Macau Business Daily, June 27, 2014

MOP 6.00 Closing editor: Alex Lee Publisher: Paulo A. Azevedo Number 570 Friday June 27, 2014

20,000 in one year

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Year III

acau has employed 50 per cent more construction workers in the space of a year. The sector is close to being the third largest employed group in the SAR. Driven largely by the relentless construction of casino resorts in Cotai. If the sector hits 50,000 come the Summer, it will put wholesale and retail sector numbers in the shade PAGE 2

www.macaubusinessdaily.com

We want more

U.S. authorities visit Macau to check money flows from gambling

The Monetary Authority of Macau says it is investing wisely. And cites a more diversified investment portfolio for the city’s fiscal reserves. Legislators, however, are not happy with last year’s 3 percent return. They advocate bolder, riskier investment approaches. In April, the fiscal reserve investment sustained a 1.6 billion-pataca loss

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Casinos push HK stocks to biggest advance in six weeks PAGE 7

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Full steam ahead José Morgado, president of Banco Espírito Santo do Oriente (BESOR) has set his course. He told Business Daily that expansion plans here will not be affected by structural changes in Portuguese parent group BES. More affluent clients, new hirings and diversified products are on the BESOR agenda

HSI - Movers June 26

Name

Macau boosts Luk Fook Luk Fook jeweller posted a 43 percent increase in revenues in the financial year ended in March. Macau stores amassed HK$2.9 billion in sales, representing15 percent of the total PAGE 2

Gold bugs

Konnichiwa, says Caesars

Around US$15.2 billion in loans have been backed by falsified gold transactions.

China’s chief auditor disclosed yesterday what has been long suspected. Fraudsters used the difference between national rates and yuan appreciation to run a scam raking in hundreds of millions.

Caesars Entertainment is the largest casino operator in the U.S. And expects to spend at least $5 billion in Japan once the country opens up its gaming market. The Land of the Rising Sun is projected to be Asia’s second-largest casino market; but there will be plenty of home-grown competition

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%Day

Want Want China H

5.34

Sands China Ltd

4.00

Galaxy Entertainmen

3.66

China Mengniu Dairy

3.32

Sino Land Co Ltd

3.07

Bank of East Asia Lt

0.47

Henderson Land DeV

0.33

China Overseas Land

0.21

HSBC Holdings PLC

0.06

Lenovo Group Ltd

-0.96

Source: Bloomberg

I SSN 2226-8294

Brought to you by

2014-6-27

2014-6-28

2014-6-29

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June 27, 2014

Macau

50 percent more construction workers in one year The construction sector is close to being the third largest sector of employment here as the new flow of casino resorts in Cotai soaks up more workforce.

The number of construction workers in Macau is edging towards the 50,000 mark, trumping the wholesale and retail sector in the summer.

Sara Farr

sarafarr@macaubusinessdaily.com

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ome 48,300 people were employed in the construction sector between February and April, up 6.1 percent compared to that of the previous three months.

Official figures released by the Statistics and Census Service reveal that employment in the construction sector is increasing faster than that of other sectors, the numbers for which remained largely the same throughout the last four quarters. In the first quarter of 2013, the total employed in the construction sector reached 30,200. That number at the end of the first quarter this year stood at 43,900, an increase of around 45 percent.

Macau’s unemployment rate stood at 1.7 percent between February and April

this year, unchanged from that of between December and February, as did the underemployment rate at 0.4 percent.

Around 73.3 percent of the population was employed at the end of April, slightly down by 0.3 percent from 73.6 percent in the previous three

business as usual

Requiem for values and morals

months. Macau’s labour force participation was 381,100 with those registered as unemployed totalling 6,400.

The gaming industry

continued to be the primary sector of employment for the workforce here, employing as many as 81,600 people.

While this number was down by 3 percent from that of the previous period, and while employment in the retail trade fell by 2.1 percent and restaurants another 2.3 percent, employment in the construction sector weighed out the difference.

Employment in the hospitality industry - accounting for 26,300 of the total labour force - also slightly increased 1.1 percent. Macau’s unemployment rate remains at an historic low. In 2011, the unemployment rate was 2.6 percent, a year later that number fell to 2 percent, and fell further to 1.8 percent at the end of last year.

Luk Fook revenues up 43pct The jeweller has posted record-high revenues of HK$19.2 billion in the year ended March, with the Macau market responsible for 15 percent of the total Sara Farr

sarafarr@macaubusinessdaily.com

Paulo A. Azevedo pazevedo@macaubusinessdaily.com

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uite an interesting week. Or maybe not. Just a confirmation, if one was needed, that the ‘One System’ is getting stronger, while the second is slowly making its way out the door.

The firing and suspension of academics by two local universities only serves to show that our academia is lagging light years behind those international institutions that really care about the development of the societies of which they are a part.

Not so much the firings but the motives behind these acts, is of particular concern. Let’s forget the fact that the University of Macau is highly dependent upon government money and that the University of St. Joseph appreciates the millions received from the public coffers as well, without which their new campus would never have been built.

Political intervention by academics is fundamental to the growth of the public conscience.

In the normal course of events, academics are criticised for not participating enough in the debates raging in their own society. Now, however, they know that they shouldn’t speak up at all. They realise that they must keep their mouths shut if they value their jobs.

A brief remark to the University of St. Joseph’s rector about the “non-interference rule” that the church (the Catholic one, under which USJ exists) is supposed to follow. We all know that is not true. Quite the opposite, in fact, and there are plenty of examples. But I guess we’re living in profitable times, where values and morals are reduced to the weakest link.

PS: Macau Foundation shelled out over a billion patacas last year in subsidies. The biggest slice, or almost 36% of the money, found its way to the education sector.

Does anyone (really) care?

Pac On ferry terminal is in delay mode again, with the final cost anyone’s guess. Doesn’t matter, it seems, because in the end hardly anyone will care if any of our Commissioners produces a report and recommendations that have no impact since their remarks are non-binding.

We probably should consider ourselves lucky. At least someone is actually saying the terminal will be ready by year-end. Yes, we know they’ve said that already four or five times before and that delays pile up. So the final bill continues to grow. At least they say something. It could be worse. The metro project, for example, continues to be a mystery, even to the people driving it, and the new prison represents nothing but a great wall of silence.

My father was right: being a journalist was definitely a bad career choice. What I would not give to hop aboard the contractor/sub-contractor gravy train…

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uk Fook Holdings (International) Ltd recorded revenues of HK$19.2 billion in the 12 months leading up to April this year. The company’s annual report shows this is a 43.3 percent increase over that of the same period a year earlier.

Macau and Hong Kong remained the group’s primary source of profit, accounting for 62.2 percent of the total revenue at HK$11.96 billion. Revenue from Macau alone amounted to HK$2.9 billion in 2014 over that of the same period a year prior, and representing a growth rate of 64.8 percent. The Macau market alone accounted for 15 percent of the group’s total revenue.

Gross profit was also up by 48.9 percent to HK$4.2 billion in 2014 from HK$2.8 billion in 2013, while overall profit for the year was of the order of HK$1.88 billion, up 49.8 percent from HK$1.2 billion a year ago.

The jewellery company said in its annual report that gold prices dropped sharply in April and June last year, ‘triggering gold rushes.’

Even after the ‘gold rush’, the price of gold remained relatively low, hence ‘the subsequent demand for gold continued to grow for quite

some time,’ the annual report reads.

The gross profit margin for gold products was 11.9 percent compared to 10.3 percent a year ago, still within what the company deems a ‘normal level.’

In addition, the gross profit margin of gem-set jewellery increased to 37.4 percent this year from 34.2 percent in 2013. The growth sales of gem-set jewellery along with its gross profit margin made it the largest contributor to the overall increase in profit.

Mainland Chinese visitors continued to be the major driver in retail business in Hong Kong, the group’s annual report reads.

Earlier this month, Luk Fook acquired a 50 percent stake in China Gold Silver Group Co Ltd, a wholly-owned subsidiary of Hong Kong Resources Holdings Co Ltd that retails and franchises gold and jewellery in Macau, Hong Kong and mainland China under the brand name 3D-Gold. The acquisition was made for HK$245 million, according to a company filing.

The company has a total of 1,268 shops around the world, including 186 in mainland China, 45 newly opened in Hong Kong and 10 in Macau.

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June 27, 2014

Macau

BESOR strategy unaffected by parent group changes The Portuguese group that owns Bank Espírito Santo do Oriente is going through a deep restructuring phase with a new board on the way. Changes will not affect bank operations in Macau, the BESOR president told Business Daily Alex Lee

Alex.lee@macaubusinessdaily.com

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he Portuguese Banco Espírito Santo (BES) group is going through structural changes, as the chief executive officer, Ricardo Salgado, is to step down next month.

However, such changes are not going to affect Banco Espírito Santo do Oriente (BESOR), Macau’s financial institution owned by the Portuguese group.

“For Bank Espírito Santo do Oriente, it is going to be business as usual. The changes taking place in Portugal are not going to affect us and we will continue to implement our project to expand our activities in Asia,” José Morgado, the president of BESOR, told Business Daily.

Since the beginning of the year, BESOR has been expanding its activities in Macau and implementing a market strategy more focused on affluent clients. As part of this decision, the bank is hiring, and installing a new system for its computers and offering

HK newcomer joins local property development market

more products to its clients.

