Macau Business Daily, July 22, 2014

MOP 6.00 Closing editor: Sara Farr Publisher: Paulo A. Azevedo Number 587 Tuesday July 22, 2014

Occupy Venetian S

Year III

ands staff want quicker promotion and equal pay. Local gaming labour union Forefront of Macau Gaming is taking the lead. Tomorrow, it plans to “surround The Venetian” to protest the present arrangement. Pit managers and trainee and senior supervisors feel most hard done by. Even though Sands denies dragging its feet and points to several bonuses already awarded this year PAGE

Gov’t increases subsidy for elderly and disability living allowance

www.macaubusinessdaily.com

Drip feed Indonesia Telkom arrives in Macau Indonesian state-owned PT Telekomunikasi Indonesia (Telkom) is going to open a branch here this year. The communication provider will co-operate with CTM. It’s all part of its strategy to overtake Singapore as the largest telecommunication operator in Southeast Asia

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Macao Water Supply Co is not optimistic about current negotiations with the government. It told Business Daily that it is awaiting approval of a requested 16 percent hike in water supply service charges. They submitted the request more than six months ago.

The signs all point to a lower-than-requested payment for service

Page 2

Brought to you by

HSI - Movers July 21

PAGE 3 Name

%Day

Galaxy Entertainmen

3.09

Sands China Ltd

2.30

Want Want China H

0.74

MTR Corp Ltd

0.51

Classes for the complex

AIA Group Ltd

0.38

China Merchants Hol

-1.17

China Life Insurance

-1.22

China Unicom Hong K

-1.25

China Petroleum & Ch

-1.37

Educational facilities and schools are planned for Seac Pai Van housing complex. Budget control is built in, too. All in all, it will cost the government around 18.86 million patacas

Henderson Land Dev

-1.40

PAGE 4

Source: Bloomberg

I SSN 2226-8294

PAGE 4

Optimistic outlook There have been terrible omens for months. HSBC says that Chinese GDP could grow this year beyond previous forecasts. At least, the latest figures seem to suggest so Page 8

World Cup lottery beat casinos in June

Brought to you by

Mainlanders loved the World Cup. Lotto sales reached a record MOP46.4 billion in June. That’s 1.7 times more than casino revenues in Macau, the widest ratio since 2009 PAGE 6&7

2014-7-22

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2

July 22, 2014

Macau

Expensive city High rents, the increased cost of dining out and package tours are to blame for last month’s inflation rate Sara Farr

sarafarr@macaubusinessdaily.com

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ents and dining out in Macau are more expensive, and these sectors’ increase in prices led to a 5.99 percent inflation rate as at the end of June compared to the same period last year.

The latest figures from the Statistics and Census Service (DSEC) show that the price index for housing and fuel increased by 11.8 percent, while food and non-alcoholic beverages rose 6.03 percent. Recreation and culture also recorded an increase of 5.5 percent in June over that of a year ago. According to the Bureau, these are due to high rental prices, the increasing cost of dining out as well as recreational and sporting services and package tours.

However, the price index for clothing and footwear decreased by 0.73 percent.

Compared with that of the month of May, inflation rose 0.5 percent in June, primarily due to high rents, more expensive package tours and higher prices of women’s summer clothes.

As a result, the price index of housing and fuel increased 0.96 percent in

June over that of a month earlier, while the price index of recreation and culture increased 0.82 percent, and clothing and footwear increased 0.71 percent.

The price index for food and nonalcoholic beverages also rose by 0.39 percent in June over May, mainly due to the increase in costs of meals out of the home. According to the Statistics and Census Services, the higher cost of fresh pork and lower prices of vegetables, fruits, fresh fish and seafood ‘tapered’ off the increase.

11.8pct increase in housing & fuel price index Y-o-Y June 2014

Gov’t increases elderly subsidy, disability allowance Sara Farr

sarafarr@macaubusinessdaily.com

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he government has increased the subsidy for the elderly and the disability living allowance, it was announced in yesterday’s Official Gazette.

Under the new dispatch from Chief Executive Fernando Chui Sai On, the subsidy for the elderly will rise to an annual 7,000 patacas (US$875), an increase of 400 patacas from last year’s amount.

The Social Welfare Bureau has previously handed out the relevant year’s elderly allowance to residents aged 65 and over by October. The elderly subsidy was first launched in 2005 and benefited about 308,000 people in 2012. In 2012, the government spent about 2.3 billion patacas in social measures to help the elderly.

Meanwhile, the government has increased the disability living allowance to 7,000 patacas per year.

In addition, a ‘special’ disability living allowance will be increased to an annual total of 14,000 patacas.

According to the disability living allowance and free healthcare regime, there are two types of disability levels: ‘normal’ and ‘special’. The former refers to individuals with disabilities deemed ‘light or moderate,’ while

the latter refers to individuals with disabilities deemed ‘great and severe’.

It is up to the Social Welfare Bureau to decide who gets what allowance based on a ‘classification’ system set up by the government a few years ago.

The price index of communication, however, registered a 0.07 percent month-on-month decrease in June.

For the 12 months ended June 30, the average inflation rate increased by 5.95 percent from that of a year earlier. Still within this time frame, the price index for housing increased 11.4 percent, food and non-alcoholic beverages increased 6.4 percent and household goods increased another 6.1 percent.

The price index of communication decreased by 1.4 percent.

In June, Macau’s CPI-A registered a 6.5 percent increase year-on-year to 131.31, while CPI-B increased by 5.85 percent to 131.16. Compared with that of a month prior, Macau’s CPI-A increased 0.53 percent in June, while CPI-B increased 0.50 percent.

In Macau, CPI-A – as it is known to economists – measures prices for families with an average monthly expenditure of between 6,000 patacas

(US$751) and 18,999 patacas.

Households under CPI-B are those whose average monthly spending ranges between 19,000 patacas and 34,999 patacas. CPI-A accounts for around 50 percent of households, while CPI-B accounts for around 30 percent of total households here.

The Bureau does not mention where the remaining 20 percent of all households fall into.

Over the last 12 months, the average CPI-A rose by 6.5 percent, while CPI-B rose 5.8 percent.

On average, Macau’s inflation rate increased 6.17 percent in the second quarter of the year over that of the same period in 2013, with CPI-A increasing 6.6 percent and CPI-B 6.09 percent. Whereas for the first six months of the year, the inflation rate here rose 6.14 percent year-on-year, the average CPI-A increased 6.69 percent and CPI-B 6.05 percent.

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July 22, 2014

Macau

More than a drop in the ocean The city’s sole water distributor is not optimistic that the government will grant its requested 16 percent service charge hike Stephanie Lai

sw.lai@macaubusinessdaily.com

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he city’s sole water distributor told Business Daily that it has yet to receive government approval for its 16 percent increase payment for the water supply service suggested more than six months ago, adding that the government might not approve as much as they had requested.

A notice gazetted yesterday announced that the Secretary for Transport and Public Works Lau Si Io was already authorised by the Chief Executive to sign an amended concession contract of water supply service with Macao Water Supply Co Ltd, although the notice did not mention which clauses were to be amended or added to the contract.

However, Marine and Water Bureau has confirmed to Business Daily that the authorisation was to pave the way for adjustments to be introduced for the payment of water supply service between the government and the

distributor.

“Until now, we have not received any official notice from the government on our requested payment hike although we’ve already had some negotiations with them over the issue,” executive director of Macao Water Felix Fan Xiao Jun told Business Daily yesterday.

Per its previous experience of negotiating with the government, Mr. Fan said that the company was expecting a less-than-requested hike in the payment of their service.

The company delivered the request to the government for a 16 percent hike in payment for the water supply service in December last year.

Starting from mid-June last year, the government has been paying Macao Water 4.65 patacas (US$0.58) per cubic metre of water it supplies to the city, against 4.39 patacas before the 5.92 percent rise. But this nearly 6 percent hike granted by the government last year was

less than one-fourth of what Macao Water had asked for a year ago.

The city consumed 78.45 million cubic metres of water last year, up 4.2 percent year-on-year. The company anticipated that the volume of water consumption would rise by 5 percent this year.

The rise in payment for the water supply service does not translate into the increase in water tariff paid by the public.

“The current inflation level, especially for human

resources and construction materials [for the water supply infrastructure project] is also a concern,” Mr. Fan explained regarding the latest 16 percent requested hike: “Judging from the experience of previous years, the government will not approve our suggested hike in one go. The government has political concerns on the issue as well; they have to think of the public reception to our payment hike.”

The executive director said before that the suggested hike

was to ease the company’s financial pressures as it was about to invest over 1 billion patacas in large-scale water supply infrastructure in the next few years in anticipation of increased water consumption, including a new water treatment plant in Seac Pai Van in Coloane.

But the investment budget for the infrastructure project is still being assessed by the government, Mr. Fan revealed.

Under the concession terms signed with the government, Macao Water can deliver a request for adjusting the water supply service charges whenever the company detects a major change in its operation results, or the city’s inflation level.

Business Daily approached Marine and Water Bureau for comments on the approval status of Macao Water’s suggested hike but had not received further information on the issue by the time the story went to press.

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July 22, 2014

Macau Brands

Trends

Travelling in style Raquel Dias newsdesk@macaubusinessdaily.com

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e’ve spoken about the expansion of the luxury market into many sectors that did not belong in that segment before.

We’ve seen how from coffee to water there’s probably no shortage of products that offer a luxury option. This time, however, we’re looking at luxury suitcases.

