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MOP 6.00 Publisher: Paulo A. Azevedo Number 520 Thursday April 17, 2014 Year III

Chinatown casino complex Twelve consortiums have lodged applications with the Queensland government, in Australia, for casino licences. Local Legislator Chan Meng Kam’s Zelong Group has thrown its hat into the ring on the back of a proposed 37.5 billion-pataca casino resort with Chinese characteristics


Surpassing performance


Photo: Carmo Correia

Junkets junked, commissions increased

Gaming share market race is on. Sands China overtook SJM in the first half of the month. But the good news comes from the first quarter, which saw over MOP102 billion in revenues, a 20 percent increase when compared to the same period in 2013

Melco Crown Entertainment is weaning itself off its junket diet, its latest annual report suggests. Less than half of its casino revenue is now derived from professional middlemen

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China Resources Po


Source: Bloomberg

Latest results return a less than expected GDP for China, although authorities don’t show any apparent signs of concern. In spite of retail sales and factory output increasing, government GDP growth forecasts of 7.5 percent weren’t viable.

Macau Cable TV can also provide Internet services. The new 5-year contract will be signed on Tuesday. The company will have a discounted fee. From now on it will only pay the government 1.5 percent of its annual profit instead of the 3 percent of the past

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April 17, 2014


Gov’t O.K.’s Macau Cable TV Internet services Govt permits company to run pay television service alongside Internet service in anticipation of licensing companies providing all television, Internet and fixed-line services together in 2017 Tony Lai


acau’s sole pay television service provider Macau Cable TV Co Ltd can also run Internet services following its contract renewal with the government for another five years, effective April 22. The additional service has been green-lighted for Cable TV as the government wishes to see operators provide all television, Internet and fixed-line services together in three years, said the regulatory Bureau of Telecommunications Regulation yesterday. The five-year deal between the government and Cable TV, published in the Official Gazette yesterday, comes into force on a non-exclusive basis once the latter’s 15-year exclusive concession in the local pay TV market ends on April 21. The new contract allows Cable TV to operate pay TV services alongside other services like TV programme production and Internet services, which the company has previously requested. Macau’s largest telecommunications firm Companhia de Telecomunicações de Macau S.A.R.L (CTM) is the sole Internet service provider here now. Hoi Chi Leong, acting director of the bureau, explained in a press conference yesterday: “These ancillary services like Internet [for Cable TV]… can help the future development for the convergence of three services [on TV broadcast, Internet and fixed line].” The government aims to issue licences for operators to run three services together in the future, he said. But a concrete timetable for development and procedures cannot

Mixed signals The government still offers no clarity on the future prospects of the local public antenna entities even though the latter will help provide free-to-air TV signals for another two years. The Bureau of Telecommunications Regulation announced yesterday that Macau Basic Television Channels Ltd – primarily controlled by the government – signed a pact with 14 public antenna entities to provide signals from April 22, 2014 to March 31, 2016. Hoi Chi Leong said yesterday that the signals will be gradually transmitted by the underground cables rather than the overhead cables managed by the antenna enterprises. Asked whether this means that the antenna companies will be gradually phased out, Mr Hoi did not provide a direct answer, only saying: “The antenna firms and other companies can bid for a [TV] licence in the future.” The free-to-air TV transmission is now carried by the antenna companies and Macau Cable TV Co Ltd based on an agreement that will expire on April 21.

Hoi Chi Leong

be decided until the University of Macau completes its study on the future of the television market in September, he said, adding that the relevant legal framework is also necessary. “We expect in the next two or three years that there will be three operators, including Cable TV, that have the conditions to provide such convergent services after laying down the underground pipelines,” Mr Hoi said. The other two companies Mr Ho refers to are CTM and other fixed-line

operator MTEL Telecommunication Co Ltd. According to the telecommunications bureau, CTM’s pipelines can basically reach every corner of Macau while MTEL should cover 30 percent of the territory’s households by the end of this year. The coverage of Cable TV should be extended to 60 percent by 2017 from about 10 percent now. Mr Hoi denied yesterday, however, that this means that the government has already decided upon these three companies as the

future service providers. He explained: “What I’ve said is a forecast based on the reality, but this does not mean that the government will issue three licences. There might be new investors at the time willing to lay down the network from scratch . . . There are also some international practices offering two types of licence – one for facilities and one for services.” CTM and MTEL have previously said that they do no rule out tapping the TV market, depending on government policies. The acting director also defended the decision to renew the company’s contract for five years rather than a shorter tenure. “We have to encourage the company for more capital investment and [a contract] lasting one or two years cannot do that,” he said, adding that this follows international practice. Mr Hoi added that Cable TV, as the obligation of a public utility, has to notify the government if there is a change in the company’s shares of more than 10 percent. The government’s new contract with Cable TV also requires the latter only pay the administration for the licence fee at 1.5 percent of its annual profits, rather than the 3 percent of the past.


April 17, 2014

Macau Electricity subsidy to continue Households will continue to benefit from the monthly government subsidy that has now been running for seven consecutive years. The amount of the subsidy will remain at 200 patacas per month. Should households not use up the whole monthly amount the subsidy can be deferred for 24 months after the end of the programme but cannot exceed a total of 4,800 patacas per household. Households already benefit from the government’s electricity subsidy, which increased from 180 patacas to 200 patacas per month in October last year.

Rising pollution brings Chief to village Chief Executive to promise short and long-term measures to return quality air to the once pristine solitude of Ka Ho


series of televised complaints berating the increase in pollution choking Ka Ho village, in Coloane, prompted the Chief Executive and a group of senior government officials to experience the problems firsthand. “The level of pollution is getting too ‘loud’ to be ignored”, a government source told Business Daily. Heavily forested Coloane has long been considered Macau’s lung but in recent years the unending cavalcade of trucks serving the massive gaming projects in Cotai and other infrastructure like the elevated railway have exerted a “high impact on people’s lives here”, said the source. Yesterday, Fernando Chui Sai On visited schools and Ka Ho village to

calm worries and listen to complaints. He declared that an interdepartmental group had already embarked upon a series of works in order to identify short and long-term solutions. The theme was later continued by Secretary Lau Si Io. The official responsible for Public Works and Transport said that the government had already “demanded” the deep water port and cement factories “renovate” their equipment. To such short-term solutions other long-term ones will be added, like proper legislation to regulate heavy industry. The construction of a tunnel to directly connect the area to Taipa, alleviating traffic pressure, is also on the government radar. A. L.

Going green costs gov’t 2,400 hospital beds by 2020 MOP28 mln in Q1


he government has spent as much as 28 million patacas in the first quarter of the year from its Environmental Protection and Energy Conservation Fund. Official figures released yesterday in the Official Gazette show that around 300 companies applied for funds in the first three months of the year. These include Wynn Macau and the Airport Administration. Last October, the gov-

ernment announced that the fund, which was launched in 2011, would be extended for a second time, until December 31, 2014. The 200 million-pataca fund is for subsidising the acquisition by companies and associations of environmentally friendly technology, equipment and products. The fund pays up to 80 percent of the cost of acquisition, up to a limit of one million patacas per grant. This amount has doubled from 500,000

patacas in 2013. It does not meet any of the costs of installation or of associated construction or refurbishment. The Environmental Protection Bureau previously revealed that most of the subsidies have been for energy-saving lighting and air conditioning, kitchen extractor hoods and air purifying equipment. The Environmental Protection Bureau runs the fund, launched with an initial capital of 200 million patacas.


acau hopes to have as many as 2,400 hospital beds by 2020, Health Bureau director Lei Chin Ion said yesterday while at the Legislative Assembly to answer legislators’ queries. “Averaging that the population will be of around 700,000, then there will be around 3.9 [hospital] beds for every 1,000 people,” Mr Lei said. At the end of last year, that average was of 2.17 beds per 1,000 people. While the director recognised that the current number is low, he also admitted that the num-

ber of beds for patients in rehabilitation is even lower. “We have been increasing that number over the years,” Mr Lei added. Meanwhile, work on the new hospital in Cotai is expected to kick off by the start of next year, for completion by late 2017. Preliminary works on the project have been completed and the land inspected for foundation works. In addition to the 112 nurses the health authorities expect to hire this year, Mr Lei said 100 more would be hired next year.


