Macau Business Daily, July 10, 2014

MOP 6.00 Closing editor: Sara Farr Number 579 Thursday July 10, 2014

Publisher: Paulo A. Azevedo

Shop rents to plunge with visa restrictions

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Year III

eal estate prices will continue rising. But selectively. Ricacorp says residential, industrial and commercial buildings will add 10 percent in the second half of 2014.

Shop rents, however, will go south. They are predicted to take the rap for the new visa restrictions on transiting mainlanders. Rents will decrease in the single digit range with transactions set to drop up to 8 percent Page

www.macaubusinessdaily.com

Shine comes off gold

Trade with mainland down 11pct in the first five months of the year Page 2

It’s not just the gaming revenues. Between April and June, Chow Tai Fook’s SAR sales fell 50 percent short of a year ago.

The world’s largest jewellery retailer says this reflects coming off the ‘gold rush’ base when prices plunged in 2013 PAGE 3

Build and they will come

Fragrant Prosperity listed in 2016 Fragrant Prosperity is seeking funding.

The UK-listed Malaysian gaming firm is considering multiple listings. Hong Kong and Australia are in its sights to fund its Asian gaming business.

From Macau to South Korea to Mongolia PAGE 3

Blue skies ahead

2

Packer’s Sydney casino closer to final approval Page 6

HSI - Movers July 9

Name

%Day

Belle International

0.34

China Mengniu Dairy

0.28

Support from an unlikely quarter. A U.S. researcher from the University of Nevada Las Vegas tells Macau to go for it. David Schwartz is confident that the Macau gaming industry won’t fall into the over-capacity trap. The industry here is becoming increasingly sophisticated, he says. And just look at that pent-up demand over the border

COSCO Pacific Ltd

0.18

Kunlun Energy Co Ltd

0.17

China Shenhua Ener

0.00

Bank of China Ltd

-2.79

China Resources PoW

-2.84

PAGE 7

Sands China Ltd

-2.88

Tencent Holdings Ltd

-3.27

Sino Land Co Ltd

-4.15

Source: Bloomberg

Taiwan carrier TransAsia Airways anticipates better profits this year.

Higher fares and improved passenger load are the major factors. Much rests on its international routes, in particular the Japan-Macau run

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Tiger talks

Brought to you by

China and the U.S. say they’re committed. They want to work hand in hand to improve bonds linking the two main world economies. It’s all being thrashed out at the yearly meeting being held in Beijing.

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July 10, 2014

Macau opinion

Some are freer than others

Mainland visa restrictions to hit shop rents Prices of residential, industrial and commercial buildings will increase more than 10 percent in Macau, real estate agency Ricacorp predicts. Shop rents, however, will start to feel the effects of visa restrictions on mainlanders Kam Leong

newsdesk@macaubusinessdaily.com

José I. Duarte Economist

Unionpay transactions in casinos is another factor propelling change, Mr. Li said. Shop transactions will also decrease by 5 to 8 %.

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well-known international real estate company has recently published a worldwide report on the sector. Local media have picked up the story. The news the report conveys about Macau is not such that we should feel the need to rejoice. In fact, the report classified the local real estate market as ‘opaque,’ and ranked it 71st among 102 countries and regions. In Asia, we are told, only two countries are even less transparent: Mongolia and Burma.

I’m not into this modern frenzy of rankings.

Many of them are of doubtful theoretical foundation; many face insurmountable obstacles in the collection of objective data or are based on purely subjective evaluations or perceptions.

The reliability of their methodologies, therefore, is open to question; and the actual meaning of the indices computed is debatable, to say the least. Even when these possible weaknesses are dealt with, figures and rankings must be gauged carefully. Small differences in ranking are probably mostly meaningless. And the same can be said about changes of a few places, up or down, from one year to the other. So, most of the hype around them is possibly more hot air than anything else. The presumed findings may provide catchy titles and fill up media space, but in the end are of little consequence.

However, if we assume, as in this case, that the work done has some consistency and significance, the fact that Macau is stuck in slot 71, deemed as ‘opaque,’ and, say, Portugal, in slot 23, is deemed ‘transparent,’ then this must bear some meaning. If, using the same criteria, in the next survey we found Macau was up by thirty of forty slots and Portugal downgraded to opaque, we might plausibly presume that some momentous change had happened. So, the fact that the Asian tail comprises Macau, Mongolia and Burma is likely to have implications.

Mongolia is a 1.5 million square-kilometre country where some 3 million people live. This mostly empty space was, for most of the 20th century, ruled in the orbit of the now defunct Soviet Union. How one creates a real estate market there, and what it really means in a place where some third of the population is still nomadic, is open to discussion. Until its most recent opening up moves, Burma has been one of the most closed countries in the world (possibly, the only real challenger to North Korea), ruled by one of the most secretive and, many would say, bordering on the paranoid, military juntas. Then, in Asia, in their footsteps, comes Macau, according to the country rankings. That should be enough to test the common assertion that real estate in Macau is a free market, which is often invoked, right and left, to justify the government’s (apparent) inaction in that market.

As it happens, even if other reasons were difficult to identify – and that is certainly not the case – that word alone – ‘opaque’ – should put that claim to rest without reprieve. As anyone who has read the first pages of any economics manual on the workings of markets knows, there are a few conditions that characterise and are required in a free, competitive market.

One of them is, mind you, transparency. Well, a transparent market is one, by definition, where the information required for the agents to take their decisions rationally is easily available, at low or negligible cost. Transparency is, as everybody knows, the opposite of opacity.

By consequence, an opaque market is one where that information is not readily available, meaning usually that it is expensive to obtain or reserved for insiders. May the benevolent reader keep that in mind the next time someone comes to the fore and claims that, while real estate may be running wild, there is nothing that can be done because it is a free market. It is not one, and it never has been.

Residential transactions decreasing; overseas investment the new trend

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Hong Kong-funded real estate agency sees values and rents of industrial and commercial buildings continuing their growth to more than 10 percent in the second half of the year, while light trading in the city’s residential real estate market will also continue as residential properties’ values keep increasing. Shop rents will, by contrast, decrease.

Regional director of Ricacorp (Macau) Properties, Dobby Li, said yesterday that industrial buildings continued to demonstrate good performance in trades. Industrial transaction values hit around HK$4.7 billion (US$585 million) in the first five months of the year, increasing some 56% year-on-year, with an increase of only18% in the numbers of transactions. It is

believed that such a powerful jump is primarily due to such trades not including Special Stamp Duty (SSD) and that the prices of the buildings are rather low compared to other types of real estate.

Commercial buildings, however, have not posted as good a performance as the industrial ones.

According to Mr. Li, it is because the supply of commercial buildings cannot catch up with demand. The total value of transactions jumped 44% to HK$10 billion in the first five months, year-on-year, while the number of transactions are similar.

Shops rents are predicted to decrease a few percent as the government has tightened the number of days transit tourists can stay in the territory. The China government’s clampdown on

The managing director of the agency, Jane Liu, said that residential real estate is estimated to record 10,000 transactions for this year, a 17% decrease from last year’s 12,046 transactions. She thinks the decrease in transactions is due to the lack of supply of new properties as well as SSD affecting trade in the second-hand real estate market.

She estimates that the total value of residential property transactions will reach HK$63 billion, an 8% year-on year decline.

Another regional director, Jennifer Un, noted that although the number of transactions of residential properties is in decline, their values keep increasing. According to official data from the Financial Service Bureau (DSF) the average value of residential real estate increased 9.6 percent in the first five months this year, year-on-year, hitting HK$87,539 per square metre as opposed to HK$79,886 per square metre last year.

Ms. Liu indicated that they had recorded an increase in investments in properties outside the territory, especially Hong Kong.

She predicts that transactions on overseas properties will continue climbing. She also believes that such a phenomenon will not only appear in the residential property market but also the commercial and industrial sectors.

Macau, mainland trade down 11pct

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rade between Macau and mainland China decreased by 11.2 percent year-on-year to US$1.37 billion (10.96 billion patacas) in the first five months of the year, the Ministry of Commerce said.

Mainland exports to Macau dropped 4.7 percent to US$1.28 billion from January to May over the same period last year. Macau exports to mainland China totalled US$90 million, 54.8 percent less than a year prior. In May alone, trade between Macau and mainland China decreased 1.6 percent to US$270 million over that of the previous month. Figures also show that 127 Macau investment projects in the mainland were approved. This represents an 11.4 percent year-onyear increase. Total Macau investment in mainland China increased by 31.7 percent to US$240 million.

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July 10, 2014

Macau

Chow Tai Fook Q2 retail sales fall 32pct The value of retail sales in Macau, Hong Kong and other Asian markets has dropped 43 percent Sara Farr

sarafarr@macaubusinessdaily.com

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how Tai Fook Jewellery Group Ltd, the world’s largest jewellery retailer, posted drops of up to 32 percent in retail sales value for the whole group in the three months ended June 30.

In a filing with the Hong Kong Stock Exchange, the company said that drops of 24 percent were recorded in the mainland Chinese market, while in Macau, Hong Kong and other Asian markets the value of retail sales dropped 43 percent. At the same time, same store sales growth fell 50 percent in the two Special Administrative Regions and other Asian markets, while the mainland China posted a 44 percent drop.

The mainland China market performed better than Macau, Hong Kong and other Asian markets ‘mainly due to the relatively lower base effect,’ apart from which ‘a better consumer sentiment

in mainland China also reflected in a stronger sales performance of gem-set jewellery during the [first] quarter,’ according to the filing.

