Macau Business Daily, Sept 12, 2014

MOP 6.00 Closing editor: Luis Gonçalves Year III

Number 624 Friday September 12, 2014

Publisher: Paulo A. Azevedo

Housing prices cooling

What goes up must come down. Estate agents tell Business Daily they’re expecting a ‘rocky’ second half. Average home prices in Macau went through the roof in 2013. The anticipated adjustment would see slower single-digit percentage growth at best. There’s no new housing coming on-stream and transactions are dwindling PAGE

2

www.macaubusinessdaily.com

Shanghai to save Macau’s gaming stocks?

11 Bidders for Barra hub PAGE 3

T

he Shanghai and Hong Kong Stock Exchanges could link up as early as next month. Stock Connect will open the door for mainland investors on the HK bourse. But will they bite? CLSA Ltd. says 77 percent of mainland investors surveyed last month have misgivings. Investors have told Business Daily, however, that strong mainland interest could help reverse the fortunes of Macau’s underperforming gaming shares

Macau-HK travel pass goes digital PAGE 5

APPs security needs to improve PAGE 6

HSI - Movers September 11

PAGE 2

Name

%Day

China Unicom Hong K

1.64

Henderson Land Deve

1.45

More air routes for Asia Pacific

China Mobile Ltd

1.32

China Resources Lan

1.23

AIA Group Ltd

0.82

China Resources Ente

-2.40

BOC Hong Kong Holdi

-2.46

CNOOC Ltd

-2.79

APEC is in town. The Asia Pacific Economic Cooperation assembly have lots to discuss. Including a plan to increase the number of air routes in the region. More passenger-friendly airports are on the agenda. And our guests think Macau can continue to punch above its weight

PetroChina Co Ltd

-3.44

Lenovo Group Ltd

-4.19

Source: Bloomberg

I SSN 2226-8294

PAGE

5

SJM employees tighten the screws Stimulating prices SJM casino employees will take to the streets again on Saturday.

They are continuing to express dissatisfaction with the lack of progress on a pay rise. Organisers say 1,000 are expected to demonstrate. The possibility of a Golden Week strike is looming, it is claimed

China has posted unexpectedly low consumer inflation figures for August.

Economists wonder if the government will push extra stimuli. Right now, it’s ‘steady as she goes’

PAGE 6

Page 10

Brought to you by

2014-9-12

2014-9-13

2014-9-14

26˚ 31˚

26˚ 30˚

27˚ 31˚

2

September 12, 2014

Macau

Shanghai-HK link to boost Macau’s gaming stocks The link between the Shanghai and Hong Kong Stock Exchanges will open the door for mainland investors to buy gaming stocks. The programme, expected to begin in October, may help revert the underperformance of Macau’s gaming shares this year

T

he project Stock Connect that is going to link Shanghai and Hong Kong Stock Exchanges and allow mainland Chinese investors to buy stocks listed in the former British colony is expected to bring their attention to Macau’s gaming operators’ shares.

In the short-term, Chinese investors may be very careful about buying stocks in Hong Kong-listed companies. However, as gaming operators are not listed in Shanghai and so not accessible for Mainland investors, the gaming industry is likely to demonstrate a different appeal.

Some mainland investors are seeking to use the exchange link to buy Chinese companies without mainland listings, the Chief Investment Officer at CSV China Opportunities Ltd., Earl Yen, explained to Bloomberg.

Among the examples provided for these cases, Mr. Yen mentioned Stanley Ho’s casino operator SJM Holdings Ltd and Tencent Holdings Ltd., Asia’s largest Internet firm.

But it is not likely that SJM Holdings will have the edge over its competitors, Richard Huang, Research Associate and Consumer and Gaming analyst at the Hong Kong equity broker and investment bank CLSA, told Business Daily.

“SJM Holdings may be one of the companies which mainlanders decide to invest in. But I don’t think that any gaming company will stand out. All of them seem to be equally attractive to investors at this point”, he said. “Macau is basically a gaming playground. If they’re looking for gaming exposure it’s natural that they’ll invest in the gaming listed in Hong Kong. It can be SJM, Sands

Macau is basically a gaming playground.

If [mainlanders] are looking for gaming exposure it’s natural that they’ll invest in the gaming listed in Hong Kong. It can be SJM, Sands China or Wynn Richard Huang CLSA

China or Wynn”, he added.

During the months of June, July and August gross gaming revenue shrunk in year-on-year terms. This is the first time since June 2009 that GGR has fallen in year-on-year terms for three consecutive months.

However, the Stock Connection, that begins at the earliest by October, may help the industry recover.

“The investment could be beneficial to the gaming industry in Macau in this time when revenues have not been growing as before”, Mr. Huang said.

“Macau grew for a long time and we like this sector. In the short-term, prospects may lead investors to be more careful about investing in this industry. But for the long-term we are still very bullish about the sector”.

Although prospects may be positive for the Hong Kong-listed gaming operators, some initial mistrust by mainland investors in this stock exchange’s rules and modus operandi may delay the positive effects of Stock Connect.

Shanghai investors rejecting Hong Kong market Jiang Siqiang has a whole list of reasons why he’s not interested in shifting any of his money from mainland China’s equity markets into Hong Kong.

As the 67-year-old retiree sips tea and watches stock prices flicker across the screen at a brokerage in Shanghai, he ticks them off one by one. Shanghai shares tend to trade at cheaper valuations than those listed 761 miles (1,224 km) to the south in the former British colony.

“We have all the bigger companies

listed here, and many of them are cheaper than their Hong Kong stocks,” he said. “I need to watch the Hong Kong stock market for a while. There’s no rush to buy.”

Hong Kong’s market rules are unfamiliar, and he’s also turned off by the poor track record of Chinese money managers who buy foreign shares through the Qualified Domestic Institutional Investor programme.

“Even QDII funds are losing money overseas, and they’re managed by experts,” Jiang said at a Changjiang Securities Co. outlet in Shanghai’s Pudong district. “I wouldn’t buy Hong Kong stocks” any time soon.

Jiang’s misgivings provide a look into why 77 percent of mainland investors surveyed by CLSA Ltd. last month said that they won’t participate in a planned exchange link between Shanghai and Hong Kong. Their lack of interest contrasts with Hong Kong traders’ growing appetite for mainland stocks, which are luring record inflows through exchange-traded funds.

This suggests Hong Kong shares are poised to underperform their Shanghai counterparts, according to Aviate Global LLP, an institutional equity brokerage.

China, the biggest emerging economy, is counting on a successful exchange link to help liberalise its financial system, increase the role of the yuan and give its citizens more investment channels amid a slumping property market and increased risks from local wealth management products. The Stock Connect programme allows a net 23.5 billion yuan ($3.8 billion) of daily cross-border purchases.

J.S.F. with Bloomberg

3

September 12, 2014

Macau

Govt. announces moderate returns on provident fund

11 bids received for Barra transport project

The annual interest yield on the provident fund for this year is 2.03 percent, the Social Security Fund said

T

Stephanie Lai

sw.lai@macaubusinessdaily.com

T

he yield on the provident fund here, generated from interest on fixed bank deposits, is 0.17 percent or an annualised interest rate of 2.03 percent, the latest announcement from the Social Security Fund reveals. That would equate to a total deposit interest, calculated annually from the period of September to August the following year, of 1,629 patacas (US$204) for residents that have not withdrawn any money from their provident fund account since it was first established by the government in 2010. Currently, the eligible individuals that can withdraw the fund only include residents aged 65 or above or those that are younger but need to meet substantial medical expenses due to serious injury or illness of his or her own, or that of his or her spouse.

The Social Security Fund noted recently that for 2014 there are at least 40,000 individual provident fund account owners eligible to withdraw from the fund. By the second quarter of this year, the

government had already seen 334,422 residents approved to withdraw from the provident fund.

The account of the provident fund, first envisaged in 2008 as a means of better protecting the retirement of Macau residents, was established by the government in 2010 with an initial injection of 10,000 patacas for each resident. From 2011 to 2013, the government has allotted 6,000 patacas to each provident fund account owner every year; the allotment further increased to 7,000 patacas for 2014.

The fund has been largely

supported by the government’s contribution with a total injection of 35,000 patacas thus far. The yield for the provident fund from 2010 to 2013 has been in the range of 0.12 percent to 0.24 percent.

