Macau Business Daily, Sept 30, 2014

MOP 6.00 Closing editor: Luis Gonçalves Publisher: Paulo A. Azevedo Number 636 Tuesday September 30, 2014 Year III

HK markets tumble on protests M

arket volatility has reached a 3-year high. Hong Kong’s financial risk has climbed to a 15-month red line.

The Hong Kong dollar has dropped the most in 6 months. Stocks have taken a hit, too, along with Macau casino stocks. Markets started yesterday with a massive sell-off of Hong Kong-listed companies. The gaming industry here faces more turmoil given the increasing volatility of the political landscape

www.macaubusinessdaily.com

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House prices to drop 10 percent

2

Junkets are crucial for Australian casinos PAGE 5

MOP55 million for Zape pedestrian walk

The “aggressive prices” of sellers in Macau has hit a wall.

Fewer transactions and less demand in Q3 is prompting a correction for the rest of the year. Centaline predicts housing prices will cool by some five to ten percent. Watch out for Hengqin, they say, as the hottest trend

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Cross-border police crack HK$200 mln scam

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HSI - Movers September 29

Name

%Day

China Shenhua Energ

0.23

China Mobile Ltd

-0.16

Ping An Insurance Gr

-0.67

China Life Insurance

-0.68

Tencent Holdings Ltd

-0.77

Cheung Kong Holding

-3.71

China Resources Pow

-3.74

Wharf Holdings Ltd/T

-3.75

Sino Land Co Ltd

-4.49

New World Developm

-4.57

Source: Bloomberg

I SSN 2226-8294

Steady at least Growth in China’s manufacturing sector likely stabilized in September as factory orders held up, giving some relief for those who worry the Chinese economy is quickly losing steam. The official manufacturing Purchasing Managers’ Index (PMI) edged up slightly to 51.2 in September compared with August’s 51.1, leaving it comfortably above the 50-point level demarcating an expansion from a contraction on a monthly basis.

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Gangnam style Macau residents are travelling more and often.

Since January, around one million locals vacationed abroad. Seven percent more than a year ago. South Korea is the hot new destination for locals, with Macau tourists growing ten percent. Traditional favourites like Thailand and Malaysia fell off the radar, declining 55 and 30 percent, respectively

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September 30, 2014

Macau

Hong Kong dollar, stocks retreat on protest crackdown Pro-democracy demonstrations are not only testing Beijing’s will. Hong Kong stocks and currency have suffered record drops, and investors believe the downturn is only beginning. Retail and construction were the most affected but the gaming industry will soon follow as volatility reaches a 3-year record high

H

ong Kong’s stocks fell yesterday the most in almost three weeks, the city’s currency weakened and equitymarket volatility surged amid the biggest police crackdown on protesters since the city returned to Chinese rule.

The benchmark Hang Seng Index sank 1.9 percent to 23,229.21 at the close in Hong Kong, its biggest loss since September 10, as developers and retailers tumbled. A gauge of stock volatility jumped 24 percent, the steepest surge in three years. The city’s currency slid to a six-month low and one-year interest-rate swaps climbed the most in 15 months.

Pro-democracy protesters vowed to press ahead with demonstrations unless Hong Kong’s top official steps down, with thousands of people surrounding government offices after violent clashes paralysed the city centre. Rallies in the shopping neighbourhoods of Causeway Bay and Mong Kok are picking up after a lull in the morning, leading banks to shut branches and deterring tourists.

“In terms of sentiment, the market is likely to remain very cautious,” said

Casino Stocks variation in Hong Kong (29 September) Sands China: -2.2 SJM: -2.7 Wynn Macau: -0.8 MGM China: +0.7 Galaxy Entertainment: -3.4 Melco Crown: -1.4

Tai Hui, chief Asia market strategist at JPMorgan Asset Management, which oversees about US$1.7 trillion worldwide. “This is a very unusual situation for Hong Kong. In the short term there’s going to be shock to the markets but it’s still more important to look at aspects such as fundamentals and valuations.”

The biggest clashes in Hong Kong for decades, which saw anti-riot police use tear gas and pepper spray on demonstrators, are disrupting businesses in one of Asia’s financial centres and risk a strong response from the government in Beijing if they are prolonged.

The showdown adds to concerns about falling retail sales and rising U.S. interest rates fuelling a 6.5 percent drop in the Hang Seng Index from this year’s high on September 3 through last week.

Retail Slump “We expect the battleground atmosphere on Hong Kong’s streets to add to the drag on retail sales in September,” Tim Condon, Singaporebased head of Asian research at ING Groep NV, wrote in a note to clients.

Figures for August released after markets closed today showed retail sales by value unexpectedly rose for the first time in seven months. Sales increased 3.4 percent from a year earlier, compared to the median forecast in a Bloomberg survey of a 2 percent drop. Data over the weekend showed profits at industrial companies in China declined last month for the first time in two years as a slowdown in the world’s second-largest economy deepens.

Retailers and tourism-related companies may be among the most affected on speculation protests will deter mainland tourists from visiting during National Day holidays that begin October 1, said Gavin Parry, managing director of Hong Kongbased brokerage Parry International Trading Ltd. Financial shares in the US$3.7 trillion market may also come under pressure, said Ronald Wan, the

chief China adviser at Asian Capital Holdings Ltd. in Hong Kong.

HSBC was the biggest drag on the Hang Seng Index, falling 1.8 percent.

Luk Fook Holdings International Ltd., which sells jewellery, sank 4.8 percent. Hong Kong Exchanges & Clearing tumbled 3.2 percent. All casino stocks, except MGM China, lost value yesterday with Galaxy Entertainment leading with a 3.2 percent drop.

Financial firms such as HSBC, whose Hong Kong headquarters are located in Central, comprise about 56 percent of the Hang Seng Index while consumer-related stocks have a 7 percent weighting, according to data compiled by Bloomberg.

Developers accounted for seven of the 10 biggest declines on the MSCI Hong Kong Index, with Sino Land Co. and New World Development Co. each retreating at least 4.5 percent.

The equity gauge fell 2.7 percent, its steepest drop since April 2013.

“This kind of noise will affect developers,” said William Fung, investment manager at Tanrich Securities Co. in Hong Kong.

“Anywhere with political instability, property prices drop.”

Discount Gap Brokerages also tumbled, with Shenyin Wanguo HK Ltd. sliding 7.1 percent and First Shanghai Investments Ltd. sinking 8.1 percent.

The Hang Seng China AH Premium index, which measures the weighted average gap between the largest duallisted shares, rose as much as 2.1 percent to 100.19, signalling the discount on mainland shares had been erased, before closing at 99.18. There are plans for cross-border trading between Hong Kong and Shanghai to commence next month.

“Occupy Central is definitely a catalyst for a further correction,” said Dickie Wong, the executive director of research at Kingston Financial Group Ltd. in Hong Kong. The Hang Seng Index (HSI) may fall to about 23,000 in the short-term, Wong said.

The HSI Volatility Index, the city’s benchmark gauge of options prices, surged as much as 27 percent today.

Currency Weakens The Hong Kong dollar dropped as much as 0.09 percent versus the greenback, the biggest intraday loss since 2011, before trading down 0.05 percent at HK$7.7618. The city’s one-year interest-rate swap increased three basis points to 0.483 percent.

“The Hong Kong dollar moved lower this morning on the back of concerns over Occupy Central,” said Khoon Goh, Singapore-based strategist at Australia & New Zealand Banking Group Ltd. “But it was weakening last week on the back of a stronger dollar environment. The Occupy Central development added a further element of dollar buying.”

Federal Reserve Chair Janet Yellen cautioned this month that the central bank’s commitment to keep interest rates near zero for a “considerable time” could change if U.S. economic performance continues to exceed expectations.

The Hong Kong protests were spurred by the Chinese government’s decision last month that candidates for the 2017 election of the city’s Chief Executive be vetted by a committee. Pro-democracy forces say the system is designed to produce a new leader effectively handpicked by the government in Beijing.

Market Impact Tensions escalated after police began lobbing tear gas into the crowds just before 6:00 p.m. yesterday and clashes continued into the night.

“This will have a negative impact on the city’s markets by renewing the world’s awareness about Hong Kong’s political risks,” said Mari Oshidari, a Hong Kong-based strategist at Okasan Securities Group Inc. “This will make it hard for people to buy in a market that’s lacking positive news to begin with.”

Bloomberg

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September 30, 2014

Macau

Housing prices predicted to fall by 10 pct in 4Q The property market was less active in the third quarter, inducing owners to reduce recent ‘aggressive’ prices for the rest of the year, says Centaline Kam Leong

kamleong@macaubusinessdaily.com

W

ith the number of transactions in the property market low during the third quarter of the year, market prices will cool by some five to ten percent, a property agency predicts, claiming Hengqin is currently the hottest trend.

Hong Kong-based Centaline (Macau) Property Agency Ltd. concluded yesterday that the low numbers of transactions, especially those for residential flats and commercial shops, had led the market enter into an adjustment phase.

“The seriously low number of transactions that we saw from the third quarter was mainly due to the aggressive prices set by [owners] . . . In addition, the property market in Macau is a user-biased one . . . However, since not many new housing [units have been] released, the direction was not clear. As a result, buyers chose to observe the situation,” the director of the agency, Jacky Shek Po Tak, said, adding that some owners had decreased their prices.

Although transactions were seen to significantly fall, the director does not see it related to the decelerating

profits of the casinos as the property market differs from the stock market, which may more easily be influenced by business news, he said.

According to the agency, there were only a total of 1,400 residential transactions, which is a year-on-year drop of 20 percent, while the transactions of commercial shops also declined by almost 50 percent, with a total of 150 transactions.

Nevertheless, the performance of the sales and rental of offices was not

affected. This field was the only one that had been and would continue growing, the agency said. In addition, the rental market of industrial buildings was predicted to remain positive, fuelled by polices on revitalisation and young people setting up businesses in industrial buildings.

Hengqin market heating the local market Mr. Shek believes that there will be a noticeable

climb in transactions again in the final quarter of the year as many local buyers are eyeing the Hengqin property market, which they believe has excellent prospects.

“We can see that most of the buyers of the projects in Hengqin are primarily from Macau . . . There are many projects to release in Hengqin this year. After they [the Macau people] invest in such projects, they will probably release their second-hand properties [in Macau] for cash,” he said, claiming that

Cross-border police crack phone scam ring

M

acau Judiciary Police announced last Friday that the police forces of Macau, Hong Kong, Taiwan and Mainland China had launched a joint cooperation to smash a massive phone scam criminal syndicate. A total of 31 suspects were arrested, including a principal criminal from Taiwan. Some HK$200 million was involved in the case.

During the joint operation, Hong

Kong police arrested six suspects in the Special Administrative Region, including five people from Mainland China and one from Taiwan. Guangdong Police made four arrests on the mainland and Taiwan authorities nabbed 21 locals.

