Macau Business Daily, Sept 15, 2014

MOP 6.00 Closing editor: Sara Farr Publisher: Paulo A. Azevedo Number 625 Monday September 15, 2014

APEC inks Macau Declaration

T

Year III

he APEC meeting culminated in the Macau Declaration. Ministerial-level APEC members hope to double visitation to the region by 2025. That would mean enticing up to 800 million tourists to Asia Pacific. APEC sees technological and management innovation, diversification, simplified visa procedures and low-carbon emission tourism as key to achieving the eight principles in the Macau Declaration. Tourism is growing faster in Asia Pacific than anywhere in the world. Some 101 million mainland Chinese tourists alone are expected to travel outbound this year

www.macaubusinessdaily.com

PAGE

5

Perfect storm brewing

DB report: Junket market continues to be oversaturated

MGM casino workers plan to meet the Labour Affairs Bureau today. Top of the agenda is a demand for a 10 percent salary rise. Meanwhile, SJM casino workers are threatening to strike during Golden Week.

They are demanding the company hold a tri-party meeting with the government to discuss a raft of issues

Taiwan executive detained as food safety scandal deepens

Page 3

Page 4

Page 2

HSI - Movers September 12

Slower gear

August figures are mixed.

China’s industrial output has returned to figures seen during the global financial crisis. Factory production rose just 6.9 percent, while experts forecast an 8.8 percent increase

Name

Silver screen success Going to the movies was always popular. Now it’s Macau’s most patronised cultural activity. Some 284,000 people attended a cultural event in the 2Q of the year. Of these, 173,000 opted for the cinema. Visiting a museum or a World Heritage site was next popular. The number of people going to libraries here is almost the same as those visiting museums.

Page 10

Page 4

%Day

Lenovo Group Ltd

3.03

China Resources Pow

2.97

China Unicom Hong K

1.61

China Petroleum & Ch

1.02

Tencent Holdings Ltd

0.57

China Merchants Hol

-1.17

PetroChina Co Ltd

-1.31

CNOOC Ltd

-2.32

Belle International

-2.69

CITIC Ltd

-4.06

Source: Bloomberg

Interview I SSN 2226-8294

Where the wine is Habits are changing. Mainland Chinese visitors are more appreciative of wine than before. But it’s a cutthroat business, often disrupted by cost cutting. Michael Keen, director of sales and marketing for Fine Beverages Ltd, tells Business Daily that despite the peculiarities of the wine market here there is real potential.

Consumer education is important. And so is the newly evolving customer, he says

Pages

Brought to you by

6&7 2014-9-15

2014-9-16

2014-9-17

26˚ 33˚

24˚ 28˚

24˚ 28˚

2

September 15, 2014

Macau

MGM dealers demand 10pct pay rise Casino workers along with labour union Forefront of Macau Gaming are meeting with the Labour Affairs Bureau today

M

GM China’s dealers want a 10 percent increase in their monthly salaries and tips to be included in their wages, the secretary of gaming labour union Forefront of Macau Gaming, Cloee Chao, is quoted as saying

by Portuguese-language broadcaster TDM. The union is going to attend a meeting today with representatives from the Labour Affairs Bureau (DSAL) where various issues will be discussed.

“Dealers’ salaries in all six gaming operators includes two parts: basic salary and tips.

The dealers want tips to be included in basic salary, so workers won’t be exploited by gaming operators”, she said.

“Another of our demands is an appropriate salary. The workers do not want to be part of indeterminate internships and they want a salary increase of 10 percent”, she added.

In addition, MGM dealers are unhappy about the measures adopted in order to comply with the new smoking ban regulation. “New gaming tables have smoke ventilators to reduce the impact of passive smoking on croupiers.

However, the concept of these

gaming tables creates another problem as the face and arms of dealers are exposed to the wind of these smoke extractors.

The working area already has an air-conditioner and so croupiers get sick”, Chao explained.

Although MGM workers are going to deliver their demands to the Labour Affairs Bureau, Cloee Chao said that for the moment demonstrations are not being considered. “At the moment, workers at MGM want to present their issues to DSAL so this institution can coordinate the whole situation. The purpose is to reach the goals smoothly.

For the moment, workers do not want to organise any demonstration”, she said.

SJM workers issue ultimatum On Saturday afternoon, hundreds of casino workers from SJM Holdings Ltd marched from Sintra Square to the company’s flagship properties Grand Lisboa and Hotel Lisboa casinos demanding better pay and promotion policies. The workers also threatened to strike in the upcoming Golden Week – the

mainland’s weeklong National Day vacation beginning on October 1 - if the company failed to acquiesce to their request for a tri-party meeting with the government to discuss remuneration terms.

“What the workers request is that a tri-party meeting with the company’s bosses and the government take place in an open fashion for listening to and discussing the workers’ demands,” said Cloee Chao, secretary-general of Forefront of Macao Gaming, the labour activist group that backed the Saturday demonstration of the SJM workers.

“If the SJM bosses do not respond to our request [for a tri-party meeting], we will

consider going on strike during Golden Week,” Ms. Chao told Business Daily. “We’re not even asking them to answer all the workers’ demands, but at least they should talk with them first.”

The activist group noted that about 700 black-shirted workers participating in the Saturday march were all SJM employees; the Public Security Police figure puts the total at about 470 people. The action on Saturday marked yet another protest fomented by Forefront of Macao Gaming, which helped initiate a workto-rule protest at Grand Lisboa on August 30 – one that the group claimed more than 1,000 employees participated in,

including about 600 workers who called in ‘sick’.

Throughout the Saturday action, the marching SJM employees demanded clearer terms to be specified for the promotion system for the position of dealer inspector and inspector, as well as for assistant pit manager and pit manager.

The employees also requested that tips given to dealers, which they claimed were collected by the company but not given to dealers directly, be counted as part of their contribution to the provident fund, rather than be counted part of the dealers’ basic salary.

S.L.

3

September 15, 2014

Macau

Golden Week lifeline?

Deutsche Bank’s gaming report highlights that the junket market continues to be oversaturated, with smaller operators disappearing in Macau. Players here are taking twice the amount of time to repay junkets, while strong bookings from VIP’s for Golden Week is surprising the industry Luís Gonçalves

luis.goncalves@macaubusinessdaily.com

T

he current mass market slowdown is not as bad as it seems, with junket operators going through an almost ‘natural selection’ process whereby big players are standing above water while the smaller fry are on the road to extinction as crackdowns continue and credit in Mainland China becomes harder to obtain.

These were two of the main conclusions arrived at on Macau’s current gaming trends as analysed by Deutsche Bank. It’s been a difficult Summer of diminishing revenues – three months in a row already from June to August - and an Autumn that promises to be not that easy. The smoking ban in casinos scheduled for October 6 is likely to create some additional damage to the industry - from table revenues to operator’s stocks.

Mass market deceleration is one of the latest hurdles the industry must negotiate. The most profitable gaming segment in Macau has dropped from a monthly revenue growth rate of 30 percent – on a year-on-year basis – to less than half. In August, mass revenues climbed 14 percent, according to official data.

Despite the panic among some investors, Deutsche Bank believes that there is no reason for alarm and says a bit of perspective could help.

Gaming analysts from the biggest German bank say that overall mass revenue generation and headcounts remain ‘rather solid’ and after several conversations with the industry in

We believe grand mass continues to perform relatively well and there’s little to no change in cadence within this segment Deutsche Bank

Macau they ‘sense little apprehension around mass trends’.

Proper perspective Despite the slower performance on a year-on-year basis, Deutsche Bank emphasises that using a twoyear stack reveals a ‘much more optimistic picture’ about mass market behaviour. In fact, mass revenues are growing at a staggering 50 percent rate every month relative to the same months in 2012.

In August this year, gains from mass floors went up 53 percent compared to 2012 and in May climbed more than 60 percent (see table).

Macau Mass Revenue Two-Year Stacks

Source: Deutsche Bank

‘We believe grand mass continues to perform relatively well and there’s little to no change in cadence within this segment’, Deutsche Bank wrote in a note to clients.

Nevertheless, in the mass segment premium players are slowing in number and chips played, the report reveals. Fewer conversions from lower and VIP players and a more discrete profile regarding Beijing’s crackdown on corruption and lavish spending are the two main factors cited.

Little available space Another topic of discussion b etween Deu ts ch e B a n k a n d Macau’s gaming industry was the ‘oversaturation’ of the junket market. Anti-corruption crackdowns, credit restrictions in mainland China and high rollers’ low profile are shrinking the junket market, causing smaller operators to disappear. Even the bigger ones are facing difficulties in getting players and money. ‘There appears to be a view that it will take a few more high profile arrests before things begin to settle’, the report said, adding ‘the crackdown fear is keeping both players and junket investors on the sidelines. In the interim, the belief is that smaller junkets will continue to disappear’.

Industry insiders told Deutsche Bank that the junket collection period – the number of days that players take to repay credit to junkets – is currently around 25 days in Macau.

That’s double the average of healthier periods, which were typically between 10 to 15 days, the German bank said.

The report estimates that with a collection period of 25 days, VIP revenue potential is down 40 percent compared to the 15-day period, as players slow their repayments and junkets need more time to refresh credit lines. ‘While the impact is potentially significant, concern seems relatively limited at present and most noted adequate capital for the upcoming Golden Week period’, the report claimed.

Golden Week is poised to be a valuable help to gaming sector revenues in October, namely in the VIP segment.

Deutsche Bank noted that reservations for Golden Week in Macau by high rollers has been ‘strong’, surprising even members of the industry, as normally VIP’s don’t call in advance.

A better than expected VIP performance in October is likely to generate some optimism, especially after three straight months of declining revenues in Macau and probably a fourth, in September. Investors are predicting gaming revenues to decline around 10 percent year-on-year this month and an average 5 percent for the whole year.

Stocks: MGM, Wynn lead less-favourite race In a turbulent year for Macau’s gaming operators, investors are pricing down casino stocks. Some prefer less exposure to Macau, others the best performance here

N

o gaming operator stands out as the favourite for investors in a year full of negative headlines for the sector in Macau. The World Cup, anticorruption crackdowns and the upcoming smoking ban are just a few events that have hit casino shares with losses of around 20 percent since January.

Swiss brokerage Atonra published a report on Friday advising its clients to invest in MGM shares and sell Wynn and Las Vegas Sands (LVS).

The company believes the Macau market is likely to remain tricky for some time with revenues under pressure and rising labour costs damaging profit margins.

Atonra says Wynn and

LVS are too exposed to Macau and are too risky, while MGM only makes 32 percent of its revenues here. With the Las Vegas market reaching the inflection point, the brokerage says expectations are low, the revenues are likely to increase and Sin City should ‘spark a strong operating leverage’.

MGM is set to be the best performer in the third quarter

as Vegas boosts revenues and profits.

On the other hand, Deutsche Bank prizes operators in a different way. For the German financial institution, Wynn is favourite. Yes, it’s quite exposed to Macau, but has been surfing the turbulent 2014 with a performance above its peers: mass revenue

growth has outperformed the market giving Wynn an ‘upside margin momentum’.

The operator run by Steve Wynn also has lower estimate revision risk, its operation in Vegas is strengthening at the expense of Macau and its Cotai project ‘has shown little evidence it will miss the opening date’.