Suitcases were - until relatively recently - a luxury product that few could afford. Air travel played a huge part in this and a few years ago so did travel restrictions. The simple fact is we can no longer carry liquids inside an airplane.

However, after decreasing in price dramatically, there’s been a reappearance of high-end, expensive luggage systems for those who like to travel in style.

As vacation time approaches, we decided to have a look at what the market offers and found two great options.

Rimowa These have the advantage of having practical reasons for their high price. Not only do they look wonderful, but they’re extremely light and sturdy. Perfect for special equipment, they won’t disintegrate anytime soon.

Our favourite is the new Limited Edition Limbo Crème White. The sophisticatedlooking Limbo collection in crème really stands out. The polycarbonate suitcase is reinforced with an aluminium frame, which makes it sturdier while allowing the suitcase to remain light.

Ebby Rane Founded by a lawyer who wanted to travel in style The Quartermaster by Ebby Rane has the best of both worlds as it is both practical and beautiful. It comes with 10 individually labelled nylon bags to pack items like shoes, lingerie, liquids, cosmetics, and tech accessories, plus a honey-coloured leather document holder that doubles as a clutch. All of these fit snugly into designated areas to ensure you pack smart. These carry-ons are designed to cater to discerning female travellers. Made from polycarbonate, with a waterproof zip, a TSAapproved lock and 360° wheels, it is a perfect choice.

Indonesian Telkom to operate in Macau The state-owned telecommunication provider will open a branch in Macau in co-operation with CTM as part of its strategy to become the largest telecommunication operator in Southeast Asia Alex Lee

alex.lee@macaubusinessdaily.com

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ndonesian state-owned telecommunications provider PT Telekomunikasi Indonesia (Telkom) is going to open a branch here this year. This new branch is part of the company’s strategy to continue expanding overseas, which also includes the opening of a branch in Taiwan this year.

According to the Indonesian newspaper Jakarta Post, the company’s vice-president, Arif Prabowo, said that it would proceed with a Mobile Virtual Network Operator (MVNO) agreement, which means that Telkom is going to use the wireless network infrastructure of other companies through co-operative agreements.

In the Special Administrative Region of Macau, PT Telekomunikasi

Indonesia, which is listed in Jakarta, will co-operate with Companhia de Telecomunicacoes de Macau (CTM). As for its entry into the Taiwanese market, the company will co-operate with Far EasTone Telecommunications and Taiwan Mobile.

In Macau, the company is going to operate through a subsidiary (Telkom Macau) established

by Telekomunikasi Indonesia International (Telin), which is based in Hong Kong.

The Indonesian company’s expansion began in 2013 and includes other countries and regions such as Singapore, Hong Kong, East Timor, Australia, Myanmar, Malaysia and the United States.

As the Indonesian company perceives Macau and Taiwan as markets with great potential, Telkom will also operate its retail businesses.

However, Mr. Arif also said that the investment for this expansion plan would be relatively low.

Last year, the company registered a 10.5 percent increase in net income of roughly 1.9 billion patacas.

Overseas contributions to Telkom’s overall earnings, however, was only 3 to 4 percent.

In December 2013, Arief Yahya, the company’s president, announced that his goal is to transform Telkom into the largest telecommunication operator in Southeast Asia. Currently, the company places second after Singapore Telecommunication.

Seac Pai Van educational facilities budget approved Sara Farr

sarafarr@macaubusinessdaily.com

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ducational facilities and schools in the CN6a lot of the Seac Pai Van housing complex will cost the government around 18.86 million patacas. According to a dispatch from Chief Executive Chui Sai On published in yesterday’s Official Gazette, the budget will be allocated in instalments over the next three years.

For the current year of 2014, as much as 9.43 million patacas will go towards the facilities’ construction.

Next year, that amount will be 7.54 million patacas and in 2016 the government will put in 1.89 million patacas. These amounts can be transferred to the following year if not used that year. However, the total amount cannot exceed 18.88 million patacas nor can it be used after the

set date of 2016.

The contract for the construction of the educational facilities and schools has been awarded to local architect Leong Chong In, according to the Official Gazette.

Leong Chong In is also the president of the Architects Association of Macau. He was also in Venice,

Italy last month with other Macau Government representatives to officiate at the opening of the Macau Pavilion at the 14th Venice Biennale of Architecture, which runs until November. The Macau Pavilion was organised by the Cultural Affairs Bureau and co-organised by the Architects Association of Macau.

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July 22, 2014

Macau

Gaming labour unions on the march “The shortcomings of the current promotion and remuneration system is the problem of unequal pay, which makes many of us angry,” said a secretary of gaming labour union Forefront of Macau Gaming. A protest is scheduled for tomorrow in The Venetian to support the demands of pit managers, trainee and senior supervisors. Sands China says it has already awarded several bonuses this year Kam Leong

newsdesk@macaubusinessdaily.com

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ocal gaming labour union Forefront of Macau Gaming plans to stage a protest on Wednesday to express its dissatisfaction with Sands China’s remuneration and promotion system for pit managers and trainee and senior supervisors even though Sands China Corporation announced it would promote qualified dealers and level one pit managers last week.

President of the union, Ieong Man Teng, said on a social website that the promotion terms covered in the announcement are not clear hence they will continue the protest on Wednesday, whereby they will “surround The Venetian”.

The major complaints the union are expressing this time are from the assistant pit managers, who primarily work on the gaming tables, slots and cages. According to Cloee Chao, secretary of the union, “Some of the assistant pit managers have worked in the same position for four or five years; however, they still haven’t been promoted to pit managers.”

According to Ms. Chao, assistant pit managers in the company are sometimes assigned to work as pit managers. In this case, a daily 80 patacas (US$10) extra pay will be offered to them.

“We hope all assistant pit managers will get promoted to pit managers with the same pay as PM, which is 33,000 patacas monthly, as well as offering some three percent of increase in their salaries each year, which is around 1,000 patacas. Such an increase should continue for 15 years, which we set as a stopping point,” she said.

Sands Corporation announced last Wednesday night it would promote all qualified dealers to supervisors while all level one pit managers will also receive promotions. The announcement was made after the union met with representatives of the Gaming Inspection and Coordination Bureau and Labour Affairs Bureau.

Not the only one However, the company’s promotion and remuneration system is not only

complained about by Forefront of Macau Gaming.

Another gaming labour union, Gaming Employees Club, has also organised some 50 people to pass their demands to the Labour Affairs Bureau yesterday to improve their benefits and rights.

The participants, according to the Club, are primarily pit managers, supervisors and dealers from the four main casinos of Sands Cjina.

In addition, most of them joined the company prior to the financial tsunami in 2008.

Willis Chen, a director of the Club, told TDM that these staff members had reduced their working days from six days per week to five days in response to the company’s request to ‘pass the hard times together’ during the difficulties. As such, their salaries were decreased.

He also said that the employer had promised to increase staff salaries by 500 patacas once the company’s performance had stabilised but once again such sentiments did not materialise.

All triggered by unequal pay The other main issue both of the unions are complaining about is the problem of unequal pay in terms of the promotion system. According to Mr. Chen, some less experienced dealers are getting higher pay than some of the participants although their working tasks are the same.

“In terms of promotion and salary increase, the related system is not fair. They [the corporation] promote whoever they want. There are no regular rules. Some staff said they may not promote anyone. They could hire someone from outside to be a supervisor or a pit manager,” said Mr. Chen.

The Club requests that the company increase dealers’ salaries from the current 19,000 patacas to 22,000 patacas. In addition, pit supervisor salaries should start from 26,000 patacas while pit managers should be on no less than 33,000 patacas.

Meanwhile, FMG has also suggested that the company offer equal pay to all trainee pit supervisors and pit

supervisors, at 26,800 patacas and 29,000 patacas, respectively, with one day off each week. For those under the two days-off package, the monthly salary suggested by the union is 24,850 patacas for trainee pit supervisors and 27,000 patacas for supervisors.

“There are a lot of different types of pay; maybe more than 80 types.

Hence, I don’t really know how to explain it,” Ms. Chao remarked when asked by Business Daily how the company’s remuneration system for supervisors worked at the moment.

In addition, the union thinks that the company should enact a system for trainee supervisors who have worked for three years to be promoted to pit supervisors.

“On the other hand, for DI, which refers to interns of supervisors, we think that they should be promoted to trainee supervisors once they work for one and a half years,” said Ms. Chao. “The protest is not only targeted at Sands Corporation or the gaming

industry. We want the government to voice out to local enterprises to increase the average wage in Macau as the citizens seem not able to share the fruits of economic growth.”

To Business Daily, Sands China said that since last year, the company has had in place a master plan geared toward further enhancing its team member structure and benefits scheme in view of the company’s business development, labour supply and business operation.

In the first six months of 2014, Sands China underlined that it had already given an earlier-than-usual January pay as a special arrangement in light of the Chinese New Year holiday, a bonus in February to all eligible full-time team members, a salary increase in March, a special award of one-month’s additional salary for all manager grade and below team members in July, to be paid annually through 2017 and recently, the promotion of all assistant pit managers to level two pit managers.

“Review on Consumer Protection Law”

public consultation session In order to solicit public opinion regarding the ‘Review on Consumer Protection Law’ consultation document from all aspects, Legal Affairs Bureau (DSAJ), Civic and Municipal Affairs Bureau (IACM), and Consumer Council are co-organizing a public consultation session.

Members from all industries and the public are welcome to join and express their opinions.

