Macau Business Daily, June 18, 2014

MOP 6.00 Closing editor: Sara Farr Publisher: Paulo A. Azevedo

The perfect storm

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ougher transit visa restrictions and the World Cup. Both are blamed for driving gaming stocks down.

Yesterday, shares fell three times the average of the Hong Kong Stock Exchange. With revenues down 15 percent in the second week of this month, analysts predict flat June revenues at best. Others believe a decrease is on the cards Page

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Year III

Number 563 Wednesday June 18, 2014

Long-awaited Japan casino law talks start today

Cautiously optimistic

HSI - Movers June 17

Name

www.macaubusinessdaily.com

Chow Tai Fook posted 32 percent profit for the 12 months ended March 31, 2014. But all that glisters is not gold. The world’s largest jewellery chain is concerned about decreasing mainland visitors to Macau and Hong Kong. And shop rentals keep surging Page

%Day

Belle International

2.50

Kunlun Energy Co Lt

1.56

China Merchants Ho

1.44

China Mengniu Dairy

0.99

Henderson Land Dev

0.97

Galaxy Entertainme

-1.13

China Resources Po

-1.18

Wharf Holdings Ltd

-1.30

Sands China Ltd

-1.39

AIA Group Ltd

-1.40

Source: Bloomberg

3 I SSN 2226-8294

Accidents happen

Brought to you by

Ferry company TurboJet has made the news again. Friday’s accident in Macau waters left 70 people injured. Three accidents since November is bad press but the company says they are ‘independent cases’.

Investigations continue Page

Not a demotion

6

Passion cooling

Personnel changes at the top.

Cheong Sio Kei, incumbent director of the Environmental Protection Bureau, has been reassigned head of the Cartography Bureau. Just an “appropriate division of labour,” he says Page 5

The FDI index indicates that foreign investors are reducing their share in Chinese markets. Recent economic slowdown figures are to blame Page

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June 18, 2014

Macau

China Taiping Macau posts MOP45.9 mln profit T

TDM’s operating revenue signals big improvement Broadcasting company Teledifusão de Macau enjoyed a robust growth in its sales of air time last year, boosting total operating revenue Aries Un

newsdesk@macaubusinessdaily.com

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he operating revenue of Teledifusão de Macau (TDM) reached 99.12 million last year, up 40.94 percent from 70.33 million in 2012, the company announced yesterday.

The sharp increase in revenue is partly attributable to a surge in sales of air time slots, the value of which quadrupled from 750,900 patacas in 2012 to 3.19 million last year, an increase of 320.8 percent.

TDM’s annual results also saw other sales hikes including sponsorship, sales of TV commercials and sales of production, which accounts for the biggest slice of the operating revenue, jumping from 17.53 million patacas last year to 26.12 million patacas.

The government-owned broadcasting company spent a total of 308.22 million patacas on

maintaining its operation last year, an increase of 11.99 percent compared to that of 2012.

The cost of self-produced programmes decreased 3.02 percent from 15.40 million patacas to 14.91 million patacas year-on-year.

Over the past year, TDM benefited from a government subsidy of 214.44 million patacas in support of its operation and the development of its broadcasting service.

Of a total investment budget of 70.90 million patacas last year, the company spent 61.99 million patacas.

The focus of the investment revolved mainly around technology and equipment enhancement, construction projects for studios and offices as well as vehicle purchases and investment in network service and the equipment.

he Macau branch of China Taiping recorded a net profit of 45.9 million patacas during 2013, the company announced in its annual results. ‘The growing development of tourism and gambling sectors, such as the large-scale projects related to the gaming industry, have caused a very good impact on the revenues of insurance fees and on the insurance market,” the company noted.

The company also revealed the amount received in insurance fees before taxes by the Macau branch of China Taiping insurance company related to non-life insurance had increased 11.4 percent to 500 million patacas. The insurance company claims as well that this number accounts for a market share of 26.9 percent in non-life insurance products.

As for the future, the company is focused on introducing new products to the market as well as providing new ways of selling its products. Selling insurance through the Internet is one of the goals of China Taiping.

In its annual report, the Macau branch of China Taiping also says that it aims to avoid exploring risks in the future in addition to improving its operating processes and costs.

The branch of China Taiping in Macau, which is owned by China Taiping International Company Limited, has operated in the territory for 62 years.

The audience rating survey in the fourth quarter of last year reveals that TDM secured second place in terms of rating despite logging 12.3 percent less than its counterpart, Television Broadcasts limited, in the territory’s neighbouring city.

The controversial relocation to Hengqin Island that had sparked concerns over news freedom in the territory earlier this year was not mentioned in the development plan of the annual report.

Corporate Macau Special Olympics team bring home the medals The Macau Special Olympics golf team has won a silver and bronze medal in the Austrian national games.

After a good first round the Macau team was close to the leading teams from Austria and Switzerland, just two strokes behind. The weather was favourable and Ho Seng Hin and Sin Kei Cheong enjoyed themselves on the golf course in Seltenheim near the Klagenfurt.

Macau coach Lenlison paired again in the game with Pak Hoi Chong. The golf course also invited club members to play with the Macau team.

In order to encourage the whole game, delegation leader Stefan Kuehn concocted a new rule – should coach Lenlison lose a ball he would be required to perform a mandatory 10 push-ups on the spot – which he did at hole number 3. With bogey and double bogey on the opening holes in the final round, it all started off excellently, with the athlete team closing the gap on the leaders. Making steady progress over the next five holes, it all came down to the special par 3 hole number 8 where the ball has to be played on to an island. The day before, the team had lost all four balls in the water. But the first Special Olympics rule – ‘Never give up’ – kicked in. No-one was more surprised than Kuehn when Ho Seng Hin chose the driver to give it a try: the ball travelled high and landed smack dab on the green – he was the only player to hit the green from the tee-off in the whole tournament.

3

June 18, 2014

Macau

Chow Tai Fook full-year profit up 32 pct The Hong Kong-based jewellery enterprise also cited a cautious outlook for business in the neighboring SAR and Macau amid signs of less mainland tourist visitations Stephanie Lai

sw.lai@macaubusinessdaily.com

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he world’s largest listed jewellery chain, Chow Tai Fook Jewellery Group Ltd, recorded a 32 percent growth in full-year profit but has voiced concerns about its business citing signs of a decrease in mainland Chinese visitors going to Hong Kong and Macau.

The profit attributable to shareholders of Chow Tai Fook reached HK$7.27 billion (US$938 million) for the 12 months ended March 31, 2014, an increase of 32 percent compared to HK$5.51 billion in the previous financial year, the jewellery group announced in its annual results filed with the Hong Kong Stock Exchange yesterday.

Chow Tai Fook’s revenue for the said financial year grew 34.8 percent to HK$77.4 billion, beating the HK$76.1 billion estimate of 24 analysts polled

by Bloomberg. Over 60 percent or HK$47 billion of the revenue was generated by the sale of gold products.

The Hong Kong-listed jewellery chain noted in its results that ‘strong retail sales and steady recovery of wholesale business in mainland China’ accounted for its earnings boost for the financial year ended in March.

The gold buying spree triggered by the international gold price plunge from April to June last year boosted company earnings, Chow Tai Fook also noted.

Geographically, Chow Tai Fook’s sales in mainland China accounted for 54.5 percent of its revenue, while Hong Kong, Macau and other Asian markets accounted for the remainder.

The jewellery group has seen a healthy overall same store sales growth at 18.6 percent for the year ended in March, in which Hong Kong, Macau and Taiwan registered growth of 20.1 percent.

But the company also cited concerns about its business in the two SARs in its notes on the annual results.

‘Recently, we have seen signs of a decrease in inbound mainland tourist numbers in Hong Kong and Macau and the rise of alternative travel destinations for mainland Chinese tourists,’ Chow Tai Fook noted in the results, ‘To cope with these challenges, we are striving to enhance our customer services and improve our customers’ shopping experience.’

For the financial year, Chow Tai Fook also saw a sharp rise in rental

HK$7.27 billion 2013 profit

expenses for its stores in Hong Kong and Macau, where such costs have climbed by 52 percent to HK$1.54 billion – a rise mainly emanating from the opening of new sales points in tourist areas and the renewal of rental contracts.

By March 31, some 2,077 Chow Tai Fook sales points were situated throughout China, 16 of which are located in Macau.

