Macau Business Daily, Oct 20, 2014

MOP 6.00 Closing editor: Luis Gonçalves Publisher: Paulo A. Azevedo Number 648 Monday October 20, 2014 Year III

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Leading US Hospital mulls Hengqin

ood news if it happens. Massachusetts General Hospital plans to open its first hospital in China in Hengqin. The teaching affiliate of world-famous Harvard Medical School is exploring the ‘rapidly growing’ Pearl River Delta. It envisages patients from Hong Kong, Macau and Guangzhou. Guangdong Provincial Hospital of Traditional Chinese Medicine is the preferred partner. The complex would be known as MGH Hospital China. A final decision is expected mid-2015 PAGE

Smoke-free Macau Almost there. From Jan 1 next year, Macau will implement a universal ban on smoking in public places not previously legislated for. That means bars, clubs, saunas and massage parlours. There will be no grace period. The government is now promoting this smoking ban policy to the related sector, Health Bureau director Lei Chin Ion told media on Friday

Labour shortage to slow down MGM Cotai

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It’s the ‘L’ word again. MGM China co-chair Pansy Ho says labour remains the priority if MGM Cotai is to open on time. The US$2.6 billion project is slated to open in 2016. She also pledged consensus to resolve strident demands by employees for a better deal. “Employers and employees rely upon each other. I believe this philosophy is understandable to everyone,” she said. Against the backdrop of a 5-month industry slowdown in revenues

HK/Macau bans Taiwan’s edible oil PAGE 4

Macau casinos amass MOP83.1 billion in Q3 PAGE 5

Lai Fung profits drop by 25 pct PAGE 5

Brought to you by

HSI - Movers October 17

Name

%Day

Sands China Ltd

4.58

Galaxy Entertainment

4.39

Tingyi Cayman Island

4.26

CNOOC Ltd

3.83

Cracking the whip

Kunlun Energy Co Ltd

1.76

China Mengniu Dairy

-0.77

China Merchants Hold

-0.84

It’s possibly a tipping point. The plenum of the Communist Party meets this week. Senior members will determine new rules to extend the ‘rule of law’ for business enterprises

AIA Group Ltd

-0.96

Hong Kong & China Ga

-1.01

Cathay Pacific Airwa

-1.30

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Source: Bloomberg

I SSN 2226-8294

Interview www.macaubusinessdaily.com

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Wells Fargo Securities optimistic It’s been a rough year. The gaming industry has been severely buffeted by several headwinds. But a senior analyst predicts ‘business as usual’ when the new casinos come on stream next year. Cameron McKnight of Wells Fargo Securities tells Business Daily that Macau is on course to be a US$100 billion market by 2020. Mass gamblers assume central role in this scenario. While there will be less pickings for VIPs and junkets

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October 17, 2014

Macau

Labour shortage slowing down MGM Cotai Pansy Ho considers that the continuous decrease in gaming revenue is a sign of the industry stabilising, hence not a concern that would affect the MGM Cotai project, which faces the prospect of delays due to shortage of human resources Joanne Kuai

joannekuai@macaubusinessdaily.com

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he co-chair of MGM China, Pansy Ho Chiu-king, who owns 29 percent of the company, said the one possible factor that could pose a threat to setting back the company’s Cotai project is a labour shortage and aspects regarding costs and spending.

Pansy Ho downplayed concerns on Macau recording fourth straight months of gaming revenue decline when talking to media last Friday on the sidelines of the press conference of the upcoming 2014 Global Tourism Economy Forum, on which she serves as Vice Chairman and SecretaryGeneral.

She said that despite the company eager to finish the project as soon as possible, it may suffer a minor delay.

MGM China Holdings Ltd’s new casino resort project in Cotai - estimated to cost US$2.6 billion (MOP20.8 billion) - is scheduled to open in 2016. Recently, the target date was pushed back over concerns about obtaining permits for the future construction voiced by James Joseph Murren, Chairman and Chief Executive Officer of MGM Resorts International in August this year.

Grant Bowie, Chief Executive of MGM China, said the company had the permits to continue the construction process but that the ongoing process of getting all the subsequent approvals is still something that they would have to address.

Mutual dependence While the project is probably behind schedule, the current labour issue scene is not encouraging.

Regarding the industrial actions staged by casino workers in recent months, Pansy Ho acknowledged that MGM China is not the only company suffering from the current conflict between employers and employees but the whole industry in Macau.

Last month, some 500 casino workers protested outside MGM Macau demanding a ‘fairer wage adjustment’. Some workers from SJM Holidings Ltd also took industrial

Co-chair of MGM China, Pansy Ho Chiu-king

action such as calling in sick or working to rule according to local union leaders.

Pansy Ho pledged a consensus between the casino workers and gaming operators to be reached through coordination and negotiation and said the company is making arrangements to address the issue.

She also said that different gaming operators might have offered different terms to their workers and that workers might conclude that some companies are better or worse to work for than others. Only by the company generating a better performance can they provide workers with better benefits.

“Employers and employees rely upon each other. I believe this philosophy is understandable to everyone,” said Pansy Ho. “I sincerely

hope that on that basis both employers and employees are heading in the same direction and have the same objective. We’re now evaluating the positions of all parties and making general arrangements. I believe the issues will be resolved.”

“Time to take a breather” Pansy Ho stressed that in “a moment like this” there shouldn’t be any conflict or argument between the employers and employees and a reasonable agreement is important and necessary as it’s more important to save the energy to build a better future.

Pansy Ho pledged a consensus between the casino workers and gaming operators to be reached through coordination and negotiation

She was referring to “the moment” as Macau has suffered a continuous monthly gaming revenue drop since June this year, which she called “a stabilising period”.

“Currently, the Macau gaming industry is facing a transitional stage.

We have outgrown the rapid growth period and entering a stablising period,” she said.

“In principle, the answer is not only am I not concerned…quite the contrary; I think this is a good moment in long-term business planning. We look at different cycles. Now we are beginning to see the gaming industry in Macau is stabilising because we are no longer going through just fluctuations through different cycles. And we’re not as sensitive to just external factors. In a way, we have been able to make predictions. We have been able also to take measures to ensure that even if we’re now seeing maybe a decrease in certain sectors of the business. We’re able to [see] the difference through the growth of other areas of the business. That’s the most important part.”

Diversification Pansy Ho has always been vocal regarding developing non-gaming sectors in Macau.

The Global Tourism Economy Forum, for whom she is an active member is also an effort for Macau to diversify its economy and demonstrate its capability of hosting international conventions.

She is also seeking other possibilities to develop her own business.

“We all know that in the future, especially now with the ability to build new projects that I’m sure that all of us, all the concessionaires, will be considering bringing on board into our future projects and developments areas of entertainment various attractions and investments in the non-gaming sector . . . I’m sure everyone (the gaming operators) is looking intently at working directly with or working in conjunction with other parties.”

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October 17, 2014

Macau Presidential remain in posts All the presidents for sub-committees of the Legislative Assembly remain unchanged per the previous legislative year. Following the first general meeting for this legislative year last Thursday, Legislators Ho Ion Sang, Mak Soi Kun and Chan Meng Kam were elected by their colleagues to lead the follow-up committees for land and public concessions affairs, for public finance affairs and for public administration affairs, respectively. Meanwhile, legislators Kwan Tsui Hang, Chan Chak Mo and Cheang Chi Keong continue to head the first standing committee, the second standing committee and third standing committee, respectively, in the current year.

Harvard-linked hospital may open centre in Hengqin The MGH Hospital China would provide clinical care and support research and medical training programmes. Massachusetts General Hospital is a teaching affiliate of Harvard Medical School

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assachusetts General Hospital, a teaching affiliate of Harvard Medical School, has agreed with potential partners in China to explore a joint venture to build and run a hospital in the country.

The Boston hospital has been engaged in talks with Chinese healthcare groups and investors over the past year and signed an agreement last week to continue ‘the planning and due diligence necessary to determine whether to commit to this effort,’ according to an internal letter obtained by Bloomberg News.

U.S. hospitals and medical schools have begun eyeing China as its economy has developed and demand for healthcare increases.

Government reforms have opened the country to international trade and privatisation, and China is making ‘significant investments’ in the health industry, Massachusetts General said in the letter.

‘When the opportunity arose to explore a relationship with Chinese partners to jointly create a tertiary medical centre in the rapidly growing Pearl River Delta region, where the cities of Hong Kong, Macau and Guangzhou are located, we felt it would be appropriate to look into the possibility more deeply,’ hospital executives said in the letter posted yesterday.

Massachusetts General would operate the hospital with Guangdong Provincial Hospital of Traditional

Chinese Medicine, a local healthcare provider. The building, which has a working name of MGH Hospital China, would be located in a ‘special economic development zone’ on the island of Hengqin, part of the city of Zhuhai. The centre would provide clinical care and support research and medical training programmes.

‘These discussions are preliminary, and no final decision is expected until next summer at the earliest,’ the executives said in the letter.

Massachusetts General officials didn’t immediately respond to requests for comment.

Speculation that a Harvard-linked hospital has been preparing to open a branch in the country has swirled

since December, when real estate billionaire Hui Ka Yan’s Evergrande Real Estate Group Ltd. said it had signed an agreement with a Harvard hospital to build in China. Officials at Brigham and Women’s Hospital in Boston said in February that they were considering such an agreement, and later dropped the idea.

A press release about the Massachusetts General plan was distributed in China last week and has led to coverage in the media there, according to the letter. Brigham and Women’s and Massachusetts General are both members of the Partners HealthCare system in Boston, which is separate from Harvard with its own board of directors.

Bloomberg

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October 17, 2014

Macau Brought to you by

HOSPITALITY

No grace period for universal smoking ban in 2015 The government has announced that it is in the process of preparing for a universal smoking ban to be imposed on bars and saunas starting from the first day of next year Stephanie Lai

sw.lai@macaubusinessdaily.com

Taming prices?

