Macau Business Daily, May 16, 2014

MOP 6.00 Closing editor: Sara Farr Publisher: Paulo A. Azevedo

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Year III

Number 540 Friday May 16, 2014

TurboJet teaser

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lans are in the pipeline for TurboJet to build on its ferry trip service between Hong Kong and Macau International Airport, a company spokesperson told Business Daily. While the MIA says it has no knowledge of the plan, TurboJet says it’s early days and to watch this space

US wades into junket debacle Golden Week bonus A US trade union has requested Macau’s gaming regulator to review a licence issued to a junket operator.

Fingers are pointed at ties to triad members – backed up by 100 supporting documents.

From October 6, casinos will have to implement a full smoking ban on casino mass gaming floors regardless of whether smoke lounges have been installed. The screws are tightening

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Profits soar

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Wynn remains typically confident despite a “softening” in luxury retail sales. All’s well in his mainstream business, he tells shareholders, with Wynn Palace on track and all eyes on Japan Page 5

May 15

Name

%Day

Tencent Holdings Ltd

5.84

Belle International

3.18

Lenovo Group Ltd

2.30

Hutchison Whampoa

1.70

Sun Hung Kai Proper

1.39

China Overseas Land

-1.31

China Resources P

-1.31

Want Want China H

-1.81

China Unicom H K

-1.96

China Resources LanD

-2.75

Source: Bloomberg

I SSN 2226-8294

The local subsidiary of Weng Hang Bank Limited Hong Kong saw a big leap in net profit for 2013.

The 330 million-pataca payday was backed by ‘satisfactory growth’ in both loans to clients and deposits. Record growth of 37.5 percent bodes well

Remaining confident

HSI - Movers

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Service with a smile China’s State Council meeting has given full priority to the service sector. The Council wants to speed up the transition from an industrial society to a servicebased one. And it wants to do it now Page 10

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May 16, 2014

Macau Daily reported that a loophole in the way Macau’s VIP gambling segment is overseen could allow ‘Broken Tooth Koi’ to re-establish his career in the gaming industry here.

Under Macau law, there is a legal relationship between the government and entities known as ‘gaming promoters’. Approved gaming promoters are allowed to oversee the introduction of VIP players to the city’s casinos, and arrange credit facilities for their gambling independent of the casino management.

But the promoters are themselves subject to oversight and conditions, including compulsory probity checks by the government for any shareholder with five percent or more, and a ban on anonymous shareholdings.

However, two lawyers last year said that over time the government here has allowed several legally fictitious entities – typically referred to as ‘VIP rooms’, ‘VIP operators’, ‘VIP promoters’, or ‘junkets’ – to enter the market for VIP gaming services. These entities, they said, have been used in effect to circumvent the scope of the law because they are not covered by any of the regulations.

US trade union seeks review of Macau junket The group has sent a letter to gaming regulators here requesting a review of a junket operator with ties to a convicted gangster’s associates Sara Farr

sarafarr@macaubusinessdaily.com

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he Macau gaming regulator is being asked to review a licence issued to a junket operator that promotes VIP rooms in casinos here.

The letter - with some 100 pages of supporting documents - was sent by the International Union of Operating Engineers, a US trade union, and ‘provides detailed information on a junket owner who has been a business partner in separate ventures with two members of the 14K triad headed

by Wan Kuok Koi (also known as ‘Broken Tooth Koi’).’

The Gaming Inspection and Coordination Bureau (DICJ) has confirmed to Business Daily that it had received the letter by fax but declined to comment further.

The letter, dated May 14 this year, directly addresses the director of the Bureau, Manuel Joaquim das Neves.

A copy of the letter was also sent by the US trade union to media. In the letter, Macau is asked how regulators and also Wynn Macau Ltd compliance departments authorised the licensing of a ‘suitable’ junket operator with ties

to gangsters convicted of triad crimes.

Jeffrey Fiedler, a director at the US trade union, said that one of the key issues that ‘suitability’ screenings look for are applications with connections to organised crime figures. He also questioned whether the definition of ‘suitability’ under Macau’s gaming regulations differs to that of the United States.

One big loophole At the end of July last year, Business

Wynn connection The letter refers to testimony by Wynn Resorts executives that the licensing procedures here are ‘extensive’ and that the application ‘goes through shareholders, family members, businesses, banking relationships.’

Junkets here go through ‘additional backgrounding procedures,’ which include a company background check, the US gaming regulator heard.

‘Yet, as the letter details, an individual named Pun Chi Man, the ostensible owner of three gaming promoters licensed by the DICJ, had previously established two Macaubased companies with two members of Broken Tooth Koi’s 14K triad, named Chan Seng Leong and Si Cheng Wan,’ said Mr Fiedler, adding that ‘just two weeks after incorporating these firms, Pun Chi Man’s partners, Mr Chan and Mr Si, were arrested by Macau authorities alongside Broken Tooth Koi at the Hotel Lisboa. They were later convicted of triad-related crimes and served multi-year prison sentences.’

One of Mr Pun’s junkets has recently promoted itself at the Wynn Macau facility, according to Mr Fiedler, who added that the Pun Chi Man junket remains licensed with DICJ.

Mass gaming floors: No lighting up from Oct 6 A

full smoking ban should be enforced in all mass gaming floors in Macau’s casinos from October 6, regardless of whether or not the casinos can establish smoking lounges in time, the Health Bureau announced in a press release yesterday evening.

The new smoking control edict was the adoption of the city’s six gaming operators’ proposal delivered last year to set up mass gaming floor area smoking lounges – a closed space with an independent duct system but no gaming facilities, the Bureau wrote.

In current terms, smoking areas are allowed to account for no more than half of the floor space of mass-market gaming floors and VIP gaming rooms alike.

‘A full-smoking ban should be enforced in all mass gaming floors starting on October 6,’ the Health Bureau press release stated.

‘By that date the smoking ban on the mass gaming floor should be in effect even if the casinos have not completed the installation of smoking lounges or have no conditions to install one.’

‘By that time [October 6 onwards] the casinos can continue with their smoking lounge installation and related works,’ the Bureau added.

This latest announcement from the Health Bureau, which requests a full smoking ban on mass gaming floors for all casinos, differs from its director Lei Chin Ion’s statement to media in mid-March which noted that the measure of setting up

smoking lounges on mass gaming floors should be tried out first in the 14 gaming establishments found to have had substandard air in their smoking areas last year.

The Bureau also noted in the

statement that it will ‘speed up’ the approval process for the smoking lounge installation in casinos but did not detail the duration of such procedure.

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May 16, 2014

Macau

TurboJet planning air-sea intermodal transit for Macau The Hong Kong-based company is planning to build an air-sea intermodal transit but the project is still in the early stages Alex Lee

alex.lee@macaubusinessdaily.com

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ur boJ et is work ing on facilitating air-sea intermodal transit. “We are preparing to introduce air-sea intermodal transit in cooperation with Macau International Airport”, a spokesperson for the Hong Kong-based company told Business Daily.

The project is at an early stage, which means that at this moment it is being planned and so information about the facility’s capacity and opening date is as yet unknown, the spokesperson said. This investment is part of the plan that the company expects to develop in the future.

A Macau International Airport spokesperson told Business Daily, however, that they did not have knowledge of the project. “The air to sea express link service CAM is cooperating with TurboJet on in Hong Kong has been operating for 10 years in Macao Ferry Terminal,” the spokesperson said.

In 2013, TurboJet recorded a HK$165 million operating profit, which, when compared to 2012’s

results (HK$65 million operating profit), means a steep increase of 154 percent year-on-year. The company assumes that these results will help to finance future projects such as the new Taipa Ferry Terminal.

“The strong profit in 2013 will be used as reserve to be reinvested for future projects and service upgrades,

with new services at the future Taipa Ferry Terminal being one example”, the spokesperson said.

It was highlighted by the company, however, that in spite of last year’s profit “appearing to be significant on the books” TurboJet endured in the previous years “prolonged deficits cumulatively amounting to

HKD238 million despite all kinds of cost control efforts”.

More ferry trips The number of ferry trips increased 0.2 percent in the first three months of the year, according to the Statistics and Census Service. From January to March 2013, some 35,024 ferry trips were registered and this year there has been a slight rise of 44 trips (35,068).

This trend differs from the one registered from 2012 to 2013. In that period, the number of ferry trips fell by 1.1 percent from 139,955 in 2012 to 138,475 in the following year. The number of visitors arriving by sea to Macau went up by 0.6 percent from 11,484,840 to 11,557,593.

Of the growing queues to buy tickets for ferry trips, the Marine and Water Bureau told Business Daily that the current frequency of sailing is able to meet passengers’ demands but it recommended travel arrangements be made in advance.

“In 2013, there were over 140,000 sailings running between Macao and Hong Kong. During peak hours, there is a sailing bound for Macao or Hong Kong every three minutes.

Such frequency of sailings is capable of meeting passengers’ needs. If passengers make appropriate travel arrangements in advance, ticketing will not be a problem”, a spokesman for the Bureau explained.

The impetus to buy tickets in advance has increased recently, Turbojet told Business Daily, whilst declining to reveal the figures. “In recent years, the company observed that passengers are planning well ahead by booking return tickets via websites or smartphone apps”.

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May 16, 2014

Macau

40 pct of casino employees contemplating resigning

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HOSPITALITY

Alex Lee*

Flight-plus-sail slowdown

alex.lee@macaubusinessdaily.com

The ferry terminals in Macau and Taipa perform an important function as extensions, so to speak, of the Hong Kong International Airport. They provide a convenient connection to visitors coming from all over the world. Most of these visitors come from places that do not have a direct connection to Macau. We might expect, therefore, that the rise in the number of flights landing in Macau, and the growing number of places of origin of those fights, would have some impact on the HKIA-Macau connections.

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Second is the new first

At the beginning of 2010, the decline in the number of flights landing in Macau had mostly ceased and figures entered a period of relative stability. At about the same time, the number of connections from the Hong Kong airport started rising fast. From the first quarter of 2010 to the peak reached in the third quarter of that year, the number of arrivals to both Macau terminals rose by an extraordinary figure of almost 72 percent.

The total number of arrivals stayed over the 1,800-level threshold for two additional quarters; and then started to drop almost as fast as it had risen. In the first quarter of 2012 the values had more than halved relative to the earlier high figures. The figures for this rise and relative demise of the HKIA connection suggest that the evolution in the number of direct flights to Macau Airport has had little impact on that connection. The number of landings at Macau airport was steady for most of the early period plotted; and it starts to rise only in late 2012. The oscillations in traffic at both the Macau airport and the sailings from Hong Kong airport seem mostly unrelated.

