Macau Business Daily, May 12, 2014

MOP 6.00 Closing editor: Sara Farr Publisher: Paulo A. Azevedo Number 536 Monday May 12, 2014 Year III

Housing Questions

A 60-day public consultation is underway for the reserved housing scheme for Macau residents. Questions linger as to whether this scheme is open to permanent residents or whether others can apply. While the number of flats to be sold under the scheme – and cost - has yet to be decided, the government says it’ll be lower than that of subsidised housing

www.macaubusinessdaily.com

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SAR ticks boxes

Adaptation key

The Macau Government says it has achieved “considerable” results in implementing UN recommendations. These mainly include the protection of non-resident workers, improving citizen’s welfare and the implementation of policies for the construction of new public housing. Says the government

President Xi says China has to make an effort to adapt to the slowdown in the economy, prevent risks and reduce potential negative effects

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Population climbing

Brought to you by

The number of foreign workers moving to Macau has grown six times faster than average. A total of 145,700 non-residents now call Macau home, up 27 percent from a year ago, while the local population remains static.

Over 600,000 people now live here Page 4

Uncle Sam suggests

HSI - Movers May 9

Name

Premium mass market drives Melco Crown

American authorities urge a drastic reduction in the transaction amount that Macau gaming operators have to report. And Macau?

Authorities here believe the current MOP500,000 limit is ‘adequate’ given the territory’s reality

Melco Crown reported a 31 percent jump in profits in the first quarter, beating market expectations and reversing last week’s historic plunge in share price. The company’s adjusted property EBITDA climbed to US$388 million dollars from a year ago. Thanks to the premium mass market

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%Day

Sands China Ltd

5.80

Galaxy Entertainme

5.60

China Overseas Land

1.69

Power Assets Holdin

1.66

Tencent Holdings Ltd

1.10

China Resources Lan

-1.52

Cathay Pacific Airwa

-1.78

Want Want China Ho

-1.79

Hengan Internation

-2.62

China Unicom Hong K

-2.67

Source: Bloomberg

I SSN 2226-8294

Brought to you by

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May 12, 2014

Macau CE expresses condolences for Guinea-Bissau minister Macau Chief Executive Chui Sai On expressed his condolences for the death of Guinea-Bissau’s infrastructure minister Rui de Araújo Gomes, who was found dead in a Venetian Macau hotel room on Thursday. In a letter to the minister’s family, Mr Chui said that Mr Gomes was ‘highly dedicated’ and that his ‘professional competencies’ had contributed towards a strong cooperation between Macau and Guinea-Bissau. The Guinea-Bissau minister was in the territory to attend the 5th international forum on investment and infrastructure construction.

An adviser to the late minister told Lusa news agency last week that the government official “did not show any signs of illness” when he left the country en route to Macau. His death was “a big surprise”, said the adviser.

A civil engineer by training, with a degree from the former Czechoslovakia Republic, the 61-year old minister was a cousin of the former Prime Minister Carlos Gomes, whose government was deposed by a military coup in April 1972.

Billion-dollar forum T he Director of Macau Economic Services considers the 5th International Infrastructure Investment and Construction Forum to have contributed to the internationalization of Macau as a centre for tourism and exhibitions.

“We are looking to organise more international events such as this.

Macau can assume a very important role in hosting international exhibitions to connect local [and]

foreign investors”, Sou Tim Peng said.

According to information released by the organisation the protocols signed last Friday totalled US$1 billion (8 billion patacas).

The Forum took place between May 8 and 9 and attracted some 1,000 guests from 50 countries and regions. Among the guests at the event - themed ‘Infrastructure Connectivity Provides New Impetuses for International Cooperation’ - were

30 ministers from different countries.

Representatives from the banking and finance sector also attended. “This event contributes to promoting mutual development. But it also strengths the ties [between] Macau’s construction sector and its international partners, which will develop the local sector in the long term” Mr Sou said.

The Chairman of China International Contractors Association (CHINCA) also praised the importance

of the event for the SAR. “Macau has a strong relationship with the European Union, with the Portuguese-speaking countries and also with Chinese entrepreneurs. Due to this fact, Macau can become a bridge for a stronger connection between Mainland China and other parts of the world. This would increase the position and the influence of the SAR in international investments in infrastructure and construction”, Diao Cunhe noted.

Keeping mum UN grills government on La Scala on recommendation results

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espite the government now being the majority shareholder of the land once earmarked for La Scala housing project just opposite the airport, local authorities are refusing to reveal the substance of the discussions now underway by the parties involved.

Friday’s edition of Portuguese-language Ponto Final quoted the Land, Public Works and Transport Bureau as saying that “it is merely doing its job” and cannot go into details about last week’s meeting.

According to the newspaper, the shareholders of the former La Scala land suspended their meeting.

The Bureau also refused to say when the next general assembly meeting is scheduled to take place.

Regardless, one needs to be scheduled within the next 30 days. Such general assembly meetings are obligatory once a year, and it is the second time that the government

has met with shareholders since taking back the land in 2012.

Under the commercial law here a general assembly meeting can be suspended should there be limited time to address all issues on the agenda.

Chinese Estates Holdings Ltd subsidiary Moon Ocean paid HK$1.3 billion (US$167.6 million) for land near the airport, which the government granted to it in 2006.

Moon Ocean paid a further HK$624 million in 2011 for eight additional parcels of land for the project.

The government declared both sets of grants invalid in 2012 after the Court of Final Appeal declared that Ao Man Long, the former secretary for transport and public works, accepted bribes of HK$20 million in 2005 from Chinese Estates boss Joseph Lau Luen Hung and another businessman, BMA Investment Ltd chairman Steven Lo Kit Sing.

Macau delegates insist that the SAR “always acted independently in safeguarding human rights”

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han Hin Chi, Deputy Director of Law Reform and the International Law Bureau, guaranteed to the Committee on Economic, Social and Cultural Rights (CESCR) that the government had achieved “considerable” results in implementing the last review’s recommendations to the CESCR. According to the United Nations committee report on the meeting that took place in Geneva on April 8, Mr. Chin said that measures to protect non-resident workers, to improve people’s welfare, to encourage students to continue their education and also policies to increase the construction of public housing had been taken since the last meeting.

During the hearing, in which China and Hong Kong’s governments were also questioned, the establishment of a national human rights institution, the rights of

migrant workers and domestic violence criminalization were the main topics broached for Macau representatives.

“There should be more consideration for the human rights of victims, not the perpetrators” was the question raised about the criminalization of domestic violence by one expert at the CESCR meeting. An unnamed expert also considered that the new draft to criminalize domestic violence was “not appropriate, as it was not considered a social crime but rather a ‘mini’ public crime”.

Nicolaas Schrijver, the Committee Member acting as a Country Rapporteur, pointed out that China’s efforts to establish a national human rights institution were welcome but “short”.

He highlighted the fact that “there was no national human rights institution at all” in the

Macau Special Administrative Region.

However, the delegates from Macau explained that the SAR “had always acted independently in safeguarding human rights, and received complaints in that field at a dedicated office”.

As for the concern of the Committee regarding migrant workers, it was explained that they had rights and were entitled to compensation.

The representatives of Macau also revealed to CESCR that between 2010 and 2013 there were roughly 6,000 labour complaints received, primarily about wages, overtime pay and rest days. However, the UN report quotes the governed assuring it that ‘most cases were resolved in a satisfactory manner’ and that ‘employers could be fined for not abiding by the regulations on employing labour’.

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May 12, 2014

Macau

Reserved housing scheme poses critical questions Government has initiated a two-month public consultation for the reserved housing scheme, announcing that plans for 4,400 public housing units are on the drawing board Stephanie Lai

sw.lai@macaubusinessdaily.com

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he government started a 60day public consultation on Saturday for the reserved housing scheme for Macau residents, which public works official describe as a policy that seeks to fulfill housing demand from residents who cannot afford a private flat but fall outside the income limit for a subsidised home.

The ‘home purchasing plan for Macau residents’, also known as the reserved housing scheme for Macau residents, originates from the example of ‘Hong Kong land for Hong Kong people’ policy that reserves housing in some areas for sale only to permanent residents.

However, the consultation for the new plan, based on research that the appointed University of Macau and Polytechnic Institute conducted, poses an open question on whether the beneficiary or applicant for reserved housing should be restricted to permanent residents.

Introducing the consultation for the new plan on Friday, head of the Secretariat for Public Works and Transport, Francis Wong Chan Tong, noted in a press briefing that the reserved housing scheme is meant to target local resident buyers that cannot afford a private flat but fall outside the income limit for a subsidised home, or those that “are eligible for a subsidised home but are in search of a better flat”.

Mr Wong also added that the quantity of the flats to be sold under this plan will “definitely be lower than the subsidised housing”, although the government at the moment has not determined an intended supply number of this type of home.

New urban reclaimed zones will be the major land source for the flats to be constructed under the reserved housing scheme. Mr Wong reiterated the government’s earlier views, although the official added that the government is also open to other land source suggestions.

In the consultation text, in terms of the area and pricing of the reserved housing, the government proposes that the size of the flat under this scheme approximate that of a private flat located in the same area but with a selling price set at 70 percent to 80 percent of the transaction cost of the private flat.

Another proposal for fixing the area and pricing of the reserved housing is that such flats should be ‘slightly bigger’ than those of a subsidised flat and sold at a price close to construction cost; in addition, the government should impose a stricter resale term for reserved housing, such as a longer ban period on resale.

According to current regulations, buyers of subsidised housing must keep their homes for 16 years before selling them.

The consultation text is based on a two-tier proposal, one of which suggests that an applicant be a resident aged 18 or older, while opinions from different associations request that residents be at least 21 years of age. The application will also prioritise family applicants.

The text also suggests that non first-time home buyers that would like to apply for the reserved housing scheme should not possess any homes for five to ten years prior to the application.

QUESTIONS OPEN ON THE SCHEME

Scheme target: permanent residents only or not Whether family members of former subsidised homebuyer can apply Whether income and asset limit should be set Whether a ban period should be set on flat sale for homeowners

However, the consultation has set open questions for the public to say whether income and asset limit should be factored in for the application of reserved housing, as well as whether family members of a former subsidised housing buyer can also apply for the scheme.

4,400 new public flats On Friday, the head of the Secretariat for Public Works and Transport also announced that the government is planning to build 4,400 public housing units located across the districts of Lam Mau Tong and Areia Preta on the Macau Peninsula, and Taipa. Overall, around 70 to 75 percent of these 4,400 public housing

units will be subsidised flats, with the rest allocated as social housing that served to cater to the housing needs of lower income groups.

Around 400 public flats of these 4,400 new units to be built will be located on four plots of land in Lam Mau Tong and central Taipa, which can be developed “within the short term”, said Francis Wong; but he did not detail the proportion of subsidised and social housing of these 400 new public flats.

The sites of the power plant at Rua dos Pescadores in Areia Preta and an open space to the east side of the Olympic Aquatic Centre are also potential areas for public housing, on which more than 2,000 public housing units can be built, Mr Wong said. He noted, however, that more time was required for “legal procedure” and “land restructuring” before realising the public housing plan on the said sites.

Another potential site for public housing is a private plot of land located in Taipa – although Mr Wong did not detail the site and size – which could supply about 2,000 flats.

As at the end of 2013, there were 32,763 completed subsidised housing units and 12,810 social housing units.

