Macau Business Daily, May 1st, 2014

MOP 6.00 Publisher: Paulo A. Azevedo

Closing editor: Alex Lee

Reaching new heights

Year III

Number 530 Thursday May 1, 2014

Mass market gamblers will continue to “anchor” MGM China revenues and profits but the company aims to improve the profitability and efficiency of the VIP segment even more. CEO Grant Bowie tells Business Daily, following a record first quarter, that the result shows “we had a solid execution of our yield-focused initiatives” Page

www.macaubusinessdaily.com

MJC casino goes ‘chipless’

Profits not a mirage Macau Legend Development reported a 6 percent growth in the first quarter. Gross gaming was the main driver, increasing 16 percent but the VIP segment surged even stronger to reach 19.5 percent

A casino area returned yesterday to the Macau Jockey Club. Its electronic gaming without traditional baccarat tables and gambling chips.

The operator of SJM’s satellite casino is Paradise Entertainment Ltd

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Page 4

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Wheels come off fair

Macau, land of the fee

3

Labour unions hit the streets today.

Demands and fears page 8

Infrastructure Investment and Construction Forum moves from Beijing to Macau. Permanently Page 5

HSI - Movers April 30

Name

Workers fear unemployment?

Not in Macau; at least, not within the transport business. A recruitment fair for professional drivers succeeded in filling just 5 percent of the 1,200 vacancies on offer with locals

%Day

China Unicom Hong K

5.87

China Resources Lan

0.76

China Mobile Ltd

0.75

Hong Kong Exchange

0.29

BOC Hong Kong Holdi

0.00

Tingyi Cayman Islan

-2.71

Cheung Kong Holdin

-2.73

Swire Pacific Ltd

-2.77

AIA Group Ltd

-3.22

Tencent Holdings Ltd

-5.16

Source: Bloomberg

I SSN 2226-8294

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Kate O’Keeffe does not have many doubts regarding the expansion of gaming in Macau. Enormous growth rates threaten to swamp total US gaming figures. Great and scary, as the Wall Street Journal reporter shares with Business Daily. And what might be the main risks for Macau in the future? China’s slowdown and increasing US scrutiny of money laundering activities Pages 6 and 7

Business Daily will not be published tomorrow, as we’re celebrating International Workers Day. Macau’s business and political news that matters the most will be ready for you very early on Monday

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May 1, 2014

Macau

Macau Legend’s 1Q earnings up 6 pct The VIP performance of the casino service provider outperforms the market with growth of 19.5 pct in the first quarter’s revenue Tony Lai

tony.lai@macaubusinessdaily.com

M

acau Legend Development Ltd reported a nearly 6-percent growth in its earnings in this year’s first quarter, with a faster-thanaverage growth for VIP gaming revenue.

The listed casino service provider, controlled by veteran local businessman David Chow Kam Fai, told the Hong Kong Stock Exchange in a filing on Tuesday night that its adjusted EBITDA hit HK$228.4 million (US$29.28 million) in the first three months, up 5.7 percent from the previous year.

Growth in the gross gaming revenue of the company’s 150 gaming tables was the main driver, increasing 16 percent year-on-year to HK$2.46 billion, the filing said.

The gross revenue of the company’s 67 VIP tables in its Pharaoh’s Palace Casino surged by 19.5 percent from a year earlier to HK$1.94 billion in the January-March period, outshining an average growth of 12.5 percent in citywide VIP revenue.

The company’s VIP

contribution is set to rise as the Tuesday filing said Macau Legend is going to have “a greater control” in the VIP sector after setting up an agreement with gaming promoter New Legend VIP Club Ltd operating in Pharaoh’s Palace. Such a

deal is still subject to the approval of its independent shareholders later this month, the filing added.

Macau Legend said earlier this month that its share of the gross gaming revenue generated by New Legend’s VIP room will increase to 42

percent from the 2 percent of the past after the agreement.

Mr Chow’s ambitions in the VIP sector come at a time when gaming analysts have trimmed down their forecasts for the growth of the sector given the softer economy in mainland China, a possible

credit crunch there, and the detention of a junket operator in Hong Kong. Deutsche Bank AG released a research note this week lowering its forecast for VIP growth from 14 percent to 7 percent.

While robust results were obvious in the VIP performance of Macau Legend’s first quarter balance sheet, its mass-market floor underperformed against its rivals.

The Tuesday filing shows that the gross gaming revenue growth from the company’s mass market tables in Pharaoh’s Palace and Babylon Casino in Macau Fisherman’s Wharf only increased 3.7 percent and 12.7 percent, respectively, in this year’s first quarter.

Official figures indicate that mass-market gaming revenue in the territory in the same period rose by 42.3 percent to 28.49 billion patacas.

Shares in Macau Legend dropped 1.99 percent yesterday to close at HK$5.91, whilst the benchmark of Hong Kong, Hang Seng Index, declined by 1.42 percent.

Package tours pick up the pace NAPE tops Macau welcomed as many as 2.6 million visitors in the first quarter of the year

popular home purchase places

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he number of visitors travelling to Macau on package tours increased by 21 percent to 895,000 in March, over the same month last year.

Official data released yesterday by the Statistics and Census Service shows that visitors from mainland China accounted for the majority of package tour arrivals at 698,000, representing an increase of 30 percent.

Guangdong province remained the main point of origin of mainland Chinese tourists. Visitors from South Korea, however, registered a decrease to 34,000 in March.

Overall, in the first quarter the number of visitors travelling to Macau on package tours increased by 10 percent compared to the first quarter of 2013. In the first quarter of the year, Macau welcomed as many as 2.6 million visitors.

In addition, the number of Macau residents travelling on package tours increased slightly by 2 percent totalling 45,000 in March. Mainland China remained the primary destination occupying 75 percent of the total, followed by South Korea at 7 percent, Taiwan at 6 percent and Hong Kong at 4 percent.

At the end of the first quarter of the year, as many as 354,000 residents had used the services of travel agencies, a number similar to that of the same period last year.

Meanwhile, the number of hotels and guesthouses totalled 99 with 28,000 guest rooms at the end of March, down 1 percent year-on-year; 5-star hotels, however, accounted for 66 percent of the accommodation on

698,000 visitors from mainland China

offer, with 18,000 rooms.

A total of 918,000 guests checked into hotels and guesthouses in the month of March alone, of which 57 percent chose to stay in 5-star hotels. The average length of stay stood unchanged as that of March last year at 1.4 nights, while the average occupancy rate of hotels and guesthouses increased by 6 percentage points to 85 percent; 3-star hotels led with 89 percent of the total occupancy rate.

As many as 2.5 million guests checked into hotels in the first quarter of the year, up 4 percent year-on-year.

S.F.

here were as many as 55 property transactions in the NAPE area alone in March, with the total value per square metre averaging 133,460 patacas. According to information released yesterday by the Finance Service Bureau, all the transactions recorded were in highrise buildings with an average floor area of 92 square metres.

The Ferreira do Amaral district was also one of the highest in terms of property transaction value. Houses here cost an average of 121,069 patacas per square metre, with total floor area averaging some 52 square metres.

In Taipa, the Pac On area and Grand Taipa registered a total of six property transactions, each worth an average of 119,776 patacas per square metre.

In all, a total of 693 transactions were recorded in the month of March, the average price of which was of 89,617 patacas per square metre.

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May 1, 2014

Macau Photo: Lam Yik Fei/Bloomberg

Mass future, VIP flavour

While the mass market will “anchor” future growth, MGM China wants to invest in the VIP segment and improve its profitability, CEO Grant Bowie told Business Daily following a record first quarter Alex Lee

Alex.lee@macaubusinessdaily.com

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hile mass-market gamblers will continue to be the “anchor” for future revenues and profits, MGM China is “still focused” on the junket market and aspires to improving the profitability and efficiency of the VIP segment, Grant Bowie told Business Daily.

“Main floor business is anchoring the growth and the profit at MGM China and the future growth of Macau”, said MGM China’s CEO. Mass market clients were the main driver for MGM China’s first quarter profits (adjusted EBITDA) that went up 32 percent to US$257 million compared to US$193 million a year ago. The performance beat the US$255 million investor consensus.

“The result was a record for the first quarter as we have been focused on building the main floor business and the result shows we had a solid execution of our yield-focused initiatives,” added Mr Bowie.

MGM China results helped push up the earnings from its Las Vegas

parent company – MGM Resorts – whose profits reached US$22 cents per share, more than two times market expectations (9 cents per share).

In Macau, MGM total revenues climbed 26 percent to US$ 941 million but the mass-market, a segment which generates more than two thirds of its operating profits, was the star of the quarter. Mass gamblers revenues rose 45 percent, beating Macau’s market growth of 40 percent and outperforming the VIP segment, whose gains increased 12 percent from a year ago.

Despite a four times slower revenue growth, VIP gamers are not just a card in the deck for MGM China.

“While the mass market continues to grow faster than the VIP junket segment we are still focused on working with our operators to capture growth opportunities and improve the efficiency and profitability of this segment”, Bowie stressed.

Yesterday, investors were upgrading estimates for MGM China based on its mass market exposure

Celebration of International Labour Day

and its on-schedule Cotai projects that will double the company’s footprint in the territory. Wells Fargo increased its 2014 profit estimate by 1 percent to US$965 million dollars beating the investors’ median estimate of US$955

The result was a record for the first quarter as we have been focused on building the main floor business Grant Bowie MGM China Holdings CEO and Executive Director

million. Union Gaming raised its 12-month price target to HK$41 dollars (a 5 percent increase ) and 52 percent upside from the closing price this week.

Cotai on time The gambling operator reassured shareholders and investors that its second casino in Macau is on schedule, ready to open in early 2016 and within the budget (US$2.6 billion dollars).

The Cotai unit will offer three times more rooms than the current MGM in Macau and will work as a significant value driver for the company.

“The development at MGM Cotai will provide our customers with a greater variety of diversified offerings in food and beverage, retail and entertainment and attractions. With over 85 percent of our floor space allocated to non-gaming activities, we believe we can expand the MGM experience for our customers while growing our business”, the MGM China CEO told Business Daily.

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May 1, 2014

Macau Brands

Trends

Ring a ding ding!

A chip off the old block?

Macau Jockey Club Casino re-opened yesterday without traditional baccarat tables and gambling chips, a trend for casinos here to follow, says the operator Tony Lai

tony.lai@macaubusinessdaily.com

Raquel Dias

Photo: Manuel Cardoso

newsdesk@macaubusinessdaily.com

W

e’ve all heard about the 24K gold iPhone covers and the sapphire and diamondencrusted iPad cases. The luxury world even seemed to be aping Apple for awhile, creating designer pieces and customising items for the crème de la crème. This time, however, the news is somewhat different. This time everyone is focusing on one of iPhone’s most ruthless competitors: the new Samsung Galaxy S5.