J.I.D.

23.6%

drop in arrivals from HKIA, last two years to Q1

Macau’s government surplus was the second biggest in the world in 2012 after Kuwait, according to the World Bank but it’s been decreasing since 2011 and is still far from 2010’s performance when the territory led the world in this public finance ranking Alex Lee

Alex.lee@macaubusinessdaily.com

M

acau’s still an exception in terms of public finances, being one of only 22 countries or regions that in 2012 reported a surplus in a universe of 214 states analysed by the World Bank. According to their annual report, more than 190 governments lived that year with account deficits, spending more than they earned.

In 2012, the SAR government reported a surplus of 23.8 percent of GDP, the second biggest in the world after Kuwait (27.9 percent), beating Norway (14.6 percent), Caribbean islands St. Kitts and Nevis (10.7 percent), Oman (10.6 percent) and Singapore (9 percent). At the other extreme the former Portuguese African colony São Tomé e Príncipe posted a deficit of 12.2 percent of GDP. Even if Macau’s figures appear remarkable - especially with a timid recovery in developed economies and a slowdown in the major emerging ones - they’re not better than previous years. According to World Bank data,

the 2012 surplus was lower than in 2011, when the government reported a 24.7 percent surplus in its accounts, a record year. But this historic surplus year for Macau was not enough to keep the territory in the leadership of public finances ranking compiled by the World Bank as happened in 2010. In 2011, Macau was surpassed by Kuwait, whose government produced a surplus of 27.9 percent. If casinos boost Macau’s revenues, oil does the same for Kuwait and, in terms of public finances, with better efficiency.

In 2010, a year of casino expansion and in the aftermath of 2009’s global economic crisis, Macau’s government was able to produce the best public finances. In 2009, the surplus reached 19.3 percent of GDP, a world record within the 214 countries and territories covered by the World Bank. Official data revealed that gaming revenues accounted for more than 80 percent of government revenues in Macau, a high dependency rate and a wake-up call for diversification.

orty percent of casino employees are considering resigning from their job within the next 6-12 months, the Portuguese-language newspaper Ponto Final reports. This was one of the findings of research conducted by Joanne Chan and Kim Kuok from the University of Macau, and Penny Wan from the Institute for Tourism Studies. The investigation conclusions were published on April 30 in the Journal of Hospitality Marketing & Management, with the results based on surveys of 391 employees from six of the main casinos in Macau.

Although young and unmarried females in the early phases of their professions tend to be the social group that is more likely to have a greater diminished interest in the work, the study found that casino employee burnout was mainly found in younger male workers, newer to their profession and doing shift work. ‘It was noted that approximately 40 percent of job changers were in the age group of 14 to 34 [sic] and approximately 44 percent worked in the hospitality and gaming sector,’ the study found.

While young workers are more prone to burnout, older employees are capable of relaxing and minimising work stress by themselves. Another finding of the study was that in Macau’s casinos employees were ‘moderately emotionally exhausted’.

Solutions The higher salaries in casinos in comparison to other sectors are identified as an efficient measure to hold workers. ‘The higher salary earned in casinos somewhat offsets the feeling of low job satisfaction, lowering the intention of employees to quit’, the study points out.

Management can achieve low employee turnover by increasing their satisfaction through job enlargement opportunities, transparency in promotion, involvement in decisionmaking which affects them, and training.

For frontline workers in the gambling market, the investigators suggest that psychological counselling services and opportunities to attend companyinitiated informal gatherings would help better handle work-related stress.

Notifying employees of their schedule or schedule changes in advance was also identified as one of the important actions to increase the level of satisfaction at work. *with Yvonne Wong

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May 16, 2014

Macau

Wynn: “Reinvesting more in Macau than we made in last ten years” Wynn CEO says the economic slowdown in China is only affecting luxury retail sales, adding that more foreign workers are needed for Macau’s expansion and junket operators are ‘serious business’ despite recent scandals.

Wynn’s also ready for ‘limited’ Japan Alex Lee

Alex.lee@macaubusinessdaily.com

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ynn is still confident in the secular success story that is Macau despite the recent slowdown in China, Beijing’s new austerity policy, junket scandals, the UnionPay crackdown or investors’ anxiety about the possible deceleration of business in the territory.

In Macau for the General Meeting of Wynn Resorts shareholders and its parent company Wynn Macau, CEO Steve Wynn proclaimed his confidence at a press conference saying: “What we’re reinvesting in Macau is more than we made in the last ten years”.

Wynn confirmed that its Cotai resort - the US$4billion Wynn Palace - is on schedule and will be ready for Chinese New Year 2015.

The Wynn CEO reassured reporters that the recent economic slowdown in China and the austerity policy emanating from Beijing are only affecting the group’s retail luxury sales. “Our Macau business in casino and hotels is stronger and will be stronger in the future”, Wynn said.

“Only luxury retail sales are softer”, he added without specifying how much.

According to Wynn’s first quarter results, revenues from entertainment and retail grew only 5 percent against 10 percent of total revenues. The company did not disclose Macau’s revenues for retail in its quarterly results.

destination within 5 years when all the infrastructure is built, the Hengqin island project is completed and the new wave of casinos in Cotai are fully operational. But to support this expansion and with Macau living with no unemployment, there will be a need to bring in and hire nonresidents to the territory.

Limited Japan

Steve Wynn

Of other scandals affecting Macau in the last few weeks, like junkets, Steve Wynn denied that the majority of junket operators are criminal related: “That idea always existed but junkets have serious business and don’t have time for criminal activities”, he claimed.

Steve Wynn declared that he was not anxious about Macau’s future, saying that the territory could become a major international

UnionPay Regarding the UnionPay terminals ban in casinos reported by South China Morning Post this week, Steve Wynn stressed that the casino operator “has nothing to do with it as we don’t use UnionPay . . . We also weren’t approached by Macau’s authorities related to the issue of illegal transactions and a possible July 1 deadline for a terminal ban”.

5 pct Retail growth in 1st quarter 2014

Forex continues to drop M

acau’s foreign exchange reserves dropped a further 1.4 percent to 120.3 billion patacas in April, down from 122.1 billion patacas in March and 123.6 billion patacas in February.

This remains the lowest the territory’s foreign exchange reserves has been in the last two years.

According to preliminary estimates released yesterday by the Monetary Authority, compared to the same period last year the reserves dropped by 8.6 billion patacas, which equates to a 6.6 percent drop year-on-year.

Nevertheless, at the end of April Macau’s foreign exchange reserves represented 13 times the currency in circulation or around 107.3 percent of the ‘M2’ money supply at the end of March.

M2 refers to all time deposits,

savings deposits, and non-institutional money-market funds, plus ‘M1’, which is physical coins and currency, as well as readily liquid assets such as on-demand bank deposits.

The decline in exchange reserves could be due to the devaluation of the currency in which the assets held by authorities are denominated or by government selling. Central banks park external currency in their coffers to manage the exchange rate or protect the financial system against crises or market crashes.

The trade-weighted effective exchange rate index for the pataca, a gauge of the domestic currency’s exchange rates against the currencies of Macau’s major trading partners, increased 0.34 points month-onmonth but dropped 1.02 points yearon-year to 97.11 in April.

Regarding the long-awaited and much-anticipated new gaming destination of Japan, Steve Wynn declared that if the Tokyo government approves gaming licences, the market will not work freely but with some “limitations”. But even a casino market in Japan is uncertain. “If the study bill is passed before June, it indicates a strong likelihood to go even further; if the bill does not pass this year, that will indicate it is more likely it is not going to happen,” the CEO said.

The casino tycoon also emphasised that he had contacts with the “leading and biggest” Japanese companies for a possible partnership if the gaming licences are issued, without naming any. “We’re absolutely interested and ready to put all our resources into Japan”, Wynn told reporters.

Wynn Macau’s performance in the first quarter trailed that of some of its competition in Macau, like MGM China and Sands China, the two casino operators who recently reported an operating profit increase of 32 and 50 percent, respectively. In the first quarter, Wynn Macau’s operating profit (adjusted property earnings before interest, taxes, depreciation and amortization) climbed 16 percent from a year ago to US$384.3 million, beating analysts’ consensus of US$367 million. Net revenues (revenues less promotional allowances) increased 14.2 percent, surpassing the billion dollar mark with US$1.132 billion.

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Macau

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Violent crime on the rise The number of crimes increased in the first quarter by almost 10 percent, with 200 cases of violent crimes, a 5 percent jump, authorities have revealed

Authorities filtering out smoking transgressions M

ore than 700 persons per month have fallen foul of the tobacco control law since the beginning of the year, the Health Bureau announced yesterday.

From the beginning of the year to 30 April some 2,852 individuals were charged; 2,846 of them lit up in designated smoking-free areas.

In the first four months of the year, locals accounted for 65.5 percent of the miscreants (1,863), while tourists represented 31.1 percent of the transgressors (884). Non-resident workers were responsible for 3.5 percent (99 cases) of the infractions.

As for the places where infractions took places, cybercafés registered the highest number, accounting for

605 cases and 21.2 percent of the inspected areas. The second place in which more offences occurred were video arcades (19.9 percent/551 cases), followed by public gardens and amusement areas (12.4 percent/354 cases).

As for penalties, the Health Bureau said that 2,181 persons, or 76.5 percent, had already paid the fine.

In casinos, where the law was only enacted on the first day of 2013, 123 individuals were charged from January of this year to April. In total, 152 inspections were performed in gaming areas.

The Health Bureau also announced that during the period analyzed an average of 600 establishments were inspected every day.

‘Monster Strike’ puts toe in Greater China S

o-net Entertainment Taiwan, a subsidiary of Japanese Internet service provider Sonet Entertainment Corporation, has joined hands with Japan’s popular social networking site mixi, Inc. to launch mobile phone game ‘Monster Strike’ in Greater China, including Hong Kong and Macau.

The testing of waters in Greater China, the first stop being Taiwan, is a move tied in to So-net Entertainment Corporation’s strategy focus of developing mobile phone games this year, a shift from the company’s

he Secretary for Security, Cheong Kuoc Va, said yesterday that criminality in Macau rose almost 10 percent in the first quarter due to a significant increase in physical integrity crimes, extortion and usury. In the JanuaryMarch period some 3,505 crimes were reported, an increase of 8.3 percent (269 more cases) compared to the same period in 2013 Cheong Kuoc Va stated that police took several measures to combat drugs with a considerable reduction in trafficking and drug crimes. No murder and kidnapping crimes were recorded in the first three months.

