Macau Business Daily, Aug 25, 2014

MOP 6.00 Closing editor: Luís Gonçalves Publisher: Paulo A. Azevedo Number 611 Monday August 25, 2014

There’s a week to go. The sole candidate for the Chief Executive’s post is setting up stall for his next five-year term. Chui Sai On says the gaming licences review will look for evidence of non-gaming initiatives. That means promoting the much-touted World Tourism and Leisure Centre agenda. Public consultation will keep the process transparent, he says.

He also conceded that development of Nam Van Lakes had got bogged down. All depends on the urban planning committee review

Year III

PAGE 2&3

It’s in the post

Interview

www.macaubusinessdaily.com

‘Wait and see’ game

Companies are getting delayed payments. The economic slowdown is largely blamed. Arrears are becoming a major headache for companies.

More so than credit costs and financing difficulties

The vice-president of SHFL Entertainment (Asia) says his team in Macau stays in place. Despite the company soon merging with Bally Technologies. The expanded product portfolio, greater cash flow and speeder response to the market bodes well, Ken Jolly told Business Daily.

Future strategy will be a “wait and see” situation, given the pending acquisition of Bally by Scientific Games PAGE 6&7

PAGE

5-year record for July visitors

Sovereign fund too risky

Last month, more than 2.75 million people visited Macau for a day or overnight. The highest number recorded for July since 2009. Mainland tourists continue to grow at double the average, official statistics reveal PAGE

The President of the Legislative Assembly has been down this road before. He acknowledges that the IMF’s proposed fund is one route for investment. But counsels caution. Only two sovereign wealth funds are really performing: Norway’s and Singapore’s. The government should prudently consider other options, as times are still unstable

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Korean casino aces Macau investments | PAGE 9

Pro-democrats detained Referendum organisers, including Jason Chao, were apprehended by police on the first day of their civil referendum.

“Personal data infringement” has been cited by authorities as the reason. The Internet security company in charge of the referendum website says it intercepted seven “threatening” cyber attacks yesterday morning PAGE

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Name

%Day

Hang Lung Properties

3.25

Ping An Insurance Gr

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Bank of Communica

1.41

Henderson Land Dev

-0.98

Sino Land Co Ltd

-1.56

CITIC Pacific Ltd

-1.86

Li & Fung Ltd

-4.58

China Resources Ent

-5.59

Source: Bloomberg

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2

August 25, 2014

Macau

Chui Sai On: Casino licences dependent upon non-gaming elements The Chief Executive candidate said that gaming operators who submit the best proposals to help Macau become a World Tourism destination will have priority.

Accommodation and transport issues are likely to be decisive Kam Leong

kamleong@macaubusinessdaily.com

C

hief Executive candidate Fernando Chui Sai On repeated during his very first public hearing last Saturday that the review of the gaming industry in the coming year will focus on nongaming elements that the corporations can provide, in addition to gaming elements.

Several hundred residents attended the first public hearing that the campaign held last Saturday morning, to which two scholars were invited as commentators to provide immediate comment on Mr. Chui’s replies to residents.

With regard to residents’ concerns about the future direction of the gaming industry Mr. Chui said that elements helping Macau become a World Tourism and Leisure Centre will be considered, in addition to gaming elements, during the upcoming review. He stressed that public consultation will be launched, while the review will be kept transparent.

One of the commentators, director

of the Institute for the Study of Commercial Gaming of University of Macau Davis Fong Ka Chio, said he heartily agreed with Mr. Chui that the main focus of reviewing the gaming licences should be on the social responsibilities that a gaming corporation should assume, such as providing accommodation and transportation for their staff.

He believes that if the government follows such a direction in its interim review of the gaming industry, the negative effects that have accompanied [the expansion of the casinos] will be relaxed or resolved.

On the other hand, the candidate also said during the hearing that the government has divided its fiscal dividends into two main parts, the first of which is shared with the general public, such as the Wealth Partaking Scheme and provident fund, while the remaining part has served as fiscal reserves. Chui Sai On said that his future government will always ensure the stability and safety of the financial system.

‘Selective pubic’ hearing However, a pro-democracy member was dissatisfied with the arrangements for the hearing, claiming the session was for a ‘selective public’.

President of New Macau Association Sulu Sou Ka Hou told Business Daily that he thinks that such sessions do not show the candidate’s determination to reflect his campaign slogan of listening to the general public.

“All these [campaign activities] give people a feeling that he [Mr. Chui] is listening to public opinion selectively,” Mr. Sou remarked that Mr. Chui had only met with proestablishment associations, while those holding opposite opinions were not invited to attend any meeting.

The young pro-democracy leader, who claimed that he had followed all of the official website and social networks of the candidate’s campaign, found no information on how to apply to such hearings for last Saturday and Sunday.

He urged the campaign to hold one more public hearing on a bigger scale

to allow more members of the general public to participate and voice their demands directly to the candidate.

According to the official website of Mr. Chui’s campaign, it posted last Friday that two sessions of public hearing would be held, while procedures to register for the hearings had been published in local Chinese, English and Portuguese newspapers.

All participants were drawn by computer on August 20.

Without a ticket, Mr. Sou and his companion were rejected entry to the public hearing. Later on they held a banner promoting the ongoing civil referendum in front of the building where the public session was being held.

The results of the first part of the civil referendum – whether residents support universal suffrage for the CE election in 2019 – will be announced on August 31, according to Mr. Sou. Meanwhile, the second part – whether residents trust the sole candidate – will only be announced after September 1, in accordance with regulations governing the CE election.

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August 25, 2014

Macau No projects approved for Nam Van Zone C The private projects earmarked for Nam Van Zone C, D, pending government approval for a long time, have to undergo an urban planning committee review Stephanie Lai

sw.lai@macaubusinessdaily.com

C

hief Executive Fernando Chui Sai On, now seeking reelection for the top post in the MSAR, stressed yesterday that no private projects have been approved for the reclaimed Nam Van Zone C and D so far. He pledged once more that he would prioritise public housing building to boost supply and “balance” the high property prices of the city.

“It’s true that Nam Van Zone C and D have been pending development for quite a long period of time already, but first of all we [must] ensure that all these developments meet the approved cultural heritage protection law, the land law and the urban planning law,” Mr. Chui told media yesterday morning before attending a public hearing on his political agenda for the upcoming Chief Executive election on August 31.

“According to the law, all the projects of the zones have to undergo a review by the urban planning committee, and so don’t worry,” he said. “We haven’t granted any

[private] projects [in Nam Van Zone C and D] so far.”

Mr. Chui, now running his final week of campaigning for the imminent Chief Executive election, briefly responded to media that he was aware of public concerns about the height of buildings in the reclaimed Nam Van zones and the possible blocking of the view of the heritagelisted buildings in the vicinity.

Nam Van Zones C and D are on 34.6 hectares of reclaimed land between the Nam Van and Sai Van lakes. The area was reclaimed in 1992, and the former Portuguese administration began granting lots to private parties in 1994. However, until now, there has not yet been a concrete urban plan announced for the reclaimed zones.

Hong Kong-listed shipping and property conglomerate Shun Tak Holdings Ltd is one of the developers awaiting approval for its intended Harbour Mile, a mixed project of hotel, residential towers, serviced apartments, and shopping amenities to be located

adjacent to Macau Tower in Zone D, the company’s information said.

Another Hong Kong-listed company, Kerry Properties, also awaits developments in a stalled “luxury apartment project” in Zone C, with their acquired plot at Nam Van Lake yielding a gross floor area of some 400,000 square feet. The development is still under planning, the company said in its official website. Kerry Properties secured the plot in July, 2007.

“No magic wand” In the final round of the public hearing held yesterday, Chief Executive Fernando Chui said that he had “no magic wand” to resolve the high property prices seen at the moment.

But he reiterated to both media and the 400-plus attending audience that his team would seek a “more balanced” property price with boosts in housing supply in both the public and private market. In the

previous rounds of seminars held by different local associations, Mr. Chui had mentioned that the private housing projects were developable in areas such as land plots near Taipa Terminal, Cheok Ka Village in Taipa, Nam Van Zones C and D as well as Ilha Verde.

“The new urban reclaimed zones will be prioritised with the construction of public housing,” Mr. Chui said briefly when responding to media on housing policy. “We’ll also prioritise building public houses on the idle lands collected . . . I hope that when the housing supply here gets more balanced, prices can balance as well.”

By December, the government is slated to start consultations on urban planning for reclaimed Zone A, the plot located across from Areia Preta and the biggest of the five new reclaimed zones, on which Mr. Chui mentioned previously that 28,000 public housing units and 4,000 private units would be constructed, on an artificial island.

Referendum organisers tripped up by ‘personal data infringement’ Civil referendum organisers, including movement figurehead Jason Chao, were taken away by police on the first day of their action for ‘personal data infringement’

P

olice arrested four organisers of an unofficial referendum planned to gauge public reaction towards the electoral system of the city’s Chief Executive post yesterday. They say that the arrests were made following a report of violating the local personal data protection law.

The four organisers, including pro-democratic group New Macau Association’s deputy director Scott Chiang, were arrested by Public Security Police officers at noon yesterday on charges of disobedience when the team refused to cease their poll as requested by police.

The chief organiser of the unofficial referendum, Jason Chao Teng Hei, was also taken away by Judiciary Police officers yesterday afternoon and detained for questioning over his team’s referendum actions.

Yesterday was to be the launch of the civil referendum, organised by

local pro-democratic groups Macau Conscience, Macao Youth Dynamics and Open Macau Society to gauge citizens’ desire for democracy here via online voting and physical polling stations from August 24 to 30.

Participants were asked to insert their ID number and mobile phone number before answering whether they support a universal suffrage to elect Macau’s Chief Executive by 2019, and whether they have confidence that the incumbent Chief Executive Fernando Chui Sai On will be re-elected to the city’s top office.