Venue: Congress Hall A, 2nd Floor, Tourism Activities Centre (CAT) No.431 Rua Luis Gonzaga Gomes Date: 23 -July- 2014 Time: 7PM to 9PM Inquiry: Consumer Council 8988 9315 ‘Review on Consumer Protection Law’ consultation document can be downloaded from the following websites: Legal Affairs Bureau: http://www.dsaj.gov.mo Civic and Municipal Affairs Bureau: http://www.iacm.gov.mo Consumer Council: http://www.consumer.gov.mo Macao law website: http://www.macaolaw.gov.mo

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July 22, 2014

Macau

Casinos lose out to World Cup lottery Lotto sales reached a record 36.1 billion yuan (MOP46.4 billion) in June, 1.7 times more than casino revenues, the widest ratio since 2009. The popularity of World Cup matches with mainland gamblers promises to further drain profits from Macau operators this year.

Revenues from SLOT, the only lottery operator here, climbed 63 percent in the second half

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lottery in China that incorporated World Cup betting lured punters away from Macau casinos, underscoring increasing threats to this year’s gaming industry performance here.

A chart revealed by Bloomberg yesterday tracks monthly sales of lottery tickets in mainland China, gaming revenue from Macau casinos and the Bloomberg Industry Macau (China) Gaming Market Index.

The equities gauge comprising six companies has dropped since the end of February, when takings at resorts including Wynn Macau and Sands China climbed to an all-time high. By contrast, lotto sales reached a record 36.1 billion yuan (US$5.8 billion, 46.4 billion patacas) in June, or 1.7 times more than casinos revenue, the widest ratio since 2009, data compiled

by Bloomberg and China’s finance ministry shows.

Restrictions on transit visas for Chinese tourists, the biggest drivers of revenue for Macau casinos, and a crackdown on the use of China UnionPay Co’s debit cards this year have dragged down the growth of the VIP gaming segment. The World Cup in June and July in Brazil further drew gamblers away from tables as people turned to bet on the global soccer tournament.

“There were enough incidents in the past months that could create that one-off discrepancy,” Louise Cheung, an analyst at Nomura Holdings, told Bloomberg. “Keeping an eye on lottery sales is important because it’s a convenient gaming option with more platforms. The constraint is it depends on the events that people can bet on.”

The Chinese Government started selling lottery tickets in the 1980s through authorised distributors as a way to finance social welfare projects, according to the Ministry of Civil Affairs. The sports lottery, which accounted for 43 percent of total ticket sales of 309 billion yuan in 2013, allows ticket buyers to bet on events including the World Cup, one of the few exceptions to prohibitions on gambling in the mainland.

Changes in Chinese visitors’ travel habits and a slowdown in the country’s economy are threatening the growth of Macau, Pansy Ho, co-chairman of MGM China , said earlier this month. Competition is also intensifying overseas as South Korea approved construction of its first foreign-owned casino resort in March and Japan considers opening up its gaming market. Macau leapfrogged the Las Vegas Strip to become the world’s largest gambling hub in 2006.

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July 22, 2014

Macau

Although not admitted by all analysts, the impact of the World Cup on Macau was underestimated by the market and also worked as a decisive force in the first drop in gaming revenues in five years. In June, revenues decreased 3.7 percent year-on-year. Investors are already expecting another weak month in July for Macau, with revenues set to stay flat or drop 5 percent, according to market consensus. “The market is probably underestimating the current headwinds Macau’s gaming operators are facing”, Morgan Stanley said this month.

“World Cup headwinds should continue until the conclusion of the competition on July 13, in our view.

This once-in-every-4-year disruption to GGR does not change our positive long-term secular outlook for Macau names”, said Sterne Agee in its most recent note to clients. Wells Fargo also emphasises that the World Cup effect will continue to diminish revenues in July, namely in the VIP segment, an opinion shared by Stern Agee who says that the tournament continues to

Keeping an eye on lottery sales is important because it’s a convenient gaming option with more platforms. The constraint is it depends on the events that people can bet on Louise Cheung, Nomura Holdings analyst

be a drag on Macau revenues, which were down 1 percent week-on-week.

Casinos as Brazil, SLOT as Germany The gamblers exodus to World Cup matches in the second half of June was the latest headwind faced by gaming operators here. Estimates for the current second quarter earning season were described by investors as more disappointment and new turbulence in gaming stocks is anticipated.

According to market consensus, profits for the six biggest gaming operators in Macau grew only 10 percent in the second quarter yearon-year, three times less than in the first quarter (28 percent). According to Morgan Stanley, Melco Crown and SJM are expected to show drops in profits, followed by a marginal profit increase of 3 percent by MGM China.

In the first quarter, Melco Crown and MGM’s profits grew more than 30 percent.

But as revenues shifted from baccarat to bets on football matches in the last two months, the single lottery operator in Macau enjoyed huge gains. SLOT – Sociedade de Lotarias e Apostas Mutuas de Macau – which has the monopoly of non-racing sports betting in the region, with a three-year concession running until mid-2015 - saw its revenues climb to a record 63 percent. In 2013, by the first half of the year, football lottery gross gaming revenue posted 195 million patacas. During the first half of this year, it was 318 million patacas, a 63 percent increase yearon-year. Some of the most important games of the tournament, however, only occurred in July, such as the final that took place on the 13th day of the seventh month. This means that the World Cup is also likely to have a positive effect on gross lottery gaming results in the third quarter of the year.

The World Cup boosted football lottery gross revenues to 203 million patacas during the second quarter of the year. This is the first time since 2005 that football lottery gross revenues have surpassed 200 million patacas in a single quarter, according to data from the Gaming Inspection and Coordination Bureau (DICJ).

Bloomberg with A.L.

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July 22, 2014

Greater China

HSBC raises GDP growth forecast

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anking giant HSBC has upgraded its forecast for China’s year-on-year gross domestic product (GDP) growth to 7.5 percent from 7.4 percent, saying recovery has been stronger than expected.

The Chinese economy expanded 7.5 percent year on year and 2 percent quarter to quarter (seasonally adjusted) in the second quarter.

In the first half of 2014, China’s economy expanded 7.4 percent from a year earlier.

GDP growth in the second quarter “surprised on the upside relative to our forecast” owing to stronger-than-expected government support measures, HSBC Chief China Economist Qu Hongbin said in a report yesterday.

Activity data suggests that most of the improvement came in June, with monthly fixed asset investment and industrial production growing 17.9 percent and 9.2 percent, respectively, compared with 16.9 percent and 8.8 percent in May. Policy support has been instrumental in helping China’s economy recover more quickly and strongly than expected. Bank lending picked up greatly in June, and fiscal spending accelerated in May and June. As a result, infrastructure investment and related manufacturing

investment accelerated.

Government policies, particularly fiscal policy, will likely be even more supportive in the second half as it is traditionally the spending season, Qu said. “We expect the cumulative impact of easing measures to continue filtering through and policymakers to maintain their accommodative stance.”

Despite revision of the 2014 GDP forecast, Qu said HSBC’s broad outlook on the Chinese economy remains unchanged.

In the near term, infrastructure investment will remain the policy of choice when it comes to supporting growth. Continued reform measures to expand the municipal bond market, regulate shadow bank lending and restructure state-owned enterprises will help reduce funding risks. Both monetary and fiscal policy will remain accommodative to consolidate the recovery, according to the report.

The main downside risk to HSBC’s forecast for China remains the property sector. Although the contraction in sales eased in June, funding and investment growth remained depressed.

However, Chinese policymakers can offset the negative impact given that they have a broad range of policy tools at their disposal, Qu said.

HSBC headquarters in Hong Kong

Xinhua

Sorry for the expired fast food McDonalds and KFC’s provider Yum publicly apologize for having used OSI’s food, a company that supplied them with expired ingredients Adam Jourdan

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.S. fast food chains McDonald’s Corp and KFC-parent Yum Brands Inc. apologised to Chinese consumers yesterday and said they will stop using a Shanghai meat supplier after Chinese regulators shut the firm down over food safety concerns.

A watchdog closed a Chinese branch of privately held U.S.-based food supplier OSI Group LLC and seized meat products suspected of being beyond their expiration date, according to a statement yesterday from the Shanghai Municipal Food and Drug Administration. OSI products were sold to clients including Yum’s KFC and Pizza Hut chains and McDonald’s.

An official at Aurora, Illinois-based OSI in China said the firm was working with local government to investigate the matter, but declined to comment further. OSI, which has over 50 manufacturing facilities worldwide and had revenue of over US$5 billion in 2012, has been supplying McDonald’s in China since 1992 and Yum since 2008, according to its website.

The incident is a headache for Yum and McDonald’s since the pair were hit by a food safety scandal in China in 2012. Yum suffered a sharp dive in profits early in 2013 after the safety concerns, and has only recently starting to bounce back in China.

“I think this is going to be really challenging for both these firms, and

especially for Yum,” said Benjamin Cavender, Shanghai-based principal at China Market Research Group. “Yum had just started rebuilding credibility and had some decent sales news which just came out for the second quarter.

I think this is going to really set them back,” he added.

McDonald’s and Yum are the two leading fast food chains in China by sales, according to data from research firm Euromonitor, but are facing a

rising challenge as local firms try to tempt cost-conscious diners with healthy, home-grown fare.

Yum and McDonald’s both said they have stopped using meat products purchased from Shanghai Husi Food Co Ltd, a local unit of OSI, and were investigating the matter, according to statements posted on their official Weibo microblog sites on Monday.

Local Chinese television broadcast a programme on Sunday saying an undercover reporter had seen the use of expired meat and poor hygiene practices in a local factory, local media said.

