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MOP 6.00 Closing editor: Alex Lee Publisher: Paulo A. Azevedo Number 541 Monday May 19, 2014 Year III

NO smoke without ire T

he government has banned smoking on mass gaming floors effective October 6. Casino operators are adopting a ‘wait and see’ attitude as operational details remain hazy. Some gaming analysts believe that gaming revenues could take a hit, citing Sin City and Australia’s reactions to like legislation

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8 times faster

Adieu CEM Page 8

The Hong Kong-French JV of NWS and Suez Environnement will sell its stake in Macau’s electricity supplier. CEM goes to a Chinese state-owned company for US$612 million (4.9 billion patacas)

The average price for an office or industrial space in Macau increased 23 percent in the first quarter of 2014, while residential prices rose 3 percent Page 4

BIR surprise

Portuguese president said in Macau to be surprised by Resident Identity Card restrictions to portuguese citizens Page 9

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More than “We’re a boutique chips, please hotel in Macau”

Eyes on UnionPay


Sofitel Macau at Ponte 16 General Manager, Michel Molliet, tells Business Daily that the incoming wave of new hotels to Macau will really shake up the market. He’s happy with his niche on the Peninsula, though, despite some challenging years. And Sofitel plans to open eight more properties in Mainland China by 2017 with four more in the hopper Page


A European Union report chides the Macau Government for lack of progress in diversifying its economy. Efforts to make the political system more democratic get higher marks Page

May 16



The government says it will step up measures to oversee the use of UnionPay cards here if necessary. Suggestions that casinos will introduce new rules in July for in-house or nearby stores selling luxury products are dismissed out of hand. Page


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May 19, 2014


Mass floor smoking ban: Casinos ‘wait and see’ Gaming operators demand more operational details from the government on the October full smoking ban on casinos’ mass floors, which some gaming analysts believe could impact the territory’s gaming revenue Tony Lai and Stephanie Lai


acau casino operators are taking a ‘wait and see’ approach prior to the government releasing more implementation details on a full smoking ban affecting the casinos’ mass gaming floors - except for airport-style smoking salons - starting immediately after the National Day Golden Week. Unless more information surfaces in the near future, gaming analysts are divided on how much impact this ban will have upon the territory’s gaming revenue, currently seven times that generated by the Las Vegas Strip. The Health Bureau announced last week that smoking will be banned on the mass gaming floors of all casinos here starting October 6 but that operators are allowed to install smoking lounges without gaming equipment on the floor. The current regulation, implemented since the start of last year, permits casinos to set up smoking areas of no more than half their floor space including gaming equipment. The Bureau said that the current rules will still apply to VIP floors after October 6. But the gaming operators want more operational details for them to enforce the latest amendment to the rules. Angela Leong On Kei, executive director of SJM Holdings Ltd, said on Friday: “The public has raised doubts about the definitions of VIP rooms and mass floors. If the government wants to effectively implement the mass floor smoking ban [it] should first define the scope of VIP rooms.” Indeed, the call of Ms Leong, also a Macau legislator, is likely seeking to clear up doubts on how the government will handle the ‘premium mass segment’, in which gamblers play with big bets as VIP gamblers on the mass floors without requesting credit from junket operators.

Premium mass SJM, founded by casino mogul Stanley Ho Hung Sun, said last year that it had been asked by the Macau government to count some of its premium mass tables on the mass floors as VIP tables because the maximum stakes per game on those tables exceeded HK$300,000

KEY POINTS Casinos want more details about the ban Concrete definitions of VIP rooms, mass floor needed, casinos say Ban applies to premium mass tables found on mass floors Less impact from ban on casinos with bigger floor areas Satellite casinos of SJM, Galaxy likely to suffer

CORRECTION | Wynn story In our Friday edition (May 16) story entitled “Wynn: ‘Reinvesting more in Macau than we made in the last ten years’,” Business Daily erroneously reported that Wynn Cotai is scheduled to open in 2015. In fact, the company’s Cotai resort – the US$4 billion Wynn Palace – is on schedule and will be ready for Chinese New Year 2016. We apologise to our readers and the company for any inconvenience caused.

(US$38,461). A spokesperson from the Health Bureau told Business Daily by phone that if the so-called premium mass tables are located on mass floors, they have to comply with the smoking ban starting October 6 as well. Another operator, Melco Crown Entertainment Ltd - a venture between Mr Ho’s son Lawrence Ho Yau Lung and Australian billionaire James packer - told Business Daily in a written reply that it is ‘currently waiting for the government to announce the technical requirements for the smoking rooms in order to start the installation works.’ Wynn Macau Ltd also briefly responded to this newspaper’s enquiries, saying ‘We are working closely with all associated government departments to implement the new measures in October.’ But the companies did not answer questions about how they think the mass floor smoking ban will affect their operations, namely gaming revenue. All casinos here raked in 133.52 billion patacas in the first four months of this year, up by 17.5 percent from the previous year, with VIP rooms accounting for about twothirds of the revenue. The rest came from the mass market floors. Analysts Grant Govertsen and Felicity Chiang from Union Gaming Research Macau Ltd wrote in a research note last week: ‘While the timing of the 100 [percent] mass market smoking ban is sooner than we had expected, we remain confident that there will not be a measurably negative impact on GGR [gross gaming revenue . . . We would expect nearly all casinos to construct multiple smoking rooms on any given mass market gaming floor’ to reduce the time gamblers spent away from tables. Brokerage Sterne, Agee & Leach, Inc shares a similar view. Analyst

David Bain wrote in a client note: ‘The primary reason patrons go to Macau is to gamble, not smoke at will in any location’, adding that gaming revenue remained robust last year despite the partial smoking ban in half the gaming areas. Casinos with ‘sizable mass floors’, adequate capital and staff can quickly adapt to the ban, Mr Bain said. He added that the satellite casinos, using SJM and Galaxy Entertainment Group Ltd gaming licences ‘will be most at risk from the smoking ban.’ Investment bank Morgan Stanley, however, strikes a slightly gloomier note, believing that overall gaming revenue will be impacted judging from the experiences of smoking bans in casinos in Australia and the United States. The impact of the October ban will be smaller on casinos with bigger floor areas and more VIP tables, it noted. The administration has yet to say when it will unveil more details for the new ban on mass floors but some casinos have already started preparing. A local unit of Finnish air purifying service provider Lifa Air International Ltd said that they had already received enquiries from casinos about the setup of smoking rooms. “We’ve also had enquiries about our smoking lounges from Wynn and Oceanus”, a satellite casino near the Outer Harbour Ferry Terminal using SJM’s licence, Stephen Leung, project manager of Lifa Air Indoor Environmental Services Ltd, told Business Daily. Lifa has helped SJM’s flagship premises in the city’s centre, Casino Lisboa, install smoking lounges for half a year already. The lounges can be located as close as two to three metres from gaming tables, Mr Leung said, referring to Casino Lisboa. With Sara Farr


May 19, 2014

Macau Government ready to take further measures on UnionPay cards The government says it will step up measures to oversee the use of UnionPay cards here if needed but dismisses suggestions casinos will introduce new rules for stores in July Tony Lai


he territory’s top financial official dismisses the suggestion that there will be new reins on the use of China UnionPay cards here in July, stressing that the government will step up the rules if needed though. The comments from Secretary for Economy and Finance Francis Tam Pak Yuen follow in the wake of a Reuters agency report that the Macau administration is urging local

banks to restrict the use of the Chinese state-backed bank cards at shops located on casino gaming floors. Mr Tam said yesterday on the sidelines of an event receiving the Portuguese President that the government has paid attention to the recent reports of mainland gamblers cashing in tens of billions here using the cards in contravention of national currency controls. “We have always had measures

ready [regarding the UnionPay cards] were there such a need,” said Mr Tam. “But at this moment we’ve not reached the step of issuing clear guidelines to stop some activities at a certain date.” The government is “closely monitoring” the situation and “will strengthen supervision if needed”, the secretary added. In the past two weeks, it has been reported that China UnionPay Co would introduce more measures to

Japan casino dream turning sour Japanese lawmakers say it’s unlikely that a casino legalisation bill will be heard this year, prompting fears that gambling resorts will not be ready for 2020

curb the funnelling of funds into Macau. Reuters report that UnionPay transactions from shops inside or near casinos here last year totalled 180 billion patacas (US$22.5 billion) or half of the 360.75 billion of the Macau gross gaming revenue last year. Mainlanders are only allowed to take up to 20,000 yuan (25,913 patacas) in cash over the mainland border each day but some get around this cap to gamble in Macau by pretending to purchase luxury items using UnionPay cards. Reuters reported on Friday that the Monetary Authority of Macau had said in a meeting on May 9 with local banks that it would lay out guidelines to restrict UnionPay card usage at shops selling luxury items like jewellery on casino floors. The measures will come into force on July 1, the agency said. Mr Tam responded yesterday that it is difficult to say all shops on casino floors conduct illegal practices. But Macau has been stepping up raiding the illegal use of handheld UnionPay card swiping machines. Macau Judiciary Police said on Friday that they had arrested two mainlanders illegally using the swipe card devices to help gamblers cash in 140 million patacas since May last year. With Reuters

approved, executives of MGM Resorts International said on Saturday. Executives’ comments highlight the growing view that Osaka is more likely than Tokyo to be the first big city to host a casino and is perhaps the only hope for the pre-Olympics development of large-scale integrated resorts. Whilst the Tokyo government is busy preparing to host the 2020 Olympics and has yet to declare if it even wants a casino in the capital, Osaka officials have been aggressively courting operators and already selected Yumeshima, a plot of reclaimed land on Osaka Bay, as the preferred development site. MGM has shown officials a tentative plan for how it would develop Yumeshima, featuring two hotel towers with a total of 5,000 rooms, a 20,000 seat entertainment arena and a circular waterway inspired by the moat surrounding Osaka Castle. The U.S. casino operator has also been sounding out local companies such as electronics giant Panasonic Corp about partnering the project, although talks are at a preliminary stage. Environmental technologies such as water management are among the areas where MGM envisions tapping the expertise of Japanese firms, it is reported. Bloomberg News and Reuters


apan’s lawmakers will find it difficult to pass a casino legalisation bill in the current parliamentary session, Japanese legislator Masakazu Hamachi said, dashing hopes that gambling resorts could be up and running for the 2020 Tokyo Olympics. Scheduling challenges will make approving the bill hard, Hamachi, a New Komeito Party member of the committee charged with considering the bill, confided on Friday in an interview in Tokyo. New Komeito is part of a coalition led by the ruling Liberal Democratic party, which has promoted casino resorts as a tourism-boosting complement to the 2020 Summer Games in Tokyo. Casino tycoons from

Las Vegas Sands Corp. Chairman Sheldon Adelson to Wynn Resorts Ltd. Chairman Steve Wynn and Melco Crown Entertainment Ltd. co-Chairmen Lawrence Ho and James Packer have all said they’re prepared to spend billions on gambling resorts in Japan. “I am completely in favour of the bill,” said Hamachi in Tokyo. “But it’s difficult to pass because of the order of the deliberation of bills.”