The obtaining of the ID numbers and personal telephone numbers, which requires the participant’s approval, was to “avoid repetitive voting”, the organisers of the referendum had announced.

However, at an ad hoc press briefing co-held with the police yesterday afternoon, deputy director of the Office for Personal Data Protection

Mr. Yang Chong Wei called the “civil referendum” regarding personal data protection “inappropriate” and a violation of the data protection law.

Mr. Yang’s office issued a press statement on Friday saying that no groups or residents here had the right to conduct a civil referendum in the city, based on a judgement made by the Court of Final Instance on August 18.

The judgement rejected referendum organiser Jason Chao’s appeal against the Civic and Municipal Affairs Bureau’s dismissal of the movement’s request to set up physical polling stations as “assembling” in the streets.

In the judgement, however, the court defined Mr. Chao’s referendum as an “opinion poll”, and stated that the government was not allowed by law to set conditions for any “civil

referendum” to proceed.

On the sidelines of a public event yesterday afternoon, Chief Executive Fernando Chui Sai On, currently running for re-election, refused to comment on the arrests of the referendum organisers or its impact on the current election. The candidate did reiterate that Mr. Chao’s actions “did not meet the MSAR’s Chief Executive electoral method”.

Mr. Chao and his peers’ referendum battlled other headwinds yesterday: the Internet security company in charge of the referendum website said it had detected seven “threatening” cyber attacks from 12:00 am yesterday to 10:00 am. All of the attacks detected were from mainland China, Mr. Chao told media.

S. L.

4

August 25, 2014

Macau

Visitor arrivals: Macau has best July since 2009

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In July, visitor arrivals in Macau reached a five-month record of 2.75 million, with same-day visitors accounting for half.

Koreans and Australians are also flooding in here, while Hong Kongers are visiting less

HOSPITALITY Closing purses?

Luis Gonçalves

Luis.goncalves@macaubusinessdaily.com

Based on quarterly figures just published, it is possible to estimate that the average expenditure by city visitors reached, in the first half of the year, a value close to 2,110 patacas per head. This is the highest figure registered so far, and represents a growth of almost 4.9 percent relative to the same period last year. It suggests, however, that the growth rate is dampening. The equivalent rates in the two previous semesters were 6.9 percent and 11.6 percent, respectively. The latest rate is also less than half the average growth rate for the last four years. As these rates sit below the growth in prices for most goods and services bought by visitors, the current figures point to a slowdown in real expenditure, as they imply that the rising share of the expenditure growth is attributable to changes in prices.

Mainlanders continue to top the spending league by a wide margin. In the first semester, they splurged close to 2,600 patacas per person. Among the main providers of visitors, Japan is the one that comes closest albeit with an average expenditure that is typically about 30 percent lower than China’s. Hong Kong, another major source of visitors, follows a very different pattern, which is influenced by the great weight of short-term visitors in its ranks. In all the period observed, the average expenditure by Hong Kong residents was less than half that of mainlanders. That share is dwindling and currently stands around one-third. Even in absolute terms the last four semesters show a standstill. The rise of Taiwan is mostly the outcome of a significant decrease in the number of same-day visitors as a result of direct flights to the mainland.

J.I.D.

MOP 2,141 average visitor expenditure, 2014Q2

T

he number of visitors to Macau reached a five-month record in July, with the flood of mainland tourists continuing to grow above average, and now joined by Koreans and Australians.

According to the Statistics and Census Services, visitor arrivals totalled 2.75 million in July, a 7 percent increase or 200,000 more tourists compared to the same month last year. A little more than half (53 percent) were day-trippers.

July’s performance was the best since March. More people arrived in Macau last month than in each of the previous five. Since March, the monthly average of arrivals has hit the 2.6 million mark, official data reveals.

But that’s not all. The 2.75 million arrivals last month also represented the highest value for July since 2009.

That year, 1.7 million people visited Macau in July. And it has been growing ever since: In 2010, there were 2.1 million July arrivals and in 2013 around 2.5 million.

Day-tripper arrivals also mirrored the trend, posting the best performance since 2011. Last July, there were 1,29 million same-day visitors to Macau, a 12.3 increase from a year ago (1.2 million) and only behind 2012’s record 1.3 million tourists that arrived and left on the same day.

of Hong Kong tourists here, Macau’s second biggest source of visitors.

Mainlanders dominate

Mainland tourists growing twice as fast as visitor average The growing number of tourists this year has been boosted by Mainland China, Macau’s biggest source of tourists and the recovery seen in other markets like South Korea and Australia.

They have been compensating the drop

In July, mainland arrivals topped 1.87 million. This was a growth of 12.7 percent from a year ago and almost two times the average rate increase of arrivals in Macau. Visitors from mainland China accounted for 68 percent of the total, followed by Hong Kong with a 20 percent share and Taiwan with 3 percent, the Statistics and Census said on Friday. In July, however, the best performing markets were South Korea and Australia.

Tourists coming from the first increased 24.4 percent last month year-on-year, while Aussie visitors totalled 9,300 in July, 17 percent more than in 2013.

From January to July, Macau received 18 million visitors, 8 percent more than the same period in 2013.

Around a third of them came from Guangdong Province.

The average length of stay of visitors in Macau was one day. Overnight tourists spent 1.9 days here, while day-trippers stayed 0.2 days. The government and the casino industry here are making efforts to diversify the tourist offering in Macau in order to attract more overnight tourists and prolong their stay.

Retail sales flat in 2Q

R

etail sales in Macau registered a small increase of 3 percent yearon-year in the second quarter, with clothing, department store goods and vehicle sales revenues sustaining the market following a 20 percent-plus drop in the sale of luxury goods.

According to the Statistics and Census bureau, retail sales topped MOP16.3 billion between April and June, a 3 percent increase compared to the same quarter in 2013 and 11 percent drop against the first quarter of the year that included the Chinese New Year, one of the top sales periods of the year.

The retail sales in the second quarter were also the highest of the last four years and more than double than that

recorded in the second quarter of 2010.

In that quarter, retail sales in Macau amounted to MOP 7 billion.

One of the highlights of the previous quarter was the huge drop in the sale of luxury goods in Macau.

Sales of watches, clocks and jewellery decreased by 22 percent year-on-year, the only goods category that dropped in sales. The anti-graft campaign and the crackdowns on lavish spending emanating from Beijing are making clients more cautious about buying expensive items. Watches and jewellery account for more than a quarter of all retail sales here, the statistics office report revealed.

On the other hand, sales from goods in department stores, clothing and

vehicles went up by 16 percent, 25 percent and 24 percent, respectively, year-on-year.

L.G

5

August 25, 2014

Macau

Ho Iat Seng: Consider options ahead of Macau sovereign fund The President of the Legislative Assembly says that before a fund is created other options should be considered, as the first may be too risky. Ho Iat Seng also says that it is time for Macau to create a new law for the annual budget as expenses are increasing João Santos Filipe

jsfilipe@macaubusinessdaily.com

T

he President of the Legislative Assembly, Ho Iat Seng, said that if the government of Macau decides to create a sovereign wealth fund it must act very carefully, as times are very unstable for investment.

“I’m always concerned about the return rates of sovereign funds.

These days, the return rates are low. I believe that if it is decided to create a sovereign fund it will require us to be very prudent”, Mr. Ho Iat Seng said during a meeting with journalists for the annual report of the legislative year.

He also recalled his experience, back in 2007, when he was involved in the decision to create the China Investment Corporation, a sovereign wealth fund that manages part of the People’s Republic of China’s foreign exchange reserves.

“In 2007, the China Investment Corporation fund was created with an investment of US$200 billion. I have

“A long-term vision for managing sovereign funds is necessary. But it isn’t easy. Europe is in crisis; a major bank in Portugal is in trouble and times are unstable for investment.

I know that a Chinese bank was interested in paying a 5 percent return rate for Macau money to be deposited. We have to consider if such a solution would be better”, he said.

“At this moment, only two funds are clearly succeeding and they are the Singaporian Temasek and Norwegian wealth fund”, he added. been following the return rate since then and it’s around 5.7 percent. The risks are high and for Macau to create a fund such as this there may be better options such as deposits”, he said.

However, Ho Iat Seng highlighted that he was not against the creation of such a fund, just that he counsels other options be considered, as times are unstable for investment.

New law for annual budget During the session, the President of the Legislative Assembly also said that in his opinion a full law should be introduced for Macau’s annual budget instead of the current legislation framework comprising different laws.

“When the current legislation for

the annual budget came into effect, back in 1983, it was appropriate.

However, as it is made up of different laws it means that the law is spanned through many documents. I believe it is time for us to create one single law concerning the annual budget”, he said. “This law is more important as the government is spending 80 billion patacas in public expenses”.

Ho Iat Seng expects that this new law could be approved by the end of the current legislative term in three years time.

“I hope that it will be completed within three years time when I leave this position. However, and being realistic, I don’t think such a law will be approved in the next year”, he said.

When asked about whether he had already been in talks about the new law with Chief Executive Fernando Chui Sai On, Mr. Seng said that he would first approach Secretary Francis Tam about the issue.

6

August 25, 2014

Macau

Macau’s SHFL team will stay the same Although SHFL Entertainment (Asia) Limited was acquired by Bally Technologies nothing substantial will change, other than combining the two forces, expanding the product portfolio, increasing cash flow and instigating a bigger, speedier response to the market.

In an interview with Business Daily, vice president - Asia at SHFL Entertainment (Asia) Ken Jolly says that although SHFL will cease to exist as soon as the merger’s legal formalities are finalised the team in Macau will remain the same. Having said that, Mr. Jolly stressed that with the pending Bally Technologies acquisition by Scientific Games for about US$3.3 billion, it’s hard to predict whether there will be a change of strategy

the two companies, we’ve been working on how you get two companies together from a legal point of view and merging the companies, people, cultures and product lines.