“Food safety is the most important thing for McDonald’s, and we always strictly abide by national laws and regulations and related standards to ensure consumers can enjoy our products at ease,” McDonald’s said in the Weibo statement.

Reuters

I think this is going to be really challenging for both these firms, and especially for Yum Benjamin Cavender principal at China Market Research Group

A McDonald’s and KFC outlets in Hong Kong

9

July 22, 2014

Greater China Xi seeks energy deals in Venezuela

Currency swap deal The visit is Xi’s second to Latin America since taking office last year, with Switzerland when he toured Mexico, Costa Rica, as well as Trinidad and Tobago

China’s central bank said yesterday it has signed a bilateral currency swap agreement worth 150 billion yuan (US$24.17 billion) with the Swiss central bank. The three-year swap will “provide liquidity support for bilateral economic and trade exchanges and help maintain financial stability,” the People’s Bank of China said in a statement on its website. The swap deal will provide liquidity support for the further development of the onshore yuan market in Switzerland and will be extended if needed, it said.

MMG a step closer to Las Bambas buy

Venezuelan president Nicolás Maduro (2-R) waves next to his Chinese counterpart Xi Jinping (2-L) during a visit to Venezuela’s National Pantheon where Venezuelan national hero Simón Bolívar is buried, in Caracas, Venezuela, 20 July 2014

C

hinese President Xi Jinping arrived on Sunday to Venezuela, the third leg of a Latin American tour aimed at bolstering trade with the region and sealing energy deals.

The Chinese leader’s charm offensive, which has already taken him to Brazil and Argentina and will next bring him to Cuba, seeks to secure new bilateral trade deals, particularly for coveted raw materials.

Venezuelan President Nicolás Maduro greeted Xi as he landed at the Maiquetia airport that serves Caracas, with dozens of dancers and musicians performing traditional musical pieces.

During the nearly 15 years that late president Hugo Chávez was in power, China became a strategic ally of Venezuela in America’s backyard.

China is the second largest buyer of Venezuelan oil, with an average daily volume of 640,000 barrels, in part to pay off Venezuela’s debt of around US$17 billion.

Both countries aim to increase the number of exports in the coming years to one million barrels a day.

Xi hopes to further develop his country’s strategic relationship with Venezuela, just as Caracas’s ties with the United States -the region’s traditional political and economic powerhouse- are arguably at their lowest point ever.

The countries have not had ambassadors in each other’s capitals since 2010.

By contrast, relations have been warming between China and Venezuela where bilateral trade has been steadily rising, exceeding US$20 billion in 2012.

Xi’s visit to Caracas is sandwiched between the Chinese leader’s triumphant stay in Argentina, where he secured several major trade deals, and travel to long-time communist ally Cuba.

After Venezuela, Xi heads to Cuba, where he is to announce plans to build a factory producing “biosensors” for monitoring the blood of diabetics and other patients suffering from chronic illness, Cuban media reported.

He will spend two days in Cuba, the last stop of his tour.

A group of Chinese business leaders who have expressed a strong interest in investing in the communist island will be accompanying Xi, reports said.

During his three-day Argentine visit, Xi and President Cristina Kirchner signed more than 20 trade deals in hydropower, marine and rail industries worth US$7 billion.

The two nations also announced Chinese plans for huge investment in hydroelectric power, shipbuilding, railways and a deal to help Argentina build its fourth nuclear plant.

Beijing will contribute US$4.4 billion toward the construction of two hydroelectric dams in Argentina’s southern Santa Cruz province and an additional US$2.1 billion to remodel strategic rail transportation for carrying

Huatong pushes up debt costs B orrowing costs for Chinese companies leapt by the most in eight months amid concern Huatong Road & Bridge Group Co. may become the second onshore corporate to default on its bonds.

One-year top-rated commercial paper yields jumped 26 basis points last week, the steepest such period increase since mid November, to 4.957 percent, the highest since April 16, according to Chinabond.

“The market has turned cautious because investors are concerned there will be more companies like Chaori or Huatong,” said Liu Dongliang, a senior analyst in Shanghai at China

Merchants Bank Co., the nation’s sixth-biggest lender. “Economic signs of recovery are weak and companies are facing huge debt burdens. We can’t exclude the possibility there will be more companies that may default.”

China faces a second onshore bond non-payment after builder Huatong Road & Bridge said last week it may be unable to redeem 400 million yuan (US$64.5 million) of one-year debentures which mature July 23.

The yield on Huatong Road & Bridge’s 7.3 percent notes surged to 27.02 percent on July 18 from 6.02 percent July 16 after the default

goods, especially food.

And it will provide US$423 million for the construction of 11 ships.

China is Argentina’s third-largest trading partner behind the South American Mercosur bloc and the European Union, and one of its main destinations for food exports.

Xi also was in Brazil last week for a summit of the BRICS group of emerging powers -Brazil, Russia, India, China and South Africa- and South American presidents.

The gathering saw the countries agree to launch a New Development Bank to fund infrastructure projects in developing nations as well as an emergency reserve, drawing praise from Latin American leaders who see them as alternatives to Western-dominated financial institutions.

AFP

640,000 barrels

daily volume of oil from Venezuela to China

warning. Under market rules, Shanxi province- based Huatong Road & Bridge should transfer the outstanding money to a clearing house by 4:30 p.m. today Tuesday, company official Geng Naizhuang said by phone July 18. It’s making all efforts to raise the funds, with help from the local government and bond underwriters, Geng said. Two phone calls made to the company today weren’t answered.

Huatong Road & Bridge’s potential default comes as policy makers seek to instill market discipline amid rising debt. Companies in China had US$14.2 trillion of debt at the end of last year, more than the some US$13.1 trillion owed by U.S. companies, Standard & Poor’s said in a June 15 report.

Bloomberg News

China’s MMG Ltd won unanimous approval from its shareholders yesterday to buy the Las Bambas copper project in Peru from Glencore Plc. for US$5.85 billion and sell more than half the output to MMG’s majority owner. The sale to a consortium led

by MMG is expected to be completed

by September pending final consents, boosting MMG’s growth prospects and putting Glencore in a strong position to return capital to its shareholders. Las Bambas, which is due to begin producing in 2015, is expected to produce 300,000 tonnes of copper a year over 20 years. Output is expected to be higher in the early years at more than 500,000 tonnes by 2016.

Formosa Plastics to receive US$2.39 mln Taiwanese conglomerate Formosa Plastics Group said yesterday it will receive US$2.39 million in compensation from the Vietnamese government and a Vietnamese insurance firm for damages incurred during anti-China protests in May. Formosa’s Vietnam unit, which is building a steel project and whose shares are not listed, had been targeted in the protests by Vietnamese workers. The workers had mistakenly believed that Formosa was a China-based company. Hanoi will pay US$1.44 million of the total sum this week, a spokesman for the Formosa unit said, and the remaining US$948,000 will be paid out in instalments by a Vietnamese insurance firm.

New Zealand visitor numbers record Tourists from China and Japan have driven the number of overseas visitors to New Zealand last month to a record high, the government statistics agency announced yesterday. Visitor arrivals numbered 162,100 in June, surpassing the previous June high of 159,500 in 2013, according to Statistics New Zealand. “Growth was driven by visitors from Asia, especially Japan and China,” population statistics manager Vina Cullum said in a statement. In the June year, visitor arrivals numbered 2.79 million, up 6 percent from the June 2013 year.

10

July 22, 2014

Greater China

Dwelling investments While wealthy Chinese tend to invest in foreign property, local middle class sticks to China’s houses Xiaoyi Shao and Koh Gui Qing

relatively small and a central bank probe into an offshore investment scheme offered by one of China’s major banks might curb investor appetite for foreign assets.

For optimists the limited scale of the foreign property investment and firm belief of many Chinese that a home remains the best store of value suggest that China’s housing market is in a “natural correction” rather than on the brink of a slump.

Still a buy

R

attled by falling home prices, some of the wealthiest Chinese are paring their property investments and turning to private equity or overseas holiday homes, a sign of fading hopes that the once red-hot market can bounce back any time soon.

“Smart money” checking the exit is a bad omen for any market, especially one considered frothy after a five-year record-breaking bull run, but wealth managers, brokers and analysts say there is no reason for alarm yet.

First, the rich are not in a full retreat mode but rather looking to spread the risks more evenly, money managers say.

“There are indeed clients choosing to reduce their exposure to the property sector, but it’s not a common phenomenon,” said an investment strategist at a private banking arm of a large state-owned bank. The banker declined to be named because he was not authorised to speak to the media.

Bankers also don’t expect investors to simply dump their real estate because the market cools.

“Unless someone has an especially big portion of their assets invested in property, he or she would not be in a hurry to sell,” said Wang Jing, a deputy general manager at China Merchants Bank’s private banking arm. “They would choose to rent their houses to deal with their cashflow problems.”

Furthermore, millions of middleclass Chinese, not rich enough to invest abroad and frustrated by official limits on bank deposit rates that barely beat inflation continue to see buying a second or third home as

the best investment.

Confronted with talk of more price cuts by developers to revive ebbing sales, those investors either hold on to cash and wait or focus more on megacities like Shanghai or Beijing and avoid smaller markets that struggle with oversupply.

Minority view “The choice of the rich is the view of a minority. We do not think it represents a trend for the masses in future,” said Zhao Dazhen, a property analyst at CEBM Group, an investment research firm in Shanghai.

“Market uncertainty is keeping most people on the side-lines.

Potential buyers will be back once there are signs of a recovery.”

Data appear to confirm that analysis, with new yuan deposits nearly tripling in June to 3.8 trillion, the biggest jump in at least 12 months.

