Macau Business Daily, Aug 27, 2014

MOP 6.00 Closing editor: Sara Farr

24-hour crossing

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Publisher: Paulo A. Azevedo

t’s official. Beijing has given the green light. The Cross Border Industrial Zone immigration checkpoint can open from midnight to 7:00am for Macau residents as well as migrant workers. Macau-Mainland borders can now effectively operate around the clock. While the Central Government has given its A-Okay, no date has yet been set for implementation 6

Year III

Number 613 Wednesday August 27, 2014

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www.macaubusinessdaily.com

Undaunted, unafraid, under supervision They were detained, questioned and released. Now the civil referendum organisers are upping the ante. They have applied for permission to protest.

Outside the Macau Dome on August 31 as Commission members cast their votes inside for the new CE. A parallel assembly is planned for St. Paul’s Ruins. Objective: a call for universal suffrage in 2019

Capping the chip floats

HSI - Movers August 26

This will be the acid test. SJM casino workers from Grand Lisboa say they will clock in for work on Saturday morning, as usual. But they won’t deal cards to punters at their tables. This has been termed ‘capping the chip floats’. And will last, say strike organisers, until their demands are met.

Management say they are still prepared to talk Page 5

Name

%Day

PetroChina Co Ltd

2.37

Bank of Communicat

1.04

Hang Lung Properties

0.78

China Life Insurance

0.66

CNOOC Ltd

0.65

Want Want China H

-1.71

Hong Kong Exchang

-1.91

China Resources Lan

-2.15

China Resources Ent

-2.56

CITIC Pacific Ltd

-3.00

Source: Bloomberg

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I SSN 2226-8294

Deja-vu

Brought to you by

It’s happened again. August gross gaming revenues are expected to drop. That’s the third month in a row. Wells Fargo analysts predict Macau casino revenues could tank 4 percent year-on-year Page 7

Chui puts reputation on the line

Diamonds are forever The company is opening new shops. In Causeway Bay, Mong Kok and Tsuen Wan in Hong Kong as landlords hold prices steady. Mammoth jewellery company Luk Fook also plans to expand to other districts in the Fragrant Harbour. Despite retreating gold sales

His manifesto has come under intense scrutiny. But Chief Executive candidate Fernando Chui Sai On says he will deliver.

In particular, on administrative reform. He also promises to improve Macau’s medical resources framework. The current free medical healthcare system has not been overhauled since 1986

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August 27, 2014

Macau

China paper urges ‘coercive measures’ against HK protesters

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state-run Chinese newspaper yesterday called for “coercive measures” against prodemocracy demonstrators in Hong Kong, as China’s rubber-stamp legislature mulls the election method for the city’s Chief Executive.

Lawmakers on the standing committee of the National People’s Congress on Monday started reviewing a report from Hong Kong’s current Chief Executive Leung Chun-ying on the issue, the official Xinhua news agency said earlier.

The meeting comes with public discontent in the former British colony at its highest for years over perceived interference by Beijing and growing divisions over how its next leader should be chosen in 2017.

Universal suffrage has been promised, but the prodemocracy Occupy Central group has pledged to mobilise thousands of protesters to block the financial district later this year if authorities reject a public right to nominate candidates for the post, currently chosen by a pro-Beijing committee.

Beijing and city officials have criticised the Occupy Central movement as illegal, radical and potentially violent.

The Global Times, which is owned by the Communist Party’s mouthpiece the People’s Daily and often adopts a nationalist tone, called on authorities to take a hard line against protest, urging Beijing not to give in to pressure.

“If these activities pose

a shocking threat to Hong Kong or continue unabated, enormously dampening the city’s functions, it is imperative that the Hong Kong government adopt coercive measures,” it said in an editorial, according to news agency AFP. “Even the worst situation is much better than a constitutional crisis with the rise of a Chief Executive confronting Beijing that will

later be compelled to outlaw him,” it said.

The government must knock out the campaigners’ “unrealistic illusions” and make the most aggressive activists “pay for their illegal confrontational behaviour”, it said in the editorial, headlined “No compromise of rule on HK chief”.

“As long as we do not allow Hong Kong to fall into the Western sphere of influence, the

Chinese mainland and Hong Kong will have inexhaustible resources to make extreme opposition groups and their supporting forces desperate,” it added.

Hong Kong was handed back to China by Britain on July 1, 1997 under a “one country, two systems” agreement, which allows residents civil liberties not seen on the mainland, including free speech and the right to protest.

CE candidate pledges to deliver on manifesto Promises made in his political manifesto will be fulfilled and medical resources may also be improved, says Chui Sai On Kam Leong

kamleong@macaubusinessdaily.com

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hief Executive candidate Fernando Chui Sai On has stressed once more that he is determined to deliver the objectives covered in his political manifesto.

In addition, he will consider putting more resources into healthcare.

The sole candidate met with Commission members from the second sector, who are in the cultural,

educational, professional and sports fields.

Mr. Chui said that following 15 years since the establishment of the Special Administrative Region, the general demands of residents are hopes that the next administration will fulfil its manifesto promises.

“Here, I can promise that [I] will execute [the objectives], especially on

administration reforms and improve administrative efficiency in my future campaign,” Mr. Chui said during the meeting.

Increasing medical resources Meanwhile, Commission members from the health sector urged the future government to establish a medical college as well as reviewing the current free medical health care system in the city, which has not been overhauled since 1986.

The candidate agreed with the necessity to review the system. In addition, he said that there are three factors that must be considered if the government is to study establishing a medical college. One of the factors is the basis of students’ knowledge of science subjects. Another consideration is that the objective of the local hospitals is not for education; in addition, the government needs to take into account the number of local people interested in pursuing a career in medicine.

“Within our ability, I think it’s possible to invest more in the medical field, especially in advanced technology. It’s worthy of us to think with a global vision on how to improve our healthcare service,” the candidate said, adding that he would put more resources into medical study, such as laboratories for clinical medicine and also public health.

On the other hand, facing concerns by educational members on how to cultivate the student morality in the environment of the gaming industry the candidate agreed on the importance of cultivating student morality as well as critical thinking so that they will have the ability to plan their lives.

The sole candidate has met with most Commission members except those from the third sector that he is due to meet today.

Meanwhile, regarding the cancellation of the ‘daylight’ rules, Mr. Chui stressed that such a decision will not heighten the buildings in general. He said that the urban planning law, land law and cultural heritage law have strict regulations and requirements regarding the height of buildings. He hopes that the next term of government can finalise general urban planning for the city as well as planning for districts.

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August 27, 2014

Macau

Referendum organisers to protest outside Sunday election site Civil referendum activists say that they want to urge universal suffrage to elect the city’s top official by means of a protest, following the unofficial referendum Stephanie Lai

sw.lai@macaubusinessdaily.com

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eading pro-democracy activists of the unofficial referendum are planning a protest at the site of the upcoming Chief Executive election on August 31 with the purpose of advocating universal suffrage, following the detention of core poll organisers last Sunday.

Sulu Sou, chief organiser of next Sunday morning’s protest, told Business Daily yesterday that he and his team are planning to protest outside the Macau East Asian Games Dome in order to urge universal suffrage for the election of the city’s Chief Executive while Electoral College members cast their ballots.

“Now I cannot confirm how many people will join our protest but it should not be of a big size,” Mr. Sou told Business Daily yesterday. “We’ll just surround the dome to express our message; we’ll not interrupt or stop the Electoral College members from entering the site to cast their votes.”

The referendum itself is not illegal in nature.

And on this basis for all people that provide their personal data to the poll website, including me, we all know the purpose of the data collection and agree to it Ng Kuok Cheong, legislator

“At 11:00am this coming Sunday [August 31], the New Macau Association will also organise an assembly at St Paul’s Ruins to call for universal suffrage for the election of the Chief Executive,” said Mr. Sou. “For both the protest and this event, we’re still awaiting government approval of our right to assemble.”

Mr. Sou, director of pro-democracy group New Macau Association, is also one of the core members that organised the unofficial referendum – a poll to gauge citizens’ demands for democracy here via online voting and physical polling stations between August 24 and 31, a time that corresponds to the campaign period of Chief Executive Fernando Chui Sai On, who is now seeking a second five-year term for the city’s top office.

“We still haven’t received any information about this protest

action,” president of Chief Executive Election Commission Ms. Song Man Lei told media at noon yesterday. “But as long as the assembly or the protest is approved and it [the application] follows the legal procedure, there should be no problem.”

Five of the civil referendum polling stations were shut down by police last Sunday following the detention of five referendum organisers, including leader of Open Macau Society Jason Chao Teng Hei. They were accused of refusing to comply with a government order to cease the referendum and were alleged to have breached personal data laws.

The Deputy director of the Office for Personal Data Protection, Mr. Yang Chong Wei, has called the unofficial referendum’s purpose of collecting personal data “inappropriate” and a violation of the data protection law.

Personal information of the referendum participants – their ID numbers and telephone numbers – is collected before they enter the site to answer questions over whether they support universal suffrage to elect Macau’s Chief Executive by 2019, and whether they have confidence that the incumbent Chief Executive, Mr. Chui, would be re-elected to the city’s top office.

New Macau Association legislator, Antonio Ng Kuok Cheong, doubts the legal basis for the allegations against Jason Chao and his peers breaching personal data protection laws.

“The referendum itself is not illegal in nature. And on this basis for all people that provide their personal data to the poll website, including me, we all know the purpose of the data collection and agree to it,” Mr. Ng remarked to Business Daily. “I couldn’t see any traits of them [the poll organisers] abusing data for other purposes, and I don’t think there is any illegal element there.”