The government is planning to implement a non-compulsory provident fund system by next year, as the Social Security Fund just completed in June a 60-day public consultation on how employer and employee can contribute to this retirement fund.

For the consultation, the government proposes employers and workers each pay 5 percent of the latter’s monthly income, up to 1,500 patacas, to contribute to the latter’s provident fund. The fund applies to permanent and non-permanent residents.

The President of the Social Security Fund, Ip Peng Kun, announced in late August that he expected that the delivery of the bill on the noncompulsory provident fund system could be delivered to the Legislative Assembly by the end of this year or early next year.

he government has received a total of 11 bids competing to build the Barra transport hub project – a 3-storey underground complex of bus stops and car parks for vehicles, buses and tourist coaches connected to the light rapid transit (LRT) station to be established in the district, the Transport Infrastructure Office announced yesterday. The hub, located next to the Customs Service Headquarters near Sai Van Bridge, is to embrace some 10,000 square metres of green space on the roof of the complex. The Office has also announced that the design of the Barra LRT station – the station that will connect to that of Taipa – is still being reworked, and that the public tender for the construction of the Barra station is expected to be ready by the end of this year.

4

September 12, 2014

Macau Brought to you by

HOSPITALITY DIVERSIFYING PACKAGES The number of visitors that arrived on packaged tours has risen noticeably in recent years. Although some uncertainty associated with the international financial crisis persisted through 2008 and 2009, since 2010 the growth path has been very clear. If we compare the figures for the period between January and July, starting in that year and ending in the the current one, we find a cumulative growth rate of almost 85.8 percent, the equivalent of an annual average growth close to 18 percent for the full period.

This result is achieved even before the summer and New Year peaks, presenting the possibility that the full year growth figures may turn out to be even higher. In the current year, up to July, the monthly average of tourists exceeded 935,000 visitors, well above the just over half a million registered in 2010. Most of these visitors travel on packages to Macau only. This year, during that period, the corresponding share stood at 78 percent of the total; but this share has been declining by an average of 2.5 percentage points per year. In 2010, the corresponding value was close to 88 percent.

Home price growth predicted to slow Estate agencies expect that the average home price in the second half of the year could climb by a single-digit percentage or even dip with transactions becalmed Stephanie Lai

sw.lai@macaubusinessdaily.com

E

The other two categories identified in the published statistics have both seen their share rise in the period. Visitors on packages including both Macau and at least one destination in China have almost tripled from 2010 to 2014; and the number of those travelling on packages including Macau and some destination or destinations outside of China has increased more than fourfold. As a result, the corresponding shares reached 13.3 percent and 8.5 percent in the first seven months of the year, both up by about 5 percentage points relative to their levels in 2010.

5.18 mln

visitors to Macau, only packaged tours, January-July

state agents are expecting local average home prices to go down or to grow at a slower single-digit percentage year-on-year for the second half of 2014 amid a housing market that sees no supply of new homes and the continued dwindling of transactions.

Director of Centaline (Macau) Property Agency Ltd Jacky Shek Po Tak told Business Daily that the third quarter would be a “difficult” one for home transactions as sales have remained unusually quiet on both the home sellers’ and buyers’ fronts in September with the holiday season ending.

Both Centaline Macau and estate agency peer Anzac Realty confirm that homeowners have been less aggressive in their asking prices in recent months with stubbornly high property prices beginning to soften.

“Homeowners have been less aggressive in a market that sees really slow transactions,” Mr. Shek remarked. “The property market here has entered an adjustment phase starting from last year, when we saw a drop in home transactions to about 12,000 cases from nearly 17,000 cases the previous year, when home prices remained high.”

“For this year, I think it’s possible that both home prices and transactions may drop, mainly because there’s no new supply of homes in the market,” he said. “Previously, when developers

still had new flats to supply to the market, sales were heated in both the firsthand and secondhand homes market. And that was the time when owners were aggressive in their asking price because they still expected a lot of room for prices to grow further.”

“From our own records, we didn’t see any particular rise in average home prices for the first half of this year when compared with the final quarter of last year,” Shek noted. “I think it’s possible that home prices could go down by 10 percent year-on-year for the second half of this year because in recent terms secondhand home transactions have been silent and I don’t see any particular stimulant supporting growth.”

President of Anzac Realty Nestor Ng expects that the average home price for Macau will grow by a singledigit percentage for the second half of this year, a level that would contrast starkly with the fast double-digit growth of 2013 when sales activities were active in both firsthand and secondhand homes.

Slower pace The average home price here in the January-July period this year reached 100,867 patacas (US$12,635) per square metre, up year-on-year by 22 percent compared to 82,696 patacas per square metre a year ago; home transactions in the period totalled

4,875 cases, down from the 7,740 cases of a year earlier, the latest data from the Financial Services Bureau shows.

Official data from the Bureau suggests that home price growth has slowed as the city saw a staggering 51 percent year-on-year rise in average home prices for the January-July period of 2013, while at the same time transactions have already contracted to 7,740 cases from 8,741 cases in the previous year.

Despite the city seeing a third straight month decline in gaming revenue by August, the estate agencies are still upbeat about the property investment here against the backdrop of strong economic fundamentals accompanying the upcoming wave of Cotai casino resorts opening and tourism development in Hengqin, not to mention a subsequent demand for homes from expatriate workers.

“The fact that the gaming revenue has gone down a little in recent months did not really affect [property] investment sentiment here,” said Mr. Ng of Anzac Realty.

“We did have some clients that offloaded one of two or three properties held but that’s mainly because they were just selling them when they saw a right profit margin,” he said, “We still haven’t seen any interest rate hike and further tightening of mortgage ratios; investors have just been in a more observant stage.”

5

September 12, 2014

Macau Travel pass for HK, Macau goes digital

Asia Pacific region to strengthen air links In Macau, APEC members underline the need for more air routes within the region

O

ne of the biggest priorities during this year’s Asia Pacific Economic Cooperation (APEC) meeting is to create a plan to link countries within the Asia Pacific region by air.

Ministers are in Macau this week and met again yesterday for the fourday meeting and forum.

Javier Guillermo Molina, representing the tourist office of

Mexico, and who is also a member of the International Cooperation Unit, is quoted by Portuguese new agency Lusa as saying that among the most important projects are the air links in the Asia Pacific region and the development of more passengerfriendly airports.

“In my opinion, we still have a lot to do when it comes to linking the region. I flew 14 hours from the

United States to Hong Kong. To link such a big region poses many challenges,” he said.

At the end of the meeting, a Macau Declaration will be signed.

This Memorandum of Understanding sets out the “tendencies for the next years” for a region that is currently considered the most “dynamic for tourism.”

Rolando Cañizal, from the Philippines, also at the meeting, praised Macau as a “good example of how tourism can develop, balancing heritage and environmental issues, while at the same time assuring the different products that tourists need are available in such a small place.”

He also said that while there are areas here that are highly congested, it is possible to ease such problems through “integrated tourism . . .

Not just focusing on one area but developing the potential of other areas too,” he said.

Despite Macau occupying just 30 square kilometres and welcoming around 30 million tourists every year, Mr. Cañizal said “There are always solutions to geographical problems by creating the right infrastructure.”

APEC meetings continue today and tomorrow.

S.F.

T

he Exit-Entry Permit for travelling to and from Hong Kong and Macau will go digital nationwide starting on Monday, according to a statement by the Ministry of Public Security.

The electronic pass that allows mainland Chinese to travel to the two Special Administrative Regions has successfully been piloted in south China’s Guangdong Province, and will be used in the mainland, the statement said. The period of validity for an adult permit will be extended to 10 years, while the validity period for juveniles under the age of 16 will remain five years. The new permit will be a card embedded with an electronic integrated circuit chip that stores personal data and endorsement information. The electronic permit has much stronger anti-counterfeiting features compared to the paper permits of the past.

6

September 12, 2014

Macau

SJM workers threaten further protest Casino employees say they will take to the streets again on Saturday to express their dissatisfaction with lack of progress on a pay rise. While a strike hasn’t been called, organisers say many will skip work to take part in the protest

A

nother protest by SJM employees will be staged tomorrow in Sintra Square.

The gathering is set for 3:00pm, after which the demonstrators plan to march to the Lisboa and Grand Lisboa casinos.