The central bank’s second-quarter consumer survey also showed property has not lost its appeal: 14 percent of households said they wanted to buy a new home, roughly the same as a year ago.

By contrast, the rich, investment advisers at their side, increasingly choose to shift their money elsewhere in search for better returns rather than wait for prices to level off.

China’s wealthy have dabbled in foreign real estate in the past and fears that the market has gone too are also not exactly new.

What is new is a growing sense that despite a pick-up in home sales volumes last month, the second monthly decline in prices in June might be the beginning

Pictured hyper populated Zhabei district in Shanghai

of a longer slide.

Well-heeled investors are also shifting funds abroad faster than ever. Realtors in New York, Sydney or London all report how over the past year Chinese buyers became top foreign investors in their markets, snapping up high-end prestige properties.

Data from the National Association of Realtors, a U.S. trade association, showed that the Chinese accounted for about 16 percent of foreign home buyers in the United States in the year ending March 2014, up from 12 percent in 2013 and 2012.

Compared with the size of the domestic property market - 8.1 trillion yuan (US$1.3 trillion) in sales last year - outflows are still

The choice of the rich is the view of a minority.

We do not think it represents a trend for the masses in future Zhao Dazhen property analyst CEBM Group

Interviews with 10 would-be investors and property brokers in showrooms in Beijing, Shanghai and the southern city of Hangzhou convey that sense of confidence.

“Of course I will buy houses for investment,” says former investment industry professional Wu Linzhi, 52, while browsing house for sale ads at a real estate broker in Shanghai.

“Investing in property is one of the best ways to preserve the value of your cash. This is especially true in China’s biggest cities such as Shanghai.”

Whether China faces a severe property market supply overhang is hotly debated. According to one expert about 20 percent of apartments in Chinese cities stand empty, but others say the figure is exaggerated.

For one, it may include homes bought as financial investment where owners have no intention to move in or rent.

Central Bank Governor Zhou Xiaochuan recently admitted that policymakers are not sure themselves whether the property market is suffering from a supply glut or simply going through a soft patch caused by the slowing economy and financial stress.

For some well-heeled Chinese bad news is just another reason to call a realtor.

“I used to buy some wealth management products but stopped immediately after hearing there was a default,” said Yu Li, a 43-year-old catering business executive.

“So I just put most of my money into the property market. You cannot save your extra money in banks. Banks themselves are in debt, would you dare to give your money to them?”

Reuters

11

July 22, 2014

Asia

Australia’s Prime Minister Tony Abbot in a recent press conference

Abbott’s growing concerns The Prime Minister faces an increasingly difficult political panorama to make his budget real Jason Scott and Michael Heath

P

rime Minister Tony Abbott’s bid to put Australia back on a path to surplus is under threat from senators opposing A$40 billion (US$37.6 billion) in savings.

The Liberal-National government, which had wagered on a more compliant upper house when the balance of power switched July 1 to a group of eight centre-right lawmakers, has instead seen its spending cuts stymied. Having ruled out an election to break the impasse or a mini-budget to find alternatives, it’s having to negotiate with parties emboldened by opinion polls showing the government has lost popularity since its May budget.

Consumer confidence slumped after the government’s proposed cutbacks were announced, compounding weaker mining investment that’s acting as a constraint on economic growth. Now, business sentiment may be weighed by the wrangling and uncertainty over whether the government’s forecast return to surplus will be politically achievable.

“The extent of disagreement this time round is a lot larger than in the past,” said Stephen Walters, JPMorgan Chase & Co.’s Sydney-based chief economist in Australia. “The problem is you’ve had a negative reaction in sentiment to the tough budget passed down, but may end up without any of the actual savings. That’s quite negative for the economy.”

To pass laws, Abbott has to win the support of six of the eight lawmakers now sitting in the upper house and representing parties ranging from the socially conservative Family First to the Australian Motoring Enthusiast

Party. Forming the biggest voting bloc among the minority parties are the three Senators representing the Palmer United Party.

Palmer’s PUPs Led by mining magnate Clive Palmer, the three PUPs on July 17 backed Abbott’s “blood oath” to dismantle the nation’s price on carbon. That came a week after they rejected the repeal as it didn’t contain amendments that would force energy companies to pass on savings to consumers.

The three PUPs showed again on July 18 that they were willing to go against the wishes of the government by voting to support Abbott’s repeal of a 30 percent tax on iron-ore and coal company profits while keeping associated spending measures that he wanted axed.

By refusing to abolish those measures, including hand-outs to parents of school children and lowerincome earners, the Senate blocked A$17.2 billion in savings, according to the government. The government refused the amendments, meaning both the mining tax and the spending measures remain.

Budget savings In all, A$40 billion in budget savings are being blocked in the Senate, according to the government.

Other measures that either some or all of the Labor, Greens and PUP senators have indicated they’ll oppose include freezing payment rates for family tax benefits, reintroducing indexation for the fuel

The extent of disagreement this time round is a lot larger than in the past Stephen Walters JPMorgan Chase

excise and bringing in co-payments for doctors’ visits.

One option the government has open to it to break the gridlock is calling for a double dissolution election. Treasurer Joe Hockey couldn’t envisage such an outcome, or delivering a “mini-budget” with alternate spending cuts should the present proposals continue to be blocked in the Senate, he said in a July 18 interview.

“We always have a rolling analysis of the budget and look at where money can be spent more wisely and savings can be made,” he said. “We’ve got to carefully, methodically work through all the issues. This is not uncommon.”

House gridlock With parliament not sitting again

until August 26, the impasse in the Senate has created questions over Abbott’s ability to bring the budget back toward surplus. That’s also bringing uncertainty in the business community, according to Citigroup Inc. economists Paul Brennan and Josh Williamson.

“The new Senate could threaten business hopes of the government fully implementing its policy agenda,” Brennan and Williamson wrote in a July 16 report. “While it is impossible to know how PUP will vote on any individual bill, it does create serious uncertainty for the government.”

Consumer confidence in May fell to its lowest level since August 2011, prior to the central bank’s most recent easing cycle, and has remained subdued since. The Reserve Bank of Australia flagged the effect of planned fiscal consolidation as a drag on the economic outlook in minutes of its July meeting.

Along with pledging to pass laws to repeal the carbon-price mechanism and mining profits tax created under the previous Labor government, Abbott won power in the September election vowing to reduce the overall tax burden. The government had now created “budget chaos” by refusing to negotiate effectively with the Senate, Shadow Finance Minister Tony Burke said in a July 17 statement.

‘Situation worse’ “The government’s all-or-nothing approach means it is choosing to make the budget situation worse,” Burke said.

Abbott’s problems in selling his budget message is reflected in the polls. The Labor party leads the coalition government on the twoparty preferred measure 54 percent to 46 percent, according to a Nielsen poll of 1,400 voters conducted July 1719 and published in The Age today.

Hockey called on opposition parties to either agree on policies or offer alternative savings proposals.

“We’re not going to give up on our budgetary goal of getting the budget back into strong surpluses in order to pay down the debt,” he said in the interview.

Bloomberg News

12

July 22, 2014

Asia

South Korean growing pains Finance ministry and Bank of Korea unify growth strategy in spite of speculation

S

outh Korea’s top two economic policy officials agreed yesterday that downside risks to growth were increasing but did not say whether they saw the economy as weak enough to warrant an interest rate cut.

Finance Minister Choi Kyunghwan and Bank of Korea Governor Lee Ju-yeol also agreed to pursue “harmony between economic and monetary policies”, the two organisations said in a joint statement after their first meeting since Choi took office last week.

Choi’s remarks last week calling for stimulus efforts to bolster Asia’s fourth-largest economy sparked speculation among investors that the government wants the central bank to lower interest rates.

Choi told reporters yesterday there was no discussion on interest rates and that rate policy is the purview the central bank. The central bank has in the past been perceived by some in the market to have yielded to government pressure to ease rates.

Separately yesterday, Goldman Sachs said it now expects the central bank to cut interest rates by 25 basis points during the current quarter, possibly at its August review. In revising its forecast, the investment bank cited weakened economic activity and a “clearly dovish” turn by the Bank of Korea’s policy committee at its review earlier this month.

South Korea will report preliminary second-quarter economic growth figures on Thursday. Credit Suisse expects growth momentum cooled to 3.4 percent from the same period a year earlier, compared with 3.9 percent in the first quarter.

Choi and other senior government officials have not said explicitly whether they want the Bank of Korea to lower rates although bond prices have risen recently following remarks by both Choi and Lee citing economic weakness.

The 1-year treasury bond yield ended at 2.455 percent on Thursday, the lowest close since June 5, 2009, and below the central bank’s

Lao businesses seek low lending rates

M

KEY POINTS New finance minister said did not discuss interest rates with cbank chief Goldman Sachs says now expects rate cut of 25 bps this quarter Bank of Korea’s next policy review scheduled for Aug 14

Some analysts, including Nomura’s economist Young Sun Kwon, expect an interest rate cut as early as next month. Others, including ING economist Tim Condon, have said they expect no change in the rate.

Goldman Sachs said in its note that it expects the Bank of Korea to cut the policy rate only once, then raise rates in line with increases by the U.S. Federal Reserve, which it expects will begin in the third quarter of 2015.

The Bank of Korea last cut its policy interest rate, by 25 basis points to 2.50 percent, in May 2013, a move seen by some analysts and investors to have been made under government pressure.

The central bank next reviews rate policy on August 14.