“The process is not going to stop.

It was approved one year ago and everything is going according to the initial plan. There is an unequivocal strategy from BES to bet on BESOR,” Mr. Morgado said. “BESOR is changing so it will offer more services to its clients but also to take full advantage of its position in the Asian market,” he added.

The next BES board will be elected

on July 31 during an extraordinary shareholders meeting. Ricardo Salgado’s decision to step down follows months of tension within the Espírito Santo family over who should succeed him and the disclosure of accounting irregularities at Luxembourg-based Espírito Santo International, parent company of the family holdings.

According to the Portuguese press, Amilcar Morais Pires, Chief Financial Officer, is the main candidate to assume the position of CEO of BES. If so, he will be the first leader of the bank unrelated to the Espírito Santo family. This notwithstanding, the election of a new Executive Chairman is not expected to bring changes to the leadership of BESOR. “I have no information about changes in BESOR’s leadership. Our strategy was defined having me as the President and so I am focused on implementing the new BESOR strategy,” Morgado said.

ong Kong-listed property investor CSI Properties Ltd is now looking for “all sorts of property development opportunities” in Macau, the company’s chairman Mico Chung Cho Yee remarked on Wednesday. CSI Properties Ltd has already established an office in Macau, noting that the city will be a primary target for the company’s property development in the coming one to two years, executive director Jimmy Fong Man Bun told media at the annual results press briefing on Wednesday.

CSI Properties Ltd has been active in property development projects in Hong Kong and Shanghai but saw its profit attributable to shareholders decline to HK$815.5 million (US$105 million) for the year ended March 31, 2014 from the HK$902.7 million reported in the previous financial year due to a decrease in profits from property sales.

For the past financial year, the company has referred to the stamp duty measures in Hong Kong and China’s property market reform policies as ‘challenging’ to its operation.

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June 27, 2014

Macau

Legislators dissatisfied with fiscal reserve returns Legislators are still dissatisfied with the 2013 fiscal reserve return rate lagging behind the inflation rate of 5.5 percent Stephanie Lai

sw.lai@macaubusinessdaily.com

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lthough the Monetary Authority of Macau has sought a more diversified investment portfolio for the city’s fiscal reserve for the past year, legislators have expressed dissatisfaction with its return rate of 3 percent, and urge bolder investment approaches.

As stated in the annual report released in late March, the Monetary Authority noted the annualised rate of return was 3.02 percent for its unaudited fiscal reserve of 168.9 billion patacas (US$21.14 billion) by the end of 2013, notably boosted by investment in onshore yuandenominated bonds.

“The government has explained that the average returns rate of fiscal reserve [at 3 percent] reached so far is still above the average inflation rate spanning across the period from the handover year [1999] to 2013, which is at 2.3 percent,” said president of the Legislative Assembly’s special committee on public finance Mak Soi Kun yesterday, after leading the first-ever sub-committee meeting with the Monetary Authority to discuss the fiscal reserve returns of last year.

In a reply dated May 29

to legislator Ho Ion Sang’s written enquiry, the Monetary Authority stated that it has been able to enjoy an improved investment return rate for 2013 by introducing more diversified investment instruments, following the fact that the fiscal reserve has been boosted by the 2011 public budget surplus transferred in January for that year.

“But the committee members are not really satisfied with the investment returns [for 2013], as nominally speaking the returns rate is still behind the inflation rate that residents have been feeling.” said Mr. Mak. Official statistics show that the inflation rate for 2013 was 5.5 percent.

The legislator added that his fellow committee members have suggested the government further diversify its investment portfolio by investing in SinoPortuguese trade, or even the trade opportunities in Hengqin and Guangdong province, such as in their property business, for better mid and long-term gains.

“Towards this suggestion, the government noted that it will have a detailed analysis and respond to us later,” said Mr. Mak.

Legislators on the committee asked the government to mull over the suggestion of including representatives from “successful entrepreneurs” to join the Fiscal Reserve Advisory Committee, an act to raise voices on a more strategic investment portfolio.

The Monetary Authority also mentioned that a loss of about 1.6 billion patacas was registered for the fiscal reserve investment by April 30 this year.

“The government has explained that the recent fluctuations of yuan has accounted for this loss,” Mr. Mak explained yesterday

following the closed-door meeting with the Authority, “But in terms of which financial instrument that this loss is mainly generated by, this information is not available yet and we’ll continue to follow up on that.”

The latest gazetted report from the Monetary Authority shows that by April 30 the government held a fiscal reserve totalling 240 billion patacas, of which the portion in bonds amounted to 116 billion patacas, or 48 percent of the total fiscal reserve value.

The bonds investment

value of the fiscal reserve has grown from about 102.3 billion patacas from early this year to 117.8 billion patacas by the end of May, Mr. Mak said, revealing the updated figures yesterday.

The Monetary Authority has noted in its legislator’s enquiry reply that it has recently enhanced the proportion of investing in grade bonds issued by public corporations and financial institutions which has improved the overall bond yields for the fiscal reserve, although the reply has not been supported by concrete figures.

City’s mainland investments power on Mainland China last year remained a favourite with the city’s investors in terms of overseas investment in securities, with long-term debt still preferred.

Aries Un

newsdesk@macaubusinessdaily.com

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acao residents’ external investment in securities has set another record, reaching as much as 391 billion patacas (US$48.97 billion) last year. Mainland China remains in the leading position for the city’s residents’ security investments, according to the 2013 Coordinated Portfolio Investment Survey.

The 49.1 percent year-on-year increase of the city’s portfolio investment abroad was mainly boosted by the government’s Fiscal Reserve and its provisional portfolio, which was launched in February 2012, according to the survey.

Long-term debt, valued at 203.8 billion patacas, still remains the largest slice of the pie enjoying a 73.3 percent growth compared to that of last year.

Mainland China saw a significant year-on-year growth of 92.9 percent in

the country’s investment in securities issued by entities there, amounting to 178.7 billion patacas.

However, Hong Kong suffered a slight drop of 2.6 percent in that regard, falling from 32.4 percent a year earlier to 29.8 percent at the end

of 2013 in spite of a market value increase of 36.9 percent.

The survey found that European securities saw their share fall from 14.2 percent to 8.7 percent with its corresponding market value standing at 34.2 billion patacas.

Luxembourg continued to take the biggest share among all European countries, with its market value rising 59.6 percent to 13.6 billion patacas.

Other European countries such as England, France and the Netherlands also experienced decreases in market value of investment at 12.4 percent, 38.4 percent, 27.3 percent and 69 percent, respectively.

For various jurisdictions in the North Atlantic and Caribbean, market values enjoyed a remarkable increase, driving the total market value of investment in that region by 46.8 percent year-on-year to 30.5 billion patacas.

The survey also reported a notable 3.8 percent year-on-year increase of market value of Macao residents’ investment in US securities despite the corresponding share sliding from 3.5 percent a year earlier to 2.4 percent at end-2013.

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June 27, 2014

Macau Brought to you by

HOSPITALITY Tweaking trends There is renewed talk about limiting the number of visas for travel to Macau. The current number of visitors is perceived as close to, if not above, the city’s carrying capacity, so to speak. There have been similar attempts before. On a few occasions after early 2007, the period between two consecutive requests for an individual visa were extended, thus effectively reducing the total number of visits that a Chinese citizen could make under the individual visa scheme. They don’t seem to have resulted in any measurable reduction of the total number of visitors or even its growth rate. The adjustment currently under consideration is expected to be small.

Certainly, any effort to control and limit the flow of visitors will have to target mainland visitors, currently standing at around twothirds of the total.

Two tourist coaches per one public bus The number of shuttle buses is double that of public buses, according to official numbers from the Transport Bureau

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The chart shows, since the beginning of 2012, the evolution in the monthly number of visitors from China. Same-day visitors, who typically stay just a few hours in town, represent the highest number of visitors. As a rule, they amount to around 52 percent of the total number of Chinese visitors and mostly originate from Guangdong.

The number of visitors under the IVS scheme follows a similar pattern and its figures are often quite close to those for Guangdong. There is, therefore, a visible correlation between the number of visitors from that province, the number of visitors with individual visas, and the total number of visitors from China. Although absolute figures are still rising, the shares of both Guangdong and IVS visitors as part of the total have been stable or even slightly declining in the last year. The restrictions, if adopted, may be confirming existing trends.

765,391

monthly average of visitors under IVS, this year to May

here is double the number of tourist coaches than public buses. According to official figures obtained from the Transport Bureau, a total of 1,698 tourist coaches currently ply the roads of Macau. These numbers, last updated at the end of April, include shuttle buses and buses used by package tour agents.

By contrast, as at the end of April some 801 public buses serviced the general public. The Transport Bureau said that the increase in the number of tourist coaches is primarily driven by the increase in visitor numbers.

The Bureau said it is ‘paying close attention’ to the impact that the increase in number of vehicles is having on road traffic conditions here.

Macau’s 2010-2020 policy on road traffic proposes a control measure on

the increase of tourist coaches.

In addition, a working group has been set up - comprising members of the Finance Services Bureau and the Macau Government Tourist Office to find the ‘best way’ to utilise these tourist coaches.

One of the problems that the general public complains about the most is the ‘excessive’ number of shuttle buses on the roads, which not only congest traffic but pose a safety risk to both pedestrians and traffic.