A Macau Judiciary Police spokesperson says they seized HK$1.4 million in cash from an empty unit in the Zapa Area in the SAR. Other evidence included six

computers, 14 mobile phones and a large number of bank cards. Police are still searching for the owner of the property.

The police say that in recent years cross-border phone scams have become rampant. In order to organise the intelligence, all task forces from Macau, Hong Kong and the crossstrait had a special meeting focusing on the case in August in the mainland.

They discussed the details of the case and coordinated the strategy of the operation. Based on the exchange of information, police raided the strongholds of the gang in various locations, discovering the identities of group members.

According to police, more than 80 Taiwanese residents have been swindled in the past two years, most of them elderly. Scammers would call the victims posing as bank employees or staff of judiciary departments, claiming that the victim’s identification had been stolen and that there was something wrong with their bank accounts. They would demand the victims transfer the money to various ‘safety accounts’.

Later, the group would withdraw the capital and transfer it to different accounts in Hong Kong. Some funds were laundered in Macau.

The case is still under investigation.

most of the people buying property in Hengqin are doing so for investment rather than self-use.

Meanwhile, the sales director of the agency, Noel Cheung, believes that some future polices will attract more Macau residents to the Hengqin property market; policies such as the 24-hour border crossing between Hengqin and Macau as well as the future implementation of allowing vehicles with only Macau plate numbers to enter the mainland city.

Tax agreements inked with new jurisdictions

T

he Government of Macau published yesterday in the Official Gazette agreements with the United Kingdom and Northern Ireland, Guernsey and Argentina for the sharing of tax information.

Although the agreements were announced some months before, they were only signed on September 3 (United Kingdom and Northern Ireland, and Guernsey) and on September 5 (Argentina).

The agreements will come into force 30 days after the governments of the involved parties have taken care of all the formalities necessary at local level.

Last week, the Financial Services Bureau also announced that in order to enhance tax transparency and combat cross-border tax evasion Macau, as a member of the OECD Global Forum on Transparency and Exchange Information for Tax Purposes, would implement the Common Reporting Standard, enabling automatic exchange of financial account information for tax purposes among jurisdiction members.

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September 30, 2014

Macau

South Korea increasingly popular with Macau residents The number of residents travelling outbound to South Korea is climbing rapidly, while the number of visitor arrivals on package tours to Macau has increased by 30 percent Sara Farr

sarafarr@macaubusinessdaily.com

T

here might have only been 5,200 Macau resid ents travelling outbound to South Korea during the month of August but that is a 10.2 percent increase compared to that of a year ago.

These figures compare in sharp

contrast to a 54.6 percent drop in outbound travel to Thailand and a 29.2 percent drop in travel to Malaysia during the same period, official figures released yesterday by the Statistics and Census Service (DSEC) show.

Corporate 8th Edition Macau Business Charity Golf Tournament Teeing-Off Soon After seven prestigious editions of charity golf, the annual Macau Business Charity Golf Tournament revisits the rolling greens of Caesars Golf course in Cotai on 10th October.

Melco Crown Entertainment and the Grand Coloane Beach Resort are again main sponsor and gala dinner venue hosts for the 8th edition of this extraordinary event.

This year, 25 teams will compete on the picture-perfect greens for the total prize pot of MOP200,000, which will be forwarded to local charity institutions by the tournament winners.

Tee-Off Times are set for 8:30am and 1:00pm.

The Prize-giving Gala remains in Coloane. The newly named Grand Coloane Beach Resort will host a special night in its Garden Marquee and Loggia offering the best of Macau’s legendary hospitality.

Only a few seats remain available for the Prize-giving Gala and Charity Dinner, while all tournament slots have been snapped up.

Hopefully, lucky number 8 smiles on the weather and party atmosphere so that the outlook for the tournament and associated activities remains as bright and convivial as it has in years gone by.

Grand Hyatt Macau wins Best Business Hotel Grand Hyatt Macau is considered the Best Business Hotel here, according to the readers of Business Travel Asia Pacific magazine. Grand Hyatt was also awarded ‘Best Business Hotel Brand in the World’ title, an accolade that the company has been the recipient of 11 times. It won the coveted accolade last year as well as between 2001 and 2009. In addition, eight Hyatt properties won the coveted ‘Best Business Hotel’ award in their respective cities, namely Saigon, Sydney, Tokyo, Bangkok, Beijing, Jakarta, Melbourne and Macau.

Earlier this year, Business Traveller Asia-Pacific asked its subscribers - some of the region’s most frequent and experienced travellers - to vote for what they considered the world’s best business hotels and airlines. The results were compiled by global research specialist Ipsos, and will appear in the October 2014 issue of Business Traveller AsiaPacific magazine, with a more detailed feature to follow in the November 2014 issue.

In the first eight months of the year, as many as one million residents travelled outbound, a 7 percent increase compared to the same period last year. In the month of August alone, some 155,000 residents travelled outbound using the services of travel agencies, a 15 percent increase compared to that of a year ago. Of these, one third, at 54,000, chose to travel outbound on package tours.

Mainland China remained the most popular destination, accounting for 72 percent of the total residents travelling outbound, while both Taiwan and South Korea each accounted for 7 percent of the overall travel.

While South Korea gained in popularity as a destination - in particular, for residents travelling outbound on package tours - Taiwan saw a 41.4 percent increase in visitors from Macau. However, the majority of these travelled under individual arrangements.

There were less people travelling to the neighbouring SAR over the summer month, with numbers dropping 30.9 percent to 16,300 in August compared to that of August last year.

Overall, in the first eight months of the year, some 610,000 Macau residents travelled to mainland China, 134,200 to Hong Kong, followed by Taiwan at 126,300, South Korea at 37,000, Thailand at 26,900 and Malaysia at 16,600.

Package tour surge The number of visitors arriving in Macau on package tours increased

by 30 percent to 1.27 million in the month of August alone. The majority of arrivals were from mainland China, accounting for 1.1 million of the total arrivals and representing a 36 percent increase compared to that of a year ago.

The number of visitors from Taiwan increased by 13 percent to 71,000, while that of Hong Kong increased 7 percent to 41,000 and that of South Korea increased 11 percent to 36,000. However, it was the number of visitor arrivals from Japan and Thailand that increased the most by 20 percent and 31 percent, respectively.

Between January and the end of August, the number of visitor arrivals on package tours increased by 21 percent to 7.8 million over that of the same period a year earlier.

Meanwhile, there were 98 hotels and guesthouses registered and operating in Macau by the end of August, a one percent increase compared to that of a year ago. Of these, 5-star hotels accounted for 66 percent, supplying as many as 18,000 rooms.

However, while the number of guestrooms increased, the overall number of visitors checking in to such premises dropped by 3 percent to 965,000 during the month of August alone. Visitors from mainland China checking into hotels and guesthouses here, however, increased by 9 percent year-on-year.

The average length of stay was up slightly by 0.1 percent to 1.4 nights.

Zape-Guia pedestrian walkway renovation Sara Farr

sarafarr@macaubusinessdaily.com

R

ua da Encosta, better known as the main road that leads to Conde São Januário public hospital from the side of the San Francisco garden is set to undergo renovations in order to ‘beautify’ it and turn it into a pedestrian walkway.

These works will cost the Macau Government some MOP54.8 million patacas over the next three years.

As it is now, the road has a narrow passage where pedestrians walk but no sidewalk and it is close to oncoming traffic. The renovation works will also include a pedestrian underground tunnel; the works are scheduled to be completed in 2016, according to a Chief Executive dispatch published in yesterday’s Official Gazette.

A consortium of the Macau

subsidiary of the Shanghai Construction Group (SCG) and Lei Fung Engineering and Construction Company Ltd has been awarded the tender to carry out and oversee the works.

According to the government dispatch, the consortium will get MOP20 million to carry out the works this year, while another MOP30 million has been allocated for 2015 and the remaining MOP4.8 million for 2016.

Shanghai Construction Group (SCG) is a Chinese construction and engineering company, and one of the largest globally, with subsidiaries all over the world, including Macau, Hong Kong, Singapore, the United States and Sudan.

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September 30, 2014

Macau

Macau junket operators essential for Aquis success iGamiX say junket operators are key to the fortunes of Aquis Casino in Cairns in attracting Chinese VIP players. However, the son of the investor in the MOP63 billion project has already said the enterprise will try to avoid middlemen João Santos Filipe

jsfilipe@macaubusinessdaily.com

M

acau junket operators are essential for the success of the Aquis Great Barrier Reef Resort in Cairns, Australia, a Macaubased gaming analyst has told Australian newspaper Brisbane Times.

The integrated resort will cost around MOP63 billion and will mainly target Chinese and non-Australian VIP gamblers. Junket operators are considered essential in the strategy to attract Mainland Chinese gamblers to the project being developed

by Hong Kong property developer and billionaire Tony Fung Wing Cheung.

“The people Tony Fung has to win over are the junkets,” Ben Lee, head of Macau-based gaming consultancy iGamiX told the Brisbane Times. “The junkets do all the marketing.

The junkets are able to market to players one-onone. That’s a far stronger tool than doing brand or exposure marketing”, he added.

Mr. Lee also stressed that the strategy of a casino targeting VIP players differs greatly from one focused on mass-market players.

“If you can be assured that you get the VIPs to come, that

is your bread and butter. If you get the mass to come on top of that, that’s your cream.

It’s very different to a massmarket model”, he said.

Junket operators act as the middleman in VIP gaming.

They receive commissions for bringing high rollers to their rooms in Macau casinos.

At the same time, junkets provide credit lines for these gamblers.

In recent times, Macau junket operators have been expanding their services to other places other than Macau like the Philippines, Cambodia and Vietnam.

Suncity, Heng Sheng Group, David Group, Tak Chun, Jimei Group, Golden Group, Mega Stars and Golden Dragon are some of the Macau junket operators known to have scouted

opportunities overseas.

Fung’s son Justin, however, said recently that Aquis would try to avoid the junket system and target premium direct VIP players willing to spend between US$300 and US$500 per hand.

One of the reasons Justin Fung is trying to avoid junket operators is their reputation.

“Junkets historically

have a reputation of doing some questionable things . . . The history is there and it’s something that can’t be ignored. But at the same time there’s been a tremendous evolution and professionalism added to the industry”, he said. “We definitely don’t want to be involved in any illegal-type operation or businesses or with individuals involved in illegal activities”.

Justin Fong also said, according to the newspapers, that if VIP players want to access credit they will be able to do it through the casino.

“They either directly acquire credit from the house through assets that they have or they bring cash with them, eliminating the junket”, he explained. “This is becoming increasingly popular for a number of reasons. The players don’t like giving away all the rewards to the junket, and the house doesn’t like paying the junkets”, he added.