Window closing The current Diet session offers the last opportunity for passage of a casino bill in time to have gambling resorts open by the Summer Games “Time is of the essence,” James

Murren, MGM chief executive officer, said on May 14. “There seems to be a very strong political will to move this forward and who knows what the environment will be a year or two from now.” Once the current Diet session ends, lawmakers typically return for an extraordinary session starting in Japan’s Autumn, which means that the casino bill could have an additional chance to pass before the end of the year.

MGM roadmap The western Japanese city of Osaka could have a casino resort up and running by 2019, in time for the 2020 Tokyo Olympics, if the bill is

There seems to be a very strong political will to move this forward and who knows what the environment will be a year or two from now James Murren MGM chief executive officer


May 19, 2014


EU encourages more economic diversification in Macau The European Union considers that the Macau Government have not achieved the goals proposed in terms of diversifying its economy but praises the efforts to make the political system more democratic Alex Lee


he Macau Government’s efforts to diversify the economic structure in order to avoid over-dependence on the gaming market have not produced significant results, a European Union report on the Macau Special Administrative Region concluded last Friday. ‘Despite the government’s efforts, Macau’s economic structure has not significantly diversified over recent years’, it reads. The conclusion is based on the statistics concerning the contribution of the gaming market to the region’s GDP and on the percentage of the labour force employed by the gaming and entertainment industry. ‘Gaming contributed increasingly to its GDP, from 32.3 percent in 2009 to 45.9 percent in 2012. One quarter of its total labour force was employed in gaming and entertainment related business’, the report says. The EU also considers that Macau ‘struggles with inadequate human resources’ and highlights that the SAR is ‘the only jurisdiction in the People’s Republic of China that does not have a statutory minimum wage law’. For the European authorities,


the extreme dependence of the territory on the gaming industry is also proved in its fiscal income as the gaming industry was the source of more 81 percent of Macau’s fiscal revenue in 2013.

‘Modest’ efforts for more democratic system praised During 2013, Macau’s political system became more democratic, the European Union concludes, citing the increase in the number of Macau’s elected representatives for 14 out of 33 seats in the Legislative Assembly. This measure was defined by the European Union as ‘modest’ but praised as a ‘positive step towards strengthening the democratic basis of the Macao SAR Government . . . The EU hopes further progress will be made leading towards universal suffrage for electing the Chief Executive and the Legislative Assembly’. The 12th report of the European Union about Macau since the handover also praised the efforts to promote transparency and good governance where ‘further progress’ was achieved. The document says that

the Commission Against Corruption reported that it had an increase of 8 percent in the cases handled in comparison to 2011. It also mentioned that the Public Prosecutor’s Office had filed 71 more cases for investigation than in 2011. This conclusion is in agreement with the declarations of UE Commissioner Algirdas Semeta, who told Business Daily last Wednesday that the government of Macau should upgrade its tax transparency and the exchange of information in order to tackle tax fraud. With regard to the rights and fundamental freedoms of Macau’s people, the European Union considers that they are respected. ‘In 2013, freedom of expression was by and large respected in Macau. Individuals


continued to exercise freedom of expression without hindrance and the print and electronic media gave voice to a broad range of views’, it noted. The EU is concerned, however, with the government’s policy on journalists’ access to government information. It was also recalled that Hong Kong journalists from opposition media were denied entry to Macau on two occasions. On the topic of the relationship between Macau and the European Union it was underlined that bilateral trade had increased 28.3 percent to reach EUR656 million. The goals for this year on the relationship between the two regions are focused on legal cooperation, environment protection, fighting human trafficking, cultural exchanges and academic cooperation.

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Office, industrial prices rose 8 times faster than residential The average price for an office or industrial space increased by 23 percent in the first quarter of 2014, while residential jumped 3 percent Sara Farr


ffice and industrial units, on average, became 23 percent more expensive to purchase in the first three months of this year versus the last three months of 2013. Official data released by the Statistics and Census Service reveals that the average price for an industrial unit was 46,577 patacas per square metre in the first quarter of this year, up 22 percent from that of the previous quarter, while office units climbed 23 percent to 113,824 patacas per square metre. Just under 2,500 real estate sale contracts were signed between January and March, involving slightly

over 3,000 properties, an increase of 3 percent over the previous quarter. In addition, just over 3,000 mortgage contracts were signed in the same period, totalling 4,661 properties, an increase of 8 percent over that of the previous quarter. Overall, a total of 3,846 building units and parking spaces were purchased and sold in the first three months of the year. This number was down 6 percent from that of the previous quarter. However, the total value of transactions remained similar to that of the period between September and December at 22.52 billion patacas.

The total purchase of residential units dropped 21 percent, while sales of residential units dropped 16 percent. The value of pre-sale residential units amounted to 3.22 billion patacas, and that of existing residential units 8.97 billion patacas. In the first quarter, the average price for a residential unit increased by 3 percent to 88,958 patacas per square metre over the last quarter of 2013. Both the price for existing residential units and pre-sale residential units increased by 4 percent. Prices for residential units in Taipa continued to rise by 16 percent, while those for pre-sale residential

units rose by 32 percent on the Macau Peninsula and 10 percent in Coloane. Prices for 20-year-old buildings also continued to increase by 4 percent to an average price of 62,467 patacas per square metre. The majority of these buildings are located in Areia Preta, Iao Hon and Barra districts. The average price for buildings built between 11 and 20 years ago, primarily located in Taipa, jumped 12 percent to 80,832 patacas per square metre. Buildings built in the last five years, however, saw unit prices drop 14 percent to an average of 111,660 patacas per square metre.


May 19, 2014


“We should be okay until the next wave of hotels opens in Macau”

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HOSPITALITY Tide turning? Sea connections provide easy access to Macau for residents from Hong Kong, the second biggest source of visitors to the city; and a speedy connection to visitors arriving at Hong Kong International Airport. In a smaller measure, they also complement the land accesses to Macau, with the Inner Harbour link and the ferries to Shenzhen and its airport. But the bulk of the traffic is, indeed, between Hong Kong and the two main Macau terminals. If we add up all arrivals in the last four years, the dominant connection, accounting for almost half of them, took place between Sheung Wan and the Outer Harbour. Another quarter of the trips ended at that terminal, arriving from either Kowloon or HKIA. In all, the Macau-side terminal was the destination of about threequarters of all ferries arriving from Hong Kong.

Whenever a wave of new hotels washes over Macau, all the hotels in the territory are affected, including his, says Michel Molliet, the general manager of Sofitel Macau at Ponte 16. In an interview with Business Daily, the Frenchman says that from 2009 until 2012 the territory has been quite challenging and the luxury brand has had to fight fierce competition. Even though Sofitel Macau currently enjoys an occupancy rate of 93 percent he is expecting the industry, and Sofitel, to scramble once more with so many new hotels waiting in the wings to open in the near future. Looking at the company’s plans for China, Mr Molliet, who is also vice president of Greater China, says eight more properties will open between now and 2017, in Mainland China, with four more still under discussion. Macau will continue to serve as Sofitel’s Greater China regional office, at least for the next two to three years, as many of Sofitel’s developments target the south of the country. Luciana Leitão

Photos by Manuel Cardoso

While the overall number of trips has been decreasing since 2011, the share of the connection between Sheung Wan and the Outer Harbour has slightly increased. Except for a slightly bigger drop in 2011, their absolute numbers for the first quarter since 2010 have oscillated around 2,850 trips. In a possible reversion of the previous trend, the connection to the Taipa terminal improved at the beginning of this year. Trips starting from Hong Kong side have dropped from figures close to 3,700 trips in the second half of 2010 to values of around 2,900 in the last five quarters. The decline in linkages between Kowloon and Taipa has been even more dramatic. In the first quarter of this year, they had more than halved since their peak in 2011. Compared with last year, however, there was a noticeable improvement in the first quarter. J.I.D.

6.4 %

Q1 rise in arrivals at Taipa terminal, on previous year

Sofitel switched its Greater China regional office from Shanghai to Macau in 2009. Do the reasons that applied then still make sense? Going back to the fundamentals, in 2009 we had to make a decision. I was based in Shanghai, in the corporate office, with a small team, and we were looking at our development in China. In China, we were looking at our development over the next four to five years. We found that most of the development of our hotels would be in southern China, areas that are close to Macau. Also, the second factor was that a lot of our hotel owners — we’re a management company, and don’t own our hotels — are based in Hong Kong. The third factor was that we had a rule in the company that the regional offices for China, the Middle East or Thailand would all be based in hotels. It lends a certain degree of credibility. It means that, for example, myself, even though I’m in charge of China, I’m also in charge of this hotel. I have together with my team to run a good operation, making it a flagship hotel that performs well – [in this way] we can use the hotel as a pilot model and that’s one of the reasons we choose to have regional people based in hotels. We know the owners in Macau very well and they are very happy to have a regional office here, so we naturally chose Macau. It’s proven to be an excellent decision. In the last five years, the business in the hotel has grown double digits, so it has been very good for the owner.