The founder of the Forefront of Macau Gaming (FMG), Cloee Chao, is quoted by a Portuguese-language newspaper as saying that this demonstration is an initiative by SJM workers. FMG had proposed meeting with group representatives as well as representatives from the Labour Affairs Bureau (DSAL) to discuss salary increases. But considering the meeting, scheduled for Wednesday did not happen the workers decided to stage another protest.

The Forefront of Macau Gaming insisted that it didn’t ask workers to go on strike tomorrow but Ms. Chao is quoted as saying that several workers plan on skipping work tomorrow so that they can protest. Ms. Chao expects as many as 1,000 workers to participate in the protest.

SJM has so far refused to recognise FMG as a legal representative of its workers, saying that many of the group leaders are workers from other casino companies. Because of this, FMG arranged for black T-shirts with a clear identification that they work for SJM. “We have sold around 600 such T-shirts,” Ms. Chao said.

The gaming company has been in the spotlight more than other companies lately. Last week,

around 300 SJM workers met with representatives of the Labour Affairs Bureau (DSAL), alleging that the casino company has violated the labour law by cutting back on healthcare services provided to staff.

Ms. Chao says the move comes after more than 600 workers last week presented sick leave notes after the protest. According to Ms. Chao, during the meeting, representatives

from the Labour Affairs Bureau said such actions by SJM could have been in violation of the labour law. At the meeting, some workers complained about breaches in their employment contract by the company. FMG also said that SJM had selected five workers from each of its departments to represent the company during such meetings but the workers refused.

SJM Holdings Ltd executive

Apps under the radar The way in which mobile phone apps access and use people’s personal data needs improving, says the Personal Data Protection Office

T

he Personal Data Protection Office has commissioned an institution here to monitor and conduct a string of tests on a total of 162 mobile phone applications (or apps) of which 80 were marketed

by Apple App Store and 82 by Google Play Store and that are free to download.

Of the 80 iOS apps, only one requested permission for “unnecessary access”, while of the 82 Android apps, 43 requested permission for “unnecessary access.” The statement from the Personal Data Protection Office, however, does not clarify what is meant by “unnecessary access” other than that these are “outside the necessary scope of its functionality.”

In addition, less than 30 percent

director Angela Leong On Kei was quoted by Hong Kong Chineselanguage financial news wires as saying on Wednesday that her company’s human resources department communicate with staff on a daily basis. She added that she did not understand why workers had adopted such measures by requesting a pay rise through demonstrations. * exclusive JTM/Business Daily

of the apps studied explain the reason for collecting personal data and lack enough information as to how it will be used. As a result, the Personal Data Protection Office is urging an improvement in these measures.

In May, the Personal Data Protection Office along with 25 privacy authorities from around the world participated in a privacy sweep organised by the Global Privacy Enforcement Network (GPEN). This privacy sweep was aimed at examining the risk associated with the usage of mobile phone applications (or apps).

According to a statement from Macau’s Personal Data Protection Office, the Global Privacy Enforcement Network seeks to strengthen cross-border protection of users’ personal data. With mobile phone apps “a great quantity of personal data is collected, which can gravely affect the users’ privacy,” the statement reads. This is the case of apps that do not state how the information being collected will be used and why such information is being collected. As such, the Global Privacy Enforcement Network said it is necessary for applications to be monitored to an even greater extent.

September 12, 2014

7

8

September 12, 2014

Gaming

Atlantic City’s Revel casino clinches US$90 mln fire sale deal The resort cost US$2.4 billion in 2012 and offered 1,800 hotel rooms, theatres, nightclubs and 14 restaurants. It was the third casino to close this year in Atlantic City

A

tlantic City’s Revel casino-hotel, which closed earlier this month after filing for bankruptcy, has reached a deal to sell itself to a Florida developer for US$90 million in cash, a fraction of the billions of dollars it cost to build.

In court documents, Polo North Country Club and its president, Glenn Straub, agreed to buy the hotel and deposited US$10 million in escrow.

With 1,800 hotel rooms, theatres, nightclubs and 14 restaurants, Revel cost $2.4 billion to build when it opened in 2012.

But the city’s first new casino since 2003 was besieged by setbacks even before it opened and filed the first of two bankruptcies in March 2013.

Its current bankruptcy began in June with a plan to hold a quick sale of the company to raise money to repay creditors.

But Revel was unable to find a qualified bidder until Wednesday.

Straub’s bid will now be entered in an auction, which may produce a better deal.

The company proposed holding the auction on September 24 at the New

York offices of its law firm, White & Case.

Revel asked court permission to pay Straub a US$3 million break-up fee for acting as a “stalking horse” or initial bidder. Revel said Straub’s bid was not contingent upon financing, due diligence or licensing approval provisions.

The company also asked

that the sale be exempt from New Jersey transfer taxes, according to court documents.

Revel was part of a push by New Jersey’s Governor Chris Christie to bring Las Vegasstyle gambling resorts to Atlantic City. He provided a US$261 million tax package to help finish the construction of the complex, which is the secondtallest building in the state.

However, by the time it eventually opened, neighbouring states had approved slot machines and table games, cutting into Atlantic City’s core market.

The Revel was the third Atlantic City casino to close this year, and Trump Plaza is slated to close next week.

The Plaza’s owner, Trump Entertainment Resorts, filed

for bankruptcy on Tuesday and said it may close its other Atlantic City casino, the Trump Taj Mahal, in November.

Atlantic City started the year with 12 casinos.

(Reporting by Tom Hals in Wilmington, Delaware; additional reporting by Hilary Russ in New York; Editing by Bernard Orr) Reuters

MGM Resorts to re-enter ailing Atlantic City

M

GM Resorts International won regulatory permission on Wednesday to re-enter the Atlantic City casino market after a 20-month investigation

focusing on the company’s ties to Pansy Ho, the richest woman in Hong Kong, whom New Jersey gaming regulators considered an unsuitable partner.

The unanimous vote by New Jersey’s Casino Control Commission caps a years-long saga that effectively forced MGM to give up control of its interest in the Borgata Hotel Casino and Spa, one of Atlantic City’s best performing gaming properties in a town that has seen its fortunes fade fast.

“When I look over the last nine years, I see a company that looked for a way to get to the most lucrative gaming market on the planet,” said the Commission’s chair, Matthew Levinson. “But I also see a company that took steps to remedy problems created by those shortcuts.”

In 2005, New Jersey’s gaming enforcement division began investigating MGM’s affiliation with Ho, whose father Stanley built a gaming empire in Macau.

MGM had a joint venture in the southern Chinese territory with Pansy Ho, considered financially dependent upon her father, who was under scrutiny for alleged ties to organised crime.

Before New Jersey reached any findings, MGM pulled out, putting its 50 percent Borgata ownership into a fund controlled by a trustee, who was supposed to sell the interest if MGM did not find buyers.

But MGM received an extension, and then a hold, on any sale. In the meantime, its joint venture with Ho floated shares in an initial public offering in 2011, leaving MGM with

a majority 51 percent stake and Ho with 24 percent.

MGM general counsel John McManus noted Ho’s smaller share and told the Commission that her significant wealth and several public spats with her father showed that she is independent.

MGM’s interest in returning to Atlantic City comes even as several prominent operators there have folded amid competition from casinos in neighbouring states.

By next week, Atlantic City will have seen four casinos close this year.

One of them, the bankrupt $2.4 billion Revel Casino Hotel, reached a deal on Wednesday to sell itself to a Florida developer for $90 million in cash.

The Trump Taj Mahal could also close in November if it cannot cut expenses and reach a deal with its largest union.

MGM is one of the biggest owners of undeveloped casino-zoned property in Atlantic City. It controls a 72-acre parcel on Renaissance Pointe in the city’s marina district, and a 14-acre parcel across from the Borgata.

Members on the Commission questioned MGM Chief Executive James Murren about his plans.

“We’re going to go at this very aggressively,” Murren said. “I’m acutely aware of the sad situation that has beset the city. I don’t have any answers now but I’m going to try very hard.”

9

September 12, 2014

Greater China

Reporters accused of extorting iPhone factory workers strike money from businesses The list of victims covers many listed companies and famous enterprises from Beijing, Shanghai and Guangdong

A

n alleged scam in which journalists at a prominent business news website extorted money from companies for positive coverage is now under investigation.

The case involves eight people including journalists, media heads, marketing staff and public relations heads, all of whom have been detained by police.

Police say business news website 21cbh.com and two public relations firms collaborated to extort money from companies in return for favourable coverage and withholding negative news reports on the site.

