Macau Business Daily, Aug 12, 2014

MOP 6.00 Closing editor: Sara Farr Publisher: Paulo A. Azevedo Number 602 Tuesday August 12, 2014 Year III

Spending on spending

M

ore visitors mean more spending. Not just by tourists. The government is allocating 57 million patacas to research what visitors are splashing out on. And what they think about local hospitality services. A private research company has won a public tender for the third time. The four-year service contract involves publishing findings on the Statistics and Census Service website on a quarterly basis.

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House to house search

MGM Resorts staking out Japan

Many questions but few answers. Legislators are demanding transparency on the government’s housing policy. The administration says everything’s under control. Measures are in place. But what measures?

www.macaubusinessdaily.com

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Mass revenue growth reaches four-year low in July Page 5

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Name

In the net Portuguese soccer star Cristiano Ronaldo scores again.

Famous fashion brand CR7 will soon hit shops in Macau.

The underwear sales company tells Business Daily that it is trademarking the product now. No retailer has yet been appointed but the product will hit the shelves next year Page

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%Day

China Resources Lan

5.70

Henderson Land Dev

4.75

PetroChina Co Ltd

3.13

China Overseas Lan

3.11

AIA Group Ltd

2.90

Li & Fung Ltd

0.00

Want Want China H

0.00

China Mengniu Dair

-0.40

Tingyi Cayman Islan

-0.45

Galaxy Entertainme

-1.01

Source: Bloomberg

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2 I SSN 2226-8294

I ❤ Macau

Pandora’s property box

Hongkongers are smitten. Macau is attracting people from the Fragrant Harbour at three times the pace of other non-resident workers. From April to July, Macau welcomed 1,500 workers from the neighbouring SAR

Is policy intervention the answer? Property price rises continue unabated. Locals priced out think something needs to be done. China is currently mulling all aspects of the property chain. Legislation is slated for the end of 2016

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August 12, 2014

Macau

Housing policy under fire Although the government has announced it will reserve land for public housing as well as increasing the number of public units in Zone A in the new urban area, legislators complain that the current policy is still not effective enough in resolving the housing demands of the city Kam Leong

kamleong@macaubusinessdaily.com

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egislators want reassurances from the government on how the Chui Sai On administration plans to ensure and increase the supply of public housing in addition to controlling the increase in property prices. When the Secretary for Transport and Public Works, Lao Si Io, went to the Legislative Assembly yesterday to answer legislators’ queries, he revealed little on the issue.

Told by the legislators that the government should establish a clear way to improve the current housing system, Mr. Lao said that the government has adjusted its housing policy and is now focusing on public housing. It has established short, medium and long-term targets for the city’s use of land, he said.

The three targets refer to the 4,400 public units occupying four parcels of land, 1,400 flats near the new passageway between Macau and Guangdong and the 28,000 public housing units to be built in Zone A in the new urban area. These are the government’s short, medium and long-term targets, respectively.

He also said that there are 48 parcels of idle land to revert to the government, which will also be used for public housing, with more than 20 of these plots currently undergoing

legal procedures.

However, these parcels of land have not been included in the planning, leaving legislators questioning the lack of transparency in the housing policy because there is no timetable as to when all these parcels of idle land will revert to the government.

Mr. Lao denied such claims and insisted that that the government has been actively releasing the related information. He explained that due to the difficulties in controlling the time and quantity of such, the fact that these are not included in their planning does not mean there is no transparency. He said that all the parcels of land that the government currently owns or those it will own in the future will be reserved for housing, particularly public housing.

He believes that more than 6,800 flats will be reserved for public units before 2019. The government insists on its policy of ‘only planning after receiving.’ Further plans will be announced to the public when it is appropriate, he added.

In addition, Mr. Lao said that the government has not awarded any parcels of land to any private company or organisation in the new Zone A urban area, reserved primarily for public housing, when

responding to legislative member Ella Lei Cheng I’s request that the government promise that all future available land will be used to build public housing.

Regarding whether the government is to resume the previous scoring system when evaluating applicants for public housing, Mr. Lao said that as the Subsidised Housing Law is under consultation it is too soon to make a decision. However, he remarked that both the scoring system and the current system of drawing from pools have their own advantages and shortcomings.

Increasing housing prices Mr. Lao also mentioned that the government had established a working group on the continuing development of the real estate market, which had conducted several measures covering land, construction of housing and sales. He said that such measures have successfully stabilised the financial system as well as the real estate market.

Legislators, however, disagreed that such measures have prevented real estate market prices from increasing. Many perceive that the high demand for public housing is because the high prices of private

Gov’t to subsidise SME websites T

he government is launching an SME Website Fund aimed at handing out subsidies of between 6,000 patacas and 50,000 patacas next year for small and medium sized enterprises (SMEs) to set up or maintain their own website.

This is a means of helping small and medium-sized enterprises attract

more clients from all over the world and explore a wider market ‘through modern ways and at a low cost,’ the Macau Economic Service said in a statement released yesterday.

According to the statement, SMEs that do not have their own website can apply for a subsidy of up to 14,000 patacas. This amount is set to cover

costs related to the construction of the website and part of the maintenance in the first three years of it being up and running. For SMEs that already have a website but need financial help in maintaining it, the government offers a subsidy of 6,000 patacas. In addition, SMEs that already have their own website but plan on optimising

housing are still increasing, which many Macau residents cannot afford.

Mr. Lao replied that the government has been following the real estate market. The government does not exclude the possibility of introducing further controls if necessary.

Zone A label In addition, legislators expressed their concern that the increased number of housing units in Zone A of the new urban area would lead those living there to be labelled ‘inferior.’

Head of the urban planning department from the Lands, Public Works and Transport Bureau (DSSOPT) Lao Iong said that the government had also considered the issue and is trying its best to avoid the ‘label phenomenon’ by offering more than just housing.

He perceives that Zone A enjoys a good environment facing the sea.

In addition, a seashore park will be built in the zone with convenient transportation system, cultural facilities and medical facilities. He also mentioned that an ‘educational village’ will be established in the zone, a first for Macau. It is believed that such measures will prevent residents in the zone from being labelled.

it in 2015, the government subsidy will run to 50,000 patacas.

SMEs that have already started spending their own money in creating, maintaining or optimising their websites are also eligible for the fund; however, the amount allocated will only be up to 70 percent of the total spent thus far, according to the statement.

In order to better explain this subsidy plan, the government will hold three information sessions on August 20, August 24 and September 7.

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August 12, 2014

Macau

Gov’t lays out MOP57mln on visitor spending Long-time outsource partner Macao Research Centre has been awarded the deal to run the visitors’ spending survey until 2017 Stephanie Lai

sw.lai@macaubusinessdaily.com

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he government is to spend over 57 million patacas (US$7.2 million) to survey visitor spending here by outsourcing the statistical task to local company Macao Research Centre. This is the third time the company has won a public tender for the official visitors’ spending study.

For three years from June 1, 2014 to May 31, 2017, the government is to pay nearly 57.53 million patacas to Macao Research Centre to survey inbound visitors’ spending patterns in the city plus their opinions on local hospitality service, the Official Gazette announced yesterday.

The findings of the survey, for which the research company is committed to a four-year service contract with the government, is published on the Statistics and Census Service website on a quarterly basis.

MRS received over 28 million patacas for running the survey from 2009 to 2011, and over 58 million

patacas for taking over the survey again between 2011 and 2014.

By comparison, when the government here first established the Cultural Industry Fund in 2013, it injected 200 million patacas.

This money went towards an entire industry, and the government said it was ‘to foster local cultural and creative industries and talent in the form of subsidies and awards.’

Statistics and Census Service

told Business Daily that there had been only one company placing a bid earlier this year to take up the visitors’ spending survey this time, which is the long-time outsource partner Macao Research Centre.

As required by the government, the research company must collect visitors’ data at all immigration points in the city.

Macau received a total of 15.28 million inbound visitors in the first six months of this year, about 8 percent more than a year ago, data from the Statistics and Census Service shows.

For 2013, the city saw a record 29 million-plus visitors coming here.

The visitors’ spending survey released by the census, of which the latest data refers only to the first quarter, shows that the average daily spending per visitor amounts to 2,074 patacas, which has risen by one percent year-on-year; the average daily spending of a mainland Chinese visitor, the dominant source of tourists and the highest spending group, has meanwhile dropped by an annual 4 percent to 2,534 patacas.

MOP143 mln 2009-2017 gov’t spending on study

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August 12, 2014

Macau

MGM Resorts staking out Japan

Casinos workers purloin ‘points’

MGM is ready to invest big in Japan.

The Chairman and CEO of the group recently spent a fortnight in the country following up on the activities of the team his company has deployed there

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GM Resorts International is ready to invest between US$5 billion (40 billion patacas) and US$10 billion in Japan, and James Joseph Murren, chairman and chief executive officer of the group, announced that he already has a team deployed in the country with offices in Tokyo and Osaka.

The announcement was made last week during the earnings call for the second quarter of the year.

“We’ve been spending quite a bit of time in Japan, and we remain quite optimistic about legislation this fall. We’re looking at all the markets there, and we now have a full team deployed there, with offices in both Tokyo and Osaka,” Murren said.