April 17, 2014

Macau Brands


Gucci Noveau: putting the fashion into fringe

Chan Meng Kam bids for Queensland casino licence The legislator’s Zelong Group inks agreement with Australian business chamber in bid for casino licence in the northern state. A A$5 billion (37.51 billion-pataca) casino resort is on the cards Tony Lai

Raquel Dias


talian luxury brand Gucci has outdone itself yet again. By reinventing the famous Bamboo bag, the fashion house has presented this season’s iconic item. Meet the Gucci Nouveau shoulder bag. It comes in almost every shade and delivers a new element: the fringe. The brand calls it a “reinvention of the 1940’s shoulder bag”. It’s pretty, it’s sassy and it’s very rock & roll. So rock & roll that the marketeers have done an excellent job of pairing the piece with celebrities from the music scene. DJ’s and other stars have posed with the bag, immersed in black leather, for the hot advertising campaign. The musical theme fits like a glove as the long fringe has an eye-catching movement; it almost dances with the wearer’s stride. Like any Gucci bag, however, one is buying far more than just good design and status - quality is of the utmost importance. It’s no surprise, then, that the lacquered bamboo ornaments, signature maxi stitching and a dry-stoned embossed trademark are a few of the expert details that artisans spend up to two days fashioning. Although it’s doubtful that the fringe frisson will last much more than one or two seasons the truth is it’s contagious. Tod’s, for example, have taken the theme up with the launch of a very nice pair of their signature Gommino Driving shoes with fringes. There’s even a nice, professional bag to match.


rominent local businessman and legislator Chan Meng Kam has ties with one of the twelve bidders for a casino licence in the Australian state of Queensland, Business Daily learned in a review of the bidders’ information. The review was launched after China-Australia Entrepreneurs Association Inc (CAEAI) and Macau ASEAN International Chamber of Commerce reached consensus this week to invest together in a proposed A$5 billion (37.51 billion-pataca) casino resort in the state. CAEAI, headed by Chinese businessman Raymond Wang, is among one of the 12 consortiums that have lodged applications with the Queensland government for casino licences, Queensland Deputy Premier Jeff Seeney revealed earlier this month. According to CAEAI’s website, the group signed an agreement with the Zelong Group in January to “secure a regional casino licence” in Queensland prior to the filing. The official website of Zelong Group said the company - based in Xiamen in Fujian province, with interests in Macau casino entertainment, trade and property development – was founded by Kyan Su Lone and Chan Meng Kam. Macau’s official asset declaration record dated December 31, 2013 shows Mr Chan – a member of the Legislative Assembly and Executive Council here - holds 60 percent of the capital of Zelong Group and serves as one of the shareholders in the company. A call to Mr Chan to ask him about details of his cooperation with CAEAI on the Queensland project went unanswered yesterday. An attempt to reach Mr Kyan for comment was not successful yesterday. Mr Chan is not an unfamiliar name in the casino industry. He is boss of Hotel Golden Dragon on the peninsula, which has satellite casino operations using the gaming licence of SJM Holdings Ltd.

The ties of the CAEAI project with Macau further strengthened this week after the Macau ASEAN International Chamber of Commerce - whose president is Mr Kyan - said it could also invest in the proposed project.

Buddhist resort The chamber said in a statement that both the ASEAN chamber and CAEAI “reached cooperation intention” on April 14 for investment together in the proposed project at Airlie Beach on the Whitsunday Islands, Queensland. The project will include facilities like a 5-star hotel and casino, a Buddhist school, a Chinatown-style precinct, and a temple, the statement added. Mr Kyan was quoted in the statement as saying that the chamber would introduce the project to its members and encourage more Macau-backed investments in Australia. The statement did not disclose an investment figure for the project but CAEAI’s Mr Wang said in February, quoted by Australian newspaper Courier-Mail, that its Queensland project could run to A$5 billion. Mr Chan is not the only familiar name from the Macau casino industry that has participated in bidding for casino licences in Queensland state. Billionaire James Packer’s Crown Resort Ltd and a venture including Hong Kong tycoon Cheng Yu Tung’s Chow Tai Fook Enterprises Ltd are among the 12 applications - six for a new casino in Brisbane and another six for regional Queensland including the Whitsunday Islands. Queensland state, already housing four casinos, will allow at most three new casinos from the 12 applications, with one of the licences reserved for the central Brisbane site, Australian media reported this month. Queensland’s Mr Seeney said that the administration there will prepare a final shortlist of applicants by mid-


Capital share of Chan Meng Kam in Zelong Group

2014, with a decision on the issue of gaming licences next year, the media reported. Mr Packer formed the venture of Melco Crown Entertainment Ltd with Lawrence Ho Yau Lung, son of gaming tycoon Stanley Ho Hung Sun, to run casinos here. Mr Cheng and his family hold almost 10 percent stake in conglomerate Sociedade de Turismo e Diversões de Macau SA, founded by Stanley Ho Hung Sun.


April 17, 2014


Sands China noses ahead in market share SJM relinquishes market lead in ongoing tussle with the U.S. company for market dominance Sara Farr


ands China Ltd has once again overtaken Sociedade de Jogos de Macau (SJM) in the shareof-market race, albeit by a narrow margin. Numbers released by Barclays Capital show that in the first two weeks of this month alone, Sands China occupied 23.4 percent of market share, followed by SJM with 23.1 percent. Galaxy Entertainment Group ranked third with 16.7 percent while Melco took up 16 percent. Wynn Macau ranked second last with 10.7 percent of market share, and MGM China Holdings Ltd grabbed 10.1 percent. According to a note from the investment bank, Sands, Melco and MGM saw their market shares grow, while the market share of the other three casino operators correspondingly dropped. Official figures released yesterday by the Gaming Inspection and

Coordination Bureau (DICJ) show that in the first quarter of this year, games of fortune generated 102.2 billion patacas (US$12.8 billion) in terms of gross gaming revenue. This represents 28.3 percent of the total gross gaming revenue generated for the whole of 2013, and a 19.8 percent increase over the first quarter of last year. Baccarat remained the most popular table game generating 65.1 billion patacas in the VIP market and 28.5 billion patacas in the mass market. The second most popular table game was cussec with a gross gaming revenue of just under 2 billion patacas, compared with 1.6 billion patacas over that of the same period last year. Slot machines were highly popular as a non-table game, with gross gaming revenues reaching 3.9 billion patacas between January and March

this year, an 8.3 percent increase over that of the same period a year earlier. Sports Lottery, mainly football, generated 115 million patacas in gross gaming revenue in the first three months of the year over 101 million patacas year-on-year. Horse racing, however, saw its gross gaming revenues drop by 15.7 percent to 102 million patacas in the first quarter of 2014 from 121 million patacas in the same period a year earlier. Barclays Capital forecasts gaming revenue to grow between 9 percent and 15 percent this month, amounting to between 29.8 billion patacas and 31.5 billion patacas. The investment bank forecasts that the pace of revenue growth will pick up again next month, with an increase of over 20 percent. A total of 35 casinos operated in Macau at the end of the third quarter this year. with Tony Lai

China concerns . . . or usual volatility? Less borrowing in China may lead to a drop in betting by high rollers in Macau, according to Cameron McKnight, a Wells Fargo & Co. analyst in New York. Credit growth is a leading indicator of so-called VIP betting in Macau casinos by six to 12 months, he said. Wynn Macau Ltd dropped 2.43 percent to HK$32.10, followed by Melco Crown Entertainment with a 1.53 percent drop to HK$90.05 and Galaxy Entertainment Group Ltd, which fell 1.38 percent to HK$67.75. Sands China Ltd., a unit of Las Vegas Sands Corp., slid 1.22 percent to HK$60.55. The smallest drop on daily trading was SJM Holdings Ltd, falling 0.44 percent to HK$22.75.






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April 17, 2014


Melco Crown juggles junket dependency, while increasing commissions In 2013, only half of Melco Crown Entertainment casinos revenues came from junkets against more than 60 per cent two years ago. The gaming operator is trying to reduce exposure to protect it against credit risk and law changes that could hurt future profits Alex Lee


or the first time since starting its Macau operations, the share of Melco Crown Entertainment casino revenues coming from junket operators has dropped below the 50 per cent mark, an indication that the company is trying to lower its dependency on the middlemen and reduce its exposure to credit risk and anticipated law changes in Macau regarding these professionals. According to the 2013 annual report of the casino venture owned by Australian billionaire James Packer and Lawrence Ho, half of its gambling revenues (49.8 percent) came from clients introduced by junkets, a decrease compared to the last two exercises. In 2012, gaming promoters’ clients were responsible for 53.4 per cent of all casino revenues and in 2011 more than 61 per cent. This trend could be a sign that the company is trying to reduce the big junkets’ share in skyrocketing revenues. Last year, Melco’s casino gains totalled US$4.94 billion, one billion more than in 2012 and the equivalent of 25,6 per cent increase. The company had not replied to Business Daily regarding questions about junket dependency by the time we went to press but in the report published this week the excessive presence is implied. In a chapter about the factors affecting future results, the managers of City of Dreams underline that the relations with gaming promoters expose the company to “credit risk and to any change in the gaming promoter commission environment in Macau”. The firm describe as “good” its relationship with junkets, a group that it admits “contribute to a significant portion of our casino revenues”. For example, Melco’s best costumer was a junket responsible for 6.3 per cent of all casino revenues and the top five clients were also gaming operators occupying a share of 20.7 per cent, the report says.

Junket commissions increase 30 percent Credit risk is becoming a hot issue in China as the economy slows down. Credit on the mainland decreased 9 per cent in the first quarter against a 9 per cent jump in the same period last year. In research published yesterday, Wells Fargo estimate that VIP revenues will continue to decelerate in the next six months, meaning tougher times for casinos

and especially for junkets who depend upon credit. The US bank estimates a VIP revenues growth of only 3 per in the second half of the year, four times less than the 12 per cent jump registered in the first quarter of 2014. Despite the lower stake of promoters in casino revenues, the commissions paid by Melco Crown to junkets are

on the rise. In 2013, commissions amounted to US$391 million (MOP3.128 billion), 30 percent more than in 2012 (US$308 million). Lawrence Ho, Melco Crown’s CEO, says Macau’s gambling market is a long-term success given the “unrealized” potential of mainland China, witness the “impressive”

performance of City of Dreams and mass market gamers in 2013. Last year, Melco’s profits climbed 52.8 per cent to more than US$600 million. In the annual report, the company declares it is ready to search out other destinations to expand its casinos in addition to Macau, the Philippines and Japan.