L.G.

4

September 15, 2014

Macau Brought to you by

Golden appeal of the silver screen The biggest cultural activity here attracted 10,000 more visitors in 2Q from a year ago

HOSPITALITY

Luís Gonçalves

luis.goncalves@macaubusinessdaily.com

Home and away On average, guests stay in Macau hotels for short periods. Usually, monthly figures oscillate between 1.3 and 1.6 nights. Annual averages show even less variation: since 2010, guests have been staying either 1.4 or 1.5 nights. Mainlanders are by far the more numerous and also those that stay the shortest periods. For both the two last full years, 2012 and 2013, their average stay stood at merely 1.1 nights, implying that very few of them stay more than a single night in a hotel. Only neighbouring Hong Kong registers values close to China’s figures. But even those are consistently higher than the mainland figures. Visitors from other parts of Asia stay noticeably longer, in the band defined by 1.8 and 2 nights. Regardless, as could be expected, the overall figures are strongly influenced by the behaviour of mainland guests and, in more general terms, by guests from Greater China. These also include, in the case of hotel stays, local guests.

M

ore than half of Macau’s population attended a cultural event in the second quarter of this year, with cinema increasing its lead as the main activity for locals at the expense of museums and art exhibitions.

According to official data released on Friday by the Statistics and Census Bureau, a total of 284,000 people (residents and non-residents) attended cultural activities in Macau during the second quarter of this year. The 2Q performance was in line with the same period a year ago, with a marginal decrease of 0.3 percent, or around 800 less people.

Between April and June this year, the 284,000 people attending cultural activities put the participation rate of Macau’s population at 53.6 percent, 3.1 percentage points behind the same quarter last year, the statistics office said.

Looking at cultural statistics, the major trend is that locals are more frequently going to the cinema or a music concert than to see an art

exhibition or visit a museum. In the second quarter, 173,000 people went to the cinema here, 10,000 more than a year ago, making it the most popular cultural activity in Macau. Cinema attracted 60 percent of participants (57 percent in 2Q 2013).

The second largest activity – visiting a museum or a World Heritage site – suffered the biggest drop to 120,000 single visitors, down from 136,000 in the 2Q of 2013. Visits to libraries and cultural performances (like music or theatre) increased in the same period

to 118,000 and 110,000, respectively.

Today, the number of people going to libraries here is almost the same as those visiting museums.

The majority of participants in Macau’s cultural offerings undertake a single activity (43.8 percent of the total). Almost a third (29.8 percent) participated in two activities, 14.5 percent in three and 12 percent in more than four types, the report reveals.

Cinema continues to be the major cultural attraction in Macau and is increasing its presence in the territory.

Taiwan executive detained as food safety scandal deepens

T The figures for the first seven months of the current year pretty much follow the foregoing trends. In the case of mainland China, in fact, they seem to be stabilising at the lower end, at 1.1 nights. Only in February, possibly due to the Chinese New Year celebrations, did they rise slightly to 1.2 nights. That was also the peak value after May 2012; ever since, the monthly figure for mainlanders has stubbornly swung between 1.1 and one single night’s stay. The numbers we see for Taiwan and Macau are noticeably higher. Most of the time, Taiwanese guests stay 1.8 nights, give or take a tenth of a percentage point. Macanese guests are, somewhat surprisingly, Greater China’s longest staying guests.

2 nights Typical stay in hotels for Macau guests, Jan-Jul

he head of a Taiwanese company at the centre of a widening food safety scandal has been detained for selling hundreds of tonnes of “gutter oil” that caused mass product recalls, authorities said Saturday.

Yeh Wen-hsiang, chairman of Chang Guann Co, was taken into custody early Saturday on suspicion of fraud, officials said, deeming him a flight risk and fearing he could collude with other suspects or destroy evidence.

Investigators found that in the six months from February, Chang Guann had purchased 243 tonnes of tainted oil – collected from cookers, fryers and grease traps – from an unlicensed factory and mixed it with lard oil for sales to its customers islandwide. A total of 782 tonnes of such oils had been produced.

Chang Guann was already fined 50 million Taiwanese dollars (US$1.67 million, MOP13.36 million) by the authorities for illegally selling poorquality lard oil – a clear oil pressed from pig fat.

Hundreds of tonnes of mooncakes –

traditionally served at this time of year – along with pineapple cakes, bread, instant noodles as well as steamed buns and dumplings have been removed from shelves in Taiwan since the case surfaced last week.

More than 1,000 restaurants, bakeries and food plants had used the tainted oil, according to the Food and Drug Administration. Many have apologised to customers for having unknowingly used tainted oil.

Last Friday, health authorities announced that a string of additional products, including snacks and cookies from several top selling brands, were to be pulled from sale.

The Japanese fast food chain Mos Burger’s Taiwanese branch said in a statement Saturday that it had suspended the sale of five types of hamburgers for containing tainted oil.

Premier Jiang Yi-huah has apologised to the public and promised to enhance food safety controls in the wake of the fresh scandal, the second to hit Taiwan in less than a year.

Last December, a Taiwanese factory owner was sentenced to 16 years in prison for selling olive oil

adulterated with cheap cottonseed oil and a banned colouring agent, after the authorities recalled tens of thousands of bottles of tainted cooking oil.

The food safety scare has also spread to Hong Kong, where the authorities said local chains had withdrawn from sale pineapple buns and dumplings feared to have contained gutter oil from Taiwan.

In Macau, the city’s Food Safety Centre said 21 bakeries and food manufacturers had bought oil from Chang Guann through a local importer. Over the weekend, the Civic and Municipal Affairs Bureau here ordered the “preventive” shelving of five more oil brands imported from Chang Guann via Hong Kong, which are all pending for a quality check from the Taiwan authorities.

Taiwan’s health ministry has said it has yet to fully assess the health risks of gutter oil. It has ordered tests to see whether samples contain heavy metals.

Local health experts have warned that cooking gutter oil at high temperatures could produce carcinogens.

Stay in the finest hotels in Macau and read Business Daily news where it matters

AFP

5

September 15, 2014

Macau

APEC objective: 800 Macau seeks million tourists by 2025 APEC membership

M

inisters and the 21 representatives attending the Asia Pacific Economic Cooperation (APEC) meeting that ended Saturday adopted a ‘Macau Declaration’ to develop tourism in the region, with the objective of attracting some 800 million tourists to the region by 2025.

The Macau Declaration was signed over the weekend during the 8th APEC Tourism Ministerial Meeting, and will be presented in Beijing in November during the APEC Forum.

“In removing barriers and improving Asia Pacific’s tourism market integration, APEC can reach the new aim of [welcoming] 800 million tourists by 2025,” Wang Yang, China’s vice-prime minister said during the 8th APEC Tourism Ministerial Meeting.

The target incorporated in the Macau Declaration is more than double current numbers; according to the World Travel and Tourism Council, the 21 economies comprising APEC welcomed 355 million visitors in 2013.

China’s National Tourism Administration director Shao Qiwei also spoke of the eight principles in the Macau Declaration including ease of travel and

T

technological innovation in the management and development of sustainable tourism destinations with low carbon emissions.

“APEC members aim to improve visa procedures and shorten the length of time for passengers at airports to help the growth of the tourism industry. In improving visa procedures, APEC can gain an additional 57 million tourist arrivals in 2016, and an estimated 2.6 million new jobs,” APEC members said in a statement issued over the weekend.

Speaking to media at a press conference, Indonesia’s minister for tourism and creative industries Mari Elka Pangestu cited a study released last year, emphasising that the

Parisian appoints Saatchi & Saatchi ad agency

S

aatchi & Saatchi has been awarded a contract

by Sands China to be the creative agency for the properties of the gaming operator in Macau, Mainland China and Hong Kong.

The account is believed to be worth US$50 million (MOP400 million), according to a press release by the American communications company.

“We demonstrated and proved our commitment to this highly valued client through our every action.

We are filled with gratitude for their faith in us as well as with excitement to begin this partnership. I am exceptionally proud of our team’s work on this pitch. Our successful journey to Macao is a testament to the spirit of Saatchi & Saatchi One Team One Dream”, said Saatchi & Saatchi Greater China CEO Michael Lee. “This has been an unparalleled journey for us and has given us the opportunity to present the pinnacle of Saatchi’s creative and strategic abilities as well as our team’s unbridled passion to the client,” he added.

“movement of people and cargo can be improved, whether it’s through visa cooperation agreements or learning new practices including the use of technology to simplify procedures.”

Shao Qiwei said tourism in the Asia Pacific region is growing faster than the rest of the world, and added it is estimated that as many as 101 million mainland Chinese visitors will travel outbound within this year.

“The various [APEC] economies are different in nature but it is possible to harmonise or have similar systems that allow for working together,” Alan Esmond Bollard, APEC’s executive director, added.

Lusa

he Macau Government has expressed its interest in being one of the economies integrated in the Asia Pacific Economic Cooperation (APEC) organisation, the Chief of the Office of the Chief Executive, Alexis Tam Chon Weng, said in an interview with the newspaper Plataforma Macau.

“We also want to be part of APEC. The Ministry of Foreign Affairs of the People’s Republic of China is helping the Special Administrative R eg i o n o f M a c a u j o i n APEC. However, such a question has to be analysed

by APEC organisers”, Mr. Tam said when asked about the fact that the Special Administrative Region of Hong Kong is already a member of the economic cooperation organisation.

Hong Kong joined APEC in 1991, prior to the handover of the British Colony.

The Chief of the Office of the Chief Executive also explained that a request for Macau to be part of APEC has to be decided by the Beijing Government.

“The request is not our responsibility. It is a decision to be taken by the Ministry of Foreign Affairs of the

People’s Republic of China.

But the Macau Government would appreciate very much to be part of APEC. The Central Government is also interested in that. However, the last word belongs to APEC organisers”, he stated.

The 8th APEC Tourism Ministerial Meeting and the 45th APEC Tourism Working Group Meeting was held in Macau last week by the Chinese National Tourism Administration in cooperation with the Macau Government. The total cost was 75 million patacas. However, the role of Macau representatives was not limited to organisation.

“Macau is taking part in the meetings. We - the Chief Executive [Chui Sai On], me, the Secretary for Social Affairs and Culture [Cheong U] and the Director of the Macau Government Tourist Office [Maria Helena de Senna Fernandes] - are integrated in the PRC delegation for the meetings”, he told Macau Plataforma.

The Asia Pacific Economic Cooperation is a forum comprising 21 member economies that want to promote free trade and economic cooperation in the region.

Royal Supermarket residential project still awaiting approval

As part of its creative duties, Saatchi & Saatchi will be involved in the launch of the new Sands China casino and resort, the Parisian, slated to open in early 2016.

The contract also includes services for The Venetian, Sands Macao, as well as further shops, entertainment holdings and hotels on the Cotai Strip such as the Four Seasons, Conrad, Sheraton and Holiday Inn. A total of 10 agencies were involved in the pitch organised by Sands China.

In the final round, Saatchi & Saatchi beat Grey and Ogilvy. The winning presentation team involved 130 members.

