Macau Business Daily, July 30, 2014

MOP 6.00

Page 6

Year III

Number 593 Wednesday July 30, 2014

Publisher: Paulo A. Azevedo

Closing editor: Sara Farr

Wynn reports quarterly growth | International Housewares revenues increase 17pct

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t’s a hot topic. Property prices. Local families spend more years paying off their mortgages than the likes of Singapore, Shanghai, Japan, the UK or the US. The gap between home prices and income growth is widening at a rapid pace. As much as 25 percent of income is used to pay off the mortgage in modern Macau Page 2

HSI - Movers July 28

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Chinese medicine brands eye Hengqin Pharmaceutical companies from Macau, Taiwan and the US have set up a JV. They will invest up to HK$2 million to create a ‘Made in Macau’ brand of Chinese medicine. The traditional Chinese medicine park in Hengqin Island ticks all the boxes as a base

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Pay dirt Investment grew nearly 31 percent in 1Q Y-o-Y. Figures from the Monetary Authority show that investment in the construction area increased 33.6 percent in real terms Page 3

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Hong Kong Exchang

3.49

CITIC Pacific Ltd

3.35

China Life Insurance

3.15

Cheung Kong Holdin

2.87

China Merchants Ho

-0.58

China Resources Po

-1.12

CNOOC Ltd

-1.14

Power Assets Holdi

-1.30

PetroChina Co Ltd

-2.25

Brought to you by

The former president of the Civic and Municipal Affairs Bureau has been acquitted. As have three co-defendants in the notorious cemetery plot case.

The presiding judge found that there was no case to answer. Although the plaintiff begs to differ

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I SSN 2226-8294

Former IACM president exonerated

Gross gaming revenues could decrease for a second month in a row. Analysts are revising their maths in the wake of the World Cup. While investors weigh the odds

Sun Hung Kai Proper

Source: Bloomberg

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Prolonged hangover

%Day

Computer bug Deja vous. The Chinese State Administration for Industry & Commerce is probing Microsoft.

The software giant is being investigated for monopolistic activities Page 10

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July 30, 2014

Macau

Families need to work 15 years to buy a home That’s more than in Singapore, Shanghai, Japan, the U.S. or the U.K. and with Hong Kong just around the corner, the IMF finds. The gap between home prices and income growth is widening fast here and 25 percent of household income is already spent to pay the mortgage Luis Goncalves

luis.goncalves@macaubusinessdaily.com

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f you want to buy a mediumsized house in Macau, be ready: you need to work 15 years to get it. And don’t wait for a year or two: you’ll risk having to keep your job for 20 more years to buy the same place.

And don’t regret the past. If you had bought that apartment in 2009, by now it would have already have paid for and be 100 percent yours.

That’s a short summary of what’s happening in Macau’s real estate market, according to the International Monetary Fund (IMF), which last week published its first report on the territory since the handover.

The gap between the growth of house prices and household income is widening fast and risks are growing every year that could spill into the financial sector.

IMF doesn’t explicitly say there’s a housing bubble in Macau – they usually don’t say it, but like to show it through data and tables. But on one thing they are totally clear: the financial capacity of families in Macau to buy a house is dropping rapidly. ‘Housing affordability has deteriorated sharply,’ says the IMF in the same report.

Escalating prices The Washington-based institution estimates that a household in Macau needs to work 15 years to buy a 70 square metre home today. That’s five years more than what was needed in 2012 (10 years) and three times more than in 2009, the IMF revealed.

Five years ago, an average family in Macau needed only five times its annual income to acquire the same medium-sized apartment in Macau.

By now, it would already have been paid for.

The IMF’s housing affordability ratio relates the price of a 70 square metre house as a multiple of annual household disposable income. In other words, the amount of years a family has to work to buy a mid-sized home.

The government told IMF officials that they ‘felt the rise in property prices was reflective of fast income growth, very tight supply and loose global monetary conditions.’ But official data shows that the household income growth in Macau has played

a very marginal role in the widening gap between home prices and salary increases. The gap is deteriorating the chances of families to have their own home.

Income grew 30pct According to the most recent data from the Monetary Authority of Macau (AMCM) the average salary in Macau reached 13,000 patacas in the first quarter of this year from 10,000 patacas in 2011. That’s a 30 percent increase. In the same period, the average residential square metre in Macau rose from 44,433 patacas in 2011 to 88,958 patacas in the first quarter, more than double.

Since 2011, Macau home prices have grown three times faster than household income.

Macau is already one of the most expensive places for a family to own a house in all of developed Asia and also the world. IMF data revealed

Families already spend 25 percent of their income to pay the mortgage to the bank Housing affordability has deteriorated sharply IMF

that today households in Macau have to work more years than families from Beijing (12 years), Shanghai (10 years), Singapore (7 years) or Japan (10) to buy the same size house. In the UK, for example, five times annual income is enough to buy a 70 square metre apartment.

But worse than the actual figures, is the growth trend. The housing affordability of families here plunged in the last half-decade, even faster than in Asia’s most expensive place – Hong Kong. In the neighbouring SAR, households need 20 years of annual income to buy a medium-sized apartment. In 2009, Macau was one of the cheapest and easiest places for a family to buy an apartment in Asia, well below Beijing, Singapore or even mainland China.

Taxes may go up With the widening gap between income and real estate prices it may only be a matter of time before Macau surpasses Hong Kong. Especially when a new flow of casinos is expected to open in Cotai up to and including 2017, doubling the number of tourists and workers and putting pressure on home prices due to the limited space for expansion and increased demand.

IMF says data from the Macau real estate market ‘suggests a price overvaluation’ and families are paying the price. According to the report, households here already spend 25 percent of their monthly income to pay the mortgage to the bank, IMF says.

If the price jumps persist, the IMF suggests that the government raise taxes on real estate, from stamp duty or property taxes, and limits credit to buy property in order to cool down the market.

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July 30, 2014

Macau

Investment grows 30.9pct in 1Q During the first quarter of this year, investment in Macau increased by 30.9 percent. However, the completion of the new University of Macau campus in Hengqin Island and the absence of major building projects reduced public investment by 49.2 percent Joao Santos Filipe

jsfilipe@macaubusinessdaily.com

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nvestment in Macau expanded 30.9 percent year-on-year during the first quarter of the year, according to data published by the Monetary Authority of Macau (AMCM). In the area of construction alone, investment increased in real terms by 33.6 percent.

Although there was an expansion in the level of overall investment, there were two distinct trends from the public to the private sectors. The investment in the latter increased by 39.8 percent, while the money invested by the government fell 49.2 percent.

In the private sector, the commencement of construction for large-scale tourism facilities, including the new resort casinos in Cotai, together with increased investment in building construction, property transfer fees and real estate developers’ margin boosted construction investment by 44.9 percent in the first quarter.

As for public investment, the completion of the new University of Macau campus in Hengqin Island

operating in Macau, 37.6 percent were in the wholesale and retail trade, 21 percent in business services and 13.1 percent in construction.

Some 155 companies were dissolved in the first quarter of the year, an increase of 20.2 percent year-on-year. Of the total number of companies dissolved, 38.1 percent were engaged in the wholesale or retail trade, 15.5 percent in construction, 14.8 percent in business services and 11.6 percent in real estate.

Property transactions drop as prices increase and the absence of any major projects in the first quarter were the main causes for a 49.1 percent decline in the construction sector. As for public investment in equipment there was a decrease of 53.1 percent.

For the first quarter, the number of new incorporations, including the creation of new companies, increased by 14 percent to 1,126 from roughly 988. Of the new corporations

In the first quarter of the year, the number of building units purchased and sold decreased 6.4 percent quarteron-quarter. The number of building units purchased and sold totalled 3,846, year-on-year, representing a decrease of 29.1 percent.

The total value of these was 22.52 billion patacas, down 12.3 percent yearon-year. Residential units accounted for 54.1 percent (12.19 billion patacas) of

the value amount via the purchase and sale of building units. The number of residential units purchased and sold was 1,980 (51.5 percent).

Macau residents accounted for 95.1 percent (3,656) of total units sold.

However, the average transaction price of residential units increased 3.5 percent quarter-on-quarter to 88,958 patacas per square metre.

In the first quarter of the year the number of visitor arrivals increased 8.7 percent; the money spent by tourists grew 10.1 percent. The good news was even better for the gaming industry as the export of gaming services rose by 13 percent in real terms.

The number of exports of gaming services follows the trend of gross gaming revenue. In the first quarter of the year, gaming revenue amounted to 102.49 billion patacas, an increase of 19.7 percent year-on-year.

The number of gaming tables and slot machines, however, decreased by 0.9 percent (to 5,700 gaming tables) and 19.3 percent (to 13,232 slot machines), respectively.

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July 30, 2014

Macau Brought to you by

International Housewares revenues increase 17pct The company runs the store chain Japan Home Centre, of which there were six in Macau by the end of April

HOSPITALITY

Sara Farr

sarafarr@macaubusinessdaily.com

Diversifying sources Macau received, in the first half of the current year, over 10.2 million visitors from mainland China. This figure represents a growth in excess of 14.7 percent, when compared with the same period last year, and it suggests that the growth rate for mainland visitors is accelerating relative to previous years. As has been the norm, most of the visitors came from Guangdong Province. Their number has exceeded, for the first time, the 4 million threshold for a full first semester.

Due to its size, Guangdong is the province contributing more, in absolute terms, to the total increase. But that is not the case anymore when we consider relative growth.

The corresponding growth rate, at 8.6 percent, was significantly lower than the average. The first semester figures therefore confirm a continuing relative loss of share from that province. While in the first half of 2011 Cantonese visitors accounted for over 51 percent of the total number of mainland visitors, that share has dropped every year since, standing at 42 percent in the first half of this year.

