawn 48 million YouTube views. The campaign also has ad pitches like “Smellcome to Manhood” and “Old Spice Made a Man of My Son,” a commercial featuring moms spying on their kids during dates.

Conveying Masculinity

Medelia Inc., a firm in Hollywood, Florida, that advises corporations on selling to women. “Once you go out with a marketing campaign around it, then it’s not cool anymore,” she said. While P&G declined to comment, the company isn’t discouraging its new audience. At one point, P&G posted a link to Olivieri’s site on its brand page. Other products have successfully built audiences outside the confines of their brand’s target gender. Take Febreze, the odor-neutralizing line of products that’s also made by P&G. While the company marketed it toward women for housecleaning, some men spray it on their clothing

There’s a lot of women out there, who, for different reasons, like to use Old Spice Sarah Olivieri, “Old Spice for Women” Facebook page founder

For men, using a product that’s embraced by women can carry a stigma, said Jill Avery, a senior lecturer at Harvard Business School who has studied the concept of what she calls “gender contamination.” She also points to traditional men’s names such as Ashley. Once parents begin using them for girls, they tend to stop being boys’ names, she said. “A lot of the things we use are gendered,” whether that’s a brand or a category, Avery said. “If you think about what men are being told from a very young age, it’s being masculine is the antithesis of being feminine.” If large numbers of women started using Old Spice, or if the company introduced an Old Spice for women or shifted to more unisex marketing, “you might see men leaving the brand because it doesn’t convey the masculinity that it did in the past,” she said. Bloomberg News

Gold-made candies for Candy Crush The game owners estimate the capitalization will be between 4.75 billion and 5.5 billion euros


ing Digital Entertainment, the British developer behind the wildly-addictive mobile game Candy Crush, said on Wednesday that it

could be valued at up to US$7.6 billion in its eagerlyawaited upcoming flotation. The planned listing on the New York Stock Exchange, unveiled last month, is the

latest in a series by Internet and gaming firms over the past three years - the most high-profile being Facebook and Twitter. King said on Wednesday

that it was planning an initial public offering of 22.2 million shares each priced at between US$21 and US$24 a share. That could give the company a market capitalisation of between US$6.6 billion and US$7.6 billion (4.75 billion-5.5 billion euros). “We estimate that we will receive net proceeds from this offering of US$326 million,” King said in a statement. “We intend to use the net proceeds from this offering for working capital and other general corporate purposes, which may include acquisitions.” King outlined its pricing in a statement issued by the US regulatory body SEC for the New York listing. Candy Crush - King’s top-seller - started life as a

Facebook game in 2012 but can also be played online and on smartphones. Millions of commuters, teenagers - even pensioners - worldwide clock in daily to test their skills at the game, which basically involves moving brightly coloured sweets around a grid to get at least three of a kind in a row. The highly-addictive game is free, but players can pay for extras to smooth their passage through its more than 500 levels. Candy Crush records some 700 million sessions a day and racks up daily sales of US$850,000, according to the IDATE digital research and consultancy firm. A quarter of players said they had spent money on the game, according to market research firm Ask Your Target. Despite its 1.1 billion users, Facebook had a rocky debut after it went public in May 2012, raising US$16 billion in the biggest tech IPO on record. Its shares fell by more than half in the ensuing months, but have since recovered thanks to strong gains in mobile ad revenues. Reuters

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The Secret History wires of the Financial Crisis Business

Leading reports from Asia’s best business newspapers

THE AGE The former Treasury secretary and head of the last major review of the taxation system, Ken Henry, has warned the Abbott government urgently needs a t a x a nd we l fa re package to head off an imminent budget crisis. He said the changes would have to encompass all welfare payments, which includes disability support pensions, family tax payments, and employment benefits, because the entire system needed to be fixed. Dr Henry said he was frustrated by the lack of progress on tax and welfare reform since his wide-ranging review of the taxation system in 2010.

