Page 1

MOP 6.00 Closing editor: Alex Lee Publisher: Paulo A. Azevedo Number 542 Tuesday May 20, 2014 Year III

Commercial mortgages boom

The real estate bubble has spread from the residential to commercial segment. It’s a new credit boom. In just 12 months office prices have increased 80 percent. Mortgages for companies have soared four-fold Page

www.macaubusinessdaily.com

Average satisfaction

3

City University eyes UMAC’s former campus Page 2

Gaming operator employees are ‘averagely’ satisfied. Empowerment of casino personnel is the answer, a new survey claims. Macau Polytechnic Institute declares MGM is regarded as the best boss

Bane of the billboards

Brought to you by

HSI - Movers May 19

Name

Page 6

Resisting temptation Macau residents are gambling less, claims a governmentbacked survey. Low unemployment rate, loss of interest and more responsible gaming policies are cited. But gambling employees are a different story and might pose a future problem Page 7

Industrial production down 12pct in Q1 Page 5

Outdoor advertising laws are outdated, with some advertisers deliberately bypassing them to illegally hang billboard ads. The Association of Advertising Agents of Macau tells Business Daily that it’s high time the government tackled the problem Page 5

Riding the storm Bonds in Macau casino operators are withstanding a slump in the companies’ shares as growth in VIP gaming slows amid lower economic growth and a crackdown on corruption Pages 8 & 9

%Day

COSCO Pacific Ltd

1.57

Hong Kong & China G

1.10

Hutchison Whampoa

1.07

Tencent Holdings Ltd

1.03

HSBC Holdings PLC

0.80

Want Want China Ho

-1.25

Wharf Holdings Ltd

-1.82

China Unicom Hong K

-2.00

Belle International

-3.16

Li & Fung Ltd

-3.65

Source: Bloomberg

I SSN 2226-8294

Brought to you by

2014-5-20

2014-5-21

2014-5-22

27˚ 30˚

27˚ 29˚

26˚ 28˚


2

May 20, 2014

Macau Individual Provident Fund top-up The government has decided to pay in an extra 7,000 patacas to the Provident Fund’s individual accounts in 2014 as a special allocation from the budget surplus. The decision was published yesterday in the official gazette. In order to be eligible for the special allocation from the budget surplus one must be a permanent resident of the Macau SAR, must have reached 22 years of age and must have remained in the region for at least 183 days. In the first quarter of this year, the government had a fiscal surplus of MOP46.2 billion (US$5.8 million) representing 16.6 percent more than a year earlier.

Scramble for UM Taipa campus

T

he City University of Macau backed by political heavyweights will vie with other tertiary institutes in the territory to get a share of the University of Macau’s existing campus on Taipa. Pang Su Seng, acting rector of the City University, said it had applied last year to the government for usage of the Taipa site, following the relocation of the University of Macau to its new campus on Hengqin Island this Autumn.

Mr Pang’s comment yesterday confirms a story reported by Business Daily in May last year that the university, controlled by legislator and Executive Council member Chan Meng Kam, had its eye on the Taipa site. But Mr Chan’s university still has to compete with Macao Polytechnic Institute and the Institute for Tourism Studies, which have also expressed a desire to utilize the campus. The acting rector told media

Macau budget framework for 2015 presented

T

he framework for the Macau Special Region Administration Budget and the Investment Plan (PIDDA) for 2015 were unveiled yesterday. The documents have to be presented by 20th October to the Chief Executive of Macau. The process to develop the documents has already begun. The Financial Services Bureau had until yesterday to send the guidelines on how government departments should prepare

their programmes and budgets. The development of the documents is monitored by the Secretary for Economy and Finance, Francis Tam, from last month until October. From the dispatch signed by Chui Sai On in 2013 to this year’s there are no significant changes. However, there will be more time to prepare the documents as this year’s dispatch is dated 9th May, while the one from 2013 was dated 4th June.

yesterday on the sidelines of an event that he was aware of the intentions of other institutes. “We hope the government can help our university develop the education sector in Macau, although we are a non-profit private university,” he added. Mr Chan, also a businessman and casino service provider, said yesterday that his university needs one campus to accommodate its over 3,000 students, as its current premises are scattered throughout commercial buildings in the NAPE

district and in Sam Yuk Middle School in Taipa. The acting rector, Mr Pang, added that there has yet to be an official response from the government regarding the application. Secretary for Social Affairs and Culture Cheong U said last week that the government has not yet made up its mind on the usage of the Taipa campus, which the University of Macau will hand over to the government following its relocation. T.L.

Lower court contracts builders

T

he CRBC Coneer J&T and Sonnic consortium have been contracted to build the Court of First Instance. According to a decision published in yesterday’s official gazette, the contract is worth 380 million patacas for the next two years. Of the budget planned, 110 million patacas will be allocated to this year, while 180 million patacas will be awarded next year and the remaining 90 million patacas in 2016. There may be variables in the next two years, the official gazette states, as long as the total does not surpass the initial budget set at 380 million

patacas by 2016. The Court of First Instance will move into a new building to be built near Sai Van Lake by 2016. Currently, it occupies two floors of a commercial building in The Macau Square. The existing arrangements are considered uncomfortable and cramped by all parties. In October last year, Rui Afonso, a lawyer who has lived in Macau for more than 30 years and served as vice-president of the now defunct Consultative Council for Judicial Reform, told Business Daily that the relocation was “well overdue”. Prior to that, Macau Law-

yers Association president Jorge Neto Valente said it was “a shame to have the Court of First Instance working in a commercial building”. A year before, prosecutor general Ho Chio Meng said that the lack of exclusive premises for the use of judicial institutions detracted from their image and efficiency. The new facilities will be built on vacant land near the Fire Services headquarters facing Sai Van Lake. The building will have eight storeys, with a gross floor area of 14,300 square metres, the Land, Public Works and Transport Bureau told Business Daily.


3

May 20, 2014

Macau

Property boom shifting focus Companies are opting to buy property in order to avoid rising rents and the uncertainty of lease agreements in Macau. The shift is spreading the housing bubble to commercial spaces and generating a new credit boom. In one year office prices have increased 80 percent, while mortgages to companies jumped four-fold Alex Lee

Alex.lee@macaubusinessdaily.com

M

acau is facing a new credit boom as the real estate bubble spreads from the residential to the commercial segment, prompting prices and credit flows to all time highs, official statistics revealed this week. The rise of rents for offices and industrial buildings combined with the freedom of landlords to increase rents every two years without any limitation, has spurred companies to start buying property instead of renting in order to secure business stability. According to data published yesterday by the Monetary Authority of Macau (AMCM), new commercial real estate loans reached a three-year high in March with banks granting more than 9.3 billion patacas in a single month to companies for the purpose of buying property like offices, industrial buildings and other commercial spaces. The March figure is 30 percent higher than the one recorded in February and four times more than a year ago.

The real estate market is seeing a credit boom in the commercial segment. Since the beginning of the year, loans granted by banks to companies to buy property increased at a monthly rate of 30 percent, meaning that they’re doubling every quarter. On the other hand, residential mortgage loans in March only went up 13 percent from a year ago, AMCM said.

Sink or swim “The data shows that the housing bubble in Macau is spreading to all areas of the economy”, Albano Martins told Business Daily. “It started with the rents, went to housing and now is affecting offices and industrial space”, added the economist, saying “Companies are basically running away from the rental market”. This shift from renting to buying is also a way for businesses to avoid the uncertainty of landlords and to protect themselves against huge price jumps in rents. “Companies prefer to buy property instead of facing the landlord unpredictably increasing rents every two years with no limit”, emphasised Martins. With rents going through the roof, “the choices for companies are usually two: shut down the company or buy the property”. With more and more companies

Growing pains With office spaces costs rising and the option to buy instead of renting, companies need to apply for bigger loans, fuelling bank profits. In a recent interview with Business Daily, BNU CEO Pedro Cardoso said that one of the main drivers of the bank’s record year in 2013 – the biggest profit in its more than one hundred year history – was due to more credit to companies. Last year, credit to businesses increased 30 percent and doubled since 2011. In March, the amount of credit given by banks to acquire commercial space was three times higher than the total of loans for housing (9.3 billion patacas versus 3.5 billion patacas) and the opposite of what the market was experiencing a year ago. In March 2013, banks in Macau granted 3 billion patacas to households and 2.4 billion to companies for real estate, AMCM said yesterday. Another emerging

trend is the increasing presence of non-resident companies requesting loans to buy commercial space. In March, non-residents pocketed 2.6 billion patacas from Macau’s banks, some 25-fold more than the residual 102,000 patacas recorded a year ago. Even with the real estate bubble growing – prices are going up and number of properties sold are decreasing - the financial system appears to be in a secure zone as non-performing loans are almost close to zero (0,05 percent). “Companies are adapting to the market and skipping rents through buying but this movement is not eternal; it could last 2 years but then it’s over”, warns Albano Martins.

FIGURES Office prices increased 79.2 percent in one year Residential prices climbed only 14 percent Mortgage loans for commercial space jumped 287 percent in a year Commercial mortgage loans to non-residents increased 25-fold since March 2013

NEW MORTGAGE LOANS Residential

Commercial

Mar-13

3,080,479

2,421,284

Jan-14

4,360,173

5,537,188

Feb-14

2,542,176

7,537,887

Mar-14

3,507,536

9,389,271

13.86%

287.78%

Year-on-Year (March)

Commercial Mortgage Loans Residents

Non-Residents

Mar-13

2,318,756

102,528

Jan-14

5,180,573

356,615

Feb-14

7,486,625

51,262

Mar-14

6,794,281

2,594,990

193.01%

2431.01%

Year-on-Year (March)

SOURCE: AMCM

Albano Martins

entering the market, prices are going up, boosting the bubble with industrial and office prices growing seven times, on average, above the residential segment. Data from the statistics office bureau showed last week that prices per square metre in Macau for offices surged 62.8 percent in the first quarter compared to a year ago, with industrial buildings seeing prices rise 79.2 percent. In the same period, residential prices only gained 14.1 percent.

Average price per square metre of unit 2013

2014

Q1

Q2

Q3

Q4

Q1

Q1 y-o-y

Residential

77,975

88,957

66,936

85,974

88,958

14.1%

Industrial

28,606

34,225

34,637

38,191

46,577

62.8%

Office

63,511

64,544

79,592

92,644

113,824

79.2%

SOURCE: DSEC

Companies are running away from the rental market


4

May 20, 2014

Macau Gov’t contract worth 386.8 million patacas to pharmaceutical companies The government plans to spend 386.8 million patacas (US$48.8 million) with eight companies between now and 2016 for the supply of medication and pharmaceutical instruments. According to the official gazette, the government will pay around 112.8 million patacas in 2014, 193.4 million patacas in 2015 and 80.6 million patacas in 2016. The pharmaceutical companies selected by the executive are Firma Chun Cheong, Firma Welfare Instruments, Agência Lei Va Hong, Hong Tai Hong, Four Star, The Glory, Cheng San and the Macanese branch of LF Asia (Hong Kong).