The Cairns resort will have 7,500 hotel rooms scattered around an artificial lagoon. It will also include an 18-hole golf course and water park.

It is expected to be ready by 2018.

Scholar Bill Chou says that one of the biggest challenges the newly elected Chief Executive faces is the drop in gaming revenues

Local trading firm supplying smuggled goods

G

A

Challenging times for Chui aming revenues have continued dropping over the past three months, and this isn’t just a “temporary phenomenon” but one of the current Chief Executive’s biggest challenges, scholar Bill Chou said in a seminar in Hong Kong.

“I think they [gaming revenues] will continue to drop. There is no indication from mainland Chinese authorities that they will slow down the anti-graft campaign,” Mr. Chou, who is a professor of political science, said during a debate on ‘Macau’s development after the re-election of Chief Executive Fernando Chui Sai On’ at the Hong Kong Education Institute.

That’s how the scholar interpreted the words from Chinese president Xi Jinping during Chui Sai On’s visit to Beijing on September 22. “[In] both the internal and external climate Macau has witnessed great change and that will require better work by the new administration,” Xi Jinping said at the time.

For Mr. Chou, what this means is that Chui Sai On was “warned

to prepare himself because gaming revenues will continue to drop,” he said.

Another ‘great challenge’ is that of the next Chief Executive. “A successor will have to be named. Of course, [Chui Sai On] will not make the final decision but will play a role [and] Beijing will ask his opinion.”

The scholar also said that unlike previously, local bodies are “divided” on the issue. He says it might be expected that the next top official would be a relative of the late businessman Ma Man Kei, considering that his is one of the three most powerful families in Macau – Ho, Chui and Ma – that has not had a Chief Executive. Prior to Chui Sai On, Macau’s top job was filled by Edmund Ho Hau Wah. Nonetheless, businessman and Executive Council member Lionel Leong has been mentioned as a potential candidate. “He’s not from the Ma family, and therefore the local bodies are divided,” the scholar said.

Amongst Chui Sai On’s challenges in the next five years is also the review of the Legislative Assembly’s

electoral system. Currently, there are 33 legislators, of whom 14 are directly elected and 12 nominated.

“There’s pressure on the pro-Beijing camp, which is divided, to increase the number of directly elected and indirectly elected seats,” he added.

In addition, Chui Sai On faces greater social and public discontent after his first-term in office, having witnessed the largest protest since 1989.

And more are expected, according to the scholar, “against the price of housing, transport, salaries. The government has to deal with these issues.”

Bill Chou is also the vice-president of Macau’s largest pro-democratic association, and believes that the government “is less patient and less willing to deal with public discontent.”

He was a professor at the University of Macau until August this year, when he did not have his contract renewed for his political views and pro-democratic stance, he says. The university, however, denies such claims, saying the academic breached internal rules.

Lusa

local trading firm has been found supplying parallel goods from the mainland to three supermarket chains in the city, Customs said yesterday, claiming it had seized smuggled goods to the value of MOP500,000 (US$62,500). The firm was estimated to have evaded tax amounting to MOP50,000.

The trading firm, operating for more than a decade, started supplying the parallel goods to 47 branches of three supermarket chains a year ago, the Customs said, revealing that the case was reported by another food distributor.

“However, all the representatives of these three supermarket chains denied that they had known that the goods supplied by the trading firm were parallel goods,” the Customs spokesman said, without naming the enterprises.

According to Customs, the smuggled goods mainly comprised cheap wine and solid food items from the mainland.

6

September 30, 2014

Gaming Brands

Trends

Wear your car Raquel Dias newsdesk@macaubusinessdaily.com

M

aserati is a brand that excuses introductions.

If you were to find an equivalent brand in the fashion world, it would have to be a masculine yet elegant option. That was perhaps the rationale behind the unique partnership between the famous Italian automobile brand and the Ermenegildo Zegna fashion house. The result is The Quattroporte Ermenegildo Zegna Limited Edition.

It may look like a regular Quattroporte on the outside but it’s been given the designer’s touch inside and out. At first blush, the paint appears to be just an average shade of silvery beige but it is, in fact, a one-off colour dubbed Platinum Silk. The hue incorporates extra fine aluminium bits “to create an effect that combines the purity of a metal with the soft look of silk.” The wheels are finished using the same paint and feature machine-finished spokes.

In case the stunning paint job goes unnoticed, there’s a subtle, tag-like Ermenegildo Zegna badge on each B-pillar. Only 100 cars have been produced.

The car comes in just enough extra fabric to make a suit and matching set of luxury leather luggage. A little of that trad feeling is what will for sure draw a lot of interest from deeppocketed collectors. The two brands have announced that this will not be a oneoff thing, more an enduring partnership.

Costs, politics erode chances of Tokyo casino by 2020 Increasing construction costs and waning official support are tarnishing the dream to build the next Asian gaming destination

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lans to open Japan’s first casino in Tokyo before the 2020 Olympics are becoming increasingly unlikely, with developers facing skyrocketing building costs and a city government that no longer considers casino development an economic priority.

Prime Minister Shinzo Abe has called legalising casino gambling a pillar of his plan to revive economic growth. Casino operators including Las Vegas Sands, Genting Singapore , MGM Resorts and Melco Crown Entertainment have all been positioning themselves as potential investors in what analysts say is one of the world’s biggest untapped markets for this sort of gaming.

For months, the casino operators have courted the governments of Tokyo and Osaka, the most likely locations to build large-scale integrated resorts, as Japan’s parliament prepared to debate an initial casino bill.

Sands, especially, has focused more on Tokyo than Osaka as a potential location. Asked to comment about any potential delay, George Tanasijevich, the company’s global development chief, said: “Until we know exactly what this opportunity is going to be, it is difficult to comment specifically on which city is best.”

On Monday, parliament began its autumn session, during which the initial casino bill is due to be debated.

Proponents hope to pass legislation

by November that would allow pro-casino lawmakers to prepare a second, detailed proposal, which they hope will be approved in 2015.

Higher costs, weakened support Previous Tokyo governors have supported plans for a casino. Current governor Yoichi Masuzoe, who took office in February, however, said in June that pursuing a casino was “not at the top” of his agenda.

Masuzoe has also downgraded the team tasked with preparing for the casino, government officials said.

Maho Yoshino, a member of this team, told Reuters the governor’s caution would impact their work.

“We are, after all, working under the direction of the governor,” she added.

Tokyo government officials say the governor appears to be overwhelmed by preparations for the 2020 Olympics, and has put the casino plans on the backburner. The officials declined to be named due to the sensitivity of the issue.

The apparently weakened political

will to set up a casino in Tokyo also coincides with a spike in construction costs, driven by higher demand ahead of the Olympics and the rebuilding efforts following the 2011 earthquake and tsunami.

Costs have become such a worry that the Tokyo government is considering scaling back its plans for the Olympics, officials said. Costs are also likely to become a concern for foreign casino developers, said Satoshi Okabe, a senior manager at a mega tourist resort project being developed by Dentsu, Japan’s largest advertising agency.

“The reality is that preparations for the Olympics are going to be pretty challenging. Casinos are secondary,” Okabe said.

“Building costs are going to spike and foreign casino operators are going to find investment returns inefficient,” he added. The city of Tokyo is a major client of Dentsu.

Meanwhile, Osaka is pushing ahead with its plans for a casino.

Caesars Entertainment said it remained bullish on Japan’s second city. “We are actively in talks with potential Japanese partners about an Osaka project,” Steve Tight, president for international development for Caesars, said in a statement.

Reuters

7

September 30, 2014

Gaming

Macau casino bonds slump, Xi probe spooks VIPs Macau casino bonds are plunging as President Xi Jinping’s corruption crackdown against “flies and tigers” spooks VIP gamblers

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he yield on Wynn Macau Ltd.’s notes due October 2021 jumped 93 basis points this month and touched a record 5.80 percent today, data compiled by Bloomberg shows. That on Melco Crown Entertainment Ltd. debt due 2021 reached an all-time high of 5.61 percent. The six biggest Hong Kong-listed Macau casino stocks have plummeted 32 percent on average this year.

Gross gaming revenue in Macau, the only place in China where casinos are legal, may fall this year for the first time since data starting in 2002, amid Xi’s anti-graft campaign, slowing economic growth and protests by croupiers for higher wages. Tour operators are offering private jets to fly China’s high-spending gamblers, or VIPs, to Melbourne and Las Vegas so that they can avoid the increased scrutiny in Macau.

“There’s a critical mass of headwinds without even getting into the ’China is slowing’ dynamic,” said Kevin McSweeney, a Toronto-based fund manager at CI Investments Inc., which oversees an equivalent of $90 billion of assets. “Investors have found more reasons to sell than to buy right now.”

Growth Prospects President Xi’s probes are targeting Communist Party cadres from the top to bottom ranks nationwide as he warned that the 87 millionmember strong party is facing “severe dangers” from corruption.

Liu Tienan, the former deputy head of the National Development and Reform Commission, is the latest

high-ranking official facing trial on bribery charges.

Xi’s top-to-bottom approach has sent chills through the economy. An index tracking prices of the world’s 100 most sought-after fine wines touched the lowest since 2009 in July. Retail sales rose 11.9 percent in August from a year earlier, below the average 15.8 percent over the past five years. A Purchasing Managers’ Index for manufacturing was probably 51 in September, a second straight month of slowdown, according to a Bloomberg survey of economists before official data due Oct. 1.

Barclays Plc cut its estimate for 2014 expansion in the world’s secondlargest economy to 7.2 percent from 7.4 percent this month, while Nomura Holdings Inc. also lowered its estimate to 7.2 percent. The yield on the 10year government bond fell 22 basis points this month to 4.02 percent.

The yuan has gained 0.1 percent, its slowest advance in five months.

First Drop Gross gaming revenues will probably drop one percent this year, compared to an earlier prediction of 5 percent growth, CLSA Ltd. analysts led by Aaron Fischer wrote in a September 24 note. They also cut the 2015 growth estimate to 5 percent from 10 percent, compared to an average of 30 percent in the past 10 years.

VIP guest numbers are unlikely to turn around soon as customers are concerned about the anticorruption drive, Bank of America Merrill Lynch analysts led by Billy Ng wrote in a note this month. Macau

banned jewellery and watch retailers operating in casinos from adding new card devices starting in July, Francis Tam, the city’s secretary for economy and finance, said on June 26. That had made it harder for gamblers to buy expensive goods in exchange for cash.

“The sustained slowdown in gross gaming revenue now looks more prolonged in investors’ minds,” said Edmund Harriss, investment director in London at Guinness Atkinson Asset Management LLC, which oversaw more than $1 billion in assets as of the end of August. “Macau is dependent upon the Chinese market and the clampdown looks to be more sustained and thus has a high impact on Macau revenues.”