CHINA DAILY China is set to fully liberalize its interest rate within one or two years, in a bid to further reform the financial sector, the Central Bank governor Zhou Xiaochuan said on Tuesday at a news briefing during the two sessions. “We will let the market play its due role in interest rate liberalization. That’s for sure,” Zhou said. “Deposit rate is set to ease within one or two years. It’s part of our plan.” He added that interest rates will possibly go up, but will eventually level in the longer term due to market forces and competition.

ASAHI SHIMBUN The Fisheries Agency plans to propose halving the international catch of young Pacific bluefin tuna, saying more must be done to preserve stocks of the hugely popular sushi item in Japan. The proposal, expected in September at the Western and Central Pacific Fisheries Commission, calls for a 50-percent cut from the average catch between 2002 and 2004 for about a decade from 2015. It covers fish up to 3 years old.

THE STAR Sime Darby Bhd’s unit is forming a joint venture (JV) with two Chinese companies to build, manage and maintain the sea channel, anchorage and port infrastructure within the Weifang Central Port region. The Malaysian conglomerate said in a filing with Bursa Malaysia that its 99%-owned indirect subsidiary, Weifang Sime Darby Port Co Ltd, had signed a shareholders’ agreement with Weifang Port Co Ltd and Shandong Hispeed Transport & Logistics Investment Co Ltd to set up the JV company Weifang Port Services Co Ltd. “The total registered capital of the JV company shall be one billion yuan (RM536mil),” Sime Darby said in its filing.

Harold James Senior fellow at the Center for International Governance Innovation, is Professor of History and International Affairs at Princeton University and Professor of History at the European University Institute, Florence.


alzac’s great novel Lost Illusions ends with an exposition of the difference between “official history,” which is “all lies,” and “secret history” – that is, the real story. It used to be possible to obscure history’s scandalous truths for a long time – even forever. Not anymore. Nowhere is this more apparent than in accounts of the global financial crisis. The official history portrayed the US Federal Reserve, the European Central Bank, and other major central banks as embracing coordinated action to rescue the global financial system from disaster. But recently published transcripts of 2008 meetings of the Federal Open Market Committee, the Fed’s main decision-making body, reveal that the Fed has effectively emerged from the crisis as the world’s central bank, while continuing to serve primarily American interests. The most significant meetings took place on September 16 and October 28 – in the aftermath of the collapse of the US investment bank Lehman Brothers – and focused on the creation of bilateral currency-swap agreements aimed at ensuring adequate liquidity. The Fed would extend dollar credits to a foreign bank in exchange for its currency, which the foreign bank agreed to buy back after a specified period

at the same exchange rate, plus interest. This gave central banks – especially those in Europe, which faced a dollar shortage as US investors fled – the dollars they needed to lend to struggling domestic financial institutions. Indeed, the ECB was among the first banks to reach an agreement with the Fed, followed by other major advanced-country central banks, including the Swiss National Bank, the Bank of Japan, and the Bank of Canada. At the October meeting, four “diplomatically and economically” important emerging economies – Mexico, Brazil, Singapore, and South Korea – got in on the action, with the Fed agreeing to establish $30 billion swap lines with each of their central banks. Though the Fed acted as a kind of global central bank, its decisions were shaped, first and foremost, by US interests. For starters, the Fed rejected applications from some countries – whose names are redacted in the published transcript – to join the currency-swap scheme. More important, limits were placed on the swaps. The essence of a central bank’s lender-of-last-resort function has traditionally been the provision of unlimited funds. Because there is no limit on the amount of dollars that the Fed can create,

no market participant can take a speculative position against it. By contrast, the International Monetary Fund has finite resources provided by member countries. The Fed’s growing international role since 2008 reflects a fundamental shift in global monetary governance. The IMF emerged at a time when countries were routinely victimized by New York bankers’ casual assumptions, such as J.P. Morgan’s assessment in the 1920’s that Germans were “fundamentally a second-rate