However, violent crime is on the up with 191 cases, 9 more than a year ago. Authorities also confirmed that during the quarter police detained 1,186 people related to criminal actions and preventive policing, which were presented to prosecutors.

As for physical crime, the secretary revealed that 576 crimes were recorded, 13.8 percent more than in the same period of 2013. Of these, 388 cases of physical offence integrity were recorded, an increase of 18.3 percent and 60 more cases.

Va Kuoc Cheong also said that crime against property offences recorded a jump of 3.2 percent (62 more cases). There was a significant rise in extortion and usury crimes.

The first more than tripled to 19 cases, while the latter grew 63.6 percent to 21 cases.

In the first quarter, some 12,581 people illegally immigrated or overstayed. Entry of illegal immigrants from Mainland China: 289 persons (32 more than a year ago); overstay of individual visa holders 1,328 people (116 more); overstay of holders of other documents and visas 10,247 people (1,655 more) and overstay of foreigners 717 (50 more).

A.L.

business of providing broadband internet service, the corporation’s chief executive officer Hirotake Nagata announced in a press briefing on Wednesday.

So-net is planning to launch four mobile phone games this year, Mr Nagata said.

So-net Entertainment Corporation, which runs broadband service in Taiwan and Hong Kong beyond its home market, is a wholly-owned subsidiary of Japan’s electronics giant Sony Corporation.

The ‘Monster Strike’ mobile phone game has been downloaded by over six million people in Japan within half a year, the game producer from mixi, Inc. Mr Koki Kimura said in the briefing.

Before launching ‘Monster Strike’ in mainland China, Hong Kong and Macau, the game will first be promoted to Taiwan as the market there has a higher acceptance of Japanese mobile phone games, Mr Kimura declared.

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May 16, 2014

Macau

Weng Hang Bank profits soar The Hong Kong bank subsidiary here posted a record net profit for last year, thanks to strong growth in loans and deposits Stephanie Lai

sw.lai@macaubusinessdaily.com

MOP26.9 bln

total deposits in 2013

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he local subsidiary of Weng Hang Bank Limited, Hong Kong saw a big leap in net profit for 2013 at over 330 million patacas (US$41.3 million) backed by ‘satisfactory growth’ in both loans to clients and deposits, the

bank announced yesterday in its annual results.

Macau’s Weng Hang Bank Ltd, also known as Banco Weng Hang, S.A., enjoyed record growth of 37.5 percent over the 240 million patacas gained for 2012, according to the

annual results.

The bank said it saw ‘satisfactory’ growth in loans for last year, which climbed 14.3 percent to 19.5 billion patacas, noting in particular that the home mortgage business had managed to register growth despite

the fall in home transactions in the local property market at large, Hong Kong Weng Hang Bank Ltd chairman Patrick Fung Yuk Bun remarked.

Robust private consumption here has also lifted the bank’s business from car loans and other personal loan schemes, which have registered a yearly 50 percent growth, the remarks noted.

Meanwhile, the deposits that the local Weng Hang Bank registered for 2013 saw a growth pace slightly slower than the loans, whereby deposits reached nearly 26.9 billion patacas, 15.4 percent higher than a year before.

The local Weng Hang Bank has kept its loan-to-deposit ratio at 72.6 percent for 2013, whilst its bad loan ratio is at 0.13 percent, the annual results noted.

Noting the challenge for this year, Mr Fung remarked that the proportion of loan use outside Macau over the combined loans of the local banks will extend further than the current level, which is already over 50 percent – a status that could indicate higher liquidity tension here.

Mr Fung noted this projection as the liquidity in mainland China has grown tighter and a gap has arisen between the loan interest rate on the mainland and here.

Another challenge is the increasing risk for capital outflow following the tapering of the U.S. Federal Reserve’s quantitative easing policy, Mr Fung wrote.

Weng Hang Bank Ltd’s Macau unit currently has 13 outlets in the city.

The total assets of the bank’s Macau unit amounted to over 31.4 billion patacas last year, with a return on average assets of 1.2 percent. The total assets reached last year climbed 21.1 percent more than 2012, the results noted.

Stay in the finest hotels in Macau and read Business Daily news where it matters

BES targeting affluent clients, Macau opening mooted The Portuguese bank expects to double its size in the medium-term and is currently restructuring in order to improve its private and corporate services Alex Lee

alex.lee@macaubusinessdaily.com

“W

e have our goals well-defined and we want to expand our activities substantially. That is the reason for us to go to through this restructuring process. Our ambition is to grow 100 percent in the mediumterm”, Jose Morgado, president of Banco Espirito Santo do Oriente (BESOR), said yesterday.

The president explained to Business Daily that the bank’s strategy primarily targets affluent clients. “We aren’t focused on mass market banking as you need large resources and a big share of the

market to succeed. We aren’t as well thinking about high net worth clients, although we have the resources to deal with them. Our strategy was conceived thinking about affluent clients, such as freelance workers or public sector managers”, Mr Morgado said.

During the course of this year BESOR expects to hire around 10 workers to join its back office and commercial teams, he continued, saying, “BESOR currently employs 20 workers but we expect to employ around 30 in the coming months. The bank is also considering opening a

branch in Macau”.

“At this moment we’re working in order to provide better services for Corporate and Private banking.

That’s our approach in Macau”, the BESOR president declared.

“We’re going to launch an Internet banking service so that our clients can process treasury and cash management movements at home or at the office”, Mr. Morgado revealed.

“We are investing as well in a net core system for our computers to provide a better service”.

For BESOR, however, Portuguese-speaking clients are

also very important. “Our group (GBES) has branches in every Portuguese country but GuineaBissau. The relationship between African Portuguese-speaking countries and China has acquired great importance. We are present in South America, mainly in Venezuela, where China has interests in oil. Our strategy is to take advantage of our position so that we can be a bridge for our clients in those countries that want to invest in China”, he explained. “Making good use of our international network will be very important for our growth”.

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May 16, 2014

Macau

Portuguese President (right) with wife and Minister for Foreign Affairs

China willing to ‘explore’ trilateral trade

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his could be another potentially powerful triangle. Not the Bermuda one, but a trilateral cooperation between China, Africa and Latin America.

This would be accomplished with the help of Portugal, according to Chinese viceminister for foreign affairs Wang Chao.

“Portugal is a founding

member of the Community of Portuguese-speaking countries and has traditionally had a significant influence when in countries that speak Portuguese,” Portuguese news agency Lusa quotes Mr Wang as saying, adding that China values its cooperation ties with Portugal and other Portuguesespeaking countries.

He also said that the Forum

for Economic and Trade Cooperation between China and Portuguese-speaking countries, established 10 years ago and known only as Forum Macau, has been a “great platform” for cooperation.

His comments come as Portuguese President Anibal Cavaco Silva wraps up a week-long visit to China, with

stops including Shanghai, Beijing and Macau.

The Portuguese President will be in Macau tomorrow and over the weekend before heading back home to Portugal.

This is Mr Cavaco Silva’s first visit in 20 years, and while here the Portuguese President wishes to visit Macau, he says, before his term in office ends. Mr Cavaco Silva was elected President on January 22, 2006 and re-elected on January 23, 2011 for a second five-year term. On April 13, 1987, the Portuguese President and then-Chinese Premier Zhao Ziyang signed the Joint declaration of the

September visit to China Flying a kite in China pencilled in A business association from Beira Baixa in Portugal is planning to visit China in September

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t’s another Portuguese visit to China, this time by a business association from Beira Baixa region in Portugal. The aim: to establish partnerships mainly in sectors like politics, education and the economy.

The president of the association, Adelino Minhós, is quoted by Portuguese news agency Lusa as saying that the business trip will last eight days, and includes stops in Macau and Zhuhai. The latter is a city with which Castelo Branco already has ties. “We want to make use of this existing relationship,” he said.

According to the president of the business association, all parties involved in the

week-long business trip think the Portuguese region has potential and activities that would fit into the Chinese market.

“We have high quality goods, and while our production may not be high, we need to make the most of the Chinese market,” Mr Minhós is quoted as saying.

The business trip scheduled for September will comprise a delegation of up to 30 businessmen from Portugal, which is already a “very positive” sign, Mr Minhós said.

According to Lusa, the business association from Beira Baixa has up to 1,000 members, covering a wide range of sectors.

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he heads of two Chinese airlines have expressed interest in the privatisation of Portuguese airline TAP. Portuguese President Anibal Cavaco Silva said that his country’s flagship carrier was discussed during a meeting with Chinese businessmen in Shanghai. This is not for the immediate future, however,

the Portuguese President said.

Nonetheless, “the two airlines’ presidents were surprised when we told them of the number of weekly flights between Portugal and Brazil, and said that was worth considering as well as our air links to Angola,” Mr Cavaco Silva said.

According to the Portuguese President, the Portuguese

Government of the People’s Republic of China and The Government of the Republic of Portugal on the question of Macau. The declaration established that Macau was a Chinese territory under Portuguese administration and set December 20, 1999 as the handover date.

This is the first official visit by any Portuguese President to China for practically a decade following President Jorge Sampaio’s visit in 2005.

Cavaco Silva’s trip also coincides with the 35th anniversary of Portugal establishing diplomatic ties with the People’s Republic of China.

minister for economy, Antonio Pires Lima, did not preclude the possibility of the privatisation of TAP, and talks could be held in the future for a consultation on the issue.

Speaking to journalists before leaving for Beijing, Mr Cavaco Silva said he is keen to project Portugal in a “positive light”.

“I’ve come here to do my best to strengthen trade, investment and tourism ties with China. Surely Chinese businessmen will not be interested in investing or visiting a country that is presented to them negatively and with an uncertain future,” the Portuguese President said.

Mr Cavaco Silva also said he considers China to be an important and fundamental market for all European countries, including Portugal.

Before flying from Shanghai to Beijing last night the Portuguese President also told reporters “this [presidential] visit is probably the greatest effort ever made to strengthen our ties with China,” referring to the “strong economic and business dimension” of the week-long trip, which included a delegation of more than 100 Portuguese businessmen.