Valuation Issue Over 1,000 casino workers took to the streets on August 25 for a seventh time this year to demand better pay and working conditions, the largest demonstration by industry employees so far in 2014. Macau Gaming Industry Frontline Workers union is planning more protests including during China’s week-long National Day public holiday, which starts on October 1.

Macau casinos “will stabilise” as the Chinese Special Administrative Region’s Chief Executive Fernando Chui begins his second five-year term in office, Wynn Resorts Ltd. Chairman Steve Wynn told reporters in Macau on September 23. Wynn Macau has also had “no problems” in filling casino jobs with locals and non-local employees, the billionaire said.

The yield on Wynn Macau’s bonds due 2021 is above the average 5.11 percent since its October 2013 debut, data compiled by Bloomberg shows.

The rate on Melco Crown’s debt due 2021 was 53 basis points above its average in the past year. The average rate on Asian high-yield corporate dollar bonds is 7.3 percent, according to a Bank of America Merrill Lynch index.

“Risk of default isn’t the issue,” said Harriss. “Perhaps it’s just one of valuation.”

Workers’ Strike Shares of Galaxy Entertainment Group Ltd., the casino operator founded by billionaire Lui Che-woo, have tumbled 32 percent since the end of last year. SJM Holdings Ltd., chaired by another billionaire, Stanley Ho, fell 40 percent this year, the most among the six Macau casino operators listed in Hong Kong.

Galaxy Entertainment had a total debt-to-asset ratio of 1.39 percent, lower than the global industry average of 26.8 percent, according to data compiled by Bloomberg. SJM’s ratio is at 5.45 percent, while those of Wynn Macau and Melco Crown are 37.8 percent and 31.9 percent, respectively.

Some of the Macau casino bonds “still represent solid fundamental values,” said IC Investment’s McSweeney. “Default risk is low, debts are manageable in the context of the underlying companies’ cash flows, and the secular growth story should return. For now, however, this is not the story.”

Bloomberg

8

September 30, 2014

Greater China

Official PMI seen steady

Shanghai shares finish Expectations that China would reduce the amount at 19-month high of deposits that banks must set aside as reserves Shares closed at their highest in nearly 19 months yesterday, with gains led were bolstered earlier this month by stocks expected to benefit from reforms of state firms. China markets felt no impact from protests in Hong Kong.

The Shanghai Composite Index, rising for a fifth straight day, ended up 0.5 percent to 2,359.13 points, its highest close since March 1, 2013. The CSI300 of the leading Shanghai and Shenzhen A-share listings added 0.4 percent to close at a more than three-week high.

China Shipbuilding Industry and China CSSC Holdings were again leading performers, climbing the 10 percent daily limit and 2.9 percent respectively.

Taiwan sells 20-year government bonds Taiwan auctioned T$30 billion (US$985 million) of 20-year government bonds at a yield of 2.265 percent, the central bank said yesterday.

Auction demand for the government debt totalled T$48.1 billion, according to the central bank. The yield was in line with the range forecast in a Reuters poll of between 2.265 percent and 2.30 percent.

Protests won’t impact HK ratings Clashes between Hong Kong police and pro-democracy supporters won’t significantly impact the city’s credit ratings in the short term unless they last long enough to have a material impact on the economy, ratings agency Fitch said yesterday. “It would be negative if the protests are on a wide enough scale and last long enough to have a material effect on the economy or financial stability, but we don’t currently see this as very likely,” said Andrew Colquhoun, head of sovereign ratings for Asia Pacific at Fitch.

HKEx CEO Li calls for peaceful protests Charles Li, the chief executive of the Hong Kong Exchanges and Clearing Ltd (HKEx), yesterday urged pro-democracy protesters to use peaceful means within the boundaries of the law to voice their concerns. Hong Kong democracy protesters defied volleys of tear gas and police baton-charges to stand firm in the centre of the global financial hub in one of the biggest political challenges for Beijing since the Tiananmen Square crackdown 25 years ago. “I hope Hong Kong can continue to observe its tradition of peaceful demonstration and peaceful protest within a free and open society,” Li told reporters.

Alibaba pays US$459 million for stake in hotel Alibaba Group Holding Ltd, in its first big investment since raising US$25 billion in a record-breaking New York initial public offering, has bought 15 percent of Chinese hospitality technology provider Beijing Shiji Information Technology Co Ltd for 2.81 billion yuan (US$458.66 million). The investment is expected to allow the e-commerce giant to develop its Taobao travel business alongside Beijing Shiji, including back-office services, while helping to migrate hotel customers to Alibaba’s e-commerce website.

Beijing Shiji provides IT consulting to hotels in China’s fast-growing market.

G

rowth in China’s manufacturing sector probably steadied in September as factory orders held up, a Reuters poll showed, providing some welcome relief for those who worry the Chinese economy is quickly losing steam.

The official manufacturing Purchasing Managers’ Index (PMI) likely edged up slightly to 51.2 in September compared with August’s 51.1, leaving it comfortably above the 50-point level demarcating an expansion from a contraction on a monthly basis.

That may assure investors that the world’s second-biggest economy, which has stumbled this year, is not doing as badly as some feared.

But at the same time, some analysts warned investors against thinking that growth would pick up markedly.

“It is good that it is above 50, but it is not that great,” Li Haitao, an economist at Guangdong Development Bank, said in reference to the PMI. “The trend has stayed weak.”

Hurt by unsteady exports, a housing downturn and cooling investment growth, the world’s second-largest economy has wobbled this year, raising doubts about whether it can grow by around 7.5 percent in 2014 as targeted by

Yangzhou industrial area at west of Wenfeng Temple

Beijing or whether it may be at risk of a sharper slowdown.

That has prompted many investors to bet that Chinese policymakers may further loosen fiscal and monetary policies to stoke growth, following a raft of stimulus measures since spring.

Expectations that China would reduce the amount of deposits that

KEY POINTS China official PMI seen at 51.2 in Sept vs. 51.1 in Aug Data due on Oct 1 at 0100 GMT

HSBC among banks to shutter branches in Hong Kong People returned to work yesterday even as thousands of protesters remained near the government’s main offices and others pledged to return

S

tandard Chartered Plc. and HSBC Holdings Plc. were among banks that shuttered some branches in Hong Kong as prodemocracy protesters remained on the streets following weekend clashes with police.

BNP Paribas Investment Partners said last night that it planned to shift staff to a site in Kowloon, a 15-minute ferry ride north across the harbour from the financial district. About 36 bank branches, offices and automated teller machines were temporarily closed yesterday, according to the Hong Kong Monetary Authority, as congregations of protesters began to dwindle.

Hong Kong stocks dropped, erasing this year’s gains after protest-rallies mushroomed yesterday, leading to the blockage of some roads into the city’s business district after police fired tear-gas and pepper spray during weekend skirmishes. People returned to work yesterday even as thousands of protesters remained near the government’s main offices and others pledged to return.

“Investors are feeling uneasy as the Occupy protests are still going on,” Castor Pang, head of research at Core Pacific-Yamaichi in Hong Kong, said by telephone. “Developments

Pro-democracy protesters are seen blocking the busy intersection of Nathan Road and Argyle Street on the first day of the mass civil disobedience campaign Occupy Central

in the next one to two days will be crucial because that will let us know whether the protesters will voluntarily disperse.”

HSBC’s branch in Mong Kok district, which is one of the city’s most densely populated areas, was closed after protests unexpectedly spread beyond the main island. Services elsewhere were operating normally, the London-based bank said in an e-mailed statement.

A public area underneath the main HSBC building in the Central district

was a key site in 2012’s Occupy Central movement, as protesters against global inequality camped there for almost a year until they were evicted.

The branches closed by other banks yesterday are in places such as Causeway Bay, where demonstrators were this morning sleeping by a main road outside the Sogo department store, and Admiralty, home to the government’s main offices and where the most violent confrontations took place during the weekend.

9

September 30, 2014

Greater China banks must set aside as reserves, or the reserve requirement ratio (RRR), were bolstered earlier this month when data showed growth in factory output unexpectedly fell to a sixyear low in August as the housing slowdown increasingly weighs on other parts of the economy.

But on their part, Chinese leaders have said repeatedly that no dramatic change in policy is imminent, partly because China cannot always rely on easy credit conditions to re-vitalise its economy, and partly because policymakers fear that flooding the system with money may feed speculative activities instead of going into the real economy.

Instead, policymakers said they would make “targeted” adjustments by loosening policy reins in the most vulnerable sectors. Some economists have interpreted that to mean that the central bank would prevent shortterm interest rates from climbing too much.

The official PMI followed a similar preliminary survey by HSBC/Markit released earlier this week that showed the manufacturing sector gaining momentum in September, even though factory employment slumped to a 5-1/2-year low.

The official PMI is focused on larger factories that belong to the state, as opposed to the HSBC/Markit PMI which is biased towards smaller manufacturers in the private sector.

Smaller firms are facing greater financial stresses and are having trouble getting credit as banks grow more cautious in the face of mounting bad loans and fears of defaults. But a Reuters survey last week found that even many larger firms are relying on heavy state subsidies to keep them in the black.

Reuters

FORECASTS Bank of China

51.5

Barclays

51.3

BNP Paribas

50.8

Capital Economics

51.1

China Merchant Securities

51.3

China Minzu Securities

51.4

Citi

50.9

Credit Suisse

50.8

Galaxy Securities

51.2

Guangdong Development Bank

50.8

Guotai Junan Securities

51.3

Huarong Securities

51.1

Hwabao Trust

50.5

ING Financial Markets

51.3

Minsheng Bank

51.3

Natixis

50.8

Nomura

50.6

Shenyin & Wanguo

51.4

TD Securities

50.5

UBS

51.3

Median

51.2

High

51.5

Low

50.5

Prior

51.1

No. of forecasts

20

Alibaba and Juneyao get private bank approval In July, China allowed the establishment of three private banks, including one invested in by Alibaba rival Tencent Holdings Ltd

A

libaba Group Holding Ltd.’s finance arm has been given government approval to set up a private bank, China’s banking regulator said yesterday, the latest step in the e-commerce company’s push into the financial services sector.

Zhejiang Ant Small & Micro Financial Services Group, an Alibaba affiliate that contains the company’s Alipay payment processing and financial services arm, will hold 30 percent of the bank, the regulator said.

Other partners will hold the remainder.

Shanghai JuneYao Group Co Ltd, the parent of Juneyao Airlines, also received regulatory approval to set up its own bank, and will own a 30 percent stake, according to the regulator.

The approvals herald China’s latest batch of new private banks, part of a pilot programme launched earlier this year and the first tentative step by the country to open its closely guarded banking sector to private investors.