The owner gets a leadership team, more experience than perhaps from another hotel — we’re not just hotel people, we’re also regional people. One of the factors for keeping Macau as a regional office is a strategic one. After four/five years, is it still one of Sofitel’s goals to develop further south? Yes, it’s still relevant, even more so than before. Development is definitely happening in the south and it’s still ongoing. We have committed to eight hotels in cities like Hainan, Foshan, Changsha, Guiyang and Kunming, where we need to service not only hotels but owners. And a lot of the owners are based in Hong Kong. We also have hotels in the pipeline, not confirmed yet — two more big projects in this region. Are you satisfied with Sofitel Macau’s results? Macau was difficult in 2009, 2010, 2011 and 2012. It’s been

In Macau, we’re almost like a boutique hotel, if you compare us with the big ones

challenging but we have constantly increased our market share. This year, for the past four to five months, we’ve seen the business in Macau going up. Macau side is in competition with Cotai. You know Cotai hotels - the Sheraton has 4,000 rooms to fill that still aren’t full. They’re not filling up the hotel at 90 percent every night, so they’re very aggressive in their promotions. Basically, all the Sands hotels are very aggressive in their promotions, as they have a lot of rooms to fill. So, even though demand is growing, it’s not growing enough to fill all the hotel rooms. If you look at the statistics, not every hotel is running at 90 to 93 percent, like we are right now. As far as we’re concerned, we’ve seen the business increasing every year, double digit in terms of revenue, and we’ve seen our market share increasing. We have 19 hotels in Mainland China, all in very well established capital cities and we have key secondary cities. The Chinese people know the Sofitel name. So, when they come to Macau, some people want to see The Venetian because it’s a legend, some people want to stay at Wynn because it has a great reputation, but they know with the Sofitel name they’ll have the assurance of quality. The name has helped a lot to get to that level of occupancy. Also, in five years, what we thought might be a handicap was the location. In the last two to three years, however, it has turned out to be a point of advantage. We have 25 percent repeat guests from


May 19, 2014

Macau been extremely successful and it really helps the experience. We aim to keep it this way, and we’re constantly sourcing new ideas. Our point of touch from all the other hotels is the French touch of elegance that goes with Sofitel, it’s the marketing approach of the brand. We want guests to experience the French touch, we create cultural events. How many of your guests are casino-related? A lot of casino-hotels are in fact more like a commodity for the casino. It means that obviously most of the money is made on the casino side but the casino needs the hotel for the players. A big percentage of the hotel inventory is reserved for the casino. And on weekends it can go up to 70 to 80 percent for the gaming. In our case, we allocate very few rooms to the casino. Our casino clientele, we have some high rollers but it’s not a huge casino, and we don’t require so many rooms for the casino. About 10 percent of our inventory goes to the casino, so we still have 90 percent of rooms to fill. We deal mainly with high-end gaming. These are the people we keep in the hotels.

Hong Kong and Mainland China and people like to be here; they walk into the hotel and they have warmth, within walking distance from the old town, from all the attractions over here, there’s a market for that. Who are your main guests — families, individuals, couples or businessmen? The mix has changed over the past few years. We used to have half Hong Kong and half [Mainland] Chinese but slowly we’re shifting to a much bigger chunk of Mainland China guests. We get a lot of individuals staying here; they read the reviews, they know the brand, they’re comfortable, and they choose us because of who we are. We get a lot of couples, we get families, but less. It’s more couple-oriented; a very high repeat clientele, from Hong Kong. Our mix from Hong Kong is about 35 percent. And from the Hong Kong chunk we get 35 to 40 percent repeat guests. In Macau, we’re almost like a boutique hotel, if you compare us with the big ones. You said Macau was challenging until 2013. Why? The two main indicators are demand and supply. We had the Hard Rock Hotel first then the Hyatt, followed by the Holiday Inn and Conrad, followed by the Sheraton. We’re talking about big numbers every time. We had in 2011/2012 a situation in which you had all those Cotai hotels opening, 8,000 more rooms coming onto the market in a relatively short period of time. That created a sort of vacuum effect for the whole of Macau, whereby the buyers, the online travel agents had a choice. Everybody was desperate to fill their hotel, rates were going down, and that put a lot of pressure on business in general. In 2013, all those hotels had opened and they all did a lot of marketing. Each big casino hotel did a lot of marketing, promoting the hotel and creating additional demand for Macau as a destination. Suddenly, there’s a good story to report about Macau.

It created a big buzz, and spread all over the two-hour flight region. Today, those big hotels are ramping up the business to a level that they’re still not full but they’re reaching acceptable levels. That’s why we’re enjoying a reasonable amount of business today. We should be in a relatively okay situation until the next wave of hotels opens. My guess is that next year nothing big will open. And, in 2016, suddenly, you’ll have a lot of interesting things happening - phase three of Galaxy Macau, The Parisian; then in 2017 you’ll have a tsunami of rooms arriving on the market. Will it affect Sofitel? It will affect everybody. It’s like a vacuum effect. People are talking about 70,000 rooms coming onto the market, in 2016, 2017 and 2018. For Macau to absorb that, it’s not going to happen overnight. When those rooms arrive, hotels will automatically see a decrease in occupancy. Cotai will be the first one affected. All the people that come down will want to try a new hotel. But the good story is that every time you have a new hotel-casino opening, it’s a new story for the market, it creates marketing for the destination. It will increase and eventually it will balance again. What is Sofitel preparing for the next couple of years, to face competition? We have fewer rooms to fill than some of those big casinos. So, we can control those variations. This destination we have here will become more attractive. We are kind of unique in our own little market. We’ve built a very solid reputation, consistent quality. Again, geographically we’ll be less affected here than on Cotai. The competition will be cutthroat on Cotai side, here we’re a bit more preserved. People that come here choose to come here, to this side, Macau side. Any new plans for expansion in Macau in the future? There are no plans to expand for the time being. We’ve just opened a Chinese restaurant. The spa has

Talking about Mainland China, how many Sofitel properties are planned? We have eight properties sealed; plus there are another four in the pipeline right now. All in southern China? No, they’re spread. Altogether, we have 12 properties either signed up or in the pipeline, due to open earlier next year, with the latest in

Geographically, we’ll be less affected here than on Cotai. The competition will be cut throat on the Cotai side but here we’re a bit more preserved

2017. It should bring our inventory up to 35 hotels by 2017. What are the challenges of opening up Sofitel hotels in China? The biggest challenge is that for the last few years there have been huge plans for development in China, by developers. It has slowed down a little bit in the main cities but in all the secondary cities and third tier cities in China you have a huge number of hotels opening. We’re entering a market that’s over-supplied. The demand in China has slowed down, especially in the luxury sector. We used to enjoy big business from government, from governmentrelated companies, even corporations that used to work with the government; all of this has slowed down, even the banquet business. The challenge for us is that we’re opening up hotels in a very competitive market and we have to be very smart to come up with unique hotels, strong brands and strong image.

Do Sofitel plans for Greater China include a property on Hengqin island? Yes. I cannot give you specifics but we’ve always looked at Hengqin island. We’re looking at some opportunities there now. How about in Hong Kong, any plans? Not today but we’re actively looking. But going back to Greater China, it’s interesting what has happened, actually, worldwide. The company Accor, based on the work that has been done by Sofitel in the last seven years, has repositioned the brand. Accor decided seven years ago to create a luxury brand for Sofitel - they took it up year by year to a higher level. A lot of work was involved, cleaning up the network - from 206 hotels in 2007 down to 118, so we cut down almost by half, we kept only the best ones and opened 50 hotels worldwide, all brand new with new standards. It’s been a success story. Because of that, Accor said that it has other brands - upscale brands like Pullman, MGallery (small boutique brand) - and those brands that did not benefit from the same level of dedication that Sofitel had at the time. Let’s benefit from the expertise of Sofitel [they said] and let’s create a new segment called luxury upscale brands. So, we have a new entity within Accor, with experts on luxury upscale brands. What is even more interesting is that before the head office for all those brands was based in Paris, with all the decisions on the brands coming down from Paris. And then this decision was made six months ago that the head office for luxury upscale should no longer be in Paris but should move to Asia. Asia has the largest concentration, within Accor, of hotels. Over half of the inventory in Asia are luxury upscale brands. Where will it be in Asia? In Singapore. Asia today has the best architects in the world when it comes to luxury upscale. The biggest development of 5-star, luxury hotels is in Asia. It was a smart move. The head of luxury brand marketing is a Chinese Dutch, so he understands Asia very well but at the same time he understands Europe. We want to keep the French DNA but we also need to learn and be in the middle of where the action is, which is in Asia. They just moved in two weeks ago and they’re setting up a team of 40 people; experts in branding, human resources and marketing, and they’re all top guys in the business. If you put all the brands together, on average, half of them are in Asia Pacific, with the rest spread around the world. How does that affect Sofitel? For the Sofitel brand, which I’m responsible for in Greater China, it doesn’t change much. Because we have such a large critical mass of hotels in China, we decided ‘Let’s keep the Sofitel team, focused on the Sofitel brand’. Are there any plans to change your Sofitel regional office in Greater China in the coming years? Our structure here works extremely well; all the people involved, we all have advantages in being here. As long as we don’t look at too many hotels we can continue in this way. We’re comfortable for two, three more years.


May 19, 2014


Nam Kwong to buy NWS stake in CEM


WS Holdings Ltd said its joint venture with Suez Environnement will sell its stake in Macau’s electricity supplier Companhia de Electricidade de Macau SA (CEM) to a Chinese state-owned company for US$612 million (4.9 billion patacas), Bloomberg reports. Sino-French Holdings Hong Kong Ltd, the joint venture, will sell its 90 percent holding of SinoFrench Energy Development Co plus shareholder loans to a unit of Nam Kwong Group Co, according to a Hong Kong Stock Exchange filing. Sino-French Holdings (Hong Kong) Ltd, a joint-venture of NWS Holdings and France’s Suez Environnement SA, owns 85 percent of the city’s only water distributor Macao Water Supply Co Ltd and 42 percent of CEM. Business Daily asked Nam Kwong (Group) Company Ltd to comment on the share purchase of Sino-French Energy Development Co but had not received a reply by the time the story went to press. The Macau-based Nam Kwong is a state-owned conglomerate that controls the city’s fresh food imports from mainland China, as well as being a distributor of natural gas and a supplier of petroleum and chemicals products. The company is expressing a bigger interest in acquiring stakes in the city’s public utilities business, on top of its controlling position in

Macau Power (CEM). NWS, the transportation unit of Hong Kong billionaire Cheng Yu Tung’s New World Development Co, said that the disposal will enable its venture to focus on the water industry. Sino-French Holdings also granted an option to a company owned by gambling tycoon Stanley Ho pledging to buy a 9 percent stake in CEM from Mr Ho’s

company, NWS said. Provided Mr Ho’s company exercises the option, Sino-French Holdings will retain a 3.8 percent stake in CEM and NWS will book a 1.5 billion Hong Kong dollar (US$194 million) gain on the transactions, according to the filing. Paris-based Suez is Europe’s second-biggest water company by market value.

Business Daily reported in late March that the investor interested in acquiring the assets of bankrupted bus operator Reolian Public Transport Co Ltd’s was Sociedade de Transportes Colectivos de Macau SARL (TCM), which was acquired by Nam Kwong via its subsidiary China Travel Service (Macao) Ltd in January 2012. with Bloomberg

CTM on the brink of losing license

Beijing tightens visa transit loopholes

Telecom has been fined 1.21 million patacas since 2012 and this weekend’s disruption could take the penalties to over 1.5 million patacas, the point at which the government can revoke the company’s licence

The Ministry of Public Security is tightening loopholes used by mainlanders to visit Macau and Hong Kong with a visa for third-place destinations, China Daily newspaper has reported. The central government will work closely ‘with the embassies of some African and Southeast Asian countries … to monitor their issuing of visas’, the newspaper quoted an official from the ministry as saying. This move comes as 80 percent of mainlanders who visited here with an overseas visa last year did not continue their onward journey. The Macau administration said last week that there will ‘soon’ be a decision on whether they will shorten the stay of seven days for mainlanders allowed to stay here before transiting to other destinations.