9

May 16, 2014

Greater China

Aussie mines: new acquisition target The days when Australian mining magnates could dictate terms to Chinese buyers are over

A

string of unsolicited takeover bids this year show that now the commodities boom has cooled, Chinese acquirers are willing to bypass local tycoons and boards to go direct to shareholders.

Underscoring China’s impatience with the pace of development of mines and the opportunity afforded by a slump in Australian resource stocks, the past two weeks alone have seen two US$1 billion unsolicited bids from state-owned firms eager to gain full control over companies they have sizeable stakes in.

And if those firms, Baosteel Resources and Guangdong Rising Assets Management, prove successful, the deals could become the catalyst for more Chinese acquirers to follow suit.

“This may get the wheels turning where other Chinese companies are sitting with big stakes and have an inside track,” said Paul Donnelly, executive director at JPMorgan, who works on metals and mining deals.

Baosteel’s bid for coal and iron ore developer Aquila Resources Ltd is being seen as particularly unfriendly and likely to face stiff opposition. The steel giant made the offer after failing to secure a meeting with Aquila’s executive chairman and 29 percent owner, Tony Poli.

Aquila had no immediate comment on a formal bid document released on Wednesday by Baosteel, which owns 20 percent of the company.

Guangdong Rising’s proposed takeover bid for PanAust Ltd has been rejected by the copper miner as too low, although the Australian firm has agreed to open its books to its biggest shareholder in the hope of securing a better offer.

These bids follow several smaller unsolicited offers, including the successful A$71 million takeover of coal explorer Carabella Resources

by China Kingho Energy Group in February.

The deal was sealed in just two months, with China Kingho going straight to shareholders after failing to win the support of the coal explorer’s

KEY POINTS Two $1 bln unsolicited bids for Australian firms in two weeks Chinese firms frustrated with pace of development of assets Slump in mining stocks, regulatory change helps acquirers

Chinese get impatient with the development of Australian mines

board. It eventually won the board over with a sweetened offer.

Chinese acquirers have certainly had their jobs made easier by a slump in commodity prices that has dragged mining stocks to their lowest levels in nearly five years.

Regulatory change is also set to play its part, with China relaxing outbound takeover rules last month to allow companies making acquisitions below US$1 billion to proceed without seeking approval from the National Development and Reform Commission. The previous threshold for resource companies was capped at US$300 million.

Chinese acquisitions have fallen steeply in both number and value

in recent years, with just US$2.7 billion worth in enterprise value announced last year compared to US$6.2 billion in 2009, according to Thomson Reuters data.

Financial sources say these new unsolicited bids show Chinese firms have become more savvy in chasing Australian acquisitions and more determined to get more out of their assets.

Contrast that with the peak of Asian investment in Australia about five years ago, when iron ore and coal prices were soaring and buyers were willing to pay whatever it took to get their hands on undeveloped assets.

Tycoons like Gina Rinehart, Andrew Forrest, Clive Palmer and Linc Energy’s Peter Bond minted

Think tank sees higher grain output The government stockpiled a record of nearly 70 million tonnes during a scheme ending April

C

hina will post another bumper grains harvest this year, after subsidies and other incentives encouraged farmers to expand acreage

under grains, according to forecasts by an official thinktank published yesterday.

The expected strong harvest has let to a lower estimate for imports amid

a record level of stocks and moderate growth in consumption, said the China National Grain and Oils Information Centre (CNGOIC).

2014/15 (2013/14) - in million tonnes Production Import

Consumption

Corn

222.1 (217.74)

3.5 (5.5)

196.2 (189.13)

Wheat

of which

122.6 (121.7)

3.0 (7.0)

128.75 (129.20)

Winter wheat

117.6 (115.85)

Rice

207.4 (203.29)

5.0 (5.0)

205.98 (202.29)

billions of dollars selling stakes to Chinese and Indian firms in iron ore assets in Western Australia and projects in Queensland’s Galilee Basin, where massive coal deposits have yet to be mined.

“There is a sense of frustration setting in now,” said Viral Gathani, head of energy, resources and infrastructure at CIMB Investment Banking in Hong Kong.

Baosteel, for example, said its takeover bid was prompted by impatience with Aquila in failing to develop the US$7 billion West Pilbara Iron Ore project, which could help open up a new iron ore export region to supply Asian steelmakers.

China is likely to produce a combined 552.14 million tonnes of wheat, corn and rice in 2014/15, up 1.7 percent from last year, while imports of the three grains are expected to fall by 34.3 percent to 11.5 million tonnes, the centre said.

Consumption is expected to grow just 2 percent to 530.93 million tonnes, hurt by slower economic growth and negative margins for pig breeders that are dampening feed production.

China, the world’s top wheat producer and consumer, is expected to produce 122.6 million tonnes of the grain in 2014/15, up 0.7 percent from last year.

Wheat imports for 2014/15 (June/May) are expected to fall to 3 million tonnes, from 7 million tonnes in the current year, the centre said.

China, the world’s second largest corn consumer, is

Reuters

expected to produce a record 222.1 million tonnes of the grain in 2014/15, up 2.0 percent from last year, it said.

Beijing is likely to release its huge corn stocks as early as next week, traders said, after a record purchases by the government tightened supplies in the market.

The government has stockpiled a record of nearly 70 million tonnes during a scheme ending April, said the centre. Beijing does not publish its grain stocks.

The centre also cut the country’s corn import estimate to 3.5 million tonnes for 2014/15 (Oct/Sept) from 5.5 million tonnes estimated for this year.

China has been turning away corn imports from the United States, the world’s largest exporter, after detecting an unapproved genetically-modified strain (GMO).

Reuters

10

May 16, 2014

Greater China

State Council prioritizes services development The central government will ease market access to attract social capital to the industries

C

hina will accelerate the development of productionoriented service industries in a bid to step up industrial restructuring and prop up economic growth.

Priorities will be given to the development of research and design, commercial services, marketing and after-sales services, and will be driven by the market and innovation, according to an executive meeting of the State Council chaired by Premier Li Keqiang on Wednesday.

The move is expected to stimulate domestic demand, boost social employment and improve people’s livelihoods, as well as stabilize economic growth, according to the meeting information.

Wang Jun, deputy director of the China Centre For International Economic Exchanges’ consultancy department, said the move indicated the country has started to tap the potential of industrial restructuring to maintain economic growth, rather than direct stimulus to investment and industry.

It will help improve growth quality and efficiency in the long run, he said.

Zhang Zhiqian, researcher with the Investment Research Institute under China Jianyin Investment, also endorsed the move that seeks impetus

Premier Li Keqiang chaired the State Council meeting

from structural adjustment, as the dependency on expanding investment would lead to serious side effects including overcapacity and environmental issues.

China’s economic growth continued to shrink in the first quarter, as downward pressure still existed.

However, the country’s rapidly-growing service industry has been emerging as a new engine for its slowing

economy.

In the January-March period, China’s tertiary sector increased 7.8 percent year on year to 6.29 trillion yuan (1.02 trillion U.S. dollars), making up 49 percent of the country’s GDP in the first quarter. Its growth pace was also faster than the 3.5 percent of agriculture and 7.3 percent of the industry sector.

According to the meeting, design and application of

new materials, products and techniques will be strengthened. Improvements will be made in information technology and energy saving services, as well as logistics services for manufacturers.

The move will help the sector to move up the value chain, and prompt integrative development of the country’s tertiary, agriculture and industry sectors, was said in the meeting.

“The high-tech production-oriented service industries will accelerate the country’s industrial upgrade and prompt ‘Made in China’ to evolve to ‘Created in China’,” Zhang said.

In addition, financial services for the manufacturing of construction equipment, delivery vehicles and production line will be promoted, while the country will encourage service outsourcing and the nurturing of high-end talents.

The central government will ease market access to attract social capital to the industries, encouraging Chinese enterprises of the sectors to invest overseas and lifting access restrictions gradually for foreign companies on architectural design, accounting audit and commercial logistics.

Enterprises of research and design, inspection and certification, and energy saving will be allowed tax breaks that have been enjoyed by high-tech companies.

In the meeting was said that value-added tax will be promoted to the entire tertiary sector and favourable policies will be introduced to build a sound environment for companies in productionoriented service industries.

In addition, the country

will continue to develop service industries concerning daily life, such as health, elderly care and information consumption, in a bid to improve people’s well-being and build a new engine for healthy economic and social development.

A draft of the Food Safety Law was approved at the meeting, which requires full supervision, stricter punishment, accountability, increased risk monitoring and improved food safety standards.

The draft is still subject to deliberation of the Standing Committee of the National People’s Congress, according to the meeting information.

Xinhua

The high-tech productionoriented service industries will accelerate the country’s industrial upgrade and prompt ‘Made in China’ to evolve to ‘Created in China’” Zhang Zhiqian researcher at Investment Research Institute

Citic Pacific to sell US$5.1 billion stake T

he firm, which is acquiring US$36 billion of assets from its state-owned Chinese parent, agreed to sell US$5.1 billion of shares to investors including the country’s social security fund.

The National Social Security Fund will buy HK$16.8 billion (US$2.2 billion) of shares and China Life Insurance Co. will invest US$500 million, the steelmaker and property developer said in a Hong Kong stock exchange filing on Wednesday. Other investors include the state investment firms of Qatar and Singapore, the filing shows.

Citic Pacific’s transformation comes as Chinese President Xi Jinping advocates the most sweeping changes since Deng Xiaoping’s liberalization in 1978, including loosening yuan trading and allowing more private investments in state businesses.

The deal, which is the biggest asset injection into a Hong Kong-listed unit from China, may become a model for similar moves by governmentcontrolled companies.

“We continue to view the new Citic to be a good proxy for the Chinese economy,” Jefferies Group

LLC analysts Christie Ju and Larry Cho wrote in a report. “We expect minority shareholders to support the acquisition, and expect new Citic to become the largest and potentially the most profitable Chinese conglomerate in the Hong Kong market.”

Citic Pacific, which will be renamed Citic Ltd., is raising funds to pay for the acquisition and restore its public float. The company said last month it will buy assets from parent Citic Group Corp., the country’s first state-owned investment corporation, ranging from financial services to energy and property.

AIA Group Ltd., the secondlargest Asia-based insurer by market value, will buy US$300 million of shares, and a company controlled by Agricultural Bank of China Ltd. will invest US$200 million. An investment arm of Bank of China Ltd., the country’s fourth-largest lender, has committed US$250 million. Taiwan’s CTBC Life Insurance Co. will take HK$808.8 million of stock.

