Macau Business Daily, July 3rd, 2014

MOP 6.00 Closing editor: Sara Farr Publisher: Paulo A. Azevedo Number 574 Thursday July 3, 2014 Year III

Risk or returns?

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he government, individuals and companies are thinking along the same lines.

All are investing more heavily in Chinese assets than ever before. Hong Kong, the U.S. and Europe were once preferred havens; now Macau investments are streaming inland. Today, almost half of Macau’s investments are in Chinese assets compared to 20 percent in 2010 Page

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www.macaubusinessdaily.com

Burgeoning GDP catapults Macau to top four Page 2

No gaming industry blacklist, claims watchdog Page 2

Hugo Boss takes full control of Macau, mainland stores Page 4

Economy loses steam

United they stand

Analysts broadly agree. Macau’s economic growth will range around the 9 percent mark in Q2. An ‘obvious’ drop from the previous quarter, all down to the slowdown in gross gaming revenues

The workers are restless. Gaming industry workers are demanding proper representation. ‘Independent’ labour unions are catering to the new mood.

The traditional unions rely too heavily on government funding, they say Page

Demanding visitors Visitors from mainland China are more demanding than ever. According to MGM China Holdings Ltd co-chairman Pansy Ho, mainland travellers know what they want.

And yes, they’re becoming more Westernised Page 5

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Page 4

HSI - Movers July 2

Name

%Day

Galaxy Entertainme

4.84

China Overseas Land

4.15

Tencent Holdings Ltd

3.89

Henderson Land Dev

3.64

Cheung Kong Holdin

3.49

China Petroleum & C

-0.14

Lenovo Group Ltd

-0.76

China Mengniu Dairy

-1.53

Kunlun Energy Co Lt

-1.72

China Construction

-4.44

Source: Bloomberg

I SSN 2226-8294

Yuan, won closer

Brought to you by

The yuan and won currencies prepare for direct trading. The agreement is expected to be sealed in a few days Page 9

2014-7-03

2014-7-04

2014-7-05

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July 3, 2014

Macau

Q2 GDP to slow: researcher A research unit says that decelerating gaming revenue growth has dragged down the overall economic growth of the city, estimated at 9.1pct for Q2 Stephanie Lai

sw.lai@macaubusinessdaily.com

M

acau’s economic growth figures for the second quarter of this year will show an obvious drop when compared to the previous period due to slowing gaming revenue growth, while the city may see an economic growth rate of about 9 percent to 10 percent for the third quarter, a think tank for the local branch of Bank of China announced yesterday.

Pr edict ing a slowe r growth in the city’s exports of services at a rate of 9.4 percent, primarily derived from the gaming and tourism business, Macau’s gross domestic product for the second quarter is expected to grow by a year-on-year 9.1 percent, researcher Felicity Pang Veng I of the Bank of China Macau Youth Association said in its forecast, released yesterday.

The GDP year-on-year growth rate of the previous quarter had been 12.4 percent, official data shows.

If the Association’s forecasts prove to be true, the city could see its slowest economic growth for eighteen months.

The slowdown in gross gaming revenue growth in recent months could explain the decelerating economic growth rate for the second quarter, Ms. Pang noted.

Macau’s gross gaming revenue for the April-June period this year totalled some 90.9 billion patacas (US$11.4 billion), which is a 5.5 percent year-on-year growth compared to the same period last year but a fall from the 102 billion patacas seen in the January-March period, latest data from the Gaming Inspection and Coordination Bureau shows.

“The latest official data on gross gaming revenue has confirmed that the business here is in a slowing trend, and also fits our earlier estimate that the gross gaming revenue for the second quarter would be less than 100 billion patacas,” said Ms. Pang.

“The obviously slowing gaming revenue growth seen in the second quarter has been influenced by the World Cup, and June is traditionally a silent month.”

In June, the gaming revenue in Macau suffered its first drop in five years,

posting a decrease of 3.7 percent year-on-year. In the first half of this year, gaming revenue grew by 12.6 percent to 193 billion patacas; analysts expect that the 2014 revenue figure will grow by 11 percent.

Ms. Pang’s team also forecast that local private expenditure for the second quarter will rise by an annual 6.5 percent, while the inflation rate will stand at 6.2 percent – a jump from the 5.7 percent of the first quarter.

This set of forecasts for the main economic indicators

Burgeoning GDP catapults Macau to top four

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acau is the world’s fourth richest territory per person, according to recent data from the World Bank issued yesterday. The Special Administrative Region recorded a per capita Gross Domestic Product (GDP) of US$91,376 (729,423 patacas) The territory only trailed Luxembourg (US$111,162; 887,367 patacas), Norway (US$100,819; 804,803 patacas) and Qatar (US$93,352; 745,196 patacas). The Special

Administrative region of Hong Kong placed 24th (US$38,124; 304,331 patacas) and mainland China 73rd (US$6,807; 54,338 patacas).

In 2012, Macau ranked fifth but as its GDP per capita increased 18.4 percent (US$77,196; 626,229 patacas) it managed to outrank Switzerland. The small landlocked European country achieved a per capita GDP of US$80,528 (642,827 patacas) representing a 2 percent increase (US$78,929; 630,063) since 2012.

will be updated after a month or so when the government releases more up-to-date data, Ms. Pang added.

Her research team estimates that the economic growth rate for Macau will be around 9 to 10 percent in the third quarter, with the city still subject to the influence of the slowing economic growth of mainland China, fluctuations in the yuan exchange rate and restrictions on travel visas for mainlander visitors coming here and to Hong Kong.

Starting from July 1,

mainland Chinese passport holders transiting Macau from another country or territory have been granted a stay of five days maximum instead of the previous seven days.

Secretary for Social Affairs and Culture Cheong U and Secretary for Commerce and Economic Development of Hong Kong Gregory So Kam Leung met with Beijing in late June for talks about possible amendments to the individual visit scheme for mainland travellers, although discussions are believed to have ended with no concrete conclusions.

No gaming industry blacklist, claims watchdog Gambling and tourism industries are the main drivers of the growth of Macau’s economy. Last year, some 29.3 million tourists visited the Special Administrative Region of Macau. Chinese mainlanders accounted for 18.6 million (63.5 percent) of the total number of visitors.

Since Macau’s handover to China in 1999, the SAR’s gross domestic product has ballooned 878 percent, from US$5.9 billion (47 billion patacas) to US$51 billion (413 billion patacas).

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he Office for Personal Data Protection said that there is no evidence that shows the six local gaming enterprises share an ‘employment blacklist’ among themselves following an investigation into two such complaints, according to the Office’s 2013 annual report released yesterday.

All six companies deny the existence of a blacklist.

The Office said most of the gaming enterprises have their own human resources system to manage all the information about current staff, former

staff and job applicants.

One of the two complainants said that they had been informed that they would not be recruited as they had been blacklisted. The complainant had allegedly damaged a slot machine in another enterprise before and that person’s ID number was recorded, according to the Personal Data Protection Office. The other complainant had been informed that they did not pass the background check, having previously worked for another gaming operator.

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July 3, 2014

Macau CEM to build new substation Macau’s electricity supplier, CEM, has been given the green light by the government to build a new power distribution substation occupying an area of 782 square metres near Avenida do Comendado Ho Yin on the Macau Peninsula. According to the Official Gazette published yesterday, the new substation is expected to ensure the stability of the electricity supply in the northern part of the city, as well as fulfilling the increasing electricity demands of the district. CEM will pay an annual rent of 14,076 patacas (US$1,760), which will be adjusted every five years.

All eggs in China’s basket Macau’s financial portfolio is lacking diversification as the government, companies and citizens are shifting prior investments in Hong Kong, US and Europe to mainland China, official data reveals. Today, almost half of Macau’s investments are in Chinese assets compared to 20 percent in 2010, a sign of risks ahead Alex Lee

Alex.lee@macaubusinessdaily.com

M

acau’s financial dependency on mainland China is growing more every year as government, companies and residents invest increasingly large chunks of money in Chinese assets. The trend is reducing the diversity of Macau’s financial portfolio and exposing the territory to greater risks if China’s economy slows or falls into crisis.

According to data revealed by the Monetary Authority of Macau (AMCM) last week, nearly half (45.7 percent) of all investments kept

by Macau residents (government, companies and citizens) revolve around mainland China’s assets.

The investment portfolio includes financial products like equity securities (stocks, mutual funds) and short and long-term debt securities (treasury bills and bonds).

The latest figures represent an ongoing shift in the investment trend of previous years in Macau. In 2010, mainland China assets accounted for only 20 percent of the residents’ financial portfolio here, less than half than in 2013. Four years ago, the government and companies divided their investments between China’s financial system and Hong Kong’s (around 20 percent each) with the rest (60 percent) put in products emanating from a wide range of countries and regions with

mature economies like Europe, the US and Australia.

Two better than 10?

The diversification of Macau’s investments has shrunk rapidly in the last four years. At the end of 2013, only 24.5 percent of all financial investments made by Macau residents were in assets from outside mainland China or Hong Kong, compared to 60 percent in 2010. China and Hong Kong are responsible today for 75 percent of Macau’s financial portfolio, meaning that the future of hundreds of billions of patacas are dependent upon the fate of only two markets.

This increasing exposure to mainland assets poses a great risk for Macau’s investors if China’s economic tide turns for the worse.

A hard landing by the economy, more credit restrictions, a crisis in the shadow banking system or the real estate bubble in some cities are risks identified by investors and economists that can trigger a financial crisis in China with worldwide implications, Macau included. The total amount invested by residents in China’s assets amounted to 178 billion patacas in 2013, AMCM data revealed.