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nternational Housewares Retail Co Ltd posted revenues of HK$1.7 billion in the full year ended April 31, representing a 16.6 percent increase year-on-year. In its annual report filed with the Hong Kong Stock Exchange, the company said it had also increased the number of retail stores by 41 to 323.

In Macau, the number of Japan Home Centre stores increased by one from last year, bringing the group’s total to 323 at the end of April.

The profit margin also increased to 46.5 percent from 46.1 percent a year earlier.

The store chains in Macau contributed HK$33.6 million to the group’s overall revenue.

‘We have no comparable sales data for our operations in Macau, as our first full financial year of operations in Macau will be the financial year ending April 30, 2014,’ the annual report reads.

Store chains in Macau ranked third in terms of revenue provider after Hong Kong with revenues of HK$1.5 billion and Singapore with HK$200.1 million: both regions posted considerable increases at the end of April over that of the end of April 2013.

Wholesale business and licensing

income decreased 15.6 percent to HK$27.8 million. ‘The decrease is due to the fact that one of our top five customers in the prior year included wholesales to Macau’s operation, which we acquired in April 2013,’ the filing reads, adding that the sales of these were ‘eliminated within the group.’

According to the filing, the group plans to continue expanding operations in Hong Kong, Singapore,

Malaysia, mainland China and Macau. This, the company says, will be done by ‘leveraging the strength of our brand.’

‘We believe that our comparable store sales growth in Hong Kong as well as the increasing revenue from our operations in Singapore, West Malaysia, mainland China and Macau demonstrate our growth potential in these regions,’ the company added in its annual report.

Hengqin catalyst for Chinese medicine brands Kam Leong

kamleong@macaubusinessdaily.com

The chart shows the evolution for the regions contributing 250,000 or more visitors in the six months ending in June.

They include some of those for whom numbers are rising faster. Hubei and Henan, in particular, last year rose much faster than the average. They posted, relative to the previous year, growth rates of 25 percent and 23.7 percent, respectively. Looking at growth over the full period shown, they are also in the top positions. But now Henan has reached the top spot, doubling visitors since 2011. Hubei occupies the second spot with 76 percent and Hunan comes third, with 51 percent growth.

37%

mainland visitors growth in first semester since 2011

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ocal pharmaceutical factory Unipharm Technology Pharmaceutical Factory Limited is to establish a joint venture with two overseas pharmaceutical factories. The joint venture is applying to join the Chinese Medicine Scientific Park in Hengqin New Area.

The joint company, which focuses on manufacturing Chinese medicines for tourists, is to invest HK$2 million in creating a ‘Made in Macau’ Chinese medicine brand. Unipharm Technology signed a cooperation contract earlier this week with Sun Ten Laboratories from the United States and Mayway Corporation from Taiwan.

The company will start its business at the beginning of next year. It

submitted the application to join the park last month, local Chinese media Macau Daily News reported.

The chairman of the board of Unipharm Technology, Lau Mun Wah, said the company will focus on the local market as well as those markets in Southeast Asia in the early stages. Once the company gets approval from the park, a bigger factory will be built and broader markets opened.

Mr. Lau also said that Sun Ten’s factories in the United States will supervise the manufacturing of the medicines, while Unipharm Technology will supervise the postproduction stage to create the local brand, according to Macau Daily.

The joint venture chose to

establish its base in Macau because of the city’s geographic proximity to mainland China, Hong Kong and Taiwan, according to Mr. Lau. He also believes that professionals from local universities, such as the University of Macau, the Macau University of Science and Technology as well as Macao Polytechnic Institute will assist these developments and ‘cultivate local talent.’

Mayway Corp. and Sun Ten established branches in Macau last year following the government’s introduction on the future development of Chinese medicine in Macau in the United States. The two companies will import their own products to Macau, according to both parties.

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July 30, 2014

Macau

Raymond Tam acquitted The former head of the Civic and Municipal Affairs Bureau, Raymond Tam, and three co-accused, who had been accused of misfeasance, were acquitted yesterday by the Court of First Instance while the complainant Paulina Santos said she would not appeal the decision although there is evidence, she says, showing that the officials are guilty Kam Leong

kamleong@macaubusinessdaily.com

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he Court of First Instance yesterday acquitted the former president of the Civic and Municipal Affairs Bureau, Raymond Tam Vai Man, and three fellow officials of disobedience regarding an investigation into the so-called cemetery plot case.

Presiding judge Lam Peng Fai found yesterday that Mr. Tam, vice president of the Bureau Lei Wai Nong, head of the environmental and licensing department Fong Vai Seng and the department’s head of cemetery affairs Siu Kok Kun were not guilty.

Mr. Lam said that there was no evidence proving that the four defendants had hidden the 10 related documents required by the Public Prosecutor’s Office or that they had delayed the delivery of the documents in order to stall the investigation of the Prosecutor’s Office. In addition, the intervention of the Office did not show to relate to the benefit of the defendants. As a result, the court could not deduce that the four had

intended to commit such a crime and acquitted them.

Santos: No appeal The ccomplainant, Paulina Alves dos Santos, said that the judgment came as a ‘surprise’ to her. “I joined the Public Prosecutor’s Office to assist the case after I read the indictment drafted by the Prosecutor’s Office.

It is because, during my reading, I did see some evidence [proving the defendants were guilty].”

“As an assistant on the case, I’ve been paid a lot, which makes me see clearly the law and politics… I think [the judgment] should be guilty according to the law but now they [the defendants] are judged innocent,” she said.

However, she claimed that she would not appeal the judgment as she and her family “had been stressed out over the 10 cemetery [plots]”.

She also said that the appeal is up to the Prosecutor’s Office as she has decided to forfeit her right to do so.

Ms. Santos is a former government official who initiated the cemetery plot case in 2012, which involved the Secretary for Administration and Justice, Florinda Chan Lai Man. The case was tried at the Court of Final Appeal (TUI) last June, which ruled that Ms. Chan had not violated any laws in the case that dates back to 2001.

On the other hand, Mr. Tam said the judgment has proved that he is innocent in this case, although he declined to comment on his future plans. Meanwhile, Mr. Tam’s lawyer Alvaro Rodrigues said the team is satisfied with the judgment and that he does not know if the Prosecutor’s Office will file an appeal.

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July 30, 2014

Macau

World Cup hangover longer than expected The recovery of gaming revenues in July is likely to be below estimations. Wells Fargo predicted yesterday that revenues could drop 4 percent year-on-year putting Macau in the red for the second straight month Luis Goncalves

luis.goncalves@macaubusinessdaily.com

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acau could face its first two straight months of decreasing gaming revenues as end-July results continue to be below normal forcing investors to downgrade their expectations. After June recorded the first decrease in gaming revenues in five years (3.7 percent drop year-on-year) with gamblers diverted from casinos to watch and bet on the World Cup, investors anticipated a recovery for mid-July with the end of the football tournament. The recovery should have been enough to ‘save’ the month as market consensus pointed to a flat performance in July.

But Wells Fargo announced yesterday that it is lowering its expectations for this month’s performance. The US bank now estimates that July’s gaming revenues will fall 3 to 4 percent year-on-year compared to a prior flat to negative low single digit. This implies a 17 percent fall for VIP revenues and a 27 percent jump in mass tables, the

bank said.

The underperformance in the last two weeks failed to compensate for the World Cup effect that lasted until July 12, showing that the competition’s hangover for gamblers in Macau was longer than expected.

In the week ended July 27, the average daily revenues in Macau’s casinos topped 949 million patacas, 4 percent more than the previous week (916 million patacas) and up 5 percent from June’s (907 million patacas).

With a month to-date (July 27) revenues running at 919 million patacas, revenues continue to be below the historical average for this time of year, typically around MOP1 billion. During the World Cup matches, the average daily revenues ran 30 percent behind average.

The market is preparing for a new wave of downward predictions.

“Given weaker June and July growth and Las Vegas Sands’ results, we expect downward revisions to Q2/

Q3 Street Macau estimates and there could still be near-term downside in valuations for the group, based on our analysis of 2012, our ‘scorched earth’ valuation, and limited positive catalysts,” Wells Fargo stated in a note to clients yesterday.

The US bank underlines that after a weaker than expected July, August performance will be a ‘focal point’ for investors to assess the gaming year in Macau. For 2014, gaming revenue growth will not be higher than 10 percent (market consensus is now an 8 percent jump year-onyear). ‘2014 remains choppy due to a slowdown in VIP driven by negative credit growth and a softer macro environment in late 2013/ early 2014.’

According to Wells Fargo, SJM will continue to lead the market in July with a 24.8 percent share, followed by Las Vegas Sands (22.7 percent), Melco Crown Entertainment (11.8 percent) and Wynn (10.8 percent).

Dynam Japan quarterly revenues drop 4.8pct

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ynam Japan Holdings Co announced quarterly revenue drops of 4.8 percent for the three months ended June 30, to 38.2 billion yen compared to the same period last year.

According to business wire reports, the usage of Japanese pachinko game machines decreased due to an increase in tax compared to the same period last year. Meanwhile, pachinko games mainly from Dynam Japan were relatively popular compared to those of others.

Although revenue is dropping, the company’s net income is stable due to the main business on low betting turnover. For Dynam, since the number of branches is increasing, the overall earnings have increased also.

Last October, Dynam Japan announced it would invest US$15 million (119.8 million patacas) in the Singapore-based online games provider IGG to help it develop software for ‘next generation pachinko machines’ to be operated in Macau.

The Japanese pachinko hall operator is still awaiting the MSAR Government’s approval of its application to operate ‘next generation pachinko machines’.

The plan, according to Dynam’s chairman Yogi Sato, who was quoted

by Hong Kong financial wires and media last month, is to place up to 100 of these new machines in a new hotel scheduled to open in September.

