Macau Business Daily, Jan 9, 2014

MOP 6.00 Closing editor: Sara Farr Year III

Number 556 Monday June 9, 2014

Publisher: Paulo A. Azevedo

Fragrant Harbour Fallout

www.macaubusinessdaily.com

T

he Hong Kong Tourism Board faces a quandary. Visa restrictions on mainland Chinese tourists could dampen already declining retail sales. Meanwhile, Macau continues to register healthy growth in this sector. Anti‑mainlander sentiment and open discussions on restricting visitor access to the Fragrant Harbour could explain the differing fortunes of the SARs, say some Page

Mass market on a roll

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The VIP segment continues to decline. Analysts at Wells Fargo have accordingly reduced gaming revenue estimates this year. Revised thinking sees the VIP segment contract, while the mass market expands around 30 percent Page 5

Sands’ suspension Construction works for phase 3 of the Las Vegas Sands Corp development project on Cotai have been suspended. Two work-related accidents have attracted the attention of the Labour bureau, and an investigation Page 3

Rosy outlook China has announced declining May imports. Exports behaved wonderfully, and trade surplus climbed to US$35.92 billion Page 9

HSI - Movers June 6

Name

Move along, please A new bus company is taking over the services of bankrupt Reolian.

The new 4-year contract will be signed this week. For now, though, the operator’s name is secret. Although all will soon be revealed. A new remuneration system also comes into play; and will apply to the existing operators, too, when their contracts come up for renewal Page 2

%Day

China Petroleum & C

1.28

COSCO Pacific Ltd

1.14

Wharf Holdings Ltd

1.01

China Shenhua Ener

0.46

HSBC Holdings PLC

0.37

Cheung Kong Holdin

-2.03

Bank of China Ltd

-2.16

Swire Pacific Ltd

-2.17

Want Want China Ho

-2.26

Hong Kong & China G

-2.49

Source: Bloomberg

INTERVIEW I SSN 2226-8294

Making hay Bloomberg senior gaming analyst Tim Craighead says regional competition should not bother Macau. Different visitors suit different gaming jurisdictions, he says. On top of which, Macau is ‘digesting’ excess demand, so there’s plenty to go around. Until Cotai II doubles capacity Pages 6 & 7

Brought to you by

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June 9, 2014

Macau

New bus operator to sign 4-year contract Alex Lee

alex.lee@macaubusinessdaily.com

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he new contract to be celebrated by the bus operator that will take over the service from bankrupt Reolian Public Transport Company will extend to four years ending 2018, Transport Bureau (DSTA) director Wong Wan announced on Friday.

Reolian’s initial 2010 contract would have permitted the bus operator to provide public transport from 2011 to 2018.

“The new contract is very likely to be shorter than the previous one.

But that will be known when the agreement with the new operator is signed, which may happen next week,” Mr. Wong said following a meeting with members of the Macao

Community Advisory Committee.

As for the hour-long meeting, Mr. Wong explained that the discussion focused on concerns about the quality of the bus services since the takeover of Reolian and how it would be controlled.

“We heard the opinions of members of the Macau Community Advisory Committee on how the service could be enhanced. We’re working to make sure that the transition will be smooth and that it will be monitored accurately following the handout,” he revealed.

When asked about the secrecy and lack of information about ongoing negotiations, the Transport Bureau director explained that it was

justified by the need to protect the government’s position.

“The silence protects the government position on the negotiations. The government of Macau is in an inferior position in this process. But all will be known next week.”

Bus fares unchanged In an interview with Radio Macau on the day before the meeting, Mr. Wong guaranteed that despite the new bus operation model fares will not be increased.

“Bus fares for residents will remain unaltered. The government will need to continue granting the operators

financial aid so that they remain operating their bus services under a low tariff scheme,” he added.

The new bus model to be introduced in Macau will introduce important changes to bus operators that will gather funds by receiving both the money from the fares and the financial subsidies paid by the government.

Under the current system, operators are paid according to the kilometers clocked up by the buses, but they are not allowed to keep the fare money.

The new scheme will be introduced in the new contract signed with the operator that is to assume control of Reolian’s services. For the other operators, it will take effect when their current contracts are negotiated.

Corporate

Galaxy sweeps Dragon Boat awards board

Mandarin Oriental: Top presidential suite 2014

Galaxy Entertainment Group’s dragon boat teams took home fivew awards - namely a championship, a first runner-up title and a second runner-up title - on the first day of the Macau International Dragon Boat Races. During the races, team members gathered at the Nam Van Lake Nautical Centre to cheer on the team athletes. Galaxy’s female dragon boat teams overtook their competitors in the women’s small dragon boat 200m races to bring home the championship and first runner-up titles, while ‘Galaxy Universe’ won second runner-up in the small dragon boat 200m open category.

Last year, the group’s dragon boat team took home a number of trophies including gold.

Galaxy’s team members established the group’s first dragon boat in 2005 on their own initiative, and in 2006 the team began competing in the Macau International Dragon Boat Races.

Mandarin Oriental was awarded ‘2014 Top Presidential Suite in Macau’ by the Hurun Presidential Awards. Organised by the Hurun Report, China’s leading luxury publishing group, the Hurun Presidential Awards seeks to recognise outstanding luxury hotels and enhance unique guest experiences. The winners were chosen based on the experiences of mystery guests, comprising Chinese billionaire luxury travellers from the Hurun Rich List, who were asked to complete a detailed scorecard including the suites’ key facilities. “We’re delighted to have received this prestigious award,” said Martin Schnider, general manager of Mandarin Oriental, Macau. “This recognition shows that Mandarin Oriental’s renowned sophisticated luxury with Oriental charm has become industry and market benchmarks in quality and luxury.” Located in the ‘prow’ of the hotel building, the bar enjoys an extraordinary 270-degree view across Macau to Nam Van Lake through floor-to-ceiling windows.

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June 9, 2014

Macau

Hong Kong looks over its shoulder Hong Kong businessman Peter Lam has voiced concern about the retail trade being outpaced by Macau amidst talk of possible mainland visitor control in the Fragrant Harbour Stephanie Lai

sw.lai@macaubusinessdaily.com

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hile the Hong Kong administration mulls adjusting mainland Chinese visitor growth, Hong Kong Tourism Board chairman Peter Lam Kin Ngok spoke on Friday of his concern about the declining retail sales in his home city, in stark contrast to Macau’s stores, which he deemed a warning sign to the local tourism trade.

Speaking to media on Friday, Mr. Peter Lam, who also chairs the Hong Kong-based conglomerate Lai Sun Group, remarked that the tourism sector and the administration of Hong Kong would have to carefully “seek a balance between the city’s tourism capacity and the Hong Kong residents’ demand” when he was asked about the city’s possible move to adjust the individual visit scheme with the mainland government to control visitor growth.

“Why is Macau registering a growth [in retail], while we are having a drop? Is

that a warning sign to our tourism sector?” Lam asked, acknowledging that Hong Kong has already seen weak growth in retail sales in recent months, as well as a rare decline in visitor arrivals during the Tuen Ng Festival holiday period that lasted from May 31 to June 2.

Hong Kong, whose tourist arrival base is bigger than Macau’s, recently recorded a rare 1.6 percent year-onyear drop in mainlander visitor arrivals at about over 387,700 during the 3-day Labour Day holiday starting on May 1, a fall beyond the expectations of the local tourism sector.

The latest official figures from Hong Kong reveal that the city’s total retail sales value dropped by a year-onyear 9.8 percent to HK$38.8 billion in April. Huge sales value drops were recorded for jewellery, watches and clocks as well as commodities in department stores; the city has only seen a mild year‑on‑year growth of 0.7

percent in total retail sales value in the first four months of this year.

Macau - the latest official figures on retail sales only date to March - presents a quicker retail growth pace as the city’s total value of retail sales reached 18.3 billion patacas for the first quarter this year, up 15 percent.

Amongst all retail sales items, sales of commodities in department stores (3.13 billion patacas) and supermarkets (1.12 billion patacas) have climbed at the quickest pace in the first quarter at 22 percent and 25 percent, respectively; watches, clocks and jewellery – popular among mainlander visitors - showed a year-onyear sales rise of 15 percent to 5.376 billion patacas in the period.

Steady growth “For major vacations like the Labour Day holiday we still saw more mainland Chinese customers shopping

here,” managing director of local retailer Seng Fung Jewellery Co Ltd Lee Koi Ian remarked. “Although it’s also true that you can see their consumption power has weakened, particularly in these two years . . . Now sales of jewellery and watches in the ‘mid-price’ range – below 100,000 patacas – have grown much more steadily than the higher end, more expensive ones amongst mainland customers.” Mr. Lee added that his company was still optimistic about jewellery sales targeting Chinese consumers in the coming months. The jewellery owner also reckoned that the appeal of the mass-market friendly products will lead sales amongst mainlander customers in Hong Kong and Macau alike.

Aside from weaker consumption power exhibited by mainland visitors, a possible reason that may explain the weaker retail sales in Hong Kong contrasted with Macau is that the former has

seen anti-mainland protests prior to the recent discussion about adjusting the individual visit scheme, which could hurt the intention of tourists crossing the border, Mr. Lee remarked.

“There are many deeper issues that could have impacted mainlander visitors’ will to come to Hong Kong: the restriction on the infant formula purchase to bring across the border, the demand to control visitors travelling under the individual visit scheme, or even the insults that some Hong Kongers have hurled at them on the streets before,” said Mr. Lee. “These are possibilities for why less mainlander visitors are travelling there.”

On February 16, a group of about 100 Hong Kong protesters hurled insults at mainland Chinese shoppers in the upscale street of Canton Road in Kowloon, an episode that incited the Hong Kong Government to accuse the protesters of tarnishing the territory’s image.

Sands Cotai Phase 3 works suspended

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n accident in phase 3 of the Sands China Ltd development project on Cotai has led to the suspension of its construction works.

The Labour Affairs Bureau said in a statement released yesterday that it is ‘very concerned’ about two accidents that took place on Saturday, injuring one kitchen worker at a Venetian restaurant and two construction workers. Inspection

officers were sent to the scene to assess the situation and to begin an investigation.