“As a team, Saatchi & Saatchi has exhibited great cohesiveness. They have shown us deep knowledge of our target audience and out of the box creative activation for our marketing needs which are what we are looking for in our partnership”, said Chuanda Tan, Executive Creative Director of Advertising & Brand Management Sands China Ltd. J.S.F.

Royal Supermarket is planning a mixed residential and shopping project in the heart of Areia Preta, where clusters of industrial buildings are located

R

oyal Supermarket Company Ltd is awaiting approval from the government of its plan to convert its supermarketcum-office – housed in an industrial building in Areia Preta – into a mixed residential and commercial project, the company confirmed to Business Daily.

The Edf. Industrial Va Meng complex – sited amongst a cluster of industrial buildings in Areia Preta and bought by the Royal Supermarket chain more than a decade ago - has been used by the group as a shopping, office and logistics base up to the present day.

The rezoning of the industrial building owned by Royal Supermarket whereby it would be converted into a residential project came to light on Friday as the Urban Planning Committee discussed the draft plan. It is the very first time that the committee has convened on a factory-to-residence plan.

Royal Supermarket’s general manager Jeff Chang said the

company first submitted the change of use plan to the government at least four years ago.

Mr. Chang also said that his group had envisioned the project – now required by the government to be built to a maximum height of 120 metres – to comprise 40 storeys of flats and 6 storeys of shopping space plus car park.

“As it’s one of the cases applied for under the programme for revitalising industrial buildings, the developer in charge of changing the building’s use would have to return parts of it, which is about 30 percent of the gross floor area, to the government,” the chief of the Urban Planning Department of the Land, Public Works and Transport Bureau, Mr. Lao Iong, told media after the committee meeting on Friday. “The programme also specified the size of flats and their quantities because this private development is applied for under a special policy through which we

would like to see more small flats supplied to the local market.”

The scheme or special policy that Mr. Lao refers to, known as the revitalising scheme for industrial buildings, was initially launched in April 2011 as a year-long initiative requiring 70 percent of flats in converted industrial premises to be small, occupying an area of no more than 60 square metres (646 square feet). It also says that the combined gross floor area of the small flats has to be at least half of the total gross floor area of the conversion project.

“For this project, we are the sole owner of the whole building; at least we are safe from the obstacle commonly met by others where a unanimous approval from the industrial unit owners is needed for a conversion to take place,” Mr. Chang said, adding that the group accepted the government’s requirements for its conversion project.

S.L.

6

September 15, 2014

Macau

Wine market growth dependent upon new type of tourist, says expert Macau’s wine market has its peculiarities, with a large percentage of Mainland China’s tourists visiting the territory not really that interested in wine, although that seems to be changing, says Michael Keen, director of Sales and Marketing at Fine Beverages Limited.

In an interview with Business Daily, Mr. Keen says that with the recent restrictions on group visas to Macau, a different type of visitor should start coming to the territory, with more time to enjoy the city and experience its different aspects, including wine. That, combined with an increasing local appetite for wine, may bring more business to wine companies in the city.

As a result, and as a way of attracting more customers, Fine Beverages Limited will now provide its own tasting room for wine tasting events. In addition, in the next couple of months it will launch the first online retail wine e-commerce website, enabling payments to be made in MOP, with no exchange rate fee.

Luciana Leitão leitao.luciana@macaubusiness.com

Photo by Manuel Cardoso

Fine Beverages has traded for five years. How do you assess the work done over these years, both positive and negative aspects?

Over the past five years, we’ve seen the market change quite a lot.

The positives that we’ve been over the past five years are being able to link wineries directly with the customers here in Macau. We have a little bit more of a direct approach, compared to some of our competitors based in Shanghai or Hong Kong, and react a bit more quickly to the market as a result.

Some of the negatives include the [limited] ability to adjust to the market, with the changes in marketing that have occurred in Macau in the past couple of years, such as Facebook and the use of social media, which seem to be dominant in the Asian population. There are some areas of improvement there that we need to work on as far as our marketing and our presentation to the general public is concerned.

What are your current goals?

In the next couple of months, we’re looking at launching the first online retail wine e-commerce website. Up until now it’s been very challenging in Macau - it’s very big in Hong Kong - due to the banking system and the lack of payment options available to consumers . . . We’ve been given the opportunity to be a test subject for an e-commerce website. So, I’m hoping that will be online in the next three to six months, and [we should then] see if we can adapt to the market.

And the payment will be in MOP? Correct. In the past, you either had to set up an account out of Hong Kong and have Hong Kong accounts with the consumer charged in MOP according to the invoice, but when it came to the credit bill it came through in Hong Kong dollars. Obviously, the customer then had to pay the exchange rate, which is unfair to

Corporate

Allin Interactive, Technet Technology enter agreement Allin Interactive has entered into an agreement with Technet Technology Co Ltd, an information technology product and service provider based in Macau. Technet will license Allin Interactive software and distribute Allin solutions in the hospitality, retail, and banking markets in Macau, Hong Kong, and mainland China, the company said in a statement. The agreement enables Allin’s interactive television, interactive mobile applications, and digital signage solutions to be represented, installed and supported exclusively by Technet. “Securing an experienced, trusted local partner to represent and support Allin’s solutions in the Macau, Hong Kong and mainland China region is clearly the proper way to approach Allin’s entry into these markets,” stated Brian Blair, president of Allin Interactive. Betty Wong, CFO of Technet, said her company had “evaluated many interactive hospitality offerings, and we determined that Allin’s solutions were wellsuited to address the marketing, operational, and guest services opportunities in the Macau, Hong Kong, and mainland China hospitality markets.”

the consumer. Whether credit card, cash or bank transfer, any of those forms of options, we’ll be able to do them in MOP. Considering you’ll be pioneering the MOP payment system, do you expect it will attract more customers?

It will appeal to a lot more of the younger generation, particularly the locals. We generally find that the expat segment of the market which we appeal to quite heavily due to my background being Australian and my connections to the expat community - will enable us to branch out and break down language barriers. And it will expose us to a lot more household living rooms and computers.

You’ve already mentioned a few of the advantages of the e-commerce website. How about drawbacks?

You lose that one-on-one relationship with the customer a little bit. You have to be very careful with how everything is presented; you always have to update and reinvent yourself and always appear exciting and edgy because just as you’re setting up and you’re becoming the next best thing someone else can beat you to that challenge. From that point of view, definitely you lack some personalisation — we need to make sure we keep in touch.

You’ll also be launching some wine tasting events, right?

We’re looking into taking wines to the consumer in more comfortable settings. For quite a while, our warehouse was where we started, located at the back of the reservoir. This is obviously far away from some of our customers and the middle to upper class segments of the market, who are generally living in Taipa. So, we moved our warehouse over to Taipa and we’re now in the process of setting up a tasting room. We’re hoping to have a tasting afternoon every second Saturday, whereby people come down, pay a small fee, try wines from all around the world, ask questions, and buy direct. It won’t be a retail concept as such but it will be more like a tasting concept, with the ability to buy.

Market evolution Over the past five years, has the wine market in Macau exploded as much as you expected?

We’re only just seeing the transitioning from tourists in large tour groups to individual tourists through changes in the visitor scheme that the Chinese Government has introduced in the past six months

It has grown but people are looking at the wrong areas for growth.

It has definitely increased local consumption. There’s a lot more of this emerging middle class coming out, due to the increase in salaries around Macau; and obviously the way Macau has been growing into an international city has definitely exposed a lot more of its residents to international culture and dining habits, which includes drinking.

It’s a very European thing to have a glass of wine with a meal. I know Macau has had that Portuguese influence for many years but now that we have a lot more Australian wines, French wines, New Zealand, Chilean, all these different elements emerging, Macau locals are prepared to experiment and see what’s going on.

As far as what everyone perceives as the growth area of Macau, which is the tourism segment of the market, that is still at a very early stage. We’re only just seeing the transitioning from tourists in large tour groups to individual tourists, through the changes in the visitor scheme that the Chinese Government introduced in the past six months. We’re hoping that that might allow a few more young friends and families to come out, rather than being stuck on a tour bus; to go out and actually explore Macau for what it is, [such as seeing the] shows and really

7

September 15, 2014

Macau volume sales. The key is to find a very good partner based in Mainland China. I’ve yet to find someone — it’s very hard to develop the trust and relationship required, particularly with the brands that we have, to really make sure that they’d do what we’d expect them to do and what our brands would expect.

You say that the tourist wine market in Macau is still quite hard to penetrate. What’s your strategy?

In the past, when the Chinese have been in particular the main tourists who were the largest segment of the tourism market travelling to Macau, they’ve always been tracked to these tour groups and they’ve had a tour guide that has dictated their movements throughout the day.

What we need to do now that the market has opened up and that there are now more individual visa schemes available to them is we need to make sure that wherever these consumers are going to wine and dine that we have a presence on the wine list and, more importantly, that we train the local waiters and waitresses that work in these outlets, giving them the knowledge and education required so that they can offer enough advice to tourists to make a wine purchase decision. develop the entertainment and cultural side of Macau.

Is Macau a tough wine market?

Definitely. Macau has always been a very small market, being a very small city, but now we’re exposed globally. We’ve got a lot more tourists coming to Macau.

That and the side effect has been that Hong Kong has also reviewed its tax in the past couple of years and become an ultra-competitive supplier in the market.

A lot of Hong Kong people see Macau as this big oasis on the horizon with big hotels and casinos and tourists who aren’t really into that stage of drinking and haven’t really developed yet; as a result, Hong Kong people have decided to come in and try the business in Macau.

A lot of Hong Kong people are struggling due to the competitiveness of the Hong Kong market and they try and slash costs and prices to enter the market. It ends up damaging what we’re trying to do here to build a sustainable market through proper business practices, whereas they seem to go through these discount business cycles in Hong Kong to try and enter the market.

So, the competition is getting harsher in Macau?

Definitely. With the opening of the bridge in the next couple of years, it will reduce the cost of logistics into Macau, so I think we really need to make the move right now to set ourselves up and be able to take that head on and come out on top.

What’s your current market share?

We’re very small, mainly because we don’t compete with Grand Cru wines. So, you look at the market share compared to amount of money, not having the finest segment of the market, which we purposely don’t go to due to the unreliable distribution and quality issues associated with trading wine; we don’t actually do a lot of volume in the higher bracket.

Instead, we focus on day-to-day table wines from wineries all around the world, to try and keep the consistency and the same price points and to give value for money to the consumer. I’d say it would be less than five percent.

Where do you source your table wines from?

Globally. Our point of difference from the other wine companies around town is that we’re 100 percent Macau owned and operated; we work directly with all our wineries and all our brands, we don’t sub-distribute out from Hong Kong, so when we look at the table wine segment of the market that involves New Zealand, Australia, Italy, France, USA, it’s quite diverse - all the main wine regions from all those particular countries.

You mentioned you don’t deal with the higher-end wines. Do you plan to change this?

When you’re looking at the higher end of the market — in particular, we’re looking at Bordeaux and, to a degree, Burgundy - the systems for buying from these particular regions are very different from what we find globally.

About every May, wineries release their wines and sell to a third party, being a wine merchant based out of Bordeaux or the UK. These, in turn, distribute to the rest of the world. It means that anyone can go and buy Lafite at the same price, so therefore we end up trading against other people in a more stock markettype scenario, where people are trading stocks and shares and the same thing happens with wine.