The government here has been the main driver of the lack of diversification in recent years. Its

Macau Resident’s Portfolio Investments Geographical Distribuition ( % of Total) 2010

2011

2012

2013

Mainland China

20.7

21

35.3

45.7

Hong Kong

19.5

37.9

32.4

29.8

Others

59.8

41.1

32.3

24.5

main financial investments (bonds or long-term debt issued by other governments) is increasingly tilting towards the Chinese. Of all longterm debt kept by Macau (200 billion patacas) today, 70 percent (142 billion patacas) is Chinese, compared to only 7 percent in 2010.

In a four-year period, the mainland’s share in the long-term investments of the government here has increased tenfold. For short-term debt, the situation is even more extreme. Four years ago, Macau’s investment in short-term debt issued by China was non-existent; today, it’s 83.1 percent of the total.

Hong Kong stock success story Since 2010, Macau has become a source of financing for China as government, companies and citizens here have invested heavily in mainland

assets, which give higher returns than US or European assets, but they’re more risky.

On the other hand, Hong Kong continues to be the preference in terms of equity, namely stocks, as more Chinese companies list on the Hong Kong Stock Exchange in search of a more global financial centre to support its expansion around the world. In 2013, 60 percent of Macau’s investments in equities by residents were in Hong Kong assets versus only 20 percent in 2010.

In December 2013, the total investment by Macau’s government, companies and citizens reached 309.1 billion patacas, an increase of 49 percent compared to 2012 and more than double that in 2010 (125 billion patacas). Last year, the biggest hike belonged to long-term debt products, whose investments jumped 73 percent in 2013 to 200 billion patacas.

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July 3, 2014

Macau Brands

Trends

The sound of Graff

New labour unions take up cudgels for casino workers Gaming staffers say independent labour unions may benefit them more Kam Leong

Raquel Dias

newsdesk@macaubusinessdaily.com

newsdesk@macaubusinessdaily.com

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ome of the world’s best and largest gems, especially diamonds, are sold by Graff. The English jewellery boutique handles specialised gems like yellow and pink diamonds, oversized rubies, sapphires and emeralds. The uberexpensive pieces are for a select clientele only, but the lover of jewellery likes to see these beautiful creations, if only for reference.

Opulence, for Graff, never means compromising on elegance, which is truly refreshing. The new Rhythm collection is no exception.

It is claimed that the house was inspired by music to ‘compose’ a passionate and dynamic collection.

Carefully set marquise, pear shape, emerald and brilliant cut gemstones capture the essence of music in the grand range of jewellery that accents the female beauty.

The exquisite jewels are set in multi-directions within platinum to intensify the distinct sense of fluidity.

Graff’s unique invisible diamond setting adds to the magic, as does the rhapsody of colours ranging from rubies to emeralds.

Choose from beautiful drop earrings or the classic bracelet; or perhaps adorn your neck with the stunning sapphire and diamond necklace. Whatever you do, and whether or not you can afford it, we definitely suggest going to Wynn Esplanade to look, at least, in their window. It truly is an experience worth having.

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he city has seen an increase in the founding of independent gaming-worker labour unions that aim to fight for better rights and benefits, separate from the traditional labour organisations.

A new labour union - New Gaming Employees Advance Association was established yesterday, the announcement of which was published in the Official Gazette. The union has been created by the same group of people from the Gaming Employees Club; director Willis Chen told Business Daily that both unions are financially independent and do not receive government subsidies.

Mr. Chen says that there are more advantages to creating independent labour unions than relying on traditional labour organisations which have more limitations in fighting for labour rights.

Currently, Macau’s gaming industry labour unions are primarily dominated by the Macau Federation of Trade Unions (AGOM), which has three related labor unions – Macau Gaming Industry Labourers Association, Macau Gaming Enterprises Staff Association and SJM workers labour union.

Ieong Man Teng, president of

another independent gaming union - Forefront of Macao Gaming - holds the same position as Mr. Chen.

Mr. Ieong said that he believes that more independent labour unions will be created for casino staff in the future. “The first reason why is because traditional labour

organisations receive a large amount of money from the government every year, which may cause them to not be able to really fight [too hard] for the workers, eventually compromising with the government on some special points,” he said.

He added that many gaming workers have lost their confidence in traditional labour organisations which “did not express workers’ real opinions.”

However, Mr. Chen thinks that creating an independent labour union is not an easy task. “To maintain independence, we have to have experience and knowledge in managing a union. Besides efficiently fighting for labour rights for the members, we have to protect core members who stand for the union [and ensure they] won’t be fired by their companies.”

Mr. Chen said that his union now has almost 2,000 members, who mainly work for the casinos of Sands, Sands Cotai Central and The Venetian, while Mr. Ieong said FMG has around 100 members from different casinos providing the union with news updates as well as reflecting workers’ complaints to their employers.

Wynn employees receive company shares

T Hugo Boss takes full control of Macau, mainland stores

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erman fashion house Hugo Boss is taking full control of its store network in Macau and mainland China as it seeks to improve the way its brand is presented, a move that mirrors a broader trend by luxury goods groups in emerging markets.

Big brands have been opening more directly-operated stores, buying back franchises and taking stakes in retail partners in Asia, Russia and the Middle East to give them more control over store design and how their goods are marketed.

Luxury brands that have bought

out their retail partners include Gucci, Hermes and Prada in Russia, Burberry in China and Japan and watchmaker Swatch in the Middle East.

Hugo Boss said in a statement it was buying a 40 percent stake in its joint venture in China and Macau from franchise partner Rainbow Group but did not say how much it paid.

The operations comprising 55 stores generated sales of US$128 million (1.02 billion patacas) in 2013, contributing to total sales in China of 211 million euros from 126 stores and concessions, about 9 percent of group sales.

“The consolidation of our distribution activities in China will further elevate the quality of brand presentation, increase productivity and contribute to the strength of our operational platform,” chief executive Claus-Dietrich Lahrs said.

Hugo Boss is seeking to run more of its own stores around the world instead of selling through partners and saw a 16 percent increase in own retail sales in the first quarter.

he benefits programme that distributes 1,000 shares of Wynn Macau to its junior employees was formally adopted yesterday, the company announced in a statement.

The Limited Employee Ownership Scheme was approved on May 15 during Wynn’s annual general meeting, with 86 percent of the votes for and 14 percent votes against.

The programme had been announced in March by chairman and CEO of Wynn Macau Steven Wynn.

“The only compelling way that my colleagues can fully participate in our business success is by making each and every one of them an owner of the company with me,” he said. “This is the kind of benefit that, through stock appreciation and regular dividends, will continue to work for them and their families well into the future.”

Although the company has around 7,500 employees, the board was granted permission to deal with 50 million shares in order for the company to be able to provide 1,000 shares to new employees to be hired in the future.

Wynn Macau is currently building a new casino resort in Cotai - Wynn Palace - slated to open between 2015 and 2016, thus the company plans to hire more workers in the near future.

A.L

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July 3, 2014

Macau

Big Six bouncing back Gaming stocks rebounded yesterday in Hong Kong with gains exceeding 3 percent as investors began to feel that the worst is over for tanking revenues in Macau. The end of the World Cup this month and the resolving of the UnionPay and transit visa issues is encouraging positive sentiment

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t was a bullish session for gaming stocks, despite the worst performance in revenues in five years in Macau. Yesterday, casino shares rebounded in Hong Kong leading the gains in the major index there. Galaxy Entertainment rose 4.8 percent, the highest jump in its stock since April. MGM China went up 3.5 percent, followed by Sands China with a 3 percent gain. Wynn Macau advanced 2 percent and Melco Crown Entertainment and SJM Holdings increased 1.4 percent and 3.5 percent, respectively. The city’s benchmark Hang Seng Index accelerated 1.6 percent supported by the gaming shares and was headed for its’ highest mark since December.

We continue to believe that the VIP slowdown is largely political [anti‑corruption] in nature rather than economic or even event driven Union Gaming

Yesterday’s bullish session for Macau’s Big Six was a result of the increasing confidence of investors who feel that the worst of the first-half of the year slowdown in revenues is over.

Total gross gaming revenue in Macau dropped 3.7 percent to 27 billion patacas in June, the first decline since June 2009, when it fell 17 percent.

Despite the drop, performance was still better than the street consensus that predicted an average decline of 5 percent.

The start of the World Cup in Brazil, that kicked off in mid-June, diverted gamblers and revenues to bars, and bets on the football

tournament became a decisive factor for the revenue slump last month.

In a note to clients, Deutsche Bank stated that the World Cup effect ‘is severe but only temporary,’ adding that the worst is over or, at least, the ‘worst appears to be over.’

Football will continue to pressure revenues in July, however, as the World Cup continues through the month. “World Cup headwinds should continue until the conclusion of the competition on July 13, in our view. This once-in-every-four-years disruption to gross gaming revenue does not change our positive longterm secular outlook for Macau names,” Sterne Agee said in its most recent note to clients.

Union Gaming yesterday also added an extra factor to June’s underperformance - a Saturday less compared to June of last year that made the comparison this year less favorable. The brokerage firm said also in a note to clients that the VIP segment likely went down 20 percent

in June, while mass market continued to track at around a steady 30 percent rate. “We continue to believe that the VIP slowdown is largely political [anti-corruption] in nature rather than economic or even event driven [World Cup, although this could be responsible for a few hundred basis points in the VIP decline]. With this in mind, we would expect to see VIP continue to be soft over the nearterm, and would not be surprised to see overall gross gaming revenue continue to decline in the low/midsingle digits through the summer.’

During the last World Cup in 2010 held in South Africa, gaming revenues dropped 20 percent before recovering at the same scale, an event that investors are expecting to repeat itself this year, putting gaming stocks on the bullish side.

Revenue rebound Gaming revenue will rebound in July to 30 billion patacas, 2 percent

higher than a year earlier, Billy Ng, an analyst at Bank of America Merrill Lynch, wrote in a report yesterday.