Sinogreen eyes Macau’s gaming market

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Wynn reports quarterly growth W ynn Resorts Ltd posted US$1.4 million in net revenues for the second quarter of the year, up from US$1.3 million a year earlier. ‘The growth was the result of a 12.5 percent increase in net revenues from our Las Vegas operations and a 3.2 percent net revenue increase from our Macau operations,’ the company said yesterday after

releasing the results.

In the second quarter of the year, Macau net revenues were US$960.6 million, a 3.2 percent increase from the US$930.9 million generated in the second quarter of last year. Adjusted property EBITDA in the second quarter rose to US$307 million, up 5.8 percent from US$290.1 million year-on-year.

In Macau, table games turnover

in the VIP segment was US$26.4 billion for the second quarter of the year, an 11.7 percent decrease from US$29.9 billion a year earlier. VIP table games win as a percentage of turnover for the quarter was 2.93 percent, within the expected range of 2.7 percent to 3 percent and in line with the 2.94 percent experienced in the second quarter of 2013, the company said.

inogreen Energy International Group is planning to enter the gaming market here, an announcement which saw the company’s shares rise 46 percent.

Guangzhou-born Jack Lam Yin Lok, who runs the Jimei Group, proposed a full acquisition of Sinogreen, which will sell 325 million new shares of 65.9 percent of enlarged share capital to the junket tycoon, along with Creative Cosmo and New Elect.

Sinogreen will also issue notes which can be converted to 159 million shares to Mr. Lam for HK$0.35 each. The total amount payable for the subscription of the convertible notes is HK$55.7 million.

As much as HK$96.9 million will be used to start a gambling junket business in Macau. According to a report published in Hong Kong newspaper The Standard, Lam’s share subscription can ‘help diversify its business and extend it to Macau’s gaming market.’

In Macau, junket operator Jimei Group operates in casino rooms at the Grand Lisboa, MGM Grand, The Venetian Macao and Wynn Macau. Jimei Group also operates two resorts in the Philippines as well as a gambling ship that cruises daily out of Hong Kong.

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July 30, 2014

Gaming

Codere bonds rise as debt restructuring talks extended The Spanish gaming company manages slot machines, bingo halls, casinos, racetracks and sports betting locations in Latin America, Spain and Italy

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odere SA’s bondholders are growing confident the Spanish gaming company can restructure 1.1 billion euros (US$1.48 billion, 11.8 billion patacas) of debt and avoid insolvency proceedings.

The company’s 660 million euros of notes maturing June 2015 rose 3.8 cents on the euro this month to 64.1 cents, the highest in more than a year, according to data compiled

by Bloomberg. The stock dropped 2.8 percent this month to 0.7 euro, near the lowest since January.

Bondholders and shareholders have extended negotiations to restructure Codere’s debt 12 times since seeking preliminary creditor protection in January, pushing the latest deadline to Aug. 6. The Madrid-based operator of betting parlors and race tracks from Italy to Argentina has posted nine consecutive quarters of losses totaling about 365 million euros, hurt by higher taxes, stricter gambling regulations and casino closures.

Russia turns Olympic site, Crimea into casino zones

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ussia has designated Sochi’s Olympic site and the annexed Crimean peninsula as gambling areas, in a bid that casino revenues will boost their development.

Under the law signed by President Vladimir Putin casinos will be legal in some areas of the former Olympic park in Sochi, where Russia hosted the Winter Games in February.

Additionally, the law gives regional authorities in Crimea the right to designate

Given the nature of the Spanish bankruptcy system, avoiding the court process is the best outcome for everyone Aengus McMahon, ING Bank NV

“The market is optimistic that a deal is close,” said Giovanbattista Caracciolo, a bond trader specializing in distressed debt at Advicorp Plc, an independent investment bank based in London and Rome. “The fact the company keeps getting standstill agreements is positive for investors because it shows there is still willingness to negotiate. It looks more likely that there’ll be a scheme of arrangement.”

Bondholders suggested in February implementing the restructuring in England using a scheme of arrangement, according to a statement. A scheme for nonU.K. companies typically requires the group’s debt to be governed by English law, and the backing of 75 percent of creditors to be brought in front of the court.

Latest Offer About 95 percent of companies that enter insolvency proceedings, known

their own casino zones on the peninsula, which Moscow annexed in March after a separatist uprising against Ukraine.

The Sochi Games, though widely recognised as a success, cost Russia some US$50 billion (400 billion patacas).

Some investors have already complained that the resorts are lossmaking, and the Vneshekonombank development bank, which loaned billions of dollars toward construction, has asked the government to bail out its borrowers, Russian media reported recently.

Russia banned casinos throughout most of the country in 2009, restricting them to four areas: the southern Krasnodar region north of Sochi, the Altai mountains, the Far East, and the western enclave of Kaliningrad.

They have not been a commercial success due to the remoteness of the areas and a lack of tourism infrastructure.

The legalisation of gambling in Crimea, a peninsula that hosts Russia’s Black Sea fleet that many view as a place of military glory,

has already ruffled some feathers, particularly in the Communist party which voted against the bill as it passed parliament.

“The gaming business will stimulate nothing but banditry and debauchery, we cannot vote for such laws,” senior Communist MP Nikolai Kolomoitsev said during the parliamentary debate earlier this month.

He argued that existing gambling zones were so far a complete failure, and demanded that Crimea instead grow peaches and develop its vineyards. “That’s when Crimeans will be glad to return to their motherland,” he said.

Even Putin had previously criticised the idea of installing gambling zones in Sochi, suggesting in February they would scare away families. A casino culture there would “make it hard for people to vacation there as a family with children,” he said. “I think that would be a shame,” Putin said at the time.

as concurso under Spain’s bankruptcy laws, end up in liquidation, according to the Madrid-based Colegio de Registradores, which tracks company registrations.

Under Codere’s latest restructuring offer, bondholders would get 70 percent of the company’s equity while shareholders would hold 30 percent, the company said in a filing. Noteholders want an 82.5 percent stake in the company, offering 14.3 percent to Chief Executive Officer Jose Antonio Martinez Sampedro and family members and 3.2 percent to other shareholders, according to the statement.

“There was a concern the company would go through a courtmandated restructuring,” said Aengus McMahon, head of European highyield research in London at ING Bank NV. “Now it looks like that isn’t going to happen and that there will be an agreement. Given the nature of the Spanish bankruptcy system, avoiding the court process is the best outcome for everyone.”

Crimean officials, however, see casinos as means for economic development. “The gambling zone should become a sort of engine for the Crimean economy,” Deputy Governor Rustam Temirgaliyev told the RBK Daily in April. “We have ambitious plans, we are counting on our gambling zone becoming a direct competitor to Macao, Monaco and Las Vegas,” he added.

The gaming business will stimulate nothing but banditry and debauchery, we cannot vote for such laws Nikolai Kolomoitsev, senior Communist MP

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July 30, 2014

Greater China Building materials sector continues to slow China’s building materials sector remained sluggish as the property market showed no signs of warming, latest statistics from the country’s top economic planner indicated. Cement output rose 3.6 percent year on year to 1.14 billion tonnes in the first half of 2014, slowing 6.1 percentage points from the expansion seen during the same period last year, the National Development and Reform Commission (NDRC) said on its website. Output of flat glass rose 4.7 percent, down 6.1 percentage points from a year earlier.

Government watching GM rice Chinese authorities have vowed zero tolerance and harsh punishment for rule-violating sales and growing of genetically modified (GM) crops days after a media exposure of GM rice on sale at a supermarket in central China. “The ministry will punish any companies or individuals that ignore regulations to grow or sell GM grains,” the Ministry of Agriculture said yesterday in a statement. “There will be no tolerance for those violating practices.” China Central Television (CCTV) found GM rice, which is not allowed to be commercialized in China, on sale in the supermarket in Wuhan.

Local flavoured products defeat foreign ones Senior executives at companies such as The Coca-Cola Co, Procter & Gamble Co and Colgate-Palmolive Co are being forced to adapt as the challenge posed by local firms intensifies in a slowing economy

W PBOC to drain 15 bln yuan China’s central bank will drain 15 billion yuan (US$2.42 billion) from the money markets through 28-day bond repurchase agreements yesterday, traders said. Maturing bills and repos will inject a net 30 billion yuan into the banking system this week. The People’s Bank of China (PBOC) conducted a net injection of 18 billion yuan into the banking system last week.

“Transformers 4” beat all time movies The fourth instalment in the robot movie franchise, earned 1.97 billion yuan (about US$317.2 million) on the Chinese mainland in its month-long run ending July 27. The movie’s ticket sales were close to the average market forecast of 2 billion yuan, the Beijing News reported yesterday. The paper reported that “Transformers 4” ended its run as scheduled. Though distributors tried to extend its screening, the cost of doing so discouraged them, it added. Box office earnings for the Hollywood blockbuster have eclipsed those of James Cameron’s fantasy “Avatar” to become the all-time top-grossing film on the Chinese mainland.

Political advisor prosecuted for corruption A senior political advisor from south China’s Guangxi Zhuang Autonomous Region was prosecuted for taking bribes, the Supreme People’s Procuratorate confirmed yesterday. According to the prosecution, Li Daqiu sought benefits for others and illegally accepted a large sum in bribes from others during his tenure as the Communist Party chief of Hezhou City in Guangxi and as vice chairman of the region’s political advisory body. According to a statement issued by the CPC, Li took advantage of his posts to seek benefits for others and accepted a large sum of money and property by himself or through his relatives.

ith green-tea flavoured toothpaste and pickled plum juice, an army of Chinese retailers is tapping local tastes to whittle away market share from global rivals that are banking their future growth on the world’s second-largest consumer market.