Citic Pacific is selling 2.93 billion shares at HK$13.48 each to 15 investors, according to the filing.

The sale price represents a 3 percent discount to yesterday’s closing price in Hong Kong.

The company said in April it will fund almost 80 percent of its

acquisition by selling about HK$223 billion of new shares to Citic Group.

The remaining HK$63 billion will be paid in cash.

Bloomberg News

11

May 16, 2014

Greater China

Tencent surges as profit beats estimates China Mobile cuts data prices The world’s largest telecom carrier by subscriber base, is slashing prices on 4G mobile data, and other carriers are expected to follow after regulators liberalised telecom prices last week. China’s Ministry of Industry and Information Technology last week said it would allow market forces to determine telecoms tariffs in a move to promote competition. China Mobile’s new pricing plans include a low-cost option of 500M of 4G data for 58 yuan ($9.31) per month, 30 yuan cheaper than the current minimum package. Prices for 2G and 3G plans will also be cut.

CNPC executive investigated for graft China’s top anti-graft body said yesterday it was investigating a former executive at an oil firm owned by state-run China National Petroleum Corp , as the government presses ahead with an anti-corruption campaign targeting the energy sector. Sun Weidong, the former vice-manager of the Yumen Oilfield Company in western Gansu province, is being investigated on suspicion of seriously violating discipline, the Central Commission for Discipline Inspection said in a one-line statement, using the Communist Party term for corruption.

Hsin Chong increases Guangdong development

The firm agreed to pay HK$10.6 billion (US$1.4 billion) for a company with land in China’s Guangdong province that will be developed into a residential and commercial project. Hsin Chong will buy Goleman International Ltd. from a businessman Lin Zhuo Yan, the company said in a statement today. It will pay for the acquisition with HK$3.1 billion in cash and the rest in preference shares priced at HK$1.2 each. The Hong Kong builder is expanding from construction and civil engineering to real-estate development.

Government unveils trade support The Chinese government yesterday announced support for stable growth of foreign trade and job creation. Optimizing the foreign trade structure -including encouraging imports of technology and key parts, maintaining stable growth of goods trade and supporting services trade- is the central issues of a policy document issued by China’s Cabinet, the State Council.

The export tax rebates should be accelerated, and companies are encouraged to merge and acquire foreign brands and production lines to improve their global competitiveness.

Power consumption rises China’s power consumption rose 5.2 percent in the first four months from a year earlier, official data showed yesterday. In April alone, power use, an indicator of economic activity, gained 4.6 percent from a year ago, but much lower than the 7.2 percent in March, according to National Energy Administration. Accordingly, the January-April figure was lower than the 5.4-percent rise in the first quarter. In the first four months, electricity use by the primary industry dropped 4.9 percent year on year to 25.4 billion kwh.

Revenue rose 36 percent from a year earlier to 18.4 billion yuan

A

sia’s largest Internet company, jumped the most in more than two years after first-quarter profit soared because of online game sales and advertising revenue from its WeChat and QQ messaging services.

The Shenzhen-based company jumped as much as 8.95 percent, heading for its biggest gain since October 2011, as stockholders approved a 5-for-1 share split. Net income jumped 60 percent to 6.46 billion yuan (US$1.04 billion) in the three months ended March, helped by one-time gains, beating the 4.86 billion-yuan average of nine analysts’ estimates compiled by Bloomberg.

Tencent is adding services to apps including WeChat, known as Weixin in China, as it competes with Alibaba Group Holding Ltd. and Baidu Inc. Tencent is counting on messaging, e-commerce and games like Blade & Soul and Candy Crush Saga to win a bigger slice of China’s 618 million Internet users as they migrate toward content on their smartphones and tablet computers.

“Tencent has a great advantage in promoting and distributing its mobile games because it has platforms like WeChat that have a huge user base,” Li Yujie, an analyst at RHB Research Institute Sdn. in Hong Kong, said by phone today.

Non-GAAP profit rose 29 percent to 5.19 billion yuan and provided a better picture of the quarter’s performance, President Martin Lau said on a conference call yesterday.

China ramps up support for exporters Banks would be encouraged to expand their services for the trade sector

C

hina is increasing its support for its wobbly trade sector with a raft of new measures that include giving more tax breaks, credit insurance and currency hedging options to its exporters.

In a statement titled “stabilising trade growth”, the government said China needs to ensure its trade sector grows at a stable rate while developing its services trade industry.

The support measures, which ranged from increasing financing channels for the trade industry to a reiteration of plans to keep the yuan stable, underscore the importance of a sector that plays a key -albeit diminishing- role in China’s economy.

To help exporters, the government said on its website that the size of tax rebates would also be raised for

Tencent headquarters in Shenzhen

“In terms of monetization around Weixin platform and mobile QQ platform, the successful launch of mobile games is actually a big achievement,” Lau said. “We’ve proved that a good mobile platform that provides a lot of user interaction, that captures a lot of usage, will have a lot of monetization potential.”

Revenue rose 36 percent from a year earlier to 18.4 billion yuan, the company reported yesterday. Online game revenue increased to 10.4 billion yuan, and online advertising revenue rose 38 percent to 1.17 billion yuan.

poorer regions, and that the scale and coverage of export credit insurance would also be increased.

Banks would be encouraged to expand their services for the trade sector, which include developing more currency hedging products that can be sold to companies to help contain their foreign exchange risks.

To that end, the government repeated that it would let market forces have more sway over the yuan’s value while increasing the currency’s flexibility - both of which would allow China to keep the yuan “basically stable” at a reasonable level.

The yuan is a perennial lighting rod issue between China and its trade partners, which has in the past accused Beijing of deliberately holding down the currency to lift Chinese export sales. China has always denied these accusations.

U.S. Treasury Secretary Jack Lew, who was in Beijing this week, honed in on the yuan’s 3 percent decline this year by urging China to be more transparent in its currency policy and let market forces have more influence over the yuan’s value.

Hurt by unsteady foreign demand and a rising yuan, China’s monthly average export growth last year was about a quarter of the 35 percent seen a decade ago. As a result, the sector was a drag on the world’s secondlargest economy in 2013, with net exports detracting 4.4 percent from overall growth.

The latest document from the Chinese cabinet was originally drafted on May 4 but only made public yesterday.

Reuters

Mobile-phone game revenue tripled from the previous quarter to 1.8 billion yuan, according to the filing.

Tencent has introduced 18 games for Google Inc.’s Android operating system and 16 games for Apple Inc.’s iOS, including GunZ Dash, Piyush Mubayi, an analyst at Goldman Sachs Group Inc. in Hong Kong, wrote in a May 9 report.

‘Mid-core games’ “We see the potential to add more mid-core games and also over time to start introducing some of the harder core titles that are popular in Korea and Japan,” James Mitchell, chief strategy officer at Tencent, said on the call.

Mid-core games refer to titles that attract users to play for a longer duration of time and spend more money, Mitchell said.

The company’s open platform shared 5 billion yuan in revenue with developers, Dowson Tong, president of the social network group, said at a conference in Beijing on May 10.

Tencent’s social-network business that includes products like QZone, a platform that allows users to write blogs and upload photos, helped generate revenue of 4 billion yuan. Qzone’s mobile-device monthly active users reached 467 million in the first quarter.

“The vision for us around the two social mobile platforms is to connect people with various things,” Lau said, referring to QQ and WeChat.

He added the connections included people, content and offline services.

WeChat, QQ The company’s stockholders approved a proposal to split each share into five as the company tries to boost holdings by individuals. The Hong Kong market requires investors to buy shares in multiples of 100.

The company also recorded onetime gains through a transfer of its e-commerce businesses to JD.com and its sale of shares in ChinaVision Media Group Ltd. QQ, which had about 848 million monthly active users at the end of March, caters to people looking for entertainment content, usually in second- and third-tier cities. WeChat, which has about 396 million monthly active users, is geared toward white-collar consumers.

Bloomberg News

12

May 16, 2014

Asia

Japan Q1 growth speeds up

Australia vehicle sales flat

The data showed also that Japan’s economy expanded for a sixth consecutive quarter

Sales of new motor vehicles in Australia were flat in April, data showed yesterday. Figures from the Australian Bureau of Statistics showed new vehicle sales at a seasonally adjusted 92,156 in April. Sales were down 1.9 percent on April last year. Sales for sports utilities eased 0.3 percent, while passenger vehicles rose 0.8 percent. Those of other vehicles fell 1.7 percent.

E

conomy grew in the JanuaryMarch quarter at the fastest pace in more than two years as consumers rushed to spend before a sales-tax hike and business investment rose in a sign of confidence in the prospects for future growth.

The 5.9 percent annualised expansion in the first quarter handily beat expectations of 4.2 percent growth in a Reuters poll of economists.

It was the fastest expansion since 10.8 percent annualised growth in the third quarter of 2011, when the country was recovering from a record earthquake and nuclear disaster.

Capital expenditure also rose at the fastest pace in more than two years, suggesting the economy could quickly recover from an expected slowdown in consumer spending after the tax hike as business investment tends to spur job creation and higher salaries.

“We expect the economy will contract at an annualised rate of around 5 percent for April-June but will likely grow around the 2 percent level for July-September,” said Taro Saito, senior economist at NLI Research Institute.

“The economy is expected to return to moderate growth after a temporary pullback, which is largely in line with the Bank of Japan’s scenario. It is hard to consider the BOJ will ease judging from an economic growth and price increase perspective.”

Japan’s economic growth blew past that of the United States,

Nippon firms smoothly passing on tax hike costs

which expanded by an annualised 0.1 percent in the same quarter as severe winter weather hurt business investment and exports in the world’s largest economy.

The data showed also that Japan’s economy expanded for a sixth consecutive quarter, which could ease worries about demand after the April 1 tax hike.

On a quarter-on-quarter basis, Japan’s economy grew 1.5

percent in January-March, more than the median estimate for 1.0 percent growth.

Private consumption, which makes up about 60 percent of the economy, rose 2.1 percent from the previous quarter, matching the median estimate.

That matched a high last seen in the first quarter of 1997, just before the last increase in the sales tax.

Reuters

Bank of Japan Governor Haruhiko Kuroda said yesterday companies are making progress in translating the cost of April’s sales tax hike to consumers. “Upward pressure on nominal wages is steadily increasing,” Kuroda told a parliament committee, adding that heightening medium- to long-term inflation expectations are starting to affect wages and prices.