With the merger you’ve expanded your product portfolio?

The product portfolio really expanded if you take all the SHFL products and the diversity of that, then you add another line of slot machines from the Bally side and then you add the systems, which are the back-house management systems, something that SHFL didn’t have a division for.

It has added more slots from a different product brand line and a systems division, but basically the way we set up prior at SHFL is the way that the new Bally is going forward. So, the customer doesn’t see a lot of difference — you still get the same sales person, but the sales person has a bigger product portfolio.

Will there be many changes?

In the Asian region, no. Bringing the two together has actually been quite a complement for the two in this particular region.

So, the SHFL team in Macau remains the same?

We’ve had no reduction in people.

A lot of the services from the SHFL side are done out in Australia,

Luciana Leitão leitao.luciana@macaubuisness.com

What changes are expected for SHFL Entertainment (Asia) with the acquisition by Bally?

It’s very much business as usual.

SHFL had a strong business in Asia already and one of the strengths looked at when buying was its strength particularly in the Australasian region, New Zealand and Asia. That was obviously attractive to Bally.

Since the coming together of

We had a bigger sales team from the SHFL side than the Bally side did, but the products we were selling included a diverse range of products from slot machines to utilities, which are the shufflers, to proprietary games to the ETS (electronic table systems). You look at the Bally side and it was the sales of slot machines and/ or the systems. Virtually, it just pushed the products all across the same sales people.

some are done in Bally here — we were able to bring it all together without any major reductions in this particular region.

With the merger, Bally and SHFL, who were competitors, are now together. Do you expect this to defeat the remaining competition?

Obviously, it makes us much stronger in the market place.

We’re pretty fortunate that the number one link in Asia is the Duo Fu Duo Cai link — when you look at that product, now under the Bally banner, in the Asian market, it’s driving enormous amounts of sales, and certainly has got some of our competitors concerned at how well that is performing, and it’s certainly taken the lion’s share of sales out there over the last 12 months. That’s a positive for Bally.

On top of that, when you look at the shuffler business, we’re really the dominant force in that area and those things are still selling at least regularly, so that part of the business hasn’t changed.

It strengthened what was Bally before with all these other diverse products that came from the SHFL side.

Up to now, considering the increase in products, are you already seeing differences in revenue?

Because of the way we report, I can’t talk about individual regional figures.

But is it going well?

We’re very happy with the way the industry has accepted the merger and now we’ve got this bigger range of products. It certainly hasn’t made any difference to the relationships we have with our customers.

The mergers

We’re well placed for the future to bring a new game, new cabinet or a new concept and there is a desire in the whole company right up to the top to be the innovator

Bally Technologies is now being acquired by Scientific Games Corp.

Do you expect changes in strategy?

We have another merger to go down the track, with the Scientific Games Corp., providing that all goes forward. Again, we’ll be looking at how the product lines come together and how that gets set up for the better growth of the company. It’s too early to tell.

Will the big focus of the company be Asia, considering its growing momentum in the gaming sector?

Asia is an amazing market. At the end of the day, it’s about the right products for the market. We’re very focused on making products that suit the market and will drive customer satisfaction from the player point of view, which make the operators happy, who then buy our products and make us

We’re very happy with the way the industry has accepted the merger and now we’ve got this bigger range of products

7

August 25, 2014

Macau happy! Going forward is a matter of staying focused on that; it’s a matter of staying on what the market needs and getting the right products to take us forward as a division in the company.

And the right products for Asia are not the right products for the other markets?

There’s some tweaking that needs to be done in some of the markets and some of that is from a regulatory point of view as well as from a player point of view. The Duo Fu Duo Cai, for instance, was a product actually built for the Asian market, but we’re actually getting success in other markets throughout the globe, like Europe, Africa and the U.S. But of course there are some regulatory issues in some markets, where you have to make slight changes to the software because they don’t allow non-linear pace lines or non-linear jackpots and things like that. But we make those changes to the best of our ability, so it doesn’t affect the game, and we get into the market, we try a market and we get it to work.

The innovator You’ve mentioned one game that ended up being popular in Asia and in the rest of the markets. But overall are there differences in the markets?

Markets throughout the world are at different stages. You have well established markets where typically players are looking more for an entertainment experience.

And then you have emerging markets, like Macau, where they’re looking for the bigger win.

What kind of new products can we expect in Macau?

I can reveal we’ll be launching a new cabinet — we showed it briefly in G2E. The cabinet is called The Wave, which is getting great success in the USA, and it will be launched here in Asia very soon.

Again, there are ranges of games coming through on that product — over the next 12 months we’ll be launching two to three new utility products, shuffler products, and we’re very excited about that, the ETS (electronic table systems).

At the show this year, we had the big wheel game, and we’re working on putting blackjack on it and we’re looking at other proprietary games that we own as a company to actually add to that product.

SHFL before, and now Bally — Bally was even about innovation before, particularly their systems and other products they’ve got coming through. The technology integration that’s going on in this company now is more than I’ve seen in any other company. I’ve worked in gaming for the last 25 years.

We’re well placed for the future to bring a new game, new cabinet or a new concept; and there is a desire in the whole company right up to the top to be the innovator.

Do you expect to launch more new products?

We’re always working on new things for the future. There’s always tons and tons of projects and tons and tons of ideas . . . but having enough people working on everything, and when you get big, with the cash flow we’ve got, you typically get to the market faster.

When you’re designing a product for Asia, and Macau particularly, what is the target?

Macau is an emerging market.

People are still looking for high

other companies and hence the possibility of the merger. It seems a consolidation that’s been talked about and it’s happening now, and it gives you cash flow and strength to really go out and be a serious player in the market place.

Asia is an amazing market. At the end of the day, it’s about the right products for the market

payout and a larger jackpot, on the slot side. Typically, they’re looking for a linked product — actually it can do better than the standalone version of slots and they’re looking for a game that’s got volatility in it. But there are markets that probably prefer the smaller pays more regularly. We’re building a range of high volatility and low volatility and some mid volatility.

That’s on the slot side. How about the rest?

A lot of the innovation we’ll be doing there will be bringing the utility inside the system, to give operators much more management control, particularly when they want to do table utilization; and there’s a number of other methods that will give them better access to managing the floors from the table point of view.

On our proprietary tables, we have a number of licences for those; we’re innovating and we used to have about 15 titles and we now have 22 titles. I know we’re going to grow them. Some games are really great hits, some are not, but it’s one of those things where you have to keep innovating and keep putting them out there.

Considering the difficulty in getting dealers in Macau, how is the company helping?

We hear it all the time from the operators — it’s one of their major concerns. The dealers are all local and they can’t get enough people, so they’re always looking for the automated or to make that easier.

It’s interesting because when you travel around the world and you talk about the issues of Macau in places like the Philippines or Malaysia they have similar issues: getting staff, getting quality staff, and also on a table its about more games per hour. The more you can automate, that and players can still play, that type of game, that you haven’t changed fundamentally away from what they want, its going to be better for operators and for sales.

We’re now hearing that in other markets and we’re now looking at what we can do with electronic table systems and even our proprietary tables to make it easier for a dealer at a table who has to stand there for many hours. And also make it more secure from the point of view of not so many false payouts.

The right timing Considering the development of Cotai, in Macau, did this merger occur at the right time?

The industry has talked about consolidation for a while and you look at some of the other companies that are buying

Do you expect the development of Cotai to bring growth to the territory or will the competition kill the existing hotels?

A lot of new products are coming out in the market, in the next three years. If you listen about the flat spot of the revenues at the moment, it’s the tip that the market is doubling the revenues today. You add that to what we’re seeing with the Central Government of better infrastructure for transport — either the train’s coming in, the bridge from Hong Kong, visitation here in Macau is going up . . . If that all happens, then the possibility is that revenues could nearly double from where they are today. It might be slow at first, but I’m sure they’ll grow into the numbers for the longer term.

Cotai will without doubt become the mass market area and become the dominant area of Macau. What will be interesting to see is what the concessionaires will do to keep rejuvenating their properties back on the Macau [Peninsula] side and getting their patrons to go there and stay there.

Will SHFL expand its team in the near future?

We’ll all be Bally soon. We’ve got growth plans and we’ll be looking at how we need to grow that team.

8

August 25, 2014

Gaming

Caesars divides to conquer Caesars Entertainment Inc. (CZR) is using its namesake’s divide-and-conquer strategy to marginalise one class of bonds to the potential benefit of its private-equity owners as the casino company hurtles toward a restructuring Inc. private for US$30.7 billion. The consequence of this approach for the junior bondholders excluded from last week’s deal is that they will be left out in the cold, according to money manager Mark Heiman of Saguaro Capital Advisors LLC.

‘Most Egregious’

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n agreeing last week to pay some holders of its most-junior bonds US$155.4 million in return for them giving up certain protections, Las Vegas-based Caesars gets their support in a restructuring. That might make it easier for the company to force all classes of creditors to accept whatever agreement it reaches with senior bondholders.

“They will use their cash or whatever devices they can,” Erik Gordon, a

professor at the University of Michigan’s Stephen M. Ross School of Business, said in a telephone interview. “They spent probably to the exact dollar just what they needed to get 51 percent.”

Caesars’ strategy for dealing with its main operating unit’s almost US$19.8 billion debt is becoming clearer in the six years since Apollo Global Management LLC and TPG Capital took the casino operator then known as Harrah’s Entertainment

“That is one of the most egregious things they’ve done so far, even though it’s a relatively small amount of capital,” said Heiman, a former analyst at short seller Jim Chanos’s Kynikos Associates LP whose current company owns some of the unsecured notes. “There isn’t one class of bonds that isn’t outraged about something,” he said by telephone from Scottsdale, Arizona.