If companies refused, the website would purposely publish negative or malicious information about the company.

They include Liu Dong, president of 21cbh.com, Zhou Bin, the website’s editor-in-chief, and reporters and employees of its marketing department, as well as heads of the two PR firms. Together, they have extorted money from more than 100 companies since November 2013, said police.

The list of victims covers many listed companies and famous enterprises from Beijing, Shanghai and Guangdong that are planning to go public, restructuring or making a business transition.

Confessions of the suspects show “too many companies” were 21cbn’s victims, but only a few reported it to police.

Having identified these companies as particularly susceptible to media coverage, the suspects targeted them in the name of news reporting. After the companies handed over “huge payments,” 21cbh.com released positive stories with exaggerated content about them, police said.

For companies which declined the suspects’ solicitation, 21cbh.com published “malicious attacks” on them or the suspects demanded money to ensure the negative stories did not see the light of the day, said police.

The journalists are also suspected of helping to rebut or conceal negative news reports on companies that paid up.

Zhou used to target those

companies that had not “established collaborative relations” with 21cbh. com and direct journalists to release negative news reports about them on the site.

When the companies involved came to 21cbh.com themselves or through a PR firm, the website would charge 200,000 to 300,000 yuan (US$32,500) in the form of advertising contracts, in exchange for deleting the negative reports from the site, Zhou said.

Using negative news reports to extort companies is a hidden rule, and it’s a collective action Wang Zhuoming reporter of 21cbh.com

These companies were forced to pay in order to “make concessions to avoid trouble,” said Liu, the website’s president.

Negative news reports harm a company’s image and hinder its effort to go public, as China Securities Regulatory Commission would investigate the company or even revoke its listed qualification, Liu said.

Wang Zhuoming, another suspect and a reporter of the website, admitted, “Using negative news reports to extort companies is a hidden rule, and it’s a collective action.”

They are also under pressures from their parent firm, Guangdong-based 21st Century Media Co., Ltd, who requires the website to sign advertising contracts with 70 to 75 percent of the

newly-listed companies annually, said Liu, who also demanded his subordinates to “maximize interests.”

He also asked reporters not to cover negative news on the companies that had signed advertising contracts with the website. However, some of the companies were still forced to increase advertising payment after negative news about the companies were again deliberately disclosed.

Police said as of 2010, 21cbh.com signed “advertising contracts” with more than 100 companies annually, with values about hundreds of millions of yuan.

A PR firm based in Shanghai and another based in the southern metropolis of Shenzhen made huge profits as intermediary between 21cbh.com and target companies.

Liu Dong said concealing negative news and misleading readers disturbed market order and dampened investors’ confidence.

Tao Kai, the suspect and executive director of Royal Investment Services Limited, the Shanghai-based PR firm, said his action damaged the media sector and professional ethics of journalism.

Under regulations set by the State Administration of Press, Publication, Radio, Film and Television, which manages the practices of all journalists in China, press credentials will be revoked in cases of media organizations acting illegally.

21cbh.com is run by Guangdongbased 21st Century Media Co., Ltd., which claims on its website to be “the largest professional media operator in the Chinese financial and business media industry.”

The company’s publications include 21st Century Business Herald, Money Week and 21st Century Business Review.

21cbh.com has offices in Shanghai, Beijing and Guangzhou.

Chinese authorities have been stepping up a crackdown on extortion in the media and paid-for news.

They have discovered problems including press cards being issued to people who are not journalists, and newspaper websites being contracted to advertisement or PR agencies.

Xinhua

in China

The company does not expect production to be affected

A

bout 16,000 workers at two subsidiaries of Taiwanese touch-screen maker Wintek Corp went on strike over holiday benefits this week in southern China in one of the biggest work stoppages this year, the Xinhua news agency reported.

A Wintek executive said the strikes started on Tuesday at subsidiary Dongguan Masstop Liquid Crystal Display Co Ltd and spread on Wednesday to Wintek (China) Technology Ltd. Each factory employs about 8,000 workers, said the executive who declined to be identified as he was not authorised to speak on behalf of the company.

The strikes ended on Wednesday and yesterday, respectively, and the company did not expect production to be affected, the executive added.

He did not say how many workers had participated.

Wintek is a long-time supplier to Apple Inc., but it was not immediately clear who the factories’ main customers were. A Wintek Corp facility in the eastern city of Suzhou, near Shanghai, is on the iPhone and iPad maker’s list of 2014 suppliers, but not the factories in Dongguan.

Six police vehicles were parked in the rain outside the gates of the Wintek factory in an industrial estate in the southern city of Dongguan yesterday, although there were no workers in sight.

A manager surnamed Wu said: “Things have been settled now. The workers are back to work.”

Workers involved in the Wintek strike told Xinhua that recruitment advertisements had offered cash bonuses equal to half of their monthly base salary on three holidays: the Dragon Boat Festival, Mid-Autumn Festival and Spring Festival.

Xinhu

16,000 workers

Some of the most important companies in Guangzhou (pictured) have been allegedly extorted

on strike at Wintek factories

10

September 12, 2014

Greater China Price regulator fines VW and Chrysler China’s price regulators said yesterday it would fine a China joint venture of Volkswagen 249 million yuan (US$40.61 mln) and the China unit of Fiat’s Chrysler 32 million yuan for price monopoly. The Shanghai branch of the National Development and Reform Commission announced the punishment on Chrysler in a statement posted on its website while the price regulator in Hubei province announced the fine on Faw-Volkswagen Sales Co Ltd.

Inflation evolution paves the way to stimuli The key question for economists is assessing how weak China’s economy actually is Xiaoyi Shao and Pete Sweeney

August vehicle sales up Vehicles sales in China rose 4 percent in August from a year earlier, the China Association of Automobile Manufacturers (CAAM) said yesterday. That followed a 6.7 percent year-on-year gain in July. CAAM has forecast that China’s auto market, the world’s biggest, will expand 8.3 percent this year, slowing from last year’s 13.9 percent pace.

Tianhe relies on Morgan Stanley Tianhe Chemicals Group Ltd said Morgan Stanley Private Equity Asia, one of its top investors, stands by the Chinese firm’s management after Anonymous Analytics published a report last week accusing Tianhe of falsifying statements. In an emailed statement, Tianhe quoted Homer Sun, Chief Investment Officer and Head of China for Morgan Stanley Private Equity Asia, as saying the company “resolutely behind Tianhe’s world class management team.” The report accused Tianhe of giving its auditor Deloitte forged documentation prior to its IPO in Hong Kong in June, an allegation Tianhe denied in a statement on Wednesday.

Shanghai sells municipal bonds City’s government auctioned a total of 12.6 billion yuan (US$2.06 billion) of five-, seven- and 10-year municipal bonds at yields of 4.01 percent, 4.22 percent and 4.33 percent, respectively, traders said yesterday. It is the ninth time this year that a Chinese local government has issued bonds directly, without the Finance Ministry acting as a proxy. China announced in May that it would allow local governments to issue U.S.-style municipal bonds for the first time in an experiment to straighten out its messy state budget, and start the clean-up of its massive local-government debt problem.

China’s leading steel maker to set up plant in South Africa China’s largest steel maker Hebei Iron & Steel Group is planning to set up a high-volume joint venture in South Africa. The first phase of the project with a three-million-tonne capacity will start construction in 2015 and be put into use in 2017. The second phase with two million tonnes of capacity will start production in 2019. The project is expecting a total annual capacity of five million tonnes upon completion.

Hebei Iron & Steel Group, the Industrial Development Corporation (IDC) of South Africa and the China-Africa Development Fund, signed the cooperation memorandum for the project on Wednesday in Beijing.

Chinese Prime Minister Li Keqiang during the Annual Meeting of the New Champions 2014 during the World Economic Forum in Tianjin on 10 September 2014

C

hina’s consumer inflation cooled more than expected in August, further evidence that the economy is losing momentum, but economists are divided over whether Beijing will use the extra room to announce fresh stimulus measures.

The consumer price index (CPI) rose 2.0 percent in August from a year earlier, the National Bureau of Statistics said yesterday, missing market expectations for 2.2 percent and down from 2.3 percent in July.

The producer price index fell 1.2 percent, its 30th consecutive monthly decline, as weak economic conditions continue to rob Chinese companies of pricing power. The market had expected a 1.1 percent decline after a drop of 0.9 percent in July.