They occupy around 21.7 percent of the 209,868 housing units in Macau in the period, information from the reserved housing scheme consultation text reveals.

Currently, some 7,005 public housing units are under construction, of which over 4,000, or around 60 percent, are subsidised housing, government data shows.

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May 12, 2014

Macau Brought to you by

HOSPITALITY Flying higher The number of flights arriving at Macau International Airport has grown noticeably in the last two years. The total number of landings in 2013 was 26 percent more that just two years earlier. In that period, mainland China alone was the source of about 44 percent of the increase. Some points of departure for flights into Macau have also risen significantly, namely Thailand and South Korea. In the same years, flights from those countries went up by 41 percent and 15 percent, respectively. Even Japan and Taiwan seemed to have reverted to sustained growth in 2012 and 2013, following periods of contraction. The results in the first months of the current year suggest this positive development will continue in 2014.

Foreigners now account for one-fifth of population The number of non-resident workers has increased 27 percent in one year, while the local population has remained flat.

The total population has increased 5 percent.

Alex Lee

Alex.lee@macaubusinessdaily.com

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he non-resident worker population is growing six times faster than the average total as more foreigners flood into the territory to meet the demands of Macau’s expanding economy, official data reveals.

At the end of the first quarter of this year, some 145,700 non-residents found work in Macau, 5.7 percent more than the previous quarter of 2013 and 27 percent more than a year ago, the Statistics and Census Bureau revealed on Friday. Since the beginning of the year, around 8,000 foreigners have arrived in the territory to work, and in the last 12 months more than 30,000 started a job here.

With the economy growing at an average of 13 percent in the last five

The total number of flights registered in the first quarter was up by 8.6 percent relative to the same period last year. That growth corresponded to 458 additional flights in the quarter. In terms of absolute figures growth still hinged on mainland traffic. No less than 361 of those additional flights originated from the mainland, amounting to almost 80 percent of the total increase. But the fastest growing source of flights was Japan. Their number rose to 111 in the quarter, up 23 percent on the previous year. The Philippines and Singapore, which have also demonstrated some weakness in the last few years, posted results that were 11 percent and 15 percent bigger than last year. Taiwan and Korea, conversely, displayed slight contractions. And the decline of flights from Malaysia continued. In the last year, their number plunged by almost 20 percent.

The number of flights to other destinations is increasing fast, suggesting that some diversification in the number of different connections is gaining traction.

18.5%

rise in flights from the mainland, Q1

years, according to the International Monetary Fund, and a boosting casino industry with billions of dollars in investments for the next five years, the demand for foreign labour is on the rise.

22.4pct of population are foreigners According to official data, the total population reached 614,500 individuals at the end of March.

That’s 1.2 percent more than the previous quarter and 5 percent above the first quarter 2013 reading. The resident population remained flat in the last 12 months with 470,000 individuals.

The figures reveal that the non-

resident population increased almost five times the average total (5.7 versus 1.2 percent) in the January-March period compared to the previous quarter and six times more if compared to a year ago (27 percent versus 5 percent). At the end of the first quarter of 2014, non-residents comprised 22.4 percent of Macau’s total population. A year ago, this figure was below 20 percent (19.4 percent).

Mainland Chinese continue to dominate the non-resident worker population in Macau, accounting for 63.3 percent of the total. They are followed by nationals from the Philippines at 13.6 percent, Vietnam (8.7 percent) and Hong-Kong (4.9 percent).

Sister Act: Rush Gaming cultivating partnership Real estate mogul Neil Bluhm predicts he’ll have an edge over Macau operators in Osaka

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n a race for first-mover advantage, 76-year-old Chicago real estate mogul Neil Bluhm has set his sights on the southern commercial hub of Osaka, Japan, while Las Vegas gaming tycoon Sheldon Adelson, four years his senior, is putting his weight behind a Tokyo flagship resort.

Bluhm, who owns casinos in Pennsylvania, Chicago and Niagara Falls, has a net worth of US$2.6 billion, according to Forbes. The former lawyer and current head of Rush Gaming believes Osaka, one of Chicago’s ‘sister cities’, has the kind of flexible local government that will help drive this project, and, crucially, has “shovel ready” casino sites.

Las Vegas Sands Corp, which has casinos in Macau, Singapore and Las Vegas, remains bullish on its Japan plans given the country’s wealthy population and proximity to China.

“We’re very confident in our ability to generate a return that would be satisfactory to our shareholders,” George Tanasijevich, managing director for global development, is quoted as saying in a phone interview. He did not elaborate.

Bluhm, however, shrugs off rivals’ talk of splurging big bucks.

“Sometimes people like to throw big numbers around in order to get picked ... We’ve been more for Osaka in the US$4-5 billion range,” he is quoted as saying by Reuters.

Bluhm also reckons he may have an edge over the big operators in Macau – whom he believes likely prefer Tokyo – by working alongside local partners. “In reality, they’re going to want to totally run the project. They’re probably not used to having partnership relationships like we are,” he said.

Osaka’s government is keen for foreign operators to use Japanese firms in a consortium or joint venture, said Masayuki Inoue, director general of the city’s economic strategy bureau, stressing Osaka wants a large casino resort with convention and entertainment facilities. “Osaka city is flexible. We’re ready to discuss anything.”

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May 12, 2014

Macau

Premium clients stoke Melco Crown profits 31pct Earnings in the first quarter beat market expectations after mass market revenues jumped 40 percent. A ‘remarkable’ Golden Week and the reinforced bet on premium mass clients led investors to maintain estimates for full-year and shares to recover. Manila resort ready to open this year Alex Lee

Alex.lee@macaubusinessdaily.com

M

elco Crown’s bet on the premium mass market segment continues to bear fruit as the gaming operator reported a 31 percent profit jump in the first quarter beating market expectations and reversing the historic drop in shares last week. Investors applauded the performance and maintained their 2014 estimates, especially after the company confirmed having ‘a remarkable’ Golden Week.

The adjusted property EBITDA (profit before interest, taxes, depreciation and amortization) climbed 31 percent to US$388 million from a year ago, topping the market consensus of US$360 million. Net revenues (revenues less promotions) rose 19 percent in the quarter to US$1357 million in line with investors’ estimations. The net profit of the Macau casino company grew four-fold to US$239.5 million compared to the first quarter of 2013.

“Macau delivered impressive growth in the first quarter of 2014, particularly in the mass market table games segment, which expanded 38.9% on a year-on-year basis”, said Lawrence Ho, CEO of Melco Crown Entertainment in a conference call with investors. “We believe that the mass market segment will be the long term driver of Macau’s success which, given our significant current and future exposure to this higher margin segment, means we are well positioned to capitalize on this ongoing trend”, he added.

Shifting tables As the gaming operator shifts its VIP tables to the high margin premium mass-market segment, high roller revenues are on the slide. In

the first quarter, Melco Crown’s VIP revenues decreased 3 percent against a 13 percent rise recorded in the overall market in the same period.

increasing capital return as signs of future profits. Union Gaming said that the gaming operator’s bet on ‘high-margin, higher visibility mass market’ is right and that revenues in the segment will likely stand above the overall market until the new wave of supply comes online in Macau.

Remarkable Golden Week

We believe the mass market segment will be the long term driver of Macau’s success Lawrence Ho, Melco Crown CEO

Following the solid quarter, investors decided to maintain their estimates for 2014 with profit set to top US$1.5 billion. Wells Fargo mentioned that Melco Crown’s strong premium mass-market exposure, continued optimization of table yelds, three new projects on the go and an

Melco Crown Entertainment confirmed that Golden Week results this year were ‘remarkable’ with the gaming operator expecting a ‘great momentum’ in their business for the period between May and June.

Lawrence Ho assured investors that three main company projects remain on track. The City of Dreams in Manila, its first overseas venture, will open its doors later this year with Melco confident that the Philippines gaming regulator will rule favourably on outstanding tax issues. Macau Studio City will be ready mid-2015 and the 5th hotel tower at City of Dreams Macau is scheduled to open in 2017. The CEO expects that the Macau gaming market to grow in the mid-teens this year in line with market consensus (14 percent), adding that the company will continue to focus and deepen its investment in mass premium segments relative to VIP. Meanwhile, the company’s licence fee in the Philippines has been adjusted by 10 percent of the gross gaming revenue. In a filing with the Hong Kong Stock Exchange after closing hours Friday, Melco says the 10 percent licence fee adjustment is a “temporary measure to address the unilateral BIR [bureau of internal revenue] action” and not intended to modify, amend or revise the provisional licence.

Shares return to calm waters following panic plunge Casinos shares rebounded on Friday, virtually recovering from the 2-year record slump of the previous day after investors had embarked on a massive sell-off following negative news reports from Macau. In the Friday session, Sands China shares gained 5 percent in Hong Kong followed by Galaxy and Wynn Macau with 4.7 and 4.2 increases, respectively. US listed Melco Crown Entertainment saw its stocks climb 2.5 percent following solid first quarter results. On Thursday, gaming shares plunged almost 10 percent following news of a crackdown on illegal Union Pay transfers and visa restrictions in Macau that markets feared could jeopardise Macau’s success with fewer visitors and gamblers. Analysts and operators were quick to react. On a conference call, Lawrence Ho said on Friday that “we haven’t seen any negative impact with regard to business”.

Brokerage Sterne, Agee & Leach described the news as ‘sensationalized’ adding that ‘it is very doubtful we see a noticeable disruption in mass revenues from this’. Union Gaming believes there ‘continues to be a significant disconnect between trends on the ground and share price behaviour’. Wells Fargo echoed the tone, writing: ‘Concerns regarding recent news are likely misinterpreted. We still have high confidence in our longer term Macau outlook.’

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May 12, 2014

Macau

Millenium BCP charts specific market niche In an interview with Business Daily, the director of Portuguese bank Millenium BCP in Macau, José João Pãozinho, says that despite negotiations with the Chinese authorities about obtaining a licence to operate on the Mainland, Portugal’s economic crisis and the huge investment entailed in entering China essentially mean that it is unlikely to happen in the short term.

Regarding the strategy of the bank in Macau, Mr Pãozinho says they will continue to strengthen their core business operations linking Macau, China and the Portuguese-speaking countries, although they have no immediate intention of providing retail services. During the course of a far-ranging interview, Mr Pãozinho conceded that the bank had adopted a cautious approach to growth in the territory, with high‑risk operations totally out of bounds.

Luciana Leitão Photo by Manuel Cardoso

What are the main strategies that Millenium BCP has adopted over the years in Macau?

Our bank has existed in Macau since June 1993, as a branch with an offshore licence. That licence was retained until May 2010, when we changed it into an onshore licence.

It coincides with the bank strategy to increase operations in the East, focusing on a more significant involvement in Macau’s economy, even though the bank, through a series of authorisations gained in 2006 and 2007, was already participating in some very specific operations in the territory. Since 2010, with the full licence, we are broadly active, either using the local currency or operating with residents - individuals, companies and institutions. Since then, there has been a significant growth in our delegation, as well as a growth in the activities of the bank in Portugal with Macau.

On the other hand, there’s been a development we call the ChinaMacau-Africa platform of business; thus, we’ve been able to complete a series of operations that involve companies from Portugal, Angola and Mozambique interacting with firms from Macau or Mainland China.