4

June 18, 2014

Macau

Stocks dive with visas, revenues with football The tightening of transit visas in Macau plunged gaming stocks into pessimistic territory yesterday with shares dropping three times more than the Hong Kong Stock Exchange average.

Investors also revised down estimates, and expect a flat June in terms of revenue, with some predicting a decrease of 8 percent in gains this month thanks to the World Cup Alex Lee

Alex.lee@macaubusinessdaily.com

M

acau’s gaming operators suffered another blow yesterday as stocks fell in Hong Kong more than 2 percent amid fears that the announced visa restrictions for mainlanders could hurt profits this year. Investors downgrading estimations for June are also queuing with the majority of the brokerages now expecting flat or even decreased revenues due to the World Cup and VIP softness.

It was a dark session for casino operators yesterday after the Macau administration confirmed on Monday that they will reduce from seven to five the number of days mainlanders can stay in the territory with transit visas.

Mainland Chinese account for 70 percent of all visitors to Macau. Even with some investors like Union Gaming saying the impact could be limited, given the average stay in Macau by mainlanders is 2 days, that didn’t stop shares tanking.

Casino stocks underperformed the Hong Kong stock market by more than three times yesterday, with gaming shares punishing the overall Hang Seng Index.

MGM China fell 1.4 percent,

Wynn Macau dropped 2.4 percent, followed by Melco Crown Entertainment who lost 2.7 percent. Sands China and SJM shares devaluated 1.4 percent and Galaxy slipped 1.1 percent.

The casino industry performance yesterday pushed down the Hang Seng Index (on which the biggest Hong Kong companies are listed) for a second day in a row, with the Hong Kong stock market losing 0.5 percent in yesterday’s sessions.

Downgrading June Since the beginning of the year, the volatility of gaming shares has seemed unstoppable as investors are reacting with much more emphasis to anything that moves in Macau and could hurt the ‘secular success’ story here. Since March, junket

source: Nomura

arrests, illegal UnionPay transfers, VIP slowdown, China’s deceleration and now visa restrictions on mainlanders are some of the episodes that have injected gaming stocks with the highest volatility in years.

The prospect of less visitors from July 1 when the new visa policy comes into force probably foreshadows a new round of downward revisions for the second quarter and the promise of an even choppier 2014.

Following a weak May, the data available as at June 15 for Macau confirmed that this month will be worse than expected in terms of gaming revenue, probably staying flat or even dropping.

Yesterday, Wells Fargo, Sterne Agee and Nomura announced they are revising down June’s performance.

From an estimation of

20pct drop in June 2010 revenues

between 1 to 5 percent growth in revenues for June, Wells Fargo decided to correct it by half, now expecting somewhere between 0 and 2 percent. The trigger has been the underperformance of the second week of June, with revenues decreasing 15 percent to 867 million patacas compared to the first week of this month (revenues of 1.03 billion patacas).

The softness of the VIP

segment has prompted Nomura to expect a June revenue growth of only 1 to 4 percent, below the 7 percent hike that market consensus is expecting. Sterne Agee, the most pessimistic of the three, is predicting gaming revenues to decrease 2 percent in June: ‘Our outlook remains between minus 2 percent and 3 percent with a bias towards the lowend of our range.’

World Cup fever June’s weak performance will also affect the estimations for casino industry profits in the second quarter here. Wells Fargo says it expects a 2 to 7 percent hike in property EBITDA (operating profit or profit less taxes, interest, depreciation and appreciation) in the second quarter, already below the market consensus.

But Fargo’s estimate assumes that June’s gaming revenues climb 6.5 percent. ‘This implies additional downside to second quarter estimates,’ says the US bank in a note to clients.

But if June’s prospects are already dim, they could get even worse as the World Cup in Brazil reaches the knockout phase and is likely to distract more gamblers from casinos. Stern Agee says if the impact in Macau of the current World Cup tournaments is similar to the previous one – held in South Africa in 2010 – June revenues could tumble 8 percent.

Four years ago, Macau’s gaming revenues in June dropped 20 percent compared to May. The brokerage underlined that China is the largest TV audience by far, accounting for more than 16 percent of the total cumulative audience during the World Cup. ‘Combined with a fairly significant 18 percent yearon-year VIP rolling chip comp versus the year-to-date average rolling of year-onyear comp of 5.4 percent, we expect uneven results to continue through June and into July,’ the brokerage told clients yesterday.

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June 18, 2014

Macau

Blowing in the wind Having served the Environmental Protection Bureau for nearly 5 years, director Cheong Sio Kei claims that the sudden change of office is not a ‘demotion’ Stephanie Lai

sw.lai@macaubusinessdaily.com

I

ncumbent director of Environmental Protection Bureau Cheong Sio Kei has rejected the notion that his reassignment as head of the Cartography and Cadastre Bureau was a ‘demotion,’ pledging that this latest personnel change should not affect the operation of the Environmental Protection Bureau.

“I think there’s no need to over-speculate on this arrangement [to be reassigned as the director of the Cartography and Cadastre Bureau], as we are just complying with the MSAR Government’s planning for personnel,” Mr. Cheong told reporters on the sidelines of a Legislative Assembly committee meeting yesterday when asked if the personnel change represents a demotion.

The cabinet for the

Secretary for Transport and Public Works issued a written statement on Monday declaring that Mr. Cheong was about to assume the post of director of the Cartography and Cadestre Bureau starting on June 29, a sudden personnel move that the cabinet claimed was necessary to urgently fill the official vacancy as former cadestre bureau director Chan Hon Peng retired on May 27.

Before serving as the Environmental Protection Bureau’s director, Mr. Cheong had served as the acting director of the Cartography and Cadestre Bureau. Both bureaus are sub-units reporting to the Secretariat for Transport and Public Works.

“The consideration for the personnel change was over Mr. Chan Hon Peng’s retirement from the cadastre bureau, and

that now the Environmental Protection Bureau is well on track with its missions,” Mr. Cheong briefly commented over his reassignment yesterday. “This change of office is an appropriate division of labour.”

The Environmental Protection Bureau was created in June 2009 to take charge of the city’s environmental policy and pollution control, following an upgrade in operation scale from its former body the Environment Council. Mr. Cheong served as the bureau’s director since the inception of its operation in 2009.

During his term in office, Mr. Cheong has encountered some fierce public criticism: in 2010 and 2011, his bureau was accused of lax monitoring of the treatment of toxic flying ash from the

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solid waste incineration plant Protection Bureau to serve... in Coloane, posing a health We can see that there’s still a certain distance between threat to residents there.

A more recent complaint public expectations and our lodged against the bureau work, but our team will this year is from residents work hard to try to better of Ka-Ho on the island of fulfill people’s wishes,” Mr. Coloane who challenged Cheong remarked. “Our team the existence of a cement will not be affected by my factory that leaves everything reassignment.” “covered with dust,” affecting the air quality there. The complaint prompted a new administrative regulation, effective June 1, mandating the production, loading and transportation that the industrial units have to make in enclosed areas to prevent the release of dust.

“The past five years have been Cheong Sio Kei, the initial stage for Environmental Protection Bureau the Environmental incumbent director

I think there’s no need to over-speculate on this arrangement

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 18, 2014

Macau

Japan casino law: Long-awaited talks start today

Brought to you by

Las Vegas Sands Corp and Melco Crown have their eyes on operating casinos in the island nation

HOSPITALITY

J

Hotel staff swelling Hotels, restaurants and manufacturing are the most important activities included in the latest sector survey available. In terms of employment, the hotel sector is clearly the biggest of the three and also the one rising fastest. Its effectives has risen by 42 percent in the last 4 years. In the restaurant sector that figure stood at 36 percent, while manufacturing recorded an actual decline of almost 40 percent. Consequently, while hotels represented slightly less than half of the employment in the three sectors combined in the first quarter of 2010, that share had risen to 58 percent in the same quarter this year. All sectors saw the share of men on staff rising, reversing a feminine-centric trend evident in the preceding decade.

The plots above highlight these trends. Over the full period, the total number of men in hotels grew by 48 percent, compared with 33 percent for women. But in the last quarters we see the number of women declining while the figures for men stabilise. There is a slow process of replacement of women, it appears now. In restaurants, that trend is stronger. For the same period, men registered a growth of 48 percent versus 26 percent for women. In the last four quarters, the rising trend for women seems to stall; in the case of men, the upward movement seems more sustained. The record in manufacturing is markedly different, even if the outcome is similar. The number of women in comparison to men was significantly higher still in 2010. Since then, there has been a change of places, as female effectives dropped to less than half, while male effectives contracted by less than 14 percent. In the last year, men have outnumbered women.