Casinos are illegal in Japan per current legislation. However, Japanese Prime Minister Shinzo Abe is trying to pass a law this Autumn that will legalise

gambling. The goal is for casinos to boost the number of tourists in the region before the Summer Olympic Games that Tokyo is hosting in 2020.

“I think MGM is really well positioned in Japan, given our globally recognised brand, the market leadership we have in the convention and event business here in Las Vegas and a recognised award-winning builder of sustainable, integrated resorts, which is a key core value for Japan,” he said.

Murren also admitted to having spent some time in Japan recently in order to follow the work being done there. “I just got home from a couple of weeks in Japan,” he said.

Murren revealed recently in Japan that MGM Resorts expects to own at least 51 percent in a partnership with local companies for projects in the country.

According to Union Gaming Group estimates, the legalisation of casinos in Japan would make it the second largest market in Asia, after Macau.

our casinos workers are suspected of colluding with seven gamblers to swindle casinos points, the value of which reached HK$810,000 (US$105,000). All eleven suspects are believed to have violated the law on computer scams, and have been banned from entering any casino or gambling, according to the Public Prosecutor’s Office.

The suspects, aged between 20 and 30 years, are from Macau and mainland China. One man from mainland China, however, is still at large. Eight of them have confessed that they had gained rewards from such actions, scamming HK$2,000 to HK$1,200.

Information from the Prosecutor shows that the four casinos workers were involved in illegally inserting fabricated betting information of the other suspects to gain casino points which were used by the seven gamblers for free hotel rooms, ferry tickets, promotional codes as well as cash coupons for slot machines.

The Office said that there is strong evidence to show that the eleven suspects had mutually created fictional computer records to swindle casinos points, damaging the benefits of the casinos. The case has been passed to the police for further investigation.

K.L.

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August 12, 2014

Macau

Mass revenue growth reaches four-year low in July Revenues from mass gamblers grew 17.3 percent last month, almost half of the first semester average of 32.5 percent. It’s already the worst performance since 2010. Only MGM Macau escaped the plunge in July Luis Goncalves

luis.goncalves@macaubusinessdaily.com

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he slowdown in Macau’s mass market reached a four-year low in July. This is a sign that Beijing’s crackdown on corruption is affecting not only the VIP segment as initially thought but is spreading to the overall market.

More than the World Cup, the mainland’s visa restrictions or illegal UnionPay terminals, the attack on money laundering, suspicious money transfers and lavish spending by China’s government officials this year is diverting gamblers from playing in Macau. When they do come, they’re spending much less on the baccarat tables.

The impact of these crackdowns is deeper than analysts predicted. In a recent note to clients, Telsey Advisory Group (TAG) admitted its surprise: ‘While we had forecast increased volatility in the mass market growth rate coming out of our trip to Macau in early June, July’s deceleration was even a bit more than we had expected.’ The brokerage firm even reports that some players are choosing other gaming destinations such as Las Vegas over Macau.

Record slowdown In July, mass revenues here increased 17.3 percent year-on-year, the worst result since 2010, Wells Fargo noted yesterday. Even when compared to June, a soft month in Macau with the first decline of revenues in five years, July’s performance is

Revenues did not improve materially in the second half of July , which could mean China’s political initiatives, and potentially transit visa changes, are impacting mass Wells Fargo

staggering. In June, the mass market grew 26.9 percent year-on-year, 50 percent more than in July. The majority of operators in Macau even reported a jump of around 30 percent in gains from mass tables in June, with Wynn leading the race with a 55.7 percent increase from June 2013.

But last month, these still impressive growth rates were cut in half, with MGM the only exception.

Sands, Galaxy and Melco Crown posted a jump in mass revenues of

around 15 percent, with SJM dropping to single digit growth (from 22 percent to only 9 percent). Wynn Macau declined to a 30 percent increase in mass gains.

MGM was the outperformer, slightly increasing its growth rates for mass revenues from 39 percent in June to 39.7 percent in July.

According to Telsey, mass revenue growth of 17.3 percent in July was almost half of the first six months average in Macau. Between January and June of this year, mass revenues climbed 32.5 percent from the same period last year. ‘The

bigger disappointment is clearly the deceleration in mass market growth,’ the brokerage told its clients.

The mass segment is vital for casinos here. First, because it has a much higher profit margin than VIP and second, because it can compensate for the decline in high rollers this year, whose revenues tanked 15 percent this year.

Beijing not Brazil Pointed to first as the main reason for the revenues slowdown in Macau,

the World Cup is now discarded as the driver for the first two straight months’ revenue decline since 2009.

‘While there could be some impact from the World Cup in results, we note that revenues did not improve materially in the second half of July, which could mean China’s political initiatives, and potentially transit visa changes, are impacting mass,’ said Wells Fargo.

The gaming operators that reported second quarter results until now have all failed to meet market estimations for their Macau performance, with VIP dropping more than expected and mass segment lagging behind in growth.

The soft performance is putting investors on the defensive for the approaching months. Wells Fargo notes that the market is expressing concern about Melco Crown’s performance in the second half of the year among mass gamblers, following a 17 percent increase in revenues in July in this segment. In addition, a mass market share of lower than 30 percent for Sands China, the segment leader in Macau, on less than 25 percent growth poses risks to third quarter results for the company, says Wells Fargo.

Amidst the headwinds facing the Macau gaming industry, Melco Crown and MGM are the operators coping better with the mass slowdown.

Melco’s mass market share increased 110 basis points in the quarter ended July - from 12.5 percent in April to 13.5 percent last month. MGM also increased its share from 8.8 percent to 8.9 percent in the same period.

Sands China and SJM, the two market leaders, both lost market share.

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August 12, 2014

Macau Brands

Trends

Bottled Youth Raquel Dias newsdesk@macaubusinessdaily.com

Cristiano Ronaldo underwear brand tackles Macau The company responsible for the sale of CR7 Cristiano Ronaldo underwear is getting ready to enter the Macau market. JBS Textile is now registering the brand, following which the product will reach the SAR João Santos Filipe

jsfilipe@macaubusinessdaily.com

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ecently, we’ve been learning more and more about Asian skincare products. The trend probably started with the now famous Korean BB cream. The success was huge and all brands now have their own BB cream, adapted to the Western market but essentially the same product.

However, this success has now migrated to skincare.

Whereas before ladies and gentlemen dared only use well known products by Western brands like Dior, Chanel, La Mere, etc. there’s now a certain reverence for Asian alternatives.

It’s easy to understand that Asians would be inclined to buy their own products, designed to meet certain characteristics. For example, the whitening products that occupy a huge shelf space in Macau are virtually unknown in Europe, where no-one wants to have pale skin. However, this is not the case, as brands like Japanese Albion are attracting quite a lot of customers from outside the Asian market.

The brand distinguishes itself by having four beauty steps rather than three.

Our favourite product is the EXCIA AL. This top of the line product enhances skin resilience and radiance.

The brand claims it does so by strengthening the relationship between skin stem cells and hormones If you fancy a one-timea-day kind of product we suggest the brand’s EXVIE. The Lotion acts by regenerating skin firmness by resuscitating cells which have stopped functioning due to age. Essentially, youth in a bottle.

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he CR7 Cristiano Ronaldo fashion brand is to arrive in the Macau market next year.

The company responsible for the sale of the underwear products under the name of the Portuguese soccer superstar, JBS Textile Group, is currently registering the trademark in the Special Administrative Region, a process which is expected to be finalised by the end of the year. The chief business development officer of the Danish group, Jan Christensen, expanded on the company’s projects to Business Daily.

“We have applied for the registration of the CR7 Cristiano Ronaldo trademark in Macau, which was published in the Macau Official Gazette dated 16 July 2014. We expect to have the final trademark registration by December 2014,” he said. “The reason for our application is, of course, that JBS Textile Group have plans to launch products under the brand name CR7 Cristiano Ronaldo when we have the registration fully completed.”

JBS Textile Group does not operate its own stores but chooses partners to whom it sells its products. For the Macau market, however, partners have not yet been chosen. This decision will be taken once the registration of the brand is fully completed.

“So far, we’re only in the process of getting the registration; the choice of partners will follow after. We’re having negotiations with different potential partners but for the present we’ve not signed any contract,” he said, preferring not to mention the names of the other parties involved in the negotiations.

The Macau market will have a

strategy for the sale of the products that varies from countries such as Australia, France, Denmark and Germany, where Cristiano Ronaldo branded underwear is also sold.

“Each country in the world where we launch the CR7 products has its own strategy with local corporation partners, as well as how to launch the products,” he said.

In the beginning of the month, the second underwear collection by Cristiano Ronaldo was launched, featuring the player himself.

The Real Madrid’s star clothing brand began to be produced last year only in the underwear segment in a partnership with JBS and New York

Each country in the world where we launch the CR7 products has its own strategy with local corporation partners, as well as how to launch the products Jan Christensen, JBS Textile Group

fashion designer Richard Chai. Since this year the footballer’s brand has expanded to premium shirts and shoes. CR7 represents the initials of the Portuguese player and his number in Real Madrid.

Ronaldo is not the first footballer to sport an underwear range. Former English football player David Beckham collaborated with H&M for an underwear collection, as well.