It becomes a trading commodity, just like gold and silver.

With the wine brands we carry, we have exclusivity for the wine market, so therefore if a consumer wants to have one of our brands on their wine list the only way to do so is through us. This protects not only us but the brand. It means you don’t see these brands popping up in supermarkets and

it also ensures that the wineries’ product is being kept in the best possible condition through storage. You can then guarantee that the end consumer gets the best possible quality.

Entering China There’s a general perception that Macau is a stepping stone to entering the Mainland China market. Does the same hold for the wine market?

The difficult part of the Mainland wine market is logistics. You can enter the market quite easily but you have to commit to the market. Once your products are over the border and pass through Customs, which you have to pay tax on, it’s very hard to re-export them if anything goes wrong with the company. So, you’re locked into what you do.

A common practice for a lot of Macau companies is to use sub-distributors or distribution networks based in China, which means you then lose that element of control over your product and your brand and you can’t guarantee how that wine will end up or how it’s been stored.

The only way to enter a wine market is to do it properly. It’s good for day-to-day volume sales but as far as we’re trying to do with Fine Beverages, growing brands, growing the distribution network, growing awareness of the product amongst the consumers, it’s very hard to control once you enter the Chinese market. It’s also very competitive — the world has turned its attention to China in the past couple of years and there’re a lot more wines being sent into China than are actually being consumed. In the next six to 12 months, a lot of the big players over there will be susceptible to any changes in the market.

Is it one of Fine Beverages’ goals — to enter Mainland China’s market?

It’s always been on the horizon.

We’ve done some minor business over there, mainly to do with

Are the Mainland Chinese improving their knowledge of wine?

Wine for Mainland Chinese has always been perceived as a luxury good. Now that the wine market has opened up and you see a lot more wines coming in at entry level the emerging middle class in Mainland China has definitely a lot more resources available through the Internet and books translated into Chinese. They’re searching for information and they’re willing to learn. The number of visitors to France, Australia and America from Mainland China is increasing, and in particular it’s going up for wine regions as well.

When you look at what used to be the Grand Cru segment of the market, only available to the rich and famous, they’re now realising that cheaper alternatives are available which are just as good quality and even better value for money. We’re starting to see growth, particularly down to the table to premium-table segment of the market for Mainland China.

Worldwide, do you believe the wine business has seen better days?

It’s booming in certain regions but in some areas there’s a huge shift against alcohol for various reasons, whether for health, drink driving, government taxes, while in others, like Asia, it’s an emerging drink. It’s something people are now having with food and sharing, it’s becoming part of their culture and society.

Globally, consumption is still increasing but it’s increasing largely in areas such as Asia, South Africa and also some of the developing countries in South America as well.

Europe is stable — it’s decreasing in some countries in Europe.

In Australia and New Zealand, we’re finding wine is also on the decline there. There was a large shift through the credit crisis that also pushed people away from the premium area of the market back into the table sector or, if not, back into the bulk sector of the market.

8

September 15, 2014

Greater China Retail sales up China’s retail sales grew 11.9 percent year on year to 2.11 trillion yuan (US$343.3 billion) in August, the National Bureau of Statistics (NBS) said on Saturday. Retail sales in the first eight months amounted to 16.6 trillion yuan, up 12.1 percent year on year, with the growth remaining largely stable compared to the 12.2-percent growth registered for January-July. Income from the catering sector increased 8.4 percent to 230 billion yuan in August, while sales of consumer goods amounted to 1.88 trillion yuan, up 12.3 percent year on year, the data showed.

Power output falls after 4 years The nation’s appetite for commodities has also suffered on the back

Property investment cools The growth of China’s property sector investment continued to slow in August, according to the National Bureau of Statistics (NBS) on Saturday. NBS data showed real estate investment rose 13.2 percent year on year in the first eight months of 2014 to 5.9 trillion yuan (959.44 billion U.S. dollars), 0.5 percentage points slower than the growth in the January-July period. Investment in residential property, which accounted for 68.1 percent of the total, rose 12.4 percent year on year, compared with a 13.3-percent growth rate for the first seven months.

Fixed-asset investment up China’s urban fixed-asset investment grew 16.5 percent year on year to 30.6 trillion yuan (US$5 trillion) in the first eight months of 2014, the National Bureau of Statistics (NBS) announced on Saturday. The growth pace retreated 0.5 percentage points from the rate seen during the January-July period.

The NBS attributed the slowdown to a continuing downturn in the real estate market, which has restrained investment in the sector as well as related industries. In August, urban fixed-asset investment grew 1.23 percent from July.

Cotton growing area to decline The growing area of cotton in China this year is expected to decline 8.7 percent compared with 2013, and the cotton yield is also forecast to fall, according to the latest data from the Ministry of Agriculture (MOA). The cotton growing area in the Yangtze River Basin and the Yellow River Basin went down by about 12.1 percent and 14.5 percent, respectively, according to the MOA. Hebei and Jiangsu provinces, two of the country’s major cotton regions, saw their growing areas decline 16.4 percent and 20 percent respectively, the MOA quoted local agricultural authorities as saying.

Xi leaves for the Maldives Chinese President Xi Jinping left Dushanbe for the Maldives on yesterday morning after attending the 14th summit of the Shanghai Cooperation Organization (SCO) and paying a state visit to Tajikistan. During the summit, Xi suggested the SCO members launch consultation on an anti-extremism convention and initiate studies on a mechanism for actions against internet terrorism. He also called on the SCO members to entrust the group’s Regional Counter-Terrorism Structure (RCTS) with a new function to combat drug trafficking at an early date.

A panorama of the Three Gorges Dam

C

hina’s power output, a bellwether for economic activity, posted its first annual decline in more than four years in August, adding to evidence that the world’s second-largest economy is losing momentum after a brief rebound in the second quarter.

Power output in the world’s top

consumer fell 2.2 percent to 495.9 billion kilowatt hours (kWh) in August from a year earlier, data showed on Saturday.

While the annual fall was in part due to the high reading last summer, when many cities were struck by a record heat wave, overall electricity production also posted its first fall in

three months - a sign of slackening demand from major industrial users.

Headline data showed China’s factory output grew at the lowest pace in nearly six years in August while growth in retail sales and investment also cooled, adding to signs of fragility in the economy that may prod Beijing into fresh policy measures to prevent

Fiscal revenue up and down Revenue rose 6.1 percent year on year to 910.9 billion yuan in August, slowing from the 6.9-percent rise seen in July

C

entral government revenue reached 445.4 billion yuan, up 5.5 percent year on year, while local government revenue stood at 465.5 billion yuan, up 6.6 percent from the same period last year.

The pace of fiscal spending also slowed. In August, national fiscal expenditures went up 6.2 percent to 1.02 trillion yuan, retreating from the 9.6-percent surge in July.

The monthly growth rate of China’s fiscal revenue is relatively low, a result of more tax cuts under

a program to replace business tax with value-added tax (VAT) and the slow growth of taxes on imports and exports, said a statement on the ministry’s website.

In the first eight months, fiscal revenue went up 8.3 percent to 9.64 trillion yuan, according to the ministry.

In the January-August period, fiscal revenue collected by the central government fell short of the budgeted full-year growth rate of 7 percent, expanding 6 percent year on year

US$149.33 billion

China’s fiscal revenue in August

9

September 15, 2014

Greater China 1.8 percent from July, its first monthly fall since April.

Steel and crude oil

of tightening credit

495.9 billion

kilowatt hours (kWh) consumed in August in China

a sharper slowdown.

Implied oil demand and crude steel production only inched up in August after falling in the preceding month, while total production from auto and glass-makers both fell from the preceding month.

China’s economy has had a bumpy ride this year. Growth rebounded slightly in the second quarter from an 18-month low thanks to a stream of government stimulus measures, but weak July and August data signalled the boost from such steps is rapidly waning.

The annual drop in China’s power generation was the first since May 2009, data from the National Bureau of Statistics showed.

Power production was also down

to 4.51 trillion yuan, while revenue for local government increased 10.4 percent to 5.13 trillion yuan.

In the January-August period, spending by the central government went up 11.4 percent to 1.4 trillion yuan, and spending by local governments rose 14.4 percent to 7.56 trillion yuan.

“In the coming months, it will be relatively difficult for central fiscal revenue to grow,” the ministry said in the statement, citing more tax cuts under the program to replace business tax with VAT and a higher comparison base last year.

The weak fiscal revenue growth could create pressure for China’s policymakers to stabilize the economy, which grew 7.4 percent year on year in the first half, the highest of all major economies but below the full-year target of 7.5 percent.

China has vowed to revamp its fiscal and tax system as part of efforts to jump-start a new round of acrossthe-board reforms in the country.

Its present fiscal system, which leaves too many spending obligations to regional governments without giving them an adequate share of fiscal revenues, is partly to blame for the current local government debt problem, according to some analysts.

Chinese governments at various levels owed a total of 20.69 trillion yuan, according to a state audit of public finances last year.

One of the highlights of the reform is the program to replace business tax with VAT in some service sectors, which analysts said may reduce tax revenue to some degree in the short term.

China aims to fulfil key tasks in the new round of fiscal and tax reforms by 2016, and establish a “modern fiscal system” by 2020.

Xinhua

China churned out 68.91 million tonnes of crude steel in August, up 1 percent from a year earlier, with the daily production rate of 2.20 million tonnes largely unchanged from July.

Despite a slowing economy, particularly from the property sector, China’s daily crude steel output has exceeded 2013’s record of 2.188 million tonnes every month, as mills have been reluctant to reduce output amid fears that credit could be cut off and that market share could be seized by rival.

This has exacerbated a supply glut and caused spot steel product prices to tumble to their lowest in eight years, while steel rebar futures on the Shanghai Futures Exchange are also at their lowest ever.

The China Iron and Steel Association has warned producers not to expect any loosening of credit restrictions in the fourth quarter and urged them to refrain from raising production as the traditional peak consumption season approaches.

Meanwhile, China’s implied oil demand in August rose 3.4 percent from a year earlier to 9.70 million barrels per day (bpd), rebounding from a 2 percent fall in the preceding month, according to Reuters’ calculations.

The recovery in August came as refiners’ crude runs edged higher and net fuel exports from the world’s largest energy consumer shrank.

Reuters calculates implied oil demand by combining official figures for refinery throughput and net imports of refined products, excluding any inventory changes, which are rarely disclosed by the government.

Reuters

Canada ratifies China deal The agreement would come into effect on October 1

C

anada has finally ratified a foreign investment protection agreement with China after a two-year delay in a step that may help ease tensions between the two countries and smooth the way for a possible visit to China by Prime Minister Stephen Harper.

International Trade Minister Ed Fast announced the ratification on Friday and said the agreement, designed to give investors greater legal certainty, would come into effect on October 1. It was signed in September 2012.

Relations between Ottawa and Beijing have been strained by China’s detention last month of Canadians Kevin and Julia Garratt on suspicion they stole state secrets and for threatening national security. The Garratts, who ran a coffee shop in Dandong on the border with North Korea, deny the charges.

