Macau Business Daily, Sept 3rd, 2014

MOP 6.00 Closing editor: Sara Farr Publisher: Paulo A. Azevedo Number 618 Wednesday September 3, 2014

Convicted billionaire businessman revisits La Scala H

Year III

e appealed a 5-year, 3-month prison term handed down by the Macau courts. But Hong Kong billionaire Joseph Lau Luen Hung is not sitting still. He plans to purchase four subsidiaries that own a number of properties in Macau and Hong Kong. One of which is the La Scala project at the heart of his bribery trial. The sale of the subsidiaries by Chinese Estates Holdings Ltd could raise up to HK$16.3 billion PAGE

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HSI - Movers September 2

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It’s the first in Asia. A hotel operated jointly by Shun Tak and Artyzen Hospitality Group. It’ll open in Taipei’s retail and entertainment hub, and feature 260 rooms.

Artyzen’s president expands on positioning, partnership and profile to Business Daily

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%Day

China Unicom HK

4.12

Belle International

3.00

Sino Land Co Ltd

2.20

China Mobile Ltd

2.14

Hong Kong & China G

1.93

China Petroleum & Ch

-0.89

Lenovo Group Ltd

-0.98

China Mengniu Dairy

-1.11

MTR Corp Ltd

-1.12

CNOOC Ltd

-1.15

Source: Bloomberg

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Smoke and mirrors

Brought to you by

Her name’s Cloee Chao. She’s 34 years old, a single mother and a casino worker. She’s also helped shake up the complacency of the city’s billionaire casino bosses. In 2012, she started a union as a result of deteriorating health issues caused by passive smoking in the workplace.

She now has other issues to debate with Macau’s gaming moguls Page 7

Realpolitik prevails

Housing to cool

Russia is turning to China. In order to spur its economy as relations sour with the West over Ukraine. But it’s China’s biggest energy companies that stand to benefit. Putin offers to sell a stake in his country’s secondbiggest oil project Page 11

What goes up must come down. So says local architect and Executive Council member Eddie Wong. The housing market will cool, he tells Business Daily. But it will take several external factors. An increase in the supply of housing and the continued deceleration of the gaming industry are prerequisites. And the government may have to revisit the kind of housing that finds its way to market

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September 3, 2014

Macau

Chinese Estates selling Moon Ocean subsidiary to Joseph Lau Chinese Estates has announced its planned sale of Moon Ocean and commercial properties in Tsim Sha Tsui to former chairman Joseph Lau Stephanie Lai

sw.lai@macaubusinessdaily.com

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roperty developer Chinese Estates Holdings Ltd announced yesterday its planned sale of four subsidiaries that own the La Scala luxury residence project and shop and car parking spaces in Tsim Sha Tsui to Hong Kong billionaire Joseph Lau Luen Hung, which could raise as much as HK$16.3 billion from assets disposal.

The planned sale of assets from the Hong Kong-listed Chinese Estates to Lau include the disposal of the firm’s subsidiary Moon Ocean at a suggested cap of HK$5.8 billion, an amount comprising the total investment cost from the firm in the La Scala project and the interest incurred at HK$4.83 billion.

The proposed sale of the subsidiaries comes following the local Court of First Instance ruling in March that

Joseph Lau

Joseph Lau and fellow Hong Kong businessman Lo Kit sing be sentenced to jail for five years and three months for offering former public works secretary Ao Man Long HK$20 million in 2005 in exchange for success in bidding for five plots of land near Macau International Airport, the site where the high-end La Scala residential project was to be built.

Joseph Lau stepped down from the chairman’s position of Chinese Estates following the court ruling, and was subsequently replaced by his son Lau Ming Wai. But as at yesterday, Joseph Lau was still a controlling shareholder of Chinese Estates, and had interest in about 1.43 billion shares or held approximately 75 percent of the total issued

shares in the firm.

The filing noted that the proposed disposal of Moon Ocean would allow Chinese Estates to recover the original investment costs in La Scala together with the cost of funding the project.

Other than Joseph Lau, Chinese Estates said in the filing that there was ‘no other buyer’ in the market that was willing to purchase the La Scala project at the original investment costs plus funding costs of the firm at this point in time.

The property developer reiterated that it was still awaiting the result of the appeals lodged by Moon Ocean to the Court of Second Instance against the government decision that invalidated the La Scala land grants.

‘There is no certainty at this stage whether judgment

in the appeals will or will not be in favour of Moon Ocean and the implication of the different outcome of the appeals which may result in the Macau Land [the La Scala land plots] may or may not be vested in Moon Ocean,’ Chinese Estates wrote in the filing.

Aside from disposing of Moon Ocean, Chinese Estates announced the planned sale of some of the shop spaces it owns in Silvercord in Tsim Sha Tsui in Hong Kong and car parking spaces in the district at a cap of HK$10.5 billion.

The total sale proceeds generated from the disposal deals, which is still subject to independent shareholders’ approval, may be distributed ‘in one or more phases’ to shareholders as a cash special interim dividend, Chinese Estates noted in the filing.

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September 3, 2014

Macau

Confluence of factors to cool housing market Architect Eddie Wong told Business Daily he believes an adjustment will become apparent in the property market soon. In addition, work on the Taipa hospital is progressing well Kam Leong

kamleong@macaubusinessdaily.com

“W

hat goes up must come down,” said Eddie Wong Yue Kai, the city’s well-known architect and Executive Council member. Mr. Wong told Business Daily in an interview that an adjustment in the city’s property market should come in the not too distant future once the supply of housing increases and the casino industry’s development continues to decelerate.

“I think Macau is now an internationalized city. If you say that you want to surpass the level of Macau’s housing prices to a fictitious level that everyone can accept, I would think it is hard to do,” Mr. Wong said.

He declared that the root problem that has to be resolved is the supply of housing in the market. “The government has to consider how to offer more supply [of housing] so that the general public can have the opportunity [to purchase],” Mr. Wong said. He also suggested that the government provide different types of housing for different kinds of people.

Although he contends that the situation of high prices will slowly cool in the future in parallel with the decelerating growth of the gaming industry, Mr. Wong does not think

beyond solely relying on the casinos, Mr. Wong said that this objective cannot be reached in a day.

“It’s not like a vehicle that can run right after the fuel has been put in. [Instead] it’s more like a plant that you have to water and fertilise.

However, you will never [know] if the flower will blossom or eventually die,” he remarked.

To reach a diversified economy, he thinks that the government should encourage young people to not only work for the casinos.

Taipa Hospital going smoothly

Eddie Wong

that a market crash is likely.

“No market will only increase and never fall . . . there must be cycles,” he said, citing the property market in 1993 and 2003 as examples, claiming that housing prices once “fell to the bottom”.

He indicated that the great profits made by the gaming industry have

also benefited those involved in the business, who may be the ones that can afford the current high prices.

Diversifying economy takes time Although the Chief Executive, Fernando Chui Sai On, said that the city needs to diversify the economy

Mr. Wong also revealed to Business Daily that the progress of the Taipa hospital, the part which his company is in charge of, is on schedule.

However, he said that whether future construction may also follow the timeframe requires improvement in the cooperation between government departments.

“I think there’s currently room for improvement [in the government departments]. Hence, I’m hoping that the CE will have some new measures to make the cooperation between government departments better so they will not only work on their own works,” he added.

39 casinos submit smoking ban plans

T ICBC Macau meeting HK, Singapore investors

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acau’s branch of Industrial & Commercial Bank of China Ltd (ICBC) is in meetings with investors in Hong Kong and Singapore ahead of U.S. dollar-denominated subordinated 10-year note sales.

Further details will only be announced on Thursday, an ICBC Macau representative told Business Daily, confirming that the banking institution is already in talks with possible investors both in the neighbouring SAR and Singapore.

This comes as Bank of China Ltd plans its first offshore sale of subordinated

securities that will count as capital under the country’s new banking rules. For this, Bank of China has hired four banks to help.

Lenders including ICBC and China Construction Bank Corp (CCBC) in August sold an equivalent of US$27.5 billion of securities that can be counted toward capital. At least another US$63.3 billion, which includes preference shares, is in the pipeline, the Royal Bank of Scotland Group Plc said last week.

ICBC has selected seven banks for an offshore perpetual securities offering as much as US$5.7 billion.

Most regulatory capital sales from Chinese banks this year have been in the local market.

Four of China’s five biggest banks – ICBC, Bank of China, Agricultural Bank of China Ltd and Bank of Communications Co – sold yuan-denominated subordinated securities last month with a 5.8 percent coupon.

Bank of China last month shortlisted six banks for a separate $6.5 billionequivalent sale of offshore perpetual securities that will convert into equity if the bank’s capital drops to a level considered unsafe.

S.F. & S.L. with Bloomberg

he majority of casinos and gambling premises in Macau have already submitted draft plans for the setting up of smoking lounges. This comes just a month ahead of the implementation of the full smoking ban on mass market gaming floors.

According to a statement released by the Health Bureau, 39 of the existing 41 gaming premises – casinos and slot parlours – have already submitted plans according to regulations issued in a dispatch by Chief Executive Fernando Chui Sai On in early July published in the Official Gazette.

Currently, smoking is only allowed in a designated area that is no larger than 50 percent of the total floor space where the public is allowed.

But the quality of the air in these spaces must comply with legal constrictions.

Smoking lounges were actually suggested by the six gaming operators, who proposed the setting up of ‘resting lounges in the

common area, without gaming, that would be closed and in which smoking would be permitted.’ The six gaming operators also suggested cancelling designated smoking areas on the mass gaming floor and setting up a smoking area in VIP rooms.

After taking this into consideration, health and gaming authorities settled on October 6 as the day when the full smoking ban would take effect. ‘The Health Bureau considers that the setting up of smoking lounges will improve the quality of the air inside casinos,’ the statement reads. This will benefit dealers and other casino workers whose duties are mainly in the common areas inside the casino.

Casinos are required to submit a monthly report on the quality of air in their premises to the health authorities.

Macau first promulgated a smoking ban in public places in January 2012. This regulation is due for review next year.