Tony Lai


he city’s largest telecommunications operator, Companhia de Telecomunicações de Macau SARL (CTM), suffered another service disruption over the weekend. The company has been fined a total of 1.21 million patacas (US$151,250) for blackouts since 2012. According to the city’s regulations, the government has the right to revoke the operator’s concession should it accumulate fines totalling more than 1.5 million patacas. Some CTM mobile users found difficulties in using the voice call services on Saturday afternoon due to the malfunction of newly-installed equipment, the operator said in a press statement. The company received some 200 enquiries from customers regarding the disruption, which lasted for an hour and a half until 2:06pm on Saturday, the statement added. CTM will conduct a full review of the incident with the equipment supplier while the regulator, the Bureau of Telecommunications Regulation, said it will ‘closely follow up’ in its investigation of the incident. The Saturday disruption came

Beijing okays Hengqin border facilities

after the Bureau had said a day earlier that it had fined CTM 230,000 patacas for a three-hour 3G mobile service hiccup in May last year. This penalty brings the fines CTM has paid the government since 2012 to 1.21 million patacas, including fines of 800,000 patacas and 180,000 patacas for two blackouts in 2012. The fine figure is likely to further inflate, however, as CTM also suffered two disruptions in mobile and Internet

services in October and November last year, as well as a mobile service hiccup in February this year. Hoi Chi Leong, acting director of the telecommunications bureau, said on Friday that they were waiting for a response by CTM on the investigation results of the October disruption while the one in November was still undergoing investigation. He made no comment on the February incident.

The central government has completed its inspection of the new Hengqin border facilities, paving the way for simplified Customs procedures for cargoes and passengers moving between Macau and the neighbouring island. A group of mainland departments led by the mainland Customs and the National Development and Reform Commission gave a green light to the facilities last week. But it is still not immediately clear when the simplified procedures can be implemented despite the Hengqin administration’s original desire to do so last year. The Hengqin authorities also said that they are discussing with the Macau Government its request to lease 10 square kilometres of land on the island.


May 19, 2014

Macau Macau’s debatable air quality The impact of the ‘serious and complex problem’ of air quality on health will be the focus of a roundtable discussion organised by the Portuguese-speaking medical association of Macau, next Tuesday. “Air quality has been deteriorating, mainly due to two factors: development in China and development in Macau and therefore it’s important to discuss this issue,” said António Trindade, one of the guest speakers who will talk about environmental projects and more green and sustainable alternatives, according to news agency Lusa

Macau strategic priority for Portugal

Funeral held for Guinea-Bissau minister

The Portuguese President praised the 29 agreements signed by Portugal and China’s governments, universities and companies but he revealed to be surprised by the limitations on the attribution of Resident Identity Card to Portuguese citizens

The funeral of Guinea-Bissau’s infrastructure minister Rui de Araújo Gomes was held Saturday in the country’s capital, Bissau. His ashes left Macau and were held at the Bissau military hospital until Friday, and then sent to his family until the funeral, Portuguese news agency Lusa reports. Mourners first attended a mass at the Sao Pedro Church, after which the ashes were taken to different government offices’ headquarters, and finally put to rest in the municipal cemetery in Bissau. The 60 year old Guinea-Bissau minister was in Macau last week to attend the 5th international forum on investment and infrastructure construction.
According to an autopsy report, the minister died of liver fibrosis. The Macau Government said it would cover the costs of flying the remains home to Guinea-Bissau. An adviser to the late minister told Lusa news agency last week that the government official “did not show any signs of illness” when he left the country en route to Macau, and that his death had come as “a big surprise”. A civil engineer by training, with a degree from the former Czechoslovakia Republic, the 61-year old minister was a cousin of the former Prime Minister Carlos Gomes, whose government was deposed by a military coup in April 1972.

Alex Lee

City cancels Vietnambound tour groups


ortuguese President Anibal Cavaco Silva, said last Saturday that the relationship with China and Macau is a strategic priority for the European country. ‘My presence here after a visit of state to China reaffirms very clearly and unequivocally that the special relationship with Macau is a strategic priority of Portuguese foreign policy’ said the President of Portugal as quoted by Portuguese news agency Lusa. “I am little surprise to hear that, after the meeting I had with Macau’s Chief Executive, the contacts I had with entrepreneurs and the visits to the universities”, the President of Portugal told, as quoted by TDM, when asked about the limitations on the attribution of Macanese Resident Identity Card (BIR) to Portuguese citizens. “I heard a lot of praise to the Portuguese community that lives in Macau and its contribution to the economic and social development of the region” he added. Without assuming the existence of the limitations, Anibal Cavaco Silva said that “if there is any difficulty, after the agreement signed yesterday the doors for dialogue and negotiations are opened and to overcome these difficulties”. The President of Portugal revealed as well that 29 agreements between Portuguese and China governments’, companies and universities were signed. “This visit will reinforce the strategic cooperation between

Portugal and China”. Mr. Silva also admitted that the ‘trilateral cooperation’, between Portugal, Africa and Latin America, was one of the mains issues discussed in this visit, which in his opinion proves “ the significant strategic value” of these ties for the European country. In the last two days of a weeklong visit to China Mr Silva was in Macau. The Portuguese president defined the former Portuguese enclave as “the greatest symbol” of friendship between Portugal and China. But more than a symbol, the Portuguese head of state considers Macau a “privileged platform for a closer proximity between Portugal and Asia, and particularly China”. Macau was the first and last region of China to be ruled by a foreign country. It was integrated into the People’s Republic of China on 20 December 1999 under the policy ‘one country, two systems’ and as a Special Administrative Region. The handover was defined by the SinoPortuguese Join Declaration signed in 1987 by Anibal Cavaco Silva, who was the Portuguese Prime Minister at the time. “The economic and social success of Macau, the political stability over the last 15 years is the proof that the option chosen as the handover model in 1987 was the right one for the region. Portugal is very proud about its special relationship with Macau”, the President said following a

meeting on Saturday with SAR Chief Executive Chui Sai On. Yesterday, while visiting the Portuguese School of Macau, Mr Silva said that the “Portuguese-language is one of the languages growing bigger in the world”. He also noted that the Portuguese-language is “more and more present in business, culture and science”. In Saturday’s meeting with Chui Sai On, the Portuguese head of state had already underlined the importance of the Portuguese language and, according to Lusa, recognised the leader of Macau’s Government’s efforts in the promotion of the Portuguese language in Asia. Cavaco Silva also stated that the Forum for Economic and Trade Corporation between China and Portuguese-speaking Countries, hosted by Macao, can be a bridge for future projects “involving Chinese and Portuguese entrepreneurs in projects focused on the Portuguesespeaking countries”. Chu Sai On said that the promotion of the Portuguese language is a local responsibility towards Mainland China as well as a necessity as Macau has to have bilingual workers in a variety of areas. The leader of Macau also reaffirmed his commitment to reinforcing the role of Macau as a platform between China and the Portuguese-speaking world. With Lusa

Given the recent anti-Chinese sentiment sweeping Vietnam, most local tour groups destined for the country have been cancelled starting from May 16 to the end of this month, Macau Travel industry Council president Andy Wu Keng Kuong told Business Daily. The cancellation of tour groups booked for travel in Vietnam has affected more than a hundred local visitors, Mr Wu noted. The cancellation of the Vietnam-bound tour groups follows hard on the heels of the Hong Kong authorities’ Thursday announcement raising their Outbound Travel Alert for Vietnam to red, a ‘significant threat’ level that advises visitors to adjust travel plans or avoid non-essential travel to a country or region.

Blackstone buys Cosmopolitan Las Vegas Deutsche Bank has reached an agreement with Blackstone to sell The Cosmopolitan Las Vegas for US$1.73 billion cash. Analysts expect the financial buyer, an investment firm, to search for a gaming operator with a large player database, experienced in high-end Asian play, and managing high-end properties to push underperforming property. Companies like MGM Resorts International, Galaxy Entertainment, and Melco Crown, Caesars Entertainment, Penn National, Boyd Gaming and James Packer are possible contenders for Cosmopolitan Las Vegas.


May 19, 2014

Greater China

Home-price growth slowdown spreads Home sales fell 18 percent last month from March, the statistics bureau reported last week, and private data also showed the housing market is cooling

Pictured: Hangzhou had the largest decline in April among cities tracked


ew-home prices rose at a slower pace in more cities in April as developers offered discounts and the economy slowed, prompting the easing of property curbs in some places. Prices last month climbed in 44 of the 70 cities tracked by the government compared with 56 cities in March. That was the fewest cities with price gains since October 2012 when increases were recorded in only 35 cities on a monthly basis. Home-price growth moderated both in first-tier and less affluent cities. Prices in Beijing rose 0.1 percent from March, the National Bureau of Statistics said in a statement today, the slowest since September 2012, while Shanghai prices increased 0.3 percent, the smallest gain since November 2012. The eastern city of Hangzhou had the largest decline in April among cities tracked, with prices falling 0.7 percent from a month earlier. “We’ll see more relaxation of policies in the coming months because local governments will have more incentive to do this as the market slides further,” Ding Shuang, Hong

Kong- based senior China economist at Citigroup Inc., said in a phone interview yesterday. He said that home-purchase restrictions should be relaxed to increase demand. The central bank on May 13 called on the biggest lenders to accelerate the granting of mortgages after sliding home sales and property construction helped drag the world’s second-largest economy to its slowest pace in six quarters in the first three months of this year. Developers including China Vanke Co. and Greentown have cut property prices since March to lure homebuyers, according to China Real Estate Information Corp.

Curb easing Home sales fell 18 percent last month from March, the statistics bureau reported last week, and private data also showed the housing market is cooling. Prices climbed 9.1 percent in April, slowing for a fourth month, according to SouFun Holdings Ltd., the nation’s biggest real estate website. At least six smaller Chinese cities

have started relaxing local curbs on speculative and investmentdriven home buying since April. The northern city of Zhengzhou in Henan province issued draft rules to promote home purchases by low-to-middle- income households, according to a statement posted on the government’s website on May 7. Prices were unchanged in 18 cities in April from a month earlier.