There is an environmental issue, as well. Studies show that gas emissions are one of the biggest sources of pollution in the territory.

And different neighbourhood groups have called on the government to take steps to reduce the number of vehicles circulating the roads, mainly tourist coaches.

In 2010, there were 1,451 tourist coaches in Macau. This number increased to 1,507 a year later and to 1,592 in 2012. Between 2010 and today, the number of tourist coaches has increased 17 percent, according to figures from the Transport Bureau, which emphasised that travel agencies need to request prior permission from authorities before purchasing any such vehicles.

In terms of public buses, there were only 553 at the end of 2010.

At that time, the number of private buses was almost triple that of public buses. While the gap has shrunk in recent years, especially since the new public bus service network came into operation, there has also been an increase in the overall number of vehicles in the territory. exclusive JTM/Business Daily

AMCM to quash speculation in Zodiac notes

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he Monetary Authority of Macao is planning to amend the current regulation of the monetary issuance system to establish a full criterion on specific currency flow and the relationship between the two note-issuing banks to stop the speculation in zodiac banknotes, said Mr. Anselmo Teng Lin Seng, chairman of AMCM. Zodiac banknotes were released for circulation but were speculated in or collected by residents. Mr. Teng admitted that the Authority had not predicted this situation. He also said that the Authority would need to analyse the conventional situation of currency supply in Macau as well

as conducting detailed research before providing exact content on the amendment.

No timeframe has been set for the amendment according to Mr. Teng.

He only revealed that they were doing their best to study how to detail the current simple regulation.

Zodiac banknotes were first released in 2012, the Year of the Dragon in the lunar calendar. They were supposed to be used by residents to put inside red lai see packets during Chinese Lunar New Year as a special blessing. Crazy speculation in the dragon notes appeared unexpectedly.

Registration is currently open to residents for both 2014 and 2015’s

zodiac banknotes – featuring the horse and goat - until 11 July. This is the first year that the Authority has jointly released zodiac notes for two different years. Mr. Teng said that he was not in a position to confirm if this joint release would become routine; it would depend on this year’s situation, he said.

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June 27, 2014

Macau

Casinos push HK stocks to biggest advance in six weeks Hong Kong stocks rose, with the benchmark index heading for its biggest advance in six weeks, as casino companies led gains.

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asino operators Sands China Ltd. and Galaxy Entertainment Group Ltd. both climbed yesterday at least 3.8 percent. Luk Fook Holdings International Ltd. climbed 2.9 percent when profit at the jewellery maker topped estimates.

Shandong Longda Meat Foodstuffs Co., Wuxi Xuelang Environmental Technology Co. and Feitian Technologies Co., the first mainland listings in four months, halted trading in Shenzhen after each soared 44 percent.

The Hang Seng Index climbed 0.9 percent to 23,079.27 at the break in Hong Kong, heading for its biggest advance since May 14. All but five shares on the 50-member gauge rose.

The Hang Seng China Enterprises Index, also known as the H-share index, added 1 percent to 10,283.29.

“The bulls have returned to global equity markets in full force,” said Mikio Kumada, a Hong Kong-based global strategist at LGT Capital

Partners. “There is little reason to worry too much about the ongoing summer rally ending prematurely.”

The benchmark Hang Seng Index (HSI) lost 1.9 percent this year through yesterday, the thirdbiggest decline among developed equity markets tracked by Bloomberg, amid speculation China will miss its economic expansion target. The measure was valued at 10.6 times estimated earnings at the last close, compared with 8 for the Shanghai Composite Index and 16.5 for the Standard & Poor’s 500 Index.

China IPOs Shandong Longda, Wuxi Xuelang Environmental Technology and Feitian Technologies were the first mainland IPOs since February. Firstday gains for today’s listings will be capped at 44 percent from their offer prices. The securities regulator said in May that it plans to allow about 100

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Small Caps The E Fund ChiNext Price Index added 2 percent yesterday. The exchange-traded fund of the nation’s small-cap stocks has delivered the highest risk-adjusted return among 23 Chinese ETFs in the past four years as a 67 percent gain through

Caesars Ready to Invest $5 Billion in Japan Casino aesars Entertainment , the largest operator of casinos in the U.S., said it expects to spend at least $5 billion in Japan once the country opens up what’s projected to be Asia’s second-largest casino market.

“I think there’s a chance that we will be in the right place later this year,” Chief Executive Officer Gary Loveman said in a Bloomberg Television interview in Tokyo yesterday. “You will be looking at investment levels at least consistent with what we’ve seen in Singapore so I would guess at least 5 billion dollars if not more.”

Caesars is among global casino operators such as Las Vegas Sands Corp. (LVS) and MGM Resorts International seeking to build resorts in Japan, once they’re allowed to by the government. After a decade of discussions, Japanese lawmakers this

IPOs from June through the end of the year. The H-Share Index yesterday fell to a one-month low amid concerns the mainland share sales would divert funds from existing equities.

“New shares will be the major play for the market for a while,” said Wei Wei, an analyst at West China Securities Co. in Shanghai.

“Valuations that are lower than rivals provide adequate reasons for buying into them.”

Casino operators rebounded from this month’s lows even after Macau’s finance secretary said jewellery and watch retailers in gaming houses won’t be allowed to add payment card devices. Sands China jumped 4.2 percent, reversing this month’s loss. Galaxy climbed 3.8 percent.

Macau’s clampdown on the use of China UnionPay Co.’s debit cards on gaming floors has already been priced in, according to UOB Kay Hian Ltd.

month debated a bill to legalise casinos in the world’s third-largest economy.

Japanese Prime Minister Shinzo Abe told Bloomberg News this week that his ruling party will, during parliament’s next session in Autumn, seek to pass a law legalising casinos, as part of a plan to boost tourism before the Tokyo Olympics in 2020.

The bill was submitted last December by a cross-party group of lawmakers that included members of the ruling Liberal Democratic Party.

The Las Vegas-based company would also consider publicly selling shares in Japan, Loveman said.

Japan’s casino market could be worth as much as $40 billion a year as early as 2025, making it Asia’s largest after Macau, according to estimates from CLSA Ltd, a Hong Kong-based brokerage.

Bloomberg

yesterday outweighed the highest volatility. The 50 smallest IPOs in that period have surged an average 151 percent, while larger deals posted a 22 loss, according to data compiled

by Bloomberg.

Amundi Asset Management Asia is selling Hong Kong shares as valuations of Chinese stocks are “very cheap” and money will start flowing back as economic data shows more positive signs, Chief ex-Japan Investment Officer Ayaz Ebrahim said in a briefing yesterday.

Futures on the S&P 500 were little changed yesterday. The U.S. equity gauge added 0.5 percent yesterday as investors speculated the economy is recovering from a firstquarter contraction and Monsanto Co. announced a $10 billion stock buyback plan.

U.S. orders for business equipment climbed in May, a sign that corporate investment is helping revive the economy. Combined with job gains, the data underscores the view of Federal Reserve policy makers that the recovery is intact and that there is less need for stimuli. Data yesterday showed U.S. gross domestic product shrank 2.9 percent in the first quarter, the worst reading since 2009.

Bloomberg

8

June 27, 2014

Macau

IRS agents visit Macau U

.S. authorities are ramping up their investigation into money flows from gambling hotspot Macau to ensure that U.S. casinos with operations here are not used as conduits to funnel crime proceeds from Asia and elsewhere into the U.S. financial system.

Agents of the U.S. Internal Revenue Service’s criminal enforcement unit travelled to Macau last month to gather information, two sources familiar with the matter said. An IRS spokesman declined to comment on Wednesday.

The sources, speaking on condition of anonymity, said Adam Steiner, a supervisory special agent with Internal Revenue Service-Criminal Investigation (IRS-CI), acknowledged the Macau trip at an anti-money laundering conference in Las Vegas on June 12. The media were excluded from the room during the agent’s remarks.

The U.S. Treasury Department’s anti-money laundering unit has also been closely examining money flow from Macau casinos.

It was unclear if IRS-CI was

probing the operations of one or more U.S. casinos in Macau for possible criminal prosecution for failing to police transactions for money laundering activity, although former federal law enforcement officials with experience conducting such investigations said earlier this week that that was a possibility.

Las Vegas Sands Corp, Wynn Resorts and MGM Resorts International entered the Chinese territory over a decade ago. These companies on Wednesday did not immediately respond to requests for comment.

The goal of the agents’ trip may have been to audit transactions flowing from Macau to U.S. casinos since strict privacy controls in Macau would have made it difficult for IRSCI to access financial documents from the United States, one former law enforcement official with experience tracking casino money said this week.

Macau, a tiny former Portuguese colony that is now a Special Administrative Region of China, is the only place in China where citizens can legally gamble in casinos. Annual revenues reached US$45 billion in 2013.

U.S. Treasury officials have publicly expressed concern that funds of murky origin may be flowing from Macau to Las Vegas to fund gambling

by Chinese high-rollers, which could facilitate the laundering of large sums if U.S. casinos lack proper controls to detect suspicious transactions.

IRS-CI’s Steiner delivered a warning at the conference regarding the importance of such controls and the threat of civil or criminal penalties against casinos lacking them, some of the original sources who were in the room said.

Speaking at the same conference, Jennifer Shasky Calvery, director of Treasury’s Financial Crimes Enforcement Network, said that regulations require U.S. casinos to vet money sent from affiliated casinos or gambling facilitators known as junket operators in Macau.