By Atelier, the smartphone luxury customisation company par excellence, has designed a unique alligatorskin case in bright orange for the newly launched Samsung Galaxy S5 and Gear Fit combination set.

The matching set is handassembled by in-house artisans, with the French brand customising the phones by request. Details are well taken care of and the product comes complete with beautiful solid-wood boxes.

The company usually specialises in modified iPhone 5s, offering them in alligator skin, carbon and sapphire crystal. Clients can also opt for the lateral bar made in stainless steel or gold.

The Samsung Galaxy S5 is now offered with a calfskin printed leather orange pouch. The service doesn’t end there, with a one-year exclusive concierge service available via an exclusive app providing access to the world’s largest concierge offering hotels, flights, transport, holidays and many more options.

This limited edition of Samsung Galaxy S5 and Gear Fit will be available from By Atelier network stores starting at a retail price of US$2,485, a little over MOP19,000.

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he operation model of the recently re-opened Macau Jockey Club Casino sets a milestone for the casino industry here, as the club casino’s operator suggests, going electronic without traditional baccarat tables and gambling chips.

Paradise Entertainment Ltd - managing the satellite casino in Taipa via the gaming licence of Sociedade de Jogos de Macau, SA – says the “chipless” operation requires two-thirds fewer workers than the usual model.

The Macau Jockey Club Casino, re-opening yesterday having closed in 2004 abuts the Club’s racecourse in Taipa, and occupies some 13,000 square feet of floor space. It now features 180 live mutli-game machines and three electronic baccarat tables of 10 seats each, provided by LT (Macau) Ltd, a subsidiary of Paradise.

“This is the first one we call a chipless casino here,” Jay Chun, the Paradise chairman, told Business Daily yesterday. “That’s the trend for the future, gambling without chips.”

Chips are not used in the Club’s casino and each bet is electronically recorded. Gamblers need only cash in and cash out for money when they enter and leave the casino.

“We don’t need cashiers in this casino, which can save a lot in labour costs,” Mr Chun said. “For the requirement of casino dealers, it will be much easier than the usual ones” as no mental calculation is required, he said.

The Club casino right now needs about 10 staff to man its daily operations, he said, versus 30 staff were the casino to use chips.

Labour solution “It provides a new solution to solve the problem of dealer shortage in Macau for the coming years,” Mr Chun added, referring to the territory’s record-low unemployment rate of 1.7 percent for this year’s first quarter.

The opening of new mega resorts in Cotai starting next year may require about 40,000 additional workers including casino croupiers. Latest official figures show that 85,600 people were employed in the gaming sector as at this year’s first quarter.

KEY POINTS Casino has quota of 4 gaming tables Features 180 gaming machines and 3 e-baccarat tables with dealers Targeting mass-market gamblers First casino operating without chips ‘Chipless’ operation saves two-thirds of workers

“And the gaming [velocity] can go fast as there is no transaction between the dealers and the players in each game,” said Mr Chun, referring to other advantages of ‘a chipless casino’.

He added that the target of this casino is the mass-market gambler.

Asked about the possible reception from gamblers, particularly mainland Chinese who love the touch of gambling chips, the Paradise chairman only responded that the ‘chipless’ operation is “worth a shot balancing different factors”.

According to a press statement from Paradise, LT (Macau) is entitled to between 40 percent and 55 percent of the net win of the live multi-game machines, e-tables and slot machines in the Jockey Club’s casino.

Mr Chun’s firm also operates casino services in Kam Pek Paradise Casino and Waldo Casino on the Peninsula, using the licences of SJM and Galaxy Entertainment Group, respectively.

The company exclusively provides

live multi-game machines to another of SJM’s premises, Casino Lisboa.

But the re-opening of Macau Jockey Club Casino may not come at a good time as the construction of the nearby Light Rapid Transit railway project will not be completed until 2016. Macau Jockey Club Co Ltd, operator of the horseracing course, has cited the construction as the main reason for its loss-making business in recent years, deterring visitors and lowering the betting amount.

Mr Chun only responded yesterday: “We will try to do some marketing to bring the players in. They [the Club] also have some events here [to attract visitors]. But the re-opening of the casino yesterday only merited a quarter-page ad in the city’s largest newspaper in terms of circulation, Macao Daily News. The opening ceremony yesterday afternoon was attended by executives from Paradise and Macau Jockey Club but familiar executive faces from SJM like Ambrose So Shu Fai and Angela Leong On Kei were absent.

In addition, during a 40-minute visit to the premises yesterday afternoon Macau Business did not encounter any gamblers.

Mr Chun also said the government had approved a gaming table quota of four for the Macau Jockey Club Casino, moving tables from other SJM gaming venues. Asked whether Paradise wanted more tables on the premises, he responded that it may prove “difficult” as it is restrained by the citywide table cap set by the government.

The government has said the compound annual growth rate of gaming tables in ten years until 2022 may not exceed 3 percent a year. As at this year’s first quarter, there were 5,700 gaming tables in the territory’s casinos, 50 fewer than the previous quarter.

Paradise Entertainment reported profits of HK$103.78 million (US$13.3 million) last year, down 27.6 percent from a year earlier despite a 41.4-percent increase in its turnover to HK$1.03 billion last year.

Over 83 percent of the company’s revenue last year came from casino operations, while the rest came from supplying gaming machines.

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May 1, 2014

Macau

Infrastructure forum to be permanent Macau fixture The upcoming International Infrastructure Investment and Construction Forum, now in its fifth year, will be a permanent event held in the city

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Stephanie Lai

he Portuguese Ambassador to Beijing, Jorge TorresPereira, said exports from Portugal to China in the first quarter of this year were an “auspicious and encouraging sign” for the Portuguese president’s visit mid-month.

The visit will include Macau. “[The numbers] seem to indicate a strengthening of our exports to China,” the diplomat said of the figures released earlier in the week.

In the first quarter of this year, Portuguese exports to China increased 4.75 percent to US$337.8 million over that of the same period a year prior, according to China Customs statistics.

Of the Portuguesespeaking countries, Brazil remained China’s biggest trade partner, followed by Angola and Portugal.

Portuguese exports to China have registered a double-digit growth in the last few years but dropped 10 percent in 2013 due primarily to the drop in car sales from Auto-Europa Palmela, which decreased 75 percent.

Portugal’s President Cavaco Silva will be in Macau, Beijing and Shanghai between May 12 and May 18 in his first official visit to China in almost a decade.

sw.lai@macaubusinessdaily.com

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he International Infrastructure Investment and Construction Forum, slated for May 8 & 9 at The Venetian Macau, will be held as a

Over 4 mln patacas granted for big MICE events The 100 million patacas-worth incentive scheme “International Meeting and Trade Fair Support Programme” launched at the beginning of this year has seen two out of seven applications gain subsidy approval from Macau Economic Service to date. The two cases are from foreign applicants hosting conventions in Macau, which received a subsidy exceeding 4 million patacas, the Economic Service head Sou Tim Peng told media yesterday, adding that the application volume has been “more than expected”.

To meet the requirements of the incentive scheme for funding, a convention must have been held in at least three countries before coming to Macau and have participants from at least five countries. Trade fairs qualify by having one professional buyer for every nine square metres of floor space.

Increase in Portuguese exports ‘auspicious’ sign

permanent event in Macau to promote the city’s image to the international community, organisers announced in a press briefing yesterday.

The upcoming forum, themed around discussion on regional infrastructure connectivity and the financing approach to these big projects, will welcome some 1,300 participants and more than 40 ministerial officials from around the world.

The annual forum, approved by China’s Ministry of Commerce and initially held in Beijing in 2010, moved to Macau in 2012. Local government department Macau Economic Service has been hosting the event with mainland organiser China International Contractors Association, led by members of major state-owned construction and engineering companies.

“The experience of organising the forum in Macau has been successful, and our coordination [with organising partner Macau Economic Service] has also improved...This event will be permanently held here.” said Ms Yu Xiao Hong, secretary-general of China International Contractors Association.

“The infrastructure development in Portuguese-speaking countries has advanced rapidly, and we also saw representatives from these countries attend our event last year...” Ms Yu added. “There’s no doubt about the city’s role in connecting Portuguesespeaking countries [to China], which has been a very important reason for us to organise the event here.”

“But the more important reason is that the forum, in which guests can

communicate freely on infrastructure planning, should not be restricted to the role of connecting to the Portuguesespeaking countries but enhance Macau’s image to the international community as a whole,” the China trade chamber’s leader added.

The cost of the forum is budgeted at 22 million patacas (US$2.75 million), a similar level to last year, Macau Economic Service director Mr Sou Tim Peng said. The budget will be allocated from the Industrial and Commercial Development Fund, the main sponsor of the city’s conventions and exhibitions.

Celebration of International Labour Day

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May 1, 2014

Macau Brought to you by

HOSPITALITY One bright spot When we take into account the number of visitors that come to Macau, the contribution of most countries seems almost irrelevant when compared with that of China, or even Hong Kong and Taiwan. Put together, the next nine biggest Asian sources do not amount to 10 percent of the total number of those coming from the top three. Contrary to the latter, however, the majority of visitors from those countries are overnighters. Overall, in the period observed here, the number of same-day visitors coming from those nine countries was just over one third of the total albeit with a great deal of variation between the different countries. This type of visitor spends significantly more. Their impact is, however, mitigated by their relatively small numbers and some negative trends of late.

“We’ll soon be comparing Macau not to Las Vegas but to the whole US gaming industry” Wall Street Journal gambling reporter, Kate O’Keeffe, says China’s slowdown and increased scrutiny of Macau by US authorities are major risks for the future of the territory’s casinos. A success story where “no-one has yet melted down what really drives gambling revenues” Alex Lee

Alex.lee@macaubusinessdaily.com

I Kate O’Keeffe Kate O’Keeffe writes about the Asia casino industry. She is based in The Wall Street Journal’s Hong Kong bureau and frequently travels to nearby Macau, the world’s biggest gambling hub. Previously, Ms. O’Keeffe edited markets news from the company’s Singapore office. She graduated from Princeton University, where she studied at the Woodrow Wilson School of Public and International Affairs.