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September 3, 2014

Macau

Taipei to host first Shun Tak, CitizenM-managed resort The capital city of Taiwan has been selected as the first Asian location to have a CitizenM-managed resort. The investment will be made by Alpha Investment but managed by the Artyzen citizenM joint venture João Santos Filipe

jsfilipe@macaubusinessdaily.com

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aipei is to be the first Asian city to accommodate a hotel operated by Shun Tak, through Artyzen Hospitality Group and CitizenM in a joint venture named Artyzen citizenM Asia Limited. The first CitizenM-managed hotel in Asia Pacific is scheduled to open by the fourth quarter of 2016 and will be located in Shimending, a retail and entertainment hub. The hotel will have around 260 rooms.

“Taiwan was one of the first opportunities that we were invited [to apply] for. Taipei further reflects the lifestyle and needs of our target customer, the mobile customer”, the president of Artyzen Hospitality Group, Robbert van der Maas, told Business Daily.

The investment will be made by Alpha Investment Partners, owned

by Singapore company Keppel Land, which decided to award the management contract to Artyzen citizenM Asia Limited.

“We’re happy to work with likeminded partners such as Artyzen Hospitality Group, who share in our

vision to provide innovative products and services to meet customers’ needs, and achieve excellent returns for investors and shareholders”, Christina Tan, managing director of Alpha,

Artyzen Hospitality Group Shun Tak’s involvement in the project will be executed through its subsidiary Artyzen Hospitality Group.

This wholly-owned company was launched in 2013 to manage hotels and resorts under the conglomerate founded by Stanley Ho and controlled by his daughter Pansy Ho. Artyzen is planning to primarily expand in Asia and has offices in Hong Kong, Macau, Singapore and Shanghai.

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September 3, 2014

Macau CitizenM CitizenM was founded in 2008 and is focused on offering ‘affordable luxury’ in prime metropolitan locations and at major airports.

The Dutch company resorts are in Amsterdam, Glasgow, London, New York, Paris, Rotterdam and in future Taipei. Headquartered in the Netherlands, the company acts as developer, investor and operator of its hotels but is also open to joint ventures and occupational leases.

said. “CitizenM’s hotels have been very well received in other regions and we’re excited to partner Artyzen Hospitality Group to bring the brand to Asia Pacific”, she said.

The Taipei hotel is part of the strategy of Artyzen to expand in Asia to become a global brand. The strategy is to enter other markets through some of the most important capitals in Asia supported by the strength of the citizenM brand.

“The most important markets for us are key capital cities where we have the opportunity to enter the market with multiple properties such as initially Hong Kong, Macau, Singapore, Shanghai, Beijing, Jakarta and Bangkok”, Mr. van der Maas said.

“CitizenM is targeting a very specific mobile customer and it’s created an operational model that through its efficiencies works extremely well in developed hotel markets, large primary cities.”

‘Affordable’ but not for the masses The president of Artyzen also explained that the philosophy behind CitizenM brand is to attract travellers who enjoy luxury. “The main markets in terms of hotel guests for the citizenM brand are mobile, technology-savvy travellers in search of an environment that facilitates their lifestyle, the need to connect and network, and who enjoy luxury at affordable prices”.

Affordable prices, however, are not to be confused with a product for

the premium mass market. “CitizenM hotels are not for the masses. CitizenM caters to a very specific market and aims to be the best in that market.

The single-minded focus is its key customer profile, their lifestyle and needs that has enabled the brand to be very successful in the markets it operates in”, he told Business Daily. “We won’t deviate from this model in Asia”.

Regarding Macau, where Shun Tak has interests and runs the Mandarin Oriental Macau and Grand Coloane Beach Resort, there is a possibility that the management is handed to Artyzen Hospitality Group.

“Macau is a key market for us and we see the opportunity for more than one citizenM hotel operating in the Macau market. We’re looking

for suitable sites and opportunities”, he said.

In the first half of the current year, Mandarin Oriental Macau achieved an average occupancy rate of 84 percent and posted 125 million patacas in revenue. Grand Coloane Beach Resort returned an average occupancy rate of 65 percent despite an ongoing room upgrade programme.

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September 3, 2014

Macau Brought to you by

HOSPITALITY Volatile figures The data for MICE events in the last few years shows a high degree of variability. That feature makes the analysis of trends difficult. Overall, the number of events accounted for has declined. Exhibitions aside, their numbers are all currently below what they were in 2010. One category - Incentive Travel and Meetings - has actually crashed; conferences are recovering slowly; and the only comparatively bright spot is exhibitions, both in event and attendance figures. In the first half of this year, exhibitions reached the 30 events mark for the first time.

As the second half of the year attracts usually more events of this type, this will possibly be the best year on record. As these are the kind of events that attract more people, the current year is likely to end on a more positive note than the previous ones. In all the quarters observed here, the number for exhibition attendance has always represented more than 80 percent of the total and, in a few instances, even more than 95 percent. For this reason, the table below is shown in a logarithmic scale.

MIA posts record figures for August

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assenger numbers at Macau International Airport (MIA) set a new single-month record in August, with more than half a million travellers using the airport last month.

More than 520,000 passenger movements were recorded during August, an increase of 6.5 percent compared to the same period last year. In addition, aircraft movements registered an increase of 1.4 percent, with 3,400 aircraft landing in and departing from the city’s sole airport, according to a press release by the operation’s management company, Macau International Airport Company Limited (CAM).

The number of passengers that the

The figures for attendance, however, reveal extreme variations for which clear explanations are not immediately identifiable and which make extrapolations risky. If we take the average attendance, we can detect wide variations from quarter to quarter in all categories of event.

The less prone to that volatility is meetings organised by the various types of organisations monitored: government, corporations and associations. But their average participation usually falls below 100 persons per event, which means they do not weigh much in the total tally of participants. The real driver is exhibitions, where the average number of participants has roughly doubled since 2010.

J.I.D.

31 exhibitions record number in a semester, 2014H1

airport handled last month topped the monthly passenger volume since 1995, when MIA operations first began.

CAM announced that routes between the city and mainland China as well as Southeast Asia continued their good performance in August.

These routes registered increases of 13 percent and 6.5 percent, respectively, year-on-year.

Meanwhile, the direct flight service between Macau and Tianjin is scheduled to be launched on September 6. Air Macau, which is the operator, will provide four flights per week.

In addition, the press release revealed that a new airline will launch

flights between Macau and Phnom Penh, the capital of Cambodia. The service will be available from midSeptember, when two flights will serve the two cities. According to CAM, the airline plans to increase flight frequency to three flights per week by the end of the year.

The management company also revealed that another airline is attempting to take advantage of the fifth air freedom status of Macau by launching an air service from Thailand to Palau via Macau.

In July, a total of 490,000 passenger movements were recorded, an increase of 11 percent year-onyear, according to CAM. K.L.

Sino-Lusophone trade reaches US$77.4bln

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rade between China and Portuguese-speaking countries reached US$77.4 billion (MOP619.2 billion) from January to July. According to the latest figures from China’s Customs Office, these figures represent a 5.1 percent increase from the same period last year.

Imports to China from Portuguesespeaking countries accounted for US$53.8 billion of the total trade recorded, an increase of 6.8 percent over the first seven months of a year earlier. In addition, Chinese exports to Portuguese-speaking countries increased slightly by 1.7 percent to US$24.6 billion.

Of the Portuguese-speaking countries, Brazil accounts for China’s

biggest partner with trade reaching US$51.6 billion between January and July. Of this, US$19.4 billion were Chinese exports, while US$32.3 billion accounted for Chinese imports into Brazil.

Angola came in second as China’s major trading partner of the Portuguese-speaking countries, with total trade reaching US$21.8 billion in the first seven months of the year. Chinese exports totalled US$2.6 billion, while imports into Angola were US$1.9 billion.

Trade between China and Cape Verde reached US$29 million in the months between January and July, trade between China and Guinea Bissau reached US$47.6 million, and trade with Mozambique

reached US$1.1 billion. Trade between Portugal and China reached US$2.7 billion, while trade with East Timor totalled US$28 million and trade between China and Sao Tome and Principe totalled US$2.3 million.

In the month of July alone, trade between China and Portuguesespeaking countries grew 12.4 percent to US$12.7 billion over that of the month of June. During the month of July, imports from Portuguesespeaking countries into China grew by 9.1 percent to US$8.6 billion, while exports from China into Portuguesespeaking countries increased by 20.1 percent to US$4.2 billion over that of the previous month.

S.F.

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September 3, 2014

Macau

Single mom fights casinos with protests Celine Ge

punters chain-smoke to stay awake while they gamble throughout the night. VIP rooms are often cloudy with smoke.

While the city’s health agency announced in May that all casinos are required to implement smoking bans on their gaming floors beginning Oct. 6, the restriction doesn’t include VIP rooms, said Antonio Ng, an elected Macau lawmaker. Among protesters’ demands on last week was a call for the ban to extend to these rooms, which are reserved for high-rollers who bet at least HK$5 million ($645,000) per trip.

Casinos have lifted Macau’s economy since the colony was transferred to China’s rule in 1999.

Macau’s gross domestic product per capita, measured in current U.S. dollars, gained more than sixfold since the handover to $91,376 in 2013, making it among the richest territories globally after Luxembourg, Norway and Qatar, according to the World Bank.

Bargaining power

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loee Chao remembers when she first decided to challenge the billionaires of the world’s largest gambling hub. The 34-yearold single mother of two was working in a Macau casino in 2012 and the second-hand smoke was so thick she started hacking up black phlegm.

‘I just couldn’t stop coughing,’ she said. ‘I was scared. If I died, what would happen to my daughters?’

Chao started a union, at first, just to get cleaner air. After her employer, Wynn Macau Ltd, and other casinos ignored them, the battle escalated.

Since then, Chao has organized thousands to fight for better wages and working conditions. She has led workers into the streets seven times this year in the most widespread labour unrest yet at Macau’s casinos.