Minimum wage makes progress Legislators could soon be given a draft bill on the minimum wage to analyse, pass and approve Sara Farr

sarafarr@macaubusinessdaily.com

T

he draft bill on the minimum wage could begin its legislative process as early as next month. In a statement released by the Government Information Bureau, secretary for economy and finance Francis Tam Pak Yuen said most of the legislative works are in the final stage and “practically finished”. He added that authorities would also do “their best” so that the draft bill is handed to the Legislative Assembly for review still within next month. In February, the government announced that the minimum wage

would be set at 28 patacas an hour (US$3.51) for all cleaning and security staff. Labour Affairs Bureau director Wong Chi Hong said at the time that “after public consultations and meetings of the standing committee, we’ve come up with this minimum wage level of 28 patacas an hour or 224 patacas a day or 5,824 patacas a month”. He labelled it a level that the government had come up with after taking into consideration “what local companies can afford and what employees need to be able to buy

with their pay.” The 28-pataca minimum wage, however, does not include overtime pay or annual bonus. But it does include allowances such as meals. Mr Wong earlier this year said employers should consider 83 percent of the minimum wage as the “basic wage”, while the remaining 17 percent should be counted as allowances. This, Mr Wong said, is “reasonable” and the government came up with this structure based on that of other countries’ minimum wage. While the government suggested the amount be reviewed every two

years, workers’ representatives also said the minimum wage should range between 23 and 30 patacas, and be reviewed annually to better meet the needs of Macau. In March, Mr Tam said it would be up to legislators to change the minimum wage rate it they wished. At present only employees of the government’s cleaning and security contractors are entitled to a minimum wage. But the government supplements the earnings of lowincome workers to bring their income up to a minimum of 4,700 patacas a month.

SPECIAL OLYMPICS GOLF MASTERS

May 26th to 31st 2014 PRINCIPAL

MAJOR SPONSORS

EVENT PARTNERS

CONTRIBUTORS

Brand guidelines

MEDIA PARTNERS

Special Olympics Ad half page May 13th.indd 1

5/13/2014 4:25:54 PM


5

May 20, 2014

Macau

Outdoor ad laws need fixing: trade chamber The government ought to consider simplifying the approval rules for placing billboard advertisements, trade chamber urges Stephanie Lai

sw.lai@macaubusinessdaily.com

A

review is needed for the outdated laws regulating outdoor advertisements and the lengthy process required for approving the placement of these ads, the Association of Advertising Agents of Macau told Business Daily. For fixing a space to hang up billboards outside buildings in the city, advertisers first have to gain the approval of two-thirds of the building’s owners in order to obtain a licence to run the billboard advertisement, a rule that stifles the effective operation of advertisers, the association’s vice supervisor-general David Wong I Tat told us in an interview. “For advertisers that would like to fix a billboard space on the wall of a building, approval from the owners’ committee is not enough – you have to obtain the approval of two-thirds of the building’s owners before gaining a construction licence [to affix the billboard] from the Land, Public Works and Transport Bureau,” Mr Wong explained. “If you don’t have the licence, there’s no way the Civil and Municipal Affairs Bureau will grant you the advertising approval.” The Civil and Municipal Affairs Bureau (IACM) is the chief unit overseeing the placement of outdoor advertisements in public spaces and the issue of respective approvals. “The rule requiring the approval from two-thirds of the building’s owners still makes sense with low-rise buildings where they don’t have an owners’ management committee,” said Mr Wong. “But now you have many buildings with over a hundred

units, and the rule in this case is not so practical.” The Association of Advertising Agents of Macau, which has 50 advertiser members, also complains that there are cases of advertisers bypassing the building’s owners approval and hanging up billboard advertisements outside the buildings, an act that only results in a light penalty. Under the ordinance governing advertising activities, decree No. 7/89/M, advertises can be fined from 2,000 patacas (US$250) to 12,000 patacas for affixing advertisements without the approval of IACM, or placing advertisements that affect

the views of the landscape or commemorative sites, or cause danger to others. “These violators were fined only a small amount relative to the advertising revenue they got, and in some cases we’ve noticed they’re counting the fine as part of their [advertising] cost,” said Mr Wong. “This condition is not healthy at all for our sector.”

Long wait Another problem that outdoor advertisers face is the timely procedure for the approval to place the billboard advertisement, Mr Wong said. “From

the time that you apply for a space to hang up the billboard to gaining the construction licence for doing it, it has to take half a year”. He continued that, “Before hanging up the advert, the content of it will be passed to different government departments for a final examination. And that process can take months to finish.” Decree No. 7/89/M, a law dating back to the late 1980s, singles out general principles guiding the content setting for sales of tobacco, alcoholic drinks, medications, cars, residences and travel packages. “If the [billboard] advertisement is related to medicines, then IACM will forward your application to the Health Bureau for opinions; likewise, if the product advertised is gaming related, they will forward the case to the Gaming Inspection and Coordination Bureau,” said Mr Wong, adding that cross-departmental workings can be time consuming for advertisers. Mr Wong’s association reckons a centralised group that governs advertisement regulation and further simplification for its placement approval is needed. “The opinions from these different departments can be decisive as to whether your advertisements can be posted or not,” Mr Wong said. “But at the same time, if the billboard is hung up inside private construction sites or other private properties their content does not really [fall] under the government’s oversight. This is another grey area that the government needs to look at.”

Industrial production down 12pct in Q1 Guangdong now issuing Macau processed almost 50 percent less tobacco e-permits to Macau in the first three months of the year than it did in the same period in 2013

T

here wasn’t half as much demand for tobacco and wearing apparel in the first quarter of this year as there was in the three-month period prior. Official data released by the Statistics and Census Service shows that the processing of tobacco dropped a staggering 48.2 percent between January and March. This is in sharp contrast to tobacco processing levels hitting a five-year high in August last year. Compared to the first quarter of 2013, the processing of tobacco also dropped 36.3 percent. Overall, Macau’s industrial production index dropped to 56.2 points in the first quarter of 2014, some 12.2 percent lower than the previous quarter. The manufacture of

wearing apparel also plummeted 42.9 percent in the first three months of the year over the previous three, while the production of electricity fell 37.9 percent quarter-on-quarter, mainly due to the increase in imported energy and decrease in electricity generation. This brought the index for electricity, gas and water supply to 30.6, down 28.5 percent. This also represents a 23.7 percent fall from the same period last year. The territory increased its purchase of power from mainland China to 92 percent in 2013 from just 7 percent in 2004, local electricity company CEM said last month. According to the company, Macau has currently “adopted a power sources diversification policy”

with three main sources of power, including imports from mainland China, fuel oil generation from its Coloane-A power plant and natural gas from its Coloane-B power plant. Meanwhile, the manufacture of food products and beverages registered a 4.8 percent increase in this quarter year-on-year. But when compared to the previous three months, this index was down slightly by 1.8 percent. An index that registered a staggering increase was that of the manufacture of nonmetallic mineral products, up 66.8 percent between January and March compared to that of a year ago. Nonetheless, the index was down 7.1 percent over that of the previous quarter. S.F.

T

he Guangdong administration has from today started receiving applications for electronic permits to Macau and Hong Kong, shortening the immigration time mainland Chinese travellers have to spend in Customs. Guangdong province is the first place in mainland China to pilot such a scheme using e-visas to the two special administrative regions instead of the traditional booklet format. The pilot scheme was originally due to roll out last year. Macau’s Public Security Police Force said in a press statement yesterday that it will ‘actively cooperate’ with the mainland authorities on the use of the new permit. Semi-official mainland agency China News Service reported yesterday that Guangdong will stop

accepting applications for the traditional visas from today. The new permit is expected to provide more convenience for mainlanders during the Customs clearance process. It is expected to take only eight seconds for mainlanders to undergo immigration procedures using the e-permits, compared to about 30 seconds using the booklet format. Official figures show that Macau received 2.23 million visitors from nearby Guangdong in this year’s first quarter, accounting for 43.1 percent of all mainland tourists and 29 percent of the territory’s overall visitor count. The central government has not scheduled a timetable for the roll out of the e-permit scheme to other provinces. T.L.


6

May 20, 2014

Macau Brands

Trends

Shanghai Tang celebrates 20th Anniversary in style Raquel Dias newsdesk@macaubusinessdaily.com

I

t’s not a new thing for established brands to partner up with designers for special occasions. In fact, it’s a great way to attract some media excitement as well as introduce some spice into traditional collections. This time, it’s Shanghai Tang. The stylish Hong Kong boutique is making a point of introducing a twist to their cult products. Shanghai Tang is celebrating its 20th anniversary. Although the brand that epitomises Chinese Chincseness lost something of its charm when it was forced to close its flagship store in Central, it’s giving signs of growing strong. To properly celebrate the occasion, Shanghai Tang is partnering with Jacky Tsai, the renowned contemporary Chinese artist famous for his pop art installations, to create a series of original pieces. For this particular collection, Tsai seems to draw his inspiration from nature. All the pieces are beautiful, elegant reminders of the brand’s signature: the old charm of the Chinese culture. The limited edition collection includes different items from qipao and box clutches to delicate tableware and cashmere shawls. What shines through is not only the Chinese opulence but a little of the Westerner’s pop art; like the bold colours and contrasts, the brand’s modern twist on Chinese classics is also present. The Jacky Tsai x Shanghai Tang original artworks and limited edition capsule collection debuted at Shanghai Tang Mansion (1 Duddell Street) on the 15th of this month at Shanghai Tang’s 20th Anniversary kick-off party in conjunction with Art Basel Hong Kong.

