Macau Business Daily, Jan 12, 2014

MOP 6.00 Closing editor: Alex Lee Publisher: Paulo A. Azevedo Number 559 Thursday June 12, 2014 Year III

The Broadway Galaxy M

acau already has a Strip. And Broadway could be next. Galaxy Entertainment Group has applied to register the famous moniker for use in its hotels, restaurants, casinos and other services here. The as yet unnamed Phase 2 of Galaxy in Cotai is a strong contender for some business theatre Page

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www.macaubusinessdaily.com

Time to invest No dividends for ordinary Shun Tak shareholders this year. The conglomerate’s management says it will invest 2013 profits in ongoing projects in Macau. Nova City in Taipa and Harbour Mile in Nam Van will be the principal beneficiaries PAGE 2

Spending spree The China government’s efforts to revitalise the economy are reflected in its yearly fiscal spending.

So far, US$208.75 billion has been shelled out since January Page 9

Brought to you by

HSI - Movers June 11

Name

Walking on air Macau International Airport reported a 20 percent increase in revenues last year. Airport taxes helped a lot. The aviation business outperformed the non-aviation segment with more passengers and flights

%Day

Sands China Ltd

3.57

Galaxy Entertainm

3.04

Tencent Holdings Ltd

2.56

BOC Hong Kong Hold

1.06

Ping An Insurance Gr

0.83

Hong Kong & China Ga

-1.65

Sino Land Co Ltd

-1.75

China Resources Ent

-2.05

China Mobile Ltd

-2.08

Henderson Land Dev

-12.14

Source: Bloomberg

PAGE 4

Hainan hopeful The Chinese province of Hainan is moving to introduce video lottery terminal (VLT) products.

At the moment, it’s a toe in the water. But if approval is granted for the off-limits Sports Lottery market, it will a breakthrough in the domestic lottery industry PAGE 7

I SSN 2226-8294

New Kid in Town

Brought to you by

They’re well established in Hong Kong, Mainland China and SE Asia. Now, British retailer Marks & Spencer is opening in Macau. The first store is slated to open in Cotai Strip Resorts in summer. The plan is to open 250 new international stores within three years PAGE 2

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June 12, 2014

Macau

Shun Tak investing, not issuing dividends Conglomerate Shun Tak said it’s not issuing final dividends as “certain capital support” was necessary for ongoing projects Stephanie Lai

sw.lai@macaubusinessdaily.com

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ong Kong-listed conglomerate Shun Tak Holdings Ltd is not issuing final dividends despite the fact that its profit attributable to shareholders of the group reached HK$1.4 billion (US$180 million) for last year, as the group “did not have much cash earnings,” Shun Tak’s deputy managing director Daisy Ho Chiu Fung told an annual general meeting on Tuesday.

Shun Tak Holdings Ltd, whose business spans ferry operations to property, saw its surplus for last year mainly generated by the group’s property revaluation, and because there has not been “much cash earnings,” Hong Kong Chinese media quoted

Ms. Ho as saying regarding the decision not to pay any final dividends to minority shareholders in respect of the financial year 2013.

Ms. Ho, one of the daughters of Macau gaming tycoon Stanley Ho Hung Sun, noted that there were several on-going property development projects that needed “certain capital support,” thus the group decided not to give a dividend payout to minority shareholders.

Shun Tak’s projects under development include the construction of Phase 5 of residential project Nova City in Taipa, of which the foundations works are still in progress with substructure works expected to commence

by the third quarter of this year, the group’s annual results for 2013 mentions.

Another Shun Tak property project under development in Macau is the high-end residential project Harbour Mile at Nam Van adjacent to Macau Tower, which remains in the planning stage and is subject to rules that the Macau Government will impose for the master urban plan for the Nam Van area. In addition to Harbour Mile, Shun Tak is eyeing a land grant from the Macau Government to develop hospitality facilities on Cotai.

On top of its Macau property projects, Shun Tak is currently engaged in the building of five luxury

houses in Chung Hom Kok in Hong Kong, and a mixed-use property development project comprising retail, office and serviced apartments in Tongzhou, Beijing.

At the annual general meeting, Ms. Ho also noted that the group’s profit is indirectly affected by the fact that the Macau Government has taken longer to issue an occupation permit for the residences that the group has sold, which in turn has slowed the recording of the group’s income.

As indicated by Shun Tak’s annual results for last year, the group’s total profit declined from HK$3 billion in 2012 to about HK$1.72 billion last year.

The fair value gain on

M&S to open in Macau this summer After Hong Kong and Mainland China the British retailer will open in Cotai Strip Resorts Macau as part of a strategy to open 250 new international stores within three years.

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ritish retailer Marks & Spencer has announced plans to enter the Special Administrative Region of Macau later this summer.

The first store will occupy 1,400 square metres and be located in Cotai.

“We’re delighted to be bringing the best of our quality fashions and food to customers in Macau for the first time this summer. As a popular destination for local shoppers, as well as tourists from across Asia and beyond, our new store on the Cotai Strip Resorts Macao offers us

an exciting opportunity to showcase the best of M&S and grow our brand awareness across the region,” Marks & Spencer’s Regional Director for Asia, Bruce Findlay, said.

The store will be located, according to the British retailer, in the Cotai Strip Resorts Macao. In the new shop customers will find products such as women’s wear, menswear, children’s wear, lingerie as well as products like biscuits, confectionary, groceries and wines. According to the information released by the company,

investment properties of the group in 2013, which was about HK$577 million, accounts for about 33.6 percent of the group’s total profit; while for 2012, the group saw a fair value gain of about HK$1.15 billion on investment properties, which occupied around 37.5 percent of its total profit at HK$3 billion earned at the time.

Ms. Ho said on Tuesday that Shun Tak’s payment of US$66 million for a third of the shares of low-cost carrier Jetstar Hong Kong in June last year had not affected the group’s dividend payout decision, but she said nothing more about the status of the licence approval for Jetstar Hong Kong to launch flights.

the store design “creates an inviting and inspiring shopping experience with an exciting new take on fashion displays.”

The decision to operate a store in Macau is part of Marks & Spencer’s growth strategy to open 250 new international stores over the next three years. The British retailer already has over 140 stores in nine Asian markets, including 17 stores in the Hong Kong SAR and 15 in Mainland China. The retailer is also present in Singapore, South Korea, Malaysia and Thailand.

Marks & Spencer was founded in 1884 in Leeds (England) by Michael Spencer and Thomas Spencer. Last year, the British company posted a profit of 6.1 billion patacas. In September 2005, the company, which has some 82,000 employees, decided to open its Asian sourcing office in the Special Administrative Region of Hong Kong.

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June 12, 2014

Macau

Galaxy wants a Broadway in Macau Galaxy has applied to register the ‘Broadway’ trademark and plans to use it for a number of its services and business Sara Farr

sarafarr@macaubusinessdaily.com

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acau already has a strip and could soon be looking at a Broadway should Galaxy Entertainment Group Ltd’s request to register a number of properties under the famous name be approved.

The application was submitted on April 8 this year but only published in the Official Gazette on June 4, according to which Galaxy Entertainment Licensing Ltd applied for trademark registration for ‘Broadway Hotel and Casino,’ ‘Broadway Casino,’ ‘Broadway Hotel,’ ‘Broadway,’ ‘Broadway Resort’ and ‘Broadway Cotai.’

The company told Business Daily it could not shed light on the issue, and board members at today’s annual general assembly meeting did not speak of the subject. Phase 2 of Galaxy in Cotai was announced almost two years ago but so far no name for the property has been given. The property is slated to open sometime in 2015.

According to local regulations, companies that seek to have a trademark registered must first apply to the government and wait for two months before approval, allowing for an appeal period from the date when the application is first published in the Official Gazette. This means that until

August it will not be known whether the company gains approval or not.

The applications for the trademark would cover a wide number of areas, namely food and beverage, hospitality, beauty, spa and hairdressing, commercial and industrial, online, entertainment, sports and gaming.

If approved, Galaxy could also organise and operate cruise ships and tours, as well as provide travel agency services under the moniker.

UnionPay playdown Following reports that the government here would impose further restrictions on the use of China UnionPay Co’s debit cards in casinos, Galaxy chairman Lui Che Woo said it is still “too early to assess the impact” of such restrictions.

Analysts yesterday also lowered their estimates on gross gaming revenue and outlook on Macau in light of these restrictions. However, Mr. Lui played down concerns, adding that it would not overly impact the group’s business. According to Hong Kong media, he added that Galaxy would comply with any policy changes that authorities here deem necessary.

In response to a query from Business Daily as to whether the restrictions on UnionPay terminals in casinos’ jewelleries and pawnshops would come into effect on July 1, the Monetary Authority of Macau said it has been “taking any necessary measures to safeguard the soundness and stability of the financial sector.”

In addition, banks have been required to further strengthen relevant risk management and ongoing customer due diligence. “It should be noted that UnionPay has been

THERE ARE THINGS WE DON’T DO BUT WE DO • Advertising • Branding & marketing consulting • Marketing strategy • Creativity • Design

restricting CUP [China UnionPay] cards from being used for gaming since inception,” the Authority said.