According to the statement, a female kitchen worker suffered a cut to her hand, while on the construction site of phase 3 of the project one worker suffered an injured pelvis, while another suffered slight abrasions after scaffolding fell on both men. The statement did not say

when the construction works would resume.

The fourth tower of Sands Cotai Central – referred to by LVS as the ‘St. Regis Tower’ after the hotel brand of the same name – is part of what’s known as Phase III of the approximately US$4.2 billion property. LVS’s local unit Sands China Ltd said in its 2013 interim report published in August that the

firm was required to complete Sands Cotai Central by May this year, but would ‘be unable to meet’ the deadline. ’We will be applying for an extension from the Macao Government,’ to do so, it added.

LVS had previously said in filings that it would complete Phase III ‘as demand and market conditions warrant.’

S.F. and S.L.

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June 9, 2014

Macau

Companies terminate iron ore agreement Sara Farr

sarafarr@macaubusinessdaily.com

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rosperity International Holdings (H.K.) Ltd has ended an iron ore off-take agreement with Zhong Cheng Group, the company said in a filing with the Hong Kong Stock Exchange.

Under the agreement, Prosperity Macao, an indirect wholly-owned subsidiary of Prosperity International, was to prepay for a certain quantity of iron ore guaranteed by ZCB-ZCI per month. Prosperity Macao is primarily engaged in the trading of iron ore, while ZCB-ZCI is the combination of Zhong Cheng International Pte Ltd, incorporated under Singapore laws, and Zhong Cheng Building Materials

International Ltd, incorporated under Hong Kong laws.

Due to the sharp decrease in iron ore prices and low demand, the prepayments under the offtake agreement may not be fully utilised. As such, the parties have agreed to terminate the off-take agreement. However, ZCB-ZCI may still continue supplying iron ore to the company, but there will be no minimum quantity that needs to be met every month.

Under the off-take agreement, the balance of prepayment approximates US$44.5 million (HK$347 million).

In addition, the filing states that as of

LRT to the rescue A member of the Macau Institution of Engineers’ Executive Council said that the government should take the opportunity of the construction of the Light Rapid Transit (LRT) on Macau Peninsula to resolve Sai Van

Lake’s pollution problems, Macau Daily Times reports.

Sio Chi Veng said that the LRT is an opportunity for the government to resolve the lake’s water and silt problems. He also said that the authorities might use

last Friday the amount of outstanding prepayment under the ZC agreement approximates US$30.5 million, equivalent to some HK$238 million.

In June 2011, Prosperity Macao and ZCB-ZCI first entered into this agreement, which was amended in October 2012. The amendment would see the amount of guaranteed iron ore and prepayment to ZCBZCI reduced. ‘Pending completion, Prosperity Macao agrees to reduce the monthly deductions under the ZC master off-take agreement to not less than US$1.2 million, with effect from 1 November 2012,’ a filing dating back two years reads.

some of the lake space to build new car parks.

The engineer also believes that the option for an underwater section to connect Sai Van station and Barra Station is based on the decision to protect the view of Sai Van Lake.

China Star disposes of Star Hope shares

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hina Star Entertainment Ltd is disposing of its shares in Star Hope Investments Ltd in order to concentrate on hotel and gaming services.

In a filing with the Hong Kong Stock Exchange after hours on Friday, the company said that the unaudited gain on the disposal is approximately HK$1.5 million, the net proceeds of which - HK$41.1 million - is intended to repay advances from a non-controlling interest.

The company said in the filing that the disposal of the shares represents an opportunity for the group to invest in the property market in Hong Kong. In addition, ‘the disposal will enable the group to focus its financial resources on its other principal businesses such as the hotel and gaming services operation and other gaming related businesses in Macau,’ the filing reads.

China Star and its subsidiaries focus primarily on film production, distribution of film and television dramas, the sale of Chinese health products, investment in operations streams from the gaming promotion business, property and hotel investment, in addition to property development.

In March, China Star, which is also the owner of Lan Kwai Fong hotel-casino, increased its presence in the casino junket market here by offering a HK$200 million loan to a junket. The move was meant to give the company a better grasp of the operation.

S.F.

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June 9, 2014

Macau

Gaming revenues to climb 11pct in 2014 Following a weak May and an expected softer June, investors are downwardly revising Macau’s gaming revenue growth for 2014 from 13 to 11 percent. The VIP market will now decrease by 1.5 percent in the second half, while mass revenues are set to grow 30 percent Alex Lee

Alex.lee@macaubusinessdaily.com

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ollowing growing signs of a slowdown since January, investors started last week to revise down their estimations for the Macau gaming industry’s prospects this year, with revenues now expected to grow 11 percent rather than 13 percent. The VIP market is set to contract this year and the mass market will expand in the 30 percent range, saving the year for most operators.

After a booming 2013, the first half performance was already losing the year-on-year comparisons battle. Then came China’s economic deceleration, casino shares market volatility – stocks have lost 20 percent since January with deep ups and downs in some sessions - and a package of negative news headlines ranging from UnionPay scandals, junket arrests and visa restrictions to smoking bans in gaming halls.

May revenue growth, at almost half of market consensus (9.3 percent versus 14 percent), was the tide turner in a year turning out to be choppy.

A Wells Fargo research team was one of the first to reduce expectations for 2014. In a note to clients, the US bank said it revised down Macau’s casino revenues growth for this year to 11 percent compared to the previous figure of 13 percent. This results from the sharp deceleration of the VIP segment, despite a better than expected mass market performance for the second half.

VIP blues For the second half, Wells Fargo is now awaiting a decrease in VIP revenues of 1.5 percent compared to the previous 3 percent rise. On the other hand, the mass-market segment

We do not see downside risk to 2014 estimates given the mix shift to higher margin mass business Wells Fargo

previous four quarters, we do not expect any significant earning beats in Q2, assuming June growth of 6.5 percent,’ says Well Fargo. Last week, Credit Suisse released a report pointing out that gaming revenues in Macau could, in a worst-case scenario, stagnate this month with a marginal increase of 1 percent, due to the World Cup kick-off on Saturday.

As gamblers are distracted from casinos to watch and bet on tournament matches, revenues from operators could hike a maximum of 6 percent, Credit Suisse wrote. Bank of America predicts a June increase of 8 percent. The VIP segment will again be a decisive factor in any slowdown, as its revenues are set to decrease 4.5 percent, while mass gains will be up 32 percent, posits Wells Fargo.

Sands’ smooth sailing

should see revenues climb 30 percent above the previous estimations of a 25 percent jump. ‘That said, we do not see downside risk for 2014 estimations given the mix shift to higher margin mass business,’ wrote Wells Fargo. ‘We remain positive on Macau but continue to believe 2014 is likely to be choppy.’

In a separate report, Telsey also underlined that the mas market will continue to compensate for the fall in VIP revenues. ‘There’s no sign that the mass market engine is slowing,’ said the brokerage, citing a 36 percent hike in May, up from a 34 percent rise in April.

Investors are also assuming that June will now be another soft month, even more so than May. ‘Unlike the

Following a weak second quarter, investors are betting Las Vegas Sands is the operator who’s likely to benefit most as the market continues to shift from VIP to mass, given its larger exposure to the latter segment in Macau. In the first quarter, the parent company based in Macau, China Sands, was the best performer of the Big Six here: profits skyrocketed 50 percent year-on-year supported by a mass market revenue growth of 55 percent.

Despite a weaker than expected second quarter and a ‘choppy’ 2014, Macau’s success story is still solid.

‘We remain bullish on the medium to long term story as Macau is still significantly underpenetrated and see Macau reaching US$115 billion dollars of revenues in 2018,’ says Wells Fargo.

A tale of two cities May was the game changer for 2014 as investors started to exercise caution following the impact of headwinds in the industry arising from China’s slowdown and junkets scandals. The VIP segment is already on the downslide as it’s more exposed to these events; casinos are also reassigning more tables to premium mass. But that’s not the whole story.

According to Telsey, other factors contributed to the downturn like bad weather and an early June Dragon Boat Festival.

The brokerage stated in a note to clients that May saw record high temperatures and severe rainstorms in Macau that kept visitors away. Some operators admitted, Telsey says, that some VIP air-conditioning units were unable to keep up with the heat. Ten significant rainstorms in one month also served as a negative factor. The early June Dragon Boat festival was a softening factor, too, because junkets normally limit liquidity ahead of an expected pickup in demand on major holidays. In the end, Telsey concluded that May gaming revenue was ‘a tale of two cities,’ with dominant players like Sands China, Galaxy and SJM posting healthy year-on-year gains, while the others (Melco Crown, Wynn and MGM) reported declines in gaming revenues.

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June 9, 2014

Macau Brought to you by

HOSPITALITY Go figure The latest published statistics on MICE events (Meetings, Incentives, Conferences and Exhibitions) indicate that in the first quarter of this year almost 305,000 people participated in one type of event or another. That figure corresponds to just over 1,100 participants, on average, in all the events reported in the period. Compared to the same quarter in the previous year, the increase in participants was just slightly below 50 percent. Conferences led the growth ranking with a rate of 82 percent in the period. The laggards in the group were ‘meetings’ – which includes government, associations and company meetings – which went up by a comparatively paltry 10.9 percent. Put into context, these results are not as good or exceptional as they might look at first glance. In fact, all of them, except for conferences, dipped below the average (and far below the peak) figures for the last five years. The associated gaps ranged between 3 percent and 39 percent. Conversely, the value recorded for the exception - ‘conferences’ rocketed 190 percent.

When we look into the data for MICE events, one of the most striking points is the volatility in the number of reported participants. High variability is seen among types of event, as pointed out. But variability is also visible within the same categories of event over time, both between different years and between the various quarters of each year. The leader, both in absolute figures and number’s variability, is, once more, ‘exhibitions’. Their numbers are so high, and their changes over time so wide, that we have to use a logarithmic scale here, or the figures for all other types of events would be crushed, so to speak, and their features miniscule.