The protests threaten profits at some of the most lucrative businesses in the world. The former Portuguese colony has seen gambling revenue soar tenfold over the past decade to US$45.2 billion last year, seven times the size of the Las Vegas Strip. The billionaires behind the casinos include Las Vegas Sands Corp. Chairman Sheldon Adelson, Wynn Resorts Ltd. Chairman Steve Wynn and Galaxy Entertainment Group Ltd. founder Lui Che-Woo. Chao and her union are planning additional demonstrations, after at least 1,400 members turned out last week for the largest protest by casino workers so far this year. The clashes come as Macau has seen growth slow with a corruption crackdown in mainland China that has high rollers avoiding casinos.

Strike threat ‘We don’t rule out strikes or violent actions if the casino companies continue to ignore us and pretend nothing has happened,’ Chao said at the end of last week’s protest organized by the Macau Gaming Industry Frontline Workers’ union she co-founded.

In the neighbouring Chinese city of Hong Kong, thousands of protesters also took to the streets this week to demand popular nominations of chief executive candidates, with

activists threatening to stage a industry over the decade,’ Siu said. mass occupation of Hong Kong’s financial district.

Raises, bonuses Chao is an unlikely radical. She was born in Macau and started in The casinos are making an effort the casino industry as a 17-year-old to keep the peace, perhaps in part waitress fresh out of high school. She because of the profits they have to worked as a dealer at casinos owned by protect. Galaxy, Sands China and Galaxy and SJM Holdings Ltd. before Wynn Macau have all announced joining Wynn additional staff Macau, where bonuses in she oversees two recent months. dealers in a room After more than for VIPs. 1,000 protesters She said marched in she’s helping front of Galaxy’s to organize the property last protests for month, Lui said workers and for he would consider her daughters, distributing stock who are 9 and 13. to the casino’s Chao, divorced employees. two years ago, Sands China brought her older said last month daughter to last it had boosted week’s march wages for Cloee Chao, so she could see some workers casino worker what her mother 5 percent, is fighting for. i m p r o v e d ‘My children benefits and will probably agreed to pay one month salary follow my path to be casino as a special workers if they reward. Galaxy, want to live in Macau,’ said Chao. ‘I Wynn Macau, MGM China and SJM won’t restrain them, but I won’t let declined to comment further when what my generation is going through asked about the union’s demands become their future.’ and protest plans. Sands China and Melco Crown didn’t comment.

Housing costs Galaxy rose 1.3 percent to HK$57.45 in Hong Kong trading Chao has broadened her fight to as of 10:21 a.m., while Melco, Sands money as well as working conditions. China and MGM China gained 1 Though Macau requires that casinos percent. SJM advanced 0.9 percent hire locals for key jobs, including with Wynn unchanged. The Hang dealers, pay hikes have been Seng Index dropped 0.2 percent.

The Frontline union, made up undercut by inflation, especially in most of casino dealers, has stepped housing costs.

The average monthly salary for up its protests to seven this year from Macau dealers was 19,000 patacas two last year. Besides higher salaries (US$2,380) last year, an increase of and better working conditions, they about 4.6 percent per year over 10 want stricter rules written into law years, said Carlos Siu, an associate to ban foreign workers from taking professor of gaming research at Macao their jobs.

Polytechnic Institute. Inflation also Chain smoking rose 4.6 percent over that period.

‘The workers feel they’re bearing the brunt of inflation despite the Smoking remains a contentious explosive growth of the city’s gaming issue. Many of the mostly male

We don’t rule out strikes or violent actions if the casino companies continue to ignore us and pretend nothing has happened

Macau’s casinos are counting on more growth. All six of the city’s operators are opening new resorts, beginning next year, and they are looking to hire more workers.

‘We’ll see the bargaining power of the casino worker union strengthen because of the limited number of labour,’ said Elio Yu, an associate professor for public affairs at the University of Macau. ‘The dealers are taking advantage of this and will try to escalate the situation further.’

The labour market is tightening.

Macau’s unemployment rate held at a record 1.7 percent from May through July, government data showed.

The cost of labour is likely to rise 10 percent to 15 percent annually in the coming years for the casino companies, according to Deutsche Bank analyst Karen Tang. That will erode margins, she said.

Workers are determined to improve their lot. Last week, they marched through Macau waving black-and-white banners that read: ‘Share the fruits of economic boom, we fight for a higher pay.’

Chanting slogans Stopping outside the city’s casinos, the protesters blew whistles and chanted slogans. Police officers and security guards put up barricades, with some of them linking hands as they blockaded the casinos’ entrances to prevent demonstrators from entering. Chao said 7,000 turned up for the protest, while police put the number at 1,400.

Weng Yi-jian, a 45-year-old dealer at Sands China’s Venetian casino, joined the rally outside his place of employment. He said his monthly pay has risen about 6 percent annually over the last seven years to 19,000 patacas, but that’s too slow to keep up with spiraling property prices which rose by tenfold in the past decade.

‘I thought being a dealer would allow me to buy a house in a few years; I realized it’s just a dream,’ said Weng.

He chanted with the crowd.

‘Shame on Sands for bullying workers!’

That day, Chao marched with her 13-year-old daughter near the front of the crowd. The workers chanted as they held up the black-and-white banners. The youngster followed closely, clutching her mother’s handbag.

Chao ended up drenched in sweat in the sweltering heat. Nevertheless, she wanted to capture the moment.

She pulled out a camera and handed it to her daughter.

‘Can you take a picture of me?’ she said.

Bloomberg

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September 3, 2014

Greater China Taiwan bonds decline Taiwan’s five-year government bonds fell, pushing the yield to the highest in a month, on concern demand will decline as insurers look for higheryielding foreign-currency notes and as the island issues new securities.

Corporates have sold US$5 billion of debt denominated in the greenback or China’s yuan since Taiwan’s legislature in May excluded locally issued foreigncurrency notes from a cap on the amount of overseas investments insurance companies can make. The industry holds 25 percent of the island’s outstanding sovereign notes, central bank data show. A new NT$40 billion offering of 10-year government securities to be sold on Sept. 23 will begin trading on a when-issued basis this week.

McDonald’s steps up surprise checks McDonald’s Corp. appointed a China food safety chief and is stepping up surprise audits of suppliers after an expired meat scandal led it and other restaurant chains to pull products. The newly created position has authority to veto food sourcing or production decisions upon any concerns, McDonald’s China said yesterday in an e-mailed statement.

It has also set up an anonymous hotline for food suppliers and employees, raised frequency of third-party audits, and is requiring suppliers to install more cameras to monitor production facilities. “McDonald’s expects all staff and suppliers to carry out these added measures to enhance their food safety and quality systems,” the China unit of Oak Brook, Illinois-based McDonald’s said. “We have zero tolerance to noncompliance.”

Shunfeng talks to banks Shunfeng Photovoltaic International Ltd., which plans to become one of the world’s biggest solar cell manufacturers this year, said it’s speaking with as many as five banks about finance for expanding installations. Chairman Zhang Yi said he’s targeting installations of 3 gigawatts this year. The company expects capacity of 2.2 gigawatts for cell making and 2.4 gigawatts for finished panels.

That would make Shunfeng competitive with the biggest cell manufacturers, JA Solar Holdings Co., Trina Solar Ltd. and Yingli Green Energy Holding Co. The company with a market value of HK$22.6 billion (US$2.92 billion) has increased its solar-power output and shipments of cells and panels in the first half as it took control of assets it bought from LDK Solar Co. and Suntech Power Holdings Co.

China fines insurance firms A total of 23 Chinese insurance firms have colluded to fix fees, authorities said yesterday, slapping them with a total of US$18 million in fines in the government’s latest anti-monopoly move. The companies negotiated and agreed on unified commissions from auto insurance premiums through meetings organised by industry group the Zhejiang Insurance Association, the National Development and Reform Commission (NDRC) said in a statement.

The government agency fined 22 of the insurers a combined 110 million yuan, the statement said, with one company escaping punishment for informing authorities and providing evidence. The penalised firms included some of the biggest names in Chinese insurance, such as branches of China Life and Ping An.

American accusations U.S. companies say China subjectively enforcing opaque laws

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hina is targeting foreign companies with opaque laws and rules, according to a group representing U.S. businesses there, contributing to a deteriorating environment for investment in the nation.

Sixty percent of respondents to a survey last month by the American Chamber of Commerce in China said they feel foreign business is less welcome in the country than before, the group said today in Beijing, up from 41 percent in a late-2013 survey.

Forty-nine percent said foreign companies are being singled out in recent pricing or anti-corruption campaigns.

The results follow a statement by the group’s European counterpart last month that local authorities involved in an antitrust crackdown are abusing their power through intimidation tactics. Dozens of foreign companies are being targeted in probes, with regulators opening an anti-monopoly investigation into Microsoft Corp. in July and state media accusing Apple Inc. of using its iPhone to steal state secrets.

American Chamber members say they have “growing perceptions that multinational companies are under selective and subjective enforcement

by Chinese government agencies,” Greg Gilligan, the group’s chairman, said in a report yesterday. Laws and rules “lack transparency and are at

times only vaguely related to the particular case.”

The survey was conducted last month with 164 respondents, while the previous one had 365 responses in November and December, according to the chamber.

‘Groundless’ accusations “China used to be more friendly to foreign companies, but the

honeymoon is over,” said Jin Jianmin, a senior researcher at Fujitsu Research Institute in Tokyo who previously worked for China’s government.

The government has started to take complaints from domestic companies about preferences for foreign firms more seriously, Jin said.

Accusations that most of China’s antitrust probes are directed against foreign companies are “groundless and baseless,” Xu Kunlin, head

Strategic change China Mobile bulls surge on earnings turnaround bets Jonathan Burgos*

B

ets that China Mobile Ltd.’s US$2 billion cut in handset subsidies will help the world’s biggest phone company reverse a profit slump pushed bullish options on the stock to a 19-month high.

One-month calls that pay out if China Mobile shares climb 10 percent cost 2.5 points more than puts on Monday, according to data compiled by Bloomberg.