Accelerate credit New-home price gains in first-tier cities also slowed from a year earlier. Housing prices in Guangzhou and Shenzhen, in the southern province of Guangzhou, each rose 11 percent from a year earlier, and prices in Beijing jumped 8.9 percent. All three cities recorded the slowest pace since March last year. “The only effective measure to ease the housing downturn is to reaccelerate, or at least stabilize, credit growth,” Yao Wei, China economist at Societe Generale SA in Hong Kong, wrote in a May 13 report. “Clearly, policy makers know

which lever to pull, but the question is to what extent.” The government should adopt a “measured and targeted credit easing” because a credit binge will inflate the industry again and deepen the oversupply in smaller cities, Yao said. Chinese policy makers’ reluctance to step up monetary stimulus is being tested by data last week that showed the nation’s economic slowdown deepened, with unexpected decelerations in industrial-output and investment growth and a decline in home sales. Fixed-asset investment excluding rural households increased 17.3 percent in the first four months of the year, the slowest for the period since 2001. Existing-home prices fell 0.2 percent in Beijing in April from March and were unchanged in Shanghai, according to today’s data. Beijing, Shanghai, the country’s financial centre, and the southern business hubs of Guangzhou and Shenzhen are considered first tier by the bureau of statistics. Bloomberg News

Bilateral agreement with Vietnam suspended The evacuation followed days of clashes between Vietnamese rioters and Chinese workers


oreign Ministry announced yesterday that China started suspending parts of bilateral exchange plans with Vietnam after more than 3,000 Chinese nationals have been evacuated. The violence was triggered by China’s positioning of a US$1 billion oil rig in a part of the South China Sea claimed by Hanoi, a move described by the United States as provocative. It is the worst breakdown in ties between the two Communist neighbours since a short border war in 1979. The evacuation followed days of clashes between Vietnamese rioters and Chinese workers. Crowds of thousands massed as rioters turned against Chinese workers and Chinese-

owned businesses, or those thought to be Chinese, smashing windows, gates and walls and torching vehicles and factories. The trouble broke out in Vietnam’s south on Tuesday after nationalist rage boiled over during protests around industrial parks near Ho Chi Minh City. Two Chinese nationals were killed in the violence and more than 100 others injured, Xinhua said, citing China’s foreign ministry. China sent five ships to Vietnam yesterday to evacuate more Chinese nationals, Xinhua said, citing the transport ministry In Beijing. Sixteen critically injured Chinese nationals were evacuated from Vietnam early yesterday aboard a

chartered medical flight arranged by the Chinese government, the foreign ministry said in a separate statement. Workers from the China 19th Metallurgical Corporation, a contractor for an iron and steel plant being built by Formosa Plastics Group, Taiwan’s biggest investor in Vietnam, were evacuated back to China early yesterday, Xinhua said. On Saturday, China’s Foreign Ministry advised Chinese nationals to hold off from traveling to Vietnam and told its citizens in Vietnam to avoid leaving their premises. Separately, China’s Spring and Autumn Airline said it plans to suspend all charter flights from Shanghai to Vietnam from today, according to Xinhua.

Policemen try to disperse people protesting near the Embassy of China, in Hanoi, Vietnam, 18 May 2014

The airline said it would suspend nine flights carrying 350 passengers to Vietnam over the next month. Also on Saturday, China’s Commerce Minister Gao Hucheng told Vietnamese Minister of Industry and Trade Vu Huy Hoang that he strongly condemned the violent attacks against Chinese nationals and companies in Vietnam. Reuters


May 19, 2014

Greater China Resources executive under investigation A former executive of state-owned China Resources (Holdings) Co. Ltd, a conglomerate of energy, land and consumer businesses in mainland China and Hong Kong, is under investigation, China’s top anti-corruption body said. Wang Shuaiting, vice chairman of China Travel Service (Holding) Hong Kong, is suspected of serious disciplinary violations Beijing’s official jargon for graft - during his tenure at China Resources, the China Central Discipline Inspection Commission said in a one-line statement. The probe follows a similar investigation into Song Lin, the ex-chairman of China Resources who has been sacked from his post, according state media.

Cambodian PM flies to Shanghai for leaders’ summit

Prime Minister Hun Sen flew to Shanghai, China yesterday morning to attend the 4th Summit of Conference on Interaction and Confidence Building Measures in Asia (CICA) to be held from Tuesday to Wednesday. Hun Sen is accompanied by Deputy Prime Minister and Foreign Minister Hor Namhong, Minister of Rural Development Chea Sophara, and other members of the government, Sry Thamarong, a senior official at the Prime Minister Hun Sen’s Cabinet, told reporters at Phnom Penh International Airport ahead of departure.

Chinese company attacked in Cameroon The Chinese Embassy in Cameroon has confirmed an unidentified armed group attacked a Chinese company’s camp in northern Cameroon on Friday night, leaving one Chinese national wounded and 10 others missing. “The camp of the Cameroon subsidiary of China’s Sinohydro Bureau 16 in the far north was attacked by an armed group. A Chinese employee was wounded, 10 others went missing. The armed attackers also took 10 vehicles of the Chinese company,” embassy political counselor Lu Qingjiang told Xinhua.

Internet security necessary against “hostile forces” A Chinese official in charge of regulating the Internet has said Beijing must strengthen Internet security because “overseas hostile forces” are using the Internet to “attack, slander and spread rumours”, state media said yesterday. Wang Xiujun, the deputy director of the China National Internet Information Office, said political security is fundamental, reported The People’s Daily, the official newspaper of the ruling Chinese Communist Party. Wang’s remarks coincide with a broad crackdown on online freedom of expression that has intensified since President Xi Jinping came to power last year.

Spill contaminates China river Water utility companies along the Fuchun River in east China’s Zhejiang Province stopped drawing water from the river at noon yesterday following a chemical spill in its upper reaches. The spill happened at around 3 A.M. yesterday when a tanker truck carrying tetrachloroethane overturned on a road in Tonglu County and some of its chemicals flowed into the Fuchun River

Full supremacy on world commodities in 2014 World commodity prices have surged in recent years, driven by rising demand from increasingly affluent shoppers in emerging markets and particularly China


rains, metals, meat: these are just three of the commodities being sucked in by the voracious Chinese economy which is set to be the key driver on raw materials markets this year. French commodity research specialist Cyclope in a report published this week argues that “in the coming months, global markets will feel even the slightest sneeze from China”. World commodity prices have surged in recent years, driven by rising demand from increasingly affluent shoppers in emerging markets and particularly China. China has also amassed huge reserves of dollars and has the financial fire-power to buy and outbid, since many commodities are traded in dollars. China overtook India to become the world’s biggest gold-consuming nation in 2013, and the World Gold Council forecasts that its appetite could jump by about 20 percent by 2017. It is also close to overtaking the United States as the world’s biggest oil importer and has become a vast consumer of many agricultural commodities as more people can afford to eat meat and dairy products. Its influence on global commodity markets has become even more important in the wake of the global economic crisis, which has hampered growth in the developed world.

the focus towards consumer spending. The slowdown in China last year had a huge impact on metal markets in particular, sending prices lower. On average, raw material prices fell by 5.0 percent in 2013, the report said. In 2014, Cyclope predicts that prices will fall even further, by an average of 4.0 percent, despite support from an expected uptick in global growth. Nonetheless, “the current slowdown and future activity should not cause major adjustments,” reads the report. “The slow transformation of the growth model and the further development, instead, point to a higher Chinese demand for raw materials.”

A giant appetite China cemented its position as a key player in world cereal markets in 2013 when it resumed international wheat imports for the first time for 10 years. China has also become the world’s second-biggest buyer of world beef products, with its imports quadrupling in recent years owing to concerns about local products after numerous health scares. If this appetite for foreign beef continues, “the global market for

beef will turned upside down,” the report says. Similarly, several scandals involving tainted milk and a growing appetite for Western diets have also turned China into a “key to world dairy markets”, said Chalmin. China’s influence can be even harder to gauge because its politicsare so opaque, Chalmin added. In recent months several agricultural commodities of which China is a major importer -soya, wheat and corn- have felt the effects of Beijing’s policy changes. US corn exports to China, the fastest-growing US market, have dried up rapidly since the Politburo toughened its stance on geneticallymodified grain, while soya prices have been hurt by worries about possible defaults by Chinese buyers. Coffee and cocoa are the only agricultural commodities which have been little affected by China’s rise -although consumption of both of these is growing. However, Chinese demand is not the only factor driving food prices in the year ahead. Agricultural commodity prices are also likely to be affected by the return of the El Nino weather system this year. AFP

China and wine

In the coming months, global markets will feel even the slightest sneeze from China

Even sales of top French wines are being driven by Chinese demand, said Philippe Chalmin, a professor at Paris Dauphine University, who led the Cyclope report. But growth in the Chinese economy, the world’s second-biggest after the United States discounting the ranking of the European Union, is decelerating as Beijing’s leaders wean the country off investment as the key driver of expansion and shift

Putin heads to China for deepening economic links R

ussian President Vladimir Putin heads to China on Tuesday to shore up eastern ties as relations with the West plunge to new lows over the Ukraine crisis. During a two-day visit to Shanghai, Putin and Chinese host Xi Jinping will seek to clinch a raft of agreements including a landmark gas deal crucial for Moscow as Europe seeks to cut reliance on Russian oil and gas. Putin will be joined by a delegation including dozens of business tycoons

Cyclope Report

and regional leaders and will oversee the signing of some 30 agreements, his top foreign adviser Yury Ushakov said. In the run-up to the visit, officials have sought to wrap up a decade of talks on a huge deal that could eventually see almost 70 billion cubic metres of Russian gas sent to China annually for the next 30 years. Less than a week before the visit officials said differences over pricing remained. Kremlin’s Ushakov said the crisis in ties with the West was affecting the talks to “some extent”. Russian natural gas giant Gazprom said on Thursday the negotiations were “in the final stages,” lifting hopes that Putin and Xi will oversee the signing of the mega-deal. “Boosting gas exports to Asia will make Gazprom less reliant on revenues from exports to Europe, potentially making Russia’s foreign policy more intransigent on Ukraine or other matters,” the IHS consultancy said in a comment. Ahead of the visit, Russian state oil firm Rosneft also held talks with Chinese oil refiner Sinopec with a view to signing a contract.