J.I.D.

52%

drop in the number of women in manufacturing, last four years

apanese lawmakers said they will start long-awaited talks today on a bill to legalise casino gambling, kicking off the process to create an industry that Prime Minister Shinzo Abe has called a highlight of his growth strategy.

Senior members of the lower house cabinet committee agreed yesterday to include casinos on the agenda for the following day’s debate, several lawmakers said.

The bill’s proponents have been keen to begin discussions before the June 22 end of the regular parliamentary session so they can carry the talks over into an extraordinary session later in the year when they hope to have it passed. Debate has been delayed by other legislation and political wrangling.

The bill sets the basic legal framework for allowing casinos. If it passes, debate will move to a second bill concerning concrete regulations, which proponents hope to pass next year and allow developers to start building resorts in time for the 2020 Tokyo Olympics.

Abe said in late May that casino resorts, also called integrated resorts, will be a key feature of his economic growth plan.

With views among politicians and the public still mixed, however, a draft

of the government’s growth strategy obtained by Reuters on Monday underscored a cautious outlook.

“Integrated resorts are expected to contribute to bolstering tourism, regional activity and industry, but they also require consideration of policy measures to prevent crime, maintain safety, ensure healthy development of youngsters and prevent addiction,” the draft said.

“Therefore, the relevant ministries

will continue deliberations taking into account the IR [integrated resort] bill and national debate.”

Global companies including Las Vegas Sands Corp and Melco Crown Entertainment Ltd are vying to win the first licences to operate casinos in Japan, a market that brokerage CLSA estimates could generate annual revenue of US$40 billion (320 billion patacas).

Reuters

Turbojet: Accidents are independent cases Alex Lee

alex.lee@macaubusinessdaily.com

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urbojet said that the three accidents involving the company’s ferries in the last year are ‘independent cases.’

Since November 2013, around 160 people have been injured in accidents involving jetfoils. The last accident happened on Friday, with 70 people injured when a ferry sailing to Macau from Hong Kong hit a seawall off the coast. The company told Business Daily

that it is working with the authorities to investigate such situations.

“It is believed that the recent incidences have been independent cases and the company is actively cooperating with the authorities in ongoing investigations,” a spokesperson for Shun Tak Holdings Ltd, the parent company of Turbojet, said.

Last November, a jetfoil hit an unidentified object, injuring 87

people. Four months later, in March, another three people were injured when a ferry crashed into a pier at the Macau Outer Harbor Ferry Terminal.

In spite of the accidents, the company stresses that it has a very effective emergency response to deal with such situations. “The company implements strict guidelines on operational protocol, safety management and fleet maintenance in accordance with international maritime regulations,” Shun Tak said.

When asked about the costs of such accidents in terms of compensation paid to the victims and the cost of repairs to the jetfoils, Shun Tak refused to comment.

Turbojet has been the leader in ferry operations between Hong Kong and Macau for over 50 years, handling an annual passenger volume exceeding 10 million.

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June 18, 2014

Macau

Taking the lid off public housing

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acau’s affordable housing system was primarily introduced as a means of ‘assisting Macau residents who are in a specific income level and financial situation to [help] solve their housing needs.’ In order to be eligible, a one-person applicant needs to have a monthly income of no more than 29,700 patacas, and a net asset limit of no more 896,200 patacas. Nevertheless, a fleet of luxury BMWs, Porsches and Mercedes can be seen in Seac Pai Van’s private and public parking lots. And this is an everyday occurrence.

A few months ago, the residents of On Son building, in Seac Pai Van, complained to legislator Au Kam San that there were not, contrary to government promises, 170 vehicle parking slots available for them to purchase. When confronted with the reality via media reports, the Housing Bureau said that the government could not regulate how the developer set the price, as it was a business decision, but it did urge the developer to comply with the

regulations on the sale of parking lots, and suggested that residents of the complex retain priority in the purchase of parking spaces.

While there is parking available, it is not available to all. Ms. Ling, a resident of the public housing complex in Seac Pai Van, said that after seeing a memo in her tower publicising a few spaces in the parking lot she was confused. “They have 71 spaces for cars but only 26 are for householders, with prices ranging between 1.4 million patacas to 1.65 million patacas,” she complains.

The average price of a one-bedroom apartment ranges from between 599,880 patacas and 887,300 patacas.

And it can sometimes take more than a couple of years for an applicant to get approval from the Housing Bureau.

During that time, some applicants’ wealth and income can change from when they first applied, making them no longer eligible.

The full story can be read in this month’s issue of Macau Business magazine, available at newsstands or online at www.magzter.com.

Dentists floss up image W hile a visit to the dentist is usually a person’s least favourite pastime, evidence suggests people are willing to spend big on their pearly whites. This has led to a boom in the number of dentists and dental clinics in Macau.

Taiwanese health care group Taivex Therapeutics Corp acquired a majority stake in Malo Clinic last year, which in turn became Taivex Malo Clinic. Dentists there say they have seen an increasing awareness of good oral health, although standards are low overall, even when it comes to children. However, increased buying power and a willingness to spend on health and looks are leading more people to take a seat in the dentist’s chair. And people using braces are usually willing to spend a premium for less conspicuous models instead of the cheaper, traditional metal-wired apparatus.

However, the lack of strict standards for dentists here remains a problem, with some patients showing signs of having received improper treatment elsewhere.

The number of dentists here jumped by 10 percent between 2010 and 2012, to 221 practitioners, official data shows. They worked in 64 dental clinics.

Meanwhile, smaller dental practices are disappearing, primarily because of medical benefits for employees offered by bigger employers such as the casino operators. Their preference is to work with bigger businesses and polyclinics. The drawback with this, some dentists say, is that bigger clinics are more commercial and want patients to spend more money.

The full story can be read in this month’s issue of Macau Business magazine, available at newsstands or online at www.magzter.com.

8

June 18, 2014

Macau

Malaysian Berjaya group seeks gaming licence The founder of the Berjaya group plans to operate a Casino de Berjaya Hills Resort in order to attract Malaysian gamblers otherwise opting for Macau or other destinations

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an Sri Vicent Tan, founder of the Berjaya group, will apply for a licence to operate a casino in Berjaya Hills Resort in Pahang, Malaysia. According to the Malaysian newspaper New Straits Times, Tan Sri Vicent Tan will invest the equivalent of 3 billion patacas in order to set up the gambling complex that will have as its goal direct competition with other tourist destinations such as Macau and Singapore.

Tan plans to transform Berjaya Hills Resort into a world-class destination and Malaysia’s biggest tourism development. The complex will include a gaming centre, indoor and outdoor theme parks, food outlets, a retail mall, hotels, a convention centre and holiday homes.

The Malaysian tycoon explained in an interview with the Business Times that he expected his investment to compete with such destinations as Macau, Singapore and Cambodia.

“Malaysians and foreigners are spending their money on gambling, hotels and food in Singapore, Macau, Cambodia, the Philippines and Las Vegas. I’m sure they would like to come here. We can expect hundreds of buses from Singapore to come here,” he said.

More than ten years ago, Tan applied for a licence to operate a casino in the same place but was rejected. Now the tycoon expects to

succeed, as the casino complex will benefit Malaysia in terms of foreign exchange gain and economic spillover.

According to Tan’s calculations, he will be able to employ about 10,000 locals if he succeeds in getting a licence.

“We will re-apply for the licence.

Malaysia should not stick to one operator. It should be shared with other operators as tourism developments can generate a lot of income for the country,” he reasoned.

“We’ll market Berjaya Hills as a new casino destination globally. I have 4,600ha in Berjaya Hills and there’s a lot that can be done with such a licence,” he said.

Currently, Berjaya Hills, which is just minutes away from the country’s only casino in Genting Highlands, has a permit to operate slot machines.

The 62-year old tycoon admitted to Business Times that he is following a trend in Asian countries to invest in casinos as a way of attracting more tourists.

“South Korea, Japan and Taiwan are looking to give licences to operate casinos as they realise the full potential of such developments,” he said.

About 800 people work in Berjaya Hills where the French-themed resort Colmar Tropicale, The Chateau Spa and Organic Wellness Resort, plus a golf and country club are sited.