MOP224 mln in endorsements According to Forbes magazine, Cristiano Ronaldo is the World’s second highest paid athlete with around 639 million patacas in earnings. The leader of the ranking was American boxer Floyd Mayweather Jr. with earnings of 838 million patacas. The 29 year-old Portuguese has an annual salary of 415 million patacas and last year signed a fiveyear contract with the Madrid giants worth more than 1.5 billion patacas.

The Portuguese player’s income is boosted by endorsements. Cristiano Ronaldo has agreements with watch manufacture Tag Heuer, sports clothing manufacturer Nike and fashion icon Giorgio Armani, which has permitted him to cash in 224 million patacas.

If the Ronaldo underwear brand is as successful as the number of jerseys the Portuguese player sold last year, then his earnings will be strongly enhanced. In 2013, according to German newspaper Bild, Real Madrid sold more than one million jerseys worldwide with the name of the footballer. No other player has sold as many jerseys. The number excludes sales of Portugal international squad jerseys with Ronaldo’s name and number.

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August 12, 2014

Macau

Hong Kong workers gravitating to Macau In the second quarter, Macau welcomed 1,500 new workers from Hong Kong, a record increase of 20 percent from the previous quarter. The fourth largest foreign community in Macau is growing threes times faster the non-resident worker population, outpacing mainlanders and Filipinos Luis Goncalves

Luis.goncalves@macaubusinessdaily.com

T

he number of Hong Kong residents working in Macau is skyrocketing. They’re growing three times faster than the non-resident population who work here and more than mainlanders, Filipinos or Vietnamese, official statistics revealed yesterday.

In only three months, Macau has admitted more than 1,500 new workers from Hong Kong, who today are the fourth largest non-resident population in Macau.

According to the Statistics and Census Bureau, the number of Hong Kong residents working in Macau grew 19.7 percent in the second quarter of this year to a total of 8,178 individuals. In the first quarter, Macau recorded 7,194 Hong Kong residents working here. It was, by far, the foreign community to register the highest growth.

In the April-June period, nonresident workers in Macau increased by 6.6 percent compared to the first quarter. The economy here got a boost in the labour force of around 10,000 people in the second quarter.

The territory now supports 155,000 non-resident workers, a quarter of

Macau’s total population (645,000 at the end of the second quarter).

Of the foreign workforce, mainlanders account for the majority with almost two thirds in June (64.3 percent) followed by Filipinos (13 percent) and Vietnamese (8.2 percent). Hong Kongers follow in fourth place with a share of 5.5 percent albeit with the greatest quarterly growth. The Chinese labour community in Macau went up 8.2 percent, while Filipinos and Vietnamese remained more or less flat

Texhong Textile profits plunge Stephanie Lai sw.lai@macaubusinessdaily.com

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ong Kong-listed yarn manufacturer and seller Texhong Textile Group Ltd, which has a subsidiary unit here, posted a plunge in profits for the first half of this year due to weak yarn sales prices in the mainland China market and the depreciation of the yuan against the US dollar, the company noted in its interim results filed with the Hong Kong Stock Exchange yesterday.

Texhong Textile, engaged in the manufacturing and sale of yarn, grey fabrics and garment fabrics, registered the profit attributable to shareholders that declined by 72 percent year-on-year to 125 million yuan (US$20 million) for the six months ended June 30 this year, mainly due to ‘weak yarn selling prices’ in the mainland market and the depreciation of the yuan amid decelerating overall production in the Chinese cotton textile industry, the company noted in the filing.

Texhong Textile has cited the depreciation of the yuan against US dollars as an unfavourable factor that would continue to affect its business, as a ‘significant amount’ of the company’s sales revenue is denominated in yuan, while ‘certain costs and liabilities’ are denominated in US dollars.

The company’s gross profit margin has dropped by 8.2 percentage points

to 13.2 percent, while its net profit margin is also down 9.7 percentage points to 2.7 percent.

Remarking on the decline in gross profit margin, Texhong Textile said that the yarn selling price in the Chinese market had been sluggish this year due to uncertainties in the policy reform in cotton purchase and subsidy by the Chinese Government.

‘In particular, following the Chinese Government cutting the auction price of the national cotton reserve in April this year, the yarn market prices in China had further declined,’ Texhong Textile noted in the filing.

But the company expected that the domestic cotton price trend would become clearer upon a more detailed regulation of direct subsidy policy to be introduced by the Chinese Government.

Texhong Textile mentioned that it would gradually increase the proportion of synthetic fibre yarn sales and reduce the impact of fluctuation in the cotton price on the group’s financial performance.

The company’s revenue from external customers rose by 26.5 percent to nearly 4.57 billion yuan, thanks to higher yarn sales volume in the first half of this year; mainland China was the major source of the company’s revenue, which accounted for 3.09 billion yuan, followed by Macau at 1.02 billion yuan.

with a slight increase of one percent in the second quarter.

The flow of Hong Kong workers coming to Macau happens at the same time that the territory sees a record number of companies being created here. In the second quarter, Macau’s economy incorporated 1,454 new businesses, 30 percent more than a year before. Theses companies also attracted a record amount of capital to Macau – 1.1 billion patacas –

registering six times more than the same quarter last year.

The statistics bureau also revealed that Macau’s population continues to grow at soft rates. In the second quarter some 624,000 people were living here, 1.5 percent more than in the first quarter (615,000) and 5.5 percent more than a year before. Live births increased 1.8 percent in the last quarter, while the mortality rate declined 13.8 percent. With a growth of 6.6 percent quarter-on-quarter, non-resident workers continue to outpace the overall population, increasing fourfold.

In the first half of the year, 594 illegal Chinese immigrants were repatriated from Macau, the statistics office announced yesterday.

Compared to the same quarter last year, deportations decreased by 3.1 percent. More than half of repatriations (305) happened in the second quarter. The majority of illegals from the mainland were individuals aged between 30 and 39 years old haling from Guangdong Province.

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August 12, 2014

Greater China

Ningxia sells 5, 7 and 10-year municipal bonds China’s Ningxia Hui Autonomous Region government auctioned a total of 5.5 billion yuan (US$900 million) of five-, seven- and 10-year bonds at yields of 3.98, 4.17 and 4.26 percent, respectively, traders said yesterday. It is the fifth time this year that a Chinese local government has issued bonds directly, without central government finance ministry acting as a proxy. China announced in May that it would allow local governments to issue U.S.-style municipal bonds for the first time in an experiment to straighten out its messy state budget, and start the clean-up of its massive local government debt problem.

CPC promotes denouncing excessive spending As the traditional Mid-Autumn festival nears, the Communist Party of China (CPC)’s top discipline agency is calling on the public to report incidents of officials lavishly spending during the holiday. The CPC Central Commission for Discipline Inspection (CCDI) opened a special column on its website to invite the public to submit tip-offs of excessive spending by officials during the upcoming festival. Misconduct could include using public funds to buy moon cakes and gift cards, a statement on the CCDI website said. Violators would be named and shamed in a weekly report on the website, they said.

China eyes villages in property registration Chinese authorities issued a notice to step up registration of rural land use rights and property above the land, along with such efforts in cities. This is the first joint notice ever issued by five departments to stress coordinated moves for property registration in both cites and villages, as the two have been divided in various administrative measures. The five departments are the Ministry of Land and Resources, the Ministry of Finance, the Ministry of Housing and Urban-Rural Development, the Ministry of Agriculture and the State Forestry Administration.

Property tax reforms progress amid slowdown China launched property taxes in Shanghai and Chongqing on a trial basis in 2011 to tighten its property market control

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he cooling of China’s property market is likely to encourage authorities to speed up property tax reforms, which many believe will play a key role in putting the sector back on track.

A legislation plan to establish a

property sector taxation system will be submitted to the Standing Committee of the National People’s Congress, China’s top legislature, later this year, Jia Kang, director of the Research Institute for Fiscal Science under China’s Ministry of Finance, said at

Hong Kong’s economic growth slows Retail sales in Hong Kong have fallen for five straight months through June Jill Mao

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ong Kong’s economic growth slowed in the second quarter as tourist spending on jewellery and watches plunged, underlining the city’s reliance on Chinese visitors.

Expansion from a year ago was weaker than in the first three months, with a bigger slowdown seen in growth from the previous quarter, Hong Kong Financial Secretary John Tsang wrote

yesterday on his government blog.

He didn’t provide numbers, which will be released August 15.

Retail sales in Hong Kong have fallen for five straight months through June, as China’s economic expansion moderated and the country’s anticorruption campaign trimmed visitors’ spending on luxury items.

Tsang, who in February said the economy may grow by 3 percent to

The pattern of visitors’ consumption changed and average spending dropped significantly in the second quarter

Taiwan economic chief’s resignation accepted Taiwan’s administrative chief Jiang Yihuah accepted the resignation of senior economic official Chang Chia-juch, who insisted on quitting due to the island’s deteriorating political situation.

Jiang had tried to dissuade Chang, who headed Taiwan’s economic affairs, from resigning, but failed as the latter was very determined, according to Sun Lih-chyun, spokesperson of the island’s administrative authority. Taiwan leader Ma Ying-jeou expressed regret over Chang’s resignation through a spokesperson but said he respected the decision. He also acknowledged Chang’s contribution to reforms and economic progress in Taiwan.

a forum on Friday.

Given the progress, the country is likely to complete the legislation process for the taxation system by the end of 2016, and related taxes will be implemented in 2017, Jia said.