“In these situations, you need to be concerned about potentially illicit sources of funds issues and the strength of [anti-money laundering] controls in the originating overseas jurisdiction,” Calvary said during a keynote speech.

Reuters

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June 27, 2014

Greater China

Billionaire loans backed by false gold trades revealed Twenty-five bullion processors made a combined profit of more than 900 million yuan by using the loans to take advantage of the difference between onshore and offshore interest rates

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hina’s chief auditor discovered 94.4 billion yuan (US$15.2 billion) of loans backed by falsified gold transactions, adding to signs of possible fraud in commodities financing deals.

Twenty-five bullion processors made a combined profit of more than 900 million yuan by using the loans to take advantage of the difference between onshore and offshore interest rates, and the appreciation of Chinese currency, according a report on the National Audit Office’s website. China is the biggest producer and consumer of gold.

Public security authorities are also probing alleged fraud at Qingdao Port where the same stockpiles of copper and aluminium may have been pledged multiple times as collateral for loans. As much as 1,000 tons of gold may be tied up in financing deals in China, in which commodities including metals and agricultural products are used to get credit amid restrictions on lending, according to World Gold Council estimates through 2013.

“This is the first official confirmation of what many people have suspected for a long time that gold is widely used in Chinese commodity financing deals,” said Liu Xu, a senior analyst at Capital Futures Co. in Beijing. “Any scaling back by banks of gold-backed financing deals might lead to a short-term reduction

Bloomberg News

An ancient Chinese gold bar

in Chinese imports and also spur some sales by companies looking to repay lenders.”

Gold price The global flow of gold from west to east that’s helped to make China the world’s largest user will probably last for as long two decades as rising incomes spur demand, according to the China Gold Association.

Mark To, head of research at Wing Fung Financial Group in Hong Kong,

said the audit office’s report is unlikely to have a significant impact on the underlying demand for gold in China.

Steps by the Chinese government to rein in credit and inflation by raising borrowing costs since 2010 created a surge in the use of commodities as a means of getting access to cash from abroad.

These deals are worth US$81 billion to US$160 billion, according to projections by Goldman Sachs Group Inc., accounting for as much as 31 percent of the nation’s short-term,

China-Venezuela links celebrate 40 anniversary th

In 2013, China and Venezuela signed 12 accords, including one to establish a new and alternative means of financing the China-Venezuela Fund

The two countries strengthened links during the tenure of now-deceased President Hugo Chavez (pictured)

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hina and Venezuela have been engaged in integral cooperation to promote the establishment of a multilateral world, Venezuela’s renowned economist

foreign currency loans.

The National Audit Office’s report was delivered by its chief, Liu Jiayi, at a National People’s Congress meeting June 24 and posted on the office’s website. The report covers a period beginning in 2012 and doesn’t specify an end date. It doesn’t identify companies or banks.

An official in the media department of the audit office asked for inquiries to be faxed when contacted today.

There was no immediate response to faxed questions.

The investigation at Qingdao focuses on a company called Decheng Mining and its owner, Singaporean national Chen Jihong, according to two bankers assisting with the probe by public security officials.

Jihong has been detained, according to Singapore’s foreign ministry. He is also involved in a separate inquiry in north-western Gansu province, said the bankers, who asked not to be identified because they’re not authorized to speak publicly.

Judith Lopez Guevara told Xinhua on Wednesday ahead of the 40th anniversary of bilateral ties.

The two countries developed a strategic outlook on advancing toward

a multilateral world during the reign of late Venezuelan President Hugo Chavez, said Lopez, who is also president of Venezuela’s National Institute for Women.

China has become one of Venezuela’s main trading partners based on a relationship of mutual respect and mutual benefit, marked by the creation of mechanisms to promote joint development, she said.

The China-Venezuela ties promote equality, respect and exchanges, instead of competition, and have a large social component, Lopez added.

In 2013, China and Venezuela signed 12 accords, including one to establish a new and alternative means of financing the China-Venezuela Fund, and one to create a joint venture for the development of the Junin 1 Field in Venezuela’s oil-rich Orinoco Belt.

The two nations also signed an accord to undertake a mining survey of the South American country, including a feasibility study for the development of the Las Cristinas gold mine in southern Bolivar state.

“Thanks to these ties with China,

This is the first official confirmation of what many people have suspected for a long time - that gold is widely used in Chinese commodity financing deals Liu Xu senior analyst Capital Futures

we can say that Venezuela is on the path to a strategic alliance that breaks with the schemes of the hegemonic powers that subject countries with their military and economic might,” said Lopez.

The ties between China and the Community of Latin American and Caribbean States (CELAC) can also play a fundamental role in the development of global cooperation, in leaving behind a unilateral world order controlled by monopolistic powers, added the economist.

Xinhua

Venezuela is on the path to a strategic alliance that breaks with the schemes of the hegemonic powers that subject countries with their military and economic might Judith Lopez Guevara economist

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June 27, 2014

Greater China

Small commodity traders at risk Faced with tougher bank requirements for financing, they could sell down stockpiles, squeezing demand for metals and other raw materials

A

warehouse fraud at China’s third-largest port has forced banks and trading houses to consider new controls in the country’s massive commodity financing business, which traders say could lead to drying up of credit for all but large firms and state-owned companies.

China’s commodities trading is dominated by the large and stateowned companies but there are thousands of small firms in the market. Faced with tougher bank requirements for financing, they could sell down stockpiles, squeezing demand for metals and other raw materials such as rubber in the world’s biggest consumer of commodities.

Any new requirements would also ratchet up the risk that customers who do not regain credit lines may default on payments for services such as hedging, or for imports.

“The fear is not so much about the big boys, but some of the other smaller, newer players, who may have only been in this commodity financing game for the last 2-3 years,” said Jeremy Goldwyn, a director with commodities broker Sucden in charge of Asia business.

“If all of a sudden the tap is turned off to them, they might have more of a crisis. Is it having an effect on the market? Yes, people are very nervous.

We obviously have a lot of business in China so we are watching it very closely,” he said.

According to sources, Standard Chartered Bank has suspended some commodity financing deals in Qingdao port after authorities there launched a probe into a private trading firm, Decheng Mining, that is suspected of duplicating warehouse certificates to use a metal cargo multiple times to raise financing.

For Western banks such as Standard Chartered, HSBC and BNP Paribas, which are restricted

term copper shipments if they cannot receive letters of credit or if they can’t find a bank to do inventory financing,” said a trader at a large international trading house.

The fear is not so much about the big boys, but some of the other smaller, newer players, who may have only been in this commodity financing game for the last 2-3 years Jeremy Goldwyn director commodities broker Sucden

Standard Chartered Bank has suspended some commodity financing deals in Qingdao port after authorities there launched a probe into a private trading firm

in the domestic loan market in China, the metals financing business is a lucrative alternative but the Qingdao scandal has renewed focus on counterparty risk.

Goldman Sachs estimates that commodity-backed deals account for as much as US$160 billion, or about 30 percent of China’s shortterm foreign-exchange borrowing.

Besides metals, the banks are

now taking a fresh look at loans backed by other commodities such as iron ore, soybeans and rubber, fuelling concerns that any drying up of credit could spark a series of defaults on trade loans, or force other cash-strapped firms to cancel term shipments in the second half of this year.

“In the next two months, some smaller companies may default on

As they review their commodity lending business, some foreign banks are considering measures such as getting finance guarantees from Chinese banks for letters of credit issued to local firms and taking on insurance with more comprehensive coverage, bank sources said.

“If we are signing contracts with their Singapore or Hong Kongregistered company, we may also start demanding guarantees from the Chinese parent,” said an executive at a Western bank affected by the port scandal.

Reuters

Regional industrial shifts to boost China growth China to transfer some industries to western and central regions from the coastal areas

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hina’s industries are shifting from the advanced east to landlocked west and central regions, with the government vowing to build on this to boost the economy.

The industrial shifts will help improve urbanization in central and western regions and enrich less developed areas, allow for employment and growth, and upgrade the Chinese economy, said Premier Li Keqiang at a State Council executive meeting he presided over on Wednesday.

During his visits to Africa and Europe in May and June, Li found that employment was high on the agenda for many countries. Jobless rates have been high in Europe, the United States and developing countries.

For China, it is important to safeguard employment in central and western regions, he said.

In the past 30-plus years, farmers have been flowing from the west to coastal areas for factory jobs. But those areas are now less competitive due to rising labour costs after years of growth.

A way-out is to transfer some industries to western and central regions, Li said. But enterprises should by no means be forced into doing so. Companies should be attracted by low costs and a good business environment, the premier said.

Li cited an example he saw during his visit in Wanzhou District in southwest China’s Chongqing in April.

A manager of an e-commerce company told him that the business was first headquartered in Beijing, with an employee’s salary at about 8,000 yuan (US$1,311) per month.

After the company moved to Wanzhou, an employee’s wage went down to less than 3,000 yuan per month.

Despite this, the manager complained about Wanzhou’s insufficient infrastructures.

Li stressed infrastructure construction in western and central regions, saying that it would help improve the business environment and create opportunities.

Li also highlighted environmental protection during industrial shifts.

Niu Li, an economist at the State Information Centre, a government think tank, told Xinhua that the government should adopt policies to avoid over-capacity or damage to the environment during regional industrial shifts.