The company explained the 32 percent drop in the value of the group’s retail sales as being ‘due to the extraordinary high base effect resulting from the increase in sales of gold products following a sharp decrease of gold prices during the first quarter of full year 2014,’ the filing reads.

Narrowed down by product, the retail sales value of gold products accounted for 50 percent of the total, followed by gem-set jewellery at 28 percent, platinum/karat gold products at 16 percent and watches at 16 percent.

Overall, same store sales growth of gem-set jewellery increased 2 percent, while gold products decreased 56 percent.

Fragrant Prosperity plans multiple listings The UK-listed Malaysian gaming firm, Fragrant Prosperity, said it seeks second and third listing in Hong Kong and Australia to fund its Asian gaming business Stephanie Lai

sw.lai@macaubusinessdaily.com

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alaysian gaming firm Fragrant Prosperity PLC, which is engaged in the casino business on Jeju Island in South Korea and here, will consider listing in both Hong Kong and Australia, having acquired the Mongolian National Lottery, Hong Kong media reports.

The company held a signing ceremony in Hong Kong on Monday announcing its acquisition of 60 percent for £3 million (HK$39.8 million) in the Singapore-based firm Monvest Group Pte Ltd, which operates the National Lottery of Mongolia.

Monvest, which holds the exclusive brand name of Mongolian National Lottery, won a grant from the Mongolian Ministry of Finance in February last year for a three-year licence extension to run the lottery business.

Fragrant Prosperity said on Monday

that it planned a second listing in Australia in early 2015 and a third in Hong Kong by 2016 to fund expansion of its gaming business in Asia.

Speaking to media on Monday, the investment president of Fragrant Prosperity, Mr. Teh Chee Teong, told Hong Kong media that the company was interested in recruiting management and gaming marketing professionals at a salary level “50 percent” higher than that of Hong Kong to develop

the Mongolian gaming business.

He also said that the company had an online gambling licence for Costa Rica and “several partnerships” with casinos in Jeju Island, but he did not elaborate upon the company’s operation data.

According to Fragrant Prosperity’s profile registered with GXG Markets, the company was established specifically to raise funds to take a 70 percent stake in an existing casino operation on Jeju Island. The company was listed in the GXG Markets in London in December last year.

Teh also mentioned to media on Monday that since two months ago his company has been engaged in the junket business in Macau.

Within two years, the company would like to acquire casino projects in Jeju Island for about US$100 million, he said.

Fiscal reserve registers slight increase T

he fiscal reserve held by the Monetary Authority totalled 240.9 billion patacas (US$30 billion) as at May 30 2014, registering a 780 million-pataca increase compared to last month, according to the Official Gazette released yesterday. The current fiscal reserve has a proportion of bank deposits amounting to some 116 billion patacas, while the proportion of bonds is almost 117 billion patacas. A loss of around 790 million patacas was registered in its investments. The loss, however, has already narrowed by 850 million patacas compared to last month, when a loss of 1.6 billion patacas was recorded.

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July 10, 2014

Macau

Improved loads to boost TransAsia Airway’s 2014 results More flights to Japan, Macau set to boost the Taiwan legacy carrier’s earnings, report says Stephanie Lai

sw.lai@macaubusinessdaily.com

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aiwan legacy carrier TransAsia Airways expects better profit this year following an upward adjustment of domestic flight fares and improved passenger load factor for international routes, in particular from the routes of Japan and Macau, Taiwan’s Chinese-language financial news outlet MoneyDJ quoted investors as saying.

The increasing of the domestic flight fares by 10 percent, together with the passenger load factor for international routes to rise by 7 to 8 percent yearon-year, will be the driving force for TransAsia Airways’ revenue growth this year, the Taiwan news outlet reported quoted investors. The forecasts for the improved passenger load factor is based on the growth of the route to Japan and Macau, the news outlet said.

The overall passenger load factor

for TransAsia Airways for the first quarter of this year was 69.1 percent; international routes accounted for 69.3 percent – about 4 percent more than the same period last year. The passenger load factor for the carrier’s international routes last year was 67.4 percent.

TransAsia Airways operates daily flights between Macau and the main cities of Taiwan – Taipei in the island’s north and Kaohsiung in the south.

Last year, the carrier established a route between here and the city of Taichung, which currently has three return flights per week.

Starting from March this year, the Taiwan carrier also enhanced its flight frequency to the major Japanese destinations of Tokyo, Osaka and Okinawa.

Aside from Macau, the other international destinations TransAsia

Airways now flies to include Osaka, Tokyo, Hokkaido, Uruma, Jeju island, Siem Reap City, Palau, Chiangmai and Bangkok.

Of the carrier’s revenue from flight passengers for the first quarter, 45 percent derives from passengers travelling the international routes and another 35 percent from ‘Cross-Straits’ routes – meaning the direct flights between the island and mainland China.

Business Daily approached TransAsia Airways for more information on the load factor of the Macau route, but the carrier responded that such information could only be released once the company releases the June financial highlights today.

Speaking to MoneyDJ, TransAsia Airways’ chairman Lin Ming Sheng said he expected that earnings for the second and third quarters, both peak

travel periods, will be better than the first quarter with advantages seen from the expansion of flight routes that started last year.

The average load factor for the carrier already exceeds 70 percent, Mr. Lin told the news outlet.

The budget carrier established by TransAsia Airways, V Air, intends to launch flights by the fourth quarter of this year destined for northeast Asia and southeast Asia, MoneyDJ reported.

Although V Air has expressed interest before in launching flights to Macau, Business Daily reported in June that the company said it had yet to decide whether the passenger portfolio of those travelling from Taiwan to Macau suited the business model for the budget carrier, as Macau was not primarily a destination for individual travellers from the island.

Gov’t grants land for commercial, parking project

Mung Kin Keung new China Star co-chairman

The two plots of land have a combined area of 2,320 square metres and are located behind casino Rio

The chairman and non-executive director of Hong Kong Airlines Ltd comes on board

Sara Farr

sarafarr@macaubusinessdaily.com

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he government has approved a land grant to Son Ieng Property Development Company Limited to build a commercial premises.

According to a dispatch published yesterday in Macau’s Official Gazette, the grant is for two plots of land on Avenida do Dr Rodrigo Rodrigues with Alameda Dr. Carlos d’Assumpcao in ZAPE. These two occupy a combined area of 2,320 square metres.

The land grant will be done on a lease agreement between the property developer and the government here. The Official Gazette does not specify how long the lease is valid for.

These two plots will be for Song Ieng Property Development to build a commercial property and parking space on. More details on this were not published. However, in 2006 there was a big controversy on the maximum height allowed for the construction of new high-rise buildings because of the interrupted view to and from the Guia Lighthouse – a World Heritage site.

Protesters opposed the construction of two buildings – a 34 storey residential building with a height of 126 metres and an 88-metre high local representation of the Chinese Central Government, that is now located at the foot of Guia Hill.

There were calls to UNESCO by concerned citizens at the time, which later welcomed the government’s move to limit the height of construction in the buffer zone.

In 2008, then-Macau Chief Executive Edmund Ho Hau Wah published a dispatch, which stated that the permitted maximum height of construction within the 11 defined zones varies between 5 and 90 metres. This widened the zone of the Heritage’s protection. Today, Mount Fortress is also included in the protection programme, having been listed as a World Heritage site of historical value.

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hina Star Entertainment Ltd has appointed Mung Kin Keung as the company’s new co-chairman, the company announced in a filing with the Hong Kong Stock Exchange after trading hours.

Mr. Mung now has 4.5 million shares in China Entertainment, accounting for 22.02 percent of the total issued share capital, making him the second largest single company shareholder after Hueng Wah Keung Family Endowment Ltd – 50 percent of which is owned by the board chairman and the other 50 percent by the board vicechairman. These shares also represent 31.16 percent of the company’s existing issued share capital, and represent HK$405 million in convertible bonds.

China Star and Mr. Mung also entered into a convertible bond subscription agreement, the net proceeds of which are valued at an estimated HK$404.2 million. The proceeds of these ‘will be used for the construction and development of the sites for expanding the operation of Lan Kwai Fong Macau,’ the company said in the filing.

These sites, according to the filing, are located in ZAPE. In addition, China Star also entered into a share subscription agreement with

Mr. Mung that will see the new co-chairman acquire up to 1.5 million subscription shares by Long Joy Investments Ltd. Each share has a subscription price of HK$0.09 as of Tuesday, when the agreement was entered into.

Long Joy is a wholly-owned subsidiary of Well Way Group Ltd and an independent third party. According to the filing, Mr. Mung is also the substantial shareholder of Well Way holding up to 22.82 percent of that company’s issued share capital.

Last month, China Star disposed of its shares in Star Hope Investments Ltd in order to concentrate on hotel and gaming services.

China Star and its subsidiaries focus primarily on film production, distribution of film and television dramas, the sale of Chinese health products, investment in operations streams from the gaming promotion business, property and hotel investment, in addition to property development.

In March, China Star, which is also the owner of Lan Kwai Fong hotel-casino, increased its presence in the casino junket market here by offering a HK$200 million loan to a junket. The move was meant to give the company a better grasp of the operation.

S.F.

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July 10, 2014

Macau Brands

Trends

New High Street Raquel Dias newsdesk@macaubusinessdaily.com

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ot that long ago, the popular Senado and S. Domingos squares were filled with small local shops and cheaper regional brands like Bossini and Giordano. The well-known Sasa and other beauty stores were introduced in the early 2000’s and are still nothing short of a phenomenon.

However, the trend seems to be changing. The local high street is slowly being transformed into a high-mid range shopping mall.