The referendum organisers have explained before that the collection of the participants’ personal data is to avoid ‘repetitive voting’.

President of the Chief Executive Election Commission, Ms. Song, who is also a judge at the Court of Final Appeal, said she would not comment on the accusation made by the Personal Data Protection Office in reference to the referendum.

Despite the judicial investigation launched against the poll organisers, the online voting system will remain in operation until 12:00 pm on Saturday, a day before the Chief Executive election. As of 6:00pm yesterday, the website had registered over 6,650 votes.

Last month, Macau Conscience, Macao Youth Dynamics and Open Macau Society jointly announced that they would hold an unofficial civil referendum from August 24 to 30.

Participants are voting on whether the CE should be elected by universal suffrage in 2019 and whether they support the only candidate in this year’s election or would support someone else if there was a choice of more than one candidate.

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August 27, 2014

Macau

Barclays: Casinos will need 55,000 extra workers When the new wave of casinos starts to come on line in Cotai, more and more workers will be needed in Macau. According to the British bank, however, the biggest challenge for the city will be the capacity of the infrastructure to support the increase in foreign workers João Santos Filipe

jsfilipe@macaubusinessdaily.com

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asinos in Macau will have to hire around 55,500 employees from 2015 onwards, as the new openings in Cotai drives up the demand for workers, according to the predictions of Barclays. Of these, between 14,000 and 17,000 will have to be dealers for gaming tables, while 35,000 will be non-dealer employees.

“Even if we assume: each major Cotai casino due to open in 2015-17 receives 400 tables, that third-party casinos also receive 400 tables in total, and that each table needs 5-6 dealers to operate, this would imply a total of 14,000-17,000 new Macanese dealers needed for the new openings”, the report, issued yesterday by the bank equity research department, posited.

14,00017,000

number of dealers needed in 2015 In July 2014, the unemployment rate in Macau stood at 1.7 percent.

However, in spite of the shortage of labour, and given the fact that according to Macau law dealers have

to be holders of a Macau permanent ID card, it should not be one of the main concerns of the gaming industry, Barclays says. This prediction is based on the assumption that there are 36,000 local employees in casinos that are working in non-dealer positions and that could be retrained to carry out new duties. Also, the bank believes that around 62,000 locals working in the non-betting hotel, retail and service-related categories could be shifted into dealer roles.

“Average monthly wages for dealers are relatively attractive, at 16,710 patacas in 2013, higher than, as an example, the 13,380 patacas average wage for local services and sales employees. In the whole of Macau, the employed local labour force as of the end of 2013 was 223,000. We believe there is enough proficient local labour in Macau that can be trained as dealers”, the report claims.

However, and assuming that the local Macau workforce is enough to cover the new demand for dealers, wage inflation ranging mid to highteens per year should be expected.

“Even if there were sufficient labour that could be employed, each of the casino operators may have to increase wages for existing talent, to avoid disruption from staff turnover and to keep up good service levels”, Barclays added.

In the non-dealer roles, shortage for casinos is likely to come from foreign labour. The bank expects gaming companies to ask the government to increase the quota of non-local employees to fill such positions.

Infrastructure the real problem The fact that Macau will have to add around 35,000 foreign workers to the existing 138,000 is seen as a challenge for the city infrastructure.

We believe the ability of the city to take in more foreign labour would come with consideration on housing, transportation, and any ancillary facilities and support required for a larger population.

It could also bring inflationary pressure Barclays

‘We believe the ability of the city to take in more foreign labour would come with consideration on housing, transportation, and any ancillary facilities and support required for a larger population. It could also bring inflationary pressure, in particular to housing/rentals’, the report claims.

However, it was also mooted that such problems could be reduced if the majority of the non-local force came from the neighbouring city of Zhuhai and if the government allowed a 24-hour border crossing at the Gongbei border gate and at the border connecting Macau to Hengqin. ‘This could potentially allow many lowerpaid workers to live in Zhuhai and Hengqin and commute to work through these borders’, the report concluded.

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August 27, 2014

Macau

Grand Lisboa dealers threaten to ‘strike’ Considering their demands still unresolved after three waves of protests, SJM workers have decided to upgrade their actions. From Saturday, dealers from Grand Lisboa will strike by not distributing chips to gamblers. The movement will spread to other SJM casinos if the corporation does not respond appropriately Kam Leong

kamleong@macaubusinessdaily.com

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ome 1,000 dealers from Grand Lisboa are expected to go on strike at their place of work from Saturday morning, until the employer – Sociedade de Jogos de Macau (SJM Holdings Ltd) – takes action to resolve their demands, according to the vice president of Forefront of Macau Gaming (FMG), Lei Kuok Keong.

Gaming union FMG announced on Monday after a protest against all six gaming corporations that an industrial movement ‘capping the chip floats’ will take place at Grand Lisboa from this Saturday.

‘Capping the chip floats’ is a casino term. When gamblers go to the gaming tables, dealers need to open the float carrying chips and distribute the chips to the gamblers. As such, capping the chip floats means keeping

the float shut. As a result, gamblers will not be able to gamble, Mr. Lei explained.

He believes that this form of strike will affect the normal daily operations of the casino in Grand Lisboa, the biggest under the SJM umbrella.

In addition, he said, it will demonstrate that workers respect the labour law.

The FMG vice president also said that the participants are prepared for the worst outcome of having joined the strike – getting fired.

However, he stressed that the union would intervene in the issue if workers are fired because of such activities.

“The Labour Law allows every citizen the right to strike,” he remarked.

Mr. Lei said a larger scale of strike will be held by all SJM workers if the corporation does not react following the ‘capping chip floats’ move. An

option, according to him, is to see all the workers taking sick leave together.

Business Daily tried to reach the chief executive of SJM, Ambrose So Shu Fai, for comment on the issue.

However, there was no reply from the corporation before the story went to press.

The demands of SJM workers, similar to that of other gaming workers, are to fight for better compensation and benefits, such as a pay rise.

Mr. So claimed on Monday that the corporation has had regular meetings with their labour groups to understand the demands of their workers.

Despite this [strike threat] he said the gaming company would consider the demands although he did not reveal the exact timeframe or content such consideration might involve.

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August 27, 2014

Macau Brought to you by

HOSPITALITY Below-average spending The figures for average visitor expenditure are essentially the outcome of the behaviour of those coming from what is often described as Greater China; and, in particular, those coming from mainland China. The latter’s expenses alone raise the average to values not matched by visitors from any other region. Other broadly defined regions - such as Southeast Asia, or the major non-Asian regions - carry much less weight in the overall performance of the indicator. Even if, coming from farther away, their visitors tend to stay longer here. In fact, those major regions show figures for expenditure that are all well below the average.

Among those shown here, the closest is Southeast Asia. Currently, the expenditure of visitors from this region amounts to just below three-quarters of the total average. The other regions represent even lower fractions. Moreover, for all of them that proportion has been declining. They have all decreased in the last four years, by between 12 and 22 percentage points. That trend is clearly visible in the chart, with lower than average growth gradients evident for all regions.

Late night border crossing approved Beijing has approved Macau and Zhuhai’s request to allow 24-hour crossing for both migrant workers and local residents in the industrial zone Stephanie Lai

sw.lai@macaubusinessdaily.com

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Still, expenditure by visitor from all regions went up – but at very different rates. Overall, expenditure per head went up by almost 10 percent per year, on average, in the period observed here. In the same period, Southeast Asia went up by the much lower figure of 6.2 percent, while the other regions recorded even lower growth rates, varying between 5.8 percent and 1.2 percent. However, some relative recovery has been evident lately. In the first semester, the global figure went up by 4.9 percent, compared with the same period last year. All regions recorded higher growth rates in the same period.

47.7%

average visitor expenditure growth, since 2010H1

eijing authorities have approved the Macau and Zhuhai Government’s request to make the Cross Border Industrial Zone immigration point available for mainland Chinese labour working in the city and Macau residents to cross from midnight to 7:00am although authorities have yet to announce when this new measure can be put into practice.

Of all the border portals neighbouring Zhuhai in the city, the one at the Zhuhai-Macao Cross Border Industrial Zone – straddling the northwest of Ilha Verde and Maoshengwei in Zhuhai – is the only 24-hour immigration crossing point but has hitherto only been available to business owners or company staff working inside the zone.

In a letter signed on July 11, the General Administration of Customs approved a ‘temporary adjustment’ of the portal nature of the Cross Border Industrial Zone, saying that the authorities would allow the immigration point there to open between midnight and 7:00am, the time when the busy Gongbei border crossing is closed.

The letter is in reply to a suggestion by local legislator and businessman Chan Meng Kam as a China People’s Politicial Consultative Conference in March this year, who at the time lobbied for a late night to early

morning border crossing measure benefiting both mainland and Macau residents. The reply to the suggestion, although signed in early July, was only sent to Mr. Chan and publicised to media yesterday.

‘Before the new GuangdongMacau border crossing [in Ilha Verde] comes into use, we have approved on July 1 the plan to temporarily adjust the function of the Zhuhai-Macao Cross Border Industrial Zone,’ the General Administration of Customs stated in its reply.

The new Ilha Verde border crossing, which was proposed in 2012 to ease the strain on the nearby Gongbei crossing, awaits an uncertain operational date. The Secretary for Transport and Public Works Lau Si Io had mentioned to media before that this new checkpoint is designed to open around the clock.

The National Office of Port Administration, a department of the General Administration of Customs, further confirmed to Business Daily that the new border crossing measures at the industrial zone was meant to cover mainland Chinese labour working in the city but residing in Zhuhai, as well as Macau residents that live in Zhuhai but work here.