Some unsecured bondholders who weren’t party to the deal said last week they sent Caesars and the bonds’ trustee a letter Aug. 14 arguing that the agreement gave preferential treatment to certain bondholders, the O’Brien LLP lawyer representing

some of them said last week.

The letter demanded the company not go forward with the transaction and provide documents that were used to negotiate it. Failing to meet those demands would risk the O’Brien group pursuing “all of our legal and equitable rights and remedies,” according to the letter.

Second-Lien Litigation Caesars is already engaged in litigation with holders of some of its approximately US$5.2 billion of secondlien secured bonds over the company’s transfer of casinos to an affiliate and the removal of the parent company’s guarantee on the operating unit’s debt.

Gary Thompson, a spokesman at Caesars, and Owen Blicksilver, a spokesman for TPG at Owen Blicksilver Public Relations Inc., declined to comment.

Fran McGill, a spokesman for Apollo at Rubenstein Associates Inc., didn’t immediately respond to an e-mail seeking comment.

Cash burn widened at

Caesars Entertainment Operating Co. after it sold four top-performing casinos to an affiliate, according to filings with the U.S. Securities and Exchange Commission on Aug. 14, May 30 and May 2013. The unit experienced negative free cash flow of US$477.8 million during the second quarter of this year, worse than US$464.8 million burned during the year-earlier period, according to the filings.

Free cash is money available for reinvestment in the business, rewarding shareholders with dividends and stock buybacks, and to retire debt.

Debt grew even after the company received US$1.8 billion in cash from the casino sales, according to calculations based on the August 14 filing, the May 30 filing and a March 3 statement.

Taking into account the retirement of debt due in 2015 using proceeds from a new US$1.75 billion loan, the operating company owes US$19.8 billion, compared with US$19.6 billion on December 31.

9

August 25, 2014

Gaming

Gaming: investing in Korea a better bet than Macau IVA, managed by renowned investor Charles de Vaulx, ranks among the most profitable and secure international funds of the last five years with a mix of best returns and lowest volatility. One of the secrets? Investing in Korean casinos instead of Macau’s

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harles de Vaulx’s aversion to expensive stocks has led him to hold more than a quarter of his funds in cash because he deems prices to be too high.

That cautious strategy has helped cut losses during market declines, allowing de Vaulx’s US$3.6 billion IVA International Fund (IVIOX) to rank among the best international funds over the past three to five years, and produce the top return on a risk-adjusted basis over the past 12 months, according to ‘Bloomberg Riskless Return Banking’. It had about average absolute returns and the lowest volatility over all three time frames in a group of 114 funds of at least US$1 billion.

De Vaulx, who worked with legendary value investor Jean-Marie Eveillard before managing his own fund, aims to deliver smooth results by investing in quality businesses selling for less than their worth and by holding cash and gold to protect against losses. Like value investors from Baupost Group LLC founder Seth Klarman to Berkshire Hathaway (BRK/A) Inc.’s Warren Buffett, de Vaulx builds up cash when stocks are expensive.

“We believe in winning by not losing,” he said in a telephone interview from New York. “We would need to see markets fall 20 percent for us to put all our cash to work.”

De Vaulx, 52, spent 20 years with First Eagle Funds where he worked with Eveillard, whose First Eagle Global Fund (SGENX) avoided the collapse of Japanese equities in the late 1980s and the Internet stock bust that started in 2000. The fund gained 15 percent a year from 1979 through 2003, compared with 12 percent annually for Standard & Poor’s 500 Index.

Top Rank De Vaulx left First Eagle in 2007 and in May 2008 joined New

York-based International Value Advisers LLC, where he serves as chief investment officer and portfolio manager. The firm manages US$21 billion.

IVA International had a riskadjusted return of 1.6 percent in the past year, best among 114 funds that excluded those specializing in emerging markets or smallcapitalization stocks. It beat about 90 percent of international funds in risk-adjusted returns over three years and 97 percent over five years. In all three periods, it had the lowest volatility.

In the past five years, the fund had an absolute return of 63 percent, compared with an average of 57 percent for the group. The fund’s benchmark, the MSCI All Country World Index Excluding US Index, gained 54 percent in that same period.

Bloomberg’s risk-adjusted return is calculated by dividing total return by volatility, or the degree of daily priceswing variation, giving a measure of performance per unit of risk.

Defensive, Cautious “The managers are very defensive and cautious,” Gregg Wolper, an analyst for Chicago-based Morningstar Inc., said in a telephone interview.

“This fund is not for everyone.”

The managers’ approach causes the IVA International fund to trail the broader markets during rallies and outperform when stocks lose ground. In 2009, a year when rival funds gained an average of 35 percent, IVA International rose 19 percent to trail 98 percent of peers, according to data compiled by Bloomberg. In 2011, when the same funds lost an average of 12 percent, IVA International declined 2 percent to beat 92 of its competitors.

Charles de Lardemelle, who also worked at First Eagle, co-manages the fund with de Vaulx. The two also run the US$10.4 billion IVA Worldwide

Fund, which invests in U.S. as well as international stocks.

The managers, in the fund’s most recent semiannual report, said that they try to preserve capital while still beating their benchmarks over five to 10 years.

“We realize that many investors cannot tolerate high volatility and appreciate that life’s bills do not always come at market tops,” they wrote.

Astellas Pharma De Vaulx aims to meet those twin goals by buying companies whose value is unappreciated by the market. The fund’s second-largest stock holding, Tokyo-based Astellas Pharma Inc fits his definition.

The company, said de Vaulx, has a strong drug pipeline, and unlike many Japanese businesses, pays a dividend and buys back stock. He said it is cheaper than its drug industry rivals around the world for a single reason: because it is located in Japan, where two decades of slow growth have depressed valuations.

“If this stock traded in New York or Paris it would be 30 to 40 percent higher,” said de Vaulx. “No doubt about it.”

Astellas gained 16 percent this year and more than doubled over the past five years, according to data compiled by Bloomberg.

Kangwon Land IVA International in the first quarter added to its holdings of Kangwon Land a South Korean casino and hotel operator. Kangwon’s casinos have a monopoly on gaming in Korea, said de Vaulx, and the company has been expanding its capacity. Kangwon, which de Vaulx considers more attractive than better known Macau casino operators, gained 13 percent this year.

As stock prices worldwide rallied,

de Vaulx couldn’t find stocks that met his criteria. As result, he had 26 percent of his fund in cash as of June 30. Cash at Buffett’s Omaha, Nebraska-based Berkshire Hathaway rose above $50 billion at the end of June, the most ever at a quarter’s end, as he waits for a “fat pitch” opportunity to invest at attractive prices.

Cash limits losses in tumbling markets, said de Vaulx, and can be used to scoop up bargains when they appear.

Gold, China Gold, which represented 3 percent of the fund’s portfolio as of June 30, is attractive because it often moves in the opposite direction to financial assets, said de Vaulx.

“Ideally we want it to zig, when stocks and bonds zag,” he said.

De Vaulx, who focuses mainly on individual securities, also pays attention to macroeconomic trends.

His biggest worry at the moment is China because it has experienced a large expansion in credit over the past few years.

De Vaulx said that going back to his days with Eveillard he has viewed similar explosions of credit as a warning sign of trouble to come.

“Eventually the bubble will burst,” he said.

De Vaulx’s concerns about China have prompted him to avoid most Chinese stocks as well as commodity producers that depend on Chinese growth. Chinese equities represented 3.1 percent of IVA International’s stock holdings as of June 30.

With the benefit of hindsight, de Vaulx concedes that the fund would have done better holding less cash.

Still, he has no intention of plunging into stocks, most of which he considers fully priced at the moment.

“We are sitting tight waiting for the time when we can find bargains again,” he said.

Bloomberg

10

August 25, 2014

Greater China

Xi visit to Mongolia sees 26 deals signed Closer economic relations with China may be landlocked Mongolia’s answer to recent economic woes Terrence Edwards

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hina and Mongolia have signed 26 new deals on railroads, mining and power generation during Chinese President Xi Jinping’s state visit that began on Thursday, Mongolia’s Ministry of Foreign Affairs said.

Closer economic relations with China may be landlocked Mongolia’s answer to recent economic woes.

Mongolia saw a 70 percent fall in foreign direct investment in the first half of 2014, but its southern neighbour is aiming for an expansion of trade to US$10 billion a year by 2020.

Xi’s visit, the first by a Chinese head of state since Hu Jintao in 2003, could give rise to more than 30 deals, said Mongolian President Tsakhia Elbegdorj on Thursday evening during a joint press conference.

The foreign affairs ministry and the Mongolian president’s press secretary both said there was at present no available figure for the value of the deals.

“Assuming these projects move forward, these accords represent the most significant economic development since the Oyu Tolgoi agreement was signed [in 2009],” said Nick Cousyn, chief operating officer at Ulan Bator-based brokerage BDSec. The troubled US$6.5 billion Oyu

Tolgoi copper-gold mine between the Mongolian government and resource giant Rio Tinto , however, has been a drag on investment.

The latest development in the multi-year spat was a US$130 million tax summons. Rio-controlled Turquoise Hill Resources, which owns 66 percent of the project, has denied it owes any extra tax to the Mongolian government.

Railways, power Four agreements were signed on Thursday for the development of Mongolia’s rail network, with two still pending.

Poor rail infrastructure has prevented Mongolia from capitalising fully on China’s need for raw minerals, while at the same time its lack of access to sea ports makes it overly dependent on the Chinese market.

“Mongolia has no access to sea, so I want to emphasise the agreements between China and Mongolia that are for railway transportation,” President Elbegdorj said.

Mongolia is keen to use China’s rail network to deliver coal and other minerals to other Asia markets, and one of the deals will involve transhipment of resources to Chinese ports.