The absence of such a system has

John Tsang, Hong Kong Financial Secretary

Jewellery sales evolution plays an important part in Hong Kong’s slower growth

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August 12, 2014

Greater China

It will not be long before the property tax spreads over the country. The tax itself is not a problem, but it will make housing less reliable as an investment choice Zhao Zhengguo, property investor

enabled many Chinese to capitalize on the country’s over-heated property market, making it a major source of public complaints over recent years.

Believing that there is not much room for a sharp appreciation amid the current market downturn, Zhao Zhengguo (not his real name) has this year sold two of several apartments he owned in Beijing in order to secure cash.

“It will not be long before the property tax spreads over the country.

The tax itself is not a problem, but it will make housing less reliable as an investment choice,” said Zhao, who rose from a wage earner to a billionaire thanks to his housing investment.

China launched property taxes in Shanghai and Chongqing on a trial

4 percent this year, reiterated earlier comments that he will cut the forecast.

“The pattern of visitors’ consumption changed and average spending dropped significantly in the second quarter,” Tsang wrote. The unemployment rate has also increased, he said.

Hong Kong’s economy probably grew 2.4 percent in the April-June period from a year earlier, based on the median estimate of 14 analysts surveyed by Bloomberg News, after the first quarter’s 2.5 percent pace.

Expansion in the second quarter from the January-March period was projected to pick up to 0.4 percent from 0.2 percent, based on the median estimate of eight economists.

Retail sales in June fell 6.9 percent to HK$37.1 billion (US$4.8 billion) from a year ago, with spending on jewellery and watches down 28.2 percent, the government said July 31.

LVMH Sales LVMH Moet Hennessy Louis Vuitton SA, the world’s largest luxury-goods company, said last month that business in the city has slowed markedly. Part of the slowdown was linked to “political unrest” in the city, the company said.

Hong Kong Chief Executive Leung Chun-ying in May said he’s considering limiting tourist arrivals as an influx of Chinese visitors stoke discontent. The city has also been divided over electoral reforms needed to pick its next leader, with some activists and lawmakers threatening to organize a mass sit-in in the financial district.

Tsang said he’s concerned that with the economy slowing, a lack of political stability may lead to a “perfect financial storm.”

Tsang said he will give the new growth forecast on August 15 when the city reports the gross domestic product data.

Bloomberg News

basis in 2011 to tighten its property market control. It was expected that the trials would be expanded to cover more regions, but the expansion was postponed due to the lack of legal basis.

However, in a reform plan approved by the Third Plenary Session of the 18th Communist Party of China Central Committee last year, the country vowed to accelerate the legislation of taxes in the property sector.

This will involve a basket of tax reforms, including a real estate tax levied on homeowners and a land tax on property developers, said Zhuang Jian, a senior economist at the Asian Development Bank.

Unlike the private land ownership system practiced in western countries, individuals can only possess land use rights in China, where land is either state-owned or collectively-owned.

This has added to the difficulties for the legislation work, according to Zhuang.

With a real estate tax, a homeowner has to pay taxes in proportion to the monetary value of their housing at a certain tax rate each year. In China, taxes are currently imposed only when a housing transaction takes place, which makes it easier for speculation.

While hailing the role of the Shanghai and Chongqing trials in changing public expectations and increasing social consensus for property tax reforms, Jia said the trials will also provide valuable experience for the reforms.

Despite the trials, debates have been going on over whether the tax package can really help regulate the market. Some worry that it will become a new burden for the country’s already-suffering home-buyers.

Xinhua

New support for debt-laden railway sector The government will encourage railway firms to participate in building integrated transport hubs

C

hina will allow railway firms to generate more income from land development and from building new transport hubs, the government said on Monday, in the latest move to step up financing support for the debt-laden sector.

The railway sector is burdened by mounting debt due to state-led investments in the past, prompting the government to reform the financing model by attracting private investment.

Under guidance issued by the cabinet, the government will “support railway transport firms to revitalise the use of existing construction land through independent development, transfer, lease or other means”.

The government will encourage railway firms to participate in building integrated transport hubs that connect railway stations with public buses and taxis, according to a statement published on the central government’s website, www.gov.cn.

The move will help improve railway firms’ “fundraising ability and revenues”, it added.

In April, the government said it would create a fund worth 200 billion yuan to 300 billion yuan (US$32US$48 billion) each year, as part of

US$32-US$48 billion government yearly railway developing fund

policy measures to support the slowing economy.

That was part of the government’s “targeted” stimulus measures that included quickening construction of railways and public housing projects to support the economy.

China Railway Corp, the national railway operator, has said it would raise its annual investment by 20 billion yuan to 720 billion yuan in 2014 to increase the number of lines it plans to build.

China Railways Corp has inherited 2.84 trillion yuan worth of debt from its predecessor - the Ministry of Railways, much of it denominated in construction bonds.

Reuters

McDonald’s, Yum release supplier data The food scare involving Shanghai Husi Food is testing local consumers’ loyalty to foreign fast-food brands

F

ive fast food chains including McDonald’s and Yum Brands Inc have published details of their suppliers on their Chinese websites following a request from Shanghai authorities after a food safety scare.

Shanghai’s Municipal Food and Drug Administration said on Saturday it had asked the two chains, along with Burger King, Dicos and Carl’s Jr, to publish the usually confidential information as part of efforts government efforts to strengthen oversight of food suppliers.

The five firms were among a range of companies that used meat from Shanghai Husi Food, a unit of U.S.-based OSI Group LLC, which was alleged by a TV report to have improperly handled meat and used expired food. The Shanghai authority said the companies published the information on August 9.

Yum’s suppliers include subsidiaries of WH Group’s and China Yurun Food while McDonald’s milk suppliers include Beijing Sanyuan Foods Co Ltd and Kowloon Dairy.

A Shandong meat unit in which China’s state-backed COFCO Corp owns shares supplies both Yum and Burger King, the lists showed.

Benjamin Cavender, Shanghaibased analyst at China Market Research Group, said food chains are generally reluctant to publish supplier lists as they don’t want competitors to know where they source their materials.

A Chinese McDonalds branch

“In this case it’s probably smart for the companies to do this because they want to send a clear message that they are being transparent both to the government and to their consumers,” he said.

“But in reality for the situation to truly get better there’s going to have to be stricter oversight directly over the suppliers and that cannot just be coming from the brands, it also has to come as well from the government.”

The food scare involving Shanghai Husi Food is testing local consumers’ loyalty to foreign fastfood brands. Yum said earlier this month that the scare had caused “significant, negative” damage to sales at its KFC and Pizza Hut restaurants across the country while McDonald’s on Friday said the China food scandal had put its 2014 global sales forecast at risk.

Reuters

10

August 12, 2014

Greater China

Microsoft stuck in emerging markets As the industry shifts from desktop to mobile, the cloud and free or cheap software, China sums up both the old and new challenges Microsoft faces in making money in emerging markets

O

n a trip to Beijing a decade ago, Bill Gates was asked by a senior government official how much money Microsoft Corp made in China. The official asked the interpreter to double check Gates’ reply as he couldn’t believe the figure was so low.

It’s a problem that hasn’t gone away. Indeed, Microsoft’s current issues in China conceal a deeper problem for the U.S. software giant - despite the popularity of its Windows operating system and Office suite, few people in emerging markets are willing to pay for legitimate copies.

This not only costs Microsoft in lost revenue, but is also holding back the spread of its newest Windows 8 version - analysts say even buyers of pirate software prefer older versions.

According to StatCounter, a website that tracks what software is loaded on Internet-connected computers, more than 90 percent of PCs in China now the world’s biggest market - are running pre-8 versions of Windows.

Microsoft is trying to tackle this.

This year it’s offering Windows 8 at a discount to PC manufacturers who install its Bing search engine as the default. And it’s giving away versions of Windows 8 for phones and some tablets.

Core cost For sure, China is a major, and unique, headache for Microsoft. Many of the problems are tied to a broader push by the Chinese government to limit foreign firms’ dominance and encourage local technology firms to become viable competitors.

After years of healthy relations with Beijing, Microsoft last month was suddenly targeted by anti-monopoly

regulators who raided its China offices as part of a price-fixing investigation.

In 2011, then CEO Steve Ballmer reportedly told employees that, because of piracy, Microsoft earned less revenue in China than in the Netherlands - with 1 percent of its population - even though China bought as many computers as the United States.

According to the BSA anti-piracy lobby group that Microsoft cofounded, emerging markets account for 56 percent of all PCs in use, and 73 percent of software piracy. Of the US$77.8 billion revenue Microsoft generated in its 2013 financial year, China, Brazil and Russia each “exceeded” US$1 billion, according to a Microsoft presentation. For comparison, Apple Inc. generated US$27 billion in Greater China, which includes Hong Kong and Taiwan, in its 2013 financial year.

Naked PCs Part of the intractability of piracy in emerging markets is that each part of the chain poses a problem.

For PC makers working on waferthin margins the operating system is one of the costliest parts of the machine, while mom-and-pop shops which form the bulk of retailers in such markets can’t afford to turn away price-sensitive customers who are comfortable buying pirate software.

The problem, therefore, starts with computer makers, Singh says, since “convincing them to ship every PC with Windows pre-installed is difficult.” Margins on PCs for a company like Lenovo Group Ltd are “near single digits,” says Bryan Wang, an analyst at Gartner.