However, Zhuhai Port Bureau officials told Business Daily yesterday that they could not confirm when this latest approval from Beijing could be

put into practice.

“I think the authorities want to exercise the measure first at the Cross Border Industrial Zone as it is the only 24-hour portal here for crossing, but with immigration resources underutilised,” Macau delegate of National People’s Congress Lao Ngai Leong remarked to Business Daily, “If the authorities are to directly exercise a 24-hour border crossing at Gongbei Port it would involve a much larger adjustment in immigration staffing and other infrastructure design.”

“Now there are only four vehicle lanes and four passenger lanes at the immigration point at the Cross Border Industrial Zone,” said Mr Lao. “What the Zhuhai authorities have to prepare now is to add more e-channels, and consider what documentation is needed for checking Macau residents’ IDs when they cross there. For mainland labour, the check is much simpler because they only need to present their ‘blue card’ [nonresident worker’s permit].”

By the end of July, some 102,228 mainland Chinese employees were working in the city, occupying nearly 65 percent of the 158,234 imported labour here, the latest statistics from the Human Resources Office show. Of the mainland employees working here, most work for Macau’s construction sector, hotels, restaurants and wholesale and retail business.

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August 27, 2014

Macau

August gaming revenues to drop 4pct Transit visa changes are affecting mass premium, while Beijing’s anti-corruption campaign is putting VIP gamblers in a cautious mood so they’re spending less.

August will be the third straight month of declining revenues Luís Gonçalves

luis.goncalves@macaubusinessdaily.com

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acau’s gaming industry is heading towards the third consecutive month of declining revenues, after this week’s gains at tables ran 10 percent behind the previous, forcing investors to revise down their predictions from a flat to negative revenue growth in August.

The VIP segment recovery continues to be soft, while the mass market slowdown has deepened to single digit growth, a third of the average of last year.

In a note to clients released yesterday, Wells Fargo said that based on its checks until August 24, gaming revenue growth in Macau this month will sit in a ‘negative single digit’ range. The US bank is pointing to a likely 4 percent drop year-on-year.

Wells Fargo originally estimated a flat performance this month, when the first data coming from the gaming tables in August pointed to a slow recovery after the hangover suffered by casinos here in June and July in the wake of events like the World

Cup in Brazil and Beijing’s crackdown on corruption.

According to Wells Fargo’s calculations, however, the average daily gaming revenue in Macau this week should fall inside the MOP850 million to MOP900 million range. That’s 10 percent less than what was reported last week when revenues per day topped MOP983 million.

With a mid-point of MOP875 million for daily revenues this week, Wells Fargo says it is expecting an improvement in the last week of August when average daily gains should increase to MOP955 million.

This implies that revenues for the whole of the gaming industry in Macau will drop 4 percent in August compared to a year ago. The VIP segment should fall 12 percent while mass growth is expected to accelerate 10 percent year-on-year.

Visa factor Wells Fargo believes that the new policy imposed

by Macau on transit visas

granted to mainlanders is negatively affecting the mass premium segment, one of the most profitable in the territory. The campaign

launched by Beijing this year against corruption and lavish spending is putting high rollers in a more discrete mood with

less spending on tables as a consequence.

After a complete quarter in the growth red (from June to August), Macau’s gaming industry will continue to face headwinds in the near future and uncertainty will persist until the fourth quarter of 2014, Wells Fargo informed clients yesterday.

On October 6, another challenge starts for the gambling operators. The mass market smoking ban starts that day and is expected to create more volatility. ‘Trends to remain rocky through October’, said the US bank.

Wells Fargo posted its first downward revision this summer in early June, and posted another this month. Its analysts predict a 3 percent drop in VIP revenues in 2014 and 8 percent decrease in the second half. The mass segment should perform much better, with revenues climbing 26 percent for the whole year and 18 percent in the second half, symptomatic of a slowdown.

New transit visas not Japan creates impeding Chinese visitation casino task force

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nion Gaming believes the stricter rules and shorter stay period mandated by the new transit visas are not having an impact on the number of mainland visitors to Macau.

The largest source of visitation to Macau, mainland China, grew 12.7 percent in July and 14.4 percent in the period from January to July, both figures year-on-year. That’s almost two times the average growth of arrivals here: Macau visitation went up 7.3 percent last month and 8 percent in the first seven months of the year.

Mainland Chinese tourists travelling under the Individual Visit Scheme (IVS) grew 19 percent in July and 23 percent since the beginning of the year.

‘Mainland China visitors travelling under IVS are growing strongly and have recorded a year-on-year increase for 26 consecutive months’, said the brokerage firm yesterday.

Union Gaming thinks many mainlanders that used to travel to Macau under the ‘zero-fare tour group’ arrangement that was banned in October 2013 are probably using the IVS scheme to come here contributing to the solid increase in IVS travellers. ‘Despite the implementation of restrictions on the so-called transit visa scheme we do not believe this had a material impact on the total number of visitors’, Union Gaming declared.

The brokerage firm also predicts that despite the stricter visa policy Chinese visitation to Macau is likely to continue to grow in the future with the new infrastructure projects bedding in in China. The expansion of the Barrier Gate and Guangzhou-Zhuhai Intercity Railway, already operational, will boost the number of visitors to Macau and the number of mass market gamblers.

L.G.

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hinzo Abe, Japan’s Prime Minister, is creating a task force in order to prepare for the start of the casino industry in the country, despite the fact that gambling legislation to approve the multi-billion dollar integrated resorts has yet to be approved, Forbes magazine reported this week.

Abe’s government hopes the investment from some of the major gambling operators works as an economic stimulus to take the economy out of two decades of weak growth and deflation.

I n v es to r s b el i ev e t h a t J a p a n could become one of the biggest gambling markets in Asia with annual revenues of US$20 billion (MOP160 billion). Already in the race anticipating the green light from Japanese legislators are MGM

Resorts, Caesars Entertainment, Wynn Resorts, Genting and Las Vegas Sands. Some of these companies have already publicly announced investments of around US$5 billion to build their integrated resorts and have started negotiations with Japanese companies regarding future joint ventures.

According to Forbes, Shinzo Abe expects that the task force will also revive the momentum for casino to be developed in time for the 2020 Olympic Summer Games and gain enthusiasm from legislators. The casino legalisation bill, introduced last December, failed to be approved in June, even with the support of the government and some of Japan’s biggest conglomerates. The vote is now expected in October.

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August 27, 2014

Greater China Vietnam to see growth in imports from China Import from China in the first eight months of 2014 is expected to grow 17.3 percent year- on-year, according to the country’s General Statistics Office yesterday. Vietnam is forecast to spend some US$27.6 billion to import goods from China, said the office, quoted by Vietnam News, the online edition of Vietnam’s state-run news agency VNA. In January-August, Vietnam is expected to see a deficit of US$17.8 billion in trade with China, an increase of 18.5 percent year-on-year.

However, Vietnam is forecast to gain a trade surplus of US$1.7 billion from international trade activities as a whole.

SA-Dongfeng’s fourth China plant approved

Dongfeng Peugeot Citroen Automobile Company (DPCA) Ltd., a joint venture of French carmaker PSA Peugeot Citroen and Chinese automaker Dongfeng Motor Corporation, is expected to build a fourth factory in China. The plant, with an investment of 12.3 billion yuan (US$2 billion) and an annual capacity of 320,000 vehicles, will be based in Chengdu, capital of southwest China’s Sichuan Province, according to the Sichuan provincial development and reform commission, which approved the project on Monday. Construction will start later this year and the first car is scheduled to roll off the line late in 2016.

Progress in braincomputer interface Chinese scientists have made progress in brain-computer interface research after a successful experiment on an epilepsy patient. After implanting an electrode connected to a robotic hand into the brain of a 28-year-old woman, the hand performed the three actions of the rock-paper-scissors game immediately after the patient. This shows China’s progress in brain-machine interface, bringing new hope to patients who suffer limb motor dysfunction, said Zhang Jianmin, head of the neurology department at the second hospital affiliated to Zhejiang University.

New flight to benefit Russian visitors to China Air China launched a new flight on Tuesday to connect China’s easternmost county of Fuyuan and Beijing, making the trip from the Russian Far East to China cheaper. Fuyuan, located in Heilongjiang Province, is only a few dozen kilometres from Khabarovsk, the largest city in the Russian Far East. Russian tourists often fly from the city to Beijing, with tickets priced at more than 4,000 yuan (US$650). “They have a more economical option now. Flying from Fuyuan to Beijing now costs less than 2,000 yuan,” said Wang Jia, deputy general manager of Fuyuan Dongji Airport.

Luk Fook to expand jewellery stores The company has opened new shops in Causeway Bay, Mong Kok and Tsuen Wan this year

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uk Fook Holdings International Ltd., the second-largest jeweller in Hong Kong by market value, plans to expand in the city’s prime shopping districts as landlords hold back on raising rents.

Landlords are forgoing rent increases or asking for smaller gains when leases come up for renewal, Luk Fook Chairman Wong Wai Sheung said in an interview on August 21.

The company plans to expand in prime locations such as Causeway Bay and Tsim Sha Tsui, where it expects growth in jewellery sales, while closing stores elsewhere, Wong said.

“Usually when we renew leases for stores which we rented three years ago, we would see a big jump in rent,” said Wong. “But we’ve seen the rental increase slow at many stores.

Some landlords didn’t even ask for more rent.”

Luxury retailers in Hong Kong have seen sales drop by at least 25 percent for each month in the second quarter as Chinese tourists spend less on watches and jewellery. Luk Fook is adjusting its mix of stores as slowing economic growth in China and a corruption crackdown in the mainland crimp spending.

