Macau Business Daily, May 21, 2014

MOP 6.00 Closing editor: Sara Farr Publisher: Paulo A. Azevedo Number 543 Wednesday May 21, 2014 Year III

Operators enthusiastic

www.macaubusinessdaily.com

Hey, big spender Visitors to Macau spent about 10 percent more in the first quarter this year, bringing their per capita spending to MOP2,074. Mainland Chinese visitors continued being the biggest spenders

Casino operators say there is little bad press can do to dampen Macau’s success story. That goes for the recent crackdown on junkets and UnionPay transfers. All these, speakers at the Global Gaming Expo said, are just ‘minor events’, which will not have that big an impact in the long run. The future? The premium mass; with the ‘biggest opportunity’ yet to come Page

Gaming revenue up 750pct in 10 years

Haitong to consolidate Macau presence

Page 8

Brought to you by

HSI - Movers May 20

Page 2

Name

Business a vocation Vocational training courses focusing on business administration were most favoured last year.

Nonetheless, more people opted to improve their language skills following a hard day’s work or study Page 4

Provincial governments back bonds China announces that 10 local governments will be able to sell bonds directly for the first time Page 10

6

Haitong International Securities’ Macau branch recorded a total operating income of nearly MOP10.6 million in 2013, up 15.3 percent on the previous year. Net

profit also registered a 20 percent growth at about MOP4.82 million last year.

Encouraging enough to open a new branch Page 5

%Day

Tencent Holdings Ltd

4.00

Galaxy Entertainme

3.16

China Resources Po

2.68

China Mengniu Dairy

2.23

Lenovo Group Ltd

2.01

China Shenhua Ener

-1.88

Cathay Pacific Airwa

-1.89

China Resources Lan

-2.38

Power Assets Holdin

-2.72

China Unicom Hong K

-3.06

Source: Bloomberg

Budget blues

Galaxy earnings surge 38pct in Q1 Galaxy Entertainment Group Ltd reported adjusted earnings before interest, taxes, depreciation and amortization increased to HK$3.8 billion in the first quarter, slightly less than analysts’ estimates Page

7

I SSN 2226-8294

USJ is currently 150 million to 200 million patacas short. And it’s racing against time to complete its project. The University of Saint Joseph and Saint Joseph’s Secondary School in Ilha Verde are now exploring all avenues to secure funding for their dormitory, auditorium and chapel Page

8

Brought to you by

2014-5-21

2014-5-22

2014-5-23

26˚ 31˚

26˚ 29˚

26˚ 28˚

2

May 21, 2014

Macau

International banking assets up 29pct y-o-y Total international assets reached MOP930.7 billion in the first quarter

T

he share of international assets in total banking assets advanced to 86.8 percent at the end of March from 85.3 percent at the end of 2013.

The share of international liabilities grew by 82.1 percent from 80.8 percent in the same period.

According to official numbers released yesterday by the Monetary Authority, in the first three months of the year total international assets climbed 10.3 percent from a quarter ago or 28.9 percent from a year earlier to 930.7 billion patacas (US$116.5 billion). Of these, external assets increased by 25.3 percent year-on-year to 713.3 billion patacas, while local assets in foreign currencies jumped by 42.5 billion patacas to 217.5 billion patacas. As a major component of international assets, external loans and deposits advanced by 24.9 percent to 662.2 billion patacas.

Total international liabilities increased by 10 percent from three months ago or 27.1 percent yearon-year to 879.7 billion patacas. Of this total, external liabilities in foreign currencies grew by 28.9 percent from

MOP439.6 billion local liabilities

a year earlier to 450.1 billion patacas, while local liabilities grew 25.3 percent to 429.6 billion patacas. The Monetary Authority also said that foreign currency deposits held by residents and the government continued to form a major component of international liabilities.

This type of deposit grew by

23.6 percent to 399.5 billion patacas at the end of March from 323.2 billion patacas at the end of the first quarter last year.

In addition, foreign currencies were the dominant denomination in international banking transactions. In the first quarter, the share of patacas in international

assets was 0.8 percent, and 2 percent in international liabilities. Hong Kong dollars accounted for 36 percent of total international assets and 43.1 percent in international liabilities, while other foreign currencies accounted for 63.2 percent of total international assets and 54.9 percent of total international liabilities.

The majority of external assets and liabilities were related to the regions of Asia and Europe. Claims on mainland China occupied the majority of external assets in the region at 35.8 percent, followed by Hong Kong at 29.9 percent and Singapore at 2.2 percent. Claims on Portugal took up 8.7 percent, Luxemburg 1.5 percent and Germany 1 percent.

Regarding external liabilities, Hong Kong, mainland China and Thailand accounted for 43.9 percent, 20.2 percent and 7.8 percent of the total, respectively, while Germany, France and Portugal took up respective shares of 5.4 percent, 4 percent and 3.8 percent.

Visitor spending increases 10 percent While the spending of mainland Chinese travelling under the Individual Visit Scheme decreased 11 percent year-on-year, according to official figures, the total take has increased

T

he total spending of visitors in Macau during the first quarter, excluding gaming expenses, has increased 10 percent from 14.5 billion patacas in 2013 to 15.9 billion patacas, according to the Statistics and Census Service (DSEC). Some 13.2 billion patacas (up 8 percent year-on-year) were spent by overnight visitors, with 2.8 billion patacas (increasing 19 percent year-on-year) expended by same-day visitors.

During the first quarter of the year the per capita spending of visitors hit 2,074 patacas, an increase of 1 percent year-on-year. Visitors from mainland China topped the chart of average spending with 2,534 patacas year-on-year. The value dropped 4 percent, however, when compared to the first quarter of 2013. The spending

MOP2,074 visitor per capita spending in Q1

spend ranking followed by Malaysians (1,745) and Japanese (1,701).

Overnight visitor spending per capita reached 3,691 patacas, while same-day visitors spent 673 patacas per capita. These amounts were up 3 and 6 percent, respectively, yearon-year. Per capita spending of overnight and same-day Mainland visitors reached 4,537 patacas and 818 patacas, respectively. Overnight and same-day IVS visitors spent 4,671 and 1,304 patacas.

51 percent of total spent on shopping of mainland Chinese travelling under the Individual Visit Scheme (IVS) showed a steep decrease of 11 percent to 2,660 patacas. Singapore citizens were second (1,836 patacas) in the

The main attraction for visitors to Macau, excluding gaming, was shopping, which accounted for 51 percent of the total money spent.

Items such as jewellery and watches

(27 percent) and local food products (21 percent) were most in favour.

Accommodation (25 percent) and food & beverage (18 percent) were the other main consumption attractions in the first quarter of this year.

Mainland visitors forked out an average of 1,471 patacas on shopping, while shopping spending of IVS visitors reached 1,705 patacas.

The results of the Visitors’ Comments Survey in the first quarter of 2014 demonstrate that about 88 percent and 82 percent of visitor-users were satisfied with the services and facilities of hotels and gaming establishments, respectively.

However, 12 percent of tourists consider that public transport services should be improved and 11 percent commented that tourist attraction sites were inadequate.

Congratulations on the 10th Anniversary of Macau Business

4

May 21, 2014

Macau

Business vocation courses most favoured

V

ocational training courses focusing on business administration were most favoured here last year but more people opt for mastering their language skills after their regular work or study hours, official

figures suggest.

The Statistics and Census Service recently announced the city’s first annual survey on vocational training, noting that some 30 institutions offered 1,484 training courses last year.

This represents a growth of

14 percent in the number of courses offered in 2012.

The number of participants in the courses surged even faster at 34 percent from the previous year to nearly 63,250 last year.

Most participants - 33.5 percent of the total or

21,214 participants - took business administration courses focusing on areas like accounting, management, sales and marketing, rising by 38 percent year-onyear. But more people took language classes last year, rising by 73 percent year-

‘Good faith’ refund to La Scala buyers The decision to refund HK$440 million to the buyers of the unfinished housing project La Scala arises from good faith, says developer Chinese Estates Tony Lai

tony.lai@macaubusinessdaily.com

T

he refund for homebuyers of housing project La Scala comes from “good faith” not its expectation of failure to overturn the Macau Government’s decision to invalidate the project’s land grants, said developer Chinese Estates Holdings Ltd. The comment by Lau Ming Wai, chief executive and chairman of the Hong Kong-listed developer, was made yesterday following the company’s shareholders meeting.

Mr Lau told the Hong Kong media yesterday that the developer had made the decision as the buyers’ hopes for a refund have been clouded by uncertainties surrounding the La Scala project, located opposite Macau International Airport in Taipa.

The developer announced last week it will fork out HK$440 million (US$56.76 million) in refunds to presales buyers of the 302 units in the unfinished project, the construction of which was halted in 2012. The refund announcement came two months after the developer’s former chairman and Mr Lau’s father, Joseph Lau Luen Hung, was convicted of bribery and money laundering related to the project land deal. The senior Lau has appealed the verdict.

In 2012, the Macau administration

revoked two land grants – made in 2006 and 2011 – regarding the project as Joseph Lau and fellow Hong Kong businessman Steven Lo Kit Sing were alleged to have paid HK$20 million to Ao Man Long, former government secretary, in order to secure the land plots.

Mr Lau Ming Wai announced yesterday that the company’s appeals against the government’s revocation are ongoing.

The Macau Government will in all probability compensate Chinese Estates for cost of the land if the

latter loses its appeals in the end, he said, as the government “only invalidated the deals instead of confiscating the plots”.

It is difficult to estimate the loss incurred by the company over the failure of appeals at the moment, the developer’s chief executive said, but it has no intention of further increasing the HK$710-million provision of the project for potential compensation to contractors and buyers.

The land cost of the La Scala totalled HK$1.33 billion with construction costs reaching HK$558 million.

on-year to nearly 6,600 in 2013, the survey said. The number of people taking social services courses hit 3,763 last year versus 282 in 2012.

Indeed, the number of participants enrolling in vocational training could climb even higher this year as the government has increased the amount of subsidy for residents taking training courses.

Macau residents aged 15 or above are entitled to a maximum 6,000 patacas to spend on government-approved courses or examinations under the second phase of the Continuing Education Scheme commencing this year until 2016. Residents can only receive up to 5,000 patacas in the three-year first phase ended last year.

The latest 2013 vocational training survey also said that over 56 percent of participants took the courses due to personal wishes while the rest were arranged by their companies or institutions.