Domestic demand in South Korea has been hit hard by the April ferry sinking in which more than 300 passengers died. Softer growth in some parts of the world has also been a drag on confidence in the exportreliant economy.

Reuters

Indian banks start running free

Businesses are anxious to coordinate with the Lao central bank to investigate ways to lower loan interest rates and access cheaper investment funds embers of Laos’ National Assembly have urged the country’s central bank to lower interest rates for loans ahead of the ASEAN Economic Community (AEC) integration in 2015, the state-run daily Vientiane Times reported yesterday.

Current borrowing rates for business stand at between 13 percent to 14 percent per annum, significantly higher than the rates of other Southeast Asian countries.

Thai banks, for instance, frequently offer loans to business in the range of 6 to 8 percent interest per annum.

National Assembly member of Vientiane Kikeo Khaikhamphithoun asked central bank governor Somphao Phaysith to lower the borrowing rate for Lao businesses so that they can access cheaper investment capital to produce goods and provide services at a more competitive price.

“I would like to hear what measures you would take to lower the rates so business people can access cheaper investment funds,” he said, quoted by the newspaper.

Pressure is mounting to shore up Lao businesses in preparation for more

benchmark interest rate of 2.50 percent. It rebounded on Friday to 2.459 percent.

The finance ministry is due to announce later this week measures to support growth in the economy, which Choi said last week would fall more than 0.2 percentage points short of the ministry’s earlier projection of 3.9 percent.

direct competition with foreign rivals under 2015’s AEC. The central bank governor admitted that lending rates in the country were high due to high inflation and subsequent higher deposit interest rates.

“If we do not raise our deposit interest rates we will find it hard to encourage people to make deposits,” Somphao said.

Somphao said that high loan interest rates reflected the measures of commercial banks to protect their own interests, adding that businesses that are assessed as higher risk will continue to face higher borrowing interest rates.

Despite the challenging financial environment, the Lao central bank will try its best to lower loan interest rates.

The central bank will also continue to keep the currency exchange rate stable so as to assist businesses producing goods for export.

The government has already established a policy in which farmers from poor districts in the country are able to access loans at about 6 percent to 8 percent interest.

Xinhua

C

onfidence in Indian banks is rising the most in Asia as Prime Minister Narendra Modi gave lenders more leeway to raise funds in bond and stock markets.

The average cost of credit-default swaps insuring the debt of five local lenders against non-payment slid 107 basis points in 2014 to 206, according to data provider CMA. A similar gauge for the region fell 13 basis points to 71. India allowed banks to issue long-term bonds exempt from reserve requirements this month, and said it will let state lenders sell shares to meet 2.4 trillion rupees (US$40 billion) of fund requirements by 2018 for complying with tighter global capital standards.

Increased policy support may help shore up profitability now at a 12-year low, according to CARE Ratings, at a time when the central bank Governor Raghuram Rajan’s efforts to rein in bad loans are starting to show results. Non-performing debt as a proportion of total advances fell to 4 percent as of March 31 from 4.2 percent in September, which was the highest since 2005-2006, the RBI reported in June.

“With India announcing its intention to bring down its stake in state-run banks, there is finally a plan to fund their large capital needs,” Arindam Saha, a Kolkatabased analyst at CARE Ratings, said

in a phone interview on July 15. “This will place them in a better position to boost profitability at a faster pace when the economy revives.”

The return on equity of local banks, a gauge of profitability, fell to 9.6 percent as of March 31, the lowest since at least 2002, the RBI said in a June 26 report. Earnings shrank as economic growth near a decade-low curbed lending and led to higher provisions for bad loans.

Bloomberg News

With India announcing its intention to bring down its stake in staterun banks, there is finally a plan to fund their large capital needs Arindam Saha analyst at CARE Ratings

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13

July 22, 2014

Asia World Bank chief arrives in India for three-day visit World Bank chief Jim Yong Kim arrived to India yesterday for a three-day visit during which he is scheduled to meet Prime Minister Narendra Modi and Finance Minister Arun Jaitley. “The historic mandate from the people of India represents a tremendous opportunity to unlock India’s growth potential and take advantage of its immense demographic dividend. I look forward to meeting Prime Minister Modi and Finance Minister Jaitley to understand their development priorities, and determine how the financial and knowledge resources of the World Bank Group can be best allocated to support them,” the World Bank president said.

ASEAN to discuss economic cooperation

Pictured the Bank of Korea headquarters in Seoul

Singapore finds the right gear Inflation seems to be bending under the government measures while tourism increase helps the economy

H

elped by the government’s property cooling measures and the stabilization of car prices, inflation expectations in Singapore fell to its lowest in the latest Singapore Management University (SMU) survey.

A press release issued yesterday showed that SMU’s Singapore Index of Inflation Expectations over the next one year was 3.74 percent, down from 3.80 percent last year, the lowest since the university first started the survey in September 2011.

The composite five-year-ahead Singapore Index of Inflation Expectations also reached a record low of 4.51 percent from 4.56 percent in 2013.

“Property prices in Singapore have reacted to curbs in debt servicing ratios, and slight temporary increase in vehicle quota have dampened car prices. We see this reflected in the moderation of overall inflation expectations,” said Assistant Professor Aurobindo Ghosh, co-creator and

director of the SInDEx Project at SMU’s Sim Kee Boon Institute for Financial Economics.

However, Ghosh also quoted the Monetary Authority of Singapore as saying that it has projected an upward pressure on the core inflation due to tight labour market and other passthrough costs.

The SMU index is based on an online survey of around 400 randomly selected individuals representing a cross-section of Singapore households.

Tourism up Driven by growth in sightseeing, entertainment and gaming and accommodation, the Tourism Receipts in Singapore were estimated to reach 6 billion Singapore Dollars (US$4.83 billion) in the first quarter of 2014, up 5 percent year-on-year, according to the Singapore Tourism Board yesterday.

Sightseeing and entertainment and

gaming recorded the largest year-onyear increase at 19 percent as both integrated resorts reported increases in their overall gaming revenues.

China, Indonesia and India were the top three markets, which made up 39 percent of Tourism Receipts.

Among the 3.9 million international visitor arrivals (IVA), visitors from China declined by 14 percent due to the continuing impact of the tourism law introduced on October 1, 2013. Excluding Chinese visitors, IVA grew 2.8 percent year-on-year, with a strong growth in Indonesia (6 percent), South Korea (17 percent) and Vietnam (13 percent).

Gazetted hotel room revenue showed a strong 12 percent growth to hit 0.8 billion Singapore dollars (US$0.64 billion) in the first quarter this year, with the average occupancy rate stood at 86 percent, a marginal 0.4 percentage points decline yearon-year.

Xinhua

A coordination meeting between ASEAN senior economic officials and its dialogue partners are due to take place in Yangon Monday to discuss issues related to the establishment of free trade areas and economic cooperation between them, sources said. The dialogue partners include China, Japan, South Korea, India, Australia, New Zealand, the European Union, China’s Hong Kong, the United States, Russia and Canada.

The three-day meeting follows the prior third meeting of the ASEAN Senior Economic Officials for the 46th meeting of ASEAN Economic Ministers set to be held on August 23 to 28.

S.Korea exports fall South Korean exports for the first 20 days of this month fell 2.4 percent over same period last year, while imports rose by 6.3 percent, customs agency data showed yesterday. The value of exports for the July 1-20 period was at US$27.691 billion and imports stood at US$29.388 billion, Korea Customs showed on its website.

Malaysia’s palm oil exports up Exports of Malaysian palm oil products during July 1-20 rose 7.8 percent to 868,843 tonnes from the 806,303 tonnes shipped during June 1-20, cargo surveyor Intertek Testing Services said yesterday.

Woolworths’ bid for Country Road deemed fair

Tourist wearing “I Love Singapore” T-Shirts. Visitors are mainly Chinese, Indian and Indonesian

South Africa’s Woolworths Holdings Ltd’s US$200 million bid to buy out Australian retailer Country Road Ltd shareholders was fair and reasonable, an independent expert said yesterday.

Woolworths welcomed the findings, which will help ease any shareholder concerns that it paid too much for the Country Road stake in order to remove a potential obstacle to its bid to take over Australian department store chain David Jones Ltd. Last month, Woolworths offered to buy the near 12 percent stake in Country Road held by billionaire Solomon Lew.

14

July 22, 2014

International Russia’s Severstal sells U.S. plants Steel Dynamics Inc. will buy Severstal’s mini-mill in Columbus, Michigan for US$1.62 billion in cash, and AK Steel will buy the Russian steelmaker’s assets in Dearborn, Michigan for US$700 million in cash. AK Steel said yesterday the deal also included a coke making facility and interests in three joint ventures that process flat-rolled steel products. Steel Dynamics said its deal was expected to be immediately accretive to earnings and cash flow per share and would help the company significantly expand its operating base with 3.4 million tons of hot roll steel production capacity.

Holcim, Lafarge in antitrust reviews phase Cement makers Holcim and Lafarge are in “advanced” talks with European competition regulators over their proposed merger, and have filed formal notifications in five major markets, Holcim Chief Executive Bernard Fontana told the Wall Street Journal. Antitrust reviews are expected in about 15 countries, and Fontana said filings had already been made in the United States, Canada, Mexico, India and Russia. Switzerland’s Holcim unveiled a deal to buy France’s Lafarge in April to create the world’s biggest cement maker, with US$44 billion of annual sales.

Philips dimmer in spite of increasing lights 2014 is proving to be a difficult year for Philips as the company’s profits decline Maude Brulard

E

lectrical appliance group Philips reported a setback in its switch to focus on healthcare technologies yesterday, revealing that overall net profit slumped by nearly a quarter in the last three months.