The other shareholders in the Zhejiang Ant bank will be: Shanghai Fosun Industrial Technology, a subsidiary of Fosun International Ltd, with a 25 percent stake; a subsidiary of Wanxiang Group will hold 18 percent; and Ningbo Jinrun Asset Management will own 16 percent.

Alibaba’s founder Jack Ma

Other stakeholders will be audited by the Zhejiang banking regulator.

Stakeholders in Juneyao’s Shanghai-based bank will include clothing firm Shanghai Metersbonwe Fashion & Accessories Co Ltd with 15 percent and others with stakes of 10 percent or less, audited by the Shanghai banking regulator.

The banks should take 6 months to set up and will also have to apply to start operations, the regulator said.

Though these companies were among the first batch of private firms to submit applications for banking licences, they are the second batch to get approval.

In July, China allowed the establishment of three private banks, including one invested in by Alibaba rival Tencent Holdings Ltd. Reuters

Central bank official inclined to adjustment Developments in the next one to two days will be crucial because that will let us know whether the protesters will voluntarily disperse

He said the country should continue to pursue a stable monetary policy, while fine-tuning it at suitable times and to the appropriate degree

6.7 percent

Castor Pang, head of research, Core Pacific-Yamaichi

Standard Chartered said yesterday that operations were temporarily suspended at five branches: three in Admiralty, one in Causeway Bay and one in Mong Kok. The Hong Kong unit of China’s Bank of Communications Co. also said it had shuttered a branch in Mong Kok. Others to report closures in the main areas occupied by protesters included DBS Group Holdings Ltd., Bank of East Asia Ltd. and Bank of China (Hong Kong) Ltd. Hundreds of protesters at the intersection of Argyle Street and Nathan Road in Mong Kok yesterday shouted for universal suffrage and a city-wide strike and urged Chief Executive Leung Chun-ying to step aside. Signs said: “Keep calm, save Hong Kong” and “Protect the students.”

Bloomberg News

annual growth needed to double gross domestic product in the decade to 2020 Sheng’s comments echo those of pictured Premier Li Keqiang earlier this month, who also stressed stability while saying the country would make targeted adjustments

C

hina should strengthen “targeted” and “structural” policy adjustments to encourage the development of areas including small enterprises and emerging industries, a central bank statistician said in an editorial in the Economic Daily yesterday.

Sheng Songcheng, head of the statistics department at the People’s Bank of China, also wrote that the economy would need to grow at an average of 6.7 percent annually to meet the government target of doubling gross domestic product in the decade to 2020.

He said the country should continue to pursue a stable monetary policy,

while fine-tuning it at suitable times and to the appropriate degree. He listed agriculture and high technology as industries where funding should be directed.

Beijing has launched a series of stimulus measures since spring as economic growth faltered, aimed largely at shoring up more vulnerable sectors of the economy.

But a flurry of soft data in recent weeks has fuelled expectations that even more policy steps will be needed soon if the government is to meet its economic growth target of around 7.5 percent this year, or at least come close.

The latest worrying data came at the weekend, with news that profits

at China’s industrial companies fell in August from a year earlier. Unsteady foreign demand has dragged on exports, factory output and investment, while a rapidly cooling property market is increasingly weighing on other sectors.

Sheng’s comments echo those of Premier Li Keqiang earlier this month, who also stressed stability while saying the country would make targeted adjustments. China cannot rely on loose credit growth to lift the economy, Li said.

The government relied on rapid credit expansion and massive spending to stimulate the economy during the 2008/09 global financial crisis, but those measures met with criticism for allowing financial risks to grow.

Reuters

10

September 30, 2014

Greater China

Sinopec station at East Sungang and Renmin North roads, Shenzhen

Mercuria’s third founder: China head eyes long game Mercuria has expanded in China faster than older and bigger rivals, traders who know Han Jin say Chen Aizhu

T

he little known Asia head of Mercuria will be key in tying the Swiss commodity trader’s US$3.5 billion acquisition of JP Morgan Chase and Co’s physical commodity desk into the company’s China business.

One of China’s first oil traders in the 1980s, Han Jin set up Mercuria’s Beijing office at the same time it opened its Geneva headquarters in 2004, giving Mercuria what he describes as a “rich colour of China” a focus on the country - from day one.

A long-time friend of Mercuria co-founder Marco Dunand - Han and his young family once lived in Dunand’s London apartment - the Mercuria China head is known as a strong relationship builder, who can network with bureaucrats and energy officials.

He was the third active founding director when Dunand and Daniel Jaeggi set up the commodities firm, now looking to challenge metal trading giants such as Glencore Plc. and Trafigura AG. Mercuria, already the largest foreign importer of fuel oil to China, has been positioning itself for further liberalisation of China’s oil markets.

Mercuria has pledged to spend 9 billion yuan (US$1.5 billion) by 2016/17 to build crude terminals and storage tanks in eastern Shandong province, an investment unmatched by competitors, betting that the facilities will be in hot demand when the market opens.

Han says the trader will be able to leverage JPMorgan’s strength in gas and power markets in North America after the closing of the deal in the next few weeks to boost its growth.

“This acquisition will strengthen Mercuria China’s crude oil, LNG and metals business,” Han said.

His near-term plans include bringing to China JPMorgan’s Henry Bath & Sons Ltd metals warehousing firm, a prize asset with facilities from Singapore to Rotterdam.

The move would follow an alleged financing fraud at China’s Qingdao port that has left banks and traders, including Mercuria, exposed to at least US$930 million in losses.

The alleged scam - in which a Chinese trading firm is suspected by local authorities of fraudulently using a single cargo of metal as collateral for multiple loans - has shaken the confidence of banks and merchants in Western metals storage firms that rely on local agents to oversee warehouse operations.

Early friendship Han first met Dunand in the winter of 1991, at a hunting party on a Scottish farm. Han, then 27, was opening a crude oil trading desk in London for China’s monopoly oil trader Sinochem. Marco, then 29, was a diesel trader at Goldman Sachs.

The son of a language professor, he was among a five-person team tasked with setting up China’s first overseas window to tap global oil supplies beyond traditional exporters Indonesia and Oman. The move was well-timed. Three years later, China became a net crude oil importer.

Former acquaintances and colleagues describe Han as a creative trader, a pioneer who established China’s oil business with socialist bloc nations such as the former Yugoslavia,

as well as Taiwan.

To break into the Taiwan market back in 1992, Han hired Peter Rage, a Swedish national and oil broker, to be Sinochem’s point man to liaise with Taiwan’s Chinese Petroleum Corp (CPC) and Formosa. Sinochem, a top lifter of Iraqi oil during the first Gulf War, later became Taiwan’s leading crude supplier.

In 1998, he left Sinochem for family reasons but stayed in London, casting around for work until he followed Dunand and Jaeggi to U.S. utility Sempra Energy, which was setting up a European energy desk.

“Han was out of a job for nearly half a year and couldn’t afford a decent place for the family in London,” said a Beijing-based executive who has known Han and Dunand since 1991.

It was Dunand, then a wellestablished trader, who took him in and offered Han and his family accommodation in his six-room flat in London.

“We are not only business associates, but also personal friends,” said Han. “That is why we have very deep trust in each other.”

He declined to give details of his stake in Mercuria, which last year posted record revenues of US$112 billion and an estimated US$400 million profit.

Well connected “Han is a super smart person, very well connected, thanks to his early days in London where many top government officials stopped by as a liaison point,” said Gao Shan, a retired executive at Sinochem.

Han was behind a three-year deal

Where we differentiate from our competitors is our marathon style race Han Jin, Mercuria’s founder

for Mercuria to supply top refiner Sinopec Corp with about 132 million barrels of Russian Urals crude from 2006, a significant deal for the time for an upstart trader, said a former acquaintance.

He also gives Mercuria’s Chinabased trading staff more freedom to execute transactions than rivals whose China offices are mostly for information gathering and marketing.

While some competitors have criticised the strategy as overaggressive and prone to unwanted risk, Li Xinhua, Mercuria China fuel oil chief says the day-to-day risk control is carried out by Han’s longtime associate and China President Zhu Hong.

“Zhu is a highly meticulous character,” said Li. “Han is like a galloping horse, a man of imagination...They complement each other.”

Reuters

11

September 30, 2014

Asia

Consumerism booms in Cambodia Today’s capitalist Cambodia is a far cry from what the Khmer Rouge envisioned Prak Chan Thul

C

hy Sila has come a long way since he invested his US$500 life savings in a small shop in Cambodia’s capital to sell bootleg music and pirated movies.

Fast-forward 16 years and Cambodians are now watching the films he distributes not on scratchy DVDs but in a US$5 million multiplex theatre, a joint venture with Thailand’s Major Cineplex and the centrepiece of a new mall owned by Japanese retail giant Aeon that drew 2 million visitors in its opening month.

The 39-year-old former tour guide, university dropout and son of a mechanic is one of the biggest success stories in a country that was for years Southeast Asia’s war-torn, aid-dependant basket case.

Though poverty is still rife in the countryside, an urban boom and robust growth fuelled by garment manufacturing for brands such as Nike and GAP has given rise to a growing consumer class that earns triple the average income.

“We see there’s a lot more buying power than before,” said Chy Sila as he took a bite from a croissant and sipped cappuccino at one of the bakeries run by his CBM Corporation, Cambodia’s biggest food and beverage firm.

“People can afford to pay so now’s the time, we’re ready for big brands to come here... Materialism is in peoples’ hearts, what you wear, what you drive, represents what you are.”

With a fast-growing working population and falling dependency ratio, Cambodia has the demographics most favourable to rapid economic growth.

Young Cambodians now buy smartphones, flat-screen TVs and

Japanese motorcycles. They tap banks for loans and credit cards and are fuelling the kind of capitalist culture the 1970s ultra-Maoist Khmer Rouge killed 2 million people to prevent.

Aeon plans more malls in Cambodian cities and operates a microfinance firm so shoppers can buy on payment plans. Its new mall, boasting shops from the likes of Mango, Levi’s and Versace, drew 100,000 visitors daily when it opened in June.

“The middle class is growing,” said Aeon spokesman Satoshi Otsuka.

“The average age for Cambodians is early 20s and they’re fashionconscious.”

Economic growth is only for the city. In rural areas, there’s no development, we just work on farms Heang Samnang, rice farmer

Fast-growing city Chy Sila was born the same year the Khmer Rouge swept to power and says he lost “countless” relatives to Pol Pot’s genocidal pursuit for a peasant utopia.

Today’s capitalist Cambodia, with an economy that averaged 8.1 percent growth from 2000-2012 and expanded 7.4 percent last year, according to the World Bank, is a far cry from what the Khmer Rouge envisioned when it abolished money and property ownership, executed entrepreneurs and blew up the central bank.

Forty years after the population of Phnom Penh were emptied into labour camps, the city is swelling, with malls, office towers, hotels and fast-food chains popping up rapidly.