It is still true that affordable Hong Kong brands occupy a big portion of the square footage but local commerce that once boomed is closing down in favour of brands like Swarovski, Pandora, Nike, Levi’s and so on. Walk a bit further and you’ll even find Louis Vuitton, Prada and Miu Miu resellers. Even in the beauty section of the market we’ve seen changes. Brands like Lancôme and L‘Occitane are opening more shops.

The shift was confirmed with the grand opening of Forever 21 at the bottom of the steps leading to the Ruins of St. Paul’s. The clothing megastore is just a new step in the changing landscape. What happened in Europe three decades ago is happening here, too. Local shops are closing down as owners realise it is far more profitable to sell their space or rent it than operate it themselves.

That is not to say that little boutiques are not opening every day, they are. Other parts of town are dotted with little shops, with young artists showcasing their designs and interesting concepts. You can even find a couple of successful local chains like Cantwo and Mancy. What you no longer find, however, are the traditional shops. The gentleman who fixed watches, the lady who sold sewing supplies and all the small stationery stores are becoming things of the past.

Packer’s Sydney casino closer to final approval Australian mogul James Packer’s Aus$1.5 billion ($1.4 billion) Sydney casino has been given the green light by the state gaming regulator, taking it one step closer to winning final approval.

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illionaire Packer, who runs Crown - a gambling empire already operating casinos in Melbourne, Perth and Macau - won backing from the New South Wales Independent Liquor and Gaming Authority late Tuesday.

The state body said in a statement that the casino, which targets Asian high-rollers and is being built in a prime location on Sydney Harbour, would be awarded a 99-year gaming licence and could start operating from November 15, 2019.

The last hurdle is to secure planning approvals that include community consultation.

While the regulator said it had investigated Crown and Packer for “any criminal or related incidents” the tycoon’s ugly punch-up with former best man David Gyngell on Bondi Beach in May did not appear to have hurt the approval process.

Following the public brawl, Packer and television executive Gyngell were

James Packer

slapped with criminal infringement notices carrying a fine of Aus$500.

Crown’s development, when completed, will be the second casino in Sydney after The Star at Darling Harbour.

The approval comes as Australia

emerges as the latest hotspot for casino operators looking to attract Asia’s big spenders to their resorts and the country’s tourist sites.

Crown and a Hong Kong consortium, as well as Echo Entertainment - which runs The Star - are bidding for the right to build a second resort in the Queensland capital of Brisbane.

Two other casinos in Queensland have recently received state backing, with Asian-led consortiums winning the bids.

Packer, meanwhile, was courting Japanese Prime Minister Shinzo Abe during his current visit to Australia, after travelling to Tokyo in May with Prime Minister Tony Abbott.

He says he wants to expand his empire into the lucrative Japanese market in the form of resort-casinos to tap the country’s love of gambling.

Abe was set to dine with officials at Packer’s Crown casino complex in Perth yesterday.

Gross gaming revenue: 11 percent drop in July possible Barclays and Bank of America Merrill Lynch predict that during July Macau’s gross gaming revenue will drop, following the trend of the previous month. The FIFA World Cup is expected to affect Macau’s gaming iwndustry until the final whistle

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acau casinos’ gross gaming revenue will likely drop in July, according to predictions from Barclays and Bank of America Merrill Lynch.

The British bank report forecasts that gross gaming revenue will drop around 6 percent year-onyear during July to roughly 27.6 billion patacas. Barclays notes that the World Cup is still affecting the Macau gaming industry as the first six days of July posted a daily average table game revenue of only 747 million patacas.

With the World Cup final kicking off on Sunday, the bank expects the daily average table game to continue to be around 747 million patacas.

However, from the 14th day of the month on, Barclays expects the value to go up to 927 million patacas.

The bank also predicts that massmarket revenue will remain strong, while the win rate for VIP Rooms will be lower.

Merrill Lynch estimates that gross gaming revenues in Macau will range from 26.3 to 30.1 billion patacas in the month of July. The worst scenario

predicted by the American bank would mean a decline of around 11 percent year-on-year. This would make July the worst month of the year for casinos, following a yearon-year drop of 3.7 percent in gross gaming revenue in June.

The best scenario would result in an increase of 2 percent compared to July 2013. Last year, during the seventh month casinos took in 29.5 billion patacas. This was an increase of 20 percent year-on-year in comparison to 2012 (24.6 billion patacas).

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July 10, 2014

Macau

Overbuilding Macau not a concern, says gaming expert The director of the Centre for Gaming Research at the University of Nevada Las Vegas, David Schwartz, said yesterday that the Macau gaming industry is adapting to a more sophisticated market without risking overbuilding Alex Lee

Alex.lee@macuabusinessdaily.com

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he director of the Centre for Gaming Research at the University of Nevada Las Vegas, David Schwartz, rejects the idea that Macau may be risking overbuilding the gaming market.

“It’s all a matter of adaptation as the market is getting more sophisticated.

They’re definitely adding more things to appeal to more people to go there beyond just gambling. I think they’re doing a good job doing that.”

In an interview with Bloomberg on the ‘Street Smart’ show David Schwartz rejected the idea that the Special Administrative Region of Macau could make the same mistakes as Las Vegas. In 2008, the American city faced a crisis in the gaming industry as supply surpassed demand. “[In Macau] you’ve got a lot of supply coming online but you’ve also got a tremendous built-

up demand, probably the biggest built-up demand in the world. So I don’t think overbuilding is a concern right now,” he said.

When asked about the appeal of Macau to gamblers, Mr. Schwartz stressed that the former Portuguese enclave has [access to] a market of close to 1.2 billion people, as it is the only place in China where people are allowed to gamble.

“You’ve basically got a country with 1.2 billion people in it and these people really like to play baccarat, and right now Macau is the only place in China where you can play baccarat. So it’s a tremendous market.”

Since 2009, baccarat has always achieved the highest gross revenue in terms of games of fortune in Macau.

Last year, it accounted for 239 billion patacas of casino gaming gross revenue and during the first quarter of this year it generated revenue of 65 billion patacas.

The director of the Centre for Gaming Research was also questioned about the possibility that junket operators may be used in Macau for money laundering.

“It’s hard for me to say what kind of activities like that may be going on but it seems that for a lot of people it’s just the desire to play baccarat that takes them to Macau,” he said. “That’s really a tremendous activity there and a lot of people are doing it. That’s where the majority of the money comes from,” he added.

During the show, equity analyst Barry Ritholtz was asked whether Macau and Las Vegas would overlap.

But the American said that Macau and Las Vegas are focused on different clients.

“I don’t think there’s a huge overlap. There are some whales that come in from Asia to gamble in Las Vegas. But Macau looks like it’s specifically geared to the Chinese market,” he said.

Casinos continue to pressure Hong Kong stocks Hong Kong stocks fell yesterday, with the benchmark index headed for its biggest drop in two weeks, as casino operators and developers slumped. Global Brands Group Holding debuted after its spinoff from Li & Fung Ltd.

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ands China retreated 2.7 percent after Standard Chartered downgraded gaming stocks.

China Resources Land Ltd. slid 2.2 percent as developers extended Tuesday’s drop. Tencent Holdings Ltd., Asia’s biggest Internet company, lost 2.6 percent following a selloff in U.S. equity markets.

The Hang Seng Index (HSI) slid 1.2 percent, heading for its steepest decline since June 23. All but six shares slid on the 50-member gauge.

The Hang Seng China Enterprises Index, also known as the H-share Index, fell 1.2 percent. China today reported inflation data that missed estimates.

“Hong Kong shares are reacting to weakness overnight in the U.S. market,” said Benjamin Tam, a fund manager who helps oversee about $1.5 billion at IG Investment Management (Hong Kong) Ltd. “Yesterday’s data isn’t showing significant improvement and shows demand is still weak.

Investors are waiting for stronger figures.”

China’s producer prices fell 1.1 percent in June, the slowest pace of decline for factory-gate prices in more than two years. The figures compare with a 1 percent drop

estimated by economists and a 1.4 percent contraction the previous month. Consumer prices rose 2.3 percent, falling short of analysts’ expectations for a 2.4 percent gain after a 2.5 percent increase in May. Reports on mainland trade and credit are due this week.

Global Brands Global Brands Group, which manages more than 350 labels including Coach Inc. shoes, opened

trading at HK$2.09 and slid to HK$2.

Li & Fung spun off its licensing and brand business to focus on supplying clothes and toys to global retailers including Wal-Mart Stores Inc. The Hang Seng Index rose 1 percent this year through yesterday, reversing losses as China’s government rolled out stimuli including reserve-ratio cuts to support growth. The measure traded at 11 times estimated earnings at the last close, compared with 7.3 for the H-share gauge and 16.6 for Standard & Poor’s 500 Index.

Goldman Sachs Group Inc. Chief Executive Lloyd Blankfein said prospects for long-term Chinese growth are good and the country can solve shadow-banking and local debt problems, People’s Daily reported.

U.S. Selloff Futures on the S&P 500 were little changed. The underlying gauge fell 0.7 percent Tuesday to extend a selloff after reaching a record, while the Nasdaq Composite Index lost the most in two months. Raymond James & Associates said stocks are vulnerable and Citigroup Inc. cited concern over a ‘severe pullback.’

Technology shares dropped, with Twitter Inc. and Pandora Media Inc., which trade at more than 150 times earnings, plunging at least 7 percent.

The Federal Reserve will release minutes from its June meeting today. Policy makers trimmed bond purchases last month by $10 billion for the fifth consecutive time, saying that the job market is improving.

Goldman Sachs is among investment banks that have pushed forward estimates for when the central bank will raise its key interest rate, with the last increase coming in 2006.