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number of MICE events reported in Q1

Year of the digestion Regional competition to Macau’s omnipotence in the gaming sector does not exist and will not exist in the foreseeable future. In an interview with Business Daily, Tim Craighead, senior gaming analyst at Bloomberg, says that regional competition should not bother the territory, as there are different types of visitor to suit each of the gaming jurisdictions. Yet, considering the next wave of resorts expected to burst onto Cotai district, Craighead says there is the distinct risk that the excessive supply of hotel-casinos might lead them to compete between themselves.

Luciana Leitão

leitao.luciana@macaubusiness.com

What are the future prospects of gaming in Macau?

It’s sort of a ‘sky is the limit’ business, both from the standpoint of the underpenetrated population of a growing consumer base in China with building other infrastructure, resorts and facilities here. It’s a significant opportunity and hard to really define the upside possibilities.

We can look at other markets, like the US broadly, that seems to have hit something of an upper limit, if you think of Las Vegas.

And you can look at a single market, like Singapore, that has plateaued for now, following a big jump.

It’s a totally different dynamic here [Macau]. Part of that is supply — continuing to expand the base of hotels, resorts and casino floors — and part of it is the people sitting across the border that are consumer middle class and with a propensity to gamble.

China is going through an economic slowdown. Will this impact Macau?

There’s actually an impact from China’s economic slowdown. It’s subtle, but it’s there. But it’s not the real driver of Macau. And by that I think that there’s some economic sensitivity to the VIP business.

We did see VIP volume growth, looking at the rolling chip turnover. It slowed in the first quarter relative to the fourth and part of that probably has something to do with good oldfashioned economics. We’ve actually done some analysis and looked at the longer-term basis correlation between economic growth and the VIP business and it’s there. It’s not conclusive, but it’s there.

However, the mass-market business, which is the real growth driver, is much more sustained and consistent. In many ways, Macau knows who the VIP are, and that’s always going to be a core piece, tapping into a growing middle class mass market consumer-based growth story in terms of high net worth consumers that feed in the premium mass category, but aren’t junket credit players. Those are long-term growth stories that are still underpenetrated and undertapped.

Is that the future of gaming in Macau?

Yes. It’s the future of Macau and the broader Macau-Hengqin island of China sort of concept. There are going to be challenges and issues, but the core growth story is mass market.

Macau is traditionally a VIP market.

Will it be that easy to reverse the trend?

The transition is already in play.

If you look at the first quarter, every one of the operators shifted tables from VIP to the broad mass market — a lot of that is premium mass market — but that’s a business that’s expanding, it’s a higher margin business for them than the junket business. They’re not trying to get rid of the VIP business.

Before, you had VIP and a developing mass market.

Now you’ve still got VIP and a developing premium mass and a rapidly expanding mass, and they’ve been capacity constrained. The operators in the Peninsula are absolutely capacity constrained and, thank goodness, the Cotai business has started to develop, allowing more people to come then play in all the resorts and certainly there’s a VIP business in Cotai. But there’s a mass market — look at The Venetian floor – that’s pretty dramatic.

They both grow, but you’re seeing a skewing of tables towards premium mass and mass, away from VIP; and when you get more capacity, doubling the hotel capacity in Cotai in the next three years, that’s going to give you more capacity to have more people come through, be it premium mass or mass.

An additional source Will it be easy to change a system almost rooted in Macau?

I don’t think you will have to change the VIP system — most of the junkets are still there and will continue to be. It’s an addition of a new business. The VIP can continue to be important and grow as a fundamental foundation piece of Macau, but mass grows faster and premium mass is really just lighting up.

There’s actually an impact from China’s economic slowdown.

It’s subtle, but it’s there

Would you say that the fact that it’s a VIP market, relying on the junkets, is one of the Macau gaming sector’s biggest frailties?

It’s interesting, because saying it’s mainly VIP, depends on how you want to look at it.

If you look at revenue, there’s certainly still more VIP than mass, clearly. If you look at profit contribution, the operators all generate more profit from mass than VIP. And if you look at a cash-flow type measure, at the EBD lines, there are operators that are generating 75 to 80 percent of the EBD for the mass market. So, for the operators, bottom line, it’s already a mass market business.

It’s just the headline VIP flow — it has a lot of sex appeal.

Some of the latest newspaper headlines mention that several junkets face severe accusations. Is that already a sign that the market is changing?

No. There will from time to time be both real issues with an operator here or a perceived issue or rumour that may or may not be fully truthful. But if one junket operator has an issue, there are many others and the casino operators have relationships with multiple junkets, so there’s not a dependency on one per se.

None of the casino operators going through the first quarter reporting period have disclosed any problems or any issues from that perspective.

I do think that the VIP business will continue to slow. The overall mass market will slow this year, just simply because of difficult comparisons and the VIP

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June 9, 2014

Macau business’s slower economic growth, and no new capacity this year.

This is a digestion year.

You’ll start getting capacity, new transportation and attractions in Hengqin over the course of 2015, 2016 and 2017 that allows for that supply-driven market to expand.

I would expect junkets to continue to be a piece of the business, as that next acceleration period comes about, even if the focus is mass market.

Another news headline over the past month was the UnionPay frauds. Do you believe that a resulting crackdown by China might mean a shift in regulations?

I’d agree with what several of the companies have said — and that is that the regulatory environment that China and Macau create for the casino business is transparent, clearly understood and has been very pro-business.

If there’s an issue that is deemed illegal, like these mobile UnionPay machines and swipe machines that needs to be corrected or dealt with, they’ll do that, but that doesn’t seem a paradigm shift in regulation. That seems to be an operational implementation of the existing law.

Again, it really doesn’t appear to be that big a deal from the standpoint of the core business here. These seem to be headlines that get a lot of attention because we’re in a negative market sentiment rotation in casino stocks along with some other industries and in trying to explain some of that rotational market psychology, it’s easier to point fingers at little things like this that in the grand scheme of things don’t change the fundamentals.

The Cotai wave How about the Cotai developments; do you see a paradigm shift?

It has the potential to be a significant further acceleration — instead of three operators having properties, you get all six, and the existing ones have further expansion plans.

It allows all of the operators to really go after that mass market possibility, which they just haven’t had the capacity to do anything with. Really, it’s Sands who has had that massive capacity. City of Dreams has been a beneficiary not only of its own operations, but also from its proximity to Sands.

Galaxy has got a nice big facility that can start to tap in to mass and premium mass, but when you double the hotel footprint and you expand the capacity by tables and slots by upwards of 75 percent, you can start to tap an underpenetrated Chinese mass market consumer, which you just haven’t had the capacity to deal with.

There’s a huge potential, as long as they execute.

Looking at competition in Asia, there are now talks about Japan.

Are there really any threats to Macau’s gaming domination?

The next wave of resorts, while we have a constructed view on what that possibility is, it’s really going to be a first time that you’ve got a potential digestion problem with a lot of supply. And if the operators execute and hold firm on what’s driving the current business, it can be very constructive if with additional supply somebody tries to discount to fill their hotel. The current market suggests that it is not necessary but if they did then this very constructive oligopoly unravels. We don’t see that as

likely, but it’s a risk.

So, the key competition these guys all face is between themselves when they have capacity. We don’t expect it — none of the operators will tell you that is where they’re going, but that’s economic theory.

How about the existing resorts, will these be cannibalised?

I would agree that that’s a risk.

If you look at the facilities on the Peninsula, they’ve continued to grow, even though Cotai has expanded. If you look at what’s going on with Sands Macau on the Peninsula specifically, with how Sands’ growth on Cotai has been, there’re times that Sands Macau has had issues, but over time it’s continued to run a solid business.

More specifically, in Cotai, the City of Dreams property has benefited fantastically from Sands Cotai Central. People come to the new place and they migrate to the City of Dreams. There’s a synergy of a cluster that can be quite positive for new as well as existing properties. That said, if you had eight sexy new resorts it does beg the question: how do you keep fresh and alive a facility that’s five or 10 years old? It takes a lot of work.

Wynn is an interesting example — they’ve got a chunk of their floor going through a renovation, that’s a modernisation. They continue to open new restaurants, they redo this and they refresh that. It causes reinvestment to keep the facility of interest. It’s a risk; you’ve got to execute, you’ve got to spend the money. If they handle it well, they can all expand.

The overall mass market will slow this year, just simply because of difficult comparisons and the VIP business with a little slower economic growth, and no new capacity this year. This is a digestion year

How about in terms of regional expansion?

As far as regional expansion goes, at this point, in the next five years, it seems a market expansion opportunity. Whether it’s Vietnam, Cambodia, East Russia or another development in Jeju Island, all of that just continues to create better and more interesting opportunities for a population that likes to gamble.

We haven’t seen an indication of hitting a tipping point of having too much supply. That can happen. Clearly, if you look at the US, Las Vegas and Atlantic City in particular have come under real pressure with the proliferation of gaming across the country. It’s a more highly penetrated market.

The new facilities have clearly

cannibalised the old. We’ve seen it happen elsewhere.

At some point, it’s bound to happen, but it doesn’t seem to be anywhere close to this cycle.

Japan is an open opportunity, if it’s a local market where Japanese can come and gamble, that’s relatively untapped. We’ve talked about China coming here.

The Philippines is a big local market, it’s an opportunity for market expansion. We can have a conversation about it when it becomes competitive but it just doesn’t seem it’s there yet.

So, Macau will not be fighting other regions for Chinese gamblers?

At this point, there’s still plenty to go around for everybody. Part of that is local market activity. Part of that is international travel. You kind of go market by market and assess those types of dynamics.

Singapore certainly has Chinese travelling to Singapore and it’s a big component of their VIP business, but they’ve got a very big Malaysian and Indonesian business and these aren’t coming here. Japan, if legislation passes - a big if - you’ve potentially got an untapped local market opportunity. You’ve got a northern China opportunity, as long as geopolitical issues don’t get in the way, of people who like to travel, and Tokyo is a pretty cool place to go visit. You’ve got a massive expansion in the pipeline in Macau to come here for the mass market - for Chinese who haven’t necessarily travelled abroad. It’s easy, it’s high quality, it’s eye opening and it’s easier than going to the Philippines.