Empowerment major plus for casino employees Casinos can do more to empower their workers to increase satisfaction levels in their jobs, which is currently just average, a survey concludes Tony Lai

tony.lai@macaubusinessdaily.com

G

aming operators should empower their employees more to increase job satisfaction, which is at an average level, a survey by the Macau Polytechnic Institute proposes. The poll also finds that MGM China Holdings Ltd is the best boss among the territory’s six gaming operators in terms of worker satisfaction. Five graduate students from the Institute, led by the Institute’s Gaming Teaching and Research Centre associate professor Zeng Zhonglu, conducted the research this year by polling 601 casino staff via questionnaires and interviews. The poll drew a sample size of 100 staff each from five operators and 101 subjects from the last casino firm. The results found that the average job satisfaction rate of employees was 3.04 points on a scale of 1 to 5 points, with 5 being the best. Some 19 questions probed areas such as salary package, workspace relationship, working environment, career development and empowerment. Mr Zeng told Business Daily that the satisfaction level was “average”, believing that the casinos here in

general have room for improvement in the area of staff empowerment. The average satisfaction sub-score of staff empowerment totalled only 2.92 out of 5 points with one gaming operator scoring as low as 2.51 points. “The gaming operators can have mechanisms that allow the employees to have more say in the decision-making process of some minor policies, not necessarily the major ones,” he said. “It’s essential for empowerment as employees nowadays with a higher education level can receive information in more all-round means.” The sub-scores of working environment and career development were 3 and 3.09 points, respectively, the survey said, with 3.5 points and 2.91 points for workspace relationship and salary package. There were 85,600 employees in the gaming sector by this year’s first quarter, latest government figures show. When the new Cotai resorts open between 2015 and 2017 about 40,000 extra staff will have to be factored in. MGM China, a venture between MGM Resorts International and

Analysts see casino smoking ban doing little harm

G

aming industry analysts forecast that the ban on smoking on casino gaming floors will do little to curb the industry’s revenue.
The government will ban smoking on gaming floors in October, but allow it in smoking rooms that have no gaming facilities.
Research house Union Gaming Research Macau forecasts no “measurably negative impact” on gross gaming revenue.
“We

Pansy Ho Chiu King, may have an edge over other rivals in attracting new blood as the Institute’s poll said that the job satisfaction rate of MGM China employees was the highest among the six operators at 3.19 points. However, Mr Zeng declined to reveal the scores of the other five gaming companies, given the “sensitivity” of the issue. MGM China scores best in the area of career development by providing workers with training and working environment, in addition to transportation and quality food, he said. Wynn Macau Ltd, controlled by US billionaire Steven Wynn, offers one of the top levels of salaries, bonuses and overtime compensation here. This research contrasts with a survey conducted by Joanne Chan and Kim Kuok from the University of Macau, and Penny Wan from the Institute for Tourism Studies. The latter poll, published on April 30 in the Journal of Hospitality Marketing & Management, found that 40 percent of 391 casino employees polled were considering resigning from their job within the next 6-12 months.

Bally Technologies appoints new chief executive would expect nearly all casinos to construct multiple smoking rooms on any given mass-market gaming floor,” it says.
Stockbroker Sterne Agee says: “The primary reason patrons go to Macau is to gamble, not smoke at will in any location.”
Investment bank Morgan Stanley, however, forecasts that the ban will rein in gaming revenue, as similar bans in other countries have done.

G

aming equipment supplier Bally Technologies Inc says it has appointed Richard Haddrill as chief executive, replacing Ramesh Srinivasan.
The company says Mr Haddrill will take up his post on Friday. He will remain a director.
Mr Srinivasan will also relinquish the post of president, and leave the board.
The company has appointed independent director David Robbins as chairman.


7

May 20, 2014

Macau

Macau residents kicking the habit A survey concludes that the gaming participation rate of Macau residents has declined in the past three years but says gambling practices by casino employees could be ‘a time bomb’ for the territory Tony Lai

tony.lai@macaubusinessdaily.com

L

oss of interest, a low unemployment rate and more responsible gaming policies are the reasons behind the declining rate of gaming participation by Macau residents over the past three years, claims a government-backed survey. The survey, however, raises the possibility that the growing gambling incentives for casino employees could be a potential threat to the territory, particularly with more residents poised to join the industry for the next wave of Cotai development. Last week, the Social Welfare Bureau published the triennial report on gaming participation by Macau residents, which it commissioned the Institute for the Study of Commercial Gaming at the University of Macau to undertake. The research finds that the gaming participation rate of Macau residents aged between 15 and 64 was 49.5 percent last year, down from 55.9 percent in 2010 and 59.2 percent in 2007. The median gaming expenses of over 2,000 subjects polled were 505 patacas (US$63.1) a month in 2013, decreasing by 33.1 percent from 755 patacas, the report said. In the

238 patacas Median monthly expenses of residents on casino gambling

monthly budget, local gamblers spent the most in casinos, or 238 patacas. Davis Fong Ka Chio, director of the university institute, told Business Daily: “As the gaming sector has been liberalised for so many years, some residents have lost the sense of freshness and curiosity towards casinos which drew them in, in the beginning . . . The rate was higher when there were a bunch of new resorts opening [in Cotai] in 2007 and 2008 but residents have been getting used to them.”

Ticking time bomb The responsible gaming policies that the government and the industry started in 2009, and the low unemployment rate – which hit a record low of 1.7 percent in this year’s first quarter – have also contributed to the lower gaming rate and fewer problem gamblers, Mr Fong added. The proportion of residents showing mild signs of pathological gambling reached only 1.9 percent last year, down from 2.8 percent three years earlier, the 2013 research shows. The rate for residents with strong signs of pathological gambling registered 0.9 percent, down from 2.8 percent in 2010. It is 8.6 times easier for residents to show signs of pathological gambling if they participate in casino gambling than other types of gaming activities. Associate professor Mr Fong believes that the next wave of Cotai development – with several new resorts slated to open in the 2015-17 period – will not serve as a huge driver in general for residents to gamble. “The resorts focus more on nongaming elements and there will not be too many surprises in terms of gaming elements” appealing to residents, he believes.

But he cautions that the new resorts will impact casino employees, and asks the gaming operators, the administration and the public to seek solutions. “Our study does not show it is easier for gaming employees to become problem gamblers but they do have more incentive to gamble,” said Mr Fong. “It’s a risk, or a progression, which cannot be overlooked.” He went on to say, “Right now, there are 70,000 or 80,000 people in the gaming industry but the figure will surely go over 100,000 after 2017,” he said. “[The gambling participation of gaming employees] is kind of like a time bomb; we don’t know when or whether it will detonate.”

Migrant desire Latest official figures show that some 85,600 employees, both residents and non-residents, were employed in the gaming sector by the first quarter. Observers say that the new Cotai resorts may need another 40,000 workers to man the operations. A survey by the Macau Gaming Industry Labourers Association in January found that 59.25 percent of 481 casino staff gambled, with 17.7 percent betting in casinos. The union poll also said that 43.1 percent of them hide their gambling habits from others. Mr Fong said he supports a ban against casino employees gambling in casinos, a practice that some other jurisdictions have adopted. “It may be difficult to set up a legislative ban but we can consider such terms to be included in the labour contract between staff and casino companies,” he said. Some banks in Macau, like the Bank of China Macau Branch, list out in employee contracts that they cannot set foot in casinos.

KEY POINTS Gaming participation of residents declined to 49.5 pct in 2013 Proportion of problem gamblers and gaming expenses also in decline Aged, male, migrant residents more likely to gamble in casinos Survey warns of gambling practices of casino employees, particularly in Cotai 2.0 Survey suggests banning gaming workers from gambling in casinos Gaming executive and legislator Angela Leong On Kei asked the government in March to consider banning casino employees from gambling in any casino, not just their workplace. The 2013 report by the University of Macau also said aged, male migrant residents with low education background more easily succumb to casino gambling. The poll added that the top three gambling activities that residents engaged in last year were lotteries like the Mark Six (33.1 percent), social gambling like mahjong (21.7 percent) and casino gambling (11.9 percent). The university conducted the survey by polling 2,158 residents aged 15-64 by telephone last year.


8

May 20, 2014

Macau

Equity investors bail out Casino bonds nirvana withstands Macau VIP downturn Nick Gentle, Fion Li and Vinicy Chan

B

onds in Macau casino operators are withstanding a slump in the companies’ shares as growth in VIP gaming slows amid lower economic growth and a crackdown on corruption. A measure of Asian casino bonds advanced 0.19 percent on a total-return basis this quarter, according to a Bank of America Merrill Lynch index, while shares of six Hong Kong-listed operators fell an average of 7.5 percent. Billionaire Steve Wynn said he was in funding “nirvana” after Wynn Macau Ltd. sold US$750 million of seven-year notes without conditions on further borrowing, which have yields trading below the coupon rate. Wynn Macau’s stock has dropped 20 percent from its record intraday high reached March 5. Equity investors sold Macau casino companies as growth in VIP baccarat revenue slowed to 13 percent in the first quarter from a year earlier, data compiled by Bloomberg show. The bond market has been reassured by the expansion of less volatile mass market gambling in the city and signs that the Federal Reserve will hold interest rates relatively low in

coming years. “The resilient behaviour of the casino bonds may be attributed to the nature of the instruments,” said Gordon Ip, a Hong Kong-based fund manager at Value Partners Group Ltd., which oversaw US$10.2 billion of assets as of March 31. “At the end of the day, bond investors are just looking for the return of their capital plus interest.”

Falling yields Matt Maddox, president and chief financial officer of Wynn Resorts Ltd. which owns Wynn Macau, declined to comment on future bond financing plans in an interview in Tokyo May 15. The yield on Wynn Macau bonds due 2021 was 4.94 percent on May 16, below the 5.25 percent coupon offered in the March 13 issuance. That compared with an average of 7.5828 percent for Asian high-yield notes that day and 5.3588 percent for other bonds from Macau, JP Morgan Chase & Co. indexes show. Fed Chair Janet Yellen said this month that the U.S. recovery is uneven and that the economy still requires support because “many

Americans who want a job are still unemployed.” The yield on Asian dollar-denominated corporate debt fell 36 basis points this year to 4.33 percent on May 16. China LotSynergy Holdings Ltd., a lottery system operator, sold HK$650 million (US$84 million) of 5 percent convertible bonds last month. Greektown Casino LLC, which runs a casino in Detriot, Michigan, raised US$425 million selling 8.875 percent debentures due 2019 in February.

Tasty season “The good news is if you’re a high-class borrower with a good credit rating, this is one of the most tasty seasons of all time,” Wynn said on May 1, according to a transcript of an earnings call. He added that “in commercial history and our projects in Cotai along with our colleagues in the industry, it’s nirvana.” Debt in the company was so popular with investors that its latest tranche of bonds carry no restrictions on further borrowing, dividends, asset sales or securing of new lending via liens. They’re

also structurally subordinated to an existing credit facility at Wynn Macau. China’s economy expanded 7.4 percent in the first three months of this year, the lowest since 2012. Growth in industrial production and retail sales in April trailed estimates. The yield on the nation’s 10-year sovereign debt has fallen 36 basis points since Dec. 31 to 4.1921 percent on May 16, while the seven-day repurchase rate has dropped 231 basis points to 3.1 percent yesterday.