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July 10, 2014

Greater China

The long and winding yuan road Bankers see payments system implementation will be delayed and full of hurdles Koh Gui Qing and Saikat Chatterjee

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hina’s quest to turn its yuan into a full-fledged global currency has hit a roadblock as the planned rollout of a worldwide payments superhighway looks certain to get delayed because of policy snags and technology challenges.

The China International Payments System (CIPS) that would replace a patchwork of networks and allow hasslefree yuan payments was meant to debut later this year, but bankers say it is unlikely to be ready before 2016.

The slippage might be good news for China’s big clearing banks such as Bank of China and offshore centres such as London or Singapore, which now handle most international yuan transactions and stand to lose their privileged position.

In the long run, however, an efficient global network for yuan trades will be essential for fulfilling Beijing’s wish to boost the currency’s use. A spate of agreements on yuan clearing with financial centres in Europe and Asia signed over the past month or so highlighted the importance of such a system for those ambitions.

Yet government debate

over how much users should be allowed to move in a single day without punching too big of a hole in China’s capital controls and technological problems have stymied the system’s development, bankers say.

“The central bank is telling others that the first batch of CIPS will be used this year, but we think it is unlikely,” said a banker at a large Chinese bank. “The earliest will be 2016.”

Bankers also worry that the roll-out won’t be glitch free, and a poorly-designed system with a high transaction failure rate could put off investors.

The Chinese central bank, which leads the effort and was contacted for this article, said the building of the CIPS network was making steady progress as planned.

It added that it attached “great importance” to the system, whose creation was first announced in 2012.

Eager to have a currency that matches the clout of its rising economy, China has made great strides in promoting the yuan’s global use.

It is now the world’s seventh most-used currency in goods and services payments, having climbed from 20th

rank in 2013, according to data from international financial communications platform SWIFT. But to attain the dollar’s status as the world’s reserve currency, China needs to back its yuan with a quality payment system. The dollar is supported by two -the privately-owned CHIPS system, with an average daily transaction volume of US$1.5 trillion and the Federal Reserve’s Fedwire handling around US$3.5 trillion.

“It is a big enough project and they underestimated the complexity of it,” said the head of transaction services at a European bank in Hong Kong who declined to be named due to the sensitivity of the subject.

Troubles caused by failed transactions have made some companies consider reverting

Obsolete?

Growing pains China’s record with building its own payment system is less than stellar.

Some banks said they were given only six to eight weeks instead of the customary six months to prepare for an upgrade in the central-bank run China National Advanced Payment System, or CNAPS, causing anguish among its users.

Counter-intuitive coding for processing transactions, ambiguous regulation, heavy demands for information disclosure and the bureaucracy’s poor record in software development are not a good omen for the CIPS, some bankers say.

to the dollar in trade deals, foreign bankers and corporate treasurers at multinational companies say.

One foreign finance executive, who spoke on condition of anonymity, estimated that a yuan clearing transaction is two-and-a-half times more likely to fail than a dollar deal.

KEY POINTS Planned payments network meant to boost global yuan use Roll-out likely delayed by tech glitchesbankers Central bank says work on system progressing as planned Deals on foreign clearing hubs signal global ambitions

Yet teething problems aside, few bankers doubt the new international network will eventually become a major long-term alternative to clearing banks and offshore centres.

Having used granting foreign cities rights to host Chinese clearing banks as a part of its diplomacy, Beijing is playing down such a scenario in public.

Chinese bankers say the central bank is trying to assure them that the planned global network will not dent their renminbi business. In private, however, regulators are blunt.

“There will be no need for clearing banks in the future,” said an official with a Chinese regulator who declined to be named as he is not authorised to speak to the media. When asked if offshore yuan clearing centres would also become obsolete once CIPS goes live, he said the new system will provide “alternative channels” for yuan payments.

Robert Minikin, head of Asia foreign exchange strategy at the Standard Chartered Bank in Hong Kong, says granting clearing rights for offshore centres is not so much a commitment from Beijing to preserve their privileged position, but rather a signal of its global ambitions for the yuan.

In the meantime, any loss in clearing fees for banks and offshore centres due to competition from CIPS won’t be paltry.

Daily yuan trading volumes have gone up 3-1/2 times since 2010 to US$120 billion, the ninth highest, according to a Bank for International Settlements report published last September.

Luxembourg, which signed a deal with China last month that precedes the designation of a yuanclearing bank in the financial hub, is watching the payment network’s progress closely.

Its finance minister Pierre Gramegna, who was in Beijing last week to mark the agreement, said he would discuss the network with Chinese authorities and “listen carefully” to what they say about the timing of its launch.

But he is optimistic that not all is lost for CIPS rivals.

Reuters

9

July 10, 2014

Greater China

Development yuan payment systems As part of its efforts to turn yuan into a global currency, China is building a superhighway for worldwide renminbi payments. Below are key facts and a timeline concerning development of China’s yuan (renminbi) payments system.

In mainland China, domestic yuan payments are cleared via the China National Advanced Payment Systems (CNAPS), which is run by the central bank and provides real-time gross settlement services.

To have direct access to CNAPS, a bank must have a settlement account at a branch of China’s

central bank.

All clearing banks in the various offshore yuan centres automatically have access to this system.

In April 2012, the central bank said it would launch a new payments system called China International Payment System (CIPS), which would be available within two years for cross-border yuan settlement, modelled on the U.S. CHIPS network.

The launch of this system may now be delayed, according to market sources.

Reuters

NOVEMBER 2005

China’s central bank announces the expansion of the yuan banking business in Hong Kong. Hong Kong Interbank Clearing Limited forms a partnership with the Hong Kong unit of Bank of China, the city’s clearing bank for yuan trades, to develop the Renminbi Settlement System that was launched in March 2006. The system offers yuan check clearing services and realtime yuan payment services.

2007

China’s central bank says the clearing arrangement will be expanded to include a new category of yuan business in Hong Kong. Mainland-based financial institutions can now issue yuan-denominated bonds in Hong Kong.

JULY 2014

China and South Korea agree to set up a yuan clearing system in South Korea as Chinese President Xi Jinping visits Seoul.

JUNE 2012

JUNE 2014

The operating hours of the renminbi real-time gross settlement system in Hong Kong are extended to 15 hours from 10 hours a day to meet rising demand for payments and settlements.

China Construction Bank, the country’s second-biggest lender, is appointed the clearing bank for yuan trades in London. China designates Bank of China as the clearing bank in Frankfurt days later.

Central banks in France and Luxembourg sign agreement with their Chinese counterpart that will eventually lead to the designation of yuan clearing banks in their countries.

2013

2014

Beijing simplifies rules to allow some companies to move their yuan out of China to other regional treasury centres overseas. The transfers are done under a programme called the “RMBdenominated cross-border sweeping facility”.

JULY 2010

China’s central bank and the Hong Kong Monetary Authority sign an agreement that lays the groundwork for the development of the offshore renminbi market. A wide array of yuan financial products can now be offered in the city and clearing services are also greatly enhanced.

Because of its firstmover advantage, Hong Kong leads the way in market infrastructure for international yuan payments.

The yuan real-time gross settlement services system in Hong Kong processes an average of over 400 billion yuan (US$64.5 billion) worth of transactions a day, an 86 percent increase over 2012 following a 90 percent rise in that year.

AUGUST 2012

FEBRUARY 2013

China’s central bank appoints the Singapore branch of the Industrial and Commercial Bank of China Ltd as the yuan clearing bank in Singapore. Yuan deposits in Singapore swell to 200 billion yuan (US$32.3 billion) by December, helped by regulations that allowed multinational companies operating in China to store excess yuan holdings offshore.

China and Taiwan sign an agreement to develop a yuan and Taiwan dollar clearing system. The Taipei branch of Bank of China is designated as the clearing bank in Taiwan in December.

10

July 10, 2014

Greater China

Chinese President Xi Jinping (L) delivers a speech as US Treasury Secretary Jacob Lew (2-R) and US Secretary of State John Kerry (R) look on during the opening ceremony of the 6th Round of US-China Strategic and Economic Dialogue and the 5th Round of US-China High-Level Consultation on People-to-People exchange at the Diaoyutai State Guesthouse in Beijing

Win-win spirit floods Beijing meeting U.S. and China highlighted their commitment to cooperation and understanding

C

hina and the United States need to manage their differences, the leaders of both countries said yesterday at the start of annual talks expected to focus on cyber-security, maritime disputes, the Chinese currency and an investment treaty.

The two-day talks in Beijing, called the Strategic and Economic Dialogue, will be an opportunity for the world’s two biggest economies to dial down tensions after months of bickering over a host of issues, experts have said.

U.S. Secretary of State John Kerry and Treasury Secretary Jack Lew chair the U.S. delegation, with Vice Premier Wang Yang and top diplomat Yang Jiechi leading the Chinese side.

President Xi Jinping said Sino-U.S. cooperation was of vital importance to the global community.

“China-U.S. confrontation, to the two countries and the world, would definitely be a disaster,” he told the opening ceremony at a government guesthouse in the west of the city.

“We should mutually respect and treat each other equally, and respect

the others sovereignty and territorial integrity and respect each others choice on the path of development.”

In a statement released as the discussions began, U.S. President Barack Obama said the United States was committed to building a “new model” of relations with China that is defined by cooperation and the constructive management of differences.

“The United States welcomes the emergence of a stable, peaceful, and prosperous China,” Obama said.

“We remain determined to ensure that cooperation defines the overall relationship.”

Despite deeply interconnected business ties and two-way trade worth more than half a trillion dollars a year, Beijing and Washington have deep differences over everything from human rights to the value of the Chinese currency, the yuan.