Things have evolved in a very positive way and we intend to continue with this growth strategy, mostly targeting companies and institutions. This does not mean that the private customer that does not have many assets could not be our client. This just means we don’t offer traditional retail services. The ATM card for the client who withdraws MOP200 or needs a credit card encashing small amounts: that’s not our market.

Why don’t you offer traditional retail services?

According to the bank analysis, Macau is a very competitive market with a very large number of banks operating in it, namely the main Chinese banks. Trying to provide normal banking services and competing with the Chinese banking sector, with a very small resident population, would be almost an impossible mission.

That’s why in 2005 the bank left the retail banking sector.

And there’s no intention of resuming such services?

That’s a question only the management of the bank can

answer but from my understanding there seems to be no intention to do so. It’s clearly not our market segment.

We’re in Macau to operate in a market niche. We want to develop a platform and local operations involving a significant amount of money that are part of this ChinaPortuguese-speaking countries business platform, grow in the entertainment and tourism sectors, and participate in the territory’s strategic projects.

With this business platform goal, what type of services does Millenium BCP offer?

Mostly, we offer standard credit operations. We also focus on syndicated loans - we participated in the syndicated project involving Fisherman’s Wharf and we’re involved in some of the main resorts in Macau. Furthermore, we’ve been developing a trade finance platform, both with Portuguese companies importing from Mainland China and with Mainland China companies exporting to African countries . . . as well as Portuguese companies exporting to Mainland China.

Last year, you opened a new branch.

Does that signify a change of strategy?

This wasn’t an opening but rather a change. We left the former premises, dating back to 2000; with the development of our new strategy, we needed to expand our customer service and develop our premises and facilities.

In addition to a business platform, we enable Portuguese companies to bring staff to Macau and to establish some contacts, for which they can use our premises. We’re equipped with conference call facilities that enable our clients to communicate with different parts of the world.

So, your goal now is to develop your role as a platform?

Mostly, we want to grow as a business platform.

No licence for now But last year you were in negotiations regarding the possibility of obtaining a licence to operate on the Mainland. Is this still one of your goals?

This topic is pending and will probably continue pending for

procedures that require a big capital investment.

We want to develop the platform and local operations involving a significant amount of money that are part of this ChinaPortuguese‑speaking countries business platform, grow in the entertainment and tourism sectors and participate in the territory’s strategic projects

a bit more time, partly because of Portugal’s bailout situation.

Every Portuguese bank has strong restrictions on using capital. To open a delegation in Mainland China would require a big effort and capital investment, and from what I know from the strategic guidelines of the bank I’m not expecting that to happen in the near future. This doesn’t mean the door is closed but I believe it will not happen in the short term.

Before, it was more a matter of the course of negotiations but now it’s mostly because of a lack of investment capital. Is that it?

Yes. Now, it has more to do with the strategy of the bank itself.

So, your strategy now is to focus more on Macau?

Yes. And what we can do from Macau with Mainland China, we will do. To enter Mainland China would require a very big effort.

At what stage are your negotiations with Mainland China now?

Any foreign bank entering Mainland China needs to go through long and difficult

Wouldn’t Hengqin Island be an easier gateway to Mainland China?

I have some doubts. Up to now, it’s still not clear what will be the legal regime sustaining activities in Hengqin Island. Operating with doubts about the strength and the type of legal regime causes some uncertainties and so we’ll be very careful before assuming a position.

Is China’s economic slowdown also a factor in determining your reluctance to get a licence there?

No, this happened even before the slowdown. I recognise that there’s a lot of noise in the media and by the analysts but my opinion is that it would be good if Portugal were to suffer such a slowdown it would mean that we had been growing at a rate of 7 percent!

Even though I recognise that for China it’s dramatic to grow at less than 7 percent, given its socioeconomic model.

Are there reasons for concern?

The Chinese economy has reached a crossroads. It needs to pass from an economic model relying on external demand to an economic model relying on internal demand.

Such changes in any country imply turmoil and indecision, as well as uncertainties regarding growth.

In China, it can be even more problematic, as it misses some of the traditional instruments associated with the management of market economies, touching on issues like the legal regime, tax system, openness to overseas.

So, what China decided to do two years ago - galvanising internal demand as a way of compensating for the impact of the [slowdown of] external demand resulting from the 2008 crisis - will be a long process and problematic, with inherent risks. That said, I don’t think the risks are as severe as some analysts say.

Do you believe China’s economy will continue to grow at a healthy rate?

It will continue to grow but not at the same rate as five years ago.

One of the reasons that led to the economic slowdown, and everybody forgets about this, was the need that China had to increase its interest rates to some very scary levels. That led the banking sector to cut credit, putting pressure on

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May 12, 2014

Macau

To open a branch in Mainland China would require a big effort and capital investment, and from what I know of the strategic guidelines of the bank I’m not expecting that to happen in the short term

José João Pãozinho

many Chinese companies. At the same time, besides the inflation problem, China had to face the abnormal growth of the real estate sector. So, there are a lot of factors that China is now managing.

Personally, I’m not as pessimistic about China as some analysts.

Is the slowdown impacting Macau in any way?

Unless China has a recession that causes a huge decrease in disposable income, I don’t see any impact it can have on the main driver of Macau’s economy, the entertainment and gaming sector.

Growing at a 7 percent rate instead of 9 percent should not affect Macau.

You can tell me some of the biggest Chinese fortunes are starting to dwindle but we need to remind yourselves that such fortunes are related to the VIP market. In that case, the profit margin for operators is small, so such profit doesn’t stay in Macau; it’s exported or returns to base. Personally, I believe there will only be a slowdown, and it will be in the VIP sector, not in the mass market.

Operators will start gaining more from the mass market segment.

Do you believe the trend will reverse?

I wouldn’t say that. It will be the natural evolution of Macau, so the mass market will gain more strength and the Macau market will evolve as an income mix, like Las Vegas.

Cautious growth Millenium BCP Macau seems to be nurturing quite cautious, strategic growth in the territory. Is the fact that Macau is so dependent upon Mainland China’s economy, and therefore fragile, responsible for such caution?

Millenium BCP is, by nature, cautious in Macau. We’ve entered into operations with acceptable risk, with good warrantees. For instance, we have almost no exposure to the real estate sector and we intend to continue like that. This does not mean that we won’t get involved in property projects; we will but only projects with certain characteristics. If a resident comes to our bank to ask for finance to buy a big house for millions or a parking lot, the answer will be negative.

Even with the companies we deal with, we’re very picky in our analysis. If we’re talking about a company solely targeting property speculation, we won’t finance it.

Why such cautious behaviour?

My own personal view is that Macau is evolving in a model like that of Monaco. We all complain about the prices but we were saying that five years ago.

Probably, in a few years, residents will be living on the other side of the border because prices in Macau will continue to rise. The issue at stake is that when we do risk analysis we shouldn’t go beyond certain levels: that is the bank’s position.

Macau, as an open economy, guides itself by the law of supply and demand. While there are still buyers coming from the other side of the border with financial capacity, no-one can expect prices to drop. The only alternative would be if the government could flood the market but we all know there’s not enough land to meet demand. This is my personal view, not the bank’s view.

Is it sustainable that the government continues to insist on not intervening in the market?

No. I fear that a certain segment of the population will start reacting in a less peaceful manner unless alternatives are offered. In terms of alternatives, I don’t know if the public housing model can soften social tensions as there are a lot of factors the government needs to pay attention to. It could follow the Dubai model, injecting private funds through different mechanisms to compensate for the inflation effect but that is no solution. And it may reach the conclusion that the Macau Government will have to create an area, like there are on the outskirts of Monaco, in which residents go at the end of the [working] day.

That would be Zhuhai?

Yes, and maybe here we can start seeing the strategic role of Hengqin Island. We’re reaching a situation in which the price of the nontradeables are unbearable and this may lead to residents commuting to Macau just to work and living on the other side of the border.

Then we will have the one country, two systems sustaining the whole economic model.

The Chinese economy has reached a crossroads. It needs to pass from an economic model relying on external demand to an economic model relying on internal demand. Such changes in any country imply turmoil and indecision, as well as uncertainties regarding growth

Is that why Millenium BCP has been so cautious in its expansion plans in Macau?

It is also because of that.

This year we’ve been hearing about the increase in interest rates in the US. How will that affect Macau?

I’d say that if we had a tremendous increase in interest rates in the US, Macau should applaud. If the US continues to have interest rates close to zero, due to the MOP peg to the Hong Kong dollar and the Hong Kong dollar peg to the US dollar, Macau and Hong Kong are closely tied to what happens in the US, and the economic cycle is different.

We have here a situation in which credit is available at abnormally low interest rates; savings earn very low interest rates and there’s a natural incentive for people to try to make the best of their savings by applying them to other instruments such as real estate or even in other activities of the same type. A significant increase in interest rates, even if that doesn’t please debtors, would be good for

the economy as a whole because it would cool the quest for fixed assets, namely through real estate.

Personally, I don’t believe the increase in the US will be very violent but rather progressive; it won’t have a large negative impact on debtors because despite the good signs in the American economy the signs of inflation are not significant. So, no-one in the Federal Reserve System would be mad enough to risk halting inflation.

Online banking bet Going back to Millenium BCP plans in Macau, what new products/ services will it offer this year?

We’re currently going through quality certification procedures regarding e-banking. A significant part of our clients [reside] outside of Macau; even for the ones in Macau it makes no sense to have to go to the bank. At the same time, we’re updating the technology side of our delegation, adopting mechanisms in our system to facilitate trade financing. We’re thinking about adding, short-mid term, savings products with very good interest rates.

Better interest rates than those offered by other banks?

Yes, better than our competition.

In fact, this year we’re very competitive in savings in the main currencies - the Euro, US dollar, Hong Kong dollar and even patacas.

Are you competitive in RMB savings?

We’re not that competitive because we’ve not entered into certain operations in RMB. Will you open another branch in Macau?

No. For the time being, no; in the short to mid term it won’t happen.

The current premises are already big enough for us to expand at a significant rate in the next three to four years without having the need for new premises.

Yet, you’ve been growing at a healthy rate. Are you satisfied with the growth?

Yes, mostly regarding what concerns companies and the China-Macau platform. And that’s what we want to continue to bet on.

8

May 12, 2014

Macau UnionPay QuickPass option for Macau Pass The city’s stored-value card issuer Macau Pass SA is planning to launch more cards that carry UnionPay’s QuickPass function by the end of this year, with enhanced function for ID verification of cardholders, the company’s executive deputy general manager David Lao has confirmed to Business Daily. The issuance of the new card, which carries a dual-currency purse for yuan and patacas, is part of the company’s strategy to quickly expand Macau Pass usage in mainland China and Hong Kong via 3 million-plus QuickPass terminals in both jurisdictions, Mr Lao said.

While the regular Macau Pass card can store a value of up to 1,000 patacas (US$125), the new card to be launched can carry a value of up to 1,000 patacas plus 1,000 yuan (US$161) in its dual-currency purse.

Blue Card plea for Portuguese professionals The leader of the Macau Delegation of the Portuguese-Chinese Chamber of Commerce and Industry hopes that Portugal’s President can help workers from his country gain easier access to work permits in the SAR Alex Lee

alex.lee@macaubusinessdaily.com

“T

he visit of the Portuguese president to Macau could be beneficial to the SAR if Mr Cavaco Silva would ease the process for workers from his country to get an easier access to work permits. Portuguese workers are skilled and this change could help Macau deal with the shortage of labour,” Filipe Cunha Santos, President of the Macau Delegation of the Portuguese-Chinese Chamber of Commerce and Industry, told Business Daily. “There are a lot of qualified workers in Portugal that could help develop Macau. For example, engineers would be very useful to Macau’s companies” he added.