The Canadians were detained less than a week after Canada accused Chinese hackers of breaking into a government computer network, a charge Beijing denied.

A Canadian government official, however, dismissed any connection between the Garratts and the foreign investment protection agreement (FIPA), noting that the agreement was important on its own merits for promoting trade.

“Announcing the FIPA, and consular issues, are separate things that are dealt with separately,” said the official, speaking on condition of anonymity.

The Chinese embassy declined to say whether the ratification could lead to freedom for the Garratts or to a Harper tour.

“The Chinese side is willing to work with the Canadian side to promote economic and trade cooperation to a new level, and further advance the development of China-Canada strategic partnership,” said embassy spokesman Yang Yundong.

The Chinese ambassador, Luo Zhaohui, said in an article last month that there were no difficulties that could not be overcome.

What China watchers are looking for is whether Harper will make a bilateral visit to China for a few days after attending a November 10-11 Asian regional summit in Beijing, an idea both sides had informally discussed.

Canada’s Prime Minister, Stephen Harper

Reuters

Economist predicts slower but stable growth A decline in the working population beginning in 2012 threatens to slow down China’s economy too

C

hina’s economic growth is expected to slow down to an average annual rate of 7 to 7.5 percent, an economist said Saturday at a national conference on urban planning in Haikou, capital of south China’s Hainan Province.

Despite the slowdown, China is poised to replace the United States as the world’s largest economy in a decade, said Yao Yang, director of the China Centre for Economic Research (CCER) at Peking University.

Hit by the global financial crisis, China has reported a major export decline, which has come as a major blow to the country’s manufacturing sector, said Yao. Last year, the service sector outperformed the manufacturing sector for the first time in terms of contribution to China’s GDP. Meanwhile, a decline in the working population beginning in 2012, a result of the low birth rate in the last two decades, also threatens to slow down China’s economy, said Yao. “Some say China’s growth rate may slow down to 6 to 7 percent, but I think that’s far too pessimistic,” he said. “The decline of the working population can be offset by prolonged service and improved efficiency.”

He said the new workforce tends to be twice as efficient as retirees, given their vitality and better educational backgrounds.

“The situation will be even better, as an estimated 40 percent of new

workers will have received a college education by 2020, compared with the current 32 percent.”

Meanwhile, Yao suggested China should raise its retirement age gradually to keep its working population from dropping too fast.

China’s retirement age is 60 for

men, 55 for female white-collar workers, and 50 for female bluecollar employees.

The working-age population dropped 2.44 million to 919.54 million in 2013, the second straight year of decline.

Xinhua

10

September 15, 2014

Greater China

Chinese Prime Minister Li Keqiang (L) and Klaus Schwab, Founder and Executive Chairman of the World Economic Forum during the Annual Meeting of the New Champions 2014 during the World Economic Forum in Tianjin, China, 10 September 2014

Industrial-output growth recedes five years The data signal the impact of China’s property slump on the economy is deepening

C

hina’s industrial output rose at the weakest pace since the global financial crisis and fixed- asset investment growth trailed projections, adding to evidence the world’s second-biggest economy is losing momentum.

Factory production rose 6.9 percent from a year earlier in August, the National Bureau of Statistics said on Saturday in Beijing, compared with 9 percent in July and the 8.8 percent median estimate in a Bloomberg News survey. Retail sales gained 11.9 percent and fixed-asset investment in the January-August period increased 16.5 percent.

The data signal the impact of China’s property slump on the economy is deepening, with the decline in home sales accelerating last month and electricity output falling for the first time since 2009.

The slowdown will test Premier Li Keqiang’s reluctance to spur growth with monetary stimulus, as risks multiply to his 2014 expansion goal.

“Li should be worried if he’s serious about meeting his 7.5 percent target,” said Liu Li-Gang, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “For the sake of his credibility, he may want to use further policy levers to achieve his target,” such as lowering reserve requirements for the country’s largest banks, Liu said.

State-owned commercial lenders are the main source of funding for China’s industrial sector, Liu said.

“If they don’t extend more credit it’s difficult to see any reacceleration in growth for the rest of the year.” ANZ estimates the year-on-year increase in gross domestic product may slip to 6.5 percent to 7 percent in the third quarter if September data are

also weak. Growth was 7.5 percent in the April-June period.

Ease policies Industrial-output growth was below all 51 estimates in a Bloomberg survey, with projections ranging from 8.5 percent to 10 percent. It was the slowest single-month pace outside of the Lunar New Year holiday period of January and February since December 2008, based on previously reported figures compiled by Bloomberg.

Growth in retail sales compared with the 12.1 percent median projection of analysts surveyed by Bloomberg. The median estimate for expansion in January-August fixedasset investment excluding rural households was 16.9 percent, after a 17 percent gain in the first seven months.

Home prices “This is really bad,” said Kevin Lai, senior economist with Daiwa Capital Markets in Hong Kong. “The economy continues to slow down despite the fact that there has been some policy easing, and the data confirm what import growth has been telling us.”

Imports fell for a second straight month in August and manufacturing expansion slowed, figures showed earlier this month. Data from SouFun Holdings Ltd., operator of an online real-estate portal, showed home prices fell for a fourth month in August, based on a survey of 100 cities.

Residential building sales by floor space fell 10 percent in Januaryto-August from a year earlier, the statistics bureau said, after a 9.4 percent drop in the first seven months.

Li (Keqiang) should be worried if he’s serious about meeting his 7.5 percent target Liu Li-Gang, chief Greater China economist, Australia & New Zealand Banking Group

Crude steel output rose 1 percent in August from a year earlier, the slowest pace in almost two years, Saturday’s data showed. Electricity output fell 2.2 percent, the first decline since May 2009 excluding January and February data, and compared with a 3.3 percent July gain. The NBS attributed the drop partly to lower temperatures compared with August 2013.

Property ‘adjustment’ The statistics bureau, in an analysis of the figures, cited an unstable global economic recovery, sluggish domestic and foreign demand and the real-estate market “adjustment,” along with temporary forces such as weather. The property market affects consumer products, the bureau said, citing a slump in the growth of colourtelevision output.

“Even though some of the economic indicators declined, momentum for stable growth still exists,” the agency said in a statement attributed to Guo Tongxin, whose title wasn’t given. At the same time, “there is still uncertainty in the economy and there is still a downward trend,” Guo said.

Vehicle output rose 3.1 percent in August from a year earlier, the statistics bureau said, the weakest figure since a drop in December 2011.

Data fluctuations In a speech at the World Economic Forum in the northern Chinese city of Tianjin on September 10, Premier Li said the government won’t be distracted by short-term fluctuations in individual economic indicators and will maintain its focus on structural adjustments and dealing with longterm issues.

Growth slightly higher or lower than the 2014 target of 7.5 percent is acceptable as long as employment, incomes and environmental protection improve, he said.

“It looks like the government is not in any state of panic, judging

by Li Keqiang’s speech in Tianjin,” Daiwa’s Lai said. The slowdown isn’t “creating a threat to employment and they also understand that the fight against corruption will inevitably have some impact on growth,” he said.

Zhu Min, deputy managing director of the International Monetary Fund, said on Saturday that China has serious overcapacity and shouldn’t return to an investment-led model.

“Any rate between 7.0 percent and 7.5 percent is acceptable,” Zhu, a former deputy governor at the People’s Bank of China, said at a forum in Beijing.

Bloomberg News

11

September 15, 2014

Asia

Apple a decade behind Japan mobile payment curve Payment system was conceived by Sony way back in 1989 and first used in the Hong Kong underground railway system in 1997 Karyn Poupee

A

pple’s proud announcement that its new iPhone could be used to buy goods in a single swipe left customers non-plussed in Japan, where mobile contactless payments have been normal fare for a decade.

A type of Near Field Communication (NFC) chip, known in Japan as FeliCa, was introduced to the Japanese mobile market in June 2004 and has been been implanted in almost all phones sold in the country since.

The iPhone has been one of the few chip-less exceptions -- something that will change when the new models hit Japanese shelves on September 19.

Ten years ago the charismatic Takeshi Natsuno, who was then multimedia services director of Japanese mobile operator NTT Docomo, extolled the benefits of swapping cash for cell phones.

“When I leave my house in the morning all I take with me is my phone, which lets me do everything --pay, take public transport-- simply by swiping a special reader in shops, stations or airports,” he said at the time.

FeliCa was conceived by Sony way back in 1989 and first used in the Hong Kong underground railway system in 1997 --in a card known as Octopus-- inspiring cities around the world to use similar technology in their own contactless transport cards.

Japan adopted an electronic payment system for trains in 2001, starting with the JR East network, which serves the Tokyo region.

The transport cards’ success led to the integration of contactless chips into Japanese mobile phones and

An Octopus payment system from a Hong Kong bus, that pioneered Japanese current FeliCa system

lifestyles with the creation of a group of apps known as the “mobile wallet”

by NTT Docomo in 2004.

Thousands of readers are now installed in convenience stores, on vending machines, in office buildings and at stations and airports in Japan.

Contactless payments are a normal part of everyday life for many Japanese people, said Michael Au, president of the South Asia and Japan branch of digital security firm Gemalto.

“Japan has the most developed contactless infrastructure in the world and customers are already familiar with using their mobiles for contactless services,” he said.

Sony, which said it has delivered more than 530 million FeliCa chips

for cards and 245 million for mobile phones, is now responsible for making around a hundred various services based on the technology compatible with each other.

‘Galapagos syndrome’ NFC was approved as a standard in 2003, as the fruit of cooperation between Sony and Dutch company Philips Semiconductors (now known as NXP Semiconductors).

“NFC has not reached the level of popularity or integration into current systems that FeliCa has in Japan.

FeliCa paints a picture of NFC’s goal and how to get there,” says a site providing information about NFC.

The huge success at home that has not translated into sales abroad is a common theme in Japan, where companies have tended to focus on the large home market and its particularly fussy consumers.

This has led to a phenomenon dubbed the “Galapagos Syndrome”.

Like the distinct evolution Charles Darwin catalogued on the remote Galapagos Islands, technology in Japan has a tendency to develop without reference to other parts of the planet and is then incompatible with foreign market standards.

The most well-known example of this is the mobile phone, where Japan was initially streets ahead and had polyphonal, full-colour flip-top mobile phones in the late 1990s.

These units were Internet-capable as far back as 1999.

But the technology ossified and Japan was a relative late-comer to the smartphone market.

This “Galapagos-ization” has also been remarked in the video game, car and audio markets, with products such as the MiniDisc, compact cars and manga-inspired games all failing to make the same headway overseas as in Japan.

Natsuno, who is now a professor at Keio University in Tokyo, says Japan should have looked into overseas expansion of its cutting edge contactless payments system much sooner.

The fact that “we didn’t extend this concept to the rest of the world” means that now Japan “can’t do anything” about Apple’s bragging over their innovative iPhone 6 with an NFC chip, he said.

Abe stays ‘neutral’ on sales tax increase Japanese Prime Minister said his goal is to restore growth to the world’s third-largest economy and end 15 years of deflation

J

apanese Prime Minister Shinzo Abe said yesterday he remained “neutral” on whether to proceed with a hike in Japan’s sales tax to 10 percent, adding that decision would hinge on the strength of economic indicators for the current quarter.