9

June 18, 2014

Greater China

Alibaba reveals board Among four independent directors asked to join a post-IPO board Paul Carsten and Matthew Miller

A

libaba Group Holding revealed the members of its powerful 27-person partnership and board, while disclosing that the Chinese e-commerce giant’s growth has slowed from the red-hot pace of recent quarters.

In an updated prospectus for what could be the largest tech IPO in history, Alibaba said the partnership includes founder Jack Ma, Executive Vice Chairman Joseph Tsai and Chief Executive Officer Jonathan Lu. The group has the exclusive right to nominate a majority of Alibaba’s nine-member board, effectively ensuring control of the company rests in the hands of insiders.

Among four independent directors asked to join a postIPO board were former Hong Kong Chief Executive Tung Chee Hwa, Yahoo Inc founder Jerry Yang, and J. Michael Evans, former vice chairman of Goldman Sachs Group Inc. Alibaba is expected to eclipse Facebook Inc’s US$15 billion initial share sale in 2012 when it debuts late this summer. But investors and governance experts have raised questions about Alibaba’s scant disclosures, and Ma’s murky web of thirdparty transactions.

Tung’s inclusion may open doors for Alibaba, though his tenure was marked by controversy. He is uncle to the wife of corporate finance chief Michael Yao. “His family relationship is a negative from a Western governance point of view, but probably a positive from an Asian” perspective, said Boston University School of Management professor James Post. “The board will be the place where ‘East meets West’ governance happens at Alibaba in the years to come.”

The company’s five executive board directors are Ma, Tsai, Lu, Chief Operating Officer Daniel Zhang, and Masayoshi Son, founder of SoftBank Corp, Alibaba’s biggest shareholder with a 34.3 percent stake.

Alibaba previously said its partnership encompassed 28 members, elected annually.

It did not explain the change on Monday.

Revenue growth slows Monday’s filing also divulged more information about the operations of Alibaba, which handles more transactions than Amazon. com and eBay combined.

Alibaba reported its

KEY POINTS Alibaba prospectus names 27-person “partnership” Names directors of nine-person board Revenue up 38 pct in March qtr, versus 62 pct rise in prior qtr

Jack Ma, or Ma Yun, Executive Chair of Alibaba enters the Great Hall of the People in Beijing 11 June 2014

net income in the quarter ended March climbed 32 percent to 5.543 billion yuan (US$892.7 million). Revenue was up 38 percent to 12.031 billion yuan, compared to a 62 percent increase in the

previous quarter.

Shares of Yahoo, which tend to move in sync with the perceived valuation of its roughly 24 percent slice of Alibaba, closed more than 5 percent lower.

Four firms aim for IPOs after four-month lull The securities regulator last week approved the listing plans of seven firms, effectively resuming the IPO market

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our Chinese companies aim to raise up to 1.7 billion yuan (US$273.80 million) via initial public offerings in Shanghai and Shenzhen, the first firms to push forward with listings after a fourmonth lull.

The securities regulator last week approved the listing plans of seven firms, effectively resuming the IPO market which halted in February after a two-month flurry of activity ended a 14-month drought that started in November 2012.

Shanghai Lianming Machinery Co Ltd aims to sell up to 20 million shares at 9.93 yuan a piece, the company said in a statement posted on the Shanghai stock exchange website yesterday, meaning it will raise 198.6 million yuan if fully subscribed. The company has said it plans to use the proceeds to fund projects worth 250 million yuan.

The company, which will trade under the ticker, will take subscriptions on June 17 and 18 and announce the results on June 20. China Securities Co Ltd will be underwriting the sale.

The other three will list on the smaller Shenzhen stock exchange and aim to raise a total of 1.5 billion yuan, the companies said in statements posted on the exchange website.

100

IPOs expected at China’s markets in 2014

Wuxi Xuelang Environmental Technology Co Ltd aims to sell up to 20 million shares at 14.73 yuan each for a total of 294.6 million yuan if fully subscribed, with Pacific Securities Co Ltd acting as underwriter.

Shandong Longda Meat Foodstuff Co Ltd aims to sell up to 54.59 million shares at 9.79 yuan each for a total of 534.4 million yuan if all sold, while Feitian Technologies Co Ltd aims to raise up to 662.9 million yuan with shares priced at 33.13 yuan. Guosen Securities will be the underwriter for both companies.

The China Securities Regulatory Commission is planning about 100 IPOs for the rest of this year, bringing the full-year tally up to 150, about half the number forecast by consultants including PwC. Reuters

Alibaba’s eBay-like Taobao saw gross merchandise volume rise 32 percent to 295 billion yuan in the March quarter. For Amazon-like Tmall, volume was up 90 percent to 135 billion yuan.

Both rates of growth were down from previous quarters.

“From the fourth quarter, you’re always going to have a drop-off quarter to quarter, but this is a pretty big one,” said Ronald Josey at JMP Securities.

Reuters

10

June 18, 2014

Greater China Non-financial ODI drops Jan-May The combined outbound investment of Chinese companies declined during the first five months of 2014 due to plunges in major investment destinations, official data showed on Tuesday.

Shen Danyang, spokesman for the Ministry of Commerce, said at a press conference that China’s outbound direct investment (ODI) in non-financial sectors slumped 10.2 percent year on year to 30.81 billion U.S. dollars in the January-May period. The investment went to 2,766 overseas enterprises in 146 countries and regions. Hong Kong, the Association of Southeast Asian Nations, the EU, Australia, the United States, Russia and Japan received 68.7 percent of the ODI, or 21.16 billion U.S. dollars, Shen said.

RSA seeks buyers for Asian operations Insurance group, Britain’s largest nonlife insurer, is looking to sell its Asian operations in an auction that could fetch up to US$500 million and draw a wide range of suitors, people familiar with the sale process told Reuters. The sale is part of a group-wide restructuring led by new Chief Executive Stephen Hester, after losses caused by extreme weather and accounting irregularities at its Irish division hit its finances and prompted the departure of several senior executives. Insurers considering bids include Sompo Japan Insurance.

PBOC to drain 30 bln yuan China’s central bank will drain 30 billion yuan (US$4.83 billion) from the money markets through 28-day bond repurchase agreements yesterday, traders said. Maturing repos will inject a net 65 billion yuan into the banking system this week. The People’s Bank of China (PBOC) conducted a net injection of 104 billion yuan into the banking system last week.

Taiwanese regulators IPO complaint a first China New Crystal Material Holdings has filed an administrative appeal against Taiwan regulators for blocking its plan to list on the island’s exchange, marking the first such case. Taiwan’s Financial Supervisory Commission (FSC) said last month that it turned down the company’s initial public offering plan because its chairman had changed his Chinese origin to the Philippines in a move to try to circumvent restrictions that no more than a stake of 30 percent is owned by Chinese investors. Business ties across the Taiwan Straits have improved since President Ma Ying-jeou took office in 2008.

Australia, China ink meat deal An Australian meat processor and a giant Chinese import company have signed a deal worth almost one billion U.S. dollars, local media reported yesterday. Grand Farm, China’s biggest importer of red meat from Australia and New Zealand, will join forces with V&V Walsh to process an extra 500,000 lambs and 30,000 cattle a year for China, the West Australian reported. The joint venture includes 187.7 million U.S dollars of investment in Australia, and 750 million U.S. dollars in China to develop mega farms in China’s Inner Mongolia.

FDI falls in a slow down China attracted US$8.6 billion in foreign direct investment (FDI) Aileen Wang and Koh Gui Qing

T

he amount of new foreign investment that China attracted in May shrank by the most in 16 months, hurt partly by its cooling economy, though the trade ministry said the outlook may be brightening for exporters.

The Ministry of Commerce said yesterday that China attracted US$8.6 billion in foreign direct investment (FDI) in May, down 6.7 percent from a year ago and the weakest performance since January 2013.

Cumulatively, China drew US$49 billion of FDI in the first five months of 2014, up 2.8 percent from a year earlier, also the worst showing in a year.

Slowing momentum in the world’s second-largest economy, with growth forecast to slide to a 24-year low this year, may have deterred companies from ploughing more cash into China, economists say.

Widespread expectations that the yuan will edge lower this year and political tensions affecting trade could also have encouraged firms to delay new investments.

“On a macro level, there is indeed a trend of foreign companies investing less in China,” said Zhou Hao, an economist at ANZ Bank in Shanghai.