Macau casino stocks stabilised in June as investors priced in negative news such as the slowdown in VIP junkets and restrictions on money flows, he wrote.

“With more clarity on these issues, the sentiment for the sector is gradually recovering,” Ng wrote, adding that while the VIP segment is slowing, outlook for the sector remains positive as growth in the mass market remains robust.

China’s President Xi Jinping has waged a campaign against corruption since taking over as Communist Party chief in 2012.

His clampdown on lavish spending has hurt luxury sales from Chow Tai Fook Jewellery Group Ltd. to Gucci bags. The country’s economy expanded 7.4 percent in the first three months of this year, its weakest pace since 2012.

A.L. with Bloomberg

Visitors more demanding

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ansy Ho, co-chairman of MGM China Holdings Ltd, says that Chinese customers are increasingly demanding. In an interview with Bloomberg TV, the daughter of Stanley Ho explained that people visiting Macau have changed their expectations regarding the services provided.

“Now, we’re already beginning to see that the customers walking through our doors are more demanding. They now know how to differentiate,” Ms. Ho declared on the ‘In the Loop’ TV show. “They will now ask you how many restaurants there are in your facility, and if there

Pansy Ho

are Western restaurants they want to know whether the food is French or Italian,” she explained.

When asked if she thought that customers are becoming more Westernised, she admitted they are.

“Yes, absolutely. They’re beginning to do research prior to their departure,” she said. “So now they have become more selective. They actually would say: ‘I have choices. I have to determine where to go, where to spend my money and how best to spend my time.’ It’s all evolving.”

Sheldon Adelson also spoke to Bloomberg. The chairman and CEO of Las Vegas Sands Corp praised

the efforts of the government here in trying to diversify the main focus of tourists.

“The government wants to diminish the reliance upon gaming and they want to attract leisure customers that will come there for sightseeing,” he said.

The American magnate also shared his views on the tourists that visit Macau. “We’ve done a lot of surveys, and the surveys show that particularly in Asia people travel for two reasons: one is sightseeing and the other is shopping. There are other things for them to do besides gaming,” he added.

A.L.

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July 3, 2014

Macau

What next after BNP? Last week, American IRS agents were in Macau to examine the operations of US casinos here regarding concerns about money laundering

J

ust a week ago it was reported that agents of the U.S. Internal Revenue Service’s criminal enforcement unit travelled to Macau to gather information.

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

More recently, BNP Paribas pleaded guilty to violating U.S. sanctions.

The guilty plea and agreement to pay nearly US$9 billion (72 billion patacas) is part of a larger U.S. Justice Department shift in strategy that is expected to snare more major banks and other firms across the financial food chain.

Two other major French banks, Credit Agricole and Societe Generale, Germany’s Deutsche Bank AG , and Banamex USA, the U.S. arm of Citigroup Inc’s Mexican banking group Banamex, are among those being investigated for possible money laundering or sanctions violations, according to people familiar with the matter and public disclosures.

The Justice Department and other U.S. authorities, including the Manhattan District Attorney, are probing Credit Agricole and Societe Generale for potentially violating U.S. economic sanctions imposed against Iran, Cuba and Sudan, one of the sources said.

Credit Agricole and SocGen have disclosed that they are reviewing

whether they violated U.S. sanctions.

SocGen said in its latest annual report that it is engaged in discussions with the Treasury Department’s Office of Foreign Assets Control over potential sanctions violations.

SocGen and Credit Agricole declined to comment.

Another source said the Justice Department’s bank integrity unit is deep into a probe of whether Citigroup’s Banamex USA operation failed to police money transfers across the U.S.-Mexico border. Citigroup has said it is cooperating with the inquiry, which also involves the Federal Deposit Insurance Corp.

Citigroup spokeswoman Molly Meiners declined comment.

Separately, Citigroup is investigating an alleged fraud involving US$565 million in loans at Banamex and as a result of that has fired a dozen employees.

Prosecutors have also investigated potential sanctions breaches at Deutsche Bank, according to people familiar with the probe, though it is unclear how far that has progressed.

The bank said in its last annual report that it had received requests for information from regulatory agencies and is cooperating with them. It did not immediately respond to a request for comment.

The timing of any possible legal action or related settlement negotiations is unclear.

The pipeline of cases has built up as U.S. prosecutors have pivoted from focusing on specific criminals to also vigorously pursuing the

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July 3, 2014

Macau

The old-school way of attacking money laundering ... really didn’t get at the problem … many banks did not have adequate controls in place to prevent those transactions from happening Leslie Caldwell Justice Department’s criminal division

financial institutions that move money for them.

At the heart of this effort is a 12-prosecutor Money Laundering and Bank Integrity Unit within the Justice Department that was created in 2010. It handled the investigation into BNP for U.S. sanction law violations, primarily involving Sudan deals, as well as large money laundering and sanctions cases in recent years against HSBC Holdings Plc, ING Bank N.V. and others.

Leslie Caldwell, who leads the criminal division at Justice Department, said in an interview that the unit has its sights set on a range of firms potentially involved in illicit money flows.

“I think that we’ll probably see other financial institutions, regional banks, maybe some smaller banks, and I think we’re also going to be seeing, as we have already started to see, more online activity,” Caldwell said during an interview on Friday, speaking of cases in the pipeline.

She declined to name specific firms or confirm any particular investigations.

Regulators and other authorities have also increased their attention on money-laundering risks. The U.S. Securities and Exchange Commission is probing Charles Schwab Corp and Bank of America Corp’s Merrill Lynch brokerage over whether they missed red flags of illicit money flows. Agents of the U.S. Internal Revenue Service’s criminal enforcement unit recently travelled to Macau to examine U.S. casinos’ operations for anti-money laundering concerns.

Bank secrecy act Historically, prosecutors have used money laundering laws to go after low-level money mules, said Caldwell, in reference to lower-level employees and others who were not playing critical roles in instigating or allowing the money laundering.

The Justice Department about five years ago decided to switch tactics and to more aggressively exploit the Bank Secrecy Act, which dates back to the 1970s, and was expanded to include criminal penalties in the wake of the Sept. 11, 2001 attacks.

The law, which requires financial institutions to have robust antimoney laundering programs, was little used for criminal prosecutions until the Money Laundering and Bank Integrity Unit - known internally as “mlbiu” - was created in 2010 to focus on enforcing it.

“This is a way to attack that problem in a much bigger and more effective way,” said Caldwell, a prosecutor for 17 years who was confirmed to her current post in May. “The old-school way of attacking money laundering ... really didn’t get at the problem, which was that many banks did not have adequate controls in place to prevent those transactions from happening.”

The shift has put the financial industry on watch, after prosecutors failed to land high-profile criminal cases stemming from the financial crisis and turned their attention to other types of criminal activity within the financial industry. Banks have responded by hiring thousands of new compliance experts and spending millions of dollars to improve their programs.

“I would put the investigation of financial institutions for laundering proceeds of official corruption pretty high on the list of risks,” said Michael Dawson, who coordinates the global compliance practice at the consulting firm Promontory Financial Group.

“After you look at the sanctions cases, official corruption looms large as a risk on the horizon.”

Moving down the food chain As the unit finishes a series of money-laundering and sanctions cases against some of the world’s largest banks, prosecutors fear that criminals have shifted to using midlevel financial institutions and other types of companies that may not have the controls that large institutions now have.

Sources said the unit is increasingly investigating actors across the twodozen types of companies covered by the Bank Secrecy Act. Among the sectors covered by the act are brokerdealers, jewellery and auto dealers, casinos, insurance companies, and shipping companies.

The Justice Department has already gone after a handful of such institutions, including check cashers in Brooklyn, Philadelphia and Los Angeles that assisted healthcare fraudsters by failing to report US$50 million in transactions, and money transfer company MoneyGram whose agents were allegedly involved in US$100 million in fraud schemes targeting the elderly. MoneyGram agreed to forfeit US$100 million and enter a deferred prosecution agreement over the conduct in November 2012. It said at that time that it takes compliance seriously and had created a new antifraud program.

Virtual currencies have also emerged as a major focus, in the wake of the unit’s 2013 indictment of digital currency exchange Liberty Reserve, its founders and other employees who allegedly helped criminals launder more than US$6 billion in proceeds.

Attorneys from the Justice Department’s asset forfeiture and money laundering section, which oversees the mlbiu unit, have also worked closely with a new FBI unit to help trace the assets of corrupt foreign leaders, traveling to Ukraine to help recover assets allegedly stolen by former President Viktor Yanukovich’s government.

Those efforts could also unearth information about which banks may have looked the other way to move proceeds of corruption, or may not have had required procedures in place, sources said.

Reuters

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July 3, 2014

Gaming

Australia emerging as new casino hotspot High-rollers who usually gamble in Macau will have more destinations to choose from as two Australian states back four casinos. This could have an impact on Macau’s VIP segment, which is already experiencing a decrease Martin Parry

A

ustralia is emerging as the latest hotspot for casino operators as they look to attract Asia’s high rollers to the gaming tables as well as its pristine beaches and popular centres like the Great Barrier Reef.

With a mining boom slowing, the prospect of thousands of new jobs and billions in tourist dollars has convinced Queensland and New South Wales to back four new casinos, despite fears over their potential environmental and social impacts.

The resorts are at various stages of planning, with Queensland, already a popular destination, the main focus of a charge spearheaded

by Australian mogul James Packer and Hong Kong billionaire Tony Fung.

David Wiadrowski, head of Australian Entertainment and Media at PriceWaterhouseCoopers, said Asians culturally liked to gamble and the latest plans were a win-win for state governments.

“For governments, rightly or wrongly, these integrated resorts are an attractive proposition because they create employment opportunities and tax dollars, which they can then put back into the community,” he said.