8

June 9, 2014

Macau

Ambrose So warns Lisboa Palace may exceed budget Authorities seize more forged passports

A

mbrose So Shu Fai, chief executive of SJM, is concerned that the Lisboa Palace project currently under construction in Cotai may go over budget due to higher salary and material costs. The chief executive of SJM also conceded that the project could be delayed, reports Hong Kong newspaper The Standard.

The project was originally costed at HK$25 billion (25.7 billion patacas) but its first budget has already been increased to HK$30 billion (31 billion patacas). The total investment for the Lisboa Palace may slide yet again.

Ambrose So also expects Macau’s annual gambling revenue to increase by 10 percent (to 400 billion patacas) from last year. Although May posted disappointing growth of 9.3 percent Mr. So is still confident that gaming revenue will grow above the singledigit barrier in 2014. As for the month of May, the SJM chief executive noted that 9.3 percent was not bad but that the market is used to double-digit growth.

As for the future, Ambrose So reminded listeners after SJM’s annual general meeting that positive future prospects include the completion of the Hong Kong-Zhuhai-Macau Bridge in 2016 and Hengqin in Zhuhai being developed into a resort and convention hub that could attract numerous visitors.

SJM’s chief executive stated, in addition, that gambling legalisation in Japan is not a threat to the Macau gaming industry.

M

acau authorities have seized an average of 50 forged travel documents a year since 2009, Portuguese news agency Lusa reports citing numbers obtained from the Public Security Police. Three new cases have been reported since January this year, one of which was at the Macau International Airport. Last year alone, 25 travel documents were forged compared to 64 in 2012. According to police figures, in 2011 some 37 forged travel documents were found, while in 2010 there were 78 and 63 a year earlier. The majority of the forged passport holders were mainland Chinese or Southeast Asians who wished to travel to Europe or the United States using Macau as a transit point.

Others, the Portuguese news agency says, sought to work here.

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9

June 9, 2014

Greater China

Stronger exports to cushion growth Trade surplus widens to US$35.92 billion

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hina’s exports rose more than analysts estimated in May, helping to cushion a slowdown in the world’s second-biggest economy as an unexpected slump in imports highlights the risks to growth.

Overseas shipments gained 7 percent from a year earlier, the Beijing-based customs administration said today.

That topped the median estimate of 6.7 percent in a Bloomberg News survey of analysts. Imports fell 1.6 percent, a drop that wasn’t forecast by any of the 42 analysts in a Bloomberg survey that had a median projection for a 6 percent gain. The trade surplus widened to US$35.92 billion.

Improving exports reduce the downside risks to growth, making broad-based stimulus less likely Ding Shuang, senior China economist, Citigroup Premier Li Keqiang (pictured) said that local and central governments must fully implement Government policies and reforms to achieve this year’s targets

Stronger exports may bolster Chinese leaders’ confidence that a recovery in demand from the U.S. and Europe will support economic growth and reduce pressure on the government to counter domestic weakness with stronger stimulus as the property market slumps. The European Central Bank’s unprecedented easing last week is a welcome step

for China that should help export growth, World Bank economist Karlis Smits said on June 6.

“The export figures are positive news for policy makers and we expect continued solid export growth in the coming months amidst gradually improving global demand momentum,” said Louis Kuijs, chief China economist

at Royal Bank of Scotland Plc in Hong Kong.

Tax cuts The government has announced a series of targeted policies to support the economy after growth slowed to 7.4 percent in the first quarter from a year earlier, the weakest pace since 2012 and below the government’s

full-year goal of about 7.5 percent. Expansion may ease to 7.3 percent this year from 7.7 percent in 2013, according to the median estimate of analysts in a Bloomberg News survey last month, the least since 1990.

Measures have included help for exporters, tax cuts, speeding up investment in public housing and infrastructure, faster fiscal

May commodities imports decline Refineries cut production during the peak maintenance season

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hina’s imports of major commodities fell in May from the previous month, customs data showed yesterday, as companies scaled back on orders after robust shipments in the previous months caused a supply overhang.

China, the world’s largest energy consumer, imported 26.08 million tonnes, or 6.14 million barrels per day (bpd) of crude oil in May. On a daily basis, crude imports fell 9.4 percent from the record high of 6.78 million bpd in April, as refineries cut production during the peak maintenance season.

Crude runs may be capped as refineries entered the peak maintenance season. PetroChina shut its largest

410,000-bpd Dalian refinery for maintenance from April 10 to late May, industry sources have said.

Other plants conducting maintenance last month included Sinopec’s Shijiazhuang, Tianjin, Qilu and Yangzi refineries, Xinhua OGP said.

Iron ore imports stood at 77.38 million tonnes in May, down 7.2 percent from the previous month.

Total imports in the first five months of 2014 was up 19 percent from year ago at 382.7 million tonnes.

Confronted by swollen inventories and falling steel prices, mills and traders in China have slowed down fresh purchases of the raw material, causing iron ore prices to fall.

6.14 million

barrels per day May’s crude oil imports

spending and a reduction in reserve requirements for some banks to spur lending to targeted sectors.

“Improving exports reduce the downside risks to growth, making broad-based stimulus less likely,” said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong.

Premier Li Keqiang said last week that local and central governments must fully implement these policies and reforms set out by the leadership to achieve this year’s targets, as downward pressure on the economy remains “relatively high,’ the official Xinhua News Agency reported on June 6.

The State Council will dispatch eight inspection teams nationwide to check on implementation. Many policies have not been fully carried out nor have they had the effects they should have and officials who have not fulfilled their duties will be punished, according to the statement.

Trade numbers for May this year probably marked the first set of ‘‘clean” data free of the impact of distortions, according to RBS’s Kuijs.

May’s drop in imports compared with a median estimate for a 6 percent increase in a Bloomberg News survey, with forecasts ranging from a gain of 0.3 percent to 13 percent. The trade surplus, which was projected to be US$22.6 billion, was the largest since January 2009, according to previously released data.

The fall in imports may be partly due to the government’s investigation into metal financing in China and to the lag in import orders made a couple of months ago when the economy slowed sharply, Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong, said in an e-mail.

Bloomberg News

In a sign that slower domestic demand was pushing Chinese steel makers to push for more sales abroad, customs data showed steel products exports rose 7 percent in May from month ago to 8.07 million tonnes, while arrivals fell 6.2 percent to 1.22 million tonnes.

Copper imports from the world’s top consumer fell 15.6 percent from a month ago to 380,000 tonnes in May. The figure includes anode, refined, alloy and semi-finished copper products.

Soybean imports to China, the world’s largest buyer, stood at 5.97 million tonnes in May, down 8.2 percent from 6.50 million tonnes in April.

Imports of coal, including lignite, dropped 11.4 percent in May from the preceding month to 24.01 million tonnes, as falling domestic prices made overseas supplies less attractive. Rising hydropower generation, along with sluggish economic growth, also led utilities to reduce orders.

Reuters

10

June 9, 2014

Greater China Nepal prepares to procure six more aircraft from China After receiving one aircraft from China and five still in the process, the Nepali government has begun preparations to procure six more planes from China, officials said yesterday. The board meeting of Nepal Airlines Corporation (NAC), Nepal’s national flag carrier, over the weekend approved the decision to procure more planes. The proposal was approved by the Aviation Minister Bhim Acharya himself.

“The NAC board will now send a proposal to the line ministries including Finance Ministry seeking approval to procure the planes, “NAC spokesperson Ram Hari Sharma told Xinhua.

Chinese-funded bridge nears completion Work on the 6th Cambodia-China Friendship Mekong-Stung Treng Bridge in northern Cambodia is nearing completion after a 25-month construction, officials said yesterday.

Tram Iv Tek, Cambodian Minister of Public Works and Transport, said the 1,731-meter bridge, being built by the Shanghai Construction (Group) General Company, would be completed at the end of August this year. The remaining work for the bridge was paving tar and installing bridge rails, he said. Along with the bridge is the construction of a national road No. 9 in the length of 144 kilometres.

Mainland buyers grow at Computex Taipei

Tech training for solving employment mismatch The government has said it plans to refocus more than 600 local academic colleges on vocational and technical education

C

hina is waking up to a potentially damaging mismatch in its labour market.

A record 7.27 million graduates - equivalent to the entire population of Hong Kong - will enter the job market this year; a market that has a shortage of skilled workers.

Yet many of these university and college students are ill-equipped to fill those jobs, prompting the government to look at how it can overhaul the higher education system to bridge the gap. The problem is part structural, part attitude.

While most liberal arts students are still looking for work after graduating this summer, 22-yearold Li Xidong is preparing to start a job as an electrician that he landed well before finishing three years of training at a small vocational school.

Li’s diploma may appear less impressive, but his coveted job in a tight labour market may hold the key to the Chinese employment conundrum. The machinery sector alone projects a gap of 600,000 computer-automated machine tool operators this year, media have reported.

The government has said it plans to refocus more than 600 local academic colleges on vocational

and technical education -replacing literature, history and philosophy with technology skills such as how to maintain lathes and build ventilation systems. Course curricula will be tailored to meet employers’ specific needs.

Pilot programs will be launched this year, and 150 local universities have signed up for the education ministry’s plan, the official Xinhua news agency has reported.

After 13 years of aggressive policy to expand academic colleges, China had almost seven times as many freshmen last year than in 1998.

That rapid growth compromised educational quality, especially in local colleges established after 1999, experts say.

Part of the problem lies with the students, too, who harbour unrealistic expectations, especially as China’s economic growth loses momentum.

Chinese graduates are less willing than their Western peers to take bluecollar jobs, work in smaller companies or start their own businesses, hoping to land steady jobs instead in the government or high-paying whitecollar work, Chen said.

The government plans to reform the national college entrance exam system by setting up a technical training

7.27 million

graduates to enter Chinese job market in 2014 exam separate to the academic exam, Education Vice Minister Lu Xin was reported by Xinhua as saying. The ministry would also turn more than 600 local universities into highereducation vocational colleges, Lu said. China has 879 public universities and colleges, according to a 2013 ministry list.