The difference rose to 4 points on Aug. 15, the highest since January 2013. The stock jumped 12 percent since Aug. 14, compared with a 0.6 percent decline on Hong Kong’s benchmark Hang Seng Index, as the company said it would offset less of the price of customers’ devices.

“The cut in handset subsidies is a major change in strategy,” Victor Yip, an analyst at UOB-Kay Hian Holdings Ltd. in Hong Kong, said by

phone. “Revenue from the company’s mobile-data services business also looks encouraging. The take-up for its fourth-generation mobile services also looks decent.”

China Mobile will spend 21 billion yuan (US$3.4 billion) on subsidies this year, compared with the 34 billion yuan it had planned, Chief Financial Officer Xue Taohai said last month.

China Unicom Hong Kong Ltd. and China Telecom Corp. will also cut subsidies after regulators told the country’s biggest carriers to cut costs by 40 billion yuan in three years because of overspending on incentives and marketing, people familiar with the matter said in July.

Analyst recommendations UOB-Kay Hian is among the 53 percent of brokerages covering China

Mobile that recommended the stock as of Monday, compared with 40 percent before the the subsidy cuts and first- half results were reported on Aug. 14, according to data tracked

by Bloomberg. The average price target increased to HK$94.21 from HK$83.67 in the same period. The shares yesterday rose 2.1 to HK$98, the highest close since August 2008.

Net income at China Mobile will bottom out in the second half of 2014 as the take-up of 4G mobile services accelerates and the company reduces marketing expenses, Barclays said in a note on Aug. 15. The brokerage has upgraded the stock to overweight from underweight.

China Mobile’s profit will fall 11 percent to 108.4 billion yuan in 2014, capping a two-year slump, according to the average estimate by 23 analysts tracked by Bloomberg.

Profit will be little changed next year before climbing 5.1 percent to 114.1 billion yuan in 2016, estimates show. Net income fell 7.8 percent to 32.5 billion yuan in the second quarter from a year earlier, according to figures derived from six-month results.

“China Mobile will struggle to maintain decent profit growth,” Ben Kwong, a director at KGI Asia Ltd. in Hong Kong, said by phone on Aug. 28. “The telecom industry is very competitive.” *With Edmond Lococo and Ailing Tan Bloomberg

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September 3, 2014

Greater China of the National Development and Reform Commission’s anti-monopoly bureau, said in an interview published yesterday in the state-run China Daily. “We treat local and overseas companies equally to ensure justice for all,” Xu was quoted as saying.

American Chamber members have “concerns that rules are shifting again for foreign companies in China in ways that are highly opaque and difficult for local managers to anticipate or adapt to,” Gilligan wrote in a note accompanying a report on China’s investment environment. “Our member companies strive hard for full compliance and need support and greater clarity to achieve that goal.”

Targeting industries China is targeting industries where it wants domestic companies to catch up, including in pharmaceuticals, medical devices, technology and autos, Lester Ross, a chamber vice chairman, said at a briefing yesterday in Beijing.

Volkswagen AG’s Audi, Bayerische Motoren Werke AG, Daimler AG’s Mercedes-Benz, Tata Motors Ltd.’s Jaguar Land Rover, Fiat SpA’s Chrysler, Toyota Motor Corp. and Honda Motor Co. have announced price cuts of vehicles or spare parts since July in the wake of the probes.

General Motors Co. said last month that its joint venture with SAIC Motor Corp. has been responding to regulator requests since 2012.

China last month found a dozen Japanese auto-parts makers guilty of price fixing and doled out the biggest antitrust fines in the country since relevant rules came into effect six years ago, with Sumitomo Electric

Industries Ltd. and Yazaki Corp. drawing the biggest penalties.

Microsoft, Oshkosh The American Chamber’s membership includes more than 3,800 people from more than 1,000 companies, according to a media statement yesterday. Members include Microsoft, Johnson & Johnson, Dell Inc., Oshkosh Corp. and Mead Johnson Nutrition Co., according to its website. Gilligan is vice president and managing director for PGA Tour China and previously worked for McDonald’s Corp. in China.

Authorities raided the offices of software maker Microsoft in July, while Qualcomm Inc. and Mead Johnson have also fallen under antimonopoly scrutiny in China.

Gilligan cited evidence presented in a previously published survey and later by individual members for the concerns that show a “deteriorating landscape of the business environment for foreign investment in China.”

Members also see “rising political risk, including both domestic political campaigns and foreign policy tension, which are directly reflected in declining foreign direct investment from North America, Europe, and Japan,” Gilligan wrote. They also cited concerns about China’s longterm economic health and its reliance on investment and exports amid rising debt and lower consumption growth, he wrote.

Non-financial foreign direct investment in China fell 0.4 percent to US$71.1 billion in the first seven months of 2014 compared with the same period a year earlier, according to government data.

Insurance boom spurs Taiping to offer subordinated notes Christopher Langner and Tanya Angerer

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hina Taiping Insurance Holdings Co. is marketing the first dollar-denominated subordinated perpetual notes from a Chinese insurer as policy subscriptions rise and regulators consider tightening capital requirements.

China Taiping, whose liabilities increased 19.7 percent in the six months to June 30, is offering the notes with no fixed maturity to yield about 5.5 percent, a person familiar with the matter said yesterday.

Coupon payments may be deferred if the insurer chooses, and proceeds will count toward Tier 2 capital and receive equity treatment from rating companies.

China’s burgeoning middle class is increasingly looking to insure their possessions amid Li Keqiang’s urbanization drive. Companies wrote 11.2 percent more premiums last year than the year prior, China Insurance Regulatory Commission data show. Outside of China, premiums sold globally rose 0.9 percent, according to a Swiss Re AG study released in June. China’s policy providers also face regulatory changes that may force them to

raise as much as US$44 billion to cushion against losses.

“China’s insurance market has been in a boom for the past decade,” Connie Wong, a Singapore-based credit analyst at Standard & Poor’s said in a phone interview yesterday.

“Growth has slowed down from the peak but it’s still quite strong compared with developed markets and capital isn’t keeping up.”

Bloomberg

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September 3, 2014

Greater China

Jack Ma

Money machine Jack Ma times market selling second Alibaba IPO in rally Kana Nishizawa*

J

ack Ma knows how to time an initial public offering.

The 49-year-old former school teacher preparing to list Alibaba Group Holding Ltd. during a record rally for U.S. stocks did the same thing seven years ago, when Alibaba. com Ltd. went public in Hong Kong a week after the Hang Seng Index hit an all- time high. By the end of 2008, the gauge had slumped 55 percent and the company lost more than US$20 billion in market value.

Ma ended up delisting the Hong Kong-traded business-to- business marketplace in 2012 at its IPO price after more than 2,300 vendors used the website to defraud buyers and as stocks languished almost 40 percent below the 2007 peak. Even with valuations for technology shares at a 4 1/2-year high, investors see better prospects for this Alibaba and this bull market.

“For Alibaba.com, the timing of the listing was at a market peak so that’s why the performance was disappointing,” said Alex Wong, Hong Kong-based asset-management director at Ample Capital Ltd., which oversees about US$150 million. Now, even with the Nasdaq Composite Index at a 14-year high, “the business environment is more favorable, it’s not just an asset bubble,” he said. “This is time for these kinds of businesses to blossom.”

The Nasdaq Composite Index climbed to the highest since March 2000 on Aug. 29, while the Standard & Poor’s 500 Index hit a fresh record and a gauge of Chinese stocks in the U.S. traded near a three-year high.

The dot-com bubble peaked with the S&P 500 trading at close to 30 times annual earnings of its companies, data from S&P Dow Jones Indices show.

That compares with a valuation of 18 times now.

Consumer marketplace Hong Kong’s benchmark Hang Seng Index closed little changed

yesterday, maintaining this year’s advance of 6.2 percent. Futures on the S&P 500 rose 0.2 percent from Aug. 29, with U.S. markets closed Monday for a holiday.

Alibaba, China’s biggest e-commerce company, provides a digital marketplace that sells everything from animatronic dinosaurs to fiberglass speedboats along with everyday goods. Anticipation for the IPO reflects optimism the company’s profits will swell as the world’s most populous nation uses the Internet to buy more goods and services.

Alibaba’s net income nearly tripled to US$1.99 billion in the three months through June as advertisers boosted spending.

“The new Alibaba is playing in a much bigger market,” said Rex Chen, a Des Moines, Iowa-based analyst at RS Investment Management Co., which oversees about US$25 billion.

“It’s much more focused in consumerrelated commerce. The old Alibaba. com that was listed in Hong Kong was business-to-business, so that was very different.”

IPO demand Alibaba.com, which connects manufacturers with overseas wholesale buyers, is a unit of the entity that’s now set to list on the New York Stock Exchange. Less than 19 percent of Alibaba’s revenue came from its wholesale businesses in the year ended March, according to the share-sale prospectus.

Jim Wilkinson, a spokesman for Alibaba, declined to comment.

Investors fell over themselves in 2007 to pile into Alibaba.com’s IPO, with Hong Kong individuals placing orders for 257 times the amount of stock available. Shares almost tripled on the company’s trading debut, with volume so high that it caused order delays.

That exuberance lasted less than a month, with Alibaba.com crashing

91 percent from its Nov. 30, 2007 peak through an Oct. 28, 2008 low.

Concern over valuations coincided with a market slump as Chinese regulators pulled back from a plan to allow mainland investors to buy Hong Kong stocks and the global credit freeze caused a worldwide equity rout.

Alibaba.com buyout Ma repurchased the 27 percent listed stake in Alibaba.com for HK$13.50 a share in June 2012, the same price as investors paid in the IPO and a 46 percent premium to the company’s last close before the buyout announcement.

Foundation Asset Management (HK) Ltd., which declined to invest in the Alibaba.com IPO, is more interested this time, according to Michael Liang, Hong Kong-based chief investment officer.

“The Chinese consumer space is probably a lot more exciting,” Liang said. “But I’m not saying this is going to be a skyrocketing IPO. The performance depends on the pricing.