The president of Portugal is going to attend a lunch on May 18 at the Macau

Military Club, where the Portuguese-Chinese Chamber of Commerce and Industry and the Macau Chamber of Commerce are expected to

sign a cooperation agreement.

Mr Silva is expected to give a short speech. “It is more a social lunch than a business meeting. So our expectations

Portuguese Teaching and Research Centre: Language strategic option for business “The use of the Portuguese language in business has been a strategic option for the Portuguese government as well as the Chinese government. Both executives are very interested in developing the knowledge of the Portuguese language in China”, Carlos Ascenso Andre, president of the Portuguese Teaching and Research Centre, told Business Daily.

On May 18, the Portuguese Teaching and Research Centre (PTRC) of the Macau Polytechnic Institute (MPI) will be visited by the Portuguese President. “The Centre was established in November 2012 and it receives for the first time a visit from a Portuguese President. It is a huge support for our project” Mr Andre added.

for the lunch are not too high”, the President of the Portuguese-Chinese Chamber of Commerce explained.

“However, there are around 120 invited guests and about 50 percent are Portuguese and the other 50 percent are Macanese entrepreneurs.

Some business opportunities may be reached among them in the lunch”, Mr. Filipe Santos stated.

Getting real: Suspicious transaction values ‘adequate’ for Macau American authorities favour a drastic reduction in the amount that Macau gaming operators have to report but the SAR Government’s understanding is that the current 500,000-pataca limit is ‘adequate’ given the reality of the territory’s gaming sector André Jegundo*

T

he Macau SAR authorities dismiss any changes to the minimum transaction amounts that casinos have to report, considering the current 500,000-pataca threshold an ‘adequate’ amount, given the reality of the territory’s gaming industry. Replying to questions submitted by JTM, both the Gaming Inspection and Coordination Bureau (DICJ) and the Financial Intelligence Office (GIF) dismiss the suggestion made by American authorities that the territory’s casinos should report transactions involving more than 24,000 patacas.

The proposal was part of the 2013 U. S. State Department report on financial crimes, in which Macau was mentioned as one of the places where money laundering is increasingly rife. The drastic drop in suspected financial transactions was suggested

as a way to increase the supervision of the inflow and outflow of funds into and out of Macau.

In Macau’s legislation, so-called ‘High value transactions’ are ‘related to the practice of gaming or betting with values equal or higher than 500,000 patacas’ and, since 2006, gaming operators have been obliged to report such movements to the government. “When high value transactions were introduced into the law, the overall gaming situation in Macau was taken into account”, the GIF said in a reply submitted to JTM. Since Macau is a member of the Asia Pacific Group combating money laundering, the GIF also guarantees that the territory is ‘determined’ to ‘respect international standards on money laundering combat and terrorism financing’ and that the SAR is ‘receptive’ to international

organisations’ recommendations.

‘The Macau Government will continue to improve the implementation and supervision of fight mechanisms against money laundering and terrorism control’, GIF adds.

The American report further suggests that the territory should reinforce coordination between departments, especially when it comes to supervising ‘junket’ activities, which are denounced as central players in the money laundering business. ‘The gaming industry strongly depends on gaming promoters and collaborators (widely known as ‘junket’ operators), which are loosely regulated, to finance wealthy gamblers, most of them from mainland China neighboring areas’, the report adds. *with Sandra Lobo Pimentel Exclusive JTM/Business Daily

The president of the Macau Delegation of the Portuguese-Chinese Chamber of Commerce and Industry also talked to Daily Business about the advantages of the commercial ties between Macau and Portugal. “The main advantage to Macau is at this point the importation of workers, if blue cards are more easily granted. However, Portugal’s economy is at this moment very focused on exporting goods. So I believe that some opportunities could appear for importation”, he stated.

The President of Portugal will visit China in an official capacity from March 12 to 18. On the last two days of the visit Mr. Silva will be in Macau, where he will be received by Chief Executive Fernando Chui Sai On.

Third case of imported dengue fever confirmed

T

he third case of dengue fever in 2014 was confirmed last Friday by the Health Bureau.

The victim is a 37 year-old man who lives in Coloane. The Malaysian citizen is married to the woman that was confirmed as the second case of imported dengue fever this year.

The victim felt the first symptoms following a trip by the couple to Malaysia from April 22-28. The man was treated on April 30, in Macau, and has made a full recovery. However, blood tests confirm the presence in his blood of IgM dengue virus antibodies.

The Health Bureau requests the people of Macau to be very careful and highlights the need to pay special attention to stagnant water in the workplace and at home. The Health Bureau also urges residents to eliminate stagnant water to avoid the breeding of mosquitoes.

9

May 12, 2014

Greater China

Xi urges following new economic path China’s policymakers are trying to keep economic expansion from slipping below Premier Li Keqiang’s 2014 target of about 7.5

C

hinese President Xi Jinping said the nation needs to adapt to a ‘new normal’ in the pace of economic growth and remain “cool-minded” amid a slowdown in expansion.

China’s growth fundamentals haven’t changed and the country is still in a “significant period of strategic opportunity,” Xi said, according to a Xinhua News Agency report on the central government website late yesterday. At the same time, the government must prevent risks and take “timely countermeasures to reduce potential negative effects,” he said.

China’s policy makers are trying to keep economic expansion from slipping below Premier Li Keqiang’s 2014 target of about 7.5 percent while reining in a credit boom that a central bank official said threatens to undermine the financial system.

The government has so far limited its support to tax breaks, and speeding up infrastructure and social housing investment, with Li saying last week the focus remains on the quality of growth and on changing the structure of the economy.

“Authorities have increased their tolerance to somewhat lower growth as a necessary condition to push for structural reforms and contain financial risks,” Banco Bilbao Vizcaya Argentaria SA economists, led by Hong Kong-based Alicia GarciaHerrero, wrote in a May 9 report.

“Risks are still tilted to the downside, concentrating on elevated financial fragilities and uncertainties about the implementation of their reform agenda.”

Preventing risks The government will continue to balance the relationship between economic expansion, reform, restructuring, improving people’s well-being and preventing risks to

ensure sound economic growth and social stability, Xi said during an inspection tour to the central province of Henan from May 9-10, according to Xinhua.

We must boost our confidence, adapt to the new normal condition based on the characteristics of China’s economic growth in the current phase and stay cool-minded Xi Jinping, China President

President Xi Jinping

weakest pace since 1990, based on the median estimate in a Bloomberg News survey last month.

“We must boost our confidence, adapt to the new normal condition based on the characteristics of China’s economic growth in the current phase and stay cool-minded,” he said.

China’s benchmark Shanghai Composite Index of stocks has dropped 5 percent this year on concern growth is slowing. A measure of industrial companies in the CSI 300 gauge has slumped 12 percent, and fell as much as 1 percent on May 9 to the lowest level since November 2008.

Gross domestic product increased 7.4 percent in the first quarter, the least since 2012, and is forecast to expand 7.3 percent this year, the

Temporary fluctuations Premier Li said in April the government won’t adopt “shortterm and strong stimulus policies in response to temporary fluctuations in the economy.” People’s Bank of China Governor Zhou Xiaochuan reiterated that stance yesterday at a conference in Beijing, according to a report of his comments posted on the sina.com website.

Zhou told a closed-door session of the forum that the PBOC is always fine-tuning its policies and some of that is invisible to the market, the newspaper said. Zhou was responding to a question about whether a cut in

banks’ reserve requirement ratio is imminent, it said.

Almost half of the economists surveyed by Bloomberg News last month predicted a cut in the reserve requirement ratio this year as part of an easing of monetary policy to support the economy. Expectations for a reduction have increased after a government report last week showed consumer inflation moderated to an 18-month low in April and factorygate prices fell for a 26th month.

China’s potential growth rate may slow as a result of demographic changes and economic restructuring, the PBOC said in its first-quarter monetary policy report last week. At the same time, “reforms will help to stimulate growth in productivity,” it said.

Bloomberg News

Central bank tougher against shadow financing The State Council, China’s cabinet, warned last week that the nation’s capital markets are still immature and some organizational and systemic problems still exist

A

Chinese central banker urged tougher rules to rein in shadow banking as its unchecked growth has helped drive up borrowing costs and threatens to undermine the financial system in the world’s secondbiggest economy.

Financial innovation in the interbank market and wealth management products has often been aimed at evading regulations on issues such as risk provisioning and capital adequacy, Liu Shiyu, deputy governor of the People’s Bank of China, said at a forum in Beijing on Saturday.

China’s authorities have stepped up efforts to curb the more lightly regulated shadow banking industry as they seek to rein in total debt that’s surged to more

People’s Bank of China headquarters in Beijing

than double gross domestic product. Shadow financing, estimated at 46.7 trillion yuan (US$7.5 trillion) by JPMorgan Chase & Co., has made it harder for the

government to curtail credit and shield state banks from rising defaults as the economy cools.

“If everyone in society is trying to get into the

financing business, we may have entered a phase where a fever has started to affect our ability to think,” Liu said, “We must make up our minds to rectify interbank

operations and all kinds of wealth management products.”

Shadow banking in China, which includes interbank borrowing and wealth management products, creates a “gambling” mindset, with funds channelled into short-term investments, PBOC’s Liu said. It pushes up costs for the real economy and makes zero contribution to improving labour productivity, he said.

Investors may be offered an 8 percent yield on a wealth management product, Liu said. The layers of fees and extra interest charged by intermediaries can push the interest rate for the end borrower up to 14 percent, Liu said.

Bloomberg News

10

May 12, 2014

Greater China

Xiaomi scares mobile big

HK and U.S. collaborate IDC says “home-grown vendors” hold 39 percent of the total market against tax evasion Hong Kong has reached an informa- region excluding Japan tion-sharing agreement with the United States under a new law meant to combat offshore tax dodging by Americans, the U.S. Treasury Department said on Friday. Set to take effect on July 1, the Foreign Account Tax Compliance Act of 2010 (FATCA) will require foreign banks, investment funds and insurers to hand over information to the U.S. Internal Revenue Service about accounts with more than US$50,000 held

by Americans. The Hong Kong deal, known as an intergovernmental agreement, must be finalized by the end of the year.

273-day discount T-bonds released China has issued 15 billion yuan (US$2.44 billion) in book-entry discount treasury bonds with a maturity of 273 days. The price of the issuance was fixed at 97.466 yuan for each 100 yuan in face value, representing an annual yield of 3.5 percent, the Ministry of Finance (MOF) said in a statement. Interest calculation started today and the maturity date will be February 9, 2015.

The MOF added that the bonds will be sold on the interbank market until Wednesday and will become tradable on the secondary market on Friday.

More lock-up shares eligible for trade The total value of lock-up shares becoming eligible for trade on China’s stock market this week will rise slightly from the previous week, according to the country’s two stock exchanges. From Monday to Friday, 25 listed companies on the Shanghai and Shenzhen stock exchanges will see shares worth 19.4 billion yuan (US$3.15 billion) released to the market after lockup agreements expire. The amount is slightly higher than the total value of 18.3 billion yuan that became tradable during the previous week.