The five main sources of tourist outside Greater China are shown in the chart and display distinct features. The only really bright spot here is South Korea. The figures for the first quarter confirm and reinforce the upward trend visible in the period, and reach even an historical maximum. The quarterly figure exceeded the threshold of 150,000 visitors for the first time this year, rising more than 18 percent above the peak reached one year earlier. The numbers from Malaysia and the Philippines show big oscillations but annual figures seem mostly stable. Over the period shown, there is some decline in the numbers for Malaysia, while in the case of the Philippines their numbers appear to be growing very slowly. Japan and Singapore, both countries with high levels of income, are clearly following declining trends.

Since the beginning of the period shown here, the number of visitors decreased by about one quarter and one fifth, respectively.

152,195

all-time record number for Koreans visiting Macau, first quarter

n 2001, when Wynn bosses asked its analysts for a first report on Macau, the latter were surprised.

They had no idea where Macau was.

They searched the web and only two places showed up: one in Brazil, the other in China. Which one were they talking about? (In fact, there’s also a Macau in Romania and France).

This incident illustrates how the world did not imagine Macau’s (the Chinese one) potential and how the territory became, and will continue to be, the “main focus of the global casino industry” even with new gaming destinations popping up in Asia, Kate O’Keeffe, gambling reporter for the Wall Street Journal, tells Business Daily.

If Las Vegas took a generation to build its reputation as a major casino destination, Macau took only four

years to surpass its US competitor, ten to be seven times bigger and in 2020 could be almost 15 times the size of Sin City.

In any industry, a 20 percent annual growth and stocks that double the average return in four years are signs of a potential bubble: dot.com and real estate in the last decade are good examples.

“It’s one of the concerns people have when they see these growth rates but analysts are still very optimistic”, says Mrs. O’Keeffe in an interview with Business Daily. “It’s kind of a scary thing. On one hand, it’s great for investors that there’s always growth but it’s also terrifying that we don’t really know how long it can last and people haven’t yet melted down what drives gambling revenue in Macau”, added the gaming specialist.

[New casino destinations in Asia] Some will be additions to Macau and some might not really turn on

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May 1, 2014

Macau For the WSJ reporter based in Hong Kong “it’s silly” to compare Macau and Las Vegas today. “It made a lot of sense in 2006 but today Macau is growing by the size of the Las Vegas Strip every year. We’re not quite there yet but soon we’ll be comparing Macau not with Las Vegas but with the whole US gaming industry”, she predicts.

US blind on Macau The major risks in the future are China’s slowdown and the increasing scrutiny of Macau by US authorities regarding heightened suspicions about money laundering. “The US feels it’s still blind on Macau. It’s hard to know the impact of the potential regulatory crackdowns by the US because these indicators are not as quantitative as revenue growth”, says O’Keeffe.

The recent junket incidents in Hong Kong are a sign of it and could provoke “a lack of confidence in the junket sector”. But the reporter does not expect “dramatic consequences” for the gaming industry in Macau, a jurisdiction that makes two thirds of its revenues from the junket market.

[Recent incidents could provoke] a lack of confidence in the junket sector

Interest-free loan start-ups on a roll The government has so far granted nearly 40 mln patacas in loans to encourage start-ups in the city, an application volume “in line with expectations” Stephanie Lai

sw.lai@macaubusinessdaily.com

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he government has granted interest-free loans totalling 39.83 million patacas (US$4.99 million) to the city’s young entrepreneurs since August last year up to Tuesday, Macau Economic Service director Sou Tim Peng told media yesterday.

The interest-free loan scheme, which opened for application on August 1, gives any eligible permanent resident aged between 21 and 44 a loan of up to 300,000 patacas to start his or her first business.

The loans last for up to eight years but borrowers must begin repaying them after a year and a half.

As at Tuesday last, Macau Economic Service had received 313 applications in total, of which 167 were approved, according to figures released by the department to media.

The start-ups that have applied for the loans embrace a wide business spectrum, including online retail, food and beverage business, education, medical services, and entertainment business, the government department noted.

“The reaction to the scheme has been pretty much in line with what we expect,” Mr Sou commented to media yesterday. “We have to exercise cautionary assessment of these

applications because it involves the use of public money. Some people are complaining that our approval process is a bit long but we do need more time to understand the applicants’ business plans thoroughly.”

The Macau Economic Service head added that the interest-free loans for start-ups can be approved at the earliest within three weeks.

The rules of the scheme say an applicant must be seeking to start a company or must be running an enterprise that has been operating for less than two years. The holder of the majority stake of any Macau company is ineligible.

“We had some high profile junket detentions at the end of 2012 and people thought it might start a huge crackdown on VIP operators in Macau but it didn’t happen. People have been questioned, detained and arrested but nothing has stopped the growth, so it’s hard to know what will happen in the future”, the WSJ staff journalist said.

The slowdown in China could impact both VIP and mass market segments but it’s hard to know which one will be more affected, she said following a France Macau Business Association event yesterday for which she delivered the keynote speech: “China’s growth has been slowing down for years and lots of industries have come down like property but Macau hasn’t. Even in stock markets, a lot of Chinese companies are not performing well but Macau stocks . . . nothing stops them.“

So much to explore It’s hard not see a bright future for Macau, at least according to bald figures. Today, only 1.3 percent of the Chinese population (a total of 1.3 billion people) visit the territory, leaving the remaining 99 percent to explore, a unique position in the world. Macau has 39 million people per casino versus 29.4 million in Asia and only 320,000 in the US, the world’s second largest gaming market (10 per cent of Americans visit Las Vegas every year).

The WSJ reporter agrees that Macau is probably “a once in a lifetime” opportunity for the casino industry and the new destinations springing up around Asia like Japan, the Philippines and Korea, which, in the best case scenario, could become a new Las Vegas if not a new Macau. “These new destinations, some will be additions to Macau and some might not really turn on. Singapore, for example, is a US$6 billion market but it’s not really growing. It has a huge success but investors are quite bored because they’re not seeing any growth”.

Re-exports lift Guesthouse March exports 10 pct slated for to MOP832 mln Almeida Ribeiro

Asia Pacific Poker Tour coming to Macau soon The Macau leg of the Asia Pacific Poker Tour takes place at PokerStars Live Macau in the City of Dreams from May 14 to 25. The HK$25,000 (US$3,225) buy-in APPT Macau Main Event begins on May 21. The organisers expect it to attract a big field and share out massive prizes. In last year’s APPT Macau Main Event, Alexandre Chieng overcame a field of 388 players to claim the HK$2,165,000 top prize.

The value of merchandise exports rose to MOP832 million last month, 10 percent more than a year earlier, official data show. The Statistics and Census Service says re-exports were worth MOP660 million, 13 percent more, and domestic exports MOP172 million, about the same as before. The value of merchandise imports rose to MOP7.22 billion, 20 percent more than a year earlier, giving a trade deficit of MOP6.39 billion for the month. In the first quarter of this year exports were worth MOP2.48 billion, 6 percent more than a year earlier, and imports were worth MOP21.92 billion, 18 percent more, giving a trade deficit of MOP19.44 billion for the quarter.

A 2-star guesthouse is to be built at the end of the main road close to downtown Ponte 16. The announcement was published in yesterday’s official gazette, according to which a plot of land on Almeida Ribeiro will be merged with two smaller plots in the backstreet of a rundown hotel there. The guesthouse will occupy some 494 square metres. According to the official gazette, the government will acquire two smaller plots of land at the same time as these. These two, however, will be put on the property market here.

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May 1, 2014

Macau Unions unwanted

Labour Day Rallies

Marching to a different beat As many as 18 associations will demonstrate today calling on the government for better workers’ rights Sara Farr

sarafarr@macaubusinessdaily.com

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abour Day has been around for more than 100 years, and in the U.S. was first celebrated on September 5, 1882. Many countries around the world, however, celebrate International Workers’ Day, which typically falls on May 1. The holiday is marked around the world to celebrate the achievements of workers, mainly the eight-hour movement: eight hours of work, eight hours of recreation and eight hours of sleep. In Macau, however, this proves a hard challenge, mainly due to working in shifts.

Over the past eight years, more and more people have taken to the streets to demonstrate on Labour Day. This year sees a record number of associations participate in street rallies, with as many as 18 associations seeking permission from the Public Security Police.

Ieong Man Teng, president of

the Forefront of Macau Gaming Association and who is taking part in today’s demonstrations, told Business Daily that in his opinion foreign workers are the main concern. “The rapid development of the gaming industry will lead to a boost in the number of gaming tables in the coming years,” he said. And while the government has said the number would not surpass 3,000, Mr Ieong said more frontline staff, especially dealers, will be needed. Macau, however, does not have enough labour resources to meet demand, and will somehow be forced to import more workers to fill the vacancies.

“I don’t want the government to use it as an excuse to introduce more foreign workers,” Mr Ieong said.

Leong Sun Iok, president of the Macau Gaming Industry Labourers Association, told Business Daily that

despite the booming economy not everyone shares the benefits.

Unlawful rights Mr Leong also said local workers should be promoted to managerial positions as these are mostly taken by foreign workers. The reason that this does not happen, he said, is the “lack of personnel training, which is regarded as a social responsibility for both enterprises and the government.”

One of the concerns Mr Ieong said he and the workers represented by his Association have is that frontline workers, especially in the gaming industry, have to work shifts and do not get to enjoy public holidays.

“Workers are supposed to be treated equally under the Labour Law,” he said, adding that the government

The Legislative Assembly vetoed a trade union law proposal for the fifth time last month.

Legislator José Pereira Coutinho has been putting forward the bill for a few years now, and says “the passing of this law is very important as it can promote better social harmony and secure the basic rights of workers.

If approved, the draft would have given trade unions the power to call for a strike; offer legal advice to workers and benefit from an exemption in court fees.

But legislators with business interests claim the bill would damage the city’s image and economy.

should set laws that actually meet labour needs “instead of only adopting the opinions of companies.”

In addition, he said, rallying today is another concern he and the majority of those demonstrating have. “There are no laws to prevent us from getting fired once we’ve voiced our needs and opinions in public.”

Mr Leong also agrees that the government should revise its policy on foreign workers in order to guarantee local employment and “encourage personal development in specific professions like chefs and drivers.”

The day starts off with four associations from the gaming industry that will drive from the casinos on Taipa side to the Legislative Assembly to hand in the first petition of the day. From there, the group will walk to government headquarters, where they will hand in another petition.

Throughout the day, more associations will walk to government headquarters to make their voices heard and deliver more petitions. with Cynthia Wong

Just coasting?