The course completion rate by participants last year reached 88.6 percent, up from 81.8 percent in 2012.

The social service course had the highest completion rate of 99.4 percent whilst only 65 percent of enrollees in engineering courses completed their studies.

The Cheesecake Factory plans Asian expansion A

T.L.

merican restaurant company The Cheesecake Factory is planning to expand in Asia after signing a licensing deal with a Hong Kong restaurant operator, the Wall Street Journal reports.

The deal, according to the report, could see the company open as many as 14 restaurants in Hong Kong, Macau, Taiwan and mainland China over the next 10 years.

The first restaurant could open as early as next year, and an agreement with Maxim’s Caterers Ltd also ‘includes the opportunity to expand to Japan, South Korea, Malaysia, Singapore and Thailand,’ the report quotes the company as saying.

“International expansion will become an increasingly meaningful driver to achieving our goal of delivering mid-teens earnings per share growth over time as the number of restaurants operated by our licensees gradually increases,” David Overton, The Cheesecake Factory’s chief executive is quoted as saying.

The restaurant chain is known for its casual dining, and operates some 169 restaurants and 11 Grand Lux Cafes. Earnings, however, fell 11 percent in the first quarter ‘on higher costs as severe weather and holiday shifts [in the US] weighed on same-store sales growth,’ the report added.

5

May 21, 2014

Macau

Haitong’s Macau arm posts robust profit for 2013 The mainland brokerage’s Macau unit managed to register a strong growth in profit for last year, and plans to add one more branch here Stephanie Lai

sw.lai@macaubusinessdaily.com

T

he Macau arm of mainland China’s second largest brokerage Haitong International Securities Group Ltd registered a stronger growth in its net profit at about 4.82 million patacas (US$603,041) for 2013, and announced that it is planning to establish one more branch in the city to cater to the increasing investment demand from residents here.

Haitong International Securities’ Macau branch recorded a total operating income of nearly 10.6 million patacas for last year, up 15.3 percent on the previous year; the securities trading firm’s net profit also registered a 20 percent growth at about 4.82 million patacas for 2013, its annual results published in local Chinese and Portuguese newspapers show.

“The vast increase in our net profit was mainly driven by the turnover increase in securities trading, and in 2013 we achieved a 36 percent rise in our turnover [at 3.48 billion patacas],” the group remarked over the Macau unit’s performance in an email reply to Business Daily. “The results are very satisfactory and thanks to the booming market condition, the profit is better than our initial expectation.”

Approximately 70 percent of the Macau branch’s 2013 income came from securities commission, with the rest from futures and forex trading. The local unit of Haitong International, which is not entitled to offer margin financing in Macau, is focused on brokerage business.

Haitong International Securities Group changed its name from the former

Taifook Securities Group Ltd in November 2010, following China’s Haitong Securities Co’s purchase of a 53 percent stake in Taifook from its parent NWS Holdings Ltd for US$235 million in 2009. The local brokerage unit, which originally traded under the name of Taifook, also adopted the new name ‘Haitong International Securities Co Ltd’ in 2010.

Haitong’s Macau unit saw its weakest year in 2012 since the name change, which at the time saw a yearly drop of 6 percent in net profit at about 4 million patacas, and a total operating income of 9.19 million patacas – a fall of 8 percent from the previous year.

But for the market at large in 2012, overseas investment from residents in securities, including stocks, set a record level of 261.8 billion patacas,

more than half from a year before, Monetary Authority of Macau records show.

The securities trading firm, which currently operates out of China Plaza in Nam Van, is considering establishing a branch in Taipa within the second half of this year following ‘increasing wealth and investment demands from residents’, the firm noted in a brief summary of its results for 2013.

The Hong Kong-listed Haitong International Securities Group Ltd has

seen a significant increase of a year-on-year 80.3 percent rise in net profit attributable to shareholders at HK$529 million, its annual results for 2013 published on March 13 shows. The firm’s revenue for 2013 hit new heights at HK$1.65 billion.

The group remarked in its filing that its new capital-based intermediary businesses – namely, fixed income, currencies and commodities (FICC) units, structured financing and equity derivatives – have ‘developed at a brisk space’ and ‘contributed significantly’ to improved annual results.

Haitong International Securities Group Ltd’s return on equity, a measure of profitability, rose from 9.3 percent in 2012 to 12.95 percent last year. The firm’s leverage ratio jumped from 2.59 in 2012 to 3.37 last year.

6

May 21, 2014

Macau Brought to you by

HOSPITALITY

Still bullish despite the scandals Gaming operators say they’re bullish about the future of Macau despite the recent crackdowns on junkets, visas and UnionPay. Mass gamers are the “biggest opportunity” for the industry and Hengqin Island is a “sit and wait” situation, top management from Wynn, Sands and MGM told G2E Asia Alex Lee

Alex.lee@macaubusinessdaily.com

Bumper to bumper Macau land borders are the point of arrival for most visitors. They are also subject to an increasing flow of vehicles, both light and heavy. In 2010, all border crossings recorded about 5,200 daily vehicles entering Macau, on average. Last year, the same figure approached 6,400 vehicles, an increase in excess of 22 percent for the full period shown here. The growth rate for heavy vehicles was even higher, reaching almost 28.6 percent in those years.

But at the Cotai crossing, the Lotus Bridge, a decrease of about 17 percent was registered; therefore, the increase actually took place at the two crossings located in the northern part of the city, which is the area where we can find already the biggest congestion problems. At the Border Gate and the TransBorder Industrial Park the movement of heavy vehicles rose by 50 percent and 80 percent, respectively, in the same period.

Most of the incoming traffic happens at the Border Gate. That border share of the total number of vehicles entering Macau has been relatively stable in the last four calendar years, contained within a limited band defined by 83 percent plus or minus one percentage point.

But that share is declining slowly. At the end of the first quarter of the current year the largest rises recorded in total traffic, compared with the same period in 2013, took place at the other two borders: the Trans-Border Industrial Park, which registered an increase of 14.5 percent in that period; and Cotai, where the figures went up by 11.8 percent. Traffic at both crossings has been rising at rates well above the average for the last eight quarters.

5.6%

Q1 rise in vehicle traffic at the borders, on previous year

more gamblers for Macau’s resorts.

“Penetration in China is still critically low”, the MGM China CEO said.

Today, only 1 percent of mainlanders visit Macau.

Even if total revenues are still lower than VIP income, the mass market segment is already responsible for 70 percent of gaming operators’ profits, due to much bigger margins than those delivered by high rollers. Three years ago, profits from mass gamers accounted for only 50 percent.

T

he major gaming operators believe that the recent crackdown on junkets and Unionpay transfers will not affect Macau’s success story and premium mass is “the future” and the “biggest opportunity” for the industry in the years to come. VIP slowdown is about “consolidation” and diversification beyond gaming is key to attracting more gamblers to Macau.

“It seems that everyone’s always looking for reasons to prove that Macau is not the success it is”, Grant Bowie said in the opening session of Global Gaming Expo Asia (G2E Asia) that started yesterday in Macau. The MGM CEO underscored the fact that investors “need to understand Macau”, something that’s “impossible” to do from New York or London.

The recent volatility in casino shares panicked investors as news from the territory put the market on hold. Arrests and default of junkets, possible visa restrictions and crackdown on illegal UnionPay money transfers put casino stocks on the radar of financial markets.

Since the beginning of the year, gaming shares have lost 25 percent, evaporating the 27 percent gain achieved in the second half of 2013.

“We should focus on Macau’s

success story; these are minor events that will not affect the long term,” Wynn Macau president Gamal Aziz told the audience. Leaders from casino operators at the event assured attendees that the gaming industry in Macau is stable and that these are isolated events. “Macau is a unique success in the industry”, said Mr Aziz.

Besides crackdowns and anxious investors, the shift from VIP to mass market is the current hot topic in this year’s G2E event. The VIP market deceleration is due to “lack of tables” as operators are moving them to the more profitable mass segment, said Grant Chum, senior vice president of global gaming strategy for Sands Corporation.

Last year, revenues from high rollers increased 18 percent on average in Macau but in the first quarter of 2014 gains were dropping around 20 percent.

Gamal Aziz and Grant Bowie both said that VIP deceleration was not a consequence of China’s economic slowdown this year. The movement is more about a “consolidation” trend after years of solid growth, claimed the latter.

The casino industry sees the mass market as the future, as the Chinese middle class expands and generates

Beijing commitment The mass market, especially premium gamers, is the “biggest opportunity in the future for the industry”, said Gamal Aziz. “The premium gambler isn’t dependent upon credit, neither on junkets nor casinos and that’s a safety [net] for the future”, added the Wynn Macau president.

Growth in Macau will revolve around mass gamers, meaning diversification beyond the tables and slots. Grant Chum claimed that there’s “lots of space” to grow within the mass market, namely through three drivers: more rooms, more entertainment and retail and an expansion of Macau’s worldwide image as a tourist destination to attract more and longer-stay visitors.

Operators consider Hengquin Island today more as a symbol of China’s approval of gaming in Macau and less as an effective future investment. “The Hengquin project is the recognition by Beijing that Macau’s model is a success and will continue in the future”, posited Mr Bowie. All three operators said they were in a “sit and wait” position regarding future investments in the island. But confidence is spreading among the casino tycoons: “What’s coming to Macau is fabulous”, concluded Mr Bowie.

Macau has to find its niche, says Pansy Ho

M

acau has to shift from a gaming-only to a business and family destination in order to diversify its economy and reduce its dependency on casinos, a situation that is already jeopardizing other sectors in the territory, said Pansy Ho, co-chairperson and executive director of MGM China.

Speaking at G2E Asia as a keynote

speaker, Ms Ho warned that Macau continues to suffer the vulnerability of an economy dependent upon a single sector. Gaming today accounts for 25 percent of the labour force and 80 percent of government revenues.

“The casino success was not in vain, of course, but we need to diversify and address our economic and social issues”, said the MGM director.

“There’s no alternative sector to replace the success of the casinos in Macau; we should invest also in MICE, entertainment, retail, clubs and art to diversify our offer”.

In order to become a worldwide tourist destination like Hong Kong, Macau needs to find its niche and to understand its opportunities and needs, she claimed.

7

May 21, 2014

Macau

May gaming growth loses steam Analysts have cut growth predictions of gross gaming revenue for this month in the wake of a softer result recorded last week Tony Lai

tony.lai@macaubusinessdaily.com

G

aming analysts have toned down their forecasts for this month’s gaming growth here after slower take-ins in casinos were reported in the past week.