A store under renovation in the Tsim Sha Tsui district, popular with Chinese tourists, will be bigger when it reopens before the Christmas holidays, Wong said. The company has opened new shops in Causeway Bay, Mong Kok and Tsuen Wan this year.

The number of shops Luk Fook

Luk Fook flagship store in Tsimshatsui

operates in Hong Kong will be unchanged from a year ago as it shutters stores elsewhere, he said.

The company had 44 shops in the city at the end of June, it said in a July statement.

Less spending Spending by tourists “dropped significantly” in the second quarter, Hong Kong Financial Secretary John Tsang said August 10, leading the government to cut its economic growth forecast for the year.

Hong Kong is seeing more tourists from smaller Chinese cities with less

purchasing power, Executive Director Nancy Wong Lan Sze said at the same interview.

The average price of products sold declined to HK$7,700 (US$994) for the year ended March, from HK$8,700 a year ago, according to a company presentation in June.

Protests against Chinese tourists and over the election of Hong Kong’s next chief executive also impacted Luk Fook’s sales, Chairman Wong said.

“We hope these conflicts can be peacefully solved, so that our business won’t be ruined,” he said.

Prime street retail rents in Hong Kong were about US$4,334 per

Assistance for Three Gorges Project The core purpose of the assistance is to improve the developmental of the regions affected by the Three Gorges project

T

he State Council, China’s cabinet, announced yesterday that national economic assistance for regions affected by the Three Gorges Project will be extended for the 2014-2020 period.

According to the plan passed by the government, the country will enhance assistance for employment and economic development in more than 20 counties in Chongqing Municipality and Hubei Province.

The core purpose of the assistance is to improve the developmental capabilities of the regions affected by the Three Gorges project, according to the plan.

Assistance should be targeted at boosting local regions’ competitive sectors, supporting relocated communities, alleviating rural poverty, enhancing public services, job training, and ecological protection, according to the plan.

Five areas will be prioritized in assisting the regions during the next six years. They include industrial support for agriculture, tourism, commerce, logistics, and cooperationbased manufacturing; infrastructure in rural regions; public services such as basic education, vocational

training, medicine and hygiene; job training and employment programs; and environmental protection.

The plan added that the national economic assistance policy since 1992 has helped ensure the progress of the country’s Three Gorges project, with improved local infrastructure and livelihood for residents.

The Three Gorges project is a multi-functional water control system consisting of a 2,309-meter-long, 185-meter-high dam, a five-tier ship lock and 26 hydropower generators.

The construction plan was passed by the National People’s Congress (NPC), China’s top legislature, in April 1992. Construction on the project, which cost over 200 billion yuan (US$32.4 billion), began on December 14, 1994. Some 1.3 million people have been relocated to make way for the project.

After nine years of construction, the dam’s first generator went into operation in July 2003. The last generator started operations in July last year. The Three Gorges hydropower project had generated 712 billion kilowatt-hours of electricity by the end of 2013.

Xinhua

US$32.4 billion Three Gorges dam project cost

9

August 27, 2014

Greater China square foot annually as of the end of last year, 31 percent higher than in New York and more than double that in Paris, according to a February report from CBRE Group Inc. Rents in secondary locations are expected to fall as much as 15 percent from a year ago as retailers stay cautious, the realtor said in a second-quarter review report.

However gold results don’t allow to be optimistic. China’s net gold imports in July from main conduit Hong Kong tumbled to their lowest since June 2011 because of ample supply and as jewellers waited for bargains.

July net gold flows into China from Hong Kong dropped to 22.107 tonnes versus 40.543 tonnes in June, according to data e-mailed to Reuters by the Hong Kong Census and Statistics Department.

Bloomberg News and Reuters

Usually when we renew leases for stores which we rented three years ago, we would see a big jump in rent. But we’ve seen the rental increase slow at many stores. Some landlords didn’t even ask for more rent Wong Wai Sheung Luk Fook Chairman

regions capabilities

Antitrust regulator targets Microsoft’s browser and media player The State Administration for Industry and Commerce (SAIC) suspects Microsoft of not being fully transparent with information

M

icrosoft Corp’s Windows web browser and media player are being targeted in a Chinese antitrust probe, raising the prospect of China revisiting the software bundling issue at the heart of past antitrust complaints against the firm in the West.

The State Administration for Industry and Commerce (SAIC) suspects Microsoft of not being fully transparent with information about its Windows and Office sales, but the company has expressed willingness to cooperate with ongoing investigations, Zhang Mao, the head of the antitrust regulator, told reporters at a briefing in Beijing yesterday.

As Windows became the world’s dominant operating system in the 1990s and 2000s, the issue of how Microsoft bundled its web browser and media player became the focus of respective antitrust cases brought

by U.S. and European authorities.

Microsoft settled in 2001 with the U.S. Department of Justice a longrunning case centring around whether it could bundle its flagship Internet Explorer browser with Windows.

In 2004, the European Union ordered Microsoft to pay a 497 million euro (US$656 million) fine and produce a version of Windows without the Windows Media Player bundled. The fine was later increased to nearly 1.4 billion euros.

China’s focus on two products previously litigated elsewhere appears to form the basis of its investigation, but the probe could extend beyond the media player and browser bundling issue, said You Youting, a partner at Shanghai Debund Law Offices.

The Microsoft investigation comes

Satya Nadella, the current Chief Executive Officer of Microsoft, will have to face a legal process as his predecessors did

amid a spate of antitrust probes against foreign firms in China, including mobile chipset maker Qualcomm Inc. and German car maker Daimler AG’s luxury auto unit Mercedes-Benz.

The probes have renewed fears of Chinese protectionism.

The SAIC said earlier this month that Microsoft had been suspected of violating China’s anti-monopoly law since June last year in relation to problems with compatibility, bundling and document authentication for its Windows operating system and Microsoft Office software.

The SAIC, one of China’s three anti-monopoly regulators, formally announced its investigation into

Microsoft’s activities this month after officials raided Microsoft offices in several major cities and met Microsoft Deputy General Counsel Mary Snapp for questioning in Beijing.

“The investigation is presently on-going, and we will disclose the results to the public in a timely fashion,” Zhang said, adding that the probe is one of nine opened this year which include the software, tobacco, telecommunications, insurance, tourism and utilities sectors.

The companies involved in the nine investigations comprise domestic, foreign, state-owned enterprises and trade associations, Zhang said.

Reuters

West Seti Project assessed by China The construction of West Seti will be the largest venture initiated by any foreign investor in Nepal’s energy sector

A

A panorama of the Three Gorges dam

high level team from China is coming to the Himalayan country of Nepal in the end this month to discuss on the construction of much talked about West Seti Hydel Project, Nepali officials said yesterday.

CWE Investment, a subsidiary of the China Three Gorges Corporation, one of China’s and also the world’s largest hydropower developers, is developing the 750 MW West Seti Hydro Project in power-hungry Nepal.

Earlier, over the last weekend, Lu Chan, vice president of CWE Investment had sent a letter to Investment Board of Nepal (IBN), the agency mandated with facilitating development of hydropower projects of more than

500 MW. Even though Chinese investors are constructing more than half dozens of hydro projects in Nepal, the construction of West Seti will be the largest venture initiated by any foreign investors in energy sector.

According to a memorandum of understanding signed by the Nepal government and CWE Investment in August, 2012, the US$1.6 billion worth project would be completed by 2019.

However, due to the several factors and a lack of communication, the construction of the ambitious project has not been initiated so far.

Pant also said that in his letter, vice president Chan has also proposed to form a joint company having representatives

both from Nepal and China to begin foundational works for the construction of the project.

The Exim Bank of China has already agreed to offer soft and commercial loans worth 1.6 billion U.S. dollars for the construction of the project.

The agreement between the IBN and CWE has ensured 10 percent equity to the local population in the Nepal’s far west where the project will be located, allocation of 150 MW of electricity from the project to the region and multi-purpose benefits from the project to the maximum extent economically possible.

The government of Nepal has enlisted West Seti as a top priority and national pride project.

Xinhua

10

August 27, 2014

Greater China

Making room for Alibaba Alibaba’s debut comes at a time of growing dissatisfaction on Wall Street for Amazon’s record of thin profits Deepa Seetharaman and Ryan Vlastelica

I

nvestors are looking over portfolios to make room for Chinese e-commerce giant Alibaba Group Holdings Inc.’s market debut next month - and that means some less attractive stocks that funds are holding might be shown the door.

The initial public offering, which could top US$16 billion to become the largest-ever IPO by a technology company, is expected as early as next month after Alibaba management kicks off a two-week investor road show after the Labour Day weekend.

As investors take a hard look at their portfolios, it may trigger a veritable garage sale of names that are failing to impress Wall Street, including U.S. e-commerce rival Amazon.com Inc., fund managers said.

“Any company that didn’t meet expectations and give a rosy outlook is probably being considered as a sale candidate to make room for a name like this,” said Jim O’Donnell, chief investment officer of Forward Securities, which has US$5 billion in assets under management.

“There won’t be wholesale turnovers of portfolios, but I imagine Amazon is being looked at,” he added.

Chinese rivals like Baidu Inc. and Tencent Holdings Ltd also may be pressured as well if fund managers view Alibaba, which powers 80 percent of all online commerce in China, as a better path to tap into growth in the world’s second-largest economy.

Next month’s road show is likely to attract interest from a wide range of funds, including those focused on emerging markets and technology.

Alibaba’s headquarters in Hangzhou

Alibaba may garner a valuation of US$200 billion or more when it goes public, analysts say, which would make it one of the 20 biggest companies listed in U.S. markets.