But the big question was whether there was sufficient demand.

“It is a high-risk strategy, getting the occupancy in the resorts,” he said.

Australia already has more than a dozen casinos, although not on the same scale as the proposed projects.

In May, Fung won a gaming licence, conditional on environmental, planning and gambling approvals being obtained, for his huge A$8.15 billion (US$7.53 billion) Aquis resort near Cairns.

It is being touted as the

THERE ARE THINGS WE DON’T DO

largest investment in tourism infrastructure in Australia’s history, with eight hotels, an exhibition centre, entertainment precincts, a championship golf course and one of the world’s biggest aquariums.

Once open in 2018, it will employ 20,000 people and boost Queensland’s economy by A$1.4 billion a year, according to Fung.

At the same time, ChineseAustralian investment concern ASF Consortium was granted a licence for its A$7.5 billion Broadwater Marine Project on the state’s Gold Coast under similar conditions.

Separately, Echo Entertainment, which runs the only casino in Brisbane, Packer’s Crown and a Hong Kong consortium have bid for the right to build another integrated resort in the Queensland capital.

It all comes with Packer, who runs a worldwide gambling empire, planning to open a six-star hotel and luxury casino complex in a prime location on Sydney Harbour in 2019.

Facilities… don’t only attract the Chinese mass-market middle‑class, but also the big‑spending, high‑value, everexpanding Chinese upper-class Tony Fung, Hong Kong billionaire

China the target market Packer is clear on his target market.

“We believe that Crown Sydney will help attract Asian high net worth travellers to Sydney, in particular from China, creating economic growth, extra taxes and over 1,200 jobs for the people of New South Wales,” he said in outlining his plans.

There is plenty of competition in the lucrative market, led by the former Portuguese colony of Macau that now generates more than six times the gambling revenue of Las Vegas thanks mainly to bigspending Chinese VIPs. Singapore, the Philippines and Vietnam are also staking their

claims to regional market share, with several mega-resorts in the pipeline.

Newly minted Chinese are also the market for Fung, a member of one of Hong Kong’s best-known banking families.

His ambitious Aquis project expects to attract a million guests a year, three-quarters of them from overseas.

“Facilities of the like of Aquis Resort at The Great Barrier Reef don’t only attract the Chinese massmarket middle-class, but also the big-spending, high-value, ever-

BUT WE DO•••

expanding Chinese upper-class,” he said in announcing his plans last year.

However, the project has been criticised by some residents worried that it could hurt local businesses and impact the environment, including the World Heritage-listed Great Barrier Reef.

There have also been concerns about the Gold Coast proposal, which will involve dredging an estuary to create a cruise ship terminal.

Queensland’s largest export is coal but with prices falling and the mining boom that has driven the economy starting to ease, the state needs new ways to attract investment.

“This is about growing the Queensland tourism industry and ensuring we maintain our international competitiveness,” Queensland deputy premier Jeff Seeney said on the rationale behind the new gaming licences.

The booming Chinese market is already Australia’s fastest growing and most valuable with Tourism Australia targeting 1.4 million annual visitors, up from 900,00 last year, within a decade, worth up to Aus$8.2 billion annually.

“These visitors make an important contribution to our economy. China is Australia’s fastest growing inbound tourism market and tourists from China are the largest spenders in Australia,” said Tourism Research Australia chief economist Leo Jago.

Packer said the Chinese wanted more than just natural attractions while in Australia, pointing to shopping and casinos.

“The natural attractions ... are magnificent but people also want man-made attractions,” he said.

AFP

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9

July 3, 2014

Greater China

Xi flies to Seoul for deepening trading ties South Korea is setting up infrastructure for the yuan-won market that may open this year

The biggest beneficiaries of the won-yuan direct trading will be exporters that can cut currency conversion costs and risks An Yu Hua, researcher, Korea Capital Market Institute

Chinese President Xi Jinping (C) is developing an intense agenda in contacts with foreign authorities. Pictured in meeting with Myanmar president.

S

outh Korea and China will hold talks on allowing direct trading between the won and the yuan when the nations’ leaders meet tomorrow to discuss ways of deepening economic ties between the two nations.

South Korean President Park Geun Hye and Chinese President Xi Jinping will discuss issues including the possibility of making yuan directly exchangeable for won, according to a statement on the Blue House website.

South Korea is setting up infrastructure for the yuanwon market that may open this year, Choi Hee Nam, Director General at the Finance Ministry, said by

phone on June 19.

The talks come as China seeks to promote the use of its currency in global trade and finance. The British pound in June became the fifth major currency to be exchangeable directly for yuan in Shanghai, joining the Australian and New Zealand dollars, the Japanese yen and the U.S. dollar. China is South Korea’s biggest export market, accounting for some 25 percent of shipments in the last six months, official data show.

“The biggest beneficiaries of the won-yuan direct trading will be exporters that can cut currency conversion costs and risks,” An Yu Hua, a Seoul-based fellow researcher

at Korea Capital Market Institute, said by phone. “The most important point will be whether direct trading is allowed in Shanghai as well as Seoul, as South Korea has some limits in allowing offshore trading of the won.”

South Korea’s exports to China climbed 0.6 percent in the first half of 2014 and the trade surplus with Asia’s biggest economy totalled US$24.08 billion, according to a July 1 report by the trade ministry. Residents’ yuan deposits jumped 70 percent to the equivalent of US$11.33 billion in the first five months of 2014, Bank of Korea data show.

Xi will visit South Korea for two days starting

tomorrow in his first trip to Seoul since taking power.

The establishment of a wonyuan market can facilitate yuan settlement in bilateral trade and may help reduce appreciation pressure for the Korean currency against the U.S. dollar by curbing inflows, Kwon Goohoon, a Seoul-based economist for Goldman Sachs Group Inc., wrote in a March 5 report.

Given South Korea’s large trade surplus with China and the Chinese government’s policy of promoting yuan usage globally, efforts to create the won-yuan market are likely to gain momentum in the second half of this year, Kwon wrote in a June 30 note.

China’s currency

ranked seventh for global payments in May, according to Society for Worldwide Interbank Financial Telecommunications. South Korean exporters settled 85 percent of their payments in dollars in the first quarter, a central bank statement showed April 23. The euro’s share was 6.1 percent, the yen’s 3.2 percent and the won accounted for 2 percent.

About 0.4 percent was settled in yuan.

The won appreciated 5.2 percent against the dollar in the second quarter of 2014 and 5 percent against the yuan, the biggest gains among 31 major exchange rates tracked by Bloomberg.

Bloomberg News

R&D will be included in GDP The statistical bureau will revise historical gross domestic product (GDP) figures in the past decade to make them consistent

C

hina plans to include what it spends on research and development (R&D) as part of its methodology for calculating economic growth and the change may be adopted next year, the 21st Century Business Herald reported yesterday.

The National Bureau of Statistics has completed drafting the plans and will submit it to the cabinet for approval later this year, the newspaper said. The R&D spending will be counted as investment rather than as business costs.

The statistical bureau will revise historical gross domestic product (GDP) figures in the past decade to make them consistent, it said without elaborating.

The new way of calculating GDP will have limited impact on annual economic growth, probably affecting the result by less than 1 percentage point, the newspaper said.

But it may boost the size of economic output in China’s more

developed coastal provinces and cities such as Beijing and Shanghai - where R&D spending is bigger, it added.

“The impact on annual economic

growth will be limited,” Zhu Baoliang, chief economist at State Information Centre, a top government think tank in Beijing who has been involved in

studying the statistical change.

“We have been studying it for a long time but the implementation could be more complicated,” he told Reuters.

Research and development spending in China reached 1 trillion yuan (US$161 billion) in 2012, about 2 percent of its GDP, government data shows.

R&D expenditure as a percentage of GDP is viewed as an important indicator to evaluate a country’s investment in innovation. R&D spending as a percentage of GDP in China was 1.54 percent in 2008.

In 2013, the United States revised the way it calculated gross domestic product by including R&D spending.

Meanwhile, the statistical bureau has said it will unify the way it calculates provincial economic output to help close a gap with national figures amid scepticism about the reliability of Chinese data.

Reuters

10

July 3, 2014

Greater China Eastern Airlines turns unit into budget carrier

Saving savers After years of getting feeble yields on their bank savings, average saver sees rates improving

M Eastern Airlines Corp said yesterday that it has officially transformed its Beijing-based full-service subsidiary China United Airlines into a budget carrier. China Eastern will also increase the number of planes in China United’s fleet to 80 by 2019, from 26 as of the end of May, the carrier said in a statement. It was not immediately clear whether the airline would order more planes, or use aircraft from its parent’s fleet. China Eastern Chairman Liu Shaoyong told reporters China United hopes to bring on board a strategic investor.

easures used for the size of the toll such as inflationadjusted deposit rates, the gap between rates on loans and the pace of economic growth, have shifted in favour of savers in the past four years.

The burden has dropped to the equivalent of about 1 percent of gross domestic product annually from 5 percent to 8 percent as recently as three to four years ago, estimates Michael Pettis, a finance professor at Peking University. That’s a shift of as much as 2.6 trillion yuan (US$420

It is a turning point.

Lenovo expects It will afford more buyout deals completed growth opportunities for before 2015 Proposed purchases by China’s Lenovo Group Ltd of IBM Corp’s low-end server unit and Google Inc’s Motorola Mobility business should be completed by year-end, Lenovo Chief Executive Officer Yang Yuanqing said yesterday. The deals are currently undergoing approval by U.S. and Chinese regulators. “Both deals are under the approval process in the two countries and they are progressing,” Yang said at Lenovo’s annual general meeting in Hong Kong. “We hope to complete the two deals by yearend,” he said. The January announcement for the acquisition came nearly a decade after Lenovo bought IBM’s money-losing ThinkPad business for US$1.75 billion, which had also faced scrutiny.