China’s gross domestic product (GDP) rose 7.4 percent year on year

Premier Li(L) with Greek Prime Minister Antonis Samaras (R) last week. On his last trip he found that employment was high on the agenda for many European countries

to 12.82 trillion yuan in the first quarter. Second quarter data is due on July 16.

The government has set this year’s economic growth target at about 7.5 percent. Premier Li has said that as long as there is sufficient employment and there are no major fluctuations, actual GDP growth will be considered to be within the proper range, even if slightly higher or lower than the target.

Xinhua

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June 27, 2014

Greater China

Merchants Securities gets UK nod for commodity risk business

External financial assets surpass US$6 trln

The company plans to initially offer commodities risk management services to meet demand within China to hedge global natural resources price risks

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he firm, one of China’s top five investment banks, has been approved by UK regulators to broker listed derivatives as it aims to build up a commodities business in the planned offshore yuan-clearing hub, the bank said.

China Merchants Securities (UK) Limited plans to initially offer commodities risk management services to meet demand within China to hedge global natural resources price risks, while aiding the internationalisation of the yuan, its Chinese parent said in a statement on its website dated June 23.

“It would then gradually extend to become a comprehensive investment bank”, focusing on offshore yuan and cross-border initiatives between China and the Europe, Middle East and Africa (EMEA), the bank said.

The bank plans to hedge via the London Metal Exchange (LME) Intercontinental Exchange Europe (ICE), London Bullion Market Association (LBMA), and the London Platinum and Palladium Market (LPPM).

China’s Premier Li Keqiang, on his first official trip to Britain since taking office, said last week that Chinese banks will further expand their businesses in Britain, naming China Construction Bank as the first yuan clearing bank in London.

Britain and China signed deals worth more than 14 billion pounds (US$23.5 billion) during the visit with energy and finance dominating the trade agenda.

FX deposit rate to enter pilot program in Shanghai China’s central bank said yesterday it would expand a pilot program on foreign exchange deposit rate from Shanghai’s Free Trade Zone to all of shanghai from Friday. Under the plan, China will first liberalize interest rates on small-sum foreign exchange deposits from companies, and then expand to the scheme to individuals, the Shanghai branch of the People’s Bank of China said in a statement. China will fully liberalise interest rates offered on smaller foreign currency accounts in the Shanghai free trade zone (FTZ), the central bank said on Wednesday.

More forex derivatives on the way The bank plans to hedge via the London Metal Exchange and other UK institutions

China has relaxed controls over the last five years to establish the yuan as an international currency of trade and reduce its reliance on other currencies, but London is competing with other financial capitals such as Singapore to secure a slice of the fast-growing offshore yuan business.

The yuan is expected to become a leading so-called reserve currency,

A Belgian football player training and an Yingli advertisement behind him

Sun power at the World Cup China’s photovoltaic (PV) industry is struggling because of excess capacity and high duties levied by the United States and EU

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hina may not have qualified for this summer’s World Cup in Brazil, but Yingli Green Energy Holding Co. is flying the flag with advertising logos at all 12 stadiums.

Miao Liansheng, chairman and CEO of the New York Exchange-

China’s external financial assets reached US$6.13 trillion by the end of March this year, the State Administration of Foreign Exchange said on Wednesday. External liabilities stood at about US$4.14 trillion by then, the foreign exchange regulator said in a statement on its website. China’s direct investment overseas was US$621.5 billion, accounting for 10 percent of external financial assets while reserve assets were registered at US$4.01 trillion, 65 percent of the total amount, the statement said.

As regards foreign liabilities, foreign direct investment in China was US$2.42 trillion, 58 percent of the total, the statement said.

listed solar panel company, said the much-needed exposure will be a huge driver for business growth.

China’s photovoltaic (PV) industry is struggling because of excess capacity and high duties levied by the United States and EU. As well as advertising, Yingli

meaning it will be stockpiled by central banks, and could become fully convertible into other currencies as soon as 2015.

China Merchants Securities has over 100 branches in more than 60 cities in China with over 8,000 staff, serving more than 4 million clients, according to the bank. It is 45.8 pct owned by China Merchants Group.

Reuters

solar panels are powering all stadium lighting masts. Its panels are also powering the media centres at the month-long tournament.

The Maracana stadium, where the World Cup final will be played in July, is one of football’s most iconic venues and now will be famous for its sustainability initiatives, according to Yingli.

Yingli is the only Chinese sponsor of the event. It was also a sponsor at the World Cup in South Africa four years ago.

In 2010, Yingli paid 500 million yuan (US$80 million) to gain exposure at the event, the company said.

Its Yingli Solar logo, in Chinese and English, appeared on electronic advertising hoardings at all 64 games.

The Yingli slogan appeared for 30 seconds at a time, totalling eight minutes during each game. It is the same for this year’s tournament.

Despite the hefty sum, Miao said the cost was justified. “The South Africa World Cup was a great platform for brand communication and market expansion.”

The bold move for the solar panel maker, which is based in the city of Baoding in north China’s Hebei Province, earned the company more than 50 million dollars. It lost money.

But the global brand awareness has proved promising. The company’s production capacity topped 3,200 megawatts in 2013. It increased its global market share to 10 percent from 3 percent after the South African World Cup. Xinhua

China’s foreign exchange regulator said it will increase the number of foreign exchange derivate products available in the market to facilitate export growth and help companies hedge currency risk. The State Administration of Foreign Exchange (SAFE) said in a statement on its website that it would strengthen supervision of derivatives trading by banks to ensure that the trade helps reduce risks for companies, and expand the variety of tools available, focused on foreign exchange options. The statement said it would add principal swap transactions for currency swaps and lower the entry threshold for companies and bank branches.

Deal to build hydroelectric plant in Bolivia Bolivia’s President Evo Morales Wednesday attended the signing of an accord with a Chinese firm for the building of a hydroelectric plant in central Cochabamba department’s city of San Jose. China’s Sinohydro signed the deal with Bolivia’s Corani Electric Company, an affiliate of the National Electricity Company (ENDE), to build the plant that will produce an additional 124 megawatts for the national power grid, the National Interconnected System (SIN). Morales said the whole project will be developed in three stages through 2018, with an estimated investment of US$235 million.

Tianhe-2 fuels China’s sci-tech progress China’s Tianhe-2, the world’s fastest supercomputer, is boosting science and technological development at home and abroad.

Tianhe-2 retained its top spot for the third consecutive time on the biannual Top500 list for supercomputers, according to the National Supercomputer Centre in Guangzhou, in south China’s Guangdong Province. “It represents a significant change from ‘Made in China’ to made with China’s wisdom,” said Yuan Xuefeng, director with the centre. Tianhe-2 was developed by the National University of Defense Technology and runs at 33.86 petaflops per second. Its computing capacity in one hour equals that of the 1.3 billion people in China calculating on calculators for 1,000 years.

12

June 27, 2014

Asia

Liquidity punishes Singapore Stock Exchange

Thai exports plummet

In the first five months of the year, share trading on SGX fell by a third to US$92.4 billion

Thailand had a trade deficit of US$810 million in May, compared with the poll’s forecast of a US$300 million surplus

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he uphill battle faced by Singapore’s stock exchange to improve its trading volumes appears to be getting only tougher.

Lofty ambitions to be one of Asia’s pre-eminent stock markets saw Singapore Exchange Ltd make an unsuccessful US$8 billion bid for Australia’s ASX Ltd in 2010.

SGX has also always been the most international of Asia’s bourses with some 40 percent of its listed companies from outside the city-state, many from China.

But experts say Singapore’s stock market is becoming a niche player popular for yield plays such as real estate investment trusts (REITs) and business trusts, as well as the mineral, oil and gas sector but not too much else.

Recent trading numbers have been ugly. In the first five months of the year, share trading on SGX fell by a third to US$92.4 billion, making it the second-worst performer among Asia-Pacific bourses after Thailand, data from the World Federation of Exchanges show. By contrast, Hong Kong Exchanges & Clearing Ltd saw a

9 percent increase to US$614.6 billion.

Much of the decline stems from an October crash in penny stocks, the most actively traded shares on the bourse. That scared off retail investors, who are estimated to account for just 9 percent of trade compared to 25 percent in Hong Kong.

Seeking to win investors back, SGX Chief Executive Magnus Bocker has cut clearing fees on stock trades and signed up more than 10 financial firms to act as market makers, giving them rebates on clearing fees as incentives to boost liquidity. The bourse is also amending secondary listing rules to attract more overseas firms.

But while these measures are seen as part of the solution, market participants do not expect them to revive activity significantly.

Those efforts are also being undermined by a record US$13 billion of takeovers of Singapore listed companies so far this year as owners, put off by the decline in trading volume and encouraged by cheap credit opt to take firms off market.

Key to improving SGX’s fortunes, experts say, will be winning big listings beyond the REITs it is known for and attracting growth stocks like Hong Kong.

But Singapore’s IPO market is having its slowest start since the first half of 2012, managing to list just six companies from January.

Proceeds from Singapore IPOs have fallen 72 percent to US$774 million so far this year from the same period a year earlier, reducing SGX’s market share in Asia Pacific to 3.3 percent from 19.2 percent.

The last big Singapore IPO over US$1 billion was a REIT in February 2013 while the only big name of late to announce a listing is Russia’s Gazprom - but only a dual listing, raising no funds.