If it’s priced to perfection there will be little room left for after market appreciation.”

Alibaba may set its IPO value at US$154 billion, or 22 percent below analyst valuations, in a move that could avoid repeating Facebook Inc.’s listing flop, according to the average estimate of five analysts surveyed by Bloomberg in July. The poll respondents saw Alibaba’s postlisting valuation at US$198 billion.

Ma owns 8.8 percent of the company.

Sale timing Alibaba, which was weighing a plan to market its IPO early this week, now expects the meetings to begin in the week of Sept. 8, with tentative pricing on Sept. 18 and trading to start the following day, said a person familiar with the matter, who

asked not to be identified discussing private information. A US$20 billion offering would edge past Visa Inc.’s US$19.65 billion IPO in 2008 as the largest in U.S. history, data compiled

by Bloomberg show.

Ma founded Alibaba 15 years ago in his apartment in Hangzhou, China. The company’s growth and the upcoming IPO have made him China’s richest person with a fortune of US$21.8 billion. He’s one of 27 Alibaba partners who have the right to nominate the majority of its board, a governance structure that kept the company from pursuing a listing in Hong Kong.

Market share Alibaba has a lockdown on online sales between Chinese consumers, with its Taobao Marketplace accounting for 99 percent of market share, according to data from Shanghaibased Internet consultant IResearch.

Its virtual shopping center Tmall. com has 57 percent of the market for businesses selling products to consumers, more than double its closest rival JD.com.

The Chinese government projects e-commerce transactions will reach 18 trillion yuan (US$2.9 trillion) next year, representing an 80 percent increase from 2013, as the world’s largest pool of Internet users gets even bigger.

“Alibaba is probably going to grow, and it will definitely survive among peers because of this huge market share,” Ryosuke Kawahata, a Tokyo-based money manager at Mizuho Asset Management Co., which oversees about $38 billion, said by phone on Aug. 22. “I’m definitely interested in buying shares if the valuation is attractive. We’re focused on its strength and whatever happened in the past with the previous Alibaba isn’t a concern.” *With Elena Popina and Leslie Picker in New York Bloomberg

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September 3, 2014

Asia

Good fellas Putin’s willingness to sell assets to China to aid CNPC, Sinopec Elena Mazneva and Aibing Guo

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hina’s biggest energy companies stand to benefit from Russian President Vladimir Putin’s offer to sell a stake in the country’s second-biggest oil project to “Chinese friends.”

Putin made the offer in a meeting with Chinese Vice Premier Zhang Gaoli near Yakutsk, East Siberia. OAO Rosneft, Russia’s biggest oil company, produced about 440,000 barrels a day from the Vankor project in the three months to June 30, equivalent to about 4 percent of China’s daily demand.

Russia is turning to China to spur its economy as relations sour with the U.S. and Europe over the Ukraine crisis. Moscow- based Rosneft was added to American sanctions July 16 after the U.S. government froze its Chief Executive Officer Igor Sechin’s assets abroad and slapped a visa ban. Rosneft pumps 40 percent of Russia’s crude.

“It’s a huge opportunity for Chinese oil companies such as Sinopec and PetroChina to get into upstream in Russia,” said Simon Powell, head

of oil and gas research as CLSA Ltd. in Hong Kong, referring to exploration and production. “PetroChina and Sinopec have a lot of free cash and it’s just across the border.”

PetroChina Co. is the listed arm of China National Petroleum Corp., the country’s biggest oil and gas producer. Sinopec, or China Petroleum & Chemical Corp., is the listed arm of Asia’s biggest refiner China Petrochemical Corp.

CNPC signed a US$400 billion deal with Russia’s state-run gas producer OAO Gazprom in May to import 38 billion cubic meters of gas annually over 30 years starting as soon as 2018.

‘Chinese friends’ “Vankor is one of the biggest production operations today and very promising,” Putin said in the meeting.

“Overall, we take a cautious approach to letting in our foreign partners, but we of course set no restrictions for our Chinese friends.”

Rosneft may offer as

Russian President Vladimir Putin (2-L), Vice Premier of the People’s Republic of China Zhang Gaoli (R) and Gazprom President and CEO Alexei Miller (L) attend the ceremony marking the joining of the first link in the Power of Siberia main gas pipeline

much as a 49 percent stake to China for US$4 billion to US$5 billion, according to Valery Nesterov, a Sberbank Investment Research analyst.

Vankor is Russia’s secondlargest oil producing project with almost 500 million metric tons of recoverable

reserves, Nesterov said.

The press service of Rosneft declined to comment.

CNPC and Sinopec’s Beijingbased spokesmen didn’t answer calls to their offices.

Rosneft is the most active among Russian companies in building ties with China.

Last year, it signed a US$270 billion, 25-year supply agreement with CNPC as European demand fell. In October, it agreed to an US$85 billion, 10-year oil-supply deal with China Petrochemical.

Bloomberg

Still in trouble Thai shippers cut export forecast, another worrying sign for economy

Orathai Sriring

A

Thai shippers’ group expects exports to grow no more than 1 percent this year, another worrying sign for a trade-dependent economy struggling after months of political unrest that led to a military coup in May. Exports are crucial to Thailand, equivalent to more than 60 percent of its economy each year, and the Commerce Ministry is banking on export growth of 3.5 percent this year.

But that may be ambitious, as shipments in the first seven months slipped 0.42 percent from a year earlier, while imports fell for the 13th straight month in July; many imported materials are assembled into goods that are shipped out again, so the drop implies weak demand from exporting sectors.

“It will be difficult to get 1 percent (export growth) this year after an unexpected drop in July exports,” Nopporn Thepsitthar, chairman of the National Shippers’ Council, told Reuters.

The council’s latest forecast was for 1.0-1.6 percent. It has cut its projection steadily from 5 percent made late last year.

Exports fell 0.85 percent in July from a year earlier, according to Commerce Ministry data.

“We are very concerned about

KEY POINTS Thai shippers see exports rising less than 1 pct this year C.bank sees 2014 GDP growth of 1.5 pct despite weak exports

Thai social and political unrest ringing up heavy economic costs

global markets as there are several risks such as international tensions, the Ebola outbreak and unstable financial markets,” Nopporn said.

“We want to warn exporters and the public to get prepared for all the risks.”

Traders have also said Thailand faced delays in exporting millions of tonnes of rice because of a labour shortage at ports after hundreds of thousands of foreign workers fled amid fears of a military crackdown on illegal immigrants.

However, Nopporn said that was not an industry-wide problem.

The Bank of Thailand has forecast export growth of 3 percent for this year but is expected to trim that when it releases new economic forecasts on Sept. 26.

“Although export growth will not meet our forecast, it will probably not affect our GDP growth projection as we have other things helping, such as domestic demand and investment,” Assistant Governor Mathee Supapongse told reporters on Tuesday.

“We are keeping our 2014 economic growth forecast of 1.5 percent for now.”

The Finance Ministry has estimated export growth of 1.5 percent for this year and economic growth of 2 percent.

However, Gundy Cahyadi, an economist with DBS Bank in Singapore, said: “For growth to pick up above 2 percent, we need exports at around 6-7 percent, given the current situation.”

The economy grew 0.9 percent in the second quarter from the previous three months. The military government is expecting a rebound in the second half, helped by a return of confidence after the army’s intervention put an end to months of street protests.

Reuters

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September 3, 2014

Asia India to cancel 172 coalmine permits India proposed canceling 172 unused permits to mine coal, while allowing 46 operational mines to keep working to address a Supreme Court ruling that struck down all coal-mine allocations made since 1993. The government is prepared to auction off new licenses for the canceled mines, Attorney General Mukul Rohatgi said in his argument to court in New Delhi on Monday. The court said “it was leaving its options open” and set Sept. 9 for a final hearing. The proposal would keep production of the fuel that powers more than 60 percent of India’s generation capacity going, while potentially jeopardizing several projects, including power plants, steel mills and aluminum smelters. Hindalco Industries Ltd. and Jindal Steel & Power Ltd. may be the most affected, Morgan Stanley said after the court’s ruling last week.

Japan wages rising most since 1997 Japanese wages rose in July by the most since 1997, helping consumers cope with increasing living costs as Prime Minister Shinzo Abe tries to reflate the world’s third-biggest economy. Average monthly earnings climbed 2.6 percent from a year earlier after a 1 percent gain in June, the labor ministry said in Tokyo yesterday.

Adjusted for inflation, pay shrank 1.4 percent, the 13th straight month of declines. The boost in incomes marks progress in Abe’s bid to lay a foundation for sustained economic recovery. At the same time, a failure of wage growth to keep up with inflation is squeezing households and crimping spending.

Abe to reshuffle cabinet

Bad omen Japanese car market slump signals plant hollowing out to resume Craig Trudell, Ma Jie and Yuki Hagiwara

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apan’s lowest auto sales in three years are reviving concerns that manufacturing will hollow out in Asia’s second-largest economy.

Such rhetoric was tossed around regularly as recently as 2012 by car executives as the stronger yen forced production to shift out of Japan. While favorable currency rates since then paused such talk -- Toyota Motor Corp. is headed for a second straight year of record profit -- the country’s first sales-tax increase in 17 years has led to a slump in consumption and carmakers have resumed scaling back output in the country.

Sales in August tumbled 9.1 percent, the steepest drop in 14 months, serving as the latest sign of the trouble ahead for Asia’s secondlargest auto market. Japan’s main association for car dealers warned yesterday that further declines loom.

“Demand in Japan continues to decline, and as long as that’s the case, many of the companies will continue to reduce their capacity in Japan,” said Koji Endo, a Tokyo-based auto analyst at Advanced Research Japan.

Automakers delivered 333,471

vehicles last month, the fewest since August 2011, according to industry figures released on Monday. Sales of minicars, which had helped cushion demand earlier this year, paced declines by plunging 15 percent.