It is not immediately clear whether the softer performance resulted from a weekly fluctuation or whether the take has been affected by the recent incident of a junket operator absconding and reported clampdown on the usage of China UnionPay cards. Meanwhile, Hong Kong tycoon Lui Che Woo’s Galaxy Entertainment Group Ltd experienced the biggest gain in terms of market share among rivals so far this month.

Brokerage Wells Fargo & Co wrote in a client note on Monday that the average daily casino revenue in the first 18 days of this month was only up 10 percent from the May 1-19 period of the previous year, following slower take-ins last week.

The firm’s analyst, Cameron McKnight, said it has reduced the gross gaming revenue growth forecast of this month to 10-14 percent from 14-16 percent.

Casinos raked in 113.5 billion patacas (US$14.19 billion) in the first four months of this year, increasing by 17.5 percent from a year earlier, government figures reveal.

Investment bank Barclays Plc also said that the average daily revenue in casinos here only hit 886 million patacas in the May 12-18 period, down 19.5 percent from the daily average of 1.1 billion earlier this month.

The bank anticipates that May’s gross gaming revenue will only reach between 32.1 billion patacas and 32.8 billion patacas, up 12-14 percent from the previous year. Barclays originally forecast 17 percent growth for this month.

Neither firm’s analyst offered any reason for last week’s softer trend.

But the local gaming sector has in the past month been shaken by the news of a runaway junket operator, believed to have absconded with HK$10 billion, heightening concerns about tightened credit in VIP rooms.

Merrill Lynch sticks by growth forecasts The full smoking ban on casino mass gaming floors starting October 6 will have limited impact on the territory’s gross gaming revenue, or less than 1 percent of the total, Bank of America Merrill Lynch predicts. The figure from the investment bank derives from its assumption that the mass floors contribute about one-third of the territory’s revenue, with up to half of mass floor gamblers smokers.

The bank said in a research report released this week that it sticks by its annual forecasts for gross gaming revenue growth here at 15.1 percent this year and 10.4 percent next year.

Market sentiment also worsened in the past two weeks with reports that state-backed China UnionPay Co and Macau authorities have tightened measures to prevent the

funnelling of illicit funds into Macau by the illegal use of UnionPay bank cards.

Brokerage Sterne, Agee & Leach, Inc also noted a weaker performance

on the gaming tables here last week, although it maintains its forecast for this month’s growth at 12-17 percent.

“We see last week’s checked GGR result as steady – business as usual,” the firm’s analyst David Bain wrote in a client note.

Wells Fargo’s McKnight also said that Galaxy Entertainment has gained most so far this month in terms of market share. Its presence for this month up to May 18 reached 22.6 percent, up from 19.1 percent in April.

US billionaire Sheldon Adelson’s Sands China Ltd leads so far this month with a market share of 22.7 percent, increasing by less than 1 percentage point from April.

Last month’s leader SJM Holdings Ltd, founded by local gaming mogul Stanley Ho Hung Sun, suffered a loss of share from 25.2 percent to 22.5 percent to date in May.

Galaxy earnings surge 38pct in Q1

G

alaxy Entertainment Group Ltd reported a 38 percent increase in first-quarter earnings as the Macau casino operator with the most room to grow in the enclave attracted more gamblers.

Adjusted earnings before interest, taxes, depreciation and amortization increased to HK$3.8 billion (US$494 million) in the first quarter versus the HK$3.94 billion average of six analysts’ estimates compiled by Bloomberg. Revenue rose 33 percent to HK$20.2 billion, the company said yesterday in a filing to the Hong Kong

Stock Exchange.

Galaxy and rivals including Melco Crown Entertainment Ltd. and Sands China Ltd. - are competing for ‘mass-premium’ gamblers, having adorned their resorts in Macau’s Cotai area, Asia’s answer to the Las Vegas Strip, with malls, theatres and restaurants. An improved rail connection and increase in the number of hotel rooms are helping draw more vacationing Chinese, and mass-market gamblers, to Macau and the country’s only legal casinos.

“We continue to favour Galaxy,” Praveen Choudhary,

a Hong Kong-based analyst with Morgan Stanley, wrote in a note last month. He cited the company’s head start in a wave of Cotai resort openings slated to begin next year, when Galaxy expects to have 3,600 hotel rooms.

Cotai Project Galaxy has approval to build as much as 2 million square metres of gross floor area on the Cotai strip, the most among the city’s six licensed casino operators. The company plans to quadruple the size of its Galaxy Macau resort by 2018.

Galaxy is spending HK$20 billion on the resort’s second phase in Cotai. The project is slated to add as many as 500 gaming tables and 1,300 rooms at JW Marriott and Ritz-Carlton hotels by mid2015.

Lui Che Woo and his

family own about 51 percent of Galaxy, propelling him to the position of Asia’s third-richest person with an estimated net worth of US$18 billion, according to the Bloomberg Billionaires Index.

Bloomberg

8

May 21, 2014

Macau Police pull plug on phone scam Macau Judiciary Police and mainland police have conducted a joint mission to crack down on a gang involving at least eight scam cases here, Macau authorities revealed yesterday.

The amount of the eight cases involves more than 460,000 patacas (US$57,500), Judiciary Police told media, after arresting eight mainland Chinese in nearby Zhuhai, Guangdong province. The police said that both sides used a new cooperation mode to investigate this case, shortening the time exchanging information. The police said that the arrestees would first call the victim, pretending to be a relative, asking them to transfer money to some mainland bank accounts as they were in trouble on the mainland.

Provident fund proposal appealing to SMEs The current proposal for a nonmandatory central provident fund is enough to appeal to local smalland medium-sized enterprises to join, said a government official.

The proposal said the employers’ contributions for their workers to the fund will be regarded as their operating cost for the complementary tax and the government will consider the amount three times more in tax calculation as an incentive. Ip Peng Kun, president of the Social Security Fund, told media yesterday that such an incentive is enough as labour costs already account for 20-30 percent of the operating expenses of businesses now. The 60-day public consultation of the fund will end next month.

USJ yet to square budget for new campus The university is still seeking 150 million to 200 million patacas to support the new campus construction at Ilha Verde Stephanie Lai

sw.lai@macaubusinessdaily.com

S

ome 150 million patacas (US$18.8 million) to 200 million patacas still needs to be raised to progress the construction of the new campus for the University of Saint Joseph and Saint Joseph’s Secondary School at Ilha Verde, originally scheduled for completion before the start of the academic year 2015/2016.

The ongoing constructions for the new campus of University of Saint Joseph and Saint Joseph’s Secondary School (Colégio Diocesano de São José) would cost a total of about 560 million patacas, an expense for which the university is still exploring further channels for financing, its rector Peter Stilwell told Chinese-language newspaper Macao Daily News.

As told to media previously, the local government has already financed the new campus construction to the tune of 150 million patacas via Macau Foundation, payable to the university in tranches.

However, the university rector told the local news outlet that the construction project shortfall amounts to some 150 million to 200 million patacas; if it cannot be financed in time, the building of the dormitory and auditorium for the university could face suspension.

The university, overseen by the Roman Catholic Diocese of Macau, noted in a press briefing on January 22 that it was seeking further funding from the government’s Education and Youth Affairs Bureau.

At the time, the university’s rector said that they have set up plans to solicit funding from private sources and believed that private entities would be interested in funding the project in exchange for naming rights of the campus buildings.

The campus, occupying 38,000 square metres (409,000 sq feet) of floor space, is designed to accommodate 800 secondary school students and 1,800 university students. The campus construction is due to be completed in April 2015, before entering into operation for the new academic year starting in September.

The major components of the campus will comprise an academic building, dormitory, auditorium, and chapel.

Tensions escalate but Bangkok tours remain The city’s five travel tour groups to Thailand this week remain as scheduled, reports the Macau Travel Industry Council, following a state of emergency declared by the Thai army yesterday. Council president Andy Wu Keng Kuong said that four tour groups with 70 people were in Thailand as at yesterday and that they remain unaffected. Maria Helena de Senna Fernandes, director of the Macau Government Tourist Office, also said yesterday that MGTO has not received any requests for assistance from Macau residents in the country.

Macau tour groups to Thailand only resumed at the end of March after the Thai administration had imposed a 60day state of emergency in January.

Portuguese-speaking countries talk tourism Macau Forum yesterday launched a symposium on the management of tourism, conventions and exhibitions, comprising 27 participants from Portuguese-speaking countries.

Organised by the Forum for Economic and Trade Cooperation between China and Portuguese-speaking Countries (Macau), the initiative will take place in Macau and Beijing until June 1.

Leaders and experts from Angola, Brazil, Cape Verde, Guinea-Bissau, Mozambique, Portugal and East Timor will be in Beijing from May 27 to 31 to participate in the International Trade Fair Services China and visit tourism and MICE (conventions and exhibitions industry) projects.

Gaming revenue up 750pct in 10 years Since the opening of the first foreign casino, Macau has witnessed a staggering gross gaming revenue growth that just keeps rising

I

t was 10 years ago yesterday that the first casino outside the gaming tycoon Stanley Ho Hung Sun kingdom opened its doors in Macau, and since then the territory’s gross gaming revenue has increased by 750 percent, more than any analyst ever expected.

On May 18, 2004, as many as 15,000 people gathered outside Sands Macau, many of whom had heard rumours that the gaming operator would hand out 100-pataca casino chips to each visitor, others because they wanted to see what the “American from Las Vegas” had to offer.

Stanley Ho, who still managed his business at the time, was invited for the opening and ended up stealing the spotlight from his host, Sheldon Adelson, who appeared to be very proud of having just opened what was then the biggest casino in the world.

With the new casinos came new hotels, new shopping malls, big spaces the size of which Macau wasn’t used to but that were popular in other urban areas outside Macau.

Big brands started to want in on some of the action and started setting

up shop here, joining the boom of the hospitality and trade industries.

The opening up of the China market, along with a better standard of living for mainland Chinese and their hunger for gambling ensured that Macau would record gaming revenues never dreamed of before. And at the end of 2006, the territory was already considered the biggest in the world in terms of gross gaming revenue.

