Macau Business Daily, July 8, 2014

MOP 6.00 Closing editor: Alex Lee Publisher: Paulo A. Azevedo Number 577 Tuesday July 8, 2014

After HK, Macau?

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Year III

acau Conscience, Macao Youth Dynamics and Open Macau Society. They jointly plan to hold a civil referendum on the CE election a la Hong Kong. Our neighbouring SAR attracted 800,000 voters for their unofficial referendum. Macau organisers just want numbers to exceed those sitting in the electoral college PAGE

www.macaubusinessdaily.com

Le Saunda Macau’s sales stable in Summer Shoe retailer Le Saunda is pinning its hopes on summer for the SARs. CEO Alice Lau Shun Wai is looking for healthy growth from Macau and Hong Kong in June and July.

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Aristocrat buys VGT

Tough at the top The opening of new casinos in Cotai is just around the corner. But this will increase competition in the VIP market, too. Junket operator Iao Kun says the ‘fight’ for revenue will extend even further afield. Because neighbouring countries are easing restrictions on Chinese visitors PAGE 3

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Slot maker Aristocrat Leisure has agreed to buy Video Gaming Technologies (VGT) for about US$1.3 billion (10.4 billion patacas). This will triple its North American business amid falling profits in Australia PAGE 6

Brought to you by

Keeping the momentum going

HSI - Movers

Premier Li said yesterday it’s been a more positive second quarter. Nevertheless, the government will implement further targeted measures. Too many sectors are still facing difficulties

June 7

Name

Page 9

LRT to cost 8 mln in maintenance Maintenance, project management and technical assistance. The first phase of the Light Rail Transit system won’t come cheap. The government calculates 7.99 million patacas for the next three years PAGE 5

%Day

CITIC Pacific Ltd

3.25

Hong Kong Exchange

3.08

Wharf Holdings Ltd

1.88

China Overseas Land

1.72

China Resources Lan

1.58

Tingyi Cayman Islan

-0.68

Henderson Land Dev

-0.96

Galaxy Entertainme

-1.20

Kunlun Energy Co Lt

-1.78

Sands China Ltd

-2.04

Source: Bloomberg

I SSN 2226-8294

Brought to you by

2014-7-08

2014-7-09

2014-7-10

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28˚ 33˚

2

July 8, 2014

Macau

Unofficial Civil Referendum on Chief Executive Election 2014 Macau Conscience, Macao Youth Dynamics and Open Macau Society jointly plan to hold a civil referendum on the Chief Executive election here in late August following in the footsteps of Hong Kong, whose unofficial referendum attracted almost a million voters a week ago Kam Leong

newsdesk@macaubusinessdaily.com

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hree local associations plan to hold a civil referendum on the Chief Executive election in late August, regarding two questions: whether the Chief Executive of the Macao SAR should be elected by universal suffrage in 2019 and whether voters have confidence in the only candidate running for the election in 2014, or who would they support if there was more than one.

Macau Conscience, Macao Youth Dynamics and Open Macau Society have jointly formed themselves into an ‘Electoral Affairs Commission on the Civil Referendum 2014 on the Chief Executive Election’ to hold this civil referendum in reaction to the Election of the Chief Executive of Macau taking place on August 31.

“It’s hard to estimate how many people will participate in the referendum. However, we hope at least more than 400 people will join it, so there will be more than those

taking part in the official election,” Jason Chao Teng Hei, representative of the Commission, told Business Daily.

The Commission will offer

two methods for voters to cast their ballots - electronic voting or a polling station.

Asked by Business Daily how the Commission would ensure the stability of the voting

website and prevent attacks by hackers, Mr. Chao said that they have certain security measures in place which they cannot reveal at this moment for ‘security reasons’.

The Commission is now soliciting public consultation to decide upon the eligibility of voters, and whether the minimum age required will be 16 or 18 years old. The referendum will take place from August 24 to August 30. The result will only be announced once the result of the official election is declared on August 31.

Such a referendum, according to Chao, is to “deepen [the understanding of] local citizens of the electoral system as well as expressing their attitudes to candidates”.

Neighboring Hong Kong held a similar unofficial civil referendum on how citizens would like to elect their Chief Executive from three different proposals. Almost 800,000 citizens cast their ballots in the referendum, according to the organising group Occupy Central. The Hong Kong Government, however, declared that such voting had no legal standing.

Macau Legend awaiting approval for new tables Macau Legend’s stock fell on news that the company had yet to gain approval for new tables Stephanie Lai

sw.lai@macaubusinessdaily.com

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ocal casino operator Macau Legend Development Ltd saw its stock fall yesterday after Hong Kong Chinese-language newspaper Apple Daily reported that the gaming company had yet to receive approval for new gaming tables.

The newspaper reported yesterday that the application for 50 to 100 new tables for Macau Legend was submitted in December last year, and that the company’s management had expressed confidence to fund managers and stock analysts that approval could be gained within the first half of this year – although so far there has been no news on the respective approval.

Macau Legend declined 3.4 percent to close at HK$5.33 (US$0.69) yesterday.

The company says in its IPO prospectus that it applied to the local regulator, the Gaming Inspection and Coordination Bureau, on October 8, 2012 0 in consultation with Sociedade de Jogos de Macau SA – to increase Macau Legend’s table allotment from 146 tables to 500.

Apple Daily described the ‘50 to 100 new tables’ as the first batch of the 350 tables that Macau Legend would like to apply for from the government; Business Daily has asked the Gaming Inspection and Coordination Bureau about the approval status for the new tables, but received no reply by the time the story went to press.

Macau Legend’s IPO prospectus acknowledges that it is not certain that the government will approve the extra tables, but the company said in June last year that the 350 tables, if approved, would not be part of Macau’s current table cap regime.

The cap allows for three percent compound annual growth from 2013 from a starting point of 5,500 tables.

In yesterday’s publication, Apple Daily also cited an unidentified source saying that Macau Legend had earlier intended to introduce a Chinese investor “rich in political capital” to invest in the company, which could also serve as a means for it to negotiate for new tables with the Macau Government; however, the deal failed to materialise in the end.

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July 8, 2014

Macau

New Cotai casinos pose risk for Iao Kun Group The opening of new casinos in Cotai will increase competition in the VIP market.

However, for junket operator Iao Kun the ‘fight’ for revenue will also come from other countries easing restrictions on Chinese visitors Alex Lee

alex.lee@macaubusinessdaily.com

‘We also face current and prospective competition from casinos and gaming promoters located elsewhere in Asia, particularly since many countries have loosened visa restrictions on Chinese visitors’ it wrote about Malaysia, the Philippines and Singapore. ‘Certain countries, including the Republic of Korea, Singapore, Malaysia, Vietnam and Cambodia, have already legalised casino gaming while others, such as Japan, Taiwan and Thailand, may legalise gaming in the future, which could further increase regional competition,’ it added.

Competition for skilled workers

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ao Kun Group expects competition to increase in Macau as more casinos start operating in Cotai from 2015 on. The junket operator is applying to be listed on the Hong Kong Exchange market and in its application process the growing competition was listed as a risk factor for the company.

‘We expect competition in Macau’s VIP gaming business to increase in the near future as numerous new hotel, casino and entertainment complex projects, which are currently under construction or development, are due to open by the end of 2015. These projects are expected to include

internationally recognised hotels and significant additional gaming space,’ the application says.

‘Any opening of additional casinos and hotels is likely to result in a significant increase in the number of VIP gaming rooms, intensifying competition in Macau’s VIP gaming business and for VIP gaming promoters.’

Iao Kun currently has five VIP rooms located in StarWorld Hotel and Casino, Galaxy Macau Resort, City of Dreams Macau, Sands Cotai Central and L’Arc. The junket operator accounted in 2013 for approximately 2.1 percent of the market share of

total VIP gaming revenue, according to Union Gaming. The equity research firm said in its latest report on the junket market that the largest six gaming promoters accounted for more than 80 percent of market-wide rolling chip turnover on a combined and ongoing basis. Last year, the Iao Kun Group posted profits of 1.9 billion patacas.

Concern about growing competition, however, is not limited to Macau. The fact that other Asian regions are easing restrictions on Chinese visitors is also seen as a sign that gamblers may go to other places to spend their money instead of the former Portuguese enclave.

Other limitations identified by the Iao Kun Group in Macau were the labour force and the lack of skilled and qualified workers, which could affect the company in the future. This problem may be aggravated as more job vacancies are created by the new wave of casinos.

‘Macau has a limited labour pool for VIP gaming operations. Our ability to seek employees from other jurisdictions is also restricted by labour quota restrictions imposed by the Macau Government,’ the report said.

These challenges are likely to increase the costs of company salaries, as has been happening for several years. From 2011 to 2013, company labour costs for hiring and managing non-senior operating staff rose from 2.8 percent to 4.6 percent of the total revenue of the group.

Macau, Guernsey to sign China and Portuguese-speaking tax agreement countries trade jumps 10 percent

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acau and Guernsey are set to ink a new tax information exchange agreement (TIEA).

While no date has been set yet, the announcement was published yesterday in the Official Gazette.

According to the Official Gazette, the Secretary for Economy and Finance Francis Tam Pak Yuen is to sign the agreement with his British counterpart once Macau’s Chief Executive Fernando Chui Sai On grants him authority.

The number of jurisdictions that have a TIEA or Double Taxation Conventions (DTC) with Macau will increase to 19 once Guernsey has signed on the dotted line.

Macau and Japan signed a Tax Information Exchange Agreement (TIEA) in March, and the United Kingdom last month.

Last month, it was announced that a similar tax agreement would be signed with Argentina. However, no date was set as to when both sides would ink the agreement.