Olam Q3 profit jumps Commodities trading firm Olam International Ltd said its profit for the quarter ended March 31 more than tripled on a year earlier due to exceptional gains. Olam reported a profit after taxes and minority interests (PATMI) of S$396.1 million (US$316.9 million) for the third quarter of financial year 2014, up from S$108.5 million a year earlier, boosted by S$293.9 million in exceptional gains. Operational PATMI fell 16 percent to S$102.2 million for the third quarter, while revenue rose 2.5 percent on a year earlier, the company said in a statement.

Australian tycoon attempts comeback in coal

Hyundai Motor Union demands higher wages

Just a year ago Tinkler was forced to give up his stake in Whitehaven Coal Ltd, the biggest source of his wealth, to pay off creditors

Hyundai Motor Co’s South Korean labour union has demanded higher pay and bonuses and more cuts to working hours, as the automaker heads into annual wage talks in June under the threat of industrial action. Any strike action in South Korea -which makes nearly 40 percent of Hyundai vehicles sold globally- could disrupt supply around the world as the company fights to reverse a fall in profits linked to the stronger won and competition from the likes of Volkswagen AG.

T

he coal price slump that brought Australian tycoon Nathan Tinkler down last year has also sown the seeds for his comeback, with the former electrician snapping up a closed coal mine from Peabody Energy for next to nothing.

Tinkler’s Singapore-based firm Bentley Resources agreed to buy the Wilkie Creek mine from Peabody for US$70 million in cash, plus the assumption of US$60 million in various obligations and liabilities, in a deal announced on Tuesday.

The sale came as a surprise to bankers and analysts, who knew that Peabody had wanted well over US$500 million for the mine when it was put on the block two years ago.

After failing to attract a buyer,

Peabody closed Wilkie Creek in December 2013, blaming weak coal prices, high costs and the impact of Australia’s carbon tax, which the current government aims to repeal.

A Peabody spokesman was not immediately available for comment after hours in the United States.

Just a year ago Tinkler was forced to give up his stake in Whitehaven Coal Ltd, the biggest source of his wealth, to pay off creditors, and sell his prized horse farm and Aston Metals business.

“I was shocked Nathan’s back. It’s extraordinary. But he’s a businessman.

He’s made plenty of money from making calls that other people haven’t in the past,” said Lawrence Grech, senior resources analyst at broker

Octa Phillip.

Tinkler, now 38, was a pit electrician when he made his first big bet on coal, buying an unloved project for A$15 million in 2006.

Within two years he had minted a profit of more than A$625 million on the deal and went on to buy another project, Maules Creek.

Riding a China-driven coal boom, his fortunes peaked in 2012, with the US$5 billion merger of his Aston Resources and Boardwalk Resources with Whitehaven Coal.

“He’s not just lucky. He worked really hard. But he pushed the envelope in terms of risk,” said Andrew Harrington, who runs the coal consultancy Indexys.

Reuters

SingTel profit misses expectations Singapore Telecommunications Ltd’s fourthquarter net profit climbed 4 percent from a year earlier but came in shy of analysts’ expectations, hurt by unfavourable exchange rates and a lacklustre performance from its group enterprise business. Southeast Asia’s largest telecommunications operator said net profit was S$898 million (US$720 million) in the January-March quarter, missing an average forecast of S$968 million from five analysts polled by Reuters. It was a modest climb from a weak result in the same period a year earlier, when the company was hit by a one-time loss from the sale of its stake in a Pakistan’s Warid.

editorial council Paulo A. Azevedo, José I. Duarte, Mandy Kuok Founder & Publisher Paulo A. Azevedo | pazevedo@macaubusinessdaily.com Newsdesk Alex Lee, Luciana Leitão, Michael Armstrong, Sara Farr, Stephanie Lai, Tony Lai International editor Óscar Guijarro GROUP SENIOR ANALYST José I. Duarte Brands & Trends Raquel Dias Creative Director José Manuel Cardoso WEB & IT Janne Louhikari interns Cynthia Wong, Yvonne Wong Contributors James Chu, João Francisco Pinto, José Carlos Matias, Larry So, Pedro Cortés, Ricardo Siu, Rose N. Lai, Zen Udani Photography Carmo Correia, Manuel Cardoso Assistant to the publisher Laurentina da Silva | ltinas@macaubusinessdaily.com office manager Elsa Vong | elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd.

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13

May 16, 2014

Asia

The dark side of Abenomics A broad recovery in consumption, a key ingredient of Abenomics, may not last if more and more households struggle to hold above the poverty line

L

ast Christmas Eve, Ririko Saito and her 11-year-old daughter gathered some plastic bottles, pots and a kettle and made several trips to a nearby park to get water.

Their utility had just turned off the tap after months of unpaid bills.

“I was going to take care of it as soon as I got my pay check in a few days,” the 49-year-old single mother said. “I figured they wouldn’t be so callous to cut us off at that time of year. I figured wrong.”

Saito, who works part-time caring for the elderly in a Tokyo hospital and gets welfare to supplement her salary, represents a growing army of poor in a nation that continues to pride itself on being an egalitarian society despite a decades-long rise in poverty.

At 16 percent, Japan’s relative poverty rate - the share of the population living on less than half of the national median income - is already the sixth-worst among the 34 OECD countries, just ahead of the United States. Child poverty in working, single-parent households like Saito’s is by far the worst at over 50 percent, making Japan the only country where having a job does not reduce the poverty rate for that group.

As Prime Minister Shinzo Abe

charges ahead with his “Abenomics” policies to revive economic growth, things look set to get harder, not better, for Japan’s down-and-out.

Having ramped up spending on public works and business incentives, the government has also moved to shore up its finances, cutting welfare benefits last summer and last month raising the national sales tax to 8 percent from 5 percent.

The regressive tax puts the biggest burden on the poor and another increase to 10 percent is planned for October 2015.

Team Abe’s success in reversing 15 years of price declines that have hurt business confidence and investment also squeezes the poor, who cannot count on bonuses or financial profits to offset rising living costs.

Japanese companies are supposed to be creating value-added jobs, but at this pace there won’t be enough people to fill those positions Makoto Saito Economist at NLI Research Institute

Trickle down The government says it plans more aid for welfare recipients, largely through job training. That, however, is little consolation because even those with jobs often live under the poverty line. The government does not officially define the “working poor”, but the number of part-time, temporary and other non-regular workers who typically make less than

half the average pay has jumped 70 percent from 1997 to 19.7 million today - 38 percent of the labour force.

“The Abe administration’s stance is more about fixing things, including poverty, with a trickle-down effect

from overall economic growth,” said Takashi Oshio, a professor at Hitotsubashi University specialising in social security. “There’s little political capital spent on issues like alleviating child poverty. It doesn’t garner votes.”

Cases like Saito’s suggest benefits of growth pickup over the past year do not spread to all, and experts warn that a deepening divide between the haves and havenots could threaten Abe’s vision of Japan’s economic revival.

A broad recovery in consumption, a key ingredient of Abenomics, may not last if more and more households struggle to hold above the poverty line, some economists say.

In the longer run, problems associated with poverty such as worse access to quality education, poor health and crime could increase fiscal burdens and dent Japan’s growth potential by shrinking the pool of skilled workers.

“Rising poverty leads to a wider gap in education,” said Makoto Saito, an economist at NLI Research Institute. “Japanese companies are supposed to be creating value-added jobs, but at this pace there won’t be enough people to fill those positions.”

Reuters

NZ delivers mild budget New Zealand’s economy has grown ahead of most developed countries because of strong commodity prices, particularly for dairy products

N

ew Zealand’s government resisted the urge for an election-year spend-up in its annual budget yesterday, forecasting its first surplus in seven years and only a modest injection in fiscal stimulus despite a robust lift in revenue from the strongly growing economy.

Finance Minister Bill English said the centre-right government would not jeopardise the return to budget surpluses after six years of deficits nor put pressure on interest rates by opening its coffers too wide.

“It is a positive and forward looking budget that reflects the fact that New Zealand is among the first developed countries to achieve a return to normal economic settings,” English told reporters.

“It is one of a handful of developed countries to have ahead of them the prospect of sustained government surpluses and balanced government books.”

The budget forecast an improved surplus of NZ$372 million (US$321.95 million) for the year to June 2015, up from NZ$86 million forecast last December, with surpluses rising to NZ$3.5 billion by 2017.

The official forecasts for economic growth were also raised to 4 percent in 2014/15 from its December forecast of 3.6 percent, easing to 2.1 percent in 2017 and 2018.

Financial markets were unmoved by the document.

Analysts said the budget was

credible and appropriate with the economy growing so strongly.

“This is not a stimulatory, votebuying stunt at all, it’s very, very conservative,” said Bank of New Zealand head of research Stephen Toplis.

New Zealand’s economy has grown ahead of most developed countries because of strong commodity prices, particularly for dairy products, the rebuild of earthquake damaged Christchurch, and improved domestic activity.

The New Zealand budget was in stark contrast to neighbouring Australia, which earlier this week forecast a period of substantial deficits, along with spending cuts, and extra levies.

But English said new spending

KEY POINTS NZ forecasts 1st budget surplus in seven years NZ govt ups forecasts future surpluses/growth NZ govt keeps lid on new spending to keep pressure off rates NZ to borrow slightly more 2015-18, but start repaying debt

Bank of New Zealand researchers said the budget is over conservative

would only be raised to NZ$1.5 billion next year, and by 2 percent in later years, which would keep the pressure off interest rates and leave options open for the future.

“This is a moderate increase that will provide the Government with future options around investment in public services and modest tax reductions.”

The government said it planned to borrow NZ$3 billion more than previously expected over the next four years because of increased cash requirements, but would start repaying debt in 2017/18 and was committed to getting net debt down to 20 percent of GDP by 2020.

The budget kept to a previouslyimposed limit of NZ$1 billion on new spending, with extra money to be spent on defence, subsidies for parental leave, health, housing and education programmes.

The government also said the duties and tariffs on many imported building products would be cut to help lower the costs of building new houses.

However, there were no major spending promises, which are likely to be unveiled closer to the September election.

Standard & Poor’s said the New Zealand government’s proposed budget for 2014/15 will have no immediate effect on the nation’s AA ratings and outlook.