The Tourist Price Index is the indicator that tries to gauge the evolution of prices for the goods usually bought by visitors. Estimates are made every quarter, based on surveys conducted among visitors. The latest available data, for the third quarter of this year, indicates that those prices increased by 4.9 percent when compared to the same period last year. This is the lowest rise registered since the final quarter of 2012. The two-digit growth rates so characteristic of this indicator until early 2012 now seem far away. Prices for tourists are rising more slowly, having dropped sharply from the 18.9 percent reached in the fourth quarter of 2011. Rates since then have been hovering around one third of that value. The most significant expenses made by visitors fall in three categories: Lodging, Restaurants, and Clothing and Shoes. Those three types of expenses combined amount to a bit more than 56 percent of the total visitor’s expenditure.

They are also those that have shown higher rises in the period.

Prices for hotels and restaurants have risen notably more than was the case in all other categories. In the period between the third quarter of 2010 and the same period of the current year, tourist prices went up, overall, by 35.2 percent. In the case of Lodging the corresponding figure was 66.3 percent, a figure equivalent to an annual average growth of 13.6 percent in the period observed here.

For restaurants, the similar figures were 45.2 percent and 9.8 percent per year. The price growth rate for Clothing and Shoes appears to be following a slow but steady downward trend, with prices rising, on average, slightly below the average.

7.8%

average annual rise in tourist prices, last four years ending in Q3

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here will be no grace period for the full-force ban on smoking indoors for the city’s bars, clubs, saunas and massage parlours slated to take effect from January 1 next year.

The government is now promoting this smoking ban policy to the related sector, Health Bureau director Lei Chin Ion told media on Friday.

Most indoor public spaces in Macau have had a smoking ban in force since law No.5/2011 - known as Regime for Prevention and Control of Tobacco Use - came into effect on January 1, 2012.

Speaking to media on the sidelines of a medical affairs council briefing on Friday, Mr. Lei cited difficulties encountered by his colleagues when enforcing the new smoking ban on mass gaming floors of casinos - which came into effect on October 6 - saying that it was hard for the government to fine smokers found smoking in toilet washrooms.

As at Friday, of the 28 gaming venues that had informed the government they were planning to install smoking lounges on mass floors, the setting up of smoking lounges of 18 of them had been approved.

These were: Casino StarWorld; Casino Galaxy Macau; Casino Rio; Casino President; Casino Fortuna; Casino Babylon; Casino Wynn; Casino Sands; Casino Venetian; Casino Sands Cotai Central; Casino Kam Pek; Casino City of Dreams; Casino Altira; and Casino MGM Grand.

The setting up of smoking rooms in the following slot parlours was

also approved: Mocha Hotel Royal, Mocha Hotel Sintra, Mocha Macau Tower and Mocha Inner Harbour.

In a statement released a week ago, the Bureau restated its plan to review the enforcement of the smoking control law next year, noting that its ultimate aim is to ‘totally ban smoking in all enclosed spaces open to the public’ in Macau.

HK, Macau announce Residents and small companies import ban on Taiwan’s edible oil continue to benefit from CEM subsidy

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n Wednesday and Thursday, the food safety authorities of Hong Kong and Macau announced a ban on importing edible oil produced in Taiwan, following information released by Taiwanese authorities that some oil traders had failed to meet the requirements of Customs declaration, where imported butter, coconut oil and palm kernel oil were declared for industrial use and not registered for inspection.

Macau’s quarantine authority, the Civic and Municipal Affairs Bureau, announced in a statement on Thursday that the ban on Taiwanese edible oil would be enforced until it saw evidence that such products no longer posed food safety risks.

This latest announcement came as putting edible oil plant origins on the import restriction list follows an import suspension of edible oil of animal origins from Taiwan in early September. It was reported that the island’s Chang Guann Co had sold tainted lard made from recycled oil to the domestic market, as well as Hong Kong and Macau.

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aintaining the tariff clause adjustment (TCA) discount for the city’s residential users and small companies for this year, sole power supplier Companhia de Electricidade de Macau (CEM) noted on Friday an expected cost on subsidising these users to reach MOP167 million (US$20.9 million) for this year, increasing from the total subsidy of MOP114 million last year. The discount offered to these lowvoltage users – referred to by CEM as ‘Tariff group A’ – has been through the format of subsidizing their power cost. For the fourth quarter of this year, while the adjusted power tariff is MOP0.45 per kWh, group A users need only pay MOP0.37 with the remaining MOP0.08 subsidised by CEM; higher-voltage users will be charged MOP0.45 per kWh for the quarter, the power supplier said.

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Macau

Macau gaming rakes in MOP83.1 billion in Q3 Gross gaming revenues dropped 8.9 percent in the third quarter over that of the previous one, and 18.9 percent over the first quarter Sara Farr

sarafarr@macaubusinessdaily.com

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asinos in Macau are witnessing a continuing decrease in gross gaming revenue growth. And while analysts and gaming operators say there has been a comparatively big slowdown in the VIP segment the latest figures released by the Gaming and Inspection Coordination Bureau (DICJ) show that VIP baccarat alone accounted for 56.2 percent of the overall revenues raked in during the third quarter of the year.

Overall, Macau’s gross gaming revenues from July to the end of September totalled MOP83.1 billion (US$10.4 billion) - down 8.9 percent over the previous quarter, and 18.9 percent decrease over that of the first quarter. Some

14.3pct drop in Q3 betting amount on pari‑mutuels and lotteries

MOP46.8 billion came from VIP baccarat alone. Baccarat in the mass market segment was the second largest source of gaming revenues accounting for MOP27.7 billion of the total.

Lai Fung’s annual turnover, gross profit shrink Lai Fung Holdings Ltd, one of the owners of the ‘V-Zone’ in Hengqin’s ‘Creative and Culture City’, saw its performance turn bad following mainland authorities’ control measures on the economy Kam Leong

kamleong@macaubusinessdaily.com

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he performance of developer Lai Fung Holdings Ltd, the subsidiary of property conglomerate Lai Sun Group, turned south during the recent year ended July 31, with turnover and gross profits posting significant year-onyear drops of 36 percent and 25 percent, respectively. The group said the drops had resulted from control measures implemented by the central government.

With sales of properties shrinking by more than half to some HK$640 million from last year’s HK$1.3 billion, the turnover of the Group reached HK$1.2 billion while gross profit amounted to some HK$ 745 million, according to its filing with the Hong Kong Stock Exchange last Friday.

‘The control measures implemented by the Chinese Government slowed sales across the [economic] sector and affected different participants to different degrees. The Group is affected without exception but to a lesser extent as it is blessed with a quality rental portfolio,’ the Group wrote in its filing.

Rental income survived, however, slightly increasing by 8.4 percent

year-on-year, amounting to HK$566 million compared to the same period in 2013. The Group said it was primarily attributable to rental reversion and change in tenant mix across its rental portfolio.

With turnover and gross profit falling, net profit attributable to owners nevertheless jumped by some 45 percent over last year at more than HK$1 billion.

Under the Lai Sun Group, Lai Fung and eSun Holdings Ltd. are working with the U.S. Company Major League Gamin (MLG) on a video game ‘V-Zone’ project, an e-sports gaming arena, in their parent company’s 18 billion yuan ‘Creative and Culture City’ project on Hengqin.

Lai Fung owns 80 percent of the V-Zone project, while eSun owns the remaining 20 percent.

Lai Sun’s ‘Creative and Culture City’ comprises four phases, of which the 2.8-million sq. ft. first phase is slated for completion by 2017.

The project will generate film and television entertainment, music, new media, creative designs, cultural art workshops, live performances and cultural art product exhibitions and trade fairs.

‘Games of fortune’, as casino gambling is labelled by the Gaming and Inspection Coordination Bureau, were the primary generator of gaming revenues, raking in a total of MOP82.9 billion.

While for the most part, revenues generated by various types of gambling activity have decreased quarter-on-quarter, those by slot machines have increased in the third quarter of the year to MOP3.7 billion from MOP3.6 billion a quarter earlier.

Revenues from ‘live multi game’, which are electronic table games, also increased by 2.8 percent to MOP586 million in the three months ended September from MOP570 million in the second quarter of the year.

Betting amount decrease Sports lotteries, specifically football, came in second with MOP165 million, down 18.7 percent on the second quarter of the year, while horseracing came in third, accounting for MOP56 million patacas of the total gross gaming revenues last quarter.

Greyhound racing has seen a slight increase in revenues in the third quarter, raking in MOP37

million compared to MOP34 million in the second quarter of the year.

In terms of betting amount, sports betting – in particular, football – accounted for 66 percent of the total wagers placed on pari-mutuels and lotteries. In all, the betting amount reached MOP2.4 billion in the third quarter of the year, with MOP1.6 billion placed on football alone.

Overall, the amount of betting on this segment decreased 14.3 percent from MOP2.8 billion recorded in the months between April and the end of June.

Wagers placed on horseracing totalled MOP284 million at the end of the third quarter, down 63 percent from MOP450 million in the second quarter of the year.

So far this year, casino gross gaming revenues totalled MOP275.9 billion at the end of September, up 5.9 percent from MOP260.6 in the same period last year - this despite the growing decline in casino revenues for four consecutive months since June.

Macau’s six gaming concessionaires operated 35 casinos as at the end of September, with a combined total of 12,584 slot machines and 5,697 gaming tables.

Corporate Festival of Gastronomy and Wines of Portugal underway The annual Festival of Gastronomy and Wines of Portugal is underway at the Military Club, a club tradition having first hosted the 10-day festival in 1999.

Throughout these years, the names of Portuguese chefs such as Vitor Sobral, Joaquim Figueiredo, Marco Gomes, Manuel Gonçalves, Fausto Airoldi, Justa Nobre and Henrique Sá Pessoa have led the Portuguese gastronomy festivals of the Military Club, a statement from the organisers reads. This year, however, the event, which runs until October 27, will be spearheaded by Portuguese chef José Júlio Vintém, one of the most famous chefs of the Alentejo Region’s signature gastronomy, and his assistant Francisco Pires. On offer will be a variety of Portuguese wines to accompany an assorted buffet.