According to information from the Financial Services Bureau, the Macau Government has only concluded 18 tax agreements. Of these, five are double taxation agreements (DTA) with Portugal (inked in 1999), mainland China (2003), Belgium (2006), Mozambique (2007) and Cape Verde (2010). The other 13 are tax information exchange agreements with Australia (2011), Denmark (2011), the Faroes Islands (2011), Finland (2011), Greenland (2011), Iceland (2011), Norway (2011), Sweden (2011), India (2012), Jamaica (2012), Malta (2013), Japan (2014) and United Kingdom (2014).

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xternal merchandise trade between China and Portuguesespeaking countries grew by 9.28 percent to MOP425.5 billion from January to May, an increase of 9.28 percent year-on-year.

China’s merchandise imports from Portuguesespeaking countries accounted for 289.8 billion patacas, which is an 11.63 percent increase compared to the same period of last year.

Meanwhile, China exported to Portuguese-speaking countries to the value of 135 billion patacas, an increase of 4.56 percent year-on-year.

As for external merchandise trade during May there was a decrease of 1.89 percent to 95.8 billion patacas in comparison to the previous month. During this period, exports from China to Portuguese-speaking

countries increased by 3.71 percent to 29.0 billion patacas. However, China’s

imported merchandise was reduced by 4.14 percent to 66.8 billion patacas.

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July 8, 2014

Macau Brands

Trends

Tom Ford’s Season Raquel Dias newsdesk@macaubusinessdaily.com

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lthough it feels like summer is here to stay and the warm weather invites light clothing, it’s time to get ready for fall. Most brands are already marketing their Fall/Winter collections and Tom Ford is no exception. The relatively young brand has grown very big very fast and its founder, the gentleman behind Gucci’s reinvention, is one of the most intriguing personalities in the fashion world.

Tom Ford, an American who has directed Oscar-wining movies as well as shaken the Fashion industry, knows what a modern gentleman is all about. Although the brand started as a menswear, beauty, eyewear, and accessories line, it quickly expanded to include women’s wear as well.

As such, feel free to browse the new collection for trends.

Our personal favourite for the coming Autumn/Winter collection has to be the first ever Tom Ford sneaker.

Known for its suits and formal attire, it is refreshing to see the brand expanding into casual wear, too. The elegant all-leather sneaker in white soles is made of polished calfskin or velvet.

It is available in the classic shades of oxblood, brown and black as well as blue and black velvet.

For women, we have to love the Tom Ford cowboy boots. Don’t get fooled by the name; these boots are as feminine as possible with a very tall stiletto heel and a round pointed toe. Pick your favourite rare skin as these come in smooth calfskin, bicolour alligator, tejus, pony and pony print cheetah.

There’s also a velvet version that comes with a Swarovski crystal TF logo.

Le Saunda CEO: Summer sales growth for SARs With total sales down in Hong Kong and Macau in Q1, the shoe retailer is expressing more interest in developing the mainland market and e-commerce Stephanie Lai

sw.lai@macaubusinessdaily.com

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he CEO of Hong Kong-listed shoe retailer Le Saunda Holdings Ltd, Alice Lau Shun Wai, said yesterday that despite the weakening spending by individual mainland Chinese travellers in Hong Kong and Macau as recently observed, the company expects same store sales growth from its shoe shops in the two cities for June and July.

The slower same store sales growth seen in Hong Kong and Macau when compared with the mainland for the first quarter ended in May 31 this year reflected that mainland Chinese visitors travelling under the individual visit scheme have become more cautious in spending, Ms Lau remarked to Hong Kong media after the meeting yesterday.

But the CEO stressed that despite the weakening spending by individual mainland travellers, the company observed that the spending amount by these travellers using UnionPay cards has not registered much change.

According to Le Saunda’s unaudited operational data of the first quarter released earlier, the company’s retail business in Hong Kong and Macau recorded a total sales decrease year-on-year of 7.5 percent, while its same store sales growth climbed 2.5 percent.

The total sales growth of retail

business in mainland China was 8.6 percent year-on-year in the first quarter, and same store sales growth was 17.5 percent.

As at May 31, Le Saunda ran 709 self-owned outlets in mainland China, Hong Kong and Macau, and 147 franchised outlets in the mainland, the company noted in its first quarter data.

Speaking to media yesterday, Ms. Lau noted that the shoe retailer would expect to register same store sales growth in both Hong Kong and Macau for June and July; meanwhile, the group intends to strategically increase the unit price of their products to boost sales growth.

Of the retail revenue the company

registered for the last financial year ended February 28, which reached HK$2 billion (US$258 million), 88 percent of the earnings - or HK$1.79 billion – was generated by mainland China; the rest was from Hong Kong and Macau.

Le Saunda may reduce the number of stores in Hong Kong next year, but the company would stick to its expansion plan in the first and second-tier cities on the mainland, Ms. Lau said.

She also noted that Le Saunda would focus on its e-commerce business, which the company hoped would lift earnings from that segment to a “double-digit” proportion of the company’s total revenue.

Wing Hang Bank, Carson Yeung reach consensus Carson Young’s love of gambling took him to Macau and private rooms reserved for high-stakes baccarat. It also led him to invest in the Neptune VIP Club, a local gambling syndicate Sara Farr

sarafarr@macaubusinessdaily.com

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ing Hang Bank Ltd and jailed Birmingham City Football Club boss Carson Yeung Ka-sing have reached consensus over the repayment of a HK$50 million loan.

Hong Kong’s High Court approved the bank’s application and Mr. Yeung will be allowed to keep his luxury home on The Peak, after the bank agreed to an order not to take possession of it.

Hong Kong media report a lawyer for Mr. Yeung as saying that the businessman had agreed to repay the bank in one tranche. When this will be, however, was not made known.

Four years ago, Mr. Yeung mortgaged his home to Wing Hang Bank, but a year later the bank claimed he had failed to repay money according to their agreement. It was then that the bank sought an order to take possession of the property. Mr.

Yeung bought the HK$146 million home in 2005.

The businessman’s love of gambling brought him to Macau and private rooms reserved for high-stakes baccarat. It also led him to invest in the Neptune VIP Club, a gambling syndicate here. That bet paid off.

Mr. Yeung’s expanding fortune afforded him many Western luxuries: a Maybach car, a London apartment, even an English soccer team.

In 2009, he bought Birmingham City Football Club for HK$731 million. The club was relegated from the English Premier League in 2011 and a year later Mr. Yeung was arrested for money laundering.

Hong Kong authorities made the gaming investment the centrepiece of its money laundering case, winning a conviction this year. On March 7, District Court Judge Douglas Yau sentenced Mr. Yeung to six years in

jail for laundering HK$721.3 million from 2001 to 2007, including cheques from a Macau casino operator and the Neptune Club.

The trial, which began last year after Yeung’s 2011 arrest, provides a rare window into the flow of billions of dollars in and out of China through Hong Kong and Macau.

Two of the men Mr. Yeung was convicted of laundering funds for have been linked to high-profile underground banking in China, according to judgments from separate court cases in mainland China. One of their associates, once China’s richest man, gambled close to 800 million yuan (1.03 billion patacas) in Macau’s VIP rooms and was able to convert it to Hong Kong dollars, which flowed to investors in the Neptune gambling syndicate, according to court testimony cited in a judgment. with S.L. and Bloomberg

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July 8, 2014

Macau

CE electoral college names confirmed

LRT Phase 1 maintenance to cost MOP8 mln

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he maintenance, project management and technical assistance for the first phase of the Light Rail Transit (LRT) system is to cost the government 7.99 million patacas for the next three years.

According to the Official Gazette published yesterday, the contract between the government and the consortium Egis Rail/Fase – Estudos e Projectos/Setec Its S (EFS) has been extended for another financial year.

Under the contract, this year the budget allocated for the maintenance and technical assistance of works

related to Phase I of the light rail is 4.69 million patacas. For 2015, the budget is 1.06 million patacas, while for 2016 the budget is 2.23 million patacas.

The consortium Egis Rail/Fase – Estudos e Projectos/Setec Its S (EFS) has since March 2009 been in charge of project management and technical assistance for the first line of the Macau driverless metro system.

In March 2009, the PortugueseFrench joint venture won a public tender to put the first phase of the Macau light railway service on

track. The Portuguese ‘Fase’ and the French ‘EGIS Rail’ and ‘Setec Its’ form the joint venture selected to provide management and technical advising services for the project.

The consortium signed the building contract that determined a timeline of 46 months and a budget of 176 million patacas.

The Portuguese-French partnership gathered and analysed data in order to define the route and stations and to provide all necessary assistance in the drafting of the next public tenders.

S.F.

he final name list of the electoral college members eligible for electing and nominating the city’s Chief Executive was published in the Official Gazette yesterday. The name list remains unchanged from that announced last week, which includes casino operator bosses Pansy Ho Chiu King and Francis Lui Yiu Tung, who belong to the commercial, industrial and financial sector. These are the sectors with the most seats in the college.

A total of 400 electoral college members will nominate and elect the city’s next Chief Executive on August 31. According to the calendar laid out by the Chief Executive Electoral Affairs Committee, electoral campaigns will run from August 16 to 29, and candidates have until July 29 to hand in their application forms. The current Chief Executive, Fernando Chui Sai On, has expressed his wish to serve a second term in office.

Current electoral rules state that a candidate for Chief Executive must now be nominated by 66 college members, which means that the final election can accept up to 6 candidates running for the Chief Executive’s post.