“The government remains on track to meeting its target of an operating surplus in fiscal 2015. This should further improve the government’s fiscal balance”, it said, seeing net debt to peak at less than 30 percent of GDP. Ratings agency Moody’s said that New Zealand’s annual budget showed the government was returning to a budget surplus as promised, which was positive for the country’s prized triple-A sovereign rating.

“The surplus is relatively small, but it’s still a surplus and so the government is living up to its commitment,” Moody’s senior vice president Steven Hess told Reuters by phone from New York.

Reuters

14

May 16, 2014

International

Rwanda: fast economy, strong bonds

French economy flat

Land-locked country called ‘the Singapore of Africa’

Paul Kagame in the World Economic Forum

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ourteen years of Rwanda rule

by Paul Kagame, whose forces ended the 1994 genocide that killed at least 800,000 people, is rewarding bond investors with record low yields amid the fastest economic growth in East Africa.

Growth in the landlocked nation will reach 7.5 percent this year, up from 5 percent in 2013 and versus 5.4 percent for all of sub-Saharan Africa, the International Monetary Fund said last month. Rwanda’s first dollar bonds, sold in April last year, returned 9.3 percent since December 31, compared with 6.6 percent for emerging-market peers, according to Bloomberg indexes.

President Kagame, 56, who said in January he may return to markets this year to borrow about US$1 billion, is building roads and Internet connections, tackling corruption and making it easier to start businesses.

Foreign aid has resumed after some donors withheld funds in 2012 following allegations by the United Nations, denied by the government, that the country was backing rebels in

neighbouring Democratic Republic of Congo. Germany pledged 18 million euros (US$25 million) in November.

“Rwanda is a sound macroeconomic story and that is why the bond has done so well,” Rune Hejrskov, who helps oversee US$1.4 billion in emerging-market debt at Jyske Bank A/S, including the nation’s bonds, said by phone from Silkeborg, Denmark, May 13. Progress includes “government reforms, a reduction in crime, improving infrastructure,” he said. “In house, we call it the Singapore of Africa.”

IFC bonds Singapore’s gross domestic product per capita rose to US$52,052 in 2012, up from US$16,099 two decades earlier, according to the World Bank. The island of more than 5 million people, which became independent from Malaysia in 1965, tops the lender’s ranking for ease of doing business. Rwanda is the best in Africa after Mauritius.

The International Finance Corp.

is offering as much as 15 billion Rwandan francs (US$22 million) of five-year notes with so- called book building ending today, according to Standard Bank Group Ltd., one of the arrangers. The nation of 12 million people plans to tap international debt markets when the government has projects ready to absorb the financing, Finance Ministry Permanent Secretary Kampeta Pitchette Sayinzoga said April 25.

She didn’t respond to an e-mailed request for comment on May 13 and calls made to the ministry in Kigali didn’t connect. Foreign Minister Louise Mushikiwabo, who acts as government spokeswoman, didn’t answer a call to her mobile phone yesterday.

“The main risk still remains with aid partners,” Phumelele Mbiyo, the regional head of macroeconomic research at Standard Bank’s Kenyan unit, said by phone from Nairobi on May 13. “Their continued provision of aid remains crucial for the economy.”

Rwanda has made doing business easier in nation by streamlining bureaucracy and tackling publicsector corruption, Sarah Tzinieris, principal Africa analyst at Bath, U.K.-based risk analysis company Maplecroft, said in an e-mailed response to questions May 13.

“Rwanda’s economy is also more diversified than most others issuing Eurobonds in sub-Saharan Africa,” she said. “This enables investors to diversify their portfolios.”

The country is rated B by Standard & Poor’s and Fitch Ratings, or five levels below investment grade.

Rwanda would be able to sell a second bond “at a slightly lower coupon,” Christian Mejrup, a money manager at Global Evolution A/S, which oversees US$2.1 billion, said by phone from Kolding, Denmark, on May 12. “It would be possible for Rwanda to issue a new Eurobond in the area of 6 percent to 6.25 percent.”

Bloomberg News

Pemex worried as Mexico debates energy laws Pemex’s output fell 2.1 percent in the first quarter from a year ago

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etroleos Mexicanos will probably struggle to maintain current oil production as the country’s Congress debates additional legislation to a landmark energy bill passed last year.

Pemex, as the state-owned oil producer is known, is experiencing output declines at its two largest offshore fields and will be challenged to maintain current production levels, Lourdes Melgar, Mexico’s deputy energy minister, said on Wednesday in an interview at her Mexico City office. Chicontepec, the onshore field northeast of Mexico City, is producing 50,000 barrels per day, 8 percent of the output forecast by Pemex for 2014, she said.

“Many fields are arriving at a point of maturation and declines,” Melgar said. “Not only Cantarell is declining, but also Ku-Maloob-Zaap reached its peak and is falling. The numbers

we are currently seeing in production and reserves are proving the urgent need that Mexico has to carry out an energy reform.”

Pemex’s output fell 2.1 percent in the first quarter from a year ago, reaching its lowest monthly production levels in more than 18 years in March.

The world’s ninth-largest oil producer is banking that the new energy law, which allows for private investment in Mexico’s oil industry for the first time since 1938, will boost output to 3 million barrels per day by 2018 and end nine years of production declines.

After missing a mid-April deadline to implement the secondary legislation, Mexico’s Congress is racing to push through the rules needed to offer companies production sharing and license contracts by early next year. Secondary legislation to the law proposed to Congress on April 30 may be approved by June,

according to legislators from President Enrique Peña Nieto’s Institutional Revolutionary Party, or PRI. Pemex produced 2.48 million barrels per day in April, below the company’s 2.5 million barrels forecast this year.

Oil production might fall after the entrance of foreign producers, according to Víctor Rodríguez, adviser to Pemex board member Fluvio Ruiz. Pemex’s ability to maintain current output and the capacity of incoming companies to produce quickly presents a “double challenge” for Mexico, he said.

“There’s a risk that production, instead of rising, will fall during the first few years,” Rodríguez said in an interview in Cartagena, Colombia.

“If Pemex doesn’t have enough money, its production is going to fall while the private sector increases little by little.”

Bloomberg News

Weak consumer spending and business investment brought the French economy to a standstill in the first quarter of the year, casting doubt on the government’s annual growth forecast and its pledges to meet EU deficit targets. The flat reading missed analyst expectations and highlighted the diverging paths of the euro zone’s two largest economies as European powerhouse economy Germany yesterday posted 0.8 percent growth in the first quarter. France will now need 0.5 percent growth each quarter to meet a government forecast of 1 percent growth for 2014.

Dixons and Carphone agree merger Britain’s Carphone Warehouse and Dixons Retail have agreed a 3.8 billion pounds (US$6.38 billion) all-share merger, creating a powerful pan-European mobile phone and electrical group with about 2,900 stores. Carphone, Europe’s biggest independent mobile phone retailer, and Dixons, Europe’s No. 2 electrical retailer, said yesterday the deal would be implemented by way of a scheme of arrangement of Dixons. The merger would result in each of Dixons’ and Carphone’s shareholders holding 50 percent of a group to be called Dixons Carphone Plc, which will likely find a place in Britain’s FTSE 100 index of leading companies.

Mozambique GDP affected by infrastructure Mozambique’s 10% GDP leap in public deficit this year is mainly due to investments on coal and natural gas infrastructures, rating agency Moody’s said. Its ‘Sovereign Outlook: Sub-Saharan Africa’ said, “Mozambique’s expanding deficit is driven by greater expenses to improve infrastructure to allow the country’s oil and gas industries to flourish”. Moody’s said that “costs with ambitious infrastructure policies represent a significant stimulus for short-term expansion, and present medium-term potential productivity and efficiency gains that boost growth possibilities

Pfizer ignores EU antitrust on bid U.S. drug maker Pfizer, which has made a US$106 billion bid approach to British peer AstraZeneca, has not discussed the proposed deal with European Union regulators, the region’s antitrust chief said yesterday.

Pfizer is seeking to acquire Britain’s second-biggest drug maker and may have to sweeten its offer after AstraZeneca rejected the bid. Companies increasingly engage in informal discussions with competition authorities even before closing a takeover deal in order to gauge possible regulatory concerns and concessions required to allay these.

15

May 16, 2014

Opinion Business

Piketty and the zeitgeist

Leading reports from Asia’s best business newspapers

Dani Rodrik

wires

Professor of Social Science at the Institute for Advanced Study, Princeton, New Jersey

BANGKOK POST Thailand’s economy is in danger of contracting in the first and second quarters and continuing its sluggish trend for another two or three years due to the political impasse, warns a former Bank of Thailand chairman.

Virabongsa Ramangkura, a former deputy prime minister and central bank chairman, said polarised politics and refusal to adhere to the constitution and rule of law have formed the basis of the economic slowdown. “If we continue to fight like this and there is an absence of political stability, then the economy will slow down gradually and collapse,” he said.

PHILSTAR Robust sales from its various township projects lifted the first quarter earnings of Megaworld Corp., the flagship property unit of tycoon Andrew L. Tan. In a statement, Megaworld said profits surged more than half to P2.69 billion, inclusive of a P604-million non-recurring gain, in the January to March period from P1.81 billion, a year earlier. It attributed the growth to “strong residential sales in its various townships, particularly in Newport City, Uptown Bonifacio, McKinley Hill and Eastwood City; and higher leasing income from its office and retail portfolio.”

THE STRAITs TIMES A booming marine industry sent shipbuilder Nam Cheong’s first-quarter net profit soaring 99 per cent over a year ago to 71.1 million ringgit (S$27.6 million). Revenue also surged 74 per cent in the period to 407.3 million ringgit as the group delivered more vessels during the quarter. “We are in the throes of a booming offshore marine upcycle, as evident by our win of seven vessels worth over US$110 million to date,” said the group’s executive chairman Datuk Tiong Su Kouk. He added that the group has a healthy order book of 1.4 billion through to 2016.

THANH NIEN NEWS China has remained the largest importer of Vietnamese rice since last year, raising concerns among local traders about price squeezing and sudden contract cancellations, experts say. Meanwhile, Vietnam has lost a significant amount of the global market share to Thailand, leaving it heavily reliant on China which took 60 percent of exports in April, according to the Vietnam Food Association (VFA). China is forecast to remain Vietnam’s biggest customer in the coming months due to its increasing demand for the grain. Local traders are boosting their exports northwards.

French economist Thomas Piketty at the reading for his book Capital in the Twenty-First Century, on 18 April 2014 at the Harvard Book Store in Cambridge, Massachusetts, U.S.A.