Deteriorating outlook Most automakers reported declines for the month, with Mitsubishi Motors Corp. seeing the steepest decline at 37 percent. Toyota, the world’s largest automaker, saw deliveries fall 12 percent, while Nissan Motor Co.’s sales dropped 15 percent. Honda Motor Co. was among the few to see an increase as sales climbed 11 percent thanks to the popularity of its Fit vehicles.

“Looking at current dealer orders, it’s difficult to see sales rising even after September,” Yoshitaka Hayashi, a director at the Japan Automobile Dealers Association, said on Monday.

Shares of most Japanese automakers rose yesterday as a weaker yen helped push up the Nikkei 225 Stock Average by 1.2 percent in Tokyo trading.

Few countries are in Japan’s league in terms of the deteriorating outlook for car manufacturing. Automakers will add 22 million units of global auto production by 2021, according to IHS Automotive estimates. By comparison, Japanese annual output is poised to shrink by more than 1.6 million vehicles in the coming decade, the researcher estimates.

‘Declining market’ “Structurally, Japan is a slowly declining market,” said Tatsuo Yoshida, a Tokyo-based automotive analyst for Barclays Plc. “The outlook for exports is not promising either.

Japanese car companies, particularly those big Japanese companies like Toyota, Honda, Nissan, they are already committed to making cars where the demand is.”

Toyota has pledged to keep annual production of 3 million vehicles in Japan, while Nissan has committed 1 million.

Capital expenditure growth at Japanese companies will decline to 7.9 percent this fiscal year and to

Target: presidency?

Philippines foils anti-Chinese bomb plot at Manila airport Norman P. Aquino*

P Japanese Prime Minister Shinzo Abe is expected to reshuffle his cabinet today in a bid to re-energise his economic and security agenda after once stellar approval ratings began to wane. The staunch conservative had enjoyed skyhigh public support when he came to power in December 2012 promising to kick-start Japan’s sputtering economy.

But a series of bruising battles over a consumption tax hike and an unpopular move to water-down the pacifist constitution have taken some of the wind out of his sails. Reports say Abe will retain the key figures of his administration -- Foreign Minister Fumio Kishida, Finance Minister Taro Aso, Chief Cabinet Secretary Yoshihide Suga and State Minister in charge of economic revitalisation and trade talks Akira Amari.

hilippine authorities thwarted a plot to bomb Manila’s international airport and a nearby mall owned by Filipino billionaire Henry Sy, arresting three men who planned the attack to protest against China’s expansion in the region.

The suspects may be charged with illegal possession of explosives and possible conspiracy to commit terrorism, Justice Secretary Leila de Lima said at a briefing in Manila yesterday.

“Whatever their agenda is, it can’t be avoided that there’s a destabilization plan” against President Benigno Aquino’s government, de Lima said.

“The instruction of the president was to pursue the investigation and determine the organization’s actual purpose. We believe there are other entities involved.”

The three men are believed to be part of a group called the USAFFE, which describes itself as “defenders of the Filipino people” and enemy

of Chinese business interests in the Philippines, the justice department said in a statement yesterday. The group was also plotting to strafe Chinese-run establishments including the Chinese Embassy and a building of DMCI Holdings Inc., which has come under investigation by labor authorities for allegedly employing Chinese laborers without work permits.

The USAFFE, which takes its name from the former U.S. Armed Forces in the Far East during World War II, also criticized the government’s “soft stance” in the country’s sea dispute with China, de Lima said.

Destabilizing Aquino The plot comes at a time when Aquino, who is seeking international arbitration of a territorial dispute with China in the South China Sea, faces growing opposition to his domestic anti-corruption drive and a drop in popularity, said Richard Javad Heydarian, a political science lecturer

at the Ateneo de Manila University.

“More than any patriotic cause behind the plot, it is more likely that this was meant to destabilize the Aquino administration and puncture the veneer of relative security in the country,” he said by phone.

Acting on a tip, government agents arrested the suspects in the parking lot of Ninoy Aquino International Airport at Terminal 3 after midnight on Monday, de Lima said. The group planned to set off one set of improvised explosives inside the airport and three more at the nearby SM Mall of Asia owned by SM Investments Corp., she said. SM is the holding company of Sy, a Filipino-Chinese.

The USAFFE, whose members claim to be former and active members of the military, police, the armed wing of the communist party and Moro National Liberation Front, originally planned to attack on Aug. 25, National Heroes Day, de Lima said. *With Clarissa Batino in Manila.

Bloomberg

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

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September 3, 2014

Asia

1.3 percent the following year, with automobile and telecommunications companies driving the slowdown, Moody’s Corp. estimates in a report released yesterday. That compares with 12.3 percent spending growth in fiscal 2012, according to the report.

Vehicle production in Japan shrank by almost one-quarter in five years, tumbling to 7.9 million units in 2009, when the worldwide auto industry slumped amid the global recession. Output stayed weak in the following years as executives including Nissan Chief Executive

Officer Carlos Ghosn warned that the industry would “hollow out” if the yen remained strong.

Weaker currency Those concerns dissipated as economic policies pushed by Prime Minister Shinzo Abe helped weaken the currency. Should the hollowing out of the industry resume, it would be a blow to his efforts to revive the economy, which last quarter contracted the most since the 2011 earthquake and tsunami.

Japan raised the consumption tax to 8 percent from 5 percent in April to counter the world’s biggest national debt burden. The effect on monthly sales was softened temporarily by backorders for minicar models such as Daihatsu Motor Co.’s Tanto and Suzuki Motor Corp.’s Spacia.

With that backlog of orders cleared, minicars are poised to continue to post declines until early next year, said Endo, the analyst at Advanced Research Japan. Demand may recover ahead of a 50 percent increase in the tax consumers pay when registering a

minicar, to 10,800 yen per year, he said.

Auto sales fell for 21 straight months in the country the last time the consumption tax was raised, in 1997. This year’s tax increase may have a smaller effect, Fumihiko Ike, chairman of the Japan Automobile Manufacturers Association, said in May. Sluggish domestic demand is expected to weigh on earnings at Japanese automakers including Toyota, which reported record profit last fiscal year as a weaker yen boosted the value of overseas earnings.

Bloomberg

SoftBank to sell robot ‘Pepper’ in U.S. within a year Rin Ichino and Takashi Amano

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illionaire Masayoshi Son will start selling his humanoid robots named “Pepper” at Sprint Corp. stores in the U.S. by next summer, part of SoftBank Corp.’s push to take the technology beyond factory floors.

SoftBank also has received between 300 and 400 inquiries about Pepper from companies in finance, food service and education, Fumihide Tomizawa, chief executive officer of SoftBank Robotics, said on Monday.

The 1.2 meter (4 foot) robot dances, makes jokes and estimates human emotions based on expressions. Pepper will go in sale in Japan in February for 198,000 yen (US$1,900) while the company hasn’t set a U.S. price.

SoftBank, which paid US$22 billion for control of Sprint last year, is investing in robotics as Japan seeks to double the value of domestic production to 2.41 trillion yen by 2020.

SoftBank has developed an operating system that controls robots in the same way Google Inc.’s Android software runs smartphones, with the platform open to customization for use in construction, health care and entertainment industries.

“We will sell Pepper in the United States within a year after gathering information

in Japan,” Tomizawa said. “I won’t be surprised if Pepper sales will be half to business and half to consumers.”

SoftBank Robotics was established as a subsidiary in July to direct the company’s business and sell Pepper, which is equipped with a laser sensor and 12 hours of battery life.

‘Produce profit’ Shares of SoftBank rose 1.3 percent to 7,541 yen at the close of trade in Tokyo.

The stock has declined 18 percent this year while the benchmark Topix index is little changed.

The robot was initially targeted at families and the elderly before getting attention for business use since its June unveiling.

Tomizawa declined to specify the company’s sales targets for robotics. SoftBank expects to generate revenue through applications and original content as customers personalize their robots.

“The basic premise is to produce profit,” Tomizawa said. “Son is aggressively involved in the project and we report to him one or two times a month.”

Son said in 2010 his vision was to create a society that coexists with intelligent

robots. The SoftBank chairman has said Pepper is a result of his time spent watching the TV show “Astro Boy,” an animated 1960s series based on a character who couldn’t experience emotions.

In July, Son said he expects to improve labor productivity by replacing 90 million jobs with 30 million robots.

“We could enter the robot business for industrial use in the mid or long term,” Tomizawa said.

Pepper was initially developed by SoftBank subsidiary Aldebaran Robotics SA. The robot

operating system, which isn’t currently used by Pepper, was developed by its Asratec Corp. division.

The businesses continue to operate as separate units of SoftBank.

SoftBank’s development of robots comes as Google acquired robotics companies, including Schaft Inc., a Tokyo-based maker of two-legged humanoid robots. Other robot makers include Honda Motor Co., which has the soccer-playing Asimo, and Panasonic Corp., which created Hospi-R machines to deliver medicines to patients in hospitals.

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September 3, 2014

International

A beautiful new world

Arthur Andersen name resurrected Market-style reforms widen racial divide in Cuba More than a decade after Enron Corp. auditor Arthur Andersen cratered in the wake of a federal indictment, some of its former partners are resurrecting the name. WTAS LLC, a San Francisco-based tax consultancy founded out of Andersen’s ashes, will go by AndersenTax. The new identity is designed to capitalize on the defunct firm’s reputation for quality work -- before it was sullied in 2002 by charges of document shredding and obstructing a Justice Department investigation into book-cooking at Enron. “Our issues with Enron were the mistake of a few,” said Mark Vorsatz, WTAS’s chief executive officer, who started the company 12 years ago with 22 other former Andersen partners. “Irrespective of Enron, we thought we were the benchmark in the industry.”

Swiss economy stalls The Swiss economy unexpectedly stalled in the second quarter as stagnating growth in the euro area hurt exports. Swiss gross domestic product was unchanged in the three months through June from the previous quarter, when it expanded 0.5 percent, the State Secretariat for Economic Affairs in Bern said in a statement yesterday. That’s the weakest quarterly reading in two years. The Swiss National Bank’s three-year-old cap on the franc has helped the economy outperform that of the euro area in nine of the last 12 quarters.