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Macau

VIP takes smaller piece of the pie Even though there’s been a slowdown in the growth of gaming revenues, in the long term - and with new properties opening – the industry is banking on business as usual. In an interview by phone with Business Daily, the senior gaming analyst and managing director of Wells Fargo Securities, Cameron McKnight, says he expects Macau to be a US$100 billion market by 2020, with mass leading the way. As for the VIP sector and junkets, he predicts that longer term this sector should be outpaced, lifting a correspondingly smaller piece of the pie Luciana Leitão

leitao.luciana@macaubusiness.com

There’s been a drop in gaming revenues over recent months. Is this something to be concerned about?

We see it as a temporary concern for the next six to 12 months.

To give you some perspective, we were very bullish on Macau in 2013; we remained bullish for most of this year but we did temper our enthusiasm with caution that the VIP market could slow and that China, generally, was slowing. What we’ve seen since then is that the slowdown has become much more severe than we anticipated. That said, none of this changes our long-term bullishness about Macau.

Ultimately, Macau can become a US$100 billion market by 2020, which is roughly equals 1 percent of China and Hong Kong’s GDP, but, like all great growth stories, nothing occurs in a straight line and there are some issues that have to be worked through before growth resumes and that longerterm target is achieved.

Why has this drop happened?

There are a number of reasons behind the slowdown we’ve seen this year but ultimately all of the reasons stem from either Chinese policy in general or Chinese macro-economic trends.

So, specifically on the macro side, we see the deceleration in credit growth and the pullback in credit as a big factor. Similarly, we see the slowdown in house price growth as having a big impact, especially on the highend. Then, on the policy side, the anti-corruption drive is clearly having an impact. Restrictions on the use of transit visas have also more recently started to weigh on numbers.

Junkets have shied away from the territory due to the crackdown on corruption. Is this also one of the reasons for the decline in revenues?

The decline in VIP and the drop in premium mass are the primary contributors to the overall revenue drop in Macau. But our sense is that the trend remains very robust and strong. The question then is when we look at the high-end we see a lot of similarities between the ultimate customers who come through both the VIP channels and the premium mass channels, and a lot of these customers are influenced by the macro-weakness that’s going on. Credit is no longer growing as strongly as it did in the first half of 2013 — credit growth has been decelerating, reflecting overall economic trends within the economy. Similarly, the decline in house price growth — housing has been a great engine of wealth creation within the economy and a very big centre of activity. When we look at over and above all of this you do have the anti-corruption [campaign] which is impacting customers and junkets alike.

What we’ve seen since then is that the slowdown has become much more severe than we had expected

As far as junkets are concerned, we’ve seen this issue before. When there’s been a slowdown on the VIP side, the market has tried to debate whether it’s supply driven (i.e.) junkets tightening credit, or demand driven, customers just not coming as frequently or just don’t want to spend as much as perhaps they used to. Our sense is that the demand side has tended to be the big driver in the slowdown rather than the supply side. But when we do think about the supply side and what’s happening with the junkets, there are two noteworthy trends: post the implementation of the table cap, in 2012, we’ve seen VIP tables and junkets now have to compete with the mass market in terms of their ability to hang on to tables. The gross margins on junket VIP business are well below mass and premium mass business. Junkets need to do a lot more revenue to justify being able to hang on to those tables.

When you couple that with a very high tax rate in Macau our sense is that some junkets, for some of their business, have decided that it’s more profitable to take that business to other jurisdictions, such as some of the casinos in Vietnam, the Philippines and elsewhere in Asia.

Does this mean a change in the current gaming model of Macau that has traditionally relied on junkets?

Longer term, VIP and the junket business will likely remain a part of Macau but their share of the pie is likely to be less than it is today.

Given the crackdown on corruption, is it China’s intention to stop the junket system?

My sense is that China doesn’t want to dramatically alter the status quo but where it feels there might be some excess it wants to perhaps trim around the edges.

Supply driven Will the growth in gaming revenues resume once new hotels start opening up in the territory?

It goes to the heart of the outlook for 2015 and 2016. Essentially, we haven’t had any supply growth in Macau since we had the last phase of Sands Cotai Central coming online on the first quarter of last year. And if you go back through the data mass market revenues are very strongly correlated to available room nights over time.

That correlation is one that has stuck for the past few years very tightly. Since the final phase of Sands Cotai Central opened, there’s been no new supply growth and we’re unlikely to see any more supply growth until Galaxy opens in April or sometime in the second quarter of next year. And then Macau Studio City opens at some point after that. My sense is that the timing of these two openings will be very important indicators as to the pace of the market and the strength of the market, as we swing into next year; but certainly our expectation will be, as we get closer to those openings, that there’s a much greater case to be made about mass market revenues to start growing sequentially again.

By that time, will we have seen a reversal of the trend, with the mass market surpassing VIP? Over time and over the medium term, mass market should

The decline in VIP and the drop in premium mass are the primary contributors to the overall revenue drop in Macau

outpace VIP growth. Given we feel the mass market is vastly underpenetrated relative to VIP; in the case of VIP, the junkets have done a very good job of spreading across the Mainland and expanding their network, whereas with mass customers the penetration rate is much lower.

In terms of the pace of mass market revenues, this year what we’ve basically seen is that mass market revenues have basically been sequentially flat for most of this year, so month on month the dollar amount of mass revenues

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October 17, 2014

Macau has basically flat-lined, whereas in the prior three years mass market revenues were basically going up, in dollar terms, every single month. As these new properties come on - whether in April, May or the second half of next year - our sense is that mass market revenues, in dollar terms, should start growing sequentially again.

The VIP outlook is a little bit harder to judge. Our analysis suggests that credit growth and growth in the money supply is a very strong leading indicator to VIP growth and leads the VIP growth by about six to 12 months.

Credit growth has been in decline for the past year or so, and credit growth hasn’t yet found a bottom so once credit growth bottoms, which can be the result of the Chinese Government starting to enact another stimulus, then there’s a case to be made for VIP growth and recovering from there at some point afterwards.

Even though the decline in gaming revenue is bigger than you were expecting, you still say you’re optimistic. Why? Ultimately, the anti-corruption campaign, certainly in the midterm, will probably intensify before it starts to take off, but once it does start to taper off our sense is that revenues should stabilise before they can return to growth and then in the background of all of this there’s a very strong and meaningful penetration story that will play out in Macau and that’s driven by the fact that when we look at Macau’s revenues as a percentage of China’s GDP its

revenues represent roughly 0.5 percent of Hong Kong and China GDP right now. Ultimately, that penetration rate should expand to 1 percent, which is in line with the penetration rate in Australia, Singapore and Malaysia.

Over time, that penetration rate should increase and that’s going to be the ultimate driver of medium to longer-term revenue in Macau.

It’s basically more customers whose incomes are growing for whom Macau becomes affordable and a real destination. And when we think about the new supply coming online, all of the new properties that are being added,

Some junkets, for some of their business, have decided that it’s more profitable to take that business to other jurisdictions such as some of the casinos in Vietnam, the Philippines and elsewhere in Asia

each of them has a specific niche, a specific feature or set of things that it’s going to add to Macau, well over incrementing gaming tables. That’s going to be the key in the medium term — the new properties are going to give customers more reasons to come to Macau and more reasons to stay longer. In addition, its worth noting that the completion of the Hong Kong-Macau-Zhuhai bridge is a very meaningful project because not only is it going to link Hong Kong, Macau and the China [mainland] but it’s going to connect Macau to what is arguably the most efficient and best airport in the world, Hong Kong International Airport.

Do you see any potential competitor in Asia, to Macau — Japan, for instance?

Not really. In the US, the question was asked all through the 1990s and the 2000s. As gaming expanded across the US, people asked: “Will customers still come to Las Vegas?” Ultimately, they absolutely did.

What the US experience showed us was that customers still want the real deal and within the US Las Vegas is the real deal and within Asia, and especially within Mainland China, Macau is the real deal. And customers still want that experience, still want the history that tied up in both venues, both Macau and Vegas. Certainly, new jurisdictions will be competitive around the VIP market — these new jurisdictions will be very relevant — but the other thing we’ve noted in covering the gaming

My sense is that China doesn’t want to dramatically alter the status quo but where it feels there might be some excess it wants to perhaps trim around the edges

industry for a long time is that new competing jurisdictions always take much longer than expected to ramp up and frequently come online later than expected.

Even though junkets are now taking their customers to other jurisdictions, there’s really nothing to be concerned about?

I don’t think it’s anything to be concerned about — it’s more somewhat of a relief valve.

Excess demand that Macau really can’t serve right now; because it doesn’t have supply at the right price point, for those customers.

I certainly don’t see it as a game changer over the medium to long term.

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October 17, 2014

Macau Water supply safe despite saltwater intrusion The Marine and Water Bureau said last week that it is cooperating with the mainland authorities to ensure that the fresh water supplied to Macau is safe as saltwater intrusion reappeared in the Pearl River Delta region last week. According to the Bureau, the salinity of the river water in Zhuhai, which supplies the SAR, has been unstable since last week. The Zhuhai authorities now draws water from the upper stretches of the river in order to secure quality freshwater for Macau. In addition, the Bureau said it had already met with the related authorities of Guangdong and Zhuhai on the water supply issue last month to prepare for the intrusion that usually appears in winter and springtime.

World tourism leaders gathering in Macau The Global Tourism Economy Forum Macau 2014 is set to convene in The Venetian Macau from 27-29 October 2014

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hemed the ‘Maritime Silk Road – From Macau We Begin’, the third edition of the Global Tourism Economy Forum (GTEF) has garnered active participation from Maritime Silk Road countries and regions in the further exploration of business opportunities through the Forum’s collaborative platform.

The first Joint World Tourism Organization (UNWTO)/ Global Tourism Economy Research Centre (GTERC) Annual Report on Asia Tourism Trends will be presented during the opening ceremony.