Air route links Taiwan with Yichang A direct air route connecting Taiwan and Yichang City on the Chinese mainland opened on Saturday, according to Yichang’s Bureau of Commerce yesterday. The charter flight is operated

by Taiwan’s TransAsia Airways. The flight service is available until Oct. 31 this year, the bureau said. Liu Jianxin, deputy mayor of Yichang, Hubei Province, said he expects the new air route to promote economic cooperation and cultural exchange between Yichang and Taiwan.

More land transfers requested China’s President Xi Jinping has called for the acceleration of land transfers to help modernize the country’s agriculture, state media reported on Saturday.

Xi said family-run farms should work to raise the scale of their operations. The Chinese president also said that the fundamentals of China’s economic development had not changed, and that the government would continue to manage steady growth, while promoting reform and structural adjustments, while minizing risks. Land reform was an important part of the reform directive unveiled at the Third Communist Party Plenum in November.

X

iaomi may be little known outside China, but the fastgrowing smartphone maker is at the forefront of a new wave of Asian brands challenging the dominance of Apple and Samsung with high-spec, low-price phones.

In the three months to March, Xiaomi surpassed Apple and other established Asian players such as Huawei and Sony to become the third largest smartphone brand in China by market share, research firm Counterpoint Technology said.

Samsung holds the top spot at 18 percent, followed by homegrown Lenovo with 12 percent.

The Beijing-based tech upstart sold 18.7 million phones in 2013, and is targeting sales of 60 million this year and 100 million in 2015.

Using a high-tech but low-cost sales model, Xiaomi aims to tap into a vast market of budget-conscious young Asians who want the newest in smartphone technology.

Technology research firm IDC

18.7 million phones sold in 2013

by Xiaomi

said in a February report that cheap smartphones would be a key driver of sales in the low-cost segment of emerging markets outside China.

Handsets selling for less than US$100 accounted for nearly half of mobile sales worldwide, with twothirds of those priced under US$50, its research shows.

Cost-conscious youth “Asian markets have burgeoning young populations who want the latest smartphone technology, but (they have) restrictive budgetary constraints,” Mykola Golovko, senior consumer electronics analyst at research firm Euromonitor International, told AFP. Euromonitor data in 2013 showed that this key market of 15-34-year-olds made up between 25 percent and 40 percent of the population in countries such as Malaysia, Vietnam, Indonesia and China.

Unlike its giant rivals, Xiaomi has minimal advertising and no retail outlets which help keep costs down.

Instead, it has gathered a cult-like following on social media, including China’s Weibo.

Most consumers -- dubbed “Mi fans” by Xiaomi -- buy their phones directly via its website during regular “flash” sales.

Xiaomi, whose name means millet

in Mandarin, is looking further afield and poached former Google high-flyer Hugo Barra to lead its international expansion.

The firm caused a mini-frenzy in Singapore in February when it began its global roll-out under the watchful eye of Barra.

Xiaomi phones, boasting processors and sleek designs that rival top Samsung models and using the latest iteration of Google’s Android software, are sold at a fraction of the price of a Samsung Galaxy S5 or iPhone 5s.

Its low-end Redmi retails at Sg$169 ($135) compared with Sg$388 for the Samsung Galaxy S3, which has comparable specifications.

The higher-end Mi3 retails at Sg339, compared with Sg$1,068 for the Galaxy S5 and Sg$1,148 for an iPhone 5s with 32 gigabytes of storage.

Emerging players Xiaomi is not alone and industry experts say Asia is ripe for more such makers.

The Philippines’ Cherry Mobile, India’s Micromax and Q-Smart in Vietnam are already making the leading players nervous, with featurepacked and large-screen smartphones retailing from as low as $30 without any carrier subsidies.

Others include Smartfren and Cyrus

Premier Li reinforces ties with Kenya’s president said Li’s trip will further the strategic partnership

V

isiting Chinese Premier Li Keqiang and Kenyan President Uhuru Kenyatta agreed last Saturday to advance the bilateral ties through concrete cooperation in various areas including civil aviation.

During their talks, Li said China is willing to cooperate with Kenya to strengthen high-level exchanges and political mutual trust, and support each other on issues concerning their core interests, so as to promote the two-way relations to a higher level.

The all-round, wide-scope and multi-tiered cooperation between the two countries now faces new development opportunities, he said.

China is ready to cooperate with Kenya, a transport hub in Africa, to jointly operate regional air routes and build railway networks, Li said.

The bilateral cooperation also includes agriculture and food safety, environment and wildlife protection for sustainable development, and a joint scientific research centre for Africa, said the Chinese leader.

Kenyatta said Li’s trip will further the strategic partnership between Africa and China, calling his on going Africa tour a milestone which coincides with the 50th anniversary of China’s late Premier Zhou Enlai’s first visit to the continent.

He hailed China’s important contribution to Africa’s peace and development and fully agreed with Li’s proposal made earlier at the African Union (AU) headquarters on ChinaAfrica cooperation framework, as well as Li’s another initiative presented

Chinese Prime Minister Li Keqiang (L) shakes hand with Kenyan President Uhuru Kenyatta (R) after at the Ivory burning site of the Nairobi National Park

to the 2014 World Economic Forum on Africa on the joint construction of three infrastructure networks in Africa.

The president said Kenya is willing to become a gateway to Africa for Chinese companies and actively promote Africa-China cooperation.

After their talks, the two leaders witnessed the signing of a number of

cooperation documents in such areas as economy and technology, wildlife protection, public health, agriculture, husbandry and fishery, and finance.

Among the deals, China’s Hainan Airlines would take shares in Astral Aviation, and the new entity would provide civil aviation service in Kenya and other East African countries, with Nairobi as the centre.

11

May 12, 2014

Greater China

shots share in the Asia‑Pacific

in Indonesia, Ninetology in Malaysia, QMobile in Pakistan and I-Mobile in Thailand.

A report by IDC said such “homegrown vendors” hold 39 percent of the total market share in the AsiaPacific region excluding Japan.

Nearly 530 million smartphones were shipped to consumers in AsiaPacific countries in 2013, IDC said, making up 52 percent of the global total.

Xiaomi may be doing well but internationally Samsung’s dominance is undoubted.

IDC said Samsung sold 313.9 million smartphones in 2013, compared with Apple’s 153.4 million.

But Xiaomi’s global vice president Barra sees big things ahead for the Beijing-based fledgling.

“The company is bound to change the world in many significant ways,” Barra said at the Startup Asia conference in Singapore on May 8, referring to chief executive Lei Jun and seven other co-founders as “insanely smart”.

Singapore-based Golovko said upstart Asian makers will have to continuously reinvent themselves.

“As smartphones become more commonplace... consumers in emerging markets will become more demanding and willing and able to spend on them,” he said.

“Without a significant shift in branding and product portfolio low-

Kenya between Africa and China

delivering his speech during a joint news conference

The aviation deal would also involve the China-Africa Development Fund, established by China in 2007 to help its companies cooperate with African counterparts, a Chinese official said.

At a press conference with President Kenyatta after their talks, Li called trade and investment “cornerstone” of China-Kenya ties, reaffirming that

cost manufacturers will see deteriorating prospects over the mid-to-long term.”

Nicole Peng, a mobile industry analyst with market research firm Canalys, said many Asian consumers of brands like Xiaomi are curious “early adopters” who want to have a first-hand experience of whether low-cost phones can actually match top models.

“This segment of the market are the geeks, if I can say that. They just want to experience the latest gadgets and are not so cost or brand-conscious,” she said.

Hurdles remain Other analysts warn that significant hurdles remain, especially expanding overseas.

Xiaomi plans to move into nine other countries apart from Singapore this year. India’s Micromax too retails outside its home country, with sales in Russia and Romania. It has priced its latest top-range Bolt A69 phone at 5,999 rupees ($100).

“With Xiaomi for example, it could find its online sales model difficult to implement in countries like Indonesia and Philippines where you don’t have the Internet penetration rates like in Singapore,” said Ryan Lai, a Kuala Lumpur-based mobile devices research analyst with IDC. But while leading players such as Apple and Samsung have branched out to “wearable electronics” like wrist devices, they are unlikely to cede smartphone territory to the upstarts, says Euromonitor’s Golovko.

“We expect smartphones to remain the centres of attention for the current market leaders and low-cost manufacturers alike,” he said.

AFP

China has never pursued surplus in its foreign trade.

He noted that market forces determine trade situation, and the Chinese government is willing to promote Kenyan exports to China.

China encourages competitive Chinese companies to invest more in Kenya’s manufacturing sector, take part in the country’s construction of industrial parks, and help Kenya improve product processing capability and competitiveness in global markets, he added.

On Saturday, Li also met with Achim Steiner, executive director of the UN Environment Program (UNEP), and Joan Clos, head of the UN Human Settlements Program (UN-Habitat). Both agencies were headquartered in Nairobi.

Li said China would deepen cooperation with UN agencies to boost green development, address climate change, so as to promote the world’s sustainable development.

He said China, member of the two UN agencies, always supports their work and has carried out extensive, effective cooperation with them.

Speaking to Chinese and foreign journalists after visiting the Ivory Burning Site Monument in the Nairobi National Park with President Kenyatta Saturday afternoon, Li said China is strongly committed to protecting wildlife and will spare no effort in combating poaching and ivory smuggling.

“Our visit to the monument together shows that the two sides are cooperating in good faith to jointly combat poaching and ivory smuggling, and protect wildlife,” the Chinese leader said.

It also indicated that the Chinese government is determined to provide any assistance within its capabilities to help Kenya build the capacity to protect wildlife, he added.

Xinhua

New tool to liberalize interest rate NCDs have proved effective in overcoming hurdles in interest rate liberalization in other countries

C

hina’s central bank is looking to negotiable certificates of deposit (NCDs) as calls for a fully liberalized interest rate grow.

In its quarterly monetary policy report released this week, the People’s Bank of China (PBOC), the country’s central bank, said it will gradually offer NCDs for enterprises and individuals to facilitate the country’s interest rate liberalization in an orderly way.

Economists expect NCDs could be launched as soon as this year as a step to give people more investment options other than the equity and fund markets.

“Since PBOC governor Zhou Xiaochuan said earlier this year that the regulator will completely loosen its control over bank deposits, it is very likely the NCDs will be launched this year,” said Lian Ping, chief economist of the Bank of Communications.

Currently, the PBOC still controls the interest rates banks can offer to clients, allowing lenders to float a maximum 10 percent upward from the benchmark interest rates.

However, the inter-bank interest rates and the lending rates have already been fully liberalized, thus forming a so-called interest rate “dual track” system that many

observers say benefits commercial banks with protected interest rate margins and harms depositors.

“If NCDs targeting individuals win the go-ahead, it will be an important step forward for China to remove control over interest rates for deposits and let the market decide interest rates,” Lian said.

NCDs have proved effective in overcoming hurdles in interest rate liberalization in other countries. For example, the U.S. Federal Reserve began issuing NCDs in 1973, which gradually became the main source of funds for banks in the United States.

The same monetary tool was also used by Japan and the Republic of Korea when they liberalized interest rates in 1979 and 1994, respectively.

The timetable for a fully liberalized interest rate has been set, which will force the early introduction of NCDs, Lian said, adding that a possible roadmap for development of NCDs in China will be “large-denomination and longterm deposits first, with small and short-term deposits later.”