In recent years, graduates from higher vocational schools, which rank below universities in the Chinese system, have consistently done better in finding jobs than standard college graduates, Lu told the People’s Daily, the official newspaper of the ruling Communist Party, in a separate interview.

About 80 percent of higher

Xi: Fiscal reform urgent but with planning Asia’s largest computer show, concluded on Saturday, attracting more than 38,600 buyers from 166 countries and regions, with mainland buyers being the strongest presence.

Following the Chinese mainland, the strongest presence were from the United States, Japan, China’s Hong Kong and the Republic of Korea, said Walter Yeh, executive vice president of the island’s external trade development association. Yeh said that, this year, mainland buyers showed strong annual growth from 3,600 to more than 5,000. In 2012 and 2013, the mainland buyers were listed as the third largest source of buyers.

Reforms face opposition from vested interests, especially as government revenues slow

C

hina’s President Xi Jinping said on Friday that fiscal reforms were pressing but careful planning was needed, the official Xinhua news agency said, as top leaders met to discuss detailed reform plans.

Fiscal reform is increasingly urgent as the leadership tries to shore up

budget management and let central government assume more spending obligations, reducing the need for local governments to borrow heavily or to sell land to raise revenues.

But reforms face opposition from vested interests, especially as government revenues slow, critics say, and so far have been incremental,

China-South Asia Expo begins in SW China The second China-South Asia Expo kicked off on Friday in Kunming, capital of southwest China’s Yunnan Province, to promote all-round cooperation and development in the region.

With the theme of “expanding trade in services, boosting investment-cantered cooperation, accelerating interconnectivity, and jointly constructing economic corridors,” it is hoped that the expo will form an important bridge for mutually beneficial cooperation between China and South and Southeast Asia in fields including the economy, culture, transport and technology. The five-day expo is expected to attract exhibitors and buyers from 46 countries and regions and 24 domestic provinces and municipalities

President Xi said fiscal reforms involved “difficult adjustments of interests”

focusing on cutting red tape, removing barriers for private investors and liberalising markets.

Xi said fiscal reforms involved “difficult adjustments of interests”, but gave no details.

“We must fully understand the importance, urgency, complexity, difficulty in deepening fiscal and tax

11

June 9, 2014

Greater China

HTC hopes M8 to bring good times back The firm says it expects to swing back into profitability in the next quarterly results

O

vocational school graduates last year found jobs, while only around twothirds of college graduates secured work, according to a report from the 21st Century Education Research Institute. Vocational college graduates

We must fully understand the importance, urgency, complexity, difficulty in deepening fiscal and tax system reforms Xi Jinping, China President

also had a higher average starting salary - at 3,291 yuan (US$530) a month versus an average 3,157 yuan among students from China’s top-100 universities.

Reuters

system reforms,” Xinhua quoted Xi as telling a meeting of the central leading group for deepening reforms.

“We should actively and steadily push forward the reforms,” Xi said, noting that careful preparations and consensus-building were vital for implementing detailed reform plans.

The group was set up this year to steer comprehensive reforms to put the economy on a more sustainable footing, following a major party meeting in November.

Xi said reforms that were “conducive for stabilising growth, adjusting structures, preventing risks and improving people’s livelihood” should be implemented first.

He also pledged to speed up reform of the rigid residence registration, or hukou, system, fully opening up cities for outsiders, opening up mediumsized cities in an orderly fashion but strictly controlling the size of the largest cities.

Beijing has pledged to gradually free up the hukou system to allow millions of migrants to settle in cities and enjoy basic welfare services there to help unleash their spending power.

Friday’s meeting also approved a framework for pilot programmes of judicial reform, a work programme on judicial reform in Shanghai, and a plan to set up special courts on intellectual property rights, Xinhua said, without giving further details.

Xi’s government has shown a willingness to reform China’s court system at a time of public discontent over miscarriages of justice. But experts have said Beijing will ensure that these moves do not threaten the Chinese Communist Party’s overall control.

In his first work report to parliament in March, China’s top judge, Zhou Qiang, said Reuters

nce a star of the intensely competitive smartphone sector, Taiwan’s HTC has seen its fortunes collapse in recent years - but the success of its latest model provides a glimmer of hope.

The company started out as a contract smartphone manufacturer for major foreign players including Microsoft and only began developing its own brand of handsets in 2006.

It quickly built up a loyal following as the first to use Google’s Android operating system -now the most popular OS for mobile devices and adopted by global smartphone leader Samsung.

But from stellar performances in 2011, HTC has nosedived as Samsung, Apple and strong Chinese brands like Lenovo and Huawei surge ahead.

In the first quarter of this year, it posted a net loss of Tw$1.88 billion (US$62.3 million) while sales hit a five-year low of Tw$33.1 billion.

Now, though, there’s a muchneeded buzz around the brand once more, following the launch of the HTC One M8 handset in March.

HTC would not comment on sales figures for the M8, but says it expects to swing back into profitability in the next quarterly results, doubling its revenues in the three months to June.

We believe that we are on course for a strong 2014 Peter Chou, HTC chief executive

“We believe that we are on course for a strong 2014,” said chief executive Peter Chou. There was also a hint at a new collaboration with Microsoft at last week’s Computex tech show in Taipei.

Remedial action was urgently needed after HTC’s global market share slumped from 8.8 percent in 2011 to 4.6 percent in 2012, according to data from market researchers IDC. The firm has brought in Hollywood star Robert Downey Jr as its public face and become a sponsor of the UEFA Champions League and Europa League football tournaments. But even with this added firepower it will be a big task for HTC to challenge their grip.

AFP

India and China approach after Modi’s victory The new Indian leader has invited Xi to visit later this year

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hina’s foreign minister began a two-day visit to India yesterday for the first highlevel talks between the world’s two most populous nations since Prime Minister Narendra Modi took charge.

Wang Yi is coming to New Delhi as a special envoy of Chinese President Xi Jinping to “establish contact with the new government of India”, the Indian foreign ministry said.

Despite his hard-line nationalist reputation, Modi has been making overtures to traditional rivals China and Pakistan since his Bharatiya Janata Party swept to power last month. The new Indian leader has invited Xi to visit later this year.

Wang is coming “to engage with our leadership and we will take it from there”, foreign ministry spokesman Syed Akbaruddin told a news briefing last week.

The Chinese foreign minister is set to meet Indian government officials, including his new Indian counterpart Sushma Swaraj and President Pranab Mukherjee. He is slated to see Modi today.

Foreign policy expert Ranjit Gupta told AFP the visit was a “good augury”.

China is India’s biggest trading partner, with two-way commerce totalling close to US$70 billion. But India’s trade deficit with China has

Narendra Modi

soared to over US$40 billion from just US$1 billion in 2001-02, Indian figures show.

Experts say Modi must bridge the deficit by seeking greater access to the Chinese market, with the two sides targeting annual bilateral trade of US$100 billion by 2015.

But, despite the strong trade ties, relations are still dogged by mutual suspicion -a legacy of a brief, bloody border war in 1962 over the Indian state of Arunachal Pradesh, nestled in the eastern stretch of the Himalayas that China claims as its own.

Modi warned China to shed its “expansionist mindset” at an election rally earlier this year. China hit back, saying it “never waged a war of aggression to occupy any inch of land of other countries”.

AFP

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June 9, 2014

Asia Myanmar FDI triples after reforms Economic reforms helped triple foreign direct investment (FDI) into Myanmar to more than US$4.1 billion in the fiscal year that ended on March 31, a senior investment commission official said, forecasting an increase this year.

Myanmar’s quasi-civilian government has pushed through a series of political and economic reforms since the end of military rule in 2011. “The total inflow of FDI in the last fiscal year amounted to US$4.107 billion, compared with US$1.419 billion a year before and US$91.17 million 10 years ago in fiscal 2003/04,” Aung Naing Oo, secretary of the Myanmar Investment Commission (MIC), told Reuters.

India’s soymeal exports sink Exports in May sank 91.5 percent from a year earlier to their lowest in 20 months, a trade body said, as higher soymeal prices prompted buyers to turn to competitor south America.

Soymeal exports from India, Asia’s top exporter of oilmeal, fell sharply to 8,226 tonnes in May from 96,492 tonnes a year earlier, the Solvent Extractors’ Association of India (SEA) said in a statement. Limited supplies of soybeans for crushing in local markets mean that even in June soymeal prices will stay high, hitting shipments, industry officials said.

Prabowo wants big infrastructure spending The senior economic adviser to Indonesian presidential candidate Prabowo Subianto said a government led by him would spend nearly US$60 billion a year on infrastructure, and find the money to do that by “revamping” the country’s tax collection. Hashim Djojohadikusumo, a businessman who is Prabowo’s brother, also told the Jakarta Foreign Correspondents Club that contrary to a common perception, Prabowo is not a staunch nationalist who is cool to foreign investment.

“We welcome foreign investment.

In fact, the more the merrier. The Chinese government is considering investing US$100 billion in the next five years in Indonesia,” Hashim said.

Japan underreports unused plutonium The Japanese government has not declared about 640 kg of unused plutonium in its annual report for the International Atomic Energy Agency (IAEA) in 2012 and 2013, an amount enough to make 80 nuclear bombs. Japan claims to own 44 tons of plutonium, while the actual amount is 45 tons, said Japan’s Kyodo News Agency. The unreported plutonium is part of the plutoniumuranium mixed oxide (MOX) fuel placed at an offline reactor in a nuclear plant in Saga Prefecture, southern Japan. The MOX fuel was loaded in March 2011, shortly before the Fukushima Nuclear Crisis happened later that month.

Japanese monetary policy achieving intended results Excluding the effect of the tax hike, inflation accelerated to 1.5 percent in April compared with year-on-year a negative 0.5 percent Suleiman Al-Khalidi

B

ank of Japan Governor Haruhiko Kuroda said a massive stimulus policy introduced a year ago had achieved its goal of boosting the real economy, lifting growth and ending deflation but said a 2 percent inflation of two years could take more time to achieve.

He said that the its ultra-easy monetary QQE (quantitative and qualitative easing) policy introduced last April when the BOJ pledged to double base money via aggressive asset purchases to accelerate consumer inflation to 2 percent in roughly two years had attained its goals.