Last year, China’s 1.15 trillion yuan (US$185.31 billion) consumer goods market grew at 7.4 percent annually, half the rate of three years ago, according to a report this month from Bain & Company and Kantar World Panel.

In this tougher market, both local

and foreign brands are targeting the same customers, and increasingly, the domestic firms are winning: nearly two-thirds of foreign brands surveyed lost market share in China last year, according to the report.

Understanding the needs of Chinese consumers has given local

Delisting rules for a more self regulated market Seventy-eight firms have been delisted from the Shanghai and Shenzhen exchanges since China allowed for delisting in the early 2000s

C

hinese stock traders expect Beijing to pass new rules soon making it easier for regulators to delist mouldering tickers from stock exchanges, but they warn that technical tweaks mean little until the government surrenders control over the listing system to markets.

The new rules are regulators’ latest bid to improve the health of China’s stock markets, which are currently enjoying a rare rally after years in the doldrums.

The ability of low-grade Chinese companies to avoid eviction from the boards has long frustrated Chinese investors, who say that these tickers tie up capital and attract pointless interest from speculators playing short-term moves in share prices.

These stocks are usually issued by companies that are either defunct or in violation of regulations, but kicking them off the boards is usually a long drawn-out process given entrenched interests in maintaining them even as shells.

“China has been talking about a lack of proper delisting mechanisms in the securities markets for a long time,” said Zheng Weigang, a senior trader at Shanghai Securities.

“Related parties will go all out to protect such shells under excuses such as corporate restructuring, even

when listed firms make losses or violate regulations.”

Seventy-eight firms have been delisted from the Shanghai and Shenzhen exchanges since China allowed for delisting in the early 2000s

mainly for poor earners, official data shows.

But since the first delisting of a lossmaking company, Shanghai Narcissus Electrical Co, in 2001, regulators have remained hesitant to kick firms off the

9

July 30, 2014

Greater China companies an edge. Privately owned Jiaduobao Group (JDB) makes canned herbal tea which it says can put out internal “fires”, playing on a concept in traditional Chinese medicine. The firm also sponsors a popular TV talent show, “The China Voice”.

“Our campaign around ‘fearing internal fire’ has helped JDB herbal tea become the highest selling canned drink in China...,” said Wang Yuegui, a senior executive at the firm.

JDB accounted for 6.1 percent of the soft drinks market in 2013 by value, up from 4.2 in 2009, according to data from consumer consultancy Euromonitor. Coca-Cola had 13.1 percent, while Pepsi had 3.9 percent.

Green tea toothpaste With a population of 1.2 billion and a rapidly expanding middle class, China is the largest consumer goods market after the United States and even with a slowing economy, remains key to the future of global brands.

China’s economy is expected to grow at its slowest pace in 24 years this year, but that’s still 7.4 percent.

The U.S. economy, by comparison, is expected to grow at just 1.7 percent.

Many of the Chinese firms taking on the international conglomerates are little-known abroad, but their local know-how is helping them broaden their appeal at home.

Hawley & Hazel, a joint venture owned by Colgate-Palmolive and its Hong Kong-based founders, makes Darlie toothpaste which leads the domestic market according to Kantar and Bain, playing to Chinese tastes with green tea and jasmine flavours.

Another popular toothpaste brand

is made by Yunnan Baiyao Group Co Ltd, which uses its history as one of the biggest and oldest traditional Chinese medicine makers in the country as a selling point.

Taiwan-based drinks maker Tingyi Cayman Islands Holding Corp , which bottles and distributes PepsiCo Inc products in China, also says it makes a point of developing traditional Chinese flavours such as snow pear and pickled plum.

Coca-Cola, however, saw its market share drop more than 3 percentage points to 13.1 percent last year, while PepsiCo Inc fell 1.8 percentage points to 3.9 percent, according to Euromonitor data.

Coca-Cola International president Ahmet Bozer said he was happy with the company’s 9 percent sales volume growth in China during the second quarter.

Under siege Even traditional strongholds for foreign brands are under attack in China, including the market for infant milk formula. That market is one of largest and fastest growing, expected to be worth $25 billion by 2017, according to Euromonitor data.

Global companies including Mead Johnson Nutrition Co , Nestle SA, Danone SA and Abbott Laboratories have long dominated the premium formula segment but they have increased tie-ups with Chinese partners and boosted domestic supply chains to protect their position.

In diapers, another area traditionally dominated by foreign brands, local firms are becoming more credible rivals, said a spokesman for Japanese diaper maker Kao. Reuters

Hangzhou eases home purchase restrictions A sharp correction in property prices is the biggest threat to China

A

s one of the cities in China most deeply affected by an oversupply of housing and weakening property prices, Hangzhou has announced fresh moves to ease home purchase restrictions, following similar steps taken by other city governments.

Economists believe a sharp correction in property prices is the biggest threat to China’s economy and financial system, and have often cited Hangzhou, a second-tier city in eastern China, as an example of the extent of the problems faced.

The city’s housing bureau, which unofficially loosened rules on house buying in May, said on its official Weibo page on Monday evening that buyers in certain districts would no longer be required to provide past home purchase documents.

That would effectively allow people to buy property regardless of how many homes they already own or even if they are not registered as residents.

“The easing has a positive impact on Hangzhou as buyers are not limited by how many houses they can buy,” said Simon Fung, chief financial officer of Greentown China Holdings Ltd, based in Hangzhou. “It will help the sales volume, but not necessarily the average selling price.”

Hangzhou has one of the most sizable supply overhangs in the country, with a housing inventory that at the end of June would require 22.5 months to clear, according to data compiled by research company China Real Estate Information Corp.

“The Hangzhou property industry in general has been stable this year, but housing demand and supply has shown some district and structural mismatch,” the city’s housing bureau said on Weibo, the official Twitterlike messaging service.

Shejiazhuang, the capital of the northern province of Hebei, also loosened house purchase restrictions quietly from Monday, accordingly to local newspaper Hebei Youth Daily.

City governments began relaxing restrictions for home buyers, openly or quietly, since late April.

South Korea climbs on yuan payments ranking

KEY POINTS

Country’s June payments rose more than six-fold from a year earlier, taking it to eighth position in the world for yuan payments excluding China and Hong Kong, global transaction services organisation SWIFT said yesterday

IPOs still managed by administrative edicts Entrenched interests put up strong resistance Registration-based IPO system precondition for efficient recycling of listed stocks Steps to ensure rule implementation another prerequisite boards, largely suspending the process in 2008 and only reactivating it recently as Beijing tries to revitalise its stock markets.

Analysts said resistance from local governments and other related parties helped keep poorly-performing companies on the boards, lobbying to have them suspend share trading for years while they conduct indefinite corporate restructurings.

Part of the resistance to delisting is because the listing process is still so tightly controlled by regulators, and it is unclear when that regime will change.

Companies applying for initial public offerings (IPO) can wait for three years to obtain approval before actually selling shares, Zheng said.

Beijing has promised to implement a registration-based system for IPOs, leaving it to the market to decide whether a new issue would be accepted or rejected, replacing the existing approval system in which regulators decide which firms are qualified to list and when.

Reuters

F

or the month, 68.9 percent of all direct payments between South Korea and China and Hong Kong were in Renminbi, up from 32.8 percent from the same period last year, SWIFT said.

China is South Korea’s most important trade partner, receiving nearly a third of the latter’s exports, but South Korean companies have historically been underweight in the use of the Chinese currency.

In order to change such situation, China’s central bank designated Bank of Communications, the country’s fifth-biggest lender, as the yuan clearing bank in South Korea earlier this month.

The world’s second-largest economy also agreed an 80 billion yuan (US$12.88 billion) licence for South Korea to invest in its capital markets and help launch direct trading of the yuan-won pair.

Yuan deposits at banks in South Korea inched up by a net US$640 million in June to a record high of US$11.97 billion, the 12th straight month for yuan deposits to reach a record high, according to data from the Bank of Korea.

That makes competition to become the next biggest offshore yuan hub after Hong Kong fiercer as Beijing accelerates the pace of yuan activities in more countries

and allows more foreign investors to enter its domestic market.

Singapore still led renminbi payments in June with a market share of 28.4 percent, followed by the UK at 22.5 percent, and the United States at 10.8 percent, SWIFT said.

In June, the yuan reinforced its position as the seventh most active currency for global payments and accounted for 1.55 percent of payments worldwide.

HSBC expects the yuan to be one of the top three global trade currencies by 2015 and to be fully convertible within 5 years.

Xinhua

10

July 30, 2014

Greater China

Microsoft probed for monopolistic activities The latest move by China’s authorities caps a rocky period for Microsoft in the country

M

icrosoft Corp appears to be the latest U.S. company targeted by China for antitrust investigation after government officials paid sudden visits to the software firm’s Chinese offices on Monday.

Representatives from China’s State Administration for Industry & Commerce (SAIC) made the visits to Microsoft offices in Beijing, Shanghai, Guangzhou and Chengdu, according to local media reports that were confirmed by Microsoft.

The Chinese government agency, which is in charge of market supervision and regulation and usually takes the lead in bribery and corruption investigations as well as intellectual property rights abuse cases, declined to comment on the visits.

A Microsoft spokeswoman said the company was “happy to answer the government’s questions”, but declined to give any further information.

A source close to the company said the visits were most likely the preliminary stage of an anti-trust investigation.

If that is the case, Microsoft would be one of the biggest U.S. companies to fall under the eye of Chinese regulators as they ramp up their oversight in an apparent attempt to protect local companies and customers.

Qualcomm Inc., the world’s biggest cell phone chip maker, is facing penalties that may exceed US$1 billion in one such Chinese anti-trust probe, following accusations of overcharging and abusing its market position.