In 2013, Macau casinos raked in 360.7 billion patacas (US$45 billion), up by 18.6 percent from the previous year. Official figures from the Gaming Inspection and Coordination Bureau (DICJ) show that in the first quarter of this year, games of fortune generated 102.2 billion patacas (US$12.8 billion) in gross gaming revenue. This represents 28.3 percent of the total gross gaming revenue generated for the whole of 2013, and a 19.8 percent increase over the first quarter of last year.

By contrast, casinos raked in about 40 billion patacas (US$5 billion) in 2004.

This is almost the equivalent of what casinos now rake in in a single month.

If the ‘sky is the limit’ when it comes

to the territory’s gaming growth, in a place where the government collect around 40 percent of direct and indirect tax on casinos’ earnings, the territory has felt ‘growing pains’ from such development – an expression used by the former chief executive Edmund Ho Ha Wah. While Macau once housed about 400,000 people and offered ease of access and movement, the city now houses 600,000 people, has more vehicles – many of which are luxury cars – and has seen an increase in inflation adding more pressure to the lives of the lower- and middle-income households.

Renting a place has become somewhat of a headache with many lease agreements only made available for one year, and prices higher than ever.

If on the one hand, gaming brought about more money and development to Macau making it more modern, it has also degenerated a population that once lived quietly in a land with an area of 30 square metres that is still not fully prepared to welcome the 30 million visitors who come here every year.

9

May 21, 2014

Greater China

Putin yet to sign gas deal on China visit

Alexei Anishchuk and Fayen Wong

Russia’s President Vladimir Putin (L) and China’s President Xi Jinping

C

hina and Russia failed to sign a US$400 billion gas supply agreement yesterday, despite growing urgency for the Kremlin to seal a deal as it faces economic and political isolation in the West over the crisis in Ukraine.

Negotiators from both countries have been unable to bridge differences on price, a spokesman for Russian President Vladimir Putin said in Shanghai, meaning that the contract was not signed yesterday as many in the industry had predicted.

But there is still a chance that the two sides could agree before Putin leaves China today, or, more likely, in time for an economic forum in the Russian city of St. Petersburg later this week.

Despite disappointment so far over an energy deal seen as vital to both countries’ long-term economic interests, Putin did receive a rare nod of support from Chinese President Xi Jinping over the Ukraine crisis.

In a statement issued after the two leaders met, Russia and China called for the de-escalation of tensions in Ukraine and for “peaceful, political ways to resolve existing problems.”

The countries also referred to the crisis as “domestic”.

Across much of the rest of the world, Putin stands accused of fomenting pro-Russian sentiment in neighbouring Ukraine, which has already lost the peninsula of Crimea after it was annexed by Moscow.

In more recent conciliatory steps, Putin ordered Russian forces massed on the Ukraine border to return to bases and welcomed what the Kremlin called initial contacts between the Ukraine government and those calling for more power for largely Russianspeaking regions in the east.

US$100 billion expected trade between Russia and China by 2015

China’s Xi has underscored the importance of ties with Russia, and Moscow was the first capital he visited after assuming the presidency last year. Xi also attended the Winter Olympics in Sochi at Putin’s invitation.

While observing a joint naval exercise conducted outside of Shanghai, Xi and Putin said the two neighbours would cooperate to maintain stability in the region.

But, while the two see eye-to-eye on many diplomatic issues including the conflict in Syria, and generally vote as one on the United Nations Security Council, China has been less willing to support Russia openly on Ukraine.

China has ‘upper hand’ Expectations had run high that Putin’s China visit would provide the setting for both parties to ink a contract under which state-owned Gazprom would supply China National Petroleum Corp (CNPC)

with 38 billion cubic meters of natural gas a year for 30 years.

After more than a decade of false starts, there has been a convergence of interests as European countries look to reduce dependency on Russian natural gas supplies amid the Ukraine crisis and Beijing seeks to switch from coal to cleaner fuels.

China’s gas consumption is forecast to more than double between 2014 and 2020, while Beijing’s move to curb coal use led to a severe gas supply shortage last winter.

The failure to reach a deal so far, despite talk of a narrowing price gap, suggests China is driving a hard bargain.

“Despite all the talk out of Russia, despite their desperation, China has the upper hand,” said Gordon Kwan, regional head of oil and gas research at Nomura Research.

“China wants to really squeeze the price lower. China has other options such as the gas project in Sichuan and North American liquefied natural gas.

I think it will be a mistake by Russia if they couldn’t agree on a deal just because of the price.”

Gazprom’s shares were down 2.3 percent at 1105 GMT yesterday, underperforming a flat Moscow stock market.

But Russia said there was still a chance a deal could be reached in China.

“The visit is not over yet. Talks will continue ... substantial progress is reached but there is still work to do on price,” Putin’s spokesman, Dmitry Peskov, told reporters. “Talks are going on today, it can happen absolutely any moment.”

Analysts said other issues, such as details over pipeline construction, upstream equity participation for

KEY POINTS China seen having upper hand in gas negotiations Trade, political ties with Beijing seen vital to Moscow Russia facing growing isolation in the West

Chinese firms and pre-payment, may have also contributed to the delay.

Chinese state media on Monday quoted Putin as saying that preparations for a gas deal had entered “the final phase”, while Gazprom said at the weekend that it was “only one digit” away from a deal.

But sources close to Gazprom and in the gas industry said the Russian company wanted China to pay US$25 billion up front to secure future gas supplies, which should start in 2018.

China has so far not been willing to commit, concerned that other suppliers would seek similar deals.

Russia and China said in the joint statement that they would strengthen cooperation in energy and infrastructure in Russia, and would also step up financial cooperation and look to increase trade in the rouble and the yuan currencies.

Reuters

10

May 21, 2014

Greater China Corruption inspector investigated China is investigating a corruption inspector for corruption, China’s Central Commission for Discipline Inspection (CCDI) said on Monday, as an anti-graft campaign intensifies. The ruling Communist Party’s anti-corruption watchdog said in a one-line statement on its website that Cao Lixin, a disciplinary inspector with the CCDI, was being investigated for suspected serious violation of discipline and laws.

It gave no details. It is rare for an anti-corruption official, part of the anti-corruption watchdog, to be accused of corruption. Xi’s campaign has led to the detention of some senior government officials and executives in state-owned firms.

CSRC plans 100 IPOs The China Securities Regulatory Commission (CSRC) is planning about 100 initial public offerings (IPOs) from the beginning of June to the end of 2014, state media reported its chairman as saying on Monday. “To stabilise market expectations, we plan for about 100 companies to go public, with a roughly balanced number of IPOs each month,” the official Xinhua news agency cited CSRC Chairman Xiao Gang as saying. The statement came as China looks to revamp its IPO rules, including relaxing the regulations for listings and share issues on a NASDAQ-style stock board.

Windows 8 excluded from government computers

Deepening cyber spying case harming Chinese-U.S. relations It is the first criminal hacking charge that the United States has filed against specific foreign officials

C

hina summoned the U.S. ambassador after the United States accused five Chinese military officers of hacking into American companies to steal trade secrets, warning Washington it could take further action, state media said yesterday.

The U.S. Ambassador to China, Max Baucus, met with Zheng Zeguang, assistant foreign minister, on Monday shortly after the United States charged the five Chinese, accusing them of hacking into American nuclear, metal and solar companies to steal trade secrets.

Zheng “protested” the actions by the United States, saying the indictment had seriously harmed relations between both countries, state news agency Xinhua said.

Zheng told Baucus that depending on the development of the situation, China “will take further action on the so-called charges by the United States”.

It was the first criminal hacking charge that the United States has filed against specific foreign officials, and follows a steady increase in public criticism and private confrontation, including at a summit last year between U.S. President Barack

Obama and Chinese President Xi Jinping.

Zheng told Baucus that the U.S. attitude to Internet security was “overbearing and hypocritical” and urged the United States to give China a clear explanation on reports that Washington has long spied on the Chinese government, businesses, universities and individuals. The U.S. Embassy to China spokesman, Nolan Barkhouse, declined to comment.

The angry reaction from Beijing is likely to be the first major test for Baucus, who arrived in Beijing in March, as he seeks to balance U.S. interests with the desire for more economic cooperation with China.

China is the United States’ biggest foreign creditor. As of February, China held US$1.27 trillion in U.S. Treasury bonds, according to Treasury Department data.

On Monday, China’s Ambassador to the United States, Cui Tiankai, “made solemn representations” to the U.S. State Department, the state-run China News Service said yesterday. “The accusations that the United States have made against these Chinese officials are purely fictitious and extremely absurd,” Cui was quoted.

Protesters against U.S. NSA data mining in Berlin

The foreign ministry said it would suspend the activities of a Sino-U.S. working group on cyber issues. The defence ministry issued a similarly pointed statement yesterday, saying the accusations contained “ulterior

Green light for local bond sales in 2014 Some analysts estimate that local governments now owe up to US$4 trillion - 42 percent of China’s GDP

China has announced that it will forbid the use of the Windows 8 operating system in new government computers, a move to ensure computer security after the shutdown of Windows XP. All desktops, laptops and tablet PCs to be purchased by state organs must be installed with operating systems other than Windows 8, according to an online statement by the Central Government Procurement Centre.

The measure only targets computers used by government offices, while the personal computer market is expected to stay unaffected.

C

hina’s cabinet signalled yesterday it is closer to letting local governments directly sell bonds for the first time and said it would phase out opaque financing vehicles that are thought to have built up trillions of dollars of highrisk debt.

In a sweeping statement, the country’s top economic planner, the National Development and Reform Commission (NDRC), said Beijing

would deliver stable economic growth whilst pursuing reforms.

The promise to stay focused on reforms would appease critics who worry China’s enthusiasm for bringing about painful changes may be on the wane as its economy stumbles.

The uncertain outlook for the world’s second-largest economy was underscored yesterday by remarks from a senior Chinese trade official, who said the country has a tough

Senior Jiangxi official expelled from CPC Chen Anzhong, former deputy director of the standing committee of the provincial people’s congress in east China’s Jiangxi Province, has been expelled from the Communist Party of China (CPC) and public office for “serious disciplinary and legal violations.”

The decision was made by the CPC Central Commission for Discipline Inspection (CCDI) and approved by the CPC Central Committee. A CCDI investigation into Chen’s suspected legal and disciplinary transgressions found that he took advantage of his position to seek benefits for others, and received “a huge amount” of money or gifts either personally or through related persons.

Government of Shenzhen (pictured) will be one of those selected to sell bonds

road ahead if it wants to meet its 7.5 percent trade growth target this year.