Though the Fed acted as a kind of global central bank, its decisions were shaped, first and foremost, by US interests

people.” The IMF was a critical feature of the post-WWII international order, intended to serve as a universal insurance mechanism – not one that could be harnessed to advance contemporary diplomatic interests. Today, as the Fed documents clearly demonstrate, the IMF has become marginalized – not least because of its ineffective policy process. Indeed, at the outset of the crisis, the IMF, assuming that demand for its resources would remain low permanently, had already begun to downsize. In 2010, the IMF made a play for resurrection, presenting itself as central to solving the euro crisis – beginning with its role in financing the Greek bailout. But here, too, a secret history has been revealed – one that highlights just how skewed global monetary governance has become. The fact is that only the US and the massively overrepresented countries of the European Union supported the Greek bailout. Indeed, the major emerging economies all strongly opposed it, with the Brazilian representative calling it “a bailout of Greece’s private debt holders, mainly European financial institutions.” Even the Swiss representative condemned the measure. As fears of a sudden collapse of the eurozone have given way to a prolonged debate about how the costs will be met through bail-ins and write-offs, the IMF’s position will become increasingly convoluted. Though the IMF is supposed to have seniority over other creditors, there will be demands to write down a share of the loans that it has issued. Poorer emergingmarket countries would resist such a move, arguing that their citizens should not have to foot the bill for fiscal profligacy in much wealthier countries. Even the original advocates of IMF involvement are turning against the Fund. EU officials are outraged by the IMF’s apparent effort to gain support in Europe’s debtor countries by urging writeoffs of all debt that it did not issue. And the US Congress has refused to endorse the expansion of IMF resources – part of an international agreement brokered at the 2010 G-20 summit. While the outrage that followed the appointment of another European as IMF Managing Director in 2011 is likely to ensure that the Fund’s next head will not hail from Europe, the IMF’s fastdiminishing role means that it will not matter much. As 2008’s secret history shows, what matters is who has access to the Fed.

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Closing Centre to help Chinese investors in Angola Agonising wait The Chinese Chamber of Commerce in Angola has set up a centre of services to provide legal assistance and logistics support to the growing number of Chinese citizens and companies in Angola, China Radio International (CRI) announced. “Currently there are at least 500 Chinese companies operating in Angola and more than 100,000 Chinese workers involved in post-war reconstruction projects, contributing towards the social and economic development of the country”, said the broadcaster’s Internet page, quoting Xinhua news agency. Trade between Angola and China grew more than 42% in 2011 and reached $37.5 billion in 2012.

Malaysia’s military has traced what could have been the jetliner missing for almost five days to an area south of the Thai holiday island of Phuket, hundreds of miles from its last known position, the country’s air force chief said yesterday. After a series of at times conflicting statements, the latest revelation underlined that authorities remain uncertain even where to look for the plane, and no closer to explaining what happened to Malaysia Airlines Flight MH370 or the 239 people on board. Malaysian air force chief Rodzali Daud told a news conference that an aircraft was plotted on military radar at 2:15 a.m., 200 miles (320 km) northwest of Penang Island off Malaysia’s west coast.

Europe launches sanctions against Russia EU approves framework for asset freezes, travel bans Martin Santa and Luke Baker


uropean Union member states have agreed the wording of sanctions on Russia, including travel restrictions and asset freezes against those responsible for violating the sovereignty of Ukraine, according to a draft document reviewed by Reuters. The seven-page document describes in detail the restrictive measures to be taken against Moscow if it does not reverse course in Crimea and start to engage with international mediators on efforts to resolve the crisis. If approved by EU foreign ministers at a meeting on Monday, they would be the first sanctions imposed by the European Union against Russia since the end of the Cold War, marking a severe deterioration in East-West relations. The measures are being coordinated with the United States, Switzerland, Turkey, Japan and Canada, an effort to ensure the sanctions net is as tight and effective as possible.

“Member states shall take the necessary measures to prevent the entry into, or transit through, their territories of the natural persons responsible for actions which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine,” reads Article 1 of the document.