Meanwhile, Mr. Lui said he does not believe that the World Cup, which kicks off today, will have an impact on business because the nature of sports gambling and the Macau casino business is different.

Mr. Lui said he was bullish on the casino business outlook for Macau, adding that he hoped to attract more South Korean visitors to the territory. with Stephanie Lai

There are men and women who give human kind their perseverance, their genius, their generosity and, in some cases, their own life.

Those people and their actions are our inspiration.

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June 12, 2014

Macau Brands

Trends

Invincible Armada Raquel Dias newsdesk@macaubusinessdaily.com

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f you have travelled to any major city in Mainland China recently you must have noticed that Spanish brands are taking a stronger hold than ever. Inditex, the group who brings you brands like Zara, Massimo Dutti, Stradivarius and Pull & Bear, is growing in Asia, despite still having a good part of their products designed and produced in Europe.

We’ve spoken before about Fast Fashion, and the need to produce an item quickly and cheaply to respond to short-term trends. It really is an easy concept to grasp.

Instead of wasting money on developing trends and advertising them, brands like Zara mimic the trendsetters and allow consumers to indulge in what would have been prohibitively expensive products. It allegedly takes them two weeks from concept to shelf as opposed to the standard six months.

For years, this has been a very successful business model in Europe, but how would it take in China? Not only are trends different in Asia but the market has its fair share of inexpensive products. The answer is simple: by giving the brand a higher-end cache.

Prices in Asia are higher than those in Europe, but the whole branding seems to be different as well.

On the Mainland, these brands open in malls that sell Chanel and Dior. They also use their ‘European brand status’ to promote the idea of superior quality - although not necessarily true - to appeal to local customers. Although the group is expanding - Zara has 149 shops in China and Massimo Dutti 50 - some experts believe that they will soon suffer the consequences.

Local brands are growing as well and the quality of Zara’s products cannot compete with genuine luxury brands.

Be that as it may, Oysho - an underwear brand from the group with a shop in Macau has just opened its first shop in Hong Kong.

CAM aviation takings accelerate for 2013

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ocal airport operator Macau International Airport Co Ltd (CAM) saw the revenue from its aviation business for last year grow faster than that of the nonaviation part, thanks to growth in passenger volumes and flights, the company’s annual results gazetted yesterday show.

Macau International Airport saw a total revenue of 920 million patacas (US$115 million) for 2013, a yearon-year rise of 20 percent, CAM stated in its operation summary with the gazetted annual results.

The revenue generated by the aviation business - which included passenger service fees and landing fees, and accounted for about 46 percent of overall revenue - reached

428 million patacas for last year, growing 24.5 percent more than a year before.

The local airport has handled a passenger volume that grew by a yearly 12 percent to a recordhigh 5,027,170 people in the past year, along with 48,950 aircraft movements; during the year, the airport also handled 26,465 tonnes of cargo, some 94 percent of the company’s target of 28,200 tonnes.

The boost CAM saw in aviation takings has benefited from a change in the passenger service scheme implemented since late April last year, whereby each departing general passenger is charged 110 patacas through the airlines – the amount had previously been 90 patacas;

the airport security tax for each passenger was also increased from the original 20 patacas to 30 patacas.

The non-aviation takings for the company, such as rents for duty-free shops at the airport, hit 495 million patacas for 2013, accounting for slightly over half of overall revenue.

The figure was a 16 percent growth compared to the previous year, the annual results noted.

However, CAM is eyeing a mild revenue target for 2014 at 960 million patacas, saying that the airport is anticipating handling 5.1 million passengers this year; the airport also expects a lower volume of freight to be handled this year at 25,400 tonnes.

S.L.

Macau Pass investments precipitate profits plunge

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acau’s stored-value card issuer Macau Pass SA’s profit for last year has plunged from nearly 3.16 million patacas in 2012 to only 5,935.6 patacas, despite the company enjoying a 13 percent rise in its revenue, Macau Pass’s annual results gazetted yesterday reveals.

Macau Pass issued more than 1.2 million stored-value cards in 2013, some 20 percent more than a year before, the company noted in its annual results. The Macau Pass card, which is primarily used for bus fare payment in the city, can store up to 1,000 patacas’ value each.

Macau Pass has seen its revenue grow by 13 percent from 30.7 million patacas for 2012 to 34.9 million patacas for the past year, thanks to a 15 percent growth in the number of local shops that accept Macau Pass payment alongside the regular bus fare revenue, the annual results noted.

When queried about the large decline seen in the profit Macau Pass made for 2013, deputy general

manager David Lao confirmed to Business Daily that it was mainly due to a big investment the company had made to launch a mobile payment product that could enable people to use their mobile phones as Macau Pass cards, although the company has not yet decided the exact format

for the product and did not detail the related investment amount.

The company is on track to launch more cards that carry UnionPay’s QuickPass function, which carries the dual-currency purse for yuan and patacas by the end of this year.

S.L.

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June 12, 2014

Macau

L’Occtaine HK net sales reach MOP1.2 bln in 2014 The French company recorded a slight drop in sales in its Hong Kong market, which includes Macau, year-on-year

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Sara Farr

sarafarr@macaubusinessdaily.com

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rench cosmetics retailer L’Occitane International SA’s net sales for Hong Kong totalled 110.7 million euros (1.2 billion patacas) for the 12 months ended March 31, 2014. This includes Macau and was a slight 0.3 percent decrease from that of the same period a year prior.

In a filing with the Hong Kong Stock Exchange, the company said at ‘constant exchange rates, the growth was 3.8 percent contributing 4.4 percent to overall growth.’

Net sales for the whole group registered a 1.1 percent growth, equivalent to 1.1 million euros, with sales growth of 9.4 percent based on exchange rates. Overall, same store sales growth increased to 3.7 percent this year from 2.4 percent a year ago. ‘Growth was primarily driven by expansion in the

Evergreen mulls ‘high-end kids’ wear’ in Greater China

United States, China, Russia and Brazil,’ the company said in its filing. Operating profit was 132.9 million euros for the year ended March 31, 2014, a drop of 16 percent, while profit for the year was 92.5 million euros, a 26.3 percent decline from that of the previous 12 months.

In the group’s Hong Kong market, the sell-out segment contributed 5.1 percent to

overall growth, of which the majority at 5 percent were from non-comparable stores.

According to the filing, these came from three renovated stores and two new stores in Macau for the full year until the end of March 2014. Last year, Macau had just three renovated stores.

Sell-in sales decreased by 1.2 percent at constant exchange rates, mainly

due to ‘soft demand in the travel retail and business-tobusiness businesses,’ the filing reads, and adds that travel retail was slower this year due to a drop in the number of Korean and Japanese travellers in Asia.

Analysts at Nomura Equity Research said L’Occtaine should “continue to benefit from increasing market share in both developed markets that are witnessing an ageing population and emerging nations with rising per-capita income.”

In addition, analysts predict that operating margins will pick up in the full year of 2015, and that investments in digital media and online stores could pay off. L’Occtaine is expected to launch its China online platform in the third quarter of next year, which “will help accelerate growth in China,” analysts at Nomura said.

vergreen International Holdings Limited, a mainland-based menswear company and brand operator, is mulling the prospect of developing the retailing and trading of high-end children’s wear and accessories in Hong Kong, Macau and Mainland China in order to diversify its business.

Principally engaged in the trading of high-class menswear clothing and accessories on the mainland, the company is currently in discussions with a number of high-end international fashion brands regarding the possibility of licensing rights for the retail and wholesale trading as well as distribution of their children’s wear and accessories in Hong Kong, Macau and Mainland China. If successful, Hong Kong will see the clothing retailer’s pilot business launch in the third quarter of this year. Nonetheless, whether or not the company, currently owning and managing the V.E. DELURE and TESTATIN brands, will take it to a legally binding agreement remains uncertain.

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June 12, 2014

Macau

Deswell’s net sales dive 24.3 percent The manufacture of injection-moulded plastic parts, electronic products and metallic products had net sales of US$40.9 million during the 2014 fiscal year

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eswell’s net sales for the fiscal year that ended in March 2014 dropped 24.3 percent to US$40.9 million (326 million patacas) compared to sales of US$54.1 million (432 million patacas) for the previous year. The operating loss for the year was US$7.2 million (57 million patacas) compared to the value of US$3.7 million (30 million patacas) of the previous year.

The China-based company posted an operational loss of US$3.0 million (24 million patacas) in the last quarter of fiscal 2014.

During the previous fiscal year the manufacture of injection-moulded plastic parts, electronic products and metallic products had already lost US$2.7 million (21 million patacas).

As for the fourth quarter of Deswell’s 2014 fiscal year there was a decreased 16.5 percent to US$7.9 million (63 milllion patacas) compared to net sales of US$9.5 million (76 million patacas) for the same quarter of the

previous year.

During the fourth quarter in the plastic segments, net sales decreased by 27.4 percent to US$3.5 million (28 million patacas) and in electronic and in the metallic segment net sales dropped by 5.3 percent to US$4.4 million (35 million patacas).