“It is the 8,000-pound gorilla coming for the stock market,” Michael Reynal, portfolio manager at San Francisco-based RS Investments, said of Alibaba.

Yahoo arbitrage Just how investors act also depends on whether they gain a toehold in the highly anticipated IPO at all. One topic of debate is how investors who are boxed out of the IPO will play Yahoo Inc.,

Any company that didn’t meet expectations and give a rosy outlook is probably being considered as a sale candidate to make room for a name like this Jim O’Donnell chief investment officer Forward Securities

which holds a 22.5 percent stake in Alibaba.

The U.S. web portal has struggled to reinvent its core business, but has nonetheless seen its shares more than double in the last two years on the strength of its Alibaba ties. Some investors say Yahoo Inc. could be sold to clear room for Alibaba. By some measures, the company carries a high valuation, with its enterprise value to sales ratio surpassing 90 percent of the U.S. stock market, according to Starmine, a Thomson Reuters company.

On the flip side, investors boxed out of Alibaba’s IPO could snap up Yahoo to capitalize on the Chinese company’s growth. That argument could also help buoy shares in Softbank Corp, which has a 34 percent stake in Alibaba.

“I bet a lot of people are playing Yahoo for Alibaba and once the IPO is gone, they may exit Yahoo completely,” said Paul Meeks, senior analyst and portfolio manager of the US$42 million Sextant Growth Fund at Saturna Capital, which has US$4 billion assets under management.

“A lot of people know they’re not going to get IPO shares, so they hold Yahoo and Softbank,” said Mark Yusko, who manages US$4.5 billion as CIO of Morgan Creek Capital Management and has invested in Alibaba through private placements. “They want to capture the IPO pop.”

Trade-offs Alibaba’s debut comes at a time of growing dissatisfaction on Wall Street for Amazon’s record of thin profits and heavy spending on developing television shows and

hardware initiatives including aerial drones and smart phones.

The expected boom in e-commerce in China may also drive some U.S.based investors in Chinese search company Baidu toward Alibaba.

Amazon shares have fallen about 17 percent so far this year, while shares in rival eBay Inc., which also could be sold in favour of the Chinese e-commerce company, has been flat as the tech-heavy Nasdaq has risen almost 9 percent.

Amazon’s operating margin over the last 12 months is about 0.8 percent while for eBay, margins are roughly 20 percent, according to Thomson Reuters data. By contrast, Alibaba boasted a 47.5 percent operating margin in fiscal year 2014, ending in March, according to its IPO filing.

Still, some analysts say Amazon is not easily replaced by Alibaba because of their relative geographic strengths.

“Amazon has a stranglehold on the U.S. market just as Alibaba has a stranglehold on the Chinese market,” said Daniel Kurnos, analyst at Benchmark Co. “It will be hard for one to penetrate the other.”

In 2013, Alibaba handled more online transactions than Amazon and eBay Inc. and had 231 million active buyers, or the equivalent of 17 percent of China’s population.

By 2020, online retail sales in China are estimated to reach US$420 billion to US$650 billion, as much as the United States, Japanese, U.K., German and French markets combined, according to a recent analysis by McKinsey Global Institute.

Reuters

11

August 27, 2014

Asia

Imports substitution in Indonesia risks Widodo plans The model lost favour after its widespread adoption in Latin America ended with the debt crisis of the 1980s

I

ndonesian officials are obsessed with a 1950s economic policy that did South America little good.

President-elect Joko Widodo has proposed policies to promote import substitution, a strategy aimed at reducing the need for imports by switching to homegrown commodities, industries and technologies. The model, often credited to Argentine economist Raúl Prebisch in the 1950s, lost favour after its widespread adoption in Latin America ended with the debt crisis of the 1980s.

An excessive focus on meeting domestic needs could cut off Southeast Asia’s biggest economy from the global supply chain and product development, increase protectionism and leave its industries uncompetitive, analysts say. It also risks elevating demand for foreign currency to fund machinery imports for local production, without creating a flow of exports to balance that financing need.

“Import substitution is an archaic policy,” said Arianto Patunru, an economist at Australian National University in Canberra. “In these days when global production is fragmented and everything is made in everywhere, a call for import substitution is a major setback.

Indonesia is currently behind its peers in the region in terms of reaping the benefits of regional and global production networks.”

Indonesia has tried to use such policies to develop valueadded processing and boost selfsufficiency, from this year’s miningore export ban aimed at spurring more smelters, to beef import quotas designed to encourage domestic cattle production. The current administration has made it more difficult to import smartphones, and Widodo plans to limit the expansion of some plantations to free up land for food crops.

Jokowi takes office in October and will inherit an economy expanding at its slowest pace since 2009 and a current-account deficit that widened to near a record last quarter.

The rupiah has gained almost 4 percent this year against the dollar, on optimism the new leader will replicate nationally the success he had in Jakarta in cutting red tape and kick-starting infrastructure development. The currency slid 21 percent in 2013 as falling exports and elevated import levels spurred the current-account deficit.

Coffee, cocoa Yet Jokowi’s plan to impose a moratorium on the expansion of some plantations could affect

Indonesian president-elect Joko Widodo (L) accompanied by his vice president-elect Jusuf Kalla

commodities producers in the world’s largest producer of palm oil, second-biggest rubber grower and third-biggest robusta coffee and cocoa producer. The presidentelect wants to achieve rice and corn self-sufficiency by 2018, and aims to reduce imports of soybeans, a staple protein source, according to a campaign policy document.

Likewise, the administration of current President Susilo Bambang Yudhoyono recently considered a tax on imported smartphones and has limited shipments to certain ports, while trying to encourage iPhone manufacturer Foxconn Technology Co. and Samsung Electronics Co. to build production plants.

to boost its local manufacturing in industries such as aviation. In India, Prime Minister Narendra Modi pledged in a speech this month to revive manufacturing and reduce reliance on imports.

Export economies Yet across Asia, countries from Singapore to Thailand have made exports a key contributor to their economies, producing automobiles, computers and smartphone parts for a global market as Indonesia remained largely a commodity producer where growth is supported by domestic demand.

While its smaller export

Domestic needs “We have to build industry from upstream to downstream,” Trade Minister Muhammad Lutfi said when asked about import substitution.

More than three-quarters of the country’s imports are raw materials and components, he said.

Consumption of everything from sugar to wheat to palm oil is climbing in Indonesia as the population and incomes increase. The world’s fourthmost populous nation will replace China as the top sugar importer in the year to April, U.S. Department of Agriculture data show.

Elements of import substitution have persisted in countries including Malaysia, which built a domestic car making industry with protectionist import tariffs while wooing foreign electronics manufacturers with tax breaks. Russia, facing U.S. and European sanctions, is now aiming

The unity of the people and helping each other will be the new power to rebuild an Indonesia that is politically sovereign, economically independent Joko Widodo Indonesia’s President-elect

dependence helped Indonesia avoid sliding into recession during the global financial crisis, the risk is that its focus on meeting domestic needs will distract policy makers from creating a competitive economy, said analysts.

Officials from the outgoing government and Jokowi’s transitional planning team are meeting this month to work on proposals for potential reforms, with the structure of the cabinet, economic policy and next year’s budget up for review.

Newer version Yudhoyono’s government has backtracked on rules setting food import quotas, as an effort to encourage domestic production of cattle and soybeans led to price spikes that fuelled inflation and caused protests.

Jokowi, who started a furniture export business before going into politics, wants to support small and medium-sized manufacturers. His political party is led by Megawati Soekarnoputri, the daughter of Indonesia’s first post-colonial leader Sukarno, who ruled at a time when import substitution industrialization gained currency in emerging economies.

The incoming government should seek a newer version of the theory, by improving export competitiveness through building infrastructure while still seeking to reduce imports, said Eric Alexander Sugandi, an economist at Standard Chartered Plc. in Jakarta.

Bloomberg News

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12

August 27, 2014

Asia New Zealand exports drop The value of New Zealand’s exported goods in July fell for the first time after 10 months of rises, leading to a monthly trade deficit of 692 million NZ dollars (US$577.53 million), or 19 percent of exports, the government statistics agency announced yesterday. The value of exported goods in July was 3.7 billion NZ dollars (US$3.08 billion), down 3.3 percent year on year, according to Statistics New Zealand. Over the last 10 months, milk powder, butter and cheese values had risen between 34 percent and 84 percent.

Young buyers not interested in Japanese Stocks People under 40 accounted for 8.5 percent of the investments, while those over 60 made up 65 percent

Cambodia votes for new leadership One hundred and twenty-two of the 123 Cambodian lawmakers from the ruling and opposition parties began to vote for their leadership in the legislative body yesterday.

The opposition Cambodia National Rescue Party (CNRP)’s 55 lawmakers ended their 10-month-long boycott of parliament after Prime Minister Hun Sen, vice-president of the ruling Cambodian People’s Party (CPP), and CNRP President Sam Rainsy last month reached an agreement to end their differences over last year’s election that resulted in the CPP winning 68 seats against 55 seats for the CNRP.

Ayala to sell preferred shares Ayala Corp, a major Philippine conglomerate, said it plans to raise 15 billion pesos (US$342 million) by issuing preferred shares for future investments in power and infrastructure projects. The fundraising follows a similar 10 billion peso issuance in November last year.

Ayala, which also has businesses in banking, telecommunications and electronics, said the preferred shares will be issued at 500 pesos each - the same price as its November issue. The new share issue is likely to take place towards the end of the year, Ayala Corp managing director Delfin Gonzales said in a text message.