The new monetary tool will also offer options other than stocks, funds or wealth management products for Chinese investors.

Xinhua

JD.com joins the IPO spree With 47.4 million active customer accounts in 2013, JD.com posted US$11.5 billion in revenue

T

he Chinese retailing website backed by Asia’s largest Internet company Tencent Holdings Ltd., is seeking to raise as much as US$1.7 billion in its U.S. initial public offering.

JD.com and selling stockholders are planning to offer 93.7 million American depositary receipts for US$16 to US$18 apiece, according to a regulatory filing today. The company will also sell shares in a private placement to Huang River Investment Ltd., a subsidiary of Tencent, that will provide net proceeds to JD.com of US$1.2 billion. Beijing-based JD.com plans to use these funds to retain employees, expand infrastructure and acquire other businesses.

JD.com’s IPO would be the biggest ever for a Chinese Internet company in the U.S., according to data compiled

by Bloomberg. That may not last, as larger competitor Alibaba Group Holding Ltd. filed this week for a U.S. IPO in a sale that could raise about US$20 billion, people familiar with the matter have said. U.S. investors snapped up almost US$1 billion in Chinese IPOs last year, a fivefold increase from 2012, data compiled

by Bloomberg show.

Tencent took a 15 percent stake in JD.com and will transfer its e-commerce business onto that site, according to a statement on March 9.

In the deal, Tencent assigned JD.com a valuation that could reach more than US$20 billion this quarter,

US$1.7 billion forecast JD.com IPO raising

people familiar with the matter said at the time.

With 47.4 million active customer accounts in 2013, JD.com posted US$11.5 billion in revenue, the filing shows. The company narrowed its loss to US$8 million last year from US$50 million in 2012. Electronic products and home appliances accounted for 64 percent of JD.com’s gross merchandise volume last year, according to the filing.

Stockholders include Chief Executive Officer Richard Qiangdong Liu, who is selling 13.9 million shares in the IPO, while Tiger Global Management LLC is offering 13.4 million.

Bank of America Corp. and UBS AG are managing the offering. The company plans to list its shares on the Nasdaq Stock Market under the symbol JD. Bloomberg News

12

May 12, 2014

Asia Widodo party wins Indonesian presidential frontrunner Joko Widodo’s party prevailed in official results of the nation’s April parliamentary elections, while falling short of the threshold needed for him to run without a coalition.

Widodo’s Indonesian Democratic Party of Struggle won 18.95 percent of the April 9 vote, the General Elections Commission said. PDI-P aims for a maximum of four parties in its coalition, having already struck a deal with the National Democratic Party while seeking another with the National Awakening Party, or PBK, Tjahjo Kumolo, secretary general of PDI-P.

Reliance seeks gas arbitration Reliance Industries Ltd., BP Plc and Niko Resources Ltd. issued an arbitration notice on the Indian government seeking implementation of a delayed gas-price rise. Failure to implement the increase is preventing the companies from sanctioning investments of almost US$4 billion this year, they said in an e-mailed joint statement today. Reliance, controlled

by India’s richest man Mukesh Ambani, operates the country’s biggest natural gas deposit, the KGD6 field in the Bay of Bengal. Gas is used mainly for power and fertilizer production in energy-deficient India.

BlackBerry searches for new life in Indonesia The firm will this week launch a new budget handset in Indonesia, one of its last bastions, a major step in the ailing smartphone maker’s fight back against titans Samsung and Apple. The Z3, which is designed for Indonesia but will likely be introduced in other emerging markets later, is the first new BlackBerry phone since chief executive John Chen took the helm of the crisis-hit company in November.

The handset is also the first to be produced from the Canadian firm’s partnership with Taiwanese tech giant Foxconn, which makes gadgets for Apple.

ASEAN ministers worried about sea dispute Southeast Asian foreign ministers said they were concerned about a rise in territorial tensions in the South China Sea, calling on all parties including China to show “self-restraint” after Chinese and Vietnamese ships collided near disputed islands. Countries claiming parts of the resource-rich waters should “avoid actions which could undermine peace and stability in the area,” and “resolve disputes by peaceful means without resorting to threat or use of force,” ministers from the 10-nation Association of Southeast Asian Nations said yesterday in a statement issued after a meeting in Naypyidaw in Myanmar.

Palm oil to provoke world-class Observers warn a steep rise in palm oil prices could boost alternative

S

outheast Asia’s booming palm oil industry is facing a double blow from a recent drought and a possible El Nino weather phenomenon later this year, with analysts warning a production shortfall could spark a jump in consumer goods prices.

From biscuits to shampoo and make-up, the oil has become a key ingredient in numerous products found on supermarket shelves across the globe, fuelling rapid growth of the industry in the world’s top two producers, Indonesia and Malaysia.

But a drought in January and February in the countries, which provide some 85 percent of the world’s palm oil and are home to vast plantations where swathes of rainforest used to stand, has raised the prospect of a drop in production later this year.

Dry weather does not have an immediate effect on the fruit, which needs to be deprived of water for some months before any impact is noticeable.

While palm oil prices have risen slightly in recent months in Indonesia, the country’s Palm Oil Association put it down to other factors, and industry observers predicted the drought’s impact would start to be felt later in 2014.

Consumer price rises likely “We are likely to see the effects starting in September to October,

El Nino could also affect Malaysian palm tree plantations (pictured)

and in terms of production, we are likely to see a double-digit percentage drop in Indonesia and Malaysia,” said Tan Chee Tat, a Singapore-based investment analyst at Philip Futures whose work has focused on palm oil.

“There is a high likelihood companies will pass on the price rise to consumers.”

Another threat could come hot on

the heels of this year’s dry weather forecasters are predicting an El Nino weather phenomenon later this year, which could spark another drought that will hit production in 2015.

The Australian Bureau of Meteorology issued an El Nino alert this week, warning the likelihood of the weather pattern developing was at least 70 percent, and it could appear

Indian candidate to curb beef exports A drop in Indian exports could buoy global cattle prices

M

ain Hindu nationalist party says it plans to clamp down on beef exports if it takes power after general elections that end today, threatening supplies from one of the world’s biggest shippers of the meat.

Surprisingly in a country where so many view cows as sacred, India has been poised to become the No.1 beef exporting nation, supplying markets such as Malaysia, Thailand, Vietnam and Egypt.

Although most of that is from buffalo, which are not worshipped

by Hindus, the Bharatiya Janata Party (BJP) wants to curb exports that jar with the country’s vegetarian tradition and to bolster the availability of animals reared to work on farms and for their milk.

A drop in Indian exports could buoy global cattle prices that have come off record peaks this year after the U.S. herd was pegged at its lowest in over six decades.

“If elected, we will crack down on beef exports and we will also review

Nationalist Narendra Modi, leader of the Bharatiya Janata Party (BJP), probably will become the next Indian president

the subsidy the government gives for beef or buffalo meat exports,” Satpal Malik, the BJP vice-president who drafted the farm policy section of its election manifesto, told Reuters.

To help beef producers and exporters set up abattoirs, the federal government pays 50-75 percent of the cost of construction.

The BJP manifesto defines the “cow and its progeny” as integral to India’s cultural heritage - appealing to the party’s core constituency of Hindus who abhor eating beef.

The party has also said it would outlaw cow slaughter in the only two states where it is currently permitted, and wants to stamp out illegal abattoirs where meat from cows enters the supply chain.

Voting in the country’s mammoth five-week general election has nearly finished, with polls showing the BJP taking the most seats and the ruling Congress Party likely to be ousted after a decade in power. Results are due May 16.

Reuters

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13

May 12, 2014

Asia

problems

wind patterns and draws rain and thunderstorms towards South America and away from countries in the western Pacific.

products

Billions of dollars in damage

as early as July.

This follows recent warnings from other weather agencies there is a good chance of an El Nino.

El Nino, which develops every two to seven years, occurs when water warms around Indonesia, shifts eastwards and rises to the surface in the eastern Pacific.

The warming water changes

It typically brings floods to usually arid countries in western South America and drought to Indonesia and other countries in the region.

If this year’s El Nino is as strong as the 20th century’s worst in 199798, which was blamed for tens of thousands of deaths and billions of dollars in damage, it could wreak havoc on palm oil crops, analysts fear.

Fadhil Hasan, executive director of the Indonesian Palm Oil Association, said that production was hit in 2008 following an El Nino, and prices rose to US$1,200 a tonne. They are currently at around US$930 a tonne.

However he said that other factors, such as market speculation, may have also contributed to the rise.

Alan Lim, a palm oil plantation analyst from Kenanga Investment Bank in Malaysia, said that “in the worst case scenario” an El Nino could cause a 30 percent dip in production in the top two producers.

He said production would be hit some six to 12 months after El Nino, meaning in 2015.

Observers also warn a steep rise in palm oil prices could boost alternative products, especially soybean oil, which is mainly grown in the United States and Brazil.

Despite the growing concerns, some industry players and analysts downplayed the dangers and were optimistic that palm oil would stay ahead of its competitors even during a sustained period of drought.

AFP

ASEAN leaders’ meeting opens in Myanmar The leaders will also deliberate the ASEAN Community Post-2015 vision

T

he 24th Association of Southeast Asian Nations (ASEAN) leaders’ meeting opened yesterday morning, an event that Myanmar President U Thein Sein described as a symbol of “unity and dedication for building a better future for the region and the peoples.”

“It also reflects the importance that we attach to our collective and coordinated endeavors to promote peace, stability, and economic prosperity of our region, and the well-being of our people,” Thein Sein said in his opening speech.

Themed “Moving forward in Unity to a Peaceful and Prosperous Community,” the summit is expected to review the progress towards the realization of the ASEAN Community by the end of 2015 and discuss ways to overcome challenges in the process of economic integration.

Noting there are only one and a half years ahead, Thein Sein stressed it is imperative to take a comprehensive review on the implementation of the Blueprints for ASEAN Community, and to ensure that the targets are fully realized in the community building process.

“We are at a critical juncture and we need to make sure that all necessary steps in the community building are

taken in a timely manner for the realization of ASEAN Community,” he said.

The leaders will also deliberate the ASEAN Community Post-2015 vision, and reiterate ASEAN commitment in its collective efforts for a single market and production base.

“It is also equally important to map a clear direction for the ASEAN Community beyond 2015 to keep it relevant to the changing global environment,” the president stressed.

In this regard, ASEAN leaders should take into consideration the changing political environment and socio-cultural developments of the region and the world, he added.

Created in 1967, ASEAN groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

Myanmar, which holds the ASEAN rotating presidency this year, hosted the ASEAN summit for the first time since it joined the regional bloc in 1997.

The ASEAN Community comprises three pillars, namely the ASEAN Political-Security Community, the ASEAN Economic Community and the ASEAN Socio-Cultural Community.

Australia flips budget Government revenues have dropped dramatically in recent years, in part due to income tax cuts introduced in 2007

F

irst budget under conservative Prime Minister Tony Abbott to be released on Tuesday promises to end the “age of entitlement”, with spending cuts and tax rises expected as the nation strives to rein in its deficit.

After 22 years of continuous economic expansion, Australia is confronting growth that remains stubbornly below trend and unemployment rates of around 6.0 percent.

At the same time, Australia’s budget deficit for the 2013/14 financial year is forecast to have ballooned to Aus$47 billion (US$44 billion), with fiscal deficits projected through to 2016/17.