Highlighting faltering demand, China’s second-biggest steelmaker, Baoshan Iron and Steel 600019.SS (Baosteel), said on Wednesday it will cut its prices for October delivery, which is normally a peak steel consumption period.

The CPI rose 0.2 percent in August from the previous month, only half as much as economists had expected.

With consumer inflation well below the official annual ceiling of 3.5 percent, the government and the central bank have scope to provide further stimulus to the economy if needed - but the question is whether pumping more money into the system will help the economy or hinder it.

“As China’s inflation continues to trend down, we believe that the deflation risk is rising and China needs to further ease monetary policy,” said Hao Zhou, economist at ANZ in Hong Kong, reflecting one common view.

“More importantly, the soft PPI inflation indicates that the real interest rates facing the corporates have even picked up amid the economic slowdown, which will likely squeeze their profit margins over time.”

But other economists think policymakers will wait and see if stimulus measures announced earlier in the year gain traction.

Bill Adams at PNC argued that low unemployment rates means that Beijing will not need to do much.

“Inflation is well-controlled, and the limited public data on labour market dynamics suggest continued low unemployment,” he wrote in a research note, adding that signs of robust inflation in the prices for services such as tailoring and home repair reflect a strong employment rate.

“August data so far in hand - the CPI and PPI reports, PMIs, and trade data - hint that headline real GDP growth is picking up in the third quarter of 2014, and suggest a new round of government stimulus is unlikely in 2014.”

A flare-up in price pressures and debt levels following a massive stimulus programme during the global financial crisis remains fresh in policymakers’ minds, so any measures now may continue to be tightly focused on the most vulnerable sectors of the economy.

Beijing has been particularly concerned by signs that easing up on credit has inadvertently channelled cash into speculation and rate arbitrage in China’s burgeoning shadow banking market, as opposed to lending for real economic activity.

Traders say the administrative crackdown on shadow banking has resulted in an environment in which short-term liquidity is technically plentiful, yet the willingness to lend is weak as banks see a spike in bad loans.

Wider weakness The key question for economists is assessing how weak China’s economy actually is, accounting for seasonality and data distortions.

Premier Li Keqiang said on Tuesday that China cannot rely on loose credit to lift its economy and it would continue to make only “targeted adjustments”. He said the economy can still grow by around 7.5 percent this year as earlier forecast by the government.

KEY POINTS Inflation data points to further cooling in economy Some economists say more stimulus steps needed Aug CPI +2.0 pct yr/yr vs f’cast +2.2 pct Aug PPI -1.2 pct yr/yr vs f’cast -1.1 pct Aug CPI +0.2 pct from July, vs f’cast +0.4 pct

Trade data on Monday showed China’s exports were buoyant but import growth unexpectedly fell for the second consecutive month in August, posting its worst performance in over a year.

That fuelled speculation about whether authorities should loosen policy further in a bid to revive cooling demand, which is being compounded by a weakening housing market.

Data on new lending, industrial output and retail sales will be announced in the next few days.

Since April, authorities have accelerated some infrastructure work, injected cash into banks to increase lending and relaxed controls in the housing market in a bid to boost flagging property sales.

Those steps have not had a clear impact on economic performance so far, but they do appear to have buttressed a stock market rally in mainland markets, which are heavily focused on liquidity policy and on real estate.

Reuters

12

September 12, 2014

Asia S.Korea unveils 2015 spending South Korea plans to increase spending in the 2015 government budget by 5.7 percent, a bigger rise than this year, in a bid to lift economic growth, Finance Minister Choi Kyung-hwan said yesterday. The government’s previous long-term fiscal policy plan was to increase 2015 budget spending by 3.5 percent but this would fall short of supporting the weak economic recovery, Choi told a meeting with the ruling party’s leaders. This year’s budget spending plan has been set at 355.8 trillion won, up 2 percent from 2013.

Malaysia’s factory output up Malaysia’s industrial production in July rose 0.5 percent from a year earlier, much slower than June’s output growth of 7.0 percent, data from the Statistics Department showed yesterday, and was below expectations.

A Reuters poll of 11 economists had forecast factory output would expand at 4.3 percent in July due to a large drop in exports for the same month, especially to main markets, China and Japan. The data showed that while manufacturing output recorded slower growth, the mining sector saw a decrease of 7.8 percent.

S.Korea’s ICT exports fall South Korean exports of information and communications technology (ICT) products fell for the first time in three months as demand for digital TVs weakened, a government report showed yesterday. Exports of ICT products, including mobile phones and TVs, reduced 2.1 percent from a year earlier to US$14.19 billion in August, according to the Ministry of Trade, Industry and Energy. It marked the first decline since a 7.6 percent reduction in May. Among major items, shipments of chips, handsets and display panels increased for the third straight month last month due to solid demand.

Vietnam hosts travel expo The International Travel Expo-Ho Chi Minh City 2014 (ITE HCMC) kicked off here on Thursday, attracting more than 200 domestic and foreign travel companies from 19 countries and territories, including 20 leading travel companies from China, according organizers. The ITE HCMC 2014 was co-organised by the Vietnam National Administration of Tourism and the HCM City Department of Culture, Sports and Tourism. Under the theme “Five countries, One destination” and initiated by the Mekong Tourism Alliance, which includes Cambodia, Laos, Myanmar, Thailand and Vietnam, the expo aimed to tap into the region’s tourism potential and strengthen cooperation.

Aussie jobs pleasantly Analysts cautioned the series was notoriously volatile and carried a

A

ustralian employment surged by the most on record in August and far beyond the most optimistic forecast, on the face of it a stunningly strong report that should calm recent concerns about the health of the economy.

The local dollar leaped and markets are virtually pricing out the chance of a rate cut as yesterday’s data from the Australian Bureau of Statistics showed 121,000 jobs were created in August. That was the largest rise since the series began in 1978 and dwarfed expectations for a 12,000 increase.

The jobless rate also surprised by falling back to 6.1 percent, so reversing most of July’s unexpected jump to 6.4 percent. Most of the gains came in part-time jobs which surged 106,700, while more people went looking for work as the participation rate jumped to a 16-month peak of 65.2 percent.

Analysts cautioned the series was notoriously volatile and carried a lot of statistical noise, but even then the scale of the gains could not be ignored.

“It’s really an off-the scale result to get more than 100,000 jobs created against expectations of only about 10-15,000, and is clearly a very big upside surprise,” said Stephen Walters, chief economist at JPMorgan.

Bank of Japan trusts in stimuli to reach inflation goal Kuroda’s optimism about the economy suggests he sees no need for immediate action

B

ank of Japan Governor Haruhiko Kuroda told Prime Minister Shinzo Abe he is prepared to take whatever steps needed to achieve the central bank’s 2 percent inflation target if it comes under threat.

In a face-to-face meeting about the economy, however, Kuroda said he received no particular instructions from Abe. Kuroda said he discussed the economy after a sales tax increase in April and told Abe that Japan’s economic momentum remains intact.

Kuroda’s optimism about the economy suggests he sees no need for immediate action, but the meeting with Abe could fuel speculation the BOJ will ease policy again sometime in the future as another sales tax increase is scheduled for next year.

“I told the prime minister we will steadily continue with qualitative and quantitative easing launched in April last year to achieve our 2 percent price goal,” Kuroda told reporters

after yesterday’s meeting with Abe. “If that goal becomes difficult to achieve we will not hesitate to take whatever steps necessary, including additional monetary easing in adjusting policy. But at the moment,

Bank of Japan Governor Haruhiko Kuroda in previous press conference

the positive cycle in the Japanese economy is continuing.”

The first such meeting between the two since April comes ahead of Abe’s crucial decision on whether to proceed with a second sales tax hike to 10 percent planned for October next year.

The two, who meet one-on-one regularly about once every quarter, likely discussed a slew of recent soft economic data. Kuroda did not offer much detail, except to say he told Abe that the global economy is on the recovery path.

Some economists worry that relations between the government and the BOJ could be strained if an economic rebound from a sharp second-quarter contraction proves to be much weaker than expected.

The April’s sales tax hike to 8 percent from 5 percent triggered the deepest slump in the second quarter since the 2009 global financial crisis.

Reuters

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.