“The economy is a living thing and we are thinking about this in a neutral way,” Abe told public broadcaster NHK. Abe has to decide by the end of the year whether to proceed with a previously approved plan to raise the consumption tax to 10 percent from 8 percent in 2015 after a hike from 5 percent in April sent consumption into a sharp contraction.

Abe said in an NHK

interview he wanted to see how the economy performs in the July to September quarter after GDP contracted by 7.1 percent in the April to June quarter as a result of the previous tax increase.

“We would like to get economic indicators from the quarter and hear the views of economists. As part of that process, we will decide whether to proceed with the tax hike as now set by law or whether to wait. That’s the discussion we need to have,” Abe said.

Abe has pledged to curb government debt, which is well over twice the size of GDP, the heaviest debt burden in the industrial world.

Reuters

We have no alternative but to aim to spur growth even as we get public finance on a healthier footing Shinzo Abe, Japan Prime Minister

Shinzo Abe during an event in Tokyo last weekend

AFP

12

September 15, 2014

Asia Figures hinder Indian recovery India’s industrial output growth hit a four-month low in July while inflation remained high, underscoring the struggle of Asia’s third-largest economy to make a sustained recovery from its longest stretch of subpar growth in decades. Output from mines, utilities and factories grew by a much slower-than-expected 0.5 percent year-on-year, government data showed on Friday, down from June’s revised 3.9 percent rise. Output growth hit a 19-month high of 5.0 percent in May. Retail inflation, which the central bank tracks for setting lending rates, edged down marginally to 7.8 percent in August from 7.96 percent a month earlier.

Islamic finance forced by conventional banks HSBC is the only non-Islamic bank to have issued sukuk Bernardo Vizcaino

Ratchaburi to invest in solar farms in Japan Thailand’s largest private power producer Ratchaburi Electricity Generating Pcl and steel maker Chow Steel Industries Pcl will work together on two solar power projects in Japan.

The two projects will initially have a combined capacity of 33 megawatts and are expected to start commercial operations in 2016, Ratchaburi said in a statement. The two joint ventures will each be 60 percent owned by Ratchaburi and 40 percent owned by the Chow group. No details on the cost of the investment were given.

Indonesian tin trades slow Indonesian tin sellers are refraining from trading the metal on the country’s sole physical trading platform due to a sharp recent drop in global prices, in a move that will hurt shipments from the world’s top tin exporting nation. The Southeast Asian nation has, for a year now, required all tin ingot shipments to trade via the Indonesia Commodity and Derivatives Exchange (ICDX) before being exported. But a near 10 percent drop in global tin prices over the past five weeks has taken them below a reference price and made trades unprofitable.

Myanmar to curb human trafficking Myanmar will draw and implement a sub regional action plan for the year 2014-18 in collaboration with ASEAN members and China in its increased effort to crack down on human trafficking, according to the Central Body for Suppression of Trafficking in Persons (CBSTP) yesterday. Myanmar has taken part in the program of the Coordinated Mekong Ministerial Initiative against Trafficking (CoMMIT) in cooperation with the six Mekong regional member countries. The plan will be implemented in addition to Myanmar’s second five-year plan of fight against human trafficking from 2012-16.

A Saba Islamic Bank branch in Djibouti City

I

slamic bond programmes from a trio of big conventional banks are set to expand the boundaries of Islamic finance, helping open the market to first-time issuers while testing the banks’ ability to win over industry purists.

Since June, France’s Societe Generale, Bank of Tokyo-Mitsubishi UFJ (BTMU) and Goldman Sachs have set up sukuk programmes, aiming to tap the pool of cash-rich Islamic investors.

They are treading a fine line, having to reconcile the fact that their businesses mostly depend on conventional banking practices - interest payments, and to some degree monetary speculation which Islamic principles forbid.

An abortive plan by Goldman to issue sukuk in 2011 showed the obstacles which conventional banks can face in the market. Some in the industry accused Goldman of failing to follow Islamic principles, and it never went ahead with that issue.

But if the three banks are successful and become regular sukuk issuers, they could help to widen Islamic finance beyond its core markets in the Middle East and southeast Asia.

Governments in non-Muslim countries are already issuing sukuk; Britain and Hong Kong made debut issues earlier this year, while South Africa and Luxembourg are next in line. The entry of conventional banks into the market may be needed to prompt significant numbers of Western companies to issue.

Year-to-date, sukuk issuance totals US$88.9 billion through 475 deals globally, up from US$76.4 billion through 574 deals a year earlier, according to Zawya, a Thomson Reuters company.

But the market remains stubbornly reliant on sovereign and quasisovereign issuers, who represent a combined 77 percent of the total; most corporate sukuk come from Malaysia.

Only a few companies from nonMuslim countries have so far issued sukuk, including GE Capital, which in 2009 raised US$500 million through five-year Islamic bonds backed by interests in a portfolio of aircraft, and Japanese brokerage Nomura Holdings, which in 2010 issued US$100 million of two-year sukuk in Malaysia.

KEY POINTS SocGen, BTMU, Goldman set up sukuk programmes since June If successful, may encourage issues by Western firms Initial 2011 Goldman plan to issue ran into controversy So banks establishing links with Islamic institutions

Credentials HSBC is the only non-Islamic bank to have issued sukuk, through a US$500 million deal in 2011. Market acceptance of that deal was ensured in part by the fact that HSBC operates a major Islamic retail brand, HSBC Amanah.

SocGen and BTMU, Japan’s largest lender, do not have Islamic retail banking brands. So they have been building their Islamic credentials by establishing strategic relationships with heavyweight Islamic financial institutions.

BTMU, which set up its US$500 million multi-currency sukuk programme in Malaysia in June, signed in April a cooperation agreement with the Jeddah-based Islamic Corporation for the Development of the Private Sector (ICD), the private sector arm of the Islamic Development Bank.

Last week, BTMU extended US$100 million in murabaha financing to the ICD, marking the first time that the ICD had raised cash from a non-Islamic financial

Goldman changes sukuk structure, engages prominent arrangers institution. Murabaha is a common cost-plus sale arrangement in Islamic finance.

The participation of conventional banks in Islamic finance is positive as long as they ensure adherence to sharia principles in a way that is acceptable to the market, the ICD said in a statement to Reuters.

“The recent murabaha agreement marks the first step along this path and we fully expect the relationship to grow, develop and strengthen over the coming years.”

SocGen, which also set up a sukuk programme in Malaysia in June, offers sharia-compliant commodity hedging tools to corporate clients.

Last year, it helped Dubai-based cable manufacturer Ducab migrate most of its commodity hedging needs into Islamic equivalents.

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 15, 2014

Asia “We know there are many similar companies to Ducab within the region and we do hope they will gradually move into sharia-compliant programmes,” said Dubai-based Mohamed Virani, SocGen’s head of Islamic products.

“It’s a natural progress in the evolution of the Islamic finance market as it develops and matures.”

Different tack The biggest leap could be for Goldman, which is viewed by some in Islamic finance as a symbol of Western financial engineering. Though it insisted that its 2011 sukuk plan obeyed sharia principles and had enough certification from Islamic scholars, it is taking a different tack with this year’s plan.

While the 2011 plan was a US$2 billion programme of one-year sukuk, the current plan appears smaller; lead managers said the issue would be benchmark-sized, meaning at least US$500 million, and the tenor would be longer, at five years.

Goldman sought advice for its latest plan from two of the same scholars whom it cited for its 2011 scheme, Abdul Sattar Abu Ghuddah and Mohammed Elgari, a source familiar with the plan said. This time, however, Goldman has also revealed the banks arranging the issue: Abu Dhabi Islamic Bank (ADIB), Emirates NBD, National Bank of Abu Dhabi and Saudi Arabia’s National Commercial Bank.

The involvement of four top Gulf banks, including ADIB which has a sharia board led by the prominent scholar Taqi Usmani, may go a long way towards removing the misgivings which dogged Goldman’s 2011 plan.

Goldman has also changed the structure of its sukuk plan. While its 2011 scheme was based on murabaha, its current plan has a hybrid structure and envisages operating only 49 percent though murabaha and 51 percent through a structure called wakala.

Under wakala, certificates are issued by an originator to buy assets which are given to an agent, who charges a fee for managing the assets, Some scholars favour wakala over murabaha because of its clearer link to the assets backing the sukuk; the HSBC issue in 2011 was wakala, as are the issuance plans of SocGen and BTMU. The fact that the Goldman sukuk is predominantly wakala may remove one objection to its 2011 plan: that the sukuk might be traded at prices other than par value. Trading wakala structures is relatively uncontroversial, according to scholars.

Hybrid formats have been used in the past by the likes of the Islamic Development Bank, Abu Dhabi Commercial Bank and Qatar International Islamic Bank, combining different Islamic structures among which at least one is tradeable to ensure the sukuk can be bought and sold in the secondary market.

Another objection to Goldman’s 2011 sukuk, which the U.S. bank said was unfounded, was that the proceeds might be used in interestbearing finance. Documentation for the current sukuk plan, seen by Reuters, does not appear to address that issue directly, though it says proceeds would be used in the commodities business of J. Aron & Co, a Goldman unit.

“The thing they have to be most careful with is the use of the proceeds.

They are a conventional bank, so they need to show that the proceeds are going to sharia-compliant purposes,” said Shamsiah Mohamad, senior researcher at the Malaysia-based International Shari’ah Research Academy.

Reuters

Bangladesh’s Zia loses court battle on corruption She is also accused of leading a group of five people in embezzling 21.5 million taka (US$277,000)

B

angladesh’s highest court yesterday rejected appeals by opposition leader Khaleda Zia, clearing the way for her to stand trial on embezzlement charges that could see her jailed for life.

Zia, a two times former prime minister and leader of the Bangladesh Nationalist Party (BNP), went to the Supreme Court seeking suspension of the proceedings, saying the lower court judge who has been hearing her cases was appointed illegally.

But a Supreme Court bench headed by chief justice Md Muzammel Hossain dismissed her appeals, allowing the trials to go ahead in a special court that deals with graft cases, her lawyer Sanaullah Miah said.

“We have not got justice,” Miah told AFP, adding Zia’s trials in the graft court could still be delayed as the Supreme Court has not yet disposed of two more appeals against the charges.

Earlier the high court rejected similar appeals by Zia, prompting her lawyers to move to the highest court in a last-ditch attempt to stop the trials.

Prosecutors have accused Zia’s lawyers of time-wasting, saying proceedings have been delayed by dozens of times in the case.

Zia and three of her aides are accused of siphoning off 31.5 million

US$400,000

supposed siphoned amount by Khaleda Zia

Khaleda Zia, a two time former prime minister and leader of the Bangladesh Nationalist Party (BNP)

taka (about US$400,000) from a charitable trust named after her late husband Ziaur Rahman, a former president who was assassinated in 1981.

She is also accused of leading a group of five people, including her eldest son, in embezzling 21.5 million taka (US$277,000) -- funds which were meant to go to an orphanage set up in memory of her late husband.

Zia, who has been excused from attending the trial, has called the charges politically motivated, aimed at destroying the BNP, which has vowed to topple the government of her arch rival Prime Minister Sheikh Hasina.