Transport bosses provide over 1,200 openings but less than 5 pct of residents are interested; candidates say they are just “for show” Tony Lai

tony.lai@macaubusinessdaily.com

L

ess than 5 percent of the job vacancies in a recent recruitment fair for professional drivers were filled by locals, showing the labour shortage in this area is both prevalent and imminent, say bosses.

But a land transportation employee union retorted that such fairs are “for show”, exaggerating the shortage here without scientific figures.

More than 20 companies and associations from different sectors hosted a recruitment fair on Tuesday to fill over 1,200 vacancies for driver positions for tourist coaches, trucks, buses, and taxis.

The monthly salaries for such positions range from 10,000 patacas (US$1,250) to 35,000 patacas,

said Leng Sai Vai, vice-president of Macau Traffic and Transport General Association. But only 47 people applied for the 1,200 jobs, or 3.92 percent of the vacancies, he added.

“It shows that the shortage of professional drivers is widespread; not only focusing on positions for tourist coaches and casino shuttles but also the jobs for truck drivers,” he said.

“Such shortages will not only hinder the economic development of Macau but the livelihoods of the public as some jobs involve transporting goods and daily necessities,” he warned.

For instance, 140 companies from the Macau Union Suppliers Association now each need 4 more drivers on average to man

their operations transporting food products, Mr Leng pointed out.

“What we hope, as the first step, is that the public - including local employees and the government should acknowledge there is such a problem here and seek possible solutions,” he said. But he did not specify whether he meant the government should lift local-only policies for professional drivers.

A labour union, the Macau Federation of Transportation, however, accused the move by employers as “being for show”.

“Some of our members visited the fair yesterday [on Tuesday] and we found that some companies only have two tourist coaches but they say they need dozens of drivers,” criticised

Chio Pou Wan, vice-president of the Union. “Does that make sense? Do they really need so many people?”

“We can accept that there’s a shortage here with concrete scientific figures provided but they should not use this means to pressure us and society to accept what they want [importing non-resident professional drivers].”

Official figures show that there were 1,183 operators and drivers for the land transportation sector here as at the end of last year, slightly down from the 1,189 of the previous year.

The administration stated last year that they will study the labour situation regarding professional drivers but it has yet to publicise any developments.

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Rival trans-Pacific trade deal takes shape The idea for the FTAAP was raised in 2006 by leaders of APEC

APEC members’ representatives in the meeting last year. Xi Jinping is in the centre

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hina is pressing for a vast AsiaPacific free trade agreement, a senior official said yesterday, as a rival US-led deal that excludes the Asian giant runs into snags.

Wang Shouwen, an assistant commerce minister, told reporters at a briefing that China has proposed setting up a working group to study the feasibility of an Asia-Pacific Free Trade Agreement (FTAAP).

The proposal comes ahead of a

meeting in May of trade ministers from the Asia Pacific Economic Cooperation (APEC) forum, which China will host.

“The feasibility study will look into the potential economic benefits if APEC members reach a free trade agreement, how to make use of existing FTAs... and whether we can use the similar aspects of the various FTAs to serve the general FTA within the Asia-Pacific region,” he said. “We

think there will be no conflict between the FTAAP and the region’s other FTAs under discussion.”

The idea for the FTAAP was raised in 2006 by leaders of APEC, Wang said.

That group has 21 members including both China and the United States.

The US has been trying to secure agreement on a Trans-Pacific Partnership (TPP), a grouping of 12 nations including Japan, Australia, Malaysia and Mexico.

All belong to APEC. But the US-led trade talks have become snagged on issues related to Japan’s tightly guarded auto and agricultural sectors.

There had been hopes that Tokyo and Washington might break the impasse during US President Barack Obama’s visit to Japan last week, but they failed to clinch a deal and negotiations continue.

Chinese President Xi Jinping in October said at the APEC business forum in Indonesia that his country will “commit itself to building a trans-Pacific regional cooperation framework that benefits all parties”.

The comments were interpreted

by Chinese media as criticism of the TPP - a key part of Obama’s economic and strategic policy.

Wang said the composition of the working group has yet to be decided but will possibly comprise government officials, business people and academics from different countries.

It will come up with suggestions on whether the FTAAP is desired and whether negotiations should start, he said.

The proposal “has won positive reactions from some APEC member countries”, he added, though he did not identify them.

Separately, China and Indonesia, which would also be excluded from the

TPP, are involved in plans for another trade agreement involving 16 countries around the Asia-Pacific region and spearheaded by the Association of Southeast Asian Nations.

Wang told reporters that the FTAAP can eventually be developed based on that pact and the TPP. Previously when commenting on the TPP, the commerce ministry has said that China thinks all parties should be open, inclusive and transparent while setting up free trade deals.

“They should be flexible, particularly when dealing with economies at different stages of development, so that all economies can have more options” on the road to ultimately reaching an all-encompassing FTA, commerce ministry spokesman Shen Danyang said last year.

AFP

They should be flexible, particularly when dealing with economies at different stages of development, so that all economies can have more options Shen Danyang, commerce ministry spokesman

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May 1, 2014

Greater China Chinese-Swiss FTA effective July 1 The China-Switzerland free trade agreement (FTA) will come into effect on July 1, said the Ministry of Commerce on Tuesday. The FTA will further boost the two sides’ economic cooperation, as well as that between China and Europe, said a statement on the ministry’s website. China and Switzerland signed the FTA in Beijing in July 2013, capping more than two years of negotiations and legal processes. The pact was signed between Commerce Minister Gao Hucheng and federal councillor Johann Schneider-Ammann.

Listed firms report rising profits for 2013 China’s public traded firms saw profits rise in 2013, but a weak start this year has highlighted challenges ahead in sustaining momentum, latest data showed. As of 10:00 p.m. Tuesday, 2,519 listed companies on the Shanghai and Shenzhen stock exchanges had released their annual reports for 2013, which showed a 13.75-percent rise in net profits for a total of 2.26 trillion yuan (366.9 billion U.S. dollars), according to yesterday’s Shanghai Securities News. Annual reports for listed companies are due at the end of April.

Premier to visit Africa Chinese Premier Li Keqiang will pay official visits to Ethiopia, Nigeria, Angola and Kenya from May 4 to 11. This is the first time for Li to visit Africa since taking office in 2013. Foreign Ministry spokesman Qin Gang said yesterday that Li was invited by Prime Minister of Ethiopia Hailemariam Desalegn, President of Nigeria Goodluck Ebele Jonathan, President of Angola Jose Eduardo dos Santos and President of Kenya Uhuru Kenyatta. During his stay in Ethiopia, Li will also visit the headquarters of the African Union (AU) in Addis Ababa.

Think tank cuts GDP forecast The Chinese Academy of Social Sciences (CASS), one of Beijing’s top government think tanks, has revised its 2014 GDP growth forecast down to 7.4 percent, below the official 7.5 percent target, and says that growth could slow to as low as 7 percent, state media reported yesterday. The downward revision follows signs that China’s economy slowed more than expected in the first quarter. A report in the official China Securities Journal quoted the report published on Tuesday as saying that China’s economic growth would continue to be driven by investment.

UN envoy urges political solution to Ukraine crisis China urges all parties to effectively implement the Geneva agreement and continue to push for a political solution to the Ukraine crisis, the Chinese envoy to the United Nations said Tuesday. “Regrettably, tension in eastern and south-eastern Ukraine has worsened, with both sides more vehemently accusing each other. Threats and sanctions have again replaced dialogue and negotiations,” Liu Jieyi, China’s permanent representative to the UN, said at a meeting of the UN Security Council.

Taiwan economy grows at solid On a sequential basis, GDP growth eased substantially to 1.1 percent from over 7 percent in the fourth quarter

T

he export-dependent economy grew at its quickest pace in over a year in the first quarter, data showed yesterday, suggesting rising momentum in developed economies and an improving outlook for the global tech sector.

The preliminary growth rate of 3.04 percent in the three-months to March 31 also indicated that the island’s economy may be able to weather a slowdown in China, its biggest market, as exports to the United States and Europe showed a heartening pick up.

Taiwan’s economy, home to the world’s biggest contract chipmaker and a crucial supply chain for major electronics brands, is often viewed as a bellwether for global growth and tech demand.

“What’s eye catching was the strong contribution of net exports, which added 1.57 percentage points to the overall growth rate,” said analyst of Raymond Yang with ANZ in Hong Kong.

The first quarter growth was the strongest since the last quarter of 2012, according to the Directorate General of Budget, Accounting and statistics, driven by a low-base of comparison, solid private consumption and a steady pick up in exports.

It was largely in line with a median forecast of 3.0 percent in a Reuters poll and slightly ahead of the 2.95 percent rate booked in the fourth quarter of 2013.

The signs for the rest of the

Iphone production is a main driver in Taiwan’s electronics business

year were positive, and backed the International Monetary Fund’s view that an increase in output in richer nations will spur the global recovery.

March exports to the United States, Taiwan’s no. 2 market, rose 10.3 percent on-year, with shipments to Europe up 10 percent - in both cases it was the strongest growth rate in a year.

The increase up in shipments provide a shot in the arm to Taiwan’s economy, which is facing some uncertainty as growth in China continues to slow down this year.

On a sequential basis, GDP growth eased substantially to 1.1 percent onquarter, from over 7 percent in the fourth quarter -due to weakness in domestic demand- which points to the need for the export sector to pick up the slack.

Apple effect The recent eye-catching results from Apple Inc, which sources many components from Taiwan and contracts out much of its production

Baidu plans IPO in Youku IQiyi is looking to spend at least 300 million yuan this year to produce

B

aidu Inc.’s IQiyi video website plans to hold an initial public offering within three years as it competes with Youku Tudou Inc. for China’s 618 million Internet users seeking movies and TV shows online.

The Beijing-based site, which offers “Mad Men” and the South Korean drama “My Love From the Star,” is aiming for a valuation that surpasses Youku Tudou’s, Chief Executive Officer Gong Yu said in an interview yesterday in Beijing. The U.S.- listed Youku has a market capitalization of US$3.8 billion and posted 3 billion yuan (US$480 million) in revenue last year.

“We want to have the largest market share and revenue share in the industry,” Gong said. “By the time of the IPO, if our market share and revenue are both larger than Youku, we should have a bigger valuation than it does.”

China’s market for online video probably will be worth 17.8 billion yuan this year and then double to 36.6 billion yuan in 2017, according to a report by Internet consultant IResearch.

Baidu, the owner of China’s largest Internet search engine, is boosting its online entertainment content to compete against Youku, which will receive a US$1.22 billion investment led by Alibaba Group Holding Ltd. IQiyi is looking to spend at least 300 million yuan this year to produce its own content, including drama programs, that cater to people born after 1985, Gong said.