The government argues that without change, the budget will be in deficit for the next decade and Abbott has called on all Australians to help “chip away at the debt and deficits”.

Eight months after his election victory, his government is expected to lift income tax for high earners, reintroduce an excise on petrol and make cuts to spending.

Treasurer Joe Hockey told The Weekend Australian on Saturday that

The Treasury building in Canberra, Australia

industry assistance -such as tax breaks or financial incentives- was also on the chopping block.

“The fact is that when I said there’s going to be an end to the age of entitlement, everyone has to contribute,” Hockey told the paper.

“Business will benefit out of a stronger economy and a leaner public sector that will come out of this budget.”

Hockey has suggested a “new agenda” in taxation in

which those who have the capacity to pay, pay their fair share, including a tax levy on high earners to help pay down the deficit.

Jakob Madsen, an economics professor at Melbourne’s Monash University said the government was right to tackle the deficit.

“They should definitely do something about it, I agree, because why should future generations pay for us? But definitely it’s not a

crisis at all,” Madsen told AFP.

Costs of an ageing population Madsen said the ratio of government debt to GDP was 35 percent, a level it reached during the 1991-92 recession, but far below the more than 100 percent level of countries in the grip of a debt crisis.

“The deficit is 3-4 percent of GDP. It’s not crisis level,

Xinhua

but it’s a big deficit when the economy is not in a recession,” he added.

Australian government revenues have dropped dramatically in recent years, in part due to income tax cuts introduced in 2007 during the boom years, and this needed to be corrected, Madsen said.

Meanwhile, expenditure on old-age pensions was growing as more baby boomers entered retirement, meaning that a proposed lift in the pension entitlement age from 65 to 70 needed to happen sooner rather than later, he said.

Andrew Hanlan, a senior economist at Westpac, said he was not expecting to see a sharp tightening fiscal policy in the near term.

But he said budgets would face “more fiscal pressure as there is an ageing population, the main issue really being from the cost of health”.

“Certainly it’s important that from a policy point of view that the budget’s headings are appropriate - so to have an intractable deficit situation as your population is ageing raises some issues,” he told AFP. In its Asia Pacific weekly note, TD Securities said while Australia’s debt figures were small when compared internationally, persistent deficits after a decade of consecutive mining booms were cause for concern.

“But we don’t expect real reform just yet, only politically palatable tweaks,” it said.

AFP

14

May 12, 2014

International

South Africa to stick to economic policy

Petrobras 1Q profit falls

The ANC is hoping to invigorate the economy by putting into action its 20-year National Development Plan

S

outh Africa’s ruling African National Congress will probably stick to its policies to boost employment and economic growth after a decisive election win, investors and analysts said.

The 102-year-old party extended its two-decade rule with 62.2 percent of the vote after all ballots were counted, according to figures from the Independent Electoral Commission.

Its support fell 3.7 percentage points from five years ago.

The main opposition Democratic Alliance made the biggest gains, advancing to 22.2 percent from 16.7 percent in 2009. The Economic Freedom Fighters, which was formed by expelled ANC youth leader Julius Malema last year, won 6.4 percent.

“From a policy perspective it means that they can carry on charting the same course,” Mokgatla Madisha, who helps manage the equivalent of US$1.7 billion including South African bonds at Argon Asset Management, said by phone from Cape Town on Saturday. “Investors would like to see that as well.”

The election results were mainly in line with an Ipsos opinion poll published on May 2.

The ANC is hoping to invigorate the economy by putting into action its 20-year National Development Plan to tackle a 25 percent jobless rate, chronic mining strikes and electricity shortages. It must also improve its record in supplying housing, sanitation and other services in poor townships to answer the hundreds of protests across the country.

Green Light “We will use this victory to continue to deliver electricity, water, roads, schools in all urban and rural areas,” President Jacob Zuma said in Pretoria after the IEC officially declared the ANC the winner of 249 of the 400 seats in Parliament. “This mandate gives us the green light to implement

Swedish committed to acquire CERs

South African President Jacob Zuma(R), greeting opposition party DA Leader, Hellen Zille (L)

the National Development Plan and to promote inclusive economic growth and job creation.”

While the government focuses on keeping inflation and debt under control, it plans to spend more than 1 trillion rand (US$96 billion) on improving roads, railways and ports.

The rand, which had weakened 13 percent against the dollar in the past year, gained 1.1 percent on May 8 as early results showed the ANC would retain a majority of more than 60 percent.

While the ANC’s support fell from five years ago and it suffered losses in the richest province Gauteng, the margin of victory strengthens Zuma’s position in the party as he fights allegations by the nation’s graft ombudsman of unduly benefiting from a state-funded upgrade of his private residence. It also gives the ruling party the leeway to ignore calls by the EFF for more radical change, including the nationalization of mines.

Black majority “The market breathes a small sigh of relief that the ANC managed to

hang on to the province of Gauteng,” Phoenix Kalen, a London-based strategist at Societe Generale SA, said in an e- mailed response to questions yesterday. “The risk of coalition governments which would have included the EFF would likely have undermined the ANC’s commitment to on-going reforms as outlined by the National Development Plan.”

The ANC had about 54 percent support in the nation’s richest province.

The black majority still overwhelmingly supports the party of Nelson Mandela, which rid the country of white-minority rule.

The DA said it made advances on shedding its image of being a white party after about a fifth of its support, or 760,000 votes, came from blacks.

The EFF still garnered more black votes, it said.

While the ANC’s margin of victory falls short of the two- thirds needed to change the constitution, the EFF would back amendments allowing for the seizure of land without compensation, Malema told reporters in Pretoria yesterday.

Bloomberg News

Top U.S. official hesitates about economy path However, dissatisfied with the U.S. recovery, the Fed is still adding US$45 billion in bonds each month

T

he U.S. economy will probably start picking up in the second quarter towards around an annual rate of 3 percent, but it may not be clear for some time if it is on a sustained path, a top official at the Federal Reserve said yesterday.

“It may not be clear for several months, or even quarters, whether the U.S. economy is undeniably on a stronger and sustained growth path around a run rate of 3 percent,” Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, told a business gathering in Dubai in a prepared speech.

Lockhart, who said he was speaking in his personal capacity, does not have a vote this year on the Fed’s policysetting board but he participates in its discussions.

Profit at Brazil’s state-run oil company Petroleo Brasileiro SA fell 30 percent in the first quarter meeting analysts’ expectations as refining and fuels losses rose and output fell. Petrobras, as the company is known, reported net income of 5.39 billion reais (US$2.43 billion) in the quarter, compared with 7.69 billion reais a year earlier. The result was in line with the 5.24-billion-reais average estimate of 11 analysts surveyed by Reuters News. Profit fell 14 percent from the fourth quarter. Petrobras is struggling to implement a US$221 billion five-year investment plan.

He is considered to be near the centre of the central bank’s policy spectrum and his comments often reflect the views of the core decisionmakers.

The Fed has kept overnight interest rates near zero since late 2008 to help the U.S. economy recover from a deep recession.

Signs of recovery in the jobs market led the Fed to start winding down its bond-buying programme, which is aimed at pushing down borrowing costs.

However, dissatisfied with the U.S. recovery, the Fed is still adding US$45 billion in bonds each month, though the purchases should end later this year.

“I expect this program to be completely phased out by October or December this year,” Lockhart said.

At its last policy meeting on April 30, the Fed stuck to its assessment that the economy would need nearzero interest rates for a “considerable time” after the asset purchases ends.

“Based on my outlook, I think that conditions in the U.S. economy will justify beginning the process of raising rates in the latter half of 2015. Once rates begin to rise, I expect the process to normalisation of interest rates to be gradual,” Lockhart said.

Inflation has been running just above 1 percent in the world’s biggest economy while unemployment, albeit falling, is still elevated at 6.3 percent.

He also said that despite the decline in the unemployment rate in April, the United States apparently added jobs but lost workers.

Reuters

Swedish Energy Agency has committed itself to acquiring Certified Emission Reductions (CERs) from eight Clean Development Mechanism programmes in Sub-Saharan Africa, according to the Agency’s latest press release. The programmes are implemented in both urban and rural areas in Cameroon, Ethiopia, Ghana, Cote d’Ivoire, Malawi, Nigeria, Togo, Uganda and Zambia. The programmes will reduce carbon dioxide emissions by at least four million tons until 2020 by reducing the use of non-renewable biomass, the agency claimed.

Malta to offer illegal migrants free English education A private company in Malta has offered to teach English to illegal migrants free of charge, which will help them find a direction in life, an official said Saturday. Michael Farrugia, Malta’s Minister for the Family and Social Solidarity, made the remarks while addressing a seminar on human trafficking. Farrugia said young people who entered Malta through illegal ways would learn English to continue with an education and have better opportunities to find a job.

London tops super-rich city list, survey shows London has more billionaires than any other city in the world, and Britain has more billionaires per head of population than any other country, new data showed on Saturday. The survey of Britain’s super-rich compiled for the Sunday Times newspaper is likely to prompt debate in a country where many still struggle financially and where food banks are a fact of life, despite economic growth recently returning to levels not seen since the 2008 financial crash. London is home to 72 of Britain’s 104 sterling billionaires.

Egypt’s tax on wealthy to last 3 years A new 5 percent surtax on the incomes of wealthy Egyptians will last for three years, the finance minister said on Saturday, less than three weeks before the country elects a new president. Hany Dimian said the tax, approved by the cabinet last week, would apply to those earning more than one million Egyptian pounds (US$141,900) annually in 2014, 2015 and 2016. He said the first payment would be due in January 2015. Those subject to the tax would be given the choice of whether their funds should go towards public projects in education, health, agriculture, housing or infrastructure.

15

May 12, 2014

Opinion Business

wires

Leading reports from Asia’s best business newspapers

The perils of financial freedom Adair Turner Former Chairman of the United Kingdom’s Financial Services Authority Member of the UK’s Financial Policy Committee and the House of Lords

PHILSTAR Money sent home by Filipinos living and working abroad could have risen by as much as 9.7 percent in March, UK-based investment bank Barclays said.

“After two months of weak data, we expect remittances to recover on a decent pick-up in flows, ahead of the Easter holidays,” the bank said in its latest The Emerging Markets Weekly report. Cash remittances reached US$1.768 billion in March last year, data from the Bangko Sentral ng Pilipinas showed. Official March remittances data will be released by the central bank on Thursday, May 15.

THE KOREA HERALD Credit card firms are set to resume operation later this week after three-month business suspensions for earlier massive data breaches, officials said Sunday, while their chiefs are expected to face heavy punishment soon. According to the officials, the Financial Supervisory Service (FSS) will lift operation bans on KB Kookmin Card Co., Lotte Card Co. and NH Nonghyup Card Co. from May 17. The three companies were ordered to suspend their business for three months from February over the leak of some 140 million customers’ data.

THE TIMES OF INDIA The Reserve Bank of India’s decision to let banks offer independent savings accounts to children over 10 has received mixed response. Some parents have welcomed it saying this will help teach children financial responsibility. Others are of the view that it exposes them to risk of overspending and fraud. Smriti Gupta of Vasant Vihar has opened a bank account for Akanksha, her 12-year-old. She said, “I’m notified of all transactions. My daughter gets pocket money and we are saving for her sake.” Pradeep Bhardwaj, a lawyer in Dwarka, is also not surprised.