“Slowing economic growth is the main reason, but the high barrier of

entry into China for new companies is also a factor,” said Zhou, referring to the dominance of Chinese firms in most sectors.

Ever since China’s entry into the World Trade Organisation in 2001, its FDI has ballooned to record levels - inflows hit a record US$118 billion last year.

But even as the amount of FDI scaled an all-time high, the growth momentum has steadily moderated, with authorities predicting that China’s outbound investment will soon exceed its investment inflows.

That trend was not apparent in May, however. Non-financial direct outbound investment fell 10.2 percent to US$30.8 billion in the first five months. China does not publish its financial outbound investment on a monthly basis.

Stabilising trade Economists polled by Reuters in April predicted that China’s annual economic growth will fall to a 24year low of 7.3 percent this year, but still in line with the government

Shanghai exchange restricts Bonds issued by companies that operated at a loss the previous year

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he Shanghai Stock Exchange yesterday announced restrictions on who can trade high-risk bonds, another step in a campaign to steer retail investors away from risky high-yield investment strategies and toward buying and holding for value.

The new regulations, effective immediately, say bonds issued by companies that operated at a loss the previous year will receive a special “ST” designation, identical to the “special treatment” tag applied to shares in loss-making companies trading on the stock exchange.

Individual investors must have at least 5 million yuan (US$805,300) in financial assets to trade ST bonds, the statement said. They must also sign a document saying they understand the risk such trades entail.

“Recently the number of bonds listed on the Shanghai Stock Exchange has hit repeated record highs, and credit risks of such bonds have increasingly attracted attention from both the market and regulators,” an exchange representative said in a statement published on its website.

China allowed its first default of a publicly-traded bond this year when Chaori Solar defaulted on a bond traded on the Shenzhen exchange.

The announcement is unlikely to have a major direct impact on China’s wider debt market. China boasts a 30 trillion yuan (US$4.83 trillion) onshore bond market, but

the majority of those bonds are traded in the interbank market by banks and big institutional investors. By comparison, the Shanghai exchange had only 1.72 trillion yuan worth of outstanding bonds at the end of 2013, according to official data.

The exchange said that in addition to loss-making companies, other firms including those which forecast losses for the forthcoming year, companies with legal problems and companies with operational issues that will affect their ability to repay will also receive the designation.

The exchange statement also said that company bonds rated AA- or below will also get the ST tag, without elaborating on which rating would be used. Chinese has four major credit ratings agencies and numerous smaller ones. There have been signs of a price war over clients, which analysts worry has made some ratings unreliable.

Historically, Chinese retail investors have preferred shortterm strategies trading shares and bonds in highly volatile smaller companies. Usage of the ST designator has not persuaded the average Chinese stock investor to abandon such shares for more stable large-cap companies.

In addition, wealth management products backed by high-yielding bonds issued by lower-quality issuers have also proven popular in China.

Reuters

11

June 18, 2014

Greater China

economy spiral Volvo to make China an export hub Volvo plans to start exporting Chinesemade cars to the United States and Russia

in May

Norihiko Shirouzu

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KEY POINTS Fall in May FDI largest since January 2013 Slowing economy and weak yuan, may have hurt inflows Jan-May outbound investment down 10.2 pct y/y

goal to expand activity by “around 7.5 percent”.

To bolster flagging growth, Beijing has announced a series of modest stimulus measures since April, including lowering reserve requirements for some banks to release more money for loans.

Business surveys in the last week signal activity may be starting to stabilise, but a slight pick-up in parts of the economy does not mean a solid, broader recovery is under way. But the Commerce Ministry sounded hopeful yesterday.

“Trade growth is expected to stabilise in the coming months,” Shen Danyang, the ministry’s spokesman, told a regular monthly briefing.

In the first five months of the year, China’s services sector attracted US$27.5 billion of FDI, up a fifth from a year ago and faring much better than the manufacturing industry, where FDI dropped 16.5 percent from a year ago to US$17.4 billion.

Among the 10 countries that are the biggest sources of China’s FDI, investment from South Korea surged 88 percent on an annual basis and that from the United Kingdom leapt 62 percent.

Reuters

high-risk bonds will receive a special “ST” designation

weden’s Volvo Car Corp, with help from its Chinese owner Zhejiang Geely Holding Group Co., plans to make China an export hub and beat its 2014 sales target for the country by at least 13 percent, a senior Volvo executive said.

Geely’s strategy for Volvo is being closely watched as a possible model for other Chinese companies that have had limited success digesting and managing major consumer brands.

Volvo plans to start exporting Chinese-made cars to the United States and Russia as early as late next year, said the executive who requested anonymity because he is not authorised to speak with reporters.

Volvo, which Geely bought from Ford Motor Co in 2010, intended to ship a long-wheel-based version of the S60 sedan called the S60L to the United States and XC90 utility crossover vehicles to Russia. The exports eventually would total about 10,000 S60Ls and a few thousand XC90s a year.

The executive said Volvo car sales in China were likely to rise to more than 90,000 vehicles this year, making China Volvo’s biggest market globally, displacing the United States.

That compares with roughly

35 pct year-on-year Volvo’s China sales growth

61,000 cars Volvo sold in China last year and is well above the 80,000 cars it initially projected to sell for 2014.

The executive said Volvo might use two assembly plants in China to export to other markets as well, such as Southeast Asia. One plant in the south-western city of Chengdu began producing late last year, and the second is ramping up production in the north-eastern city of Daqing.

Volvo global head of media relations David Ibison confirmed that the company would start exporting from China.

Ibison said that although Volvo’s China sales had grown 35 percent year-on-year so far this year, selling 90,000 cars in 2014 could be “a step too far”.

Reuters

Copper climbs on stimulus outlook Economic growth in the top metals user been dented by a soft patch in its property markets

Shanghai Stock Exchange building

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ondon copper was a touch firmer yesterday after China’s leaders reaffirmed a 7.5 percent economic growth target this year, with prospects of further stimulus lifting Shanghai copper to its highest in more than a week.

Economic growth in the top metals user been dented by a soft patch in its property markets which targeted stimulus should help put back on track, said Helen Lau, a senior mining analyst at UOB-Kay Hian Securities in Hong Kong.

“The government will continue to fine-tune to provide enough financing for smaller enterprises and to help support the overall economy,” she said.

“These news headlines have supported copper prices in terms of sentiment, but I do not see any real improvement in fundamentals, especially with seasonal demand weakness coming in,” she said.

China is confident it will hit its growth target of 7.5 percent this year, Chinese Premier Li Keqiang said on Monday, adding the government was ready to adjust policy to make sure it does. Beijing also said a cut in the reserve requirement ratio that banks must hold could also apply to big state banks.

The most-traded August copper contract on the Shanghai Futures Exchange climbed 0.7 percent to 48,240 yuan (US$7,800) a tonne. It

earlier touched 48,250 - its highest since June 6.

Data on Chinese house prices for May is slated for release on Wednesday.

In another upbeat sign for metals demand, U.S. manufacturing output rose in May and factory activity in New York state accelerated sharply this month, buoying hopes of a strong rebound in economic growth this quarter.

Tensions in Iraq continue to bolster oil prices, fuelling a rise in commodities indices which then spills into demand for metals.

President Barack Obama considered options for military action to support Iraq’s besieged government on Monday, and U.S. and Iranian officials held talks to stabilize the region.

Reuters

12

June 18, 2014

Asia S.Korean banks to trade USD futures South Korea will allow local banks to start directly trading exchange-listed U.S. dollar futures and 20-year treasury bond futures, to be listed later, its financial regulator said yesterday. The 20-year treasury bond futures will be listed on the exchange within the next one to two years, the Financial Services Commission said in a statement.

Currently, only securities companies are allowed to trade exchange-listed derivatives, it said. Banks will also be allowed to directly trade exchangelisted futures on the three-, five- and 10-year treasury bonds and more foreign currency futures within the next five years, it added.

Japanese report favours return to nuclear power The Cabinet of Japan yesterday approved Japan’s Energy White Paper 2013, which defines nuclear power as an “important base-load power source” and calls for a return to nuclear power generation, local media reported. According to the report, 88 percent of Japan’s energy consumption depended on fossil fuels in 2013 after all the nation’s reactors being offline in the wake of the Fukushima disaster in 2011. The reading is higher than the 80 percent at the time of the oil crisis in the 1970s.