Cyber thieves hijack personal bankcard information T hree Macau residents had their personal and banking details stolen and used in transactions in Russia and Thailand. Macau Judiciary Police received complaints from residents who had had

their banking and personal information stolen and used to withdraw money or wire funds in foreign countries. In one particular case, the personal details of a local woman were used in three separate transactions in

Thailand to steal 2,930 renminbi (3,760 patacas). Another victim was robbed of 10,000 patacas in three transactions, also in Thailand, while a third complainant’s banking details were stolen and used to make seven

transactions in Russia amounting to 7,140 renminbi. All three victims were notified by their respective banks, with none of them claiming to have had their cards stolen.


April 17, 2014


Balancing act Stocks close higher as investors weigh China growth Kana Nishizawa and Weiyi Lim


ong Kong’s benchmark stock gauge closed higher after fluctuating throughout the day as investors weighed data showing China’s gross domestic product growth slowed to the weakest pace in six quarters. Agricultural Bank of China Ltd. added 0.3 percent, paring gains of as much as 1.8 percent. Tencent Holdings Ltd. and Lenovo Group Ltd. advanced after U.S. technology stocks rallied. China Resources Power Holdings Co. retreated 3 percent to lead declines on the Hang Seng Index. “GDP was largely in line but industrial production disappointed,” Audrey Goh, an investment strategist at Standard Chartered Plc, said from Singapore. “This is in tandem with the disappointing money-supply growth yesterday [Tuesday] which showed that growth in the economy continued to slow, renewing calls for more policy measures to support growth.” The Hang Seng Index climbed 0.1 percent to 22,696.01 at the close in Hong Kong after rising as much as 0.9 percent and falling 0.2 percent. Trading volume yesterday was 31 percent lower than the 30day average. The Hang Seng China Enterprises Index of mainland shares

traded in the city added 0.1 percent to 10,035.96. Asia’s largest economy grew an annualized 7.4 percent in the first quarter, a report showed yesterday (see page 11). That compared with the median estimate of 7.3 percent in a Bloomberg News survey of economists and a 7.7 percent expansion in the fourth quarter. Industrial production

increased 8.8 percent in March, less than projected, while first-quarter fixed-asset investment trailed estimates.

Quarterly performance The Hang Seng Index rose 2.5 percent this quarter, the top performer for the period among

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developed markets after being the second-worst the previous three months, on speculation China’s policy makers will act to counter a slowdown that threatens their 7.5 percent growth target. The equity gauge traded at 10.3 times estimated earnings yesterday, compared with 15.7 times for the Standard & Poor’s 500 Index on Tuesday. “It’s an uncomfortable position to be in. The numbers aren’t that good, but not bad enough to expect stimulus,” said Ryosuke Kawahata, who helps oversee about US$34 billion at Mizuho Asset Management Co. “If the macro data missed estimates by a lot there could have been more expectations for stimulus policy to come through to stabilize growth.” Banks rebounded after dropping when data showed new credit fell in March and money supply expanded at the slowest pace on record. Agricultural Bank rose as much as 1.8 percent before closing 0.3 percent higher at HK$3.31. China Citic Bank Corp. added 0.4 percent to HK$4.65. Futures on the S&P 500 added 0.4 percent yesterday. The U.S. equity gauge rose 0.7 percent on Tuesday as earnings from CocaCola Co. and Johnson & Johnson outweighed concerns that tensions in Ukraine are worsening. Twitter Inc. soared 11 percent, the microblogging company’s biggest gain since its first day of trading. Technology shares continued their rebound after hours when Yahoo Inc. and Intel Corp. posted favorable results. Tencent, Asia’s biggest Internet company, climbed 1.1 percent to HK$521.50. Lenovo added 2.2 percent to HK$9.34 to lead gains on the Hang Seng Index. Bloomberg

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April 17, 2014

Greater China

U.S. requests a markets-guided yuan We hope the U.S. can correctly understand and properly deal with economic and trade issues, including the yuan exchange-rate issue Hua Chunying, China’s Ministry of Foreign Affairs spokeswoman Treasury Department building in Washington, D.C. A Treasury official presented a half-year report to Congress yesterday


he U.S. urged China to reduce currency interventions and let markets play a bigger role in setting the value of the yuan, in a report that declined to name any major trading partner a foreign-exchange manipulator. “There are a number of continuing signs that the exchange- rate adjustment process remains incomplete and the currency has further to appreciate,” the Treasury Department said yesterday in a semi-annual report to Congress. Pressured by its international counterparts to loosen currency controls, China last month doubled the limit within which the yuan, also known as the renminbi or

RMB, can move against the U.S. dollar every day. “The widening of the band gives China an opportunity to reduce intervention and allow the market to play a greater role in determining the exchange rate” the Treasury said in the report. “To realize this opportunity, China should refrain from intervention within the band.” The criticism comes less than a week after finance ministers and central bank governors of the Group of 20 economies met April 11 in Washington. They jointly pledged to pursue policies that “lift and rebalance global demand and achieve exchange-rate flexibility as well as increase growth

potential,” according to a joint statement.

Reform continues China will continue to reform its exchange-rate formation mechanism and hopes the U.S. will take a cooperative and constructive attitude, Hua Chunying, spokeswoman for the Ministry of Foreign Affairs, said at a regular briefing in Beijing. “This big trend won’t change -- we will continue to improve the managed floating exchange-rate system,” Hua said. ‘‘We hope the U.S. can correctly understand and properly deal with economic and trade issues, including the yuan exchange-rate issue.’’ In the month before

the band was widened, the People’s Bank of China ‘‘took measures, including reported heavy intervention, to significantly weaken the RMB,’’ the Treasury said in yesterday’s report.

Export competition The U.S., seeking to boost sales overseas to add impetus to the growing economy, targets countries with large and persistent trade surpluses, including China. Government efforts to hold down the value of the yuan against the dollar give Chinese exporters an edge over U.S. competitors. ‘‘They just make noise about China, but they never accuse them of anything,’’

Dongguan company faces big strike 30,000 staff at the Yue Yuen Industrial factory have been striking for several days in protest at unpaid social insurance payments


ens of thousands of workers were on strike yesterday at a factory in southern China which makes shoes for Nike and Adidas, rights groups and a worker said. More than 30,000 staff at the Yue Yuen Industrial (Holdings) factory in Dongguan city have been striking for several days in protest at unpaid social insurance payments, said US-based China Labour Watch, adding that police had beaten and detained several protesters.

Dongguan high standards residential zone. Life standard claims less infrequent


labour disputes during the first quarter of 2014

China is facing labour unrest as its economic growth slows and as factories in its southern manufacturing heartland report a shortage of workers, prompting rising demands from staff. Yue Yuen says on its website that it produces shoes for foreign brands

including Nike, Adidas, Puma and New Balance. The factory at Dongguan in Guangdong province is partly Taiwanese-owned. A spokesperson at Yue Yuen’s office in Hong Kong was not immediately

said Jim Bianco, Chicagobased president and founder of Bianco Research LLC. ‘‘What is it that the U.S. wants? They want the dollar to fall against the yuan.’’ China’s interventions mean the authorities sell yuan in exchange for foreign currencies, boosting reserves. The report called China’s nearly US$4 trillion in reserves ‘‘excessive by any measure.” The Treasury also said it will continue to “closely monitor” policies in Japan, and to encourage countries in the euro area that are running current-account surpluses, such as Germany, to boost domestic demand. Germany’s surplus poses a threat to the euro-area economy, the European Commission said on March 5 and urged the nation to boost demand and investment. The country’s current-account surplus has surpassed 6 percent of gross domestic product every year since 2006, except in 2009, data compiled by Bloomberg show. “While identification of Germany is a welcome step, as are the EC’s recommendations for measures to bolster investment and demand growth, it remains to be seen whether the procedure can produce robust recommendations,” the Treasury said in the report. South Korea should limit foreign-exchange intervention to the “exceptional circumstances of disorderly market conditions,” the department said in the report. Bloomberg News

available for comment. “The workers are still striking, and the numbers have probably increased,” said Dong Lin, a worker at the Shenzhen Chunfeng Labour Justice Service Department, a rights organisation in close contact with the workers. “They are demanding unpaid social benefits.” He estimated 40,000 workers were involved at the plant, adding that no deal had been reached. “The factory has released a notice saying it will dismiss the workers if they continue,” he said. Factory authorities have promised workers they will make the welfare payments some time before the end of 2015, a female employee told AFP, declining to be named due to fear of arrest. But workers were not satisfied with the offer, she added. “The factory could just leave in the middle of next year, and we might end up without welfare payments.” She added that police had beaten and detained a handful of protesters earlier this week, and armed police were still stationed outside the factory gate even though the mood had calmed. China Labour Bulletin, a Hong Kong-based rights group, recorded 202 labour disputes in the country during the first quarter of 2014, mostly in the manufacturing sector. This represented a year-on-year increase of more than 30 percent. AFP


April 17, 2014

Greater China Sinopec buys out Lukoil China further strengthened its position in oil-rich Kazakhstan on Tuesday with its state firm Sinopec paying US$1.2 billion to buy out Russia’s No.2 oil producer Lukoil from a venture there. Sinopec, Asia’s largest oil refiner, will become the sole owner of Caspian Investment Resources Ltd after the deal is completed before the end of 2014, Lukoil said. Lukoil’s 2013 share of production through the venture was around 30,000 barrels per day and output from various small fields that the venture controls will soon or has already peaked.