President Tsakhia Elbegdorj said he and Xi had also discussed the use of the Trans-Mongolian railway as a land route for trade between Asia and Europe

Elbegdorj said he and Xi had also discussed the use of the TransMongolian railway as a land route for trade between Asia and Europe.

The goal was to see the transport of 100 million tonnes of cargo by rail to Europe by 2020, he said.

Mongolia also needs new power plants to replace aging Sovietera power infrastructure that is reaching peak capacity. The nation is struggling to meet energy demand as consumption grows in the capital and as the grid is extended to communities in remote parts of the country.

Mongolia has been trying to tap its own resources to kick its dependence on Russian oil imports, and one of the

26 agreements was a memorandum of understanding with China National Petroleum Corporation (CNPC).

Last year in October, Sinopec Corp signed a memorandum of understanding with the Mongoliaowned miner Erdenes Tavan Tolgoi for a coal-to-liquid fuel plant.

Mongolia hopes to encourage more such projects with a new law passed in July to update the country’s regulations to include nonconventional fuels.

Erdenes TT mines coal from Mongolia’s largest coking coal deposit, with 7.4 billion tons of coking coal resources.

Reuters

Retailer offers baby milk insurance If a brand of milk powder is recalled, customers who bought cans from any Redbaby store or its e-commerce website would be paid up to 2,000 yuan Clare Baldwin and Diana Chan

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Redbaby stocks milk formula from multinationals including Mead Johnson Nutrition, Nestle SA, Danone SA (factory pictured)

Chinese retailer is offering insurance to customers who buy infant milk powder, highlighting the lengths to which companies are going to address concern about food safety in China.

Suning Commerce Group Ltd, which owns the Redbaby chain of stores, told Reuters it had launched the policy this week, backed by China’s second largest insurer Ping An Insurance Group.

The policy stipulates that if a brand of milk powder is recalled, customers who bought cans from any Redbaby store or its e-commerce website would be paid up to 2,000 yuan (US$325) per can, with payments capped at 100,000 yuan.

“In recent years, the milk powder market in China has been in a mess,” Suning said in an email.

“We realised that parents pay a great deal of attention to their children’s health and safety, and in particular, the safety of their infants’ foods,” it added. Insurer Ping An said Suning’s policy is the first of its kind in China.

11

August 25, 2014

Greater China

Factory arrears rising as economy stumbles

Corporate transparency law approved

Manufacturers have to contend with rising inventories of unsold goods as well which add to their financial woes

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Assuming these projects move forward, these accords represent the most significant economic development since the Oyu Tolgoi agreement was signed [in 2009] Nick Cousyn BDSec

Concern about the safety of baby milk powder came to the fore in 2008 when thousands of infants fell sick and six died after an industrial chemical was added to raise the apparent protein content of certain products.

Pharmacies in Hong Kong, where food safety regulations are perceived to be more stringent, saw a run on infant milk formula following the scandal and many Chinese people still travel into the city, a special administrative region of China, to buy it.

Regaining trust in China could be worth a lot. The market is expected to reach US$17.8 billion this year, according to Euromonitor.

Suning said it was giving the insurance away for free for the first 40,000 cans of baby formula sold.

After that, customers can buy the insurance online.

According to its e-commerce site, Redbaby stocks milk formula from multinationals including Mead Johnson Nutrition, Nestle SA, Danone SA as well as brands made by China’s New Hope Nutritional Foods Co in partnership with New Zealand’s Synlait Milk Ltd. Along with detailed nutritional information, the website also highlights the expiry date of each can of formula.

Food safety remains a major concern in China. This week, U.S. food maker H.J. Heinz Co was forced to recall some of its infant food products because they were found to contain excess levels of lead.

KFC parent Yum Brands Inc., McDonald’s Corp, Wal-Mart Stores Inc. and Fonterra Co-operative Group Ltd have also recently faced food safety scares.

Reuters

ore Chinese manufacturers are falling behind on their payments as economic growth falters, causing accounts receivable to spike 1.1 trillion yuan (US$179 billion) in the first six months from the year-ago period, the government said on Friday.

The Ministry of Industry and Information Technology said the 12.7 percent annual jump in accounts receivable between January and June showed how rising arrears was a bigger problem for firms compared with high credit costs and financing difficulties.

Worse, manufacturers have to contend with rising inventories of unsold goods as well which add to their financial woes, the ministry said, adding that the world’s second-largest economy still faced downward pressure.

Inventory levels among manufacturers climbed 12.6 percent in the first six months of this year compared with the year-earlier period.

That outpaced the sector’s revenue growth by 4 percentage points, the ministry said in an online statement based partly on feedback from firms and regional governments.

At the same time, factories also struggled with significantly higher financing costs.

Financing costs faced by manufacturers leapt 16.5 percent in the first-half of 2014 from the

same period last year, with interest payments climbing 11.2 percent.

Small - and mediu m-sized companies were the worst hit among companies, the ministry said. Their financing costs jumped 17.5 percent, as interest rates surged by more than 30 percent for many of them.

Financing difficulties among firms arose when banks reduced the sizes of loans, delayed cash disbursements, refused to roll over loans or withdrew credit lines from companies, the ministry said.

Underscoring the wobbles in China’s economy, which has been through a rough patch this year as investment slowed and the property market cooled, bad loans have risen slightly though they remain at a negligible level of 1.08 percent.

16.5 pct 2014 1H manufacturers financing costs increasing

Li said innovations in investment and financing are key to reform in the railway sector

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WTO decision on solar dispute appealed

Reuters

Premier Li stresses social funds in railway construction

hinese Premier Li Keqiang has encouraged the China Railway Corporation (CRC) to further emancipate the mind and seek more social capital, the central government’s website reported yesterday.

“Railway construction invested solely by the government and promoted by administrative orders will not work any more,” said the premier during an inspection tour to the CRC on Friday.

Li said innovations in investment and financing are key to reform in the railway sector. He asked the CRC to explore ways of better soliciting non-governmental funds and gather experience for other stateowned enterprises.

“Railway development is multifunctional as it can stabilize economic growth, enhance social harmony and push forward urbanization,” said the premier.

China spent a lot on railways in recent years and attached great importance to reforming railway

An interim regulation on disclosure of corporate information, to take effect on October 1, 2014, has been approved by the State Council, China’s cabinet, and endorsed by Premier Li Keqiang. Companies will be obliged to deliver annual reports to industrial and commercial authorities between January 1 and June 30 each year. Reports will contain information such as contacts, profits, tax payments and other business activities including details of new subsidiaries and stake purchases. Industrial and commercial government departments will monitor disclosure and are obliged to disclose information regarding their own work with companies.

investment and financing mechanism since the CRC’s inception in March 2013.

The State Council, the cabinet, released an action plan to deepen reform in railway investment and financing in April after an executive meeting chaired by Li. According to the plan, a railway development fund will be set up and open to social investment. The fund’s value is expected to reach up to 300 billion yuan (US$48.6 billion).

In addition, 150 billion yuan of railway bonds will be issued this year.

The government will also encourage banks to fund railway construction.

Rail links in central and western regions will be prioritized to expand investment, boost related sectors, and help urbanization, noted the plan.

Shortly after the cabinet meeting, the CRC raised railway investment target for 2014 to 800 billion yuan and aimed to put over 6,600 kilometres of new lines into operation, mostly in the central and western regions.

Reuters

China has appealed against a WTO dispute panel report on anti-dumping duties applied on certain Chinese products by the United States, the World Trade Organization (WTO) said on Friday. The appeal covers products including solar panels, wind towers, thermal and coated paper, certain lawn trimmers, kitchen shelving, steel sinks and cylinders, line pipes and extrusions.

WTO judges in the case ruled last month that the United States broke its rules in imposing hefty duties on Chinese steel products, solar panels and a range of other goods that Washington argues enjoyed government subsidies.

Baosteel first-half net drops Baoshan Iron & Steel Co Ltd (Baosteel), China’s biggest listed steelmaker by stock market value, posted a 14.8 percent fall in first-half net profit, reflecting weak prices and slackening demand growth, the company said on Friday. Net profit dropped to 3.15 billion yuan (US$512.1 million) from 3.7 billion in the same period last year, the company said in a filing to the Shanghai stock exchange. It did not provide profit figures for the April-June quarter. China’s steel sector is facing its biggest challenges since the global financial crisis of 2008.

Qualcomm seeks to end probe U.S. chipmaker Qualcomm Inc. is seeking to end an investigation by China’s pricing regulator into monopoly practices, the company said on Friday, expressing its willingness to improve and correct pricing issues according to the regulator.

The National Development and Reform Commission (NDRC), in a statement on its website, said its officials had met on Thursday with a delegation from Qualcomm which included company President Derek Aberle. “Qualcomm executives discussed with NDRC officials several topics in an effort to reach a comprehensive resolution,” the company said in an e-mailed statement.

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August 25, 2014

Asia

Kuroda says BoJ may ease policy The BoJ deployed an intense burst of monetary stimulus last April

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he Bank of Japan may have to pursue its aggressive monetary policy easing for “some time” to fully vanquish deflation, BoJ Governor Haruhiko Kuroda said on Saturday.

Speaking at a global central banking conference here, Kuroda said the central bank’s efforts to overcome deflation by stimulating Japan’s economy with large-scale asset purchases was proving effective.

He added, however, that the public was not yet convinced Japan’s central bank would hit its 2 percent inflation target. Creating that expectation was necessary to get firms to raise wages - a key step in Japan’s long war with deflation, he said.

“We have committed ourselves to continuing the increasingly accommodative stance until the 2 percent inflation target is met and maintained in a sustainable manner,” Kuroda said. “That means inflation expectations are anchored to 2 percent ... (and) that may take some more time.”