In the same period, total gross margin decreased to 2.5% in the fourth quarter ended March 31, 2014 compared to 3.5% in the same quarter last year. However, gross profit margin in the plastic segment increased to 13.1% of net sales for the fourth quarter of fiscal 2014 compared to 2.2% of

Corporate

net sales for the same quarter of the last fiscal year. The increase in gross profit and margin in the plastic segment was justified by the company due to decreases in labour costs and factory overhead, offsetting an increase in raw materials cost as a percentage of sales.

Gavin Isaacs heads Scientific Games G avin Isaacs will succeed David Kennedy as President and CEO of Scientific Games Corporation (SGMS) effective immediately, said the provider of gaming products and services to worldwide lottery and gaming organisations.

Mr. Isaacs has held senior roles at Aristocrat and Bally and was recently CEO of SHFL. Wells Fargo said yesterday that the appointment is positive for SGMS shares as

Grand Lisboa to host Business Awards Gala Sociedade de Jogos de Macau (SJM) will host this year’s Business Awards Gala Ceremony in the Grand Lisboa’s Grand Ballroom for the second consecutive year. It is also the second year that 2014 Business Awards of Macau has linked up with SJM as the event’s official ceremony partner.

Companies and professionals are now being invited to register for this year’s nominations, which will culminate in a gala dinner and awards ceremony, also in the Grand Lisboa’s Grand Ballroom on November 21.

Business Awards of Macau chairman Paulo A. Azevedo said: “We truly appreciated the support SJM gave us for our first annual event. We are delighted to partner again with one of Macau’s most respected companies and hold the Gala Ceremony in an environment as beautiful and elegant as the Grand Lisboa’s Grand Ballroom.”

SJM chairman Ambrose So said his company was pleased to be a ceremony partner of the Business Awards. “We warmly welcome guests from various sectors of Macau, both business and non-profit, to our Grand Lisboa for a spectacular evening, during which outstanding performances in their respective fields and contributions to Macau will be honoured.”

At the end of the fourth quarter of fiscal 2014 the company had US$23.3 million (186 million patacas) in cash and cash equivalent. In the previous year, the value of the cash was $32 million (255 million patacas). Working capital totalled $50.9 million (406 million patacas) in 2014 versus $58.3 million (465 million patacas) in 2013.

“We are pleased to have maintained our strong balance sheet with $23 million in cash and no debt,” the Chief Executive Officer, Mr. Edward So, said.

“While the global economic environment continues to be challenging, we are focused on growing our business by providing our customers with the tools they need to remain competitive, such as product design assistance to reduce development costs and accelerate time to market.

We are investing in new equipment and developing new capabilities to increase automation and quality assurance,” he added.

Mr. Isaacs is well respected in the gaming industry.

‘It is important to note that Mr. Kennedy remains executive vicechairman. He will remain a valuable resource for SGMS’s lottery business, having served on the board since 2009.

The Street needs to get comfortable with core operating trends and FCF generation. We believe SGMS will need to show a couple of quarters of quality results for the stock to work,” wrote Wells Fargo.

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June 12, 2014

Macau

The Venetian gains utility status

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he Venetian Macao-ResortHotel has received permanent tourism utility status from the Secretary for Social Affairs and Culture Cheng U. The dispatch, signed on 28th May, was published yesterday in the Official Gazette.

The tourism utility status was introduced in Macau during the hitherto Portuguese administration in order to promote the construction and development of tourism infrastructure.

By acquiring such status, hotels enjoy certain fiscal benefits. However, in order to receive these some requirements have to be met.

To qualify for the status, the 5-star Cotai hotel had to have, among other things, a restaurant menu listing traditional Macanese and Portuguese dishes and staff that speak Cantonese, Portuguese and English. In taking on staff, the hotel had to give priority to Macau people and graduates from Macau institutions that teach tourism and hospitality courses.

Hotels such as Crown Towers Taipa, Grand Lisboa, Wynn and MGM Macau previously received permanent tourism utility status from the government.

Amax disposes of Ace High

BPI Macau profits MOP722.2 mln

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acau junket investor Amax Holdings Ltd has announced it has gained HK$102 million with the disposal of Ace High Group Ltd, a whollyowned subsidiary of the company.

Ace High is primarily engaged in junket-related operations, and according to a filing with the Hong Kong Stock Exchange has ceased operation and not recorded any profit since 2009. The HK$102 million gained is equivalent to the amount of outstanding payables of Ace High. Amax announced in March that it intends to purchase major interests in a company to operate a gaming business in the Republic of Vanuatu, the junket has informed Hong Kong Stock Exchange. The company, linked to veteran local junket operator Ng Man Sun, said in a filing it had ‘entered into a nonlegally binding letter of intent’ to buy a 60 percent stake in a firm called Forenzia Ltd on March 18.

he Macau offshore branch of Portuguese bank BPI recorded a 66.8 million euro (722.2 million patacas) profit for the whole of 2013.

BPI announced its annual results for last year yesterday, saying that the profit registered comes at an ‘exceptionally hard time, which the banking industry has been faced with since 2008’ given the financial crisis, volume of unusual impairments, and lower than average interest rate.

In addition, total deposits were up by 3.2 percent in 2013 from that of a year ago to 21.8 billion patacas. Operating costs of the branch here totalled 2.9 billion patacas, an increase of 12.9 percent.

Total assets reached 21.99 billion patacas in 2013, up 9.7 percent from that of a year prior.

Over the course of the last three years, BPI has been one of the few Portuguese banks capable of weathering the storm of the financial crisis and post a profit.

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June 12, 2014

Greater China

Hainan anticipating Sports Video Lottery The Chinese province has awarded a contract to Shenzhen Huancai Puda Technology to provide sports video lottery terminals in what may be a trial run for the country

San Ya in Hainan Province

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he Chinese province of Hainan is moving to introduce video lottery terminal (VLT) products in the off-limits Sports Lottery market, which would be seen as a breakthrough in the Chinese lottery industry.

Hainan awarded a US$356,000 (2.8 million-pataca) contract to Shenzhen Huancai Puda Technology, a subsidiary of China Netcom, to provide ‘sports entertainment electronic video lottery terminals,’ the website GamblingCompliance reports.

In the bid for the VLT, which could open up a whole new market for gaming machines in the world’s second largest economy, Huancai Puda Technology bested four other companies.

The introduction of VLT products for the Sports Lottery, however, has yet to be approved by China’s Ministry of Finance, said Lou Jiwei, the regulator for Sports and Welfare Lotteries.

China Netcom corporate development director Bernard Wong told GamblingCompliance that the island of Hainan will likely receive “trial-run location” status and that Sports Lottery VLTs will eventually secure nationwide approval.

Mr. Wong explained that the deal with Hainan’s Sports Lottery authority covers only hardware.

The software provider has not yet been confirmed and that is likely to take some time and so he could not say when the machines will be operational.

A contract to provide less than 1,000 terminals is likely.

“For the first contract it will not be 1,000,” Wong said. “It will not be a big contract because it’s more like a sample case for the Hainan administration centre,” he said.

In China, industry observers are predicting a Sports Lottery revenue increase from betting on the FIFA World Cup, particularly from online and mobile customers. The tournament is due to start tonight.

However, an eventual addition of VLTs to this kind of lottery is likely to result in a substantial boost to offline business in the longer term.

Neil Juggins, co-head of panAsian sector research for Ji Asia, said any introduction of VLTs to the Sports Lottery market offered substantial growth prospects.

“Obviously, they’d be starting a business where there was no revenue before [and] it’s going to accelerate even faster,” he told GamblingCompliance.

The introduction of slot machine-like VLTs had a solid growth in the beginning before near-annihilation of the segment in 2008 and 2009, when a government crackdown on VLT parlours slashed revenue by around 90 percent. The segment has since rebounded from an annual revenue low of just over 1bn yuan in 2009 to 28.9bn yuan in 2013, according to Mr. Juggins.

In China, Welfare Lottery VLT revenue for April this year rose 29 percent to US$497,000 (4 billion patacas) according to Ministry of Finance data.

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June 12, 2014

Greater China

Ramping up spending to spur economy The higher spending comes as the world’s second-biggest economy got off to a soft start to the year

7.2 pct May’s year-to-year fiscal revenues rose in May from the same month last year

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hina’s central bank said yesterday it will keep monetary policy steady in 2014, even as the finance ministry said fiscal spending had surged nearly 25 percent in May from a year earlier, highlighting government efforts to energise the slowing economy.

Total fiscal spending in May rose to 1.3 trillion yuan (US$208.75 billion), quickening sharply from a 9.6 percent rise in the first four months of the year.

The higher spending comes as the world’s second-biggest

economy got off to a soft start to the year, growing at its slowest pace in 18 months in the first quarter.

The economy has since shown some signs of stabilising, but the recovery appears patchy and analysts do not rule out further stimulus measures, especially if the cooling property market starts to rapidly deteriorate.