Business Daily is a product of De Ficção – Multimedia Projects Address Block C, Floor 9, Flat H, Edf. Ind. Nam Fong Av. Dr. Francisco Vieira Machado, No. 679, Macau Tel. (853) 2833 1258 / 2870 5909 Fax (853) 2833 1487 editor editor@macaubusinessdaily.com newsroom newsdesk@macaubusinessdaily.com Advertising advertising@macaubusinessdaily.com Subscriptions sub@macaubusinessdaily.com

13

September 12, 2014

Asia

surprises

New Zealand central bank holds fire

lot of statistical noise

KEY POINTS Employment +121,000 in Aug, part-time jobs +106,700 Jobless rates falls to 6.1 pct, reversing July jump to 6.4 pct Market pushed A$ higher while pricing out chance of rate cut July’s spike in unemployment to a 12-year peak of 6.4 percent had caused a lot of hand-wringing at the time and much media talk of a sagging economy, and even recession.

Since then data has shown the economy grew a little faster than expected in the year to June at 3.1 percent, while retail sales and home building has been running firm.

Catching up in a rush Leading indicators of labour demand have also been pointing to a pick up, with ANZ’s survey of job advertisements rising for a third straight month in August to be up almost 8 percent on the year.

“First impressions are that it’s obviously providing a bit of catch up in employment after some very weak jobs growth in recent months,” said Spiros Papadopoulos, a senior economist at National Australia Bank.

The ABS did note that the rotation of its survey group included an unusually large rise in part-time employed. Yet it also said that, because of the unusually strong increase in employment estimates, it had extensively checked the data.

Analysts emphasised that the Reserve Bank of Australia (RBA) was very well aware of the volatility in the data and would want to see a consistent run of better jobs numbers before concluding that the labour market had really turned the corner.

Just last week, RBA Governor Glenn Stevens said a sustainable fall in unemployment might not begin until late in 2015, suggesting a rise in interest rates was also a distant prospect.

The central bank has kept rates at record lows of 2.5 percent for over a year in order to support domestic demand as a long boom in mining investment starts to wind down.

Even before yesterday’s data, it had sounded content that rates had gone low enough, leading markets to price out much prospect of another easing.

Reuters

But it will monitor the impact of the 100 basis points of tightening implemented

N

ew Zealand’s central bank signalled a period of stability in interest rates after standing pat on policy yesterday, saying that softer price pressures may require it to temper rate increases when it resumes a tightening cycle next year.

The New Zealand dollar slipped to a six-month low and wholesale rates rallied as investors priced out the possibility of another rate rise this year. Since March, the central bank had raised rates by 25 basis points at each of its last four meetings.

The decision to hold the official cash rate at a 5-1/2-year high of 3.5 percent was widely expected, but the Reserve Bank of New Zealand’s lesshawkish policy outlook prompted a rush in markets to realign the trajectory for rates over the next year.

In a nod to softer inflation pressures and a sharp drop in dairy prices, the RBNZ slashed its forecast for 90-day bank bill rates - a gauge of its rate outlook - and suggested it may wait until the first quarter of 2015 before resuming its tightening cycle.

“The RBNZ will resume tightening the official cash rate in March next year, but we think it’s likely that they

Reserve Bank of New Zealand headquarters

will have a more drawn out tightening cycle stretching into 2016,” said Chris Tennent-Brown, a senior economist at ASB Bank.

The central bank said it would monitor the impact of the 100 basis points of tightening implemented so far, reflecting an economy that is starting to cool after annual growth sped to a 6-1/2-year high of 3.8 percent in the first quarter - widely considered by analysts to mark a peak in the current cycle.

Apart from keeping a weathereye on dairy prices, RBNZ Governor Graeme Wheeler said the focus will be on how currency strength and net immigration would affect consumer prices.

Reuters

Bank of Korea to keep rate, but not for long BoK is guaranteed by law to set interest rates independently from other government agencies but some of its past policy rate cuts were politically motivated

T

he Bank of Korea is considered certain to stand pat on policy at today’s meeting, but analysts aren’t ruling out another rate cut before year-end following an easing in August that was widely seen as giving in to political pressure to shore up growth.

All of the 31 analysts surveyed by Reuters forecast the central bank would leave its 7-day base rate unchanged at 2.25 percent at its September 12 meeting to assess the effect of its 25-basis-point rate reduction last month.

The central bank has never moved the rate for successive months except during times of crisis. The August 14 rate cut was widely seen as a decision made under government pressure to supplement Finance Minister Choi Kyung-hwan’s stimulus efforts, rather than kicking off a major policy-easing cycle.

“You can say the Bank of Korea has a neutral stance, but the finance minister kept expressing his concern about deflation risks, and I think this will lead to a further rate cut,” said Kong Dong-rak, a fixed-income analyst at Hanwha Securities.

Indeed, analysts were

KEY POINTS Base rate seen on hold on Sept. 12: Reuters poll Analysts split between cut, hike for next rate move Finance minister’s opinion, weak exports, forex moves key risks

Parliament of South Korea

largely split over the direction of the next rate move - a majority are predicting a rate increase sometime next year though a significant minority still see an additional cut in coming months.

Out of the 26 analysts who gave a clear view on the central bank’s next policy move, 17 forecast the Bank of Korea would raise the rate

next year while the remaining nine saw a cut.

Giving credence to the dovish-rate camp is an economy that continues to underperform after two years of sub-par growth, an inflation rate well under the central bank’s 2.5-3.5 percent target range and, perhaps most importantly, overt government pressure.

The Bank of Korea is guaranteed by law to set interest rates independently from other government agencies but some of its past policy rate cuts, including one in May last year, have been made after the government ramped up pressure to spur growth.

To be sure, the central bank could easily justify

another rate cut on purely economic considerations, including tepid exports, weak manufacturing activity and depressed business confidence.

Recent data have shown signs of some improvement in domestic demand thanks to Choi’s aggressive stimulus drive, but the won’s rise against some of the major currencies could hamper an already disappointing recovery in exports.

The won is currently some 7 percent higher against the dollar and euro from a year ago, and 11 percent up on the yen.

Reuters

14

September 12, 2014

International Maduro says Venezuela can pay debt

Lloyds and RBS to relocate from “independent” Scotland Angus MacSwan and Alistair Smout

T President Nicolas Maduro said Venezuela could meet all its obligations to bondholders, as he sought to quell market fears that the Socialist-run country may opt to default when US$5 billion of its foreign debt falls due for repayment next month. Fears of a possible default heightened, with bond yields spiking, after the publication of an article by a former planning minister and a proopposition economist that suggested an orderly default could ultimately help Venezuela’s slumping economy.

Gazprom Q1 net profit down on Ukraine Russian gas producer Gazprom said yesterday its first-quarter net profit fell 41 percent to 223 billion roubles (US$6 billion), missing forecasts, on cheaper prices to Ukraine and a weak rouble. Analysts, polled by Reuters, expected first-quarter net income to fall to 263.6 billion roubles. Russian President Vladimir Putin cut the gas price paid by Ukraine by a third for January-March following Kiev’s decision to withdraw from a trade deal with the European Union. Gazprom said it had created a provision of 71.3 billion roubles related to “doubtful” trade accounts receivable from Naftogaz, Ukraine’s state energy firm.

Argentina’s Congress passes debt law Argentina’s Congress gave final approval yesterday to a law proposing to restructure the country’s debt in order to skirt a U.S. court ruling that toppled it into its second default in 12 years. The lower house of Congress passed the debt restructuring plan by an early-morning vote of 134 to 99 following a marathon debate that started Wednesday afternoon.

The bill had already been approved last week by Argentina’s Senate. The law enables Argentina to make payments on its foreign-held bonds locally, or elsewhere beyond the reaches of the U.S. court.

Fed’s rate guidance on chopping block The U.S. Federal Reserve is facing perhaps its most pivotal meeting of the year next week, as it debates a potential overhaul of its guidance on interest rates and seeks to nail down a plan for exiting its extraordinarily easy monetary policy. It remains to be seen whether decisions will be taken on either, but it is clear that details on a so-called exit plan are nearly complete, while discomfort is growing internally over a pledge to keep rates near zero for a “considerable time.” Investors will parse the central bank’s words closely for any clues on the timing of the first U.S. rate hike in more than eight years.

wo major British banks, part-owned by the British government, said they would relocate to London if Scotland votes for independence, hours after a poll showed a slender lead to those who want to keep the centuries-old union with England.

Britain’s political elite have rushed to respond to the prospect of Scottish voters backing secession in a referendum on September 18 after a poll at the weekend showed the ‘yes’ campaign’s first lead this year.