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July 8, 2014

Macau

Aristocrat to buy VGT for US$1.3 bln Regional general manager David Punter said last year that as competition increases, the company hopes to hold its share of Macau’s market for slot machines at 50 to 60 percent

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lot maker Aristocrat Leisure Ltd has agreed to buy Video Gaming Technologies Inc for about US$1.3 billion (10.4 billion patacas) to triple its North American business amid falling profits in Australia.

The purchase of closely-held Franklin, Tennessee-based Video Gaming Technologies by the Sydneybased gambling machine supplier will be partly funded by an underwritten institutional placement of US$351 million, Aristocrat said in a regulatory filing. The company will also arrange new debt facilities totalling almost US$1.4 billion to finance the takeover and to repay existing borrowings, it said.

[It] provides a unique opportunity to accelerate our growth in the U.S. recurring revenue segment Jamie Odell, Aristocrat CEO

is equivalent to about 8.3 times its US$157 million in earnings before interest, taxes, depreciation and amortization recorded in 2013.

Accelerated growth The takeover is subject to regulatory and other approvals and is expected to be completed by the first half of fiscal year 2015, the company said. This is the company’s second acquisition in five years. Its only other purchase during the period is Paltronics Inc, a computer equipment firm for gambling machines, which it bought for an undisclosed sum earlier this month, according to data compiled by Bloomberg.

Aristocrat’s new debt facilities will include a US$1.3 billion seven-year loan and a 100 million Australian dollar five-year revolving facility, it said yesterday. The company said June 25 that it was in advanced discussions with VGT on a possible transaction.

“VGT has a complementary product offering,” Jamie Odell, chief executive officer of Aristocrat, said in the statement. It “provides a unique opportunity to accelerate our growth in the U.S. recurring revenue segment, which has for some time been an important strategic objective of Aristocrat.”

Top gambling market

The acquisition would boost Aristocrat’s exposure to 28,400 machines from 8,200 in North America, where it’s reaping bigger rewards than at home. Profit in North America rose 4.6 percent in the six months to March 31 from a year earlier, compared with a 19 percent drop in Australian earnings, the company said May 28.

“It’s a market on its way up and they are paying an astronomical premium,” said Evan Lucas, a market strategist at IG Ltd in Melbourne.

“It’s whether or not that actually comes out and returns for them, not just over the next year, but over the next three.”

The US$1.3 billion purchase price

The U.S. is the world’s largest casino gambling market with the most revenue coming from the Las Vegas Strip, followed by Atlantic City in New Jersey. The top two markets generated more than US$9 billion in casino revenue last year, according to data compiled by Bloomberg Industries.

Macau, on the other hand, is the world’s largest gambling hub with casino revenue of about US$45 billion last year - seven times as much as the Las Vegas Strip.

“Aristocrat’s installed base has been steady over the years, indicating growth has been hard to come by,” said Ben Le Brun, Sydney-based market analyst at OptionsXpress, a unit of San Francisco-based financial services firm Charles Schwab Corp.

Bloomberg

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July 8, 2014

Macau

Hong Kong Stocks Fluctuate on Casinos Hong Kong stocks swung yesterday between gains and losses, with the city’s benchmark index trading near its highest level since December, as casinos dropped and Chinese developers advanced. Sands China led the losses

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ands China dropped 2.2 percent, the biggest loss on the Hang Seng Index (HSI), after capping its largest weekly gain in three months.

Li Ning Co. tumbled 8.1 percent after Bank of America Corp.’s Merrill Lynch said that the sportswear maker may report a first-half loss. China Resources Land Ltd. and China Overseas Land & Investment Ltd. climbed at least 2.2 percent, pacing gains among developers.

The Hang Seng Index was little changed at 23,500 points in the city, after sliding as much as 0.5 percent and rising 0.2 percent. Trading volume was 30 percent lower than the 30-day intraday average. The gauge climbed 1.4 percent last week. The Hang Seng China Enterprises Index of mainland shares traded in the city, also known as the H-share index, was little changed at 10,400 points.

“People are turning more cautious as the market has gone up a fair bit,” Steven Leung, director of institutional sales at UOB-Kay Hian Holdings Ltd. in Hong Kong, said by phone.

“Investors are waiting for further indicators to see whether the Chinese economy has more momentum.”

Hong Kong’s benchmark stock measure rebounded 11 percent through last week from this year’s low in March as Chinese policymakers unveiled targeted measures to bolster growth. Asia’s largest economy is due to report trade and inflation data this week.

Full-year growth will meet the government’s 7.5 percent goal, the China Securities Journal reported today, citing Jia Kang, director of the Finance Ministry’s Research Institute for Fiscal Science.

U.S. Futures Futures on the Standard & Poor’s 500 Index slid 0.2 percent yesterday.

The measure advanced 1.3 percent to a record in last week’s shortened trading after jobs data topped estimates. U.S.

markets were closed July 4 for the Independence Day holiday.

International Monetary Fund Managing Director Christine Lagarde yesterday signalled a cut in the institution’s global economic growth forecasts, saying investment is still weak and that risks remain in the U.S. even as its rebound accelerates.

“The global economy is gathering speed, though the pace may be a bit less than we previously predicted because the growth potential is lower and investment” spending remains lacklustre, Lagarde told the Cercle des Economistes conference in Aixen-Provence, France. Asia’s emerging economies will avoid a hard landing, she said.

Railway Rally Railway stocks advanced yesterday.

China Railway Group Ltd. jumped 3.6 percent, the biggest gain on the H-share index. CSR Corp. rose 3.5 percent. The National Development and Reform Commission approved a plan to construct 436 kilometres (271 miles) of inter-city railways with a total investment of about 50 billion yuan ($8 billion), Shaanxi Daily reported July 4, citing the provincial planning body.

The Hang Seng Index eked out a 1 percent gain this year through last week, the third-worst performer among 24 developed markets tracked

by Bloomberg. The H-share index fell 3 percent in the period and traded at 7.3 times estimated earnings, compared with 15.5 times on a MSCI index of global developed and emerging equities.

“China is so very, very cheap,” Mark Matthews, Singapore-based head of Asia research for Bank Julius Baer & Co., which oversees about $377 billion, said in a Bloomberg TV interview.

“There are enough good stories here in Asia. Money should be looking to invest here.”

Bloomberg

8

July 8, 2014

Greater China

Manufacturing output, which accounted for 45 percent of China’s gross domestic product in 2012, is forecast to have grown 9 percent in June, up a shade from May’s 8.8 percent. (Pictured) a silk manufacturing firm facilities.

Incentives grant steady soft trend Exports are forecast to rise 10.6 percent in June from a year ago Xiaoyi Shao and Koh Gui Qing

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hina’s economy probably steadied in the second quarter with annual growth holding firm at 7.4 percent, a Reuters poll showed, suggesting that a recovery is taking hold as a flurry of government stimulus measures kick in.

All but three of the 21 analysts polled by Reuters predicted that growth either stabilised or edged up between April and June, reinforcing the view that authorities have successfully arrested a cool down with a modest loosening in policies.

Indeed, even though economists expect the headline growth rate to cling to an 18-month low of 7.4 percent, they also believe that China’s export and manufacturing sectors likely enjoyed their best performances in several months in June.

“We expect China’s upcoming June and second-quarter data to show an economy that is still recovering,” UBS analysts said in a note to clients.

“With more easing measures underway and an on-going export recovery, sequential growth momentum should warm up further in the third quarter.”

Exports are forecast to rise 10.6 percent in June from a year ago, faster than May’s 7 percent expansion and the best showing in five months.

Imports likely snapped back into positive territory, growing 5.8 percent, after May’s 1.6 percent drop.

Growth in China’s trade sector has gained traction in recent months,

helped by an improving U.S. economy and as the government gave exporters more tax breaks, credit insurance, and currency hedging options.

Manufacturing output, which accounted for 45 percent of China’s gross domestic product in 2012, is forecast to have grown 9 percent in June, up a shade from May’s 8.8 percent.

Faced with the need to cut China’s dependence on exports and investment for growth, Beijing tried earlier this year to convince investors it is willing to slightly miss its annual growth target in exchange for betterquality growth.

KEY POINTS SERIES OF STIMULUS MEASURES SEEN SLOWLY REVIVING ACTIVITY CHINA Q2 GDP SEEN UP 7.4 PCT Y/Y, UNCHANGED FROM Q1 JUNE FACTORY OUTPUT FORECAST UP 9 PCT Y/Y VS 8.8 PCT IN MAY TRADE GROWTH SEEN PICKING UP

But authorities seem to have since changed their minds after weak data early in the year.

Premier Li Keqiang said last month that he expects the 2014 GDP growth target of 7.5 percent to be met or exceeded and vowed the economy would not suffer a hard landing.

The comments reinforced market expectations that Beijing would roll out more stimulus measures if needed.

Recent business surveys signal factory activity may be starting to stabilise after an unsteady start to 2014, while the services sector continues to expand strongly.

Still, some economists warn the economic recovery appears patchy, with a cooling property market and high local government debt levels remaining as key risks. Faltering euro zone growth could also keep expected export gains in check.

Targeted measures Since April, China has steadily loosened policy by reducing the amount of cash that some banks have to hold as reserves, instructing regional governments to quicken their spending, and hastening the construction of railways and public housing.

And analysts say Beijing is likely to unveil more stimulus measures in coming months if the property sector shows signs of a sharper slowdown that could spill over into the broader economy. New home construction starts

are already down by nearly a fifth.

The real estate sector accounts for more than 15 percent of China’s economic output and directly impacts 40 other business sectors.

“For the economy to rebound fully, we believe policy continuity, along with further easing, are necessary,” Shen Jianguang, an economist at Mizuho, said in a note.