Fiscal revenues rose 7.2 percent in May from the same month last year, slowing from a 9.2 percent rise in April.

The ministry attributed the slower revenue growth in

May to the slowdown in the economy and falling property transactions.

China’s central bank has been describing its policy stance as “prudent” in recent years, even when it is clearly loosening or tightening the policy reins. At the moment, for instance, authorities are in a gentle easing mode to counter the cool-down in the world’s second-biggest economy.

The People’s Bank of China said the outlook for external demand was uncertain, capital flows were volatile, and financial

risks were weighing on the economy.

The PBOC’s pursuit of stable monetary policy contrasts strongly with the finance ministry’s ministimulus, which saw total fiscal spending rise 24.6 percent to 1.3 trillion yuan (US$208.75 billion) in May as it brought forward spending sharply, from growth of 9.6 percent in the first four months of the year.

Stimulus measures taken so far by Beijing include speeding up the construction of railway projects and public housing,

as well as orders to local governments to fast-forward their fiscal spending to prime the economy for growth.

Central government spending rose 15.8 percent in May from a year earlier while local government expenditure soared 26.9 percent, the finance ministry said.

The PBOC said on Monday it will lower the reserve requirement ratio -the level of reserves banks must hold- for those banks that have sizeable loans to the farming sector and small and medium-sized firms.

This is the second reduction following a cut in April aimed at rural banks.

To re-orient China’s economy away from exports and investment and towards domestic consumption, China will also speed up interest rate liberalisation this year and work on introducing deposit insurance.

Two separate programmes that allow foreigners to invest in Chinese capital markets and Chinese investors to invest overseas will also be expanded.

The two schemes are known as qualified foreign institutional investor, or QFII, and qualified domestic institutional investor, or QDII, respectively.

Chinese leaders have ruled out any large stimulus as the country is still nursing the hangover from the 4 trillion yuan (US$640 billion) stimulus implemented during the global crisis in 2008-09, which took local governments deep into debt.

Reuters

Two-way volatility for the RMB The yuan depreciated from early January to early June this year

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he value of the Chinese currency renminbi, or the yuan, weakened 55 basis points to 6.1506 against the U.S. dollar in its central parity yesterday, ending its sharp three-day rise.

From Friday to Tuesday, the yuan’s strength against the U.S. dollar in its central parity increased 257 basis points, the largest threeday move since April 2013, according to an HSBC research note. On Monday alone, the yuan gained 138 basis points to 6.1485 against the U.S. dollar.

The central bank, or the People’s Bank of China (PBoC), is sending a strong message to the market that the yuan will behave with greater two-way volatility and the timing for reinjecting volatility is also a nod to tentatively stabilizing economic conditions, as indicated by May exports, according to Wang Ju, senior foreign exchange strategist at HSBC. The central bank’s actions are in line with its focus on foreign exchange policy this year, inducing more volatility in the

1.12 percent yuan depreciation 2014 Jan.-Jun. RMB vs. dollar central parity

exchange rate to discourage one-way positioning, be it on the positive or negative side, Wang said.

The yuan depreciated from early January to early June this year, with the central parity of the yuan against the U.S. dollar down 1.12 percent and that in the spot market down 3.55 percent.

Lian Ping, chief

economist of the Bank of Communications, said that as trade data picked up in May following weak performances in four months, investors may have different expectations of the Chinese currency and this round of depreciation may have come to an end with two-way fluctuations possible in the future.

Wang said that it is still a little early to expect a significant recovery in the yuan, but the PBoC’s recent actions suggest that the sharp sell-off in the yuan, triggered by policies that curb hot money inflows and unwinding of heavy market positioning, has likely come to an end.

Xinhua

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June 12, 2014

Greater China

Informal bond market makers regulation released The move could lead to a larger number of formally authorized market-making institutions

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hina has moved to regulate informal bond market makers who have long provided critical services in a legal limbo, detailing the conditions under which they can operate and how they should apply for promotion to formal market-making status.

The announcement by the China Foreign Exchange Trade System (CFETS) confirms previous sourcebased reports by Reuters that the regulator was planning to implement new regulations.

The move could lead to a larger number of formally authorized market-making institutions, and thus improve pricing and liquidity in Asia’s largest bond market outside of Japan, traders said.

Financial institutions must be a member of the bond market for at least two years, with proven active trading and research ability, before they can apply for the informal status, known as the trial market maker, according to new rules issued by the exchange which hosts the China’s interbank market.

About 94 percent of China’s domestic bonds are traded in the interbank market based in Shanghai, with the remainder traded on the country’s stock exchanges.

The trial market makers can apply to be a full market maker six months later and after meeting conditions required by the new regulations, the China Foreign Exchange Trade System (CFETS), said yesterday, while announcing a list of 41 institutions to be the second-tier market makers.

The list includes China operations of nine foreign banks, such as HSBC

makers and announce changes in the list of them regularly.”

The exchange is unit of the People’s Bank of China, the central bank, and its move represents the PBOC’s efforts to tighten supervision of the operations of financial institutions, traders said.

By the end of 2013, China’s interbank market had outstanding bonds worth 27.7 trillion yuan (US$4.45 trillion).

China currently has 25 authorized market makers in its interbank bond market in Shanghai, including all major Chinese banks and some foreign banks such as the Citibank’s China operations. They will not be impacted by the new regulations.

94 pct China’s domestic bonds traded in SHG interbank market

Shanghai Stock Exchange headquarters. China currently has 25 authorized market makers in its interbank bond market in Shanghai

Holdings Plc., Deutsche Bank and DBS Bank.

It also includes a slew of China’s city commercial banks, such as those based in Jiangsu, Guangdong and Zhejiang, as well as some Chinese

brokerages.

“The move aims to standardise businesses of trial market makers,” the CFETS said.

“The exchange will monitor and supervise quotations by trial market

Alibaba stars in China’s “biggest” internet merger Alibaba’s investment in UCWeb emphasises the company’s push to do more business on mobiles in the world’s biggest smartphone market Paul Carsten

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Alibaba’s acquisition tries to broaden company’s Web presence to defy Tencent (headquarters pictured) dominance

libaba Group Holding Ltd said yesterday it will buy all the remaining shares of mobile browser firm UCWeb in the biggest merger in Chinese internet history, as the e-commerce giant steps up its spending spree ahead of its U.S. listing.

Alibaba’s latest deal, hot on the heels of a string of investments that already total US$4.8 billion in the past six months, will be larger even than Baidu’s US$1.9 billion acquisition of 91 Wireless last year, Alibaba said.

Alibaba’s investment in UCWeb emphasises the company’s push to do more business on mobile in the world’s biggest smartphone market. But rival Tencent Holdings Ltd, China’s biggest listed Internet firm, dominates smartphone screens with its near-ubiquitous mobile

A market maker is a broker or dealer who holds a certain amount of securities at hand to facilitate trading, competing for orders by giving buy and sell price quotations, then filling orders rapidly either from its own inventory or an offsetting order.

Market makers are needed for the speedy and efficient operation of any financial market, and the lack of them in some Chinese markets -in particular the over-the-counter exchanges- has been blamed for weak investor interest.

Trial market makers must produce quotes in either direction for at least six bonds in a given day, produce quotes within 30 minutes after the market opens and must engage in quotation activity for at least four hours a day.

Reuters

messaging app WeChat, a situation that Alibaba executives have publicly railed against.

“This integration will create the biggest merger in the history of China’s Internet,” Alibaba said on its microblog.

Alibaba already held about a 66 percent stake in UCWeb, according to its May IPO filing.

The e-commerce giant and UCWeb will form the UCWeb Mobile Business Group responsible for Internet browsers, search services, location-based services, the mobile gaming platform, mobile application distribution and mobile literature services, UCWeb said in a statement.

UCWeb Chief Executive Yu Yongfu will act as chairman of the business group and become part of Alibaba’s “strategic decisionmaking committee”, Alibaba said.

Alibaba is preparing for a U.S. initial public offering that could value the firm as high as US$150 billion, according to analyst estimates. Even so, the firm and its affiliates have splurged on investments totalling more than US$6.7 billion in the past six months alone.

The deal will mainly be done using Alibaba’s stock with a smaller part as cash, Alibaba said.

UCWeb said the mobile search service had a market share of more than 20 percent.

Bloomberg

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June 12, 2014

Greater China Mainland to Taiwan exceed 1 million

The number of independent tourists from the Chinese mainland to Taiwan has exceeded one million since the island opened to mainland individual tourists in June 2011, said a mainland spokeswoman yesterday. More than 1.08 million mainland individual tourists (without contracts with travel agencies) travelled to Taiwan as of April this year, said Fan Liqing, spokeswoman with the State Council Taiwan Affairs Office, at a press conference. Taiwan authorities lifted the ban on travel to the island to group tourists from the mainland in 2008.

Ruling favouring strikers A Chinese committee has ruled against an employer who fired 40 workers for going on strike, state-media said yesterday, highlighting rising labour activism in the world’s second largest economy.