Washington has begun to push for China to move to a market-driven exchange rate.

“We support China’s efforts to allow the market to play a more decisive role

in the economy and rely more on household consumption “The to drive China’s economic United States growth. Moving to a market-determined welcomes the exchange rate emergence of will be a crucial a stable, peace ful, and prospe step,” Lew said rous at the opening China. We rem ain determined ceremony. to ensure that co Chinese Vice operation defin Premier Wang es the overall relation Yang said that ship” China would quicken exchange Barack Obam a rate reform, but that USA Presiden t the country needed to find the right speed in its financial reforms.

“If reforms go too fast, we could be bogged down in details and make bilateral investment treaty to reach fatal mistakes in China’s reforms and an agreement at an early date. opening up. If it’s too slow, China’s The United States hopes the treaty reform process could be affected and will loosen Chinese restrictions to the United States ... will put pressure allow for a more level playing field (on China),” he added. for U.S. companies in China. Chinese Xi said both countries should officials say they hope it will help strengthen cooperation in fighting drive China’s own domestic reforms. terror and speed up talks on a Reuters

Shanghai’s houses to match luxurious Beijing’s Despite unaffordable prices for the man in the street, the trend continues upward in the Paris of the East

C

ity government became the second in two months to allow more luxury properties into the market, real estate agents and developers said, signalling some cities in China are easing restrictive policies that aimed to cool an overheated market.

Officials in Beijing had earlier approved seven projects in June selling at prices above a cap set last November, which made developers less interested in bidding for

expensive land in the city, media reported on Monday.

Any move to drive up home prices in China, which are already near record levels, can be controversial.

The central government prefers that local authorities help curb property speculation because it fears unaffordable housing could cause social unrest.

A project developed by Shenzhen Overseas Chinese Town Co Ltd in central Shanghai recently gained

selling approval to set prices close to 300,000 yuan (US$48,400) per square meter, a record in the financial centre, according to online marketplace SouFun. “We have seen new projects setting prices above 100,000 yuan in the past few months,” said Thomas Lam, senior director at realtor Knight Frank. “It’s a signal that the government is not implementing the administrative measures as strictly as it once did. It knows there’s still

a demand for luxury housing.”

Developers also said it is much easier to get pre-sale approval and sell to buyers who are switching homes.

“We are allowed to raise prices... there’s no formal documents about it, but we’re told verbally. We all know it’s been relaxed,” said a developer who declined to be named because of the sensitivity of the matter.

He said the company raised some development prices to match increased market prices in the city.

Knight Frank’s Lam said a curb on luxury properties would discourage developers from buying land at prices at record levels, especially in the centre of top-tier cities. Land sales are the major revenue for most local governments in China.

Reuters

11

July 10, 2014

Greater China

Inflation cools growth mood

Auto sales in top gear

Experts expect PBOC will develop monetary tools

China’s automobile output and sales both exceeded 11 million units during the first half of 2014, underlying great inventory pressure for car dealers, according to data from the China Association of Automobile Manufacturers (CAAM) yesterday.

Auto production rose 9.6 percent from a year ago to 11.78 million units from January to June, accelerating from 9.4-percent growth during the January-May period. However, sales of vehicles increased only 8.4 percent year on year to 11.68 million units, slowing further from an increase of 9 percent seen in the first five months, according to CAAM.

C

hina’s consumer inflation cooled slightly more than expected in June, pointing to lingering weakness in the economy which could prompt Beijing to launch further stimulus measures to shore up growth.

The consumer price index (CPI) rose 2.3 percent in June from a year earlier, missing the market forecast of 2.4 percent, with pork prices as the main drag, the National Bureau of Statistics said yesterday.

The producer price index (PPI) dropped 1.1 percent in its 28-month straight fall, versus a market consensus of a fall of 1 percent, signalling that demand in the domestic economy remained lukewarm, despite some initial signs of stabilisation seen recently.

“The weak inflation data leaves more scope for Beijing to step up use of targeted measures and even opens the opportunity window for blanket easing policy, such as an interest rate cut, to support economic growth,” said Wang Jin, an analyst at Guotai Junan Securities in Shanghai.

Asian share markets slightly extended early losses after the inflation data, though the Australian dollar was little changed.

The CPI fell 0.1 percent in June from May, versus a forecast of no change in monthly prices.

In the first half of this year, average consumer inflation was 2.3 percent, way below the official ceiling of 3.5 percent set by the government at the start of the year.

With inflation clearly not a threat, the government and central bank will have scope to loosen policies further to bolster the economy if needed, without risking a potentially destabilising spike in prices.

Vice premier says reforms cannot be rushed

Commercial roads, like pictured Nanjing Road in Shanghai, saw prices moderate their growth

Chinese Premier Li Keqiang said earlier this week that economic growth quickened in the second quarter from the previous three months. But he added the economy still faces downward pressure and further modest stimulus measures will still be needed to boost activity.

The latest Reuters poll showed China’s economy probably steadied in the second quarter, with annual growth holding firm at 7.4 percent, as a slew of government policy measures kick in.

Beijing has stepped up policy support in recent months to give a lift to economic growth, which dipped to a 18-month low in the first quarter.

Such measures include targeted reserve requirement cuts for some banks, quicker fiscal disbursements and hastening construction of railways and public housing projects.

The central bank said on Monday that it would use a mix of various monetary tools to keep overall liquidity at an appropriate level to support the economy.

Reuters

KEY POINTS

Chinese Vice Premier Wang Yang said yesterday that China needed to find the right speed in its financial reforms. “If reforms go too fast, we could be bogged down in details and make fatal mistakes in China’s reforms and opening up. If it’s too slow, China’s reform process could be affected and the United States ... will put pressures (on China),” he said, on the opening day of annual high level talks with the United States.

Apple lose patent lawsuit

June consumer price index +2.3 pct vs f’cast +2.4 pct Producer price index -1.1 pct vs f’cast -1.0 More government stimulus measures seen

What coal pollution united …

US and China implement deals for reducing pollution

T

he United States and China on Tuesday signed eight partnership agreements to cut greenhouse gases, bringing the world’s two biggest carbon emitters closer together on climate policy.

The agreements, which involve companies and research institutions, were signed in Beijing ahead of a two-day visit to China by top Obama administration officials including Secretary of State John Kerry, Treasury Secretary Jack Lew and Energy Secretary Ernest Moniz.

This [partnership between Summit and Huaneng] accelerates sharing of information on carbon capture and storage for power Julio Friedmann deputy assistant Secretary for Clean Coal U.S. Department of Energy

Xie Zhenhua, vice chairman of China’s National Development and Reform Commission (NDRC), Todd Stern, the lead U.S. climate treaty negotiator at the U.S. State Department, Obama adviser John Podesta and Lee Zak, director of the U.S. Trade and Development Agency, attended the signing.

In one of the memoranda of understanding (MOUs), China’s Huaneng Clean Energy Research Institute, a subsidiary of state-owned power company China Huaneng and

Washington-based Summit Power Group agreed to share information on clean coal power generation technology.

Huaneng is part of a Chinese consortium operating a 400 megawatt pilot integrated gasification combined cycle plant in Tianjin.

Under the MOU, Huaneng will share information with Summit Power, which is expected to soon break ground on a similar project in Texas after it secures engineering and procurement support from Petrochina and Chinese engineering firm Huanqiu Contracting and Engineering.

Summit, in turn, will share information and technology for recovering oil from captured carbon.

In another project, West Virginia University will partner with Yanchang Petroleum on an industrialized demonstration of ultra-cleaning technology in northern Shaanx province.

Another coal state university, the University of Kentucky, will partner with Shanxi Coal International Energy Group and Air Products and Chemicals Inc on a project feasibility study of a 350MW supercritical coalfired power plant that can capture 2 million tonnes of CO2 annually.

Reuters

US technology giant Apple has lost a lawsuit against a Chinese state regulator over patent rights to voice recognition software such as the iPhone’s “Siri”, a Beijing court said.

The legal battle begun in 2012 when Shanghai-based Zhizhen Network Technology pursued Apple for allegedly infringing its Chinese patent with Siri, its “intelligent personal assistant”. Apple asked China’s patent review board, which operates under the State Intellectual Property Office, to declare Zhizhen’s original patent ineffective but the request was rejected.

Battery maker resurrected from bankruptcy Less than two years after being on the verge of bankruptcy, A123 Systems, a high-quality automotive battery manufacturer, has been on the mend with aid from multinational Wanxiang corporation headquartered in China’s southeastern city of Hangzhou. A123 expects to have a positive cash flow this year, then positive EBITDA (earnings before interest, taxes, depreciation, and amortization) in 2015, and will finally be profit positive in 2016, Michael O’Kronley, A123’s senior director for corporate strategy, told Xinhua.

12

July 10, 2014

Asia

Philippines abandons rice self-sufficiency plans

been pushed to record levels by the typhoons and as the government clamps down on smugglers looking to avoid hefty taxes.

“Part of the reason for the spike in (local rice) prices was precisely because we missed our sufficiency targets,” said Pangilinan, with the official title of Presidential Assistant for Food Security.

“There was this tendency to downplay our import requirements, and therefore we did not import as much as we ought to, which created a tightening of supply.”

The country’s agriculture secretary has said the country achieved around 97 percent self-sufficiency in 2013, but many observers are sceptical of that figure.

The Philippines was Asia’s fourth-biggest rice importer in 2013, according to the U.S. Department of Agriculture, and was the world’s eighth-largest.