S.Korea dept store sales revised Annual sales at South Korea’s top department stores in July rose at a smaller pace than initially estimated, revised government data showed yesterday, but they still marked a welcome gain from a sharp drop in June. Combined sales at department stores run

by Hyundai Department Store, Lotte Shopping and Shinsegae Co rose 2.0 percent in July on an annual basis, the Ministry of Trade, Industry and Energy said. This was a much smaller rise than a 4.2 percent increase estimated by the finance ministry earlier this month.

H

istory is working against Japan’s government as it seeks to convince a new generation of investors that equities are the best bet for funding retirement.

A program of tax breaks that started January 1 hasn’t proved to be the answer, with less than 9 percent of investments coming from people under 40. Now policy makers are looking to tweak the plan. The Financial Services Agency will this week recommend increasing the

annual amount that can be invested through a Nippon Individual Savings Account, according to a person familiar with the matter.

The challenges to any blueprint for encouraging equity investment in Japan start with the market itself, with the Topix index sitting more than 50 percent below its 1989 high and almost 30 percent below levels as recently as 2007. Even last year’s 51 percent advance is failing to coax a response because younger

people have little money to spare, sceptics including the founder of the Sawakami Fund say.

As health-care and pension costs weigh on public finances, the government wants Japanese households to boost their retirement funds by investment rather than clinging to the 0.04 percent interest rate on bank deposits. That’s why Japan is willing to forego the taxes lost through NISA, estimated at 26 billion yen (US$250 million) a year.

Great expectations for April-June Indian manufacturing activity grew at its quickest pace in 17 months in July as order books swelled Shaloo Shrivastava

I

ndia’s economy likely grew at its fastest in two years between April and June, according to a Reuters poll, as improved sentiment after Narendra Modi’s election victory in the middle of the quarter coincided with a rebound in investment, manufacturing and construction.

Prime Minister Modi is expected to deliver major reforms, but the lack of progress on that front, along with poor monsoon rains is expected to hamper the recovery in growth from worryingly low levels.

Asia’s third largest economy likely

grew 5.3 percent in the first quarter of this fiscal year (April-March), up from 4.6 percent in January-March, according to the median consensus of over 40 economists surveyed by Reuters last week.

That would be the fastest since the quarter that ended in March 2012 and reflects the upturn in factory activity during recent months. Official gross domestic product data is due to be released on Friday.

“Capital goods, a leading indicator for investment activity, logged a significant 13.9 percent

rise in output in the first quarter of FY15,” said Aditi Nayar, Senior Economist at ICRA. Indian manufacturing activity grew at its quickest pace in 17 months in July as order books swelled, marking the ninth consecutive month of expansion according to the HSBC Purchasing Managers’ Index (PMI) survey, compiled by Markit.

And factory production grew for the third straight month in June.

Economists however did not significantly change their growth forecast for the 2014-15 fiscal year, with the average at 5.4 percent.

For all the hopes invested in Modi’s government, economists cautioned that the economy’s momentum depended on reforms that could prove difficult to pass through parliament.

Despite is massive majority in the lower house, the government lacks a majority in the upper house and

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August 27, 2014

Asia When you look at Japan’s structural problems such as a shrinking labour force and aging population, younger people should be worried about social services. They have a long time to invest. I want them to put in money bit by bit and enrich their lives down the road Masahiko Koyanagi executive director Japan Securities Dealers Association

NISA allows each person to buy as much as 5 million yen of stocks and investment trusts without paying levies on dividends or profits, subject to an annual cap on purchases of 1 million yen. Japan’s households have more than half their 1,630 trillion yen of financial assets in cash and bank deposits and 9.1 percent in equities, according to the central bank.

The distribution of wealth among

age groups in Japan suggests that Generations X and Y have less to put into the stock market. Twothirds of family savings are owned by people aged 60 or over, according to Statistics Japan. About one in three households have no financial assets, according to the Central Council for Financial Services Information.

That’s not stopping the government from trying.

The FSA is proposing to increase the annual NISA investment cap to 1.2 million yen and making a so-called junior NISA program, which would start by January 2016, according to the person, who asked not to be named as the plans are private.

Kids program In the kids program, families can reduce their household’s tax burden by investing up to 800,000 yen per year on behalf of each child aged 19 or younger, the person said.

The Finance Ministry is expected to receive the proposals by August 29 and decide by year-end whether to implement them.

The existing cap is enough for most people, as about three of every four investors own less than 5 million yen in equities, according to Hitoshi Sumisawa, director of the incomeand property-tax policy division at the Finance Ministry. Sumisawa said he was speaking generally and not referring to any proposed changes to the program before the ministry receives them.

Japanese savings are “the world’s biggest sleeping resource” and unless they are channelled into equities, the nation’s market will remain susceptible to the influence of foreign investors who account for two-thirds of market transactions by value, according to Atsuto Sawakami, whose eponymous fund manages about 300 billion yen.

Bloomberg New

quarter in India

S.Korea household credit growth slows The increase was led by household loans owed to financial institutions

S

outh Korea’s annual household The resulting hit to consumption credit growth eased slightly dragged down second quarter growth during the April-June period, to its slowest in more than a year. central bank data showed yesterday, The central bank data also but the underlying growth rate attributed the rise in loans to banks remained resilient in the face of a increasing efforts to attract clients to maritime disaster in April that dented borrow more at fixed interest rates. private consumption.

This is part of a government Household credit during the attempt to push households June quarter, including loans and towards structurally sound loans, other credit owed by South Korean as the country’s financial regulator households, was up 6.2 percent said in February fixed-rate and on-year, or 15.1 amortising home trillion won, to loans must each 1,040.0 trillion account for 40 won (US$1.02 percent of banks’ trillion), the residential Bank of Korea’s m o r t g a g e preliminary data holdings by showed.

2017.

This was Purchases on slightly slower credit, including than a 6.4 credit card percent gain transactions household credit seen in the first gained 7.9 quarter, when percent on a Bank of Korea’s credit grew at yearly basis to preliminary data the fastest clip 57.5 trillion showed in two years. won, the central The increase bank’s quarterly was led by data showed. household loans Most analysts owed to financial institutions, which see credit continuing to grow in rose 6.1 percent in the second quarter the third quarter as government of the year from a year ago to 982.5 measures aimed at boosting activity trillion won. in South Korea’s housing market The capsizing of the Sewol ferry were launched in August on top of a in mid-April killed more than 300 widely expected rate cut, which was passengers and cast a pall of gloom delivered earlier this month.

Reuters on the domestic tourism industry.

US$1.02 trillion

Indian developer to appeal refund order PACL assured investors that their deposits were safe

I

British Deputy Prime Minister Nick Clegg (L) shaking hands with Indian prime minister Narendra Modi (R) during a trade meeting in New Delhi this week

it has so far failed to initiate major reforms, and has been confined to taking minor steps to encourage saving and investment.

“Additional reforms are required to ensure that a sustained and broadbased recovery takes root,” said ICRA’s Nayar.

The poll also showed India’s current account deficit likely widened to US$7.1 billion in the April-June quarter, compared to a deficit of US$1.2 billion in the previous three

months, after restrictions on gold imports were lifted.

In percentage terms, the current account deficit probably widened to 1.50 percent of gross domestic product against 0.20 percent in JanMarch quarter.

India’s Finance Secretary Arvind Mayaram said last month that India needs to keep its current account deficit between 2.0-2.5 percent for 2014/15.

Reuters

ndian property developer PACL said it would appeal a regulator’s order to return at least US$8.1 billion to investors in a land-forfunds scheme, as depositors went to the company’s New Delhi office to demand their money back.

The Securities and Exchange Board of India (SEBI) on Friday ordered unlisted PACL to refund the money within three months, after ruling that the company’s investment schemes had not been registered with the capital markets regulator.

PACL assured investors that their deposits were safe while saying its scheme - which promised depositors returns on investments in agricultural land - did not have to be registered.

“We assure our customers that their investments are safe and their interests would not be jeopardized,” PACL said in a statement PACL is also being probed by the Central Bureau of Investigation (CBI) for what India’s top crimefighting agency has described as “an alleged scam” for raising money from millions of investors under the guise of the sale and development

of agricultural land.

SEBI in its order on Friday said PACL’s land holdings did not cover the amount of money raised from investors. The company denied that on Monday, saying it had “sufficient asset holdings”.

Companies such as PACL operate in a regulatory grey area that has developed because almost half of India’s more than a billion people do not have access to formal banking.

But regulators fear this makes investors vulnerable to unregulated investment schemes.

Last year, Kolkata-based Saradha Group was ordered to return US$3.7 billion after running a deposit scheme that went bust.

About a dozen investors and agents gathered at PACL’s main office in Delhi as three security officers guarded the entrance.

Vijender Kumar, a 24-year-old in the nursing sector, said he had come from the outskirts of Delhi after reading about PACL in a newspaper since his father had invested 60,000 rupees over five years until 2013.

Reuters

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August 27, 2014

International S&P 500 fails to hold 2,000 record The S&P 500 was unable to hold the 2,000 mark after moving above the milestone level for the first time on Monday, but still managed to close at a record high, buoyed by financials and biotechnology stocks. The significance of the milestone was more psychological than fundamental, and it represents the high point of a nearly six-year rally that has boosted retirement accounts for Americans from Wall Street to Main Street, though the gains have largely benefited wealthier Americans.

On a total-return basis the S&P 500 has more than tripled from its 2009 low hit.