Growth in fixed-asset investment, which is closely tied to the property market, is forecast to have hovered at 17.2 percent in the first six months of 2014. That is unchanged from the rate of growth seen in the first five months of the year as slackening real estate investment drags on overall spending.

In the meantime, analysts believe Beijing will keep monetary conditions accommodative.

The broad M2 money supply measure probably expanded 13.5 percent in June from a year ago, up a touch from May’s 13.4 percent. Banks are forecast to have lent 915 billion yuan (US$147.57 billion) in June, up from May’s 870.8 billion yuan.

Price pressures also likely stayed within the government’s comfort zone, giving policymakers room for further easing if required.

Annual consumer inflation is expected to ease to 2.4 percent in June, well below the central bank’s 3.5 percent target for 2014, while the producer price index is likely to have dropped 1 percent.

Reuters

9

July 8, 2014

Greater China Data support stabilization trend Use of the so-called “targeted measures” are meant to help areas of the economy with real business needs

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hina’s economic growth quickened in the second quarter from the previous three months, but further modest government support measures will still be needed, Premier Li Keqiang said yesterday.

Speaking at a news conference with German Chancellor Angela Merkel, who is visiting Beijing, Li said the Chinese economy still faces downward pressure and that the government will increase its usage of targeted measures to boost growth.

His cautiously optimistic remarks may boost market confidence ahead of China’s second-quarter economic report due on July 16. Analysts polled

by Reuters expects China’s growth for the April-June period to have steadied at 7.4 percent.

“China’s economic performance in the second quarter has improved from that in the first quarter. However, we cannot lower our guard against downward pressures,” Li said.

To lift China’s flagging economic growth, which hit an 18-month low

of 7.4 percent in the first quarter of 2014, authorities have cut taxes, ordered regional governments to speed up spending and reduced the amount of cash that some banks have to hold as reserves.

Use of these so-called “targeted measures” are meant to help areas of the economy with real business needs, and is a departure from the past when China would cut rates or reserve requirements for all banks and ramp up spending across the country.

But on the back of China’s rapid credit growth in recent years, some experts including the International Monetary Fund - have urged Chinese authorities to desist from dramatically loosening policy and focus on pursuing needed reforms.

Moderate inflation An upcoming release of official economic data is likely to show that the consumer price index (CPI), the main gauge of inflation, might moderate to a growth between 2.3 and 2.4 percent in

June, down from 2.5 percent in May, economists have predicted.

A median forecast by the Bank of Communications (BOCOM) yesterday said the CPI probably grew 2.4 percent in June.

BOCOM analyst Tang Jianwei said food prices, which account for around one third of the weighting in CPI calculation, were generally stable last month, and prices of vegetables, meat and sea products began dipping in the latter half month of June.

The forecast is the same as one made by the Agricultural Bank of China (ABC). ABC economist Fan Junlin also said inflation probably grew by 2.3 percent in the first half of 2014.

Government data on June inflation as well as the producer price index is due on Wednesday.

Economists predict that inflation will continue with a tempered growth rate in the next half of the year.

Whole-year inflation is expected to fall short of 2.5 percent.

Reuters and Xinhua

80 bln yuan of RQFII quota to Germany China will give investors in Germany the right to invest up to 80 billion yuan (US$12.91 billion) in China’s capital markets, the Chinese government said yesterday. The quota will be granted under the Renminbi Qualified Foreign Institutional Investor (RQFII) scheme, the central government said in its Weibo microblog, as German Chancellor Angela Merkel visits China. The programme, launched in 2011, allows financial institutions to use offshore yuan to invest in the mainland’s securities markets, including in stocks, bonds and money market instruments.

Mazda recalls over 42,000 cars in China Mazda Motor Corp will recall more than 42,000 cars produced in China due to issues over air bags supplied

by Takata Corp, the company at the heart of massive recalls globally involving Japanese, U.S. and European automakers. The move in China is a part of Mazda’s global recall announced on June 23 involving nearly 160,000 vehicles. China’s quality watchdog announced over the weekend China FAW Car Co Ltd, a China venture of Mazda, was recalling 42,732 Mazda 6 sedans from July 20 due to an air bag problem.

Posco and Chongqing Iron & Steel sign deal Chinese Premier Li Keqiang (R) and German Chancellor Angela Merkel (L) during a joint news conference in the Great Hall of the People in Beijing, China, 07 July 2014. Merkel is on a three-day visit to China and is holding talks with Chinese officials to boost ties between the two countries

Local funding unit illegally funded Chinese regional authorities established more than 10,000 so-called local government financing vehicles to fund construction projects

J

iamusi New Era Infrastructure Construction Investment Group Co., a local government financing vehicle (LGFV) in north-eastern China, used fabricated documents to illegally obtain funds, Beijing News reported on July 4.

The LGFV, based in the city of Jiamusi near the Russian border in Heilongjiang province, used fabricated urban planning documents to boost the area of land for which it owns the usage rights, Beijing News reported, citing Song Xueying, former head of the city’s Department of Land and Resources. The financing unit used the land as collateral to sell bonds, according to the report.

Song is serving a prison sentence for taking bribes, the Chinese-language newspaper said.

Pressure to refinance old borrowings is forcing China’s LGFVs to issue a record amount of bonds this year. They sold 907.8 billion yuan (US$146 billion) of notes in 2014, the most in the same period

since at least 2002, data compiled

by Bloomberg on so-called chengtou bonds issued by the financing units shows. While the case flags risks in

The corruption scandal won’t weaken the local government’s implicit guarantee on the company and other LGFV borrowings Qiu Xinhong bond fund manager Golden Eagle Asset Management

LGFV debt, investors have already priced in such concerns, according to Qiu Xinhong, a bond fund manager in Guangzhou at Golden Eagle Asset Management Co. “The news won’t have any impact on the performance of LGFV bonds,” said Qiu. “The corruption scandal won’t weaken the local government’s implicit guarantee on the company and other LGFV borrowings.”

Chinese regional authorities established more than 10,000 socalled local government financing vehicles to fund construction projects after they were barred from directly issuing bonds under a 1994 budget law.

Local governments are responsible for 80 percent of spending, while getting only about 40 percent of tax revenue, the legacy of a 1994 taxsharing system, the World Bank said.

Jiamusi New Era Infrastructure has a total of 3.2 billion yuan of bonds outstanding, according to data compiled by Bloomberg.

Bloomberg News

South Korean steelmaker Posco and the parent group of China’s Chongqing Iron & Steel Co. have signed a memorandum of understanding for a US$3.3 billion investment, South Korea’s trade ministry said on Friday.

The agreement will cover areas including Posco’s self-developed steel making technology called Finex and mining, the ministry said in a statement. It did not offer other specifics. Posco said in September that it agreed to set up a steel mill jointly with Chongqing in western China with an annual production capacity of 3 million tonnes.

SAIC Motor says H1 car sales up China’s top car producer, saw its car sales up 11.57 percent in the first half of this year from a year earlier, it said in a filing to the Shanghai Stock Exchange late on Sunday. SAIC Motor sold 2,861,014 cars in the first half of this year, it said. It sold 421,966 cars in June alone compared with 406,627 cars in the same month last year, it said.

Deal to purchase 100 Airbus helicopters Airbus Group NV’s helicopter division signed agreements yesterday to sell 100 helicopters to Chinese companies.

The deals were signed in Beijing at the Great Hall of the People and overseen

by German Chancellor Angela Merkel and Chinese premier Li Keqiang.

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July 8, 2014

Greater China

Auto sales rise 14% Foreign automakers are targeting China’s smaller cities as the country’s major population centres increasingly restrict the number of passenger vehicles to curb pollution and congestion

P

assenger-vehicle sales in China rose last month, as foreign automakers stepped up their push into smaller cities with cheaper models in a challenge to local carmakers.

Retail deliveries of cars, multipurpose and sport utility vehicles climbed 14 percent to 1.47 million units in June, the Passenger Car Association said on its website today. For the first six months, sales rose 11 percent to 9.09 million.

Foreign automakers are targeting China’s smaller cities as the country’s major population centres increasingly restrict the number of passenger vehicles to curb pollution and congestion. That’s led to the introduction of cheaper models to compete with local carmakers, which have struggled to stem a loss in market share in the world’s largest auto market.

“Automakers are focusing their product launches on the lower- and

mid-end of the market,” said Harry Chen, a Shenzhen- based analyst at Guotai Junan Securities Co. Ltd. “When new products come into the market, it stimulates sales.”

General Motors Co. introduced the Aveo subcompact sedan last month, while Volkswagen AG started sales of the new Polo compact sedan at the end of May, according to the companies.

At a starting price of 73,900 yuan (US$12,000), the Aveo is cheaper than BYD Co.’s G6 sedan and compares with the 68,800 yuan price tag for Geely Automobile Holdings Ltd.’s EC7 sedan, according to pricing data from GM and car-shopping website autohome.com. The competition is eating into the market share for Chinese brands.

China’s local marques accounted for 21.5 percent of industry car sales in May, a decline of 5.1 percentage points from a year earlier, according to data from the state-backed China Association of

Automobile Manufacturers.

Great Wall Motor Co., China’s largest SUV maker, replaced three of its executives amid a sales slump. The reshuffle comes after the company posted sales declines in five of the past six months and the second delay of its key Haval H8 sport utility vehicle.

SAIC Motor Corp., China’s largest automaker, pledged to increase spending to build up its own car brands after sales barely rose in the first five

1.47 mln CARS SOLD IN CHINA IN JUNE

months of this year. Chairman Chen Hong told shareholders on June 19 that the automaker faces a shortage of talent and lacks innovation.