India’s Gati to sell unit for expansion The cold-chain unit of Gati Ltd., India’s biggest goods mover by market share, plans to sell a minority stake to fund its expansion as Domino’s Pizza Inc. to Nestle SA drive demand for refrigerated storage. Gati Kausar Ltd. is in talks to partner with overseas investors as it seeks to raise 1.2 billion rupees (US$20 million) to build 10 warehouses across the South Asian country over the next three years, Vice President Manish Agarwal said.

Adani’s project decision delayed India’s Adani Enterprises Ltd faces a new delay on a planned coalmine in Australia, amid worries that a port expansion to accommodate the project could hurt the World Heritagelisted Great Barrier Reef. Australian Environment Minister Greg Hunt has extended his review of Adani’s A$16.5 billion (US$15.5 billion) Carmichael coal and rail project to August 1, a spokesperson for the minister said yesterday. The project in the untapped Galilee Basin, designed to produce 60 million tonnes a year of thermal coal used in power stations.

Singapore’s exports darken United States and European economies boost have yet to fully Jongwoo Cheon

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ingapore’s exports unexpectedly fell in May on weak shipments of electronics and pharmaceuticals to its key markets, data showed yesterday, indicating the city-state may not be benefiting yet from a recovery in developed economies.

Non-oil domestic exports fell a seasonally adjusted 7.5 percent in May from April, trade agency International Enterprise Singapore said, well below a forecast of 0.5 percent growth.

From a year earlier, non-oil exports in May slid 6.6 percent, compared with growth of 0.9 percent forecast in a Reuters poll.

Many economists had predicted at the start of the year that a recovery in the United States and European economies would boost Singapore’s exports, but signs of that filtering through have yet to fully materialise.

Electronics is a key driver of Singapore’s exports but it is not as well positioned in the electronics supply chain to gain from growth in smartphones and other recreational tech products.

“It will fail to benefit fully from

the expected recovery in developed markets,” said Frances Cheung, head of Asian rates strategy at Credit Agricole CIB in Hong Kong, pointing to potential weaknesses in the electronics sector.

Its electronics manufacturers have struggled to tap surging demand for smartphones, unlike rivals in South Korea and Taiwan.

“Pricing through a slightly weaker Singapore dollar can help, but the product mix, which relies much on PCs, ICs and parts could be a more important issue,” Cheung said, referring to personal computers and integrated circuits.

Non-oil domestic exports to the United States fell 8.8 percent in May from a year earlier, compared with 11.7 percent growth in April.

Shipments to the European Union declined an annual 22.6 percent last month, more than double April’s fall of 10.9 percent. In March, exports to Europe slipped 27.8 percent.

Exports to China grew 7.2 percent last month, but the expansion was less than a third of April’s 22.6 percent.

The disappointing export figures

Singapore Harbour (pictured) witnessed less exports than forecast

came even as major economies, especially the United States, showed signs of a recovery. The European economy is also poised to find support

Abe adviser urges business tax cut Abe said last week he’d aim to lower corporate taxes from next year to fewer than 30 percent over the next few years Toru Fujioka and Takeshi Awaji

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hinzo Abe should cut the corporate tax rate in one stroke to match rivals and help Japan survive a global tax “war,” said an adviser to the prime minister.

“It’ll be much less effective if we don’t substantially cut the levy,” Koichi Hamada, a retired Yale University professor who advises Abe on monetary policy, said in an interview on Monday in Tokyo. “By cutting the rate significantly, Japan can attract investment from abroad and keep Japanese companies at home.”

Abe said last week he’d aim to lower corporate taxes from next year to fewer than 30 percent over the next few years. Hamada proposes reducing the levy of about 35 percent -the second highest among Group of Seven nations- to a rate close to the 23 percent in the U.K. and 24 percent in South Korea.

“Japan hasn’t done anything in

By cutting the rate significantly, Japan can attract investment from abroad and keep Japanese companies at home

the corporate tax war so far,” said Hamada.

The U.K. has cut its rate in several steps to 23 percent from 30 percent in 2007, while South Korea’s levy fell from 28 percent in the same

period, according to Organisation for Economic Co-operation and Development data.

Abe has made corporate tax cuts a flagship policy for the latest round of his growth strategy.

The prime minister’s announcement last week was “an arrow, but was not the bazooka that investors need to lower the risk premium on Japanese assets,” Robert Feldman, head of Japan economic research at Morgan Stanley MUFG, wrote in a report on Monday.

Under Abe’s current plan, the most likely scenario is for cuts of 2 percentage points each year from the fiscal period starting April 2015 through fiscal 2017, Nomura Securities Co. economists wrote in a June 13 report. The boost to real growth would be about 0.1 point in each of those three years, Nomura estimates.

Bloomberg News

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13

June 18, 2014

Asia

trade outlook

Australia raises beef export forecast

materialise in Singapore

Colin Packham

from monetary policy easing by the European Central Bank.

After the data, the Singapore dollar lost 0.2 percent to 1.2526 per

U.S. dollar, its weakest since June 6.

Exports of electronics and pharmaceuticals contributed to the overall weakness in May. Electronics shipments in May fell 15.3 percent from a year earlier after suffering an 8.7 percent fall in April and a 16.1 percent loss in March.

“Electronics was more of a disruption story - the number of public holidays in May, particularly in Korea and Taiwan, caused disruptions to the regional supply chains,” said Wai Ho Leong, senior regional economist at Barclays in Singapore.

“So I don’t think the fall is anything particularly sinister, but it was more pronounced than we had expected.”

Domestic exports of pharmaceuticals, which tend to be very volatile from month-to-month, lost 26.3 percent from a year earlier.

Economists slightly cut their forecasts for 2014 non-oil domestic exports growth to 4.1 percent from 4.2 percent, the latest central bank survey showed.

Reuters

A

ustralia raised its forecast for beef exports in the 2014/15 marketing year by nearly 8 percent yesterday as dry conditions across the east coast mean farmers are slaughtering livestock at a nearrecord pace.

Shipments from Australia, the world’s third largest exporter, are expected to total 1.12 million tonnes this season, the government’s official commodities forecaster said, the second highest on record amid rising demand from China.

About nine million head of cattle are expected to be slaughtered in 2014/15, but an upward revision in Australia’s cattle herd by more than 1 million head to 28 million animals, means Australia remains well stocked, analysts say.

“Slaughter rates have been very high, while demand from China has been very strong,” said Jamie Pemn, Chief Commodity Analyst at the Australian Bureau of Agriculture, Resource Economics and Rural Sciences (ABARES).

With no pasture and feed grains deemed expensive in early 2014 as a

result of prolonged drought, farmers have been culling animals at record levels, driving cattle prices down to a more than three-year low in January at US$2.78-1/2 a kg.

ABARES had expected farmers to slow slaughter rates on an easing in drought conditions in Queensland, home to almost half of Australia’s national herd, but much of state received less than half its average rainfall in May. The Australian Bureau of Meteorology now puts the chance of an El Nino weather pattern forming later this year at 70 percent later this year, which could lead to a continuation of dry conditions and keep beef shipments high, analysts say.

ABARES revised up its 2013/14 beef and veal exports to a record 1.18 million tonnes, having previously pegged sales at 1.15 million tonnes, boosted by Chinese demand.

However, growth in sales to China is expected to slow to 2.5 percent year-on-year in 2014/15, reflecting ABARES’ assumption that drought conditions will break by 2015.

Reuters

Indian regulator gets serious The Securities and Exchange Board accused Factorial Capital Management of shorting L&T Finance Holdings Ltd using leaked information Himank Sharma

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ndia’s stock market watchdog, long lambasted as toothless, has more resources than ever before to spot rogue trades. Even though it has singled out a hedge fund as the target of its first major trading probe, detractors remain unconvinced. What they need to see is a high-profile bust.

The Securities and Exchange Board of India (SEBI) hopes it will achieve just that after accusing Hong Kong-based multiasset fund Factorial Capital Management Ltd of shorting L&T Finance Holdings Ltd using information allegedly leaked by bankers on a cutprice share offering.

SEBI has a dismal track record on fighting insider trading. Until now, it has never probed a foreign investor for illegally seeking to acquire and profit from market-moving information not yet made public. Almost all of SEBI’s cases have been against penny-stock dealers.

Many of them were settled by payments of tiny fines.