Baidu launches mobile payment app China’s leading Internet search provider, has launched a mobile payment and wealth management platform after its main domestic rivals launched similar products. Alibaba, through its mobile payment arm, Alipay, launched Alipay Wallet in January 2013, which included a money-market investment product, Yu’e Bao, marketed as a high-yielding substitute for traditional bank deposits. Tencent followed in August with WeChat Payment. Baidu offers a variety of wealth management products, but the new Baidu Wallet app will add a mobile payment function, giving its investors more options for the use of funds.

IPOs may restart earlier than expected Initial public offerings (IPO) on China’s mainland stock exchanges may restart sooner than expected, state media reported yesterday, after the securities regulator ordered underwriters to update application material for firms waiting to list. The China Securities Regulatory Commission (CSRSC) has told underwriters to complete their submissions of revised disclosure materials as early as the end of this week, the official Shanghai Securities News reported, citing multiple unnamed investment bankers. CSRC’s order concerns 32 companies that have already submitted preliminary disclosures but later changed the exchange on which they planned to list, the paper reported.

CPC closes bonds with Mozambique A senior Communist Party of China (CPC) official yesterday called on China and Mozambique to deepen their bilateral cooperation and party-to-party communication. Guo Jinlong, a member of the Political Bureau of the CPC Central Committee, made the remarks while meeting with a delegation of senior officers of Mozambique’s ruling party, Frelimo. Guo, also Beijing’s Party chief, noted that Chinese President Xi Jinping and Mozambican President Armando Guebuza have met several times since last year and reached consensus to give new impetus to the development of bilateral ties.

Hong Kong introduces bank HK banks’ exposure to Chinese companies has soared since mid 2013


he Hong Kong Monetary Authority (HKMA) is stepping up its supervision of Hong Kong-based banks’ credit risk management by asking banks to show stable funding requirements and agree to regular onsite examinations of credit underwriting processes and stress-testing, the HKMA said in a statement. These measures come after a steep rise in offshore lending to Chinese mainland companies by Hong Kong-based banks. Chinese onshore companies borrowed HK$2.276 trillion of customer loans at the end of 2013, excluding HK$313 billion of trade finance loans, according to the HKMA. “The increase in Hong Kong banking sector’s mainland-related lending is a natural consequence of the growth of the mainland economy and development of mainland corporates,” said HKMA, which reinforces Hong Kong’s role as a significant international financial centre. Hong Kong banks’ exposure to Chinese companies has soared since mid 2013, after government regulations designed to curb onshore US dollar lending forced Chinese companies offshore to raise foreign currency loans. Hong Kong syndicated loan volume hit a record high of US$80 billion in 2013 as a result, 86 percent higher than 2012, according to LPC data. Nearly 70 percent of this volume was for Chinese companies, which save around 30 basis points on loan interest margins by raising dollar loans in Hong Kong, compared to onshore China, the data shows.

The Hong Kong Monetary Authority is trying to prevent banks’ problems raising controls

Syndicated loans issued to Chinese companies in Hong Kong nearly tripled to US$56 billion in 2013 from US$20.7 billion in 2012. The HKMA said that it is important to ensure that credit and liquidity risks are properly managed in this context. “It is for this reason that the HKMA has stepped up its supervisory efforts in credit risk management over the past

Stable funding Loan bankers said that the HKMA has been playing a more active role and introducing more stringent measures, including more regular examinations, since the end of 2013. The most challenging guideline for

Police clash with trust investors in Shanxi Yesterday’s event comes three weeks after investors gathered at CCB’s Beijing headquarters asking for funds to be returned


hinese investors demanding their money back from a troubled 973 million-yuan (US$156 million) high-yield product in Shanxi province confronted police in front of a China Construction Bank Corp. branch. People wearing white masks with the words “despicable bank” and “pay back our money” were among at least 30 investors facing special-forces

officers in dark uniforms in Taiyuan city. The nation’s second-largest bank is the custodian of the Songhuajiang River No. 77 trust, which missed six payments as of last month, according to the Economic Observer. “We have been cheated by CCB,” said Wang Fengying, a Shanxi resident who said her husband had invested 1 million yuan in the product. “Our parents are very old. We need the

Sanpower acquires House of Fraser The deal, signed on 3 April 2014 and valued at approximately USD 800 million, is the Sanpower Group’s first major investment in the UK retail sector and China’s largest foreign retail investment to date. House of Fraser has around 60 stores in the UK and Ireland. Sanpower Group owns the well-known Chinese Nanjing Xinjiekou department store and 100 more companies in various sectors in China. Clyde & Co law firm has been advising Sanpower in the buyout process.

few years,” the HKMA said.

money for their medical bills and to buy a home for my child. We are so miserable and they won’t even let us demand our money back.” Yesterday’s event comes three weeks after investors in the product, created by Jilin Province Trust Co., gathered at CCB’s Beijing headquarters asking for funds to be returned. Concerns individuals will lose money from such investments have risen since a 3 billion-yuan product distributed by Industrial & Commercial Bank of China Ltd. was bailed out in January, averting what would have been China’s first trust default in at least a decade.

Missed payments

Beijing CCB office in Beijing, where protesters first gathered

Construction Bank is closely monitoring the issue and didn’t have any immediate comment on the gathering or on repayments to investors, a Beijing-based press officer said by phone yesterday. An external spokeswoman for Jilin Trust didn’t immediately respond to phone calls and an e-mail seeking comment. Songhuajiang River No. 77 had missed six interest and principal repayments as of last month, the Economic Observer reported March


April 17, 2014

Greater China

watch measures

banks is the stable funding requirement, which requires lenders to maintain a specific level of loan growth against a stable funding requirement level. Most banks were advised to have 20 percent loan growth against their stable funding requirement level. The 20 percent level was set according to industry average in 2013, the HKMA said.

Economic growth slows more than expected

However, a 44.5 percent annual surge in total loans of the Hong Kong banking sector in January prompted the HKMA to review the stable funding requirement level before the planned date at the end of June. “Against this background, the HKMA considered it necessary to review the stable funding requirement earlier, using end-March 2014 positions instead of end-June 2014 positions,” HKMA said. Loan bankers however said that the stable funding requirement is curbing loan growth in Hong Kong. Some banks said that they have moved some of their loan assets to foreign headquarters or overseas branches in order to meet the HKMA’s 20 percent requirement. The HKMA’s requirements could create an uneven playing field that could penalise new branches or banks returning to loan market. “A new branch which starts from zero would of course record a more than 20 percent jump in loan growth given their mandate to book new loan assets,” said a senior loan banker with a foreign bank. Foreign banks based in Hong Kong are concerned, but local banks with lower deposits said that they will not be able to meet the stable funding requirement and may have to cut down on their lending, which is not the aim of the HKMA. “We do not want them to cut back their lending,” said Arthur Yuen, deputy chief executive of the HKMA. Reuters

risk the bank’s reputation. It’s our hard-earned money.”

Trust assets

20 trust products run into difficulty making payments since 2012

24. State-backed Jilin Province Trust raised funds for the product in six tranches from November 2011 to March 2012 to finance mining projects for Shanxi Liansheng Energy Co., the biggest private coal miner in the province, the Shanghai Securities News reported in February. Investors were promised an annual return of 9.8 percent, the Securities News said. Construction Bank currently pays 3.25 percent on one-year time deposits, according to its website. “They told us the interest rate is three times the bank saving rate,” Wang said. “They said they wouldn’t

By offering better returns than bank deposits, trusts have gained popularity among China’s wealthy investors and overtaken insurance to become the biggest segment by assets of the country’s financial industry after banks. Trust assets surged more than fourfold from the beginning of 2010 even as policy makers sought to curb money flows outside the formal banking system. The industry’s growth makes more investors vulnerable to losses as China’s slowing economy increases the difficulty for borrowers to repay their debt. Liansheng Energy owed six trusts more than 4 billion yuan, according to a January 9 report from Haitong Securities Co. The coal miner’s creditors agreed to a debtrestructuring plan and to bring in strategic investors, Xinhua reported February 17. Jilin Trust is the sole non-bank trust company in the north-eastern Chinese province of the same name and manages assets worth about 32 billion yuan in infrastructure, energy, transportation and real estate, according to its website. The local government owns 97 percent of Jilin Trust, according to its 2012 annual report. At least 20 trust products have run into difficulty making payments since 2012, according to Beijingbased China Securities Co. All have avoided default as issuers or third parties such as state-owned badloan managers and guarantee firms eventually repaid investors in full. Bloomberg News

China posts slowest annual growth since the third quarter of 2012


hina’s economy grew at its slowest pace in 18 months in the first quarter of 2014, official data showed yesterday, with signs of waning momentum already prompting limited government action to steady the world’s secondlargest economy. Authorities have ruled out major stimulus to fight short-term dips in growth, and some analysts think the economy will continue to lose momentum into the middle of the year. The economy grew 7.4 percent in the January-March quarter from a year earlier, slightly stronger than the median forecast of 7.3 percent in a Reuters poll but still slowing from 7.7 percent in the final quarter of 2013. It was China’s slowest annual growth since the third quarter of 2012, when growth was also 7.4 percent. Economists were split on the outlook, with some predicting that growth had stabilised and that the government would stand pat on policy. Others, however, thought that policy loosening was imminent. “Policymakers seem pretty comfortable with the current pace of growth,” said Julian EvansPritchard, an economist at Capital Economics in Singapore. “I don’t

think they’re going to announce any further significant measures to support growth.” Beijing has announced some modest measures, such as tax cuts for small firms and speeding up some investment in rail projects, to try to steady growth around its target of 7.5 percent without disrupting plans to restructure the economy.