But the kind of mid-sized Chinese firms that had flocked to SGX till a few years ago have been put off due to depressed valuations, the lack of retail investor interest, and they now have better options in Hong Kong and China.

KEY POINTS SGX becoming niche bourse for REITs, oil & gas sector Share trading down by a third for the year to date has had fewer IPOs than Thailand and Bangladesh this year Spate of company takeovers lead to delisting Clearing fee cut among moves SGX has made to woo investors

Reuters

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hai exports fell more than expected in May, showing that a pillar of the economy remains weak and underscoring the tough task the military government faces kick-starting growth after seven months of political turmoil. On May 22, the Thai army seized power in a bid to restore order and get on track a stumbling economy.

Exports, the bulk of which are industrial goods, were down 2.14 percent in May from a year earlier, the Commerce Ministry said. That was more than the 1 percent drop forecast in a Reuters poll. In April, shipments dropped about 0.9 percent on-year.

In May, imports fell for a 10th straight month on an annual basis, but dodged a fifth consecutive doubledigit slump. They declined 9.32 percent, less than the poll’s forecast of 14.0 percent.

Many of Thailand’s imported materials go into assembled goods and are shipped out again, though it wasn’t immediately clear if the smaller-than-forecast percentage drop was an encouraging sign for future exports.

Thailand had a trade deficit of US$810 million in May, compared with the poll’s forecast of a US$300 million surplus.

The May drop in exports might increase concern that Thailand might have a second quarterly decline in gross domestic product in AprilJune - and thus enter a recession - following shrinkage of 2.1 percent in the first quarter.

The Bank of Thailand (BOT) last week forecast 0.5 percent contraction in the first half, which ING said implies zero growth in April-June.

If that’s correct, then Thailand could avoid recession.

The BOT cut its full-year growth forecast to 1.5 percent from 2.7 percent.

In May, exports to China dropped 5.7 percent and those to the U.S. rose 2.8 percent from a year earlier The ministry has forecast export growth of 3.5 percent this year, though through May, shipments are down 1.22 percent.

BOT Governor Prasarn Triratvorakul said last week exports might grow less than 4 percent this year.

Reuters

Singapore Stock Exchange building

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June 27, 2014

Asia Australian job vacancies at 1-year highest Job vacancies in Australia rose to their highest in over a year in the three months to May, a second straight quarter of gains that hint at a welcome sign of returning demand for labour. Yesterday’s data from the Australian Bureau of Statistics showed total job vacancies rose 2.6 percent in the three months to May in seasonally adjusted terms, following a 2.7 percent increase the previous quarter.

Vacancies of 147,100 were also up 2.6 percent on the same quarter last year and the highest since early 2013. Vacancies in the private sector rose 1.3 percent in the May quarter, from the previous quarter.

Vietnam first-half FDI inflow up Vietnam received an estimated US$5.75 billion in foreign direct investment (FDI) during the first six months of 2014, up 0.9 percent from a year ago, a government agency said. But new investment pledges during the first half fell 6.8 percent from a year ago to US$4.86 billion, the Planning and Investment Ministry-run Foreign Investment Department said in a report posted on its website late on Wednesday. Competing with new frontier markets such as Myanmar and Cambodia, Vietnam received US$11.5 billion in FDI in 2013, close to the US$11.7 billion poured into Malaysia.

LG to invest in plastic OLED production

LG Display Co said yesterday it is considering making investments to boost production of plastic OLED displays ahead of an expected surge in demand for wearable devices and smartphones. “We will consider during the second half of this year whether to invest to add an additional production line (for the screens),” LG Display quoted Chief Executive Han Sang-beom as saying. Adoption of plastic OLED displays for mobile devices is expected to pick up in part because they are lightweight and can be curved to accommodate new forms of smartphones and smartwatches.

SK stores’ sales rebound Sales at South Korea’s top department and discount store chains both rose in May from a year earlier after falling for three straight months, revised data from the trade ministry showed yesterday, adding to hopes domestic consumption is recovering. Combined sales at department stores run by Hyundai Department Store, Lotte Shopping and Shinsegae Co rose 0.8 percent in May from a year earlier, the Ministry of Trade, Industry and Energy said. The revised increase was smaller than a 2.0 percent gain estimated by the finance ministry earlier in the month.

Rakuten to enter low-cost carrier business Japanese e-commerce firm Rakuten Inc. plans to take a sizeable stake in a new Japanese budget airline business set up by Malaysia’s AirAsia Bhd, domestic media reported. Rakuten owns one of Japan’s top online travel service sites, Rakuten Travel, and a tie-up could help both companies expand their reach. AirAsia is making its second attempt in the Japanese low cost carrier market. A previous venture with ANA Holdings Inc. was dissolved last June after it failed to win over Japanese travellers and the partners disagreed over management strategy.

Air bag recall takes toll Automakers have recalled 10.5 million vehicles over five years to fix Takata air bags

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apanese auto parts maker Takata Corp could face a US$500 million charge and a net loss this year - its second in three years - as a widening recall of air bag inflators begins to kindle worries despite its deep pockets.

Automakers have recalled 10.5 million vehicles over five years to fix Takata air bags deemed at risk of exploding and shooting shrapnel at drivers and passengers, in what has become one of the five biggest recalls in automotive history.

Creditors are not overly worried about the financial health of Takata, which has about US$1 billion of cash on its books, banking sources said.

But they are closely watching the company, which may also face a grilling from shareholders at its annual meeting, after the latest recall of 5.2 million cars this month.

“There is the worry that the volume of transactions with vehicle makers could decline because of the recall,” said Koji Endo, an analyst at Advanced Research.

But he added: “The company has long had strength in design and development ... From the perspective of multiple parts sourcing as well, it would be hard to imagine large volumes shifting to other suppliers in the short term.”

The safety woes have nonetheless taken their toll on shares of the world’s second-biggest auto safety parts maker, which have fallen nearly 30 percent since the start of the year compared with

US$500 million

costs to Takata Corp due to airbag flaw recalls

a 6 percent drop in Tokyo’s benchmark Nikkei average.

Expanding recall Honda Motor Co and Toyota Motor Corp were among four Japanese carmakers joining this month’s global recall over potentially flawed Takata air bag inflators made in 2000-2002.

That tally looks set to expand further after Honda and six others said this week they were recalling more vehicles in some high-humidity regions of the United States at the request of the National Highway Traffic Safety Administration to replace Takata air bag inflators.

A Takata spokeswoman said the financial impact of the recalls was unclear.

But several analysts said they were assuming a cost per recalled vehicle of around US$90 to US$100, based on replacement part prices, labour costs and other factors.

That could mean a charge of around US$500 million over this month’s recalls for the year to next March, pushing it into a net loss for the year.

Takata has forecast a 16 billion yen (US$157 million) profit for the year to March 2015, after returning to the black last year from a record 21.1 billion yen net loss in the year to March 2013.

Reuters

S.Korea, DPRK begin talks for a joint factory park The two Koreas agreed last year to hold the joint management committee meeting every quarter

S

outh Korea and the Democratic People’ s Republic of Korea (DPRK) started their first talks in six months yesterday in Kaesong, the DPRK’s border town, about running the inter-Korean factory park, Seoul’s unification ministry said.

Six South Korean delegates crossed the inter-Korean land border into Kaesong, the DPRK’s border city some 10 km north of the military demarcation line the ministry said.

The two Koreas agreed last year to hold the joint management committee meeting every quarter, but it has been halted since December last year amid rising tensions on the Korean Peninsula following the joint military exercise between South Korea and the United States in February. “It will be an opportunity for a comprehensive review on productive normalization of the Kaesong industrial zone,” chief South Korean delegate Lee Kang-woo told reporters before heading to the dialogue venue.

Lee said the delegation will focus, during the dialogue, on the constant passage of South Korean workers to and from the inter- Korean factory park and the introduction of the Internet connectivity.

The two Koreas have test-run the electronic passage system via the radio frequency identification (RFID) since January. South Korea aimed to operate the system constantly.

Seoul has also called for early

Kaesong, the historic Korean capital, where talks are taking place

It will be an opportunity for a comprehensive review on productive normalization of the Kaesong industrial zone Lee Kang-woo chief South Korean delegate

introduction of the Internet connectivity at the joint factory park.

The electronic passage system will allow South Korean workers to visit the Kaesong industrial complex and return home at any time on days when they are permitted to visit the site.

Currently, South Korea should fax a list of workers to the DPRK a day before their trip to the joint industrial zone. The DPRK has allowed only those on the list to travel to the zone during a designated time.

The Kaesong industrial complex, the last remaining symbol of interKorean economic cooperation, is home to 120 South Korean small companies that produce mostly labour-intensive products such as shoes and garments.

Xinhua

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June 27, 2014

International EU fiscal rules not under attack German Economy Minister Sigmar Gabriel suggested yesterday that the EU could ease its rules on co-financing investment projects, but insisted that he was not seeking to undermine the wider budget framework. “Nobody is attacking the Growth and Stability Pact,” Gabriel told the German parliament’s low house, referring to the European Union’s budget rules requiring member states to keep a lid on their public deficits. “No-one is seeking to creatively redefine the rules,” he said after recent comments by him had sparked new debate in Germany as to whether the pact is too strict and hurting economic growth.