China has other antitrust regulators. The National Development and

Former Microsoft CEO Steve Ballmer during banned Windows 8 presentation

Reform Commission is mainly responsible for antitrust violations related to pricing, while the Ministry of Commerce vets mergers and acquisitions.

Last year, officials from SAIC visited large international drug manufacturers in China including AstraZeneca Plc. and Sanofi SA, as part of a broad investigation into the sector. SAIC officials also visited the Hangzhou office of Roche Holding AG earlier this year.

Beijing’s increasing use of its 6-year-old anti-monopoly law and price competition

rules to weigh-in on global mergers has riled U.S. companies and strained U.S.China business relations.

The U.S. Chamber of Commerce earlier this year urged Washington to get tough with Beijing on its use of anti-competition rules, noting that “concerns among U.S. companies are intensifying”.

U.S.-China business relations have been severely strained recently by wrangles over data privacy. State media have called for “severe punishment” against tech firms for helping the U.S government to steal secrets

and monitor China, in the wake of revelations by former U.S. National Security Agency contractor Edward Snowden.

Tensions increased in May when the U.S. Justice Department charged five members of the Chinese military with hacking the systems of U.S. companies to steal trade secrets.

The latest move by China’s authorities caps a rocky period for Microsoft in the country. Earlier this month, activists said Microsoft’s OneDrive cloud storage service was being disrupted in China.

Huawei ships 34 mln smartphones The firm said smartphone shipments in the first half rose 62 percent year-on-year, as it targets the more expensive smartphone sector dominated

by Samsung Electronics Co Ltd and Apple Inc.

S

henzhen-based Huawei has shipped 34.27 million smartphones globally in the first six months ending June 30 - about 43 percent of its annual shipment target of 80 million, according to Reuters’ calculations based on figures provided by Huawei.

“We recorded faster growth in areas such as Middle East and Africa and Latin America, with 275 percent and 550 percent year-on-year growth in the second quarter, respectively,” Shao Yang, vice president of marketing in the consumer business group, told Reuters in a written statement.

He attributed the growth to improving brand awareness and stronger sales channels in overseas markets.

The company, which competes

with Chinese makers Lenovo Group Ltd and ZTE Corp, shipped about 21 million smartphones globally in the second quarter ending June 30, an 85 percent rise from the same

period of last year.

Among the 80 million smartphones Huawei is planning to ship this year, about 20 percent of them would be mid- to high-end models, up from

In May, central government offices were banned from installing Windows 8, Microsoft’s latest operating system, on new computers. This ban appears to not have been lifted, as multiple procurement notices since then have not allowed Windows 8.

Nevertheless, the company has pushed forward with plans to release its Xbox One gaming console in China in September, forming distribution ties with wireless carrier China Telecom Corp and e-commerce company JD.com Inc. Reuters

the 16 percent shipped in 2013, the company told Reuters earlier this year.

But industry watchers said Huawei still faces strong headwinds in its efforts to break into the premium handset market, a segment that Apple has continued to dominate.

The Cupertino company this month reported surprisingly strong smartphone sales in China, reaffirming the allure of the iPhone brand among China’s well-to-do.

In China, Huawei said it had shipped more than 20 million smart devices, including smartphones and tablets, in the first half of this year.

Shao said Huawei had a longterm and stable partnership with China’s three major carriers - which would give the company an advantage over foreign rivals such as Samsung and Apple in the world’s largest smartphone market.

But he declined to reveal how many smartphones it had shipped in China in the first half.

Huawei had a 4.7 percent share of the global smartphone market in the first quarter of this year, a distant third behind Samsung Electronics with 30.8 percent and Apple with 15.2 percent, according to IDC. Reuters

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July 30, 2014

Asia

Japan unemployment rate rises amid recovery hopes Job availability in Japan hit its highest in 22 years in June as companies grew more confident about hiring, and household spending rebounded modestly, reinforcing expectations economic recovery will resume in the third quarter without the need for additional stimulus from the central bank Stanley White and Tetsushi Kajimoto

T

he jobs-to-applicants ratio rose to 1.10 in June from 1.09 in the previous month, data from the labour ministry showed yesterday, matching a high last seen in June 1992, shortly after the assetinflation bubble burst, leading to years of stagnation.

The jobless rate unexpectedly rose to 3.7 percent in June from 3.5 percent in May, reflecting an increase in job-seekers responding to economic recovery. Labour shortages in construction and retail suggest the jobless rate is not likely to rise sharply.

A Bank of Japan policymaker said the impact of April’s sales tax hike was likely to be receding gradually, although he warned of the uncertainty of exports as they lacked momentum due in part to the shift of factories abroad by Japanese companies.

“In order for household spending to stay firm, what’s most important is that there is a heightening expectation that incomes will rise ahead,” BOJ board member Koji Ishida said in a speech to business leaders in Shimonoseki, western Japan.

“If job markets continue to tighten, that will support household spending as people feel more job security and heighten hopes that wages will rise,” Ishida added.

Household spending and retail sales data showed signs that consumption is gradually recovering after the sales tax hike, supporting the BOJ’s argument that domestic

Japan’s Prime Minister Shinzo Abe speaks during the Caribbean Community (Caricom)/ Japan summit at Trinidad and Tobago. Abe is on a Latin American tour in order to foster economic relations

demand is strong enough to sustain growth and achieve its 2 percent inflation goal.

“On the whole, we can say that consumer spending continues to recover,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

“Demand for workers should remain strong as there are labour shortages. Things are moving within

expectations. There’s no need for a policy response from the BOJ.” Household spending rose 1.5 percent in June from May in seasonally adjusted terms, falling short of economists’ median estimate of a 2.2 percent increase, but still reversing the contractions seen in April and May. May household spending fell 3.1 percent from April when spending

QBE warns H1 results could disappoint QBE said it expected insurance profit margin at 7 percent to 8 percent compared with consensus expectations of about 10 percent

I

nsurance Group, Australia’s biggest insurer by premium income, on Tuesday warned that its firsthalf results would likely fall short of analysts’ forecasts, hit by higher-than-expected claims.

QBE said it expected insurance profit margin at 7 percent to 8 percent compared with consensus expectations of about 10 percent. Operating ratiooperating operating expenses as a percentage of revenue would likely be 96 percent to 97 percent against consensus expectations of around 93 percent.

Net profit after tax would be A$390 million (US$367.03 million), it added. That compares with a consensus forecast of A$571.8 million,

according to Thomson Reuters Starmine data.

The announcement sent QBE shares plunging 12.11 percent to A$10.45 in early trades, compared with a 0.19 percent dip on the benchmark S&P/ASX200 index.

Higher claims in Argentina, crop damage in Latin America, UK floods and storms in North American and Europe offset benign catastrophe claims in Australia, QBE said in a statement.

In contrast, QBE’s arch rival Insurance Australia Group has raised its profit margin guidance for 2014 from as low as 14.5 percent to up to 18.3 percent on lower disaster claims in Australia.

IAG will announce full year-results on August 19,

the same day QBE will post its interim results.

The Sydney-based firm is in the process of cutting costs in North America as well as improving its loss-making lender-placed insurance business, it added.

Gross written premiums of around A$8.5 billion for the half had come in below its budget of A$8.9 billion.

The group is facing a class action lawsuit from shareholders over its profit downgrade for fiscal-year 2013, which sent QBE shares plunging over 20 percent on December 9, wiping A$4 billion off the company’s market value.

QBE posted an annual net loss of US$254 million in February.

Reuters

QBE tower in Manila

tumbled 13.3 percent as the sales tax hike went into effect.

On an annual basis, Japanese household spending fell 3.0 percent in June from a year ago, less than the median market forecast for a 3.8 percent annual decline, and well below the 8.0 percent decline in the year to June.

Retail sales fell 0.6 percent in June from a year ago, slightly more than the median estimate for a 0.5 percent annual decline and faster than a 0.4 percent decline in the year to May. The pace of decline was slower compared with 1997 when the sales tax was last raised, the trade ministry said.

Officials attributed the retail decline in June to bad weather and lingering effects of the tax hike in some sectors, including household appliances.

On a seasonally-adjusted basis, retail sales rose 0.4 percent in June from May, up for a second straight month, a sign that the sting of the tax hike is easing.

The government raised the national sales tax to 8 percent from 5 percent on April 1 to meet rising welfare costs.

The economy is expected to grow 0.6 percent in the current quarter, however, as consumer spending recovers from the tax increase and government stimulus spending supports domestic demand.

Reuters

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July 30, 2014

Asia S&P affirms Australia’s top notch Standard & Poor’s yesterday affirmed its ‘AAA/A-1+’ unsolicited sovereign credit ratings on Australia, citing the country’s strong public policy settings, economic resilience, and significant fiscal and monetary policy flexibility.

“We believe these factors provide Australia with a strong ability to absorb large economic and financial shocks, as was demonstrated during the global recession in 2009,” said credit analyst Craig Michaels. S&P noted that most of the government’s 2015 budget measures were yet to pass the Senate.

“But we expect that compromises will eventually be reached so that budget performance gradually improves.”

S.Korea trade inclining towards imports Imports jumped 4.5 percent in June on the month, the sharpest since April 2012 and a positive sign for domestic demand, but exports fell marginally after a 6.2 percent loss in May

S

outh Korea’s June current account data provided a mixed picture on the economy with exports faltering but imports gathering pace, as the new finance minister pushes

hard to stimulate Asia’s fourth-largest economy.

The current account has been in surplus for years but the level fell to a seasonally adjusted US$6.32 billion in

June from a revised US$7.47 billion in May as imports rose sharply, central bank data showed yesterday.