“We want to boost the lead we have against other competitors and solidify our existing strength,” Gong said. “Based on this, we will definitely increase our investment.”

Creating content IQiyi, which has yet to make a profit, wants to hire more producers to create content in an effort to

We want to have the largest market share and revenue share in the industry Gong Yu, IQiyi’s CEO

increase traffic and cut costs, Gong said.

IQiyi, which also competes against Sohu.com Inc., offers movies including “The Hunger Games: Catching Fire” and attracted 224.8 million unique visitors in February. The site has the most unique daily and monthly visitors via personal computers in China and is the market leader according

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May 1, 2014

Greater China

pace on-quarter,

I still view the export picture as good overall.

Despite the relative weakness in some sectors like flat panels, if you look at products such as semiconductors and chips, we’re still doing quite well Rick Lo, senior economist, Fubon Financial Holdings

of iPhones and iPads to firms such as Hon Hai Precision Industry Co Ltd, also bodes well for the island’s exports.

“I still view the export picture as good overall. Despite the relative weakness in some sectors like flat panels, if you look at products such as semiconductors and chips, we’re still doing quite well,” said Rick Lo, senior economist of Fubon Financial Holdings.

Lo said that Apple’s iPhone 6, expected to be launched around September, “should continue to drive Tai-

challenge its own content to monthly time spent via PCs and mobile devices, Baidu CEO Robin Li said during an April 24 earnings conference call.

“The long-term prospects for online video and IQiyi are very attractive, and we remain supportive across the platform,” Li said.

Revenue from mobile devices, generated mostly from advertising sales, contributed more than 30

Baidu headquarters

wan’s exports in a positive direction.”

Apple’s lustre had already rubbed off on some of Taiwan’s big tech firms.

Hon Hai’s first-quarter profit came in above expectations, on continued strong sales of Apple-branded iPhones and iPad products.

Taiwan Semiconductor Manufacturing Co Ltd, the world’s largest contract chip maker and another supplier of Apple, reported bright first-quarter numbers and an optimistic outlook for 2014 on increased demand for its chips in high-end smartphones.

Domestic consumption Domestic private consumption grew 2.94% on year, just ahead of the government’s pick for a 2.84% rise, mainly supported by increasing confidence on the back of a rising stock market and an increase of tourists from China.

The improving economy has also lured foreign-investor inflows in recent months, sending the Taiwan stock market surging to its highest point in almost three years.

Yesterday’s GDP data puts the economy on track to meet the statistics agency’s 2014 growth estimate of 2.82 percent. The government’s revised first-quarter number will be finalised in the next few weeks.

The government did not amend its outlook for economic growth this year. In March the head of the statistics agency said growth could potentially reach 3 percent in 2014, which would be the best growth rate in three years.

“Despite a pullback in both exports and imports, I was pleasantly surprised by the strength in private consumption. This points to the overall strength in the labour market and a steady if gradual improvement in wages,” said Fubon’s Lo. Reuters

percent of revenue in the first quarter, Gong said while declining to be more specific. More than 500 million people in China access the Internet from mobile devices, according to the China Internet Network Information Centre.

Video crackdown This week, Chinese Internet video sites were ordered to take down some U.S. television shows, including “The Big Bang Theory,” after the government escalated a crackdown on content deemed offensive amid a Web cleaning campaign.

IQiyi will continue importing U.S. TV shows and movies, Gong said, adding that they account for a small proportion of traffic.

The site’s most popular imported U.S. show, “The Vampire Diaries,” received accumulated hits of 200 million for four seasons. That compares with 3 billion hits for the fourth season of locally produced “iPartment,” a Chinese romantic comedy, and 2 billion for “My Love From the Star.”

Nasdaq-listed Baidu holds a controlling stake in IQiyi. The search giant bought Internet video business PPStream Inc. in 2013 for US$370 million and has been combining it with IQiyi.com to create China’s largest online video platform.

IQiyi will continue to expand its smart TV and set-top box business.

It plans to offer more than 2 million smart TVs in cooperation with TCL Multimedia Technology Holdings Ltd. It wants to pre-install its application this year on more than 20 million smart TVs, including those from other manufacturers, Gong said.

Bloomberg News

Central bank against same-day trading Some analysts predicted that China would move to a T+0 system in the first half of 2014

T

he People’s Bank of China (PBOC) warned against implementing a same-day trading system for mainland stocks on Tuesday, as securities regulators consider how best to protect retail investors from manipulation by institutional funds.

“On the surface, ‘T+0’ trading can certainly help investors respond to changes in market sentiment in a timely way, locking in profits and preventing losses from widening; you can also say it would invigorate the market and improve revenues at brokerages, but the risks in T+0 trading are hard to ignore,” the PBOC wrote in its 2014 Financial Stability Report.

Calls for China to allow small investors to buy and sell stocks on the same day (known as the “T+0” system used in most developed stock markets), as opposed to the current system in which most investors can only buy on one day and sell the next (T+1), increased in the aftermath of a trading scandal related to a “flash crash” caused by an automated trading error at Everbright Securities.

On August 2013, a glitch with Everbright’s order execution system sent 26,082 erroneous “buy” orders worth 68.6 billion yuan (US$11.26 billion) to the Shanghai Stock Exchange during a two-minute

period, leading to a short-lived 6 percent pop for the main index.

Everbright reacted to the errant trades by building up huge short positions in index futures, before it disclosed details of the glitch - the revelation of which caused indexes to collapse - for which several Everbright executives were charged with insider trading and banned from the industry for life.

The many small retail investors who jumped on the bandwagon as the index soared couldn’t get off when it crashed, thanks to the T+1 rule. Nor could many hedge their bets, as trading in index futures is still limited to institutional and wealthy investors with more than 500,000 yuan in their accounts.

As a result, some analysts predicted that China would move to a T+0 system in the first half of 2014, focused on allowing same-day trading in liquid large-cap stocks.

The central bank, however, said that same-day trading would increase the risk of market manipulation, and also complicate trade settlement and aggravate volatility.

The PBOC does not have a mandate to directly regulate the stock markets, which are overseen by the China Securities Regulatory Commission (CSRC), but is charged with maintaining overall financial stability.

Reuters

China banking system passes stress tests The central bank carried out stress tests at the end of last year for events such as a 400 percent rise in non-performing loans

C

hina’s banking system can weather large increases in bad debts or a sharp economic slowdown, the central bank said, although some individual banks would fall below required liquidity ratios in a worst-case scenario.

Concern about the huge growth in Chinese corporate debt since the global financial crisis and the risk of defaults has intensified this year as growth slows and authorities allow markets to play a bigger role in deciding winners and losers.

“The results of the stress test showed that the asset quality and capital adequacy of China’s commercial banks is relatively high,” the People’s Bank of China (PBOC) said in its annual financial stability report, which it released on Tuesday.

The central bank carried out stress tests at the end of last year for events such as a 400 percent rise in nonperforming loans (NPLs), increases in bond yields, large changes in the yuan’s exchange rate, and economic growth slowing to 4 percent.

Another worst-case scenario tested was a 15 percentage points rise in nonperforming loans of local governments and industries with excess capacity.

The tests covered 17 domestic banks that are considered systemically important and account for 61 percent of assets.

“Under light, middle and heavy stress scenarios, the banking system’s overall capital adequacy would remain at a relatively high level; even the most serious scenario would not see the capital adequacy ratio fall below 10.5 percent,” the report said.

That would be a fall of about 1.5 percentage points in the current level of the ratio.

However, the PBOC did say that under the middle- and worst-case scenarios, one and three banks respectively would fail to meet liquidity ratio requirements. It did not name those banks, nor did it release any results for individual banks.

Commercial banks are required to keep their liquidity ratios at 25 percent or higher.

Concern about the huge growth in Chinese corporate debt since the global financial crisis has intensified this year as the government allows market forces to play a bigger role in deciding winners and losers.

The stress tests did not investigate the hundreds of smaller commercial and rural banks. These smaller lenders are seen as more vulnerable to slowing growth and rising bad debts, and their problems draw great media attention, but they are not considered to pose a broad systemic threat.

Reuters

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May 1, 2014

Asia Indonesia forecasts GDP growth of 5.5 percent Indonesia’s proposed 2015 budget assumes economic growth of 5.5 percent to 6.3 percent, versus a 6 percent target this year, Planning Minister Armida Alisjahbana said yesterday. In the budget proposal to be sent to parliament, the government will set a yearend inflation rate target for 2015 at 3.5-5.5 percent. The inflation forecast is higher than Bank Indonesia’s target of around 3-4 percent next year.

New Zealand wine exports hit record Wine exports reached record levels in the 12 months to March amid surging demand from key markets, an industry body yesterday. Official data showed exports were up 9.2 percent to NZ$1.32 billion (US$1.13 billion), making wine the country’s eighth most valuable goods export, New Zealand Winegrowers said. “The very robust export performance over the past 12 months reflects the continued demand in key markets and increased availability of the wine from the 2013 vintage,” chief executive Philip Gregan said.

DBS beats expectations Singapore’s biggest bank, beat expectations as first-quarter core net profit rose 9 percent to a record, helped by strong growth in loans. DBS said core net profit came to a record S$1.033 billion (US$823 million) for the first three months of 2014, up from S$950 million in the same period a year earlier and above an average forecast of S$857 million from six analysts polled by Reuters. Net profit including special items, climbed 30 percent to S$1.231 billion, boosted by items such as a one-off gain from the sale of a stake in a Philippine lender.

OCBC’s net profit up

Oversea-Chinese Banking Corp said first-quarter quarterly profit jumped 29 percent to a record, boosted by strong loans and a widening of its net interest margin, beating expectations.

Bigger rival DBS Group Holdings also posted record profit with both banks seeing double-digit loan growth despite a slowdown in the housing market. OCBC earned a record S$899 million (US$716 million) in net profit for the quarter, up from S$696 million in the same period a year earlier, and above an average forecast of S$727 million from four analysts.

Kuala Lumpur to open world’s The gleaming KLIA2 airport covers an area equal to 24 football fields

M

alaysia this week opens what it calls the world’s largest airport built specifically for low-cost airlines, a project driven by budget travel’s phenomenal growth but which debuts under the shadow of missing flight MH370.

The US$1.2 billion facility near the main Kuala Lumpur International Airport (KLIA) was originally targeted to open three years ago but has been hit by repeated delays, amid concerns over safety and subpar construction, even as costs have doubled.

But the new KLIA2 budget terminal will begin operations Friday with an initial 56 flights, increasing the load as airlines move full operations over from a nearby existing facility in coming days.