Mixed march data March activity data, released at the same time as the GDP figures, showed factory output grew 8.8 percent from a year ago, slightly below forecasts for 9 percent expansion. Fixed asset investment rose 17.6 percent in the first three months of the year, also weaker than forecasts for an 18.1 percent rise. Retail sales was the only indicator that beat expectations by a shade with an annual increase of 12.2 percent, compared to predications for a 12.1 percent gain. “It’s not bad enough to change monetary policy, but forward indicators suggest that in the next few months we will see more aggressive easing,” said Stephen Green, an economist with Standard Chartered in Hong Kong. Reuters

Weibo flies half as high Twitter IPO plan arrives amid a selloff in global technology companies that has pushed the Nasdaq down


he firm has done half the job that Twitter Inc. has in turning its microblogging users into earnings. That may explain why the Chinese company is seeking as little as half the valuation in its initial public offering. Weibo, owned by Sina Corp. and Alibaba Group Holding Ltd., plans to offer 20 million American depositary shares for US$17 to US$19 apiece, according to an April 4 regulatory filing. The Beijing-based microblogging unit is marketing its IPO at a valuation as low as 18 times last year’s sales, compared with a stock price equal to about 39 times for Twitter. Weibo was taking in US$1.46 in revenue per monthly active user at the end of last year, compared with US$2.76 at Twitter, according to data compiled by Bloomberg. “The Twitter platform lends itself well to brand advertising, which is why the monetization of Twitter is stronger than Weibo’s,” Neil Doshi, an analyst at CRT Capital Group LLC, which has the equivalent of a hold rating on Twitter, said by phone on Tuesday from San Francisco. “That explains the valuation gap between the two.” Weibo is proceeding with its

IPO plan amid a selloff in global technology companies that has pushed the Nasdaq Composite Index down the most since 2011 on April 10. Concern is also mounting that China’s expansion is faltering. Data yesterday showed that the country’s broadest measure of new credit fell 19 percent in March from a year ago while the money supply increased at the slowest pace on record. Liu Qi, a press official at Sina, didn’t answer a call seeking comment on the Weibo IPO. Sina’s investor relations department didn’t respond to an e-mail requesting comment on Tuesday. Weibo had 129.1 million monthly active users at the end of 2013, compared with more than 240 million for Twitter, filings from the two companies show. At the high end of Weibo’s marketed range, the company is seeking a valuation of US$3.9 billion, or about 21 times last year’s sales of US$188.3 million. The multiple would be 18 times if it were to price at the low end of the range. San Francisco- based Twitter, which had a market capitalization of US$25.8 billion, or 39 times sales, hasn’t yet posted a profit. The stock has surged 75 percent since its November IPO. Bloomberg News


April 17, 2014

Asia NZ raises stake in Genesis sale New Zealand raised NZ$733 million (US$635 million) from the sale of a minority stake in power firm Genesis Energy Ltd - the last of four partial privatisations to bolster state finances although they did not raise as much as first hoped. The total amount raised through the programme came in at NZ$4.7 billion, bang on the latest government forecast but short of an initial range between NZ$5 billion and NZ$7 billion.

Australia’s greenhouse gas falls Emissions fell 0.8 percent in 2013, according to government data, driven by lower electricity demand and a bigger share of renewables in the energy mix. The country emitted 538.4 million tonnes of carbon dioxide equivalent (CO2e) last year, not counting emissions from land use and forestry, the Department of Environment said. Despite the cuts, Australia’s emissions per capita stand at 23.2 tonnes, among the highest in the world and nearly four times more than China.

Obama to begin Asia trip

The U.S. president will arrive in Tokyo on April 23 to begin a four-country Asian trip. Obama will stay in Japan from April 23-25. Obama will meet Prime Minister Shinzo Abe and Emperor Akihito. Later he will stop in South Korea on April 25-26 where he will discuss ways to counter the threat posed by North Korea’s nuclear arms program with South Korean President Park Geun Hye. He will also visit Malaysia for the first time as president on April 26-28 and then will spend April 28-29 in the Philippines where he will meet President Benigno Aquino.

BHP Billiton lifts annual iron guidance The firm is lifting its iron ore production this year to capture more of the Chinese market for the steelmaking ingredient, amid strong competition from rivals in Australia and Brazil. The world’s biggest mining company yesterday lifted full-year iron ore production guidance by 5 million tonnes to 217 million as it pushes ahead with new mine work in Australia. That’s still behind BHP’s Australian rival, Rio Tinto, which is close to mining 300 million tonnes a year.

Modi campaigning in Mumbai

Modi gains global funds International bond sales in India totalled US$3.2 billion last quarter


arendra Modi’s pledges to spur economic growth have won support from global bond funds as well as India’s electorate during national elections this month. State-owned Oil India Ltd. raised US$1 billion in a two-part sale April 8, while State Bank of India priced US$1.25 billion of five- and 10-year dollar-denominated notes April 10, according to data compiled by Bloomberg. The extra yield on Indian dollar debt over Treasuries plunged to 266 basis points April 2, the least since November 2007, JPMorgan Chase & Co. indexes show. The average premium for Chinese companies is 359.5.

Polls show voters turning to Modi, whose opposition Bharatiya Janata Party has delivered a probusiness message and leveraged off the 63-year-old’s success ruling the western state of Gujarat, which accounts for a quarter of India’s exports. The ruling Congress party looks set for its worst-ever performance amid allegations of corruption and mismanagement of an economy suffering close to its slowest growth in a decade. “Many companies will seek to raise funds overseas because the new government is expected to be more investor friendly,” Hemant Dharnidharka, the Bangalorebased based head of credit research

at SJS Markets Ltd., said in a phone interview April 15. “In the immediate term, this sentiment is the trigger for dollar-bond spreads declining.”

International sales International bond sales in India totalled US$3.2 billion last quarter, the most since the three months ended June 30 2013, according to data compiled by Bloomberg. Bank of Baroda led issuance, raising US$750 million selling 4.875 percent notes due 2019 in January. Yields have fallen to 4.228 percent, from 4.902 percent when the securities were sold.

Moderate kiwi inflation in 1Q


ew Zealand consumer prices raised less than expected in the first quarter, but a measure of domestic inflation hit 2-1/2 year highs, backing views the central bank will raise rates again next week. The consumer price index rose 0.3 percent in the three months to March 31, data showed yesterday, which saw the annual rate slow to 1.5 percent. A Reuters poll of economists and the central bank forecast a 0.5 percent quarterly rise and a 1.7 percent annual rate. However, the non-tradable component of the index, a barometer of domestic inflation that includes electricity, house building costs, rents, and property prices, rose 1.1 percent on the previous quarter for an annual rise of 3.0 percent, the highest since September 2011. An analyst said a rate rise next week looked most likely but the Reserve Bank of New Zealand could afford to be gradual about its rate rises. “The bottom line is that given the medium-term picture there is nothing to prevent the RBNZ from

KEY POINTS NZ Q1 inflation +0.3 pct, annual rate +1.5 pct Higher tobacco/alcohol taxes, house costs, offset cheaper travel, fresh food Strong NZ $ dampens import prices, domestic prices jump Inflation heading to RBNZ midpoint, rate rise next week virtual certainty

tightening policy next week, but there’s no smoking gun here for those who would have the Reserve Bank tightening more aggressively later in the year,” said Deutsche Bank chief executive Darren Gibbs.

“So I think 100 basis points total for 2014 will be sufficient.” The New Zealand dollar fell to a low of US$0.8592 from around US$0.8636 before the data, but trimmed its losses to push back up to US$0.8614. Interest rate futures rose across the curve. The RBNZ, which pioneered inflation targeting, started its long awaited tightening cycle last month with a 25-basis-point rise in the benchmark rate to 2.75 percent to head off rising inflation pressures from an economy growing at more than 3 percent. The central bank expects stronger inflation as growth heads towards 4 percent this year, driven by strong commodity prices, building activity, a housing market at record levels, and solid domestic demand boosted by migration gains. A Reuters poll shows all 17 economists expecting another quarter percentage point rise at next week’s cash rate review as the central bank looks to take the initiative to ensure price pressures and expectations do not get out of control. Reuters

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April 17, 2014

Asia percent the prior year, the Statistics Ministry estimates.