Analysts said the June data showed domestic demand started to recover

Panasonic to invest in Tesla battery The company plans to initially invest about 20 billion to 30 billion yen (US$200-300 million) in Tesla Motors Inc.’s planned lithium-ion battery plant in the United States, a person familiar with the matter said yesterday. The Japanese company, which already supplies batteries for the electric vehicle maker, will ultimately invest about US$1 billion in the planned US$5 billion battery “Gigafactory”, the person said. The figures for Panasonic’s investments were first reported by the Nikkei business daily earlier yesterday. A Panasonic spokesman declined to confirm the investment figures.

Australia new home sales rise Sales of new homes in Australia rose in June thanks to a surge in multiunits, an outcome that augurs well for new residential construction, an industry survey showed yesterday.

The Housing Industry Association (HIA) said its survey of large builders showed sales of private sector new homes rose 1.2 percent in June from May. Sales grew by 2.0 percent in the June quarter. Multi-unit sales surged 15.9 percent in June, while detached house sales fell 1.0 percent.

Record-low interest rates have led to a marked pickup in home prices and clearance rates at auctions.

Honda profit beats estimates on cost cuts Honda Motor Co’s April-June operating profit rose 7.1 percent from a year earlier to 198.04 billion yen (US$1.94 billion), beating analyst estimates, boosted by cost cuts and strong sales of the remodelled Fit in Japan. The first-quarter operating profit compared with a 181.8 billion yen mean estimate of 12 analysts polled by Thomson Reuters I/B/E/S. Honda also raised its annual operating profit forecast slightly to 770 billion yen from 760 billion yen for the year ending in March 2015, reflecting tweaks to its currency assumptions to indicate a marginally weaker yen.

Nomura profit shrinks Company’s profit fell more than analysts estimated to the lowest in seven quarters as a decline in Japanese stock wtrading caused brokerage commissions to slump Takahiko Hyuga

N

et income dropped to 19.9 billion yen (US$195 million) for the three months ended June 30 from 65.9 billion yen a year earlier, Japan’s biggest securities firm said in a statement in Tokyo today.

The result missed the 26 billion-yen average estimate of eight analysts surveyed by Bloomberg.

Nomura’s domestic brokerage business has cooled along with the stock market this year, a turnaround from 2013, when investors flocked to equities amid unprecedented monetary easing to boost the economy. The firm led by Chief Executive Officer Koji Nagai is also grappling with increased competition in investment banking, leading to a slip in rankings for mergers and acquisitions advisers and debt underwriters.

“The declining profit is mainly due to the backlash from the market environment a year earlier, which was

stocks rise the most among developed markets.

US$195 million 2014 2Q net income

enormously active,” said Shinichi Ina, a Tokyo-based analyst at UBS AG. “We’re paying close attention to money flows in the Japan market.”

Profit at Nomura and Daiwa Securities Group Inc. is declining after surging last year, when Prime Minister Shinzo Abe’s economic stimulus measures helped Japanese

Daiwa profit Daiwa, Japan’s second-largest brokerage, earlier today reported net income fell 40 percent from a year earlier, a second straight decline, to 34.4 billion yen as brokerage commissions and trading profit dropped. The result beat the 30 billion-yen average estimate of analysts as underwriting fees advanced and the firm posted its first pre-tax profit from overseas operations in almost five years.

Japan’s benchmark Topix index rose 5 percent in the three months ended June, compared with a 10 percent advance a year earlier. The average daily trading volume on the Tokyo Stock Exchange’s first section fell 51 percent last quarter from a year earlier.

Bloomberg News

editorial council Paulo A. Azevedo, José I. Duarte, Mandy Kuok Founder & Publisher Paulo A. Azevedo | pazevedo@macaubusinessdaily.com Newsdesk João Santos Filipe, Luciana Leitão, Luis Gonçalves, Michael Armstrong, Sara Farr, Stephanie Lai International editor Óscar Guijarro GROUP SENIOR ANALYST José I. Duarte Brands & Trends Raquel Dias Creative Director José Manuel Cardoso Designer Francisco Cordeiro WEB & IT Janne Louhikari interns Aries Un, Kam Leong Contributors James Chu, João Francisco Pinto, José Carlos Matias, Larry So, Pedro Cortés, Ricardo Siu, Rose N. Lai, Zen Udani Photography Carmo Correia, Manuel Cardoso Assistant to the publisher Laurentina da Silva | ltinas@macaubusinessdaily.com office manager Elsa Vong | elsav@macaubusinessdaily.com Agencies Bloomberg, Reuters, AFP, Xinhua, Lusa, Project Syndicate Printed in Macau by Welfare Ltd.

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July 30, 2014

Asia KEY POINTS June imports rise in positive sign on domestic demand Exports fall as global recovery remains weak Government pushes to stimulate Asia’s No.4 economy after the shock effects from a mid-April ferry accident that killed more than 300 people, although it was premature to confirm a sustained recovery.

“Today’s numbers show that imports have come up slightly from the Sewol effects, rather than posting a (recovery),” said Na Jung-hyeok, economist at Hyundai Securities.

“If domestic consumption had gotten better, there would have been no need for Choi Kyung-hwan’s policy measures,” he added, referring to the new finance minister, who introduced stimulus measures last week including US$11 billion in new public spending.

South Korea’s government had already announced foreign trade data for June on July 1 but yesterday’s Bank of Korea data was the first compiled on a seasonally adjusted basis, which is more important in watching monthly trends in trade flows.

Choi, who took office early this month, has warned that South Korea could fall into a Japan-style slump that lasted for two decades. His call for coordinated action from policymakers

has prompted traders to price in an interest rate cut by the central bank as soon as next month.

In addition to the declining exports on a month-by-month basis, yesterday’s central bank data on trade financing also confirmed global demand was still sluggish as China is slowing while the U.S. recovery is driven by domestic investment.

The outstanding amount of trade credit shrank by a net US$230 million during June, the third monthly fall in a row and the biggest drop since November 2012, underscoring depressed foreign trade by the world’s seventh-largest exporter.

South Korea’s economy relies heavily on exports as performance by big exporting industries has a strong influence on jobs to investment.

Exports are growing on an annual basis but the pace is still slow.

A Reuters survey of 19 analysts conducted this week tipped South Korea’s exports this month to grow a median 4.7 percent from a year ago, up from a 2.5 percent rise in June but far from strong enough to ensure a quickening economic recovery.

South Korea will release July foreign trade data on August 1, although seasonally adjusted figures will be unveiled late in August.

The economy grew 0.6 percent in the April-June period over the prior quarter, the weakest pace since the first quarter of 2013, data showed last week. The Finance Ministry cut its 2014 growth forecast to 3.7 percent from 4.1 percent, though that would still be up from an actual 3 percent in 2013.

Reuters

Citi to hire 100 bankers in Asia G lobal banks like Citi and HSBC are now concentrating on small to medium-sized clients due to a dwindling number of US$10 billion-plus IPOs from Chinese stateowned companies - deals which had sustained investment banks in the region over the last decade.

The increase in headcount, which represents a 10 percent boost for Citi’s Asia-Pacific commercial banking unit, is aimed at offering firms with annual sales of between US$10 million and US$500 million additional services such as foreign exchange and cash management.

“This is not about adding hundreds of new clients in the region, but winning more wallet share from commercial banking clients who have cross-border business by providing them with more loans, FX, cash and trade products,” Citi’s Asia-Pacific commercial banking head Ashish Bajaj said in an interview.

He noted that Citi’s role as joint global coordinator on Luye Pharma Group Ltd.’s IPO this month came from a commercial banking relationship with the Chinese pharmaceutical company, saying this was an example of the kind of deal the bank is hoping to do more of.

Citi also plans to target suppliers to major Asian firms such as China’s Lenovo Group Ltd and India’s Tata Motors Ltd and build relationships with start-ups that have the potential to develop into large companies.

Bajaj cited the example of Indian search engine Just Dial Ltd, a commercial banking client that had capital of only US$1,000 in 1996 but which now has a market value of US$1.9 billion after listing last year.

Banking revenue from small and medium-sized companies in emerging markets is set to grow at a rate of 20 percent per year and could reach over US$350 billion by 2015, up from US$150 billion in 2010, according to a survey by McKinsey & Company.

Citi created its commercial banking unit as a separate entity just over two years ago, operating in 32 of the more than 100 countries in which the U.S. bank has a presence and employing around 4,000 staff.

A source at Citi says its revenues from commercial banking in the region last year were around US$1 billion.

Bajaj declined to comment on that figure.

Although earnings figures are not directly comparable as banks include different businesses in their commercial banking units, HSBC’s is much larger. It had profits before tax for its commercial bank in Asia Pacific of US$4.4 billion last year, according to its annual report.

Citi also said it will begin commercial banking in Vietnam, adding around 18 staff to the 600 it has there. It will focus on companies from countries such as Korea and Taiwan who have manufacturing businesses in Vietnam.

Reuters

S. Korean business sentiment falls The index was based on the survey response from the country’s 600 largest companies by sales

S

entiment among South Korean big businesses fell to a six-month low as the already fragile domestic demand weakened further after the deadly ferry disaster, a local business lobby survey showed yesterday.

Business survey index (BSI) for August, a gauge of business environment outlook for the upcoming month, fell to 91.6 from the prior month’s 94.0, according to the Federation of Korean Industries (FKI).

It marked the lowest in six months.

The index was based on the survey response from the country’s 600 largest companies by sales. A reading below 100 means pessimists outnumbered optimists.

The dimmer outlook came as consumer confidence

4.6 percent June department stores decrease

continued to worsen after the ferry Sewol capsized and sank off the south-western coast on April 16.

The accident, one of the country’s worst maritime disasters, left more than 300 people, mostly high school students, dead or missing.