But the group said that its traditional lighting business, driven increasingly by energy-efficient LED technology, was doing well.

Group second-quarter profit fell by 23 percent to 243 million euros (US$329 million) from the equivalent figure last year, and the group warned that trading conditions for the whole of this year would be difficult.

Danish banks cut off from wholesale funding

LED lighting boost But sales by the healthcare division fell by 4.0 percent in the quarter, and the group suffered from a decision to suspend temporarily production at a factory making medical scanners at Cleveland in the United States after the US Food and Drug Administration found shortcomings in quality control.

The group had reported the medical sales fall at the beginning of July. Underlying performance by the division as measured by earnings before interest, tax, and amortisation

More than half a decade after Denmark’s financial crisis left most of its banks shut out of debt funding markets, the lenders still can’t find investors willing to buy their bonds. Jan Kondrup, director of Denmark’s Association of Local Banks, says most of the group’s 70 members are meeting their capital requirements through equity. For liquidity, they’re relying on a partnership with Nykredit A/S unit Totalkredit A/S. Denmark has lost more than 60 small and mediumsized banks since 2008. Three years ago, the country became the first in the European Union to force losses onto senior creditors.

Malaysian Air turnaround plans Malaysian Airline System Bhd., the state-backed carrier whose jet was shot down over Ukraine on July 17, will present turnaround plans this week to the government fund that controls it, people familiar with the matter said. The proposals presented to majority owner Khazanah Nasional Bhd. will include taking the company private or allowing it to go bankrupt and then renegotiating contracts with the workers’ unions, said one of the people, who asked not to be named as the information is private. Khazanah, Malaysia’s sovereign wealth fund, owns 69.4 percent of the carrier.

Anglo Platinum to sell S. Africa mines The world’s largest producer of the metal, said it may sell some mines after first-half profit dropped 88 percent because a five- month strike in South Africa disrupted mining. Amplats, as the Johannesburg-based unit of Anglo American Plc is known, is putting four mines and possibly two joint ventures up for sale, it said in a statement today.

It will retain the Mogalakwena open-cast operation, the company’s largest, three other mining assets and four stakes in joint ventures.

Overall sales fell by 5.0 percent to 5.3 billion euros.

Group operating profit was 415 million euros, representing nearly 8.0 percent of sales.

“In the second quarter we continued to face headwinds, including ongoing softness in certain markets, unfavourable currency exchange rates and the voluntary suspension of production at our health care facility in Cleveland,” chief executive Frans van Houten said in a statement.

Philips, a household name around the world for home appliances, has a strategy to focus more on advanced lighting technology, and on medical technology where margins are strong and less vulnerable to competition from emerging markets.

Last year, Philips announced the sale of its lifestyle entertainment branch, which makes stereos and DVD players, after selling its troubled TV-making arm in 2012.

Tesco’s CEO steps down Failed attempts to break into the United States and Japan and troubles in China and Europe have proved a distraction to its home market James Davey

T

esco said Chief Executive Philip Clarke would step down after Britain’s biggest retailer warned it would miss firsthalf profit forecasts, bringing an end to a disastrous three years in charge.

Clarke, a 40-year Tesco veteran, will be replaced on October 1 by Unilever executive Dave Lewis, whom the firm described as a turnaround specialist.

Tesco said yesterday trading had turned more challenging than anticipated at the time of its firstquarter market update on June 4, and that sales and trading profit in the first half of the year were below expectations.

Shares in the group, which had been the darling of the sector during two decades of uninterrupted earnings growth before a shock profit warning under Clarke’s watch in 2012, have been trading at a 10-year low.

“Philip Clarke agreed with the board that this is the appropriate moment to hand over to a new leader with fresh perspectives and a new profile,” said Chairman Richard Broadbent, who had backed Clarke as CEO at Tesco’s annual shareholder meeting last month.

Tesco, the world’s third-largest retailer, with a market valuation of 23 billion pounds and 530,000 staff, has suffered on several fronts in recent

(Ebita) amounted to 225 million euros, showing a margin of 10 percent of sales down from 18 percent a year earlier.

Commenting on the healthcare division, Van Houten said: “In the second quarter, we continued to see results of our focus to win large-scale multi-year partnerships - such as the recently announced agreement with New Karolinska Hospital in Solna, Sweden - designed to structurally improve patient care at lower and more predictable costs.”

The group expected deliveries from the factory in Cleveland to be resumed gradually in the third quarter of the year.

He said that “in light of this and the recent strong equipment order intake in China and Europe”, the group expected performance to improve towards the end of the second half.

But “2014 is expected to be a challenging year overall,” he said.

At the end of June, the group announced that it was creating a separate company for some of its lighting activities, notably in the auto and mobile phone sectors, and it said this activity was benefiting from demand for energy efficiency.

Sales by all lighting activities rose by 1.0 percent on a 12-month comparison, but sales of products based on light-emitting diodes (LED) had surged by 43 percent, and now accounted for 36 percent of total lighting sales from 25.0 percent at the same time last year.

AFP

years.

Overseas, failed attempts to break into the United States and Japan and troubles in China and Europe have proved a distraction to its home market, where it still makes over two-thirds of sales.

Bruno Monteyne, retail analyst at Sanford C Bernstein, said Clarke’s departure confirmed that the strategy was completely wrong. “So there’s more bad news to come in my view before it gets back on the right track,” he said.

Clarke was two-years into a multibillion pound turnaround plan for Tesco’s core British business but he had failed to deliver a durable increase in sales.

Reuters

KEY POINTS CEO Clarke to step down on Oct. 1 To be replaced by Unilever exec Dave Lewis Warns sales and profit to miss forecasts

15

July 22, 2014

Opinion

wires

The trade delusion

PHILSTAR

Adair Turner

Business

Leading reports from Asia’s best business newspapers

Philippine banks have been advised to strengthen their risk management efforts, put in place more good governance policies and focus on consumer protection in preparation for the regional economic integration, the Bangko Sentral ng Pilipinas said. BSP Governor Amando M. Tetangco Jr. said late last week domestic banks would need to step up amid expected increased competition from the Association of Southeast Asian Nations’ banking integration framework, and the imminent reforms they will need to implement under the Basel 3 accord.

Former Chairman of the United Kingdom’s Financial Services Authority, is a member of the UK’s Financial Policy

Committee and the House of Lords

THE STAR ONLINE The recent overnight policy rate (OPR) hike by Bank Negara could have an impact on submissions for car loans, especially for national makes such as Proton and Perodua.

Proton Edar Dealers Association Malaysia president Armin Baniaz said many car buyers were opting for alternative financing from cooperative and Islamic banks for cheaper loans. The central bank raised the OPR by 25 basis points, or 0.25 percentage point, to 3.25% earlier this month, as part of the measures to curb rising household debts.

TAIPEI TIMES As of last month new construction volume in northern Taiwan totaled NT$591.54 billion (US$19.69 billion) so far this year, down 9.5 percent from the same period last year. It is likely to shrink further as developers and builders opt to avoid uncertainty linked to the November 29 elections, a report by the Chinese-language Housing Monthly (住展雜誌) said. Despite the decline, the volume topped the three-year average by NT$79 billion, as concerns over the November 29 nine-in-one elections drove builders to start new projects in the first half of the year.

THE AGE Australia has a three-tier economy with Western Australia, the Northern Territory and New South Wales outperforming the rest of the country, according to the quarterly Commsec State of the States report.

The report was released amid warnings from the Melbourne Economic Forum yesterday that Australia faced declining living standards unless it radically boosted its productivity. In the Commsec report, the states were assessed using a number of key indicators including retail spending, equipment investment, employment, construction work, population growth, housing finance, dwelling starts, wages, inflation and home prices.

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ONDON – Since 2008, global trade has grown slightly more slowly than global GDP. The Doha Round of World Trade Organization negotiations ended in failure. Transatlantic and transpacific trade negotiations are progressing slowly, held back by the resistance of special interests.

But, though many experts fear that protectionism is undermining globalization, threatening to impede global economic growth, slower growth in global trade may be inevitable, and trade liberalization is decreasingly important.

To be sure, for 65 years, rapid trade growth has played a vital role in economic development, with average advanced-economy industrial tariffs plummeting from more than 30% to below 5%. The creation of Europe’s single market facilitated increased intra-European trade. Japan, South Korea, and Taiwan achieved rapid economic catch-up on the basis of export-led growth. China has followed the same path over the last 30 years. Trade grew about twice as fast as global output from 1990 to 2008.

But there is no reason why trade should grow faster than GDP forever. Indeed, even if there were no trade barriers at all, trade might grow significantly more slowly than GDP in some periods. Several factors make it possible that we are entering such a period.

For starters, there is the changing pattern of consumption in the advanced economies. Richer people spend an increasing share of their income on services that are either impossible to trade (for example, restaurant meals) or difficult to trade (such as health services).

Non-tradable sectors tend to account for a growing share of employment and

There is no reason why trade should grow faster than GDP forever.

Indeed, even if there were no trade barriers at all, trade might grow significantly more slowly than GDP in some periods.

Several factors make it possible that we are entering such a period

economic activity.

For several decades, that tendency has been offset by ever more intensive trading of tradable goods, often passing through many countries in complex supply chains. In the future, however, the shift to non-tradable consumption may dominate.

Indeed, trade intensity may decline even for manufactured goods. Trade is partly driven by differences in labour costs. China’s dramatic

manufacturing growth reflected low wages up to now. But as real wages in China and other emerging economies grow, incentives for trade will decline. The more that global incomes converge, the less trade there may be.