Yet the NDRC said in a statement on its website that enacting change is a “first priority” for the government and hopes to make breakthroughs this year in key areas.

On fiscal reform, which caused a market stir yesterday after Chinese media reported that China would allow 10 local governments to directly sell municipal bonds, the NDRC

11

May 21, 2014

Greater China

2,077

hostile applications in the U.S. controlled 1.18 million host computers in China

motives”.

Skeptics said U.S. authorities would not be able to arrest those indicted because Beijing would not hand them over. Still, the move would prevent the individuals from traveling

signalled that the government won’t disappoint investor expectations.

It said China will create a financing system for local governments that will let the sale of municipal bonds be a major source of funding for governments.

Financing vehicles, which are set up by local governments to borrow on their behalf so as to get around laws that prohibit governments from borrowing directly from any parties, would also be phased out.

It said that Beijing would set limits -or quotas- on the amount of debt that can be raised by local governments.

“The policy has been made talked about several times, so the market is now waiting for details, in particular how the quotas will be set,” said a senior trader at a major Chinese stateowned bank in Shanghai. “I don’t think the central government will immediately let local governments issue lots of bonds and endanger the overall financial system.”

to the United States or other countries that have an extradition agreement with the United States.

U.S. Federal prosecutors said the suspects targeted companies including Alcoa Inc, Allegheny Technologies Inc , United States Steel Corp, Toshiba Corp unit Westinghouse Electric Co, the U.S. subsidiaries of SolarWorld AG, and a steel workers’ union.

According to the indictment, all five defendants worked with Unit 61398 of the People’s Liberation Army “, which had been “hired”

by Chinese state-owned companies to provide information technology services” including assembling a database of corporate intelligence.

The Chinese companies were not named.

Xinhua cited data from China’s top Internet security agency, the National Computer network Emergency Response technical Team Coordination Centre (CNCERT), which said a total of 2,077 trojan horse networks or botnet servers in the United States directly controlled 1.18 million host computers in China during the period from March 19 to May 18.

The CNCERT found 135 host computers in the United States carrying 563 phishing pages targeting Chinese websites that led to 14,000 phishing operations. The centre also found 2,016 IP addresses in the United States had implanted backdoors in 1,754 Chinese websites, involving 57,000 backdoor attacks, during the same period.

China has long singled out the United States as the top source of intrusion on its computers and says it is a victim of cyber attacks.

Reuters

According to Chinese media, China is set to allow the 10 governments that include Zhejiang, Jiangsu, Shandong, Guangdong, Beijing, Shanghai and Shenzhen to directly sell municipal bonds.

Yesterday’s statement did not refer to the above plans, though many analysts have said that the only viable, long-term solution for China with regards to its local government debt problem is to develop a thriving municipal bond market.

By allowing direct bond sales, Beijing can require higher degrees of disclosure in prospectuses and can also allow for the distribution of risk to a wider pool of potential investors.

Chinese local governments at present have limited legal options for fund raising, but have proven nimble at exploiting loopholes.

In addition to selling land to raise funds, they have created local government financing vehicles that have gone to the bond and loan markets to raise funds.

Local Chinese governments, which are notorious for being opaque, are estimated by some analysts to owe up to US$4 trillion -42 percent of China’s GDP- much of it raised through financing vehicles.

A state audit of local governments’ debt in December showed they owed a total of US$3 trillion as of June 2013.

But despite concerns about the fiscal health of local governments, bonds sold by their financing vehicles are still sough after by investors.

This is partly because many believe they are implicitly guaranteed by the state, even after Beijing allowed the country’s first publicly traded bond to default this year.

Other reforms canvassed in the NDRC guidelines included repeating commitments to a more marketoriented exchange rate, cutting red tape and deepening energy reforms.

Reuters

China’s tourism on fast track The rise of Sanya and other destinations is partly a result of China’s drive to develop tourism

L

u Hanying, the English graduate who set up China’s first English website promoting Sanya on south China’s Hainan island, is revamping her website for National Tourism Day. The southernmost city in China, once an isolated and desolate area, has been turned into an international resort in three decades. According to Sanya’s statistics authority, 12.3 million tourists visited the city last year, almost 100 times more than in 1987.

“When I set up the website 10 years ago, there was little about Sanya to tell foreigners. I had to work hard, but now I have plenty of orders,” she said. More than 100 foreign tourists make bookings through Lu’s site each month. She also owns a hotel in Yalong Bay in southern Sanya, the home of China’s first five-star hotel. Now the bay is home to 13 five-star hotels.

“The development of Yalong Bay epitomizes the story of Sanya becoming an international tropical coastal resort,” said Wang Yong, mayor of Sanya.

Sanya took a quantum leap in 2003, when it became the first Chinese city to host the Miss World pageant. “People across the world

came here to watch beautiful women, and to their surprise were impressed by the natural beauty of the place,” Lu said. Since then Sanya has hosted the pageant four times and is a popular destination for international sports and cultural events.

The city got another boost in 2010 when China’s cabinet, the State Council, decided to make Hainan into an international tourism island.

Local infrastructure and high-end tourism have expanded since, with duty-free shops, golf courses, and yachting all flourishing. The world’s largest duty-free shop will open this year in Sanya and the city boasts 243 hotels with an annual capacity of over 20 million people.

The rise of Sanya and other destinations is partly a result of China’s drive to develop tourism.

In 2009, tourism became a strategic pillar of the national economy and policy. The number of domestic travellers in China rose from 870 million in 2003 to 3.3 billion in 2013. Chinese outbound departures hit 98.2 million in 2013, up from 20.2 million in 2003, according to China National Tourism Administration.

Xinhua

Xi strengthens ties with Uzbekistan China’s President calls on China and Uzbekistan to formulate a five-year development plan for their future relations

C

hinese President Xi Jinping and his Uzbek counterpart, Islam Karimov, pledged yesterday to push forward bilateral relations.

Karimov is in Shanghai to attend the fourth summit of the Conference on Interaction and Confidence Building Measures in Asia (CICA) on Tuesday and Wednesday.

Bilateral cooperation between China and Uzbekistan has enjoyed fast development in various fields since the two countries forged a strategic partnership and signed a treaty on friendly cooperation, Xi said when meeting with Karimov.

“I am ready to continue to keep close contact with you, exchanging views on issues of common concern in a timely manner, and push for more achievements in China-Uzbekistan relations,” Xi told his guest.

Hailing Uzbekistan as an important country in Central Asia and an important destination on the Silk Road, Xi said China and Uzbekistan are complementary and have much in common in their development strategies.

He called on China and Uzbekistan to formulate a five-year development plan for their future relations, seize the opportunity of the construction of the Silk Road Economic Belt to expand cooperation in trade, the economy, energy and infrastructure, and push

ahead with the China-Central Asia natural gas pipeline project.

Xi also urged the two countries to carefully restore the Uzbek historic city of Samarqand and the Ulugh Beg Observatory, projects in which they are collaborating.

China stands ready to exchange experience in governance with Uzbekistan, sticking to the development path chosen by its own people, keeping the momentum of socioeconomic development and maintaining social stability, Xi said.

The Chinese president also called on the two countries to better communicate on regional and international affairs, and jointly push Asian countries to strengthen mutual trust and cooperation and safeguard regional peace, stability and development through such platforms as the CICA. Karimov noted that UzbekistanChina relations have enjoyed all-round development since Xi visited the Central Asian country last September.

Karimov said his country admires China’s far-sighted strategies and adherence to a path chosen by its own people, supports the Chinese people to strive for the Chinese dream, and will unswervingly maintain friendly policies toward China and be the country’s staunch partner.

Xinhua

12

May 21, 2014

Asia S.Korea producer prices pace slows South Korean producer prices fell for the 19th straight month in annual terms in April, but the slower pace of decline and pick-up in service-sector prices suggested the recovery in Asia’s fourth-largest economy was adding some inflationary pressure.

The producer price index in April eased 0.3 percent from a year earlier, extending its falling streak that started in October 2012, but the pace slowed from a 0.5 percent fall in March, central bank data showed yesterday. A sub index on service-sector producer prices rose 1.6 percent in April from a year earlier.

Singapore beats all marks

Treasury Wine rebuffs KKR bid

The first quarter growth was boosted by solid performance in the manufacturing sector

Australia’s Treasury Wine Estates , the world’s second biggest winemaker by sales, said it rejected a A$3.1 billion (US$2.90 billion) takeover offer from private equity giant Kohlberg Kravis Roberts & Co LP on the grounds that it was too low. Treasury, which has the Penfolds and Beringer labels, said yesterday that U.S.-based KKR offered A$4.70 per share on April 16 but that the offer price did not represent the company’s fundamental value. The company installed a new chief executive officer to restructure the business in April after rising costs and sluggish sales prompted.

C

Indonesia’s rubber output cut Erratic weather triggered by the El Niño weather phenomenon could cut rubber output in Indonesia, the second-largest producer, by around 3 percent to 3 million tonnes this year, a senior industry official said. “Output may fall by 100,000 tonnes this year,” Asril Sutan Amir, adviser to the Indonesian Rubber Association (GAPKINDO), told Reuters on Monday, ahead of a rubber summit in Singapore. “We could see double wintering,” Asril said, referring to the risk of an extended dry season, when leaves fall and trees produce less rubber.

Japan LDP proposes GPIF overhaul Prime Minister Shinzo Abe’s ruling party will urge the government to consider strengthening the governance of the world’s biggest pension fund and to promote the creation of “super regional banks”, a party source involved in the matter said. The proposals are part of a submission the Liberal Democratic Party will make as early as this week to the government for consideration in Abe’s “growth strategy” of economic structural reforms, due in June, the source told Reuters. The LDP will propose that the government consider legal changes to strengthen the governance of the US$1.26 trillion Government Pension Investment Fund (GPIF), the source said.

ity-state’s economy grew faster than initially estimated in the first quarter, handily beating expectations, with solid manufacturing activity and a recovery in developed markets set to underpin growth over the year.

The latest numbers released yesterday by the Ministry of Trade and Industry were complied after rebasing effects, with the base year for the national accounts now set to 2010 instead of 2005.

The data showed the tradedependent economy expanded an annualised and seasonally adjusted 2.3 percent in the January-March period from the previous three

months.

That compared with a 1.0 percent growth forecast in a Reuters poll and the government’s earlier estimate of a 0.1 percent expansion.