Winning percentage The yuan has lost 3 percent against the greenback in 2014, the worst performer in Asia and erasing last year’s 2.9 percent appreciation. While the amount of money Wynn Macau converted into chips at mass-market tables during the quarter grew 1.1 percent, the least among the major Macau operators, the win percentage increased to 43.4 percent from 35.5 percent a year earlier, the highest among companies which report comparable data. Win percentage refers to the money a casino retains from customers.


9

May 20, 2014

Macau Paradise joins MSCI Hong Kong Small Cap Index Paradise Entertainment Limited and its subsidiaries have been selected as a constituent part of the MSCI Hong Kong Small Cap Index. The changes concerning the group - which is primarily engaged in the development, provision and sales of electronic gaming systems and the provision of casino management services - will take effect as at the close of trading on 30th May. The MSCI Hong Kong Small Cap Index measures the performance of the small cap segment of the Hong Kong market. Inclusive of Paradise, MSCI Hong Kong Small Cap Index has added another 6 stocks including Hopewell Holdings, IGG and Summit Ascent Holdings.

The VIP market still accounts for 64 percent of casino revenue in Macau and the shift from VIP to mass-market segment gamblers can limit revenue growth for casino operators, Bloomberg Industries analysts Tim Craighead and Brian C. Miller wrote in a May 9 note. VIP revenue growth, historically correlated with China’s grossdomestic product expansion, could slow with the economy, Miller and Craighead said.

High Stakes Wynn also has more at stake when it comes to Chinese growth because of its reliance on VIP clients and the upcoming opening of the US$4 billion Wynn Palace on the Cotai Strip, according to Chad Beynon, an analyst at Macquarie Group Ltd. The billionaire- owned company posted casino-revenue growth of 15.1 percent in the first three months compared with the year-ago period. VIP turnover rose 26.7 percent. “We maintain a constructive view on Wynn Macau’s credit,” said Alex Bumazhny, a New Yorkbased director for gaming, lodging and leisure at Fitch Ratings Ltd.

“Given the low leverage at that level and solid free cash flow, we think there’s ample cushion for a moderate slowdown in VIP revenue growth, if it persists.” Macau’s gross gaming revenue grew 2.1 percent in the first quarter to 102 billion patacas (US$12.8 billion) from the previous three months, compared with a 12.3 percent expansion in the last quarter in 2013, government data show. Revenue climbed 20 percent from a year earlier in the first quarter. The city’s gambling market may reach US$115 billion by 2018, Wells Fargo & Co. New York-based analyst Cameron Mcknight said May 8.

“Melco trading misplaced” Melco analysts perplexed by 18pct stock sell-off as buy calls mount Gabrielle Coppola

Money laundering China’s government, which strictly controls the movements of its citizens into the former Portuguese colony, is considering ways to limit a loophole that allows people to use visas for third countries to enter Macau, supposedly for transit purposes, state broadcaster CCTV said this month. The ease of changing yuan into other currencies, the lack of foreign-exchange controls and the commingling of illicit and legitimate money at the casinos also makes Macau vulnerable to money laundering, including proceeds from corruption, the U.S. State Department said in a 2012 report. Global Financial Integrity, a Washington-based watchdog group, estimated US$1 trillion flowed out of China in the decade ended in 2011. The South China Morning Post reported this month that Macau police seized mobile cash-card machines that could be used to circumvent currency controls. The paper reported on Sunday that two men were arrested in Macau in a crackdown on the use of the UnionPay mobile swipe card devices, and the city’s casinos have been ordered by Macau’s Monetary Authority to get rid of the devices before July 1, said the newspaper. However, on Sunday Macau government deny any deadlines or event the action. Secretary Francis Tam Pak Yuen told reporters here that the government will step up measure to oversee the use of UnionPay cards if needed, but dismissed suggestions casinos will introduce new rules for stores in July. Galaxy Entertainment Group Ltd.’s shares jumped 685 percent between the start of 2011 and the end of last year, while Melco International Development Ltd.’s stock soared almost 500 percent. The two companies were the best performing in the Hang Seng Composite Index during the period. Sands China Ltd. stock has more than tripled in value in three years. “With regards to the junket explosion and UnionPay and all those Visa issues, I think sometimes news stories in the industry here gets too polarized,” Lawrence Ho, the co-chairman of Melco Crown Entertainment Ltd. said on an earnings conference call May 8. “We’re pleased with the growth and I think ultimately the long-term secular story in Macau.” Bloomberg News

Lawrence Ho

S

tock analysts and investors have never been so at odds over the outlook for Melco Crown Entertainment Ltd. While investors have driven down the Hong Kong-based casino operator 18 percent to US$32.23 this year, analysts have ratcheted up price estimates on the stock 20 percent. The gap between the market price and the consensus estimate is the widest on record, according to data compiled by Bloomberg. “Trading in Melco has been misplaced, and it’s created an incredible opportunity to buy the shares at a very low valuation, especially when you look out to 2015 and 2016 numbers with new properties online,” Bryan Maher, a senior analyst at Craig-Hallum Capital Group LLC who has a buy recommendation on Melco with a US$50 price target, said by phone on May 16. American depositary receipts of Melco, controlled by billionaires James Packer and Lawrence Ho, fell for a fifth day on May 16 in New York, the longest stretch of declines in seven weeks. Hong Kong-based Melco trades at about 17 times estimated

earnings, the lowest multiple since November 2012, while analysts have an average 12-month price estimate of US$50.49, implying a 57 percent rebound over the next year. Its Hong Kong- listed shares rose 0.42 percent to HK$83.75.

Call buying Melco’s 2014 slump is comparable to a 22 percent tumble in MGM China Holdings Ltd. and a 16 percent plunge in billionaire Lui Che Woo’s Galaxy Entertainment Group Ltd.. Options traders are betting on a rebound in Melco’s shares, pushing the number of outstanding calls to buy the stock to almost 153,000 contracts, the most since April 2013 and up from about 55,000 at the end of March. After slowing to 14 percent in 2014, revenue growth at Melco is projected to accelerate to 24 percent in 2015 and 28 percent in 2016, according to the average of at least 12 analyst estimates compiled by Bloomberg. Twenty-two of 25 analysts covering the company have a buy recommendation, and none is rating it a sell. Bloomberg


10

May 20, 2014

Greater China Chongqing (pictured) is one of the most populated cities in China, which not so long ago was the scene of frantic building activity

Military buys FAW’s red flag cars China’s military has purchased more than 1,000 FAW Car Co Ltd’s Red Flag H7 sedans for official use as part of a move to phase out foreign brands, an official newspaper said yesterday. Chinese President Xi Jinping has made clear that the country’s military should buy indigenous vehicles and it will purchase more Red Flag H7 sedans, according to the PLA Daily, a newspaper owned by the Chinese People’s Liberation Army. The military will phase out foreign vehicles made by companies like Volkswagen AG, the article said.

Container makers dumping probed by U.S. Chinese container makers Singamas Container Holdings Ltd and China International Marine Containers (Group) Co Ltd (CIMC) said U.S. authorities were investigating them for anti-dumping practices. The probes are in response to a petition alleging the companies’ 53-foot domestic dry containers are subsidised by the Chinese government and sold in the United States, both companies said in separate filings to the Hong Kong bourse yesterday. The alleged dumping margin is 84.07 percent, they said, while Singamas added that the U.S. authorities had estimated it was given a subsidy rate of at least 2 percent.

Formosa Plastics seeks compensation from Vietnam Taiwan’s firm, one of the companies worst affected by anti-China riots in Vietnam last week, said yesterday it will request compensation from the Vietnamese government for damages to its facilities. The company, Taiwan’s largest investor in Vietnam, did not provide a figure for damages incurred during the unrest over a territorial dispute between China and Vietnam. Formosa Plastics Group had previously said that one of its Vietnam-based factories had been set ablaze after rioters attacked the factory, leading to one death.

Real state solution depends on local action The government is still trying to deal with the hangover of a 4 trillion yuan stimulus package implemented in 2008-2009

C

hina will increasingly manage its troubled property sector at a local level as it seeks to avoid sparking either an abrupt slowdown that undermines the economy or another surge in prices, according to government economists involved in policy discussions. After increasing at double-digit rates through most of last year, home prices started cooling in late 2013 as a sustained campaign to clamp down on speculative investment and easy credit gained traction. After last bad figures, authorities know a severe property crunch could

worsen a build-up of debt, but also that a blanket easing of restrictions could set off another round of creditfuelled house price rises. “There is no sign that the central government will relax property controls on a nationwide scale even though the economy is slowing,” said. “The pressure is mainly on local governments, because some of their debts are maturing and they need to repay.” Local governments rely heavily on revenues from land sales to fund debts that official data show total 17.9 trillion yuan (US$2.9 trillion),

so price falls and slowing sales have sparked concerns about their ability to service their debts. The economists expect restrictions on property introduced over the past five years to largely remain in place, particularly in major cities, but with some local authorities given leeway to support their markets. Some smaller cities, including the eastern city of Tongling in Anhui province and Ningbo, the coastal city of eastern Zhejiang province and the southern city of Nanning in Guangxi, have started to loosen home purchase rules.

Fisker to defy Tesla Wanxiang Company expects to receive a licence to manufacture electric cars in China although it already can build electric cars and trucks

Foreign minister meets UN chief

Chinese Foreign Minister Wang Yi on Sunday said China is willing to work with relevant sides to foster an Asian security outlook that meets Asia’ s need so as to promote a regional security framework. Wang made the remarks at his meeting with visiting United Nations Secretary-General Ban Ki-moon. Ban will attend the Fourth Summit of the Conference on Interaction and Confidence Building Measures in Asia (CICA). Asian affairs should be mainly handled by the Asian countries, Wang said, adding the Asian countries is capable of maintaining regional peace and stability.

T

he Chinese billionaire who bought Fisker Automotive Holdings Inc. at a bankruptcy auction is planning to build a new slate of electric-drive cars in the U.S., challenging Tesla Motors Inc. on its home turf. Lu Guanqiu, the chairman and founder of China’s Wanxiang Group Corp., plans to manufacture electric cars in the U.S. and ultimately in

China, he said in his first extensive interview since prevailing in a February bidding war for Fisker’s assets. “I’ll put every cent that Wanxiang earns into making electric vehicles,” he said at Wanxiang’s headquarters in Hangzhou, Zhejiang province. “I’ll burn as much cash as it takes to succeed, or until Wanxiang goes bust.”