Lax regulation has deterred long-term investors who would like to bet on India, leaving the market prone to the whims of shortterm speculators. Indian

The Securities and Exchange Board of India (SEBI) headquarters in Mumbai

stocks hit record highs this month on promises by India’s new Prime Minister, Narendra Modi, of economic reform.

Under the leadership of U.K. Sinha, appointed in 2011, SEBI has built its capacity to identify suspicious trades, insiders and analysts say.

It has more than trebled its annual spending to 2.81 billion rupees (US$47 million) over the past six years. The

regulator also recently hiked transaction fees, which Sinha said is to commit greater resources to enforcement and surveillance.

In a seven-page order, SEBI said it had established that Factorial was approached

by Credit Suisse to gauge interest in a potential sale of L&T Finance shares, after which Factorial built a big short position in the stock.

Short sellers seek to profit

from price falls.

The SEBI order said Credit Suisse employees had discussed the expected pricing of the share sale in chat rooms, and that the information could have leaked to outsiders. SEBI did not accuse Credit Suisse of any wrongdoing.

Factorial has said SEBI’s allegations, made on June 5, are without merit. It has 21 days to respond.

SEBI could ban Factorial

and fine it up to 250 million rupees, or three times its illegal profits, subject to a possible court challenge. It could also seek jail terms, although it has never launched criminal proceedings in an insider trading case.

The regulator has also reserved the right to investigate the local unit of Credit Suisse Group, alleged to be the source of the leak.

Reuters

14

June 18, 2014

International

Zuma seeks to instil confidence The economy shrank an annualized 0.6 percent in the first quarter after

S

outh African President Jacob Zuma is under pressure to shore up investor confidence when he delivers a keynote address today following the nation’s longest mining strike, power outages and a creditrating downgrade.

The economy shrank an annualized 0.6 percent in the first quarter after a 20-week wage strike by more than 70,000 workers shut the world’s biggest platinum mines. Prospects of a recession rose last week when two power plants failed, causing rolling blackouts.

Standard and Poor’s cut the nation’s rating by one level to BBB- on June 13, while Fitch Ratings lowered the outlook on its BBB grading to negative from stable, citing concern over South Africa’s deteriorating growth outlook.

“His speech is likely to be aimed sharply at the investor community,” Mzukisi Qobo, a politics lecturer at the University of Pretoria, said in a June 13 phone interview. “He would want to give them a sense that the government has a grasp of the kind of challenges facing the economy and is committed to doing something about them.”

Economic policy Economic policy in Zuma’s secondterm administration is focused on implementing a 20-year National Development Plan that seeks to cut the jobless rate to 14 percent by 2020 from 25 percent and boost the growth

He would want to give them a sense that the government has a grasp of the kind of challenges facing the economy and is committed to doing something about them Mzukisi Qobo, a politics lecturer at the University of Pretoria

South African president Jacob Zuma

rate to at least 5.4 percent.

The ANC has appealed for a more policy-driven plan from the government and more effort in resolving strikes that could cripple the economy.

The 102-year-old party “urges government to take decisive actions” and “speedily address uncertainties with respect to the policy and regulatory framework that deter investment,” it said in a June 14 statement. “We

appreciate the challenges ahead and have made the resolution of the current platinum strike as urgent and prerequisite for building confidence in the economy. Coupled with the proposed metal strike, the impact can be devastating on the economy.”

While the strike at platinum shafts owned by Anglo American Platinum Ltd., Impala Platinum Holdings Ltd. and Lonmin Plc may be nearing an

end, further labour unrest is brewing.

The National Union of Metalworkers of South Africa said its 200,000 members in the metal and engineering industries plan to strike from July 1, after employers refused to meet their demands for a 15 percent wage increase.

The rand has slumped 2.5 percent against the dollar this year, extending last year’s 19 percent plunge, while yields on benchmark government rand bonds maturing in December 2026 have risen 16 basis points to 8.41 percent.

Bloomberg News

15

June 18, 2014

Opinion Business

wires

Leading reports from Asia’s best business newspapers

The IMF’s false confession Ashoka Mody

Visiting Professor of International Economic Policy at the Woodrow Wilson School of Public and International Affairs at Princeton University and a visiting fellow at Bruegel

THE TIMES OF INDIA Anil Agarwal, chairman of Rs 78,000-crore (US$13 billion) Vedanta Resources … has been extremely pessimistic about the Indian business climate for a while now. But the decisive victory for the BJP in the recent elections has wiped most concerns and he is confident that Modi’s leadership will write a new chapter for entrepreneurship in the country. Particularly critical of environmental NGOs, he echoed the Intelligence Bureau’s concerns on their role as economic terrorists and expressed confidence that once all his stuck projects start operating, he alone would be able to contribute 1% to the country’s GDP.

VIETNAM NEWS While Viet Nam’s property market is sluggish, Thu Duc Housing Development Corp has decided to invest in agriculture business as a subsidiary to the major business line, company chairman Le Chi Hieu told the Doanh Nhan Sai Gon (Sai Gon Entrepreneur) newspaper. This year, the company will sign several export contracts of forestry products, worth over US$10 million each. Thu Duc has also been pushing the export of woodchips, materials that serve the paper industry, and cassava for making alcohol to Japanese companies.

THE PHNOM PENH POST The Ministry of Commerce has vowed to uncover more markets for Cambodian products to help buffer against price fluctuations caused by the Kingdom’s dependency on neighbouring countries.

In a response to concerns raised on social media, Commerce Minister Sun Chanthol wrote on the ministry’s official Facebook page on Saturday that the government is taking the issue seriously. He wrote that he has made official visits to countries, including Japan, Belarus, Myanmar, the Philippines, France and Canada to discuss buying and investing in Cambodian products, with a focus on agriculture.

THE JAKARTA POST Jakarta-listed PT Medco Energi Internasional announced on Monday that it had sealed an agreement on the acquisition of a number of assets in Tunisia.

Medco, through its subsidiary, Medco Tunisia Petroleum Limited, has signed an acquisition deal for a 100 percent stake in Storm Ventures International (Barbados) Ltd. (SVI) from Storm Ventures International (BVI) Ltd., a subsidiary of Toronto-listed Chinook Energy Inc. The US$114.03 million acquisition now makes Medco the shareholder of a company owning eight participation interests of oil and gas blocks in Tunisia.

IMF Managing Director Christine Lagarde (2-R) speaks to the media

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RINCETON – “Do I have to go on my knees?” the International Monetary Fund’s managing director, Christine Lagarde, asked the BBC’s Andrew Marr.

Lagarde was apologizing for the IMF’s poor forecasting of the United Kingdom’s recent economic performance, and, more seriously, for the Fund’s longer-standing criticism of the fiscal austerity pursued

by Prime Minister David Cameron’s government. Now endorsing British austerity, Lagarde said that it had increased confidence in the UK’s economic prospects, thereby spurring the recent recovery.

Lagarde’s apology was unprecedented, courageous, and wrong. By issuing it, the IMF compromised on an economic principle that enjoys overwhelming academic support: The confidence “fairy” does not exist. And, by bowing to the UK’s pressure, the Fund undermined its only real asset – its independence.

The IMF has dodged responsibility for far more serious forecasting errors, including its failure to anticipate every major crisis of the last generation, from Mexico in 1994-1995 to the near-collapse of the global financial system in 2008. Indeed, in the 6-12 months prior to every crisis, the IMF’s forecasts implied business as usual.

Some claim that the Fund counsels countries in private, lest public warnings trigger the very crisis that is to be avoided. But, with the possible exception of Thailand in 1997, the IMF’s long-time resident historian, James Boughton, finds little evidence for that view in internal documents.

The IMF’s Internal Evaluation

By bowing to the UK’s pressure, the Fund undermined its only real asset – its independence

Office is more directly scathing in its assessment of the Fund’s obliviousness to the US subprime crisis as it emerged.

Given that the IMF is the world’s anointed guardian of financial stability, its failure to warn and pre-empt constitutes a far more grievous lapse than its position on British austerity, with huge costs borne by many, especially the most vulnerable. For these failures, the Fund has never offered any apology, certainly not in the abject manner of Lagarde’s recent statement.

The Fund does well to reflect on its errors. In a September 2003 speech in Kuala Lumpur, then-Managing Director Horst Köhler conceded that temporary capital controls can provide relief against volatile

inflows from the rest of the world. He was presumably acknowledging that the Fund had it wrong when it criticized Malaysia for imposing such controls at the height of the Asian crisis. Among the countries hurt by that crisis, Malaysia chose not to ask for the Fund’s help and emerged at least as well as others that did seek IMF assistance.