“One year has passed ...the policy has been having the intended effects leading to an improvement in financial markets, the real economy, prices,” Kuroda told an audience attending the 17th world congress of the International Economic Association held in Jordan.

On whether it was possible meet the two-year inflation target, one year into the stimulus plan, Kuroda hinted it could take longer.

“When the BOJ introduced QQE

Haruhiko Kuroda, Bank of Japan Governor

Mumbai metro starts amid fare dispute The situation highlights India’s problem of state control on prices

I

ndian billionaire Anil Ambani’s Mumbai metro, delayed since 2011 and heading for a dispute with the government over fares, began service today as thousands crowded the station to witness Hindu priests offer blessings.

Reliance Infrastructure Ltd.’s unit Mumbai Metro One Pvt. will charge a promotional 10 rupees (20 cents) for a one-way ticket for the first 30 days, and later increase it to as much as 40 rupees, according to its website.

The regional government wants it to charge between 9 rupees and 13 rupees in accordance with a contract it signed, Business Standard reported yesterday citing Maharashtra Chief Minister Prithviraj Chavan.

The dispute highlights India’s problem as state control on prices, including electricity and gas, hinders investments in infrastructure and hobbles the US$1.8 trillion economy, according to Standard & Poor’s Indian unit. Newly elected Prime Minister Narendra Modi has promised bullet trains and reduced dependence on cars as he pushes for more investment in

Disputes over pricing and tariffs deter investments and that should be avoided when so much money is required for infrastructure Dharmakirti Joshi, chief economist, Crisil

public transport.

“Disputes over pricing and tariffs deter investments and that should be avoided when so much money

is required for infrastructure,” Dharmakirti Joshi, chief economist at Crisil Ltd., S&P’s local unit, said by phone from Mumbai. “The infrastructure itself is always playing catch-up, and we’re building today what should’ve been built yesterday.”

Chief Minister Chavan told reporters in Mumbai today the dispute would be settled according to clauses in the contract with Reliance Infrastructure.

India now has about 225 kilometers (140 miles) of metro rail lines, almost all accounted for by New Delhi’s 190 kilometers. That compares with about 1,700 kilometers in China and New York City’s 1,062 kilometers of passenger track.

India needs to increase its total more than 10 times to at least 2,500 kilometers by 2031 to accommodate the expected surge in intracity commuters, reduce pollution and cut road fatalities, according to Venugopal Garre, Manish Agarwal and Saurabh Mishra, Barclays Bank analysts in Mumbai.

Bloomberg News

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

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13

June 9, 2014

Asia we declared we would intend to achieve a 2 percent inflation target basically within two years time,” Kuroda said.

“The policy of QQE will be maintained and will be continued until we achieve the 2 percent inflation target and also maintain a 2 percent inflation in a sustainable manner so it may take more than two years if necessary and anyway we are only half way,” Kuroda said.

The BOJ governor said the “largescale monetary easing” had led to peoples’ inflation expectations rising on the whole.”

Excluding the effect of the tax hike, inflation accelerated to 1.5 percent in April compared with year-on-year a negative 0.5 percent excluding fresh food in March last year, Kuroda said.

Kuroda said the “bank’s massive purchases of JGB have kept 10-year

KEY POINTS BOJ says inflation expectations helps spurs growth Massive stimulus policy achieving intended results Exiting QQE program still too premature - BOJ governor

government bonds yields at a low level of about 0.6 percent.” Exiting QQE could carry risks and was premature now, he added.

The BOJ under the QQE will continue purchasing long-term government bonds “with average maturities of six to seven years” until the 2 percent inflation target was met,” Kuroda said.

“So discussing exiting strategy, how to exit and when to exit is certainly too premature although I can say there are many options and ways to gradually exit from QQE in coming months,” he added.

Kuroda said the Japan’s economic growth was led by domestic demand, with the policy of BOJ “to encourage a decline in real interest rates through raising inflation expectations and thereby stimulate the real economy.”

“As a result real interest rates have been negative and continue to decline, thereby providing stimulus to the real economy”.

“Radically changing inflation expectations among the private households” would revive private demand, particularly investments as well as consumption that had experienced sharp downturns after the Lehman crisis,” Kuroda said.

Although the government could achieve its objective of eliminating Japan’s primary deficit by 2020, rising overall debt posed a long-term problem for policy makers, Kuroda.

“So we don’t see excessive private sector debt accumulating overhang or whatever, the problem is only the government which continues to have large debt GDP now is more than 200 percent and the government has belatedly started to reduce fiscal deficit.., Kuroda said.

Reuters

Japan to benefit from China-Russia deal There are hopes that piping Russian gas to China will create a new price benchmark

F

or once, China looks to have done Japan a favour.

In clinching a US$400 billion deal last month to buy Russian gas, China may end up helping out its old political and economic rival in a way that matters hugely for Japan - energy security.

The China-Russia agreement, the biggest gas deal ever, unlocks new gas supplies and could bring down gas prices across Asia, a development that would pay the biggest dividends for Japan, the world’s top buyer of liquefied natural gas.

Other big Asian gas buyers such as South Korea and Taiwan could also benefit.

The deal, signed on May 21, cemented a dramatic shift in energy flows from the West to the East. Gas will be transported to China via a new pipeline linking Siberian gas fields from 2018, building up gradually to 38 billion cubic metres a year.

China has massive gas needs, but access to more of the fuel is also vital for Japan since its utilities pay the world’s highest prices. Japan buys about a third of global LNG shipments and spent a record 7.06 trillion yen (US$70 billion) last year, mostly for electricity generation to replace idled nuclear reactors following the Fukushima disaster in 2011.

There are hopes that piping Russian gas to China will create a new price benchmark that could cut

KEY POINTS Japan’s own diplomatic drive to secure more Russian gas lags Asian LNG buyers such as Japan currently pay Asia premium China-Russia deal may see positive spinoffs by containing LNG costs Japanese buyers hold off term LNG contracts on nuclear uncertainty

prices for Asian LNG buyers as well as providing new gas sources.

“This will surely put downward pressure on gas prices and some say it is the beginning of the end of the Asia premium,” Masumi Kimura, a researcher at Japan Oil, Gas and Metals National Corp (JOGMEC), said in a note, referring to the higher price paid for gas in Asia compared to other parts of the world.

Reuters

Thai economy awakens hesitation fears The Thai stock market suffered a plunge of 15 percent in just one day before authorities quickly backtracked

The economy is like a dying person it’s sick so it needs oxygen Tanit Sorat, Federation of Thai Industries vice chairman

Thai soldiers stand guard to prevent any rallying against the military coup at the Victory Monument in Bangkok

T

he last time Thailand had a coup, the stock market crashed when the kingdom imposed draconian capital controls.

This time around, investors hope the generals have learned their lesson.

Markets have largely taken May’s military takeover in their stride, but there is still nervousness about a regime that has put the air force chief in charge of the economy and appointed the navy commander to oversee tourism.

Experts say the last putsch,

in 2006, showed that soldiers lack the expertise to run Southeast Asia’s secondlargest economy.

The regime was also unable to move ahead with significant reforms because of its caretaker status, he added.

After the 2006 coup, markets were particularly frightened by drastic foreign capital controls introduced several months later to try to curb the rise of the baht, noted Ryan Aherin, Asia analyst at risk advisory company Maplecroft.

The Thai stock market

suffered a plunge of 15 percent in just one day before authorities quickly backtracked.

The regime also briefly considered limiting foreign investment in businesses.

So far, the Thai stock market is up about four percent since the May 22 coup, helped by buoyant global investment sentiment.

But Japan, Thailand’s largest foreign investor, is watching events with trepidation. Japanese auto giants Toyota, Honda and Nissan have invested heavily

in Thailand, attracted by its skilled workforce and the ease of doing business.

‘Economy needs oxygen’ Even before the coup, the economy shrank 2.1 percent quarter-on-quarter in the first three months of 2014, according to an official estimate. The fear is that it will contract again in the second quarter, sliding into recession.

“The economy is like a dying person - it’s sick so it needs oxygen,” said Tanit Sorat, vice chairman of the Federation of Thai Industries (FTI).

Thai consumers appear

relieved that the military takeover has, for now at least, brought a halt to the bloody political unrest.

Consumer confidence rose in May for the first time in 14 months, according to the University of the Thai Chamber of Commerce.

But the government expects economic growth of just 1.52.5 percent for 2014, against a previous forecast of 3-4 percent.

Thailand now faces structural issues such as growing regional competition and delays in public infrastructure investments, said Steffen Dyck, analyst at Moody’s Investors Service.

After the last coup a strong global economy helped Thailand to post robust economic growth of about five percent in both 2006 and 2007, he noted.

Seemingly aware of the investor nervousness, the junta has quickly invited various economic actors to make proposals for a “roadmap” out of the latest crisis.

To get the economy moving again, the junta has pledged support for small and midsized firms, as well as tax reform and the creation of special economic zones on the country’s borders.

AFP

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June 9, 2014

International Nigeria, Kenya to boost tourism ties Nigeria is working with the Kenyan government over developing a framework to boost the tourism sector of the former country in the next 12 months, said Edem Duke, Nigerian minister of Culture, Tourism and National Orientation in an interview with reporters in Abuja, the national capital of Nigeria. Duke spoke on the side-line of an event to celebrate the launch of the air route operated by Kenya Airways from Abuja to Nairobi, the capital of Kenya. The minister emphasized the need to develop the tourism sector.

Cyprus returns to markets The counctry will return to the markets in the immediate future, a year earlier than originally planned, Finance Minister Haris Georgiades said. “We contemplate this possibility and a decision will be made within days. We are working on the final details,” Georgiades said.

He said the government plans issuing a 500-million-euro (about US$680 million) bond possibly maturing in five years. He did not say what the interest would be but he said he expected it to be lower than a 6.5 percent interest on a 100-million-euro bond issued recently by private placement.