Guangzhou Automobile Group Co. is targeting exports to the U.S. to boost its prospects back home. The manufacturing partner of Toyota Motor Corp. is targeting to start sales of its Trumpchi brand.

Premium brands are stepping up the pace of their expansion in China as demand for luxury autos continues to outpace the overall market.

Bayerische Motoren Werke AG, the world’s biggest premium carmaker, last month extended its partnership with Brilliance China Automotive Holdings Ltd. for another 10 years to manufacture vehicles in China.

The Munich-based company’s China sales have increased 25 percent during the first five months of this year, on pace to top annual deliveries of 400,000 units for the first time.

Bloomberg News

Volkswagen to build two new plants in China The two firms will together spend around two billion euros to expand production capacity

G

erman carmaker Volkswagen will build two new vehicle plants in China as it invests two billion euros (US$2.7 billion) along with its partner, it announced yesterday during a visit by Chancellor Angela Merkel.

The agreement between the company and Chinese auto manufacturer FAW for the new factories in the world’s biggest car market was signed in the presence of

With these investments, Volkswagen is clearly expressing its commitment to the Chinese market Jochem Heizmann president and CEO Volkswagen Group China

Merkel and Chinese Premier Li Keqiang, Volkswagen said in a statement.

The two firms will together spend around two billion euros to expand production capacity, VW said.

It was not clear what the cost of the new factories -in the northern port city of Tianjin and Qingdao in the east- would be, or how the investment would be apportioned.

The statement also did not specify what the plants’ annual capacity would be or when they were expected to start production.

VW representatives were not able to provide further details when contacted by AFP. “With these investments, Volkswagen is clearly expressing its commitment to the Chinese market,” Jochem Heizmann, president and chief executive officer of Volkswagen Group China, said in the statement.

The sites were selected due to their “high qualification levels and the infrastructure available”, the statement added.

Merkel is on a three-day visit to China -her seventh since 2005- with economic ties topping the agenda and a high-powered business delegation in tow.

She toured a Volkswagen

German Chancellor Angela Merkel tours an assembly hall during her visit to the FAW-VW production plant in Chengdu, Sichuan province, China, 06 July 2014. Merkel is accompanied by a high ranking delegation of German business representatives

factory in the south-western city of Chengdu on Sunday.

She is being accompanied by executives from Siemens, Airbus, Lufthansa and Deutsche Bank among other companies, according to German media.

For the EU’s biggest economy, China is a crucial mass market.

Chinese companies want its technology and millions of

newly prosperous citizens crave German goods ranging from Audi sedans to luxury home appliances.

Germany last year sold goods worth 67 billion euros to China, its number-two export market outside Europe after the United States. Imports from the Asian powerhouse, meanwhile, topped 73 billion euros.

China has become

Volkswagen’s largest and most important market, according to the company.

The group sold more than 1.5 million vehicles in the country in the first five months of this year, including sales by its two joint ventures FAW Volkswagen and ShanghaiVolkswagen, the statement said, up 17.7 percent from the same period in 2013.

AFP

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July 8, 2014

Greater China

Boom time for moneylenders in Thailand Household debt includes loans from several sources, such as banks, credit card firms, insurance companies and pawnshops

“B

usiness is great,” said Aoy, a moneylender who charges a whopping 10 percent a month interest but finds plenty of takers in Thailand, where a huge pile of household debt is complicating the military government’s efforts to revive a sluggish economy.

Thai households are among the most indebted in Asia, and the official figures understate the problem due to the large sums also owed to loan sharks - estimated at as much as US$74 billion.

When the army seized power on May 22 it justified the coup partly by the need to fix an economy driven to the brink of recession by seven months of political turmoil. But the growing debt problem leaves the central bank little scope to cut rates to support growth, while exports remain sluggish.

Banks have tightened their lending criteria as an increasing number of loans have soured, so many Thais have turned to loan sharks.

“I lend to small vendors or workers - quick money at a rate of 10 percent per month, without collateral. It’s that easy,” said Aoy, giving just her nickname.

Her eye-watering interest rate was normal in the business, she said.

Banks charge a maximum 20 percent a year on credit cards and 28 percent for personal loans.

Official figures from the Bank of Thailand put household debt at 82.3 percent of gross domestic product at the end of 2013, up from 77.1 percent in 2012.

At 9.79 trillion baht (US$302 billion) at end-2013, the household debt was 76 percent higher than in 2009, driven up by easy monetary policy and government stimulus measures that led consumers to splurge on cars, houses and electronic goods.

Household debt includes loans from several sources, such as banks, credit card firms, insurance companies and pawnshops.

The junta has said it will tackle the problem of loan sharks, but has not said how. The Government Housing Bank is to provide low-cost home loans until the end of the year, but only to customers with a good debt service record.

Cash is widely available on the Internet. One advertiser calling herself

debt has already been a drag on consumption. Even if we didn’t have political problems, consumption would still grow below its potential.

It will limit economic recovery.”

Growth forecast slashed Though the economy is expected to improve later this year, growth in 2014 is likely be the lowest since 2011, when the country suffered devastating floods.

On June 18, the central bank slashed its forecast for this year to 1.5 percent from 2.7 percent, with GDP probably contracting 0.5 percent in the first half from a year earlier before growing 3.4-3.5 percent in the second half.

Its main interest rate has been at 2.0 percent since March and most economists expect no change this year, given high household debt and inflation at a 14-month high of 2.6 percent.

82.3 pct OF THAI GDP IS HOUSEHOLD DEBT

The face of Thailand’s King Bhumibol Adulyadej as seen on the Thai Baht currency’s one thousand Baht note

Ree offers 24,000 baht in return for a new Honda Click motorbike she shows people how to buy with the help of a loan from a mainstream finance company.

There are no official statistics on lending by loan sharks, but the University of the Thai Chamber of Commerce has estimated total informal loans at 1.2-2.4 trillion baht (US$37 billion-US$74 billion).

Consumption is pivotal in Thailand, accounting for half of Southeast Asia’s second-largest economy. Consumer

confidence improved after the coup but remains fragile, so spending will probably not pick up quickly, given the debt burden.

The junta took less than a month to pay 92.4 billion baht in arrears owed by the state to rice farmers, many of whom had turned to moneylenders to survive during the political turmoil from November last year.

Pimonwan Mahujchariyawong, a senior economist with Kasikorn Research Center, says that will hurt economic growth. “Household

Despite the contraction in the economy, the banking sector’s consumer credit rose 10.7 percent in the first quarter from a year before, although it has slowed steadily since a 21.6 percent jump in the final three months of 2012, when a state car subsidy scheme ended.

About 1.25 million of the record 1.43 million vehicles sold that year were bought with the help of the subsidy.

As the economy slows, debt insolvency tends to grow. Even so, total non-performing loans (NPLs) in the banking sector were low at 2.3 percent of lending in March, up slightly from 2.2 percent at the end of 2013.

But NPLs in the consumer credit category jumped 31.3 percent in value in the first quarter from a year earlier, compared with a 20.5 percent rise in 2012 and a drop of 18.9 percent in 2010, when the economy grew 7.8 percent, according to the NESDB state planning agency.

Average household income in Thailand rose 4.1 percent in 2013 to 25,194 Thai baht (US$780) per month, trailing a 4.7 percent increase in household expenditure, the agency said.

Reuters

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July 8, 2014

Asia Australian job ads rebound Job advertisements in newspapers and on the Internet rebounded in June in a potential sign that budgetaffected softness in May did no lasting damage. A survey by Australia and New Zealand Banking Group showed total job advertisements rose 4.3 percent to 132,917 per week on average in June. That retraced much of May’s 5.7 percent drop that was partly attributed to business caution over a touch federal budget. Total ads were up 2.8 percent on June last year. Ads on the Internet bounced by 4.5 percent in June, while those in newspapers fell 2.3 percent to continue a long running trend toward online advertising.

Foreign boost to S.Korea bonds Foreign investors boosted their holdings of South Korean domestic bonds by a net 0.4 trillion won (US$396.04 million) during June, a fourth consecutive month of increases, the financial regulatory agency said yesterday. Some 6 trillion won worth of bonds matured in June but foreign investors bought a net 6.4 trillion won worth, the Financial Services Commission said in a report to a scheduled parliamentary committee session. Separately, foreign investors bought a net 0.7 trillion won worth of South Korean stocks during June, it added.

N.Zealand house price growth softer Growth in New Zealand’s house prices slowed fractionally in June, as rising interest rates and bank lending restrictions weighed on the market, the government property evaluator said yesterday. Quotable Value’s (QV) residential property index rose 8.0 percent in the year to June 30, compared with 8.2 percent at May 31. The index is now 15 percent above the market’s previous peak in late 2007, with the country’s biggest city Auckland leading national gains, but showing signs of slowing. Limits on low-deposit lending by retail banks are seen to have cooled price growth and demand, especially among first-home buyers.

Samsung Electronics faces falling profits Smartphone leader Samsung Electronics Co Ltd faces a third straight quarter of profit decline that could become a fourth as cheaper models grab a bigger share of a slowing market and Apple Inc. readies the launch of its iPhone 6. Samsung Electronics’ woes, exacerbated by a won that has risen to a six-year high against the dollar, come at an awkward time for the flagship of South Korea’s largest conglomerate.

The maker of the Galaxy smartphone is expected to say today, Tuesday, that earnings likely fell 12.6 percent for the quarter ended June.