Typhoons and droughts have been huge obstacles for an unrealistic plan

Any more?

The Nagacadan rice terraces, Ifugao Province, Philippines

T

he Philippines has shifted away from setting a target date for its plan to be completely selfsufficient in the production of rice, a senior government official said, likely keeping its doors open to imports beyond the current goal of 2016.

That will be welcomed by key supplier Vietnam, which is looking to follow up on a string of deals to ship a total of 1.5 million tonnes of rice to Southeast Asia’s biggest importer of the staple grain.

It could also be good news for Thailand, which wants to offload rice from a controversial stockpiling scheme at the heart of political turmoil in the country this year.

“I’m happy with 90- to 95-percent self-sufficiency (in 2016) and then we import the rest,” said Francis Pangilinan, head of food security for the Philippines.

Pangilinan, appointed two months ago by President Benigno Aquino, added in an interview with Reuters

that no new timeframe would be introduced for 100-percent selfsufficiency.

Critics have long said the Philippines’ rice self-sufficiency goal, earlier set for 2013, was unrealistic.

The target seemed even more remote after swathes of paddy were hit by drought or ravaged by typhoons, including last year’s Haiyan.

While bumper harvests in other countries have stoked a global rice glut, prices in the Philippines have

Pangilinan said the country could buy more rice this year in the wake of its deals with Vietnam.

A government panel will meet on July 16 to discuss local rice supply and whether more imports will be needed, he said. The panel will factor in the possible return of the El Nino weather phenomenon in the third quarter, which in the Philippines could mean drought followed by strong typhoons.

Pangilinan made a surprise announcement last month that the Philippines would import an additional 200,000 tonnes of rice from Vietnam to boost thin state stockpiles and stabilise retail prices that have fanned inflation pressures.

The National Food Authority, under Pangilinan’s remit, has doubled the amount of cheap rice it is releasing into local markets to stabilise prices, and this will continue during the lean production season from July to September, he said.

And the country will likely buy rice early for next year.

Reuters

S. Korea beats tech exports record Chips production fuelled hesitating tech sector

S

outh Korea posted a fresh record high of exports in the information, communications and technology (ICT) industry in the first half of this year due to slid demand for locally made chips and handsets, a government report showed yesterday.

The ICT exports reached a new high of US$83.83 billion during the January-June period, up 3.2 percent from the same period of last year, according to the Ministry of

Trade, Industry and Energy.

Despite the dimmer outlook for the tech sector, the country logged the record exports on the back of demand for semiconductors and smartphones assembled in local plants.

Chip exports gained 10.6 percent from a year earlier to US$29.3 billion in the first half, with those for handsets, including smartphones, growing 12.6 percent to US$13.1 billion.

The information provider

Gartner downgraded its 2014 growth outlook for the ICT industry to 3.2 percent in May from 3.6 percent estimated eight months earlier.

Daily average exports in the sector reached a new high of US$630 million in the first half, the ministry said.

Imports increased 7.4 percent to US$42.15 billion in the cited period, sending the first-half trade surplus in the ICT sector to US$41.68 billion, which more than doubled the surplus of

South Korean brands, as pictured LG, are still very popular worldwide, as export figures show

US$20.28 billion for all industries.

The ministry forecasts the country’s ICT exports will keep its growth trend in the second half on high quality of its major export products, but

it cautioned negative factors remained such as the dimmer outlook for the industry, lower prices of memory chips and the local currency’s ascent to the dollar.

Xinhua

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July 10, 2014

Asia

Fitch says New Zealand is hot But shoppers don’t act accordingly

I

nternational credit ratings agency Fitch has revised New Zealand’s AA sovereign rating outlook from stable to positive in a move welcomed by the government yesterday, despite concerns about the country’s high external debt and dependence on commodities.

In a notice issued in New York on Tuesday local time, Fitch Ratings said the government’s fiscal consolidation drive continued to be strong and Fitch believed it was supported across the political spectrum, a signal that Fitch believes the general election in September will not significantly change the fiscal performance.

It noted the government was on course for an operating surplus in the 2014-2015 fiscal year, the first since 2008, and that GDP growth was 2.7 percent last year and was expected to hit 3.8 percent this year.

However, inflationary pressures were growing, and the “persistent current account deficit, the need for foreign capital and net external indebtedness” were longstanding

weaknesses that were expected to persist, with net external debt forecast to rise moderately to 72 percent of GDP by 2016 from 65.5 percent in 2013.

New Zealand’s economy had large, growing and connected “twin concentrations” in dairy exports and in exports to China, that made it vulnerable to a slowdown in China, and its dairy exports were also vulnerable to the risk of “a sudden dent in reputation” such as a serious health issue.

Alongside Fitch’s AA rating with a positive outlook, New Zealand was rated Aaa with a stable outlook by Moody’s and AA with a stable outlook

by Standard and Poor’s.

Timid buyers However, locals don’t feel economy so buoyant. Spending by New Zealanders on their credit and debit cards levelled off last month, the government statistics agency announced yesterday, in the latest

sign that the country’s economic growth was slowing.

Retail spending with electronic cards was unchanged in June, following a rise of 1.2 percent in May, according to Statistics New Zealand.

“Spending rose in three retail industries and fell in three during June,” business indicators manager Neil Kelly said in a statement.

The three biggest movements saw spending on fuel up 1.6 percent, or NZ$12 million (US$10.54 million), and spending on hospitality up 0.5 percent, or NZ$3.7 million (US$3.25 million), while spending on durables (including furniture, hardware and pharmaceuticals) fell by 0.7 percent, or NZ$7.8 million (US$6.85 million).

Core retail spending, which excludes the vehicle-related industries, fell by 0.4 percent in June 2014.

Last month saw 112 million card transactions across all industries in June, with a total value of NZ$5.7 billion (US$5 billion).

India’s GDP growth expanding

Economy is expected to grow by up to 5.9 percent in the current fiscal year, the new government of Prime Minister Narendra Modi said in a major economic report yesterday that called for fiscal consolidation to bring down inflation.

The report, presented to parliament one day before Finance Minister Arun Jaitley delivers his maiden budget, also warned of a downward risk to growth due to weak monsoon rains, and set the lower end of the growth spectrum at 5.4 percent. It recommended slashing subsidy spending and widening the tax base to control India’s wide fiscal deficit.

Xinhua

Foreign capital flowing to S.Korea

112 mln

Foreign capital kept flowing into the South Korean stock and bond markets on the back of the lasting optimism toward fundamentals of the economy, financial watchdog data showed yesterday. Foreign net buying in local listed stocks and bonds totalled 1.16 trillion won (US$1.15 billion) in June after recording 2.26 trillion won in May, according to the Financial Supervisory Service. Foreigners bought a net 714 billion won worth of domestic shares in June, maintaining a buying trend for three straight months. Foreign holding of local listed stocks reached 437.5 trillion won, or 32.5 percent of the total market capitalization, as of end-June, with foreign ownership of local bonds reaching 97.6 trillion won, or 6.8 percent of the total.

card transactions in 2014 June

Myanmar launches early childhood care Silvia Park shopping mall at Auckland. Shoppers’ spending has become more conservative after mild economic news

Aussies more confident in July But not reaching sentiment of one year ago

A

measure of Australian consumer sentiment improved modestly in July as worries about family finances eased, a survey showed yesterday, though the depressing impact of an unpopular federal budget continued to linger.

The survey of 1,200 people by the Melbourne Institute and Westpac Bank showed the index of consumer sentiment rose a seasonally adjusted 1.9 percent in July, from June when it had inched up only 0.2 percent.

The index still has not fully recovered from May’s 6.8 percent dive that followed a budget of welfare reforms, cutbacks and increased charges for services.

The index reading of 94.9 for July was down 7.1 percent on the same

Japanese Prime Minister Shinzo Abe (L) and Prime Minister Tony Abbott shake hands after signing the Japan-Australia Economic Partnership Agreement on Tuesday. Support for the opposition party is down 25 per cent

month last year and means pessimists still exceed optimists.

The survey’s measure of sentiment among supporters of the Labor opposition is down 25 percent on a year ago at 83.9. In contrast, the index for supporters of the Liberal National government has risen by 25 percent to stand at 116.1.

The largest improvement in July came in the survey’s measure on the outlook for family finances over the next 12 months, which jumped 12.3 percent though from very low levels.

The index of family finances compared to a year ago rose 1.9 percent and that for economic conditions over the next 12 months increased by 3.9 percent.

Consumers remained cautious on the longer-term outlook, however, with the index of economic conditions over the next five years dropping 3.8 percent.

A measure on whether it was a good time to buy a major household item also dipped 2.1 percent.

Reuters

Myanmar has launched its first ever multi-sectoral policy on early childhood care and development (ECCD), calling for increased government investment in the services for young children to enable them to have a better start in life and for the hopeful future of the country.

Social Welfare, Relief and Resettlement ministry pledged to inject 28 percent of its budget in ECCD services instead of only 10 percent, while the Education Ministry is committed to spending 12 percent of its budget in early pre-school and kindergarten education in place of low-level investment.

Laos appoints new deputy PMs Head of the Administrative Office of the Lao People’s Revolutionary Party Bounpone Bouttanavong and Minister of Education and Sports Phankham Viphavanh have been appointed as deputy prime ministers, official Lao news agency KPL reported yesterday.

Appointment of the new deputy prime ministers, who are both members of the politburo, was made at the on-going 7th ordinary session of the National Assembly’s (NA) 7th legislature here in the capital. With the new appointment, Phankham will be both deputy prime minister and minister of education and sports.