Election outcome

support About 815 million people are eligible to cast ballots in nine rounds of voting to May 12, which will pick 543 lawmakers for India’s lower house of Parliament. The outcome will be known on May 16. The BJP and its partners may take 275 of the 543 seats, three more than they need for a majority, according to a Hansa Research survey for the NDTV channel released April 14. Modi told reporters on April 7 a BJP government would “reverse the growth slowdown and fulfil the desires and aspirations of Indians.” The economy expanded 4.9 percent in the 12 months through March 31, after decade-low growth of 4.5

“Markets are largely already pricing in BJP coming to the Centre with a coalition and Standard & Poor’s keeping its investment-grade rating on the sovereign,” according to Harsh Agarwal, the head of Asia credit research at Deutsche Bank AG in Singapore. “I see Indian corporates selling dollar bonds to get ahead of any uncertainties on the election outcome.” Prime Minister Manmohan Singh’s Congress party-led coalition has run the central government since 2004. Oil India, which according to data compiled by Bloomberg hadn’t tapped international debt markets before, sold five- and 10-year dollar notes at spreads of 222.5 basis points and 272.5 basis points respectively. Along with Oil & Natural Gas Corp., the nation’s biggest explorer, Oil India acquired Videocon Industries Ltd.’s 10 percent stake in a gas field off the coast of Mozambique earlier this year, marking its entry into the global liquefied natural gas industry, according to a January 7 statement. Nine non-bank Indian companies, including Vedanta Resources Plc and Fortis Healthcare Ltd. accessed the dollar debt markets in 2013 and 12 in 2012, according to data compiled by Bloomberg. Although financial institutions dominate issuance, the mix is changing, according to Rajeev De Mello, who manages some US$10 billion as head of Asia fixed-income at Schroder Investment Management Ltd. Bloomberg News

Sweet and sour economic predictions for Japan Japan’s central bank and government differs in their economic forecasts


ank of Japan Governor Haruhiko Kuroda yesterday affirmed its upbeat view of the economy, even as global financial markets wobble, stressing that growth will pick up around mid-year as the sting of a sales tax hike fades. Price rises will broaden as the economy continues gradually to improve, Kuroda added, reiterating his view that Japan is making headway towards the central bank’s price goal of 2 percent inflation in about a year’s time. “It’s true (the tankan survey published earlier this month) showed a wide range of companies, especially among automakers and retailers, holding a more cautious view about the economic outlook,” Kuroda told a parliamentary session. “But the level (of confidence) remains high and corporate capital spending plans for fiscal 2014/15 is solid. Companies’ positive stance is maintained,” he said. Kuroda’s comments came a day after he met Prime Minister Shinzo Abe to discuss the economy, which drew some market speculation the BOJ may come under pressure to expand stimulus as a rebound in the yen and sliding Japanese share prices

cloud the outlook for the world’s third-largest economy. Kuroda attempted to quash this speculation, telling reporters after the meeting that the premier did not ask him to take further measures to end deflation. BOJ officials have repeatedly expressed confidence that this month’s increase in the national sales tax will not derail the economy or prevent inflation from hitting the central bank’s 2 percent target. But many economists and traders say the BOJ will have to ease policy again - perhaps in July - as consumer price gains are likely to stall. The BOJ has had trouble bridging this gap in perception about future policy moves. In contrast to the BOJ’s optimism, the government is set to revise its overall assessment of the economy because of the effect of the tax hike when it publishes a monthly report due soon, the Nikkei business daily reported. Kuroda stressed that the economy will weaken in April-June due to the tax hike’s impact but will return to growth above its potential, seen as around 0.5 percent, thereafter as job and income conditions improve.

Indonesia awaits 2015 for easing of monetary policy The current monetary policy remains ideal to help balance external and internal factors


he country will have a chance to ease monetary policy next year as inflation slows, after maintaining a tight stance in 2014, Bank Indonesia Deputy Governor Halim Alamsyah said. Inflationary pressures are easing after interest rates were raised last year, Alamsyah said in an interview at Bank Indonesia in Jakarta on Tuesday. Consumer-price gains will probably slow to about 5 percent by the end of this year and less than 4.5 percent in 2015, he said. “We’re not ruling out a change in the monetary policy stance next year,” said Alamsyah, one of five deputies at the authority. Higher interest rates have already led to economic adjustments, and “if the U.S., China and Japan economies recover, this is our chance,” he said. Southeast Asia’s largest economy is regaining investor confidence this year as national elections spur spending while the biggest rate-tightening cycle in eight years in 2013 helped rein in the current-account shortfall

and damp price pressures. The rupiah has rebounded to become the region’s top gainer after trailing its major Asian peers last year. “We have the basic ingredients, such as stabilizing inflation and rupiah that have been supporting exports and balancing the currentaccount deficit,” Alamsyah said. The rupiah raised 0.1 percent to 11,430 a dollar

in Jakarta on Tuesday, according to prices from local banks. It has gained more than 6 percent this year, the most among 11 Asian currencies tracked by Bloomberg.

‘Tight’ policy “We’ll maintain a tight monetary policy so that we can achieve a soft landing,” Alamsyah said, referring

Many monetary decisions are pending the Indonesia election next summer. Widodo (seated) has a lead role in the presidential run.

to the policy stance in 2014. “We want to achieve stabilization without overkill to our economy, as we see that domestic demand remains strong. We don’t want strong domestic demand to give pressure to inflation and increase the demand for imports that are unfavorable for the current account.” The current monetary policy remains ideal to help balance external and internal factors, unless there’s a change in government policies such as an increase in subsidized fuel prices, the deputy governor said. Bank Indonesia kept its benchmark reference rate unchanged at 7.5 percent for a fifth straight meeting this month, after inflation eased to a nine-month low of 7.32 percent in March. “We see BI keeping rates as it is the path of least resistance,” said Wellian Wiranto, a Singapore-based economist at Oversea-Chinese Banking Corp. “BI remains predominantly guided by the need to crimp the currentaccount deficit. It is likely to still feel compelled to keep real rates high to


crimp consumption growth to prevent another currentaccount deficit blow-up.”

Foreign funds Should inflation be about 5.5 percent by the end of this year and the reference rate remain at 7.5 percent, the real interest rate would be about 1 percent to 2 percent, a level that’s positive for investors, Alamsyah said. Foreign funds have poured more than US$2.7 billion into Indonesian stocks this year on optimism a new government will bring better economic policies. “We believe with the new government, we’ll remain independent, and we’ll continue to coordinate with the new economic team,” Alamsyah said. “The new government needs to run faster on making structural reforms, especially to manage the fuel subsidy as it will provide more room for the fiscal side and to manage the current-account deficit.” Indonesia also needs structural changes in industry, mining and agriculture to manage food inflation, he said. The nation posted a trade surplus in February of US$785 million, exceeding most economists’ estimates in a Bloomberg survey. The government needs to continue to slow down the economy until the currentaccount target is achieved, Finance Minister Chatib Basri said in February. Bloomberg News


April 17, 2014


Turkey watchful of central bank meeting

Russian sanctions to destroy Cyprus

The institution stunned markets with a massive rate hike at the end of January

Erdogan and Gulen confrontation has forced important changes in public administration


n annual meeting of Turkey’s central bank today will be closely watched for signs that Prime Minister Tayyip Erdogan’s government, strongly opposed to high interest rates, is trying to boost its influence over monetary policy. Economists say the normally innocuous general assembly, at which executives and technocrats are elected and reshuffled, has taken on greater significance this year after Erdogan called two weeks ago for an emergency interest rate cut to boost the economy. Governor Erdem Basci, speaking three days later, hinted at the possibility of rate cuts for the first time in a year and the bank has effectively already started loosening by the back door, lowering borrowing costs by providing more liquidity through its regular repo auctions. Erdogan has been a vocal critic of high rates, eager to defend his reputation for overseeing a decade of strong growth, particularly as Turks go to the polls in a presidential election in August in which he is widely expected to stand.

“The general assembly will be a milestone. Appointments made here will tell us the extent of the interference with the central bank,” one banking sector analyst said, declining to give his name because of the sensitivity of the issue. The central bank - which, along with the government, says its monetary policy committee alone decides on interest rates - declined to comment. “It’s obvious the prime minister is disturbed by the bank’s interest rate policy,” said another Istanbul-based economist. “The appointment of members close to the government to the bank’s assembly may make its decision making and operations more difficult,” he said.