Malaysia eyes first rate hike in 3 years The steps may include stricter loan-to-value ratio calculations for property buys last year

B

ank Negara, the Malaysian central bank, is raising interest rates on July 10 for the first time in more than three years to curb strong domestic demand that has ratcheted up debt levels and inflation.

Consumer demand has underpinned healthy growth in recent years, making up for patches of weakness in exports, but much of it has been built on an expansion of credit that has also occurred in other Southeast Asian nations because of easy loans.

That has raised Malaysia’s vulnerability to possible external shocks, such as a debt crisis in China or a sudden rise in U.S. interest rates.

Research firm Oxford Economics said in a report last month that Malaysia’s rising debt levels together with a high level of government bonds held by foreigners (around 45 percent) made it the “riskiest” economy in Southeast Asia.

The steps may include stricter loan-to-value ratio calculations for property buys last year, and increased penalties for disposal of properties within five years.

Bank Negara has struck a more hawkish tone in recent meetings, giving investors strong hints that it is preparing to raise its benchmark rate from 3 percent.

At its last meeting in May, it said it may need to act to counter

Bank Negara of Malaysia

a “continued build-up of financial imbalances”, specifically mentioning household debt as a main concern.

Most economists expect a 0.25 percent hike when the central bank meets on Thursday, followed by another as early as September.

Veteran bank Governor Zeti Akhtar Aziz has her eye on rising inflation, which has turned real interest rates negative.

The government’s recent moves to cut subsidies have increased prices

of food, transport and electricity and lifted the annual inflation rate, which in May was 3.2 percent, up from 1.8 percent in June 2013.

Easy money Strong credit growth and rising consumer debt has been a common thread for Southeast Asian economies since major central banks slashed interest rates in response to the 2008 financial crisis and triggered a wave

BOJ stresses to maintenance of stimuli Haruhiko Kuroda also said the world’s third-largest economy is set to continue recovering moderately as a trend

T

he governor of the Bank of Japan yesterday stressed the central bank’s resolve to maintain its massive stimulus programme for as long as necessary to achieve its 2 percent inflation target.

Haruhiko Kuroda also said the world’s third-largest economy is set to continue recovering moderately as a trend, despite the pain from a domestic sales tax hike in April on household spending.

“The BOJ will examine upside and downside risks to the economy and prices, and adjust monetary policy as needed,” he told a quarterly meeting of the BOJ’s regional branch managers.

Kuroda said Japan’s financial system has remained stable as a whole, and that the central bank’s stimulus programme has been exerting its intended effects in pulling the country out of 15 years of deflation.

The Bank of Japan yesterday maintained its economic assessment for all of Japan’s nine regional economies in a quarterly report, saying the economy has continued to recover moderately as a trend.

In the previous report in April, the BOJ said all of the regions saw their economies recovering or recovering moderately despite an increase in the domestic sales tax that kicked

Bank of Japan building in Tokyo

off that month.

The BOJ has keep monetary policy steady since deploying an intense burst of monetary stimulus in April last year, when it pledged to double base money via aggressive asset purchases to accelerate consumer inflation to 2 percent in roughly two years.

Japan’s index of coincident economic indicators was unchanged

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13

July 8, 2014

Asia of easy money to emerging markets.

Malaysia, Singapore and Thailand all have debt-to-GDP ratios above 70 percent. Malaysia’s ratio stands at 86.8 percent, up from 60.4 percent in 2008, and the second highest in Asia after South Korea’s 91.1 percent.

More than half of the burgeoning household debt comes from housing loans, while personal and credit card loans account for 21 percent. It has helped drive a real-estate boom in parts of the country, with national house prices up 11.9 percent last year and Kuala Lumpur prices surging 30 percent in three years.

In contrast, the average monthly Malaysian household income rose about 7 percent annually from 2009-2012.

In an otherwise mostly glowing annual report on Malaysia’s economy last week, the World Bank highlighted the risk to growth from the combination of high consumer debt and rising rates.

Economists say low wage earners will likely be hardest hit by high rates, but the overall effect on the economy should be limited as the bulk of credit is held by wealthier Malaysians.

Reuters

KEY POINTS BANK NEGARA MAY RAISE RATES FOR FIRST TIME IN MORE THAN 3 YEARS HIGH HOUSEHOLD DEBT LEVELS SEEN POSING RISING RISK CENTRAL BANK POLICY MEETING ON JULY 10 AT 1000 GMT

Riding on Modinomics hopes Bankers say 2014 is poised to become the best year for equity offerings in India since 2010

S

everal private Indian firms want to pay off debts by raising up to US$5 billion this year through share sales, emboldened by a surge in the stock market and an anticipated economic recovery after Narendera Modi was elected as prime minister.

Leading the equity issuances in the private sector are highly leveraged firms such as GVK Power & Infrastructure Ltd, Adani Enterprises Ltd and others in capital-intensive industries such as infrastructure, metals and telecommunications, bankers say.

These companies borrowed heavily in the past few years, when India’s economy was one of the fastest growing in the world, but were squeezed by the slowdown in growth last year and the slide in the rupee to record lows.

In most cases, banks stopped giving fresh loans to these indebted companies, whose loans often exceeds their equity several times over, leaving them with few options but to tap the equity market to raise money to reduce their debt.

“There will be an stampede of Indian companies going to the markets and trying to reduce leverage to take advantage of this some kind of Modinomics,” said Eric Mookherjee, a Paris-based fund manager at Shanti India, which manages Indian stocks.

Bankers say 2014 is poised to become the best year for equity offerings in India since 2010, which saw some US$24 billion raised by state-run and private companies.

In 2014, state-run firms are expected to raise up to US$6 billion via share sales, which, in addition to the US$5.4 billion already raised in the first-half of the year and the anticipated issuances by the private sector, would bring the total amount to around US$16 billion for the year,

Prime Minister of India, Narendra Modi after attending the all party meeting ahead of the Budget session at the Parliament house in New Delhi

according to investment bankers’ estimates and Thomson Reuters data.

The rush to raise capital could gather speed if the federal budget on July 10 paves the way for a revival of the economy after the longest spell of growth below 5 percent in a quarter of a century, bankers say.

Business-friendly Modi was elected by a resounding majority in May and since then, the benchmark

stock market index has risen nearly 9 percent to touch record highs, lifted by his pledges to boost growth and create jobs.

Some bankers, however, cautioned that “Modinomics” may not provide an instant revival, meaning indebted firms, whose fortunes are linked to the domestic economy, may see a delay in the pick-up in earnings growth.

Reuters

Traders distrust RBA chief’s comments The Aussie dollar completed its longest monthly rally since 2009 in June, threatening the competitiveness of exporters

R

in May from the previous month, the Cabinet Office said yesterday.

The index of leading economic indicators, compiled using data such as the number of job offers and consumer sentiment, and which is a gauge of the economy a few months ahead, slipped 0.8 point from April.

Reuters

KEY POINTS JAPAN ECONOMY CONTINUES TO RECOVER MODERATELY - KURODA ADDS FINANCIAL SYSTEM STABLE AS A WHOLE STIMULUS PROGRAMME EXERTING INTENDED EFFECTS-KURODA

eserve Bank of Australia chief Glenn Stevens said last week that markets find the idea of his board’s “masterly inaction” unappealing. On cue, traders raised bets on lower interest rates.

After Stevens spoke on July 3, 30-day interbank futures showed about a 56 percent chance that policy makers will lower the benchmark rate by a quarter-percentage point

by March, compared with 30 percent the day before. The extra yield on Australia’s 10-year note over similarmaturity U.S. Treasuries slid to 90 basis points last week, the least since October 2006.

In the wake of a largely unchanged rate decision statement on July 1, Stevens caught some by surprise by saying investors are underestimating the probability of a “significant fall” in the Australian dollar at some point.

The RBA’s comments on policy stability were to clarify it didn’t see a risk of imminent increases, he said. The Aussie completed its longest monthly rally since 2009 in June, threatening the competitiveness

of exporters.

“Talking down the currency is not that effective when you haven’t got anything to threaten the market with,” said Kieran Davies, the Sydney-based chief economist at

Talking down the currency is not that effective when you haven’t got anything to threaten the market with Kieran Davies chief economist, Barclays

Barclays Plc. “I took the comments as trying to reinforce his talking down of the currency.”

Data released during Stevens’s speech showed retail sales declined 0.5 percent in May from a month earlier, when they fell 0.1 percent, the first back-to-back decline in more than a year. Reports this week will provide an update on consumer sentiment after confidence dropped following the government’s May budget, which included spending cuts on welfare and the public service.

A July 10 report will show the unemployment rate climbed in June to a four-month high of 5.9 percent and employers added 12,000 jobs, according to the median estimate of economists surveyed by Bloomberg News.

If weakness in retail sales persists, the pricing for rate cuts will get “more grounding,” said Barclays’s Davies, who predicts the cash rate will remain at a record-low 2.5 percent this year before the RBA raises rates in the first quarter of 2015 as growth picks up.

Bloomberg News

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July 8, 2014

International German industrial output down in May German industrial production contracted in May, hit by the number of public holidays, data showed yesterday. According to regular data compiled by the economy ministry, industrial output decreased by 1.8 percent in May, after slipping by 0.3 percent in April. Activity was hit by the number of public holidays and bridging days, the ministry explained.

Manufacturing output fell by 1.6 percent and construction output was down by as much as 4.9 percent, while energy construction output expanded by 1.0 percent. Taking the period from March to May, industrial output fell by 1.1 percent compared with the previous quarter.