The 69-year-old leader was charged just weeks after Hasina was re-elected in a January 5 general election which the centre-right BNP and its 18 opposition allies boycotted and denounced as a farce.

AFP

Macquarie joins Principal Financial in CMBS Australia’s largest investment bank is pushing into a commercial mortgage-backed securities market that is rebounding after shutting in 2008 Madeline McMahon and Sarah Mulholland

P

rincipal Financial Group Inc., the provider of life insurance and retirement products, is joining with Macquarie Group Ltd. in a venture that will make loans and package them into bonds.

Macquarie will provide funding while Des Moines, Iowa-based Principal’s real estate arm will underwrite, close and service the loans, the companies said in a statement on Saturday.

Australia’s largest investment

Macquarie headquarters lobby in Melbourne

bank is pushing into a commercial mortgage-backed securities market that is rebounding after shutting in 2008. Wall Street banks this year have arranged about US$54.6 billion of U.S. CMBS tied to everything from strip malls to skyscrapers after issuance doubled to US$80 billion in 2013. Sydney-based Macquarie this year hired Tim Gallagher, who had led Morgan Stanley’s commercial-real estate debt syndicate, to expand in the U.S.

The venture will help the insurer “offer a wider menu of options for our borrowers and leverage the strengths of both firms,” Margie Custis, a managing director for Des Moines, Iowa-based Principal’s real estate arm, said in the statement.

Principal is among U.S. insurers betting on commercial real estate to generate fee income and counter bond yields that are near historic lows.

MetLife Inc., the largest U.S. life insurer, has invested in the past year in office towers in Boston, Washington and San Francisco with Norway’s sovereign wealth fund.

Principal Real Estate Investors has contributed almost 2,000 loans totalling more than US$16 billion to more than 50 securitizations, according to the statement. The business manages or sub advises US$52.6 billion in commercial real estate assets, compared with about US$34 billion four years ago.

Larry Zimpleman, the chief executive officer of Principal, has been highlighting opportunities in commercial property for years.

“Smart capital is starting to queue up,” he said in 2010.

Bloomberg News

14

September 15, 2014

International Gilead to raise price for new hepatitis C drug The next generation version of Gilead Sciences Inc.’s US$84,000 hepatitis C drug, already under fire for its recordbreaking costs, is going to be even more expensive. Gregg Alton, Gilead’s executive vice president of corporate and medical affairs, declined to give an exact price for the new medicine, the first all-oral treatment for the virus which is expected to launch next month.

The total cost of the current treatment is US$95,000, which includes Sovaldi and two older medicines, ribavirin and interferon, according to Gilead. The price of the new drug would be based on that cost.

Fischer carves out Fed role Federal Reserve Vice Chairman Stanley Fischer has been tapped to head a new financial stability panel at the U.S. central bank, an influential perch he could use to try to broaden and enhance the Fed’s powers to ward off a future financial crisis. The renowned economist and former head of the Bank of Israel, who took office in June as the Fed’s No. 2, has said he sees shortfalls in U.S. financial safeguards.

The new post gives him an opportunity to address them.

BES bank bosses quit after two months The rebuilding of Portugal’s Novo Banco - the successor to Banco Espirito Santo (BES) after a state rescue last month - was dealt a blow on Saturday with the resignation of the three men handpicked by the central bank in July to turn BES round. Chief Executive Vitor Bento, finance director Joao Moreira Rato and deputy CEO Jose Honorio said they were leaving because their initial mandate to revive the bank with private money had changed too much since the government bailout.

RadioShack mulls financing package RadioShack Corp is evaluating a US$585 million financing package led

by UBS AG and hedge fund Standard General LP as the U.S. electronics retailer tries to avert bankruptcy, the Wall Street Journal reported, citing people familiar with the matter. UBS will coordinate US$325 million of commitments and Standard General will arrange US$260 million in financing, replacing a US$585 million loan and credit facility from GE Capital, a unit of General Electric Co, the financial daily reported.

Budget cuts endangering U.S. defence innovation U.S. military funding for research and development has already been cut by a fourth, and faces further erosion should lawmakers let stand the sequestration law that sets up automatic cuts in defence spending for the rest of the decade. “Cuts in the government R&D budget are very worrisome, and it is not a long-term sustainable trend for the country,” Boeing Co President and Chief Operating Officer Dennis Muilenburg told the Reuters Aerospace and Defense Summit this week. Sequestration will be “devastating to industry in the long term,” he added.

Fate of United Kingdom hanging by a thread The economic future of Scotland has become one of the most fiercely debated issues in the final weeks of impassioned debate

T

he fate of the United Kingdom remained unclear five days before a historic referendum on Scottish independence as three new polls on Saturday showed a slight lead for supporters of the union, but one saying the separatist campaign was pulling ahead.

On the final weekend of campaigning, tens of thousands of supporters of both sides took to the streets of the capital Edinburgh and Scotland’s largest city, Glasgow. Rival leaders worked across the country to convince undecided voters.

The battle also took a bitter turn on Saturday when a senior nationalist warned businesses such as oil major BP Plc that they could face punishment for voicing concern over the impact of a secession.

The economic future of Scotland has become one the most fiercely debated issues in the final weeks of impassioned debate.

Nationalists accuse British Prime Minister David Cameron of coordinating a scare campaign by business leaders aimed at spooking voters, while unionists say separation is fraught with financial and economic uncertainty.

But former Scottish Nationalist Party deputy leader Jim Sillars went much further than separatist leader Alex Salmond, warning that BP’s operations in Scotland might face nationalisation if Scots voted for secession on Thursday.

“This referendum is about power, and when we get a ‘Yes’ majority we will use that power for a day of reckoning with BP and the banks,” Sillars, a nationalist rival of Salmond’s, was quoted by Scottish media as saying.

“BP, in an independent Scotland, will need to learn the meaning of nationalisation, in part or in whole, as it has in other countries who have not been as soft as we have been forced to be,” Sillars said.

Banks such as Standard Life would face tougher employment laws after a vote for independence, he added.

When asked about the comments in a BBC interview, Sillars confirmed he had raised the prospect of

Members of the Orange Order, a Protestant fraternal organisation, march in a show of solidarity for the Union of Britain in Edinburgh, Scotland, 13 September 2014

nationalisation, but said he had used the term to get media coverage.

Nationalisation was not on the table, he said.

A BP spokesman declined to comment but BP chief Bob Dudley has said that independence could cause “uncertainties,” and he did not want to see oil-rich Scotland drift away.

Major banks, oil companies and supermarkets have said that a vote for secession would create concern.

North Sea oil would have to be divided up while there is uncertainty over the future currency and central bank of an independent Scotland.

Out of four opinion polls released on Sunday, three showed the unionists with a lead of between two and eight percentage points while an ICM poll conducted over the internet showed supporters of independence in the lead with 54 percent and unionists on 46 percent.

The ICM poll is the second this year to show independence supporters in the lead though a small sample size of 705 people means its margin of error is higher than most other polls. Polling expert John Curtice said the survey came with “a substantial health warning.”

In other developments, media tycoon Rupert Murdoch visited Scotland on Saturday and praised the country for being alive with debate ahead of the vote.

About 12,000 Protestant unionists, including contingents

from Northern Ireland, marched through Edinburgh’s Old Town on Saturday in an emotional show of support for keeping Scotland in the United Kingdom.

Deutsche Bank warning Deutsche Bank said a vote for independence would be a mistake akin to Winston Churchill’s decision to return the pound to the Gold Standard or the failure of the Federal Reserve to provide sufficient liquidity to the U.S. banks, decisions that helped bring on the Great Depression.

“Foreign investors come to Scotland because they rely on a predictable investment environment.

All of this comes from a united Great Britain,” David Folkerts-Landau, Deutsche’s chief economist, said in a note to clients.

Such is the gravity of the situation that finance minister George Osborne cancelled a trip to the G20 meeting in Australia to be held the weekend after the vote. Bank of England Governor Mark Carney will leave the G20 meeting early.

Investors pulled US$27 billion out of British financial assets last month - the biggest capital outflow since the Lehman Brothers crisis in 2008 - as concern mounted over the fate of the United Kingdom, a report by London-based consultancy CrossBorder Capital showed.

Reuters

Brazil prosecutor seeks to freeze Batista’s assets Batista could get up to 13 years in prison

B

razil federal prosecutors have filed criminal charges against Eike Batista, accusing the fallen tycoon of market manipulation and seeking to freeze up to 1.5 billion reais (US$641 million) worth of his financial assets and properties.

The Rio de Janeiro prosecutor’s office said on Saturday it is charging Batista for deceiving investors with a “simulated” promise two years ago to invest US$1 billion in oil company OGX, now known as Oleo e Gas Participacoes SA, if shares fell to a certain level. Batista failed to fulfil

his promise, known as a put option, when the shares touched that level.

Batista is also accused of using privileged information on several occasions last year to make a profit of 236 million reais with the sale of company stock, the statement said.

The charges against Batista could carry up to 13 years in prison.

A representative of Batista’s EBX Group said the industrial group will not comment on the charges. Batista has repeatedly denied any wrongdoing in previous public statements on the case.

OGX filed Latin America’s largestever bankruptcy-protection petition in Rio last October after its first oil wells produced less than expected and investors lost confidence in the company’s ability to keep up with debt payments and finance new oilfield development.

The bankruptcy marked the nadir of Batista’s EBX energy, mining, shipbuilding and port-operation group. OGX, the group’s flagship company, has lost more than 99 percent of its value since 2010.

Reuters

15

September 15, 2014

Opinion Business

wires

Leading reports from Asia’s best business newspapers

Parallels to 1937

Robert J. Shiller

2013 Nobel laureate in economics, is Professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices

NEW ZEALAND HERALD House prices in some Auckland suburbs are twice what they were just three years ago as the city experiences a second wave of booming property values. Others are enjoying increases as high as 40 per cent in just two years. The QV statistics signal a fresh boom as previously unfashionable areas such as Glen Innes, Te Atatu and Belmont catch up to their more desirable neighbours. And with the traditional pre-election lull in the market almost at an end experts predict a new surge among buyers. “The second wave of property prices is what we would expect when you have a big jump in the centre,” said commentator Bernard Hickey of interest.co.nz.

THE KOREA HERALD Samsung Electronics said yesterday it has asked the prosecution to investigate senior officials of its home rival, LG Electronics, on suspicion of intentionally damaging its products at a shopping mall in Germany. Samsung’s petition names Jo Seong-jin, head of LG’s home appliance division, and a number of other senior company officials, accusing them of vandalizing its laundry machines on display. The incident occurred earlier this month in Berlin just ahead of the Internationale Funkausstellung (IFA) trade show where the two South Korean tech giants competed for the spotlight in consumer electronics.

PHILSTAR The Bureau of Internal Revenue (BIR) has issued a circular detailing the requirements for the affixture of tax stamps on both imported and locally-manufactured cigarettes in preparation for the implementation of the long-delayed Internal Revenue Stamps Integrated System (IRSIS) starting next month. The IRSIS is a trackand-trace system which will reflect when the cigarette was made as well as when taxes were paid. Under Revenue Memorandum Circular 72-2014, all locally manufactured packs of cigarettes should have the new tax stamp by October 1.