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July 10, 2014

International Citigroup close to mortgage settlement Citigroup Inc. may reach an agreement with federal prosecutors as early as next week to resolve a probe into sales of mortgage-backed bonds before the 2008 financial crisis, a person familiar with the negotiations said. The nation’s thirdbiggest bank by assets would pay at least US$4 billion under an agreement with the U.S. Justice Department, according to the person, who asked not to be named because the talks are private. The deal would be US$7 billion when including borrower relief such as mortgage modifications, the New York Times reported.

Ghana seen raising key rate Central bank will probably increase its benchmark interest rate for a second time this year to tame inflation and arrest the slide in Africa’s worst performing currency. The Bank of Ghana will raise the rate by 1 percentage point to 19 percent, according to four of seven economists surveyed by Bloomberg News. The rest expect it to be left unchanged for a second consecutive meeting. The currency of the world’s second-biggest cocoa producer has weakened 30 percent against the dollar this year, the worst among 24 African currencies tracked by Bloomberg.

ECB official: Euro is not too strong The single European currency is not too strong and the European Central Bank should not go beyond its mandate to influence the exchange rate, ECB Governing Council member Luc Coene said in a newspaper interview published yesterday. “It is wrong to say the euro is very strong. Just before the financial crisis, we have to remember, the euro pointed towards US$1.60,” Coene told Belgian newspaper Le Soir. Coene added that it was dangerous to compare the euro to the Swiss franc, where the central bank had intervened to keep the currency low.

EU fines French drugmaker The EU yesterday hit French drugs giant Servier with a huge 331 million euro fine for colluding to delay a cheaper generic version of Perindopril, a popular blood pressure treatment. In a statement, the European Commission said the decision involves total fines of 427.7 million euros (US$582 million), with Israeli generic giant Teva and four other companies also subject to penalties in the case.

Online food costs unleash retailers war Big retailers are taking a calculated hit to margins to invest in online grocery operations, in the hope they can persuade consumers to add more profitable items like clothes and computers to their orders of fruit and vegetables.

Retailers in Europe and North America are now ramping up their online food offer to compete with Amazon.com, which is expected to expand its sale of fresh produce beyond a few trial areas with the aim of complementing its non-food sales- and eating other retailers’ lunch.

Weaker growth sickens Russian ruble According to an HSBC analyst, growth hides a downward trend

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he weakest pace of economic growth in five years combined with the fastest inflation in three are prompting the most-accurate ruble forecaster to predict steeper declines for the currency.

The ruble will fall 9.2 percent to 37.50 by year-end, said Alexander Morozov, chief economist for Russia and the Commonwealth of Independent States at HSBC Holdings Plc, who topped Bloomberg’s ruble-dollar rankings for the four quarters ended June 30. Otkritie Asset Management sees “nothing good” for ruble bonds, which have delivered the worst returns in dollar terms this year among 31 emerging markets tracked by Bloomberg.

Morozov revised his view from an earlier 35.40 per US dollar in March

Growing investment risks will lead to a deceleration of capital investments Alexander Morozov, chief economist for Russia and the Commonwealth of Independent States, HSBC

as the Ukraine crisis sparked heavier capital outflows in the first half than for all of last year, and deterred local companies from investing. Russia risks joining emerging-market nations facing stagflation, Ksenia Yudaeva, the central bank’s first deputy head, said in January.

“Growing investment risks will lead to a deceleration of capital investments,” Moscow-based Morozov said by phone July 7. “The economic conditions are now worse and we must assume the currency will weaken more than we forecast earlier.”

Downward trend While 200 basis points of rate increases by the central bank have helped the ruble climb 5.3 percent since President Vladimir Putin’s incursion in Ukraine started March 1, the currency is still the fourthworst performer against the greenback among 24 emerging-market currencies monitored by Bloomberg this year with a 3.5 percent decline.

Inflation in Russia reached 7.8 percent in June, the highest level since August 2011. Price growth will slow to 6.85 percent by the end of the year, according to analysts surveyed by Bloomberg. That’s 85 basis points above the central bank’s forecast.

Net capital outflow totalled about US$80 billion in the first half, Economy Minister Alexei Ulyukayev said July 7, compared with US$59.7 billion for 2013. Economic growth slowed to 0.9

percent in the first quarter as fixed capital investment slumped 7 percent, Federal Statistics Service data show.

The pace of growth “conceals the underlying downward trend,” Morozov said in a July 7 research note titled “Home-made Stagflation.” HSBC and Markit Economics’ purchasing managers’ index for Russian manufacturing has held below the threshold that separates growth from contraction since October.

Carry trade An unemployment rate of 4.9 percent in May means Russia isn’t experiencing stagflation, Ivan Tchakarov, economist at Citigroup Inc., the third-best ruble forecaster in the last 12 months, said on Tuesday.

The ruble will weaken “at a smooth pace” to about 35.00-35.50 per US dollar by year-end, he said.

Russia’s ruble bonds have lost 4 percent so far this year, the worst performers among emerging markets tracked by Bloomberg. The yield on the nation’s February 2027 bonds is up 16 basis points since February to 8.52 percent yesterday.

The ruble’s potential declines may curb appetite from overseas investors who borrow in countries where rates are low and buy riskier developingnation assets, according to Dmitry Kosmodemiyanskiy, a money manager at Otkritie Asset Management in Moscow.

Bloomberg News

Germany paves the road for banking union The process will start later this year with an ECB in supervision mode

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abinet has approved a package of draft laws that effectively give the go-ahead to Europe’s plans for banking union - its main confidence-building response to the crisis in the financial sector, a government source said yesterday.

The European plans will mean there is one supervisor for euro zone banks, one set of rules to close or restructure troubled banks and one pot of money to pay for everything.

To minimise the expense to euro zone taxpayers, European Union policymakers have drawn up a law under which shareholders, creditors and very large depositors will lose money first in the event of a bank failure.

Under the German draft law, creditors and owners of failing German banks will face losses from as early as

European Central Bank (Frankfurt’s headquarters pictured)

2015, a year before European rules are envisaged for the whole bloc.

The European Central Bank will begin supervision of big banks across the 18 countries that use the euro later this year in a first step in banking union.

The next step will be a common approach to preventing banks in trouble from dragging down governments in euro zone states, as happened with Ireland. That is still a work in progress.

Another law in the package ensures Germany is in line with EU rules that allow the European Stability Mechanism (ESM) to recapitalise banks directly under certain strict circumstances.

Germany needs to pass the laws to implement Europe’s banking union plans.

Reuters

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July 10, 2014

Opinion Business

wires

What enabled Bretton Woods?

Leading reports from Asia’s best business newspapers

THE STRAITS TIMES

Domenico Lombardi

Harold James

Director of the Global Economy Program at the Centre for International Governance Innovation (CIGI) in Canada

Professor of History and International Affairs at Princeton University

The Ministry of Finance (MOF) has revealed the sources of the $5 billion in fresh funds that it injected into Temasek Holdings in its latest financial year. The additional capital came from proceeds from the Singapore Government Securities (SGS), as well as government budget surpluses and the proceeds from government land sales in Singapore, the Ministry told The Straits Times on yesterday in response to queries. The SGS are bonds that the Government issues to develop the domestic debt market, and are traded in public markets.

THE STAR The anticipated interest rate hike, which many believed will happen by as early as tomorrow, is unlikely to cool demand in the property market. In fact, RHB Research Institute said it expected sales to improve in the third quarter, as the recovery in the second quarter gained new traction. The firm is keeping its “overweight” stance on the property sector with its top picks being Sunway Bhd, Tambun Indah Bhd and Matrix Concepts Holdinsg Bhd. “We believe the impact has already been priced in,” the firm said.

THE AGE Pressure on Australia’s big four banks to join the global coal divestment movement is growing, with a Whitsunday tourism operator who succeeded in convincing Deutsche Bank to step away from funding the Abbot Point port expansion in Queensland now targeting Australia’s biggest banks.

Tony Brown, the president of the Whitsunday Charter Boat Industry Association, claimed an unlikely lobbying victory in May when Deutsche Bank temporarily blacklisted the A$1.8 billion Abbot Point coal terminal in the waters off the Great Barrier Reef.

The bank said it would wait until agreement was reached between the Australian government and UNESCO.

THE JAPAN NEWS Department store chains are working to create innovative sales floors to attract new customers. One of their more notable efforts is to offer “lifestyle guidance” to customers by displaying everyday items and hobby-related goods together irrespective of brand and category. The aim of the move is to transform conventional methods of attracting customers, which have been dependent on the reputation of high-class brand items and popular in-store shops, and to impress customers with the distinctive character of the department store itself.

Mount Washington Hotel is the venue where Bretton Woods meeting took place

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RINCETON – The proximity of the 70th anniversary of the Bretton Woods conference, which established the World Bank and the International Monetary Fund, to historical anniversaries like the Allied landings in Normandy highlights just how ambitious its organizers were. Indeed, amid considerable tumult, the conference aimed to create a stable international monetary framework that could serve as a cornerstone of a peaceful global order. And it succeeded – at least for a while.

Bretton Woods retains a powerful fascination, with at least three recent books on the subject having achieved considerable commercial success. What makes an event in which a group of mostly men talk about money so intriguing?

Of course, there are some juicy incidentals, such as the dance of John Maynard Keynes’s wife, a Russian ballerina, that kept the US Treasury Secretary awake, and charges of espionage for the Soviet Union against the main American negotiator, Harry Dexter White. But the real drama of the conference lay in the systematic evolution of an institutional structure that underpinned global stability and prosperity for at least three decades.