Israel’s bank to solve U.S. tax probe Bank Leumi, Israel’s second largest lender, said yesterday it was close to reaching an agreement with the U.S. Department of Justice, which has been investigating possible tax evasion by the bank’s American clients. The bank said it was setting aside an extra 460 million shekels (US$130 million), bringing its total provision for the impending settlement to about 950 million Israeli shekels (US$275 million). The charge would “significantly impact” second-quarter results, it said in a statement. Bank Leumi has urged U.S. clients to disclose information about their accounts to the U.S. authorities.

Mexican energy law to protect locals Mexican lawmakers aim to set higher minimum requirements than first planned for how much local labour and materials companies investing in the oil and gas industry must use, according to a revised draft of pending legislation.

Mexico’s Congress is in the process of approving so-called secondary laws to implement the government’s December 2013 energy reform, which forms the cornerstone of President Enrique Peña Nieto’s strategy to boost flagging economic growth. The ruling Institutional Revolutionary Party (PRI) aims to vote the laws by the end of June, though it could take longer.

Italy’s entrepreneurs urge faster reform The Italian industrial circles have called on Prime Minister Matteo Renzi to not lose a minute in reforms amid international warnings of a weak economy despite the “encouraging intentions” of the government. It emerged from gatherings of entrepreneurs and retailers over this week that strong support for Renzi and his reforms shown in last month’s European elections must not be wasted but should be buttressed with fast action as the only possibility to make Italy safe from any new economic relapses. Entrepreneurs said they have hope in Renzi.

Sisi proclaimed Egypt’s president Main challenges will be to restore stability and revive the economy after three years of turmoil

A

bdel Fattah al-Sisi was sworn in as president yesterday following a landslide election almost a year after he deposed Egypt’s first freely elected leader and crushed his Islamist supporters.

The retired field marshal took the oath of office at the heavily guarded Constitutional Court and then left to attend a reception with foreign dignitaries.

Western countries alarmed by the brutal crackdown on dissent following the overthrow of Islamist president Mohamed Morsi last year mostly sent low level representatives.

Sisi scored a lopsided victory last month in an election boycotted by Morsi’s Muslim Brotherhood and secular dissidents, also targeted by the army-installed government in the wide-ranging crackdown.

Soldiers and police deployed in force in the capital in anticipation of protests by the battered Brotherhood movement and possible militant attacks.

“I swear by almighty God to preserve the republican system, and to respect the constitution and the law and to care for the interests of the people; and to preserve the independence of the nation and its territorial integrity,” Sisi declared in the ceremony broadcast live on television.

Elite policemen stood guard outside as helicopters dropped posters of Sisi on dozens of well-wishers who turned up to see the former army commander.

“I’m here to congratulate Sisi, the man who rescued us from terrorism and the Muslim Brotherhood,” said one flag-waving supporter, Amira Ahmed.

The presidency said he would later host a reception at Cairo’s Ittihadiya presidential palace, with Palestinian

Egyptians celebrate Sisi’s victory in Tahrir Square

president Mahmud Abbas, Arab royals and African leaders in attendance.

Sisi will also sign a transfer of power agreement with Adly Mansour, a chief justice whom Sisi had installed as interim president when he ousted Morsi on July 3.

Riding a wave of popularity since then, Sisi won the May 26-28 election with 96.9 percent of the vote against his only rival, leftist leader Hamdeen Sabbahi.

The nature of the victory showed he still enjoyed immense support for his overthrow of the divisive Morsi, after millions held protests demanding an end to the Islamist’s single year of turbulent rule.

But the lower than anticipated turnout of about 47 percent denied Sisi the overwhelming mandate he had called for ahead of the vote.

The now banned Brotherhood had called for a boycott of the election.

Sisi’s main challenges will be

to restore stability and revive the economy after three years of turmoil, following a 2011 uprising that ousted strongman Hosni Mubarak.

Since Morsi’s ouster, the crackdown on his supporters has killed more than 1,400 people and left thousands behind bars, while militants have killed hundreds of policemen and soldiers.

In a televised address after his victory was announced on Tuesday, Sisi called on Egyptians to “work to return security to this nation”. Sisi’s opponents fear that under his rule, Egypt will return to an autocratic regime worse than under Mubarak.

In the run-up to the election, Sisi said that “national security” takes precedence over democratic freedoms.

He will be the fifth Egyptian president to rise from the ranks of the military, and is expected to reassert the army’s grip on politics.

AFP

Saudi Arabia might create a sovereign wealth fund It could mean a change in the way Saudi money flows through global markets

S

audi Arabia’s Shura Council, an influential advisory body to the government, will discuss a proposal for the country to establish a sovereign wealth fund that would invest some of its vast oil earnings, local media reported.

The National Reserve Fund would “guarantee the financial stability of the kingdom” by investing its reserves, Saad Mareq, head of the council’s financial committee, was quoted as telling the pan-Arab Asharq al-Awsat daily on Saturday.

Details of its investment strategy were not given, but if the proposed Saudi fund is run like the sovereign wealth funds of other wealthy Gulf states such as Qatar and Abu Dhabi, it could mean a change in the way Saudi money flows through global markets.

The country’s central bank, the Saudi Arabian Monetary Agency, has traditionally managed the country’s investment of oil surpluses abroad, focusing on low-risk assets; it is

US$55 billion

Saudi Arabia 2013 budget surplus

believed to have placed over half of its foreign reserves, now equivalent to about US$730 billion, in conservative U.S. dollar assets such as U.S. Treasury bonds and bank accounts.

Asharq al-Awsat said the proposed Saudi fund would start with capital of 30 percent of budget surpluses accumulated over past years. In 2013 alone, the government posted a budget surplus of 206 billion riyals (US$55 billion).

The fund would have a president with the rank of minister, the newspaper added. The Shura Council will discuss a draft law for the National Reserve Fund on Monday and Tuesday, the official Saudi Press Agency reported.

In 2009, an investment fund called Sanabil Al Saudia was set up with a mandate to invest in less conservative assets. It was granted 20 billion riyals of initial capital.

Last year, the International Monetary Fund told Saudi Arabia it was spending more than it should if it wanted to preserve oil wealth for future generations, and that its state budget could fall into deficit by 2016 if expenditure continued rising fast.

Reuters

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June 9, 2014

Opinion Business

wires

Leading reports from Asia’s best business newspapers

The great credit mistake Adair Turner

Former Chairman of the United Kingdom’s Financial Services Authority Member of the UK’s Financial Policy Committee and the House of Lords

THE TIMES OF INDIA Finance minister Arun Jaitley has called for suggestions from Reserve Bank of India on how the economy could prepare itself against vulnerabilities arising out of the ebb and flow of foreign capital.

In his first visit to Mumbai after taking charge, Jaitley met with financial sector regulators under the aegis of the Financial Stability Development Council. In the meeting, the finance minister emphasized the need for financial stability and coordinated efforts by all regulators and stressed the need to improve business confidence.

THE STAR Despite being one of the largest hospital groups in the world, IHH Healthcare Bhd has an insatiable appetite for growth. “We are focused on growth and I believe we are well-positioned for this given the dynamics in Asian economies.

The rapidly ageing population and rising affluence with an exponential increase in middle income people augur well for us,” managing director and chief executive officer (CEO) Dr Tan See Leng tells StarBizWeek. The healthcare group has seen strong backing from its institutional shareholders.

THE KOREA HERALD First-quarter corporate investment increased compared to last year, but it was mainly due to a handful of top conglomerates, pointing to a growing imbalance between big and smaller companies, data indicated yesterday. Analysis by corporate watcher CEO Score showed South Korea’s top 30 business groups invested 20.5 trillion won (US$20.06 billion) in the first quarter of this year, roughly 9 percent more than the same period last year. But excluding Samsung, which increased its investment by 48 percent, the amount is actually 4 percent less than last year.

INQUIRER.NET The government has opposed the exclusion of former Finance Undersecretary Antonio Belicena from the 550 criminal cases filed in connection with the P5.3-billion tax credit certificate (TCC) scam despite a claim by doctors that he is unfit to stand trial due to a mental disorder. In a threepage joint opposition filed in the Sandiganbayan’s Second Division, State Prosecutors Alma Avanza, Jennifer Agustin and Annielyn Medes-Cabelis of the Office of the Ombudsman said Belicena’s lawyer, Jose Flaminiano, failed to observe the Rules of Court when he filed the motion to terminate.

L

ONDON – Before the financial crisis erupted in 2008, private credit in most developed economies grew faster than GDP. Then credit growth collapsed.

Whether that fall reflected low demand for credit or constrained supply may seem like a technical issue. But the answer holds important implications for policymaking and prospects for economic growth. And the official answer is probably wrong.

The prevailing view has usually stressed supply constraints and the policies needed to fix them. An impaired banking system, it is argued, starves businesses, particularly small and medium-size enterprises (SMEs), of the funds they need to expand. In September 2008, US President George W. Bush wanted to “free up banks to resume the flow of credit to American families and businesses.”

The stress tests and recapitalizations of US banks in 2009 were subsequently hailed as crucial to the recovery of both the banking system and the economy. By contrast, the European Central Bank’s inadequately tough stress tests in 2010 were widely panned for leaving Eurozone banks too weak to provide adequate credit.

In the United Kingdom, banks have been criticized for not lending the reserves created by quantitative easing to the real economy, leading the Bank of England to introduce its “funding for lending” scheme in 2012. In the Eurozone, it is hoped that this year’s asset quality review (AQR) and stress tests will finally dispel concerns about bank solvency and free up credit supply.

A “credit crunch” – particularly in trade finance – was certainly a key reason why the financial

crisis generated a real economy recession. Taxpayerfunded bank rescues, higher bank capital requirements, and ultra-easy monetary policy have all been vital to overcome credit supply constraints. But there is strong evidence that once the immediate crisis was over, lack of demand for credit played a far larger role than restricted supply in impeding economic growth.

That argument is persuasively made by Atif Mian and Amir Sufi in House of Debt, an important new book that analyses US data on a countyby-county basis. Mian and Sufi show that the recession was caused by a collapse of household consumption, and that consumption fell most in those counties where pre-crisis borrowing and post-crisis realestate prices left households facing the largest relative losses in net wealth.