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RINCETON – I get the same question these days wherever I go and from whomever I meet: What do you think of Thomas Piketty? It’s really two questions in one: What do you think of Piketty the book, and what do you think of Piketty the phenomenon?

The first question is much easier to answer. By sheer luck, I was among the earliest readers of the Englishlanguage version of Capital in the Twenty-First Century.

Piketty’s publisher, Harvard University Press, had sent me the pre-publication galleys, hoping that I would contribute a blurb for the back cover. I did so happily, as I found the scope, depth, and ambition of the book impressive.

I was of course familiar with Piketty’s empirical work on income distribution, carried out jointly with Emmanuel Saez, Anthony Atkinson, and others. This research had already produced startling new findings on the rise of the incomes of the super-rich.

It had shown that inequality in many advanced economies has reached levels not seen since the early part of the twentieth century. It was a tour de force on its own.

But the book goes far beyond the empirical work, and narrates an intriguing cautionary tale about the dynamics of wealth under capitalism. Piketty warns us not to be fooled by the apparent stability and prosperity that was the common experience of the advanced economies during a few decades in the second half of the twentieth century. In his story, it is the un-equalizing, destabilizing forces that may be dominant within capitalism.

Perhaps more than the argument itself, what makes Capital in the Twenty-First Century a great read is the sense of witnessing a superb

mind grapple with the big questions of our time. Piketty’s emphasis on the political nature of the distribution of income; his subtle back-andforth between the general laws of capitalism and the role played by contingency; and his willingness to offer bold (if, to many, impractical) remedies to save capitalism from itself are as refreshing as they are rare for an economist.

So I would have liked to claim that I was prescient in foreseeing the huge academic and popular success that the book would have upon publication. In truth, the book’s reception has been a big surprise.

For one thing, the book is hardly an easy read. It is almost 700 pages long (including the notes), and, though Piketty does not spend much time on formal theory, he is not beyond sprinkling an occasional equation or Greek letters throughout the text.

Reviewers have made much of Piketty’s references to Honoré de Balzac and Jane Austen; yet the fact is that the reader will encounter mainly an economist’s dry prose and statistics, while the literary allusions are few and far between.

The economics profession’s response has not been uniformly positive. The book’s argument revolves around a number of accounting identities that relate saving, growth, and the return to capital to the distribution of wealth in a society. Piketty is very good at bringing these abstract relations to life by hanging real numbers on them and tracing their evolution over history. Nevertheless, these are relationships that are well known to economists.

Piketty’s pessimistic prognosis rests on a slight extension of this accounting framework.

Under plausible assumptions –namely that the wealthy

Piketty warns us not to be fooled by the apparent stability and prosperity that was the common experience of the advanced economies during a few decades in the second half of the twentieth century.

In his story, it is the un-equalizing, destabilizing forces that may be dominant within capitalism

save enough– the ratio of inherited wealth to income (or wages) continues to increase as long as r, the average rate of return to capital, exceeds g, the growth rate of the economy as a whole. Piketty argues that this has been the historical norm, except during the tumultuous first half of the twentieth century. If that is what the future looks like, we are facing a dystopia in which inequality will rise to levels never before experienced.

Yet extrapolation is dangerous in economics, and the evidence that Piketty adduces to support his argument is

hardly conclusive. As many have argued, the return to capital, r, may well start to decline if the economy becomes too rich in capital relative to labour and other resources and the rate of innovation slows down.

Alternatively, as others have pointed out, the global economy may pick up speed, buoyed by developments in the emerging and developing world. Piketty’s vision needs to be taken seriously, but it is hardly an iron law.

Perhaps the source of the book’s success should be sought in the zeitgeist. It is difficult to believe that it would have had the same impact ten or even five years ago, in the immediate aftermath of the global financial crisis, even though identical arguments and evidence could have been marshalled then. Unease about growing inequality has been building up for quite some time in the United States.

Middle-class incomes have continued to stagnate or decline, despite the economy’s recovery. It appears that it is now acceptable to talk about inequality in America as the central issue facing the country. This might explain why Piketty’s book has received greater attention in the US than in his native France.

Capital in the TwentyFirst Century has reignited economists’ interest in the dynamics of wealth and its distribution – a topic that preoccupied classical economists such as Adam Smith, David Ricardo and Karl Marx. It has brought to public debate crucial empirical detail and a simple but useful analytical framework.

Whatever the reasons for its success, it has already made an undeniable contribution both to the economics profession and to public discourse.

The Project Syndicate 2014

16

May 16, 2014

Closing Family size getting smaller

Ukraine will not pay for gas

The number of people in a Chinese family home is getting smaller, with single-person households on the rise, according to an official report on family development. The average number of family members in a home declined to 3.02 in 2012 from 5.3 in the 1950s as a result of low birth rates, late marriage and population migration, said the report published by the National Health and Family Planning Commission. The figures were 3.96 and 3.10 for 1990 and 2010, respectively. China’s family planning policy was first introduced in the late 1970s.

Russia sees no possibility of Ukraine paying for its gas supplies even if it is granted discounts because of the country’s economic situation, Russian Energy Minister Alexander Novak said yesterday. “We even do not have guarantees that even if the price was set at US$100 (per 1,000 cubic metres). I fantasize that the Ukrainian side can pay these prices because there (in Ukraine) is complete insolvency at the moment,” he told journalists on the side-lines of an energy conference. Russia is currently asking Ukraine to pay US$485 per 1,000 cubic metres.

Universal Entertainment probe panel disbands The panel completed a report last June which concluded there was no evidence of bribery but cited governance problems at Universal

FBI (headquarters pictured) has been investigating Universal Entertainment payments in Philippines

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panel of outside experts convened by Japan’s Universal Entertainment Corp to investigate US$40 million in payments related to its Philippine casino project said it was disbanding after the company failed to disclose their findings to the public.

The four-person panel, headed by a former high-

ranking police official, said in a brief statement distributed to reporters in Tokyo that it would disband indefinitely because Universal had not made public an interim report submitted to the company in March. It did not elaborate.

Universal, which makes Japanese pachi-slot gambling machines, did not respond to a request for comment on

the matter.

The U.S. Federal Bureau of Investigation, the Nevada gaming regulator and the Philippine government have been probing whether the US$40 million in payments made by affiliates of Universal in 2010 were bribes to advance a US$2 billion casino it is building on Manila Bay. Universal has denied

such allegations and has said it conducted its business lawfully in the Philippines.

The Japanese company, controlled by billionaire Kazuo Okada, initially convened the panel of experts in January of last year to investigate the payments.

The company said the probe would be handled by people with no conflicts of interest with the company, in line with guidelines set by Japan’s Federation of Bar Associations. Those guidelines state that, in principle, the findings of such investigations should be disclosed to stakeholders without delay.

The panel completed a report last June which concluded there was no evidence of bribery but cited governance problems at Universal and noted that a senior executive still with the company had altered a document used to justify the payments after the fact in 2012.

In August, Universal announced the panel would add a fourth member and further investigate the responsibility of those involved in the payments.

The company has not made any disclosure in relation to the panel’s investigation since that time.

The panel is chaired

by Yoshiyuki Kaneshige, a former Japanese police official who now runs a management consultancy.

The other three members are lawyers: Teruki Uchida, a former deputy president of the Osaka Securities Exchange, Takujiro Hamada, an ex finance ministry official, and Atsushi Iritani.

None of the four men were available for immediate comment.

The US$40 million being investigated was paid to two companies controlled by Rodolfo Soriano, a consultant with close ties to the then head of the Philippine casino regulator, records reviewed

by Reuters show.

Universal sued three former employees in November 2012, alleging they transmitted US$10 million of the payments without proper authorisation. All three men, including one who was sued for another US$5 million related to the Philippine project, are contesting those claims in court, saying they were carrying out orders from Okada.

The company has yet to determine how the bulk of the payments was used.

Universal has filed a defamation lawsuit against Reuters in Tokyo for its reporting on the payments.

A Reuters spokesman said the company stands by its reporting on the matter.

Reuters

Eurozone 1Q growth falls short

China’s logistics growth to slow

Xiaomi unveils tablet challenging Apple-Samsung

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C

T

he eurozone economy grew much slower than expected in the first quarter of 2014, official data showed Thursday, while fourth-quarter performance was revised down, stoking concerns the recovery is struggling.

Eurostat said the 18-nation eurozone grew 0.2 percent in the three months to March, short of analyst forecasts for 0.4 percent, while the fourth quarter of 2013 was cut to 0.2 percent from the initial estimate of 0.3 percent.

Figures earlier yesterday showed the German economy, Europe’s biggest, beat estimates with a first quarter gain of 0.8 percent, but faltering France fell back further, with no growth at all.

Analysts said the currency bloc’s first-quarter outcome was disappointing and increases the likelihood the European Central Bank will have to take more measures to stimulate growth when it next meets in June.

AFP

hina’s logistics industry will grow at a slower pace this year, following a period of industrial restructuring and weak economic growth, according to a report released on Thursday.

The total value of social logistics goods will expand by 9 percent year on year in 2014 from 197.8 trillion yuan’s (about US$32 trillion) worth of goods circulated last year, said a report released by the China Federation of Logistics and Purchasing and the China Society of Logistics.

The expected growth will be 0.5 percentage points lower than that seen last year.

As the Chinese economy grew 7.4 percent year on year in the first quarter of 2014, the logistics industry also lost steam, expanding by only 8.6 percent to 47.8 trillion yuan.

Driven by the boom in e-commerce, express and warehouse services have outpaced shipments by roads, rivers and the sea, the report said.

Xinhua

he smartphone maker valued at US$10 billion will release a tablet computer next month as the Chinese company escalates its competition with Apple Inc. and Samsung Electronics Co. The device will have a 7.9-inch screen -same as the iPad mini- and use a Nvidia Corp. processor, Lei Jun, founder and chief executive officer, said at a press conference in Beijing today. The tablet will use Google Inc.’s Android software, start at 1,499 yuan (US$240) and be made by Foxconn Technology Group, Lei said.

“It’s very hard to do tablets well, and the market is going to be very hard,” Lei said. “We believe the Xiaomi tablet will be the best Android tablet out there.”

Xiaomi also will sell a 49-inch, high definition television starting this month for 3,999 yuan. Xiaomi sells phones in Hong Kong, Taiwan and Singapore and will enter 10 new markets this year.

Bloomberg News