Modern SUVs, and even the occasional Lamborghini or Porsche, cruise its once potholed streets.

The World Bank says the country of 15 million people is a top global

Economic improvement seems to be reaching just cities’ inhabitants

performer in tackling poverty, having cut the ratio of poor from 53 percent of its population in 2004 to 20 percent in 2011.

Foreign direct investment has grown, from US$2.65 billion recorded in 2007 to as high as US$10.8 billion in subsequent years, according to Cambodia’s investment board.

There’s now a small stock market and the number of banks has nearly doubled since a decade ago, with 35 commercial lenders providing US$9.5 billion in loans since records started.

Cambodia’s Credit Bureau expects that to surpass US$14 billion by 2020 and credit demand to almost double to 3.3 million people.

The average bank loan in 2004 was US$3,895, about a fifth of last year’s average of US$19,096, according to Acleda Bank, Cambodia’s biggest lender.

“Loans are good for young people like me,” said Hour Veasna, 20, as he signed up for financing from Aeon to buy a US$600 camera, equivalent to five months salary. “We don’t have enough money to purchase things that we want.”

Wealth gap In the first half of 2014, bank deposits grew 13 percent and loans to the private sector were up 28 percent, central bank Governor Chea Chanto said in a recent speech. Three million Cambodians use banks to deposit money, up 18 percent from last year, with about 600,000 users of credit or debit cards.

But there are still plenty of Cambodians who don’t have such privileges and Chy Sila says he’s saddened by the yawning gap between rich and poor. He raises money to send children to school and has cultivated an image as a humble entrepreneur, driving a Ford SUV rather than luxury cars such as Rolls-Royce, which entered the local market in June.

The new-found opulence of Phnom Penh can leave a sour taste in the mouths of those who struggle to get basic services in Cambodia, where hospitals are overwhelmed and average annual income is US$950 or US$2.60 a day - nearly half that of Vietnam and a fifth of Thailand.

“Economic growth is only for the city,” said rice farmer Heang Samnang, waiting with her sick daughter at the city’s foreign-funded Kantha Bopha Hospital, which provides free treatment to millions of poor. “In rural areas, there’s no development, we just work on farms.”

Reuters

12

September 30, 2014

Asia Singapore business confidence low The on-going geopolitical uncertainties around the world has led to global economic growth almost stalled, which in turn, hurt local business confidence in Singapore, dragging the Business Optimism Index (BOI) to a 12- month low in the fourth quarter, the Singapore Commercial Credit Bureau said yesterday. A survey report of the bureau showed the overall BOI dropped to 10.79 percentage points in the fourth quarter, down from 14.65 percentage points in the previous quarter. The bureau said that all six indicators saw decrease in optimism levels in the fourth quarter.

Thailand sells 70,000 tonnes of rice

The Thai government has sold another 70,000 tonnes of rice from the 140,000 tonnes it planned to sell in its second tender in September, a senior commerce ministry official said on yesterday. After the army took power in May and inspected rice stocks nationwide, state warehouses were estimated to hold around 18 million tonnes of rice, about a fifth of which was unlikely to be sold as it was believed to be missing and rotten. The government said it aimed to sell around 100,000 tonnes of rice from stocks monthly, to gradually cut burdensome storage costs.

Treasury Wine takeover talks end Australia’s Treasury Wine Estates Ltd, the world’s biggest standalone listed wine company, called off takeover talks with private equity firms valuing it at US$3 billion after its shareholders said the offers undervalued the company.

Treasury, owner of the Penfolds and Beringer labels, opened its books for due diligence after America’s KKR & Co LP and smaller Rhone Capital LLC jointly offered A$5.20 a share or A$3.4 billion for the company on Aug. 4 and another firm, believed to be TPG capital Management LP, matched it a week later.

Fonterra considers farmer equity fund New Zealand dairy co-operative Fonterra is considering launching a NZ$100 million (US$77.4 million) fund in the next year which would tap external capital to lend to its farmer shareholders in the face of falling global dairy prices.

Theo Spierings, Fonterra’s chief executive, said yesterday the world’s largest dairy exporter is looking at ways to give its shareholders access to cash that would allow them to expand after it cut its farm gate milk price forecast to a sixyear low last week. Fonterra is owned by 10,600 farmers.

S. Korean current account The reduction came on the back of seasonal factors, including an the summer vacation

S

outh Korea’s current account surplus fell last month due to seasonal factors such as a deficit in the travel account, but the balance stayed in black for 30 months in a row, central bank data showed yesterday.

The current account surplus declined to US$7.27 billion in August from US$7.84 billion in July, according to the Bank of Korea.

The current account balance is the broadest measure of cross-border trade.

The travel account deficit climbed to US$770 million in August from US$550 million in July. The intellectual property right deficit expanded from US$20 million to 380 million in the same period.

Despite the reduction in August, the current account balance stayed in black for the 30th straight month.

For the first eight months of this year, the surplus was US$54.31 billion dollars, higher than a surplus of US$46.45 billion tallied in the same period of 2013 when it logged a record yearly high in current account surplus.

Imports reduced at a faster pace than exports, causing worries about weak domestic demand. South Korea

Busan port is one of the main sea transportation spots in South Korea

vowed to maintain an “ expansionary” fiscal policy until people feel confident about growth, and the central bank cut the policy rate by a quarter percentage point to 2.25 percent in August.

Concerns escalated about sluggish private consumption after the April ferry sinking disaster, which claimed lives of more than 300 people, mostly

high school students. Deep grief swept over the country, worsening the already fragile domestic demand.

Exports, which account for about half of the economy, fell 8.9 percent from a month earlier to US$49.01 billion in August. Imports tumbled 11.6 percent to US$41.56 billion in the cited period.

Modi hails India growth prospects He said he intends to streamline the system of regulations and make it easier for ordinary people to do business in India

I

ndia’s economy is set to progress “very fast” as the government takes steps to boost growth, including easing visa rules and changing out of date laws, Prime Minister Narendra Modi said at an event in New York City.

India “is going to move at a very fast speed,” Modi said to 20,000 mostly Indian Americans at Madison Square Garden yesterday. “No stone will be left unturned” as his administration revamps procedures and cuts transaction times, he said.

Travel-rule changes for non-resident Indians and U.S. tourists “will be implemented very soon,” he said.

Modi’s remarks marked a high point in his visit to New York before he heads to Washington for meetings with U.S. President Barack Obama.

The trip, coming four months after a landslide election win, is Modi’s first to the U.S. since he was denied a visa over 2002 anti-Muslim riots in his state of Gujarat.

Indian Americans from a spectrum of religious, cultural and professional groups and more than two dozen U.S.

lawmakers attended the gathering, which was organized by the Indian American Community Foundation.

The address was also carried live via webcast on big screens in New York’s Times Square and other venues along with an English translation.

Easier travel Modi’s announcement of plans to issue a “visa on arrival” for U.S. tourists and merge identification documents for non-resident Indians into a single category rounded out a speech in which he praised Indian Americans, especially their achievements in information technology.

Under the new rules being considered, a person of Indian origin will get a lifelong visa for India, Modi said. The so-called PIO card will eventually be combined with the Overseas Citizen of India or OCI document, removing differences between the way groups of nonresident Indians were categorized and issued visas, he said.

Modi also said he intends to

Indian Prime Minister Narendra Modi

streamline the system of regulations and make it easier for ordinary people to do business in India. Referring to bureaucracy in all types of transactions, “those days are over,” he said. “If I could destroy at least one of those laws each day, then that would be a happy day for me.”

Bloomberg News

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13

September 30, 2014

Asia NZ central bank intervenes

surplus down

increase in the travel account deficit during The RBNZ has said intervention might be used when market conditions are opportune and it believed there was a good chance of influencing the exchange rate

US$7.27 billion August current account surplus

By item, exports of consumer electronics, automobiles and auto parts plunged 23 percent, 18.2 percent and 6.6 percent each in August on a yearly basis, leading the August export decline.

Imports of transport equipment and machinery declined 33.5 percent and 17.2 percent respectively, but those for foreign luxury cars and crude oil increased 51.5 percent and 19.4 percent each.

The service account balance, which measures the flow of travel, transport costs and royalties, posted a deficit of

US$730 million in August, widening from a US$10 million deficit in July.

The primary income account, which includes monthly salaries and investment income, recorded a surplus of US$1.05 billion in August, down from a US$1.49 billion surplus in July. It was attributed to a reduction in interest income.

Financial account, which gauges cross-border capital flow without transaction of goods and services, logged an outflow of US$7.8 billion in August, up from an outflow of US$5.92 billion in July.

By item, direct investment registered an outflow of US$750 million in August, down from a US$1.01 billion outflow in the prior month.

Portfolio investment, which measures stock and bond transactions, recorded an inflow of 500 million in August, a turnaround from an outflow of US$1.74 billion in July due to an increase in investment into overseas securities.

Other investment account, including trade credit and foreign debts, logged an inflow of US$7.29 billion in August, up from an inflow of US$340 million in July.

Xinhua

T

he Reserve Bank of New Zealand intervened in currency markets last month by selling a net NZ$521 million (US$406.1 million), stoking speculation that the central bank may act again to capitalise on the currency’s slide.

The New Zealand dollar slumped to a one-year low after central bank figures released yesterday confirmed the RBNZ had intervened in the US$4 trillion a day currency market in August, its first major foray since April 2013.

The move underlined the RBNZ’s discomfort with the currency’s strength and comes days after governor Graeme Wheeler renewed his warning that the ‘kiwi’ dollar was at unjustified and unsustainable levels.

The RBNZ has been racketing up its anti-kiwi rhetoric since July, and an analyst said the central bank is acting at an opportune time when broad U.S. dollar strength had started to weigh on the local currency.

The New Zealand dollar, the 10th most traded currency globally, tumbled to a low of US$0.7748 from US$0.7825.

The kiwi has fallen 12 percent since it touched a three-year high of US$0.8839 in mid-July, hit by falling dairy prices, the RBNZ pausing its rate tightening, and market expectations the U.S. Federal Reserve is headed towards raising rates.

It was the biggest net sale of the New Zealand dollar since March 2011, when it sold NZ$525 million.

Before that it conducted fullblown selling in mid-2007 in an unsuccessful attempt to fight a rise in the currency, and the RBNZ has long acknowledged it has limited resources to counter movements in the New Zealand dollar, which sees around US$100 billion in daily turnover.

That dwarfs the central bank’s intervention war-chest of around US$7.5 billion, according to RBNZ data.

Prime Minister elect John Key, a former foreign exchange dealer, said before the data was released that he backed the RBNZ’s assessment of the currency and said it would have been “fairly logical” to intervene.