Spanish factories boost output Spanish industry ramped up production in the year to May for the seventh straight month, official data showed yesterday, as an economic recovery appeared to gather pace. Output by Spain’s factories and utilities climbed 2.5 percent in May from a year earlier, after correcting to smooth out seasonal blips, the National Statistics Institute said. Industry appears to be responding to a gentle pick-up in the economy, which emerged in mid-2013 from a double-dip recession sparked by a 2008 property crash. Nevertheless, demand for goods is likely to be capped by high unemployment, which remains at 26 percent.

DM buys ingredients company Wild Flavors U.S. agricultural commodities group Archer Daniels Midland (ADM) said it is buying food flavours and specialty ingredients company Wild Flavors for 2.2 billion euros (US$3 billion) in cash and will assume about 136 million euros of net debt. ADM, a specialist in oilseeds processing, corn processing and agricultural services, said it will establish a new business unit called Wild Flavors and Specialty Ingredients and expects the deal to complete by the end of the year. Reuters had reported in May that Illinois-based ADM was among the bidders for Wild Flavors in a transaction valued at 1.5 billion euros.

Helvetia agrees to buy Nationale Suisse Helvetia Holding AG agreed to buy a majority stake in Nationale Suisse in a transaction valuing the company at about 1.77 billion Swiss francs (US$2 billion) to create Switzerland’s third-largest insurer. Helvetia is offering 80 Swiss francs in cash and shares for Nationale Suisse, whose board welcomed the bid, St. Gallen, Switzerland-based Helvetia said in a statement yesterday.

That’s 26 percent more than the closing price on July 4, the most recent trading day.

The merged company will have premium volume of around 9 billion francs.

Expedia says to buy Australia’s Wotif U.S. travel giant Expedia Inc said yesterday it agreed to buy Australian online travel group Wotif.com Holdings Ltd for A$703 million (US$660 million) in cash, sending Wotif’s shares 25 percent higher. Queensland-based Wotif said its directors, who own 20.2 percent of the company’s shares, and co-founder Andrew Brice, who has 15.5 percent, plan to vote in favour of the deal. The purchase gives Expedia an established base to grow in the Asia-Pacfic region while providing a lifeline to Wotif as it struggles with weak hotel bookings and declining profits.

French labour summit opens with boycott threat Last week the Medef employers’ union threatened to boycott the meeting unless the government delayed the implementation of an early retirement scheme

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rench unions threatened yesterday to boycott a labour summit designed to combat record-high unemployment, while ruling Socialist officials accused employers of giving nothing in return for billions of euros in tax credits.

Prime Minister Manuel Valls said the two-day summit should launch reforms including greater use of apprenticeships and simplify a 3,200page labour code to ease rules on worker representation that firms say are too costly and complex.

But hours before the opening, the hardline FO and CGT unions threatened to walk out of sessions scheduled today, Tuesday, over what they said was unfair behaviour by employers due to reap an unprecedented 40 billion euros (US$55 billion) in tax credits over the next three years.

“Today our main problem is Medef’s attitude,” Socialist Party chief Jean-Christophe Cambadelis told France Info radio, echoing government sources who criticised the Medef. “Their culture is ‘take the money and run’.”

French corporate margins are among the lowest in the euro zone.

However economists say labour costs have in recent years been rising less quickly than in neighbouring Germany, which has just backed the introduction of a minimum wage.

Last week the Medef employers’ union threatened to boycott the meeting unless the government delayed the implementation of an early retirement scheme for workers in strenuous jobs.

It got the concession -a one-year delay until 2016- but at the price of irking the unions and the government.

Participants and company executives said talks would focus mostly on difficulties implementing

The conference is less about moving ahead than ensuring what we already agreed can be implemented Philippe Louis, president of CFTC union

French Prime Minister Manuel Valls

past reforms like President Francois Hollande’s “responsibility pact”, under which firms agreed to hiring targets in return for lower labour costs.

“The conference is less about moving ahead than ensuring what we already agreed can be implemented,” Philippe Louis, president of the reform-minded CFTC union, told Reuters.

Asked if he expected any breakthrough deals, he added: “No, we can feel that feet are firmly on the brake pedals.”

Reform fatigue While the lead-up to the summit was marked by a series of strikes, unions and employers accused each other of not putting into practice a labour cost reform voted into law in April.

Credits have begun to flow, but negotiations on how to apply

counterparties on hiring in hundreds of job sectors have barely got off the ground. Only ten branches have started the talks.

While Medef says credits are coming too slowly, Laurent Berger of the moderate CFDT union argued the flow should be cut off altogether in 2016 and 2017 unless employers live up to vows on investment and hiring.

Tranches of tax credits to companies are to be voted each year as part of the budget. Berger added he had no clear backing from the government on his proposed ultimatum.

Deutsche Bank economist Gilles Moec hailed the government’s willingness to cut employer costs as significant - saying the reforms could help companies more than those being undertaken by Italian Prime Minister Matteo Renzi - but questioned whether they would result in more hiring.

Reuters

Russia lowers 2016 dividend forecast The lower forecasts coincide with Russia’s slowest economic growth since a 2009 recession as U.S. and European Union sanctions bite

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ussia plans to receive almost US$18 billion less in dividends from state-controlled companies in 2016 as OAO Gazprom and OAO Rosneftegaz trim pay-outs, a Finance Ministry document shows.

The government envisages 2016 dividend revenue of 152.1 billion rubles (US$4.4 billion), down from a previous forecast of about 761 billion rubles, according to Finance Ministry projections provided to the government and obtained by Bloomberg News. The ministry raised its 2015 dividend-revenue forecast by 28.7 billion rubles to 229 billion rubles and estimates 2017 revenue at 167.3 billion rubles as pay-outs climb 10 percent from 2016, the document shows.

The lower forecasts coincide with

Russia’s slowest economic growth since a 2009 recession as U.S. and European Union sanctions following President Vladimir Putin’s annexation of Crimea stoked capital outflows.

Gross domestic product grew 0.9 percent from a year earlier in the first quarter. It may advance 0.4 percent this year, the central bank predicts.

The revenue forecasts are lower because the Finance Ministry only calculates part of the dividends to International Financial Reporting Standards and the rest based on Russian rules, while the original plan was to calculate all pay-outs based on IFRS, a participant in the government talks said.

“With state companies, shareholders should understand that the state isn’t the best owner in

terms of maximizing value,” Vladimir Bragin, head of research at Alfa Capital Partners Ltd. in Moscow, said by phone.

Finance Ministry spokeswoman Svetlana Nikitina didn’t respond to calls and e-mails requesting comment outside regular business hours.

Natalya Timakova, a spokeswoman for Prime Minister Dmitry Medvedev, declined to comment.

The pay-out percentage was also reduced, with virtually all the calculations based on a payment of 25 percent of profit under Russian accounting standards instead of the planned 35 percent, said a person, who asked that their name be withheld, having not been authorized to comment publicly.

Bloomberg News

15

July 8, 2014

Opinion

Gouging the Gauchos WIRES BUSINESS

Leading reports from Asia’s best business newspapers

Nouriel Roubini

Professor at NYU’s Stern School of Business and Chairman of Roubini Global Economics

THE NEW ZEALAND HERALD The New Zealand government’s banking services, which include managing about NZ$450 billion of core agency transactions annually, are up for tender for the first time in more than two decades. A single contract will be awarded for the core agencies’ transactional bank, including the Crown’s consolidated cash management process, which has NZ$229 billion worth of credit and NZ$219 billion worth of debit transactions pass through each year, according to the request for proposal. The state will also appoint a selection of banks to provide foreign exchange, merchant facilities and inward payment collection.

THE TIMES OF INDIA Finance minister Arun Jaitley will present his maiden Budget for 2014-15 on Thursday against the backdrop of a sluggish economy, weak public finances, gathering risks on the horizon and a huge burden of expectations.

For the lawyer-turnedpolitician like his predecessor, Jaitley’s first Budget on July 10 also presents a historic opportunity for him to press the accelerator on reforms.

While the Budget is seen as an income-expenditure report card of the government, the new administration’s Budget is expected to contain reform measures to lift growth and get the engines of the economy roaring again.

THE PHNOM PENH POST The number of garment factories registered in Cambodia reached 1,200 at the end of June, an 8 per cent increase over six months ago, according to data released by the Ministry of Industry and Handicraft.

The report also showed that the garment sector employed 733,300 workers at the end of last month, up from 677,600 at the end of 2013. Sophea refused to comment on what the growth rate might mean for the sector following months of unrest after a nationwide minimum wage strike turned violent in January.

THE AGE It started as a pioneering technology disrupter in the hotel booking space 14 years ago, but Wotif has already reached its use by date. The next wave of global competitors has now disrupted it, leaving it little option other than to get out.

Under these circumstances, the US$703 million price tag being offered for Wotif by Expedia is generous enough, … The offer of US$3.30 a share … represents a 30 per cent premium to the prevailing share price, but doesn’t compare well with last year’s high of US$5.63.

Argentina’s President Cristina Fernández

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E W Y O R K – Like individuals, corporations, and other private firms that rely on bankruptcy procedures to reduce an excessive debt burden, countries sometimes need orderly debt restructuring or reduction. But the on-going legal saga of Argentina’s fight with holdout creditors shows that the international system for orderly sovereign-debt restructuring may be broken.

Individuals, firms, or governments may end up with too much debt because of bad luck, bad decisions, or a combination of the two. If you get a mortgage but then lose your job, you have bad luck. If your debt becomes unsustainable because you borrowed too much to take long vacations or buy expensive appliances, your bad behaviour is to blame. The same applies to corporate firms: some have bad luck and their business plans fail, while others borrow too much to pay their mediocre managers excessively.