Lu’s plan pits him against the likes of Elon Musk, the chief executive officer of Tesla, which has quickly added workers to churn out its US$72,000 Model S. Each mogul aspires to move his company beyond the U.S. to sell lower-emission cars in China -the world’s largest auto market, with some of the worst air pollution. “Fisker brings a unique edge and


11

May 20, 2014

Greater China

Smog war harms steel production

Back in 2012, Beijing forced governments in areas including Wuhu, Foshan and Chengdu to retract plans to ease controls on real estate, but there has been no such response this year.

Drag on growth The cooling real estate market helped drag annual economic growth to an 18-month low of 7.4 percent in the first quarter, and a sustained fall would risk China missing its economic growth target for the fist time in 15 years. Standard Chartered said official figures showed 17 months stock of apartments in Tier 1 to Tier 3 cities, which cover China’s major metropolises, including Beijing and Shanghai. “The momentum is clearly negative. This downturn appears worse than previous episodes the scale of oversupply is likely to be larger, and policy makers are understandably more hesitant to step in with immediate support,” Standard Chartered economists said in a report. The government is still trying to deal with the hangover of a 4 trillion yuan stimulus package implemented in 2008-2009, which insulated China from the global crisis but also created piles of local debt and record house prices. “It’s natural to relax controls if property prices fall. Our purpose is to curb price rises and we should relax if prices no longer rise,” said Zhu Baoliang, chief economist at State Information Centre, a top government think-tank. “I don’t think property prices will rise further. On

I’ll burn as much cash as it takes to succeed, or until Wanxiang goes bust Lu Guanqiu, Wanxiang chairman and founder

owning the company no doubt benefits Wanxiang in terms of gaining access to technologies that would otherwise take them years to develop,” said Harry Chen, an automotive analyst with Guotai Junan Securities Co. in Shenzhen. “To succeed it ultimately has to start production in China and manufacturing in U.S. is just a stepping stone.”

Technical flaws Lu, 69, made tractor parts during China’s Cultural Revolution and has nursed a desire to build cars since the 1980s, he said. Now he has a fortune of US$3.1 billion, according to data compiled by Bloomberg. Musk, worth about US$9.2 billion, said earlier this year he expects China will become Tesla’s biggest market. Wanxiang, China’s largest autoparts maker, is hoping to build upon the remains of Fisker, whose plug-in hybrid sports car, the Karma, won

The pressure is mainly on local governments, because some of their debts are maturing and they need to repay Zhao Xijun, deputy head, Finance and Securities Institute, Renmin University in Beijing

the contrary, the downward pressure is big.” Last week the central bank called on banks to speed up the granting of home loans to first homebuyers, although that is seen having only a limited impact. Many economists believe that if the economy slows further, the central bank will cut banks’ reserve requirement ratios around the middle of the year. That would support activity, but it is a broad-brush policy that authorities can’t fully control. “We need to keep liquidity relatively loose to help safeguard economic growth,” said Li Huiyong, chief economist at Shenyin & Wanguo Securities in Shanghai. Reuters

raves for its low-slung design and rants from critics for its technical flaws. The US$103,000 Karma was made in Finland. Fisker filed for bankruptcy in late 2013, before it could make good on its plan to use an Energy Department loan to produce a second model in the U.S. Fisker nonetheless sparked a bidding war between Chinese suitors, who would gain about three dozen current and pending Fisker patents. Wanxiang’s US$149.2 million offer topped bids from Hong Kong investor Richard Li’s Hybrid Tech Holdings LLC.

Chinese promises The Fisker estate included an abandoned General Motors Co. plant in Wilmington, Delaware, providing Wanxiang an entry point for selling cars in the U.S. -a goal that’s eluded Chinese carmakers such as BYD Co. and Great Wall Motor Co. Geely Automobile Holdings Ltd. and Chery Automobile Co. have made predictions as far back as 2005 to enter the U.S. market, though they’ve yet to sell their first car in America. Wanxiang aims to produce the Karma model in the U.S. and later make other extended-range hybrids there, the company said on May 17. It declined to offer a timeline or other details. Lu said in last week’s interview that he expects Wanxiang to receive a license to manufacture electric cars in China, without offering specifics. The company already has a permit, granted in October, to build electric buses and trucks there. “The road is still very long,” Lu said. “We want to concentrate for now on manufacturing in the U.S. If I don’t succeed, my son will continue with it. If he doesn’t make it, my grandson will.” Bloomberg News

Hebei has been the major front in a “war on pollution” that has targeted small-scale industrial plants

S

teel production in the northern Chinese province of Hebei dipped 7.1 percent in April from a year ago despite increasing output levels nationwide, a sign that Beijing’s war on smog is already eating into industrial output in the region. Hebei, home to seven of China’s 10 smoggiest cities in 2013, according to official air quality data, has been under heavy pressure to “restructure and upgrade” its economy and ease its dependence on polluting industries like steel and cement. According to data from the National Bureau of Statistics, Hebei province produced 16.18 million tonnes of steel in April, accounting for 23.5 percent of the national total. The province produced 17.43 million tonnes in March. Over the first four months of the year, Hebei produced 66.59 million tonnes, 24.5 percent of the total and 4 percent lower than the same period of 2013. Hebei, which surrounds the capital Beijing, has been the major front in a “war on pollution” that has targeted small-scale industrial plants, including hundreds of privately-owned steel mills. The campaign has already had an impact on economic growth, with

provincial GDP up just 4.2 percent in the first quarter of 2014, down from a 9.1 percent expansion in the same period a year ago and one of 8.2 percent in the fourth quarter of 2013. Hebei aims to cut crude steel capacity by 60 million tonnes over the 2014-2017 period, with 15 million tonnes to be closed this year. Officials expect actual closures could be higher, with dozens of mills struggling to survive a financial crisis brought about by plunging prices and a government-driven credit crunch targeting oversupplied heavy industries. The clampdown on credit has made it harder for smaller mills to upgrade their equipment and meet exacting new industrial standards. Industry officials have said in some regions as many as 70 percent of the mills face closure. Zhao Xizi, chairman of the All-China Chamber of Commerce for Small and Medium-Sized Metallurgical Enterprises, told a conference last week that more than 80 million tonnes of capacity could end up closing in the next two years, leading to the loss of as many as 200,000 jobs. Reuters

Shanghai hosts China-Mongolia presidents meeting Xi said China sticks to the principles of win-win cooperation and mutual benefits in developing economic ties with Mongolia

C

hinese President Xi Jinping met with his Mongolian counterpart Tsakhiagiin Elbegdorj in Shanghai yesterday. Elbegdorj was here to attend the Fourth Summit of the Conference on Interaction and Confidence Building Measures in Asia scheduled for Tuesday and Wednesday in Shanghai. Xi called on both countries to be good neighbours, good friends and good partners, and support each other on issues of core interest and major concern. China respects Mongolia’s sovereignty, security and territorial integrity, and respects the development path that Mongolia has chosen for itself in accordance with its national conditions, Xi said. This year marks the 65th anniversary of China-Mongolia diplomatic ties as well as the Year of China-Mongolia Friendly Exchanges. Both sides held celebrations that received warm responses from the two peoples, Xi said, hailing the sound momentum of bilateral ties. “I care very much about ChinaMongolia ties and assign great importance to them,” Xi said. He proposed both sides keep close contacts and strategic communication between top leaders and step up exchanges among legislatures, parties and armed forces.

Noting the two economies are highly complementary, Xi said China sticks to the principles of win-win cooperation and mutual benefits in developing economic ties with Mongolia. China will consider mining, infrastructure construction and finance cooperation with Mongolia as one issue of three aspects and plan their advancement accordingly, Xi said. He called on both sides to take the construction of a Silk Road economic belt as an opportunity to expand cooperation. China will encourage companies to invest in Mongolia, Xi said, vowing support for Mongolia in global and regional affairs. “We are willing to enhance cooperation with Mongolia in multilateral organizations such as the United Nations and the Shanghai Cooperation Organization,” Xi added. Elbegdorj said China’s policies in developing ties with neighbouring countries put forward by Xi have offered important guidance and opportunity for enhancing Mongolia-China ties as well as regional cooperation. The Mongolian side is committed to working with China to make MongoliaChina ties an example for countryto-country relations in the region, he said. Elbegdorj invited Xi to pay a state visit to Mongolia at an early date. Xinhua


12

May 20, 2014

Asia Malaysian Air tumbles amid bankruptcy concerns The unprofitable national carrier that’s still searching for Flight 370, dropped the most since 1998 amid investor concern the government may let the company fail. The government should consider giving up its stake in the airline, Sinar Harian newspaper reported, citing Malaysia’s Public Accounts Committee Chairman Nur Jazlan Mohamed. Bankruptcy may be an option to allow Malaysian Air to restructure, the Wall Street Journal said last week, citing an interview with Prime Minister Najib Razak. The airline’s shares have dropped 63 percent over the last year, compared with the 6.2 percent increase in the FTSE Bursa Malaysia KLCI Index.

Vietnam’s investors hesitate Anti-Chinese riots in Vietnam last week have raised doubts about its commitment to foreign investment, the state-run China Daily newspaper said yesterday, as China reported it had evacuated about 4,000 people from its southern neighbour. A flareup over disputed sovereignty in the South China Sea sparked protests in Vietnam that spiralled into a rampage of arson, destruction and looting of Chinese-owned factories, and other businesses mistaken for being Chinese. Fighting between Vietnamese and Chinese workers broke out in central Ha Tinh province on Wednesday killing two people and wounding 140, Vietnam said.

Japan March machinery Tepid exports growth has already raised concerns among analysts as policy makers seek to safeguard a recovery

J

apanese core machinery orders surged in March and firms expect orders to rise in the current quarter in a sign capital spending is picking up, backing the central bank’s conviction that the economy can weather the impact of last month’s sales tax hike. The record 19.1 percent monthon-month rise in core orders, a leading indicator of capital spending in the coming six to nine months, blew past a 6.0 percent gain forecast by economists in a Reuters poll. Companies surveyed by the Cabinet Office forecast that core orders will rise 0.4 percent in April-June from the previous quarter, which would mark the fifth straight quarter of gains. In January-March, core orders rose 4.2 percent, the data showed. The readings bode well for the Bank of Japan’s argument that the economy can weather the tax hike, likely easing pressure for fresh monetary stimulus. The BOJ is set to stick to its upbeat view of the economy at its policy review this week and may raise its view on capital expenditure, suggesting that no immediate expansion of monetary stimulus is forthcoming. The Cabinet Office data comes on the heels of the Reuters Tankan survey which showed business morale slid in May but is seen improving in the months ahead, providing evidence

that the pain from the April 1 tax rise will likely be short-lived. Capital spending - long a weak link in Japan - is key to negotiating a temporary dip in the world’s third largest economy after the sales tax rose to 8 percent from 5 percent on April 1. Tepid exports growth has already raised concerns among analysts about the risks to the growth outlook as policy makers seek to safeguard a recovery after years of stagnation and falling prices. “Higher corporate profits and easing of excess production capacity are likely to keep capital spending in uptrend ahead,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute in Tokyo. “Companies may also face the need to replace their ageing plant and equipment from now on.” The Cabinet Office raised its assessment of machinery orders, saying they are in rising trend.