“I don’t think there would be any change in policy stance due to this, the economy is pretty much in a healthy shape,” said DBS senior economist Irvin Seah.

In April the central bank stuck to its tight monetary policy stance, saying core inflation will remain elevated as a sustained recovery in advanced economies supports growth.

“The year-on-year number surprisingly came down, that comes on the back of a massive revision in

last year’s figures, which saw every single figure adjusted.”

On a year-on-year basis, the economy grew 4.9 percent in the first quarter, missing a market forecast of a 5.5 percent forecast in a Reuters poll. In April, the government had estimated the first quarter annual growth at 5.1 percent.

The rebasing also counts research and development expenditure as investment in the data, which the government said will raise the level of nominal gross domestic product.

The first quarter growth was boosted by solid performance in the manufacturing sector, helped by recovery in global demand.

Abbott uses rating to defend his budget Standard & Poor’s sovereign analyst Craig Michaels’ comments mark Abbott’s attack line

A

ustralian Prime Minister Tony Abbott warned yesterday the country could lose its coveted AAA credit rating if the tough measures in his government’s maiden budget are not adopted.

The conservative leader, who has suffered a plunge in voter support over the massive spending cuts outlined in last week’s budget, said Australia’s “fundamental economic standing” would be damaged if it lost the confidence of the global ratings agencies.

“If these measures are blocked by the Labor Party in the Senate, our AAA credit rating is at risk and if that goes, well, that does all sorts of damage to our country’s fundamental economic standing,” Abbott said.

His comments follow top Standard & Poor’s sovereign analyst Craig Michaels telling the Australian Financial Review that the agency could reassess its current outlook if “sizeable budget deficits were considered acceptable at

the political and the community level”.

“We’re looking to see the government improve budget performance over the next few years,” Michaels said.

S&P told AFP that the country’s AAA rating was not immediately at risk and that it maintained a stable outlook for Australia, which means there is a less than one-in-three chance of a rating change in the next two years.

Australia is one of only a handful of nations to hold the top rating, which indicates that the country has “an extremely strong capacity” to meet its financial commitments. By losing it, the nation would be forced to pay higher interest on its debt.

Abbott accused Labor -which has vowed to oppose some of the budget cuts and tax hikes, including a A$7 payment to see the doctor and raising the pension age to 70- of leaving the country’s finances in a mess.

“Labor were vandals in government and it looks like they want to continue to be vandals in opposition,” he said.

S&P headquarters in New York

The government is seeking to narrow the deficit from its current A$49.9 billion to A$29.8 billion next year and to reach a surplus around the end of the decade by slashing federal health and education spending by A$80 billion.

Other budget measures include a new temporary tax on high earners, tightened welfare and family benefits and a reduction in foreign aid by A$7.9 billion over five years.

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

AFP

13

May 21, 2014

Asia KEY POINTS Q1 GDP annualised +2.3 pct q/q vs +1.0 pct f’cast Q1 GDP +4.9 pct y/y vs 5.5 pct f’cast Singapore changes base year to 2010 instead of 2005 Manufacturing sector up 11.9 pct q/q

The sector saw annualised quarteron-quarter growth of 11.9 percent, while year-on-year growth accelerated to a 9.8 percent, from a 7.0 percent rise in the previous period.

Despite signs of a pick up in global demand, and expectations it will hold up Singapore’s economy, some analysts raised worries about the financial sector.

“Manufacturing will benefit little bit from a global recovery story,” said Selena Ling, head of treasury research at Oversea-Chinese Banking Corp.

“We may see momentum slowing in the financial sector. If we get bearish news like Fed rate hike expectations, we are going to see EM and Singapore being impacted,” said Ling adding growth may slow down in the coming quarters.

The finance and insurance sector

grew 3.5 percent in the first quarter from the previous quarter. That compared with a 26.0 percent growth in the fourth quarter Singapore’s economy has been growing at a steady pace in recent quarters on solid manufacturing output with a pick-up in demand from developed economies such as the United States. Service sectors including finance have also propped up the wealthy Southeast Asian country.

In April Singapore’s non-oil domestic exports raised more than expected, but some economists maintained a cautious view on overseas shipments, given sustained weakness in the electronics sector which is a key link in the global supply chain.

Last year, the manufacturing sector made up roughly 19 percent of the local economy. The electronics sector accounts for 30 percent of total manufacturing activity.

Over the course of 2014, the Singapore economy is seen benefiting from an expected pickup in U.S. and European growth, even though a slowdown in the Chinese economy poses downside risks for growth in the city-state.

The government expects Singapore’s economy to grow 2-4 percent in 2014, and economists generally tip full-year growth to come in near the upper end of that official forecast.

The median forecast among 22 economists surveyed by the Monetary Authority of Singapore was for the city-state’s gross domestic product to expand 3.8 percent in 2014, the Monetary Authority of Singapore said in March.

Reuters

Samsung restructuring rumours spread Group’s ownership structure has come under the spotlight this month after Samsung SDS unveiled plans for an initial public offering

S

peculation that Samsung Group’s founding family will revamp South Korea’s biggest business empire to retain control has so far had an unlikely beneficiary: minority shareholders.

The conglomerate led by Lee Kun Hee, whose businesses account for more than 20 percent of South Korea’s economy, may unlock “hidden value” as 72-year-old Lee transfers wealth to heirs, CLSA Asia-Pacific Markets says. Speculation the changes will come soon has lifted the market capitalization of Samsung’s 17 listed companies by more than US$22 billion since May 7 through Monday.

Samsung Group may shift ownership into at least three holding companies that allow the family to retain control while reducing the need to tie up capital in cross shareholdings that could otherwise be invested in profitable projects, CLSA says.

Samsung Electronics Co., which has the lowest price-earnings ratio among the world’s 20 biggest companies, rallied 7.7 percent in the past eight days, while Samsung C&T Corp., which helped build the tallest building in Dubai, rose 16 percent.

“We would support a restructuring, which adds transparency,” Julian

Mayo, who helps manage about US$2.7 billion in emerging markets, including Samsung Electronics shares, as the co-chief investment officer at Charlemagne Capital Ltd. in London, said by e-mail on May 16. “The best investments are generally to be found where there is a long-term alignment of interest between the owners and managers of the company and its shareholders.”

Samsung Group’s ownership structure has come under the spotlight this month after Samsung SDS, which provides technology for the construction and manufacturing industries, unveiled plans for an initial public offering on May 8, a move seen by Morgan Stanley as a way for Lee’s family to fund a restructuring of the group.

Lee moved to a general ward from intensive care on Monday, Samsung Group spokeswoman Rhee So Eui said by phone yesterday. His condition has improved and all test results were stable, Lee said. After taking over Suwon-based Samsung Electronics in 1987, he built it into the world’s largest maker of smartphones, televisions and memory chips, becoming South Korea’s richest man in the process.

Japan’s tax-hike rebound expected by year-end Sixty three percent of survey’s respondents expect sales to rise above year-earlier levels by the year’s end

J

apanese companies increasingly expect to bounce back from a sales tax increase by the end of the year and are more willing to raise wages, a Reuters poll showed, adding to evidence that the hike is unlikely to derail a recovery in the world’s third-biggest economy.

Prime Minister Shinzo Abe’s government hiked the sales tax to 8 percent from 5 percent last month in a bid to curb Japan’s runaway public debt. But the move has been controversial with some economists arguing it could dent the success achieved so far through aggressive monetary easing and hefty government spending.

Consumers typically spend big in the months ahead of such tax hikes and tighten their purse strings for some time afterwards. A sales tax increase in 1997 has been blamed for helping to depress economic growth and for creating the deflationary mind-set that has weighed on Japan for some 15 years.

The Reuters Corporate Survey, conducted between April 25 and May 12, showed 63 percent of respondents expect sales to rise above year-earlier levels by the year’s end, up from 59 percent in March and 49 percent in December.

“The overall economy is reflecting the sense that people are getting used to the new tax rate, and income and employment are on the mend, especially among large firms,” said an executive at a retail company, one of 240 respondents that replied to the question on the impact of the sales tax hike.

The survey also found 37 percent were willing to raise income levels for workers as a result of “Abenomics”, up from 8 percent in November.

While other data has indicated that wage rises alone have not been enough to cover the 3 percentage-point increase in the sales tax, some big firms have been generous with bonuses, putting workers comfortably ahead, at least for now.

The broadly positive outlook was echoed in comments from Vice Economy Minister Yasutoshi Nishimura, who told a Reuters Japan Summit on Monday that the economy is reacting as expected to the tax hike and is likely to rebound as higher base pay and bonuses will more than offset the impact of the higher levy.

Nishimura added, however, that the government and the Bank of Japan stand ready to take further action if needed.

Shinzo Abe, Japanese Prime Minister

Bloomberg News

Improvements in both workers’ income levels as well as capital spending are seen as key to Japan transitioning to a sustainable recovery, and fresh data for capital spending this week also underscored economic resilience after the sales tax hike.

Japanese businesses raised orders for machinery by the most ever in March - an eye-popping 19.1 percent compared with 6.0 percent gain forecast by economists in a Reuters poll. The government data also showed the firms expect book more orders this quarter, with core orders seen up 0.4 percent for a fifth straight quarter of gains.

Some respondents also mentioned a robust contribution from exports, which have benefited from a weakening in the yen in the wake of monetary easing.

“We saw a bit of a pullback in April, but we expect to rebound well above year-earlier levels in May, so the pullback should end there,” wrote an executive at an electronics maker.

The Corporate Survey, conducted for Reuters by Nikkei Research, polls firms in tandem with the Reuters Tankan survey, which showed on Monday that Japanese business confidence slid as the tax hike cooled activity but the mood is seen improving in the months ahead.

The survey polls upper management at 400 companies each capitalised at more than 1 billion yen. The firms, split evenly between manufacturers and non-manufacturers, respond anonymously.

Reuters

14

May 21, 2014

International

Egypt turns to army in war on unemployment

Vodafone results in line

As foreign investors and tourists shy away from the country of 85 million, the job crisis has only worsened

S

ince toppling the Muslim Brotherhood from power last year, the Egyptian army has turned its substantial economic firepower on another perceived threat to the country’s stability: unemployment.

Putting to use a manufacturing portfolio that stretches from pasta and refrigerators to tablet computers, the military announced to great fanfare in April that it was offering vocational training to jobseekers in a new joint venture with the civilian government.