Bad luck and bad behaviour (policies) can also lead to unsustainable debt burdens for governments. If a country’s terms of trade (the price of its exports) deteriorate and a large recession persists for a long time, its government’s revenue base may shrink and its debt burden may become excessive. But an unsustainable debt burden may also result from borrowing to spend too much, failure to collect sufficient taxes, and other policies that undermine the economy’s growth potential.

When the debt burden of an individual, firm, or government is too high, legal systems need to provide orderly ways to

reduce it to a more sustainable level (closer to the debtor’s potential income). If it is too easy to default and reduce one’s debt burden, the result is moral hazard, because debtors gain an incentive to indulge in bad behaviour. But if it is too difficult to restructure and reduce debts when bad luck leads to unsustainable debts, the result is bad for both the debtor and its creditors, who are better off when a reduced debt ratio is serviced than when a debtor defaults.

Finding the right balance is not easy. Formal legal bankruptcy regimes for individuals and

The court ruled for the first time that a country cannot continue to pay those creditors who accepted a big reduction (or “haircut”) on their claims until the holdouts are paid in full

firms have evolved over time to accomplish this.

Because a formal bankruptcy regime for governments does not exist (though Anne Krueger, the International Monetary Fund’s then-deputy managing director, proposed one more than a decade ago), countries have had to rely on a marketbased approach to resolve excessive debt problems.

Following this approach, the country offers to exchange old bonds for new bonds with a lower face value and/ or lower interest payments and longer maturities. If most investors accept this offer, the restructuring occurs successfully.

But this implies a key problem: Whereas a bankruptcy court can force holdout creditors to accept the exchange offer as long as a significant majority of creditors have already done so (a so-called “cram down”), the market-based approach allows some creditors to continue to hold out and sue to be paid in full.

That is why, over the last decade, governments have augmented the market-based approach with a contractual approach that resolves the holdout problem by introducing collective-action clauses (CACs) that can also cram down on holdouts the terms accepted by a majority of creditors. These clauses became standard in sovereign bonds but were missing in those issued by Argentina before 2001, when the crisis hit. Though 93% of Argentina’s creditors accepted new terms for their bonds in 2005 and 2010 in two exchange offers, a small group of holdouts sued Argentina in the United States, and, with the US

Supreme Court recently ruling on the issue, have now won the right to be paid in full.

The US court decision is dangerous for two reasons.

First, the court ruled for the first time that a country cannot continue to pay those creditors who accepted a big reduction (or “haircut”) on their claims until the holdouts are paid in full. So, why would any future creditor who benefits from an orderly restructuring vote for it if its new claims can be blocked by even a single holdout creditor?

Second, if the holdouts are paid in full, the majority of creditors who accepted a haircut can request to be paid in full, too.

If that happens, the country’s debt burden will surge again, become unsustainable, and force the government – in this case Argentina, which is servicing most of its debt – to default again on all creditors.

The inclusion of CACs in new bond contracts may help other countries avoid the holdout problem in the future. But even CACs may not fully help, because they are designed in a way that still allows a small minority of creditors to hold out and thus prevent an orderly restructuring.

Either super-CACs need to be designed and introduced (though it will take years to include them in all new bond contracts) or the international community may want to reconsider whether the 2002 IMF proposal for a formal bankruptcy court for sovereign borrowers should be resurrected. Holdouts must not be permitted to block orderly restructurings that benefit debtors and creditors.

The Project Syndicate 2014

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July 8, 2014

Closing S. Korea’s industrial parts sector reach surplus

PBoC wants to keep RMB largely stable

Trade surplus in South Korea’s industrial parts sector topped the landmark US$50 billion for the first time in the first half of this year amid recovery in advanced economies, a government report said yesterday. Exports of industrial parts and materials rose 3.1 percent from a year earlier to reach a new record high of 133.9 billion dollars during the January-June period, according to the Ministry of Trade, Industry and Energy.

Imports climbed 1.6 percent to US$83.1 billion in the first half, sending the trade surplus to US$50.8 billion.

Central bank said yesterday that it will try to keep the renminbi exchange rate largely stable in equilibrium. The People’s Bank of China (PBoC) made the remarks in a statement released after a quarterly meeting, during which the central bank discussed the current economic situation in China and abroad. The PBoC said it will advance market-oriented interest rate reform and deepen reform in renminbi exchange rate formulation, according to the statement. In addition, the central bank reiterated that it will continue to implement prudent monetary policy and use a set of financial tools to maintain proper liquidity.

Taiwan June exports rise But the governor of Taiwan’s central bank said recently that Taiwan’s export picture is in better shape this year than it was last year Faith Hung and Roger Tung

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aiwan’s exports in June slightly lagged forecasts, but shipments to the United States jumped in a positive sign that its tech firms are reaping the benefits of the season’s new smartphone line-up.

Component makers for Apple Inc. have started shipping parts for the new iPhone 6, and exports are expected to steadily improve into the third quarter.

“Taiwan companies will be shipping components in big volume in July - September for Apple’s new products,” said Anita Hsu, economist of Masterlink Securities, Taipei.

Exports in June rose 1.2 percent from a year earlier, slightly missing the average forecast of 1.7 percent in a Reuters poll. The figure compared with 1.4 percent in May. Taiwan’s export figures have been lacklustre lately, with May data on exports and export orders both coming in well below expectations,

KEY POINTS JUNE EXPORTS +1.2 PCT Y/Y VS +1.7 PCT IN REUTERS POLL EXPORTS TO U.S. +11.8 PCT Y/Y; CHINA +3.4 PCT GOVERNMENT SEES Q3 EXPORTS BETTER THAN YEAR-EARLIER PERIOD

Top Taiwan brand HTC returning to profit

though in line with neighbouring countries on a softening of trade throughout the region.

But the governor of Taiwan’s central bank said recently that Taiwan’s export picture is in better shape this year than it was last year, despite a still-uncertain

outlook for the global economy.

The trade-dependent economy is hopeful that accelerating momentum in the United States will help to offset slowing growth in its largest export market, China.

Shipments to the United States, Taiwan’s second-

largest export market, rose 11.8 percent from a year earlier, while those to China grew 3.4 percent.

Exports to Europe rose 2.8 percent while those to Japan expanded 4.8 percent.

With technology products making up a large share of Taiwan’s overall exports,

the fortunes of its key tech industry players are closely correlated with the greater trade picture.

Hsu of Masterlink Securities said 2014 exports could beat the government’s forecast.

“We expect Taiwan’s exports to hit a peak in August, with full-year exports to grow 5 percent year on year thanks to launches of new smartphones. That’s better than the government’s 5 percent growth forecast,” she said.

The island’s well-know tech brands are backing up that positive outlook.

Smartphone vendor HTC Corp posted last week a quarterly profit slightly above forecasts, jumping 80 percent from the year-ago period Hon Hai Precision Industry Co Ltd, the world’s No.1 contract electronics manufacturer, pleased investors when it said it should see at least 10 percent profit growth this year over 2013.

Reuters

New multibillion-dollar power line

China logistics activity picks up

Vietnam may post US$500bln trade surplus

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L

A

hina has started operating another multibillion-dollar ultra-high voltage (UHV) power line, connecting its second-largest hydropower plant in the landlocked west to a province on the east coast, the official China Energy News reported yesterday.

The world’s No. 2 economy has struggled to expand its grid to keep up with growing power demand, with most of its new energy supplies in the far west, while demand is in the east and south.

State Grid Corporation of China (SGCC), the world’s biggest utility and a pioneer of UHV technology, plans to spend 620 billion yuan (US$100 billion) by 2017 on 20 UHV lines in China, a company executive said last August.

The project has been controversial with critics arguing SGCC is betting too much on costly and untested technology that could expose the system to blackouts. The firm has said that UHV lines are reliable and designed to prevent outages.

The latest UHV line spans five provinces -Sichuan, Guizhou, Hunan, Jiangxi and Zhejiangand cost about 19.7 billion yuan (US$3.2 billion).

Reuters

ogistics activity picked up in June as the economy showed more signs of stabilizing, latest official data showed yesterday.

The logistics performance index (LPI) for June came in at 56.7 percent, up 1.5 percentage points from a month earlier, according to the China Federation of Logistics and Purchasing (CFLP).

A reading above 50 percent indicates expansion from the previous month, while a reading below indicates contraction. In breakdown, the index for new orders stood at 55.3 percent, recovering 1.6 percentage points from that in May. He Hui, deputy director of the China Logistics Information Centre, said the improving indices indicated a firming trend in the broader economy. Earlier statistics showed growth in China’s manufacturing sector accelerated to a six-month high in June, registering a strong end to the second quarter and an encouraging sign that the economy is further stabilizing. China’s economic growth slipped to 7.4 percent in the January-March period, the lowest quarterly expansion since the third quarter of 2012. China is due to release GDP data for the second quarter next week.

Xinhua

state-run newspaper reported yesterday revised government forecasts, as it seeks to reduce its reliance on imports from neighbouring China amid an on-going diplomatic row.

The trade ministry forecast exports would rise 10.6 percent from 2013 to US$146 billion, while imports could increase 10.2 percent to US$145.5 billion, the trade ministry-run Industry and Commerce newspaper cited the ministry’s forecasts as showing.

The revised forecast follows a reported trade surplus of US$1.3 billion in the first half. In January, the ministry projected an annual trade deficit of US$8.6 billion.

An annual surplus this year would be the third in a row for Vietnam, which posted its first surplus in two decades in 2012.

Rising exports in 2012-2013 and a steady inflow of overseas remittances have helped swing Vietnam’s trade balance to a surplus and boosted its foreign reserves to US$30 billion in January from US$9 billion in 2011, central bank data shows.

Reuters