Rebound In the Reuters Tankan poll for May, the index of sentiment among manufacturers fell to plus 19 from a near seven-year high of plus 25 in the previous month. At plus 21, the service-sector gauge was down 14 points from a record high in April. The indexes for manufacturers

and non-manufacturers are expected to improve to plus 21 and plus 28 respectively in August, meaning that optimists far outweighed pessimists, according to a poll of 400 big and medium firms, of which 246 responded during April 25-May 12. The increase in the sale tax has stoked worries that it could severely

Abe to expand GPIF oversight

Widodo hitches star to change

Japan is moving to shake up oversight of the world’s largest public pension fund to give it a more professional and expanded board and reduce its reliance on government bonds as part of a set of economic reforms to be announced next month by Prime Minister Shinzo Abe’s government, according to two people with direct knowledge of the discussions. As part of Abe’s revised growth strategy, officials are considering a proposal that would add two or three full-time members to the investment committee that oversees the US$1.26 trillion Government Pension Investment Fund (GPIF), the people said.

Widodo will aim to gradually reduce fuel subsidies, which act as a drag on the state budget, over four years

S.Korea’s BGF retail jumps South Korea’s biggest convenience store chain BGF Retail Co made a strong debut yesterday, rising 39 percent after pricing its 252.6 billion won (US$246.67 million) initial public offering at the bottom of an indicative range. BGF shares opened at 57,000 won each, valuing the company at 1.4 trillion won, up from its IPO price of 41,000 won.

I

ndonesian presidential frontrunner Joko Widodo will select former vice president Jusuf Kalla as his running mate for July elections, Indonesian Democratic Party of Struggle Secretary General Tjahjo Kumolo said. The move to tap Kalla reduces political uncertainty in Southeast Asia’s largest economy, with the pairing expected to get the support of 44 percent of voters, based on a survey by Indikator Politik Indonesia conducted before the announcement. In Kalla, Widodo is looking for a candidate who can help him navigate policy changes through parliament. Tjahjo made the comments today to reporters in Jakarta. The Indonesian Democratic Party of Struggle, or PDI-P, had also been considering Abraham Samad, the head of the anti-graft agency, Puan Maharani, a party official, said on May 14.

The rupiah is the best performer this year among 11 major Asian currencies tracked by Bloomberg, amid signs Widodo will accelerate infrastructure construction and curb fuel subsidies. Kalla, 72, a businessman and chairman of the Indonesian Red Cross Society, was vice president during the first term of President Susilo Bambang Yudhoyono. Together they lifted subsidized fuel prices in 2008, the first increase in three years. Widodo will aim to gradually reduce fuel subsidies, which act as a drag on the state budget, over four years, he said in an interview on May 3.

Fuel subsidies “Jokowi’s ability to eliminate fuel subsidies will depend largely on whether he could win the support of a fragmented parliament where no party has a majority,” Anton

Alifandi, a London-based analyst at research company IHS Inc., said in a report on May 16. “As vice-president in Yudhoyono’s first term, Kalla proved to be an effective politician in persuading parliament to support government programs.” PDI-P, which has been in opposition for 10 years, won the most seats in April 9 parliamentary elections, getting 109 spots compared to 91 for Golkar. PDIP’s alliance consists of the National Democratic Party, the National Awakening Party and Hanura. Widodo and Kalla’s main opposition will be ex-general Prabowo Subianto from the Gerindra Party and his probable running mate Hatta Rajasa, who resigned last week from the government as coordinating minister for the economy to focus on the presidential election. Bloomberg News

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

Business Daily is a product of De Ficção – Multimedia Projects Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 editor editor@macaubusinessdaily.com newsroom newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com


13

May 20, 2014

Asia

orders soar

Recession threatens Thai economy

T

about the risks to the growth outlook

Japanese Prime Minister Shinzo Abe gestures during a news conference held at the prime minister’s official residence in Tokyo, Japan, 15 May 2014

KEY POINTS Core orders +19.1 pct m/m in March, seen rising in Q2 Manufacturers’ sentiment index +19; service sector +21 Outlook seen brighter, tax hike impact may be limited BOJ to keep upbeat view; no need for immediate stimulus

crimp consumption and derail the economic recovery engineered by Prime Minister Shinzo Abe’s aggressive fiscal and monetary stimulus policies. Company executives also noted that slowing growth in China and other emerging markets have dragged on exports and the economic recovery, echoing concern among policymakers.

Japan’s economy grew at its fastest pace in more than two years in the first quarter as consumer spending jumped and business investment turned surprisingly strong in a sign of confidence in the prospects for future growth. The BOJ has stood pat since offering an intense burst of monetary stimulus in April last year, pledging to double base money via aggressive asset purchases to accelerate consumer inflation to 2 percent in roughly two years. Reuters

hailand’s economy shrank more than expected in the first quarter as exports remained weak and domestic activity was depressed by months of political unrest, which threatens to tip the economy into recession. The state planning agency, which compiles gross domestic product data, said yesterday there was a 2.1 percent contraction in January-March, compared with the previous three months, while the first quarter shrank 0.6 percent from a year earlier. The agency, known as NESDB, chopped its 2014 GDP growth forecast to 1.52.5 percent from 3.0-4.0 percent. A Reuters poll of economists had forecast GDP in January-March to shrink by 1.6 percent from the previous quarter on a seasonally adjusted basis and the economy to have growth of 0.1 percent on an annual basis. The country has been run since December by a caretaker administration with limited fiscal powers and there is no end in sight to the crisis as protest groups seek to install an unelected government. The outlook for the April-June quarter and beyond is grim. “Chances are we are going to see another technical recession in the economy, given that the secondquarter GDP number is likely to be rather poor as well,” said Gundy Cahyadi, an economist with DBS Bank in Singapore. “The longer the economy is without a functioning government, the more the drag to economic growth,” he added. The

KEY POINTS Q1 GDP -2.1 pct q/q and -0.6 pct y/y Result was worse than poll forecast Planning agency cuts 2014 GDP growth fcast to 1.5-2.5 pct from 3.0‑4.0 pct Political turmoil hits demand, tourism; exports still weak

political protests flared at the start of November. Consumer confidence is at a 12year low, tourists are staying away from Bangkok and public spending has been delayed. Many parts of the economy are feeling the pinch, even the property sector, which proved resilient during previous bouts of unrest. The planning agency revised the figure for fourth-quarter growth to 0.1 percent from the previous three months from 0.6 percent. It left year-on-year growth for OctoberDecember at 0.6 percent. Reuters

Aussie options reveal limit Strategists have been busy trying to keep up with the Aussie’s gains

T

he end of the Australian dollar’s longest rally in four years is starting to be seen in the options market. Derivatives that give the buyer the option to sell the Aussie against the U.S. dollar, or puts, have made up a majority of trades for the past five weeks, reaching 66 percent after being as low as 42 percent the second week in April, according to Depositary Trust & Clearing Corp. data compiled by Bloomberg. The currency is up 8 percent from this year’s low reached January 24, on pace for its fourth-straight monthly gain. The Reserve Bank of Australia would welcome relief from a rising currency, which officials last month described as high by historical standards and a risk to exporters amid a slowdown in China, the nation’s largest trading partner. The Aussie’s gains have been driven by reserve managers snapping up government debt with the highest yields among AAA rated peers. “The professional or hedge-fund universe still has a negative bias on the Australian dollar as a result of being closely linked to China,” Neil Azous, the founder of Stamford, Connecticut-based research

firm Rareview Macro LLC, said May 15 in a telephone interview. That analysis “of the options market suggests there’s a downside bias to Aussie dollar.”

Raising forecasts Strategists have been busy trying to keep up with the Aussie’s gains, raising their median year-end forecast to 89 U.S. cents from 85 in February. Futures traders are the most bullish in a year. Australia’s legal tender has gained 5 percent versus the U.S. dollar this year, the third-biggest jump among

16 major currencies tracked by Bloomberg, to 93.60 U.S. cents last week in New York. “Reserve managers continually buy Aussie dollar because it gives has the highest yield for a AAA nation,” Azous said. The nation’s two-year government bond yielded 2.69 percent, the highest after lower-rated Iceland’s 4.5 percent among 21 developed sovereign markets tracked by Bloomberg. Among countries with the highest ratings, similar maturity debt yielded 1.04 percent for Canada, 0.09 percent for Germany and

negative 0.1 percent for Switzerland. Notes sold by the U.S., whose credit was downgraded from AAA by Standard & Poor’s in 2011, yielded 0.36 percent.

Bullish bets Hedge funds and other large speculators are the most bullish on Australia’s currency versus the U.S. dollar in a year, figures from the Washington-based Commodity Futures Trading Commission as of May 13 show. The difference in the number of wagers by hedge

funds and other large speculators on an advance in the Australian dollar compared with those on a drop, net longs, totaled 17,127 contracts on May 13. The Aussie is about even with its 93.62 level on April 15, when RBA Governor Glenn Stevens and his board said in the minutes of that month’s policy meeting that achieving “balanced growth” would be more difficult “given the rise in the exchange rate over the past few months.” As predicted by all 33 economists surveyed by Bloomberg News, the central bank refrained from raising the overnight cash-rate target from a record 2.5 percent even amid signs of a realestate bubble. Policy makers reiterated that the most prudent course is likely to be a period of steady interest rates. Property-market prices have increased for six straight quarters amid low borrowing costs. The median house and apartment price in Australia’s eight biggest cities rose 10.9 percent in the first quarter from a year earlier, with Sydney’s 15.7 percent increase leading the gains, according to a release by the Australian Bureau of Statistics. Bloomberg News


14

May 20, 2014

International

Swedish housing market seriously harmed by taxes

Fischer, Brainard to push for more activist Fed

State-backed housing agency says the current tax code is driving prices well beyond what is sustainable

A

fter the government rejected proposals to scale back tax deductions on mortgage payments, the National Board of Housing, Building and Planning is calling for other measures to cool the property market. It’s now urging politicians to drop a 22 percent capital gains tax on housing, which the agency said May 6 has kept the market “boiling” under a shortage of supply. While record house price gains have made a lot of Swedes rich, many are reluctant to move because they don’t want to pay the gains tax. The housing board says that’s distorting property prices and often keeping Swedes in accommodation that’s unsuited to their needs. Apartment prices nationwide have almost tripled since early last decade, and homeowners have amassed a record level of debt to pay for their properties, central bank data show. “This so-called moving tax, coupled with traditional moving costs, means that we use our homes in the wrong way - we live too big, too small and in the wrong place,” Bengt Hansson, an analyst at the board, said by phone on May 14. “The problem is that it becomes very expensive to change homes.”