The result is that up to 60 percent of PCs shipped in the emerging markets of Asia, says IDC research manager Handoko Andi, have no Windows operating system pre-installed - socalled ‘naked PCs’, which usually instead carry some free, open source operating system like Linux. That compares with about 25 percent in the region’s developed markets like Japan and Australia.

“Mobile also-ran” Microsoft’s new approach is to push the price of Windows low enough to make it worth a PC maker’s while.

The cost of a Windows licence has fallen to below $50 from as high as $150, said IDC’s Andi, taking Microsoft down to “levels where they’ve never competed before.”

Microsoft’s Pickup said it was too early to gauge take-up.

In any case, making Windows cheaper for PCs is just part of a broader response to deeper shifts in the industry. The rise of mobile, tablets, cloud-based services and free operating systems has marginalised Microsoft and challenged its business model.

While Windows is on more than 90 percent of traditional computers - according to data compiled by analyst Ben Bajarin - that figure drops to below 14 percent once mobile devices such as phones and tablets are factored in, estimates Gartner.

More than half those devices run Google’s Android mobile OS, which is effectively free to handset and tablet makers. Apple, a key player in all types of devices, gives away upgrades to its operating systems for free.

Pickup says Microsoft has listened to phone makers’ complaints and

The great danger for the company is that what has happened to them in emerging markets - basically no revenue from new PCs because of piracy - is not far off what’s happening everywhere Ben Thompson, Taiwan-based blog author

relaxed what hardware they need to install the mobile version of Windows.

It has also made the operating system free on any mobile device of 9 inches or less.

These are significant concessions, analysts say, but Microsoft will have to learn to be a bit player, where its software and services run on other people’s operating systems.

Reuters

11

August 12, 2014

Asia

Jaitley backs Rajan’s inflation fight Rajan leaves interest rates unchanged at 8 percent for a third straight meeting while flagging risks to his goal

I

ndian Finance Minister Arun Jaitley backed the central bank’s moves to keep interest rates elevated to fight the highest inflation among Asia’s biggest economies as a weak monsoon threatens to damp growth.

“This is an issue which the Reserve Bank decides, and I am sure they factor in various circumstances,” Jaitley told reporters in New Delhi yesterday when asked if he agreed with central bank Governor Raghuram Rajan’s monetary policy measures announced on August 5. It was the first formal joint media briefing by Rajan and Jaitley since Prime Minister Narendra Modi in May won India’s biggest electoral mandate in 30 years.

We are on course to meet those targets and, of course, if news comes on either side, we can change what the policy is. At this point, the uncertainty is two ways Raghuram Rajan, RBI governor

Rajan left interest rates unchanged at 8 percent for a third straight meeting while flagging risks to his goal of lowering consumer price inflation to 6 percent by January 2016. Elevated borrowing costs risk hurting Asia’s third-biggest economy as Modi banks on a jump in tax revenues to narrow the budget deficit to a seven-year-low.

Raghuram Rajan, RBI governor

Rajan, whose emphasis on fighting inflation spurred tension with former Finance Minister Palaniappan Chidambaram, plans to slow consumer-price inflation to below 8 percent in January 2015 and 6 percent in the next 12 months. The index has dropped for two straight months to 7.3 percent in June, the slowest pace since its creation in 2012.

“We are on course to meet those targets and, of course, if news comes on either side, we can change what the policy is,” Rajan told reporters while addressing the same press conference.

“At this point, the uncertainty is two ways.”

Monsoon risk In his monetary policy statement, Rajan said upside risks to inflation include the pass-through from

government price support for crops, uncertainty over the monsoon and higher oil prices from geopolitical tension. Price pressures had eased due to both base effects and a steady deceleration in CPI excluding food and fuel, he added.

Monsoon rains, which account for more than 70 percent of annual rainfall and water about half of India’s farms, is the main threat to inflation.

Rainfall was 17 percent below average as of August 8, according to the nation’s weather office, putting India on pace for its driest year since 2009.

A crop failure can spur consumer prices in the world’s second-most populous nation, where food accounts for about 50 percent of the CPI basket.

The government has sold 25 percent of its rice and wheat stocks in the domestic market since June, ordered a crackdown on hoarders and set

minimum export prices on onions and potatoes to discourage overseas sales.

Fiscal deficit The central bank is in discussion with the government to approve a monetary policy framework that will adopt a formal CPI target, Rajan said. A Reserve Bank of India panel proposed adopting a 4 percent CPI target by 2016 plus or minus two percentage points as part of an overhaul that would also establish an independent monetary policy committee.

“Just now, we have started preliminary discussion but it will be discussed through the course of the year,” Rajan told reporters. “The framework will be developed by the finance ministry.”

Bloomberg News

LG targets doubling vehicle display Electric components, including screens for entertainment and dashboard displays, are playing a larger role in cars

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G Display Co., the world’s second-largest flat panel maker, is aiming to almost double its market share supplying screens for vehicles as automotive interiors become more like living rooms.

The supplier of screens for Apple Inc. iPhones is testing displays using organic lightemitting diode technology for German carmakers, James Shin, head of LG Display’s Automotive Business, said in an interview. The Seoulbased company wants to boost its share of the auto screen market to 30 percent by 2018 from 16 percent now, according to Shin.

Electric components, including screens for entertainment and dashboard displays, are playing a larger role in cars and are expected to account for about half the cost of a vehicle’s parts within two years from 30 percent now, according to Shin. LG Display, which competes with Japan Display Inc. and Sharp Corp. had 500 billion won (US$485 million) in auto panel revenue last year and aims to quadruple sales by 2018, Shin said.

“People are now watching TVs at home and using smartphones while moving, but in the near future they will be able to work and

Electronic flat panels in a Tesla model

watch movies in the car,” Shin said during the August 8 interview. “Cars will eventually become another

cultural and living space.”

Shin declined to identify which German automakers LG Display is working with.

While the company currently focuses on screens used for navigation and parts of the control displays, there is scope to use them more widely within the vehicle such as for the entire dashboard, according to Shin.

“What carmakers are dreaming of eventually is vehicles that are entirely covered in displays,” Shin said.

LG Display last month posted net income of 258.3 billion won in the quarter ended June on sales of 5.98 trillion won.

Samsung Electronics Co. is the world’s biggest maker of flat panels.

Bloomberg News

12

August 12, 2014

Asia Philippine banks’ capital adequacy ratio dips The buffer of banks against losses declined at the end of March following the implementation of stricter regulations over debt securities qualified as capital that took effect at the start of 2014, the central bank yesterday. Industry capitalization levels, however, remained above the 10 percent minimum prescribed by the Philippine central bank. Data from the central bank showed that the average capital adequacy ratio (CAR) of universal and commercial banks stood at 15. 45 percent on solo basis and at 16.35 percent on consolidated basis in March.

S.Korea c.bank seen cutting rates The Bank of Korea is expected to cut interest rates for the first time in over a year this week in what would mark an about face from its earlier hawkish policy stance - a shift that many bank watchers attribute to pressure from the government. In recent weeks, South Korea’s new finance minister, Choi Kyung-hwan, has taken measures to jumpstart faltering domestic demand - rolling out stimulus spending, easing mortgage curbs, proposing a tax on excess corporate cash and putting overt pressure on the central bank to lower interest rates.

Work suspended on Libyan power plant South Korea groups Hyundai and Doosan have suspended construction of a 1,400 megawatt Libyan power plant in the town of Sirte because of security concerns, the plant managing director and a town council spokesman said. Libya is facing the worst violence since the fall of former ruler Muammar Gaddafi three years ago. Rival militias have been fighting for control of its two biggest cities for more than a month, turning the capital Tripoli and the eastern city of Benghazi into battlegrounds with more than 200 people killed.

New Zealand shoppers stay flat Spending by New Zealand shoppers with the credit and debit cards was flat in July for the second month running, the government statistics agency announced yesterday. “Spending rose in three retail industries and fell in three during July,” Statistics New Zealand business indicators manager Neil Kelly said in a statement. Core retail spending, excluding the vehiclerelated industries, rose 0.5 percent in July, while the total value of electronic card spending, including the services and other non-retail industries, fell by 0.1 percent.

India to open property trusts The introduction of real-estate investment trusts will provide a new Bhuma Shrivastava and Santanu Chakraborty

I

ndia approved the setting up and listing of real-estate investment trusts as the nation seeks to unlock a US$20 billion market.

The trusts, or REITs, will have to own assets worth at least 5 billion rupees (US$82 million), the Securities and Exchange Board of India said in New Delhi yesterday. Investors must put in a minimum 200,000 rupees. Final notifications would be issued soon to make the new rules for REITs effective in a month or two, Press Trust of India reported, citing U.K. Sinha, chairman of the capital-markets regulator.

The introduction of REITs will provide a new source of funding for cash-strapped developers that are struggling to reduce debt amid one of the highest interest rates in Asia and economic growth near the lowest in a decade. The products will give investors the ability to participate in the country’s property market without investing directly.

“The sector has been in all sorts of trouble primarily due to high leverage for most of the developers,” Pramod Gubbi, director for institutional sales at Ambit Capital Pvt., said in an interview to Bloomberg TV India.