THE ASAHI SHIMBUN Propelled by the Fukushima nuclear crisis, companies are battling for a share of the Tokyo metropolitan area’s 6-trillion-yen (US$59 billion) electricity market. Electric power companies and “outsiders,” including steelmakers and paper manufacturers, are seeking a piece of the action made available by the woes of Tokyo Electric Power Co. (TEPCO).

TEPCO had long dominated the Tokyo-area market, but it has been unable to construct new thermal power plants since the Great East Japan Earthquake and tsunami on March 11, 2011, caused the triple meltdown at its Fukushima No. 1 nuclear power plant.

L

ONDON – Back in 2007, China’s thenprime minister, Wen Jiabao, famously described his country’s economy as “unstable, unbalanced, uncoordinated, and unsustainable.” Today, the imbalance remains, with the economy too focused on investment and too dependent on credit.

China’s current leadership is committed to building a more balanced model, and believes that the market must play a “decisive role” in achieving that. But, while stronger market discipline is needed in some areas, Chinese officials should be under no illusion that free markets are a panacea for the financial sector. Indeed, China’s current economic imbalances partly reflect the dangers created by competition in credit markets.

Even before the 2008 global financial crisis, China’s annual investment/GDP ratio was running at an exceptionally high 40%, and economists were calling for a transition to more consumption-led growth. But the huge credit stimulus introduced in 2009 drove the economy further in the opposite direction. The investment ratio rose to 47% by 2012, and construction now accounts for 30% of all output.

Total credit has risen from 130% of GDP to 200%, with both bank loans and “shadow bank” credit expanding rapidly.

Both China and the global economy benefited from that stimulus, which helped prop up overall demand in dangerously deflationary times.

But it has led to significant wasted investment in heavy industry, real estate, and urban infrastructure, and leaves China facing the challenge of deleveraging and working out bad debts.

In many areas, improved market discipline does have an important role to play in addressing the structural

causes of imbalance. Wasteful construction investment is encouraged by the underpricing of rural land. The lack of a normal ownership relationship between the central government and stateowned enterprises (SOEs) allows the latter to pay minimal dividends and over-invest in business expansion. Caps on interest rates on bank deposits result in household savers supplying a large subsidy to corporate borrowers. And SOEs have better access to credit from state-owned banks than private companies do.

But the belief that financial liberalization will provide an easy route to a balanced and stable economy is a delusion, as Japan’s experience in the 1980’s illustrates. As Joe Studwell argues persuasively in his book How Asia Works, neither Japan nor South Korea based its successful economic development on free markets in credit supply; instead, they relied on the deliberate direction of credit toward industrial development rather than real estate or consumption.

When Japan relaxed constraints on its banking system in the 1980’s, the result was an enormous realestate boom and subsequent bust, followed by two decades of slow growth and deflation.

China’s per capita income is still only about a quarter of Japan’s in 1990; it would be a tragedy if it suffered a similar setback before completing the path to developed-country living standards.

One striking feature of the Chinese economy, however, is that real estate and urban infrastructure development – high-rise housing, grand transport projects, convention centres, sports stadiums, and museums – already play a far more important role than they did in Japan and South Korea at comparable stages of economic development.

China’s current leadership is committed to building a more balanced model, and believes that the market must play a “decisive role” in achieving that.

But, while stronger market discipline is needed in some areas, Chinese officials should be under no illusion that free markets are a panacea for the financial sector.

This reflects the interaction of two distinctively Chinese factors and one inherent feature of all banking systems.

The first Chinese factor is the authorities’ focus on “urbanization” as an end in itself, rather than as a byproduct of industrialization.

The second is China’s decentralized approach to economic development, with strong competition between regions and cities often focusing on prestige urban infrastructure projects.

The universal feature in this mix is the fact that banks

everywhere can create private credit, money, and purchasing power that did not previously exist, and they have a natural bias, if not constrained by public policy, to allocate it to fund real-estate developments, which drive rising land prices.

These factors will drive construction booms and busts even if obvious market distortions are removed and market discipline is tightened.

The pre-crisis Irish and Spanish banking systems proved just as capable as Chinese state-owned banks at funding excessive real-estate construction.

So, even as China introduces greater market discipline to a largely positive effect, it must plan to constrain credit creation with policy tools that were missing in the advanced economies before the 2008 crisis. Caps on loan-to-value or loan-to-income ratios on real-estate loans should be used aggressively. Capital requirements for banks should reflect higher risk weights for real-estate lending than banks’ private assessments of credit risks suggest are appropriate.

The People’s Bank of China should maintain reserve requirements for commercial banks to contain credit creation, rather than reject them as old-fashioned, as occurred in the advanced economies in the decades before 2008. Credit provision by shadow banks needs to be tightly regulated. The credit cycle is too important to be left to free markets.

China thus faces a difficult challenge. It must undergo a transition not to the Western model that produced the 2008 crisis, but to an entirely new model that combines elements of market discipline with strong public-policy constraints.

How smoothly that transition occurs matters for the whole world. By the early 2020’s, China’s GDP will be $20 trillion.

If the credit/GDP ratio reaches 250% by then, total loans and debt securities would equal $50 trillion, which is more than three times the total of US mortgage debt in 2008. Today, much of that debt represents claims within the state sector – owed, for instance, by SOEs to state-owned banks. But, as the private sector develops, SOEs are subjected to hard budget constraints, and the external capital account is opened, this huge credit mountain will create increasing global financial vulnerability.

One hopes that the Chinese authorities understand the dangers as well as the benefits of free financial markets better than advanced-economy policymakers did ahead of the 2008 crisis. If not, another crisis – far more severe than the last – may become inevitable.

The Project Syndicate 2014

16

May 12, 2014

Closing Experts project a Chinese medicine compilation North Korea renews threats Chinese experts plan to compile a guidebook for clinical application of ready-made traditional Chinese medicine (TCM) for treating infectious diseases. The project will be carried out by scholars from the State Administration of TCM, China Press of TCM and China Academy of Chinese Medicine Sciences, according to a statement at a conference held in Hangzhou City in east China’s Zhejiang Province, which was attended by more than 100 experts. The compiling and publishing of the book is aimed at standardizing the use of TCM, which helped Chinese people overcome plagues in ancient times.

NKorea renewed a threat to conduct a nuclear test amid heightened concern that the reclusive state with a stockpile of missiles may set off an atomic device for the fourth time on the path to building a nuclear arsenal. North Korea’s official Rodong Sinmun newspaper said the country was justified in using all available means at its disposal to counter aggressive challenges by the United States and South Korea aimed at stifling its sovereignty. North Korea had stepped up the threat in March to show off its military.

Fired from Walmart, now gunning for China’s state labour union

W

hen Wang Yafang was fired from her job at a Walmart in southern China in July 2011 for dishonesty, she refused to sign the termination papers and even showed up at work the next day – only to be sent away.

Wang, 38, then sued Walmart Shen Guo Tou Stores Inc, a Wal-Mart Stores Inc subsidiary, for wrongful termination, and beat the world’s largest retailer in arbitration and twice in court, winning 48,636 yuan (US$7,800) in damages.

Now, she’s aiming at an even bigger target: the statebacked All-China Federation of Trade Unions (ACFTU).

In the three decades since China began reforming its economy, its giant state labour union – with upwards of 280 million members – has sat on the sidelines, rarely intervening on behalf of workers in disputes.

In a bid to help change that, Ms Wang, backed by lawyers who have handled some of China’s highest-profile labour cases, decided to sue the union branch at the Walmart in Shenzhen where she worked for nine years. Unlike the few previous attempts by workers to sue grassroots

Wang Yafang

union branches, courts have heard Wang’s case.

Wang and her team argue that the union endorsed the assessment of her as “dishonest” when she was fired and in doing so damaged her reputation. She wants an apology. The union branch has denied the charges.

Beneath the surface, Ms Wang and her lawyers are levelling a more serious

accusation – one echoed by many Chinese workers – that the ACFTU is failing in its role as the protector of worker rights and interests.

The landmark case highlights shifting labour relations in China, where workers increasingly know their rights and are seizing opportunities to challenge the status quo, often in court. Independent unions

are banned in China, and the ACFTU is coming under unprecedented pressure to adapt.

Two courts in Shenzhen have already heard Ms Wang’s case since she filed the suit last July, and have ruled against her. This month or next, her lawyers plan to launch a final appeal with the Guangdong superior people’s court.

“Either way, if she wins or

loses, it is already extremely meaningful that this case has been brought to trial,” said Shi Zhigang, a former union boss from Nanjing who now acts as a collective bargaining adviser to local union branches.

“It’s an amazing development that the courts have even accepted the case and are using Chinese law to make an assessment and evaluation of the union.”

Philippine infrastructure spending rises

China to face “buying inflation” problem

Brazil police recommend ignoring robbing

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C

B

he Philippine government’s infrastructure and capital outlay (CO) spending rose by 49 percent to 49.8 billion pesos (US$1.13 billion) in February this year from 33.3 billion pesos (752.88 million U.S. dollars) in the same period last year, a senior government official said Sunday. Budget and Management Secretary Florencio Abad said the increase of infrastructure spending boosted overall government disbursements to 313 billion pesos (US$7.08 billion) or 11 percent higher than the 282 billion pesos (US$6.38 billion) recorded during the same period of 2013.

He said the notable infrastructure disbursements for February include spending for the Armed Forces of the Philippines (AFP) Modernization Program of the Department of National Defense (DND), various infrastructure projects of the Department of Public Works and Highways (DPWH), several transport infrastructure projects like the renovation of the Ninoy Aquino International Airport (NAIA) Terminal 1 by the Department of Transportation and Communications (DOTC) and the health facilities enhancement program of the Department of Health (DOH), among others.

Xinhua

hina’s war chest of foreign currency reserves has become a headache as its continued rise could stoke inflation in the long term, Premier Li Keqiang said in remarks seen yesterday, pledging to reduce the country’s trade surplus.

China’s foreign exchange reserves, the world’s largest, grew by US$130 billion in the first quarter, to a record US$3.95 trillion.

The central bank has pledged to keep foreign exchange reserves at reasonable levels, partly by reducing its intervention in the currency market.

“Frankly speaking, foreign exchange reserves have become a big burden for us, because such reserves translate into the base money, which could affect inflation,” Phoenix New Media Ltd quoted Li as saying during a visit to Kenya.

“From China’s perspective, macroeconomic controls could face tremendous pressures if the overall trade is imbalanced.”

China will take steps to reduce its trade surpluses with the rest of the world, including Kenya, Li was quoted as saying.

Reuters

razilian police will distribute pamphlets to World Cup visitors advising them not to argue or scream when being robbed, according to the daily Estado de S.Paulo. The campaign was designed by the head of the committee created by police in Brazil’s biggest city to prepare for soccer’s marquee event and is aimed at avoiding an increasingly common crime in Sao Paulo: robberies that end with homicide. Police officer Mario Leite told the newspaper the tips are included in pamphlets that embassies and consulates from the U.S. to Europe will distribute to visitors boarding planes to the South American nation. To be published in English, Spanish and French, the brochures also advise against showing off certain possessions and walking alone at night, and recommend that tourists check to make sure they aren’t being followed.

In preparation for the 600,000 foreign visitors expected for the World Cup in Brazil, to begin in Sao Paulo on June 12 and running through July 13, police have prepared to handle emergency calls in English and Spanish, the daily reported.

Bloomberg News