Consumers refrained from travel and entertainment as deep grief swept over the

A panorama of Seoul

entire country.

Private consumption declined 0.3 percent in the second quarter from three months earlier, marking the lowest in 11 quarters. Sales in major discount chains and department stores fell 5.9 percent and 4.6 percent in June from a year earlier.

Consumer confidence on future economic situations

tumbled to the lowest in 15 months in July, and operating profits for Samsung Electronics and Hyundai Motor, the country’s top two companies, dropped 24.5 percent and 13.3 percent each in the second quarter on a yearly basis.

Real gross domestic product (GDP) increased 0.6 percent in the second

quarter from the prior quarter, logging the lowest growth in seven quarters.

Kim Yong-ok, head of the FKI’s economic policy team, said that the prolonged aggravation of domestic demand and consumer sentiment led to the worsening of business confidence.

Xinhua

14

July 30, 2014

International

Deutsche Bank profit rises

Puma says World Cup U.S. authorities in recent weeks accused the bank of shoddy sales beat expectations financial reporting, weak technology and inadequate auditing and German sportswear firm Puma said sales of World Cup soccer boots and oversight, which it is addressing in part by hiring 500 U.S. staff national team shirts beat its expectations as it reported second-quarter results in line with analyst forecasts and reiterated its expectations for 2014.

Puma said yesterday sales fell 5.8 percent to 652.2 million euros (US$876.1 million), but were up 0.6 percent when stripping out the impact of volatile currencies. Earnings before interest and tax (EBIT) fell 60 percent to 12.6 million euros. Analysts polled

by Reuters had forecast sales of 654 million euros and EBIT of 10.4 million euros.

BP profit jumps despite Russia sanctions Oil and gas producer BP reported a sharp rise in second quarter profits yesterday but warned that further Western sanctions on Russia could harm its business there and its relationship with Russian state oil company Rosneft. BP said that to date, the sanctions had not had a significant effect on its business in Russia, where it makes about a third of its crude oil output, but that could change. BP, by far the largest foreign investor in Russia through its 19.75 percent stake in Russian state oil company Rosneft, has repeatedly said it will stand by its investments in Russia.

Renault sales fall but margin grows

Renault made progress towards a core profitability goal as cost-cutting helped to counter currency headwinds in the first half, the French carmaker said, but sales and cash flow suffered ahead of the replacement of key models.

Operating profit rose 25 percent to 729 million euros (US$979 million), Renault announced yesterday, lifting the operating margin from 2.9 percent to 3.7 percent of sales, which fell 3 percent to 19.82 billion euros. But Renault shares sagged 3.2 percent after it said automotive free cash flow weakened to a negative 360 million euros from a year-earlier deficit of 31 million.

Orange fibre makes the grade Telecoms operator Orange’s investment in faster fibre and mobile broadband networks in its French home market has started to pay off, as its highend focus insulates it from cut-price fixed plans offered by rival Bouygues.

As France’s largest carrier reported second-quarter results in line with forecasts yesterday, it said that some 60 percent of new mobile customers were signing up for high-end plans that include 4G and that 50,000 new customers had signed up to its fibre broadband offers, taking the total to 415,000.

Thomas Atkins and Arno Schuetze

D

eutsche Bank’s plan to become “the last man standing” in investment banking in Europe is working, the bank said on yesterday, reporting a 16 percent year-on-year increase in quarterly pre-tax income.

But the spectre of costly litigation and settlements cast a shadow over results, with the bank booking 470 million euros (US$631 million) in litigation-related quarterly charges and topping up reserves for future litigation by 22 percent to 2.2 billion euros.

Deutsche Bank faces an array of investigations that ranges from allegations of manipulating the Libor benchmark rate to unfairly favouring some investors in so-called dark pools and has already paid more than 5 billion euros over the past two years in settlements and fines.

In a new development, Deutsche Bank said it had received requests for information from regulators related to high frequency trading, and that it had been named as a defendant in class action complaints alleging violations of U.S. securities laws related to high frequency trading.

With the threat of fines and settlement costs looming, as well as European banking stress tests year, Germany’s largest lender raised 8.5 billion euros in June to strengthen its balance sheet.

Deutsche Bank has come under heavy fire from U.S. authorities in recent weeks, with regulators slamming the bank for shoddy financial reporting, weak technology and inadequate auditing and oversight, which it is addressing in part by hiring 500 U.S. staff.

“There is significant uncertainty as to the timing and size of potential impacts. Accordingly, actual litigation

Deutsche Bank headquarters in Frankfurt

costs for the balance of fiscal year 2014 are unpredictable,” Deutsche Bank said in a presentation.

Trading motor Investment banking earnings contributed the lion’s share of pretax income of 917 million euros as revenue from Deutsche Bank’s important debt trading operations held steady, in sharp contrast with the downturn suffered by its U.S.-based rivals.

Investment banks faced a grim second quarter for revenue, hit by subdued client activity, low interest rates and by shrinking and restructuring of their businesses.

Deutsche Bank posted 1.8 billion euros in net revenue in its debt trading operations, part of its investment bank, while rivals saw a 9 percent decline

on average in the quarter.

“For me, the pleasant surprise was debt sales and trading, and the costs line,” said Bankhaus Lampe analyst Neil Smith.

“Sales and trading were better than I expected, at flat year-on-year, compared with the negative 10-15 (percent) we’ve seen with some banks year-on-year.”

Deutsche Bank shares have fallen around 20 percent so far this year versus a 1 percent rise for the STOXX index of European banks.

Deutsche Bank’s common equity tier 1 (CET1) ratio rose to 11.5 percent at the end of the quarter following the 8.5 billion euro capital hike in June, which the bank was forced to do as the cost of fines, litigation and restructuring eroded results.

Reuters

GMO firms double anti-labelling efforts The money spent on the marketing campaign comes alongside more than US$80 million spent since 2012

O

ne year after the launch of a social media effort to allay consumers’ concerns about the safety of foods made from genetically modified crops, U.S. companies that develop GMOs have further committed to a multimillion-dollar campaign to defeat attempts to add GMO labels to such foods.

“We are not going to sit down for that (labelling),” Cathleen Enright, spokeswoman for the effort, said in an interview. “We want people to know how their food is grown ... we support a right to know. It is the mechanism that we can’t abide.”

Monsanto Co., Dow Chemical and other GMO crop backers last summer kicked off an interactive website, called GMO Answers, as the centrepiece of a broad effort to win over consumers. A speakers’ tour and social media advertising are part of the effort.

The group has committed to

US$9 million

2014 1Q lobbying Congress outlay

spending millions more annually for several more years on this campaign, said Enright. She would not provide specifics on the campaign spending.

The money spent on the marketing campaign comes alongside more than US$80 million spent since 2012 by the biotech and food industries to defeat mandatory labelling at the

state and federal levels, according to a report issued yesterday by the Environmental Working Group.

The companies spent US$9 million lobbying Congress in the first quarter of 2014 alone, the report said.

Despite the efforts, the industry still is fighting an uphill battle, Enright said. Consumers and lawmakers who fear the crops are unsafe and/or environmentally harmful are seeking mandatory labelling of GMO foods in many states and at the federal level.

Oregon has placed GMO labelling on its November ballot, and Colorado citizens are gathering signatures for a similar ballot initiative.

Still, Enright said, the GMO Answers campaign has made notable progress in combating consumer fears, with executives from Monsanto, Dow, DuPont and others fielding more than 600 questions from the public through the website’s online forum.

Reuters

15

July 30, 2014

Opinion

PISA’s promise wires Business

Leading reports from Asia’s best business newspapers

Angel Gurría

Secretary-General of the OECD

THE STRAITS TIMES Minister for National Development Khaw Boon Wan and Senior Minister of State for Trade and Industry and National Development Lee Yi Shyan will be until Thursday. They are visiting the country to attend the 7th SingaporeTianjin Economic & Trade Council Meeting, according to a press release by the National Development Ministry yesterday.

Mr Khaw and Tianjin mayor Huang Xingguo will co-chair the meeting to review the Council’s accomplishments in the past year and to set directions for new collaborations in the coming year.

THE TIMES of India The tax authorities are keeping close watch on compensation paid to top corporate bosses, including their allowances and perks, and income from your fixed deposits. The income tax department is also launching a city-specific drive focused on certain categories of spending and investment to unearth concealed income and widen the tax base. So, in Lucknow those purchasing a luxury car or an SUV may have some explaining to do if the income shown in their tax returns is not in line with the high-value transactions.

CHINA DAILY David G. McDonald, president and chief operating officer of OSI Group [responsible of expired food distribution scandal], said the company is conducting an internal investigation, and that preliminary investigations have found issues that he said are absolutely inconsistent with internal product requirements and policies. “We will fully cooperate with Shanghai FDA for the investigation,” he said. The group ceased operations of the Shanghai Husi plant for internal and external investigations, and extended their internal reviews to ensure that compliance met their global standards.

But the group didn’t talk about compensation for consumers in China.

THE PHNOM PENH POST The ministry of Posts and Telecommunications (MPTC) has postponed a two-day meeting with telecom firms to discuss a controversial draft law leaked to the Post last week, which details the government’s plan to assert control over the industry. A representative from one telecommunications provider who wished to remain anonymous said the meeting, initially slated to take place yesterday and today, had been pushed back more than two weeks and is now expected to take place on August 14 and 15.

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ARIS – By assessing the capabilities and knowledge of students in the highestperforming and most rapidly improving education systems, the OECD’s Program for International Student Assessment provides valuable options for reform and information on how to achieve it.

PISA brings together policymakers, educators, and researchers from around the world to discuss what knowledge students need to become successful and responsible citizens in today’s world, and how to develop more effective, inclusive education systems.