Feud with cleric The central bank stunned markets with a massive rate hike at the end of January, ignoring political pressure Erdogan had spoken against such a move just hours earlier - as it battled

to defend the lira after it slumped to record lows. The move restored its credibility in the eyes of some investors, after months in which it had tried to support the lira by burning through forex reserves and tightening liquidity on the margins while avoiding outright rate hikes. But questions over the extent of its independence remain. Erdal Saglam, a columnist in the Hurriyet daily newspaper, wrote on Monday that Erdogan’s feud with an influential U.S.-based cleric he blames for contriving a corruption scandal could draw in economic institutions including the central bank. Erdogan accuses cleric Fethullah Gulen, a former ally whose network of followers has influence in institutions including the police and judiciary, of plotting against him. The government has responded by reassigning thousands of police officers and hundreds of judges and prosecutors. Gulen’s supporters say they number in the millions and members of his network are employed across Turkey’s institutions, including in the central bank. “It looks like after the judiciary and comprehensive changes in some ministries it has come to the key bodies in the economic administration such as the central bank, the banking watchdog (BDDK) and capital markets board (SPK),” Saglam wrote in an insourced opinion piece. He said there had even been rumours in Ankara that Basci himself might come under pressure to resign but said that bankers he had spoken with had dismissed such a possibility. The central bank and government officials declined to comment on Saglam’s article. “Some heads will roll among the bureaucrats. But I don’t expect anything extensive,” one former central banker told Reuters. “Erdem Basci will not lose his seat.” Reuters

Mercedes revives Maybach brand Daimler stopped making bespoke Maybach limousines in 2012


aimler is set to revive Maybach, a brand once coveted by oligarchs, rap stars and royals, to woo a growing class of ultra-wealthy clients in Asia and the United States, a person familiar with the company’s plans said. The brand will be used to adorn an exclusive version of its S-Class limousine fitted with soft-touch leather and bespoke materials to help lure clients from other high-end brands like Rolls Royce and Bentley. The Maybach will be showcased at both the Guangzhou and the Los Angeles auto shows in November and cost more than double the 165,000 euro (US$228,000) asking price of its current flagship, the MercedesBenz S600, the person said. Not to be outdone, rival BMW is expected to unveil a concept

version of its top-of-the-line 7-series limousine at the Beijing auto show later this week, as it seeks to attract Chinese clients who are snapping up German premium cars. The Mercedes Maybach will have a wheelbase that is 20 centimetres longer than even the extended version of its S-Class, allowing for extra leg space and making it the longest limousine in the Mercedes range until the expected launch of an even longer Pullman version, the source said. Daimler stopped making bespoke Maybach limousines in 2012 after efforts to sell cars based on a unique design and costing around US$380,000 failed to gain traction with clients. Only 200 Maybachs were sold in 2011, but the cars were coveted by celebrities including Russia’s Roman

Abramovich, hip hop musician Jay-Z and King Juan Carlos of Spain. Since mid-2012, the number of millionaires worldwide has grown by nearly 2 million, the vast majority of them in the United States and Asia, Credit Suisse said in its World Wealth Report. There are 98,700 individuals with assets worth more than US$50 million each, and by 2018, global wealth will jump a further 40 percent to reach US$334 trillion, the Swiss bank’s study shows. A Mercedes-Benz Pullman “state limousine” designed to ferry around politicians is also under development and is set to cost up to US$1 million in its armour-plated version, said the person familiar with Daimler’s plans. Reuters

Economic sanctions by Europe against Russia “would destroy Cyprus’s economy,” Nicosia’s foreign minister Ioannis Kasoulides said in a German newspaper interview yesterday. “There are very strong economic ties between Cyprus and Russia. If sanctions are really necessary, then every member state should decide for itself whether to take part,” Kasoulides said. EU foreign ministers agreed Monday to expand the list of those hit with sanctions for their role in the Ukraine crisis but stopped short of harsher measures ahead of a Geneva meeting of top EU, US, Russian and Ukrainian officials this week.

Tesco’s net profits jump Supermarket group Tesco, Britain’s biggest retailer, yesterday announced a massive jump in annual net profits, but its underlying performance showed a fall. Tesco said profit after tax stood at £974 million (US$$1.63 billion, 1.18 billion euros) in 2013 compared with £28 million for 2012. But pre-tax profits dropped almost 7.0 percent to £3.05 billion, the company said in a statement.

Syngenta warns on weak emerging currencies The world’s largest maker of crop chemicals, expects weak emerging markets currencies to have a bigger hit on full-year earnings than previously assumed, it said yesterday, as it posted higher first-quarter sales. Excluding exchange rate moves, sales increased 5 percent. Syngenta now expects weaker currencies to knock around US$100 million off full-year earnings before interest, tax, depreciation and amortisation (EBITDA), compared with an earlier forecast for a negative impact of $50 million.

ASML sales forecast reduced The world’s biggest manufacturer of tools for semiconductor chip makers, cut its first-half sales forecast yesterday, blaming slower secondquarter sales to some customers. The Dutch firm said it now expected sales of 3 billion euros (US$4.2 billion) in the first half of its fiscal year, including sales of extreme ultraviolet (EUV) systems. Previously it had forecast sales of 3 billion excluding EUV systems. ASML supplies most of the world’s major chip manufacturers, including Samsung and Intel, and acts as a leading indicator of their fortunes.

Italy banks to sell US$69 billion of bad loans Prelios SpA, the Italian asset manager studying a merger of two units with those of Fortress Investment Group LLC, said it expects Italian banks to sell as much as 50 billion euros (US$69 billion) of bad loans in the next two-to-three years. Italian banks are sitting on 160 billion euros of non-performing loans, a figure that will swell to 200 billion euros in the next two years as Italy emerges from recession


April 17, 2014

Opinion Business


Europe’s Deepening Muddle

Leading reports from Asia’s best business newspapers Ashoka Mody Visiting Professor of International Economic Policy at the Woodrow Wilson School of Public and International Affairs at Princeton University and a visiting fellow at Bruegel, the Brussels-based economic think tank.

Thanh Nien News Vietnam should relinquish the 2019 Asian Games (Asiad), economists said, citing poorly made plans and its inability to make use of the economic opportunities it would throw up. Le Dang Doanh, former chief of the Central Institute for Economic Management, told Thoi bao Kinh te Sai Gon (Saigon Times) Online newspaper that Vietnam bid for the Games based on poor planning. The Ministry of Culture, Sports and Tourism’s plans were not carefully reviewed or debated, especially from the economic angle, he said. The estimated cost of hosting the event is still unclear.

German Finance Minister Wolfgang Schäuble at a Fiscal Consolidation and Financial Market Regulation conference

Taipei Times A US congressman said that the cross-strait service trade agreement increases the risk of a direct conflict between China and the US. Democratic Representative Alan Grayson, a member of the US House of Representatives Committee on Foreign Affairs, wrote US Secretary of State John Kerry seeking a full analysis of potential effects the deal may have on US interests. Grayson said that the trade deal is a possible step toward political and economic integration “between the two political entities,” adding that the integration “may be disadvantageous both to Taiwan and to the US.”

Inquirer The militant party-list bloc in the House of Representatives on Tuesday asked the Supreme Court to extend indefinitely the 60-day temporary restraining order (TRO) it had issued which stopped the Manila Electric Co. (Meralco) and the powergenerating companies (gencos) from collecting the P4.15 kilowatt-hour increase in the generation charge. The petitioners, the so-called Makabayan bloc in the House representing Bayan Muna, Gabriela Women’s Party, Act Teachers and the Kabataan party-list groups, are seeking a second extension of the high court order issued on Feb. 18 which expires on April 22.

Bangkok Post A downgrade of Thailand’s credit rating outlook to negative from stable by major rating agencies including Moody’s Investors Service and Standard & Poor’s (S&P) is likely if political uncertainty fails to end before their midyear review, but the nation’s sovereign credit rating is expected to be unscathed. Even though legal cases that could remove caretaker Prime Minister Yingluck Shinawatra and her cabinet are on the horizon, the political turmoil could continue into the second half if pro-government groups protest against court decisions.


RINCETON – German Finance Minister Wolfgang Schäuble recently declared that the European Union has “moved sovereignty to the European level” – a startling claim, given that European governments seem to be pursuing their national interests more aggressively than at any time since World War II. Was Schäuble’s statement supposed to serve as a rallying cry for greater European solidarity? Or was it just a ploy to deflect calls for a larger German contribution to the Eurozone’s recovery? Schäuble is at the forefront of Germany’s efforts to lead Europe without having to pay its bills. To this end, he has called for EU treaty changes to establish a European “budget commissioner” with authority to spend shared European funds and reject member countries’ fiscal strategies when they do not comply with established rules. According to Schäuble, negotiations for such reforms should begin immediately after the European Parliament election in May. While Schäuble’s strategy may sound appealing, it is, at best, the symbolic garb of progress. For starters, the common funds are meagre, with no prospect of being increased – not least because of Germany’s unrelenting opposition. Likewise, so long as member countries maintain fiscal sovereignty, a new mechanism to facilitate fingerwagging at countries that defy European budget rules will change nothing. Over the last two decades, every effort to discipline the EU’s fiscal delinquents has failed, owing to the lack of enforcement authority. Of course, when a country has run out of options, it will play along to gain access to official bailout funds. But,