Analysts and the travelling public agree the opening of a new budget terminal is long overdue.

The current low-cost terminal is a cramped and bare bones facility that resembles a bus station. Capacity is 15 million passengers, but about 22 million squeezed through last year.

The gleaming KLIA2 meanwhile covers an area equal to 24 football fields, authorities said, about four times the size of the facility it is replacing.

Its modern design features soaring ceilings, natural lighting, people-mover belts and improved connectivity with access to an existing express airport train to Kuala Lumpur 50 kilometres

The KLIA control tower and part of the airport.

The new airport will be 2 kilometres from the old one.

away.

Malaysia-based Malindo Air, the Philippines’ Cebu Pacific Air, Singapore’s Tiger Airways, and Indonesia’s Lion Air and Mandala Airlines will begin initial operations there Friday.

Regional low-cost leader AirAsia plans to join them by May 9, when the old terminal is due to close.

About 24 million passengers are expected to pass through KLIA2 in the first 12 months, and annual capacity is 45 million. Current capacity at the main KLIA terminal is roughly 40

million, but expansion plans are in the works.

“KLIA2 will cement Kuala Lumpur’s position as a thriving hub for both low-cost and full-service travel,” said Bashir Ahmad, managing director of state-linked airport operator Malaysia Airport Holdings Berhad (MAHB) which built KLIA2.

Kuala Lumpur has been at the core of a regional budget-travel boom credited in large part to Malaysiabased AirAsia.

The once-failing airline was acquired in 2001 by outspoken

Stockland earnings may speed Australand deal The deal would create a combined group with the largest residential business in Australia

A

ustralian property group Stockland Corp Ltd yesterday said it expected to achieve earnings growth of 6 percent in the 2014 financial year, at the top of its guidance range, supported by a strong residential market.

The quarterly update may increase pressure on smaller peer Australand Property Group to accept a A$1.95 billion (US$1.81 billion) all-script takeover bid from Stockland, a week after it rejected the offer as undervalued.

Stockland managing director and chief executive Mark Steinert gave no indication Australia’s second-biggest property group was prepared to lift the offer, saying he was happy with the outlook for organic growth in the residential business.

“We will continue to be disciplined in all potential acquisitions, including any possible transaction with Australand,” Steinert said in a statement.

“We believe the offer we presented to the Australand Board is highly compelling ... If price expectations are too high we are quite prepared to sell down our holding and realise a profit.”

Stockland currently holds 19.9 percent of Australand, which makes about half its revenue from the residential sector.

If the deal went ahead, it would create a combined group with the largest residential business in Australia at a time of record low

interest rates and booming house prices in key markets such as Sydney.

Morningstar analyst Tony Sherlock said he would prefer to Stockland to walk away.

“It’s a waiting game unfortunately at this point. We’ve got no clarity,” he said.

“I would say they should take the profits and walk away. I think that’s a full price, they are buying the assets at the top of the market value.”

Stockland said its residential deposits for the year to March 31 were the strongest the company had seen for the period in four years.

Stockland’s retail and retirement living businesses also reported positive quarterly results, the company added.

“We are well placed to achieve sustainable long-term growth in line with our objective of 5 percent annual EPS (earnings per share) growth through the cycle,” Steinert said.

Reuters

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Asia

biggest low cost airport

Data day in Japan Total cash pay rose in March for the first time in three months

Malaysian entrepreneur Tony Fernandes.

He quickly turned it into one of the aviation industry’s biggest success stories, its rapid regional growth helping to broaden a market that has benefitted a host of Asian competitors.

Its delays and rising costs triggered an on-going inquiry by a parliamentary committee and accusations last month by impatient AirAsia officials of “many concerns, especially on functionality, safety and security.”

These included depressions on runways and taxiways, said the airline,

which threatened not to move in.

MAHB has acknowledged KLIA2 is on unstable ground that will require years of upkeep.

Malaysia’s government is accused of presiding over a crony capitalist system often blamed for frequent problems and unexplained cost overruns in big projects.

Fernandes has previously accused the government of favouring lossmaking flag carrier Malaysia Airlines over profitable rivals like AirAsia.

But AirAsia agreed in mid-April it would move over to KLIA2 after the government said the International Civil Aviation Organisation (ICAO) would inspect the facility.

Malaysia said last week ICAO approval was given.

Shukor Yusof, an aviation analyst with Malaysia-based Endau Analytics, said the Asian budget-travel segment had roughly tripled over the past decade to about 50-70 million passengers in 2013, or about 20 percent of regional air traffic.

The expanding Asian middle class means the market can expect further “robust growth of up to 10 percent annually, especially with the launch of KLIA2.”

Malaysia hopes KLIA2 will help increase and broaden the flow of tourists to the country. Nearly 26 million came in 2013, the vast majority driving over from neighbouring Singapore.

AFP

I

ndustrial and wages figures were unveiled yesterday in Japan. Japanese industrial output rose 0.3 percent in March from the previous month, government data showed yesterday.

Factory activity held steady before an increase in the sales tax was implemented this month.

The rise in industrial output, a key gauge of broader economic activity, compared with economists’ median estimate of a 0.5 percent gain, data from the Ministry of Economy, Trade and Industry showed. It followed a 2.3 percent drop in the previous month.

Manufacturers surveyed by the ministry expect output to fall 1.4 percent in April but increase 0.1 percent in May, the data showed.

The ministry stuck to its assessment that industrial output is picking up.

Japanese wage earners’ total cash pay rose in March for the first time in three months, government data showed yesterday, reflecting a tighter job market.

The 0.7 percent year-on-year gain in total cash earnings followed a revised 0.1 percent annual drop in February, registering the fastest growth in two years, a promising signal from policymakers’ efforts to shake off 15 years of mild deflation.

The Bank of Japan (BOJ) sees rising wage as key to achieving its 2 percent inflation target by around mid-2015, which many economists believe is too ambitious.

0.3 pct March’s Japanese industrial output rising

Yesterday’s labour ministry data showed overtime pay, a barometer of strength in corporate activity, rose 4.8 percent in the year to March, up for 12 months in a row. Special pay grew 14.8 percent as firms offered more generous one-off payments at end of the business year in March.

“Job conditions are improving, and overtime pay and bonuses are both growing due to economic recovery. As such wages are picking up,” a labour ministry official said.

However, in a sign firms remain hesitant to increase fixed personnel costs and reflecting rising use of lowwage part-timers, regular pay fell 0.4 percent in the year to March, down for 22 months in a row, the data showed.

Pointing to higher prices likely eroding consumers’ purchasing power, real wages, which take into account consumer inflation, slipped 1.3 percent, down for nine months in a row.

Reuters

HSBC joins CIMB with record 2014 sukuk forecast Sales of Shariah-compliant debt that pay returns on assets to comply with Islam’s ban on interest have reached US$17.2 billion so far this year

W

orldwide sukuk sales surged in April, setting the stage for a record year as Middle East issuers fund infrastructure projects and Malaysian companies take advantage of falling borrowing costs to refinance debt.

Offers reached US$6.1 billion this month, the most since September and almost double March’s US$3.5 billion, data compiled by Bloomberg show. CIMB Group Holdings Bhd., the world’s largest Islamic bond arranger, see sales equalling or exceeding the high of US$46.5 billion in 2012, and HSBC Holdings Plc., the second- biggest, forecasts record issuance in 2014.

The average yield on global Islamic notes fell eight basis points to a 10-month low of 2.87 percent in April, after climbing to 3.59 percent in September as the prospect of U.S. stimulus cuts pushed up developing-nation borrowing costs, a Deutsche Bank AG index shows. Hong Kong’s plan to sell as much as US$1 billion of dollar sukuk after this year’s summer holidays

may spur Shariah offers from Chinese companies in the city.

“Sukuk sales enjoyed a strong showing in April as market volatility receded following interest-rate stability from the diminishing impact of Fed tapering on bond yields,” Angus Salim Amran, the Kuala Lumpurbased head of financial markets at RHB Investment Bank Bhd., said in an interview on Tuesday. The lender has received “strong interest” from potential issuers in North Asia planning to tap the market “very soon,” he said.

Offers from Malaysia and the Gulf Cooperation Council countries will swell to US$66 billion this year, Amran estimated. The GCC comprises Saudi Arabia, United Arab Emirates, Qatar, Kuwait, Bahrain and Oman.

Saudi spending Sales of Shariah-compliant debt that pay returns on assets to comply with Islam’s ban on interest have reached US$17.2 billion so far this year, 12 percent more than at the same point in 2013

when full-year issuance was US$43.1 billion.

Saudi Electricity Co.’s US$2.5 billion dollar sukuk offer was April’s biggest followed by a 2 billion ringgit (US$614 million) sale by DanaInfra Nasional Bhd., a Malaysian state-owned company set up to finance a subway in Kuala Lumpur.

The government of Saudi Arabia announced 855 billion riyals (US$228 billion) of targeted spending in its 2014 budget released in December as it builds roads, industrial centres and airports.

Sales from the Middle East will pick up in the second half of the year, led by infrastructure developers, while government- guaranteed offers and companies seeking to refinance debt will account for the majority of Malaysian issuance, Badlisyah Abdul Ghani, chief executive officer at CIMB Islamic Bank in Kuala Lumpur, said in a phone interview on Tuesday.

Malaysian refinancing “That naturally will give Malaysia a run for its money,” he said. “Issuance in

Sukuk sales enjoyed a strong showing in April as market volatility receded following interest-rate stability from the diminishing impact of Fed tapering on bond yields Angus Salim Amran, RHB Investment Bank

Malaysia will be a mixture of government- guaranteed and corporate,” he said, adding that local banks would look to raise funds to comply with more stringent rules set out by the Basel committee.

The Islamic unit of Malayan Banking Bhd. sold 1.5 billion ringgit of sukuk in March to comply with Basel III requirements. Cagamas Bhd., a Kuala Lumpur-based state-owned mortgage provider and 1Malaysia Development Bhd., a sovereign wealth fund, have a combined 10.1 billion ringgit of non-Islamic and Shariahcompliant debt due this year, according to data compiled

by Bloomberg. Petroliam Nasional Bhd., the country’s state-owned oil company, has US$2.9 billion.

As well as Hong Kong, the U.K. is also planning a debut sovereign sukuk sale of 200 million pounds (US$336 million), although it may not happen until early 2015.

Japan Bank for International Cooperation said this month it’s considering its first offer of ringgit Islamic notes in Malaysia in 2014.