Leaders of Britain’s three main political parties scrambled to the country on Wednesday where they said Scotland would gain more autonomy if it rejected independence.

Part-nationalised British banks Lloyds and RBS both said they would relocate to London if Scots decide to end the 307-year long union with England.

Lloyds, which is 25 percentowned by the British government and controls Bank of Scotland, said its contingency plans included setting up “legal entities in England.”

RBS said it “would be necessary to re-domicile the bank’s holding company.”

Bank of England Governor Mark Carney also raised questions about currency arrangements in an independent Scotland on Wednesday, saying the country would need big stockpiles of sterling if it adopted the pound without an agreement with the rest of the United Kingdom.

This could threaten the spending promises of Scottish National Party leader Alex Salmond who wants a deal to share the pound and the BoE with the rest of the UK but Britain’s main political parties have ruled that out.

Royal Bank of Scotland headquarters in Edinburgh

There was some relief for unionists when a poll released on Wednesday evening showed 53 percent of Scots would vote against a split, with 47 percent intending to opt for independence - unchanged from its last survey on August 28.

The figures from the poll, carried out by Survation for the Daily Record newspaper, excluded 10 percent of voters who said they were still undecided.

Until a few weeks ago the “No” campaign had been comfortably ahead, according to a range of polling companies.

Financial markets are on edge about the prospect of Scotland breaking away, probably taking much of the North Sea oil and gas reserves with it and raising questions about Britain’s balance of political power and its membership of the European Union in the future.

The cost of hedging against sharp swings in the British pound ahead of the Scottish referendum in a week’s time jumped to 13-month highs.

Yesterday marked the anniversary of the 1997 referendum in which Scots voted for their current devolved administration with Salmond, who leads the pro-independence movement, due to speak at a major news conference.

His campaign was, however, dealt a setback after the influential Scottish newspaper The Scotsman said yesterday it had decided to back remaining part of Britain.

“The conclusion is that we are better together, that Scotland’s best interests lie not in creating division but in continuing in the Union and using its strengths to help us continue in our success,” the newspaper said.

Reuters

Oil demand growth slowing The IEA said demand growth in the second quarter of 2014 alone eased back to a near two-and-a-half year low

W

orld oil demand growth is softening at a remarkable pace as the European and Chinese economies falter, the West’s energy watchdog said yesterday, while supplies grow steadily, particularly from North America.

“The recent slowdown in demand growth is nothing short of remarkable,” the International Energy Agency (IEA) said in its monthly report, revising down its oil demand growth projections for both 2014 and 2015.

“While festering conflicts in Iraq and Libya show no sign of abating, their effect on global oil market balances and prices remains muted amid weakening oil demand growth and plentiful supply,” it added.

The IEA said demand growth in the second quarter of 2014 alone eased back to a near two-and-ahalf year low.

For the whole of 2014, the IEA reduced its oil demand growth projection by 65,000 barrels per

“Euro zone economies, already struggling with stagnation, are getting perilously close to deflation. The risk being that falling European prices trigger a deflationary spiral that causes further reductions in economic activity” International Energy Agency monthly report

day (bpd) to 900,000 bpd while for 2015 it cut its estimate by 100,000 bpd to 1.2 million bpd.

“Euro zone economies, already struggling with stagnation, are getting perilously close to deflation.

The risk being that falling European prices trigger a deflationary spiral that causes further reductions in economic activity, as market participants delay investment/ purchasing decisions,” it said.

China, the world’s second largest oil consumer after the United States, is unlikely to see oil demand grow by much more than 2 percent, the IEA said.

Oil prices fell below US$100 per barrel this month for the first time in over a year, weighed down by a combination of slowing demand growth and abundant supplies.

The IEA expects non-OPEC supply to expand by 1.6 million bpd in 2014, and by another 1.3 million bpd in 2015 on the back of the shale oil boom in North America.

Reuters

15

September 12, 2014

Opinion Business

wires

Leading reports from Asia’s best business newspapers

Teaching economic dynamism

Edmund S. Phelps

Nobel laureate in economics, is Director of Columbia University’s Center on Capitalism and Society and Dean of the Newhuadu Business School

BANGKOK POST Despite high hopes of 5% economic growth next year coming from the ambitious 2.4-trillion-baht infrastructure projects, Thailand should focus on developing an environment to accommodate economic expansion and continuous development policies, says an economic expert. Since GDP growth can fluctuate due to several factors, stability in domestic sentiment and predictable development policies are crucial for sustainable growth, said Aynul Hasan, chief of development policy for the UN Economic and Social Commission for Asia and the Pacific’s macroeconomic policy and development division.

THE STAR Malaysian state oil firm Petronas plans to ramp up production at an offshore field this month, with first exports of the new crude grade planned for November, two sources with knowledge of the matter. Ramp-up of output at the Gumusut-Kakap field is key to Malaysia’s efforts to boost production and exports from several deepwater developments in the eastern part of the country.

Production of the new Kimanis crude grade may reach 80,00090,000 barrels per day (bpd) next year, with potential to raise production further in the future, said one of the sources.

JAKARTA GLOBE State energy company Pertamina has raised the price of 12-kilogram non-subsidized liquefied petroleum gas by 23 percent and plans similar increases every six months until the price meets market levels around January 2016. “Effective September 10, the price of 12kg LPG will be increased by Rp 1,500 per kilogram [US$0.13], or Rp 18,000 per canister,” Pertamina director for marketing and trading Hanung Budya said.

After taking transportation and other costs into account, Pertamina will sell the 12kg LPG canister at Rp 7,731 per kilogram, or Rp 114,300 per canister, representing an increase of 23 percent, according to Hanung.

THE TIMES OF INDIA Ratan Tata has made a personal investment in online jewellery retailer Bluestone as the former Tata Group chairman scales up his exposure to India’s red hot e-commerce sector which has attracted a steady stream of investor money. Tata, 73, now chairman emeritus of Tata Sons, the holding company of the $100-billion steel-tosoftware Indian conglomerate, has subscribed to fresh shares of the three-year-old e-commerce player that sells jewellery targeted at women buyers.

The size of Tata’s investment could not be ascertained by TOI. He joins a list of pedigree angel investors and venture capital firms backing the Bangalore‑based company.

B

usiness leaders often argue that the widening education gap – the disparity between what young people learn and the skills that the job market demands – is a leading contributor to high unemployment and slow growth in many countries. For their part, governments seem convinced that the best way to close the gap is to increase the number of students pursuing degrees in the so-called “STEM” subjects (science, technology, engineering, and mathematics). Are they right?

The short answer is no. Indeed, the two main arguments underpinning claims that inadequate education is to blame for poor economic performance are weak, at best.

The first argument is that the lack of appropriately skilled workers is preventing companies from investing in more advanced equipment. But that is not how economic development usually works. Instead, firms begin to invest, and either workers respond to the possibility of higher wages by acquiring (at their own cost) the required skills, or firms provide their current and future employees with the relevant training.

The second argument is that it is increasingly difficult for the United States and other advanced countries to match the gains that developing countries have achieved by investing heavily in upgraded equipment, targeted higher education, and skills training.

But, again, this contradicts traditional trade dynamics, in

which one country’s success does not imply hardship for another.

In theory, of course, a simultaneous shift in several countries toward STEM-focused secondary and higher education – with large concomitant productivity gains – could diminish the competitiveness of an economy that made no such effort. But this scenario is highly unlikely, at least in the foreseeable future.

In fact, the proliferation of highly specialized universities in Europe has failed to buttress economic growth or employment. And the conversion of comprehensive universities into specialized institutes for science and technology in the Soviet Union and communist China did nothing to avert economic disaster in those economies. (China’s top universities now offer two-year programs that emulate the structure of American liberal arts colleges.)

But the case for STEM education is even more fundamentally flawed, because it treats an economy as an equation. According to this logic, job creation is a matter of slotting humans into identifiable opportunities, and economic growth is a matter of increasing the stock of human or physical capital, while exploiting scientific advances. This is a dark view of modern economies, and a depressing blueprint for the future.

To lay the foundation for a future based on ideas and invention, businesses and governments

To lay the foundation for a future based on ideas and invention, businesses and governments should consider how new products and methods emerged in some of history’s most innovative economies

should consider how new products and methods emerged in some of history’s most innovative economies: the United Kingdom and the US as early as 1820, and Germany and France later in the nineteenth century. In

these economies, innovation was powered not by global scientific progress, but by the population’s dynamism – their desire, capacity, and latitude to create – and willingness to allow the financial sector to steer them away from unpromising pursuits.