Acting Chief of Office of the Secretary for Social Affairs and Culture of the Macau SAR Government, Maria Leong Madalena, and Director of Macau Government Tourist Office (MGTO), Maria Helena de Senna Fernandes, both delivered remarks in the press conference, followed by a presentation by Vice Chairman and Secretary-General of GTEF, Pansy Ho, unveiling the agenda and speaker lineup of the Forum last Friday at Macau Tower.

Maria Leong said that Macau used to be an import port on the Maritime Silk Road and that tourism is an important industry of Macau.

The theme that has been chosen for 2014 has a historical meaning for the SAR. The ‘Face to Face, Ministers and Private Sector CEOs’ session in the third edition of GTEF will invite tourism ministers and corporate leaders to engage in an in-depth dialogue on the current and future development of tourism and related industries under the topic of ‘Tourism – A driving force for Cooperation in the 21st Century Maritime Silk Road’.

Helena de Senna Fernandes said that the first two editions of GTEF have leveraged Macau’s EastWest convergence to function as an effective platform which has not only

fostered collaboration across regions and sectors but facilitated various cooperative agreements. Their achievements have won international recognition.

For instance, Kazakhstan and Cambodia, both observer states in the previous edition, are confirmed to attend the latest edition with a large delegation and have organized relevant promotional activities such as a presentation by Kazakhstan.

For the first time, delegations from Middle Eastern countries and regions including Dubai in the United Arab Emirates, as well as Greece, Sri Lanka and Malaysia will join the forum.

Pansy Ho said that the forum continues to earn wide support from domestic provinces and regions such as Jiangxi Province, Shandong Province, Fujian Province and Guangxi Zhuang Autonomous Region. Jiangxi Province will showcase its mix of tourism scenery images and tourism products, while ‘Fujian Province Dance Drama – Seeking Dreams on the Silk Sea Route’ will be presented by Fujian Province to showcase its intangible cultural assets.

Of an estimated scale similar to the previous two editions, the event is expected to attract close to 1,000 delegates from around the world including four domestic provinces and regions as the Forum’s key

partners, in addition to some 180 local and overseas media representatives.

The Forum will also bring together over 40 ministerial officials, globally renowned corporate leaders, experts and academia to deliver an address.

Transparency of public consultations questioned

L

egislator Si Ka Lon doubted if the current regulatory instruction on the public consultations on public policies is clear and transparent enough, given that many drafted bills, public policies and infrastructure [decisions] had been rejected by residents following the consultation periods. The president of the Assembly responded that it is effective.

In his interpellation filed with the Legislative Assembly in late August, Mr. Si perceived that the effectiveness of the regulatory instruction, which came into force in 2011, was limited.

He suggested that the government invite more professionals to join the consulting sessions to make the consultation for polices more transparent and objective. In addition,

the government should establish a scheme to regulate the conditions the government should apply regarding public opinions gained gleaned from the consultation period.

Assembly president Ho Iat Seng replied saying that the regulatory instruction had been effective that government departments have to follow it, such as offering both consultation text and a consulting session of no less than 30 days.

The president also believed that the summary report of such consultations, which departments have to file within 180 days of the consulting period, would give the public the government’s replies to the core questions of society, as well as its direction in altering bills.

K.L.

9

October 17, 2014

Gaming

Caesars amends debt contract ahead of bankruptcy

C

aesars Entertainment Corp.’s operating unit has amended a debt document so that senior bondholders can get a lien on the casino operator’s cash as it negotiates a restructuring of US$18.3 billion of debt, according to a filing with the

U.S. Securities and Exchange Commission.

The move may raise the odds that the Las Vegas-based company files for bankruptcy as soon as mid-January. A transfer of assets, including a pledge on cash, would have to be made at least 90 days

before a Chapter 11 filing.

“First-lien lenders want to protect themselves in bankruptcy,” Chris Snow, a New York-based analyst at researcher CreditSights Inc., said in a telephone interview.

By doing this, “the company is saying it needs to grant the

liens on this cash in order to move” debt talks “forward,” he said.

Gary Thompson, a spokesman at Caesars, declined to comment.

We ‘do not expect that our cash flow from operations will be sufficient to repay our

indebtedness in the long-term and we will ultimately seek a refinancing, amendment or restructuring of our debt,’ the company said in an August 11 filing.

Caesars’ US$4.5 billion of 10 percent, second-lien notes due December 2018 have US$225 million in interest payments December 15, a cash outlay other creditors don’t want leaving the company. When a company misses an interest payment, it has a 30-day grace period before it’s in default.

The casino operator is in discussions with firstlien bondholders Pacific Investment Management Co., Elliott Management Corp., Beach Point Capital Management LP, BlackRock Inc., Brigade Capital Management LLC, and JP Morgan Asset Management Inc., people with knowledge of the talks said last month.

Bloomberg

HK stocks rebound from 3-month low The Occupy Central movement - plus uncertainty on China and Europe’s economic growth – has helped drag the SAR’s benchmark equity down

H

ong Kong stocks rose, after last week falling to a threemonth low, following a Federal Reserve official speaking in favour of delaying the end of bond buying and U.S. data boosted optimism. Casino shares and city developers advanced.

The Hang Seng Index gained 0.3 percent to 22,970.25 Friday morning in Hong Kong, headed for a 0.5 percent weekly. The measure closed Thursday at its lowest since June. The Hang Seng China Enterprises Index, also known as the H-share gauge, added 0.3 percent to 10,213.39.

Investors are waiting on a possible announcement today of the start date of a stock-trading link between Hong Kong and Shanghai.

Futures on the Standard & Poor’s 500 Index rose 0.7 percent today.

The measure closed little changed Thursday, erasing a decline of as much as 1.5 percent after St. Louis Fed President James Bullard said policymakers should consider postponing the end of the assetpurchase programme. Reports showed production at U.S. factories rebounded, claims for jobless benefits fell to a 14-year low and households held the most optimistic views in two years.

The start date for the Hong Kong and Shanghai cross-border equity trading plan was scheduled to be

announced by the China Securities Regulatory Commission Friday, Hong Kong Economic Times reported. The plan will allow foreign investors unprecedented access to mainland stocks and give Chinese investors access to Hong Kong-listed equities.

Political unrest in Hong Kong and uncertainty about economic growth in China and Europe as well as U.S. interest rate policy helped drag Hong

Kong’s benchmark equity gauge down 9.6 percent from this year’s high up to Thursday. The Hang Seng Index traded at 10.5 times estimated earnings yesterday, compared to 15.5 for Standard & Poor’s 500 Index.

Protests continue Student leaders of Hong Kong’s protests for democracy have agreed

to talks proposed by Chief Executive Leung Chun-ying while vowing to remain on the streets. The protesters, whose numbers have swelled to as many as 200,000 people in the past three weeks, are demanding that China reverse a ruling that candidates for the election of Leung’s successor in 2017 be vetted by a committee. Leung maintains that the decision is non-negotiable.

Bloomberg

10

October 17, 2014

Greater China EU drops anti-subsidy probe During a trade officials’ meeting between the European Union (EU) and China in Brussels on Saturday, both sides reached consensus on EU’s dropping anti-subsidy probe against Chinese wireless communications equipment. Co-chaired by Chinese Minister of Commerce Gao Hucheng and the EU Trade Commissioner Karel De Gucht, the meeting featured multiple-topic discussions on China-EU economic and trade ties and brought about “broad consensus,” according to Chinese officials.

Nissan’s 5 bln yuan plant starts operation The fourth plant of Dongfeng Nissan Passenger Vehicle Company, a joint venture between Japanese automaker Nissan and its Chinese counterpart Dongfeng Motors Corporation, was put into operation on Saturday in the northeastern port city of Dalian. The plant, with an investment of 5 billion yuan (813 million U.S. dollars) and an annual production capacity of 150,000 automobiles, will focus on the production of SUV, according to Ren Yong, deputy general manager of the joint venture. The first product to hit the market will be its X-Trail-branded SUV, he said.

Alibaba partners with Quixey Chinese e-commerce giant Alibaba Group has partnered with U.S.-based search engine Quixey to power app searches for its mobile operating system YunOS, it announced at a developers forum on Saturday. Unlike typical web search engines, Quixey focuses on helping users find the most appropriate mobile apps they need.

It can also locate content and functions stored on mobile apps, such as blogs and social media platforms. Quixey will become the sole provider of app-related searches on YunOS. Roughly one year ago, Alibaba invested US$50 million Quixey.

Panasonic president upbeat on economy Despite signs of softer growth momentum, Kazuhiro Tsuga, president of Panasonic Corporation, has voiced confidence in China’s economy, which he said has great potential. A comparatively lower growth rate is acceptable for the Chinese economy as it is shifting from an investment-driven growth model to a consumption-driven one, Tsuga said in an interview with Xinhua. The confidence is based on China’s adequate employment, stable consumer prices and rising income, which Tsuga said lead to a promising consumer market, adding that the company needs to engage more deeply with Chinese customers.

Dongfeng, Huawei partner for Internet‑enabled cars Telecommunications giant Huawei and Chinese carmaker Dongfeng Motor Corporation have launched a project to develop Internet-enabled cars, beginning with the installation of mobile Internet devices into vehicles. Under an agreement signed between the two companies on Friday, Huawei will develop a product that can provide Internet access for five cell phones in the car. The “Windlink” terminal will also feature a nine-inch screen as well as satellite navigation and voice recognition services. In the future, the two sides will try to make products that can “interlink the car with people, car with car and car with cloud.”

China growth seen at five-year low in Q3 Chinese leaders have indicated that lower growth is the new normal for China, in order to carry out long‑awaited economic reforms Bill Savadove

C

hina’s economic growth in the third quarter fell to its slowest since the depths of the global financial crisis more than five years ago, an AFP survey projects.

The country’s gross domestic product (GDP) is predicted to have risen 7.2 percent year-on-year in the July-September period, an AFP poll of 17 economists showed.

The median forecast for the world’s second-largest economy, a key driver of global growth, would be the worst since the first quarter of 2009, when growth stagnated at 6.6 percent.

The government will release the official GDP figure on Tuesday.