It was part of a push to tackle joblessness, and evidence of a more prominent role for the army’s economic muscle, with its former chief, Abdel Fattah al-Sisi, the runaway favourite to become president in May 26-7 elections.

Egypt’s unemployment crisis could make or break his presidency. The 2011 uprising against Hosni Mubarak was largely fuelled by anger at the grim prospects facing young Egyptians unable to find work, afford their own home and get married.

Since then, as foreign investors and tourists shied away from the country of 85 million, the job crisis has only got worse.

“Responsibilities towards society” Though it may appear to be a drop in the ocean - the scheme aims to train 100,000 youths in skills needed by industry - it shows the army’s readiness to back government and its evolving role in shaping domestic policy.

The beneficiaries include those at a heavily guarded complex run by the Ministry of Military Production on the outskirts of Cairo - young men and women in blue coats receiving training to be mechanics, industrial machine operators or to build circuit boards.

Accompanying journalists during a visit there in April, the State Minister for Military Production, Major

Turkey charges mining company CEO Egypt’s former defense minister turned presidential candidate Abdel Fattah al-Sissi (R) greets Saudi Arabian Prince Al-Walid bin Talal (L) in Cairo, Egypt, 19 May 2014.

General Ibrahim Younis Ismail Ragab, described the project as part of his ministry’s “responsibilities towards society”.

The ministry sits at the heart of an army-controlled sector of the economy likened by critics to a state within a state.

Some analysts estimate its financial empire could amount to as much as 40 percent of the economy. Sisi told Reuters in a May 15 interview it was no more than 2 percent.

Gulf money Since Sisi toppled Islamist President Mohamed Mursi last July, following mass protests against his rule, the army’s economic role has become even more apparent.

The military has positioned itself as the channel for some of the billions of dollars flowing into Egypt from the Gulf, for example.

Sherbiny said the Ministry of Military Production had never before agreed to open its facilities to a civilianrun training programme.

But it is not doing it for free. The United Arab Emirates is bankrolling the scheme, part of billions of dollars in aid sent to Egypt by Gulf states hostile

to the Brotherhood, and the civilian authorities pay Military Production for their services.

“The (project) adds to the image of the military as Egypt’s guardians - not just in terms of politics and security, but social-economically as well - the only institution capable of addressing Egypt’s multiple problems,” said Oliver Coleman, senior analyst at Maplecroft risk research company.

According to official rates, more than 13 percent of the Egyptian workforce are unemployed. This figure, higher than the 8.9 percent on the eve of the 2011 revolt, masks the wider problem of underemployment in a low-wage economy.

The government’s new training scheme aims to address a skills mismatch partly rooted in a state policy that has for decades offered free tertiary education to those with adequate grades, producing a surplus of accountants and engineers who often end up driving taxis.

The Industrial Training Council (ITC), which belongs to the Industry Ministry, held a job fair earlier this year offering 20,000 jobs in the industrial sector, but only 7,000 people came, an ITC official said.

Reuters

Credit Suisse clients remain secret UBS AG, the largest Swiss bank, avoided prosecution in 2009 by paying US$780 million and disclosing the names of 250 American clients

T

he firm that pleaded guilty on Monday to aiding Americans’ tax evasion, has so far avoided identifying thousands of customers who cheated the Internal Revenue Service. Instead, it promised to point investigators in the right direction.

While the unit of Credit Suisse Group AG became the largest bank to plead guilty in 20 years, agreeing to US$2.6 billion in penalties, its deal with the Justice Department put off the day of reckoning for the firm’s clients. They’re protected by Swiss bank-secrecy laws that make it a crime to disclose account data.

In a deal overseen by Attorney General Eric Holder, Credit Suisse pledged to help the U.S. request those names through a tax treaty with Switzerland. It also will provide other

Britain’s Vodafone said its core earnings would fall in 2015 due to the investment needed in the business as it reported 2014 results in line with forecasts, helped by an improvement in underlying trading in the fourth quarter. The world’s second-largest mobile operator has reported record falls in underlying revenue in the last 18 months, due to fierce competition in Europe, regulator-imposed price cuts and European consumers reducing the number of calls they made during the recession. It is now investing to improve network speed and coverage after selling its U.S. arm.

information, outlining the size and number of accounts and indicating where money went. That contrasts with UBS AG, the largest Swiss bank, which avoided prosecution in 2009 by paying US$780 million and disclosing the names of 250 American clients.

UBS later settled a U.S. lawsuit by revealing 4,450 more account holders.

“It is a mystery to me why the U.S. government didn’t require as part of the agreement that the bank cough up some of the names of the U.S. clients with secret Swiss bank accounts,” said U.S. Senator Carl Levin, a Michigan Democrat.

Levin is chairman of the Senate Permanent Subcommittee on Investigations, which issued a report and held a February hearing criticizing practices that Zurich-based Credit

Suisse has now admitted, as well as the Justice Department’s failure to get more customer names. The panel found the U.S. used treaty requests to identify 238 Credit Suisse clients out of 22,000 accounts held by Americans.

The requests require Switzerland to analyse whether account holders engaged in tax fraud “and the like.”

Deputy Attorney General James Cole defended U.S. efforts to identify account holders during a news conference yesterday, as he did at the Levin hearing in February.

“Credit Suisse is going to provide us a lot of information -not the specific account names, but they’re going to help us in treaty requests that, under Swiss law, can get us the specific account names,” Cole said.

Bloomberg News

Turkey has charged three more people with manslaughter over the country’s worst mining disaster, including the CEO of the company operating the pit, reports said yesterday. Can Gurkan, the chief executive of mining company Soma Komur, general manager Ramazan Dogru and a technician were the latest to face manslaughter charges over the disaster that claimed 301 lives, the private NTV television said. A total of eight officials from Soma Komur have now been charged over last Tuesday’s accident at the Soma mine that sparked anti-government protests in several towns and cities.

Marks & Spencer profit The firm reported a third straight drop in annual profit as Chief Executive Officer Marc Bolland struggles to restore the fortunes of the U.K.’s biggest clothing retailer four years into his tenure. Socalled underlying pretax profit fell 3.9 percent to 623 million pounds (US$1 billion) in the year ended March 29, the London-based retailer said today. M&S also indicated that the introduction a new customer website may affect its first-quarter performance as shoppers take time to become accustomed to it.

Bachelet to narrow inequality via taxes Chilean President wants to assuage concern that higher taxes and increased government spending are crimping investment with the economy growing at the slowest pace in four years. “We are not populist,” Bachelet, 62, said in an interview on Monday at the presidential palace in Santiago. We will avoid “dramatically increasing fiscal spending. We are optimistic and feel that the economy will recover.” Bachelet, who came to office on March 11 for a second time, is proposing tax increases of US$8.2 billion, mostly through higher corporate levies, to fund health and education spending, including the takeover of some privately-managed schools.

Cobham to buy Aeroflex Cobham Plc, the U.K. maker of military equipment, plans to acquire Aeroflex Holding Corp. for US$894.6 million in cash to add technology used in wireless and broadband communication.

Cobham is offering US$10.50 a share, and will take on US$540 million of the U.S. company’s debt, Wimborne, England-based Cobham said yesterday in a statement. The transaction, which is set to close later this year, has an enterprise value of US$1.46 billion, the company said. Aeroflex closed at $8.31 yesterday. The U.K. company has sought to advance its civil activities with acquisitions to lessen its reliance on military spending.

15

May 21, 2014

Opinion Business

Global flows and global growth

Leading reports from Asia’s best business newspapers

Laura Tyson Susan Lund

wires

Professor at the Haas School of Business at the University of California, Berkeley

Partner with the McKinsey Global Institute

THE TIMES OF INDIA The long pending issue of raising the foreign direct investment cap in the crucial insurance sector to 49% from 26% is back on the agenda of the new government, which is expected to assume office later this month. The issue will be prominently flagged as part of the reforms agenda that the government is expected to embark on after it assumes office. The new administration under Narendra Modi is keen to kick-start the reforms process and financial sector revamp is being readied as a key area for him.

THE STAR The stronger-than-expected economic growth in the first quarter of this year has fuelled expectations of economists that interest rates in Malaysia could go up as early as July when Bank Negara’s Monetary Policy Committee (MPC) convenes its next meeting.

Several economists, when contacted, expected the central bank to raise the overnight policy rate (OPR) by 25 basis points from the current 3.0% to 3.25% by the next MPC meeting scheduled to be held on July 10. Their belief is based on the strong growth in the first quarter of 2014.

BANGKOK POST The Royal Thai Army on Tuesday declared martial law across the crisis-gripped kingdom to restore order following months of anti-government protests that have left 28 people dead and hundreds wounded. The military statement was signed by army chief Gen Prayuth Chan-Ocha. It cited a 1914 law that gives it authority to intervene during times of crisis, and said it had taken the action because on-going mass rallies between political rivals “could impact the country’s security and safety of the lives and properties of the public.”

THANH NIEN NEWS The Vietnamese tourism authority has asked provincial administrations and travel companies to ensure the absolute safety of Chinese-speaking tourists amid tensions over a Chinese oilrig dispatched into Vietnamese waters. The Vietnam National Administration of Tourism (VNAT) asked relevant agencies “not to let extreme or discriminatory behaviour be directed toward” visitors from Chinese-speaking localities.

The VNAT affirmed that ongoing tensions in the East Sea, internationally known as the South China Sea, have had no negative effect on Vietnam’s tourism activities on land and in coastal areas.

Hong Kong is in second position in the McKinsey Global Institute ranking

B

ERKELEY – A growing share of the world’s economic activity involves cross-border flows.

But just how interconnected is the global economy?

How are cross-border flows among activities, sectors, and countries changing? How do national economies rank in terms of their cross-border flows or “interconnectedness”? And what are the implications for business and policymakers?

A new report from McKinsey Global Institute addresses these questions by analysing the inflows and outflows of goods, services, finance, people, and data and communications for 195 countries over the past 20 years.

Both aggregate data and micro examples confirm that the world has become more tightly linked, with cross-border flows increasing in scope and complexity – and embracing a larger number of countries and participants within them. Despite a significant contraction from 2007 to 2009, resulting from the deep global recession, the combined value of financial flows and trade in goods and services was 36% of global GDP in 2012 – 1.5 times higher than in 1980.

The report also confirms that greater openness to global flows has been a significant source of economic growth for individual countries and worldwide. Overall, the research estimates that global flows have contributed 15-25% of global growth each year, with more interconnected countries receiving 40% more of the growth benefits than less interconnected ones. This is consistent with economic theory: interconnectedness fosters growth via productivity gains from specialization, scale, competition, and innovation.