THE JAPAN NEWS Japan’s science-based proposal overcame South Korea’s resistance, helping to push an international accord that aims to halve catches of immature Pacific bluefin tuna, at a meeting of the Western and Central Pacific Fisheries Commission held in Fukuoka earlier this month.

Now, attention is focused on whether a similar agreement can be reached to protect bluefin tuna in the Eastern Pacific, which is considered necessary to help the fish stock further recover. “There was no other choice,” said Masanori Miyahara, who chaired the meeting of a subcommittee of the WCPFC, at a press conference after the meeting.

T

he depression that followed the stock-market crash of 1929 took a turn for the worse eight years later, and recovery came only with the enormous economic stimulus provided by World War II, a conflict that cost more than 60 million lives. By the time recovery finally arrived, much of Europe and Asia lay in ruins.

The current world situation is not nearly so dire, but there are parallels, particularly to 1937.

Now, as then, people have been disappointed for a long time, and many are despairing. They are becoming more fearful for their long-term economic future.

And such fears can have severe consequences.

For example, the impact of the 2008 financial crisis on the Ukrainian and Russian economies might ultimately be behind the recent war there. According to the International Monetary Fund, both Ukraine and Russia experienced spectacular growth from 2002 to 2007: over those five years, real per capita GDP rose 52% in Ukraine and 46% in Russia. That is history now: real per capita GDP growth was only 0.2% last year in Ukraine, and only 1.3% in Russia. The discontent generated by such disappointment may help to explain Ukrainian separatists’ anger, Russians’ discontent, and Russian President Vladimir Putin’s decision to annex Crimea and to support the separatists.

There is a name for the despair that has been driving discontent – and not only in Russia and Ukraine – since the financial crisis. That name is the “new normal,” referring to long-term diminished prospects for economic growth, a term popularized by

Bill Gross, a founder of bond giant PIMCO. The despair felt after 1937 led to the emergence of similar new terms then, too. “Secular stagnation,” referring to long-term economic malaise, is one example. The word secular comes from the Latin saeculum, meaning a generation or a century. The word stagnation suggests a swamp, implying a breeding ground for virulent dangers. In the late 1930s, people were also worrying about discontent in Europe, which had already powered the rise of Adolph Hitler and Benito Mussolini.

The other term that suddenly became prominent around 1937 was “underconsumptionism” – the theory that fearful people may want to save too much for difficult times ahead. Moreover, the amount of saving that people desire exceeds the available investment opportunities. As a result, the desire to save will not add to aggregate saving to start new businesses, construct and sell new buildings, and so forth.

Though investors may bid up prices of existing capital assets, their attempts to save only slow down the economy.

“Secular stagnation” and “underconsumptionism” are terms that betray an underlying pessimism, which, by discouraging spending, not only reinforces a weak economy, but also generates anger, intolerance, and a potential for violence.

In his magnum opus The Moral Consequences of Economic Growth, Benjamin M. Friedman showed many examples of declining economic growth giving rise – with variable and sometimes long lags – to intolerance, aggressive nationalism, and

Some will doubt the importance of economic growth. Maybe, many say, we are too ambitious and ought to enjoy a higher quality of life with more leisure. Maybe they are right

war. He concluded that, “The value of a rising standard of living lies not just in the concrete improvements it brings to how individuals live but in how it shapes the social, political, and ultimately the moral character of a people.”

Some will doubt the importance of economic growth. Maybe, many say, we are too ambitious and ought to enjoy a higher quality of life with more leisure. Maybe they are right.

But the real issue is self-esteem and the social-comparison processes that psychologist Leon Festinger observed as a universal human trait. Though

many will deny it, we are always comparing ourselves with others, and hoping to climb the social ladder. People will never be happy with newfound opportunities for leisure if it seems to signal their failure relative to others.

The hope that economic growth promotes peace and tolerance is based on people’s tendency to compare themselves not just to others in the present, but also to what they remember of people – including themselves – in the past. According to Friedman, “Obviously nothing can enable the majority of the population to be better off than everyone else. But not only is it possible for most people to be better off than they used to be, that is precisely what economic growth means.”

The downside of the sanctions imposed against Russia for its behaviour in eastern Ukraine is that they may produce a recession throughout Europe and beyond. That will leave the world with unhappy Russians, unhappy Ukrainians, and unhappy Europeans whose sense of confidence and support for peaceful democratic institutions will weaken.

While some kinds of sanctions against international aggression appear to be necessary, we must remain mindful of the risks associated with extreme or punishing measures. It would be highly desirable to come to an agreement to end the sanctions; to integrate Russia (and Ukraine) more fully into the world economy; and to couple these steps with expansionary economic policies. A satisfactory resolution of the current conflict requires nothing less.

Project Syndicate 2014

16

September 15, 2014

Closing 27 years since China’s first email

J Trust selected as successful bidder for Bank Mutiara

Yesterday marked the 27th anniversary of the first email ever sent from China. On September 14, 1987, a computer laboratory in Beijing successfully sent an email that said, “Across the Great Wall we can reach every corner of the world.” The message was sent to a German university. Twenty-seven years later, China is home to 632 million Internet users, the largest online population in the world. The Internet Society of China said in an open letter yesterday that the Internet is widely used in the areas of politics, economy, culture, medical care and education, and its influence is far-reaching.

Japan’s J Trust Co Ltd said it has been selected as a bidder for Indonesia’s PT Bank Mutiara Tbk and will be allowed to have full ownership of the Indonesian bank. Bank Mutiara, previously known as Bank Century, was bailed out by the Indonesian government in 2008 and has been run by the Indonesian Deposit Insurance Corporation locally known as Lembaga Penjamin Simpanan (LPS). “The company submitted a letter of interest to acquire LPS’ Interest in Bank Mutiara and today, LPS disclosed that the company was selected as the successful bidder,” J Trust said in a statement dated Friday.

BIS warns on funds’ risks for emerging markets The total AUM of emerging market funds tracked by the Boston-based EPFR Global consultancy had risen to US$1.4 trillion from US$900 million before the Lehman crisis Sujata Rao

T

he global fund management industry is a potential source of risk for emerging markets because of its vast size and herd-like investor behaviour that can exacerbate asset price fluctuations, a BIS report said yesterday.

In its quarterly review, the Bank for International Settlements said the selloff that rocked emerging economies last year was a reminder of how “the activity of large asset managers can significantly affect small and illiquid asset markets”.

The presence and influence of asset managers in emerging market economies (EME) has grown significantly in recent years, BIS said, citing data showing emerging bond funds alone had quadrupled assets under management (AUM) between 2007-2017.

The total AUM of emerging market funds tracked by the Boston-based EPFR Global

Bank for International Settlements headquarters in Basel, Switzerland

consultancy had risen to US$1.4 trillion from US$900 million before the Lehman crisis, it added.

While these amounts are dwarfed by the AUM of funds dedicated to the United States

or Europe, they are large relative to emerging stock and bond markets.

“The large size and concentration of AUM of asset managers in relatively small and illiquid EME asset

markets are a potentially important source of concern.

Any decision by asset managers with large AUM to change portfolio allocation can have a major impact on EME asset markets that are relatively small,” BIS said in its report.

While acknowledging the benefits of foreign investment for developing countries, BIS noted that successive crises over the years had highlighted how investors may destabilise EME asset markets - “accentuating both booms and busts”.

The problem was exacerbated by fund managers’ use of common or similar benchmarks, BIS said, referring to stock and bond indexes against which investors measure their performance.

In emerging bond markets for instance, JPMorgan indexes tend to be most widely used, while equity index provider

MSCI says $1.4 trillion is benchmarked to its main emerging equity index.

The BIS report noted the growing popularity of “passive” investing via socalled ETFs that mirror the benchmark index. But even in the case of actively managed funds, the use of common benchmarks or a high degree of correlation between benchmarks may lead fund managers to adopt similar asset allocation strategies, it warned.

“These funds are likely to move in the same direction and react in similar ways when they face EME-related shocks,” the report added, citing the example of 2013 when the prospect of tighter U.S. monetary policy saw tens of billions of dollars flee emerging market funds.

BIS cautioned earlier this year that as regulators clamped down on risktaking by banks, the role of asset managers in funding lower-rated companies and sovereigns had grown, a potential danger for the global financial system. This carries risks for emerging markets too.

The latest BIS quarterly report highlighted rising debt issuance by private sector emerging market borrowers.

These have raised debt worth almost US$375 billion in 2009-12, it said, more than double what was sold in the four years before the crisis.

What’s more, much of this is in foreign currency debt.

Proposed trash plant sparks protests

New airport under construction in Tibet

Sinopec sells retail unit stake

T

N

C

housands of people gathered yesterday in southern China to protest against a proposed trash incinerator, protesters said, as the government sought to allay anger by saying the location was not finalised. In the latest in a series of protests in China over the feared health impact from development projects, thousands of people marched in Boluo county in Guangdong province against plans for an incinerator which would convert trash to electrical power.

Yesterday marked the second day of protests.

On Saturday more than a thousand people took to the streets, blocking traffic and prompting police to detain 24, according to the local government and police.

“We are on the square right now, at least four to five thousand people gathering here before a march,” one protester told AFP by phone on yesterday morning.

Protesters later marched from a public plaza to the offices of the county government.

The demonstration was largely peaceful, though some claimed there were tussles with police.

Marchers also took a break for lunch.

AFP

orthwestern China’s Qinghai Province, located on the Qinghai-Tibet plateau, will be home to a new airport, said local sources yesterday. The under-construction Huatugou civil aviation airport is located in the Mongolian-Tibetan Autonomous Prefecture of Haixi. It will cover an area of 180 hectares, said the Qinghai Airport Company. Investment in the airport has reached 700 million yuan (US$114 million).

The airport will have 3,600 meters of runway, with its terminal covering an area of about 3,000 square meters, according to the airport’s project plan.

Flight tests at the airport are expected to start after construction is completed within the year.

The airport is located in China’s major production base for petroleum and potash fertilizer.

It is expected to support local development and improve the aviation network on the QinghaiTibet plateau.

The airport site is situated in the border region of Qinghai and Xinjiang. Multiple air routes will link the region to major cities in the province and neighbouring Gansu Province and Xinjiang Uygur Autonomous Region.

Xinhua

Reuters

hina Petroleum & Chemical Corp., Asia’s top refiner, agreed to sell a 29.99 percent stake in its retail business for 107 billion yuan (US$17.5 billion) to a group of investors including China Life Insurance Co. Sinopec, as the company is known, said the unit will sell shares to 25 investors including Fosun International Ltd., the investment company run by billionaire Guo Guangchang. Gas supplier ENN Energy Holdings Ltd. and white-goods maker Haier Electronics Group Co. will also buy stakes, Sinopec said in a Shanghai stock exchange filing yesterday.

The deal comes amid a push by the Chinese government to restructure state-run companies and allow markets greater sway in resource allocation.

The Sinopec retail business runs the country’s biggest network of fuel stations, with more than 30,000 locations, as well as 23,000 convenience stores.

RRJ Capital Ltd., run by former Goldman Sachs Group Inc. partner Richard Ong, will also invest in the unit, according to the filing.

Bloomberg News