New York accuses Barclays of ‘dark pool’ fraud

Glencore appoints first female board director Glencore, the last British blue-chip company with an all male board, has appointed Patrice Merrin as its first female board director. The commodity trader and mining group had come under fire from some shareholders over its apparent failure to follow recommendations in a 2011 British government review that called for more women on company boards.

The government’s Davies Review set a target for all companies in the FTSE 100 to have a quarter of board roles held by women by 2015.

Vale to offer iron ore discounts Brazil’s Vale, the world’s biggest iron ore miner, is starting to offer discounts on shipments of the steelmaking raw material to top consumer China, joining Australian rivals in cutting prices following a global surge in production. The move follows deeper price cuts by Rio Tinto and Australia’s Fortescue Metals Group for lower-grade iron ore, and indicates China is winning more say over pricing after years of complaining that costs were too high. Vale is offering some Chinese customers a discount of US$2.50 a tonne, including cost and freight, for 62-63 percent grade SSFG for thirdquarter contracts.

Tin hits 4-month low Tin prices slipped to their lowest in more than four months on Thursday despite forecasts of deficits, while copper pulled back after touching a new peak. At the start of the year, most analysts tipped tin for price gains as supply was expected to fall short of demand. “Indonesia is not even exporting all that it is producing, so that should make the deficit even bigger,” metals strategist Stephen Briggs at BNP Paribas in London said.

That could be because China may be exporting refined tin from stockpiles or demand was falling short, he added.

AMS in talks to buy Dialog Semiconductor Austrian semiconductor maker AMS is in talks to buy Germany’s Dialog Semiconductor, a supplier of chips for Apple’s iPhone and iPad, the two companies said yesterday. “These discussions are at a very preliminary stage and there can be no certainty that a transaction will be forthcoming,” the companies said in a joint statement, confirming an earlier report in the online edition of The Financial Times. They said that under takeover rules Switzerland-listed AMS must by July 24 either announce a firm intention to make an offer for Dialog or announce that it does not intend to do so.

The New York Attorney General’s action is the highest profile case yet to emerge in the U.S. authorities’ efforts to ensure that dealers are not ripping off investors

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he New York State’s attorney general has filed a securities fraud lawsuit against Barclays, accusing the British bank of giving an unfair edge in the United States to high-frequency trading clients even as it claimed to be protecting other customers from such traders.

The lawsuit, which relates to Barclays’ LX Liquidity Cross ‘dark pool’ alternative trading system, alleges that the bank promised to get the best possible prices for customers looking to buy or sell shares but instead took steps that maximized the bank’s profits and executed nearly all of its customers’ stock orders on LX instead of on exchanges or other venues that might have offered better prices.

The New York Attorney General’s action is the highest profile case yet to emerge in the U.S. authorities’ efforts to ensure that dealers are not ripping off investors in increasingly automated stock markets.

These probes have been progressing for up to a year, but took on additional urgency in recent months, after bestselling author Michael Lewis released the book “Flash Boys: A Wall Street

Revolt” which contends that markets were rigged.

Dark pools were originally created to allow investors to execute big trades without tipping off the market. But ever-larger volumes of trades have been shunted into dark pools and their critics say the opacity of the markets may be resulting in more and more investors getting ripped off.

The lawsuit delivers another blow to Chief Executive Antony Jenkins’ efforts to restore the bank’s reputation after a series of scandals. He has said its culture, which has been criticised as high-risk, high-reward, had to change and that systems and controls are improving, but the emergence of past sins are hampering his efforts.

New York Attorney General Eric Schneiderman said Barclays told customers who chose to trade in its dark pool that they would be protected from “predatory traders,” which use their speed advantage to deprive other investors of small profits on every trade. But in fact customers were not protected at all, and the bank in fact courted predatory high-frequency traders in part by charging them virtually nothing,

Schneiderman alleged.

“Barclays grew its dark pool by telling investors they were diving into safe waters,” Schneiderman said. “Barclays’ dark pool was full of predators - there at Barclays’ invitation.”

“We take these allegations very seriously,” Barclays said in an emailed statement. It added that it was cooperating with the authorities, looking at the matter internally, and that the integrity of markets was a top priority for the bank.

Schneiderman is looking at dark pools, which are typically owned by brokers, including all of the big banks, and where participants are anonymous and trading information is hidden until after the trades are completed.

The U.S. Securities and Exchange Commission has also taken an increased interest in issues surrounding dark pools and highfrequency trading. SEC Chair Mary Jo White earlier this month said her agency was developing a series of rules that would seek to make markets more transparent and fair for all investors.

Reuters

Bwin.Party online casino considering sale The discussions follow a share drop, a change in board leadership and a disappointing start to online betting in the U.S.

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win.Party Digital Entertainment Plc, a pioneer of online gambling, is considering selling some or all of the company as part of a strategic review, two people with knowledge of the matter said.

The Gibraltar-based company, a partner in New Jersey’s new online betting market with Borgata Hotel Casino & Spa, hired Deutsche Bank AG to consider its options, said the people, who requested anonymity because the matter isn’t public.

The company will decide within two months, one person said. In a statement yesterday, Bwin said it has no plans to break up or sell the company.

The discussions follow a share

drop, a change in board leadership and a disappointing start to online betting in the U.S. A new threat emerged this month when PokerStars, the world’s dominant poker website, agreed to be sold in a deal that could hasten its re-entry to the fledgling U.S. market after an absence of several years.

Bwin has a market value of 790 million pounds (US$1.3 billion).

The company appointed a new chairman, Philip Yea, in April, and settled a proxy fight for board seats with SpringOwl Asset Management LLC, led by former casino analyst Jason Ader. Bwin named one of his representatives, Daniel Silvers, as a director last month, as part of changes

that included the planned retirement of three board members.

Bwin Chief Financial Officer Martin Weigold said on a March conference call that the company faced a difficult year in 2013, including a decline in sales due to regulatory and competitive challenges in a number of markets. He said the company was looking to divest non-core and surplus assets.

The parent of PokerStars, Rational Group Ltd., agreed this month to be acquired for US$4.9 billion by Amaya Gaming Group Inc., a supplier of betting equipment and systems based in suburban Montreal.

Bloomberg News

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June 27, 2014

Opinion

Income inequality wires and youth unemployment Business

Leading reports from Asia’s best business newspapers

THE ASAHI SHIMBUN Marubeni Corp. will partner with Innovation Network Corp. of Japan (INCJ) for a swig of the Portuguese and Brazilian water business, the trading house said June 25. Marubeni and INCJ agreed on acquiring a 100-percent stake in Administracao e Gestao de Sistemas de Salubridade S.A. (AGS), one of the largest water service companies in Portugal, from Portuguese Somague Ambiente SGPS S.A., a subsidiary of major Spanish construction company Sacyr Valleheremoso. Each will make a 50-percent investment, making them the first Japanese companies to enter both the Portuguese and Brazilian water industry.

Terence Tse

Mark Esposito

Member of the teaching faculty at Harvard University Extension School,

an associate professor of business & economics

at Grenoble Graduate School of Business in France

Associate professor of finance at ESCP Europe, is the head of competitiveness studies at the i7 Institute for Innovation and Competitiveness

THE TIMES OF INDIA Slum-redevelopment, road safety awareness and consumer protection services will be treated as Corporate Social Responsibility (CSR) activities, according to clarifications issued by the ministry of corporate affairs in response to queries from stakeholders.

BJP’s election manifesto had promised to usher in a lowcost housing policy that would ensure every family in India a home by 2022. The ministry, in a circular, has clarified that slumredevelopment or housing for economically weaker sections could be covered under the eligible CSR category of ‘measures taken for reducing inequalities faced by socially and economically backward groups’.

THE PHNOM PENH POST American retail giant Target is another major brand scaling back its sourcing from Cambodia in response to garment industry turmoil here, Minister of Commerce Sun Chanthol revealed during a trade mission to the US. In a wide-ranging speech on Cambodia’s economy at the Centre for Strategic and International Studies in Washington, DC, on Monday, the commerce minister said Target had joined clothing brand Levi Strauss in reducing orders following a deadly apparel worker strike in early January.

The nationwide strike on January 2 and 3 calling for the rise of the garment industry’s minimum wage to US$160.

THE AGE Large numbers of workers approaching retirement will be forced into modest lifestyles devoid of creature comforts unless the superannuation system is given a comprehensive overhaul. The grim finding was released on Wednesday by Deloitte, which found that Australians need to start contributing an extra 5.5 to 7.5 per cent of salary to super in addition to existing arrangements or risk coming up short. Deloitte superannuation adviser Wayne Walker said it was important Australians not get too complacent about the compulsory retirement savings system, which now accounts for US$1.8 trillion.

Controversial postulates by Thomas Picketty are shaking up the economics establishment

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AMBRIDGE – With Thomas Picketty’s controversial book Capital in the Twenty-First Century topping several bestseller lists, income inequality –, which has been on the rise since the 1970s – is once again capturing global attention. Debate surrounding the subject has covered many of the trend’s repercussions, including decreased social cohesion, growing slums, exploitation of labour, and weakened middle classes.

But one effect has received relatively little attention: youth unemployment and underemployment.

Since the global economic crisis, youth unemployment has soared worldwide. In the developed world, 18% of people aged 16-24 are jobless.