LG Chem to build China EV battery plant South Korean firm said yesterday it had signed a memorandum of understanding to build a factory for electric vehicle batteries in China by 2015, betting on growing demand in the world’s top car market. The factory in Nanjing will break ground in September and will cater to Chinese automakers like SAIC Motor Corp and global firms such as General Motors, LG Chem said. Chinese state-owned corporations - Nanjing Zijin Technology Incubation Special Park Construction Development Co Ltd and Nanjing New Industrial Investment Group Ltd - would partner with LG Chem to build the facility.

Innolux to shift some production in China to Taiwan Innolux Corp, the world’s No.3 flat panel maker, plans to shift 25-30 percent of its manufacturing capacity in China to Taiwan in a bid to speed up production time and raise panel yields, a newspaper reported yesterday. The Economic Daily quoted Chairman Tuan Hsing-Chien as saying that the move reflects signs of recovery for the industry. Innolux and other flat panel makers have struggled with steep price drops and a supply glut for years. Representatives for Innolux could not be reached immediately for comment.

domestic consumption and the service sector Chen Zhiwu, finance professor, Yale University

billion) to households from borrowers from 2010 to 2013.

“It is a turning point,” said Chen Zhiwu, a finance professor at Yale University and a former adviser to China’s State Council. “It will afford more growth opportunities for domestic consumption and the service sector.”

Financial repression, a concept detailed in 1973 by Stanford University economists Ronald McKinnon and Edward Shaw, refers to policies that force savers to accept returns below the rate of inflation and that enable banks to provide cheap loans to companies and governments, reducing the burden of their debt repayments.

Survival test Yale’s Chen said the shift will also create more competition and specialization in the financial industry.

“Mediocre financial firms and banks will have a tough time to survive,” he said.

The average yield on wealth management products was 5.16 percent in April while for moneymarket funds it was 4.6 percent, Bank of America Corp. said in a May 20 note.

The products’ interest rates exceed the 0.35 percent benchmark rate on demand deposits, 2.8 percent on a 6-month savings deposit and 3

percent for a one-year deposit. Banks’ outstanding wealth management products rose 44 percent in 2013 to 10.2 trillion yuan, according to the China Banking Association, compared with household local-currency deposits at financial institutions of 48.3 trillion yuan at the end of May. Low returns on savings and cheap loans help explain why household consumption’s share of GDP fell to 36.2 percent last year from 46.4 percent in 2000, according to researcher Capital Economics Ltd. in London.

Smaller share Chinese authorities are transitioning from a system of state-directed credit to one where markets play a “decisive” role in pricing capital. A floor was removed from lending rates in July 2013 and People’s Bank of China Governor Zhou Xiaochuan said in March that deposit rates will be liberalized in one to two years.

Higher returns also mean higher risk. Wealth management products invest in assets including bonds, stocks, currencies, and commodities, though many lack transparency about their underlying assets.

The nation’s first corporate default on bonds sold in mainland China and the bailout of an alternative investment product this year have

Developers show strength in The mainlanders see the southern territory as a lucrative market

by Hong Kong-listed developers

C

hinese developers are moving aggressively into Hong Kong, outbidding their cross-border rivals for prime sites as policy uncertainty and falling property prices on the mainland send them scouring for opportunities to invest overseas.

The mainlanders see the southern territory as a lucrative market based on the absolute earnings enjoyed by Hong Kong-listed developers, which have beaten those of companies listed in mainland China over the past decade.

With some bids up to 20 percent above analysts’ forecasts, mainland companies such as state-controlled Poly Property Group Co Ltd are pushing up prices for popular sites in one of the world’s most expensive real estate markets.

Fears of a bubble - prices have more than doubled in the Asian financial hub since 2008 - have proven no deterrent, while forecasts from some analysts of a 10 percent drop in prices this year have fallen on deaf ears.

But fatter margins aren’t the only thing Hong Kong has to offer. Chinese developers also like its legal stability and status as a world city, giving them a platform to gain experience abroad and build brand awareness, industry watchers say.

“More and more Chinese developers are coming to Hong Kong,” said Alvin Yip, managing director of investment and advisory services at property

KEY POINTS Mainland developers driving up prices for premium lots Attracted by city’s legal stability, global connections Local developers cautious after rapid price growth

consultancy DTZ. “They are not coming only for opportunities in Hong Kong, but also using Hong Kong as a base to invest in Europe, the United States and other parts of the world.”

In Kai Tak district - one of Hong Kong’s largest developments covering 320 hectares (790 acres) of residential and commercial complexes - half of the six available land plots were bought over the past year by stateowned developers, including China Overseas Land & Investment Ltd and Poly Property.

While hard data is not yet available to quantify the trend, it is rare to see mainland developers so active in public auctions of Hong Kong land.

Observers also have been surprised by the mainlanders’ willingness to

out-spend their Hong Kong rivals.

In May, a luxury residential site on Hong Kong island fetched the city’s fifth-highest land price per square foot when it was sold to a consortium of local and mainland

11

July 3, 2014

Greater China

Monetary Authority buys currency to balance HK$ Hong Kong’s almost 31-year-old peg is coming under pressure as signs of a pickup in the U.S. and Chinese economies emerge

H

Bank of China tower in Hong Kong

highlighted financial risks that pose a threat to the government’s goal of about 7.5 percent economic expansion in 2014.

Online savings products also have entered the fray. More than 50 have sprouted since last year, including

Yu’E Bao, the money-market fund pioneered by Alibaba Group Holding Ltd.’s online-payment affiliate Alipay, which almost tripled its assets to 541.3 billion yuan as of March from December.

Bloomberg News

ong Kong’s de facto central bank stepped in for the first time since December 2012 to prevent the city’s currency from rising against the U.S. dollar.

The Hong Kong Monetary Authority said it bought US$2.1 billion within the past 24 hours at HK$7.75 a dollar, the upper limit of a convertibility range that triggers intervention. The purchases, disclosed on the authority’s Bloomberg page, were confirmed by phone.

“Demand for the Hong Kong dollar increased lately,” the monetary authority known as HKMA said on Tuesday in a press release. That was partly driven by “commercial activities, including merger and acquisition activities and dividend distribution,” it said.

Hong Kong’s almost 31-yearold peg is coming under pressure as signs of a pickup in the U.S. and Chinese economies, the world’s largest, bolster demand for shares listed in the city. China’s manufacturing expanded in June at the fastest pace in six months, a government report indicated on Tuesday, and the Hang Seng Index

of shares was set for the highest close this year.

“Clearly, an improved outlook for China and emerging markets in general is leading to inflows that are pressuring the Hong Kong dollar upwards,” said Win Thin, a currency strategist at Brown Brothers Harriman & Co. in New York. “I remain constructive on emerging markets for the next couple of quarters, so the HKMA will likely have to continue intervening.”

When the Hong Kong dollar reaches the so-called strong end of the trading range, the HKMA offers to buy U.S. dollars to prevent further appreciation under its currency board system. The monetary authority injected a total US$13.8 billion into the financial system in 2012 to prevent the local currency from strengthening beyond its permitted trading range, data compiled by Bloomberg show.

Hong Kong Financial Secretary John Tsang said in October there were no plans to change the linked exchange- rate system.

Bloomberg News

Hong Kong

Corn stockpiling to be scrapped

based on the absolute earnings enjoyed

The death of the scheme would signal the demise of similar programmes for cotton and soybeans

C

Hong Kong Parkview, located at Wong Nai Chung Gap

Chinese developers, including Hui Wing-mau, chairman of Shanghaibased Shimao Property Holdings’, and mainland commercial developer Mingfa Group International.

“The premium price they (Chinese

developers) offered surprised the market,” said a senior executive at a Hong Kong property company, which was out-bid by state-owned developers in several land auctions.

Reuters

hina is expected to scrap its corn-stockpiling scheme by as early as next year as it battles to reduce mammoth state reserves that account for more than half of global stocks.

That could end artificially inflated domestic prices and curb imports, hurting farmers in top corn producer the United States already hit by a Chinese crackdown on corn cargoes containing an unapproved geneticallymodified strain.

The death of the scheme would trail the demise of similar programmes for cotton and soybeans, which are being replaced with systems of direct subsidies for growers.

“Corn will be next after cotton and soybeans. The stockpiling (scheme) has left a large amount of stock with the government while imports of feed grains have surged,” said Li Qiang, chief analyst at JC Intelligence Co Ltd (JCI), an influential consultancy that has followed China’s grain markets for years.

“The move will come next year or the year after next,” he added.

The corn stockpiling strategy in the world’s No.2 consumer of the grain was designed to support its huge rural workforce and boost food security.

But while it has helped raise production, it has saddled the state with massive inventory and overflowing storage facilities in key north-eastern growing areas.

KEY POINTS Death of scheme could happen next year, deflate local prices That would dampen company demand for imports, hit U.S. growers End of cotton, soy stockpiling already announced It has also pumped up local prices to the highest level in the world, stimulating demand from Chinese companies for cheaper overseas supplies. Benchmark global prices hit a five-month low on Tuesday on forecasts of ample supply.

Beijing has promised it would gradually allow markets to set prices for agricultural commodities, reaffirming last week that it would shift away from stockpiling.

Although it is yet to specify exactly how and when this will happen, an analyst with an official government think-tank told Reuters that it was “just a matter of time” until there was a change in the country’s strategy on corn.