Some claim that the PISA results are based on too wide a range of factors to be relevant, while others point out the challenges inherent in testing students in various languages and with different cultural backgrounds.

Of course, comparing education across countries is not easy, but PISA remains the most useful tool yet developed for policymakers attempting to improve their national education systems.

Before PISA, many governments claimed that they oversaw the world’s most successful education systems, and insisted that they had already taken the steps needed to address any shortcomings.

By exposing weaknesses in a particular country’s system, PISA assessments help to ensure that policymakers recognize – and, it is hoped, address – remaining deficiencies.

The sense of accountability that PISA fosters among governments and education ministers has helped to spur them into action.

They increasingly turn to one another to learn how to apply innovations in curricula, pedagogy, and digital resources; how to offer personalized learning experiences that maximize every student’s chances of success; and how to cope with diversity in the classroom.

The OECD established PISA as a global assessment, because in today’s globalized world students must be able to collaborate with people from diverse backgrounds and appreciate different ideas, perspectives, and values. To give students the best possible chance to succeed, education must prepare them to handle issues that transcend national boundaries.

But PISA’s most important outcomes lie at the national level, because it inspires innovation and broadens educational perspectives within countries.

Education systems as diverse as those in Finland, Japan, China, and Canada – which seldom registered on policymakers’ radars before – have become global reference points for excellence in education, helping other countries to design effective reforms.

When Brazil emerged as the lowestperforming education system in the first PISA assessment, released in 2000, many people rightly questioned the fairness of comparing an emerging economy to advanced countries like Finland and Japan. But Brazil rose to the challenge, making massive investments in improving the quality of teaching. The country now boasts one of the world’s most rapidly improving education systems.

Germany also featured in PISA 2000, recording below-average performance and large social inequalities in education – an outcome that stunned Germans and initiated a months-long public debate. Spurred into action, the government launched initiatives to support disadvantaged and immigrant students, and made the notion of early childhood education a driving force in German education policy.

Today, PISA reports confirm that the quality and fairness of Germany’s education system

Creating a global platform for collaboration in education research and innovation has been the PISA initiative’s aspiration from its conception in the late 1990s

have improved considerably.

Even in the world’s best-performing education systems, PISA helps to pinpoint areas for improvement.

For example, PISA assessments have revealed that, while Japanese students excel at reproducing what they have learned, they often struggle when asked to extrapolate from that knowledge and apply it creatively. The effort that this has inspired to create more innovative learning environments was apparent last April, during a visit to the Tohoku schools destroyed by the 2011 tsunami.

This experience offers yet another

lesson: even in cases where social and cultural factors seem to be the main force shaping a country’s education style, improvements are possible.

Countries like Japan do not have to change their cultures to address their educational shortcomings; they simply have to adjust their policies and practices.

Creating a global platform for collaboration in education research and innovation has been the PISA initiative’s aspiration from its conception in the late 1990s. Since then, policymakers, researchers, and experts have built the world’s largest professional network dedicated to the development of robust, reliable, and internationally comparable information on student learning outcomes.

At the same time, PISA measures students’ social and emotional skills and attitudes toward learning, as well as educational equity and parental support – all of which provides indispensable context for understanding scores on international assessments.

Of course, assessments do not cover every important skill or attitude. But there is convincing evidence that the knowledge and skills that the PISA system assesses are essential to students’ future success, and the OECD works continuously to broaden the range of cognitive and social skills that PISA measures.

PISA has already prompted important advances in education worldwide. The OECD will continue to work with the 80 participating countries to develop the program further, so that it can continue to help policymakers and educators design and implement better education policies – and give their citizens access to the tools that they need to build better lives.

The Project Syndicate 2014

16

July 30, 2014

Closing HK official to chair Guangzhou climate meeting Exchange fund records HK$50.5 billion Secretary for the Environment Wong Kam-sing will chair the third meeting of the Hong Kong/ Guangdong Joint Liaison Group on Combating Climate Change (JLGCCC), the local government said yesterday. Wong will lead a delegation of the Hong Kong Special Administrative Region Government to attend the Guangzhou meeting.

He will co-chair the meeting with Director of the Guangdong Development and Reform Commission Li Chunhong. At the meeting, both sides will outline what they have been doing to combat climate change and discuss the reports of the two working groups set up under the JLGCCC

Hong Kong’s Exchange Fund recorded an investment income of HK$50.5 billion (about US$6.52 billion) in the first half of 2014, the Hong Kong Monetary Authority (HKMA) announced yesterday. The HKMA published the position of the Exchange Fund at endJune 2014, showing gains on Hong Kong equities amount to HK$1.9 billion, gains on other equities HK$19.6 billion, gains on bonds HK$26.6 billion, an exchange gain of HK$0.4 billion; and gains on other investments HK$2.0 billion. Fee payments to the Fiscal Reserves amounted to HK$13.9 billion in the first half of 2014

Young entrepreneurs dig for Internet gold Entrepreneur contests are flourishing across the country, with many ideas credited to online experiences of young people

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hen mobile app MYOTee swept the Chinese online scene with 30 million download clicks in June, its developer Erick Guo already knew that in the Internet age, success could be short-lived.

“MYOTee had long been prepared to be a shooting star,” 25-year-old Guo told Xinhua in an interview. The application, which allows users to customize cartoon avatars and share with friends on social networks, has seen drastically falling downloads in July.

China’s youngest generation of entrepreneurs are tapping into the country’s enormous, and yet fastgrowing Internet market.

But instead of dwelling on peak experiences, they are seeking to outgrow the fetish of Internet-age fame.

Best of times The booming Internet sector has fuelled giant Chinese tech companies like Baidu, Alibaba and Tencent in the last decade, and is expected to offer more opportunities a s China at t emp ts to shift its economy towards consumption and innovation.

A report released on Monday by global consultancy McKinsey said the Internet could contribute up to 22 percent of China’s GDP growth by 2025, via increased productivity and adoption of Internet apps across various sectors.

College students are among the first to feel the impact of the Internet on China’s labour market. Entrepreneur contests are flourishing across the country, with many ideas credited to online experiences of young people.

Wang Chenchen and his team won first place and 100,000 yuan (US$16,228)

at an entrepreneur contest in Beijing in 2013. Their idea, an online fashion design sales platform, is scheduled to launch in August.

As part of an employment security scheme, in May, the Ministry of Human Resources and Social Security announced a plan to help 800,000 college students start their own businesses by 2017. Other policy support includes streamlined corporate registration and eased financing targeting micro and small businesses.

Erick Guo said that compared with traditional

sectors, start-ups in the Internet sector face fewer entry barriers. “Once with some digital skills and a good idea, even a high school student could compete with industry big shots in mobile app stores,” he said.

Early this year, Guo and his team received millions of yuan of funding from venture investor IDG Capital, and are poised to get a second round of cash. IDG Capital said it invested in almost ten Internet start-ups in 2013, all created by 20-somethings like Guo. Young entrepreneurs like Guo have come to realize the

importance of being downto-earth. Zhang Tianyi, a 24-year-old law student who ventured into the catering industry, sniffed at society’s over-emphasis on the “Internet mindset”.

When invited by Tencent to a mini forum in mid-July, Zhang, owner of two rice noodle shops in Beijing’s central business district, admitted the Internet helps him find target customers and promote his company on social platforms, but argued technology is only the means, not an end.

Trade numbers still don’t add up

Moving against bad debt

BRICS bank acts as multipolar world catalyser

A

C

A

discrepancy between Hong Kong and Chinese figures for bilateral trade remains even after a crackdown last year on Chinese companies’ use of fake exportinvoicing to evade limits on importing foreign currency. China recorded US$1.31 of exports to Hong Kong in June for every US$1 in imports Hong Kong tallied from China, for a $6.4 billion difference, based on government data compiled by Bloomberg News.

Analysts offered at least three possible explanations for the gap, including differences in how China and Hong Kong record trade in goods that pass through the city, as well as persistence in fraud at a lower level. Any discrepancies make it tougher to gauge the impact of global demand on a Chinese economy that’s projected for the slowest growth in 24 years.

Distortions in China’s trade data have abated since the State Administration of Foreign Exchange started a campaign in May 2013 to curb money flows disguised as trade payments.

Bloomberg News

hina is creating asset-management companies (AMCs) in five regions to buy bad debt from domestic banks, in order to free up their balance sheets to support new lending, sources with direct knowledge of the matter told Reuters.

The move follows a surge in non-performing loans (NPLs) in recent months, most notably in export-focused regions like the Yangtze River Delta and Guangdong, where firms are battling rising costs and weak domestic demand.

To help bear the strain, the country’s banking regulator (CBRC) has authorised the city of Shanghai, and provinces of Zhejiang, Guangdong, Jiangsu and Anhui, to establish and manage their own AMCs, the sources said.

The initiative could potentially open doors for some private sector involvement.

Since 2012, China has steadily upgraded methods to cope with bad loans resulting from a massive credit splurge in 2009, including the development of a trading platform to facilitate banks offloading loans to investors.

Reuters

Xinhua

Canadian expert hailed the BRICS nations’ recent decision to establish a development bank, saying the bank could potentially lead to some significant changes, including a shift toward a multipolar monetary system.

Domenico Lombardi, an expert on global economy from a Canadian think tank, told Xinhua in a recent interview that while the economic significance of the New Development Bank (NDB) was yet to be seen, many were debating the possible impact.

For the BRICS economies -Brazil, Russia, India, China and South Africa- the new bank has been a long time coming, said Lombardi, director of the Center for International Governance Innovation’s global economy program.

According to him, a common frustration with the World Bank and the International Monetary Fund (IMF) led to the creation of the BRICS bank.

The expert said that although the BRICS members had a very important role in today’s world economy, they had been unable so far to galvanize their economic power into political clout.

Xinhua