A manufacturer in the eastern Chinese province of Fujian sacked 40 workers in March for going on strike the previous month, the state run Global Times daily said. China Institute of Industrial Relations scholar Wang Jiangsong said that the ruling “will give other workers and their lawyers confidence as they can view it as a guideline when handling labour dispute cases”.

Baosteel main prices unchanged China’s Baoshan Iron and Steel (Baosteel) said yesterday it will keep its major product prices for July delivery unchanged from June. The move comes after two consecutive months of price cuts, with Baosteel reducing June prices by between 80-100 yuan a tonne. Steel consumption is seasonally weaker in China during the summer months that start from June as construction activity thins, extending a slow period for the steel sector that began last month and prompting big producers to curb output.

Huawei sees stronger sales growth

Gold imports under radar Reuters calculations using export numbers from data provider Global Trade Information Services show that China’s direct gold imports jumped to nearly 150 tonnes in the first quarter

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anks have started trial gold imports directly into the Shanghai free trade zone ahead of the launch of a gold exchange there, threatening to further obscure the level of buying by the world’s top consumer.

The bulk of gold bought by China used to flow through Hong Kong, making its export data a useful proxy for Chinese demand as Beijing treats data about imports of the precious metal as a state secret.

But Reuters calculations using export numbers from data provider Global Trade Information Services show that China’s direct gold imports jumped to nearly 150 tonnes in the first quarter.

Excluding Switzerland, which did not disclose country specific data in 2013, direct imports nearly doubled in the period from a year ago.

The number does not provide a complete picture as some exporters do not provide gold trade data and others do not break down their exports by country.

“If gold enters China via Shanghai

KEY POINTS China gold imports via Shanghai rise - sources and data Boosted ahead of launch of a global bullion exchange in Shanghai Bypassing Hong Kong as a gateway means China imports shrouded

Request to import through Shanghai in the first quarter could be in part to trial the new vaults in the free trade zone (entrance pictured)

then it is not going to be easy anymore to draw conclusions about Chinese demand by just looking at Hong Kong data,” said Carsten Fritsch, an analyst with Commerzbank AG. The Shanghai Gold Exchange (SGE) -the world’s biggest platform for physical gold trade- is in talks with foreign banks and producers on the new exchange in the city’s pilot free trade zone.

The exchange is set to launch physically deliverable gold contracts, with the metal allowed to be stored in vaults in the free trade zone.

Banks had already started imports through the free trade zone, said a source at a gold-importing bank in China.

“Shanghai should play a far bigger role once the international exchange is open,” said the person, who declined

Reuters

Qingdao port probe could focus on Decheng Mining Investigators are trying to determine if Decheng used the same batches of copper and aluminium stored at the port as collateral to secure multiple loans

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Chinese telecoms group has increased its sales growth rate target at its enterprise business this year to 40 percent, board member and head of strategy William Xu said on Tuesday. The world’s second-largest telecoms equipment maker had previously forecast that sales at its enterprise division would grow 30 percent in 2014 from the previous year’s 15,263 million yuan (US$2.45 billion) - more than 6 percent of its total revenue. This division is the smallest of the Shenzhen-based group’s three major business groups. Its products include data services and building private telecoms networks for companies and organisations.

to be named.

SGE officials had requested that banks import through Shanghai, though no formal directive was issued, according to a second source familiar with the matter.

The request to import through Shanghai in the first quarter could be in part to trial the new vaults in the free trade zone, said the source.

Hong Kong has historically been the gateway for gold into China, as Chinese banks buy gold from foreign banks that have branches and vaults there.

From Hong Kong, the gold then heads across the border to Shenzhen to SGE’s vaults. But with the new exchange in the free trade zone, foreign banks, refiners and mints could send directly to the mainland.

hina’s investigation of whether metals stockpiled at Qingdao Port fall short of collateral obligations used to secure loans is focused on Decheng Mining, said two bankers assisting with the probe.

Decheng’s owner, Chen Jihong, has been detained by public security authorities amid the investigation at the north-eastern port and a separate probe in north-western Gansu province, said the bankers, who asked not to be named because they aren’t authorized to speak publicly.

Officials in Qingdao at Decheng’s parent company, Dezheng Resources Holding Co., declined to comment when called on three separate occasions this week and last week.

Officials in Gansu didn’t answered.

Investigators are trying to determine if Decheng used the same batches of copper and aluminium stored at the port as collateral to

secure multiple loans, said the bankers. Their banks have extended credit to Decheng.

Nobody answered a call to a mobile phone number listed as belonging to Chen Jihong in a filing on the Singapore government’s registry for Zhong Jun Resources Pte. The company’s website says it is affiliated

to Dezheng.

Any findings of wrongdoing at Qingdao risks undermining a broader practice in which traders in China use commodities from iron ore to rubber to get funding. Analysts at Barclays Plc. and Goldman Sachs Group Inc. have said the probe may weigh down the price of copper, already the worst performer among the six main materials traded on the London Metal Exchange this year.

The probe may affect metals stockpiles at Qingdao held by Citic Resources Holdings Ltd., the trader controlled by China’s largest stateowned company said on Tuesday.

Standard Chartered Plc. said last week it was reviewing financing to some companies in China and Standard Bank Group started looking at “potential irregularities” with metals at Qingdao.

Bloomberg News

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June 12, 2014

Asia

Indian manufacturing in bloom

S. Korea’s job growth slows The service industry, which led past job growth, showed sluggishness as consumers refrained from travel and entertainment

Any return to growth in output in April would encourage India

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The service industry showed sluggishness as consumers refrained from travel and entertainment

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ob positive figures slowed down for three straight months, bolstering concerns that the ferry sinking disaster had a negative effect on employment data, or the lagging indicator that reflects economic conditions with a certain time gap, a government report showed yesterday.

The number of people employed increased 413,000 from a year earlier to reach 25,811,000 in May, according to Statistics Korea.

After peaking at 835,000 in February, the monthly job growth continued to fall to 649,000 in March, 581,000 in April and 413,000 in May respectively.

The job increase falling below 500,000 was the first since October 2013, but the May figure was higher than the monthly average expansion of 386,000 tallied in 2013.

The service industry, which led the past job growth, showed sluggishness as consumers refrained from travel and entertainment following the deadly ferry disaster.

The service sector added 327,000 jobs in May after employing 531,000 workers a month earlier. Job creation in the lodging and restaurant industries reduced at a steeper pace than other sectors.

Manufacturers employed 148,000 workers in May, keeping its growth trend for 23 straight months. Job creation in the construction industry increased 14,000 last month after

falling 3,000 in the prior month.

By age group, those employed in their 20s and 30s reduced 11,000 and 42,000 each in May from a year earlier.

Those employed in their 50s and 60s expanded 227,000 and 182,000 respectively, bolstering speculation that the job growth depends heavily on low- quality irregular jobs.

327,000 jobs added in May to South Korea service sector

Jobless rate rose 0.6 percentage point on year to 3.5 percent in May. The number of people unemployed came to 951,000 in May, up 19.3 percent from a year earlier.

The unemployment rate among those aged 15-29 gained 1.3 percentage points from a year earlier to 8.7 percent in May. The jobless rate measures the

percentage of those unemployed who actively sought jobs in the past four weeks to the economically active population, or the sum of people employed and unemployed.

Hiring rate among those older than 15 increased 0.4 percentage point to 60.8 percent in May on an yearly basis. The hiring rate gauges the percentage of working people to the working age population, or those aged 15 and over. It is used as an alternative to the jobless rate for assessing labour market conditions.

The OECD-method employment rate among those aged 15-64 rose 0.6 percentage point to 65.6 percent in May. Wage earners expanded 2.4 percent in May from a year earlier, with regular workers growing 3.8 percent. Irregular workers rose 2. 4 percent, but those working on a daily basis reduced 7.4 percent last month.

The self-employed fell 0.5 percent in May, keeping a downward trend for the fourth consecutive month.

Those who had an average workweek of more than 36 hours jumped 27.6 percent in May from a year earlier, but those with less than 36 hours of working week plunged 56.6 percent.

The economically inactive population, or people aged over 15 minus the economically active population, declined 1 percent from a year earlier to 162,000 in May. Xinhua

ndia’s factory output probably rose for the first time in April since January, to reflect healthy growth in core industries, while consumer prices likely eased in May, a Reuters poll found.

The consensus of 37 economists polled between June 3-10 showed industrial output expanded 1.9 percent annually after falling 0.5 percent in March. Only two of them expected another contraction.

Data released last week had shown production in eight core industries, which have a weighting of almost 40 percent in the IIP, rose an annual 4.2 percent in April, up from 2.5 percent in March.

That sharp rise was led by higher output in the electricity, cement, coal, steel and fertiliser industries.

Any return to growth in output in April would be encouraging for Asia’s third-largest economy, as a slowdown in the manufacturing sector had dragged overall economic growth down to a quarter-century low of 4.7 percent in 2013-14.

“I would hesitate to say that this is a very sharp turnaround but the picture should start to brighten. Durable and consumer goods might begin to pick up,” said Vishnu Varathan, senior economist at Mizuho Bank.