Reuters

12

July 3, 2014

Asia S.Korea concerned over one-sided fx trading

Japan firms think BOJ inflation The central bank is likely to roughly maintain the forecasts in a

C South Korea’s government and central bank expressed concerns yesterday over one-sided trading in the foreign exchange market after the Korean won firmed through a critical level against the U.S. dollar in early trading. The joint statement from the Ministry of Strategy and Finance and the Bank of Korea also said foreign exchange officials were closely observing institutions and offshore traders’ trading patterns for unusual movements.

Japan firms expect consumer prices to rise Nippon companies expect consumer prices to rise an average 1.5 percent a year from now, a central bank survey showed, underscoring the challenges of driving up inflation expectations with monetary loosening. The detailed BOJ “tankan” survey for June also showed yesterday that firms expect consumer prices to rise an annual 1.6 percent three years from now, and 1.7 percent five years from now. In the previous survey in March, companies said they expected consumer prices to rise 1.5 percent a year from now, and 1.7 percent both three years and five years from now.

Credit risks of small S. Korean firms expected to rise Credit risks of South Korean small firms are expected to rise in the third quarter due to sluggish demand in the domestic market, central bank survey showed yesterday. The credit risk index, which measures risks of borrowers’ failure to service debts, for small companies stood at 31 for the third quarter, up 6 points from the prior quarter, according to the Bank of Korea (BOK). The index was based on a poll of officials in charge of lending at 16 local banks. The higher reading means more risks of default among small firms.

Goodman Fielder agrees to lower Wilmar offer Malaysian billionaire Robert Kuok’s Wilmar International Ltd has convinced Goodman Fielder Ltd to accept a lower takeover offer, as the Australasian food firm warned of a massive impairment charge due to pressures on its baking unit. Wilmar and Hong Kong investment firm First Pacific will now pay A$1.32 billion (US$1.25 billion) or 67.5 cents per share for the struggling maker of Country Life bread and Meadow Lea margarine, Goodman said in a statement to the Australian Securities Exchange yesterday. Goodman gave no reason for the lower offer.

ompanies expect consumer inflation to fall short of the central bank’s 2 percent target for the next five years, emphasizing the challenge it faces in trying to drive up inflation expectations through aggressive monetary stimulus.

Firms polled by the Bank of Japan, as part of a detailed “tankan” survey for June, said they expect consumer prices to rise an average 1.5 percent a year from now, unchanged from projections made three months ago.

The outcome casts doubt on the BOJ’s argument that it can achieve its 2 percent price goal sometime next year as improvements in the economy heighten inflation expectations encouraging firms and households to spend more sooner rather than later.

“Companies feel that while Japan is no longer in deflation, it is in a state of mild dis-inflation,” said Hideo Kumano, chief economist at Dai-ichi Life Research Institute. (Disinflation is a slowing in the pace of price rises, while deflation is a sustained fall in prices.)

Under its “quantitative and qualitative easing” (QQE) enacted in April last year, the BOJ pledged to accelerate consumer inflation to 2 percent in roughly two years via aggressive asset purchases to end 15 years of mild deflation.

BOJ Governor Haruhiko Kuroda

Bank of Japan branch in Osaka

has repeatedly expressed his confidence that Japan is on track to meet the price target, despite the doubts of many private-sector analysts that inflation will accelerate so quickly.

Core consumer inflation stood at 1.4 percent in the year to May, excluding the effect of a sales tax hike in April, half-way through the central bank’s price target period.

Firms in the tankan survey projected consumer prices to rise an annual 1.6 percent three years

from now, down 0.1 percentage point from the previous survey in March, and 1.7 percent five years from now, unchanged from three months ago, the survey showed on Wednesday.

The BOJ expects consumer inflation to slow to levels just above 1 percent in coming months as the effect of higher import costs from the weak yen fades.

Then it sees inflation accelerating again toward 2 percent as rising wages and inflation expectations underpin household spending - allowing firms to increase their prices.

Treasury Wine slapped with disclosure class action The suit is yet another headache for a company that has been slashing earnings forecasts and changing leadership

A

law firm yesterday said it had filed a Federal Court class action against Australia’s Treasury Wine Estates Ltd claiming it misled shareholders about its U.S. business before destroying millions of bottles of wine last year.

The world’s No. 2 winemaker, which has the Penfolds and Beringer labels, rejected the allegations and vowed to “vigorously defend” itself against the much-anticipated suit.

The suit is yet another headache for a company that has been slashing earnings forecasts and changing leadership because of oversupply in its troubled U.S. unit. Spun off from Fosters Group Ltd in 2011. Treasury has rebuffed a series of takeover offers because of its lagging share price.

Law firm Maurice Blackburn said it filed the class action over what it said was late disclosure of a A$190 million (US$179.76 million) writedown in 2013.

It said the write-down included a US$33 million provision to pour “six million bottles of out-of-date wine down the drain”.

Treasury “knew or should have known” by August 17, 2012, that large writedowns were inevitable and should have informed the market earlier, Maurice Blackburn Principal Rebecca Gilsenan said in a statement to the Australian Securities Exchange.

The market “wasn’t informed until July 2013 so shareholders unfairly paid an inflated price for the stock in the meantime”, she added.

The class action is being funded by litigation financier Bentham IMF

Ltd. In the statement, Bentham Investment Manager Tania Sulan said Treasury incorrectly told the market on multiple occasions throughout 2013-2014 that its earnings would grow as it “adequately managed its U.S. distributors’ inventory levels”.

Treasury said it “strongly denies any and all allegations against it and will vigorously defend the legal proceeding”. It noted that the applicant on the claim, Brian Jones, bought 1,000.

Reuters

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13

July 3, 2014

Asia

targets will fail

Thai central bank fears migrant worker exodus

quarterly review of the estimates

Cambodian workers have fled back home fearing that the military government would crack down on illegal immigrants

KEY POINTS

T

Japan firms expect 1.5 pct inflation 1 yr ahead-BOJ survey Firms see inflation fall short of 2 pct target 3, 5 yrs ahead Analysts say no sign inflation expectations are heightening Survey unlikely to sway BOJ into action A closer look at the survey, however, shows corporate inflation expectations have barely risen. Nearly half of the firms polled expect prices to rise 1 percent or less a year from now, while 16 percent say they do not have a clear image on how prices will perform ahead due to uncertainty over the outlook.

“Companies’ price outlook continues to undershoot the BOJ’s 2 percent price target. There is absolutely no sign inflation expectations are heightening,” said Yasunari Ueno,

chief market economist at Mizuho Securities.

The tankan alone, however, is unlikely to prompt the BOJ into cutting its optimistic inflation forecasts or consider expanding monetary stimulus any time soon, analysts said.

In its latest projections issued in April, the BOJ expects core consumer inflation to accelerate to 1.9 percent in the next fiscal year beginning in April 2015 from 1.3 percent in the current business year.

Reuters

he Bank of Thailand’s monetary policy committee is concerned about the recent mass departure of migrant workers and the reaction of trade partners to new policies on labour and other matters, minutes from its last meeting showed yesterday.

Some members felt “large outflows of migrant workers could further tighten the labour market and exert upward pressure on wages, given labour shortages in sectors such as agriculture, fishery and services”, minutes of the June 18 meeting said.

Tens of thousands of Cambodian workers have fled back home, fearing that the military government that seized power in Bangkok on May 22 would crack down on illegal immigrants. The army has reassured Cambodia there would be no crackdown and has quickly introduced policies to register foreign workers and help them return.

On June 18, the monetary policy committee (MPC) voted 7-0 to leave the one-day repurchase rate steady at 2.0 percent, saying the economy should pick up now there was a functioning government again after

nearly seven months of political turmoil.

Among the risks to growth, members cited “possible ramifications on Thailand’s international trade relations with its trading partners due to unintended consequences of domestic policies such as those related to labour”, the minutes said.

Members also felt budget disbursements might be below target, curbing the contribution of public spending to growth.

The MPC cut its 2014 economic growth forecast to 1.5 percent from 2.7 percent but predicted growth of 5.5 percent for 2015.

The committee next reviews monetary policy on Aug. 6. Most economists expect no change the rest of the year, on the assumption that the economy will improve in the second half now that political unrest has been halted.

The minutes said the MPC had noted long-term risks to financial stability, including fiscal discipline.

Some members noted that higher inflation had pushed real interest rates further into negative territory.

Reuters

NZ sees TPP as a lifejacket for China dependency Both countries passed, a year ahead of schedule, a milestone set by Prime Minister John Key and then Chinese Premier Wen Jiabao in 2010 to double two-way trade by 2015

N

ew Zealand’s inclusion in the proposed 12-nation Trans-Pacific Partnership (TPP) will help lower its exporters’ exposure to any downturn in the China market, Trade Minister Tim Groser said yesterday.

Groser told a gathering of China experts at Victoria University in Wellington that the question of whether New Zealand was too dependent on trade with China was a fair question, given that any downturn in China would affect New Zealand exports both to China and the country’s other major market, Australia, given Australia’s dependency on China too.

“There are rather large practical limits to what we can do about this. Even further diversification of our export effort, which is central to this government’s trade policy, does not avoid the problem,” Groser said in a published speech.

“An astonishing 124 countries now count China as their number- one trading partner. If China slows down or worse, all our export markets slow down. We would be adversely affected even if we did not sell a single dollar of goods and services directly to China.”

“In terms of our agribusiness exports, we can only

New Zealand Trade Minister Tim Groser

feed around 40 million to 50 million people. The new trade agenda in front of us -and TPP is the biggest game in town here- is about risk diversification and giving our companies more choice still,” Groser said.

New Zealand had always a small economy whose economic fortunes were always affected by downturns in the major economies of the world, so it was important

to maintain a flexible set of economic, market oriented policy instruments to adjust to external shocks, wherever those external shocks come from, Groser added.

Prime Minister John Key and Chinese President Xi Jinping last year agreed to lift two-way trade to 30 billion NZ dollars (US$26.25 billion) by 2020.