It was in those US counties, too, that local businesses cut employment most aggressively. For SMEs, a shortage of customers, not a shortage of credit, constrained borrowing, employment, and output. And the customers were absent because the pre-crisis credit boom had left them over-leveraged.

In the UK, many business surveys from 2009-2012 told the same story. Poor customer demand was ranked well ahead of credit availability as a constraint on growth.

Economic growth can indeed continue to be severely depressed by a debt overhang even when credit supply is unrestricted and cheap. Many Japanese companies were left overleveraged by the boom and bust in credit and real estate in the 1980s and early 1990s. By the late 1990s, the Japanese banking system was offering companies loans

A “credit crunch” – particularly in trade finance – was certainly a key reason why the financial crisis generated a real economy recession

at near-zero interest rates.

But, rather than borrow to invest, firms cut investment to pay down debt, driving two decades of stagnation and deflation.

Since 2011, the ECB’s analysis of weak Eurozone growth has stressed the negative impact of an impaired and fragmented financial system, with high sovereign-bond yields and funding costs for banks resulting in prohibitive lending terms in the peripheral

countries. Major progress in fixing these problems has already been achieved.

The ECB’s latest Monthly Bulletin documents this, citing multiple indicators of improved credit availability and pricing. Nonetheless, the rate of decline in privatesector loans has accelerated over the last year – from -0.6% to -2% – and low demand is acknowledged to be the main driver of depressed credit growth. Simultaneous private deleveraging and fiscal consolidation are restricting Eurozone growth far more than remaining restrictions on credit supply.

Despite the ECB’s own evidence, however, the policy focus remains on fixing the credit-supply problem, through the AQR and stress tests, and through the ECB’s own version of a funding for lending scheme, announced on June 5. That reflects a recurring tendency in official policy debates, particularly in the Eurozone, to concentrate on fixable problems to the exclusion of more difficult issues.

Fixing impaired banking systems after a crisis is both essential and achievable.

Moreover, even when public rescue costs are inevitable, they are typically small change compared to the economic harm wrought by the financial crisis and post-crisis recession.

By contrast, a large debt overhang may be intractable unless policy orthodoxies are challenged.

Japan offset private deleveraging in the 1990s by running massive public deficits. The US has pulled out of recession faster than the Eurozone, not only – or even primarily – because it fixed its banking system faster, but because it pursued more stimulative fiscal policies.

But fiscal stimulus is constrained within the Eurozone, where member countries no longer issue their own currency and “sovereign” debt therefore carries a default risk. Aggressive monetary expansion through quantitative easing is also far more complicated and politically contentious in a currency area with no federal debt for the central bank to buy. To survive and thrive, the Eurozone will need to become more centralized, with some common fiscal revenues, expenditures, and debts.

Of course, this scenario implies immensely difficult political choices. But the starting point for debate must be realism about the nature and severity of the problems facing the Eurozone. If Eurozone policy assumes that fixing the banks will fix the economy, the next ten years in Europe could look like the 1990s in Japan.

The Project Syndicate 2014

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June 9, 2014

Closing Dubai world free zone partners with UN

Philippines starts feeding programme for school children

The Dubai-based world free zone organization (World FZO) said yesterday that it signed a strategic memorandum of understanding with the United Nations Industrial Development Organization (UNIDO) in order to promote the free zone concept globally. The statement said both parties aim to achieve this objective by introducing successful development initiatives from UNIDO to World FZO members. World FZO, a global non-profit body aimed at spurring collaboration between all economic free zones in the world, was launched in Dubai on May 19 2014. The Shanghai pilot free trade zone is one of the 14 founding members.

The Philippine government has earmarked over 1 billion pesos (US$22.83) to finance programme aimed at eradicating malnutrition among school children, a senior government official said yesterday. Presidential Communication Operations Office Herminio Coloma, Jr. said in an interview over a state-run radio station said that this is a school-based feeding program with the National Nutrition Council under the Department of Health as the lead agency and in partnership with the Department of Agriculture, Department of Science and Technology, Department of Trade and Industry, Department of Interior and Local Government and the Commission on Higher Education.

Nestle wants to be the yummiest The company, known for mass-market chocolate, may seek to buy its way into a bigger role in the premium sector Silke Koltrowitz and Martinne Geller

N

estle’s chief executive, who oversees a sprawling empire stretching from baby food to wrinkle treatment, admits to finding one of its oldest businesses, chocolate, a source of frustration.

Nestle is one of many consumer goods companies trying to tap interest in high-end, natural, artisan, exclusive or organic goods to augment packaged food sales that have been sluggish in Europe and North America since the global recession.

Its Nespresso brand enjoys a comfortable position at the high end of the coffee market, helped by exclusive distribution, break-through technology and ads with George Clooney. But the company has not done the same in chocolate.

“Premium chocolate is my small intimate frustration,” Chief Executive Paul Bulcke told investors at a conference in Boston on June 4 where he also discussed the company’s shrinking appetite for underperforming brands.

His revelation prompted renewed speculation the company, known for massmarket chocolate, may seek to buy its way into a bigger role in the premium sector, particularly in the United States. A Nestle spokesman declined to comment on any plans.

“I think there will be some sort of premium chocolate initiative on a global basis for the company over coming months and quarters,” said Kepler Cheuvreux analyst Jon Cox. “And to be honest, about time too.”

Nestle sold about 7.5 billion Swiss francs (US$8.39 billion) of chocolate in 2013, accounting for about 8 percent of group sales.

Its confectionery business is No. 3 behind Mondelez International and Mars in a global market with more than US$196 billion in retail sales, according to Euromonitor International.

Over the last seven years, Nestle’s confectionery business has grown at an average rate of 5.7 percent,

Nestle’s Crunch bar

below the group average of 6.3 percent, according to Vontobel analysts.

Gourmet chocolate, often made with higher cacao content and exotic flavours such as chilli or ginger, is still a small part of the market and boasts a range of independent players such as La Maison du Chocolat and Vosges.

But multinationals are increasingly present.

Mondelez owns Green & Black’s, Korea’s Lotte owns Belgium’s Guylian, Mars owns Pure Dark and Hershey Co owns Scharffen Berger.

Nestle also sells premium brands - Switzerland’s Cailler and Italy’s Baci Perugina- but

the vast majority of sales come from mainstream brands such as Kit Kat, Aero, Crunch and Butterfinger.

To build or buy The easiest way for Nestle to move upmarket in chocolate would be an acquisition, and rumours of its interest in Switzerland’s Lindt & Spruengli and Italy’s Ferrero have recurred over the years.

Any buyer of Lindt, the maker of Lindor and Ghirardelli chocolates, would have to offer a hefty premium to its current market value of US$12.8 billion, paying

Sony urges thorough Qatar Property slowdown World Cup investigation to last longer

J

apanese firm became the first World Cup sponsor to call for a thorough investigation into accusations bribes were paid to secure the 2022 tournament for Qatar, raising pressure on soccer chiefs who have threatened to move the event if the allegations are proved to be true.

Soccer’s governing body FIFA is conducting an internal investigation into the decisions to hold the 2018 World Cup in Russia and the 2022 Cup in Qatar.

Qatar’s bid in particular has attracted controversy from the outset because of the extreme summer heat during the months when the Cup is played and the tiny country’s lack of domestic soccer tradition. If it goes ahead, the tournament is expected to be switched to a date later in the year, creating scheduling headaches for broadcasters and European club soccer clubs.

Britain’s Sunday Times newspaper has printed what it says are leaked documents showing bribes were paid to secure the event for Qatar, which Qatar denies.

Reuters

for the luxury positioning that lets Lindt generate high single-digit sales growth in developed markets, where mainstream peers see flat or low single-digit increases.

In October, Italian media said Nestle had offered to buy Ferrero, the family-controlled maker of Kinder chocolate, which bankers value at more than 10 billion euros (US$13.5 billion). Ferrero denied the report.

Nestle remains open to bolton acquisitions, announcing a US$1.4 billion deal last month to expand in injectable wrinkle treatments. Other targets in chocolate could possibly include Godiva, though its owner, Turkish conglomerate Yildiz Holdings, in October sold a 20 percent stake of its food business Ulker Biskuvi.

Meanwhile Russell Stover, known for its boxed chocolates, is reportedly running a takeover auction that reports say has attracted interest from suitors including Hershey, Yildiz and private equity firms.

Ruters

IMF ‘got it wrong’ on U.K. economy

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oody’s latest report forecast that the current slowdown in housing demand in China will last longer than the two previous downward cycles due to the on-going economic rebalancing and high inventory.

“We expect the current slowdown to last longer than the down cycles in 2008 and 2011 as the government is unlikely to completely remove home purchase restrictions,” said Franco Leung, a Moody’s Assistant Vice President and Analyst.

In addition, onshore credit and liquidity conditions are unlikely to be loosened, and economic growth is likely to continue to slow, Leung predicted. In his view, the down cycles in 2008 and 2011 were preceded by significant credit tightening, regulatory measures, widespread implementation of home purchase restrictions and external macro shocks.

But housing demand was subsequently boosted by stimulus measures and material loosening of credit conditions and liquidity.

As a result, the report said that most of Moody’s 52 rated developers will slow their pace.

Xinhua

T

he International Monetary Fund underestimated the strength of the U.K. economy when warning against the government’s austerity program, Managing Director Christine Lagarde said.

“We got it wrong,” Lagarde told the “Andrew Marr Show” on BBC Television yesterday. “We acknowledged it. Clearly the confidence building that has resulted from the economic policies adopted by the government has surprised many of us.” A year since the IMF’s chief economist, Oliver Blanchard, said U.K. budget cutting risked “playing with fire,” the Washington-based lender said in April the U.K. economy will grow 2.9 percent this year, the fastest pace among the Group of Seven nations. Pressed by Marr on whether she had apologized to Chancellor of the Exchequer George Osborne, Lagarde stopped short of saying so and asked “Do I have to go on my knees?”

“We said very clearly that we had underestimated growth for the U.K. and that our forecasts had been proven wrong by the reality of economic developments,” she said.

Bloomberg News