The BoJ deployed an intense burst of monetary stimulus last April, when it pledged to double its money base with a quantitative easing program of asset purchases. Kuroda wants to accelerate consumer inflation to 2 percent in roughly two years. Japan has been mired in 15 years of grinding deflation.

The program was initially successful, with consumer inflation having recently hit 1.3 percent, excluding the impact of an April sales tax hike. Inflation is expected to slow in the coming months as the boost from a weak yen on import costs begins to fade.

Speaking on a panel alongside central bankers from Brazil and Britain, Kuroda said public inflation expectations are moving up gradually

We have committed ourselves to continuing the increasingly accommodative stance until the 2 percent inflation target is met and maintained in a sustainable manner Haruhiko Kuroda Bank of Japan Governor

Haruhiko Kuroda, Bank of Japan Governor

but still low at around 1 percent.

Low long-term interest rates will likely not rise until the 2 percent target is reached, he said, adding that the BoJ’s 2 percent inflation target, once met, could serve as a benchmark for wage negotiations.

Turning to labour markets, which was the focus of the high-profile Jackson Hole conference, Kuroda said Japan is showing “significant improvement,” though it still faces challenges including a large share of part-time workers in the service sector.

The quantitative easing stimulus

is helping Japan escape from a deflationary cycle of falling wages and demand, he said, adding that the BoJ is trying to manage the program to avoid any “abrupt shock” to markets.

He also said Japan needs a favourable work environment for woman and older workers to help counter its declining labour force.

Bank of England Deputy Governor Ben Broadbent, speaking on the same panel, said in a prepared speech that slow wage growth is not certain to pick up soon in Britain, despite signs of skills shortages. He added that the

BoE will not raise rates until there is a clear prospect of stronger wage growth.

In separate remarks, Broadbent said the BoE’s new financial stability goals were not in conflict with its inflation and growth goals. He also said there are potential but surmountable “coordination issues” between the BoE’s new financial stability committee and other bank functions.

“There is not a first-mover advantage to any of the bodies. They meet pretty regularly and share three members,” Broadbent said.

balancing act because while the weaker kiwi make it easier to raise rates and curb inflation, a weaker currency can also import inflation, especially given expectations for continuing domestic growth.

The RBNZ has raised rates by 100 basis points since March, taking them to 3.5 percent, their highest since early 2009. It has said it sees neutral rate

levels around 4.5-5.0 percent, which it expects by late 2015 or early 2016.

While it indicated a pause in tightening at its July policy review, it has flagged more rate rises over the next year or so to curb inflation, which rose to 1.6 percent in the second quarter and is nearing the bank’s midpoint target range around 2 percent.

Reuters

NZ dollar on the tightrope Fall priced in expectations of slower interest rate rises and weaker dairy prices but not higher U.S. interest rates

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he New Zealand dollar has tumbled to six-month lows in the past month and may fall further, giving the Reserve Bank of New Zealand (RBNZ) room to raise interest rates again before year end.

The kiwi dollar has fallen around 5.0 percent to around US$0.8400 against the U.S. dollar over the past month, taking it to levels last seen before the RBNZ began lifting rates in March.

Analysts and traders believe the New Zealand dollar’s recent fall priced in expectations of slower interest rate rises and weaker dairy prices, but not higher U.S. interest

rates, which are expected next year.

On a trade-weighted basis, the kiwi has retreated from a post-float high of around 82.0 hit last month to 79.1 on Friday.

The index is below the RBNZ’s quarterly projections for 79.7 in the third quarter, and fast nearing its projection of 79.0 for the fourth quarter.

“In isolation, if the currency falls at a faster pace than the RBNZ expected, or to a lower level than they expected, then there’s a greater need of tighter policy in response to that,” said Hamish Pepper, currency strategist at Barclays Capital in Singapore.

The central bank faces a careful

Reuters

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13

August 25, 2014

Asia Indonesia follows slowing trend Indonesia’s loan growth slowed to 17.2 percent in June on yearly basis, compared with 17.85 percent in May, Indonesia’s financial services authority, Otoritas Jasa Keuangan (OJK) said on Friday. Loans grew 17.85 percent in May year-on-year, slowing from 19.0 percent in April.

Loan growth has been on a slower trend since the central bank tightened monetary policy during June to November 2013 by raising benchmark interest rate 175 basis points to 7.5 percent. Bank Indonesia target for loan growth this year is between 15 percent to 17 percent.

Myanmar intensifies combat against money laundering Myanmar authorities are expanding its process in combating money laundering cases through pilot projects to collect data on money laundering sectors nationwide. In a bid to monitor money laundering cases, formulate policies on anti-money laundering and to combat financial support for terrorism, the 15-member Anti-Money Laundering Central Board was set up and it is chaired by the minister of home affairs with the chief of Police Force as the secretary.

Indonesia to limit foreign ownership insurers Indonesian lawmakers are looking into the possibility of reducing the stake foreign investors are allowed to hold in local insurers, the latest move towards more nationalistic policies in Southeast Asia’s biggest economy.

Foreign investors are currently allowed to own up to 80 percent of domestic insurance companies.

Harry Azhar Azis, deputy chairman of the parliamentary commission overseeing finance and banking, told Reuters that lawmakers were hoping to pass a draft bill outlining a broad plan to lower the limit by the end of September.

Third runway at Manila’s airport Philippine President Benigno Aquino has ordered the construction of a third runway at Manila’s main international airport to ease air traffic congestion in one of Southeast Asia’s fastest growing economies. The project is expected to cost at least 2.4 billion pesos (US$55 million), and the amount may increase to include the construction of a fourth terminal at the airport, Transportation Secretary Joseph Emilio Abaya said.

“The president’s guidance was very clear. We’ll find ways to have this completed before his term ends because the benefits are clear,” Abaya told Reuters.

India’s Prime Minister Narendra Modi

‘Modi effect’ gets Delhi working However, reforms delay implementation

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rime Minister Narendra Modi has shaken up India’s ruling elite in his first 100 days since taking power, but has so far struggled to deliver the bold reforms needed to kick-start the economy.

Modi swept to power in May on a tide of hope after years of political stagnation and slowing economic growth in the world’s largest democracy.

His Hindu nationalist Bharatiya Janata party (BJP)’s landslide election win gave them the strongest mandate in a generation.

But the new government’s first budget was short on big-ticket reforms, and it ended its first parliamentary session in power this month without managing to push through even modest legislative changes.

“When Modi came to power, people had huge expectations of him and people thought that things would happen right from the first day,” said Manoj Joshi of the New Delhi-

based think-tank Observer Research Foundation.

“But he has been a bit slow and cautious and we haven’t seen anything dramatic in budget or policy announcements.”

Modi’s bold election promise to lift millions of Indians out of poverty through market forces took a further bashing when his government’s refusal to compromise over its food subsidies threatened a trade pact agreed by all 160 World Trade Organization members.

Inflation remains high at nearly 8.0 percent, while industrial output expanded by an unexpectedly slow 3.4 percent in June, dimming prospects of a quick economic recovery.

But Modi’s first Independence Day speech, delivered from the walls of the Red Fort in Delhi without a script or the usual bullet-proof screen, was hailed as a political tour de force.

He spoke out against violence against women and vowed to provide

toilets for all within a decade and enable the poorest of society to open bank accounts.

“People may criticise me for talking about toilets from the Red Fort,” he said.

“But I am from a poor family, I have seen poverty first hand. For the poor to get dignity, it has to start from here.”

Economist Bibek Debroy of the Delhi-based Centre for Policy Research says such ambitions will take time to fulfil.

“He has made it clear in all his speeches that he doesn’t believe in setting 100 day goals or agendas, nor is his government here for 100 days,” Debroy told AFP. “Some things that need to be done for change require institutions and mechanisms that haven’t yet fallen in place.”

When it comes to cleaning up those institutions, few fault Modi’s efforts.

AFP

Indian watchdog orders developer to return funds PACL ran an investment scheme that promised depositors returns on investments in agricultural land

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ndia’s capital markets regulator has ordered property developer PACL Ltd to return at least US$8.1 billion raised from retail investors after finding the company had failed to register its land investment scheme.

The action by the Securities and Exchange Board of India (SEBI) marks the country’s continued scrutiny of companies which raise funds from mostly low-income investors by offering higher interest rates than available on bank savings accounts.

According to the SEBI Order, PACL ran an investment scheme that promised depositors returns on investments in agricultural land. The regulator said the company allowed investors to deposit money in instalments or in a lump sum, guaranteeing returns after a fixed tenure.

Phone calls from Reuters to PACL’s office were unanswered.

The amount that PACL has been

ordered to return would be well above the US$3.7 billion in deposits Kolkatabased media conglomerate Saradha was ordered to return last year, after running un unlawful deposit scheme that went bust.

In a 92-page order issued on Friday,

US$8.1 billion

estimated amount PACL has to return to investors

SEBI said PACL’s investment product qualified as a so-called collective investment scheme, or deposittaking payment plan, which should be registered with the regulator.

Although SEBI did not specify how much money PACL would need to return to investors, it estimated the amount raised under the scheme amounted to 491 billion rupees (US$8.1 billion), collected from 58.5 million customers.

It said the amount raised could be higher, but it had not obtained records from the company for the period from April 2012 to February 2013.

The regulator said all money raised from the plan would need to be returned to investors within three months and barred the company and its executives from raising any additional money.

Reuters

14

August 25, 2014

International Russia lifts ban on two Serbian firms Russia has lifted a ban on dairy imports from two firms in Serbia, the government’s food health service said on Saturday, in an apparent attempt to woo the European Union membership candidate amid Moscow’s standoff with the West.

Earlier this month, Russia introduced a one-year embargo on meat, fish, dairy, fruit and vegetables from the United States, the EU, Canada, Australia and Norway, in retaliation for Western economic sanctions over the Ukraine conflict. Moscow has been searching for new suppliers and has asked several countries.