Bloomberg News

14

May 1, 2014

International

German unemployment falls again The German economy grew 0.4 percent in the final three months of 2013

T

he rate decreased more than twice as much as forecast in April in a sign that Europe’s largest economy will continue to lead the recovery in the euro area.

The number of people out of work decreased for a fifth month, dropping a seasonally-adjusted 25,000 to 2.872 million, the Nuremberg-based Federal

Labour Agency said yesterday.

Economists forecast a decline of 10,000, according to the median of 25 estimates in a Bloomberg News survey. The adjusted jobless rate was unchanged at 6.7 percent, the lowest level in two decades.

Germany has benefited from ultra-low interest rates in the euro

area and the emergence last year of the 18-nation currency bloc from its longest-ever recession. The Bundesbank said this week that consumer sentiment and demand for housing construction in the country remain “exceptionally favourable.”

“Germany is well known for its exports but we also see a very positive trend for domestic demand,” said Heinrich Bayer, an economist at Deutsche Postbank AG in Bonn.

“That’s good news for the country’s labour market and, of course, for the economy in the entire euro area.”

The number of unemployed shrank by 14,000 in western Germany and 11,000 in the eastern part of the nation, yesterday’s report showed.

Euro-area unemployment The German economy grew 0.4 percent in the final three months of 2013, twice as fast as the euro area.

Gross domestic product figures for the first quarter are due to be published on May 15.

Volkswagen AG, Europe’s largest automaker, reported a 22 percent gain in first-quarter operating profit on Tuesday, helped by record sales at its luxury Porsche and Audi brands.

Germany’s jobless rate contrasts with the rest of the currency bloc.

Unemployment in the region probably held at 11.9 percent in March, according to a separate Bloomberg survey before data due on May 2.

The state of the euro-area economy is “is pretty severe,” European Central Bank President Mario Draghi said this month. His “biggest fear” is a protracted stagnation that leads to high unemployment rates becoming structural, he said on April 3 after officials kept the benchmark interest rate unchanged at a record-low 0.25 percent.

Volkswagen results were highly positive. Wolfsburg factory pictured.

Bloomberg News

Sudan currency sinks while oil fields threatened The shortage has fuelled demand for currency in the illegal black market, which is tolerated by the authorities

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udan’s pound slumped to a record against the dollar in the black market as the war in South Sudan threatens to curb inflows from oil shipments.

The currency changed hands at 9.1 pounds per dollar on Tuesday in the capital, Khartoum, according to two money changers who both trade on the streets of the city where most residents buy their foreign exchange.

That compares with about 8.2 on March 31, they said by phone. The official rate is about 5.7, according to central bank data.

South Sudan’s oil fields have become a key target for insurgents opposed to President Salva Kiir, with rebel leader Riek Machar vowing to seize crude-producing areas to starve the military of revenue. The landlocked nation exports its oil via pipelines that cross Sudan to a port on the Red Sea. Transit fees for the shipments may earn Sudan about US$1.4 billion in 2014, or 25 percent of total export earnings, according to the International Monetary Fund.

“Sudan has a severe foreigncurrency crisis, our currency inflows are lower than our needs,” Ezz alDin Ibrahim, a Khartoum-based economist and former state minister of finance, said in a phone interview.

“Transit fees mitigate this problem and also increase the central bank’s ability to support the local currency.”

Landlocked South Sudan took over three-quarters of the formerly united Sudan’s output of 490,000 barrels a day when it declared independence in July 2011 after a two-decade civil war. South Sudan is producing about 160,000 barrels per day of crude from Upper Nile state, the only region still pumping oil in the country after four months of violence, the Petroleum Ministry said earlier this month.

Forex shortage South Sudan’s army said last week it repelled attacks near the Upper Nile oil fields. On April 15, South Sudanese rebels seized Bentiu, the capital of Unity state, where the government said companies were on track to restore output by July.

Led by President Umar al-Bashir, who is wanted by the International Criminal Court on allegations of war crimes in Darfur, Sudan has been under U.S. economic sanctions since 1997. The north-eastern African nation has had a shortage of foreign currency since South Sudan seceded in 2011. The country, with a US$59 billion economy, posted a current account deficit of US$4.5 billion last year, according to government data.

“Everyone is holding onto the dollars they have,” Alaa Osman, an informal trader in Khartoum, said by phone on Tuesday. “Trading is

very weak. I’m able to buy a little and sell a little.”

Import quotas The shortage has fuelled demand for currency in the illegal black market, which is tolerated by the authorities, allowing dealers to trade in Khartoum’s streets in broad daylight. In 1991, three people were executed for trading foreign currency in violation of the Currency Restriction Act, according to Human Rights Watch, the New York-based advocacy group. While the CRA was scrapped a year later, dealing in the currency black market remains banned.

The Central Bank of Sudan “rationalizes demand” for foreign currency by limiting liquidity available to importers, according to policy briefs published on it website. Earlier this month, Sudan’s government said it received the second instalment of a US$1 billion loan from Qatar to support its foreign currency reserves.

Officials at the central bank weren’t immediately available for comment when Bloomberg called twice on Tuesday. The undersecretary of Sudan’s Oil Ministry, Awad alKarim, didn’t answer three calls seeking comment on the status of oil shipments.

Bloomberg News

Venezuela boosts minimum wage The country will raise the minimum wage for workers and pensioners effective in May after the world’s fastest annual inflation rate surged to 59 percent last month. The wage increase puts the overall increase in the minimum wage this year at 43 percent, President Nicolas Maduro said in a national address.

The government will consider another increase in the fourth quarter, he said.

“If another increase is needed, the working class can rest assured that I will do it,” Maduro said. “I am a worker president committed to the class that works and struggles.”

Angola CB governor inclined to cut lending rates Central bank has room to lower interest rates to spur investment as inflation eases in Africa’s second largest oil producer, Governor Jose de Lima Massano said. Policy makers have kept the benchmark interest rate unchanged at 9.25 percent since lowering it by half a percentage point in November. Inflation slowed to 7.32 percent in March from 7.48 percent in the previous month.

“There is room for interest rates to come down but we want to make sure we’re not putting unnecessary pressure on prices,” Massano, 44, said in an interview on Tuesday in his office in the capital, Luanda.

NYSE computer error spoils 20,000 trades A computer malfunction at IntercontinentalExchange Group Inc.’s two U.S. options exchanges on Tuesday caused almost 20,000 erroneous trades that were later cancelled. On the NYSE Amex Options market, 12,830 orders involving 462,468 contracts were busted, while the tally at NYSE Arca was 6,932 trades and 34,484 contracts, according to notices sent by the exchanges. Affected securities included Apple Inc., Amazon.com Inc., Facebook Inc., MasterCard Inc. and the SPDR S&P 500 ETF Trust. The erroneous trades happened from 9:30 a.m. to 9:43 a.m. New York time.

Al Mirqab agrees to buy Heritage Oil The company controlled by Qatar’s royal family, offered to buy Heritage Oil Plc for 924 million pounds (US$1.5 billion) in cash. The 320 pence a share offer, recommended by Heritage’s board, is a 25 percent premium to yesterday’s closing price, Heritage said in a statement today. Heritage holds stakes in oil fields in Nigeria. The company’s chief executive officer, Tony Buckingham, will retain a 20 percent holding in the company and serve as adviser for at least five years.

Shell logs tumbling net profits Royal Dutch Shell’s net profits almost halved in the first quarter, hit by a vast impairment charge on downstream assets, the Anglo-Dutch oil giant said yesterday. Earnings after taxation slumped 45 percent to US$4.51 billion (3.27 billion euros) in the three months to March, compared with US$8.18 billion a year earlier, it said in a statement.

The group also took a huge impairment charge of US$2.58 billion on its downstream earnings, including impairments of US$2.284 billion related to refineries in Asia and Europe.

15

May 1, 2014

Opinion Business

wires

Leading reports from Asia’s best business newspapers

THE TIMES OF INDIA It’s three cheers yet again for the Indian global leader.

After Indra Nooyi (Pepsi-Co), Nitin Nohria (Harvard Business School), Rakesh Kapoor (Reckitt Benckiser), Anshu Jain (Deutsche Bank), Satya Nadella (Microsoft) and many more, we now have Rajeev Suri as head of a major global corporation - Nokia. With the words ‘India-born’ preceding every other new global CEO’s name, the question is, what’s driving this? Experts attribute it to India’s cultural diversity and Indians’ comfort with mobility. Indians adapt quickly to any environment, thanks partly to their command over the English language.

Containing competitive monetary easing Raghuram Rajan Governor of the Reserve Bank of India

THE NEW ZEALAND HERALD New Zealand business confidence extended its slide from a 20-year high, while remaining at elevated levels, amid expectations the central bank will continue to hike interest rates to quell inflation in an accelerating economy. A net 64.8 percent of firms are optimistic about general business conditions this month, down from 67.3 percent in last month’s survey and 70.8 percent in February, which was the highest since March 1994, according to the ANZ Business Outlook survey.

Confidence exceeded a net 50 percent in four of the five industry sectors surveyed.

PHILSTAR Banks are seen cutting costs and saving time on the Bangko Sentral ng Pilipinas’ planned Cash Management Center, a central bank official said.

BSP Deputy Governor Diwa C. Guinigundo told reporters the central bank is aiming to start offering enhanced cash management services to banks by the end of this year. “We will be launching a Cash Management Centre and this will be housed in (the BSP branch in) Quezon City,” Guinigundo said.

“This will adopt and implement a new operating technology... to enhance the existing menu of services being offered to banks,” he continued.

THE AGE In a dead heat between Australia’s two biggest supermarket chains, Woolworths and Coles have tied for third quarter growth, setting up the final quarter of the financial year as the next chance for Woolworths to dislodge arch rival Coles as the fastest growing supermarket business after five years of coming second.

Woolworths has reported this morning third quarter like for like sales growth of 3.5 per cent Easter adjusted for its flagship Australian supermarket operations, matching the 3.5 per cent posted by Coles yesterday for the same period.

M

UMBAI – As the world struggles to recover from the global economic crisis, the unconventional monetary policies that many advanced countries adopted in its wake seem to have gained widespread acceptance. In those economies, however, where debt overhangs, policy is uncertain, or the need for structural reform constrains domestic demand, there is a legitimate question as to whether these policies’ domestic benefits have offset their damaging spill overs to other economies.

More problematic, the disregard for spill overs could put the global economy on a dangerous path of unconventional monetary tit for tat. To ensure stable and sustainable economic growth, world leaders must re-examine the international rules of the monetary game, with advanced and emerging economies alike adopting more mutually beneficial monetary policies.