Reuters

Slower rise seen for Japan Aug output The jobs-to-applicants ratio is forecast to stay at 1.10 last month, unchanged from July and June, and the highest level in 22 years Kaori Kaneko

J

apan’s factory output is expected to have risen for a second straight month in August, but at a slower pace than in July, while household spending likely fell for a fifth straight month, reflecting the effects of April’s sales tax hike, according to a Reuters poll.

Industrial production probably rose 0.2 percent in August from the previous month, after growing by a revised 0.4 percent in July, the survey of 25 analysts showed.

In June, factory output dropped 3.4 percent - the biggest fall since the March 2011 earthquake and tsunami disaster.

An SMBC Nikko Securities economist said factory output will remain sluggish as both domestic and foreign demand is stagnant.

“Even if demand recovers, manufacturers will prioritize drawing down inventories and they will be cautious about boosting the output,” the economist said in response to the survey August household spending data will be scrutinised for any sign that consumers are getting over the April sales tax hike to 8 percent from 5 percent.

KEY POINTS Aug factory output f’cast +0.2 pct m/m, slow from +0.4 pct in July Household spending seen -3.8 pct yr/yr, 5th straight monthly fall Output data, retail sales due Sept 30 at 8:50 a.m.

Household spending, jobs data due at 8:30 a.m.

Prime Minister Shinzo Abe is set to make a final decision by the end of this year on whether to proceed with a second sales tax increase

The poll showed household spending is expected to have fallen 3.8 percent in August from a year ago, dropping for a fifth straight month. That would still be better than the 5.9 percent drop suffered in July when the higher tax and bad weather combined to deter shoppers.

“Household spending will likely move sideways. For the outlook, it is expected

to recover gradually on an improving employment and wage situation,” an economist at Dai-ichi Life Research Institute said.

Retail sales, another measure of consumer spending, are forecast to rise for a second straight month in August, but the pace of growth probably eased from July, according to the poll, which showed retail sales edging

up an annual 0.3 percent in August after a revised 0.6 percent gain in July.

Jobs-related data will probably show the unemployment rate steady at 3.8 percent in August, unchanged from July, the poll showed. The jobs-toapplicants ratio is forecast to stay at 1.10 last month, unchanged from July and June, and the highest level

in 22 years.

Japan’s economy shrank 7.1 percent in April-June, hit by the sales tax increase, suffering its biggest contraction since the 2009 global financial crisis. Prime Minister Shinzo Abe is set to make a final decision by the end of this year on whether to proceed with a second sales tax increase.

Reuters

14

September 30, 2014

International France’s core deficit targets off course France will tighten its budget less than promised even when the impact of the downturn in the economic cycle is stripped out of the equation, Les Echos newspaper reported yesterday. If confirmed when the 2015 budget is presented on Wednesday, the news would add to an increasingly grim outlook for the public finances after the health minister said late Sunday the welfare deficit was expected to run nearly one billion euros over budget this year. The Socialist government already acknowledged earlier this month that it would not meet its targets.

Russia to support projects with foreign capital Russia’s Energy Ministry said yesterday the government was ready to support projects with foreign investment, Interfax news agency reported. It added that the government would support oil exploration at the Kara Sea offshore Arctic field, where Russian state energy company Rosneft was working alongside U.S. oil giant ExxonMobil. Earlier, Russian newspaper Kommersant said ExxonMobil was suspending cooperation at the field due to Western sanctions over Ukraine.

SGL to raise 260 mln euros in share sale SGL Group, the materials supplier for carbon fibre reinforced parts in BMW’s electric cars, plans to raise more than 260 million euros (US$330 million) in new shares to fund restructuring measures and lower its indebtedness. The German company plans to issue new shares equal to about 28 percent of its equity capital, with existing shareholders to be offered seven new shares for every 25 shares held, SGL said yesterday.

Major shareholders - Germany’s richest woman Susanne Klatten - will buy new shares to keep their respective percentages held unchanged, it added.

Lufthansa’s pilots on strike Pilots with Germany’s Lufthansa will stage a strike on long-haul flights today, their latest walkout in the on-going dispute with management over early retirement provisions, their union said. Vereinigung Cockpit called on its members to strike on long-haul flights departing from Frankfurt between 8:00 am and 11:00 pm (0600-2100 GMT) today. The strike would affect services on Airbus A380, A330 and A340 and Boeing 747 aircraft, the union said.

The stoppages are the fourth set of walkouts in recent weeks. The first strike at the end of August hit Lufthansa’s low-cost subsidiary Germanwings.

Gokhran likely to start buying palladium Russian precious metals and gems repository Gokhran is likely to start buying palladium in 2015, Interfax news agency reported yesterday, citing Andrey Yurin, the head of Gokhran. State-owned Gokhran has said repeatedly it planned to start palladium purchases from Russian miners, but has yet to take action. Gokhran has been buying gold on the Russian market this year, he added. Gokhran was influential on global platinum group metals (PGMs) markets in the 1990s and 2000s, when its palladium stocks, accumulated during the 1970s and 1980s, came to the market, depressing prices.

IMF urges tighter Danish bank controls The IMF said on Friday it sees Denmark’s economy growing less than 1 percent this year and about 1.5 percent in 2015

Danish Central Bank headquarters in Copenhagen

Danes’ home loans remained popular throughout the financial crisis, the industry has been criticized by rating companies and the central bank for relying too much on a growing palette of riskier loans to draw in customers.

Cheaper access to financing helped drive Danish property prices to a record in 2007. That boom turned into bust a year later, undermining consumer demand and triggering a community banking crisis that has since wiped out more than 60 lenders.

Banking union

T

he International Monetary Fund is urging Denmark to increase the size and clout of its financial regulator to help the agency monitor financial system risks.

Denmark’s banking metrics are so stretched that a lack of adequate resources needed to oversee the financial industry may pose a risk, James Morsink, head of the IMF’s Financial Sector Assessment mission to Denmark, said in a September 26 interview in Copenhagen.

Danes carry debt loads that are about three times their disposable incomes, while the financial industry, including insurers, has grown to some six times gross domestic product, the IMF estimates. Danske Bank A/S alone has assets that are about 180 percent of GDP. The sheer scale of the banking system prompted the IMF last year to categorize Denmark as systemic to global financial health meaning it now conducts annual Article IV consultations and financial reviews every five years.

The government established a new

FSA board in July after a committee examining Denmark’s financial crisis concluded the agency could have done more to help avert a property bubble. The committee found that the FSA focused too much on compliance with reporting requirements and not enough on business models.

Housing Crisis Denmark still needs to reduce “distortions” in its housing market that have lingered since a property bubble burst in 2008, the IMF said.

The fund said it welcomed recent steps taken by the government and Financial Supervisory Authority to limit household debt growth. The measures will make it more costly to rely on interest-only home loans and follow a package designed to curb refinancing risks on short-term mortgage loans.

Denmark is home to the world’s largest mortgage-backed covered bond market. Though the mostly AAA-rated securities that finance

Denmark’s GDP contracted 0.3 percent in the second quarter from the first, and the central bank last week cut in half its 2014 forecast for growth to just 0.8 percent.

While Denmark’s households are burdened by the highest gross debt loads in the developed world, the AAArated government has managed to keep its borrowing at about half the average in the European Union, or about 44 percent of GDP. The IMF praised Denmark’s fiscal stance, while urging the government to consider tightening policy to shield itself from risks.

Denmark’s “strong” position as a sovereign should also give the nation pause when considering whether the join Europe’s banking union, the IMF said.

The country is unlikely to see any improvement to its regulatory framework through membership in the banking union and should be wary of taking over other sovereigns’ legacy problems from the financial crisis, Morsink said.

Bloomberg News

UBS says it has started FX settlement talks The FCA launched an investigation last October into allegations that bank traders used advance knowledge of client orders to try to manipulate foreign exchange benchmarks

S

witzerland’s UBS has begun settlement talks over allegations it was involved in manipulating foreign exchange rates, the bank said, and warned that it could face a material penalty in any deal struck.

The terms proposed in the talks included findings that UBS did not have adequate controls over its foreign exchange business, it said in a share-swap prospectus published on Monday.

UBS, Switzerland’s largest bank, did not identify the regulator concerned but the prospectus said that other investigating authorities could also start settlement talks in the near future. A spokesman for the company declined to elaborate beyond what was said in the prospectus.

However, sources told Reuters on Friday that Britain’s Financial Conduct Authority (FCA) was talking to UBS and five other banks - Barclays, HSBC, Royal Bank of Scotland, JP Morgan and Citi - about a possible settlement that could results in each bank being fined hundreds of millions

of pounds.

The banks are expected to be fined different amounts, depending on the gravity of the alleged misconduct, the sources said.

As well as the FCA, authorities in the United States, Switzerland

and Hong Kong are investigating the US$5.3 trillion a day foreign exchange market.

Reuters reported this month that banks were pushing for a coordinated settlement with the FCA, which was on track to be reached by the end of the year.

The maximum potential fine for one bank was put forward at between 300 million pounds (US$487.11 million) and 400 million pounds, with the others pegged below 300 million pounds, one source familiar with the matter said.

In recent months the investigation has focused on lax internal compliance, oversight failures and market conduct breaches by individual employees rather than deliberate manipulation of the market, sources have told Reuters.

More than 30 traders from various banks have been put on leave, suspended or fired. No individual or bank has been formally accused of any wrongdoing.

Reuters

15

September 30, 2014

Opinion Business

wires

Leading reports from Asia’s best business newspapers

Europe’s austerity zombies

Joseph E. Stiglitz

Nobel laureate in economics and University Professor at Columbia University

PHILSTAR Inflation could have eased this month as supply conditions in the country improved, the Bangko Sentral ng Pilipinas said. BSP Governor Amando M. Tetangco Jr. said in a text message that inflation may settle between 4.1 percent and 4.9 percent in September.

“Price pressures on select food items appear to have eased, owing to some improvement in supply conditions, although there were still observed slight increases in rice prices,” Tetangco said.

“Meanwhile, reductions in power rates and on the prices of some oil products are expected to temper inflation during the month,” he said.

THE KOREA HERALD A South Korean venture firm said yesterday it has filed a complaint with the prosecution against Apple Inc.’s Seoul-based branch for patent infringement on messenger service technology. Infozone, a mobile message solution provider, claimed that Apple’s iMessage service, installed on iPhones since June 2011, infringed its patent for the technology of switches between different data-transmission networks depending on the condition of receivers’ handsets. Apple Inc. is the subject of a handful of lawsuits around the globe, including an on-going court battle with Samsung Electronics Co. on its home turf since 2011.

THE STAR Japanese Prime Minister Shinzo Abe’s weak-yen policy can help boost profits of several top companies in Malaysia.