With the signing of the New Zealand China Free

Trade Agreement (FTA) in 2008, as well as an FTA with Hong Kong in 2010 and a comprehensive economic cooperation agreement with China’s Taiwan signed last year, New Zealand was better placed than any other country to get market access to “the greater China economic zone.”

Groser said he was sceptical about the conventional wisdom around

the “what happens if China’s growth rate slows” school of thought.

“From 1992 to 2007, merchandise exports to China increased by an average compound annual growth rate of 12 percent.

From 2008 to 2012, that rate more than doubled to 28 percent per annum. Last year, exports increased by a mind-boggling 45 percent.

Xinhua

14

July 3, 2014

International ExxonMobil pumps US$1 billion into Europe The firm will invest US$1 billion in an existing refinery in Antwerp, Belgium it said yesterday, despite adverse market conditions and falling demand for energy in Europe. The US energy giant said it intends to install a new unit at the site which will convert heavy crude into diesel and marine fuel, a market it believes will grow in the long term. Refineries are a key part of the world’s oil production process, responsible for converting raw petrol into gasoline, diesel and aviation fuel for transportation industries.

German cabinet approves 2015 budget Angela Merkel’s cabinet approved a 2015 budget plan yesterday which for the first time in over four decades includes no net new borrowing, according to participants. Low unemployment levels and steady growth have produced record tax revenues, while rock-bottom interest rates have reduced the financial burden of servicing Germany’s federal debt load of 1.3 trillion euros. This virtuous circle will allow the government to cover an estimated 300 billion euros in spending next year without issuing new bonds the first time it would do so since 1969.

Roche acquires biotech firm Seragon Seragon is focused on developing a new generation of oral medicines that it believes offer an improved way of tackling hormone receptor‑positive breast cancer, and potentially other cancers

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he firm said it would pay up to US$1.725 billion to buy Seragon Pharmaceuticals, a privately-held U.S. biotech company that researches breast cancer treatments.

Roche has long dominated the field of breast cancer with drugs such as Herceptin and recently won approval for Kadcyla and Perjeta, two treatments for patients whose cancer cells contain increased amounts of the protein known as HER2.

San Diego-based Seragon was spun out from Aragon Pharmaceuticals last year when that company was bought by Johnson & Johnson.

Seragon is focused on developing a new generation of oral medicines that it believes offer an improved way of tackling hormone receptor-positive breast cancer, and potentially other cancers.

Its most advanced experimental drug, ARN-810, is currently in initial

Gazprom replaces head of export Oil producer has replaced Alexander Medvedev as head of its exporting arm, Gazprom Export, with one of his deputies, Elena Burmistrova, as part of steps to increase its share in new and established markets. Medvedev, 58, will continue in his role as a deputy CEO at Gazprom, the world’s biggest conventional gas producer, overseeing foreign economic activities, social and sport programmes, the company said.

Sources said there was little reason to believe Medvedev, who had been head of Gazprom’s export unit for 12 years, was being ousted.

Orange drops out of merger talks Orange has ditched plans to take part in any tie-ups in the French telecoms market, the former monopoly said yesterday. A price war sparked by low-cost industry upstart Iliad’s arrival in the mobile market in January 2012, has resulted in open talk of consolidation in recent months, with Bouygues Telecom the centre of attention after it lost a bidding war in April to buy its bigger rival SFR to cable group Numericable. Sources said that it had held informal talks with Bouygues Telecom, the third-biggest player on the market.

UK construction PMI hits four-month high A surge in home-building helped British construction activity to grow at its fastest annual pace in four months in June, bucking expectations for a slowdown, industry data showed yesterday. The monthly Markit/CIPS purchasing managers’ index (PMI) for the construction sector rose to 62.6 in June from 60.0 in May, its highest level since February and well above the forecast for a fall to 59.5.

The equivalent manufacturing survey on Tuesday also beat expectations, driving sterling to its highest level in nearly six years.

KEY POINTS Roche adds to breast cancer drug offering with Seragon Price US$725 mln cash and up to US$1 bln in milestone payments Deal seen as pricey but promising by one analyst Roche shares up 0.5 pct, outpacing European sector

Roche’s Chief Executive Severin Schwan

Phase I clinical trials for breast cancer patients who have not responded to current hormonal agents.

Roche said Seragon’s so-called oral selective estrogen receptor degraders, or SERDs, would complement existing research and development programmes in breast cancer under way at the Swiss group’s Genentech unit.

The Basel-based drug maker will pay US$725 million in cash and may hand over as much as US$1 billion more if Seragon achieves drug development milestones.

High price seen as justified The price Roche is paying for Seragon looks relatively high for a firm with only one treatment in a Phase I study, but can be justified

because Roche is filling a huge gap for future breast cancer treatments with the purchase, analysts at Zuercher Kantonalbank said.

“We assume that Genentech’s scientists see considerable potential in SERDs, because otherwise they would not have accepted this relatively high price,” ZKB said.

Since acquiring Genentech for US$46.8 billion in 2009, Roche has earned a reputation as a disciplined acquirer, prepared to walk away from potential deals rather than overpay.

Chief Executive Severin Schwan abandoned a US$6.8 billion deal to buy U.S gene sequencing company Illumina in 2012 and has snapped up a couple of smaller diagnostic companies this year instead of pursuing multi-billion deals.

Roche has also partnered with various companies to develop antibiotics and said last week it would work with Inception Sciences Inc and Versant Ventures on a new company to develop therapies for patients with multiple sclerosis.

Seragon is the second notable acquisition in as many months for Roche, which bought privately held U.S. gene-sequencing firm Genia Technologies for up to US$350 million in June, securing access to a technology that should allow it to decipher human genes more quickly at a cheaper cost.

The acquisition represents a response to investors who wondered how Roche might use its cash now that its ratio of net debt to assets is back within its target band of zero to 15 percent after paying down debt from acquiring Genentech.

The transaction is expected to close in the third quarter of 2014.

Reuters

ECB becomes global ATM For every US$10 billion increase in the U.S. money supply, there is now a US$20.5 billion increase globally Simon Kennedy

A

s Janet Yellen winds down the Federal Reserve’s moneyprinting operation, Mario Draghi is boosting Europe’s cash supply.

That means the dollars Yellen’s Fed is removing could be compensated for by cheap euros from the European Central Bank. The result may be enough cash sloshing around to underpin this year’s runup in risk assets even if the Fed begins mulling higher interest rates too, says Marios Maratheftis, head of macro research at Standard Chartered Plc in Dubai.

“If any central bank can take over the Fed’s role in terms of its impact on global liquidity, it’s the ECB,” according to a June 30 report

by Maratheftis and colleagues David Mann and Italo Lombardi.

They reckon the relative importance of the Fed in propelling liquidity worldwide has fallen since April 2013. During the last year it has slowed the bond buying it began in December 2008 as financial panic gripped the world.

Regulators’ more recent demands that banks increase reserves also may mean a higher money supply in the U.S. boosts liquidity less elsewhere too.

For every US$10 billion increase in the U.S. money supply, there is now a US$20.5 billion increase globally, down from US$24.4 billion a year ago, according to the Standard Chartered economists. Meantime,

for every US$10 billion rise in the euro area’s money supply there’s a US$19.7 billion boost globally, up from US$18 billion.

With its quantitative-easing program winding down, the Fed has gone from having 35 percent more impact than the ECB a year ago to 5 percent yesterday. The economists also calculate that to keep global money supply stable, the ECB would need to provide US$10 billion of liquidity for every US$9.5 billion withdrawn by the Fed. That may happen. Standard Chartered predicts the euro area’s Frankfurt-based central bank will start its own asset- purchase program before the end of this year.

Bloomberg News

15

July 3, 2014

Opinion Business

wires

Leading reports from Asia’s best business newspapers

THE NEW ZEALAND HERALD

Taking systemic risk seriously Simon Johnson

Professor at MIT Sloan, a senior fellow at the Peterson Institute for International Economics

New Zealand commodity prices fell for a fourth straight month in June, led by apples, logs, whole and skim milk powder.

The ANZ Commodity Price Index declined 0.9 percent last month and is now 6.7 percent below its February peak. Prices of apples declined 6 percent, reflecting the impact of the Northern Hemisphere export season, log prices fell 5 percent and whole and skim milk powder declined 3 percent. Prices of pelts and butter dropped 2 percent while sawn timber and casein both fell about 0.25 percent.

Securities and Exchange Commission headquarters

THE STAR While Malaysian banks can boast of healthy asset quality, their growth prospects are expected to be fairly muted, as leading indicators are pointing to a slower loan growth this year. Analysts polled by StarBiz have a consensus “neutral” stance on the Malaysian banking sector, which they said currently lacks any meaningful rerating catalysts. The local brokerage said it also expected the net interest margin of banks to remain under pressure due to falling asset yields and increasingly rising funding costs.

THE TIMES OF INDIA Billionaire Sajjan Jindal-owned JSW Group is eyeing the power assets of diversified infrastructure conglomerate Jaypee Group, reinforcing the growing trend that mergers and acquisitions (M&A) will drive the beleaguered power sector. The US$11-billion Mumbai-based group has been in discussions to buy the Manoj Gaur-led Jaypee’s power interests as it seeks to boost its fledgling energy business. Jaypee’s power interests are vested in the listed Jaiprakash Power Ventures, which has a market cap of nearly Rs 7,000 crore. It is not clear whether JSW will buy out the promoters from Jaiprakash Power Ventures or just some assets.