The setback would be likely to prompt more stimulus intervention from Beijing, respondents said, which has set a 7.5 percent target for expansion this year -- the pace of growth in the second quarter.

China’s economy has been pummelled by a deflating property bubble as well as a government crackdown on corruption and weak demand from Europe.

The consensus is that China will miss GDP growth target, though Premier Li Keqiang has allowed himself an escape clause by qualifying the goal as “around” 7.5 percent

Gold output growth enters downward mode Growth in Chinese mine production has been swift in recent years Jan Harvey

G

rowth in gold mine output from number one producer China is set to slow significantly in coming years in the face of declining ore grades and waning profitability, analysts Business Monitor International said on Friday.

Lower mine production will pave the way for rising imports to meet persistent strength in demand from Chinese consumers, BMI analyst Xinying Chia said, while domestic mining companies will also look overseas to boost production.

In an interview with the Reuters Global Gold Forum, Hong Kongbased Chia said Chinese mine output

KEY POINTS Output growth in no.1 producer seen slowing significantly Imports will likely increase to meet demand, analyst says Chinese gold mining cos seen looking overseas for growth

growth was expected to slide to 0.9 percent in 2018, from around 6 percent this year.

“Many domestic miners are grappling with the problems of depleting reserves, falling ore grades and rising cash costs,” Chia said.

“Falling gold prices will compound the impact of these challenges by reducing economic mine reserves and eroding miners’ profit margins,” she said. Gold prices have fallen by more than a quarter since the beginning of 2013.

Growth in Chinese mine production has been swift in recent years, with production volumes more than

doubling in tonnage terms in the decade to 2013, according to data from GFMS analysts at Thomson Reuters.

China took over from South Africa as the world’s biggest producer of the metal in 2007, and last year also became its biggest consumer, ahead of historic number one India.

Foreign expansion is likely to be a growing priority for Chinese mining companies, Chia said. China’s largest listed gold producer Zijin Mining Group has expressed an interest in overseas acquisitions.

State-owned China National Gold Group Corp has also had talks with world number one gold miner Barrick Gold about potential partnerships.

“This is a sign of things to come,” Chia said. “We expect more Chinese miners to team up with western miners going forward in order to reduce funding cost and increase the chances of developing a project successfully.”

She said she expected the hunt for gold mining assets outside China would gather pace in years to come, with Australia, Peru, Canada, Colombia and the United States all attractive destinations for investment.

Reuters

11

October 17, 2014

Greater China cheer, while the weakest inflation in nearly five years showed the economic engine is sputtering.

The government will very likely lower its target to around 7.0 percent.

This is actually a good signal, indicating the government is willing to tolerate a short-term economic slowdown for structural reforms Wendy Chen, economist Nomura

“Given much weaker growth...

Beijing will have to push ahead with more aggressive policies in order to hit the 7.5 percent GDP growth target in 2014,” said a Beijing-based economist for Standard Chartered Bank, Shen Lan. The analysts polled by AFP expect the economy to grow 7.3 percent this year, unchanged from the previous forecast three months ago but slower than actual growth of 7.7 percent in 2013.

Although China’s economy is still growing faster than most other countries, some policy makers believe seven percent annual growth is needed to maintain job creation in the world’s most populous nation.

Economic data for September have been mixed. Better than expected exports and imports brought some

Sacrificing growth for reform China has so far clung to “targeted” measures to spur growth, shunning a repeat of its 4.0 trillion yuan (now US$656 billion) stimulus package of 2008.

The chief economist for China’s central bank, Ma Jun, said earlier this month that the government wanted to avoid “excessive stimulus”.

In what has been called a “ministimulus”, the government has so far used targeted cuts in reserve requirements -- the amount of funds banks must put aside -- as well as a 500 billion yuan fund injection into the country’s five biggest banks for re-lending just last month.

Analysts are divided over whether the People’s Bank of China, the central bank, might resort to an across-theboard reserve requirement cut or even slashing interest rates.

“We may see some more policy easing before the year-end, but I expect that if we do it will be targeted and limited scope,” said China economist for Capital Economics, Julian EvansPritchard.

The government still has weapons in its arsenal, including greater infrastructure spending and tax cuts, while easier mortgage lending polices announced late last month could take the sting out of falling housing prices, analysts said.

But Bank of Communications analyst Tang Jianwei said: “An interest rate cut or reserve ratio cut cannot be ruled out.”

He expects the third quarter to be the trough for this year, with the fourth quarter to show a rebound.

AFP

A US$33 billion injection into banks It came after a 500 billion-yuan injection the People’s Bank of China (PBOC) made into China’s top banks last month via its standard lending facility (SLF)

C

hina’s central bank is set to inject about 200 billion yuan (US$32.66 billion) worth of three-month loans into five or six listed banks to keep liquidity ample and support the slowing Chinese economy, four sources with knowledge of the matter said on Friday.

The injection follows signs that Chinese investors are beginning to bet that the PBOC is going to reduce the official deposit rate, now fixed at 3 percent.

And it came after a 500 billionyuan injection the People’s Bank of China (PBOC) made into China’s top banks last month via its standard lending facility (SLF) in the form of three-month loans.

Analysts also suspect that recent moves to guide traded short-term rates by lowering the guidance rates for repo contracts may be buttressed by cuts in nominal lending rates. The aim would be to encourage stateowned banks to lower the cost of credit for productive investments.

Central bank officials whom Reuters contacted couldn’t

immediately confirm the injection plan.

Regulators were concerned by signs of slowing loan growth this summer, but yuan loans picked up in September, relieving worries that demand was slackening. However, the Friday standard lending facility shows the central bank is still engaged in targeted easing to keep cash in the system.

China has injected a net 44 billion yuan for the year through open market operations, compared with 113 billion yuan in 2013. But it has begun to intensify its use of short-term facilities extended directly to banks in 2014, a method which some analysts criticize as being relatively opaque.

The PBOC has so far held back from a deeper across-the-board easing such as a reduction of bank reserve requirement ratios (RRR) that would result in a big, sustained upward adjustment to the base money supply.

Some economists question how long it can rely on short-term targeted tools to keep credit flowing.

Reuters

Meeting legal reforms for business The business community, in particular Chinese private firms and foreign investors, have long complained about the difficulty of getting a fair hearing in court

C

hina is set to unveil key legal reforms this week that will try to limit the influence local officials have on court cases, a move being closely watched by company executives who hope it will make the legal system more impartial.

The announcement is expected at the end of an October 20-23

Protecting intellectual property and contracts are the preconditions for economic development and growth. For healthy future economic growth, the rule of law will play an even more important role in China’s market economy

meeting of the ruling Communist Party elite, which has made the “rule of law” the theme of the gathering. The meeting, called a plenum, comes at a time when slowing economic growth in the world’s second-largest economy is raising the prospect of more commercial disputes.

The business community, in particular Chinese private firms and foreign investors, have long complained about the difficulty of getting a fair hearing in court because judges usually answer to local governments and party organs, which often have their own interests to protect.

Chinese media has recently carried reports on local companies suing each other when a dispute arises, with the parties lodging separate cases in courts in their

h o m e p r o v i n ces , w h i c h t h e n inevitably find for the home firm.

In April, Knowles Corp, a New York-listed maker of advanced micro-acoustic products, said its lawyers had been blocked by a provincial court from attending a patent infringement case involving Chinese group GoerTek. Ahead of the plenum, a meeting of the roughly 370-member Central Committee that usually takes place annually, state media has noted that the key goals are to temper the influence of local governments in courts and to make judges more professional and not tools of the party.

This would involve “reforming the judicial system to prevent local officials from interfering in court decisions”, a source with knowledge of the plenum agenda told Reuters

on condition of anonymity.

However, while the party may be seeking to limit the influence of officials on courts, there is no suggestion China is about to set up an independent judiciary, and for sensitive cases, such as highlevel corruption or for prominent dissidents, the party will remain firmly in charge.

While the legal reforms are also aimed at quelling some of the roots of China’s growing unrest by giving people a sense of fairness in the justice system, there is a strong economic rationale for the measures.

When drawing up contracts, many foreign companies seek to include clauses to enable arbitration in places such as Hong Kong in the event of a dispute.

Li Shuguang, China University of Political Science and Law

The announcement of new rules is expected at the end of an October 20-23 meeting of the Communist Party elite

Reuters

12

October 17, 2014

Asia Viet official admits false announcement Pham Quy Tieu, Vietnamese deputy minister of transport, sent an apology letter on Saturday to Fukada Hiroshi, the Japanese ambassador to Vietnam for “making mistake” when saying the Japanese side will offer Vietnam US$2 billion loan to build an international airport in southern Vietnam. In the letter, Tieu expressed his gratitude for close support and coordination of Japanese embassy for the Ministry of Transport (MoT) on boosting ties between the two countries, the website of MoT reported on Saturday.

Myanmar’s electricity supplier to go public Myanmar’s Yangon Electricity Supply Board (YESB) said yesterday that it is planning to transform itself into a listed company for more effective operation.

The YESB will retain 51 percent of the share, while the public will be offered 49 percent, officials said, adding that priority will be given to local partners rather than foreign firms. Myanmar is striving to meet an increasing electricity demand in the country and has drafted an energy bill aimed at curbing the extraction and sale of natural gas to be reserved for generating electricity.

Canara Bank to issue shares sale

India ends diesel controls, This is the first cut in gasoil prices across the country in more than Nidhi Verma

I

ndia’s government on Saturday lifted diesel price controls and raised the cost of natural gas, giving market forces greater sway as it seeks to attract energy investment, boost competition and cut subsidy costs.

Th e d eci s i o n s m a r k ed a n acceleration in reform measures

by Prime Minister Narendra Modi, who won a landslide general election victory in May and was buoyed by a

KEY POINTS Diesel prices to fall overnight by nearly 6 pct

strong showing in two state elections this week.

Lower prices of diesel and a smaller-than-expected rise in local gas rates will help Modi fulfil an election pledge to curb inflation and pull India’s economy out of its longest slowdown since the 1980s.