Finance Minister Arun Jaitley’s budget next month is expected to take advantage of a clear mandate in Parliament and push through reforms to spur economic growth and tackle high inflation.

“I think the first budget will tell us a bit. But the commitment to get infrastructure up and the prospect of many different business and industrial parks with logistical networks to back them coming up, I think these things will get a lot of manufacturing companies coming in,” Varathan said.

Inflation has persistently hovered close to double-digit levels, and bringing it down was a key plank of Prime Minister Narendra Modi’s successful election campaign.

Reuters

KEY POINTS Industrial production likely rose in April May inflation probably below April’s highs CPI, IIP data due on Thursday WPI data due on Monday

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June 12, 2014

Asia The Bank of Japan (Osaka branch pictured) has repeatedly argued that a tight labour market and upward pressure on wages will support consumer spending

Myanmar president calls for speeding up reform President U Thein Sein has called for accelerating the country’s third wave of reform which is to ensure a solid foundation for a new democracy to take root and a higher living standard for the people, state media reported yesterday. Addressing his government cabinet members in Nay Pyi Taw, U Thein Sein, who is chair of the Steering Committee for Reform, stressed the paramount importance of political stability as it guarantee peace, prosperity and safety of the people.

He called on the government bodies and the public to cooperate in order to avoid internal conflicts.

Car imports in S. Korea surge South Korea’s foreign car imports surged over the past three years as small and diesel cars from Europe became popular among consumers, customs data showed yesterday.

South Korea imported a total of 153,000 vehicles from overseas in 2013, up 62.8 percent from three years earlier, according to Korea Customs Service (KCS). Foreign car sales continued to rise in the past three years, the customs office said. As of 2013, European cars accounted for 71.1 percent of the total, followed by the United Sates with 19.1 percent and Japan with 5.1 percent respectively.

Japan to open residential power market Japan passed a law yesterday opening up the residential market for electricity to full competition, the latest stage of the biggest shakeup in the power industry’s history that was set in motion following the Fukushima nuclear disaster. The reforms, which may end with the break-up of powerful regional monopolies, are central to Prime Minister Shinzo Abe’s drive to overhaul the economy, as high energy costs weigh on government finances.

A bill passed in November allows for the establishment of a national grid operating company in 2015 to allow all suppliers equal access.

Hilton to open five more hotels in Myanmar The world’s largest hotel operator by market value, said it plans to open five more hotels in Myanmar in the next three years, even as its maiden project in the country is facing delays. Hilton has signed management agreements with Eden Group Company Limited, a business conglomerate in Myanmar, for the hotels. Two, which are existing properties, will be rebranded and open as Hilton hotels in October 2014. The other three are slated to open in 2016 and 2017, it said in a statement.

Japan’s corporate mood worsens The business survey index slid to minus 13.9 in April-June Stanley White

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ig Japanese manufacturers turned pessimistic about business conditions in AprilJune but expect things to improve in July-September in a sign that companies see a quick recovery from the April 1 increase in the sales tax.

The business survey index (BSI) of sentiment at large manufacturers slid to minus 13.9 in April-June from plus 12.5 in the previous quarter.

However, companies anticipate the sentiment index to improve to plus 16.0 in July-September due to expectations that consumer spending will quickly rebound.

The survey, released by the government, bodes well for the Bank of Japan’s closely-watched tankan sentiment index due next month and points to a declining need for further monetary easing to support the economy.

“Companies expect a slowdown in growth after the sales tax hike to be temporary because they expect consumer spending to remain strong,” said Norio Miyagawa, senior economist at Mizuho Securities Research & Consulting.

“The optimism is spreading to manufacturers. I think the chance of more monetary easing is very low,” he said.

The BSI sentiment survey, which

is released by the Ministry of Finance and a branch of the Cabinet Office, also showed that companies are turning more positive on capital expenditure, which is important for economic growth because it can fuel job creation.

The BSI measures the percentage of firms that expect the business environment to improve from the previous quarter minus the percentage that expect it to worsen.

Manufacturers plan to raise capital expenditure by 10.8 percent in the fiscal year that started in April, more than the 2.4 percent increase indicated in the previous survey thanks to expectations that exports will start to pick up momentum.

Non-manufacturers plan to raise their business investment by 1.5 percent this fiscal year, a recovery from the 9.2 percent decline seen in the previous survey.

Japan raised the national sales tax to 8 percent from 5 percent at the start of April to pay for rising welfare costs. A second tax increase to 10 percent is scheduled for October next year.

Many firms benefited from a surge in consumer spending before the

The crop would still be the seventhlargest on record following last year’s bumper 27.01 million tonnes

A

Reuters

Brighter views

Aussie wheat forecast trimmed ustralia lowered its forecast for 2014/15 wheat production by nearly 1 percent yesterday as dry weather curbs yields, and warned output could fall further if an El Nino weather pattern forms.

The world’s third-largest wheat exporter is expected to produce 24.59 million tonnes in the current season, down from a March estimate of 24.80 million tonnes, the country’s official agricultural forecaster said.

The crop would still be the seventh-largest on record following last year’s bumper 27.01 million tonnes, but the Australian Bureau of

tax rose to 8 percent. Data for April showed that consumer spending fell at the fastest pace in about three years immediately after the tax hike, raising questions about how quickly consumption will recover.

The BOJ, which releases its next tankan survey on July 1, has repeatedly argued that a tight labour market and upward pressure on wages will support consumer spending for the remainder of the year.

Agriculture and Resource Economics and Sciences (ABARES) cautioned that dry weather could cut yields.

“Sufficient and timely rainfall over winter will be critical to the development of winter crops, particularly in those areas where soil moisture levels are presently low,” the bureau said.

“Yields are likely to be lower than currently assumed if sufficient and timely rainfall is not received.”

The forecast decline in the wheat crop comes even as the acreage devoted to the grain is expected to rise to a three-year high of 13.84

KEY POINTS Govt survey indicates drag from sales tax hike is temporary BOJ says strong labour demand will support consumption Companies turning bullish on capital expenditure

million hectares.

Strong Australian production will add to pressure on benchmark wheat prices, which have tumbled nearly 15 percent over the past five weeks as fears over global production have eased with favourable weather in the United States and an easing of tensions in Ukraine.

The U.S. Climate Prediction Center this month gave its strongest forecast yet that El Nino will strike during the Northern Hemisphere summer.

ABARES forecast Australian canola production during the 2014/15 season at 3.471 million tonnes, up from its previous estimate of 2.948 million tonnes.

The rise comes as farmers have increased acreage devoted to the oilseed at the expense of other winter crops.

The bureau also revised down its estimate of 2013/14 cotton production to 910,000 tonnes, having previously pegged output at 940,000 tonnes.

Reuters

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June 12, 2014

International Top London bankers’ bonuses increased Investment bankers at firms including Bank of America Corp., Deutsche Bank AG and Goldman Sachs Group Inc. get bonuses 37 percent higher than counterparts at smaller firms, according to Emolument. com Managing directors at large firms in the U.K. capital typically receive bonuses of 400,000 pounds (US$670,000) and base salary of 275,000 pounds, Emolument. com, a compensation research firm, said in a statement. Directors are paid bonuses of about 192,000 pounds and fixed pay of 170,000 pounds, it said.

Sainsbury’s sales fall Britain’s J Sainsbury posted a second straight fall in quarterly underlying sales, bringing a disappointing note to Chief Executive Justin King’s preparations to step down after 10 years at the helm.

The group said sales at stores open over a year fell 1.1 percent, excluding fuel, in the 12 weeks to June 7, its fiscal first quarter. That compared to analysts’ forecasts of down 0.5-1.5 percent and a fall of 3.1 percent in the fourth quarter of Sainsbury’s 2013-14 year.

Ukraine rejects gas ‘discount’ and payment Russia has offered Ukraine a “discount” of US$100 per thousand cubic metres of gas but Kiev has rejected the deal and is seeking a formal change to the rate set in the two sides’ contract, Ukraine’s prime minister said. Russian Energy Minister Alexander Novak said Moscow had yet to receive any new payment for gas supplies from Ukraine but was willing to wait until June 16. In Brussels for the latest round of talks to resolve a gas pricing dispute, Novak’s spokeswoman said the minister had confirmed a new deadline for Kiev.

Rolls-Royce biz hit

by Dubai’s plane cancellation British engineering company RollsRoyce said the cancellation of an Airbus aircraft purchase by Dubai’s Emirates would result in a 2.6 billion pound (US$4.4 billion) hit to its order book. Rolls-Royce makes engines for the aircraft and provides some customers with an on-going maintenance service for the engines. It said the 2.6 billion pound reduction in its order book was equivalent to around a 3.5 percent decline. Emirates cancelled an order for 70 Airbus Group NV A350 wide-body aircraft following “on-going discussions with the airline in light of their fleet requirement review”, the European plane maker said yesterday.