French economy minister attacks austerity

Fed in “real debate” on rate hike Austerity measures being pursued by France and elsewhere in the euro zone are quashing growth, French Economy Minister Arnaud Montebourg was quoted saying on Saturday, renewing his attacks on policies he sees as negative for the economy. Montebourg’s interview with Le Monde daily came days after President Francois Hollande said he would accelerate reforms but not back away from his supply-side economic policy, based on bigger tax cuts for business.

The outspoken minister, a fierce critic of budget austerity, is known for frequent attacks on big business and the European Commission.

Mexico FDI down sharply in H1 Foreign direct investment (FDI) to Mexico was US$9.7 billion in the first six months of 2014, a decline of 59 percent from the same period last year, the Mexican Economy Ministry said on Friday. The drop was partly a reflection of a jump last year due to Belgian-based brewing giant Anheuser Busch InBev’s takeover of Mexican peer Grupo Modelo, which added more than US$13 billion to the total in the first half of 2013, the ministry said. Also, large-scale stock purchases by Mexican investors from foreign shareholders of the Mexican telecoms giant America Movil meant that statistically, about $4.5 billion had been knocked off FDI in the first half of this year, the ministry added.

Draghi ready to adjust policy The European Central Bank is prepared to respond with all its “available” tools should inflation in the euro zone drop further, ECB President Mario Draghi said on Friday in remarks that opened the door to possible policy action in September. Speaking at a global central banking conference in Jackson Hole, Wyoming, Draghi said he is confident that stimulus steps announced in June, helped by a weaker euro, will boost demand in the ailing economic bloc.

But in stronger language than he has used in the past, Draghi stressed the central bank stands ready to do more.

Though the Fed debate has sharpened, there is no sense yet that the centre is shifting towards a faster or earlier-thanexpected rate increase

T

he U.S. Federal Reserve is focused on an initial interest rate hike between the first quarter and the middle of next year, with possible changes in its main policy statement as soon as next month, Atlanta Fed President Dennis Lockhart said on Saturday.

“It is reasonable with the improving data to begin to anticipate a change in the basic interest rate policy and, therefore, it is quite a reasonable debate as to whether that ought to be early 2015 or mid-2015 or even later,” Lockhart told Reuters in an interview here. “The debate is real.”

Lockhart said he continues to forecast a rate increase in mid-2015, with economic growth hovering around 3 percent, and that he feels

it is “still early” to change the central bank’s main policy statement.

That statement says a rate increase won’t be appropriate until a “considerable time” after the central bank’s bond purchases end this fall, and that there is still “significant underutilization” of labour.

“Even with good data, and we have had a run of very good data on balance, you still can only draw tentative conclusions,” said Lockhart, who does not presently have a vote on the Fed’s main policy committee.

He added that he did not expect progress towards the Fed’s dual goals of 2 percent inflation and maximum employment to be “electrically fast.”

“It is going to be gradual,” he said, speaking on the sidelines of the Fed’s

Chronic tax fraud bleeds Romanian economy If all activity were taxed fully, national tax revenues would almost double

T

ax evasion is eating away at the heart of Romania and holding back the country, among the poorest in the European Union, in its efforts to catch up, analysts warn.

The estimates for the costs of the so-called black or undeclared economy are huge: about one quarter of economic activity and one quarter of people in work are believed to be beyond the reach of tax inspectors.

If all activity were taxed fully, national tax revenues would almost double.

Undeclared activity exists across the 28 members of the European

Union at a cost of at least 1,000 billion euros (US$1,333 billion) per year, the European parliament estimates.

In some EU countries, the shadow economy accounts for a significant slice of activity, but the European parliament said that Bulgaria and Romania were the most severely affected.

This is despite campaigns by EU authorities to encourage governments of new members in eastern Europe to crack down on corruption and tax evasion.

Bulgaria is the poorest member of the EU, and Romania comes second.

A recent report by the Council

annual central banking conference.

Still, with economic growth continuing, “some shift of language is on the table, should be on the table in the coming meetings,” said Lockhart, who is viewed as a centrist on monetary policy.

His comments add an important voice to a debate within the Fed that has congealed around two poles those who feel the fast drop in the unemployment rate means the economy is tightening and that rates should rise soon, and those, including Fed Chair Janet Yellen, who say a broader set of statistics show that labor markets remain weak.

Lockhart said he regards himself as a “U-6er” - meaning he watches the broader definition of unemployment, labelled U6 by the Bureau of Labor Statistics, that includes things like people working part-time for economic reasons.

The formal unemployment rate is U3, which only measures people who don’t have a job but are actively looking for one.

Though the Fed debate has sharpened, there is no sense yet that the centre is shifting towards a faster or earlier-than-expected rate increase.

“I am one who prefers we let a little more time pass in order to have the evidence accumulate that we are on a solid track and we are likely to stay on that track,” Lockhart said.

Reuters

of Europe’s anti-money laundering committee said that in Romania, the shadow economy accounted for 28.4 percent of gross domestic product in 2013.

That represented about 40 billion euros (US$53 billion) a year of uncollected taxes in an economy in which tax revenue amounts to about 46 billion euros.

“Tax evasion is on the rise in Romania and it poses a threat to its national security,” economist Ionut Dumitru, head of the country’s fiscal council, told AFP. The revenue shortfall translates into dilapidated hospitals, patients unable to get treatment or schools lacking basic facilities.

“With revenues accounting for less than 33 percent of GDP, compared to an EU average of 45 percent, Romania will never have an education system as good as Germany’s for instance,” Dumitru said.

“And sacrificing a nation’s education and health means sacrificing its future.”

AFP

15

August 25, 2014

Opinion Business

wires

Leading reports from Asia’s best business newspapers

THE NEW ZEALAND HERALD

A European lost decade?

Michael Heise Chief Economist at Allianz SE and the author of Emerging From the Euro Debt Crisis: Making the Single Currency Work

Prime Minister John Key kicked off National’s election campaign in South Auckland with a boost to Government assistance for low and middle income firsttime buyers. Grants under the Kiwisaver First home deposit Subsidy will be doubled for newlybuilt homes, the house-price limits increased and scheme renamed as the Kiwisaver Homestart Grant. At present eligible firsthome buyers can get a grant of NZ$3000 after three years in Kiwisaver, NZ$4000 after four years and NZ$5000 after five years. Under the Homestart changes, those grants will be increased to NZ$6000, NZ$8000 and NZ$10,000 respectively for new builds.

The European Union Parliament

THE STRAITS TIMES Australia has lived up to the pledge of its new government to focus on Asia, and the shift will strengthen in the coming years with new trade deals and enhanced exchanges, including with Singapore, its foreign minister, Ms Julie Bishop, told The Sunday Times. “We’ve certainly lived up to the promises that PM (Tony) Abbott made in opposition and our focus will be more on the region,” she said in an interview on Saturday. Last Friday, foreign, trade and defence ministers from Singapore and Australia announced the two nations will upgrade ties to a new comprehensive partnership.

PHILSTAR Cash remittances will likely increase by as much as seven percent this year over year-ago levels, the research arm of Metropolitan Bank and Trust Co. said. “Research forecasts annual remittances’ growth this year to still be between six to seven percent, with an upside bias, amid prospects of more positive growth in some major OFW (overseas Filipino workers) host countries,” Pauline Revillas, research analyst at Metrobank, said in a research note. The forecast is faster than the Bangko Sentral ng Pilipinas projection of a five percent expansion in cash remittances from the US$22.968 billion recorded in end-2013.

THE AGE Finance Minister Mathias Cormann has warned that if the government’s proposed budget spending cuts are not passed, “the only alternative to balance the books is to increase taxes”. And ahead of Parliament resuming on Tuesday, Education Minister Christopher Pyne has suggested universities could face a “worst case” scenario of funding cuts without sector reforms if the Senate does not pass his proposed higher education reforms. The comments from both cabinet ministers are designed to step up pressure on Labor, the Greens and the crossbench to back the government’s contentious budget savings and come ahead of today’s cabinet meeting.

M

UNICH – Europe is in a difficult predicament.

Inflation has fallen to 0.4%, and economic growth has been anaemic for years.

Though the European Central Bank has kept interest rates close to zero, private credit growth is stalling and public debt continues to rise. This sounds a lot like Japan’s situation in the 1990s, which culminated in a “lost decade” of economic stagnation and deflation from which the country is still working to recover. Is Europe bound for a similar fate?

The parallels between the European and Japanese economies’ trajectories are undeniable.

Both experienced a prolonged debt-fuelled real-estate and asset-price boom, followed by a deep balance-sheet recession.

As wealth was wiped out and wages contracted, consumption growth collapsed. More damaging, prices for real estate and financial assets plummeted, but the liabilities remained – a major shock for businesses and the financial sector.

Indeed, the combination of declining collateral and rising bad debt squeezed Japanese banks, which were too weakly capitalized to bear large losses.

To avoid a surge of insolvencies, they rolled over corporate debt, bringing about a long and painful period of financial consolidation, low investment, and slow economic growth. To compensate for weak private demand, the government increased spending, more than doubling the stock of public debt, to more than 230% of GDP, in just 15 years.

Fortunately, such an outcome is not inevitable for the eurozone.

Though some eurozone countries had real-estate bubbles, they were less extreme than Japan’s in the 1980s, and the ensuing losses were smaller.

Moreover, while mortgage debt rose sharply in some eurozone

countries, the increase was moderate in others and completely absent in Germany. Likewise, the excess borrowing by companies in Spain, Portugal, and Ireland was largely offset by relatively sustainable borrowing in the eurozone’s three economic heavyweights – Germany, France, and Italy – where the need to deleverage is thus limited.

Finally, the correction in European asset prices was smaller. In fact, eurozone stock-market indices have already made up many of their losses since 2007; by contrast, Japan’s Nikkei 225 Stock Average Index remains around 15,000, compared with a peak of nearly 40,000 in 1989.