“Henceforth, like petrol, pricing of diesel will be market determined,” Finance Minister Arun Jaitley told a news conference after Modi chaired a cabinet meeting.

A litre of diesel will cost about 5.7 percent, or 3.37 rupees (US$0.05), less for consumers from yesterday, while prices of locally produced gas will go up by a third from next month.

Narendra Modi

Gas to go up by a third on Nov. 1 to US$5.61 per mmBTU Gas prices to be revised twice yearly Modi ups pace of reforms after state election wins

The first cut in gasoil prices across the country in more than five years, triggered by falling global oil prices, will help further ease inflation that is already tracking lower.

Diesel makes up nearly half of India’s fuel demand and its usage is set to rise as Modi wants to boost the employment-generating manufacturing sector to generate growth and jobs.

Painless gain A fall in global oil prices, down more than 20 percent from this year’s June high, means that ending costly diesel subsidies will save the government money without hurting consumers.

India imports more than 70 percent of its oil needs and every US$10 a barrel fall in prices lowers retail inflation by 0.2 of a percentage point and wholesale inflation by half a point, experts estimate.

Diesel deregulation will significantly reduce subsidy pay-outs

by Oil and Natural Gas Corp, GAIL (India) Ltd and Oil India Ltd. These companies sell crude and

GPIF likely to raise Japan stock weighting India’s state-run Canara Bank said on Saturday that it will raise up to 850 million rupees (US$13.85 million) through selling shares to institutional investors or a preferential issue. The bank got approval from the government to raise up to 800 million rupees with an option to raise an additional 50 million rupees. The bank will raise the capital in the current financial year, and will be used to fund its general business needs, Canara Bank said in a statement. This month, the bank said it would raise 15 billion rupees through a tier-I perpetual bond issue.

Japanese aid to alleviate Myanmar poverty A Japanese aid of US$12 million will be used for poverty alleviation in Myanmar’s rural areas, the Department of Rural Development said yesterday. The three-year project aims to enhance rural livelihood and increase rural income in targeted six towns and 96 villages. New income-earning opportunities will be developed in such areas as fish, shrimp and pearl farming, livestock husbandry, and production of cash crops and growth of tourism market.

The project, funded by the Japan Fund for Poverty Reduction, is being undertaken by the Myanmar department and the Asian Development Bank (ADB).

The fund is likely to cut its Japanese government bond weighting to about 40 percent from the current 60 percent Takaya Yamaguchi

J

apan’s US$1.2 trillion public pension fund, the world’s largest, will likely raise its allocation for domestic stocks to about 25 percent, people familiar with the process said on Saturday.

Market participants are keenly awaiting the allocation decision by the Government Pension Investment Fund, which has a war chest bigger than the annual output of Mexico’s economy and is considered a bellwether for other Japanese institutional investors.

Prime Minister Shinzo Abe is pressing GPIF to invest more in risk assets with higher yields and less in domestic bonds that earn razor-thin returns, to meet the growing pension needs of the fast-greying population.

A weighting in the middle of the 20-30 percent range is the main proposal for the coming reallocation and is under final discussion within GPIF, the people told Reuters on condition of anonymity. The shift was

Japanese Prime Minister Shinzo Abe

first reported by the Nikkei newspaper on Saturday.

The fund’s model portfolio weighting for Japanese equities is now 12 percent, with the actual allocation allowed to fluctuation within 6 percentage points higher or lower.

GPIF is likely to cut its Japanese government bond weighting to about 40 percent from the current 60 percent and increase its investments in foreign stocks, the sources said.

It is also considering a 5 percent allocation for alternative investments such as infrastructure and private equity, they said.

The GPIF press office could not immediately be reached for comment.

In August people with knowledge of the allocation review told Reuters the fund planned to boost the weighting of domestic stocks to more than 20 percent.

Reuters

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13

October 17, 2014

Asia India delays decision on iron ore licence

raises gas prices five years

Jatindra Dash

refined products to state refiners at discounted rates to partly compensate them for losses on fuels sales at regulated prices.

The move to market-based pricing will boost the role of private players like Reliance Industries and Essar Oil in India’s retail arena.

Such companies do not receive federal support for selling diesel at discounted rates and currently sell via state refiners despite having their own sales infrastructure.

“It is a good move. This will create competition in the market and will benefit consumers, government ... and help upstream companies invest more funds for exploration,” said L.K. Gupta, managing director of Essar Oil.

Gas prices The government has reworked the gas pricing formula approved by the previous Congress-led government and restricted the rise in local gas prices to US$5.61 per mmBtu from November 1. The prices will be revised after every six months.

The previous government had

suggested for raising domestic gas prices to US$8.4 per mmBtu from the current US$4.20 per mmBtu. “This price will take into consideration the fact that there is sufficient incentive for drilling and investment and also it is not excessively burdensome as far as consumers are concerned,” Jaitley said.

About 80 percent of the additional revenue due to revision in gas prices will go to state run companies ONGC and Oil India.

Reliance and its partners BP and Canada’s Niko Resources will not get the benefits of the price rise for gas produced from its D1 and D3 gas fields in the east coast deep water D6 block, where output has fallen drastically and is way below the promised volumes.

Reliance is currently locked in arbitrations with the government over its D6 block.

Reliance and its partners will deposit the differential between US$5.61 and US$4.20 in a separate fund until the arbitration is resolved, said oil minister Dhramendra Pradhan.

Reuters

I

ndia’s federal government has again delayed a decision on permitting POSCO to mine iron ore, seeking more clarifications from Odisha state where the South Korean company has waited nine years to set up a US$12 billion steel plant.

Former Prime Minister Manmohan Singh said in January POSCO’s request for a mining licence - the final regulatory hurdle for the project which would be the biggest foreign direct investment in India - was at an “advanced stage of processing”.

But nine months on, little progress has been made on the ground. The company has yet to start work on the planned 12-million-tonnes-a-year plant due to stiff opposition to land acquisition and delays in securing permission to mine iron ore, a raw material for steel.

The federal Mines Ministry last week wrote to Odisha seeking clarity on how much of the mining land sought by POSCO was notified as an iron ore bearing area where commercial mining was allowed.

Mining in non-notified areas needs more approvals than in notified areas.

On Saturday, the Mine Ministry’s website showed the status of POSCO’s request to explore iron ore over an area of 6828.54 hectares as “rejected/ returned” as of October 10.

“They have not completely rejected. Our proposal was for both notified and non-notified area together,” Odisha’s Mines Director Deepak Kumar Mohanty told Reuters late on Friday. “So they have again asked if you are willing to separate out because notified area consideration parameters are different.”

POSCO’s India-based spokesman IG Lee could not immediately be reached for comment. POSCO officials have said it was unlikely to build the plant without assured supply of iron ore.

In his push to revive manufacturing in the country, new Prime Minister Narendra Modi has invited domestic and international companies to “Make in India”. But one of his senior colleagues, Tribal Affairs Minister Jual Oram who hails from Odisha, has said he would continue his longstanding opposition to POSCO’s plant.

Reuters

Widodo to name Rini Soemarno state enterprises minister Educated abroad, she won respect in business circles as the head of Astra International, the country’s largest automobile distributor Chris Nusatya and Randy Fabi

I

ndonesian President-elect Joko Widodo is expected to appoint former Astra International chief Rini Soemarno as minister for state-owned enterprises (SOE), two advisers said.

Widodo will be sworn in as Indonesia’s seventh president today and is expected to announce his cabinet on Tuesday.

“Rini Soemarno has a lot of experience in managing the corporations,” Hasto Kristianto, a senior member of the transition team, told Reuters.

“Under her leadership in SOE, the government will have ‘a special force’ to speed up the economic development, such as infrastructure programmes and consolidation of SOEs.” Kristianto later told Reuters Soemarno’s appointment had not been finalised.

A second adviser, who declined to be identified because he is not authorised to speak to the media, also said Soemarno was expected to be named minister of stateowned enterprises.

Soemarno declined to comment.

If appointed as SOE minister, Soemarno would oversee state-owned

Under her leadership in SOE, the government will have ‘a special force’ to speed up the economic development, such as infrastructure programmes and consolidation of SOEs Hasto Kristianto, a senior member of the transition team

companies such as energy giant Pertamina and Garuda airlines.

Soemarno, a close aide of former president Megawati

Supporters hold candles to light a poster of Indonesian President-elect Joko Widodo (L) and Vice President‑elect Jusuf Kalla (R) during mass prayers for their new Indonesian president in Jakarta, Indonesia, 18 October 2014

Sukarnoputri, has kept a low profile since serving as trade and industry minister in Megawati’s administration 10 years ago.

Educated abroad, she won respect in business circles as the head of Astra International, the country’s largest automobile distributor.

Soemarno was also believed to have been in the running for chief economics minister, along with Widodo adviser

Luhut Panjaitan, former finance minister Sri Mulyani Indrawati, central bank governor Agus Martowardojo and former central bank governor, Darmin Nasution.

All eyes are on Widodo’s choices to head the main economic ministries, who will inherit problems in Southeast Asia’s biggest economy ranging from a widening current account deficit and cooling investment to the

slowest growth since 2009.

But the most pressing problem will be cutting big fuel subsidies, a politically sensitive issue that raises the spectre of protests within weeks of the new administration taking office.

Widodo is expected to order the steepest rise in subsidised fuel prices in nine years within two weeks of taking office, an adviser told Reuters on Friday.

Reuters

14

October 17, 2014

International Tunisia to lift retirement age Tunisia will raise the normal retirement age by two years in 2015 to reduce the deficit in its social security funds, as part of economic reforms designed to stabilise state finances, minister for economic affairs Nidhal Ouerfelli said. The North African country is reorganising its economy as it nears the completion of a difficult transition to democracy over three years after the 2011 revolution that ousted autocrat Zine El-Abidine Ben Ali. Parliamentary elections are to be held on October 26 and a presidential ballot in November.