The yen, which hovered near a six-year low against the US dollar at 109.28 last week, may weaken further in the coming months as the US Federal Reserve had indicated higher interest rate going forward. On the home front, foreign exchange strategists at Maybank Investment Bank predicted that the yen would depreciate by 3.3% more against the ringgit over the next 12 month to 2.89 from its current level.

THE STRAITS TIMES As the luxury residential segment flounders, properties in the Downtown area have taken an especially big hit.

More loss-making transactions have occurred in this area so far this year, compared with last year. Fewer profit-making transactions have taken place. Resale prices in the area have also fallen faster than those in the traditional prime districts, reflecting its status as a less established high-end residential area.

According to data compiled

by ST Property, there were seven loss-making transactions in the Downtown area in the first eight months of this year.

German Chancellor Angela Merkel (L) and Greek Prime Minister Antonis Samaras (R) hold a press conference at the Federal Chancellery in Berlin

“If the facts don’t fit the theory, change the theory,” goes the old adage. But too often it is easier to keep the theory and change the facts – or so German Chancellor Angela Merkel and other pro-austerity European leaders appear to believe.

Though facts keep staring them in the face, they continue to deny reality.

Austerity has failed. But its defenders are willing to claim victory on the basis of the weakest possible evidence: the economy is no longer collapsing, so austerity must be working! But if that is the benchmark, we could say that jumping off a cliff is the best way to get down from a mountain; after all, the descent has been stopped.

But every downturn comes to an end. Success should not be measured by the fact that recovery eventually occurs, but by how quickly it takes hold and how extensive the damage caused by the slump.

Viewed in these terms, austerity has been an utter and unmitigated disaster, which has become increasingly apparent as European Union economies once again face stagnation, if not a triple-dip recession, with unemployment persisting at record highs and per capita real (inflation-adjusted) GDP in many countries remaining below pre-recession levels.

In even the best-performing economies, such as Germany, growth since the 2008 crisis has been so slow that, in any other circumstance, it would be rated as dismal.

The most afflicted countries are in a depression. There is no other word to describe an economy like that of Spain or Greece, where nearly one in four people – and more than

50% of young people – cannot find work. To say that the medicine is working because the unemployment rate has decreased by a couple of percentage points, or because one can see a glimmer of meagre growth, is akin to a medieval barber saying that a bloodletting is working, because the patient has not died yet.

Extrapolating Europe’s modest growth from 1980 onwards, my calculations show that output in the eurozone today is more than 15% below where it would have been had the 2008 financial crisis not occurred, implying a loss of some US$1.6 trillion this year alone, and a cumulative loss of more than US$6.5 trillion. Even more disturbing, the gap is widening, not closing (as one would expect following a downturn, when growth is typically faster than normal as the economy makes up lost ground).

Simply put, the long recession is lowering Europe’s potential growth. Young people who should be accumulating skills are not. There is overwhelming evidence that they face the prospect of significantly lower lifetime income than if they had come of age in a period of full employment.

Meanwhile, Germany is forcing other countries to follow policies that are weakening their economies – and their democracies.

When citizens repeatedly vote for a change of policy – and few policies matter more to citizens than those that affect their standard of living – but are told that these matters are determined elsewhere or that they have no choice, both democracy and faith in the European project suffer.

France voted to change course

Austerity has failed. But its defenders are willing to claim victory on the basis of the weakest possible evidence: the economy is no longer collapsing, so austerity must be working!

three years ago. Instead, voters have been given another dose of pro-business austerity. One of the longest-standing propositions in economics is the balanced-budget multiplier – increasing taxes and expenditures in tandem stimulates the economy. And if taxes target the rich, and spending targets the poor, the multiplier can be especially high. But France’s so-called socialist government is lowering corporate taxes and cutting expenditures – a recipe almost guaranteed to weaken the economy, but one that wins accolades from Germany.

The hope is that lower corporate taxes will stimulate investment.

This is sheer nonsense. What is holding back investment (both in the United States and Europe) is lack of demand, not high taxes. Indeed, given that most investment is financed by debt, and that interest payments are tax-deductible, the level of corporate taxation has little effect on investment.

Likewise, Italy is being encouraged to accelerate privatization.

But Prime Minister Matteo Renzi has the good sense to recognize that selling national assets at fire-sale prices makes little sense. Long-run considerations, not short-run financial exigencies, should determine which activities occur in the private sector. The decision should be based on where activities are carried out most efficiently, serving the interests of most citizens the best.

Privatization of pensions, for example, has proved costly in those countries that have tried the experiment. America’s mostly private health-care system is the least efficient in the world. These are hard questions, but it is easy to show that selling state-owned assets at low prices is not a good way to improve long-run financial strength.

All of the suffering in Europe – inflicted in the service of a man-made artifice, the euro – is even more tragic for being unnecessary. Though the evidence that austerity is not working continues to mount, Germany and the other hawks have doubled down on it, betting Europe’s future on a long-discredited theory. Why provide economists with more facts to prove the point?

Project Syndicate

16

September 30, 2014

Closing China starts yuan and euro direct trading

Government announces cheaper retail oil prices

China’s central bank said yesterday the Chinese currency can now be traded directly against the euro in the interbank foreign exchange market, in the latest step to facilitate investment and bilateral trade between China and the European Union.

The move, which started yesterday, will help to lower foreign exchange conversion costs while promoting the usage of both the yuan and euro in bilateral trade and investment, the People’s Bank of China (PBOC) said in a statement on its website.

China’s top economic planner announced cuts in the retail price of gasoline by 100 yuan per tonne (US$16.25) and that of diesel by 95 yuan yesterday. The adjustment, taking effect Tuesday, means benchmark retail prices will drop by 0.07 yuan per litre for gas and 0.08 yuan per litre for diesel, according to the National Development and Reform Commission. The cut has marked the fifth consecutive drop in oil prices, which declined by 0.6 yuan since the beginning of July. A pricing regime that came into effect last year adjusts domestic fuel prices when international crude prices change.

Shanghai-Hong Kong valuation gaps disappear A link, which allows a net 23.5 billion yuan (US$3.8 billion) of daily cross-border purchases, is building parity

A

rbitrage opportunities between dual-listed stocks in Hong Kong and Shanghai are disappearing as prices move toward parity before the cities link their bourses.

The Hang Seng China AH Premium index, which measures the weighted average gap between the largest dual-listed shares, rose as much as 2.1 percent to 100.19, signalling the discount on mainland shares had been erased, and closed at 99.18. Readings of 100 show parity.

The link, which allows a net 23.5 billion yuan (US$3.8 billion) of daily cross-border purchases, will make it easier for investors to move money between the two markets.

Morgan Stanley predicted last month that valuation gaps would disappear as the program leads to the creation of a “one-China” market.

“We’ve seen massive inflow” into mainland shares, Wu Kan, a fund manager at Shanghai-based Dragon Life Insurance Co., which oversees about US$3.3 billion, said by phone yesterday. “With the exchange connect coming closer, the market is expecting foreign investors” to buy

With the exchange connect coming closer, the market is expecting foreign investors Wu Kan, fund manager, Dragon Life Insurance

Hong Kong Stock Exchange trading floor

Chinese shares, he said.

The Hang Seng China Enterprises Index of socalled H shares in Hong Kong dropped 1.4 percent. The Shanghai Composite Index added 0.4 percent.

While the average gap as measured by the Hang Seng premium index has been erased, there are still many dual-listed stocks with different valuations. Tsingtao Brewery Co.’s mainland shares trade at an 11 percent

Boost domestic tourism through shopping

discount versus Hong Kong counterparts, while Anhui Conch Cement Co. is valued at an 18 percent discount in China, according to data compiled by Bloomberg.

Great Wall Motor Co. trades at a 25 percent premium on the mainland.

Changing gap Hong Kong’s exchange released updated rules for the link on September 26. It

will reject bids deemed too far below prevailing share prices as authorities seek to prevent investors from “hogging” the daily quota of buy orders available for cross- border trades.

The link, part of China’s effort to open up its financial system and promote wider use of the yuan, will begin with limits on both daily and aggregate purchases as policy makers seek to maintain some control over capital flows.

Beijing says emissions fell

C

hina must tempt domestic tourists to spend more on shopping and come up with more tours targeting the young and old if it is to meet its targets for the industry, officials from the tourism authority and the top economic planner have said. In August, the State Council released a guideline to boost tourism in China, vowing to drive up domestic tourist consumption to 5.5 trillion yuan (US$895 billion) by 2020.

China needs more tourists goods that are “attractive and culturally distinct,” said Peng Decheng of the China National Tourism Administration (CNTA) in an interview with www.gov.cn yesterday. Peng cited agricultural products as an example of goods with appeal to tourists, and said that rural tourism more broadly is an important growth market.

The tourism sector must also attract more private capital into building retail areas, and authorities must streamline tax rebates, according to the CNTA official.

Xinhua

C

arbon dioxide emissions from Beijing’s major polluters fell 4.5 percent in 2013 as a nascent emissions trading scheme cut compliance costs for firms, the Chinese capital’s municipal government said yesterday.

Beijing is one of seven cities and provinces in China that have launched pilot emissions trading schemes ahead of a national market to be launched in the world’s biggest-emitting nation in 2016.

The Beijing market began in November, but with caps on CO2 emissions for participating companies backdated to the beginning of the year.

“According to preliminary estimates, the total emissions volume of major emitting firms fell around 4.5 percent in 2013,” the Beijing Development and Reform Commission (DRC), the agency operating the scheme, said in a note on its website.

It said that preliminary estimates showed that the average cost of cutting emissions in Beijing has fallen by 2.5 percent as a result of establishing the trading platform.However, it did not say how many tonnes of CO2 were emitted or how many carbon permits were issued.

Reuters

The quotas may eventually be expanded or removed, Charles Li, the chief executive officer of HKEx, said in a blog posting last month.

The Hang Seng China AH Premium index has traded below 100 since March and fell as low as 88.97 on a closing basis in July. The gauge has had an average reading of about 116 since Bloomberg began compiling the data in 2006 and reached 208.06 near the height of a rally in mainland shares in January 2008.

Bloomberg News

HK’s total retail sales value up

H

ong Kong’s value of total retail sales in August 2014, provisionally estimated at HS$40 billion (about US$5.15 billion), increased by 3.4 percent over a year earlier, the Census and Statistics Department said yesterday.

The revised estimate of the value of total retail sales in July 2014 decreased by 3.2 percent over the same period a year earlier. For the first eight months of 2014, total retail sales decreased by 1 percent in value over the same period a year earlier.

After netting out the effect of price changes over the same period, the volume of total retail sales in August 2014 increased by 2.8 percent over a year earlier.

The revised estimate of the volume of total retail sales in July 2014 decreased by 4.5 percent over the same period a year earlier.

For the first eight months of 2014, total retail sales decreased by 1.0 percent in volume over the same period a year earlier.

Xinhua