Convincing analysis The government of Prime Minister Fredrik Reinfeldt, which is trailing behind a Social Democratled opposition in most polls ahead of September elections, has shown reluctance to tamper with Sweden’s property taxes. Finance Minister Anders Borg said last week he needs evidence that such taxes hurt mobility, while opening up for a review if the housing board presents a convincing analysis. Home prices have kept climbing even after Sweden took a number of steps to try to cool the market, including a cap on mortgage lending

Prime Minister Fredrik Reinfeldt (pictured) is not inclined to tamper with Sweden’s property taxes

and higher risk weights on banks’ mortgage assets. The latest data from April showed apartment prices rose an annual 8 percent while single-family homes gained 6 percent. That’s prompted warnings from the government and central bank that the development isn’t sustainable. Borg has signalled greater willingness to change rules that affect construction.

‘Big role’ Such regulation “also plays a big role,” he said. “It’s very complicated and costly to build and I think that’s been worrisome.” The Social Democrats have no “proposals to remove the capital gains tax,” Fredrik Kornebaeck, a spokesman for the party, said in an e-mailed response to questions on May 16. Concern over debt and rising home prices has kept the central bank from lowering rates further even after bouts of deflation. Critics of the bank’s policy, including members of its own rate setting board, have argued that excessive focus on the property market has kept rates too

high and hurt the labour market. Sweden’s 8.6 percent jobless rate is Scandinavia’s highest. The central bank concluded in a report this month that Sweden’s household debt problem is worse than previously estimated, reaching 370 percent of disposable incomes for homeowners. The following day, the financial regulator tightened capital rules for banks, partly in response to the rising imbalances.

The cost Economists and policy makers are also calling for measures such as more residential construction and laxer building rules. There’s also discussion around forcing households to amortize their debts faster. Hansson has estimated that Sweden has a shortage of about 150,000 homes, which would cost about 400 billion kronor (US$61 billion) to build. There “would probably be a significant increase in supply” if the capital gains tax were ended, he said. The levy and “the rent-setting system are the most important factors that limit the housing supply.” Bloomberg News

Deutsche Bank sets timeline for equity The bank will use the money to strengthen its regulatory ratios and give it the firepower to expand in investment banking in the United States

T

he bank aims to price and issue around 9.5 billion euros (US$13 billion) in both new equity and hybrid debt by June 4, the lender said yesterday. Germany’s largest bank unveiled an 8 billion euro (US$11 billion) equity capital raising late on Sunday in a move to fortify its regulatory strength measures and put investor doubts to rest. In slides for an investor presentation yesterday, the bank said that it expected the pricing of a separate, previously announced hybrid bond to come before Thursday this week, when management presents its plans at the annual shareholder meeting.

The so-called AT1 bond issue volume is expected to amount to at least 1.5 billion euros. Together, the two measures total at least 9.5 billion euros that the bank will use to strengthen its regulatory ratios and give it the firepower to expand in investment banking in the United States and wealth management in Asia. Shares in the bank were indicated to open down 1.6 percent, according to pre-market broker indications. “The size and price of the rights issue coming so soon after Deutsche Bank expressed a clear preference to reach its capital targets by organic means alongside first quarter 2014 results suggests that investors may

express some caution about what may have changed to act as a catalyst,” said analysts at Nomura in a research note to clients. The new money also helps the bank build up its regulatory ratios as the European Central Bank runs the region’s top banks through rigorous checks before it becomes the euro zone’s leading banking regulator in November. The bank had already raised 10.2 billion euros in equity in 2010 and a further 3 billion euros in 2013, but that was not enough to assuage investor concerns about its capital position as it faces increased regulatory demands. Reuters

The two new nominees to the Federal Reserve’s Board of Governors are expected to push for an expanded Fed role in managing the U.S. economy, working to replace the current raft of programs that resulted from the financial crisis with more permanent tools. The arrival of former Bank of Israel Governor Stanley Fischer and former U.S. Treasury official Lael Brainard will add two strong voices to back Chair Janet Yellen’s view that loose monetary policy needs to be extended to turn around a slack labour market. Fischer intervened directly in Israel’s mortgage market to tackle a real estate bubble, while Brainard pushed EU governments hard for more aggressive action from the European Central Bank during the euro zone crisis.

Vodacom to buy Tata’s South African unit The wireless operator with the most South African customers, agreed to buy local Internet-provider Neotel Pty Ltd. from India’s Tata Communications Ltd. for 7 billion rand (US$676 million). The transaction will be funded through available cash resources and existing credit facilities, Johannesburg-based Vodacom said in a statement yesterday. Vodacom is increasingly focused on small-to medium-sized business customers and expanding data services to offset declining revenue from its domestic voice division. Neotel would help Vodacom add Internet users as it competes against South Africa’s biggest fixed-line operator Telkom SA SOC Ltd. and MTN Group Ltd., Africa’s biggest mobile-phone company.

Commerzbank’s deflation threat alters rate debate Poland’s central bank is being pushed into debating interest-rate cuts instead of increases as deflation risks mount, according to Commerzbank AG. Yields on Polish two-year notes dropped to the lowest in a year last week after inflation slowed to 0.3 percent in April, below all 29 economist forecasts in a Bloomberg survey. While central bank Governor Marek Belka said the report “pushes back” prospects for raising borrowing costs, investors in the derivatives market began wagering on a reduction. Deflation is at risk of appearing for the first time since at least 1989

AstraZeneca rejects sweetened Pfizer offer Britain’s AstraZeneca yesterday rejected a sweetened 55-pounds-ashare offer from Pfizer, leaving it uncertain if the U.S. drug maker would pull off a plan to create the world’s biggest pharmaceuticals group. The rebuff came nine hours after Pfizer 70 billion pounds (US$118 billion) in total offer, and would walk away if AstraZeneca did not accept it. AstraZeneca Chairman Leif Johansson said he had made clear in discussions with Pfizer that his board could only recommend a bid that was at least 10 percent above an offer of 53.50 pounds, or 58.85 pounds.


15

May 20, 2014

Opinion Business

Bonded bankers

Leading reports from Asia’s best business newspapers

Mark Roe

wires

Professor at Harvard Law School

THE STRAITS TIMES KKR & Co is nearing a deal to buy Singapore-listed Goodpack Ltd, the world’s largest maker of intermediate bulk containers which has a market value of US$1.36 billion, people familiar with the matter said. The US private equity firm is working with at least two investment banks on a debt package to buy Goodpack, the people added. KKR has been in discussions to buy Goodpack for nearly a year, but talks are now at an advanced stage, they added. Goodpack said in March it had been in discussions with unnamed parties.

THE NEW ZEALAND HERALD The board of Goodman Fielder will unanimously back a A$1.37 billion takeover bid by Singaporebased Wilmar International and Hong Kong-listed investment firm First Pacific Co in the absence of a better offer. Wilmar, the world’s biggest palm oil processor, and First Pacific will pay 70 Australian cents a share to take over the Australasian food ingredients maker, sweetening an earlier bid of 65 cents a share. On Friday, Goodman’s board said it would unanimously recommend the bid in the absence of a superior proposal, and granted due diligence.

THE PHNOM PENH POST In a first for the Kingdom’s organic rice, the Cambodian Centre for Study and Development in Agriculture (CEDAC), successfully exported its produce to Hong Kong earlier this month, the organisation’s top official confirmed on Sunday. While the US and Germany have traditionally been the key markets for Cambodian organic rice, with about 300 tonnes sent there last year, CEDAC president Yang Saing Koma told the Post that his organisation has exported 30 tonnes to Hong Kong this year, as the market for the Kingdom’s natural produce expands.

THE KOREA HERALD President Park Geun-hye on Monday morning apologized to the people for the government’s failed operation to save hundreds of passengers of the sunken ferry, holding herself responsible for the disaster. The president, in her tearful speech, said she will carry out a series of sweeping reforms to improve the country’s safety standards and develop a new state emergency system in order to prevent further disasters like the Sewol. As part of her drastic reform measures, President Park said she will disband the Coast Guard for its failed rescue mission.

C

AMBRIDGE – Since the global financial crisis, regulators have worked hard to make the world’s big banks safer. The fundamental problem is well known: major banks have significant incentives to take on excessive risk. If their risky bets pay off, their stockholders benefit considerably, as do the banks’ CEOs and senior managers, who are heavily compensated in bank stock. If they do not pay off and the bank fails, the government will probably pick up the tab. This confluence of economic incentives to take on risk makes bank managers poor guardians of financial safety. They surely do not want their bank to fail; but, if the potential upside is large enough, it is a risk they may find worth taking. Several solutions to this problem have been proposed, and some –such as increased capital requirements and restrictions on risky investments– are headed toward implementation. More recently, two other important solutions have emerged. Under the first, more developed proposal, banks would undertake large obligations via long-term bonds, which would be paid only if their operations are sound. In effect, the longterm bondholders would guarantee the rest of a bank’s debts, including the riskiest ones. If the bank faltered, the guaranteeing bondholders would stabilize the most troubled elements of the firm. The bondholders – not the bank’s core operations – would take the hit. Proponents hope that this would soften the systemic cost of bank failure. They also hope that the guarantees would motivate the bondholders to monitor banks’ activities and pressure bank managers to limit their risky operations. The second solution that is gaining ground is to revise bankers’ compensation. Senior