Europe has another important advantage: it can learn from Japan’s mistakes. Perhaps the most grievous of these was the Japanese government’s failure to pursue growth-enhancing structural reforms – a result of the country’s difficult political environment. Even Prime Minister Shinzo Abe’s government, with its huge popular mandate, has struggled to make headway in contentious areas like agriculture and labour markets.

The eurozone, despite facing significant political constraints of its own, seems to be more inclined to pursue such reforms.

Indeed, the debt crisis has already forced Spain, Portugal, Greece, and Ireland to implement wideranging reforms, and Italy may soon follow suit.

Another lesson from Japan concerns monetary policy. But, contrary to popular belief, that lesson is not that the central bank should shift swiftly to expansionary monetary policy, as the ECB did at the beginning of the eurozone crisis. Though the Bank of Japan (BOJ) hesitated before initiating such a shift in 1991, it then cut interest rates aggressively and began injecting large amounts of liquidity into the economy.

Japan’s real monetary-policy lesson is that prolonged monetary accommodation with near-zero rates enables banks to delay any serious effort to clean up their balance sheets. For about eight years after the crisis began, banks simply used their massive stocks of government bonds as collateral to obtain liquidity from the BOJ, which they then used to finance loans to weak companies. The result was widespread financial forbearance, often described as “zombie lending.”

The good news is that the ECB, recognizing this danger, has been calling for a rigorous clean-up of European banks’ balance sheets and is submitting the banks under its supervision to an asset quality review and stress tests. The bad news is that extreme monetary accommodation continues to undermine these efforts.

Europe cannot avoid a Japanesestyle lost decade just by upping the dose of monetary medicine.

No amount of extra liquidity will entice overleveraged companies and households to borrow more.

This was the case for Japan in the 1990s, and it is true for the eurozone (and the United States) today.

Nonetheless, though monetary policy has not helped to kick-start growth in the eurozone, many observers continue to argue that, in order to help governments address their fiscal challenges, the ECB must launch quantitative easing (large-scale purchases of long-term assets). That is what Japan did, with the result that the BOJ is now the largest holder of Japanese sovereign debt, with around ¥200 trillion ($1.96 trillion) in government bonds.

Moreover, ten-year bond yields for Spain and Italy are already close to US levels, and are much lower for France. Reducing borrowing costs further would diminish the incentive for governments to put their fiscal houses in

order. Meanwhile, the ECB would be acting as a fiscal agent, redistributing risk and administering sizeable financial transfers among eurozone countries.

As a result, the entire eurozone could fall into a trap of rising public debt and weak economic growth – just like Japan.

Of course, governments need to spend more to smooth the deleveraging process – but only temporarily. As Japan’s experience shows, prolonged fiscal and monetary stimulus is not a recipe for faster growth.

Europe’s leaders should heed that experience. Unfortunately, it is far from certain that they will.

The Project Syndicate 2014

Japan’s real monetarypolicy lesson is that prolonged monetary accommodation with near-zero rates enables banks to delay any serious effort to clean up their balance sheets

16

August 25, 2014

Closing

German luxury car dominance shaken Among others waging or planning new offensives are Fiat-owned Maserati and Alfa Romeo, Nissan’s Infiniti, and Volvo

T

he German premiums have long been on a roll, producing an export-driven sales explosion and huge returns while mass carmakers struggled through Europe’s crisis.

But in a headlong sales race, second-placed Audi and runner-up Mercedes have both vowed to depose BMW, giving rise to heavy discounting, which sullies luxury brands and creates opportunities for the growing competition, observers say.

Now a host of younger or revived premium marques are ready to pitch dozens of new models against the big three, whose very ubiquity is taking the shine off their prestige.

Among others waging or planning new offensives are Fiat-owned Maserati and Alfa Romeo, Nissan’s Infiniti, and Volvo, a unit of Chinabased Geely.

“Our theory is that there’s room for something visibly different that is styled in a more provocative manner,” said Andy Palmer, the senior Nissan executive charged with achieving a breakthrough for the 25-year-old Infiniti brand.

“It’s particularly true for China,” Palmer told Reuters.

“Chinese consumers will cross-shop - and Audi only has the market to lose because they’ve been so dominant.”

For now, the Germans remain firmly on top. Their combined sales amounted to 4.7 million vehicles last year, almost 60 percent of the global luxury car market, according to consulting firm IHS Automotive.

That represents a 38 percent gain since 2007, the eve of the financial crisis, when the big three claimed just over half of the market. Global car sales grew 21 percent overall, while

KEY POINTS BMW, Audi and Mercedes facing new luxury challengers Brand exclusivity undermined by sales race -analysts Investment returns in decline from historic highs Infinity cars (pictured) are becoming increasingly popular

European demand shrank by a quarter over the period.

Tide turning Superior scale also brings cost advantages - from research to production and marketing - that are not going away. BMW has led the charge into new niches, launching dozens of models including SUVs in every size category, with Audi close behind.

Nonetheless, some analysts believe the tide is beginning to turn against the Germans.

UBS expects the same group of challengers, plus Tesla’s zippy electric cars and DS models from PSA Peugeot-Citroen, to grab 30 percent of global premium sales growth in 2014-18, raising their current 12.5 percent market share.

Pressured by the increasing competition, the Germans’

Hyundai to meet union

H

yundai Motor Co.’s management will meet with the union today to resolve differences over wage demands after workers boycotted extra weekend shifts for a second day yesterday.

Management plans to unveil its proposals to workers during two days of meetings starting tomorrow, Hwang Ki Tae, the spokesman for the union, said by phone today. Workers are demanding that bonuses be counted as part of their base wages.

“The union will decide what action it will take next, following the talks,” Hwang said. Hyundai Motor doesn’t have “any comments” on what the company is offering to its workers on wages, it said yesterday in an e-mailed response to a Bloomberg News query.

While workers at South Korea’s biggest carmaker will do their regular eight-hour shifts, they have decided not to take on any additional duties during the wage talks, Hwang said. Yesterday’s strike was estimated to cut sales by 70 billion won (US$69 million), Yonhap News reported, citing an unidentified company official.

Bloomberg New

return on invested capital will continue falling away from historic peaks of around 30 percent in 2010-2012, the bank predicts.

BMW shares are up 5.4 percent this year, beating the wider European auto sector’s 0.4 percent slide. But Daimler is 1.1 percent lower and VW down 15 percent, hit by cost overruns.

A Maserati push is making headway, with first-half shipments quadrupling on new models launched under Fiat Chrysler boss Sergio Marchionne, who hopes a revived Alfa can also use its pedigree to outrun upstarts such as Infiniti and DS. Tata-owned Jaguar Land Rover recorded 19 percent sales growth last year, thanks in large part to the compact Range Rover Evoque coveted

by Franz, and aims to follow up with the imminent Jaguar XE sports sedan and a later SUV.

Luxury automakers must sell more smaller cars to meet ever-tightening carbondioxide emissions targets and avoid fines.

Driven by this imperative and their bitter rivalry, BMW, Audi and Mercedes have been discounting as hard as many mass-market carmakers.

BMW rebates have grown as big as 25 percent in the UK, according to data compiled by the brokerage, and price-slashing has cost the big three about 6 billion euros (US$8 billion).

Despite their investment clout and model proliferation, a slow start in hybrids - which combine a combustion engine and electric motor - has left a chink in the German armour, especially in markets where gas guzzlers incur punitive taxes.

Failure to see the potential of electrification contributed to the ouster of Audi’s last research and development

chief, and BMW is only now rolling out its flagship i8 performance hybrid.

Louis Alexandre de Froissard, a Bordeaux-based private wealth manager, gave up his Audi A8 for an Infiniti Q50 hybrid that delivers 364 horsepower while emitting 144 grams of CO2 per kilometre, comfortably below a 160 gram French tax threshold.

By comparison, BMW’s 7-Series hybrid gets 320 horsepower for 158 grams of CO2. Froissard also ruled out the Audi A6 Avant, which puffs a penalty-prone 190 grams for just 310 horsepower.

BMW’s sleek i8 is among belated German steps to plug the hybrid gap after a period of complacency. On the broader sales and pricing rivalry there are also some signs of circumspection.

Chinese OS to debut in October

China probes two top officials

A

A

fter concerns about U.S. surveillance and a monopoly probe of Microsoft, there is some good news for China’s home-grown operating system (OS): a desktop version may be ready in October.

Ni Guangnan of the Chinese Academy of Engineering told the People’s Post and Telecommunications News that the OS will be first seen on desktop devices and later expanded to smartphones and other mobile devices.

Ni heads an OS development alliance established in March. There are still problems in the program, including a lack of research funds and too many developers pulling in different directions.

“China has more than a dozen mobile OS developers with no independent intellectual property rights because their research is based on Android,” said Ni, adding future development should be led by the government.According to the report, Ni said the end of Windows XP and the government ban on the procurement of Windows 8 have opened the door to domestic OS developers.

Xinhua

Reuters

nti-graft watchdog said it’s investigating two top officials in the northern province of Shanxi, broadening a campaign in the coal-rich region that’s snared the brother of an aide to former President Hu Jintao.

Chen Chuanping and Nie Chunyu, members of the standing committee of the Communist Party in Shanxi, are being probed for serious violations of discipline and law, the party’s discipline and inspection commission said in separate statements on its website yesterday, using a phrase that signals corruption. Chen is also party chief of Taiyuan, the provincial capital.

The investigations in Shanxi are part of President Xi Jinping’s crackdown on graft that started after he took over as Communist Party chief in November 2012. The campaign last month snared former security chief Zhou Yongkang, who disappeared from public view in October, and in June claimed Xu Caihou, a former vice chairman of the Central Military Commission, the country’s highest military body.

Bloomberg News