U.S. consumer sentiment higher U.S. consumer sentiment rose in October to the highest in more than seven years, boosted by views on personal finances and the national economy, a survey released on Friday showed. The Thomson Reuters/University of Michigan preliminary October reading on the overall index on consumer sentiment came in at 86.4, the highest since July 2007. The gains were unexpected, as a Reuters survey showed a forecast for a slip to 84.1 from last month’s 84.6 reading. The survey’s gauge of consumer expectations also rose to hit 78.4, the highest since October 2012, from 75.4 and beating a forecast for 74.4.

Moody’s cuts Russia’s rating Moody’s Investors Service cut Russia’s sovereign debt rating to ‘Baa2’ from ‘Baa1’, becoming the second ratings agency to cut the country’s ratings this year, after S&P initiated a downgrade in April. Moody’s said the prolonged crisis in Ukraine was weighing on Russia’s medium-term growth prospects. The agency maintained its negative outlook on Russia. Moody’s cited the on-going erosion of Russia’s foreign exchange buffers due to low oil prices and Russian borrowers’ restricted access to international markets as key drivers for the downgrade.

Argentina launch new bond issue Argentina will launch a new two-year sovereign bond on October 23 for up to US$1 billion, denominated in U.S. dollars and paid in the local peso currency, the Economy Ministry said in a statement on Friday. The new bond will have an annual coupon of 1.75 percent, the statement said, adding that the minimum amount to be launched on Thursday will be US$500 million. The obligations will be paid at the country’s official exchange rate, it said.

Tesco accounting black hole smaller The world’s third largest retailer, Tesco, will state next week that it overestimated earnings by less than the 250 million pounds which it previously announced, Sky news reported on Saturday, citing an unnamed banking source. Sky said on its website that when the firm reports its delayed first-half results next Thursday, the gap would fall “somewhere close to the middle” between 200 million and 250 million pounds (US$322 million and US$402 million). The 95-year-old supermarket chain is suffering its worst ever crisis after issuing three profit warnings in 64 days this year.

Yellen concerned by rise in economic inequality Income disparity between the richest Americans and the rest has risen since the 2007-2009 recession

F

ederal Reserve Chair Janet Yellen said on Friday the growth of economic inequality in the United States “greatly” concerned her, and suggested in a detailed speech on the politically charged issue that Americans should ask whether it was compatible with their values.

With global financial markets rebounding from days of frenzied selling, Yellen did not comment on the volatility or on monetary policy. Instead she focused on the gulf between rich and poor that has only grown wider over the last several decades and, she said, through the U.S. economic recovery.

The data-heavy speech amounted to a broad social critique and treatise that supported government interventions to help boost Americans at the bottom of the economic ladder.

It continued Yellen’s focus as head of the U.S. central bank on the trials of the unemployed and underemployed, a concern that has delayed an interestrate rise in the wake of the recession.

KEY POINTS Fed Chair delivers broad social critique of rich-poor gulf Points to stagnant living standards for the majority Inequality of opportunity a rare topic for Fed speeches

last month suggests wealth and income is concentrated not just within the top 1 percent, as some analyses have suggested, but actually among a slightly broader slice of the ultrarich: the top 3 percent.

From 2010 to 2013, all of the income growth was concentrated among the top earners with the top 3 percent of U.S. families accounting for some 30 percent of all income.

The disparity was even greater by wealth, the study found, with the 3 percent holding 54.4 percent of all net worth in 2013.

Nudging lawmakers

Federal Reserve Chair Janet Yellen

“The extent of and continuing increase in inequality in the United States greatly concern me,” Yellen told a conference on the topic at the Boston branch of the central bank.

“It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority,” she told economists, professors and community workers.

“I think it is appropriate to ask whether this trend is compatible with values rooted in our nation’s history, among them the high value Americans have traditionally placed on equality of opportunity.”

An extensive Fed study published

Yellen, who has given major speeches on inequality for some two decades and on Thursday toured a hard-hit neighbourhood of Boston, acknowledged that a rebound in house prices over the last two years has restored much wealth to those at the bottom.

But she cited several troubling contributors to a lack of equality of opportunity, including the expensive cost of higher education faced by the young. The slowdown in business formation may depress productivity and further threaten economic opportunity, she said.

Heading into unfamiliar territory for a Fed chair, Yellen compared school funding in the United States with that of other countries, including approaches to those in lower-income neighbourhoods. She also analysed the role large inheritances play in “the fairly limited intergenerational mobility.”

Reuters

Morgan Stanley profit jumps Morgan Stanley has been shrinking its presence in the bond market as tougher capital requirements against risky trading take hold

M

organ Stanley reported an 87 percent rise in third-quarter earnings as the Wall Street bank’s trading, investment banking and wealth management businesses benefited from increased client activity and a hot equity market.

The results show that even though Morgan Stanley has been focusing on its wealth management business since the financial crisis, its traditional investment banking operation can still have a big impact on its earnings.

Morgan Stanley, which worked on Alibaba Group’s record US$25 billion initial public offering, topped the list of IPO underwriters globally in the first nine months of 2014, the busiest period for stock offerings since 2007. The bank’s equity underwriting revenue almost doubled to US$464 million.

Overall institutional securities revenue, which encompasses trading and investment banking, jumped 22 percent to US$4.52 billion.

Excluding accounting adjustments, bond trading revenue jumped 19.4

percent to US$997 million. However, that paled against the 53 percent growth achieved by archrival Goldman Sachs Group Inc., excluding accounting adjustments.

Wealth management revenue rose 9 percent to US$3.79 billion, but accounted for 42.5 percent of Morgan Stanley’s total revenue, compared with 50.7 percent for the bank’s trading and investment banking business.

The business achieved a pre-tax profit margin of 22 percent, above Chief Executive James Gorman’s minimum target of 20 percent and the 21 percent reported for the second quarter.

Even with the strong results in the quarter, the bank’s adjusted return-on-equity slipped to 9 percent, below both the 10 percent minimum Gorman wants to achieve and the 10.7 percent return in the second quarter.

Net income attributable to common shareholders rose to $1.65 billion, or 84 cents per share, Morgan Stanley said.

KEY POINTS Adj net income US$0.65/shr vs est. $0.54 Bond trading rev, excluding adjustments, rises 19.4 pct Wealth management revenue rises 9 pct Shares up 2.7 pct On an adjusted basis, the bank earned 65 cents per share, according to Thomson Reuters I/B/E/S. On this basis, analysts had expected earnings of 54 cents per share.

Net revenue, excluding adjustments, rose 7 percent to US$8.69 billion, beating the average estimate of US$8.17 billion.

Reuters

15

October 17, 2014

Opinion Business

The spider of finance

Leading reports from Asia’s best business newspapers

Howard Davies

wires

Professor at Sciences Po in Paris, former Chairman of Britain’s Financial Services Authority, Deputy Governor of the Bank of England, and Director of the London School of Economics

PHILSTAR In its updated Asian Development Outlook 2014 report, the ADB said from its earlier 64 percent growth forecast this year, it was downgraded to 6.2 percent, and further from 6.7 percent in 2015 to 6.4 percent. Consumer spending would remain fuel for growth, sourced from strong remittances from overseas Filipino workers despite a lower rate of increase of 5.3 percent in the second quarter of 2014 as compared to the average six percent in the preceding three quarters, the report said. FDI jumped 77 percent in the first semester of the year to US$3.6 billion.

THE STRAITS TIMES Singapore’s Central Provident Fund (CPF) has been rated the best retirement system in Asia despite slipping slightly in the overall score, an index shows.

It racked up a score of 65.9 out of 100 in the Mercer Melbourne Global Pension Index, down from last year’s 66.5. The score gave it a “B” grade, the same as Finland, Switzerland and Sweden in the index, which examined the retirement systems of 25 countries. Singapore’s rating put it ahead of five other Asian nations ranked - China, India, Indonesia, Japan and South Korea, which was given a “D” grade.

THE NEW ZEALAND HERALD Coastal real estate continues to lag well behind soaring city prices with latest capital value ratings reflecting slow property market trends.

While homeowners in many suburbs face revised capital values of up 50 per cent or higher those living on the city fringes have been delivered more modest increases. And those with homes on outlying islands of the Hauraki Gulf have even been delivered the news they face a drop. Popular seaside holiday spots Leigh and Piha are facing a small three per cent average increase in capital value.

THE KOREA HERALD South Korean currency and stocks have been the worst performers among emerging markets in Asia this month amid concerns of a slow economic recovery and a set of negative external factors, market data showed yesterday. According to the data, the South Korean won tumbled 2.06 percent against the greenback over the past 17 days, the largest drop among the currencies of seven emerging markets in Asia.

Malaysia came next with a 0.4 percent drop in the value of its currency against the dollar, followed by Indonesia with 0.32 percent.

T

he global system of financial regulation is extraordinarily complex.

Partly for that reason, it is little understood. In order to explain it to my students at Sciences Po in Paris, I have devised a kind of wiring diagram that shows the connections among the different bodies responsible for the various components of oversight. It makes a circuit board look straightforward.

Many people show some spark of recognition at the mention of the Basel Committee on Banking Supervision, which sets capital standards for banks. They may also have heard of the Bank for International Settlements, the central banks’ central bank, in which the Basel Committee sits. And the International Organization of Securities Commissions (IOSCO), which sets standards for exchanges and securities regulators, has name recognition in some quarters.

But when you get to the International Association of Insurance Supervisors, brows furrow.

There are many other groupings.

The International Accounting Standards Board does roughly what you might expect, though the Americans, while members, do not in fact use its standards – which are now confusingly called International Financial Reporting Standards. But the IASB has spawned other committees to oversee auditing. There is even – reminiscent of Hermann Hesse’s last novel, The Glass Bead Game – an international body that audits the bodies that audit the auditors.

The Financial Action Task Force sounds dynamic, like a rapid-response team one might send to a troubled country. In fact, it is the part of the OECD that monitors the implementation of anti-money-laundering standards. Why it is part of the OECD when its remit is global is a mystery few can explain.

This elaborate architecture (and

Before 2007, there was little political interest in tougher global standards, and individual countries resisted the idea that an international body might interfere in their sovereign right to oversee an unsound banking system

there is a lot more) was assembled piecemeal in the 1980s and 1990s. Until the Asian financial crisis, it was a web without a spider at its centre.