THE AGE Supermarket giant Woolworths has been lifting grocery prices in a move aimed at plugging a hole in earnings from its loss-making hardware business and building a war chest to tackle fast-growing discounter Aldi. The price rises contributed to an acceleration in [Australian] food inflation, which has returned to positive territory after two years of deflation. According to a report

by Citigroup, Woolworths has raised prices on a wide range of lower-profile products – such as baked beans, yoghurt, pasta and cream – by between 1.3 per cent and 8.7 per cent over the last two months.

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ASHINGTON, DC – There are two leading views about the world’s financial system.

The first, heard mostly from executives at leading global banks and their allies, is that the system is safer than it has ever been. According to this view, the events that led up to the global financial crisis that erupted in 2008 cannot happen again; the reform process has succeeded.

By contrast, a growing group of current and former officials continues to express concern about current and potential future risks in the United States, Europe, and globally.

US Treasury Secretary Jack Lew made such an argument in a recent congressional testimony, in the context of explaining why the Financial Stability Oversight Council (FSOC) should be allowed to consider whether any kind of firm or activity could pose a risk to the broader system.

And a striking new voice has joined the fray – Kara Stein, a commissioner at the Securities and Exchange Commission (SEC). Stein delivered a farreaching speech in June, in which she argued that systemic risk must become a more central responsibility for financial-market regulators.

Systemic risk refers to problems that spill across different kinds of firms and markets, often in unexpected ways and

sometimes very quickly. Perhaps the most prominent example from 2008 is the way that the failure of the investment bank Lehman Brothers risked brining about the imminent collapse of the insurer AIG, while also leading to intense pressure on money-market mutual funds.

Jeremy Stein (no relation to Kara Stein), until recently a governor of the US Federal Reserve System, has suggested that forced “fire sales” of assets are one important way that risks are transmitted. When asset prices fall as a result of such selling, the solvency of other firms can be affected – even if the creditworthiness of the underlying asset has not really changed.

Bank regulators are starting to take these issues more seriously – an encouraging change from the 1990s and early 2000s, when the Fed was among the cheerleaders for unfettered financial innovation, without adequate consideration for systemic risk.

But securities regulators also need to start thinking along the same lines – and this is where Kara Stein wants them to go. For example, the SEC has traditionally thought about adequate equity capital in a regulated business, primarily as the amount needed to help compensate customers in the event that individual firms fail.

But it would be much better, as Stein suggests, to think

about equity capital from a systemic perspective – that is, how much loss-absorption is needed to prevent some form of a cascading confidence crisis.

Similarly, regulators should start to think about how and when the structure of particular financial transactions creates a potential systemic risk. For example, short-term funding markets involve the supposedly safe business of borrowing against the collateral of tradable securities, which is a mainstay of how broker-dealers finance themselves. Unfortunately, as we discovered during the financial crisis, such markets can become less liquid or even dry up completely when lenders start to fear unforeseen problems, either with borrowers or with the assets that they pledge as collateral.

The systemic risks in this case do not necessarily lie with an individual firm; rather, the issue is the way in which a particular market has come to operate.

Stein has some detailed and credible ideas about how to make such operations less risky for the system as a whole.

More broadly, however, her point is that we need the FSOC to be able to do its job – to look for and assess all kinds of potential systemic risks. This needs to be done as a technical matter, not as part of the political process.

Not everyone at the SEC is as sensible as Stein. There is also some friction among the various regulators in the US, and we surely need more coordination across national borders – including with Europe. But the real danger is that powerful lobbies, working through members of Congress, are pushing back hard against the FSOC and its mandate.

No one likes scrutiny, of course.

And everyone in the assetmanagement industry seems to fear being put under the Fed’s microscope, which is what happens if the FSOC determines that a business is systemically important.

The nature of externalities means that financial firms do not care about the costs that they may create for others. Big and small firms can create a wide variety of externalities, and these have to be examined carefully and dispassionately – exactly as Stein is recommending.

And yet, though assessing systemic risk is a technical matter, there is ultimately and inevitably a political question.

The FSOC can figure out where the risks are lurking, but will it be allowed to do its job? If not, when the next crisis comes, those who opposed the FSOC’s proper functioning will bear the lion’s share of the responsibility.

The Project Syndicate 2014

16

July 3, 2014

Closing China release bank dollar/yuan exchange rate

Singapore to stop issuing S$10,000 notes

China will permit banks to set their own exchange rates for dollar/yuan deals with their clients, relaxing controls in a bid to make the currency more market-driven. Effective Wednesday, banks can set the dollar/yuan exchange rate in their over-the-counter deals based on market demand, the foreign exchange regulator said in a statement. Before the move, the spread in banks’ dollar/yuan buying and selling prices had been subject to regulatory controls. Even after the change, the forex rates that banks offer will be guided by that in the interbank market.

Singapore’s central bank will stop issuing 10,000-Singapore-dollar (US$8,000) notes from October 1 in a move to lower the risk of money laundering, the Monetary Authority of Singapore said yesterday. The set of bank notes issued by the central bank currently consists of notes of different values such as 2 Singapore dollars, 5 Singapore dollars, 10 Singapore dollars, 50 Singapore dollars, 100 Singapore dollars, 1,000 Singapore dollars and 10,000 Singapore dollars. Bank notes of 10,000 Singapore dollars are not often seen or used on the market.

Brazil’s May industrial output falls for third straight month

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razil’s industrial production in May dropped for the third straight month, as the government strives to sustain output amid abovetarget inflation and declining confidence.

Production fell 0.6 percent from the previous month after contracting a revised 0.5 percent in April, the national statistics agency said yesterday

in Rio de Janeiro. The decline matched the median estimate from 35 economists surveyed

by Bloomberg. Production fell 3.2 percent from the year before, versus a 3.4 percent decline forecast by analysts.

Industrial output has stumbled this year as inflation erodes confidence and Brazil’s third-biggest trading partner, Argentina, experiences slower growth. Finance Minister

Guido Mantega this week extended tax cuts on cars to to stimulate demand while the central bank in May kept borrowing costs unchanged following nine straight increases.

Swap rates on the contract maturing in January 2017 fell one basis point, or 0.01 percentage point, to 11.42 percent at 9:06 a.m. local time. The real, which has

appreciated the most this year among 16 major currencies tracked by Bloomberg, weakened 0.1 percent to 2.2039 per U.S. dollar.

Brazil’s economy expanded by 0.2 percent during the first three months of this year, half the pace of the previous quarter as investments and family consumption contracted.

Neighboring Argentina’s economy is on track to shrink

in 2014 as unemployment grows, according to analysts surveyed by Bloomberg.

Auto production Brazilian exports to Argentina fell 20 percent in the first six months of 2014 from the same period a year earlier, the Trade Ministry said yesterday. Automobile production in Brazil declined on an annual basis in four of the first five months of the year, with output plunging 18 percent in May, according to car manufacturers’ association Anfavea.

Output of capital goods fell 2.6 percent, the institute said today. Production of durable consumer goods dropped 3.6 percent. Of the 24 industries studied by the statistics institute, output in 15 declined.

A stronger currency and consumer price increases have coincided with a decline in industrial confidence, which fell in June to its lowest level in more than a decade, according to the National Industry Confederation.

Inflation accelerated to a one-year high of 6.41 percent in mid-June, approaching the ceiling of the central bank’s 2.5 percent to 6.5 percent target range. Policy makers held the benchmark interest rate at 11 percent in May following nine straight increases from a record-low 7.25 percent.

Xiaomi shipments nearly quadruple

Peugeot, Dongfeng choose Indian farmers wait town in west for factory for monsoon

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F

he Chinese smartphone maker valued at US$10 billion last year, saw smartphone shipments for the first half of 2014 surge to nearly four times higher than in the same period last year.

The Beijing-based Xiaomi shipped 26.1 million handsets in the first six months of the year, it said in a press release yesterday. This was more than it shipped in the whole of 2013 and almost quadruple the 7.03 million units for the first half of last year.

Sales for the first six months rose 149 percent from a year ago to 33 billion yuan (US$5.32 billion), Xiaomi said.

Xiaomi, which this year aims to ship 60 million handsets, has rapidly risen to become one of the dominant forces in China’s highly competitive smartphone market. It was the sixth biggest smartphone vendor in the world in the first quarter, according to Canalys.

The firm, which bills itself as an Internet company offering services and products via its smartphones, is now looking to expand overseas.

Reuters

rench auto group PSA Peugeot Citroen has chosen to build its fourth factory in China with its new shareholder Dongfeng at Chendgu the group said yesterday.

The two partners already own three factories in the country, at Wuhan in the centre with capacity to make 750,000 cars per year.

Construction of the fourth plant is to begin in the second half of this year and will increase the group’s total Chinese capacity to one million vehicles in 2016, PSA Peugeot Citroen said in a statement.

The new facility will focus on making crossover vehicles -a cross between a car and a sport utility vehicle- and also four-wheel-drive vehicles under the Peugeot and Citroen brands, and also under the name Fengshen which is a brand owned by Dongfeng.

The Chinese government is encouraging car manufacturers to build new factories in the west of the country so as to boost development of backward regions.

AFP

Bloomberg

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ainfall in June, the first month of the fourmonth monsoon season, was 43 percent below average across India, but more than 90 percent down in some states like Maharashtra and neighbouring Gujarat, top producers of cotton, soybean and sugar cane.

One of the world’s biggest producers and consumers of rice, corn, cooking oil, sugar and cotton, India relies heavily on the annual monsoon rains as nearly half of its farmland is rain fed.

A delay in sowing will hit soymeal and cotton exports that normally pick up from October, and could force India to increase imports of edible oils, said Harish Galipelli, vice-president research at Inditrade Derivatives and Commodities.

The poor start to the monsoon in India’s western region could affect production because only 35 percent of the area sown to crops is irrigated, Morgan Stanley Research said in a note.

India’s summer-sown crops covered just 13.1 million hectares as on June 27 just over half of the level a year earlier.

Reuters