Lonmin CEO denies job cuts plan The chief executive of platinum producer Lonmin denied assertions from mining industry sources on Monday that the company aimed to cut around 5,700 jobs as part of a drive to restore profits after a five-month strike. “There are no plans like that. Our priority is to ramp up production,” Chief Exeuctive Ben Magara told Reuters. He did not provide further comment. Two mining industry sources, one in London and the other in Johannesburg, told Reuters earlier that the proposed plan would see the closure of four to six of the company’s 11 shafts.

Swiss private banks start issuing results Bank Pictet released the results yesterday just to be followed in the next days

by Lombard Odier, Mirabaud and LaRoche

T

he elite of Swiss private banks yesterday begin lifting the veil on their books after a radical shift in their business model, amid tougher international regulations and crackdowns on tax dodgers.

Geneva’s Bank Pictet broke with a 209-year-old tradition of keeping its accounts under wraps, announcing a six-month profit of 203 million Swiss francs (168 million euros, US$222 million).

Operating income was 975 million francs, operating profit 247.2 million, and assets under management 404 billion francs.

Pictet said that tier one capital ratio -a measure of a bank’s own top-notch funds, and a benchmark of stability- was 21.7 percent.

Under global rules, banks must

have a ratio of at least 4.5 percent, while Switzerland’s regulator requires 7.8 percent.

“Our financial solidity, along with the ability to set our own business strategy without pressure from external shareholders or creditors, go hand in hand with independence of mind, exacting risk management and freedom from the temptations of short term fashion,” said Pictet senior managing partner Jacques de Saussure in a statement.

Pictet’s results release will be followed on Thursday by Lombard Odier, while Mirabaud and LaRoche are also poised to issue their results.

“All the figures published will be important, even if these banks are not listed,” Andreas Venditti, an analyst at Zurich’s Vontobel

Accor hotels reports profit jump The hotel group, ranking sixth in the sector worldwide and number one in Europe, reported a leap in first-half net profit yesterday. The company also said that it would buy the bricks and mortar of 13 hotels in Britain. Net profit in the first half jumped by 76 percent from the equivalent figure last year to 60 million euros (US$79 million). Accor, based in France, is the operator under its overall brand of the hotel chains Sofitel, Pullman, Novotel, Mercure, Ibis and HotelF1, accounting overall for 3,600 hotels and 450,000 rooms, from luxury hotels to low-cost operators.

Disney seeks drone-related air show patents Walt Disney Co has filed for three dronerelated patents that it says could lead to an era of aerial movie screens and largerthan-life puppets flying through the sky.

The company’s Disney Enterprises Inc. subsidiary suggests its proposed dronepowered air shows could serve as an alternative to spectacles such as fireworks and large-scale light shows, according to its patent applications. In filing for the patents, Disney joins a list of companies pressing for the U.S. government to allow commercial use of small-unmanned flight systems long associated with military and government surveillance.

Buffett enters Burger King side Warren Buffett will help finance Burger King’s planned takeover of the Canadian coffee and donut chain Tim Hortons, the Wall Street Journal reported yesterday. The precise structure of Buffett’s participation is not yet clear and discussions are ongoing, the paper said, quoting people familiar with the transaction. Some of the people said it would be in the form of preferred shares, and one said Buffett’s company Berkshire Hathaway would provide about 25 percent of the deal’s financing. The two companies’ current market value is about US$18 billion.

Bank, told AFP. The revolution in the secretive world of private banking -which caters for the globe’s super-wealthybegan in January when Pictet and Lombard Odier ditched their twocentury-old statutes.

Previously, their handful of wealthy managing partners were personally responsible for their clients’ money.

In other words, if the bank got into trouble, the partners could lose all their assets, not just those they had invested in the operation.

But the increasingly complex nature of global finance made it hard for private bankers to feel safe with a traditional approach that put all their assets on the line as they expanded their operations.

The tougher regulatory environment seen since the global financial crisis, and scandals such as the Madoff fraud case in the United States which rippled across the world’s banking sector, were also wake-up calls.

Switzerland’s cherished tradition of banking secrecy has meanwhile been battered as governments -notably the United States and European Union- crack down on tax cheats who stash cash abroad.

As a result, the four private banks shifted from their near-unique status and transformed themselves into businesses almost like any other.

They have recast themselves a “corporate partnership”, a hybrid status that makes it easier to compare them with fully-listed players such as Credit Suisse and UBS. It is similar to the “limited company” structure in the British Isles, with its wellknown “Ltd.” label.

The partners now only risk the funds they have invested in the bank, rather than putting all their personal assets on the line.

Not being listed on the stock exchange, private banks do not have to publish as detailed results as mainstream banks.

For Luc Thevenoz, a law professor at the University of Geneva, the changed business model offers greater protection.

AFP

Geneva attracts some of the most secretive banks in the world

Russia approves state banks injection The banks will issue new preferred shares that will be acquired

by Russia’s National Welfare Fund

T

he Russian government has approved injecting 239 billion rubles (US$6.6 billion, 5 billion euros) into two of the country’s largest, state-controlled banks that have been hit with Western sanctions.

VTB Bank will get the lion’s share of the funds, 214 billion rubles, while Rosselkhozbank will get 25 billion, according to a decree signed last week and posted Monday on the government website.

Both banks were hit by sanctions imposed over Moscow’s support for pro-Russian rebels in Ukraine that deny them most access to borrow on Western financial markets.

The banks will issue new preferred shares that will be acquired by Russia’s National Welfare Fund, a sovereign wealth fund fed by the country’s massive oil revenues worth US$86.5 billion at the beginning of August.

The borrowing restrictions

crimp the ability of Russian banks to lend just as flagging domestic demand has choked off growth and the government wants domestic companies to step up investment to reduce reliance on the West.

Russia has banned most EU and US food products in response to Western sanctions, which officials

US$6.6 billion

injection value

said means the farm sector will need nearly US$18 billion in additional investment to produce more of the country’s food.

The Vedomosti business daily reported yesterday that the Russian government was considering creating a state reinsurance company, another sector in which the country is highly dependent on foreign companies.

It quoted a finance ministry source as saying that creating such a company would require at least US$1.5 billion to begin with, while the financial magazine Dengi estimated the sector as needing US$10 billion in capital to replace foreign companies.

VTB bank said last week its net profit plunged by over four-fifths from the figure for the same period last year to 1.9 billion rubles, but expressed confidence that it can resist Western sanctions.

AFP

15

August 27, 2014

Opinion Business

wires

Leading reports from Asia’s best business newspapers

THE JAPAN NEWS With the lifting of a ban on beef exports from Japan to the European Union, Japanese deluxe wagyu beef has started to hit the market in Europe.

High-quality Japanese agricultural products are popular overseas and the government’s aggressive agricultural policy has been encouraging exports. The EU, which banned imports of Japanese beef because of an outbreak of foot-andmouth disease in Japan and for other reasons, lifted the ban in 2013. Trade resumed in June this year after various procedures, including approval of slaughtering facilities, were completed.

THE STAR The statutory reserve requirement (SRR) will see an adjustment, only if there is a fundamental change in the liquidity of Malaysia’s financial system, says Bank Negara Malaysia (BNM) Governor Tan Sri Dr Zeti Akhtar Aziz.

Speaking to reporters, Zeti said the central bank had an extensive policy toolkit to ensure the stability of the financial system. “This is important for a country like Malaysia which is now progressing to greater maturity in its financial system,” she added. The SRR is a monetary policy instrument available to BNM for the purposes of liquidity management.

THE NEW ZEALAND HERALD An insurance broker accused of using client funds to prop up his business was running a “moneygo-round”, comparable to a Ponzi scheme, the Auckland District Court heard yesterday. Former Herbert Insurance boss Grant Herbert faces 18 charges under of theft by a person in special relationship and eight charges under the Secret Commissions Act. He pleaded not guilty to these charges yesterday morning. Herbert was the managing director of Herbert Insurance since 1991, Crown lawyer Todd Simmonds said yesterday morning.

TAIPEI TIMES TransAsia Airways Corp (TNA, 復興航空) announced yesterday that it would offer NT$14.9 million (US$496,200) each in compensation to the families of 48 passengers and crew who died in the crash of TransAsia Flight GE222 to Penghu last month.

The amount surpasses the highest compensation paid by a Taiwanese airline of NT$14.2 million per victim, which was paid by China Airlines Ltd (中華航空) to the families of the 225 people who died in the Flight CI611 crash of 2002.

Brazilian presidential candidate Marina Silva (R) represents a fierce competitor against current President Dilma Rousseff

Belly-up Brazil?

Gene Frieda

Global strategist for Moore Europe Capital Management

S

AO PAULO – After years of impressive growth, Brazil’s economic prospects appear increasingly dim. Since the World Cup ended in July, economic activity has plummeted, inflationary pressures have intensified, and consumer and business confidence have collapsed, leading many economists to slash their growth forecasts for this year. So just how sick is Brazil’s economy, and how will its malaise affect the outcome of the presidential election in October?

At first glance, Brazil’s weak growth appears ephemeral, and President Dilma Rousseff should be well positioned to win a second term. Over the last 12 years, her Worker’s Party (PT) has delivered the country’s strongest per capita GDP growth in more than three decades; reduced income inequality with an extensive system of social transfers that reaches one-third of Brazilian households; and reduced formal unemployment to a record-low 4.5%.

But even a cursory look at recent economic data reveals that Brazil’s growth model may well be hitting a stagflationary wall. In fact, Brazil most likely experienced a technical recession during the first half of this year. And annual growth during Rousseff’s presidency has probably averaged less than 2% – the slowest for any Brazilian president since the 1980s, when the country began its transition from hyperinflationary basket case and serial defaulter to stable and increasingly prosperous middle-income economy.