By tying senior managers’ pay to the bank’s stability, the financial sector, advocates argue, would be forced to police itself. This incentivebased regulation could bolster economic stability more effectively than expecting regulators to keep pace with banks’ risky activities

bank managers would be paid not in cash or equity, but in the bank’s long-term bonds, thereby giving them a larger financial stake in the bank’s long-term stability, instead of its long-term stock price. If the bank failed, it would be unable to repay the bonds, and the managers owning bonds would be that much poorer. Bank regulators in the US and elsewhere are now

seriously considering such changes, but they have yet to determine how comprehensive the compensation makeover should be. In general, though, a substantial share of senior bankers’ pay would be deferred for several years. If the bank did not survive that long, the managers would lose that money. This could be achieved by unfunded pension obligations, which do not require that banks set aside the money in advance. Banks overseen by managers who had larger unfunded pensions weathered the financial crisis better than their counterparts, presumably because they had a stronger incentive to keep them safe. A more aggressive approach would compensate bankers with the same bonds that guarantee their institutions’ short-term, volatile, and risky debts. As a result, bank managers would have a personal financial stake in ensuring that the risky obligations do not blow up, as they did during the 20072008 financial crisis. If the obligations deteriorated and the bank failed, the managers would be left unpaid. Because the obligations would be guaranteeing the rest of the bank’s operations, the managers would, it is hoped, be especially vigilant in ensuring that basic operations were safe. By tying senior managers’ pay to the bank’s stability, the financial sector, advocates argue, would be forced to police itself. This incentivebased regulation could bolster economic stability more effectively than expecting regulators to keep pace with banks’ risky activities. The proposal is not perfect – not least because bank managers’ compensation would still be tied to profits. If a banker is told that he or she will be compensated entirely in bonds this year, with the bank’s annual profits

determining the number of bonds to be received, the banker would obviously want to boost this year’s profits – even if it required taking bigger risks. After the banker receives his or her first bond payment, the incentives become more complex. The banker wants last year’s bonds to be paid (creating an incentive to safeguard stability) but wants a high payment this year (creating an incentive to maximize profit, which usually entails risk-taking). Moreover, bankers could find ways to sell the long-term bonds. While regulators can require that the bonds remain unpaid by the bank, and even that bankers prove that they have not sold them, senior bankers are adept at finding loopholes. They could, for example, retain ownership of the bonds, but sell off their economic interest. Bank executives who hold large numbers of these bonds would have an incentive to lobby to dilute the bonds’ guarantee. If the bank’s financial condition deteriorated, their bond holdings might motivate them to conceal that and hope for a turnaround before their bonds were wiped out. All of this highlights the imperative that regulators develop a shrewd and comprehensive strategy for supervising such a compensation system. Otherwise, it would lose its effectiveness. Compensating bankers with bonds helps to promote safety, but it does not let the regulators off the hook. Despite these challenges, a new, bond-based compensation strategy could enhance bank stability considerably. Though there is no silver bullet for bank regulation, implementing such a system with care and vigilance would be an important step in the right direction. The Project Syndicate 2014


16

May 20, 2014

Closing Maritime Silk Road development starts

Gov’t closely monitoring Ka Ho pollution

Ten billion yuan (US$1.6 billion) will support projects related to China’s maritime Silk Road development, according to relevant parties yesterday. The city government of Fuzhou (pictured) signed an agreement with the China Africa Development Fund (CAD Fund) and the Fujian branch of the China Development Bank to jointly set up a fund. Yuan Jianliang, governor of the bank’s Fujian branch, said the three parties will support projects that will boost Fuzhou’s role as a hub of the Silk Road. A 21st century maritime Silk Road was proposed by Chinese President Xi Jinping during his visit to Indonesia last October.

Macau’s government says it’s keen on fighting pollution in Ka Ho, Coloane and as such has implemented some new measures especially for the cement factory there. According to a statement released yesterday by the authorities, cement clinker can no longer be transported or moved around in crane claws. The cement factory has a month to ensure all its materials are transported in closed vehicles so that no clinker falls to the ground. In addition, the factory has to ensure an automatic cleaning of its vehicles when they go in and out, in order to reduce dust clouds. The government has finished drafting an administrative regulation that has already been handed to the Executive Council for discussion.

Reserved housing scheme reflects public’s needs: gov’t Secretary for Transport and Public Works Lau Si Io defends the consultation draft of the reserved housing scheme for Macau residents, which has “reflected the actual demands of the residents”. He told media yesterday following a Legislative Assembly meeting that the draft already echoes some thoughts of the residents on the scheme. The official also urges the public to voice their opinions during the public consultation period whether there should be any income limit or strict re-sales terms. The 60-day consultation started on May 10 and finishes in July.

Macau to propose travel warning alert system The territory now has ‘conditions’ to propose a mechanism of travel warning alert, similar to neighbouring Hong Kong, following consultation, the city’s top tourism official said. Maria Helena de Senna Fernandes, director of the Macau Government Tourist Office, did not reveal any timetable for doing so. She only said that after a Legislative Assembly meeting yesterday a consensus was reached that Macau should have its own travel alert scheme after seeking opinions from the tourism and insurance sector. The city now only follows the three-tier alert system issued by Hong Kong in case of incidents in other jurisdictions.

Reolian services cost MOP7mil a month The government has forked out ‘some 7 million patacas (US$875,000) a month on average’ to sustain the bus services of the bankrupted Reolian Public Transport Co, the Transport Bureau has revealed for the first time. The figure comes from a written reply by the Bureau’s director Wong Wan to an enquiry by legislator Chan Meng Kam. The government has temporarily taken over Reolian’s operation including its employees and buses since the latter declared bankruptcy in October. Mr Wong is confident that a deal can be reached with an unidentified firm to take over the service before its takeover period expires by end-June.

China welcomes the agritainment industry

Z

hou Shuyu, a farmer from north China’s Taihang Mountain, has an annual income of 200,000 yuan (US$32,467). He’s enjoying life. Zhou, 40, lives in Jingdi Village of Pingshun County in Shanxi Province, one of the country’s most poverty-stricken areas. He runs a farm stay business, offering visitors accommodation and food. Per capita income of the village in 2000 was between 600 and 700 yuan, 1,500 yuan less than the average level for rural areas. Income among Jingdi villagers has risen to 5,480 yuan thanks to tourism. More than 30 village families now own cars. The village, famous for its mountain and stone-made houses and streets, has benefited from 600 million yuan of investment. In 2013, 150,000 tourists visited Jingdi, helping generate more than 8 million yuan in income. “This is the perfect place for a short getaway. The mountain view and fresh air is just what we needed,” said Wang Quansheng, a tourist from the central province of Henan. It’s his seventh trip to the village. Rural getaways have become a top choice for urbanites as they look to get away from city pressures. Agritainment in China is a growing trend, with 1.7 million families offering accommodation and farm-based entertainment in 2013. Total income reached 280 billion yuan, benefiting 30 million farmers, Chinese Vice Premier Wang Yang said at the 2014 World Travel & Tourism Council Global

Summit in late April. Ten thousand villages will become tourism spots and 200,000 households will be turned into farm stay accommodation this year. For Bai Suzhen, a villager from Hougou, ancient village protection and the development of tourism have not only increased her annual income from 5,000 yuan to 20,000 yuan, but also raised her awareness of cultural protection. “I see all these old architectures differently now,” Bai said. However, the development of village tourism has caused concerns because of rampant commercialization. In Hougou Village, 87 percent of ticket revenue goes to contractors and the local government, leaving less than 30,000 yuan for protection of the ancient village, which dates back to the Tang dynasty (618-907). Some villagers have even been forced to move out. In Zhangbi Village, home to an ancient castle, more than 60 percent of locals had to be relocated. Villager Zheng Wenjin said he expected to cash in from farm stay accommodation. Instead he moved out. “I would have rather stayed in the village. I used to drop in on neighbours for a chat,” he said. Feng Jicai, president of Chinese Folk Literature and Art Society, said tourism development of ancient villages should be done with more care, and the interests of local residents and their culture should be protected.

GSK blamed with tax scam in China

Hong Kong keeps steady European central banks unemployment rate renew gold agreement

A

C

Chinese state-run newspaper has accused British drug maker GlaxoSmithKline Plc of evading at least 100 million yuan (US$16.04 million) in taxes, adding to pressure on the firm which is already struggling with graft charges against executives. Chinese police on Wednesday said they had charged the former boss of GSK’s China business and other colleagues, in the biggest corruption scandal to hit a foreign company there since four Rio Tinto executives were jailed in 2009. Although the corruption charges target executives rather than the company itself, the mounting allegations made by Chinese media suggest the drug maker is far from safe. The Legal Daily newspaper, run by the ruling Chinese Communist Party’s Political and Legal Committee, reported on Friday that GSK intentionally imported Lamivudine, used to treat HIV as well as hepatitis, at an elevated cost. Along with using tax loopholes for charitable donations, this helped GSK “avoid over 100 million yuan in import value-added tax and corporate income tax,” the report said. Reuters

ity government released the lasted labour force statistics yesterday, showing the seasonally adjusted unemployment rate stood at 3.1 percent from February to April in 2014, the same as that from January to March in 2014. According to the survey conducted by the Census and Statistics Department, increases in the unemployment rate were mainly observed in the decoration, repair and maintenance for buildings, and accommodation services sectors, while decreases were mainly seen in the cleaning and similar activities sector, and the foundation and superstructure works of the construction sector. Secretary for Labour and Welfare Bureau Matthew Cheung said that the labour market remained tight in February-April 2014, with the seasonally adjusted unemployment rate staying at a 16-year low of 3.1 percent for the fourth consecutive month. Total employment bounced back mildly and stayed close to the historical high. The Labour Department has launched a number of pilot projects with employers and various organizations under the Youth Employment and Training Program this year. Xinhua

“Developers should realize the value of historic villages, rather than just chasing after money,” he said. A survey in 2012 showed the vast majority of traditional villages are disappearing because of China’s urbanization drive, which has taken tens of millions of farmers to cities. The number of villages plummeted from 3.63 million to 2.71 million in ten years from 2000. There are now fewer than 5,000 historic villages in the country. To protect villages, authorities have devoted more than 10 billion yuan in three years since 2011. So far, 1,561 villages have been listed as national traditional villages. “People make trips to villages for the idyllic scenery,” said Qiu Baoxing, vice minister of the Ministry of Housing and Urban-Rural Development, during a meeting in late April. Qiu said the countryside and traditional culture are rare tourism resources. Village tourism is expected to account for more than one third of the nation’s overall tourism market, he added. The Chinese tourism market is expected to exceed 2.5 trillion U.S. dollars within five years. China is the world’s second largest travel and tourism economy, with each Chinese person making an average of two trips last year. The travel market is set to grow 7 percent annually for the next 10 years. Xinhua

A

group of 21 European central banks said yesterday they have no plans to sell “significant” amounts of gold over the next five years. In a joint statement, the central banks of the 18 Eurozone nations, the European Central Bank and the central banks of Switzerland and Sweden said: “Gold remains an important element of global monetary reserves.” They said: “The signatories will continue to coordinate their gold transactions so as to avoid market disturbances. “The signatories note that, currently, they do not have any plans to sell significant amounts of gold,” the statement said. The new five-year agreement replaces a similar pact between central banks that expires on September 27, 2014. The previous deal, agreed in August 2009, committed the central banks to sell no more than 400 tonnes per year and no more than 2,000 tonnes in the five-year period. In general, it is highly unusual for central banks to give outlines, even broad, about their policy towards reserves of gold. AFP

Macau Business Daily, May 20, 2014  

Macau Business Daily digital version