In 2013, the two firms signed a preliminary agreement that could see Russia send up to 100 million tonnes of oil to China over 10 years. Among other key deals, the two countries will agree to develop oil and coal deposits, the Kremlin said. China could agree to buy some 100 Sukhoi-Superjet planes, said Sergei Luzyanin, deputy director of the Far Eastern Institute of the Russian Academy of Sciences. Russia could also sign a preliminary agreement enabling it to use China’s payment card network UnionPay, Luzyanin said. AFP


agreements expected to be signed during Putin’s trip


May 19, 2014


Ferry tragedy undermines S. Korea’s economic ‘miracle’ Grief at the loss of so many lives has manifested itself in collective consumer abstinence


outh Korea’s ferry disaster has had a profound psychological impact on Asia’s fourth-largest economy, shaking public confidence in the very foundations of the country’s “miracle” development model. The most tangible economic impact has been on domestic demand, as the mood of national grief at the loss of so many lives -most of them schoolchildren- has manifested itself in collective consumer abstinence. In the month since the 6,825-tonne Sewol capsized with 476 people on board, a self-imposed moratorium on leisure-time spending has been in effect. On an institutional level, spring festivals were cancelled, corporate entertainment events and retreats indefinitely postponed and music, sports and other cultural events either scrapped or significantly toned down. On a personal level, many ordinary South Koreans simply stopped dining, drinking and shopping in their usual numbers. “First of all, public confidence has been hammered,” said Chun SangJin, a sociology professor at Seoul’s Sogang University. “On top of that there’s a collective

sense of grief and guilt that just doesn’t sit with drinking, cracking jokes and merry-making,” Chun said. According to data compiled by market researcher FnGuide, South Korean brokerage houses have cut second-quarter earnings outlooks for companies in the telecoms, food and retail sectors. Credit card companies have reported a drop in transactions of up to 10 percent, while small businesses, shops and restaurants are all feeling the pinch.

Spending boost, easy loans The government, which has faced a public backlash in the wake of the Sewol tragedy, has already announced a number of measures, including front-loading this year’s budget. In a bid to boost domestic demand the share of the annual budget to be spent in the first six months of the year has been increased from 55 to 57 percent -meaning an extra US$7.6 billion in spending by the end of June. “A slump in consumption following the Sewol disaster... could dampen a hard-won economic recovery,” Finance Minister Hyun Oh-Seok said,

promising “pre-emptive” measures to mitigate the fallout. Low-interest loans were announced for small and mediumsized businesses involved in tourism, transportation and accommodation. The export and manufacturing sectors are dominant in South Korea, so a dip in the domestic consumer market has a limited impact in terms of the overall economy. But a protracted slump would have a significant social and political impact. “There is certainly a worry about just how long this might go on for,” said Shin Hoon, policy director of the Korea Foods Industry Association. So far, 284 people have been confirmed dead in the disaster, but 20 remain unaccounted for and the operation to recover all bodies from the submerged vessel continues -more than one month after it sank. South Koreans are not easily knocked off kilter, having spent decades living with a volatile, unpredictable neighbour in North Korea. While the international community buckles with concern over every North Korean provocation, people in the South have become so inured to the constant threat that they tend to

shrug it off. The country has suffered disasters in the past, including a 1995 department store collapse that claimed more than 500 lives and a 2003 subway fire that killed 192. But the Sewol tragedy has wounded the national psyche in a way that those events did not. The unprecedented number of children among the dead is a huge factor, with the final death toll expected to include 250 students all from the same high school. Then there is the increasing evidence that the disaster was wholly man-made: the result of cut corners, regulatory violations, poor safety training and a woeful lack of oversight -all, or nearly all, attributable to a desire to maximise profits. AFP

Fear and cautious hope for India’s Muslims Critics warn the size of the victory will empower Modi, steeped in Hindu nationalist ideology and tainted by anti-Muslim riots A board with Bhartiya Janta Party (BJP) Prime Ministerial candidate Narendra Modi’s pictures signed by Indian people with the best wishes messages is pictured at the party headquarter in New Delhi, India, 17 May 2014


illions of India’s Muslims fear Hindu nationalist Narendra Modi’s landslide election will fuel religious discrimination, intolerance and even bring bloodshed, but some are also prepared to give him a chance. The right-wing hardliner stormed to victory at the polls, throwing the left-leaning secular Congress from office and handing his Bharatiya Janata Party (BJP) a powerful mandate for promised sweeping reforms. Critics warn the size of the victory will empower Modi, steeped in Hindu nationalist ideology and tainted by anti-Muslims riots, to run roughshod over religious minorities, particularly

India’s 150 million Muslims. But some, at least, are hopeful that Modi’s promise during the campaign of jobs and development to revive the stalled economy will benefit all classes, castes and religions, not just the Hindu majority. “My hopes have been rekindled, I am looking forward to better days under his rule,” said Abdul Salaam, 29, a Muslim tailor in Varanasi, a Hindu holy city which has a sizeable Muslim community.

Salaam pointed to the prosperity of western Gujarat state, where Modi was chief minister for 13 years, saying he hoped these policies could be reproduced nationally. Muslim widow Parveen Banu, whose family was killed in communal riots in Gujarat, said the BJP leader would not dare turn against Muslims after weeks on the campaign trail preaching national unity. Banu remembers running through the blood-splattered alleys of Gujarat’s

main city of Ahmedabad to escape the Hindu mobs that killed her husband and four children. Banu, 40, has since rebuilt her life and now runs a shop selling mutton minutes from her home in a Muslim slum -12 years after the riots that killed at least 1,000 people, mostly Muslims. As chief minister at the time, Modi is dogged by allegations he failed to stop the bloodshed, although he has been cleared by a court investigation. “Of course Modi hates Muslims, but as prime minister can he really afford to show it?” Banu said to AFP. Despite the optimism that some Muslims have, many fear life under a Modiled government and voted in large numbers against him. According to a nationwide post-poll survey, only nine percent of Muslims voted for the BJP while 43 percent opted for Congress. “Muslims are the only community to vote in big numbers for Congress,” Sanjay Kumar, whose Delhi-based Centre for the Study of Developing Societies conducted the poll, told AFP. Congress, India’s national secular force that has ruled for all but 13 years since independence, was obliterated, winning just 44 seats in the 543-member parliament. Modi secured the strongest

editorial council Paulo A. Azevedo, José I. Duarte, Mandy Kuok Founder & Publisher Paulo A. Azevedo | 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 | office manager Elsa Vong | Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd.

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May 19, 2014


Japan delays weakens uranium prices

Singapore billionaire buys European football club

It dropped to the lowest since June 2005 on May 2

D South Korean citizens hold candles and march for victims of the sunken ferry Sewol in Seoul, South Korea, 17 May 2014. People gathered to remember those killed in the Sewol ferry accident, and demand South Korean President Park Geun-Hye ackowledge responsibility and resign

in Modi era mandate of any Indian leader for 30 years, after the BJP won 282 seats, dominating even in states with large Muslim populations such as Uttar Pradesh and Maharashtra. The number of Muslim lawmakers dropped from 30 in the outgoing parliament to a record low of 24, limiting their clout for the next five years, The Times of India said.

No one can stop him Nazma Begum, who runs a small cloth-dyeing business in Varanasi, said she feared few could now stop Modi and the hardline Hindu nationalist groups that are allied to the incoming prime minister. “I find Modi scary. I never imagined he would have such a big win. It’s sad because now he will have a free rein, he will do as he pleases. Who would dare to question him?” the 40-year-old Muslim widow told AFP. Modi himself struck a note of unity in his first comments after his win, saying: “I want to take all of you with me to take this country forward.” AFP

I want to take all of you with me to take this country forward Narendra Modi India’s PM candidate

elays in restarting Japan’s nuclear reactors are prolonging a uranium supply glut that’s driven prices to an eightyear low, making banks from UBS AG to Credit Suisse Group AG less bullish on the fuel. Uranium dropped to US$29 a pound on May 2, the lowest since June 2005 and extending this year’s drop to 16 percent, according to TradeTech, a U.S. consultant to the nuclear industry. UBS reduced its 2014 forecast by 9 percent last month as Credit Suisse cut its projection by 7 percent. Kansai Electric Power Co. and other utilities are taking longer than expected to restart reactors that closed after the Fukushima disaster in March 2011 as Japan’s nuclear regulator seeks more safety checks. While producers from Australia to Africa shut mines as prices retreated to unprofitable levels, Raymond James Ltd. is among those who say supply will still outstrip demand this year. “There is too much supply floating around the marketplace and demand is highly limited,” said David Sadowski, a Vancouver-based analyst at Raymond James, a financial adviser, who cut his 2014 forecast by 14 percent to US$36 a month ago. “Japanese restarts are the key catalyst to get utilities to resume long-term contracting, which should support prices.” Uranium for immediate delivery averaged US$33.93 this year, compared with US$38.47 in 2013 and US$46.27 in 2010, the year before the earthquake and meltdown of the Fukushima Dai-Ichi plant and subsequent closure of Japan’s reactors

Myanmar opposition wants constitution amendment

Fuel for nuclear power stations

for safety checks. Kyushu Electric is among eight companies that applied for safety inspections on 17 reactors, according to Japan’s Nuclear Regulation Authority. The Fukuoka-based utility will resubmit a safety report on its Sendai plant as early as this month, Hiroki Yamaguchi, a spokesman, said May 12. That may delay what was expected to be the first restart, according to TradeTech. Kansai Electric said it may take a “long time” to resume its Takahama and Ohi nuclear plants as it reviews earthquake safety standards, according to an April 23 statement to the Tokyo Stock Exchange. Akihiro Aoike, a Tokyo-based spokesman for the company, said the company can’t comment on when it might restart the reactors. Bloomberg News

When Hollywood met Bollywood


elativity Media LLC, the U.S. film and television producer run by Ryan Kavanaugh, is entering the Indian market in a US$100 million joint venture with a Bollywood network controlled by steel magnate Lakshmi Mittal. Relativity and B4U will create and distribute local film, TV and digital productions in the growing Indian market, according to a statement today. The venture will also distribute and market Relativity films in India, Pakistan, Sri Lanka, Bangladesh, Nepal and Bhutan, starting with the romantic drama “The Best of Me” in October. The partnership targets the growing population of young people watching shows on smartphones, said Kavanaugh, Relativity’s chief executive officer. While producing local fare for India, it also offers the chance to adapt U.S. projects for the distinct Bollywood market, he said in an interview with B4U CEO Ishan Saksena, who will manage the venture. Eventually, the two seek to shoot versions of films for both markets simultaneously, in one production. “We are looking at how we take big movies that we make, franchise movies that are known, and shoot

Peter Lim, the new owner of Valencia, has realised a long-held dream by buying a top European football club -and will hope for better fortunes than some of his fellow Asian investors. On Saturday, patrons of the Valencia Foundation unanimously approved 60-year-old Lim’s proposal to take a 70.4 percent stake in the debtstricken Spanish club, which twice reached the Champions League final. Valencia’s hierarchy has been looking for investors since principal creditor Bankia refused to refinance the combined 306 million euro (US$530 million) debt the club and its foundation has with the bank.

at the same time a Bollywood movie and our movie, with both actors on set, so you have some crossover, and shooting two movies in one,” Kavanaugh said. “One for Bollywood and one for the U.S. It’s never been done before.” India was attractive to Beverly Hills, California-based Relativity because it offers the ability to distribute a range of content with great flexibility, Kavanaugh said. The company is already in China, the world’s fastest-growing movie market, where media is restricted. Indian film and TV markets are expected to reach revenue of US$3.5 billion and US$15.3 billion, respectively, by 2017, the companies said, citing a KPMG study. The executives met last August in London in an initial meeting that had been scheduled to last one hour. Instead it went on for five hours, with Kavanaugh saying he almost missed his flight back to the U.S. The talks led to a joint venture that will have access to a US$100 million fund, managed by Saksena. The fund will be overseen by a board consisting of two directors from each company. Details of the funding weren’t disclosed. Bloomberg News

Main opposition party, the National League for Democracy (NLD), along with the 88-Generation Students Peace and Open Society, held a big rally in Yangon Saturday, calling on the public to back efforts for amendment of the restrictive Section 436 of the 2008 Constitution ahead of the upcoming general election in 2015. Clarifying why the amendment of Section 436 is needed for further changes to the constitution, the NLD and the students group also called on the people to take part in a NLD-88 alliance’ s nationwide signature campaign set to begin on May 27 till July 19.