A new housing zone in Rajarhat, India

“What REIT does is to open up another avenue for funding and this should bring down their cost. More money in the hands of the developers could see more projects taking off.”

DLF Ltd., India’s largest developer by value with about 28 million square feet (2.6 million square meters) of operational rental assets, could be a “big beneficiary,” brokerage Emkay

Global Financial Services Ltd. said in an August 1 report.

Combined debt Other gainers include Prestige Estates Projects Ltd., a Bengalurubased developer with 8 million square feet, and Phoenix Mills Ltd., a mall operator that owns 6 million square

BC Iron to buy rival to consolidate portfolio Since when, demand growth has slowed in China, and miners are offering discounts to maintain sales and pondering ways to reduce operating costs

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ustralia’s BC Iron Ltd yesterday launched a friendly cash and share offer worth around A$256 million (US$237 million) for smaller rival Iron Ore Holdings Ltd aimed at beefing up production in Australia’s premier iron ore region.

With lower prices for the steel making ingredient, producers have been under pressure to improve efficiency.

BC Iron said it would offer 0.44 of a share and A$0.10 in cash per IOH share, valuing Iron Ore Holdings stock at A$1.59 - a hefty 79 percent premium to IOH’s share price over the past 60 days.

“We believe that, combined with our existing business, IOH’s portfolio of long-life iron ore assets in the world’s best iron ore address, presents us with an excellent opportunity,” said BC Iron Managing Director Morgan Ball.

IOH ‘s board is unanimously recommending shareholders accept BC Iron’s offer in the absence of a

KEY POINTS BCI launches friendly US$237 mln offer for Iron Ore Holdings Cash and share offer a hefty 79 pct premium to IOH stock price IOH board unanimously recommends shareholders accept

superior proposal.

BC Iron and IOH are relatively small-scale producers in the Australian Pilbara iron ore belt, which is dominated by Rio Tinto, BHP Billiton and Fortescue Metals

Group, who in total will dig more than a half-billion tonnes of iron ore this year.

“This will give both BCI and IOH better economies of scale in the Pilbara and open up the potential for greater synergies for the two companies, particularly given where the assets are located in the Pilbara,” said Morgans Stockbrokers mining analyst James Wilson.

BC Iron and IOH both rode the iron ore boom in the latter years of the last decade, when ore sold for close to US$200 a tonne on the back of strong demand from Chinese steel mills.

Since then demand growth has slowed in China, driving iron ore below US$100 a tonne and leading miners to offer discounts to maintain sales and ponder ways to reduce operating costs - namely by mining more ore and optimising limited infrastructure such as rail lines and ports in the remote Pilbara.

Reuters

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August 12, 2014

Asia

market

BOJ warns of sluggish export recovery

source of funding for cash-strapped developers BOJ maintains its view that the economy continues to recover moderately but revises down its assessment on exports Leika Kihara

US$20 billion by 2020, according to an estimate by property-broker Cushman & Wakefield, of which as much as US$12 billion could be raised in the first three to five years.

Top markets

feet, according to HDFC Securities Ltd. The combined debt of India’s six largest developers climbed to a record 394 billion rupees in the 12 months through March 31, more than double the 158.8 billion rupees in 2007, according to data compiled by broker IIFL Ltd. REIT-funded assets may reach

“It’ll also provide liquidity to investors as these trusts will be listed and traded on stock exchanges,” Neeraj Bansal, partner and head of the real estate and construction practice at KPMG India, said in an e-mail.

REITs, pioneered in the U.S. in the 1960s, are traded publicly and pool investor money to buy real estate such as shopping malls, office buildings and rental housing. India’s REIT market has the potential to grow to rank among the top five markets in Asia by market capitalization, according to Cushman & Wakefield.

While the market regulator had released the first draft of guidelines for REITs in 2008, they didn’t get final approval because of a lack of clarity on taxes and because the global financial crisis hurt the investment climate, according to a report by Knight Frank LLP in June.

Bloomberg News

S

luggish Asian demand and a shift in Japanese production overseas will continue to weigh on exports, the Bank of Japan said, underscoring its waning conviction that overseas shipments will soon pick up and support a fragile economic recovery.

The central bank also warned that while factory output is likely to rise moderately, production of automobiles and personal computers may remain weak due to soft demand.

“China’s economy is set to sustain stable growth but excess slack in its manufacturing sector, which has a big effect on Japan’s economy, remains a problem,” the BOJ said in a monthly economic report for August released on Monday.

“Some other emerging nations ... may also see growth lacking momentum for a prolonged period,” while a continued shift in Japanese production overseas will also cap export growth for the time being, it said.

The report said exports will likely “head for a moderate recovery,” offering a slightly gloomier view on the outlook than last month, when it said

more clearly that overseas shipments will “recovery moderately.”

The BOJ issues a summary of its economic assessment on the day of its policy-setting meeting, which was on Friday for this month, and releases a more thorough analysis in a monthly report published the following market day.

On Friday, the BOJ maintained its view that the economy continues to recover moderately but revised down its assessment on exports to say they were “weakening.” The summary out that day did not offer a detailed assessment on the outlook for exports, nor an explanation on why underlying exports have been weak.

On household spending, Monday’s report said it has held firm as the effect of a sales tax hike in April began to subside. But the BOJ acknowledged that some sectors were suffering from the tax hike pain more than others.

New car orders and sales of consumer electronics have yet to rebound, while spending on food and sundries were recovering, the report said.

Reuters

Wine war in Australia Treasury winemaker acquisition awakes rivalry between market’s big shots

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rivate equity giant TPG Capital Management LP made a US$3.1 billion approach for Australia’s Treasury Wine Estates Ltd, a source said, setting the scene for a possible bid war for the world’s No.2 winemaker with rival KKR & Co. A week after KKR and Rhone Capital LLC proposed a A$5.20 a share offer for Treasury, the owner of the Penfolds, Lindemans and Wolf Blass brands said yesterday it received a second identical unsolicited approach from a global private equity firm which requested anonymity.

The buyout firm behind the second proposal was TPG, said the source, who had direct knowledge of the matter but could not be identified as the discussions were confidential. Treasury declined to comment further on the second bidder’s identity.

TPG has already started due diligence on Treasury after reaching a decision to make an approach over the weekend, the source added.

Treasury has been viewed as ripe for a takeover since late 2013 when it warned of massive write-downs, citing problems in U.S. operations and sliding China sales.

In a statement yesterday, Treasury said it will offer the second suitor time to

Penfolds cellar in Adelaide, Australia

undertake due diligence exercises to progress with its bid, which values the company at A$3.377 billion (US$3.13 billion).

A Treasury spokesman told Reuters the second suitor made its approach over the weekend and asked not to be named.

Goldman Sachs, which is advising Treasury, declined to comment.

Last week, KKR and

Rhone offered the same amount for Melbourne-based Treasury, spun off from brewer Foster’s in 2011, after the target rejected a A$4.70 per share bid from KKR earlier this year.

Treasury said last week it would allow KKR and Rhone access to its books for due diligence following their higher offer. That effectively ended its previous stance that its best option for the future

was an efficiency drive under new chief executive officer Mike Clarke.

Investors in Sydney had previously speculated on whether leading trade players, like China’s Bright Food Group Co Ltd, France’s Pernod Ricard and the world’s biggest wine maker, U.S.-based Constellation Brands Inc., could be potential buyers for Treasury.

While the two proposals are identical, Treasury is allowing both rivals to do due diligence simultaneously in the hope of speeding up the process. CEO Clarke is keen to have the matter resolved quickly so it isn’t a distraction, the spokesman said.

The company is scheduled to release full-year results on August 21.

Reuters

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August 12, 2014

International Bank of England nearer rate rise A year after the Bank of England launched forward guidance on monetary policy, Governor Mark Carney faces the opposite challenge next week - to say as little as possible about exactly when interest rates will start rising. Carney is due to present the British central bank’s updated economic forecasts at 0930 GMT on Wednesday. This time last year, the BoE committed to keep interest rates on hold for the foreseeable future. But a more robust recovery than expected now means a rate rise is on the cards for either late this year or early 2015.

Stalled revenues rusting up Europe’s profits European companies have aggressively cut costs and cleaned up balance sheets in recent years, helping them boost profits

Foodpanda gets US$60 million financing The online take-away food delivery company active in dozens of emerging markets, said it had raised US$60 million in new financing from a group of investors including existing backer Rocket Internet AG. Foodpanda, one of a stable of ecommerce and financial services ventures created by Berlinbased Rocket Internet, is in a global race to stake out the highly local food take-away market, an online segment that has featured two high-profile share listings this year and big investments

by U.S. and European venture firms.

Amazon to fight Disney as well The company has halted pre-orders of some Disney movies, the Wall Street Journal reported, in what appears to be another contract dispute after the online retailer began a protracted spat with publisher Hachette Book Group this year. Physical copies of titles such as “Maleficent” and “Captain America: The Winter Soldier” were unavailable for order on Amazon.com. Digital copies of some of the movies in question were still available for pre-order. Amazon. com did not immediately respond to a request seeking comment on the report.

A Disney spokesman had no comment.

South African central bank to oversee rescue South Africa’s central bank stepped in to rescue unsecured lender African Bank Investments, placing it under external supervision and announcing plans for a US$940 million capital injection underwritten by local lenders.