China, Ukraine worries markets


merging market currencies fell yesterday as investor nervousness over China’s economy and Ukraine’s future intensified, rekindling safe-haven bids for the yen and the Swiss franc. China’s first domestic bond default last week fed fears about slowing growth of the world’s second-biggest economy and its demand for copper and other raw materials. This has pummelled the Australian dollar, Chilean peso, the South African rand and other currencies tied to commodity prices. The diplomatic stalemate between Russia and the West over Ukraine and military moves on both sides have led investors to further cut their exposure to riskier currencies, analysts said. “China has been a concern with its economic data which have been on the softer side. We have been weak with commodity currencies so far this week,” said Dean Popplewell, chief currency strategist at Oanda in Toronto. The Aussie, the Chilean peso, and South Africa’s rand, all of which are usually correlated to the prices of iron, copper and other raw materials.

The second article covers assets held in the European Union and states that “all funds and economic resources belonging to, owned, held or controlled” by those responsible for actions which have undermined Ukraine’s integrity “shall be frozen”. The document was approved by what is known

as a silence procedure after none of the EU’s member states raised objections to the wording, officials said. EU foreign ministers meet in Brussels on Monday and are expected formally to sign off on the restrictions, unless there is a dramatic change of course by Russia. That seems unlikely, with no

Chinese developers bet on Malaysia


alaysia is turning into the darling of Chinese developers as mainland investors turn their backs on market restrictions in Hong Kong and Singapore and bet billions on cheaper housing and higher returns in the Southeast Asian country. State-backed Greenland Group announced this month a US$3.3 billion deal in two residential and hotel projects in Malaysia, joining smaller peers Country Garden Holdings Co Ltd, Guangzhou R&F Properties Co Ltd and Agile Property Holdings Ltd, which have invested a combined US$2.7 billion in Malaysia in the past two years. In 2013, Chinese institutional and retail investors invested a total of US$1.9 billion into real estate in Malaysia, exceeding the US$867 million invested in Hong Kong and US$1.8 billion invested in Singapore, according to real estate consultancy Savills. The figure also topped the US$1 billion invested in Australia, but lagged Chinese investments into Britain and the United States. “Malaysia hosts a vast Chinese community and has policies that attract foreign buyers so it has become a new investment destination,” said Greenland’s group chairman, Zhang Yuliang.

indication of a ‘de-escalation’ in Crimea. A referendum in Crimea to be held on Sunday is expected to see the region vote in favour of secession from Ukraine to join Russia, adding weight to calls for an international response. In a statement, the leaders of the G7 - the United States, Britain, France, Germany, Italy, Japan and Canada - called on Russia to stop the referendum from taking place and said they would not recognize the outcome if it did. “In addition to its impact on the unity, sovereignty and territorial integrity of Ukraine, the annexation of Crimea could have grave implications for the legal order that protects the unity and sovereignty of all states,” they said. “Should the Russian Federation take such a step, we will take further action, individually and collectively.” Reuters

Crimea’s destiny two months away


rimea can be integrated into Russia within two months if its voters decide the territory should cease being a part of Ukraine in a referendum on March 16, Crimea Prime Minister Sergei Aksenov said in interview. “Procedures to join Russia are now being widely discussed by parliament groups and with the Duma,” Aksenov said yesterday in Simferopol, Crimea. “It wouldn’t take more than two months.” Aksenov said there will be more clarity today on the timetable, mechanism and legal aspects of Crimea’s Russian entry and there are “many new details we need to clarify.” Russian forces taking control of Crimea last month, home to its Black Sea Fleet, sparked the worst crisis with the West since the Cold War as the European Union and the U.S. try to use sanctions to force President Vladimir Putin to retreat. “I wouldn’t advise anyone to start a war with us,’” Aksenov said. Putin says ethnic Russians in Crimea are at risk after an uprising in Kiev toppled Moscowbacked President Viktor Yanukovych, an assertion Ukraine’s new leaders deny. Bloomberg

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