The EU is an inspiring political structure that seeks to break the mould of the nineteenthcentury nationstate. But progress toward that idealistic vision cannot continue to depend on shopworn symbolism

as Greece’s experience has demonstrated, this does not always work out as planned. Indeed, the Greek bailout – jointly funded by the EU and the International Monetary Fund – began disastrously as it delayed a much-needed debtrestructuring and demanded strict austerity. As a result, the influence of extremist political forces has grown, and a publichealth tragedy is brewing. Yet Schäuble, in a seemingly interminable quest for more austerity, views Greece as a model for an even more hapless Ukraine. Europe is in a muddle. With debt restructuring essentially ruled out and without a sizeable, politically-sanctioned central budget to relieve countries

in distress, Europeans have anointed Germany as their presumptive hegemon. Germany relishes that role, but is not able to play the part. Simply put, Germany is unwilling to spend its taxpayers’ euros to bolster Europe. The robust German economy is little more than a memory at this point. Annual GDP grew by more than 3% in 2010 and 2011, because a stillbooming Chinese economy was sustaining high demand for German machines and cars; but, as China’s GDP growth has slowed, so has Germany’s, to an annual rate of less than 1%. This is likely to improve slightly, but Germany’s aging population means that its economy faces low potential growth in the long term. With Germany lacking the economic dynamism to support Europe financially, its leaders have been unwilling to take political risks. The country’s two major political parties – the Christian Democrats and the Social Democrats – sidestepped a public dialogue on Europe in the September 2013 election that produced their governing coalition. More revealing is Schäuble’s defence of the European Central Bank’s “outright monetary transactions” scheme (which would permit the ECB to purchase unlimited amounts of weaker Eurozone countries’ government bonds). Even as Germany’s Bundesbank fiercely (and rightly) opposed the OMT program for its focus on countries’ solvency, rather than liquidity risk – thus creating a backdoor fiscal union – the government was relieved that the German Constitutional Court, assessing the scheme’s legality, ultimately passed the buck to the European Court of Justice. After all, establishing a genuine fiscal union would require strong political

commitment – and considerable legwork. The EU is an inspiring political structure that seeks to break the mould of the nineteenth-century nation-state. But progress toward that idealistic vision cannot continue to depend on shop-worn symbolism. The euro was the most audacious of those symbols – a construct of dubious economic value, with well-documented fragilities. Its adoption was an act of economic hubris that has imposed costs well beyond Europe’s borders. Today, European leaders are indulging in triumphalism, viewing the current economic reprieve as a validation of failed transnational governance structures. But the depth and persistence of the on-going crisis have exposed the euro’s fundamental fragilities, and should serve as a warning that today’s technocratic Band-Aids may not hold in the face of another shock. Unfortunately, bold action to address these fragilities seems more distant than ever. Relinquishing some control over national budgets to achieve fiscal integration appears politically impossible, and talk of treaty changes – even if it comes from the German finance minister – amounts to little more than empty rhetorical finery. Adopting the euro was a mistake. But the damage is done, and precipitously abandoning the common currency would only make a bad situation worse. With countries unwilling to cede sovereignty, Europe’s only option is to dump the pretence of centralized coordination, leaving countries and banks to deal with – and be disciplined by – their creditors. A step back to this more stable arrangement may offer the only way forward. © Project Syndicate 2014


April 17, 2014

Closing Portugal: austerity high water mark reached

Litigation pushes Bank of America into loss

The government is neither going to raise taxes nor impose additional cuts to wages and pensions in 2015, Minister to the Presidency Luís Marques Guedes told a press conference in the wake of an extraordinary cabinet meeting to decide on the 2015 budget framework. Speaking at the same conference, the Minister of Finance Maria Luís Albuquerque announce a further decrease in state expenditure amounting to “1.4 billion euros or 0.8% of GDP”

Bank of America Corp posted a first-quarter loss as the No. 2 U.S. bank recorded US$6 billion in litigation expenses related to a settlement with the Federal Housing Finance Agency and other mortgage-related matters. The bank reported a net loss attributable to shareholders of US$514 million, or 5 cents per share, in the three months to March 31 compared with a profit of US$1.11 billion, or 10 cents per share, a year earlier.

The fall of a tycoon Businessmen on trial as Vietnam counts cost of its rogue bankers Nguyen Phuong Linh


half-dozen shell companies, piles of forged documents, tax dodges, illegal stock trades and 19 bank staff unwittingly complicit in embezzlement on a massive scale. The indictment against Vietnamese tycoon and former banker Nguyen Duc Kien reads like a “how-to” guide for masterminding fraud in a country with banking oversight so slipshod it brought one of Asia’s most promising emerging economies to the brink of crisis. The founder of Vietnam’s number four private lender Asia Commercial Bank (ACB), went on trial yesterday accused of a litany of crimes that cost depositors 1.4 trillion dong (US$66.4 million) in one of the country’s most highprofile fraud cases. His is just the tip of the iceberg, one of many going to trial involving bank executives who stole hundreds of millions of dollars by exploiting loopholes and lax regulation during Vietnam’s 2003-2007 economic boom, when dozens of banks grew fast and lent frivolously. Their weaknesses were exposed when the economy overheated, revealing

of all nine defendants early in the afternoon.

Complex scams

Nguyen Duc Kien

Southeast Asia’s highest ratio of non-performing loans, which made credit offlimit for most Vietnamese, plunged at least 150,000 businesses into bankruptcy and put the brakes on retail and real estate growth. Kien faces life in prison if found guilty of tax evasion, conducting illegal business, “swindling to appropriate assets” and deliberately

violating state laws on economic management. “I’m innocent, I’m accused unjustly,” the silverhaired Kien said as he stood in shackles before the bench with seven other accomplices during a closed hearing. “I request a public trial, as soon as possible, so everyone can know the truth in this case.” Kien, 50, once owner of

former Vietnamese soccer champions Hanoi ACB, is on trial with ACB’s former chairman Tran Xuan Gia and seven other alleged accomplices, who each face 20 years in prison. Gia, 75, was Vietnam’s minister of investment from 1996 to 2001 and is now in poor health. He did not attend the hearing and judges agreed to postpone the trial

The prosecution says Kien committed massive fraud as chairman of six investment companies permitted only to trade in gold, which illegally bought stock in ACB, 15.3 percent owned by Standard Chartered Bank and 7.4 percent owned by Jardine Matheson. He is also accused of forging documents to defraud top steel firm Hoa Phat Group of 264 billion dong in shares and of conspiring to commit fraud with another banker, 36-year-old Huynh Thi Huyen Nhu. Nhu was jailed for life in January for co-opting 21 colleagues to steal US$190 million of her customers’ deposits while at Vietinbank, Vietnam’s biggest partly private bank. Some 719 billion dong of that money came from deposits by ACB staff, at Kien’s request, according to the indictment. Fitch Ratings downgraded ACB to negative last year, in part because of potential losses from “exposure to companies where Nguyen Duc Kien holds senior positions”. Reuters

292 missing after ferry sinks

CITIC Pacific buys Daimler to get US$3.36 parent’s main business billion in RR venture

South Korea’s government said 292 people are missing after a ferry carrying hundreds of high school students sank en route to the resort island of Jeju. At least three people, including a student, died in the accident. Of the 459 passengers and crew, 164 people have been rescued including 78 students, Kang Byung Kyu, minister of Security and Public Administration said at a televised press briefing. A total of 55 people were hospitalized, mainly with minor injuries. The government earlier said 368 people were rescued, a mistake it said was caused by double-counting. The passengers included 324 students and 14 teachers from Danwon High School near Seoul on an excursion to Jeju island, Kim Tae Eun, an official at the school southwest of Seoul, said by phone. A board posted at the school trying to track those rescued showed that only 80 had been accounted for.

China’s CITIC Pacific has agreed to buy the main operating unit of its parent, state-backed CITIC Group, for US$36.5 billion in a stock and cash deal aimed at diversifying its metals and mining business. The purchase will give a much-needed boost to CITIC Pacific’s ailing finances after it miscalculated the huge cost of developing a mine in Western Australia. The deal is the biggest injection by any Chinese firm into a Hong Kong listed company, analysts said, and shares in CITIC Pacific have gained nearly 13 percent since the company and its parent unveiled initial details of the purchase in late March. CITIC Pacific will pay 49.92 billion yuan (US$8 billion) in cash and issue 177.01 billion yuan worth of shares to CITIC Group. It will also sell another 4.66 billion shares to institutional investors. The deal needs to be approved at a shareholders’ meeting on June 3, and is expected to be completed by Aug. 29.

Daimler AG, the world’s third-biggest maker of luxury cars, will receive 2.43 billion euros (US$3.36 billion) for the 50 percent stake in an engine joint venture that it’s selling to partner Rolls-Royce Holdings Plc. The transaction will be completed in five months, and the amount reflects the stake’s fair market value, the partners said yesterday in a joint statement. Daimler announced plans last month to sell the holding in Rolls-Royce Power Systems under a put option agreed to with the London-based partner three years ago when they established the venture. The business was created from Daimler’s and Rolls- Royce’s joint 3.4 billion-euro purchase of German industrial- engine producer Tognum AG and the inclusion of the U.K. company’s Bergen ship and power-generator engine business. The venture, based in the southern German city of Friedrichshafen, employs 11,000 workers worldwide and, manufactures high-speed diesel engines for the marine, energy and defense industries.




Macau Business Daily, April 17, 2014  

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