The rescue, which will see the South African Reserve Bank acquire the lender’s 17-billion-rand (US$1.6-billion) bad loan portfolio, follows an investor exodus from African Bank earlier this week after it warned of a full-year loss and said it needed a massive capital raising. Abil, as the bank is widely known, has been crushed by waves of bad loans.

Canada-US pipeline may fuel pollution A proposed pipeline from Canada to the United States may result in much higher greenhouse gas emissions than previously calculated as it could fuel greater oil consumption through higher production and lower prices, a study said. Researchers from the Stockholm Environment Institute used a mathematical model to estimate the Keystone XL pipeline’s potential for atmospheric pollution. Unlike calculations by the US State Department, they took into account a possible consumption rise in line with production, the pair wrote in the journal Nature Climate Change.

Automotive parts supplier and military technology group Rheinmetall’s company headquarters in Duesseldorf. The company’s results have been deeply affected by the relationships between the EU and Russia.

S

igns that European companies are failing to grow revenues in a frustratingly slow economic recovery are muting investors’ relief that cost-cutting and cheap debt have at last delivered a rebound in profits.

Although Europe’s second-quarter results season has produced evidence that profits are recovering, lacklustre revenue growth has led some analysts to trim their earnings forecasts further, their doubts fed by data showing Italy has fallen back into recession and Germany’s powerhouse economy is stagnating.

Fighting in Ukraine and sanctions against Russia, a major energy supplier to Europe, have also muddied company forecasts, with multinationals including BP, Adidas and Rheinmetall warning of a hit to business.

Such uncertainty is likely to keep weighing on the stock market as investors balance fears of a severe correction against attractively-valued opportunities.

European companies have aggressively cut costs and cleaned up

balance sheets in recent years, helping them boost profits.

Firms have also enjoyed rock-bottom financing costs, locking in low rates in debt markets. Real-estate group Unibail-Rodamco and French utility Suez Environnement have both issued zero-coupon convertible bonds this year.

Overall, STOXX 600 firms have posted a 10 percent rise in secondquarter profits, rebounding after two years of contraction, data from Thomson Reuters Datastream shows.

In 2012 and 2013, investors had initially bet on a 13 percent rise in European earnings, but profits fell in both years.

While margins are improving this year and earnings are finally rebounding, revenue growth has steadily declined, from a rise of nearly 10 percent in 2011 to a drop of 1.5 percent during this year’s second quarter.

Europe’s earnings growth in the quarter has been stronger than that in the United States, where S&P 500 companies posted a 8.7 percent rise in profits, but on the revenue front, the

contrast with Europe is striking: U.S. companies have seen top lines rise nearly 5 percent.

This reflects deflationary pressures and lack of economic momentum in the euro zone, analysts and fund managers said.

“All leading indicators have turned lower,” said Claudia Panseri, global equity strategist at Societe Generale Private Banking, which has 116 billion euros (US$155 billion) of assets under management.

“They were recovering until the start of the year but in the past few months they flat lined and now they’re falling.

That’s cutting my top line estimates.

With prices also falling, I see no growth.”

ECB moves Investors are paying close attention to the European Central Bank’s response to the stains on the euro zone economy.

ECB President Mario Draghi warned on Thursday that the bloc was more exposed than other regions to conflict in Ukraine.

Acknowledging the economic recovery was “weak, fragile and uneven”, Draghi gave an important signal that he would be ready to go further by printing money to buy assets such as government bonds, known as quantitative easing or QE. For now, analysts’ earnings downgrades outpace upgrades.

Without forecast upgrades from analysts, Europe’s stock rally could be at risk given the region’s high valuation ratios, said Francois Chevallier, strategist at Banque Leonardo.

The rally that started in mid-2012 has propelled stocks to price-toearnings levels not seen since 2005, with the STOXX 600 trading at 14 times expected profits.

Reuters

Fed’s Fischer calls recovery disappointing Lower productivity growth and lower labour force participation rates are now permanent features of the U.S. economy Howard Schneider

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he U.S. and global recoveries have been “disappointing” so far and may point to a permanent downshift in economic potential, U.S. Federal Reserve Vice Chair Stanley Fischer said yesterday.

In an overview of the years since the 2007-2009 financial crisis and recession, Fischer said a slowing of U.S. productivity, declining labour force participation and other factors may have scarred the United States’ ability to generate economic growth.

The same thing may be happening for different reasons in Europe, major emerging economies like China, and elsewhere, he said, forcing central bankers to recast their understanding of inflation, employment and growth in general.

“The global recovery has been disappointing,” Fischer said in prepared remarks for a speech to an economic conference in Sweden.

Long-run annual growth in the United States may now be perhaps as low as 2 percent, a full percentage point below the estimate of Fed policymakers as recently as 2009, he said.

Some of that may represent temporary factors that will change if, for example, the U.S. housing market improves.

“But it is also possible that the underperformance reflects a more structural, longer-term shift in the global economy,” Fischer said.

Fischer, the influential new No. 2 official at the U.S. central bank, outlined the challenges

facing monetary policymakers as they try to navigate the end of the unconventional methods used to support the economy in recent years.

It remains uncertain, he said, whether lower productivity growth and lower labour force participation rates are now permanent features of the U.S. economy - complicating estimates of growth, inflation, and the amount of slack in labour and product markets.

The more than US$4 trillion in assets now held on the Fed’s balance sheet, he said, will also make it more difficult to manage short-term interest rates. He added that he believes the Fed has developed a suite of tools that will be successful in maintaining a target rate.

Reuters

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August 12, 2014

Opinion Business

wires

Leading reports from Asia’s best business newspapers

THE JAKARTA POST President-elect Joko “Jokowi” Widodo has put acceleration of seaport development on the top of his administration’s agenda, with the maritime sector as the focus and foundation of future development in Indonesia. The move is aimed at reducing the country’s logistics costs. Senior Indonesian Democratic Party of Struggle (PDI-P) lawmaker Hendrawan Supratikno, a member of Jokowi’s economic team, says a total of ten commercial seaports are slated to be built or revitalized in the next five years. Hendrawan said Jokowi’s administration would also continue the current administration’s plan to construct new seaports.

The global economy’s groundhog day Ashoka Mody

Visiting Professor of International Economic Policy at the Woodrow Wilson School of Public and International Affairs at Princeton University

Bank of England

MYANMAR TIMES Customs investigators uncovered more than 50 violations of import-export licence regulations at the country’s major air and sea ports in July. Officials of the Illegal Trade Prevention and Supervision Control Committee said the cases involved the importation of unlicensed goods, or goods not covered by an existing licence. The searches were carried out at Myanmar Industrial Port, Hteedan and Asia World ports, and included eight cases at Yangon International Airport.

More than 80 percent of the country’s trade is conducted through these ports.

THE STAR Petroliam Nasional Bhd (Petronas) is moving on a steady course forward for its colossal project, the Pengerang Integrated Complex (PIC) in Johor, with the recent award of 11 major contracts. The contracts were part of PIC’s critical milestone requirements, demonstrating Petronas’ commitment to the successful development of PIC, the company said in a statement. The PIC development comprises of the Refinery and Petrochemical Integrated Development (Rapid) complex and its associated facilities including the Pengerang cogeneration plant, re-gasification terminal 2, air separation unit, raw water supply project as well as crude and product tanks.

THE PHNOM PENH POST The Tourism Ministry will announce a new “Green Hotel” standard later this month in an effort to make the industry more environmentally friendly, senior officials say. Tourism Minister Thong Khon said on Friday that while it will not be immediately compulsory for all hotel venues to adopt the standard, the government is working towards installing an industry-wide benchmark for energy and water efficiency, recycling and minimum green space. Cambodian Hotel Association president Luu called on all hotels to adhere to the Green Hotel initiative.

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EW DELHI – In the movie “Groundhog Day,” a television weatherman, played by Bill Murray, awakes every morning at 6:00 to relive the same day. A similar sense of déjà vu has pervaded economic forecasting since the global economic crisis began a halfdecade ago. Yet policymakers remain convinced that the economic-growth model that prevailed during the pre-crisis years is still their best guide, at least in the near future.

Consider the mid-year update of the International Monetary Fund’s World Economic Outlook, which has told the same story every year since 2011: “Oops! The world economy did not perform as well as we expected.” The reports go on to blame unanticipated factors – such as the Tōhoku earthquake and tsunami in Japan, uncertainty about America’s exit from expansionary monetary policy, a “one-time” re-pricing of risk, and severe weather in the United States – for the inaccuracies.

Emphasizing the temporary nature of these factors, the reports insist that, though world GDP growth amounted to roughly 3% during the first half of the year, it will pick up in the second half. Driven by this new momentum, growth will finally reach the long-elusive 4% rate next year. When it does not, the IMF publishes another rendition of the same claims.

This serial misjudgement highlights the need to think differently.

Perhaps the focus on the disruptions caused by the global financial crisis is obscuring a natural shift in developed economies to a

lower gear following years of pumped-up growth. Moreover, though emerging economies are also experiencing acute growth slowdowns, their share of the global economic pie will continue to grow. In short, tougher economic competition, slower growth, and low inflation may be here to stay.