Moreover, had the government not cut taxes and delayed muchneeded increases in gasoline and electricity prices, average annual inflation would stand at

Brazil’s growth model may well be hitting a stagflationary wall.

In fact, Brazil most likely experienced a technical recession during the first half of this year

7.5% – a level not reached in decades. In services, where the government has taken no measures to suppress inflation, the rate exceeds 9%.

Dig deeper, and one finds that the economy’s foundations are plagued with fragilities and imbalances. Though overall economic activity is weak, the current-account deficit has reached a 12-year high of 3.5% of GDP. Industrial production is 7% below its pre-crisis peak in 2008. This, together with the decline in manufactured goods as a share of total exports, from 54% a decade ago to 37% today,

points to a substantial loss of competitiveness.

Even the economy’s apparent strengths – a thriving service sector and low unemployment – rest on unsustainable credit policies. Of course, rapid credit growth is a natural consequence of declining real interest rates.

But, in Brazil, lending by stateowned banks has outpaced that of private banks significantly since 2008, meaning that lending at deeply subsidized rates has largely driven the increase in bank credit, to 58% of GDP (roughly double the rate eight years ago).

Against this background, Brazil is preparing for its most important presidential election since its transition from dictatorship to democracy in 1985 – and the polls do not bode well for Rousseff. Despite higher incomes and lower inequality, 70% of Brazilians have expressed a desire for change. This is not surprising, in view of the street protests that erupted last year over the poor quality of public services and rising prices. But is Rousseff’s government entirely to blame?

The short answer is no. While Rousseff’s government is largely responsible for the recent bout of cyclical weakness and social upheaval, Brazil’s problems are rooted in a broader unwillingness to shake off the yoke of policies adopted during more than two decades of military rule.

The 1994 Plano Real, a macroeconomic stabilization program, together with subsequent structural reforms, enabled Brazil finally to quash inflation and ride a wave of cheap global liquidity and surging Chinese demand for commodities. As the government

attempted to direct these gains toward wealth redistribution, public expenditure rose and the social-benefits system – underpinned by so-called “acquired rights” – became increasingly rigid.

Brazil needs a new growth model, based on four key elements: tighter fiscal policy, looser monetary policy, a reduced role for state-owned banks in credit provision, and measures to lower Brazil’s astronomical private lending costs. The next government, whether of the left or the right, will also face the unenviable task of reforming the acquired-rights system to make social benefits more flexible and affordable. Its approach will determine whether Brazil goes the way of Venezuela, which is currently mired in stagflation, or Chile, widely regarded as Latin America’s best-run economy.

Given the protections afforded to acquired rights, the process of rooting out economic distortions and restoring Brazil’s finances to a stable equilibrium will require a lengthy process of constitutional reform. And, though the transition will undoubtedly be painful, it is essential to Brazil’s future economic growth and development.

Whether or not the next government can do what is needed will depend on its ability to unify the electorate and a disparate group of regionally focused political parties. But, first, it must reject the temptingly easy – but ultimately damaging – route of raising taxes and doubling down on redistributive policies. That path leads to Venezuela – and to a far less stable and prosperous Latin America.

The Project Syndicate 2014

16

August 27, 2014

Closing IMF head at corruption questioning again

Singapore sees decrease in visitor arrivals

The head of the International Monetary Fund faced a fourth round of questioning yesterday over a multi-million-euro corruption case relating to her time as French finance minister in 2008. A special court that probes cases of ministerial misconduct questioned Christine Lagarde. The case relates to her handling of a 400-million-euro (US$527-million) state pay-out to disgraced French tycoon Bernard Tapie in 2008. The payout was connected to a dispute between the businessman and partly state-owned bank Credit Lyonnais over his 1993 sale of sportswear group Adidas.

Singapore’s international visitor arrivals in the first half of 2014 fell by 2.8 percent year on year, partly due to a decline in the number of Chinese visitors who stay for one day or less, the Singapore Tourism Board said yesterday. Excluding Chinese visitors, Singapore’s international tourist arrivals grew by 2.3 percent year on year in the same period of time. Singapore Tourism Board said the number of Chinese visitors to Singapore in the first half of the year fell by 30 percent year on year.

ASEAN and China to negotiate FTA upgrading The ministers exchanged views on how to further promote China-ASEAN Connectivity cooperation in the future

A

SEAN and China agreed to negotiate on upgrading the ASEAN-China Free Trade Area (ACFTA) yesterday to ensure that the ACFTA remained dynamic and commercially relevant, said a joint statement of the 13th AEM-MOFCOM Consultations.

The Consultations held in Nay Pyi Taw as part of the series of related meetings of the 46th ASEAN Economic Ministers Meeting (AEM).

The ministers noted that the agreement to upgrade the ACFTA was a testament to the strong positive relationships between ASEAN and China and deepened the economic cooperation of both sides in a mutually beneficial manner.

The ministers also urged to expedite the conclusion of the Custom Procedures and Trade Facilitation (CPTF) negotiation and the review of the Sensitive Track and Rules of Origin and to report progress made to the next AEM-MOFCOM consultations.

The ministers exchanged

ASEAN headquarters in Jakarta

view on how to further promote China- ASEAN Connectivity cooperation in the future, according to the statement.

China maintained its position as ASEAN’s largest trading partner. According to the joint statement, ASEAN’s total trade with China reached 350.5 billion U.S. dollars,

Cheaper thermal power from September 1

C

hina’s state planning agency will cut on-grid prices of thermal electricity from September 1 to reflect a fall in coal prices, it said on yesterday.

The National Development and Reform Commission (NDRC) will cut benchmark on-grid prices by an average of 0.0093 yuan (US$0.0015) per kilowatt hour. The move comes after a sustained collapse in coal prices, brought about by a huge supply glut of the thermal fuel. Prices vary from province to province, and the cut would amount to reductions of around 1.8-2.3 percent.

The NDRC said in a notice posted on its website that retail power prices would not be adjusted.

On-grid electricity tariffs - the prices at which power generating firms sell to grid operators are controlled by regulators, who adjust them in response to market changes.

The NDRC said the savings to the companies operating the national grid would be used to provide subsidies to encourage power generators to install equipment designed to cut emissions like sulphur dioxide and nitrogen oxide.

Reuters

accounting for 14 percent of ASEAN’s total trade and representing an increase of 7.7 percent year on year by the end of 2013.

In 2013, ASEAN received US$8.6 billion’ foreign direct investment (FDI) inflow from China, a significant 60.8 percent increase year on year and taking up 7.1 percent of

total inflow to ASEAN. The ministers reaffirmed ASEAN’s and China’s commitment to achieving the joint trade volume target to US$500 billion by the end of 2015.

The ministers welcome China’s initiatives to establish an Asian Infrastructure Investment Bank (AIIB) to provide financial support to regional infrastructure projects with priority on ASEAN connectivity.

The AEM-MOFCOM consultations were co-chaired

by Dr. Kan Zaw, Myanmar Minister of National Planning and Economic Development and Gao Hucheng, Minister of Commerce of China.

Gao highlighted in his speech that the year 2014 is the opening year of the second decade of the establishment of China-ASEAN Strategic Partnership. Along with the speeding up of the ACFTA building process, China and ASEAN have made rich achievements in economic and trade cooperation, becoming a bright spot of the overall China-ASEAN

relations.

Gao made a four-point proposals at the consultations to expand China’s cooperation with the ASEAN on mutually beneficial basis. The proposals include jointly building the 21st Century Maritime Silk Road, further raising the facilitation level of bilateral trade and investment, expedition of infrastructural construction of connectivity and enhancing cooperation in regional economic integration.

ACFTA, established in January 1, 2010, covers a population of 1.8 billion approaching a gross domestic product of US$6 trillion with trade reaching US$4.5 trillion and represents the biggest FTA made up of developing countries in the world.

Myanmar is rotating chair of the 10-member Association of Southeast Asian Nations (ASEAN) this year, which comprises Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.

Xinhua

Company boom AgBank sees invigorates China market slowing profit growth

A

spurt of growth in new Chinese enterprises is the direct result of recent pro-business measures, an official said yesterday.

Zhang Mao, head of the State Administration for Industry and Commerce, said over 5.5 million new market entities, including private businesses and farming cooperatives, were registered from March to July.

Among them, about 1.6 million were commercial enterprises, up 64.5 percent from the same period of 2013, Zhang told a press conference. Nearly 95 percent of them are private companies.

“More than 10,000 enterprises were set up each day in the past five months,” he said.

Changes to business registration went into place on March 1, lifting restrictions on minimum registered capital, payment deadlines, down payment ratio and cash ratio of registered capital.

Theoretically, a business can be started with just one yuan (about US$16 cents).

“The reform has helped entrepreneurs and increased the momentum of economic development,” Zhang said.

Xinhua

A

gricultural Bank of China Ltd yesterday became the third major Chinese bank to report slowing profit growth and rising bad loans for the second quarter, as a slowing economy impacts lenders.

In the second quarter, AgBank made a net profit of 50.57 billion yuan, according to Reuters calculations based on company figures, a year-on year growth of 11 percent versus the 22 percent year-on-year growth rate in the same 2013 period.

The bank’s non-performing loan ratio increased to 1.24 percent at end-June compared to 1.22 percent at end-March, the highest among Chinese lenders that have reported second quarter earnings so far. AgBank is China’s third largest bank by assets.

AgBank joins Bank of China and Bank of Communications which reported a similar results this month.

In recent years, AgBank has been among the Chinese lenders hardest hit by rising bad loans as many of its assets are in rural areas which have been hard hit by the economic slowdown.

Reuters