Lufthansa cuts profit target German airline cut its earnings targets for this year and next year yesterday in the face of disappointing developments in passenger and freight business and financial fallout from strikes. “The executive board is reducing its operating profit forecast for 2014. It now expects an operating result of approximately 1.0 billion euros” (US$1.3 billion), it said in a statement. The reason was “a weaker than expected revenue development in the passenger and freight businesses as well as negative earnings impacts from strikes and the devaluation of the Venezuelan Bolivar,” the airline explained.

World Bank cuts global growth forecast The World Bank warned emerging markets that the next bout of financial unrest may catch them off guard

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he World Bank cut its global growth forecast amid weaker outlooks for the U.S., Russia and China, while calling on emerging markets to strengthen their economies before the Federal Reserve raises interest rates.

The Washington-based lender predicts the world economy will expand 2.8 percent this year, compared with a January projection of 3.2 percent.

The U.S. forecast was reduced to 2.1 percent from 2.8 percent while outlooks for Brazil, Russia, India and China were also lowered. The setbacks may be temporary: the 2015 estimate for world economic growth was unchanged at 3.4 percent.

“The global economy got off to a bumpy start this year buffeted by poor weather in the United States, financial market turbulence and the conflict in” Ukraine, the World Bank said in its Global Economic Prospects report on late Tuesday. “Despite the early weakness, growth is expected to pick up speed as the year progresses.”

Developed economies, where domestic demand is improving as fiscal pressure eases and labour markets recover, are providing the global expansion with momentum just as their developing counterparts fail to accelerate. The bank is projecting growth in China and Brazil will slow this year from 2013.

In the report, the World Bank warned emerging markets that the next bout of financial unrest may catch them off guard, recommending smaller budget deficits, higher

interest rates and measures to boost productivity.

Fed policy In the U.S., Fed policy makers have indicated that they expect the benchmark interest rate, which has been near zero since December 2008, will remain low at least until next year.

Over the past year, emergingmarket assets have recovered from two sell-off periods, including one after the Fed first indicated in May 2013 plans to trim U.S. monetary stimulus. The extra yield investors

demand to hold dollar-denominated debt in developing nations over U.S. Treasuries has since decreased to the lowest since January 2013.

That recovery is giving countries a respite to strengthen their economies before the inevitable increase in borrowing costs that will follow the Fed’s interest-rate increase, said World Bank economist Andrew Burns, the lead author of the report.

“Our advice to these countries is ‘listen, you’ve got a window here of a year, let’s see what we can do to reduce those vulnerabilities between now and then so that when it does come, you don’t get caught up in the overall problem,” he said in an interview.

Ukraine turmoil

The global economy got off to a bumpy start this year buffeted by poor weather in the United States, financial market turbulence and the [Ukraine] conflict World Bank’s Global Economic Prospects report

The bank cut its 2014 forecast for Russia’s growth to 0.5 percent from a January prediction of 2.2 percent.

It sees Ukraine contracting 5 percent.

“A sharp escalation of tensions in Ukraine poses acute risks to the global economy,” according to the report.

“These could operate through a number of channels,” including through commodity and financial linkages.

The bank maintained its forecast this year for the euro- area, which is still recovering from its debt crisis, at 1.1 percent. The forecast for Japan was trimmed to 1.3 percent from 1.4 percent.

For 2015, the bank raised its predictions for the U.S., the euro area and Japan, which the bank said could underpin growth in emerging markets.

Bloomberg News

Zara and H&M sales growth peaks Zara’s net profit falls 7.3 percent to 406 million euros

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he world’s two top fashion retailers Zara owner Inditex and Hennes & Mauritz reported strong sales growth yesterday, benefiting from a recovery in consumer spending in their core markets in Europe.

Inditex, whose brands also include upmarket Massimo Dutti and teen label Stradivarius, said sales rose 11 percent in local currencies between February 1 and June 8, accelerating from the 8 percent it recorded in the year to January 31.

First-quarter sales grew 4.3 percent to 3.75 billion euros (US$5.11 billion).

Net profit fell 7.3 percent to 406 million euros, the biggest decline in five years

due to the strong euro, but beating the average forecast from analysts.

Inditex is benefiting from the start of a recovery in its home market Spain where it still makes about one fifth of sales. Spanish retail sales rose 0.7 percent year-on-year in April, the first increase in three months.

Sweden’s H&M said sales rose 19 percent in May, its fastest growth in six months and easily beating analyst forecasts. However, H&M said the figures were helped by calendar effects of about 3-4 percentage points, which would be reversed in June.

H&M shares rose 1.8 percent by 0819 GMT, while Inditex was up 1.6 percent, outperforming the European

retail sector which was up 0.4 percent.

Inditex’s gross margin slipped to 58.9 percent in the first quarter from 59.6 percent a year ago, but still beat forecasts due to cost control and stayed well ahead of the 54.9 percent H&M reported for the three months ended Feb. 28.

The retailer founded by Spain’s richest man Amancio Ortega said it would propose a 5-for-1 share split at its annual meeting, a move often taken by companies when their share price is very high. Shareholders will receive five shares for every share they own at the close of business on 25 July.

Reuters

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June 12, 2014

Opinion Business

wires

Brazil’s own goals

Leading reports from Asia’s best business newspapers Matt Slaughter

THE STRAITS TIMES

Research associate at the U.S. National Bureau of Economic Research

Jaana Remes

Partner at the McKinsey Global Institute

Economists are more upbeat about Singapore’s secondquarter economic growth than they were earlier in the year, according to a survey conducted by the Monetary Authority of Singapore (MAS).

The survey, which polled 26 private sector analysts on their forecasts, showed that economists expect the Singapore economy to grow 3.3 per cent in the three months to June, over the same period last year. This is up from the 3 per cent growth forecast in a similar survey conducted in March.

THE NEW ZEALAND HERALD Trial periods for workers of up to 90 days has met with widespread acceptance by employers, with 59 per cent saying they’ve taken on staff on that basis in the past year, a new Ministry of Business, Innovation and Employment study shows. Trial periods of up to 90 calendar days were widened to cover all employers in April 2011, having been introduced in early 2009 in initially covering firms with fewer than 20 workers. The ministry’s survey evaluates the short-term impact of the change and also the impact of changes to the Holidays Act.

BANGKOK POST Foreign business leaders have regained confidence in Thailand now that a decision-making process has been established to drive the economy forward, say executives of the Joint Foreign Chambers of Commerce in Thailand (JFCCT). JFCCT chairman Stanley Kang said the recent appointment of the Board of Investment (BoI) board, chaired by junta chief Gen Prayuth Chan-ocha, helped to restore their confidence after six months of hardship. The JFCCT represents 28 foreign chambers of commerce and business associations including the Japanese Chamber of Commerce, Thailand’s top foreign investors.

THE JAKARTA POST The House of Representatives’ Commission VII overseeing energy and mineral resources approved on Tuesday the government’s proposal to increase electricity prices in a move to cut the mounting subsidy. The new policy, expected to take effect on July 1, will affect companies, government offices as well as household customers.

The increase will be made every two months until the end of the year. From the total increases, which will range from 5 percent to 11 percent, the country will save a total of Rp 8.51 trillion (US$720 million) in subsidies this year.

R

IO DE JANEIRO – Ready or not, Brazil is rolling out the welcome mat for sports fans from around the world. As soon as the clock winds down on the final FIFA World Cup soccer match in July, the country will resume preparations to host the 2016 Summer Olympics.

But, even as Brazil steps into the international spotlight, it maintains considerable barriers to the global economy, damaging its prospects for future growth and prosperity. In a world that is constantly becoming more interconnected, Brazil risks being left behind.

Brazil has risen to become the world’s seventh-largest economy, propelled by a commodities boom, a demographic dividend, and rising consumption. Yet it ranks 95th in per capita GDP. This disparity can be at least partly explained by its 43rd-place ranking for “connectedness” in terms of flows of goods, services, finance, people, and data and communications.

Sealing itself off from the bracing effects of global competition is sapping Brazil of much-needed momentum, with serious consequences for households, most of which have experienced only modest income growth in recent years. While Brazil has halved its official poverty rate since 2003, prohibitively high consumer-goods prices and astronomical credit-card interest rates (averaging 145%) have prevented many of those who have escaped poverty from attaining middleclass lifestyles.

In order to lift half of the stillvulnerable population into the middle class, Brazil will need 4.2% annual GDP growth, on average, through 2030 – a target that can be met by tripling productivity growth.

That may be an ambitious goal, but it is achievable, especially

if Brazil becomes more deeply integrated into global markets and multinational production networks.

In fact, an assessment of how global connections affect economic growth suggests that, by pursuing deeper engagement with the world, Brazil could boost its average annual rate of GDP growth by up to 1.25 percentage points. That would propel the economy roughly one-third of the way toward higher incomes and better living standards.

With global connectivity undergoing a profound transformation, now is the time to establish key partnerships and claim market shares. In doing so, Brazil would gain access to innumerable opportunities for growth. It would also reap the benefits of global competition, which would compel local firms to seek greater efficiency by implementing lean processes,

Brazil has risen to become the world’s seventhlargest economy, propelled by a commodities boom, a demographic dividend, and rising consumption. Yet it ranks 95th in per capita GDP

investing in research and development, or adopting the latest technologies. Global exposure makes supply chains more dynamic and enables companies to absorb more of the innovations, technologies, and ideas that are constantly emerging worldwide.