While the youth unemployment rate in Germany remains a relatively low 9%, it stands at 16% in the United States, 20% in the United Kingdom, and above 50% in Spain and Greece. The Middle East and North Africa also have very high youth-unemployment rates, estimated at 28% and 24%, respectively. By contrast, only 10% of young people in East Asia, and 9% in South Asia, are unemployed.

But policymakers have done relatively little to address the problem. The world now risks creating what the International Labour Organization has called a “lost generation,” with global youth unemployment expected to reach 13% by 2018.

There is no single factor driving this trend. In China, for example, youth unemployment is rooted in the dominance of the manufacturing sector, which provides far more job opportunities for high-school graduates than universityeducated workers.

Youth unemployment can also stem from a market mismatch.

In a recent survey of nine European Union countries, 72% of the educators who responded reported that new graduates are qualified to meet prospective employers’ needs, though 43% of employers reported that candidates do not possess the required skills.

But, whatever the main factor underpinning high youth unemployment, income inequality undoubtedly exacerbates the problem.

Simply put, many jobs – particularly the most lucrative ones – are available almost exclusively to young people from wealthy backgrounds.

In the UK, for example, only 7% percent of children attend private schools. But roughly half of the country’s chief executives, and two-thirds of its doctors, have been privately educated. This trend is expected to persist, with the next generation of doctors likely to be born into families that rank among the wealthiest 20% of the population.

There are several possible reasons for this pattern. For starters, the highest-status positions require the most prestigious educational background – and that costs money. Moreover, many internships – a prerequisite for the most attractive jobs – are unpaid, making them unfeasible for graduates whose families cannot afford to support them.

But money is not the only requirement. In many cases, sought-after jobs and internships – and even admission to top educational institutions – are far more accessible to those who are within the employers’ personal or professional network. When the job market rewards whom you know more than what you know, young people with well-connected parents have an obvious advantage.

Inherently biased recruitment

and hiring practices exacerbate this inequality further. While companies may, in theory, recognize the value of bringing together talent from a variety of backgrounds, they tend to recruit candidates with a familiar set of skills, experiences, and qualifications.

Even if someone with a different educational background or work experience manages to get face time with those responsible for hiring, they must overcome the perception that they are a riskier choice.

The fact that academic results are among the top hiring criteria

The small proportion of students from poorer backgrounds who manage to gain admission and secure scholarships to top institutions often have lower grades, especially toward the beginning of their university education, owing to their inferior preparation

skews outcomes further.

People who had the privilege of receiving private education are likely to have attended more reputable universities. The small proportion of students from poorer backgrounds who manage to gain admission and secure scholarships to top institutions often have lower grades, especially toward the beginning of their university education, owing to their inferior preparation.

In fact, financial constraints prevent many capable students from attending any university at all, owing to their need to earn an income that only full-time employment can provide. As a result, their earning capacity is severely constrained, regardless of their talent or work ethic.

In order to create a level playing field, employers should re-think their recruitment strategies and consider applicants based on a broader range of criteria.

Businesses can only benefit from the fresh perspectives that a more diverse candidate pool offers.

With financial status serving as the key determinant of opportunities, young people from poorer backgrounds are becoming increasingly discouraged – a situation that can lead to social unrest.

Unless all young people have legitimate prospects of improving their social and economic status, the gap between rich and poor will continue to widen, creating a vicious cycle that will be increasingly difficult to escape.

The good news is that efforts to alleviate youth unemployment will reduce income inequality, and vice versa. The society that emerges will be more stable, unified, and prosperous – an outcome in which everyone, rich or poor, has a stake.

The Project Syndicate 2014

16

June 27, 2014

Closing China studies relaxing rules to create local Teslas

Taiwan central bank leaves interest rates on hold

The Chinese state-run research centre in charge of helping the government draft automotive policy said it recommended that electric-vehicle manufacturing be opened to companies other than carmakers. The China Automotive Technology and Research Centre has drafted the policy changes and proposed the issuance of special licenses for EV manufacturing. Such changes would pave the way for the likes of Wanxiang Group Corp., the Chinese auto-parts maker that owns Fisker Automotive, to build cars in the country and challenge Tesla Motors Inc. and BYD Co.

Taiwan’s central bank left its policy rate unchanged at 1.875 percent yesterday, in a move widely expected by analysts as the rate has held steady for the past three years.

Economists in a Reuters poll had predicted the bank would keep rates unchanged at its quarterly policy meeting as inflation remains below the bank’s comfort line and rates in the United States remain at record lows. The last time the central bank changed the policy rate was in June 2011, when the rate was increased to its present level.

China regulates company charges

Sydney to have a yuan-clearing bank Beijing announced this month that the Bank of China would be the clearing bank for yuan dealings in Frankfurt while China Construction Bank won the bid for London

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hina will designate a clearing bank in Sydney for overseas trading of its yuan currency, a top Australian official said yesterday as Beijing seeks to make the tightly-controlled unit more international.

The Australian financial capital would follow London and Frankfurt as a location for a Chinese bank to clear transactions in yuan, also known as the renminbi.

“I am confident that we will have, before the end of the year, a designated clearing bank for renminbi trading in Australia with the opportunity for an Australian bank to be a market maker,” Australia’s Treasurer Joe Hockey told the Australian Chamber of Commerce in Shanghai.

Beijing announced this month that the Bank of China would be the clearing bank for yuan dealings in Frankfurt while China Construction Bank won the bid for London.

Chinese authorities keep a tight grip on the value of the yuan and limit capital flows into and out of the country.

C But China -the world’s second-largest economyis gradually moving to implement financial reforms by making its exchange rate more flexible and opening its capital account for investment and financial transactions.

The yuan remained the seventh most used currency for global payments in May, transaction services organisation SWIFT (Society for Worldwide Interbank Financial Telecommunication) said Thursday although it

accounted for only 1.47 percent of the total.

“China has come a very long way in relation to the renminbi,” Hockey told journalists. “In many ways they’ve moved faster to deregulate their currency than many other countries and that hasn’t been properly recognised by a lot of the critics.

“The best way to handle the Chinese in relation to the renminbi is to offer to be there to engage in facilitating more active trading, greater

liquidity in various markets,” he said.

Some major trading countries, notably the United States, have criticised China’s pace of reform as too slow and called for Beijing to let its currency float more freely.

Chinese President Xi Jinping is due to visit Australia in November for a summit of the G20 group of nations, and Hockey said the two countries hope to reach a free trade agreement before the end of the year.

AFP

hina will strengthen the management of all kinds of charges and fees imposed on companies.

China’s cabinet the State Council said in a circular streamlining administration and delegation of power to the lower levels would stimulate companies, especially small ones.

The government will invite public supervision through a list of charges and fees. “Local authorities must use the list to ensure that no charges outside the list are imposed,” the circular showed.

The varieties of charges will be gradually reduced and a mechanism for supporting small businesses by temporary fee exemptions will come into force.

Hong Kong’s exports of goods up

London Stock Exchange EU to probe China to buy Russell index stainless steel dumping

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he value of Hong Kong’s total exports of goods in May rose 4.9 percent from a year ago to HK$306.0 billion (about US$39.4 billion), the city’s statistics department said here yesterday. Within this total, the value of re-exports increased 4.9 percent to HK$300.7 billion in May from a year earlier, while the value of domestic exports grew 10.0 percent to HK$5.3 billion.

Concurrently, the value of imports of goods added 3.7 percent over a year earlier to HK$348.3 billion. A visible trade deficit of HK$42.4 billion was recorded last month. For the first five months of 2014 as a whole, the value of total exports of goods rose 1.1 percent over the same period in 2013, and the value of imports of goods increased 2.4 percent.

A visible trade deficit of HK$220.4 billion was recorded in the first five months of 2014. A government spokesman said Asia’s trade flows, as well as Hong Kong’s export performance, will hinge on whether the advanced economies, currently growing at a rather modest pace, will gain further traction and generate stronger import demand.

Xinhua

ondon Stock Exchange Group has agreed to buy US asset manager Russell for US$2.7 billion in order to diversify and grow its business in the United States, it said yesterday.

The deal, worth the equivalent of 1.98 billion euros, also involves LSEG buying Russell’s index business from parent NorthWestern Mutual.

The British group said it would raise US$1.6 billion from the sale of new shares to help fund the deal.

“With this acquisition we are strongly positioned for the changing dynamics in the global indices market,” LSEG chief executive Xavier Rolet said in a company statement.

The deal “sits squarely with our diversification strategy ... and provides another key driver of growth by growing our presence in the US, the largest global financial services market”, he added.

Russell chief executive Len Brennan said in the statement that the tie-up “creates a truly global index leader, with a highly complementary fit of products and distribution capabilities”.

AFP

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he European Commission has launched an investigation into Chinese and Taiwanese stainless steel makers after a complaint from European rivals who say they are exporting at unfairly low prices.

The Commission, the EU executive, said in its official journal yesterday that EU steel association EUROFER’s complaint of May 13 provided evidence that increased exports to Europe from Chinese and Taiwanese producers had had a negative impact on EU peers.

The Commission’s anti-dumping investigation will last up to 15 months, with the possibility of provisional measures being imposed within nine months. Punitive import duties, when imposed, typically last five years.

EU imports of cold-rolled stainless steel sheet from China and Taiwan totalled 758 million euros (US$1 billion) last year, according to Eurostat, a 10-fold increase from the value in 2002.

EU production in 2012, the last year for which data is available, was worth 23.6 billion euros.

Reuters