Cross-border flows of goods, including commodities, remain the largest category, growing at 11% per year during the last decade and surpassing their pre-recession peak in 2012.

Today, more than 35% of goods cross national borders.

Cross-border flows of services have also recovered to prerecession levels and have been

growing rapidly at 10% per year since 2002. Nonetheless, although services account for roughly two-thirds of world GDP, cross-border flows of services are less than onequarter those of goods.

Cross-border flows of finance are still 70% off their prerecession peak, yet even at today’s depressed levels they account for more than onethird of all global financing.

By contrast, the cross-border flow of people, measured by the percentage of people living outside their country of birth, is small, hovering around 2.7% since 1980. But crossborder movements of people for short-term purposes – tourism, work-related travel, and education, for example – have been growing by 3.54.8% annually during the last decade.

Interconnectedness fosters growth via productivity gains from specialization, scale, competition, and innovation.

And cross-border flows of data and communications have exploded, expanding by more than 50% per year since 2005. International telephone minutes have doubled, and cross-border Internet traffic has increased by 1,800%.

Migration flows may not be gaining as a share of the world’s population, but as a result of digitization, people

are more interconnected than ever before.

Digitalization is also transforming cross-border trade flows in three ways: the creation of digital goods and services, such as entertainment and products manufactured by 3D printers; so-called “digital wrappers,” including tracking devices for physical flows; and digital sales platforms, such as eBay and Alibaba.

On eBay, for example, more than 90% of commercial sellers export products to other countries, compared to less than 25% of traditional small firms. Digital technologies are boosting global flows and competition, enabling even the smallest companies – and even individual entrepreneurs – to be “micro-multinationals.”

Knowledge-intensive flows requiring relatively high levels of human capital and research and development are now larger than labourintensive, capital-intensive, and resource-intensive flows and are growing faster than all three. Flows of low-value, labour-intensive goods like apparel are declining as a share of global flows, while flows of R&D-intensive products, such as pharmaceuticals and business services, are gaining share.

By 2012, knowledge-intensive flows accounted for nearly half of the combined total value of flows of goods, services, and finance. This trend is an advantage for developed countries, which account for two-thirds of knowledgeintensive flows. China is the exception, claiming the second-largest share of flows (after the United States).

Traditional measures of an individual country’s global interconnectedness compare the size of its global flows to its GDP. According to these measures, smaller countries with smaller domestic markets appear to be more interconnected than larger ones. But this approach is misleading, because it does not consider a country’s share of global flows. The McKinsey report’s index of global connectedness remedies this shortcoming by considering

both the size of a country’s global flows relative to GDP and its overall share of global flows.

The MGI Connectedness Index shows Germany, Hong Kong, and the US ranking first, second, and third, respectively.

But some major economies fall well behind. Despite strong exports, South Korea and Japan rank 20th and 21st out of 85 countries, because they lag on immigration and cross-border Internet traffic.

China, which ranks 25th, has a strong export engine and large capital inflows but ranks low on people and data flows.

On average, emerging market economies rank lower than advanced economies, but several emerging market economies – including Morocco, India, Brazil, Saudi Arabia, and China – have improved their ranking significantly since the mid1990’s. Today, emerging markets account for about 38% of global flows, triple their share in 1990.

Yet a “digital divide” between developed and emerging economies persists in both data and communication flows and knowledge-intensive flows – and that gap does not appear to be closing. Emerging economies produce 40% of global output, and are home to 80% of the world’s population, yet they account for only 24% of cross-border Internet traffic.

The economic gains of interconnectedness are significant, but so are the challenges. To capitalize on the opportunities of digitization and the shift to knowledge-intensive trade, countries must invest in talent and infrastructure; reduce barriers to cross-border flows of people and information, without jeopardizing their citizens’ privacy and security; and expose their producers to robust foreign competition while ameliorating the resulting costs of disruption for their communities and workers. If the gains from globalization are not widely shared, political support for greater openness to global flows will decline – as will the economic benefits that such flows create.

The Project Syndicate 2014

16

May 21, 2014

CLosing Walmart to open more outlets in China

Sun-adapting glasses market rockets

The world’s largest retailer, Walmart Stores, announced on Tuesday that it will build about 30 new stores and more distribution centers in China this year. The U.S. retailer said it will continue to develop businesses in the country’s big cities. And more Supercenters will be built in third- and fourth-tier cities to serve emerging consumers amid China’s urbanization drive. Walmart also plans to open two new branches of its Sam’s Club chain of membership-only retail warehouses, in Wuhan of central China’s Hubei Province and Changzhou City in east China’s Jiangsu Province, this year.

Mitsui Chemicals of Japan said yesterday it had acquired SunSensors of the United States in a battle for the fast-growing market for eyeglasses that darken with exposure to sunlight. With the deal, Mitsui Chemicals is taking on French giant Essilor to grab market share in a sector growing twice as fast as that of traditional eyewear. Until now SunSensors was a unit of the American glass manufacturer Corning. Mitsui Chemical said it planned to act aggressively in this new market and sell light-sensitive lenses in competitive conditions. It gave no details on how much it is paying for SunSensors.

Tech demand empowers Taiwan Orders from Europe climbed 6.9 percent from the year before, while those from Japan leapt 30 percent

T

aiwan’s April export orders grew at their fastest pace since January 2013, bolstered by strong demand for tech goods and brightening the outlook for Asia’s struggling exportreliant economies.

The island’s semiconductor and electronic component suppliers are expected to reap benefits from new releases of smartphones and tablets in the third quarter, while subdued demand from China will likely curb orders for capital goods.

The Ministry of Economic Affairs said yesterday that export orders in April grew 8.9 percent from a year earlier, beating a median forecast of 5.5 percent in a Reuters poll.

The figure represents an improvement from the 5.9 percent growth registered in March, which itself came in higher than expectations.

“Demand for mobile devices continues to rise, leading to increased orders for components like chips,” the ministry said in a statement.

Taiwan’s export orders are a leading indicator for future demand of tech products worldwide.

Orders from China, Taiwan’s largest trading partner, rose 3.9 percent from a year earlier, while those

A chip built by Taiwanese brand VIA

from the United States saw a 5.7 percent gain.

Orders from Europe climbed 6.9 percent from the year before, while those from Japan leapt 30 percent.

“These numbers are a good sign of the competitiveness of the Taiwanese industry coupled with a steadily recovering global economy,” said Kevin Wang, a Taipei-

based economist at Taishin Securities.

Outlook mixed Actual exports, which trail export orders by one to two months, rose faster than expected in April, as shipments in the tech sector hit a new single-month record.

But Taiwan’s largest

China and Russia expect fruitful combined results

Trans-Pacific Pact faces thorny issues

C

M

hinese President Xi Jinping held talks with visiting Russian President Vladimir Putin in Shanghai yesterday. Xi said he will sign a “substantial” joint statement with Putin aimed at expanding cooperation in all fields and coordinating diplomatic efforts to cement the China-Russia all-round strategic partnership of cooperation. They will also witness the signing of a range of important cooperation agreements and contracts, Xi said, adding that Putin’s current trip will be very fruitful. Calling China the largest trading partner of Russia, Putin said bilateral trade volume hit nearly US$90 billion last year. Hailing the sound momentum of two-way trade this year, Putin said he believes bilateral trade volume will total US$100 billion by 2015. “Further facilitating the China-Russia all-round strategic partnership of cooperation based on common interests is a requirement for promoting international fairness and justice, maintaining world peace, and realizing prosperity in both countries,” Xi said, adding that the partnership is also an “inevitable choice” for the development of a multi-polar world.

Xinhua

trading partners have painted a mixed picture of economic strength recently, with the United States reporting retail sales barely grew in April.

China’s exports and imports notched modest growth last month after a huge drop in March, but a senior commerce ministry official said on Monday it could miss its target for trade growth for a

third consecutive year in 2014.

Meanwhile, recent turmoil at factories in Vietnam left many wondering whether output from Taiwanese-owned firms would be affected.

Thousands of Vietnamese set fire to foreign factories and rampaged through industrial zones in the south of the country in an angry reaction to Chinese oil drilling in a part of the South China Sea claimed

by Vietnam. The riots were largely targeted at Taiwanese facilities mistaken by the protesters as being Chineseowned.

The impact should be relatively muted, the ministry said, as firms shift lost production to other regions.

Hon Hai Precision Industry Co Ltd and China Steel Corp, two Taiwanese firms that had announced temporary work stoppages in Vietnam due to the riots, told Reuters their output in May from the country would not be lower than usual.

Most large Vietnam manufacturing houses, including those under Taiwanese management, have restarted operations or intend to return to work as soon as possible.

Exports capture shipments from Taiwan but export orders include those from Taiwanese factories operating abroad.

Reuters

British inflation accelerates

inisters from 12 nations trying to create a trans-Pacific trade pact said yesterday they have regained momentum for resolving the thorny issues of tariffs and market access, though they were unable to reach a final agreement.

Speaking after a two-day meeting in Singapore, the ministers said recent bilateral talks between the United States and Japan helped breathe life into the stalled talks for the ambitious Trans-Pacific Partnership (TPP) trade pact.

“I would say there is almost a sense of urgency about capturing that momentum and holding it and using it to get ourselves a lot further down the line in the next few weeks,” Australian Trade Minister Andrew Robb told a press conference following the meeting.

The original aim of the TPP was to abolish all tariffs between member countries. But it hasn’t been possible to reach an agreement on doing so, as the idea faces opposition, particularly in Japan.

Reuters

B

ritain’s 12-month inflation accelerated in April for the first time for 10 months, lifted by the later timing of Easter, official data showed yesterday.

The increase comes against broad concern about unusually low inflation in Europe and particularly in the Eurozone, of which Britain is not a member.

The British Consumer Prices Index (CPI) inflation measure ticked up to 1.8 percent, after striking a four-year low of 1.6 percent in March, the Office for National Statistics (ONS) said in a statement.

The data ends a period during which the key CPI rate slowed for six successive months.

“Increases in transport costs, notably air fares, sea fares and motor fuels, provided the largest contribution to the rise in the rate,” the ONS added.

The Easter holiday break fell in April this year, but in March in 2013.

The CPI rate however remains under the Bank of England’s government-set target level of 2.0 percent.

AFP