For decades, Brazil’s economic policy has drawn on the strength of its huge domestic market and protected local industries through a complex system of subsidies, taxes, and tariffs. But exports are equivalent to only 13% of GDP, far below the level in India (24%) or Mexico (33%). Furthermore, the sharp appreciation of the real’s exchange rate – driven by high global commodities prices – has diminished export competitiveness. As a result, from 2005 to 2012, Brazil’s US$20 billion trade surplus in manufactured goods swung to a US$45 billion deficit. To boost exports, Brazil will have to develop distinctive skills and capabilities, particularly in industries adjacent to commodities.

Despite efforts to liberalize trade, reform has been uneven. In the heavily protected automotive industry, high import tariffs have encouraged foreign automakers to establish factories in Brazil. But their productivity remains low; auto plants in Mexico, for example, produce twice as many vehicles per worker. And Brazil exports only a small share of the vehicles that it produces.

This contrasts sharply with Brazil’s success in developing innovative and globally competitive aerospace and agricultural sectors. One critical difference was the authorities’ emphasis on boosting R&D in these sectors before reducing the government’s direct role.

Brazil’s trade in goods also suffers from the country’s inadequate transportation and

communications networks.

The rail system is limited, and only 14% of roads are paved, which is not surprising, given that Brazil’s investment in infrastructure averaged only 2.2% of GDP in 2000-2011 – well below the global average.

Brazil can improve on this record by using profits from the offshore oil fields that it is currently developing.

As for trade in services – an area where performance has been lackluster, at best – Brazil would benefit considerably from increased foreignlanguage proficiency, which would enable more Brazilians to conduct business abroad.

Tourism also offers significant growth potential, particularly if Brazil can build on the rare opportunity presented by hosting the World Cup and the Olympics.

Brazil’s connectedness agenda should also include efforts to attract more foreign talent.

Skilled migrants have been essential to the growth of some of the world’s leading hubs of technology and innovation – from Silicon Valley to Ireland, India, and Taiwan.

Today, only 0.5% of Brazil’s workforce is foreign-born, compared to more than 5% in the early 1900s.

Brazil also lags in terms of data and communication flows, partly because a large share of the population lacks Internet access. With improved digital links, Brazil would gain new opportunities to improve productivity and innovation.

What better place than Brazil, with its large and growing consumer market, to incubate the next Facebook? If that sounds farfetched, consider this: Instagram co-founder Mike Krieger is a Brazilian who left home to find his fortune in San Francisco.

This month, the World Cup is bringing the world to Brazil.

It is up to Brazil to invite it to stay.

The Project Syndicate 2014

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June 12, 2014

Closing Chinese language training for Indian workers

Stronger support for 5G research

The Indian government has decided to give Chinese training programs to members of the country’s tourism association to boost tourism business with China, local daily Business Standard reported yesterday. The program launched by the Tourism Ministry to the Indian Association of Tour Operators, which is aimed at “easing the demand of Chinese speaking guides,” will begin this month, said Indian Minister of Tourism Shripad Yesso Naik yesterday. Naik also said India will launch a public relations campaign to portray India as a safe destination for foreign tourists.

China’s Ministry of Industry and Information Technology (MIIT) will step up support for research into next-generation mobile telecom networks, or 5G, an official said yesterday. Liu Lihua, vice minister of the MIIT, made the announcement at a global forum on mobile telecommunications in Shanghai. The ministry will work to create a good environment for firms to invest in, develop and innovate with mobile telecom technologies and support their efforts to boost technological research and increase capital injection, especially in 5G, he added, without giving more details.

More Iranian oil for China Less punitive measures from Western countries have allowed the PRC to gradually increase oil imports from Iran

C

hina is set to take more Iranian crude than it did before tough sanctions were put in place in early 2012, as Asia’s biggest refiner Sinopec Corp buys more oil from the Middle East nation, sources with direct knowledge of China’s buying strategy said.

Western sanctions over the past few years had reduced Iran’s crude shipments to less than half and crippled its economy by choking the flow of petrodollars. Some of those measures were eased following a breakthrough diplomatic deal last November in return for Tehran curtailing its nuclear programme.

Higher purchases by Chinese state refiner Sinopec mean Iran’s top clients -China, Japan, India and South Korea- are expected to jointly import around 1.25 million-1.3 million barrels per day in the January-June period, according to five industry and government sources with knowledge of oil sourcing in these countries.

“Over the past two years Sinopec had reduced purchases. That was purely because of sanctions,” said

Large tankers loading at Iran’s Kharg Terminal that handled about 98% of Iran’s crude exports in 2012

an industry official with knowledge of the refiner’s supply plans. “Now that the pressure is eased, they are making the most of it.”

Asked to comment on imports of Iranian oil since late last year through to the first half of 2014, Sinopec spokesman Lu Dapeng said

the firm’s “crude purchases are made based on their commercial requirement and the requirement for production.”

Six major powers -the United States, Britain, Germany, France, Russia and China- and Iran are trying to reach a final settlement on

Tehran’s nuclear programme, although diplomats say a July 20 deadline is likely to slip.

China is likely to import about the same volume of oil in May and June as it did in the first four months of the year, when it took on average of around 620,000

OPEC to keep oil output target Shenzhen to punish carbon goal failure O PEC oil ministers have a “consensus” to keep their output ceiling unchanged, Venezuelan Energy Minister Rafael Ramirez said yesterday ahead of the cartel’s production meeting.

“There is consensus to maintain (the) production” ceiling at 30 million barrels per day, Ramirez told reporters ahead of the cartel’s output gathering.

“The prices are good, the market is stable,” Ramirez said.

OPEC Secretary-General Abdullah El-Badri added: “I think there will be another rollover. We will discuss it at the meeting.”

The Organization of Petroleum Exporting Countries, which accounts for one third of the world’s oil, has held its production ceiling at 30 million bpd since late 2011.

In the run-up to Wednesday’s gathering, more than half of OPEC’s dozen member nations indicated that there would likely be a rollover of the collective output target, including cartel kingpin Saudi Arabia.

OPEC members remain pleased with current oil price levels, which have jumped by around 10 percent since December on supply strains arising from Iran, Libya and Ukraine.

AFP

bpd compared with presanctions volumes of around 550,000 bpd.

The Asian giant’s imports are also higher in part because Dragon Aromatics, an independent petrochemicals producer based in Fujian, signed a contract last year for South Pars condensate, a light crude, with monthly purchases averaging at some 80,000 bpd.

In addition, Sinopec is expected to continue lifting full contracted volumes or more. China, Iran’s biggest oil customer, more than doubled its purchases in April from a year ago to a record of nearly 800,000 bpd.

Sinopec’s imports are done via its trading vehicle Unipec.

Unipect lifts around 265,000 bpd of Iranian oil under an 8-year oil contract that will last through to end-2019.

The other three Asian buyers are expected to hold imports at levels similar to the first four months, sources said.

Japan is likely to hold its imports steady at around 165,000 bpd compared with the 2013 average of 177,414 bpd.

In the first four months of the year, Japan bought 57,876 bpd of South Pars condensate, more than double the level a year earlier, while it reduced purchases of Iranian Heavy and Forozan Blend by nearly 40 percent in each case, a breakdown of the Ministry of Economy, Trade and Industry (METI) showed.

Reuters

Toyota recalls 2.27 million vehicles

C

hina’s Shenzhen will impose sanctions on companies that fail to comply with targets under the city’s carbon trading scheme, an official said according to a local media outlet, despite criticism about the rules.

The Shenzhen government, hosting the oldest of China’s six pilot carbon trading markets, last week arranged a special CO2 permit auction to help local emitters meet their targets for 2013 by the June 30 deadline.

But only around a third of the permits on offer were picked up, with some of the 635 scheme participants saying they didn’t participate because they were unhappy about scheme rules and planned to appeal to the government about how their emission targets had been set.

Guangdong province faces a similar situation in its market, casting doubt over China’s ability to enforce targets in its carbon markets, the main policy tool to cut climate-changing greenhouse gases in the world’s biggestemitting nation.

Reuters

T

he firm yesterday recalled 2.27 million vehicles globally over a defect that could see airbags fail to deploy in a crash and also posed a fire risk, dealing another blow to the Japanese giant’s safety record.

The world’s biggest automaker said the latest call back involved 20 models, including its Corolla sedan, Yaris subcompact and Noah minivan, and covered about 1.62 million cars overseas and 650,000 in Japan.

Some of the affected overseas cars were already included in a recall last year, but had not had their airbag inflator replaced, Toyota said.

“The involved vehicles were equipped with front passenger airbag inflators which could have been assembled with improperly manufactured propellant wafers,” it said in a statement. “(That) could cause the inflator to rupture and the front passenger airbag to deploy abnormally in the event of a crash.”

A company spokesman in Tokyo said it had received a complaint from a Japanese customer who said his passenger seat was burned from the defect.

AFP