The fact that innovative ideas have arisen largely from the dynamism of people belies the conclusion that all economies require widespread STEMfocused education. Though a larger STEM base can benefit some economies, most advanced countries already have sufficient capacity in these fields to apply foreign technologies and engineer their own.

What economies need instead is a boost in dynamism. The problem is that the historically most innovative economies have lost much of their former dynamism, despite retaining an edge in social media and some high-technology sectors. And others – for example, Spain and the Netherlands – were never particularly dynamic. Meanwhile, the emerging economies that are supposed to be filling the gap – notably, China – are still falling short of the levels of innovation required to offset the declining benefits of technology transfer.

In other words, economies today lack the spirit of innovation.

Labour markets do not need only more technical expertise; they require an increasing number of soft skills, like the ability to think imaginatively, develop creative solutions to complex challenges, and adapt to changing circumstances and new constraints.

That is what young people need from education. Specifically, students must be exposed to – and learn to appreciate – the modern values associated with individualism, which emerged toward the end of the Renaissance and continued to gain traction through the early twentieth century. Just as these values fuelled dynamism in the past, they can reinvigorate economies today.

A necessary first step is to restore the humanities in high school and university curricula. Exposure to literature, philosophy, and history will inspire young people to seek a life of richness – one that includes making creative, innovative contributions to society.

Indeed, studying the “canon” will do more than provide young people with a set of narrow skills; it will shape their perceptions, ambitions, and capabilities in new and invigorating ways.

In my book Mass Flourishing, I cite some key figures who articulate and inspire modern values.

The humanities describe the ascent of the modern world.

Countries worldwide can use the humanities to develop or revive the economies that drove this ascent, while helping individuals to lead more productive and fulfilling lives.

Project Syndicate 2014

16

September 12, 2014

Macau Dual currency IPO debuts in Hong Kong

Corn output seen down after severe drought

Hong Kong is poised for its first dual currency initial public offering (IPO) as regional carrier, Hong Kong Airlines International, filed last week for the landmark Hong Kong dollar and yuan currency deal. The former British colony has long been waiting for a dual currency IPO after its stock exchange launched share trading in yuan in addition to Hong Kong dollars in 2011. Companies such as Chow Tai Fook Jewellery Group were believed to have explored the possibility, but all gave up due to technical barriers or fund repatriation restriction.

China is likely to harvest 2.2 percent less corn in 2014 due to drought, the first fall in output since 2010, according to the latest estimate issued by an official think tank yesterday. The China National Grain and Oils Information Centre (CNGOIC) estimated corn output this year at 213.8 million tonnes after drought damaged corn crops in three northeast provinces. The forecast would represent China’s second highest output. Lower corn production in the world’s second largest consumer of the grain comes at a time when China sits on record stock and the world’s top exporter.

China keeps attracting foreign investment Official data showed that foreign direct investment (FDI) in China dipped by 17 percent in July A panorama of south district in Xiamen, where the China International Fair for Investment and Trade is taking place

W

hile some analysts said China is losing its glamour as a major investment destination, business insiders believe the world’s second largest economy is no less enticing.

“We are going to open up 110 stores across China in the next three years,” said Ray Bracy, senior vice president of Walmart China at the four-day China International Fair for Investment and Trade (CIFIT) that concluded in the south-eastern coastal city of Xiamen yesterday.

Bracy said he was optimistic about China’s market potentials, particularly in second and third-tier cities where a middle-class customer

base is rapidly growing.

Dai Jianmin, CEO-in-waiting of San Francisco-based Bank of Orient, said at the CIFIT: “Globally speaking, China’s economic expansion is among the fastest and business opportunities in many sectors and regions are still great.”

Schneider Electric also attaches significance to the China market, the company’s second largest market globally. Wang Jie, vice president of Schneider Electric China, said one of the company’s strategies is “go west” for “gold mining” in inland regions.

The Zurich-based power and automation technology company, ABB Group, had record sales revenue in

South Korea to hike cigarette price by 80%

China last year. They’re also betting on the growth momentum in the west, with branches in the region already established, Cai Ge, senior vice president of ABB China, told Xinhua.

He said rooting in China is the group’s long-term strategy.

“It is groundless to say that China’s investment environment is worsening,” said Dai, dismissing worries that foreign capital is leaving the country.

Official data showed that foreign direct investment (FDI) in China dipped by 17 percent in July, the steepest monthly drop since July 2012.

The total FDI from January to July also fell by 0.35 percent.

Shanghai gold bourse to link with FTZ

S

outh Korea yesterday proposed a steep 80 percent hike in cigarette prices to cut consumption in a nation with one of the world’s highest male smoking rates.

The decision requires parliamentary approval, but Health Minister Moon Hyung-Pyo said it was necessary to counter what has become the “biggest threat to national health”.

The proposal would see the average price of a packet of cigarettes rise from 2,500 won (US$2.42) to 4,500 won from January 1 next year.

Moon said his ministry predicted the increase would help cut tobacco consumption by 34 percent and raise annual tax revenues by 2.8 trillion won.

Around 44 percent of adult South Korean men are smokers, the highest rate among member countries of the Organisation for Economic Cooperation and Development ahead of Turkey, Greece, Estonia and Japan. The government has taken a series of measures in recent years to bring down the rate, including a ban on smoking in public places.

AFP

T

he Shanghai Gold Exchange plans to link new contracts in the city’s free-trade zone to China’s domestic spot gold market, allowing overseas investors to transact at the same price and time as the mainland, two bourse officials said.

The new contracts begin trading on September 29 and can be cash-settled in offshore yuan or delivered into from the zone’s vaults, said the officials, who asked not to be identified, citing bourse policy. Onshore and offshore yuan trade at different rates.

China overtook India as the biggest bullion buyer in 2013. Linking contracts in the free-trade zone to those on the main bourse underscores China’s ambition to extend its influence over prices while boosting the yuan’s role in global transactions.

“Free-trade-zone gold trading and the eventual internationalization of the yuan will act as a doubleengine driving the formation of a ‘China price’ in the gold market,” Liu Li-Gang, chief Greater China economist at Australia & New Zealand Banking Group Ltd., said in an interview in Beijing.

Bloomberg News

Some analysts said in addition to an economic slowdown, investigations “targeting” foreign companies such as Microsoft, Shanghai Husi Food Co. and Japanese auto makers are driving out overseas capital.

Ghazi Abu Nahl, chairman of the World Trade Centres Association, said “is volume of [companies] leaving more than the volume of those coming? No. You’ll see some people leave, which is normal, and more people come.”

In his view, China is no longer a low-cost market as price of labour, raw materials and logistics is generally on a rise. Some companies may choose to move to cheaper markets, but more are coming to China.

Peter Joseph, the Executive Director of Association to Invest in USA, said he has confidence in the Chinese economy due to the resilience its already shown.

“Overall, the resiliency and bouncing back of the Chinese economy makes us very confident,” said Joseph.

Howard Ye, vice president of the United States Pacific Rim Chamber, forecasted that some mature industries in the U.S. may transfer to China.

“Of course, the investment will be market-oriented,” he said.

“Personally, I think China is altering from soliciting all investment to mainly luring advanced technology and expertise,” said Ye, adding the process may be painful for both China and foreign capital.

Xinhua

Chinese billionaires’ ranks keep swelling

T

he personal fortunes of 300 Chinese topped 10 billion yuan (US$1.6 billion) as of the end of 2013, according to a new annual ranking of the wealthiest individuals in China.

The Hurun Report yesterday released its “China Rich List,” showing how the number of high-net-worth individuals in the country continues to grow. In 2013, 20 more Chinese had fortunes topping 10 billion yuan than in 2012.

The wealth of 160 of the multi-billionaires is in the form of invisible assets, according to the report.

It also counted 8,300 Chinese with wealth reaching one billion yuan, 200 more than a year earlier. The number whose wealth tops 10 million yuan also surged by 40,000 to 1.09 million.

The Hurun Report attributed the increases to the country’s overall GDP growth and appreciation in the value of real estate.

It forecast the number of people in China with personal wealth topping 10 million yuan would reach 1.2 million in the next three years.

Xinhua