With conflicts between Russia and Ukraine, as well as in the Middle East, putting a strain on global growth, SNB President Thomas Jordan yesterday reaffirmed the ceiling’s importance to ward off economic risks.

Millionaire deal National Basketball Association scoring champion Kevin Durant re-signed as a Nike Inc. endorser with a contract worth US$300 million over 10 years after spurning an offer from Under Armour Inc., according to a person familiar with the negotiations who requested anonymity because Nike had not yet announced the deal.

“Excited and humbled to sign back with the swoosh!” Durant, the Oklahoma City Thunder forward and reigning NBA Most Valuable Player, wrote on Twitter, referring to Nike’s logo.

Austria gets tough on Russia Austrian Chancellor Werner Faymann took a tougher line on Russia’s role in Ukraine yesterday, blasting Moscow’s “deception and salami tactics” in the conflict and saying Austria was prepared to pay the price of tougher sanctions. It was a significantly harder line from neutral Austria, which until now has been reluctant to hit Russia hard with economic sanctions designed to punish what Western leaders have called unacceptable Russian behaviour.

Rosa Tania Valdés and Daniel Trotta

C

uba’s experiment with free-market reforms has unintentionally widened the communist-led island’s racial divide and allowed white Cubans to regain some of the economic advantages built up over centuries.

Under President Raul Castro, who took over from his brother Fidel Castro in 2008, Cuba has expanded its non-state workforce, loosened travel restrictions and promoted private cooperatives and small businesses.

As the communist government relinquishes its once near-total control of the economy, inequality has widened, undoing some of the progress seen since the 1959 revolution.

Much of the funding for new businesses such as restaurants, transportation services and bed-andbreakfast inns - targeted at tourists, diplomats and dollarearners - comes from family members who emigrated to the United States over the last 50 years, especially Miami.

They sent almost US$3 billion to relatives back in Cuba last year and, as they are mainly white, their investments put black and mixed-race Cubans at a disadvantage as they try to set up their own businesses.

Walter Echevarria, a 60-year-old black man, coowns a humble cafeteria run out of a ground-floor Havana apartment belonging to one of his partners.

There is no seating, and the clients are mostly state workers who order pork sandwiches and juice or a coffee for about 15 Cuban pesos, or around US$0.60.

“It’s usually the whites who have family abroad and send them money, and they can set up bigger businesses,” Echevarria said while customers lined up at the take-out window during the busy lunch hour.

With the additional economic freedom under Raul Castro’s reforms, there is also greater discrimination.

Armed with a substantial resume, Miguel Azcuy quit his job at a state-owned restaurant to go job-hunting in Cuba’s incipient private labor market two years ago, hoping to wait tables in the fast-growing restaurant sector.

The job offers never came.

Azcuy, 39, had a degree from gastronomy school and 15 years of experience in stateowned restaurants.

He’s also black, and says his race closed opportunities that would be available to white Cubans. Researchers and analysts also say the market-oriented economic reforms under way have put poorer Afro-Cubans at a disadvantage

“I felt like the owners of many of these places looked at me with disdain,” said Azcuy, who has since managed to open a small cafeteria selling coffee and juice from his home near a major hospital in Havana.

“They didn’t trust me.

They didn’t give me a chance.

They probably figured that sooner or later the blacks will let you down. Here people say they are not racist but at the moment of truth their prejudices come out.”

Anecdotally, the divisions appear obvious in a society descended from Spanish colonists and African slaves.

Tato Quiñones, a researcher who heads a private group called Brotherhood of Blackness, says it is enough to observe the small number of Afro-Cubans who have relatively lucrative sources of income such as owning restaurants, driving taxis, or renting out rooms in their homes.

Shortly after Raul Castro took over as president in 2008, he allowed Cubans to visit resort hotels, previously reserved only for foreigners.

Today, in the exclusive beach resort of Varadero, the Cuban clientele is almost all white.

Black construction workers largely built the hotels but client-facing staff are mostly white.

Money from Miami When Fidel Castro seized power in 1959, it was mostly the privileged white elite that fled the country for Miami, not the largely black workforce of laborers, sugar cane cutters and domestic help.

Following changes in U.S. laws in 2009 and 2011, Cuban-Americans can now more easily travel to Cuba and send unlimited remittances to their families.

A study by the Miami-based Havana Consulting Group found Cuban-Americans sent a record US$2.77 billion in remittances to Cuba in 2013.

Of that total, 82 percent passed through white hands.

Twelve percent was sent to mixed-race relatives, and 5.8 percent went to blacks.

By contrast, Cuba’s 2012 census showed that 64.1 percent of Cuba’s 11 million people are considered white, 9.3 percent black, and 26.6 percent of mixed race.

Besides financing the fledgling private sector, remittances contribute to a more general inequality in Cuba. The relatives of exiles and doctors who work overseas or commercially successful artists line up at hard-currency stores to buy luxury goods while most Cubans scrape by on US$20a-month government jobs.

Before Castro’s revolution, education was largely off limits to blacks and mestizos and they were shut out of universities and jobs that involved interacting with customers. Whites had their own social clubs, beaches and private parties.

As soon as he assumed power, Castro eliminated segregation and attempted to abolish inequality by giving all Cubans access to free education and health care.

The government hails those as among the revolution’s greatest accomplishments.

Today Cuba is largely a mixed-race society, though one in which lighter skinned Cubans still enjoy advantages in all but sports and entertainment.

Many Cubans are of ambiguous racial heritage, and a panoply of names exist to people of various hues. The terms are more descriptive and not considered offensive.

Some Afro-Cubans say

they have not experienced racism under the revolution, advancing in education and careers without impediment.

Echevarria, the sandwich shop co-owner, said he was content with his humble business and not too bothered by inequality. “Racism exists.

Not like before, but it exists.”

But other black and mixed-race Cubans say they feel racism, and experts say whites still have better access to good jobs and higher education.

Those disadvantages grow more acute with major economic changes, such as when the collapse of the Soviet Union caused a deep recession in the 1990s and now as market forces have a bigger role.

“That’s what has dragged our people back and is being aggravated today,” Quiñones said.

In 2011, the ruling Communist Party sent a message on racial equality by raising the number of blacks or mixed-race Cubans on its 115-member Central Committee to 36, almost in line with the census data.

And the official Union of Writers and Artists of Cuba (UNEAC) is working on proposals to counteract inequality, both in media representation and in society, such as harassment by police, a common complaint.

But Cuba does not publish demographic data such as income or crime by race and experts say it makes it very difficult to design economic, social and cultural policies to boost equality.

“In Cuba the statistics are color blind,” said Jesus Guanche, a frequent writer on matters of race. “If you want to enact measures to help disadvantaged people, you have to identify them.”

Reuters

15

September 3, 2014

Opinion Business

wires

The Stall-Speed Syndrome

Leading reports from Asia’s best business newspapers

Stephen S. Roach

Faculty member at Yale University and former Chairman of Morgan Stanley Asia, is the author of Unbalanced: The Codependency of America and China

VIETNAM NEWS Lotte Center Hanoi will have its grand opening tomorrow after five years of construction, making it the second highest skyscraper in the country to come into full operation. With 65 stories and a total height of 272 metres, Lotte Center Hanoi is second only to the 336-metre Keangnam Hanoi Landmark Tower which opened in 2012, and has taken second place from the 262.5-metre Bitexco Financial Tower which opened in HCM City in 2010.

KOREA JOONGANG DAILY Deposit interest fell to a record low last month and it is likely that the trend will continue largely due to the central bank’s decision earlier this month to cut the key interest rate in line with the government’s effort to boost the economy.

There are also growing expectations that the central bank will make another cut later this year.

According to the Bank of Korea, the average interest rate on fresh savings deposits was 2.49 percent last month. That’s 0.08 percentage point down from the previous month.

JAPAN TIMES Capital spending by nonfinancial Japanese companies rose 3.0 percent in the AprilJune period from a year earlier, indicating that the first consumption tax hike in 17 years has not significantly affected corporate investment, the government said Monday.

Business investment by all nonfinancial sectors for purposes such as building factories and purchasing equipment rose for the fifth straight quarter in the three months through June to ¥8.56 trillion, the Finance Ministry said.

THE STRAITS TIMES Almost a year after Singapore Airlines (SIA) axed non-stop flights to the United States, rival carriers like Cathay Pacific and Korean Air have been boosting services and growing market share.

This has given other airports in the region an edge over Changi when it comes to Asia-US air links, said analysts. From 1.09 million one-way seats from Singapore to the US last year, SIA will offer an estimated 935,489 seats this year, based on data compiled by British aviation consultancy firm OAG.

R

elapse is the rule in the post-crisis global economy. In the United States, Japan, and Europe, GDP growth faltered again in the first half of 2014.

These setbacks are hardly a coincidence. Persistent sluggish growth throughout the developed world has left major economies unusually vulnerable to the inevitable bumps in the road.

Sure, there are excuses – there always are. A contraction in the US economy in the first quarter of the year was dismissed as weather-related. Japan’s plunge in the second quarter was blamed on a sales-tax hike.

Europe’s stagnant growth in the second quarter has been explained away as an aberration reflecting the confluence of weather effects and sanctions imposed on Russia.

As tempting as it may be to attribute these developments to idiosyncratic factors, the latest slowdown in developed countries is not so easily dismissed. Lacking cyclical vigor in the aftermath of severe recessions, today’s economies are finding it especially difficult to shrug off the impact of shocks and break out of anemic growth trajectories.

Consider the US. Though annual GDP growth is estimated to have rebounded to 4% in the second quarter of 2014, following the 2.1% first-quarter contraction, that still leaves average growth in the first half of the year at a measly 1%.

The problem is even worse in Japan, where consumers brought forward expenditures in anticipation of the sales-tax hike. The 6.1% first-quarter growth surge to which this gave rise was more than offset by a 6.8% second-quarter contraction. The net result in the first half of this year – an average decline of 0.3% – is

Europe’s fragile economy has similarly failed to recover strongly enough to ward off periodic growth setbacks.