To be sure, there is a role for unconventional policies like quantitative easing (QE); when markets are broken or grossly dysfunctional, central bankers need to think innovatively.

Indeed, much of what was done immediately after the collapse of US investment bank Lehman Brothers in 2008 was exactly right, though central bankers had no guidebook.

But problems arise when these policies are extended beyond repairing markets; the domestic benefits are at best unclear when economies are deeply damaged or need serious reform, while the spill overs from such policies fuel currency and asset-price volatility in both the home economy and emerging countries.

Greater coordination among central banks would contribute substantially to ensuring that monetary policy does its job at home, without excessive adverse side effects elsewhere. Of course, this does not mean that central

bankers should be hosting meetings or conference calls to discuss collective strategies.

Rather, the mandates of systemically influential central banks should be expanded to account for spill overs, forcing policymakers to avoid unconventional measures with substantial adverse effects on other economies, particularly if the domestic benefits are questionable.

The risks generated by the current non-system are neither an advanced-country problem nor an emerging‑economy problem. The threat posed by competitive monetary easing matters to everyone

For a long time, economists had converged on the view that if central banks optimized policies for their domestic situation, coordination could offer little benefit. But central banks today are not necessarily following optimal policies – a variety of domestic constraints, including dysfunctional domestic politics, may prompt more aggressive policies than are strictly warranted or useful.

In addition, cross-border capital flows, which increase economies’ exposure to the effects of one another’s policies much more than in the past, are not necessarily

guided by economic conditions in recipient countries. Central banks, in an effort to keep capital away and hold down the exchange rate, risk becoming locked into a cycle of competitive easing aimed at maximizing their countries’ share of scarce existing world demand.

With a few rare but laudable exceptions, officials at multilateral institutions have not questioned these unconventional monetary policies, and have largely been enthusiastic about them.

This approach carries two fundamental risks.

The first hazard is a breakdown of the rules of the game.

Endorsing unconventional monetary policies unquestioningly is tantamount to saying that it is acceptable to distort asset prices if there are other domestic constraints on growth.

By the same token, it would become legitimate for countries to practice what they might call “quantitative external easing” (QEE), with central banks intervening to hold down their exchange rates, while building huge reserves. If net spill overs do not determine internationally acceptable policy, multilateral institutions cannot claim that QEE contravenes the rules of the game, regardless of how much instability it engenders.

In fact, this is no mere hypothetical. Quantitative easing and its cousins are implemented primarily in situations in which banks are willing to hold enormous quantities of reserves unquestioningly – typically when credit channels are blocked and other sources of interest-sensitive demand are weak. In such situations, QE “works,” if at all, primarily by altering exchange rates and shifting demand between countries. In other words, it is different from QEE in degree, not in kind.

The second danger is that source countries’ unwillingness to take spill overs into account

causes unintended collateral damage in recipient countries, prompting self-interested action on their part. Even as sourcecountry central banks have painstakingly communicated how domestic conditions will guide their exit path from unconventional policies, they have remained silent about how they would respond to foreign turmoil.

The obvious conclusion – reinforced by the recent financial-market turbulence that followed America’s move to exit from more than five years of QE – is that recipient countries are on their own. As a result, emerging economies are increasingly wary of running large deficits, and are placing a higher priority on maintaining a competitive exchange rate and accumulating large reserves to serve as insurance against shocks. At a time when aggregate demand is sorely lacking, is this the response that source countries want to provoke?

Despite the evident benefits of expanding central banks’ mandates to incorporate spill overs, such a change would be difficult to implement at a time when domestic economic worries are politically paramount. A more practicable solution, at least for now, would be for source-country central banks to reinterpret their mandates to consider the medium-term effects of recipient countries’ policy responses, such as sustained exchange-rate intervention.

Central banks could thus recognize adverse spill overs explicitly and minimize them, without overstepping their existing mandates. This weaker form of “coordination” could be supplemented by a reexamination of global safety nets.

The risks generated by the current non-system are neither an advanced-country problem nor an emerging-economy problem. The threat posed by competitive monetary easing matters to everyone. In a world with weak aggregate demand, countries are engaging in a futile competition for a greater share of it. In the process, they are creating financialsector and cross-border risks that will become increasingly apparent as countries exit their unconventional policies.

The first step to prescribing the right medicine is to recognize the cause of the illness. And, when it comes to what is ailing the global economy, extreme monetary easing has been more cause than cure. The sooner we recognize that, the stronger and more sustainable the global economic recovery will be.

This article is based on a speech given at the Brookings Institution on April 12, 2014.

The Project Syndicate 2014

16

May 1, 2014

Closing HK almost double fiscal surplus

Hyatt reports higher revenue

Hong Kong posted a provisional HK$21.8 billion (US$2.81 billion) fiscal surplus for the financial year ended March 31, 2014. The figure was better than a forecast surplus of HK$12 billion announced

by Financial Secretary John Tsang in his annual budget speech in late February. The provisional surplus represented an increase of HK$9.8 billion over the revised estimate. Revenue was HK$7.5 billion higher than expected, largely as a result of higher receipts of stamp duties and profits tax.

Expenditures was HK$2.3 billion lower than forecast mainly due to lower requirements

Hyatt Hotels Corp reported a 10 percent rise in quarterly revenue as growth in business travel in North America boosted both occupancy and room rates. Net income attributable to Hyatt rose to US$56 million, or 36 cents per share, in the first quarter, from US$8 million, or 5 cents per share, a year earlier. Hyatt, which owns and operates hotels under brands such as Park Hyatt, Grand Hyatt and Hyatt Regency, reported earnings of 13 cents per share, excluding items.

Revenue rose to US$1.07 billion from US$975 million.

Junket incidents: No cause for concern, says Francis Tam Stephanie Lai

sw.lai@macaubusinessdaily.com

S

ecretary for Economy and Finance Francis Tam Pak Yuen remarked that the recent absconding of a small junket from Macau, namely Kimren, would not impose any “big impact” on the local gaming market but the official did not confirm if side-betting was involved in the junket incident.

In a research note issued on April 28, Credit Suisse wrote that it would expect Macau’s high-roller business to be adversely impacted by two recent junket incidents: one is the reported absconding of one of the principals of a small junket named Kimren with HK$8 billion (US$1 billion) to HK$10 billion on April 19, and the second the recent detention of the wife of Nepture shareholder Cheung Chi Tai on suspicion of money laundering.

Most of the absconded funds of the principal from Kimren, which has a presence in Altira, MGM and StarWorld casinos, was from the side-betting pool set up by junkets, Credit Suisse cited in their own channel check.

“The side-betting has

been only reportedly so, and I don’t want to comment on rumours,” Secretary for Economy and Finance briefly remarked to media on the sidelines of a Labour Day cocktail reception held by the Federation of Trade Unions yesterday.

“As gaming regulator, we have the responsibility to keep a close watch on any conditions in the market,” he told media. “Up to the present, we cannot see any big impact on the whole [gaming] market.”

Ponzi scheme Meanwhile, sources from Macau’s casino industry told Gambling Compliance of their surprise given the extreme size of the default and the Ponzi scheme behind

The side-betting has been only reportedly. I don’t comment on rumours Francis Tam, Secretary for Economy and Finance

the Kimren case.

An ad published in Chinese-language newspaper Macau Daily News on April 23 named the junket operator as Huang Shan.

Kimren described Mr. Shan as a “client” but Gambling Compliance described him as a “principal”.

“The company categorically refuses to recognise any private transactions entered into

without the approval of the company”, Kimren VIP Club said, adding that “the transaction activities and liabilities associated with Mr Huang have no connection with this company,” To the website, industry sources underlined that the scam was “notable” by its “extreme size” and Ponzi scheme structure. The HK$8 to HK$10 billion loss was shared by side-betting

channels and junket investors and agents with companies still trying to estimate the potential channels of bad debt.

The same sources added that in the last two months the network had started to delay debt payments, while aggregating cash winnings: the junket has disappeared with a “substantial” amount of cash, leaving the debt behind.

Huishan Dairy stocks recover

Spain’s recovery gains pace

Singapore banks post record profit

C

S

S

hina Huishan Dairy Holdings Co., the milk producer backed by billionaire and STDM shareholder Cheng Yu-tung, jumped the most in almost seven months after saying investors’ share sales were unrelated to its operations.

The shares climbed as much as 7.9 percent to HK$1.78, the biggest intraday gain since last October and finally closed with a gain of 6.67 percent and a value of HK$1.76. Huishan dropped 23 percent in the previous four trading days and remains below last year’s initial public offering price of HK$2.67.

The stock had plummeted 9.8 percent yesterday on concerns that investors’ share sales may continue.

Investors in the company, including An Yu, had agreed not to sell their shares within six months of the Sept. 27 listing, according to Huishan’s prospectus.

The company signed a facility letter with the Macau branch of the Bank of China Ltd. to borrow US$50 million to refinance the bank loans with higher interest rates in China.

Bloomberg

pain’s economy grew at its fastest quarterly pace in six years at the start of 2014, but the government is struggling to persuade voters that a solid recovery is underway as unemployment remains sky high and consumer spending anaemic.

Gross domestic product rose 0.4 percent from January to March, data showed yesterday, as the nation gradually pulled away from its second recession since a property bubble burst in 2008, gutting the banks and sending the jobless rate to the highest in the euro zone after Greece.

“The recovery is consolidating... We have overcome the recession,” deputy Prime Minister Soraya Saenz de Santamaria told a news conference.

However, the economic improvement has yet to filter down to many Spanish families and support for the ruling People’s Party is flagging. Opinion polls show the centre-right party will suffer its worst showing in 25 years in elections to the European Parliament on May 25.

Reuters

With Alex Lee

ingapore’s three listed banks led by DBS Group Holdings reported record first-quarter profit that topped market forecasts, powered by double-digit loan growth and improved margins.

The results also showed the asset quality of DBS, Oversea-Chinese Banking Corp and United Overseas Bank has not been affected by deteriorating bad debt problems in China and came despite slower growth in Singapore’s housing market. DBS’s Hong Kong unit is the city’s sixth-biggest bank by assets while OCBC’s China exposure is set to grow after it agreed to acquire mid-sized Wing Hang Bank Ltd for US$5 billion last month. Quarterly core net profit for DBS rose 9 percent to S$1.03 billion (US$823 million) over the same period a year earlier. It was also 20 percent higher than an average forecast from six analysts polled by Reuters which called for a profit decline. DBS said its interest rate margin - the difference between interest paid on deposits and charged on loans - rose to 1.66 percent, the highest in six quarters.

Reuters