When Hans Tietmeyer, a former head of the Bundesbank, was asked by G-7 finance ministers to review its effectiveness, he recommended a new spider, known as the Financial Stability Forum (FSF), which would examine the financial system as a whole and try to identify vulnerabilities that might cause future trouble.

I was a member of the FSF for five years. I confess that I am rather afraid of spiders, but even

an arachnophobe like me found little reason to be worried. The FSF was not a scary creature, and the individual regulators, national and international, were largely left to their own devices, with all of the unhappy consequences with which we have become acquainted.

Before 2007, there was little political interest in tougher global standards, and individual countries resisted the idea that an international body might interfere in their sovereign right to oversee an unsound banking system. So when the next crisis hit, the FSF was found wanting, and in 2009 the G-20 governments decided that a tougher model was needed – the Financial Stability Board. The FSB has now been in operation for five years, and is currently working on some new proposals to deal with too-big-to-fail banks, which will be on the menu of the forthcoming G-20 meeting in Brisbane (along with surf and turf, Pavlovas, and other Australian delicacies).

There is not (yet) an international group that audits the FSB’s effectiveness. But if there were, what would it say about the FSB’s performance so far, under the leadership of Mario Draghi and then of Mark Carney, each of whom did the job in his spare time, while running important central banks?

On the asset side of the balance sheet, the auditors would be bound to note that the Board has done much useful work. Its regular reports to the G-20 pull together the diverse strands of regulation in a clear and comprehensible way. There is no better source of information.

They would also record that pressure from the FSB has accelerated the work of sectoral regulators. The second Basel accord took more than a decade to conclude; Basel 3 was drawn up in little more than 24 months (though imple-

mentation is taking quite long).

The performance of the IOSCO and the IAIS has similarly been sharpened by the need to report progress through the FSB. The Board has also issued some valuable warnings in its so-called “vulnerabilities” assessments.

It has pointed to emerging tensions in the system, without falling into the trap of forecasting ten of the next three crises.

And its peer review mechanism is prodding individual countries to strengthen their regulatory institutions.

Nonetheless, a frank assessment would acknowledge that this spider has so far caught few flies. To switch animal metaphors, it is a watchdog without teeth. It can neither instruct the other regulators what to do (or not do) nor force member countries to comply with new regulations.

Indeed, the entire edifice of global financial regulation is built on a “best endeavours” basis.

The FSB’s charter, revised in 2012, says that signatories are subject to no legal obligations whatsoever. Unlike the World Trade Organization, for example, no international treaty underpins the FSB, which means that countries cannot be sanctioned for failing to implement the standards to which they are ostensibly committed.

So a fair verdict would be that the FSB has done no more and no less than what its political masters have been prepared to allow it to do. There is no political will to create a body that could genuinely police international standards and prevent countries from engaging in competitive deregulation – and prevent banks from engaging in regulatory arbitrage. It seems that we must await the next crisis for that resolve to emerge.

In the meantime, the FSB, with all of its weaknesses, is the best we have.

Project Syndicate

16

October 17, 2014

Closing “Happy farmhouses” attract 900 mln tourists

Thai PM to visit Cambodia to boost bilateral relations

An emerging form of agritourism in China called Nongjiale, literally “happy farmhouse,” attracted 900 million tourists in the country in 2013, the latest data from the agricultural ministry showed. The 1.5 million “happy farmhouses,” also known as rural home inns, created a total of 29 million yuan (about US$4.7 million) in revenue for rural people, according to the ministry. The “happy farmhouses,” which provide ruralstyle food and accommodation, have been popular with people living in cities who want to temporarily escape from fast-paced urban life.

Thai Prime Minister General Prayuth Chan-ocha will make an official visit to Cambodia on October 3031 to boost bilateral ties and cooperation, a senior Cambodian official said yesterday. “At the invitation of Cambodian Prime Minister Hun Sen, Prayuth will visit Cambodia at the end of this month,” Kao Kim Hourn, minister attached to Prime Minister Hun Sen (pictured), told reporters while returning from an AsiaEurope Summit in Italy with Hun Sen. He said the two leaders met to discuss ways to heighten bilateral relations and cooperation.

Luxury market slows in Asia Consultants Bain & Company have forecast that the luxury goods market in China will contract for the first time ever this year Audrey Kauffmann

P

rotests in Hong Kong, an economic slowdown and anti-corruption drive in China and a coup in Thailand: Asia is no longer a market of constant growth for luxury goods firms.

LVMH, world numberone in the sector and owner of brands like Louis Vuitton, Givenchy and Dior, saw its sales drop by three percent in Asia, excluding Japan, in the third-quarter of 2014, a far cry from the halcyon days of 2010-2012.

In every other market, LVMH’s sales increased, according to figures published last week. Even activity in sluggish Europe has done better over the past nine months, the group said.

Slowing economic growth in China, along with a clampdown on lavish spending by government officials, is crippling luxury goods firms that are used to viewing the growing pool of wealthy and brand-conscious consumers in the world’s number two economy as a cash cow.

Consultants Bain & Company have forecast that the luxury goods market in

China will contract for the first time ever this year.

This will have a clear impact on companies like Switzerland’s Richemont, Britain’s Burberry and Mulberry and Italy’s Prada, and many luxury brands are reining in their previously rapid expansion.

Bain said the slowdown in China, combined with other factors, would put the brakes on the global luxury-goods sector, which the consultancy now sees growing at two percent in 2014 -- what it called “the new normal”.

Cadart noted that the Chinese market has carried the sector for several years and “couldn’t keep up such a pace in the long-term”.

While rich Chinese clients are still seen as the big spenders, these days the big spending tends to be on holiday rather than at home.

Still, that’s not to say all luxury firms are putting the skids on the breakneck pace of expansion in China.

Hermes cut the ribbon on a glittering new store in Shanghai in September, and the shoe still also fits for Jimmy Choo, whose

Kuwait oil union slams Saudi halt to joint output

A

One of the luxury stores in Macau

initial public offering (IPO) launched in London this week was aimed at raising cash to tap into demand in China and Japan.

Cognac, wine, watches Luxury goods firms have also complained that a drive to stamp out lavish and ostentatious spending has dried up sales of cognac and expensive wines as well as items such as watches, traditionally given as presents.

LVMH said revenues in its wines and spirits division dipped 7 percent in the first

nine months of 2014 from a year earlier.

French spirit-maker Remy Cointreau this week said sales in the first half of the year had slumped 15.5 percent, dragged lower by weaker demand for its flagship Remy Martin cognac in China.

Luxury goods sectors in other countries in the region have also taken a hit from Chinese tourists staying away for a variety of reasons, including a military-backed coup in Thailand in May. Singapore has seen luxury goods clients cut by a fifth, according to Bain.

But the biggest dent in the sector is likely to come from the on-going protests in Hong Kong, a global centre for luxury watches and the high-end goods market in general.

Normally, the industry can count on around 10 to 12 percent of its turnover coming from Hong Kong, and as much as 20 percent for watchmakers such as Richemont and Swatch.

In addition to LVMH’s warning about the effect of the protests on profits, watchmakers are already feeling the pain.

Retail sales have declined by up to half in the past few weeks, as protesters clog up Hong Kong’s streets and clash with police in the biggest democracy rallies since the former British colony was handed back to the Chinese in 1997.

The only bright spot?

Japan, where the market in luxury goods is actually growing, even though Japanese clients have lost some purchasing power due to a weaker yen.

Penalties for officials accepting “cash gifts”

Modi makes big gains in Indian state polls

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P

Kuwaiti oil trade union yesterday deplored the unilateral closure by Saudi Arabia of an offshore oilfield jointly operated by the Arab neighbours, calling on the government to intervene.

Fadghoush al-Ajmi, head of the workers union at Kuwait Gulf Oil Co. (KGOC), urged ministers to take action to ensure that production at the Khafji oilfield resumed.

The head of operations at Khafji, Abdullah Helal, who represents Saudi national oil company Aramco, cited environmental reasons for ordering the halt to the field’s 311,000 barrels per day output, Kuwaiti media reported.

Media cited an internal memo issued by Helal saying that the level of harmful emissions from the operations far exceeded the allowed pollution percentage.

Khafji is part of the neutral zone between Kuwait and Saudi Arabia which is jointly operated by the two nations and pumps around 700,000 bpd. The production is shared equally between them.

hina’s top legislature will consider possible penalties for government officials who use “accepting cash gifts” as an excuse for taking bribes, Beijing newspaper the Mirror reported on Saturday.

The National People’s Congress (NPC) Standing Committee will convene a bimonthly session from October 27 to November 1, and lawmakers will consider a series of draft laws and amendments, including a draft amendment to the criminal law.

According to the report, officials accepting cash gifts are not susceptible to criminal charges under the current law, and many crooked officials have sought to defend themselves from bribe-taking charges by alleging that the bribes they took were only gifts from friends.

The new law, if passed, will deem receiving cash gifts of a considerable amount punishable for all government officials, the report said, citing Chen Xingliang, a law professor at Peking University.

The penalties for “accepting cash gifts,” however, will be lighter compared to those for taking bribes, Chen said.

AFP

Xinhua

AFP

rime Minister Narendra Modi’s Hindu nationalist party made big gains in two Indian state elections, partial results showed yesterday, in an endorsement that will encourage him to step up the pace of economic reforms.

Modi’s Bharatiya Janata Party (BJP) led in 113 of 288 seats in Maharashtra, NDTV news said. That more than doubled its seat count in the western state that is home to Mumbai, the financial capital, but fell short of an outright majority.

The BJP was ahead in 50 of 90 seats in Haryana, which borders the capital, New Delhi, enough to rule alone. The party’s showing was just down from the May general election, when it won India’s first parliamentary majority in 30 years.

The 64-year-old Modi, a gifted stump orator, hit the campaign trail hard and will be able to reap capital from the victories, although the BJP did not achieve its ambition to rule Maharashtra alone.

Reuters