In addition, as the economists Erik Brynjolfsson and Andrew McAfee of MIT have argued in their book The Second Machine Age, rapid advances in information technology may enable increasingly extensive automation. Some manufacturing activities, though few jobs, may well return to developed countries, as the advantages of proximity to customers and lower transport costs outweigh decreasingly important differences in labour costs.

Global trade as a share of GDP may therefore decline, but without adverse consequences for global economic growth. Rising productivity does not require relentlessly increasing trade intensity.

Earth, after all, does not trade with other planets, yet its economy still grows. Optimal trade intensity depends on many factors – such as relative labour costs, transport costs, productivity levels, and economy-of-scale effects.

Trends in these factors might make reduced trade intensity not only inevitable but desirable.

Even if that is true, international trade will still play a vital role, and preventing any reversal of past trade liberalization is essential. But further trade liberalization is bound to be of declining importance to economic growth.

With industrial tariffs already dramatically reduced most potential benefits of trade liberalization have already been grasped. Estimates of the benefits of further

trade liberalization are often surprisingly low – no more than a few percentage points of global GDP. That is small compared to the cost of the 2008 financial crisis, which has left output in several advanced economies 10-15% below pre-crisis trend levels. It is small, too, compared to the difference in economic performance between successful catchup countries – such as China – and other countries that have enjoyed the same access to global markets but have performed less well for other reasons.

The main reason for slow progress in trade negotiations is not increasing protectionism; it is the fact that further liberalization entails complex trade-offs no longer offset by very large potential benefits. The Doha Round’s failure has been decried as a setback for developing countries. And some liberalization – say, of advanced economies’ cotton imports – would undoubtedly benefit some low-income economies. But full trade liberalization would have a complex impact on the least developed economies, some of which would benefit only if compensated for the loss of the preferential access to advanced-economy markets that they currently enjoy.

This implies that further progress in trade liberalization will be slow.

But slow progress is a far less important challenge to growth prospects than the debt overhang in developed economies, or infrastructure and educational deficiencies in many developing economies. That reality often goes unacknowledged. The importance of past trade liberalization has left the global policy establishment with a bias toward assuming that further liberalization would bring similar benefits.

But while the potential global benefits of trade liberalization have declined, reduced trade intensity might still impede economic development in some countries. Only a handful of economies over the last 60 years have fully caught up to advancedeconomy living standards, and all relied on export-led growth to drive productivity and job creation in manufacturing.

Relying solely on that model will be more difficult in the future. China is so big that it must develop domestic drivers of growth at an earlier stage of development than did Japan, Taiwan, or South Korea; as a result, its exports will inevitably decline (relative to GDP).

Meanwhile, for some lowincome countries, increased manufacturing and servicesector automation of the sort described by Brynjolfsson and McAfee, whether within advanced economies or within China’s established industrial clusters, will make the path to middle- and highincome status more difficult to achieve. That poses important challenges for development policy, which further trade liberalization can alleviate only marginally.

The Project Syndicate 2014

16

July 22, 2014

Closing RMB on currency podium by 2020

China’s online population rises to 632 mln

The Chinese renminbi will become the world’s third largest currency after the U.S. dollar and Euro by 2020. A report by the International Monetary Institute of Renmin University of China and the Bank of Communications, said that the RMB internationalization index had risen to 1.69 by the end of 2013 from 0.92 a year before. The main impetuses for the internationalization of the RMB come from cross-border trade settlement and direct investment. In 2013, China’s cross-border RMB trade settlement hit US$759 billion, up 57.5 percent year on year, and RMB direct investment totalled 534 billion yuan.

China’s netizen population, the world’s largest, grew to 632 million by the end of June, an industry report showed yesterday.

Figures from the China Internet Network Information Centre (CNNIC) showed that there were 14.42 million new Internet users in the first six months of the year. The number of mobile Internet users totalled 527 million as of June 30, up 26.99 million from the end of 2013, the CNNIC report said. According to the report, the 34th of its kind since 1997, Chinese netizens spent a weekly average of 25.9 hours on the Internet, an increase of 0.9 hour from the figure recorded in the second half of 2013.

Murdoch wants a bigger piece of Chinese pie The merger project between Time Warner and 21th Century Fox would provide him with bigger access to Chinese media market

R

upert Murdoch’s plan to buy Time Warner would help the Twenty-First Century Fox chairman make larger inroads in China, a fastgrowing market that media moguls are finding hard to crack.

Time Warner’s board rejected Murdoch’s US$80 billion offer, but the Fox chairman is expected to continue the chase.

A deal would create a giant with more than US$37 billion a year in revenues in the United States and Canada.

It would also nearly double the revenues Fox generates from the emerging media markets in Latin America and Asia/Pacific.

“He sees 3 billion new consumers coming into the market and a rising middle class in China and India, and mobile devices and strong demand for content,” said Mario Gabelli, the CEO of GAMCO Investors, in an interview with Reuters Insider.

Last year, Fox generated 42 percent of its revenue outside the United States and Canada. The company’s

Asian revenues, including those in Japan and China, grew by 40 percent, to US$2.1 billion, over two years.

In China, with Time Warner in the fold, Murdoch would be able to focus more squarely on profiting from what movies and TV shows the government allows.

In January, he sold Fox’s 47 percent stake in Star China

TV, which owns three 24hour Mandarin channels, and in October sold off Fox’s remaining stake in Chinese TV company Phoenix Satellite Television. These move come in the face of restrictions on foreign ownership of China media assets.

“Murdoch is not unique.

The Chinese government says, ‘We cannot let these people

control our media,’” said William Yu, an economist at UCLA’s Anderson School of Management, who focuses on emerging Asian economies.

Still, the China potential is alluring. Consulting and audit firm EY estimates revenue from China’s media and entertainment industry will reach US$138 billion by 2015, from US$59 billion in

Indonesia might curb foreign’s bank stakes

Impeachment filed against Philippine President

I

P

ndonesian lawmakers are considering a bill that will force foreign banks to sell down majority stakes in local lenders, which, if approved, would drive away the foreign capital needed to further develop the country’s financial services sector.

The proposed restrictions would reduce the appeal of Indonesian banks for foreign investors as other Southeast Asian nations such as the Philippines and Thailand loosen foreign ownership rules in preparation for the region’s economic integration.

The multi-party parliamentary commission overseeing banking and finance in Southeast Asia’s largest economy is considering a bill that would make foreign banks sell down holdings in Indonesian banks to a maximum of 40 percent within a decade, deputy commission chairman Harry Azhar Azis told Reuters.

The central bank has since 2012 limited foreign banks’ holdings in local lenders to a maximum of 40 percent. Foreign banks that own controlling stakes in Indonesian lenders include Malaysia’s Malayan Banking Bhd, CIMB Group Holdings Bhd, and HSBC Holdings PLC. Reuter

2010. The country already has embraced streaming video and EY sees advertising revenue jumping.

Its mobile web users, the most in the world, are expected to hit 750 million by 2017, according to data from Chinabased consultancy iResearch.

Currently, China limits to 34 the total number of movies foreign companies can import. China’s box office last year grew 27 percent, to US$3.6 billion, second only to the US$10.9 billion million U.S. market.

A merger would allow Murdoch to use the Warner Brothers studio to claim more quota slots. In 2013, seven Warner Brothers films were granted a release in Chinese theatres, and six for Fox, according to Box Office Mojo.

Fox’s Hollywood studio last year produced 14 movies, to Warner Brothers’ 25 films. Fox has also agreed to co-produce five Chinese language films with Chinese studio Bona Film Group.

Warner’s movies generated US$155.9 million from three of its films that ranked in China’s top 20 last year. Fox’s three films in the top 20.

“It’s a huge opportunity,” said former Paramount President Sid Ganis, whose Jiaflix company advises movie companies in China, “and media companies are only now beginning to figure the market out.”

Reuters

NZ to raise rates again

rotesters in the Philippines filed an impeachment complaint against President Benigno Aquino III yesterday over the implementation of the controversial Disbursement Acceleration Program (DAP). The complainants, which include DAP petitioners, anti-Pork advocates, religious leaders, members of the academe, corruption whistle-blowers and sectoral leaders, accused Aquino of culpable violation of the Constitution and betrayal of public trust.

They asserted that Aquino violated the Constitution by usurping Congress’ power of the purse and undermining the principles of separation of powers and system of checks and balances.

They likewise accused Aquino of betraying the public trust by exacerbating the corrupt “pork barrel system,” committing tyrannical abuse of his powers, violating his oath of office and perpetrating multiple counts of technical misappropriation and corruptions of public officials.

Xinhua

N

ew Zealand’s central bank is set to raise interest rates for a fourth consecutive meeting this week but is expected to signal it will pause its tightening as it balances sliding commodity prices, rising inflation and a high flying currency.

The country has been growing at close to 4 percent a year on the back of earthquake reconstruction projects in the Canterbury region, a strong housing market, booming commodity prices, and increasing migration.

That has sent annual inflation up to 1.6 percent in the second quarter, from around 0.7 percent in the year-ago quarter, prompting the Reserve Bank of New Zealand to start tightening policy.

The RBNZ has made it abundantly clear it intends staying ahead of the curve to keep a lid on growing inflation pressures, having tucked 25-basis point rises in March, April, and June under its belt.

Thirteen of 16 economists polled by Reuters expect a further hike to 3.50 percent on Thursday, and financial markets are pricing in an 82 percent chance of a rate rise.

Reuters