During the acute phase of the euro crisis, recession was concentrated in peripheral economies such as Greece, Portugal, and Spain. Now, however, the malaise has spread to the core economies of Germany and Italy broadly in line with the 0.2% contraction now estimated for the fourth quarter of 2013.

With the trajectory of real (inflation-adjusted) growth having moved into negative territory, on average, for three consecutive quarters, Japan may once again be reverting to recessionary form.

Europe’s fragile economy has similarly failed to recover strongly enough to ward off periodic growth setbacks.

During the acute phase of the euro crisis, recession was concentrated in peripheral economies such as Greece, Portugal, and Spain. Now, however, the malaise has spread to the core economies of Germany and Italy, both of which contracted in the second quarter, and to France, which recorded zero growth.

As a result, annual growth in the 18-country eurozone slipped to just 0.4% in the first half of 2014. This poor performance can only exacerbate the European Central Bank’s deflationary concerns.

Collectively, the annual growth rate in the major developed economies averaged a little less than 0.7% in the first half

of 2014. America’s paltry 1% growth led the way, while Japan and Europe, whose combined GDP is roughly equal to that of the US in purchasing-power-parity terms, recorded no better than a 0.3% increase. On balance, that is easily 1-1.5 percentage points below the developed world’s longer-term, or potential, growth trend – a worrisome outcome, to say the least, for employment, deflation risk, global trade, and export-dependent developing economies, such as China, which remain heavily reliant on external demand in developed countries.

But there is another problem with persistently subpar growth: It provides no cushion to shield economies from unexpected blows. That is especially true when growth falls below 1%, leaving a thin margin between expansion and contraction.

Such sluggish performance is the economic equivalent of “stall speed” – the heightened vulnerability that aircrafts can encounter at low velocity.

Under such circumstances, it does not take much to lead to an aborted takeoff, or worse.

The analogy is all too apt today.

Shocks, whether traceable to weather, geopolitical disturbances, strikes, or natural disasters, are the rule, not the exception. When hit by them, vigorously growing economies have cushions to withstand the blows and the resilience to shrug them off.

Economies limping along near stall speed do not. The odds of a recessionary relapse in an environment of unusually weak growth – very much the problem today – should not be minimized.

The big question is what should be done about it. The current approach, centered on unconventional monetary policy, is not the answer. Though monetary policy provided a powerful antidote to frozen credit markets in the depth of the global financial crisis, it has failed to spark classic cyclical recoveries.

That should be no surprise.

The world’s major developed economies are not suffering from cyclical deficiencies in aggregate demand that are amenable to a monetary cure.

As the Bank for International Settlements correctly points out, they are still struggling in the aftermath of wrenching balance-sheet recessions.

In the US, a lingering overhang of household debt implies that deleveraging and the rebuilding of savings continues to take precedence over discretionary consumption. In Japan, longstanding structural problems, such as aging, labor-market rigidities, and a generalized productivity malaise, can be addressed only through the so-called “third arrow” of Prime Minister Shinzo Abe’s reform agenda, which remains woefully incomplete. And Europe faces a desperate need to build pan-European institutions to ensure banking and fiscal union, and to address serious competitiveness problems in France and Italy.

Unfortunately, the more that central banks give the impression that that they are on the case, and the more that markets cheer them on, the less pressure there is on politically gridlocked governments to deploy fiscal policy and push through structural reforms.

Moreover, the fixation on monetary accommodation leaves slow-growth, balancesheet-constrained economies stuck at stall speed, increasing the risk of yet another global growth relapse.

Myopic authorities need to take less guidance from frothy financial markets and focus more on the structural repair of a post-crisis world.

This is a time for heroes, not cheerleaders.

Project Syndicate, 2014

16

September 3, 2014

Closing Portuguese furniture in Shanghai

Indonesia sells 15 trillion rupiah

Five Portuguese companies are to participate in China Furniture 2014 between 10 and 14 September, one of the biggest international shows of the Wood industry and furniture, which is being held next week in Shanghai, the sector said yesterday. Portugal exported about 6.5 million euros worth of furniture to China in the first half of 2014, 10.5 percent up on the same period in 2013, according to figures from the Chinese customs.

Indonesia sold 15 trillion rupiah (US$1.28 billion) of conventional bonds at an auction yesterday, above an indicative target of 10 trillion rupiah, Robert Pakpahan, head of the finance ministry’s debt management office, told Reuters. Bids totalling 31.1 trillion rupiah were accepted, higher than 21.68 trillion rupiah from the previous sales and the highest since March, according to a research report by Bank Mandiri.

Unrest continues Hong Kong police arrest 22 pro-democracy protesters

H

ong Kong police have arrested at least 22 people during a series of protests targeting a senior Chinese official visiting the city, authorities said yesterday.

The city has been plunged into political crisis after prodemocracy activists vowed to take over the streets of the city’s financial district following Beijing’s refusal to grant citizens full universal suffrage.

In the kind of scenes that would be unthinkable on the mainland, Li Fei, a senior member of China’s rubber stamp parliament, has been dogged by angry demonstrations throughout his visit -- including lawmakers heckling him during a speech on Monday.

Li is in town to explain China’s controversial proposal to control who stands for the top post in the city’s next leadership election, a decision that has prompted pro-democracy activists to embark on what they describe as a new “era of civil disobedience”.

Protesters have kept a vigil outside Li’s hotel with renewed scuffles breaking out late Monday evening.

“During the protest, the participants forcibly pushed the mills barriers, charged the police cordon line and dashed onto the carriageway,” police

universal suffrage in chief executive elections in 2017 and thereafter?”

China accuses Britain

Li Fei

said in a statement published yesterday.

Officers made 19 arrests outside the luxury Grand Hyatt Hotel in the Wan Chai district of the city late Monday. Eighteen of the protestors were arrested for “unlawful assembly”, the statement said. The other activist was arrested for obstructing a police officer.

Pepper spray E arlie r in th e d a y , police used pepper spray

on demonstrators at a convention centre on the outskirts of the city where Li gave a speech that was punctuated by regular interruptions by protesters and pro-democracy lawmakers.

Three people were subsequently arrested for disorder in a public place, police told AFP, adding that they were still being detained as of early yesterday afternoon.

Hong Kong chief executive Leung Chun-ying said

yesterday his government supports the reform proposal put forward by the standing committee of Beijing’s National People’s Congress while admitting “some” people were not satisfied.

But he called on detractors think hard about campaigning against the city’s first shot at limited universal suffrage.

“We should ask ourselves... what is the relationship between Hong Kong and the central government?”

Leung said. “Do we want

Meanwhile, China accused London yesterday of interfering in its domestic affairs, over a British parliamentary inquiry into democratic reforms in its former colony Hong Kong.

The public rebuke followed reports Monday that Chinese authorities had written to the parliamentary foreign affairs select committee to demand the probe be dropped.

“Hong Kong has returned to the motherland,” China’s foreign ministry spokesman Qin Gang said yesterday.

“Hong Kong is a special administrative region of China. Issues concerning the political reform of Hong Kong falls totally within China’s domestic affairs, which allows no interference from the outside.”

Gang said British MPs had “addressed inquiries” to China on the implementation of the Sino-British Joint Declaration, which set out arrangements for the 1997 transfer of Hong Kong to Chinese sovereignty.

“It is justifiable for the Chinese side to express our solemn position on this issue,” Qin added at a regular press briefing in Beijing.

Portuguese bank borrows before collapse

Football summer spending spree

Santander selling record riskiest bank debt

G

E

B

oldman Sachs stands to lose money on a multi-million euro loan it made to one of Portugal’s largest banks a month before it collapsed, the Wall Street Journal reported yesterday.

The US investment bank made the US$835million loan in July through a Luxembourg financing vehicle it created at a time when Banco Espirito Santo, on the verge of bankruptcy, found it nearly impossible to borrow money directly in capital markets, the newspaper said.

The loan proved to be only a brief lifeline for BES, which was bailed out and dismantled in August. A recapitalisation of nearly 5 billion euros was paid for largely with public money.

The Journal said Goldman Sachs would lose money on the previously undisclosed deal. Goldman Sachs managed to sell part of the debt at a loss to hedge funds specialising in distressed debt but still holds part of the liability, which has lost value, the newspaper said. It did not specify how much the bank stands to lose.

AFP

nglish Premier League soccer clubs spent a record 835 million pounds (US$1.4 billion) on hiring players during the summer transfer window as they reinvested cash from the latest round of broadcast deals.

That total was almost double the 425 million paid out by teams in Spain’s La Liga, the next highest spending country, according to figures released by business services group Deloitte yesterday. The Premier League generates more money than any domestic soccer competition while Spain is home to Real Madrid and Barcelona, the two clubs who enjoy the highest revenues thanks to the way television cash is distributed.

Manchester United, English champions a record 20 times, spent around 150 million pounds as new manager Louis van Gaal tries to ensure there is no repeat of last season’s disappointing seventh place finish.

Teams in Europe’s main leagues had until late on Monday to finalise their squads for the next few months, leading to frenzied trading in the final few hours of the transfer window. Clubs cannot buy new players again until January.

Reuters

anco Santander SA is selling a record amount of the riskiest bank bonds as the market for the debt restarts after a threemonth hiatus.

Spain’s largest bank is marketing as much as 2.5 billion euros (US$3.3 billion) of contingent capital notes that convert to equity if capital ratios fall below preset levels, the Madrid- based lender said in a statement. It’s the biggest sale of the high-yield notes since Credit Suisse Group AG issued US$2.5 billion of 6.25 percent securities in June, according to data compiled by Bloomberg.

Santander is the first major European lender to come to the market since Societe Generale SA sold US$1.5 billion of additional Tier 1 notes in June, the data show. It’s taking advantage of a drop in borrowing costs as the debt recovers from last month’s selloff that pushed yields up to a six-month high.

“There’s a bit of a rush to issue because rates are so low and it’s very cheap for the issuer,” said Francois Lavier, a money manager at Lazard Freres Gestion SAS in Paris.