In the United States, conditions for an economic take-off ostensibly have been present for the last year. Household debt and unemployment have fallen; corporate profits and cash reserves are large; the stock market is valuing the future generously; banks are ready to lend; and fiscal consolidation is no longer hampering demand.

Yet, contrary to expectations, growth in household consumption has remained lacklustre, and businesses have not ramped up investment. In the first two quarters of this year, America’s GDP barely exceeded the level it attained at the end of last year, and much of the increase was driven by goods that have been produced but not yet sold.

The prevailing explanation – a brutally cold winter – is wearing so thin that everyone should be able to see through it.

American consumers remain scarred by the crisis. But there is another problem: in their homes and workplaces, the sense of excitement about the future is missing, despite all the gee-whiz gadgetry that now surrounds them. And while the US Federal Reserve’s policy of quantitative easing has propped up businesses, it is no substitute for the enthusiasm and anticipation needed to propel investment.

Even the reduced global forecast of 3.4% GDP growth for this year is likely to prove excessively optimistic. Before the crisis, world trade grew at 6-8% annually – well faster than GDP. But, so far this year, trade growth remains stuck at about 3%.

Failure to recognize the fundamental slowdown that is occurring is reinforcing the expectation that old models can revive growth – an approach that will only create new fragilities. Atif Mian and Amir Sufi warn that US consumers’ purchases of cars and other durables have been bolstered by the same unsustainable “subprime” lending practices that were used to finance home purchases before the crisis.

Similarly, Mark Carney, Governor of the Bank of England, envisages a Britain with a Cyprus-sized financial sector amounting to 900% of GDP. And economist Michael Pettis cautions that China’s reliance on policy stimulus to kick-start the economy whenever it stalls will merely cause macroeconomic vulnerabilities to accumulate.

The two tectonic shifts in the global economy – slower GDP growth and increased emergingmarket competition – have created a fault line that runs through Europe. The technical lead held

by Europe’s traditional trading economies is being eroded, while wage competition is encouraging fears of deflation. And, with the eurozone’s most debt-burdened economies bearing the brunt of these shifts, Italy is sitting directly atop the fault.

The European Central Bank, however, is unable to revive eurozone growth on its own.

Given the resulting drag on the

Though emerging economies are also experiencing acute growth slowdowns, their share of the global economic pie will continue to grow. In short, tougher economic competition, slower growth, and low inflation may be here to stay

global economy – and especially on world trade – it is in the world’s interest to engineer a coordinated depreciation of the euro. At the same time, a globally coordinated investment stimulus is needed to create new opportunities for growth.

Just as Bill Murray’s character could not escape Groundhog Day without radically changing his life, we cannot expect different economic outcomes without fundamentally different growth models.

The Project Syndicate 2014

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August 12, 2014

Closing China subsidizes meals for rural students

Innovation societies gain popularity

While many Chinese parents in cities worry about their children’s growing girth, the government is taking steps to address the opposite: malnourished children in the countryside. The Ministry of Finance (MOF) said yesterday it has allocated another 16.2 billion yuan (US$2.63 billion) in special funds to support a national plan to improve nutrition for rural students this year. This year’s state subsidies to primary and middle school students, 3.2 percent more than a year ago, will go to schools in 699 impoverished counties in 22 provincial-level areas, mainly in central and western China, according to the MOF.

An increasing number of China’s vocational school students are joining student societies focused on innovation in hopes fostering fresh ideas, a recent survey by China Youth Daily found. According to the survey, nearly 82 percent of vocational college students interviewed said there were student societies dedicated to innovation at their schools.

More than 86 percent of respondents said they had participated in scientific research or innovation-oriented activities at school. Innovation societies are student organizations that are funded by schools to encourage students to take part in scientific research and innovation activities.

Over 150 Chinese “economic fugitives” in the U.S. Chinese President Xi Jinping has made fighting pervasive graft a central theme and has warned, like others before him, that corruption threatens the Communist Party’s survival Sui-Lee Wee

A souvenirs vendor with latest Chinese president’s image. Xi Jingping (in the middle) is embroiled in an anti-graft struggle

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ore than 150 economic fugitives, many of whom are corrupt officials or suspected of graft in China, are at large in the United States, Chinese state media said yesterday, citing a senior official from the public security ministry.

The United States “has become the

top destination for Chinese fugitives fleeing the law,” the China Daily newspaper said, citing Liao Jinrong, director general of the ministry’s International Cooperation Bureau.

Chinese President Xi Jinping has made fighting pervasive graft a central theme and has warned, like others

before him, that corruption threatens the Communist Party’s survival.

Beijing has long grappled with the issue of so-called “naked officials” government workers whose husbands, wives or children are all overseas who use foreign family connections to illegally shift assets out of China or to avoid investigation. Some estimates put the number of Chinese officials and family members moving assets offshore at more than 1 million in the past five years.

But bringing these fugitives back to China isn’t easy. There is no extradition treaty between China and the United States, and foreign governments have expressed reluctance to hand over Chinese suspects as they could face the death penalty in China.

“Fox hunt” China’s Public Security Ministry is trying to set up an annual high-level meeting with U.S. judicial authorities, including the Department of Homeland Security, the China Daily said, citing Wang Gang, a senior official at the International Cooperation Bureau.

Last month, China launched what it called a “fox hunt” for corrupt officials, saying it will track down fugitives around the world and punish them.

“This is a new message that the current administration is sending to the public,” said Zhu Jiangnan, an assistant politics professor at the University of Hong Kong, who specialises in corruption in China. “In past years, the government didn’t say very explicitly they will get corrupt officials back to China.”

A case highlighting the problems of extradition is Lai Changxing, once China’s most-wanted fugitive, who fled to Canada with his family in 1999 and claimed refugee status saying allegations that he ran a multibilliondollar smuggling operation in the southeastern Chinese city of Xiamen were politically motivated. His case triggered tensions between Beijing and Ottawa.

Canada eventually deported Lai in 2011, and he was jailed for life the following year.

Only two people have been brought home to China to stand trial in the past decade, the China Daily said, citing ministry figures. It’s difficult for China to apprehend fugitives because U.S. judicial authorities “misunderstand the Chinese judicial system and procedures,, the newspaper said, citing experts. “They always think Chinese judicial organs violate suspects’ human rights,” it quoted Wang as saying.

In the first half of this year, 320 suspects in corruption cases were “seized and brought back to China,” state news agency Xinhua said in July.

Since the mid-1990s, an estimated 16,000-18,000 party officials, businessmen and other individuals have “disappeared” from China, according to a People’s Bank of China report prepared in 2008 - taking with them an estimated 800 billion yuan.

Reuters

Drought inflicts huge financial losses

Chinese monetary loosening tests credit

Lee Zhang sued over transfer of funds

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evere drought in central China’s Henan Province has inflicted a direct economic loss of 7.3 billion yuan (US$1.2 billion), 97 percent of it in the agricultural sector, local authorities said yesterday.

Henan, a major grain producing region, has raised its emergency response to the third-highest level.

Light rain in parts of Henan over the past few days did little to ease a lingering drought that is set to hurt autumn grain output, the provincial civil affairs department said in a statement.

The drought has left 19.3 million people affected and 1.1 million more short of drinking water in the province.

Meanwhile, the northeastern province of Liaoning is suffering the worst drought in 53 years as the precipitation since July has been 50 percent less than in normal years, according to the Liaoning provincial meteorological bureau.

Liaoning’s drought developed last month with extremely low rainfall and high temperature and is expected to worsen as no heavy rain is forecast for the next few days, said the bureau.

Xinhua

hina loosened monetary conditions last quarter at the fastest pace in almost two years, a Bloomberg LP gauge showed, testing the waning effectiveness of credit in supporting economic growth.

Bloomberg’s new China Monetary Conditions Index -a weighted average of loan growth, real interest rates and China’s real effective exchange rate- rose 6.71 points to 82.81 in the second quarter from the previous three months. That’s the biggest jump since the July-September period of 2012, with May and June’s numbers the first back-to-back readings above 80 since January 2012.

New yuan loans in July will be a record high for that month, according to a Bloomberg News survey of analysts before data due by August 15, suggesting officials are keeping the credit spigot open even as debt risks mount. While consumer inflation below the government’s goal allows room for more easing, economic data will determine how far policy makers go.

“The central bank worries more about inflation and financial risks, but the government is worried more about growth and employment,” said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong.

Bloomberg News

eutsche Bank AG is suing former employee Lee Zhang for US$6.3 million over the transfer of funds to a bank account in Shenzhen in 2001, according to Hong Kong court documents.

Zhang is currently a senior executive at Industrial and Commercial Bank of China.

According to the filing with Hong Kong’s Court of First Instance which was dated Friday, Deutsche Bank said Zhang breached his contract by transferring US$3.9 million to the bank account of a company named Harperskille Limited.

Deutsche Bank said it wants that sum, plus interest of over US$2.3 million. The court documents did not give further details and it was not immediately clear how Zhang breached his contract.

Deutsche Bank and ICBC declined to comment.

Zhang could not be reached for comment. In a statement to Chinese business publication Caixin on Sunday, Zhang said that his behaviour while at Deutsche Bank had abided by all laws and regulations.

Zhang, whose Chinese name is Zhang Hongli, was Deutsche Bank’s top China banker before joining the Chinese state-owned ICBC in March 2010.

Reuters