Sri Lanka’s president claims against division

President Mahinda Rajapaksa yesterday warned that some members of the Tamil diaspora are attempting to mislead the Tamils in the country, five years after the defeat of the Tamil Tiger rebels. Speaking at victory day celebrations held in the southern town of Matara to commemorate five years since the end of the 30 year war with the rebels, Rajapaksa insisted that the war was not against the Tamils but the rebels. However he said that some people are attempting to mislead the Tamils in an attempt to divide the country once again.

Thai violence to be tamed Protest leaders on both sides of Thailand’s political divide have vowed to bring the latest chapter in almost a decade of unrest to an end this month, increasing the risk of fresh violence. With his plan to replace the country’s elected government with an appointed council no closer to reality, protest leader Suthep Thaugsuban said he was launching a nine-day campaign to harass remaining government ministers until they resigned. He said his half-year of protests would finish by May 26. Jatuporn Prompan, leader of the rival Red Shirt movement, called Suthep’s plan “impossible”.

North Korea faces terrible accident State media reported yesterday an “unimaginable” accident at an apartment construction site in Pyongyang, which had resulted in an unspecified number of casualties. South Korean officials said the incident involved the collapse of a 23-storey apartment building, which already had close to 100 families in residence. It is extremely rare for North Korea to report negative news of this type, and the despatch from the official KCNA news agency included equally rare apologies from top officials. KCNA said the accident had occurred last Tuesday.


May 19, 2014

International U.S. states take lead in bitcoin rules State regulators say they will not stand in the way of virtual currency operators entering their states, but they want to ensure the business is safe

The nation has eased capital rules for joint-stock companies to list on the stock exchange to encourage firms to raise funds and broaden their shareholder base, the Gulf state’s financial regulator said. The new regulations are part of a series of rulings this year from the Capital Markets Authority (CMA), which is trying to boost activity on the sluggish market as well as clamp down on any suspicious dealings. Under the new rules for listing on the main market, joint-stock companies need annual profits of 5 percent of their capital, instead of the previous 7.5 percent, the CMA said.


task force of U.S. state regulators is working on the first bitcoin rule-book, the head of the group said, hoping to protect users of virtual currency from fraud without smothering the fledgling technology. Numerous companies in the United States enable customers to pay for goods and services in virtual currencies. But since bitcoins are not regulated by the federal government, users face a maze of rules in the 50 states. “We may be looking at some type of model definitions, or model laws or regulations, and very likely recommendations to either our federal colleagues or to Congress,” David Cotney, Massachusetts Commissioner of Banks, told Reuters on the sidelines of a public hearing into the issue. Cotney was appointed in February to head the new Emerging Payments Task Force, a group of nine members of the Conference of State Bank Supervisors (CSBS). He said the

We may be looking at some type of model definitions, or model laws or regulations, and very likely recommendations to either our federal colleagues or to Congress David Cotney Massachusetts Commissioner of Banks

WB approves loan of 100 million U.S. dollars for Albania

task force had given itself roughly a year to complete the task. The task force was hoping for a clearer definition of which operators needed to be regulated and which ones did not, Cotney said in the interview. “Who’s in and who’s out? So if we can offer that (it) would be a ... big step,” he said. Cotney’s group also looks at other new payment technologies, such as mobile phone payments, and PayPal, an online money transfer service. Bitcoin is the most prominent of a group of so-called virtual currencies created by computers and governed by the Bitcoin Foundation, outside the control of any government. Some retailers accept bitcoins as payment on the Internet or in shops. But recent mishaps have brought the technology under heightened scrutiny. Mt. Gox, a Tokyo-based bitcoin exchange, filed for bankruptcy after losing an estimated US$650 million worth of client bitcoins. State regulators say they will not stand in the way of virtual currency

operators entering their states, but they want to ensure the business is safe. Task force member Benjamin Lawksy, the New York Superintendent of Financial Services, in January said his department was working on a “BitLicense”. California is another state that has shown interest. So far, federal regulators have been relatively mum. The Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) last year classified administrators or exchangers of bitcoin as money transmitters, which puts them under the remit of state regulators. The Commodity Futures Trading Commission is studying whether it has jurisdiction, given that some firms are considering offering bitcoin derivatives. The U.S. Internal Revenue Service has designated bitcoin as property, not currency.

A confidential paper from the German-Russian chamber of foreign trade shows the extent of the concern in German business circles


presidential election in Ukraine nears. Merkel has said she will press for more punitive measures against Russia if the election is disrupted. The two-page position paper, dated May 7th, says the Ukraine crisis is already having a “massive impact” on German business in Russia and warns of dire consequences if Europe follows through on threats of economic sanctions. “Deeper economic sanctions would lead to a situation where contracts would increasingly be given to domestic firms, projects would be suspended or delayed by the Russian side, and Russian industry and politicians would turn to Asia, in particular China,” the paper says. The resulting loss of market share for German and European firms would

The World Bank has approved a loan of 100 million U.S. dollars for promoting development of the financial sector of Albania, according to the Albanian Telegraphic Agency ATA. The loan aims to strengthen the financial sector regulatory and supervisory regime in Albania and mitigate key vulnerabilities of the bank and non-bank financial sectors. The loan supports reforms in three sectors: strengthening regulation and supervision of the banking sector and improving the financial safety net to improve banks’ crisis preparedness and enhance the deposit insurance framework.

Regulators to clear Hutchison, O2 Ireland deal


German industry wants to prevent Russian sanctions erman industry is ramping up efforts to dissuade Chancellor Angela Merkel from imposing tough new economic sanctions on Russia over Ukraine, warning of lasting damage to domestic firms and the broader economy if Moscow is hit hard. Although German companies have toned down their public criticism of sanctions since the CEO of Siemens was vilified in the press for meeting Russian President Vladimir Putin in late March, a behind-the-scenes lobby effort remains in full force. A confidential paper from the German-Russian chamber of foreign trade, which was sent to the government last week, shows the extent of the concern in German business circles as a May 25th

Kuwait eases listing for joint-stock firms

be “long-term and sustainable”, causing “irreparable damage” to Germany’s competitive position, according to the paper, provided to Reuters by an official in Berlin. Moreover, sanctions would lead to job losses in Germany and expose companies to “massive compensation” claims if they were forced to break contracts with their Russian counterparts, it says. The chamber represents over 800 companies, providing support to German firms operating in Russia and Russian companies present in Germany. Rainer Seele, the chief executive of Wintershall, the oil and gas unit of German chemicals company BASF, serves as president of the group. Reuters

Hutchison Whampoa is set to gain regulatory clearance for its US$1 billion bid for Telefonica’s Irish business as soon as it signs a separate deal aimed at creating a fourth mobile operator in Ireland, two people with knowledge of the matter said. The Telefonica deal is one of three telecoms mergers being examined by the European Commission, the European Union’s competition watchdog, that will reshape the industry. Hong Kong-based conglomerate Hutchison, controlled by Asia’s richest man, Li Ka-shing, wants to reinforce its position in Europe, where it operates in six countries.

‘Bad Boy’ broker conviction upheld A federal appeals court in New York on Friday upheld Ross Mandell’s conviction and 12-year prison term for running an alleged US$140 million trans-Atlantic boiler room fraud, rejecting his claim that he could not be prosecuted under U.S. securities laws because much of the case was foreign. The 2nd U.S. Circuit Court of Appeals also upheld the conviction and five-year prison term of former Sky broker Adam Harrington for his role in a scheme that prosecutors said ran from 1998 to 2006. It sent the case back to the trial court to modify a provision of an order of forfeiture.


May 19, 2014

Opinion Business


Leading reports from Asia’s best business newspapers

PHILSTAR The National Irrigation Administration (NIA) is bidding out by the third quarter the P1-billion contract for the rehabilitation of the Bustos rubber dam in Bulacan. The Bustos Dam is a small irrigation dam located in the municipality of Bustos that has a holding capacity of 17 million cubic meters. It is also a regulator dam of the larger Angat Dam. NIA administrator Claro Maranan said the project specifications and the terms of reference for the bidding would be finalized by July in preparation for the contract bidding by the third quarter.

THE STAR Under pressure for keeping a large amount of money outside the country since 2010, the board of 1Malaysia Development Bhd (1MDB) has resolved to bring funds back in the current financial year of operations. Towards this end, it is learnt that the board of 1MDB, headed by Tan Sri Lodin Wok Kamaruddin, has told the management that a sum of US$2.3 billion (RM7.42 billion) that is kept in a private bank in Switzerland and managed by a company based in Hong Kong has to be brought back for projects locally.

FINANCIAL REVIEW AMP chairman Simon McKeon has joined the country’s leading scientists in urging the government to carefully consider the structure and focus of its proposed US$20 billion health fund, which faces an uphill battle to pass the Senate. In an interview with Nine’s Financial Review Sunday, Mr McKeon, who chaired the Strategic Review of Health and Medical Research in 2012, broadly welcomed the Medical Research Future Fund but said there was plenty of detail to thrash out. “Part of me feels very positive, but there are many, many questions that now need to be answered”, he said.

THE ASAHI SHIMBUN The European Union will allow imports of Japan’s famed “wagyu” beef, including the hugely popular Kobe beef, in June, according to sources. Wagyu is a type of beef that comes from any of the four specific strains of Japanese cattle acclaimed for their tender meat. Japan’s health and farm ministries had been negotiating with the EU on exports of wagyu beef to Europe since 2005. After approval of imports by the EU in February 2013, three meat packing plants located in Gunma and Kagoshima prefectures retrofitted their equipment to meet European safety standards.