The institutional vision was linked to a global security system. Indeed, in the original agreement, the five large powers that would be represented permanently on the IMF Executive Board were the United States, the United Kingdom, the Soviet Union, China, and France – the same countries with permanent seats on the United Nations Security Council.

Even within this framework, the negotiations were challenging. So how did 44 disparate powers, each

seeking to protect its own national interests, manage to agree on a new global monetary system?

According to Keynes, the key was a process of international deliberation and planning, led by “a single power or likeminded group of powers.” By contrast, a 66-country “powwow” like the abortive World Economic Conference, held in London in 1933, could never be expected to produce an agreement. Keynes’s rival, Friedrich Hayek, went further, asserting that a successful, enduring order could not be negotiated at all; it had to be spontaneous.

The experience at Bretton Woods lends significant credence to Keynes’s assessment. While 44 countries were formally represented at Bretton Woods, the UK and especially the US were the dominant players.

In fact, bilateral negotiations have enabled every major success of large-scale financial diplomacy. In the early 1970s, when the fixed exchangerate regime established at Bretton Woods collapsed, the IMF seemed to have outlived its function. But, by renegotiating the Fund’s Articles of Agreement, the US, seeking greater flexibility, and France, which sought the kind of predictability that the gold standard had provided, were able to revive it.

Later that decade, efforts by France, Germany, and the UK to confer on monetary policy failed miserably. But discussions between France and Germany – which remain the leading voices in debates on European monetary issues – were far more effective. Likewise, in the mid1980s, when exchange-rate volatility gave rise to calls for protectionist trade measures, the US and Japan found a solution involving exchangerate stabilization.

In order to achieve an agreement of similar scale and influence, world leaders – especially in the US and China – would need to be under similarly high pressure. A global pact would have to be an urgent necessity, rather than an attractive possibility

Nowadays, international economic diplomacy is centred on the US and China. In recent years, an emerging debate has focused on whether the global economic system of the 2000s – in which exportoriented emerging economies essentially pegged their currencies to the dollar to obtain faster growth and accumulate foreign-exchange reserves at spectacular rates – effectively created a sort of “Bretton Woods II.” Could China and the US formalize such a system, with the renminbi playing a greater role?

The bilateral nature of the negotiations certainly implies that they have a chance. But

there was another critical factor underpinning the success of the Bretton Woods conference: the global political and security environment.

For starters, the conference occurred the month after the D-Day landings in Normandy, when the end of World War II seemed far closer than it turned out to be. There were also domestic considerations at work. As US Treasury Secretary Henry Morgenthau, Jr. stated in advance of the conference, “We felt that it was good for the world, good for the nation, and good for the Democratic Party, for us to move.”

In order to achieve an agreement of similar scale and influence, world leaders – especially in the US and China – would need to be under similarly high pressure.

A global pact would have to be an urgent necessity, rather than an attractive possibility.

What would convince Chinese leaders that they must rapidly reinforce the open global economy that enabled China’s export-driven economic rise?

One such catalyst might be a financial crisis emanating from the country’s risk-laden shadow-banking system. A contest for global leadership might serve that purpose as well. Or perhaps the stimulus will be fear that the world is sliding toward protectionism, with bilateral and regional trade agreements like the Transatlantic Trade and Investment Partnership deepening divisions between their participants and the rest of the world.

Bretton Woods demonstrated that it takes a major crisis to produce a political dynamic of reform. Today’s world, for all of its troubles, is simply not dangerous enough – at least not yet – for the countries at the helm of the global economy.

The Project Syndicate 2014

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July 10, 2014

Closing HKMA intervenes to defend HK dollar peg

From Guangzhou to New York without stopping

The Hong Kong Monetary Authority (HKMA) stepped into the currency market yesterday, selling HK$1.938 billion (US$250.1 million) in Hong Kong dollars as the local currency repeatedly hit the strong end of its trading range. The latest intervention will lift the aggregate balance to HK$182.1 billion on July 11, according to Reuters data. The Hong Kong dollar is pegged at 7.8 to the U.S. dollar, but can trade between 7.75 and 7.85. Under the currency peg, the HKMA is obliged to intervene when the Hong Kong dollar hits 7.75 or 7.85 to keep the band intact.

China Southern Airlines, the country’s largest air carrier by fleet size, yesterday said it will launch non-stop flights between Guangzhou and New York on August 6. This is the Chinese mainland’s first non-stop service between Guangzhou and New York. It will be launched to cash in on the rising people-to-people exchanges between the world’s two largest economies. It is also China Southern’s first service linking China with the east coast of the United States. The airline said in a statement that it will have four roundtrip flights per week. A single trip takes about 16 hours.

Beware the IPO rules HKMA will not allow poor information for going public Michelle Price

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ong Kong’s securities watchdog has warned investment bankers they need to provide “meaningful disclosure” for initial public offerings (IPOs) as the regulator attempts to improve corporate governance.

The Securities and Futures Commission (SFC) said in its inaugural newsletter on listing disclosures that bankers could not just tick the boxes on the same checklist for each IPO. The SFC’s new sponsor regime requires IPO applications to be substantially complete upon submission and represent a major cultural shift for IPO bankers who were accustomed to filing rushed, incomplete submissions that often bore little resemblance to the final prospectus.

The SFC said IPO submissions had generally improved as a result of its new rules, but said the quality of disclosure remains an issue in some cases.

“Each listing applicant is unique and there can

Headquarters of HK Monetary Authority

never be a ‘one-size-fits-all’ checklist for the preparation of meaningful disclosure in the listing document,” the SFC said. “An applicant and its sponsor should critically

assess what constitutes meaningful disclosure in the applicant’s context rather than taking a mechanical box-ticking approach,” it added.

Hong Kong introduced tighter IPO rules in October last year, putting greater responsibility on banks sponsoring the offers in an effort to improve the quality of IPOs. A series of auditing scandals have raised questions over the quality of IPO due diligence and undermined investor confidence.

Chinese textile maker Hontex International Holdings Co had its shares suspended in 2010, just three months after listing, when regulators alleged it overstated its financial position in the listing prospectus.

Authorities revoked the licence of the sponsor of the Hontex listing, Mega Capital (Asia), and hit it with a record fine. Hontex had its listing cancelled in September 2013.

The new rules come at a critical time for Hong Kong’s IPO market after the Hong Kong stock exchange lost e-commerce giant Alibaba Group Holding Ltd’s IPO

to New York, prompting a furious debate over the future of Hong Kong’s status as one of Asia’s major listing destinations.

The SFC also raised concerns over sloppy company profit warnings, which it said are frequently lacking in clarity and contain no material information. It urged issuers to make more meaningful disclosures containing specific figures.

The SFC also signalled its intent to clamp down on delayed disclosures, warning that the most egregious cases may be referred to the SFC’s enforcement division.

Separately, the Hong Kong Exchanges and Clearing Ltd introduced a new so-called “name and shame” regime in April, under which incomplete applications will be rejected and the banks and issuers submitting such applications will be named publicly and face an eight-week waiting period to refile their documents.

Reuters

Wang Jianlin to build complex in Chicago

BRICS tailor World Bank and IMF versions

Bank of China denies money laundering allegations

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hina’s Wanda Group, controlled by the country’s richest man Wang Jianlin, says it will invest US$900 million in a five-star hotel and apartment complex in Chicago, as it acquires more assets in the US. The project, to be located near the intersection of the Chicago River and Lake Michigan, will be the city’s third tallest building with a height of 350 metres, the company said in a statement.

It will be a mixed-use development consisting of a 240-room “super five-star” hotel, residential units and commercial space, and heralds greater expansion into the US. Wanda has made a series of big-ticket purchases of Western assets in recent years as it seeks to spread itself internationally.

Last month Spain’s biggest bank Santander announced that it had sold a historic skyscraper in Madrid to a Wanda subsidiary for 265 million euros (US$360 million).

The deal followed the acquisition last year of British yacht maker Sunseeker for US$548 million and its US$2.6 billion takeover in 2012 of US cinema chain AMC Entertainment.

AFP

he BRICS group of emerging giants are expected to sign a deal next week to open their own development bank by 2016, Russia’s finance minister said yesterday.

The entity would be called “New Development Bank”, with each BRICS member to contribute US$2 billion to its capital, Anton Siluanov said, according to Russian news agencies.

The bank would have a maximum capital of US$100 billion and be headquartered in Shanghai or New Delhi.

He added that member states would have to make their contributions to the bank’s capital within seven years but that the bank should effectively be created by 2016.

Membership in the bank would be open to other UN states but the five BRICS nations would hold above 55 percent.

Siluanov said the BRICS would also sign a framework deal for a fund during the summit.

The fund -dubbed a “mini-IMF”- would amount to US$100 billion, with US$41 billion from China, US$18 billion each from India, Brazil and Russia and five billion from South Africa.

AFP

tate-owned Bank of China (BOC) denied yesterday a TV report alleging some branches had helped clients launder money to take out of China, saying these branches were involved in a legitimate programme to move capital offshore.

The report, aired by China Central Television (CCTV), was an undercover investigation that focused on a programme offered by BOC called “You Hui Tong”. The programme is designed to help Chinese individuals taking part in investment emigration programmes in other countries to move cash offshore in amounts the exceed the current US$50,000 annual cap. The report featured what CCTV said were BOC employees explaining the programme, which they said routed funds through BOC branches in Guangdong province. The employees also said they were not allowed to openly promote the scheme to customers. The state broadcaster, quoting unnamed BOC sources, said the bank kept the programme secret because it knew it was illegal.

In a statement, BOC said You Hui Tong was a legal investment programme permitted under a wider pilot project testing the opening of China’s tightly managed capital account.

Reuters