Malaysia’s imposition of capital controls was a controversial policy decision. And even as the Fund opposed them, prominent economists – among them Paul Krugman – endorsed their use. In his speech, Köhler reported that the Fund had taken the evidence on board and would incorporate it in its future advice.

But in the current crisis, the academic evidence has overwhelmingly shown that fiscal austerity does what textbook economics says it will do: the more severe the austerity, the greater the drag on growth. A variety of studies confirming this proposition, including one by the IMF’s chief economist, Olivier Blanchard, have withstood considerable scrutiny and leave little room for ambiguity.

The two public voices arguing for the magical properties of austerity are official agencies based in Europe: the OECD and the European Commission.

The Commission’s stance, in particular, is animated by an institutional commitment to a fiscal viewpoint that leaves no room for evidence.

Among the G-7 economies, only Italy has done worse than the UK since the Great Recession began. Indeed, the UK’s GDP has only just regained its 2008 level, lagging behind even France.

This is all the more remarkable given that the crisis in the UK was comparatively mild. The fall in property prices was modest relative to Ireland and Spain, and, because there was no construction boom, there was no construction bust. Having missed the warning signs about the bank Northern Rock, which needed to be bailed out by the UK government after a run on its deposits in September 2007, the British authorities, unlike their Eurozone counterparts, quickly dealt with the economy’s distressed banks.

For these reasons, the UK should have had a quick recovery; instead, the Cameron government’s gratuitous austerity stifled it.

The IMF’s apology was a mistake for two reasons.

Thumbing one’s nose at scholarly evidence is always a bad idea, but it is especially damaging to an institution that relies so heavily on the credibility of its technical competence and neutrality. If the Fund embraces muddled economics, on what basis will it defend its policy advice?

Moreover, in choosing to flatter the UK’s misguided policy, the Fund has confirmed its deference to its major shareholders. For years, the view has been that the IMF is a foreign-policy instrument of the United States. The softness in its annual surveillance of UK economic policy has also been well known.

But in taking this latest step, the Fund has undermined – perhaps fatally – its ability to speak “truth to power.” If so, a fundamental question may well become unavoidable: Why does the IMF exist, and for whom?

The Project Syndicate 2014

16

June 18, 2014

Closing The world’s largest robot market

ECB extends US dollar facility

China bought one fifth of the world’s industrial robot output in 2013, overtaking Japan as the biggest buyer of such technology, new data showed yesterday. Some 36,860 industrial robots were sold in the Chinese market last year, up 36 percent on an annual basis, according to data released by the China Robot Industry Alliance (CRIA). Some 9,597 units came from domestic producers, while the rest of the market, around 73 percent, was gripped by foreign robot makers, the CRIA said. Sales revenue grows around 25 percent each year.

The European Central Bank said yesterday that it and other major central banks will continue to offer one-week US dollar funding beyond the end of July, continuing action to help the banking system. The ECB governing council, “in cooperation with the Bank of England, the Bank of Japan and the Swiss National Bank, has decided to continue to offer one-week US dollar liquidity-providing operations after July 31, 2014 until further notice,” it said in a statement. The dollar facilities were introduced during the financial crisis to enable banks to borrow US dollars.

U.K and China close gas deal Deals totalling US$30 billion will be announced in the next two days

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P Plc is to sign a US$20 billion deal to supply liquefied natural gas to China National Offshore Oil Corp., one of a number of deals announced as Chinese Premier Li Keqiang began a visit to the U.K. China Minsheng Investment Corp., the country’s largest privatesector investment group, will invest US$1.5 billion into industries including financial services, offshore engineering, new energy and environmental protection, and open its European headquarters in London, Prime Minister David Cameron’s office said in a statement.

Deals totalling US$30 billion will be announced in the next two days, according to China’s embassy in the U.K., as Li’s visit confirms the end of a three-year diplomatic freeze caused by arguments over human rights and Tibet. The U.K. is also aiming to begin talks on ending a 30-year-old Chinese ban on British beef and lamb exports.

“Before I came here, we used to say when we talk about Europe: Britain,

US$250 million

Nord Engine will announce 150 million pounds of funding to invest in small and medium-sized British and European companies

France and Germany,” Liu Xiaoming, the Chinese ambassador in London, told reporters on June 13.

“But unfortunately many opportunities were missed in the past year or so -and we all know the reason behind itso people now start talking about Germany, France and Britain.” He said he wants to

“set this order to its original setting.”

For its part, Britain said last night it will make it easier for Chinese visitors to apply for visas. Home Secretary Theresa May announced easier forms for visa applicants from China and an agreement to allow travellers from China or India

to come to the U.K. on an Irish visa.

Business complaints Improving the visa system was on a list of requests from the ambassador. While Chinese travellers can visit most European Union countries on a single visa, they need a

separate one to enter the U.K. “I receive complaints from businesses based here,” Liu said. “They have difficulties to rotate their senior executives because of visa restrictions.

So that made their operations more difficult than they are in other European countries.

Visa issues really erode British strength in terms of attracting more foreign businesses.”

Liu, who also said China wanted the U.K. to build a third runway at London’s Heathrow airport, held out the visit as an opportunity to reset relations between the two countries.

Nord Engine, a Chinese financial-services group, will announce 150 million pounds (US$250 million) of funding to invest in small and medium-sized British and European companies. The investment is among at least US$30 billion of deals in industries including energy and finance that Liu said will be signed during the visit.

In an article for the Times newspaper yesterday, Li said he wanted to change “misperceptions and misgivings” about his country.

OECD evaluates S.Korea’s New HK territories innovation plan bring controversy

Citigroup buys HQ in record deal

T

T

he Organization for Economic Cooperation and Development (OECD) yesterday spoke highly of South Korea’s three-year economic innovation plan, a signature economic policy of President Park Geun-hye in an evaluation report.

The OECD said that President Park announced the three-year economic plan, which played a leading role in achieving the second miracle on the Han River, in February, calling it a comprehensive plan involving bold structural reforms to overcome the crisis of low growth and expand growth potentials.

If the reforms proceed successfully as planned, South Korea will become the most advanced country, the Paris-based organization said, noting those reforms were consistent with policy recommendations the OECD sought to make in the report.

The three-year plan will focus on resolving structural and chronic problems inherent in the export-driven economy in the course of rapid growth.

The economic innovation plan aimed to raise the country’s potential growth rate to the 4 percent range and the employment rate to 70 percent, while lifting the per capita national income to US$40,000.

Xinhua

T

he northeast New Territories development plan is one of the Hong Kong government’s essential long-term measures to increase land supply and resolve Hong Kong’s housing shortage, CY Leung, chief executive of Hong Kong Special Administrative Region, said yesterday.

Leung said the government will provide appropriate compensation and assistance to local residents affected by the plan. It will take at least nine years to complete the first batch of flats in the area. Hundreds of protesters attended a demonstration held outside the LegCo Complex, calling for withdraw of the plan last Friday when the LegCo Finance Committee members were discussing the HK$340 million (US$43.87 million) funding involving the plan.

Some of the protesters tried to enter the complex and clashed with the Police. Committee chairman Ng Leung-sing ended the meeting due to security reasons. More than 20 people were arrested in the violence.

Leung said protesters’ complaints against Police at the LegCo last Friday will be handled according to existing procedures.

Xinhua

Bloomberg News

he bank will pay HK$5.425 billion (US$699.86 million) for its new Hong Kong headquarters, in the largest ever purchase of a single-block office building in the Asian financial hub, the U.S. bank said yesterday.

A unit of developer Wheelock and Co Ltd is building the twin One Bay East towers in Hong Kong’s Kowloon district, with Citi taking the East Tower and insurer Manulife (International) Limited already the West.

The 21-storey building will become Citi’s new hub for all its businesses in Hong Kong, where the U.S. bank said it employs almost 5,000 people, making it the biggest employer among foreign banks in the city.

Citi becomes the fourth major global bank to move its Hong Kong headquarters out of the city’s increasingly expensive Central district, to the Kowloon area across the harbour.

Credit Suisse Group AG, Deutsche Bank AG and Morgan Stanley have all moved from Central to the 118-floor International Commerce Centre in Kowloon in the last four years amid rising rents in Central.

Reuters