An economic roadmap for India

Gita Gopinath

Iqbal Dhaliwal

Professor of Economics at Harvard University Deputy Director of the Abdul Latif Jameel Poverty Action Lab (J-PAL) in the Department of Economics at MIT


EW DELHI – India’s incoming prime minister, Narendra Modi, has promised to turn his country’s sluggish economy around. When asked recently about his reform plans, Modi responded that his roadmap was simply that “Our GDP should grow.” This seems like an obvious goal, but in recent years India appears to have been losing sight of it. What will it take to return the Indian economy to sustainable growth? We believe that the following five simple facts about the Indian economy hold the key. First, India is a “young” emerging market. This means that sustaining a high rate of economic growth for the next five years can come about without making dramatic changes to India’s institutions. A country’s output depends on its inputs, namely its labor force and capital stock, and on the efficiency with which it uses them. When the capital stock – including infrastructure – is deficient, investing in it is one of the quickest ways to generate growth (as long as finance is available). This is the “low-hanging fruit” that Modi should go after right away. It is a much more difficult and gradual process to increase the efficiency of resource use and the skill level of the labor force. Second, the service sector has been the primary driver of economic growth in the last few decades. Industry’s share of value added is stuck at 25%, and the share of micro and small enterprises in manufacturing employment in India is 84%, compared to 25% in China. This is anachronistic for a country at India’s level of development.

The fact that India has moved from an agricultural economy to a service-driven economy with almost no growth in industry is not a virtue; it is an outcome of policies that have hampered manufacturing and mining. With production costs rising in China, international buyers are looking for alternative sourcing destinations for manufactured products. If India, with its large labor force, is to seize this opportunity, it must nurture its industrial sector. Third, India’s rank in the World Bank’s “Ease of doing business index” fell from 116th out of 189 countries in 2006 to 134th in 2013 – clear evidence of stalled reforms. The new government needs to reverse this trend and improve the environment for doing business. There is a large constituency of domestic and international investors who will respond positively and rapidly to any steady improvement in India’s institutional environment, which should be an ongoing process. Here, again, it is not as if large, comprehensive reforms are required. Significant improvement could be achieved by rule changes to accelerate approval of business permits and environmental clearances, simplify labor regulations, and fill judicial vacancies. All of this is well known; what is needed now is the will to undertake such reforms and a mechanism for oversight and accountability to ensure that the bureaucracy implements them quickly and effectively. Fourth, in recent years the lack of fiscal discipline has been costly for the Indian economy, as excessive demand arising

from large deficits translated into stubbornly high inflation and was partly responsible for large current-account deficits. Fiscal discipline should be a priority, not an afterthought. An emerging market requires a strong commitment to keeping fiscal deficits in check. New budget legislation, along the lines of the Fiscal Responsibility Act of 2003, but with more teeth, needs to be instituted. Lastly, improving the quantity and quality of education and healthcare through partnerships with the private and non-profit sector and researchers is essential to sustain growth beyond the next five years.

Improving the quantity and quality of education and healthcare through partnerships with the private and non-profit sector and researchers is essential to sustain growth beyond the next five years

The new government should promote researcherpolicymaker partnerships to design and evaluate innovative programs to solve knotty policy challenges like improving learning outcomes and boosting preventive health care. India is fortunate to have thought leaders in almost every sector who could help unleash such innovation in partnership with the civil service. Just as there is a chief economic adviser in the finance ministry, why not have a technocratic chief education adviser or a chief health adviser to work with the education and health secretaries? Will a Modi government be able to deliver on these fronts? Modi has certainly championed economic growth, and he constantly points to his success in building roads and ensuring power supply as Chief Minister in his home state of Gujarat. The BJP manifesto proposes to pursue “minimal government and maximum governance.” It is refreshing to encounter this acknowledgment that government might sometimes be the problem. But replicating Modi’s success in Gujarat at the national level and confronting other development challenges will require cooperation from state governments, which is uncertain at best. After all, any attempt to change rules and laws (such as labor legislation) that benefit established interest groups invites opposition. What India’s economy needs has been evident for years; the challenge for the new government is to find a way to get it done. The Project Syndicate 2014


May 19, 2014

Closing Credit Suisse to admit ‘criminal’ actions

Kerviel demands audience with French president

Swiss banking giant Credit Suisse is set to sign a document admitting it had unwittingly run a “criminal enterprise” in its past wooing of US tax dodgers, media reported yesterday. “We were running a criminal enterprise, but we didn’t know,” reads the document cited by the SonntagsZeitung weekly. Switzerland’s second largest bank was expected to sign the document, obtained by the paper from lawyers close to the case, in a bid to avoid criminal prosecution in the United States, it reported.

Rogue trader Jerome Kerviel, facing a yesterday deadline to return to France to begin a threeyear prison term, has demanded an audience with President Francois Hollande. Issuing a statement from the Italian border town of Ventimiglia, Kerviel said he wished to detail “all the serious failings” that led to his conviction after he brought one of Europe’s biggest banks to the brink of bankruptcy. He has asked Hollande to grant immunity to potential witnesses who could testify in his favour in connection with the near collapse of Societe Generale.

Vanished central banks Recent data has raised expectations that the People’s Bank of China will come in with some form of stimulus


overnment bond yields have tumbled on the basis that the world’s major central banks will continue to keep monetary policy easy and in some cases loosen further. Economic data in this week - most notably May purchasing managers surveys (PMIs) from the United States, China and the euro zone - will be used by investors to test that thesis. Five senior sources have told Reuters that the European Central Bank is preparing a package of policy options for its early June meeting. A distinctly mixed bag of euro zone GDP data, which showed Germany charging ahead and Spain holding its own but France stagnating and Italy, Portugal and the Netherlands slipping back into contraction, will have done little to dissuade the ECB from moving. Minutes of the Federal Reserve’s last policy meeting, at which it reduced its monthly bond purchases to US$45 billion from US$55 billion, will be released on Wednesday. At the April 30 meeting the Fed stuck to its assessment that the economy would need

near-zero interest rates for a considerable time after asset purchases are fully wound down by year-end. The U.S. economy hardly grew in the first quarter but has gathered pace since. “The last FOMC meeting saw a closed-doors session on ‘medium-term monetary policy issues’,” MortimerLee said. “Such sessions were held in 2011 and led to a discussion of exit strategies and later to a formal outline of the strategy.” The Bank of Japan delivers its latest policy decision on Wednesday and is set to maintain its upbeat view of the economy, suggesting no immediate expansion of stimulus is likely. Talk of tighter policy is not even in the air and the BOJ is expected to maintain its monetary policy framework, under which it increases base money by 60-70 trillion yen (US$589-US$688 billion) per year via aggressive asset purchases. Recent data from China has shown weakness in output, investment and consumption, raising expectations that the People’s Bank of China will come in with some form of stimulus if Beijing is to meet its 7.5 percent growth target

KEY POINTS Main central banks in no rush to tighten, ECB may ease in June PMI data for U.S., China and euro zone in sharp relief BOJ meets, to continue with asset purchases Turkey, S.Africa rates likely on hold

European Central Bank headquarters in Frankfurt, Germany

this year. China’s last reading showed its manufacturing sector shrank for a fourth successive month in April. The U.S. and euro zone PMIs are forecast to hold steady

in May, both well above the 50 mark that separates expansion from contraction. Until recently, expectations had centred on the Bank of England being the first of the big central banks to

tighten policy. But BoE Governor Mark Carney stressed last week that there was no hurry to raise interest rates, despite the British economy’s fast recovery and the threat of a growing bubble in the housing market. British inflation data, forecast to show the rate edging up to 1.7 percent in April, comfortably below the Bank’s 2.0 percent target, is unlikely to shift policymakers’  thinking. As investors have got over initial concern about the slowing of Fed stimulus, emerging markets have come back into vogue. According to fund-tracker EPFR, investors put US$400 million into emerging equity funds in the week ending May 14, while EM bond funds drew in US$1.2 billion. In that arena, both Turkey and South Africa hold interest rate meetings in the current week. Turkey’s central bank has so far resisted Prime Minister Tayyip Erdogan’s call for immediate rate cuts to start reversing a dramatic increase enacted in January to shore up a tumbling currency. It has said policy will stay tight until there is a significant improvement in the inflation outlook. South Africa’s Reserve Bank will probably leave interest rates on hold, preferring to spur the economy after labour strikes hurt growth in the first quarter.

UK housing market’s problems

Asia links strengthened at CICA summit

Myanmar seeks partners for fuel business




ank of England Governor Mark Carney gave his strongest warning to date about the risks of a housing bubble and said policymakers were looking at new measures to control mortgage lending. The British housing market has “deep, deep” structural problems, among them insufficient construction of new homes, Carney said in an interview with Sky News television broadcast yesterday. “When we look at domestic risk the biggest risk to financial stability, and therefore to the durability of the expansion, those risks centre in the housing market and that’s why we are focused on that,” he said. British house prices rose about 10 percent in the 12 months to April but Carney has previously stressed that the BoE will seek to take measures to exert more control over mortgage lending before it resorts to raising interest rates, which could hurt the economic recovery. Carney said yesterday that the Bank would check lending procedures “so people can get mortgages if they can afford them but they won’t if they can’t”. Reuters

hina expects to make the upcoming summit of the Conference on Interaction and Confidence Building Measures in Asia (CICA) a milestone in CICA history, said a senior diplomat in Shanghai yesterday. The fourth CICA summit will be held in the eastern Chinese metropolis on Tuesday and Wednesday, drawing 11 heads of state, one government head and 10 chiefs of international organizations. The dignitaries will include Russian President Vladimir Putin, Iranian President Hassan Rouhani, Kazakhstan President Nursultan Nazarbayev and United Nations Secretary-General Ban Ki-moon. Chinese Vice Foreign Minister Cheng Guoping said that China, as a founding CICA member and a positive participant in the conference’s development, has made its due contribution to enhancing cooperation, solidarity and trust between Asian countries. China’s holding the summit and taking over as CICA host from 2014 to 2016 reveals the great importance the country attaches to the CICA, Cheng said. Xinhua


tate-owned Myanma Petroleum Products Enterprise is inviting foreign companies to form a joint-venture to improve the distribution of jet fuel around the country, a senior Myanmar government official said yesterday. “We’ve invited letters of expression of interest from interested experienced foreign partners to jointly operate jet fuel distribution in our country,” a senior Energy Ministry official told Reuters. A notice of invitation was published in newspapers yesterday. “Applicants must have experience in distributing jet fuel at least three international airports in three different countries,” said the official who declined to be identified as he is not authorised to speak to the media. The MPPE is the sole distributor of jet fuel in Myanmar and distributes more than 28 million Imperial gallons (127 million litres) of the fuel a year at 11 airports, including three international ones at Yangon, Mandalay and the capital, Naypyitaw. “We want to improve our existing distribution system in cooperation with experienced foreign partners. Reuters

Macau Business Daily, May 19, 2014  
Macau Business Daily, May 19, 2014  

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